Capitalism is a plural noun

Michael Lind has an excellent piece in Salon which explains an important distinction. Americans are taught to think in terms of capitalism vs. socialism, but this dichotomy is simplistic. Just as there are good and bad forms of cholesterol, so too we must recognize the varying flavors of capitalism.

As Mike Konczal and many others have argued, profits should be distinguished from rents. “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.

Rents come in as many kinds as there are rentier interests. Land or apartment or rental-house rents flow to landlords. Royalty payments for energy or mineral extraction flow to landowners. Interest payments on loans flow to bankers and other lenders. Royalty payments on patents and copyrights flow to inventors. Professions and guilds and unions can also extract rents from the rest of society, by creating artificial labor cartels to raise wages or professional fees. Tolls are rents paid to the owners of necessary transportation and communications infrastructure. Last but not least, taxes are rents paid to territorial governments for essential public services, including military and police protection.

In previous posts, I've used different terminology: Instead of profits versus rents, I've talked about industrial capitalism versus finance capitalism. The industrial capitalist makes things; the finance capitalist plays games with money. The industrial capitalist has to keep improving his product; the finance capitalist makes funny-money when house prices reach unsustainable levels and when those prices crash. The industrial capitalist has to go into the office every day to run the factory; the finance capitalist, once he has reached a certain level, may relax on the beach while his loot makes more loot.

This rent/profit distinction was recognized long ago, although an army of propagandists continually try to convince us that the two types of capitalist are really one and the same. Our beloved Kat Huff reminds us of one observer who, a century ago, understood that "capitalism" should be considered a plural noun. Say what you will about this fella -- I don't count myself as one of his fans -- but he did a pretty good job of predicting the punch that walloped us in 2008, and from which we have yet to recover:

I am consistently reminded in many of these conversations of Lenin who wrote a lot about banking. He said that the downfall of capitalism would come from the power of banks and their eventual destruction of the actual productive parts of the economy. I realize when I quote Lenin that I run a very high risk of being called all kinds of things by Republicans looking to demean academics. However, I read his 1916 Treatise Imperialism: The Highest Stage of Capitalism in a comparative economics class in my senior year at the University of Nebraska. Let me tell you that the business school at the University of Nebraska in Lincoln does not harbor any communists to my knowledge and probably is not all that populated with Democrats, either. However, this is an important book to read to understand why the two Roosevelts were able to stop communism from taking root here. A lot of it had to do with the control and regulation of monopolies and huge banks that stalled a lot of what Lenin foresaw. I’ve pointed to this several times over the time I’ve been blogging, but it always bears repeating. Lenin had a point and does now since so much of these kinds of regulations have been removed over the last 30 years.

Lenin provides a careful,5-point definition of imperialism:

“(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; (2) the merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital”, of a financial oligarchy; (3) the export of capital as distinguished from the export of commodities acquires exceptional importance; (4) the formation of international monopolist capitalist associations which share the world among themselves, and (5) the territorial division of the whole world among the biggest capitalist powers is completed. Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capital is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed.”

Now, I’m not pushing Lenin’s view of what will happen once capitalism collapses, I’m only saying that he makes some really good points about how banks can play a huge role in bringing down market economies. I also think that Lenin never imagined a world in which nationalism may play a lesser role given the international flavor of bank havens today. Both Roosevelts did their share of trustbusting and bank regulation to make me believe that they saw a lot of the same problems with the JPM of their times that we’ve got with the JPM of our our time. Unfortunately, there is a dearth of Roosevelts these days.

Lenin was clearly wrong when he said that finance capital and industrial capital would merge. If that were so, then why does American finance capital seem so vibrant while American industrial capital seems so cadaverous? To my eyes, the two capitalisms have more of a vampire/donor relationship. One is red in tooth and claw, while the other is pale, wheezy, and half in love with easeful death. To keep the donor alive, regulators must not hesitate to apply garlic and the stake.

Not only do libertarians fail to distinguish between "Goldman Drac" and his victim, the apostles of Hayek and Friedman also acknoweldge no space between FDR and Stalin. In this view, any attempt to regulate finance capitalism is indistinguishable from Bolshevism. In the early part of this century, I was pretty shocked to see so many conservatives speak as if there had been no appreciable difference between communist East Germany and slightly-socialist West Germany. I can recall a time when that difference was considered so important as to justify nuclear war. 

The libertarians who speak in this fashion have blinded themselves to the most important economic lesson of the previous century: Just as our roads would become useless if all traffic laws vanished, so too finance capitalism will murder industrial capitalism -- and ultimately murder itself -- if it has neither law nor leash. Franklin Roosevelt, for all of his faults, was the man who stopped our economic system from committing suicide.

In his day, as in ours, the enemy of capitalism was not the Marxist but the banker. In a previous post, I quoted a brief, accurate view of FDR's approach, as presented in a recent book called The Untold History of the United States. FDR was a regulator, not a radical; he was certainly less extreme than was much of the citizenry. This quotation deserves repeating:

Magazines began calling bankers “banksters.” The Nation observed, “If you steal $25, you’re a thief. If you steal $250,000, you’re an embezzler. If you steal $2,500,000, you’re a financier.”... In this climate, Roosevelt had pretty much a free hand to do what he wanted. Brain Truster Raymond Moley noted, “If ever there was a moment when things hung in the balance, it was on March 5, 1933—when unorthodoxy would have drained the last remaining strength of this capitalist system.” Senator Bronson Cutting concluded that Roosevelt could have nationalized the banks “without a word of protest.” Rexford Guy Tugwell, director of the Agricultural Adjustment Administration, and other advisors urged Roosevelt to do just that.

A run on a bank, February 1933. Between 1930 and 1932, one-fifth of U.S. banks failed. By the time Roosevelt was inaugurated, banking had been halted completely or sharply limited everywhere.

But Roosevelt chose a much more conservative course of action. He declared a four-day national bank holiday, conferred with the nation’s top bankers on his first full day in office, called a special session of Congress to pass emergency legislation, and calmed citizens’ fears with the first of his famous fireside chats. Congress passed and Roosevelt signed the Emergency Banking Act, written largely by the bankers themselves. The banking system had been restored without radical change. Congressman William Lemke remarked, “The President drove the money-changers out of the Capitol on March 4th—and they were all back on the 9th.”... Roosevelt’s solution to the banking crisis would serve as a template for how he would handle most issues. His instincts were fundamentally conservative. He would save capitalism from the capitalists. As Secretary of Labor Frances Perkins, the first female cabinet officer in the nation’s history, explained, Roosevelt “took the status quo in our economic system as much for granted as his family . . . he was content with it.”... But the means he would use to save capitalism would be bold, visionary, and humane. They would transform American life for decades. Perhaps longer.

Though clearly not a radical, Roosevelt laid out an ambitious recovery program during his first hundred days in office.

Our current problems may be simply stated:

1. Where can we find another Roosevelt who will remind us of the difference between rent-seeking and profit-seeking? We've let the rent-seekers control our national debate for decades -- and as a result, we are now a country that doesn't make much of anything. Our healthiest industry is the financial "industry," which is a casino built atop a high hill of hallucination.

2. Is FDR's "cautious/bold/cautious/bold" approach even possible these days? Or has Obama's relative failure injured the very idea of moderation? Personally, I think about social and economic systems the way I think about clothing: Better to mend than to buy new. Most Americans, deep down, seem to share that attitude.

For now.