The realities of modern banking, economic rent, and financialization.
KARL FITZGERALD: Welcome everyone to our quarterly Patreon Q&A gathering here with Professor Michael Hudson, author of just so many books and contributor to so many long interviews. Michael, three hours plus is becoming a normal for you.
Good to see people turning up, our Patreon supporters.
Make sure you throw your questions in the Q&A, it makes it a lot easier for me to try and juggle things.
Put your hand up if you’d like to come on screen we’d love to see you on screen we’ve had a series of really in-depth discussions here with Michael’s Patreon supporters.
I feel like these are some of the best discussions you do, Michael, so please give us an insight on what you’re working at the moment, just to get the ball rolling.
MICHAEL HUDSON: I’m still working on my book on the history of debt from the crusades until World War I, and how it was actually the Catholic Church that brought banking into being in order to finance the wars that it was fighting against other Christians.
The crusades were mainly against other Christians, mainly Constantinople which Rome wanted to absorb, but also against Germany, against France (the Cathars in France) and against anyone who didn’t pledge fealty and pay tribute to Rome.
The problem was, once they could recruit warlords and say, I’ll make you king of England if you pledge fealty to me and agree to pay Peter’s pence and other income, so they had the Norman conquerors, and the same thing happened in southern Italy and Sicily, they made a warlord king.
But then they found they have all these warlords willing to fight for them to kill the orthodox Christians in the east and to kill the German Christians that wanted to be independent, and any Christian that wanted to preserve the original Christianity, including sanctions against interest, well they set the inquisition on them.
So the question is, how do you arrange financing to pay for these warlords to wage armies and so they created the 13th century Schoolmen to invent a new word.
Instead of usury, they called it interest.
When I was in school, it all looked like it was very plausible, interest. Well, if a merchant lends money, then he can’t make money on it, so he’s making a loss by losing the gain so you have to pay him for that. And if there’s a late payment, well then he wasn’t able to use the money.
So you know it seems OK, you lend money and you go without for a given amount of time.
Then you look at the actual contracts and you find out the contracts meant that the late payments began after a month. Not only the late payment, but there’s an international foreign exchange transfer fee, they can charge for going all around the city looking for you. I mean it was just absolutely comical.
It was actually the last thing that the Catholic church [wanted], their aim was to extinguish any trace of Christianity, [but the unintended consequences were] to create the banking class and the banking class rose so rapidly that soon they took over the papacy in Leo the 10th, the Medici pope.
Then the bankers said, well, the Catholic church wanted to have a pan-European system and control all of Europe. We want to replace the church. We want to do what the church did. We want to be able to control all the governments by lending the money.
So they began to lend money, especially to the most warlord governments of Spain and France. It turns out that by the 1700s, already in the 1600s, the kings kept defaulting again and again and when they’d default they’d often wipe out the banking families.
So the banks had a problem: The kings can only pledge and lose what they have: their own royal domain and their power to tax. Well in France, the king had a smaller amount of land than many of the big dukes and the power of the tax is limited by parliament like the Magna Carta limited their tax.
So they really weren’t able to raise all the money in the country.
And the bankers wanted all the money in the entire country to be pledged.
They found that model in the city states of Venice and Florence. These were communes. They found the idea of a commune, a democratic commune, was the best security for making a loan because the heads of the commune pledged all of the commune members.
The bankers essentially said, let’s take this city-state model of free cities and make an entire nation like that and they did that.
The Dutch cities like Amsterdam expanded into all of Holland and then they took Holland and expanded that. And in the conquest of England in 1688, the “Glorious Revolution,” they did the same with England.
It was the banking class that pushed parliamentary democracy (“oligarchy,” if you wish) to replace the royal kingdoms and create the modern state.
The modern state, ever since the 1800s, the 1700s was created as essentially a collection agent for the banks to make war debts, and almost all the bank loans to begin with 913th-14th-century 15th-16th-17th-century banks) made war loans to the government.
Now, strangely enough in the 13th, the Schoolmen who said well you need banks make money for … commerce and exchange.
Nobody, none of the Christian theologians said, well this is all to make war and it’s to make war on our enemies, is to make war on other Christians to make them all part of you know a big centrally-controlled Europe.
Pretty soon this is how the banking class took over most of Europe by essentially creating what historians now call a “fiscal state.” The state is created as a means of taxation to pay foreign debts to the bankers who will lend the money to go to war with each other.
That was a dynamic that we’ve had all the way until modern times.
I didn’t know that!
It wasn’t in any of the history books, and everything that I’ve been reading is just absolutely amazing how, you know people think of feudalism as knights, knights fighting and you have this whole anti-semitic group thinking oh it must be the Jews that brought in banking.
The Jews were expelled from England and France not because they were making loans in interest but because they were not making loans.
All the money had been taxed from them and then their wealth had been seized.
And they were competing with the Christians. The Christians wanted to charge [more] money than the Jews were charging and they didn’t want any competition. That’s why the Jews were expelled in the 13th century. Not exactly what you get in the history books.
Even the Jewish historians have concentrated so much on looking at the Jewish families, because they’re historians of Judaism, without looking at the context of the Christians and what was going on “over here” with the actual development of banking.
That’s what I’ve been working on.
I’m at the final stage now where, after creating the fiscal state to essentially tax everybody to the extent of the foreign debt, that by the late 19th century the states began to get really democratic, like the United States, and the problem then was, the bank said, how do we take away control of the state over money and taxation because the state wants to tax the banks and to tax us.
They created one of the worst developments in financial history, a central bank, and that was the Federal Reserve. That was created by JP Morgan and a group of people who said, we’ve got to take control of the money supply, control of credit, control of government regulation, out of the hands of Washington, and give it to the bankers.
They created the Federal Reserve board, Federal Reserve districts, especially New York city, Chicago with the mercantile exchange, Boston, Philadelphia, San Francisco, with the gold.
Essentially, ever since 1913, when the Federal Reserve was created, you’ve had the banks controlling monetary policy and as a result interest rates and even fiscal policy, taking power away from the Treasury. The financial sector has essentially backed a libertarian kind of idea, taking power away from the state.
If the government doesn’t regulate or plan the economy then Wall Street plans it, the financial sector plans it. That’s the big picture.
KARL FITZGERALD: I can only think of about 30 questions out of that summary.
What came to me was how similar your critique of the church system was to the process of devolution from classical economics to neoliberal economics. It seems like a similar sort of trend you’re unveiling there in the religious space.
MICHAEL HUDSON: Yep.
CATERINA: I have a question regarding China and I think you have spoken about it before. I’ve heard you so I would like to have more of your idea. Why do you think China still is sending their best and brightest to the universities in the West where they’re being indoctrinated about this most horrible— I mean they’re basically not being taught anything except the whole point is to create this professional managerial class that manages the status quo and not even in a very competent manner, and instead of not sending them and actually this— like why are they still trusting the west as being a source of information? I think their way obviously of doing things is so much better. I mean they have lived to date hundred million people out of poverty.
MICHAEL HUDSON: That’s just what my students were asking and complaining about.
They say that the students that are trained in the United States get preference in hiring over themselves who’ve gone to the school of Marxist studies in Beijing PKU, and they complain about it.
This is bizarre, and I think the reason is that the attempt to somehow create a mixed economy and avoid the Stalinist kind of central planning all started with Milton Friedman from the University of Chicago going to Shanghai and there’s a tension that’s been building up for the last 15 years between the Shanghai free enterprise school and the Beijing communist party group.
But the communist party has not studied classical economics. They haven’t really studied Marx’s volume two and three (of Capital). Particularly they don’t understand how there was a counter-revolution in the 20th century against classical economics and mostly against classical value and price and rent theory.
The whole aim of classical economics was to isolate economic rent, as the excess of market price over income.
Adam Smith, John Stuart Mill, Marx, the whole 19th century: how do we free economies from the overhead of, number one, a hereditary landlord class getting land rent.
The landlord, John Stuart Mill said, makes money in his sleep. Do we really want that? The rent should be the actual tax base.
Monopoly rent. The monopolies in Britain and Europe were created, already beginning in the 14th century, by bankers who would help kings raise the money to pay their war debts by organizing foreign trade monopolies.
Kings were not able to tax their countries (levy taxes) beyond the ability of parliament to agree on. But the one thing that kings could do would be to tax foreign trade, and so they established all sorts of excise taxes, not only the monopolies for trade with countries, like for England or the Russia trade, the south sea company, all of the east west companies, and also trade within countries, monopoly for beer trade for instance well.
The classical economists wanted to get rid of everything that was property rights, that owners would make money in their sleep – that was just a burden.
They wanted to get rid of all income that was not a payment for actually paying a productive service.
Well that’s what classical economics was all about. When they said a free market, they meant a market free from economic rent.
Well then you had the anti-classical reaction saying there’s no such thing as economic rent. Everybody deserves whatever income and wealth they have, and by definition we all get our income and wealth by being productive.
If you look at how the United States and Europe and even China creates its gross domestic product statistics, these statistics not only include production, even [though]they call it product, but they include income paying for something that doesn’t have anything to do with creating a product.
Increasing land rent and the housing rent to cover the cost of housing in a house, the market price goes up and up as the economy becomes richer and people can afford to pay more for the house and to borrow more from it, or just pay from what they’ve got.
Same thing with monopolies.
So if you take economic rent— let’s call it, the best way to abstract it very quickly, is to say, take the GDP and subtract the FIRE sector take out finance, insurance, and real estate and here’s the GDP going up here and here’s a fire going up. You find that really the GDP, after taking out rent, which isn’t a payment for a product, it’s a transfer function. It’s a payment from one person to another and it doesn’t really really grow.
If you compare the American GDP, where almost all the growth has been in economic rent, with the GDP of China, you have relatively little economic rent — much less economic rent — in China and the BRICs countries and you get the disparity in economic growth much clearer.
I’ve tried to make that point but in order to understand that they would have had to read Marx’s volume three (of Capital). This has not been the most popular kind of lecture that I’ve given in China and my American colleagues have come over and said the same thing.
If you look at volume three of Capital, which is very largely about finance, banking, interest charges, and rent you find that Marx said there are two kinds of income. There’s a production income and there’s the sphere of circulation. The sphere of circulation is basically economic rent and overhead, finance overhead, debt overhead, rent overhead for land rent, monopoly rent.
I’ve had great difficulty making this clear to them.
Because they don’t understand why China, their own economy, is so much more successful than the United States, they still had an idea that the American economy that got so rich in the old-fashioned ways when it was industrializing, somehow is the same economy that America has today where the students are sent to America to learn this anti-classical, rent-free, value-free kind of economic thought. It’s very bewildering.
CATERINA: Xi Jinping just announced that they will try to have more Marxism in their analysis so hopefully this will change. Thank you so much!
KARL FITZGERALD: [Reading a question] Michael can you explain the difference between China and America’s central banks?
MICHAEL HUDSON: America’s central bank is run by the commercial banks, and the purpose of a central bank in the United States is to prevent banks from losing money, and the bank loans, any country’s bank loans, are somebody else’s debt. The banks create debt. That’s what they do when they make a loan, and the debt goes up and up.
And the central bank’s role is to preserve the ability of commercial banks to make the economy more and more highly indebted, and also to play the role as an anti-labor class, class war.
The idea of the central bank, and Paul Volcker has said, the role of the central bank is to prevent labor’s wages from rising. Inflation, Volker said, and he was my boss’s boss at Chase Manhattan for many years, is labor being paid. Not rents, not anything else. So he said, if you can just make labor poor, get it less educated, less well-housed, less well-fed, then you’ll be more competitive.
That is exactly the doctrine that the International Monetary Fund (IMF) imposes on debtor countries. This is just the opposite of the way in which the United States got rich. The United States got— the American school of American economists in the late 19th century was centered on what they called “the economy of high wages.”
They said, the way in which we’re going to make America’s industrial economy more competitive, so that we can undersell pauper labor, is by high-wage labor that is well fed. We’re going to have public education free to raise its educational levels. We’re going to provide health care. We’re going to provide basic needs.
If the government provides these by imposing tariffs that protect American industry, then employers will not have to pay the costs for education.
Well all of this was overthrown when classical economics was overthrown.
So today you have labor having to earn enough money to pay the student debts at fifty thousand dollars a year in college. And they have to pay for the health care instead of that being public. So 17 percent of America’s GDP is health care.
Yesterday’s Financial Times had Martin Wolf say, ‘what does it mean when you say America’s GDP is growing when 17 percent goes to health care but America’n [average] lifespan has been falling?’ Europe and all the G7 countries’ lifespans have been going up, and America’s is going down. Yet it pays more money for health care. This is empty GDP. Is this really what you mean by GDP?
Well, that’s part of the whole problem. You’d think that that would be applied and it seems so obvious, that nobody in the 19th century expected that industrial capitalism was going to make a U-turn and the old feudal interests would fight back. The landlords would fight back. The landed aristocracy, the banks would fight back to keep their interest going, and the central banks have reflected that anti-classical economics.
Whenever you have wages going up and employment is going up, the central bank will raise the interest rates as if somehow this makes a difference.
You have other countries, for instance, you have Russia having the same problem. Look at Russia’s balance of payments right now. The United States has imposed sanctions on Russia, especially the Gazprom bank, so that Russia has been selling a lot of oil and gas via India and also directly to China, but it hasn’t been able to monetize its sales for this, so the result has been an inflation there because of the sanctions.
Well, the [Russian] central bank has raised the interest rates to over twenty percent, twenty-one percent. That’s even higher than Paul Volker’s twenty percent rate, as if somehow raising the interest rate is going to prevent people from spending money and somehow cure the inflation, when the inflation doesn’t come domestically, it comes from the result of the cold war spending.
There’s a whole mythology of central banks. They say, if there’s any problem, raise interest rates to make more money for the banks. If there’s any problem in the economy, the banks must not lose the money. The economy should be subjected to austerity plans like the IMF imposes, rather than having the banks lose a single penny.
Of course this idea was finally imposed with a sledgehammer by Barack Obama in 2008 as a result of the massive bank fraud for junk mortgage loans and fictitious assessments. The Obama administration bailed out the banks and evicted eight or nine million homeowners because they couldn’t pay the fictitiously large corrupt junk mortgages to essentially reverse the whole rise in—
Homeownership in the United States since 2008 has fallen by 10 percentage points as America is being turned back into a landlord economy instead of a homeowner’s economy.
The whole idea of rising into the middle class by owning your own home has been essentially reversed and I understand that in Australia you have rising housing prices and somehow in Australia people are still trying to rise into the middle class but the price of doing that by buying a home is to spend so much of your money paying interest to the banks that essentially the bankers today are playing the role that landlords played in the 19th century and became the whole class that Adam Smith and John Stuart Mill and all the other classical economists were trying to free economies from.
KARL FITZGERALD: We always have this debate, Australian land prices increased by 765 billion dollars last year. National banking profits were just 20 billion dollars. So whilst a lot of the rent is paid to banks, it’s still only for 1/40th of what capitalizes to landowners.
George Chis has read Deirdre Kent’s book Healthy Money, Healthy Planet, which is concerned about the power of government controlled central banks versus the privately controlled central banks, which you’ve just sort of talked about.
His question, though, is: why is Iran so powerful and so hated by the globalists who have obtained their power through central bank control in most countries around the world? The exceptions that I’m aware of, says George, include Cuba, Iran, and North Korea. Please discuss this key issue.
MICHAEL HUDSON: Well in the west the central banks control the government, not the government controls central banks.
That’s the whole idea of a central bank, to take control of money, of credit. If you control the credit system you decide who gets the credit, and for what.
Commercial banks lend credit to buy property already in place, but 80 percent of bank loans in the English-speaking countries are for real estate. The rest can be against stocks and bonds already issued. So this is essentially raising prices for assets and financial securities that are already in existence.
Cuba and centrally China have kept banking and the money supply as a public utility instead of privatizing it.
In the west, banking and money creation, credit creation, has been privatized. Banks create it, and they do not create it to fund industrial development. They don’t create it to increase prosperity. They create it to make financial gains at the cost of the rest of the economy.
In a government-controlled banking system, in theory, in principle, they make loans for what projects the government say are in the national interest, usually tangible capital formation, infrastructure construction, basic social needs, social welfare education, health care, communications, transportation. All of these things are funded by the central bank, including real estate.
Obviously they can go overboard on real estate, but that’s because they haven’t understood that some sectors such as real estate have a difference between making a profit and making a product and simply creating economic rent and the price of land as we’ve been describing.
I think the most important factor in China’s growth is that it hasn’t adopted the American system of letting central planning be done by the commercial banking system, but by the government and that it is trying to do the best that it can to increase tangible economic growth, industrial product, rising living standards, and effective wage rates and an altogether better economy.
KARL FITZGERALD: Yes the Chinese central bank supporting the productive sector over the speculative sector primarily. Looking at it, your thesis of requiring a very strong state to hold the banking system in place is key.
JOHN C.: I was hearing the show, Ben Norton had a guest and they were talking about the BRICS clearing platform, but, although I’m not really interested in the technical details of it, there’s this lady when she said, oh they’ll never, as far as exchange rates go, this is I don’t want to touch I want to get your knowledge of ancient societies and how they worked out exchange rates because she said oh they’ll never agree on a basket of goods but if countries who will not agree agree the countries that are …
MICHAEL HUDSON: Who is the we?
JOHN C.: …. that know the different countries that are trading that would be bricks countries right yeah that’s what that would be the “we.”
So the point that I I thought of was that countries, when they’re trading in their own currencies, they obviously have or even if you’re trading in barter you still have, you still have to be looking at what what costs in that country like various goods and what how much do things cost in your country you’ll always be comparing that when you work out either an exchange rate or what you’re going to trade at right, so you’re forced to do that and you know with all the countries say trading in their own currencies I can understand the concept of you want to clear out the balances as much as you possibly can amongst all the countries. You might have to you know swap this country’s currency for that currency but yeah and you have to have an exchange rate set for all the countries right?
MICHAEL HUDSON: There’s no way of doing that.
It’s best not even to think of the word barter. Nobody’s bartered— there’s no sign that there was even barter back in the Stone Age. All of the exchange is on credit, and the problem is, that if one country is imbalanced, has even more credit or more debt, how is the repayment going to be made if rates change, so you need some form of stability.
That’s why even President Putin said he’s not trying to withdraw from the dollar. He’d be quite happy to keep the dollar as a stable means of currency because it will avoid the whole fight that you’re saying.
In fact I’m on Ben Norton tomorrow morning at nine o’clock talking about, I think probably the same issue, so this is going to be coming up, it’s something we’ve talked about before.
They’re trying to figure out a way of handling the accumulation of one currency way in excess of its use.
For instance, Russia exports oil to India. Yes, it gets rupees. What can it spend the rupees on? Well it’s not really barter and it’s not even an exchange of currency because these rupees are blocked rupees. They can only be spent on certain kinds of Indian goods and they can’t be sold. Russia can’t say, OK we have a lot of rupees, let’s sell them to America so America can pay all of the Indian scammers that come and try to sell you get rich quick schemes or whatever. There’s no way of exchanging these rupees. That’s really the problem.
This is not a topic that is taught in any American university. I think the first class in the balance of payments that was ever taught was what I was doing at the New School back in 1969-1970. Students are just told that everything is bartered and that’s why the academic trade theory is called the “barter theory of trade.”
It’s as if every government is run by central bankers and they are trying to reinvent the wheel and make up their own rules. There’s no way of really analyzing the financial effects of international trade and it’s a kind of anarchy because it’s a gap in their thinking.
I think John Maynard Keynes did the best proposal for how to solve this problem in 1944 when he came up with the idea of the “bancor”. It would be sort of like the special drawing rights of the IMF. It would be a paper credit to pay the debts, and there would be some kind of a currency basket or gold as a basis.
I think that’s why so many countries are buying gold right now, because they think that any of the ultimate means of debt settlement to settle trade balances is going to be based largely on gold because the dollar— The U.S. forbids other countries to use dollars now.
It’s very funny, Donald Trump says he’s going to declare war and completely isolate other countries using dollars, but he said, Russia can’t use dollars. Other countries targeted can’t use dollars. If a country and a company exports a good that has one single component of U.S. made, that sells to China, that country cannot use dollars so the United States is telling the rest of the world you can’t use dollars but if you don’t use it you’re going to be our enemy.
This is the schizophrenia that you have today so I can’t give you a reasonable answer for how this is going to work out because people are working in the dark.
JOHN C.: Yeah like the only other thing I had thought of was India could say Russia hires India to do something to do work in their country and that would be a way of paying them back, like building infrastructure.
MICHAEL HUDSON: I don’t think the Russians want Indians in their country. They want Russians to do the work. What does India have that it’s willing to sell Russia or to build for Russia? Nobody solved that problem yet.
JOHN C.: Right but is it possible that a third country that maybe India exports more to and they could balance it via—
MICHAEL HUDSON: That’s the reasonable thing to do but as I said India blocks the rupees. It says, OK, here the rupees for the Russian gas that we’re going to sell for dollars, but you can only spend these rupees for certain things. You can’t sell them to a third country so you can’t have a multilateral solution. They’re blocking it off.
MICHALIS T.: Going back to the question of central banking in China and how many deeper from the us or other western countries, I find it quite surprising that there was a law passed in 1995 I think that restricts the People’s Bank of China from financing government deficit or financing government bonds and it seems like there was an attempt to reform the banking system in China around 1995 towards a model that is closer to the western one.
Historically, if I understand correctly, the main means of financing development in China has been nevertheless even though from government-controlled banks, it has been interest-bearing created deposits and which inevitably sets up a situation where debt and interest automatically outtakes the original input of money because if you have a bank which creates money in the form of deposits with interest attached even if it is a government or bank, you still have in aggregate debt and interest outgrowing them or being more than the money input.
This is setting up probably a situation where you have unpayable debt from moment zero and so my question is why do you think China has followed this model and does this model of banking trace back to the time you are writing your book about the Middle Ages, like the time where the crusades were financed? Was it that when the bank started creating money in the form of bank deposits instead of other forms of financing?
MICHAEL HUDSON: Well I can’t explain what they’re doing because I think you’ve made a very good point. It doesn’t seem to make sense on the surface. I’m not in touch with the Chinese right now because I’ve stopped taking, I’ve stopped flying airplanes to China because of COVID and my whole team in Hong Kong got long COVID so I just hesitate to become part of these discussions, but you’ve put your finger on exactly what the problem is.
On the surface it doesn’t seem to make sense. So I can’t explain why somebody does something that doesn’t make sense to me.
MICHALIS T.: The second part of my question about whether banks creating, being in control of the creation of money in the form of unbacked bank deposits that are not convertible into anything like gold or cash or anything like that, just bank deposits out of nothing. Does this model go back to the time of banking rising in the Middle Ages with the support of the church? For example were the Templars and were the Medici and all these families simply creating bank balance deposits on their balance sheets with nothing to back them? Was that the moment when banks were able to start creating deposits with nothing to back those deposits?
MICHAEL HUDSON: Well, they can’t create deposits unless they borrow from the government, and that’s what central banks do ultimately except the central bank is independent from the government.
If China wants banks to be able to lend, for instance, to real estate developers, it will lend the money to the banks to lend out.
It’s sort of like Dennis Kucinich’s 100% reserve plan. It’s as if the banks are like savings banks with the government being the largest depositor. That’s maybe the easiest way to think about the logic they’re doing.
So the government creates the money for the banks to lend out. The banks don’t create new credit on fractional reserves because, where’s the balance sheet in that?
MICHALIS T.: I meant that banks in the western system, private banks, being able to create deposits with nothing to back them on their balance sheets, like commercial banks creating money in the form of deposits.
MICHAEL HUDSON: Well they could create the credit but then how do you— there has to be a balance. Once they create the deposit, what do they get in exchange?
Well at the beginning, with the Bank of England in 1694, they said, well what do we have in exchange for this, this trade credit or bills of exchange as they were called. Well we have the sales, the order and the sales, and we know that it’s a bona fide sale.
We’re talking about mercantile trade credit, exports and imports trade largely, so they could do it as long as— in America they called that the “real bills doctrine,” meaning bills of exchange with actual trade exchange there.
Harder to do that if you’re talking about making a loan to create a long-term capital investment or something like that.
You’ve had an evolution beyond what the Bank of England started. The financial system has gone beyond foreign trade lending with bills of exchange between buyers and sellers, to actually making loans for all sorts of non-trade purposes like real estate and corporate takeovers.
MARK B.: Aren’t more meaningful jobs created with education spending rather than with military and wars?
MICHAEL HUDSON: Of course.
KARL FITZGERALD: Well can you explain to us why you’re so critical of the multiplier effect?
MICHAEL HUDSON: It’s all based on the bank reserve requirement principle. If the economy worked like the financial system of the banks it would work but it’s just a theoretical construction that doesn’t seem to make much money.
The idea is if you put money into the economy, it’s all going to be spent around, and if you go to the banking system all of this is going to be monetized in the form of bank credit, and the result is that somehow you’re going to financialize the whole economy.
I think the economy works much better when it’s not financialized and finance doesn’t sort of take over and fund everything by debt. The multiplier is based on loading the economy more and more highly with debt until it all collapses. That was Keynes’s alternative to Marxism and classical economics, and that’s all I can say. I can’t explain something that doesn’t make any sense to me.
All the MMT people and the others, we call ourselves post-Keynesians. We don’t talk that way anymore. None of us can understand you know why that would possibly be helpful.
MARK B.: Has the U.S. squandered 10.4 trillion on unwinnable illegal and immoral wars since 2001?
MICHAEL HUDSON: Let’s just say “spent destructively” instead of “productively.” You can characterize it however you want. That’s how much it indeed spent on the wars and it’s all been capitalized into foreign debt, very largely to foreign foreign governments.
MARK B.: Wasn’t expanding NATO from 16 to 30 countries extremely provocative? Shouldn’t NATO have ceased to exist when the Warsaw pact dissolved?
MICHAEL HUDSON: Yes, of course it should have. That was what everybody expected. In fact, that’s what Baker promised the Russians, that there would be no more need for NATO. Russia said, well if there’s no more need, why don’t we join NATO and let’s make it all— we’re protecting ourselves against the the terrorists.
So yes of course it should have been dissolved, but it wasn’t. That’s why we’re having the Cold War II right now.
MARK B.: What did the Nigerian-born head of the World Trade Organization (WTO) mean when he said, “When we call China we get airports. When we call Germany and the U.S. we get lectures.”
MICHAEL HUDSON: Well the Germans are still pretty didactic. You give a lecture if you don’t want to answer the question and you want to confuse the issue. The Germans themselves are so confused that— if you’re confused, you want to give a lecture. That’s why there’s so many professors in the world.
FLO S.: I kind of want to just keep going on with what you were talking about a bit with Keynes and Marx and the concept of economic rent. Because as you were talking about that, I keep coming back to what seems to be a sticking point in these different kinds of groups, which is Marx’s labor theory of value. I’m curious how you fit that into a concept of economic rent, and how do you think it should fit in? Because if the definition of economic rent is “market price in excess of income”—
MICHAEL HUDSON: The theory of value— the focus really wasn’t on labor. It was on isolating economic rent. If you can define value as the basic cost of production, then how do you explain when prices are higher than the cost of production? The difference is economic rent.
Marx devoted most of volume two of Capital about that and much of volume three about that. Most people think of Marx as volume one, and he said, well when you’re talking about the labor theory of value, what expense of labor are you talking about? Are you talking about what the industrialist pays for the workforce or what the industrial capitalist sells the product of labor for?
Now that may sound like economic rent at first glance, because, after all, isn’t buying something and selling it for a higher price— isn’t that economic rent?
Marx said, “No, it’s not. Profits are not like economic rent. The rent recipient does not earn the rent. They get it in their sleep. Rent is something that goes up without the owner of the property doing any active productive function. However, the industrialist, the capitalist, plays a productive function, because when he hires labor he organizes the whole business. He organizes a supply chain for labor. He arranges the bank financing if he needs it. He puts together a whole marketing system. So before he actually employs labor to produce the commodities he already has a whole marketing plan, so that he can sell the products of labor to somebody else. And in that sense,” Marx said, “the capitalist is playing a productive role. And at some point, when there’s a socialist government, the socialist is going to do just exactly what the industrial capitalist does. He tries to organize markets in a way that cuts prices and cuts all the unnecessary costs of production— the ‘faux frais [false expenses] of production’ as Marx said.
So the role of the capitalist is to essentially lead a social revolution that got rid of the landlord class as a class. Got rid of the monopolies that simply increased the cost of living and doing business and hence the cost of labor to the capitalist.
Capitalism itself played a productive forward-moving role to free economies from economic rent. That’s what classical economics and the whole 19th century take-off of industrial capitalism in Britain, the United States, Germany, was all about.
FLO S.: Sometimes I feel like there’s a reductive kind of interpretation of the labor theory of value that assumes that there is a direct connection between the market price of something and the productive input that was in it. But you’re saying that Marx didn’t hold that view. But he didn’t consider industrial profits—
MICHAEL HUDSON: He said they were earned. The industrial profits were part of the production process because you had to pay the industrialists, the capitalists, for playing the organizational role to actually create products and to undersell competitors, and that was the role of the industrialist, Marx said. Always to try to undersell competitors. And an industrial nation such as Britain would have the aim of underselling other nations by freeing themselves from a rent-collecting class; freeing themselves from the landlords; freeing themselves from monopolies, so that England would end up as a low-priced economy not the way it became under Margaret Thatcher and her followers.
KARL FITZGERALD: As a person who studied little in economics, [Vladimir P.] has trouble understanding what they’re talking about when they mean “potential GDP.” Who gets to define this level? Capitalists? When they say that inflation is out of control they say that real GDP growth is higher than GDP potential, yet it seems that they define GDP potential as a level where inflation starts to rise.
MICHAEL HUDSON: When they talk about real GDP, most GDP is not real.
So the very words they’re using, the vocabulary is absolutely confusing and worthless.
When they say “potential,” they make a regression equation. They say, let’s chart GDP over time. Let’s make a curve. Just forecast it based on if it grows at the average rate. They think the potential is simply by inertia. This is an excuse for not thinking. It doesn’t make any sense. It’s fictitious.
Let’s say everything grows in an S-curve. If you project the beginning of the S-curve and say oh look, it’s going up and up – the potential is unlimited, and it actually turns down, then you look pretty silly and there’s a crash.
So anyone who uses a vocabulary like that you know is steering the economy into a crash. And it probably means you’re up talking to economists, which is not really who you want to spend much time talking to.
KARL FITZGERALD: Very good. [Vladimir P.] How do budget deficits influence inflation? Is a balanced-budget another anti-labor euphemism? When is it appropriate to keep budgets balanced?
MICHAEL HUDSON: A balanced budget means that the government will not spend money into the economy to help it grow.
If the economy is going to grow, if you’re going to produce more, you have to borrow from the banks. A balanced budget says: we don’t want the government to create money to help you. We want to drive you into the hands of the banks, so the banks will make more and more money, and so you will have to pay more and more of your income to the banks until you go bankrupt. And then the bank gets your property. That’s what a balanced budget means.
Stephanie Kelton, my former department chairman at UMKC (University of Missouri – Kansas City), has written very extensively on this.
Anyone who talks about a balanced budget is your enemy and is a witting or unwitting advocate of forcing the economy into debts to the banks. The last time you had a balanced budget was under Bill Clinton I think in 1998 and that led to an economic downturn.
A balanced budget means you suck the money out of the economy, out of people’s income, out of corporate income, out of government income, and you give it to the banks.
KARL FITZGERALD: Murphy asks, how do we put together an accurate meaningful alternative to GDP that separates out economic rent from productive value, etc. in a way that stands cynical scrutiny. Can it be broken down by a layman using real-world data so it’s credible and can’t be dismissed by neoclassicals?
MICHAEL HUDSON: Yes, on my website I have an article where I’ve done some of that and I’m trying to put together a team who’s going to be re-doing this.
As I say, the very rough approximation is taking the FIRE sector (finance, insurance, and real estate) out of the GDP.
Ideally you would have to take the monopolies out of GDP also, and that way you get the real product. The GDP is not really about product at all.
The rent recipients pretend to be productive. They pretend that you actually need the landlords to provide the service of collecting your rent. They pretend that the monopolist is providing a service by organizing your rent.
And in the GDP they count if you owe money to a credit card company and you fall behind in your credit cards, the penalty fee is called “providing a financial service.”
All this garbage should be taken out of the GDP. So essentially as I said you want to remove the sphere of circulation from the GDP so you only have the sphere of production in it in principle.
It’s much easier to chart this as a line and talk about it reasonably than it is to actually go into the statistics. You could spend a lifetime trying to untangle all of the corporate income statements because the economic theory that determines and shapes the accounting format no longer aims at distinguishing between productive and unproductive expenditure.
MARK B.: If you subtract the FIRE sector from GDP, how much does the GDP shrivel?
MICHAEL HUDSON: I’d say by about 40 percent.
KARL FITZGERALD: And in Australia when I measured it in 2012 it was 23.6 percent but yeah it’s estimated to be around have increased with further financialization and the incredible mining bubble in Australia.
But Michael the point is that all this talk about the GDP is after it’s already happened but if we redirect the tax system towards monopoly we can actually help the economy grow. So it might shrink by that 40 percent you talk of in the finance and real estate insurance sectors but the productive sector would grow incredibly and small business would really take off and there’d be this decentralization of power.
So that’s where a tax shift is really important.
MICHAEL HUDSON: What you just said, Karl, that’s what classical economics is all about.
That was the revolutionary program of industrial capitalism to do just what you said.
KARL FITZGERALD: So if we take MMT, we don’t need taxes, how do you wrestle those two schools of thought and come to a saner economic future?
MICHAEL HUDSON: Well, you want some taxes. Certain things should be taxed. You want to tax away economic rent. You don’t want people to get something for nothing. It’s right to have a land tax. It’s right to tax away monopoly rent. It’s right to tax away unearned income.
You want to do that. Under the perversion of MMT, the Dick Cheney and Donald Trump version of MMT, is, well, we can cut taxes for the parasitic sector, cut taxes for the high income sector – mainly the finance and real estate sector – and we’ll just create the money. So you see, we can do that.
That’s bad MMT.
The question is, who are you going to benefit? Whose taxes are you going to cut by MMT? You don’t want to cut the taxes on economic rent. You want to leave them in place. You want to cut the taxes on labor and capital.
So that, under the original MMT, what you tax is economic rent, but not wages and not capital, real profits. That’s the difference. What are you going to tax?
Under the perversion of MMT, you shift the taxes off the banks, off real estate, onto labor and capital. That’s the difference.
DON B.: In an ideal world with no more FIRE sector, no more labor exploitation or oligarchs, unearned income is gone as well, did you say the market price on products should ethically be one percent over the cost of production as an ideal growth rate for humanity?
MICHAEL HUDSON: That’s just too abstract for me. It depends on how you define the cost of production. Right now the cost of production includes the cost of paying interest, the cost of paying rent.
Unless you are very specific about the categories and actually have some empirical measure, the statement does not make sense.
MURPHY: Dollars will remain a free lunch for the U.S. for as long as other countries accept it as a currency in exchange for their own. Is that the case?
MICHAEL HUDSON: Well it looks like the free lunch isn’t going to be going on.
The ironic thing is Trump and the Biden administration has killed the free lunch.
Once they confiscated Russia’s $300 billion, they’ve told other countries, if you don’t submit to our dominance and unipolar control, we’re just going to grab all the dollars you have.
This is not a way to get a free lunch by convincing other people to hold the dollars that America spends off through its military spending as their international reserves.
And why should China hold trillions of dollars of treasury securities that the treasury spends internationally on surrounding China with all these military bases to attack it? They’re on to the game. A modern updated edition of my Super Imperialism is in press now and will be published in Chinese in March I’m told.
MURPHY: Doesn’t this free lunch mean in theory that the U.S. oligarchy could use its dollars solely for military imperialism and feeding its domestic population’s consumption baseline with imports paid for in printed money i.e no cost infinite supply? Seems like U.S. inflation is all almost always exported and dollars that accumulate overseas reinforce dollar power as per Michael’s book Super Imperialism. How does the rest of the world get out of this trap?
MICHAEL HUDSON: Yes that’s what happens. That’s exactly what happens.
As you stated, that’s the circular flow.
MARK B.: China learned and didn’t steal. China has marvelous metro stations all over China with trains often running at 120 to 200 miles per hour. We have homeless people leaning on pillars. China transformed science fiction into science fact. They are living in the future while we are in permanent economic stagnation. Aren’t U.S. corporate profits hidden in tax havens like Delaware, Cayman Island, Switzerland, and Wyoming?
KARL FITZGERALD: He’s basically saying that, because the Chinese state is powerful enough to keep some control of the rentier sector, that they are progressing while—
MICHAEL HUDSON: Yes, that’s exactly what makes a socialist economy better than a finance capitalist economy. The West is not under industrial capitalism anymore. Industrial capitalism has been replaced by finance capitalism, whose objective is to load the economy down with debt overhead and shrink it.
If you create credit for productive uses, you’re going to grow. If you just create credit as an economic burden, you’re going to shrink.
FLO S.: I’m sure you’ve heard in the news about China’s U.S. dollar bonds that they’re issuing now and I just wanted to get your kind of thoughts on that, because when I heard that it did make me think of what you had said about de-dollarization and the big issue for global south countries being kind of the overhang and like the leftover, “what we going to do with all these dollars.” So is that one way for them to try to use it more productively rather than circulating it back into the economy?
MICHAEL HUDSON: I don’t understand why they’re doing that. I wondered myself. Nobody’s explained that to me yet, so I can’t answer your question.
FLO S.: What are your thoughts generally on the Argentinian economy and what’s going on there? I’m hearing reports that some people are saying, oh it’s great, inflation is down a hundred percent. And then meanwhile poverty is rising and unemployment is rising and now we have Trump incoming with Musk and they’re going to take a hatchet basically to the economy.
And then also Milei is going to China to try to secure some trade deals. What are your predictions about Argentina and the state of the economy right now?
MICHAEL HUDSON: It seems to be run by a madman and an economy run by a madman, I don’t see how it can possibly survive. It’s crazy. Argentina is probably the best example of the craziest country in the world over the last century.
At the beginning of the 20th century, everybody thought Argentina was the most promising country of all. It had absolutely everything and now it’s at the very bottom. The oligarchy has totally destroyed it. This is the result of basically what the Spaniards brought to America.
It’s a totally rotten, murderous, assassination-oriented, vicious oligarchy that is unreformable.
You can’t even talk of an Argentinian problem anymore; it’s an Argentina quandary. I don’t see any escape except a revolution and they’ve killed the intellectual class, they’ve killed the progressive class, there’s been such a wave of assassinations in the way of Chile and the American assassination campaign throughout Latin America.
It revives the term “backward country.”
FLO S.: OK yeah I mean I think it’s going to be really interesting at least I’m interested to see how Milei and the trump administration try and you know hoodwink everyone. I mean they’re already on a massive propaganda narrative war talking about how Argentina is doing fine actually so it’s going to be interesting.
KARL FITZGERALD: A really interesting blog post came out this week by Anne Pettifor, Michael, and she talked about why she is not actually predicting a crash this time around, even though global debt in 2007 was around 198 percent of GDP. Now in 2024 according to the Institute for International Finance (IIF) global debt is at 331 percent of GDP. But the shadow banking system holds half of the world’s financial assets, and she feels like bailout economics is going to continue and maintain this incredibly high debt level.
Michael, you know, debts that can’t be paid won’t be paid. Is that still true?
MICHAEL HUDSON: It’s always true in the end. Think of us as being in a slow crash. The actual sharp crash always happens later than you think it’s going to, because there’s always a little workaround, always a little bailout credit cause, but we’re in a slow crash, a slow strangulation.
That’s why the democrats lost the election in the United States. Ninety percent of the economy is going slowly down. That’s a crash. All of the growth in American wealth has been to the top ten percent, not to the bottom ninety percent.
That’s a crash. That’s a slow crash. We’re having a polarization. And it’s as if it’ll just stretch and then snap. You never know exactly when the snap is going to occur but it always occurs and there’s no way of paying the existing debt overhead except by a massive foreclosure.
Well what I would expect is that the global south countries are going to avoid a crash by saying, “Well we’re just not going to pay these foreign debts. This is the debris of financial colonialism and now that essentially there’s an economic war between the G7 countries and the global majority, we’re going our way. You go your own way.”
And that may crash the banking system but the economy needn’t collapse when the banks go. In fact, unless there’s a bank collapse, the economy is going to shrink and shrink and shrink. So a financial crash is what enables the real economy to resume its growth.
So that’s I think how you should think about quick and slow crashes and the economic trajectory.
KARL FITZGERALD: Andrew M. asks a question about your 2006 article ‘The new road to serfdom: An illustrated guide to the coming real estate collapse’. It was quoted by other economists back then as showing great foresight, as they had also predicted the U.S. real estate collapse would occur in the next few years.
Mason Gaffney for example, Steve Keen…. Georgist economists are currently predicting a U.S. real
estate collapse again on the horizon in 26 -27. Do you think the U.S is facing a real estate collapse in the next few years perhaps led by the commercial sector? If so, are the conditions you outlined in your 2000 article basically the same this time around?
MICHAEL HUDSON: Steve Keen is not a Georgist. He’s an intelligent economist and a good colleague of mine. The Georgists don’t have a theory of economic rent or value. They don’t have statistics.
Mason Gaffney prevented the Schalkenbach foundation and Henry George School from having any economist except himself and so the result is, you have basically Fred Harrison as the forecaster of saying there’s a 17 or 21 year cycle in crashes. Based on this cycle from the past I’m forecasting a crash in a few years.
Well, this is astrology.
What’s the point of saying that there is a cycle unless you explain, what are the dynamics that are causing the upswing and the crash.
And if you look at the cycle, it’s always a bank cycle.
The problem is that the Georgists don’t know what real estate is. Without knowing what real estate is, you don’t know what rent is.
Already in the United States there is a crisis in office buildings. You have a 40 percent vacancy rate in American offices. The mortgages are not being paid. Banks are simply lending the building owners enough money to pay the interest. It’s called “extend and pretend.” It’s the illusion of avoiding a [crash].
But you have this enormous amount of commercial real estate debt that’s already crashed.
I don’t see a housing crash occurring so much for a simple reason. Once Obama declared war on homeowners and blocked off and effectively said, “There won’t be any more middle class members in America. We’re now an oligarchy and we’re going to turn real estate into absentee owned real estate.”
You had Blackstone and other companies all come in and, as interest rates went way down, the wealthy investor classes couldn’t make money in making loans to the government anymore so what did they do? They said well we can make money, not by borrowing money at low interest rates and buying property yielding a much higher rental income, [but] we’ll buy property for all cash, we’ll buy property without having to borrow it. Here is what we’re going to use. All of the trillions of dollars that we’ve accumulated in savings. We’ll put it into real estate and we’ll become landlords. Instead of making money financially, we will make it by home ownership.
The Georgists live in a world where banking doesn’t exist. Mason Gaffney said, “banks don’t create credit.” I can’t even get into what the American Georgists say. Obviously in Australia we have more thinking people. But unless you look at the real estate rise and fall as a financial cycle, unless you look at real estate prices as whatever a bank will lend against a home, that’s what the price is. Whatever a bank will lend against commercial real estate, that’s what the price is. There is no bank lending for commercial real estate now because there’s such an oversupply.
You recently had I think a three hundred three or four hundred million dollar building sold for maybe 10 or 20 million dollars. All that was left was the land value. The building itself was worthless.
Now that you have COVID, now that you’re not having an industrial economy where people have to go to the offices, what are you going to use all these office buildings for?
Well somebody had the idea, let’s use them for housing. Let’s gentrify them and maybe just like people moved into the old lofts, the industrial lofts, they’ll move into these big glass office buildings.
Well the problem is that you can’t open windows in these office buildings, and if you live in them it’s not really going to be very luxurious because you’re just looking at another office building right across the street or in the rear. How are you going to get fresh air? How are you going to protect yourself against COVID in the air conditioning system? These are buildings that are all going to be torn down, so they’re going to be torn down for the land value less the cost of demolition of these buildings.
If you’re going to use the Wall Street area or other big office building areas, midtown, and turn them into residential areas, you’re going to have to build entirely new buildings with an entirely new architectural design. So you’re already in a crash for office buildings.
Home ownership is no longer as debt leveraged as it was in 2008, because it’s just the opposite. Debt-free. Or in equity. Private capital has bought it as equity. So if there’s a crash, private equity will go down but there won’t be a debt crisis.
So or if you’re talking about real estate you have to look at it financially and that’s why I stopped talking to Georgists 20 years ago except for Karl [Fitzgerald].
KARL FITZGERALD: Who does point out that banking profits are 1/40th of land price increases in the last year in Australia, where we do have decent data. The land price is driving this cycle. Sure, banking and the incredible growth in the shadow banking world as well is playing a role.
But I feel like this consolidation of our banks and central banks is a form of collusion where they are not foreclosing upon these commercial real estate owners and they’re being much more lenient, and from that it’s perhaps this slow crash you’re talking about.
I still do feel like that now we’ve had 25 years of this rampant financial commodification of land and housing, that the turnover of real estate means that everyone has now basically moved out of old-era pricing and into this new higher paradigm, and that’s what’s choking off demand, strangling small business, and yeah it’s a fascinating state of play. So I would love to see you try and write something up again like that “New Road to Serfdom” article from Harpers.
MICHALIS T: Just a quick follow up on this discussion around the banks actually creating credit and how that may tie in with some of the arguments about MMT. The argument usually is that there is this revulsion against the government creating money, the central bank creating money, but my understanding is that when private banks extend credit they are basically creating financing. The convention is that they are intermediating savings and loanable funds, but from a lot of the works of like Michael Kumhof who I think Professor Hudson, you have also published with, they’ve shown that when a bank creates a loan it is basically creating a deposit on the liability side and an asset of the loan on the other side and my question is, if we have this system of private banks who are basically creating new money when they extend loans and when the loan is repaid it’s basically just wiping out the loan contract, it’s not going back to any depositors, how can you get a crash or an insolvency out of a system where there is not really any intermediation? It’s just creating more financing, whatever loans. It seems like the problem is only in the aggregate, not in the intermediation stage of savers and debtors. I’m just wondering, when you have this system how can you get insolvency or something like that?
MICHAEL HUDSON: That’s the whole point. 60 years ago, when I was in graduate school, we had to learn the loanable funds theory. The problem is that most orthodox economics don’t understand that banks create credit. They think banks are savings banks. And a savings bank can’t create credit. The savings banks can lend out the savings that it has.
But if you go to a commercial bank, the banker doesn’t say, let me see if I have enough money in the bank to lend you. They write out a deposit into your checking account, and you give them an IOU, a mortgage, a signed mortgage.
The bank then will sell the mortgage to Fannie Mae or a government mortgage agency and then they’ll get the money, that they’ve just lent, back from Fannie Mae that gets the money from the government to simply create the credit. This doesn’t appear in the diagrams that students are taught in money and banking.
I mean it’s just amazing that the objective of the financial sector is to prevent the economy and the voters and governments from understanding how the financial sector operates. It’s all to create a seemingly plausible fiction so that people don’t understand how it’s all created out of thin air, to make money in your sleep, which is essentially what a rentier does.
Just like a landlord creates money in the sleep, the banker’s interest is collecting money in their sleep
KARL FITZGERALD: One aspect though that does underwrite the whole banking system—
MICHAEL HUDSON: The “price” of land. Land doesn’t have a “value.” Value is a cost value. There’s no cost of land.
Only Georgists talk about “the value of land.” It’s “the price of land.” You have to talk like a classical economist.
KARL FITZGERALD: Well, no, the value represents the non-economic rent side of things, whereas the price represents what the market—
MICHAEL HUDSON: The market price for the capitalization of the land’s rental value.
KARL FITZGERALD: It was interesting, in 2007-8, Goldman Sachs had a list of property valuers who would only value at that overpriced level that Donald Trump got taken to court for, one of the only charges that stuck on him, was the this use of price rather than value as the basis of the valuation of their assets.
You can tell Michael and I love debating over this.
PATTY L.: I just had a question about the two different methods of GDP. I know Ben Norton mentioned that when you compare China to the U.S., even though the U.S. has more GDP with one method with the exchange rate, and the other but China has more with the purchasing power GDP.
I understand theoretically, but I can’t wrap my head around why they would be different. Why would exchange rate be different than purchasing power?
MICHAEL HUDSON: It’s the composition of GDP. Much of the GDP in the West, the G7, is not really a product at all.
Whatever income anybody makes is counted as GDP. And most income is made in the finance, insurance, and real estate sector.
China does not have a privatized financial sector or privatized real estate or an insurance sector of any dimension of the U.S. size. So the Chinese economy focuses on actual production, on real production, on product. Not on the capitalization of rent. As if collecting rent as a landlord is a product and charging interest is part of the product.
So it’s the composition right now, not the format, in which the GDP is done. I’m trying to convince the BRICS countries to adopt a different coding format for that but right now just the composition of GDP is different. They don’t have so much waste and financial waste in China as they do in America, to make a long story short.
JEFF S.: Everyone here can see evidence of the collapse of the western economic order. It’s quite obvious that Western imperialism is on the ropes. My question to you is, what are the top five things that we citizens should be demanding from the state to dismantle the power and influence of the oligarchy and put the U.S. on a people-centric path.
MICHAEL HUDSON: I was the economic advisor to Jill Stein when we were trying to do that. The Republicans and the Democrats together have kept any third party really off the ballot here, so that even though she got tens of thousands of signatures in New York state, I wasn’t able to vote for her, I had to do a write-in vote.
I don’t see any way. I think that America is a failed state. I think Europe is a failed continent. I don’t think they can solve the problems without some kind of peaceful or unpeaceful revolution.
I don’t see any solution the way they’re going. They’re in a quandary.
KARL FITZGERALD: I would have to agree. The oligarchy is just going to strangle America.
MURPHY: Teams cost money. Does the GDP project you’ve been talking about today Michael, in terms of building that team, does it have any funding?
MICHAEL HUDSON: We don’t have funding for it, that’s the problem.
DOM B.: What is an ethical profit margin in industrial capitalism?
MICHAEL HUDSON: An ethical profit margin? I don’t know. When people talk about ethics I get dizzy. It’s too philosophical for me. I’m too empirical to get into abstractions. I just get a headache when somebody asks “what’s the moral rate of profit?”
I have no idea what a moral rate of profit would be.
KARL FITZGERALD: Wouldn’t you say three to four percent? Just a titch above inflation?
MICHAEL HUDSON: Sure, because three percent, that would take about 20 years to double the capital. That seems fair.
DAVID B.: Do you foresee one or more dramatic events in the near term that might be used as the impetus for ushering in a central bank digital currencies of one sort or another? What might those dramatic events be and how might the government or the Fed roll out those digital currencies?
MICHAEL HUDSON: Well I can guarantee there’s going to be some dramatic events. I don’t know what they’ll be. There’s no way of knowing when a kind of financial meteor hits, so you know everything is strained to the breaking point. You don’t know where the aneurysm is going to be. You don’t know where the breaking point is going to be. But you know that it’s so strained that there will be a break in the chain of the economic payments somewhere. It could be military and that looks like, certainly there are military problems.
Nobody has any idea what Donald Trump is going to do and I can’t make any forecast about that.
Any forecast I would make would be wrong. The range of possibilities is so high that the odds are stacked against me. All I can say is, it’s obvious there’s going to be a crash. I don’t know what kind it’ll be or where it’ll break out.
MATT C.: Here in the U.S., when they directly come for social security and our pensions, will it already be too late or does that represent the kind of overreach that will strip away the illusions people have about modern capitalism?
Again, in a related vein, for countries such as Greece or Ireland, was there a political response to imposed austerity that mattered? Short of building revolutionary international solidarity, are people in one nation learning anything from watching the economic misery of other nations?
MICHAEL HUDSON: Well, I do think the Democrats and Republicans, certainly the Democrats, are pushing to get rid of social security and Medicare. Certainly Trump is going to try to do that. The democrats are all for it. What on earth are people going to do if Social Security is cut back? Already homelessness is rising throughout the United States, certainly here in New York City.
The American people now are not in a revolutionary mood. To have a revolution, as Lenin pointed out, you need a revolutionary situation. And you don’t want to try to have a revolt when it’s not a revolutionary situation because you’ll just be slapped right down.
So yes, to answer the question, the illusions will be down. Any illusion that the government’s working for you and not for the one percent will be broken. What can you do about it? Given the fact that the American electoral system was all drawn up by slave owners to prevent any kind of federal government movement against slavery or, by extension, against an oligarchy, against debt bondage, debt peonage.
There the federal government is powerless to check the financial oligarchy and I don’t know what the rest of the country will do except emigrate. But where can the Americans go? They don’t speak a foreign language. I don’t know what’s going to happen. I think we’re going to see the death rate increasing, the life span decreasing, homelessness increasing. There’s no way of telling where the breaking point is given the American willingness to suffer for a fictitious ideal and a fictitious narrative that is being painted for them. Americans are looking at the narrative not looking at the reality. And the same thing in Europe. The only thing I can see for Europe is a breakup of the euro as more and more countries follow Hungary, the Czech Republic, turning towards Asia.
KARL FITZGERALD: What about Finland? What about Greece, Ireland? These countries that had faced so much pain during the global financial crisis. Have they learned anything? Is economic literacy on the rise? Better economic policies coming through?
You were an advisor to Finland at one point. Have they got all their borrowings out of foreign currencies? Is there any light, Michael, on the horizon?
MICHAEL HUDSON: They’ve learned to suffer quietly. They’ve learned to sort of make do. Apart from the members on the screen here I don’t think they’ve learned reality. They’ve learned how nice a fairy tale is to believe.
KARL FITZGERALD: Yeah well one of those predictions about what could be coming in 26-27 is a combination of a demographic collapse, a land price collapse, and an environmental collapse.
MICHAEL M.: Please comment on the role of perpetual productivity growth driven by geometric growth in accumulation. How do we address this? Is China’s ecological civilization a worthwhile approach?
MICHAEL HUDSON: I don’t think there’s any concept of productivity that makes sense.
In the West they say productivity of GDP per capita. But if GDP is empty, and doesn’t have any product, how do you have the productivity of a GDP that doesn’t have a product? The existing measures don’t make sense.
MICHAEL M.: I’m really concerned about how little we have in our discussions about the approaching really severe poly-crises, particularly environmental, in terms of the collapse of the environment, the climate catastrophe, the overloading of the planetary boundaries, in which civilization itself, on a planetary scale, is at stake and I just wanted to know how do we address this?
MICHAEL HUDSON: Steve Keen has done much more work on that than I have. He’s come through New York twice in the last few months, addressing Yale and addressing the United Nations.
MICHAEL M.: What about China’s ecological civilization? There’s been a lot of talk about China’s ecological civilization approach. I don’t know if this is a worthwhile approach. Is it something that’s kind of masking the issue?
MICHAEL HUDSON: It’s too big for me to handle because I can only do so many things at once. That’s an absolutely key question.
MICHAEL M.: I’ll add to that nuclear Armageddon. We’re coming very close to this right now.
MICHAEL HUDSON: It’s a civilizational crisis right now. We’re having a whole split between the Western predatory civilization and there’s a new civilization trying to be born.
KARL FITZGERALD: It’s telling though isn’t it that dictatorships such as in China are responding more effectively to environmental concerns, to financial pressures, than so-called democracies in the West.
MICHAEL HUDSON: I don’t think “democracy” is a helpful term. Look at who America says, we have a model for democracy. It’s the Ukrainian nazis. The model of democracy is ISIS in Syria. It’s Zionism. Democracy means pro-U.S. and a willingness to kill everybody who doesn’t believe what you believe. Democracy is hatred. The word you should use is oligarchy. You don’t want democracy because that’s Nazism.
China is not a dictatorship, it’s a socialist country, and you need a strong enough government to protect you from an oligarchy, to protect you from the nazis, and to protect you from the democracy Ukrainian style.
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