There’s this guy, Michael Hudson, that gets to post at Unz.com. And Vox Day seems to like him.
Here he is talking with a lefty about industrial capitalism — semi good — and finance capitalism — not good.
Under industrial capitalism, the capitalists hoped,
banking would no longer be just usury, it wouldn’t be just consumer lending to exploit labor, and it wouldn’t be lending to the government somehow.
Well, no. Actually, banks tend not to get into usury, because it’s too risky and it needs “enforcement” from The Mob. And lending to the government? Please. Ever since the Dutch invented central banking, government has been at the center of the financial system. For good and bad: mostly bad.
The hope of the industrial capitalists was that
The financial system would recycle the economy savings and money creation and credit into industrial production and would finance the means of production to make that productive[.]
But actually what happened under industrial capitalism was that the Rockefellers and the Carnegies made fabulous fortunes, not on the recycling of credit, but because the equity, the present value of their industrial corporations, shot into the stratosphere. But they tended not to understand that, because they thought of the value of their companies as the investment put into it, rather than the present value of future income from their incredible innovation and economies of scale.
But then came World War I and the 1920s and we had
the financial system take over as a result of the crisis caused in the 1920s by the German reparations debt that couldn’t be paid and the inter-ally debt that was insisted upon to repay the United States for the arms that have supplied Europe for a century into World War I. Well, the result was a huge depression.
Well no. The problem was that German reparations was a simple looting of the German people, and they tried to get out of it with hyperinflation which just Made Things Worse. On top of that, the allies reset their currencies back to the pre-WWI parity and that launched a nasty deflation. Deflation really screws with debtors and makes them really angry. See worker riots after the Napoleonic Wars, and the Crash of 1873 after the US Civil War.
If the allies had kept their currencies at the post-war inflated value without “resumption” at the pre-war gold price, and if the allies had not looted the German people with reparations, then everyone would have lived happily ever after.
Except that in the 1920s you could buy stock on margin, borrowing 90 percent of the value. Not good. In Lombard Street, Walter Bagehot describes how the debt system must work. First, debt must be properly collateralized so it can be liquidated in case of default. That means that lenders shouldn’t lend 90 percent of the value of a stock that might down down in value, like in the Crash of 1929. Second, the borrower must be able to service the loan. As in, what happens if the borrower loses his job?
Hey how about borrowing 90 percent on real-estate in 2006?
I like to say that borrowing in general is a lot more risky that we are taught to believe. Borrowing is taking a bet on the future, that good times will continue until you have paid off the loan. Very often it doesn’t, and then both lender and borrower are screwed.
How does finance capitalism work?
The finance capitalists then were the basically the ancestors of today’s neoliberals and they said any amount of debt can be paid by any country if it just lowers the living standards and squeezes labor enough and that’s what basically the philosophy of the IMF ever since world war II when third world countries can’t pay the debt, the IMF comes in with an austerity program and say you have to lower wages, you have to break up labor unions, if necessary you have to have a democracy, and you can’t have a democracy unless you’re willing to assassinate and arrest the labor leaders and the advocates of land redistribution because a democracy means basically rule by the financial sector centered in the united states.
Er, no. What happens is that Third World countries — like all governments — are loot and plunder operations, but their leaders don’t keep the looting down to a dull roar. So pretty soon they can’t pay their bills, they have a currency crisis, and the IMF comes in and says, OK, we’ll lend you some money but you guys gotta cut the looting for a while. So the corrupt government cuts the loot and plunder and blames the IMF for all the austerity. So would you if you were a government borrowing from the IMF.
Here’s how Hudson sees US global finance capitalism.
so finance capitalism is the tactic of economic warfare by the United States against Europe and the global south to sort of draw all of the economic surplus of these countries in the form of debt service and the debt service is supplied by basically economic rent seeking from land rent, natural resource rent, and just plain interest charges on economy.
Except that no country would have a problem if it kept its finances in order and didn’t have to go to the IMF on bended knee.
Finance capitalism is not based on surplus value like industrial capitalism was.
Wrong. Surplus value is a concept in classical economics, and it is rubbish, Karl Marx. Either the revenue of an enterprise, including dividends and debt service, is greater that its costs, in which case the stock market will put a present value on the future projected earnings, or it will go into bankruptcy. In other words, either a company is adding value to the inputs of labor and capital and materials, or it is not long for this world.
In fact, [finance capitalism] destroys industry and in this cannibalizing of industrial capital, it basically dries out the economy and makes it unable to break even or even to function and in the United States today, for instance, if you look at the balance sheets of corporate revenue much of it is spent on stock buybacks. You buy back your own stock or dividend payouts. Only eight percent of corporate earnings are spent on new capital investment research and development: factories, machinery, and means of production to employ labor.
E.g., General Electric, with Jack Welch using profits to buy back stock and jack up the stock price. Good point. It’s a problem with any mature corporation that is not innovating, but just a going concern. Do you just sit there and do nothing as the world passes you by? Do you buy back the stock? Or do you branch out into new industries?
My judgement is that mature companies, like mature humans, grow old and die. They say that the average member of the Dow Jones 30 Industrials gets to be there for about 20 years. Then, it goes broke or gets bought out by a new rising star. If you do a Jack Welch you probably shorten the life of the corporation. But you, the CEO, make a ton of money before you head for the exit. Not good for the average employee.
But here’s the real crazy stuff.
Well, industrial capitalism in the nineteenth century was all in favor of strong government infrastructure. The ideal of industrial capitalism was to keep the wage costs of production down not by reducing wages but having government provide a basic infrastructure to cover the basic needs of employees. The governments would provide free education so that employers didn’t have to pay for it. The governments would provide medical care so that employees didn’t have to pay for it and employers wouldn’t have to pay employees enough money to cover the education costs and to cover the medical care costs. The government would build roads and infrastructure and everything to facilitate the overall cost of doing business by industrial capital.
Hoo boy. I’m not so sure that the corporations were all in favor of government infrastructure. I don’t think they thought about it. It was intellectuals like Horace Mann that brought in government education. It was politicians like Bismarck that brought in social insurance by the government. It was General Eisenhower that proposed we build freeways. It’s only now that we have capitalists like Klausie Schwab and Georgie Soros with Big Plans for society. Rockefeller was interested in charity and universities. Carnegie was interested in libraries and Peace. Rather down-market for our modern high-fliers.
Finance capitalism wants to privatize and take education, medical care, roads, turn the roads into toll roads, and take all of these and privatize them and make them financial corporations that will essentially pay out their economic rent to the bondholders and the stockholders and this economic rent adds to the cost of education and everything else that workers need to live on[.]
No, pal. I’d say that if the government runs education, medical care, roads, etc., it just turns them into loot and plunder for its supporters, and it slowly runs them down. So we get the public schoolteachers getting paid during COVID for doing nothing. And roads? Well, our glorious leaders have soured on roads. They would rather build bike lanes.
So basically, finance capitalism is a predatory international economic policy aimed at draining the rest of the world all to pay the leading one percent of wealth holders in the U.S. and their satellite oligarchy in England and a few European countries.
Let’s just state this another way, as “government is a predatory institution that taxes and borrows as much as it can so it can distribute as much loot and plunder to its supporters as it can. And, of course, the richest supporters are first in line.”
But the commoners of the world are starting to rebel against this. Not that we know what we are doing, and how we can possibly change the current system of loot and plunder.
Ideally, of course, businesses wouldn’t care about the government. That’s what Bill Gates thought in the 1980s. But then the moment came in 1992 when the FTC and then Janet Reno at the Justice Department said to Bill: “nice little business you got here, pity if something should happen to it.” After that, Bill started hiring lobbyists in Washington, DC. And no doubt he has paid his dues ever since.