281 - Michael Hudson: How Debt Destroys Empires

38:56That's what the heads of one of the Wall Street firms said. In the GDP statistics, the wages and the bonuses of all of the big Wall Street investment banks, Goldman Sachs and others, are part of GDP. Land rent is part of GDP. And for the banks, for the credit card companies, when you pay interest of 20 % to a credit card company, that's counted as interest and counted as GDP. And when I called the Commerce Department and said, well, where do the penalty rates of another 20%, where are they located? And they say, oh, that's providing a financial service. Well, the credit card companies say we are productive in the value.

40:05What we are producing is GDP in the form of interest and penalty rates that we charge on letting our cardholders run up bigger and bigger debts that fall further and further behind. Well, that's not really the kind of productivity that people really think about. It's not what the 19th century thought about. Somehow, without people really being aware of the fact, the whole concept of what economies are all about, what is production? Is production goods and services that people actually use in their life, or is it overhead? Is it debt service? Is it late fees and interest fees? Is it monopoly rent?

40:54Is a monopolist, like a landlord, making money in their sleep? Is a banker just charging interest at a credit card company making money in their sleep? Do they really play a productive role, or is that a form of overhead? Well, this is what makes the GDP in America so different from what it is in China. And that's why so much attention is, why is China growing so much and other Asian countries so much faster than the United States? Why is it growing and not the United States? The single major difference is that China has kept money and banking as a public utility in the public hands. Instead of the banks creating credit to make loans to buy stocks and bonds and corporate raids and money to private capital to buy up companies already in existence, China, through the People's Bank of China, creates credit only to spend into the economy that's basically run by Communist Party officials that are engineers, not financiers.

42:12And the engineers say, well, what does the economy need money for in order to make us more productive so our production and our exports and our standard of living goes up? so that we don't end up like the United States. Well, the United States, China doesn't have a corporate takeover sector. The Chinese government will not lend money to buyers to say, let's buy out Zhou Ma, let's buy out the information technology or the robot firms. and see what we can do, and then we'll use their profits. You know, we're not going to reinvest the profits. We're going to do, suppose that China was run like the United States, and if you have a productive company for information technology, robots, or anything else, if they paid out over 90 % of their profits as dividends to the stockholders or stock buybacks to push up the stock price, then they would only be investing 8 % of the profits, which is what the United States does.

43:30Well, instead, the whole idea is you minimize the payments to the financial sector. China does have billionaires, but they're billionaires that have made their money by industrial investment that is very, very competitive, not by finance taking over industrial investments and breeding them to death and making money by carving them up and leaving bankrupt shelves in their wake. That's the difference. So there's a whole different philosophy is what should the economic system that is going to govern where civilization is going, where is that going to go? And the oil war and the strains that it's put on private sector budgets, on industrial business corporate budgets, and on governments themselves is forcing this reexamination.

44:27The reexamination seems to be only being held in Asia and the global majority countries. It's not being held in the United States or Western Europe or countries that are part of the neoliberal sphere. So there's a whole different idea of what is an economy all about and how do you make it more efficient? There's no concept of economic efficiency as minimizing unnecessary overhead in the form of rentier income. land rent, monopoly rent, and financial rent, rentier income.

45:09So the question is, how did all this get put in place? And that's what my book is about. I mean, it's the third volume that I've done in my chronological volume, and I've done seven volumes on the whole history of death and how it developed from the third millennium B.C. to the present. And so this was the last volume of the seven volumes that I wrote because it was the hardest to write, given what I'm doing in my regular life as an economist. Okay. I'm going to head back to that history. I mean, you keep saying things that I want to press deeper into before we get back to the history, but you mentioned the orthodox mainstream economists like Smith or Ricardo and how their view on, say, like the productivity of landlords and their views extrapolated to billionaires.

46:03These were not orthodox. Today, they would all be called communists and socialists. They'd be called radicals. But they were the classical economists. Today's economics is the antithesis of everything they did. It's anti-classical economics. So I just want to make sure that although there's a pretense that we're all for Adam Smith, the universities and the government economists hate Adam Smith because he wanted to tax the landlords. He said you should tax land rent in order to industrialize and you should avoid running up foreign debt. Well, that's exactly the opposite of what any politician that said that today would be called a communist.

46:52Well, that presages my question, which was going to be, can you put your finger on just what single principle or few principles there are about your attitude toward economics that keeps you out of today's mainstream? There was a long debate throughout the 19th century on what is productive labor? What is productive investment? What is a productive loan? A productive loan is a loan that creates, extends a loan to a borrower who's able to make a profit that is able to pay the interest. So the purpose basically of a productive loan is to finance new capital investment in production. That's what IPOs are basically supposed to be for, is what the stock market is being for.

47:49But the bond market and bank loans are different. They only make loans against property assets that are already in place, real estate that's already in place, or stocks and bonds that are already issued. The central idea is the difference between productive economic activity and overhead, between wealth and overhead. Buildings and real estate and factories and plant and equipment and machinery, that's all, those are all, that's the wealth of a nation. But finance is the depths of a nation. Real estate, absentee-owned landlord real estate is a real estate debt to the nation. The property is the form of, it turns renters into debtors to the landlords.

48:43And monopolies make the rest of the economy a debtor to the monopolist. So there's a difference between creating debt and creating wealth. And that difference has been erased for the last century by a long public relations takeover of the economic, the school system, the business school system, and all of the so-called think tanks that are really policy public relations think tanks for economic ideology. crunchy. Okay, so now without any further ado, back to the history. I mean, why does the re-examination of the Catholic Church's history help us answer this question of how economic systems should be organized?

49:33I mean, is the answer we said earlier that it helps us understand how we got here and how the current system was set up rather than in helping us dismantle it? Well, that's what made me wait, I think, 30 years before I really wrote this book. The normal approach was, well, you think of credit and debt as being something natural that just sort of evolved. And you don't think of what particular path did it have to take? And the real question that comes to mind, especially after I'd written books on the origins of debt and the origins of Christianity and the collapse of antiquity from debt, how did it come about that at the end of the Roman Empire there was a universal ideology of all religions, from Christianity to Judaism to Islam, to say that usury is bad?

50:38How did usury come to be given priority over all other forms of income to become the dominant form of income controlling governments and creating financial oligarchies? Well, the answer was the Catholic Church itself was sponsored usury. And, you know, I've talked to a lot of people, and if you talk about, well, how did banking develop, there's an enormous anti-Semitic feeling that says, oh, it's the Jewish bankers. They started international banking. Well, the first thing I found out was that that's a complete myth. The Jews were expelled from England and France in the 1290s, around that time, early 14th century.

51:41They were expelled because they were not lending for usury anymore. And they were not usurious because they'd already been—all their wealth had been confiscated and taxed away. that governments didn't borrow from the Jews, they simply confiscated their wealth. All of the international bankers, especially the ones that needed the sanctification of the Catholic Church, well, the church was anti-Semitic. It didn't want, it was anti-Semitic because it's, again, the Roman Catholicism was very intolerant. It said we can't have two different rules for two different legal systems, two different systems of laws, and two different court systems in a society.

52:31It all has to be one. If we have two different laws, then we'd have to have not only Roman Christianity, but we'd have to have Eastern Orthodox Christianity. There has to be, It was a totalitarian view, and that's why the Inquisition was created by St. Dominic, the Dominican Inquisition. And that, for instance, in France, southern France, Occitania, you had the Catharism, whose view of Christianity was, well, there really is a devil, and the devil's really the government and the egotistical power, especially of the church. Well, needless to say, there was an Inquisition and a crusade against the Catholics there.

53:18How do you explain the fact that it was the church? Well, the answer is that the church—you remember the joke that Stalin made in 1945, how many troops does the pope have? Well, the problem with Christianity and Roman Christianity in taking over the Christian Church of the West and obliterating the Christianity of Germans and the Orthodox Christianity that was governing everywhere from southern Italy to all the way east through the Balkans, all of that was basically erased by military means. And when I went to school, I remember in the fifth grade, we had a textbook, Medieval Days and Ways. And it was, you know, I wanted to understand, well, what was feudalism?

54:17You know, what came before capitalism? Okay, feudalism, what was it? Well, we talked about, well, here are the lords and here are the serfs, and the serfs owned fealty to the lords, and that was the basic system. And then you had the lords owing on top of them. There were the kings. Well, something was missing in all this. And that's what took most of the time to have to write these two introductory chapters for the book, that the kings weren't running things. Who were these kings? Well, in the 11th century, you had the Pope saying, well, we need an army. What was the army? Well, you had Norman warlords devastating the land.

55:16And there were two warlords especially that were sort of organizing their army, the Northmen. That's why they were called Normans. And they were organizing the army and raiding and taking over cities and essentially holding them hostage. and you had Pope Nicholas II in 1061 found one warlord, Robert Guiscard, to conquer Sicily in southern Italy. And he agreed to drive out the Eastern Orthodox Church and make his region a papal fiefdom. He became a fief of Pope Nicholas and pledged to it and all that and said, well, you as the pope, You know, we all owe all of our loyalty and our income to you.

56:09You get to control the tax system and all the land. Well, then five years later, another pope, Alexander II, found the Duke of Normandy, William I, and said, well, we'll do for you what we did to Robert Wieskard. We will back you to attack England, and we will tell the populace, yes, the Church will back you and will sanctify you and the divine right of kings if you sign this agreement with us and you agree to make England a papal fiefdom. And with a side note, you promised to pay the tribute to us, the Peter's Pence, as I mentioned. You promised to let us appoint the bishops who are in charge of the finances and we will essentially protect your rights to get as much money as you can tax as long as what you tax, you're willing to give to us when we need it.

57:12Well, this went on essentially by the end of the 12th century. You had the beginning of the Crusades. and you had more and more kingdoms such as, again, Germany was the main rival of Rome that said this is not really right. We're sticking with Eastern Orthodox Christianity.

57:43There was an internal fight before all of this that made the Christian church, the Roman church, so intolerant. And that was the utter corruption of the church in the 10th century. You had the popes, the Roman popes, were all appointed by local aristocratic families of Tusculum. Tusculum was a suburb of Rome, and the wealthy families throughout the whole Roman Empire, the dregs of what had been the Roman Empire in the period, the wealthiest landlord family in each land would appoint the police chief, all of the city officials appoint everybody who is in charge of administration, and the pope was just part of it.

58:38And they would usually appoint their family members. And they'd also raise money by simply selling the right to be a bishop or the rights to—all of these church offices had prebends. In other words, well, if you're going to be a priest, you need the income as a share of the rents from the monastery or the church, the alms you get or whatever you get. But all of these church offices paid money, and all of that was sold. That's called simony. Well, the Germans, especially following King Otto, the Roman Empire, said, we've got to clean up the Roman Christian church. Rome is a deviant from everything that Christianity is all about, as it's practiced all throughout the other four patriarchates that I've mentioned.

59:33We've got to do two things. We've got to stop the hereditary papacy, and you can't have popes and bishops and other officials just sort of inheriting. You have to have it somehow based on merit, and they have to be voted on by cardinals. and they can't just keep supporting their own children. So to make sure they don't have children that they're going to promote for the church offices, we're saying they have to be celibate. They can't have wives. They have to be celibate. Well, all of this is unique to Rome and it didn't characterize the Byzantine church and all of the other patriarchates. And there was a whole fight, basically.

1:00:27The Roman popes said, we've got to break away from the Christian Orthodox Church because they won't obey us. Only we can really be—there has to be one rule, and this rule is there can't be simony, There can't be heredity—you can't get married. And also, you have to adopt a particular view of the Trinity. I won't even get into the details. The filioque, a prinody about was Jesus a human being or was he part of God's body? And was Mary the mother of Jesus? Did that make her a goddess or not? All of this arcane stuff was just sort of too bizarre to get into, but there was a whole fight over all of this.

1:01:27And that led—that attempt to reform led the church to think we've got to control all of Christianity. and the heads of other churches, Antioch, Constantinople, and said, look, we don't have the problem you do. We don't have hereditary popes, hereditary archbishops and bishops. We don't have so many people are not selling their offices here. We don't have the problems that you have. Well, the Catholic Church called the rule of the Tusculum Popes the pornocracy, the rule of the harlots, because you had just—let's just say the popes were very sexually active in ways that were not permitted later.

1:02:22It was utter corruption. And so there was some idealism in creating only one rule for the church that would try to get rid of the corruption. And basically that became the ideal that led to this intolerance. And the ambitious popes used this as a means of saying, well, we've got to militarize. Well, these other countries sort of were losing interest in breaking away from the Roman intolerance by hiring these warlords to take over Sicily and England and do what they're doing and just essentially rule in. not a very Christian way. And so they began to want—they sought to arrange the children of the German Holy Roman Empire that was always voted, elected by the German princes with the Byzantine princes.

1:03:34They wanted a union between Germany and Constantinople as part to essentially join the Byzantine Empire. That was the big threat that Rome fought against because they said if Germany, especially, and the Balkans are officially part of the Byzantine church along with the empire, then there's not going to be our ability to dominate the church anymore. And, you know, there goes our power. So quite frankly, they became very power obsessed. And that led them to put in place this whole idea of how do we make a strategy to control all of this. Well, in 1075, just after the warlords were put in place, Pope Gregory VII, Hildebrand, drafted these papal dictates that said, well, you know, we've got to promote an idea where the civil governments, as St.

1:04:40Augustine said, they're all robbers or pirates originally. Who are these kings? They all begin as warlords and pirates. Who are these aristocrats? They're all selfish. It's the church that should outrule them all and dominate them. We get to appoint the bishops in these countries. We get to control their domestic policy, their tax policy. And to do that, we've got to fight them and get armies. And so it was they that organized. They said, well, we're going to have to rewrite church theology. And it's they that organized essentially the Crusades as a means of unifying Western Europe, as if instead of Rome fighting against other Christian churches, It was going to actually save the Byzantine Empire from its threats from the Turks and also save Jerusalem.

1:05:38They didn't need saving. There was a Christian church in Jerusalem, and the Muslims always gave the Christian churches religious freedom. All they wanted was the tax money. You can do whatever you want, have your own religion. We're not going to tell you how to be. It was the Roman church that insisted that other countries all follow the same religious rules to the letter of the law that they had, and this was done by armed force, and that required control of the government. And as I said, as the church power waned, the system of there being a higher power over and above government became secularized itself.

1:06:27That's what it's all about, that the key to controlling governments is to control their tax policy, their fiscal policy. And the aim of creditors was from the 12th century on was to support kings with enough power to overcome the opposition by the nobility to say, well, we don't want to pay taxes, especially to go to war. You can pay taxes. We'll pay taxes if the kings spend the money on developing our country. But a few pay taxes to foreigners, and international bankers were foreigners. That's the key. The people think of banking as something that develops domestically to make loans to people.

1:07:14The origins of banking were international, not domestic. They were foreign bankers. Again, the Lombards of northern Italy and right over the Alps, the Cower scenes. The Jews played no role in this whatsoever. that's where the misunderstanding is. And that's why I think it's so important to show when the First Crusade took place, you had before the official crusade that was negotiated between the Pope and the Byzantine Empire, you had a populist right-wing Christian crusade by a local leader. and he got all sorts of riffraff to follow him that essentially looked at it as a big looting contest. And as they made their way eastward through Germany, the first thing they did was try to kill all of the Jews.

1:08:13There were huge anti-Semitic pogroms that the Roman Catholic crusaders did from the very beginning. That whole—and the surprising things that in the history of Judaism, and Jewish finance that I'd been reading in the 1980s, 1990s, needless to say, the Jewish writers are writing about, well, Jewish bankers and Jewish borrowers. They weren't writing about Christian bankers, and so they sort of didn't notice that the whole context for this development of banking really occurred outside of Judaism itself. The Jews were brought to England and France because they had foreign contacts, because they were foreigners.

1:09:06And England wanted to make money on foreign trade, especially wool and also leather. Those were the two big exports that England had. And they needed, in order to sell this wool and exports and leather, largely to the Dutch lowlands, to what's now Holland and Belgium, they needed people who spoke the foreign language and knew how to write contracts. And these were both Arabs and Jews. They weren't the Christians because that was mercantile trade wasn't something that Christians were supposed to do. So there was a reason for having non-Christians and non-Westerners occupy this role of merchants.

1:10:01But these weren't the families that became the bankers. The bankers were also merchants, but they were all Christians working with the church in conjunction with the church and with many of their own relatives being church officials themselves. And so you get a whole different idea of how the origins of banking was institutionalized within the church. And it was the sanctimoniousness of the church that enabled them to excommunicate the nobility that was against paying foreign debts and all of this. Well, the bankers had no such power as the Christian church did, but all they had was say, well, here are the terms that we'll lend to you.

1:10:54You know, we'll be glad to lend you to go to war. What do you have to pledge as collateral? And that was a basic it. And as the rulers had less and less to pledge to collateral, they said, well, you know, the Catholic kings of France and Spain and Austria under the Habsburgs are defaulting all the time. All of a sudden there was a new model, a political model. And that was that we haven't spoken about that, but that's the crux of the whole transition from the medieval world to the modern world. One of the ways that kings had of making money was to sell to local communities the rights to be self-governing.

1:11:40And you had the growth of public communes. Venice was a commune. Florence was a commune. Genoa was a commune. And there were many communes in what became Holland and the Low Countries. Well, the communes had the same problem that the Catholic kings had. How are we going to borrow from creditors on terms that fell into us? Well, what do we have to offer? Well, the rule, and this is especially clear in Florence that became the chief banking center and most powerful commune. A commune meant the entire citizenry is liable to pay the debts. Now, in the Catholic countries, Britain, France, you had the parliaments opposing rulers, kings, that would try to take on debts.

1:12:51They couldn't raise money to pay the creditors by living taxes because that would get the barons angry and they'd fight against it. But the communes said, well, we've got to create an army in time and navy, and the army's getting more and more expensive as the costs of waging war go up and up, and we've got to make an agreement that for a commune, we can tax all of our members. Well, needless to say, the heads of the commune tended to be the wealthiest families because they were the people who, the first people who the creditors had the right to seize as a hostage, saying, well, your commune, you're visiting our country, you know, we're going to take you prisoner and hold you hostage until we get paid by your commune.

1:13:46So the communes were able to solve the problems that the authoritarian kings couldn't. They didn't have a parliamentary opposition because it was the whole parliamentary leadership, the communal entity itself, that took on liability for the public war debts. And that's what enabled the cities that joined into the Dutch Republic become Holland. It enabled the North European countries and what became the Protestant countries, essentially, were able to borrow from creditors on terms that the Catholic countries were not able to. And that's what enabled Protestantism to essentially be able to win the wars fought against the Catholic states that went bankrupt over the wars and ended up in a state of collapse while the Protestant countries took off.

1:14:57So you have that political difference. And in a way, I discussed the whole idea of Max Weber, Weber, the Protestant ethic. Well, the Protestant ethic wasn't simply a religious issue. It was a whole ethic of this. You could say it's the secularization of political self-government in the forms of the commune, of completely different political structure that evolved. And the next great watershed was how can England manage to defend itself against France and other countries trying to take it over? Well, you had the Dutch king. In 1688, you had the so-called Glorious Revolution bring over the Dutch king, William.

1:15:59And the Whigs developed all sorts of financial vehicles for the governments to finance their debts. Annuities, issuing annuities was one way that governments could make money. And selling off corporations, creating corporate monopolies was another way. that it was the financial sector, the bankers, that beginning in the 14th century helped French and English kings, Edward III especially, to create trade monopolies. Edward kept going to war to France. If you were an English king, you had to go to war with France to try to recapture Normandy and make it part of England. Well, how could you make the money?

1:16:49Well, the bankers helped Edward and say, well, you can create a monopoly. Here you're selling a lot of wool to Holland. Let's create a monopoly. And Parliament is unwilling to let you tax the income and the land, but under the English constitution, written or unwritten, the king was allowed to let's pay taxes on foreign trade. This is something that goes all the way back to Babylonia in the second millennium B.C. So the banker said, well, you can make a wool monopoly, and you can let us bankers organize it, and we'll keep some of the profits, and we'll give them to you on the condition that you'll use these profits to pay interest on the money that we're lending you to go to your incessant wars that you're fighting against France.

1:17:46So it was the financial sector that began to create monopolies. And the monopolies were created essentially in order to provide governments with a means of paying their foreign war debts. This was a key element of society, of Western civilization, that I hadn't seen discussed before. and it's only when you get into the history. Well, most historians of the medieval period don't study economics and most economists don't study history. And so nobody had put this together in the form of a continuity of how did all this develop as a continuous system and evolve and become interwoven in the way that it did.

1:18:35Well, it was this continuity monopoly that led England to sell off the Russia company, the East India company, all the major companies of Europe, France, Holland, England. They all sold trade monopolies. And what England did that was so unique was to create the Bank of England as a monopoly to essentially issue its own currency and have a local bank monopoly. Well, so the Bank of England issued 1.2 million pounds of shares to be raised 1.2 million in the form of government debt and became a government debt holder. and the initial capital of the Bank of England was government debt. And in two chapters that I developed this, it shows how this, what happened in England under the Bank of England and then in France under John Law a decade or two later, all of a sudden what was the government debt became the largest asset of the banking class, that the banks would achieve an ability to have a monopoly, and they would buy the rights to this financial monopoly by lending the government money, by buying government bonds that was their initial operating capital against which they would make loans to make money by mercantile trade to trade financing.

1:20:22So all of a sudden, this reduced the interest rates that governments had to pay from very high usurious rates with high risk to the fact that all of a sudden, owning a government bond was no longer risky because the government bonds had become the asset of the banking system. There was no longer an antithesis between the financial sector and government banking. There was a synthesis, a symbiosis, I should say, occurred. And that transformed the whole character of banking and money creation. For the first time in the 17th century, you had a transition to paper money away from gold and silver. And as long as up until the 17th century, when all the transactions had to be conducted in coins, coinage, silver and gold coinage, there wasn't enough coinage around to pay all of the costs of the enormous rise in war financing.

1:21:35But paper credit was able to finance all of this we're financing. So the whole idea of paper money was created as being very quickly, it's more convenient to use a paper banknote than carrying around gold and silver coins that get worn out or clipped or all of the other problems that weigh a lot and get robbed, all of this. So you had a whole transformation of the character of money itself. And all of this, most people think that money and credit is created to buy goods and services. But that's not why money and credit was created. It was created to pay debts, and especially war debts. And this whole idea that money was created to pay debts was the whole subject of the first book in the series about the origins of money and credit in Sumer and Babylonia and forgiven their debts.

1:22:35So money has always been to pay debts, not to buy goods and services. So the whole way in which people think about what is money and credit's role in the economy misses the point of how it actually develops. And the only way that I can make this idea that may seem very abstract while you and I are talking is to say, well, here is how it actually developed. I have to tell them the whole story, the whole context of how it came to be that paper money was created by government bonds to pay bondholders to finance war financing, not to trade, not to create goods and services, not to do all of the things that textbooks say that finance creates money for.

1:23:23All of that is a mythology that's promoted by essentially the financial interests who, because they are the funders of business schools and donors to universities, none of this history gets into the curriculum to let people understand that the whole role of the financial sector is not to play a productive role in making goods and services, to build factories and machines, to employ labor, to go on. and to make things in a circular flow, is to create a superstructure of credit to siphon off wages, to siphon off profits, to siphon off taxes, all to this financial superstructure. And the only way to get this clear is to say, here's how it actually developed in history.

1:24:13Here's what the kings did. Here's what the popes did. Here's what the bankers did and how they organized it all. I'm speechless a little bit and not just because I'm not always impressed by you when we speak but for whatever reason this conversation more than usual I'm a bit astounded by the breadth of your knowledge and the scope of your work and I'd like to digress for a moment from the substantive topics, just to ask how it is that you research a project like this and what your library looks like. When I moved into a smaller apartment here, I moved most of my library. I couldn't keep it here.

1:25:03There were just no more rooms. But I spent most of the 1980s taking notes on, sorry for the silence going off, reading and reading all of the books and taking notes on it.

1:25:22I think I've told you before, and I explained the introduction to this book, and at the end of the 1970s, I gave a speech for the United Nations Institute for Training and Research in Mexico saying that there was going to be a huge debt default in Latin America and other countries. And this was at a meeting in Mexico. There was a riot, and everybody denounced what I said and said, you know, there's no way there can be a debt default. And, of course, that's what happened. I could see at the point, having worked on Wall Street from the time that I was in my early 20s, that the debts were beyond the ability to be paid.

1:26:04So I wanted to study the whole history of debt. And I read everything that I could. And I realized, well, OK, there's not going to be an audience for my advocacy of how to do GDP analysis and the ability to pay debts. Right now, there's obviously this was the decade of Ronald Reagan and Margaret Thatcher, the neoliberals. So I spent all my time studying the history of debt, especially the origins of money and credit. And then by the late—in the mid-1980s, I joined Harvard University in the anthropology department, specifically the archaeology department, as a specialist in Babylonian—ancient Babylonian economic development.

1:26:55And that's where I organized, I spent the next 20 years organizing this group of international scholars writing a history of the origins of money and credit in the ancient Near East. We did five volumes for six colloquiums, and I spent basically 20 years turning away from the history of Mesopotamia, of the medieval period and the modern economy, just to organize this group to study the history of finance and the history of money and banking. Well, then we finished pretty much the last colloquium in 2004, and that's when I went back to analyzing today's economy because there now once again was a receptiveness for the focus that I was making on debt.

1:27:50And I wrote Killing the Host about how the tendency of finance was essentially to make it appear. It's being a parasite that did what parasites do in biological nature, to make the host think that the parasite is part of the host's own body and part of the host, as if the financial sector is part of the industrial economy. not a separate economy from it all. So I finished my—I've done essentially a constant series of lectures, papers, speeches, and books on the modern economy. And finally, about five years ago, I began to work more intensely on the medieval period. Well, more than five. Already around 2004 or 2005, there was a meeting at the University of Kansas City, Missouri at Kansas City, where I was on the faculty, the MMT faculty, the Modern Monetary Theory faculty there.

1:29:03We had specialists in the medieval late period, Jeffrey Gardner, Jeffrey Engelman on the Bank of England. And so they sort of helped steer me towards, you know, what happened in the 17th and 18th century that was so important that transformed all of this. And so I've spent really, I guess it took 20 years since then, on top of all of the work that I did in the 1980s, and, you know, reading some books since then that would come out on the medieval period to write the present book. And, of course, by the time I really got intensely working on this in the last three years, there's been so much material on the Internet that's available that I would not have found in libraries.

1:29:52All of the Vatican documents have been released from this period. The papal dictates of Gregory VII that outline it all. The great schism of Rome and the rest. and then all of the studies, the reconsiderations of what were the Crusades all about, what preceded the Crusades, the Norman warlords, Robert Wieskaden, King William the Conqueror, who were made kings just to becoming thieves, thieves of the church. That unlike what I was taught in fifth grade, there wasn't the kings were ruling the whole land, the kings were serfs of the papacy. And that didn't, you know, that's not what we were taught as kids.

1:30:41And it's not most people's idea of what happened. And I realized that in order to make this story clear to other people to read, I had to fill in the background. I couldn't just make a statement like I've made here. I have to say, here are the documents. Here's what they said. Here's what the opponent said. Here's how it all unfolded in real time. I have to actually embed it in actual history in order for them to not just say, well, these are just words and it's all too abstract. I had to take it out of the abstract and make it empirical and concrete. Well, okay, that was—one of the things that I wanted to know was whether you were looking at documents that were contemporary with the events, and it sounds like that is something that you're doing.

1:31:35Yes, the whole language. There was no word for crusades at the time of the crusades. What did they call it? The popes called it the business of what we're doing. To them, it was a business thing. It wasn't called the crusades. And nobody had an idea, well, we're going to have seven or however many crusades there are. All these wars were later called crusades. All of this idea, this rewriting of history that sort of leaves out not only the religious, but especially the financial collection saying, wait a minute, it's all about finance. It's all about the origins of banking and war debts. None of this was in the history.

1:32:20So I had to do an enormous study of the special literature. And there have been a lot of studies in the last few decades about the Magna Carta, about King John, about Henry, about the English kings that I was dealing with, all sorts of journal literature, the literature on bankruptcies of Spain and France and Austria. All of this literature has come out, but it's restricted to historians. And if you're not a historian, you don't read it because history has become compartmentalized from economics and the social structuring. And so I had to become pandisciplinary. I don't like the word interdisciplinary because they're all subgraded, but it's pandisciplinary.

1:33:14You see, what is the integration? What's the context? I had to put everything in the context, and that's what's missing from the analysis, the context within which monetary development, paper money, finance, the basis of credit systems on government, war debts, all this developed. Well, thank you for this digression. I wanted to get back, though, to some of the things you said about the history in your last couple of responses and this understanding of the breadth of your research and how much time you spent on it, I'm sure will help you very much with this one. But you said it, you said, I think, twice more or less now that it's a complete myth that Jews are responsible for the international banking system.

1:34:05And what I wanted to ask is whether there are any other major economic myths, conspiracies, or I don't know, figments even that connect to the history that we've been discussing today. It's not a conspiracy. Well, there is a conspiracy today. People kind of say that Jews run everything. A tunnel vision. Is a tunnel vision a conspiracy? I don't think people are aware of how different classical economics of Adam Smith, Ricardo, Mill, and Marx, who was the last great classical economist, although Simon Patton and Thorstein Veblen in America were all so great, that how classical economics was completely repudiated by the financial sector in the late 19th century and early 20th century.

1:35:01I have a chapter on that in my Killing the Host to explain this, but the whole idea that there's no such thing as economic rent. All of modern economics is everybody earns the money. There is no such thing as unearned income. There is no such thing as economic parasitism. Everybody plays a productive role. Even the credit card company charging you a late fee is providing you with a financial service. And this is, it's this language that shapes how people think. and the concepts of classical economics based on value, price, and rent. The whole purpose of Ricardo's labor theory of value was to talk about what's all this economic activity that is not value at all, that doesn't add to value, but simply adds to price.

1:35:57It's economic rent. For Ricardo, it was land rent. He was the last person. He never would have said, well, it's the rent of my financial sector, His brothers were both, had their own financial firm and helped underwrite Greece's foreign debt that very quickly went default and went broke in the mid-1820s. And monopolies came later. The whole concept of economic rent has been excluded from the curriculum, and it's not part of the public consciousness. And if people have a vocabulary and a set of concepts that were developed by classical economics, they can understand why today's economy is having so many problems in comparison to, say, China.

1:36:51Well, China has not followed explicitly classical economics. It's reinvented the wheel. And it's independently done exactly the same pragmatic development that the United States did to industrialize by having public utilities instead of privatized monopolies. but most of all of having banks as money creation in the public sector. That was the most radical idea that hardly anyone ventured to say in the 19th century. And I deal with the 19th century in the last chapters of the book. The United States was the only country in the 19th century that actually printed its own government debt money. The greenbacks in the Civil War and long before that, the colonies printed their own paper money to finance their growth.

1:37:58And the revolutionary colonies created the continental currency, the continentals to finance. But there was no advocacy of saying maybe governments should create their own money. And we don't need to borrow money. We can have the government simply create money. Well, instead, the orthodox economics said only the bankers can create money because only they are responsible. Well, the fact is that bankers are irresponsible. They are not responsible. Well, they may be right in saying, well, the government isn't responsible either. So you have to create a government that is responsible. And you do that by educating people.

1:38:38in how does the government act in a responsible way to create money and credit in a way that the interest from this actually is reinvested to expand the economy, not siphon off a surplus to just be extractive. How do you make credit productive, not extractive? That's a question that doesn't occur in modern economics courses. Never occurred when I was studying it. And the professors did not like it when I brought it up. Another of the fascinating, well, not so much a comment this time, but a description you gave was of the 10th century popes. And I'm wondering if there's an economically significant parallel between the Tusculum Popes you described being appointed by the wealthy and so many of today's politicians essentially winning office for the same reason.

1:39:40Well, that's pretty much it. They're hereditary. They favor their family members. They're a coterie of oligarchs. It's a hereditary oligarchy. That's why you have, for the last two centuries, the French have taken the lead in saying maybe we should tax away hereditary wealth. You don't want wealth to be inherited because something happens biologically. The IQ goes down 10 % with every generation that inherits money. And so now you have a financial class that's so strained that it's just having, you know, half a mentality and you end up someone like Trump's son-in-law Kushner, you know, or Donald Trump himself.

1:40:32You know, just a stulted mind with the only idea is a sneakiness of corruption to preserve, to make the money that they have. Yes, you could say that at all, that the commanding heights of the economy have been corrupted by—instead of the economy being run by managers that sponsor productive investment and economic growth and rising productivity and living standards, All they want to do is rip off the economy as much as they can. And Donald Trump and his family and now the tech billionaires, multibillionaires that are evolving are the same force. Yes. Yeah. Another conceptual question I wanted to make sure that we cover, just because this is something that's come up with Richard Wolff, who you know very well sometimes.

1:41:41But what is the difference between borrowing money abroad to develop your country or fund your wars even and becoming trapped by foreign debt? Because something that Rick often mentions is how much of our debt is owed to China and how we're kind of funding the Red Army, as he puts it. It's not so much that our foreign debt, our money, our government debt is owed to China. It's the fact that our government debt is in our own currency. The government can never go bankrupt. It can always print its own currency. No matter how much it owes to China or other countries, it can always print it. The result may be that the dollar exchange rate may go down, but the government can't go bankrupt.

1:42:37But what governments cannot create is foreign currency so that other countries that owe money to China or the United States or any other country that is denominated in dollars, and most of the world's bonds and bank loans are denominated in dollars, governments can't create foreign dollars to pay their dollar debts. That's the problem that the global south countries have today. They can't just print pesos or escudos or lira or euros to pay their foreign debt because it's owed in dollars. That's really the problem. And this is where modern monetary theory is so important. It shows that the fact is governments don't have to borrow the money to issue that banks create credit simply out of electronically on their balance sheet.

1:43:41Governments can do the same thing. You don't need a bank to create paper money or electronic money. A government can do it. That's what China's public bank does, create it electronically. They can't create dollars. They can't create non-R &B, non-yen currency. And that really is the distinction. And the balance of payments is not a topic that's taught in any school that I'm aware of. It's sort of a—you have to only understand it by working in the field. And if I hadn't worked in my mid-20s for the Chase Manhattan Bank and Arthur Anderson as a balance of payments analyst, I wouldn't have any understanding of the difference between money that's owed to a foreigner and money that's owed in your own currency.

1:44:40Well, toward wrapping up now, there are just a couple of questions I want to ask before we finish. And one is looking at the other side, I suppose the other economics arguments, what is the strongest argument against your view of finance as a dominant political force that you've kind of spent much of the last two hours laying out? ideology. People believe that the debts should be paid and that it's immoral to pay the debts. But once you realize mathematically that the debts can't be paid, well, there goes the whole pro-creditor idea. If you look at the distribution of income, look at the United States since Obama bailed out the banks and essentially prevented the insolvency of the debt overhead of America in 2009 from just bringing down the banking system, the whole zero interest policy, the whole increase in, vast increase in Federal Reserve funding of the banks to bail out a bank credit and to reinflate real estate prices and stock and bond prices, creating the biggest bond rally in American history, a huge real estate rally.

1:46:12All of this increase in wealth of the top 10 percent has gone way up. But for the 90 % of the population, it's drifted slightly downwards. It's been absolutely flat, and the 40 % of the American population has no savings at all. They're living paycheck to paycheck. So all of this financialization of the economy, the bailout, has been just for the 10%, not for the 90%. And especially it's really for the 1 % that is concentrated. So that's why David Graeber made such a success with Occupy Wall Street by focusing on the top well percent. People like Steve Keen and I have spent a lot of time promoting this.

1:47:03and Stephanie Kelton has written on how the governments don't have to tax.

1:47:14They don't have to borrow in order to finance the debts because when they borrow, the Federal Reserve creates the money. In the last five years, Scott Besant, the Treasury Secretary, has written saying, well, all this growth in America's federal debt, It's all been created on a computer by the Federal Reserve that bought this federal debt, buying it all from the banking system to increase bank credit. And it's all being done on a computer. The Federal Reserve has to wind down the debt. And the new Federal Reserve, Chairman Walsh, has also said, well, we've got to wind down the Federal Reserve's monetization of this federal debt so that the central bank shouldn't be creating money.

1:48:07Well, what should it do? Should it borrow the money? If it does, interest is going to go way up. Nobody's saying the government should print the money, but nobody's saying the debt should be written down. But if you don't write down the debts, they're going to be bankruptcies. And if they're going to be bankruptcies, you already have arrears and defaults, mortgage arrears, arrears on personal loans, student debt, automobile debt, corporate debt, state and local debt. All of these arrears are leading to mass bankruptcy. sake, are you really going to let all of the assets of society being stripped away and turned over to the wealthiest 1 % to 10%, the wealthiest financial class?

1:48:55Or are you really going to let what happened to the Roman Empire happen here, to make a long story short? Okay, well, the last thing I'll ask today then, Michael, is if you could redesign the system, what would the optimal or healthiest relationship between government, banks, debt, taxes, and the public look like? Banks and money creation and credit would be a public utility run by the government as done in China, hopefully without creating a real estate bubble, because what would be taxed away would not be wages, not even profits, but economic rent, land rent, monopoly rent, and financial interest and fees.

1:49:51Okay. Well, Michael, as always, thank you so much for the time. Thank you so much for talking to me. This has been excellent. Well, you asked all the interesting questions. It was a very productive discussion, I think. Thank you very much.