Economic parasitism, leeches and the financial system

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The biological use of the word "parasite" is a metaphor borrowed from ancient Greek. The officials responsible for collecting grain for the community festivals were joined by assistants on the rounds. Officials took helpers to meals at public expense, so the latter were known as parasites, which means “meal companion,” from the roots “para” (near) and “sitos” (food).

By Roman times, this word acquired the meaning of "freeloader". The parasite's importance has dwindled in status from a person helping to perform a public function in order to become a guest at a private dinner to a formulaic comedy character sneaking in with pretense and flattery.

Medieval preachers and reformers called usurers parasites and leeches. Since then, many economists have considered bankers, especially international ones, to be parasites. Moving into biology, the word "parasite" came to be applied to organisms such as tapeworms and leeches, which feed on larger hosts.

Of course, it has long been recognized that leeches perform a useful medical function: George Washington and Joseph Stalin were treated with leeches on their deathbed, not only because bloodletting was considered curative (similarly, modern monetarists consider financial savings), but also because leeches are introduced an anticoagulant enzyme that helps prevent inflammation and thus helps the body heal.

The idea of parasitism as a positive symbiosis is embodied in the term "host economy" - one that welcomes foreign investment. Governments invite bankers and investors to buy or finance infrastructure, natural resources, and industry. Local elites and government officials in these countries usually go to the focal point of financiers for training and indoctrination to help them accept this system of dependence as mutually beneficial and natural. The educational and ideological apparatus of the country is being prepared in such a way as to present the relationship between the creditor and the debtor as mutually beneficial.

Clever parasitism versus self-destructive in nature and economics

In nature, parasites rarely survive by taking away. They need hosts, and the symbiosis is often mutually beneficial. Some of them help their host to survive by finding more food, others protect him from disease, knowing that they will ultimately benefit from his growth.

An economic analogy emerged in the 19th century, when the financial aristocracy and government moved closer to finance utilities, infrastructure, and capital-intensive manufacturing, especially in the areas of arms, shipping, and heavy industry. Banking has evolved from predatory usury to leadership in organizing industry in the most efficient ways. This positive merger has taken root most successfully in Germany and its neighboring Central European countries. Figures of the entire political spectrum, from followers of "state socialism" under Bismarck to theorists of Marxism, believed that bankers should become the main planners of the economy, providing loans for the most profitable and socially oriented purposes. A three-pronged symbiotic interaction emerged, forming a "mixed economy" ruled by government, financial aristocracy, and industrialists.

For millennia, in different regions of the world from ancient Mesopotamia to classical Greece and Rome, temples and palaces were the main lenders, minting and providing money, creating the basic infrastructure and receiving user fees and taxes. The Templars and Hospitallers spearheaded a revival of banking in medieval Europe, whose Renaissance and Progressive economies productively combined public investment with private finance.

To make this symbiosis successful and free from special privilege and corruption, 19th century economists sought to free parliaments from the control of the wealthy classes that dominated the upper chambers. The British House of Lords and Senates around the world have defended their interests against the more democratic rules and taxes proposed by the lower house. A parliamentary reform that extended the right to vote to all citizens was to help elect governments that would act in the long-term interests of society. Governments were to play a leading role in large investments in roads, ports and other modes of transport, communications, power generation, utilities, and banking, without the interference of private rent recipients.

The alternative was to privatize the infrastructure, allowing the rent-seeking owners to set levies in order to collect from the community whatever the market could bring. This privatization is contrary to what the classical economists meant by the free market. They envisioned a market free of rents paid to the hereditary class of landowners and interest and monopoly rents paid to private owners. The ideal system was a morally fair market in which people were rewarded for their labor and enterprise, but did not receive income without making a positive contribution to production and related social needs.

Adam Smith, David Ricardo, John Stuart Mill, and their contemporaries warned that rent-seeking threatens to pump out revenues and increase prices more than is necessary given the cost of production. Their primary purpose was to prevent landowners from “harvesting where they did not sow,” as Smith put it. Therefore, the theory of labor value (discussed in Chapter 3) aims to deter landowners, resource owners, and monopolists from setting prices above costs. In contrast to the activities of governments controlled by rentiers.

Most of the large fortunes were made by predatory means of usury, military lending and political insider deals with the aim of seizing land and obtaining significant privileges of the monopolists. All this led to the fact that by the 19th century, financial tycoons, landowners and the hereditary ruling elite became parasites, which was reflected in the slogan of the French anarchist Proudhon "property as theft."

Rather than creating a mutually beneficial symbiosis with the economics of production and consumption, modern financial parasites siphon off the income needed for investment and growth. Bankers and bondholders drain the host country's economy by generating income to pay interest and dividends. Repayment of the loan, its "amortization", destroys the owner. The word amortization contains the root "mort" - "death". The host economy, imprisoned by the financiers, becomes a morgue, turns into a feeding trough for unencumbered marauders who take interest, commissions and other fees without contributing to production.

The central question, both with regard to such an economy and nature, is whether the death of the owner is an inevitable consequence, or whether a more positive symbiosis can be developed. The answer to this question depends on whether the host can maintain composure in the event of a parasite attack.

Taking control of the host / government brain

Modern biology makes it possible to draw a more complex social analogy with the financial system, describing the strategy that parasites use to control their hosts by disabling their defense mechanisms. To be accepted, the parasite must convince the host that no attack is taking place. To get a free breakfast without provoking resistance, the parasite needs to take control of the host's brain. First, dull the realization that someone has sucked on him, and then make the owner believe that the parasite helps, and does not drain him and is moderate in his requirements, taking only the resources necessary to provide his services. Likewise, bankers present their interest payments as a necessary and beneficial part of the economy, providing credit for the development of production and thus deserving part of the additional income it helps to create.

Insurance companies, stock brokers and financial analysts are joining bankers in stripping the economy of the ability to distinguish between financial claims of wealth and actual wealth creation. Their interest payments and fees tend to be hidden in the stream of payments and receipts circulating between producers and consumers. To curb the introduction of protective rules to restrict such intrusion, the financial aristocracy popularizes the “nonjudgmental” view that no sector exploits any part of the economy. Anything that lenders and their financial managers charge is considered the fair value of the services they provide (as described in Chapter 6).

Otherwise, bankers ask, why would people or companies pay interest, if not for a loan that is deemed essential for economic growth? Bankers, along with their main clients in real estate, oil and mining, and the monopoly, argue that whatever they can get out of the rest of the economy is earned just as equitably as with direct investment in industrial capital. “You get what you pay for,” is a phrase used to justify any price, no matter how wild. This is groundless reasoning, based on a tautology.

The most deadly sedative of our time is the mantra that "all income is earned." Such a soporific illusion distracts attention from how the financial sector is taking resources away from the economy in order to feed the monopolies and rent-seeking sectors that have survived from centuries past, now supplemented by new sources of monopoly rent, primarily in the financial and monetary sectors. This illusion is embedded in the self-portrait that today's economies paint, describing the circulation of expenditures and production through the National Income and Product Accounts (NIPA). As is currently accepted, the NIPA ignores the distinction between production activities and zero-sum transfer payments, where no product of production or real profit is received, but the income is paid to one party at the expense of the other. The NIPA defines the revenues of the finance, insurance and real estate and monopoly sectors as “profits”. There is no category in these accounts for what classical economists have called economic rent, free income without the cost of labor or tangible assets. However, an increasing proportion of what the NIPA refers to as “profit” is actually such rent.

Milton Friedman of the Chicago School considers the rentier's motto "There is no free breakfast" as a kind of invisibility cloak. This motto means that there is no parasite that generates income without providing an equivalent value in return. At least in the private sector. Only government regulation is condemned, not interest. In fact, taxing rentiers - recipients of income from free lunches, coupon collectors, living off government bonds, property leases, or monopolies - is frowned upon rather than approved. In the days of Adam Smith, John Stuart Mill, and the 19th century free market theorists, the opposite was true.

David Ricardo focused his theory of rent on British landowners, while keeping silent about financial rentiers, a class that John Maynard Keynes jokingly proposed to put to sleep. Landowners, financiers and monopolists stand out as the most prominent "free breakfast eaters." Therefore, they have the most serious motive for denying this concept in principle.

The common parasites of the modern economy are Wall Street investment bankers and hedge fund managers who raid companies and drain their pension reserves, as well as landlords who rip off their tenants (threatening eviction if unfair and extortionate demands are not met). and monopolists, who extort money from consumers by setting prices that are not justified by the actual costs of production. Commercial banks demand that government treasuries or central banks cover their losses, arguing that their credit management activities are necessary to allocate resources, and that stopping them would threaten economic collapse. So, we come to the main requirement of the rentier: "money or life."

The rentier economy is a system in which individuals and entire sectors collect payments for property and privileges that they have acquired or, most often, inherited. As Honore de Balzac observed, the greatest fortunes were accumulated as a result of criminal activity or insider deals, the details of which are so hidden in the fog of time that they became legal simply by virtue of social inertia.

This parasitism is based on the idea of obtaining interest, that is, income without production. Because the market price can be much higher than real costs, landowners, monopolists and bankers charge more for access to land, natural resources, monopolies and credit than is necessary to pay for their services. Modern economies have to bear the burden of what 19th century journalists called the idle rich, 20th century writers robber barons and power elites, and Occupy Wall Street Protestants one percent rich.

To prevent this kind of socially destructive exploitation, most countries regulate and tax rentiers or keep state-owned properties that may interest them (primarily, basic infrastructure). But in recent years, regulatory oversight has systematically faltered. By ditching taxes and regulations over the past two centuries, the richest one percent have embezzled nearly all of the gains in income since the 2008 crash. Keeping the rest of society in debt, they used their wealth and power to gain control of electoral processes and governments, supporting legislators who do not tax them and judges or judicial systems who refrain from harassing them. Perverting the logic that led society to regulate and tax rentiers in the first place, think tanks and business schools prefer to hire economists who represent rentiers' earnings as a contribution to the economy rather than a loss.

Historically, there has been a general tendency for rent-seeking conquerors, colonialists, or privileged insiders to seize power and appropriate the fruits of labor and industry. Bankers and bondholders demand interest, land and resource owners charge rent, and monopolists gouge prices. As a result, the rentier-controlled economy imposes austerity on the population. This is the worst of all worlds: even in starving countries, rent payments inflate economic bubbles, increasing the difference between prices and real, socially necessary wholesale and retail values.

Changing the direction of reform since World War II, especially since 1980

A fundamental change in the classical ideology of reform regarding the regulation or taxation of rentiers' income during the industrial era occurred after the First World War. Bankers began to view real estate, mineral rights, and monopolies as their main markets. By lending to these sectors primarily by buying and selling rent-seeking, banks provided loans against collateral that buyers of land, resources, and monopolies could squeeze out of their assets by "charging". As a result, banks siphoned off rents from land and natural resources, which classical economists expected to be natural objects of taxation. In terms of industry, Wall Street became the "mother of trusts", creating monopolies through mergers to capitalize on the monopoly position.

Precisely because the "free breakfast" (rent) was free if governments did not tax it, speculators and other buyers were eager to borrow money to buy these types of assets. Rather than the classic free-market ideal in which rents were paid in taxes, the "free breakfast" was funded by bank loans so that speculators could receive interest or dividends.

Banks make money from taxes. By 2012, more than 60 percent of the value of new homes in the United States was owned by lenders, so most of the rent was paid in interest to banks. Households were democratized on credit. Still, the banks managed to create the illusion that the government, not the bankers, was the predator. The increase in home ownership has made the property tax the most unpopular, although a cut in that tax will simply leave homeowners more income to pay off mortgage lenders.

The result of the abolition of the property tax will be an increase in mortgage debt on the part of home buyers who pay bank loans at higher rates. It is popular among the people to accuse victims of incurring debt - not only of individuals, but entire states as well. The trick of this ideological war is to convince debtors that general prosperity is possible if bankers and bondholders make their profits - a true Stockholm syndrome in which debtors identify with their financial thieves.

The current political struggle is largely associated with the illusion of who bears the burden of taxes and bank credit. The main question is whether the economy is prospering from lending by the financial sector, or whether it is being drained of blood by the increasingly predatory actions of financiers. The doctrine protecting the lender sees interest as a reflection of the choice of "impatient" depositors to pay a premium to "patient" people in order to consume in the present rather than in the future. This freedom of choice approach is silent about the need to take on more and more debt in order to get housing, education, and simply cover basic expenses. It also ignores the fact that debt service leaves less and less money for goods and services.

Today's wages provide less and less of what the national income and product accounts call "disposable income." After deducting pension and social benefits, most of what remains is spent on mortgages or rentals, medical care and other insurance, bank and credit cards, car loans and other personal loans, sales taxes and finance charges included in the price of goods and services.

Nature provides a useful analogy to the ideological tricks of the banking sector. The parasite's instrumentation includes enzymes that modify behavior so as to compel the host to defend and nurture it. Financial attackers invading the host economy are using pseudoscience to rationalize rentier parasitism. It is believed to be making its productive contribution, as if the tumor they are creating is part of the host's body and not a growth that lives off of the host. They are trying to demonstrate to us the harmony of interests between finance and industry, Wall Street and Main Street, and even between creditors and debtors, monopolists and their clients. There is no category of unearned income or exploitation in the national income and product accounts.

The classical concept of economic rent was censored, and finance, real estate, and monopolies were labeled "industries." As a result, about half of what the media calls "industrial profits" are rents from finance, insurance and real estate, and most of the remaining "profits" are monopoly rent on patents (mainly in pharmaceuticals and information technology) and other legal rights. Rent is identified with profit. This is the terminology of financial invaders and rentiers seeking to get rid of the language and concepts of Adam Smith, Ricardo and their contemporaries, who considered rent to be a parasitic phenomenon.

The financial sector's strategy to dominate labor, industry, and government involves shutting down the economy's “brain” - government - and thus abandoning democratic reforms to regulate banking and bondholders. Financial lobbyists attack government planning, blaming government investment and taxes as dead weight and not stepping the economy towards maximum prosperity, competitiveness, productivity and living standards. Banks are becoming the central planners of the economy, and their plan is for industry and labor to serve finance, not vice versa.

Even if this goal is not considered a deliberate one, the mathematics of compound interest turns the financial sector into a shoe that pushes the majority of the population into poverty. The accumulation of savings, accrued by interest, which turns into new loans, opens up more and more areas for bankers, far beyond the ability to absorb industrial investment (described in Chapter 4).

Lenders claim to create financial gains simply by changing quotes, buying back shares, divesting assets, and borrowing. This deception loses sight of the fact that a purely financial way of accumulating wealth feeds the parasite at the expense of the common man, which contradicts the classic goal of increasing productivity with a higher standard of living. The marginalist revolution shortsightedly looks at small changes, taking the existing environment for granted and considering any unfavorable “disruption” to be a self-correcting defect rather than a structural one, leading to further imbalance in the economy. Any development crisis is considered a natural result of free market forces, so there is no need to manage and tax rentiers. Debt is not seen as imposed, only as useful, but not as transforming the institutional structure of the economy.

A century ago, socialists and other reformers of the progressive era put forward an evolutionary theory that the economy would reach its maximum potential by forcing the post-feudal classes of rentiers, landlords, and bankers to serve industry, the working class, and the general welfare. Reforms in this direction have been suppressed by intellectual deception and often outright Pinochet-style violence by self-interested stakeholders. The evolution that classical free market economists hoped to see - reforms that would stifle financial, property, and monopoly interests - have been suppressed.

So we're back to the fact that in nature, parasites survive by keeping their host alive and thriving. If they act too selfishly, forcing the owner to starve, then they themselves expose themselves to danger. This is why natural selection favors more positive forms of symbiosis with mutual benefit for the host and the parasite. But as the accumulation of interest-bearing bondage, which plunges industry and agriculture, households and governments, rises, the financial sector begins to operate in an increasingly shortsighted and destructive manner. Despite all its positive aspects, modern financiers of the highest (and lowest) level rarely leave enough tangible assets for the economy to reproduce, much less to fuel the insatiable urge to charge compound interest and predatory asset seizures.

In nature, parasites tend to kill hosts over time, using their body as food for their own offspring. The situation is similar in the economy, when financial managers use depreciation deductions to buy back shares or pay dividends instead of replenishing and renewing fixed assets. Capital expenditures, research and development, and hiring are being cut to ensure a purely financial return. When lenders demand austerity programs to squeeze out "what is due" by allowing credit and investment to grow exponentially, they shrink industry and create a demographic, economic, political and social crisis.

This is what the world is seeing today in Ireland and Greece. Ireland has a large real estate debt that has fallen on the shoulders of taxpayers, and Greece has an overwhelming national debt. These countries are losing population due to accelerating emigration. With a decrease in wages, the number of suicides increases, life expectancy and the number of marriages decrease, and the birth rate falls. Failure to reinvest sufficient income in new means of production worsens the economy, stimulating capital outflows to less austerity-hit countries.

Who will suffer losses from the oversaturation of the financial sector at the expense of industry?

The main question facing us in the 21st century is which sector will get enough income to survive without worsening losses: the industrial economy or its creditors?

Real economic recovery will require a long-term containment of the financial sector, because it is so short-sighted that its selfishness causes a system-wide collapse. A hundred years ago, it was believed that in order to avoid this, banking should be made public. Today, this task is complicated by the fact that banks have become virtually unaffected conglomerates, tying Wall Street speculative activities and derivatives rates to servicing checking and savings accounts and basic consumer and business lending. Modern banks are too big to fail.

Modern banks are seeking to end the debate about overlending and debt deflation leading to austerity and recession. Failure to overcome the limitations on the ability to pay of the economy threatens to plunge the working class and industry into chaos.

In 2008, we saw a dress rehearsal for the show, when Wall Street convinced Congress that the economy could not survive without the help of bankers and bondholders, whose ability to pay was considered essential to the functioning of the "real" economy. The banks were saved, not the economy. The debt swelling persisted. Homeowners, pension funds, city and state finances were sacrificed as markets shrank, and investment and employment followed suit. The bailout since 2008 has taken the form of paying off debt to the financial sector rather than investing to help the economy grow. This kind of "zombie economy" destroys the economic relationship between producers and consumers. She drains the economy, claiming to be saving it like medieval doctors.

Financiers extract rent and drain the economy by monopolizing income growth and then using it in a predatory way to increase exploitation, not to pull the economy out of debt deflation. Their goal is to generate income in the form of interest, fees, and pay off debts and unpaid bills. If financial income is extortionate and capital gains are not self-earned, then one percent of the population should not be credited with generating 95 percent of added income since 2008. They received this income from 99 percent of the population.

If the banking sector does provide services that generate huge amounts of money for one percent of the population, then why does it need to be bailed out? If the financial sector shows economic growth after the bailout, how does this help the industry and labor force, whose debts remain on the balance sheet? Why not save workers and material investments by freeing them from debt spending?

If income reflects productivity, then why have wages stagnated since the 1970s, even though productivity is increasing and the profits generated by banks and financiers are not helping? Why does modern national income and product accounts not include the concept of unearned income (economic rent), which was the focus of the classical theory of value and prices? If the basis of economics really lies in free choice, then why did the propagandists of rentier interests consider it necessary to exclude the history of classical economic thought from the curriculum?

The parasite's strategy is to calm the host by blocking such questions. This is the essence of the post-classical economy, ossified by the defenders of the rentiers, the anti-government, anti-labor "neoliberals." Their aspirations are aimed at proving that austerity, rent-seeking and debt deflation is a step forward, not killing the economy. Only future generations will be able to realize that such a self-destructive ideology has reversed enlightenment and turned the modern world economy into one of the greatest oligarchic conglomerates in the history of civilization. As the poet Charles Baudelaire joked, devilishly