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 J is for Junk Economics
Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized.
Instead of Germany and other advanced industrial nations leading the way as expected, Russia’s October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument against Marxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or “labour” since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism.
Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.
Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges.
Socialism flowered in the 19th century as a program to reform capitalism by raising labor’s status and living standards, with a widening range of public services and subsidies to make economies more efficient. Reformers hoped to promote this evolution by extending voting rights to the working population at large.
Ricardo’s discussion of land rent led early industrial capitalists to oppose Europe’s hereditary landlord class. But despite democratic political reform, the world has un-taxed land rent and is still grappling with the problem of how to keep housing affordable instead of siphoning off rent to a landlord class – more recently transmuted into mortgage interest paid to banks by owners who pledge the rental value for loans. Most bank lending today is for real estate mortgages. The effect is to bid up land prices toward the point where the entire rental value is paid as interest. This threatens to be a problem for socialist China as well as for capitalist economies.
Landlords, Banks and the Cost of Living
The classical economists sought to make their nations more competitive by keeping down the price of labor so as to undersell competitors. The main cost of living was food; today it is housing. Housing and food prices are determined not by the material costs of production, but by land rent – the rising market price for land.
In the era of the French Physiocrats, Adam Smith, David Ricardo and John Stuart Mill, this land rent accrued to Europe’s hereditary landlord class. Today, the land’s rent is paid mainly to bankers – because families need credit to buy a home. Or, if they rent, their landlords use the property rent to pay interest to the banks.
The land issue was central to Russia’s October Revolution, as it was for European politics. But the discussion of land rent and taxation has lost much of the clarity (and passion) that guided the 19th century when it dominated classical political economy, liberal reform, and indeed most early socialist politics.
In 1909/10 Britain experienced a constitutional crisis when the democratically elected House of Commons passed a land tax, only to be overridden by the House of Lords, governed by the old aristocracy. The ensuing political crisis was settled by a rule that the Lords never again could overrule a revenue bill passed by the House of Commons. But that was Britain’s last real opportunity to tax away the economic rents of landlords and natural resource owners. The liberal drive to tax the land faltered, and never again would gain serious chance of passage.
The democratization of home ownership during the 20th century led middle-class voters to oppose property taxes – including taxes on commercial sites and natural resources. Tax policy in general has become pro-rentier and anti-labor – the regressive opposite of 19th-century liberalism as developed by “Ricardian socialists” such as John Stuart Mill and Henry George. Today’s economic individualism has lost the early class consciousness that sought to tax economic rent and socialize banking.
The United States enacted an income tax in 1913, falling mainly on rentier income, not on the working population. Capital gains (the main source of rising wealth today) were taxed at the same rate as other income. But the vested interests campaigned to reverse this spirit, slashing capital gains taxes and making tax policy much more regressive. The result is that today, most wealth is not gained by capital investment for profits. Instead, asset-price gains have been financed by a debt-leveraged inflation of real estate, stock and bond prices.
Many middle-class families owe most of their net worth to rising prices for their homes. But by far the lion’s share of the real estate and stock market gains have accrued to just One Percent of the population. And while bank credit has enabled buyers to bid up housing prices, the price has been to siphon off more and more of labor’s income to pay mortgage loans or rents. As a result, finance today is what is has been throughout history: the main force polarizing economies between debtors and creditors.
Global oil and mining companies created flags of convenience to make themselves tax-exempt, by pretending to make all their production and distribution profits in tax-free trans-shipping havens such as Liberia and Panama (which use U.S. dollars instead of being real countries with their own currency and tax systems).
The fact that absentee-owned real estate and natural resource extraction are practically free of income taxation shows that democratic political reform has not been a sufficient guarantee of socialist success. Tax rules and public regulation have been captured by the rentiers, dashing the hopes of 19th-century classical reformers that progressive tax policy would produce the same effect as direct public ownership of the means of production, while leaving “the market” as an individualistic alternative to government regulation or planning.
In practice, planning and resource allocation has passed to the banking and financial sector. Many observers hoped that this would evolve into state planning, or at least work in conjunction with it as in Germany. But liberal “Ricardian socialist” failed, as did German-style “state socialism” publicly financing transportation and other basic infrastructure, pensions and similar “external” costs of living and doing business that industrial employers otherwise would have to bear. Attempts at “half-way” socialism via tax and regulatory policy against monopolies and banking have faltered repeatedly. As long as major economic or political choke points are left in private hands, they will serve s springboards to subvert real reform policies. That is why Marxist policy went beyond these would-be socialist reforms.
To Marx, the historical task of capitalism was to prepare the way for socializing the means of production by clearing away feudalism’s legacy: a hereditary landlord class, predatory banking, and the monopolies that financial interests had pried away from governments. The path of least resistance was to start by socializing land and basic infrastructure. This drive to free society from economic overhead in the form of hereditary privilege and unearned income by the “idle rich” was a step toward socialist management, by minimizing rentier costs (“faux frais of production”).
Proto-Socialist Reform in the Leading Industrial Nations
Marx was by no means alone in expecting a widening range of economic activity to be shifted away from the market to the public sector. State socialism (basically, state-sponsored capitalism) subsidized pensions and public health, education and other basic needs so as to save industrial enterprise from having to bear these charges.
In the United States, Simon Patten – the first economics professor at the new Wharton business school at the University of Pennsylvania – defined public infrastructure as a “fourth factor of production” alongside labor, capital and land. The aim of public investment was not to make a profit, but to lower the cost of living and doing business so as to minimize industry’s wage and infrastructure bill. Public health, pensions, roads and other transportation, education, research and development were subsidized or provided freely.
The most advanced industrial economies seemed to be evolving toward some kind of socialism. Marx shared a Progressive Era optimism that expected industrial capitalism to evolve in the most logical way, by freeing economies from the landlordship and predatory banking inherited from Europe’s feudal era. That was above all the classical reform program of Adam Smith, John Stuart Mill and the intellectual mainstream.
But the aftermath of World War I saw the vested interests mount a Counter-Enlightenment. Banking throughout the Western world find its major market in real estate mortgage lending, natural resource extraction and monopolies – the Anglo-American model, not that of German industrial banking that had seemed to be capitalism’s financial future in the late 19th century.
Since 1980 the Western nations have reversed early optimistic hopes to reform market economies. Instead of the classical dream of taxing away the land rent that had supported Europe’s hereditary landed aristocracies, commercial real estate has been made virtually exempt from income taxation. Absentee owners avoid tax by a combination of tax-deductibility for interest payments (as if it is a necessary business expense) and fictitious over-depreciation tax credits that pretend that buildings and properties are losing value even when market prices for their land are soaring.
These tax breaks have made real estate the largest bank customers. The effect has been to financialize property rents into interest payments. Likewise in the industrial sphere, regulatory capture by lobbyists for the major monopolies has disabled public attempts to keep prices in line with the cost of production and prevent fraud by breaking up or regulating monopolies. These too have become major bank clients.
The Beginning and End of Russian Socialism
Most Marxists expected socialism to emerge first in Germany as the most advanced capitalist economy. After its October 1917 Revolution, Russia seemed to jump ahead, the first nation to free itself from rent and interest charges inherited from feudalism. By taking land, industry and finance into state control, Soviet Russia’s October Revolution created an economy without private landlords and bankers. Russian urban planning did not take account of the natural rent-of-location, nor did it charge for the use of money created by the state bank. The state bank created money and credit, so there was no need to rely on a wealthy financial class. And as property owner, the state did not seek to charge land rent or monopoly rent.
By freeing society from the post-feudal rentier class of landlords, bankers and predatory finance, the Soviet regime was much more than a bourgeois revolution. The Revolution’s early leaders sought to free wage labor from exploitation by taking industry into the public domain. State companies provided labor with free lunches, education, sports and leisure activity, and modest housing.
Agricultural land tenure was a problem. Given its centralized marketing role, the state could have reallocated land to build up a rural peasantry and helped it invest in modernization. The state could have manipulated crop prices to siphon off agricultural gains, much like Cargill does in the United States. Instead, Stalin’s collectivization program waged a war against the kulaks. This political shock led to famine. It was a steep price to pay for avoiding rent was paid to a landlord class or peasantry.
Marx had said nothing about the military dimension of the transition from progressive industrial capitalism to socialism. But Russia’s Revolution – like that of China three decades later – showed that the attempt to create a socialist economy had a military dimension that absorbed the lion’s share of the economic surplus. Military aggression by a half dozen leading capitalist nations seeking to overthrow the Bolshevik government obliged Russia to adopt War Communism. For over half a century the Soviet Union devoted most of capital to military investment, not provide sufficient housing or consumer goods for its population beyond spreading literacy, education and public health.
Despite this military overhead, the fact that the Soviet Union was free of a rentier class of financiers and absentee landlords should have made the Soviet Union the world’s most competitive low-cost economy in theory. In 1945 the United States certainly feared the efficiency of socialist planning. Its diplomats opposed Soviet membership on the ground that state enterprise and pricing would enable such economies to undersell capitalist countries. So socialist countries were kept out of the IMF, World Bank and the planned World Trade Organization, explicitly on the ground that they were free of land rent, natural resource rent, monopoly rent and financial charges.
Capitalist economies are now privatizing and financializing their basic needs and infrastructure. Every activity is being forced into “the market,” at prices that need to cover not only the technological costs of production but also interest, ancillary financial fees and pension set-asides. The cost of living and doing business is further privatized as financial interests pry roads, health care, water, communications and other public utilities away from the public sector, while driving housing and commercial real estate deeply into debt.
The Cold War has shown that capitalist countries plan to continue fighting socialist economies, forcing them to militarize in self-defense. The resulting oppressive military overhead is then blamed on socialist bureaucracy and inefficiency.
The Collapse of Russian Stalinism
Russia’s Revolution ended after 74 years, leaving the Soviet Union so dispirited that it ended in collapse. The contrast between the low living standards of Russian consumers and what seemed to be Western success became increasingly pronounced. In contrast to China’s housing construction policy, the Soviet regime insisted that families double up. Clothing and other consumer goods had only drab designs, needlessly suppressing variety. To cap matters, public opposition to Russia’s military personnel losses in Afghanistan caused popular resentment.
When the Soviet Union dissolved itself in 1991, its leaders took neoliberal advice from its major adversary, the United States, in hope that this would set it on a capitalist road to prosperity. But turning its economies into viable industrial powers was the last thing U.S. advisors wanted to teach Russia. Their aim was to turn it and its former satellites into raw-materials colonies of Wall Street, the City of London and Frankfurt – victims of capitalism, not rival producers.
Russia has gone to the furthest anti-socialist extreme by adopting a flat tax that fails to distinguish wages and profits of labor and capital from unearned rental income. By also having to pay a value-added tax (VAT) on consumer goods (with no tax on trading in financial assets), labor is taxed much higher than the wealthy.
Most Western “wealth creation” is achieved by debt-leveraged price increases for real estate, stocks and bonds, and by privatizing the public domain. The latter process has gained momentum since the early 1980s in Margaret Thatcher’s Britain and Ronald Reagan’s America, followed by Third World countries acting under World Bank tutelage. The pretense is that privatization will maximize technological efficiency and prosperity for the economy as a whole.
Following this advice, Russian leaders agreed that the major sources of economic rent – natural resource wealth, real estate and state companies – should be transferred to private owners (often to themselves and associated insiders). The “magic of the marketplace” was supposed to lead the new owners to make the economy more efficient as a byproduct of making money in the quickest way possible.
Each Russian worker got a “voucher” worth about $25. Most were sold off simply to obtain money to buy food and other needs as many companies stopped paying wages. Russia had wiped out domestic savings with hyperinflation after 1991.
It should not be surprising that banks became the economy’s main control centers, as in the West’s bubble economies. Instead of the promised prosperity, a new class of billionaires was endowed, headed by the notorious Seven Bankers who appropriated the formerly state-owned oil and gas, nickel and platinum, electricity and aluminum production, as well as real estate, electric utilities and other public enterprises. It was the largest giveaway in modern history. The Soviet nomenklatura became the new lords in outright seizure that Marx would have characterized as “primitive accumulation.”
The American advisors knew the obvious: Russian savings had been wiped out by the polst-1991 hyperinflation, so the new owners could only cash out by selling shares to Western buyers. The kleptocrats cashed out as expected, by dumping their shares to foreign investors so quickly at such giveaway prices that Russia’s stock market became the world’s top performer for Western investors in 1994-96.
The Russian oligarchs kept most of their sales proceeds abroad in British and other banks, beyond the reach of Russian authorities to recapture. Much was spent on London real estate, sports teams and luxury estates in the world’s flight-capital havens. Almost none was invested in Russian industry. Wage arrears often mounted up half a year behind. Living standards shrank, along with the population as birth rates plunged throughout the former Soviet economies. Skilled labor emigrated.
The basic neoliberal idea of prosperity is financial gain based on turning rent extraction into a flow of interest payments by buyers-on-credit. This policy favors financial engineering over industrial investment, reversing the Progressive Era’s industrial capitalism that Marx anticipated would be a transition stage leading to socialism. Russia adopted the West’s anti-socialist rollback toward neofeudalism.
Russian officials failed to understand the State Theory of money that is the basis of Modern Monetary Theory: States can create their own money, giving it value by accepting it in payment of taxes. The Soviet government financed its economy for seventy years without any need to back the ruble with foreign exchange. But Russia’s central bank was persuaded that “sound money” required it to back its domestic ruble currency with U.S. Treasury bonds in order to prevent inflation. Russian leaders did not realize that dollars or other foreign currencies were only needed to finance balance-of-payments deficits, not domestic spending except as this money was spent on imports.
Russia joined the dollar standard. Buying Treasury bonds meant lending to the U.S. Government. The central bank bought U.S. Treasury securities to back its domestic currency. These purchases helped finance Cold War escalation in countries around Russia. Russia paid 100% annual interest in the mid-1990s, creating a bonanza for U.S. investors. On balance, this neoliberal policy lay Russia’s economy open to looting by financial institutions seeking natural resource rent, land rent and monopoly rent for themselves. Instead of targeting such rents, Russia imposed taxes mainly on labor via a regressive flat tax – too right wing to be adopted even in the United States!
When the Soviet Union dissolved itself, its officials showed no apprehension of how quickly their economies would be de-industrialized as a result of accepting U.S. advice to privatize state enterprises, natural resources and basic infrastructure. Whatever knowledge of Marx’s analysis of capitalism had existed (perhaps in Nicolai Bukharin’s time) was long gone. It is as if no Russian official had read Volumes II and III of Marx’s Capital (or Theories of Surplus Value) where he reviewed the laws of economic rent and interest-bearing debt.
The inability of Russia, the Baltics and other post-Soviet countries to understand the FIRE sector and its financial dynamics provides an object lesson for other countries as to what to avoid. Reversing the principles of Russia’s October 1917 Revolution, the post-Soviet kleptocracy was akin to the feudal epoch’s “primitive accumulation” of the land and commons. They adopted the neoliberal business plan: to establish monopolies, first and most easily by privatizing the public infrastructure that had been built up, extracting economic rents and them paying out the resulting as interest and dividends.
This Western financial advice became a textbook example of how not to organize an economy. Having rejoined the global economy free of debt in 1991, Russia’s population, companies and government quickly ran up debts as a result of its man-made disaster. Families could have been given their homes freely, just as corporate managers were given their entire companies virtually for free. But Russian managers were as anti-labor as they were greedy to grab their own assets from the public domain. Soaring housing prices quickly plagued Russian’s economy with one of the world’s highest-priced living and business costs. That prevented any thought of industrial competitiveness with the United States or Europe. What passed for Soviet Marxism lacked an understanding of how economic rents and the ensuing high labor costs affected international prices, or how debt service and capital flight affected the currency’s exchange rate.
Adversaries of socialism pronounced Marxist theory dead, as if the Soviet dissolution meant the end of Marxism. But today, less than three decades later, the leading Western economies are themselves succumbing to an overgrowth of debt and shrinking prosperity. Russia failed to recognize that just as its own economy was expiring, so was the West’s. Industrial capitalism is succumbing to a predatory finance capitalism that is leaving Western economies debt-ridden. The underlying causes were clear already a century ago: unchecked financial rentiers, absentee ownership and monopolies.
The post-Soviet collapse in the 1990s was not a failure of Marxism, but of the anti-socialist ideology that is plunging Western economies under domination by the Finance, Insurance and Real Estate (FIRE) sector’s symbiosis of the three forms of rent extraction: land and natural resource rent, monopoly rent, and interest (financial rent). This is precisely the fate from which 19th-century socialism, Marxism and even state capitalism sought to save the industrial economies.
A silver lining to the Soviet “final” stage has been to free Marxist analysis from Russian Marxology. Its focus of Soviet Marxology was not an analysis of how the capitalist nations were becoming financialized neo-rentier economies, but was mainly propagandistic, ossifying into a stereotyped identity politics appealing to labor and oppressed minorities. Today’s revival of Marxist scholarship has begun to show how the U.S.-centered global economy is entering a period of chronic austerity, debt deflation, and polarization between creditors and debtors.
Financialization and Privatization Are Submerging Capitalism in Debt Deflation
By 1991, when the Soviet Union’s leaders decided to take the “Western” path, the Western economies themselves were reaching a terminus. Appearances were saved by a wave of unproductive credit and debt creation to sustain the bubble economy that finally crashed in 2008.
The pitfalls of this financial dynamic were not apparent in the early years after World War II, largely because economies emerged with their private sectors free of debt. The ensuing boom endowed the middle class in the United States and other countries, but was debt financed, first for home ownership and commercial real estate, then by consumer credit to purchase of automobiles and appliances, and finally by credit-card debt just to meet living expenses.
The same debt overgrowth occurred in the industrial sector, where bank and bondholder credit since the 1980s has been increasingly for corporate takeovers and raiding, stock buybacks and even to pay dividends. Industry has become a vehicle for financial engineering to increase stock prices and strip assets, not to increase the means of production. The result is that capitalism has fallen prey to resurgent rentier interests instead of liberating economies from absentee landlords, predatory banking and monopolies. Banks and bondholders have found their most lucrative market not in the manufacturing sector but in real estate and natural resource extraction.
These vested interests have translated their takings into the political power to shed taxes and dismantle regulations on wealth. The resulting political Counter-Reformation has inverted the idea of “free market” to mean an economy free for rent extractors, not free from landlords, monopolists and financial exploitation as Adam Smith, John Stuart Mill and other classical economists had envisioned. The word “reform” as used by today’s neoliberal media means undoing Progressive Era reforms, dismantling public regulation and government power – except for control by finance and its allied vested interests.
All this is the opposite of socialism, which has now sunk to its nadir through the Western World. The past four decades have seen most of the European and North American parties calling themselves “socialist” make an about-face to follow Tony Blair’s New Labour, the French socialists-in-name and the Clinton’s New Democrats. They support privatization, financialization and a shift away from progressive taxation to a value-added tax (VAT) falling on consumers, not on finance or real estate.
China’s Socialist Diplomacy in Today’s Hostile World
Now that Western finance capitalism is stagnating, it is fighting even harder to prevent the post-2008 crisis from leading to socialist reforms that would re-socialize infrastructure that has been privatized and put a public banking system in place. Depicting the contrast between socialist and finance-capitalist economies as a clash of civilizations, U.S.-centered “Western” diplomacy is using military and political subversion to prevent a transition from capitalism into socialism.
China is the leading example of socialist success in a mixed economy. Unlike the Soviet Union, it has not proselytized its economic system or sought to promote revolution abroad to emulate its economic doctrine. Just the opposite: To avert attack, China has given foreign investors a stake in its economic growth. The aim has been to mobilize U.S. and other foreign interests as allies, willing customers for China’s exports, and suppliers of modern production facilities in China.
This is the opposite of the antagonism that confronted Russia. The risk is that it involves financial investment. But China has protected its autonomy by requiring majority Chinese ownership in most sectors. The main danger is domestic, in the form of financial dynamics and private rent extraction. The great economic choice facing China today concerns the degree to which land and natural resources should be taxed.
The state owns the land, but does fully tax its rising valuation or rent-of-location that has made many families rich. Letting the resulting real-estate and financialized wealth dominate its economic growth poses two dangers: First, it increases the price that new buyers must pay for their home. Second, rising housing prices force these families to borrow – at interest. This turns the rental value of land – value created by society and public infrastructure investment – into a flow of interest to the banks. They end up receiving more over time than the sellers, while increasing the cost of living and doing business. That is a fate which a socialist economy must avoid at all costs.
At issue is how China can best manage credit and natural resource rent in a way that best meets the needs of its population. Now that China has built up a prosperous industry and real estate, its main challenge is to avoid the financial dynamics that are subjecting the West to debt deflation and burying Western economies. To avoid these dynamics, China must curtail the proliferation of unproductive debt created merely to transfer property on credit, inflating asset prices in the process.
Socialism is incompatible with a rentier class of landlords, natural resource owners and monopolists – the preferred clients of banks hoping to turn economic rent into interest charges. As a vehicle to allocate resources “the market” reflects the status quo of property ownership and credit-creation privileges at any given moment of time, without consideration for what is fair and efficient or predatory. Vested interests claim that such a market is an immutable force of nature, whose course cannot be altered by government “interference.” This rhetoric of political passivity aims to deter politicians and voters from regulating economies, leaving the wealthy free to extract as much economic rent and interest as markets can bear by privatizing real estate, natural resources, banking and other monopolies.
Such rent seeking is antithetical to socialism’s aim to take these assets into the public domain. That is why the financial sector, oil and mineral extractors and monopolists fight so passionately to dismantle state regulatory power and public banking. That is the diplomacy of finance capital, aiming to consolidate American hegemony over a unipolar world. It backs this strategy with a neoliberal academic curriculum that depicts predatory financial and rentier gains as if they add to national income, not simply transfer it into the hands of the rentier classes. This misleading picture of economic reality poses a danger for China sending its students to study economics at American and European universities.
The century that has elapsed since Russia’s October 1917 Revolution has produced a substantial Marxist literature describing how finance capitalism has overpowered industrial capitalism. Its dynamics occupied Marx in Volumes II and III of Capital (and also his Theories of Surplus Value). Like most observers of his era, Marx expected capitalism to make a substantial step toward socialism by overcoming the dynamics of parasitic capital, above all the tendency for debt to keep on expanding at compound interest until it produces a financial crash.
The only way to control banks and their allied rentier sectors is outright socialization. The past century has shown that if society does not control the banks and financial sector, they will control society. Their strategy is to block government money creation so that economies will be forced to rely on banks and bondholders. Regulatory authority to limit such financial aggression and the monopoly pricing and rent extraction it supports has been crippled in the West by “regulatory capture” by the rentier oligarchy.
Attempts to tax away rental income (the liberal alternative to taking real estate and natural resources directly into the public domain) is prone to lobbying for loopholes and evasion, most notoriously via offshore banking centers in tax-avoidance enclaves and the “flags of convenience” sponsored by the global oil and mining companies. This leaves the only way to save society from the financial power to convert rent into interest to be a policy of nationalizing natural resources, fully taxing land rent (where land and minerals are not taken directly into the public domain), and de-privatizing infrastructure and other key sectors.
Markets have not recovered for the products of American industry and labor since 2008. Industrial capitalism has been sacrificed to a form of finance capitalism that is looking more pre-capitalist (or simply oligarchic and neofeudal) with each passing year. The resulting polarization forces every economy – including China – to choose between saving its bankers and other creditors or freeing debtors and lowering the economy’s cost structure. Will the government enforce bank and bondholder claims, or will it give priority to the economy and its people? That is an eternal political question spanning pre-capitalist, capitalist and post-capitalist economies.
Marx described the mathematics of compound interest expanding to absorb the entire economy as age-old, long predating industrial capitalism. He characterized the ancient mode of production as dominated by slavery and usury, and medieval banking as predatory. These financial dynamics exist in socialist economies just as they did in medieval and ancient economies. The way in which governments manage the dynamics of credit and debt thus are the dominant force in every era, and should receive the most pressing attention today as China shapes its socialist future.
 I give the details in “Simon Patten on Public Infrastructure and Economic Rent Capture,” American Journal of Economics and Sociology 70 (October 2011):873-903.
 My book Super-Imperialism (1972; new ed. 2002) reviews this discussion during 1944-46.
 I discuss the IMF and World Bank plan to wipe out Russian savings with hyperinflation and make manufacturing investment uneconomic in “How Neoliberal Tax and Financial Policy Impoverishes Russia – Needlessly,” Mir Peremen (The World of Transformations), 2012 (3):49-64 (in Russian). МИР ПЕРЕМЕН 3/2012 (ISSN 2073-3038) Mir peremen М. ХАДСОН, Неолиберальная налоговая и финансовая политика приводит к обнищанию России, 49-64.
 I give details in “How Neoliberals Bankrupted ‘New Europe’: Latvia in the Global Credit Crisis,” (with Jeffrey Sommers), in Martijn Konings, ed., The Great Credit Crash (Verso: London and New York, 2010), pp. 244-63, and “Stockholm Syndrome in the Baltics: Latvia’s neoliberal war against labor and industry,” in Jeffrey Sommers and Charles Woolfson, eds., The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model (Routledge 2014), pp. 44-63.
 For more analysis see Dirk Bezemer and Michael Hudson, “Finance is Not the Economy: Reviving the Conceptual Distinction,” Journal of Economic Issues, 50 (2016: #3), pp. 745-768. http://dx.doi.org/10.1080/00213624.2016.1210384
Brilliant stuff as always from Michael Hudson.
In the midst of so much gloom and doom, I do think there is one small chink of light, in that analyses like this are slowly shifting from the far margins of politics and academia into the mainstream. I was first introduced to the theories of Henry George back in the late 1980’s as a disgruntled Econ undergrad in Ireland. There was one economics lecturer, who’s name I know can’t even recall, who wrote a book at the time arguing from a H. George perspective that removing value of land was key to economic and social process. I remember when this lecturers name came up during a macro class pretty much the entire class erupted in mocking laughter (I strongly suspect I was the only one who’d actually read his book or knew who Henry George was). This was after all, the era of Thatcher and Reagan and this was a class full of future bankers (except me of course).
Now Ireland is probably close to the ultimate land owning democracy. The great majority of the electorate are either farmers or home owners. As a result of which, the FIRE sector has always been particularly large and destructive and taxes on land and property are very, very low, and public compulsory purchase laws (eminent domain laws) are exceptionally weak. Everyone knows about the Celtic Tiger collapse, but even many Irish people have forgotten that this was just one of several collapses caused by property speculation, often by the exact same banks (I’m looking at you, AIB Bank) – each time they were brushed off by the government, refinanced and set off to do their jobs again. As they were in 2009-2012. It was only extreme pressure from the EU which forced a reluctant Irish government to put in place a very low property tax. Unbelievably, the Irish Trotskyist left wing opposed these property taxes and tried to make it a vote winner, which shows just how deep the desire to own a house is in the Irish psyche.
I’ve had some low level correspondence lately with some advisors to Irish mainstream centre right politicians (too long and complex to bother explaining how I got into this). Its been on the topic of the current housing crisis, which is primarily caused by hoarding of land by owners and financial interests and a construction sector which lost too much capacity due to austerity (in other words, all the engineers and skilled workers moved to Australia and Canada and won’t move back).
What has interested me is that its clear that even at a right wing establishment level, there seems a growing awareness and concensus that an economy based on strong land ownership rights, taxation focusing on labour, not rentier assets, and a hamstrung public sector can’t deliver. I’m not suggesting that they are all going to become Marxists, or even neo-Georgians, if thats a term. But I do get the sense that arguments on these grounds are no longer the subject of mocking laughter, but genuine interest. Put simply, even the more pragmatic elements right wing are now realising that a landowning rentier class and its associated FIRE sector are huge obstacles not just to a fairer society, but to a functioning and prosperous one.
This is a long winded way of saying that arguments like Michael Hudsons are slowly making ground across the political spectrum. I’ve no idea how long this can go on for, maybe it will need another almighty economic collapse to make real progress. But these are no longer fringe ideas, there is a real chance that they can go mainstream.
Thank you, PK.
Just to tie the circle, the London broker-dealer arm of AIB was run by a Pakenham, an Anglo-Irish toff for those outside the British Isles, in the 1990s.
Just for the record, my message is specifically for China’s leadership. (I’m a professor at Peking University.) This is THEIR major economic problem right now: credit mainly from near-bank lenders to buyers of property. The threat of this process is to raise the cost of housing and hence the basic wage throughout China — just as America has priced its labor out of the market by its high housing charges that result from NOT taxing the land.
I’m trying to avoid reference to Henry George because he didn’t have what the classical economists had: a concept of what economic rent IS. He simply said “tax the landlords.” His main supporters were New York City and Boston Irish in the late 19th century. But he argued AGAINST socialism and FOR privatization and a general anti-government politics. So much better discussion comes from Adam Smith, JS Mill, Marx, Alfred Marshall (good charts), Veblen and Simon Patten.
Re “priced its labor out of the market:” While discussing what’s wrong globally, and what might work to change the vectors and momentum, might I ask if the assumption is that the current globalization/neoliberal competitive-warfare structure is beyond substantive change? Doing something to regulate the clear issues with rentier behaviors ought to be a lay-down hand, but is the race to the bottom priced and baked into the larger political economy so thoroughly that it has to be taken as a base condition? That “the market” will rule on the pricing of labor and location of “work,” and that will largely control the cost of housing and other burdens that fall on the mopery?
It seems to me that there are a lot of reasons, among them the “cost of labor,” why what used to be the “real economy” of manufacturing and agriculture and such got Made more efficient” and corporatized and moved out, and wages and employment got scotched here in America, and I’m guessing many of the same “features” and behaviors and preferences are working in China too — human nature apparently being what it is. I’m guessing Chinese Rulers/Elites care as little about “outcomes” for us “useless eaters” as their peers in the rest of the world.
And of course in America, “land” is taxed by almost all the smaller political subdivisions, with many exceptions for reasons like “bidding” for Amazon to put their new second Headquarters in “my town, pretty please, with subsidies and immunity to law and regulation and tax exemptions for the Few.” My little house, “worth” less than $100k per The Market, is “rated” to pay about $1,200 in property taxes to fund all the socialized costs of community and infrastructure that the Owners leverage on..
And I still have 25 years of “mortgage rent” to pay off, and am vastly unlikely to live that long. I spent the morning sprucing up the outside of the Bank’s house, and have spent a large fraction of the purchase price on improving the place with new driveway, landscaping, paint, soon a new roof, and other items of maintenance and improvements that enhance the “curb appeal . Which under Florida law I have only “equitable title” to, not “marketable title” (which as the last 9 years has shown, can become just a chimaera thanks to the frauds of Banksters and the corruption of the “rule of law’ machinery. Here’s how the notions of types of “title ownership” works in FL (and elsewhere that “equitable title” is the nominal rule): https://www.flprobatelitigation.com/2006/11/articles/new-probate-cases/practice-procedure/a-tale-of-two-deeds-equitable-v-legal-title/
And now I read that the Chinese are outsourcing more and more labor (what’s not been robotized) to waystations further down on the race course to the bottom… How to fix all that, in a way that is “fair” and at least covers the basics for all 7+ billion of us, sustainably and “going forward”? One of those Really Big Questions?
This is another one of those micro to macro problems. Given the lack of growth in wage income, us mopes that “own” homes are dependent on them growing in “value” in order to maintain ourselves, support ourselves in retirement, etc. So we are the ones most afraid of/resistant to anything the government might do that can be cast as threatening that “value.” The rentiers can let us do their lobbying for them (the same way large corporations can let working people lobby for their tax breaks). This is the essence of divide-and-conquer.
Yet, as you say, now that all the local governments are likewise broke, they require taxing sources of income that are not mobile or powerful, i.e. our homes. So many of us find the notion that property is undertaxed hard to fathom. Likewise the notion that increasing our property taxes will somehow make life more affordable. How does that work?
There’s a whole lot of untaxed or minimally taxed property (land) owned by a lot of entities that operate businesses including mega churches and stuff like Scientology and of course Walmart and other large entities (maybe “military reservations”) and such, the self-serving activities of which are all about increasing and concentrating the upward and inward movement of “wealth.” And repressing the mopey. Which helps the predators and parasites grab ever more power over the rest of the political economy, to the detriment of everyone else. Little “equitable title holders” of little plots pay heavily to not only cover the costs of infrastructure while it’s waiting to be privatized and rented back, but the “shares” of the looters whose yachts float on oceans of lesser humans’ tears…
It’s kind of a matter of which land gets taxed. “The Law” decides that. And the looters pretty much own “The Law” and its institutions and enforcement mechanisms.
I recall that sometimes, in the Depression, when the Sheriff came to conduct the foreclosure sale at some farm, the rest of the community would either send him and his deputies packing, or make sure no one bid as the Sheriff barkered the auction. “The Law” sometimes grows, toward the general welfare, out of mores, ethos and concerted action… but Jay Gould’s thing about hiring half the working class to kill the other half is also still a “thing…”
Thanks for replying, I was thinking more in terms of the general economic argument about land ownership and taxation. George I know was an outlier – the economists name I was thinking about was Raymond Crotty – an eccentric figure (and wrong on a whole number of issues), but the first non classical economist I encountered as a pretty ignorant undergrad and so opened my eyes to the range of hidden opinions in economics.
Crotty is indeed an interesting figure. He wrote a GREAT world history, that I tried to get published in the US. He focused on lactose tolerance as a major factor leading Indo-European speakers to spread out.
I would have thought you had meant Fred Harrison, who also emphasized land taxation.
I’m glad you’ve heard of him! He was an interesting character (I never got to see him teach), but he was pretty much ignored in Ireland and I thought more or less forgotten everywhere. It was only much later and I read more that I realised his ideas were so similar to Henry George and other earlier strands of thinking. I know Harrison has similar ideas, but I haven’t read his work.
And I thought you meant Mason Gaffney, who has received undeserved derision in his career as a excellent economist and defender of Henry George.
A bit of an ‘off the wall’ comment, but here goes:
One of my kids got me hooked on KDramas (Korean Dramas). In the past 2 years, the Chinese have piggybacked onto the KDrama video streaming services ‘with gusto’.
One popular Chinese drama, Ode to Joy, revolves around themes of housing, rent, and labor in high-rise in Shanghai. I am struck by how neatly your essay coincides with the themes and characters portrayed in Ode to Joy.
This is of particular interest to me, because I am commenting from the Puget Sound region, which is daily awash in escalating real estate prices, accelerated by ‘offshore money’ (a phrase that now generally implies ‘Chinese money seeking US real estate’). At this point, even mighty Amazon has thrown up its hands about Seattle’s escalating property prices, (I suspect they’ve had trouble recruiting due to Seattle’s housing prices). Recently, Amazon sensibly announced that it will create an entire new headquarters in any city other than Seattle.
Because I am often at my computer in must-pay-attention-to-this-stuff-but-it’s-best-done-with-some-minor-distraction mode, I have taken to playing CDramas (Chinese dramas) in one browser window, while slogging through piles of data.
Ode to Joy is about 5 younger women (all beauties, of course) who live on the 22nd floor of a high-rise called Ode to Joy. One running theme in this story is about their problems affording housing in Shanghai (the two wealthy women each have their own flats; the three younger, just-in-from-the-countryside women share a flat). The driving motive of several of these young women is to have a place of their own; to purchase property — which I interpret as a metaphor for financial, social, and emotional security. They also, of course, would like to find a mate, and if the mate has a good income, being able to obtain property will be possible. (In this sense, IMVHO, China is like everywhere else ;-)
I mention this because it appears that the themes of rent, property ownership, and economic organization must be quite pressing, if these are the topics that drive the motives of characters that are popular in China.
They are certainly resonant in Seattle.
There is currently a not-so-subtle migration out of Seattle, as the city is becoming so expensive that even professional employees are moving east, north, and south for better quality of life. This is 100% due to the inability, I would even argue the malfeasance and brazen incompetence, of our current Political Overlords in the US to think clearly and pragmatically about what money is, where it comes from, and how its concentration leads to abysmal outcomes.
Finally, I was recently enthusing about my CDrama ‘window on the world’ to a friend who had recently done business in Asia, and was peeved with me for being inept in conceptualizing the scale of Shanghai. She promptly explained that ‘it would take 2 1/2 Manhattans to fit into the main region of Shanghai’. Breathtaking…
This is perhaps the quirkiest comment on this thread, but looping back to the recent post on “Can Theatre Change Your Mind?”, I hope it is not entirely off-topic.
I’ve looked more closely at nearby Vancouver, and I think the “Chinese” angle is overblown. Maybe 10 percent. The rest is simply banks lending more to locals — if they don’t pay for a house, they’ll have to live somewhere else. Also, hedge funds are in, and private buyers.
There recently was a change of government in Vancouver — that’s what it takes.
What an interesting comment. A window on your world. Thank you, readerOfTeaLeaves.
Thank you for mentioning the 19th century economist, Henry George. He had another proposal for land that seems to be absent here.
He proposed stake-holding run alongside ownership where the parties wished for it.
He meant stake-holding like the prospectors who mined for gold in California and Yukon in those days. As a stake-holder you held the land until you ceased to work it when it passed to another. The idea gave land a sort of mortality, like people.
Thanks MH for this very illuminating take on why the vast majority of us just can’t seem to have nice (or necessary) things.
Yes–China-“the final frontier”
I believe you just changed my perception on,and reasoning for, China’s ‘share to play’ policy for foreign manufacturing partnerships.
I don’t think it’s fair or accurate to say that Henry George didn’t understand economic rent; it sounds like you simply disagree with him on how to go about collecting it for the public. FWIW, regarding land, I think the public — whether that’s at the national, state or county level — should own the underlying freehold and simply lease out land titles to private parties, at market rental value, with recurring auctions.
That is functionally different from a land value “tax,” and so in that sense I think you and I agree that land should be “nationalized” or “socialized” instead of “taxed.” But in either case the outcome, in pure economic terms, is identical: the rent is being paid to the public. So, again, I think it’s unfair to say Henry George didn’t have a concept of what rent IS; he simply chose to market the “tax” method of its public collection over the “leasehold land titles” method.
We’ve had the benefit of time to see that his proposed method does not stick well (LVT gets lobbied away in most places where it’s enacted) while the latter sticks better (Hong Kong, Singapore). We can move forward without trashing him.
Maybe the FIRE sector should have paid attention to what the Roman Emperor Tiberius said two thousand years ago. He said that his policy of taxation was “that it was the part of a good shepherd to shear his flock, not skin it.” The former can be sustained but the later cannot and it is the later policy that the FIRE sector is using.
Thank you, Yves.
“In the era of the French Physiocrats, Adam Smith, David Ricardo and John Stuart Mill, this land rent accrued to Europe’s hereditary landlord class. Today, the land’s rent is paid mainly to bankers – because families need credit to buy a home. Or, if they rent, their landlords use the property rent to pay interest to the banks.”
In the United Kingdom, much of the land, variously estimated at one third to two thirds, is owned by the aristocracy, gentry and newcomers such as foreign investors, construction companies, retailers / retail developers and bankers, the last group surged in the 1980s and 2000s, so a blurring of the division between the aristocracy and bankers, not necessarily banks. In Scotland, it’s worse, at least three quarters of the land is owned by the above groups. The Queen’s wider family / “cousinade” owns about 12% of Scotland.
The UK’s land registry has existed for about a hundred years, so only includes land that has been traded. Much of the UK has not been traded, but passed between families. There’s a family in Oxfordshire, Catholic Recusants, that has owned its estate since the Norman Conquest. There are a few left from that era, another small batch from the Plantagenets, and a lot more from the era of the Dissolution of the Monasteries and Restoration of the Stuarts, when Henry VIII, James VI / I and Charles II had to keep nobles on side.
The first Blair government proposed compulsory registration of all estates, but after fierce lobbying by the aristocracy, including action in the yet to be reformed House of Lords, voluntary registration became law.
One recent innovation in the UK is the securitisation of ground rents (from leaseholds). This is causing a spike in such fees as landowners, developers and investors cotton on.
Unlike Scotland and England, Ireland benefited from at least some land reform in the 1880’s and then the 1930’s, although politically this just replaced an aristocracy with a deeply conservative rural landowning class. My grandfather reaped the benefits by way of an 80 acre farm siezed by the new de Valera government from an absentee London landowner in 1931. My uncle still farms it. Mind you, the resulting economic war with the UK crippled the Irish economy for decades.
As we’ve corresponded before, a certain newly ennobled hedgie (courtesy of Cameron) has been busy reconstructing an Irish aristocratic seat in stud country over the past few years (extremely tastefully, I have to say). He’s selling it all up for reasons I haven’t been able to find out.
Thank you, PK.
I would have been tempted to buy if my lottery numbers had come up.
When around the Bordeaux vineyards / chateaux a month ago, I thought about your comments about these houses and how, with good design, they can be made to look bigger.
The seller would have come across Cameron’s stockbroker father when he started in the 1980s.
Re: the economic war, Karl Whelan made the opposite argument, that the benefit to Ireland from “defaulting” on land annuity payments to the UK* more than compensated for the effects of British tariffs on Irish goods, which were only temporary in any case. He says that historically, it was in the 1950s that Ireland’s economy really went downhill.
* The Irish government made a one-off payment in 1938 to settle the matter which was lower than the annual value of the land annuities, and we also got the Treaty Ports back in the same deal. Not surprisingly contemporaries viewed Ireland as having won the economic war.
Thats interesting, thanks for that, its been many years since I read any Irish economic history, I must update myself. The conventional line I read (which was heavily influenced by the revisionists) blamed the economic war for Irelands plight.
There was a black joke going around for a while that de Valeras big mistake was not taking his chance to declare war on the USA in 1945, and so getting Marshall Aid.
‘State socialism (basically, state-sponsored capitalism) subsidized pensions and public health, education and other basic needs so as to save industrial enterprise from having to bear these charges.‘
If state socialism were actually as superior in efficiency to finance capitalism as Michael Hudson supposes, it would be gaining market share. But the relentless pattern of the past century has been the opposite: Russia and Cuba stagnated, while China only boomed when it backed off from being a hermit kingdom.
To the extent that socialism did triumph in America, it was precisely in the areas Michael Hudson delineates above: pensions, health and education. How’s that working out for us? Let’s review.
This trifecta of cost-plus public bloat illustrates the sad fact that Big Gov simply lacks incentives for thrift and prudence. It will feather its nest until the costs borne by the serfs become unbearable.
Watch this dynamic play out in the 2020s as several states — NJ, IL, KY and CT — flirt with bankruptcy. Sad to say, this natural process of defaulting on unfunded promises won’t inhibit some from crying “austerity” and blaming it all on “neoliberalism” rather than unaccountable government.
If state socialism were actually as superior in efficiency to finance capitalism as Michael Hudson supposes, it would be gaining market share. . .
That makes me laugh. The market decides. Is it capitalism or socialism? People mean nothing, only the market, and whatever share of it one can commandeer.
I have noticed that we do not have a free market. If we did Goldman Sachs would be dead and their bankster conspirators would be broke living under a bridge, after getting out of a penitentiary for hardened criminals.
Bernie Sanders: The business of Wall Street is fraud and greed. Capitalism as practiced today.
You are ignoring Hudson’s point that Soviet Marxism was crippled by constantly having to defend itself against militant opposition from capitalist powers. The same goes for Cuba and, lately, Venezuela. The US uses its power to boycott and sanction in order to manipulate the outcome of these socialist experiments and then say “see, toldja.” The power is backed up by a gigantic and ruinously expensive military whose only purpose seems to be to defend the country, not from security threats, but from opposing economic ideas. This was the story of the original Cold War and now, in modified form, of our New Cold War.
That said, I’m not very optimistic that Hudson’s rational analysis has much relevance to changing the behavior of countries and economies. We all know what the problem is–selfishness and greed–but what to do about it? These things are baked into human nature and all past attempts at reform seem to have merely displaced one set of corrupt rulers with a different set acting much the same. As Lambert likes to say: “grifters gonna grift.” The only real check to irrational selfishness seems to be the nature of the thing itself since those who feel “too much is never enough” always go too far.
Thank you and well said, Carolinian.
Venezuela is also “weaponised” for use against the likes of Corbyn and Melenchon. The pair are frequently forced to either defend camaraderie with Chavez or say how their plans won’t make the UK and France less sunny Venezuelas.
Venezuela is always painted as socialist, but it profoundly isn’t, yet. They should mention that.
Also, the rule of law really has never quite existed in Venezuela (lots of laws, police, and lawyers, but little actual law-abiding by them or the public). So any government is going to have a lot of trouble accomplishing anything. It’s a culture that says you’re a pendejo (chump) if you don’t rob as much as you can, however you can, out of any responsibility you are entrusted with.
Just as an example, when I was there, even the elevator repairmen were stealing parts (to save money and guarantee more work) which meant that elevators kept failing in high-rise buildings with people having to walk 10-20 flights of stairs every day.
We all know what the problem is–selfishness and greed–but what to do about it? These things are baked into human nature and all past attempts at reform seem to have merely displaced one set of corrupt rulers with a different set acting much the same.
This is missing the forest for the trees. What was the New Deal but an attempt to reorient the U.S. economy/society toward the interests of all above the interests of a few. And it was spectacularly successful, though obviously not permanently. The point is that financial (and other) elites are constantly trying to gain advantage and undermine structures that resist that advantage. It would maybe be nice is we could “enact” a New Deal (as if it was as simple as passing a few laws) once and then go back to sleep forever, but capitalism (and capitalists) don’t work that way.
Nor is it accurate to say that the New Deal was some inevitable response to “going too far.” It was the result of lots of class organizing, challenging capital (i.e. massive strikes), pain and suffering. As will any future new deal.
No, the Depression was the result of “going too far.” The New Deal was the response to the Depression. Would we have had a New Deal without it? Dubious. Call it Disaster Socialism.
As for leftist gains constantly having to be defended, aren’t you just making my point? The traditional left view was that history was on the side of the progressives and therefore inevitable despite what I call “human nature.” And yet here we are having to defend Social Security, that thing Eisenhower couldn’t imagine ever going away. What I’m saying is that having constant debates about policy without taking into account our irrational “human nature” is what is not seeing the forest for the trees. Liberals also like to “assume a can opener.”
If your point was that working class gains under capitalism are always provisional and temporary, and need to be repeatedly and continuously defended and/or won back, then I apologize for misunderstanding your post. I don’t believe “the traditional left view” that you describe has ever been the dominant view of people on the ground actually trying to build such a society. Maybe the PR people, and the academics. The Depression may have been necessary for bringing about the New Deal but it was by no means sufficient. As we can see from the lack of anything resembling a modern New Deal in the current period. Or alternative responses to the Depression elsewhere in the world.
Is selfishness and greed baked into human nature — or is selfishness and greed baked into the nature of those humans who grasp for rule? As I look around me I would say most humans are like Tolkien’s Hobbits. Those we elevated to power or who have assumed power through force or our negligence seem to have greed baked into their natures.
Suppose there were an implosion of the economy followed by an implosion of population as a result of any of the many looming threats or some combination of those threats. I suspect there might be a little anger toward those with greed baked into their natures. Even Hobbits have limits to their tolerance. I suspect there might be concerted efforts to exterminate the sociopaths who brought about the implosion.
Might human society gain a new foundation as a result of the implosion I postulated? Imagine a world where Hobbits ruled to assure that green things grew and that all might live simple full and happy lives.
Staying with Tolkien as the telling mythology, and reading through to the end of “The Return of the King,” you may recall that the Hobbits in the Shire were under what might be called authoritarian austerity rule. And when Frodo and Sam and Merry and Pippin returned from saving the decent world against the onslaught of the worst private equity vampire squid globalizing monsters ev-ah, they very quickly, with the uprising of the Hobbits still being looted, for apparently nothing more than pique and sour entertainment, by Saruman and his minions, got rid of said overlords and thug bosses in very short order.
Of course, Tolkien’s oeuvre is categorized by Wikipedia as “High Fantasy Fiction…”
If you believe there is such a thing as human nature–behavior governed by instincts and DNA–then obviously it’s baked into all of us. We are only one species. My assertion is that there is such a thing but obviously it’s not all we are. Still while we have cultivated our rational side that other part of us continues to be there. What I’m asserting in the above comment is that the left too often tries to just wish it away.
And no offense but I never much cared for Lord of the Rings and its epic battle between good and evil. The books had a surge of popularity back in the early 2000s as G.W, Bush invaded Iraq to rid it of Saddam’s “evil.” Many thousands died. Life is a lot more ambiguous than Hobbit land.
Concerning “Human Nature” there are actually two ways how things might work out.
The first was of course the utopia of Marx where the proletarians with the help of the machines(the artifacts they are forced to work with and get alienated/”de-naturalized” by) can overcome “Human Nature” , and thus achieve true freedom (from their natural shortcomings, and rulership).
It is kind of the joke of Terminator 1 and 2: Part 1 was classic Luddite “rage against the machine”/ romantic and Rousseauist “back to nature”, part 2 was the fight of mankind and machine against capitalism ( the fluid T-1000).
The more dystopian and drastic version is shown in Blade Runner/ Westworld: The machines themselves become emotional ethic beings, and overcome (human) nature.
Comrade Jim, thanks for this, always enjoy your perspective, mangled and illogical as it is in this case; one wonders when the blinders come off on someone who is usually clear eyed.
Pensions, you must be joking of course. You failed to mention the state of private pensions. Are they not as precarious or more so than state pension funds? and as far as Social Security your description of its imminent failure in 2035 is laughable.
Health: the only plausibly successful and affordable health care for most Americans is Medicare. The private end, which does its best to milk and subvert the public end, is a disaster except for the top 10%.
Education: one of the foundations of democracy. Students are now staggering under debt loads that will impoverish and handicap many of them for a good part of their adult lives Private interests are working at prying the education system of K-12 out of public hands to divert beneficial societal revenue streams into their pockets while propagandizing the free market and a white wash of history including the recent demise of the working and middle class. California used to have a great university system now it has real estate bubbles and a system in shambles.
For the pension facts, I recommend Ellen Schultz’ Retirement Heist that documents how the U.S.’ largest corporations looted the defined benefit pensions that covered 70% of its workers at one time.
Single payer socialism is half as expensive as what the U.S. has now, and produces better outcomes.
The education system’s problems aren’t that tough to fathom. Between Ronnie Reagan and Prop 13, California’s formerly free colleges began to suffer. I’ve read that Federal funding for higher education also decline 55% since 1972. So tuitions rise, and graduates have debt peonage to look forward to.
Incidentally, the best predictor of educational outcomes isn’t merit pay, charter schools or testing. It’s childhood poverty.
the best predictor of educational outcomes isn’t merit pay, charter schools or testing. It’s childhood poverty.
Absolutely and it’s perhaps easier to solve. Instead supposedly well intentioned education policy wonks, fronting for neo-liberal, libertarian and big business keep trying to reinvent the education wheel.
Of late it’s charter schools. It’s a double twofer: destroy teachers’ unions, drain students from public schools leaving the poor and therefore the most challenged students behind while diverting public education funds to the private sector. At the same time delivering poorly educated, non critical thinking generations to the wiles of corporate MSM messaging. Trained for work but not to think and easily manipulated.
Well said. Warren Buffett says “Gambling is a tax on ignorance.” Unsurprisingly, our educational system has produced a voting public willing to vote for a casino magnate.
I’m sure low taxes had nothing to do with it, along with 50% of discretionary spending being spent on the military. Also, Russia and Cuba aren’t socialist; they’re communist. Norway, Sweden and Germany are socialist and doing just fine.
“As a vehicle to allocate resources “the market” reflects the status quo of property ownership and credit-creation privileges at any given moment of time, without consideration for what is fair and efficient or predatory. Vested interests claim that such a market is an immutable force of nature, whose course cannot be altered by government “interference.””
Ours is obviously the best of all possible worlds. People are corruptible but the market deity is always true.
More neo-liberal misrepresentations from Mr. Haygood. He continues to lie about Social Security – claiming it to be a funded plan when in fact it is a pay as you go plan funded by TAXES, not by contributions as a funded plan is. And he implies using his lie as a basis that Social Security will be in “default” by 2035 – which is both false and impossible. That he continues to lie about Social security despite multiple corrections from me and other commenters demonstrate Mr. Haygood is posting in bad faith. Perhaps he has valid points on other topics but given his dissembling on Social Security I doubt it.
Further, Haygood blames the high costs of US healthcare on the government’s “half” of spending – ignoring the rank effects of profiteering and rent extraction from the Insurance and pharmaceutical industries. Just what you would expect a neo-liberal propagandist to conclude.
I don;t disagree that big government lacks incentive for thrift and prudence – particularly in the USA, where regulatory capture of government by the FIRE sector has corrupted it utterly. As usual, Mr. Haygood identifies the wrong villain in all cases to advance his ideological agenda.
“But the relentless pattern of the past century has been the opposite: Russia and Cuba stagnated, while China only boomed when it backed off from being a hermit kingdom.”
This is revisionist history. The Soviet Union boomed through much of its history, from the enormously high rates of economic growth during the 1930s through the post-war expansions under Khrushchev. The low growth rates of the Brezhnev stagnation period were only stagnation compared to the high rates of growth that came before it. The USSR began to run into more serious growth problems with the introduction of market reforms under perestroika.
This is only in select states, and it has been caused by mismanagement. Schools “admin up” is part of the problem; part of that can be blamed on unfunded Federal mandates.. the rest on bloat. As far as property taxes are concerned yes a few areas of the country have completely buried themselves. But you left out the Commonwealth of Massachusetts… Caps on property tax increases instituted in the state has ranked it near the middle of the pack of property tax rates by percentage. And they still provide one of the best public education systems in the country.
Funny how relative success is ignored.
I’ve come to see these Haygood posts as pop-quizzes for the NC commentariat. “Find the weak points in the following argument.” Class gets an A for today. Nice work. (Gold star emoji)
Hokey smokes, Dr, Haygood, you really want Comcast or Google running your life? Goldman Sachs, or JPM? Now *those* guys are truly unaccountable.
…some might view the 50 year war on FDR regulatory capitalism as the culprit…appears obvious we have experienced the deregulation of capitalism over past 35 years…+ loss of “transparency, oversight, accountability”…
We might be well informed to take issue by issue, perpetrator by perpetrator (Socratic Method) and evaluate said deregulatory legislation leading to dissatisfaction today…
History does define.
Really Jim… EMH – ????
This is where B. Black’s theoclassical nomenclature is applicable, it just gets so esoteric w/ all the attendant bias baggage.
disheveled…. your not beardo, Jim….
Brilliant stuff & coincidentally in terms of China I earlier came across this short video from Telesur which although low on detail could possibly be a sign that Xi Jinping might be about to head in a better direction.
Here is a transcript I put together :
” Xi Jinping is expected to usher in a new area for China, at the upcoming National Congress of China’s Communist party. His China will become more like the old one, away from pragmatism & Neoliberal market reforms & a return to the traditional party line & greater emphasis on the state economy.
During his five years in power, Xi has fought by all means against corruption & replaced ninety percent of the military’s representatives in the Party’s congress. When he took power he described the party as economically & ideologically corrupted & that China needed to learn from the mistakes of the Soviet Union.
With Trump in the Whitehouse & an aggressive rhetoric towards China, Xi Jinping will have to take all necessary measures to take it’s rightful place in the world. ”
We shall see : https://videosenglish.telesurtv.net/video/683400/xi-jinpings-new-china-is-the-old-china/
“The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges.”
The insolvency of political thinking in America.
I don’t understand your comment. Should I substitute “poverty” for “insolvency”? If so are you suggesting there are alternatives to socialist reforms and if so — what alternatives do you see or propose?
I kid I kid.
If I recall correctly, in the U.S. FDR used the threat of the then fairly strong Socialist Party and Labor unions to extract a concession from the “Captains of Industry” to a near 100% marginal income tax during the great Depression/WW2 era. The plutocrats, having long memories, vowed to make adjustments and so destroyed the Socialist Party (through the Red Scare and other tactics) and crushed labor unions, to the point that labor unions in the US are about a third the size they used to be and a third the size of our northern neighbor with whom we had parity before.
These wealthy people had so much impact that ordinary working people either hate or are suspicious of unions today and there is widespread hatred of the New Deal amongst the monied interests.
So, in the U.S. socialism didn’t fail so much as it was crushed by committed, well-organized, well-funded political opposition. Trust me, you do not want to piss off capitalists.
Thank you, Steve.
It will be interesting to see how the British establishment deals with a Corbyn government. Their collaborators in the Labour Party and MSM have failed to dislodge him.
One reason why the City et al have not been more vocal about Brexit is that they realise they are not flavour of the month, even with UKIP, but see Corbyn as a bigger threat, so they need to keep their powder dry.
The Tories are the party of the City.
They all went to school together.
Woodrow Wilson had a hand in it too. He sent US troops to occupy parts of Russia post WWI.
This article is a rare bright spot in the dimness.
Hudson rightly chastises socialists (especially Marxists) for not reading Volumes 2 and 3 of Capital. It’s not an academic or pedantic matter. In those volumes, Marx really does anticipate—in exhaustive detail—so much of what we’re seeing (or not seeing) in today’s finance capitalism. He’d probably be shocked himself at how “in the ballpark” his theorizing on finance capitalism has turned out to be.
As Eric Hobsbawm came to believe in his later years, and as Hudson implies, Marx and Marxism may prove more applicable and insightful in the 21st century than in the 19th and 20th centuries.
Thanks Michael Hudson for writing this, and thanks Naked Capitalism for posting it.
Thank you for that comment. I’ll stand with you George.
This Professor THINKS!
Interesting to know certain steps that happened in Russia recently.
There’s a lot of interesting information here, especially about the Russian catastrophe in the 1990s. I do have some concerns about this claim:
I have difficulty seeing China as a socialist success story. They have a lot of billionaires, and also many millions of destitute people. Censorship is ubiquitous, and factory working conditions are Dickensian. People are sometimes secretly arrested, and their family members have no information about them for months. The government practices internal imperialism in Tibet and Eastern Turkestan (Xinjiang) which is reminiscent of the United States treatment of American Indians. Periodically, some of their cities are shrouded in horrible air pollution, and their drinking water is often no better than that of Flint, Michigan:
They still haven’t solved their intractable population problem, as the number of people continues to grow, without an increase in resources. Is China a success? No. They just haven’t failed as badly as some countries have failed.
“They still haven’t solved their intractable population problem, as the number of people continues to grow, without an increase in resources.”
China has a population density of 147 people/square mile.
Germany has a population density of 237 people/square mile.
Great Britain has a population density of 271 people/square mile.
Japan has a population density of 348 people/square mile.
If Germany, Great Britain and Japan have more people/square mile than China does, shouldn’t we be more worried about them not having enough resources to care for their people than we are about China?
Errr…..that’s square kilometer, not square mile…..some of that American “exceptionalism” leaking through, I guess…..
Those square kilometers should be ares, or Hectares, or Kiloares, or if measuring the surface area of the intelligence of Trumps brain, microares.
I’m concerned about overpopulation everywhere. As for population density in China, it is impossible to support dense populations in the large arid western provinces of Xinjiang, Tibet, Qinghai, Gansu, and Inner Mongolia. Some provinces are much denser than Germany, Great Britain, or Japan:
Shandong has 622.84 people per square kilometer.
Guandong has 579.46 people per square kilometer.
Henan has 563.01 people per square kilometer.
Jiangsu has 766.66 people per square kilometer.
Zhejiang has 533.59 people per square kilometer.
China has a very severe overpopulation problem.
And yet NYC has a population density of 10,890 people/square kilometer……
My point is that the “overpopulation” argument is inherently racist and classist (Malthus, also being a classist and a racist, would agree!). Where do we want population “controlled”? Well, of course in brown/yellow countries, not “white” countries. And who do we want controlled? Why of course poor people – even though they use up SOOOOOO much less of the world’s resources than do the wealthy……
The “overpopulation” argument is “concern trolling” – dressing up racism and classism in pseudo logic and the words of science to cover up for the fact that those who are responsible for the gutting of poor countries are afraid that sooner or later they will be held accountable for their actions (or afraid that those brown/yellow or poor people will want to take something from them). So they use their propaganda to make the world’s problems the fault of the very people they’ve victimized…….it’s the same old story we’ve seen before in so many places, including our own South……
And it still draws in so many, many people….
You are straw manning, big time, which is against our written site Policies. You are rapidly accumulating troll points. The overwhelming majority of the members of the commentariat who say we need fewer people are acutely aware of the fact that people in advanced economies consume and pollute far more than people in developing countries.
But, but, but, we are exceptional, thus……..
Well, possibly China isn’t one huge howling success, but consider Professor Hudson”s stated audience, “Just for the record, my message is specifically for China’s leadership.”
It would be undiplomatic and counterproductive to be unnecessarily critical in a piece like this. Better, I think, to focus on solutions and assume that the leaders of China are aware of their problems.
Okay, but how many of China’s leaders read English language blogs? Shouldn’t a message for them be written in Chinese?
It’s a good article, but that sentence about success jumped out at me. For what it’s worth, I did point out that some countries have worse problems.
Oh, I think you might be surprised. And Prof Hudson has had a podium in China for several years. Doubt that they would invite him to such a position if they weren’t interested in what he had to say, even if just out of politeness.
Oh, yes, I’m sure that some Chinese leaders are fluent in English. I’m wondering: if one wants to influence events and leaders in the United States, is it proper to sugar coat our numerous problems? And if it’s wrong to pretend that things are just great in the United States, isn’t it also wrong to do so in other countries? And if one must pretend that the other countries are successful when they really aren’t, what does that say about those countries? Do the Chinese leaders live inside the sort of sycophantic bubble that some U.S. Presidents have been encased in?
“Wealth tends to concentrate until there is a revolution,” is arguably Marx’s central observation. But “wealth tends to concentrate” is just the capitalist special case of the general rule that “power tends to concentrate.” In monarchies, power tends to be a matter of access to the king. That is why in the middle ages the Kings were often able to compel the wealthy to give them loans that were never repaid. In communist states, it tends to be about party membership and hierarchy. In capitalist states, it is about wealth, because in a free market, wealth is relatively unconstrained and powerful. Authoritarian states are more alike than different, whether they are nominally communist, monarchist, or capitalist.
The American advisors knew the obvious: Russian savings had been wiped out by the post-1991 hyperinflation, so the new owners could only cash out by selling shares to Western buyers.
There’s an interesting symmetry with Mexico, as Mexican savings had been wiped out by their long hyperinflation lasting about a dozen years, only put to rest in 1993 with issuance of the Nuevo Peso (1000 old Pesos = 1 Nuevo Peso). The beneficiary was American employers, tapping into a rich pool of Mexican immigrants willing to work in Estados Unidos, economic refugees, if you will.
Growing up in L.A., I knew and went to school with say around 30 Mexican-Americans, all 2nd, 3rd or even 4th generation Americans.
And then as hyperinflation set in, more and more from ‘down under’ showed up for work, and it used to be that you’d really only see Mexican-Americans on the border states and rarely beyond, but now they’ve spread far and wide in every state.
For many of the immigrants working here, it was all about sending back remittances to their family-victims of a broken economy slowly strangling it’s people.
The Weimar hyperinflation lasted a couple years if that. Imagine it going on for a dozen?
Xi gets it. He recently stated that the purpose of housing is not real estate speculation, but living adequately. Modern housing for 1.5 billion people is critical for maintaining the environment and thus the economy. So here’s a capital idea: Let the central banks flood the system with enough money to end the scarcity of money, and thus end high interest rates as well. This creates an interesting product – people doing useful things making money circulate and achieving a restoration of the planet. This could be seen as everyone participating in a “private capital” world or it could be seen as everyone participating in a “socialist world” – take your pick. Sovereign money can serve to guide the best uses of money via legislation for spending priorities. Sort of socializing currency itself. Ecosocialism. I’m pretty sure that finance has realized that people are its most valuable commodity, right up there with the environment.
This essay by Michael Hudson raises many important issues–one being the accuracy of his financial capital thesis.
Hudson states that “instead of evolving into socialism Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as labor”
But Bill Mitchell in his recent book “Reclaiming the State” argues that “…the Post-Fordist system is not one in which finance capital has taken control of industrial capital, or has become detached from the real economy; on the contrary, and more worryingly, it is one in which industrial capital and the real economy themselves have become thoroughly financialised.”
Mitchell goes on to state that “…the claim that finance is at odds with industrial capital is also disputable. He notes that much of Big Business had made the choice “…to become financial firms themselves…to enhance capital’s profitability outside immediately productive processes”
meaning that “…we are in a historical period in which finance is cosubstantial with the very production of good and services.”
Excellent essay, thanks.
I think it’s interesting to focus on your military points.
“”Marx had said nothing about the military dimension of the transition from progressive industrial capitalism to socialism. But Russia’s Revolution – like that of China three decades later – showed that the attempt to create a socialist economy had a military dimension that absorbed the lion’s share of the economic surplus. Military aggression by a half dozen leading capitalist nations seeking to overthrow the Bolshevik government obliged Russia to adopt War Communism. For over half a century the Soviet Union devoted most of capital to military investment, not provide sufficient housing or consumer goods for its population beyond spreading literacy, education and public health.
The Cold War has shown that capitalist countries plan to continue fighting socialist economies, forcing them to militarize in self-defense. The resulting oppressive military overhead is then blamed on socialist bureaucracy and inefficiency.””
I think we’re seeing that currently in the US military aggression against Iraq, Libya and Syria as well as its plans to destabilize China’s silk road such as in Myanmar.
Syria seems to have really brought that to a head with Russia, Iran and China emerging as more responsible actors for the middle east.
Iraq, Libya and Syria could be seen as attempting Arab socialism, the struggle between exploiting and exploited nations, as opposed to Marxism per se, struggle between an exploiting owner class and exploited worker class. But each is very threatening to the financial elite.
Largely as a result of self defeating sanctions of the US, not to mention self defeating military actions (things like the White Helmets showing their true colors), Russian, Iran and China are developing alternatives to the USD hegemony.
Goals of both types of socialism include free education and medical care as well as good employment and social security. The US is using a lot of money and bloodshed against these ideals.
China is probably best suited currently to lead this sort of economic reform. The US is turning into a pariah.
Yes Libya, you can say what you want to about Quaddafi: education free, Health care too. He didnt want to participate in USA- European neoliberalism bankism. Iraq however another tragedy- was a warmongering experiment to also extend American corporate hegemony to that society.
Capitalism requires a bloodthirsty military conquest to advance its venal thirst sadly.
Can we truly doubt Engels famous refrain ..” its either socialism or barbarism”..? Lets advance fresh humane, socialistic ideas that embolden a more just society for all of us…!
Thanks very much for this post.
Wow, good article. The things you can learn here (a bit of which I actually knew, but had forgotten).
Fabulous essay, amazing, many thanks to Michael Hudson. Agenda-defining. So much to digest. Will try to re-read,
Hat tip to you Mr. Hudson!
Absolutely agree and absolutely love these “broader” economic articles. Mightn’t agree with everything, and certainly do not understand many things, nevertheless they always enlighten. And the commentator’s inclusion of other thinkers alongside Mr. Hudson’s open up new vistas of exploration of economic thought. Ta
The price of land is expensive depending on location, usually near FIRE sector nodes or Veblen community’s w/ attendant credit loops or unfettered global capital influx [bit of a mix and flows don’t always reflect magnitude amplification]. Though it should be reconciled that in more cases than not prices are administered and not reflective of – pure – market dynamics [price discovery (culmination of binary trades of scale)] e.g. RE price jumps from 500K to 1M crossing the road.
Which leads us to another vexing problem since wages and productivity diverged all whilst equities became a HPM form of moeny [incentivized via c-suite remuneration and LBO’s and acerbated by forced savings a la 401K w/ income dependency].
Where Marx [not to be confused with Marxism (extenuation of dead peoples theory’s)] M-M is only exceeded by Gates friction-less Capitalism ™ and mercenary IP rights w/ the digital – information economy e.g. wealth is increasingly unattached to the natural world i.e. all theories proposed before such events suffer a lack of accurate information.
disheveled…. classic observer problem… movement of time and space between observers… and their observations…
I am a big fan of Michael Hudson and he has helped my own thinking move on in leaps and bounds.
But, I am convinced neo-liberalism destroys itself.
Free market capitalism with neoclassical economics was in around in the 1920s.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression.
No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
1929 and 2008 stick out like sore thumbs when monitoring unproductive, private debt in the economy. An economy can only take so much unproductive lending before it blows up and this is what financialised neo-liberalism runs on.
This real estate and financial speculation economy was always on a one way trip to a financial crisis.
Michael Hudson’s work has led me to this equation:
Disposable income = wages – (taxes + the cost of living)
The cost of living = housing costs + healthcare costs + student loan costs + other interest payments + food + other costs of living
Do the maths for generation rent (UK) .
Do the maths for countries like China that we have to compete with.
Housing booms pass gains to one generation at the expense of all future generations.
They raise wage levels for all future generations.
The young flock to Corbyn and Sanders due to the maths of their existence.
The rentier UK and US economies can’t compete globally due to their high wage economies that need to cover the rentier gains.
Neo-liberalism just doesn’t work in the long term.
Lest we forget, labour cost is one of the lower fruits, Reg arb and ease of corruption are a bit more up the value chain.
The former is an investor preference when c-corps likes to burnish its short term numbers, where the latter is manifold to the bottom line in annual terms – if not longer.
disheveled…. the Summers memo… wipes tear from eye… the “sharing” of the burden of uplift….
…all need comprehend “neoliberalism”; (here is George Monbiot historical documentation):
“The term neoliberalism was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek. Both exiles from Austria, they saw social democracy, exemplified by Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare state, as manifestations of a collectivism that occupied the same spectrum as nazism and communism.
In The Road to Serfdom, published in 1944, Hayek argued that government planning, by crushing individualism, would lead inexorably to totalitarian control. Like Mises’s book Bureaucracy, The Road to Serfdom was widely read. It came to the attention of some very wealthy people, who saw in the philosophy an opportunity to free themselves from regulation and tax. When, in 1947, Hayek founded the first organisation that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations.
The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute.
Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.”
To jeremy grimm: as for alternatives to the rapacious assault of neoliberalism economics, how abouf this for a 21sr century NEW VISION/
Make Banks Public to serve industry, entrepreneurs, students, their communities, home buyers and the citizenry at large. Banks were looking ti become Public Utilities before WW1 according to most historians who are not servants to corporate- private powers.. INSTITUTE a UBI, as an experiment, a univers basic income and yes as Hudsons article outlines- return Our Natural Resources into the hands of the populace – not to be hoarded by profiteers..
We must envision new ideas to stimulate humane entrepeneurialism with mixed socialism.. Successful business people must be heavily taxed – a public subsidy to go back to serve the Public Good n society.
Ameeicas health care program is a tragic laughingstock in developed societies that provide Health at 1/2 the USA COST about 9-10% GDP compared to our 18% soon to be 19% GDP with poorer outcomes than most of the developed nations.
USA has become Rapacious unregulated Capitalism on steroids.
Only new forms of Socialistic ideas can restore a vibrant, more equitable society
Of course Education must be Free as well.. !
Id like to hear Ideas from the intelligent audience- easy to criticize dysfunctional neoliberalism.