Real Progressive webinar Sept 2022
RP Live with Michael Hudson: The Destiny of Civilization
Intro
[00:00:06] Luke Parcher: All right. For those who might not know me, I’m Luke Parcher, I’m a student and activist. I volunteer with Real Progressives. I’m on our leadership team and I also do a show on Sundays covering politics and current events, and I do some interviews throughout the week and things which you guys can find on Real Progress in Action.
I want to quickly talk about Real Progressives. If you’re interested in learning more about us, you can go to realprogressives.org. We have articles, content, podcasts, all sorts of things. And if you’re interested in helping us out, we are a nonprofit. You can go to realprogressives.org/donate. I also want to plug our founder and CEO, Steve Grumbine’s shows. He does the Rogue Scholar on YouTube on Real Progress in Action. He also does the Macro N Cheese podcast, where you can find our guest today, Michael Hudson, as one of many fantastic guests on that podcast.
So without further ado, I’d like to introduce our guest today. Michael is an economist, a professor of economics at the University of Missouri, Kansas City. He’s also a researcher at the Levy Institute at Bard College. He’s a former Wall Street analyst, political consultant, and commentator and author. Michael, thank you so much for taking the time.
[00:01:06] Michael Hudson: Well, thanks for inviting me.
Question | Luke Parcher
[00:01:08] Luke Parcher: I wanted to kick things off for the first question. The title of your book is The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism.
Can you just explain how you came to such an all-encompassing title?
[00:01:20] Michael Hudson: Well, the world economy is now fracturing between two parts, the United States and Europe is the dollarized part. And this Western neoliberal unit is driving Eurasia and most of the Global South into a separate group. The conflict really is between finance capitalism in the United States and Europe against other countries – China, Russia, Iran, India – that are following the more traditional ethic and strategy of industrial capitalism.
The question is: how are countries going to be economically planned? Because every economy is planned by somebody. In the United States, the central planning has been taken out of the hands of government and put in Wall Street. In the City of London. A very rightwing philosophy. In other countries, there is a mixed economy – China and the rest of Eurasia – and their objective of planning and money creation and credit is to create industrial capital to create the means of production.
Obviously, also environmental cleanup now, not merely the means of production but an overall economic system, not simply to make fictitious capital, finance capital, without any reference to the industrial capital base, the earning of labor and industry together.
So there are two economic philosophies and I began the book by contrasting the dynamics of industrial capitalism with finance capitalism. And industrial capitalism in the United States, Germany, England, and every country where it took off, was to promote a public investment in basic infrastructure monopolies in transportation, communication, education, healthcare.
The idea is that if the government would provide these basic services and basic human rights at subsidized rates – or freely, as in the case of education and healthcare – then employers would not have to pay labor a high enough basic wage to make labor pay for healthcare – as in the United States where 18% of GDP is for healthcare – or to pay for education, the 1.7 trillion that goes for student debt in the United States, not mentioning the education that is not debt-financed.
Finance capitalism basically sought to break away all of the public infrastructure. Most financial fortunes and financial fortunes in history were made just in the way that Zola had described, by prying thefts from the public domain.
But the financial capitalism doesn’t say… You don’t have to steal it; you actually make it your policy, giving away the financial domain in the way that President Yeltsin gave away all of Russia’s natural resources, public utilities, electric companies, anything that yields an economic rent that can be just easy income without any investment. And you financialize it.
You’ve had, for the last – really since the 1980s, but even since World War 1 – this movement to prevent industrial economies from being low cost. But the objective of finance capitalism, contrary to what’s taught in the textbooks, is to make economies high cost, to raise the cost every year.
That actually is the explicit policy of the Federal Reserve in the United States. Turn over the central planning to the banking system to essentially inflate the price of housing, with government guaranteed mortgages, up to the point where buying a home is federally guaranteed up to absorbing 43% of the borrower’s income.
Well, you take that 43%, you take the wage withholding for social security and healthcare, you take the taxes; the domestic market shrinks and shrinks. And the finance capital strategy is exactly what it is in the United States today, in Europe. Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy.
The rest of the book all spells out how this transformation from industrial capitalism to finance capitalism occurred and how the fight between the United States and Russia, China, Iraq, Iran, and India – it’s really a conflict of economic systems. There’s no rivalry because they’re not trying to do the same thing. The objectives of the U.S. and Europe are completely different from the economic objectives of Eurasia. It’s a war of economic systems. And that’s why the United States is trying to prevent other countries from following the same path to industrial prosperity that made the United States, Germany and other countries originally rich.
So you have on the one hand a high productivity, high standard of living economy that used to be in the West and is now in Eurasia, as opposed to an economy of austerity planned by the IMF and central banks, as you’re finding in Europe.
Question | Virginia Cotts
[00:06:38] Luke Parcher: Fantastic. Thank you for that. First here we have Virginia Cotts, one of the people helping us backstage, has a question – if Virginia wants to come on screen and ask.
[00:06:47] Virginia Cotts: Michael, I’m not an economist. Can you explain debt deflation – but also how debt siphons money away from the real economy.
I once heard you say that the finance sector is the overhead of the real economy. I think these questions are related? If you could explain that.
[00:07:09] Michael Hudson: Well, the classic discussion of debt deflation was in Volume 3 of Capital, by Marx. And Marx said that debts tend to grow by compound interest.
He gave a citation of everybody from Martin Luther onwards about how any interest rate is a doubling time, it doubles in a given number of years. And it grows exponentially in an up-curve, like X equals Y squared. But the economy grows in the shape of an S-curve; it tapers off.
And one of the reasons that it tapers off in the business cycle is that as the cycle gains momentum, people go further and further into debt. And if you have to pay debt to a banker, if you have to pay student loans, if you have to pay credit card debt, if you have to pay mortgages on rising house prices, then the money you pay to the banker is not available to be spent on goods and services.
So as you have the debt ratio growing in every economy, that crowds out the ability to spend your income on goods and services. So right now many graduate students – you graduate from school, you have a student debt, and you have to live at home with your parents because you can’t get a mortgage to buy a house because the banks say, “Well, you’re already paying so much of your income for student debt that you don’t have any money left over to buy a mortgage, so you can’t buy a mortgage.”
Right now, you’re having the debt-ridden American economy being squeezed. More and more money is paid, not only for debt, but also for other overhead, like healthcare and various monopoly services that are not available to buy goods and services.
Debt deflation is when the growth of debt exceeds the rate of growth of the economy. And that’s true of every economy. The most sophisticated mathematical models that I’ve seen were the ones that were taught to every student in Babylon in 1750 BC.
We have the models that they were told. They say, how fast does a debt at the going rate of interest, at 20%, double? Well, it’s five years. How long does it take to redouble? Well, that’s 10 years. How long to quadruple? Well, that’s 15 years. You see how fast it is. They also would have students calculate the growth of a herd of sheep for instance, and it would all taper off. And when Assyriologists began to translate these cuneiform tablets, they thought, well, this must be an actual report of how the herd actually grew.
But then they found out that the Sumerians already in the third millennium had quadratic equations and very sophisticated mathematics. The mathematics that they used 5,000 years ago were far in advance of what the National Bureau of Economic Research uses.
The National Bureau here is officially in charge of explaining when there’s a recession, when there’s a boom, and explaining the business cycle. The basic theory was outlined and traced by Joseph Schumpeter. It’s a sign curve going up and down regularly, up and down. And the whole philosophy of the National Bureau is a right wing anti-government philosophy saying the economy has automatic stabilizers.
It can never get out of balance because the free market is always going to prevent any kind of chronic downturn. If you have a boom, well, prices will rise and that will cut into profits and that’ll slow investment. And that’ll means that wages will fall until it’s more profitable to begin employing labor again. And you’ll have a recovery, and things go on and on and on, like a sign curve, at a given frequency, forever and ever.
Well, what this deliberately leaves out of account, deliberately expurgates, is the fact that every recovery in the United States and every other Western economy since 1945, has occurred with a rising level of debt. And as debt grows each time, each recovery has been slower. And the reason it’s slower is because as the volume of debt rises, this leaves less and less income available to spend on goods and services. And so, the so-called recovery is weaker until finally it grinds to a halt.
Well, Ricardo anticipated something like that in 1817 in his Principles of Political Economy. He said: well, look at what’s going to happen to land rent. If we don’t prevent the landlords from being the planners of the economy, then the more and more population increases, the price of food will rise, the rents to the landlords will rise more and more until the entire economic surplus is paid for rent and there won’t be any opportunities available to industrial employers. And Marx said, well, this was the Armageddon of capitalism.
In Ricardo’s day, people didn’t borrow to buy housing. It was still hereditary landlords. If your ancestors conquered England and killed enough Englishmen to become aristocrats, you’d inherit it and you didn’t have to borrow. But now that real estate has been democratized in the United States, England and Europe, you have to go into debt in order to buy a house.
And the largest amount of debt in every economy is for real estate, which accounts for 80% of bank loans in the United States and England. Essentially, if you want to buy a house you go to a bank they’ll calculate — well, here’s the rental value of that house. The winner, if you’re trying to bid for a house or an apartment against somebody else, the winner is the buyer who promises to pay the most for the property by taking out a bank loan that absorbs most of the rent as interest. So today, the rent that Ricardo said was going to drive industrial capitalism to a halt, is turned into interest. So it’s the rise in interest that is the Armageddon of industrial capitalism driving the economy to a halt.
I chart most of these in my book Killing the Host, where I give a history of compound interest. But basically the Western economies are all subject to debt deflation today.
And that’s why they’re shrinking. And living standards here are not rising and the economy is not growing, in contrast to China, Russia, Iran, India, and the other countries that don’t have this kind of financial sector doing their planning.
Question | Luke Parcher
[00:13:47] Luke Parcher: I was hoping you could expand on a point you actually mentioned just before we went live, distinguishing between different kinds of debt and which kinds of debt are parasitic and need to be rid of and which ones do not. Can you just quickly distinguish between different types of debt?
[00:14:00] Michael Hudson: Well, in textbooks that students read, corporations will borrow from a bank and they will use this borrowing to build a factory, and to buy machinery, and to produce something.
And the profits will be paid – shared 50/50 or so – with the creditor. So a productive debt is debt which, actually, enables the creditor to repay the loan with the interest and still keep something for himself. Banks don’t lend money to build factories. The stock market does that. The money the banks lend is unproductive debt.
Unproductive debt is when the debt doesn’t enable you to earn more money to pay the creditor. In an unproductive debt, you have to earn the money elsewhere and take money that you may earn as wages or profits and pay the bank. And it’s your loss. It’s a zero sum game, not a positive sum game.
Now this distinction between productive and unproductive debt was built into Sumerian and Babylonian laws. Only unproductive debts were canceled under the Jubilee year the rulers announced. Their word was, andurarum and, the Hebrew, cognate was deror and that was the word used for the Jubilee year.
It meant the rural debts – that when there was a crop failure, and the borrower could not pay the advance of the land rent and the other means of production. Obviously, if the borrower couldn’t repay because there was a crop failure, or a drought, or a disease, or a flood, then the debts were wiped out because that debt did not enable anyone to repay.
And if you didn’t cancel the debt, then the poor cultivator would be forced into a debt bondage to the creditor. And if he did that, then his labor would belong to the creditor and he couldn’t serve in the army. He couldn’t go to work on building public infrastructure. The business debts were all left in place. Debt denominated in silver were left in place and not canceled. The debts denominated in grain were canceled.
Well, in the 12th and 13th century, crusades flooded Europe with money. The Christian Church saw that commerce was reviving. You needed credit. The church theorists said, okay, there’s a productive debt. You’ll make loans to a merchant to trade. He’ll have the money to repay you, that’s productive. But, a debt to a consumer who can’t, is usury. And so ancient languages had no words to distinguish interest from usury.
But the churchmen said, okay, usury is unproductive debt. Interest is a productive debt. Those two words, those were the original meanings of the distinction between interest and usury. That’s been eradicated today when everything is considered productive and part of the free market. And, if it makes the billionaire class rich, it’s productive. That’s basically the thing today.
And the only debts that are supposed to be canceled are debts that the financial sector owns. The banks don’t have to pay the billionaires. Only people with less than a billion dollars have to pay debt. The poorer you are, the more debt you have to pay. They’ve reversed the whole last thousand years of Christian morality as the church has become privatized and financialized.
Question | L Lewis
[00:17:21] Luke Parcher: Fantastic. We have a question here in the chat. This is from L Lewis. It says China has opted for industrialization and the U.S. corporate class clearly has not. Why is the U.S. so belligerent if it doesn’t even want an industrial system?
[00:17:35] Michael Hudson: Because it doesn’t want any other country to have an industrial system. Just like the West fought against communism threatening a new social system after the 1917 revolution, America’s terrified that if China can succeed by following the exact same policy that the United States got rich on in the late 19th century, then they might try to make America rich. And, oh my God, if they do that then there’s no more free lunch for the billionaires.
This is life and death for the billionaires. They make their money by exploiting the economy without producing. The Chinese billionaires make their money by producing and exploiting the economy. But they also produce a lot. And then they have to give up much of what they exploit. So the United States doesn’t want there to be any success in any country achieving prosperity in a way that doesn’t siphon off all of the income to the 1%.
Question | Andy Kennedy
[00:18:28] Luke Parcher: And we have a question here from Andy Kennedy.
[00:18:32] Andy Kennedy: Michael, I believe that you coined the phrase monetary hegemony. I believe it was in Super Imperialism, a book that you wrote a while back. But I think that’s something that a lot of people really have a hard time grasping what that even means. Can you talk a little bit about how the U.S. dollar hegemony has been a large part of why the U.S. became de-industrialized.
[00:19:01] Michael Hudson: Well, that is what my book, Super Imperialism, was all about, that I published in 1972. Dollar hegemony really began in 1972. Hegemony is a word that I can never really work into conversation very easily. It was actually Henry Liu that emphasized that term. He’s a friend of mine and we were colleagues for many years. The dollar hegemony means the United States can issue dollar bonds, IOUs, and it never has to repay them. If we run a balance of payments deficit in the United States, the dollars end up in the foreign central banks. Most of the U.S. balance of payments deficits since the Korean war have been for military spending.
While America is spending money on creating military bases all over the world, these countries will end up with the dollars that we spend to build the bases and buy off client oligarchies. And these dollars are turned over to the local central bank for domestic currency. And the central bank is going to say, “What do we do with the dollars?” Well, they will tend to hold the dollars in the form of buying a U.S. Treasury bond because central banks aren’t supposed to take risks.
So they will essentially buy the Treasury bonds and the United States has no intention of ever paying the Treasury bonds. How is it going to pay? It was paying in gold until 1971. So when the United States would spend money in Vietnam, the dollars that were spent in Southeast Asia, in Japan, in other countries, would be sent from Vietnam to their head office in Paris.
And General de Gaulle would say, “Well, here are these dollars. Now give us gold.” And the U.S. gold stock was going down and down and down. The American strategists worried that this was going to really hurt the country’s ability to dominate the world. So when they went off gold in 1971, everybody thought that this was going to end American financial leadership.
Instead, it was a great increase. It created dollar hegemony because there was nothing for foreign central banks to hold their reserves in except U.S. Treasury bills, Treasury bonds. In other words, Treasury IOUs. So the more money that America would spend abroad in a balance of payments deficit, this money would end up being recycled to the United States in the form of Treasury securities. And so it was actually the balance of payments deficit by military spending that helped finance the U.S. domestic budget deficit. Other countries really didn’t have an alternative. And so when the United States took the lead in creating the Eurozone, it made sure that the Eurozone would never make the Euro an alternative currency to the U.S. dollar because it limited the Eurozone’s ability to run a budget deficit to just 3% of GDP.
Well, what that means is that when Europe goes into a recession and needs to increase government spending like the United States does when it’s in a recession, or like the United States is doing today, running a budget deficit way in excess of 3% of the GDP, Europe is not. So there are not enough Euro bonds by the central bank to ever become a rival for the United States dollar.
Well, all of this is now being changed by Russia and China that they have discussed for the last few years. “In order to stop U.S. hegemony, we have to avoid financing our own military encirclement by lending to the U.S. Treasury that turns it over to the military industrial complex and Pentagon to build bases here.So we’re going to have an alternative to the U.S. dollar.”
Well, they were talking about it – Russia, China, other countries – really for five years. And amazingly enough, the end of dollar hegemony occurred last year when the United States itself said if any country pursues a policy that we don’t like, we can grab all of the dollar reserves that they hold in the United States.
We can grab all of the Treasury bonds they hold. We can just take them. All the bank deposits they have, we can grab. They grabbed that of Venezuela first. They grabbed that of Iran. They grabbed that of Afghanistan. And then they grabbed the $300 billion of Russia. So now the United States has told any country, if you do anything that we don’t like, if you do not let our companies buy control of your economy, or if you try to sue one of our oil companies that pollutes your land, we will grab all of your money and you’ll be isolated.
Well, this ends other countries’ ability to finance the American empire anymore. Other countries are terrified now. If they’re all saying “Let’s not denominate our trade in dollars. Let’s not use the dollars. Let’s use each other’s currencies. We will finance other governments’ treasuries.”
And these treasuries that they’re financing – between China, Russia, Iran, India, and their neighboring countries – are loans to help their treasuries build infrastructure and internal improvements to actually increase the economy growing. Well, the United States itself has brought this about by all the sanctions that it’s imposing. It’s an example of the self-defeating character of the U.S. strategists.
Fortunately, none of them understand how an economy actually works anymore than they understand how military strategy really works. So we’re having armchair amateurs essentially ending a whole system that was giving America a free lunch for the last 50 years.
Question | Jordan S
[00:24:54] Luke Parcher: So we have one here in the chat from Jordan Soreff. He asks, how do you see the interaction between major shareholders of large financial institutions and major shareholders of industrial enterprises? Do you see a lot of common ownership between these kinds of institutions? And if so, wouldn’t they collaborate in order to avoid starving industrial enterprises of access to credit and guarantee some basic form of growth, not only for financial institutions, but also for industrial enterprises.
[00:25:20] Michael Hudson: Not at all. They’re collaborating in destroying the industrial sector. They collaborate in turning industrial corporations into financial firms. and when you turn the management of a corporation away from the engineers and turn it over to the chief financial officer, the chief financial officer says, “Our job is not to increase our industrial production. Our job is to increase the stock’s price. And we can maximize the stock’s price by, instead of spending on research and development that’ll take years to pay off, we can spend our income on buying the shares.”
92% of the profits of the Fortune 500 are spent on share buybacks and dividend payouts, not on new investment. Once you financialize an industrial corporation, you’re trying to make money by financial engineering, not industrial engineering. And you do this by essentially using your income to buy up the share price. This is short term – and finance lives in the short term. The reason finance has no interest in building up industrial power is that that takes years and years to actually plan a factory, plan the production. You have to develop a whole marketing system.
How are we going to sell the product once we produce it? How are we going to distribute it? It takes a lot of planning. It’s beyond the ability of the financiers. You don’t need brains to be a financier. All you need is greed. And you really don’t need a business school. All you need is greed.
And greed is short term. I want it now. Greed is not long term planning. And so, you have a completely different mentality of a financial corporate leader, as opposed to an industrial leader. Someone like, let’s say, Henry Ford, or like the old type of industrial leaders that would try to increase the overall profits to expand production more and more. Today the objective is to shrink production more and more.
Question | Jonathan Kadmon
[00:27:18] Luke Parcher: And we have a question here from Jonathan.
[00:27:21] Jonathan Kadmon: There’s a concept you mentioned in the book that’s also very near and dear to my heart. The commodification of essential goods and services, and extortionist incentives that come when you…
[00:27:32] Michael Hudson: Is that the title of a book?
[00:27:33] Jonathan Kadmon: No, it’s definitely a theme you touch on a bunch of times in your book.
[00:27:37] Michael Hudson: Oh, okay.
[00:27:37] Jonathan Kadmon: And I was hoping you could talk a little bit about how the hostage situation created by commodifying things like housing, healthcare, food, transportation, fuel, things like that – that people need rather than want – is used to extract rents and siphon wealth out of the productive economy to service the wealth demand of the FIRE sector [Finance, Insurance, Real Estate]
[00:28:00] Michael Hudson: Well, the free trade ideology that backs monopolies says that all markets are a function of choice. But the way to control a market is not to give the consumers a choice. And when you say hostage, what that means is people don’t have a choice between whether to eat or to pay a bank.
If they have to buy food or if they have to buy medical care, they have to pay whatever the going price is. Anatole France said that the rich person was as free as the poor person to sleep under the bridge when he didn’t have a house. So the objective of rent seeking is to essentially create a situation where people have no alternative but to buy the service or the good that you’re producing.
If they have no alternative, then you can charge whatever you want. This is the case with most public infrastructure. If you want to mail a letter, you have to pay whatever the going postage is, or whatever parcel service costs. Well, this is why, for about a thousand years leading up to the late 20th century, all governments kept basic services in the public domain – the post office, education, healthcare. You don’t want to privatize them and leave them to the market because if you leave them to the market, then it really isn’t a matter of choice at all.
It’s a matter of letting a monopolist take something that everybody needs, no matter what the price, and charge as much as the market will bear. And that’s a rent-seeking monopoly. That basically is the philosophy that Margaret Thatcher, Ronald Reagan, and the free marketers developed since the 1980s, when you had a privatization of basic needs, especially in housing. And the most important utility that’s been privatized of course has been money and credit creation – the banking system. What has enabled China to avoid the financialization that’s occurred in the United States is because the Central Bank of China is run by the government, not by a financial oligarchy of bankers that get together to run the credit system for their own benefit. But if the government treats money as a public utility, everybody needs money, everybody needs credit, and the government will provide the credit as needed for the economy to grow.
And if the economy has a slowdown, or if a company runs into a financial problem, if you’re the government as a creditor, you can write down the debt. In the United States, if you’ve made loans to a company like General Electric and all of a sudden it can’t pay, the company either goes bankrupt or begins to sell off its assets piece by piece to other people and you have industry being turned into gentrified luxury housing.
So the same thing with healthcare. If you privatize healthcare, everybody needs to go to the hospital. Everybody needs doctor care. If you privatize it then in the United States, 18% of your GDP is going to go to healthcare. The objective is to make healthcare as inefficient and cheap as possible to maximize the profits of the health insurance companies. And the sicker you get, the more money they make.
Also, by the way, the sicker you get, the more GDP goes up. GDP goes up because you have to spend more money healing yourself. So, that’s, a growing part of the American GDP – along with rent and debt service and interest. Well, if you keep healthcare in the public sector, the public sector is going to try to actually keep people healthy instead of sick. And they’re trying to minimize the expense of getting sick so that you leave more money in the hands of households to spend on the real economy of production and consumption, not on giving money to the monopolies.
But in the United States the main utility beside money that’s been privatized is government. Under the Citizens United ruling, the government is now really up for sale and auctioned off to the highest campaign contributors. In the Democratic Party, for instance, every Democratic representative has to raise a given amount of money from campaign contributors to give to the Democrat National Committee.
So whoever can raise the most money gets to be the committee heads. Well, you’ll have the pharmaceuticals industry giving a lot of money to some representative they want to be head of the health committee. You’ll have the bankers giving money to whoever they want to be the head of the banking committee and so on. So, the function of government itself once it’s privatized is to make money for the donor class, which basically is the financial class and the monopoly class that finance creates. Banks have always been the mother of monopolies and the financial sector’s largest business market is in creating monopolies. So, you have basically the privatization of monopolies.
And the monopoly rent of these monopolies is used for paying interest to the banks that finance the corporate raiders, or whoever wants to take over and buy these monopoly privileges.
Question | Luke Parcher
[00:33:14] Luke Parcher: We have a question here from Paul Birtwell. Paul, go ahead.
[00:33:18] Paul B: Hi, Dr. Hudson. Could you briefly touch on the concept of economic rent and unearned income as well as how the establishment became established by conquering Europe, privatizing the commons all the way up through colonialism, and how they use all these little privileges through copyrights, patents, formula, and it’s not really through effort or innovation, but it’s through rake off.
I remember you in an interview, I’m paraphrasing, saying something like: For the crime of being conquered, the 99% and all of the descendants are obligated to take care of the 1% and all of their descendants into perpetuity.
But it would be great if you could touch on those historical elements because most folks think, “Hey, these folks that are really rich are smarter, they worked harder.” And as we know, it’s not based on effort or individual contribution but rather just milking society.
[00:34:16] Michael Hudson: Well, it’s very hard to answer that question very briefly in a question and answer. I’ve written two chapters of the Destiny of Civilization describing exactly what you’ve asked: economic rent. All classical economics – from Adam Smith through Ricardo, John Stuart Mill, Marx, Alfred Marshall – was all about value and price theory in order to segregate how much of the price is not reflected by a real cost of production. Economic rent is unnecessary income.
Economic rent is what you’re able to charge more than just the cost of producing goods and service with a profit. It’s “What is a free lunch?” And the free marketers say, “There’s no such thing as a free lunch.” That’s what Milton Friedman said. But a rentier economy is all about a free lunch. The concept of economic rent in the 19th century was aimed at landlords because they inherited the land. The land does not have a cost of production. And yet, if you have an ownership right to the land, a privilege of legal ownership of the land, you have a legal boundary and you can charge rent without any effort of your own.
John Stuart Mill said economic rent is what landlords make in their sleep. They don’t have to make a productive effort. Well, actually a theory of rent went way back to the churchmen in the 13th century describing what is a fair return to bankers. The economy needs credit, all economies work on credit, traders need credit. They need the money exchange from one currency to another. The value of banking services is the cost of living, the cost of doing business, the cost to have a certain lifestyle that’s becoming of a banker.
But everything that’s over and above normal living prosperity and costs is called usury. That’s not a valid cost. And so that was deemed illegal already in the 13th century. Well, Ricardo in the 19th century used the landlords as the main rent recipients of the hereditary landed aristocracy. Rent is what a landlord would get just for the ownership privilege of having a land. And so if you go out and buy a house today and the price of land goes up because the city will increase bus service or a transportation service. For instance, in New York City, a few years ago, they extended and built the Second Avenue subway that went uptown, along Second Avenue. Real estate prices all soared for real estate on Second Avenue. That was a free lunch.
The landlords didn’t do anything at all to increase the real estate rents that they were charging. Rents went way up. If you lived on Second Avenue or First Avenue, even Third Avenue, you had to pay much higher rent because you no longer had to walk half a mile to get to the Lexington subway that was very overcrowded. You could have the nice uncrowded, Second Avenue subway.
And yet, this rent increased not by the expenditure of any cost. It was rent without value. It was the price of housing without cost value. So rent is the unnecessary element of price over and above what it actually costs to produce something. And rentier income is the income that is unnecessary.
To actually pay a industrialist for building a factory… industrialists would be happy with making the normal rate of profit. But if you have a special technology monopoly like the drug companies, then you can make super-profits. So rents are super-profits, basically. That’s the difference. Anyway, that’s to your question.
Question | Roxanne D
[00:37:58] Luke Parcher: Right on. We have, a question here from Roxanne Devereaux. She says, if you’ve answered this, maybe just elaborate on your answer, but in a perfect world where government actually served the people, what would a debt jubilee look like and how could it reverberate through society?
Most examples I’m familiar with happened before the industrial revolution.
[00:38:14] Michael Hudson: Well, the best example is the German financial miracle of 1947, 1948, the allied monetary reform. All internal debts were canceled except for people’s bank accounts up to a given amount and except for the money that employers owed their employees.
And the reason is that most of the wealth, most of the bank deposits, most of the creditors’ claims, were by the Nazis. And the American occupation said, well, we don’t want the Nazis to get rich. So the good thing about canceling debts is you cancel the savings of bad guys. In 1947 it was the Nazis; today it’s the 1%.
If you cancel the debts that I’ve said should be canceled – the sort of bad debts that are not necessarily production – then you cancel all of this vast accumulation of savings by the 1%. For instance, if you cancel student debts, that would free income for spending on democracy.
If you cancel all the debts that US banks owe to the offshore banking centers in the Caribbean, Panama, Liberia. All of this is flight capital. This is criminal capital. Cancel out all the debt of criminal capital and fraud. When Greece was running into its financial crisis seven years ago, Greece owed 50 billion euros of debt that it was trying to write down.
And the IMF produced a list called the Lagarde List that had deposits of Greek crooks and tax evaders in Switzerland were $50 billion. That 50 billion could have been wiped out. One of the first debt cancellations that went wrong was in Sparta in the third century, BC, under Agis and Cleomenes. When they canceled the debts, the people who wanted to cancel the debts were people who’d bought land on credit and they wanted their debt.
They wanted to own the land free and clear and cancel the mortgages. So some debts you don’t want to write down. If you were to write down mortgage debts, Donald Trump and real estate speculators would be the richest people in the country. So you don’t want to write down their debts.
Their debts will remain on the books. But if they were written down, well, first of all then, their debts are the banking systems assets. So Citibank would be even more insolvent than it is already and the banks would go under. They would be taken over by the public sector because if you have the mortgage debt wiped out, there’s still economic rent. Because people are willing to pay more money for a well-situated property that would, uh, in place of the banks getting the rental value as mortgage debt, the government would get the same rental value in the form of a land tax. That was what classical economics was all about. That was Adam Smith. That was John Stuart Mill. That was the whole reform movement of the late 19th century. So you want to cancel the bad debts, but you don’t want to make debtors who are just speculators rich in the process.
You want to make sure that you only cancel the bad debts and you don’t create a new rentier class. The idea is to look at the economy as a system and see what should the government receive as economic rent. And it can decide what is it going to receive for healthcare. The government… if the government took over the healthcare industry, it probably would not charge the prices that healthcare charges today. It would charge less. Same thing for housing. If housing were run like England ran its council housing before Margaret Thatcher, it would be very low. In Germany, Germany pays only 10% of its average family income for rent, not 30 or 40% as in the case of the United States.
That’s what used to make Germany, until last month, so competitive an economy. So, you’d restructure the economy so that it would only have debts that were socially necessary to keep the economy operating. Debts will begin to grow all over again.
Debts will always begin to grow over and over again. If you don’t ban interest, you permit debts to grow, but when they get so problematic that they threaten economic growth, then you have to write them down to a level where they will no longer prevent economic growth from occurring as they’re doing today.
Question | Doug G
[00:42:45] Luke Parcher: So we have one from Doug Greer here. He says many people seem to confuse the lessons of MMT with the super imperialism of the US dollar being the reserve currency of the world. Is the ability to create dollars to finance domestic needs of the US, like healthcare and infrastructure, dependent on the US dollar being the reserve currency?
Can you clarify?
[00:43:05] Michael Hudson: They’re completely separate. Any country can use its credit creation, either by the central bank or by commercial banks, to create credit. It doesn’t have to be linked to the balance of payments, except that if a country’s running a balance of payments deficit its currency will fall, unless it can balance the payments somehow.
So they are different questions.
Question | Fabiano D
[00:43:30] Luke Parcher: We have one from Fabiano D. Being that politicians, therefore government, are in the pockets of the rentier class, how do you think we could get rid of such rentier influence in order to implement socially oriented policies?
[00:43:43] Michael Hudson: That has never happened without a revolution. That’s the problem. How do you get rid of them? Well, I don’t see any way for the United States to get rid of them. It took a revolution in China. It took a revolution in Russia. That’s the problem right there.
You did have the beginning of a peaceful revolution in England in the 19th century and, leading to a constitutional crisis in 1909 and 1910, when the House of Commons actually passed the land tax and the House of Lords, being the landed aristocracy, canceled it. That caused a crisis.
And the upshot was the House of Lords was never, again, going to be able to negate a revenue act passed by the House of Commons. So that was actually a peaceful resolution of a constitutional crisis. Then World War I came and changed everything. But today I don’t see that kind of a peaceful resolution occurring in the United States.
They’re not going to repeal the Citizens United act, and, from what it looks like to me, the economy is going to get more and more highly squeezed and more polarized between the 1% and the 99%. I would say it’s a class war except finance isn’t really a class because everybody is a creditor as well as a debtor in some sense or another. So it’s really a financial dynamic against the rest of the economy. One of the points that Marx made in Volume 3 of Capital was that finance grows by purely mathematical laws of its own, having no relation to the growth of the economy. It’s an autonomous economic system.
And I think that autonomous economic system is independent of the government here and yet, unless you have a study of economics as an economic system – understanding what’s causing the polarization and the poverty in the United States – you’re not going to be able to have a reform movement to change the system.
The role of economics departments is to dumb down the understanding of the economy. You’re not going to have any kind of a peaceful reform movement here.
Question | Cristina
[00:45:47] Luke Parcher: We have a question here from Cristina who asks, what are the steps we can take to fix the housing crisis? Kind of a broad question, but if you have any policy prescriptions there, that would be great.
[00:45:57] Michael Hudson: There’s very little that individuals can do. The 19th century dealt with this question increasingly. And their solution was if you have a calculation of the land rent, as opposed to what it costs to build a building – we all know that if you build a building the contractor and the builder or developer have to make a profit, but if the government will tax the land rent, then it will not be available to the banks to charge as interest.
So, if you tax the land rent, then the land rent is not going to be capitalized into a bank loan, and housing prices will be kept down to the actual cost of construction plus normal profits. And as housing becomes more desirable, or as the economy becomes more profitable, or as cities build more Second Avenue subways and the rental value goes up, the taxes will go up. That will prevent this increased rent from taking a financial form and will simply be the source of a government revenue. It requires a tax system to tax away the economic rent, so that housing does not reflect the speculation and the economic rent that is caused by the privatization that’s been occurring. Especially since 2008.
Question | Tim
[00:47:11] Luke Parcher: So this one is from Tim. Tim says one argument against de-dollarization is the liquidity and stability of the US dollar. For example, oil is based in dollars and many OPEC countries have their currencies pegged to the dollar, such that they benefit from a strong dollar. At this age, the transition into trade in local currency pairs against these advantages of dollar as reserve currency.
[00:47:32] Michael Hudson: Well, that’s exactly what this last weekend’s Shanghai cooperation meetings were all about. Any country that holds its central bank reserves in dollars has a stake and in wanting to lose the money. China has the largest dollar holdings of any government and its currency has gone down and down and down.
China’s willing to take a loss on this by moving out of the dollars. The solution is, as both President Xi and President Putin pointed out, we’re going to move out of the dollar so we don’t have a stake in the dollar. It can go up or down. It is not going to bother us. They’re not buying or selling to us anymore.
Anyway, they’re sanctioning us. So let’s go with what president Biden wants. He says, you go your way, we’ll go our way. Fine. Let’s go our own ways and use each other’s currency, and that way, it won’t matter. So, it won’t matter to them. If moving out of the dollar means that there’s less demand for the dollars and it goes down, what they’re gaining is freedom.
So, this is the price of their economic liberty from dollar diplomacy.
[00:48:34] Luke Parcher: We have another question here from Virginia Cotts.
Question | Virginia Cotts
[00:48:36] Virginia Cotts: Michael, I feel like we have… some people have a lot of nostalgia for the post World War II social democracies of Europe. I can’t remember if it was in your book or in an interview you described Thatcher’s process of privatizing in England. Could you talk about that? Because I didn’t know a lot of that.
[00:49:00] Michael Hudson: Well, Margaret Thatcher said that her greatest contribution was Tony Blair. And Tony Blair was an opportunist who got enough support from the United States to move the British Labour party to the right of the Conservative Party and do what Margaret Thatcher never could have done. By even privatizing the railroads, by being more viciously anti-labor, the social democratic parties in every country have been so pushed by what the CIA called “the mighty Wurlitzer of public opinion” – meaning bribes to the politicians – that they’ve financed the campaigns of neoliberals to pretend to be pro-labor, to pretend to be socialist, while actually they’re the far right wing of the political spectrum. I won’t call them fascist. But let’s just say there’s nothing the fascists would not like in the social democratic parties. So, here you have the most right wing parties in Europe are the social democratic parties. Way to the right.
I guess the most right wing neofascist party is, of course, the Greens in Germany that are the pro-war party. And anti-labor. But basically, there is no longer a real labor party representing the interests of labor. They’ve all been co-opted by demagogues. The social democratic parties in a way have been like the peace parties.
The first thing that every peace party does when there’s a war is they’re at the head of the pro-war patriotism parade. That was what Trotsky noted about World War One. The peace parties jumped on the bandwagon in Germany, Austria, England, America. Social democratic parties have done the same thing when there’s a neoliberal right wing corporatist financialization. They’ve all been persuaded to do it.
The equivalent was like what the Clintons did to the United States since the 1990s. In the United States, the Democratic Party is the far right wing party now. And I guess when I answered the question about what can Americans do to help the housing crisis… You cannot solve the housing crisis until you end the Democratic Party. You cannot solve the labor problem without ending the Democratic Party. Because that is the party of Wall Street. That is the party of the 1%. Its function is to make sure that there cannot be any left wing opposition to block the Republican Party’s program.
What Bill Clinton did, the Republicans never could have done. Backing Alan Greenspan and the right wingers in getting rid of the acts preventing banks from owning insurance companies and brokerage houses. Getting rid of the Glass Steagall Act. And no Republican could have done anything as viciously anti-black and anti-Hispanic as President Obama, whose policies are basically identical with those of the Ku Klux Klan.
Obama’s role was essentially to reverse the attempt by blacks and hispanics to become homeowners. His objective was to replace black home ownership and hispanic home ownership with ownership by private capital companies. His role in 2009 was to bail out the banks – the fraudulent banks that had written the junk mortgages – and to keep the junk mortgages on the hook to evict almost 10 million American families. And not fine the banks, not throw a single crooked banker in jail. This ended the hopes of the low income Americans – and especially the minorities – to have housing.
If you say, what can we do about housing? Well, if you’re black or Hispanic, you must avoid the Democratic Party like the plague. And you must come to terms with the fact that it was Obama that was the most anti-black president of the 20th century, except of course for Woodrow Wilson. The damage that he’s done has not been widely recognized here.
And, he has put in place a Democratic Party leadership that is so anti-labor, so white racist. and so pro-Wall Street that I don’t think it is reformable.
Question | Luke Parcher
[00:53:18] Luke Parcher: And just to build on what you were just talking about there, Michael, I’m kind of stunned by the extent to which people buy into the partisan false dichotomy in this country and seem to think there are all these massive differences between the parties.
And that obviously is an issue-by-issue thing, but I’m curious where you think that buy-in comes from and how we might be able to cut into it. The fear mongering about Trump is I think overstating the differences between Trump and Biden on these issues. Can you talk a little bit about that?
[00:53:43] Michael Hudson: Yes. The Republican Party’s role is to say to Wall Street, “Yes, please.” And the Democratic Party’s policy is to say “Yes, thank you.” But that’s basically it. You’ll notice, like in Ohio, the Democratic National Committee is backing a right-winger who is going to play the role of West Virginia Senator Manchin or Arizona’s Sinema. The Democrats want to make sure that it has enough Republicans running as Democrats, that if there’s ever a danger of promoting a bill that is good for the working class or the racial minorities or ethnic minorities, that you’ll have the Republicans running as Democrat to cancel it, to play the role.
There’ll always be many senators right behind Manchin and Sinema in the wings to prevent the Democrats from doing anything that does not serve the short-term immediate interests of their Wall Street bankers… Backers.
Question | Bruce W
[00:54:39] Luke Parcher: Rotating villain is a very real concept for sure. We have a question here from Bruce Wall who asks, which of the public banking and monetary reform movements do you support, if any? I have in mind Public Banking Institute, American Monetary Institute, the Alliance of Just Money, Christine Desan’s Just Money. What about figures like Robert Hockett?
[00:54:58] Michael Hudson: Well, I’m on the board of directors of the Public Banking Institute. Steve Zarlenga was a good friend of mine.
I was at all of his early conferences. So they both have very good ideas. And… I’m blocking out the name. Who’s the head of the public banking?
[00:55:15] Virginia Cotts: That’s not Ellen Brown, is it?
[00:55:17] Michael Hudson: Yeah. Ellen Brown. Ellen would be all in favor of many of the things I’ve talked about, but she doesn’t think that a debt cancellation is politically feasible right now. And of course, she’s right. So she’s said that, well, public banks can provide the model for what could be. The result of what happens if Obama would have let Citibank go bankrupt.
The Republican head of the FDIC [Federal Deposit Insurance Corporation] urged that Citibank, being run by crooks… but, Obama put an even bigger crook in charge. Geithner, who was working for his banker Robert Rubin, basically did not let Citibank go bankrupt because that would’ve wiped out the stockholders.
And as Sheila Bair, the head of FDIC, said, well, it was all about the bond holders. And Sheila said, if Citigroup would’ve gone under, then that meant the government would’ve had the biggest bank in the country, and it could actually run a commercial bank along making good loans instead of making loans to corporate raiders. Instead of making crooked mortgage loans and fake loans, it could actually make loans to help the economy grow. Well, she’s quite right. That would’ve been a good idea.
So she’s concentrated.on public banks for what they can do. And she said, at least by having a public bank, you’ll keep the deposits of the public sector – the government, the state agencies, and hopefully the local city agencies – in the public domain, out of the hands of, the commercial bankers and Wall Street, so that you can use the money for a good purpose.
So, I’m all in favor of what she’s doing. Steve Zarlenga at American monetary Institute was for the hundred percent reserve plan that was proposed in the 1930s. And that is, commercial banks would actually be reduced to the status of savings banks.
A hundred percent reserves. Could not create credit. They could only make loans from deposits. Of course, if they had a productive loan made, the government, the Treasury, would act as the depositor – simply increase the deposits in the bank to enable them to make productive loans.
And that also, in principle, is a very good idea. That’s why I supported that. And of course that was the program that was introduced by Dennis Kusinich in his presidential run. I was Kusinich’s economic advisor. So those are the two groups that I’m most familiar with and the most in favor of.
Question | Rasha
[00:57:41] Luke Parcher: We have a question here from Rasha. What role does defining money play in shaping the economy? How do you define money? Is it a record of value transferred between economic actors or is it a commodity? If you agree that money is a record of value transferred between two or more economic actors, isn’t it possible to create money on demand by any two or more economic actors in a decentralized manner, as opposed to central private banks providing there is a scientific formula by which value of goods and services is assigned.
[00:58:10] Michael Hudson: Oh, my God. I can’t even begin to answer that. The jargon is so misleading. Money has nothing to do with value. Money is debt. That’s the opposite of value. It’s a transfer of debt among people, it’s not a transfer of value. You’re using a very right wing, quite frankly, a fascist economic terminology, maybe without meaning to. But it’s not value, it’s debt created out of thin air. It’s credit.
When you go into a bank and you take out a loan the bank doesn’t say let me see how much money I have on deposit to lend you. They will just write you a loan. They’ll create a bank deposit and in exchange you’ll give them an IOU. It’s debt, loans, that create deposits, not the other way around. Anyone who talks about money and value, you want to stop talking to them immediately. Because you know that it’s just going to be patter talk for propaganda.
Question | Tom
[00:59:03] Luke Parcher: So we have one here from Tom. Tom asks: all prices of all things for sale are not rising. Therefore, the term inflation is not what we are experiencing. For example, the market is working. Money is moving from those without oil to those with oil.
Why does no trained economist understand and label this a normal market redistribution period or some term listed in textbooks for reference? And why is the concept called inflation, which scares unknowing economists and today’s consumers who needlessly suffer from money famine, so poorly taught and so poorly understood?
[00:59:33] Michael Hudson: The question is so bizarre, I cannot answer it. It’s just how do you, how do you answer a swamp and straighten out what they’re saying to give them an answer? It’s a swamp. I can’t answer that.
[00:59:42] Luke Parcher: I suppose in general, what would you prescribe the price increases that we’ve seen today to?
[00:59:47] Michael Hudson: Very largely monopoly positions. The reason oil prices are going up is not because there’s an oil shortage. It’s because the oil companies find an excuse to use the newspaper reports that there will be an oil shortage at some point to raise the prices right now. Adam Tooze wrote a good article a few days ago, comparing the inflation in Europe to the inflation in the United States. In Europe, the price inflation is almost exclusively for energy and for oil and gas derivatives. In the United States, the inflation is much broader – it’s over the whole course.
Again, you want to look at the economy as a system. You don’t want to reduce everything to one-dimensional “here’s the price level”. You want to look at the multi-layered economy. What are the cost prices? What are the economic rents? What are the monopoly prices? What’s the tax system? You have to look at the economy as a system, not in a one-dimensional way. So, I can’t untangle all of the jumble any clearer than that.
Question | Paul B
[01:00:55] Luke Parcher: We have one here from Paul Birtwell again. Could Dr. Hudson touch on and acknowledge the validity of MMT? What do you think is the importance of MMT and how does it apply to this discussion?
[01:01:04] Michael Hudson: Well, I was on the faculty of the UMKC, which is MMT center for many years. I’m all in favor of MMT. The point of MMT is that just as banks create endogenous credit on their own computers, the government can create credit. The government doesn’t have to borrow money from the 1% or from bond holders in order to spend it; the government can simply print it as it did under the greenbacks.
The government can create its own credit. And there’s nothing wrong with running a budget deficit because a budget deficit does not have to be paid by taxpayers paying taxes. A government deficit can be funded by simply creating the money on your own computer – not by taxes. That’s the point that Stephanie Kelton has been making again and again in what she writes.
And that really is the essence of MMT. But of course the leading exponent of MMT was Donald.Trump, when he said deficits don’t matter, we can just create whatever we want. And I think, Vice President Cheney also said we can spend whatever we want. It doesn’t matter. George Bush said, you know, it’s all really fictitious anyway; we can do it.
The difference between Donald Trump and the Republicans and the MMTers is, we want the government to run deficits to actually spend into the economy. We do not want deficits to be run for $9 trillion to subsidize quantitative easing for the 1% to promote real estate prices and stock and bond prices.
We want them to actually employ workers and to promote full employment. So the difference is that the MMTers are basically in favor of tangible economic growth, not creating money bad MMT of Cheney and Donald Trump style.
Question | Luke Parcher
[01:02:51] Luke Parcher: Can you talk a little bit about how the IMF [International Monetary Fund] and financialization have contributed to what’s going on right now in Ukraine? I know that’s a little bit broad, but if you could tie in what we’ve been talking about here to the situation in Ukraine.
[01:03:02] Michael Hudson: The IMF’s job is to make sure that the economy is impoverished and that all the money that it gives is to support the currency – to enable the kleptocrats, Kolomoyskyi and others, to take the Ukrainian currency they have and transfer it into dollars and pound sterling at a high exchange rate.
So they will lend Ukraine the dollars – essentially to support the hryvnia, however you pronounce its currency – and enable the kleptocrats to make money and then pull the rug out from under them if any alternatives to the Nazis take power. They want.to make sure that, once the kleptocrats have emptied out the economy, they can let the economy collapse.
They’re of course backing the new labor law president Zelensky has pushed, abolishing labor unions, abolishing the rights of labor to negotiate, and making basically the most fascist labor law in any country’s history. So the role of the IMF is to support client oligarchy, to get their money out of a country before there is a possibility of a leftwing government coming in, and then to deny all credit and organize a currency raid on the leftwing government, to say, “You see, socialism doesn’t work”.
The IMF is one of the institutions that is the arm of American hegemony, preventing economic growth occurring outside of the United States. Essentially the IMF is a… it’s a small office in the basement of the Pentagon, run by the neocons, to make sure that other countries cannot have any policy that would not let American firms come in and buy their raw materials and their natural resources and their monopolies.
So, think of the IMF as a tool of the military, but much more right wing than any general would dare to be.
[01:04:55] Luke Parcher: Thank you so much, Michael. We really appreciate you taking the time today.
I also, once again, want to remind people to please go to realprogressives.org to learn more about us, or find our podcasts and articles, including again, Michael, as a guest on Macro N Cheese. With that, we will go ahead and call it a discussion here. Virginia, did you have anything you wanted to add?
[01:05:12] Virginia Cotts: Yes. I wanted to ask Michael where people can find his work.
[01:05:17] Michael Hudson: Well, Amazon, I guess, is the easiest place to go. It’s all available there.
On my website, michael-hudson.com. And you can go to that and join me on Patreon. I do have a Patreon group, and if you’re a contributor at a given level, then you get to talk to me directly every few months.
[01:05:36] Virginia Cotts: Well, we can all use support. Real Progressives also has a Patreon. So, support us all, please.
I just want to say, Michael, you wrote an article with the greatest title I’ve ever seen, which was something like the US Defeats Germany for the Third Time in a Century. I just thought that was such a perfect title. I think you wrote it right when the Ukraine war was beginning.
[01:06:02] Michael Hudson: Right. It was apparent what was going to happen at the very beginning. And I’m amazed that nobody else was writing about that. I’m not very good on military analysis. I can follow what Andrei Raevsky at the Saker says, and Moon of Alabama, and Andrei Martyanov. The one thing I can tell about military operations is the balance of payments aspects and how it all is spelled out.
[01:06:24] Virginia Cotts: Well… and you talked about how the three main sectors benefited.
[01:06:30] Michael Hudson: Yes. Oil is the key to American diplomacy. And I guess if we’re talking about American hegemony, it comes from America’s control of the oil trade. That was one of the reasons that America wanted to isolate first Venezuela, and then Russia, because if the only source of oil are companies controlled by the American oil majors, then…
Every economy needs energy to grow. And in every economy since the beginning of the industrial revolution, there’s a connection between the growth of GDP and energy use per capita. So I talk about the monopoly rent and the victim economy. If you can control oil then you can control, basically, the world economy.
That has been a key to the American policy. The Americans realized that if Europe cannot buy Russian oil anymore, or Venezuelan oil, then it’ll have to spend 10 times as much buying American liquified natural gas. This means the sanctions against Russia have ended German industrial supremacy. It has ended the German steel industry. It has ended German heavy industry.
They’re now going to be dependent thoroughly on the United States. And the euro is going to become a weakening satellite currency of the US dollar as a result of killing off the German economic and industrial leadership of the European economy, along with that of Italy and France.
[01:07:53] Virginia Cotts: Oh, thank you. I hope we didn’t abuse your generosity with your time.
[01:07:59] Michael Hudson: No. I assume if I said anything controversial, you’ll just take it out.
[01:08:03] Virginia Cotts: Oh, no, we like it. We will actually clip it and plaster it all over the internet.
[01:08:12] Luke Parcher: Oh… [laughs]
[01:08:13] Virginia Cotts: Michael Hudson isn’t controversial, is he?
[01:08:18] Luke Parcher: Well, you certainly don’t mince words, and we very much appreciate that about you. Michael, thanks again for giving us so much time today. And I want to give a brief shout out to Jonathan Kadmon, Andy Kennedy, and Virginia Cotts, who’ve been helping behind the scenes today to make this happen.
Thanks to all involved. Great.
[01:08:31] Michael Hudson: Thanks for having me. I liked the discussion.
“The Real Progressive” interview of Prof. Michael Hudson is definitively a consequential MUST-read.
The current head-on clash between financial and industrial capitalism is described in simple, crystal clear terms. Say no more.
Still, I do have a silly “gotcha” and highly technical objection of mine though which nonetheless 100% validates all the rest. I am referring to Michael´s very last sentence after a 1-one hour long interview touching upon many different topics which reveals his excellent, tireless, and clear-thinking mind.
Michael said “…Americans realized that if Europe cannot buy Russian oil anymore, or Venezuelan oil, then it’ll have to spend 10 times as much buying American liquified natural gas….”
(1) American LNG cannot and does not substitute oil, Russian or otherwise, at any price.
In its own prohibited ultra-expensive, cumbersome, un-practical, very limited, highly risky and very dirty fracked way LNG Liquefied Natural Gas — US sourced or otherwise, be it Qatar, Norway, etc.– may possibly substitute (sorta) Russian natural GAS… or any other natural GAS, but not oil. They are two very different — yet both most important — animals in the energy zoo.
Please refer to /germanys-failing-stored-nat-gas-lng-experiment/
(2) Oil is not fungible, it is not “plug & play” and is always directly linked to a given and very precise FIXED refinery process. Refineries are incapable of refining any crude oil other than the blend they have been designed and built for. No, refineries do not have a toggle switch allowing to refine this or that crude oil blend on demand. Today, many European refineries and most German refineries ( the all-essential Schwedt refinery comes to mind as no Schwedt no Germany ASWKI ) can only make good use mostly of Russia´s Urals blend (middle/light sweet) both in quantity & quality, price and also in reliability, etc etc etc etc etc.
Many important European refineries are fine-tuned for such Russian Urals and not anything else. Possible modifications can´t be made in time as is already way too late and way too expensive. So, no Russian oil, then lots of diesel fuel not refined in Europe, and no European use for most other sourced crude oils. It would be technically almost impossible and financially absolutely prohibitive for Europe to attempt refining any other type of crude oil besides Russian Urals blend, let alone heavy sour Venezuelan oil from Maracaibo or even from the “Faja del Orinoco”. Please refer to
/why-russias-oil-ban-is-impossible/
/europes-mad-ban-on-russian-oil/
/germans-schwedt-hard-for-russian-oil/
/no-fuels-for-europe/
I fully agree with Uncle Davy´s post (please scroll below)
In sum, and most specially under current circumstances, this Michael Hudson interview is a masterpiece we should all be very thankfull having available. Pundits worldwide will parse and study this interview in depth for months to come. Current financial capitalism is already failing miserably and badly needs a substitute, fast.
My only 2 issues with Michael´s position are that
(1) management of such “debt money” — same as deficit and credit creation — would all be politically highly discretionary and subjective and thus difficult to agree upon collectively, let alone in world markets.
(2) MMT might fly okay somehow in small scale. But the instant it needs to be larger it´d require foreign creditors, same as today´s failed “system”
@Jorge… re point #(2)
On pain of death, Hudson cannot directly overtly call out the very existence of the current Nazi-inspired global central banking cabal as the deadly and destructive parasite it really is.
Many other Statesman have tried this and paid with their lives. Not only politicians either… look no further than the tragic public slaying of DB Chair Alfred Herhausen for an example of this. This one instance alone sent a clear generational message to bankers and politicians as to what will happen to you or your family if you mess with these rapacious lunatics.
He can however provide us all with the knowledge and hence empowerment us to figure this out for ourselves. As the parallel structures emerge [the BRIIICS+++ initiatives], humanity can embrace these alternative systems armed with this knowledge and then begin to starve the hegemon into irrelevance.
In any truly sovereign state, there is absolutely zero need for parasitic foreign creditors, as currency can be created debt-free and backed by local tangible assets. There have been many working models that demonstrate that this is not in the least bit inflationary and that these models can provide long-term wealth for generations.
This environment also creates a savings culture where surplus wealth is invested at moderate real yields but at the same time is leveraged out to lend to individuals and businesses, and all within the safety net of local knowledge and sensible moral hazard.
In terms of the larger state-scale projects, a good US example was the huge infrastructural projects after the great depression which continue to provide wealth to this day. No “foreign creditors” were required for these projects and as such, they only cost a fraction of what they would have if the global bankster parasites had been used.
Warm regards
Col
Further to the tragic slaying of Alfred Herrhausen, here is a quote from the link below…
https://larouchepub.com/eiw/public/1992/eirv19n28-19920717/eirv19n28-19920717_036-was_herrhausen_killed_by_western.pdf
…quoted…
“Herrhausen was not only a close friend and economic
adviser to Kohl. He was one of the most progressive bankers
in the world.
According to writer Michael Morrissey, a professor at the University of Kassel’ who has criticized the official German view that the RAF killed this banker, Herrhausen was an aggressive advocate of a partial debt moratorium for the nations of the Third World and the emerging new democracies of eastern Europe.
On June 6, 1989, he detailed his proposal for a partial
debt cancellation in the German financial paper Handelsblatt.
On Sept. 25, 1989, just two months before his murder, Herrhausen laid out his views at the annual meeting of the World Bank and the International Monetary Fund (lMF) in Washington: “Mr Reed, speaking for Citibank, has said they are a ‘new money’ bank. I can tell you that the Deutsche Bank is a ‘debt reduction’ bank.”
According to Prouty, Morrissey, and others, at the time
of his murder, Herrhausen was actively working to establish
an eastern European development bank that would funnel
earmarked loans and loan guarantees into carefully selected
infrastructure projects in Poland and other eastern European
countries, including East Germany.
Perhaps more importantly, just before his assassination,
Herrhausen engineered a move against the City of London
through Deutsche Bank’s buyup of Morgan Grenfell for
DM 2.7 billion ($1.7 billion). Der Spiegel labelled the takeover “the most important strategic decision of the Deutsche Bank since World War II.”
According to Prouty, who capped a career in the intelligence field with a brief stint as an investment banker, the Deutsche Bank takeover of Morgan Grenfell “shook the hell out of the City. This action hurt the London banks more than anything else the Germans did since the end of the [SecondWorld] War.
Herrhausen’s s idea was to use the clout of Morgan Grenfell to boost his own capabilities.
In a speech that he was scheduled to deliver at the annual
meeting of the American Council on Germany in New York
City on Dec. 4, 1989, Herrhausen had planned to spell out
in detail the direction in which he intended to steer Deutsche
Bank.”
…end quote…
Instead, Herrhausen had his legs blown off and agonisingly bled to death on the streets of Frankfurt on his way to work one morning in his armour-plated Merc.
What a completely different place the world could be today if amazing and courageous visionaries like JFK and Herrhausen had been able to complete their careers, without being taken out by this murderous banking cabal.
Food for thought
Col
I don’t buy into this Finance Capitalism v. Industrial Capital way of thinking. As if one form of Capitalism is better than another form. Capitalism is based on exploitation Period!
I think the best way to look at Finance Capitalism is as a gigantic malignant tumor on Industrial Capitalism.
Capitalism is inherently chaotic so I don’t agree that “every economy is planned by somebody”.
This article implies that with the correct planning, Capitalism can be progressive, just, rational. It can not. A real socialist knows that Capitalism can not be reformed.
Colour me naive @Anton, but I actually genuinely believe that “Capitalism” can work as long as it includes a sensible chunk of socialism to guard against those members of society that fall through the cracks and need to be cared for by the State.
Of course, it is completely farcical to even try to label the western Zone A hegemonic financial system as “capitalism”, when in essence it is a completely kleptocratic system that preys on the productive working classes and feeds off a monumental financial lobby system that has fully captured all of the estates of the realm.
By definition, to even contemplate a viable sustainable working capitalist system, it demands the demise of the lobby and political party systems and the adoption of a direct recall type of Parliament where representatives work for their constituents… if they fail to do this they can be unceremoniously be voted out of office by referendum at any stage of their term.
No models including socialism, communism, or capitalism will ever work in their pure forms and all require huge ongoing oversight to protect the model from being consumed and wrecked by the basic primordial reality of a certain percentage population possessing insatiable greed.
Also, any state must include its military/security apparatus and associated three-letter agencies budgets as socialism anyway… because that’s precisely what this expenditure is… unless of course, a state contracts it out and as such surrenders its sovereignty to another entity.
If you analyse this concept in the US context, then Murica is a hugely socialistic model with a grotesquely bloated global military machine. Then when you add in the fact that the way the western FIRE economies are given licence to thieve from Mainstreet by the trillions, which is in essence reverse socialism and must be added to the socialist part of the GDP pie chart anyway, and the US becomes one of the most extreme socialist countries on the entire globe.
With respect and warm regards
Col
Col, With the exception of some of the comments I leave on this blog, I never argue about politics with anyone. (This blog is a bit of a hobby for me.) I prefer to seek what I and the person I am communicating with have in common. Humans are more important than ideas. For example, your allusion to Klaus Schwab makes me think that we agree 100% about the coming Great Reset.
My biggest concern is that the USA government at some point will send out goons to forcibly inject me with a “vaccine”. All other political considerations to me are secondary. So, to a large extant I have become APOLITICAL.
The pleasant demeanor reflected in your responses to my comments, far outweighs, in my mind. any difference in opinion we have.
Best Wishes
I believe we are very much on the same page Anton, and my biggest fear absolutely mirrors yours.
I am absolutely in agreement with you, I too am totally Apolitical in terms of party politics. Here in NZ our entire Parliament of 120 snivelling 4th Reich collaborators have been doing their level best to kill and sicken our entire population for 18 long months now.
They are losing the narrative daily though, and are so desperate to save their own arses that I wouldn’t put anything past them as they are now perhaps approaching the most dangerous stage of all… the endgame.
I take heart from the huge progress of what I label the BRIICS+++ initiatives because I really believe that this is humanity’s only hope left.
My other best medicine is my beautiful Grandees and these positives are what keep me in the fight.
Take care, my friend
Col
You miss Michael Hudson’s meaning. Industrial capitalism is in the business of making things. Finance capitalism is in the business of making money. Huge difference in attitude and effect.
As Michael Hudson clearly states here and elsewhere, towards the end of the 19th century, everyone expected that industrial capitalism would naturally evolve into socialism. Bismarck Germany, for example, had strong social programs to care for its workers–housing, healthcare, education, etc. Karl Marx was very clear about this evolution, although he nowhere implied that ‘evolution’ was necessarily peaceful, nor does Michael Hudson think so.
In ‘Killing the Host’, Michael Hudson discusses how WW I can be best seen as a conflict between the social forms of German industrial capitalism and the Anglo-American finance capitalism. We know who won.
A central difference between Financial Capitalism of the Western World and Capitalism of China. Which, by the way, was an important reason why the US became a wealthy nation.
“….the most important utility that’s been privatized of course has been money and credit creation – the banking system. What has enabled China to avoid the financialization that’s occurred in the United States is because the Central Bank of China is run by the government, not by a financial oligarchy of bankers that get together to run the credit system for their own benefit. But if the government treats money as a public utility, everybody needs money, everybody needs credit, and the government will provide the credit as needed for the economy to grow.”
That is, but one central difference, Anton, between the US’s Financial Capitalism vs. China’s form of capitalism. The Government is in control of the money. In the US, money is completely in the hands of the Super Wealthy via The FED, Stock Markets, Money Markets. Do you see?
The fact that the Central Bank of China is controlled by the government is the primary reason why I think China is still a communist state (although hideously deformed).
If a Capitalist state were to ever take control of the banking system, it may alleviate some of the pain of the working class but it would not lead to true economic justice.
There is no alternative to class warfare.
With all due respect Anton, perhaps then you should look at the incredible progress that the US made post-Great Depression, and using the model that Rubicon outlines above, through until when Nixon took the US dollar [and hence most of the global currencies] off the gold standard.
Also, China is NOT a communist model any longer… it is a verey unique blend of socialism, capitalism and Confucianism.
Describing it as communist can be merely a very convenient sinophobic canard that is often conveniently parroted in order to demonise this financial behemoth. Even the CCP is technically communist in name only.
Using this name as proof of communism is tantamount to extolling how “democratic” [sic] the US Demos are when absolutely nothing could be further from the truth.
Cheers
Col
PS… being a semi-retired NZ farmer, and technically about as far removed from a commy as anyone could possibly get. I nevertheless feel obliged to point out these inconsistencies simply because they feed the racial division side of Mr Global’s grand agenda. When we buy into these memes we in effect have been turned unwittingly into Klaus Slob assets.
Here is a “closer-to-home” example that Dr. Hudson tells us about: the great theft of Russia during the Yeltsin years. It’s the same thing, albeit not as swiftly, with US Capitalism:
“You don’t have to steal it{money} you actually make it your policy, giving away the financial domain in the way that President Yeltsin gave away all of Russia’s natural resources, public utilities, electric companies, anything that yields an economic rent that can be just easy income without any investment. And you financialize it.”
Do you see?
I just kept looking for what is, for me, always the starting point in any discussion of this nature; defining your terms. I dont see a definition of “civilisation” here at all. Maybe I overlooked it. But really, how can you have a discussion of civilisation, if you havent defined what it means to you, what it is you are thinking of and addressing.
It’s a common fault. And I believe it leads to immense confusion, and failure to think properly or solve anything. I tried to find a definition somewhere in Hawkings opus aout Time, and couldnt find it anywhere.
No wonder it was so vague and unreadable.
You’re using the quintessential American-style debating tactic.
Pick the connotation (not denotation) of a word you don’t like – and argue about the accuracy/appropriateness of that word
Hudson’s interview was a tour de force with:
– minimal economic jargon
– historical comparisons of different nations’ development paths
– historical comparisons across millennia
– a comprehensive take-down of the US Democratic Party
– offered solutions for contemporary problems in the collective West, esp. the US
all in just over an hour
and your only takeaway is but what does he mean by “civilization’?
Pathetic.
Too true Uncle Davy!
I couldn’t have said it better myself… leopards so very rarely change their spots.
WTF would Hudson bother to even begin to define the word “civilisation” anyway… the word means so many contrasting things to so many different people? Furthermore, it would have likely generated 100’s of comments arguing the toss about how right or wrong his definition was anyway.
Rumour has it that Gandhi replied to the question… “what do you think of western civilisation?”… “I think it would be a very good idea”.
Disclaimer… and it doesn’t, at the end of the day, matter one iota whether this remark can be attributed to Gandhi or not, because it makes such an extremely powerful point about the West’s centuries of absolutely disgraceful serial imperialistic rampaging.
Humanity is utterly blessed with a commentator with incredible clarity of thought, knowledge of history, the ability to contextualise current madness, and the courage to call out the disgraceful behaviour of this financial and military hegemon, and yet FFS he is criticised for this too!!!
…and the outrageous comment… “No wonder it was so vague and unreadable.”…
How on earth do you even begin to respond to that priceless gem?
YCHMTSU
Col
I am somewhat puzzled. I wrote a reply to you here some hours ago, and it is not present.
Please snd again – I cannot see it anywhere. Mod.
I dont keep a copy of my comments Mod, so cannot. It did appear, I saw it here, but when I came back it had gone. I guess deliberately removed, which puzzles me.
Wow! What an interview!
Should be subtitled: ‘Everything you wanted to know about Financial Capital but were afraid to ask!’
Also explains why the Russian-Ukraine proxy war is s much greater than just a military operation.
Also I’d posted in the Cafe before the danger of Usury (why it was unchristian & why the King Edward I issued the 1290 Edict of Expulsion, so was delighted to hear Hudson say:
“… the poorer you are the more debt you have to pay. They’ve reversed the whole last thousand years of Christian morality as the church has become privatized and financialized”
What did The Master say when he overturned the money-lenders tables in the Temple? ;) ;)
Was the Inquisition part of Christian morality? What about the persecution of the Albigencians and other so called heresies?
Wonderful information. Answered questions I have had for years. Thank you for this interview.
A very impressive Q&A. Hundson (almost) at his best. And mostly very intelligent questions. Would be impossible to follow without a transcript. Much enjoyed, thank you, Andrei, for posting this.
In terms of minimizing worker exploitation through a humane non violent economic model Michael Hudson is one of the clearest spokesperson and he has extraordinary depth of practical experience.
But something essential is being left out of the models that he and the majority of economists use. Every real economy relies at its base on a rich biosphere. Animals thrive because of the oxygenated air that come from photosynthesizing organisms. Clean fresh water and a narrow ph range salt water are essential. Planetary life has been brought into its interactive diversity through millions of years of relative climactic stability. Soil fertility for most of human history requires organic replenishment from fungi, plants and animal dung.
Industrial societies are dramatically impacting this life support network leaving ever growing dead zones, species loss, global warming from greenhouse gases, toxic materials invading the biosphere, loss of snow melt and glacial water for food production, bathing and drinking, and global resource wars over fossil fuels, metals, rare earths, etc.
I would argue that ignoring the ever growing cumulative effects of this disregard for biospheric health is no longer logical, and is really very dangerous, especially as fossil fuel extraction increases while its negative impacts grow.
As Michael Hudson describes, after WW2 Europe turned into a satellite of the US.
So 50% of the current European problem could be Euro ECB policies vs. US dollar Fed policies.
Because when interest rates were ultra low or even negative, the Euro and the Dollar did not clash.
Now with rising rates they do clash (lots.)The other 50% of the European problem is its miserably broken energy sourcing strategy.
The Saker commenter “Taffy” prepared an excellent summary of the Lira-Luongo-Krainer recent debate regarding the Euro-Dollar clash. Taffy puts it pretty much this way
” Europe’s financial survival now finds the aggressiveness of Powell in separating the US financial system and internal dollars from the much larger-volume LIBOR-indexed overseas dollars. Davos (including Davos-USA) is putting pressure on Powell to pivot and lower interest rates or not raise them anymore. Because Europe needs low interest rates in order not to sink under the debt load. And, Davos wants to solve the financial problem by canceling the debts and putting everyone on digital currency/UBI. That solves the financial crisis, and gets everyone under total digital control via CBDC. Here is where the financial agenda intersects with the eugenics/depopulation/total surveillance agenda. Of which the Covid op is a part.”
“But, CBDC requires eliminating commercial banks. Here is where Powell and big USA banks are saying No thanks. Powell is keeping interest rates high to bring down inflation. And Powell is saying Screw You and cutting both the homegrown and European Davosites loose anad creating a wall around internal US dollars. So, no CBDC in the USA, if Powell wins this fight.”
“The Ukraine war is part of this picture because printing money to pay for war in Ukraine undermines Powell and plays into the Davos-USA’s hands, so the DAvos-USA crowd (neocons in State Department, Biden, others) are pushing for this war to provide an excuse to print more money and hamstring Powell and his allies, most of the big US commercial banks…”
“The hypothesis is that a lot of the madness we are now witnessing has to do with cracks appearing between elites, specifically a group of American bankers and the Fed on the one hand and Davos-aligned politicians and bankers in Europe (and some in the USA). So far it is not clear where the Biden Administration itself stands on any of this. But it is contended that Donald Trump was a huge threat to globalists’ plans—via his appointment of Powell to head up the Fed—and this is one reason for the rabid attempts to get rid of him.”
“There are a lot of moving parts to the current money-energy-power-situation”
Does anyone have the direct link to the entire Taffy comment?
I think this theory has a lot of merit and it explains many of the apparent increasing number of contradictions. All the criminals are beginning to fall out with one another so that what was at best a haphazard plan amongst kleptocrats, has now descended into the equivalent of a bunch of thieves all fighting tooth and nail over the loot.
Cheers and thanks Jorge
Col
@Col…/´the farmer from NZ/
Per your request, below please find the direct link to the entire Taffy comment.
Actually
(1) the “link” is my own very recent article right here at The Saker
(2) please go to the “Comments Section” and there please find MANY comments made by Taffy all of which are most interesting for sure. Taffy and I do not always agree — please check that out also — but I openly admit same as you do that Taffy´s summarized explanation would finally make some “sense” out of the current NON-sense. My summary — the one posted right here above — is a summary of Taffy´s summary !!!
As I said, Taffy made many comments and I replied to them myself. You can go through the whole sequence if you wish. My focus was only on a couple of interventions pretty much at the very end of the Comments Section whereby Taffy refers to the very recent “Gonzalo Lira – Alex Krainer – Tom Luongo podcast “debate” ( if my memeory serves me well it´s #33 ? ) easily found in YouTube if you wish to listen to it all. Be carefull though as it´s pretty longuish and requires playing and re-playing most specially of Lira´s and Luongo´s statements. Alex Krainer is 101% crystal clear and does not require any replay. The meat starts at 17:00 and the topic at hand is presented as from 50:00 approx.
The “link” to my own article is ´ /how-bright-are-europeans/ ´
Taffy´s pertinent comments related to the specific aspect at hand can be found at
(a) Taffy on November 06, 2022 · at 6:26 pm EST/EDT
Also very interesting are other Taffy comments — which I reply to — one of which can be found at
(b) Taffy on November 05, 2022 · at 10:54 pm EST/EDT
There are many others though please check them out if interested.
Cordially Jorge
Also ´interesting´ is that in such same Luongo-Krainer-Lira podcast Tom Luongo clearly left on record that JPMorgan is the only institution in the world that holds an “All Ruble” Fund… although I do not recall Luongo indicating its size… nor why such Ruble Fund would be soooo important as Luongo seems to think it is. He went pretty much bonckers describing the situation…
Another possibly overlapping explanation to the current European NON-sense would be the clearly visible high-pitch animosity between Ursula von der Leyen and Charles Michel…
https://www.politico.eu/article/ursula-von-der-leyen-charles-michel-europe-eu-g20-summit-european-council-commission/
Sadly Hudson is just not consistently clear in his explanations. He’s clear enough on his historical explications, but when it comes to explaining economic phenomena and their relationships, he just cant bring himself to clearly walk his non-specialist audience through the analysis. He blows past key terms without explaining them or using good analogies…and his books suffer from this as well.
Everybody i know who listens to him leave his material scrarchinh their head thinking “i only got 50% of that, but it was great!”
Michael Hudson is unique living repository of financial history.
I differ with Michael in that he maintains that “money” is just debt to be managed differently by pertinent authorities. And if such debts go wrong and can´t be payed back it should be assumed that from the get-go were originally bad loans that should not have been issued or granted.
So the management of the “debt money” he describes i.e. ´legal tender fiat currency´ — same as deficit and credit creation — would all be politically highly discretionary and subjective and thus difficult to agree upon collectively, let alone in world markets. Accordingly, I believe a “hard anchor” link is required, be it to a gold standard or a basket of hard “stuff” / commodities such as the BRICS+ is now planning. “Money” is not debt, “money” is value. Actually “money” is universally accepted stored labor.
Regarding MMT, it might fly okay somehow in small scale. But the instant it needs to be larger it´d require foreign creditors, same as today´s failed “system”. Thus it would not solve any of today´s financial problems, just more of the same.