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So, if you look at what Adam Smith wrote, John Stuart Mill, all of the classical economists said: this is how capitalism is going to evolve. Because if the government doesn't have to levy an income and profits tax and just the rent tax, then it's going to be a low-cost economy. And the more socialized and the more mixed an economy is the lower the cost structure is going to be and the more competitive it will be. And so it will force other countries to de-financialize and to free themselves from their rentier class. Free themselves from their absentee landlord class, free themselves from, you know, the foreign mining class and essentially be low cost economies, low tax economies as a result. Well, that was their idea of a free market.
And the neoliberals have essentially tried to take control of the minds of economics students and how people think about the economy to say: No, no a free market is free to make as much as you want. A free market is free from taxation on rent. A free market is where it doesn't matter how you make your income. Anybody can just keep whatever they make, no matter how they make it whether it's by predatory exploitative means or un-exploitative means.
So you've had a whole transformation of how populations understand how the economy works. So that, they don't understand how to solve and re-industrialize the economy And they don't even understand how they're being painted into a financial debt corner as a result of debt deflation.
FRIES: Talk more about the aims of finance in this private sector-public sector mixed economy.
HUDSON: The financial sector essentially is of the 1% or the 10% that holds the rest of the economy in debt. The financial sector makes its money by getting the rest of the economy indebted to itself and making money off asset price gains. In the past, the financial sector made its money by getting interest. But now, with almost zero interest what it's after is capital gains because capital gains basically are either untaxed or taxed at very, very low rates.
So, the financial sector essentially makes its money not by being part of the production and consumption economy but by siphoning off as much money from the production and consumption economy as it can for real estate, for insurance and for debt service and banking services. The insurance, of course, would include the health insurance.
The result is that Americans have to spend so much of their money now on housing. Up to 40% to 43% of their income goes for housing as opposed to 25% back in the 1940s,'50s and '60s . They have to pay huge amounts for medical insurance.
And the taxes have been shifted off real estate, off of finance onto labor and industry. So you have America really being unable to revive its industry today. Because how can you create an export industry or even compete with foreigners when you have to pay such high housing costs, such high medical insurance and healthcare costs instead of the government taking over, such high debt service. If you got all of your clothing and food and basic needs for nothing you still couldn't compete with foreigners because of all of these FIRE sector - finance, insurance and real estate - costs.
Now the job of the government under industrial capitalism was all spelled out in the late 19th century in the United States. For instance, by Simon Patten, who was the first Professor of Economics at the first business school, the Wharton School at the University of Pennsylvania. And Patten said that public infrastructure was a fourth factor of production. And the role of the government was to provide basic needs like healthcare, education, transportation and other basic services at very low price so that you lower the cost of doing business. You lower the cost of living so that the private sector will be able to compete with foreign countries.
Now, most countries now provide free healthcare. Because if they didn't, then the employers and the laborers would have to pay healthcare. Their cost of production would be much higher. And America has not done that. America has the highest cost of production in the world. Not because it's technologically inefficient. The technology is all available and there.
The reason is all of these extra costs that are paid by labor and by employers that are borne by governments in other countries. So as long as essentially America's dismantling the government, what you're dismantling is the basic means of subsidizing industrial production and manufacturing. And that's what's left America in a high cost position and driven American industry abroad without any idea of how to create a national economy that makes it profitable to invest in industry here.
So most of the American cost structure has nothing to do with the cost of production and therefore nothing to do with industry or industrial capitalism. It's a fall back into a kind of post-medieval rentier economy.
FRIES: Michael, in the rentier economy banks have allied with landlords and monopolists. Comment more on banks and monopolies.
HUDSON: Well, banks have always been called the mother of trusts. Back in the 19th century, you had the great fortunes on Wall Street being made by creating the steel trust, the copper trust. The function of banks is to lend money to companies to essentially create monopolies in the markets which can control the prices and extract super profits. Namely, economic rent over and above the actual cost of production and normal profits.
And when you have a trust, a monopoly, you can get monopoly rent over and above the normal rate of profit. Banks said: well, look, we can work with companies to let a few companies like, Carnegie takeover the steel industry. You had agriculture, agribusiness in this country, really turned into a trust with two firms sort of monopolizing all of the distribution of agricultural products. It goes all the way up. You've had essentially, Amazon becoming a monopoly. You have the information technology sector turning into a monopoly.
And the function of these monopolies" the reason their stock prices are going up so much is because they're setting the price without any anti-monopoly legislation such as you had under the Sherman Antitrust Act of 1890 and then Teddy Roosevelt as a trust Buster. Essentially, since the 1980s you have not had any anti-monopoly prosecutions at all.
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