# Michael Hudson 0:00 Welcome back everyone. Professor Michael Hudson joins us today and uh I would um 0:06 recommend that everyone follows his work as well as his own website and I've left a link in the description. So it's great 0:13 to see you again. It's good to be back here. Uh well you 0:18 obviously have written a lot of important books especially on political economy and um in books such as uh the 0:26 collapse of antiquity you you know address the history of finance as well 0:32 and uh well I wanted to discuss some of this history with you today because I feel it's uh it's yeah extremely 0:40 important to to to appreciate this history as the current financial crisis 0:45 uh well appears to be speeding up and the entire financial system evidently is 0:50 not sustainable and it appears that we may be heading towards a cliff and uh 0:56 well throughout history this people always tend to assume that the current status quo is permanent even though it 1:02 always proves to be temporary. So I thought um yeah to get history we can understand some of the changes as well 1:09 as the continuity in this system and also the alternatives. Uh so again uh 1:14 that was my main thought. I wanted to if we can take a step back and look at this history and get a good get a I guess a 1:21 better appreciation for where we are now. And u I guess a very broad question 1:28 what is it that we can learn uh about the current system by looking back or 1:33 what do you see as being the constants for example the oligarchic tendencies in the financial system. Uh how how do you 1:40 see this? Well, most of my work for the last 50 years has been writing a history 1:46 of debt uh and banking. Uh it was clear already at the end of the 1970s that the 1:55 global south countries were running a debt crisis that almost all of the western economies were having what was 2:02 called a business cycle being something much more than a business cycle. every recovery took place at a higher and 2:10 higher uh debt level. And so uh and it was obvious that this was becoming uh 2:15 unobtainable. Uh and I wanted to see how it began. And that's why I spent a long time uh for 25 years heading a Harvard 2:23 group of writing the economic history of Mesopotamia and Egypt and uh Israel, the 2:29 ancient uh uh Middle East now called West West Asia and uh seeing how uh what 2:37 made it the West so different from everything that went before. And I think 2:44 the best way to frame the answer to your question is that 2:49 today's rhetoric of political rhetoric and financial rhetoric juxtaposes the 2:56 United States and Europe to uh as democracies against China and other 3:03 countries that are not part of the US alliance that are called autocracies. 3:09 And what they mean by autocracy is a mixed economy uh which uh used to by the 3:17 19th century was called socialism. Government investment in basic infrastructure. It subsidized rate uh ro 3:25 government anti- trust anti- monopoly laws to prevent monopoly rents. uh the 3:32 whole 19th century drive by industrial capitalism in Europe uh and the United 3:38 States to tax away economic rent to prevent uh to tax away land rent as the 3:44 natural tax base to prevent monopoly rent uh from developing 3:52 and ultimately to make uh money and credit itself a public utility. All of 3:58 this was uh financial cap uh f what financial capitalism wanted to do to 4:04 lower its own cost of living, cost of doing business, the coal cost structure 4:10 and to be more efficient. Well, the way to be more efficient was to prevent the 4:17 privatization of natural monopolies like uh railroads and communications 4:23 uh that you're seeing in the wake of Thatcherite England. And it really turns 4:29 out that the US definition of autocracy is any role for government that is uh to 4:36 the right of what Margaret Thatcher and Ronald Reagan did in the 19 4:42 the 1980s. So uh I I looked at what made 4:48 the West distinct from the other uh from what went before and it wasn't 4:53 democracy. uh Aristotle wrote a study of constitutions 4:59 uh throughout the world that he knew about and said that all constitutions call themselves 5:06 democracy but they actually were autocracies. uh and uh that was part of the problem 5:13 and the the the whole west has has really been historically unique as it 5:20 claims to be from uh what went before the bronze age uh societies that were 5:26 primarily Asian societies from Mesopotamia and Egypt all the way to 5:33 China. And the distinguishing feature of the whole payoff of economic 5:40 civilization for the first 3,000 years was having a central ruler. Uh 5:46 historians are not sure how to characterize these rulers. They call it divine kingship in Mesopotamia and uh 5:55 Egypt uh or emperors uh in Confucianism that govern China. And the the role of 6:03 the central authority, the king, the temple or the emperor was to maintain 6:11 popular prosperity and that's supposed to be what democracy is all about. Well, 6:17 the west uh believes that uh democracy is achieved through the ballot box by 6:24 people voting. But if you look at uh the constitutions of early Rome and Greece, 6:30 uh the constitutions concentrated all the political power in the hands of the 6:36 aristocracy, uh the landowners and the creditors and 6:41 you could vote, but uh whoever you voted for w would be the uh the oligarchy who 6:50 became increasingly predatory, driving the rest of the population into debt. 6:55 And it was really the debt dynamics that uh ended up destroying the Roman Empire 7:01 that had absorbed classical antiquity and the same debt dynamics that occur 7:07 today. Yet what you find in the first few thousand years of civilization and 7:12 that's what uh my book on and and forgive them their debts is all about 7:17 and my Harvard uh studies and my the articles that I have in temples of 7:23 enterprise the whole idea of uh that made the takeoff of civilization and the 7:31 entirety of Asia again from Mesopotamia to Egypt to uh China so 7:38 was the recognition that the great destabilizing force was the growth of debt growing 7:45 faster than the economy to pay it. And that was the basic political guideline 7:52 of all rulers. And that uh what they saw and what ancient uh uh literature all 8:00 the way down through Aristotle and Plato was all about was this tendency of debt 8:05 to grow faster than the ability to pay. And when that happens, debtors tend to 8:11 fall into clientage and bondage or even slavery and surfom to uh the creditors. 8:19 And that's what happened to the West. And that same dynamic of debt polarization 8:25 occurs today. Well, what made Asian development so different and what makes 8:31 the development of China uh and its takeoff so different from uh western 8:37 financial policy today is the fact that uh it prevented a financial oligarchy 8:45 from developing. And when I went to school in the 50s at the University of 8:51 Chicago, one of the main books we had to read uh was Plato's Republic. And the 8:58 whole theme of Plato's Republic is Socrates saying uh how are uh it it 9:05 starts by saying suppose that uh you're a uh you've borrowed a weapon from a 9:13 very hostile uh person and uh if you give him the weapon back, he's going to 9:19 use it to kill people and do something bad. Is it right that you have to pay him? Well, that was his takeoff for 9:25 saying, "Oh, well, what if you owe debts to a predatory oligarchy and they use 9:32 their u uh the money that you pay them to indebt other people and reduce them 9:37 to clientage?" And after a long discussion, the uh Socrates said, "Well, 9:42 the solution is what uh we were told translated as philosopher king." Well, 9:50 it wasn't a philosopher king at all. Uh what Socrates said is uh how are you 9:55 going to uh cope with the main uh economic problem of our time money love 10:02 debt uh wealth addiction that uh money and wealth are a kind of economic and 10:11 social power and that's addictive. So how are we going to avoid that? And Socrates said, you the solution is to 10:19 have a ruler that doesn't have financial wealth, that doesn't have property, and 10:24 so hasn't fallen, hasn't become a money addict uh as yet. Well, of course, that 10:31 didn't happen uh as we all know. Well, how did antiquity stop uh stop this? uh 10:38 the the whole uh principle of all of the literature we have from Mesopotamia to 10:44 Egypt to China said uh the uh the role 10:50 of a ruler whatever we call them is to maintain economic balance and to uh keep 10:58 the people prosperous and not unhappy. uh you you want to prevent uh 11:04 exploitation. You want to prevent people falling into clientage uh to their 11:10 creditors and running away because we need the population for our army and to 11:16 build our walls and to build all of our public uh infrastructure. So uh the 11:22 common denominator in all of uh the West Asian rulers was a debt cancellation and 11:30 all the way from Sumer and Babylonia, Hammurabi all the way down through uh 11:36 the uh Jewish Jubilee year of Leviticus 25. The 11:42 wording was exactly the same. uh uh new rulers or on a some periodic basis uh 11:50 when there or when there was a drought or a flood that prevented crops from being cultivated. How do you prevent 11:58 this uh these uh this buildup of debt that can't be paid from impoverishing 12:04 society and leading to creditors lording it over the rest? Well, every new ruler 12:10 in uh Babylonia, Sumer, uh apparently 12:15 Egypt for a while started their reign by cancelling the agrarian personal debts. 12:22 Not the business debts, those were all left intact. But the citizen, the debts of citizens uh uh for uh arars, the the 12:30 grain debts uh were cancelled and the bond servants that were pledged to 12:36 creditors were freed. Not the slaves, but uh the the uh citizens uh and their 12:44 families that were pledged as labor to their creditors uh were liberated and 12:50 the land that uh dat cultivators had pledged uh along with their crop rights 12:57 under distressed conditions were returned to them. Well, that was uh 13:03 that was uh the centerpiece. That tradition was completely absent in the 13:09 west from the very beginning. And there was no way of establishing such a 13:15 tradition without having a central ruler, a divine king, a ruler, a 13:21 pharaoh, an emperor uh whose job was to oversee and act as a regulator to 13:27 prevent debt from the from growing faster than the ability to pay and polarizing society. Well, that's just 13:35 exactly what's occurring in the western economies today. and you've had this steady buildup of debt uh from uh the 13:43 end of World War II on. And that's really uh the crisis that we're seeing today. The debts really uh are beyond 13:51 the ability to be paid without impoverishing the rest of uh the 13:57 economy. And it's as if you're imposing an IMF austerity plan on not only on uh 14:05 the global south countries uh as was the case with most IMF borrowers but on uh 14:11 the developed industrial nations themselves. That's the problem we're in. 14:16 And uh the uh when you you you look at 14:22 China's takeoff, what makes China and uh so 14:28 exempt from all of this. China uh has kept money and credit creation in the 14:35 hands of uh the government, the people's bank of China. It never has had an 14:40 independent financial class that plays the role that western banks play. 14:46 Financing corporate takeovers, buying prop lending uh to uh by uh property, 14:54 buying buying assets instead of to invest in the factories and machinery 15:00 and tangible capital formation. The whole role of what finance lends for in 15:06 the western economies has been largely uh unproductive to it. It it creates 15:12 financial wealth by debt leveraging by lending people money to buy uh real 15:18 estate or stocks or bonds whose prices are built up by creating more and more 15:24 money to buy more real estate and more real estate more stocks and bonds at 15:30 higher prices. And that's why almost all of the growth in the US economy since uh 15:36 2009 has been financial in character hasn't taken the form of industrial 15:43 tangible investment hasn't taken the form of rising living standards for 15:49 labor uh the as a whole uh much less for the middle 15:55 class. All of this financial wealth has been concentrated in the hands of the 16:01 wealthiest 10% of the population, especially the wealthiest 1% as I think 16:07 we've discussed before. and the the what has made the more successful economies 16:15 ever since this start of historical records 5,000 years ago. What's made 16:21 societies and economies successful is avoiding this financial polarization uh 16:28 and making wealth financially in the form of debt claims on debtors. fin the 16:36 creditor wealth uh or property ownership stocks bonds real estate is a claim on 16:43 renters a claim on debtors it's economic rent and if you look at what Adam Smith 16:50 John Stewart Mills himself the whole 19th century uh 16:56 doctrine of industrial capitalism tried to solve this problem by uh essentially 17:02 uh saying well we want to make sure that all of the money is created to in 17:09 increase the ability to pay the uh the debts and make a profit on it with the 17:16 profits being reinvested in more long-term uh research development and 17:22 tangible capital formation. More factories, more hiring. That was the whole uh doctrine of classical 17:31 economics. And there uh that see the whole world seemed to be going in that 17:37 direction until World War I. And World War I changed everything. uh it uh the 17:43 uh the peace settlement of German reparations and interi debts was all pro 17:51 credit a system of procreditor relations and it ended up causing uh not only uh 18:00 impoverishing Germany and many of the uh European countries. Britain had a uh 18:06 great general strike in 1926. France had its own hyperinflation. Uh so after 18:13 World War II, uh the United States was pretty much in charge of designing how 18:18 the post-war economy would be run and structured. And it said, "Okay, no reparations this time. No interalli 18:25 debts, but we're going to have procredititor rules again." And uh there 18:30 was a whole debate between the American negotiators and canes saying well you 18:36 you have uh we in if you don't want to uh the post-war economy to end up 18:43 looking like Europe uh economy did after World War I, you've got to have some way 18:50 of wiping out the debts of countries that run a a constant balance of 18:57 payments deficit through their trade deficit and through owing more and more money to pay pay the foreign debts that 19:05 they've taken on to finance these deficits. You've got to write down the debts of these countries. You need an or 19:13 a new international bank to uh have the power to write down the debt claims of 19:20 countries that continually run a surplus like the United States and to wipe out 19:25 the debts of uh countries that run a deficit as Britain was expected to do 19:32 and in Kane's worked for the British Treasury. Well, the Americans turned it down and uh instead of Keynes's bankor, 19:40 his bank, they had the international monetary fund that imposes creditor oriented rules and austerity u on debtor 19:48 countries. And uh be by the late 1990s, 19:53 early 2000s, you had countries trying to avoid having to go to the IMF like the 19:59 plague because they didn't they knew that uh imposing an austerity program 20:05 does not enable you really to pay off the debts at all. It makes you it cripples the economy. It uh take uh it 20:13 diverts your income away from new capital investment and means of 20:18 production and agriculture, industry, transportation and infrastructure to pay 20:23 creditors uh and is uh therefore uh destructive. Well, what was uh only 20:31 subjected on the uh global south countries in times past is now being 20:38 subjected on the US and European economies and they're being impoverished by the same dynamic. So all of a sudden 20:45 we're in the same age-old dynamic that has occurred again and again and again 20:52 uh as debts grow faster than the ability to pay and have to be written down. And 20:57 if you don't write down the debts to the ability of uh your citizens, the labor 21:04 force, the b uh and now even the companies and the government to the ability to pay, you're going to have the 21:11 same kind of stagnation that you saw in the 1920s. And the problem uh that u 21:19 Kanes pointed out was not only uh does this debt overhead impoverishing the 21:26 debtors but the money that is uh uh paid 21:31 to the creditor country like the United States is used simply to uh make money 21:38 financially and it's used to fuel a stock market boom and that ends in a 21:43 crash that wipes out the creditors just as well. Well, there's been a lot of research on well, how how did these 21:50 post-war arrangements begin? Well, the uh an example is uh the FrancoRussian 21:58 war settlement of 1871. That was when Germany uh insisted that 22:06 France pay reparations for losing the war and it moved to to gold and Germany 22:12 adopted the gold standard and let other kind that was when the gold standard really uh was spread from Britain that 22:19 it adopted it early in the 19th century to others well Germany adop uh adopted 22:25 it forced other countries to pay uh in gold Germany's market uh became very 22:31 prosperous and ended up in a railroad and stock market bubble that then 22:36 crashed itself. So the this buildup of debt not only destroys uh wealth in the 22:44 debtor countries but in the creditor countries themselves. That's the situation we're in today that all the 22:52 the US uh and European economies that 22:57 have been financialized have been using this uh wealth just to 23:02 uh make loans to make more money financially. And in fact, that's what 23:09 most bank uh lending uh has been for. And the only way that the United States 23:15 has been able to support itself uh financially is essentially by lending 23:21 debtors the money to pay the interest. Well, this was this didn't work in the 23:27 16th and 17th century and it always ends up in a Ponzi scheme and that that's 23:32 basically the problem the whole West is facing today. That's sort of a long answer to your question, but that's the 23:39 big historical frame that you and I have talked about. 23:44 Well, you said it's now reaching an end, but uh what is it that what are the 23:50 mechanisms that I guess that's um making this all will come to an end? the mechanism of 23:56 what will the I guess consequences look like if there is no elimination of debt if as you said it hurts the debtors but 24:02 it also essentially will eventually wipes out the creditors as well. Well uh 40% of the American population 24:11 according to the Federal Reserve uh doesn't have any savings at all. They're 24:16 living from paycheck to paycheck. And the result is that they're letting uh 24:23 they're living off their credit cards and the credit card interest starts at 24:28 19% and the penalty rates uh are even higher and push the actual interest rate 24:34 to over 30%. And that means that the consumer debt to f to just to borrow 24:42 money to make ends meet just for basic subsistence survival. Uh this debt 24:48 doubles every three years but wage levels haven't and wages haven't. And so 24:54 having to pay these debts has forced uh consumer spending in the United States 25:00 to for most of the population to be scaled back. And the Fed reports that 25:06 half of the increase in consumer spending uh has all been by the 25:12 wealthiest 10% of the population and it's luxury goods uh imports of Italian 25:18 fashions and uh cars and yachts and uh things like that. Uh but the uh the 25:27 domestic market for uh wage earners is uh shrunk because they can't afford to 25:33 spend the uh income that they get after paying their taxes and their health 25:40 insurance and their debt service to the credit card companies to the banks for 25:45 their mortgages uh or and automobile loans. they don't have enough to buy the 25:50 products that are produced by American and foreign industry. And so the the 25:57 result of this tendency of debt to grow faster than the economy is 26:02 de-industrialization because in income is spent on debt service, not on buying the products of 26:10 what they produce in this circular flow that's supposed to be reinforcing and 26:15 steadily increasing economic prosperity and growth. 26:21 I I also wanted to ask about well what you written about uh I guess the relationship between war and uh modern 26:29 banking because this is also uh yeah quite an interesting and then I would 26:34 say relevant uh link well I have a book that'll be published in a a month or two on this uh the 26:42 history of how international banking developed from the crusades to world war 26:48 I uh what happened uh what I found is uh 26:53 something unique. The uh the it was the church itself the uh the Roman church 27:00 that created international uh banking and sponsored the international banks uh 27:06 thereby reversing all of the Christian anti-usery 27:11 uh uh teachings and uh Rome essentially uh tried to uh inaugurate a 27:21 religious and political fight against countries that resisted its control. And 27:26 the crusades began already before the formal crusades by fighting against 27:32 Germany, fighting again and later fighting against France. The crusades were against other Western Christian 27:39 countries that resisted Roman control. Well, uh, the problem was for Rome and 27:45 the papacy was, uh, they didn't have all that much, uh, money to hire troops. 27:52 They didn't have an army, as uh, Stalin quipped about the popes, uh, after World 27:58 War II. What were they to do? They recruited Norman warlords uh, beginning 28:03 in the 11th century, such as William the Conqueror of England was a warlord. They 28:09 said, "We will uh back you and uh sanctify your rule if you conquer 28:14 England and pledge feelalty, feudal feely to us and promise to pay us a 28:21 tribute in the form of Peter's pence and other tribute and to let our church appoint bishops throughout your realm to 28:29 and uh bishops were in charge of uh the church financing and the church was the 28:35 largest land owner and rent recipient uh throughout Europe. Uh William agreed and 28:41 essentially made uh became king by making Britain a feft of Rome. Well, 28:48 just a decade or so before Rome had made the same contract and we have copies of 28:54 the contract that I discuss in in my book uh with uh the the warlord who 29:01 conquered southern Italy and uh Sicily. We'll make you king of Sicily. Robert 29:08 Gusgard uh will will back your king. You have to sign fieldy to us. uh you will 29:13 obey our direction and uh we will appoint the uh bishops uh the right of 29:19 investature uh for bishops in control of the church finances uh in your territory 29:25 and that's how uh there were kings well by the end of the the uh 11th century 29:33 other countries began to real began to oppose this and so uh there were two 29:39 popes and uh the the Roman pope as oosed opposed to a a German backed pope uh 29:46 tried to say well uh let's uh help support Bzantium the Byzantine Empire 29:53 threatened by uh tur turkish invasion let's us save it and let's save Jerusalem from the Muslims and so 30:01 through a great public relations victory they organized uh the kings of all the 30:07 European countries uh to go fight and the actual aim was to conquer uh 30:14 Constantinople and the Byzantine Empire. They looted uh Jerusalem. Uh they they 30:20 looted uh Jerusalem first uh when they went uh there. Uh and Jerusalem didn't 30:26 need protection from the Muslims but for the Christians because the Muslims uh 30:31 permitted, you know, Christian churches and had no anti-Christianity at all. And 30:37 by the 13th century, the crusaders looted uh Constantinople itself uh and 30:44 essentially tried to uh absorb it into the Roman church uh the uh the 30:52 Eastern bishops. They were uh opposed all of this. And so you had the split 30:58 between the Roman church and Eastern Orthodox Christianity of the four ma uh 31:04 four of the five major bishop ricks Constantinople and uh 31:10 Antioch and uh Jerusalem and uh Alexandria all sort of resisted all of 31:18 this. So the the the church, the uh the Romans, uh it's called the Imperial 31:25 Papacy, said, "Well, we're going to have to uh uh fight uh uh still fight Germany 31:33 and other countries that are resisting our control." So, how are we going to get the money? Well, the Norman warlords 31:40 had an army, but they didn't have the money to wage war. So the uh it was the 31:45 the Vatican that supported North Italian bankers and bankers just over the Alps, 31:51 the Kawharines uh in just uh uh over in Casor's uh and uh the 32:00 they would the papal leots would bring uh bank uh uh contracts uh to uh kings 32:10 like such as King John's son Henry III. heard of uh England and said, "We we'll 32:15 make your son uh the uh the king of uh Sicily because uh the Germans and the 32:23 Byzantine uh church have uh taken over have dominated the cities in Sicily and 32:32 South Italy. Will you do it?" Well, there was a whole fight of uh the uh the 32:39 baronss who'd already uh opposed King John for trying to tax uh tax them in 32:46 1215. The Magna Carta was a fight by the barrens against the king's living taxes 32:52 to go to war. And the taxes essentially would have been funded by borrowing by 32:58 by banks. the uh the pope excommunicated the uh baronss who were backing the 33:05 Magna Carta uh on the grounds that they were trying to block uh interestbearing 33:11 debt being made to the king. Well, uh, 50 years later, you had, uh, the same, 33:17 uh, the Baron's fight against, uh, Henry the III who was trying who was 33:24 trying to levy taxes to obey the um, 33:30 the popes and there was a civil war in Britain and again the new po the pope at 33:35 that time uh, excommunicated the leaders of the civil war opposing all of this 33:41 and essentially sanctified debt and and uh opposed the opponents of debt and just inverted all 33:49 of Christian uh uh uh anti-usery uh doctrine and uh in order to create an 33:58 international banking class, North Italians and other uh international 34:03 bankers to make loans to kings that uh Rome supported in fighting the religious 34:11 political war against other European countries and ultimately against uh the 34:17 Byzantine Empire uh itself. And the the 34:22 church had already begun in the 11th century to to solve a problem that the popes wrote 34:29 a whole strategy about. uh uh and the 34:35 strategy was if uh we have the right to rule over secular kingdoms, we have to 34:42 make the governments of these kingdoms a arm of the Roman church. How do we do 34:48 that? We do it financially. We do it by taking control of their fiscal policy. 34:53 And the fiscal policy is uh basically determined by uh the church in the first hand. And secondly by having uh kings 35:01 pledge loyalty to follow the fiscal policy that uh we support to get tribute 35:07 from these kingdoms in order to pay the armies of the warlords and mainly the 35:14 Normans uh who we've hired to fight our wars. So uh you had for the next few 35:20 centuries uh you the development of international banking 35:27 that was very different from antiquity. Uh what made all of this international banking different from everything that 35:35 went before anywhere in the world was that before uh credit there wasn't 35:41 really banking uh in Ro even in classical antiquity although there was a 35:48 financial oligarchy it was considered an antisocial act to make money by usery 35:56 there was no distinction between usery and interest any charging of interest was called uh usery and uh to make money 36:04 by mercantile activities were recognized as being very exploitive. So the leading 36:11 aristocratic families all delegated all of their financial operations to their 36:17 freedman or slaves or someone uh outside of themselves externally. 36:24 uh you had uh cities, whole towns like Pioli uh where you had uh freedman 36:32 acting as bankers for uh the wealth, but you had no banking class. And most of 36:37 this the lending was either for mercantile trade or just consumer user 36:43 rate especially to wealthy members of the aristocracy that wanted to support 36:48 their luxurious living conditions but also uh the poor that needed money to 36:53 get by. Well, what happened from the during the crusades and on in uh Europe 37:00 was completely different. The loans that the international banks made were not uh 37:06 although many of the bankers families had made their money through 37:11 trade uh financing, they didn't make it by by money lending. And when they began 37:18 to make loans, it wasn't to the poor and it wasn't to other merchants. It was to 37:23 kings to wage the wars to conquer other realms. And after the crusades ended uh 37:31 at the end of the 13th century, uh the uh the church no longer was really in 37:38 control of all this, but the the international banking and the the kings 37:43 the secular kings achieved independence from Rome. um especially the French king 37:50 Philip IV appointed an anti-pope uh that uh uh and the pope that moved the papacy 37:57 to Avenignon of France away from Rome uh after Philip uh captured Bon Pope 38:06 Bonaface and replaced him uh you had the kings themselves uh take over and they 38:13 beca they remained uh dependent on these international banks to make uh to lend 38:21 them the money to fight wars especially between uh England and France. That was 38:27 most of the wars. But you also had other realms and uh new warlords and uh kings 38:34 all borrowing money to fight. So you had money being lent not to the poor but to 38:40 the wealthiest u sectors of society to the kings and to the church. Uh and 38:47 later as you had uh individual cities u lending money uh uh paying the kings to 38:55 achieve their own communal independence like Florence or Genoa uh or or Venice 39:02 other independent you had uh these uh local uh 39:08 city parliamentary or communal uh states becoming the prototype for modern 39:15 governments And the advantage of uh Florence for instance was that well 39:22 unlike royal budgets kings couldn't afford to had real difficulty paying their foreign debts to these bankers 39:29 because all they had was their own royal domain. Uh and they were blocked from 39:35 taxing the economy as a whole because their uh aristocracy uh the baronss 39:42 wouldn't go along with it. So uh they were they kept defaulting uh in England 39:48 they kept pledging and losing the royal jewels over and over again. Well uh in 39:54 uh Florence you had uh and other city states especially in the Dutch set the 40:00 cities that became the Dutch Republic. you had the ability of these uh communes 40:08 to tax the entire population and essentially to act as collection agents 40:13 for the bankers saying that well uh you if you lend to the kings of uh France or 40:21 Spain or Austria, they're going to keep defaulting because they don't they can't raise the money to pay you. But we can u 40:29 pledge the wealth of all of our citizens as collateral uh and tax everyone and 40:34 we'll put uh payment of our foreign borrowings that we need to make to uh go 40:42 to war to defend ourselves against the uh autocratic Catholic kings. You know 40:48 we'll we'll act as collection agents for you. And the uh historians call these 40:54 the the birth of the fiscal state. A state that is governed above above all 41:00 by its uh fiscal policy that is dominated by the banking class itself. 41:07 And so you had the banks uh the international bankers essentially took 41:13 over this supernatural super national uh Europeanwide 41:19 uh control of governments that the church the Roman church had put in place 41:25 in uh the 11th and 12th and 13th centuries. All of this was secularized 41:31 in the hands of bankers and the fiscal states uh that uh were able to run up 41:36 debts far beyond what uh uh royal autocracies were able to do. 41:44 Well, just um I guess a last question now. [clears throat] What is the I guess 41:49 the the lessons of this? What what uh because we can kind of see where we're headed now. uh 41:56 where based on this past how how would you essentially advise any structural 42:02 changes because uh obviously the status quo won't last for much much longer. 42:08 Well, you you have a situation today where the financial class pretty much is in charge of uh political uh uh policy 42:17 law makingaking uh especially in the United States since Citizens United ruling by the Supreme Court has said 42:25 well uh corporations can have uh 42:31 PAC's can finance the election campaigns of of 42:37 politicians. running for office in the primaries and the general election uh 42:43 that pledge themselves to represent the economic interests of their financial 42:49 backers. And so you've essentially privatized the political voting process 42:56 in the United States and turned it over to the wealthiest, the billionaire class, not only creditors, but now you 43:03 have Silicon Valley, you have the oil industry, you have all of the special 43:08 interests, the monopolies, the financial interests, the very interests that 43:14 industrial capitalism in the 19th century tried to get rid of to lower the 43:19 cost of producing uh goods and services and to help industrialize and become a 43:26 more competitive uh economy. Yeah. All of that has been replaced by the very 43:31 classes that industrial capitalism sought to phase out. The industrial 43:37 capitalism was revolutionary. It wanted to free economies from the landlord 43:42 class that it inherited from uh feudal times, from the monopolies that had been 43:49 created by international bankers to help uh kings raise the money uh that could 43:56 not be controlled by Parliament to pay their war debts that they'd taken on uh 44:03 and to uh essentially industrialize banking and make banking serve ve the uh 44:10 industrial capital formation as was happening in Germany in central Europe 44:16 in the late 19th century in contrast to England uh that where the banking was 44:22 much more short-term and uh mercantile than uh part of a national development 44:28 strategy. Well, this was uh what you're having today is uh essentially fi 44:36 finance a financial oligarchy taking control of politics and just as Socrates 44:42 warned as Aristotle described uh money uh loss their interest is in enacting 44:50 laws that serve their own uh search for yet more money wealth financially 44:58 instead of trying to develop society's production while increasing the standard 45:04 of living of the labor force and increasing tangible capital investment. 45:10 The west uh led by the United States is de-industrializing. Well, China is not industri 45:17 de-industrializing. And the reason for this de-industrialization is the financial financialization that instead 45:24 of having the industrial capitalism as all of the classical economists expected 45:30 in the 19th century, what we have is finance capitalism uh that creates 45:36 wealth financially, not industrially. And in fact the financial wealth uh 45:41 accumulation by indebting the economy at large tends to impoverish it and uh 45:48 polarize it and de-industrialize it and therefore make it less competitive as 45:54 compared to countries like or economies like China that are following basically 46:01 the same classical economics that the 19th century Adam Smith, John Stewart 46:07 Mill, Marx and the American uh economists all uh developed to uh to 46:14 prevent a financial oligarchy from writing laws in its own interest uh at 46:20 the expense of the industrial and agricultural economy at large. So that's 46:27 that's the big picture and if the uh 46:32 books that I've written from about antiquity uh and uh the uh now the the 46:38 feudal period and the transition to modern fiscal states uh explain all of 46:44 this and it's all the same basic principles uh that come out. You need a 46:50 central authority to uh oversee the financial system and make sure that 46:57 money and credit create is created to fund tangible capital investment in the 47:03 means of production to provide public infrastructure to support the basic 47:08 needs of uh of the labor force. uh and by making uh health care, education, uh 47:17 all sorts of other basic needs, subsidized transportation, uh subsidized 47:22 uh communications inexpensive. You make uh your economy less expensive for 47:30 employers to hire to make a profit because the uh the expenses of labor are 47:38 not simply paid for out of labor's wages but by the public uh subsidies of all of 47:44 this that the industrial employer class doesn't have to pay. That was the 47:49 strategy of industrial capitalism and uh that was what classical economics is all 47:54 about and that's the main reason that the uh academic curriculum in the United 48:02 States no longer discusses the history of economic thought because that thought 48:08 is the antithesis to Margaret Thatcher, Ronald Reagan, uh Milton Freriedman and 48:14 the whole Chicago school of anti-government uh proont uh economies and so uh I think when you 48:22 have this broad perspective you see that uh what's happening today as I said has 48:29 happened again and again throughout history and that that dynamic is always the same how is society going to deal 48:36 with its debt overhead in a way other than simply having banks create the 48:42 money to lend to debtors to pay their interest to run up yet more debt that 48:47 earns yet more interest that requires yet more loans to them to keep uh solvent and turns the economy into a 48:56 vast Ponzi schemer. Yeah. One should not just look at democracy as putting up the ballot boxes 49:02 but rather yeah preventing this transfer of power to the oligarchy by 49:08 but um uh yeah I want to thank you for taking time. Do you think uh well do you 49:14 have any other thoughts and or Well, we could go another hour. Sure. 49:19 [laughter] I I could go into much greater detail for all of this. I mean, what's going to 49:25 be uh the future of the dollar? That's something that uh you and I have talked about. Uh that the governments 49:32 themselves are debtors in this new system. There was no government debt or 49:38 uh basically in previous times. This is the first time that governments have run into debt really. uh the the post uh uh 49:49 crusading economies, the the takeoff of international banking has led government 49:54 to debt not only to their own creditors but to international bankers and uh the 50:00 uh the right now despite the fact that the United States supports procredititor 50:06 rules for the international monetary fund and against its own uh labor and 50:12 industry the debts have to be paid. the government uh says, "Well, you know, we don't have to. We there's no way that we 50:19 can pay all of our US government bonds and other debts uh that we've issued. Uh 50:27 you why don't you just use these government IUs as your money?" And uh this money isn't to be actually cashed 50:34 in, you know, for gold or there's nothing really beyond it beside be because we're just spending our balance 50:42 of payments deficits for war spending, for foreign investment. Uh we're just 50:48 spending it into the economy and it's our dollar but your problem as uh Texas 50:54 Governor Connelly put it right after the United States stopped uh converting the 50:59 dollar into gold. Well, uh other countries see this and so they're uh 51:05 almost all of the growth in international reserves uh has taken the form of gold and foreign currencies and 51:14 even cryptocurrency instead of uh US government IUS uh and uh the European 51:22 Union now has uh more of its monetary reserves in gold than in US dollars. 51:29 Well, uh, this is, uh, how is the United States going to respond to all this? And this is where we get into the political 51:36 dimension that you and I have talked about. Well, Trump is trying to impose tribute on Europe's economy and other 51:43 economies by his tax policies that say, "Well, you're going to have to pay for 51:48 access to the American market. You're going to have to pay heavy tariffs. Uh, 51:54 you're going to have to uh give us all sorts of g give backs." uh he say stated 51:59 that uh he wants uh Europe to pay for the all of the military costs of that 52:05 overhead that in the past uh America has paid and European uh fiscal policy is 52:11 now basically turned into a branch of NATO uh 52:18 in terms of uh its tax policy. Same thing in uh the Middle East. United 52:24 Trump has said, "I want uh the OPEC countries to pay for all of the cost of 52:30 our war there." And uh that's the fight. That's why there's been a breakdown in the oil trade that's leading to u 52:39 probably an international depression by the the end of of this year when uh Trump says well we can't let u Iran take 52:48 uh control of trade in the straight of uh and charge uh tariffs uh and and 52:57 fees or transit transit fees. uh we want I I Donald Trump want to take 20% of 53:05 OPEC's oil uh trade is a payment for the war that we're paying to defend it. 53:12 Well, the rest of the uh Middle Eastern countries you're now having the Persian 53:18 Gulf countries saying, "Wait a minute, you're not defending us. Uh because if you attack Iran through us, then Iran's 53:25 going to attack our oil production and close us down. uh it it your military 53:30 bases that you have here uh that you're uh paying for and the war you're paying 53:36 for is not protecting us. It's uh already destroyed uh a lot of our oil 53:42 production. It stopped our oil trade. Uh this is the impass that you're seeing be 53:48 between the United States and uh the Persian Gulf countries. And uh Iran's 53:55 position is well if we can't if the United States blocks our exports of oil, 54:00 there's not going to be any oil being exported from the Persian Gulf. Well, where 54:07 and Iran is saying, well, it's it's now up to foreign countries. It's up to Europe and Asia that consume this oil 54:14 that need all of this oil for their own economies. What are they going to do to stop uh Trump's oil war against us? 54:23 That's uh shaping the whole uh the whole issue now. And a lot of this uh is 54:29 framed in terms of America's foreign dip. Are other countries going to continue to hold their debt in US uh uh 54:38 treasury bonds uh and IUS that are to fund this war that has ended up uh 54:45 stopping the oil trade and threatening to push uh Europe and Asia into economic 54:50 depression as 25% of the world's oil trade and fertilizer trade and helium 54:57 and uh the related trade for is all cut back. That's the crisis that you have 55:02 today. And uh it's a a different kind of a a crisis, a debt crisis that we've had 55:08 before, but uh that's basically the context. 55:13 Well, as always uh thank you so much. is yeah always educational and I will uh 55:20 again advise my are sorry recommend that the viewers uh go in and look at your 55:27 website and follow your work both the written work as well as the video you post there which are yeah excellent and 55:34 um thank you so much good to be here I know what I've been saying is very 55:39 academic but that's the only way of providing a historical perspective all 55:44 of this which is what you asked to do for today.