Our Middleman-Skimming Economy

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Internet is enabling sellers and buyers to bypass the predatory State and the parasitic middlemen the State enforces.

Why do we read commentaries and analyses? To understand why the Status Quo is dying and to have a hand in shaping the new way of living that will replace it. Longtime correspondent Zeus Y. recently encapsulated the core dynamic of our era:

"Here's the deal between the two worlds right now: the Status Quo is dying but trying to take everything with it and the other is trying to hold the old world up enough to avoid complete collapse, buy time, and construct the airplane of the new world, all while flying."

Humans avoid changing current arrangements until there is no choice left but to change them--usually when the arrangement collapses in a heap. Greece is an interesting example of just this dynamic: the political parties left, right and center are desperate to keep the corrupt Status Quo intact, while those whose slice of the swag has vanished have already moved on to new arrangements that no longer depend on Central State swag or the many layers of middlemen that skimmed off most of the wealth for various monopolies, cartels and Elites: 

After Crisis, Greeks Work to Promote ‘Social’ Economy.

Here's the Status Quo arrangement: the Elites trying to take everything they can before their vast skimming arrangement finally collapses:

Corruption in the EU and Greece (Acting Man)

Greek official bribed 'more times than he can remember'

At the time, Mr. Kantas, a wiry former military officer, did not actually have the authority to decide much of anything on his own. But corruption was so rampant inside the Greek equivalent of the Pentagon that even a man of his relatively modest rank, he testified recently, was able to amass nearly $19 million in just five years on the job.

Corruption across EU 'breathtaking' (BBC)

It's instructive to study the key strategy in Greece's social/community economy: get rid of the middleman.

There's a couple of things we need to understand about middlemen before we can grasp the revolutionary nature of a social/community economy.

A middleman adds value to both supplier and buyer by making transactions faster, easier and cheaper. A bank, for example, clears payments made with checks, and takes depositors' savings and loans the money out at interest to borrowers. Both of these transactions are fraught with various risks and complications, and the bank charges a fee for taking on the management of the transactions.

A wholesaler adds value by providing a market for both sellers and buyers that enables a transfer of risks and transaction costs to the wholesaler in exchange for lower prices to the seller and higher prices to the buyer.

The keys to this middleman economy are transparency, voluntary choices and the competition that arises in transparent voluntary markets. Middleman economies function for both sellers and buyers only as long as all transactions are voluntary and the costs and risks of using middlemen are transparent to all participants.

The problem, as Marx foresaw, is that profits are always at risk in such a competitive marketplace. Middlemen who raise their prices enough to skim big profits are soon abandoned by sellers and buyers who can get lower transaction costs elsewhere.

The ideal system for middlemen is the exact opposite of an open competitive market: low-risk fat profits flow to monopolies or cartels that obscure costs, and turn sellers and buyers into involuntary participants who have no other choice but to give money to the middlemen.

This is the middleman-skimming economy, in which middlemen are free to skim enormous profits from participants who've been left no other choice. The classic skimming middleman is of course the State (government), which holds a monopoly on violence and other forms of coercion (for example, threats from the F.B.I.: Green is the new red: Will Potter on the problem of treating environmentalists like terrorists).

Everyone who thinks the State is a warm and fuzzy uncle here to help the disadvantaged should study these paragraphs closely:

At the Tribune, I was covering breaking news, shootings, murders and local government, and it was all horribly depressing. It was not the type of thing I went into journalism to do. I had a background in college in environmental activism, and protesting the World Trade Organization and the economic sanctions on Iraq, and I wanted to be involved in something positive like that again. So I went out leafletting with a group of people. We just passed out pieces of paper in a residential neighborhood about animal testing. I thought that was the most I could do as a working journalist — something so benign. And of course, since I have the worst luck ever, we were all arrested and charged. It was the only time I’ve been arrested. Those charges were later thrown out, of course. It was a frivolous arrest. And it’s still lawful to pass out handbills.

A couple weeks later, I was visited by two FBI agents at my home, who told me that unless I helped them by becoming an informant and investigating protest groups, they would put me on a domestic terrorist list. They also made some threats about making sure I wouldn’t receive a Fulbright I had applied for, and making sure my girlfriend at the time wouldn’t receive her PhD funding. I really want to think that I wouldn’t be affected by something like that, especially given my activist background, but it just scared the daylights out of me. It really did. That fear eventually turned into an obsession with finding out how this happened, how nonviolent protesters are being labeled as terrorists.

They knew everywhere I worked, they knew my editors at the Tribune, they knew different journalism awards I received — and their message was, “Help us or we’re going to put you on a different path.” And they kept saying, “Don’t throw all this away.” And so at one point, I just said, “What are you going to make go away? This is a class C misdemeanor for leafletting, there’s no way it’s going to hold up in court, and you’re talking about ruining my life.” I of course never became an informant, and never thought about doing anything like that, but — it changed the focus of my work, without a doubt.

There's your warm and fuzzy State in action. I can attest from personal experience that these are exactly the same tactics used to suppress, undermine and criminalize the anti-war movement in the late 1960s and early 70s.

Pimping the Empire, Conservative-Style
Pimping the Empire, Progressive-Style

Substitute middleman-skimming operation for empire and you get the basic idea.

The State is thus the ultimate skimming middleman: Every transactional fee is set by a monopoly seeking maximum profit and/or leverage from every transaction.

In our middleman-skimming economy, the State partners with various private cartels to fix prices, guaranteeing immense profits for the corporate cartels and the State functionaries who enforce the involuntary trade.

Would you like to see the "competitive" healthcare available in your area? It turns out all the insurance plans are ultimately operated by two companies in the cartel--ditto for the hospitals, Big Pharma medications, and so on.

How about our "competitive" national defense weapons industry? Oops, there's only a handful of suppliers--or in many cases, one supplier. Here's your $1,000 hammer--sorry about the high cost, but our overhead costs include very large bribes paid to politicos under the polite guise of "campaign donations." We're sure you understand (snicker).

Higher education is another middleman-skimming operation. Want a degree that may (or may not) still have a few shreds of "value" in the real economy? Pony up $100,000, buster, or better yet, make that $200,000. Here's the friendly Federal government which will issue you the loans to pay us. Oh, and these loans can't be discharged in bankruptcy--they're due and payable for the rest of your days (with rare exceptions that require a full-time legal team and many years of effort).

In a no-middleman system such as the one I propose in The Nearly Free University and The Emerging Economy: The Revolution in Higher Education, students (buyers) pay the lecturers, working professionals/mentors, adaptive learning providers, etc. directly, cutting out the middleman universities entirely because the system is based on the professional model of accredit the student, not the institution.

The same elimination of middleman-skimming is possible in a cash-barter only healthcare system: The "Impossible" Healthcare Solution: Go Back to Cash (July 29, 2009).

The Internet is enabling sellers and buyers to bypass the predatory State and the parasitic middlemen the State enforces. Banks--no longer needed. Sickcare cartels--no longer needed. Higher education cartel--no longer needed.

If you still think all these cartels are essential, please re-read the article on how people find new ways of living and interacting once the corrupt skimming operations of the State and cartels collapse.

After Crisis, Greeks Work to Promote ‘Social’ Economy.

Collapse of this system is akin to the collapse of debt-based serfdom. It's called freedom, and it's only a disaster for the middlemen-skimmers. For the rest of us, it's a new arrangement with many advantages over the long term.

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Joe Davola's picture

I won't dispute that a portion of the $1000 hammer is due to kickbacks, etc.

However, said hammer probably can't be procured unless it meets MIL-Spec requirements and has passed MIL-STD testing, none of which (inlcuding the record keeping) is cheap.

zaphod's picture

"That fear eventually turned into an obsession with finding out how this happened, how nonviolent protesters are being labeled as terrorists."

Something tells me this journalist probably also labels all small government activists and tea party members as terrorists, just a hunch after seeing journalist after journalist do so.

So that simple answer to her is that she has done the exact same thing to another group of people and supported the government in that. Now she is suprised that the system she supports is being turned on her.

i_call_you_my_base's picture

Indeed. If she were a real journalist this likely wouldn't have been the first encounter.

aminorex's picture

bitcoin eliminates many of the worst rent-seeking parasites from the economy, once it becomes dominant over fiat.

CH1's picture

I could hardly agree with this article more, except that we shouldn't fear the collapse.

ZerOhead's picture

It's what occurs after the collapse that frightens me the most...

NemoDeNovo's picture

Why???  If you see it coming and position yourself properly what is there to fear???  No One gets out of this life alive anyways, so whats the point of fearing it then???  Just my 2c

Beam Me Up Scotty's picture

Every time someone uses their credit card, the bank skims about a minimum of 2.5% on the transaction. That's just for the merchants.
The Sheep allow them to rape them at over 18%. Talk about "skim". Use cash as much as possible, they don't get to skim you on that.

Nick Jihad's picture

Not really the same thing - you can get "cash back" cards that cut you in for a share of the 2.5%, and you can get cards where no interest is charged if you pay in full every month. But, that's only because some competition prevails.

Beam Me Up Scotty's picture

Every credit card is no interest if you pay in full every month.  You get cash back?  At the expense of the merchant?  LOL.  You don't get any cash back.  Your prices are higher because you get some cash back.  Its all an illusion to protect the skimmers.

aminorex's picture

every credit card is no interest if you never pay it.

1) get a really good credit rating

2) get about 500k in available credit

3) convert it to cash

4) head to costa rica

this is the most practical retirement plan in america today

Canoe Driver's picture

Cash back?! Great way to get a check for 3 bucks at the end of the year. And no interest is charged when the balance is paid in full because there are still one or two laws protecting consumers. It has nothing to do with competition.

CH1's picture

However, said hammer probably can't be procured unless it meets MIL-Spec requirements and has passed MIL-STD testing...

And who do you think paid for that MIL-STD testing requirement?

That's right, the manufacturers. The worst anti-capitalists are the big corps.

NOTaREALmerican's picture

Re: However, said hammer probably can't be procured unless it meets MI-Spec requirements and has passed MIL-STD testing, none of which (inlcuding the record keeping) is cheap.

Yeah, and Big-MIC isn't socialism, and neither is Big-AG, and Big-Road.   And the OldFarts aren't getting socialist medical care either because Medicare isn't socialism because even tho it's run by the government and paid for by the taxpayers the fact FACT(look it up) that OldFarts are getting the benefits when they are over 65 means it's not socialism:  this is plainly written in the Australian School of Economic Truths (look it up, it talks about Medicare Part D not being socialist too).

XRAYD's picture

The best way to spec any hammer, military or regular, is to hit your fingers with it and see if it works!


NOTaREALmerican's picture

Oh, this can't be true.  

Any article with the word Marx must be written by a Communist who hate Merica, and the troops.

Everybody knows that environmentalist are trrrrrsss, and the FBI shouldn't have to follow the Constitution when dealing with trrrsss, because it's just a piece of paper:  Obummer said so himself when he attacked Eye-Rack.

And,  everybody knows that free-markets are natural and the middlemen would NEVER colluded because middlemen are honest hardworking Mericans who made this country great, not a bunch on welfare parasites!   That's who is causing all these problems "those people" on welfare who forced honest hard working middlemen to collude against their desire to have an open and free market just as that Australian Economists said that things should be if everybody was nice; which honest hardworking middlemen are, not a bunch of Commies like the author of this article who loves Marx and hates the troops.

NidStyles's picture

This is a non-topic IMO. Nothing can be examined critically as far as social issues without first removing the main instigator of all of it, the government.


Obviously, far more patient people will be willing to burn time discussing this in depth though.

CH1's picture

I think the author is trying very hard not to mention the elephant in the room.

NidStyles's picture

I honestly think the author lives in Wonderland and every day is Christmas for him.

ghostzapper's picture



This guy has been eloquently scripting sales pitches for transforming our financial system to a system based on Bitcoin but he is afraid to mention it.  It's taboo at ZH dpending on the current price action since so many here are "married-afraid to divorce" to PMs. 

RafterManFMJ's picture

Hey, I thought you left for Asia? ;)

Groundhog Day's picture

I agree with you Charles.....but tell me... how can i afford to pay ridiculous property taxes which fund education and pay for a tutor.  it can only work if my entire community goes off grid....I can't see that happening

I know many doctors who prefer cash to insurance plans however their are too many people on insurance plans due to the high costs of hospital visits.  The insurance companies have them by the balls

NOTaREALmerican's picture

Especially when most people IN the community work for the government, or work for a corporation profiting from the government, or are living directly off the government.

What percentage of the population likes things exactly the way they are?   Most people are only pissed off that OTHER PEOPLE are getting government loot.   The guy in the mirror (or his parents) never gets immoral government/corporate loot.  

Doña K's picture

The current system is imploding. Prices will reset when it get's prohibitive to buy insurance. There is a movement of doctors posting prices on the net. Tired of paying staff just to keep up with insurance paperwork

the 300000000th percent's picture

Bitcoin = no middle man

samsara's picture

Can I use my money without using a computer and a satelite link between me and my 'Money'?

Can I carry it with me?  Do I still have 'Money' if the internet is down?

If any answers are NO,  then it seems there are alot of middlemen between me and my 'Money'

malek's picture

Yves makes a valid point.

However she is firmly in the camp of believers that "we can slay the dragon [of authoritarian government] by playing by the rules more sophisticated than the rule makers."
Which makes her a useful idiot at best and a shill at worst.

acetinker's picture

Did I miss a "she" change on ZH?  The only Yves I ever met was a guy- just sayin'.  The journalist in this article sounds like a guy, too- talks about a "girlfriend".  Yet, early commenters referred to a "she" in their replies.

WillyGroper's picture

She's a she. Saw her on Moyers disecting CDS's w/ Matt Tiabbe.

malek's picture

Read her blog regularly for ~1.5 years.
Then it became too much for me, her constant "but we can't do THAT!" evasion of more radical measures if the more cautious ones have obviously failed (for example allowing big banks to go bankrupt.)

You know someone who sees all the wrongs, but then shys away from hard cuts without any clear reasoning in the end simply becomes a shill for the status quo preservers - even if only in very good disguise.

samsara's picture


"This is the middleman-skimming economy, in which middlemen are free to skim enormous profits from participants who've been left no other choice."

Exactly,  So, I always use cash if posible.  No hands between me and who I am paying.

lincolnsteffens's picture

I like a lot of Smith's offerings. I did however note a glaring mistake that nearly everyone makes.  He says "A bank, for example, clears payments made with checks, and takes depositors' savings and loans the money out at interest to borrowers."

That is what I used to think. However what I now know about the "Federal Reserve System" I learned from their own publication "Modern Money Mechanics". In that publication it says that banks are forbidden to lend depositor's assets or bank assets, period! Banks lend NOTHING but created fictitious currency. Your signature on a "loan note" Mortgage instrument is your own credit as a promissory debt obligation, not bank assets.

If you want to understand the Federal Reserve System and fractional reserve banking "Modern Money Mechanics" is a good place to start. You will then understand part of the fraud perpetrated by the banking cartel on the world. It is money created from nothing and you got to pay them a lot more of "nothing" back. It is one of the biggest scams in history.

Tapeworm's picture

Do not kid yourself, Smith knows and has written voluminously about your concerns.

I did not down vote you either

Spectre's picture

Sure wish I could have been in his chair when the Fed's tried to blackmail for turning informant.....

MarcusAurelius's picture

I would love to see such a system. All I can speak of is up here in Canada where the universities went to town spending like drunken sailors to expand operations while credit is still expanding and at low levels up here. This of course is passed to the students tuition. 

I am simply looking at the educational system. Look at the US model with its city like campuses that boast everything under the sun from AAA athletics to AAA degrees of importance (what ever those really are is anyones guess) but the infrastructure of middlemen is staggering from the million dollar a year coaches to the proessor salaries to the 

incredible loans that it takes to maintain these small or ever large city like campuses. How many hundreds of thousands of jobs are not needed? How much administration could we do without? How many pensions of retired professors are being paid for. It is like a snowball rolling down the hill. It gets bigger and bigger and bigger until it breaks apart when it's size becomes too great. 

EARLPEARL's picture

the more i read the more i just want to pull my hair out..i believe the reason the 1 percent have all the asets and money is because they are the only ones who understand how to play the game. i would think a high percent of those who write and coment on these artiles are in the 1 pecent but i am beginning to believe 50 percent must have had their money give to them.

malek's picture

Now go one step further and understand the 1 percent are doing all they can to keep the game so complicated only they themselves understand them!

To be clear: Some complexity exists for good reason - but most is just voluntary, unnecessary overcomplexity nowadays to keep bureaucrats busy, the populace confused and aspiring competition ensnarled.

Tapeworm's picture

I do not quite get the hostility of some here toward Smith.

 He does offer a lot in getting set to avoid the extremes of unpleasantness when TSHTF.

 I kicked in for ten bux to buy his book as I have a smart two year old grandson that will need education outside of the rotten public schools and his parents will need some guidance on how to go about it.

 Gary North has done a great deal to move along that way too.

 The homeschool movement of the better quality has a great deal to offer.