Michael Hudson Explains the Rise of the Rentier Class

Here's the best explanation of the background to the late uproar that I've seen anywhere: Michael Hudson on rentiers.  I hesitate to call it "Marxist" (which it isn't, really) or "leftist" or "radical,"--which would drive away too many readers.    And indeed its tone is perhaps best described as a kind of modernized and sophisticated midwestern populism (it is an accident that Hudson and his ilk work out of Kansas City).     Anyway, here (again) is the link and here is the teaser:

Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.

Why hasn’t this occurred in recent years? In light of the enormous productivity gains since the end of World War II – and especially since 1980 – why isn’t everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?

Under Stalinism the surplus went to the state, which used it to increase tangible capital investment – in factories, power production, transportation and other basic industry and infrastructure. But where is it going under today’s finance capitalism? Much of it has gone into industry, construction and infrastructure, as it would in any kind of political economy. And much also is consumed in military overhead, in luxury production for the wealthy, and invested abroad. But most of the gains have gone to the financial sector – higher loans for real estate, and purchases of stocks and bonds.

Is he onto something?  You bet.  But I suspect the best way to mount a challenge to Hudson would begin with the melancholy diktats of market globalism: the cruel truth that world wide, there simply are more bodies chasing gainful employment than there are jobs to satisfy them.  Or under another name, the global capital glut: the truth that we've simply got way more money chasing deals than deals chasing money.

How does this connect with Hudson?  To answer that question, you have to understand the prelapsarian Golden Age back before, as the song says "the banks have all the money."   I speak from a confused sort of experience here: I lived through the 40s-50s-60s.  In many ways, I hated them: I thought they were stuffy, boring, parochial, and don't even talk to me about Red-baiting paranoia.  But they were a kind of Golden Age: they were the last time a guy as, ahem, unskilled as Homer Simpson could support a wife and three kids with the earnings from a job that required him to nap and scarf donuts (I haven't any doubt that for the producers of The Simpsons, the anachronism is conscious and part of the joke).


It was, correspondingly, the age when we lived behind what Warren Buffet would call a moat with alligators.  We'd won the great war, at no more than modest cost to ourselves (You doubt me on cost?  Ask the Russians).  Every other industrial economy was a basket case.  If we did feel any threat, we could protect ourselves behind trade barriers.  The result was that we could build a self-serving behemoth. And more important, that guys like Charlie Wilson really could split the pot with guys like Walter Reuther, reposing in the comfortable assurance that there was more than enough to go around.  As Charlie did not quite say: ironically, what was good for General Motors really was, in a narrow and restrictive sense, good for the country.


You are ahead of me here: you are saying--yes, but the discomfort of adjusting to a world of global competition did not necessitate a massive transfer of wealth to the rentiers.  Now, that is an interesting proposition.  Did it not? I want to say you are right but I would love to know more about just how (and who).   You may be tempted to say "more socialism," but I can promise you that if you put it in the abstract, my eyes will glaze over.  Indeed I suspect that one reason--maybe the main reason--why the fat cats have been able to make off with so much of the swag is the profound and near-universal distrust of anything that smacks of a communitarian solution.  We like private discretion and private initiative.  The problem seems to be that somewhere along the line, we've lost the distinction between capitalism and finance.  Fair enough; but Hudson hasn't forgotten.  To find out just how unlocked the barn door was--now that the horse has been stolen--his piece would be a fine place to begin.

The Long Tradition of Public Achievement and Private Greed

I've been fussing all week about the rapacity of the Renaissance Popes who seemed to regard the assumption of the tiara as a license to line the pockets of their nearest and dearest.  On reflection, I can see that this was short-sighted of me.  Through history I suppose it has been the posture of every successful contender for political leadership to trun his public triumph into private gain.

And certainly in Rome.  Long before their were Popes--before there were Emperors--there were those who achieved the privilege of governing--rather "looting" a province in a manner that became the stuff of legend.  The practice was so endemic that it was the very absence of private greed that became the topic of note. Here's Plutarch, remarking on Caesar's Brutus:

[6] μέλλων δὲ διαβαίνειν εἰς Λιβύην Καῖσαρ ἐπὶ Κάτωνα καὶ ΣκηπίωναΒρούτῳ τὴν ἐντὸς Ἄλπεων Γαλατίαν ἐπέτρεψεν εὐτυχίᾳ τινὶ τῆςἐπαρχίας: τὰς γὰρ ἄλλας ὕβρει καὶ πλεονεξίᾳ τῶν πεπιστευμένων ὥσπεραἰχμαλώτους διαφορούντων, ἐκείνοις καὶ τῶν πρόσθεν ἀτυχημάτωνπαῦλα καὶ παραμυθία Βροῦτος ἦν. [7] καὶ τὴν χάριν εἰς Καίσαρα πάντωνἀνῆπτεν, ὡς αὐτῷ μετὰ τὴν ἐπάνοδον περιϊόντι τὴν Ἰταλίαν ἥδιστονθέαμα τὰς ὑπὸ Βρούτῳ πόλεις γενέσθαι, καὶ Βροῦτον αὐτόν, αὔξοντα τὴνἐκείνου τιμὴν καὶ συνόντα κεχαρισμένως.

[6] When Caesar was about to cross over into Africa against Cato and Scipio, he put Brutus in charge of Cisalpine Gaul, to the great good-fortune of the province; for while the other provinces, owing to the insolence and rapacity of their governors, were plundered as though they had been conquered in war, to the people of his province Brutus meant relief and consolation even for their former misfortunes. [7] And he attached the gratitude of all to Caesar, so that, after Caesar's return, and as he traversed Italy, he found the cities under Brutus a most pleasing sight, as well as Brutus himself, who enhanced his honour and was a delightful companion. 

Bernadotte Perrin ed. 1918, Loeb Classical Library reprinted at Perseus here and here. 

Italy and its Public

Idling around Rome one day last week, we found ourselves at the (overblown) public piazza in front of the (oveblown) presidential palace, the Quirinale.  I never cease to admire the sheer artless fraudulence of Italy's public face--that giant birthday cake outside the Forum, all those piazzi named after Cavour (who?) all those streets named after XX Settembre (what?).  There are are even streets named after Quattro Novembre, which I learned lately is supposed to commemorate an Italian military victory, and cool it with the giggling.

I have to concede, though--the view from the Quirinale piazza is one of the best in all of Rome and--wait a minute, folks, what have we here?  Why, it's an Italian military band.  At least I think it is a military band, though how, exactly, you would distinguish them from your neighborhood junior high school outfit is more than I can fathom, overtopped and perhaps overawed as they are by the sheer majesty of their surroundings.  I tried to snap a picture but I was disabled by a fit of paralytic hilarity, not lessened when I remembered one of my mother's favorite stories.  It's about the guy giving testimony for the Salvation Army where he talks about how he used to smoke and drink and hang around with loose women and "Now all I do is....

...stand and beat this God Damn Drum!

For more on the Italian government beating the God damn drum, go here.  For an unfairly comical shot of an Italian military  band, go here.

Rentiers Again: Venice, and Ourselves

Meditating further on the phenomenon of persistent wealth, I just thought of another great example: Venice.  Seems to me that most of what we remember about Venice--the parties, the gaudy display--comes from the 16-17C.  Yet Venice's role as an economic powerhouse pretty much ended in 1497 when Vasco da Gama doubled the Cape and opened an Ottoman-free sea route to the Indies (I remember reading once that the Venetian bourse collapsed on the news, but I can't put my finger on a reference).  

Meanwhile, I read in Ezra Klein (Inc.) that among our own non-99 percent, inheritance counts for only 14.7 percent of wealth.  Ironically, this means that inheritance is more important to the middle and lower classes.  Maybe the real question is not how much of today's wealth is inherited, but how much of tomorrow's.

Barberini Taxes

Followup on the Barberini and the rentier class.   As with several other of the great Palazzi, the Barberini has reinvented itself as a kind of art gallery, heavy on 16th-17th Century.  Not very good stuff for the most part, although they do have a wonderful Caravaggio.  But set that aside.  My present point is that a lot of these 16th-17th Century paintings are, as far as the gallery goes, fairly recent donations--some, I believe, as late as the 1980s.  

Bully for all these donors, but could we be seeing here the working of modern inheritance tax law?  Consider: your family has been rich since you can't remember when or why but the great house is getting a little drafty and nobody around here has held down a fulltime job since the Battle of Sedan.  When grandpa kicks off, you'll face some awful death duties, but wait: the walls are covered with boring old paintings that nobody remembers and nobody wants.  What if we give them to the state (at a suitably puffed-up valuation, heh heh) and let the charitable deduction offset the tax bill?    Thereby we wiggle out of our obligations while basking in the warm glow of public gratitude.  Win-win, I'd say.  Well, except for the roughnecks down at the revenue office.

What Life is Like in a Rentier Society:The Example of Amsterdam

Following up on the rentier class (cf. link), Geert Mak in his history of Amsterdam offers some fascinating insight into the long trajectory of the Dutch miracle.  We all know how the Dutch were the first great trading nation with one of the first great colonial empires.  But that ended long ago.  What happened after?  After all, the money didn't just go away.  The merchant princes still had it. And once you have a lot of money, you become a bank.  Mak elaborates:

During the economic boom of the seventeenth century the capital sums amassed in the city were such that it became much more lucrative for merchants to lend money than to bear trading risks themselves. Princes and governments, the Emperor of Austria and even the Bank of England borrowed from Amsterdam on a grand scale. By the end of the eighteenth century about 500 million guilders had been invested abroad. When the economy of the country went into recession many of Amsterdam’s leading regents continued to invest abroad, nor was any authority in a position to stop them doing so. The Amsterdam merchant had metamorphosed from an active trader into a passive broker; in short, he became a banker. The nature of trade had shifted, veering towards a culture of living off interest, so that the middle classes began to regard consumption, rather than production, as central to their lives.

--Mak, Geert (2010-09-30). Amsterdam (p. 152). 

Vintage Digital. Kindle Edition. 

But the rich didn't actually do anything with their money, except to try to invent new patterns of quiet enjoyment:

 Those who paid most tax, the wealthiest group of citizens, consisted of 23 shareholders (rentiers), 30 merchants, 30 city administrators, and only three brewers and one manufacturer.20 For all its wealth, however, the shareholding Amsterdam sought a quiet existence. The rich kept themselves occupied with politics, literature, painting, science and music, founded clubs and societies, and spent a great deal of time complying with a complicated set of social obligations: visits, meals, parties, the theatre, walks, journeys. As in every moneyed culture, its members found themselves more or less obliged to do nothing; after all, one had to be able to demonstrate that one could live off one’s interest and yet still be both able and willing to spend a lot. Language, manner, and dress were used in such a way as to differentiate oneself from those who were unlucky enough to have to work for a living. It is therefore not surprising that the literature of the century that followed the advent of this culture is obsessed with acquiring

--Mak, Geert (2010-09-30). Amsterdam (p. 153). 

Vintage Digital. Kindle Edition. 

Mak also shows the other side of the coin: growing misery and desperation among the poor.  For a large swath of Dutch society, Mak argues, the economy offered two choices: prostitution for women, or  if you were a man, go to sea.  Either choice was really a lottery on the death penalty, with predictable results.  Mak offers a telling anecdote about one "survivor" of the life at sea:

 In 1980, the skeleton of a Dutch whaler, probably a harpooner, was found on the island. He had died aged 68, and his body displayed astonishing injuries, including fractures, with which he had survived for many years.  Both his legs had been damaged, the right being stiff, most likely due to a fall from a mast, he had broken ribs on both sides, broken (and more or less mended) shinbones, a wrist which had been fractured and had healed at a strange angle, and several broken bones in his hand. Accident after accident, danger after danger had been survived by this man who had been as tough as a wild animal.

--Mak, Geert (2010-09-30). Amsterdam (pp. 161-162). 

Vintage Digital. Kindle Edition.

Readers are urged not to make too much out of comparisons with the present uproar. 

Meta Note:  The citation form above is what I get when I cut-and-paste from the Kindle app  on my desktop/laptop.  Will it become a new standard?

Papal Potentates, with a Note on the Rentier Class

In Rome last week, we made a project out of exploring the palaces of the great papal families, guided in large part by Anthony Majanlahti's instructive and entertaining The Families Who Made Rome (2006). We visited Palazzi of the Colonna, the Barberini and the Doria-Pamphilj clan (in a previous trip, we'd done the Villa Borghese and the Villa Farnese).

It was good fun and may even have offered a bit of insight into how the world works.  The Colonna, for example: "their" Pope, Martin V, born Odo Colonna, is the earliest of the lot; his incumbency extended from 1417 to 1431, effectively ending the great schism.  But as a monument, the Palazzo is the latest of the lot, completed only about 1703, i.e., after 170 years of consolidating wealth and power.  Its showcase is a grand ballroom designed by Bernini on the inspiration of the Versailles Hall of Mirrors, though for my money it works better than the Hall of Mirrors--better scaled, more adventurous and playful.  Still the showcase of the piece are two different renderings of an "apotheosis"--Colonna grandees being welcomed into heaven, with an ease and assurance that makes you think of nothing so much as Mel Brooks saying "it's good to be the king."  And it gets better: there is also a smaller painting, on the wall, of the Resurrection with assorted Colonnae arising from their graves, presumably so that God can sit at their right hand (the men are naked, the women fully clothed--a burial custom?).

But the really interesting stuff for me was what you might call the 17th-Century series: Borghese, Barberini and Pamphilj who do so much to consolidate wealth and power in the 17th Centuries.  Apparently all three of the relevant Popes saw themselves as sincere Christians, and not one saw the slightest inconsistency between professed piety and the campaigns of loot and pillage they deployed to line the pockets of their nearest and dearest.

The more interesting question that emerged for me as the week went on, however, was: just exactly where the hell did they find all these riches?  Rome was, after all, at this point a relatively second-rate power, drained by the counter-reformation and beleaguered by foreign enemies (it was Cardinal Mazarin in Paris who virtually dictated the election of the Barberini pope).  Majanlahti makes passing reference to the evils of oppressive taxation and that's all very well but you would think there must be some limit to how much you can squeeze out of the abused Roman poor.

The other point that came home to me is the notion of just how persistent this kind of wealth can be.  I'm shaky on details and I gather some of the grandee families (Orsini?) have indeed dribbled away into the delta of history.  But there seem to be any number with documented survivors still functioning today (Colonna, Borghese,Barberini, Doria-Pamphilj).    A visible contemporary Colonna bears the grand old family name of "Prospero," which strikes me as a nice touch (meanwhile, next door at the Colonna church, there is a (cardboard) placard soliciting "pane per i poveri"--"bread for the poor"--another nice touch) .  Back across the Corso, the most visible current Paphilj is a certain Jonathan, who narrates the audio guide to the Doria-Pamphilj Gallery with one of those British accents that makes it sound like is upper lip is stapled to his teeth.  Notably, Jonathan and his sister aren't even Pamphilj DNA--they were plucked out of an orphanage.  That hasn't prevented them from engaging in an acrimonious public conflict over which of their children will inherit the Doria Pamphilj wealth. 

All of which is a bracing reminder that there is nothing like picking the right parents or, in this case, great-great-great-great (etc.) grandparents (Arno J. Mayer wrote a pretty good book on this point a while back).  Shakespeare laments that neither "brass, nor stone, nor earth nor boundless sea" may resist the depredations of the "sad mortality."  If the "stone" takes the form of a Roman palazzo, then I'd say his theory remains to be tested.

Tourist Footnote:  Aside from the Villa Farnese, there is the Palazzo Farnese, long deployed as the French Embassy.  It has long been mostly closed to the public.  I learned too late that the Ambassador in his unfathomable generosity agreed to allow minimal touring.  You have to call and reserve and pay a guide fee, currently five Euros--pretty much of a bargain by the standards of Rome tour sites today.