Michael Hudson (economist)

Michael Hudson is an American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. He is a contributor to The Hudson Report, a weekly economic and financial news podcast produced by Left Out.
Hudson graduated from the University of Chicago and New York University and worked as a balance of payment economist in Chase Manhattan Bank. He was assistant professor of economics at the New School for Social Research and worked for various governmental and non-governmental organizations as an economic consultant.
Hudson has extensively studied economic theories of many schools, including Physiocracy, classical political economy, neoclassical, Keynesian, post-Keynesian, Modern Monetary Theory and many others. He identifies himself as a classical economist. His interpretation of Marx is almost unique to him and differs from major Marxists.
Hudson devoted his entire scientific career to the study of debt, both domestic and external. In his works, he consistently advocates the idea that loans and exponentially growing debts that outstrip profits from the economy of the real sphere are disastrous for both the government and the people of the borrowing state as they wash money from turnover, not leaving them to buy goods and services and thus lead to debt deflation of the economy. Hudson notes that the existing economic theory is in the service of rentiers and financiers and has developed a special language designed to create the impression that the current status quo has no alternative. In a false theory, the parasitic encumbrances of a real economy, instead of being deducted in accounting, add up as an addition to the gross domestic product and are presented as productive. Hudson sees consumer protection, state support of infrastructure projects and taxation of parasitic rentier sectors of the economy instead of taxing workers as a continuation of the line of classical economists today.


Youth and career choice

Hudson was born on March 14, 1939 in Chicago, Illinois. Hudson is a fifth generation American as on the maternal line he has the blood of the Ojibwe Indians. His father Nathaniel Carlos Hudson received an economics education at Minnesota University. After completing his studies in 1929, the year of the Great Depression, his father actively joined the trade union struggle, became an active Trotskyist trade unionist, editor of the Northwest Organizer and The Industrial Organizer and wrote articles for other trade union publications. When he was 3 years old, his father was arrested and was subject to the Smith Act, which was aimed at fighting the Trotskyists in the United States.
Hudson received primary and secondary education in a private school at the University of Chicago Laboratory Schools. After his graduation, he entered the University of Chicago into two specialties—the main was Germanic philology as an additional history was chosen. In 1959, Hudson graduated from the University of Chicago with a bachelor's degree. After graduation, he worked as an assistant to Jeremy Kaplan at Free Press in Chicago. He managed to obtain the rights to the English-language editions of the works of György Lukács as well as the rights to the archives and works of Leon Trotsky after the death of his widow Natalia Sedova.
However, the work on the publishing house was neither interesting nor profitable. As a result, Hudson, who had studied music from his childhood, moved to New York in 1960 in the hope of becoming a pupil of the world-famous conductor Dimitris Mitropoulos, but these plans were not to be realized. In New York, his friend Gavin McFadyen introduced him to the father of his girlfriend, economist Terence McCarthy. At the first meeting, McCarthy took Hudson with his vivid description of the internal interconnection of natural and financial cycles, the nature of money and public debt. Accidental acquaintance became shipborne for Hudson as he refused to study music in favor of studying economics and McCarthy became his spiritual mentor and teacher. Hudson recalled: "And he described it and it was such a beautiful, aesthetic flow of funds that, believe it or not, I got into economics, because it was beautiful and aesthetic. And Terence, I must have talked to him every day for an hour a day for 30 years".

Studying the economy and working for banks

In 1961, Hudson enrolled in the Economics Department of New York University. His master's thesis was devoted to the development philosophy of the World Bank and special attention was paid to credit policy in the agricultural sector. Many years later, Hudson recognized: "The topics that most interested me – and the focus of this book – were not taught at New York University where I took my graduate economics degrees. In fact, they are not taught in any university departments: the dynamics of debt, and how the pattern of bank lending inflates land prices, or national income accounting and the rising share absorbed by rent extraction in the Finance, Insurance and Real Estate sector. There was only one way to learn how to analyze these topics: to work for banks".
To find out how finance works in reality, Hudson in parallel with training at the Faculty of Economics began to work in a bank: "My first job was as mundane as could be imagined: an economist for the Savings Banks Trust Company. No longer existing, it had been created by New York’s then-127 savings banks. I was hired to write up how savings accrued interest and were recycled into new mortgage loans. My graphs of this savings upsweep looked like Hokusai’s "Wave," but with a pulse spiking like a cardiogram every three months on the day quarterly dividends were credited".
In 1964, Hudson, who had just received his master's degree in economics, joined Chase Manhattan Bank's research economics department as a balance-of-payments specialist. His task was to establish the payment capacity of Argentina, Brazil and Chile. Based on data on their export earnings and other international payments, Hudson had to find out what kind of income the bank could get from the debt payments that these countries had accumulated. He recalled as such: "I soon found that the Latin American countries I analyzed were fully "loaned up." There were no more hard-currency inflows available to extract as interest on new loans or bond issues. In fact, there was capital flight". Among other important tasks that Hudson performed in Chase Manhattan were an analysis of the balance of payments of the American oil industry and the tracking of dirty money that settled in the banks of Switzerland. According to Hudson, this work has given him invaluable experience in understanding how banks and the financial sector work as well as understanding how banking accounting and real life correlate. It was during the study of oil companies' flows that Hudson met with Alan Greenspan who acted as an observer for Socony Oil. Hudson recalled that Greenspan had already successfully lobbied the interests of his clients in those years and in the framework of the research tried to provide rough estimates of the American market based on global trends: "Mr. Rockefeller, Chase President, told me to inform Mr. Greenspan that unless he could provide specifically US figures, and/or be forthright about his assumptions, we would have to leave his contribution out of the study"..
Hudson left his job at the bank to complete his doctoral dissertation. His thesis was devoted to American economic and technological thought in the 19th century. It was successfully defended in 1968 and in 1975 it was published under the title "Economics and Technology in the 19th Century American Thought: The Neglected American Economists". In 1968, Hudson joined the major audit company Arthur Andersen, for which he expanded his analysis of payment flows for all areas of American production. He found out that the United States deficit was manifested only in the military sphere: "My charts revealed that the U.S. payments deficit was entirely military in character throughout the 1960s. The private sector – foreign trade and investment – was exactly in balance, year after year, and "foreign aid" actually produced a dollar surplus ". However, the accounting system, which was used in the United States after the war, mixed the balance of individuals and state payments-flow into a single balance which successfully concealed the budget deficit. Hudson proposed to divide United States balance of payments into government and private sectors.
In 1968, Hudson published a 100-page brochure titled A financial payments-flow analysis of U.S. international transactions, 1960-1968 in which he pointed out the problems in the modern accounting system and the need to distinguish between state deficits and private payments. After the appearance of the brochure, Hudson was invited to speak to the graduate economics faculty of The New School in 1969, where it turned out that faculty needed someone to teach international trade and finance, therefore he was offered the job immediately after the lecture. According to Hudson, he was surprised to find that the university program almost did not address the issues of debt, financial flows, money laundering and the like. Particular attention that Hudson paid to these issues in his lectures aroused criticism from Economics Department Chairman Robert Heilbroner, who noted that even the teachers do not make such an accent on such issues.

Independent analyst

In 1972, Hudson published his first major book titled Super Imperialism in which he showed how the after abandoning the dollar-gold line the United States created a unique situation when United States Department of the Treasury bonds became the sole basis for global reserves and foreign governments had no choice but to finance the budget deficit in the United States and hence their military expenditures. After the publication of the book, Hudson left the institute and moved to work in the think tank Hudson Institute headed by Herman Kahn. In 1979, he became an advisor to the United Nations Institute for Training and Research. He wrote reports for the Ministry of Defense and also acted as a consultant to the Canadian government. His second big book titled Global Fracture: The New International Economic Order was published in 1977. In it, Hudson argued that the military superiority of the United States led to the division of the world along financial lines.
After the meeting in Mexico where his warning of the debt bondage that the Latin American countries are getting into caused a storm of protests, he left his job at UNITAR and left the field of modern economy as a whole. Instead, Hudson decided to study the historical roots of debt, how debts were formed in ancient Rome, Greece and Sumer. The painstaking reconstruction of the scattered material led him to a striking conclusion, namely that loans in the ancient Sumer were issued not only by individuals, but initially mainly by temples and palaces. State creditors were interested in the fact that the balance of the economy was not violated, therefore the state did not allow citizens to get into debt bondage in relation to other citizens. Hudson soon became a scientific researcher at the Peabody Museum of Archaeology and Ethnology at Harvard University. With the help of Harvard scholars, Hudson founded the Institute for the Study of the Establishment of Long-Term Economic Trends and later became the founder of the International Scholars Conference on Ancient Near Eastern Economies which organized a series of innovative symposiums. At the same time, he continues to work as a financial consultant. In 1989, he joined the government bond fund Scudder Stevens and Clark.
In the mid-1990s, Hudson became a Professor of Economics at the University of Missouri–Kansas City and a fellow at the Levy Economics Institute at Bard College. In the early 2000s, he issued a warning that the growing inflation and the strengthening of debt mortgage bondage will lead to a crisis. Much earlier in the 1980s, Hudson asked several publishers to publish a book in which he would show that the growth of a mortgage bubble is inevitably leading to a crisis, but publishers refused to print such a work: "They told me that this was like telling people that good sex would stop at an early age". In 2004, Hudson wrote several popular articles for Harper's Magazine in which he outlined his vision of the problem. When the crisis erupted in 2008, the Financial Times named him one of eight economists who foresaw the crisis. Hudson himself argued that the approach of the crisis was seen by everyone except economists from Wall Street.
Currently the director of the Institute for the Study of Long-Term Economic Trends and the Distinguished Research Professor of Economics at the University of Missouri–Kansas City, he actively writes books and makes comments in the press. He is a contributor to The Hudson Report, a weekly economic and financial news podcast produced by Left Out.

Scientific contributions

American imperialism and the problem of external loans

Hudson devoted his first works to the problem of the gold and foreign exchange reserves and the foreign economic debt of the United States, a subject that his mentor Terence McCarthy had previously dealt with in detail. In his first article titled "Sieve of gold", Hudson turned to an analysis of the disastrous economic consequences that the Vietnam War entailed. At the same time, he drew attention to the fact that even without war the United States economy very soon came to a critical point as the welfare of the United States in the postwar years was in many cases provided with a "golden pillow", which was accumulated for interwar and war years. Since 1934 when frightened by Adolf Hitler, Europeans began to buy up United States government securities, thereby shifting their gold and foreign exchange reserves to United States banks. Since 1934, the United States gold and foreign exchange reserves also increased from $7.4 billion to $20.1 billion in 1945. After the creation of the Bretton Woods system, an International Monetary Fund was created within the framework as well as a gold pool that guaranteed that the dollar was as good as gold, capital began to leave the country and move to Europe. Military expenditures accounted for a huge share of the United States budget deficit, which tried in vain ways to prevent further growth in the deficit, on the one hand in every way limiting the flow of gold and on the other hand not allowing foreign central banks to receive gold for the given dollars. Such a policy appealed to European bankers who found such a policy hypocritical, but could not do anything because they were afraid to bring down the dollar and thereby deprive their producers of competitiveness in American markets.
In A Financial Payments-Flow Analysis of U.S. International Transactions, 1960-1968, Hudson showed that United States export statistics erroneously include a class of goods whose transfer abroad does not involve payment at any time from residents of one nation to those of another and which are for this reason not really international transactions at all. Primary among this class of goods are the transfers of aircraft parts and components by the United States. international airlines to their overseas air terminals and installation on their aircraft. These transfers were brought into the host country under bond and therefore were excluded from their import statistics. At the same time, their value was included in the United States export statistics as a credit, therefore the government sector has been in sizable deficit on a payments-flow basis during 1960–1968, resulting mainly from its military operations, but existing account system that mixed government and private flows did not show the existing problem and the source of deficit as well. In his monograph, Hudson made an attempt to divide the United States balance of payments into government and private sectors.
In 1972, Hudson published Superimperialism, which traced the history of the formation of American imperialism after the end of World War I. In Hudson's interpretation, super-imperialism is a stage of imperialism in which the state does not realize the interests of any group, but it is itself wholly and entirely aimed at imperializing the seizure of other states. Continuing the position outlined in A Financial Payments-Flow Analysis of U.S. International Transactions, 1960-1968, Hudson stressed the aid system formed after the end of World War II was called upon to solve the problem of the economy. All American foreign politics were aimed at restraining the economic development of Third World countries in those sectors of the economy where the United States was afraid of the emergence of competition. At the same time, the United States actively imposed free trade policies on developing countries, a policy that was the reverse of the one that led their country to prosperity.
After the cancellation of the conversion of dollars into gold, the United States forced foreign central banks to buy United States treasuries that are used to finance the federal deficit and large military. In exchange for providing a net surplus of assets, commodities, debt financing, goods and services, foreign countries are forced to hold an equal amount of United States treasuries. It drives United States interest rates down, which drives down the dollar's foreign exchange rate.
Hudson views foreign central banks buying treasuries as a legitimate effort to stabilize exchange rates rather than a currency manipulation. Foreign central banks could sell the excess dollars on the exchange market which would appreciate their currency, but he calls this a dilemma because it decreases their ability to continue a trade surplus even though it would also increase their purchasing power. He believes keyboard credit and treasury outflows in exchange for foreign assets without a future means for the United States to repay the treasuries and a decreasing value of the dollar is akin to military conquest. He believes balance of payments surplus countries have the right to stabilize exchange rates and expect repayment of the resulting loans even as industry shifts from the United States to creditor nations. He states the Washington Consensus has encouraged the International Monetary Fund and World Bank to impose austerity that the United States itself is not exposed to thanks to dollar dominance, which leads to subjecting other countries to unfair trade that depletes natural resources and privatizing infrastructure that is sold at distressed prices that uses parasitic finance techniques to extract the maximum amount of the country's surplus rather than providing a price-competitive service.

Debt in the ancient Near East

At the end of the 1980s, Hudson left the field of modern economy and started exploration of history of debt. He found that the first and by far the earliest major creditors were the temples and palaces of Bronze Age Mesopotamia, not private individuals acting on their own. The rate of interest in each region was not based on productivity, but was set purely for simplicity of calculation in the local system of fractional arithmetic, i.e. 1/60th per month in Mesopotamia and later 1/10th per year for Greece and 1/12th for Rome.
The stability of the state strongly depended on the number of free and independent people, so the existing restrictions prevented the emergence of personal debt dependence. The proclamations of Clean Slates had the purpose of improving the economy. Hudson stated: "In the early 1990s I had tried to write my own summary, but was unable to convince publishers that the Near Eastern tradition of Biblical debt cancellations was firmly grounded. Two decades ago economic historians and even many Biblical scholars thought that the Jubilee Year was merely a literary creation, a utopian escape from practical reality. I encountered a wall of cognitive dissonance at the thought that the practice was attested to in increasingly detailed Clean Slate proclamations".
According to Hudson, instead of a sanctity of debt, what was sacred in the Ancient Near East was the regular cancellation of agrarian debts and freeing of bondservants as well as freedmen from permanent debt servitude in order to preserve social balance, and to ensure a sturdy agrarian class of freedmen to serve in the army. This was one of the primary goals of Hammurabi's famous law code. Such amnesties were not destabilizing, but they were essential to preserving social and economic stability.

Domestic debts and debt deflation of economy

From the beginning of 2000s, Hudson pays special attention to the issues of inflating fictitious capital, which entails the withdrawal of funds from the real economy and leads to debt deflation. He states finance has been key to guiding politics into reducing the productive capacity of the United States and Europe even as they benefit from finance methods using similar and expanded techniques to harm Chile, Russia, Latvia and Hungary. Hudson states parasitic finance looks at industry and labor to determine how much wealth it can extract by fees, interest and tax breaks, rather than providing needed capital to increase production and efficiency. He states the magic of compounding interest results in increasing debt that eventually extracts more wealth than production and labor are able to pay. Rather than extracting taxes from the rentiers to reduce the cost of labor and assets and use the tax revenue to improve infrastructure to increase production efficiency, he states the United States tax system, bank bailouts and quantitative easing sacrifice labor and industry for the benefit of the finance sector. According to Hudson, bankers and rentiers as early as 1880s started to search ways to rationalize untaxing and deregulating finance, real estate and monopolies. They succeed in the 1980s with establishing a neoliberal Washington consensus that states "everyone is worth what they get" so there is no "unearned increment" to be untaxed.
Hudson stresses that world victory of neoliberal politics is closely connected with its educational support in all big universities. He argues it is telling that one of the first acts of the Chicago Boys in Chile after the military junta overthrew the Allende government in 1973 was to close down every economics department in the nation outside of the Catholic University, a University of Chicago monetarist stronghold. The junta then closed down every social science department and fired, exiled or murdered critics of its ideology in the terrorist Project Condor program waged throughout Latin America and spread to political assassination in the United States itself. What the Chicago Boys recognized is that free market ideology requires totalitarian control of the school and university system, totalitarian control of the press and control of the police where intellectual resistance survives against the idea that economic planning should become much more centralized, but moved out of the hands of government into those of the bankers and other financial institutions, stating: "Free market ideology ends up as political Doublethink in countering any freedom of thought. Its remarkable success in the United States and elsewhere thus has been achieved largely by excluding the history of economic thought – and of economic history – from the economics curriculum".

Position on Karl Marx and Marxian economics

Hudson identifies himself as a Marxist economist, but his interpretation of Karl Marx is different from most other Marxists. Whilst other Marxists emphasize the contradiction of wage labor and capital as the core issue of today capitalist world, Hudson rejects that idea and believes parasitic forms of finance have warped the political economy of modern capitalism. Hudson points to Marx's view of capitalism as the historic force that tends to eliminate all forms of pre-capitalist rent seeking, i.e. land rent, monopoly rent and financial rent. The original meaning of a free market as discussed by classical political economists was a market free from all forms of rent. The gist of classical political economy was to distinguish earned and unearned income. He then argues that unlike Marx's optimistic expectation history did not go in that direction and today modern capitalism is dominated by rentier classes. The concept of the proletariat as a class for itself presupposes a rent-free society, saying that "wages have been going no where recently, I hope you've been making a killing on your house price!". The other form of rent is imperialist rent, flowing from underdeveloped countries to developed ones. All of these forces distort the political economy of the modern capitalism, pushing labour-capital contradiction to the background and bringing other issues to the foreground. This is as if instead of progress, history has regressed back to a neo-feudal system.
Although Hudson's views are unpopular amongst other Marxists and sometimes vehemently rejected by them, his views converge with later writings of Marx himself. Hudson points out that most Marxists never go beyond Capital, Volume I, where Marx assumes there is a rent-free market where all commodities are sold at their values. That is how Marx deduces the exploitative nature of capitalism and labour-capital dichotomy as its underlying contradiction, but in Capital, Volume II and Capital, Volume III he relaxes his assumptions and discovers other contradictions that are much closer to what can be observed in today's economic system. In Capital, Volume III, Marx discusses the tendency of productivity and supply to increase at a faster pace than the consumption power and demand. Marx also revised his earlier ideas as he studied and learned more about the asymmetric development of capitalism. This ultimately led him to soften his revolutionary tone as he realized how dominance of an industrially advanced nations over underdeveloped nations and blocks revolutionary tendencies amongst working classes of dominating nations. On the other side, Marx clashed with Karl Schapper, suggesting that the idea of workers taking over the state power ends up in disaster because they are not ready to practice that power.


Hudson is the author of several books, among them the following:
Hudson has appeared in several documentaries, including the following:
In 1984, Hudson joined Harvard's archaeology faculty at the Peabody Museum as a research fellow in Babylonian economics. A decade later, he was a founding member of ISCANEE, an international group of Assyriologists and archaeologists that has published a series of colloquia analyzing the economic origins of civilization. This group has become the successor to Karl Polanyi’s anthropological and historical group of a half-century ago. Four volumes co-edited by Hudson have appeared so far, dealing with privatization, urbanization and land use, the origins of money, accounting, debt and clean slates in the ancient Near East. This new direction in research is now known as the New Economic Archaeology.