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Chapter 15: The FIRE Economy and C=M+L

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The FIRE economy is an acronym which means Finance, Insurance and Real Estate. It is a parallel to the Big History paradigm, as outlined in Chapter 11. Finance is the abstract, insurance is the social, and real estate is the physical. The FIRE economy appears to be modern finance, but its roots are in feudalism. In the past, serfs were bound to the land. They worked and gave a lion's share of the harvest to the landowners. Today, the worker is bound by their mortgage (or lease) and they pay cash. It is common for fifty percent of income to go toward housing alone, but that is just one of many housing expenses. The high nobles are banking corporations. Secondary nobles are the utilities, communications, insurance and government.

In other words, the modern world is a masquerade of a feudalistic system with the same large inequalities of wealth and structural imbalances across generations. Rigid social castes have been relaxed and a large middle-class has developed in industrialized nations, but on a both a national and global scale, feudalism continues to quietly reign. Even the habit of toll roads has endured, along with fees on strangers passing through, which are found in meal and hotel taxes. What we call capitalism and democracy has the same mathematical framework and cruelties as feudalism and parochial monarchy.

The feudalistic housing market is dominated by the thirty or forty year mortgage. People pay banking corporations for most of their working life. When they pass on, the property will transfer to someone new, who will pay again for years. Excluding brief breaks, the banks own most property in perpetuity.

Landlords are a smaller version of the banks, pressing the advantages of ownership directly. Landlords rent space, whereas banks rent money used to purchase space. The New World unconsciously followed the habits of the Old World. Modern history is a tale of global colonization and the clash of a european hybrid merchant-feudal system with indigenous sharing economies.

Banks exist to finance housing, support other banks, and to finance development through both the public and private sector. The only competition to bankers and landlords are government-provided elderly housing and subsidized rental housing. In some locales, there is an attempt at rent control, too. Housing covers a wide spectrum of prices. People are passively forced to migrate to housing that they can afford. In general, the more one earns, the more they pay for housing.

The role of government is to promote the public good. The existence of foreclosures, bankruptcy, slums and homelessness indicates a widespread systemic failure. Our land management system satisfies no one, even the wealthy, who are forced to live a guarded life full of fear, and often become victims of the volatility that allowed them to rise into riches.

Underlying the promise of democracy is the expectation of a stable sharing economy where all contribute and gain. The monarch was believed to be greedy and incompetent. Perhaps true, but we can now see that economic imbalances also stemmed from a mathematical source: the nature of how we buy and sell. The growth of homelessness is directly related to the nature of how we sell real estate, just as hunger is the result of how we sell food. The free market is grotesquely inefficient and unfair. Land and housing management is the central problem of modern society. Hunger was the result of crop failures under feudalism, whereas today it is a systemic failure of equality.

Interest: the control of land and money

Under feudalism, land was bought and sold infrequently. Under capitalism, land gets bought and sold constantly, or so it appears. In fact, what moves is the bondage of mortgages. Modern serfs are free to roam to find housing they can afford, but must pay the banks or landlords wherever they go. Landlords are often indebted to the banks, too, so renting is generally paying a bank through proxy.

Native Americans, in contrast, never had such a problem. Land was occupied but not owned. Ownership was unnecessary, and men were naturally equal with the land and one another. The American Revolution contradictorily attempted to establish political equality with private ownership, when the central privilege of monarchy was a claim to ownership. They removed the king and kept the inequality of privileges (like slavery), which makes the financial continuation of feudalism somewhat unsurprising. They democratized the problem.

To their credit, many of the Founding Fathers wanted everyone to own land, so all could be equal. They recognized that those without land were unequal. The landless had no voting rights in the new society, but that was seen as a temporary condition. Europeans never grasped the native inhabitants understanding of land. The colonists saw the land as a resource to be exploited, rather than as a garden which provided.

The rise of industrialism destroyed the dream of a nation of yeoman farmers. With the decision to issue copyright law and patent protections, the meaning of property and privilege had changed fundamentally. Today, we have two unworkable property systems, once based on land, and another based on ideas.

The Land Bondage System

Key to understanding our modern land bondage is the combination of interest rates and real estate appreciation. The higher the land and housing valuations, and the higher the interest rates, then the greater the mathematical duress on society. Everyone has become enslaved to this system. Exploitation is not necessarily willful, but a survival response driven by fiscal pressure.

Modern bankers have control of both the land and the money, in much the same way that the feudal lords had control over the land and the food. The interest paid on a $100,000.00 loan, at 5% for 30 years, is $93,255.78. Let's assume the $100,000.00 home then sold for $200,000.00, a 100% gain. After paying the interest, the original owner comes out almost even, and someone else is bonded for the full amount in his place. The bank took all the proceeds of his thirty years of labor. The owner got a place to sleep, the bank got everything else.

The $200,000 in proceeds from the sale then becomes his retirement fund, which he must spend. He can downsize, but he still needs housing that must be purchased at the currently inflated rate. After purchasing new housing, anything remaining from the windfall will be deposited in a bank, where it is lent to bind another buyer, including the buyer of his old property. Anything left over at death will be an inheritance, but the bank always has control of the money. Housing appreciation benefits the banks and harms the people.

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Steve grew up in a family business, was a history major in college, and has owned a small business for 25 years. Practical experience (mistakes) have led him to recognize that political rhetoric and educated analysis often falls short of reality. (more...)
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