I came across this interview the first time on Vox Day's blog the other day, and then again on UNZ. Now after having read it in full, I'd like share some snippets of the interview myself.
Michael Hudson is one of the genuine treasures in our world today. I have plugged his book ...and forgive them their debts several times here before and will many times again. I highly recommend it because it shows how a lot of conventional wisdom about economic management is wrong, and the Bible and history, my two favourite topics, show why.
This interview of Hudson's is enlightening and talks about why our world is in the economic and military bind that it is today. This is more about the current economic situation and why modern capitalism is such a failure. Or as Hudson calls it, financial capitalism.
MICHAEL HUDSON: Well, what gets Americans so upset is that China’s getting rich by doing exactly what the United States did in the 19th century. I’ve written a book America’s protectionist takeoff where I described the whole idea of American protectionism was tariff protection for its industry, government subsidized research and development, government subsidy of industry by having infrastructure as a fourth factor of production alongside land labor and capital – and it was supposed to have public banking.
So basically China, like the United States, said we want to raise the living standards of labor not because of an abstract ideal but because highly paid labor is more efficient labor, a highly paid labor is more educated, it’s better fed, it’s healthier and the Americans in the nineteenth century pointed out that America was the highest paid labor in the world but it was also the most productive and high paid labor outsold pauper labor.
Well China began under Mao with, you’d look at pictures back in the fifties, and even early sixties and you’d see masses of beggars and I’d look at the pictures and I said how on earth are they going to solve this problem? Well, they actually did it and China realized that in order to survive in the modern world you had to have uh well-paid, well-housed, well-fed, well-educated labor and they’ve done it.
The difference is that America had kept money creation in the hands of the treasury ever since the greenbacks in America’s Civil War. Basically, the government created money but in 1913, JP Morgan and the financial sector got together and they said we’ve got to get the government out of money and credit. If we can control money and credit, we can control the economy so they convinced President Wilson to have the Federal Reserve. They said we’re not even going to let a treasury official be on the Federal Reserve.
We’re going to move the Federal Reserve banks out of Washington. We’re going to have the key bank in New York where Wall Street is the ideal of a Federal Reserve to make a centrally planned economy and America is a much more centralized planned economy than China but its centralized planning is on Wall Street by the financial sector, by the leading financial corporations instead of the government.
So, where America took economic forward planning out of the hands of the government in 1913, China has kept the financial system in the hands of the government. Let’s look at how these two countries create money in a different way since the Obama depression began in 2008.
The Federal Reserve has created a tidal wave of credit, all into the stock market, in the bond market, all of this recent zero interest policy. This flood, these nine trillion dollars of federal reserve credit has only been to support banks, real estate prices, bond and stock prices, to support property prices. That’s not what they do in China, although the prosperity that China has created has increased uh housing prices and there has been private credit increasing housing prices. China has kept money creation in the hands of the government itself so that when the government creates money it can finance the creation of factories plant and equipment, dams, transportation infrastructure, public housing.
It doesn’t create money to lend to financial speculators and stockholders to increase their holdings, it creates actual tangible means of production. Now of course, if you create tangible means of production and employ labor and have high speed railroads and research laboratories, you’re going to overtake countries that are busy closing down the factories and cutting back research and development because they want quick payouts.
So the chief public utility to be kept in the public domain, (China realizes and has realized from the beginning) is the banking system and credit creation even so there’s still private credit creation to some extent. They’ve also let some participation by American Wall Street firms such as Goldman Sachs because it’s hoped, it wants to avoid war and it hopes that it can by providing opportunities for financial profit to American companies that will somehow uh convince Wall Street to resist the Biden administration’s race hatred of China and the attempt to move towards a new war against China.
Obviously, the assumption that China made that seemed rational at the time was well the American economy is run by Wall street so if we can have Wall Street say we’re doing just fine with China, everything’s going to be okay. But Wall Street and the Federal Reserve bank and the treasury have not even been consulted on this year’s war, NATO’s war with Russia in Ukraine at all. It’s Blinken and Biden and the neocons basically are waging a war that has sidelined finance and the result is to create the present crash in stock market prices and the parallel decline in bond prices.
So, finance capitalism is intrinsically self-destructive whereas industrial capitalism is self-expansive. Finance capitalism is self-destructive and that’s exactly what’s happening today and that’s what China wants to avoid by basically following the logic of what used to be called industrial capitalism.
By the 19th century, everybody used the word socialism and it wasn’t only the Marxists that were using the word socialism. There were Christian socialists, libertarian socialists, anarchist socialists and all different kinds of socialists. They recognized that you have to have the government sponsorship of a balanced and fair economic development. You have to prevent people from getting rich not by providing any productive service at all but just by being good rip-off artists and that’s basically what finance capitalism is: opportunity for rip-off artists to get rich uh by taking money away from the 99 percent, into their own hands.
Our economies are dominated by a financial elite that pillage our current industry and production capacities for unjust gain. They want everything privatized, so they can charge for it. It's not profits from surplus created by labor that they pursue, it is complete financialization of the markets, trading, gambling in stocks, rent seeking and more that they are after. Far more destructive means.
But the reason why I shared this segment is that many people think that America got rich with free markets. But they didn't, they built up their economy with a protectionist system not unlike how China is now, they limited what could come into their country, took what they could from others and invested lots of government money into their domestic industry. Other historians I've read have noted this as well. America limited both immigration and foreign goods. Once they became dominant and wanted access to foreign markets after World War 2, they then began to proclaim free trade as Dogma.
China is freaking America out because to dominate China America needs unrestricted access to their finance sector to cannibalise their economy. This is not possible now because China protects itself from such manipulation. China is not getting rich with free trade, it's getting rich by playing one rule at home and another overseas, just as the US did, just as the British Empire did. China is playing to win and IT IS winning. Fascinating to live to see this.
I'll share more over this week.