Watching the World Divide in Half

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Hudson Patreon Q&A 2023Q4 – Dec 8

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KARL FITZGERALD: All right, well let’s get into it. Okay. Welcome everyone to our final Q&A session for 2023. Always good to be with you. My name is Karl Fitzgerald, I am an economist and Michael’s webmaster of about 14 years now so always good to have our patreons here. And just so good to be with the prolific Michael Hudson, who has yet another book coming up. I hope everyone’s speed reading skills are improving, because they’re just coming out one after the other, Michael.

MICHAEL HUDSON: “The Temples of Enterprise.” It’s all of my academic essays on the origins of money in the ancient Near East, the origins of interest rates, and especially the origin of land tenure and cities. This is how the first land tenure,— 

[For instance,] it was taxes that created land rights, not the taxes that intruded into land rights. Everybody was assigned land according to how much tax they could pay to support the army, to support themselves, working on infrastructure and corveé labor, and then money was created in order to pay the tax, what you owed in the tax debts.

So money was created essentially to pay the public sector, not individuals bartering, going to the market and bartering what they did. Money was only used part of the year at harvest time to pay all the debts, all the early economies, Stone Age through medieval Europe, operated on credit.

You’d only use money when you’d harvest the crops and then money would just be used to settle what everybody owed everybody else for, during the year, and what they owed in taxes and to pay the church.

KARL FITZGERALD: Yes, tax as the base of the point of validity for credit and money creation is something we need to be reminded of. Just another reminder to patrons here to put your questions in the Q&A section.

And Michael as we start from that point, I wanted to start the discussion off today, looking at one of the many incredible but hidden economists that not too many people know about, and that is Michael Flürscheim (1844-1912). How does his understanding of money and the commercial exchange systems he set up relate to this importance of having some credibility behind the money?

MICHAEL HUDSON: Well, Flürscheim actually is a great, great economist of the late 19th century, who nobody’s heard of. He was a German iron maker, a manufacturer, who moved to America, and then was intrigued about land rent and the land tax. He became a very close associate of Henry George (1839-1897). Henry George as you know was such a loner, such a narcissist, that he really needed a manager, and so Flürscheim tried to bring him to Europe and spread the idea of a land tax. But Henry George was afraid to go out of his room very much and [was] very shy, and it was all sort of a disaster.

So Flürscheim came back to America and actually became the most logical economist explaining the tax system and the land tax. But there was one problem, and he said that Henry George and the followers of George said that a land tax will cure everything. Bad weather, a land tax will cure it. He watched George run for mayor of New York, and George was run as a celebrity candidate by the labor unions and by the socialists, thinking, well, if anybody wants to tax the railroads and get rid of the railroads as landlords, tax the landlords, that sounds like socialism to me.

But Henry George said, well, now that I’m running for New York, I’m going to throw out your program. I hate socialists. I hate Karl Marx. I’m a libertarian, and all you need is a land tax. You don’t need consumer rights. You don’t need renter’s rights. You don’t need pro-labor things. All you need is a land tax. And, of course, everybody thought, well, this guy’s going crazy. 

So what Flürscheim said was, well, behind all of this takeover of land and real estate, there’s finance. And Flürscheim wrote a book called “[Clue to] The Economic Labyrinth” (1902) that was published in Perth, Australia. He came to Australia. He gave up with America. Because the Americans and essentially the Henry Georgists were such unpleasant sectarian people that the socialists stopped talking about land taxation. They said, okay, we’re going to leave the land tax to the nut crowd, and we’re going to talk about labor-capital relations and workers’ relations and labor unionization. 

Henry George hated labor unions. He said that that was a monopoly. He backed the banks. And Flürscheim said, but it’s the banks that are backing the landlords. It’s the banks that are turning land speculation into a financial game.

Of course, Thorstein Veblen (1857-1929) described all of this in his wonderful book “Absentee ownership [and business enterprise in recent times: the case of America]” (1924).

Well, what Flürscheim did was say [that] the real problem of rent collection is money. It’s compound interest. 

And back in the 1960s, when I used to go around bookstores, there were still a lot of antiquarian book dealers in New York. And I’d look for books by people who I’d never heard of. And it’s a grand bookstore, and these economic specialist dealers like Sam Ambaras or Gus Kelly or Sidney Millman. I think it was Sidney Millman’s in Brooklyn that I found this book, “Clue to the Economic Labyrinth”. And I bought it, and I thought, I read it, and I’m just absolutely flabbergasted at what a wonderful book it was. I discussed Michael Flürscheim in my book, “Killing the Host” (2015), where I discussed compound interest.

But Flürscheim said, if you don’t deal with the tendency of debt to grow exponentially, much faster than the economy, then this is the most serious problem. And Leo Tolstoy (1828-1910) in Russia came to exactly the same conclusion. He said, well, he was a supporter of Henry George. He was all a supporter of the Land Pact. But he said, if we don’t deal with the financial problem of privatized credit and interest-bearing debt, that’s just going to swamp the whole economy, too. And he wrote quite a bit about that.

And what happened is, together, they were describing a symbiosis between finance and real estate into what we now call the FIRE sector, finance, insurance, and real estate. And that was exactly the part of the economy that the anti-classical reaction stopped talking about. And it was Flürscheim, more than anyone else, that tied everything together. And he became really the promoter of the idea of land taxation in Australia, and at the same time was trying to push for the fact that money is a public utility. Banking should be a public utility, just like communication is a natural monopoly that should be a public utility. And public health, education, he wanted all that to be. But obviously, the power of England sort of overwhelmed Australia, and they backed the banking, as you know. And Australia ended up in the same position of most of the other countries. 

But Flürscheim wrote a whole series of books on economics, and he’s just one of the great economists of the late 19th century that really, they’ve been written out of the history books. The economic history is very much like the Hollywood star system. You know all the stars, but you sort of ignore everybody who’s not a star. Same thing in music. There are a lot of really good musicians around, but people somehow only want to go and hear the very top people. But there are other people. 

For instance, I was asked to write an introduction to another German, Heinrich Scherz, who was really the first economic anthropologist. And he wrote a book on the origins of money in tribal indigenous societies. And he was dealing mainly with the German colonies in Africa and in the South Pacific, and talked about essentially the origins of money and how the origins of money began in anthropological tribes as part of the credit system, a part of the mutual support.

But most of the money in primitive tribes is personal adornment. They’re seashells to wear as necklaces. They’re forms of money that you can wear. They’re for conspicuous consumption. They’re not the kind of thing you would barter at the market for between shoes and just going to the marketplace. 

But when money came in, he said, this foreign money is very different from domestic money and international money. The kind of money that you get in foreign trade breaks down all of the domestic protection that you have, and economies begin to polarize. And so here you have, he was very well known in Germany as an anthropologist, but not many people anymore read German. His book’s being translated into English and published in February, and I’ve written the introduction to it. 

You see a whole flowering of economic thought that occurred in the 19th century leading up to World War I, and the whole world was going in such a positive direction. And then World War I interrupted the whole momentum. People stopped talking about socialism. They stopped talking about public infrastructure. They stopped talking about land and finance, and everything became a trade and goods that people exchanged— “exchange theory”. “Price theory” was: no concept of unearned income, no concept of money, wealth being different from actual, tangible capital formation. 

Economics really has gone downhill ever since World War I, and so I’m trying to popularize what classical political economy really was becoming in the 19th century. Way beyond— in addition to Marx, there were many other great people, and they’ve all been pretty much ignored. So Flürscheim and Scherz are just two of the people who were really pretty great.

KARL FITZGERALD: Yes, well, let’s make sure we get the “Clue to The Economic Labyrinth” on your website, because you can find that PDF online. Excellent, excellent book [incredibly poetic writing too].

And Matthew Connors mentions, you talked about Sidney Millman. Was he any relation to Seymour [Melman]? 

MICHAEL HUDSON: No, [Sidney] M-I-L-L-M-A-N, and he later moved to Chicago. Seymour Melman was one of the three Columbia Group. I wasn’t at Columbia, although I took courses there. Seymour Melman, Terence McCarthy, and myself were the three economists called the Columbia Group, going over how the Vietnam, opposing the Vietnam War, and showing how the cost of the Vietnam War was going to distort and ultimately drive the United States economy off gold in the 1960s. And we went around New York, and really around the country, giving speeches. We were essentially the anti-Robert McNamara group.

When McNamara would come out with statements about the economy, it was Seymour Melman who talked about guns and butter, that you can’t have both. And it was Melman who developed the idea of “Pentagon capitalism” [as in his book “Pentagon capitalism: the political economy of war” (1970)].

[In] “industrial capitalism”, you’re supposed to succeed by cutting costs and underselling your rivals, and your country is supposed to promote cutting costs, so that America, in principle, won in the 19th century by underselling Britain, Germany, and other countries, largely because it had public utility, the public sector picking up many of the costs that private people had to pay in Europe.

Well, Melman talked about, he said, Pentagon capitalism is the opposite. The Pentagon contracts— (and this is why they’re making so much money today. This is why there’s so much money to finance the war in Ukraine and in the Near East). 

Pentagon capitalism is “cost plus”. In other words, the military industrial sector will agree to produce aircraft, or submarines, or guns, or toilet seats at cost, and they’ll add 10%. So the idea, if you’re a military industrial producer and making toilet seats that you can get for $20 at the local hardware store, there was a big scandal in the Pentagon when they paid $250 for the same toilet seat, because that enables the military firm to make a $25 profit at its guaranteed profit. 

So this is engineered across the board. The idea of making the F-16 airplane was to over-engineer it. What is the most expensive way that we can make every element of the aircraft, every element of the submarine? Because the more expensive it costs to make an aircraft or a submarine, or the kind of tanks that are sinking into the ground now in Ukraine, now that it’s the rainy season and the heavy American tanks are just going right into the mud, well, you just make them as expensive as you can. And that’s why Russia and other countries are able to do so much more with one-tenth of the budget for arms that the United States spends and charges its European satellites for when it forces the Europeans or Australia to buy this over-engineered American submarine instead of, say, the French submarine. I guess it’s in your news recently. 

So, yes, anyway, that’s Seymour Melman, bringing back fond memories. He was teaching at the Harvey Mudd School of Industrial Engineering at Columbia, and so was Terence McCarthy. And I took all of Terence’s courses there, because he was my mentor. And this Columbia Group, really, we were going to churches and giving talks. We were on the radio a lot. That was really the only economic opposition there was to the war. Most of the opposition just said it’s wrong to kill a whole country. It’s wrong to do what Kissinger is doing. But they weren’t saying this is economically wrong. 

And I remember at Chase, Manhattan, when there was an argument between David Rockefeller, the incoming CEO of Chase, and George Champion, his predecessor. And George Champion said in the early 1960s, that the Vietnam War was fiscally irresponsible. We shouldn’t do it. And David Rockefeller’s economist, my boss, John Deaver, said, well, but that’s the “merchants of death” argument, saying that you’re going to decide whether or not to fight a war, according to how much it benefits the economy. And he said, so you shouldn’t argue that it’s bad for the economy, because if the war fight is right, then we should go and kill them all and do it because it’s the right thing to do, not shy away from bombing Vietnam and Laos and Cambodia, because it’s bad economics. 

Well, right now you have Biden making sort of the merchants of death argument. Biden says, look at how many military industrial producers there are in every small town of America. He went to Pennsylvania and said, look at Pennsylvania here. Your people are making guns. You’re making parts of the tanks. The war is good business for you. And Biden, in speech after speech recently, has been saying, war is good for economy. That’s what’s supporting our employment. If we didn’t have a war, we wouldn’t have so much employment. So give us more money for Ukraine, because all that money is really paid to the military industrial complex, meaning to you, the American working man, to be employed making these weapons to kill other people. So if it makes money for higher wages and for profits, that’s all the justification we need for war. Forget the moral issue. 

And in today’s Wall Street Journal, you had the former president of Harvard come out and saying, universities should stop teaching philosophy. If you teach philosophy, you’re going to do things like oppose the war in Israel. You’ll support the Palestinians. And look at all these campus protests. They’re all because students are studying philosophy and the humanities. We’ve got to stop them from being taught in the American curriculum. That’s the top of the editorial page of the Wall Street Journal today on December 7th. It’s just amazing. 

Maybe I should post that on the Patreon group, just because it’s so unbelievable that the former president of Harvard, the nephew of the awful economist, Paul Samuelson, should come out with this kind of garbage. I mean, this is the economics and this is the politics of fascism. 

KARL FITZGERALD: It is. And Diana DiRienzo says, USA motto for the last 60 years, plenty of money for war, no money to help the poor. And Michael, here in Australia… 

MICHAEL HUDSON: And Biden says, making war will help the poor. Yes. That’s what it is. 

KARL FITZGERALD: Well, what a monopoly market the military-industrial complex have. And I noticed John Cardaman mentioned in America, and of course, I’m not across this, but government spending, public spending is 40% of GDP. Is it really that high, Michael? Australia, we’ve got a limit of around about 24%. 

MICHAEL HUDSON: It costs a lot of money to bail out insolvent banks. It costs a lot of money to wage war. It costs a lot of money to pay off the Ukrainian kleptocracy. They’ve given $300 billion, I think, to the Ukrainian kleptocrats just to steal. And put offshore. So if you take the Cold War spending that America has, more than all the other nations put together, all that’s part of GDP. And also, we’ve had a lot of hurricanes here, that pushes up GDP. And the government has to spend for that. 

Government spending on interest is now going to go way, way up. The government was spending 0.1% on its federal debt, and it’s now issuing 10- and 30-year bonds at 5%. Two weeks ago, it was 5%. Now, it’s down to 4.3%. But all of a sudden, you’re having this huge government debt, and it’s going to be huge interest payments. You can just imagine why the government is so great. This government spending is not really on GDP that produces goods and services. It’s creating financial wealth. It’s paid basically to the upper 10% of the population and to the financial sector and the military sector. That’s not really what most people think of when they think of GDP, but that’s what it is in America. 

KARL FITZGERALD: The crowding out of private sector investment in productive areas must be immense if government spending is so high. No wonder inflation has such a tendency. 

MICHAEL HUDSON: No, it’s not crowding out. It’s tearing it down. You’re not crowding out factories. Let’s fire all the workers, sell the machinery, and let’s turn the factory into gentrified housing. 

New York City used to be a manufacturing city until maybe the 1940s. In the 20s, 30s, 40s, and 50s, it was. When I came to New York in the 1960s, there was still a cheese and dairy section in lower Manhattan, in NoHo, in Tribeca. All of this production has been replaced by a real estate promotion project. You’ve turned the whole economy from an industrial economy into a real estate promotion project that has really been organized by the financial sector. 

My friend, the late Bob Fitch, wrote a wonderful book, “The Assassination of New York”, showing how the real estate lobbyists ended up de-industrializing New York City as a model for de-industrializing the whole American economy. It’s a great book, “The Assassination of New York”. It was Bob Fitch, who I’d known since the 1960s, that convinced me to pay more attention to the FIRE sector and to real estate 50 years ago. 

KARL FITZGERALD: Another one of these books we’ll put on our reading list. Don Burns asks,— 

DON BURNS: where in the FIRE sector do lawyers fall into? 

MICHAEL HUDSON: Mainly in the financial sector, but also real estate. 

For instance, Donald Trump made his money by cheating people. He would promise to pay labor or to pay, let’s say, somebody was going to send him 30 pianos for one of his gambling projects. They borrow the money from the bank, produce the piano, sell to them. Then Trump would say, well, you know, I really don’t like them. I’m only going to pay you 50%. That was an answer to everything. I’m only going to pay you 50%. 

In America, it costs about $50,000 to bring a lawsuit against somebody. The lawsuits usually take three to five years to work out. The judges are appointed by the banks and the real estate contributors to their election campaigns. It’s the FIRE sector that determines who the judges are going to be. In essence, the lawyers are an extension of the banking, financial, and real estate sector who appoint them. It’s so expensive. 

That was there in a way from the very beginning of the United States, before it was the United States. Back in the colonies of the United States, you had British moneylenders coming to New England and the South. They would look at farmland they wanted. They would make a loan to a farmer who had some piece of land they wanted. 

At that time, in the 18th century, you could call in a loan at any time you wanted. They would call in a loan just before harvest time. Of course, the farmer couldn’t pay because he hadn’t done the crops yet. They would try to take over the land. The colonies, and this became U.S. law, did something in America that was very different from every other country. In America, each side has to pay for the plaintiff and the defender. They have to pay for their own lawyers.

So, if one of the victims of Donald Trump said, look, this man cheated me. He only paid half of what he owes me. It’s been three years. It’s overdue. He still has to pay his own lawyer. As under European law, and the law of most other countries, if you win a case against a crook, the crook has to pay your legal costs. That’s not the case in America. If you’re a crook, you want a lawyer up, as we say in America. The crooks are all lawyered up. The crooks are the FIRE sector. The crooks are the banks, the landlords, and the monopolists. It’s very hard to get any kind of economic justice. 

For instance, when I was buying my loft on Murray Street in Tribeca, this goes back almost 50 years ago, a lawyer tried to cheat us and bought the building for himself. We agreed to buy a building. The lawyer took the money and bought it in his own name. When we went to court, the lawyer and the judge all of a sudden began talking Hebrew. The judge, needless to say, postponed it. Then I had an English-speaking judge. The lawyer for the real estate firm, Scanlon Arts, said, I have another appointment. I have to go immediately. I said, no, I can’t do it now. He wanted to get back to the Hebrew-speaking judge where they talked again. It just went on and on and on. The landlord-tenant court in New York is notorious, to make a long story short. 

KARL FITZGERALD: Well, we’ve talked a bit about some of the unknown economists of yesteryear. This question from Steve M gets me excited because we can talk about Matt Stoller, one of the current-day economists. I hope everyone’s following on his Substack page. He’s also got a Patreon, I think, as well. Matt Stoller, releasing all sorts of incredible- Stoller, make sure it’s S-T-O-L-L-E-R. Yes. Steve asked,— 

STEVE M: Michael, you previously stated the lack of antitrust enforcement and the enabling of monopolies by the current administration is leading to widening inequality and economic dominance by the corporate sector. The current chair of the FTC, Lina Khan, has been going after private equity in the healthcare sector and is currently going after Amazon for illegally maintaining monopoly power. What do you make of these aggressive actions on monopoly and antitrust by this FTC chair as far as making any sort of impact? 

MICHAEL HUDSON: I’m a direct victim of Amazon’s monopoly. All of my books are self-published. That’s because no commercial publisher wants to publish them. I self-publish them, and I have print-on-demand through Lightning Source. The print-on-demand, I give a discount. When you fill out the, what are you going to price the books, you say, what discount will you give? Well, for the last 10 or 15 years, I give a 20% discount. Most bookstores have high overhead, and they want a 40% discount. Amazon all along has offered a 20% discount because of print-on-demand and because they don’t have to have a bookstore. They don’t have to pay rent and have a knowledgeable staff help you. I’ve been able to price my books at a fairly low price that doesn’t yield much because I’m trying to popularize them. 

Well, about six months ago, the company that I work with, Lightning Source, is owned by, I won’t go into the names right now, but they said our clients, meaning Amazon mainly, now insist on a 40% discount rate. Well, that means that out of the retail price of every book I sell, instead of giving 20%, as I have for the last 15 years, I now have to give 40%. Well, that doesn’t leave any,— that means virtually I’ve reduced the book at a loss, unless I raise the price. Well, it’s very hard for me to do the, I’m not a high-tech person, and I’m relying on my publisher to do the repricing, but she’s very sick right now, and I haven’t been able to reach her, and I don’t have anyone to act as someone who can upload books. 

If there are any people who want to upload books or play the role of a publishing tech person, I would welcome their bit, but now all of a sudden, Amazon has just doubled its take from the former 20% to 40%, and I don’t have a choice, because who else, now that Amazon has become the book market, there are a couple of other sellers, like Abe Books, and there are maybe three or four, but there are no longer bookstores, like there used to be, so they’ve used their monopoly power to take 40% instead of 20%, and so the monopolist gets much more money than I do, because I have to pay for the type setting, I have to pay for the book design, the cover design, I have to pay for the printing costs, and then the guaranteed profit off the printing costs and the commission costs, so you can see how the effect of the Amazon monopoly is basically stifling small businesses, and if you’re not big enough to really set up your own distribution network, you’re at the mercy of the monopolist.

And the one good thing that the Biden administration has done, Matt Stoller has just explained, was appointing the lady that he’s appointed to be in charge of the anti-monopoly to try to take on Amazon and also the drug companies, for vastly overpricing, and right now you’re having a lot of the health care companies all wanting to merge to get into what’s probably the greatest rip-off in recent history, Medicare Advantage, which is pretending to be Medicare, which is the government program, but privatizing it, and it’s how Margaret Thatcher would have run the economy if she were in charge of the government, or how Milton Friedman would have, it’s a total rip-off. And the one good thing that Biden has done is appoint this.

But he’s very embarrassed about this, he’s afraid to say it in his campaign speech, the last thing he would ever say is I’ve done something good for labor against the monopolists, because the monopolists are his campaign contributors, and so he’s not even going to pretend to take credit for the one good thing he’s doing to protect consumers and labor, because all of his money comes from the FIRE sector, and the military industrial complex, and Amazon and the monopolists.

KARL FITZGERALD: It’s so sad, Michael. It really is. I don’t know how you stay sane, mate. You must listen to some loud music. 

MICHAEL HUDSON: Well, I’m writing my book about the Middle Ages. I’m writing my book about the Crusades and modern finance. Most of my day is spent working on my history of debt. 

KARL FITZGERALD: One entertaining aspect is seeing Trump being bailed up for his over-the-top real estate valuations and trying to rewrite the laws there. 

Michael, I haven’t seen enough commentary on the inner detail of how important this case is and how fundamental it is to property rights and that link through to our credit system. 

MICHAEL HUDSON: I don’t think it’s important at all. If I wanted to borrow from a bank, I’d say, well, my apartment’s worth $10 million. Will you give it to me? They’re on to me. They’d say, no, no, we’re going to send out an appraiser, and we know what it’s really worth, and it’s nothing like that at all. We’re going to give you a mortgage based on what we value the property. 

In 1980, I decided to move out of the Lower East Side in Manhattan, the slum area. Actually, I wanted to refinance my mortgage. I bought the house for $45,000. I asked Chase, I think the house is worth maybe $125,000. Chase sent out an appraiser. I guess I can say this over the phone. He said, only a n*** would live in this neighborhood. He kept running out to see— it was a more Puerto Rican neighborhood than Black— he kept running out to see if his automobile tires had been stolen. He said, it’s not worth it. It’s only worth $80,000. So I put it up for sale. I put an ad in the New York Times on a Saturday, and people came over. I was asking $150,000, and then people said, well, I want it. Then someone else said, no, no, let me buy it. I said, well, let’s have an auction right here in the kitchen. They bid it up to $225,000, and they threw in for $20,000 where I lived on Murray Street that I sold for $520,000.

Under the law, the attack on Trump, Chase could have tried to say that, hey, you’re overvaluing your house. You think it’s worth $150,000, and when that’s only half of what, I was wrong. I’ll show you how much I know about real estate. Everyone who wants to borrow a mortgage or needs money is going to say, hey, my thing has worked. At NYU, for instance,—

You can go now on Zillow on the computer system in America, and you can type in any address you want in the United States, and it will tell you what the appraised value of that address is. The banks know what property is worth if they’re making a mortgage against it. The bankers who Trump dealt with said that Trump didn’t cheat us. We knew what the property was worth, but we also knew that he was going to pay us, or we had the illusion that he was going to pay us. He probably paid the money under the table, because the bankers in America, if you really want to be a successful criminal, you want to go into banking. I’m sure the bankers were paid off to make a much larger loan, but they said, we knew that we’d do our own valuation. For us, the important thing was to lend money and get interest on it. Of course, if somebody’s dumb enough to overvalue their property and promise to pay us more income, and then pledge other property against it, of course, we’ll lend them the money. The more, the better, the more interest we get. 

All of this case against Trump for financial fraud, it’s the banking sector that’s a fraud, not the mortgage borrowers. It’s the lenders that are the fraudulent people. That’s why we had the collapse in 2008 for the junk mortgage fraud. Nobody went to jail in the collapse called junk mortgage fraud, and now they’re trying to say, well, maybe one person from the whole 2008 fraud may be prosecuted, and that’s Donald Trump. No banker, no borrower, not a Countrywide Financial that was writing the false mortgages at much more than the value. It was the banks that were overvaluing the property, not the borrowers. 

I’m surprised that Trump hasn’t come out and said, this is selective prosecution. You don’t want me to be president. He’s not handling the campaign very well, or his legal case, he’s not handling it very well. He doesn’t have good public relations people, because the last thing he’s going to say is that his colleagues are all part of the fraud system, and fraud is how business works in America. That’s not his defense, but it should be. 

KARL FITZGERALD: Michael, I was trying to point towards this overvaluation phenomena as a real estate strategy that was prevalent in 2008 when Goldman Sachs was busted with the list of appraisers that would always add plus 20% to a valuation so that those sites could then be leveraged upon through the banking sector for the next investment. That’s obviously what Trump’s play was, real estate 101, and he’s trying to defend that. 

MICHAEL HUDSON: No, Trump intended to default. He thought he could outsmart the bankers, and he did default again and again and again, and when he defaulted, the banks would lend him the money because they realized bankers are not competent in running a business. They can’t even run an apartment building. They depend on someone else to do all the work. That’s why, as John Stuart Mill said, they make their money in their sleep. That’s what rentiers do. They make money in their sleep, not by working. 

So Trump intended simply not to pay and say, well, I’m only going to give you 80% of what I owe, and the banks still ended up making money because what they did in 2008, they didn’t end up holding these bad mortgages. They found suckers, and we all know who the biggest suckers in the world are, the Germans. I mean, they’re so dumb that they let America blow up their gas pipeline and their chemical companies, BASF, are now moving to China. They were so dumb that they were the only people that believed the American banks selling them these packaged junk mortgages.

And I knew some of the local Landesbankers in Germany, and they all said, well, America wouldn’t cheat us, would they? I mean, where is your mind at? Do you read the newspapers? So the banks overvalued because they found a sucker, and they found pension funds in America that would buy. The pension fund managers, they’d take them out for dinner. They’d buy them prostitutes and give them a good time, and the pension funds would end up losing all the money. You didn’t have to be a mafia-run pension fund to be corrupted and incompetent in America. 

KARL FITZGERALD: Okay, let’s switch back to the multipolarity sort of discussion. John Douglas asks,— 

JOHN DOUGLAS: Most folks in America say BRICS doesn’t have a chance to catch up with the West in terms of capital formation due to the asset hoarders. However, if they have the natural resources, cheaper labor, and industrial base, what means will they be able to fight back against the financialized EU-US? 

MICHAEL HUDSON: I don’t think they’re going to fight back at all. You don’t have to fight back. You just have to go away. Go your own way. There’s not any fight between the West, the “garden”, and the “jungle”. Eurasia, China, Russia, the whole global South, the whole global majority doesn’t have to fight with America and NATO. It can simply go its own way and do its own thing and have its own alternative to the neoliberal-type economy. 

So we’re seeing the world divide in two. It doesn’t have to fight. You know, the last fight we’re having, I guess, is for America’s fight to control Near Eastern oil by arming Israel to essentially try to conquer all of the Arabs on behalf of America and England and NATO. I don’t think there’s any other interface between the global majority and the rest of the world that is going to be so far. 

You have Italy now saying it doesn’t want, under the neo-fascist leader that they elected, they want to withdraw from China’s Belt and Road Initiative. You’re really having the world break into two parts. Not a rivalry, just two parts going their own way. 

KARL FITZGERALD: With the BRICS currency being backed by gold—


KARL FITZGERALD: Well, is that what’s happening? What’s the BRICS currency going to be backed by? 

MICHAEL HUDSON: No. There’s not going to be a BRICS currency. It’s not a word that should be used. There will be a means of settlement among central banks for the international balance of payments, imbalances between surplus and deficit countries. 

But a currency is what you spend at the grocery store or you have your bank account in. Individuals won’t have BRICS currency. 

This is an accounting system to evaluate if India and Russia are buying oil from Russia or Russia is selling oil to China and there’s an imbalance, how are you going to settle the imbalance? Well, in the past, the countries would simply say, oh, we’ll buy dollars with our economic surplus because America owes so much debt that this debt has become a vehicle to hold our savings in. But other countries now don’t want to finance America’s debt because of military debt. And that’s what’s financing the war of NATO against the global majority. They’re just going to create what John Maynard Keynes called the bancor back in 1944. 

My book, “Super Imperialism”, describes the bancor idea. “The Destiny of Civilization” also discusses this. So essentially, it’s going to be a means of central bank settlement, but not really a currency. Nothing like gold. Countries are going to buy gold with their balance of payment surplus because they don’t want to lend money to the U.S. government by buying treasury bonds. And if there’s not enough bond, each other’s government debt to buy, then gold is something that people at least have agreed on for the last few thousand years as a kind of neutral, pure asset that’s not a liability. They’ll probably use gold for their own internal reserve, but not as a kind of money or currency. 

KARL FITZGERALD: Okay, keep the questions coming through on the Q&A channel if you can. 

Michael, are there any more recent updates in the BRICS space as the de-dollarization movement builds? 

MICHAEL HUDSON: I’m sure there are, but it’s been a secret for the last two days. We know that President Putin has gone to the Arab countries for one day and then flew back to Moscow to meet the Iranian prime minister. So I’m sure that Russia, the Arab and the Islamic countries, and China have all drawn up their response to the American and Israeli attack on the Near Eastern oil and gas countries. But we have no idea. They did not have a press conference saying this is what we’ve decided. But I think there’s something that they must have decided, and I’m sure it has to do with how they’re going to restructure the international economy in their favor. 

KARL FITZGERALD: Yes, how are those Palestinian gas fields looking, you think? Israel’s ripening up to claim some of those. 

MICHAEL HUDSON: How’s the Palestinian what field looking? 


MICHAEL HUDSON: I don’t understand. Somebody said there was an agreement between Lebanon and Israel, but I don’t see what’s going to happen there. You’re going to have Turkey playing a role in that. Everything is up for grabs right now. I know that Israel would love to say, well, now that there are no more Palestinians, I guess the gas fields are part of Israel, because there are no more Palestinians in Israel. They’re only us. So, of course, the gas fields are Israeli, because there isn’t any Palestine anymore. That’s their position. But what will the position of Turkey and the Arab countries be? 

KARL FITZGERALD: Yes, the pass-the-popcorn question of the day is David Benton asked,— 

DAVID BENTON: With Argentina opting out of BRICS, what South American country is likely to replace it? 

KARL FITZGERALD: And my little take on that is, you know, what’s your perspective on Javier Milei, the new Argentinian president and his radical take? 

MICHAEL HUDSON: Nobody, nobody can figure out what’s happening in Argentina. It has been a failed state for 100 years. 50 families control the whole state and all of Argentina, almost all of Argentina’s foreign debt. And indeed, all of it, back when I was dealing with that in 1990, is owed to the leading families. And this is the dollar debt, the U.S. dollar debt. The Argentinians have moved their money offshore into offshore banking centers and re-lent the money to Argentina and to their own companies in dollars so that they can essentially not have to pay any income tax and can move all of their earnings offshore. 

Argentina is a totally corrupt country that cannot function without a revolution. So it’s not a problem that I or anyone can solve. It’s a quandary and a quandary is a problem that can’t be solved. 

KARL FITZGERALD: Conrad Salem talks about— 

CONRAD SALEM: Yanis Varoufakis talking about rich people in BRICS countries are against replacing the dollar as they have so much wealth in U.S. dollars. 

MICHAEL HUDSON: What’s the question? 

KARL FITZGERALD: What do you think about that? Does he have a point? Will the Chinese government take care about the interests of wealthy Chinese billionaires holding dollar wealth or wouldn’t it matter to them at all?

MICHAEL HUDSON: They certainly don’t. They don’t want dollars. Right now they have capital controls trying to minimize the capital flight from China. And obviously right now there are a lot of people who’ve made money in real estate and they want to get their money out of China because if you make a billion dollars in China, China is likely to come and say, well, you really should give some of that money back to China. That’s more than you need to live on. So China doesn’t want dollars particularly to flow into the economy, but it doesn’t want its own currency to flow out. It wants to more or less isolate the economy financially from other countries so that it can avoid the kind of disruption and speculation that the Westerners would love to make in China.

The Westerners would love to lend money to the Chinese, buy control of their industry, privatize their infrastructure, and then send their monopoly rent back to America. But China doesn’t need foreign currency inflows. So if you don’t need dollars, if you don’t have a balance of payment deficit, but have a balance of payment surplus, and if you see the dollar going down in exchange rate like 4% in the last few months, why on earth would you want dollars? 

Basically, this is a non-problem. China is trying to prevent capital flight because if there is capital flight, it’s probably by transactions that the government would prefer not to occur. At some point, I think China is going to be restructuring its financial and real estate sector. 

KARL FITZGERALD: Yes, it’s certainly been, they’ve fallen into the Western trap, haven’t they, of following property and all those ghost apartment blocks all over the place. It’s such a tragedy. And yeah, for me, I was, you know, we’re so worried about the influence of property on democracy, but to see President Xi also delay the taxation of land and real estate, obviously because interests are too powerful in that society as well. 

MICHAEL HUDSON: Not really, it’s a little more complicated than that. 

I think, 30 years ago, 40 years ago, China decided, let’s, we’re not going to plan the economy. Russia tried that and it didn’t work. So we’re just going to let— free up the economy and let each locality pretty much govern itself. And let’s see what kind of self-government operates the best, and then we can pick the winners and that will form an example for us and we’ll see what’s happening. 

So what happened was that there’s very little,— China does not have what America has.

[America has] federal revenue sharing with the localities, where the federal government in Washington will contribute money to the state and budgets of the United States. 

China doesn’t have the Bank of China making the federal budget include the support to the local cities and towns and villages, in China. They’ve, they’ve let everything go its own way. 

Now what this did was, essentially, it wasn’t that they adopted an American model. It was the line of least resistance. If you were a mayor of a small village in China or a town, how are you going to get the money, to build water and sewer and infrastructure and schools and all the other things that you expect the city to provide? What they did was sell off land, and they sold off land to developers, and the developers then would borrow from banks, although, I would say central banking, but it’s really the treasury, of China is a public utility, not like in America where, the Federal Reserve is, acts on behalf of private banks. The government bank would extend credit to “near banks”, to intermediary banks that would lend money to real estate developers. 

And so you can imagine if a developer were building one of the gigantic buildings that they have right next to each other, right in a row in China, they would borrow the money, sell it, and people would want to buy it not only to live in themselves, but they’d buy it for speculative purposes. Many Chinese are moving into where I live in New York, in Forest Hills, buying buildings, buying apartments, or even buildings, with all cash that they bring from China. 

So, here’s what I would recommend that China should do. Obviously, a lot of people who borrowed to buy buildings, right now a lot of the properties they bought can’t be sold because some of them aren’t even finished. Evergrande and some of the other companies have not finished building. How could China avoid this happening for the future? Now it’s had 40 years of experiments to see what works and what doesn’t work.

Here’s what they could do. Suppose that you’re a developer or real estate investor, you build a building, you put it up for sale, and in America and in the West, you’d have people bid against each other, and the leading bid would be the one to buy the building. Well, how did the family in the West make the winning bid against a rival? They borrow from the bank, and so property is worth whatever a bank is going to lend. 

Well, here’s an alternative that China could do, and I think you will love this, Karl. I just actually thought of it this morning waking up. The, the developer, will, we know what the developer paid to build the building. He’ll be permitted to make a given profit on the investment, whether it’s 10 percent or 25 percent, whatever the rate of profit, that’ll be the price of the apartment, and, suppose the people be, and the apartment cannot be, basically sold, over that price. 

So, how are people going to decide, compete with each other to buy it? Very simple. What they will bid against will be the carrying charge for the land tax on this building. And, gradually, not only at the very beginning.

You’ll have an auction that’ll set the price by whoever is willing to pay the most carrying charge for the land tax. The price of the property will not go up. Property will not be an investment good. Property, no one will buy property for speculation, saying that, oh, it’s going to rise in price. Because, if it rises in price, the land tax will increase to absorb the price rise, so there will continue to be an equilibrium with the original price of the building, but the carrying charge, representing the land’s rental value for the site, will be reflecting the current market conditions.

What do you think of that? 

KARL FITZGERALD: Interesting way to bail developers out again, but, yeah, I’d love to see that written up. Need to think about it a bit more, but it sounds like a good, you know, plausible policy in a down market. 

MICHAEL HUDSON: Or any market. In a growing market, it’s an even better policy in a growing market, because as areas are built up, as a town fills up, more communication, more transportation, more schools and parks, the people will bid up what they will pay for tax. That’s how they will, if people decide, oh, I can’t afford to live in such an expensive neighborhood anymore, then, they’ll move and somebody else will buy it.

You keep the market relationship, but it’s a fiscal relationship, and you don’t have the benefit of the increasing land price ending up in the hands of private bankers.

KARL FITZGERALD: Um, must be time. We got some people on screen. I see Flo’s trying to ask a question here. Um, whilst we get to that, um, Don Burns asked another good question—

DON BURNS: Michael, have you ever met Milton Friedman? Have you debated him?

MICHAEL HUDSON: I never went anywhere near the business school, when I was in Chicago in the 1950s. It was just another world. So no, I, I never did. And I think we’re talking about different things. I mean, I’m talking about reality and he’s talking about fantasy. It’s like NATO and the global majority, they’re just two different worlds. 

KARL FITZGERALD: Okay. Well, and I thought there might be another incredible story, similar to the Alan Greenspan story, but no.

MICHAEL HUDSON: You can’t argue with these people. You really can’t. The mind goes clank, clank, clank. And that, just, I’d rather talk with thinking people. 

KARL FITZGERALD: Okay. Well, does anyone want to come on screen and ask Michael questions? Probably should have asked that earlier. Here we go. Over to you, Flo. 

FLO: Okay. Hi, Michael. Hello. I can hear you. Okay. Um, yeah, I was wondering if you could explain for us, like we’re in, you know, a low level kind of class, the difference between a trade deficit and a balance of payments deficit and the significance of this, cause I do hear you mention it quite a bit and I’m not sure I fully understand. I hear lots of people talk about trade deficits all the time.

And one thing just on that note too, I remember in one of the previous Q&A’s, you had mentioned that some MMTers like [Stephanie] Kelton don’t really fully appreciate the balance of payments deficit or incorporate it enough. So I was wondering if you could elaborate on that.

MICHAEL HUDSON: Well, the trade deficit is so complicated that it takes a long time to walk somebody through it. I wrote a whole monograph on this, in 1969, on a payments flow analysis, it was published by NYU business school. 

Let’s take the case of oil. People would think that America had an oil deficit back then of, let’s say, a hundred billion dollars, that it cost to import oil, but, all of American oil, 100%, by law, was only imported from American oil firms. And the [money] that would actually be paid to foreign countries was only 17% of this.

What was most of the money that you paid to the foreign countries for oil just stayed in the United States. It was paid to, say, Standard Oil. And Standard Oil would say, well, we have to pay the Arab countries, maybe, 10% of the cost of oil is what it costs them for production. So, that 10%, then this oil is not sold by Saudi Arabia to [Standard Oil], it’s sold to [a Standard Oil] “affiliate” in Liberia or Panama.

[Now,] Panama and Liberia aren’t real countries [in the sense that] they use the American dollars, not their own currency. They don’t have an income tax.

So, the [Standard Oil affiliates,] Panamanians or Liberians would then have a marketing office. It could be just a little office, and they would then sell the oil [that they had just bought from Saudi Arabia] to [Standard Oil refineries in ] Europe or to America at let’s say 70 cents, 70%, of the price.

And, all of the profit that they made [(that is, 60%, or the sale price of 70% minus the purchase price of 10%)] would then be kept in dollars and then remitted to the head office [of Standard Oil], in [US] dollars. [All of the profit would be retained because Panama or Liberia don’t have income taxes, so the Standard Oil affiliate there would not have to pay any taxes on that 60%.] [Meanwhile, the Standard Oil refineries that purchased the oil at 70% would sell it at 100%, but only after expenses of 30% to actually refine the oil.] [In other words, the purchase price of the oil, at 70%, plus the tax-deductible expenses of refining the oil, at 30%, would equal the 100% sale price in the domestic US market of the refined oil.] [To sum up,] the price would be so high, of oil that was sold to [refineries in] Europe and America that the refineries couldn’t make any money at all. So they didn’t have to pay any income tax [since they wouldn’t record any profit.]

All the money was made at the producing end [(e.g. in Saudi Arabia)] and the oil companies didn’t have to pay any tax on that.

And because they organized their oil wells in Saudi Arabia and other countries and consolidated with the parent company on the same balance sheet, not affiliates, but as branches, they got the depletion allowance on all of this.

[The depletion allowance is a tax deduction that allows owners of natural resources, such as oil, gas, and minerals, to recover the cost of extracting those resources over time. It is based on the idea that these resources are finite and deplete as they are extracted, so the allowance helps to compensate for the gradual loss of the resource.

There are two main accounting methods for recording the allowance:

  • Percentage depletion: A percentage of the gross income from the sale of the resource is allowed as a deduction. The percentage varies depending on the type of resource.
  • Cost depletion: Alternatively, the actual cost of acquiring and developing the resource can be deducted over the life of the asset.

The depletion allowance significantly reduces taxes on resource extraction companies. —ed.]

So, there was an illusion that the trade deficit in oil, let’s say, would cost a hundred billion dollars. And that actually would cost maybe 17 billion dollars. All the rest stayed in the United States.

Now, in the 1930s and early 1940s, this is how the balance of payments used to be produced, but then they changed the whole concept of, how do you calculate the balance of payments. And they invented the growth concept of gross domestic product.

And they said, let’s treat the trade deficit as if it were barter. Remember if you’re an economist, you don’t believe in money. There’s no such thing as money. There is no such thing as debt. Everything is barter ever since the stone age, there never was any debt. Debt cannot cause a problem because we owe it to ourselves. 

So they say, let’s assume that all of our trade is barter. And, this is the value, market retail market price in America of, the trade, and oil and, the manufacturers, everything else. So there’s an illusion of a trade deficit that actually is in surplus, but the GDP formatting doesn’t show that. And again, my monograph goes all the way through this and made out the whole point, for that.

Regarding MMT, the basic principle of MMT is that governments don’t need to borrow from the private sector. They can simply create their own money instead of having wealthy people just let the banks create money or just lend money to the government, the government can print it. 

So then some people say, well, then why does America borrow from China and other countries?

America doesn’t borrow a penny from China or other countries. America spends money militarily abroad. The whole balance of payments deficit is mainly military spending abroad. It gets into the hands of foreign central banks. What are they going to do with the dollars? Well, America won’t let China buy, or any other country, buy important American industries because we’re nationalistic.

So it essentially says, well, fortunately we have such a big government debt that, China, we won’t let them buy our industry. they’re not going to be suckered enough into buying our real estate like Japan did when it bought Rockefeller Center and golf courses that they lost their shirts on. We’ll let them just buy U.S. government debt. The government has to create a vehicle for countries to spend all the dollars that we’re pumping into the world economy by running up our military spending. And now, to be sure, our trade deficit, now that we’re not producing anything at home.

So America doesn’t have to borrow from these countries. All of that is quite true. But it does have to give them an opportunity, a dumping ground for all of the dollars that they’re getting that now are so large in volume that there’s no way America can ever repay it [for instance by contriving a cumulative balance-of- trade surplus equal to the value of the US treasury securities held by foreign central banks —ed.].

Think of America like Argentina. It’s also controlled by 50 families. It also can’t pay its debt. It also has crazy monetary theorists, running the country. But, there are a lot of similarities there and that’s why the world is splitting into two parts, right now.

So MMT is really focused on the domestic budget deficit and the fact is, that as Dick Cheney and Donald Trump said, deficits don’t really matter. We can run anything we want, printing it, and borrowing it, has exactly the same effect on inflation, asset prices and other financial effects. Did I make that clear? 

FLO: Yeah, yeah, for sure. 

MICHAEL HUDSON: Other people, you know, you have to do it. If I wouldn’t have been working on this every day, you know, for four years, at Chase, on Wall Street, if you don’t work with these figures, it’s very hard. It’s only an abstraction to people, and, this is something, there’s no balance of payments course. There are no statistical courses that are taught in American universities. You’re taught theory, but you’re not taught statistics, and so you’re not talked about what the categories mean. So you’re taught about words and philosophy, but not about what the numbers mean.

FLO: Thank you.

KARL FITZGERALD: Oh, no follow-up questions, Flo? 

FLO: Well, I don’t want to take up too much time, but Virginia’s on.

VIRGINIA COTTS:  Yeah, because, Michael, um, I’ve heard you say this before, and I’ve, I’ve talked with you about it before, but when you say that the U.S., like recently on a video, you said that when the U.S. “deficit spends”, it has to borrow from private capital.

MICHAEL HUDSON: What? It doesn’t have to borrow. America? 

VIRGINIA COTTS:  Exactly, exactly, but I swear you said it in a recent video, and let me just tell, it was, it was, oh, no, if the government doesn’t spend enough money into the economy, it will have to borrow from private sector banks. I think what you mean, because, because you talk like a banker, “selling treasuries” is “borrowing”. Am I right about that?


VIRGINIA COTTS:  So it’s confusing to ordinary people like me.

MICHAEL HUDSON: America doesn’t have to borrow. It can just print, just like China doesn’t have to borrow. China prints the money. The Federal Reserve can create the money, and the Federal Reserve creates the money for the bank, so there’s no need at all, but America wants to give wealthy people some place to put their savings that’s not in the stock market or the crooked bond market, so they essentially do it, but—

And you’ve had propaganda, of course, ever since the 19th century, the Austrian school, they want private banks, they want the rich people to decide what the government can spend. They want to prevent the government from creating a single penny. They say, well, remember the German hyperinflation, or do you want Zimbabwe? If you don’t want Zimbabwe, then don’t print, leave it all to us, and what they’ll create is the 2008 financial bubble. They want to run the economy, not the government. They don’t want any government at all, and that’s why they’ve written this false view of history that I’ve spent so many years on, controverting.

VIRGINIA COTTS:  But don’t they want “government” when it comes to funneling money into the military industrial complex, for example. That’s when they like the government.

MICHAEL HUDSON: As long as the government borrows from them and pays interest for it, instead of [the government] financing it themselves without paying [the financial class] interest. [The financial class] doesn’t want governments to be independent. 

VIRGINIA COTTS:  You just said borrowed again, but you mean selling treasuries, right? 

MICHAEL HUDSON: Yes, that “borrowing”, “selling treasuries” means: we’re selling something and now we owe you. Everything is a balance sheet, and my whole approach, the financial approach, is looking at the economy as a balance sheet. For every asset, there’s a debt. For all the debts that Americans have, that 99% of the Americans have, there’s a 1% that have all the assets of the claims on these debts. 

VIRGINIA COTTS:  Right. Okay. Well, I don’t know if I’m crazy, but to me, that’s, it’s very confusing to use that language of borrowing, I guess.

MICHAEL HUDSON: The economic profession has not helped you by clarifying the vocabulary. 

VIRGINIA COTTS: Thank you. Okay, perfect. Now, if other people want to come on camera, just, just raise your hand and I can do that if you want, Karl. Yeah, yeah. 

MICHAEL HUDSON: Yeah, I might as well know who you are. Come on. 

KARL FITZGERALD: Yeah. Well, we’ve got a related question here from Christopher Doby—

CHRISTOPHER DOBIE: Can it be assumed that the expanse of the US dollar was the token used by the world to trade and grow due to the growth of the world economy?

MICHAEL HUDSON: What, what, the end, if? You spoke too fast at the end. 

KARL FITZGERALD: Okay, the US dollar was the token used by the world to trade and grow and that expanse was due to the growth of the world economy. 

MICHAEL HUDSON: The balance of payments, international debt, does not have to grow with the international economy. The economy could triple or quadruple and as long as it’s in balance, there would be no need for governments to hold each other’s debt. The ideal would be not to have any reserve. The ideal, just like in an economy, is you don’t want billionaires and multi-billionaires to end up with billions of dollars. You want the economy to be in balance. 

And the international economy, it would be good if every country could somehow interact in a way that they’re all self-supporting and you don’t have some countries being debtors to other countries. There’s no need for the debts to grow. And the dollar debt has grown not because the international economy has grown, but because American military spending has grown and because America is de-industrialized. 

This is a warped, one-time historical event that I don’t think can ever repeat itself. 

KARL FITZGERALD: One day we’ll get to meet Kimberly Mims on screen, one of our good Patreon supporters. Great to see some comments on the app there from you. And she writes— 

KIMBERLY MIMS: The effects of de-dollarization are being played down now that Americans are becoming a bit more aware of the global breakup. What is a good way to make our compatriots understand how radical this shift is now rather than later? If we try to re-industrialize the US, how can we also stop the re-monopolization of industry by the financialized economic interests? 

MICHAEL HUDSON: Well, it can’t be done. That’s why we’re not going to re-industrialize. There’s no way that the United States can re-industrialize now because it’s already priced itself out of the market. I’ve said this before in our discussions here. If Americans were given all their food, all their clothing, all of their physical consumption goods free, they still couldn’t compete with labor earning a dollar a day because they have to pay so much for their privatized health care, so much for their education debt, so much for their rent that it’s all paid to the rentier sector. There’s no way that America can re-industrialize without wiping out the debt and without replacing an absentee-owner economy with an owner-occupied-housing economy. 

The American economy is so malstructured that it would take an economic revolution to change it, and there’s not going to be. America would rather see 80% of the population just die off and starve to death, and I think that’s what the Microsoft Foundation is trying to do, to back policies for them, than to give up. 

The financial sector and the property-owning sector and the monopolists will fight like anything to maintain their privileges because they know that they didn’t create them. They know that these privileges are completely parasitic and there’s no reason for them. Whereas the 90% of the population that are suffering as a result of being renters and debtors and consumers of monopoly goods don’t realize that all of this money they’re paying is purely for parasitism and is economically unnecessary, and the rest of the world is realizing this and is trying to create economies without this unnecessary rentier overhead.

FLO: I’m part of the 90% and I figured a lot out from listening to you, and I understand what you’re saying. Of course, it is the obvious answer, but in lieu of having something just horrible and bloody and having people become more aware and more educated about a way of looking at things that is along the lines of the way you look at things, obviously you’re trying to do that, but I guess, have you thoughts about how to spread that around a little more at different levels? Not at the university level, but say in your neighborhood with people, just your regular people, so to speak, around you. How do you talk to people if you’re in your neighborhood? 

MICHAEL HUDSON: I have a fortnightly broadcast on Ben Norton’s network with Radhika Desai in Canada, and every two weeks we talk about this and we bring it up to date. That’s a discussion program. I’m on all sorts of— Karl puts up at least one YouTube discussion that’s transcribed a week. I did a very good one yesterday with Dima and Richard Wolff on this, so all I can do is go on as many talk shows as possible.

Obviously, they’re not going to ask me any more to write editorials for the New York Times or the Washington Post like I used to, but all I can do basically is talk and write my books and have discussions. I’m hoping that you guys, I mean, you guys are supposed to be, you know, here I’m talking to you, presumably you’re doing something with the ideas and spreading them out. I don’t know what more I can do than what I’m doing. I am an economic advisor.

FLO: Not you, I meant us. You’ve spent years doing this. I mean, there’s just no way. That’s a really tall— 

MICHAEL HUDSON: But all I can do is write my books or find politicians. I was the economic advisor to Dennis Kucinich, and now I’m the economic advisor to Jill Stein on the Green Party. 

FLO: That’s great. No, I think it’s getting out, and that’s great. I don’t want to take up any more of your time. I’m just, I’m very glad that you do what you do, and I appreciate it. So, thank you very much.

KARL FITZGERALD: Good on you, Kimberly. Thanks for coming on screen. Good to put a face to the name. And hello, Conrad.

CONRAD: Hi, everybody. Okay. One thing I would like to ask you, Professor Michael, is about modern monetary theory, a government deficit. I think as far as I have understood it, there’s not even a difference technically regarding money supply. If the government would borrow the money from the private market, or if the government would just print, not print, but create the money via central bank book accounting, because is it right? It would, anyway, the money supply will increase because government bonds are literally a part of the money supply. So, what would you say? It doesn’t make, it will anyway, the money supply will increase the same, right? 

MICHAEL HUDSON: The function would be this. The effect on prices would be the same, but it depends whether the government or the Federal Reserve creates the money. 

A good statistician can make anything appear any way they want. It’s completely flexible. I mean, most of my professional life was designing accounting formats to describe things.

The whole idea of a money supply that Milton Friedman has is basically irrelevant. It’s probably the most misleading idea you could ever have. The important thing is the debt and credit balance. The important thing is the balance sheet. The money supply really is only one way of statistically reflecting this, and the definition of the money supply depends on how much of [the] debt are you going to count as money, and how much you’re going to [count as] bank credit, and how much is government credit. How are you going to count this? 

But look at the overall debt and asset balance. Who owes what? What groups owe what to whom? Private, public, 10% versus 99%. 

The money supply is a fictitious accounting number, and if you’ve ever worked for a corporation and you know that accountants are hired to falsify the balance sheet and make it appear as if they’re not making any money and end up doing what Donald Trump has done, then you know that all this focus on money is purely a distraction to get people to stop talking about debt and credit or anything that really is financial. The money supply has nothing to do with the financial system as a whole, but it’s a product of the financial system, and it means don’t look at the overall financial system. Let’s look at this accounting number. 

That’s why they have M1, M2, M3. The economists have all different kinds of money supply. Do we want the dollar bills in actual physical currency? Do we want bank demand deposits, checking accounts as part of the money supply? Do we want savings accounts on money supply? What about money that could be money supply? What about all the Federal Reserve advances to the banking system that Wall Street on Parade is always talking about? 

So you have to look at the economy as a system, not as if it’s a one dimension that you have your public relations accountants popularize.

CONRAD: Excuse me. I think maybe it was a little other direction. I didn’t mean, of course, I don’t buy that stuff like money supply, like it leads to inflation or something like that’s the (unclear) stuff. I don’t buy that. What I mean is the direction that I think as I got, I think from some German economists are close to MMT and also from Steve Keen as if I understood him right is that there is no difference like if the government directly creates the money or borrows, because anyway, if the government spends more when it earns, and my money supply will more than it takes taxes, the money supply will grow when it takes less, it will like take money out of the economy. So basically, there’s no difference like you can borrow it or not. But for money circulating growth, it doesn’t even make a difference. Like when they have all these debates about that, like the government spends deficit, they wouldn’t have to borrow it. Because anyway, they create money even when they borrow. Is that right? They always create money because bonds are also part of money. 

MICHAEL HUDSON: Steve and I are always in agreement. I’m closer to him than to any other economist. We’re good friends for many years. So yes, Steve, I think, explains it in greater detail than I do. His background is a mathematician. And so he’s treating it mathematically. Whereas I say, well, of course, it does make a difference whether the government prints money or borrows it. The difference is it creates a financial class that tries to take over the government. That’s the difference. I talk about the politics. He’s talking about the mathematics. But we’re in agreement as to what each other says.

Steve and I just did a long interview the other last week, I think that Carol put up our talk with each other. So yes, we each have a different focus, but we agree with each other’s presentation. 

CONRAD: So the whole debate about this, I think is completely like in vain, because, of course, you’re right, when you have private borrowers, that’s a problem. But I mean, you could print even print them out, like transfer, I mean, as far as I know, they like German government, they never repay that, but they like make new, they just sell the bonds new and pay the old bonds like that. You know what I mean? Like, the German— English is not my mother tongue. But you know what I mean? I think they just switch the bonds around. So it’s never like repaid. So basically, you catch just arguing.

MICHAEL HUDSON: Nobody expects the government ever to repay the actual currency, because then there wouldn’t be any more currency, but it’s repaid. Because all currency is debt, all money is debt. That’s why you have to look at the balance sheet. And that’s why Steve Keen has so much focus on balance sheet relationships. 

KARL FITZGERALD: Lovely, lovely. Thanks, Conrad. Yeah, we’ve just clocked over 90 minutes. And of course, Flo does have a follow up question [that] relates to what you were in a way just discussing. 

FLO: Michael, would you consider the existence of secondary markets for capital a result of an imbalanced balance sheet on a national econ level?

MICHAEL HUDSON: You could define it as an imbalance. It all depends on how you define what balance is. You could say that a billionaire, I mean, people, economists have this funny idea of balance and equilibrium. If I fall on my face, I’m in balance, I’m in equilibrium, but I’m falling on my face. So what does balance mean? Every economy technically is in some kind of balance, but it can be a polarized balance. It can be a balance of equality. It can be a balance where nothing is changing. 

The idea of balance and equilibrium, I don’t think is as helpful as realizing that the dynamics of economy are to polarize. And the main reason they’re polarizing is because of a finance interest rate, the buildup of debt and the use of creditors to take over the property system. 

The real balance isn’t by buyers and sellers at the marketplace bartering things or buying goods and services. The real balance you want to talk about is the distribution of wealth, of financial wealth, real estate wealth and property. And you realize that every economy is in balance if it’s polarizing. And that’s what the West is doing. 

Economics should be about how you create a balance that doesn’t polarize instead of a balance where you end up with 90% falling on their face and the 1% standing over them laughing.

FLO: Yeah, that makes sense. Yeah, I was just kind of curious on your thoughts on the secondary markets in general. 

MICHAEL HUDSON: It’s too technical. I don’t have any thoughts about markets in general. I’m too specific. 

FLO: Well, I mean, I just think it’s such an interesting kind of phenomenon, I guess, when I first started learning about this. And I think it might have been Steve Keen or Robert Hockett kind of talking about, you know, how money works in the economy. And really, the fact that the whole financial system is just like, you know, different ways for rich people to park their excess capital and to—

MICHAEL HUDSON: Not just park it, to use it to indebt other people. Somebody’s saving is somebody else’s debt. It’s not parked. It’s not like a car that’s parked. It’s actually impoverishing, stripping and taking money from somebody from a debtor with the idea of taking all of the debtor’s property and leaving them broke.

Think of it as a dynamic. Don’t think of parking. This is how journalism trivializes economic discussions, because they get it from the economics profession. I’m not an economist. I’m an anthropologist or a futurist. Steve isn’t an economist. He’s a mathematician. We don’t want to call ourselves economists. We wish there weren’t any in the world and people could have it much easier to understand.

FLO: Yeah. OK, cool. 

KARL FITZGERALD: All right. Yeah, we must be getting close to wrapping up, I reckon. Yeah. Don Burns asks,—

DON BURNS: Can drug companies also be considered [to be] charging unearned rent when the profit margins are so high?

MICHAEL HUDSON: Yes, they’re not profits. They’re monopoly profits. There’s a euphemism to call monopoly rents “profits”. But that’s why it’s worthwhile reading classical economics, because the whole— rent is the excess of price over cost-value. And when the price of a drug is more than the cost of production, that’s economic rent. That’s unearned income. That’s what the rent recipient earns in his sleep or her sleep without any productive effort of their own.

So introducing the distinction between rent and profit is essential if you want to understand why the economy is being distorted.

Economic rent [involves] a distortion. If you were saying, what is balance? A balance would be where prices reflect actual value because the production, anything over the price over value is economic rent. Economic rent is a distortion and therefore imbalance.

KARL FITZGERALD: And that cost base you’re talking about includes a reasonable rate of return. And what would a reasonable rate of return be in a pharmaceutical industry, Michael? 

MICHAEL HUDSON: It would be the average rate of profit for the economy as a whole, let’s say 7 to 9 percent, maybe 11 percent. 

KARL FITZGERALD: Somewhere there. Okay, fantastic. Well, Chris L asked earlier on how much he would appreciate a reading list. Maybe we set that as a challenge for the new year. 

MICHAEL HUDSON: It’s almost impossible. I mean, all my books have, I say it, all of the authors in my books. I don’t know what I can do more than just say that. 

It’s good that you mentioned Michael Flürscheim. His book is very clear. I think Ed Dodson has a whole series in the Henry George School of all sorts of 19th century books that are very interesting. But there’s just so much to read. I mean, what I was told to read basically was read Marxist theories of surplus value and then read all of the books in the bibliography. And I was told that when I was 21 years old. And that’s what I did. 

KARL FITZGERALD: Hmm, yeah, you can feel that people are looking for a curriculum to understand this in detail so they can go through it step by step. Yeah, maybe one day, one day. 

MICHAEL HUDSON: Well, if they read my books, they can see who I’m discussing and mentioning, and they can decide if they want to follow up the books on their own, who I’m quoting. 

KARL FITZGERALD: Yeah, there was so much mentioned in the webinar chat today. Looks like lots of good camaraderie in there too, so great to see people coming on screen and supporting each other. 

MICHAEL HUDSON: I wish there were more. I mean, I really, you know, the reason I’m doing this, Patrion, you know, I want to get my ideas out. I want people to discuss it. I want to spread a way of looking at how to look at the world and understand what’s, where it’s gone wrong. And I need to talk to you to find out, hey, am I getting across or what can I clarify? Or, you know, what are your views on all this? 

KARL FITZGERALD: Yeah, yeah, well, we went through a ton of questions there that were fantastic. Maybe next time we just start off with people on screen and do it that way. But yeah, thank you again, Michael. And there’s so much goodwill and love coming through on those chats in appreciation for all your teachings. So yeah, thank you very much, everyone who’s attended. Thanks to all the patrons who are supporting us. And a big hello to anyone who watches this on YouTube. There’ll probably be 15,000 people watch this over the next few months. And we call out to you to join the Patreon team and help Michael, you know, work around these goddamn monopolists like Jeff Bezos, just outrageous, those commission takings, outdoing Apple even. Yeah, go Lina Khan, get in there, make some things happen whilst you’re in office. Let’s hope she gets to stay in power for a bit longer. Michael, any final words?

MICHAEL HUDSON: I can’t think of anything that I’ve said, everything that I could have to answer every question. I think something’s going to happen in the next few weeks, I think, in the world. We’re in a very unstable position right now and something’s going to split. And I don’t know what it is, but it’s going to be very interesting. And I hope maybe even in January, we could talk again.

KARL FITZGERALD: Wow. Okay. Well, some breaking news of gigantic proportions happens. Let’s open another Q&A session up. I just want to come up with a better name than a Patreon Q&A session with Michael Hudson. We need a good name. So there’s your homework supporters. Think of a decent name for these discussions because, yeah, we must have done 10, 12 of them now. And each time there’s always a new layer of understanding coming through. 

MICHAEL HUDSON: We could call it How the World Works. 

VIRGINIA COTTS:  A fireside chat, Michael. That’s too much Franklin Delano Roosevelt. 

MICHAEL HUDSON: How about How the World Works? 

KARL FITZGERALD: How the World Works with Michael Hudson. 

MICHAEL HUDSON: I don’t know. I’ve never thought, I don’t think of the titles in my books. Other people think of the titles mostly. So I’m not good at titles. I’m more content producer than a packager. So maybe packagers can make a good suggestion. 

KARL FITZGERALD: Deanna comes up with “Expand your brain with MH the GOAT”. 

MICHAEL HUDSON: No, that’s too egocentric. No, no, it’s not the size of the brain. The Neanderthals had larger brains than the Cro-Magnons. And Shakespeare had a very small brain. It’s how the brain is wired up. That’s what we’re trying to do. We’re trying to wire up the brain to understand how the economy works and what the dynamics are. Systems analysis. 

KARL FITZGERALD: And reprogramming. Yeah, beautiful. 

VIRGINIA COTTS:  Michael, you need like six months to rewire your brain from this stuff too, because we’re so conditioned to see, to understand things one way. 

MICHAEL HUDSON: That’s right. That’s what it took me. Doing the balance of payments. It took me about six months. And one day, finally, I got up just thinking in terms of balance sheets. You’re right. You actually have to work in the field to understand that. Otherwise, they’re just generalities. And I knew abstractly that bankers were crooks and many mercantile people were crooks. But until I met them, I didn’t have just the oomph of just how crooked they were and the tricks that they really use. And if you’re going to cheat somebody, always take them out for dinner later. Be friendly with them. All the little techniques of crookedness. 

VIRGINIA COTTS:  That’s why these events are so important, because you help us rewire. 

I just want to do a plug. Real Progressives is having a webinar on Saturday with Hamza Hamushain about green colonialism. He has a book about what he calls the Arab region and fighting green capitalism in the Arab region. Anyway, very interesting. I put the link in the chat. Everyone’s invited. So please come. That would be great. 

MICHAEL HUDSON: I assume you mean by the German Greens, the advocacy that we want an economy exclusively run by coal, mainly coal, with oil, and cutting down the forests. That’s the German Green policy. Basically, cut down the Amazon, essentially. 

VIRGINIA COTTS:  In fact, this guy Hamza Hamushain talks about a German company that has this idea of green hydrogen, clean hydrogen, being created in the most arid part of the world for use in Germany. 

MICHAEL HUDSON: That sounds really high. The highest pollution thing I can think of. You’re going to spend billions of dollars in war bombing the country and bombing the people in order to grab the hydrogen. 

When the Greens talk about hydrogen or free energy, they mean go to war. They’re an arm of the military-industrial complex. They’re advocating war and genocide, which is just exactly what they’re doing in Germany, Ukraine. For them, you can’t be green if you don’t spend all of your effort fighting Russia, China, and Eurasia with coal, deforestation, and oil. You’ve got to conquer the Near East. 

VIRGINIA COTTS: Green capitalism is just as profitable as any capitalism. People are arguing about electric cars instead of high-speed rail, instead of real public transit. 

MICHAEL HUDSON: That’s right. 

VIRGINIA COTTS:  Let’s all buy an electric car, and then we’ll be doing our… You got it. I don’t think that fad is going to really last that long. 

KARL FITZGERALD: Come on. If we’re talking true green economics, we’re basing the tax system on resource rents, land rents, monopoly rents, with a carbon tax that’s charged based around a BTU. I know, Michael, you get fired up sometimes, but there’s some German green mayors who are doing their bit at the local level to make this tax transition. 

MICHAEL HUDSON: I know. When they mention Annalena Baerbock, I can’t resist. Uh-huh. All right. 

KARL FITZGERALD: Well, we better wrap up there. Thanks so much, everyone. Great session, and yeah, great work, Michael, as always. A big thanks to the Progressive Economics team. Well done again. We’ll look forward to seeing you in March, maybe sooner, if there’s some sort of economic catastrophe. 

MICHAEL HUDSON: Yeah, we can do it more often. Yeah, I like these talks. I have to know what needs clarification. 


Photo by Anthony Intraversato on Unsplash