Reintroducing Veblen

Michael Hudson shines the spotlight on the economic work of Thorsten Veblen (h/t nc links):

Taking the lead in developing new general laws for how industry was becoming financialized, Veblen countered the post-classical conflation of rent and interest with profits (“earnings”) on three major grounds:

1. (1) The timeless and decontextualized generalities drawn by the pro-rentier logic used circular reasoning to justify the status quo as being natural and in equilibrium. By definition, there was no rentier exploitation, even as economies were polarizing. Assuming that every income recipient is paid for a contribution to production implies that the existing distribution of property and mode of financing are optimum. There thus seems to be no need for reform or regulation, either socialist or protectionist.
2. (2) It is not a virtue for post-classical economics to be value-free. Denying the concept of economic rent as the excess of market price over cost value leads to a conflation of land with capital, rent with interest. Land is treated as a “factor of production,” not a monopoly right independent of production, a privilege to put an economic tollbooth in place to extract rent.
3. (3) Excluding the political dimension of classical political economy is implicitly laissez faire. It leaves no role for government – the only power able to regulate and tax land rent and prevent the financial sector from turning itself into an oligarchy. “Free market” opposition to government regulation blocks reforms aimed at bringing prices in line with costs so as to make economies more efficient. “One-size-fits all” generalities lead to Margaret Thatcher’s intolerant and censorial assertion: “There is no alternative.”

In sum, over-simplicity in excluding discussion of the rentiers’ free lunch achieves a higher level of abstraction by ruling out concepts that would deem rentier income to be unearned and hence unnecessary. All such revenue – economic rent – is “institutional” in the sense that it is not based on the universals of technological costs of production or abstract “supply and demand.” Institutions, especially banking and tax systems, are not universal but are historically determined.
Focusing on status quo costs burdened with heavy rentier charges implies that an input is worth whatever the buyer pays for it. In practice, this means whatever a bank will lend against its collateral value or income stream. This depends on the terms on which loans are made and regulated. Taking the prices of land or monopoly “tollbooth” rent-extracting rights as “givens” means accepting whatever investors must lay out as a valid cost, including payments for rent-extracting privileges or bank credit created with little inherent production cost. Rentier privileges are capitalized without regard to necessary labor cost on which classical economists focused in isolating the “free lunch” element of price not reducible to labor.

I wasn't familiar with Veblen's work, although Jonathon Larson has mentioned on numerous occasions that I should read him.  I have to agree with the case against unearned income, but must note that in today's tax system, unearned income is much more favorably treated than earned income.  Here is a nice chart that demonstrates the case:

 Mitt Romney made nearly four times more in each of the last two years than any recent U.S. President has in any year (and Obama made double any of the others), and yet, in those two years, in which he didn't do any work, he paid the lowest effective tax rate of any of those recent Presidents.  What the hell kind of sense does that make?  It demonstrates how fully the financial masters of the Universe have stacked the deck in their favor.  The rentiers own the world, and we only pay to be here.