Dr. Hudon's book is a collection of easily read chapters that allude to some of the ideas presented below while placing them in the historical perspective of economic theory. For instance he does mention that much of the world's economy is based on fraud and outright theft without quantifying the extent of this activity (would you believe far in excess of 50%?) or identifying specifics. For that I recommend my own article at [...]
Economists like to treat money in an economy like a politician treats air in politics. It is absolutely necessary to the exchange of ideas but plays no fundamental role in history. Dr. Hudson’s book is an attempt to disabuse you of that idea.
Money is fundamental to an economy. How it comes into existence, how much of it there is in circulation relative to how much is required to clear the markets of goods and services, how interest rates are established and how money is taxed determine the winners and losers in an economy. Money makes the economy more like Mt. Kilamanjaro than a level playing field.
In the economy that we have created all money is debt. All debt must earn interest, otherwise it is not debt. This is because we have chosen to have a fractional reserve banking system and a central bank that uses its monopoly power to set interest rates without regard to market conditions. Economic rent is the profit one earns by simply owning something. Banks (especially central banks like the Federal Reserve) extract economic rent from the monopolistic privilege of creating money from nothing. In this system it is a tautology that total savings equals total debt since savings and debt are the same thing. From this we can infer that the total amount of money equals the total amount of savings equals the total amount of debt and the terms savings, debt and money are synonymous.
The interest on this debt is exactly equal to the profits realized from commercial enterprise, rents extracted from the use of land and various forms of monopoly privilege.
Because of compounding the interest on the debt grows much faster than the physical productive capacity of the economy to generate revenue. Eventually there comes a point where the economy can no longer service the debt (pay the accrued interest). This situation is delayed by financial asset inflation (stocks and real estate) generating capital gains coupled with deflation in the nuts and bolts sector of the economy which facilitates generating revenue from the asset stripping and looting of the physical economy. This further decreases the revenue generated from the economy’s productive capacity. The end result is that the economy slips into permanent debt peonage, a kind of financial feudalism, in which Gross Domestic Product and the standard of living continually decline.
The historical alternative is WAR. War revitalizes the revenue generated from the physical productive capacity of the economy with government contracts for the implements of war while putting the economy further into debt. Exactly how this will play out in an economy that has a vanishing tax base and has already spent the accumulated surplus of the last century preparing for war is yet to be determined but the likely outcome is financial collapse and military defeat.
A third alternative is to switch from 'trickle down' economics to 'percolate up' economics by transferring money from the 1% to the 98%. This can be done by increasing Social Security benefits paid to current recipients while removing the cap on income subject to Social Security taxes and providing a minimum guaranteed income to all U.S. citizens financed by a financial transaction tax and a steeply progressive income and estate tax. The purpose of this is to put money into the hands of people who will spend it thereby creating the demand for goods and services that will provide the investment opportunities for tomorrow's entrepreneurs. Regrettably the powers that be would rather eat their young than even consider such a proposal.
I am only half way through this enjoyable and informative book so I can't tell you Dr. Hudson's solution to this quandary although I suspect that it has something to do with taxing economic rent.
Buy the book and find out what this is. I highly recommend it.
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The Bubble and Beyond Paperback – July 1, 2012
by
Michael Hudson
(Author)
THE BUBBLE AND BEYOND describes how the fabulous expansive forces of industrial capitalism have been subverted by a predatory finance capitalism. What the FED hailed as The Great Moderation has left the middle class to take on a lifetime of bank debt to obtain access to housing, education to get a job, an auto to drive to it, and simply to maintain living standards that wages and salaries no longer support. What has derailed the economy is the take-over of academic economics and politics by the financial sector in order to censor criticism and misrepresent statistics so as to give the impression that the economy can borrow its way out of debt. The reality is that income used to pay down todays debt overhead is not available to be spent on goods and services. The result is debt deflation, followed by austerity and the the "fire sale" or decay of infrastructure at the national and local levels. The most controversial claim by Prof. Hudson is that Debts
- Print length504 pages
- LanguageEnglish
- PublisherISLET
- Publication dateJuly 1, 2012
- Dimensions6.69 x 1.01 x 9.61 inches
- ISBN-103981484207
- ISBN-13978-3981484205
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Top reviews from the United States
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Reviewed in the United States on October 10, 2016
Reviewed in the United States on February 17, 2013
Michael Hudson is an independent research analyst based at the University of Missouri, Kansas City.
His latest publication represents a collection of essays that have formed the backbone of his thinking over many years. Taken together they offer a hefty rebuke to the flawed political economic practices issuing from the Federal Reserve and the neo-liberal camp that has so emphatically decriminalised fraudulent behaviour in the financial sector.
The book opens with Michael taking us back through the nineteenth century to give us `Two Traditions of Financial Doctrine' that led us to our present impasse; Finance Capital (which has regressed into todays FIRE sector - Finance, Insurance, Real Estate) - and Industrial Capital, which represents the manufacturing, labour sector. It is the dichotomy between these two traditions and their present offspring that drives the narrative; the `scorched earth' practices of debt magnified through compound interest and the `free lunch' tax subsidies of the FIRE sector, versus the `circular flow' of the real economy between the producer/consumer of Industrial Capital.
There is much else besides of course, ancient civilizations are discussed to show how societies debts were written off as a means of reviving the economy (hence `clean slate'), while those that didn't (the Roman Empire) become mired in debt, rebellion and bankruptcy.
Michael also draws our attention to the principle of Fraudulent Conveyance; the paragraph is worth quoting in full . . .
"The basic principle of Fraudulent Conveyance is that loans which cannot be paid under normal conditions were made irresponsibly at best, and with predatory intentions at worst. In either case they should be written down. The ethical principle is that the debtor suffers less than the creditor, especially in a world where international credit is now created electronically on computer keyboards - while repayment of such credit polarises and impoverishes debtor economies."
This is a rambling, repetitive narrative full of great insight and quotable paragraphs on every one of its 481 pages. There are useful diagrams and graphs and a fabulous interview with Michael on YouTube conducted by Lauren Lyster back in 2010 is a good introduction to Michael's vigorous arguments.
As if `The Bubble' wasn't bad enough, the real threat is not only to . . . "industrial capitalism and national self-determination but beyond that, the Enlightenment ideology of economic freedom and democracy". . . "All this threatens to turn the final stage of finance capitalism into debt-ridden austerity. That is what a neo - rentier economy means. Once entered into, it cannot be escaped from except by a violent political clash. The end game of finance capitalism will not be a pretty sight".
His latest publication represents a collection of essays that have formed the backbone of his thinking over many years. Taken together they offer a hefty rebuke to the flawed political economic practices issuing from the Federal Reserve and the neo-liberal camp that has so emphatically decriminalised fraudulent behaviour in the financial sector.
The book opens with Michael taking us back through the nineteenth century to give us `Two Traditions of Financial Doctrine' that led us to our present impasse; Finance Capital (which has regressed into todays FIRE sector - Finance, Insurance, Real Estate) - and Industrial Capital, which represents the manufacturing, labour sector. It is the dichotomy between these two traditions and their present offspring that drives the narrative; the `scorched earth' practices of debt magnified through compound interest and the `free lunch' tax subsidies of the FIRE sector, versus the `circular flow' of the real economy between the producer/consumer of Industrial Capital.
There is much else besides of course, ancient civilizations are discussed to show how societies debts were written off as a means of reviving the economy (hence `clean slate'), while those that didn't (the Roman Empire) become mired in debt, rebellion and bankruptcy.
Michael also draws our attention to the principle of Fraudulent Conveyance; the paragraph is worth quoting in full . . .
"The basic principle of Fraudulent Conveyance is that loans which cannot be paid under normal conditions were made irresponsibly at best, and with predatory intentions at worst. In either case they should be written down. The ethical principle is that the debtor suffers less than the creditor, especially in a world where international credit is now created electronically on computer keyboards - while repayment of such credit polarises and impoverishes debtor economies."
This is a rambling, repetitive narrative full of great insight and quotable paragraphs on every one of its 481 pages. There are useful diagrams and graphs and a fabulous interview with Michael on YouTube conducted by Lauren Lyster back in 2010 is a good introduction to Michael's vigorous arguments.
As if `The Bubble' wasn't bad enough, the real threat is not only to . . . "industrial capitalism and national self-determination but beyond that, the Enlightenment ideology of economic freedom and democracy". . . "All this threatens to turn the final stage of finance capitalism into debt-ridden austerity. That is what a neo - rentier economy means. Once entered into, it cannot be escaped from except by a violent political clash. The end game of finance capitalism will not be a pretty sight".
Reviewed in the United States on May 28, 2020
Great critique of financial capitalism and how we got here. Material is spot on but damn this book read like a series of long articles thrown together. Many sections repeated themselves ad nauseam. 500+ pages easily could’ve been 300 but none the less invaluable information.
Top reviews from other countries
mynameisluke
5.0 out of 5 stars
A great read, for any citizen of the world
Reviewed in Canada on February 1, 2013
I bought this book after seeing professor Hudson in an interview on Post-Keynesianism. This book is a great read for anyone who has a little bit
of knowledge on the subject of economics, i wouldn't start with this, maybe go with something like "The end of growth", and get this one after getting
the fundamentals of economics. Professor Hudson explains in great details, and in a very articulate fashion how the world economy works, how our own
North American society plunged into an era of unsustainability after abandoning the gold standard, and how the world of finance we live in is completely
decoupled from the everyday life of someone like me who is part of the manufacturing economy, getting up in the morning to actually better the
society i live in instead of acting like a vampire, living off interest and rent money...a must buy for anyone who wants to know what time it is...
at least from an economist's point of view!
of knowledge on the subject of economics, i wouldn't start with this, maybe go with something like "The end of growth", and get this one after getting
the fundamentals of economics. Professor Hudson explains in great details, and in a very articulate fashion how the world economy works, how our own
North American society plunged into an era of unsustainability after abandoning the gold standard, and how the world of finance we live in is completely
decoupled from the everyday life of someone like me who is part of the manufacturing economy, getting up in the morning to actually better the
society i live in instead of acting like a vampire, living off interest and rent money...a must buy for anyone who wants to know what time it is...
at least from an economist's point of view!
4 people found this helpful
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mareram
5.0 out of 5 stars
Un libro denso pero bastante interesante
Reviewed in Spain on January 19, 2013
Buen libro criticando la visión estándar de la economía de los últimos 30 años en oposición a las ideas económicas que estuvieron en boga durante la mayor parte del siglo XIX y XX.
A día de hoy el interés cobrado por entidades que emiten un crédito se contabiliza como riqueza creada, dado que han sido capaz de extraer una cierta cantidad de dinero, aunque no se preocupen de los lugares a donde ha dejado de ir ese dinero. La idea principal del libro es que dicho dinero es en realidad un sobrecoste que elimina dinero de la capacidad de compra de los consumidores y de los beneficios y capacidad de inversión de las empresas y que hace que las actividades económicas sean menos competitivas y rentables.
No es quizás el mejor libro para iniciarse en el tema, ya que como digo, a mi que no soy economista, me ha resultado algo denso. Pero para profundizar un poco más en el tema, creo que es una buena opción
A día de hoy el interés cobrado por entidades que emiten un crédito se contabiliza como riqueza creada, dado que han sido capaz de extraer una cierta cantidad de dinero, aunque no se preocupen de los lugares a donde ha dejado de ir ese dinero. La idea principal del libro es que dicho dinero es en realidad un sobrecoste que elimina dinero de la capacidad de compra de los consumidores y de los beneficios y capacidad de inversión de las empresas y que hace que las actividades económicas sean menos competitivas y rentables.
No es quizás el mejor libro para iniciarse en el tema, ya que como digo, a mi que no soy economista, me ha resultado algo denso. Pero para profundizar un poco más en el tema, creo que es una buena opción
Duncan R. McKeown
5.0 out of 5 stars
Creative thinking in economics, for once!
Reviewed in the United Kingdom on October 23, 2012
I have seen Michael Hudson interviewed on television on several occasions, and have always been impressed with his depth of understanding of the causes, and possible remedies, for the global economic crisis. It is wonderful to see a major work of his now in print. The disturbing fact that he has been ignored to such an extent by mainstream (read monetarist/neoclassical) economic reviews is scandalous, and speaks volumes about the supposed devotion to the scientific method in economics. Is conventional economics, as taught in most universities, a science at all when it ignores such empirical evidence as Hudson provides of its weaknesses?
This book is full of valuable insights from what Hudson would call the 'other economic canon'. This 'blast from the past' contains, for example, the challenging ideas of Adam Smith's nearly forgotten contemporaries like James Steuart, and a refresher course on the strategy of industrial banking so effective in Bismarck's Germany, which seems highly relevant to contemporary banking reform. The discussion of the neglected warnings (at least since the classical and Marxist schools of the 19th century...with the possible recent exception of the late Hyman Minsky) about compound interest effects in debt servicing bringing down a capitalist boom economy is particularly enlightening, bearing in mind the dire situation in Greece, Spain and Italy.
Thoroughly recommended...with one minor criticism. This book, perhaps because it was printed by a small publishing house, perhaps because it was rushed into print, appears to have been proof read by chimpanzees (and not the ones which are typing out the complete works of Shakespeare!). This is annoying, but the 'typos' don't detract one iota from the superb content. This treatise is an education in its own right, and should be supplied to all university economics students in their first year as an antidote to the disease of narrow-mindedness...preferably in a revised edition!
This book is full of valuable insights from what Hudson would call the 'other economic canon'. This 'blast from the past' contains, for example, the challenging ideas of Adam Smith's nearly forgotten contemporaries like James Steuart, and a refresher course on the strategy of industrial banking so effective in Bismarck's Germany, which seems highly relevant to contemporary banking reform. The discussion of the neglected warnings (at least since the classical and Marxist schools of the 19th century...with the possible recent exception of the late Hyman Minsky) about compound interest effects in debt servicing bringing down a capitalist boom economy is particularly enlightening, bearing in mind the dire situation in Greece, Spain and Italy.
Thoroughly recommended...with one minor criticism. This book, perhaps because it was printed by a small publishing house, perhaps because it was rushed into print, appears to have been proof read by chimpanzees (and not the ones which are typing out the complete works of Shakespeare!). This is annoying, but the 'typos' don't detract one iota from the superb content. This treatise is an education in its own right, and should be supplied to all university economics students in their first year as an antidote to the disease of narrow-mindedness...preferably in a revised edition!
29 people found this helpful
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bernard john christensen
5.0 out of 5 stars
The Bubble.
Reviewed in Canada on September 20, 2016
Great read, we need more from this economist.
One person found this helpful
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David Watkinson
5.0 out of 5 stars
Provides full explanations for what has gone wrong, why and what may happen next
Reviewed in the United Kingdom on April 11, 2015
He isn't the best writer and he hasn't had a good editor. However, his ideas are clearly explained many times over. I have given him five stars as it was his thoughts and ideas I wanted to understand.
He thoroughly explains how we developed our financial system and how it screws over practically everybody. As his explanations are logically correct and factually accurate, the required changes are easily understood and increases understanding of the entire financial and political system.
What happens next is a financial collapse. Or an awakening and a financial crash. The author does provide details on how a collapse might be avoided but that requires humility from politicians, apologies from the ultra rich financial people and an active and thoughtful public. So, I will prepare for hard times, harder times and then the massive disruption of a global financial crash.
The author is essentially correct but I do hope I am wrong. Perhaps politicians will soon accept that they are the source of the problems that they attempt to solve. Perhaps the wealthy will accept that most of their wealth doesn't exist and was gained at the expense of everybody else. Perhaps people will start asking questions and demanding satisfactory answers. The financial crash will still happen but perhaps we get a better chance at a more equitable financial system. I have just read the above and laughed. People don't change that much so quickly. Or do they?
He thoroughly explains how we developed our financial system and how it screws over practically everybody. As his explanations are logically correct and factually accurate, the required changes are easily understood and increases understanding of the entire financial and political system.
What happens next is a financial collapse. Or an awakening and a financial crash. The author does provide details on how a collapse might be avoided but that requires humility from politicians, apologies from the ultra rich financial people and an active and thoughtful public. So, I will prepare for hard times, harder times and then the massive disruption of a global financial crash.
The author is essentially correct but I do hope I am wrong. Perhaps politicians will soon accept that they are the source of the problems that they attempt to solve. Perhaps the wealthy will accept that most of their wealth doesn't exist and was gained at the expense of everybody else. Perhaps people will start asking questions and demanding satisfactory answers. The financial crash will still happen but perhaps we get a better chance at a more equitable financial system. I have just read the above and laughed. People don't change that much so quickly. Or do they?
2 people found this helpful
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