Yves here. I hope readers will take Michael Hudson’s query to heart. His work has demonstrated how the financial sector tends to gain power and increase inequality if unchecked via debt jubilees or other methods to keep it from acting as a rentier and creating debt peonage. He wonders what would be the most fitting label for countries that like China have adopted substantial elements of a modern market economy but are taking steps to restrict the influence of financiers.
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year
The inability of democracies to resist financial oligarchies from gaining power
Aristotle described democracy as the political stage immediately preceding oligarchy, and tending to evolve into it. Ever since his epoch in classical antiquity, democracy has not been able to protect populations from the financial sector using debt to reduce them to bondage (in antiquity), expropriate their lands by debt foreclosure, take their property and demand a rising share of their income as debt service. The result of financial patronage is debt dependency – and in modern economies, debt deflation.
Plato’s Republic describes Socrates as recognizing creditors becoming “wealth addicts” (“silver-lovers”) and injuring society. He proposed what seemed to be utopian: rule by “philosopher kings,” individuals who would not have property of their own, so as to be immune from wealth addiction that seems to be a universal human phenomenon caused by privatization of financial wealth.
The three political forms discussed by Aristotle and Plato were democracy, oligarchy and aristocracy. But of course there was another form, which Herodotus discussed: kingship. (Cite his debate about the virtues of each system) That was the political form that had characterized the Bronze Age Near East. The key feature of this – which Herodotus did not note – was the ability of rulers to proclaim their most paradigmatic act: Clean Slates cancelling debts, liberating bondservants and restoring lands that had been forfeited to creditors. Looking back over the past five thousand years, that financial characteristic – control of monetary and debt relations by the palace – has been the most distinguishing feature between “democracies” (including their evolution into privatized oligarchies and aristocracies) and palatial states.
What terminology should we use for today’s world to describe what makes China (and Soviet Russia a century ago) distinct from the Western “democracies”? We cannot realistically call them “palatial economies,” because they do not have kings. But they do have centralized control over money and debt, with the state being the main creditor.
American rhetoric contrasts democracy to “autocracy.” Should we call them socialist states? Centrally financed states (certainly not centrally planned, except for decisions about credit and debt). Enlightened states? Public-credit states?
Or perhaps simple Socialist state, or Socialist Non-Financialized Economy.
The important characteristic is that banking and financed are public functions. In modern geopolitics, “democratic” means financialized. It is still, as Aristotle described, pre-oligarchic. But this dynamic is creditor-driven. And creditors not only control the supply of money and credit, but also the legal system governing creditor privileges (“rights”) to appropriate the assets and income of their debtors.
This financial dimension is the main characteristic neglected by modern political theory and popular language. It is important to stress that the antonym of “democracy” is not well described by pejorative words such as “autocracy” or other journalistic terms. There is no single term for a socialist state in which banking and debt laws are public utilities. But some term needs to be proposed – and “enlightened despotism” or “philosopher-king” state sound anachronistic. Or perhaps de-financialized state, social-credit state (problems with the SocCred movement), or social-creditor state.