Dr. Michael Hudson is an American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. Dr. Steve Keen is an Australian economist and author. A post-Keynesian, he criticizes neoclassical economics as inconsistent, unscientific and empirically unsupported. Our conversation examines the false dichotomy of capitalism v. socialism and considers the true dichotomy, which is industrial capitalism v. finance capitalism. Hudson and Keen argue that the transition to finance capitalism, where unearned income is considered economic growth, has truly sown the seeds to ruin the world.

Michael Shilo DeLay

We came down to the idea that the best thing to do might be to get both of your perspectives on why capitalism functions the way that it does, how it functions first of all, as opposed to the way that it’s ideally supposed to function, and then talk about why some of those myths persist about capitalism. And maybe, if we’re really lucky, we will work towards a picture of something better in the future because that’s what I’m personally obsessed with. So…

Michael Hudson

Obviously, there are different kinds of capitalism, and we’re in finance capitalism. And What Steve and I are talking about really is the degeneration and reversal of industrial capitalism —away from its revolution into socialism, and toward finance capitalism, neo-feudalism, and global disaster. It’s supposed to work. It’s supposed to create a global disaster. So 1% of the population owns everything else and can take over the 99%. Isn’t that what’s supposed to work? Yeah, if you’re one of the 1%. So, who’s supposed to work for whom?

Michael Shilo DeLay

Let’s unpack that history a little bit, from the grand ideal we started.

Steve Keen

Have we started?

Michael Shilo DeLay

Yeah, we started recording at the very beginning, and then, you know, we’ll probably acts off the beginning until we get rolling.Exactly. But I honestly think we can just launch into it. I’d like to get both of your perspectives on how these events unfolded to the place that we’re at.

Anastasia Bendebury

So before we get to the events that have unfolded, let’s make sure that…

Michael Shilo DeLay

We need to do that.

Anastasia Bendebury

We do need to do in a way.

Michael Shilo DeLay

We have one more tactical thing

Anastasia Bendebury

Alright, that’s a good call. Okay, so I’m going to clap here and then…

Michael Shilo DeLay

We use this title on the audio. So if each of you in turn, we can maybe start with Michael. If you could say something with a ‘P’ like Karl Popper, perhaps…

Michael Hudson

Karl Popper.

Michael Shilo DeLay

Got it. And then Steve.

Michael Hudson

Peter picked up a pack of pickled peppers.

Anastasia Bendebury

Yeah.

Michael Shilo DeLay

Nice. Right?

Anastasia Bendebury

Okay.

Michael Shilo DeLay

I think that’s how.

Michael Hudson

Get that explosiveness that pumpkins up.

Steve Keen

Yeah, that’s all. How I’ll go for Polanyi.

Anastasia Bendebury

Okay.

Steve Keen

So I’m not Popper.

Anastasia Bendebury

I want us to start with making sure that everyone is on the same page for what we’re talking about. So when we say that capitalism is broken or it’s not working, do both of you have the same vision for what that means? Or do you have slightly different perspectives or totally different perspectives on how it’s going?

Michael Shilo DeLay

What that word means? It’s such a huge, powerful word in this discussion. We should probably define it as vigorously as possible.

Michael Hudson

Well, first of all, that’s the wrong question. ‘Working for whom?’ It’s working very good if you’re one of the 1%. It’s working very badly if you’re one of the 99% or if you’re living in a part of the world that the rising sea levels are going to make uncomfortable, or if you’re a renter and not a homeowner, or if you’re a debtor, not a creditor. So it’s working. For whom is the first question?

Michael Shilo DeLay

What is it? What is capitalism? I know this is a very elementary question, but I think it’s really important that we define that term up front.

Michael Hudson

The word ‘capitalism’ was coined in the early 20th century by the chairman. I’m always plucking out his name right now.

Steve Keen

It’s from Plato.

Michael Hudson

No, no, no. Who wrote ‘The Bourgeois’? Many of us. I’m blocking it all out. Right. Well, think what most people think of as capitalism is what Marx wrote about, describing industrial capitalism, where the distinguishing feature is wage labor. Industrialists will hire labor to produce a good to sell at a profit. And the idea is for capitalists in one country to undersell those of other countries and continually cut costs so that they can undersell their rivals. Modern finance capitalism is the opposite. Finance Capitalism or ‘Pentagon capitalism’ aims to maximize the cost of production. In ‘Pentagon capitalism,’ you’re paid an automatic 10% or similar proportion of whatever you spend money on. So the objective of ‘Pentagon capitalism’ is instead of making a $20 toilet seat, you make the famous $350 toilet seat because then you get a $35 10% commission. Is that capitalism? The kind of capitalism we have today? If you want to say is capitalism, what we now have is finance capitalism, and that’s the antithesis of industrial capitalism. Industrial capitalism sought to cut costs, and how do you do it? You do it by having the government play a rising role. The government would make sure that costs are not increased by monopolies because any natural monopoly is going to be taken into the public domain. Communications, health care, education, transportation—all of these were developed by the government and supplied to the private sector at a discount or even freely so that the wage earners who were hired by the employers didn’t have to spend their wages on health care or education. And that enabled American and German wages not to include all of these extra costs because of government. The ideal of industrial capitalism was revolutionary. It was to get rid of the rent seekers, to get rid of economic rent as unearned income, to get rid of the landlord class by taxing away land rent, to get rid of the monopolists by putting monopolies in the public domain, or at least regulating them. What happened was the rent seekers fought back and gave us modern economics. Modern economics said that government plays no major economic role. The one thing it picked up from industrial capitalism was to say any problem has a solution. The solution to every problem is one of two things: one, lower the wages of labor and its living standards; two, get rid of government and let the private market solve everything. As long as the market is controlled by the financial interests. The ideal of finance capitalism is to replace economic planning away from the government towards the financial centers and to maximize economic rent. By the end of the 19th century, modern economics saying markets are ideal the way they are. Any attempt to change the natural market is an interference with the market. And the interference they meant was they didn’t want socialism to develop, they didn’t want economic regulation to develop, they didn’t want anti-monopoly regulation to develop. They essentially wanted to create an economy run by the financial sector, making money by creating economic rent opportunities and deindustrialization. The objective of finance capitalism is to make money quickly with the least effort possible. And that does not mean you invest in a factory and develop markets. You take over a factory or a corporation, break it up, deindustrialize, turn the office buildings or factories into gentrified housing. And you remove all of the taxes on economic rent, on land rent, on monopoly rent. Essentially, you create an economy that is overblown and in many ways is very much like the feudal economy—special interests, inherited rights, and the economy polarizes primarily by debt. And so this post-industrial capitalism has sort of created a new idea of economics as its advertising a public relations effort. And this neoclassical, anti-government economics says that the ideal of any economy is to make money quickly as it is measured in financial form. And what we’re seeing today in the United States is a huge upswing in the financial wealth of the 1% of the population, while the 99% of the population is running into debt. So if you read the newspapers in the United States these days, it’s all about why don’t Americans realize what a wonderful thing that President Biden has done? The economy is doing wonderfully. Why do people say it’s not doing wonderfully? Why are they so unhappy with the economy? Well, the reason is it depends on who is the economy that you’re talking about. Are you talking about the economy for the 1% or the economy for the 99%? And the 1% are making money so rapidly at the expense of the 99% that overall wealth is actually going up? And so people think that the economy is doing good, but it’s a very polarized, concentrated economy, just the opposite of what industrial capitalism aimed at.

Michael Shilo DeLay

Steve, do you have a different perspective on the history?

Steve Keen

Well, I want to try. I can see you trying to absorb what Michael was saying there, and it’s amazing to watch. A narrative will set how we think about a system, and Michael’s narrative—you know, I think I have much agreement with Michael was saying. There are elements I disagree with moderately. But the overall narrative Michael’s making is, you know, I think quite an accurate description of how capitalism, as it was originally saying, which was the industrial capitalism has been distorted into financial capitalism. And that has worked out very well for those who own the financial assets and extremely badly for those who work and to some extent extremely badly for those that manufacture as well. So you do have that, I think, Michael, narrative is accurate, in other words. But I would also come back and say, well, what’s the original distinction of capitalism from feudalism or from socialism? And that starts off with the private ownership of the major production. Now, again, I’m not going to agree on that one, but what you get out of that is in a modern society, there’s no such thing as a perfectly private system, never, never existed. There’s always been a mixture of private and public. And the question under capitalism, what would work better? And if you ask what would be better in general what Michael was talking about, where the government provides health, education, wealth, and the infrastructure, etc., etc., that means that workers are paying, as he said, aren’t paying for the cost of transportation to make a profit for the owner of transportation. They’re paying a lower cost. They’re getting free education. So the capitalists don’t need to educate them, etc., etc. And what you get therefore, is a higher profit for those manufacturers. But financial capital is very much based on their classical economic thinking is that neoclassical economics didn’t intend to be a defense for financial capital. But that’s what’s worked out. When I say deregulate, I mean remove controls on the finance sector. So therefore, I very much agree with Michael’s perspective overall. But I think we have to and say, well, you know, let’s look at the systemic level—feudalism versus capitalism, capitalism versus socialism. And the private ownership of the means of production is an essential part of that. What you get—and this is in Michael’s narrative as well—is a large part of what is done by the powers that be. And in capitalism, that makes it work less well than if they hadn’t garage around with the system in the first place. And if you look back and say, what was the period where this is America’s reference point, American population was happiest and I’d say the happy days period, the 50s and 60s, which, you know, the Happy Days show, captured that. And you could have a single male worker most of the time supporting a large family and having plenty of leisure time relatively. They didn’t have fancy things like this to talk on, conversations across the Internet, etc., etc., at the technological levels obviously lower, but you could support a family and have a reasonable family life and be working in an industrial setting as well. Have pride in what you are doing as a worker, etc., etc. So that’s not America today. And so a lot of the sense of misery people get, even though you will get neoclassical economists in particular saying, ‘Oh, they’re so much better off than they were back then,’ because look at the cars as I drive, you know, of let’s technological change and that side of capitalism is one worth discussing that’s the main distinguishing feature in one sense between a feudal period and a capitalist, you have a greater right of technological development during capitalism. And to some extent that benefits everybody. But you’ve had a breakdown. Financial capital has undermined what made capitalism great for the period that it was. And that’s a large part of Michael’s argument. And I’ve seen the data on that, too. If you look at the level of private sector debt, you got the booms and busts of private debt. What drives the apparent wealth and the final poverty of capitalism? We are now in the period of the highest level of private debt in America’s history. And every time we get a high level of private debt like that, it’s, you know, the old joke about if you owe the bank $100, you have a problem; you have a problem for the bank a million dollars. The bank has a problem. Well, we’ve ended up with a bank dominated because we are the billion the trillion dollars. And the dominance of the finance sector, I think, is what’s eroded the good side of capitalism. And that has been supported by conventional economic theory, even though they claim, of course, they’re not doing that.

Michael Hudson

Okay. Now, based on what Steve has said, I can see the question that should have been asked. What direction is capitalism going in? And we could have said what direction was industrial capitalism going in. Everybody in the 19th century said it’s going towards socialism. There were many kinds of socialism. And the whole argument in the last decade of the 19th century was what kind of socialism are we going to have? It’s obvious that instead of having a post feudal ruling class, a post feudal landlord class to collect rent, post feudal monopoly class and a predatory banking class, we’re going to have government playing an increasing role, including money creation and control of the credit system. So that was going towards socialism. There was a counter revolution, and that’s the revolution that we’ve been having for the last century towards neo classical neoliberal economics, and that’s finance capitalism, and that’s going in the direction that precisely what Steve just pointed out. What is really growing under finance capitalism is finance is debt. And the debt of the population as a whole is credit on the opposite side of the balance sheet. So while people now are talking about the growth of debt and the debt problem. The debt problem has a twin on the other side of the balance sheet that grows proportionally. The debts of one group are the assets of another. So when Steve and I have both written about how the modern economic picture ignores debt and money because they say we owe the debt to ourselves, but who’s the ‘we’ and who is the ‘ourselves’? The debt that we owe, or the debt the 99% to ourselves, the 1%? So we’re really getting a narrative by the 1%. And it’s very largely a fictitious Orwellian doublespeak or narrative.

Anastasia Bendebury

Was this kind of transition away from the happy days of the 50s and 60s inevitable because there was more money in the world and there was a greater need to put it somewhere where it would continue to accrue? What accrued value?

Michael Hudson

That’s the kind of question an economist would ask you if you apologize for that comment.

Anastasia Bendebury

I am learning of total years for long enough.

Michael Hudson

Every economic tendency politicizes itself. And the problem is that the financial class gets richer, what does it do? It takes over government and it takes over policy making, especially in the United States. You privatized the election process by the Citizens United ruling where the nomination of political candidates is based on who can raise the most money from the donors. And so the head of every congressional committee, whether it’s the military or financing the heads of the financial committee and the members, are all received donations from the banks and the financial classes, the heads of the military committee. So get a subsidy by the military industrial complex. So this is the magic of the marketplace is political as well as just economic. That’s what has changed things. The law has changed. The application of the law has changed. The culmination of finance capitalism peaked with President Obama, who had the largest bank fraud in American history and not a single bankster was sent to jail because the banksters nominate the judges. The banksters nominate the lawmaker. So you have economics is not simply the growth of debt or the growth of income. It’s a mode of economic power translates itself into political policy, regulation and who staffs the regulators?

Michael Shilo DeLay

It seems like the political aspects feed back upon the financial structures as well. With things like, you see, the rise of ESG is being priced into corporate decision making. Is there a feedback loop at play there as well, where politics start to drive some of the financial decisions?

Steve Keen

I’ll fight finance, roads, everything. I mean, we know the expression ‘the military-industrial complex’ that was actually coined by General Dwight D. Eisenhower, president-general. So, I think Eisenhower pretty much in his last day in office and he was a general and certainly see not just from the point of view of the president, but having been in the military himself, the extent to which the industrial complex generated the strength of the military sector and that ran American politics. What we have today, I think I call the financial-political complex. The financial sector is the only part of the economy that has the ear of politicians. Politicians are persuaded by very self-serving arguments which, you know, look convincing, but they’re cut beneath them and they’re self-serving. And all the reforms, so-called, are about liberating finance. I just want to share, can I actually share my screen with you? Because I want to show some data because most people have got no awareness of the level of private debt in America and they try.

Anastasia Bendebury

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Steve Keen

You’re going to see the top graph is the ratio of private debt to GDP in America from 1947 to today. Okay. And it starts about 50% of GDP back at the end of the Second World War, and then it just explodes cyclically, but it slows from 50% to 170% from the financial crisis in 2007 2008 occurred because the rate of growth of that debt turns from positive to negative. It went from a Ponzi scheme, the whole subprime thing, etc., etc. Ultimately, that fell over because people could miss a payment. Suddenly, they go bankrupt. And the growth of debt goes the opposite way, and drives house prices in the opposite direction. And you can see what I’ve done down here is I’ve taken the change in debt. So this is the level of debt, which are the dollars we owe, that’s currently running at about $40 trillion, I think, in America’s current level. This is the annual change in debt that’s credit. The dollars per year that you borrow or the financial sector encourages you to take on as debt. And that peaked at over 15% of GDP just before the crisis began. It went down to minus five. Now, that’s repeating his part of history that’s been a part of America, right back to the 30s. You had the Great Depression, which was a more extreme version of this, and the panic of 1837, which was more extreme again. But the level of debt has never been as high as it is this time round. And that’s why we still live in a financial-loss economy. And the numbers scream it. Now, what do you get out of mainstream economic theory as one of the. Well, this is the way in which Michael and I first bonded because we always approach the same issue from different directions. And we were about the only people and non-orthodox economists arguing the level of private debt mattered. And credit was driving the economy. And I remember, Michael, you remember this conversation. I’m sure I stayed in a hotel in a cabin in New York, and you came to visit me. And we were driving away in my hotel room, and you finally said to me, what is aggregate demand? And I answered, Now, technically, I’m slightly wrong here. I’ve since improved the argument. I answered it straight. They pay plus change in debt. And you said, why can’t other people see that? And it is, in fact, now what it is. Credit is part of aggregate demand and aggregate income. And I’ve proven that analytically as well. So we now have the correct answer. If you leave credit out, if your analysis of aggregate demand in our program, you are not made whole in capitalism. And mainstream economics is lifted out all the way through and argues you don’t need to look at it. Now, that’s the reason I’ve done this bottom shot here, because the red line is the level of credit as a percentage of GDP mapped on the left-hand side of the chart. And the dotted line is the unemployment rate now. And that you can see, one goes up, the other goes down. Rising credit gives you falling unemployment, and vice versa. And the correlation between 1990 and 2015, which is the height of both the bubble, the burst, and then the aftermath. The correlation coefficient is greater than minus point nine. I ask was about point-out steroid.

Anastasia Bendebury

And so what and credit in this chart is just is personal debt that’s being carried by people or.

Michael Hudson

Mortgage corporation.

Steve Keen

Oh yeah, everything. It’s household debt and corporate debt of the of the non-financial sector to the banks. Okay, so it’s even worse when you look at the internal financials that the level is actually higher, but the data is badly designed. I just gave up on trying to include that data in my analysis, but this is how indebted the real economy is, so to speak, households and firms out of the financial sector. And because we’ve let the debt get this high, we’ve got you know it’s trebled, more than trebled. So the happy days when debt was kept under control. And if you look at all the controls that came in after the Great Depression and the Second World War, they were to limit the capacity of the financial sector to do what they’d been allowed to do in the 50s, 60s, and out through to today. So we want to change financial capitalism because if you want to have a decent capitalism, you want industrial capitalism, not the financial sector going crazy. I’ll just I’ll stop my sharing now. But that’s you know, it isn’t just words. In other words, we’re both good talkers, Michael. Better than me. We’re both good talkers, which we’re a good pair.

Michael Hudson

But we’re best when we talk to each other and we bounce ideas off each other.

Steve Keen

Yeah. The data screamingly supports us. I mean, I used to teaching it before I met Michael. I was working over in the University of Western Sydney in Australia, and I was first starting to look at this information, and I would say to my students. I wouldn’t dare make up the numbers that I actually find in the statistics. If I was trying to make the case that I believe. In other words, the data is overwhelmingly stronger than I would dare to pretend it was if I didn’t actually know the data. And so Michael and I went with that, led the battle in non-Orthodox economics. I have got to focus upon the financial capital. The level of private debt and its effects and they have caught up with us to some degree. But, you know, we definitely led the battle on that front. And it means that, you know, we understand that capitalism, which we have now, is a perverted version of what it started as and what it should have stayed. And Marx actually put it beautifully. This is in I think it’s in the third volume of capital. I said talk about centralization, the banks and the money lenders, and the parasites that surround him. Occasionally, got the capacity to dominate the industrial capitalism. And this gang knows nothing about production and should have nothing to do with it. And he called them the roving Cavaliers of Credit. And that is what we’ve let take over. And Marx was right in that if you’d had much better capitalism, we would never have got the garbage we have got now. He had a naive vision of what socialism would be, but he would have kept the financial sector under control. And that’s what we need to do to have a decent version of capitalism.

Michael Shilo DeLay

It occurs to me that there’s the sort of false dichotomy set up in most people’s minds which regards the division between capitalism and socialism. But what we’re talking about is the nuances of government restraints on the different industrial and financial sectors. Like there’s a more nuanced dichotomy that should be at the center of people’s attentions.

Michael Hudson

Well, the answer is yes. And Steve points out that he and I are almost the only people that continue to talk not only about debt, but the fact that the economy cannot recover until you cancel the debt. Well, the reason that economists don’t want to talk about debt, if they’re representing the status quo is the old phrase, the devil wins at the point that people believe he doesn’t exist. The financial sector winds at the point where people think debt doesn’t matter. Debt problems don’t exist. Don’t regulate it. There’s nothing to see here, folks. Keep on moving. What I should have said is that in does at the very beginning is that industrial capitalism ends at creating profits, and it creates profits by employing labor to sell at a profit. And making profits means minimizing economic rent and minimizing predatory finance. Finance capitalism doesn’t look for profits. That’s why we’re deindustrialization. It looks at economic rent-seeking and financial gains. So the objective of these two forms of capitalism are diametrically opposite. And if you look at where they’re going, this really is the problem. Are we going to have a society based on profits and wages and rising feedback between rising wages, higher productivity, and higher capital investment? Or are we going to have the finance capitalism just looking at how to get a free lunch at the economy’s expense?

Anastasia Bendebury

I don’t know if you saw this World Economic Forum presentation where, at the end of it, they made this point that, in the future, you will own nothing and be happy. And it’s really stuck with me because it feels like there is a massive force. That’s kind of pressing on the lever arm of society to push people towards dematerializing their own lives, where….

Michael Hudson

I guess they have the Obama doctrine now. When he came here after the 2008 crisis, he said, we’re going to start with nobody owning anything by evicting 10 million American families that have been fraudulently loaded down with junk mortgages. Let’s first of all, reduce owner a land homeownership by the black and Hispanic population. Let’s slash homeownership. And you’ve had since the Obama takeover, financial takeover, a plunge of ten percentage points in America’s homeownership rate. Yes, we’re moving towards the polarization, moves towards nobody will own anything, meaning nobody except the 1%. Well, on anything.

Steve Keen

But this what what we’re caught up in, as well as a battle between reality and ideology. And ideology, is neoclassical economic theory and people who swallow it’s arguments all the way through. And if you go back to the 70s and 80s, that was when you had the real switch shift from a Keynesian understanding, which is like a bastardized version of a Marxian understanding which at least appreciated classes exist and at least appreciated. You wanted to get income to the working class because the working class will spend faster than the richer. So if you actually distribute money to the working class, it ends up going to the capitalists anyway ultimately. And you get, and this is actually what’s called a classic is profit equation that says that if all you increase government spending ends up in the pockets of capitalists because you give it to workers, they’ll spend it, and it ends up in WalMart, etc., etc. Now, the thing is, if you do that, that’s better than giving it to the capitalists directly, although certainly financial capital, they spend much more slowly. So what do you get out of it? Is even though, you know, it ends up being something which capitalists profit from, you get a better level of economic activity, a larger level of economic activity. If the goes through the workers in the first place, workers have to spend the money they’ve got very rapidly, capitalists and the bankers spend it very slowly, and they’ve got far more money. So what’s happened is a switch to the money going to the workers, which gave us the buoyant economy of the 50s and 60s, that the happy days capitalism, where it goes to the ultra wealthy now and they buy now. They used to buy Lamborghinis, now they buy top-level Teslas. They’ve got yachts everywhere. They compete over the size that they also have got. It’s a much, much more, as I said earlier, a feudal-type economy we’ve generated. And the point I want to make, I’m going to share my screen again. By the way, this is a very heavy-looking piece of data here. But one of the things which was sold to get a change, like we’ve got out of Thatcher and and Reagan, you’ve got to have something which gets the popular support so you get people voting for it. Part of that comes out of the Murdochs of the world pushing their views and so on. But what they were saying is get rid of trade unions, get rid of government interference, get rid of, you know, socialized medicine, and socialize education. And what we’re going to get is a booming economy that grows much faster. And even though you won’t have a welfare state holding your hand or putting a net beneath you, you’re going to have a faster rate of growth. You’ll be wealthier. Okay. So what that tells you is their argument was the economy would grow faster if we moved from the. Type of capitalism Michael was talking about earlier, where the government covered a lot of those costs, to one where everything is privatized. That was supposed to increase the rate of economic growth. Now, I could show a screen. Was it worth trying again?

Michael Shilo DeLay

Yeah. You should be good to go.

Steve Keen

I think we got it. Give it a try. Okay, Just hang on a second. Let’s share the same score. This is my software package. Ravel. By the way, Michael the Terminator. A lot of the shots on this one. But I want to just zoom in to show you the growth.

Steve Keen

Rate makes it all clear.Okay.

Steve Keen

So, what you can see, this is for America. And the growth rate from 1945 to 1975 was 3.24, roughly 3.25% per annum. Real economic growth for 75 has been 1.9%. Okay. That’s virtually halving the rate of growth, which of course means that the level of economic activity now for many, many years is far lower than it would have been if we continued with the old, so-called inefficient Keynesian system. So they’ve sold us a product. We’ve bought the pump. And the trouble is, nobody realizes. Let’s say I’ve got a few bucks for the stock, but I’ll try going to another country here. Let’s try Japan, for example, and see if I can upload the data.

Anastasia Bendebury

Well, while you’re working that out, I wonder. So if the switch to financial capital has been this artificial method by which to grow GDP by seeking rent from, you know, the working class, why doesn’t the growth of GDP reflect that calculation? Like, why does it slow down?

Steve Keen

The growth of GDP to growth, of ownership of capital, ownership of resources, and a concentration of wealth? So we’ve actually grown more slowly. If you go the money to the workers and they were spending on Happy Days form, there’d be a higher rate of economic growth. That’s what they told us they’d get. They didn’t get the higher rate of growth. We’re now slumping, but they’re much, much wealthier, and we’re all complaining about it, and we’re right and they’re wrong. Michael

Michael Hudson

Well, two things about that. When President Biden gave money for the Covid people, I guess that was President Trump who did that. The workers used their money to pay down their credit card debt because what’s brewing is debt. You’ve talked about the growth of GDP. And what’s happened is that finance capitalism transforms the concept of GDP; it erases the distinction between what is the product and what is overhead. For instance, right now in America, as a result of this, growing death, arrears and foreclosures are increasing for housing, for automobiles and for credit card debt. Defaults of loans are rising. Now, what happens when you default on a credit card loan? Your interest rate goes up from 19% a year to about 30% a year. And this the credit card companies now make more money and penalties than they make in interest. And what they make in penalties is recorded in the GDP is providing financial services. So the more you lose your money, you lose your house. You pay higher financial rates. This is considered economic growth, not overhead. And all of the money, the high wages that our CEOs pay themselves, the monopoly prices that are charged for Amazon and for the other companies are under federal prosecution right now for big monopolies. All of this is economic growth. What is growing is the financial tumor, not the economy as a whole, not the industrial economy. Again. That’s why the US economy is deep industrializing. And they call that economic growth because the financial sector is making a fortune off deindustrialization.

Steve Keen

And this is actually a problem with how the the flow of funds tables are defined way back in the in the 40s which Copeland, who designed the statistician Michael, and I both have a lot of respect for. But the mistake he made was he decided to record industrial capitalism. You can report the number of cars going out the factory door times the price. If you get a physical measure of the profit, you go the capital, you purchase the machinery, you’ve got all these prices, and it’s all solid and real. But how do you call it the finance sector? And he decided simply to call the contribution of the finance sector’s GDP the sum of the finance sector. All the wages that are paid, all the bonuses, all the profits that are that are made. So if you pay double the pay of a CEO, you increase their they pay. Now, that’s wrong. We should have said, let’s look at it and say one of my students way, way back at my university, western Sydney, put it better. He said, Is finance a profit center or a cost? And the answer is it’s cost of doing business. It’s not a profit center. We have made the mistake of saying it was being creative. And therefore, and that’s also, unfortunately, the way the companies often does accounts rather than having a negative for the financial sector, which would have made sense. You made it a positive, as if it adds to profit, adds to GDP. And what has happened? Of course, it’s grown enormously. So the financial sector is going for something of the order of. I don’t have the exact numbers, but say like about 5% of GDP to 15% of GDP. And we’ve counted that as growth. But as Michael said, it’s not a growth. It’s a tremor past a certain level. You do need finance to enable, you know, all the transactions that we do on a daily basis. And you need borrowed money if you’re going to buy a large item like a house or a car, etc., etc. It does make sense to have a certain level of financial debt in a capitalist economy, but not three times what it was in the 50s .

Michael Hudson

And then this financial bias is the denial that there is any such thing as economic rent. Post-Industrial capitalism theory says everybody earns whatever income they get. So, as I think I said it on the earlier broadcast on our show, when the head of Goldman Sachs says, our partners are the most productive workers in the American economy. Look at how much our partners are paid. As we rob companies, pull them apart, create international crimes by stealing Malaysia’s foreign money, the most money is to be made in crime. We know that. And we’re the best criminals. There are financial criminals, which is why they were prosecuted. Well, if you say that everybody earns what they get, no matter how they earn it, there is no such thing as unearned income, no economic rent. Then you faught you’ve negated the entire 19th-century political economy. The all of the value and price theory of the 19th century that was the essence of industrial capitalism was to distinguish earned from unearned income so that they could free capitalism from the landlord class, from the monopolies, and from the predatory bankers, and the counterrevolution that began a century ago and in which we are still living, denies this distinction. So that again, the devil has made himself invisible.

Steve Keen

You look back at Ricardo because people would know Ricardo for the theory of comparative advantage. Now, that was one of the can I call it the shows. And Patrick, because he managed to deceive everybody. And the Economist that that’s been the one, the one horse, the one trick pony that economist economics have been since is using the idea of specialization. But what his real purpose for putting that argument forward was that he argued that workers get the means of subsistence. Capitalists you want they want capital to get a profit. Those capitalists will invest. And if you want to had a longer period of growth before what he saw as being a stationary site in the future, then you want to get as much money into the hands of the capitalist. So go in this and as little as possible. And so the landlords. So if you read him carefully, he says, My purpose in this book has been to show GW to show that wherever. Rents go down, profits go up effectively. And I haven’t got the quote right there. But what he’s saying, if he can reduce the amount that goes to rent, you’ll get a higher rate of growth and you’ll have a longer period of prosperity before the stationary state. So he was anti-landlord, which is hilarious because he actually was a landlord. But nonetheless, that was the flavor of Smith. It was the flavor. Ricardo Certainly, Marx’s on the whole idea was to minimize raunchier behavior. And if you look back and see what the feudal system was, that was the ultimate of frontier behavior. So that’s where the anti-feudal, pro-capitalist elements exist in all the classical schools, and the neo-classical had this fantasy view of capitalism to begin with. But they’re the ones who threw away the distinction. And then that, of course, very much suited the wealthy. And so, Michael, you probably know a lot more about this than I do. But the takeover of economics in the 1870s, from the classical school to the neoclassical school, where virtually in about a decade you went from the classical school being the dominance and the neoclassical being the undergrowth to all the professors of economics being a neo classical.

Michael Hudson

So it was largely in the 1890. John Bates Clark in America, and similar the Austrians abroad, it was a whole counter-revolution. That’s basically what you had?

Steve Keen

Yeah. And that meant we went from a generally fairly realistic picture of capitalism under the classical school of economic thought and then one that ends up with the type of capitalism we had in the 50s and 60s, which was largely an accident, more than deliberate, to the financial capital side. And the neoclassical economic theory justifies all that by saying that the ludicrous pay being paid to manage people, managing financial organizations because they have a high marginal product. Well, since capitalism a meritocracy, which is bullshit.

Steve Keen

Well, since Steve mentioned Ricardo, well, when our generation went to school, they still taught the history of economic thought that is now stripped away from the curriculum. The one thing they don’t teach is that there ever was a theory of economic rent. They don’t talk about Ricardo or the whole 19th century. They’ve replaced the history of economic thought with mathematics, as if you can just mathematics. The existing statistics that have all been, as Steve pointed out, restructured so as to deny that there’s any distinction between the financial economy and real industry. So you have economists being turned out that are very smart mathematically, but they don’t know what to be smart about because they’ve never been exposed to the idea that there is such a thing as economic rent, unearned income, and debt crises.

Anastasia Bendebury

So I want to talk about the way that….

Steve Keen

I wouldn’t call them smart.

Michael Hudson

Clever. What shall we say? Oh, idiot. Savants.

Anastasia Bendebury

Numerate. They very numerous.

Michael Shilo DeLay

Quantitatively reasonable.

Anastasia B