Wealth Debt and Economic Power

Robinson’s Podcast Episode 302

Michael Hudson in conversation with Robinson Erhardt

Inherited wealth and earning a living

Robinson Erhardt: I wanted to start with a rather pointed question today because Elon Musk has been in the news a lot lately. So have the tech billionaires, and people are very afraid about being unable to make money in the near future. So what I wanted to start by asking you is: are we getting to a point where you have to inherit a decent life?

Michael Hudson: Well, that’s how most fortunes have been made throughout history. And they all go back to, as Balzac said, some theft of the public domain or some big crime way back in archaic times. So yes, the easiest thing to do is to inherit money. But the bigger problem is that almost all the fortunes that have been made, certainly since 2009, when there’s been the huge increase in stock prices, bond prices, and real estate prices, that’s all been rentier income.

It’s been land rent, interest, and dividends, and capital gains primarily. It hasn’t been made by earned wages. Earned income is part of the production system. And in fact, the United States, like Europe before it, has been able to make such large capital inflows from the time that Europe began to establish colonies in the periphery, Africa and the rest of the world, and began to act as a creditor nation from Britain and France to Latin America, Africa, the Middle East, and Asia, that all of this financial inflow has made it much easier to make money by financial means, by investing. So yes, it’s easy for you to make money financially. You just buy government bonds that are yielding now over 5%. And that doubles your money every 12 years.

The problem is, how do you make a living by actually working to produce goods and services for the market? There’s less and less and less. And that’s the irony of all this. There’s even a discussion in Europe, and especially, let’s say, Argentina. Argentina’s just been creating money, essentially for the billionaire class that runs Argentina.

And the employment has been going down and down and down. And Milei, the head neoliberal, said that the Argentine miracle is you’ve been able to shrink the Argentine market, less and less workers. And he said, and that’s a good thing. That strengthens the Argentine peso because the less money that wage earners make, then the less money they have to spend on imports and the less of a balance of payments drain there is.

Well, you could say the same thing for the United States. We’re living in a society where the whole aim of the power elite that has most of the money, basically the financial sector or the FIRE sector—finance, insurance, and real estate—they’re really not that interested in creating an economy where people have jobs creating goods and services and product.

Most of what is reported is GDP today, gross domestic product, isn’t a product at all. It’s interest, it’s penalty rates on bank credit cards, it’s the rise in the homeowner’s equivalent rent if they had to rent their apartments to themselves. How much is this value of their homes going up? None of this entails making a living at all.

It entails how are you going to make more money off what you’ve inherited from your parents. And of course, that’s what’s caused the racial divisions and the ethnic divisions you have in the United States. After World War One, almost everybody, if you were white, could get a mortgage and the whole middle class defined as homeowners was endowed after World War One by getting long 30-year mortgage credit.

And all of this real estate takeoff that was built from 1945 through around 2007 has all been let’s say ethnically concentrated in a class that has passed down housing from parent to son to grandchild, et cetera. And that’s left out a large part of the American population that was excluded from this.

Immigrants, probably who came here to try to make a living, have hardly been able to qualify for housing. So you have a dual economy in the United States, and in many ways the US economy is looking very much like a separate, polarized economy, just as you have in what used to be called the Third World, the Global South, that was created as a counterpart to the Industrial Revolution that occurred in Europe and the United States.

So yes, it’s hard to make a living by actually having a job, much easier to make a living is: what am I going to do with the money that I’ve inherited.

Financialization bank bailouts and private equity

Robinson Erhardt: Super interesting, the quickness with which you responded to that question. It was almost as if you knew what I was going to say before I said it, but of course you didn’t. So inheriting wealth isn’t so much the problem for generating wealth today. The problem is the financialization of the economy. What I think I’m getting at with my question is, why is it becoming increasingly difficult for people to make a living today? And how is that connected to the rise in billionaires and now trillionaires?

Michael Hudson: For a billionaire, it’s so much easier to make money by financial means, by speculation. The whole plan of Obama and the Democratic Party when they came into the presidency in 2009 was to solve the financial crisis. Given the fact that financialization had become a Ponzi scheme—bidding up, making money from money—instead of trying to erase all of this overhead of debt, Obama said, well, we’ve got to bail out the banks, even though the banks had made fraudulent loans, junk mortgage loans, liar’s loans they were called, to NIMBA, no income, no assets, no jobs. There was no attempt at all to rebuild the industrial economy. Both parties, the Democrats and the Republicans, gave up on all of this. America somehow has become as centralized a planned economy as China, or almost as the Soviet Union was.

But the planning has passed into the hands of the financial sector, largely via the central bank, the Federal Reserve, whose job is to reflect the interests of its commercial bank customers and essentially keep the financial markets afloat. And keeping the financial markets afloat means essentially you make money by what’s called arbitrage. You borrow at low interest rates from the banks that are flooded with money from the Federal Reserve that provides credit to the banking system to make low interest loans to buyers of industrial corporations or bonds at home or abroad or buy whole companies. And so you have a whole new phenomenon in the United States, private capital. Companies that are set up simply to borrow money from the banks and buy out corporations, and you’ll borrow for a long time at under 1%. Now it goes up to maybe 3%. But you buy corporations that are actually producing goods and services, industrial companies, it could be hospitals, could be service companies, and they’re paying dividend rates of more than 3%.

And so you get a free lunch by buying them, but then you say, how can we make even more money? Well, take the case of American hospitals, for instance. You buy a hospital, you decide, let’s cut it in half. Let’s sell off its real estate for the hospital. You’ll create a separate real estate firm, and this hospital that provides medical care on the one hand will be one part of the company.

Its real estate, the property, the land, and the buildings will be another. And then the hospital will lease back this land at a given price. And so the private capital company is going to take this real estate entity that has a guaranteed flow of income from the hospital as rental for the hospital to have a place to operate, and it’ll pay itself a special dividend, and that will increase the price of the private capital company.

This is a predatory way of making money, and it does not increase the actual output of product in any way. What it does is greatly increase the cost to the hospital of doing business, because now it not only has to pay the staff and provide all of the raw materials and the medicines that it needs, it has to pay rent for what it formerly didn’t have to pay at all.

Well, all of this strategy began really in the news with McDonald’s, when the McDonald’s tried to cut itself into two companies. Well, we’re going to have the McDonald’s burger company on the one hand, but then we’re going to sell off all the real estate. And if you want to buy a McDonald’s franchise, Okay, you’ll buy the franchise and you’ll make a profit selling hamburgers and food-like products.

And you’ll also, of course, have to pay rent for the premises that you have. You have the same thing. You’ve been carving up the whole economy into little parts. Things that formerly were unitary are now broken up into separate rent-yielding assets. And all of this is included in GDP.

Industrial capitalism banking and colonial debt

Michael Hudson: The whole concept of what is a product today, what is output, is very different from what it was in the Industrial Revolution, where all of classical political economy from Adam Smith through John Stuart Mill through Marx, the whole 19th century said, we want to create an industrial capitalist system that makes profits and reinvests profits in producing goods and services, and this will be a continually expanding process.

And since most people’s idea of history is, well, how did the West develop? There’s sort of a technological view of how the world works, and it’s as if it all works technologically. But that’s not really how the world is working. The dynamic of what drives economies today is no longer industrial technology or productivity. It’s essentially a rentier economy, and how do you carve up special privileges for economic rent?

Well, that’s just exactly what classical economics wanted to get rid of, because they said, you know, how can Britain, for instance, become the workshop of the world if we leave landlords in control of the House of Lords making all the laws that protect its agriculture, raise food prices, and later raise real estate prices.

And if our labor force has to pay high food prices to make land rents in agriculture go up, if they have to pay high housing rents, they’re not going to have enough money to buy the products that they have. So we want to tax away land rent. And that was Britain’s Liberal Party. It was the whole politics of Britain, France, and other countries was to free their economies to create their idea of a free market.

There’s not going to be any landlord class anymore. Countries are going to use their land rent and natural resource rent, their oil and minerals, and forests and all that. And we’re going to create public infrastructure. We’re going to build public transportation, the Erie Canal in the United States, a road system, railroads and telephone systems, electricity, water systems.

All of this was to be done at government expense. Not to make a profit, but to keep down the cost of living and the cost of doing business so that employers didn’t have to pay their wage labor enough money to pay high rents and high charges for healthcare that the government would provide, high monopoly prices for all of the basic needs that are natural monopolies.

And that was how Europe and the United States got rich. Anti-monopoly laws in the United States in the 1890s, the Sherman Antitrust Law, and Teddy Roosevelt coming in as a trust buster. All of this was a completely different trajectory that changed radically after World War One, because while Europe and the United States were modernizing and streamlining their economies into very low-cost, competitive production, they didn’t create the same kind of an economy in foreign countries because what did Ricardo and all of the British and theorists say?

Well, if we’re going to lower our cost of doing business, we need low-cost food, low-cost raw materials. We’re not going to depend on British landlords to produce the food because that’s high cost. We’re going to have other countries produce food. And there was a large creation after about the 1820s, right after the Napoleonic Wars ended in 1815, of foreign investment loans to government. And for the first time, this eruption of British, French, and other European loans to foreign governments trying to develop—to repeat and replicate what Britain had done for itself. They borrowed money. But all these loans began to default right away. And basically, to make a long story short, the bankers asked the governments, well, can you send in your gunboats and help us take over?

And by the end of the 19th century, the British and French bankers had got their armies in. France sent its armies to Haiti to force it to pay the debts that it had borrowed to buy its freedom from slavery. France sent its army to Mexico to try to collect debts. Britain sent its navy to Egypt and to other countries in the Middle East to collect its debt.

And when they took over these countries, the last thing they wanted to do was to create in these countries the kind of democratic industrial economies that Europe had. They wanted just the opposite, a service economy. They wanted these countries to become raw material suppliers, to supply their food, low prices, raw materials. And you had an enormous outflow of financial money from Europe, Germany, France, Austria, Britain in railroads, and in every single country, the Westerners came in and said, give us a concession to build a railroad in your country. And these concessions were all floated on the London or Paris stock exchanges and foreign stock exchanges. And in every case, just like in the United States, they led to huge financial bubbles where great fortunes were made.

And you had the sort of phase change in all of this financialization that occurred in the Franco-Prussian War of 1871 when Prussia defeated France and asked for enormous reparations in the form of gold. And France simply borrowed the money. France became a government debtor, borrowed the money, paid Germany, and there was so much of an inflow into Germany and its fellow Germanic economies like Austria that all this money went into the stock and bond market, created a huge boom and a railroad bust that spread to the United States. The whole world’s financial markets since the mid-19th century have all been unified and they’re fungible, money going from one financial market to another, and they all crashed in 1873. That forced the United States to essentially get rid of the silver standard, go into almost 2 decades of unemployment, certainly for agriculture, for the farmers who’d gone deeply into debt.

And by the 1870s, ’80s, and into the ’90s, you had the real economy in the United States and Europe, but especially in the United States, all being stifled by the fact that all this more and more of the money was going into debt service. And so it quickly became apparent that if you had money and you were an industrial capitalist, how are you going to make more money?

You could make more money by in financial ways than you could by using your profits to invest in new factories and employing more labor and capital formation. And all of this became known as the British or sometimes Anglo-Dutch financing. The bankers that financed industry throughout from Europe to the United States all forced them to essentially run their industrial companies to create more stock market wealth.

And so the British Banks said, well, we want you to pay out as many dividends from your profits that you’re making as possible because that’ll increase your stock prices. At that time, it was illegal for companies to buy their own stock. That was called stock market manipulation.

But it was paid out. The one exception to all of this was in Germany. And the Germans, in the 1880s and 1890s, said, “How are we going to catch up with Britain and essentially become a great rival?” So the German government worked with the banks and worked with the heavy industry, the steel industry, mainly creating a military.

They didn’t call it a Keynesian military economy at that time, but the German government said, you know, we’re going to work with the banks to provide you with money to lend to the industrial companies, but we don’t want you to do what the British bankers want you to do. We don’t want you to pay out the dividends.

We want you to keep expanding your operations to produce more and more steel, more and more arms, more and more manufactured goods, and we’d rather take our return in the form of what is now called capital gains, return in the form of companies that are actually able to make profits off an increasing output. Well, that’s how industrial capitalism is supposed to work in the textbooks.

But by the late 19th century, right until World War One, it was only working in Germany, Austria, and Central Europe. And so, I think we’ve discussed before, in 1914, when World War One broke out, there was discussion in the British press. How on earth can we expect to defeat Germany and Central Europe if our financial system is essentially predatory and blocking our industrialization?

Well, we’ve got to try to return to industrial capitalism and avoid this short-termism in which the financial sector lives. And that’s really the problem with the financial sector. It’s after short-term gains, and it’s after making gains by financial maneuvering. It makes its gains by the increasing capitalization of income, and the income that it wants to capitalize is less and less in the form of industrial profits from making goods and services, and more and more in the form of various forms of economic rent, natural resource rent, monopoly rent off privatized public utilities, private enterprises and infrastructure, and essentially that’s what was accelerated in the 1980s. And when I began in the 1970s to do economic forecasting, a lot of people stopped calling themselves economists at that time. I worked with Herman Kahn, Alvin Toffler, other futures groups doing consulting for the United States government, we all called ourselves futurists because economists weren’t talking about the future and structural change.

Public investment technology and the managerial class

Michael Hudson: Economists were saying, well, we want to make statistical forecasts. And how do you make a statistical forecast? The assumption under any statistical trend analysis is you assume the environment remains constant. Otherwise, the correlations don’t work anymore. Well, all of us were trying to say, how is the world being transformed in the future? How is the shape of the economy and society being changed?

And there really was no way to fit this into the academic economics curriculum or any other academic discipline. What do you do? Well, most of us, the center of, you could say, academic research moved out of the universities, at least out of the university curriculum, into think tanks and policy think tanks.

Excuse me. Well, most of these policy think tanks were advocacy policy think tanks. Many were backed by the government that had particular policies that it was hoping on developing. And if you read what all these futurists were writing at this time, it seems funny now, but there was a discussion, are the United States and the Soviet economies converging?

And the idea was, well, you’re going to have government playing a higher and higher role in technology, and industry itself is becoming largely technological. But all of this new technology that is going to lead not only to industrial profits, but to monopoly powers for companies and industries in a country that has a technological lead over other countries are going to be dominating the world economy.

So how are we in America going to benefit from all of this? Well, the idea is, well, the problem with new technology is it requires research and development, and that takes a while. Now, during this period of research and development that may take many years, there are not going to be any profits made. And industrial companies more and more were coming under pressure from places like the University of Chicago to say the job of a corporation is to make money for its stockholders.

And you don’t make money for your stockholders by making a profit. You don’t make money for your stockholders by producing more. That may help society, doesn’t help the stockholders. The stockholders make their profit by increasing the price of the stock, and that’s what corporations should do. And so, oh, we want to legalize stock market buybacks so that companies won’t have to use their profits to increase their productive capacity.

They’re going to buy their own shares and they’re going to pay out dividends, and that’ll create stock market wealth. Well, the problem that the 1970s saw was, well, none of this is going to finance the research and development for the new technology that we hope is going to give America the lead in all sorts of new technology industries.

And of course, the wake-up call was Russia’s conquest of outer space. You had Yuri Gagarin circle the Earth, and then you had Russia have a moon landing that sent back pictures, and then finally the great shock was the Sputnik, launching the Sputnik, and that set the stage in really the 1970s for this whole idea that America has to catch up in the space race with Russia because outer space is going to be a key to the new technology. Atomic energy—there are all sorts of technologies that were new, and all of that requires a whole separate second class, you could say, and it was called the managerial class.

And it’s very interesting, the theorists of the managerial class in America, like James Burnham, were ex-Trotskyists. And same thing in Europe. European writers talked about a professional managerial class, the PMC. These writers all had had a background in criticizing Stalinism. And saying, well, how do we explain what’s happened in Russia? It’s not a capitalist economy. It’s not really a socialist economy at all.

It’s a central bureaucratic economy and it’s created a managerial class. What they said was, well, America has to develop its own managerial class and it’s a professional class and it was essentially called a knowledge-based economy. And this knowledge-based economy is not going to be aimed to the extent that it’s nonprofit organizations and government subsidized.

It’s not to make a profit. It is to develop a technology that then will be turned over to private companies. They will make a profit once the technology is able to produce actual products that can be sold at a profit-making and really rent-extracting monopoly prices. That was the whole way in which capitalism was expected to develop. And it all seemed to be, well, we’re going to have a larger and larger government role played in the economy because that’s part of the technological imperative of what capitalism has become.

And it’s not an industrial capitalism that expands simply by profits. It’s expanded by public investment in technology, public infrastructure investment, especially for things that cannot be expected to make a profit, like outer space travel. You know, until Mr. Musk came along and tried to make a profit from all of this, and until you had the whole launching of satellite systems that made a profit.

All of that has taken hundreds of billions of dollars of public investment that no private companies, no industrial enterprise would have tried to develop. Well, all of this was abruptly interrupted at the end of the Carter administration, really beginning during it, in the 1980s, when you had Margaret Thatcher come to power in Britain and Ronald Reagan in the United States.

Reagan Thatcher and privatization

Michael Hudson: And the 1980s reversed this whole idea of the role of government. Thatcher and Reagan began to privatize everything. For a century, opponents of government spending, largely opponents of socialism, had been developing an ideology that’s saying all government investment and spending is a waste. You’ve got to get rid of governments. You’ve got to let the private enterprise people take over.

That was the Austrian school that was very right-wing, anti-socialist, that led to fascist riots in Vienna. That was the environment in which Karl Polanyi emerged to sort of criticize the idea that somehow a free market, meaning a market without any government regulation, without any antitrust rules, without any rules, a free-for-all for everything, including economic fraud.

Including rent extraction for anything. All of this anti-socialist, anti-government ideology had been percolating and it sort of had come together when Friedrich Hayek and a number of other followers of Ludwig von Mises, an Austrian, created, you know, their own right-wing group that ended up taking over the University of Chicago and essentially taking over governments before it took over the universities, saying, let’s just make a huge sell-off.

And so Margaret Thatcher said, you know, we can get, you can all get rich by getting rid of the government. I can lower your taxes by, I can sell off our water system. And so you can drink sewage instead of water. And you’ll pay lower taxes. Everybody thought that was a great idea, and that’s what they have now.

You can no longer swim in the Thames. So Thames Water is the model for privatization under Thatcher. Thatcher said, look at all, you know, what Britain is known for after World War II. Well, many of the male population, the men in Britain had been killed in World War II. You had a lot of women administering Britain, and it was they sort of took the lead in creating a social democratic country, and Britain was known for council housing.

It said, we want our labor to have low-priced housing so that they can work for our industrial employers and we can try to recover the industrial position and manufacturing that we’ve lost to the United States. You know, as a result of World Wars One and Two. Well, Thatcher said, look, you homeowners can make a lot of money.

We’ll just give you— borrow money, buy your apartments, and the price will go way up because there’s not going to be any more public housing. And she said, look, you look at the telephone companies. You know, right now, I can make an enormous amount of money selling off the telephone companies. And you can make money too. We’re going to sell it off and I’m going to price the shares of British Telecom at such a low price that you can make a quick capital gain.

And so your customers have a right to buy shares in British Telephone Company. Well, they did and everybody made a quick gain. And she said, see, you can make more money off the rising price of the council housing, the public housing that you have bought, more money from the rise in your shares than you can make working for a living by saving your wages from the jobs actually producing something.

The way to make money is financially. And so you had an enormous real estate development in what was called the City portion of London. The London City was the banking system, not only British banks, but American banks, branches of Chase Manhattan, Citibank, Chemical Bank, other foreign banks there. And the whole idea was that Britain made its money financially, the cost of living went way up quickly, and Britain was stripped of its industry.

Well, Ronald Reagan’s backers said, “We can do the same thing in America. We can make billions of dollars by just getting government out of the business.” And his famous speech, you know, the most frightening words in the English language are, “The government’s here to help.” He said, “Government’s not going to help.” and so he appointed a group of people called the Colorado Crazies who’d worked in Colorado to say, let’s get rid of all the environment regulations. These regulations to protect the forests, the environment, water, they’re all preventing making money quick by cutting the forest down and selling them for wood and just essentially making money. At the government expense, at the expense of the environment.

All these environmental costs may end up just what the doomsayers are saying, but that’ll be a future cost. And we’re politicians, and every 4 years, that’s our timeframe. And for the corporations that are buying all of the rights to essentially de-environmentalize the economy, their timeframe is their annual reports or even their quarterly reports.

That’s how the CEOs of American companies were being paid. And so all of a sudden, in contrast to what everybody had expected, at least the official futurists in the 1970s, well, we’re going to have a professional managerial class taking a long-term approach of how are we going to make money by investing and creating a new technology that can be economized by and commercialized.

Well, all of a sudden, you had a short-termism. How can we make money more quickly, financialized? And so, what had been expected to be a professional managerial class going to the universities and getting a knowledge-based economy, well, more and more went to the business schools for how to make money financially by stripping assets and making money the way they do today and creating the kind of an economy that we’ve created today. And the whole character of this financial and managerial class has become very short-term and completely different from the whole direction in history that had been expected in the 1970s. And so what really had changed is the whole idea that history as a whole was run by technology and innovations and the survival of the fittest. Much talk about that had been since the 19th century when forecasters, economists, politicians, sociologists said, well, the fittest economy is going to be the most efficient, low-cost producer, producing the most products and industrial products at the lowest and most competitive price.

And that seems to be the history of the West, the history of the Industrial Revolution in Europe. And its parallel in the United States that of course had a much larger government role than you had in Europe because it needed protectionism to subsidize the industry that it did so successfully as was shown by America’s emergence as an industrial creditor country after World War One.

Well, all of this idea that somehow technology and democratization was going to be the direction in which history was moving, left out of account that this democratization did indeed occur, for instance, in Britain and France. If the whole fight in Britain was, how do we prevent the landlord class from protecting its land rents and keeping our food prices, real estate prices high.

Well, you have to give labor the vote. And you extend the voting with electoral reform to labor. And the fight in Britain was parliamentary reform to clean up what were called the rotten boroughs. Yeah, and the industrial classes said, to labor, it’s in your interest to have a low cost of living, to lower your cost of food.

Then your wages can buy more. It’s in your interest not to have monopolies here, to let the government take over the monopolies instead of privatize them. And labor voted for the liberal parties. This was liberalism that worked in continental Europe, and to some extent in the United States.

Well, what this view left out of account, as I said earlier in our discussion, was that the counterpart to all of this industrial takeoff of Europe was preventing other countries from emulating the industrial revolution in their own countries. You had Greece and Egypt and other North African countries, Asian countries borrowing money, hoping to industrialize.

But it takes time to invest in industrial capital. And these countries—especially Egypt, Iran, Persia, and other countries— with the money they borrowed, didn’t have time to put in place the industrial development that had taken many decades and half a century for Britain, France, and the United States to put in place. So they defaulted on the debts. And the problem was, well, if they paid their debt service, which they were pretty much forced to do by the way in which the world was organized, how are they going to prevent their currencies from depreciating?

Well, they begin to sell off concessions. And what did the British, French, and Europeans want? Well, sell us the concessions for your railroads for your transportation system, for your monopolies. In Persia, they wanted the tobacco monopoly as well as a railroad monopoly.

Well, all of this you had in the periphery, what later was called the Third World, what later was called the developing countries. Well, the developing countries weren’t developing at all in the same way that the industrial capitalist industrial nations had done. There was an asymmetry there. They became rentier countries. They had to sell off the mineral rights, their oil rights, their mining rights, their public infrastructure monopolies.

And so they became rent-extracting companies. And as I said, the revenue from these privatized companies that were created by the European stock market promoters in these countries created a completely different set of economies in Latin America, Africa and Asia in the non-West from what it had in Western Europe and the United States.

Oil wars fuel shortages and food prices

Michael Hudson: Well, this is precisely the problem that finally is now resurfacing today as you’re having the whole pattern of Western development at the cost, largely supported by non-Western economies come to an end. The non-Western economies are facing now a balance of payments crisis, a debt crisis, all created by the oil crisis that we’re having by America’s oil war against Russia and Iran that has blocked the whole the exportation and production of diesel oil, aircraft oil, and also fuel oil underneath it.

Just yesterday, 16 trucking companies went bankrupt, declared bankruptcy in Texas. That’s the headline of the papers, that they can’t afford to pay the diesel prices and still meet the delivery contracts that they had signed for what it costs to deliver farm products and packages of companies and all the other trucking and railroad products that run on diesel oil here.

You have the same diesel crisis in Europe. You have in Congress right now a discussion, well, should Donald Trump ban American oil companies from exporting diesel oil to Europe. We need the diesel at home. And of course, if America stops producing diesel fuel to Europe, Europe will be in a crisis. Well, meanwhile, Trump is helping Ukraine steer the missiles to focus on attacking Russia’s refinery capacity.

So Russia which has plenty of fuel, crude oil, cannot refine its oil, and it takes Russia out of the market. The US has concentrated on bombing Iran’s refinery capacity. So Iran, plenty of crude oil, it can’t export; it can’t refine it. And Iran has retaliated by saying we have only one way of protecting ourselves.

If we can’t export our oil, then the rest of the Persian Gulf can’t export its oil either, and we’re going to stop it. And that’s the only way we have of mobilizing the rest of the world. Asia, Africa, the Global South, you have to defend us against the American attacks on our oil in order to keep your own economies working on the low-priced oil and fertilizer and food produced that’s required from all of this for your own economy.

So Iran has bombed the oil and gas refinery infrastructure throughout the whole Persian Gulf area. Now, there’s talk about, well, soon we’re going to let trade open up the Strait of Hormuz and the Red Sea transport. But what all this leaves out of account is that even if, okay, we’re letting trade open, who’s going to rebuild these refineries?

There’s going to be a competition there. There’s of course the whole industry throughout the West, the United States, Britain, Germany, other countries are all very good at building refineries, but they expected to build refineries a bit at a time. One of the first refineries to be blown up by Iran was in Qatar, the liquefied natural gas.

Qatar said it’ll take 5 years to rebuild, just to put in place all of the piping and the organization you need for this refinery. There’s not going to be refined natural gas or helium as a byproduct that we’ve made here from all of this. Well, you’re having this same scenario now felt in the Emirates, in Saudi Arabia, and certainly in Iran.

So the whole of the West Asia is now going to the world’s refinery constructing industry and bidding against each other saying, will you help build our refineries here? Well, you can imagine there’s a bottleneck and the bottleneck’s building refineries. So what we’re facing now is by the end of this year, not only an extension of the diesel oil crisis, and the airplane fuel crisis that you’re having now, but the fertilizer crisis that’s made from natural gas that increases the cost of agriculture, while at the same time that the diesel oil that operates harvesting equipment and machinery is much much higher. You’re having American farmers now saying we can’t afford to plant next year’s crops because we don’t see how we can make a profit by paying for the high fertilizer prices we need, for the high cost of operating our harvesting equipment and of course Trump’s tariffs have sharply increased the cost of new harvesters that farmers can buy, so the price of used harvesters has gone all up.

But if you buy a used harvester for one farm, another farm isn’t able to use it anymore. So Trump is strangling the US agricultural economy, just as he’s strangling the trucking industry and the railroad industry and the whole economy by the oil war that you have that he’s waging both against Iran and Russia. And people are overlooking the fact that his war against Russia is just as extensive as it is in Iran because it’s aimed at stopping Russia from exporting its refined oil and its fuel oil.

Robinson Erhardt: That is definitely neglected because the story right now is just Iran, Iran, Iran. And it is interesting to think that there’s also this oil war that is just not being labeled as such, being waged against Russia at the same time.

Michael Hudson: Yeah, and the whole idea of the oil war was, I think it became apparent again really after the Obama administration that, all right, we’ve become a financial economy, a rentier economy. All of these fortunes that are being made are rentier, the FIRE sector economy, real estate, stocks and bonds and the capital gains. So, how are we going to cope if we’re de-industrializing?

Debt jubilees and ancient oligarchies

Michael Hudson: Well, America is in very much the same position that the Roman Empire was in. What’s made Western civilization so different from everything that went before is Western civilization beginning around the 8th century BC in Greece and Rome. The West was the only civilization that let an independent oligarchy develop, a creditor, land-owning oligarchy.

The entire takeoff of civilization from Sumer and Babylonia in Egypt, in West Asia, all the way to China, they all had a central authority, the divine kings of Mesopotamia, the pharaohs of Egypt, the emperors of China, that all said, we have to keep the population happy and not revolting and the whole problem is: what are we going to do with the major source of instability, which is what happens when the harvest fails?

What happens when cultivators on the land can’t pay the debts that they’d expected to pay during the harvest? The whole challenge for every civilization in recorded history for 5,000 years has been how is society going to deal with the problem of debt. Well, for the first 3,000 years, everyone from Mesopotamia to Egypt to China and Japan, they realized that, well, okay, the economy doesn’t do what modern economists say economy does.

There was no theory of the business cycle saying that every economy has automatic stabilizers and everything goes back to normal if there’s a disruption. All the economies realize that the world gets more and more out of order. And the proper task of kings, pharaohs, and emperors was to keep restoring order, to make sure that order wasn’t disrupted.

And as you and I’ve been discussing now for a few years, in these discussions we’ve had, every new ruler would cancel the debts, free the bond servants, and redistribute the land that had been lost.

Robinson Erhardt: The jubilees is what those were called?

Michael Hudson: Yes, the jubilee was the literal translation of the proclamations by Hammurabi in Babylonia. Well, none of this happened in the West. The West didn’t have any central authority. There was a brief set of revolutions that started the Western takeoff. In Greece, they were called tyrants. The word tyrant originally just meant the authority.

I think it was a Persian word. And the tyrants started the takeoff of Corinth, of Sparta, all over. Members of the aristocratic clans that sort of ran mafia-like states overthrew the oligarchies and said they wanted the support of the population at large, which happened to be the infantry, and said we will cancel your debts.

We’ll get rid of debt bondage, we’ll give you the land to be self-supporting, and we’ll create a self-supporting society. That was the origin of Western democracy. And at the very end of this process, you had Athens that was sort of a latecomer, and you had Solon canceling the debts of Athens, but not redistributing the land.

He was criticized for that. It took a whole century, the whole 6th century, Pisistratus and later reformers to establish an Athenian democracy. Well, same thing in Rome. The Roman kings said, how are we going to get immigrants here to the area here? Well, we’re going to give everybody their land. We’re going to give you free self-supporting land and you can leave these other countries that aristocratic families govern, sort of like Saudi Arabia, you get in what’s now the Middle East.

And Rome got the immigrant. Well, all of these we could call them proto-democratic economies were overthrown by oligarchies ending up in Rome. And what happened to Rome? Oligarchies live in the short run. They were not trying to say, how do we develop a broad technological takeoff and materially productive economy that is going to help everybody?

It’s: how do we make money for ourselves? And the easiest way to make money was to make the rest of the economy dependent on you. And the way to do that was to get them into debt, to act as a creditor, and then to use their creditor power to expropriate, take their land under control. And what this did for Rome, you had 6 centuries of Roman civil war by the population at large opposing the oligarchy’s overthrow of the Roman kings of wanting to cancel the debts, redistribute the land, they were assassinated, they were defeated. The Roman leaders advocating a debt relief were killed, culminating in the assassination of Julius Caesar that led to the Roman Republic. And so Rome was no longer able to produce the surplus at home that a self-reliant agricultural economy was able to produce once it was polarized by a rentier oligarchy taking over.

Empire oil and economic dependence

Michael Hudson: So what did Rome do? It looked abroad for the money that it no longer was producing at home. It looked for foreign inflows and it just did it by establishing essentially looting other countries and expanding, and as it expanded, it bankrupted the whole empire. Well, to much of the world today that’s trying to de-dollarize, the United States is repeating the same Roman policy.

Well, we’re no longer creating a productive industrial surplus at home. How are we going to preserve the prosperity for the Americans and especially for the ruling elites of our countries? Well, if we’re not doing it at home, we’ve got to do it abroad. And that’s what first Biden and now Donald Trump has been doing with his starting with his tariffs that threatened to create a crisis, a chaos for foreign countries. They can’t export their goods to the American market anymore. There was a shakedown. And then creating an oil choke point and saying, well, if we can control oil, that’s going to be an American monopoly. And if we can control the whole world’s oil industry, we can set the prices that other countries have to pay in order to run their factories and light their homes and heat their homes.

Well, so Trump said there are 3 countries that America can’t control: Iran, Venezuela, and Russia. And so he declared war on all of them. He very quickly took over Venezuela, all of whose oil revenues are now paid into a US Treasury account.

Robinson Erhardt: And I just read this the other day. I was very surprised to find that the CIA has a large financial stake now in the oil resources of Venezuela. I found that amazing to learn.

Michael Hudson: Well, it frees us from having to rely on the domestic budget for its funding. It’s called off-budget financing. Smart. Yes. And that’s of course what it’s been doing for many years through the dope trade and other things, but now oil is exactly the same thing.

Well, America had planned to do this with food already from the 1950s and ’60s on. The United States through the World Bank opposed any kind of land reform by countries that wanted to replicate America’s family-based farming themselves. America said the World Bank will not make any support for countries to become self-sufficient in food production, only to support the exportation of plantation crops, cotton, tobacco, tropical crops that can’t be grown so readily in America’s temperate zones, coffee, palm oil, things like that, but not any kind of agricultural product that would compete with American farmers. So America said, well, what we did with controlling the price of food, foodstuff and grains, we can do with oil. And now Trump also wants to do that for information technology, and that’s what the whole fight over computer chips and information technology is between the United States and China, and sort of blocking Europe from taking any kind of an independent role in all of this and blocking Europe’s ability to integrate its information technology with that of China.

For instance, it will not permit Holland, the H T M L company that produces the equipment for ultraviolet engraving of computer chips, from exporting its machinery to China. So the United States said, well, if we can’t become an industrial economy anymore, we can become a rentier economy living on the oil rents, the food export rents, and now the information technology rents, and just plain demands for tribute for other countries to be able to sell their products in the US market.

Dedollarization and public money

Michael Hudson: Well, what’s happening is the largest demands were made on the countries that America defeated in war: Japan and Korea. 650 billion in investment, Trump is asking from Japan, 350 billion from Korea. Well, they’re realizing now that with the oil prices going up and the crisis and what it’s going to cost to produce the fuel to operate their own industrial production that they’d hoped to export to the United States.

They can’t afford to pay for this cost of living and doing business and pay the tribute to the United States. So, well, this is the root of the split. And it has led these countries to talk about de-dollarization, which really is their word. It’s sort of a portmanteau word for saying, well, it means, how do we become self-sufficient ourselves, just like the United States and Europe wanted to become self-sufficient.

How do we do that? Well, we’re going to have to take control. Well, there hasn’t been any real discussion of just how to do this. It’s just a word so far. And well, you and I have spoken about how our country is going to cope with a debt crisis that is caused by the oil crisis. The Global South, the BRICS countries haven’t spoken about this at all. The BRICS countries, when they’re talking about financial reform, what they’re talking about is how do we get more votes in the IMF and the World Bank, and how do we join the Security Council in the United Nations.

There’s been almost zero talk of: well, how do we change the whole operating philosophy of the IMF? And what they really need in order to replicate how the West has taken off is to do what China has done. And China has sort of reinvented the wheel that the American protectionists developed in the late 19th century.

It’s kept basic infrastructure in the public domain. And it’s prevented private monopolies up to a point. There are, I think, more billionaires in China than there are in America, but it draws a line at maybe at around a billion dollars.

You can’t be 10 or 20 or 40 billion billionaires. But what China has done that no Western country has done and what actually should have been and was almost spelled out as the logical culmination of the Industrial Revolution was to create your own money supply. And the country that most opposed this was ironically enough the United States, because the United States had created its own money in its colonial takeoff, the colonial currencies.

[unclear false start] said, “We don’t want to be dependent on British creditors. We’ll create our own money.” The Continental Congress financed the Revolutionary War by issuing Continental currencies. America financed its Civil War by the greenbacks. And in World War One, all the countries of Europe and the United States all said, “Well, we can’t just borrow the money from the private market.”

We’ve got to just create our own money. And the role of central banks in all of the industrial nations was to create their own money. But as soon as the return to peace came, they relinquished this public money creation and the allocation of credit. Who’s going to get the credit and what are they going to use it for? Relinquished this to the commercial banking system that made credit by lending against assets already in place, real estate or corporate industry or mortgages on plant and equipment and all of this. So, you didn’t have any credit being created by the financial sector to finance industrial development. And if you look through the whole history of Western civilization, the fortunes of the oligarchies have never been made by the actual producers of food and handicraft and industrial products.

All the fortunes of the ruling classes of all of Western civilization have always been made by the landlord class, the financial class, and the monopolists, not by being part of the industrial process itself. So any attempt to try to explain the dynamic of history in terms of industrial revolution, industrial evolution of you know, what kind of technology is going to make the economy the fittest.

No Western economy has ever sought to become the technological fittest, except for that very brief discussion in the 1970s when they realized that technology requires a long-term investment that only governments can undertake, not the private sector. And certainly not institutions that can obtain bank financing, because bank financing is short-term. And what’s the collateral in the sense of what is a flow of income that we can essentially capitalize into a long-term bond?

Well, if there’s no income yet, how do you capitalize this? You’re capitalizing a dream. Well, Amazon was able to do that for many years, but then so was the whole dot-com bubble of 1997 that sort of exploded. It’s really hard to capitalize a dream. Well, China has avoided all of this by saying, we’re not going to have a private banking sector that we depend upon to make loans to finance all of our Chinese development and innovation. We’re going to do that at government expense with money that we create ourselves. We don’t owe anything. It’s our own fiat money.

Well, that could have been the wave of the future of Western industrial capitalism. But while the industrial capitalism was able to free its economies from the hereditary landlord class and from many of the monopolies that had been bequeathed from the feudal times, it never was able to dislodge the banking and financial class and bring it into the public domain.

Economic rent value and the cost of living

Robinson Erhardt: So Michael, as you mentioned, we’ve been having these conversations for a couple of years now. It’s not just a through line of our conversations, but of your work, this notion of the parasitization of the economy by this rentier oligarchic class. And something that I wanted to ask you about is whether or not you see the oil wars, the Israeli conflict, what’s happening in Venezuela, Greenland—so many of the current events, are they a direct consequence of the parasitization of the economy and the utilization of these massive current events, conflicts for the benefit of the parasite?

Michael Hudson: This is what classical economics was all about. The definition of parasitism was considered unearned income. Well, what is unearned income? The whole classical discussion was about value, price, and rent, with prices being the excess of market price of rent over and above the actual cost of production.

Well, when people talk about what is classical value theory all about, what’s surplus value, what is value, the whole ideal of Adam Smith, Ricardo, John Stuart Mill, Marx, the entire discussion of classical economics was how do we bring prices in line with the actual cost value of production? That’s how you streamline costs. And that’s what made industrial capitalism so revolutionary.

It wanted to get rid of all of these costs that were not part of production, and the main cost that all of the classical economists said we have to start with is getting rid of the feudal landowning class, the landowning class that goes way beyond feudalism, way back into classical antiquity. The landowners who get land rent without working for it.

And Adam Smith said, the landlord loves to reap where he does not sow. And then John Stuart Mill said, well, how do we explain why land prices rise? Well, it’s because the economy grows, land becomes scarce, more desirable in some locations than others, and the prices go up and the landlords make money in their sleep.

Well, that’s what was meant by parasitism. Parasitism meant to make an income without working. And this income became a cost of living and a cost of production. So the population had to live somewhere. Either they had to pay land rent or, as the 19th century evolved, they had to buy their homes. And how do you buy a home if you’re setting out in life?

You have to borrow the money from a bank. You take out a mortgage. And the mortgage says, well, you’re going to have to pay—the rule of thumb was 25% of your income over the rest of your working life, 30 years, given the life expectancy that people used to have. And at the end of your working life, you’ll have paid off your home, and then you can leave it to your children to fight among themselves as heirs do or whatever.

And some of the children will have to borrow to buy their homes, and that’s the whole idea. But one way or another, either the landlords renting out housing or office space or the banks lending out money to people to buy their own homes so they can become their own rent recipients, as home buyers would have it— that was called parasitism. That wasn’t a creation of value. It wasn’t a necessary cost of business, because the government could simply tax away all of this land value. And the whole idea of the Liberal Party in Britain and its counterparts in other countries was, all right, there’s always going to be economic rent in the form of some locations being better than others.

Some people are going to want to live near transportation. That’s the biggest determinant of economic rent. How near are you to transportation? And that included the Erie Canal in the United States, vastly brought down land rents in upstate New York because New Yorkers could now buy their food from the Midwest, from Ohio, which was then the Midwest, and crops, instead of depending on local—because of the Erie Canal coming in. Well, obviously, as you had local bus systems, subway systems, railway systems, all of that made some rent of location more valuable than others. Being near schools helped to bring your children to school. Being near parks helped. There were now plenty of parks. That was a way of increasing value. Well, Thorstein Veblen was the great American sociologist, economist, explaining that you could look at every city from small towns up to New York City as real estate promotion projects.

The whole idea was for real estate developers to work with their bankers to promote civic improvements. And the civic improvements would create a kind of local boosterism that was going to induce investors to say, that’s going to be property that’s going up. I’m going to buy that property and become a landlord and rent it out, either as an office building or as a home.

Well, that was still considered parasitism, but it was realized that, well, all right, you do need bank credit to finance the building, the construction. That’s the cost of production, the cost of building a home or an office building. But nature produces the land for nothing. And John Stuart Mill said, all right, we’re going to have a map of land prices and rents, and we’re going to tax the increase in land prices so that the landlords don’t make money in their sleep anymore.

If they want to pay money to build a building and rent out and make a profit on the price of a building, that’s fine. That’s making income in the industrial way of creating a profit. But they’re not going to be able to make income just from sitting and enjoying the increase in the price of the land in their sleep.

That’s not land value. That’s the land price in excess of the value. The only value is the cost of labor that has gone into the cost of creating this building and the improvements in it, the repairs, all of the fix-ups and everything. Well, there was a long discussion. Ultimately Ricardo said, the root of value is what you have to pay for labor.

I mean, ultimately, there’s labor involved in making food, but the labor is a cost of food, not the rent of the landlord. The labor can provide mines, but nature produces the mines. That’s all the labor costs. Well, finally, late in the development of classical political economy, Marx said, yes, suppose we’re making a national income and product account.

He began by writing a history of economic thought, and his theories of surplus value was a history of economic thought. And he said, well, where do we put the capitalist’s role in all of this, the industrial capitalist? He said the industrial capitalist produces value and does undertake a cost. And it was called such things as the wages of superintendence.

Although he said the industrial capitalist plays a necessary productive role in organizing the supply of labor, organizing how is he going to coordinate the supply of raw materials, and create a factory with machinery and equipment that labor is going to work at as producing. The cost of all of this equipment and the machinery and the capitalist’s time himself—the profit that he makes is his return on this.

All of this is a component of value. What is not a component of value is monopoly rent and land rent and everything that Smith and Ricardo and all of the rest of the economists had produced. And he said, but you know, what is the cost of this labor? In addition to the capitalist’s profit, as part of value, what are the costs?

How do we measure the cost of labor? Is it the wage cost, or is it what the capitalist sells the product of labor for with a markup? Obviously, the reason that an industrialist is going to hire labor is to produce profits that he sells at higher than the cost of production. And Marx said, that’s how industrial capitalism works.

That’s the product. Well, everything else was considered to be what you characterized as parasitism, and the economists called this economic rent. And if any 19th-century classical economist was making a national income and product account, they would count the product as being the actual cost of labor and the capitalist’s profit in producing what the economy needed. It wouldn’t include what you called parasitism.

It wouldn’t include economic rent. It wouldn’t include the rent that was paid away. It would include the taxes as a part of the income, but it wouldn’t include monopoly rent or land rent or natural resource rent that was not part of the product. And it wouldn’t include land price gains. It wouldn’t include what today’s GDP includes.

It wouldn’t include the value to homeowners as saying, well, now our home is worth more than what we bought it for. And if we were renting, we’d have to pay more. That’s not a product. That’s a cost of doing business. And you had a whole fight against this whole industrial capitalist ideology was led by the landlords and bankers and monopolists who industrial capitalism was doing away with.

And they said, well, that’s socialism. Well, John Stuart Mill had no problem using the word socialism. Everybody said around the mid-19th century to the late 19th century, they were all socialists, meaning increasing role for the government to do what rentiers, what rent extractors had done before. That was called socializing economic rents. It didn’t mean socializing industry.

That meant socializing economic rents primarily. All of this discussion wouldn’t include what’s in gross national cost today. They would distinguish between the earned income, what actually is the cost of producing the economy’s product, and what produces economic rent. Right now, they include interest as a cost of economic rent. And you had a whole anti-socialist, anti-capitalist, or that is anti-industrialist reaction against classical economics towards what became neoliberalism, saying, no, we want to get the government out of the business.

We don’t want the government to either tax away economic rent. We want it all to be privatized. So we can make rent like we used to make, make income in our sleep when we were the landlord class. We want to get a free lunch. Well, the unproductive classes fought back, the financial classes and the real estate classes.

Neoliberalism and classical economics

Michael Hudson: And by the late 19th century, you had the Austrian school in Europe. In America, you had John Bates Clark saying, there’s really no such thing as economic rent. There is no difference between price and value. The landlord earns his money, he decides who to collect rent from and what property to buy that’ll yield the most rent.

And the banker decides, who am I going to lend to to make sure that I get my interest charges in my sleep? And who can manage a company to pay out their profits to make capital gains in stock market prices, finance capital gains, not industrial capital formation. So you had this whole alternative idea of what is an economy all about?

Is it about gross national product, meaning gross national cost, or is it about the industrial technological core? And the neoliberals won, and after World War II, you had a whole different kind of economics being taught here than everything that the classical economists talked about. And because the last great synthesizer of earned income, as opposed to unearned income, and industrialization as opposed to rent-seeking was Marx, they all said, oh, all that’s Marxism.

And we know what Marxism led to. It led to the Russian Revolution and that’s communism. Well, the fight against Marxism, the hatred of Marx is basically, it’s the hatred of Adam Smith. It’s the hatred of John Stuart Mill. It’s a rejection of everything that classical economics was all about, distinguishing between earned and unearned income.

And so, the result today of neoliberalism is we’re not going to talk about the history of economic thought anymore. We’re not even going to be talking about economic history and the long political fight to free the industrial economies from rent-seeking, or what you called parasitism, to free economies from the landlord class, from the monopoly class, from the financial class, and the oil and mining and natural resource extraction class that makes money by buying monopolies and oil and mining and all of these other things.

All of that isn’t really a product. We can’t include economic rent on the income that the oil industry and the mining industry, the forestry industry makes from just taking what’s free in nature. We can count the actual expenses that they make in hiring labor and making oil drilling equipment and transport equipment to produce the oil.

Mining equipment, all of that, and the cost of labor. But all of this natural resource markup is not a product. That’s part of the free lunch. So, the problem is that most of the GDP today is free lunch income, economic rent. It’s not wages and it’s not industrial profits, and it’s not government spending and investment in infrastructure.

Of course, that’s the cost of doing business. What the government spends in running public utilities and infrastructure that are not yet privatized, of course, would be considered part of gross national product. What the government invests in creating public infrastructure, transportation and healthcare and schools, all of that would be considered part of the product.

But not when it’s privatized and all of a sudden the prices going up. That increase in prices does not increase the product. It increases the excess of prices over value. That’s unearned income. And If an income is unearned, it’s not a necessary cost of production. And if it’s not a necessary cost of production, then if we’re going to make our economy more competitive from other economies, we’re going to get rid of these unnecessary costs of production and bring our prices in line with actual value, the actual costs that will include the industrialist’s profit, of course, and the rising wage levels because more highly paid labor is more productive labor. It’s better clothed, it’s better educated. So of course we’ll include the cost of providing the education in all of this. But what cost of education are we going to charge? Well, public education in almost all the countries was made free so that employers wouldn’t have to pay their labor force to pay the cost of privatized education.

The whole idea was, well, employers want to hire labor at the lowest possible cost of living that reflects their productive powers, the necessary cost of living, not the unnecessary cost of living. And much of what labor is paid, certainly in America today, is an unnecessary cost of living. There’s no need for labor to be forced into taking on an enormous student loan to be paid over the course of their life for the cost of education that their ancestors used to get for free, or at least at a very affordable cost that their parents could pay out of their income or the students could make by working their way through college. Today you can’t work your way through college and pay for college education.

Robinson Erhardt: No, you can’t.

Michael Hudson: All of that is you could say parasitic unnecessary rent. Same thing with healthcare. The whole idea of public healthcare, it was called socialism, supported by the Conservative Party of especially of Britain. I think we mentioned before, Benjamin Disraeli said health, all is health. And he said, if we keep the labor force healthy, it won’t have to take as many sick days.

Labor won’t have to pay as much, you know, for healthy labor as it would for unhealthy labor. All of what today is called socialism was called industrial capitalism by the 19th century. But it was all denounced by socialism by the opponents of industrial capitalism who thought to end industrial capitalism, which they did by creating finance capitalism, rentier capitalism.

So finance capitalism as we know it is neoliberal rentier finance capitalism. And that transformed the whole dynamic of what you call capitalism itself into something very different from what was envisioned in the takeoff industrial capitalism under Adam Smith, Ricardo, Mill, Marx and the American protectionist economist. All of this is a completely different system without anyone noticing that.

Well, that’s what China thought. We’ve got to break away from this. This is what the whole anti-colonial reaction beginning in the 1820s was countries like Greece wanted to borrow money to win their independence against being a colony of the Ottoman Empire broke away. Tunisia wanted to break away. It borrowed money to become independent and wanted to be an industrial country just like Britain or France was.

The same thing in Egypt. They wanted to be industrialized. They thought the Suez Canal would help finance their industrialization. But they kept pushing, they kept selling off their concessions to foreigners, and the concession didn’t want to replicate and build industrial factories there to compete with Britain or France or other countries. They wanted, well, your Egyptian may produce tobacco, and they use the Panama Canal and, you know, produce cotton, especially Sudan was very well known for its long staple cotton. The industrial capitalist countries, as I said, did not replicate themselves abroad. Marx did not anticipate that. Marx thought that industrial capitalism was going to spread its own ethic and its own dynamic throughout the whole rest of the world and everyone would want to industrialize.

Well, everyone wanted to industrialize, but the industry, the creditor class, the banking class didn’t want to provide the financing for them to industrialize. And as Europe began to carve out colonies and conquer regions militarily, the last thing it wanted to do was to create competitors with British or Western European industry. And when the Americans absorbed the British and French and German empires after World Wars One and Two.

It didn’t want to create competitors abroad until really in the wake of the 1980s, this whole anti-industrial rentier revolution of Reaganomics in the United States that really began with Carterism: let’s deindustrialize our labor force. Let’s look for cheap labor abroad. All of a sudden, what had always been an incipient class war between capital and labor in industrial capitalism, but was kept in check because the industrial capitalists needed the support of labor to provide an electoral check against the rentier interests. Well, industrial capitalism supported labor unionization because it did make labor more productive. It helped rationalize production. It raised living standards. It worked out.

Pension funds and retirement

Michael Hudson: And you had in the 1960s the beginning of a particular detour in what was called pension fund capitalism or pension fund socialism. Well, how’s labor going to pay for its retirement? Now that you’re living longer, you know, you’re not going to have to work all your life. You’re going to end up 65 or so finishing.

You better save. Now how are you going to get your income? Well, there were two solutions. The Germans and the Europeans said, “Pay as you go.” All right, you’re going to retire, the government is going to pay you retirement income, and that was called a rent. The retirement payments were called rents, is their word in German and in Europe. But the United States said we can financialize government in doing this. We can make labor itself pay for its own retirement by lending money to the financial sector, to financial institutions, to invest in the stock market, in the bond market, and we can pay labor more, but we’ll call it labor capitalism.

And as if labor is a miniature capitalist, the workers will have a pension fund. And these pension funds will buy stocks and bonds just like a finance capitalist would try to do and make a capital gain and make interest payments and stock dividend payments. And we can sort of co-opt labor’s mentality into thinking of itself that finance capitalism is going to make us rich.

And so you had this diversion of wage payments to the labor force here not being spent on the goods and services that it produced, not being part of the circular flow between production and consumption, but by being turned over to an autonomous financial sector seeking its own gains, saying, okay, how can we take these pension fund inflows from wages, and corporations will pay part of their own profits in this.

And they say, you see, you wage earners are capitalists in miniature. You’re sharing in our profits because we pay out a dividend to you. And we pay also through the stock that you’re buying. And we’re paying part of your wages in all of this to help endow you as capitalists in miniature.

Well, of course, wage laborers are not really capitalists in miniature. They’re wage earners. But it changed their whole identity. They think of themselves as rentiers in miniature, or as you said, parasites in the making, for what they wanted to be. And they turned over their money to finance companies that by the 1980s joined the whole Reaganomics movement and saying, all right, if you turn your money over to Drexel Burnham, say, we can make especially high returns on labor savings.

We can borrow your pension fund money and we’ll lend it to financial firms to buy out other companies with junk bonds. We can pay high interest bonds that you pension funds can buy that are helpful. We can then coordinate in lending to companies that are going to buy out industry and carving it all up.

And in the end, we won’t need you anymore. Ha, we can get rid of you all. But you’ll get rich in the process. You won’t have to work anymore. You can live on all of the pension, the stocks and bonds that you’ve bought. You won’t have to work. Nobody will have to work anymore. We can all be a parasite.

Robinson Erhardt: If only.

Michael Hudson: It’s utopia on earth. And so they bought into it. And of course, by the time that the Democrats took over from the Reagan-Bush administration, you had the Clintons end up saying we’re going to follow Carter’s policy: we want to extend the maquiladora investment that Carter had said, let’s have a trade investment agreement with Mexico and let American firms develop little handicraft companies just south of the Rio Grande for American companies, maquiladoras they were called, to employ inexpensive, cheap Mexican labor instead of higher-priced American unionized labor. So Carter said, we’ve got to break the unions in order to put the fight against labor back in business. And he started it all. And that became the Democratic plan under the Clintons. Said, all right, we’re going to make the Canadian, the North American trade agreement with Canada and Mexico so that we can essentially expend credit.

Chinese industrialization and public banking

Michael Hudson: And ultimately, we can do what we did with Mexico, and to some extent Canada, by admitting China into the World Trade Organization. And that was the great breakthrough of the Carter administration, in addition to abolishing all of the protection that the Republicans and Democrats had put in place to prevent the stock market, to prevent companies from buying their own stock, to essentially enable industrial companies to be turned into financial companies.

Clinton said, we don’t need industrial companies anymore. We don’t need labor. You know, let’s abolish all of the protections of industry against being financialized. He said, finances, you know, that’s how we’re going to be making our constituency, our campaign contributors, rich. So they invited China in thinking, here’s an enormous supply of low-priced labor. And remember, I mean, China, when I was growing up in the ’60s, ’50s, there were all these pictures of all the beggars in China and the poverty.

You thought, how on earth can China ever really develop? you know, this low-priced economy like you had also in India it seemed impossible. And so the Americans had hoped, well, you had Clinton’s Treasury Secretary go to China and try to say that, well, you know, our bank can come in and we can make loans to your industrial companies to employ your low-cost labor to export to America, and you’ll get all the products of our labor.

Well, what China decided, well, we know we don’t want only what you pay for our labor that, you know, you’re trying to keep as low cost as possible. We want to get the profits ourselves. We don’t need American banks to create Chinese yuan to pay our labor. We can print our own yuan. We don’t need you for all of that.

And so they became free of letting either an American banking class or a British banking class like H-B-S-C or an indigenous Chinese-owned financial class develop. The government took the lead in making all of this. And so China as a whole got wealthy and rich from creating its own industrialization and keeping the fruits of its industrialization for itself, not financializing its industrialization as occurred in the United States.

And the United States said, well, that’s socialism. That’s communism, and ended up saying, well, China’s now a rival. They’re doing just what we’re doing. They’re not supposed to do what we’re doing. They’re supposed to make wealth the way we told them to do, by doing the opposite of how we made our own wealth. They’re supposed to fall for this fiction.

Our whole economic vocabulary is all this mythology, this fiction that you’re supposed to believe, and you don’t believe it. You’re a socialist, you’re a communist, you are our enemy, our long-term industrial rival. Well, very soon, the United States said, well, China’s not really an industrial rival, because now it’s the industrial center of Asia. Asia is our rival because we’re not industrial anymore. You know, what are they rivaling?

They’re really rivaling our taking their wealth in the form of increasing living standards, wages, capital investment in infrastructure, in real capital formation, instead of taking their wealth financially. We’re taking our wealth, we’ve become financial powers, as you’ve said, parasites on the rest of the world. Well, that’s what at some point countries outside of China and Iran and Russia are going to realize that it’s not that we want to get more of a voice in financialized pro-financial institutions like the International Monetary Fund and the World Bank, but we’ve got to create a whole different economy, Chinese style, meaning original American style. And the Chinese style really is the original American style. It’s reinvented its own wheel without having American guidance there, just by the whole logic, because what the Americans were doing were following the logic of industrial capitalism that had been spelled out through classical economics. So what China is doing that’s called socialism could just as well be called industrial capitalism.

It’s a mixed economy. And what made industrial capitalism so different from feudalism and everything that went before was it was a mixed economy, public and private. The role of the public sector was to prevent private rent-seeking, to prevent unearned income by providing natural rent-yielding monopolies or natural resources or services or land sites as part of the government at cost or even at subsidized prices.

Free healthcare, free education. Well, how on earth could an American industrial economy or company compete with China if it has to pay workers that have to pay their enormous healthcare expenditures, their enormous rental charges, their enormous monopoly prices, their high cost of living that is needless for other countries to pay. That there’s no technological imperative for any of these rentier charges to be paid at all.

That wasn’t the plan of industrial capitalism in the first place. So that’s really the fight. If the whole ultimate survival of the fittest economy is the kind of economy that provides for productivity gains and prosperity at most efficiently, then it’s not going to be the Western economies any longer.

The history of civilization isn’t going to be that of the West any longer. Because the West has rejected its role that it seemed to be taking the leadership in the 19th century. And when all of history seemed to be, well, it’s the history of the West taking its lead in creating what became the Industrial Revolution.

Now that the West has abandoned all of the Classical economic industrial capitalist policies that it put in place for the Industrial Revolution. Now, this same dynamic that used to be a Western dynamic is now going to be an Asian dynamic. And how can the West participate in it without doing what China did, freeing itself from the dominance of the financial sector and its alliance with the real estate sector and the private monopoly sector.

That’s what makes it so impossible for Donald Trump to say, we’ve got to get other countries to support us in investing in the United States to revive American industrial competition. Well, no matter how much Japan or Korea or Taiwan or Europe is going to invest in American industry. It’s not going to be able to compete with other countries as long as it maintains the Trump tariffs, shakedowns of other countries, the same monopoly system, the same financialization of the economy that has turned America and Western Europe into a post-industrial economy. The post-industrial economy can hardly be the path of the future. And as the futurists were all saying in the 1970s, who’s going to finance all the technology research and development that it takes to commercialize the technology. That’s exactly what China’s been doing, which is why it has the leadership in so many patents and so much science and technology that the West says, well, there’s no money to be made in science and technology because that’s not something that the private sector makes money for.

It’s something that the government makes money for. But as Ronald Reagan said, when the government says we’re here to help, those are the most frightening words in the English language. So this is the kind of schizophrenia in terms of economic logic that is guiding not only the American economy, but the whole way in which the economics curriculum is being taught in the United States and Western Europe.

Well, part of the problem for the rest of the world is: many countries were so admiring of the West as having taken the lead in industrial capitalism that even China sends its students to study economics in the United States. But what they are not taught is the economics principles that have enabled China to get so much richer than the United States.

And when I was a professor for 2 years at Peking University in China, the School of Marxist Studies, their students said, well, we’re going here because we want to rise in the ranks of the Communist Party, whose ranks are primarily scientists and engineers and technologists because that’s how China is going to make money.

And yet, when it comes to economics, the economic positions in our universities are given priority to students who studied in the prestigious American universities and the British universities. And so you had President Xi promoting a program I think 6 or 7 years ago, urging the princelings of China not to send their children to Harvard and Yale, and I suppose also the Cambridge and Oxford in China.

Robinson Erhardt: Don’t forget Stanford.

The Chinese property bubble and Evergrande

Michael Hudson: Yes. Yes. But China itself doesn’t have a curriculum that is based on the Western Marxism. There’s no discussion of Marx’s history of economic thought of what he talked about in Volume 2 and Volume 3. There doesn’t even seem to be a recognition in China itself of the role of land rent and financial rent that has led to its whole real estate bubble that it’s created.

Because China, like, it sort of adopted the Russian version of Marxism that had dumbed down Marxism into, well, it’s the fight between capital and labor. And if we can socialize industrial employment, then we will pay labor, we will provide labor with housing, entertainment, we’ll have whole industrial cities that provide everything that labor needs.

That was, under Stalinism, the form of Soviet industrialization. Well, they didn’t have land rent, they didn’t have absentee land ownership, renting out housing to labor because the industrial employers provided the housing and the schooling and all the other things. Well, Maoism in China picked up this. They were sort of Volume One Marxists.

So when I go, and other Marxist economists—we’re really classical economists. When people may call us Marxists, but we’re discussing the same concept of value, price, and rent that was at the whole core of Marxist economics is not the core of Marxist economics as taught in China. So, China said, well, you know, how are we going to finance our real estate development?

We’re going to have to buy housing for all of our employees to make all of our cities. We’re going to create industrial cities. We’re going to have to industrialize to not be in an agricultural economy anymore. Well, what they did was they said, well, they did invite Milton Friedman over from the Chicago School under Deng.

And Friedman said something that didn’t work in the United States, but it worked very well in China. He said, one thing that the government planning cannot do is plan for how to industrialize and introduce a new product. You need innovation for that. You need whether it’s fashion designers or making new consumer goods or making industrial technology.

You really want people to be able to make a profit doing that. And that’s done outside of government because government doesn’t aim at making a profit. It doesn’t aim at innovation. It aims at, here is the plan for how we’re going to electrify the economy and introduce technology under the current technology. Not good at innovation. So, Deng said, white cat, black cat, what’s the difference as long as it catches mice?

In other words, let 100 flowers bloom. Well, China did the same thing, not only for providing, you know, letting industrialists develop, but said we’re going to do that for the cities. We’re going to let every village and town and city figure out how it should develop itself most efficiently. Well, you had already in the 19th century, the whole Communist Party of China sort of was an outgrowth of Sun Yat-sen’s idea of, well, we’re going to have to tax the land.

He was a follower of Henry George on the land taxation idea. That was originally what was Chinese socialism that became Chinese communism that led to a split by 1921. Well, China said, all right, all of that’s in the past. We’re going to let any city, you know, develop. And you can develop because, you know, you have control over all of the land in your area.

And you can lease the, of course, the state owns all the land, but you can lease this land, to, developers. And the developers are going to pay you to lease the land to build housing and office buildings for your city. And you can use the money that they pay you in order to provide public services for your city or village or town to make it what you need to develop.

And we’re going to look and see how all of you towns and cities develop and we’re going to see may the best city in town win. Well, that was a kind of expected to be a Darwinian evolution. But what happened to how all of this was being funded? Well, the cities would give a developer a right to a plot of land.

The developers would then say, well, how are we going to get the money to build these buildings? Well, they’ll borrow from a bank. And the People’s Bank of China created the money, and it would fund its own, let’s say, commercial, localized banking, commercial banking system. And the banks would say, all right, how much is it going to cost to build up this property?

We’ll lend you the money. And so China financed the building. And in the Chinese worldview, everything was material. It was a very hyper-materialist idea of economic development and saying, well, these buildings have a cost, therefore they have a value, the cost of production. And we’re providing the banks with enough money to build all of these buildings at the value, the cost that produces them. Well, what they didn’t take into account was, yes, it has a value, but it doesn’t have a price. And all of a sudden you have the price much less than the value.

There wasn’t any price because all these buildings were built up. You have all of these pictures of gigantic real estate buildings built seemingly in the middle of nowhere with no one to live in them. Well, that’s what happened with Evergrande. And any American developer is going to go to a bank and take out the money to build a building for what it costs to pay for the construction and the labor and costs.

And the banks are going to make sure that they’re paid in the end. And what do they do? They say, okay, you’re going to issue a prospectus for either the co-ops or the condominiums or the rental property. And right around here in Forest Hills, a block from where we are now, there’s a new building, you know, that was built with bank credit and now it’s renting it out or selling condominiums in it for the developer to make a profit.

Well, obviously, the banks are keeping the developers on a financial leash and saying, you have to show that there’s some market for what you’re building. You have to have people sign up and say, yes, here’s our down payment of a few thousand dollars, our serious money, to show that we’re going to buy an apartment in the building that you’re putting up.

You know, here’s your plan. We’ve seen the building’s really being built, you know, looks okay to us. I mean, what’s called a luxury building today is schlock. It’s like Trump builds his building, the cheapest possible walls and schlock, but they’re called luxury because they’re priced as if they were luxury building.

Well, China didn’t have this constraint of price versus value. That’s because the Chinese economists and financial planners weren’t taught about the difference between price and value that we’ve been talking about. How to be a good parasite. Yeah. How to make a capital gain. They didn’t ever think of the capital gain, and so Evergrande had this huge capital loss. And now China’s saying, well, who’s going to bear the cost of all of these buildings that have been built and many are left half-finished. Some are built and finished. What’s going to happen to the banks that have lent the money for these buildings that have a cost value but no market price?

What are we going to do? Well, they say, I think they’re probably willing to let the banks go under, but what about the depositors in the banks? They’re going to have to have something like deposit insurance. What about the small investors as opposed to the big investors? They have debt resolution teams all throughout China being created and going, how are we going to handle this in what’s considered to be a morally fair way between the creditors, the savers who produce the savings to the creditors and the bankers to make loans to these real estate companies that didn’t take responsibility for creating a market because that wasn’t viewed as an engineering problem. And it was viewed as an economic problem, but they weren’t trained in the United States for how to go about developing real estate. That was the Achilles heel of the Chinese economy. Right now. And I’ve been spending the last 10 or 15 years of my visits to China and my lecturing there trying to bring this home.

And friends of mine like David Harvey have said the same thing. Look, they worry that this is a criticism of the party. Well, we’re not saying this is to criticize the party. We’re saying this is how industrial capitalism is supposed to develop its real estate sector. Everybody’s supposed to be paid by making sure that there’s a market for it.

That’s what the industrial capitalist makes his profit for, gauging the market so he can make an investment to develop the market and make a profit, or in real estate, a real estate markup, a capital gain, meaning a land price gain. Well, that dimension was not part of the Chinese planning that at least has been a part in the United States.

Well, in the United States, you’re also having not much money to be made in building new construction now. But you’re having with the high interest rates that are caused by the oil crisis and the oil war and the crazy tariff policy that has priced American industry out of world market by Trump’s 50% tariff on any product that includes steel or aluminum, and which means almost everything that’s made you’re having inflation, and so interest rates are going up. That made it almost impossible for wage earners, new college graduates in their 20s, even 30s, to take out a mortgage on a new apartment to live in. So who’s buying the real existing real estate? Not wage earners or graduates, but these huge real estate conglomerate companies like Blackstone are buying them and they’re turning the United States from a middle-class homeowners economy once again into a landlord economy like the big cities, like New York used to be. And that’s going to vastly increase the cost of living to America because you can’t buy into the treadmill of rising real estate prices that are inflated by banks lending more and more and more credit to debt leveraging a real estate price boom, which is what has created American middle-class wealth.

It’s all been creating a middle-class land price boom, not value. That has all been part of what’s ended up in turning the whole economy into what used to be called a Ponzi scheme and is now called American finance capitalism.

Billionaires and wealth concentration

Robinson Erhardt: Michael, I’m always amazed by your command, not only obviously of the economic theory of what you’re discussing, but also the history going way back to Hammurabi. But I would like to spend some time talking about current events and current people, and I’m wondering if you think that there are any current billionaires, trillionaires even, anybody like that that you think of as emblematic of the parasitic rentier class?

Michael Hudson: Well, the whole way of becoming a billionaire is what used to be called parasitism. If you look at the economy of the United States, since 2008, at the end of the year when Obama took over. 40% of American wealth is absolute zero at the bottom. The rest of the next 40%, very slightly up.

Almost all the wealth that’s been created is by the wealthiest 10%, most of it by the 1%, and most of that by the 0.1%. So all of this growth has been very narrowly concentrated. This is what used to be called an oligarchy. And oligarchies are rentier oligarchies. They don’t make their money at any time in history from Greece and Rome to the medieval period by producing goods.

They’re not like Andrew Carnegie with creating his steel companies primarily. You make money financially and even if you make money by financial ownership of an industry, you try to create a steel trust by not creating steel as a monopoly to make monopoly rents over and above monopoly profits. So where Marx said that, well, the industrialist makes money by a profit in developing a market, the finance capitalist makes money by buying all the industrial companies and creating a monopoly and adding a whole layer of monopoly rent over and above industrial profits. So the great growth in creating all this wealth that’s grown largely by increasing bank loans against it, all this wealth that’s grown is a capitalization of income that is going to pay the interest to carry the loans. And this interest is land rent and monopoly rent and financial gains and interest on other loans that are made out.

So what is backing all of this wealth that’s been created is not creating new factories and industry and farms and means of production. It’s all rentier income. So it’s the mentality of becoming a billionaire, and especially a 10-billionaire, even more a 20-billionaire. The more tens of billions you make, the more you make it financially, not by playing a role in industry and rising living standards and creating a real product, but by increasing what the economy has to pay to you for the privileges that you’re carving out for yourself.

Trump political influence and regulatory capture

Robinson Erhardt: And Michael, are there any particular billionaires that we could talk about as a case study for somebody who is an economic parasite?

Michael Hudson: I guess there are a lot of different kinds of parasitisms. We’re not talking about a single species of all of this. Donald Trump made his money certainly as a rentier, a rent recipient, but not by even being a financier or a landlord, but by being president and by representing the landlord class and its whole way of creating rentier income.

He’s made money in a number of ways by a particular monopoly privilege. For instance, as president, he’s able to give pardons for crimes. And so, he’s gone to leading drug dealers or financial fraudsters and criminals and said, well, you know, you made a lot of money and you know, you had to go to jail as a result.

But you’ve made, well, billions of dollars. And you certainly don’t want to spend the rest of your time in federal prison. Be glad you’re not in a state prison, federal prison. But how much will you pay me to give you a pardon? Well, he doesn’t say that.

He has agents saying, talk to their agents. Oh no, that’s not a payoff. How much will they contribute? Well, they contribute and they get a pardon. I mean, I guess Bill Clinton started the whole thing by giving the pardon to the company that bought all of the Russian kleptocrat flight capital in Latvia. Marc Rich. The Marc Rich pardon, you know, is sort of typical of it. If you’re a president, you get to make money by having the privilege of selling what you monopolize, the ability to control the Justice Department. He can go to his campaign contributors and said, you know, I’m like any other politician.

All of us politicians are trying to make money by privileges that we have to write the laws that are going to make you rich. Now, if we represent you, what are you going to want us to do to make the laws that’ll enable you to get rich quicker? What do we have to deregulate to prevent you from cheating? What used to be called cheating is now called, well, it’s just called making money.

Robinson Erhardt: Yeah.

Michael Hudson: We privatized crime. So if we privatize what used to be called crime, what’ll you contribute to us? And he’d make a whole list. And so he said, okay, invite them all down to Mar-a-Lago. And if you notice, his invitees are the wealthiest billionaires, especially from information technology and automatic intelligence.

And what are they talking about? Well, number one, what laws do they want so that they’re not regulated, so that they don’t have to bear any of the costs for the damages that they are causing, the cleanup costs for the economy at large? Well, and that will lead to their campaign contributors, not only for Donald Trump, but for the politicians that both the Republicans and the Democrats have created as part of the privatization of the political fund process, the Supreme Court ruling that corporations and PACs are people; you can create as much as you want. The Citizens United ruling. Well, Democrats have essentially outdone Trump in systemizing this same process for the Senate and the House of Representatives. And the more money that you can create, you can tell your funders, if you’re on the Natural Resources Committee, go to the oil industry and say, well, you want us to be the heads of the Democratic representatives on the Oil Committee or whether there’s the Railroad Commission, all the different committees dealing with particular industries are put up for auction by the Democratic Party and the senators and representatives that contribute the most money to the Democratic National Committee are awarded the chairmanship or sub-chairmanship of the Democratic leadership of the committees regulating these industries. That’s called regulatory capture. What this whole system of regulatory capture is, a rent-extracting privilege of politicians to rewrite the laws to enable billionaires to capture the regulatory committees that are supposed to regulate them so that they regulate them, not the government.

And you have essentially a privatization. It used to be called criminalization of the electoral process. It used to be called bribery. And Hollywood used to make movies of a politician’s being exposed for taking a bribe to build a railroad by a particular campaign contributor to a local governor of a state or something.

Well, all of that’s become normalized. Crime is really this kind of rent-seeking crime by politicians, all of which is included in the GNP. So, it’s sort of hypocritical not to include the whole criminal sector as part of the American national income and product accounts because so much income is created by what used to be called crime and is now redefined as the free market and American democracy —it was called pay to play, largely.

Well, that payment is not a payment that is an inherent cost of production. It’s economic rent-extracting privilege by the politicians that are paid out of the monopoly privileges, the price and income of the monopoly rent-extracting privileges that the politicians give to the rent-extracting privileged billionaire sector. It’s a circular flow.

Robinson Erhardt: Continuing on with this discussion, particularly of Donald Trump as a case study, I’m wondering to what extent you view some of those current events that I’ve already mentioned—the oil wars in Iran, in Russia, what we’re doing in Venezuela, how you view these as examples of ways in which somebody like Donald Trump or the people he represents are able to leverage their parasitization of the economy for personal gain.

Michael Hudson: Any politician’s parasitization is their attempt to carve out a payment for themselves off the much broader privatization of monopoly privileges of the oil industry. I think Donald Trump has his own companies that are created—well, for instance, he’s created his own cryptocurrency that was done by the usual financial practice of pump and dump.

He said, I’m creating a cryptocurrency. You can be sure that with the Donald Trump label, it’s going to be just like my houses that I build. Well, he didn’t say just like the schlock that I create in my houses, as his architects have described to me what he’s building. But he got the suckers to buy cryptocurrency, pump and dump, went way up, and then they all sold out and left the suckers, the MAGA buyers, holding the bag.

Well, Trump had his own cryptocurrency company and all this, and other companies would say pay off by giving Melania a big book or filmmaking biography contract.

Robinson Erhardt: I believe that Amazon financed a Melania documentary, and it was sort of seen as a bribe of some sort to Donald Trump, even though it went by a different name.

Michael Hudson: This is what the Japanese called descent from heaven. In other words, once you spend your political career serving the financial sector, or in America, the military and industrial sector. For instance, for the US Air Force and Army, the descent for heaven is when you’re a general that has been pushing for all of this high US arms spending, you can expect upon your retirement to be appointed to a cushy job as a director of one of the big armaments companies.

Or if you’re in the State Department, like Bush’s Secretary of State. These are all the descent from heaven. You may not get rent at the time, but you’re expected to get the payoff in a very high post-government private position as a private advisor for all of the favors that you’ve done for, in her case, for the oil industry. In the Iraq War, for the arms industry, you know, for all of the soldiers, there are all sorts of ways of payoff. All of these are a payoff from the privilege of being in a position to be able to corrupt the American democratic process by selling regulatory power away from the government autonomous regulatory sector to the companies nominees for regulators of the sectors that are supposed to be regulated, whether it’s finance or steel or real estate or any of the other regulatory sectors, health sectors or whatever.

AI intellectual property and social costs

Robinson Erhardt: How does the technology sector, and in particular artificial intelligence, intersect with the rentier class and the parasitization of the economy? Because I think of the technology sector as being very active, both industrially, the building of plants for, say, chip manufacture, but also the production of intellectual property.

Michael Hudson: Well, intellectual property is a rent extraction. It means we’re paying you, paying you for our property rights to charge you whatever we want without reference to the actual cost of production to value. Intellectual property is the ability to obtain a market price for access to what you control over and above the cost of producing the product for all of this.

So again, value and price analysis with economic rent being the disparity is the key to analyzing all of this. All of these are euphemisms for various forms of rent extraction. And when you’re talking about the cost, it could be the cost of oil production. Well, what about the cost of polluting the water supply of environmental pollution?

What are the costs that society is going to have to pay for global warming as a result of carbon-based oil and coal and gas? Well, society is going to bear all of the cost of that, not the oil companies. These are called external economies that are not on the corporate balance sheet. Well, what the fight in Congress and the public discussion over automatic intelligence now is, this is going to cause a lot of problems for the economy at large. Many people are going to lose their jobs, there’ll be unemployment, but there are also going to be a lot of disasters that are caused by garbage out. Automatic intelligence used to be called garbage in, garbage out.

You program information in and you tell a vast computer search program, look over all the internet and tell us what’s happening. And the computer said, well, if it’s on the internet, it has to be true. So what you get on the internet, it’s called fantasizing. Well, how does the internet fantasize? Well, somebody programs it to fantasize.

The machine doesn’t really have the ability to have dreams and fantasize. That’s science fiction. But somebody’s written the program that directs it to have just the same unrealistic tunnel vision that it has—automatic intelligence. Just like the internet is very heavily censored by the people who control what’s on the internet, the people who control CBS, Channel 2 now, for instance, I mean, the whole media are being censored.

You know, they’re turned into something that you could say it’s all being written by automatic intelligence, but it’s not what used to be considered intelligence: computer programming that includes garbage in, garbage out. Well, there’s no real oversight. And Trump has promised we’re not going to have federal oversight. This is for private enterprise to own. Let 100 flowers bloom. Do whatever you want. Cause whatever disaster. You won’t have to pay for it. The people will pay for it. That’s democracy.

Billionaires in China and Russia

Robinson Erhardt: We’ve talked a lot about let’s say, American billionaires, Donald Trump in the past. Something that I’m curious about: China over the last decades has also seen a rise in its billionaire class. It’s also seen a rise in its tech industry. I’m wondering how the rise in these two sort of phenomena has coincided with China’s resisting a financialized economy the way that the United States has.

Michael Hudson: It has resisted a financial economy. The wealthiest billionaires are in Hong Kong. And so China, over a decade ago, sent an overseer to try to work out what to do about all these billionaires in Hong Kong real estate. Well, one friend of mine, a Chinese princeling, a billionaire, said, you know, he went to Hong Kong and he was socially embarrassed because he’d made a billion dollars from almost nothing in the United States, largely by loans from Chase Manhattan to buy real estate.

And when his loan went bad, Chase forgave the loan. Said, well, you know, we gave you bad advice, here’s another loan. But when he went to Hong Kong, there were all these people who had $5 or $6 billion. He felt outclassed by them. Well, China hasn’t been able to constrain the Chinese billionaires and the Chinese regulator that was sent there to try to control real estate said, you know, really, he was too embarrassed to tell me the story, but he was told just: don’t interrupt. We want happy relations with Hong Kong, meaning the billionaires who are in charge of Hong Kong. Well, China has let its people like Jack Ma make a billion dollars with and other technology billionaires and real estate billionaires. They sort of said, okay, you can make a billion dollars, but you can’t really make more than that.

And if you get too arrogant, you know, we realize that if you make too much money, you’re going to be arrogant and you’re going to want to have influence over the economy and how we invest and spend our money. You’re going to want influence that we think should be with the members of the party. So you can have a billionaire, but you’re going to have to spend your money on lines that you think are consonant with what the Communist Party is recommending that you spend your money on.

So they’re treating their billionaires very much like President Putin is trying to co-opt the legacy of Russian kleptocrats that were caused by the neoliberal 1980s, 1990s in Russia, and said, all right, you know, you can use your money. Now the West has grabbed all your money. So you see that taking your money out of Russia to put in the West isn’t going to work because you’ve had it all grabbed.

But if you’re going to keep your money in Russia, you’re going to have to invest it by pursuing policies that are in keeping with, you know, what we think is our plan for developing Russia. So you’ve had a co-opting of billionaires in Russia and China that you’ve not had in the United States. It’s a free-for-all in the United States because China has prevented the billionaires from becoming the Communist Party leadership itself.

The leadership are largely, as I said, scientists and engineers that have decided you know, what do we need? It’s very like Lenin’s first move with the communist revolution in Russia after 1917. He said, Russian communism is electrification. And he said, this is a technical issue. We communists, the state, are going to spend our money in electrifying the whole Russian economy.

Well, you could do that for natural monopolies like electricity, roads, transportation, but it wasn’t very good at developing industry as efficiently as having private capitalist investment. So, even socialist economies turn out best to work as mixed economies, and China realizes that. The government part of the socialist economy is for natural monopolies, including money creation and banking, but it’s letting a prosperous industrial economy develop, not as monopolies that would increase the cost.

Monopolies—they’re very cutthroat, I’m told, in China. You know, you can try to develop your monopoly, but we’re going to encourage competition much more than the United States has encouraged competition now that it’s sort of got rid of the antitrust regulation that it had for a century.

Gulf monarchies oil wealth and the United States

Robinson Erhardt: I know that the Middle East isn’t your area of expertise so much as the United States and lately China or Latin America for that matter. But when I think about pockets of the world that have high concentrations of billionaires, I think of the United States, I think of China, I think of Russia, but then I also think of places like Saudi Arabia, Qatar, the United Arab Emirates. And I wonder how you see billionaires functioning in those societies relative to the ones that we’ve already discussed.

Michael Hudson: These are feudalism-type billionaires. These are not capitalist billionaires. But as I said, the industrial capitalists of Europe wanted to make their money by turning the rest of the world into producers of food and raw materials. So you had Britain and France concentrate on taking over the Middle East.

And so they selected the most corrupt buyable families, and they found the Saudi Arabia family to be the most feudal, barbaric family of the Sauds linked through family history with the Wahhabis, the ISIS people, the terrorists. And they said, well, we need local client oligarchies or client kings and emirs.

So we’re going to let these client managers of West Asia, the new word for what used to be the Middle East, take over and make sure that they run their economies so that the Westerners increasingly the United States can be the main beneficiaries from oil. So the Saudi family and the Arab Emirates were all in favor of raising oil prices in 1975.

Ostensibly they were angry at the American support of Israel. Well, the American oil companies said, this is our bonanza. We in the United States can produce our oil and our gas at our low cost of production, and OPEC is going to create monopoly pricing for oil. That’s great. When John D. Rockefeller tried to create monopoly pricing for oil, the United States anti-monopoly philosophy broke up Standard Oil into all of its component parts.

But now all of our component parts, many of which are reorganizing into the old Standard Oil monopoly. We’re not monopolists, we’re just following the world prices that are set by the OPEC monopoly. So of course, we’re going to let the Saudis and the Emirate of kings—really, they’re feudal lords. I mean, this is what used to be called a barbaric society, but is now called American democracy.

Saudi Arabia, the Emirates, they’re our bastards, as President Johnson used to say. Well, the deal with Saudi Arabia is, all right, what’s Saudi Arabia going to do with all of the billions of dollars that OPEC made from raising the price of oil to prices that it got along and creating the equal oil rents for the American oil and gas companies?

Well, Saudi Arabia invested in US banks, US Treasury bonds, US bonds, US stocks. It sent its money to the United States, a little bit to Europe too. And then it began to spend all this money by creating this insane technological monster of real estate, luxury real estate in the middle of what was a desert. Luxury real estate and industry where it doesn’t belong.

I mean, there’s no justification for all of this. It squandered its money, essentially, by spending in the West. So right now, what’s the condition of these Saudi oil billionaires? Well, yes, they have billions of dollars in investment, but it seems from what I read in the news, they’ve been told not to sell their U.S. bonds, not to sell their US holdings. They’re not paying anybody. And most of all, the current MBS, bin Salman, interfered with the whole Saudi idea of, okay, the Sauds are going to be the leading clan that’s leading Saudi Arabia, but we’re going to share our wealth with the rest of the clans, most of which are further to the east where most of Saudi’s oil fields are, and in fact, are in a largely Shia area.

So Saudi Arabia is saying, well, you know, we can’t afford to pay the rest of you clans what we’d originally done because we’ve tied our fortunes to United States and now there’s an oil war and now we’re having the US war lead to Iran wiping out all of the American military bases here.

So all of a sudden, America is no longer America. The Saudis thought, well, if we’re spending all our money in America, we’re creating a symbiosis between our economy and America, and America is getting, of course, hundreds of billions, trillions of dollars from all this, but we’re getting enough billionaires to make us kings in our backward kingdom. And Saudi Arabia and the Emirates are probably the most backward kingdoms in the entire world right now, because of their rotten Wahhabi barbarism.

Maybe we should edit this out or somebody’s going to try to shoot me. But at any rate, there’s a whole fight. All of this is about to break down right now. And so all of these billionaires that they’ve got—billionaires can go broke too. Billionaires can lose the money. And it looks like the Saudis are going broke.

It looks like the Emirates are going broke. And the whole feeling throughout West Asia is the whole Persian Gulf area is ripe for revolution against colonialism. All of these Emirates, from Saudi Arabia to the Emirates to Bahrain to Qatar, all of these were selected families, many of which are interrelated, selected by Britain and France after World War One when the new national boundaries were carved up to World War II, when you had oil playing this rising role. You’ve had all of this transformed right now, and it’s ripe for a revolution. And you’re going to have the final anti-colonial revolution that began in so much of the rest of the world. I guess you could say it began in Haiti in the early 19th century, buying its freedom and going broke by losing its financial freedom, liberty. Brazil, Mexico, then Greece and the parts of the Ottoman Empire, the Asian countries. Now you’re having the African countries fighting back against French colonialism and its client kings and dictatorships. You’re having the whole ending of the dual economy, civilized industrial economies in the West and backward economies that were not developing economies at all, but were non-industrial economies in the whole global majority of countries.

That was the whole plan of industrial capitalism to make its money, not only by industrial profits, but by rent extraction from the periphery, from all of that. All of that is coming to an end right now and ending the whole billionaire fortunes and ending the whole feudal control of natural resources and resource rent in the Middle East, West Asia, and Africa, just as it was ended in Western Europe itself.

Democracy oligarchy and foreign policy

Robinson Erhardt: Michael, historically, at least let’s say for the last 50, 75 years, the story that we’ve been told is that what drives political alliances and movements internationally is something like the search for—at least from the United States perspective, we want to promote democracy abroad. We don’t like communism. We don’t like totalitarianism. We want to promote the good values. But what I’m wondering, to what extent, not only do you think that has been true the last 50 to 75 years, but to what extent is it shifting in an even more different direction now to a point where it more blatantly is just driven by money, and personal connections?

Michael Hudson: Well, the distinguishing feature of all of Western civilization has been, it’s always been an oligarchy. And the Industrial Revolution was considered to promote democratic reform because the leading oligarchy was the financial class. Along with the rising industrial class, and they had to get rid of the landed aristocracy that was making it impossible for England to be the workshop of the world. And the financial class, David Ricardo and his brothers had a financial firm.

They were the big underwriters, for instance, of Greece borrowing abroad to borrow foreign debt denominated in sterling to win its independence against the Ottoman Empire. The financial class backed the industrial class in opposing the landlord class because the landlord class wasn’t itself a market for the banking class. Industry and commerce.

And the financial class looked at the Industrial Revolution not so much as producing industrial goods and services, but as exporting industrial goods and services from Europe in exchange for the raw materials and food from other countries, and the financial class have found its great market in international trade and foreign currency trading. So you had the financial and industrial oligarchy fighting.

But in order to win this fight against the landed aristocracy, they had to get rid of the control of the aristocracy over Parliament and over the House of Lords, and that required voting. And so they extended the right to vote for labor. And so, in that sense, labor and capital went hand in hand in fighting against the landlord class.

But that was about the extent of it. The extent was never to really give labor an interest in promoting its own self-interest. Not that kind of democracy. And that’s why industry fought so violently in the United States against labor unionization, breaking up strikes, breaking up labor unions, to prevent democracy. So it’s always been an oligarchy. But because the majority of people say they want democracy, politicians always have said, we’re going to give you what you want, or at least we’re going to give you the word and the label that you want, if not the substance for the label.

So we’ll give you what we call democracy, and of course, you’ll have to take what we give. Well, obviously, what has America done after World War II? It created client dictatorships, military dictatorships, oligarchies throughout Latin America. It did everything it could to prevent any kind of democratic colonial reform there.

It fought against the colonial reform, just as the Europeans in Americas fought against any attempt at national democratic reform in Africa, which is why Lumumba was killed, which is why the head of the United Nations supporting this was killed. Assassination has always been the oligarchic tool against any democratic reformers from its own ranks, as I’ve written about in my Collapse of Antiquity about all the whole Roman history of assassination. Same thing in America. Assassinations of really democracy. The one thing America opposed right after the fall, the dissolution of the Soviet Union in 1971, was to make sure that there was no democracy in Russia. So they sent teams over to Russia to try to promote Yeltsin and being reelected in his attack on Parliament, you know, stood on top of the tanks attacking Parliament.

Same thing in all of the post-Soviet countries like Ukraine, where after Ukraine kept electing a nationalist promoting what was a proto-democracy under oligarchic control, to be sure. They had had three elec— kept canceling the elections until the Ukrainians voted for a democratic leader, meaning the word democracy was redefined as pro-American. And all that means is pro-American, and as I think Donald Trump said on one point when somebody said, you know, is this a democratic leader you’re promoting? Donald Trump said, well, I appointed him, and America is a democracy, so of course he’s a democratic leader.

I may be paraphrasing what he said, but that’s the essence of what it all was. The one thing America fears in any country is democracy. That’s what the whole CIA dirty tricks operation is against. That’s what the Operation Gladio was against in Italy to prevent an Italian democracy from electing communists.

That’s what the whole murder of the Greek communists was: preventing the Greeks—the communist parties were leading the resistance against the Nazis—from becoming a democracy. And today you have the United States backing neo-Nazism in Ukraine, neo-Nazism in Germany. Well, of course it’s not democracy.

I think under Andrew Jackson in the 1920s and ’30s, it was called the sham democracy already right then. So the Americans are very familiar and have developed a whole vocabulary for dealing with sham democracies and realizing that democracy is just a word to what you call anyone who supports your policies, oligarchic as they may be, and today, and as barbaric as they may be in Saudi Arabia and the Arab Emirates that we call our democracies, or Argentina, which is hardly a democracy, but is called our democracy there.

My friend, Craig Roberts, who was the Undersecretary for International Affairs under Reagan, said that America simply bought out the European leaders with huge envelopes of cash, is sort of a metaphor for really setting up offshore bank accounts and all sorts of payments. He said, you know, we don’t have to have a revolution.

We don’t have to shoot people. We will just have our whole system of non-governmental organizations, the Endowment for Democracy, you know, basically is to act as a talent scout for the most corrupt, bribable leaders that we can find. People who will do whatever they’re told by the financiers who have backed their promotion and elevation through the political process, the Tony Blairs of the world and the German equivalents and European equivalents all through.

Roberts said that all we needed was money to buy them. And that’s all it takes. And he said, you know, in a way, what’s more democratic than the power of money? Anybody can put themselves up for sale. Isn’t that democratic? Putting yourself, your country, and your beliefs up for sale? That’s your democratic choice.

Alternatives to the rentier economy

Robinson Erhardt: So Michael, we’ve spent a lot of today talking about the parasitization of the economy and its problems. And what I’d like to know now is, we found ourselves in this place. How do we get ourselves out of it?

Michael Hudson: I don’t see any way right now for either the United States or Europe to get out of it. There’s a stranglehold that they’ve created in essentially financializing the electoral process, financializing industry, and creating vested interests—Thorstein Veblen’s term— of real estate interests, banking interests. It took a revolution in Russia and a revolution in China to get rid of these vested interests.

And America’s forcing other countries to have a revolution in order to get rid of the client vested interests, the client oligarchies, and client dictatorships that America’s created abroad. I think the revolution will be led by China and Asia creating a demonstration effect. Controlling all of the real estate, controlling the credit, reducing the population to debt bondage and servitude and rent extracting.

The revolution was led by members of the aristocratic clans themselves, not the leaders, but the distant relatives that weren’t able to share very much in all of this. And, to use Aristotle’s phrase, they took the people, the demos, into their camp. And the demos was the infantry as well as the people, because it was a popular army.

And it was the dissident members of the ruling vested interests that led to the overthrow of the most oppressive aristocracies, as I said, in Corinth and in Sparta, and reformed the late-coming Athenian revolution itself that moved towards one of the most extreme democracies because it was one of the most extremely polarized and unequal countries of all.

So at some point it’ll be the Western bankers and the aristocrats and the leading vested interests themselves that said, our whole detour that we’ve taken, you could say all of Western civilization and its oligarchic detour, hasn’t really worked. Socialism is the line of the future, a mixed economy, a mixed private-public economy. With government taking the lead in sponsoring technological advance and providing basic infrastructure, that’s going to be the need.

We’re going to try to take what’s left of the American people into our camp by having, hopefully, a peaceful revolution here, as it was pretty peaceful in Corinth and Sparta and Athens ultimately. And so I think it’ll be when the vested interests themselves say this isn’t working, we’ve exploited the American people as much as we can, we’ve squeezed the hapless European population, so there’s nothing they have to offer.

And we’re unable to squeeze Asia and the global majority anymore now that it’s adopted what used to be the Industrial Revolution strategy for a mixed socialist economy. Well, I guess we’re going to have to join the revolution that we started and inspired abroad, and we’re going to have to join it. And so they will take the lead in trying to join us.

From most revolutions from the top. And if you look at who are all the biblical reformers, who are all the you know the great prophets who said you’ve got to change the system, you’ve got to cancel the debts, woe to Israel that has been so unequal and you’ve [verb unclear] house to house and plot to plot, and there’s no room in the land for people.

These were all well-educated members of the well-to-do. It wasn’t from the bottom up. And much as you know, I hate to disappoint advocates of the proletarian revolution, the proletarian revolution was led by the middle class reformers and especially the wealthier members of the middle class. And it seems to be that’s how revolutions are led.

The outlook for the next few years

Robinson Erhardt: It all sounds very nice, the idea of a peaceful revolution, setting aside, of course, the—

Michael Hudson: With a little bit of got to clean up the resistance.

Robinson Erhardt: Setting aside, though, some other existential worries, like maybe less so nuclear war, but certainly much more so AI apocalypse. What is your prognosis or expectation for what will actually happen in the next few years?

Michael Hudson: Chaos. For a while, it’ll be viewed as chaos. The rest of the world—you’re really going to have, I think, China, Russia, and Iran becoming the center of an alternative to the United States. America will be left behind. There’ll be a lot of bankruptcies, a lot of unemployment. There won’t be any political attempt by either the Democrats or the Republicans to solve the problems.

The Democrats have moved to the right of the Republican Party and fighting against any kind of democratic socialist policy. And if you look at the members of the Democratic National Committee, they are dead set against— they’re leading the fight against the Democratic Socialists. The Democrats preferred to lose with Hillary than win with Bernie Sanders against Trump.

And again, they preferred to lose with Biden and his vice president rather than having a left-wing, a real socialist alternative to Donald Trump. So the Democrats have been Donald Trump’s protective guard of making sure that there’s no party offering anything to the left. And so the result is that it’s the Republicans in the United States just like the AfD in Germany, and the right-wing parties in Italy.

It’s the right-wing parties that are the populist parties. The CIA and National Endowment of Democracy have twisted and just corrupted what was supposed to be the labor movement, the Labour Party, and the socialist movement to such an extent that they’ve prevented any kind of a really democratic socialist reform from the left, as you’ve seen in the fight in Britain’s Labour Party to essentially put the American nominees in favor instead of prime ministers who were not pro-war, who were not pro-Russian. And the Americans have doubled down on the fight against Russia in order to make sure that it’s unable to support China in the ultimate war that America dreams of fighting against China. Along the same lines that it’s tried to fight against Iran and Venezuela and Russia.

And it’s just not going to work. The only kind of war that America and Europe can fight is atomic war. There aren’t going to be wars fought by infantry anymore. And there aren’t going to be wars fought by navies because they’re sitting ducks. The only wars are going to be fought by bombs. So the choice is between America just saying, we’ve lost the war, let’s smash the chessboard and just bomb everything.

Robinson Erhardt: And with the heavens shining on you, acknowledging that you found the solution, Michael, we’ve lucked out. We’ve had a beautiful day of weather. It’s been great to see you in person. We do so many of our interviews virtually. Thank you so much for doing this with me while I’m out here in New York City [closing phrase unclear].