Michael Hudson on Finance Capitalism

Iconoclastic economist Michael Hudson on ‘Finance Capitalism’, taken from J is for Junk Economics (p.99-100). In today’s finance-dominated economies, his words are especially relevant, even though the term is not a recent one.

“Finance Capitalism: A term coined by Bruno Hilferding in Finance Capital (1910) to signify the evolution of industrial capitalism into a system dominated by large financial institutions, usually in conjunction with government (especially military spending) and heavy industry. To the extent that Wall Street managers take control of industry, their policy typically is to bleed profits to pay interest, dividends and other financial charges instead of investing in new capital formation and hiring. Today’s finance capitalism thus has become antithetical to the needs and dynamics of industrial capitalism.

Finance capitalism is defined by the relationship between creditors and debtors, and speculation for financial gains not related to tangible capital investment or production. The aim is to extract interest and financial fees by indebting labor, industry, real estate and government. Mortgage bankers aim to absorb all the net rental cash flow.

The culmination of this dynamic is the point at which the expanding debt overhead siphons off all net discretionary personal income and business profits. For loans to governments, the aim is to absorb the net tax revenue, and then to strip away the public domain in payment (eg., in the eurozone loans to Greece since 2010).

To increase its gains, the financial sector promotes (indeed, demands) the creation of legal monopolies and privatization of land ownership and public infrastructure, to be sold on credit. This builds interest charges into the break-even cost of doing business, increasing the economy’s overall cost structure. In the bubble stage of finance capitalism, the measure of financial productivity is total returns: interest plus capital gains. These gains on stocks and bonds are engineered by debt leveraging. Homebuyers, real estate speculators and corporate raiders pay their current income as interest, hoping that prices for assets bought on credit will rise at a faster rate.

These gains appear to be “saving” with interest being paid for expectations of capital gains. This economic and political dynamic of finance capitalism following feudalism and industrial capitalism, ends in debt peonage and a plunge of asset prices as the economy succumbs to debt deflation. The effect is a kind of neofeudalism.”

 

The rise and fall of the American middle class

William Lazonick, professor at University of Massachusetts Lowell, explains how rationalization, marketization, and globalization characterize the U.S. economy during the past 50 years, and how the behavior of companies and fate of American workers have changed during this process.

via Bill Lazonick on The Rise and Fall of the American Middle Class — Radical Political Economy

How bankers became the top exploiters of the economy – an interview with Michael Hudson

A great interview with Professor Michael Hudson, who is very much in the heterodox, non-mainstream camp of economists. The title says it all: how our economies are going in the wrong direction and some thoughts on how to put things right. Well worth a read.

 

Kicking away the (statistical) ladder – via Developing Economics blog

Developed countries often lecture developing and emerging countries on the appropriate policies and institutions necessary for economic success. This is done either bilaterally or through multilateral organizations such as the World Bank, IMF, OECD or European Union. Cambridge economist Ha-Joon Chang exposed the hypocrisy of this approach in his provocative 2002 book Kicking Away the […]

via Kicking Away the (Statistical) Ladder — Developing Economics