Killing the Host

unz |  CHRIS HEDGES: We’re going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there and where we’re going. And with me to discuss this issue is the economist Michael Hudson, author ofKilling the Host: How Financial Parasites and Debt Destroy the Global Economy. A professor of economics who worked for many years on Wall Street, where you don’t succeed if you don’t grasp Marx’s dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.

I want to open this discussion by reading a passage from your book, which I admire very much, which I think gets to the core of what you discuss. You write,

“Adam Smith long ago remarked that profits often are highest in nations going fastest to ruin. There are many ways to create economic suicide on a national level. The major way through history has been through indebting the economy. Debt always expands to reach a point where it cannot be paid by a large swathe of the economy. This is the point where austerity is imposed and ownership of wealth polarizes between the One Percent and the 99 Percent. Today is not the first time this has occurred in history. But it is the first time that running into debt has occurred deliberately.” Applauded. “As if most debtors can get rich by borrowing, not reduced to a condition of debt peonage.”

So let’s start with the classical economists, who certainly understood this. They were reacting of course to feudalism. And what happened to the study of economics so that it became gamed by ideologues?

HUDSON: The essence of classical economics was to reform industrial capitalism, to streamline it, and to free the European economies from the legacy of feudalism. The legacy of feudalism was landlords extracting land-rent, and living as a class that took income without producing anything. Also, banks that were not funding industry. The leading industrialists from James Watt, with his steam engine, to the railroads …

HEDGES: From your book you make the point that banks almost never funded industry.

HUDSON: That’s the point: They never have. By the time you got to Marx later in the 19th century, you had a discussion, largely in Germany, over how to make banks do something they did not do under feudalism. Right now we’re having the economic surplus being drained not by the landlords but also by banks and bondholders.

Adam Smith was very much against colonialism because that lead to wars, and wars led to public debt. He said the solution to prevent this financial class of bondholders burdening the economy by imposing more and more taxes on consumer goods every time they went to war was to finance wars on a pay-as-you-go basis. Instead of borrowing, you’d tax the people. Then, he thought, if everybody felt the burden of war in the form of paying taxes, they’d be against it. Well, it took all of the 19th century to fight for democracy and to extend the vote so that instead of landlords controlling Parliament and its law-making and tax system through the House of Lords, you’d extend the vote to labor, to women and everybody. The theory was that society as a whole would vote in its self-interest. It would vote for the 99 Percent, not for the One Percent.

By the time Marx wrote in the 1870s, he could see what was happening in Germany. German banks were trying to make money in conjunction with the government, by lending to heavy industry, largely to the military-industrial complex.

HEDGES: This was Bismarck’s kind of social – I don’t know what we’d call it. It was a form of capitalist socialism…

HUDSON: They called it State Capitalism. There was a long discussion by Engels, saying, wait a minute. We’re for Socialism. State Capitalism isn’t what we mean by socialism. There are two kinds of state-oriented–.

HEDGES: I’m going to interject that there was a kind of brilliance behind Bismarck’s policy because he created state pensions, he provided health benefits, and he directed banking toward industry, toward the industrialization of Germany which, as you point out, was very different in Britain and the United States.