SuperImperialism, Dollar System, Financialization and China’s Economic Transition South South Dialogue on Sustainability
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City
Cross-posted from Michael’s Website
Photo by zhang kaiyv on Unsplash
South South Dialogue on Sustainability
18 September 2026
Host: Professor Lau Kin Chi (Lingnan University and Global University for Sustainability, Hong Kong, China)
Interview Transcript
Lau Kin Chi: The first question is, the United States has $40 trillion in federal debt. Is it a new form of Super Imperialism? And what does this $40 trillion in U.S. federal debt really mean?
Michael Hudson: Some of this U.S. Treasury debt is held by private holders in the form of Treasury bills, which are short-term debt, or notes up to two years, and longer-term bonds. But a rising portion of this debt is simply created by fiat electronic money. It’s monetized by the Federal Reserve, which creates money for the government and then buys back an equivalent amount of U.S. bonds from the banking system. So, it has very little impact on the U.S. economy and money creation. It’s fiat money. But after the United States stopped redeeming its paper dollars in gold 1971, this debt was the main vehicle for foreign government savings in international monetary form.
Other countries and their treasuries and central banks are spending new savings on gold once again. They’re increasingly worried about buying dollars now, and even are moving their own gold reserves out of the United States to Britain or their own countries. Not only is the dollar becoming risky, but gold itself is risky if you don’t hold it in your own hands. So Holland recently asked for the gold that it’s been holding in the United States for generations, since gold began to flow to the United States in the 1930s and 1940s until the U.S. stopped changing the dollar for gold in 1971. This gold was kept here by foreign central banks or they moved to Britain because the London gold pool was the traditional gold market ever since Britain went on the gold standard after the Napoleonic Wars ended in 1815.
Holland said that it doesn’t trust the United States not to simply confiscate its gold like the Eurobank confiscated $300 billion of Russian deposits in the Eurozone in 2022. So this mistrust of the United States spreads beyond just whether the United States really is going to pay its official debts.
Saudi Arabia and other OPEC countries are worried. What if they begin to sell their U.S. Treasury IOUs to finance the deficits that they are now suffering as a result of the U.S. war on Iran? Will the United States treat them like it has treated Venezuela and Russia, and freeze their treasury securities? Trump may claim that he can’t afford to pay them because that would hurt the dollar, and that would be an act of war. That’s not part of the agreement that America expected back in 1975 when it dictated agreements as to what OPEC countries would do with the petrodollars they earned on their oil exports.
The United States is making two demands on the rest of the world that bring into question its willingness to pay its debts to foreign central banks in countries that try to pursue their own independent economic policy. For the OPEC countries, the U.S. demands that they send all the surplus they make on their oil trade to the United States and leave it here. That was not stated explicitly, but it was understood that if you invest your export surplus in dollars in the United States, that simply was how the world worked back in 1975. But it’s not how the world is working anymore. And so, nobody knows what Donald Trump is going to do. Countries such as Saudi Arabia are afraid of moving out of the dollar, because of Trump’s statements since 2018 now that he wants the OPEC countries to pay for America’s entire war in the West Asia, going all the way back to when 10 years, 20 years.
Trump has said that the reason that he is fighting Iran is that it wants to levy tolls as reparations or prepayment for reparations for America’s illegal war on it. But Trump says he wants 20% of all of OPEC’s oil earnings, its sales, to be paid to the United States as compensation for America’s protecting of the Saudi and Near Eastern oil countries from, obviously, from the United States itself. In other words, this is a protection racket, it’s a shakedown, and so this is frightening other countries, and they say, well, if the United States is weaponizing the financial system. That means threatening any foreign deposits in the United States, whether they’re government deposits, official deposits, or whether they’re private sector deposits, everything is at risk right now. We’re in an epoch of piracy.
Lau Kin Chi: The second question is, with the federal debt already at an extremely high level, if the Federal Reserve raises interest rates just like what they did just now, or keeps them still high to curb inflation, could that conflict with the government’s need to keep its debt financing costs under control?
Michael Hudson: The higher interest rates rise, the more interest the government has to pay to bondholders. The only way to avoid this is to have the Federal Reserve simply monetize by buying the bonds that are issued. I’m told that it has been buying long-term bonds, even 30-year bonds that are yielding over 5% interest. The Fed will buy these bonds, and when it earns the interest on them, it will return the interest to the Treasury. So, it will all be a circular flow if there isn’t enough demand for long-term bonds from private investors or from foreign governments or foreign investors.
But here’s the problem. Rising long-term interest rates in the bonds are going to interest rates throughout the whole economy. Real estate mortgages, for instance, often are 30-year mortgages now yielding over 7.2%. Now that the Treasury bonds are at 5.2%, the mortgage rate that new buyers have to pay is pushed up. If you’re in your 30s and you want to get married, have a family and buy a home, you have to pay a high interest carrying charge for the mortgage that you take out.
So you can’t afford to buy a home. Real estate sales are down because people can’t afford to buy. And that means that existing homeowners can’t sell. They’d have to pay off their mortgage, and they’re not in a position to do that. They can’t transfer their old mortgage at a much lower interest rate to the new buyers. So, the real estate market is frozen. The real estate that is being bought is largely being bought by private capital companies. They can make an enormous return on rent. So instead of buying real estate on credit, they can get all the money that the banks would be making in their interest rates on mortgages. And we are raising up the rents as more of the U.S. population is forced into the rental market. So, rents are rising to reflect the higher carrying charge of buying a house on credit.
So the United States is turning away from a nation of homeowners into a landlord economy. The new landlords are largely private capital companies, enormous companies like Blackstone. A lot of investors are trying to pull their money out of these companies, and Blackstone cannot sell the real estate that it has to pay the people who are withdrawing from what really is a Ponzi scheme.
So, you’re having a freeze-up of the capital markets as a result of these high interest rates. That’s the problem much more than the federal budget itself, even though what the government is supposed to pay looks like an enormous amount of interest. The problem is in the private sector’s debt.
A lot of this Treasury interest ends up being paid to itself via the Federal Reserve, so it’s not really being paid. But the high interest rates that the Treasury pays sets the interest rate pattern for the rest of the economy. That’s a high level right now, although it used to be normal.
When you’re talking about long-term interest rates, real estate is really what it’s all about. Since the 1940s it has been funded in the United States primarily by 30-year mortgages, sometimes 10-year loans if you’re a more elderly buyer and they think you’re going to retire at the age of 65 or 75. 80% of bank business is real estate loans, but now suppose that you’re a homeowner or a renter. In either case you’re paying the high rent. You’re being squeezed not only by the higher interest rates that you have to pay for a mortgage, but on all the other debts you have, such as automobile debt or credit card debt. Also, your electricity prices are going way up, especially as a result of the artificial intelligence demands by all of this computerization of the economy. And extreme weather is raising insurance rates.
These changes means that homeowners are going to have difficulty selling their homes. There’s a freeze of people in place for the real estate that they own. It’s almost become a burden to be a homeowner right now. And that burden blocks the younger generation from being able to do what their parents and their grandparents did, to go to a bank and say, “Here’s how much I earn. I can pay 25% of my income as debt service.” The banks say, well, that doesn’t leave much room for paying the principal. We’ll have to stretch it out for 30 years or even on a non-amortization basis. Only the interest will be paid, eternally. The home buyers will not be able to work down the debt that they own on their real estate. That’s the effect of the rising interest rates, beyond the effect on the government itself.
Lau Kin Chi: So, in Super Imperialism, originally you described how foreign central banks recycled their dollar surpluses into U.S. Treasury securities, allowing the United States to finance its own balance of payments deficits. You have recently pointed out that this intergovernmental recycling of dollars has increasingly been replaced by foreign private investors buying US stocks and bonds. Is this simply the same financial empire drawing on a different source of funds, or does it mark a fundamental change in the nature of the system?
Michael Hudson: The system is indeed changing. The United States created the largest bond market rally in history and the associated stock market bubble by President Obama’s Zero Interest Rate Policy (ZIRP) that drove down interest rates to only a fraction of what they were in 2008 when there was the bank fraud and junk mortgage crisis. Banks had made a lot of bad loans, but the government bailed out the banks for all the junk mortgages they had made, and flooded the economy with money. It did not write down the fraudulent loans that the banks had made to their victims.
The banks foreclosed the borrowers, kicked them out of their houses, and forced them to sell because they couldn’t afford to pay the junk mortgage interest rates. Teaser loans had been made with no interest to be due for a year or two, but then a huge balloon was going to be charged as the full interest charge was going to come in. There were many defaults and the large private capital companies came in and make a killing by buying up this real estate. Homes were transferred from the victims of the junk mortgage crisis to absentee landlord companies.
The Federal Reserve flooded the economy with money, driving interest rates down to a fraction of 1%. That enabled financial investors and speculators to make arbitrage gains by borrowing at low rates to buy higher-yielding assets. You could borrow money from banks at under 1%to buy stocks that were paying dividends of 7% or 8%. You could pocket the difference for yourself. Or you could buy houses and other real estate, and earn the rent. It was a huge arbitrage operation.
The low interest rates also spurred a stock-market boom. That attracted foreign capital. Not only could Americans borrow at low interest rates, but foreigners could go to Japan and borrow very low interest rates, convert the money from Japanese yen into dollars and buy U.S. stocks. That helped finance the balance of payments deficits that the United States was running because of its military spending abroad, and also because of its trade deficit resulting from its deindustrialization as money was used to make money by purely financial manipulation, not by tangible industrial investment.
The result was that dollar deficits were recycled not only by foreign governments after the U.S. went off gold in 1971, but by the private sector trying to ride this U.S. wave of stock and bond market boom. When interest rates went down from 5% to 1%, bond prices went up. Financial speculators could borrow cheaply to buy an asset, a bond paying a higher interest, or stocks paying higher dividend rates, and also make a capital gain. Bond prices went up as interest rates fell, and stocks prices also went up, as did real estate prices. This saved the banks from suffering losses on the mortgage loans that had gone bad but now were recovering.
The important fact to recognize is that this financial process produced “capital” asset-price gains as well as current income arbitrage opportunities. It was a finance-capitalist bonanza. But the U.S. economy for most of the population was flat for the wage-earning class. This enormous financial wealth was created in the form of financial and real estate wealth. I think that over 85% of this was concentrated in the hands of the richest 10% of the population. And the wealthiest 10% of foreign countries also shared in this free ride. The economy was being turned into a Ponzi scheme, which was slowed when the zero-interest rate policy ended. And today’s rising interest rates are threatening to impose a crash of the long 2008-2026 asset-price runup.
Despite the fact that bond prices go down when interest rates go up, the stock market hasn’t yet gone down. Private capital investors, middle-class investors and pension funds have been buying stocks. But the largest financial investors are warning that the financialization game is over for now. Large investors are selling, and smaller ones are trying to withdraw their funds from the big money managers. They’ve been buying U.S. long-term bonds and gold or short-term U.S. securities just to preserve the valuation of the gains that they have made. The smartest investors today aren’t trying to make capital gains like they were since the 2008 crash. They’re simply trying to preserve their capital valuations in the wake of what looks like is going to be a move by many countries into a balance-of-payments crisis and financial break in the chain of payments. We’re really not able to see what countries are going to do because it will depend on whether they put their own economy first or whether they will put the payment to their own foreign dollar bondholders first.
Imagine if you’re a Global South country and all a the oil prices, fertilizer and food prices suddenly go up later this year. Countries will have to decide whether they can afford to pay their bondholders, banks and the IMF the money falling due. Or will they give priority to using their scarce foreign exchange reserves to pay for the higher price of oil and subsidize it so that homeowners and businesses can afford to light and heat their homes and businesses, and provide their trucks and railroads with the diesel oil that they need to distribute what they produce or import?
Much of the world is going to look like Germany since 2022 after the United States insisted that it stop buying oil and gas from Russia. German industry began to shut down, causing unemployment. That threatens to be the model for many countries by the end of this year. Nobody can tell what is going to happen in this high-risk environment, but the risks of investing in stocks or bonds have increased very sharply, mainly by the U.S. oil war and Trump’s attempt to shake down other countries and act like an international pirate.
Lau Kin Chi: Let’s turn to China. You have long argued that China’s decision to keep banking and money creation as a public utility is a major advantage in preventing the financialization of industry. At the same time, you have pointed out that local governments’ reliance on land finance created a FIRE sector symbiosis between finance and real estate.
Michael Hudson: When you say symbiosis, you mean that homebuyers or office building buyers must take out a loan to buy property. It typically takes a person’s working life, a family’s working life to make the income that enables them to buy 100% ownership of the home that they live in and buy on credit. They need a mortgage, which is to be paid out of the income they earn.
Most people want a home to live in instead of being prone to rent increases. They take out a loan to become homeowners. That’s become the badge of being a member of the middle class, and it involves banks. Real estate accounts for 80% of bank loans in the United States, Britain and Scandinavian countries.
China’s way of financing real estate is unique. Its towns, villages and cities finance their own local budgets by leasing land to real estate developers. These developers then arrange with banks to finance the building of new homes or offices, and to lend money to retail buyers. In many cases Chinese banks lent to developers simply in the hope that they somehow would find buyers.
By contrast, when a U.S. bank lends to a big developer it usually requires that the borrower issue a prospectus to test the market for pre-selling apartments in the proposed buildings. When enough buyers sign agreements to buy apartment sin the building, that meets the banks’ conditions for extending the loan.
As people see the building going up, more buyers sign on. And by the time the building is finished, even if its apartments are not fully sold, at least it will generate the income to start paying the banks. Retail buyers or speculators and absentee landlords will take out loans from other banks to pay the developer for the apartments that they’re buying. And the developer will be able to repay the bank for the money that it has lent to construct and market the building.
But in China, many banks – not directly the People’s Bank of China as a central bank, but the banks to which it has provided money – have lent money to the developers. Somebody lends money to developers without any market survey confirmed by people signing agreemenets to buy apartments in these buildings. China did not require that.
Evergrande, and apparently other companies, simply built the buildings in a vague hope that if you build them, customers will come. That turned out to be just a wish. Buyers haven’t come in many areas. So the buildings are only partly finished and still don’t have buyers for apartments or condominiums or co-ops in them. Construction has slowed down. There wasn’t any market feedback for all this process.
China did not do what the United States and Western countries have done by sharing federal government funds with the localities. To help the localities the federal government has thrown the burden onto the localities to arrange their funding. And the main thing that what can localities sell is leases on real estate and its prospective rent-of-location.
Why did the government let this happen? I think that its logic was to avoid trying to tell the cities how to develop. It wanted to see what cities found the most efficient way to organize their finances. It was a kind of market competition, just like China has let private industrial enterprise develop innovations in various fields. For industry, that has been successful. But financing local social spending by leasing real estate is not that kind of innovation. It threatens to be a race to the bottom, not to the top, becoming more reckless.
Towns, villages and cities did not sell the land outright, but leased it to developers on a long-term basis. And enable this process to work, the government had to provide banks with the money to pay lend against the rights to lease this land and build real estate on it. The developers needed banks, mainly perhaps even the same banks, lend them money to build it and then to lend more money to retail home buyers or office occupiers to buy ownership rights.
That’s what I mean by symbiosis. It means that real estate has been financialized. Well, President Xi, quite rightly, came out and said, homes are made for living, not as investments. But many Chinese, understandably, have done what many Americans and many Europeans have done. They’d say, well, homes are for investment because that’s a very secure form of investment because it’s there.
All over the world you have people wanting to buy a home or condominium here in New York, for instance, and rent it out. You get more money in rent than you must pay the bank in debt service for the mortgage that you take out, plus the taxes and basic carrying charges. New York has tried to discourage this absentee landlordism by introducing a dual tax system. As a homeowner, I pay one property tax for my condominium where I live. But there are identical apartments on other floors. If investors buy these apartments but are not the actual occupants, they’re real estate tax is higher. The aim is to discourage speculation in real estate, because housing is for living in, not for buying on a speculative basis.
So that’s how New York and other cities are coping with absentee landlordism financed by bank mortgages or bought with one’s own accumulated wealth. How is China going to deal with this situation? It’s certainly moved against developers for not being more careful in building properties without assurance that there’s a market for them. What is to happen to the banks that have lent these developers the credit to construct these buildings and pay localities for their leases? Is China going to let the banks go under?
Not only is Evergrande guilty, but the banks that lent to Evergrande are also guilty of not having any oversight of the kind that is normally used in Western countries to prevent developers just from just going ahead to build an apartment building and hoping that people are going to materialize with the money to buy these properties. Where is the market research and what American law calls “due diligence”?
Builders and buyers assume that at least they’re building something tangible. It’s material. Statistics will count this as capital formation. And it is capital, but with a fictitious valuation. It has a cost of production, but it doesn’t have a market value, because nobody’s buying it. That’s the problem that China is facing right now.
Lau Kin Chi: So with the property market weakening and the land value appreciation slowing down, if China gradually uses a land value tax to capture land rent, how should the transition be managed? How should such a reform be coordinated with the debt burden of households that already have mortgages?
Michael Hudson: What’s so unique about China’s policy is that when it set out to recreate its economy along the most efficient lines, it was in a position of having to reinvent the wheel. When it decided how to industrialize itself to make itself a low-cost producer – and at the same time, to raise the productivity of labor and living standards – it independently rediscovered the logic of classical economics – the classical political economy of value, price, and rent theory that culminated in Marxism. But it created this logic by itself, afresh.
From Adam Smith to Ricardo to John Stuart Mill to Marx, Marxism itself was simply an expression of this early classical economic doctrine focusing on value and rent theory. But China’s view of Marxism focused mainly on the relationship between capital and labor, and the source of profits from employing wage labor. The Communist Party wanted to make sure that Chinese labor would not be oppressed by industry, especially industry in private hands. But this focus – like that of Russian Communism – diverged from that of Britain after the Napoleonic Wars, and indeed from that of France, Germany and the United States in their own industrial takeoffs. All the Western nations that took off under industrial capitalism were revolutionary in trying to free their economies from the residue of feudalism, above all the landlord class. British industrialists adopted Ricardo’s argument that it could not afford to make Britain the workshop of the world if it let landlords maximize their land rents, at first from farmland providing food. Agricultural landlords insisted on protectionist policies to raise food prices – the Corn Laws passed in 1815 when the Napoleonic Wars ended. The major land rents later were for urban real estate. The pro-industrial parties of Europe sought to tax away land rent to the hereditary class of absentee owners of the land.
The industrial nations didn’t confiscate the land outright. It calculated the rise in land prices – increasingly the rent of location – and collected the price rise by taxing it away. That was the ideal the tax base according to John Stuart Mill and the Liberal Party. Making Britain the workshop of the world called for taxing land and other vehicles for charging economic rent, not labor or industry. The ideal was to tax the landlords, and to free the economy from monopolies and monopoly rents. Privately owned monopolies in transportation or communications would raise the cost of living and doing business. The whole spirit of industrial capitalism was to cut such rent charges.
By the mid-19th century, John Stuart Mill and others called this socialism. Socialism was the policy of industrial capitalism itself, freeing itself from the residue of feudalism, above all from a privatized rent-seeking class of landlords who, as Adam Smith said, “love to reap where they have not sown.” Mill expressed a similar idea of rent as unearned income when he said that landlords collect rent (and increases in the price of their land) in their sleep.
But rent is not a form of income that has a counterpart in work or services needed for production. That’s what classical value and price theory is all about – the excess of market price over intrinsic cost-value. The main analytic tool of all the classical economists down through Marx were based on the concepts of value, price, and rent as the excess of market price over cost value, defined as the socially necessary cost of production. Value to Marx was the cost of production, including the normal profits made by the industrialist. Marx said that the industrial capitalists did play a productive role in organizing labor, undertaking research and development, organizing the supply of raw materials, and organizing markets for all of this. So industrial capitalists did deserve a profit, which was an element of value – specifically surplus value, the markup of what industrialists sold the products of labor for, above what they actually had to pay the labor.
However, Marx wrote that landlords don’t play a productive role. Nor do monopolists. When they raise prices above normal profit rates, that’s not a contribution to production. It’s at the expense of labor and capital, just as land rent is – and also the old style of predatory British-style, British and Dutch banking. These rent-yielding activities should be public functions, along with all natural monopolies such as transportation, communication, health care, education, and banking. They all should be socialized.
But Western societies never got around to socializing the most important public utility of all: banking. It was left in private hands. That’s what made China so able to outperform the Western economies. It didn’t have a domestic financial sector whose interests were simply to make money for itself.
For China, money was to be created to finance the production of goods and services – and real estate for actual use values, not as rent-yielding vehicles. In looking at the real estate sector, China did not pick up this century-long discussion of land rent, monopoly rent, and the financial rentier income that characterizes the Western economies. Marx left that discussion of rent and interest to Volumes II and especially III of Capital because he wanted to discuss surplus value and what was unique about industrial capitalism value before he discussed rent and interest.
Marx’s discussion of value in volume one was expanded Ricardo’s labor theory of value based on the price of labor by asking, just what price are we talking about? Is it what labor is paid? Or is it what the industrial capitalist sells the product of labor for? The difference is surplus value. That concept of surplus value was Marx’s great contribution to classical value theory. That’s why he put it in Volume I. That was what was new.
The remaining volumes of Capital put this labor and capital relationship in the context of the broad economy, much – even the largest part – was not part of the production process. That rent-extracting part was headed by the landed aristocracy and financial oligarchy. These were the rent-seeking sectors, headed by real estate, monopolies and finance.
This non-productive economic activity is a problem not only for China but for the global majority as a whole, which is now trying to decide how is the world going to go forward and replace the U.S.-based economic system with an alternative system. The great problem is to define this system.
Most economists and the students to whom I talked at Peking University and other universities in China told me that they feel that there is a preference given to Chinese students who studied economics in the United States, and in Europe too. That’s the case in many Global South countries and other countries. The problem is that students trained in the United States are not exposed to how industrial capitalism really took off. How did it become so productive?
The West’s neoliberal anti-government “free market” economics claims that there is any no such thing as economic rent. Value and price are said to bereally the same thing. If people pay a high price, that’s the value, and that’s that. The classical idea of economic rent as not being a cost of production, and therefore to be minimized, is left out of account for students who’ve been trained in neoliberal post-classical economics.
The problem is not only for other countries being trained this way, but also for the United States and Europe themselves being trained this way. The result has been a blind spot that led to the deindustrialization of the United States and Europe.
What China is suffering in its real estate problem right now is that it seems to have caught the American-British disease of financing real estate at a price that includes the interest payments that buyers on mortgage credit have to pay to the bank.
I don’t know about the tax system of China. I don’t know the details ofhow labor and capital are taxed there. I haven’t studied China’s economy like I have that of the United States. But it seems obvious to me that if China would view the rent of location that makes one housing site more valuable than another, that’s part of nature. There will always going to be economic rent of location, in the sense that people be willing to pay more for some well-situated properties. They’re nearer to transportation, maybe nearer to schools, or to parks or museum, or other amenities that are largely public in character. Well, how is China going to deal with this phenomenon?
The classical approach would be to make a land value map, a site value map showing the degree to which sites closer to transportation have a high rental value. Less accessible sites have lower rent-of-location.
What can be taxed away is the rising price valuation of properties as China’s economy becomes wealthier, as better transport is created, and more local amenities. The interest payments that have been paid to the banks for mortgage credit to buy such properties will now be paid as land tax. If China does this suddenly, then existing homeowners cannot pay the tax and also pay the banks for the same economic rent that is now being taxed. There would be defaults. Banks that have been obtaining interest from homeowners for their mortgages loans against this land rent will lose their claims for payment. If the government does not bail them out, they’ll go under.
It’s up to China what to do. The political problem that if there’s a land tax, a rent-of-location tax, how are developers going to get the money to pay for their leasing of land, the cities and localities?
They’re going to have to solve the problem of federal local financing as part of the financial reconstruction of this symbiosis of finance and real estate that I’ve described.
Lau Kin Chi: Thank you. So, China has used local government financing, land finance and credit from state-owned banks to drive large-scale urbanization and infrastructure development. So, for this stock of outstanding debt, policymakers should distinguish between debts that should be extended or refinanced at lower interest rates and those that should be written down.
Michael Hudson: I began to pose that question in my last answer. I understand that China already has established debt resolution teams to do precisely this. They’re asking whether an investor simply bought real estate as a gamble, hoping that its price of property would go up and provide a land-price “capital” gain – really the land valuation gain “in his sleep.”
Or, is the home owner just a regular working family? We don’t want to hurt them. It’s going to have to be handled by debt resolution teams to work out a way of coping with this problem.
It took China a revolution to free itself from the carryover of its background as a colony of Western imperialism. Now it’s having to fight the last element of this idea of real estate financing and state and local financing. It must resolve the relationship between national and local financing, how to tax away economic rent and, in the process, end the payment of land rent to the banks. (The banks would receive payment for the actual value of buildings that were constructed – assuming that they were built with a viable market in mind.)
As China has become more prosperous, people have more money to buy a home. And if they make more money, I think everywhere in the world the way to rise in status is to buy a nicer home. So that’s what they do. And rising prosperity will create an increase in land prices.
The challenge is to prevent this from becoming a speculative vehicle. That’s a simple problem to solve. If you make a land map peaking with land sites at central locations to more peripheral sites, what is the prices pattern for the increase in standard rental value for a family of a given size?
You can levy a tax on the rent component of the building’s valuation. That would keep housing prices at a low proportion of the wage income. There would not be a temptation for people to spend their rising income on investing in real estate hoping to ride a real estate bubble. You’ll avoid real estate from being financialized and becoming an investment vehicle. That’s what President Xi has said that he wants to bring about. If you tax away the rise in the location of property, then you’ve solved the problem of how you discourage the financialization and speculation in real estate that has been raising the price of housing and office buildings throughout the economy.
A land tax is what will keep the economy low priced. That’s what David Ricardo, John Stuart Mill and Marx designed, and what came to be called socialism. It came under attack by the banks and the real estate interests, which sponsored an anti-classical reaction that still dominates today’s economics curriculum in the West. It’s the essence of today’s neoliberalism.
In retrospect, a land tax could, have financed the development of China and its towns. But that would have left less of a debt-inflated sales price for the developers and their mortgage bankers. China followed the line of least resistance, but now the situation has changed. And the cost of changing from one tax system to another is high. That’s the problem that China must deal with. So, as you said, the question is how to unwind this. Its policy, I think, is to appoint resolution teams to decide who must bear the price-gain loss. They’re going to come with a pragmatic solution, I believe. But some banks will have their net worth written down.
Lau Kin Chi: So, the Chinese edition of Super Imperialism, a third edition, will be coming out very soon. So more than 50 years ago, you analyzed in Super Imperialism how the United States used the debt system to transform balance of payments deficits into global financial power. Compared with the earlier versions, what are the most important revisions in the third edition? What changes in the world prompted you to make them?
Michael Hudson: I’ve expanded the 1944 debate between Britain and the United States over how to create a postwar economic order. Keynes tried to prevent the pro-creditor rules that the United States wanted to impose – rules that subjugated payments deficit countries to harsh austerity rules. Britain saw that it had had to give certain trade concessions to the United States in exchange for the 1944 British loan. It had to end the Sterling Area requirement that India and other colonies had to spend all the savings in Britain that they’d accumulated in World War II for their raw materials and food and other products sold to the Allies.
But the United States said, no, we need a free market. Countries can spend their money wherever they want, and Europe’s colonial powers cannot impose capital controls monopolizing these markets. The United States was the largest industrial producer at this time, and it also was the largest creditor because of Europe and other countries moving their money to the United States in the 1930s depression as World War II was looming. So, Keynes said, we don’t want to be forced to impose austerity in order to pay our debts as the United States becomes a growing creditor. Other countries are going to fall into increasing debt. Keynes proposed an arrangement where we avoid another depression and another economic polarization of the world economy. When a country becomes a chronic surplus country, its claims on chronic debtor countries will be wiped out, along with the corresponding debts.
That’s exactly what happened in 1931 when the Inter-ally debts and the German reparations were canceled. Keynes said that we’ve got to write that practice into the rules of the post-war economic order. And what he recommended is exactly what needs to be done today. How can many countries survive the coming depression if they have to pay all the foreign debts that have resulted from the kind of a free trade environment and financialization rules set by the United States back in 1945? We’ve got to write down these debts. They can’t be paid without pushing the world into depression.
This chapter shows how clearly Keynes and the British understood how the post-war pro-creditor economic order designed by the United States was going to impoverish other countries. He wanted debts to be forgiven in the case of chronic debtors, who were told to sacrifice their growth and impose austerity plans in order to give fiscal priority to paying foreign creditors, mainly those of the United States, over promoting their own economic growth. Keynes had Britain in mind specifically.
I’ve also tried to clarify the discussion of how the U.S. Treasury debt standard has given the United States a free lunch at the expense of other countries since its foreign military spending forced it off gold in 1971. Super Imperialism was published one year after the United States went off gold. Well, I’ve brought it up to date.
What’s happened since? It’s now 55 years since 1971. Going off gold ended up benefiting the United States by creating treasury IOUs, treasury bonds owed to foreign governments and now foreign private investors as well. This inflow of foreign government savings in the form of U.S. Treasury securities is a free lunch that the United States has no ability or even any intention of repaying. I have spelled out how this works and brought up to date.
It would help to read this new edition of Super Imperialism, along with my book on Killing the Host, which is about how industrial capitalism in the West has been replaced by finance capitalism. Instead of evolving into socialism as most economists expected the whole world to do after World War I. And my subsequent book on the Destiny of Civilization, based on lectures that I gave here for Kin Chi’s Global University Group, further elaborates the transition of Western capitalism away from industrial capitalism into finance capitalism. I describe how this has resulted in deindustrialization and hence the emergence of China and other countries as providing policies pretty close to the original classical model of how industrial growth was supposed to develop and evolve naturally into socialism. This is what the classical political economists of the 19th century believed, not only Marx but across the whole political spectrum.
Lau Kin Chi: Thank you. So, Michael, you just mentioned that socialism was one alternative after the Second World War. What do you think now of socialism as an alternative?
Michael Hudson: Socialism is really industrial capitalism’s political war to free itself from the remnants of feudalism. It was revolutionary in fighting against the landowning aristocracy or oligarchy trying to make itself into an aristocracy. It also aimed to free itself from monopolies, and from being dominated by the financial sector. China has made the great break of keeping its money creation and credit allocation as a public utility in the hands of the People’s Bank of China. So China is the one nation in the world that is able to use its money creation to finance the production and distribution sector, not an independent financial sector. China doesn’t have a class of corporate raiders or of banks making money to buy control of a corporation, to empty it out, pay oneself a dividend, and turn China into something like Thames Water in England. China doesn’t have a Margaret Thatcher or a Reaganomics lobbyist class. It’s avoided the financialization that is has destroyed Western industrial capitalism and de-industrialized capitalism in the West. That is what has given China the ability to achieve the kind of socialism that the industrial capitalists called classical political economy.
The opposition in the West to Marx is therefore an opposition to Adam Smith, opposition to John Stuart Mill, opposition to the whole doctrine that guided industrial capitalism to free economies from privatized economic rent and financialization. China is attacked as if it’s anti-capitalist, yet when it’s followed the same basic logic. Other countries haven’t done so.
Ashley Dayman: I was just wondering if Michael might want to elaborate on the U.S. extortion attempts against South Korea.
Michael Hudson: The United States has threatened South Korea by demanding that if Korea agrees to pay $350 billion to invest in the United States as his price for lowering his illegal tariffs against Korean goods and services from 25 to 15 percent. That agreement was made a year ago, and Korea hoped to find some profitable investment opportunities in the United States. But when its government asked various Korean companieswhere they thought they could make a profit by investing in the United States, the American workers weren’t trained in building sophisticated factories and means of production, so Korea tried sending its own workers to the United States. Taiwan found an identical problem in trying to relocate its computer-chip producer here.
Koreans were arrested as illegal aliens when their visas expired. Many were deported and treated like foreigners in the South, and they had to flee back to Korea. So Korea is still wondering how it can make a profit. Recently, Korea realized that it will have to pay enormous amounts of money later this year for its energy and food imports. How can it spare the $350 billion to pay Donald Trump’s demands?
Trump has said that this $350 billion is not only for all the costs America has spent in fighting Korea, and indeed in dropping more bombs on it than were dropped in all of World War II. It cost America a lot of money to defeat and subjugate Korea. America has never signed a peace treaty with Korea. It’s still legally at war with Korea. And now it wants reparations from the victim!
Trump now is threatening that Korea must pay $350 billion or the United States raise the tariffs on imports from Korea. That threatens to bankrupt much of its export business. Korea is told that it must stop buying Chinese information technology and computer chips and pay U.S. monopoly prices of pay seven to ten times as much for what it’s been paying China.
As you can imagine, Korea is seeing how the United States bankrupted German industry by insisting that Germany not import oil and gas from Russia since 2022. Well, let’s look forward and imagine what may happen when Iran finally drives the United States out of the West Asia and decides just what ships to give priority in moving through the Strait of Hormuz.
The Iranians may say that Korea and Japan probably may have a low priority because these U.S. satellites – like Western Europe – are simply going to turn over the profits they make to the United States. Japan has agreed, promised to pay $650 billion to the United States. Iran will give priority to Global South countries, global majority countries, and to members of the Shanghai Cooperation Organization. I think you’ll have China, Russia and Iran moving together as the core, and invite BRICS countries to join them, but not as a part of BRICS, which is a very amorphous organization. Any real agreements will be made by China, Russia and Iran, and they’re going to obviously give priority their allied countries in Asia, Africa and perhaps Latin American countries that are independent from the United States.
Korea and Japan are told to pay tribute because they lost the war to the United States. There’s something about nations that, when they are defeated, they become subservient and lose sort of all willpower to their conquerors, as Germany did after World War II. It’s very unfortunate to see. But Korea is really the canary in the gold mine. At what point is it going to say that $350 billion is more than it can make in profits by exporting to the United States? When I spoke to Japanese corporate managers many decades ago, Nippon Steel and other Japanese companies still had a plan B.
That was a contingency plan to shift their ties away from the United States. But that was 50 years ago. I don’t know whether Korea and Japan still have anyone like that in their corporate sector, much less the government. But the only hope for Korea and Japan is to say that there’s no way they can make an economic profit or benefit from trade with the United States on the conditions that Trump and the United States Congress are imposing. So if I were Korea, I’d be talking with the Chinese and Russians about losing the U.S. market and simply giving it up. Korea can’t afford to spend $350 billion just to pay Trump. That’s beyond us. Is there any way that it can integrate its economies more with those of China, Russia and Iran? That probably would include North Korea as part of a de-dollarized world system.
Lau Kin Chi: Thank you. Now we have Vincent Wang who wants to ask a question.
Vincent Wang: I would like to ask Mr. Hudson about rent relationships within industrial capitalism itself. In my view, I think some productive organizations in modern China are not financial institutions and do not directly exercise financial power. Yet, in organizing labor, they seem to combine two mechanisms analyzed in Volume I and Volume III. Professor Hudson mentioned Marx’s Capital a lot. I think the production of surplus value through the labor process[is different from] the extraction of additional income through control over platform access, algorithms and employment status, as well as subcontracting arrangements, control over pricing, access, and evaluation that shift employment obligations, social-protection costs and safety risks onto contractors and workers.
My question is, do you think it is a valid analytical concept to call this kind of phenomenon institutionally generated economic rent. Or should this be regarded simply as a labor exploitation or as a form of new economic rent generated within productive organization within this modern industrial capitalism itself?
Michael Hudson: Marx wrote three volumes of his Theories of Surplus Value over this very question of productive versus unproductive labor. Much of the economic rent that you’re talking about for industrial corporations is monopoly rent. The United States took the lead in creating the Sherman antitrust law in 1890, and Theodore Roosevelt was elected president as a trust buster. There was a long U.S. tradition of deciding at what point does a normal rate of profit become economic rent, over and above the necessary profit, and what element of what is reported as profit become an unnecessary cost of production.
That is why what Marx contributed to economics was largely accounting. He has been called the patron saint of accountants. He developed the accounting format for what’s called EBITDA, earnings before interest, taxes, depreciation and amortization. He developed a broad accounting system to analyze the entire economy, including its rentier financial context. So you’re quite right.
If you’re making a national income and product account, how much of the profits of a very successful corporation, like most of today’s Western billionaires, are actually monopoly rent? That’s what you need an accounting format to study. When I taught national income accounting back in 1971 to 1972 at the New School for Social Research, I used Marx’s posthumously edited Theories of Surplus Value as my textbook, as the guidance for productive versus unproductive labor and investment and income.
Lau Kin Chi: We do not have other questions. I think we should let Professor Hudson get some rest, because it’s been one and a half hours, and you’re still having another interview in a few hours. So, thank you. Thank you so very much, and please take very good care, and don’t work so hard.
Michael Hudson: So much is to be done right now. The whole world is polarizing, and we’re in a crisis that will determine the direction in which civilization is going to evolve. This is a civilizational crisis. The effect will be to redesign the world economy, thanks to Donald Trump driving so many other countries together and told them that if don’t find an alternative, they’re all going to have to pay tribute to the United States.
Lau Kin Chi: Thank you so much, and take good care, Michael!
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