‘The world is being taken over by the hydra of financial capitalism, which wants to pocket all of its citizens' income. Citizens themselves are led to believe that it's all for the sake of efficiency, and that what the robber barons are doing is not robbery, but honest earnings.’ Michael Hudson Hudson began his career as a music critic. Everything changed after he had lunch with a translator of Marx's works. Exploring the systemic links between finance, production and the economy seemed so interesting to him that he immediately decided to become an economist.
The best way to learn about the world around you is through practice. Michael got a job on Wall Street, where he did statistical analysis while studying at university. He immediately noticed that commercial banks were more interested in loans secured by real estate, which would bring in a steady interest income, than in start-ups and industrial investments. Later, Michael got involved in foreign trade statistics and uncovered a tax avoidance scheme used by leading oil companies: they resold oil through offshore companies in Liberia and Panama, where the entire fat margin was skimmed off.
Later, Michael learned another truth: the helicopter with the money only flies over Wall Street. He also noted that the United States' financial deficit was mainly caused by its military spending. The Vietnam War forced the US to abandon the gold standard (which Hudson had warned about three years before it happened). But the gold standard was replaced by the US Treasury bond standard.
After moving into academia, Michael studied the history of the origin of money. He noted that from century to century, debts grow faster than the economy, leading to bankruptcies and economic polarisation if they are not written off. His findings refuted libertarian arguments about the emergence and development of the first ancient economies and formed the basis of a modern branch of anthropology, whose most prominent representative was David Graeber, author of the latest book ("The Beginning of Everything. A New History of Humanity").
His bestseller Debt: The First 5,000 Years was, in essence, a popularisation of Hudson's approach. Hudson never tires of repeating: if a debt cannot be repaid, it must be written off. But there is one debt that cannot be written off: the official external debt of the United States government. Michael is known for his passionate criticism of the financial capitalism that dominates the planet.
What can he offer in its place? Probably socialism. However, nowhere in the book did I find a definition of the system proposed by the author. Many of us would like to grasp the essence of the global economy, understand what it is and where it is going. The problem is that this science is not only complex, but also extremely politicised.
Its conclusions are not always indisputable because they are based on non-obvious axioms. In such circumstances, there are enough people willing to confuse the minds of ordinary people so that ideas dangerous to those people do not enter their heads. Today, neoliberalism, which dominates the global media, provides a cover for the elites' desire to resist regulation and progressive taxation. The libertarian idea of minimal government is in fact a way of putting that government at the service of foreign interests.
As a result, power ends up in the hands of the richest percentage of the population, while ‘free markets’ and trade are in the hands of creditors and other rentiers. This crowd is obsessed with its wealth and can never get enough. This is overlooked (I wonder if deliberately?!) by modern economists. They fail to see that without a system of checks and balances, the economy will inevitably become polarised.
After all, the wealthy elites, having merged with the government, will only continue to strengthen their position and milk everyone else. The traditional motto of American foreign policy, ‘What is good for America is good for the whole world,’ now sounds different: ‘What is good for Wall Street is good for the whole world.’ Half-measures will not change this situation. It will be necessary to write off debts, carry out tax reform, and create public infrastructure to prevent monopolies. In short, the system needs to be changed.
A new, alternative economy is needed that would prevent the emergence of predatory elites who collect economic rent. And for this, we must first learn to distinguish between earned and unearned income. I will ask the question: why is this so important? And I will answer: because unearned income is subject to confiscation.
The question of rent was at the heart of economic debates in the nineteenth century. In the end, post-classical economic ideology prevailed, asserting that there is no such thing as rent and, as a result, all income is earned. Statistics for calculating gross domestic product (GDP) and economic growth were built on this basis. The nineteenth century was the century of industrial capitalism.
All successful economies were mixed, i.e. those in which the financial sector was linked to a system of checks and balances. Britain achieved dominance through protectionism and support for its manufacturers at the expense of its colonies. The British pound sterling was established as the currency in the colonies. The United States took off in a similar way.
After the Civil War, it imposed protective tariffs and embarked on the construction of extensive public infrastructure to support its manufacturers. Today, Chinese students at American universities are taught the doctrine of comparative advantage, according to which an agrarian country should remain agrarian. It is better for it that way! All this is said against the backdrop of praise for American financial capitalism.
Its ‘success,’ however, is limited to a thin layer of elites, while the rest of the economy is mired in debt and the living standards of the majority have been stagnating for four decades. If you look at the Forbes list of the rich, you will see more real estate pyramid builders and monopolists than industrialists. The one per cent has become so rich because it keeps the other 99 per cent in debt. This class of creditors and landowners uses its wealth to control the political system, in which politicians and judges are appointed by big money.
Modern financial capitalism seeks to dominate industry not through innovation and cost reduction. Why bother when you can buy companies on credit, then resell their property and impose pseudo-costs on them to pay yourself dividends? As a result, the US economy is being deindustrialised, while digital and infrastructure monopolists are fleecing consumers. It all started quite differently.
Classical economists developed the theory of value to isolate economic rent as unearned income. The idea of a free market was freedom from this rent, from farmers, monopolists and creditors who took their income regardless of the costs incurred. Thinkers of the time, from the French physiocrats to Marx, saw the historical role of industrial capitalism in liberating society from the legacy of feudalism with its motto ‘I sit, and the money comes.’ The labour theory of value sought to demonstrate the inefficiency and dishonesty of such practices. By the end of the century, another goal had been added: government investment in infrastructure to prevent natural monopolies from falling into private hands.
Since then, much has changed in economic science. First, the religious prohibitions on usury that remained in some places were rejected, then the classical reforms against hereditary land ownership, as well as the logic of increasing economic productivity. The very concept of unearned income has disappeared into oblivion. The idea of exploitation has gone the same way.
Today, students do not study the history of political economy, but are given the misleading impression that growing inequality and economic polarisation are a temporary anomaly rather than a universal feature of rentier economies. Today's financial and increasingly privatised economies are focused precisely on the predatory extraction of rent, despite the fact that this is a direct path to polarisation and the concentration of wealth at the top of the pyramid. No one cares about increasing productivity and growing prosperity. The main thing is to skim the cream off the top.
Looking at this picture, the author (Michael Hudson) of the book admits that even Marx was an optimist when he believed in the philosophy of industrial capitalism. The neoconservative turn that began with Thatcher and Reagan stopped wage growth but led to an explosion of wealth for the One (1%) Percent. Under the slogan of fighting centralised planning, resources began to be distributed by Wall Street rather than elected officials. All profits, regardless of how they are earned, are counted in the gross domestic product.
It does not matter that they are actually transfer payments from one hand to another. The hope that banks, remaining in private hands, would focus on industrial lending has collapsed. Today, China is following in the footsteps of the United States at the end of the nineteenth century and the beginning of the twentieth century. It is achieving its goals by keeping the financial sector in the hands of the state.
It is not surprising that there is hissing from across the ocean: they have succeeded where the modern United States has failed, where the interests of rentiers have carried out an ‘anti-classical counter-revolution that is deindustrialization America.’ Hudson avoids the expression ‘fight against exploitation.’ But Marxists, whose ideological heir he is, live by this idea of justice. Does he really consider it outdated? In a sense, yes. The fact is that while in Marx's (Karl Marx) time, capitalists could not do without the broad masses of the proletariat, today their labour is becoming more and more automated.
What should these masses, who find themselves on the sidelines of history, do? It is no longer possible to point a finger at someone and say, ‘Here he is, the exploiter, let's dispossess him.’ This is precisely where Hudson's argument comes in handy: this income is not earned. The bourgeois did not work hard to get it. And what is not earned must be confiscated.
Taken away and divided. Is that fair? Yes, it is! Hudson mentions in a positive light the labour theory of value, which was buried by the Austrians led by Carl Menger (1840–1921). But I have never seen any debate with them on this point. After all, they argued their ideas. What do we see in Hudson? Just regret that economic theory has been taken over by neoliberals.
But this did not happen just like that. They came to power at the turn of the 1980s against the backdrop of a serious crisis and stagflation. Who was in charge of the economy before that? Who brought it to this state? The ideological heirs of Marx and Keynes, who worked very much in the spirit of Hudson and promoted the role of the state in the economy.
It is futile to look for references to those times in Michael's books. And this does not speak well for the author. Cons (in the book): Praise for the Chinese model can be found in almost every chapter. Unfortunately, either the author is unfamiliar with it, or he is deliberately distorting (which I believe more) the facts.
Yes, the state dominates the country's financial sector. But private banks are also growing and thriving. And there, you can take out loans and end up in debt bondage. Therefore, all the bad things that the author associates with financial capitalism already exist in the PRC. It's just that, at this stage, they are not as prevalent.