Conversation with Noam Chompsky
In yesterday’s post, I began to tell the tale of how the USA planned and implemented a Global Plan for the world economy, placing the US administration at the heart of a global Surplus Recycling Mechanism. Today, I have two offerings: One is a brilliant paper by George Krimpas which states the case for such a Surplus Recycling Mechanism, as expounded by Keynes during the Bretton Woods conference in 1944. It is called The Recycling Problem in a Currency Union. Secondly, I am continuing today my own story of how the postwar Global Plan unravelled, giving rise to a brand new, terriblyunruly, yet puzzlingly effective Surplus Recycling Mechanism which I call the Global Minotaur (1971-2008). It comes from Chapter 4 of my forthcoming book (also entitled THE GLOBAL MINOTAUR). Enjoy. (As I am about to board a plane for Australia, and then Korea, my postings will be intermittent for a while.)The Global Plan’s Achilles HeelThe Global Plan unravelled because of a major design flaw in its original architecture. John Maynard Keynes had spotted the flaw during the 1944 Bretton Woods conference but was overruled by the Americans. What was it? It was the lack of any automated Global Surplus Recycling Mechanism (GSRM) that would keep systematic trade imbalances constantly in check.
The American side vetoed Keynes’ proposed mechanism, the International Currency Union (ICU), thinking that the US could, and should, manage the global flow of trade and capital itself; without committing to some formal, automated GSRM. The new hegemon, blinded by its newfangled superpower status, failed to recognise the wisdom of Ulysses’ strategy; of binding itself voluntarily to some Homeric mast.
Less cryptically, Washington thought that global trade imbalances would favour America in perpetuity, casting in stone the its economy’s status as the world’s surplus nation. Then, the power bestowed upon the United States by the surpluses it extracted from all over the world would be utilised benevolently and efficiently in order to manage the world economy along the lines of an enlightened hegemony. Indeed, this is exactly what the United States did: They recycled graciously the American surpluses in the form of capital injections into Japan, Germany and other deserving regions.
Alas, US policy makers failed to foresee that global imbalances could undergo a drastic inversion, leaving the United States in the unfamiliar position of a deficit country. During the heady days of the late 1940s, the Global Plan‘s architects ostensibly neglected to take seriously the possibility that the lack of self-restraint would lead Washington to codes of behaviour that would undermine their brilliant grand design.
The Global Plan unravels
The Global Plan‘s path was not laid with roses. A series of mishaps marked its evolution, with Chairman Mao’s triumph delivering the first blow. Quite impressively, it reacted creatively to adversity, often as a result of unintended consequences. We have already seen how the Korean War was exploited to shore up the Global Plan‘s far eastern flank. So, when the United States dragged itself into the Vietnam War, a similar wave of ‘creative destruction’ was on the cards.
Though it is a gross understatement to suggest that its persecution did not go according to the original plan, the Vietnam War‘s silver lining is visible to anyone who has ever visited South East Asia. Korea, Thailand, Malaysia and Singapore grew fast and in a manner that frustrated the pessimism of those who predicted that underdeveloped nations would find it hard to embark upon the road of capital accumulation necessary to drive them out of abject poverty. In the process, they provided Japan with valuable trade and investment opportunities which lessened the burden on the US authorities which, before the mid-1960s, had shouldered alone the burden of generating enough demand for Japanese factories in Europe and in the US itself. Years later, the same model was copied by Deng Xiao Ping and delivered the China we know today.
The problem with unintended consequences is that they are not reliably advantageous. Ho Chi Minh’s stubborn refusal to lose the war, and Lyndon Johnson’s almost manic commitment to do all it takes to win it, were crucial not only in creating a new capitalist region in the Far East, but also in derailing the Global Plan. The escalation of the financial costs of that war that were to be a key factor in its demise.
Setting aside the appalling human cost, the war cost the US government around $113 billion and the US economy another $220 billion. Real US corporate profits declined by 17% while, during the period 1965-1970, the war-induced increases in average prices forced the real average income of American blue collar workers to fall by about 2%. The war was taking its toll not only ethically and politically, as a whole generation of American youngsters were marked by the fear and loathing of Vietnam, but also in terms of tangible loss of working class income which fuelled social tensions. Arguably, President Johnson’s Great Society social programs were aimed, largely, at relieving these strains.
As the combined costs of the Vietnam War and the Great Society began to mount, the government was forced to generate mountains of US government debt. By the end of the 1960s, many governments began to worry that their own position, which was interlocked with the dollar in the context of the Bretton Woods system, was being undermined. By early 1971, liabilities in dollars exceeded $70 billion when the US government possessed only $12 billion of gold with which to back them up.
The increasing quantity of dollars was flooding world markets, giving rise to inflationary pressures in places like France and Britain. European governments were forced to increase the quantity of their own currencies in order to keep their exchange rate with the dollar constant, as stipulated by the Bretton Woods system. This is the basis for the European charge against the United States that, by pursuing the Vietnam War, it was exporting inflation to the rest of the world.
Beyond mere inflationary concerns, the Europeans and the Japanese feared that the build-up of dollars, against the backdrop of a constant US gold stock, might spark off a run on the dollar which might then force the United States to drop its standing commitment to swapping an ounce of gold for $35, in which case their stored dollars would devalue, eating into their national ‘savings’.
The flaw in the Global Plan was intimately connected to what Valery Giscard d’Estaing, President de Gaulle’s finance minister at the time, called the dollar’s exorbitant privilege: The United States’ unique privilege to print money at will without any global institutionalised constraints. De Gaulle and other European allies (plus various governments of oil producing countries whose oil exports were denominated in dollars) accused the Unites States of building its imperial reach on borrowed money that undermined their countries’ prospects. What they failed to add was that the whole point of the Global Plan was to revolve around a surplus generating United States. When America turned into a deficit nation, the Global Plan could not avoid going into a vicious tail spin.
On 29th November 1967, the British government devalued the pound sterling by 14%, well outside the Bretton Woods 1% limit, triggering a crisis and forcing the United States government to use up to 20% of its entire gold reserves to defend the $35 per ounce of gold peg. On 16th March 1968, representatives of the G7’s Central Banks met to hammer out a compromise. They came to a curious agreement which, on the one hand, retained the official peg of $35 an ounce while, on the other hand, left room for speculators to trade gold at market prices.
When Richard Nixon won the US Presidency in 1970, he appointed Paul Volcker as Undersecretary of the Treasury for International Monetary Affairs. His brief was to report to the National Security Council, headed by Henry Kissinger, who was to become a most influential Secretary of State in 1973. In May of 1971, the taskforce headed by Volcker at the Treasury presented Kissinger with a contingency plan which toyed with the idea of “suspension of gold convertibility”. It is now clear that, on both sides of the Atlantic, policy makers were jostling for position anticipating a major change in the Global Plan.
In August of 1971 the French government decided to make a very public statement of its annoyance at the United States’ policies: President George Pompidou ordered a destroyer to sail to New Jersey to redeem US dollars for gold held at Fort Knox, as was his right under Bretton Woods! A few days later, the British government of Edward Heath issued a similar request, though without employing the Royal Navy, demanding gold equivalent to $3 billion held by the Bank of England. Poor, luckless Pompidou and Heath: They had rushed in where angels fear to tread!
President Nixon was absolutely livid. Four days later, on 15th August 1971, he announced the effective end of Bretton Woods: the dollar would no longer be convertible to gold. Thus, the Global Plan unravelled.
Interregnum: The 1970s oil crises, stagflation and the rise of interest rates
Soon after, Nixon dispatched his Secretary of the Treasury (a no non-sense Texan called John Connally) to Europe with a sharp message. Connally’s account of what he said to the Europeans was mild and affable:
“We told them”, he told reporters, “that we were here as a nation that had given much of our resources and our material resources and otherwise to the World to the point where frankly we were now running a deficit and have been for twenty years and it had drained our reserves and drained our resources to the point where we could no longer do it and frankly we were in trouble and we were coming to our friends to ask for help as they have so many times in the past come to us to ask for help when they were in trouble. That is in essence what we told them.”
His real message is still ringing in European ears: It’s our currency but it’s your problem! What Connally meant was that, as the dollar was the reserve currency, i.e. the only truly global means of exchange, the end of Bretton Woods was not America’s problem. The Global Plan was, of course, designed and implemented to be in the interest of the United States. But once the pressures on it (caused by Vietnam and internal US tensions that required an increase in domestic government spending) became such that the system reached breaking point, the greatest loser would not be the United States itself but Europe and Japan; the two economic zones that had benefited mostly from the Global Plan.
It was not a message either the Europeans or Japan wanted to hear. Lacking an alternative to the dollar, they knew that their economies would hit a major bump as soon as the dollar would start devaluing. Not only would their dollar assets lose value but, additionally, their exports would become dearer. The only alternative was for them to devalue their currencies too but that would then cause their energy costs to skyrocket (given that oil was denominated in dollars). In short, Japan and the Europeans found themselves between a rock and a hard place.
Toward the end of 1971, in December, Presidents Nixon and Pompidou met in the Azores. Pompidou, eating humble pie over his destroyer antics, pleaded with Nixon to reconstitute the Bretton Woods system, on the basis of fresh fixed exchange rates that would reflect the new ‘realities’. Nixon was unmoved. The Global Plan was dead and buried and a new unruly beast, the Global Minotaur, was to fill its place.
Once the fixed exchange rates of the Bretton Woods system collapsed, all prices and rates broke loose. Gold was the first commodity discretely to jump from $35 to $38 per ounce, soon to $42 and then to float unbounded into the ether. By May 1973 it was trading at more than $90 and before the decade was out, in 1979, it had reached a fabulous $455 per ounce; a twelvefold increase in less than a decade.
Meanwhile, within two years of Nixon’s August 1971 bold move, the dollar had lost 30% of its value vis-à-vis the Deutschmark and 20% against the Yen and Frank. Oil producers suddenly found that their black gold, when denominated in yellow gold, was worth a fraction of what it used to be. Members of the Organisation of Petroleum Exporting Countries (OPEC), which regulated the price of oil through agreed cutbacks on aggregate oil output, were soon clamouring for coordinated action (i.e. reductions in production) to boost the black liquid’s gold value.
At the time of Nixon’s announcement, the price of oil was less than $3 per barrel. In 1973, with the Yom Kippur war between Israel and its Arab neighbours apace, the price jumped to between $8 and $9, thereafter hovering in the $12 to $15 range until 1979. In 1979 a new upward surge began that saw oil trade above $30 well into the 1980s. And it was not just the price of oil that scaled unprecedented heights. All primary commodities shot up in price simultaneously: Bauxite (165%), lead (170%), silver (1065%) and tin (220%) are just a few examples. In short, the termination of the Global Plan signalled a mighty rise in the costs of production across the world. Inflation soared as did unemployment: a rare combination of stagnation with inflation that came to be known as stagflation.
The conventional wisdom of what caused the 1970s stagflation is that the OPEC countries pushed the dollar price of oil sky high against the will of the United States. It is an explanation that runs against logic and evidence. For if the Nixon administration had truly opposed the oil hikes, how are we to explain the fact that its closest allies, the Shah of Iran, President Suharto of Indonesia and the Venezuelan government, not only backed the increases but led the campaign to bring them about? How are we to account for the administration’s scuttling of the Tehran negotiations between the oil companies (the so-called Seven Sisters) and OPEC just before an agreement was reached that would have depressed prices?
Quoting an influential American observer of these crucial discussions, “…a split was announced in the talks in Tehran by a special US envoy, then-Under Secretary of State John Irwin, accompanied there by James Akins, a key State Department man on oil….[T]he real lesson of the split in negotiations with OPEC was that higher prices were not terribly worrisome to representatives of the State Department… the whole subject of what the negotiations were about began to focus not on holding the price line but on ensuring security of supply.”
The question is thus begged: Why did the United States not oppose with any degree of real commitment the large increases in oil prices? The simple reason is that the Nixon administration, just like it did not regret the end of Bretton Woods, did not care to prevent OPEC from pushing the price of oil higher. For these hikes were not inconsistent with the administration’s very own plans for a substantial increase in the global prices of energy and primary commodities!
Recalling that the new aim was to find ways of financing the US twin deficits without cutting US government spending, or increasing taxes, or reducing US world dominance, American policymakers understood that they had a simple task: To entice the rest of the world to finance its deficits. But this meant a redistribution of global surpluses in favour of the United States and at the expense of the two economic zones they had built around Germany and Japan. Two were the prerequisites of the planned reversal of global capital flows which would see the world’s capital stream into Wall Street for the purposes of financing the expanding US twin deficits:
A. Improved competitiveness of US firms in relation to their German and Japanese competitors; and
B. Interest rates that attracted large capital flows into the Unites States
Prerequisite A could be achieved in one of two ways: Either by boosting productivity in the United States or by boosting the relative unit costs of the competition. The US administration decided to aim for both, for good measure. Labour costs were squeezed with enthusiasm and, at the same time, oil prices were ‘encouraged’ to rise. The drop in US labour costs not only boosted the competitiveness of American companies but, also, acted as a magnet for foreign capital that was searching for profitable ventures. Meanwhile, as oil prices rose, every part of the capitalist world was affected adversely. However, Japan and Western Europe (lacking their own oil) were burdened much more than the United States.
Meanwhile, the rise in oil prices led to mountainous rents piling up in bank accounts from Saudi Arabia to Indonesia, as well as huge receipts by US oil companies. All these petro-dollars soon found their way into Wall Street’s hospitable bosom. The Fed’s interest rate policy was to prove particularly helpful in this respect.
Turning to Prerequisite B, money (or nominal) interest rates jumped from 6%, were the Global Plan‘s final years had left them, to 6.44% in 1973 and to 7.83% the following year. By 1979 President Carter’s administration began to attack US inflation with panache. It appointed Paul Volcker as Fed Chairman with instructions to deal decisively with inflation. His first move was to push average interest rates to 11%.
In the following year, June of 1981 to be precise, Volcker raised interest rates to a lofty 20%, and then further up again to 21.5%. While his brutal monetary policy did tame inflation (pushing it down from 13.5% in 1981 to 3.2% two years later), its harmful effects on employment and capital accumulation were profound, both domestically and internationally. Nevertheless, Prerequisites A&B had been met even before Ronald Reagan had settled in properly at the White House.
A new phase thus began. The United States could now run an increasing trade deficit with impunity while the new Reagan administration could also finance its tremendously expanded defence budget and its gigantic tax cuts for the richest Americans. The 1980s ideology of supply-side economics, the fabled trickle-down effect, the reckless tax cuts, the dominance of greed as a form of virtue etc. were just manifestations of America’s new exorbitant privilege: the opportunity to expand its twin deficits almost without limit, courtesy of the capital inflows from the rest of the world. American hegemony had taken a new turn. The reign of the Global Minotaur had dawned.
The Global Minotaur
The United States had neither wanted nor resigned easily to the collapse of the Global Plan. However, once America lost its surplus position, US policymakers were quick to read the writing on the wall: the Global Plan‘s Achilles’ Heel had been pierced and its downfall was a matter of time. They then moved on very rapidly, unwilling to countenance the prospect of jeopardising global hegemony in a futile attempt to mend a broken design.
Perhaps the best narrative on the violent abandonment of the Global Plan comes from the horse’s mouth. In 1978 Paul Volcker, the man who was among the first to recommend that Bretton Woods be discarded, addressed an audience of students and staff at Warwick University. Not long after that speech, President Carter appointed him to the Chair of the Fed. One wonders if his audience grasped the significance of his words:
“It is tempting to look at the market as an impartial arbiter… But balancing the requirements of a stable international system against the desirability of retaining freedom of action for national policy, a number of countries, including the US, opted for the latter …”
And as if this were not sufficiently loud and clear, Volcker added the following:
“[A] controlled disintegration in the world economy is a legitimate objective for the 1980s.” (the emphasis is mine)
It was the Global Plan‘s best epitaph and the clearest exposition of the second post-war phase that was dawning. Volcker’s speech was a blunt proclamation of the future that US authorities envisaged: Unable to maintain reasonably well balanced international financial and trade flows any longer, America was planning for a world of rapidly accelerating asymmetrical financial and trade flows. The aim? To afford America the exorbitant privilege of running up boundless deficits and, thus, to entrench further US hegemony (not despite, but) courtesy of its deficit position. And how would such a feat be accomplished? The answer Volcker gave, with his usual bluntness, was: By choosing to fling the world economy into a chaotic, yet strangely controlled, flux; into the labyrinth of the Global Minotaur.
In the decades that followed, the days when the United States would be financing (directly, through war financing, or by the exercise of political power) Germany and Japan became a distant memory. America began importing like there was no tomorrow and its government splurged out unhindered by the fear of increasing deficits. As long as foreign investors sent billions of dollars every day to Wall Street, quite voluntarily and for reasons completely related to their bottom line, the United States’ twin deficits were financed and the world kept revolving haphazardly around its axis.
The Athenians’ gruesome tributes to the Cretan Minotaur were imposed by King Minos’ military might. In contrast, the tributes of capital that fed the Global Minotaur flooded into the United States voluntarily. Why? How did US policy makers persuade capitalists from all over the world to fund the superpower’s twin deficits? What was in it for them? The answer turns on four factors. To stick to the mythological narrative, let’s call them the Minotaur‘s charismas.
I shall be returning to these four charismas in my next posting.
 2.3 million dead, 3.5 million seriously wounded, 14.5 million refugees.
 These estimates are due to New Deal economist Robert Eisner, Professor at Northwestern University and a one-time President of the American Economic Association.
 V.H. Oppenheim, V.H. (1976-77), ‘Why Oil Prices Go Up: We Pushed Them’, Foreign Policy, 25, 32-33
Michael Hudson – Changes in Superimperialism:
The Position of the USA and China in our Global Economic System
Nearly 50 years after the original publication of “Superimperialism”, Michael Hudson revisits how the lucrative dollar-based economic system that the US set up after WWII has evolved with the rise of China and the Covid-19 pandemic. What financial weapons is the US likely to use, and does China’s de-dollarisation protect it from such attacks?
The book provides a detailed analysis of how the US has used its economic might to control international relations. The book is complicated, but essentially documents how after WWII the US held an unprecedented amount of the world’s gold reserves (50%). These reserves were depleted with the incursion into Korea, and subsequent involvement in Viet Nam, requiring the US to abandon the “gold standard” for valuing world currencies. A failure that proved itself valuable, pushing the US to develop multiple strategies that today allow it to make other countries pay for its military dominance.
Michael Hudson is Professor of Economics at the University of Missouri-Kansas, former balance of payment economist at Chase Manhattan, political consultant, and has written on many topics relating to the history of debt and the international financial system.
One day after we came back, we had to go to the White House for a meeting on oil and the
balance of payments.
And who should be the Undersecretary of the Treasury but my old mentor from Standard Oil
who had explained to me how offshore banking centers worked.
He explained to Herman and me that he told the Saudi Arabians, “You can charge whatever
you want for oil.”
This was right after America quadrupled the price of grain to finance the Vietnam War
in 1972-73, and OPEC responded by quadrupling the price of oil.
The Undersecretary of the Treasury explained to me that they could charge whatever they
wanted for oil.
He knew that the higher they charged, the more the American companies would be able
to charge on domestic oil.
But the Saudis had to recycle all of their dollars into the United States, into Treasury
bonds or the stock market.
“You can’t buy American companies, you can only buy stocks or bonds, and you have to
price your oil in dollars.
If you don’t, we’ll consider that an act of war.”
So here I was right in the middle of understanding how imperialism really worked.
This was not what is in most textbooks.
Most don’t talk about the balance of payments, but the key to financial imperialism is the
balance of payments.
The United States fights to prevent other countries from going back to the gold standard,
because at the time America went off gold in August 1971, every American dollar bill
was backed 25% by gold at $35 an ounce.
Well, finally there was no more surplus gold, and that’s what forced America off gold.
Its price immediately went way up.
As an American citizen, I wasn’t allowed to buy gold.
So I knew it was coming but I couldn’t make any money off it.
Instead I bought Tibetan and Indian art, Asian art primarily.
To make a long story short, I became a financial advisor to the Canadian government as a result
of the stock brokerage work in Montreal.
They said, “We need somebody who knows the American stock and bond market”.
I was at that time the highest paid economist per diem in the United States for financial
So I got a call saying, “They’re going to want to hire you but there’s only one way
in which they can tell how intelligent you are.
Do you know about wine?”
When I grew up at the University of Chicago, the university paid its professors so badly
that to make more money, their ideal was to be a wine steward at the Pump Room, which
was the fancy restaurant in Chicago.
It was featured in the Blues Brothers comedy with John Belushi.
Anyway, I took a sommelier course, got a license, and brought two bottles, one Richebourg and
one La Tâche that I bought in the remainder carton at an uptown store.
I gave them to my host in Ottawa and the government guys said, “That’s the guy we want.”
So I wrote a study that Canada didn’t have to borrow money abroad for the provinces to
They could create their own money.
Basically, what I wrote was the first example of what’s now called Modern Monetary Theory,
that governments can create their own money, their own credit.
They don’t need a foreign-currency backing for it, and so all basically the same circular
flow analysis that I’d developed from my history of thought.
a Physiocratic analysis.
One of the top investment analysts for the Royal Bank decided to become the head of personnel.
He said he thought that it’s a personality problem that economists can’t understand how
the world works, that there’s a particular kind of dumb person that becomes an economist.
It’s a kind of autism, of thinking abstractly without a sense of economic reality.
So he got me an appointment with the Secretary of State of Canada.
In Canada the Secretary of State is in charge of education, films and culture.
So I became Canada’s cultural adviser, which is what I thought was fine all along, and
I wrote a report.
Around that time I also was an economic adviser to the
United Nations Institute for Training and Research, UNITAR, writing their reports on
North/South debt, the foreign debt of third world countries, denominated in dollars, and
how this was deranging their economies.
They had a meeting in Mexico financed by the Mexican president and I was invited down there.
I gave a report saying that there was no way that the third-world debts can be paid.
My first job I worked on at Chase Manhattan was to estimate how much export revenue Argentina,
Brazil and Chile could make.
The idea was that all of their export earnings could enable them to pay interest on money
borrowed from US banks.
The idea was that the entire trade surplus should be pledged as debt service to the American
My job was to think how much that was, and what should Chase’s share be.
So, at the Mexican UNITAR conference, I said that these debts cannot be paid, therefore
they should not be paid, they should be canceled.
There was quite a stir over that.
Well at the end of the conference they had the rapporteurs summarizing the papers.
The US rapporteur said that Dr. Hudson has given a report saying that third-world countries
should export more in order to pay their debts.
I stood up slowly and said, “I must insist that the President of Mexico offer a public
explanation, apology to me and the conference.
This rapporteur has inverted and reversed everything I said.
I believe he has a covert purpose.
I’m pulling out the American delegation and I’m pulling out the Canadian delegation too.
We cannot be a part of this travesty.”
Then I walked out, wondering what’s gonna happen!
The Russian delegate came out laughing and said, “Ah!
You’ve dominated the whole conference.
You’ve made chaos out of it.
You’ve embarrassed the CIA.
This is fantastic.
Here’s my card in New York.”
Later that evening I was told, “You know, they’re looking for you to beat you up.”
Well as it happened an old girlfriend of mine was in a group who were in Mexico for an
They were surrealist artists from Amherst, and they were also doing a surrealist ballet.
So I went to the ballet with them and they said, “Look!
The thugs are there.”
So I hid out with them on the stage in their ballet.
The goons were looking in the audience and I was on the stage and we were all just surrealistic.
Nobody knew how to dance or anything, it was all just surrealistic.
And they, you know, the goons all went home.
I learned that if they can’t find you, they usually give up and leave you alone.
I went back to New York, but I realized that the debt issue was so controversial –
the idea that debt couldn’t be paid.
I spent about a year and I’d got through medieval period, Europe, World War One, and then even
Greece and Rome.
But then I found — it was about 1980, 1981, at that time I sold my house on the Lower
Side and moved into a loft near Wall Street which was very low price there at that time,
(I bought it for $20,000.
Later I sold it for $580,000 but that’s another story), it shows you the real estate in New
York, but at that time nobody wanted to live in lofts, and I wanted a big loft because
I had a big library at that time and a lot of art that I wanted to keep.
So basically I stopped working.
I realized that in the Bible there was the Jubilee Year and there were references to
Sumer and Babylonia and that there was a background of the biblical debt cancellations, almost
the same word for deror in Hebrew is andurarum in Babylonian.
I found that there was all this material and that had never been written in anywhere outside
of the field of assyriology.
There was no economic history of the ancient Near East, no economic history of Sumer and
It was all about religion and some culture, Gilgamesh and all that, but not what I was
most interested in, which was the debt cancellations.
So I wrote a draft of what I could find by 1984.
And one of my friends was the Ice Age archaeologist Alex Marshak.
Although he lived in New York, he was connected to Harvard’s Peabody Museum.
He showed it to the head of the Peabody, Karl Lamberg-Karlovsky, who told me, “This is great!
Nobody else is working on it.”
He appointed me a fellow of the Peabody Museum in Babylonian economic archeology.
I thought, “This is wonderful, this is really what I want to do.”
So I spent the next maybe three years writing the first draft of what became the book that’s
being published in a few months, “… and forgive them their debts”: Credit and Redemption
from Bronze Age Finance to the Jubilee Year.
I submitted it to the University of California Press.
They sent it to scholars to referee, who said that it was impossible that debts could be
Their argument was that if debts were cancelled, who would lend money?
That’s what Rabbi Hillel argued in the Judaic tradition.
I said, “Most debts were not the result of loans.
Most debts were when the crops would fail and the cultivators could not pay the palace
for the fees they’d run up, the rental fees for the land, the fees for the water, for
the draught animals, or the beer lady for the beer that they’d drunk.
So every ruler, when they would take the throne in Sumer and Babylonia, for a thousand years,
would start their rule by cancelling the debts with a clean slate, an amnesty.
It’s the same amnesty of the kind that Egypt’s Rosetta Stone commemorates.
Everybody knows that the Rosetta Stone has trilingual inscriptions of Greek, Egyptian
But few know that it’s a fiscal debt cancellation.
That’s what we call cognitive dissonance, people can’t imagine that the debts were cancelled.
I realized that this was very controversial, and so my Harvard colleague, Karl Lamberg-Karlovsky,
suggested that we hold a series of meetings, and asked me to organize them.
He said that we would hold a colloquium for each controversial chapter of my book.
We decided to have a meeting every two years, and invite every major specialist from early
Sumer, the Neo-Sumerian period, Babylonia, other Near Eastern realms, and Egypt.
Their role was to collect everything they had on whatever the meetings’ topic would
Since I was in New York, I worked with the leading Hebraic linguist Baruch Levine at
I needed someone who was respected in the linguistic field to invite people, because
most Sumerologists, readers of cuneiform, stayed away from economics, because the mainstream
economic idea of how society developed is as if Margaret Thatcher would have created
How would she have done it, or Milton Friedman, or what we call vulgar Marxists who think
that it was the idea that seemed plausible to Engels when he wrote The Origin of the
Family, Private Property and the State.
That’s not how early history actually occurred.
So the Sumerologists wouldn’t talk to economists.
But because I was now an archaeologist with Harvard in the anthropology department, they
agreed to come to the conference.
The first meeting, in 1994, was on privatization in the ancient Near East and classical antiquity.
Harvard published that.
Two years later, we moved on to the second volume, which was on land use and real estate
ownership: How did property ownership come into being.
Then, we had planned from the very beginning for the third colloquium volume.
That was on debt and economic renewal in the ancient Near East.
I asked for everything that people could find about debt cancellations.
We found that these occurred all the way through the first millennium.
Herodotus talked about debt cancellations in Babylonia.
It was a tradition remaining in the Near East for new rulers taking the throne to cancel
agrarian debts, to start their reign with the economy in balance.
Already in Hammurabi’s time 1750 BC, scribes would calculate the growth of compound interest,
and at that time it was 20% interest.
This growth diagram is the same exponential chart that I’d drawn up in the savings banks
in the 1960s to trace the growth of American debt.
So they were quite aware of the fact that debts couldn’t be paid and that, if you
insisted on them be paid, you would have debtors falling into bondage.
So they freed the bond servants, or for debtors had sold their means of self-support, the
land, they returned the land that had been sold under economic distress.
The word “distress” means the collateral that you’ve pledged to a creditor.
It’s an Irish term basically.
So we published that volume.
By that time I’d got the people Baruch and Karl and I had invited – the leaders of
their fields – agreeing with my interpretation.
We then followed it up with another meeting at the British Museum on the origins of money
and accounting, and the idea that money was created not for barter, not for trade in goods
and services, but to denominate debts.
If a cultivator owed a debt, how did he get money?
So we did the history of money.
Then, the one thing we hadn’t done finally was the origins of labor and what it was paid.
That took ten years to complete, and we found that the origins of labor was organized basically
in the palace economy, the palaces and temples.
The main use of such organized labor from the Neolithic and Bronze Age to classical
antiquity was to fight in the army and to work as corvée labor to build public infrastructure.
So how do you get a supply of labor?
You assign it land tenure.
Land rights were created to assign families enough to support themselves so that they
could perform corvée labor and fight in the army.
So taxes came first, then came land tenure, based on what labor you had to supply.
Attempts to substitute someone to work on the corvée became the basis for paying labor.
So all of the payments came from what today would be called the public sector.
That’s not really a very good term.
It was really the palatial sector, the palace and the temples, as opposed to the community-based
family on the land.
So we had a new analysis of the origins of property, not just individuals grabbing,
as Engels had thought.
Property was created by the public sector, by the palaces, as assignment of land as needed.
How much land area is needed in order to supply the labor for the public infrastructure, corvée
work and service in the army?
This was the reverse of what’s taught in economic textbooks today, which is, as I said, how
Margaret Thatcher and right-wingers and Donald Trump would have designed an economy if they
went back in a time machine.
So after organizing and editing these five volumes, I’m now writing my own popular version,
starting with a history of debt.
Then will come Temples of Enterprise, a series of books on classical antiquity.
I’m now following up with Greece and Rome.
Throughout early Greece and Rome, the main fight was between creditors and debtors.
Creditors ended up grabbing the land.
The same fight occurred all the way down through the Byzantine Empire.
The most divisive tension throughout history, from 3rd-millennium Sumer to 2nd-millennium
Babylonia to the 9th and 10th century in the Byzantine Empire is between the palace wanting
to collect taxes and have labor for the army, and creditors wanting this land and labor
This way of getting the economic surplus is not the way that Marx described it as being
obtained under capitalism, by employing labor to produce goods to sell at a profit.
It was by debt and taking interest in ultimately foreclosing in land, which was the real objective.
In the 9th century there was a big
fight against strong royal power.
It was sort of like Donald Trump and the Tea Party Republicans are fighting against the
state, like the privatization in the Soviet Union fighting against the state.
The Byzantine emperor invited general Bardas to a big meal.
The general said, “There’s only one thing that you should do if you want to end the
You have to tax the wealthy families so that they don’t have any surplus at all.
You have to give them so much burden that they can’t fight against you.
You have to prevent the polarization of wealth, because if you let the private sector make
an enormous amount of wealth, they’re going to try to fight against you and keep all the
wealth for themselves that you and the palace are now getting.”
This idea was expressed all the way back in the 7th century 6th century BC with Thrasybulus
and Periander of Corinth.
When Thrasybulus took Periander’s herald to a field of grain and said, “Here’s what you
The land was a field of grain and he took a scythe and he cut off the tops, to make
all the grain of equal height.
So Periander went back and exiled the wealthy families, seized their property.
There was probably a bit of fighting there, and that is basically the fight throughout
So that’s what I’ve been working on for the last 20 years.
Question: How did you take up the interest in Chinese economy?
Hudson: As Samir Amin said at the meeting yesterday, China is the economy that is trying
to be the exception to the Western economic model.
That model is forcing a choice between civilization and barbarism.
The West is moving rapidly into economic barbarism and militarism.
As you can see, the austerity program of the Euro is destroying the economy there.
The United States is cutting taxes on the rich, while indebting the working class very
The one country that is independent and not taking the advice of the World Bank and the
International Monetary Fund is China.
So we’re hoping to do what we can to make the Chinese economy successfully resistant.
What that means is how is China going to handle its real estate, how is it going to handle
its debt, how is it going to handle its tax system.
What I’m trying to do is what David Harvey was trying to do in the speech he gave yesterday:
getting Chinese Marxists to read volume 2 and especially volume 3 of Capital, where
Marx discusses the dynamics of finance.
Marxism is much more than volume 1 of Capital.
You have to read volumes 2 and 3, and especially the elaboration that Marx wrote in the drafts
that he left for volumes 2 and 3, his Theories of Surplus Value where he discusses the history
of economic thought leading up to him.
You realize how Marx was the last great economist in the classical tradition.
He showed that capitalism itself is revolutionary, capitalism itself is driving forward, and
of course he expected it to lead toward socialism, as indeed it seemed to be doing in the nineteenth
But it’s not working out that way.
Everything changed in World War One.
Afterward you had an anti-classical economics, which really was an anti-Marxist economics.
The fight for marginalist theory, for Austrian theory, the fight for junk economics that
we have today, is basically a fight against Marxism, because Marx showed the logical conclusion
to which the Physiocrats, Adam Smith, John Stuart Mill, Ricardo and Malthus, the conclusion
it was all leading was the synthesis that he made.
It was later developed by people like Thorstein Veblen and Simon Patten in the United States.
So I’m hoping that I can contribute what I can to help China’s economy to avoid the financialization
process and dynamic that is destroying the West.
the Vietnamese were appalled but some of the tactics that were being used I remember meetings with Vietnamese would plead with American activists not to do things like what the withum men are doing I’m the Weathermen a lot of young people who many of them I knew that were perfectly sincere they thought that the way to end the war is to smash up the windows on Main Street
Episode 143, Recorded on April 3, 1969
Guest: Noam Chomsky
The President’s mendacious nightly press briefings on the coronavirus will go down in history for their monumental flimflammery.
During the Vietnam War, the United States had the Five O’Clock Follies, nightly briefings at which American military leaders claimed, citing a variety of bogus statistics, half-truths, and misleading reports from the front, to be winning a war that they were, in fact, losing. Richard Pyle, the Associated Press’s Saigon bureau chief, called the press conferences “the longest-playing tragicomedy in Southeast Asia’s theater of the absurd,” which, minus the “Southeast Asia” part, is not a bad description of the scene currently playing out each evening in the James S. Brady Press Briefing Room, in the White House. We now have the Trump Follies, the nightly briefings at which President Trump has lied and bragged, lamented and equivocated, about the global pandemic that poses an existential threat to his Presidency. Just as the Vietnam briefings became a standard by which the erosion of government credibility could be measured then, historians of the future will consult the record of Trump’s mendacious, misleading press conferences as an example of a tragic failure of leadership at such a critical moment. There will be much material for them; the transcripts from just the first three days of this week runs to more than forty thousand words.
Since Trump began making the press conferences a daily ritual a couple of weeks ago—an eternity in the pandemic era—his more memorable lines are already featuring in political attacks against him. “I don’t take responsibility at all,” Trump insisted, two weeks ago. When asked to assess his own performance, he said, “I’d rate it a ten.” This Wednesday, with members of his coronavirus task force joining him onstage, he added, “We’ve done one hell of a job. Nobody has done the job that we’ve done. And it’s lucky that you have this group here right now for this problem or you wouldn’t even have a country left.”
The disconnect between Trumpian reality and actual reality has never been on starker display than in the past few days, as the true face of the horror we are facing in the United States has shown itself, in New York City, with overwhelmed morgues and emergency rooms, a governor pleading for ventilators and face masks from the federal government, and heartbreaking first-person accounts reminiscent of the open letters sent from Italy a few weeks back, which warned Americans: this is what is coming for you—don’t make our mistakes. On Tuesday, the World Health Organization said that the United States was emerging as the “epicenter” of the global pandemic, which makes the James S. Brady Press Briefing Room the emerging epicenter of the failure to respond to it.
A couple of weeks ago, it seemed as if maybe that would not be the case. Although the Trump Administration had faltered and delayed and denied through the initial stages of the virus, when it raged outside our borders, it looked like it might finally get its act together and take this public-health menace seriously, now that it was hitting in force inside the U.S. Trump declared a “national emergency,” stepped up testing, and, on March 16th, agreed to his crisis committee’s plan for a fifteen-day countrywide slowdown, in order to “flatten the curve” of the disease’s trajectory. Barely a week into the fifteen days, however, Trump began signalling an abrupt change of course—at just the moment when the disease was accelerating its deadly progress through a wealthy nation that turned out to be surprisingly ill-prepared for it.
Throughout this long, strange March, Trump has often framed the fight against the pandemic in martial terms: a “battle” to be won, a victory to be achieved, a shared sacrifice against “this invisible enemy” which would go on “until we have defeated the virus.” But the Commander-in-Chief did something extraordinary this week: he rebelled against his own clichés, essentially declaring that he no longer wanted to be at war with the virus after all.
On Sunday, he prefigured this pivot, apparently after watching the Fox News host Steve Hilton complain about the treatment—a shut-down country and a cratered economy—being worse than the disease. “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF,” Trump tweeted, shortly before midnight. By the Monday-night edition of the Follies, which are usually scheduled for 5 p.m. but often not started until later, Trump was repeating this line over and over again. “We cannot let the cure be worse than the problem itself,” he said. “We’re not going to let the cure be worse than the problem.” Later, he added, “We can’t have the cure be worse than the problem,” and also, “We can’t let that happen. . . . We can’t let this continue to go on.” America, he said, would be “open for business” soon.
On Tuesday, which marked a month since a now-infamous tweet in which the President claimed that “the Coronavirus is very much under control in the USA,” Trump was even more specific. He announced that afternoon, on a Fox News special from the White House lawn, that he wanted to get the country reopened and the church pews “packed” by Easter, on April 12th, at just the time when New York and other states were predicted to face the maximum pressure on their overstretched medical facilities. A few hours later, at the nightly press briefing, he was asked about this seemingly arbitrary timetable by CNN’s Kaitlan Collins.
“Who suggested Easter?” Collins asked. “Who suggested that day?” Trump replied, “I just thought it was a beautiful time. It would be a beautiful time, a beautiful timeline. It’s a great day.” Collins followed up: “So that wasn’t based on any of the data?” “I just think it would be a beautiful timeline,” Trump responded.
This was painfully revealing: the President, under questioning by an independent reporter, was admitting that he wanted to do something with no basis in science. In fact, within minutes, some of the nation’s leading experts on pandemics panned the suggestion as dangerous and ill conceived. By Wednesday, Trump was still talking about an Easter deadline, but only promising a new “recommendation” at that time. “I’m not going to do anything rash or hastily,” he said, which is as close to a reassuring statement from the President as he will ever offer.
On Thursday, Trump appeared before the cameras just before 5:30 p.m., minutes after the Times reported that the United States now had more than eighty-one thousand recorded cases of the coronavirus, surpassing China as the world’s No. 1 country in terms of confirmed infections. When asked about the statistic, Trump acted as though this, too, was some sort of an achievement of his to be praised, saying that the high number was “a tribute to our testing.” Despite the day’s grim news, with his Administration reporting a record-high week of unemployment claims, Trump continued his upbeat tone. The world “is going to end up better than ever,” he said, before reading out all the names of the members of the G-20 world leaders with whom he had spoken that morning, listing the provisions of the two-trillion-dollar emergency-aid package that Congress is finalizing, and even reciting the number of gloves that the Federal Emergency Management Agency has sent to individual states. Eventually, he got around to his main point, which is that “we’ve gotta go back to work.” Earlier on Thursday, his Administration had sent a letter to governors, saying it would soon issue new guidelines rating U.S. counties by their varied levels of risk for the disease and suggesting that those with lower risk could resume business more quickly. Trump offered no specifics, but touted it as a needed step. “I think it’s going to happen pretty quickly,” he said. He never mentioned the word “Easter.”
After all that, it was hard not to think of Trump’s whole “beautiful timeline” as yet another monumental act of Presidential flimflammery, a distracting week of misdirection to keep us all occupied while those of us who are still working do so from home. Trump’s open-by-Easter pledge may well be as quickly forgotten as his other lies during the coronavirus crisis thus far, such as when he said that the cases would go down to near zero in a few days, that the disease would simply disappear, and that it would never make it to our shores in significant numbers.
These daily Presidential briefings have understandably become controversial among the national media, which is wary of being played by an attention-seeking President. Neither the Times nor the Washington Post are sending reporters to them, citing the health risk. (A journalist who had attended several of the sessions has reportedly contracted the virus; even still, the President refuses to follow the social-distancing dictates that his government is urging others to practice.) Sources at various television networks have said that the networks were considering no longer airing them, although they have so far continued to do so. The Post columnist Margaret Sullivan has argued that the briefings should not be broadcast live anymore, citing the fact that the President was using them as a platform for “self-aggrandizement,” “media-bashing,” and “exaggeration and outright lies.”
Trump will keep doing them, however, because they work. According to the Times, ratings for Trump’s briefings rival those for “hit reality shows and prime-time football.” Trump, whose star turn on NBC’s “The Apprentice” arguably had as much to do with his election to the Presidency as anything else, is obsessed with ratings. His other metrics are good, too, including a Gallup poll showing him with the highest approval rating of his Presidency (forty-nine per cent, versus a forty-five per cent disapproval rating). Even more striking were the results of a CBS/YouGov poll, released this week, in which respondents were asked what sources of information about the coronavirus they found most credible. Democrats rated medical professionals and the Centers for Disease Control and Prevention most highly. Trump came in last among this group, at fourteen per cent. But, for Republicans, Trump came in at the top, with ninety per cent saying that they trusted the President’s information about the coronavirus, making him tied for first place with medical professionals. The poll shows that, even when their own lives are literally at stake, a significant subset of the American population no longer believes in almost anything other than the President.
This, in the end, is why Trump’s nightly Follies matter. Even if he cannot reopen the country by Easter, and governors and mayors ignore him, as they surely will. Even if what he says is so contradictory and at times patently false that his own followers could not possibly heed his advice as a practical guide to action.
In the long course of the Vietnam War, which lasted a full decade, some fifty-eight thousand Americans died. With the pandemic, many scientific models publicized in recent days have projected that U.S. deaths could reach far beyond that figure by the time the coronavirus has run its course, depending at least in part on what decisions Trump and other leaders take in the coming months. But this week’s Follies have shown an irresolute leader who does not want to fight the war or even, on many days, admit that it exists. He is a cartoon caricature of a wartime President, not a real one.
A Vietnam draft-dodger, who used a phony foot problem to get out of that war, Trump this week has reminded us that he would like to be a coronavirus draft-dodger, too. But the fight is not a hoax, no matter how often he suggests it is, and the President, like it or not, is already in the fight. On Tuesday, he told the country that he would soon be reopening it, “as we near the end of our historic battle with the invisible enemy.” By the time you read this, though, the battle will not be over, or even really begun. As soon as Trump finished speaking on Thursday, CNN interrupted the briefing to broadcast the news that it had been the deadliest day yet in the pandemic for the United States, with at least two hundred and thirty-seven dead, and hours more to go.