From NAKED CAPITALISM
This edited transcript is expanded from a live phone interview with Michael Hudson by Dimitris Yannopoulos for Athens News. It summarizes some of the major themes from Hudson’s new book, The Bubble and Beyond: Fictitious Capital, Debt Deflation and Global Crisis….
Q: How has the financial system evolved into the form of economic servitude that you call “debt peonage” in your book, implying a negation of democracy as well as free-market capitalism as classically understood?
A: The original hope of banking and finance capitalism in the 19th century was that banks would make productive loans to finance industry. The aim was for banks to do something new, that no economy had done in the past: make loans not merely to ship and market goods once they were produced, but to finance new capital investment by manufacturers and producers, as well as by the public sector to build infrastructure. The idea was for these investments to create profits out of which to pay the interest and the principal back to the lenders.
This was defined as productive lending. Nothing like it occurred in antiquity or in the post-feudal period. Investment always had been self-financed out of savings. Banks only entered the picture when it came to shipping and trading what had been produced.
As matters have turned out, banking has allied itself with real estate, mineral extraction, oil, gas and monopolies instead of with industry. So instead of getting a share of the profits, it has focused on lending against economic rent.