This is Eve. The book Agnotology describes how societies become stupid. Sometimes it’s by design. The main case study was propaganda against new information that smoking causes cancer. But the author also describes the loss of other knowledge, such as pre-modern birth control technology. Michael Hudson gives another example of agnotology below: how thinkers of the past understood the economic impact of war debts better than mainstream economists do today.
The author is Michael Hudson, a research professor of economics at the University of Missouri, Kansas City, and a fellow at the Levy Institute for Economics at Bard College. His latest book is The fate of civilization.
Over the past few years I have been writing a history of debt and its political underpinnings from the Crusades to World War I. I am currently writing a chapter on just how real debt became at the end of the 18th century.Number Twentieth-century economists who criticized debt financing differed from today’s mainstream neoliberals who encourage countries to finance their chronic trade dependence and balance-of-payments deficits with borrowing, as recommended by IMF orthodoxy. These early political economists warned that borrowing abroad would lead to a loss of national sovereignty vis-à-vis creditors; borrowing domestically would create a financial class that would not only gain control over public tax and legal systems, but also over the financial class itself. The scope of their analysis was politically and socially broader than today’s economic tunnel vision.
One writer in particular, Malachy Postlethwaite, has argued that the exponential growth of interest-bearing debt not only strained economies, but also encouraged an international financial oligarchy to steadily increase its power over highly indebted nations. In contrast to today’s trickle-down orthodoxy, it was recognized that the emerging financial oligarchy used the interest it received not to create new means of production to help the economy with its debt burden, but rather to invest in the formation of productive capital and employment, but rather on further lending, lavish spending and conspicuous consumption.
Late 18Number The 19th century saw a generation of writers criticising the strain that war debt was putting on the economy. They calculated how expensive future wars would be and the resulting interest on the debt, and they argued for the need to avoid Britain getting so indebted that it would become polarised between the wealthy and the rest of society.
A particular concern was how to raise high taxes to pay creditors without slowing the economy and disrupting the export trade from which Britain earned its international cash. They acknowledged that money was the engine of the war, and wrote that the way to draw it into the British economy was to run a trade surplus. To do this, they needed to prevent British export prices from being inflated by taxes levied primarily to pay interest on war debts.
Malachy Postlethwaite explained the problem in 1757: “Suppose England goes to war every ten or twelve years, and that each war adds £30 million to the national debt. In 30 to 35 years, over the course of just three wars, the national debt would rise to £170 million. At a modest 3% rate of interest, this would require interest of £5.1 million per year, one-third of which (£1.7 million) could be met by new taxes on English land and trade. “And we shall at last see the sources of wealth from which the public creditors derive their pensions dried up; and shall the result be that not only the payments of principal but also the payments of interest become precarious.”(1) Creditors’ demands for payment would be self-defeating if their financial demands prevented the debtor country from making payments.
Already in 1739. Matthew Decker’s Essay on the causes of the decline of foreign trade Dekker attributed the deterioration of British trade to the fact that taxes and tariffs to pay the public debt added a financial element to the cost of the state. Interest was a production cost, like a tax, added to the payment of creditors, many of whom were Dutch. “Foreign countries can act against us because we put an enormous artificial value on our goods, preventing their sale abroad.” To cover these and the resulting financial costs, rents rose, and so did the market prices that landlords had to charge. Dekker thus pointed to “the fictitious value which they create in the rents which landlords now receive, compared with the real value which free trade brings.”(2)
This logic suggested a downward spiral: wars could only be financed by debt, because people would not support them if they had to immediately pay the taxes necessary to cover the full cost of the war through a levy system. But the commercial impact of war debt would strain the economy, slowing economic growth and ultimately bankrupting the nation.
in The real British systemPostlethwaite calculated the extent to which taxes to service the public debt raised the cost of production and drained resources that could be devoted to private investment: “These taxes amount to at least 31 per cent of the annual expenditure of the whole English people; in what country, then, can we enter into commercial competition on an equal footing?”, he added, the problem being that “the taxes levied to pay the interest on these debts restrain industry, raise the price of labour, and oppress the poor.”
He elaborates on this idea: “Public debt is a pension derived from the profits and consumption of each individual. Before such debt arose, everyone owned all his own profits. There were no stock or bond markets, or exchanges, where the debts and shares of monopoly companies were traded.”
If the present public debt were paid off instead of increasing, the profits of the manufacturers, merchants, traders, etc., would be entirely their own. They would be relieved of the payment of at least 100 per cent. of the common profit….By this advantage we would be able to sell cheaper than our neighbours. Our population would naturally increase. Our poor would find sufficient employment, so that even the old and infirm would have an income sufficient to subsist. New techniques and new manufactures would be introduced, and the old ones brought to a greater perfection.(3)
But if war spending continues, higher taxes to service the debt will raise production costs and export prices, leading to a trade deficit, a loss of gold, and a slowdown in the economy as there is less money to support industry and defend the country in the coming war.
In 1737, Sir John Barnard bluntly described the conflict of class interests at play here: “The public funds, to be exact, divide the people into two classes, the one creditors, the other debtors; the former consisting of the three great corporations and others, natives and foreigners; the latter the landowners, merchants, shopkeepers, and all manner of men of every rank and degree throughout the kingdom.”(Four)
Other contemporary writers recognized that ultimately foreign debts could not be repaid; they could be written off, as French and English kings had done since the 14th century, orNumber By the 21st century the entire nation’s wealth will be in the hands of foreign creditors and domestic financial oligarchy.
In his 1750 essay, “On Money,” David Hume estimated the number of endowment holders in Britain to be around 17,000, a tiny fraction of the total population.(5) Noting this calculation, Postlethwaite complained that “since our debts were incurred, not more than one-tenth of the land in England has been owned by the descendants and heirs of those who owned it at the time of the Revolution.”(6) National debt also gave impetus to a cosmopolitan financial oligarchy, an alliance that threatened to overshadow Europe’s traditional rivalries and become a new European economic and political authority, like the Papal Empire in the 12th century.Number And 13Number For centuries, “foreigners have owned a part of our national funds, and so we are compelled to offer our people as tribute to them, which may in time cause a disruption to the transportation and industry of our people.”
Postlethwaite’s warning was that the outflow of funds to pay interest would create a credit shortage in Britain, especially if this debt repayment was remitted overseas to Dutch investors. In contrast to the quantity theory of money advocated by David Hume and most modern economists (which holds that a reduction in money leads to a proportional fall in prices), Postlethwaite pointed out that a shortage of money would actually increase the prices of most goods, disrupt economic activity, cause production shortages and economic crises, and make private sector credit riskier and therefore higher borrowing costs.
James Stuart was even more forthright in 1767, but he acknowledged that “supposing the Government to continue to increase annually the total of its debts by perpetual annuities, and to devote to its payment every branch of its revenue in proportion, it would, in the first place, result in a transfer in favour of the creditors of the whole of the revenue of the State, which is under their control.”(7) Britain’s financialized prosperity had the politically transformative effect that Postlethwaite lamented: “This wealth was transferred to a new set of men who had been rich before, who then acquired land, cementing this additional circulation. Doesn’t this whole sequence represent a kind of circulation turning back on itself?” The rich aristocracy became the new aristocracy, replacing the old land-owning aristocracy. The problem was how to prevent “the whole wealth of the state from circulating constantly from one class of men to another”, from landlords and the general public to creditors.
This perception was unrelated to the modern idea that an automatic adjustment mechanism would ensure that foreign debt would be paid off through price adjustments, and that deflation and austerity would result in the export competitiveness of the debtor country. With regard to foreign debt, there was no faith in such an adjustment mechanism.
Adam Smith The Wealth of Nations In 1776, he concluded that the only way to avoid economic collapse was to never engage in the war and imperial projects that had gotten Britain into foreign debt in the first place. He defined a free market as a market free of debt, especially foreign debt (and free of interest, including the monopoly interests of corporations such as the East India Company, which governments set up as a way to earn interest to repay war debts).
The history of economic thought today sees the flowering of criticism of debt simply replaced by the pro-creditor logic of David Ricardo and other banking spokesmen who sought to assure the public that debt would cause no more problems than its temporary and self-healing nature.
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(1) Malachy Postlethwaite, The real British system (London, 1757): 2 and 12.
(2) Matthew Decker Essay on the causes of the decline of foreign trade (London, 1744 (1739)): Preface. The similar terms “fictitious expenses” and “fictitious capital” (the capitalization of such expenses) are Rentier Paying for asset prices became common in the second half of 2019.NumberIn the 21st century, the term has come to refer to economic rents, such as interest, land rent, and monopoly rent, that cause market prices to exceed their intrinsic cost value. Rentier Income in this form could make exports from rent-stricken economies cheaper.
(3) Postlethwaite, The real British system:165 and 52-53.
(Four) John Bernard Why the representatives of the British people are using current interest rates to reduce the national debt more quickly (London, 1737), quoted in Wilson, Apprenticeship in England:318. The three major companies remained the Bank of England, the East India Company, and the South Sea Company.
(5) Hume’s Treatise on Money, by Postlethwaite The real British system:213-215).
(6) Postlethwaite, The real British system:17-18 and 213-215.
(7) James Stewart Research on the principle of Politics and Economy (London, 1767): 349-351.
