Asset Ownership and Our System of Deepening Debt-Serfdom

January 30th, 2015
in Op Ed

by Charles Hugh Smith, Of Two Minds

Debt-serfs who make the difficult and risky transition to small-scale business owners find they have simply moved to another class of serfdom.

Follow up:

The core dynamic of debt-serfdom is that debt-serfs must borrow money to buy essentials while the wealthy borrow to invest in productive assets.

This is not merely a random result of free-market capitalism; it is the structure of cartel-capitalism in which highly profitable goods and services must be paid for with highly profitable debt.

This need to borrow to pay for essentials is already evident in student loans, vehicles and housing.

The cost of these essentials is so high that few debt-serfs can borrow enough to pay for these essentials and then have enough borrowing power left to buy productive assets.

Those few who do attempt to buy productive assets face regulatory hurdles and costs that limit their ability to own or launch small-scale profitable enterprises.

The net result is a system in which the vast majority of productive assets are owned by the few who then have the means to exploit the many.

This core dynamic of cartel capitalism is not new, as longtime correspondent Bart D. recently observed. This was the core dynamic at the root of Ireland's catastrophic potato famine of the 1840s: wealthy English owned the productive assets (land) and limited the opportunities for enterprises that boosted Irish self-sufficiency and competed with the assets owned by English financiers and landed gentry.

Here is Bart's commentary:

I recently picked up a copy of a novel dealing with the topic of the Irish Potato famine of 1845-6 from a second hand book store run by charity. Author is Liam O'Flaherty and it was written in 1937. It was re-released in 2002. My edition was printed in the 1970's, so it's had a following over the years.


I recommend this book HIGHLY as an insight into how families, communities, governments and economics will/are functioning in impoverished situations now and in the future. I know this because I was astonished (not using that word lightly here) at the similarity in the description of life and government/business portrayed in O'Flaherty's book in 1845 and that which I have observed closely over many years in remote Australian Aboriginal communities from 1994 to 2012.

Especially fascinating to learn that the English Government provided 'relief' loans to Ireland at market interest with a condition that they could not be used to do anything productive. Basically they set up a scheme to pay a small proportion of each community to build roads, but not a cent could be spent on developing alternate Irish-owned industries or businesses for fear it would upset the rich English industrialists.

The English imported cheap American corn meal which everyone was forced to buy with the English Gov. financed wages (closing the loop of giving with one hand, taking with the other and adding in a profit to boot) after the Irish had to export all their own grain and livestock to England to pay the land rents.

The model of resource ownership described in the novel--English landlords owned all the Irish peasant farmer land and set rent at a level that ensured the farmers remained a hairs breadth ahead of destitution even under the best of circumstances--will be, I think, what our own future will look like. Unfortunately.

It's very well written and engaging for the reader, but hard to read because of its infuriating and tragic subject material. No happy endings here.

One branch of my family (Scots-Irish, County Down) immigrated to the U.S. in the late 1840s, undoubtedly as a result of the potato famine. This history of exploitation and financial tyranny is not entirely abstract to me, and neither is the current American variation of the debt-serf model.

Those of us with experience in starting and operating small enterprises know that dozens of restrictive regulations and administrative costs limit debt-serfs' attempts to invest in small-scale productive ventures. We also know that the Federal Reserve's free funds for financiers enables hedge funds to invest $500 million in the latest software fad, while small-scale entrepreneurs have no equivalent conduit to near-zero cost funding.

Globalized cartels eliminate local pricing power by importing cheap goods from somewhere else. In less globalized circumstances, local producers retain some pricing power (and thus some profitability) because they can produce goods without the cost of shipping from overseas.

But the power of cartels buying millions of units at a time and the low cost of container shipping means cartels can eliminate the pricing power of local small-scale producers virtually everywhere.

Even low-income regions in developing nations cannot compete with global cartels in manufactured goods and agricultural/meat produce.

This is not a random result of free enterprise; it is the direct result of central banks' free funds for financiers that lowers the costs of borrowing and thus production for cartels.

Debt-serfs may legally start home businesses in some locales, but as soon as they become successful enough to compete with vested interests, their fixed costs are increased by regulatory and administrative rules. The resulting erosion of profitability and the lack of access to cheap credit limit their ability to expand without taking on burdensome levels of costly debt or selling their souls to vulture capitalists.

At that point, debt-serfs who make the difficult and risky transition to small-scale business owners find they have simply moved to another class of serfdom, one in which the serfs own an enterprise but cannot expand their capital. As a result, small enterprise ends up being just another version of serfdom, i.e. barely getting by or borrowing more just to survive.

Consider the evidence of the erosion of American small business: Economic Death Spiral: More American Businesses Dying Than Starting.

The net result is a system in which the vast majority of productive assets are owned by the few who then have the means to exploit the many. Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding.

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