Friday, December 21, 2012


Today, we have monopoly under consideration, the game and the real thing. First up, Monopoly Is Theft - a history of the world's most popular contemporary board game. The basics - it was dreamed up as a way to demonstrate the evils of rent seeking. Then someone decided to copyright it and get rich off of what had been a collaborative effort. The irony is, of course, that the history of the game itself tells us a lot about capitalism as well.

I've wanted to write about some alternative economic ideas that once thrived in the nineteenth century before the division into "Capitalism" and "Communism" sucked all the air out of any alternatives. This means people like Henry George, Peter Kropotkin, Sylvio Gessell, and C.H. Douglas, among others. Dmitry Orlov already beat me to Kropotkin, and this article gives a good history of the ideas of Henry George which led to the formation of the game:
A few weeks before the tournament, I’d had a conversation with Richard Marinaccio, the 2009 U.S. national Monopoly champion. “Monopoly players around the kitchen table”—which is to say, most people—“think the game is all about accumulation,” he said. “You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.” In this view, Monopoly is not about unleashing creativity and innovation among many competing parties, nor is it about opening markets and expanding trade or creating wealth through hard work and enlightened self-interest, the virtues Adam Smith thought of as the invisible hands that would produce a dynamic and prosperous society. It’s about shutting down the marketplace. All the players have to do is sit on their land and wait for the suckers to roll the dice.

Smith described such monopolist rent-seekers, who in his day were typified by the landed gentry of England, as the great parasites in the capitalist order. They avoided productive labor, innovated nothing, created nothing—the land was already there—and made a great deal of money while bleeding those who had to pay rent. The initial phase of competition in Monopoly, the free-trade phase that happens to be the most exciting part of the game to watch, is really about ending free trade and nixing competition in order to replace it with rent-seeking.

Henry George was not formally trained in economics. At age sixteen, he shipped out of his native Philadelphia as a mast boy on the freighter Hindoo, bound for Australia and India, where he watched the crew threaten mutiny over their miserable working conditions. By the age of twenty, transplanted to California, he was working as a printer’s apprentice, a rice weigher, and a tramp farmworker. George was soon married and broke, caught up in a wave of unemployment on the West Coast, and by the winter of 1865 his pregnant wife was starving. “Don’t stop to wash the child,” the doctor told George upon the birth of a son that January. “Feed him.” Poverty turned his mind to economics, to the question of why poverty proliferated in a land of plentiful resources. Economics turned him to newspapers, where he imagined he might get paid for his ideas. Eventually, journalism brought him to live in New York City.

What puzzled George was that wherever he saw advanced means of production arise in the United States—wherever industry was built up and capital accumulated—more poor people could be found, and in more desperate conditions. It was for him a stunning paradox. “It is the riddle which the Sphinx of Fate puts to our civilization, and which not to answer is to be destroyed,” wrote George. “So long as all the increased wealth which modern progress brings goes but to build up great fortunes . . . progress is not real and cannot be permanent.” In 1879, he published the book that made him famous, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth—The Remedy, which provided a sweeping answer to the riddle: land monopoly was the reason progress brought greater poverty. As American civilization advanced, as populations grew and aggregated in and around cities, land became scarce, prices soared, and the majority who had to live and work on the land paid those prices to the minority who owned it. For the laboring classes, rent slavery was the result. “To see human beings in the most abject, the most helpless and hopeless condition,” George wrote, “you must go, not to the unfenced prairies and the log cabins of new clearings in the backwoods, where man singlehanded is commencing the struggle with nature, and land is yet worth nothing, but to the great cities where the ownership of a little patch of ground is a fortune.”

George noted that many premodern tribes recognized no right of land ownership; the tribesman’s property was the bow and arrow he built with his hands, not the land he hunted on. Nor was such a right recognized under the laws of the Old Testament, in which land was “treated as the gift of the Creator to his common creatures.” Moses had, after all, instituted the jubilee, under which land was redistributed every fifty years, and the debts incurred against land were canceled—a tradition ended by Roman rule. Everywhere George reviewed the annals of the precapitalist world, he saw the “struggle between this idea of equal rights to the soil and the tendency to monopolize it in individual possession.”

Rent was the key. In line with classical economics from the time of Adam Smith, George defined rent as the unearned income owners derived from the rising value of land, meaning it was distinct from the labor that went into property in the form of improvements, the construction of homes and offices and factories, and the cultivation of fields. A community’s productivity was the invisible hand that caused land values to increase. The cabin in the woods became a prize when a mine opened up across the field, a road linked the cabin to the mine, a country store opened to supply the miners, more homes were built, a railroad came in, a town was born. The land under the cabin derived its worth from what society built around it. Its increase in value therefore belonged to society, and George said this value was to be assessed and taxed at market rates. This “single tax” on land and natural resources offered a reform of capitalism—whose self-destruction George believed it was his task to prevent—that “open[ed] the way to a realization of the noble dreams of socialism.”
Read the whole thing here:  Monopoly Is Theft. Christopher Ketcham, Harper's Magazine. As I like to remind people, an economy without some sort of redistribution mechanism ends exactly like a game of Monopoly - with wealth so concentrated that economic transactions cannot continue (or at least not an a appropriate level). Sounds and awful lot like today, doesn't it?

And the money we use is a lot like Monopoly money, too. A lot of people denounce fiat currencies as "monopoly money", but that's what makes it work! Really, everything that's considered valuable, including gold, is only valuable because someone else thinks it is (gold isn't much more useful than a piece of paper.) This article uses the game of Monopoly to explain the concepts of what is often called Modern Monetary Theory, or functional finance.

I hesitated to include this article for a long time, because nothing sends people into paroxysms of emotion, including on the left, than the subject of debt (except maybe guns). I'm sure to get the usual criticisms, and will not respond to them here, except to state that I believe a government without the artificial constraints imposed by debt is one of our most important tools to manage contraction. It does no good to burn down the real world for an accounting fiction called debt. Note that monetary constraints are already waived by elites when it comes to the military and police state. Note also that it is axiomatic that we cannot mobilize resources we do not actually possess, but relying on the private sector to allocate them reasonably instead of taking them all for themselves is not a good strategy. Finally, note that this need not be national governments were talking about here. Finally, to the hairshirt ecologists say we need budget slashing and austerity to bring down living standards in line with ecological limits, to me this is sociopathic and sure to lead to the opposite result - the demonization of the ecological movement. We will get there one way or another. But tell the people who are dying for lack of medicine or killing themselves because they cannot find work in Greece and Spain that debt repayment is the most important thing right now.

I'm not at all surprised the author is an architect; I can tell you that it's always money - not ideas, talent, resources, know-how, skill, or anything else that gets in the way of what we could design. It's always money that gets in the way and leads to sub-optimal outcomes. And for those who argue that restraints are what's needed, keep in mind that also keeps us from mass transit, urban farms, housing for the homeless, Permaculture farms, ecological sanitation systems, free health clinics including birth control, efficiency measures like insulation for homes, and a million things that could help us manage contraction. Design isn't always more or bigger, it's about solutions to problems, whether it is the problem of a building or a society.
Why does it seem like there isn’t enough money to pay for the things we really need? The headlines are filled with stories about our nation’s “debt problem” and dire warnings about our impending “bankruptcy.” As an architect who fills his waking hours thinking up all kinds of wonderful things we could be building, I’m alarmed by the idea there isn’t enough money to pay for any of them. Before wasting more time dreaming, I had to find out: Is it really true? Are we really too poor to put America back to work making and building the things we need to maintain a prosperous nation?

Searching for an answer, I discovered a small (but growing) group of economists who represent an emerging school of thought known as “modern monetary theory” (MMT). These men and women are valiantly trying to make us all understand a paradigm shift that occurred some forty years ago, when the world abandoned the gold standard. Their key insight shocked me: A sovereign government is never revenue constrained when it is the Monopoly issuer of its own pure fiat currency; it has all the money that’s needed to put its citizens to work building anything—and providing any service—that is desired by the public (provided the real resources are available). Even more remarkable, sovereign “deficits” in the fiat currency are just the accounting record of the surpluses that have been injected into the private economy. Eliminating the sovereign currency deficit by imposing austerity will not make the economy healthier; it will, in effect, bankrupt the citizens!

If this seems to defy logic, stay with me for just a few minutes. I’m going to propose a simple exercise that will help you “see” this reality for yourself. The exercise is simply that everyone join me in a familiar game of Monopoly. By the end of the game, I hope to convince you that MMT is correct and that we could be doing better, much better – for ourselves and future generations—if we just understood and took ad vantage of our modern monetary system.
J. D. Alt: Playing Monopolis Monopoly: An Inquiry Into Why We Are Making Ourselves So Miserable (Naked Capitalism)

Finally, let's talk about some real monopolies. If you read the article on automation by Paul Krugman last week, you know he also links to an article by Barry Lynn (author of Cornered) and Philip Longman (who we encountered before here) about the extent to which our entire economic system is centrally controlled by massive monopolies and the effects this has on employment, or the lack thereof. The article is worth reading in full:
Perhaps the easiest way to understand this is to take a quick walk around a typical grocery or big-box store, and look more closely at what has taken place in these citadels of consumer choice in the generation since we stopped enforcing our antitrust laws.

The first proof is found in the store itself. If you are stocking up on basic goods, there’s a good chance you are wandering the aisles of a Wal-Mart. After all, the company is legendarily dominant in retail, controlling, for instance, 25 percent of groceries sales in some states and 40 percent of DVD sales nationwide.

But at least the plethora of different brands vying for your attention on the store shelves suggests a healthy, competitive marketplace, right? Well, let’s take a closer look.

In the health aisle, the vast array of toothpaste options on display is mostly the work of two companies: Colgate-Palmolive and Procter & Gamble, which split nearly 70 percent of the U.S. market and control even such seemingly independent brands as Tom’s of Maine. And in many stores the competition between most brands is mostly choreographed anyway. Under a system known as "category management," retailers like Wal-Mart and their largest suppliers openly cooperate in determining everything from price to product placement.

Over in the cold case we find an even greater array of beer options, designed to satisfy almost any taste. We can choose among the old standbys like Budweiser, Coors, and Miller Lite. Or from a cornucopia of smaller brands, imports and specialty brews like Stella Artois, Redbridge, Rolling Rock, Beck’s, Blue Moon, and Stone Mill Pale Ale. But all these brands—indeed more than 80 percent of all beers in America—are controlled by two companies, Anheuser-Busch Inbev and MillerCoors.

Need milk? In many parts of the country, the choices you see in the Wal-Mart dairy section are almost entirely an illusion. In many stores, for instance, you can pick among jugs labeled with the names PET Dairy, Mayfield, or Horizon. But don’t waste too much time deciding: all three brands are owned by Dean Foods, the nation’s largest dairy processor, and Wal-Mart’s own Great Value brand containers are sometimes filled by Dean as well. Indeed, around 70 percent of milk sold in New England—and up to 80 percent of milk peddled in some other parts of the country—comes from Dean plants. Besides dominating the retail dairy market, Dean has been accused of collaborating with Dairy Farmers of America, another giant company that buys milk from independent farmers and provides it to Dean for processing and distribution, to drive down the price farmers are paid while inflating its own profits.

The food on offer outside of the refrigerator aisle isn’t much better. The boxes on the shelves are largely filled with the corn-derived products that are the basic building block of most modern processed food; about 80 percent of all the corn seed in America and 95 percent of soybean seeds contain patented genes produced by a single company: Monsanto. And things are just as bad farther down the ingredients list—take an additive like ascorbic acid (Vitamin C), produced by a Chinese cartel that holds more than 85 percent of the U.S. market.

How about pet food? There sure seems to be a bewildering array of options. But if you paid close attention to coverage of the massive pet food recall of 2007, you will remember that five of the top six independent brands—including those marketed by Colgate-Palmolive, Mars, and Procter & Gamble—relied on a single contract manufacturer, Menu Foods, as did seventeen of the top twenty food retailers in the United States that sell "private-label" wet pet foods under their store brands, including Safeway, Kroger, and Wal-Mart. The Menu Foods recall covered products that had been retailed under a phenomenal 150 different product names.

Heading out to the parking lot should give us some respite from all of this—surely the vehicles here reflect a last bastion of American-style competition, no? After all, more than a dozen big carmakers sell hundreds of different models in America. But it’s a funny kind of competition, one that’s not nearly as competitive as it looks. To begin with, more than two-thirds of the iron ore used to make the steel in all those cars is likely provided by just three firms (two of which are trying to merge). And it doesn’t stop there. A decade ago, all the big carmakers were for the most part vertically integrated, and they kept their supply systems largely separate from one another. Today, however, the outsourcing revolution, combined with monopolization within the supply base, means the big companies increasingly rely on the same outside suppliers—even the same factories—for components like piston rings and windshield-wiper blades and door handles. Ever wonder why Toyota came out so strongly in favor of a bailout for General Motors last year? One reason is they knew if that giant fell suddenly, it would knock over many of the suppliers that they themselves—as well as Nissan and Honda—depend on to make their own cars.

And don’t fool yourself that this process of monopolization affects only America’s working classes. What’s happened to down-market retail has happened to department stores as well. Think Macy’s competes with Bloomingdale’s? Think again. Both are units of a holding company called Macy’s Inc., which, under its old name, Federated, spent the last two decades rolling up control of such department store brand names as Marshall Field’s, Hecht’s, Broadway, and Bon Marché. A generation ago, even most midsized cities in America could boast of multiple independent department stores. Today a single company controls roughly 800 outlets, in a chain that stretches from the Atlantic to the Pacific.
Who Broke America's Jobs Machine? (Washington Monthly) It's just as bad in agriculture (if not worse):
As we’ve noted in our coverage of the recent Food and Water Watch report on the consolidation of our food system, “The Cost of Monopolies”:

    According to a 2007 study from the University of Missouri, the four largest companies controlled 82 percent of the beef packing industry, 85 percent of soybean processing, 63 percent of pork packing, and 53 percent of broiler chicken processing. In fact, so much consolidation has taken place throughout the food chain that it can be difficult for any one person to fathom the true effects.

The negative effects of this consolidation — on the environment, jobs, and income — in rural communities are tremendous. Yet for the last few decades, the government actively encouraged consolidation so that food production and distribution could benefit from economies of scale. Farmers complained about growing abuses from the handful of large companies that came to dominate food processing and distribution (and retailing) — but never seemed to make headway with government regulators.

And that’s because low prices at the supermarket became the Holy Grail of federal policy. Nothing else mattered. We have a system designed to generate huge amounts of cheap food, no matter the collateral damage to the communities where this food is grown or processed.

This approach conveniently ignores the other side of the equation: food producers, who often can’t reach consumers directly and have a desperately hard time getting a fair price for their products when there are only one or two buyers. And those suffering producers are Americans, too, trying to make a living (so they can buy other Americans’ products and services).

Consumers have been pitted against producers. As a consequence, rising prices aren’t greeted as a sustainable development for producers, they’re treated as a symptom of a market that’s not “working.”

But in 2009, farmers finally caught the attention of the federal government when the Obama administration sent representatives from the Departments of Agriculture and Justice — including Attorney General Eric Holder and USDA Secretary Tom Vilsack themselves — out into rural communities to register farmers’ complaints. The blog Civil Eats described the struggles they voiced:

    Across the country, the stories have been the same: grain prices so low they don’t cover the cost of [fertilizer and pesticides]. Milk prices so low they don’t cover feed costs. Non-genetically modified seed harder and harder for organic farmers to find. Families forced to sell their farms after generations on the land. Former farmers struggling with debt and unable to find work because they have no off-farm skills. Low-income consumers — urban and rural — with no access to fresh food.

But as Lina Khan documents in her must-read article in Washington Monthly, the federal attempt to create fair markets ultimately stalled out in 2010. In the face of corporate lobbying and the strident opposition of the House GOP majority, the process was defunded, and, in response to corporate and Tea Party outrage, the White House itself watered down the proposed fixes.
This holiday season, consider the farmers — and the corporations that control them (Grist)

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