Michael Hudson on the clash of capitalisms

THE DESTINY OF CIVILIZATION: Finance Capitalism, Industrial Capitalism or Socialism by Michael Hudson (2022)

When I studied economics as a college undergraduate, I was taught there are three factors of production – land, labor and capital. And three sources of income – the rent of land, the wages of labor and the profit or interest from capital.

Land includes not just the soil itself, but all natural resources.  Labor includes all productive effort, whether of brain or brawn.

Capital, as I was taught, is the force multiplier. It includes everything that increases the productivity of land or labor – farm tractors, railroads, computers, steam engines, electric power plants, research laboratories, anything that increases or improves production.

So the landlord is a parasite, the worker is a contributor to society, but the capitalist supposedly is the driving force for progress.

Here’s the rub.  Financial capital is productive only when it is used to create physical or human capital.

But there’s no law that says financial capital has to be used productively.  In fact, most so-called “investment” consists of buying assets and collecting the income, with no value added. 

Michael Hudson, in his brilliant new book, The Destiny of Civilization, says that’s what’s happening in the U.S. specifically and also the broader world today.  Industrial capitalism, which, for all its faults, is productive, is being replaced by finance capitalism, which is parasitic.   

So much of the world’s resources go to paying off debts—government debt, business debt, mortgage debt, student debt—that too little is left over to provide for the wants and needs of ordinary people.  

So much of the world’s income goes to holders of debt that too little is left for those who do the actual work of society.

According to Hudson, the classical economists, from Adam Smith to John Maynard Keynes and including Karl Marx, thought that the chief economic problem was the rentier – the person who draws income from ownership of assets, without producing anything of value themselves.

The French economist Thomas Piketty has written massive tomes that show how the income from ownership of assets – whether land, government bonds, corporate stocks or something else – over time exceeds the rate of economic growth.

This leads to an ever-growing concentration of wealth, which ends only when some event – usually revolution, war or an economic crash – wipes out the value of the assets. This is the process that the Austrian economist Joseph Schumpeter called “creative destruction.”

In the United States and countries that follow its lead, classical economics has been replaced by the so-called neoliberal economics.  Its guiding principle is that financial capital must be preserved at all costs.

This is why, just as one example, the Obama administration bailed out the banks following the 2008 financial crisis, but did not use authority granted by Congress to help the struggling mortgage-holders.

Karl Marx was fascinated by industrial capitalism’s power to increase productivity and increase wealth.  This form of capitalism, as he saw it, laid the foundation for a future utopian worker-ruled socialist state.  Finance capitalism, in Hudson’s view, leads nowhere.

Hudson says that today civilization is today at a fork in the road: 

  • one path leading to a neoliberal neo-feudalism dominated by a rentier oligarchy ruling over the indebted many.
  • the alternative path is broadly mixed-economy industrial capitalism leading to socialism.

The problem of the rentier oligarchy does back to the dawn of civilization, Hudson wrote.  

The ancient rulers of Egypt and Mesopotamia were in the habit of periodically canceling their subjects’ debts.  The Hebrew Bible, a product of the ancient Near Eastern civilization, calls for a jubilee year every 50 years, in which debts are forgiven, slaves are freed and land is restored to its original owners.

The rulers of ancient Greece and Rome, in contrast, condemned the so-called demagogues and tyrants who tried to protect the common people from the creditor class.  The result was oligarchy, pauperization and debt slavery.

Hudson thinks it takes strong rulers to put down rentier oligarchs.  He said the record of democracies and republics is poor.

Today’s world needs a debt jubilee, he wrote.  Accumulated debt of all kinds is greater than the ability of debtors to pay.  As he is fond of writing, “Debt that can’t be paid, won’t be paid.”   The only question is whether un-payable debt will be wiped out by public policy or by an economic depression.

Hudson thinks laissez-faire economics is a hoax.  What it does is lock in whatever advantages the dominant powers have at the time.

It was promoted by Britain and the United States after they achieved economic dominance, in order to preserve their dominance.  

But their own growth was not due to laissez-faire.  The actual path to industrial development consists of what once was known as the American System.   Its elements are:

  1. Protective tariffs and subsidies to help infant industries grow without being crushed by established foreign competitors.
  2. Public investment in infrastructure, public health, public education, scientific research and other public goods.
  3. High wages to create a domestic market and to provide an incentive for productivity.

Hudson said this was the path followed by the United States in the century following the Civil War.  Later Germany and Japan copied it. Now China and Russia are following this path.  But it has been abandoned by the USA during the past 40 or 50 years.

Following World War One, the USA’s industrial strength, plus its escape from the devastation of the war, enabled it to become the world’s leading creditor nation.  This was strengthened following World War Two.

Following World War Two, the U.S. government leveraged its industrial and financial strength to create institutions such as the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade (later the World Trade Organization).  

These institutions, controlled by the United States, were intended to create a stable world financial structure.  The basis of these institutions were a strong dollar, backed by gold.

But during the Johnson and Nixon administrations, the cost of waging war in Vietnam sent the U.S. into a trade deficit and caused a drain on gold reserves.  Nixon solved this problem by taking the U.S. off the gold standard.  The world still did business in dollars, but the dollars were backed only by U.S. Treasury bonds, a kind of IOU.

This allowed the United States to continue as the world’s leading financial power and to finance the world’s most expensive military, even as its industrial strength died away and individual Americans went deeper into debt.  Hudson told this story in more detail in Super Imperialism.

The conflict between the USA and its allies on the one hand, and China and Russia on the other, is a conflict between finance capitalism and industrial capitalism, which the United States is bound to lose unless it frees itself from its rentier oligarchy.


Michael Hudson is a brilliant thinker with important and true ideas.  But like everyone, he has his limitations.  He sees things through one lens, the lens of finance.  He sees connections others miss, but also that he can be one dimensional, just like people who see things through the lens of race, money, culture or any other single factor.

His praise of 19th century USA and 21st century Russia and China is not wrong, but requires qualifications. 

Yes, the USA was a rising power, but full of racism, xenophobia and class conflict that rose to the level of pitched battles between workers and troops.  

Russia, according to Piketty, has a higher degree on income inequality and a higher concentration of wealth than the USA.  

China has carried Big Brother type surveillance to a higher degree than any other country.  There is a lot of worker unrest under the surface.

Democracies and republics have their shortcomings, but so does concentration of absolute power in the hands of a single individual or a tiny group.  This is, in fact, one of the defining characteristic of fascism.

Even so, this book, and the other books of Hudson’s I’ve read, get to the root of things.  I strongly recommend all of them.


Michael Hudson web site.

Whither Hegemony?  Prof. Wen Tiejun’s Foreward to Michael Hudson’s The Destiny of Civilization.

Will the Global South break free from dollarized debt? by Pepe Escobar for The Cradle.

A Reply to a Reader: My Views of Contemporary Capitalism vs. Hudson, Roberts & Wolff by Jack Rasmus.

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7 Responses to “Michael Hudson on the clash of capitalisms”

  1. jackrasmus Says:

    Hudson is right about the growing financialization of Capitalism in the late 20th century, accelerating in the 21st and that financialization creates excess debt in its wake. But he’s wrong about Industrial capital (China, Russia) vs. Finance capital (USA). The USA is still the global leader in industrial capital. USA and China each produce about 25% of the world’s goods output. The USA does it with fewer workers, which means its rate of exploitation of labor is higher. More important, Hudson misses the fact that since the advent of Neoliberal economic policies (late 70s and ever since) US has enabled its multinational corps to offshore much of US goods production. So when industrial capital inside the US is combined with US industrial capital relocated offshore in the empire, the USA capitalism is still the ‘industrial’ capital leader. It is simultaneously become the ‘financial’ capital leader as well. But to the point: in the age of global capitalism and global US economic empire, one cannot compare national economies (China v. USA). As neoliberal policies were implemented and expanded from Reagan to Biden, finance capital also expanded offshore along with industrial capital, beginning in the late 1980s and accelerating. The US empire around the same time also created what I call the ‘twin deficits’ solution to enable US capitalism to repatriate a good part of the surplus value back home that its offshore multinational corporations created. It purposely and consciously (following the Plaza (NY) Accords with Japan and Louvre accords with Europe) ran a trade deficit whereby money capital created offshore was recycled back to the USA in the form of buying US Treasuries and other M&A acquisitions. That surplus allowed the USA to run massive budget deficits in turn, which further in turn allowed the USA to fund constant wars in the 21st century ($8T)while at same time cutting corporate and investor taxes by $15T. Global financialization was essential in order to recycle this foreign created surplus value.

    In short, US trade deficits are ‘good’ for US capitalists in that they ultimately increase the global repatriation of value and, very important, enable funding wars and massive tax cuts for capitalists (ie the state returning value to the capitalists via the tax system)

    USA empire and capitalists find both industrial and financial capital profitable. In some ways the former is even more profitable. (Note here that ‘profits’ are both from productive labor as well as ‘fictitious’, for Marxists). Capitalism sucks up global productive labor profits via imperial policies. But it same time creates more ficititious profits. Contra contemporary Marxists’ analysis, fictitious capital is not irrelevant..at least not to the capitalists. Fictitious capital and profits expand because there are no costs of goods, no need for labor in most cases, and the turnover is far faster than for industrial goods profits.

    It is naive to call for a Debt Jubilee without clarifying that debt is essential now (in many forms not just financing industrial capital as in the 19th century) to capitalism and the US global economic empire. An anti-capitalist revolution would be necessary to expunge debt in general in the system. Hudson doesn’t understand this and calls for a debt jubilee under capitalism, as if the capitalists would agree anyway to such ‘reforms’ that would topple their own economy and eliminate much of their current system of profit maximization (fictitious as well as productive labor profits). An anti-capitalist revolution would be required to expunge debt on any scale. And that takes a political strategy, not an economic reform proposal to pass legislation to enact a debt jubilee.

    Dr. Jack Rasmus
    Sept. 14, 2022

    Liked by 1 person

    • fgsjr2015 Says:

      A few successful social/labor uprisings notwithstanding, notably the Bolshevik and French revolutions, it seems to me that the superfluously rich essentially have always had the police and military ready to foremost protect their power/money interests, even over the basic needs of the masses.

      Even today, the police and military can, and probably would, claim they must bust heads to maintain law and order as a priority; therefore, the absurdly unjust inequities and inequalities can persist. Thus, I can imagine there were/are lessons learned from those successful social/labor uprisings — a figurative How to Hinder Progressive Revolutions 101, perhaps? — with the clarity of hindsight by the big power/money interests in order to avoid any repeat of such great wealth/power losses.

      Still, there must be a point at which the status quo — where already huge corporate profits are maintained or increased while many people are denied even basic shelter/income — can/will end up hurting big business’s own monetary interests. I can imagine that a healthy, strong and large consumer base — and not just very wealthy consumers — are needed.

      Or could it be that, generally speaking, the unlimited profit objective/nature is somehow irresistible, including the willingness to simultaneously allow an already squeezed consumer base to continue so — or even squeezed further? It brings to mind the allegorical fox stung by the instinct-abiding scorpion while ferrying it across the river, leaving both to drown. …

      Basically, and perhaps unfortunately, the more we humans make, all the more we want/need to make next time. And when in corporate-CEO form, we typically become much worse.


  2. williambearcat Says:

    Listening to CNBC this morning a person being interviewed as a financial expert said that inflation was caused by too much money, a result of the Biden administration’s policy fighting the pandemic. He said inflation is always caused by too much money in circulation. No where does he recommend that taxes could be raised to reduce money in circulation. That would be a Keynesian response and we never use the Keynesian prescription to raise taxes only to reduce them. What was the statement raise the taxes on the people behind the trees but don’t raise taxes on me.


    • philebersole Says:

      The Federal Reserve has been pumping money into the U.S. economy ever since the 2008 recession, but it hasn’t affected the Consumer Price Index. The extra money has gone into banks and financial companies, and has resulted in inflation of stock prices.

      The current increase in prices is not the result of changes in the money supply. It is the result of scarcities, and one of the main causes of scarcities is blowback from the sanctions war against Russia.

      Manufacturers and farmers depend on a reliable supply of affordable oil and gas, which is being cut off. This affects Western Europeans more than it does US Americans, but we’re feeling the impact, too.


  3. jackrasmus Says:

    One more comment on the Hudson ‘Superimperialism’ thesis that financialization is taking over real investment leading to the decline of US economic empire, as finance capital attains dominance over industrial capital:

    Are the energy companies industrial capital? Yes, they produce the non-durable products called oil (and chemical derivatives of same). They make profits from industrial production. But the global price and therefore profits from oil is as much ‘financial’ as industrial. A major part of price and profit is determined by finance capitalists speculating on global oil futures exchanges. Profits are thus both industrial (production) and exchange (speculation in financial oil futures markets). So are the world’s oil corporations ‘industrial’ or ‘finance’? How does one speak of industrial vs. financial in this case? The same can be said for most globally traded industrial commodities, also bought and sold on futures markets. And then there’s the world’s great manufacturing corps. Many of them make a majority of their ‘profits’ from financial asset investing, not producing. In other words, in 21st century global capitalism, run by the American empire, the old 19th century distinction of bankers/finance capital vs. industrial capital is largely in accurate. It is just Capital, finding ways to leverage finance in order to make even more ‘fictitious’ money capital as it squeezes labor to extract more value and thus profits from production as well.

    Liked by 1 person

  4. fgsjr2015 Says:

    “Capital, as I was taught, is the force multiplier. It includes everything that increases the productivity of land or labor – farm tractors, railroads, computers, steam engines, electric power plants, research laboratories, anything that increases or improves production.”

    As disturbing as it sounds, due to increasingly common privatized research for big-profit aims, even science, and perhaps by extension scientific ‘fact’, has become commercialized. Research results, however flawed, can and are known to be publicly amplified if they favor the corporate product, and accurate research results can be suppressed or ignored if they are unfavorable to business interests, even when involving human health.

    Plus, the term ‘science’ does get used a bit too readily/frequently, and one should be cautious against blindly buying into (what I generally call) speculative science. …

    Mega-corporation lobbyists — especially those representing the huge and very powerful/influential pharmaceutical industry — largely lead Western nations. Such lobbyist manipulation does not belong in any government body established to protect consumers’ safety and health rather than big businesses’ insatiable profit goals.

    For example, Health Canada was established to act in Canadian consumers’ best interests, yet it’s susceptible to corporate lobbyist manipulation. For one thing, it allowed novelty-flavored vaping products to be fully marketed — even on corner stores’ candy counters — without conclusive independent scientific proof that the product, as claimed by the tobacco industry, would not seriously harm consumers but rather help nicotine addicts wean themselves off of the more carcinogenic cigarette means of nicotine deliverance.

    A few years before that, Health Canada had sat on its own research results that indicated seatbelts on buses would save lives and reduce injury; it wanted even more proof of safety through seatbelts before ordering big bus manufacturers to install them in every bus. …

    Over the last 18 years or so, Health Canada has dramatically refocused a large portion of its resources from consumers’ health/wellbeing and onto the industry’s business interests. Health Canada places about four times more of its resources, notably staffing and funding, toward getting new drugs onto the market than it does on consumers, notably monitoring and recording adverse effects caused by the drugs.

    Liked by 1 person

  5. Fred (Au Natural) Says:

    Land is capital. Labor is also capital. To a farmer, a plot of land is a factory. To a worker, their labor is their capital to be exchanged for a different form of capital – usually cash.

    It is possible for a landlord to be a parasite but it is also possible for a worker to be a parasite and for a renter to be a parasite. It is also possible for a landlord to be a hard-working businessperson who takes financial risks and provides a valuable service in exchange for what people think the product is worth.


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