So I gave the speech about the oil industry and how America was exploiting the world and how going off gold meant that there was only one thing that foreign countries could do with their balance-of-payments surpluses. These dollars were being thrown off by the US balance-of-payments deficit for military spending. Foreign central banks henceforth would have to buy Treasury bonds. So the military would spend dollars abroad, pump the dollars into the European and Asian economies, which then would lend the money back to the United States government by buying bonds, to finance the war and their own military encirclement.

After I told that to the Wall Street meeting, Herman Kahn said, “This is brilliant. We’ve run rings around the British imperialists. This is a great story. Leave academia, I will triple your salary if you’ll come to work for me.”

I said, “Well, I was hoping my students will go on and spread my ideas.” He said, “Look, you’re hoping that someday one of your students will be a senator, may be president. You join the Hudson Institute.” (It was named after the river not after me, but my ancestor discovered the river). He added, “I’ll take you to the White House next month. It doesn’t matter who’s president. Wouldn’t you rather wait until somebody becomes elected president, and then you become their advisor, instead of hoping that one of your students from the New School might get elected?”

So I immediately joined the Hudson Institute, and was paid the same salary he was. I was the number two man and we disagreed on everything. He was a right-winger, a Zionist and I was a left-winger. We had the big study that the Institute did, the corporate environment study, telling corporations what’s happening in the world. It ended up I got most of the clients.

One day right after my book came out in September, I was buying Tibetan art at that time, and Chinese art, I was a specialist in Asian art as a hobby, and I got a call. I woke up in the morning and I had written a note about the $3,500 that I owed art dealers, and I wondered what I was going to do. I got a call from I think the Royal Bank of Canada saying, “We’ve just made 20 million dollars by reading your book and the last paragraph on how prices were going to go up. What do you charge to come and give a lecture for us?” I said, “Oh, $3,500”, and they said okay. So I thought this was wonderful.

They organized my lecture through a stock brokerage company, Molson Rousseau, in Montreal. Everybody who came to listen to me would have to generate stock trading fees of $3,500 and they would give me the envelope with cash.

Everybody loved it, so they invited me back two months later. Apparently they did not know that I worked at the Hudson Institute at that time. (I worked at home most of each month.) They called Herman Kahn and asked him. They just told him, “The last person we paid is $3,500.” He said, “Well you know I’m a famous author, you have to pay me $4,000.” So they paid him $4,000. That went over very nicely.

Then I got a call: “People really like this series we’re doing. Will you come back again?” I said, “What are you going to pay?” They said, $3,500.” I said, “Well, I understand you paid Herman Kahn $4,000. I’ll have to charge $4,500.” “Okay, we’ll get more people.” They came, I gave the speech.

Then they called Herman the next month. He said, “I understand you’re paying Michael $4,500. I’m his boss. You’ll have to pay me $5,000.” We ultimately got them up to $6,500 and they said, “I think you guys are playing a game with us.” And so $6,500 a month supplemented my $45,000 a year from the Hudson Institute.

I went all around the world with Herman. We went to Korea, Japan and France, basically talking about the balance of payments. Herman weighed over 400 pounds. One day, we were in France, we were packing at the hotel, and he asked me to hand him his pants from the closet. As far as my arms would reach, it wasn’t big enough for what went around his waist. One day after we came back, we had to go to the White House for a meeting on oil and the balance of payments. And who should be the Undersecretary of the Treasury but my old mentor from Standard Oil who had explained to me how offshore banking centers worked. He explained to Herman and me that he told the Saudi Arabians, “You can charge whatever you want for oil.” This was right after America quadrupled the price of grain to finance the Vietnam War in 1972-73, and OPEC responded by quadrupling the price of oil. The Undersecretary of the Treasury explained to me that they could charge whatever they wanted for oil. He knew that the higher they charged, the more the American companies would be able to charge on domestic oil. But the Saudis had to recycle all of their dollars into the United States, into Treasury bonds or the stock market. “You can’t buy American companies, you can only buy stocks or bonds, and you have to price your oil in dollars. If you don’t, we’ll consider that an act of war.”

So here I was right in the middle of understanding how imperialism really worked. This was not what is in most textbooks. Most don’t talk about the balance of payments, but the key to financial imperialism is the balance of payments. The United States fights to prevent other countries from going back to the gold standard, because at the time America went off gold in August 1971, every American dollar bill was backed 25% by gold at $35 an ounce. Well, finally there was no more surplus gold, and that’s what forced America off gold. Its price immediately went way up. As an American citizen, I wasn’t allowed to buy gold. So I knew it was coming but I couldn’t make any money off it. Instead I bought Tibetan and Indian art, Asian art primarily.

To make a long story short, I became a financial advisor to the Canadian government as a result of the stock brokerage work in Montreal. They said, “We need somebody who knows the American stock and bond market”. I was at that time the highest paid economist per diem in the United States for financial analysis. So I got a call saying, “They’re going to want to hire you but there’s only one way in which they can tell how intelligent you are. Do you know about wine?”

When I grew up at the University of Chicago, the university paid its professors so badly that to make more money, their ideal was to be a wine steward at the Pump Room, which was the fancy restaurant in Chicago. It was featured in the Blues Brothers comedy with John Belushi. Anyway, I took a sommelier course, got a license, and brought two bottles, one Richebourg and one La Tâche that I bought in the remainder carton at an uptown store. I gave them to my host in Ottawa and the government guys said, “That’s the guy we want.”

So I wrote a study that Canada didn’t have to borrow money abroad for the provinces to invest domestically. They could create their own money. Basically, what I wrote was the first example of what’s now called Modern Monetary Theory, that governments can create their own money, their own credit. They don’t need a foreign-currency backing for it, and so all basically the same circular flow analysis that I’d developed from my history of thought. a Physiocratic analysis.

One of the top investment analysts for the Royal Bank decided to become the head of personnel. He said he thought that it’s a personality problem that economists can’t understand how the world works, that there’s a particular kind of dumb person that becomes an economist. It’s a kind of autism, of thinking abstractly without a sense of economic reality. So he got me an appointment with the Secretary of State of Canada. In Canada the Secretary of State is in charge of education, films and culture. So I became Canada’s cultural adviser, which is what I thought was fine all along, and I wrote a report.

Around that time I also was an economic adviser to the United Nations Institute for Training and Research, UNITAR, writing their reports on North/South debt, the foreign debt of third world countries, denominated in dollars, and how this was deranging their economies. They had a meeting in Mexico financed by the Mexican president and I was invited down there. I gave a report saying that there was no way that the third-world debts can be paid.

My first job I worked on at Chase Manhattan was to estimate how much export revenue Argentina, Brazil and Chile could make. The idea was that all of their export earnings could enable them to pay interest on money borrowed from US banks. The idea was that the entire trade surplus should be pledged as debt service to the American banks. My job was to think how much that was, and what should Chase’s share be. So, at the Mexican UNITAR conference, I said that these debts cannot be paid, therefore they should not be paid, they should be canceled.

There was quite a stir over that. Well at the end of the conference they had the rapporteurs summarizing the papers. The US rapporteur said that Dr. Hudson has given a report saying that third-world countries should export more in order to pay their debts. I stood up slowly and said, “I must insist that the President of Mexico offer a public explanation, apology to me and the conference. This rapporteur has inverted and reversed everything I said. I believe he has a covert purpose. I’m pulling out the American delegation and I’m pulling out the Canadian delegation too. We cannot be a part of this travesty.”

Then I walked out, wondering what’s gonna happen! The Russian delegate came out laughing and said, “Ah! You’ve dominated the whole conference. You’ve made chaos out of it. You’ve embarrassed the CIA. This is fantastic. Here’s my card in New York.”

Later that evening I was told, “You know, they’re looking for you to beat you up.” Well as it happened an old girlfriend of mine was in a group who were in Mexico for an art exhibition. They were surrealist artists from Amherst, and they were also doing a surrealist ballet. So I went to the ballet with them and they said, “Look! The thugs are there.” So I hid out with them on the stage in their ballet. The goons were looking in the audience and I was on the stage and we were all just surrealistic. Nobody knew how to dance or anything, it was all just surrealistic. And they, you know, the goons all went home. I learned that if they can’t find you, they usually give up and leave you alone.

I went back to New York, but I realized that the debt issue was so controversial – the idea that debt couldn’t be paid. I spent about a year and I’d got through medieval period, Europe, World War One, and then even Greece and Rome. But then I found — it was about 1980, 1981, at that time I sold my house on the Lower Side and moved into a loft near Wall Street which was very low price there at that time, (I bought it for $20,000. Later I sold it for $580,000 but that’s another story), it shows you the real estate in New York, but at that time nobody wanted to live in lofts, and I wanted a big loft because I had a big library at that time and a lot of art that I wanted to keep.

So basically I stopped working. I realized that in the Bible there was the Jubilee Year and there were references to Sumer and Babylonia and that there was a background of the biblical debt cancellations, almost the same word for deror in Hebrew is andurarum in Babylonian. I found that there was all this material and that had never been written in anywhere outside of the field of assyriology. There was no economic history of the ancient Near East, no economic history of Sumer and Babylonia. It was all about religion and some culture, Gilgamesh and all that, but not what I was most interested in, which was the debt cancellations. So I wrote a draft of what I could find by 1984. And one of my friends was the Ice Age archaeologist Alex Marshak. Although he lived in New York, he was connected to Harvard’s Peabody Museum. He showed it to the head of the Peabody, Karl Lamberg-Karlovsky, who told me, “This is great! Nobody else is working on it.” He appointed me a fellow of the Peabody Museum in Babylonian economic archeology.

I thought, “This is wonderful, this is really what I want to do.” So I spent the next maybe three years writing the first draft of what became the book that’s being published in a few months, “… and forgive them their debts”: Credit and Redemption from Bronze Age Finance to the Jubilee Year. I submitted it to the University of California Press. They sent it to scholars to referee, who said that it was impossible that debts could be cancelled. Their argument was that if debts were cancelled, who would lend money? That’s what Rabbi Hillel argued in the Judaic tradition. I said, “Most debts were not the result of loans. Most debts were when the crops would fail and the cultivators could not pay the palace for the fees they’d run up, the rental fees for the land, the fees for the water, for the draught animals, or the beer lady for the beer that they’d drunk.

So every ruler, when they would take the throne in Sumer and Babylonia, for a thousand years, would start their rule by cancelling the debts with a clean slate, an amnesty. It’s the same amnesty of the kind that Egypt’s Rosetta Stone commemorates. Everybody knows that the Rosetta Stone has trilingual inscriptions of Greek, Egyptian and Coptic. But few know that it’s a fiscal debt cancellation.

That’s what we call cognitive dissonance, people can’t imagine that the debts were cancelled. I realized that this was very controversial, and so my Harvard colleague, Karl Lamberg-Karlovsky, suggested that we hold a series of meetings, and asked me to organize them. He said that we would hold a colloquium for each controversial chapter of my book. We decided to have a meeting every two years, and invite every major specialist from early Sumer, the Neo-Sumerian period, Babylonia, other Near Eastern realms, and Egypt. Their role was to collect everything they had on whatever the meetings’ topic would be.

Since I was in New York, I worked with the leading Hebraic linguist Baruch Levine at NYU. I needed someone who was respected in the linguistic field to invite people, because most Sumerologists, readers of cuneiform, stayed away from economics, because the mainstream economic idea of how society developed is as if Margaret Thatcher would have created civilization. How would she have done it, or Milton Friedman, or what we call vulgar Marxists who think that it was the idea that seemed plausible to Engels when he wrote The Origin of the Family, Private Property and the State. That’s not how early history actually occurred.

So the Sumerologists wouldn’t talk to economists. But because I was now an archaeologist with Harvard in the anthropology department, they agreed to come to the conference. The first meeting, in 1994, was on privatization in the ancient Near East and classical antiquity. Harvard published that. Two years later, we moved on to the second volume, which was on land use and real estate ownership: How did property ownership come into being.

Then, we had planned from the very beginning for the third colloquium volume. That was on debt and economic renewal in the ancient Near East. I asked for everything that people could find about debt cancellations. We found that these occurred all the way through the first millennium. Herodotus talked about debt cancellations in Babylonia. It was a tradition remaining in the Near East for new rulers taking the throne to cancel agrarian debts, to start their reign with the economy in balance. Already in Hammurabi’s time 1750 BC, scribes would calculate the growth of compound interest, and at that time it was 20% interest. This growth diagram is the same exponential chart that I’d drawn up in the savings banks in the 1960s to trace the growth of American debt. So they were quite aware of the fact that debts couldn’t be paid and that, if you insisted on them be paid, you would have debtors falling into bondage. So they freed the bond servants, or for debtors had sold their means of self-support, the land, they returned the land that had been sold under economic distress. The word “distress” means the collateral that you’ve pledged to a creditor. It’s an Irish term basically. So we published that volume. By that time I’d got the people Baruch and Karl and I had invited – the leaders of their fields – agreeing with my interpretation. We then followed it up with another meeting at the British Museum on the origins of money and accounting, and the idea that money was created not for barter, not for trade in goods and services, but to denominate debts. If a cultivator owed a debt, how did he get money?

So we did the history of money. Then, the one thing we hadn’t done finally was the origins of labor and what it was paid. That took ten years to complete, and we found that the origins of labor was organized basically in the palace economy, the palaces and temples. The main use of such organized labor from the Neolithic and Bronze Age to classical antiquity was to fight in the army and to work as corvée labor to build public infrastructure.

So how do you get a supply of labor? You assign it land tenure. Land rights were created to assign families enough to support themselves so that they could perform corvée labor and fight in the army. So taxes came first, then came land tenure, based on what labor you had to supply. Attempts to substitute someone to work on the corvée became the basis for paying labor.

So all of the payments came from what today would be called the public sector. That’s not really a very good term. It was really the palatial sector, the palace and the temples, as opposed to the community-based family on the land.

So we had a new analysis of the origins of property, not just individuals grabbing, as Engels had thought. Property was created by the public sector, by the palaces, as assignment of land as needed. How much land area is needed in order to supply the labor for the public infrastructure, corvée work and service in the army? This was the reverse of what’s taught in economic textbooks today, which is, as I said, how Margaret Thatcher and right-wingers and Donald Trump would have designed an economy if they went back in a time machine.

So after organizing and editing these five volumes, I’m now writing my own popular version, starting with a history of debt. Then will come Temples of Enterprise, a series of books on classical antiquity. I’m now following up with Greece and Rome. Throughout early Greece and Rome, the main fight was between creditors and debtors. Creditors ended up grabbing the land. The same fight occurred all the way down through the Byzantine Empire. The most divisive tension throughout history, from 3rd-millennium Sumer to 2nd-millennium Babylonia to the 9th and 10th century in the Byzantine Empire is between the palace wanting to collect taxes and have labor for the army, and creditors wanting this land and labor for themselves.

This way of getting the economic surplus is not the way that Marx described it as being obtained under capitalism, by employing labor to produce goods to sell at a profit. It was by debt and taking interest in ultimately foreclosing in land, which was the real objective.

In the 9th century there was a big fight against strong royal power. It was sort of like Donald Trump and the Tea Party Republicans are fighting against the state, like the privatization in the Soviet Union fighting against the state. The Byzantine emperor invited general Bardas to a big meal. The general said, “There’s only one thing that you should do if you want to end the warfare. You have to tax the wealthy families so that they don’t have any surplus at all. You have to give them so much burden that they can’t fight against you. You have to prevent the polarization of wealth, because if you let the private sector make an enormous amount of wealth, they’re going to try to fight against you and keep all the wealth for themselves that you and the palace are now getting.”

This idea was expressed all the way back in the 7th century 6th century BC with Thrasybulus and Periander of Corinth. When Thrasybulus took Periander’s herald to a field of grain and said, “Here’s what you should do.” The land was a field of grain and he took a scythe and he cut off the tops, to make all the grain of equal height. So Periander went back and exiled the wealthy families, seized their property.

There was probably a bit of fighting there, and that is basically the fight throughout history.

So that’s what I’ve been working on for the last 20 years.

Question: How did you take up the interest in Chinese economy?

Hudson: As Samir Amin said at the meeting yesterday, China is the economy that is trying to be the exception to the Western economic model. That model is forcing a choice between civilization and barbarism. The West is moving rapidly into economic barbarism and militarism. As you can see, the austerity program of the Euro is destroying the economy there. The United States is cutting taxes on the rich, while indebting the working class very highly. The one country that is independent and not taking the advice of the World Bank and the International Monetary Fund is China.

So we’re hoping to do what we can to make the Chinese economy successfully resistant. What that means is how is China going to handle its real estate, how is it going to handle its debt, how is it going to handle its tax system.

What I’m trying to do is what David Harvey was trying to do in the speech he gave yesterday: getting Chinese Marxists to read volume 2 and especially volume 3 of Capital, where Marx discusses the dynamics of finance.

Marxism is much more than volume 1 of Capital. You have to read volumes 2 and 3, and especially the elaboration that Marx wrote in the drafts that he left for volumes 2 and 3, his Theories of Surplus Value where he discusses the history of economic thought leading up to him. You realize how Marx was the last great economist in the classical tradition. He showed that capitalism itself is revolutionary, capitalism itself is driving forward, and of course he expected it to lead toward socialism, as indeed it seemed to be doing in the nineteenth century.

But it’s not working out that way. Everything changed in World War One. Afterward you had an anti-classical economics, which really was an anti-Marxist economics. The fight for marginalist theory, for Austrian theory, the fight for junk economics that we have today, is basically a fight against Marxism, because Marx showed the logical conclusion to which the Physiocrats, Adam Smith, John Stuart Mill, Ricardo and Malthus, the conclusion it was all leading was the synthesis that he made. It was later developed by people like Thorstein Veblen and Simon Patten in the United States. So I’m hoping that I can contribute what I can to help China’s economy to avoid the financialization process and dynamic that is destroying the West.

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of A Philosophy for a Fair Society (2022), The Destiny of Civilization (2022), …and forgive them their debts (2018), J is for Junk Economics (2017), Killing the Host (2015), The Bubble and Beyond (2012), Super Imperialism: The Economic Strategy of American Empire (1968 & 2003 & 3rd Edition 2021), Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (1992 & 2009) and The Myth of Aid (1971), amongst many others. He can be reached via his website Michael Hudson, mh@michael-hudson.com.

From the archives:

David Harvey: The Crises of Capitalism + The Contradictions of Capitalism

Abby Martin: Capitalism–America’s Unofficial Religion + Understanding Marxism and Socialism

Michael Hudson, Stephanie Kelton, et al: Why Monetary Theory and Policy Is a Critical Terrain For the Left (Left Forum 2018)

Socialism: Our Alternative To The Madness Of The Market by Eric Ruder

“Creating Wealth” through Debt: The West’s Finance-Capitalist Road by Michael Hudson

Chris Hedges: The Decline of the American Empire and The Rise of China

Socialism, Land and Banking: 2017 Compared to 1917 by Michael Hudson

Michael Hudson: Trumponomics + Dad’s Many Proverbs by Michael Hudson

How Bankers Became the Top Exploiters of the Economy by Michael Hudson