Jonathan: Michael, welcome back to the podcast.
Michael Hudson: Well, it's good to be back. Thanks for having me.
Jonathan: Michael, I know we've rereleased a podcast that you did three years ago and the remarkable predictions that you made, just as the Ukraine, Russia conflict was getting going.
Before we do that though, I know you've been extremely busy publishing books following your Peabody Museum research into the ancient world, most notably Temples of Enterprise: Creating Economic Order in the Bronze Age near East and the Collapse of Antiquity- Greek, Greece and Rome in Civilization's Oligarchic Turning Point.
Which was of course a sequel to Forgive them their Debts, lending, foreclosure and redemption from Bronze Age Finance to the Jubilee year. I just wonder if we could start there, echoing, I think it was Winston Churchill who said, if you want to look forward, then you need to look back as far as you can. Would that be okay?
Michael Hudson: Sure.
Jonathan: You've often spoken about your aha [00:01:00] moments when delving into ancient economic history. I just wonder what have been some of your profound or unexpected discoveries about studying ancient civilizations like Sumer or Babylonia?
Michael Hudson: My, entire life, ever since I became an economist in, the 1960s was to realize that debt was the major problem that was going to be growing exponentially and stifling society. And it was clear that debt grew at compound interest faster than the economy was able to grow and pay the debts.
I spent, quite a few, decades warning about the fact that the global south could not pay the Dollarized debts, as indeed it didn't in the 1970s. There was such a reaction to what I was saying, such a refusal by the economics profession to look at debt as being important, that I decided [00:02:00] to look at the whole history of how different societies had coped with debts.
And I began to write a history of debt, after I left the United Nations in 1979 after warning that there was going to be a, third world, Latin American debt crash in a few years, as indeed there was in 1982. I got all the way back to Greece and Rome, and then into the biblical, and came across the jubilee year.
There were a few references to the fact that there were antecedents of this in Babylonian law and I began to look through the literature in Babylonia. And I found out rather quickly that every ruler of the Babylonian dynasty, whenever they took the throne for their first full year on the throne, they would proclaim a clean slate, annulling the personal agrarian debts that had built up.[00:03:00]
Freeing the debt bond servants whose had to go to work for their creditors to work off the debt and redistributing the land, the words that Hammurabi and other rulers used in proclaiming these clean slates were exactly those of, the Judaic, Jubilee in Leviticus, that apparently was, written into Mosaic law when the Jewish exiles were, permitted to return to Israel and brought their familiarity with Babylonian law with them.
So I began to write up my ideas, shared them with a friend of mine, Alex Marshak, a professor at Harvard. He introduced me to the head of Harvard's anthropology and archeology department. I was made a research fellow at the Peabody Museum by Carl Lambert Klowski. I realized that there was this wealth of Babylonian, Sumerian, and near [00:04:00] Eastern, academic records that economists had completely ignored.
And the reasons that our economists ignored it was that the way that society created its economic relationships were completely different from those that they ended up with after Greece and Rome. And so I realized that I can't simply write this all up myself because I'm an economist, not an Assyriaologist.
So at Harvard we decided to organize a group of scholars who were specialists in Sumerian, Babylonian, Egyptian, Judaic and other Middle Eastern records and we decided to do three volumes.
At the first conference in 1994, we discussed privatization. How did land come to be privatized? How did economic rent come to be taken by individuals, mainly creditors instead of becoming the [00:05:00] tax base the palace?
The second one was on land ownership and the ancient areas. How did land come to evolve from being allocated to the population on the condition of serving in the army, giving your labor on corvet work during the off season when you're not harvesting.
And the third was on debt and economic renewal in the near East. And, I was able to get the top scholars and, each of the periods and the geographic regions that we were dealing with. And that was difficult because they had avoided talking to economists for over 50 years. Beginning in the 1920s that almost every economic ideology projected itself back on to the Bronze Age where economic records begin.
And, you had the free enterprise boys saying, well, interest charges and[00:06:00] rent were created by individuals with their own money. The government had nothing to do with it. You had the Catholic church saying, well, it was a state economy- the temples and palace were running everything.
The reality is was that it was a mixed economy and it had a general philosophy, and it also had an economic model of how economies work. And the mathematics of the model by Hammurabi's Dynasty around the 18th century BC was much more sophisticated than the economic models that are used today in the United States
We have the training texts that were used to teach scribal students how to reason economically. One set of test questions were how long does it take a given unit of money to double at the given interest rate? The given interest rate was one 60th per month [00:07:00] or the decimal equivalent of 20% a year. A debt doubles it in five years, quadruples in 10 years, octuples in 15 years, all the way up to, 64 times in 30 years.
Obviously this is faster than any economy can grow at that. We also have models of how the real non-financial economy grows. We have models of how a herd of cattle grows, and it was an S-curve tapering off.
I realized that you could make a similar model to the United States for that and to Europe. In every western economy since 1945, you've had the volume of debt growing more rapidly than GDP and national income so that every business cycle has started from a higher and higher debt level until finally debt service interest [00:08:00] rates, financial fees, management fees, late fees, absorb so much of the income of consumers and businesses and even government budgets at the local level and the federal level that the result is economic austerity.
Jonathan: Michael, just to be clear what you did, you've taken some financial equations from Hammurabi's dynasty from the 18th century BC and that's predicted the Western malaise that we're facing today where debt will overtake the economy and eventually choke it to death.
Michael Hudson: Yes. and that was the logic that led kings to realize that if we do not cancel the consumer debts, the agrarian debts, they left the commercial debts in place- 'cause that was owed among merchants to settle among themselves.
But if we let the population at large, an agrarian population living off the land and if we let them go into debt, [00:09:00] then they're going to forfeit their land to foreclosing creditors and they're going to forfeit their labor to the creditors. And if we do not cancel the debts and they have to work for the creditors, they won't be able to work in the army. They won't be able to work on the Corvet project building, temple walls, city walls, doing the kind of public infrastructure, that, was necessary for the Bronze Age societies.
And, so they realized that you had to restore order, make things the way they were in the idealized beginning when the economy was in balance. And you have this beginning already in the Sumerians. The first documentations we have are Sumerian, clean slates around 2,500 bc.
So, the economists, say, oh, you can't write down the debts that would cause economic chaos. Well, the Babylonians realized that if you did not cancel the debts, then you would have [00:10:00] economic chaos and you would have runaways- the population would simply flee.
That was very well documented in the ancient, middle East. The population would simply defect to attackers who said, if you support us, we'll come in and we'll liberate you from debt bondage and we'll cancel the debts. That was how the Middle East worked from about the earliest records in the third Millennium BC right down to the middle of the first millennium BC to the Babylonian and the Syrian empires.
And of course, that was written into the Jewish Leviticus Law, and that started a whole kind of class warfare within Judea that ended up with Jesus giving his first sermon advocating unrolling the stroll of Isaiah, calling for the Jubilee year and then giving a sermon on the Mount saying, forgive them their debts as we forgive our debtors.
Well, Rome had a long attempt not to cancel the debts and to say [00:11:00] no, no, he wasn't canceling debts, he was canceling sin. That's another story, at any rate, we completed the first three studies and the result was my Harvard group wrote I won't say rewrote, rewrote for the first time an economic history of the ancient Near East, which had not been written before because the thought of how the ancient near East managed to avoid polarizing its economies was anathema to people who believed that if Margaret Thatcher or Milton Friedman had gone back and advised Hammurabi to privatize everything we really wouldn't have had civilizations.
Jonathan: This sounds like this would be a wonderful thing for the agrarian laborers and stuff who got into debt and got into trouble. But from a pure strategic power play point of view, it also serves a ruler, doesn't it? Because by announcing a jubilee and restoring land to laborers, you are not gonna allow oligarchy [00:12:00] to develop in that society where a few people, a few debt collectors, gather together all the wealth and they then become more powerful than the king.
Michael Hudson: Well, that's exactly why the kings canceled the debt. If you did not cancel the debt, you would've had an independent oligarchy emerging that would've ended up with the labor that normally was devoted to perform public, sector work, and, serve in the army.
So by canceling the debts, you prevented financial fortunes of being accumulated in Babylonia and its neighbors. We have the family archives of some families that did indeed become very rich. But after a generation or so, their wealth disappears. It's very much like the Chinese government has treated Jack Ma and other billionaires saying, well, you can get rich, but not to an extent where you're going to impoverish society around you. [00:13:00] We're not gonna permit that. You can get some money for a while. But, we're going to continue to restore economic balance every once in a while so that we're not going to become an unbalanced economy, such as happening in the United States and Europe.
Jonathan: So if it were to fast forward then to the 19th century, then those ideas are very similar to the ones of Henry George and the people that were in favor of that kind of approach in the 19th century in America.
Well, Henry George wasn't. Henry George was the defender of the banks, and, he rejected the whole analysis of Adam Smith, the Physiocrats. The whole 19th Century School of.Classical political Economy was based on the theory of economic rent defined as the excess of market price over the actual cost value.
Well, the paradigmatic form of economic rent at that time was land ownership. And the task of industrial [00:14:00] capitalism in England, Germany, all over Europe, was how can you develop an industrial economy if you have an overhead of privileged rentiers, rent recipients, that take so much money that the economy becomes a high cost economy and we're not able to develop industry at a competitive rate?
Well, what all of the classical economists had in common was saying you have to tax away land rent because the land rent is going to grow and grow. David Ricardo, had a warning of the fact that as population increased, he thought that there would be pressure to move to less fertile soils. The cost of production on marginal lands would rise. This would give increasing rents to the landlords of, more fertile lands. And the landlords would end up with all of the income of [00:15:00] labor, of industry, and, essentially, the landlords would be rich at the cost of impoverishing the economy.
Well, as it turned out by the end of the century, this concept of economic rent, developed for land was extended to monopolies along with the landlord class that was inherited from feudalism, you hid monopolies which the bankers had helped kings and later parliamentary governments create a trade monopoly for England. It was in wool. Create a trade monopoly that will yield monopoly rents.
And you can use these rents to pay interest on the war loans that were giving you the English kings, starting with Edward the third in the 14th century the proliferation of monopolies were created and they also just as landlord land rent was an intrusive cost into the economy, raising the price of goods without actually being [00:16:00] necessary for production. That had to be liberated and that's why in the United States, you didn't nationalize the monopolies, many of which were kept in government hands in Europe to begin with, but you had anti, monopoly legislation in the beginning in the 1890s.
Well, the third, legacy of feudalism was, of course, the banking class. It was the bankers who had organized the monopolies and their lending was more or less predatory lending, mainly war lending to governments to wage war or for other purposes, but not lending to actually build factories and buy machinery and hire labor and be part of the industrial process. So you had these three kinds of land rent. Henry George interfered with this. He said, don't talk about monopoly rent. He said, there's no such thing as economic rent in the way that the classical economists developed it. He [00:17:00] rejected the value in price theory from Adam Smith through the entire 19th century and followed the the landlords and the financial class had backed an alternative to classical economics, and they said no such thing as economic rent- it's consumer preferences. It's consumers that bid up the prices and their demand creates a scarcity relative to demand- These infernal supply and demand charts- and Henry George supported them.
But most of all, he supported the banking monopoly, the most, productive monopoly that there was. And he supported Monopoly rent. And he wrote his chapter on interest in Progress and Poverty, and basically said, interest is created by having a technological monopoly enabling you to make a monopoly rent by being able to have a technology that has lower costs then the rest of the economy is if somehow the rest of the economy wouldn't simply adopt that [00:18:00] monopoly.
Even the opponents of land taxation such as the Austrian Bohm-Bawerk wrote a whole chapter, showing that Henry George had a naive productivity theory in Bohm-Bawerk's Capital and Interest.
But, George in the United States, told his followers, don't advocate getting rid of monopolies. Don't criticize the banks. Don't even support government price controls on rent in New York- just, talk about a national land tax.
And, his books were very successful. But, the followers he had he tried to break away from their political movement towards socialism basically. And George said, we do wanna tax the rent, but we must not have a government that is strong enough to take on the landlord class. He was a libertarian. He was against strong government, and his followers in the 20th century, certainly became small government people, [00:19:00] and essentially thought of a land tax as an alternative to overall reform.
So by the 1890s in America, you had followers of Henry George and followers of Marx and other socialists going around the country debating each other. And these debates are wonderful, using the economics of Adam Smith and John Stewart Mill and all of the classical value theory to say economic rent is more than just land rent. It's monopoly rent. Its interest is the primary monopoly of all, you have to do that and you have to have a government strong enough to prevent a landlord class and the banking class behind it from developing.
Well, while all of this was happening, the reformers in England and Europe had indeed been able to reduce the control of the landlord class over [00:20:00] parliament. In England, this really was completed in 1909 and 1910, and, despite the fact that you don't have an absentee hereditary landlord class anymore collecting rent, you still have landlord land rent.
The fact is that the whole reform movement, the anti rent movement of classical economics ended up not succeeding in spreading land tax. It was, replaced by an anti classical reaction in the United States by the landlord interests, basically backed by the banks.
The banks Increasingly became the sponsors of the landed interests and the mother of monopolies. And that was because as you got rid of a landlord class that really hadn't existed in the United States as it had in Europe land rent ended up being paid as mortgage interest in order for [00:21:00] people to buy homes.
And today, from the United States to England, continental Europe, the largest element of bank loans is to real estate. And most of the increase in the the price of real estate is the increased rent of location to the land. And so this whole increase in economic rent that the classical economists, Ricardo and others had warned this is going to absorb all of the economy's income. And it's going to impoverish the consumer class because they're going to have to pay for housing, so much money. If they're, going to be hired by industry, the industrialists are going to have to pay their labor force enough money to pay for the increased cost of housing, increased cost of food, as well as the increased cost of monopolies. And that's exactly the kind of squeeze that you're having in England, Europe and the United States today. [00:22:00]
Jonathan: What you're saying then, that essentially explains by the bankers taking the value of the land in interest payments for mortgages and gaining the power that way. We then see with one of our guests on the show, Nomi Prins, and she wrote a book about the way in which in America the political class and the banking class intermarried for over a hundred years. So they're now basically one group of mutually supportive individuals and families who are all intermarried with each other. So that used to be the landowners and the politicians doing that. Now it's the bankers and the politicians because the bankers now hold the value of the land.
Nomi's quite right. We've appeared on a number of shows and meetings together. It's not only the intermarriage, it's the harmony of interest. The fact that the banks are the main recipients of economic rent, now that rent is for paying interest, that has become the main form of economic rent.
That's why it was such a tragedy that Henry George came out in support of the banks and did not [00:23:00] extend the concept of economic rent as unearned income is adding to prices without playing a role in the productive process at all. That's why the western economies are de-industrializing today.
They're de- industrializing because it's easier to make money by financial means, by creating a monopoly or by buying housing and commercial buildings that are bid up on debt increasing their price, and you make capital gains. And what's so striking about the contrast between modern economies and what the classical economists wanted, they wanted to use economic rent as the tax base so that you wouldn't have to tax wages and profits.
But instead it's economic rent that is untaxed that gets special tax advantages of the commercial real estate industry has Not had to pay income [00:24:00] tax since 1945. Donald Trump has written all about this. He loves depreciation because there's a pretense that buildings are losing their value instead of their property being, bid up, in price largely because of land. The oil industry for years had the depletion allowance, enabling it to avoid having to pay an income tax. The financial sector has avoided having to pay various taxes because of things like the carried interest.
And, the small print of the, tax code basically makes rent recipients pay much lower taxes, if any, compared to wage earners and corporate profits. And so you have, the fiscal squeeze and this system is spread not only in the NATO and US countries, but to the whole world economy where there's a whole body of international tax law and international diplomacy that's [00:25:00] all being run by the rent recipients.
And the result is, we're, having more and more economies, subjected to economic austerity to pay the rent recipients. So we can call them the 10% or the 1%, or the 0.1% that gets most of all instead of having progressive, income tax falling mainly on economic rent, you have a regressive tax falling more and more on industry and labor.
And this is what's de industrializing the West. And the question is whether the rest of the world, China, Russia, the global majority, the global south, are going to be able to do basically what China's done, which is reinvent the wheel of Adam Smith and John Stewart Mill, and the classical economists and take the rent yielding sectors headed by finance [00:26:00] into the public domain instead of letting financial fortunes be made at the expense of the economy as a whole.
Jonathan: Amazing. And so just before we come into the predictions that you made three years ago, is there anything, especially from the collapse of antiquity and the oligarchic collapse that happened in Greece and Rome that you want to raise our awareness of and the learnings that you think could be present for us in looking back that far in society?
Michael Hudson: Well, that's what the second book that you mentioned, the Collapse of Antiquity, the Bronze Age ended around, 1200 bc. There was really bad weather, it was a climatic change and it ended to a collapse of the agriculture populations. The palace economies of Western Asia were drastically interrupted. The whole cosmopolitan Middle Eastern trade came to an end.
The palaces in Greece with their linear b writing [00:27:00] disappeared. The population shrunk and there was a dark age, meaning an age without much documentation from 1200 BC to the middle of the eighth century bc.
Well, in time by the eighth century, you begin to have Syrian and Venetian near Eastern traders trade, throughout the Mediterranean, trade with Greece and Italy, trading with the Italian Peninsula, offshore from Rome just like offshore from Athens in Greece.
And they brought all of these economic practices that had been developed in the Bronze Age, weights and measures, account keeping, contracts, and, the charging of interest.
What made the West different from everything that had gone before in the Near East is they did not have any central authority to be able to proclaim a clean slate, cancel the debts, and stop their [00:28:00] economies from polarizing.
The chieftains essentially were taught how to charge interest because when they would run into financing their own trade with the Eastern Mediterranean on credit they had to pay debt. And so you had much of Greece and Italy in the hands of what classical historians have called mafia like states.
The chieftains took over absolutely everything, build the population in debt, and reduced it to debt bondage. And, what really started the recovery of Western civilization were in Greece the tyrants were upstarts from the aristocracy saying, this is crazy we want, prosperity.
They overthrew the worst and most oppressive of, the leaders and, basically redistributed the land to the people at large, canceled the debts, and they did [00:29:00] themselves what the Eastern rulers did in Rome.
You had, actually kings created from the very beginning without there being an aristocracy to be overthrown. Rome was situated on the Tiber that was very mosquito ridden, and was pretty much avoided for, geographic reasons. The founders of Rome the few people who were there said how are we going to get a population and attract people?
Labor was a scarce resource in the ancient world. There was plenty of land, labor was what they needed. According to all of the Roman historians, the kings of Rome had a policy, if you come to Rome and become our citizens, we will give you land. We'll assure you enough land to support yourself and the family and of course, if you become citizens, you'll have to serve in the army and defend ourselves against any neighboring regions that would attack.
[00:30:00] And that went on for a number of centuries until finally, at the end of the sixth century, Rome became prosperous enough so that an aristocracy developed, overthrew the kings and developed a rather violent aristocracy and made Rome like the Greek states essentially a land owning creditor oligarchy. This had not developed in the Near East. The whole idea of near eastern Rulership was to keep the management of the economy in a centralized, temple and palace ethic that was built into their religion or moral values. Whatever we'll say the moral values is you needed a free population to have its own means of support. And that meant means of support on the land. And, you can't have an economy of polarizing none of this ethic occurred in the West.
So what has made the West different from the [00:31:00] whole Bronze Age that preceded it was, the fact that, it had this, creditor land owning oligarchy that ended up with the Roman Empire. And in turn, that not only led to feudalism, but it bequeathed to subsequent Western society the whole body of creditor oriented, property oriented law inherited from Rome. And that's the problem that we have today.
China has in a way not only picked up the economic analysis of classical economics by saying we don't want a Rentier class to develop independently. When Mao had the revolution in 1945, it had to drive out the creditor class and the land owning class. China's big fight was against landowners and the wealthy classes.
And so they had no alternative, but really to keep money [00:32:00] creation and credit allocation in the hands of the banks. Well, that became the basic structural seed that developed and, was able to free China from having the kind of oligarchy that the western nations had. And we know the results China's been able to grow by preventing a domestic oligarchy. The western economies have been buckling in austerity under their own financial oligarchies.
Jonathan: I just wanna go back now to the interview we had three years ago. One of the biggest predictions you made was the acceleration of a deDollarization trajectory. you were saying that America had just seized Russian reserves. You said it effectively ended the dollar centered trade and financial system much faster than we're thinking.
I'm just wondering, since that time in early 2022, what have you seen that supports this accelerated dedollarization and what new specific indicators should we be looking out for as it develops?
Michael Hudson: Well, [00:33:00] there's more and more discussion of dedollarization in the United States and Europe, but mainly the United States have seen de dollarization as a threat to the American empire's attempt to control a unipolar world economy.
Dedollarization is an attempt to withdraw not only from having to base its money supply on the dollar, but to avoid the whole financial system, the, international monetary fund imposition of austerity in order to force global south countries and other debtor countries to impose austerity and anti-labor taxes, in order to pay their debts and to privatize their public infrastructure, to sell it off to buyers who will monopolize them and create huge monopoly profits by, privatizing them.
So, dedollarisation means a withdrawal from [00:34:00] this whole predatory rent seeking system. It has not really gained momentum yet because there has not been any spilling out of what is the logic of what we're doing if we're going to have an alternative to the de dollarization and the de-industrialization and the polarization that's plagued the west. What is our economic guide? What are the basic concepts?
Well, what there has not been a discussion of is how did classical economists solve this problem? And the fact is that the problems that the global south countries and the, Asian countries, African countries have today is very much like the problem that England had in the 19th century.
It doesn't have so much of a hereditary landlord class, but the main form of land rent in many global south countries is natural [00:35:00] resource rent. And the natural resource rent is owned largely by foreign investors, not by domestic investors. Much of the most prestigious land is owned by foreign investors, not domestic investors.
The natural monopolies that have been sold off from the government domain have been bought by foreign investors, not their own. And the banking that they use are basically extensions or branches of banks in the United States and Europe, not their own. So where England, Germany, the United States only had to deal with freeing their own economies from the rent overhead, the rest of the world has to free their economies from a foreign owned rent overhead.
Suppose we set out to do what Adam Smith and the Physiocrats and John Stewart Mill wanted to do. Suppose we tax the oil rents and the natural [00:36:00] resource mineral rents and the forestry rents and the monopoly rents and the land rent – take that as a tax base. How do we calculate how much rent there is to tax? That's the key. What is the concept of economic rent? Now that concept was the whole key to classical value theory- value is less than price. The excess of market price over the actual cost value is economic rent that doesn't have to be charged because the cost value is what you actually need as a cost of production. But Rent is a transfer payment from the production economy to the Rentier economy, to the sphere of circulation more or less, not the sphere of production. How are they going to actually measure this?
Well, you'd think that they would pick up this analysis that was already developed for [00:37:00] just such a purpose throughout the 19th century. But, most of the economists of the global majority countries have been trained in the United States and Europe, and the economics curriculum no longer includes the history of economic thought- it doesn't include economic history. So there's no real familiarity with how they actually go about creating an alternative to the dollarized Rentier finance capital system that they have in the west- they're trying to reinvent the wheel.
And even in China, there's not a discussion of the classical thought. There's a discussion of Marxism, but, it does not focus on volume two and three of capital where Marx discussed, rent and finance and the expansion path and the laws of motion of rent and finance. So, there's really no discussion anywhere.
Now that [00:38:00] I've finished my historical writing on the origins of economic practice in the Bronze Age and the collapse of antiquity that has shaped the Western economies by the way that Rome fell apart, my mission is to re-familiarize governments with the concepts of classical economics and value and rent theory that would be the basis for creating a policy to tax away the economic rent so that they would not have to do what the International Monetary Fund says, and we'll tax labor and, to finance the government, minimize government spending, impose austerity- this is not what the classical economists, said at all.
Jonathan: I know you talk about the rentier approach or the new Cold War being the approach of the rentiers versus the anti-war stance of what would be described as China Russia and the global south.
You also talked last time about Europe's economic suicide, through the leaders of [00:39:00] Europe aligning themselves with American interests rather than European interests. I just wonder how you've seen that develop over the last few years and where you see that going.
Michael Hudson: That's a very important point. All of the polling of what voters want is quite different from what their leaders are doing. The European Union, and NATO have been reshaped in order to essentially make the European Union and the national governments a branch of NATO, which is a branch basically of the US Defense Department and US Neoliberalism.
in addition, the United States has been giving huge amounts of grants to nurture foreign politicians whose main personal and economic loyalty is to the United States, not to their own voters. And so you could say that Europe, like the United States, has failed to achieve the supposedly democratic aim of [00:40:00] having governments reflect what voters want.
There's been a corruption of the political process in Europe by US control. I've been told by former members of the Treasury Department that all they need to do to get European, leaders to support US positions instead of their own position is give them an envelope full of a lot of money. In other words, bribery.
The, European leadership has been bribed to appoint NATO representatives from the United States in charge of the European Union-von der Leyen and Kaja Kallas, representing their foreign policy. American Imperialism has, captured control of European politics.
And of course, that's what is leading to the nationalist reaction all the way from England to the, German parties and Italian and Spanish parties that are trying to be nationalist. And these nationalist parties are [00:41:00] primarily on the right wing of the political spectrum, unfortunately, not the left wing except for the Sarah Vagan Connects group in Germany.
Although they're opposing the, capture of European politics by NATO and the Cold War and the neocons, there has not been very much discussion of economic reform along the lines that the classical economists taught along the lines that I've been advocating you're going to have to essentially do what China does and did and make banking and credit public in character, not private.
If you leave privatized banking monopoly, you're going to have a financial oligarchy. Just as you have the privatization of land rent, you're going to have a wealthy, real estate class obtaining rent at the expense of the government's fiscal policy, and at the expense ultimately of the [00:42:00] economy's ability to be competitive with a low cost, low wage, low price, industrial economy.
There's not that kind of discussion in Europe. I mean, you could say that Europe needs the same thing that the global majority and BRICs countries need- a discussion of how to make an economy grow by minimizing the economic overhead that is paid to a financial landlord and monopoly class that plays no role in production itself, but is simply an overhead charge, extracting money from the rest of the economy without playing a productive role.
If the more money an economy pays for unproductive economic rent, the less money it's going to have to invest in new factories, machinery, research and development, new hiring, to expand. That's the [00:43:00] economic problem that Europe and, the whole world is facing right now.
Jonathan: I remember, I think you said on one video that the British Labour Party is out neoliberal the conservatives, and Tony Blair Kier Starmer being essentially more right wing than the right wingers. But it's not necessarily a right wing policy, is it? It's just that they've adopted the approach that the Americans want them to and Tony Blair's been rewarded fabulously for his support of American interest, or American leadership interest, not necessarily American interest.
Right. The Americans I know don't want Europe and Britain and Australia to be weakened and, having their economies wrecked. But it just suits the interest of those who control American interest.
Michael Hudson: That's exactly right.
Jonathan: You also do quite a lot of Australia listeners, and you described Australia once as a hopeless US satellite. I just wonder if you could explain how that's come about and what Australia could do about it.
Michael Hudson: Well, it's also a British satellite, of course. I've [00:44:00] met with the central bankers of Australia and it's clear to me that Australia is pretty much run by the banks. The banks have made most of their fortunes by creating what looks to me like the most oppressive real estate bubble in the entire world.
They have lent, more and more debt relative to the price of property to keep the price rising. They've done everything they can to increase the price of housing and also the price of a commercial building by increasing the amount of money that a, bank will lend to new buyers of this housing.
And basically in Australia, just like in England and Europe and America, the value of a house is whatever a bank will lend it against it because, you can sell your house for however much a new buyer can take out a mortgage.
And how do the buyers bid [00:45:00] against each other to make a winning bidder by the property? They promise to pay as much of the land rent as possible to the bank as interest. And, the bank ends up with all of this increasing land value that is being inflated on price, I should say land rent, not land value. The land rent has become the main source of banks interest. And, they want to keep this interest growing.
And the only way that they can avoid housing in Australia from being brought down to a level where it's affordable enough so Australia could have its own domestic industry would be to tax away the land rent and say, land rent is to be paid as the tax base. It's not to become the basis of financial fortunes for banks, many of which are foreign owned.
So the question is, [00:46:00] who's Australia going to put first -its own growth interests or the wealth of its banks? Well, the banks have controlled the politics of Australia very much, and, Australians have accepted the bank control as if they look at this price inflation either is a force of nature not as an artificially created result of the tax system. Or, they think real estate prices are going up, I wanna play that game and I wanna get rich by buying property and hoping that the banks are going to keep lending enough money so it continues to go up in price. But they don't realize that at the high prices that Australian real estate charges, it's going to be very hard to be competitive in a world economy.
And that's why Australia is dependent on financing its balance of payments by mineral exports, iron exports. [00:47:00] One banker explained to me Australia's very fortunate to live in a nice neighborhood of China so that it can have the Chinese market for its minerals. And also makes a lot of money by foreign students coming to its universities. this is not an industrial economy as such.
Jonathan: Talking about land value increases and stuff, you famously had a 2006 Harper's article that predicted a coming real estate collapse. We've now got global debt, 331% of GDP, commercial real estate is showing some shines of distress. I'm just wondering what should we be watching to look at when this potential slow crash could accelerate into a more acute crisis or a snap, as you've described it previously?
Michael Hudson: Well, banks were lending so much money against real estate in the United States that they were lending more money than the homeowners or the business owners could make in economic rent. So the only way that the housing [00:48:00] prices could continue to rise would be that the homeowners or the business owners would borrow the interest to pay the banks.
And you just add the interest charge onto the overall mortgage debt that was owed to the bank. The principle was exactly that of a Ponzi scheme. You need new entrants into the scheme in order to keep it expanding. And the new entrants were the banks themselves lending more and more money including lending the interest to bid up the price.
And there was an enormous amount of financial fraud in the United States, fictitious, mortgages. That's why the new terms were invented for the English language, like junk mortgage, meaning a mortgage that had no basis in the actual ability to be paid out of the existing rents that the real estate had. Or ninja- no income, no job, no assets.
Banks were just writing mortgages [00:49:00] and they knew that there was no way these mortgages could be paid that were extended to bid up the price of housing especially by the ethnic minorities who had been blocked from having access to bank credit to having their own homes.
You'd had the fictitious mortgages and the banks sold them to, for instance, community savings banks in Germany to Europeans. The American bankers said, boy, the Europeans are so naive, they trust us. You know, they don't realize that what's happening we can write mortgages that are completely unrealistic when it comes to their repayment prospects, but the Europeans will buy them. And, that's exactly what happened.
And that's why when the banks were bailed out in the United States, the French banks, and other foreign European banks, were bailed out as well, because they were all victims of this huge financial mortgage fraud for which nobody was [00:50:00] sent to jail.
Jonathan: What do you see happening in the next few years, Michael, if you were gonna write another Harper's article, how far away would you see us from the next crash?
The United States and European economies are locked into austerity. You may have price inflation largely as a result of the chaos caused by Donald Trump's tariffs. The basic analysis is debt deflation. More and more money has to be paid by wage earners to pay for rent and for monopoly prices that there's less and less money to pay for the goods and services that labor and industry produces.
So you're going to have a shrinking market in the United States and Europe. Germany is the most obvious case in this because it's been willing to commit economic suicide by cutting its industry off from low priced gas and oil from Russia.
But, the problem is plaguing all of the European [00:51:00] Union as well as the United States. And as, you pointed out a few minutes ago, England doesn't seem to be doing very much to rectify its problems either. I guess Thames Water is the model that you have to look at. England is, still living in the aftermath of Margaret Thatcher and Tony Blair.
Jonathan: I know some people call you Dr. Doom for your ability to predict economic issues for countries. What could we as citizens do looking at your experience from the ancient world all the way forward to today? How could citizens influence this process and what do we need to be doing to either change the system and if we can't change it enough, how can we protect ourselves and those we care about?
Well, I'm trying to put my reputation of Dr. Doom behind me and say, adopt solution. I'm trying to reintroduce classical economics into the policy debate so that people will think in terms of value, price, [00:52:00] and rent theory and realize that, if the economy is to recover and be prosperous, it has to get rid of this whole Rentier overhead.
The heaviest overhead is now no longer the landlord class, it's the financial class and the monopolies that the financial class created and the financialization of real estate that the financial class is created and the whole tax system that has protected rentier rental income from taxation that has forced it on to labor and industrial profits.
I think that if there was a renewal of the economics and the French Physiocrats, Adam Smith, John Stewart Mill, to Marx and Thorstein Veblen and the American economists such as Simon Patton, it doesn't have to be this way. But if you want a way out for the way that it is the path was all laid out [00:53:00] by the late 19th century. All of this changed with World War I.
Nobody in the late 19th century had forecast anything like the finance capitalism, and the polarization of economies that you have today. They all thought that the government is going to play an increasing role because the government will be the recipient of land rent and natural resource rent. The government will be investing in natural monopolies, communication, transportation, schooling, providing basic needs and services at cost or at a subsidized basis or freely in the case of public education and, healthcare for instance.
All of this was what was spelled out in the 19th century seemed to be moving towards a very balanced economy where you didn't need a centralized king to [00:54:00] essentially nationalize the rent and return land to the public domain. It seemed to be happening by the economic reform.
But World War I ended all that and Rentiers fought back, and my Killing the Host explained how the financial interests and the real estate interests fought back in the United States and England and in Europe against the classical economics and created a post-classical neoliberal economics that claimed that there was no such thing as unearned income -that bankers making tens of millions of dollars per year were the most productive workers in the United States because the GDP accounts include economic rent as gross national product.
What I'm trying to do is recast the concept of what is GDP, is land rent a product or is it a transfer payment from the economy to landlords? Is interest a [00:55:00] product or is it a charge? And when banks charge late fees- credit card companies make more money on late fees than they do on actual interest charges on the credit card- these late fees are all included as providing financial services.
In the US, GDP account is a product. I'm trying to promote the idea of if you think of what is really gross national product, you have that sort of stabilizing and going down in the western economy where the reported GDP is going up. But all of this increase in reported GDP is not product at all, it's economic rent. So I'm trying to get, a group of people who will go to the trouble of recasting the GDP accounts. And if you really visualize your economy as your real economy of production as shrinking and the [00:56:00] reported economy is all being economic overhead a kind of tumor on the real economy that will help, you think, well, maybe we ought to begin to measure, mathematize exactly how much economic rent is it and get rid of it. Either we tax the land or we take it into the public domain as ownership. Either we tax monopolies or better yet we don't want monopolies to exist. If something is a basic need and a natural monopoly, this should be provided by the government at cost or at a subsidized rate. All of these were what were discussed by the late 19th century and not only by Marxist, it was called socialism, but there were many kinds of socialism.
Henry George was considered a socialist. There was libertarian socialism, Christian socialism, Catholic socialism, Marxian socialism, social democratic socialism, mutual aid socialism. There was a whole idea that the [00:57:00] economy should not end up the way Margaret Thatcher and Ronald Reagan redesigned the British and American economies in the 1980s.
Jonathan: Hmm. So if anyone is feeling hopeless about the economic situation, it's not because there isn't hope, it's just because using the model of economics and control that's been forced upon us, mainly from around the first World war, we feel hopeless in that situation because that's really how it's designed.
The people in charge get more and more interest and they get the exponential growth of the compounding of their wealth. And it comes from ours because we have to pay more and more of our wealth in order to pay off mortgages and debts and other such things. So there's actually a whole load of answers if we go back to our original interview that we did.
And also, I know your work, the Destiny of Civilization on Economics and Killing the Host and all the other books that you've done, can offer people hope in that sense in that the solutions are actually relatively simple but they're not easy because we have to overcome the [00:58:00] control of the interest that do get all the interest and the land rent that we're currently paying to them. Is that right?
Michael Hudson: Yes, you've got it.
Jonathan: So instead of Dr. Doom, we'll call you Dr. Possible.
Yes. I'm trying to reintroduce the concept of economic rent as a distinction. Rent is not profit. Profits are part of value. That was what Marx contributed. He said that it is true that the industrialist makes more money than it costs him to actually hire labor. But, this surplus value is the industrialist contribution to production of organizing industry or creating markets for it creating supply. And so profits are an element of value. Rent is not an element of value. That's the concept that I'm trying to get across.
Jonathan: Michael, where do you see us going in the next few years? What do you see happening?
Michael Hudson: Well, you mentioned what I've discussed in our last discussion. it's still a slow crash. I guess, you could say a [00:59:00] slow crash that happens faster and faster. There's no way that there can be an economic recovery when more and more of the income of wage earners and of industrial firms have to be paid for land rent, monopoly, rent, natural resource, rent and financial, charge overhead.
These forms of overhead are crowding out spending on goods and services and the industrial economy. The question is whether the countries that are trying to dedollarize are more open to these ideas than the countries, Europe and America that remain in the dollar area.
I'm trying to talk to both. I'm talking to you and Britain. I'm talking to Americans. I'm talking to global south countries. So far nobody's really picked up the focus on the need to free economies from rent just as Europe freed itself from feudalism 200 years ago.
Jonathan: And what do you see as possible [01:00:00] triggers for the acceleration of the crisis?
Michael Hudson: That seems inevitable because that's compound interest. It's an upsweep. It gets Faster and faster. That's the mathematics of it.
Jonathan: And if you had to put some money on where you think the trigger's gonna be?
Michael Hudson: Usually there is a particular crisis. Some big firm goes bankrupt. Someone will make the wrong guess. Or, the chaos that Trump and American cold War policy is causing will create some economic crisis in some country like it's began to create in Germany.
This crisis will probably become politicized. But what worries me about Europe, and even England, is that so far, it's only a right wing political response that is positioning itself to take control of the crisis for itself. The left wing has disappeared as a group talking about economic conditions. It is ironic that almost the entire [01:01:00] talk of economic problems has occurred on the right by the nationalists, not by the former left parties. And of course, your Labour Party, you're never gonna have Starmer talking about the economic problems because he and leaders like him in Europe are part of the problem, not part of the solution.
Jonathan: I don't see a right, left anymore. I just see the same uni party saying the same things and Kier Starmer is more conservative than the conservatives now. He came in on a socialist platform and he is done hardly any of those things. The latest news is him pushing through welfare reforms and then more recently he was just saying how he wants UK defense spending to get up to 6% of the government budget.
Michael Hudson: That's a travesty of military keynesianism. but it's paying more money to the military industrial complex. That's the form of overhead also. It's not really part of the production, uh, economy as such.
Jonathan: No, no. Well, Michael, [01:02:00] it's absolutely fabulous to talk to you again. How can people find you and, learn more about your work?
Michael Hudson: Well, I have my website, Michael- hudson.com, and all of my interviews, and my writings are on the website. That comes out of Australia. And it's interesting, most of my contacts, are in Australia precisely because it's the most debt ridden financialized real estate bubble economy that there is. So of course there's a receptivity.
Jonathan: Would the Destiny of Civilisation be the best place to start to learn if someone doesn't already know about your economic theories, would that be the best place to focus ?
Michael Hudson: The Destiny of Civilization, followed by Killing the Host.
Jonathan: Well, Michael, thank you as always.
Michael Hudson: I love this discussion. There are not many discussions on this topic in the public media. Thank you very much for having me.