Financialism leads to Mitchell, and Mitchell to Lim

I noted yesterday the PDF "Financialism: A (Very) Brief History" by Lawrence E. Mitchell. The Abstract at SSRN says

This essay describes various financial, economic, and legal developments in the United States from 1952 until 2007 and argues that they suggest a transformation of the American economic system from capitalism to one I term "financialism."

Mitchell puts the beginning of the process at 1952. This is the earliest date I have ever seen offered for the start of the financialization that turned capitalism into financialism. I happen to think we could go with an earlier date -- but not based on FRED's post-WWII data:

Graph #1: Corporate Finance as a Share of GDP

Clearly, however, financialization did not wait for the Reagan era to begin.

 

Mitchell writes (page 7) that Dr. Michael Lim Mah-Hui

attributes a significant proportion of the rise in what I call financialism to the dramatic increase in American debt between 1960 and 2007.

Lim uses a later start-date than Mitchell, but I don't care because he attributes the problem (or much of it) to excessive debt. He does, and it seems Mitchell does, and so do I -- heart and soul.

In Dr. Lim's paper "From Servant to Master: The Financial Sector and the Financial Crisis" (which Mitchell references) we read:

Between 1960 and 2007, financial sector debt rose an astounding 490 times, while household debt rose 64 times, non-financial corporate debt 53 times and government debt 24 times.

Evidence of imbalance; nuff said.

The irony in those numbers is that government debt -- the one America focuses on exclusively -- shows the smallest increase of them all.

Nuff said.

Financialism

Well, it finally occurred to me that financialization is the process which turns capitalism into something that can only be called financialism. So I looked that up. 

Jackpot. 

At SSRN, a download page for "Financialism: A (Very) Brief History" by Ezra Wasserman Mitchell of the Shanghai University of Political Science and Law. The paper is dated August 9, 2010, and the download page contains an abstract.

The downloaded PDF has the same title but the author is Lawrence E. Mitchell and there is no abstract. I can see that Lawrence E. might be Lawrence Ezra, the same person, but I don't know that, and I don't want to attribute the paper to the wrong guy.. Anyway, the 15-page paper grabbed my attention. It is about half footnotes, by the way.

A note at the bottom of the first page says

An earlier version of this essay was presented as a lecture at Creighton University Law School and published at 43 Creighton L. Rev. 323 (2010).

The same search turned up the 12-page PDF "Financialism: A Lecture Delivered at Creighton University School of Law", by Lawrence E. Mitchell, Theodore Rinehart Professor of Law at George Washington University. This paper is dated September 25, 2009. This version has no footnotes. 

Both versions of the paper end with the sentence "We must destroy financialism for the sake of capitalism." I'm in.

William Hixson's A Matter of Interest

In my post yesterday, footnote 3 in the McMurtry quote references the William Hixson book noted in the title of this post.

 
At Amazon:

A Matter of Interest: Reexamining Money, Debt, and Real Economic Growth
by William F. Hixson; publication date August 30, 1991 (for $111.75).

The blurb is a good one:

Hixson describes how the largely laissez-faire economy prior to 1929 was so structured to make a crisis of illiquidity and overindebtedness inevitable, and how the mixed economy that has prevailed since World War II is structured to result in a similar crisis.

And the reviews are good. There's a flattering one from Kenneth Boulding and this, attributed to "Choice":

... this businessman turned author focuses on the performance of the US economy since WW I vis-a-vis the size and growth of the money supply, the expansion of private and public debt, and the interest burden that debt generates. The soaring ratio of interest to total income is said to be the single most significant economic indicator in recent decades; depressions like that of 1929-32 arise because the economy, in order to grow, becomes increasingly indebted, illiquid, and interest burdened. Indeed, 1987 was more illiquid than 1929, though no panic had yet developed in the absence of public disillusionment that must eventually emerge.

Hixson departs from mainstream economics in many surprising ways, e.g., his belief that moderation of money growth and high-interest rates promotes inflation and his approach to counting interest only as cost and not income.

Wow! I also focus on the size and growth of the money supply, the expansion of private and public debt, and the interest burden that debt generates. I too think that the soaring ratio of interest to total income is the single most significant economic problem in recent decades. And I, like Hixson, hold that depressions like that of 1929-32 (and close calls like 2008-2010) arise because the economy becomes increasingly indebted and interest burdened.

Talk about suppression of non-mainstream economics, Hixson doesn't even have a Wikipedia page.

"the darkening outline of an ever more serious world disorder"

From John McMurtry (1997) at bsahely.com:

From 1950 to the present, for example, net revenues from lending money in the U.S. have multiplied by almost 300-fold. This is more than 10 times the rise of G.N.P. over the same period, and nearly 25 times the rise in the total farm income of the the world’s greatest food-producing economy.³ Elsewhere interest demands on national economies have been even more extreme in their exponential rise. Between just 1980 and 1994, real interest demands on less developed countries multiplied by 16-fold from their 1975-79 average.⁴ If we reflect on these figures, we see the darkening outline of an ever more serious world disorder. Turning money into more money for money lenders has invisibly become the ruling imperative of the planet, drawing ever more revenues from productive use for human beings into the decoupled money sequence of usury.

The lethal mutation in the money sequence of value occurs when money demand is no longer a phase within the circuit of the production of society’s goods, but is exclusively committed at every stage of its growth only to the multiplication of itself. Instead of any productive function in the metabolism of money through the medium of use-value to more money, there is only the metabolism of money to more money without any conversion to use value in the circuit.

I didn't check his numbers, but they do show the problem.

And let me point out that McMurtry predicted "an ever more serious world disorder" in 1997, eleven years before the financial crisis that festers to this day.

 

Wikipedia says of McMurtry:

In The Cancer Stage of Capitalism, 1999, he claims a propensity of human societies to assume the social order in which they live as good however life-destructive they may be, focusing on financial capitalism as displaying the hallmark characteristics of a cancer invasion at the social level of life organization. He conceives "the civil commons" as a social immune system.

On the need for economic growth

I usually just say that "economic growth" means the increase of GDP, and then point out that GDP is a measure of income. So people who say we don't need economic growth are saying that they don't want to increase their income.

But perhaps that is not the best argument in favor of economic growth.

Benjamin Friedman makes an impressively relevant argument in The Moral Consequences of Economic Growth. From page 4:

The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of a people.

Economic growth -- meaning a rising standard of living for the clear majority of citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. Ever since the Enlightenment, Western thinking has regarded each of these tendencies positively, and in explicitly moral terms.

Even societies that have already made great advances in these very dimensions, for example most of today's Western democracies, are more likely to make still further progress when their living standards rise. But when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress.

The book is from 2005, well before the Trump retrogression.

Blogging for money in Florida

From Vanity Fair, 7 March 2023:

Weighing in on a proposed Florida bill that would require bloggers writing about Ron DeSantis (or other elected officials) to register with the state, Gingrich tweeted: “The idea that bloggers criticizing a politician should register with the government is insane. it is an embarrassment that it is a Republican state legislator in Florida who introduced a bill to that effect. He should withdraw it immediately.” The bill, which was introduced by Florida state lawmaker Jason Brodeur, states that “If a blogger posts to a blog about an elected state officer and receives, or will receive, compensation for that post, the blogger must register with the appropriate office…within 5 days after the first post by the blogger which mentions an elected state officer.” And it doesn’t stop there!

First I heard of it.

Hotson and Wilmeth, 1982

The Future of Monetary Policy: 1982 Hearings of the Joint Economic Committee, a Google Book

From the statement by Harvey D. Wilmeth of Northwestern Mutual Life Insurance Co., Milwaukee, Wisconsin; page 196:

A money and credit system does not manage itself. Either the Government or the invisible hand of market forces will provide the ultimate unavoidable discipline. We have chosen to let market forces provide the bulk of that discipline, but we don't like the consequences. Inflation, stagnation, and depression are all a part of that discipline. This is an extraordinarily inefficient way to manage the financial structure of a modern economy.

I have tried to say something like that:

Jobs? You think jobs is the problem?? Okay. But it's our problem. A problem for people. It's not a problem for the economy. If you want jobs from the economy, you have to give the economy what *it* wants.

And:

I sometimes say "the economy wants" this or "the economy wants" that. The economy has its own rules which we did not invent and -- if we want the economy to do what we want -- we must respect those rules.

I sometimes say "the economy does not care" about inflation or unemployment. Those are not problems for the economy. They are problems for people. For the economy, they are simply ways to correct imbalances.

And again:

Here's how it works: A man lives for a while, and then dies. A nation lives for a while, and then dies. A civilization lives for a while, and then dies.

If you want your civilization to live, not die on your watch, then economics must be nothing more or less than the effort to get the right answer.

The right answer does not depend on what you or I want. It depends on what the economy wants and how the economy works. Our task is to understand these.

I don't know. Maybe Wilmeth says it better. But for me, finding economists who say what I say validates what I do.

Again, this is from the 1982 hearings. From the statement by John H. Hotson, professor of economics at Waterloo University, Waterloo, Ontario; page 215:

The administration thinks the problem is inflation and that high interest rates are the solution. But as Mr. Wilmeth has been saying, overindebtedness and imbalances in the economy are really the basic problem and high interest rates only make these basic problems worse. It's the overindebtedness of the private sector I'm talking about rather than the public sector.

Under the heading "The Rapid Growth of Interest Payments", Hotson adds:

Since World War II, the private sector has increased its indebtedness four times as fast as real GNP has increased; it's increased its indebtedness twice as fast as the nominal GNP has increased; it's increased its interest payments twenty-six times as fast as real GNP has increased; and it's increased its interest payments 6 times as fast as even nominal GNP has increased. 

It's this rapid run-up of interest payments and new borrowings, where both have increased as a percentage of GNP, which has made the financial system of the economy -- and not just of this country -- so fragile.

It's simple: cost is a problem. 

And please do notice that Hotson's concern is interest payments, not interest rates. Interest payments depend on interest rates and on the accumulation of debt on which interest must be paid.

My concern, like Hotson's, is the cost problem, the cost of finance.

For more on Harvey Wilmeth see The Wilmeth Brothers after Purdue.

John Hotson has apparently been expunged from the Waterloo University site.