Michael Hudson continues his discussion of banking on Real News Network by focusing on the role banks played in different economies in the early period of industrialization. He discussed this idea at length in his 2010 article, “From Marx to Goldman Sachs: The Fictions of Fictitious Capital,” which explained the difference between the German and Anglo-Dutch model of banking. The Germans thought finance should serve the development of industry, essentially an equity-oriented approach, while the British and Dutch banks preferred to lend against existing collateral. The result was that both inventors and important projects often had trouble securing funding. As Hudson wrote:
British bankers were prone to insist that companies they controlled pay out most of their earnings as dividends and remain highly liquid rather than providing enough financial leeway for them to pursue a long-term investment strategy. By contrast, the major German banks paid out dividends at only half the rate of British banks, retaining their earnings as a capital reserve invested largely in the stock of their industrial clients. Treating their borrowers as allies rather than merely trying to make a profit as quickly as possible, they expected their customers to invest their profits in expanding production rather than paying them out as dividends.
Hudson explains how public banks could provide an alternative to our current model of extractive finance.