By Michael Tuesday, June 17, 2025 Interviews Patreon Permalink

Quarterly Q & A June 13, 2025
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KARL FITZGERALD: Michael, it’s so great to see you. We’re all so enthusiastic about this meeting, so we’re glad you got here. Okay, let’s get into it.

MICHAEL HUDSON: We have seven minutes left to discuss the whole thing.

KARL FITZGERALD: Michael, I thought we had two hours tonight!

MICHAEL HUDSON: I know, I’m kidding. All right, let’s begin.

KARL FITZGERALD: Welcome, everyone, to our quarterly Q & A session with Michael Hudson, who’s been analyzing the economic matrix for 55 years. Over a dozen books. A lot of support out there for his work. We love seeing all the comments on all the different YouTubes he’s involved in.

Great to have our Patreon supporters here today to delve into the topics of the day from their perspectives. We really respect everyone’s support. The support and independent funding of Michael’s work is just so important. As we know, it’s getting harder and harder to get the word out. So, great! We can come together here and ask Michael the key questions of the time.

We do have a bit of a different format today. We don’t have a separate Q&A question stream, so just put your questions in the chat. After a little while, we’ll get some people to come up on screen.

So Michael, how are you reading the L.A. riots and what’s happening there? What sort of distraction agenda is going on in America at present?

MICHAEL HUDSON: Well, they’re not riots at all. Just as in Ukraine, you have people rising up against the army recruiters that are going in and grabbing Ukrainians to send them to the front.

Here, you have the immigration authorities coming. They’re going into Hispanic restaurants, they’re going into construction sites, they’re going into anywhere they think there may be Hispanics and just arresting whatever Hispanics, without looking at whether they’re citizens or not.

Just being a Hispanic is grounds for being arrested and quickly deported before they can have a chance to say: Let me go home and get my passport (that I usually don’t carry out, if I’m going to have dinner).

So Trump says: If you don’t agree with American policy, you’re a rioter, you’re a Marxist.

It would be wonderful if there were all these Marxists in California. California and Marxism are about as antithetical as you can probably get on the ideological spectrum.

So, a riot is simply not agreeing with what Trump said. And there are a number of quotes he’s been giving: I want everybody to agree with me. Or at his birthday parade this Saturday, he said: If there’s anybody with a sign or anything, they’ll be arrested.

We don’t have any First Amendment anymore, guaranteeing the right of free speech.

So if you want a right of free speech, and it doesn’t agree with Trump, you can be arrested.

You remember, or you may not remember, what Mark Twain said: If elections really mattered, they wouldn’t let you do it.

So basically, that’s the situation. Trump can do whatever he wants, and the Supreme Court can say: This is illegal under the Constitution. And Trump will say: What are you going to do about it? The Supreme Court doesn’t have an army. The Congress doesn’t have an army. He’s in control of the National Guard. And so he can send in the National Guard.

I remember in the 1930s, my father convinced Floyd B. Olson, the governor of Minnesota, to call in the National Guard to protect the strikers in the great truckers strike, a general strike in Minneapolis. And the National Guard was called in by the governor — not the president, the governor — to protect the strikers and the demonstrators against the thugs that — I’m told — Walgreens and other trucking companies had all called in to try to bang up the strikers.

So it’s possible that the National Guards can do some good, but that was during the Roosevelt era. Of course, by the time of the Vietnam War, the National Guard was called in to shoot students that demonstrated against the Vietnam War. And you had the shooting at Kent [State] University.

The National Guard has basically turned into the personal army of the president, and there’s nothing that the government can do about it. And there’s nothing Congress is going to change about that.

None of this is about economics. This is just in case there are non-Americans listening, and you don’t know the weird twists and turns of the American constitutional government and legal system. It’s all been very educational in the last few days.

KARL FITZGERALD: Okay. There’s interest from Suneil Basu on when your new book will be published on the debt crusades.

MICHAEL HUDSON: Well, the book’s all finished. It’s being proofread now, and the index is being made. The index, which is being made in Australia, will probably take about two months. Then it’ll take another month for the typesetting that’ll be done in Hong Kong.

I’m looking for a better cover designer. What am I going to have for a cover? If I do have an illustration, I’d like it to be on the left-hand side. You’ll have a church, and somehow this church will be metamorphosing into a bank. Because in America, many of the banks look just like the old Greek temples, the same “temples of finance,” you could say. I’m thinking that there could be something like that, but there has to be room for the title too. Otherwise, it’s just the title.

So, if any of you know of very good book designers, that would be appreciated.

There’s also something else we’re looking for. As you know, I do a weekly broadcast on Nima’s show, “Dialogue Works,” with Rick Wolf. And a number of publishers — lefty publishers — have wanted to take our lectures and put them into a book — at least the best lectures — and publish them.

But we need an editor, somebody who can go through–

In the early, maybe ten or twenty shows, I would give sort of my usual zippy remarks, and then Richard would usually have a fifteen-minute set piece that he would do. And many of the set pieces would go way beyond the topic that Nima was asking about. So there has to be some way of paring down what both of us say, to get the essence of what we’re talking about, as we’re analyzing the whole geopolitical structure of the world and how it’s all changing.

So, if anybody thinks they’d like to be a copy editor and have pretty free range in cutting, pasting, deciding what’s important, what should come out, how do you summarize, how do you boil down what was, let’s say, a fifty-minute interview (sometimes an hour or more), into ten or fifteen pages, we could have maybe twenty interviews.

And I would probably publish it through ISLET because lefty publishers don’t have much distribution anywhere. And if you’re not going to have distribution, at least we have the internet to let people know that they can order it, through Amazon or the usual bookstores that take their 40% cut.

KARL FITZGERALD: So, we are looking for a new book designer and an editor. So, crowdsourcing through our Patreon supporters here.

Andrew McKeen asks about U.S. Treasury debt levels. “[They] seem to keep increasing beyond all expectations but don’t seem to cause significant economic disruptions. When does that stop being the case? When is the level of debt just too much? And, Michael, what are you seeing with the U.S. bond rate? How’s that influencing that exact story?”

MICHAEL HUDSON: Well, today there are two problems. The pretended problem that the right-wingers — the Von Misesians and other people — are saying is: Oh, the debt is so high, the government can’t afford to pay it. And, somehow, the government will go broke and you’re not going to get the promised dollars of interest and principal that you invested. That’s just silly.

The advantage of having debt in your own currency is you can always pay the debt. There’s no problem at all in getting repaid for your 10-year bond, 30-year bond, short-term 2-year Treasury security, in your own currency.

The problem is if you’re a foreign investor in Treasury securities, if you’re a central bank, and you’ve been receiving all of your foreign reserves, basically, all of the money that America has been spending militarily over the whole world in excess of what it’s earning ends up in foreign central banks.

So Germany, Europe, Saudi Arabia, Russia, China all end up holding U.S. Treasury bills.

Well, what happens if they decide, as they’ve been deciding in the last month or so, they don’t want to spend their savings on lending to the United States, investing in government Treasury securities to finance the budget deficit that pays for the military deficit to go to war with them and fight against them?

So they’re bailing out of the dollar. They’re de-dollarizing. That’s one of the central things that I’ve been saying.

Well, the dollar’s gone down 10% so far under Trump, and falling.

So suppose you say: Oh, I’m going to buy 10-year Treasury securities. They’ve been yielding 4.5% for the last couple of months.

Well, what’s the point of investing in Treasury securities, getting your 4.5% in dollars? That’s okay, but if the dollar goes down by 10%, then you end up losing 5.5% on your investment. So it’s not really something that is safe at all.

This is the same problem with stablecoin. Stablecoin says: We’re investing every dollar that you put into the crypto stablecoin in Treasury securities.

Well, that’s fine. That means that the holder of stablecoin gets a Treasury security, but he or she doesn’t get any of the interest payment on it.

It’s the stablecoin or the other crypto company that organizes the crypto that says: Okay, you know, we’ve invested their money in stablecoin. We’re taking all of the interest for ourselves. We’re making billions and billions of dollars on this.

Well, one problem is they also will get the capital gain, if the dollar goes up, or the capital loss, if the dollar goes down.

So, suppose that you’ve invested in stablecoin and now all the investors say: Okay, we don’t want to be part of an international financial system whose purpose is to finance America’s military deficit and NATO’s war on the 85% global majority. So please give us our money back.

Well, the stablecoin company [says]: Alright, we’ll sell all of the Treasury securities that we’ve invested your money safely in.

But as they sell these securities, they’ll be getting much less dollar money than was put in because the interest rates will probably go up, meaning the price of these securities is going to fall as people cash into securities and make withdrawals.

Even though it’s all safely invested in securities, the securities prices go up and down.

And from 2008 to about 2022, you had the biggest bond market rally in history. You had interest rates going down all the way to 0.1%. So this means that a huge, huge increase in the price of people who held bonds that were paying 5%, maybe even 6% on government bonds.

Well, now that the interest rates are going up again, you’re having the price of the bonds going down.

So the problem is you can have a capital loss in your investment in Treasury securities, even though the government will pay you all of the interest and all of the principal that the bond says it’s going to pay. The market price of this bond is going to fall and you won’t get as much as you would have when interest rates were lower. That’s the problem.

KARL FITZGERALD: And with yesterday’s inflation figures out, coming a little lower than were expected, how does inflation relate to the rising interest rate and the bond interplay?

MICHAEL HUDSON: It doesn’t. That’s a myth.

The pretense is that — and this is a pretense that’s been made since the 1750s — bondholders and bankers are just like everybody else. They’re sort of middle-class people just trying to make a living and they live off their bonds. And if they make money on bonds — the interest — they spend it on goods and services. Somehow, the money that you pay them, they spend back into the economy.

Malachy Postlethwayt in 1752 had a whole argument about why England was running into trouble investing by borrowing from the Dutch. He said: When we borrow from the Dutch, we have to pay them debt service. And the Dutch don’t buy English goods and services at all. They don’t spend the money to England. In fact, they don’t spend their money on goods and services at all.

What do bondholders do when they get more and more interest that goes up and up and up over time? (That is, the interest-bearing debt goes up and up over time.) Well, they use their interest receipts to make more loans and buy more bonds.

Or, they buy luxury real estate, especially real estate in the biggest cities, the biggest cities specifically that are the big banking centers. So if, for instance, the Dutch did buy anything in England, they would buy nice, big, expensive properties in London.

And in fact, the more money that England paid foreign investors, whether it was Dutch investors or others, the more international investors would buy in England, and the balance — between London and other countries that were not banking centers — was going to become more and more disproportionate. London would grow relatively to the other centers.

And the other thing that Postlethwayt said, that the Dutch might spend money on (or English creditors, bondholders that bought British bonds)? They would spend money on goods and services — on luxuries, mainly Italian textiles — but not in England. I mean, England didn’t really make that many luxuries.

So this whole myth that, somehow, when interest rates go up and debt goes up, it’s all recycled into the economy…

And you have to keep the bondholders whole so that they don’t lose money off the fact that now that there’s a price inflation in goods and services — which they don’t buy — they would lose out. And your heart should bleed for them and say: We’ve got to make sure that if the prices for our goods and services go up, that the bondholders don’t lose money from this. We’ve got to cut back the money supply in order to keep the prices low, and impose austerity.

And David Ricardo came out, by the time he was a bullionist in 1809 and 1810. Ricardo said that debtor countries should not have any paper money at all. Paper money just increases the ability to spend. They should have hard money. Silver and gold coinage should be all that they had so that they’d keep the prices low.

And Ricardo’s aim was, of course, to prevent debtor countries from having enough government money to spend in subsidizing and developing their own industry and agriculture, so that they could do for themselves what England, France, and Germany were doing for themselves.

So to answer your question, interest rates going up and down are simply an excuse for the Federal Reserve to impose austerity using “junk economics.”

KARL FITZGERALD: Nice. And how much further can U.S. debt go? The “Big Beautiful Bill” pushing debts further up towards $40 trillion? Are bondholders going to keep buying this or de-dollarization? How much of a threat is this to America’s future?

MICHAEL HUDSON: Well, it’s a Ponzi scheme that has worked quite well so far.

A Ponzi scheme will work as long as there are enough new investors in the scheme to pay interest and dividends to the already subscribed investors. But you need to keep expanding and have more and more investors come in.

Well, for government debt, the government is the subscriber to the Ponzi scheme of government and private credit.

And the government can continue to extend money to the banking system, to the economy — more and more debt. The economy and the banks will borrow the interest to be paid. And as the volume of debt goes up, the volume of interest payments is going to go up, that the government has to pay, as well as rolling over the debt as maturities shorten, as the debt people only lend for a short-term period of time.

So you’ll have the government basically monetizing it.

And if you look at the Federal Reserve, the Federal Reserve now has a negative net worth on its balance sheet because it’s been just subsidizing the banks and the large financial institutions, so that they are able to remain solvent in an economy that, basically, is insolvent.

We don’t have enough money to pay the debts.

So, what do you do if you don’t have enough money to pay the debts? You print more money.

I would write down the debts, but obviously the government is not going to do that.

So, we’re just going to wait for some crisis. And the likely crisis will be not a problem of the government stopping printing money as the federal debt rises.

It’ll be foreign central banks de-dollarizing, isolating the United States economy, and saying: You know, we’re not interested in investing there anymore. We’re not interested in agreeing to the sanctions that the United States insists that we impose on Russia, China, and other countries. We’re willing to give up trade and investment with the United States to turn to parts of the world that are growing more rapidly, primarily in Asia.

KARL FITZGERALD: Virginia Cotts asks: “What would be the effect of a Zero Interest Rate Policy, a permanent ZIRP?”

MICHAEL HUDSON: Well, that’s what we had for quite a few years. Zero interest rates means that bank customers will borrow at zero interest, and they will buy a stock or a bond that’s yielding 4.5%.

For instance, if I could borrow a million dollars at zero interest, I could buy a 10-year government Treasury bond that’s yielding 4.5%. On that million that I borrowed, I could make $45,000 a year on it. I could just keep borrowing cheap, and investing in bonds.

Or I could invest in stocks that may pay dividends and capital gains together of, maybe, 9% or 10%.

And I get to buy more and more assets, bonds and stock, or real estate — on credit — and hope that the asset that I buy will yield a higher return — not only interest, but capital gain — than the zero interest rate that I have to pay.

So it guarantees that debtors can make a free lunch by borrowing, and also that there will be more and more financial institutions and individuals borrowing to bid up the price of assets. So you’re going to have asset price inflation for all of this.

Despite all of the debt, you’re not going to have debt deflation because even though there’s more interest that has to be paid, you still can borrow cheaper than the nominal interest and capital gain prospect that stocks, bonds, or real estate provide.

KARL FITZGERALD: Sunil asks another good question. “It appears that the U.K. is increasing its share of U.S. treasuries roughly at the same rate China is reducing them. Where is Britain getting the huge amount of money to do this?”

MICHAEL HUDSON: Probably from offshore banking centers.

Where is Britain getting the money to buy the U.S. Treasuries?

KARL FITZGERALD: Yeah.

MICHAEL HUDSON: I think it could be acting on behalf of other governments who are doing their transactions through the Bank of England, through England. I’d have to look at the overall balance-of-payment statistics to answer that. But it’s not really British money so much.

Where is England getting the money? Its economy is in a mess right now.

So it has to be foreign money going through England to the United States. And partly, maybe, it’s a lot of Europeans.

If you’re a German, for instance, you realize that Germany’s been defeated financially by the sanctions on Russia. They’re called sanctions on Russia, but the American sanctions are really sanctions against Germany and Europe.

It’s America essentially asserting its control over Europe, fighting to the last European business, until the last business, last industry, goes out of business. Just like we’re fighting for the last Ukrainian to pass away.

So, I would imagine it’s European money via England.

KARL FITZGERALD: There’s plenty of interesting plays going on there in the Treasury space. Who’s selling down their Treasuries more, Japan or China?

MICHAEL HUDSON: China is worried that the United States is simply going to confiscate its U.S. dollar holdings, as the United States did for Russia. Since America says, China is our number one existential enemy, you really don’t want to keep all your savings in the hand of someone who says you’re their great enemy, and they’re going to — in two years — attack you and destroy you. So it’s understandable why they may not want to hold dollars.

Japan, I think, is in somewhat of a squeeze right now. Right now, especially with the tariffs, Japan just isn’t obtaining the dollars from its foreign trade that it was obtaining before. And so it’s having to cover its balance-of-payments deficit by selling its savings in the form of Treasury securities.

KARL FITZGERALD: Okay, so gently, gently. Matt Connors has a bit of a tongue twister here: “I know the long-term goal is to get out of this system. But in the meantime, would something like a functioning society bond, in the spirit of victory bonds during World War II, be a worthwhile political tool for a new party? A clumsy question, I know, but I want to end the argument that we need to keep floating bonds with none of the money raised going to real social needs.”

And I suppose a way to reflect on that question is the Canadian use of community bonds, where they have community bonds that are used to raise finance for community housing, for example.

MICHAEL HUDSON: Communities cannot create money. They can accumulate assets and repay debts, but only a national government can create money.

So a community bond is sort of like a credit union account, or a savings bank and a savings and loan association. They’re not banks and they’re not part of the money creation process. They’re on the sidelines.

KARL FITZGERALD: Switching gears, Jonathan Becnel asks: “What assistance can Marxist political organizations in America help you, Doc Hudson, spread your economic message of an alternative GDP, that you suggested in our last Patreon meet-up.”

MICHAEL HUDSON: I’ve had almost no connection with any Marxist party in my life. They’re completely uninterested in finance.

I grew up in a Marxist family. I knew many Marxists. None of them had any interest or understanding of finance. And as far as I could tell, none of them read Volumes Two or Three of Capital. So they didn’t have any idea what Marx wrote about debt and finance and rent theory.

And this is not only the case in America and Europe, it’s the case in China.

I haven’t found much receptivity in China to my talking about land rent, or economic rent, or value theory, or the tendency of finance capital to grow exponentially to the point where there is a crisis — and to essentially act in a predatory and parasitic manner.

So, Marxism has really very little to say about what I talk about.

And the only reason that I’m considered a “Marxist” is I’m a classical economist. And my whole focus in all the work that I do is value and price theory. From the Physiocrats through Adam Smith to John Stuart Mill, the whole of classical economics unfolding reached its pinnacle, really, in Marxist value theory. And it’s very detailed.

Like the other economists before him, he said that the excess of market price over cost value is economic rent.

How do you explain the fact that prices are in excess of the actual cost of production to the landowner, or to the banker, or to the monopolist, or to the miner? And this is what Adam Smith, Ricardo, the Physiocrats, were all about.

And the classical economists were essentially the theoreticians of the emergence of industrial capitalism. They said: What do we need for Britain to become the workshop of the world, to become an industrial country?

Well, they all agreed that you have to cut the cost of production so that you can undersell your rivals. And Marx pointed out that the ideal of industrial capitalism is to get rid of all the unnecessary costs.

The unnecessary costs were economic rent that, as John Stuart Mill said, landlords make in their sleep, without playing any productive service at all.

So, the objective of all of the classical economists was to get free of economic rent. Starting with land rent, you get rid of the hereditary landlord class. How do you do it? Either you tax the land rent away, or you socialize the land.

You make it a public utility.

Same thing with natural resources. They’re the national patrimony. You don’t let them be privatized.

You let miners and developers, even oil companies, come in and they get a return on their capital investment to mine the ores, or the minerals, or the oil, but they don’t get a value for what nature provides for nothing. This should belong to the public domain.

Same thing with natural monopolies, railroads, communications, education, health care. The American school of the late 19th century said that the governments should provide these services on a subsidized basis, not to make a profit.

You don’t want any rent extraction to exist so that you support a class that gets income without playing a productive role.

Well, by the late 19th century, the landlords, and the bankers, and the monopolists, fought back.

And they said that there’s no such thing as economic rent, that everybody plays a role. The landlord plays a productive role. He decides: Who am I going to rent to, and how much am I going to charge, and how am I going to keep repairing the building?

The banker gets to create money on a keyboard. (It was paper and pen, originally.) They decide: Who am I going to lend this money to? Basically. But basically, there’s no cost of production for a rent-yielding purpose.

So, the whole idea was to minimize this entire cost.

Now, tell me what your question is again, and I’ll get to the point. Oh, about Marxism.

Marx refined the idea. All of the classical economists from Adam Smith on, Ricardo, had the labor theory of value, and said: Well, ultimately, how do we decide what’s the cost of production, as opposed to non-production costs? Well, it can all ultimately be reduced to labor.

And Marx said: Quite right, but what kind of labor are you referring to? Are you referring to the cost of labor to the industrial capitalist, or the price of this labor when the capitalist sells the products of the factory that employs this labor at a markup, namely, his profit?

This is surplus value.

Now, when Marx used the word surplus value, he didn’t say “rent.”

He said: It’s true that the industrialist sells a product for more than it costs, but he’s not like a landlord, or a banker, or a monopolist. He doesn’t make money in his sleep. The industrial capitalist actually plays a productive role.

And so, the profit and the surplus value that the industrial capitalist makes is an element of value.

And that should be included in the economy’s measure of product.

What should not be included in the economy’s product would be economic rent: the land rent, the natural resource rent, the monopoly rent, and the financial returns from the banking privilege. All rent is a return to some kind of political privilege, or other, and this is not part of the production process.

And Marx, more than his predecessors, was very clear in dividing the economy into two parts: the production economy that we’re all familiar with, and what he called the “circulation economy.” He meant the financial real estate sector — what I call the FIRE sector: Finance, Insurance, and Real Estate, plus monopolies.

Now, suppose you translated this value theory into national income, or GDP accounts. The GDP being gross national product would include what’s actually produced by industry, agriculture: actual output.

But the anti-classical school, which basically was a reaction against classical rent theory, said: Well, there’s no such thing as rent, and so there’s no rentier class. And so there’s no return to rentier products.

So it’s all part of GDP. It’s all part of the product: The landlord creates a product, the banker creates a product, the miner creates a product, the monopolist creates a product.

And so, if you follow the classical value theory, then you’d have the GDP of the United States being maybe only, order of magnitude, half as large as it actually is. Because at least half of what is counted as national income and product is the returns to the finance, insurance, and real estate sector, and the various monopolies. Whereas in China — that does not have an independent financial class that makes money financially — China has essentially industrialized the financial system and creates money through the Bank of China for what it considers to be actual production, not speculation.

So China has a much higher proportion of what the United Nations consider to be GDP than the United States, that has all of this rentier exploitation, and what Marx called unnecessary costs of production, and what Mill said [was] income that they make in their sleep.

So that’s the difference.

And you can imagine that this is exactly why the vested interests do not want to follow classical value theory. And since Marx was the last great classical economist — there were also Thorstein Veblen, he came later, there were others — but it was Marx.

If Adam Smith were alive today, he would be called a Marxist. If John Stuart Mill were alive today, he would be called a Marxist. Anybody would be called a Marxist who says there’s such a thing as economic rent and it’s unearned income, because that’s what Marx said, like all the other classical economists.

So, the whole history of economic thought has been dropped from the academic curriculum so that people won’t really know what Adam Smith said, what Ricardo said, what Mill said. They were supposed to be free-market economists, but the whole meaning of a free market has been turned inside out.

When the classical economists talked about a free market, they meant a market free from economic rent, and from the rentier class. Now, the anti-classical reaction says: No, no! A free market is a libertarian market. It’s the freedom for rentiers not to be regulated by government, not to have their rent taxed away. It’s the freedom to be able to become a rentier at society’s expense.

That’s basically the inversion of classical economics.

And today, almost all classical economics is considered to be part of Marxism.

And in that sense, because I’m a classical economist, I’m considered to be a Marxist.

KARL FITZGERALD: And so neoliberalism is really eating the eyes out of classical economics because so few people actually understand what you’re talking about that they can get away with it.

When I hear Michael of talk about the alternative GDP discussion, that’s what happens after decisions are made. It’s far better to think strategically and work on tax reform and get in front of those decisions, so that we can target these rentier incomes and actually make a difference. It feels, for me, frustrating when people talk about the need for the World Happiness Index, or some other form of GDP measure: It’s too late by then. The problem’s already occurred.

Let’s get stuck into the tax reform. And that’s what the classical economists were on to.

MICHAEL HUDSON: Well, happy… I never liked the whole idea of happiness, it’s silly. I remember I must have been about 22 years old, and I was invited to a party, and they were passing drinks around. The hostess came over to me and said: Are you happy? And I thought, gee, it’s a philosophical question: What is happiness? And she said: No, no, do you want a refill on your whiskey?

I mean, that’s my idea as far as I can understand happiness. I’m not a philosopher.

KARL FITZGERALD: Yeah. Okay. Why don’t we open it up? Karl Sanchez, you got a question there. Do you just want to ask it? Come on screen.

MICHAEL HUDSON: There you are.

KARL SANCHEZ: I’ve got to figure out what I wrote here now. Oh, yeah. What did Marx specifically write that pissed off the capitalists and the rentiers? Why did they wage war on Marx/Marxism?

MICHAEL HUDSON: They were waging war not against Marx himself, but against the whole of classical economics. They were waging war against Adam Smith, against John Stuart Mill, against Ricardo. They were waging war on the concept that some people did not earn the money and the wealth that they had. That some was unearned. It was an unnecessary cost of production. The money that you paid them wasn’t for them playing a productive role.

And the parasites said: We are not parasites. We are part of the host itself.

And that’s the point that I made in Killing the Host, that they wanted to be considered productive. That’s what they didn’t like about Marxism.

Quite apart from the fact that — before Marx, the value theorists who developed the theory of value and price (that price is the excess of rent over cost value) — these were basically bourgeois. They were capitalists. They were not trying to develop: How do we make industrial capitalism more efficient?

They made it ‘more efficient’ by minimizing the amount of wages that they had to pay their labor force. And to Ricardo and the other classical economists, you minimize what you have to pay your labor by making their food cheaper, by making their basic needs cheaper, so that you didn’t have to pay them enough money to pay agricultural landlords for high-priced food, housing landlords for high-priced housing. You didn’t have to pay any of that.

But what Marx said was: Let’s look at this from the point of view of the workers. Do they really need the capitalists to be the major investors?

You’re already having government investment in public infrastructure, government investment in America, the Erie Canal, the railroad. Private investment is not as cost-efficient as public investment.

So, to them, the fact that the whole tendency of classical economics was to evolve into socialism.

And the opponents of socialism, mainly the rentier class (the rent-extracting class), didn’t want to see governments get strong enough so that they could tax the land.

They said: We don’t want a strong government. If we can keep governments weak, they won’t be able to tax the land and we can defeat them. They won’t be able to regulate banking and keep us honest. They won’t be able to regulate rents and keep the price of housing from being extortionate on housing people. They won’t be able to have antitrust legislation to prevent monopolies from exploiting people. So, essentially, these were opponents of governments strong enough to actually implement classical political economy.

KARL SANCHEZ: Okay, so you have the rentiers, we’ll go ahead and call them that. Now, the main argument that I recall against communism was that they’ll take your property from you. That’s what was said to America back in the Red Scare after World War I: The communists will take your property from you. You’ll lose all your property to them. They’ll confiscate everything you own.

Now, I don’t think there’s a shred of truth to that because, as I understand it, you can go ahead and keep your property. It’s just a matter of now it’s going to get taxed. You’re not going to be able to go ahead and keep the excess that you earn from that property.

MICHAEL HUDSON: That’s right. The Marxists and the classical economists said: You don’t have to take their property. You just have to collect the economic rent that the property has.

Same thing, look at Russia today. You don’t have to actually take back the property that the kleptocrats have registered in their own name, from the oil industry, all of the other assets that they stole in the 1990s. All you have to do is collect the rents from these properties. You can leave them with the property.

The key is the income from this property.

KARL SANCHEZ: So the big lie back in the Red Scare in post-World War I was that the communists will take your property. That was the big lie that was said. Was it ever really backed up by any particular empirical evidence? I don’t recall ever reading anything in my history quests that showed any of that. It was just, you know, that’s what the narrative was.

MICHAEL HUDSON: Well, while that was going on, think of Lenin. He had the New Economic Policy, the NEP. And he certainly left the property in the hands of the bourgeoisie, but he didn’t permit them to make an income that was exploitative.

And, of course, this occurred much more in China under Deng. Deng said: A white cat, black cat, what difference does it make as long as it catches mice?

He let one hundred flowers bloom. He let individual enterprises develop and they can get rich.

And if you got super rich, like Jack Ma and other billionaires, you’d say: Okay, you can’t get that rich. We are going to have some kind of progressive wealth tax. And even if we don’t legislate a wealth tax or a rent tax, we’re not going to permit billionaires getting much more than we think is morally right. But we’ll leave you with the property. You just can’t become a billionaire from it.

KARL SANCHEZ: Okay, that covers the question that I had pretty much about wanting to pin the tail on a donkey, with regards to the whole narrative scheme that communism is evil, and all that. So, essentially, it was a big lie from the get-go, and all too many people swallowed it.

MICHAEL HUDSON: Remember, they were saying that government is evil, Adam Smith is evil, John Stuart Mill is evil. What they called “communism” was everything that was considered industrial capitalism a century earlier.

KARL SANCHEZ: Right. So in your investigations, did you uncover anything that was specifically publicly stated like that? Did you ever find out anything that was specifically publicly stated in that manner? Papers written or speeches given?

MICHAEL HUDSON: No, Marx did not write–

KARL SANCHEZ: No, any of the reactionaries, in what they said?

MICHAEL HUDSON: What you do have is their alternative explanation of price. You had the English saying, well, there’s no such thing as rent creating an excess of price over value. The consumer is king, and consumer utility is what explains the high price. It has nothing to do with cost of production, nothing to do with economic rent. It’s just if consumers want something, it’s going to be a high price, relative to the cost of production. And they didn’t distinguish the cost of production between necessary and unnecessary costs, between profits and rent.

You had the Austrian school, also, that tried to imagine that there could be an idealistic economy without government at all, when essentially the capitalist sector could do whatever it wanted. Like it did in Vienna, murdering the communists. The communists were accused of violence.

What Marx did say is that the rentier class is going to fight with violence to prevent economic reform. Look at the Paris Commune in 1871, I think, around that time of the Prussian-French War.

Marx saw that it was the classes that did not have to work for their income and actually create their own product that were fighting to keep their privilege. That somehow the classes that actually did work — the industrialists and labor — did not fight with the violence that the rentiers fought back: the Austrian school, and the right-wingers in the United States — the followers of anti-rent theory of John Bates Clark, and the anti-classical reaction that I described in Killing the Host.

KARL FITZGERALD: Interesting. Michael, information flows are one of the big criticisms under the communist system. They don’t rely on the pricing mechanism to allocate resources. Have you seen any improvements in socialist/Marxist thinking on how those information flows can be improved to better reflect genuine price?

MICHAEL HUDSON: That gets into computers and things, and I’m a techno-peasant, so not my department.

KARL FITZGERALD: Okay, let’s move on to Steve Reed, who asked a good question, and good to hear from you, Steve: “I’d love to know the historical countries or places where money creation was done by the ruler for the good of the people, and not private debt-based.”

MICHAEL HUDSON: Well, all money is debt, and some kinds of debt are accepted as money.
So if you’re talking about money creation, you have to talk about credit and debt creation. And that goes way beyond money itself.

And if you talk about money without credit and debt, then it’s as if you’re talking about commodity money instead of money as a legal institution, as Aristotle pointed out. And as I describe in my history of the Bronze Age […and Forgive Them Their Debts], and Temples of Enterprise and Creating Economic Order, and the other books that I’ve talked about antiquity.

And the book that I will be publishing, that Karl mentioned at the very beginning on the history of the banking sector’s political alignment from the Crusades to World War I, is all about the transformation of money away from commodity money, to government debt serving as money, starting with the Bank of England.

KARL FITZGERALD: Yeah, it’s going to be fascinating to see that book come to life, Michael. Really looking forward to that one. Kimberly Mims from our excellent transcription team has a bit of a long question, but let’s get into this: “A new generation of Americans is talking about feeling, character, role, story at work and at play. Hollywood film, theater and performance art are coming together. The other day, Norman Finkelstein compared Rosa Luxemburg and her cohort unfavorably to today’s left. The point, someone has scored a generational win against labor as a classical European enlightenment project. Can it be reversed or moved productively forward?”

MICHAEL HUDSON: Could you paraphrase that?

KARL FITZGERALD: I’d love to. I think she’s talking about identity politics working against labor and how can the left move forward from that?

MICHAEL HUDSON: There we go. You’ve explained it all.

The Democratic Party is the most anti-labor party. It’s the hardline Wall Street party. And its idea is how do we get voters to stop talking about economic issues? And so their solution is identity politics. First of all, during the 60s and 70s, there was ethnic politics. The Democratic Party was divided into organizations of Greek-American, Italian-Americans, Irish-Americans — they worked through various ethnicities to get that. Then it gradually became increasingly racial equality politics.

And then finally, the great breakthrough was under Clinton and the really hardline anti-labor strategists who said: Let’s bring in the LGBTQ. And so you can have every different, every kind of identity — Irish, Italian, black, white, LGBTQ — every identity except being a wage-earner. And if you can just keep distracting people so that it’s every identity except the one common denominator of being a wage-earner, then they’re not going to see what an enemy of all of them the Democratic Party is — and its support of Wall Street, its support of war, its support of the military-industrial complex, its support of the landlord and financial class.

It wants to make itself invisible by having people talk about something other than its identity and their identity, which are opposite.

KARL FITZGERALD: Dena Lebowitz has another long question. Let’s see where we go with this one: “We’ve read that one explanation of the whole U.S. deportation of tens of thousands of refugees and immigrants is part of a program planning to remove people currently working low-paid jobs and to replace them with children, as well as to replace them with almost rightless H2A visa workers. The point of this, according to various sources, is to create a large, extremely vulnerable sub-class of workers, unlikely to fight back, to disempower workers altogether.

“Also, Bukele is apparently in bed with the gangs and wants as many gang members shipped to him ASAP because their prosecution through the U.S. courts will expose this. Any thoughts on this? Please speak on how different sectors within the elites are fighting.”

How is this likely to play out?

MICHAEL HUDSON: Again, if you could translate that question into something more specific, I don’t know what the connection is.

KARL FITZGERALD: I’m seeing from Australia a fake battle between labor and capital being set up so that rentiers can continue carrying on as usual, and the immigrant deportation thing is the giant distraction–

And Michael, please tell me what’s happening with special economic zones. I want to hear the analysis of what Trump’s doing through the “Big Beautiful Bill.” What tax carve-outs is he putting in there for the rentiers?

Those special economic zones–

MICHAEL HUDSON: To me, it looks like just old-fashioned American racism. White people hate people who aren’t white. They hate the Indians. They hate the Blacks. They hate the Native Americans. They hate each other’s ethnicities.

That’s what Western civilization – that’s what Christianity is all about.

The Western religions are hate religions, and the population is brought up to hate. That’s what made Roman Christianity different from every other religion. And I go into this in my book on the Crusades. I explain why it was that the Roman church — the papacy — became so authoritarian, in order to reform an utterly corrupt Roman papacy.

The first crusade was supposed to liberate Jerusalem, but Jerusalem didn’t need liberation. There was already a Christian church there. There was a Jewish church there. There were Islamic churches there because the Muslims were in charge. The Muslims were tolerant of all the different religions, all the way from the Middle East to Spain, and Sicily, that was very largely Muslim.

Charlemagne, around the eighth century of our era, decided to declare — and his forebears declared — war on the Saxons in northern Germany and tried to kill them because their religion was based around sacred trees.

There was this intolerance that was characteristic of Western civilization that had not characterized other civilizations all the way back through antiquity.

You remember Persia, when Persia conquered Babylonia, they left the Babylonians to follow their own religion: You can do whatever you want, as long as you pay taxes and tribute.

They were all tolerant of the Jews. There was no anti-Semitism.

It was the Catholic Church that really introduced anti-Semitism, just as it introduced the anti-Muslim, anti-Islamic spirit: There can only be one God and one church, and that’s us.

It was all a kind of power play, and that feeling of religion that if you’re not part of our group, you’re not going to heaven, you’re the devil. This either-or polarization thinking, politically, and ethnically, and racially, and religiously, every other way, is a distinct feature of Western civilization in the modern era. It just didn’t occur before.

And in America, it’s really the worst of all because of America’s history of slavery in the South.

But what began simply as race hatred and a hatred of Indians, Native Americans just as much, became a hatred of the new immigrant influx — the Central Europeans, Central European Jews, the Italian immigrants, the Irish immigrants (especially the Irish). They were all really prejudiced against. All this is distinctly American.

I think that Trump simply wants to get elected and he’s appealing to this rotten American identity politics and racism, quite different from the Democratic Party’s identity politics, in just a demagogic manner.

KARL FITZGERALD: But Michael, when it comes to racism, don’t you think that the original sin was indigenous people around the world inherently understanding the value of the earth? And that was something that must be despised and deterred at all fronts. And so that’s where the genocide originally began–

MICHAEL HUDSON: Yeah, that was the cover story. They really wanted to just to get rid of the domestic population. I mean, all they really wanted was gold. And all they wanted was the metal: the silver and the gold.

But again, there was a hatred of the other. There was a hatred for people who were not yet Christianized. And even after you’d be Christianized — if the Jews would convert to Christianity (the Marranos) — they were held again with some degree of hatred. I mean, all of that was a by-product of the Catholic Inquisition. You know, the Americans are still singing popular songs about that.

Do any of you remember the movie The Singing Nun with Debbie Reynolds? There was that tune, “Dominique?” It’s about the Dominicans killing and torturing the Cathars of France for saying that their Christianity thought that, yes, there is a heaven and hell, and the hell is here on earth, and it’s run by the Church. So they all had to be killed. And that was the Inquisition. I mean, to think that that can be a popular song by the Church, and they make funny movies about, you know, happily singing about the Dominicans, is quite something. I think that there were later comedies about Torquemada, the Grand Inquisitor of Spain, by comedians. But that was meant to be black comedy, not really serious ditties.

KARL FITZGERALD: What about the role of art in previous times, helping the everyday person to understand the role of the rentiers? You mentioned Mark Twain earlier. There was a long tradition of artists who understood the power of monopoly and helped to break that down through poetry, music, theater, and the like. Where do you take your leads from on that side?

MICHAEL HUDSON: There was a big anti-monopoly movement. It was all untracked, unfortunately, by someone who hated classical economics — Henry George — who essentially said there’s no such thing as economic rent, which is ironic.

KARL FITZGERALD: Come on! He did not say that!?

MICHAEL HUDSON: Yes, he did. He wrote this awful book, Progress and Poverty, when he said: I agree with the attack on classical value theory that says rent is the excess of price over cost value. That’s not it at all! Rent is the price, is what the British say it is. It’s all consumer utility. The consumer is really a king.

He expelled anyone who talked about classical economics. Anyone who talked about Marxism he expelled from his group. Nowhere, in any of his writing, do you have any discussion of classical value and price theory.

He said: I’m the person who invented the fight against rent. He was a narcissist and he really took the side of the opponents of economic rent. He was a libertarian and said: You must not have a government strong enough to tax landlords because a strong government is the enemy. I’m a libertarian. You need a small government. So he crippled the whole idea of fighting against economic rent by being a socialist. He declared war on socialists. He was a right-winger and spent his life fighting against socialism, expelling the socialists.

He wrote a wonderful book on the Irish land question that made a reputation. Then he wrote Progress in Poverty. It was a very popular journalism book. But he was a journalist, not an economist. And so the socialists and the labor groups of New York City said: Well, we really want to have a chance to take over New York City. And they nominated Henry George to be mayor. And George said: Only if I can write the political program. They had read Progress and Poverty. They were under the illusion that he wanted to essentially get rid of economic rent and the power of landlords.

Well, the first thing George did was get rid of all of the rent controls. He said: All you have to do is tax rent, and you won’t need rent controls anymore. He got rid of every socialist, every element of the platform, except tax the land, without looking at the economy as an economic system. And basically, he very quickly dragged his followers to fall off the right wing of the political spectrum.

And so the combination of saying a small government — we don’t need big governments because that’s socialist. We don’t need the value theory of Adam Smith and John Stuart Mill and Marx. That’s socialist.

He was all by himself and ended up completely being isolated.

And when there was a revival of Henry George followers in the United States in the 1920s, they were all right-wing libertarian anti-socialists, exactly the kind of people that you and Karl described earlier: the right-wing anti-socialists. So that sort of helped untrack the fight against land rent in the United States.

And you had, during the 1890s, Marxists and followers of George going around the country debating each other. And these were published by a Marxist publisher in Chicago, Charles Kerr and Company. And the debates were really wonderful. They spelled out the difference between socialism and the classical economists, on the one hand, and the Georgist followers, on the other. And all of this was spelled out.

And they kept saying: Well, why don’t you followers of Henry George become socialists and support a government strong enough so that we can, first of all impose rent control, take away rents, then we can begin to get tax out of the landlords, tax all of this? George would have no part of it.

So, the socialists said: Okay. You go your way, we’ll go our way. We’re going to talk about labor issues and social democratic reforms, you know, what labor needs, what government reforms for the poor need. You can handle the economic rent. But we’re all in favor of taxing land. You don’t want to work with us. So, goodbye.

KARL FITZGERALD: So, Michael, I don’t know how you got from arts to your beating up on Henry George, one of my heroes.

But yeah, it’s perfectly acceptable for there to be a diversity of tactics. We know that there is a strong libertarian movement in America at present. So, why not speak to them about the economic efficiencies that taxing land and monopoly can create, and reducing the dead-weight costs–

MICHAEL HUDSON: Because they’re crazy people. There’s no point in talking to a crazy person.

KARL FITZGERALD: You could say that about plenty of socialists as well. How do you find the radical center and be able to speak to both left and right at once? And that is the beauty of being able to talk about the lowest dead-weight costs when you do tax land and monopoly.

So, that’s how I speak to government here in Australia, and that’s how I’ve changed three taxes.

Henry George did come up with a really powerful economic formula: production minus rent equals wages plus interest.

MICHAEL HUDSON: Ah, that’s it! I forgot to say George was a big promoter of the banks. He was a defender of the rentier class. He was the defender of the financial class. Of course! That’s what I should have said right away. If you look at his awful chapter in Progress and Poverty, he calls profits interest. He wanted industry to be financialized. He was basically the apostle of financial doom. That’s exactly it. Imagine, interest, celebrating interest…

KARL FITZGERALD: Certainly that chapter was not his best effort, and it would have been much more advisable if he’d taken Flürscheim’s much wiser approach to interest. But switching back to the–

MICHAEL HUDSON: I want to interrupt. The reason that you and other Australians have an appreciation of George is because of Michael Flürscheim, who came to Australia and had originally been an associate of George because he saw the need to tax the land as part of the overall reform of the rentier class.

But he also saw the role of finance very clearly and was a wonderful popularizer. His Clue to the Economic Labyrinth, I think, was published in Perth initially. At least the copy that I bought, it was published in the 1890s.

And it was Flürscheim that sponsored these ideas in Australia. Flürscheim had tried to popularize George. There was a big land tenure conference in France, in Paris. And he brought Henry George to Paris and George got very embarrassed. He was unable to be the center of attention because other people were talking about Adam Smith and John Stuart Mill and socialism. And so, Flürscheim said, George just stayed in his hotel room all alone, and went with his wife throughout Paris. He was too ashamed to show himself in public for being so economically illiterate and unable to be part of the discussion with people who actually talked about economics, not just journalistic sloganeering.

KARL FITZGERALD: Andrew McKeen says: “I thought if you tax the economic rent properly, you don’t need a big government. And Michael, I would love to hear you talk more about it.”

MICHAEL HUDSON: Karl, the entire thrust of the 19th century classical economists was to tax the land. They failed. They thought that this was what classical economics was all about. Of course, they wanted to tax all forms of economic rent, monopoly rent, and finance, but it was all trying to free industrial capitalism from the landlord class. It failed.

KARL FITZGERALD: We understand that. So let’s talk strategically. Imagine, you’re, what, 84? We’ve got to get this wisdom out of you.

If we are to have a strong government so that they can take on monopoly, and we also have a pricing system that’s reflective of production plus a small return to capital — reasonable return — where is the role for big government? Do we have an army of lawyers, like Matt Stoller has sitting in every court case, government versus big monopoly? Where is the resourcing of government dedicated towards, to keep monopoly in check?

MICHAEL HUDSON: I see the problem. How do you get from here to there? Of course, what you describe is just exactly what would be ideal. Of course, we’d like what you describe. Of course, it would be how you want to end up. The problem is that, as I said, and as we were talking about with Karl Sanchez, the rentiers fight back violently.

And it looks like the only countries that have been able to prevent a rentier class from taking over, — either the landlords or, in the modern world, the bankers — have been through revolutionary form. First, the Russian Revolution, and then the Chinese Revolution. You needed a revolution, and the Chinese Revolution got rid of the landlords, and got rid of the financial bankers. And so the government, of course, had land as a public utility. And, of course, had money and credit creation and banking as a public utility. But you needed to get from here to there.

And it looks like, because of the willingness and ability of the rentiers, being the vested interests, after all, to use their power as vested interests to control the army — as Trump is controlling the National Guard, as we discussed. I think Marx said the end of capitalism will not be a pretty sight. Well, that’s the problem. How do you get from here to there? Now, that was the problem with what Henry George said. How to get from here to there?

He would have had to work with a socialist movement to essentially overpower the landlord class.

KARL FITZGERALD: Let’s get to the point now. Let’s get to the argument now. We’ve identified that people would prefer in a way to focus on identity politics rather than understand the pricing structure and rentier behavior. The people at the forefront of this pressure of high land price, high banking costs, high taxation, are small business.

So, I said at the last gathering that if we’re going to get anywhere, we have to find a way to split the right wing, to reveal what in Australia are called the classical liberals. Probably the wrong terminology in America, but these are people who respect the market system but know something is wrong, and recognize that if we pull the power of big business backwards, we get a fairer society where we can walk the streets without worrying about being robbed.

MICHAEL HUDSON: Well, that’s exactly what I’m trying to do, Karl. And now I realize what the problem is. If you just say the enemy is the landlord, then you don’t realize, well, who’s protecting the landlord?

The protector of the landlord is the financial class because in today’s society, you no longer have a hereditary landed aristocracy that lives off its hereditary ground rent as the legacy of what their forebears had conquered.

Anybody can obtain housing or buy a commercial office building. But in order to afford a home or an office building, you have to take out a mortgage. The result is that the land rent is used to pay interest. Rent is for paying interest.

And the leadership of the fight against critics of rentiers are the banks. The banks are protecting the landlord class because 80% of bank loans in the U.S., England, and other countries, are mortgage loans. And of course, the banks are going to protect their number one customer, the real estate sector, just as they protect their other customers in the monopoly business.

So it’s the banks that have become the central planner and the controller of fiscal policy. That’s also a theme of my book on the politics of international banking from the Crusades to World War I.

So, you have to realize that, yes, landlords collecting rent are bad, but let’s go after their big protectors, the banks. You have to attack the banks. And if you celebrate interest, and say, I’m all for interest — like George did — then poof! You’ve crippled your vocabulary. You’ve crippled your way of thinking about how to create a political movement to explain what I’ve been trying to do for the last, really for all my life, to explain how it’s the financial sector that is the protector of the rest of the rentier sectors altogether, because rents are for paying interest.

KARL FITZGERALD: Yeah, well, how does it play out today with the Koch brothers, the Heritage Foundation, Project 2025? Are they really bankers behind that, or is it other, you know, the conglomeration of rent-seekers that have driven this agenda that’s now created this immigration paranoia distracting from what AI has just told me the “Big Beautiful Bill” is expanding in terms of tax deductions?

MICHAEL HUDSON: Well, the Koch brothers made their money in rent-seeking. Especially their big fortune, I think — I’m told — was stealing oil from the Native American Indian reservations. And they were about to be prosecuted under the Clinton administration, when you had the Clinton affair, with the dress and all, coming out. And the deal was, okay, we’re not going to impeach. The Republicans agreed not to impeach Clinton, if Clinton agreed not to prosecute the Koch brothers for their steals.

So, the Koch brothers realized that you can’t really come out and say, I’m going to have a political party that is all in favor of economic rent, because you don’t even want people to think in terms of economic rent. You try to get a populist cause by appealing to the lowest common denominator. And as you just pointed out, the lowest common denominator is anti-immigrant racism. And the Koch brothers and these other right-wing institutions are part of the whole matrix of fighting against thinking about how to create a government and a society without a rentier class.

KARL FITZGERALD: So the “Big Beautiful Bill” has enhanced tax breaks for real estate investors, including 100% bonus depreciation restored; the Section 199A deductions extended for real estate investment trusts; and estate and gift tax exemptions increased from $15 million per individual, or $30 million per couple, indexed to inflation. Alongside of that, the SALT deduction cap has been raised to $40,000 to give relief to property owners in high-tax states.

Additionally, the special economic opportunity zones have been expanded with a limit of 25% of eligible low-income tracts per state. My understanding of the special economic zone is, if you invest in a community, you get a 50% capital gains tax deduction if you leave the investment there for a decade. So, yeah, these are the things, Michael. I would love to hear American–

MICHAEL HUDSON: I’m glad you brought up Karl Marx again. This is very important. It was Marx who created the theory of depreciation as an element of value. Prior to Marx, the classical economists only considered income as a component of value, the return to capital. And Marx said the value of an industrial product is not only the return to capital, it’s the actual original capital investment itself.

And he introduced the concept of depreciation into value theory, or what now is called EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization.

Well, what has happened is that the real estate sector — and I’ve written quite a bit about this, and I think you were alluding to that in your lead-in — they pretend that real estate depreciates, and they pretend that buildings depreciate. And all of the American statistics follow this false, misleading economics that pretend that they increase in the market price. The market price of real estate is the increase in the construction cost of a building. Every time a real estate property is sold, the new owner of the property — if it’s a rental property, homeowners are not allowed to charge depreciation, but commercial investors are — they’re allowed to start depreciating the building at a higher and higher and higher level.

And what you and I know is really land rent is somehow included into the price of the building.

That whole twist to give free money to the landlords was developed by the head of the Schalkenbach Foundation and the Henry George School, C. Lowell Harriss, that basically supported all that. It was a Georgist who thought, well, in order to have a land tax, we got to get mayors on our side. Who finances mayors’ campaigns? The real estate interests. So, if we can back the real estate interests, we can get the mayors to support Henry George. And here, if we give them a whole giveaway with free depreciation, look at what we’ve done. They’ll support Henry George. As long as he supports the landlords, they’ll support him back.

This was the craziness that I encountered.

When you say 100% depreciation… Imagine, if you buy a building, you begin depreciating the whole building right away, not at twenty years, or seventy. The depreciation tax write-off that you do not have to pay income tax on because it’s not considered income? It makes real estate tax-free. It makes any kind of monopoly tax-free, if you can somehow depreciate the monopoly privilege.

And so the concept of depreciation has been turned into a way of making rentier, rent-yielding properties tax-exempt. That is the twist.

I know that’s very technical. I’ve written about it. I think I have all my charts on that in The Bubble and Beyond, and I’ve described it more briefly in Killing the Host, and the other articles that I’ve published. The articles that I’ve written with Dirk Bezemer have all the statistics on this depreciation rip-off.

KARL FITZGERALD: That’s why Trump calls depreciation a beautiful thing–

MICHAEL HUDSON: Yes, it’s why he didn’t have to pay income tax.

If you’re a landlord, because of depreciation, you don’t have to pay tax on land rent. That’s the irony. Look at how economic orthodoxy has been inverted from the time of the 18th century Physiocrats and Adam Smith to the 19th century classical economists who wanted to tax the land. And now the orthodoxy makes land rent tax-exempt.

That’s the inversion of economics. And it’s only by studying this inversion and by studying value and price theory and analyzing its components (EBITDA) and the twists and turns it’s taken, that you can somehow educate a political movement to understand the rip-off that’s been pulled.

Most people don’t understand that rent-seeking is a rip-off.

And even Milton Friedman, and even Margaret Thatcher’s advisors, recognized, yes, there is such a thing as economic rent, they never really followed it up and said that is today the most important economic concept, just as it was in classical value theory.

KARL FITZGERALD: Yep, I think that’ll be the title of this episode: “Rent-Seeking is a Rip-off.” Nicely said.

But behind that, a whole depreciation play is really the drive to downvalue the value of land, of the earth. And so property valuers have been encouraged to overestimate the building valuation, and underestimate the land. And that’s maxed the depreciation write-offs, but it’s also helped delegitimize an understanding of how location, location as the number one real estate strategy was also the number one taxation base for government, back when Adam Smith was writing about it. That was the understood trajectory: We were heading that way to remove these feudal overlords from our lives, once and for all.

And we could do it in a way that was more efficient than what tariffs, and the like, could deliver. So yeah, what’s your latest take on tariffs? Where are we sitting on TACO Trump? And can we just call him Dickie Don now, Dictator Don?

MICHAEL HUDSON: I should say that one of the tragedies of the socialist revolution is that it has not applied the land tax. The Soviet Union got rid of landlords and so they got rid of the concept of economic rent. And they didn’t take into account the rent of location, and how important that was.

And certainly the Westerners who bought real estate in Russia found that.

And China has not taken in the rent of location as a means of preventing the increased rent of location in the form of land price that became the real-estate bubble.

I’ve had the most difficulty of introducing the concept of economic rent to socialists. Marxists don’t accept it, and governments that consider themselves to be Marxists have a resistance to thinking of the concept of economic rent. That’s how far they’ve moved away from Volumes Two and Three of Capital and the classical economic tradition on which Marx was based.

KARL FITZGERALD: Matt Connor says: “Two hours of Hudson equals three hours of future reading to keep up.” Good point there.

MICHAEL HUDSON: It helped that I got very annoyed that I had to wait a half-hour to get on, and my annoyance gave me enough energy to go through all of this. Isn’t that ironic?

MATT CONNOR: Yeah, and that’s three hundred hours, not three hours. And that’s an understatement, for sure.

KARL FITZGERALD: Yeah, well, get into it, Matt. There’s so much interesting reading out there that Michael brings to light.

Karl Sanchez says: “The ‘Big Beautiful Bill:’ The big whopper in that is the oil depletion allowance.”

Michael, what about that one?

MICHAEL HUDSON: Ah, the oil depletion allowance. It was all based on replacement costs that the oil companies were able to charge. It’s not depreciation, but amortization. Once you deplete an oil well — remember, the oil company’s investment in the oil industry is to make derricks to pump the oil, and refineries, but they don’t have to pay for the creation of the oil in the ground. That’s created by nature. So, they come in, they dig an oil well, they empty it out, and then they say: Well, we need to replace what we’ve used up. We’ve depreciated what we bought.

(And this depreciation was supposed to be only for industrial investment, like refineries and oil rigs.)

Now, we need to replace this oil and because of inflation because of the increasing scarcity of oil in some places, we get to say: Here is what we get to take as a tax deduction to buy the same amount, a field yielding the same amount, of oil — at double the price. And this amortization we get to charge off against our income because we’re using it all up for the replacement cost.

The oil industry was tax-exempt ever since the 1920s. As soon as America passed the income tax law in 1913, the cost accountants got together in the 1920s and began finding all of these loopholes to make sure that the rent-extracting sectors didn’t have to pay an income tax.

And when I went to work for Continental Oil, one of the first things they wanted me to do was say: What’s the justification for the depletion allowance? And I was drawing a parallel between that and industrial depletion and depreciation. They didn’t want to hear that at all. They just wanted to understand that I knew what depletion was for all of that.

This is arcane. This is a topic — depreciation, rent — these are not taught in academic economics courses. So you can go all the way through a Ph.D., as I did at NYU [New York University] — without there being any mention of things like depreciation, depletion, EBITDA, or the balance of payments, or any of the nitty-gritty of how society is actually put together and works — in a gimmicked way, using all sorts of rhetorical pretense, to pretend that the economy works in a different way than it really does.

KARL FITZGERALD: Yeah, one of our most prestigious universities here has a brand new lecture theatre called the Centre for Market Design. It’s all about how to set up–

MICHAEL HUDSON: I’ve been talking for almost two hours.

KARL FITZGERALD: Okay, let’s finish off with China. You’ve talked about them favorably a few times. They’ve also had the potential to introduce a land, or property tax — I think it was about three years ago — in their five-year plan, and they shied away from it. And for me, that was demonstrative of just how powerful landed interests are, even in China. What are you hearing now?

MICHAEL HUDSON: What you call the land interest is the financial interest. If they’d begin taxing the land and imposing a land tax on top of the mortgage interest that buyers already pay, there’d be huge defaults on property.

In order to have a land tax, you have to get rid of the financial debt attached to the land, and attached to real estate. And as long as you leave the financial claims for debt payment collateralized by the land as the basis of your financial system, introducing a land tax would cause a bank crisis. That’s the problem.

It’s the same problem in the United States. That’s the problem in every country.

That’s why, if you do support a land tax, you have to confront the fact that right now the land rent is already committed to be paying interest to the banks, and that the banks would become insolvent if the owners of property had to pay for the land rent and pay for the mortgage interest that is a capitalization of this land rent.

KARL FITZGERALD: And also, that growth in land price is the basis for money supply growth as well. So that is where they work hand in hand.

And that’s why, Michael, we need to work on some policy documents on how we can actually tease out this knowledge of yours and work that into a framework that–

MICHAEL HUDSON: I would need a whole team, a statistical team, that I can walk through the statistics. You really need a think tank of economists who are trained in this, such as does not exist at the present time.

KARL FITZGERALD: Yes. Mr. Sanchez says: “Land as a public utility would eliminate the need for a land tax.”

Do you think that’s true, Michael?

MICHAEL HUDSON: If it’s a public utility owned by the government, and the government collected the tax on it. The Chinese government technically owns all the land, I guess, like the Queen of England — now the King of England — is supposed to own the British land. Not ownership, but it has to be the tax base.

And if the tax base is already fully committed to pay the banks, you need to restructure the financial system.

You need a debt write-down. Without writing off the debt, without a debt write-down, you cannot have room to introduce a land tax.

KARL FITZGERALD: Well, just to let you know, here in my state, there have been three land-related charges, and there has not been a crash. But there has been a disparity, a growing widening between the price of land in Sydney, and the price of land in Melbourne. It traditionally is about $200,000 difference, and now it’s a $412,000 difference in 18 months of these new policies that I helped implement.

So it can happen. But, you know, on a macro scale, it’s fascinating to have these discussions as always, Michael. So thanks, once again, for forging ahead.

We really look forward to the new book on the debt crusades. Is there any little teaser you can leave us with that may shine a different light on how we’re perceiving some of the tensions around the world?

MICHAEL HUDSON: No, I want to focus on what we’ve said. This is really important.

A price value and rent is what an analysis is all about. That’s the focus of everything that I do.

So I’m looking forward to the transcript of this.

KARL FITZGERALD: Yes, we’ve got to get this one up. The last one hasn’t gone up yet. And these sessions are deep. We get to dive into areas of your amazing mind that we don’t often hear from.

So thanks, everyone, for joining us here. Thanks, Patreon supporters, for being patient. Great to see you all. And hopefully, we can get more of you up on screen next time. Thank you, Michael.

MICHAEL HUDSON: Good discussion.

VIRGINIA COTTS: Thank you, Michael.

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