Biological usage of the word “parasite” is a metaphor adopted from ancient Greece. Officials in charge of collecting grain for communal festivals were joined in their rounds by their aides. Brought along to the meals by these functionaries at public expense, the aides were known as parasites, a nonpejorative term for “meal companion,” from the roots para (beside) and sitos (meal).
By Roman times the word came to take on the meaning of a superfluous freeloader. The parasite fell in status from a person helping perform a public function to become an uninvited guest who crashed a private dinner, a stock character in comedies worming his way in by pretense and flattery.
Medieval preachers and reformers characterized usurers as parasites and leeches. Ever since, many economic writers have singled out bankers as parasites, especially international bankers. Passing over into biology, the word “parasite” was applied to organisms such as tapeworms and leeches that feed off larger hosts.
To be sure, leeches have long been recognized as performing a useful medical function: George Washington (and also Josef Stalin) were treated with leeches on their deathbeds, not only because bleeding the host was thought to be a cure (much as today’s monetarists view financial austerity), but also because leeches inject an anti-coagulant enzyme that helps prevent inflammation and thus steers the body to recovery.
The idea of parasitism as a positive symbiosis is epitomized by 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 public officials in these economies typically are sent to the imperial or financial core for their education and ideological indoctrination to accept this dependency system as mutually beneficial and natural. The home country’s educational cum ideological apparatus is molded to reflect this creditor/debtor relationship as one of mutual gain.
Smart vs. self-destructive parasitism in nature and in economies In nature, parasites rarely survive merely by taking. Survival of the fittest cannot mean their survival alone. Parasites require hosts, and a mutually beneficial symbiosis often results. Some parasites help their host survive by finding more food, others protect it from disease, knowing that they will end up as the beneficiaries of its growth. A financial analogy occurred in the 19th century when high finance and government moved closer together to fund public utilities, infrastructure and capital-intensive manufacturing, especially in armaments, shipping and heavy industry. Banking was evolving from predatory usury to take the lead in organizing industry along the most efficient lines. This positive melding took root most successfully in Germany and its neighboring Central European
countries under public sponsorship. Across the political spectrum, from “state socialism” under Bismarck to Marxist theorists, bankers were expected to become the economy’s central planners, by providing credit for the most profitable and presumably socially beneficial uses. A three-way symbiotic relationship emerged to create a “mixed economy” of government, high finance and industry.
For thousands of years, from ancient Mesopotamia through classical Greece and Rome, temples and palaces were the major creditors, coining and providing money, creating basic infrastructure and receiving user fees as well as taxes. The Templars and Hospitallers led the revival of banking in medieval Europe, whose Renaissance and Progressive Era economies integrated public investment productively with private financing.
To make this symbiosis successful and free immune to special privilege and corruption, 19th-century economists sought to free parliaments from control by the propertied classes that dominated their upper houses. Britain’s House of Lords and senates throughout the world defend the vested interests against the more democratic regulations and taxes proposed by the lower house.
Parliamentary reform extending the vote to all citizens was expected to elect governments that would act in society’s long-term interest. Public authorities would take the lead in major capital investments in roads, ports and other transportation, communications, power production and other basic utilities, including banking, without private rent-extractors intruding into the process.
The alternative was for infrastructure to be owned in a pattern much like absentee landlordship, enabling rent-extracting owners to set up tollbooths to charge society whatever the market would bear. Such privatization is contrary to what classical economists meant by a free market. They envisioned a market free from rent paid to a hereditary landlord class, and free from interest and monopoly rent paid to private owners. The ideal system was a morally fair market in which people would be rewarded for their labor and enterprise, but would 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 extraction threatened to siphon off income and bid up prices above the necessary cost of production. Their major aim was to prevent landlords from “reaping where they have not sown,” as Smith put it. Toward this end their labor theory of value (discussed in Chapter 3) aimed at deterring landlords, natural resource owners and monopolists from charging prices above cost-value. Opposing governments controlled by rentiers.
Recognizing how most great fortunes had been built up in predatory ways, through usury, war lending and political insider dealings to grab the Commons and carve out burdensome monopoly privileges led to a popular view of financial magnates, landlords and hereditary ruling elite as parasitic by the 19th century, epitomized by the French anarchist Proudhon’s slogan “Property as theft.”
Instead of creating a mutually beneficial symbiosis with the economy of production and consumption, today’s financial parasitism siphons off income needed to invest and grow. Bankers and bondholders desiccate the host economy by extracting revenue to pay interest and dividends. Repaying a loan – amortizing or “killing” it – shrinks the host. Like the word amortization, mortgage (“dead hand” of past claims for payment) contains the root mort, “death.” A financialized economy becomes a mortuary when the host economy becomes a meal for the financial free luncher that takes interest, fees and other charges without contributing to production.
The great question – in a financialized economy as well as in biological nature – is whether death of the host is a necessary consequence, or whether a more positive symbiosis can be developed. The answer depends on whether the host can remain self-steering in the face of a parasitic attack.
Taking control of the host’s brain/government
Modern biology provides the basis for a more elaborate social analogy to financial strategy, by describing the sophisticated strategy that parasites use to control their hosts by disabling their normal defense mechanisms. To be accepted, the parasite must convince the host that no attack is underway. To siphon off a free lunch without triggering resistance, the parasite needs to take control of the host’s brain, at first to dull its awareness that an invader has attached itself, and then to make the host believe that the free rider is helping rather than depleting it and is temperate in its demands, only asking for the necessary expenses of providing its services. In that spirit bankers depict their interest charges as a necessary and benevolent part of the economy, providing credit to facilitate production and thus deserving to share in the surplus it helps create.
Insurance companies, stockbrokers and underwriters join bankers in aiming to erase the economy’s ability to distinguish financial claims on wealth from real wealth creation. Their interest charges and fees typically eat into the circular flow of payments and income between producers and consumers. To deter protective regulations to limit this incursion, high finance popularizes promotes a “value-free” view that no sector exploits any other part. Whatever creditors and their financial managers take is deemed to be fair value for the services they provide (as Chapter 6 describes).
Otherwise, bankers ask, why would people or companies pay interest, if not to pay for credit deemed necessary to help the economy grow? Bankers and also their major customers – real estate, oil and mining, and monopolies – claim that whatever they are able to extract from the rest of the economy is earned just as fairly as new direct investment in industrial capital. “You get what you pay for,” is used to justify any price, no matter how ridiculous. It is circular reasoning playing with tautologies.
The most lethal policy sedative in today’s mainstream orthodoxy is the mantra that “All income is earned.” This soporific illusion distracts attention from how the financial sector diverts the economy’s nourishment to feed monopolies and rent-extracting sectors surviving from past centuries, now supplemented by yet new sources of monopoly rent, above all in the financial and money management sectors. This illusion is built into the self-portrait that today’s economies draw to describe their circulation of spending and production: the National Income and Product Accounts (NIPA). As presently designed, the NIPA neglect the distinction between productive activities and “zero sum” transfer payments where no overall production or real gain takes place, but income is paid to one party at another’s expense. The NIPA duly report the revenue of the Finance, Insurance and Real Estate (FIRE) sector and monopolies as “earnings.” These accounts have no category for what classical economists called economic rent — a free lunch in the form of income siphoned off without a corresponding cost of labor or enterprise. Yet a rising proportion of what the NIPA report as “earnings” actually derive from such rents.
The Chicago School’s Milton Friedman adopted the rentier motto as a cloak of invisibility: “There Is No Such Thing As A Free Lunch” (TINSTAAFL). That means there are no parasites taking without giving an equivalent value in return – at least, no private sector parasites. Only government regulation is condemned, not rent-extraction. In fact, taxation of rentiers – the recipients of free- lunch income, “coupon clippers” living off government bonds or rental properties or monopolies – is denounced rather than endorsed, as was the case for Adam Smith, John Stuart Mill and their 19th-century free market followers.
David Ricardo aimed his rent theory at Britain’s landlords while remaining silent about the financial rentiers – the class whose activities John Maynard Keynes playfully suggested should be euthanized. Landed proprietors, financiers and monopolists were singled out as the most visible free lunchers – giving them the strongest motive to deny the concept in principle.
Familiar parasites in today’s economy include Wall Street’s investment bankers and hedge fund managers who raid companies and empty out their pension reserves; also, landlords who rack-rent their tenants (threatening eviction if unfair and extortionate demands are not met), and monopolists who gouge consumers with prices not warranted by the actual costs of production. Commercial banks demand that government treasuries or central banks cover their losses, claiming that their credit-steering activity is necessary to allocate resources and avoid economic dissolution. So here again we find the basic rentier demand: “Your money, or your life.”
A rentier economy is one in which individuals and entire sectors levy charges for the property and privileges they have obtained, or more often that their ancestors have bequeathed. As Honoré de Balzac observed, the greatest fortunes originated from thefts or insider dealings whose details are so lost in the mists of time that they have become legitimized simply by the force of social inertia.
At the root of such parasitism is the idea of rent extraction: taking without producing. Permitting an excess of market price to be charged over intrinsic cost-value lets landlords, monopolists and bankers charge more for access to land, natural resources, monopolies and credit than what their services need to cost. Unreformed economies are obliged to carry what 19th-century journalists called the idle rich, 20th-century writers called robber barons and the power elite, and Occupy Wall Street call the One Percenters.
To prevent such socially destructive exploitation, most nations have regulated and taxed rentier activities or kept such potential activities (above all, basic infrastructure) in the public domain. But regulatory oversight has been systematically disabled in recent years. Throwing off the taxes and regulations put in place over the past two centuries, the wealthiest One Percent have captured nearly all the growth in income since the 2008 crash.
Holding the rest of society in debt to themselves, they have used their wealth and creditor claims to gain control of the election process and governments by supporting lawmakers who un-tax them, and judges or court systems that refrain from prosecuting them. Obliterating the logic that led society to regulate and tax rentiers in the first place, think tanks and business schools favor economists who portray rentier takings as a contribution to the economy rather than as a subtrahend from it.
History shows a universal tendency for rent-extracting conquerors, colonizers or privileged insiders to take control and siphon off the fruits of labor and industry for themselves. Bankers and bondholders demand interest, landlords and resource appropriators levy rents, and monopolists engage in price gouging. The result is a rentier-controlled economy that imposes austerity on the population. It is the worst of all worlds: Even while starving economies, economic rent charges render them high-cost by widening the margin of prices over intrinsic, socially necessary costs of production and distribution.
Reversing classical reforms since World War II, and especially since 1980
The great reversal of classical Industrial Era reform ideology to regulate or tax away rentier income occurred after World War I. Bankers came to see their major market to be real estate, mineral rights, and monopolies. Lending mainly to finance the purchase and sale of rent-extracting opportunities in these sectors, banks lent against what buyers of land, mines and monopolies could squeeze out of their rent-extracting “tollbooth” opportunities. The effect was to pry away the land rent and natural resource rent that classical economists expected to serve as the natural tax base. In industry, Wall Street became the “mother of trusts,” creating mergers into monopolies as vehicles to extract monopoly rent.
Precisely because a “free lunch” (rent) was free – if governments did not tax it away – speculators and other buyers sought to borrow to buy such rentextracting privileges. Instead of a classical free market ideal in which rent was paid as taxes, the free lunch was financialized – that is, capitalized into bank loans, to be paid out as interest or dividends.
Banks gained at the expense of the tax collector. By 2012, over 60 percent of the value of today’s homes in the United States is owed to creditors, so that most rental value is paid as interest to banks, not to the community. Home ownership has been democratized on credit. Yet banks have succeeded in promoting the illusion that the government is the predator, not bankers. The rising proportion of owner-occupied housing has made the real estate tax the most unpopular of all taxes, as if property tax cuts do not simply leave more rental income available to pay mortgage lenders.
The result of a tax shift off of property is a rising mortgage debt by homebuyers paying access prices bid up on bank credit. Popular morality blames victims for going into debt – not only individuals, but also national governments. The trick in this ideological war is to convince debtors to imagine that general prosperity depends on paying bankers and making bondholders rich – a veritable Stockholm Syndrome in which debtors identify with their financial captors.
Today’s policy fight is largely over the illusion of who bears the burden of taxes and bank credit. The underlying issue is whether the economy’s prosperity flows from the financial sector’s credit and debt creation, or is being bled by increasingly predatory finance. The pro-creditor doctrine views interest as reflecting a choice by “impatient” individuals to pay a premium to “patient” savers in order to consume in the present rather than in the future.
This free-choice approach remains mute about the need to take on rising levels of personal debt to obtain home ownership, an education and simply to cover basic break-even expenses. It also neglects the fact that debt service to bankers leaves less to spend on goods and services.
Less and less of today’s paychecks provide what the national accounts label as “disposable income.” After subtracting FICA withholding for taxes and “forced saving” for Social Security and Medicare, most of what remains is earmarked for mortgages or residential rent, health care and other insurance, bank and credit card charges, car loans and other personal credit, sales taxes, and the financialized charges built into the goods and services that consumers buy.
Biological nature provides a helpful analogy for the banking sector’s ideological ploys. A parasite’s toolkit includes behavior-modifying enzymes to make the host protect and nurture it. Financial intruders into a host economy use Junk Economics to rationalize rentier parasitism as if it makes a productive contribution, as if the tumor they create is part of the host’s own body, not an overgrowth living off the economy. A harmony of interests is depicted between finance and industry, Wall Street and Main Street, and even between creditors and debtors, monopolists and their customers. Nowhere in the National Income and Product Accounts is there a category for unearned income or exploitation.
The classical concept of economic rent has been censored by calling finance, real estate and monopolies “industries.” The result is that about half of what the media report as “industrial profits” are FIRE-sector rents, that is, finance, insurance and real estate rents – and most of the remaining “profits” are monopoly rents for patents (headed by pharmaceuticals and information technology) and other legal privileges. Rents are conflated with profit. This is the terminology of financial intruders and rentiers seeking to erase the language and concepts of Adam Smith, Ricardo and their contemporaries depicting rents as parasitic.
The financial sector’s strategy to dominate labor, industry and government involves disabling the economy’s “brain” – the government – and behind it, democratic reforms to regulate banks and bondholders. Financial lobbyists mount attacks on public planning, accusing public investment and taxes of being a deadweight burden, not as steering economies to maximize prosperity, competitiveness, rising productivity and living standards. Banks become the economy’s central planners, and their plan is for industry and labor to serve finance, not the other way around.
Even without so conscious an aim, the mathematics of compound interest turns the financial sector into a wedge to push large sectors of the population into distress. The buildup of savings accruing through interest that is recycled into new lending seeks out ever-new fields for indebtedness, far beyond the ability of productive industrial investment to absorb (as Chapter 4 describes).
Creditors claim to create wealth financially, simply by asset-price inflation, stock buybacks, asset stripping and debt leveraging. Lost from sight in this exercise in deception is how the financial mode of wealth creation engorges the body of the financial intruder, at odds with the classical aim of rising output at higher living standards. The Marginalist Revolution looks nearsightedly at small changes, taking the existing environment for granted and depicting any adverse “disturbance” as being self- correcting, not a structural defect leading economies to fall further out of balance. Any given development crisis is said to be a natural product of market forces, so that there is no need to regulate and tax the rentiers. Debt is not seen as intrusive, only as being helpful, not as capturing and transforming the economy’s institutional policy structure.
A century ago socialists and other Progressive Era reformers advanced an evolutionary theory by which economies would achieve their maximum potential by subordinating the post-feudal rentier classes – landlords and bankers – to serve industry, labor and the common weal. Reforms along these lines have been defeated by intellectual deception and often outright violence by the vested interests Pinochet-Chile-style to prevent the kind of evolution that classical free market economists hoped to see – reforms that would check financial, property and monopoly interests.
So we are brought back to the fact that in nature, parasites survive best by keeping their host alive and thriving. Acting too selfishly starves the host, putting the free luncher in danger. That is why natural selection favors more positive forms of symbiosis, with mutual gains for host and rider alike. But as the volume of savings mounts up in the form of interest-bearing debt owed by industry and agriculture, households and governments, the financial sector tends to act in an increasingly shortsighted and destructive ways. For all its positive contributions, today’s high (and low) finance rarely leaves the economy enough tangible capital to reproduce, much less to feed the insatiable exponential dynamics of compound interest and predatory asset stripping.
In nature, parasites tend kill hosts that are dying, using their substance as food for the intruder’s own progeny. The economic analogy takes hold when financial managers use depreciation allowances for stock buybacks or to pay out as dividends instead of replenishing and updating their plant and equipment. Tangible capital investment, research and development and employment are cut back to provide purely financial returns. When creditors demand austerity programs to squeeze out “what is owed,” enabling their loans and investments to keep growing exponentially, they starve the industrial economy and create a demographic, economic, political and social crisis.
This is what the world is witnessing today from Ireland to Greece – Ireland with bad real estate debt that has become personal and taxpayer debt, and Greece with government debt. These countries are losing population to accelerating emigration. As wages fall, suicide rates rise, life spans shorten, and marriage and birth rates plunge. Failure to reinvest enough earnings in new means of production shrinks the economy, prompting capital flight to less austerity-ravaged economies
Who will bear the losses from the financial sector’s over-feeding on its industrial host?
The great political question confronting the remainder of the 21st century is which sector will receive enough income to survive without losses degrading its position: the industrial host economy, or its creditors?
For the economy at large, a real and lasting recovery requires constraining the financial sector from being so shortsighted that its selfishness causes a system-wide collapse. The logic to avoid this a century ago was to make banking a public function. The task is made harder today because banks have become almost impenetrable conglomerates attached Wall Street speculative arbitrage activities and casino-type derivative bets to the checking and saving account services and basic consumer and business lending, creating banks Too Big To Fail (TBTF).
Today’s banks seek to prevent discussion of how over-lending and debt deflation cause austerity and economic shrinkage. Failure to confront the economy’s limits to the ability to pay threatens to plunge labor and industry into chaos.
In 2008, we watched a dress rehearsal for this road show when Wall Street convinced Congress that the economy could not survive without bailing out bankers and bondholders, whose solvency was deemed a precondition for the “real” economy to function. The banks were saved, not the economy. The debt tumor was left in place. Homeowners, pension funds, city and state finances were sacrificed as markets shrank, and investment and employment followed suit. “Saving” since 2008 has taken the form of paying down debts to the financial sector, not to invest to help the economy grow. This kind of “zombie saving” depletes the economy’s circular flow between producers and consumers. It bleeds the economy while claiming to save it, much like medieval doctors.
Extractive finance leaves economies emaciated by monopolizing their income growth and then using its takings in predatory ways to intensify the degree of exploitation, not to pull the economy out of debt deflation. The financial aim is simply to extract income in the form of interest, fees and amortization on debts and unpaid bills. If this financial income is predatory, and if capital gains are not earned by one’s own labor and enterprise, then the One Percent should not be credited with having created the 95 percent of added income they have obtained since 2008. They have taken it from the 99 Percent.
If banking really provides services equal in value to the outsized wealth it has created for the One Percent, why does it need to be bailed out? When the financial sector obtains all the economic growth following bailouts, how does this help industry and employment, whose debts remain on the books? Why weren’t employment and tangible capital investment bailed out by freeing them from their debt overhead?
If income reflects productivity, why have wages stagnated since the 1970s while productivity has soared and the gains extracted by banks and financiers, not labor? Why do today’s National Income and Product Accounts exclude the concept of unearned income (economic rent) that was the main focus of classical value and price theory? If economics is really an exercise in free choice, why have proselytizers for the rentier interests found it necessary to exclude the history of classical economic thought from the curriculum? The free luncher’s strategy is to sedate the host to block these questions from being posed. This censorial mirage is the essence of post-classical economics, numbed by pro-rentier, anti-government, anti-labor “neoliberals.”
Their logic is designed to make it appear that austerity, rent extraction and debt deflation is a step forward, not killing the economy. Future generations may see the degree to which this self-destructive ideology has reversed the Enlightenment and is carving up today’s global economy as one of the great oligarchic takeovers in the history of civilization. As the poet Charles Baudelaire quipped, the devil wins at the point where he is able to convince the world that he doesn’t exist.
Michael Hudson, Killing the Host, CounterPuch Books, 2015
