Michael Hudson: S is for Saint-Simon

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.” Originally published at his website

Part S in the Insider’s Economic Dictionary

S-curve: The typical shape of growth in nature, such as human beings whose height tapers off as they reach maturity. They also typify most business cycles, which taper off after an upswing as employment, raw-materials and resource limits are approached and wages and commodity prices rise, slowing profits. The demand for specific products likewise tapers off as markets become saturated. Meanwhile, the fact that financial claims and debts tend to grow at compound interest means that financial dynamics tend to outrun the S-curve of production and consumption, creating business crises which end the upswing.

Saint-Simon, Claude Henry de (1760-1825): French reformer best known for recognizing the need to replace debt relations by turning saving into equity (stock) investment. Among his followers, the Pereire brothers helped create the Credit Mobilier basically as a mutual fund. With less effect, St.-Simon sought to abolish inheritance so that people would possess only the fruits of their own labor.

Savings: Savings consist of cash on hand (“hoarding”), direct investment in real estate or even fine arts, and financial claims for payment (stocks and bonds). As such, the term “savings” often is used as a synonym for wealth. Keynes viewed it passively, as non-spending, but financial savings are the mirror image of debt, as one party’s savings take the form of another party’s debts. (See Propensity to Save.) (Net worth is the excess of assets over debts, and appears on the liabilities side of the balance sheet.) Gross savings equal the sum of an economy’s debts and financial claims, which are called “indirect investment” to distinguish them from direct tangible investment in plant and equipment, research and development. Savings and debts thus tend to grow exponentially together through the accrual of interest. (See Compound Interest.)

Not all saving is voluntary or available for actual spending. For example, when firms “age their bills” by delaying payment, these unpaid debts create “savings” on the part of their suppliers, who accumulate claims for unpaid bills. (This forced saving has driven most of the small book publishers and CD music companies out of business in recent years.) The largest category of forced saving is that of pension-fund capitalism and Social Security.

Say’s Law: Named for the French liberal economist Jean-Baptiste Say (1767-1832), this “law” states that payments by producers to their employees and suppliers are spent reciprocally to buy the products of these producers. In popular terms, “Supply creates its own demand.” If this version of circular flow were true, there would be no business cycles or depressions. John Maynard Keynes accordingly devoted a large part of his General Theory (1936) to explain why this circular flow was interrupted, and blamed the financial system.

Science of assumptions: An oxymoron in which the criterion for acceptability of a discipline are whether its assumptions are logically consistent, without regard to whether or not they are realistic. The result tends to be circular reasoning based on tautological definitions. See Dismal Science, Junk Science and Neoclassical Economics. Antithesis: Reality economics.

Scientology, economic: In the sphere of academia, economic scientology is to science as astrology is to astronomy. The term refers to the love of scientific modes of exposition by non-scientists; the attempt by non-scientists to ape the superficial trappings of science by using complex mathematical formulae, but without the realistic empirical and statistical dimension that characterizes the physical sciences. As in the sphere of religious scientology promoted by the science fiction writer L. Ron Hubbard, the criterion for judging economic scientology is not its worldly reality but simply the degree to which its assumptions are logically consistent with one another. At the hands of neoliberals, these assumptions reflect a static and strongly right-wing, anti-labor polemical worldview. (See Nobel Prize.)

Serfdom: The final stage of breakdown of the oligarchic Roman Empire, when debt and warfare had reduced much of the population to debt bondage, stripping the economy of money and the government of its ability to tax the wealthy creditors and landowners, leading to adulteration of the coinage and a reversion of economic life to barter. The major economic units to survive were the landed estates of leading oligarchs and the Church. Economic status became fixed, tying cultivators to the land as serfs as Western European economies degenerated into land-based medieval-style monarchies and manors under feudal knights and warlords.

Sex: The topic that has proved strong enough to displace religious and academic discussion about property and wealth as the driving force in human affairs and evolution.

Sharia law: Much as medieval Christian law legitimized the charging of commercial “interest” and agio, Moslem law developed the idea of murabaha banking to enable usury to enter through the back door, by permitting creditors to taking their returns as a proportion of the borrower’s gain. (See agio, murabaha.) Lacking Christian financial laws of their own, Ferdinand and Isabella structured their investment in Christopher Columbus’s voyages of discovery and rapine as a sharia loan.

Single Tax: An exclusive tax levied on the land’s rental value, advocated first by the French Physiocrats (see Economists) and later by Henry George. By logical extension the tax also would fall on other economic rent not earned by the active efforts of its recipients but simply a property claim on revenue created by nature (land sites or monopolies) and given value by the prosperity of the community.

Sinking fund: A fund set aside by Britain’s Parliament in the late 18th century to pay off the national debt by investing in private-sector bonds and re-investing their interest receipts so that the savings principal would accumulate at compound interest, doubling and redoubling until it reached a magnitude sufficient to pay off the entire national debt. In practice Parliament could not resist raiding the fund and using it for the main purpose for which politicians spent money in those days – to wage war.

A recent version of the sinking fund was developed by Alan Greenspan in 1982 by imposing forced saving in the form of prepayment of U.S. taxes by the lowest employee-income brackets, ostensibly to fund Social Security (which was converted into a user fee rather than a normal budget entitlement as was the case under the philosophy of progressive taxation). The ensuing fiscal surplus was invested in U.S. Treasury securities and the Republican Congress used the money for the neoliberal policy of cutting taxes for the wealthy and a tax shift favoring real estate and finance. In 2005, scarcely a generation later, President George Bush claimed that the Social Security set-asides had been spent and the system was insolvent. He urged its privatization to inflate a new financial bubble to pay retirees out of capital gains rather than public-sector taxes or sell-offs of the system’s Treasury-bond savings.

Social Market: The euphemism popularized by Margaret Thatcher and other neoliberals to whitewash a predatory market without government regulation or direction. The policy envisions society being run along the lines of a private enterprise, recognizing no non-market social objectives such as have formed the basis for progressive economic policy in recent centuries. Such a “free-market” economy involves privatization and the dismantling of public enterprise and authority, and leads to rentier domination by the FIRE sector. (See also Chicago School and Reaganomics.)

Sleeping partner: In finance, a creditor who puts up the money for an entrepreneur (the “active partner” to manage commercially to create a profit which he shares with the creditor as equity and/or interest. John Stuart Mill extended the metaphor to landowners who collected rent and saw the price of their landholdings rise “in their sleep” through no efforts of their own.

Socialism for the rich: Real socialism is when the government controls corporate business and finance. Today’s oligarchy – corporatism, or fascism, or neo-feudalism – is when the wealthy creditors control the government.

Sovereign debt: Debt guaranteed by a national government or its central bank. It is questionable how “sovereign” a debtor country can be in the face of today’s dependence on IMF dictates of conditionalities for rolling over or raising debt levels. These conditionalities also make it questionable how compatible debt on such terms is with democratic regimes.

Stabilization Program: Euphemism for an IMF “conditionality” in the form of an austerity program that chronically destabilizes the debtor country’s currency by increasing interest rates and raising taxes so as to deter investment and credit creation. The effect is to make countries dependent on foreign suppliers and further loans and conditionalities, and so on ad infinitum. (See Internal Contradiction, Washington Consensus.)

Stages of development: The idea that all history has been moving inexorably toward the present as a result of a struggle for existence in which existing ways of doing things have emerged because they are the most efficient and hence best. As such, “stages of development” reasoning is a euphemism for what Voltaire characterized as the self-centered idea that “all is for the best in this, the best of all possible worlds.” (See Progress.)

The hypothesized stages usually are arrayed in sets of three, most characteristically from the agricultural stage via the industrial stage to the commercial stage, rather than seeing all three spheres as developing simultaneously. In practice the unfortunate result has been to advise “developing countries” to industrialize by making use of their supposed advantage in possessing low-wage manual labor. This usually involves a loss of agricultural self-sufficiency, pushing third world economies into debt and hence subjecting them to IMF conditionalities that block meaningful development and preventing them from implementing progressive economic philosophy.

The “law of three stages” often inverts the actual historical sequence. In the 19th century, financial theorists speculated that economies evolved from a barter economy via a money economy to a credit economy. But all money is a form of credit, and it is now recognized that money emerged as a means of establishing price ratios in which to denominate debts. (See L. Randall Wray, ed., Credit and State Theories of Money: The Contributions of A. Mitchell Innes [Edward Elgar, 2004].) Money thus emerged from a credit economy, and deteriorated into a barter economy when the volume of debts grew so large under imperial Roman asset stripping as to break down the exchange system into the Dark Ages, when economic units were obliged to become self-sufficient. (See Feudalism.) The result of today’s kindred debt overhead is to carve up and privatize economies as planning is turned over to international financiers.

Stagflation: A condition in which prices rise rapidly without spurring new investment and employment, such as characterized the United States in the late 1970s. (See Gibson Paradox.)

State Theory of Money: Given its name by the German monetary theorist Georg Friedrich Knapp in The State Theory of Money in 1905 (translated into English in 1924 at the urging of John Maynard Keynes), the theory also is known as chartalism. It describes governments as giving value to money by accepting it in taxes (as distinct from simply declaring it legal tender). (See Money.)

Sterile: A zero-sum and hence exploitative economic activity. In antiquity this was typified by usury, characterized by sterile old men, especially homosexuals abusing children, as distinct from family men reproducing themselves. The Physiocrats viewed industry and commerce as being sterile, merely working up the surplus provided by nature to landowners. This became a rationale for not taxing industry and commerce, but only the landed aristocracy.

Structural problem: A problem that cannot be resolved by merely marginal reforms, but requires structural change in the economy’s institutional framework. A chronic example is the tendency of foreign and domestic debt to exceed the ability to pay. If these debts remain in place, they lead to asset stripping as property is forfeited to creditors, radically changing existing property relations. Neoclassical and marginalist analysis dismiss such structural problems as externalities, that is, external to their narrow scope on supply and demand within a given and unchanging institutional structure.

Systems analysis: A technique for viewing the impact of any given change on the overall economic, political and social system, based on positive and negative feedback (such as increasing and diminishing returns, respectively). As such, systems analysis is the antithesis of caeteris paribus reasoning (Latin for “all other things remaining equal”). In reality, all things do not remain equal when a change occurs, as the various parts of the socio-economic system are interconnected, and what neoclassical economics dismisses as externalities often turn out to be of central importance. (See World System.)

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  1. The Dork of Cork

    “With less effect, St.-Simon sought to abolish inheritance so that people would possess only the fruits of their own labor.”
    Fruits of their own labour ?
    We live in the age of capital / of machines – what has labour got to do with it.
    The seizure of land by the banking system is the end of individual Sovereignty.
    Don’t ever give those people land – ever.

  2. casino implosion

    Fascinating as always. I wish Dr. Hudson had included a bibliography. Where, for instance, can I find out more about this assertion?: “In antiquity this was typified by usury, characterized by sterile old men, especially homosexuals abusing children”.

    1. Michael Hudson

      Livy describes it, as leading to Rome’s first abolition of debt bondage. By medieval European times this Aristotelean metaphor had become a widespread trope, used against the Templars (by Philip trying to grab their money) and in England when they rammed a red-hot steel rod up Edward II’s rear end, saying “Give that to the bankers who drove us into debt” or something to that effect. (I’m waiting for the Monty Python sketch.)

      1. casino implosion

        Now I must hie me to the public library, to obtain a volume of this Livy. Thank you, Dr. Hudson.

  3. elbridge

    At the risk of standing in question of the postulations of the distinguished, learned professor, I do so on the point of Knapp’s historic ” State Theory of Money”, which here, unnecessarily, falls into an MMT identity (taxes drive money).
    “” the theory also is known as chartalism. It describes governments as giving value to money by accepting it in taxes (as distinct from simply declaring it legal tender).””
    Isn’t it more correct to say, as distinct from accepting metal-backed, privately issued banknotes, which were not acceptable?
    Private banknotes maintained the non-chartal quality of metallism, which Knapp’s Theory attempted to invalidate, through state law’s ‘chartal’ stamp.
    And Knapp’s statement, “”Our test, that the money is accepted in payments made to the state’s offices”” was indeed recognition that the state’s legal tender statutes conferred the real national monetary value, without resort to any metallic standard relationship.
    The larger irony that the ‘state money’ concept presents for is that today, through either convention or a mis-reading of any money statutes, it is private bank credit (replacement for private banknotes) that the state accepts as payment for taxes, and state-issued money has become non-existent.
    So that, if, today, taxes drive money, it is private bank credit, and not any state money, that is in the drivers’ seat.

    1. Calgacus

      it is private bank credit (replacement for private banknotes) that the state accepts as payment for taxes,,
      No. The only thing accepted by the state as payment for taxes is reserves, dollar bills, coins, Treasury debt – state money.

      If one likes hitting oneself in the head with a stick (because it feels so good when you stop) – you can dissociate the central bank and the Treasury. You can also deconsolidate the debts and credits of your left hand and right hand. Not much point to it in either case. There are plenty of MMT papers on it & I wrote a comment a month or so ago that Wray liked so much he based an NEP post around it..Question – where does a mythically almighty “private” central bank get the money to pay its debt to the Treasury once taxes are paid to it as the Treasury’s fiscal agent?

      state-issued money has become non-existent.
      Really? I have $97 & change of it in my wallet right now.

      1. elbridge

        That $97 in Bills in your wallet was not issued by the government, but by the private banking system.
        It was printed by Treasury FOR the private banks and distributed by Treasury for the Board of Governors at the cost of printing and routed to a private Regional reserve bank where it was collateralized into circulation as a private bank debt.
        Look up How Currency Enters Circulation at either the Fed or Treasury.
        (I know you know this.)
        Of course, there are feigned monetary know-it-alls that consider not only those private regional bankcorporations ‘the government’ somehow (shoehorning), and the thousands of private banks that actually circulate those notes as being partially governmental in nature(issuing our national circulating media).
        But I am not one who believes that. No reason to do so.
        The coins on the other hand are money and were issued into circulation by the government.
        But, that’s it.

        It is ludicrous to suggest that taxes are paid with either reserves or Treasury debt.
        Try sending some in next time.
        Can’t be done.
        In either case.
        First, the taxpaying public NEVER has access to reserves as they never circulate as money.
        The banks do not owe the taxes being settled by the bank-CB-Treasury transaction, it being between the taxpayer and the receiver of the tax payment. The bank’s role is as financial intermediary.

        While you can use currency to pay taxes at a local IRS office, again, those are the same (currency) as bank-credits as far as issuance goes. (And despite Mosler’s first deadly innocent fraud claim, those currency bills are never destroyed by the IRS, or anyone else, because the government needs them to pay its Bills.)
        As to Treasuries, another vacant claim by believers, but nobody has ever seen it done.
        Maybe, in theory. But Treasuries’ liquidity does not extend to settling governmental transactions with its taxpaying public.
        gotta run.
        More on your Treasury-Cb postulation later.

      2. elbridge

        “”.Question – where does a mythically almighty “private” central bank get the money to pay its debt to the Treasury once taxes are paid to it as the Treasury’s fiscal agent?””
        I’d like to see Dr. Wray’s edification in that regard. Because, from my view, this could be a trick ‘question’, or postulating some total myth that we’re supposed to address….hard to say.

        What difference does the first part, (avoiding the colorful, but unnecessary and irrelevant jargon) ……. “Where does the central bank obtain the money to pay its debt to Treasury?”….. have to do with the second part, about fiscal agent tax receipts.
        First, what central bank ‘debt’ would that be anyway?
        Surely you do not mean the amount of the CB’s remittance BACK to Treasury of over-collected Treasury payments of interest as income to the CB?? You do not mean that this re-payment is somehow canceling any debt that the CB owes Hard to imagine the CB having a debt to Treasury, given the CB’s ability to issue its own inter-bank purchasing power with which to acquire Treasury assets from private banks. The Cb ‘owns’ Treasury in that regard. No need for them to borrow from something they own.
        Perhaps you do mean that.
        But, tThe over-collection of interest payments by the central bank on its public debt holdings does not represent a ‘debt’ of the CB to the Treasury….. so let’s start there.
        there is no “debt” from the CB to Treasury in this regard.

        But if the question you posit is as innocuous as this appears……where do they get the money to make that payment?……… then the answer should be obvious……. instantly from the Treasury making its interest payments to the CB, and ultimately from the taxpayers, who pay their Bills to Treasury……so that Treasury can make its interest payments to the CB..
        It is not a debt, and it is not a Bill to the CB….. the amount is never owed. Rather It is a remittance payment, based solely on a reversible policy of the Fed BoGs, of an over-collection of revenues needed to run the banking system, ultimately paid for by our readers.
        From where did you report the source of the CB’s monies for its Treasury payment?

        Back to the tricky part of the question.
        Something related to tax payments collected as fiscal agent.
        Perhaps you consider them CB revenue as well. Nothing is further from the truth. As fiscal agent, all the CB does is to conduit tax payment collections into the Treasury’s TGA account…. Because Treasury needs the money to pay its Bills.
        Did anyone at the CB or Treasury tell you differently?

        So, it is as a separate matter that the CB conduits these tax payments to Treasury, just as any other fees and charges that government imposes. It has nothing to do with the CB’s remittance of its over-collection of the interest payments on its public debt holdings.

        It takes no head-whacking, stick or otherwise, to postulate that Treasury and the Federal Reserve Banking System, including the central bank FRBNY, are separate entities……… are dis-associated, as you say, although that can have a very broad meaning. That’s not to say that they do not associate, as each has an interdependent primal presence in public finance.
        What is helpful is a light of understanding of the differences between the two interdependent, by law, entities, and not some empty postulation that their public debt servicing association makes them the same or similar in any way, esp. as relates to public purpose and to public policy..

        We directly pay the salaries of the Treasury department and their public job is to act in the public interest.(Not saying they’re doing anything well, but their ‘association’ is public in nature).
        The banks directly pay the salaries of the federal reserve bankers and employees, and their private job is to protect that private interest, the federal reserve banking system. Their ‘association’ is with private gain. Power and interest. Front and center. The political economy.

        The Fed will never suggest how to fix the housing crisis unless it is via saving the banking industry.
        It’s the One Percenters toolbox they operate from.
        Asset inflation.
        The private Fed, and it’s bankers’ school, debt-based money system, is not the friend of those seeking governmental action to advance the public’s well being. It is today, a useless national monetary policy actor, and we are well served, as called for by Martin Wolf, by its public monied replacement.

  4. toldjaso

    Thank you for your gifts to humanity. What would we do without you, as we enter the New Dark Age?
    “Vie et mort de l’ordre du Temple: 1118-1314” par Alain Demurger (1985, Editions du Seuil)
    N.B. “Mount Pelerin”.

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