The Consequences of Moving from Industrial to Financial Capitalism

Michael Hudson and Pepe Escobar last month took a hard look at rent and rent-seeking at the Henry George School of Social Science.

[consortiumnews.com]

{And essentially, we became what’s called a rent-seeking economy, not a productive economy. So, when people in Washington talk about American capitalism versus Chinese socialism this is confusing the issue. What kind of capitalism are we talking about?

America used to have industrial capitalism in the 19th century. That’s how it got richer originally but now it’s moved away from industrial capitalism towards finance capitalism. And what that means is that essentially the mixed economy that made America rich — where the government would invest in education and infrastructure and transportation and provide these at low costs so that the employers didn’t have to pay labor to afford high costs — all of this has been transformed over the last hundred years.

And we’ve moved away from the whole ethic of what was industrial capitalism. Before, the idea of capitalism in the 19th century from Adam Smith to Ricardo, to John Stuart Mill to Marx was very clear and Marx stated it quite clearly; capitalism was revolutionary. It was to get rid of the landlord class. It was to get rid of the rentier class. It was to get rid of the banking class essentially, and just bear all the costs that were unnecessary for production, because how did England and America and Germany gain their markets?

They gained their markets basically by the government picking up a lot of the costs of the economy. The government in America provided low-cost education, not student debt. It provided transportation at subsidized prices. It provided basic infrastructure at low cost. And so, government infrastructure was considered a fourth factor of production.

And if you read what the business schools in the late 19th century taught like Simon Patten at the Wharton School, it’s very much like socialism. In fact, it’s very much like what China is doing. And in fact, China is following in the last 30 or 40 years pretty much the same way of getting rich that America followed.}

{So, all of this cost structure has been built into the economy. China’s been able pretty much, to avoid all of this, because its objective in banking is not to make a profit and interest, not to make capital gains and speculation. It creates money to fund actual means of production to build factories, to build research and development, to build transportation facilities, to build infrastructure. Banks in America don’t lend for that kind of thing.}

{They only lend against collateral that’s already in place because they won’t make a loan if it’s not backed by collateral. Well, China creates money through its public banks to create capital, to create the means of production. So, you have a diametric opposite philosophy of how to develop between the United States and China.}

{So again, no rivalry. The United States is an object lesson for China on what to avoid, not only in industrializing the economy, but in creating a picture of the economy as if everybody earns everything and there’s no exploitation, no earned income, nobody makes money in their sleep and there’s no 1 percent. Well, that’s what’s really at issue and why the whole world is splitting apart as you and I are discussing in what we’re writing.}

Is China about to go full Marxism?

{That’s what I’m advocating, and I don’t think that’s a bad thing. These financial intermediaries shouldn’t exist, and this same issue came up in 2009 in the United States. You had the leading American bank being the most crooked and internally corrupt bank in the country, Citibank making junk mortgage, and it was broke.

And, she was overruled by President Obama and Tim Geithner saying, but wait a minute, those are our campaign contributors. So, they were loyal to the campaign contributors, but not the voters; and they didn’t close Citibank down.

And the result is that the Federal Reserve ended up creating about $7 trillion of quantitative easing to bail out the banks. The homeowners weren’t bailed out. Ten million American families lost their homes as a result of junk mortgages in excess of what the property was actually worth.}

{Well, right where the Obama administration left off, you’re about to have the Biden administration begin in January with an estimated 5 million Americans losing their homes. They’re going to be evicted because they’ve been unemployed during the pandemic. They’ve been working in restaurants or gyms or other industries that have been shut down because of the pandemic. They’re going to be evicted and many homeowners and, low-income homeowners have been unable to pay their mortgages.

There’s going to be a wave of foreclosures. The question is, who’s going to bear the cost? Should it be 15 million American families who lose their homes just so the banks won’t lose money? Or should we let the banks that have made all of the growth since 2008? Ninety five percent of American GDP of the population has seen its wealth go down. All the wealth has been accumulating for the 5 percent in statistics. Now the question is should this 5 percent that’s got all the wealth lose or should the 95 percent lose?}

I'll argue most if not all of this could have been avoided with a month or so total shut down in the beginning of January 2020 within a drastically cheaper cost effect towards supporting citizens like China did were to have been enforced.

{But there it goes straight now. How can you suppose you would have a straight Acela line from Washington up to Boston when all along the line, there’s all this real estate right along the line that has been built up? There’s no way you can get a dedicated roadway without having to tear down all of this real estate that’s on either side and the cost of making the current owners whole would be prohibitive. And anywhere you would go, that’s not in the center of the city, you would also have to have the problem that there’s already private property there.}

I have occasionally said that our entire social structure needs to be leveled and redeveloped. Many of our cities and even rural areas are a nightmare for truck drivers as it is.

{So, there’s no way that you can rebuild the infrastructure because, for one thing the banking system here has subsidized for a hundred years junk economics saying you have to balance the budget. If the government creates credit it’s inflationary as if when banks create credit, it’s not inflationary. Well, the monetary effect is the same, no matter who creates the money. And so, Biden has already said that President Trump ran a big deficit, we’re going to run a bunch of surpluses or a budget balance. And he was advocating that all along. Essentially Biden is saying we have to increase unemployment by 20 percent, lower wages by 20 percent, shrink the economy by about 10 percent in order to, in order for the banks not to lose money.}

Well, this would suggest we are about to be used as a major sacrifice for the ruling classes benefit like no other time in history. I was really hoping to be dead before this hammer came down. !Now we can actually see why this virus was handled the way it was! Simply a prelude to what's coming.

{You’re going to price the American economy even further out of business because they say that public investment is socialism.}

And why socialism has been a main phase in todays political and media arena. And most are being conditioned to buy right into their agenda against their own interest. Chess versus checkers.

{I’m working now, with Chinese groups trying to develop a “reality economics” to be taught in China as different from American economics.}

In other words. The Chinese students are coming to the US to learn about Marxism and what not to do to take back home to find prestige.

Michael--{So, the question is, can you make money somehow without having any production at all, without having wages, without having profits, without any capital? Can you just have asset grabbing and buying-and-selling assets? And as long as you have the Federal Reserve in America, come in, Trump’s $10 trillion Covid program gave $2 trillion to the population at large with these $1,200 checks, that my wife and I got, and $8 trillion all just to buy stocks and bonds. None of this was to build infrastructure. None of this $8 trillion was to build a single factory. None of this 8 trillion was to employee a single worker. It was all just to support the prices of stocks and bonds, and to keep the illusion that the economy had not stopped growing. Well, it’s growing for the 5 percent. So, it’s all become fictitious. And if you look at the GDP as I said, it’s fictitious.}

Pepe: {And the most extraordinary thing is none of that is discussed in American media. There’s not a single word about what you would have been describing.}

Michael: It’s not even discussed in academia. Our graduates at the university of Missouri at Kansas City, we’re all trained in Modern Monetary Theory. And as hired professors they have to be able to publish in the refereed journals and the refereed journals are all essentially controlled by the Chicago School. So, you have a censorship of the kind of ideas that we’re talking about. You can’t get it into the economic journals, so you can’t get it into the economics curriculum. So, where on earth are you going to get it? If you didn’t have the internet you wouldn’t be discussing at all. Most of my books sell mainly in China, more than in all the other countries put together so I can discuss these things there. I stopped publishing in orthodox journals so many years ago because it’s talking to the deaf.}

They go into talking about Russia for a while. They fairly back up my previous statements that Russia was simply turned into a tool for the world ruling elite. From Clinton's interference towards producing Putin as the new power house, the remaining question I've made, just what role does Putin actually play in the scheme?

Michael: The way that neoliberalism works, it divides the economy in parts, and it makes every part trying to make a gain, and if you do that, then you don’t have any infrastructure that’s lowering the cost for the other parts. You have every part fighting for itself. You don’t look at in terms of a system the way China’s looking at it. That’s the great advantage of Marxism, you’ll look at the system, not just the parts.

Pepe: Exactly and this is at the heart of the Chinese concept of a community with a shared future for mankind, which is the approximate translation from Mandarin. So, we compare community with a shared future for mankind, which is, let’s say the driving force between the idea of Belt and Road, expanded across Eurasia, Africa and Latin America as well with our good old friends’, “greed is good” concept from the eighties, which is still ruling America apparently.

Michael: And the corollary is that non-greed is bad.

Pepe: Exactly and non-greed is evil.

{You see the closer integration; you see for instance Uyghurs traveling back and forth. You know, Uyghurs that have families in Kyrgizstan for instance, I met some Uyghurs in Kyrgyzstan who do the back-and-forth all the time. And they said, there’s no problem. They are seen as businessmen so there’s no interference. There are no concentration camps involved, you know, but you have to go to these places to see how it works on the ground and with Covid, that’s the problem for us journalists who travel, because for one year we cannot go anywhere and Xinjiang was on my travel list this year, Afghanistan as well, Mongolia.}

A further debunking of the false narrative our MSCM hands out about the Uyghurs. China has spend billions in producing these cities for farmers towards their land rights and Uyghurs to become a part of their society.