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The Road to Debt Deflation, Debt Peonage, and Neofeudalism

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  • Michael Hudson

Abstract

What is called "capitalism" is best understood as a series of stages. Industrial capitalism has given way to finance capitalism, which has passed through pension fund capitalism since the 1950s and a US-centered monetary imperialism since 1971, when the fiat dollar (created mainly to finance US global military spending) became the world's monetary base. Fiat dollar credit made possible the bubble economy after 1980, and its substage of casino capitalism. These economically radioactive decay stages resolved into debt deflation after 2008, and are now settling into a leaden debt peonage and the austerity of neo-serfdom. The end product of today's Western capitalism is a neo-rentier economy—precisely what industrial capitalism and classical economists set out to replace during the Progressive Era from the late 19th to early 20th century. A financial class has usurped the role that landlords used to play—a class living off special privilege. Most economic rent is now paid out as interest. This rake-off interrupts the circular flow between production and consumption, causing economic shrinkage—a dynamic that is the opposite of industrial capitalism’s original impulse. The "miracle of compound interest," reinforced now by fiat credit creation, is cannibalizing industrial capital as well as the returns to labor. The political thrust of industrial capitalism was toward democratic parliamentary reform to break the stranglehold of landlords on national tax systems. But today's finance capital is inherently oligarchic. It seeks to capture the government—first and foremost the treasury, central bank, and courts—to enrich (indeed, to bail out) and untax the banking and financial sector and its major clients: real estate and monopolies. This is why financial "technocrats" (proxies and factotums for high finance) were imposed in Greece, and why Germany opposed a public referendum on the European Central Bank’s austerity program.

Suggested Citation

  • Michael Hudson, 2012. "The Road to Debt Deflation, Debt Peonage, and Neofeudalism," Economics Working Paper Archive wp_708, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_708
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    Cited by:

    1. Leslie G. Manison, 2017. "Lack Of Adjustment Of The Cyprus Household Sector: Results From The Eurosystem’S Household Finance And Consumption Surveys," Development Discussion Papers 2017-10, JDI Executive Programs.
    2. Savvides, Savvakis C., 2017. "Private Debt is the Problem!," MPRA Paper 80627, University Library of Munich, Germany.

    More about this item

    Keywords

    Debt Deflation; Neofeudalism; Economic Rent; Finance Capitalism; Classical Political Economy; Pension Fund Capitalism; Bubble Economy;

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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