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Andrew McKillop
21st Century Wire


The long depression, which was called the Great Depression until the crisis of the 1930s took over that title, was a worldwide economic recession for which economists place the start date at 1873 and the end date at 1879. For some countries like the UK, economists argue this depression lasted until at least 1895. The crisis started in April 1873 with the collapse, or near collapse of several major stock markets. The same year, in September, the New York stock exchange closed for 10 straight days to stem panic.

The depression was most severe in Europe and the United States, for several converging reasons including previous fast economic growth on the back of the always intensifying Industrial Revolution, early market saturation, declining innovation, raw material shortages, international warfare and reparations payments (especially by France to Germany after the Franco-Prussian War), deflation, and rising competition. Other reasons and results of the crisis included the massive growth of land and home prices and the easy profit made by land owners and landlords, denounced by American journalist Henry George, but his popular writings did not include Thorstein Veblen’s later economic analysis of the Long Depression. Veblen called the long depression the “triumph of capital rent”. One visible result of this was “the leisure class”, the title of Veblen’s best-known book.

Interest rates tended to stay high or very high (especially in UK), during a period of general deflation. At the same time, the finance industry gained “critical mass” applying new technology such as the telephone and telegraph enabling 24-hour credit decisions, price quotations, stock buy-sell orders and executions on a nearly instant worldwide basis. Many of the largest banks and bank groups we know today first expanded to near-global status in the period of 1870-1900.

The economic crisis period of about 1873-1880, and the period from 1980 to today, are above all marked by the development or mutation of economic rent – the excess of price over “real cost” – to the extraction of similarly unearned and unmerited income by purely financial operations: capital rent. This avoids or “leapfrogs” the previously needed phase of firstly extracting economic rent before transforming it into capital rent. Economic rent is an overhead charge for access to land, minerals, energy or other natural resources, and organized labour, but firstly requires economic activity. Capital rent in the form of bank credits whose control and issue are monopolized, and are then traded to extract further rent, avoids any necessity for “on the ground” physical economic activity.

The very small number of persons and entities owning and controlling global capital rent – much less than the 1% of the 1%/99% capital rent paradigm – are truly “the leisure class”. This miniscule minority of the population regularly extracts 90% – 99% of any additional wealth that can or may be produced.



Economic rent is similar to, but also different from the “rent” of landlords receiving payment for the use of their land or rental property in the form of housing or buildings. Economic rent, in the modern sense of the term, was a constant and intrinsic part of early European economic development, from the late feudal period of the 12th and 13th centuries, through the Medieval period until the early industrial revolution period, starting about 1750. By 1750 however, capital rent similar to the capital rent of the 19th, 20th and 21st centuries had already both created massive quantities of “paper wealth” in the form of credits, and destroyed equal amounts of real economic wealth leaving nothing, or less than nothing behind.

The earliest forms of capital rent can be compared with the causes and run-up to the world’s first modern-type stock exchange collapse, in 1721, “engineered” by John Law for the French Monarchy and its circle of creditors. Major causes were the extreme level of royal debt, very slow economic growth, food shortages, poor economic infrastructures and others – but these were aggravated by “rent creation” carried out by the Monarchy. This notably included the grant of royal privilege to creditors of the King, the court circle of nobles, the fighting forces of the realm (army, navy), other security services, and all other dependents of the Monarchy. The creditors were given “rentes de situation”, or ‘situational rents’ in return for cancelling the King’s debt and allied debt.

These rents classically included the right to levy port duties or customs duties and set up highway tollbooths wherever the creditors chose. This quickly led to a multiplication of booths, each extracting tolls from all passing traffic, notably raw materials, farm and food products. Creditors owning these ‘rentes de situation’ could, and did trade them among and between themselves. This took place in the growing number of Paris coffee shops at the time, also creating the life assurance “industry”, at the time in the form of bets on whether the King would die or not, and pay debt owed to them, or not.

The early French “liberal economist”, Robert-Jacques Turgot, who produced a book titled “The Wealth of Nations” at the same time as Adam Smith, was also Controller of Finances for Kings Louis XV-XVI.

One theme he developed was the need for “free trade in grains”, in part due to ever rising prices of food grains driven higher by increasing tolls and taxes. Despite his warnings however, the multiplication of highways tolls, customs and port duties, manufacturing taxes, and poll taxes levied in several regions of France most surely aggravated food shortages and helped sow the seeds of violent revolution. France’s royal family and its hangers-on were wiped out by the 1789 revolution, and many were guillotined.

The extreme corruption of the “last Louis kings” in France is a well known theme, but the role of capital rent, shifting from economic rent, is often sidelined. However, as early as 1721 with the collapse of the Paris stock exchange and its economic sequels, the extreme danger of uncontrolled growth of capital rent were plainly visible to the French Monarchy – which chose to ignore it. Today’s “liberal-oriented” political deciders in the so-called mature democracies have also chosen to ignore the mushroom growth in the size, power and destructive role of capital rent in the economy since 1980.


Economic rent can be called rent extracted from something – but capital rent enables “pure play” profit making with assets that are virtual, do not exist, and will never exist. Veblen, more than 90 years ago, focused the early US “real estate bubble”, that as we know was repeated in the 1920s, and repeated again since the 1980s. He described real estate as “the great American game,” where advertising and promotion can produce future assets defined by future prices that have no relation to current prices and possible future values. Enabling this speculative casino play, credit is required – this is provided by capital rentiers who, if the debtor defaults, can purchase the underlying asset at a “distressed price”, then resell it to another sucker, who will buy it using credit supplied by the same capital rentier.

Especially during periods of rapid industrial productivity growth and technological innovation, Veblen and other economists such as Patten, and especially Joseph Schumpeter saw the transformation of economic rent, into “pure play” capital rent as enabled by super-profits. These were created, in the case of industry, by increasing returns resulting from the advance of science and technology generating higher output and further depressing the unit costs of raw materials and energy needed for manufacturing. The transformation of economic rent into capital rent was therefore easier, during periods of industrial growth and technology change, which in the 1920s were associated with Henry Ford and mass produced cars, and since 1980 by mass produced computers, cellphones and mass utilization of Internet.

Also however, during periods of global economic crisis and at latest since the 1870s Long Depression, economic decline also accelerates the shift from economic rent, to capital rent. Some economists and historians argue that during economic decline of the type that has operated since 1980, and especially since 2008, featuring massively excessive bank privileges and the finance sector’s rise to such total dominance we can call the economy “financialized or financiarized”, that we now have an essentially pre-capitalist situation. Some compare this to the pre-Medieval world, during which the characteristic mode of financial accumulation was to loot the temples and palaces where savings were stored, and extract tribute in the form of intense and punitive taxation of conquered populations.

One prediction of Veblen, made in 1921, applies with full force to the ongoing self-mutation of capital rent since the 1980s. In 1921, he argued that although in the early Soviet Union it had been done by force, capital rentiers will voluntarily abandon industry – at least of the “classical” type. To be sure, they financiarize industry, explaining exactly why de-industrialization and outplacement are main features of the decline of the Western or “mature economies”, and key slogans to gurgle by any MBA student “who knows whats what” and considers themselves employable.

Capital rent and the rentiers which operate it move to a “higher sphere”, with specific requirements for their own further profit. These requirements include deflation, rather than inflation, and economic stagnation rather than growth. At this time and since 2008, these are either overt, or underlying covert trends and drivers of the process of economic decline.




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