On the Corner of Serfdom & Wall Street: We’ve Arrived
Or, as he (Hayek) put it later, in even stronger terms: "the history of government management of money has, except for a few happy periods, been one of incessant fraud and deception." The institutional reform which he espoused to tackle this problem was indeed radical. It involved, as we have seen, the denationalisation of money to be achieved by the complete abolition of the government's monopoly over the issue of fiat money leaving the way open for supply of money to be determined by comprehensive private sector competition.
By JM Hamilton (3-21-2020)
Before there was Ronald Reagan, there was Friedrich Hayek. Mr. Hayek, came from the Austrian school of economics, and he was a free market advocate and a libertarian. Hayek was or became, perhaps, the Ayn Rand of his day. His seminal work – The Road to Serfdom - was published in 1944 and the classic helped shape economics into the present day. Perhaps the only other economist as influential & profound as Hayek was Keynes. Hayek – like many of us – was emotionally and intellectually influenced by the events of his times, when he saw the rise of totalitarian regimes around the globe, from Nazi Germany to the Soviet Union.
I bring up Hayek because it seems that the United States, indeed much of the “free world,” has arrived at the very serfdom the famous economist worried about (i.e. indentured servitude and slavery). In The Road to Serfdom, Mr. Hayek felt that socialism, in extremis, was incompatible with both democracy and freedom. And we know that to be true, by way of Nazi Germany & the USSR, but what Hayek couldn’t or didn’t foresee (or simply failed to acknowledge) was that capitalism - in the extreme - is just as incompatible with democracy and freedom.
Some of the things Hayek worried about in his book, were: tyranny comes from a centrally planned economy; tyranny comes from concentrated – economic & political - power placed into the hands of a few; and totalitarian regimes are incompatible with democracy, free expression, and a free press. Hayek, if my read is correct, seemed to think in binary terms, there was either exceptional freedom and capitalism or there was socialism that rode a slippery slope into hell, a centrally planned economy and slavery. Mr. Hayek can be forgiven for his polarized thinking, having survived the twin catastrophes of the twentieth century, two World Wars.
To his credit, Hayek celebrated equality through liberty, and he believed the only way to improve the world was to increase the level of wealth. He also had a strong belief that a functioning capitalist system had to have strong competition. Competition is the checks and balances in the capitalist system, that prevents cartels and monopoly from occurring.
That said, look around us today, and we see in the West – especially, the United States – many of the concerns Hayek worried about have come to life under capitalism’s most reactionary model. The state has married up with cartels and monopolies, placing economic and political power into the hands of an elite few. The Western economy – to a very large degree – is planned, in that chosen and favored industries are authorized to merge into monopoly, often w/out question & even less oversight. Moreover, these same industries receive bailouts and welfare, from a captured government, in times of need--- while profits are privatized. (See Wall Street and the financial services industry in particular, as well as, the fossil fuels industry.) Powerful billionaires have taken over the government, own the political duopoly, and the mainstream news organization… ensuring that the neoliberal & globalist narrative are presumed to be the only answer. Group think w/in the intelligentsia abounds, thanks in large part of billionaire capture & donations to higher education.
In short, the tyranny of communism, Hayek’s fear, has been replaced by the tyranny of markets. That's right, markets and the profit motive -- which are unable to plan beyond the next quarterly statement and are often paralyzed & unresponsive in times of crisis -- dictate our daily lives. Meanwhile, labor has been crushed under the boot heals of the financial elite, leading to catastrophic wage & wealth inequality. The level of wealth produced – in both the real and financial economies – has grown stratospherically (non-productive debt has fueled much of this heist, in yet another transfer of wealth from the government to C-Suites and shareholders), but it has led to less freedom, greater oppression, and oligarchy. Half the US population lives hand to mouth and between 20 to 25% of American children live in poverty.
We’ve arrived at serfdom all right, but by means of a slippery slope from crony capitalism right into hell on this earth, plutocratic rule & tyranny.
The cornerstone of the company store, the sharecropper model, indentured servitude, and serfdom is debt. And debt often leads to slavery, especially when used against the powerless, as our founding fathers were so keenly aware. In the United States, catastrophic national debt has grown from less than ten trillion dollars, as recently 2008 (on the eve of financial crisis) to approximately $23 trillion today (on the eve of a pandemic that is likely to create yet another financial crisis). And the starting point for the latest round of bailouts appears to be two trillion dollars (w/ countless more trillions gifted by the Federal Reserve). This means that if the pandemic goes on, as long as the 1918 Spanish flu, the debt will begin to increase at a considerably more rapid pace. To the present American government’s credit, this time the bailout package will include aid for the working poor and greater social spending.
But it’s very important to take precise note of exactly what catastrophic debt has done, as a prelude to crisis: its turned entire industries into rent seeking utilities; the financial engineering/private equity model is now so prevalent that it won’t be just financial services requiring bailouts but entire swaths of the US economy (see C-Suite executives in the airline industry); the highly unique, and often indebted, for-profit, US healthcare model is, predictably, under tremendous strain and may collapse. That is to say, with the advent of an entirely foreseeable pandemic, the American medical model is about to ration care and deliberate as to who will live and who will die (that’s if there are any doctors left to make these decisions). Professionals plan for the worst and hope for the best; but the for-profit healthcare model appears to insist upon the rosiest of scenarios, sometimes w/ highly deleterious & deadly outcomes.
By way of quick digression, it’s worth noting that the NY Times had an outstanding piece on the trials Italy faces, as the beating heart of the plague w/in Europe. What this same piece did not mention, however, is that a major reason Italy remained open for business for so long, when all forbearance and prudence required closing the country down… Italy is the most heavily indebted country in the EU (aside from Greece). In short, Italian politicians chose the economy and markets over the health of its citizens, mainly because the country is so heavily indebted. The country can ill afford to shut down. And Italy’s healthcare system, in large part due to catastrophic debt, is about to fall.
Debt is a hell of a drug… it makes nation states do things that they wouldn’t normally do. Here again, in the US, the Senate played down the pandemic for weeks, apparently, so that stock trades could be executed before the crash. The executive branch bears responsibility, in this regard, too. The POTUS did himself no favors by linking the success of his administration to a stock market that has taken some serious hits, in viral pandemic's wake. (Maybe, going forward, the president should tie his success to labor's living standards?) And, as mentioned above, the US airline industry is already attempting to stampede congress into a multibillion-dollar bailout, after years of looting cashflow and balance sheets for billions in dividends and stock buybacks.
All this and the full force of the pandemic has yet to be felt, and what Warren Buffett once called, financial weapons of mass destruction – derivatives & swaps, have yet to be triggered (at least to the public's knowledge).
Its time ask ourselves exactly why America is no longer the land of the free, but rather, the land of the disenfranchised and the home of the indentured and enslaved. It’s time to ask ourselves the role the Federal Reserve plays in enabling the debt driven economy, massive equity bubbles, and why their solution to every crisis is to print more and more debt…instead of writing down debt that, clearly, will never be repaid. The writing down of debt, gradually & methodically, preferably coordinated w/ other central banks, would defuse an increasingly probable financial apocalypse on a global scale.
Beyond this, Hayek was right… extreme communism is bad news. And we now know extreme capitalism is also bad news, along w/ catastrophic debt. Somewhere in the middle falls the mixed economy (see the Scandinavian model, by way of example), with countless combinations and variations between capitalism and socialism, that provides the equality, freedom, liberty and social harmony that the majority of rational adults would gladly trade in for the place we are in today.
The world is not binary. Thank the Goddess above for that.
America will survive this crisis. The key question is what kind of world do we want to live in and bequeath future generations? If we don’t learn from past mistakes, and act upon those lessons, then maybe we all deserve to be at the corner of Serfdom and Wall Street.
Copyright JM Hamilton Publishing 2020
Note: There is a great deal of debate as to whether or not the economy of Nazi Germany was in fact socialist. There is little doubt that Hitler made alliance with German industrialists, during his rise to power and while in power. But Nazi Germany had key elements of a command economy – often associated w/ 20th Century Communist regimes – as Hitler realigned & focused the German economy on war time production. There was also little doubt that Hitler fostered and encouraged a cult of personality, again often associated w/ authoritarian and totalitarian regimes in the 20th Century. Finally, Hitler encouraged monopoly and cartel within German industry, what the JMH blog has frequently called, “socialism by private proxy.” Hayek did feel that Nazi Germany was socialist. Germany had extreme nationalism, often associated with authoritarian and fascist regimes.
Nazi Germany socialist or capitalist, totalitarian or authoritarian, you make the call. We can all agree Hitler twisted the darkest aspects of dictatorship, socialism, and capitalism to its very worst end. Hitler was evil incarnate.
