2. Why Michael Hudson’s rejection of Marx put him on very dangerous ground

While having decided Marx screwed up in his analysis of the relation between industrial capital and finance capital, Hudson offers no real explanation of his own for where so-called ‘rentier capitalism’ comes from. Historically speaking, finance capital just appears on the scene and rises up to confront and dominate industrial capital sometime between the end of World War II and the time of his book in 1998 – roughly 50 years or so. I want to suggest this lack of a definite and clear argument for the emergence of finance capital is a dangerous and unacceptable defect in Hudson’s analysis.

While this might seem to be a minor point, it actually has serious consequences for analysis. His lack of an explanation for the existence of finance capital opens the door for some very ugly and troubling points of departure. In Michael Hudson’s argument we are swiftly transported from an idealized vision of the past that, on closer examination, never existed. One minute the world is clean and debt-free:

“In the Allied economies, consumers emerged from the war free of debt (for there had been few consumer goods to buy during the war, and hence little reason to borrow), and indeed with abundant savings accumulated during the war. There was no postwar inflation, nor the kind of postwar deflation that had strangled England’s economy after World War I.

Governments were relatively free of debt, as were the business and real estate sectors. Low war-time interest rates had enabled debt maturities to be stretched out, so that interest and principal obligations did not push up the cost of housing or factory output.

It seemed that capitalism’s future would be limited only by technological horizons. Contrary to widespread fears of diminishing returns and resource exhaustion, fuel and mineral prices have declined thanks to better oil and gas extractive techniques, and mining innovations such as large earth-moving equipment and the pelletizing of iron ore. Plastics have replaced non-renewable resources in construction, automobiles and other products.”

The next minute society is mired in ‘debt slavery’ in a transition that is as empty of real facts as was his presentation of that little nasty bit of history between 1914 and 1945 erasing decades of catastrophic economic, political and military calamities that, as we saw, form no part of Hudson’s narrative:

“The most serious problems lie in the financial sphere, where the economy’s debt overhead has grown more rapidly than the ‘real’ economy’s ability to carry this debt. One might call its demands for interest and amortization ‘debt pollution’, stifling the economic environment much as bad air and water plague the earth’s biosphere. Consumer spending has indeed risen remarkably, but in recent years it has been financed increasingly by debt, whose interest and amortization payments will absorb future earnings. These earnings no longer are rising, but have been drifting downward for most workers. Indeed, if women and ethnic minorities have gained equality in the work place in recent years, it is largely because they have been forced into the job market by a tightening wage squeeze on most families.”

Hudson rightly asks, as should his readers, how did we get here?:

“What then has gone wrong? As labor productivity has risen and new technological horizons have opened up, why hasn’t everyone become wealthy? Why haven’t these innovations improved the quality of life proportionally?”

But he clearly has no idea and can offer no coherent account of our journey. Which is to say, Hudson can offer no real explanation of the present domination of society by a financial oligarchy that has turned every technical innovation into a means of further impoverishing the mass of society. He wants us to believe finance capital is some sort of atavistic hangover from precapitalist social relations.

“The problem of pre-capitalist rentier formations has survived, however, in the capitalist DNA molecule.”

Although his employment of an analogy to genetics gets us no closer to understanding the origins of finance capital, it serves Hudson’s purpose. It allows him to argue finance capital is some sort of not quite explained regression of the economic structure of society:

“To call today’s finance capitalism ‘modern’ would be to imply that it is progressive. But it is retrogressive to the extent that it represents a relapse back into pre-capitalist problems of usury (but not direct slavery). What is modern is that whereas the debt burden was decried in classical antiquity, today’s debt fluorescence is welcomed in its mirror image – ‘savings’ on the asset side of the economy’s balance sheet – as heralding a prosperous postindustrial society. Savings (which find their counter part in other peoples’ debts) are supposed to be inherently associated with the ability to reach new technological horizons, medical and health horizons, and cultural horizons. But to the extent that debt/savings to hand in hand with economic polarization, these horizons are being limited rather than expanded.

The mirror image of debt, Hudson argues, is savings. So while finance capital echoes usury of antiquity, it appears virtuous. In finance capital, the asset– the capital — is debt of others. And, in antiquity this debt was frowned upon. Now debt is no longer frowned upon — but the caveat here is that it is not frowned upon only in its opposite form, savings. Which is to say in the ancient world usury was hated, but today usury “is welcomed”.

Hudson offers no explanation for why this is so or how it came about. Why do these ‘savings’ have a ‘counterpart in other people’s debt’? What is interesting is Hudson defines saving in a specific historical form: “other people’s debt”. Of course, this isn’t the only form of savings — a storehouse of grain is a form of saving and hoard of gold in a vault is a form of saving, a store of value — the form of savings Hudson describes — other people’s debt — is capital. ‘Savings as other people debt’ is simply lent money-capital.

What Hudson appears to be saying is that in antiquity wealth held in the form of other people’s debts was frowned upon. Capitalist society, by contrast, considers wealth held not in gold or goods, but in the form of money-capital, virtuous. This capitalist wealth Hudson calls ‘savings’. ‘Savings’ is not what is commonly referred to a savings, but a specific form of wealth: lent money-capital.

Where does the money-capital that appears in the form of ‘savings’ (i.e., other people’s debt) come from? Hudson does not and cannot account for the existence of this ‘savings’, but wants to “correct” Marx’s account for it. He offers the weak argument that this ‘savings’ arises from the “pre-capitalist rentier formations … in the capitalist DNA molecule”. Which is to say, capital finds finance capital already in existence when it emerges. So he doesn’t have to explain anything: Capitalism precedes itself; it gives birth to itself — a truly virgin birth!

This is why, in his account of ‘rentier capital’ or ‘finance capital’, Hudson is very ambiguous about the source of this social form. He really cannot explain how finance capital comes to confront industrial capital and assert its domination over industrial capital. He presents us with an exhaustive list of ways in which this domination is effected, but never how it comes to be in the first place.

In Hudson’s narrative, finance capital appears already fully formed as the domination of Goldman Sachs over British Petroleum, which is to say as the venal, unproductive, parasitic Jew dominating the virtuous, hard working, industrious Protestant. This is really some dangerous turf Hudson has chosen to venture onto, because really, having discarded Marx, he has no other explanation for Goldman Sachs. In Hudson’s argument industrious Antonio comes under the cruel domination of the usurious Shylock without any explanation.

I never got the point of the anti-German critique until I read this paper by Hudson. If you cannot account for finance capital in your argument you are a hairs breadth away from Nazi propaganda. See, for instance, this statement by Hudson:

“As envisioned by Marx, industrial capitalism was characterized by a class war between the workers and their employers. But industrial capital, as well as labor, is victimized by today’s finance capitalism.”

Or this one:

“But industrial capital as well as labor has come under attack in an internecine war of finance capital against industrial capital, and even against the power of governments to retain control over national economies.”

According to Hudson then, on one side we have capital, labor and the nation; on the other side finance capital that seeks to dominate and exploit all of them. Now compare those two quotes from Hudson’s paper to one from Adolf Hitler:

“The Jewish train of thought in all this is clear. The Bolshevization of Germany—that is, . . . to make possible the sweating of the German working class under the yoke of Jewish world finance [which] is conceived only as a preliminary to the further extension of this Jewish tendency of world conquest.”

This Hudson tract could be taken as thinly disguised Nazi antisemitism, where Protestant industry and hard work is exploited by Jewish finance. It is a problem of analysis that, apparently, Hudson has had to address himself on more than one occasion as can be seen by the following quote from him:

“The relevant question is WHY one would want to depict the Rockefellers as Jewish in the first place. Is there something in the Judaic DNA molecule that makes them exploitative? If not (and I don’t think character is communicated this way), then it is vulgar anti-Semitism. From what I understand, the wealth managed by the Rothschilds and other 19th-century Jewish banking families was largely the wealth of gentiles. The Jews were managers ? and indeed, managers in Germany and other realms precisely because they were minorities, unable to hold land in many cases, and hence unable to hold political office. Designating financial professions to the Jews was a way of keeping finance in its place, unable to take over society in the way its dynamics are doing today.”

So, in a sense, can we say the Jew has escaped his enforced social, political and economic isolation and has now come to dominate society? Really, what other explanation does Hudson offer? His very argument that finance capital is an atavistic hangover of precapitalist relations suggest just such an argument.

Hudson cannot just simply discard Marx’s analysis as he proposes without providing a clear and definite explanation of the genesis of finance capital and its rise to dominance over industrial capital and labor.