how economic theory came to ignore the role of debt.pdfVIP

real-world economics review, issue no. 57 How economic theory came to ignore the role of debt Michael Hudson (University of Missouri at Kansas City, USA) Copyright: Michael Hudson, 2011 You may post comments on this paper at /2011/09/06/rwer-issue-57-michael-hudson/ Starting from David Ricardo in 1817, the historian of economic thought searches in vain through the theorizing of financial-sector spokesmen for an acknowledgement of how debt charges (1) add a non-production cost to prices, (2) deflate markets of purchasing power that otherwise would be spent on goods and services, (3) discourage capital investment and employment to supply these markets, and hence (4) put downward pressure on wages. What needs to be explained is why government, academia, industry and labor have not taken the lead in analyzing these problems. Why have the corrosive dynamics of debt been all but ignored? I suppose one would not expect the tobacco industry to promote studies of the unhealthy consequences of smoking, any more than the oil and automobile industries would encourage research into environmental pollution or the linkage between carbon dioxide emissions and global warming. So it should come as little surprise that the adverse effects of debt are sidestepped by advocates of the idea that financial institutions rather than government planners should manage society’s development. Claiming that good public planning and effective regulation of markets is impossible, monetarists have been silent with regard to