June 4, 2026
Karl Fitzgerald: All right, friends of economic reform, welcome to another Hudson Roundtable here for Professor Michael Hudson's Patreon supporters. Thank you so much for helping independent analysis come through. And my, it's been coming thick and fast, Michael. Welcome to this quarterly roundtable. I wanted to start off today by trying to draw in the role of investigative journalists. Investigative journalists, how often do they actually know much about your teachings ? Here in Australia, we have all these investigative journalists, but they don't understand monopoly. Do you have the same problem in America ? What sort of advantage would it bring to their reporting if they understood the teachings you bring?
Michael Hudson: I don't think investigative journalists try to act as economists or as professors or as commentators. I think they're trying to look into wrongdoing or particular backgrounds of things to investigate and expose, sort of like a detective.
But they're very highly focused on a very specific project. They're not, and whereas I'm trying to take the big, long-term view and put everything in the broad context that integrates economics and political diplomacy and geopolitics, geo-economics. And what I've been talking about today is econopathology and geopathology, the sort of the misbehavior of international diplomacy and of the economic, the neoliberal economic thought that says if only society didn't have a government and everybody could act and do whatever they want in an abusive way to get rich at the expense of others, then society would be much more efficient. Okay. And journalists expose the result of this on a case-by-case basis, not the principles or the history.
Karl Fitzgerald: Yeah, it'd be so nice if there were links between the various elements of corruption so that people could understand what we're really talking about there is economic rent. And often that's what politicians are paid to deliver by their campaign contributors. And it would just be nice for those of us in the reform world if that little tangent could be brought in that deeper principle.
Michael Hudson: Well, you mentioned economic rent. I want to say something about that. For the whole last century, the reaction against classical political economy denies that there's any such thing as economic rent in the sense of unearned income, in a sense of income that bondholders or landholders or monopolists make in their sleep, as John Stuart Mill put it.
And yet that's what economics was all about during the 19th century. So we're in a blind spot that economists are trained not to see. And therefore, the public in general doesn't have the vocabulary that everybody who followed economics in the 19th century had to analyze the distinction between earned income and unearned income. What is a product ? What is it when banks charge penalty fees for being behind in your credit card ? Is that really providing an economic service that's part of gross national product?
Or is it all an overhead?
They don't say that there are two economies. There's the real economy of what everybody thinks of, production, consumption, and the distribution of it all. And then there's the whole superstructure of wealth in financial form, property form, legal rights, monopoly privileges that differ from societies that may have the same technology.
And so really there isn't any investigative journalist that's going to say, wait a minute, what these banks or insurance companies are producing isn't really a product at all. And when they're comparing, as the newspapers did today, U.S. GDP with, say, China's GDP, U.S. is way ahead of everybody else. The Financial Times has a big article.
But that's because so much of its GDP isn't a product at all, because a lot of it's economic rent. So I just wanted to make that because I know you and I have spoken about rent a lot and you've focused on the fact that I've written about it and that's why we've worked together for the last 30 years.
Karl Fitzgerald: Yes, been a while. But to help people really understand this concept, could you explain the sort of return on investment that a corner store owner on Main Street would earn and take us through the various returns on investment that various investment classes deliver?
Michael Hudson: What's the question exactly?
Karl Fitzgerald: So in terms of the return on investment that a corner store holder would get on their time, on their capital, what would they receive compared to someone running a medium-sized business that employs 20 people, compared to a monopolist?
Michael Hudson: The question is, what part of that return is value ? And what part of that is price without any cost value ? The 19th century and Marx of all people made it very clear that value is not only the cost of labor's subsistence, not only the cost of what labor is paid or what its employers sell the products of labor for, but it also includes the capitalist's profit. And he said that's earned income because the capitalist play, industrial capitalist, plays a productive role. And that productive role is organizing the supply of raw materials and machinery and all the means of production to produce a product, to arrange the financing, to develop a market for the products that it makes and to organize the labor to do it. All of that is earned income, and that's part of value.
But what is not value is what a monopolist would add on over these costs. What is not value is if the owner of a factory or a means of production would say, Well, instead of investing my own money, I'm going to borrow the money from a bank.
And then I can put in 10% of my money and 90% of the bank's money and essentially buy a going concern. Well, most of this return is going to be paid out as interest to the bank.
But even after paying interest to the bank on, let's say, the 90% of the cost of the capital investment in the factory or the corporation or the means of production, there's an enormous return on this tiny little bit of capital that's put in. And so the rate of return to equity, to the equity investor who's only put in 10% of the money, gets a very high return on their investment, whereas the bank gets by far most of the return in the form of interest and fees and ultimately capital gains on whatever they make.
And the investor who's arranged this financing also is willing to pay all this income to a bank just as if the investor were owning an apartment house and was willing to pay the rent, most of the rent roll to the bank, mortgage banker, because they're hoping that the price of the property will go up and they'll make the price gain in their sleep.
John Stuart Mill wrote much of the, he said Ricardo didn't see the whole picture. Ricardo just saw that rent recipients get a free lunch for variations in soil fertility. But Mill and his father, James Mill, who had helped edit Ricardo's Principles of Political Economy in [1817], he said, well, what it's really all about is the rising market price of land and real estate, or you could say of the corporations. And the whole modern return on capital is a return on finance capital.
And the rate of return is not simply profits. It's not simply rent. It's also asset price gains from debt leveraging. They are getting more and more credit from the banks to bid up the prices of real estate or the corporations that are being taken over by the private capital companies and by the financial managers of these companies themselves. So a financialized economy has a much more complicated rate of return on capital because there are many different kinds of capital. There's industrial capital that's productive by definition, and finance capital that's unproductive by definition. And that's very much expressed in a form of monopoly capital.
Karl Fitzgerald: Just to tease that out a little bit more, would you say it's fair that a corner store owner would receive a real return on investment of about 3%, a medium-sized business, maybe 7% above inflation, but a monopolist, probably somewhere around 12 to 15% at least.
Michael Hudson: Well, certainly monopolists make more. I don't want to say there's any particular percentage. There's a bell-shaped curve among companies, especially small companies. Most of the investment in the American economy has been small and medium-sized companies, just like in Germany. It's the Mittelstand companies that have done most of the investment.
So the largest companies are sort of, you could say, financial dinosaurs, essentially, that are not that innovative. Most of the innovation and the new investment is by the smaller companies that are doing things that have not already been done by the big companies that try to buy them out and to absorb them into the monopoly so that they can turn, they can add over and above profits their monopoly gains. That's what the whole theory of enforcing anti-monopoly, antitrust legislation is all about.
Karl Fitzgerald: Very good. All right. Well, we are going to get into questions from our Patreon supporters here.
Michael Hudson: Yeah, let's have the questions.
Karl Fitzgerald: So, Andrew McKean, who's on screen, feel free to come up and follow up on this. Andrew asked in the chat, and please put more questions there or feel free to put your hand up and we'll bring you onto the screen here. So there's all this talk about China using soft power to get what they want, but they don't use soft power to crush the democracy movement in Hong Kong. Demonstrations were brutally squashed. Leaders were taken out of their homes in the middle of the night and put in jail for many years. And it is well known what they've done to the Uyghurs. When the US Empire disintegrates, what's stopping them from stepping in as the new world hegemon and dominating countries, albeit in a different way to how the US did?
Michael Hudson: Wait, what does that question have to do with Hong Kong ? I don't have any idea of what you're talking about.
Karl Fitzgerald: Well, I think
Michael Hudson: I spent a lot of time in Hong Kong. My books are typeset in Hong Kong with my whole group there. What is all this about arresting people in Hong Kong ? Are we talking about 1945?
Karl Fitzgerald: No, we're talking in the last five years that's happened repeatedly. The free press is shot to pieces there.
Michael Hudson: It's just not my department. I don't know. Don't have anything to say about Hong Kong. I'm not aware of it. I don't follow that. That's not what I study.
Karl Fitzgerald: Okay. Well, what do you think is going to happen with the state of America ? And yeah, just it seems like the rule of law is being replaced by just raw rentier power and corruption on so many levels, Michael. I can't believe the Republic has fallen this far.
Michael Hudson: Well, I want to get back to what you said about rent, because almost the entire cabinet of Donald Trump are all real estate developers and landlords. And they've made their money by sort of buying buildings or creating buildings, trying to raise the rents as high as they can on their tenants, dominating the local courts, landlord-tenant courts, to make sure that they have favorable judges by having the same group of attorneys day after day after day representing landlord groups, whereas the poor, hapless landlord really can't, poor, hapless tenant really can't compare. And I think Thorstein Veblen explained the whole characteristic of every American small town and every big city like New York City and Boston, they're all real estate promotion projects.
Well, you can look at Trump's cabinet and especially [his daughter] Ivanka and his idiot stepson Kushner. Their whole idea is to turn American foreign policy into one big real estate deal.
And the whole news on the internet today is the protests in Albania, Albanian islands, and Serbia against Kushner's attempt to take over and develop luxury properties in a way that would, let's say, affect the whole social character of other local communities, just as Trump's big push last year was to create the board of peace that was to turn Gaza into, you empty out the population and then you create a huge real estate project in rebuilding Gaza that he and Kushner and his sons and his political cronies would all have a big gain in.
It's as if you have American foreign policy being run just somehow to make a rentier gain, whether it's a real estate rent gain or a gain on oil, natural resource rents by controlling the world's oil supply or creating the monopolies in artificial intelligence and computer chips and the internet, all of these sectors that America is trying to impose a monopoly on the whole rest of the world. Well, the idea of using oil to say, let's control the world's oil supply and all of the enormous amounts of money from it.
We want the oil to be owned by the United States and controlled by the United States to weaponize the oil trade to be able to turn off the power and oil and fertilizer and other petrochemical inputs to other countries if they don't follow American foreign policy and imposing sanctions upon our adversaries, Russia, Iran, and before that, Venezuela. All of this is, you could look at their trying to turn the whole world into a, just like a real estate project. We're going to make the whole world like a vast real estate development that we will become the major beneficiaries of.
It's just like Thorstein Veblen talked about in this book on absentee ownership. You have the real estate developers and their bankers and the public media, the newspapers and the civic boosters all getting together to push up the prices of real estate and make a price gain on it. And that's how most of the American wealth has been created, precisely by bidding up the price of real estate, usually on credit. And depicting all of this is a great increase in wealth on the asset side of the balance sheet and not paying much attention to its corresponding debt on the debit side of the balance sheet that's inflated the market price of all this wealth.
Karl Fitzgerald: One of the big markers of corruption seems to be what's happening on the prediction markets, a form of gambling on geopolitical affairs, Michael. How's this synergy between the concept of gambling and the concept of speculation ? How closely are they related?
Michael Hudson: Well, gambling used to be simply knowing the mathematical odds of random card plays or random behavior.
But a prediction market is not random at all. It helps if you are going to be in charge of a policy, like saying there's going to be peace and oil trade is going to recover. You buy stocks, oil company, economic stocks, the Dow Jones average, in advance, and then you make your announcement, you make a killing. Or if you say, well, we decided the talks that Iran didn't work out.
We're going to attack Iran. I guess there's going to be war. You sell the stock short just an hour before you actually send the planes in and you make a killing by selling them short. That's not really a prediction market. That's a fixed game. It's like a fixed card game where if you really think you're just playing the game of trying to figure out, gee, is there going to be normalization of peaceful oil trade or will there be war interrupting the oil trade?
If you think you can work as an outsider like we are, then you're at a disadvantage of people who are insiders and know whether they're going to declare war or not declare war. And that's what has made the behavior of the Trump administration. And whoever has been making all these enormous bets on oil or the Dow Jones average just before major government announcements, it would seem to be insiders. So this kind of prediction market is sort of like predicting the baseball scores or the scores in a football game.
And as you learned in the Black Sox scandal of, I guess, 1919, you can win in these prediction markets if you bribe the players to throw the game. Then you know that they're going to lose, and that increases the odds in your favor. So the fact is, the prediction market has turned into a fixed game. It's like when W.C. Fields was in one of his movies, he was playing poker, and one of the, or it could have been gambling, one of the visitors said, is this a game of chance ? And Fields says, not the way we play it, no.
Karl Fitzgerald: And so, yeah, do you see any synergies with the move to making easy money in gambling, to making easy money in speculation ? And how do you think this is going to evolve into the future?
Michael Hudson: Well, the easy money is made by the casino. The casino always wins. That's why when you have, you know, the wheel, the gambling wheel that goes around, that's why you have the zero and the zero, zero squares, so that there's always a probability that would work out to benefit the casino. That's why if you gamble long enough, the casino always wins because it is a game of chance.
But the probability curve is always in the casino's favor. This was all worked out by [Girolamo Cardano] and the Italian Renaissance and by other mathematicians that liked to gamble and spent a lot of their energy in developing probability theory and how to, just how much of an advantage it gave. But that was just plain probability theory. Today, the whole idea of making money is to stack the economy in your favor. And you do that by writing the laws in favor.
If you're a real estate investor, you make sure that real estate is not taxed. If you're an oil industry investor, you get for many decades the depletion allowance. So that essentially, between depletion allowance and real estate depreciation, you have land rent, natural resource rent is tax exempt.
That gives you an advantage. You're an insider, if you're controlling the government by the American way of Citizens United, you can essentially privatize the election process by campaign contributions to politicians that agree to follow laws that give you an edge, an advantage, a privilege that other investors don't have, so that you can benefit at the expense of the rest of the economy at large. And that's what modern democracy is: who's going to control the government, and how do they do so in their favor so that they can get rich, preferably without working, without producing any value at all, but purely by being a rentier, receiving economic rent, interest, share, stock market shares, land rent, all in their sleep.
Karl Fitzgerald: I'm seeing some great questions coming through in the chat here, but keen to get Michael, one of your former co-authors on the screen. We're lucky to be joined by Kris Fedder. So, Kris, if you can come on screen, that'd be good. But in the meantime, I'm going to ask this question from Matt, who asks: Lots of criticism of AI has been about killer robots and energy grid water issues. Now, critics are focusing on the empty promise of AI as a profitable thing. It seems at this point to be a foregone conclusion that the AI stock bubble is going to burst. Are things playing out as you expected, or is anything surprising you ? Any chance pension funds and the little person in general escapes the carnage?
Michael Hudson: Well, the aim of every investor is not to make any profit at all. You want zero profit. That's your ideal as an investor, because if you make a profit, you have to pay taxes on it. There's an income tax on profits, but you want to take your return in a way that is not profit. Well, the AI industry hasn't reported any profits at all recently, just like Amazon worked for many, many years without making a profit.
But it's made huge capital gains, finance capital gains in the stock price. That's what they want for the return. So, this whole idea of seeking profits - that's also 19th century. That's all industrial capitalism when you'd invest in building a factory and organizing production to actually make products to make a profit. But now, all of that you've replaced industrial engineering with financial engineering to make profits financially and by asset price inflation, whether real estate price inflation or stock market or bond inflation by controlling the supply of credit to banks and to buyers of these assets.
So, the whole terminology that's used to describe these things is out. Everybody's wondering: well, wait a minute, all of these capital gains on the AI industry are based on all of the market that they're going to have when they expand these computer chip complexes and are able to charge money for all of this, presumably, efficient services that AI is going to enable people to restructure the economy, invent things, do all of the things that AI is supposed to do.
Well, the problem is that where are all of these computer centers going to be built ? They can't be built. The problem of the United States, in comparison to China, for instance, is that computer centers have to be run on electricity. And this electricity in America, under Trump, has to be produced by oil. Just in the last few days, you saw the lawsuit between the French power company Total and Trump, where Trump has closed down Total and every other windmill, wind energy production in the United States, blocking it and told Total, you know, we're not giving you permission.
You've got to close down the windmills that you are building. We'll give you back your money, but you have to invest them in oil and gas. Well, if you make money by oil and gas, that has to go through the current electric utilities with their generators and do what electric utilities do, whether it's oil or coal-fueled or even nuclear power. But it takes in the United States, it takes three or four years to get all of the planning available for all of these. You not only need energy, you need enormous sources of water to cool the chips and the computers that get overheated.
Well, China has tried to avoid that problem because it doesn't produce that much oil itself. What it does have is a lot of sunshine, especially in the Gobi Desert and the Northwestern areas of Xinjiang. It also has windmills, and China is the main technology producer of wind energy and solar energy, so that it's not as tied to oil production. Well, how did the American AI companies, internet companies and computer systems companies, how have they tried to cope with it?
Well, they said, well, we understand that it's going to be very hard. to expand in the United States in the next three or four years. Let's go to where the energy is. Let's go to the OPEC countries. Let's go to the Arab OPEC countries like the Emirates.
Well, the first thing, casualty of the fight of America's war against Iran was Iran bombed these U.S. computer centers. Not all, but it said, if we're attacked again by the United States, we're going to attack all of these computer centers by Amazon, by Google, by Meta, all of these other centers that the American companies had planned on using OPEC energy for because if these countries, monarchies, I hate to call them really countries, these emirates let in the American investments, that's going to really give America control of the governments.
So America will then accompany them by military bases, airports that are used as military bases like Kuwait's airport that was just bombed last night, mainly the military, U.S. military base is part of the Kuwaiti airport. So, all of this idea of the AI industry of the United States being supplementing its U.S. energy to run the computers with OPEC energy is sort of stymied right now. And the fact that Trump is so committed in his politics to the oil industry for its campaign contributions or whatever is holding back all of this AI expansion.
And so, all of these, this huge takeoff of the magnificent seven companies of computer chip companies, including NVIDIA, as well as the big computer operators and companies, nobody can see, well, how can you develop this market if you don't have computers ? If AI is going to work on computers and you're going to find a vast new market in using computers, where are they going to get their power from ? Somehow, the market doesn't put answered that question.
Karl Fitzgerald: Certainly, certainly. Well, I'm going to bring Matt Connors onto the screen. Matt, take it away. Your follow-up question.
Matt Connors: Yes, am I coming my voice here ? Yep.
Karl Fitzgerald: You good ? Yes, quite clear.
Matt Connors: Yeah, yeah, you know, it's like so much to read, so many different directions go in. You know, I've done a lot of focus on AI in the last couple of weeks. And like my question said, went from being worried about it really being here and affecting us to now thinking the whole thing seems like 50% a scam, except for the dead children in Iran as a result of how AI is in the military now. Like, you know, they're rushing with these IPOs, a SpaceX IPO, and the other ones are like rushing to get in on the IPO process before the whole game is over, before the whole thing just is no longer something anybody wants anything to do with.
I mean, is that how you see it ? And do you see all this money getting sucked out of every other place to these companies just in time for them to cash out and collect their profit and you know not even look back on on the unfinished data centers or you know the mines they're going to start in Minnesota that maybe will produce copper in 15 years or whatever. I mean we are looking at a bubble collapse, are we not ? Or do you really see them somehow doing enough, having enough little tricks to keep that from happening?
Michael Hudson: Well, I don't like the word scam. It's more a bubble. And it's a bubble with the financial money managers saying the trend is our friend. If you can convince the people that somehow this is a new technology that's going to revolutionize the future, then you're going to just assume, well, it's going to be as much a new steam engine.
Well, it really isn't. The AI technology in the United States is very different from that in China. In China, they are using it largely for robotics. They're making robots that can assemble cars and do all sorts of manual labor projects. At that point, they want to reduce the cost of production of industrial products, of automobiles, cars, and other things. In the United States, what they want to do is it's much more, let's say, they've turned it into a police state type of technology. They want to know what every American is saying and are they saying anything that the United States doesn't like. It's used as a kind of searching throughout all of the internet to say, what are they writing about ? What are they saying?
How can we profile these people to say what is their weakness ? What do they want to buy ? And what things do they want to buy ? And if we see that they've been making questions on the internet about some particular product, medical product, food, a fashion product, well, let's just send them the advertisements for it. It's all about sort of something divorced from the production process itself. It's marketing. If companies like Google are making money.. but it's also government spying on people. 'How many people are putting on the internet comments about Israel that we don't like?'
Well, it can be used for all sorts of purposes. I'm sure that China does that too, but that's not the focus of its innovation. The American attempt at AI just uses a huge, huge take of all the data there is and find some pattern there. Whereas what China is trying to do is something much smaller scale, much more focused, and specifically project oriented to actually make products and gain things that way.
So it's there in both cases, they're going to be Well, in China's case, they're going to be tangible economic gains. In the Americans' case, how much of the going through everybody's email and other communications, maybe phone communications, everything you do that's actually going to produce a profit ? Is it really going to be that profitable as opposed to something that's innovative or something that's purely military use?
Karl Fitzgerald: Yeah, it's certainly a huge growth that's been bailing out the world economy as everyone's stacking into AI. But underneath that, the real economy is suffering hugely. So yes, Matt, I think the day of reckoning is certainly coming.
I wish we could get Kris Feder on the screen here. She was co-author of a book with Michael called A Philosophy for a Fair Society.
Michael Hudson: And in the chat, she was- We also worked at the Levy Institute for an article on depreciation and how depreciation makes real estate pretty tax exempt, which is why Donald Trump says that he loves depreciation.
Karl Fitzgerald: He does. Yeah, and he's expanded depreciation, hasn't he, under the big, beautiful bill we discussed a couple of episodes ago here on the Hudson Roundtable. But Kris asked, 'so when the big crash hits, real estate, energy, AI, stupid war, and tariffs together, how do we show the world the fiscal, monetary, and geopolitical policies to move us forward?'
Michael Hudson: Peaceful ? Was that the adjective?
Karl Fitzgerald: Yeah, well, I don't know. How do we show the world the fiscal monetary policy?
Michael Hudson: To have a peaceful policy, you have to have reciprocity, or as China says, mutual gain. America doesn't want mutual gain. It wants all of the gains for itself. That's what makes it sociopathic or a geopath, geopathic. It wants to control the whole world economy. That's not going to be peaceful.
The whole American national security strategy that was spilled out last December is a neocon declaration of war against the rest of the world.
And the American policy is: if we can't control oil or food or other technology, we'll just destroy all rivals that are producing oil or anything. Or we'll impose sanctions on them, as we've imposed sanctions on Russia and Iran. Our security requires that no other country has its own security. That's what President Putin and Foreign Secretary Levrov have been saying via Russian complaints about American policy all this time.
So the American stance is a declaration of economic war against other countries because it's a demand for tribute because the United States no longer has the industrial advantage or the financial advantage that it had in 1945 when World War II ended. It squandered it all. And the only thing that the United States has to offer other countries, as I've said before on this discussion and other venues, is the promise not to create chaos in your economy if you follow the policies that we're directing you to follow.
Well, that is driving other countries to create their own alternative to the U.S.-centered order in a multi-centered order with reciprocity and mutual sovereignty for all of these countries. The United States says, well, this is a civilizational war. If you want other countries to have their own economic self-sufficiency and sovereignty, then this is socialism. And that's the enemy.
That is a centrally planned economy. Any attempt to try to control our behavior is just like what happened in society if society prevented an abusive person from abusing other people, from preventing a violent person to force to take things by force from other people. That would interfere with the most productive free enterprise that you can have - crime. And the alternative is socialism. What do you want ? Do you want our free market economy where everybody can do whatever they want and there are no social norms and planning to constrain you or thoughts of the future of the environment or other such things ? Or do you want socialism where there are laws where society tells you what to do?
Karl Fitzgerald: Conrad asks here, how do you feel about Zohran Mamdani's helping to push the balanced budget ideology ? I think his honesty and commitment is admirable, but it is quite unfortunate that Mandani lends credibility to the hawkish anti-deficit pro-banking ideology. He certainly does not intend that, but I feel that this is really unfortunate. I would rather see Mamdani talking like a deficit owl for the real economy, of course, but probably on the local level, Mamdani cannot access federal money creation for public good like the president could if he wasn't a crook. Good question, Conrad. What do you think of that one, Michael?
Michael Hudson: Well, you know, when you're talking to me, you're talking to the microphone. When you're reading off the screen, there's a distortion, and I really need you to forget what you don't look at the screen. Tell me what you think the question was so that I can hear you as you speak into the microphone.
Karl Fitzgerald: It doesn't need to be right near the microphone.
Michael Hudson: Is that better ? Just talk in that direction.
Karl Fitzgerald: So Zohran Mamdani's helping to push the budget balance ideology. He's honestly committed.
Michael Hudson: There's a difference. Okay, now I get it. There's a difference between state and local finances and government finances. Governments and their central banks can simply print the money. That is exactly what the Federal Reserve has been doing by creating a credit that it pumps into the banking system to enable the banks to create money. But domestic states and cities cannot create their own money. In Germany in the 1920s, you had Notgeld. Every city was providing its own money because there was some degree of financial desperation.
But New York is, like every other city, is constrained to have to raise money by taxes. It can't simply print the money because I guess if you printed money, it could be used as taxes. I guess New York City could say, we're going to make an innovation. We're going to issue our own notes and you can use this to pay your taxes. But then that would just replace existing money. States and cities can't do what the government does. And so that constrains Mamdani.
And if he's not president of the United States, he can't have a different solution for New York City's financing. He has to somehow raise taxes or borrow the money.
Well, he doesn't want to borrow the money. That's what led to New York's bankruptcy in the first place. So he has to tax New York. And there are many things you can tax. Real estate or the vast amount of New York City real estate that doesn't pay any taxes at all. Churches and nonprofit foundations, the Ford Foundation, the big vast real estate holders, Columbia University and New York University, don't have to pay any taxes. So here you have two huge landlord corporations, Columbia and NYU, and they said, hey, if we use some of our real estate to teach classes in, then we don't have to pay taxes on any of the real estate we have because it's all part of the educational complex. And you have the same thing for nonprofit foundations.
Well, that's one of the most obvious things that could be done. I haven't seen any discussion of doing that, but that's one thing that can be done.
Otherwise, Mamdani wants to tax the pied de terre, the apartments that people in other states and countries have in New York that they don't use as their homes, but they like to have a place to stay when they're in New York. And if this apartment or condominium or co-op is worth more than four million dollars, they have to pay a special tax. That's a kind of progressive taxation. I'd like to say real estate tax. I'd like to, there's already in New York City a distinction between owner-occupied tax property and absentee-owned property.
Well, I own my own co-op, so I don't have to pay as much tax as other, it's not a co-op, I own my own condominium, so that I don't have to pay as much real estate tax in New York as an absentee owner who doesn't live in this condominium, but bought a condo here simply to rent out. That certainly can be. I'm all for taxing absentee owners as much as possible. And you've seen even Donald Trump try to sponsor constraints on the large absentee-owned huge investment companies that are buying up more and more of the residential real estate in the United States that homeowners can no longer afford.
Karl Fitzgerald: Yes, and Michael, you mentioned the taxation of real estate there. What are you really saying ? Are you saying taxation of all property?
Michael Hudson: Yes.
Karl Fitzgerald: You're saying improvements as well?
Michael Hudson: Whether they have they teach classes in some of their real estate, or whether if they're a non-profit institution like the Ford Foundation and all the other foundations that are here, they're not going to move out of New York. They're in New York for a reason, and they're going to stay in New York for the reasons that made them settle here in the first place.
Karl Fitzgerald: The key point, though, is not to tax the land and buildings, it is only to tax the land, isn't it ? Can you explain why that's important?
Michael Hudson: No. Of all things, the Georgist movement says, how can we have the big building owners and the real estate developers avoid having to pay any real estate tax at all ? Well, let's say when you're calculating the value of a real estate, let's say that buildings have a negative value because they've, this is how the Federal Reserve reported all corporate real estate in the United States. If you say, you know, what would you pay for all of the corporate real estate in the United States?
Well, in 1994, the Federal Reserve said, well, you wouldn't have to pay anything. If you will accept free all of the real estate owned by every corporation in the United States, we'll give you $4 billion because it all has a negative value. The idea of attributing value to buildings with the land as a residual say, well, leaves a negative land valuation. That's the principle that underlies the calculation of tax value and the whole means of estimating real estate valuations. What is it?
Is it really, it's easy to make a land value map, and then the residual that is not the land, really the land price map. And you can, it would be a very smooth map rising towards the transportation centers, the bus lines, the subways, the railroads, and then falling, rising near parks and amenities like museums and schools. And then the residual is what's the building ? Well, and right now, right now, people will buy big properties with big buildings on them. They'll tear down the building just for the land value.
Well, the pretense is that all of this valuation is in the building, not the land. And if you follow that, then you're going to have just tax-free. Kris Feder explained this to me when she was with the [Robert Schalkenbach Foundation], and they were pushing this two-rate tax. She said, Well, look at the ideal they had in New York State. There was a, I think, a Hispanic community, basically a residential community, and they had their own electric utility in it.
And because the electric utility, very profitable or rent recipient, you could say, monopoly, because all the public utility was in the construction, the building, and the capital, and the machinery, that left a negative land valuation. And I went to a meeting with New York University, and they were explaining to me how if you had a two-rate tax in New York, that would be a windfall for all the developers because you'd have all these big buildings that all the valuation was in the building because the Census Department and the U.S. says, what's the value of the building?
You take the original construction cost and you factor in the construction price index year after year after year, and you have an exponential growth of the building valuation as if it's inflated and the residual is left for land. So the statistics are faked by all of this.
Well, local towns that are run by the developers and their bankers and the big real estate owners love the idea of the fact that they own the big buildings. And if we can shift all of the tax burden off buildings, off commerce, off electric utilities, off factories, onto the homeowners, the low-rise, the low-rise residential properties, well, then we'll gain and the homeowners will lose. That's what we want.
Karl Fitzgerald: Oh, Michael, you've got your old axe to grind there. Goodness knows. The Progress and Poverty Institute is doing great work in that space in terms of having fairer valuation theory that doesn't increase the value of buildings so that depreciation can be written off. I also encourage people to look at the Center for Land Economics, that is a relatively new land economics group that is also doing good work. So I am a Georgist. Michael is a Hudsonian. I'm somewhere in between. But yeah, it's contentious.
Michael Hudson: I support what Karl is doing. An Australian Georgist is completely different from an American Georgist. That's what I've discovered. There's no comparison at all. I think what Karl's doing is wonderful work. I agree with what he's done. It's a different world down there. And of all the people here, Kris Fedder could certainly comment and make a description because she's followed all of this more closely than I have.
Karl Fitzgerald: Okay, let's bring Conrad up. Hopefully, you've got something to add to this spicy topic, Conrad. I've been enjoying your questions over the last few sessions.
Konradt Sallam: Yes, thank you. I just wanted to say the point I think that was also pretty convincing what Michael just told that Mamdani can simply not, he cannot go to the Federal Reserve and say, okay, let's create the money or a lot of feedback.
Michael Hudson: Talk slower, maybe a little. There's an echo. There's an echo in there.
Konradt Sallam: Yeah, it might be my phone and I might be me. Yeah. Can you hear me right now ? Yeah. That's good. The thing is, it was pretty convincing to me what you told me that Mamdani can simply not access like the Federal Reserve or something and create money. And it was also convincing to me there's really a lot of rent in New York, which you can tax. So why not first tax the rent ? And yeah, I'm not, I find it actually a good thing and very progressive that he raises taxes on very rich people. That's a good thing to me. But what frustrated me is that he really acted like, and I think he doesn't understand better. He actually doesn't understand it. He acted in general like government spending.
Michael Hudson: Karl, can you explain ? I can't understand. I can't hear.
Karl Fitzgerald: Oh, Conrad, bad luck. Yeah, he's basically saying that he agrees that taxing the second home and taxing wealthy people is a good thing. I think he was going to talk about the balancing of the budget. And there's been other commentary in the chat about whether New York could actually create their own currency and would that be a way forward.
Michael Hudson: New York can't do what Ellen Brown suggests. It can have its own bank and it can use deposits in the bank to finance its activities, but it can't print its own money because how would you who will accept the money ? What would you use the money for ? You can just print it.
Konradt Sallam: It was really about a different point. What I was really unhappy with is that Mamdani talked in a way not the laws restrict us, the laws restrict us, we cannot do that, but he was talking in a way that the government actually needs taxes to fund its spending. And I think other people might abuse that because many people on the left celebrated at saying, oh, Mamdani balanced the budgets. I think this might actually be abused by neoliberals who then act, oh, we government needs to raise taxes in order to spend. And I think the government should destroy the money of the rich people. It's a really good thing if the government destroys rent.
But it's really bad if left people on the left spread the myth that the government has to erase taxes in order to fund its spending. I think from my point of view, it's really unfortunate. That was my point about that. I think Mamdani really doesn't understand that from my point of view. He has another possibility, but he really also believes that kind of thing. It looks to me like that.
Michael Hudson: Karl, can you paraphrase the question?
Karl Fitzgerald: Oh, goodness. I'm struggling. Yeah, Conrad. I wish I had.
[Postscript - perhaps a way to paraphrase this argument is "Mamdani is right to tax wealthy people and economic rents. But he should explain that New York City needs this revenue because cities are currency users subject to legal budget constraints, not because all governments must collect taxes before spending. At the federal level, taxes are principally needed to control inflation, redistribute wealth and reduce rentier power."]
Michael Hudson: Maybe we should just print it. Yeah, put it in. I could hardly understand a word.
Karl Fitzgerald: Okay. Conrad, I'm sorry, put it in the chat and let's see if we can get it back up that way. I'm sorry, mate. Yeah, it's I know a few people have talked about, you know, Michelle talks about the state always had the money. It was simply reallocated. Beck Hockel needs New York City to vote for her, is talking about this balanced budget issue. And I think what Conrad was saying actually was by taxing the rent, he's pulling some of the money supply away from the wealthy. So that was good, but he doesn't really understand..
Michael Hudson: And none of this has anything to do with the money supply at all. People, we're talking about credit. We're talking about assets and liabilities. The question doesn't make sense. It's not money supply.
Matt Connors: Can I suggest a way forward from this?
Karl Fitzgerald: Please.
Matt Connors: Michael, what does a mayor of a big city like New York does he have control over, or she have control over economically in terms of the standard of living of its citizens ? For example, people who don't like Mamdani, you know, I'm a New Yorker. They make fun of the city-owned grocery stores that will start popping up beginning next year. And, you know, I don't, I've never been a small store owner. I'm not the grocery store that Karl was referencing in the beginning of this meeting, but I see that more as a way of educating people about New York City's food deserts or just the way in which, you know, it's a cost of living thing.
It's bully pulpit kind of stuff more than something that's actually going to translate into large amounts of food being made available to people more economically. What can be, you know, the real estate, the vacant property taxing, what are some of the other things that the mayor does have, if he's an effective politician, the ability to do something about and you know, what do you think of whether Mamdani is making any of those moves towards it ? He seems to be spending as much time just trying to keep the police from you know, you know, the whole keep everything from constantly being a fight against him.
Michael Hudson: But the mayor is constrained in whatever he does by the city council. So he has to think, what can I do that does not require support of the city council that very much represents the landlord interests and the financial interests of New York. One of the things that he could do is exactly what you've suggested, this create a large market store to supply food and vegetables to each borough of New York, starting with the Bronx.
Well, my wife and I buy more and more of our food from vendors on the street that have much better prices than we can get in the stores. Or we go to Aldi's or Trader Joe's that have much better prices than and much better quality than you can get in most of the stores. And so Mamdani sees that New York City has a huge market, which is where the vendors buy their fruits and vegetables to sell on the street from. And so Mamdani says, well, we don't have to leave all of this to the big supermarket chains, Key Food and all the others.
We can have the city store that is not going to have the management overhead, the bank overhead, all of the costs and the high prices that make these big supermarket chains so much more expensive than just finding a local vendor.
Well, most of the local vendors are where the population is most dense and prosperous. They're in Manhattan. We have them here in Forest Hills, where I live, numerous vendors. My wife goes to vendors in Manhattan when she's there, as well as here. So Mamdani here has a chance for public enterprise to be much more economically efficient than private enterprise stores because private enterprise has been monopolized and requires so much more higher rate of return to build into the price of the goods.
So that's one of the main things he can do. There are not all that many, many things that America can do that is not subject to checks by other agencies. For instance, New York City's attempt to charge cars, the congestion tax that worked so well in London, that New York City tried to apply that.
And the governor of New York overruled him by saying, well, wait a minute, there are a lot of our supporters in New Jersey and Long Island. I think New York City should be run for New Jersey and Long Island, not for the people who live in Manhattan.
Well, so that prevented, and then Donald Trump jumped on the bandwagon and said, Anything that the mayor tries to do that will benefit the people is an enemy because the people, the 99%, are the enemy of my class, the 1%. And if New York is not run for the billionaires, then to hell with it. I'm going to do everything I can to hurt the New York economy. That's what Mamdani has to contend with. And Trump has treated other Democratic voting cities and states pretty much in the same way. So it's all, there's a whole system of political restraint. The whole idea of structuring American politics is to prevent democracy.
Well, it's very difficult if you have a mayor who's trying to benefit the people instead of the campaign contributors to benefit the people who voted for him, not the people who are financing the campaign for judges, city council members, and other constrainers. It's very difficult to have policies that benefit the population at large. And that's what's confronting Mamdani.
Karl Fitzgerald: We do have some good follow-ups here. Diana says New York City has its own income tax returns. Yeah, there's more discussion, Michael. Diana says constitutions should not limit the power of the people to create money. I agree.
Michael Hudson: Wait, what about the power of the people to create money?
Karl Fitzgerald: Well, the Constitution should not limit the power. Constitution should not limit the power of the people to create money.
Michael Hudson: What people?
Karl Fitzgerald: Says Diana. The people of New York City. 'For me, Michael.'
Michael Hudson: Anybody can create money. The problem is to get it accepted. I mean, of course, New York could issue note guilt. And what will people use it for ? Who will accept it?
Karl Fitzgerald: Well, the obvious one, Michael. Come on.
Michael Hudson: I mean, I'd like to create money. I'd like to go to the store and, you know, when I buy some vegetables or food, write an IOU. There, I've created my own money. And I'll say, what do we do with it ? And I'll say, well, just use it to pay the people you buy your food from. And they just laugh. They say, well, I'm sorry, that's not money that we'll accept.
Karl Fitzgerald: Well, NYC could easily accept it for property tax payments, and that would give it some currency, some validity. And that's how money often starts, as you know better than nearly everyone.
Michael Hudson: Yes, but then New York wouldn't be receiving US dollars for tax payment to pay things that you need US dollars to buy, to make you New York run. That's the whole problem. There'd be an asymmetry there.
Karl Fitzgerald: Somehow we're going to have to work this out because you know we can't just allow the private banks to create this money. We've got a whole pile of people who've got spare time. We've got this concept of time banks you know surely there's a way that more good could be created in the world if states could create their own money and channel the goodwill of good people into some sort of economic return of course, but nobody's figured out how to mainstream that yet.
Michael Hudson: And I can't solve the problem that nobody else has been able to solve.
Karl Fitzgerald: Steve Reid asks, what did the USA do before we had income taxes ? What did the USA do before we had income taxes in 1913?
Michael Hudson: They relied almost entirely on the tariffs. And to make things worse, the tariffs had to be paid in gold, in specie, gold, not in paper currency at all. So the U.S. Treasury ran between the Civil War and the creation of the Federal Reserve in 1913. The U.S. Treasury was almost always in surplus, not deficit, because it used a surplus to pay off all of the greenbacks created during the Civil War and to reduce, to impose deflation on the economy, to reduce prices by creating a permanent depression to lower the price of gold steadily year after year after year.
The only time that the Treasury ran a deficit was when there was a financial crash on Wall Street or something that prevented, that just created an inability of people to afford even to pay tariffs on imports.
But it was almost entirely paid for by the tariffs in a very deflationary way. So that the banks tried to make an arrangement with the treasury that, well, look, can't you deposit some of this gold in our banks ? Because we have to be able to repay our depositors in gold. And if we can't, then there's a run on the banks.
There's not enough gold in circulation to finance all of the economic activity that's growing and growing and growing because the gold supply is not increasing in keeping with the need for money to transact business and just life in general. So the United States was the most hard-money industrial nation in the world, unlike Britain that had pioneered the creation of paper credit by the Bank of England in 1694 that was able to do this. So the economy was in a deflationary mess before there was an income tax.
Karl Fitzgerald: Okay, and our good friend Michelle is got a hand up. Michelle, come on through. Is she there, Ms. Michelle ? We've been going in and out of this meeting a few times. I'll come back to you in a minute.
Karl Fitzgerald: Are you there?
Michelle: Hey, I'm sorry. This darn app is so frustrating to use sometimes. I've already gotten knocked out of it, out of the meeting twice, and I've had to come back in. I have no idea why. Listen, Michael, the comment I wanted to make was twofold. When people are talking, like Conrad and all and others talking about New York City, what I see socialism is strictly basically getting the public good from its necessities, like food, utilities, transport, that kind of thing, public banking, as you have discussed previously, things that will are necessities to a standard of living, a decent standard of living.
What you do is take the taxation like these lease on oil rigs. Everybody harps in Trumpy world about drill, baby, drill, and they don't understand because I worked in oil and gas and power generation. It's not that simple.
But Biden raised the lease rate from 14%, where it had been there something like 40 years, to 18%, which is the lowest you would get on a private land drilling. What everybody doesn't seem to understand is that the state has, the nation has assets.
It generates income, and those incomes should be for the good of the people. And it's our birthright, if you will. And everybody doesn't seem to understand. Yes, it's not just taxation. It's things like our natural resources. They should pay a portion of what they profit from. And for those of you who don't understand, like this public need thing, TVA is government owned. Trump himself told them they could not pay their CEO more than $500,000. That's a darn big salary.
But where I live in Alabama, Alabama Power paid last year just to two gentlemen, one who's no longer working, $60 million. Now, you can't tell me that the government couldn't do it cheaper. Look what Michael's talking about. If you subsidize the groceries, because if any of you have been paying attention to Michael for a while, he's described how like the food places are actually selling in non-taxable areas like Liberia, Panama, and all that. And they're basically charging a lot more than what they're making.
They're not being taxed appropriately because they're selling double backways and out of other countries before it comes here. So the food markets are actually making a ton of money. Don't tell me they're slim profits. They're not. So I wish everybody would understand that, look, socialism is just to help the absolute needs of a people, of a culture. The extras can be capitalism. That's what China really is. If you want to buy a high-end purse, you can, but that's not a necessity like your utility bill is. And utilities over there, everything over there is so cheap compared to here. I've been comparing pricing for a while. Their food is about one-sixth the cost.
They eat out all the time and they eat fresher and better. So I wish people would understand and listen more to Michael when he on his interviews on TV and read his books because it really does. If you can take the slogan through, it really does help understand how it's all paid for. So, Mamdani understands it, Conrad. I think Mamdani does understand. It's just that he has to say certain things because it's politics, they can't say all the truth. And I can tell you this in finality: that Kathy Hochl, the government governor of New York, wow, he went after he was elected, he goes and talks to them, and suddenly they had a billion dollars more for daycare.
Now, you tell me they always had the money, it's being allocated for the rich subsidies and the crap that the government is doing. Instead, let's funnel it for the people.
Michael Hudson: What's the question ? You talked about the government has assets that it should be using in the public interest. Which government at what level and what kind of assets are you referring to?
Michelle: Well, as an example, the lease for the oil leases that we have, what a lot of people don't understand is that 90% of the oil drilling in the United States is on privately owned lands. People that actually, like in Oklahoma and Texas, and other places in Alaska, the 10% that's being done on the federal lands, they do have to step through a lot of hoops.
Michael Hudson: But for 40 years, they were only paying here: the federal and the local taxation. The oil companies have really become the most powerful lobby along with the bankers and the government. And they've written all of the tax laws so that they don't have to pay. That's what makes a finance capital, a monopoly rent, monopoly capitalism different from socialism. And we're not a socialist country. We're a monopoly capital, a finance, a rentier finance capital economy.
That's really the problem. And there's very little you can do it without changing the government. It's not something that can be changed within the existing political system, especially with the Supreme Court's Citizens United case, where basically every election is paid for by the campaign donors. And that determines who is going to become the nominees that people vote for in November. And the same donors back both the Republicans and the Democrat parties. So it's very difficult. This is not a problem that can just be solved by somebody with a good policy. It would take a political revolution to do the very good things that you're suggesting.
Michelle: Well, the problem that I'm having is that everybody doesn't understand we do have assets. It's like they think that only taxation of our sales taxes, our property taxes, and all are the only revenue. And it's not. We have assets. And what's really happening right now is Trump is trying to sell all that off. He's trying to sell all of our assets and denude us of any assets and then bankrupt us because then they can charge even more monopoly rent. It'll be nothing but rentiers.
Michael Hudson: I get it. It's not the assets that are being sold off. It's that the income from the ability to privatize the income from these assets are being sold off. In a way, you look at the kleptocrats in Russia. You could let all of the American oil and the other raw materials and natural resources and land be sold off.
And the public would not have to suffer as long as you get all of the rental, the natural resource rent, the oil rent, the land rent for the public. That's what the whole 19th century classical political economy was all about. It's about it all comes down to the tax system that will recover for the public the rent that is yielded by oil, mining, forestry, land, all of these natural resources. And that was the ideal of industrial capitalism from the time of Adam Smith and the Physiocrats and Ricardo.
But all of that changed after World War I. And that's really the problem we have. It's all about the tax system ultimately.
Karl Fitzgerald: Thank you, Michelle, for your passionate discussion there. I really appreciated that. I'm sure everyone did. And so good to hear that someone actually practically gets what's going on because it's criminal what's happening in America and what's happening all throughout the world. The Epstein class are just running riot and we need to come together and have these deeper conversations. And Michael, I want to segue to a question from Robert Haney, who's just rejoined us here.
"Hi, Michael. I recently took a class on now casting from the Barcelona School. I learned that in central bank modeling, the business cycle is treated as a real recurring signal to be extracted, with the residual being dismissed simply as noise in the data. Would you argue the real business cycle is really private banks creating money via lending for assets and thus inflating prices for said assets ? I found it interesting how much of the neoclassical textbook concept of the business cycle is baked into everything, even at that higher level."
Michael Hudson: Well, my basic answer would be yes, but it's not a business cycle at all. A business cycle goes up and has automatic stabilizers, and it's a cycle like you're a bicycle going along a street. But every business cycle in the United States since World War II has stemmed from a higher and higher level of debt at the beginning of the recovery. So it's not really a business cycle. It's a ratcheting Ponzi scheme. I think you should, and the Ponzi scheme is you're creating the recovery by flooding the economy with a credit, and the creditor is credit is going to increase real estate prices and increase stock market prices and financial prices. And that's considered a recovery.
But so it's a recovery for the finance, insurance, and real estate sector and for the monopolies, but not really for the economy. So especially just look at what's happened since 2008 with the last crash and the whole Obama business cycle takeoff. It's almost all accrued to the wealthiest 10% of the economy, and especially the 1%. The 40% of the economy continues to operate living paycheck to paycheck, has not increased its net worth at all.
So we're not really in a cycle. We're in a steady Ponzi scheme where you're causing a financial crash as defaults occur when the debt overhead gets too heavy. And then you essentially borrow your way out of debt. You create more credit to enable the debtors to pay the interest that's falling due so that the banks and the financial system don't suffer negative equity and become insolvent. So, yes, the mechanism you're describing is correct, but I don't like to call it a cycle.
Karl Fitzgerald: Michael, can we focus in on 'and thus inflating prices, prices for said assets?' Is bank money creation the only thing that inflates asset valuations?
Michael Hudson: No, obviously, actual earning power would help asset valuation, or the belief that earning power is going to increase in the AI bubble, a bubble that can do inflation. But for the most part, yes, a stock or a bond or a home or an office building is worth however much a bank would lend. And if banks are willing to lend more and more against the valuation of this property, then you're going to have credit inflation and followed by debt deflation. You raised your hand.
Karl Fitzgerald: Yeah, because I've said it a couple of times, but I want to hear you say it again. Prices are the value, real estate prices are the value of what a bank will lend to it, but also the amount they do not tax the land component.
Michael Hudson: Yes.
Karl Fitzgerald: And so what Michelle was saying, you know, what you've been discussing, if government doesn't tax that land, then the capitalization rate is higher. Here in my state of Victoria, one of the three taxes I changed was to increase the land tax, by reducing the land tax threshold. The land tax only started at properties worth over $300,000. We've reduced that to $50,000 now, which means that every time someone goes to buy, an investor goes to buy a property, they have to incorporate the annual land tax into their purchasing decision.
And so when that's running at $10,000, $12,000, that's pulling $200,000 off land price. And so when we see that the implementation for this was January 2024, the value of Victorian land prices has grown more slowly compared to New South Wales, who we usually mimicked. And so this is a demonstration of how pure land rent taxation is going to assist homebuyers and reduce the speculative power that the elite have?
Michael Hudson: Yes, whatever the tax collector relinquishes is available to be paid to the banks as interest. And whatever the government collects leads less of the rental income to be paid to the property, to be paid to the banks as interest. So the higher the land tax, the less the banks will lend against property value and the low valuation and the lower the price of property will be. That's the whole essence that you and I have been speaking about for 30 years and that's where we agree.
Karl Fitzgerald: Good. I'm going to put something on the screen because I think it's high time we talked about this. Your new book has at the typesetters and here's an early draft of what that looks like, The West's Financial Takeoff - From the Crusades to World War I.
We offer a very big thank you to all of the Patreon supporters who helped proofread this book, including Matt Connors and Robert Haney. Really was very much appreciated and I'm sure readers into the future will respect that. Michael, how does it feel having taken us all on this giant 10,000 year journey from the ancient Near East now into the Crusades to World War I ? And then, you know, these are all like prequel books up to Super Imperialism.
Michael Hudson: How does it feel having finally ? This is, you could say, the third book in my series of the whole history of debt and banking. The first book was 'and Forgive Them Their Debts' about the origins of money and interest in Mesopotamia and the ancient West Asia. The second book, The Collapse of Antiquity. This is a sequel. How did banking develop from the Crusades to World War I ? And I began the book in the 1980s.
I set it aside so that I could write the books on when I got involved with Harvard and wrote the books on the whole Harvard group of the five volumes on writing the economic history of the ancient Middle East. And I finally got back to it about five years ago. And it's the most complicated, it's really a whole recasting of history because I didn't, you know, I didn't realize that modern banking as a means of controlling government was created by the Roman Catholic Church in Rome. It began as the church was essentially, they called it - the imperial papacy - during the Crusades from the 11th to 13th century.
The popes wanted to conquer people who didn't accept Roman domination of their economy and their society. And they said, How are we going to kill everybody who, any region, and the rulers and the people in it that don't agree with it ? How can we kill the Cathars of France ? How can we kill the Germans ? How can we kill, how can we dominate Europe and control all of the European finances by all of the churches that are the main landowners and property owners?
Well, they hired, they made deals, and we have all of the written contracts that the papacy made with the Norman warlords, beginning with Robert Guiscard for Sicily and southern Italy. Well, we'll make you the king of Sicily and southern Italy if you will agree to pay tribute to us and let us have all of the revenue from the churches and the land. If you do that, then we'll give you, say, you're the king with divine right to rule. Well, then they had William the Conqueror from Normandy, and they made a contract with William. You will pledge fealty to Rome.
You will be literally a serf to Rome, and we will be able to dominate the kings of England in exchange for your paying tribute in the form of the Peter's pence, whatever the churches rise. You will let us appoint the bishops in your country to determine what's going to happen to church finances.
Well, they should all be paid for by us. And they especially asked King John's son, Henry III, to sign-on for debts from the North Italian and Transalpine bankers so that England would finance the wars against German supporters, in Sicily that was [fighting again against] the Byzantines. And what I did not realize that the Crusades weren't really against the Muslims, they were against other Christians that didn't adhere to Rome. They were especially against the Orthodox Christianity of Constantinople, the Eastern Christianity, and the real Roman Empire's emperors, the emperors of Constantinople. And the warlords, essentially in the Crusades, the warlords went ostensibly to help protect Byzantium from the Turks and from other invaders.
And they ended up trying to grab all of the Byzantine lands that they could. And we have letters from the popes to other warlords saying, if, you know, you'll support us, you know, we'll give you these territories over here. And the popes made and published their, it's called the papal dictates (Dictatus Papae) that said, here's how we're going to control all of the governments. And essentially they did that through the Crusades, 12th and 13th century. But then more and more, there was resistance by all of the Christian rulers. They said, we really can't afford these crusades. And the Crusaders lost.
But this system of international banking that the papacy had put in place continued and rulers, especially of France and England, later in Spain, Austria, all continued to borrow to fight their own wars. And the power that the church had had over determining who was going to determine the tax policy of kingdoms, instead of being the church nominees, they ended up being the bank nominees. And I talked about the transition from feudalism to parliamentary rule by essentially the parliaments, not the kings.
And kings could only pay creditors out of their royal domain and whatever they could tax, but their local parliaments didn't want to let kings tax just to pay foreign debt service to the kings. And so they had small principalities, small localities like communal cities like Florence organized on the fact that, okay, we have our own communal parliament in place, and we have the power, unlike kings, to tax all the citizenry.
And because we're the parliament, we're not going to block these taxes. And the parliaments were able to pay creditors much more than the autocratic Catholic monarchies of Europe. And that essentially is what enabled the Protestant countries of Europe, Northern Europe, to gain the military financing that the kings of France and Spain and other Catholic countries were unable to get.
Well, you had an unfolding, the parliaments were able to begin creating paper money to replace gold and silver, mainly silver that was still used at that time, so that paper money was able to enable governments to create much larger debt than ever before.
And so by the 19th century, you had newly independent countries essentially borrowing from these international bankers and almost all the debts of the newly independent countries, Haiti in the Caribbean, Greece borrowing to fight its independence from the Ottoman Empire, Egypt, Tunisia, Mexico, all of these countries were issued bonds and defaulted almost immediately.
And the result was that by the late 19th century, the international bankers called on their governments to provide military support to install them in power and establish governments run by the bankers that were in control of local monetary and fiscal policy and essentially taxed almost the country to an extent that prevented debtor countries from developing their own industry because all of the taxes were just squeezed out to pay the creditors that had taken over. So I explain how this whole creditor system developed with the banks taking over the governments, basically using the same strategy that the church itself had developed at the start of this whole process during the Crusades.
Karl Fitzgerald: Wow, Michael, there's so much in your work. And Matt Connors says, my biggest takeaway so far from my very incomplete reading of Michael's immense body of work is that the conflict between financialism and rentier power and the real economy, the real economic activity, industrial capitalism, for example, is not something that began after the Industrial Revolution. In some ways, it seems surprising that we ever had an industrial revolution at all, given the power of financial interests and their ability to take over the power of the state. How does that sound?
Michael Hudson: I think that's accurate. The banks really were not interested in financing industry. They did support Ricardo and the industrialists, not because they thought that they could make money from industry, but because if Britain was the workshop of the world and other countries supplied raw materials, that would increase international trade. And that's how bankers made most of their money by international trade financing and currency exchange, not by lending money to industry. Finance capitalism was always independent from industrial capitalism, and that tension in World War I was thoroughly interrupted. My wife is giving me signs that we're about ready for dinner. So, well, that's about at the end.
Karl Fitzgerald: We have run over. We certainly have, Michael. It's been a fascinating discussion. Yeah, it's so good to have our Patreon supporters here. And I just wanted to make an announcement. I probably should have done the top of the show, but.
Michael has started his own Substack. So search that out. It's just simply at Professor Michael Hudson.
We'll put the links up and about, but yeah, there are imposters on Substack making money off Michael's good work. So if you can spread the word, that would be good. We need more funding. Michael's website is so popular. We're running at double the number of visitors that we can actually afford at the moment.
So we're looking for a sponsor for the website. The hosting is costing close to $500 a year because of the number of visitors. So we need help there. And lastly, we're putting a call out. We basically need a whole new team of transcribers. We have worked them into the ground, Michael, with your furious amount of interviews, the productivity at age 86, or is it 87 you are now ? It's incredible, so inspiring.
But yeah, thank you everyone for joining us here today. Really has been a good deep discussion and good to see some new people here and people like Robert. Hopefully next time we can get you up on screen earlier. Apologies to any of the questions there we haven't got to. Great to see some of our long-term transcribers and background supporters here. That's what Michael loves is getting to know people who read his work and contribute. So over to you, Michael, for last words.
Michael Hudson: Yeah, I'm very grateful for all of you for joining my Patreon group. I really need feedback. It's sort of like a musical performer. You need what's the audience reaction. Somebody's asking for my email, and my email is hudson[dot]islet[at]gmail[dot]com. So of course you can write me directly and I'll answer you.
Karl Fitzgerald: Geez, I can only imagine how many emails you get, Michael. Goodness me. You're so kind. So thanks, everyone, for your time today. Big thumbs up to you, Michael. Keep powering ahead. We can't wait for this new book to come out. And yeah, it's amazing. You're already onto the next one. And it sounds like you're halfway through that. So yeah, all productivity to you.
Michael Hudson: Thank you very much.
Karl Fitzgerald: Okay. See you everyone. Thanks so much. Bye-bye.
Photo by Klara Kulikova on Unsplash