What "Nationalize the Banks" and the "Free Market" Really Mean in Today's 
Looking-Glass World 
The Language of Looting 
"Banking shares began to plunge Friday morning after Senator Dodd,
 the Connecticut Democrat who is chairman of the banking committee, said in an 
interview with Bloomberg Television that he was concerned the government might
 end up nationalizing some lenders “at least for a short time.” Several other 
prominent policy makers – including Alan Greenspan, the former chairman of the 
Federal Reserve, and Senator Lindsey Graham of South Carolina – have echoed 
that view recently.” 
--Eric Dash, “Growing Worry on Rescue Takes a Toll on Banks,” 
The New York Times, February 20, 2009
How is it that Alan  Greenspan, free-market lobbyist for Wall Street, recently 
announced that he favored nationalization of America’s banks – and indeed, 
mainly the biggest
 and most powerful? Has the old disciple of Ayn Rand gone Red in the night? 
Surely not.
The answer is that the rhetoric of “free markets,” “nationalization” 
and even “socialism” (as in “socializing the losses”) has been turned into the 
language of deception to help the financial sector mobilize government power to 
 its own special privileges. Having undermined the economy at large, Wall 
Street’s public relations think tanks are now dismantling the language itself.
Exactly what does “a free market” mean? Is it what the classical 
economists advocated – a market free from monopoly power, business fraud, 
political insider dealing and special privileges for vested interests – a 
market protected by the
 rise in public regulation from the Sherman Anti-Trust law of 1890 to the 
Glass-Steagall Act and other New Deal legislation? Or is it a market free for 
predators to exploit
 victims without public regulation or economic policemen – the kind of 
free-for-all market that the Federal Reserve and Security and Exchange 
Commission (SEC) have created 
over the past decade or so? It seems incredible that people should accept 
today’s neoliberal idea of “market freedom” in the sense of neutering 
government watchdogs, 
Alan Greenspan-style, letting Angelo Mozilo at Countrywide, Hank Greenberg at 
AIG, Bernie Madoff, Citibank, Bear Stearns and Lehman Brothers loot without 
hindrance or sanction, plunge the economy into crisis and then use Treasury 
bailout money to pay the highest 
salaries and bonuses in U.S. history.
Terms that are the antithesis of “free market” also are being turned into the 
opposite of what they historically have meant. Take today’s discussions about 
the banks. For over a century nationalization has meant public takeover of 
monopolies or other sectors to operate them in the public interest rather than 
leaving them so special interests. But when neoliberals use the word 
“nationalization” they mean a bailout, a government giveaway 
to the financial interests. 
Doublethink and doubletalk with regard to “nationalizing” or “socializing” the 
banks and other sectors is a travesty of political and economic discussion from 
the 17th through mid-20th 
centuries. Society’s basic grammar of thought, the vocabulary to discuss 
political and economic topics, is being turned inside-out in an effort to ward 
off discussion of the policy solutions posed by the classical economists and 
political philosophers that made Western civilization “Western.” 
Today’s clash of civilization is not really with the Orient; it is with our own 
past, with the Enlightenment itself and its evolution into classical political 
economy and Progressive Era social reforms aimed at freeing society from the 
surviving trammels of 
European feudalism. What we are seeing is propaganda designed to deceive, to 
distract attention from economic reality so as to promote the property and 
financial interests from whose predatory grasp classical economists set out to 
free the world. What is being attempted 
is nothing less than an attempt to destroy the intellectual and moral edifice 
of what took Western civilization eight centuries to develop, from the 12th 
century Schoolmen
 discussing Just Price through 19th and 20th century classical economic value 
Any idea of “socialism from above,” in the sense of “socializing the risk,” is 
old-fashioned oligarchy – kleptocratic statism from above. Real nationalization 
occurs when 
governments act in the public interest to take over private property. The 
19th-century program to nationalize the land (it was the first plank of the 
Communist Manifesto) 
did not mean anything remotely like the government taking over estates, paying 
off their mortgages at public expense and then giving it back to the former 
landlords free and 
clear of encumbrances and taxes. It meant taking the land and its rental income 
into the public domain, and leasing it out at a user fee ranging from actual 
operating cost to a
 subsidized rate or even freely as in the case of streets and roads.
Nationalizing the banks along these lines would mean that the government would 
supply the nation’s credit needs. The Treasury would become the source of new 
replacing commercial bank credit. Presumably this credit would be lent out for 
economically and socially productive purposes, not merely to inflate asset 
prices while loading 
down households and business with debt as has occurred under today’s commercial 
bank lending policies.
How neoliberals falsify the West’s political history
The fact that today’s neoliberals claim to be the intellectual descendants of 
Adam Smith make it necessary to restore a more accurate historical perspective.
 Their concept of “free markets” is the antithesis of Smith’s. It is the 
opposite of that of the classical political economists down through John Stuart 
Mill, Karl Marx
 and the Progressive Era reforms that sought to create markets free of 
extractive rentier claims by special interests whose institutional power can be 
traced back to 
medieval Europe and its age of military conquest. 
Economic writers from the 16th through 20th centuries recognized that free 
markets required government oversight to prevent monopoly pricing and other 
charges levied by 
special privilege. By contrast, today’s neoliberal ideologues are public 
relations advocates for vested interests to depict a “free market” is one free 
of government regulation,
 “free” of anti-trust protection, and even of protection against fraud, as 
evidenced by the SEC’s refusal to move against Madoff, Enron, Citibank et al.). 
The neoliberal ideal of free 
markets is thus basically that of a bank robber or embezzler, wishing for a 
world without police so as to be sufficiently free to siphon off other peoples’ 
money without constraint.
The Chicago Boys in Chile realized that markets free for predatory
 finance and insider privatization could only be imposed at gunpoint. These 
free-marketers closed down every economics department in Chile, every social 
science department
 outside of the Catholic University where the Chicago Boys held sway. Operation 
Condor arrested, exiled or murdered tens of thousands of academics, 
intellectuals, labor leaders and artists. Only by totalitarian control over the 
academic curriculum and public media backed by an 
active secret police and army could “free markets” neoliberal style be imposed. 
The resulting privatization at gunpoint became an exercise in what Marx called 
“primitive accumulation”
 – seizure of the public domain by political elites backed by force. It is a 
free market William-the-Conqueror or Yeltsin-kleptocrat style, with property 
parceled out to the 
companions of the political or military leader.
All this was just the opposite of the kind of free markets that Adam Smith had 
in mind when he warned that businessmen rarely get together but to plot ways to 
fix markets to their
 advantage. This is not a problem that troubled Mr. Greenspan or the editorial 
writers of the New York Times and Washington Post. There really is no kinship 
between their neoliberal ideals and those of the Enlightenment political 
philosophers. For them to promote an idea of free 
markets as ones “free” for political insiders to pry away the public domain for 
themselves is to lower an intellectual Iron Curtain on the history of economic 
The classical economists and American Progressives envisioned markets free of 
economic rent and interest – free of rentier overhead charges and monopoly 
price gouging,
 free of land-rent, interest paid to bankers and wealthy financial 
institutions, and free of taxes to support an oligarchy. Governments were to 
base their tax systems on collecting 
the “free lunch” of economic rent, headed by that of favorable locations 
supplied by nature and given market value by public investment in 
transportation and other infrastructure, not by the efforts of landlords 
The argument between Progressive Era reformers, socialists, anarchists 
and individualists thus turned on the political strategy of how best to free 
markets from debt and rent. Where they differed was on the best political means 
to achieve it, above 
all the role of the state. There was broad agreement that the state was 
controlled by vested interests inherited from feudal Europe’s military 
conquests and the world that was
 colonized by European military force. The political question at the turn of 
the 20th century was whether peaceful democratic reform could overcome the 
political and even military 
resistance wielded by the Old Regime using violence to retain its “rights.” The 
ensuing political revolutions were grounded in the Enlightenment, in the legal 
philosophy of 
men such as John Locke, political economists such as Adam Smith, John Stuart 
Mill and Marx. Power was to be used to free markets from the predatory property 
and financial 
systems inherited from feudalism. Markets were to be free of privilege and free 
lunches, so that people would obtain income and wealth only by their own labor 
and enterprise. 
This was the essence of the labor theory of value and its complement, the 
concept of economic rent as the excess of market price over socially necessary 
Although we now know that markets and prices, rent and interest, contractual 
formalities and nearly all the elements of economic enterprise originated in 
the “mixed economies” 
of Mesopotamia in the fourth millennium BC and continued throughout the mixed 
public/private economies of classical antiquity, the discussion was so 
politically polarized that the idea of a mixed economy with checks and balances 
received scant attention a century ago.
Individualists believed that all that shrinking central governments would 
shrink the control mechanism by which the vested interests extracted wealth 
without work or enterprise of 
their own. Socialists saw that a strong government was needed to protect 
society from the attempts of property and finance to use their gains to 
monopolize economic and political power. Both ends of the political spectrum 
aimed at the same objective – to bring prices down to 
actual costs of production. The common aim was to maximize economic efficiency 
so as to pass on the fruits of the Industrial and Agricultural Revolutions to 
the population at large.
 This required blocking the rentier class of interlopers from grabbing the 
public domain and controlling the allocation of resources. Socialists did not 
believe this could be done without taking the state’s political and legal power 
into their own hands. Marxists believed that a revolution was 
necessary to reclaim property rent for the public domain, and to enable 
governments to create their own credit rather than borrow at interest from 
commercial bankers and wealthy
 bondholders. The aim was not to create a bureaucracy but to free society from 
the surviving absentee ownership power of the vested property and financial 
All this history of economic thought has been as thoroughly expunged from 
today’s academic curriculum as it has from popular discussion. Few people 
remember the great debate 
at the turn of the 20th century: Would the world progress fairly quickly from 
Progressive Era reforms to outright socialism – public ownership of basic 
economic infrastructure, 
natural monopolies (including the banking system) and the land itself (and to 
Marxists, of industrial capital as well)? Or, could the liberal reformers of 
the day – individualists, land taxers, classical economists in the tradition of 
Mill, and American institutionalists such as 
Simon Patten – retain capitalism’s basic structure and private property 
ownership? If they could do so, they recognized that it would have to be in the 
context of regulating markets 
and introducing progressive taxation of wealth and income. This was the 
alternative to outright “state” ownership. Today’s extreme “free market” idea 
is a dumbed-down caricature of this position.
All sides viewed the government as society’s “brain,” its forward planning 
organ. Given the complexity of modern technology, humanity would shape its own 
evolution. Instead of evolution occurring by “primitive accumulation,” it could 
be planned deliberately. Individualists countered that no human planner was 
sufficiently imaginative to manage the complexity
 of markets, but endorsed the need to strip away all forms of unearned income – 
economic rent and the rise in land prices that Mill called the “unearned 
increment.” This involved 
government regulation to shape markets. A “free market” was an active political 
creation and required regulatory vigilance.
As public relations advocates for the vested interests and special rentier 
privilege, today’s “neoliberal” advocates of “free” markets seek to maximize 
economic rent – the free 
lunch of price in excess of cost-value, not to free markets from rentier 
charges. So misleading a pedigree only could be achieved by outright 
suppression of knowledge of what Locke, Smith and Mill really wrote. Attempts 
to regulate “free markets” and limit monopoly pricing and privilege are 
conflated with “socialism,” even with Soviet-style bureaucracy. The aim is to 
deter the
 analysis of what a “free market” really is: a market free of unnecessary 
costs: monopoly rents, property rents and financial charges for credit that 
governments can create freely. 
Political reform to bring market prices in line with socially necessary 
cost-value was the great economic issue of the 19th century. The labor theory 
of intrinsic cost-value found its
 counterpart in the theory of economic rent: land rent, monopoly price gouging, 
interest and other returns to special privilege that increased market prices 
purely by institutional property claims. The discussion goes all the way back 
to the medieval churchmen defining Just Price. 
The doctrine originally was applied to the proper fees that bankers could 
charge, and later was extended to land rent, then to the monopolies that 
governments created and sold off 
to creditors in an attempt to extricate themselves from debt.
Reformists and more radical socialists alike sought to free capitalism of its 
egregious inequities, above all its legacy from Europe’s Dark Age of military 
conquest when invading 
warlords seized lands and imposed an absentee landlord class to receive the 
rental income, which was used to finance wars of further land acquisition. As 
matters turned out, hopes that industrial capitalism could reform itself along 
progressive lines to purge itself of its legacy from
 feudalism have come crashing down. World War I hit the global economy like a 
comet, pushing it into a new trajectory and catalyzing its evolution into an 
unanticipated form of finance capitalism.
It was unanticipated largely because most reformers spent so much effort 
advocating progressive policies that they neglected what Thorstein Veblen 
called the vested interests. Their
 Counter-Enlightenment is creating a world that would have been deemed a 
dystopia a century ago – something so pessimistic that no futurist dared depict 
a world run by venal and corrupt bankers, protecting as their prime customers 
the monopolies, real estate speculators 
and hedge funds whose economic rent, financial gambling and asset-price 
inflation is turned into a flow of interest in today’s rentier economy. Instead 
of industrial capitalism increasing capital formation we are seeing finance 
capitalism strip capital, and instead of the promised world of 
leisure we are being drawn into one of debt peonage.
The financial travesty of democracy
The financial sector has redefined democracy by claiming claims that the
 Federal Reserve must be “independent” from democratically elected 
representatives, in order to act as the bank lobbyist in Washington. This makes 
the financial sector exempt 
from the democratic political process, despite the fact that today’s economic 
planning is now centralized in the banking system. The result is a regime of 
insider dealings and oligarchy – rule by the wealthy few.
The economic fallacy at work is that bank credit is a veritable factor of
 production, an almost Physiocratic source of fertility without which growth 
could not occur. The reality is that the monopoly right to create 
interest-bearing bank credit is a free 
transfer from society to a privileged elite. The moral is that when we see a 
“factor of production” that has no actual labor-cost of production, it is 
simply an institutional privilege.
So this brings us to the most recent debate about “nationalizing” or 
“socializing” the banks. The Troubled Asset Relief Program (TARP) so far has 
been used for the following uses that I think can be truly deemed anti-social, 
not “socialist” in any form.
By the end of last year, $20 billion was used to pay bonuses and salaries
 to financial mismanagers, despite the plunge of their banks into negative 
equity. And to protect their interests, these banks continued to pay lobbying 
fees to persuade legislators 
to give them yet more special privileges.
While Citibank and other major institutions threatened to bring the financial 
system crashing down by being “too big to fail,” over $100 billion of TARP 
funds was used to make
 them even bigger. Already teetering banks bought affiliates that had grown by 
making irresponsible and outright fraudulent loans. Bank of America bought 
Angelo Mozilo’s 
Countrywide Financial and Merrill Lynch, while JP Morgan Chase bought Bear 
Stearns and other big banks bought WaMu and Wachovia.
Today’s policy is to “rescue” these giant bank conglomerates by enabling
 them to “earn” their way out of debt – by selling yet more debt to an already 
over-indebted U.S. economy. The hope is to re-inflate real estate and other 
asset prices. But do we really want to let banks “pay back taxpayers” by 
engaging in yet more predatory financial practices
 vis-à-vis the economy at large? It threatens to maximize the margin of market 
price over direct costs of production, by building in higher financial charges. 
This is just the opposite policy from trying to bring prices for housing and 
infrastructure in line with technologically necessary 
costs. It certainly is not a policy to make the U.S. economy more globally 
The Treasury’s plan to “socialize” the banks, insurance companies and other 
financial institutions is simply to step in and take bad loans off their books, 
shifting the loss onto
 the public sector. This is the antithesis of true nationalization or 
“socialization” of the financial system. The banks and insurance companies 
quickly got over their initial knee-jerk 
fear that a government bailout would occur on terms that would wipe out their 
bad management, along with the stockholders and bondholders who backed this bad 
 The Treasury has assured these mismanagers that “socialism” for them is a free 
gift. The primacy of finance over the rest of the economy will be affirmed, 
leaving management 
in place and giving stockholders a chance to recover by earning more from the 
economy at large, with yet more tax favoritism. (This means yet heavier taxes 
shifted onto consumers, raising their living costs accordingly.) 
The bulk of wealth under capitalism – as under feudalism –always has come 
primarily from the public domain, headed by the land and formerly public 
utilities, capped most recently by the Treasury’s debt-creating power. In 
effect, the Treasury creates a new 
asset ($11 trillion of new Treasury bonds and guarantees, e.g. the  $5.2 
trillion to Fannie and Freddie). Interest on these bonds is to be paid by new 
levies on labor, not on property. This is what is supposed to re-inflate 
housing, stock and bond prices – the money freed from property and 
corporate taxes will be available to be capitalized into yet new loans. 
So the revenue hitherto paid as business taxes will still be paid – in the form 
of interest – while the former taxes will still be collected, but from labor. 
The fiscal-financial burden
 thus will be doubled. This is not a program to make the economy more 
competitive or raise living standards for most people. It is a program to 
polarize the U.S. economy 
even further between finance, insurance and real estate (FIRE) at the top and 
labor at the bottom. 
Neoliberal denunciations of public regulation and taxation as “socialism” is
 really an attack on classical political economy – the “original” liberalism 
whose ideal was to free society from the parasitic legacy of feudalism. A truly 
socialized Treasury policy
 would be for banks to lend for productive purposes that contribute to real 
economic growth, not merely to increase overhead and inflate asset prices by 
enough to extract interest 
charges. Fiscal policy would aim to minimize rather than maximizing the price 
of home ownership and doing business, by basing the tax system on collecting 
the rent that is
 now being paid out as interest. Shifting the tax burden off wages and profits 
onto rent and interest was the core of classical political economy in the 18th 
and 19th centuries, as well as the Progressive Era and Social Democratic reform 
movements in the United States and Europe prior
 to World War I. But this doctrine and its reform program has been buried by 
the rhetorical smokescreen organized by financial lobbyists seeking to muddy 
the ideological waters 
sufficiently to mute popular opposition to today’s power grab by finance 
capital and monopoly capital. Their alternative to true nationalization and 
socialization of finance is debt peonage, oligarchy and neo-feudalism. They 
have called this program “free markets.”
Michael Hudson is a former Wall Street economist. A Distinguished Research
 Professor at University of Missouri, Kansas City (UMKC), he is the author of 
many books, including Super Imperialism: The Economic Strategy of American 
Empire (new ed.,
 Pluto Press, 2002) He can be reached via his website, m...@michael-hudson.com

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