Michael Hudson: Debts That Cannot Be Paid Won’t Be

Yves here. In a new interview, Michael Hudson turns to one of his favorite topics: the destructive role of debt in our modern economic system, and how the cautions of classical economists about borrowing and rentierism have been excised from mainstream thinking. This discussion is a great introduction to Hudson’s views so please circulate this interview widely.

Published by R. C. J. Cranstoun

CRANSTOUN: The theme of this issue is “What is to be done?” Before that question can be asked, we need to understand the field of play. In the American context, how has creditor power reshaped the domestic economy since 2008?

HUDSON: The product of the banking sector is to create debt. Since the 2008 mortgage crisis, almost all of the increase in wealth in the United States has gone to the top ten per cent, and really to the top one per cent. That wealth consists in getting the rest of the economy into debt. The result is that the economy is overloaded with debt.

We have reached the limit of the debt build-up that began after 1945, when most economies emerged from the Second World War without much personal debt. There were not many things to borrow for during the war. Every business cycle recovery since then has begun from a higher and higher level of debt. The problem is that by 2008, when the junk mortgage crisis hit, the system had already reached its limit.

What was the United States going to do? In past crashes, debts and creditor claims were wiped out. But the banks did not want their claims to be wiped out. When President Obama took office in 2009, he essentially acted as the nominee from Wall Street. It was Wall Street, and Robert Rubin, Secretary of the Treasury under Clinton, that had backed his nomination from the very beginning.

Obama was largely elected by saying that there had been widespread mortgage fraud, and that his administration would write down the junk mortgages, the fake reporting, and the falsified documents. It was going to write down the high-interest loans, mainly to racial and ethnic minorities. The mortgage on your house was going to be valued at current market prices, and that was going to determine the mortgage payment you had to make.

The banks opposed this. Instead of letting the insolvent banks that had made bad loans go under, Obama sought to rescue them. He had a fight with the Federal Deposit Insurance Corporation, headed by Sheila Bair, whose position was that the most crooked banks, like Citibank, had committed fraud and had to be allowed to go under. The loans had to be written down.

But Obama appointed Tim Geithner as Treasury Secretary, Rubin’s delegate on behalf of Citibank. Obama’s answer was: all right, we are not going to write down the mortgage debts. The banks will be bailed out. And there was an enormous bank bailout.

The banks still had negative equity because the real estate market had collapsed. The stock market had collapsed. How was the United States going to avoid the usual result of financial crashes, where wealthy creditors who made bad loans lose their money?

The solution was that, between 2009 and 2022, the Federal Reserve flooded the banking system with low-interest money. Interest rates on government debt, private debt, and especially short-term government debt fell from over 5 per cent to 0.1 per cent.

Obama created the biggest bond market boom in US history, because when interest rates fall, bonds, mortgages, and other credit claims that carry a high interest rate go way up in price. Essentially, the US economy was turned into a Ponzi scheme. The Federal Reserve’s position was: we know there are defaults, so we are going to lend debtors the money to pay, so that they do not default. If they do not default, the banks will not have to write down loans that were made beyond the ability of home buyers, credit card debtors, and others to pay.

CRANSTOUN: Classical political economy distinguished industrial profit from economic rent. What is that distinction, and why does it matter for understanding the conflict between Western finance capitalism and China’s economic model?

HUDSON: The ideal of industrial capitalism in the early nineteenth century, from David Ricardo to John Stuart Mill to the Liberal Party that was created in the 1860s, was to make Britain the workshop of the world.

How do you do that? The industrialists, led by the banker David Ricardo, asked how they were going to cut the costs that industry had to pay, so that they could undersell rivals in France or elsewhere. In order to cut costs, they had to reduce the price employers paid for labour.

If they continued to let the hereditary aristocracy, which held most of the land, defend the Corn Laws, the protective tariffs passed after the Napoleonic Wars ended in 1815, then the landlords would say: now that trade has resumed, we do not want our economic rents on agricultural land to be reduced, so we want to block imports. England would then be entirely reliant on its own food production.

Ricardo said that if England did not import low-priced food, then it would have to pay labour a living wage high enough to afford expensive domestic food. Britain would not be able to compete with countries with lower food costs. They would undersell Britain, and Britain would not be the workshop of the world.

Since Ricardo was a spokesman for the banking interests in Parliament, he understood that Britain’s major international business was trade financing. A closed, autonomous economy would not be good for trade financing.

What was needed was a division of labour in which England would import raw materials, food, minerals, and everything else it needed, without tariffs, at a low price. That would enable it to pay a low living wage and allow British industry, which already had a head start, to pull ahead. The last thing Britain wanted was for other countries to impose protective tariffs, which would block British industry, block international trade, and prevent industrialists from making their profits.

So Ricardo wanted to block the trade barriers of the Corn Laws. Soon James Mill, who had helped him edit his Principles of Political Economy in 1817, and his son, John Stuart Mill, extended the argument. John Stuart Mill’s phrase was “landlords grow rich in their sleep.” Landlords collect rent that everybody has to pay in the form of higher food prices. They make money without working. Mill said that industrial capitalism had to be freed from the legacy of feudalism, from hereditary land rent that the conquerors of England gave to themselves and their heirs. The economy had to be freed from all forms of rent, including monopoly rent that raises the cost of doing business.

The whole idea of industrial capitalism was to lower the cost of doing business, and that included lowering the cost of living to leave more room for profits. Ricardo had said very clearly that if the economy and the markets were not freed from landlords, and by extension from monopolists, then economic rents would go higher and higher. More income would be paid to landlords, to monopolists, and incidentally to bankers too. There would not be any room left for profits, and industrial investment would stop.

This was the doctrine of classical political economy, from Ricardo to Mill, not only among socialists, but among liberals too. It was followed in the United States during its take-off. The United States said: if we are going to prevent monopoly rents, then we have to have the government undertake public infrastructure. The government would take on the role of investor, just like the industrial capitalists.

Nobody called this an anti-capitalist social revolution. They said it was industrial capitalism evolving into socialism, because the American professors and economists who guided US policy understood that if the government created transportation, communications, public health, and education, then it could supply these basic needs at low prices, making American industry more competitive.

So, in order to have a competitive industrial economy, you had to socialise natural monopolies. The Americans spelled this out in the books I have described in America’s Protectionist Takeoff, 1815–1914. The industrial capitalists, as well as the socialists and the liberals, all agreed that land rent had to be taxed away. That was how you would help pay for the subsidised services.

In Britain, you had Benjamin Disraeli saying, “Health, all is health.” The drive was towards low-cost health care. British elections were pressing for a land tax, and that seemed to be the direction in which the world was moving.

By the time that World War I began, there had been a constitutional crisis. In 1909 the Liberal Party passed the land tax through the Commons, as part of the People’s Budget, and the House of Lords, largely made up of landlords, rejected it. The crisis was resolved in 1911 by saying that the House of Lords could never again veto a revenue policy passed by the House of Commons.

It looked as if the world’s economies would follow something like the US federal income tax introduced in 1913. Beginning in 1914, only 2 per cent of Americans had to file an income tax return. You had to be pretty wealthy even to file. Most of the wealthy filers were rentiers. They were bankers, financial people, and monopolists.

But real estate and finance joined together and mounted a wholesale rejection of classical political economy. They argued that there is really no such thing as rent. The whole essence of classical economics was the theory of value , and value was the necessary cost of production. That was what was used by the Sherman Antitrust Act. How much can monopolies charge? It has to be the basic cost of production, including normal profits. But if prices are higher than this, what is the excess of price over value? It is economic rent. And that economic rent is unearned.

Paying rent to a landlord is not a cost of production. It has nothing to do with the production process. Paying interest to banks, paying debt service, is not a cost of production. Many corporations and businesses pay interest because they find they can make a profit by borrowing at a low price and investing at a higher rate. But that is a choice of financing.

So the idea was that money paid to rentiers, landlords, monopolists, and the financial sector is not really a product, and does not belong in the national income and product accounts, or in gross domestic product, because interest is not a product. Landlords, monopolists, and bankers do not really provide a productive service. The financial sector is part of a separate economy from the economy of production and consumption.

That is what is not recognised today. But it is recognised in China. Suppose you are comparing British, American, or European GDP with China’s GDP. Almost 80 per cent of America’s production is called “services”. What are these services? Paying interest, paying rent, paying health care to monopolists. Countries that provide public health care, and which do not have an active financial sector in the same way, do not have these overhead costs. So they do not have the same large component of reported GDP in the form of payments to rentiers. Only the cost of production is counted as GDP.

What China has done is follow the exact policy that the American protectionists and British liberals urged. They have prevented an independent landlord sector from coming up. They have not yet solved the problem of land rent being paid to mortgage bankers as interest. That is part of the problem they have had with their own real estate bubble. But it is still a different economic system.

That is what is so threatening to the United States and Europe in their foreign policy towards China. It is not really that America and Europe are against China. They are against the threat of its economic system, very much as the West was afraid of Communism after Russia’s 1917 revolution.

There was a whole fight in the West against the concept of economic rent, and that fight was successful. It turned the classical idea of a free market on its head. To the classical economists, a free market was an economy free from economic rent. But the counter-reaction, from the Austrian school, the British utilitarians, and the designers of national income accounts, was to treat all income as earned income. Landlords earned their rent. Bankers earned their interest. Monopolists earned their monopoly income. Everything became earnings. Rent was treated as a cost of production, part of the social process itself.

So there is a completely different picture of the economy. In American universities, and I am told British universities as well, the history of economic thought is no longer taught. It has been replaced by mathematics, all within the existing system, assuming that our way of organising national accounts and organising the economy is the natural way. There is no alternative, as Margaret Thatcher said.

China and other countries are trying to develop an alternative. They do not want American and Western companies to come in and say: we are going to create our own money and lend it to Chinese industry, so that we can be the beneficiaries of all the profits now making billionaires in China from technology.

When Donald Trump met President Xi in May, he brought bankers, technology executives, and billionaires with him. Nothing could symbolise the difference in economic systems more clearly than the contrast between US finance capitalism and China’s industrial socialism. China’s industrial socialism is what industrial capitalism was supposed to be: a mixed economy in which the government handles and operates the natural monopolies.

Every economy has land rent, because some sites are more valuable than others. Some houses and stores are always going to be more valuable because they are on the sunny side of the street, or near public transportation. These are public improvements. Transportation creates location value, and the rent of location is the most important thing.

The question is: are you going to let private landlords own this location value, or is the government going to collect the value that landlords did not create themselves? They make it in their sleep. When London extended the Jubilee Line, real estate prices increased all along the route. The increase in real estate values was higher than the cost of digging and building the line itself. The government could have recaptured the location value that it had created, and would not have had to tax the population for it. Instead, it taxed the population.

So if you do not tax away rent as unearned income, you become a high-cost economy, and the whole economy has to pay higher and higher rents. The government has actually lowered the tax on real estate rents and financial rents below the tax rates on labour and actual industry.

That is one of the reasons Britain has deindustrialised along a path almost exactly like the one Ricardo, and later the socialists, warned would happen if the government did not realise that economic rent had to be taxed away to make economies low-cost and more efficient.

CRANSTOUN: If the classical tradition was so explicit about rent, how was that analysis displaced from the core of the discipline?

HUDSON: There was an intellectual counter-revolution. There was a change in the way people were taught to think about how the economy operated. The rentiers fought back against classical economics.

You had the Austrian argument. According to classical economics, banks simply create money. They charge interest. What do they do to produce it? Nothing. Well, the Austrians said that banks produce by being abstinent. The pretense was that creditors, banks, and the financial sector forgo consumption. They postpone consumption and make a sacrifice. That was the word Böhm-Bawerk used. They postpone consumption in order to receive interest so that they can consume more later.

The fact is that bankers and billionaires do not really postpone consumption. Karl Marx quipped that, in that case, the Rothschilds must be the most abstinent family in Europe.

In the eighteenth century, you had a whole discussion in Britain about the debt overhead and foreign debt. Matthew Decker and Malachy Postlethwayt argued that England had a problem. England was running up foreign debt, especially to the Dutch and other foreign investors. When interest was paid to them, they did not spend the money back into England. It was a drain. How was England going to support the value of its currency?

These creditors do not really defer consumption by lending money. When they make interest, they plough it back into making more loans, to make yet more interest.

It became very popular, for instance, to calculate compound rates of growth. England set up a fund to repay foreign debt by investing money in a fund that would grow at compound interest. The designers asked: what if a penny saved in the time of Jesus, at just 4 per cent interest, would now be a sphere of gold extending from the Sun all the way out to the orbit of Saturn? Obviously many people saved pennies in the time of Jesus, but nobody has that much gold, because interest expands at compound rates. Every interest rate has a doubling time, while the economy has an S-curve.

Every business cycle, in Britain, the rest of Europe, and America, begins with an upswing. Then, at a point, it crashes. Why does it slow down? Because people run up debts, and paying debt service, paying rents, and paying other forms of rentier income leaves less money to spend on goods and services.

If you are paying more and more debt service, you have less money to buy the goods and services that the labour force and industry are producing. The market shrinks. Industrial companies and the consumers who depend on them have to pay more and more of their wages to credit card companies, bankers, and, in Britain and America, student debt. They cut back their spending. Finally, you have a financial crash.

All of this was already described in the eighteenth century, but it is not taught anymore. If you look at the dynamics of debt and finance capitalism, the creditors are the main recipients of interest, capital gains, rent, and fees, including late fees. The credit card companies in America make more money on penalty fees than they make on their nominal interest rates.

Over the last sixty years, I have often had occasion to talk to the Commerce Department. I asked: where do these late fees appear in the national income accounts? They said: that is payment for financial services. Well, just think of that. America is supposed to be a service economy, but much of the revenue from these services comes from late fees paid by people who cannot break even on their wages while still living in the way they have been accustomed to.

That is the corner the United States, Britain, Europe, and other countries have painted themselves into. They have painted themselves into a debt corner.

The only way they can avoid a crash is to do what President Obama did, and what Europe followed him in doing after 2009. You flood the economy with credit, and you lend the debtors enough money to pay.

That is what is happening now with private capital, through what are called non-bank intermediaries. They are firms led by wealthy people who have borrowed from the banks at one rate of interest to buy out companies, take them over, and say: we can borrow at a low interest rate, and we can make a profit.

They increase their profits in ways that have nothing to do with production. For instance, hospitals in Britain and the United States may decide to sell their land to a separate real estate company, lease it back, and declare a special dividend for themselves.

It is as if the whole British economy is being turned into Thames Water. The owners of Thames Water did not use their revenue to provide clean water. They used it to pay dividends to themselves, special management fees to themselves, and stock buybacks.

In the United States, 92 per cent of corporate profits today are spent either on paying dividends to stockholders or on stock buyback programmes in order to increase stock prices. Only 8 per cent is spent on expanding the means of production.

That is because the chief financial officers of financialised US firms have their bonuses and salaries based on the stock price. How do you increase the stock price? You increase it by paying more dividends and doing stock buybacks. And how do you pay more dividends and buy back more stock? You do not use the revenue for long-term investment.

If you are a financial manager, you are paid according to how the stock price did this year, or even this quarter. You live in the short run. That is the difference between finance capitalism and industrial capitalism. Industry has to be long-term. Industrialists earn their profits by organising industry, organising the supply of raw materials and machinery, organising a labour force, creating markets, creating a whole system. This is a great effort. It means undertaking research and development for new products.

But a financial manager is going to say: if we do research and development, that will take years, and there will be another financial manager by then. That will be a problem for the future. My salaries and bonuses are based on what I perform in the stock market this year, so I am going to cut back long-term investment. I am going to cut back research and development. My goal is to increase the stock price.

This leads to the post-industrialisation of the economy. The managers’ logic is: we are going to cut back products that do not make a quick return. We are going to sell off the corporation’s real estate assets, lease them back, and use the proceeds to pay more dividends and stock buybacks. But that increases the costs the company now has to pay in economic rent, so we are going to borrow money at a low price to keep the process going.

Companies in the United States, and I am sure in Europe, are borrowing money just to pay dividends and stock buybacks. All of this increases the debt service they have to pay, especially now, when the whole system is seen as risky. That risk increases the interest rates companies have to pay, because the banks’ position is: we are worried this cannot continue. We do not see how you will be able to pay us unless we lend you the money.

That is how, in the fourteenth, fifteenth, and sixteenth centuries, France, Spain, and other countries kept borrowing from international bankers and ended up defaulting. The bankers tried to keep lending the money, but at least they had collateral to grab. England lost its jewels again and again by pledging them for debt, and then had to rebuy them, or ended up losing them.

Ultimately, the debts cannot be paid. That is one of my basic principles: debts that cannot be paid won’t be. The question is how they are not going to be paid. Either they are paid by the government bailing out the banks and saying: you will not take a loss, we will give you subsidies and keep you afloat. Or the bankers who made these bad loans to companies, trying to keep them going by breaking up and financialising them, lose money. Somebody has to lose.

Is it going to be the economy as a whole, industry and the labour force it employs? Or is it going to be the financial sector?

The financial sector has become so wealthy. Almost all of the gains in wealth since 2009 have been in the finance, insurance, and real estate sector, the FIRE sector. This sector has used its wealth, in the United States, to control political campaigns and back candidates that serve its interests.

The result is that they have essentially bought control of the media, the government, and most importantly the universities that shape how people think about how the economy works. They give people the idea that debts are sacrosanct, that debts have to be paid, and that if you default, that is your problem, not the creditor’s.

The fact is that every economy with interest-bearing debt has exponentially growing compound-interest debt. You have student loan debt, credit card debt, mortgage debt, and automobile debt. Default rates on all of these are rising because people are unable to pay them.

What are they going to do? Are they going to go without food, or are they going to default? Are they going to pay the carrying charges on this debt? No. They are going to put their own livelihood first.

What is forcing the squeeze now is the sharp rise in energy prices, for heating your home, lighting your home, and for companies to provide electricity. Electricity is one of the most rapidly growing costs for industry, labour, and government. All of that is exacerbating the debt service.

Something has to give. There is a break coming. That is what is so amazing about the economy. The stock market is up. Interest rates are down in the United States. The Dow Jones Industrial Average has been rising. It’s as if they hope that somehow everything is going to go back to normal.

But things never go back to normal. What is normal is a crash. That has happened again and again. That is the lesson of economic history.

CRANSTOUN: The question of debt goes much further back than Ricardo. In your work on Sumer and Babylonia, what were debt jubilees, and what problem were they designed to solve?

HUDSON: Beginning in the third millennium BC, in Sumer and Babylonia, every new ruler would start his rule with a clean slate. For three thousand years, the Middle East, Mesopotamia, and Egypt were the most rapidly growing parts of the world. Almost all of the economic phenomena that we have today, money, interest, and land tenure, emerged from this period.

All early economies operated on credit because there really was not much money. Most economies were agricultural. During the crop year, cultivators would run up debts. If they went to the bar, the ale woman would mark up what they drank on the tab, just like workers in Britain for years. The bartender would say: okay, I am marking up your IOU, and on payday you are going to pay it off.

Payday was when the crops came in. So cultivators owed money not only for beer. They owed money to priests who officiated at weddings, burials, or ceremonies. The palace or other people would lend them animals to help with the harvest.

When it came to harvest time, the agricultural families that had land tenure would bring their grain to the threshing floor, and the grain would be measured out and used to pay the debts they owed. This happened in Britain until about the fourteenth century. For British serfs, whatever their status on the land, harvest time was the time to pay their debts.

Sometimes there would be a problem. What if there was a flood? What if there was a drought? Around 1750 BC, Hammurabi of Babylon wrote laws holding that if the storm god prevented the crop from being harvested, then the population on the land would not be forced to pay their debts. If they were forced to pay, they would fall into bondage to their creditors, many of whom were palace officials, and would ultimately lose their land. You would have a landlord class, and you would have an oligarchy developing.

If that happened, the population would run away. Or, if they were attacked by another country, they would go over to the attackers if the attackers promised to cancel the debts. That is just what Hammurabi did after he conquered another kingdom. He would cancel the debts of the people.

So there were three elements that every Near Eastern realm carried out. This was the subject of the five volumes of economic history that I edited as part of my Harvard project for twenty-five years. You would cancel the debts. You would free the debt servants to go back to their families. You would return the slaves to their original owners, and you would restore the land.

These were, word for word, the measures that the Jewish population of Babylonia brought with them when they returned to Judea under Persian occupation. The result was the laws of Leviticus. That is the Jubilee year. The Jubilee year was what Hammurabi had proclaimed, not in his laws, but in the four debt cancellations that he proclaimed, and that every king in his dynasty began his rule by proclaiming.

CRANSTOUN: You have traced this tradition forward into early Christianity, where the good news is bound up with debt cancellation. What happened to that tradition once Christianity was absorbed into Roman state power and its creditor order?

HUDSON: From the fifth century BC to the time of Jesus, there is hardly any documentation in Judea about what was happening politically, because it was not written on clay. It was written on perishable papyrus or other material. But obviously the creditors fought back, and the Bible describes this in the form of the Sadducees and the Pharisees.

In Luke’s Gospel, Jesus is described as giving his first sermon when he goes back to Nazareth, his home city, and unrolls the scroll of Isaiah, where Isaiah calls for the year of the Lord’s favour, the debt Jubilee year. Jesus says this is what he has come to fulfil.

Now that we have the Dead Sea Scrolls, translated and published over the last half century or so, we can see that what Jesus was saying was part of a whole movement of debtors against creditors. They were all calling for this. Basically, Jesus’s message was to go back to the original Judaism, to the laws of Leviticus and Deuteronomy, the Mosaic Law, the Torah.

That became Christianity.

You can imagine what happened once Christianity became the Roman religion. You had fights especially in the wealthiest Roman provinces, which were in North Africa, the breadbasket of Rome. This went back to the persecution under Diocletian, when the traditional Christians were opposed by Rome, which seized the Bibles of the old Christians and destroyed them.

Some Christian leaders made a deal with Rome. The bargain was: we will represent your interests. We will try to make Christianity compatible with the fact that the landlords and creditors are in charge of the economy.

There was a class war in the areas that Saint Augustine represented. You had traditional Christians organising gangs that would attack the households of creditors who held other people in debt. There was a civil war between debtors and creditors.

Augustine asked how they were going to deal with this. His answer was that Jesus was not really saying, “cancel the debts.” He was saying, “cancel sin.” Well, the word for sin and debt is the same in every language, not least in the Germanic languages, where Schuld is an obligation, but also a debt. It is the same word for “should.”

This is a product of what the Europeans call wergild. If you kill somebody or injure them, you have to pay restitution. This was the original meaning of debt for many Europeans before Rome brought the practice of debt into northern Europe.

Augustine said: well, it is really sin. And the sin is basically sexual egotism. Forget debt. Augustine called for the Roman troops to come in, seize the Christian churches, and turn them over to himself and his groups. That, along with Cyril of Alexandria, changed Christianity.

The English translators of the Bible did not know what to do when they first translated the Bible from Aramaic and Greek. They did not realise that words like “good news”, “debt”, and “sin” had this economic meaning. They could not fully understand this until cuneiform was translated, and you could see what Hammurabi and all of the Sumerians and neighbouring Middle Eastern countries actually meant by the words that they used.

That should have led to a big footnote in the Bible saying: “here is what the words of Jesus meant when he said he was bringing good news”. The good news was debt cancellation. There were all sorts of words for this that we now find used by the prophets. I describe all of this in my book …and Forgive Them Their Debts.

Christianity began as a movement for debt cancellation, to free economies from the oligarchy. The oligarchy fought back, basically through the rabbinical school, which represented the wealthy, best-educated Judeans.

Much the same thing happened when the rentier interests today fought back against the industrial economists and the classical economists. You have had a five-thousand-year fight between creditors and debtors that goes through all of history.

When you look at history in terms of the fight between creditors and debtors, it is a debt crisis that enslaved the Roman Empire and led to the fall of Rome. You have had the same tension, in miniature, in almost every subsequent economy. It is occurring throughout the whole West today.

For the first time, we are seeing a civilisational fight over this issue, with China and other countries saying: money, credit, and banking should be a public function, not a privatised function. The government should be the creditor, because governments can write down debts. China can simply write down the debts of its population to prevent an independent oligarchy developing.

Every country has tried to prevent an oligarchy from developing. The Middle East did that for three thousand years, and cancelling the debts did not cause disaster or crisis. It prevented crises from developing. It restored order. That was the essence of all of the royal proclamations, from Sumer to Babylonia, Assyria, and Israel. That is what the prophets said.

In the Jewish Bible, the whole history from, let us say, the eighth to the fifth centuries was a war between debtors and creditors. You had Isaiah saying: if you let an oligarchy develop, they are going to take over all of the land for themselves, and there is not going to be any room for the people. They are going to have the houses, they are going to have the land, and the people will be enslaved.

Israel withdrew from Judea over the issue of exploitation. This is a dynamic you have throughout all of history. But there is very little attempt to ask: what is the Bible saying? What is the economic philosophy of the Bible, and how did it evolve over the centuries?

It has become cognitive dissonance because, when people began to translate all of these documents, they could not believe that this actually was enforced in practice. Was it all idealistic? Was it just saying: would this not be a nice world? Well, we have ancient lawsuits in which debtors say: I do not have to pay this debt because the king proclaimed a clean slate.

It meant, literally, a flowing river. Freedom was the movement of debt servants, bond servants, leaving the households of their creditors and returning home to their families. People cannot believe that early civilisation avoided the collapse of the Roman Empire by not letting an independent oligarchy develop to overthrow the kings, as they did in Rome, and create a creditor crisis.

CRANSTOUN: You describe this as a five-thousand-year struggle over creditor power. Today that conflict also appears geopolitically — through sanctions, energy, and the dollar system. Where does Iran fit into that picture?

HUDSON: The Iran situation is not going to be solved. The United States is not addressing Iran’s decision to say: the world has changed. If you attack us, we are going to collect reparations. We are going to charge money for access to the Strait of Hormuz. And if you try to overthrow our government, if you attack us militarily again, then we are going to respond.

For the last century, the United States has based its foreign policy on control of the world’s oil. If you control oil, then you can cut off the energy supply to other countries if they do not follow the policies that you want. That is why the United States insisted, first of all, in 2022, on blocking Russia from exporting oil and gas to Europe. It is why the United States seized Venezuelan oil, whose proceeds are now paid into a bank account in Florida managed by Donald Trump.

The logic of Trump’s policy is: we want to overthrow Iran. In effect, it is: I want to appoint the new prime minister of Iran. I could act as prime minister myself, because I am going to control Iran’s oil exports, so that I will be in a position to restore America’s control of the whole international oil trade. Then I can cut off China, cut off Russia, and cut off any country that does not agree to impose trade sanctions against our enemies, Russia, China, and anyone else who seeks to achieve sovereignty along lines that we do not approve.

Iran has said: if you are going to destroy us, this is an existential problem for us. If you destroy us, we are going to prevent you from carrying out your designs to control the world, and certainly to control OPEC’s Arab countries. If we cannot export oil, then none of our fellow OPEC Middle Eastern countries can. We are going to blow it all up and plunge the whole world into depression.

Already, the interruption of oil trade through the Strait of Hormuz has created the conditions for what I think will be an economic depression by the end of this year. And if the United States attacks Iran again, Iran will destroy the oil export facilities that remain, all the way from the Emirates monarchies to Saudi Arabia, and the whole world could lose 20 per cent of its oil supply. That also means its supply of fertiliser, sulphur, and chemicals. Those are the stakes.

The United States is not able to make any agreement that Iran can accept, because Iran has said: you have grabbed $100 billion of our assets. We will not agree to any agreement based on what you promise to do, because you have broken your promise again and again. Until you pay us $25 billion as a signal that you are going to move to pay the remainder, we cannot accept it.

The US Congress has said that no matter what Trump and his negotiators agree with Iran, we in Congress are not going to permit any repayment of the money that we have grabbed. We have stolen it fair and square, as Senator Hayakawa once said. So there is not going to be an agreement. And without an agreement, there is going to be a continued interruption of oil trade. The world is going to be forced into a downturn.

What the increased price of oil has done is essentially create a financial crisis for Western banks. Suppose you are a Global South country. All of a sudden, the price of your fertiliser is up, the price of your oil is up. You are in the position of consumers who are being squeezed. How can you afford to pay your foreign debt, service your dollar debts, and still pay more money for energy and fertiliser for your agriculture?

Something has to give. What are they going to choose? Obviously, they are going to choose to preserve their livelihood. They need the energy. They are not going to pay their debts. There has to be a debt moratorium. The debts cannot be paid.

Since we have spent much of this conversation talking about how the Western countries cannot pay their debts, this inability to pay is even clearer for the Global South, Asian countries, and other countries that are now so debt-strapped within their own economies that, when you add foreign debt service to bondholders, they cannot pay.

The bondholders are not going to agree to any write-down. So what you are going to have is a break between the Western economies, the United States, Europe, and their associated states, probably including Japan, Korea, and so forth, and the rest of the world.

Trump’s and the US attempt to isolate Russia, China, and Iran is ending up isolating the United States and Europe from what has been the most rapidly growing economic area of the world: China, Russia, and Iran.

So what are countries in the middle going to do? Are they going to tie their economic fortunes to the United States, which itself is a shrinking market because of its deindustrialisation and financialisation? Or are they going to say: we see the world’s growth occurring in East Asia. We are going to try to be part of that growth and mutually benefit.

That is the choice. There is no assurance that countries are going to follow their own economic interest. So a materialist approach to history does not help very much here, because countries are not following their own interests. It is all political.

CRANSTOUN: That brings us back to the question of the issue: what is to be done? If the West wanted to restore productive capacity rather than preserve creditor claims, what would that actually require?

HUDSON: There is only one way to restore economic and industrial growth to Britain, Europe, and the United States. That is to write down the debts that have built up, especially in the United States, and I understand in Britain also, with student debts.

How on earth can graduates pay their student debts, and their mortgage debts, if they have their own home, and the rising rents to the absentee landlord class? This is just what the classical economists fought against. How can they break even unless they are paid a high enough salary to pay all of these debts?

If employees in Britain have to be paid enough money to pay their student debts, their mortgage debts, their rents, and their medical debts, then British labour will be as high-priced as American labour is. Twenty per cent of America’s national income now goes to medical insurance, because privatised medical care is incredibly expensive compared to public medical care.

So, in order to restore industrial growth, you would have to deprivatise the financial sector and the natural monopolies. The government would not be charging for water what Thames Water is charging. You would have to have a responsible bureaucracy, so there is no monopoly rent.

Essentially, you would have to do what John Stuart Mill urged: increase the tax on rising land prices so that landlords do not make money and capital gains in their sleep. You have to stop all of the tax advantages that you give to running into debt by treating interest payments as if they are a cost of production. They are not a cost of production. They are the cost of how industries are financed.

If a corporation says, well, we can borrow money to buy our own stocks, that is not a cost of production. That is a choice of financing, and it should not be treated as a tax-deductible expense. Because if the government does not collect the land rent, as I brought up with the Jubilee Line and with the Second Avenue line in New York City, then the rest of the population is going to pay it as an income tax.

That is almost like the kind of tribute payments that the classical economists wanted to free industrial Britain from on its way to becoming the workshop of the world, and as competitive as it was. It is the same thing in America: free the economy by preventing monopolists, and by using the government.

Everybody called this socialism at the time. Socialism was not a bad word. It was the natural evolution of industrial capitalism. The natural evolution was to socialise the natural monopolies and socialise the land rent, so that there was no longer any privatisation of rent, interest, and monopoly rent.

CRANSTOUN: The implication is bleak: the remedy is not technically mysterious, but politically almost impossible.

HUDSON: That is what it looks like.