Home > WEA Books > “Finance as Warfare”, Michael Hudson’s new book

“Finance as Warfare”, Michael Hudson’s new book

Finance as Warfare
by Michael Hudson
Published by WEA eBooks 1 July 2015

To simple people it is indubitable that the nearest cause of the enslavement of one class of men by another is money. They know that it is possible to cause more trouble with a rouble than with a club; it is only political economy that does not want to know it.
— Leo Tolstoy, What Shall We Do Then? (1886)

The financial sector has the same objective as military conquest: to gain control of land and basic infrastructure, Cover of Finance as Warfareand collect tribute. To update von Clausewitz, finance has become war by other means. It is not necessary to conquer a country or even to own its land, natural resources and infrastructure, if its economic surplus can be taken financially. What formerly took blood and arms is now obtained by debt leverage.

The creditor’s objective is to obtain wealth by indebting populations and even governments, and forcing them to pay by relinquishing their property or its income. Direct ownership is not necessary. Fully as powerful as military force, debt pressure saves the cost of having to mount an invasion and suffer casualties. Who needs an expensive occupation against unwilling hosts when you can obtain assets willingly by financial means – as long as debt-strapped nations permit bankers and bondholders to dictate their laws and control their planning and politics?

Such financial conquest is less overtly brutal than warfare waged with guns and missiles, but its demographic effect is as lethal. For debt-strapped Greece and Latvia, creditor-imposed austerity has caused falling marriage rates, family formation and birth rates, shortening life spans, and rising suicide rates and emigration.  Read more

 

 

  1. BC
    July 2, 2015 at 11:35 pm

    Hudson at ~22:00.

    Neo-feudal, militarist-imperialist, rentier-socialist, quasi-fascist corporate-statism in the US has resulted in conditions in which total net annual flows to the top 0.001-1% owners of the financial (and financialized) sector(s) of the US economy effectively claim all labor product, profits, and gov’t receipts in perpetuity, resulting in no growth of real final sales per capita after rentier flows in perpetuity.

  2. July 3, 2015 at 12:49 am

    Interesting title. I’m reading “Trade is War” by Yash Tandon. Very interesting.

  3. July 3, 2015 at 9:59 am

    So sad when trade was supposed to be about exchanging one’s own surplus, not siezing and selling off other people’s necessities. Did anyone notice my comment on Figure 3 in Jevons’ “The Theory of Political Economy”, in which the increments of highest utility are discounted as infinite?

    Translated into the concepts of Shannon’s “The Mathematical Theory of Communication”, that amounts to the whole of neo-Classical economics being not about efficient arrangement of our economic affairs but about what is redundant to them. Jevons’ ignorance 90 years before Shannon is excusable, but it is frankly disgusting that 67 years on, economists still miss Shannon’s point that reliability of a process can only be achieved by using surplus capacity to make good its inevitable failings. That used to be taken for granted in the business practice of my youth and was what I saw Keynes as having said.

    Twenty years on this had found paradigmatic expression in the PID explanation of navigation, in which reliable steering involves allowing for positional drift and avoiding approaching obstacles. No matter. The ignorant descendents of Jevons continue to demand perfection of the steersman even as ships like Greece drift into pirate-infested waters, where the rich passengers are jumping overboard to join the approaching pirates and the poor crew are left defending such cargo as the rich have not consumed or wasted.

    Did I say sad? Surely, from the point of view of professional economists, outrageous!

  4. July 3, 2015 at 6:42 pm

    It’s about institution-building, stupid
    Comment on ‘Finance as Warfare’

    Finance has not necessarily something to do with warfare — but it can if things are messed up.

    Mortgage financing, for example, is a very old and rather simple business. In Germany it was institutionalized in 1900 with the Mortgage Banking Act. This law was so well-crafted that it worked with minor modifications until 2005 when it was abolished in an act of institutional suicide. The new law was sold under the slogan ‘Strengthening Germany as a Financial Centre.’ This was when deregulation was the hype of the day, which lasted until Wall Street’s meltdown. This financial mega crash first of all showed one thing: what happens when you do mortgage banking the American way.

    Note, that a mortgage debtor saw and heard nothing for 10, 20, 30 years of his creditor if he paid his fixed annuity monthly. If a loan became non-performing, mostly due to private misfortune like unemployment or divorce, the mortgage bank tried to help the debtor back on his feet because the last thing a mortgage bank wanted was the real estate which had been pledged as collateral. All it ever wanted was the money back plus interest as agreed upon in the mortgage contract. Then it could in turn fulfil its obligations vis-à-vis the Pfandbrief owners, mostly pension funds and other long term buy-and-hold investors.

    This changed when it became possible to sell non-performing loans to firms which were specialized on making money from talking to the debtors in the bonebreaker jargon which people had hitherto only encountered in Hollywood movies.

    Note further, that the margins of mortgage banks were usually seen as razor thin and not something an investment banker would get out of bed for in the morning.

    Most importantly, note that there has never been a real estate boom-bust cycle in Germany. That is quite remarkable when you consider that Japan, the US, Britain, Spain and many other economies have been badly damaged by a real estate bust.

    Likewise, the margins of commercial banks like Deutsche Bank, were unspectacular. Yes, until Mr. Ackermann came and announced that he aimed at something about 20 or so percent — like the American investment banks. This made the stock market happy.

    Now, whoever has been long enough in the banking business knows that margins way above the average can only be made by magic or fraud. People preferred to believe in magic while the latter happened as trivial reality throughout the banking industry.

    After all had duly crashed against the wall in 2008/09 the actual resume is this. There is no use to lament too long over banksters. It has been convincingly demonstrated that, for example, mortgage lending can be institutionalized in such a way that it works smoothly to the benefit of lenders, borrowers, and the economy at large. It can be done for other financing businesses, too.

    The point is whether a country is good at institution-building or not. There is a lot at stake. If you mess up your political institutions you end up in a banana republic, if you mess up your banking institutions, first and foremost the central bank, you end up in large scale bankruptcy and QE.

    I think it would be fine to get out of this war rhetoric, not because there is nothing to it, but because it keeps us from building proper functioning political and economic institutions.

    There is a way to get rid of financial war, banksters, and — not to forget — of the small-scale corruption of people who do not belong to the Onepercenters. Economics is, in the first place, not about good guys vs. bad guys, it is about effective vs. ineffective institutions (including laws, judges, and prisons for financial war mongers).

    Egmont Kakarot-Handtke

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