Sunday, November 6, 2022

Platypus interviews Michael Hudson on The Destiny of Civilization | The Vineyard of the Saker

 posted with Michael Hudson’s permission

The link below “Michael_Hudson_Interview_2.m4a” is the audio of our interview.

Michael_Hudson_Interview 2.m4a

The destiny of civilization: An interview with Michael Hudson

D. L. Jacobs

On July 15, 2022, Platypus Affiliated Society member D. L. Jacobs interviewed Michael Hudson to discuss his new book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism (2022). An edited transcript follows.

D. L. Jacobs: Can tell us about your background regarding Marxism and how you came to political economy?

Michael Hudson: Well, I grew up in a Marxist household. My father was a political prisoner, one of the Minneapolis 17.[1] Minneapolis was the only city in the world that was a Trotskyist city, and my parents worked with Trotsky in Mexico. So, I grew up not having any intention of going into economics. I wanted to be a musician, and when I was 21, I began writing a history of the connection between music, art, drama theory, and the Renaissance in the 19th century. But then I went to New York and went to work on Wall Street just to get a job. I met the translator of Marx’s Theories of Surplus Value, Terence McCarthy, who convinced me that economics was more interesting than anything else that was happening. He became my mentor, I took a PhD in economics, and that’s it.

DLJ: You begin The Destiny of Civilization by talking about how it was the historical task of both industrial capitalism and classical political economy to emancipate the economy from feudal rentiership. How was classical political economy revolutionary?

MH: Marx said that the role of industrial capitalism was to cut costs of production in order to compete with industrial capitalists in other countries. There are two ways of reducing the costs if you are a capitalist. One is to simply lower wages, but if you lower wages, you don’t get high productivity labor. The Americans, by the 19th century, realized that the higher the wage was, the higher the labor productivity, because productive labor was well-educated. well-fed, healthy labor. The idea of capitalism was, number one, to reduce the costs of production that were unnecessary. Namely, what did labor have to pay just to live that wasn’t really necessary. The biggest cost of labor was land rent — this paid for high food prices if there was agricultural protectionism, as in London, England until 1846 — and housing rent. The idea was that socialism would replace all landlords as rent recipients by either taxing away the land rent or nationalizing the land. The state would be the landlord and that would be its source of fiscal funding. It didn’t have to tax labor, but would tax landlords. The other way that capitalism would reduce labor’s living costs was working to prevent monopolies, to prevent all forms of economic rent. That was revolutionary because feudalism was based on a hereditary landlord class: the heirs of the warlords, the Normans, who had conquered France, England, and the rest of the earth. The monopolies that had been privatized and created were largely by governments running into war debts. The bank of England was a monopoly created with £1.2 million to be paid and government debt. Many British trading companies and monopolies, like The South Sea Company of the South Sea Bubble, were created this way in order to finance their war debts. Capitalism wanted to get rid of all of the economic overhead and to be a more efficient society. Instead of having private monopolies produce basic needs like health care, it will have public health care. Instead of monopolies providing communications, transportation, or telephone services, the government would have these basic needs provided either freely or subsidized so that labor wouldn’t require a high salary from its industrial employers to pay for its own education, health care, or the other basic needs. In the late-19th century, everybody thought that industrial capitalism was evolving into socialism of one kind or another: not only Marx, but a proliferation of socialists and books on socialism, e.g., John Stuart Mill, Christian socialists, libertarian socialists. The question was, what kind of socialism would everyone take? That made capitalism revolutionary, until the point that World War I broke out and changed the whole direction.

DLJ: You begin Chapter 5 of Destiny with, “[t]he 19th century’s fight to tax away land rents, nearly succeeded, but lost momentum after World War I.”[2] Can you elaborate on this?

MH: In the late 1890’s, the rentiers began to fight back. In academia the real-estate interests and the banks got together and denied that there was any such thing as economic rent. Capitalism is revolutionary, because it wanted to bring market prices in line with the actual cost of production; economic rent was the excess of price over the intrinsic cost value. The idea was that economic rent was a free lunch. and that because it was an empty price, it was a price without a corresponding cost-value. In the U.S., John Bates Clark was saying, there’s no such thing as economic rent. The landlord actually provides a public service in deciding who to rent to and the banks provide a public service in deciding to whom they will make loans. Everybody deserves whatever they can make. This concept  underlies today’s Gross National Product (GNP) accounting. If you look at America’s GNP accounting, you have a rent and interest included as a profit — not only interest, but bank penalties and fees.

A few years ago, I called up the Commerce Department that makes the national income and product accounts, and I said, “where do bank and credit card companies’ penalties and late fees occur?” I’d read that banks make even more money on late fees and penalties than they do on the enormous interest charges on their credit cards. And they said, “that’s financial services.” I asked, “how is that a financial service?” And they said, “that’s what banks do: they provide the service, and what they charged was the value of the service.” That’s not what the classical economists would have said. They would have said that what banks charge is an economic rent for the service, and this should be a subtraction from the national income and product accounts, not in addition to it.

I’m working with Dirk Bezemer and others on an article where we calculate how much of the GNP, the reported product, is actually overhead. In other words, what is Gross Domestic Product (GDP) without the FIRE sector (finance, insurance and real estate)? A strict classical economist would say, let’s take out the monopolist rent. How much of American industry’s reported profits, e.g., in healthcare, are really monopoly rent? The idea of industrial development today is to carve out a monopoly where there’s no competition and get super profits. This is a concept that has been dropped, really, ever since World War One, about a century ago. There’s no distinction between productive and unproductive labor, between wealth and overhead. John Bates Clark said that if somebody’s wealthy, they earned the wealth; there’s no such thing as unearned wealth. Today wealth is mainly achieved by asset-price inflation; by capital gains. You won’t find a single wealthy family that made money simply by saving up what they earned. They make money by increasing the price of their stocks and bonds and real estate holdings, not by saving up their earnings. Yet, capital gains, i.e., asset-price inflation, are left out of the statistics of almost every country. So it is very hard to explain how wealth is achieved, and yet that was the purpose of economics in the 19th century and centuries before. But suddenly the idea of wealth has been suppressed as sex was in the day of Sigmund Freud.

DLJ: In Destiny and your articles, you note how the classical conception of the free market has been inverted.[3] I.e., it used to be freedom from rentiership, and now it is the freedom of rents. You made reference to GDP, and this goes back to Adam Smith and Ricardo’s distinction of productive and unproductive labor, or net revenue and gross revenue. But Smith also described the government officials as unproductive in that sense, and you can find it in Smith’s translators and Marx.[4] In Destiny, you bring up Simon Patten talking about the “fourth factor of production.”[5] How does that fourth factor relate to what Smith and Ricardo talk about regarding value? They would say the government officials are not productive labor, yet you’re discussing how they reduce costs by providing public infrastructure.

MH: From Antiquity up through Adam Smith’s time, the main government expense was war, e.g., ancient Rome. Almost all of the public budget was war-making and police, which Smith sees as the same thing. Government had not begun to provide many public needs by the late-19th century. Things that change there were basically from 1815 when the Napoleonic Wars ended outbreak of war in 1914. They call, that was almost a people. Call it a war free Century, despite the Crimean War, and the Civil War, but basically, there wasn’t a World War at that time. Increasingly more of the government budget was spent on public utilities as they were introducing the new industrial, transportation, and health technology. After the Civil War, American students interested in economics mainly went to Germany to study, and they came back to the U.S. with an idea of Bismarckian state socialism. The chair of the first business school at Wharton School of Economics at the University of Pennsylvania was Simon Patten, who said that land, labor, and capital all receive the respective forms of income, but there is a fourth factor of production: public infrastructure. Public infrastructure differs in that it’s not trying to make a profit or an economic rent. It sells at less than the cost of production, because it’s trying to subsidize the economy, and its productivity should be measured in principle by the degree to which it lowers the economy’s overall cost of production by providing subsidized or free public services.

That concept is antithetical to Margaret Thatcher and Ronald Reagan, who began privatizing these public utilities. The difference is that a privatized, public utility is going to use borrowed money usually — so you have interest charges — and it must make a profit — so you have profits added on the price. In fact, public utilities are natural monopolies, which is why they’re public in the first place. You have economic rent added on, along with other privatized costs that have to be covered. Government doesn’t have to cover the cost: that’s what the taxes are for. If the taxes are a public collection of rent, a rent tax, they’re not only preventing economic rent and lowering the whole economies close to production, but they’re funding public infrastructure to further lower the cost of production. That’s what helped the U.S. undersell Europe, especially England, and become the leading industrial power — by staying out of WWI, except to act as a creditor — emerging from WWI as by far the world’s major intergovernmental predator, to such an extent that it brought on the Great Depression and WWII to resolve the reparations and inter-allied debt problem from WWI.

DLJ: You mentioned Bismarck, and I think of the famous painting of the Battle of Sedan[6] where he’s sitting with Louis Bonaparte, the other Bonaparte — to use this language in Europe at the time. Right after the 1848 revolutions, Louis Bonaparte invested in railroads and a lot of investment in Paris, and Marx refers to this as “Imperialist Socialism.”[7] The state is stepping in but doing so in order to quell the class struggle. How do you see that then related to this question of government intervention? On the one hand we could say yes, lowering the cost, but on the other hand, isn’t it preserving the conditions that are giving rise to capitalist exploitation and production?

MH: The question is who’s going to control the state? Is the state going to be run by leaders who are engaged in long-term planning as to how to make the economy more productive and raise living standards, or is the state going to be taken over by a financial oligarchy that wants to increase the cost and deindustrialize?

Already 2,500 years ago, Aristotle said that many economies and constitutions that are thought of as being democracies are really oligarchies. That certainly is the case today. Oligarchies call themselves democracies. President Biden says, the world is dividing into two right now: democracy versus autocracy. The autocracy is in the U.S. That’s the oligarchy. Democracy is a confusing word. Political democracy has not been effective in checking economic oligarchy, because, as Aristotle said, democracies tend to evolve into oligarchies and they make themselves into hereditary aristocracies.

The only counter example in early history of what America calls autocracy or Karl Wittfogel called “Oriental Despotism” was the Near-East take off. Every Near-East, Mesopotamian, Egyptian ruler would begin their reign with a debt cancellation, a clean slate. They would free the indentured servants, cancel the debts, and return land that was forfeited to the former holders to prevent an oligarchy developing. Civilization in the 3rd–1st centuries BC — all non-Western cultures, going all the way to India and China — try to prevent a mercantile and financial oligarchy from developing.

The West didn’t do that. They had no tradition of royal clean slates, and when they did have their own revolutions in Greece, you had the so-called tyrants. I.e., reformers, who overthrew the closed aristocracy, canceled the debts and redistributed the land. They did just exactly what the Near East did and they catalyzed democracy in Greece. There was infrastructure spending in ancient Greece in the 7th and 6th centuries BC. By the 3rd and 2nd century BC the Greeks were saying that when the oligarchy had taken over, a reformer was someone seeking tyranny. That’s when tyranny took on a bad connotation, like “socialism” today.

The same thing happened in Rome. Rome began with kings trying to make Rome grow in a mosquito-laden, hilly area near the Tiber River. Rome began by offering land rights to fugitives fleeing debt bondage, and the neighboring towns of central Italy. The kings were overthrown in 509 BC, the oligarchy took over, and there were five centuries of revolts by the Romans: the secession of the plebs in the 490s BC, the second secession after 450, and then the many fights. The oligarchy accused any reformers urging alleviation, urging more equal distribution of “seeking kingship.” because there can’t be any state strong enough to check their ability to impose land rent and other forms of economic rent.

When President Biden juxtaposes democracy to autocracy, he wants America to fight against any country — Russia, China — that does not privatize its public domain like Thatcher and Reagan were doing. Biden defines an autocracy as a country that does not privatize and make a free market for the rentiers to take over. The ideal of American neoliberalism is what the Americans did to Russia under Boris Yeltsin: take all of the public assets, the nickel mines, oil, gas, and the land and give it to the managers to register in their own name. The result was that Russia lost more of its population as a result of neoliberal privatization than it had lost during WWII, as President Putin likes to say. This is the whole framework of Destiny, where I am trying to clarify, what is democracy, and what is autocracy, and what is socialism?

DLJ: You write that this is something Western civilization has never dealt with[8] — even the political economy has shown it to be unproductive. Marx frequently makes reference to the debtor and creditor struggles in ancient Rome and he usually quotes Simone de Sismondi, who will say that whereas the ancient proletariat lived at the expense of society, modern society lives at the expense of the proletariat.[9] Likewise, Smith in Wealth of Nations says that the modern representative institutions were unknown in ancient Rome.[10] While there have been examples of debt cancellations today, wouldn’t one say that they also had a different organization of society, when a king would cancel debts in ancient traditional societies? To some degree, yes, we can do it today, but there are different institutions, and the bourgeois revolution might complicate the cancellation of debts, at least, creating a kind of political problem unknown in ancient Greece.

MH: They’re different kinds of debts, and canceling them requires different kinds of institutions. E.g., what’s most in the news these days is student loan debt and that it could be canceled by just an act of President Biden, which he won’t do, because he’s the person that sponsored the bankruptcy law.[11] That law made it impossible to cancel student debts by bankruptcy laws. It could be done by a congressional law. The government has all sorts of regulatory agencies to handle corporate debt write-downs. Corporate write-downs in bankruptcy proceedings are a normal course, taking place almost continually, and we’re going to see that again. There are real estate debts. When the junk mortgage frauds peaked in 2008, President Obama ran by promising to write-down the junk mortgage debts to the actual market value of the homes bought by the victims of bank fraud and to bring the mortgage payments in line with the current rent. As soon as he was elected, Obama invited the bankers to the White House and said, “don’t worry. I’m the only guy standing between you and the pitchforks. That was just to get elected. I’m on your side.” He proceeded to evict seven or eight million American families. Not only did Obama not write-down the debts, but he started quantitative easing that has given nine trillion dollars to support the real estate market, the stock market, and the bond market, so that the banks and the wealthy rentier 10% of the American economy would not lose any money.

The result was that American home ownership rates have fallen from 69% and plunged into the 50s. America is being turned from a middle-class home ownership economy into a landlord economy. We’re regressing back towards the 19th century, including its legacy of feudalism. That’s what we’re moving toward, as official government policy. We still have a strong government, but the role of the government is now to enforce the debts, not to write them down, and the most serious debts in the news are actually international debts. And of course, international debts cannot be settled by one nation. What is the vehicle to cancel the debts of global South countries like Argentina, that is now in yet another crisis with the International Monetary Fund (IMF). The Argentinian crisis, Sri Lanka — all this will characterize the Global South by this fall as a result of rising energy prices for oil and gas, rising food prices, and capital flight to the U.S. as it raises its interest rate. If countries have to pay more for food and energy, how can they afford to pay their foreign debts? It’s necessary to have a new international organization to sponsor this. That’s what both President Putin and President Xi have said: we’re going to create a BRICS[12] bank as an alternative to the World Bank and the IMF and this will have to accompany a new world court. We are going to provide a different philosophy of operations for this bank: the principle is that no country should be obliged to lower its living standards, bankrupt itself, and privatize its public domain in order to pay foreign debts. If a country can’t pay its debt, it’s a bad loan, and just as individuals and corporations are allowed to declare bankruptcy, countries should be able to declare bankruptcy.

These are mainly dollarized debts. Even though they’re not owed to the U.S., they’re often owed to their own oligarchies. Most dollar debts in Brazil are owned by Brazilians. Most dollar debts of Argentina are owned by wealthy Argentines because no one else is going to take a risk that they won’t pay. But the Brazilians say, we run the presidency, the central banks, and most of all, we run the police: if someone wants to cancel the debts, we’ll just kill them.

Violence has always been hand-and-hand with a high finance ever since Rome, through the Spanish, English, and French empires. The advocates of debt cancellation, from Catiline to Julius Caesar, were assassinated. There were five centuries of assassinations of Roman senators and reformers wanting to alleviate the debt. The U.S. is engaged in similar practices today. So you are right to put the debt in the political context. What is the vehicle to oversee debt cancellation, when in almost every Western economy, the oligarchies — often creditor oligarchies  — have taken control of the government, as in the U.S. via election funding and dominating policy. This is unique in Western Civilization. There’s always been empires consolidated by extortion of colonies. Today, we don’t say that America is involved in colonialism; we say America is a leader of globalization, which is a euphemism for colonialism, specifically, financial colonialism that indebts other countries, using that as a lever to privatize their public domain, utilities, national resources, and their commanding heights.

DLJ: Returning to the 1890s, this is the period leading up to 1914, which is, as you put it, the turning point for the dollar creditocracy: the 1890s as the imperialist era, in the Second International and going into the Third International. I was thinking about Lenin’s view of the growth of finance and of how you had banks that were taking over different companies, that were maybe even competing with each other and/or different sectors. He saw this as an opportunity for socialism. In your text, you mention how finance capitalism has diverted from socialism, or inhibited or blocked that opportunity.[13] I was thinking of Lenin’s famous line, “[w]ithout big banks socialism would be impossible.”[14] This doesn’t mean that J. P. Morgan and Bank of America are socialist, but rather that they created the institutional apparatus that could be the transformation into a socialized society.

MH: In terms of how economies allocated their resources and how they were planned, this forward-planning was coordinated largely by banks, often in conjunction with the government. This occurred most clearly in Germany where the German government worked with the Reichsbahn and heavy industry, especially in the military field, to build warships and armaments. The idea was state capitalism in Germany: a three-way linkage between government, industry, and finance. In the U.S., these were separated: finance took the form of the mother of trusts. The Wall Street banks would create a steel trust, a copper trust, and they would integrate all the different companies in the field to create a monopoly. In this case they were the former planners trying to create monopolies, but there was the Sherman Antitrust Act of 1890 and Teddy Roosevelt coming on as a trust-buster. Roosevelt tried to prevent finance acting as a promoter of the rentier class, as the monopoly class, to prevent industrial capitalism from being turned into monopoly capitalism. All of this momentum ended in the wake of WWI.

But there was this question of what kind of socialism are we going to have? What kind of government are we going to have? Are we going to have a government that is in charge of steering prosperity and raising living standards or a government by the 1%, the elite, who will impoverished societies? Two things happened in 1913 in the U.S.: first, income tax that only fell on the wealthiest 1% of Americans, mainly on monopoly rent and real estate. The other event of 1913, at the very end of the year, was the Federal Reserve was created to replace the Treasury and to take over the Treasury’s function, shift financial policy, moving away from Washington to Wall Street, and other financial centers, such as Philadelphia and Boston. This was the explicit aim. The National Monetary Commission published a series after the 1906–07 crash: a wonderful set of volumes about reviewing the global financial situation all over the world. David Kinley wrote a book on the U.S Treasury, showing that essentially the Treasury was performing all of the functions that we now think of as part of the Federal Reserve. The Federal Reserve has 12 districts, the Treasury had sub-Treasuries all over the country that were in charge of local development. All of this was privatized under the leadership of J.P. Morgan, who organized the Fed and sponsored President Wilson, who also got the country into war. The Democrats were, from the very beginning, the party of the rentiers, the anti-Labor party, as they are today. They were the sponsors of Wall Street as opposed to the Republicans, who until the 1970s and 80s, had represented industrial capitalism protecting itself from the rentiers.

Looking at the turn of the 20th century, you see the different roads that could have been taken, and you realize that there were many alternatives and that there’s nothing natural in the way that today’s economy is structured. Economists say this is the result of Darwinian struggle for existence, and that’s what the free market is, and there is no alternative as Thatcher said. But there were plenty of alternatives back in the 1890s, when the world seemed to be moving towards socialism of one form or another, especially the Marxian socialism dominated by the wage-earning class which was going to be democratic socialism. Instead we have oligarchic socialism in the U.S. and oligarchic state capitalism really isn’t state capitalism. Think of America’s policy as state neo-feudalism, because the purpose of the state is to protect the rents of finance, real-estate, oil, mining, and natural resources. The idea of the Biden Administration — really of both the Republican and Democratic Parties — is that since America has moved its industry and manufacturing to Asia in order to lower the wages here, how can Americans continue to get high-living standards, if it doesn’t produce raw materials or manufacturers? How can it be a post-industrial society, getting rich on economic rents and interest on and profits paid by foreign countries? How can America get rich by being a parasite? That was a problem that the Roman Empire had, and we know what happened to the Roman Empire. It was a problem that the British Empire had, and we know what happened to that: it can’t be done. This attempt to make America into a post-industrial society means a rent-seeking, neo-feudal society, treating the rest of the world as a colony under globalization. How can that work? Well, It’s not working. Biden’s war, the NATO war, against Russia in the Ukraine is the catalyst dividing the world into two. That’s why Secretary of State Anthony Blinken said that the Ukraine war is part of a process that will go on for at least two decades, because it takes time for the world to split away into a neo-feudal West and a productive, basically socialistic Asia, or industrial capitalist and socialist Asia, and Eurasia, along with much of the global South.

DLJ: You have an interesting history about Georgists, socialists, and the debates between them regarding the rent question, or the emphasis on capital and labor. Is the neo-feudalism or the new rentiership of the West bound up with a failure of socialism in some way? I.e., you discuss the manner in which mainstream socialists forgot the rent question or subordinated it to capital and labor.[15]

MH: Henry George was one of the first investigative reporters that exposed the inequity of rent-seekers. His first book was a wonderful exposé of how the railroads got land grants in order to develop the land, using the land grants to become highly exploitative landlords throughout the western states. This was impoverishing the farmers by siphoning farm income off in the form of land rent and railroad charges. George became popular in the large cities that were largely Irish — New York, and Boston —  by writing a wonderful book on the Irish land question. His writings inspired a generation of journalists in the 1870s–90s, such as Ida B. Wells and Upton Sinclair. Many of these reformers had originally been supporters of George. When there was a New York City election, the socialists and the labor parties selected George to run as mayor, as a celebrity-candidate, because he had written Progress and Poverty (1879). It’s not a very good book, but it was very popular at the time.

George said he could only run if he could get rid of everything that the socialists had wanted; everything that the working-class had wanted. He said, “I have a panacea, it’ll solve everything: just tax the land. You don’t need control of landlords, you don’t need to make them have decent housing. All you need is land-rent.” The socialists said, “There’s much more to the economy than taxing the landlord; there’s a labor problem. There’s a financial problem. The banks seem to be running everything.” George said, “the enemy is big government.” The socialists replied, “you need a strong enough government to check the landlords, who are the strongest class in New York City which is largely a rental city?” So, George formed his own political party, expelling any socialists and he defended the banks. Many bankers supported him because he called for the banks to remain in private hands. He said, “I can’t figure out a way to tax a bank interest, like you can tax land-rent.” He was criticized for that, the party didn’t go anywhere, and he ended up expelling his strongest supporters, who had joined him thinking that taxing the land was part of an overall social restructuring. The word panacea, sort of developed specifically because it went hand-in-hand with the name of the Georgists. George’s followers became libertarians and anti-socialist.

Followers of George and the socialists went all around the U.S., having debates, most of which were transcribed and published by Charles H. Kerr & Co., the socialist collective that published Marx’s Capital in English. The common theme of the debate was that society is going to go in one direction or another: either socialist or middle-class. The problem is that taxing the land rent doesn’t solve the labor problem. It doesn’t solve the tension between wage-earners and employers as to working conditions that they have. It doesn’t have anything to do with economic planning. George had actually become libertarian and anti-socialist, and his followers became so anti-socialist that in Europe they were the among the earliest supporters of the Nazis. In the U.S. they were noted Nazi sympathizers. Many of the leading Georgists were known for their anti-Semitism. When I went to the Henry George School Library in New York, I was amazed at all the anti-semitic books in their library. I knew a number of teachers there, and they said that because the school was supporting Germany early in WWII, most of the attendants were FBI agents. The head of the School told me that the number two guy at the Henry George School was part of the Nazi intelligence operation in the U.S. before escaping back to Germany. I realized that a government strong enough to check the landlords has to be a socialist government. You can’t say, I’m a libertarian, I’m against strong government, and then hope that the landlords are going to end up being taxed. That’s an oxymoron.

DLJ: You write:

[i]t always should be borne in mind that solving the problem of finance capitalism and the rentier legacy of feudalism would still leave the class conflict of industrial capitalism in place. Freeing the economy from rentier overhead charges would not solve the problem of exploitation of labor by its employers. But taking the intermediate step of creating a classical economy free of rentier claims is a precondition before the labor/capital conflict can become the focal point of political reform, having finally freed capitalism from the rentier legacy of feudalism.[16]

It seems the socialists should have paid heed to this question of rentiership and that this was an opportunity missed at the turn of the 20th century. You’re saying that today financialization is a more immediate barrier rather than subordinating finance to the capital-labor relationship.

MH: This shows the role of personalities in history. The Georgists were so anti-socialist that the  socialists left the rent issue to followers of George. That’s why it was Marxists and socialists who wrote about finance capitalism, whereas most of the society treated finance as if it were part of the industrial system, not extraneous to the industrial system.

So you’re right. The socialists after WWI didn’t focus highly on finance, but things changed quite a bit after WWII. The CIA put money into supporting progressive literary and cultural figures as leaders of the socialist movement, focussing on what the CIA called, “the mighty Wurlitzer,” to control public opinion concerning the socialist parties. This results in the British Labour Party having Tony Blair, who was to the Right of Thatcher, who identified Blair as her greatest legacy, in privatizing Britain’s railroads. The social democratic parties in Europe jumped on the neoliberal bandwagon largely because of the U.S. meddling in foreign politics, which pushed neoliberals and socialists to stop talking about economic issues. In the U.S., there is identity politics, but the one kind of identity you don’t have is the identity of wage earners. That’s been stripped away from the socialist parties of the United States and Europe, and so the socialist parties are no longer socialist. The irony is that what people thought of as being a socialist in a sense of a more efficient economy, free of bad statism and free of war — the Republicans in the U.S. and the nationalists in France and Germany are against the war in Ukraine, the NATO War. The socialists, Bernie Sanders and AOC, voted for giving money to Ukraine. So the word socialism has changed quite a bit into the opposite. Almost the whole economic vocabulary that is used today is the opposite of what it meant a century ago, and that’s what my book, J is For Junk Economics is all about.[17] That’s what I talk about when I’m in China.

DLJ: Do you see China as realizing the ideals of classical political economy better than the West? That might be a provocative statement because, for a lot of Americans, China means communism, and so it would mean the opposite of Adam Smith — at least that’s what we’ve been taught since the 20th century by something like the Adam Smith Institute, a neoliberal think-tank.

MH: The Adam Smith Institute hates everything that Adam Smith stood for. That’s why it’s called the Adam Smith Institute: to confuse people! Smith wanted to tax land-rent. The Adam Smith Institute wants to glorify the landlords, privatize public housing, and create a rentier and financial utopia for the 1%. There’s a reason why the economics curriculum in the U.S. no longer has the history of economic thought, because if you study the history of economic thought, which they taught when I was in school 60 years ago, you would know that when people talk about Adam Smith and free markets, it’s the exact opposite of the kind of free market that Smith talked about. What Marx described was capitalism. That’s why he called his book Capital, not Socialism.

What the Chinese government is trying to follow has been called a “state-capitalist society” or a “communist society”: the focus is on productive labor and productive investment. The most important feature of China is that it kept the banking sector and money creation in the public domain. In the West, commercial banks create credit against assets that are already in place. Mortgage loans are made against real estate in place. Corporate takeover loans are made to corporations in place. Government control of money, as it was in Germany in the late 19th century, created new means of production, especially public infrastructure. China does not have its banks make loans for corporate takeovers, or for mergers and acquisitions. China makes them increase the means of production. In that sense they are following the industrial capitalist policy that evolves naturally into socialism, which is why they call themselves a socialist economy, and rightly so, because they’re not running the economy on behalf of the 1%. Obviously, by letting a hundred flowers bloom, they realized that the state cannot act as the Stalinist state did as a central planner. They need innovation, they need individual innovators to create market opportunities and new products and that’s been best done by letting market forces take place. But when somebody achieves such a hyper-billionaire level, as did Jack Ma with his phone  payments company, they coordinate the private wealth that is created to serve the long-term public interest. That’s why there is a strong state. The Communist Party of China is delegated to administer economic democracy, something that political democracy has not been able to do in the Western countries. You need a state to act as the agent of social planning, so that it’s not the banks and the rentier sector that does it, as occurred in the U.S. and Western Europe. Europe. China is doing what most of the world was doing before Western civilization took off and in an oligarchic form.

DLJ: Do you think the U.S. could do that? In many ways, China’s extraordinary growth, especially post-Deng Xiaoping reform era has presupposed the U.S.’s current account deficit; these “twin deficits” where the U.S. is this large importer from China. I’m thinking to what degree there’s also a mutual character to it as well. Maybe that has been in crisis. When Trump came to office – I’m not saying whether or not he was correct – he was expressing to some degree a process of deindustrialization in the U.S. that has turned the U.S. into a consumer nation without having any production. When I think of two nations having industrial production, I also think back to the end of the 19th century, what Karl Kautsky called the fall of the Manchester School: once one country begins to have state intervention, it encourages other nations to have state intervention. How do you see this working out, besides the more violent past? What do you think would be a more positive way of this working out?

MH: Technologically, of course, the U.S. could redevelop; it has developed before. But it can’t do so, because politically it’s controlled by the anti-labor party. Both Democrats and Republicans are controlled by the rentier interests that seek to increase corporate profits by looking around the world for the cheapest labor, which is not in the U.S.

An even more serious problem is that the rulings in the Supreme Court have turned America into a failed state, e.g., how the Supreme Court ruled that the existing anti-pollution laws, the environmental protection laws by the EPA were unconstitutional, because the government has no power over the states. Or when they say “we on the Supreme Court know that the Constitution was written by slave owners who wanted state power to be in the states, not the federal government, because they feared that if there were a federal government and the northern population wanted to abolish slavery, we could abolish it. Every state gets to go their own way.” America is an evolved slave-owning state, even though there’s no more slavery, the fight against federal power has been adopted by rentier class. It’s literally a neo-feudalism class. If you cannot have the government, either Congress or the president impose basic environmental, social, educational, or any other social regulation, and if everything is deregulated state-by-state, you have a dissolution of the government and a paralysis. The U.S. now is in a state of political paralysis locking itself into the current status quo, which means that the U.S. cannot have any kind of an industrial recovery, because that requires a federal policy to check the overhead of the banking system, the real estate sector, and the insurance sector. You can’t have a Supreme Court that would prevent any kind of a public health system, a single-payer public health system, and yet 18% of America’s GDP is for medical care. America has priced its labor and its industry out of world markets by having to pay so much debt service, so much insurance for medical care, home insurance, and real estate rents. As long as this revenue is paid out in the form of rent, you’re not going to develop.

DLJ: It almost sounds like you’re pointing to the need for a political revolution. If the potential for development in the  U.S. is checked by a rentier class, it is an infringement upon the people, from the perspective of classical bourgeois political theory.

MH: If other countries in the past had a problem like the U.S. now has with the Supreme Court, they would have had a revolution. A European prime minister would invite the court into the office and say, “I’m sorry but I’ve got to make a choice: either you resign or I’m going to have to either execute you or let the mob outside come in and lynch you.” Wouldn’t you rather resign? It would be settled by some kind of revolt like you’re seeing with the Yellow Vests in France or like you saw in the 1848 Revolutions throughout Europe. That’s not likely in America because there’s no real consciousness that there is an alternative. There’s no group in America, no political party, that is offering an alternative to the current political and economic system in America. The fact that you have two parties in America that are really the same party, means that there’s no room for a new party to come and, as it would in Europe, get represented in Congress. In Europe, you can have any number of parties, and they would be represented in Parliament in proportion to their votes. A third party would be kept off the ballots in the U.S., and that’s why Bernie Sanders and others decided not to run as a third party; there’s no way we can meet the court challenges by the Republicans and the Democrats together. Sanders had to pretend to run as a Democrat. But we’ve seen that the Democrats don’t want any part of anything progressive. There’s an illusion that somehow the Democrats can be progressive because they have people who can’t find any alternative, who are running as a Democrat. Whereas in Europe, they are running as nationalists, as third parties, e.g., Alternative für Deutschland.

I just don’t see the political development in the U.S. that would be a precondition for an economic restructuring to get back on the pre-WWI track. There was anti-monopoly legislation that would be hard to impose. Biden talks as if he’s against monopolies. but he’s supporting the monopolies, e.g., for Pfizer with regard to the vaccines: the government does the research and gives it to Pfizer who makes huge monopoly rents protected by the Biden Administration. Large companies are able to buy control of the politicians by paying for their election contributions under the Citizen’s United Supreme Court ruling, and they do. They control the mainstream media. People just don’t have an idea that there is an economic alternative, which would not be the socialism that is represented by people who call themselves socialist, but are actually enable neoliberals.

DLJ: I’m trying to think about Destiny and its purpose. How could it raise consciousness in the U.S.? You mentioned going back to pre-WWI conditions. In the Communist Manifesto (1848) Marx and Engels speak of reactionary reformers who want to turn back the wheel.[18] I.e., for Marx and Engels, it was always a question of how opportunities develop out of the present, rather than trying to clean the slate. The financialization in the United States, for them, poses the question of developing this neo-feudalism into socialism. In other words, we can’t go back to pre-1914. How does one find the opportunities in the present to even point towards alternatives within the U.S.?

MH: I have not found an alternative for the U.S., and so I can’t come up with a panacea. I remember Max Schachtman gave a speech in the late 1960s, where he asked, “what’s happened to all my old socialist friends? What happened to the socialists?” He said,  they all went out West; they all withdrew. They thought, “we can just have community development,” and there were all sorts of ideas and utopian communities founded throughout the U.S.. There were French followers of Saint Simon attempting to make utopian communities, followers of Henry George, making utopian land-tax communities. They’re all middle-class bourgeois communities today. All the socialist communities were all very artsy: they’ve all become arts and crafts centers today. The last thing they want is a land tax that prevents their housing prices from going up.

I don’t see how things can be fixed in the U.S., which is why I’ve spent most of my time analyzing what’s happening in Asia and working primarily with countries from Asia and elsewhere, which seems to be where most of the flexibility and innovation resides. My idea is that if people see that what Asia is doing is quite simply what America could be doing and isn’t, it would be the only way to show them that there is an alternative. You can’t just draw an alternative and apply it as an idealistic application. You have to show that it’s working somewhere. I’m trying to explain why China was able to make its economy grow and raise the living, educational, and health standards for its population, and that the West hasn’t. And that is the path on which the West would have to develop, but it has not been able to check oligarchies. Non-Western countries are able to do that, and that’s what the fight of global South reform is going to be the by this fall when the grace of the debt crisis, really is the trigger for a restructure.

DLJ: Economies are interdependent. I.e., it would still be a question of the Chinese working class and the American working class building bonds across nations.

MH: The Democratic Party has produced such an anti-Asian, hate-filled racism, that I don’t think that can be. The Democratic Party has done everything it could to spur an ethnic war between the black and Asian populations. You see that here in New York by the attacks on the subways, on the street, mainly by blacks against Asians. The Democratic Party, by pushing this ethnic identity, has pushed ethnic hatred. That’s why the Democrats are surprised that the Hispanics and Asians are moving towards the Republicans. The Hispanics and Asians realize that the Democrats have a race-hatred policy, much like the Nazis. I don’t believe that any political progress can be made in the U.S. until the Democratic Party, certainly the current leadership, is swept away. There cannot be any progress in America today led by the Democratic Party, which is today the ideologically Right-wing party that has turned what should be an economic problem into an ethnic and non-economic problem. It’s like the old industrial capitalist was supposed to have said, “if I can get half the working class fighting against the rest of the working class, then we have won.” That’s the Democratic Party. They asked, “how do we do it?” We divide the working class into ethnicities, ethnic identity, gender identity.

DLJ: You can have the working class cancel each other.

MH: Yes. |P

[1] Carlos Hudson. See Michael Hudson, “Dad’s Many Proverbs” (June 17, 2017), available online at <>;.

[2] Michael Hudson, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism (Glashütte: ISLET-Verlag, 2022), 85.

[3] Hudson, Destiny, 165: “Reversing the tradition of classical value, price and rent theory, neoliberal economics teaches that all income is earned, and that all forms of economic rent are not merely transfer payments but contribute to output, as measured by neoliberal formulations and redefinition of Gross Domestic Product (GDP). This inversion of classical logic is so far-reaching and censorial that it has influenced Chinese and Russian planning as well as that in the Western economies.”

[4] See Karl Marx, “Theories of Productive and Unproductive Labor,” in Theories of Surplus Values (1863), available online at <>;.

[5] Hudson, Destiny, 120: “China has invested in a vast public infrastructure network to facilitate its industrial production by minimizing the cost of living and doing business. This has saved employers from having to pay higher wages for labor to afford privatized education, health care, transportation and other essential services. These basic needs are provided by public infrastructure, which Simon Patten called a ‘fourth factor of production.’”

[6] Wilhelm Camphausen, “Napoleon III and Bismarck, on the morning after the Battle of Sedan” (1878).

[7] Karl Marx, “The French Crédit Mobilier,” The People’s Paper 214, June 7, 1856, available in Marx and Engels Collected Works, vol. 15, and online at <>;.

[8] Hudson, Destiny, 270: “These redistributive and fiscal principles are the basis of modern socialism but not of Western economies. Ever since classical Greece and Rome stopped the Near Eastern practice of Clean Slates, Western economies have not been able to save themselves from polarizing between creditors and debtors, landlords and tenants, patrons and clients. Today, the neoliberal reaction against social democracy has ensured such polarization, first by letting debts grow faster than the ability to be paid and hence concentrating wealth in the hands of creditors, and second by advocating that basic public utilities be privatized and run by financial managers, not provided as a human right.”

[9] Karl Marx, Preface to the Second Edition (1869), in The Eighteenth Brumair of Louis Bonaparte (1852), available online at <>;: “Lastly, I hope that my work . . . will contribute toward eliminating the school-taught phrase now current, particularly in Germany, of so-called Caesarism. In this superficial historical analogy the main point is forgotten, namely, that in ancient Rome the class struggle took place only within a privileged minority, between the free rich and the free poor, while the great productive mass of the population, the slaves, formed the purely passive pedestal for these combatants. People forget Sismondi’s significant saying: The Roman proletariat lived at the expense of society, while modern society lives at the expense of the proletariat. With so complete a difference between the material, economic conditions of the ancient and the modern class struggles, the political figures produced by them can likewise have no more in common with one another than the Archbishop of Canterbury has with the High Priest Samuel.”

[10] Adam Smith, “Book IV: On the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope,” in Wealth of Nations (1776), available online at <>;: “The idea of representation was unknown in ancient times. When the people of one state were admitted to the right of citizenship in another, they had no other means of exercising that right but by coming in a body to vote and deliberate with the people of that other state. The admission of the greater part of the inhabitants of Italy to the privileges of Roman citizens completely ruined the Roman republic. It was no longer possible to distinguish between who was and who was not a Roman citizen. No tribe could know its own members. A rabble of any kind could be introduced into the assemblies of the people, could drive out the real citizens, and decide upon the affairs of the republic as if they themselves had been such. But though America were to send fifty or sixty new representatives to Parliament, the doorkeeper of the House of Commons could not find any great difficulty in distinguishing between who was and who was not a member. Though the Roman constitution, therefore, was necessarily ruined by the union of Rome with the allied states of Italy, there is not the least probability that the British constitution would be hurt by the union of Great Britain with her colonies. That constitution, on the contrary, would be completed by it, and seems to be imperfect without it. The assembly which deliberates and decides concerning the affairs of every part of the empire, in order to be properly informed, ought certainly to have representatives from every part of it That this union, however, could be easily effectuated, or that difficulties and great difficulties might not occur in the execution, I do not pretend. I have yet heard of none, however, which appear insurmountable. The principal perhaps arise, not from the nature of things, but from the prejudices and opinions of the people both on this and on the other side of the Atlantic.”

[11] Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

[12] Brazil, Russia, India, China, and South Africa.

[13] Hudson, Destiny, 42: “Finance capitalism aims to avoid what Marx and indeed the majority of his contemporaries expected: that industrial capitalism would evolve towards socialism, peacefully or otherwise. By finding its main source of exploitation to be rent-seeking, not only from land and natural resources but increasingly from privatizing public investment in infrastructure and creating new monopolies, finance capitalism renders economies high cost. That prevents industrialists from underselling competitors in less rent-and- debt-strapped economies…That is why it seemed a century ago that the destiny of industrial capitalism was to evolve into socialism. Public education, health care, roads and basic infrastructure and pensions were coming to be provided by government at subsidized administered prices or freely. Industrial capital backed this policy as a means of shifting as many ‘external’ costs as possible onto the public sector. But that is not the way matters have turned out. And today’s victorious finance capitalism, centered in the United States, is trying to prevent its takeover of industrial economies from being rolled back. That means preventing such a rollback from occurring in other countries. It also requires overcoming other countries’ resistance to finance capital’s takeover of their economies.”

[14] V. I. Lenin, Can the Bolsheviks Retain State Power? (October 1, 1917), available online at <>;: “Capitalism has created an accounting apparatus in the shape of the banks, syndicates, postal service, consumers’ societies, and office employees’ unions. Without big banks socialism would be impossible. The big banks are the ‘state apparatus’ which we need to bring about socialism, and which we take ready-made from capitalism; our task here is merely to lop off what capitalistically mutilates this excellent apparatus, to make it even bigger, even more democratic, even more comprehensive. Quantity will be transformed into quality. A single State Bank, the biggest of the big, with branches in every rural district, in every factory, will constitute as much as nine-tenths of the socialist apparatus. This will be country wide book-keeping, country-wide accounting of the production and distribution of goods, this will be, so to speak, some thing in the nature of the skeleton of socialist society. We can ‘lay hold of’ and ‘set in motion’ this ‘state apparatus’ (which is not fully a state apparatus under capitalism, but which will be so with us, under socialism) at one stroke, by a single decree, because the actual work of book-keeping, control, registering, accounting and counting is performed by employees, the majority of whom themselves lead a proletarian or semi-proletarian existence.”

[15] Hudson, Destiny, 162: “One of the most fateful byproducts of George’s defense of capital was to so repel socialists that they left the issue of land taxation to his followers — and in so doing, socialists drifted away from rent theory. The socialist mainstream treated classical land and rentier problems as subordinated to problems between labor and industrial capital.”

[16] Hudson, Destiny, 103–04.

[17] Michael Hudson, J is For Junk Economics: A Guide to Reality in an Age of Deception (Glashütte: ISLET-Verlag, 2017).

[18] Karl Marx and Friedrich Engels “Part 1: Bourgeois and Proletarians,” in The Communist Manifesto (1848), available online at <>;

Michael_Hudson_Interview 1.m4a