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[excerpt from Amy Goodman interview about the Occupy Movement, 16 Nov2011]

00:12:20

Hannah Appel: Hi everybody! Thanks so  much for joining us. My name is Hannah Appel and I am going to be your host and facilitator today for this wonderful event put on by the David Graeber Institute on debt, empire and the future. With Michael Hudson, Steve Keen and I and I ‘ll just  read you a little blurb prepared by the David Graeber Institute and then I will do some introductions and get us started.

So they write that David –  it’s wonderful to hear his voice there, a dear friend to all of us I’m sure –  David Graeber insisted that the so-called debts of the global south to the global north are in fact a reversal of justice. It is the north that owes an unpayable debt to the south not the other way around. His anthropological project was to unmask these power relations and insist on a vision of humanity based on solidarity. So to start with that framing I’m going to introduce Michael Hudson and Steve Keen very briefly.

Professor Michael Hudson is an American economist, historian and author known for his critical analysis of debt finance and imperialism. He was formerly a Wall Street economist and he’s currently a distinguished research professor at the University of Missouri Kansas City. He is the author of many influential works including super-imperialism and killing the host and he has often argued that modern economies are dominated by rentier elites and unsustainable debt structures advocating for debt relief and structural reform.

And professor Steve Keen is an Australian Post-Keynesian economist best known for his early warnings about the 2008 financial crisis and his critiques of mainstream economics, formerly a professor at Kingston University London, he is the author of debunking economics and the new economics – a manifesto. Professor Keen focuses on the role of private debt financial instability and ecological limits and has developed the Minsky software for modelling monetary economies.

And again, my name is Hannah Appel. ‘m a professor of economic anthropology at UCLA and I’m also co-founder – one of the co-founders  – of the debt collective a union for debtors here in the United States. So I think maybe I’ll start it off passing it to you professors Hudson and Keen.

Sorry, I just wanted to say  – you can speak on whatever you wanted. I was just struck (you know) we just saw that wonderful video of David 14 years ago in the moment of Occupy Wall Street. Here we are in 2025 when much remains the same but much has also changed substantially, it’s really interesting to respond to that video a little bit over a decade later. But please Professor Hudson go for it.

00:14:58

Michael Hudson: well what David was talking about with Amy was the role of the financial sector in the economy and by extension that means the 1%. Because almost all of the increase in wealth since 2008, thanks to Mr Obama’s bank bailout, has been taken by the 1%, maybe the 10% , of the population. And it’s financial in character. It’s consisted of rising prices for stocks, bonds and real estate – all of which have been financed by debt. And the question is how on earth does the financial sector justify this. Well, as you got  an idea from the quotes that Amy posted, the claim is that taxing investment income by the 1% would lower, would hurt, the economy –  it would lower real investment and it would also lower spending. The pretence is that somehow these financial investors in the 1% – as they become multi-billionaires and multi-hundred billionaires – had more income to spend into the economy for goods and services. And, maybe they increased capital investment in factories to employ more labor, but that’s not what the financial sector does at all – because that’s not how the the financial sector has made its money. The reality is that to the extent they buy goods and services they buy imported luxuries – Italian fashions, fancy cars, yachts that have flag poles so high that they tip over when the wind blows.  We’ve seen that. But mostly the financial investors use their income to invest financially –  they buy stocks, bonds and they make yet more loans that yield yet more interest that builds up into more debts. And they make loans to buy companies and they make money –  not by increasing the products of these companies, not by increasing what they do and their employment and their sales. They do it by taking whatever profits the companies are making and they use them for stock buybacks to increase the stock price and they pay off their profits as dividends to increase the stock price. So, 92% of the Standard&Poor 500 stocks are spent on these stock buybacks and dividend payouts, not on new investment. In fact, the financial sector lives in the short run and managers of corporate industry today are paid by how much they can increase the price of the stock, not how much they can increase output, not how much they can help the economy grow but, in fact, to make money by preventing the economy from growing. The more money they make, they use to make loans and to borrow money to buy more and more corporations on credit and the result is they load the economy down with debt. As they get richer and richer, the economy suffers from debt deflation at the same time that all of this credit is used to inflate asset prices. Prices for real estate have been going way up even as the economy is impoverished. Prices for stocks and bonds have gone up even as corporate output has become de-industrialized. So you have the financial sector playing the major role in de-industrializing the American economy and David made a segue to talk about  democracy. I want to point out the effect on national sovereignty because right today you’ve seen a result of President Trump’s tariffs and preventing other countries from exporting what they used to be exporting to the United States. Without being able to export to the United States, they can’t earn the dollars to pay the dollar denominated foreign debts owed to bond holders and banks so they default and this is a process that’s been going on for 200 years. When in the beginning in the 1820s, two centuries ago, when Haiti and Mexico and Latin American countries won

their independence, followed by Ottoman former colonies in Egypt and Tunisia, they got their political independence, but they had to borrow to try to diversify their economy. And they freed themselves from paying tribute to their former colonial masters but they ended up paying debt service to the bond holders that financed their spending to improve their economy. Well, almost immediately Haiti, Mexico, then Greece borrowing for its independence defaulted and the result was – by the end of the 19th century the

creditor groups, the bond holders, were backed by the governments of creditor

countries –  England, France and Germany – to put in national monetary commissions that took control of the governments and dall the debtor countries that had borrowed from the Middle East to Latin America and Europe and these debt commissions said: you have to give priority to paying your foreign debts over your domestic attempts to grow. So what happened is that these countries who thought they had won their political sovereignty in the early 19th century, had lost their sovereignty to the financial managers by the creditors. They had to follow policies dictated by the creditor interests and the result is  – they were not able to use their tax revenues to invest in industrialization and factories and basic infrastructure that you needed to industrialize. They had to pay the creditors well despite all of this devastation and the collapse of trade and investment in the 1930s, World War II happened and most of the global south countries emerged from World War II with plenty of money because they

were exporting their raw materials to the belligerent powers and had built up savings. Well, at the same time the United States in 1944 and 1945 created a new international economic order based on the International Monetary Fund and the World Bank to promote US economic power and to fight to against any attempt at national sovereignty that would have reduced the income of American foreign investors and American exporters, especially farm exporters. And the result is that the asymmetrical world economy forced the global south countries into debt once again and it has been growing exponentially. A wave of defaults occurred in the 1980s. Some debts

were written down, not exactly cancelled, but written down and now they’ve grown up again to the point where they cannot be paid without countries giving up any hope they have of using their domestic income for improving their industrialization, their agricultural modernization and their economies as a whole. And as long as debtor

 countries are obliged to give fiscal priority to foreign countries there is no way that they can meet their own development needs. So the question is not democracy as such, it’s national sovereignty. And the national sovereignty requires a debt cancellation because what is interfering with sovereignty is that governments have been turned into collection agents for the bond holders and international bankers. The global south and many of the global majority countries face a problem that the Europe and the United States didn’t have, when they introduced industrial capitalism two centuries ago. They had to fight their own rentier class, their own landlords, their own bankers. But now the global south countries has to fight an entire alliance led by the United States and including its European satellites and other countries to prevent any kind of a debt breakdown and to treat the payments to creditors as having priority over real economic growth.  That means that the financial sector is not part of the real economy and it is blocking the real economy’s growth.

00:24:44

Hannah Appel : So, in true Michael Hudson fashion we start with a contemporary financialization of the US economy. We go back 200 years through waves of international debt crisis. I love it – it’s such a good sweeping history that you and David are both so good at offering. To kick us off, Steve what are your initial responses and thoughts [you’re on mute start again, I can’t hear you]

00:25:06

Steve Keen : [I know my my mistake , i didn’t press the button to unmute]

This is usual, Michael gives a brilliant overview. But the only thing I’d add to that is that it it wasn’t just debts. It was plunder. When David talks about the debts that erode really being from the north to the south – you have horrific examples like the Belgian Congo

in particular, where mutilation was a normal practice to force workers to work in the mines for the Belgian empire. Horrific stuff of that is just widespread. People aren’t conscious of it these days. They see India and they blame India for India’s state. If you read the history and again – Michael’s the champion there –  one of my favourite books on history, you probably know it Michael, by a guy called [I still remember the initials] D.G.E. Hall, called the history of South Asia. It went through the various colonial periods for each of the major countries of South Asia, including India. And one thing we talk about free trade these days it’s  – you know flavour of them, it’s been the flavour of the month since neoclassicals became dominant –  it turns out that England first of all

prevented India from exporting clothing to England during the time of

the East India Company. The reason being that if those exports were allowed (that was so much better than the British) that would have wiped out the British industries. Then about two or three decades later when the industrialization began by using coal – now, coal fired systems dramatically increasing the amount of energy that can be put into manufacturing – the clothes weren’t as good, still the Indian got higher quality. But they, the English, with the coal fired systems could pump them out in great volume at lower cost and the impact, according to D.G.E. Hall, was that when it began  – because so much of India was involved in textile manufacturing and was caught up in the whole east Asian scene going up to China  – 70% of  the population was urban and 30% rural and  at the end of it 30% was urban and 70% rural and lots of people died in the process. So those sorts of debts are the debts the West has always had and the fact they’re now saying you’ve got to pay the them the money debts you’ve got to us, is just an abomination in historical terms.

00:27:26

Hannah Appel :  Yeah, I appreciate that. You know those of us and I think probably all three of us do a version of this who teach debt crisis to college students and perhaps others, you know, I think often we focus and, perhaps rightly so, on structural adjustment which came up several times here and not on the kind of deeper histories that each of you offered necessarily, but often I think we focus on the period of the 1980s and 1990s when – while much of the global south as Professor Hudson points out wins political sovereignty – they don’t win economic sovereignty and again as Professor Hudson points out this is a much deeper historical pattern. But now I actually want to bring us from the 80s to, let’s say, the post-Covid moment, the Russia Ukraine war. I think it’s a mistake to use the structural adjustment debt crisis of the 80s and 90s as kind of our most recent historical example when we’re really in the middle of something. And I actually think with new analytical tools –  for instance I feel like we didn’t used to talk so much about the unique power of the US dollar, right?  It’s not just that they’re the countries are in debt. Whether in structural adjustment or now in the post-Covid Russia – Ukraine war moment, it’s that they owe us dollars. Right? It’s not. So, I guess I would love to hear from each of you thinking with this historical depth, but  into the present moment. What is new, what is different, what is repeating from that structural adjustment moment and what are we looking at when we’re thinking about sovereign debt and the lack of monetary sovereignty and hence political sovereignty outside the United States and outside the dollar system.

00:29:03

Michael Hudson

Well Steve Keen has done more than any other economist that I can think of showing that economists don’t talk about debt. All of the economic models that you’re taught in school assume that the economy is really operating on a barter basis. That money is a veil of the real activity and what they call the real GDP or real wages is simply deflating the existing money wages or money GDP with the local price index. But the reality, as Steve and I have spent the the last few decades together pointing out, is that debt is intrusive into the economy, that debt grows and grows and debt is debt service. Paying interest, paying late fees to the banks for your credit cards is not really a product. It’s a transfer payment from the economy to the banks . And yet, if you look at the American GDP, the GDP includes interest as a product, the late fees are counted as providing a financial service by deciding just who to charge late fees to. The pretence is that finance actually produces a product instead of transferring income from labour and from capital, from industry to a financial overhead sector that plays the role in today’s economy that landlords played in the 19th century and until the 19th century of charging economic rent. And today  there’s no longer a hereditary landlord class but there’s plenty of economic rent and that’s because real estate and home ownership is democratized.  Wherever you buy  – anyone can buy a home or even an office building  –  you have to borrow the money, you take out a mortgage to buy it and you pay the mortgage by bidding against other people for a home or an office building and the winner is the one who pays all of the economic rent to the bank as interest. So the whole 19th century fight by Adam Smith, John Stuart Mill, Marx and the other classical economists against rentier income turned out to have been a failure. The financial sector became the leader of the other rentier interests – the landlords and the monopolists  – to replace classical economics with it’s value theory. Saying: rent is the excess of market price over value and it is what the GDP should be all about. It’s the cost of production. Rent  is not a cost of production –  it’s an external levy, whether it’s land rent or monopoly rent or financial charges. So, much of what is considered to be economic growth and especially economic growth by the financial sector – it turns out not to be the real economy of production and consumption. It’s ALL financial overhead. It’s as if the economic body has a tumour that’s growing and they think the tumour is part of the body and it’s getting healthier and healthier… and it’s shrinking.

00:32:55

Hannah Appel : Yeah, Steve did you want to respond.

00:32:56

Steve Keen : [oh look] let’s go back a bit further in history to Karl Marx because one thing a lot of Marxists are ignorant about at the extent to which Marx spoke about the dangers of financialization. And we’re seeing them at large now because the scale of private debt globally is the greatest it’s been in human history. And therefore reflects the power of the financial sector over the industrial sector. This is one of my favourite sections from Marx. I’m sure Michael’s heard it before, but let’s roll – talk about centralization. The credit system which has its focus in the so-called national banks and the big money lenders and users surrounding them constitutes enormous centralization. And give this class of parasites the fabulous power not only to periodically spoil industrial capitalists but also interfere in actual production in a most dangerous way. This

 this gang knows nothing about production and “he left out a word” and should have nothing to do with it. So, it’s been a battle –  non-orthodox economists have forever been battling against the financial system and the landlords and seeing them as parasites on the productive system. You need them to some extent, you must have money in a capitalist economy, it’s not a barter system. So, you’ve got to have money creation. There are two sources of money creation in a domestic economy: the banks can lend more, can lend out more than they get back in repayment so banks loans expand and create money that way; but the government can create money as well by spending more than it takes back on taxation. Now, when you do the analysis of the monetary flows, as Michael and I have specialized in for our careers, you’re aware that there can be too much private debt. A certain amount is necessary, but there can be too much and we’ve actually probably got three times as much private debt in each of the major western economies than we should have. But also the government is there as a countervailing force, also a way of creating money without creating debt for the recipients of that money. And that fiat system can function very well, IF you run a large enough deficit to create fiat money. And I was very pleased to see in that section you know watching Davids whose knowledge was so deep that that he realized the government should run a deficit … What are we fighting for: one of the main battles these days in the west and in a lot of third world countries as well is to say: that’s justified. Whereas the mainstream, who don’t understand money at all, keep on saying: “oh, the government can’t afford the debt”. The government debt is a record of how much money the government has created. It is not a debt that we owe to anybody else, but this paranoia is emphasized by all political circles and what it means is to cut back on things like for example helicopters to fly Murdoch from one resort to another or Venice (can’t live) can’t have space anymore they’ve got to tell poor old Jeff Bozos that he can’t have his wedding there. I mean bullshit – what they cut down is medical care for people particularly workers in America drastically underfunding what they get, education which has turned into a commodity. So all these things are a sign of excessive financialization. And what we’re trying to do as radical economists is make capitalism work better by getting rid of the parasites on it. But of course the main opposition we face from that is both the financial sector itself of course, but mainly neoclassical economists who are a bunch of naive children with a with a false theory of how capitalism operates, who get in the way of understanding how the system functions. And I actually these days rather than calling them neoclassical I think a better insult to describe them is [toll?] . Okay. They’ve got an earth centric, flat earth, equilibrium view of the real world when the real world is dynamic evolutionary, that’s what we’re working to build and unless we get that through the minds of the vast majority of people, people are going to continue voting Stockholm syndrome style for the people who imprisoned them. So, a major task we all face is to get people to realize how the financial system actually operates, where creativity comes from the capitalist economy which is extremely important but also and – my major focus these days – the dangers of overloading the biosphere and again if I had to say if I can blame for leading us into that trap: it’s neoclassical economists who know about as much about climate as they do about the finance sector which is a small fraction of F*ck-all

00:37:17

Michael Hudson: all what Steve’s talking about is the distinction between productive and unproductive debt. The image that you get in the textbook is: here’s the banker lending money to a factory; the borrower – the company – will borrow money and build a factory and you’ll have workers going back and forth with their lunch boxes into the factory. But that’s not what most debts are. They don’t make money for new factories that enable the borrower to earn enough money to repay the debt with interest. That’s the definition of a productive debt: you provide means for the borrower to pay. But the vast majority of debt is unproductive debt. It’s purely an overhead when people fall behind in their cost of living and they have to pay by taking off credit card debt… when they have to borrow for student debt … when they have to borrow to buy a car or buy a home. This does not give them the means to pay, unless when you buy a home, they’re able to sell to a buyer who finds a bank to lend even more money against the home to inflate the price to the new buyer. So, this distinction between productive and unproductive debt doesn’t play any role at all in today’s economy, but it was the key to classical analysis – the difference between productive and unproductive investment, productive and unproductive debt  -all of that has disappeared basically. And one reason it’s disappeared is the financial sector has mounted by the late 19th century a whole fight against strong government. In the late 19th century everyone thought that  Europe and capitalism was evolving into socialism and that’s because Europe and America wanted increasing government spending to invest in infrastructure to enable the economy to operate on a lower cost and increase output. But that’s not what happened. There was propaganda, an ideological fight against classical economics that said there’s no such

  thing as unearned income, there is no such thing as economic rent – the banker plays a productive role in lending money no matter what the money is used for – whether it’s used  for  speculation in the stock market and bond market or whether it’s used to actually finance means of production. The landlord plays a productive role – he decides who to rent to. Well, all of this is the opposite of everything that classical economics is all about, but the financial sector led this anti-classical ideological reaction saying: a free market is one free from government. I think that’s what Steve was alluding to:  free from government regulation, free from government taxation. And the accusation that to actually try to regulate the financial sector, to industrialize finance is interference  with the free market. Instead of finance being industrialized,  industry ended up being financialized and de-industrialized which  is what you have today because of this blind spot in economics and that’s what Steve’s books on debunking economics are all about: showing the falsity of the reasoning that goes into this and that reasoning makes junk modes –  a garbage in garbage out and that’s what makes Steve’s models building different from what you get in the economic orthodoxy.

00:41:39

Hannah Appel :  So, I want to if I can:  there’s a very vibrant conversation going on in the chat about the role of the kind of analysis and critique that both of you have offered over your extraordinary careers and are offering here and the space in there for an asserted alternative and I would actually venture to argue  – which hasn’t really shown up in the chat –  that both of you are actually suggesting other ways that this could work. Right?  That there are socially productive forms of credit and debt; that public debt and private debt are different; and that the kind of political terrain of what deficit spending is for, for instance, so I guess I want to – I would say it’s already in the conversation but I want to  -ask each of you to make it clear for folks who have joined us: where in this analysis and critique that you are offering is there an affirmative vision or prescription for a world… the kind of world that we want to build? What is the role of public debt in that, what is the role of private debt, how do we get there?  That’s the provocation I think.

00:42:46

Michael Hudson: Okay, well, I think the common denominator between David and me is that the debts cannot be paid without bankrupting the economy. Either the economy grinds to a halt and all of the income is concentrated in the upper 1% and everyone else is left in debt peonage or you write down the debt. What’s going to come first.. You need a debt cancellation above everything else and in order to prevent the problem from developing again you need regulation to promote productive lending. How do you do it? China is the only country that was able to do this by keeping debt as a public utility, instead of letting the privatized banking sector decide how to allocate credit. The government  has allocated credit and it allocates it to the real economy to actually build things, not to de-industrialize the economy as occurs in the United States. I think that’s what Steve was alluding to when he talked about the need for to de-privatise the banking system and realize it’s a public utility and if you leave it in private hands it is going to be parasitic because you can make much more money parasitically than you can make productively. Productively you have to actually plan a factory, build a factory and arrange supplies and marketing procedures. That’s why Marx, in his value theory,  said the industrial capitalist  sells the product of labour for more than he has to pay labour – that’s surplus value. The industrial capitalist earns his profit by organizing industry and by being an entrepreneur. But rent is not a profit. Rent is unearned and therefore it’s not part of value. It’s simply part of the price system, what Marx called the circulation system as opposed to the production system. I think that underlies the whole approach that Steve and I share in common.

00:45:24

Steve Keen : Yeah. And I’ll just add in terms of how the banks function: that the neo-classical myth is that banks are warehouses that take in savings saved by households and lend them out to firms  and government. And then, in that perspective, you want that warehouse person to be, you know, quite careful and you want them to be free of any unnecessary restrictions that are going to prevent them doing their job  efficiently. When you realize, in fact, that banks create money. They don’t lend out deposits. They create deposits when they loan. Then it’s actually a manufacturing process, it’s not a warehouse, not a caretaking either and in  that situation you say, well, we’ve given you the right to create money, which is an incredibly powerful right in this society. If we didn’t register, we being the government, didn’t approve you to be a bank, you couldn’t do it. That gives you social obligations as well as your desire to have private profit and we want to make sure you don’t cause trouble by inflating asset prices, for example, and lending for speculation rather than genuine investment. So in a properly managed monetary system you would have banks forbidden to lend for asset price speculation. And a couple of the ideas that I’ve suggested there: first of all, I’d ban margin lending completely. If you want to gamble on stocks, use your own money. You can’t borrow money to buy shares. Just like you can’t borrow money, you can’t use a credit card inside a casino –  we had that rule for good reason, we should do the same thing with the share market. Secondly, the huge cost increase in the price of houses which has driven most, you know, young people out of any possibility of ever being able to buy a home. That is actually driven by the increase in the level of mortgage debt and the logic is quite simple: most people buy houses with new mortgage debt,  so the change in mortgage debt sets the price of houses. Therefore, the change in the price of houses is set by the change  in new mortgage debt and – you do the correlations which I’ve done  – you get an incredibly strong link between acceleration in the level of mortgage debt and the rise in house prices. So what you want to say is  – one of my ideas was what I called the property income limited leverage  – was a better joke back in the days when Michael and I were young men and the pill was actually a popular form of contraception. But the pill would mean that you could lend no more than say 10 times the rental income of a property and that way you couldn’t get the explosion of house prices relative to rents which is what’s driven people out of being able to to buy houses. So, finance should be controlled by regulations that say that the the creation of money you’ll only be allowed to create the money if you create it for productive purposes not speculative.

00:48:05

Michael Hudson: I  think it’s necessary to remind the audience that President Obama fought against everything that Steve Keen has  been saying. Steve said: well, a house’s price is however much a bank  will lend against it. When I was young a bank would not lend a mortgage if the carrying charge, the debt service exceeded 25% of the income. Now, the government will guarantee mortgages lent by banks that absorb up to 43% of the income. What President Obama said was: you can ignore the laws, you can make a loan that absorbs 100% of the income and instead of being limiting it to 10 times rent it can be 20 or 30 times rent because the banks can falsify. They can file whatever they want and we will not throw them in jail. But their victims who’ve signed onto these contracts,  we will  immediately evict them and put their homes out for sale. Obama evicted  between 8 and 10 million families who were victims of junk mortgages and bank fraud [and not a single]. He protected the bankers saying: that’s my constituency, who do you think my campaign contributors are. So, I think you have to realize how it was Obama that was the gravedigger of industrial capitalism and the sponsor of   de-industrialization that’s occurred. Well, in terms of what Steve’s suggesting  as the solution, the question is can this be done without a revolution? China  had a revolution in 1945 and succeeded in creating the government in 1949 and the revolution was against the landholding  class and the creditor class. So, at the time that China was created, it didn’t  have a financial class, the government had itself to simply create the money  and  print the money. It didn’t let private banks create money and it didn’t let private fortunes decide what to do because it was a socialist revolution. And the question is in today’s world: if other countries want to take finance and make it a public utility not a private predatory, rent extracting device – can this be done without the violence that has led America to try to fight and overthrow  any government with regime change that threatens to be socialist? –  whether  it’s Chile or Russia or China which has been designated America’s number one enemy because China is the one country that has kept finance in the public domain instead of the finance capitalism that underlies the American foreign policy and the neoliberal, neocon foreign policy …

00:51:15

Hannah Appel : so I  just want to draw together a couple threads that I’ve been hearing and I’m doing my best to follow in the chat so, you know, I said that folks in the chat  were saying: okay what does it mean to take this analysis and take this critique and to move it into a kind of affirmative vision. And then somebody else in the chat asked this question: what is money? –  sort of magically right at the moment when each of you were saying “Well banks create money by making loans”. Right. And so, other folks were picking that up in the chat. What I’m hearing – and I’m just going to kind of summarize this for both of you and then maybe you can speak it back to me, to try to tie together some of these themes that are coming up in the chat  – is: if the critique in our current capitalist economy where it is both the private bank, (let’s just stick with the commercial banks for right now) the commercial banks and the shadow banking sector are the ones who are bringing money into the economy – and how do they do it : they lend to the most  profitable things  – which also, to keep the climate threat in, are the climate changing industries, right,  they  lend to fossil fuels .. they lend to make SUVs .. they lend to the private jets … they lend to industrial agriculture … they lend to all of that stuff, right. So,  what happens is – there is no public say over how those resources are getting distributed (at least in so far as the money is being made by loans in the commercial banking sector and the shadow banking sector)? So that’s the critique. But then the affirmative vision that you  are proposing, in part through pointing out China as an actually existing example, but is what I’ve often heard referred to as a (locative?) credit policy right there actually has to be rules (laws) about allocation and that can be both public money where public money should go, which at least right now is still nominally democratically accountable (though most of us would say it’s not here) but there also have to be laws governing what both the central bank does but also what commercial banks do, right, that this is what Steve is talking about where there has to be laws to help prevent housing bubbles and asset inflation. There have to be laws if we actually want to make say a just green transition. There have to be laws about stop lending to fossil fuels, start

lending to public transportation etc. So I’m kind of putting out intentionally the affirmative view that I hear both of you articulating and if maybe you can speak some of it back to me for the for the audience I think that’d be helpful.

00:53:39

Michael Hudson: Well, I’ll let Steve talk about the money creation because he’s been doing he’s been focusing on that recently. All want to say is that every economy is planned by someone. The question is who’s  going to do the planning. If government agencies do not and society does not do the planning, planning passes to the financial sectors of Wall Street and their planning is value-free. They’re quite happy to lend to polluting industries because you can make much more money if you don’t have to pay the cleanup costs from your pollution for all that. But when it comes to actually creating the money, I think Steve should explain this.

00:54:20

Steve Keen : thank you, thank you Michael. The fundamental thing about money which people get wrong is – money is not a commodity. There’s a strong emphasis which comes out of the mentality of neoclassical economists, that money is what they call a veil over barter and all we do is we nominate one particular commodity to use as the exchange commodity for all other commodities so gold, you know,  I want  to buy Michael’s headphones (I don’t even think Michael wants to wants to buy off me), so I sell my mobile phone to somebody else, get the gold and then I send it to Michael and he sends me the headphones. That’s the vision that the textbooks teach and that gives you two commodities – so I want Michael’s headphones, I’m trying to sell a phone, we’re working a relative price between them and all that the gold money commodity does, is provide a a means of unit of account between the two. That’s completely wrong. The way that banking has always operated – and this is where Michael’s and David’s work in particular  has been so important – money is a promise. And also Graziani, who’s a neglected but great thinker in Italy, on the nature of money and he argued  from first principles – and it coincides with Michael’s work and mine and David’s –  is that money is the promise of a third party that the two parties in transaction over a single commodity accept a transfer of obligations between them and this third party as a full payment for the product. So, if I want to buy Michael’s headphones, what I do is I send a transfer from my bank to Michael’s bank saying “Put this money in Michael’s account.” Michael then accepts  the money that I’ve put in and packages up the headphones and send them to me. So, true exchange is a monetary function with three parties. There’s the buyer, the seller and the bank that intermediates the exchange. That’s the true nature of money. So money is a promise. And equally government money is the same way. Government money is called fiat because it means, you know, by decree: I create money. And the government  does that by spending more than it gets back in taxation. It doesn’t have to have anything backing it; it doesn’t have to  have guarantees. Simply because it’s the government –  one of its powers is to create liabilities on itself that the rest of us use in commerce and that’s a necessary part of a well functioning capitalist economy. So you have to understand that and I’ve just realized how critical this is when you see all the debates that are going on around the world they’re all about stopping the government getting into “debt” as if the government’s got to borrow a load of stuff from somebody  else to enable it to spend. No – the government creates money by a promise.  Okay.  It says “We’re going to create these notes that the rest of you can use for exchange and we’ll back them.” Okay. So if you want to buy something and you have money and hand it over and the person won’t sell it to you, that’s breaking the law. We enforce the laws so

therefore fiat money is part of the system that enables capitalism to function well and all the neoclassical stuff is making capitalism function less well. And the ironic thing is that Michael and I are both critics of capitalism and we’re doing more to try to defend capitalism from idiots who think they’re  the fans of capitalism … have no idea how the damn system functions and are stuffing it up. We’re trying to stop them stuffing it up so when you get to this point – money’s a promise, banks can create it by creating loans which creates a liability as well as an asset for the borrower, government creates money by spending more than it gets back in taxation. That means the government goes into negative financial equity. It has claims on itself that exceed the claims it has on other people, but that negative financial equity for the for the government is positive financial equity for the rest of the system, precisely the same magnitude opposite in the sign. And a well functioning capitalist economy has a large amount of fiat money which enables things that are common goods for all of us to be created: education, health, welfare, infrastructure  – all these things are things the government is better at doing than the private sector. So we need a ying and yang attitude about that which the China is clearly more successful in understanding that. I think because of the Confucian philosophy that is part of their background .. we have this libertarian garbage that means we fall

over our own feet trying to run market economies in the west … and I think Asia is finally showing us how to do it. And if we can’t get neoclassical economists and politicians to learn anything by teaching them theory –  for Christ’s sake take a trip to China and see what happens when you have a country that is run sensibly on both the government and private finance sector.

00:58:58

Michael Hudson:  So we’re brought back to the problem of what do the banks  or the government create money for? Do they create money for productive loans  to grow or for predatory loans just to increase stock prices, real estate prices and bond prices to make asset price inflation to increase their power over the rest of the economy?

00:59:19

Hannah Appel : Okay, so we have about eight more minutes and I want to propose just a last kind of final quick conversation that has also come up in the chat. The question is:  what are the democratic forms that might allow everybody, regular people, I mean  democracy here small “d” I don’t obviously mean the democratic party, to enable the kinds of transitions radical structural transformations we need. Michael already  named one – it was the revolution in China, and Michael said: do will we need a revolution? Here I will just say I will take moderator’s privilege for just one minute and say: at the debt collective, we believe that regular people actually have a tremendous amount of untapped power over finance and that would be  through wall-to-wall unionization. Right. So we obviously need to support the stuttering renaissance of the labour movement that we’re seeing, but everybody also needs a union at home which is to say whether they are a tenant or whether they are a mortgage holder, right, so whether they’re paying to their landlord and their landlord’s paying their mortgage or whether the landlord is directly in debt to the bank, you need mortgage holders unions and tenants unions which I would theorize also as debtors unions because of the way that housing is financed as Steve has pointed out. So you need labour unions you need tenant unions or mortgage holders unions and you need debtors unions, right, because this is a tremendous amount of untapped collective leverage over the economy and it is participatory, in so far as alone our debts are a  burden, but together they make us powerful so you get together in your debt contracts and you organize enough to threaten credibly a debt strike unless and until that thing is de-financialised or that thing is  de-commodified.. whether that’s housing.. whether that’s education ..whether that’s healthcare. And so ,when we at the debt collective think about wall-to-wall unionization, right, we think about not only the potential collective power of labour unions but also the potential collective power of mortgage holder or tenants unions and the collective power  of debtors unions. That’s the vision for people power that we see in driving the kinds of changes that we might need. So, I will put that out there, but in our last six minutes three each to Steve and Michael: is it a revolution that gets us here? What are the participatory forms that can push us in the direction we need to go?

00:01:51

Steve Keen : I was going to give way to you mate. Okay. Yeah.. like .. I I think this is one incredibly important point that we don’t have a political democracy these days. We have a contest between interest groups who are the best politicians money can buy and you select the worst narcissists  and that’s the person you get running a country. It’s tragic. I’ve been caught up in politics in Australia and saw the same thing: we couldn’t get visibility because we didn’t have money. Now, this is always going to fail and I think we need to look back and see what the Greeks actually had in the form of what we call democracy. Their democracy was sortition, they would use a like what you might call an intelligent random number generator process to choose  people to be part of the assembly in such a way that the powerful couldn’t  control who was selected. And that meant the powerful who were the first ones asked would nominate somebody they  respected and then they’d nominate somebody else and only went down a chain and finally you got an assembly of  citizens who are making good decisions for the public. Now we’re not going to get that but by any stretch by a revolution, but I think what’s going to happen is with my attitude on climate change, I think we’re going to hit an  incredible brick wall coming up very soon, which will destroy the private money system because there’s no

 possibility of people paying back their debts if productive resources are being destroyed. It won’t be possible to take  out insurance anymore, that’s all going to collapse. We’re going to need a public money system in the process to try to hang on to what’s left .. what will be left of civilization. So, I see revolution unfortunately coming from our failure to  stop us destroying the biosphere.

1:03:31

Michael Hudson: I agree with Steve. If there is a  solution, it will not be by democracy. It will be by the capitalist system deciding to save itself by reform.  I think there are less than a 100 million people who are watching us right now.. there may even be less than 10,000 people watching us right .. we are not on the major media and there’s very little market for what  Steve and I are saying and, in fact, we’re pretty much blacklisted by the major  media. We are thinking about the unthinkable as far as they’re concerned and there’s very little way that you can have a democratic movement  without access to what people are saying without public discussion.  I’ve certainly found our students at UMKC – when they would write about modern monetary theory  -their articles were not allowed into the  prestigious economic journals that you have to publish in in order to be hired by a [nice?] university somewhere. So Steve and I are outcasts and  there’s nothing we can do to raise consciousness among a small amount of number of people because we live in an oligarchy. So it’s going to be left just like the debt crisis will be left … just like the environmental crisis  and extreme weather crisis.  It will  have to be the vested interests themselves that save things. That’s  only alternative to revolution and collapse that I see. Well, collapse is a  revolution. I think it’s more likely we’ll have a collapse leading to perhaps people saying how did all of this happen

1:05:31

Hannah Appel : okay, well there you have it – some visions  somewhat utopian somewhat dystopian  on the not-so-distant future. I want to thank professors Steve Keen and Michael Hudson so much and thank you to the folks in the chat for all of that  kind of now there’s a whole conversation about the commons that we don’t have time to get into but thanks so much everybody for watching and stay tuned  for more from the David Graeber Institute and I so appreciate your time, professors Hudson and Keen.

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