Rent, interest and profit are the classic trio of sources of wealth extraction, but there are some important other ways to do it too.

Capital gains, asset inflation and bubbles

Rentiers can benefit not only from rent or interest but from ‘capital gains’ – increases in the market price of their assets. Though they may need to sell them in order to realise the gains, even if they hang on to them the paper gains improve their accounts, and increase the value of their collateral, should they wish to borrow.

Asset inflation is a key feature of neoliberalism. When there’s an increase in demand for cars or cakes, there might be an initial rise in price, but more cars or cakes will be produced in response, so the price is likely to be driven down again. But where assets like shares or houses are concerned, increases in demand can be fuelled by increased availability of bank credit, and this tends to produce little response in terms of supply, so the price climbs. An increase in the price of assets may make the owners better off on paper in terms of financial wealth – potential claims on goods and services for sale – but it does not reflect any additional wealth creation, so ultimately the increase must come at the expense of others, including those unable to afford to buy such assets.

As we saw, over the last 30 years share prices have risen, not because of economic growth but simply because demand for shares grew steadily with the rise of big institutional ‘investors’, driven by increasing numbers of people taking out private pensions and financial ‘investments’, while the supply of shares was fairly static. Rising share prices in turn drew in more buyers wishing to enjoy these gains, which only pushed the prices higher. This positive feedback generated asset inflation – an effortless increase in unearned wealth. As William Tabb puts it, ‘The buying and selling of claims to wealth can … become a self-levitation process in which, as prices of paper claims rise, the assets can be used as collateral to borrow still more and buy more assets, driving prices higher in a seemingly endless loop.’

As long as this process continues, the rentier’s free ride gets bigger.