Finance Capitalism’s Self-Destructive Nature
By Michael HUDSON
Transcript of Interview on The Left Lens with Danny Haiphong May 25th, 2022.
DANNY HAIPHONG: Good afternoon, everyone. Happy Wednesday, May 25th, welcome to the stream, to another left lens. Today we have a very special guest so as you’re coming in make sure you are liking the stream sharing it, make sure that you are subscribing to the channel and hitting that notifications bell, and as always you know please do support this work here at this channel and all the work that I do at patreon.com/dannyhaiphong. But with that said I want to introduce our guests because we have a lot to talk about over the next hour and it is economist Michael Hudson.
He is the author of the new book, The Destiny of Civilization: Finance capitalism, Industrial Capitalism or Socialism and I’ll pull that up from his website very soon but I want to just say about Michael Hudson is that he’s been someone I’ve been following for quite some time. He has been making the rounds on various programs talking about political economy and he’s one of the foremost voices of understanding political economy today. Hi Michael, good to be with you thanks so much for joining us today
MICHAEL HUDSON: Good to meet you, Danny.
DANNY HAIPHONG: Very very good to meet you. So I’m going to pull up your new book in a second just on your website so people know where to go and I’ll make sure to link that in the chat so people know where to get it but I want to talk about first, so I mean we’re in an economic catastrophe in a lot of ways currently and there’s a lot of talk about, inflation and money, prices are skyrocketing, and one thing I really appreciate about your work is that you really do focus on political economy and you have been talking a lot about finance capital and something called super imperialism which you’ve written a book about and that has been updated several times even just last year so I wanted to get your take on the role of finance capital uh under this imperialist arrangement and in this time of the neo-liberal era in the united states and across much of the West in the world.
What is finance capital’s role? It seems so dominant now, it seems like the dominant class at this moment that really does control the levers of economic development. Could you talk about what role it plays and how it has spurred the crises that we’re going through today and you could talk about inflation but I definitely want to just kick it to you there so our viewers can get an understanding of the economics and an analysis of this.
MICHAEL HUDSON: Well, most people think of all kinds of capitalism as being the same and the assumption is that industrial capitalism of the nineteenth century somehow was always financialized because there were always banks but financial capitalism is you just pointed out is a political system and as a political system it’s very different from the industrial capitalism dynamic. In industrial capitalism, the whole aim or the hope of the industrial capitalists in the late nineteenth century, especially in Germany and central Europe was that banking would no longer be just usury, it wouldn’t be just consumer lending to exploit labor, and it wouldn’t be lending to the government somehow.
The financial system would recycle the economy savings and money creation and credit into industrial production and would finance the means of production to make that productive instead of predatory and parasitic as it became and that seemed to be the way that industrial capitalism was evolving up until World War I. Everything changed after that all of a sudden you had the financial system take over as a result of the crisis caused in the 1920s by the German reparations debt that couldn’t be paid and the inter-ally debt that was insisted upon to repay the United States for the arms that have supplied Europe for a century into World War I. Well, the result was a huge depression.
The allies said, well, we didn’t expect to actually have to pay the United States. If we have to pay the United States, then we have to charge reparations on Germany and for a decade there was a debate between John Maynard Keynes and Harold Moulton and others saying that these debts can’t be paid. How are you going to handle a situation where the debts can’t be paid?
The finance capitalists then were the basically the ancestors of today’s neoliberals and they said any amount of debt can be paid by any country if it just lowers the living standards and squeezes labor enough and that’s what basically the philosophy of the IMF ever since world war II when third world countries can’t pay the debt, the IMF comes in with an austerity program and say you have to lower wages, you have to break up labor unions, if necessary you have to have a democracy, and you can’t have a democracy unless you’re willing to assassinate and arrest the labor leaders and the advocates of land redistribution because a democracy means basically rule by the financial sector centered in the united states. And so finance capitalism ever since WWI and especially WWII and especially since 1980 is the nationalistic doctrine of American banks and the American one percent, and the American financial sector that is sort of merged into a symbiotic unit with the finance insurance and real estate.
In other words, finance capitalism instead of trying to promote overall economic growth for the 99 percent, instead of financing the industrialization of an economy with rising productivity and rising living standards, is now cannibalizing the industrial sector, cannibalizing the corporate sector. As you’re seeing in the U.S., finance capitalism is the economic doctrine of deindustrialization that has occurred in America in England and is now occurring in Europe.
Well, the problem is how do you survive if you’re not industrializing, if you’re not producing your own means of subsistence and how are you going to get this from other countries? Well, the answer is you don’t go to war with them like countries used to go to war with each other to grab their money and their land, you use finance as the new means of war so finance capitalism is the tactic of economic warfare by the United States against Europe and the global south to sort of draw all of the economic surplus of these countries in the form of debt service and the debt service is supplied by basically economic rent seeking from land rent, natural resource rent, and just plain interest charges on economy. So, none of these are really the result of industrial profits that are made by employing labor and uh selling its products at a markup.
Finance capitalism is not based on surplus value like industrial capitalism was. In fact, it destroys industry and in this cannibalizing of industrial capital, it basically dries out the economy and makes it unable to break even or even to function and in the United States today, for instance, if you look at the balance sheets of corporate revenue much of it is spent on stock buybacks. You buy back your own stock or dividend payouts. Only eight percent of corporate earnings are spent on new capital investment research and development: factories, machinery, and means of production to employ labor.
How did General Electric (GE) go broke? Basically, Jack Welch said let’s use our income not to continue to invest in making more electronic goods and services and appliances, let’s use it to buy our own stock that’ll push up our stock and essentially, we’ll just sell off our divisions and we’ll use the money of selling off our washing machine companies and stoves and sell it off and we’ll just pay it to the stockholders. That’ll push it up and by the way his salary was based on how much he could push up the stock of GE and he was paid in the form of stock options. Well, all of this is now the normal corporate behavior in the United States and corporations are no longer led by industrial engineers as they were a few centuries ago in the nineteenth and twentieth century.
They’re led by financial engineers of the chief financial officer and the ideal of these corporations is to make money financially not by industrial investment….. so on the narrow microeconomic level finance capitalism is a way of basically selling out a company and giving the proceeds to the stockholders and the bondholders but as a political system, because it is so destructive of the economy as you’ve seen in the United States and you’ve seen in Britain through de-industrializing it, it becomes belligerent in an attempt to make other countries just as equally paralyzed by making these countries pay tribute to the U.S. and England and the financialized economies by means of financial engineering, by means of debt service, by means of selling their mineral resources, their public utilities, their land, their roads all to foreign investors–basically to who borrows the money that’s just simply created in the U.S. and to save all of their money in their central bank reserves in the forms of loans to the U.S. treasury holding treasury bonds which is how the international monetary system worked until just a few months ago when everything changed.
So if you’re England and America right now you can look at President Biden’s speeches and he said well, China is our number one enemy because it’s competing unfairly. China is actually subsidizing industrial development by having its own infrastructure. It gives free education instead of privatizing education and making its labor pay for it. It has public health instead of privatizing social medicine like we do in the United States and making employers and workers pay for it.
Well, industrial capitalism in the nineteenth century was all in favor of strong government infrastructure. The ideal of industrial capitalism was to keep the wage costs of production down not by reducing wages but having government provide a basic infrastructure to cover the basic
needs of employees. The governments would provide free education so that employers didn’t have to pay for it. The governments would provide medical care so that employees didn’t have to pay for it and employers wouldn’t have to pay employees enough money to cover the education costs and to cover the medical care costs. The government would build roads and infrastructure and everything to facilitate the overall cost of doing business by industrial capital.
Well finance capitalism is just the reverse. Finance capitalism wants to privatize and take education, medical care, roads, turn the roads into toll roads, and take all of these and privatize them and make them financial corporations that will essentially pay out their economic rent to the bondholders and the stockholders and this economic rent adds to the cost of education and everything else that workers need to live on so the result is to make it a high cost economy and that’s why Biden has said China and Russia are America’s enemies because the only way that America can succeed given our privatized economy, given the fact that Americans have to pay up to forty three percent of their income for rent, given the fact that eighteen percent of America’s GDP is for medical care, given the heavy student loan debt–only if other countries tie themselves in the same knot, only if other countries impose the same economic overhead on their labor force and on their industry can there be equal competition.
If other countries have a mixed economy and are more efficient because they have an active government providing basic needs, that’s “autocracy” and that’s the opposite of “democracy.” Democracy is where everything is privatized and ultimately the one percent own everything.
Autocracy is any government that’s strong enough to have its own public investment. Any government strong enough to tax or regulate the financial sector is called “autocracy” so the U.S. in the 19th century would be called an autocracy as I guess the Austrian school called it
– civilization is basically an “autocracy.”
There never has been an unmixed economy without government regulation, without a government investment, although Rome began to get to that point at the end of its empire and we all know what happened to it. So basically, finance capitalism is a predatory international economic policy aimed at draining the rest of the world all to pay the leading one percent of wealth holders in the U.S. and their satellite oligarchy in England and a few European countries.
DANNY HAIPHONG: Well, I mean that was an incredible summary with so much in there. I mean what you describe reminds me of what we have called at Black Agenda Report, this Great Race to the Bottom, like that is what finance capital facilitates because it’s you know there’s a lot of talk about outsourcing and production going from the U.S. and the West to other places, the global south, poor countries, oppressed nations, and all of it is underwritten by finance capital because it’s this international monetary system that you describe which is actually plundering the Global South for super profits and also plundering the United States and the West’s economic base for super profits.
So it’s like the super profits come rolling in from all sides and oftentimes the jingoists and the chauvinists will frame things as oh well China is taking our jobs. They rarely say Bangladesh or some other country that is actually being super exploited. So in many ways it’s framed like that to distract us from everything that you described. The fact that this class and this policy are plundering from all sides.
MICHAEL HUDSON: Well, you use the word super profit and, in a way, what is super profit? Super profit is what the classical economists called economic rent. It’s over and above profit. Profits are made by employing labor and basically that’s not how most wealth is created in
today’s world. A financialized economy sees wealth is not created by making profits by investing in factories and plant and equipment and employing labor to make a profit, it’s made on getting a third world country, a global south country in debt and saying well if you can’t pay the debt yeah that we’ve given you then you have to sell off your raw materials, your land, all of your natural monopolies and the way to make money in finance capitalism is to buy up the monopolies and the whole idea of industrial capitalism was to get rid of economic rent.
The main aim was to get rid of the landlord class that was the carryover from feudalism, the warrior warlords that had conquered England and France and other countries. Land was to be brought into the public domain. That was the first item in the communist manifesto. You tax the land rent and then nationalize and socialize the land. The idea was to get rid of monopoly rent because monopoly rent is unearned income and to get rid and essentially to get rid of financial rent of interest that is just made as John Stewart Mill said and you ‘make it in the sleep’ if you’re a bond holder or a landlord. You get the rents not from playing any productive service at all but making this money in the sleep and so that has nothing to do with profits.
Unfortunately, the national income accounts don’t label economic rent as a distinct category they call any income that someone makes whether it’s a Goldman Sachs and Citibank or GE or any country and call it earnings and the theory is that everybody earns what they make but that wasn’t the idea of industrial capitalism.
The idea of industrial capitalism is from the physiocrats and Adam Smith and John Stewart Mill and Marx was that earnings were something that was actually made productively with money by employing labor to produce a surplus that would be reinvested but economic rent was unearned and that’s why natural monopolies should all be kept in the public domain instead of being available to be monopolized. So, like in America when Indiana ran into trouble it privatized and sold out the roads to be made into a toll road and now almost everybody avoids the toll roads and drives on the side roads.
When Chicago had problems paying its local debt, they sold the rights to the sidewalk and parking meters causing vast increases in the cost of living and doing business if you live in downtown Chicago where you have to park a car. So the ideal of industrial capitalism was I guess what Schumpeter called creative destruction by lowering the cost of production the way that a country would, an industrial country would win out in the world market, first England then the United States, Germany, Japan, and the way that they went out was by underselling competitors.
But finance capitalism adds as much as it can to the cost of production. It adds as much as it can to the cost of living because instead of treating education and healthcare and transportation as a public right, a natural human right, it’s all privatized by the one percent.
DANNY HAIPHONG: Yeah, I mean it’s so true. Even in the Communist Manifesto there’s a section where Marx outlines the very idea of what socialism would look like and in it, it’s explicit how socialism will begin with the commanding heights of the economy, as you said these natural monopolies, they were going to be public owned like that’s the only way that you can have anything remotely socialist and now we’ve gotten to the point where finance capital has usurped them, has completely privatized them or is attempting to with whatever is left of the public domain, the public sector so to speak globally. And you bring up this really interesting point about the cost of everything going up, especially the cost of production.
I mean that’s just seen in how a lot of these big corporations have enormous amounts of debt now, corporate debt is at this astronomical level and you think well, look at all these super profits they’re making, look at all these huge profits they’re making. We always hear about all these corporations making these huge profits but we rarely hear about all the debt that these corporations are accumulating because of finance capital and so it’s really incredible.
I love talking about this because it’s these things that we don’t hear about because finance capital really is writing the rules and they have such undue influence over the media and over so many things. So I wanted to ask though about China so let’s just jump there because I want to ask you a question because I recently got into a debate with this, I don’t even know if I want to call a journalist but he’s a commentator, Matt Stoller. He’s very anti-China and this is a talking point especially on the far right but I would say that a lot of people think this, a lot of people think China and Wall Street are merged together, that they work together to undermine workers across the world especially in the capitalist epicenters, of the finance capitalist epicenters so to speak, U.S. and the Western countries.
Could you talk about China and its monetary system? You mentioned it briefly about why the U.S. is so hostile right now, why Biden can’t stop talking about competition and autocracy versus democracy. You talk about the differences in the monetary systems and how China treats finance because I think this is not really well understood and it has global implications. I think it has huge implications because I think there’s a general shift in a direction of how we address this flailing dollar-led economy, the global economy of imperialism and China is really at the center of this so could you speak on this if you would?
MICHAEL HUDSON: Well, what gets Americans so upset is that China’s getting rich by doing exactly what the United States did in the 19th century. I’ve written a book America’s protectionist takeoff where I described the whole idea of American protectionism was tariff protection for its industry, government subsidized research and development, government subsidy of industry by having infrastructure as a fourth factor of production alongside land labor and capital – and it was supposed to have public banking.
So basically China, like the United States, said we want to raise the living standards of labor not because of an abstract ideal but because highly paid labor is more efficient labor, a highly paid labor is more educated, it’s better fed, it’s healthier and the Americans in the nineteenth century pointed out that America was the highest paid labor in the world but it was also the most productive and high paid labor outsold pauper labor.
Well China began under Mao with, you’d look at pictures back in the fifties, and even early sixties and you’d see masses of beggars and I’d look at the pictures and I said how on earth are they going to solve this problem? Well, they actually did it and China realized that in order to survive in the modern world you had to have uh well-paid, well-housed, well-fed, well-educated labor and they’ve done it.
The difference is that America had kept money creation in the hands of the treasury ever since the greenbacks in America’s Civil War. Basically, the government created money but in 1913, JP Morgan and the financial sector got together and they said we’ve got to get the government out of money and credit. If we can control money and credit, we can control the economy so they convinced President Wilson to have the Federal Reserve. They said we’re not even going to let a treasury official be on the Federal Reserve.
We’re going to move the Federal Reserve banks out of Washington. We’re going to have the key bank in New York where Wall Street is the ideal of a Federal Reserve to make a centrally planned economy and America is a much more centralized planned economy than China but its centralized planning is on Wall Street by the financial sector, by the leading financial corporations instead of the government.
So, where America took economic forward planning out of the hands of the government in 1913, China has kept the financial system in the hands of the government. Let’s look at how these two countries create money in a different way since the Obama depression began in 2008.
The Federal Reserve has created a tidal wave of credit, all into the stock market, in the bond market, all of this recent zero interest policy. This flood, these nine trillion dollars of federal reserve credit has only been to support banks, real estate prices, bond and stock prices, to support property prices. That’s not what they do in China, although the prosperity that China has created has increased uh housing prices and there has been private credit increasing housing prices. China has kept money creation in the hands of the government itself so that when the government creates money it can finance the creation of factories plant and equipment, dams, transportation infrastructure, public housing.
It doesn’t create money to lend to financial speculators and stockholders to increase their holdings, it creates actual tangible means of production. Now of course, if you create tangible means of production and employ labor and have high speed railroads and research laboratories, you’re going to overtake countries that are busy closing down the factories and cutting back research and development because they want quick payouts.
So the chief public utility to be kept in the public domain, (China realizes and has realized from the beginning) is the banking system and credit creation even so there’s still private credit creation to some extent. They’ve also let some participation by American Wall Street firms such as Goldman Sachs because it’s hoped, it wants to avoid war and it hopes that it can by providing opportunities for financial profit to American companies that will somehow uh convince Wall Street to resist the Biden administration’s race hatred of China and the attempt to move towards a new war against China.
Obviously, the assumption that China made that seemed rational at the time was well the American economy is run by Wall street so if we can have Wall Street say we’re doing just fine with China, everything’s going to be okay. But Wall Street and the Federal Reserve bank and the treasury have not even been consulted on this year’s war, NATO’s war with Russia in Ukraine at all. It’s Blinken and Biden and the neocons basically are waging a war that has sidelined finance and the result is to create the present crash in stock market prices and the parallel decline in bond prices.
So, finance capitalism is intrinsically self-destructive whereas industrial capitalism is self-expansive. Finance capitalism is self-destructive and that’s exactly what’s happening today and that’s what China wants to avoid by basically following the logic of what used to be called industrial capitalism.
By the 19th century, everybody used the word socialism and it wasn’t only the Marxists that were using the word socialism. There were Christian socialists, libertarian socialists, anarchist socialists and all different kinds of socialists. They recognized that you have to have the government sponsorship of a balanced and fair economic development. You have to prevent people from getting rich not by providing any productive service at all but just by being good rip-off artists and that’s basically what finance capitalism is: opportunity for rip-off artists to get rich uh by taking money away from the 99 percent, into their own hands.
DANNY HAIPHONG: Yeah, and that’s exactly what has happened and we’ve seen the differing results between China and the United States since that crash. China was able to sustain growth despite the worldwide economic crisis. As you said, living standards still rose. I think wages were going up something like seven to ten percent every year after the financial crisis and a lot of that was because of investment in jobs.
I’ve spoken to people in China and they say well in China if you go work for a factory, wages tend to rise and actually workers want to go there and sometimes they don’t want to leave even though China is trying to move more into the high-tech sector and the service sector. A lot of people want to stay in the factory jobs because it’s paying and it has some of these benefits and subsidies that are very alien here now.
I tell people there’s a housing allowance and they’re like what’s that? Like how could you say that? It’s China! China’s horrible! It’s like, well, you know factory workers have a housing allowance. How are you going to reproduce labor? We look at Marx and China’s very big on Marx. Look at what Marx was saying you got to reproduce the worker, you got to make sure that the worker has what they need, like that’s the bare minimum of what any economy should do but that’s what capitalism was originally supposed to do.
You reproduce the worker so you can extract the surplus. Finance capital is a great race to the bottom that workers oftentimes are not reproducing themselves. There’s a huge crisis of life expectancy and all sorts of things that didn’t used to be characteristic of capitalism. Standards used to rise as capitalism developed more advanced productive forces.
You mentioned this current crisis of the dollar and finance capital kind of being sidelined in the Ukraine crisis. I find this very interesting because finance capital is so hegemonic and it has so much influence over Washington and Europe but what you’re saying is very true because and we just see it that there’s just a catastrophe. There’s this huge inflation and there’s the crisis of the dollar like what’s happening here?
How come it seems that the further and further the United States gets into this proxy war with Russia over Ukraine, the more and more it deepens its involvement, and it’s been a long involvement, it’s not just since February, but ever since this period we’ve seen just this impending economic collapse. So, what’s happening here? Why is it that finance capital is sidelined and how do you see this going with the Ukraine crisis especially around the dollar?
MICHAEL HUDSON: What do you mean by crisis of the dollar?
DANNY HAIPHONG: Well, it seems like what the United States is trying to impose its hegemony through its foreign sanctions, is having this blowback effect where now you have countries seeking alternatives to the dollar and the U.S. seems to be more economically vulnerable even though it’s expanding and trying to dominate. It’s this very strange contradiction that feels very unstable and it feels like the dollar is artificially inflating itself as it is also dealing with the fact that there is no end game here in Ukraine. It seems like messing with a big country like Russia and its relationship to Europe is moving us toward economic catastrophe, an economic crisis if there’s not already one underfoot.
MICHAEL HUDSON: No that’s not what’s happening with the dollar at all. People with all of the emphasis on America’s war against Russia to try to break it away from China before going to war with China, the first thing that America wanted to do was to lock in its control over Europe because that’s the easiest way to get things is you want to take over the richest economies in the
world and lock them into the United States and that means taking over the Eurozone, England and Japan. And the dollar has been soaring against these currencies.
To put it another way, the Euro has been plunging toward one dollar per Euro. The pound sterling has been plunging to one dollar per sterling. The Japanese yen has been plunging even more so there’s a huge movement to safety into the dollar.
The Americans have successfully destroyed the basis of European industry. They’ve finally beaten Germany. They’ve left Germany without energy and GDP in any country compared to energy per worker and basically the productivity that makes goods is basically embodied energy and Europe has been getting its energy from Russia in the form of gas and oil.
Well, the United States has asked Europe to commit economic suicide basically by saying, “don’t buy Russian gas, wait three or four years, spend five billion dollars on building new ports so that you can import American liquefied natural gas at seven or eight times the price and meanwhile let your chemical industry, your car industry, your basic industries go bankrupt. Take it on the chin for America and Europe said, “okay not Europe but the politicians that America have meddled in European politics to promote to sign on the dotted line for treaties” made that decision so even if the Europeans don’t want to commit suicide, America has its proxy politicians in its Tony Blairs, in the head of the social Democratic Party in the advocates of pollution and global warming at the head of the Green Party.
You have in England you have a Boris Yeltsin and in Japan you have leaders who are willing to continue to sacrifice Japan’s growth to serve the United States. So these countries, the investors in Europe, England, and Japan are moving their money into the United States especially because the United States is raising its interest rates through the Federal Reserve and that’s telling Japan and Europe not to do it so the Eurozone has very low rates.
People are borrowing at under one percent and moving it into the United States to make two, two and a half percent. Japan has almost interest-free money from the central bank. It’s moved its money into the U.S. so the dollar, while I won’t say it’s soaring against these currencies, other currencies in the U.S. orbit are collapsing against the dollar because they’re following U.S. advice.
So, I think when you say other countries are breaking away, you’re talking about the bulk of the world, Central Asia and Latin America and China and the key to the present New Cold War is America has to achieve its almost dictatorial dominance over Europe and Japan. It’s the client oligarchies and client dictatorships and without realizing that this is American democracy, where the leaders of the whole world follow what the United States tells them to do because the United States identifies itself as the democratic center.
So democracy no longer means a political system where voters get to determine who is in charge, democracy is the policy dictated by the United States State Department. Any country that goes its own way or develops the power potentially to go its own way such as China and Russia is called an autocracy. So, you have to realize in today’s world democracy is autocracy and autocracy is democracy.
You could say yeah, the question is of course will the world really break into two halves and it looks like it is breaking into parts and there will be the U.S. and its allies, the U.S., Europe, and Japan against a Eurasian core that will go hand in hand with Africa and Latin America and other Asian countries who are able to rely on trade and investment among themselves. And the United States by seeming to isolate Russia and China and Iran and other countries actually is isolating its own dollar from the rest of the world. So, there is an iron curtain but it’s not to keep other countries out, it’s to keep its own allies within.
DANNY HAIPHONG: Do you see this succeeding? We’ve been hearing a lot about Russia’s relationship with Europe and just how deep its energy sector is with Europe and how that relationship is a very difficult relationship to break economically. Although Europe is doing everything it can, everything you’ve described. It made me think about how throughout this crisis Europe, because of the dominance of the U.S. and just listening to whatever the U.S. said, was actually going way above and beyond what the U.S. would commit to in terms of Russia and how economically they would wage this kind of warfare. But China and Russia, with Russia’s energy and its natural resources but China I think in a broader kind of portfolio, have so much to offer to Europe, do you think that this will succeed?
Europe has been going the road of austerity for many years but this seems like such a huge step in that direction. Europe could look very much like the United States very soon. Do you see this working given how China has so much to offer it and already has a lot of countries in Europe maybe not the biggest of the clients like the UK for example but a lot of European countries have big relationships with China even the UK does despite all of the nonsense, all the New Cold War stuff. What do you think? Do you think this will work?
MICHAEL HUDSON: There’s a lot of crap that futurists tend to fall into and that’s imagining that countries are going to act in their self-interest. This is the mistake Stalin made with Hitler. He thought if Germany attacks Russia in World War II, it’s obviously going to lose. No sane country would attack Russia just as winter’s coming but Hitler attacked Russia. You’d think that if you tried to say what is a logical future.
Let’s go back to 1991 when the Soviet Union self-dissolved. The whole idea, the dream at that point according to Russia’s leaders was well, if we can have peace, we’re not going to have a war budget anymore. Europe is going to invest in us and help us rebuild a rationalized, efficient industry and we will trade with Europe and we’ll both get rich on mutual trade.
Well, this terrified the United States. It said, “oh my! We want it, we Americans want to be the beneficiaries of Russia.” We don’t want to trade with it. We want to carve it up and privatize it and take over. Basically, have Wall Street take over its oil resources, its gas resources, its nickel resources, its electric utilities. The last thing America wanted was this symbiotic mutual gain between Europe and Russia and I think that Putin and most of the leaders at that time expected that Europe would act in its self-interest and they could both end up gaining.
But that’s not what happened obviously. Europe followed American dictates and continues to because it’s, again, its leaders follow, its leaders are really just like Zelensky in Ukraine, they’re just as dependent on what the State Department dictates to them to do as Zelensky is. And there’s something evangelistic about it.
The Europeans I’ve spoken to really believe that America is the land of the future and that neoliberalism, that finance capitalism, somehow is going to be an ideal of private enterprise. They’ve bought the rat poison, they’ve eaten the rat poison, and they actually believe it and think of themselves not simply as servants of the United States following what it’s doing. As the Pakistan former Prime Minister said a few weeks ago, slaves of the United States policy, they actually are evangelistic promoters of neoliberalism and as sort of disciples, just as bishops you could say really. It’s like a religion and they treat the American-centered neoliberalism as the new religion . It’s literally a crusade against Russia and Europe and I think this has shocked Putin.
I would imagine the Chinese leadership also thinking: How can Europe be so completely unrealistic? How can its media lie so constantly about what’s really happening in Ukraine? How can Europe deify the neo-Nazis in Ukraine as freedom fighters, as heroes, as wonderful people to be supported? I think this has been such a shock to the Russian leadership that they realize finally that, well, Europe is not going to act in its self-interest.
There is not going to be any mutual gain. Europe again and again is just going to grab any money that we have there like they’ve grabbed our whatever was in European or American banks. There’s really nothing we can do. So there’s been a fundamental reorganization with Russia and the rest of the Shanghai Cooperation Organization (SCO), meaning not only with China but with Iran, with India, with all of the other Eurasian countries. So, in that sense the United States has brought about exactly what it feared. The whole rest of the world is going its own way productively in a capital investment way, raising living standards, things that democracies are supposed to do well.
In the United States, we really don’t have democracy because the political parties are controlled by the donor class, the one percent, that’s what the Citizens United Supreme Court ruling meant. The United States is left without any means of self-support and Europe will be left without any means and self-support at some point. Europe may say, gee we made a mistake, maybe we should have tried to profit from Russia because everybody else is profiting with and getting Russian gas and nickel and China and other countries are rebuilding Russian industry and we could have had our car industry build up Russia but we don’t have a car industry anymore because it doesn’t have the gas that it needs and the raw materials and titanium it needs from Russia so now, we’ve seen other countries replace us.
And so, Europe has been rendered pretty much obsolete and even if it says we made a mistake, let’s be friends again, I don’t think Russia or other countries will trust it mainly because they can afford not to trust it.
They say, why take a risk with trusting Europe may not just continue to be America’s poodle?
Why take a risk? Why not just say, we’re doing just fine the way we are? Why not just work with each other peacefully? And all that the United States can do about this is threaten to bomb it and the way to stay away from this threat is simply to say look, you go your way, we’ll go our way and to have enough of the military between them to defend themselves against the American potential military attack despite the almost eight hundred military bases the United States has. If the United States is not getting foreign exchange from these countries anymore, the dollar with the euro and the yen and the sterling will all go way down against the Eurasian currency block and they’re going to move into a common block with their own counterpart to the IMF, their own counterpart to the World Bank, their own trade organization and the world will be split into two parts – just like the world split when the Roman empire fell apart and the east went forward, Western Europe went down. This is really the final submergence of western Europe.
DANNY HAIPHONG: Yeah, I mean you have more activity now in the BRICS plus, right. The BRIC countries are trying to move forward and add more partners and expand their financial operations. I mean there’s so many multilateral institutions mainly led by China with Russia’s heavy involvement and in other countries that are building a kind of independent monetary system and economic development system that can as you said ‘avoid the risks’.
The Ukraine crisis is such a huge deal in part because of how geopolitics like you were saying, geopolitics plays such a big role. What the United States has done and what Europe has done during this Ukraine crisis is show countries like Russia and China that they not only cannot be trusted but it’s almost a guarantee that not only will this Ukraine situation have no quick ending right, there’s no like, we’re pulling out! The ball is rolling and they can’t catch it. They’re not going to be able to stop what they’re doing. There’s so many issues with that but they’ve even escalated the situation. You have countries like Finland and Sweden saying we’re going to join NATO. You have just so many, just all of these points that show that the United States and Europe can’t be trusted.
What are you to do other than make sure that you can keep the right, as China says, to sovereign economic development safe? And the only way you do that is by increasing that sovereign part, sovereignty, and I think Russia learned a big lesson here. I mean you mentioned those assets that were stolen. They were just stolen. It was bigger than Afghanistan which had the same situation happen to it but with Russia it was probably the biggest problem with all the economic moves that were made against Russia, the assets being stolen right out from under it. That’s a huge blow economically and it facilitated so much change.
But I wanted to and you know this is the last question because I feel like a lot of these developments are leading to a positive thing that we see countries like China and Russia increase the sovereignty of their economic development models. Can you end with talking about socialism and you know, where do you see this concept of socialism going as an economy, as
a political economy?
We know China has its model, other countries are trying their own models, but what do you think are its prospects now in this environment because China has its particular model, it seems like a lot of countries want to emulate that. You see Cuba and other countries wanting to understand how to do what China has done because it is an economic miracle in a lot of ways.
You were talking about how China was living, how people were living in China just in the sixties and seventies, it’s just a completely different situation. What do you see the prospects of it in this a very chaotic environment, the geopolitics imperialist finance capital it’s creating all this chaos, what do you think the prospects are and could you I guess enlighten our audience about socialism and your work on it?
MICHAEL HUDSON: Well socialism is really how industrial capitalism of the 19th century was supposed to evolve. Everybody thought that it was going to evolve into a more democratic system because the first aim of industrial capitalism, what it really needed politically was to get rid of the landlord class because there’s no way that, as David Ricardo pointed out, there’s no way that England could become the workshop of the world if you let the landlord class continue to get more and more land rent and force labor to pay more and more for its food.
Today, it’s housing as well as food. There’s no way that it could be competitive so in order to get rid of the landlord class, you had to get rid of the house of lords in England and the upper house in every European country because the upper house and the senate were controlled by the hereditary landlords and so industrial capitalism backed democracy.
Already by 1848, the year that the Communist Manifesto was written, that led to revolutions all over European countries getting rid of the old aristocracy. Well, the rentiers fought back and actually it was wasn’t until World War I that the monarchies were overthrown and the aristocracies connected to the monarchies and land no longer was owned by a hereditary class. It was democratized but it was democratized on credit and that you had the banking system replay the role that the landlord class had played out before and the bankers were the new rentier class. The bankers were the new people whose interest charges and debt services and privatization of economic rents prevented economies from underselling non-rentier economies.
So, socialism was basically getting rid of the free lunch. Marx described capitalism as being revolutionary because he said what was revolutionary was getting rid of all of the unnecessary cost of production and that meant the unnecessary rentiers, the rent seekers, the coupon clippers, the financiers, and the monopolists. Everybody could agree that socialism was getting rid of this parasitic class that was not necessary for economies to grow and actually whose takings slowed the economy.
Socialism was to free economies and free markets from rent seeking, not freedom for rent seeking. After the 1890s, socialism was to get rid of a free lunch income whereas finance capitalism is all about how to get a free lunch if you’re a member of the one percent.
So in one sense, socialism is freeing economies from the legacy of feudalism which fought back in the modern world into a kind of neo-feudalism operating through financial control, not simply land ownership and monopoly ownership. And China has been able to get rid of this and at the same time avoid the central planning that gave socialism a bad name under Stalinism because China said well, let one hundred flowers bloom and we’re going to we realize that we can’t plan all sorts of innovations because there are so many possibilities of productive innovations.
We’re going to let people get rich by being creative, by being productive, by adding but we’re not going to let them get super rich. They can get pretty rich but then at a certain point they’re so rich that they’re getting rid of a monopoly we’re going to sort of cut down the high grains of wheat as they say so they’ve got a sort of consensus government where this occurs.
Other countries will have great difficulty putting this in place because there really isn’t any economic doctrine of socialism that’s been developed recently. There’s been just an out of hand rejection of all discussion of what socialism really was and what makes a socialist economy more efficient than a finance capitalist economy and that really is the key.
If countries, if economic theory, would talk about what makes a socialist country more efficient- lower cost with higher living standards-then it wouldn’t be economics anymore because economics are what gets published in the University of Chicago economic journals. I don’t know what you should call it, futurism or reality economics. There has to be a new discipline that our countries are going to develop to try to explain how to think about developing a world that doesn’t have parasites in it.
DANNY HAIPHONG: Right, so true. I mean what you were saying about all this, it just gets you thinking about what China has done to be able to control these forces. You see it in the tech sector especially, now you see it with this common prosperity drive. Like there is a drive to control these forces that can, as industrial capitalism found out of the old in America and Europe, you let those forces get out of control and then finance capital turns around and takes everything. And China has prevented that and you don’t hear it, even in like the Bernie Sanders social democracy milieu, you don’t hear them talk about this.
They’ll say like socialism is when you have Medicare for All but it’s not just that, it’s how as you were saying, what are the forces that need to be arrested? What are the forces that need to be strengthened to be able to ensure that the public good and public wealth is protected? That’s not in the discussion. It’s still not in the discussion.
I mean, it’s not on discussion even among the most so-called progressives. But they don’t talk about it like that because as you said earlier, it’s like autocracy or authoritarianism or something when a government is strong in the interests of economic development for people. It’s almost like finance capital has dominated even just the idea of it and the idea of what socialism is and what it could be.
But Michael, do you have like five to ten more minutes for a couple of questions? We had some in the audience and I think one of them is very good and I wanted to know your take on it.
Thank you for the super chat. So, they said that the People’s Republic of China has three trillion in USD foreign exchange reserves. What measures, I know that you’ve done a lot of work in China and you’ve done a lot of work around this. This person’s asking, what measures should the central government take to ensure they don’t get seized just like how the U.S. seized Russia’s foreign exchange reserves but I’ll let you answer that because I think that’s a great question.
MICHAEL HUDSON: Well, I bet this is just what they’re discussing right now in China. Because of COVID, I haven’t gone there since 2019 because I’d have to be isolated in a hotel room for two weeks so I’m not party to their discussion but they’re obviously worried that the Americans can do to them what they did to Russia. What are they going to do?
They need to keep some dollars just to intervene in the foreign exchange market to stabilize their exchange rate but they don’t need too many dollars and in fact in the third edition of my book Super Imperialism, which is coming out in Chinese now, the first edition sold about sixty thousand copies there and it is the first book of mine translated in China. So that was all about this question that you asked. This is very much in discussion now.
How do they run down their dollar holdings and what are they going to replace it with? Well, in principle they can replace it with holding each other’s currencies: Rubles, Indian currency and Pakistan currency and with gold because gold doesn’t have a liability attached to it. It’s a pure asset.
The world, the whole world is now de-dollarizing. America has, or Biden has, killed the dollar standard. This was America’s free lunch, being able to print dollars and never have to pay them back and now countries are all going to be dumping the dollars. They realize that America is just a gangster state financially and obviously they’re going to dump the dollars and this probably will push up China’s exchange rate and countries selling the dollars will increase their exchange rate against the dollar and that will hurt their relative exports. So, I think they’re trying to figure out how we can all do this together and keep a rough parity among our own currencies while really de-dollarizing. I don’t know what they’re doing but you can be sure this is what is on the forefront of everybody’s mind there.
DANNY HAIPHONG: Indeed indeed. It’s a huge question. I mean it really is trying to unravel and get oneself out of this hegemonic system, the dollar system. It’s something that you cannot escape and there’s been so much unfair, I feel like unfair condemnation and criticism of China and other countries trying to go their own path, for just their participation, it’s something you need to participate in right now to survive absent of another system.
Last question and I mean this isn’t so related to what we’re talking about but it is I think a good super chat question and I think it gets into economics too. What are the chances that China will simply not open back up for the next ten years or so looking at this long term because of COVID-19. I don’t know what you think Michael. My opinion of that from what I’ve learned about China there is a huge domestic tourism industry and foreign tourism is very important but I don’t know for me it feels like it’s going to open up before that. It seems like the economic situation that COVID-19 restrictions are difficult to continue on permanently but what do you think? Do you think that China could maintain these kinds of hard travel restrictions for a long period? I hope not. I want to go back; I need to go back and learn more but what do you think?
MICHAEL HUDSON: Well, I asked that very question of the universities that I’m associated with yesterday. We had a long discussion and the answer is nobody has a clue. They’ve been criticized in the West for avoiding COVID-19 but there’s no discussion in America or Europe of
long COVID and now that there’s a report that a million Americans have long COVID and it really seems awful, your IQ goes down by ten percent and it’s almost like inheriting a trust fund. You’re stupefied. As a result of that they’re also tired. Some professors I know there say that
they still have not fully recovered from COVID months and months ago. They still had very low
energy. There’s no way of knowing. This doesn’t look good and if the thought of staying in you know traveling all the way over there, staying in an isolated hotel for two weeks just to have a few days of meetings and then come back and be isolated again, nobody has a clue but it doesn’t look good.
DANNY HAIPHONG: No, it doesn’t and I myself, I’ve avoided COVID unironically like the plague like I am so lucky not to have caught it and part of it is U don’t want, exactly what you’re saying, long COVID. I don’t want that. I don’t want that in my life and I feel like you know I know so many people who have gotten COVID-19 and they lived through it and while they had it, it was awful. It was bad but they lived but now they have all of these other symptoms like I know people who had their whole lives kind of turned upside down because they just can’t get the energy back or the motivation or whatever it is.
It has an effect on your breathing and mental health and there’s so many aspects of long COVID that are difficult to understand and I think china you know at one point it was like a twenty one day quarantine. I know people who are traveling there and who go there often and they were staying twenty-one days you know in a quarantine hotel. I mean you know China has done such a great job containing and addressing COVID as best that they can under these circumstances. And so well of course I have my own deep desires to go back, but I totally understand why the government and why the people there who support this policy would be very careful because you have in China a population so huge. If they did what the United States did, I think the recent estimates are like one point seven million would die and then how many would have long COVID? Millions upon millions more because the case numbers would be astronomical through the roof.
MICHAEL HUDSON I am sure they’re watching what happens in North Korea which is just experiencing its first outbreak. I mean that’s sort of an example. The difference of course is that China is inoculating people and there are also pills the Chinese have sent me and many kinds of medicine in case I get COVID.
DANNY HAIPHONG: That’s great. Amazing, so before we depart Michael, I’ll stay on for another fifteen minutes or so but I definitely want you to plug whatever you’d like to plug now I will pull up the book again and your website. So, if there’s anything you’d like to plug please everyone, keep liking the stream, keep sharing and subscribing to the channel all that good stuff supporting the work at patreon.com/dannyhaiphong but Michael is there anything you would like to plug?
MICHAEL HUDSON: All of my articles are on my website michael-hudson.com and I’m also
on patreon and they can join on patreon and I have an ongoing discussion there so the website, patreon are my favorite sites where I publish, and Naked Capitalism, the Saker, Counterpunch, my articles are usually on a lot of these different websites and you’re showing it now so yeah
and the books are available on Amazon or Xlibris and you can all buy them and they’re well printed and priced not very expensively.
DANNY HAIPHONG: Great conversation Michael. Thanks so much for coming. We will have to talk again as things continue to develop so thanks so much.
MICHAEL HUDSON. It’s good to be here Danny. Thanks for having me.
