{"id":110696,"date":"2018-05-07T12:00:03","date_gmt":"2018-05-07T11:00:03","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=110696"},"modified":"2018-05-07T08:57:15","modified_gmt":"2018-05-07T07:57:15","slug":"creating-wealth-through-debt-the-wests-finance-capitalist-road","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2018\/05\/creating-wealth-through-debt-the-wests-finance-capitalist-road\/","title":{"rendered":"\u201cCreating Wealth\u201d through Debt: The West\u2019s Finance-Capitalist Road"},"content":{"rendered":"

Speech by Michael Hudson at Peking University\u2019s School of Marxist Studies,\u00a0May 5-6, 2018<\/em><\/p><\/blockquote>\n

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Photo source David Shankbone | CC BY 2.0<\/p><\/div>\n

Volumes II and III of Marx\u2019s Capital\u00a0<\/em>describe how debt grows exponentially, burdening the economy with carrying charges. This overhead is subjecting today\u2019s Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized.<\/p>\n

What policies are best suited for China to avoid this neo-rentier\u00a0<\/em>disease while raising living standards in a fair and efficient low-cost economy? The most pressing policy challenge is to keep down the cost of housing. Rising housing prices mean larger and larger debts extracting interest out of the economy. The strongest way to prevent this is to tax away the rise in land prices, collecting the rental value for the government instead of letting it be pledged to the banks as mortgage interest.<\/p>\n

The same logic applies to public collection of natural resource and monopoly rents. Failure to tax them away will enable banks to create debt against these rents, building financial and other rentier\u00a0<\/em>charges into the pricing of basic needs.<\/p>\n

U.S. and European business schools are part of the problem, not part of the solution. They teach the tactics of asset stripping and how to replace industrial engineering with financial engineering, as if financialization creates wealth faster than the debt burden. Having rapidly pulled ahead over the past three decades, China must remain free of rentier\u00a0<\/em>ideology that imagines wealth to be created by debt-leveraged inflation of real-estate and financial asset prices.<\/p>\n

Western capitalism has not turned out the way that Marx expected. He was optimistic in forecasting that industrial capitalists would gain control of government to free economies from unnecessary costs of production in the form of rent and interest that increase the cost of living (and hence, the break-even wage level). Along with most other economists of his day, he expected rentier\u00a0<\/em>income and the ownership of land, natural resources and banking to be taken out of the hands of the hereditary aristocracies that had held them since Europe\u2019s feudal epoch. Socialism was seen as the logical extension of classical political economy, whose main policy was to abolish rent paid to landlords and interest paid to banks and bondholders.<\/p>\n

A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19th<\/sup>century. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes.<\/p>\n

China is progressing along this \u201cmixed economy\u201d road to socialism, but Western economies are suffering from a resurgence of the pre-capitalist rentier\u00a0<\/em>classes. Their slogan of \u201csmall government\u201d means a shift in planning to finance, real estate and monopolies. This economic philosophy is reversing the logic of industrial capitalism, replacing public investment and subsidy with privatization and rent extraction. The Western economies\u2019 tax shift favoring finance and real estate is a case in point. It reverses John Stuart Mill\u2019s \u201cRicardian socialism\u201d based on public collection of the land\u2019s rental value and the \u201cunearned increment\u201d of rising land prices.<\/p>\n

Defining economic rent as the unnecessary margin of prices over intrinsic cost value, classical economists through Marx described\u00a0rentiers\u00a0<\/em>as being economically parasitic, not productive. Rentiers\u00a0<\/em>do not \u201cearn\u201d their land rent, interest or monopoly rent, because it has no basis in real cost-value (ultimately reducible to labor costs). The political, fiscal and regulatory reforms that followed from this value and rent theory were an important factor leading to Marx\u2019s value theory and historical materialism. \u00a0The political thrust of this theory explains why it is no longer being taught.<\/p>\n

By the late 19th<\/sup>century the\u00a0rentiers\u00a0<\/em>fought back, sponsoring reaction against the socialist implications of classical value and rent theory. In America, John Bates Clark denied that economic rent was unearned. He redefined it as payment for the landlords\u2019 labor and enterprise, not as accruing \u201cin their sleep,\u201d as J. S. Mill had characterized it. Interest was depicted as payment for the \u201cservice\u201d of lending productively, not as exploitation. Everyone\u2019s income and wealth was held to represent payment for their contribution to production. The thrust of this approach was epitomized by Milton Friedman\u2019s Chicago School claim that \u201cthere is no such thing as a free lunch\u201d \u2013 in contrast to classical economics saying that feudalism\u2019s legacy of privatized land ownership, bank credit and monopolies was all about how to get a free lunch, by exploitation.<\/p>\n

The other major reaction against classical and Marxist theory was English and Austrian \u201cutility\u201d theory. Focusing on consumer psychology instead of production costs, it claimed that there is no difference between value and price. A price is whatever consumers \u201cchoose\u201d to pay for commodities, based on the \u201cutility\u201d that these provide \u2013 defined by circular reasoning as being equal to the price they pay. Producers are assumed to invest and produce goods to \u201csatisfy consumer demand,\u201d as if consumers are the driving force of economies, not capitalists, property owners or financial managers.<\/p>\n

Using junk-psychology, interest was portrayed as what bankers or bondholders \u201cabstain\u201d from consuming, lending their self-denial of spending to \u201cimpatient\u201d consumers and \u201ccredit-worthy\u201d entrepreneurs. This view opposed the idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Marx quipped that in this view, the Rothschilds must be Europe\u2019s most self-depriving and abstaining family, not as suffering from wealth-addiction.<\/p>\n

These theories that all income is earned and that consumers (the bourgeois term for wage-earners) instead of capitalists determine economic policy were a reaction against the classical value and rent theory that paved the way for Marx\u2019s analysis. After analyzing industrial business cycles in terms of under-consumption or over-production in Volume I of Capital<\/em>, Volume III dealt with the precapitalist financial problem inherited from feudalism and the earlier \u201cancient\u201d mode of production: the tendency of an economy\u2019s debts to grow by the \u201cpurely mathematical law\u201d of compound interest.<\/p>\n

Any rate of interest may be thought of as a doubling time. What doubles is not real growth, but the parasitic financial burden on<\/em>this growth. The more the debt burden grows, the less income is left for spending on goods and services. More than any of his contemporaries, Marx emphasized the tendency for debt to grow exponentially, at compound interest, extracting more and more income from the economy at large as debts double and redouble, beyond the ability of debtors to pay. This slows investment in new means of production, because it shrinks domestic markets for output.<\/p>\n

Marx explained that the credit system is external to the means of production. It existed in ancient times, feudal Europe, and has survived industrial capitalism to exist even in socialist economies. At issue in all these economic systems is how to prevent the growth of debt and its interest charge from shrinking economies. Marx believed that the natural thrust of industrial capitalism was to replace private banking and money creation with public money and credit. He distinguished interest-bearing debt under industrial capitalism as, for the first time, a means of financing capital investment. It thus was potentially productive by funding capital to produce a profit that was sufficient to pay off the debt.<\/p>\n

Industrial banking was expected to finance industrial capital formation, as was occurring in Germany in Marx\u2019s day. Marx\u2019s examples of industrial balance sheets accordingly assumed debt. In contrast to Ricardo\u2019s analysis of capitalism\u2019s Armageddon resulting from rising land-rent, Marx expected capitalism to free itself from political dominance by the landlord class, as well as from the precapitalist legacy of usury.<\/p>\n

This kind of classical free market viewed capitalism\u2019s historical role as being to free the economy from the overhead of unproductive \u201cusury\u201d debt, along with the problem of absentee landownership and private ownership of monopolies \u2013 what Lenin called the economy\u2019s \u201ccommanding heights\u201d in the form of basic infrastructure. Governments would make industries competitive by providing basic needs freely or at least at much lower public prices than privatized economies could match.<\/p>\n

This reform program of industrial capitalism was beginning to occur in Germany and the United States, but Marx recognized that such evolution would not be smooth and automatic. Managing economies in the interest of the wage earners who formed the majority of the population would require revolution where reactionary interests fought to prevent society from going beyond the \u201cbourgeois socialism\u201d that stopped short of nationalizing the land, monopolies and banking.<\/p>\n

World War I untracked even this path of \u201cbourgeois socialism.\u201d Rentier\u00a0<\/em>forces fought to prevent reform, and banks focused on lending against collateral already in place, not on financing new means of production. The result of this return to pre-industrial bank credit is that some 80 percent of bank lending in the United States and Britain now takes the form of real estate mortgages. The effect is to turn the land\u2019s rental yield into interest.<\/p>\n

That rent-into-interest transformation gives bankers a strong motive to oppose taxing land rent, knowing that they will end up with whatever the tax collector relinquishes. Most of the remaining bank lending is concentrated in loans for corporate takeovers, mergers and acquisitions, and consumer loans. Corporate capital investment in today\u2019s West is not financed by bank credit, but almost entirely out of retained corporate earnings, and secondarily out of stock issues.<\/p>\n

The stock market itself has become extractive. Corporate earnings are used for stock buybacks and higher dividend payouts, not for new tangible investment. This financial strategy was made explicit by Harvard Business School Professor Michael Jensen, who advocated that salaries and bonuses for corporate managers should be based on how much they can increase the price of their companies\u2019 stock, not on how much they increased or production and\/or business size. Some 92 percent of corporate profits in recent years have been spent on stock buyback programs and dividend payouts. That leaves only about 8 percent available to be re-invested in new means of production and hiring. Corporate America\u2019s financial managers are turning financialized companies into debt-ridden corporate shells.<\/p>\n

A major advantage of a government as chief banker and credit creator is that when debts come to outstrip the means to pay, the government can write down the debt. That is how China\u2019s banks have operated. It is a prerequisite for saving companies from bankruptcy and preventing their ownership from being transferred to foreigners, raiders or vultures.<\/p>\n

Classical tax and banking policies were expected to streamline industrial economies, lowering their cost structures as governments replaced landlords as owner of the land and natural resources (as in China today) and creating their own money and credit. But despite Marx\u2019s understanding that this would have been the most logical way for industrial capitalism to evolve, finance capitalism has failed to fund capital formation. Finance capitalism has hijacked industrial capitalism, and neoliberalism is its anti-classical ideology.<\/p>\n

The result of today\u2019s alliance of the Finance, Insurance and Real Estate (FIRE) sector with natural resource and infrastructure monopolies has been to reverse that the 20th<\/sup>century\u2019s reforms promoting progressive taxation of wealth and income. Industrial capitalism in the West has been detoured along the road to rent-extracting privatization, austerity and debt serfdom.<\/p>\n

The result is a double-crisis: austerity stemming from debt deflation, while public health, communications, information technology, transportation and other basic infrastructure are privatized by corporate monopolies that raise prices charged to labor and industry. The debt crisis spans government debt (state and local as well as national), corporate debt, real estate mortgage debt and personal debt, causing austerity that shrinks the \u201creal\u201d economy as its assets and income are stripped away to service the exponentially growing debt overhead. The economy polarizes as income and wealth ownership are shifted to the neo-rentier\u00a0<\/em>alliance headed by the financial sector.<\/p>\n

This veritable counter-revolution has inverted the classical concept of free markets. Instead of advocating a public role to lower the cost structure of business and labor, the neoliberal ideal excludes public infrastructure and government ownership of natural monopolies, not to speak of industrial production. Led by bank lobbyists, neoliberalism even opposes public regulation of finance and monopolies to keep their prices in line with socially necessary cost of production.<\/p>\n

To defend this economic counter-revolution, the National Income and Product Accounts (NIPA) and Gross Domestic Product (GDP) measures now used throughout the world were inspired by opposition to progressive taxation and public ownership of land and banks. These statistical measures depicting finance, insurance and real estate as the leaders of wealth creation, not the creators merely of debt and rentier\u00a0<\/em>overhead.<\/p>\n

What is China\u2019s \u201cReal\u201d GDP\u00a0<\/em><\/strong>and \u201creal wealth creation\u201d? <\/em><\/strong><\/p>\n

Rejection of classical value theory\u2019s focus on economic rent \u2013 the excess of market price over intrinsic labor cost \u2013 underlies the post-classical concept of GDP. Classical rent theory warned against the FIRE sector siphoning off nominal growth in wealth and income. The economics of Adam Smith, David Ricardo, J.S. Mill and Marx share in common the view that this rentier\u00a0<\/em>revenue should be treated as an overhead charge and, as such,\u00a0subtracted\u00a0<\/em>from national income and product because it is not production-related. Being extraneous to the production process, this rentier\u00a0<\/em>overhead is responsible for today\u2019s debt deflation and economically extractive privatization that is imposing austerity and shrinking markets from North America to Europe.<\/p>\n

The West\u2019s debt crisis is aggravated by privatizing monopolies (on credit) that historically have belonged to the public sector. Instead of recognizing the virtues of a mixed economy, Frederick Hayek and his followers from Ayn Rand to Margaret Thatcher, Ronald Reagan, the Chicago School and libertarian Republicans have claimed that any\u00a0<\/em>public ownership or regulation is, ipso facto<\/em>, a step toward totalitarian politics.<\/p>\n

Following this ideology, Alan Greenspan aborted economic regulation and decriminalized financial fraud. He believed that in principle, the massive bank fraud, junk-mortgage lending and corporate raiding that led up to the 2008 crisis was more efficient than regulating such activities or prosecuting fraudsters.<\/p>\n

This is the neoliberal ideology taught in U.S. and European business schools. It assumes that whatever increases financial wealth most quickly is the most efficient for society as a whole. It also assumes that bankers will find honest dealing to be more in their economic self-interest than fraud, because customers would shun fraudulent bankers. But along with the mathematics of compound interest, the inherent dynamic of finance capitalism is to establish a monopoly and capture government regulatory agencies, the justice system, central bank and Treasury to prevent any alternative policy and the prosecution of fraud.<\/p>\n

The aim is to get rich by purely financial means \u2013 by increasing stock-market prices, not by tangible capital formation. That is the opposite of the industrial logic of expanding the economy and its markets. Instead of creating a more productive economy and raising living standards, finance capitalism is imposing austerity by diverting wage income and also corporate income to pay rising debt service, health insurance and payments to privatized monopolies. Progressive income and wealth taxation has been reversed, siphoning off wages to subsidize privatization by the rentier\u00a0<\/em>class.<\/p>\n

This combination of debt overgrowth and regressive fiscal policy has produced two results. First, combining debt deflation with fiscal deflation leaves only about a third of wage income available to be spent on the products of labor. Paying interest, rents and taxes \u2013 and monopoly prices \u2013 shrinks the domestic market for goods and services.<\/p>\n

Second, adding debt service, monopoly prices and a tax shift to the cost of living and doing business renders neo-rentier\u00a0<\/em>economies high-cost. That is why the U.S. economy has been deindustrialized and its Midwest turned into a Rust Belt.<\/p>\n

How Marx\u2019s economic schema explains the West\u2019s neo-rentier problem <\/em><\/strong><\/p>\n

In Volume I of Capital<\/em>, Marx described the dynamics and \u201claw of motion\u201d of industrial capitalism and its periodic crises. The basic internal contradiction that capitalism has to solve is the inability of wage earners to be paid enough to buy the commodities they produce. This has been called overproduction or underconsumption, but Marx believed that the problem was in principle only temporary, not permanent.<\/p>\n

Volumes II and III of Marx\u2019s Capital\u00a0<\/em>described a pre-capitalist form of crisis, independent of the industrial economy: Debt grows exponentially, burdening the economy and finally bringing its expansion to an end with a financial crash. That descent into bankruptcy, foreclosure and the transfer of property from debtors to creditors is the dynamic of Western finance capitalism. Subjecting economies to austerity, economic shrinkage, emigration, shorter life spans and hence depopulation, it is at the root of the 2008 debt legacy and the fate of the Baltic states, Ireland, Greece and the rest of southern Europe, as it was earlier the financial dynamic of Third World countries in the 1960s through 1990s under IMF austerity programs. When public policy is turned over to creditors, they use their power for is asset stripping, insisting that all debts must be paid without regard for how this destroys the economy at large.<\/p>\n

China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation \u2013 how to be extractive, not productive. They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. The product of such education therefore is not knowledge but ignorance and a distortion of good policy analysis. Baltic austerity is applauded as the \u201cBaltic Miracle,\u201d not as demographic collapse and economic shrinkage.<\/p>\n

The experience of post-Soviet economies when neoliberals were given a free hand after 1991 provides an object lesson. Much the same fate has befallen Greece, along with the rising indebtedness of other economies to foreign bondholders and to their own rentier\u00a0<\/em>class operating out of capital-flight centers. Economies are obliged to suspend democratic government policy in favor of emergency creditor control.<\/p>\n

The slow economic crash and debt deflation of these economies is depicted as a result of \u201cmarket choice.\u201d It turns out to be a \u201cchoice\u201d for economic stagnation. All this is rationalized by the economic theory taught in Western economics departments and business schools. Such education is an indoctrination in stupidity \u2013 the kind of tunnel vision that Thorstein Veblen called the \u201ctrained incapacity\u201d to understand how economies really work.<\/p>\n

Most private fortunes in the West have stemmed from housing and other real estate financed by debt. Until the 2008 crisis the magnitude of this property wealth was expanded largely by asset-price inflation, aggravated by the reluctance of governments to do what Adams Smith, John Stuart Mill, Alfred Marshall and nearly all 19th<\/sup>-century classical economists recommended: to keep land rent out of private hands, and to make the rise in land\u2019s rental value serve as the tax base.<\/p>\n

Failure to tax the land leaves its rental value \u201cfree\u201d to be pledged as interest to banks \u2013 which make larger and larger loans by lending against rising debt ratios. This \u201ceasy credit\u201d raises the price of obtaining home ownership. Sellers celebrate the result as \u201cwealth creation,\u201d and the mainstream media depict the middle class as growing richer by higher prices for the homes its members have bought. But the debt-financed rise in housing prices ultimately creates wealth mainly for banks and their bondholders.<\/p>\n

Americans now have to pay up to 43 percent of their income for mortgage debt service, federally guaranteed. This imposes such high costs for home ownership that it is pricing the products of U.S. labor out of world markets. The pretense is that using bank credit (that is, homebuyers\u2019 mortgage debt) to inflate the price of housing makes U.S. workers and the middle class prosperous by enabling them to sell their homes to a new generation of buyers at higher and higher prices each generation. This certainly does not make the buyers more prosperous. It diverts their income away from buying the products of labor to pay interest to banks for housing prices inflated on bank credit.<\/p>\n

Consumer spending throughout most of the world aims above all at achieving status. In the West this status rests largely on one\u2019s home and neighborhood, its schools, transportation and other public investment. Land-price gains resulting from public investment in transportation, parks and schools, other urban amenities and infrastructure, and from re-zoning land use. In the West this rising rental value is turned into a cost, falling on homebuyers, who must borrow more from the banks. The result is that public spending ultimately enriches the banks \u2013 at the tax collector\u2019s expense.<\/p>\n

Debt is the great threat to modern China\u2019s development. Burdening economies with a rentier\u00a0<\/em>overhead imposes the quasi-feudal charges from which classical 19th<\/sup>-century economists hoped to free industrial capitalism. The best protection against this rentier<\/em>burden is simple: first, tax away the land\u2019s rising rental valuation to prevent it from being paid out for bank loans; and second, keep control of banks in public hands. Credit is necessary, but should be directed productively and debts written down when paying them threatens to create financial Armageddon.<\/p>\n

Marx\u2019s views on the broad dynamics of economic history <\/em><\/strong><\/p>\n

Plato and Aristotle described a grand pattern of history. In their minds, this pattern was eternally recurrent. Looking over three centuries of Greek experience, Aristotle found a perpetual triangular sequence of democracy turning into oligarchy, whose members made themselves into a hereditary aristocracy \u2013 and then some families sought to take the demos<\/em>into their own camp by sponsoring democracy, which in turn led to wealthy families replacing it with an oligarchy, and so on.<\/p>\n

The medieval Islamic philosopher Ibn Khaldun saw history as a rise and fall. Societies rose to prosperity and power when leaders mobilized the ethic of mutual aid to gain broad support as a communal spirit raised all members. But prosperity tended to breed selfishness, especially in ruling dynasties, which Ibn Khaldun thought had a life cycle of only about 120 years. By the 19th<\/sup>century, Scottish Enlightenment philosophers elaborated this rise-and-fall theory, applying it to regimes whose success bred arrogance and oligarchy.<\/p>\n

Marx saw the long sweep of history as following a steady upward secular trend, from the ancient slavery-and-usury mode of production through feudalism to industrial capitalism. And not only Marx but nearly all 19th<\/sup>-century classical economists assumed that socialism in one form or another would be the stage following industrial capitalism in this upward technological and economic trajectory.<\/p>\n

Instead, Western industrial capitalism turned into finance capitalism. In Aristotelian terms the shift was from proto-democracy to oligarchy. Instead of freeing industrial capitalism from landlords, natural resource owners and monopolists, Western banks and bondholders joined forces with them, seeing them as major customers for as much interest-bearing credit as would absorb the economic rent that governments would refrain from taxing. Their success has enabled banks and bondholders to replace landlords as the major rentier\u00a0<\/em>class. Antithetical to socialism, this retrogression towards feudal rentier\u00a0<\/em>privilege let real estate, financial interests and monopolists exploit the economy by creating an expanding debt wedge.<\/p>\n

Marx\u2019s\u00a0Theories of Surplus Value\u00a0<\/em>(German Mehrwert<\/em>), his history of classical political economy, poked fun at David Ricardo\u2019s warning of economic Armageddon if economies let landlords siphon off of all industrial profits to pay land rent. Profits and hence capital investment would grind to a halt. But as matters have turned out, Ricardo\u2019s rentier\u00a0<\/em>Armageddon is being created by his own banking class. Corporate profits are being devoured by interest payments for corporate takeover debts and related financial charges to reward bondholders and raiders, and by financial engineering using stock buybacks and higher dividend payouts to create \u201ccapital\u201d gains at the expense of tangible capital formation. Profits also are reduced by firms having to pay higher wages to cover the cost of debt-financed housing, education and other basic expenses for workers.<\/p>\n

This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek\u2019s anti-government \u201cfree enterprise\u201d warnings, \u201cslippery slope\u201d to totalitarianism is not by socialist reforms limiting the rentier\u00a0<\/em>class\u2019s extraction of economic rent and interest, but just the opposite: the failure\u00a0<\/em>of society to check the rentier\u00a0<\/em>extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large.<\/p>\n

Greece\u2019s debt crisis has all but abolished its democracy as foreign creditors have taken control, superseding the authority of elected officials. From New York City\u2019s bankruptcy to Puerto Rico\u2019s insolvency and Third World debtors subjected to IMF \u201causterity programs,\u201d national bankruptcies shift control to centralized financial planners in what Naomi Klein has called Crisis Capitalism. Planning ends up centralized not in the hands of elected government but in financial centers, which become the de facto\u00a0<\/em>government.<\/p>\n

England and America set their economic path on this road under Margaret Thatcher and Ronald Reagan by 1980. They were followed by even more pro-financial privatization leaders in Tony Blair\u2019s New Labour Party and Bill Clinton\u2019s New Democrats seeking to roll back a century of classical reforms and policies that gradually were moving capitalism toward socialism. Instead, these countries are suffering a rollback to neofeudalism, whose neo-rentier<\/em>economic and political ideology has become mainstream throughout the West. Despite seeing that this policy has led to North America and Europe losing their former economic lead, the financial power elite is simply taking its money and running.<\/p>\n

So we are brought back to the question of what this means for China\u2019s educational policy and also how it depicts economic statistics to distinguish between wealth and overhead. The great advantage of such a distinction is to help steer economic growth along productive lines favoring tangible capital formation instead of policies to get rich by taking on more and more debt and by prying property away from the public domain.<\/p>\n

If China\u2019s main social objective is to increase real output to raise living standards for its population \u2013 while minimizing unproductive overhead and economic inequality \u2013 then it is time to consider developing its own accounting format to trace its progress (or shortcomings) along these lines. Measuring how its income and wealth are being obtained would track how the economy is moving closer toward what Marx called socialism.<\/p>\n

Of special importance, such an accounting format would revive Marx\u2019s classical distinction between earned and unearned income. Its statistics would show how much of the rise in wealth (and expenditure) in China \u2013 or any other nation \u2013 is a result of new tangible capital formation as compared to higher rents, lending and interest, or the stock market.<\/p>\n

These statistics would isolate income and fortunes obtained by zero-sum transfer payments such as the rising rental value of land sites, natural resources and basic infrastructure monopolies. National accounts also would trace overhead charges for interest and related financial charges, as well as the economy\u2019s evolving credit and debt structure. That would enable China to measure the economic effects of the banking privileges and other property rights given to some people.<\/p>\n

That is not the aim of Western national income statistics. In fact, applying the accounting structure described above would track how Western economies are polarizing as a result of their higher economic rent and interest payments crowding out spending on actual goods and services. This kind of contrast would help explain global trends in pricing and competitiveness. Distinguishing the FIRE sector from the rest of the economy would enable China to compare its economic cost trends and overhead relative to those of other nations. I believe that these statistics would show that its progress toward socialism also will explain the remarkable economic advantage it has obtained. If China does indeed make this change, it will help people both in and out of China see even more clearly what your government is doing on behalf of the majority of its people. This may help other governments \u2013 including my own \u2013 learn from your example and praise it instead of fearing it.<\/p>\n

________________________________________<\/p>\n

Michael Hudson<\/em>\u00a0is the author of\u00a0<\/em>Killing the Host<\/a>\u00a0(published in e-format by CounterPunch Books and in print by Islet<\/a>). His new book is <\/em>J is For Junk Economics<\/a>. \u00a0He can be reached at\u00a0mh@michael-hudson.com<\/a><\/em><\/p>\n

Go to Original \u2013 counterpunch.org<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Speech at Peking University\u2019s School of Marxist Studies, May 5-6, 2018 – Volumes II and III of Marx\u2019s Capital describe how debt grows exponentially, burdening the economy with carrying charges.<\/p>\n","protected":false},"author":4,"featured_media":60258,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[194],"tags":[],"class_list":["post-110696","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-socialism-marxism"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/110696","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=110696"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/110696\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/60258"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=110696"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=110696"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=110696"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}