Renegade Economists Show 522
As broadcast on the 3CR airwaves 5.30 – 6pm Wednesdays.
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Show Notes
Prof Michael Hudson, author of J is for Junk Economics and many others, joins to discuss the fight for the natural bounty of the earth, with his unique take on the Middle Ages. Watch out for our debate in the last third of the interview. Thanks for all your support over the year. ****FYI we’ve had some technical issues on the podcast so last week’s excellent podcast with Ben Phillips (ANU) can be found inserted in Oct 11th entitled “How the World Might Work”.
Related Links
Labor in the Ancient Near East
George on Finance via the American Monetary Institute
System of National Accounts – see table 16 for finance, table 61 for land.
Sounds:
Byzantium by Derek & Brandon Fiechter
Announcer
Media sting
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5 Comments on “Timeless Battle”
JUST A FANTASTIC BANTA & DISCUSSION, with KARL & MICHAEL.
lt is SO INFORMATIVE.
WELL DONE KARL
Go Well in 2018
REGARDS
DENI HELMS
Thanks Deni, lets hope for the 100th monkey this year. So much of what we discuss is common sense, if only one can open up their blinkers to see.
Despite what Michael Hudson has said in this interview, Henry George did not ignore or discount the importance of credit, whether bank-provided or otherwise. George has been criticized for not developing a more modern theory of money, credit and banking, but he did include several chapters at the end of “The Science of Political Economy” on the subject. If Michael is in disagreement with George’s treatment of the use of credit, he should comment on what George actually wrote.
Michael continues to assert that the banks capture most of rent in the form of the payments of interest on mortgage loans. One needs to follow the money when the transfer of land or land improved by a housing unit or other building occurs. Where do the proceeds of sale go? They go to pay a long list of service providers that include realtors, property appraisers, closing attorneys. The mortgagee or mortgagees (which could be a bank but is more often than not an individual or institutional investor who has purchased an interest in a mortgage-backed security) are paid off. The remaining proceeds go to the seller. Depending on the timing of the transaction during the property market cycle on the corresponding credit environment, the seller may reap a huge, a small, or no gain on the sale of the property. The mortgage lender always has some cost of funds and some costs associated with originating and servicing the mortgage loan. If the loan is held in portfolio, the lender may experience opportunity costs as well (as when market interest rates are falling, which provides the mortgagor with an incentive to refinance to lower the annual interest costs). Near the top of the property market cycle, a larger number of transactions involve speculators expecting to flip the property within a relatively short period of time in order to capture increasing in land values. In such instances, the seller reaps most of the gain after recovering whatever amount of cash contribution was made for the purchase. The mortgagee gets paid off, including whatever interest has accrued since the last mortgage payment was made. When a borrower actually defaults on a mortgage loan, the mortgagee almost always loses money, even when property values in the same market remain stable.
Karl –
If I understand you correctly, you are saying the value of Australian land is $600b while the banks are collecting only 1/30th of that as interest. You claim that this proves 29/30s of the value of land is retained then by the landowner, but this is specious for this reason:
The Land value is a TOTAL for the land, not a rent, whereas the interest paid to the banks is for just one year. And Michael Hudson is correct in saying that this interest replaces rent (i.e. it IS rent) paid to the banks instead of the Landlords or, better, to the Government in lieu of taxes; we call this rent payment a Land Value Tax, but it is really a Land Value Rent.
The Landowners do not get that $600b, unless they sell whatever portion of it they own, but they can collect a rent of, say, 5%/year, which is checked by alternative investment returns elsewhere, and on a risk-adjusted basis as well (e.g. the average return on the stock market may be 7%/year, but it carries greater risk).
Hi Scott, Australia’s total land values stand at $5.7 trillion. This debate has led to further study and refinement. Michael & I are working on a paper where dare I say it, land rents are some 30 – 50% greater than EBITDA bank profits. Sure there is an issue with stocks and flows but we are working through it.