2. The Great or the ‘Sour Grapes’ of Cattle Capitalism

Abstract: When Capitalism is combined with monopolies of various kinds, will always follow. Contrary to the popularly held belief, it is not the reckless lending practices of financial institutions that caused the 2008 . Rather than that, it is the structural flaws in our current capitalist systems that are the primary cause. This paper discusses the root causes of the financial crisis and the ensuing recession and highlights solutions that can help prevent future ones. (Click here to read more)

Fannie Mae, Freddie Mac, A.I.G., Bear Stearns, Lehman Brothers, Merrill Lunch, Carlyle Hedge Funds, Washington Mutual, G.M., Chrysler-the list of mortgage or credit related bankruptcies, government bail- outs, and emergency mergers is growing as we are speaking. The Keating Savings and Loan scandal, Boesky and Milken, Enron, Arthur Anderson, and later Bernard Madoff looked like isolated fraud cases at the time, now evidence is growing that they are the rule rather than the exception of capitalism. If unemployment were counted the way it was during the , the figures would double of what they are now, even the most optimistic and most “window-dressing” forecasters own that they will approach double digits by any method counted.1

If the government does not step in with further drastic measures millions of people will lose their home, and you know there is something radically wrong if the London Economist editorializes-as it does in recent issue-that we need more regulation!

How did we get into this mess all of a sudden is the question that is asked most often these days? Well, even for non-businessmen, non-experts, and non-economists there were writings on the wall that were hard to miss for quite some time. The term “sudden” would have to be defined rather generously in terms of decades or even centuries to make sense here. We are not talking about doomsday prophets, cranks, fanatics, or the lunatic fringe. Serious mainstream economists and social scientists have predicted cycles of shorter or longer range governing national and world economies, and they have been quite accurate in their forecasts based on long and extensive empirical studies.

1 . Binyamin Appelbaum, “A Bernanke Conference, A Fed First”, in New York Times, April 28, p. A 1 f. “The government’s official unemployment rate-the share of the labor force actively seeking jobs-remains at the very high levels, although it fell to 8.8 percent in March from 10.1 percent in late 2009. Moreover, the unemployment rate would be more than twice as high if the government chose to include the large numbers of Americans who had stopped looking for work or accepted part-time jobs. See also: Paul Krugman, “The Intimidated Fed”, in: New York Times, April 29, p. A 27 “Last month more than 14 million Americans were unemployed by the official definition- that is, seeking work but unable to find it. Millions more were stuck in part-time work because they couldn’t find full-time jobs. And we’re not talking about temporary hardship. Long-term unemployment, once rare in this country has become all too normal: more than four million Americans have been out of work for a year or more. Given this dismal picture, you might have expected unemployment and what to do about it, to have been a major focus of Wednesday’s press conference with Ben Bernanke, the chairman of the Federal Reserve. And it should have been. But it wasn’t.” (1939) and Homer Hoyt (1933) are among those adhering to like cycles, the first stipulates cycle of a 50- 60 years range, the latter, more from real estate analysis angle holds to a shorter cycle of 18 years. Many Georgists follow a similar line of scientific research and reasoning. The originator if the modern cycle theory is the Russian , who set them down in his first work The Major Economic Cycles (1925). So successful were his forecasts that Stalin first sent him to the Gulag and later imposed the death sentence upon him. One may say that someone who incurs the ire of tyrant can’t be all wrong. The Australian financial analyst Philip Anderson has used computer models for years based on the Kondratiev Wave to make accurate predictions.2 Mason Gaffney (2009), Fred Harrison (1997), Fred Foldvary (1997), and others have done the same.

What are thus the causes of the we find ourselves on at present?

The political scientist and economic historian Robert Fitch3 recently clarified that the first crisis so termed in the U.S., the economic crisis of the 1870s, was originally labeled “the Great Depression”. When the crisis of the 1930s proved more devastating the earlier and longer one was renamed more soothingly “Great Recession”- just as World War I was originally known as the “Great War”. After World War II, I it had to be renamed accordingly. Henry George holds that as long as structural flaws in the economic system allow monopolization and land and natural resources speculation periodic or cyclical booms and busts become inevitable. The question then only become, how long will these cycles of the economic turndown last?

What exactly happened that lead to the present crisis is so easy to understand and has been predicted accurately for years by so many people that it is surprising with hindsight that not more was done about it. unless, of course, you were a professional mainstream economist getting paid large honorariums to be able to overlook the obvious. One current popular explanation however is dead wrong: that the banks lent money to people who couldn’t pay their loans and mortgages back, because they were too poor, unemployed, or unwilling, the so-called ‘subprime’ debtors as opposed to the prime debtors who are so much better liked by credit institutions. Credit institutions, financial ‘wizards’ and Wall Street traders by and large don’t employ economic theorists with long-term perspectives. They have, however, a few rules of thumb summarizing past experiences to go by. Such as:

• Land value is a function of population density and productivity • Increasing population density plus incremental productivity inevitable leads to increasing land value • In a crisis real estate and tangible assets by and large fares better than mere financial assets • Gold and precious materials trump consumer goods in critical times as they tend to become a quasi-black-market reserve currency

Most financial practitioners, even if they be not classical economists, have a fair understanding of Ricardo’s Law of Rent:

2 We owe elucidations about Kontratiev’s theory to Philip Anderson 3 Robert Fitch elaborated that the point during his presentation Power and Poverty, at the Henry George School, New York, on October 10, 2008 ‘The rent of land is determined by the excess of its produce over that which the same applicant of labor and capital can secure from the least productive land in use’.4

Or put in different terms:

‘Rent arises from the differential of more productive and less productive land.’

A region where say, 100 gadgets can be produced in one hour at a given assembly line will command a higher rent than a region that produces only 10 comparable widgets on the average in the same period. An oil well that pumps 1, 000 barrels in a given period will have land dearer than one that pumps only 100 barrels in the same period. Financial practitioners also have a pretty good notion that the monopolization of any resource or commodity will increase its . No clear notion is there, however, as to the fundamental difference of natural resources as non-man-made and products, that-as long as the resource supply lasts-can be produced indefinitely. With land and resources held out of use by monopolizing agents as we can see it happen to an extreme degree on a worldwide scale, today, unemployment rises drastically as the monopolizing body can dictate slave labor wages, and wages at subsistence level from a global pool of workers, who, nowhere have direct access to land and resources as all is taken today. Thus, even those willing to work are unable to do so for lack of natural opportunity, so lending much too large numbers of people who lack opportunity potentially cannot pay it back at usurious interest that leys even prime debtors rarely get back to paying down on the principle, spells not natural, but certain man-made disaster.

Neoclassical for roughly 130 years inculcated generations of economics majors with the truism that only the subjective micro-economic perspective has validity, macroeconomic theories were only suffered on the side-lines and as long as they did not lead to government policies or challenge the status quo. Market fundamentalists5 held sway for the larger part of the second half of the 20th century. Now, there is nothing wrong with the free market, on the contrary that is one of the certified conditions of the :

“Life, Liberty, and the Pursuit of Happiness”

It would be nice if we had a true free market, indeed, then we could experience more of the above. Cartelization, monopolization, and rank deceit should not be a part of a free-market system at all. For that reason, Theodore Roosevelt, under the influence of Henry George,6 had the anti-trust laws passed at the beginning of the 20th century to avoid the results of abuse that has been haunting us for generations and is threatening to torture us economically for generations to come, if the planet indeed will indulge us that long. Joseph Stiglitz has said it clearly: we are faced in the present economic

4 H. George, Progress and Poverty, op.cit., p.168, George citing McCulloch, here gives Malthus and Ricardo as first having stated the law together with J. Anderson and E. West. 5 We are indebted to Stiglitz for the coining and popularizing of this felicitous term 6 Theodore Roosevelt ran in the New York mayoral campaign against Abraham Hewitt and Henry George and was beaten by both, however, through the debates he learned about Georgist economics, his emphasis of natural resources management and allocation and retained a life-long respect for that ‘nature’ perspective. His nature conservation programs and anti-trust policies during his later presidency attest to both. See Henry George, Jr., The Life of Henry George and C.A. Barker Henry George, op.cit. downturn with the socialization of losses and the privatization of gains obviously to the advantage of a precious few to the detriment of humanity at large. Georgists have been saying this for years and decades. Now it has become both a mainstream scientific and popular wisdom. Newsweek headlined on a recent cover: “We have all become Socialist now!”, in a Sunday Times editorial the end of the financial system as we know it was pronounced. Appreciate the historical irony of the main conservative party of the U.S. who has for decades and centuries run on a radical anti-government stance ‘the government governs best that governs least’ having to come to the rescue and white-knight a financial industry in full distress, Keynes, who was anathemized for nearly two generations suddenly is back en vogue: Deficit spending is the battle cry of the day, and the ‘tea parties’ seems merely quaint in comparison.

On the other hand, will this neo-Keynesian deficit spending or these ‘’bail-outs’ from the top down do the job? Since the Haymarket incident in 1886 and the days when Pinkerton were hired to destroy the U.S. labor movement not much has changed. The bankrupt FIRE sector [Finance, insurance, real estate] is being bailed out with our precious tax dollars, but no conditions are attached to the bailout. If the poor super executives who tunnel-visioned us into this historic crisis chose to sip martinis in the Bahamas, we should let them, no? Their incredible stress levels have to be relieved somehow!

Highly-industrialized countries in the world, notably Canada and Northern Europe have long experience with what is sometimes called not the free-market system, but the social market system. Periodically, governments intervene during economic downturns to help distressed institutions, but obviously the tax dollars come with conditions attached that they be reinvested to create work and secure homes for its millions of citizens. When Joseph Biden greeted representatives of the labor movement in the White House for the first time in eight years he said: ‘Welcome back!’ Given that no economy, as yet, can survive without labor, a sorry state of affairs, indeed!

There is a grave reliability for an entire people to have their main-sustaining class, namely the workers, underrepresented, to have weakened or moribund union system and to have no social democratic tradition at all. These mistakes could then be avoided. We have heard in the past and will hear in the future much about monetary and financial reform. One early measure of wealth was not money but cattle. Hence, we could call our present system the system of ‘Cattle Capitalism’. This term is, however, two-edged. Right now, it is used in the sense that the monopolists, speculators, and money barons can use all of us as ‘human capital’, or quasi-cattle!

The sense in which Henry George suggests the term to be used is rather: We can all be rich.