by Michael Hudson
Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized.
Instead of Germany and other advanced industrial nations leading the way as expected, Russia’s October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument against Marxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or “labour” since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism.
Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.
Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges.
Socialism flowered in the 19th century as a program to reform capitalism by raising labor’s status and living standards, with a widening range of public services and subsidies to make economies more efficient. Reformers hoped to promote this evolution by extending voting rights to the working population at large.
Ricardo’s discussion of land rent led early industrial capitalists to oppose Europe’s hereditary landlord class. But despite democratic political reform, the world has un-taxed land rent and is still grappling with the problem of how to keep housing affordable instead of siphoning off rent to a landlord class – more recently transmuted into mortgage interest paid to banks by owners who pledge the rental value for loans. Most bank lending today is for real estate mortgages. The effect is to bid up land prices toward the point where the entire rental value is paid as interest. This threatens to be a problem for socialist China as well as for capitalist economies.
Landlords, banks and the cost of living
The classical economists sought to make their nations more competitive by keeping down the price of labor so as to undersell competitors. The main cost of living was food; today it is housing. Housing and food prices are determined not by the material costs of production, but by land rent – the rising market price for land.
In the era of the French Physiocrats, Adam Smith, David Ricardo and John Stuart Mill, this land rent accrued to Europe’s hereditary landlord class. Today, the land’s rent is paid mainly to bankers – because families need credit to buy a home. Or, if they rent, their landlords use the property rent to pay interest to the banks.
The land issue was central to Russia’s October Revolution, as it was for European politics. But the discussion of land rent and taxation has lost much of the clarity (and passion) that guided the 19th century when it dominated classical political economy, liberal reform, and indeed most early socialist politics.
In 1909/10 Britain experienced a constitutional crisis when the democratically elected House of Commons passed a land tax, only to be overridden by the House of Lords, governed by the old aristocracy. The ensuing political crisis was settled by a rule that the Lords never again could overrule a revenue bill passed by the House of Commons. But that was Britain’s last real opportunity to tax away the economic rents of landlords and natural resource owners. The liberal drive to tax the land faltered, and never again would gain serious chance of passage.
The democratization of home ownership during the 20th century led middle-class voters to oppose property taxes – including taxes on commercial sites and natural resources. Tax policy in general has become pro-rentier and anti-labor – the regressive opposite of 19th-century liberalism as developed by “Ricardian socialists” such as John Stuart Mill and Henry George. Today’s economic individualism has lost the early class consciousness that sought to tax economic rent and socialize banking.
The United States enacted an income tax in 1913, falling mainly on rentier income, not on the working population. Capital gains (the main source of rising wealth today) were taxed at the same rate as other income. But the vested interests campaigned to reverse this spirit, slashing capital gains taxes and making tax policy much more regressive. The result is that today, most wealth is not gained by capital investment for profits. Instead, asset-price gains have been financed by a debt-leveraged inflation of real estate, stock and bond prices.
Many middle-class families owe most of their net worth to rising prices for their homes. But by far the lion’s share of the real estate and stock market gains have accrued to just One Percent of the population. And while bank credit has enabled buyers to bid up housing prices, the price has been to siphon off more and more of labor’s income to pay mortgage loans or rents. As a result, finance today is what is has been throughout history: the main force polarizing economies between debtors and creditors.
Global oil and mining companies created flags of convenience to make themselves tax-exempt, by pretending to make all their production and distribution profits in tax-free trans-shipping havens such as Liberia and Panama (which use U.S. dollars instead of being real countries with their own currency and tax systems).
The fact that absentee-owned real estate and natural resource extraction are practically free of income taxation shows that democratic political reform has not been a sufficient guarantee of socialist success. Tax rules and public regulation have been captured by the rentiers, dashing the hopes of 19th-century classical reformers that progressive tax policy would produce the same effect as direct public ownership of the means of production, while leaving “the market” as an individualistic alternative to government regulation or planning.
In practice, planning and resource allocation has passed to the banking and financial sector. Many observers hoped that this would evolve into state planning, or at least work in conjunction with it as in Germany. But liberal “Ricardian socialist” failed, as did German-style “state socialism” publicly financing transportation and other basic infrastructure, pensions and similar “external” costs of living and doing business that industrial employers otherwise would have to bear. Attempts at “half-way” socialism via tax and regulatory policy against monopolies and banking have faltered repeatedly. As long as major economic or political choke points are left in private hands, they will serve s springboards to subvert real reform policies. That is why Marxist policy went beyond these would-be socialist reforms.
To Marx, the historical task of capitalism was to prepare the way for socializing the means of production by clearing away feudalism’s legacy: a hereditary landlord class, predatory banking, and the monopolies that financial interests had pried away from governments. The path of least resistance was to start by socializing land and basic infrastructure. This drive to free society from economic overhead in the form of hereditary privilege and unearned income by the “idle rich” was a step toward socialist management, by minimizing rentier costs (“faux frais of production”).
Proto-socialist reform in the leading industrial nations
Marx was by no means alone in expecting a widening range of economic activity to be shifted away from the market to the public sector. State socialism (basically, state-sponsored capitalism) subsidized pensions and public health, education and other basic needs so as to save industrial enterprise from having to bear these charges.
In the United States, Simon Patten – the first economics professor at the new Wharton business school at the University of Pennsylvania – defined public infrastructure as a “fourth factor of production” alongside labor, capital and land. The aim of public investment was not to make a profit, but to lower the cost of living and doing business so as to minimize industry’s wage and infrastructure bill. Public health, pensions, roads and other transportation, education, research and development were subsidized or provided freely.
The most advanced industrial economies seemed to be evolving toward some kind of socialism. Marx shared a Progressive Era optimism that expected industrial capitalism to evolve in the most logical way, by freeing economies from the landlordship and predatory banking inherited from Europe’s feudal era. That was above all the classical reform program of Adam Smith, John Stuart Mill and the intellectual mainstream.
But the aftermath of World War I saw the vested interests mount a Counter-Enlightenment. Banking throughout the Western world find its major market in real estate mortgage lending, natural resource extraction and monopolies – the Anglo-American model, not that of German industrial banking that had seemed to be capitalism’s financial future in the late 19th century.
Since 1980 the Western nations have reversed early optimistic hopes to reform market economies. Instead of the classical dream of taxing away the land rent that had supported Europe’s hereditary landed aristocracies, commercial real estate has been made virtually exempt from income taxation. Absentee owners avoid tax by a combination of tax-deductibility for interest payments (as if it is a necessary business expense) and fictitious over-depreciation tax credits that pretend that buildings and properties are losing value even when market prices for their land are soaring.
These tax breaks have made real estate the largest bank customers. The effect has been to financialize property rents into interest payments. Likewise in the industrial sphere, regulatory capture by lobbyists for the major monopolies has disabled public attempts to keep prices in line with the cost of production and prevent fraud by breaking up or regulating monopolies. These too have become major bank clients.
The beginning and end of Russian socialism
Most Marxists expected socialism to emerge first in Germany as the most advanced capitalist economy. After its October 1917 Revolution, Russia seemed to jump ahead, the first nation to free itself from rent and interest charges inherited from feudalism. By taking land, industry and finance into state control, Soviet Russia’s October Revolution created an economy without private landlords and bankers. Russian urban planning did not take account of the natural rent-of-location, nor did it charge for the use of money created by the state bank. The state bank created money and credit, so there was no need to rely on a wealthy financial class. And as property owner, the state did not seek to charge land rent or monopoly rent.
By freeing society from the post-feudal rentier class of landlords, bankers and predatory finance, the Soviet regime was much more than a bourgeois revolution. The Revolution’s early leaders sought to free wage labor from exploitation by taking industry into the public domain. State companies provided labor with free lunches, education, sports and leisure activity, and modest housing.
Agricultural land tenure was a problem. Given its centralized marketing role, the state could have reallocated land to build up a rural peasantry and helped it invest in modernization. The state could have manipulated crop prices to siphon off agricultural gains, much like Cargill does in the United States. Instead, Stalin’s collectivization program waged a war against the kulaks. This political shock led to famine. It was a steep price to pay for avoiding rent was paid to a landlord class or peasantry.
Marx had said nothing about the military dimension of the transition from progressive industrial capitalism to socialism. But Russia’s Revolution – like that of China three decades later – showed that the attempt to create a socialist economy had a military dimension that absorbed the lion’s share of the economic surplus. Military aggression by a half dozen leading capitalist nations seeking to overthrow the Bolshevik government obliged Russia to adopt War Communism. For over half a century the Soviet Union devoted most of capital to military investment, not provide sufficient housing or consumer goods for its population beyond spreading literacy, education and public health.
Despite this military overhead, the fact that the Soviet Union was free of a rentier class of financiers and absentee landlords should have made the Soviet Union the world’s most competitive low-cost economy in theory. In 1945 the United States certainly feared the efficiency of socialist planning. Its diplomats opposed Soviet membership on the ground that state enterprise and pricing would enable such economies to undersell capitalist countries. So socialist countries were kept out of the IMF, World Bank and the planned World Trade Organization, explicitly on the ground that they were free of land rent, natural resource rent, monopoly rent and financial charges.
Capitalist economies are now privatizing and financializing their basic needs and infrastructure. Every activity is being forced into “the market,” at prices that need to cover not only the technological costs of production but also interest, ancillary financial fees and pension set-asides. The cost of living and doing business is further privatized as financial interests pry roads, health care, water, communications and other public utilities away from the public sector, while driving housing and commercial real estate deeply into debt.
The Cold War has shown that capitalist countries plan to continue fighting socialist economies, forcing them to militarize in self-defense. The resulting oppressive military overhead is then blamed on socialist bureaucracy and inefficiency.
The collapse of Russian Stalinism
Russia’s Revolution ended after 74 years, leaving the Soviet Union so dispirited that it ended in collapse. The contrast between the low living standards of Russian consumers and what seemed to be Western success became increasingly pronounced. In contrast to China’s housing construction policy, the Soviet regime insisted that families double up. Clothing and other consumer goods had only drab designs, needlessly suppressing variety. To cap matters, public opposition to Russia’s military personnel losses in Afghanistan caused popular resentment.
When the Soviet Union dissolved itself in 1991, its leaders took neoliberal advice from its major adversary, the United States, in hope that this would set it on a capitalist road to prosperity. But turning its economies into viable industrial powers was the last thing U.S. advisors wanted to teach Russia. Their aim was to turn it and its former satellites into raw-materials colonies of Wall Street, the City of London and Frankfurt – victims of capitalism, not rival producers.
Russia has gone to the furthest anti-socialist extreme by adopting a flat tax that fails to distinguish wages and profits of labor and capital from unearned rental income. By also having to pay a value-added tax (VAT) on consumer goods (with no tax on trading in financial assets), labor is taxed much higher than the wealthy.
Most Western “wealth creation” is achieved by debt-leveraged price increases for real estate, stocks and bonds, and by privatizing the public domain. The latter process has gained momentum since the early 1980s in Margaret Thatcher’s Britain and Ronald Reagan’s America, followed by Third World countries acting under World Bank tutelage. The pretense is that privatization will maximize technological efficiency and prosperity for the economy as a whole.
Following this advice, Russian leaders agreed that the major sources of economic rent – natural resource wealth, real estate and state companies – should be transferred to private owners (often to themselves and associated insiders). The “magic of the marketplace” was supposed to lead the new owners to make the economy more efficient as a byproduct of making money in the quickest way possible.
Each Russian worker got a “voucher” worth about $25. Most were sold off simply to obtain money to buy food and other needs as many companies stopped paying wages. Russia had wiped out domestic savings with hyperinflation after 1991.
It should not be surprising that banks became the economy’s main control centers, as in the West’s bubble economies. Instead of the promised prosperity, a new class of billionaires was endowed, headed by the notorious Seven Bankers who appropriated the formerly state-owned oil and gas, nickel and platinum, electricity and aluminum production, as well as real estate, electric utilities and other public enterprises. It was the largest giveaway in modern history. The Soviet nomenklatura became the new lords in outright seizure that Marx would have characterized as “primitive accumulation.”
The American advisors knew the obvious: Russian savings had been wiped out by the polst-1991 hyperinflation, so the new owners could only cash out by selling shares to Western buyers. The kleptocrats cashed out as expected, by dumping their shares to foreign investors so quickly at such giveaway prices that Russia’s stock market became the world’s top performer for Western investors in 1994-96.
The Russian oligarchs kept most of their sales proceeds abroad in British and other banks, beyond the reach of Russian authorities to recapture. Much was spent on London real estate, sports teams and luxury estates in the world’s flight-capital havens. Almost none was invested in Russian industry. Wage arrears often mounted up half a year behind. Living standards shrank, along with the population as birth rates plunged throughout the former Soviet economies. Skilled labor emigrated.
The basic neoliberal idea of prosperity is financial gain based on turning rent extraction into a flow of interest payments by buyers-on-credit. This policy favors financial engineering over industrial investment, reversing the Progressive Era’s industrial capitalism that Marx anticipated would be a transition stage leading to socialism. Russia adopted the West’s anti-socialist rollback toward neofeudalism.
Russian officials failed to understand the State Theory of money that is the basis of Modern Monetary Theory: States can create their own money, giving it value by accepting it in payment of taxes. The Soviet government financed its economy for seventy years without any need to back the ruble with foreign exchange. But Russia’s central bank was persuaded that “sound money” required it to back its domestic ruble currency with U.S. Treasury bonds in order to prevent inflation. Russian leaders did not realize that dollars or other foreign currencies were only needed to finance balance-of-payments deficits, not domestic spending except as this money was spent on imports.
Russia joined the dollar standard. Buying Treasury bonds meant lending to the U.S. Government. The central bank bought U.S. Treasury securities to back its domestic currency. These purchases helped finance Cold War escalation in countries around Russia. Russia paid 100% annual interest in the mid-1990s, creating a bonanza for U.S. investors. On balance, this neoliberal policy lay Russia’s economy open to looting by financial institutions seeking natural resource rent, land rent and monopoly rent for themselves. Instead of targeting such rents, Russia imposed taxes mainly on labor via a regressive flat tax – too right wing to be adopted even in the United States!
When the Soviet Union dissolved itself, its officials showed no apprehension of how quickly their economies would be de-industrialized as a result of accepting U.S. advice to privatize state enterprises, natural resources and basic infrastructure. Whatever knowledge of Marx’s analysis of capitalism had existed (perhaps in Nicolai Bukharin’s time) was long gone. It is as if no Russian official had read Volumes II and III of Marx’s Capital (or Theories of Surplus Value) where he reviewed the laws of economic rent and interest-bearing debt.
The inability of Russia, the Baltics and other post-Soviet countries to understand the FIRE sector and its financial dynamics provides an object lesson for other countries as to what to avoid. Reversing the principles of Russia’s October 1917 Revolution, the post-Soviet kleptocracy was akin to the feudal epoch’s “primitive accumulation” of the land and commons. They adopted the neoliberal business plan: to establish monopolies, first and most easily by privatizing the public infrastructure that had been built up, extracting economic rents and them paying out the resulting as interest and dividends.
This Western financial advice became a textbook example of how not to organize an economy. Having rejoined the global economy free of debt in 1991, Russia’s population, companies and government quickly ran up debts as a result of its man-made disaster. Families could have been given their homes freely, just as corporate managers were given their entire companies virtually for free. But Russian managers were as anti-labor as they were greedy to grab their own assets from the public domain. Soaring housing prices quickly plagued Russian’s economy with one of the world’s highest-priced living and business costs. That prevented any thought of industrial competitiveness with the United States or Europe. What passed for Soviet Marxism lacked an understanding of how economic rents and the ensuing high labor costs affected international prices, or how debt service and capital flight affected the currency’s exchange rate.
Adversaries of socialism pronounced Marxist theory dead, as if the Soviet dissolution meant the end of Marxism. But today, less than three decades later, the leading Western economies are themselves succumbing to an overgrowth of debt and shrinking prosperity. Russia failed to recognize that just as its own economy was expiring, so was the West’s. Industrial capitalism is succumbing to a predatory finance capitalism that is leaving Western economies debt-ridden. The underlying causes were clear already a century ago: unchecked financial rentiers, absentee ownership and monopolies.
The post-Soviet collapse in the 1990s was not a failure of Marxism, but of the anti-socialist ideology that is plunging Western economies under domination by the Finance, Insurance and Real Estate (FIRE) sector’s symbiosis of the three forms of rent extraction: land and natural resource rent, monopoly rent, and interest (financial rent). This is precisely the fate from which 19th-century socialism, Marxism and even state capitalism sought to save the industrial economies.
A silver lining to the Soviet “final” stage has been to free Marxist analysis from Russian Marxology. Its focus of Soviet Marxology was not an analysis of how the capitalist nations were becoming financialized neo-rentier economies, but was mainly propagandistic, ossifying into a stereotyped identity politics appealing to labor and oppressed minorities. Today’s revival of Marxist scholarship has begun to show how the U.S.-centered global economy is entering a period of chronic austerity, debt deflation, and polarization between creditors and debtors.
Financialization and privatization are submerging capitalism in debt deflation
By 1991, when the Soviet Union’s leaders decided to take the “Western” path, the Western economies themselves were reaching a terminus. Appearances were saved by a wave of unproductive credit and debt creation to sustain the bubble economy that finally crashed in 2008.
The pitfalls of this financial dynamic were not apparent in the early years after World War II, largely because economies emerged with their private sectors free of debt. The ensuing boom endowed the middle class in the United States and other countries, but was debt financed, first for home ownership and commercial real estate, then by consumer credit to purchase of automobiles and appliances, and finally by credit-card debt just to meet living expenses.
The same debt overgrowth occurred in the industrial sector, where bank and bondholder credit since the 1980s has been increasingly for corporate takeovers and raiding, stock buybacks and even to pay dividends. Industry has become a vehicle for financial engineering to increase stock prices and strip assets, not to increase the means of production. The result is that capitalism has fallen prey to resurgent rentier interests instead of liberating economies from absentee landlords, predatory banking and monopolies. Banks and bondholders have found their most lucrative market not in the manufacturing sector but in real estate and natural resource extraction.
These vested interests have translated their takings into the political power to shed taxes and dismantle regulations on wealth. The resulting political Counter-Reformation has inverted the idea of “free market” to mean an economy free for rent extractors, not free from landlords, monopolists and financial exploitation as Adam Smith, John Stuart Mill and other classical economists had envisioned. The word “reform” as used by today’s neoliberal media means undoing Progressive Era reforms, dismantling public regulation and government power – except for control by finance and its allied vested interests.
All this is the opposite of socialism, which has now sunk to its nadir through the Western World. The past four decades have seen most of the European and North American parties calling themselves “socialist” make an about-face to follow Tony Blair’s New Labour, the French socialists-in-name and the Clinton’s New Democrats. They support privatization, financialization and a shift away from progressive taxation to a value-added tax (VAT) falling on consumers, not on finance or real estate.
China’s socialist diplomacy in today’s hostile world
Now that Western finance capitalism is stagnating, it is fighting even harder to prevent the post-2008 crisis from leading to socialist reforms that would re-socialize infrastructure that has been privatized and put a public banking system in place. Depicting the contrast between socialist and finance-capitalist economies as a clash of civilizations, U.S.-centered “Western” diplomacy is using military and political subversion to prevent a transition from capitalism into socialism.
China is the leading example of socialist success in a mixed economy. Unlike the Soviet Union, it has not proselytized its economic system or sought to promote revolution abroad to emulate its economic doctrine. Just the opposite: To avert attack, China has given foreign investors a stake in its economic growth. The aim has been to mobilize U.S. and other foreign interests as allies, willing customers for China’s exports, and suppliers of modern production facilities in China.
This is the opposite of the antagonism that confronted Russia. The risk is that it involves financial investment. But China has protected its autonomy by requiring majority Chinese ownership in most sectors. The main danger is domestic, in the form of financial dynamics and private rent extraction. The great economic choice facing China today concerns the degree to which land and natural resources should be taxed.
The state owns the land, but does fully tax its rising valuation or rent-of-location that has made many families rich. Letting the resulting real-estate and financialized wealth dominate its economic growth poses two dangers: First, it increases the price that new buyers must pay for their home. Second, rising housing prices force these families to borrow – at interest. This turns the rental value of land – value created by society and public infrastructure investment – into a flow of interest to the banks. They end up receiving more over time than the sellers, while increasing the cost of living and doing business. That is a fate which a socialist economy must avoid at all costs.
At issue is how China can best manage credit and natural resource rent in a way that best meets the needs of its population. Now that China has built up a prosperous industry and real estate, its main challenge is to avoid the financial dynamics that are subjecting the West to debt deflation and burying Western economies. To avoid these dynamics, China must curtail the proliferation of unproductive debt created merely to transfer property on credit, inflating asset prices in the process.
Socialism is incompatible with a rentier class of landlords, natural resource owners and monopolists – the preferred clients of banks hoping to turn economic rent into interest charges. As a vehicle to allocate resources “the market” reflects the status quo of property ownership and credit-creation privileges at any given moment of time, without consideration for what is fair and efficient or predatory. Vested interests claim that such a market is an immutable force of nature, whose course cannot be altered by government “interference.” This rhetoric of political passivity aims to deter politicians and voters from regulating economies, leaving the wealthy free to extract as much economic rent and interest as markets can bear by privatizing real estate, natural resources, banking and other monopolies.
Such rent seeking is antithetical to socialism’s aim to take these assets into the public domain. That is why the financial sector, oil and mineral extractors and monopolists fight so passionately to dismantle state regulatory power and public banking. That is the diplomacy of finance capital, aiming to consolidate American hegemony over a unipolar world. It backs this strategy with a neoliberal academic curriculum that depicts predatory financial and rentier gains as if they add to national income, not simply transfer it into the hands of the rentier classes. This misleading picture of economic reality poses a danger for China sending its students to study economics at American and European universities.
The century that has elapsed since Russia’s October 1917 Revolution has produced a substantial Marxist literature describing how finance capitalism has overpowered industrial capitalism. Its dynamics occupied Marx in Volumes II and III of Capital (and also his Theories of Surplus Value). Like most observers of his era, Marx expected capitalism to make a substantial step toward socialism by overcoming the dynamics of parasitic capital, above all the tendency for debt to keep on expanding at compound interest until it produces a financial crash.
The only way to control banks and their allied rentier sectors is outright socialization. The past century has shown that if society does not control the banks and financial sector, they will control society. Their strategy is to block government money creation so that economies will be forced to rely on banks and bondholders. Regulatory authority to limit such financial aggression and the monopoly pricing and rent extraction it supports has been crippled in the West by “regulatory capture” by the rentier oligarchy.
Attempts to tax away rental income (the liberal alternative to taking real estate and natural resources directly into the public domain) is prone to lobbying for loopholes and evasion, most notoriously via offshore banking centers in tax-avoidance enclaves and the “flags of convenience” sponsored by the global oil and mining companies. This leaves the only way to save society from the financial power to convert rent into interest to be a policy of nationalizing natural resources, fully taxing land rent (where land and minerals are not taken directly into the public domain), and de-privatizing infrastructure and other key sectors.
Markets have not recovered for the products of American industry and labor since 2008. Industrial capitalism has been sacrificed to a form of finance capitalism that is looking more pre-capitalist (or simply oligarchic and neofeudal) with each passing year. The resulting polarization forces every economy – including China – to choose between saving its bankers and other creditors or freeing debtors and lowering the economy’s cost structure. Will the government enforce bank and bondholder claims, or will it give priority to the economy and its people? That is an eternal political question spanning pre-capitalist, capitalist and post-capitalist economies.
Marx described the mathematics of compound interest expanding to absorb the entire economy as age-old, long predating industrial capitalism. He characterized the ancient mode of production as dominated by slavery and usury, and medieval banking as predatory. These financial dynamics exist in socialist economies just as they did in medieval and ancient economies. The way in which governments manage the dynamics of credit and debt thus are the dominant force in every era, and should receive the most pressing attention today as China shapes its socialist future.
- I give the details in “Simon Patten on Public Infrastructure and Economic Rent Capture,” American Journal of Economics and Sociology 70 (October 2011):873-903. ↑
- My book Super-Imperialism (1972; new ed. 2002) reviews this discussion during 1944-46. ↑
- I discuss the IMF and World Bank plan to wipe out Russian savings with hyperinflation and make manufacturing investment uneconomic in “How Neoliberal Tax and Financial Policy Impoverishes Russia – Needlessly,” Mir Peremen (The World of Transformations), 2012 (3):49-64 (in Russian). МИР ПЕРЕМЕН 3/2012 (ISSN 2073-3038) Mir peremen М. ХАДСОН, Неолиберальная налоговая и финансовая политика приводит к обнищанию России, 49-64. ↑
- I give details in “How Neoliberals Bankrupted ‘New Europe’: Latvia in the Global Credit Crisis,” (with Jeffrey Sommers), in Martijn Konings, ed., The Great Credit Crash (Verso: London and New York, 2010), pp. 244-63, and “Stockholm Syndrome in the Baltics: Latvia’s neoliberal war against labor and industry,” in Jeffrey Sommers and Charles Woolfson, eds., The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model (Routledge 2014), pp. 44-63. ↑
- For more analysis see Dirk Bezemer and Michael Hudson, “Finance is Not the Economy: Reviving the Conceptual Distinction,” Journal of Economic Issues, 50 (2016: #3), pp. 745-768. http://dx.doi.org/10.1080/00213624.2016.1210384 ↑
Well written essay by MH.
“Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.”
This article describes that process and the vulture firms preying upon Puerto Rico in some detail:
Who Owns Puerto Rico’s Debt, Exactly? We’ve Tracked Down 10 of the Biggest Vulture Firms.
“When Puerto Rico declared a form of bankruptcy in May, it was the largest municipal bankruptcy debt in U.S. history. Puerto Rico’s more than $74.8 billion in debt and $49 billion in pension system obligations surpasses Detroit, Mich.’s $18 billion bankruptcy in 2013. Much of that debt is interest. According to a report by the ReFund America Project, the financial firms like Goldman Sachs and Citigroup that helped structure the bonds built in astronomically high interest rates. Nearly half the debt—$33.5 billion—is interest, and another $1.6 billion comes from fees paid to these firms.
To scrounge up that money, Puerto Rico has been struggling through austerity measures approved last spring by a U.S.-appointed fiscal control board, including school closures and utility bill hikes. In August the control board proposed even more draconian measures, such as massive furloughs.
Then the hurricanes hit.”
Is there a ‘not’ missing in this sentence:
The state owns the land, but does fully tax its rising valuation or rent-of-location that has made many families rich.
“The state owns the land, but does not fully tax its rising valuation or rent-of-location that has made many families rich.”
on line version has the ‘not’ in it:
As G20 debt reaches record levels, the Global Financial Mafia is ready to orchestrate another big crisis
“Socialism a century ago seemed to be the wave of the future”
“A century ago Zion’s mind-controllers and social-engineers imprinted the minds of the populace with the Socialism hoax – the sugar candy of all sugar candies. What a shocking success it has been.”
Agreed. It was not a Russian revolution; nor was it even a socialist revolution — it was a Zionist revolution. The mainstream view is for suckers, which is the whole point when you think about it. Sorry, but as usual these intellectuals are pushing the kool aid view of history.
Which is unfortunate because they’re always superb about the role of international finance; they just cannot seem to see the elephant in the room…tah dah!
Socialism was not a fantasy – the Soviet Revolution proved that it was possible.
”Russian officials failed to understand the State Theory of money that is the basis of Modern Monetary Theory: States can create their own money, giving it value by accepting it in payment of taxes,.”
Fiat currency cannot be given value by government diktat. Paper (fiat) money is only a symbol for real value as traditionally represented by gold. Fiat money is not wealth, it is a claim on wealth. Interestingly enough when the US went off the gold standard in 1971 the neoliberal era started in earnest. Fiat currency is only effective as a means of exchange when the populace at large, should that confidence evaporate then the whole house of cards comes tumbling down. The Chinese realise this that is why the are launching their own gold-backed currency the Yuan.
Yes, and planning to get out of the US petro dollar which is fiat also. There is much wrong with the world’s banking system, but socialism and more fiat money is not the answer.
Couldn’t agree more.
What Michael Hudson advocates are not new ideas: Tobin tax on financial transactions, tax on capital etc. All discussed at length, but note, never implemented as it would require a return to capital controls and Soviet-style sealing-off of the economy.
Regarding Russia, it would mean an end to its collaboration with China on the Yuan/ gold swap for oil, the introduction of the Crypto- Ruble, the set-up of SPFS (alternative to SWIFT) physical gold trading in exchange for Rubles… These are precisely the measures which are currently challenging the USD and indirectly US hegemony!
The Soviet Union was only a military challenge to the US. It was never an economic one. This is all about to change. The last thing the world needs is to have Russia implement the measures being advocated here, unless we all want the US dollar, and US hegemony to remain.
Did the Chinese not exert great efforts in Korea and other close regions??? challenging US. Other militaries have challenged the US since WWII, in their own lands.
A sovereign currency system in no way means an end to sovereign actions. Rather, a sovereign currency system supports sovereign actions such as the SPFS, trade with China in rubles and yuan renminbi, cryptoruble, etc. Hudson advocates currency sovereignty. Currency sovereignty does not mean sealing off the economy. It does entail negotiating the means of settling trade imbalances, by means other than currency, as was done in centuries past. For example, with gold. Hudson elsewhere states that he does support gold as means of settling trade imbalances. That article is posted on this website.
Oh, and by the way, there are some statistics on weapons transfers from 1950 onward, for decades, that directly contradict the assertion that ‘the SU was never an economic challenge to the US’.
Not sure how that would be feasible..What Micheal Hudson is advocating is the “State Theory of Money”- which claims that only the state can confer value and legitimacy to a currency. Furthermore, this theory states that the currency must be fiat. There is no room in this theory for gold, precious metals, or cryptocurrencies.
Here is an article about how the rise of Bitcoin debunks the “State Theory of Money” as Bitcoin appeared spontaneously- without the support of any state. https://www.forbes.com/sites/jonmatonis/2013/04/03/bitcoin-obliterates-the-state-theory-of-money/#22ba4d8d2274
Of course there is room for gold. It has to do with what sector you are looking at. Internal, within a country, or external, between countries. Even arch neoliberal fiat world reserve currency fanatics like Greenspan, acknowledge that gold is always accepted as payment, for balance of payments imbalances, internationally.
Within a country is different. A sovereign state can legislate that no other means of payment can be used within its borders, than its currency. Its a matter of courts and enforcement. A state can ban bitcoin, or any other means if legislators so decide. But they can not dictate to another country that they have to accept currency they print. This is the problem all empires face, the settling by gold that eventually turns up. Eventually, countries decide promises to pay aren’t good enough, and gold has to be provided.
Any country can shut down bitcoin instantly if so desired, internally, by internet kill switches. Bit coin hasn’t debunked anything.
You are describing is a system that has a non-convertible currency used within a country, and a different, external currency (gold) for trade, correct? This will still require stringent capital controls, and will still limit the country’s participation in international trade.
And how easy is it to enforce these capital controls in today’s hyper-financialised world? I understand it’s technically impossible to “shut down” bitcoin. The only way to ban it is through legislation.
Not really. The answers really depend on what school(s) of economics one subscribes to. It is simply a political question. The technical questions are not problems.
As for internet operations, remember that nations are demanding backdoors in everything. Good luck trying to hide anything, or prevent a country from shutting down anything on its territory, that it wants.
Who said this (a famous economist) ‘complexity is used to hide (mask) simplicity?’ This applies directly to these questions.
In that quoted part, is there a misunderstanding by the writer itself : the socialist (eastern) system has not made up fiat money (from thin air) The money which was in use was backed not only by gold, but mainly by the economy itself – by work-force and produced goods – these goods went on export and in internal consuming, which generated the necessary “backing” of money in use. As long as the internal credit chain has worked properly, and those in charge made their job well, there were no problems. The problems begun when these countries accepted the “helping hand” of IMF and World Bank and other western banking institutions. Then, the debt spiral of the above mentioned (in the main article) capitalist system has spiralled into eastern socialist countries.(with internal help of course, to make things much worse)
I don’t argue that it was heaven on earth – it was very difficult at some points and stages – but as an infant yet, it was not allowed to maturity. The reasons ? Qui bono ? questions to be answered, sometimes.
Socialism, Marxism, etc…..The noble and positive points about these ideologies are often compatible/overlap with other ideologies and religions as several authors in this blog have mentioned before.
But these important and positive points cannot be realized within the framework of the economic monetary system.
Any person with a basic knowledge of the fundamentals of the economic monetary (banking) system can tell you that you cannot build a free and fair society when any of these two points are taking place:
1) the creation of money out of thin air by a group of people
2) the lending of this created money on interest and indebting of people and nations.
The concept of lending on interest….actually making money without any effort just by having money is wrong…..It makes the rich richer and the poor poorer. This is the nature of this system.
When a family loses a home to a bank, which is not even “their home” because they do not own it, this is not a fair business, this is not trade, the bank takes little to no risk. Not only the bank is to blame for this practice but also the home owners are to blame for entering into such a contract.
Such a system is the opposite of charity, it is the opposite of sharing the burden, it is the opposite of entering or starting a fair business where the person who is rich and has money will share in the risk of the poor person starting off a business. But on top of all that, banks create money out of thin air and then expect you to pay interest on the money they created and gave to you.
The creation of money in its current form FOLLOWED the system of lending on interest…..it is a natural consequence of lending on interest.
In the past money was not being printed out of thin air….it was actually first real money in the form of crops, silver, gold etc….but it was being lent on interest. Once the money lenders realized this lucrative business practice, they started printing money that they did not have out of thin air.
Professor Hudson states in the key introductory paragraphs:
“There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies”.
“Socialism flowered in the 19th century as a program to reform capitalism by raising labor’s status and living standards, with a widening range of public services and subsidies to make economies more efficient. Reformers hoped to promote this evolution by extending voting rights to the working population at large”.
My question to the Professor and the readers:
Did Socialism attempt to reform the “monetary system” ?
If Socialism was working within the monetary system, how did it expect in “raising labor’s status and living standards” while money lenders and banks existed and while they financed land and wars (among many things), and kept nations and people in debt ?
How does Socialism, within the framework of the monetary system, “free society from landlords, predatory banking and monopolies” if it operates within the money system ?
Two important points the author mentions:
“The only way to control banks and their allied rentier sectors is outright socialization. The past century has shown that if society does not control the banks and financial sector, they will control society”.
“Will the government enforce bank and bondholder claims, or will it give priority to the economy and its people? That is an eternal political question spanning pre-capitalist, capitalist and post-capitalist economies”.
The question to ask is who controls the banks now ?
Central Banks are either privately owned or are traded publicly.
Who or which part of society will control the banks then……the government ?
How can a government give priority to the “economy and its people” if the concept of usury and “compound interest” exists in the first place?
Then in the conclusion the professor mentions the core and the heart of the entire problem:
That Marx “characterized the ancient mode of production as dominated by slavery and usury, and medieval banking as predatory”.
If Marx actually said this……then I hereby declare that Marx was actually a follower of the Abrahamic religions of Judaism, Christian and Islam on this specific point !!
By the way Judaism has forbidden usury….but they have interpreted these laws as only to apply to lending between Jews, which is false.
Marx makes a profound statement in Capital III: “Usury centralises money wealth.” “It does not alter the mode of production, but attaches itself to it as a parasite and makes it miserable. It sucks its blood, kills its nerve, and compels reproduction to proceed under even more disheartening conditions. … usurer’s capital does not confront the labourer as industrial capital,” but “impove-rishes this mode of production, paralyses the productive forces instead of developing them.”
I leave the readers with verse 2 of chapter 275 of the Quran:
Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.
Good comments/questions Harry.
A good study on banking and lending are in Niall Ferguson’s Ascent of Money, although a bit too ‘kind’ on the Rothschild’s. Quite good on the connections of religion, history and usury as you point out.
Generally when prime interest rates are lower than real inflation rates (current global economic picture) wealth centralizes quickly to the issuers of money (CBs), money velocity falls, industry liquidates production, more centralization of wealth. From all appearances, the bankers(elite) are in the final ‘cashing’ out phase of a failed monetary system.
Armed with above…one can understand this…
A variation on the Austrian Economics – Crackup Boom
It does not look like it will be a ‘soft landing’ for most.
Always a pleasure to read Mr. Hudson, so broadly learned and experienced.
Like Tolstoy, I lean more towards Henry George than Marx due to their radically different ontologies. For Marx, being is grounded in necessity, thus he elevates praxis to the noblest rank. This is the birth of the “ism”. I really wonder if reflection on the full meaning of justice can get anywhere with thought fragmented into any number of competing “isms”, battle lines drawn up, ready to prove their truth in the field of reality defined by necessity?
George grounds himself in the Natural Law traditions where necessity is but a condition of grace. In Epictetus for example, action indicates confusion. Praxis is not opposed to theory, but is the easy outcome of complete thinking, prudentia in Latin, phronesis in Aristotle. Sanskrit thinking has this too: Prakrit, the realm of Necessity becomes illuminated by Pradhan or wisdom.
I know Mr. Hudson wants to unify the 19th century economists by showing that their first concern was Justice. This is a very important recovery to challenge 20th century economics which is more or less inner consistency of mathematical models.
But I must question the success of any of this if our thinking remains grounded in praxis or “isms”.
I just like to say that Michael Hudson’s “J is for Junk Economics” dictionary of debunking commonly-used financial terms and concepts is a gift that keeps on giving. Christmas is not so far away….
Added the following link to Mr Hudson’s book … I did not know about it until I read this comment … so to help others … mod
book at amazon …J is for Junk Economics
Sound and welcome essay, and glad to see it here.
Most do not know of Jevons. This philosopher was contemporary to Marx. Jevons observed, among many things, that improved efficiency in industry resulted in increased consumption of material. This phenomenon is known (inaccurately) as “Jevons’ Paradox”. “Paradox” it is not, yet it is perhaps non-intuitive – so for simplicity “paradox”…
There’s plenty to read about Jevons.
Marxism focuses on what happens inside an industrial arena. So does Jevons Paradox.
Because Marxism is an evolving science it is necessary to accommodate Jevons into Marx. Behind any Marxist enterprise looms Jevons, all ready to undo socialist victories. Is essential to integrate/adapt/examine J and M as facts.
Perhaps Mr Hudson (or Saker or ?) would like to explore that in another fine essay.
China is not a socialist society, and hasn’t been for several decades now. Although nominally controlled by a “Communist Party”, it is communist or socialist in name only. The real power, as in Russia, the US, or virtually anywhere else in the world except Cuba, is held by a handful of billionaire oligarchs. China does still retain a strong state owned sector, as does Russia, but the government is owned by the local version of the “One Percent” and run in their interests.
The statement was: “The way in which governments manage the dynamics of credit and debt thus are the dominant force in every era, and should receive the most pressing attention today as China shapes its socialist future.”
Is important to read with care and make no assumption. Conflating Chinese society with the Chinese State, and conflating the past and future and present into a fondu seems to misrepresent Hudson and make a straw man.
Our Comrade Terry may well be correct in his claims…but is there substance to the claims? Evidence? His claims might be understood better if there was evidence. Did not CP China just reaffirm Marxism as guiding light? And they’re oligarchs?
Seems to me that Hudson is simply saying that industrial economies need sabbatical years…and this itself seems like a very sound idea. “Industrial”? The instant a plow touches the soil…that’s industrial.
Sabbatical? Yes. Otherwise some people get so powerful that there is a disagreeable event involving pitchforks… Justice, Justice, shalt thou pursue…. Natural stuff this. How to do sabbatical in the modern world? Well, it would be complicated, yes? Better than suicide by war…
If there’s a future for man it is obviously socialist, until it returns to communism, in the fullness of time. Until then sabbatical events might occur, one way or another. Regular and organized events tend to be less unpleasant. (hint). The old rule was 7 years and land title reverts, if memory clear.
I think you should argue that with Xi Jinping, who just spent a whopping 3.5 hours explaining what direction Socialism with Chinese Characteristics would be taking and the CCP’s responsibility for guiding it there. Here’s a link to an almost complete transcript that reads from page middle to top, http://live.china.org.cn/2017/10/17/opening-ceremony-of-the-19th-cpc-national-congress/
Given the goals announced for further advancing China’s 1.4 Billion citizens and what stands at the base of those goals, the contrast between China and what’s transpired in the West is stark and escalating by the moment: The West promotes the Zero Sum Game, which is essentially Monopoly on a massive scale, while China promotes Win/Win outcomes leaving no immiserated, impoverished citizens or anyone above the rule of law. Not surprisingly, Russia promotes the same thinking, but downplays the vast ideological chasm with the West.
Thank you, OH, for that. I myself suspect that both Ru and Ch will follow, for sound practical reasons, human socialist paths. In the fullness of time? The entire Earth.
They did indeed make things plain.
I like your comment.
I suggest, however, that the modis operandii in the ‘west’ have devolved into an open negative sum gain gaming of the system.
This is likely due to the use of this method by a most successful invasive extremist cult, with beliefs that they are ‘special’ and more than entitled to ‘game the system’ at the cost to all others, has trickled down to the wider population as ‘an approach to success’; thus emulated, and now forming a fundamental aspect of the culture(s) of the ‘west’.
In other words, the ‘west’, is eating itself.
The more empathically disabled, the more successful the agent; thus constantly lowering the bar on acceptable behaviour, as judged by active controls to curtail such activities within the subject geopolitically-controlled population segment (i.e. in most cases, nationality).
In specific refocus to the main article…
…with the end of the gold standard, an effective control to maintaining minimal sustainable banking/investment practices, i.e. ultimately a ‘call’ on the investment system, the… usual suspects, have run wild and been in ever-increasingly predatory, negative-sum gaming of the system.
That which has been justified as a nominally value-adding means of putting surplus ‘capital’ into the hands of ‘probable value-creating’ enterprises, to (supposedly) augment the entire society, has long-since become nothing more than a atrociously fixed ‘gambling house’, effectively sucking all excess ‘value’ from the system. But now it is even worse than that, now it sucks value away from the ‘value creating’ enterprises for it’s own, negative-value creating benefit.
Not only is it amoral, and a death-knell to the societies onto which this parasite has infected, but it has also created an opportunity for rivals, with sufficient ‘credibility capital’ to greatly enhance their comparative standing.
Once the option to move to a gold-backed petro/trade/reserve currency is established, it will literally be like rats leaving a sinking ship of the petro-dollar.
However, as the financial floor falls out beneath them (AS IS HAPPENING NOW!) they will use the only thing that they have left, backing their rotten currency, military power.
Since the actual capability of their conventional war machine has never been re-organized to the new environmental facts of life, and has suffered the same losses to the overweening graft, sucking the resources (relentlessly) from the system, all they have of real impact, is an ability to disrupt (proxy agents), and an ability for mass destruction (nuclear).
When one realizes that the policy and decision-making elite are those that are the most empathically degenerated and predatory, one must have a healthy sense of the extreme danger that every living creature on the planet is currently exposed to.
Unfortunately, foreign invasion will therefore NOT be able to solve this problem; this problem can only be mitigated by domestic struggle against the enemies who have been waging war on the people for several decades.
“Clothing and other consumer goods had only drab designs, needlessly suppressing variety. To cap matters, public opposition to Russia’s military personnel losses in Afghanistan caused popular resentment.”
The Soviet Union did not collapse due to economic issues, although it did have some consumer goods production and distribution issues. Nor was the collapse caused by the war in Afghanistan, although Brezinsky liked to claim credit for both.
The dissolution of the USSR was caused when, following a vote on whether each Republic (province) wanted to remain within the USSR or not, six very small provinces – Georgia, Armenia, Moldova, Latvia, Estonia, and Lithuania – voted to succeed, although all the major Republics including Ukraine and Kazakstan voted by a large margin – 77 percent – to reman in the USSR. Following the vote the Gorbachev government decided to hold talks with the half dozen tiny peripheral republics that voted to leave and kiss them good riddance.
A number of military and politburo members were concerned that this would create a “domino effect” and placed Gorbachev under house arrest while he was on vacation in Crimea, declaring themselves to be a self-appointed interim government. The coup leaders neglected to also arrest Yeltsin, who had recently been elected President of the Russian Federation on an anti-Gorbachev ticket. Yeltsin, realizing he was next on the list, declared he was pulling the Russian Federation out of the USSR, and managed to convince the military in the Russian Federation to support him rather than the unpopular coup leaders.
This opened the floodgates for all the other opportunistic Republic presidents to do the same, thereby becoming Presidents of their own independent countries rather than provincial premiers. It was a once in a lifetime opportunity for them to seize power, along with wealth. All of this was done (except in the six provinces which had voted to succeed) against the wishes of the population of the USSR, which had just explicitly voted by over 77 percent not to separate.
But the Stalinist bureaucrats saw their chance to declare themselves heads of independent countries and owners of the common property (industries, stockpiles of precious metals in warehouses, land, forests, oil and gas, etc.) they were entrusted with managing, and the kleptocratic revolution was on. The restoration of rank and privilege started by Stalin in the late 1920’s was carried to completion as the former managers of state enterprises morphed into oligarchs and used their new wealth to hire private “security guards” from the ranks of the partially demobilized army to guard their freshly stolen wealth until they could sell it off to western buyers for a fraction of its value, parking the money in western bank accounts.
So the short version is that the USSR did not collapse for economic reasons, or because the population wanted to, but because the 70 years of the US and European countries trying to break up the country by promoting ethnic nationalism, especially in the Baltic states and Ukraine, had been partially successful and led to a failed coup to prevent the six minor Republics from leaving, and the coup in turn caused Yeltsin to pull the Russian Republic out of the USSR, giving the green light to a kleptocratic free-for-all by the would-be billionaire Stalinist bureaucrats.
In fact, the USSR had many large projects which had just been completed or were nearing completion from the Energia/Buran space shuttle which has just completed its first test flight to the Kansk-Achinsk Fuel and Energy Complex (KAFEC) in central Siberia, to the Baikail-Amur Mainline Railway (BAM) which had just been completed in the Far East.
I was personally in Moscow, Leningrad, and various Central Asian Soviet republics in 1986 a few years before the breakup and can report people were relatively prosperous, well dressed, and the department stores I looked in were well stocked with everything from consumer appliances to frisbees. The quality wasn’t top of the line, but certainly adequate, and similar to what you might buy at any western discount retailer like Walmart. Public transportation was excellent, particularly the metros in the various cities, and the hotels and Aeroflot were clean and efficient if not five star. As a tourist I had no complaints, and the locals I talked to in various cities seemed content with their lot.
Interesting perspective I had not heard before. Thanks for this.
The authors seems to forget that protagonist behind the Bolshevik Revolution are the same who villians who own the central banks.
Michael Hudson – the best economist in the world
At last! a professor who warns us that modern “Western” people are well on our way to succumbing to the ancient Indian curse of debt slavery from generation to generation. And from the USA! Now I expect other professors might start questioning: was it really right to lock Ezra Pound away in a madhouse when Pound began to rail against “Usura”? (And don’t give me that Fascist Sympathiser guff: there were destructive Hitler financiers like Bush and Rothschild who got away scot free).
The negative comments seem to avoid direct criticism here and either fall into “but the Jews!” or “What about my gold?!” Gold was mostly money for the Mideast and Europe. Everyone else was happy enough using shells, beads, pieces of leather, whatever. So yeah, actually a government can arbitrarily come up with a fiat currency and it can be worth whatever everyone decides it’s worth. European obsession with gold and believing it is so valuable has sort of driven the whole imperial project for half a millennium plus. I can find many other arbitrary physical objects that are rare and declare them to have value—and like gold, I probably couldn’t use them to eat, build shelter or do anything else fundamental to take care of basic human needs. As to “the Jews” argument, gee, is it possible that Marx had valid commentary but that his thinking was hijacked by an outside group for some other end? Such linear thinking here. And if it’s always the Jews, hmm, who do you suppose put the idea in your head that gold is money and that backing the FIRE sector is better than embracing socialism? The almost reflexive defensiveness that people get when socialism and communism are mentioned are proof positive that this is a conditioned, dogmatic response. And it is also usually the result of an ego that must have “it’s stuff” regardless of the impact upon the world of the pursuit of greed.
The fact is that we know how capitalism goes. We are seeing it now. We don’t know how socialism goes because we have not seen it where the government hasn’t been hijacked by outside forces or under continuous attack by capitalists (and this goes back to the Jewish conspiracies—what better way to discredit Communism than to hijack it with a bunch of psychos murderers?).
You are totally correct. An unpleasant allergic reaction to the words themselves (socialism, communism) is in-built in many people, so they see no inclination to even go on reading beyond that point. It is a tribute to the magnificent effectiveness of the propaganda apparatus to which they have been subjected from the womb.
The most magic of these reflexes is the “Jewish hoax” grunt. You utter that magic noise and you are thereby freed from making any further arguments of any kind.
As for the metallistic group (“you can’t have any currency except if backed by a scarce metal”), their critizism simply illustrates the case of someone who either hasn’t read or understood what Hudson says about the State Theory of Money as the basis of Modern Monetary Theory, or someone who simply dismisses the fact that the Soviet Union financed its own internal economy precisely in that manner, as if this were some sort of unreal event that occurred only in a parallel universe, not in ours.
I think that this lengthy essay reveals that Hudson’s views of socialism are of the most limited kind, a kind that European social democratic parties since WWII have tried to implement to a certain extent. He is concerned only with the private ownership of certain sectors of the economy: the FIRE (finance, insurance, and real estate) sector. This is because these sectors do not produce any value, but simply feed off of the productive activities of the rest of the privately owned economy.
Thus his version of socialism (which he describes as “reform” attempts) is state ownership of the FIRE sector with the rest of the economy, primarily the industrial sector, under private ownership. His view of socialism provides no space for this type of economy–private ownership of industries with state control/ownership of the FIRE sector–to be entirely directed democratically of, by, and for ordinary people of the greater society. So, it’s no wonder that capitalist ruling classes have refused to limit their control by gradually taking over, under the rules of capitalist of ownership, the FIRE sector of European social democratic countries and using their control of this economic sector to expand their wealth accumulation as well as to extend their power over societies.
To support this view, he cherry picks concepts and facts from Marx, history, other economists, etc.
Saying Hudson’s views on socialism are “limited” to a European context is obviously incorrect – the last section is about China.
Hudson may not have brought up Latin America, Africa or India specifically in this article, but what about the depth of his view on the European context…? I mean, c’mon.
Hudson focuses on the FIRE sector with an incredible amount of justification, judging by what I read in the newspaper, and it’s too bad and other commentators don’t join in.
I think this is a very good and comprehensive explanation of the root causes of the deep troubles behind the capitalist system in general and mostly on it’s actual path. The failure of the Soviet style socialist system is also good described, with some lack of specific block and local nuances. What would be the remedy ? Will it be a new way ? there are some hopes, but given the human history of never learning the lessons of the past, the probability of falling deep into the abyss hangs in the air (as if man needs to burn it’s fingers first, then act in the last minute).
Was this article (primarily?) written for The Saker, i.e. infering perhaps that he would reply to comments?
If so, how would Michael fit in to the above, bitcoins?
Gordon Duff brave article: “Blacklist, Monsters Among Us” is one of the best. The truth is being said more and more plainly and strongly, to the point. GOOD!
Hopefully it will be spread widely through the land and discredit all the lies we’ve been fed for so long by the Evil One through his AngloZionist minions. That’s only way to save us from their slavery. Another is a war of course which is more likely considering the total blackout of gringos minds.
“Weather wars” by Nick Kollerston is good peace to read as pepe Escobar’s and M.K. Bhadrakumar’s on .atimes.com
There are many good guys who know what’s going on and where we are heading. The powers of Darkness are very good organized and Axis of Resistance have a lot work to do t catch up. Time is getting shorter every day. Tempus fugit. Don’t waste it.
The problem is not finance capitalism or industrial capitalism or socialism or communism. The problem is human nature and no political economic theory can remedy that.
well, it is very helpful to know that everyone else is in error. I agree that theory cannot solve problems in general, and that the specific claim, that political economic theory cannot solve human nature. I would add that human nature does not require solution.
but vast claim require vast proofs…
I have mooted the idea that industrialism fails on the shoals of Jevons… not human nature. And that therefore industrialism lies at the foundation of all the problems.
I claim that Jevons may be the problem, so to speak. This is to say industry itself.
And for proof I point to…Jevons and Marx.
Say it ain’t so. Eh?
Meantime, empire fails in dramatic ways…hohummm…
It depends on one’s presuppositions about human nature. On this fundamental point we appear to disagree. I did say that we require a remedy, not a solution. What we have is a disease and we all have it. It is called Death. There is only one remedy for that and it is beyond our human abilities to provide it.
Human nature is after all the common denominator in any implementation of political economic theory. If the theory fails then the likely culprit is human nature…the necessary component in any scheme of implementation. “There is a a way that seems right to a man but its end is the way that leads to Death”. (Proverbs 16:25)
This conclusion is very difficult for us to accept. We are naturally reluctant to admit the possibility that there may be no solution to our difficulties, at least within the realm of secular knowledge.
That Empire is falling is true. For thousands of years it has failed to produce the fruit required. That too has been decreed in the realm of the Heavens. The dawn of a New Day is peeping over the horizon and it heralds the advent of a long expected and wished for event: the breaking into the Earth of the full rule of Heaven, the next stage of the growth of the Kingdom of God, the only source of Life.
Righteousness, Joy and Peace in the Holy Spirit of Love; who could ask for anything more?
Michael Hudson’s “The Insider’s Economic Dicitonary” can be read in his website.
Entries appear in reverse alphabetical order, starting at bottom of page
Part 1 (A to I)
Part 2 (J to Z)
Professor Hudson is a rare Economist that explains ‘it’ as it is or historically -the way that it was . The freeloader class are aware of His work no doubt but are so filled with their own hubris ,that they can ignore Him for the moment . Yet I believe that eventually ,when more people understand his message and start to realise the grand rip-off being perpetuated by the freeloader class the tide will turn against ‘them’. The ‘common denominator’ with this corrupt FIRE sector economic model peddled by Neocons and their manipulators is in my mind the ‘Castle Class’ .The same ones that claim their status as inviolable due to the riches accumulated through the lineage of their families and afterwards passed on to their progeny. This freeloader demography keeps expanding just like the contagion which as Marx described is ‘interest’ money plus money . Since this Castle Class contribute next to nothing in providing for the Industrial Economy or if you wish the peoples economy ,the inevitable result has been as Professor Hudson has explained ,massive ‘Debt Deflation’. The freeloaders need a means which in todays case is Fiat Paper in order to maintain the jet-set lifestyle that is propagated by ‘lifestyle magazines’ preaching the beauty of this cabal. The problem which is not being described is that debt deflation is actually the freeloaders Achilles heel . The more that the Working Class is being robbed the less that there is to rob so in essence they’re shooting themselves in the foot. Couple the unemployment with societal degradation which ensues and you concoct a ‘Hexenkessel’ that will actually rip-off the real economy to the detriment of the up and coming freeloaders which are now more numerous. The Classical Economists were absolutely correct when they analysed ,debated and fought against this potential parasitic system which is now clearly taking its toll within todays economic model and society as a whole. Economics is not just about making money for free ,making a profit or maintaining the ‘common denominator’ which is the freeloader class its about advancing society and promoting evolution ,whether its in the arts or technology ; what we are witnessing today is devolution so that the few may live at the expense of the many.
Democratic socialism never works. As Thomas DiLorenzo writes here,
‘The rulers of a socialist government, Hayek further explained, would “soon have to choose between disregard of ordinary morals and failure.” This is true, I would add, whether the government is an elected, democratic one or a dictatorship. This in turn will lead to “the suppression of democratic institutions” and public demands for a “strongman” or “strongwoman” who “can get things done” without the inconvenience of democratic institutions. (Hence the dozens of “czars” appointed by every American president). The socialist mindset also accepts or even celebrates “intolerance and brutal suppression of dissent” in the name of “the common good,” the rallying cry of socialists everywhere. Just use the words “common good,” and all forms of oppression are “justified.”’
America now has Talmudic Judaism and not capitalism; it’s not capitalist it’s based on Hamiltonian principals; not that the Broadway person of color Hamilton lauded corruption and that’s what America has today.
‘Americans have been led to believe that Hamilton’s economic dream is somehow free market capitalism ordained and established by the founding documents. Hamilton’s system later became known as the American System which as Bannon suggests capitulated American business into the twenty-first century.
‘Except the Hamiltonian or American system was not free market anything. It was corruption and crony capitalism of the highest order. Certainly some people became filthy stinking rich because of it, but they did so because the general government unconstitutionally began picking winners and losers through higher protective tariffs and federally funded internal improvements like road, canals, and later railroads.
‘Anyone who thinks American taxpayer support for Elon Musk’s Tesla brand is a terrible idea can thank Hamilton’s crony capitalist system. The same can be said for virtually every Gilded Age railroad magnate. Government corruption stuffed their pockets.
‘Hamilton wanted it that way. He once told Thomas Jefferson and John Adams that corruption is what made the British constitution the best in the world. Hamilton then did his best to ensure that corruption found its way across the pond often through artful lying. Only nationalism made that possible. If you love political and economic corruption, Hamilton is your guy and nationalism is your standard.’
I believe the only answer is to end the Fed, an a people’s revolution to overthrow the Goldman Sachs of the world. Wall Street and the MI Congressional Financial Media complex. Throw the bums out. We have to stop watching TV and Internet and fight back.
Professor Hudson, thank you. Saker, thank you for being a socialism-friendly site. We get Ramin Mazaheri by the episode, and Michael Hudson by the essay – what a treat.
The tenets of socialism and Marxist thought had barely appeared in the intellectual space of humanity before the agents of the love of money acted to vilify them.
The fact is we barely got a chance to try any of this out before it was taken from us. And by “we” I mean the ordinary people who labor to produce and gather the bounty of this world. By contrast, “they” would be the rentier class that shaves its portion of the bounty through subterfuge, and gives less than nothing in return.
Contrary to some of the comments here, I find that Hudson absolutely understands the tricks of the money-changers, the evil of compound interest, and the value of state money as an interest-free national commodity.*
I welcome the current discussion of socialism as a sane way to organize a stable society that operates in a “win-win” model rather than a zero-sum. And I think that Marxist economic analysis may be, as some claim, the most useful way to understand our current economic situation. Michael Hudson stands as one of the foremost commentators in this space.
So, thanks again!
* [In my opinion, the primary quality of money is that it must at its issuance be interest-free. There was a time when this didn’t need to be stated as a quality of money. Laws and sacred injunctions existed to preserve and memorialize this quality of money. But alas, this is currently lost. Interest on money is the great serpent coiled around the base of the tree of our life in this world, squeezing its due from our every action, and from the very breath of the world.]
Its funny how every time i read some text about collapse of Soviet union there’s naive assumptions that Soviet leaders didnt know something or didnt understand. Yes they did and they knew full consequences of their actions and they didn’t care. Collapse of Soviet union was bigest treason in history, and whole socialism project fail becouse of that treason.
Marc Faber – US economy is like Botox, looks fine only
on the outside
Marx’s main contribution to our understanding of political economy was of course his study of the capitalist mode of production, how it carries within itself the very seeds of its – and society’s – destruction and the immiseration of the working class. Apart from the dialectical contradictions inherent to its mode of production, capitalism also leads, through its logic of permanent state of competition, to monopolies, imperialism and wars. Hence, capitalism is incapable of creating the conditions for a stable, humane and fair world where people co-operate, share and develop the productive forces for the benefit of all equally. The old excuse that the so-called “human nature” prevents such an outcome is the pretext of those who wish the maintenance of the unjust status quo and the preservation of a sick society where greed, power and enslavement are justified as good.
“The old excuse that the so-called “human nature” prevents such an outcome is the pretext of those who wish the maintenance of the unjust status quo and the preservation of a sick society where greed, power and enslavement are justified as good.”
Not so Anonymous, quite the contrary. Indeed, the complete cure of our sick humanity is the goal of all I believe in. That human nature is ipso facto irremediably flawed may be an “old” excuse but it is nevertheless no less true on that account. My reasons for stating this, given in a comment above, which it seems you may have read, are not designed to preserve any “unjust status quo”, as you allege, whether that status quo is socialist or capitalist. (We have yet to see communism fully realised anywhere).
There is no likelihood that this observation will in any degree prevent men from beavering away at seeking a solution. Inevitably man WILL continue to try to cure the failure of his inventions, which is another chronic characteristic of his nature, the inability to see the obvious truth that failure is endemic to the species and incurable by any effort of our own. This propensity to fail is the consequence of our mortality. Death is not merely an event it is a state of being, giving rise to all the ills that flesh is heir to.
It is not as though this diagnosis has not been stated clearly, in one form or another, for millennia, by wise men from all cultures, although all of them except one could not provide the remedy. The one exception is the Lord Jesus Christ, the Son of God, who provided, along with His diagnosis of our condition, the complete remedy: indestructible Life, the Life of God Himself, which He bestows upon us as a free gift and which He demonstrated by rising from the Dead after His crucifixion and burial, never to die again. All we have to do is accept this priceless gift. His Life, Works and Words are further amplified by the testimonies of His apostles. The prolific writings of the apostle Paul are, I believe, the most complete exposition of the case, especially in his epistle to the Christian church in Rome.
FIRE sector: nice academic words.
The US banksters and the megacorporate-fascists (the grandstock holding Billionaires) keep holocausting the 3-rd world for Wallstreet profits (Syria, Libya, Irak, .. Vietnam, Laos, Cambodia, Korea).
Key issues for planetary peace:
1. rule of International Law: human rights and justice for all, no exceptions, independent sovereign states doing fair trade to benefit all.
2. Ban all UN trade embargo’s on single countries: this is massmurder. Only the poorest children die, and dictatorships do not end.
3. A TRUE DEMOCRACY REQUIRES PARLEMENTARY CONTROLL OVER THE MONEY CREATION PROCESS TO ATTAIN FULL EMPLOYMENT BY PUBLIC PROJECTS SPENDING. No more FED discount money to commercial banks, only trusted funds and 100 % capital requirements. This will kill Goldman & co and keep banks SMALL
4. regulate markets to regain competition (anti-trust/monopoly) and small organizations relative to market share (1- 5 % of market). No leveraged buyouts or take-over, limits on marketshare, strict anti-trust laws, limits on private equity and grandshareholders.
5. Ban the CDO, CDS and most financial deivatives: they are fraud.
6. No more Billionaires: limit private equity to 100 million per capita.
Form new political grassroot-level parties of ordinary, working people, without rich kids and academics (only as advisors) , to get these policies implemented!
Like Socrates said: moderation in everything is key. And Karl Marx: Power(money) is corrupting. (A Jesus Christ turns into a Satan)
Any government needs to asset-strip their Billionaires, or else these Billionaires RUN the government, like now.
Max, that’s a fine post, but not sure what you meant here:
“FIRE sector: nice academic words.”
The great thing about Hudson is that he has condensed this concept into about the easiest to understand, most non-academic phrase possible – you can’t put it much more simply than that. The Finance, insurance and real estate – this is all unearned wealth produced by somebody else’s sweat at and worry. This sector now accounts for biggest increase in wealth, per Hudson and we all see he is right, and the popularization of this easy, un-academic, very real world concept would go a great way towards re-stigmatizing unearned wealth.
Fire sector is a tremendous concept which should be latched on to by all 99% people, who have no essentially no FIRE, and definitely any journalist.
Not a word of Kruschchev’s notorious speech, denouncing Comrade Vissarionovitch.
Hudson’s stuff is goldier than economic gold….
I never get tired of reading Hudson, just as you can’t get tired of the fastball on the outside corner, the pick and roll, the power sweep, etc.
Thankfully, I know that nobody is expecting me to write anything as good as this, LOL! I’d give all my notes but it would be too long, so I’ll limit it to just my favourite three.
I don’t care what you call term the solutions to these problems, but immediate solutions are needed:
– “And while bank credit has enabled buyers to bid up housing prices, the price has been to siphon off more and more of labor’s income to pay mortgage loans or rents.” (decreased purchasing power)
– “The fact that absentee-owned real estate and natural resource extraction are practically free of income taxation shows that democratic political reform has not been a sufficient guarantee of socialist success.” (societal regression caused by political stagnation)
– “Industry has become a vehicle for financial engineering to increase stock prices and strip assets, not to increase the means of production.” (our current economic stagnation)
And (just) three fundamental nuggets of economic history/analysis:
– “The resulting political Counter-Reformation has inverted the idea of “free market” to mean an economy free for rent extractors, not free from landlords, monopolists and financial exploitation as Adam Smith, John Stuart Mill and other classical economists had envisioned. The word “reform” as used by today’s neoliberal media means undoing….”
– “But the aftermath of World War I saw the vested interests mount a Counter-Enlightenment. Banking throughout the Western world find (sic) its major market in real estate mortgage lending, natural resource extraction and monopolies – the Anglo-American model, not that of German industrial banking that had seemed to be capitalism’s financial future in the late 19th century. Since 1980 the Western nations have reversed early optimistic hopes to reform market economies.”
– “So socialist countries were kept out of the IMF, World Bank and the planned World Trade Organization, explicitly on the ground that they were free of land rent, natural resource rent, monopoly rent and financial charges.”
Only six! Like being like being forced to choose your favourite child!
“… it (China) has not proselytized its economic system or sought to promote revolution abroad to emulate its economic doctrine. Just the opposite: To avert attack, China has given foreign investors a stake in its economic growth.”
This is something which Iran has recently done, since the JCPOA agreement: Europe has invested scores of billions already. Trump and the US are not happy about this, but the EU and France are already defending their interests against Washington. I think Iran could be the first example of the EU showing some foreign policy independence from the United States.
And I say that as a long time (and justified) skeptic of EU policy in the Muslim world, and especially towards Iran. So I am just as surprised as anybody.
Many in Iran are worried that we will be either betrayed or sold out by Europe…but that is only because they have been paying attention! However, balances of power do change….