This is a transcript from the meeting with Michael Hudson at the DGI on April 4. Watch the full recording on the DGI Youtube channel, and join our next series of dialogues with Michael Hudson starting on May 2.
Michael Hudson: The problem is not government debt, it’s private debt. People who say that government debt is the problem are people who want to get rid of the government and take it over themselves.
What gives money its value?
Money is basically a public utility. Prior to Western civilization, money was always kept in the public sector, in the palace sector, and that’s because what gives money its value is that governments accept it for paying taxes. Money has always been a product of the government, but in the late 19th century, banking began to be thoroughly privatized and taken out of the hands of any government that controlled it.
The banks did two strategies. One was, if you were a global self-country, one of the new republics that got independent in the 19th century, they couldn’t pay their debts, and so England and France would impose national monetary commissions to take control of the fiscal policy of governments. So governments lost their ability to tax and make policy to the foreign financial sector. In the United States, the United States did not have a foreign debt, but the banks replaced the treasury with the Federal Reserve and the central bank.
And the purpose of central banks today in every country is to take control of tax policy, monetary policy and credit creation in the hands of the commercial banks, not in the hands of the government. Well, the advantage of having the government as the creditor, as it was in Mesopotamia, in the Bronze Age, is that if most debts were owed to the palace, the palace ruler could cancel the debts and write them down. But if you have a government without a private sector, then you can’t write it down.
Look at what happened in Japan. You mentioned Japan. Japan kept lending more and more money to finance the purchase of real estate. And the real estate, housing or an office building, is worth however much a bank would lend to buy it. And the Japanese banks lent so much money that just the real estate around the palace area, the Ginza district, was worth more than the entire state of California. Well, after the Plaza Accord and Japan was obliged to raise its exchange rate, Japan adopted America’s neoliberal policy and left all of these debts in place.
And so Japan entered a permanent depression by about 1990 that it’s never been able to escape from. So Japan is an example of what happens to a country that basically is run to serve the interests of private sector bankers. In China right now, China has the ability to write down the debts because there’s not going to be a domestic oligarchy that’s going to overthrow it because the debts are not owed to private sector banks, they’re owed to the government. And the government can write down debts that ultimately are owed to itself. You’d also be writing down debts that are owed to a lot of people who borrowed money to create banks to relend. You’d wipe out the creditor class.
And the whole idea of Chinese and also all of Asian development for thousands of years has been to create a kind of society that is not run by the merchant class or the creditor class, they’re sort of at the bottom of the social structure. And Asia had that, unlike the case of Western civilization.
But under US influence and Western civilization in the last century, Asia has been westernized and it’s now fallen into the same debt ethic that somehow all of the debts have to be paid without taking into account what the social consequences of these are. And the social consequences are to move into a chronic decline in living standards, a decline in population. You end up looking at Japan where if you’re a debt-ridden population, family formation falls off, fertility rates fall off, you end up to be a shrinking economy. Same thing in the Baltic states and the post-Soviet states.
Nika Dubrovsky: People have been reading your book, America’s Protectionist Takeoff, and are using it as an inspiration for Trump’s tariffs. But it is a completely different circumstance in the 1800s to today. What do you think about Trump’s tariffs?
MH: He’s doing the exact opposite of how American protectionism developed. I’m going to be publishing an article on that on my website. I’m working on that just today.
The whole idea of protectionism was not simply to have protective tariffs for industry. There was a whole strategy of how you become a successful and prosperous industrial country. The whole key was what was called the economy of high wages.
The economists who designed American protectionist takeoff followed the economy of high wages. That’s what they called it. And they said that the well-fed, well-educated, healthy, well-clothed, well-housed labor is more productive than proper labor.
So if you’re going to have an industry that is productive enough to sell to the industry of other countries, you have to have a skilled labor force that is productive. Well, you can imagine what a lot of employers said. They said, well, we want to make our profits by not paying labor as much as we charge for the goods that they produce.
That’s what profits or surplus value is. So the government said, okay, you may not have to pay labor for all of the wages and the living standards that it gets, but we can have the government create a public sector, with internal improvements. We can have the government bear the cost of much of the needs of labor so that employers do not have to pay it.
So imagine what certainly happened in Europe as well as America. Education was free and public. You didn’t have to pay $50,000 a year. You get public education.
Public health was important. It was a conservative prime minister in England, Benjamin Disraeli, that said health, everything is health. He wanted to make sure that everybody was healthy because that’s more productive. Well, just imagine today, the 18% and rising of America’s GDP just goes for health insurance and healthcare. And it’s among the worst in the world in terms of performance.
The student debt is very high. The common aim of classical economics from England to the United States was, well, you want to keep housing costs low so that labor can afford to get housing and won’t have to insist on wages that are high enough to pay a housing that’s a bit up on credit or a higher and higher housing mortgage debt. So housing costs were kept low.
The whole idea of classical value theory was to bring market prices down to the actual cost value and that value included labor’s wages and the profits of industry because you have to make a profit and industry used that to reinvest in expanding. But over and above the actual cost of production was land rent, monopoly rent and financial returns. And as in the FIRE sector, the finance, insurance and real estate.
So the whole idea of industrial development from Europe to the United States was to prevent a financial sector from developing. And that’s why in America you had the Sherman antitrust law in 1890 to prevent monopolies from being formed to increase the cost of living by creating monopoly goods. And basically banks were viewed as the mother of trusts.
And you soon had Teddy Roosevelt become president and he was leading the trust busters. He was helping break it all up. Well, what Trump wants to do is restore what he called the gilded age.
The aim of American protectionism was not to create a gilded age of very wealthy multimillionaires dominating society. That was considered the failure of the whole economic policy that underlies protectionism. You didn’t want a class of idle rich making their money by financial means, by monopoly and by real estate rents jacking up.
You wanted people to get rich by making factories to produce goods and services to export and to create an industrial society. So what Trump wants to restore in the period in McKinley’s era, -he was elected in 1896-, is everything that went wrong with the American industrial development, not everything that went right with it. What Henry Clay in the 1820s called the American System that led to industrialization was protective tariffs, internal improvements. In other words, public infrastructure, the Erie Canal, transportation. They said if there’s transportation, communication, other basic needs are natural monopolies. And you don’t want monopolies to gain power because if they’re privatized in private hands, then they’re going to raise the prices and make monopoly rents. If the government treats public investment, infrastructure investment, internal improvements, then public investment is provided basic services at low prices or even subsidized prices.
And so one of the leading protectionists was Simon Patton, the first economics professor at the first business school in America, the Horton School at the University of Pennsylvania. And Simon Patton said public infrastructure investment is like a fourth factor of production alongside labor, capital and land, which isn’t really a factor of production. It’s a claim on production. You have infrastructure, but the aim of public infrastructure is different from owning land or owning industry and wanting more profits or even wages, wanting higher wages. The idea of public infrastructure investment is not to make a profit, but to lower the cost of living and the cost of doing business for the economy so that employers and labor do not have to pay monopoly rents to a rentier class.
Well, Trump wants to create, essentially to shift tax, to apply tariffs. His whole tariff policy is saying until 1913, America didn’t have an income tax. Most of the money that financed the American government’s budget, which was in surplus most of the time, was tariff receipts along with the sale of land that was grabbed from the Indians, land rights. And so the whole idea was that the tariffs, the protected industry were going to essentially finance internal improvements.
And when America did create the income tax in 1913, it only taxed 2% of the people. You didn’t have to pay an income tax or file a tax return until you had made so much money that you’re in the top 2% of the population. And who were these 2%? They were the bankers, the financiers, the monopolists and the real estate owners. In other words, the rent recipients, exactly the people that classical economics and the American school said, you don’t want economic rent, you want to bring prices down to the actual cost of production. And you want to minimize the cost of production by having the government provide as much of what people actually need to live on and to exist for nothing. And that way America can undersell.
Well, what Trump wants to do in his tariff policy is accept the whole neoliberal counter-revolution of Margaret Thatcher and Ronald Reagan, of privatization. And if you, today, you have the Trump administration wanting to get rid of government. How do you get rid of government? You sell it all off to private owners who buy it, mainly they borrow the money to buy it. So once you privatize a public utility, you end up sort of like Thames Water in England. You not only add profits and management fees, but you add all the costs of financing debt. So what happened in Thames Water in England is sort of a monster film of what’s happened in the United States and other countries. Thames Water buyers kept borrowing money against their right to charge fees for the water and sewer and the protection of England’s water.
They borrowed the money, but they didn’t use this to build better sewers or water pipes. They used it simply to pay dividends to themselves and the dividends and to buy their own stock. Well, that’s what happens when you privatize a basic utility. And that’s what’s happened throughout the United States. That’s the Trump plan for privatization. Sell off everything from the national parks, sell off any public housing, turn it into private rental housing, sell off the railroads, sell off any communications in the hands of the government.
And all of a sudden you’re going to turn what are these natural monopolies that were kept in the public domain, like the post office, so that you could mail letters at cost and turn it into a private monopoly so the buyer can now double or quadruple the price of mail and say, well, what’s your alternative?
So all of this that Trump is doing is, I wish I had the chart to show you here, is to replace the tariff system, replace the whole growth of the income tax system with tariffs. After 1913, all of the government has been financed basically by taxes, mainly the income and property taxes that it had. Trump wants to roll it back and get rid of all of the social democratic government reforms since 1913, and go back to the time when the bankers and the industrialists and the real estate owners didn’t have to pay any income tax at all. All of the government revenues will be based on tariffs that are paid largely by America’s consumers, because Trump has given a list of things that are not going to be charged tariffs on, things that industry buys, like the oil industry will buy special kinds of oil and diesel for its products. He’s done exactly the opposite of everything.
And I didn’t mention in my book that America, during its industrial takeoff in the late 19th century, encouraged immigration. But immigration was a great source of labor, and that helped provide the labor that did the hard work of construction industry. The immigrant labor has always done most of the construction, not only of buildings, but of roads and public construction. It was immigrant labor that became the industrial labor force largely.
But Trump wants to ban immigrant labor now. And if you don’t have immigrant labor doing the manual labor and the hard work and the industrial labor, then how are you going to have a labor force doing any of this? So again, while pretending to restore the golden age, the gilded age when the rich people had more than the whole rest of the economy put together, that’s what he wants to restore. And that, of course, is a travesty of the way in which the American system worked and steered America to become successful.
Is Government debt a huge problem?
The problem is not government debt. It’s private debt. People who say that government debt’s the problem are people who want to get rid of government and take it over themselves. The governments really can’t go broke if they have debts in their own currency, because you can always print the debt. For instance, if you have dollar bills in your pocket, that’s technically a government debt.
But it’s a form of government debt that does not bear interest. And nobody expects the government to repay these dollar bills, because if it repaid them, you wouldn’t have any more dollar bill money. The government does have debt that’s owed to foreign central banks, for instance, that hold their monetary reserves in the form of government debt.
But the government debt is so large that it can’t be repaid. And the American government says, well, we’re not going to repay it. The only way that they can repay it is for the Federal Reserve to simply create the money on a computer and pay the debt. So they say, all right, you can create it.
Governments do not have to borrow in order to finance their business. The Civil War was financed by creating the money. They didn’t borrow the money because there wasn’t enough money to lend to the North to win the Civil War. The Revolutionary War, how were they going to get the money? You couldn’t tax the people, because if you tax them, they wouldn’t want a revolution. So they printed the currency that was called Continentals.
And before that, in the 18th and 17th century, Britain wanted to control the United States and dominate it by not permitting Americans, the colonies, to use their own money. They wanted the colonies to have to borrow from British creditors. And so the colonies wanted to avoid this, because if they couldn’t create their money, they had to sell their products, their grain and their other products at low prices that the British merchants would get rich on. So Massachusetts and Pennsylvania printed their own money, the colonial currency money. That was how they funded. Other governments have done the same thing.
And none of this money was inflationary as such. There was a wartime inflation in the Civil War, just because of the shortages. There was an inflation of the Continental currency because the British undertook a counterfeiting campaign to try to destroy the American ability to finance the Revolutionary War against itself.
But basically, the Americans limited the creation of money so that it wouldn’t be inflationary. Well, right today, governments have a choice. Either you can borrow money from the creditor class and pay them high interest, and it was recently about almost 5%. Well, 5%, if you buy a government bond at 5%, that doubles in about 14 years. So here, all you have to do is put your money in government bonds, and you double it in 14 years. It’s quadrupled in 28 years, and so on.
But the government doesn’t have to borrow, because when you borrow money from the private sector, the private sector doesn’t cut back consumption. They just say, OK, we’re not going to buy stocks or commercial bonds. We’ll buy a government bond.
And the government then prints the money to spend into the economy. Well, it doesn’t have to borrow to print the money into the economy, nor do other countries like Canada have to borrow from Germany or Switzerland as they did in the 1970s. They can simply print the money, and it has exactly the same effect on inflation and on public spending and on national income. So that essentially is what modern monetary theory teaches. And the governments don’t need to go into debt. And if there is a debt problem, they can simply print it to repay it. So nobody expects the government debt to be repaid. The problem is the private debt, because nobody’s going to foreclose on the government. You can’t foreclose. There’s no procedure for that. But you can foreclose on individuals who are in debt. You can foreclose on real estate that’s in debt and kick out the homeowner or the landlord. And you can foreclose on corporations and force it into bankruptcy and force it to be sold. If you’re in the global majority, it’s often sold to a foreign buyer. And debt is a way of prying away industry or forcing governments that own a foreign debt, not in their own currency, to sell off their raw materials, their oil rights, their public infrastructure.
So no government should take on a public debt that is not in its own currency. And if they do that, there’s no government debt problem. The problem is all private debt.
Angelo Arnis: Since you said that the governments didn’t have to pay the debt, why did countries like Greece get so royally ***ked, basically? Was it because they were part of, let’s say, of a union, and so they couldn’t print locally their own money?
MH: Because they didn’t own debt in their own currency. Greece was run by an oligarchy that was in charge. And Greece put its faith in a double crosser, the Syriza party.
Basically, at the time the debt crisis erupted in February and March, I was there working with them. And at the time, the entire government debt of, I think it was $25 billion, an equivalent of the $25 billion was held in Switzerland in the accounts of Greek tax dodgers or tax evaders that had put the money there. There was something called the Lagarde list. Christine Lagarde of the International Monetary Fund had a list of all the Greek tax evaders that had their money in Switzerland.
And I wanted the Syriza party and Greece to simply seize that tax evader money and come back and use that to pay off the debt. In other words, Greece should have paid the debt by taxing the richest people, but the richest people controlled the party. The Greek socialist party was a right-wing reactionist party, sort of like Tony Blair in England. And there were talks with Europe. Europe was all set to write down the debt. They knew that Greece could not pay the debt, that it was an odious debt.
Greece was about to repudiate the debt with European Union understanding. But then President Obama came up and he wrecked the whole system with the most hateful policy of all of his policies. He said, a lot of American banks and financial firms have written financial derivatives, and they bet that the price of Greece’s foreign debt bonds will not go down. And if Greece wipes out the debt and doesn’t pay, then the American banks are going to lose all the money that they’ve made this horse racing bet on. And so he sent Tim Geithner there, the Treasury Secretary, to lobby Europe and say, you’ve got to crush Greece. You’ve got to destroy the democracy there. You’ve got to corrupt the government so that it pays the debt so that our banks won’t lose a single penny. Let the Greek population be the losers. I describe all of this in my book, Killing the Host. I have a whole chapter on, I think I have two chapters on Greece since I was there as a part of the process. And there were vast public demonstrations in Syntagma Square, trying to urge, don’t pay, don’t pay the debts. And all of this was double-crossed by the Greek president at the time.
And that led Yannis Varoufakis simply to resign. I think perhaps he could have done something in retrospect, even more active, just to overthrow the person. But he just resigned in protest. And the result was a coup d’etat by the creditors, that Greece didn’t have an ability to have a social revolution there to overthrow the corrupt government, the series of Greek governments that had been ruling Greece ever since the colonels had taken over.
Gerald Croteau: In a previous talk, you said that one of the downsides of the fact that the US is quite different from China is that we don’t have the ability to write down our debts the way the Chinese do.
MH: But they’re not doing it. They have the ability to, but they’re not. That’s part of the internal fight. That’s what they’re fighting about now in China. That’s their policy fight.
GC: Yeah, I just wanted to understand, is that really the kind of dilemma of being so decentralized? It could be argued that we almost have oligarchs that are powerful, but not necessarily powerful enough to all agree to do something that would sort of benefit the whole system, but individually, they might suffer. And it’s a sliding scale.
So it’s hard to determine, at what point is somebody an oligarch versus just somebody that gets the benefit from those write downs.
MH: Well, often they’ll hire lobbyists. And there’ll be it’s possible, of course, to be very rich and have a conscience. But then they have lobbyists doing everything for them. The lobbyists have sort of corrupted the education process. So if you take an economics course in America, it’s all neoliberalism.
You don’t any longer have a history of economic thought that would teach you the classical theory of interest of economic rent as unearned income, the excess of price over value. You don’t have courses in economic history. So you don’t understand what governments have done that succeeded and what they’ve done that have gone wrong. And you’re up for everything. You just assume that the status quo is the Darwinian natural survival of the fittest. And you just accept that without any question that there may be an alternative.
And so you’re back with Margaret Thatcher’s model, there is no alternative. And so you have a stultification that even if you’re a wealthy person, and you say, gee, driving to work got to my factory, or my bank, I noticed all of these homeless people, that’s really too bad. On the other hand, they don’t know that they don’t have to be homeless, there is a way of structuring society so that it’s not homelessness.
And they don’t know that there’s an alternative and how to create it. That’s why I’m glad that the earlier question was about my book on America’s protectionist takeoff, where I describe how the Americans disagreed with British free trade theory, and the whole concept of a free market -free for whom- in the 19th century, to the American protectionists and to the classical economists of England, a free market was free from economic rent, free from a landlord class, free from monopolists, free from a financial class that made its money by carving up and deindustrializing and offshoring labor to industry. Well, today, the idea of a free market is free from government organization of the economy, free from any restraint on privatization and greed, just exactly the opposite of everything that a free market used to have. But if this is not the starting point of taking economics 101 course, people don’t understand that they were in a kind of Orwellian vocabulary when it comes to understanding economics.
So the ruling class itself has become de-educated, you could say, there’s been no check on just the kind of greed that has become a personality trait that other cultures look down on. Asian culture has tried to prevent it from developing for 1000s of years.
(22.35)
Money as a public utility
I was the economist for the (—–) US government agency in 1974, and 1975, working on the Athabasca sands and coal liquefaction, it was a terrible idea. Every barrel of oil created that way used about eight gallons of water. Canada didn’t charge at all for all of this water that it’s given. All of this is just a total ripoff of Canada’s resources by getting free water and creating an enormous environmental pollution. All Canada has to do is charge for the natural resource depletion, and for the environmental pollution cleanup costs. And you’ll stop this environmentally destructive trade right away.
It hasn’t done it because Canada basically isn’t run by Canadians, it’s run by the United States. That’s what I learned. And it’s run by the United States through the Canadian banks that pretty much run Canada.
Carole M: It wasn’t really a question. It was just a comment that we’ve now got a peculiar spectacle in the UK of patriotic millionaires, lobbying the government to be able to pay more tax, the government which refuses to tax the wealthy. It’s so twisted in the UK.
MH: That’s right. That’s just awful. Basically what happened in England is like Operation Gladio in Italy. After World War Two the United States has spent an enormous amount of money trying to prevent socialism from developing by sponsoring takeovers of all the radical parties in Europe or the socialist parties, by creating non-governmental organizations that have sponsored clients that look like they’re willing to sell out their country and support the United States, no matter what. They look for opportunists who are very able to manipulate other people. In England there’s something that trains them to be very smooth, corrupt opportunists, like Tony Blair, for instance, and obviously Starmer, and most English politicians. The result is that England doesn’t really have a socialist or any kind of alternative to neoliberalism. The Labour Party has out neoliberalized the Conservative Party.
The only opposition to the militarism of the MI6 and the British government is from the right wing. Just the same thing in Germany, with only the AfD, the Alternative for Deutschland party, offering an alternative in Parliament, since Sarah Wagenknecht did not get into it. All throughout Europe, you’re having American interference in their political system to make sure that English voters, German voters, and other voters don’t really have any alternative, but a Tweedledee, Tweedledum type situation. No matter who they get, it’s all exactly the same neoliberal plan. That’s why, essentially, that’s the problem that the West has. It’s been poisoned since World War II by this right wing fight.
Asia and the BRICS are trying to break away from all of this. That’s what is dividing the whole world politically now, as well as economically.
Nicolas Marx: Hi, Michael. I wanted to ask, in relation to the tariffs, whether Keynes’ idea of the Bancor would be a better way of going about it?
MH: His theory of the Bancor was a very good idea. It wasn’t about the tariffs.
It was about how to settle balance of payments deficits. What he saw was that the way that the United States was creating the International Monetary Fund and the World Bank would in a way concentrate more and more national income in the United States and America’s great enemy in World War II was, of course, England.
I describe all of this in my book, Super Imperialism. The House of Lords recognized this. Keynes said, look, if you follow the economic system that the Americans are putting in place, then you’re going to have the creditor countries becoming richer and richer with having creditor claims on debtor countries. You’re going to have economic polarization that’s going to split up the whole world, just like it’s happened today.
The Bancor solution was to say, this is a form of special withdrawing rights, you could say, in central banking, in the form of the central bank that Keynes wanted to see. He said that if a country runs a constant balance of payment surplus, like the United States, then it’s abusing the international system and its surplus is going to be wiped out.
If the surplus finds its counterpart in the chronic deficit of another country that’s being victimized by the way in which the international economy is mal-structured, then the debts are going to be wiped out. Of course, he was thinking of England, because the United States structured the post-war order to make sure that the sterling area was not going to be limited to buying British exports, but could be freed to buy American exports instead. The British loan that America has made prevented England from devaluing the pound of sterling to become more competitive. Keynes saw, and the entire House of Lords saw, and I give all the quotations in my new printing of Super Imperialism, they all saw that this was going to be impoverishing. They wanted to put a limit on the degree to which the international autonomy could polarize between creditor countries and debtor countries. Bancor was designed to do that by when a country got too much of a creditor position, the creditor position would be wiped out.
That’s the kind of debt cancellation that Nika was talking about at the beginning. The good thing about cancelling the debts is that you cancel the savings of the creditors. That’s what nobody says. Everybody talks about as if it’s easy to cancel the debts, but one person’s debt is another person’s credit and savings. Keynes saw that in order to write down debts, you had to write down the savings of the creditors who were trying to reshape and corrupt the international economy in the same way they were corrupting domestic economies, but with a fiscal and tax system and regulatory system in their own interest instead of in the interest of economic growth.
Is it time for Bancor?
I’ve been urging in most of my articles that you’ll find on my website for the BRICS countries to adopt a Bancor. I have a regular show with Radhika Desai, the Geopolitical Hour, a fortnightly show where we’ve been describing how the Bancor can be adopted by the BRICS countries so that you’re not going to have one country, such as China, getting rich by indebting debtor Asian countries. There won’t be a BRICS currency in the sense of sterling or dollars, but there will be the currency that Keynes saw was only to be used for intergovernmental payments. If the effective tariffs or anything else was to create an imbalance in intergovernmental payments, the Bancor was essentially to reestablish some sense of balance and equity in the system.
(Question Missing 28.46)
Anybody can create money. The problem is to have it accepted. Suppose you go to the store and buy groceries and you write an IOU. Well, what can the government, the store do? And you say, well, you can use your IOU to pay the dairy for the milk that it’s giving you to sell to us. And then the store will say, okay, so a dairy has your IOU. And then what’s the dairy going to do with it? Well, the dairy will pay its laborers by feed for its cattle to feed them.
Well, somehow this debt is never going to be repaid. Well, obviously individuals can’t write IOUs that don’t have to be repaid. Only governments can do that. It’s not money. And you can’t pay your taxes by sending an IOU to the treasury. You have to pay in money. And the quality of money is its ability to be accepted in taxes.
The idea of people’s money is a right-wing libertarian idea that is intentionally designed not to work so that it will be a blind alley to confuse people instead of restructuring the social structure, saying, well, why don’t you move out West to Colorado or somewhere, and maybe you can push this idea. I think there’s all this talk of localism and people’s money is just a vast deception. And many of it is well-meaning, but stupid.
(Question missing 29.54)
Money is a public utility. It’s not something private. You cannot privatize it. It just doesn’t work. At no time in history has there ever been a private money that works, except among maybe friends who will trade IOUs with each other.
So it’s just a myth. You have to look at money as basically a public utility. Money is created by the government, and it’s given value by being accepted as taxes.
And all money is debt. Who’s going to be liable for the debt? And how do you make the debtor pay? Or if not paid, how do you get other people to accept their debt as a means of payment and ultimately paying taxes with it?
Can money be accepted locally?
As I said, the American colonies in the 16th and 17th century created it locally. But you have to have it done through government. You can have savings, you can have local banking, you can have credit unions. In a credit union, local people will put their savings in a credit union, and members of that local credit union can borrow. They can do that.
Or as Ellen Brown has said, the state can have its own bank, and the state can take deposits in the bank, and it can keep the government’s deposits and other people’s deposits and use it to spend. But a local credit union or a state bank cannot create money. Only a government can actually create money. Otherwise they’re like savings banks and credit unions. They can transfer money. They can make a loan of money they already have, but they can’t create new money as credit.
That was a great breakthrough that was done in 1694 with the Bank of England. But again, that was a symbiotic relationship with the government. So in order to create money, you need a symbiotic relationship with the government. And the question then is, who’s controlling the government? Is it the people or is it the bankers?
Gerald Croteau: You had mentioned a little bit about the way economics is taught. And I just thought it’d be fun to go back there because the critique that I have, there’s an economic historian named Claudia Golden who recently won the Nobel Prize for her work on mostly the labor markets, but also the economic history of labor markets. But she explicitly has a quote attributed to her that I verified with her, that economic history is explicitly not part of the curriculum of teaching modern economics. And I’m just wondering how we’ve gotten away, because most science builds on a foundation where people talk about, well, now we believe this, but formerly we believed something else. And how does economics get away with teaching relations completely in a vacuum as if our assumptions make sense logically without going through the evolution of where we got to where we are now?
MH: The aim of the lobbyists who’ve endowed universities and who’ve designed the curriculum want to convince people that there is no alternative. You don’t want people to study history because history is a whole study of evolution, of how different societies have created alternatives. So here’s how they’ve created the problems. The University of Chicago, the right-wing monetarists, got their acolytes, the very tunnel-visioned followers of Milton Friedman and the free markets, into the leadership of all of the major economic journals.
So any of the most prestigious economic journals in the United States are edited by graduates of the United States, of the University of Chicago or other right-wing economic universities, Harvard, MIT, Berkeley, Minnesota. So that for instance, graduates, I was on the faculty and I’m still emeritus with the University of Missouri at Kansas City, where we’ve been teaching modern monetary economics. Well, the problem is that our graduates learn a lot. They say, oh my God, there is an alternative. This is wonderful. So they graduate and now they say, well, we have our PhD now, how are we going to get a job? Well, they have their job interviews with the various universities and university heads have told me, economic department heads have told me, well, the first question we ask is, well, what journals have you published in? We give credit for the most prestige journals.
And the MMT graduates and other critics would say, oh, well, we couldn’t get our articles published by the University of Chicago publications or the other journals because they say, that’s not really what we’re interested in. That’s a different theory than we have. So they have to go to journals that are not considered as respectable or they become journalists or they go to international organizations or public organizations and write public reports, but they don’t get a job in a prestigious university.
Some of our graduates have gone to Buffalo, New York, which is a very cold, right on the Canadian border. Others have gone to various universities in Ohio, but none of the prestigious universities. So you’re not going to have a modern monetary theorist or a socialist teaching at Chicago or Harvard or MIT.
For a while, the University of Massachusetts tried to set up a Marxist group and did a very good job. But that was the university very specifically for Marxist groups with their own set of publications that were not considered by other university departments as prestigious enough to warrant the graduates from being hired. That’s part of the problem there.
So the hiring of economists are only those who’ve studied with economists, teachers who believe there is no alternative and who’ve not had any courses in economic history or the history of economic thought.
Steve Hall: It’s Steve Hall here from the UK. I’m in the Workers’ Party and I run the Economics Forum. We have a number of policies that require public investment, infrastructure and renewal, national health service, education, partial reindustrialisation, energy, utilities, you name it. But the party is very worried about emphasising these policies because they’re based on economic public investment, because they know they will, inverted commas, upset the markets. So this is hampering our campaigns.
I know from modern monetary theory that we can defend against the bond vigilantes that are going to try to hike up the interest rates. But how can we defend? Because we’re import dependent and very vulnerable, we rely on our strong pound. How can we defend against foreign exchange currency tax? I’ve asked a number of people and seem to get different answers. I wonder what your answer might be.
MH: I don’t think countries can defend against currency attacks unless they have capital controls. England didn’t believe in capital controls and so it let George Soros essentially raise more money than England would have.
And unless you limit capital controls coming in and control the foreign exchange market, there’s nothing at all you can do. That’s how markets operate. The idea of a free market is anybody can smash it up and take whatever they want if the government lets it doing it by deregulation. And England is pretty much deregulated. And the British like it that way, because as long as there’s a free market, the pound is going to go down and down. And a good part of that is labor gets poorer and poorer and poorer.
So that’s it. It’s doing exactly what it’s supposed to do. It’s strangling and stifling England.
I don’t think the world will shed a tear.
SH: Oh, thanks. Well, I’m sitting up here in derelict post-industrial northern England. I don’t think the working class up here did anyone any harm, Michael. And we’re really getting we’re really very poor up here. And we were deindustrialized.
The shipyard down the road from where I live once made the largest ship in the world. And we have nothing now, steel, ships. It’s all gone. And we’re in a terrible state. And the country’s, you know, there are two there are two UKs there, the north and the industrial areas and even Cornwall down in the southwest that form our tin mining, coal mining. And we’re two countries, you know, and we all know everyone hates us. I know that. But I honestly don’t think that the English working and British working class really did anyone much harm. And it seems that the city of London runs the country. And we were the most successful fringe party, we got nearly well over a quarter of a million votes. But we just can’t seem to have the courage to emphasize our economic policies because of these currency attacks.. I think that the idea of a British government, the Bank of England and the DMO and all the Treasury as a setting of capital controls, I think that would be a real tough ask that they would tell us to go forth and multiply.
So I think we’re in a very difficult situation. But thanks for answering the questions. That’s the answer. I have got capital controls. What’s the difference between capital controls and capital exchange controls? Are they the same thing?
MH: Your long question is the argument for teaching economic history, England should be a case study in a failed society, a case study and what can go wrong. And everything that has been done is just a wonderful example of how not to run a country.
You can call capital controls, whatever you want. But it has to do with how you’ve structured the capital market and who’s controlling them. And I can’t get into the nitty gritty, because it differs in every kind of country. But other countries don’t let what’s happened to England happen to them. So I can assure you there is a way, but you can’t be English and do it.
Aaron Marquette: So I was wondering sort of in general about debt and cities. I know mortgage prices have come up and the sort of role of financial real estate. And so I was wondering if you thought much about the right to the city movements or the way that you see sort of like cities playing into this whole debt story.
MH: So what’s the question? Real estate debt?
AM: Real estate debt in terms of city finances. So like the role of city financing and debt. And I was thinking of the right to city movement. I don’t know if you engage much with it.
MH: Real estate debt is a product of the tax system’s unwillingness to do what Adam Smith and John Stuart Mill and the entire 19th century of British economists advocated. You tax away the increasing land price. And if you don’t tax away the rising land price, as John Stuart Mill advocated and the whole 19th century of British socialism advocated, then this land rent valuation is going to be available to pledge to the bank as interest.
So as you lower you untax real estate, you enable its rental value to be pledged to the banks as collateral for a bank loan to keep rising and rising and rising. And the bank loan will increase the value of the land site value. And the result is just a snowballing effect in land prices and hence the cost of housing to the population at large.
Same thing with public utilities. If you would tax away the monopoly rent or just prevent monopolies from being created, you tax away the monopoly rent of public utilities, you would not let Thames Water do what it’s been able to do to England. But the idea of economic freedom is untaxing means to leave all of this economic rent, be pledged to the banks, let real estate and public utilities be financialized and run as a vehicle for taking on more and more debt and paying more and more interest charge and fees and creating capital gains for the financial sector.
In other words, we’re talking about financialization. And you have to de-financialize the economy in order to prevent this rise in housing prices, rise in utility, privatized utility prices and monopoly prices. And that was what, as I said, the whole 19th century political economy movement was all about. And that’s what that system has to be restored.