Finance Capitalism’s Self-Destructive Nature Archived Message Posted by Keith-264 on July 21, 2022, 10:38 am https://thesaker.is/finance-capitalisms-self-destructive-nature/ July 20, 2022 Posted with Michael Hudson’s permission Transcript of Interview on The Left Lens with Danny Haiphong May 25th, 2022 DANNY HAIPHONG: Good afternoon, everyone. Happy Wednesday, May 25th, welcome to the stream, to another left lens. Today we have a very special guest so as you’re coming in make sure you are liking the stream sharing it, make sure that you are subscribing to the channel and hitting that notifications bell, and as always you know please do support this work here at this channel and all the work that I do at patreon.com/dannyhaiphong. But with that said I want to introduce our guests because we have a lot to talk about over the next hour and it is economist Michael Hudson. He is the author of the new book, The Destiny of Civilization: Finance capitalism, Industrial Capitalism or Socialism and I’ll pull that up from his website very soon but I want to just say about Michael Hudson is that he’s been someone I’ve been following for quite some time. He has been making the rounds on various programs talking about political economy and he’s one of the foremost voices of understanding political economy today. Hi Michael, good to be with you thanks so much for joining us today MICHAEL HUDSON: Good to meet you, Danny. DANNY HAIPHONG: Very very good to meet you. So I’m going to pull up your new book in a second just on your website so people know where to go and I’ll make sure to link that in the chat so people know where to get it but I want to talk about first, so I mean we’re in an economic catastrophe in a lot of ways currently and there’s a lot of talk about, inflation and money, prices are skyrocketing, and one thing I really appreciate about your work is that you really do focus on political economy and you have been talking a lot about finance capital and something called super imperialism which you’ve written a book about and that has been updated several times even just last year so I wanted to get your take on the role of finance capital uh under this imperialist arrangement and in this time of the neo-liberal era in the united states and across much of the West in the world. What is finance capital’s role? It seems so dominant now, it seems like the dominant class at this moment that really does control the levers of economic development. Could you talk about what role it plays and how it has spurred the crises that we’re going through today and you could talk about inflation but I definitely want to just kick it to you there so our viewers can get an understanding of the economics and an analysis of this. MICHAEL HUDSON: Well, most people think of all kinds of capitalism as being the same and the assumption is that industrial capitalism of the nineteenth century somehow was always financialized because there were always banks but financial capitalism is you just pointed out is a political system and as a political system it’s very different from the industrial capitalism dynamic. In industrial capitalism, the whole aim or the hope of the industrial capitalists in the late nineteenth century, especially in Germany and central Europe was that banking would no longer be just usury, it wouldn’t be just consumer lending to exploit labor, and it wouldn’t be lending to the government somehow. The financial system would recycle the economy savings and money creation and credit into industrial production and would finance the means of production to make that productive instead of predatory and parasitic as it became and that seemed to be the way that industrial capitalism was evolving up until World War I. Everything changed after that all of a sudden you had the financial system take over as a result of the crisis caused in the 1920s by the German reparations debt that couldn’t be paid and the inter-ally debt that was insisted upon to repay the United States for the arms that have supplied Europe for a century into World War I. Well, the result was a huge depression. The allies said, well, we didn’t expect to actually have to pay the United States. If we have to pay the United States, then we have to charge reparations on Germany and for a decade there was a debate between John Maynard Keynes and Harold Moulton and others saying that these debts can’t be paid. How are you going to handle a situation where the debts can’t be paid? The finance capitalists then were the basically the ancestors of today’s neoliberals and they said any amount of debt can be paid by any country if it just lowers the living standards and squeezes labor enough and that’s what basically the philosophy of the IMF ever since world war II when third world countries can’t pay the debt, the IMF comes in with an austerity program and say you have to lower wages, you have to break up labor unions, if necessary you have to have a democracy, and you can’t have a democracy unless you’re willing to assassinate and arrest the labor leaders and the advocates of land redistribution because a democracy means basically rule by the financial sector centered in the united states. And so finance capitalism ever since WWI and especially WWII and especially since 1980 is the nationalistic doctrine of American banks and the American one percent, and the American financial sector that is sort of merged into a symbiotic unit with the finance insurance and real estate. In other words, finance capitalism instead of trying to promote overall economic growth for the 99 percent, instead of financing the industrialization of an economy with rising productivity and rising living standards, is now cannibalizing the industrial sector, cannibalizing the corporate sector. As you’re seeing in the U.S., finance capitalism is the economic doctrine of deindustrialization that has occurred in America in England and is now occurring in Europe. Well, the problem is how do you survive if you’re not industrializing, if you’re not producing your own means of subsistence and how are you going to get this from other countries? Well, the answer is you don’t go to war with them like countries used to go to war with each other to grab their money and their land, you use finance as the new means of war so finance capitalism is the tactic of economic warfare by the United States against Europe and the global south to sort of draw all of the economic surplus of these countries in the form of debt service and the debt service is supplied by basically economic rent seeking from land rent, natural resource rent, and just plain interest charges on economy. So, none of these are really the result of industrial profits that are made by employing labor and uh selling its products at a markup. Finance capitalism is not based on surplus value like industrial capitalism was. In fact, it destroys industry and in this cannibalizing of industrial capital, it basically dries out the economy and makes it unable to break even or even to function and in the United States today, for instance, if you look at the balance sheets of corporate revenue much of it is spent on stock buybacks. You buy back your own stock or dividend payouts. Only eight percent of corporate earnings are spent on new capital investment research and development: factories, machinery, and means of production to employ labor. How did General Electric (GE) go broke? Basically, Jack Welch said let’s use our income not to continue to invest in making more electronic goods and services and appliances, let’s use it to buy our own stock that’ll push up our stock and essentially, we’ll just sell off our divisions and we’ll use the money of selling off our washing machine companies and stoves and sell it off and we’ll just pay it to the stockholders. That’ll push it up and by the way his salary was based on how much he could push up the stock of GE and he was paid in the form of stock options. Well, all of this is now the normal corporate behavior in the United States and corporations are no longer led by industrial engineers as they were a few centuries ago in the nineteenth and twentieth century. They’re led by financial engineers of the chief financial officer and the ideal of these corporations is to make money financially not by industrial investment….. so on the narrow microeconomic level finance capitalism is a way of basically selling out a company and giving the proceeds to the stockholders and the bondholders but as a political system, because it is so destructive of the economy as you’ve seen in the United States and you’ve seen in Britain through de-industrializing it, it becomes belligerent in an attempt to make other countries just as equally paralyzed by making these countries pay tribute to the U.S. and England and the financialized economies by means of financial engineering, by means of debt service, by means of selling their mineral resources, their public utilities, their land, their roads all to foreign investors–basically to who borrows the money that’s just simply created in the U.S. and to save all of their money in their central bank reserves in the forms of loans to the U.S. treasury holding treasury bonds which is how the international monetary system worked until just a few months ago when everything changed. So if you’re England and America right now you can look at President Biden’s speeches and he said well, China is our number one enemy because it’s competing unfairly. China is actually subsidizing industrial development by having its own infrastructure. It gives free education instead of privatizing education and making its labor pay for it. It has public health instead of privatizing social medicine like we do in the United States and making employers and workers pay for it. Well, industrial capitalism in the nineteenth century was all in favor of strong government infrastructure. The ideal of industrial capitalism was to keep the wage costs of production down not by reducing wages but having government provide a basic infrastructure to cover the basic needs of employees. The governments would provide free education so that employers didn’t have to pay for it. The governments would provide medical care so that employees didn’t have to pay for it and employers wouldn’t have to pay employees enough money to cover the education costs and to cover the medical care costs. The government would build roads and infrastructure and everything to facilitate the overall cost of doing business by industrial capital. Well finance capitalism is just the reverse. Finance capitalism wants to privatize and take education, medical care, roads, turn the roads into toll roads, and take all of these and privatize them and make them financial corporations that will essentially pay out their economic rent to the bondholders and the stockholders and this economic rent adds to the cost of education and everything else that workers need to live on so the result is to make it a high cost economy and that’s why Biden has said China and Russia are America’s enemies because the only way that America can succeed given our privatized economy, given the fact that Americans have to pay up to forty three percent of their income for rent, given the fact that eighteen percent of America’s GDP is for medical care, given the heavy student loan debt–only if other countries tie themselves in the same knot, only if other countries impose the same economic overhead on their labor force and on their industry can there be equal competition. If other countries have a mixed economy and are more efficient because they have an active government providing basic needs, that’s “autocracy” and that’s the opposite of “democracy.” Democracy is where everything is privatized and ultimately the one percent own everything. Autocracy is any government that’s strong enough to have its own public investment. Any government strong enough to tax or regulate the financial sector is called “autocracy” so the U.S. in the 19th century would be called an autocracy as I guess the Austrian school called it – civilization is basically an “autocracy.” There never has been an unmixed economy without government regulation, without a government investment, although Rome began to get to that point at the end of its empire and we all know what happened to it. So basically, finance capitalism is a predatory international economic policy aimed at draining the rest of the world all to pay the leading one percent of wealth holders in the U.S. and their satellite oligarchy in England and a few European countries. DANNY HAIPHONG: Well, I mean that was an incredible summary with so much in there. I mean what you describe reminds me of what we have called at Black Agenda Report, this Great Race to the Bottom, like that is what finance capital facilitates because it’s you know there’s a lot of talk about outsourcing and production going from the U.S. and the West to other places, the global south, poor countries, oppressed nations, and all of it is underwritten by finance capital because it’s this international monetary system that you describe which is actually plundering the Global South for super profits and also plundering the United States and the West’s economic base for super profits. So it’s like the super profits come rolling in from all sides and oftentimes the jingoists and the chauvinists will frame things as oh well China is taking our jobs. They rarely say Bangladesh or some other country that is actually being super exploited. So in many ways it’s framed like that to distract us from everything that you described. The fact that this class and this policy are plundering from all sides. MICHAEL HUDSON: Well, you use the word super profit and, in a way, what is super profit? Super profit is what the classical economists called economic rent. It’s over and above profit. Profits are made by employing labor and basically that’s not how most wealth is created in today’s world. A financialized economy sees wealth is not created by making profits by investing in factories and plant and equipment and employing labor to make a profit, it’s made on getting a third world country, a global south country in debt and saying well if you can’t pay the debt yeah that we’ve given you then you have to sell off your raw materials, your land, all of your natural monopolies and the way to make money in finance capitalism is to buy up the monopolies and the whole idea of industrial capitalism was to get rid of economic rent. The main aim was to get rid of the landlord class that was the carryover from feudalism, the warrior warlords that had conquered England and France and other countries. Land was to be brought into the public domain. That was the first item in the communist manifesto. You tax the land rent and then nationalize and socialize the land. The idea was to get rid of monopoly rent because monopoly rent is unearned income and to get rid and essentially to get rid of financial rent of interest that is just made as John Stewart Mill said and you ‘make it in the sleep’ if you’re a bond holder or a landlord. You get the rents not from playing any productive service at all but making this money in the sleep and so that has nothing to do with profits. Unfortunately, the national income accounts don’t label economic rent as a distinct category they call any income that someone makes whether it’s a Goldman Sachs and Citibank or GE or any country and call it earnings and the theory is that everybody earns what they make but that wasn’t the idea of industrial capitalism. The idea of industrial capitalism is from the physiocrats and Adam Smith and John Stewart Mill and Marx was that earnings were something that was actually made productively with money by employing labor to produce a surplus that would be reinvested but economic rent was unearned and that’s why natural monopolies should all be kept in the public domain instead of being available to be monopolized. So, like in America when Indiana ran into trouble it privatized and sold out the roads to be made into a toll road and now almost everybody avoids the toll roads and drives on the side roads. When Chicago had problems paying its local debt, they sold the rights to the sidewalk and parking meters causing vast increases in the cost of living and doing business if you live in downtown Chicago where you have to park a car. So the ideal of industrial capitalism was I guess what Schumpeter called creative destruction by lowering the cost of production the way that a country would, an industrial country would win out in the world market, first England then the United States, Germany, Japan, and the way that they went out was by underselling competitors. But finance capitalism adds as much as it can to the cost of production. It adds as much as it can to the cost of living because instead of treating education and healthcare and transportation as a public right, a natural human right, it’s all privatized by the one percent. DANNY HAIPHONG: Yeah, I mean it’s so true. Even in the Communist Manifesto there’s a section where Marx outlines the very idea of what socialism would look like and in it, it’s explicit how socialism will begin with the commanding heights of the economy, as you said these natural monopolies, they were going to be public owned like that’s the only way that you can have anything remotely socialist and now we’ve gotten to the point where finance capital has usurped them, has completely privatized them or is attempting to with whatever is left of the public domain, the public sector so to speak globally. And you bring up this really interesting point about the cost of everything going up, especially the cost of production. I mean that’s just seen in how a lot of these big corporations have enormous amounts of debt now, corporate debt is at this astronomical level and you think well, look at all these super profits they’re making, look at all these huge profits they’re making. We always hear about all these corporations making these huge profits but we rarely hear about all the debt that these corporations are accumulating because of finance capital and so it’s really incredible. I love talking about this because it’s these things that we don’t hear about because finance capital really is writing the rules and they have such undue influence over the media and over so many things. So I wanted to ask though about China so let’s just jump there because I want to ask you a question because I recently got into a debate with this, I don’t even know if I want to call a journalist but he’s a commentator, Matt Stoller. He’s very anti-China and this is a talking point especially on the far right but I would say that a lot of people think this, a lot of people think China and Wall Street are merged together, that they work together to undermine workers across the world especially in the capitalist epicenters, of the finance capitalist epicenters so to speak, U.S. and the Western countries. Could you talk about China and its monetary system? You mentioned it briefly about why the U.S. is so hostile right now, why Biden can’t stop talking about competition and autocracy versus democracy. You talk about the differences in the monetary systems and how China treats finance because I think this is not really well understood and it has global implications. I think it has huge implications because I think there’s a general shift in a direction of how we address this flailing dollar-led economy, the global economy of imperialism and China is really at the center of this so could you speak on this if you would? MICHAEL HUDSON: Well, what gets Americans so upset is that China’s getting rich by doing exactly what the United States did in the 19th century. I’ve written a book America’s protectionist takeoff where I described the whole idea of American protectionism was tariff protection for its industry, government subsidized research and development, government subsidy of industry by having infrastructure as a fourth factor of production alongside land labor and capital – and it was supposed to have public banking. So basically China, like the United States, said we want to raise the living standards of labor not because of an abstract ideal but because highly paid labor is more efficient labor, a highly paid labor is more educated, it’s better fed, it’s healthier and the Americans in the nineteenth century pointed out that America was the highest paid labor in the world but it was also the most productive and high paid labor outsold pauper labor. Well China began under Mao with, you’d look at pictures back in the fifties, and even early sixties and you’d see masses of beggars and I’d look at the pictures and I said how on earth are they going to solve this problem? Well, they actually did it and China realized that in order to survive in the modern world you had to have uh well-paid, well-housed, well-fed, well-educated labor and they’ve done it. The difference is that America had kept money creation in the hands of the treasury ever since the greenbacks in America’s Civil War. Basically, the government created money but in 1913, JP Morgan and the financial sector got together and they said we’ve got to get the government out of money and credit. If we can control money and credit, we can control the economy so they convinced President Wilson to have the Federal Reserve. They said we’re not even going to let a treasury official be on the Federal Reserve. We’re going to move the Federal Reserve banks out of Washington. We’re going to have the key bank in New York where Wall Street is the ideal of a Federal Reserve to make a centrally planned economy and America is a much more centralized planned economy than China but its centralized planning is on Wall Street by the financial sector, by the leading financial corporations instead of the government. So, where America took economic forward planning out of the hands of the government in 1913, China has kept the financial system in the hands of the government. Let’s look at how these two countries create money in a different way since the Obama depression began in 2008. The Federal Reserve has created a tidal wave of credit, all into the stock market, in the bond market, all of this recent zero interest policy. This flood, these nine trillion dollars of federal reserve credit has only been to support banks, real estate prices, bond and stock prices, to support property prices. That’s not what they do in China, although the prosperity that China has created has increased uh housing prices and there has been private credit increasing housing prices. China has kept money creation in the hands of the government itself so that when the government creates money it can finance the creation of factories plant and equipment, dams, transportation infrastructure, public housing. It doesn’t create money to lend to financial speculators and stockholders to increase their holdings, it creates actual tangible means of production. Now of course, if you create tangible means of production and employ labor and have high speed railroads and research laboratories, you’re going to overtake countries that are busy closing down the factories and cutting back research and development because they want quick payouts. So the chief public utility to be kept in the public domain, (China realizes and has realized from the beginning) is the banking system and credit creation even so there’s still private credit creation to some extent. They’ve also let some participation by American Wall Street firms such as Goldman Sachs because it’s hoped, it wants to avoid war and it hopes that it can by providing opportunities for financial profit to American companies that will somehow uh convince Wall Street to resist the Biden administration’s race hatred of China and the attempt to move towards a new war against China. Obviously, the assumption that China made that seemed rational at the time was well the American economy is run by Wall street so if we can have Wall Street say we’re doing just fine with China, everything’s going to be okay. But Wall Street and the Federal Reserve bank and the treasury have not even been consulted on this year’s war, NATO’s war with Russia in Ukraine at all. It’s Blinken and Biden and the neocons basically are waging a war that has sidelined finance and the result is to create the present crash in stock market prices and the parallel decline in bond prices. So, finance capitalism is intrinsically self-destructive whereas industrial capitalism is self-expansive. Finance capitalism is self-destructive and that’s exactly what’s happening today and that’s what China wants to avoid by basically following the logic of what used to be called industrial capitalism. By the 19th century, everybody used the word socialism and it wasn’t only the Marxists that were using the word socialism. There were Christian socialists, libertarian socialists, anarchist socialists and all different kinds of socialists. They recognized that you have to have the government sponsorship of a balanced and fair economic development. You have to prevent people from getting rich not by providing any productive service at all but just by being good rip-off artists and that’s basically what finance capitalism is: opportunity for rip-off artists to get rich uh by taking money away from the 99 percent, into their own hands. DANNY HAIPHONG: Yeah, and that’s exactly what has happened and we’ve seen the differing results between China and the United States since that crash. China was able to sustain growth despite the worldwide economic crisis. As you said, living standards still rose. I think wages were going up something like seven to ten percent every year after the financial crisis and a lot of that was because of investment in jobs. I’ve spoken to people in China and they say well in China if you go work for a factory, wages tend to rise and actually workers want to go there and sometimes they don’t want to leave even though China is trying to move more into the high-tech sector and the service sector. A lot of people want to stay in the factory jobs because it’s paying and it has some of these benefits and subsidies that are very alien here now. I tell people there’s a housing allowance and they’re like what’s that? Like how could you say that? It’s China! China’s horrible! It’s like, well, you know factory workers have a housing allowance. How are you going to reproduce labor? We look at Marx and China’s very big on Marx. Look at what Marx was saying you got to reproduce the worker, you got to make sure that the worker has what they need, like that’s the bare minimum of what any economy should do but that’s what capitalism was originally supposed to do. You reproduce the worker so you can extract the surplus. Finance capital is a great race to the bottom that workers oftentimes are not reproducing themselves. There’s a huge crisis of life expectancy and all sorts of things that didn’t used to be characteristic of capitalism. Standards used to rise as capitalism developed more advanced productive forces. You mentioned this current crisis of the dollar and finance capital kind of being sidelined in the Ukraine crisis. I find this very interesting because finance capital is so hegemonic and it has so much influence over Washington and Europe but what you’re saying is very true because and we just see it that there’s just a catastrophe. There’s this huge inflation and there’s the crisis of the dollar like what’s happening here? How come it seems that the further and further the United States gets into this proxy war with Russia over Ukraine, the more and more it deepens its involvement, and it’s been a long involvement, it’s not just since February, but ever since this period we’ve seen just this impending economic collapse. So, what’s happening here? Why is it that finance capital is sidelined and how do you see this going with the Ukraine crisis especially around the dollar? MICHAEL HUDSON: What do you mean by crisis of the dollar? DANNY HAIPHONG: Well, it seems like what the United States is trying to impose its hegemony through its foreign sanctions, is having this blowback effect where now you have countries seeking alternatives to the dollar and the U.S. seems to be more economically vulnerable even though it’s expanding and trying to dominate. It’s this very strange contradiction that feels very unstable and it feels like the dollar is artificially inflating itself as it is also dealing with the fact that there is no end game here in Ukraine. It seems like messing with a big country like Russia and its relationship to Europe is moving us toward economic catastrophe, an economic crisis if there’s not already one underfoot. MICHAEL HUDSON: No that’s not what’s happening with the dollar at all. People with all of the emphasis on America’s war against Russia to try to break it away from China before going to war with China, the first thing that America wanted to do was to lock in its control over Europe because that’s the easiest way to get things is you want to take over the richest economies in the world and lock them into the United States and that means taking over the Eurozone, England and Japan. And the dollar has been soaring against these currencies. To put it another way, the Euro has been plunging toward one dollar per Euro. The pound sterling has been plunging to one dollar per sterling. The Japanese yen has been plunging even more so there’s a huge movement to safety into the dollar. The Americans have successfully destroyed the basis of European industry. They’ve finally beaten Germany. They’ve left Germany without energy and GDP in any country compared to energy per worker and basically the productivity that makes goods is basically embodied energy and Europe has been getting its energy from Russia in the form of gas and oil. Well, the United States has asked Europe to commit economic suicide basically by saying, “don’t buy Russian gas, wait three or four years, spend five billion dollars on building new ports so that you can import American liquefied natural gas at seven or eight times the price and meanwhile let your chemical industry, your car industry, your basic industries go bankrupt. Take it on the chin for America and Europe said, “okay not Europe but the politicians that America have meddled in European politics to promote to sign on the dotted line for treaties” made that decision so even if the Europeans don’t want to commit suicide, America has its proxy politicians in its Tony Blairs, in the head of the social Democratic Party in the advocates of pollution and global warming at the head of the Green Party. Ctd.... Message Thread: Finance Capitalism’s Self-Destructive Nature - Keith-264 July 21, 2022, 10:38 am Re: Finance Capitalism’s Self-Destructive Nature part 2 - Keith-264 July 21, 2022, 10:41 am   Searching