Posts Tagged ‘feudalism’

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In a 1999 interview with Fortune, legendary investor Warren Buffett coined the term “economic moats” to sum up the main pillar of his investing strategy. He described it like this:

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

The idea of an economic moat, with Buffett’s endorsement, has picked up steam since the article. Morningstar, an investment research firm, created an index that tracks companies with a wide economic moat in order to see if Buffett’s theory holds water. In 2012, VanEck, a money manager, created an exchange-traded fund called “MOAT” that would track Morning Star’s economic moat index.

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And it works! Since 2012, VenEck’s Wide MOAT fund has beaten the Standard & Poor’s Index: it’s up 125.68 percent compared to the S&P’s 108 percent.

But what’s true for the individual investor does not hold for the U.S. economy as a whole. That’s because corporations with a Buffet moat around them are only managing, for a time, to capture portions of the surplus produced and appropriated elsewhere. It’s a rent—thus, of course, justifying the use of a feudal concept to characterize an investment strategy within contemporary capitalism.

Of course, the U.S. economy is not feudal (at least, for the most part). Instead, it is based on capitalism. And what’s important about American capitalism is the gap between workers’ wages and the total value they produce, which is profits—a portion of which is distributed in the form of dividends.

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As is clear from the chart above, over the course of the past decade both corporate profits (the red line) and dividends to shareholders (the green line) have rebounded spectacularly while the share of national income going to labor (the blue line) has fallen precipitously and remained very low. That’s the case during the so-called recovery from the crash of 2007-08 as well as the 15 or so years prior to the crash.

So, the comparison between feudalism and capitalism is perhaps even more apt than Buffett and other investors are willing to admit: in both cases, the surplus labor pumped out of the direct producers—serfs then, wage-laborers now—is appropriated—in the form of feudal rents or capitalist profits—and is then distributed to still others—to other religious and secular lords or other capitalists and equity owners.

And the result is exactly the same: a growing gap between the small group of gangsters at the top and everyone else.

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Special mention

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Mainstream economists have been taking quite a beating in recent years. They failed, in the first instance, with respect to the spectacular crash of 2007-08. Not only did they not predict the crash, they didn’t even include the possibility of such an event in their models. Nor, of course, did they have much to offer in terms of explanations of why it occurred or appropriate policies once it did happen.

More recently, the advice of mainstream economists has been questioned and subsequently ignored—for example, in the Brexit vote and the support for Donald Trump’s attacks on free trade during the U.S. presidential campaign. And, of course, mainstream economists’ commitment to free markets has been held responsible for delaying effective solutions to a wide variety of other economic and social problems, from climate change and healthcare to minimum wages and inequality.

All of those criticisms—and more—are richly deserved.

So, I am generally sympathetic to John Rapley’s attack on the “economic priesthood.”

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as “derivative” or “structured investment vehicle”. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment.

However, in my view, there are three problems in Rapley’s discussion of contemporary economics.

First, Rapley refers to economics as if there were only one approach. Much of what he writes does in fact pertain to mainstream economics. But there are many other approaches and theories within economics that cannot be accused of the same problems and mistakes.

Rapley’s not alone in this. Many commentators, both inside and outside the discipline of economics, refer to economics in the singular—as if it comprised only one set of approaches and theories. What they overlook or forget it about are all the ways of doing and thinking about economics—Marxian, radical, feminist, post Keynesian, ecological, institutionalist, and so on—that represent significant criticisms of and departures from mainstream economics.

In Rapley’s language, mainstream neoclassical and Keynesian economists have long served as the high priests of economists but there are many others—heretics of one sort or another—who have degrees in economics and work as economists but whose views, methods, and policies diverge substantially from the teachings of mainstream economics.

Second, Rapley counterposes the religion of mainstream economics from what he considers to be “real” science—of the sort practiced in physics, chemistry, biology, and so on. But here we encounter a second problem: a fantasy of how those other sciences work.

The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next.

That’s certainly the positivist view of science, perhaps best represented in Paul Samuelson’s declaration that “Funeral by funeral, economics does make progress.” But in recent decades, the history and philosophy of science have moved on—both challenging the linear view of science and providing alternative narratives. I’m thinking, for example, of Thomas Kuhn’s “scientific revolutions,” Paul Feyerabend’s critique of falsificationism, Michel Foucault’s “epistemes,” and Richard Rorty’s antifoundationalism. All of them, in different ways, disrupt the idea that the natural sciences develop in a smooth, linear manner.

So, it’s not that science is science and economics falls short. It’s that science itself does not fit the mold that traditionally had been cast for it.

My third and final point is that Rapley, with a powerful metaphor of a priesthood, doesn’t do enough with it. Yes, he correctly understands that mainstream economists often behave like priests, by “deducing laws from premises deemed eternal and beyond question” and so on. But historically priests served another role—by celebrating and sanctifying the existing social order.

Religious priests occupied exactly that role under feudalism: they developed and disseminated a discourse according to which the natural order consisted of lords at the top and serfs at the bottom, each of whom received their just deserts. Much the same was true under slavery, which was deemed acceptable within church teachings and perhaps even an opportunity to liberate slaves from their savage-like ways. (And, in both cases, if those at the bottom were dissatisfied with their lot in life, they would have to exercise patience and await the afterlife.)

Economic priests operate in which the same way today, celebrating an economic system based on private property and free markets as the natural order, in which everyone benefits when the masses of people are forced to have the freedom to sell their ability to work to a small group of employers at the top. And there simply is no alternative, at least in this world.

So, on that score, contemporary mainstream economists do operate like a priesthood, producing and disseminating a narrative—in the classroom, research journals, and the public sphere—according to which the existing economic system is the only effective way of solving the problem of scarcity. The continued existence of that economic system then serves to justify the priesthood and its teachings.

However, just as with other priesthoods and economic systems, today there are plenty of economic heretics, who hold beliefs that run counter to established dogma. Their goal is not to take over the existing religion, or even set up an alternative religion, but to create the economic and social conditions within which their own preferred theories no longer have any relevance.

Today’s economic heretics are thus the ultimate grave-diggers.

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Class has once again reared its ugly head.

Throughout U.S. history, class has always been there, if only just below the surface. But then in times of crisis, such as the aftermath of the crash of 2007-08 and during the Second Great Depression, class comes to the fore.

Thus, in recent years, class has become a significant theme in a wide range of media: literature—both fiction (for example, Lionel Shriver’s The Mandibles: A Family, 2029-2047) and memoir (such as The Draw, by Lee Siegel)—as well as literature made into films (especially The Hunger Games); in television, both reality TV (for example, Undercover Boss) and sit-coms (2 Broke Girls is a good example); and, of course, in non-fiction—from journalistic exposés (the best of which is George Packer’s The Unwinding: An Inner History of the New America) to data-heavy best-sellers (I’m thinking, in particular, of Capital in the Twenty First Century by Thomas Piketty).*

And for a country that at least in its public pronouncements and mainstream economic theorizing mostly denies the existence of class, it is remarkable that a great deal of attention is now focused on the working-class, especially one segment of that class: the so-called white working-class.

The decline of the white working-class was, of course, the overriding theme of Charles Murray’s Coming Apart, which would have sunk into much-deserved obscurity had it not been for conservative commentators (like David Brooks) and a well-financed, right-wing-engineered string of controversial college-campus visits (including my own university).

J. D. Vance’s Hillbilly Elegy also should have been consigned to oblivion. But, of course, it wasn’t. To my mind, it became such a media and commercial success not only because it was celebrated by American conservatives (lavishing praise on it to give it credence it didn’t deserve), but also because of the growing class divide in the United States and the curiosity on the part of those on the other side (including many concerned, well-meaning liberals) about what is actually happening to the white working-class.

Much better, in my view, is Strangers in Their Own Land, Arlie Hochschild’s attempt to climb the “empathy wall” and make sense of the “great paradox”: why hatred of government appears to most intense among people, including the white working-class of Louisiana, who need government services most. (Her answer: it’s all about the “deep stories”— about who they are, and what their values are—that people feel to be true.)

And then there’s Nancy Isenberg’s White Trash: The 400-Year Untold History of Class in America—a remarkable book that serves as a reminder of both how class is a central thread in the American narrative and the fact that class has been configured not only by finances but also in geographical and even bodily terms.

Crackers and squatters, rednecks and hillbillies, sandhillers and mudsills, clay eaters and trailer trash: over the course of its history, America has developed a rich vocabulary to describe its uneasy and unresolved relationship to one part of the underclass—the dispossessed—its economic and social institutions have presumed and produced on an ongoing basis.

According to Isenberg, the designation of a portion of the U.S. population as “waste people” and later “white trash” existed at the founding of the republic, having derived from British colonial policies designed to resettle the poor, which left a permanent imprint on postcolonial conceptions of American society and of the American Dream. From the very beginning,

marginalized Americans were stigmatized for their inability to be productive, to own property, or to produce healthy and upwardly mobile children—the sense of uplift on which the American Dream is predicated.

Poor whites haunted the writings of such diverse founders as Benjamin Franklin, Thomas Paine, and Thomas Jefferson—because they threatened both to disrupt “enlightened” democracy and to undermine national economic prosperity. The political and economic menace they posed continued into nineteenth-century American society but then was intertwined, starting in the 1840s, with its opposite, as the landless vagrant and squatter became romanticized and morphed into “the colloquial common man of democratic lore.” From then on, American white trash were alternately threatened with expulsion and even sterilization (especially in the first two decades of the twentieth century when the eugenics movement flourished), to reduce the burden on the national political economy, and greeted with populist calls (from the rise of Lincoln’s Republican Party to the campaign of Donald Trump) to make American great again.

Isenberg’s compelling survey of the invoking of white trash and its various synonyms across 400 years of American history teaches us, first, that “not only did Americans not abandon their desire for class distinctions, they repeatedly reinvented class distinctions.” The United States is, and has been from the very beginning, a class society. Second, it shows that those class distinctions exceed financial inequalities and invoke as well geographical and physical characteristics. White trash are poor but they are as often as not rural Southern white trash, living in shacks, hovels, and trailer parks, with dirty feet and tallow faces that are signs of “delinquency and depravity.”

If I have one major bone to pick with Isenberg’s otherwise absorbing and persuasive analysis, it’s that she overlooks the changing foundation of white trash—and thus of class distinctions generally—across American history. It is true, property, especially land, played a significant role in designating the gulf separating waste people and everyone else when the U.S. economy was mostly rural and white trash evoked landless laborers who were pushed to or beyond the margins of feudal, slave, and independent agricultural production. But that changed with the rise of capitalism, after which poor whites were either members of the working-class who found themselves in low-paying jobs or who failed in the effort to sell their ability to work to employers and thus were jettisoned into the ranks of the underclass, the lumpenproletariat.

So, yes, as Isenberg argues, “pretending that America has grown rich as a largely classless society is bad history.” But so is presuming that the basis of class can be found in an uninterrupted pattern of unequal ownership and dispossession in the presumed land of opportunity.

Today’s white trash are not merely yesterday’s landless vagrants on wheels. Those wheels are the only way they can get to their jobs at Wal-Mart and shop at the dollar stores that together represent the injuries, insults, and inequities meted out by an American economy that, over the course of the past four decades, has punished a growing part of the population for whom the American Dream is increasingly out of reach.

 

*Down the road, I plan to write a review of After Piketty: The Agenda for Economics and Inequality, edited by Heather Boushey, Brad DeLong, and Marshall Steinbaum.

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Capitalism is a giant machine for pumping out the surplus from workers—just like feudalism, slavery, and other class-based economies before it.

That’s from one perspective. But the capitalist machine isn’t just about the “vampire thirst for the living blood of labor.” It also involves various mechanisms for capturing that surplus—in the form of dividends, CEO salaries, interest payments, and so on.

Another, increasingly important such mechanism is hedge funds. And boy are they capturing a lot of the surplus these days!

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The hedge-fund industry continues to balloon in size (after a dip during the financial crash in 2008, and even though 2015 was by all accounts a rocky year), with something like $3 billion dollars in assets under management.

And, as the New York Times reports, the pay of the industry’s leaders has soared.

JPMorgan Chase paid its chief executive, Jamie Dimon, $27 million in 2015. In another Wall Street universe, the hedge fund manager Kenneth C. Griffin made $1.7 billion over the same year.

Even as regulators push to rein in compensation at Wall Street banks, top hedge fund managers earn more than 50 times what the top executives at banks are paid.

The 25 best-paid hedge fund managers took home a collective $12.94 billion in income last year

Yes, billions, with a “b.”

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That’s the list of the top 10 (courtesy of Institutional Investor’s Alpha magazine)—from Griffin (at $1.7 billion) to Joseph Edelman (at $300 million) in 2015.

Not only are Griffin and company capturing a large share of the surplus (even when some of their funds actually lost money for investors last year, just by virtue of their sheer size).* They’re spending it—on everything from art and luxury housing to funding politicians and political campaigns.**

So, with the rise to prominence of hedge funds and other financial instruments, it’s time to revise our definition: capitalism is a giant, vampire-like machine for pumping out, capturing, and spending the surplus from workers.

*Ray Dalio made $1.4 billion in 2015 through Bridgewater Associates, the world’s biggest hedge fund firm with $150 billion of assets under management. Dalio, who founded Bridgewater, is frequently quoted promoting a strategy he calls risk parity. Yet Bridgewater’s risk parity fund, called All Weather, lost investors 7 percent in 2015.

**Griffin was the biggest donor to the successful reelection campaign of Mayor Rahm Emanuel of Chicago.

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We know that the so-called gig economy—in the form of such online platforms as Uber and Airbnb—offers more alternatives in terms of finding transportation and renting property. But it doesn’t overturn the unequalizing dynamics of contemporary capitalism. In fact, it probably makes things even more unequal.

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What about the online platforms for workers, like TaskRabbit and HourlyNerd? They, too, represent a new kind of freedom—and, at the same time, a new way for employers to take advantage of workers.

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A June 2015 report from the McKinsey Global Institute makes clear the advantages for employers: more output (by up to 9 percent), lower costs (by up to 7 percent), and higher profits (by up to 5.4 percent). The idea is that digital platforms enhance recruiting and personalize various aspects of talent management (including training, incentives, and career paths) in the case of high-skilled workers, and improve the screening and assessment of job candidates (thus allowing them to “make better predictions about candidates’ ability to perform tasks as well as the likelihood of their timeliness, reliability, and commitment”) for companies with large low-skilled workforces. It also makes it easier for employers to contract workers for particular projects and then let them go, until the next project (requiring a different group of workers) comes up. So, with better matching, screening, and flexibility, workers produce more, cost less, and create more profits for their employers.

It sounds like a dream come true for employers.* And it is!

The problem, of course, is to sell the new digital labor platforms to workers, both blue-collar and increasingly white-collar. Here’s how McKinsey does it:

Online talent platforms can bring a new dimension to profiles of individual workers: their soft skills, traits, and endorsements from colleagues and superiors. The accumulated ratings and feedback provided to contingent workers through online marketplaces could be valuable, particularly for young people with little other work experience as they seek permanent employment. Accumulating and codifying these reputational elements can help individuals distinguish themselves in the job market and can help employers identify people who are a better fit for the positions they are filling.

In other words, it’s all about freedom and control.

And that’s important to recognize, because capitalism does represent the birth of a new freedom—for example, compared to feudalism and slavery. Under feudalism, workers (serfs) were tied to their employers (lords) in order to gain access to land (and, if the serfs violated those ties, for instance by attempting to attach themselves to a different lord’s demense, there was always the blacklist). As for slavery, workers (slaves) were owned as human chattel by their employers (slaveowners) and could not work for anyone else unless they were rented or sold by their owners (and subject to torture if they didn’t work hard enough).

Capitalism, in contrast, means that workers own their ability to work and are free to sell it to any employer. But it also mean, because their ability to work isn’t worth anything to them unless they sell it to someone else for a wage or salary, workers are forced to have the freedom to sell their ability to work to another group, their employers. (And the employers, of course, appropriate the surplus those workers create—just as their predecessors did from their workers under feudalism and slavery.)

Nothing in the new digital platforms changes that. Workers are still forced to have the freedom to sell their ability to work (and to produce a surplus for someone else, or they won’t be hired). The only thing that’s changed is the amount of data and the kind of analytics that are available to their employers (concerning the positions employers are filling, the skills required, and the paths workers have followed in education or previous positions).

But workers beware: “As data collection and analysis become more sophisticated, users will have to be mindful that every online interaction can affect their professional reputation.” What’s new for workers is they’re now forced to have the freedom to also watch what they do online.

And that’s why workers—both on and off the job—are increasingly being turned into jack rabbits.

 

*It’s also the fulfillment of a dream for neoclassical economists, who in their models spend a great deal of time on issues of job search, screening, and matching—for them, when those issues are solved, the perfect labor market.

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While we’re on the topic of keywords, let’s try another one: capitalism.

According to Richard Wolff, critics of capitalism need to be clear about what they mean by capitalism. It’s not free markets or free enterprise, both of which have been present in various forms of slavery and feudalism (and, of course, both of which have been absent in various forms of capitalism). Instead, it’s how surplus labor is organized, in the form of surplus-value.

Whatever distinguishes capitalism from such other systems as slavery and feudalism, markets and free enterprises are not it. . .

So then how should we define capitalism to differentiate it from alternative economic systems such as slavery, feudalism and a post-capitalist socialism? The answer is “in terms of the organization of the surplus.” How an economic system organizes the production, appropriation and distribution of its surplus neatly and clearly differentiates capitalism from other systems.

In slavery, one group of persons, the slaves that are others’ property, performs the basic productive labor. Slaves use their brains and muscles to transform objects in nature into what masters desire. Masters immediately appropriate their slaves’ total output, but they usually return a portion of that output for the slaves’ consumption. The excess of the slaves’ total output over what they get to consume (plus what replaces inputs used up in production) is the surplus. The masters take that surplus and generally distribute it to others in society (e.g., police and army, church, etc.) who provide the conditions (security, belief systems, etc.) needed for this slave organization of the surplus to persist through time.

Feudalism displays a different organization of the surplus. Serfs are not property as slaves are; lords do not immediately and totally appropriate what serfs produce. Instead, serfs and lords enter into personal relationships entailing mutual obligations (in European feudalism: fealty, vassalage, etc.). In medieval Europe, lords assigned land parcels to serfs, whose labor there yielded outputs. Feudal obligations typically included either 1) serfs’ laboring parts of each week on their assigned plots and keeping the proceeds and laboring other parts of the week on the lord’s retained land, with the lord keeping the product of that labor (“corvée”); or 2) the serf delivering to the lord as “rent” a portion of the product (or its monetary equivalent) from the land assigned to and worked by the serf. Corvée and rent were forms of Europe’s feudal surplus.

Capitalism’s organization of the surplus differs from both slavery’s and feudalism’s. The surplus producers in capitalism are neither property (slavery), nor bound by personal relationships (feudal mutual obligations). Instead, the producers in capitalism enter “voluntarily” into contracts with the possessors of material means of production (land and capital). The contracts, usually in money terms, specify 1) how much will be paid by the possessors to buy/employ the producer’s labor power, and 2) the conditions of the producers’ actual labor processes. The contract’s goal is for the producers’ labor to add more value during production than the value paid to the producer. That excess of value added by worker over value paid to worker is the capitalist form of the surplus, or surplus value.

And the alternative? The elimination of the exploitation that is common to slavery, feudalism, and capitalism.