Socialism, Land and Banking

Socialism, Land and Banking by Michael Hudson – UNZ Review

Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized.

Instead of Germany and other advanced industrial nations leading the way as expected, Russia’s October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument againstMarxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or “labour” since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism.

Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.

Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges.

Socialism flowered in the 19th century as a program to reform capitalism by raising labor’s status and living standards, with a widening range of public services and subsidies to make economies more efficient. Reformers hoped to promote this evolution by extending voting rights to the working population at large.

Ricardo’s discussion of land rent led early industrial capitalists to oppose Europe’s hereditary landlord class. But despite democratic political reform, the world has un-taxed land rent and is still grappling with the problem of how to keep housing affordable instead of siphoning off rent to a landlord class – more recently transmuted into mortgage interest paid to banks by owners who pledge the rental value for loans. Most bank lending today is for real estate mortgages. The effect is to bid up land prices toward the point where the entire rental value is paid as interest. This threatens to be a problem for socialist China as well as for capitalist economies.

Landlords, banks and the cost of living

The classical economists sought to make their nations more competitive by keeping down the price of labor so as to undersell competitors. The main cost of living was food; today it is housing. Housing and food prices are determined not by the material costs of production, but by land rent – the rising market price for land.

In the era of the French Physiocrats, Adam Smith, David Ricardo and John Stuart Mill, this land rent accrued to Europe’s hereditary landlord class. Today, the land’s rent is paid mainly to bankers – because families need credit to buy a home. Or, if they rent, their landlords use the property rent to pay interest to the banks.

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For decades I have spent a couple of hours every morning carefully reading The New York Times, The Wall Street Journal, and several other major newspapers. But although such a detailed study of the American mainstream media is a necessary condition for remaining informed about our world, it is not sufficient. With the rise of the Internet and the alternative media, every thinking individual has increasingly recognized that there exist enormous lacunae in what our media tells us and disturbing patterns in what is regularly ignored or concealed. In April 2013 I published “Our American Pravda,” a major article highlighting some of the most disturbing omissions of our national media in issues of the greatest national importance. The considerable attention it attracted from The Atlantic, Forbes, and a New York Times economics columnist demonstrated that the mainstream journalists themselves were often all too aware of these problems, but perhaps found them too difficult to address within the confining structure of large media organizations. This reinforced my belief in the reality of the serious condition I had diagnosed.