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Finance Capitalism vs Industrial Capitalism: How Financial Parasites and Debt Bondage Are Destroying Us

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Finance Capitalism vs Industrial Capitalism: How Financial Parasites and Debt Bondage Are Destroying Us

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Yves here. Michael Hudson explains how the Covid-19 rescue programs are further entrenching the position of rentiers. He also takes up the the theme of financial versus industrial capitalism, which was the central theme of his important paper From Marx to Goldman Sachs.

Produced by The Radical Imagination

Jim Vrettos: Welcome once again to the Radical Imagination. I’m your host, Jim Vrettos. I’m a sociologist whose taught at John Jay College of Criminal Justice and Yeshiva University here in New York.

Our guest today on the Radical Imagination is Michael Hudson. He was on our March 8th show. We had such an overwhelmingly positive response to that show that we’ve asked him to return today, and he’s been gracious enough to accept.

Unlike most economists, he’s been a fierce champion and advocate for the economic rights of the poor, workers, disenfranchised and the vulnerable around the world through his scholarship and lifelong activism. His unique economic analysis has explored history’s main engine of economic exploitation – the banking, creditor and financial systems’ ever-increasing extraction of value through interest payments.  The rentierclass and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic.

Now with the United States losing some 10 million jobs in just the past two weeks and the world awash in debt, the total world gross domestic product is $90 trillion. The public and private debt is a mind-boggling $260 trillion. The pandemic has given this parasitic sector yet another, even more vicious opportunity to exploit and devour humanity.

As our guest puts it, the recently passed Trump “Bank and Landlord Relief” bill, mistakenly named the Coronavirus bill, starts by providing banks with an even larger giveaway of wealth than they received from Obama in 2008. Helping the banks, financial and real estate sectors in a so-called free market system is conflated with helping the industrial economy and general living standards for most Americans. The essence of a parasite is not only to drain the host’s nourishment, but to dull the host’s brain so that it does not recognize that the parasite is there.

These debt-bondage economies of Western countries are heading us down a spiral of poverty, decline, injustice and human despair.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute of Bard College, former Wall Street analyst, a political consultant of governments on finance and tax policy, and a popular sought-after commentator and journalist. He’s devoted his entire scientific and historical work to the study of domestic and foreign debt, loans, mortgages and interest payments. His analysis and warnings are even more profoundly necessary in these pandemic days and nights. This is just the first in a series of cascading crises.

Welcome so much. Thank you for being back again here on the Radical Imagination. Michael, it’s great to see you again. How are you doing? I know we’re all trying to keep safe and well and strong. How are things going?

Michael Hudson: I just got back from a walk in Forest Park here in Queens. There was hardly anybody on the streets, but there were a good number of people in the park. I finally was given a face mask by the building’s super, and my Chinese friends say that they’ve mailed me some masks to keep me safe. They’re sending foreign aid to New York like we’re a third world country.

Jim Vrettos: Well, in a sense, we are, aren’t we? We’re turning into it for more and more people. Tell us about this so-called bill that’s just been passed. What is wrong with it in your estimation? How does it perpetuate and exacerbate the problem in your analysis?

Michael Hudson: Well, it’s sort of like Obama’s bailout in 2009 and ’10 on steroids. It’s funny when you read people like Paul Krugman and others Democrats denouncing it all as if it’s a Republican bill, but it’s identical with Obama’s bill and Obama’s philosophy. And it was unanimously passed. Chuck Schumer likened it to Roosevelt’s New Deal. So I think you should think of it as the Trump-Pelosi bill. Trump simply lifted it wholesale from his campaign backers, who basically are the same as the Democratic National Committee.

The problem is that the bill pretends that by giving money to the banks to lend more money to get the country moving again that’s going to rescue the economy. It’s not going to rescue the economy. The bill injures the economy, because the money ends up with the banks. Part of its $10 trillion – $2 trillion – goes to citizens to spend, but ends up largely being paid to the banks and landlords. Specifically, there is an enormous giveaway that makes real estate tax exempt for the next 30 years.

Jim Vrettos: What about small businesses? Are you including them in this analysis?

Michael Hudson: Most small businesses they’re rescuing are the landlords. They have received the most Small Business Administration loans, usually by going through the local political party machine. When the Republicans or Democrats talk about small business, they mean the landlords, who are the proxies for the big real estate interests and the banks behind them.

So let’s look at this: The bill asks landlords to stop evicting people for three months but let the rent accrue, and personal debts also. Let’s look at what’s going to happen when the three months are over. You’re going to have restaurants and small businesses – whose major expense is rent and credit – not having done much business during these three months. They will end up owing this major cost of doing business for three months without having their usual income. What’s going to happen by the end of the summer?

A lot of restaurants here in Queens only have takeout service. So how are these small businesses going to pay the debts that have mounted up in the last three months? Many will have to go out of business, declare bankruptcy and start all over again, because otherwise all their earnings for this year and next year – and probably the year after that – would have to go to make up the arrears to their landlords, their creditors and the banks.

So what pretends to be a coronavirus bill is going to say, “You think the virus hit you? Wait till we hit you with the financial bill.” The financial bailout aims to enable the financial sector to extract so much money from the economy and drive so many small businesses under that the big venture capital firms and private equity can pick them up at low all prices. You could call it the “Monopolization of the US economy” bill or the “Contributors to Washington politicians” bill.

There was a wish list that the banks had, the real estate interests and corporate lobbyists, that they’d been saving up for just such a crisis opportunity. The coronavirus is equivalent of 9/11. As in 9/11 when President Bush and Cheney pulled out the Patriot Act that they had in their drawer just looking for an excuse. Right now the coronavirus, the Trump-Pelosi bill gives the banks and the real estate sector an excuse to not only be bailed out as if they’re losing money, but to evict their tenants.

Jim Vrettos: To profit even more?

Michael Hudson: Not necessarily  profit. Profit you have to pay income tax on. Rich people don’t make profits. They make capital gains. Only the little people make profits.

Jim Vrettos: You said this was conscious on their part, right? This is a rational way in which they think about these things. There’s no moral dilemma to all of this by the large venture capitalists and so on, Wall Street, is that correct?

Michael Hudson: Yes. Obviously the lobbyists have written these laws. Trump is a real estate investor and certainly knows that when it gives the biggest single giveaway to the real estate sector. Real estate will not make a profit for the next 30 or 50 years. But it’ll make enormous cash flow. They’ll call it depreciation. The depreciation schedule pretends that buildings are losing their value even when they’re going way up. It’s an accounting system, including the national income accounts that have little to do with the real economy. So there is no more way to empirically describe what’s happening using official statistics. We’re entering a just-pretend statistical world with a just-pretend rationale and Orwellian euphemisms.

Jim Vrettos: Okay. So moral suasion, what are the limits? You worked with and talked about Rev. William Barber’s Poor People’s Campaign, for example. You talk about Bernie and his movement and so on. Are these designed to fail? Are there possible strategies that can be used to limit the vicious profits and money that’s being made?

Michael Hudson: What’s the connection between moral suasion, Reverend Barber and Bernie?

Jim Vrettos: I guess I’m asking here is who speaks for the poor? Who speaks for the workers? Who is standing up for the disadvantaged here?

Michael Hudson: Mainly their employers and creditors claim to be speaking for the workers. Their trickle-down economics says that “What’s good for us is good for the workers. We want to help the workers by lending them more money to afford nicer housing, and lend them enough money to afford to pay their rising debt charges.”

Jim Vrettos: Yet in fact that’s not in their interest.

Michael Hudson: Of course it’s not. But they can dominate media and drown out alternatives. The media don’t care very much what Reverend Barber says or what Bernie says. The media say, “What’s good for the workers is what’s good for the banks.” In fact, Trump and Biden came up last week and said there’s going to have to be a second coronavirus bill, and we’ve got to really focus this time on the banks. We didn’t give them enough in the first bill, o we have to give them more so that they can lend more.

Now, when you say we have to give the banks more money to lend more to get the economy moving, it means we have to have families and businesses take on more debt. This means that more and more of their income must be paid as interest and amortization, financial fees, late fees and penalties, and service charges. The double-talk is about as explicit as can be, with the Democrats being more adept at euphemism than the Republicans.

Jim Vrettos: As you probably know, we’re taping this same day that Bernie has dropped out of the campaign. So who do you look to? What movement, what organizations are left to represent the interests of the vast majority of us?

Michael Hudson: I don’t see anyone. Certainly in my profession, the economics profession, the major respectable economic journals are all censored by the Chicago School of monetarists and the neoliberals. So it’s very hard to look to the economics profession for much help, at least from professors who want to get promoted and get tenure. I don’t see much help at all.

As for voters and the two political parties, if you look at what economists call “revealed preference” and who the main voters for Biden are, what are they supporting? They threw the election to Biden, away from Bernie. What did they want? Well, it’s as if they want lower wages, less education, more debt and more police power. They want more credit (that is, debt) and they would like to see social programs scaled back. That’s what the voters have selected, “because it can beat Trump.” That’s their revealed preference, if you look at what their voting reflects. It’s as if they’ve chosen lower living standards, and believe that the rich should have enough more money so that maybe some of it will trickle down.

MMT, Left- and Right-Wing

Jim Vrettos: Trickle down. Right. You also work with Modern Monetary Theorists, correct?

Michael Hudson: That’s right. I’m on leave from the University of Missouri at Kansas City, which has been the center of that. I’m also, as you pointed out, a research fellow at the Levy Institute, and I’ve worked closely with Stephanie Kelton, Randy Wray and the others.

Jim Vrettos: So tell us a little about that approach that you still have some confidence in. Tell us about what they are telling us to do, what you’re telling us to do as a group.

Michael Hudson: It’s not a homogeneous school. The idea of Modern Monetary Theory has roots going back to the functional finance of Abba Lerner in the 1960s, but you can look at Hyman Minsky as one who really inspired it in the 19980s and ‘90s. Its logic is that deficit spending is not bad if it is spent in the real economy to increase employment and spending.

The Chicago School says any government spending is the road to the gas chambers. I’ve heard that said literally. They say that with government spending, you’re going to end up like Germany in the Weimar area with hyperinflation or like Zimbabwe. They think that running a government deficit actually increases consumer prices and that erodes the purchasing power of financial wealth. Well, Modern Monetary Theory says, first of all, that there’s a disconnect between financial asset prices and where the real economy is going. Asset prices, capital gains and the wealth of the 1% are going up but real wages and disposable income has been going down. We’ve seen real estate, stocks and bond prices going up and up since the Obama bailout of 2009, but the economy has not benefited the 95 percent.

There’s a sort of crude MMT solution, to simply run a budget deficit. And one extreme, there are some MMTers – not me and not my colleagues, but some MMTers – who say that all you have to do is run a budget deficit and you’ll pump money into the economy. The tacit assumption is that this money is going to be spent in a Keynesian-style way, on hiring labor, especially if the government will build infrastructure. The government would buy goods and services, whose production involves paying labor and you’ll reflate the economy, you’ll increase the circular flow of income within the production and consumption sector.

On the other hand, Wall Street and England have discovered bad MMT. It’s Donald Trump’s or the Democratic Party’s Obama-style MMT version known as Quantitative Easing. This approach says that deficits are indeed wonderful, as long as the government is running a deficit to spend on Wall Street, not into the “real” economy.

The leading MMT advocates of government spending, like Stephanie Kelton, Randy Wray and a whole group of MMTers who are critics of Wall Street, emphasize just what kindof government deficit spending we’re talking about. What actually is spent on public investment, employment and income support. It has to be spent on labor and tangible capital. The fake MMTers are saying government deficits are great if given to the banks. Banks will provide the credit and save the rest of the economy. But that’s the opposite of what we’re saying. So just like every good religion early on, every good idea from Jesus to Marxism can be turned upside down and into the opposite. You’re seeing an attempt today to turn the MMT that we all developed in the last three decades into a travesty of bailouts for Wall Street. It is as if bailing out Wall Street, Barack-Obama or Joe-Biden style, is going to bail out the economy by enabling it to run deeper into debt.

Bernie Sanders’ Six-Point Program

Jim Vrettos: So that’s the choice we have then – the Trump version or the Obama-Biden version. I just got a group email from Bernie. Stephanie Kelton is one of his economic advisors. I’m going to read it briefly here. It’s about the six core provisions that must be included in the next legislation. The first need, he says, is to address the employment crisis and provide immediate financial relief. To do this, we must begin monthly payments of $2,000 for every man, woman and child in our country – guaranteed paid family relief throughout the crisis, so that people who are sick do not need to choose between infecting others or losing their job. Is that what you’re talking about?

Michael Hudson: This is similar to the MMT proposal for guaranteed income. What Bernie says is that the best way to introduce this proposal is to begin it during the coronavirus when people most obviously need it. I think Bernie added that it should be given to self-employed, to retirees, and to aliens living here. You have also to give it to everybody, or else they are going to be out in the street. It has to be general. I think a number of our people have been recommending that over the years. Pavlina Tcherneva usually explains this program as an extension of MMT policy.

Jim Vrettos: Absolutely. The second point he makes, along with what you’ve just said, is that we must guarantee healthcare to all. Medicare must be empowered to pay all of the deductibles, co-payments and out-of-pocket healthcare expenses for the insured, uninsured and under-insured. No one in America who is sick, regardless of immigration status, should be afraid to seek the medical treatment they need.

Michael Hudson: Here is the perfect catalyst opportunity for general healthcare for all. The reason you have to give healthcare for everybody right now, without cost, is that if you don’t, they’re going to be sick. And without health care, they’re going to spread the disease to the rest of the economy. My friends in Hong Kong are telling me that there has been a second wave of virus there, and I’m told that in China there’s a second wave. If you don’t give the healthcare to everybody who needs it and you don’t begin testing everybody and giving them whatever they need to get well. That includes guaranteeing their housing, as you just talked about, enough to pay their rent, buy food and get by when they’re not earning an income. The alternative is for them to infect the whole rest of society repeatedly. Here’s a perfect scale of model and a dress rehearsal for Medicare For All.

Jim Vrettos: Third point, to use the defense production act to produce the equipment and testing we need.

Michael Hudson: That’s nice thought in principle, but the problem is that America has spent three decades since the 1980s disinvesting and outsourcing its industrial sector. I’m told that there are no screws or fasteners made here. How are you going to produce the medical equipment, masks and other things you need?

Masks, I’m told, cost about 20 cents to make. But here in New York they’re being sold for $10. I think that the plan to produce them in America is to give U.S. monopolies the power of life over death, your money or your life. Why not $50 a mask – and let buyers pay on credit. Send them a new box of masks each week and sign them up on an easy-payment plan, billed every month like a public utility.

If it costs ten or even a hundred times as much to produce protection in America because they’re producing for profit, do you really want to leave this to private industry? You really want the health sector to be public, because if it’s privatized, it’s going to be run with the objective of charging monopoly rent and lowering the quality. Basically it will be rife with the kind of fraud that we’ve seen whenever there is a kind of crisis.

I think that Bernie wanted to say that we should revive manufacturing in this country, but this is not something that can be done quick enough to cope with the coronavirus. The government has been grabbing sales of masks and other equipment to European countries and giving them to the Republican States. I think FEMA grabbed masks and ventilators for Massachusetts, a Democratic state. We’re going to give it to Western states that vote Republican. The system already is so deeply corrupted that I don’t see a short term solution.

Jim Vrettos: Fourth point: Make sure that no one goes hungry. As states record levels of food insecurity, we must increase benefits, expand the WIC program, double the funding for emergency food programs, expand Meals on Wheels, school meals programs, and deliver food to vulnerable populations. So it sounds like an extension of Great Society anti-poverty programs.

Michael Hudson: Again, who will benefit financially from this? Will this be a public program or a privatized program? I’m sure Donald Trump and Wall Street would like to charge the government $20 for every lunch that cost them $2. So at what price and on what terms? Who’s going to be the main beneficiary? If Bernie is a good sport and let’s Biden decide, he’s a goner.

Jim Vrettos: Exactly. Two more: Provide emergency aid to states and cities, $600 billion direct physical aid to ensure that they have the personnel and funding necessary to cope with the crisis. In addition, they must establish programs to provide fiscal support and budgetary relief to States and municipalities.

Michael Hudson: That could be an awful program if it is debt-financed. States and municipalities are so deeply in debt that this crisis is going to push them even deeper. What Bernie seems to be opening himself up to is the Mitch McConnell solution: “Let’s abolish the public pensions that they owe, and let’s cut back public services. We have to let the banks be paid. Let the Federal Reserve load down the states even more in debt and make sure that they pay their bondholders who are mainly in the wealthiest 5% of the population.” This could be a bailout for the 5%. The State and local debt must be written off. It’s become a bad debt in the fact of the corona virus.

Unfortunately, American law has no procedure for state and local bankruptcy. They can’t wipe out their debt. Even worse, many states have written into their constitution a balanced-budget requirement. If the Federal Reserve gives them support by more credit that has to be repaid, they’re going to have to cut back social services. Betsy de Vos would like them to sell off the schools to be privatized. In any case, they’re going to have to change the character of local spending. You cannot save the states and localities after this crisis if the current debt and financial overhead remains on the books. There has to be federal funding in one form or another acknowledging that the crisis has prevented the states, New York state, New York City and others from paying their debts. So we need to write them down.

That is going to cost bondholders. They belong to the higher income brackets, because state and local bonds are tax-exempt. Somebody has to bear the costs, and the Republican and Democratic suggestion is the same: to make the 99% pay the the 1%. That is a terrible solution. It doesn’t address the debt problem. Without addressing that, you are part of the problem, not part of the solution.

Jim Vrettos: He may be trying to redeem himself a bit here with the six recommendation. Suspend monthly payments. We must suspend monthly expenses like rent, mortgages, medical debt and consumer debt collection for four months. We must cancel all student loan payments for the duration of this crisis, place an immediate moratorium on evictions, foreclosures and utility shut-offs. It doesn’t go far enough. Correct?

Michael Hudson: What does “suspending” mean? Does it mean not having to pay rent this month, next month and maybe in August and September? That’s fine. But what happens when October comes? If your rent is $1500 a month, do you have to pay the $7500 that has mounted up in arrears – or be kicked out? The landlord or mortgage banker will have a lien on whatever you’re supposed to get from Social Security and other income. They will get a lien on your property and wages. So suspending payments isn’t enough. They have to be annulled.

The bailout has given an enormous giveaway to the real estate industry, and is backing its right to collect all the rents, or else to evict the tenants and grab their property and paychecks. This is a pro-landlord bill. What’s needed is nonpayment. You have to follow the money and come right out and say what the underlying problem is.

Jim Vrettos: Understood. The political resistance to what’s going down is so feeble. Certainly during the sixties we had a welfare rights movement that Richard Cloward and Frances Piven helped organize to put pressure from the bottom up and get some sort of guaranteed annual income.

Michael Hudson: For the bottom up, but led by the top down.

Jim Vrettos: Yeah.

Michael Hudson: They were not very effective. There was an egotism saying “We’re for the people.”

Jim Vrettos: I’m searching for some of your ideas as to what we might support as alternatives. Do you see any out there, and how people can mobilize to resist and organize?

Michael Hudson: I think Reverend Barber is doing good work. I think the Justice Democrats are doing good work. I think the people around AOC also are.

Jim Vrettos: BrandNew Congress we heard are doing some good work.

Michael Hudson: But that’s not enough. There’s still not much discussion of the economic problem that really is at the root of this. People complain about the symptoms of inequality, even rich people do that. Everybody has books documenting inequality. But what they don’t want is a discussion of what’s creating it. Does the world have to be this way? What policies are needed to reverse it?

If you discuss that, and find that the root of inequality is the financial system indebting the economy and financializing real estate instead of making it the tax base, then you realize that you have to change the system. Today’s wealth is mainly financial and rent-extracting, taking the form of indebtedness for 90% of the population.

The only way to recover is to wipe out this debt. You can’t recover the real economy of production and consumption without wiping out the debt overhead, without rolling it back. That is what people are unwilling to see. They’re unwilling to look at the solutions, because that’s beyond the Overton window. It’s cognitive dissonance. Actually curing the problem is no simply rubbing your hands and saying, “Oh, isn’t that too bad?” If you criticize the debt system, however, you lose the coverage and the public media. That is why we’re on the Internet, not on The New York Times or Wall Street Journal.

Jim Vrettos: Exactly.  And you’re one of the very few economists who have looked into the philosophical and historical origins of this.

Dismissing Debt Problems as an “Externality” Instead of at the Core of Policy Solutions

Michael Hudson: I became an anthropologist and archeologist a Research Fellow in Babylonian economics at Harvard’s Peabody Museum in 1984, to focus on that. It was obvious that the debts were not going to be rolled back. In 1980 the U.S. economy was so highly indebted that when interest rates went up to 20%, many economists thought that the debts would be wiped out in a convulsion of bankruptcy as in the 1930s. Instead, you had the government play a new role, to support Wall Street and to deregulate the economy for financial predators. The result was the Drexel Burnham era of corporate rating, and financial takeovers and debt pyramiding that has caused today’s problem.

If the problem is financialization, then the solution to the economy has to be to de-financialize. That cannot be done as a slow process. It can only be done in a single stroke, a quantum leap. I don’t see a constituency for wiping out the debt as long as people believe that you have to help the banks save the economy and help the 1% trickle down their wealth.

The 1% has no intention of letting its wealth trickle down. Its intention is to take even more wealth from the 99%. Its intention is to suck up, not trickle down. Its lobbyists write the laws to make sure that the wealth is sucked up, not trickled down. And unless you realize that there’s a war of the financial sector against the rest of the economy, then as Warren Buffet said, “There’s a war on, and we’re winning it.” But only they know there’s a war. The victims don’t even know there’s a war.

Jim Vrettos: The victims become statistics that we’re willing to put up with. One of the questions I have for you here: Each year, over 250,000 people die in the United States in what social scientists refer to as structural violence and economic devastation of living in poverty, with the strains, stresses and anxiety of trying to survive in the structure of work, family, criminal justice, health and housing. We’re willing to put up with that, we’re willing to blame the victim in a sense, and create a whole structure that attempts to address their problems without dealing with the structural roots.

Michael Hudson: Economists call these problems externalities. In other words, they’re external to the economic model. Just as global warming and pollution are external to the model. This is at the root of “free market” theory rationalizing the status quo as natural, as if There Is No Alternative. The problems and costs to society created by financialization and living in the short run are considered external to the model, because the models themselves are short-term. and really focus on how the 1% can make more money. How can the financial sector make more money from the real economy? Debt and credit is see as the solution, not as the problem.

Environmental pollution, personal violence, the suicide rate, emigration and shortening lifespan, that’s all external because once you discuss them, then all of a sudden you broaden the problem beyond what economists talk about to what society talks about. In all of the academic disciplines this is occurring. Sociology was developed in an attempt to broaden economics to discuss these overall social issues. Just as the University of Chicago played a narrowing censorial role in economics, it played a similar role in sociology, just talking about status as if it is something inherent. Anthropology was created as a discipline in order look at the long picture. But that’s been narrowed into what one anthropologist calls underwater basket weaving and a study of tribal groups.

There is no academic discipline that is focusing the debt problem that we’re discussing. Any “discipline” is narrow. You need a pan-disciplinary approach – a broad approach that looks at society as an overall economic system, not as separating one economic organ from suicide rates or public health, as if none have any relationship with each other. It’s a desegregated system. There’s nothing like the kind of discussion you had in ancient Greece, Rome or Babylonia in ancient times when people treated the social problems as including personal character, the environment and everything else.

Jim Vrettos: Understood. Barber does talk about this to a certain extent by trying to make connections to racism, ecological devastation, war and militarism, the false moral narratives that hold up these injustices. Is that the sort of analysis we need, the thinking that we need to pursue?

Michael Hudson: Who’s going to provide that kind of narrative in an academic framework, given the way that the universities segregate their educational system into disciplines? Can you provide it in the media? Is this something that you’d expect to get discussed in now The New York Timesor the Wall Street Journal? Is it something you’d expect to discuss on ABC TV, MSNBC or Fox news? Where are you going to discuss this?

Jim Vrettos: I understand what you’re saying. We’re all in our little silos here, so-called disciplines that are not interconnected. We don’t see that in the political world, in the academic world, as you say, in the so-called spiritual, religious world as well. You’ve written about how religion and economics have been so separated and how that needs to be re-connected. Do you want to spend a little bit of time on that?

Michael Hudson: Every religion has gone downhill, just like classical economics, which turned into the opposite of what it was in the time of Adam Smith and John Stuart Mill. When I talk about religion’s treatment of debt, I begin with Sumer and Babylonia and the idea of religion as preserving economic stability. It wasn’t so much out of an idea of utopian idealism that the Mesopotamian rulers canceled debts. They wanted to prevent the economy from falling apart. They wanted to prevent the citizenry – the taxpayers and cultivators on the land – from falling into debt to an oligarchy that would use their money to overthrow the rulers and take over society, financial-style.

Religion tends to reflect the leadership of society, although it tends to begin as a moral reform movement. The leadership in the third millennium, second millennium and even the first millennium BC could not afford an oligarchy impoverishing the rest of society. If an oligarchy did that, society would fall apart. But gradually as Aristotle pointed out, every democracy turns into an oligarchy, and so do palace economies. The oligarchy in turn tends to our takeover religion. In Judaism, Jesus accused the Pharisees of loving money and replacing the Jubilee year with Rabbi Hillel’s prosbulin which debtors waived their rights to have a debt cancellation under the Jubilee Year.

Same thing with Christianity. It began with the idea, expressed in Jesus’s first sermon when he said that he had come to proclaim the Jubilee Year. He unrolled the scroll of Isaiah and said, that was his message. Christianity began that way. But by the fifth century of our era, it took the African branch of Cyril of Alexandria and St. Augustine, that said, “Okay, we’re going to accept the world as it is. It’s okay for the landlords to have their land and for the rich people to be rich, but we will just ask them to be moral and act with charity, especially to us paradigmatic poor in the Church.”

You have every religion taken over, so you need a continual renovation, a continual Renaissance of religion. It usually is easier to start a new religion – or a new academic discipline – than trying to reform an institution mired in inertia. I don’t think existing religions can be reformed, any more than the economics discipline that has deteriorated into a religion of financial wealth-seeking.

I don’t know what’s happening with the Catholic church. It has a Pope who seems to want to restore the Liberation Theology that the Church was moving toward in the late 20th century. I don’t know what the future of that is. Obviously there was a fight by the last two Popes to oppose Liberation theology. The Protestant religions I think are pretty passive.

Jim Vrettos: Sounds like we’re in the iron cage as the sociologist Max Weber put it.

Michael Hudson: I thought you were going to say the End Days.

Jim Vrettos: Well, I don’t think he put it that way, but-

Michael Hudson: I meant the Book of Revelation.

Jim Vrettos: Right. Marx saw a little hope in the idea of praxis, correct?

Will Finance Capitalism destroy Industrial Capitalism?

Michael Hudson: He thought that industrial capitalism was going to be revolutionary in fulfilling its historical destiny of lowering the cost of production, above all by lowering costs and being more efficient by getting rid of the landlord class and the financial class. He expected credit to be made a public socialist infrastructure. His idea was that industrial capitalism would find an increasing role of socialism to be in its self-interest. In his day you saw what was called state socialism in Prussia and the rest of Germany. Marx was careful to point out that state socialism wasn’t really socialism. But it was paving the way for a working-class democracy or revolution to take over.

In Marx’s day the fight for democracy was led by industrial capitalism. The only way to get rid of the landlord class and its predatory extraction of rent was to replace the veto power of the House of Lords over Parliament with a publicly elected House of Commons having primary legislative authority. The followers of Ricardo, the “Ricardian socialists” and John Stuart Mill backed parliamentary reform to extend voting power to the people. Marx assumed that it would be logical for industrial capitalists to act in their self-interest, and voters to act in theirs. But it hasn’t worked out that way.

It seemed to be working that way, leading up to World War I. But that war I came like a meteor, knocking the West’s economic development path out of orbit. The rentierclass, the landlords and predatory banking class, made a resurgence. Instead of the government reflecting the interests of industry and the people in the form of rising wages to produce a rising circular flow and demand for industrial products, a positive feedback between industrial production and labor, you had the financial rentiersector – what I call the FIRE sector, Finance, Insurance and Real Estate – hijack the economy and bring about the permanent depression that we’re in now.

This is my main point: We are in a permanent depression. There can be no recovery without wiping out the debt overhead (euphemized as “wealth”). As long as you leave the 1% with the lion’s share of wealth (creditor claims) and property ownership, the economy cannot recover. Without realizing that, there cannot be a class consciousness regarding today’s world.

Marx talked about the class consciousness of labor vis-a-vis its employers. That took place within the production and consumption sector. But today’s class consciousness of wage earners has to see that industrial companies have been turned into financial companies. They’ve been financialized. A relevant class consciousness must realize that it’s up to socialists to do what industrial capitalism failed to do – namely, to free society from the rentiersector, from the landlord class, the monopolists and financial creditor class. Without freeing society from them, you’re going to have a neofeudal economy. As Rosa Luxemburg said, it’s either socialism or barbarism. Barbarism is a permanent depression. All the classical economists warned against the landlord class, banks and the monopolists continuing to run society into the ground.

Jim Vrettos: The state has become a functionary of the financial sector. It hasn’t withered away in the sense as Marx would have thought.

Michael Hudson: It has not evolved in the way he anticipated. Marx thought that at least the state might be for state capitalism. He worried it would go hand in hand with heavy industry and squeeze labor. The question was, would a state capitalism see its interest in supporting labor’s living standards or not? But as it turns out, the financial sector is much more brutal than the industrial sector that Marx envisioned as evolving toward socialism. Finance conquers the entire economy, industry along with labor

Jim Vrettos: We’re about out of time, but I have to ask, are there any examples that you can maybe point to – Denmark, Finland or anything that we can point to as a model that might be something we could emulate to a certain extent?

Michael Hudson: Certainly a social democracy helps, and Denmark and Finland never let themselves be financialized in the first place. They never let the 1% grab the control of the economy to the extent that has occurred in the United States and much of Europe. So the problem is, how do you get rid of a parasitic blister on society? That can only be done by cutting off the blister. Denmark and Finland have not had to deal with this problem, because they’ve remained more balanced.

What do you do when society has lost its balance? You have to think about structural reform. That’s radical by definition. Structural reform is called an externality – exogenous, extraneous to what economists talk about. If you’re talking about where the economy should go, mainstream economists are talking in a narrow policy tunnel that means “Be passive and do nothing, be quiet like a frog boiling in water.”

Jim Vrettos: A frog boiling in water. Well, Michael, thank you very much. It’s been most enlightening. Thank you so much for doing the show.

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