Michael Hudson Q&A in Webinar on 4000 Years of Money and Debt

Yves here. This is the second installment from a webinar held by Positiva Pengar with Michael Hudson. We posted the transcript from the main talk here yesterday. Today we pick up the Q&A from Hudson’s discussion of the various monetary and debt regimes across history and how they have affected the distribution of resources and exercise of power.

If you want to listen, this section starts at 1:26:33.

By Positiva Pengar. Originally published on YouTube

Jussi: If people in the audience just would like to raise their hands and then we can unmute you and you can ask Michael a question. So, Lotte, if you could start?

Lotte: Yes, we’re talking about the sharing economy and circulating economy and everything. What I can see is that nobody owns anything anymore, but they pay each month to use things like music, Spotify and all these kinds of things.

What’s going to happen? I think it’s a kind of slavery and we’re in deep debt because, when we can’t pay anymore. We’re soon in that situation where we can’t have anything of this, music will disappear, we cannot communicate on the internet, we can do nothing. What do you think, what’s the solution, more than talking?

Michael: Well you’re going to have to withdraw from the European Union, to begin with. Right now, Europe’s government is part of NATO. Europe is governed by a small office in the bottom of the Pentagon.

We’re following the problem we had when I was analyzing the Vietnam war: How does America pay for all of the military bases all over the world? It pays just by writing treasury debt. Europe funds America’s military. For America: the vantage point of American diplomacy.

I’m answering your question because I’m framing it. Europe has to conduct this money with US dollars. The Americans designed the Euro at the University of Chicago, again the root of all evil. No European country is any longer what political textbooks define as a state. A state has the ability to issue money, to do its own taxes and to declare war. No European country has any of these rights. Part of the rules of the Eurozone is: you cannot run a budget deficit of more than three percent.

The intention of the US who designed this is: If the eurozone cannot run into debt, then there is not going to be Eurobonds for other countries, to hold their international reserves in. The only thing that they can hold their reserves in will be US dollars, which are the monetization of America’s military bases and military activities all over the world. A dollar is the embodiment of America’s military spending.

They don’t want any European government to be able to create its own money to either pull it out of depression or to say: Here we are in Italy or Sweden and there are people who can’t pay their debts, so we’re going to just create the money, to save the banks.

Or if the banks do go under, we’ll have a public bank that will essentially insure all of the depositors up to whatever their insured amount is. We’re going to use our money to be able to finance how our economy gets by When people are not going to work, when companies are not functioning, when we’re not getting the flow of income, the government is going to provide the money in order to get it by.

A real state would be able to do that, but that’s being banned under the monetary rules because they say: no that’s government debt! If you need money to get by, you have to borrow from the commercial banks and if you lose your home that’s just too bad. If you lose your property you lose your savings, well that’s how the free market works.

Somehow, they’ve tricked the Europeans into believing that that’s a free market. It’s the way to debt peonage, it’s not freedom, it’s debt peonage. They’ve used Orwellian rhetoric to make debt peonage seem like freedom from the government’s ability to create its own money to save you from falling into debt and losing your home and losing your job and becoming impoverished.

Lotte: we have a Swedish guy here, he’s called Gustafsson, he wrote a book about changing from speculation economy to time economy. That you should change the whole system so everybody is paid exactly the same number of hours they have worked according to what you have got. So, then there will be no opportunity to speculate. There was a lot of tax planning lifting money from the poor to the rich all the time, but in this system, there wouldn’t be any holes.

Michael: Most e money is made in speculation, if you don’t have a speculation economy, GDP won’t be going up so much, the economy won’t polarize.

The speculation economy has two great benefits: number one creates a lot of wealth, number two this wealth is sucked up by the One Percent from the 99 Percent. The advantage of a speculative speculation economy is, it impoverishes the 99, that’s the business plan of the banks. If you get rid of the speculative economy then there goes the bank’s business plan. But they’re the people who are financing the government because they’ve privatized the government along with much of the infrastructure.

Jussi: Okay, thanks a lot, we need to go to the next person, thanks a lot for your questions Lotte. This time it will be Joe Polito.

Joe: Hi Michael, that was a sensational presentation as always, it’s just a wonderful experience. I’m so glad they’re recording it; we’ll be able to share it. I want to ask you about Central Bank Digital Currency. In Toronto, Canada tomorrow, they’re having a discussion about it and there’s a proposal of an introduction of it where it would replace just pocketbook money to begin with.

There have been other presentations, where there’s a bank of Spain paper that talks about having 100 % money, really in terms of Central Bank Digital Currency. Do you see those developments as a potential to reduce economic rent in the banking system? Giving the people more opportunity to spend money on the real priorities, that you’ve outlined to make it a really productive economy and not a speculative land inflation economy and so forth?

Michael: I don’t see the connection. I have to admit that I’m a technopeasant. In the 60s I did have to do my own programming and I was the link between Chase’s economics department and the computer department. I got so burned out doing computer programming, that I’ve developed a phobia for anything that has to do with computers, a computerized thing like electronic funding.

It seems to me simply a form of account keeping, then I don’t see what difference it makes. If it’s money creation, I think there are many ways of money creation, obviously money is created on computers, but it all depends. I want to stay away from cryptocurrencies, especially cryptocurrencies that use an enormous amount of energy where all of the energy in the world is going to be doing bitcoin or cryptocurrency stuff. It’s not my field.

Joe: I’ll put the link to the Bank of Spain paper, which basically they linked to the Chicago plan, to a 100% money, to the need act approach that you have supported.

Michael: Yes, I’m all in favor of that, as I guess you know, I was the economic adviser to Dennis Kucinich, when he was running for president and sponsoring that act. The Chicago plan deserves to be discussed much more, people say: if banks are only like savings banks, how is the economy going to get the money to grow?

The money can come quite simply: When a bank under the Chicago Plan will find a creditworthy borrower, it will draw on an account and open a line of credit with the treasury. The treasury will provide the deposits that the banks in turn will lend out for some form of commission. So, there’s no reason that the Chicago plan has to be deflationary.

The difference is that if the government is essentially operating as a public bank, the government will not make speculative loans. A bank under the Chicago plan would not be able to borrow money from the treasury to fund a corporate takeover that strips assets, or speculation derivatives, gambles or all the things that drove Citibank insolvent in 2008.

I think the Chicago plan is probably the most practical solution that’s been put. The easiest way to discuss the needed reform is to frame it in terms of the Chicago plan, since that’s what the Chicago school itself was discussing from the 1930s onwards. The Chicago plan in my mind would be part of Modern Monetary Theory working through the banks.

Joe: Thank you so much for the great answer.

Jussi: Thank you Joe and thank you Michael, I think Tune Nielsen has been waiting for some time.

Tune: thank you so much, Hi Michael, I don’t know if you remember me from New York five years ago. I’m from Denmark. Anyway, I’m very interested in this question about rent, and its affiliation and relation to money and especially money creation by private banks.

It comes to my mind, especially in these times, this very low interest environment, that we are seeing at the moment that money is seeping down into the rent, into the land. Debt has actually become a privilege of the few to sort of privatize rent. What we’re seeing now is actually that the profits of big financial institutions of financial investors is much more related to land ownership than into just owning debts or stocks or whatever. Could you tell us something about this relation and how it’s evolved throughout I’d say since 2008 maybe?

Michael: Well now you’re asking questions about reality, so I can see you’re never going to qualify for the Nobel prize.

80% of bank loans are to the real estate sector, they are mortgage loans from the United States to Britain. Rent is for paying interest. If 80% of bank loans are to real estate, and almost all of this real estate represents the capitalized value of land, then most interest is essentially the payment of rent.

What that means is that, the rent that used to be paid to the hereditary aristocracy of Europe, the landlords, is now paid to the banks. Because if you want to buy a house, you go to a bank, and you say I want a loan to buy this home and you’re bidding against other people that also want to buy a home. The winning bidder is the bidder who’s willing to pay all of the rental value of that, whether you rent it out or if it’s your own home.

What you would have to pay the landlord as rent is now paid to the bank is debt service, mainly mortgage interest. Especially when you have zero amortization loans as you began to be developed in 2008.

You have the banks playing the role in today’s society that landlords used to do. In a way that’s what makes neo-feudalism, both different from and like earlier feudalism. Today people can live wherever they want. You’re not tied to living in the house that you were born in. You can live wherever you want. But wherever you live, if you want a home of your own, you’re going to have to borrow money.

The US government will guarantee bank loans that absorb up to 43% of your income, 43 % is pretty much. That’s a huge amount when you also have to pay 15 % social security and other taxes, income taxes, pay for health care, a huge amount. If you pay rent, the landlord has bought the house probably on credit, and the landlord pays a little value for the bank.

Today, renters pay interest, and the reciprocal of that is that most interest payments serve the capitalization of rent instead of taxing it. That’s why the free marketers are so much against taxation.

All of this increase in land value, that the landlord doesn’t create, is caused by prosperity. It’s caused by city spending on goods and services, by building subways and transportation, parks, schools. If the land value is created by the public, the government can finance this by a land tax. It doesn’t have to tax labor. It doesn’t have to pay tax capital. All of the costs of government can be paid for by the land rent and the natural resource rent of the oil and gas industry, the monopoly rent.

That’s the Thorstein Veblen law. He developed it in his book on Absentee Ownership. He said: if you look at cities today, any city can be locked up as a real estate project where the banks are funding the real estate developers that buy speculators who try to sell their property at a profit, leaving the bottom of the economic pyramid holding the bag and having to pay all this increased real estate value, mainly a land rent to the banks in interest.

The banking system has become the main protector of the rentierinterests, the main protector of not taxing the land, of not taxing oil and gas and mining companies, of not taxing monopolies. The banks have become the main lobbyists for a society that lets its economic surplus be taken in the form of economic rent instead of paid to the government as a means of funding taxes.

That’s what forces the government and the tax industry, to tax labor and essentially to create an economy that’s more and more expensive because rent is an element of price but not value.

The tax shift off rentier income onto labor and industrial capital is essentially what’s de-industrialized the United States. So, the business plan of the commercial banking sector is deindustrialization. It wants to suck so much revenue out of the economy that the economy has become a high-cost rentiereconomy, de-industrializes, and becomes dependent on countries that don’t have a banking class in control.

Jussi: Thanks Michael, we jump to the next one, Stevie?

Stevie: I think Petra was actually before me.

Jussi: Let me take Petra first, thanks for being a gentleman.

Petra: I’m from Germany and I listen very really carefully and I’m astonished about some things you said. You said we should leave the Eurozone. I think that’s not in our power to achieve. If you talk about the government and say they are also not really in control, we have this one person that is in control. I don’t see any realistic view to come out of that.

What I’m thinking is: there is still one great power in the world that can stand up against for example the U.S government and your military force and that’s China. What is your view on that? I mean all the plans the government, and the U.S can make. Is there really a chance that China will stand up and give for example loans to other countries so they don’t have to be enslaved by the U.S or any such things. I mean can you see something like that?

Michael: Most of my work in the last five years has been with China. I was a professor of economics at Peking University for a number of years and I have professorships at a number of universities in China, and working very actively there.

The difference between China and the west is that China has kept banking in the public domain; the bank of China is the main creditor, not commercial banks. What that means is that, if you’re a corporation in China and you can’t pay the debt, the Bank of China, being part of the government, says: wait a minute, we need this company to stay in business.

If we say: I’m sorry, you’re going to have to go bankrupt and be sold off mainly to an American buyer or somebody on the cheap that’ll just carve you all up. But it’s going to say: we’re not going to let you go bankrupt and fire all your people, we’re going to save you, we’re going to alleviate the debt.

Same thing with the foreign countries, it doesn’t want to treat foreign countries like the United States treats them through the International Monetary Fund. It’s trying to extend its belt and road initiative.  It’s trying to have good political relations with these countries and trying to make productive loans. It’s trying to say: we’re going to make a loan to you, but we don’t want to bankrupt you, because that would make it impossible.

If you impose austerity like the IMF insists that you do, austerity makes it even harder for you to repay the loan. What we’re going to do is we’re going to make this loan and you’ll repay us. We’ll make the money in the port charges for the ports that we’re buying, or we’re providing infrastructure, we’re going to make money off the infrastructure.

I had a long discussion with Pepe Escobar on this, and the argument made against the belt and road initiative was: Look, the Suez Canal went bankrupt. The Panama Canal by Lesseps went bankrupt. Building canals and infrastructure really doesn’t pay.

China says: we’re not in it for the money, we’re not developing this transport and belt and road infrastructure in order to make a profit. We’re developing it in order to create a region-wide prosperity, in which we can all share.

The whole concept of government banking: making loans on the basis of industrial engineering. In America, industrial companies are run by financial engineers. In China, loan making financial companies, are designed by industrial engineering principal saying: What kind of industry and what infrastructure do we need in China? What do we need for a train transport, for highway transport, for public power transport etc.

So, the conflict between the United States and with Europe is the tail in China. It isn’t a conflict about who’s going to make better iPhones. It’s a conflict to the death of economic systems. The United States and Europe cannot permit any country to survive that is not polarizing the economy.

It’s a conflict between an economic system that impoverishes the economy, which is the political aim of the European governments and the American governments, or an economy that is structured so as to help economies grow, which is Chinese pragmatic industrial economy.

We’re really talking about a conflict not among nations, but between what was industrial capitalism, which is evolving into socialism, or finance capitalism. The United States represents finance capitalism, and it imposed this on Europe as its satellite. As long as Europe lets itself become a satellite for finance capitalism, it’s going to end up being de-industrialized as the United States.

That’s why you’re not going to have a Nobel prize given to explain why China is succeeding and the US and Europe is not. The Nobel prize is about a parallel universe, and just forgets about China; that’s exogenous.

Jussi: thanks a lot for your question Petra and thank you Michael, so now I think it’s our gentleman’s Stevie, are you up for it?

Stevie: thank you very much for a very thought-provoking talk, I really enjoyed that. Just as a side: I see what you mean when you talk about the Euro zone and the national territories not therefore being in control, because they don’t have their own currencies.

But my concern is with the general right-wing drift that there is around, that there’s that nationalism. If we were to go back to that, it would be a retrograde step. For me especially in Ireland in the north of Ireland, here I look to Europe, I feel it, that cultural affinity with Europe. To think that we would be retreating behind national territories again would terrify the life out of me.

I would go the opposite and then, instead of looking for the national territories to be lost in the Euro, that there ought to be a greater political union in the whole of Europe. That might be one way around it.

Whatever, leave that aside. Seemingly one of the implications of what you have said about your focus on debt is that we could have a clean slate scenario. That would take us back to the start of a cycle again, that’s part of capitalism. I’m just wondering what your thinking is about the processes of capitalism in relation to that tension that is between labor and capital? With particular focus on artificial intelligence and what the future then holds for that labor and capital tension.

Michael: you made a number of points. Back in the 1960s almost everybody I knew agreed with your views about nationalism. After all they just went through World War II. They looked at that as an expression of nationalism. In principle it seemed to be that the antidote to nationalism was going to be globalism. But nobody expected that globalism would turn into what it’s turned out today. If nationalism is bad, so is a unilateral globalism run by the United States. Globalism today is American nationalism.

Europeans are the most nationalistic, viciously nationalistic people of all. But they’re nationalistic for the United States! The European leaders, I remember once I was invited to meet with Helmut Schmidt when he was running Germany, he was Germany’s leader. Volkswagen had invited us over. There are only four people in the room. Because I could speak German, Schmidt thought that if I was there, I must be there from the U.S. government. I don’t know why Volkswagen invited me, but he came over and he assured me that his loyalty was to the United States and not to worry that he would really do whatever the United states wanted him to do.

He didn’t quite do it that way, but I think every European leader, probably once a month, promises the United States. Your leaders represent the United States financial interests, not your country. Essentially, you’re not run by presidents or by parliament, you’re run by NATO, especially in Sweden. That’s why I’m so sorry that the author of the girl of the dragon tattoo series died, because he was into that, showing the whole effect of that covert NATO right-wing bit there.

What you consider to be European integration is rotten nationalism, rotten American financialism, because Brussels, the European Union Government, is the most right-wing, militaristic group. Last week, foreign minister Sergey Lavrov gave a wonderful speech saying that Russia is quite happy to deal with national governments such as Germany, France and Italy on their own terms. It has given up trying to deal with Europe via Brussels. Because Europe being right wing globalists and your idea of globalism is American nationalism.

Lavrov said: you’re puppets, we’re not going to deal with your puppet government, pan-European government. We’re going to hope that there’s some way that individual governments can somehow break away from this order.

As I mentioned earlier, the eurozone is structured in such a rotten way, with its financial rules and its monetary rules it cannot be resolved. I suspect your population and living standard will have to drop by about 25 to 30 percent, before there’s an awareness that things don’t have to be this way. Things can be different.

Only governments can create their own money, if you leave global money creation, it’s going to be American military spending, that’s the dollar standard today, that’s global money creation.

The contrast between nationalism and globalism in a completely different context, than it was 60 years ago when we used to have these discussions and when it seemed to be a good idea for Europe to integrate. The European common market, seven countries was all for it, especially for the common agricultural policy that made itself independent.

The United States kept trying to break down the common agricultural policy and sponsored a group of really bad countries to try to oppose Europe. The bad countries of course were Scandinavia and England. They created an EFTA, European Free Trade Area, and the idea was that the free trade area would act as proxies to essentially break down and prevent any kind of a progressive social democratic or socialist continental Europe.

That’s the problem: you have, the Scandinavian English-speaking sphere is part of the militarist NATO right-wing sphere, trying to block any ability of the original seven countries operating together. Of course, now that they expanded NATO and the eurozone for the east, the Baltic countries and Poland, you have absolute paralysis and inability to do anything at all.

I guess that I was stuck on the first part of your question. I don’t remember the rest.

Stevie: shall I repeat the second part?

Michael: Just summarize it, remind me of what the topics were.

Stevie: Artificial intelligence and the tension between labor and capital.

Michael: The key to artificial intelligence is what we all learned as a computer programmer: garbage in, garbage out (GIGO). You can have artificial intelligence somebody putting in the kind of model that Nobel prizes are given for, you’re going to have your economy shrink by 30 % right away. Artificial intelligence applied to plan the European economy would shorten your lifespans, raise your suicide rates, impoverish the country, lead to unemployment and you’d all end up looking like Greece. That’s the plan that the financial sector would program into this artificial intelligence, means of controlling your economy. I think it’s an awful idea. Because who’s going to be doing the input? Garbage in, garbage out.

Stevie: That’s exactly my point, I was just wondering about the future and the opposition to it, anyway, thank you very much.

Jussi: thanks Stevie. Ok, Elene?

Elene: I’m just wondering what you suggest as an individual. What do we do as individuals, because we’re seeing our money deteriorate and we can’t maintain paying the bills anymore, what do you recommend we do as individuals to get out of the system?

Michael: I don’t know, every individual is different. Every individual has their own ability to do things, most people are not able to do very much. Some individuals who agree with what you’ve been saying, like Dennis Kucinich, tried to think: I’m going to run for congress and go into the government. But the Democratic Party said: democracy is not going to work if we have someone like Dennis Kucinich in the government, so we’re going to redesign the voting district and we’re going to just get rid of his district. They got rid of his district and so, you have nowhere to run anymore.

The party politics is pretty much blocking anyone from operating politically in a government. I don’t know what you can do, the only thing I can think of is please starve quietly.

Elene: I’m starving.

Michael: I’m sorry, I wish I could say, I don’t know anybody who knows what to do about this. My father was a political prisoner in America, accused of advocating the overthrow of the government by force and violence. Because he was a pacifist, and they accused all the pacifists of force and violence, it was in Minneapolis. I’m the last person to ask about a question like that.

Elene: It’s just that I’m very concerned that I’m watching myself paying a mortgage that I could easily afford before, now it’s getting harder. I’m supporting grown-up children that are struggling to pay their own rents. I’ve got an elderly father; you know I’m finding life is getting harder and there doesn’t seem to be any solutions. I’m just wondering how we can change what we’re doing?

Michael: Well here’s the irony. Most people want what you want, they want affordable housing, Americans want public medical care. But there’s no party representing these things that you want, and if you do create a party then it’s excluded.

I was in Latvia for quite a few years, I was the research director for the Riga Graduate School of Law. I wrote the program for the largest Latvian political party, Harmony Center, which was the Russian-speaking party. They have one-third of the population of Latvia, one-third of the votes, but they were completely excluded from the government. The program that I drew up for them was a land tax, you’d recapture what the kleptocrats had taken away, by taxing the rental value of the land that they gave themselves. You tax away the value of the public infrastructure that they’ve given themselves. Their elected representatives were simply excluded from government, so you have the political party system blocking any movement by the democracies.

The first thing is you have to let people know that you do not live in a democracy. A democracy would enable you to vote for the policies that you want. So that you’d be able to have affordable housing, you’d be able to have a good paying job. But if you want that, you’re excluded from the party process that actually makes the laws or from the court process.

That’s why the United States is trying to take the power to make laws itself away from governments themselves, and have an international body of law which it tried to do with the trans-pacific partnership, the TTIP with Europe which would have essentially taken away the government’s ability to make their own environmental laws, to make their own social regulatory laws. That’s the kind of globalism that you have. The idea is to exclude the people from having any voice in government, that’s how the European politics is being structured today.

You have to somehow create a political movement that does what the 19th century did, the whole 19th century from the physiocrats to Adam Smith to John Stuart Mill and Marx onward. It was all an attempt to free itself from the post-feudal landed aristocracy. It seemed to be evolving into socialism, until World War I, which changed all of that.

You have to essentially pick up the fight all over again. Except today, instead of getting rid of the hereditary landed aristocracy, you’re getting rid of the financial interests and the American militarists behind them.

Elene: thank you.

Jussi: I think what we are trying to do in Positiva Pengar, is actually to start this grassroot movement. It’s not a political party, it’s through the monetary systems, we use the monetary system for the benefit of society and its citizens.

Democracy is a very important thing because it doesn’t matter what system you have, if it’s corrupt, it’s corrupt. It needs to be a grassroots movement, that’s why we are very happy to have you here Michael and earlier Steve Keens, and the few of you, who actually understand these parts really deeply and have extensive experience.

We have a few more questions, but I think we need to start to end this, because it’s been two hours and I think we will need a rest. I’m quite sure there’s quite many, me included, that would like to have you back, but we can talk about that later I think Michael. This has been extremely rich on information and from experience and from real data and not just theories about things. I would say that we conclude there, sorry guys there’s three people raising up their hands, but I think we’re running out of steam.

Thank you very much, and it’s quite a lot in the chat that says thank you, and that said thank you a lot even though they had to leave earlier.

They really appreciate that you share all the knowledge, and all the experience you have. The thing that I think that you have that is very unique is that you have the historical perspective. And you also have been in the political arena and in the economical arena too. So, you know, you have seen it in real life also, that is a really good combination to learn from I would say.

A short conclusion here: there has been and still is this power struggle between financial elites who want the power to them. An easy way to do that is to restrict what the government run by democratic principles can do. And that private debt needs to be handled.

Michael: you also have the monetary issues with the military issue. Because all of your central bank reserves held in dollars are to fund the American military. That’s really at the root of much of the problem. It’s a military problem and then it’s a rent problem of economic rent and unearned income. I think you have to integrate the monetary problem with rent and the military.

Jussi: I can hear that you’re speaking yourself back here shortly. I love that, I think it’s transparent.

Lotte: but I think it’s important that you end this kind of education with the solutions time as well. Because I’m a grassroot princess, and I have a method to gather people on the streets. I’m working with the crayons. We’re just waiting for the spring now so we can do this and we’re working with direct democracy and we are going to ask the question: what is democracy? What tools do we need to use democracy? We will get it in from the people and we write it on a big, big, big ground in the center of Stockholm.

Michael: I think this is a historical question and I’m just finishing my book The Collapse of Antiquity, which is my economic history of Greece and Rome. It is a sequel to “ and forgive them their debts.” You can see from the very beginning that what people call democracy was really an oligarchy. So, I think that discussing these questions cannot be put in the abstract, they have to be treated almost more as a historical question and an empirical question than a philosophical abstract question.

Jussi: thanks a lot, we like everybody who’s working for democracy regardless of what they do, because democracy is a good thing.

I will get back to you with the recording and the transcription when we have done that, and then we can talk further to see if we could put up on another go with new topics because it would be fun and there’s plenty of people already said that they would like that.

Michael: I just want to leave you with one thought: democracy is the political stage immediately before oligarchy.

Jussi: Okay, well thank you for making our evenings here very cheerful. Thanks a lot, and thank you to all the audience and catch you later on. Thank you. Bye bye.