You could be one among the many econ students I teach, who want to make money without productively working, egged on by personal finance gurus such as Robert Kiyosaki. Such students aspire to be rich and happy as rentiers, as monopolistic owners of assets that generate yield (cash). But they do not yet know they can ruin the society. They will know, if they read, for example, Hudson (2017).
Based on Classical Economics, Hudson attacks fraudulent Post-Classical (Neoclassical) Economics, as follows:
“If you’re looking at how wealth is accumulated, people think of it in the way textbooks describe : as earning income and saving it up to get rich. That’s all most wage earners can do. But that’s not how it happens at the top of the pyramid. Most wealth takes the form of capital gains. They’re inflated on credit, so it’s really asset price inflation that’s financed by debt leverage. Most of the gains end up being paid out as interest, so the bankers – that is, the bank owners and bondholders – end up with most of the rise in wealth.
But to look at academic economics, it’s as if the whole economy is about making things – as if manufacturing hires labour to produce goods and services that everybody gets rich from, by being more productive. Savings are supposed to finance growth, increasing stock prices because profits go up from employing more labour to produce more goods and services.
But that’s not really what happens. Most money is made by financial engineering, not by industrial engineering. It’s made by what the classical economists called unearned income. 80% of bank loans are to the real estate sector. The more loans banks make to the real estate sector, the more their credit bids up real estate prices. People think that real estate goes up because of population growth and people getting richer to afford to pay more. But that’s not really why housing prices are rising. The value of a home or commercial office building is worth whatever a bank is willing to lend against it. As banks loosen their lending standards, they lend more and more. The result is debt pyramiding – and this is true not only for real estate but for the economy as a whole.
Think of the circular flow between producers and consumers. If wage earners have to spend more to obtain housing, or to pay a bank loan or education loans, they have less to spend on buying the goods and services they produce. They’re not paying to the producers of goods and services. They’re paying to the bankers or the real estate sector – the property sector… the FIRE sector, that’s Finance, Insurance and Real Estate…This is not part of the production economy or what people call the “real economy.” But the FIRE sector’s rent and interest are the first things you have to pay out of your paycheck. That’s more real – in the sense of being most pressing – than goods and services. So when a family gets its paycheck, the taxes and the bank debts credit card debt they owe, and either their rent or their mortgage payment, often are automatically taken out of their check or bank account right off the top. Out of what remains, the average American wage earner only has maybe 25 to 30% of their income available to spend on the goods and services they produce.
So there’s a diversion of this income to pay the FIRE sector – a sector that classical economists hoped to minimise. They wanted to get rid of the rentier class. They wanted to nationalise the land or at least tax away its rent. They wanted the government to be the public creditor, or at least for banks to make productive loans, not finance corporate share buybacks, corporate takeovers, or lend just to inflate real estate prices and make home buyers take on higher and higher debt levels to obtain housing.
The economy’s been turned inside out, yet people don’t realise it because the vocabulary they use has been turned into a kind of euphemism… If you look underneath the vocabulary, you realize what’s happening instead of accepting euphemisms like “earnings” instead of unearned rent. You can build up a different, less unrealistic picture of the economy.
Today, families entering the labour force are going to have to spend all their lives working off the debt they need to take on to get an education to get a job, as well as the debt they need to buy a car to drive to the job, and the mortgage debt for the house they need to live in to avoid rents going up and up. They have to spend all their life merely to pay their creditors, not to live better with more goods and services. Unlike serfdom, today’s workers can live wherever they want. But wherever they live, they have to produce value not only for their employers but also for the bankers.
These bankers (and bondholders) are the main exploiters today. So finance capitalism is overwhelming industrial capitalism. Instead of industrial capitalism evolving into socialism as was expected, it is retrogressing back to neo-serfdom and neo-feudalism. This is mainly because of the inability to bring debt within the industrial capitalist system to evolve into a socialist economy. That is what neoliberalism is sponsoring by financialization and privatization: the inability to make debt productive.
The economic textbooks…depict a parallel universe backed by Orwellian euphemistic economics to make people think that somehow they’re going to get rich by borrowing money to buy a home that may rise further in price. The dream is to be a Donald Trump in miniature, to make money on the home as a real estate investment. Make money in the stock market by turning their money over to financial managers like Citibank, Goldman Sachs, or other companies that have paid tens of billions in fines for financial fraud.Â
That’s now called a free market. But it’s not the kind of free market that Adam Smith and the classical “free market” economists had in mind. The rentier sector’s lobbyists have taken over peoples’ minds. It’s the basic intellectual dynamic of parasitism. In nature, parasites don’t simply attach themselves to a host and suck out blood, or take the surplus in an economy. To do that, they have to numb the host. They need an anaesthetic so that the host doesn’t realize it’s being bitten. Then, biological parasites in nature have an enzyme that they use to take over the brain. The brain of the host is tricked into thinking that the parasite is a part of its body, to be protected. That is what the parasitic sector, the FIRE sector, has done in modern economies. It makes Wall Street the planning centre, not the elected government. That’s how the rentiers have taken over the economy.
But of course, the aims of financial planners are not the same as those of government planners. The financial aim is to strip assets, to make money in the short term, not to plan for the long term as governments are supposed to do. Taking long-term survival and sustainability of the economy into consideration is not done anymore. We’ve entered the asset-stripping phase of finance capitalism.”
Your love for unearned income, as Hudson has pointed out above, can “become a funeral pyre”, if I borrow the words from the counterculture-hit-song “Light My Fire” of The Doors led by the late Jim Morrison.
And a poetic expression (by Wael Karameh) about financial crisis as a deathly consequence, as a funeral pyre, of rentier capitalism, follows, thus:
The world is upside down
Fear, anxiety and a lot of tears…
Who made this crash?
Who stole the cash?
Can anybody tell me who is responsible?
All the big guys are hungry
They don’t care if we, poor people, are angry
They eat our bodies, they kill our future…
They want more money, they pollute our nature…
How can we live in the rule of the harsh forest
The Survival is the chance of those people who are the strongest?
Is this the result of the ultimate freedom? Of the open market?
Of the fantastic science and technology?
To end up in a big mess, to enter the era of the world pathology?
Can anybody tell me who will intervene?
Who will save us, who will clarify the scene?
Some are saying a big war will be the new fashion
What a big lie to kill more people to fight recession! ! !
The Earth is our mother
We should not bother…
Everything good is still there…
We should always hope…
And know how to cope…
We should stop from being a slave to the machine
Stop the equation that one drop of blood equals an oil drop
This is a shame for the human kind forever…
History will punish whoever is saying that
Whoever criminal trying to play the role of a clever…
The Earth is our mother
We should not bother…
We must go back to the land
We must work with our hand
Our grand-fathers told us this wisdom since long time
The village is our kingdom, our heaven, our real dignity
We should always believe our ancestors,
Respect the big truth that, we and the soil are simply one entity…
To conclude, Classical Economics pointed out rent as an unjust form of enrichment. It wanted to do away with rentier capitalism, wherein having and owning and thereby controlling access is enormously more profitable than making or serving. But rentier capitalism, dubiously supported by the free market agenda of standard economics, has now become a global nightmare. People at large are locked into and taken for a ride in a world wherein ownership of key types of scarce assets—such as land, intellectual property, natural resources, or digital platforms—is all-important and this world is dominated by a few unfathomably wealthy companies and individuals: rentiers (Christophers, 2020; Palma, 2023).
If you read Zingales (2017), Standing (2019) and Patnaik (2021), you will come to know that the rise of rentiers, plutocrats and their elitist lackeys during the neoliberal times since the 1980s is marked by two related political phenomena.
First, there is endemic rent-seeking, which stems from market concentration, heightened corporate power and regulatory capture. This is the political theory of the firm. Companies use market power to gain political power which in turn allows them to gain more market power, and vice versa. Money is used to gain political power and political power is then used to make more money. Large companies become larger by mergers and acquisitions and they use lobbying or systemic abuse of intellectual property laws and derive income solely from the ownership and control of assets rather than from innovation. As firms become bigger and more profitable, they can hire vast armies of lobbyists and elected representatives, securing generous government subsidies and lax antitrust enforcement, which in turn allows them to become bigger and more profitable. Furthermore, they are also better able to use intellectual property laws in their favour, extending the life of patents to protect their market domination and hiring better lawyers to avoid paying their fair share of taxes.
Second, there is the aggrandizement of unregulated financial capital, which also assists corporate capital in creating institutional structures and policies that not only channel more income to financial, physical and intellectual property owners but also support politicians who will act in their interests. The politicians are typically neo-fascists. They cleverly manage the inequalities and insecurities caused by neoliberalism by manipulating and confusing the public consciousness in favour of global rentier capitalism with nationalism, ultranationalism, racial supremacy, populism, authoritarianism, majoritarianism, xenophobia, and anti-immigrant sentiments. They do demonisation of the “other”, whether Muslims and other minorities in India or racial and sexual minorities in the US and Brazil. They also attack, discipline and punish any their critics. In the process, they see to it that the working classes and indigenous peoples bite the dust, disenfranchised, pauperised and voiceless.
The picture below symbolises the writing above about the unjust pyramid of wealth in this world.
In this global milieu, it is worth reckoning with how the radical Indian economist Prabhat Patnaik spoke with the Bengali newspaper Ganashakti about the present state of India’s neoliberal economy and neo-fascistic politics, on the occasion of the 75th anniversary of India’s independence from British colonial rule. I summarise his talking as follows:
“…the declared aim of the Constitution, from the beginning, was to develop India as a welfare state. Nevertheless, that aim has now been openly abandoned. Otherwise, the “trickle-down theory” would never have been presented, which means that the state will not provide assistance and will instead depend on a “spontaneous” process. This abandonment is part of the vision of neoliberalism. This is reflected in many spheres. For example, the state has withdrawn itself from universal public distribution of food; it is converting education into a consumer commodity which is making it impossible for most people to access it; it is weakening the public healthcare system.Â
The high unemployment rate—the highest after independence—in a country where there is no general system of assistance for the unemployed; the rapid rise of extreme inequality—higher than that of any time during the previous century; the huge decline in the nourishment of the population, which had experienced significant advances after independence from Britain—all of these trends are proof of the general decline during the neoliberal period…
The National Sample Survey 2017–18 showed such a grave situation that the Modi government did not release the report and kept it hidden and even decided to dissolve the NSS, even though it was the renowned statistician PC Mahalanobis who introduced that system. That report was leaked, however, and it revealed that the real purchasing power per capita of rural India decreased by 9% from 2011–12 to 2017–18. This figure is an average, the reduction with regards to the working class must be even worse. The situation has worsened even further after the pandemic and the current worldwide inflation.
The biggest problem of neoliberalism is that its attack on small producers and labour-intensive farming is particularly vicious. Since the neoliberal system is directed by the elite bourgeoisie associated with international finance capital, it withdraws support for labour-intensive farming that depends on the cultivators. In fact, the Modi government was on the verge of eliminating the minimum support price for crops, which is the last mode of support that still remains. It was forced to suspend this in the face of large-scale popular resistance.
As the government goes on reducing support for the agro-economy sector, it stops being profitable. The government is also allowing corporations to invade this sector, incentivizing the process of primordial accumulation of capital. This is the reason behind the ongoing crisis in the agricultural sector. The hundreds of thousands of farmer suicides, unprecedented since independence, is a manifestation of this crisis. Mass migration of farmers from villages to cities in search of employment that does not exist and the consequent growth of excess workers is another manifestation of this crisis. Since the number of stand-by workers is rising, there are more employment-seekers in comparison to the amount of existing jobs. Considering the census of 1991 and 2001, the number of farmers—who are called “cultivators” in the census—decreased by 15 million.
The poverty of farmers even reduces the bargaining power of sectors of organized labour, and this increases the total poverty of the population. This is the central theme and the most significant characteristic of neoliberal capitalism. In a country like India, the key to the overall stability of the economy is the continued survival of cultivator-dependent farming, which is also closely related to the situation of farm labourers. Neoliberalism has put this very survival into question.
 In the 1930s, fascism saved capitalism from crisis, as governments increased spending for the manufacturing of weapons as they geared up for war, and this increased spending was covered by taking loans from financial institutions, that is, through accumulating fiscal deficit. At present, governments will not take loans to raise spending. This is out of the question because a large fiscal deficit is not acceptable to finance capital. Moreover, finance capital is international but the state has remained national. The state has to give concessions so that finance capital does not leave the country en masse. Similarly, under neoliberalism, it is impossible for the state to collect more funds for the treasury by raising taxes on large capitalists who accumulate huge quantities of surplus value. What the state tries to do instead is raise taxes on the working class in order to cover necessary government spending, but that does not really increase the size of the state’s total collection through taxes. This is because the working people are forced to spend all their earnings for the most basic necessities.Â
… today’s fascism will not be a carbon copy of 1930s fascism. However, all the general characteristics of fascism are already in India. For example, oppressive authoritarian rule based on fear; alliance between a fascist party and big business; targeting a minority group and generating hatred against them; persecution of political opposition by state repression as well as using fascist criminals; and above all, widespread violence and repression against intellectuals and social movements that raise their voice against the authoritarian rule—and all of this is being done because the fascist state is afraid of losing political power. Nevertheless, present-day fascism or neofascism is forced to function within a democratic system. Therefore, neofascism is destroying democracy but keeping its façade intact and is always pretending to be democratic. This means that today’s fascism is in disguise. Hence, we cannot say that the corporate–Hindutva alliance can lead India into fascism; this alliance is fascism in disguise. It will depend on the evolving situation whether fascism will get rid of this disguise and operate more openly.
If one of the characteristics of Indian fascism is keeping the democratic façade intact, although this is not unique to Indian fascism, another of its principal characteristics is using religious identity to define “others.” These “others” are religious minorities in India. In other countries, race, nationality, and other similar identities are used for identifying “Others.” In India, religion is being used as the basis of fundamentalism.
Fascism must be defeated…”
This conclusion of Patnaik opens up a complicated inquiry which is not the concern of this writing.
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References
Brett Christophers. 2020. Rentier Capitalism: Who Owns the Economy, and Who Pays for It? Verso.
Guy Standing. 2019. November 14: https://www.opendemocracy.net/en/oureconomy/rentier-capitalism-breeding-neo-fascism-vote-wisely/
https://ideas.repec.org/a/ovi/oviste/vxixy2019i2p247-250.html
https://thenextsystem.org/what-is-junk-economics
https://mronline.org/2022/08/23/indias-prabhat-patnaik-fascism-is-rooted-in-the-crisis-of-neoliberalism-interview/
Jose Gabriel Palma. 2023. Ricard was Surely Right: The Abundance of “Easy” Rents Leads to Greedy and Lazy Elites. Cambridge Working Papers in Economics. Faculty of Economics. University of Cambridge.
Luigi Zingales. 2017. Towards A Political Theory of the Firm. Working Paper 23593. National Bureau of Economic Research, USA. July.
Michael Hudson. 2017. J for Junk Economics: A Guide to Reality in an Age of Deception. Islet.
Prabhat Patnaik. 2021. Why Neoliberalism Needs Neofascism. Boston Review. July 19.Â
By Annavajhula J C Bose, PhD
Department of Economics, SRCC