image: Wikimedia commons (link).
One very important lesson that this current crisis should teach us is that credit for productive purposes is an absolutely essential aspect of any economy (modern or ancient), and that it is as essential to the public good as are the electrical grid, the water works, and the roads.
Small businesses in particular need to have access to ready sources of credit during a crisis or else they face the prospect of having to shut their doors, break their lease, and furlough or even release their workers.
If you are running a private pre-school and all the children are ordered to stay home for an indeterminate period of time, or if you are running a restaurant and the county orders people to stop going out to eat, or if you are running a hair salon and all your clients cancel their appointments for the next month or more, or if you are running a dentist office and all of your patients with non-essential appointments such as teeth-cleaning visits have to put those off indefinitely, or any number of other similar scenarios, and you do not have access to enough ready cash to pay all your expenses and make payroll for all your employees, then you either need access to credit to get you through to the other side of that crisis, or you risk going out of business and telling all your workers that they are now unemployed.
If these kinds of things happen in every city in every state or province of a nation, it will have a devastating impact. Access to credit for productive purposes (as distinguished from access to credit for speculative purposes) is a critical part of a nation's economic infrastructure -- and as such democratic governments have an interest in ensuring that their citizens have access to credit for productive purposes such as for keeping businesses such as pre-schools, dentist offices, restaurants, hair salons, and a host of others from folding up during a crisis, particularly during a crisis in which the leadership of the country, for the public good, decides that it is necessary to order people to stay home in order to prevent the spread of disease (as in the present crisis).
For these reasons, the classical economists (who, beginning in the eighteenth century, worked to undo the deleterious effects of the vestiges of feudalism but whose project was later overturned by an effective counter-attack by the anti-classical forerunners of today's neoliberal economists) believed that democratic governments have an interest in either offering public banking services, including credit for productive purposes (as opposed to speculative purposes), or in setting the conditions such that banking and credit is made available to all socio-economic levels of society at non-exorbitant rates, just as democratic governments have an interest in ensuring that clean and adequate water is made available to all socio-economic levels of society at non-exorbitant rates, and that safe and abundant electricity is made available to all socio-economic levels of society at non-exorbitant rates.
In other words, access to credit for productive purposes is part of the national infrastructure, and it should be viewed as such -- and not just during an emergency but at all times (just as adequate clean water is part of the infrastructure and democratic governments must ensure that it is safe and available at all times, and not just in emergencies).
One reason for having infrastructure in the public sector is that governments do not have to run them for a profit: governments can actually run them at a loss, so that water and electricity and roads and postal services and access to credit for productive purposes can be offered to the public at less than it costs to produce them, and at prices that are much lower than the prices at which a private company (which cannot run at a loss forever, unless it has some external source of capital) could offer them. Doing so in the case of essential infrastructure is actually in the public interest and benefits society, as the classical economists (who were working to undo the deleterious effects of feudalism) consistently and persuasively argued.
However, as Michael Hudson explains with brilliant clarity in this interview with Ellen Brown and Walt McRee of the Public Banking Institute, published on February 6th of this year (well before the current crisis situation in the United States), the proponents of neoliberalism have an interest in stripping democratic governments of their role in providing infrastructure, because proponents of neoliberalism want to privatize those roles and take them out of the public sector (privatizing water and privatizing roads and privatizing telephone services and privatizing postal services and privatizing prison administration and many other aspects of public infrastructure -- all of which are extremely lucrative if private parties can wrest them out of the public sector and administer them for a profit).
And, as Professor Hudson explains, the most lucrative of all of them is the banking function, which certain private parties are extremely interested in keeping out of the public sector.
Below is the interview with Michael Hudson, Walt McRee, and Ellen Brown, entitled "Neoliberalism's Death Knell?" which is well worth playing in its entirety:
During that interview, you will hear Walt McRee state at the 24:20 mark that access to public credit for productive purposes "is a public utility and our vision of course is to create a distributed network of local and state public banks."
You will then hear Michael Hudson explain that there was a dedicated effort in the first decades of the twentieth century to strip the banking function away from the democratic institutions of government at all levels, beginning with the federal level, in order to "take power away from the Treasury [. . .] the idea was to take decision-making away from Washington, away from democratic politics, and insulate the financial system from the democratic political system by turning control over to the corporate financial centers: Wall Street, Chicago and the other federal reserve districts [. . .]. If you let people know that this was a fight that was waged in advance, [. . .] in the decades leading up to World War I, when there was a social democratic revolution from Europe to the United States, and the whole idea was to democratize banking, and Wall Street very quickly developed a counter-strategy to this and the counter-strategy was the federal reserve."
Professor Hudson talks as though a replacement to the federal reserve is needed, but Professor Bill Mitchell (one of the leading voices in the modern monetary theory or MMT perspective) explains that central banks such as the federal reserve in the US are actually under the control of elected leaders, if the public would just wake up and demand that their elected leaders do their jobs and exercise democratic control over the banking function in order to ensure there is credit for productive purposes (as opposed to speculative purposes) at reasonable terms, and make it clear that if they don't do so they will be voted out of office just the same as they would be if they failed to ensure that there is clean water and safe electricity and adequate roads and sewer systems and other aspects of critical infrastructure. For some of Professor Mitchell's arguments on this subject, see for example here and here.
Unfortunately (indeed, tragically), the proponents of neoliberalism (who could also accurately be called "proponents of hyper-capitalism," or "proponents of austerity," or a host of other names which might be a little more imaginative, instead of the dull and rather clunky sounding term "neoliberalism") have argued incessantly, beginning in the 1930s with the Austrian economists (as Professor Hudson explains in this interview), and have convinced many men and women that taking infrastructure out of the public sphere and into the private sphere is a good idea.
The proponents of privatization have been so effective in their propaganda campaigns that many people do not even understand that they can and should (and must) demand that their elected officials provide safe, clean and abundant public water at prices lower than what the private sector could provide, and if they don't realize they should expect democratic governments to ensure access to clean water, it is even more difficult to help them perceive that they should also be able to expect democratic governments to ensure access to credit for productive purposes.
This crisis should make it abundantly clear, however.
During an emergency, such as the present crisis in which elected officials make the decision to order people to stop going to school or going to restaurants or doing virtually anything at all other than staying in their homes, then another argument can be made, that the federal government should provide actual direct assistance to pay salaries and pay rents if necessary to prevent businesses from folding and workers from being laid off as a consequence of actions that the government deems necessary based on the information that they have available about the danger.
During the above interview, Professor Hudson actually uses the situation of the Vietnam War while illustrating a point about balance-of-payment deficits. Setting aside the discussion of balance-of-payment deficits for the purposes of this discussion about the current crisis, the illustration of the Vietnam War can be helpful in understanding that the federal government would absolutely be able to provide such assistance in order to get the nation through the present outbreak.
During that war, it was decided by policymakers that it was absolutely necessary to send hundreds of thousands of young men (and also some young women) into Vietnam, on a rotating basis, to conduct combat operations for a period lasting over a decade.
image: Wikimedia commons (link).
Setting aside the question about whether that was the right decision (for the purposes of focusing this discussion on today's crisis), the fact remains that those hundreds of thousands of young men who were being drafted, trained, equipped, and sent over to Vietnam over the course of more than a decade were being paid, fed, clothed, and given things like rifles, helmets, grenades, rocket launchers, ammunition, insect repellent, medical treatment, and so on. There were also thousands and thousands of helicopters and other types of aircraft, tanks and armored personnel carriers, trucks and jeeps and other types of wheeled vehicles, as well as massive amounts of other types of equipment which were sent over in that war effort. It did not "run out of money" and find itself unable to pay those men and women in uniform during that period, or to clothe them or put fuel in the helicopters and tracked vehicles and trucks that they rode in, and so forth.
The nation was capable of paying all those people for all those years during that war, and it did so because policymakers made the decision that it was a national emergency and it needed to be done (setting aside the question of whether that was a correct assessment).
One reason that public banking is so important is that public banks (as opposed to private banks) can decide to waive loan payments during a severe crisis, such as the present crisis. If businesses had their mortgages with public banks (of which we only have one in the United States at this time, and only for residents of North Dakota), they might be told during a crisis, "The government, for public safety, has ordered people to stay home -- therefore we, the public bank, will not collect mortgage payments during that entire period that people are ordered to stay home, and will count those payments as though they were in fact made. Landlords who are renting to businesses will not collect rents during the period that they are not making mortgage payments." There is no so-called "moral hazard" in doing so, because this is an emergency situation that was the decision of the elected officials. In fact, such backstops might help elected officials to be able to make the right decisions for the safety of the people!
If the government today decides that it needs to order children to stop going to school, and order everyone to stay in their homes and stop visiting dentists (for nonessential treatment) and stop visiting restaurants and stop visiting hair salons and gyms and stop going anywhere else other than to grocery stores, and if it decides that this needs to go on for a few months, the federal government absolutely has the resources to ensure that businesses don't have to fold up and lay off all their workers during that period of time, however long it may be.
That does not even need to be in the form of loans that get paid back, as during a non-emergency environment. When the government decided that it was a national emergency and it needed to send soldiers to Vietnam, it did not force families to take out loans in order to feed those soldiers and clothe those soldiers and purchase the ammunition that they were putting into their rifles and machineguns.
Of course, private banks would always love to make people take out loans rather than have the government provide direct assistance during a crisis. But in a time of an emergency such as this one, there is absolutely nothing wrong with the government providing direct relief -- even for a period of some months -- in order to keep businesses from having to close and lay off employees, just as it fed, clothed, trained, equipped, transported and otherwise provided for soldiers for a period of more than ten years during the Vietnam War.
That is, unless the people allow their elected officials to pretend that they don't have the power to provide what is absolutely in the power of a nation to provide -- unless they allow, in Professor Hudson's words, the proponents of neoliberalism and austerity to "take power away from the Treasury [. . .] to take decision-making away from Washington, away from democratic politics, and to insulate the financial system from the democratic political system by turning control over to the corporate financial centers: Wall Street, Chicago" and so on.
Professor Hudson has analyzed this question of credit going all the way back to ancient times, including to ancient Mesopotamia, and he has found that the credit function was understood to properly belong to the public sphere and to governments, and not the private sphere, in ancient times.
That's one reason, for example, that we find images of the gods stamped onto ancient coins (in my opinion -- I'm not sure if Professor Hudson says that anywhere).
This understanding held all the way up through the Roman Empire, he explains, when something changed. After that, feudalism and debt bondage arose. I would argue that what changed was a deliberate campaign to get rid of the knowledge of the ancient wisdom and the teaching of the gods.
As Professor Hudson explains in this important interview, neoliberalism is a form of neo-feudalism. He also calls it a form of fascism. It is obviously an attack on democracy and on democratic control over the necessary infrastructure of a nation, including access to credit for productive purposes. Professor Mitchell makes the very same point, in an important blog post here.
During the present crisis, very few people are discussing these vitally important concepts -- but these concepts are absolutely critical to the survival of democratic governance, which has already been deeply compromised to the detriment of millions by neoliberalism, austerity, and hyper-capitalism. The current outbreak should help bring these issues into greater focus.
Sending positive wishes to you and to all my readers during this difficult period.
You will then hear Michael Hudson explain that there was a dedicated effort in the first decades of the twentieth century to strip the banking function away from the democratic institutions of government at all levels, beginning with the federal level, in order to "take power away from the Treasury [. . .] the idea was to take decision-making away from Washington, away from democratic politics, and insulate the financial system from the democratic political system by turning control over to the corporate financial centers: Wall Street, Chicago and the other federal reserve districts [. . .]. If you let people know that this was a fight that was waged in advance, [. . .] in the decades leading up to World War I, when there was a social democratic revolution from Europe to the United States, and the whole idea was to democratize banking, and Wall Street very quickly developed a counter-strategy to this and the counter-strategy was the federal reserve."
Professor Hudson talks as though a replacement to the federal reserve is needed, but Professor Bill Mitchell (one of the leading voices in the modern monetary theory or MMT perspective) explains that central banks such as the federal reserve in the US are actually under the control of elected leaders, if the public would just wake up and demand that their elected leaders do their jobs and exercise democratic control over the banking function in order to ensure there is credit for productive purposes (as opposed to speculative purposes) at reasonable terms, and make it clear that if they don't do so they will be voted out of office just the same as they would be if they failed to ensure that there is clean water and safe electricity and adequate roads and sewer systems and other aspects of critical infrastructure. For some of Professor Mitchell's arguments on this subject, see for example here and here.
Unfortunately (indeed, tragically), the proponents of neoliberalism (who could also accurately be called "proponents of hyper-capitalism," or "proponents of austerity," or a host of other names which might be a little more imaginative, instead of the dull and rather clunky sounding term "neoliberalism") have argued incessantly, beginning in the 1930s with the Austrian economists (as Professor Hudson explains in this interview), and have convinced many men and women that taking infrastructure out of the public sphere and into the private sphere is a good idea.
The proponents of privatization have been so effective in their propaganda campaigns that many people do not even understand that they can and should (and must) demand that their elected officials provide safe, clean and abundant public water at prices lower than what the private sector could provide, and if they don't realize they should expect democratic governments to ensure access to clean water, it is even more difficult to help them perceive that they should also be able to expect democratic governments to ensure access to credit for productive purposes.
This crisis should make it abundantly clear, however.
During an emergency, such as the present crisis in which elected officials make the decision to order people to stop going to school or going to restaurants or doing virtually anything at all other than staying in their homes, then another argument can be made, that the federal government should provide actual direct assistance to pay salaries and pay rents if necessary to prevent businesses from folding and workers from being laid off as a consequence of actions that the government deems necessary based on the information that they have available about the danger.
During the above interview, Professor Hudson actually uses the situation of the Vietnam War while illustrating a point about balance-of-payment deficits. Setting aside the discussion of balance-of-payment deficits for the purposes of this discussion about the current crisis, the illustration of the Vietnam War can be helpful in understanding that the federal government would absolutely be able to provide such assistance in order to get the nation through the present outbreak.
During that war, it was decided by policymakers that it was absolutely necessary to send hundreds of thousands of young men (and also some young women) into Vietnam, on a rotating basis, to conduct combat operations for a period lasting over a decade.
image: Wikimedia commons (link).
Setting aside the question about whether that was the right decision (for the purposes of focusing this discussion on today's crisis), the fact remains that those hundreds of thousands of young men who were being drafted, trained, equipped, and sent over to Vietnam over the course of more than a decade were being paid, fed, clothed, and given things like rifles, helmets, grenades, rocket launchers, ammunition, insect repellent, medical treatment, and so on. There were also thousands and thousands of helicopters and other types of aircraft, tanks and armored personnel carriers, trucks and jeeps and other types of wheeled vehicles, as well as massive amounts of other types of equipment which were sent over in that war effort. It did not "run out of money" and find itself unable to pay those men and women in uniform during that period, or to clothe them or put fuel in the helicopters and tracked vehicles and trucks that they rode in, and so forth.
The nation was capable of paying all those people for all those years during that war, and it did so because policymakers made the decision that it was a national emergency and it needed to be done (setting aside the question of whether that was a correct assessment).
One reason that public banking is so important is that public banks (as opposed to private banks) can decide to waive loan payments during a severe crisis, such as the present crisis. If businesses had their mortgages with public banks (of which we only have one in the United States at this time, and only for residents of North Dakota), they might be told during a crisis, "The government, for public safety, has ordered people to stay home -- therefore we, the public bank, will not collect mortgage payments during that entire period that people are ordered to stay home, and will count those payments as though they were in fact made. Landlords who are renting to businesses will not collect rents during the period that they are not making mortgage payments." There is no so-called "moral hazard" in doing so, because this is an emergency situation that was the decision of the elected officials. In fact, such backstops might help elected officials to be able to make the right decisions for the safety of the people!
If the government today decides that it needs to order children to stop going to school, and order everyone to stay in their homes and stop visiting dentists (for nonessential treatment) and stop visiting restaurants and stop visiting hair salons and gyms and stop going anywhere else other than to grocery stores, and if it decides that this needs to go on for a few months, the federal government absolutely has the resources to ensure that businesses don't have to fold up and lay off all their workers during that period of time, however long it may be.
That does not even need to be in the form of loans that get paid back, as during a non-emergency environment. When the government decided that it was a national emergency and it needed to send soldiers to Vietnam, it did not force families to take out loans in order to feed those soldiers and clothe those soldiers and purchase the ammunition that they were putting into their rifles and machineguns.
Of course, private banks would always love to make people take out loans rather than have the government provide direct assistance during a crisis. But in a time of an emergency such as this one, there is absolutely nothing wrong with the government providing direct relief -- even for a period of some months -- in order to keep businesses from having to close and lay off employees, just as it fed, clothed, trained, equipped, transported and otherwise provided for soldiers for a period of more than ten years during the Vietnam War.
That is, unless the people allow their elected officials to pretend that they don't have the power to provide what is absolutely in the power of a nation to provide -- unless they allow, in Professor Hudson's words, the proponents of neoliberalism and austerity to "take power away from the Treasury [. . .] to take decision-making away from Washington, away from democratic politics, and to insulate the financial system from the democratic political system by turning control over to the corporate financial centers: Wall Street, Chicago" and so on.
Professor Hudson has analyzed this question of credit going all the way back to ancient times, including to ancient Mesopotamia, and he has found that the credit function was understood to properly belong to the public sphere and to governments, and not the private sphere, in ancient times.
That's one reason, for example, that we find images of the gods stamped onto ancient coins (in my opinion -- I'm not sure if Professor Hudson says that anywhere).
This understanding held all the way up through the Roman Empire, he explains, when something changed. After that, feudalism and debt bondage arose. I would argue that what changed was a deliberate campaign to get rid of the knowledge of the ancient wisdom and the teaching of the gods.
As Professor Hudson explains in this important interview, neoliberalism is a form of neo-feudalism. He also calls it a form of fascism. It is obviously an attack on democracy and on democratic control over the necessary infrastructure of a nation, including access to credit for productive purposes. Professor Mitchell makes the very same point, in an important blog post here.
During the present crisis, very few people are discussing these vitally important concepts -- but these concepts are absolutely critical to the survival of democratic governance, which has already been deeply compromised to the detriment of millions by neoliberalism, austerity, and hyper-capitalism. The current outbreak should help bring these issues into greater focus.
Sending positive wishes to you and to all my readers during this difficult period.
