Dec 12, 2013
The Insider’s Economic Dictionary: C Is for Camouflage
Posted on Aug 11, 2013
By Michael Hudson
Camouflage: A cloak of artificial attractiveness or even of invisibility. Financial debt-claims on the economy’s income and assets camouflage themselves as wealth, although the financial tactic is to strip it. (See Euphemism and Parasite.)
Capital: From Latin caput, “head,” as the political seat of government, society’s guiding intelligence or brain. Economically, the term is used ambiguously to represent two antithetical forms of capital. Physical capital in the form of tools, machinery and buildings are means of production evaluated by the cost of producing or acquiring them. Finance capital represents the rentier claims on these means of production and their revenue. Its dynamics tend ultimately to strip the means of production via the claims of compound interest in excess of the ability to pay out of current income and production.
Capital flight: The effect of global finance capital and local oligarchies stripping domestic capital to move it safely offshore, to the United States, Britain or intermediate tax havens. Russia lost an average $25 billion annually during the 1990s as its kleptocrats moved their money abroad, accompanied by an emigration of labor. Depopulation typically accompanies capital flight as the economy shrinks. Argentina is reported to have lost a million workers during the balance-of-payments crisis of 2002-03 in which a decade of IMF planning culminated, over and above its flight-capital losses. (See Asset Stripping, Hyperinflation and Washington Consensus.)
Capital formation: The full term is “fixed capital formation” or “real capital formation.” The United Kingdom’s National Accounts define it as “investment in tangible assets. [It] consists of gross domestic fixed capital formation and acquisition of stocks and work in progress.” It continues “Gross domestic fixed capital formation is defined as expenditure on fixed assets (buildings, plant and machinery and dwellings) which either replace existing assets that are no longer productive or increase the availability of productive assets.”
Although the great bulk of capital gains occur in real estate, most popular lobbying and journalistic discussion treat capital gains as the reward for industrial innovation and enterprise. Investors claim that capital gains are required as an incentive to induce them to seek out opportunities likely to rise in price, and conclude that this price appreciation helps allocate resources to the most profitable (and implicitly, most beneficial) sectors. This logic succeeded in getting the U.S. tax rate on capital gains reduced to just half the normal income-tax rate. (They originally were treated as normal income.) Many countries fail to tax these asset-price gains at all, as if they did not exist. But they are now the main objective of investors seeking total returns.
Capitalism: The term popularized by Werner Sombart in Das moderne Kapitalismus  to describe the social system based on promoting the accumulation of capital. (Marx himself did not use the term capitalism.) Long used mainly as an economic invective, the term only recently has become more glorified by neoliberals, referring mainly to finance capitalism.
Capitalism, finance: See Finance Capitalism.
Capitalism, Pentagon: See Pentagon Capitalism.
Cash flow: In older usage, the sum of profits plus depreciation. The more recent usage is ebitda, the acronym for earnings before interest, taxes, depreciation and amortization. This flow of income is available for new direct investment, to pay creditors or stockholders, although under finance capitalism it is absorbed increasingly by interest charges.
Central bank: Starting with the Bank of England, capped by the U.S. Federal Reserve Bank, a semipublic (although initially privately owned) institution administered by the commercial banks to provide sufficient liquidity to “avoid financial collapse,” which may become a euphemism for providing enough credit to keep inflating financial bubbles at a rate that will save debtors from defaulting and hence avoiding real-estate and stock-market loans from going bad and threatening the solvency of commercial banks. (See Bond, Treasury.)
Chartalism: Another term for the State Theory of Money. As Henry Liu has described it, “When the state issues fiat money under the principle of Chartalism, the something of value behind it is the fulfillment of tax obligations. Thus the state issues a credit instrument, called (fiat) money, good for the cancellation of tax liabilities. By issuing fiat money, the state is not borrowing from anyone. It is issuing tax credit to the economy.” (“Dollar Hegemony Against Sovereign Credit,” Asia Times, June 24, 2005.)
Chicago Boys: The University of Chicago economists brought to Chile in 1974 by its military dictatorship to turn economic control over to the junta’s supporters. Euphemizing their policy as introducing “free markets,” the Chicago Boys engineered a free lunch by giving away public enterprises. To silence criticism, they shut down every economics department in Chile except that of the Catholic University where the Chicago School had gained control. (See Labor Capitalism, Privatization and Washington Consensus.)
Chicago School: Named after the University of Chicago’s Business School where Milton Friedman and other monetarists established an early beachhead. The essence of their ideology is that government has no positive role, being only a deadweight burden. Starting with John D. Rockefeller, substantial funding for these economists came from rentiers seeking to replace the tax burden on property, monopoly power and finance with a tax shift onto the rest of the economy and give free reign for the FIRE sector to charge rent and interest free of regulation. Hence the euphemism “free-market school.” (See Free Lunch and Market Fundamentalism.)
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