Death by Peonage

The greatest threat to the people in charge has always been the property holder. Before human settlement, the strongest or oldest were the tribal leaders. Once humans began to settle into an agricultural life, it got a lot harder to boss people around. In the tribal days, exile was the way to keep people in line. If the tribe got too big, then they just split into two tribes so the malcontents could go off on their own, thus preserving the authority of the chief.

Once people started to settle into agricultural life, exile was not so easy. The chief could be angry, but as long as you could feed yourself and your family, you had no reason to leave, and he had only one way to make you leave. That was to take your property. The trouble with that is he had to have hired men willing to kill and that meant the boss had to have a surplus of property to hire them.

It’s not an accident that for most of our time as settled creatures controlling the land was of paramount importance to the rulers. The Romans, upon the defeat of Carthage and Corinth, used the proceeds to throw the small farmers off their land, by use of slave labor. In short order Rome went from a Republic of free men to an empire run by powerful land holders.

In medieval times, feudalism put control of land in the hands of the crown and by extension, the nobles, who held these lands in exchange for service to the crown. In turn, vassals and peasants worked the land for the nobles. It was not until the rise of global trade that one could challenge the power of the king without taking his lands.

Trade created capital that was mobile and therefore hard to steal. Stealing a man’s land is just a matter of killing his soldiers and forcing him off the land. When a man’s wealth is distributed all over and is highly portable, stealing his capital is not so easy. This required more complex schemes and more complex defenses.

The other day in my Greek post I pointed out that sovereign debt is mostly a way to rob the property holders of countries. No one really thinks about it like that as the people in charge prefer, we think of it in other ways. They like to talk about government investment in the safety net, as if it were a real physical net underneath all of us, magically held up by fairies and magic dust.

That’s the sales pitch. Most sensible people like the folks reading this blog see past it and understand that it is just a way to pay for an ever expanding government. As we’re fond of saying on the Dissident Right, no tree grows to the sky. Eventually the government can borrow no more because no one will lend. That’s not just a Greek problem. The public debt of the West is at level unimaginable just a generation ago.

That’s where the credit currency comes into the mix. By artificially lowering the cost of borrowing, governments are allowed to shift more debt onto their taxpayers. Eventually, the debts must be paid thus creating the transfer of property through the state to friends of the state. Public debt is just organized looting of the middle-class.

This is a little more obvious when we look at it in small scale. That is the assault on small business by the financial sector. When talking about the banksters and their cronies in politics, everyone just assumes they spend their time on complex deals involving leverage, derivatives, and special favors in the tax code.

Much of that is true, but unlimited cheap credit has had another terrible consequence that is a microcosm of what we are seeing with Greece. That is, insiders using zero cost debt to undermine the middle-class business owners. While Warren Buffet uses the tax code to raid mid-sized business, venture capital often uses cheap money to sack small business.

Let me use an example. I have known a local businessman for twenty years. I’m not sure how much of the details of his dealings I am free to reveal so I will be deliberately vague on some points. His business was a family business started by his father and another man in the 50’s. They distributed niche products in the Mid-Atlantic.

My acquaintance was never going to get rich running the business, but it afforded him a nice middle-class life. He was also able to hire a few a key people and pay them well, along with a staff of entry level people. Some of his employees had been in the business since he could walk. In other words, it was a typical middle-class small business.

About ten years ago his suppliers began to consolidate. One after another was bought up by some global player. He went from have a dozen suppliers vying for his business to just three. At the time, he thought it may be better for him as it was much simpler to do business with three suppliers.

Then one supplier bought one of his competitors and made them the exclusive distributor. All of a sudden, a sizable chunk of the market was walled off to him because he could not carry the products certain customers preferred. At this point he knew he was in trouble, but the options were limited. Profits started to get trimmed and he prepared for a reduced lifestyle in order to keep the business running.

Keep in mind that all of the consolidation was made possible by abnormally low interest rates. When money cost ten points, buying a competitor meant having a big chunk of cash in the deal. When money is three points most M&A deals can be done with no cash whatsoever.

A few years ago, some VC boys bought his biggest competitor. They brought in new technology, and they made a deal with one of the big suppliers. Because it was all debt driven, they could drop prices putting even more pressure on the remaining independents. Quickly they went about offering buyouts to the little guys. My acquaintance sold out for what he could get.

This is a common theme in wholesale distribution around the country. The little guys are hoovered up by big players using borrowed money. Is it better for consumers? Maybe, but prices are not dropping so it is not a good deal from that regard. It’s not better for employees as small business hiring has never been lower.

The skillful use of debt has always been the hallmark of shrewd businessmen. That’s not what’s going on here anymore than the use of slaves by wealthy Roman landowners was a skillful use of labor. My acquaintance could not go to his bank and get the same deals as the VC boys raiding his industry. They had special access to cheap money and informational asymmetry let them exploit the tax law in ways the little guy could never match.

I pointed out the other day that it is easy to blame the Greek people and write them off as dead beats. It’s easy to blame the small businessman who goes bust. That way we can pretend it is still an even playing field and everyone is playing by the rules. That’s not what’s happening in America, Greece or anywhere else in the West.

Artificially low borrowing rates are warping reality and blocking the normal signals within society citizens use to make decisions. It’s also rearranging the social order in ways that are incompatible with liberal democracy. My acquaintance who lost his business is no different than the farmer thrown off his land. He loses his stake in the current order and goes from being a citizen to being a subject.

I need to wrap this up as it is already too long, but in another age, men on horseback flying the flag of their lord would raid towns and villages, hauling off what they could. The only recourse of the village was to submit to a lord promising protection. They got to choose their master.

Today, global finance is the tool to break the spine of the middle, making them dependent on the ruling elite. The systematic looting of Western economies through central banks is sucking the life out of the citizens. The Greeks are finally fighting back, but until they start hanging the people responsible, the tide will never turn.

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james wilson
james wilson
8 years ago

Artificial interest rates have robbed the elderly middle class of 500 billion a year to the Utopian coffers. Without a peep, I will add.

Oh, the things people take for granted. We will know exactly what a high trust society is only when we no longer are one.

Dutch
Dutch
8 years ago

Deadbeats get financed because the financiers can syndicate and sell the (deadbeat) loans to some other entity before the SHTF. Just as things went in our housing bubble of a few years ago, the “greater fool” theory in action. Yet another way the VC crowd strips assets.

bob sykes
bob sykes
8 years ago

Cochran and Harpending note that we are descended from those who got down on their knees. Submission is in our DNA.

UKer
UKer
8 years ago

If anything, the current Greek crisis signals the end of lending money and hoping it gets repaid. The new expectation is going to be if you lend money, there is virtually no chance of it being repaid. There is a saying that if you borrow 1,000 dollars or pounds or euros or whatevers from a bank and can’t repay it, you have a problem. However borrow a million and can’t repay it and then the bank has a problem. In other words, you may as well be hung for a sheep as for a lamb. Assuming Greece ‘renegotiates’ its debt… Read more »

ErisGuy
ErisGuy
8 years ago

One would think Greek Communists would be just the guys to hang ’em. I wonder what has changed to tame them.

Dutch
Dutch
8 years ago

Nailed it! Clearest explanation I have seen on the subject.

This Pan Pacific Trade fiasco is just the cherry on top, for the asset strippers.

And Warren Buffet has a special place in his big heart for the little people, yeah, right.