The origins of the crisis in the concentration of wealth

Brenda Rosser Saturday, April 11, 2009
IN the 1970s the wealth of a select group of rich (in a few places such as Saudi Arabia and Texas in the USA) “swelled so hugely that the English language was scarcely capable of defining it.” So said author Stephen Fay in his book on the Hunt brothers and Saudi silver bubble of the late 1970s entitled ‘Beyond Greed’.

This new wealth was largely paid for by consumers of oil after OPEC and the oil corporations quadrupled the price of this commodity in 1973. As John Kenneth Galbraith warned at the time, the wealth did not ‘trickle down’ to the rest of us but instead created what he had feared: inflation, severe recession and unemployment around the world. The international economy became more vulnerable to unexpected shocks than at anytime since the 1930s.

The new super-rich were afraid – not so much of recession – but of inflation and taxation. They preferred therefore to gamble rather than to save. This new attitude reflected the problem money was having as a store of value as the US dollar (the world’s reserve currency) lost its value and was no longer backed by gold. [2]

Importantly, the new rich of the 1970s could buy on a scale that had never been contemplated before. C Wright Mills had warned a good decade earlier that the social theories and values of ‘liberalism’ assumed “a world of small entrepreneurs. But it is quite clear that one of the most decisive changes over the last hundred years is the enormous increase in the scale of property units.” [3]

The oil and corporate rich of the 1970s had impeccable credit credentials and they began to focus their purchase on things they believed would increase in value such as other corporations and precious metals; to be purchased with other people’s money. They used loans from the world’s biggest banks and brokerage houses.

Financialisation was reborn. The global invasion of petro and monopoly dollars on the world economy meant too much cash chased too few goods. Then US Presidents Carter and Reagan administrations made matters even worse when they addressed inflation by hiking interest rates. “The emerging-market borrowers began to suffer…” A strong US banking cartel ensured the loans of these weak and vulnerable nations were denominated in US dollars. “Zaire and Turkey had already defaulted in 1976 and 1977. After 1980 the high interest rates, close to 20% for six-month Libor, shook country after country off its perch.” [4]

As we all appear to know now, the global economy continued to deteriorate from there. One public bailout of private concentrated wealth followed another.

The words of C Wright Mills written in the early 1960s resonate with a great deal of urgency today:

The meaning of freedom, positively put” has to be restated now, not as independence, but as control over that upon which the individual is dependent. Security, once resting on the small holding, has become, in the world of large property, anxiety – anxiety produced by the concentration process and by the manner of living without expectation of owning. Positively, security must be group-guaranteed; individual men can no longer provide for their own futures.

Should we be content to continue to assume ‘the dominance of huge scale property’? If so, where is the counterveiling power to create our new ‘group guarantee’ of freedom and security?

[1] ‘Beyond Greed’ by Stephen Fay. Prologue, page 1. ISBN 0-670-644497-8. Viking Press, 1980.

[2] The US had developed a consistent balance of payments deficit due to that nation’s pursuance of the Vietnam War as well as other factors such as the flawed nature of the Bretton Woods system and the dominance of US transnational corporations in world banking and trade that left most of the world short of reserve currency.

[3] The essay entitled ‘Liberal values in the modern world’ from ‘Power, Politics & People – The collected essays of C Wright Mills’ edited by Irving Louis Horowitz.
Oxford University Press, 1967 (reprint 1969)

[4] Oil, inflation, default
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