I have been sent back to reading Aristotle. That’s partly because of a recent online post by Michael Hudson, one of my favourite political economists. Titled “ The inability of democracies to resist financial oligarchies from gaining power ” , Hudson wrote: “Aristotle described democracy as the political stage immediately preceding oligarchy, and tending to evolve into it. Ever since his epoch in classical antiquity, democracy has not been able to protect populations from the financial sector using debt to reduce them to bondage (in antiquity), expropriate their lands by debt foreclosure, take their property and demand a rising share of their income as debt service. The result of financial patronage is debt dependency – and in modern economies, debt deflation.” Actually, that’s not strictly accurate if you refer back to the political or constitutional schema of different forms of government as presented in Aristotle’s Politics , but that’s a minor query. I take Hudson’s general point. There is much in his post that needs unpacking, if you didn’t already know his unique research into the practice of debt forgiveness dating back to the Bronze Age of Sumer, Babylonia, Assyria and the world’s oldest city, Ur, in ancient Mesopotamia. To cut a long story short, you would be amiss if you assume modern – read American/Western – financial system, practice and theory, along with their much-celebrated “financial innovations”, must be much more sophisticated and enlightening than the ancients. US debt to China: how big is it and why is it important? Much more complex, yes, involving advanced mathematics and computer simulations with complicated derivatives that no one knows how to evaluate and determine their true risks. But more sophisticated and enlightening – or moral? Definitely not. Through 30 years of collaborative research with specialists in the ancient world at the British Museum and Harvard University’s Peabody Museum of Archaeology and Ethnology, among others, Hudson determines that some ancient enlightened kings, as opposed to tyrants, routinely forgave debts for everyone at the start of a new agricultural season, so that people could start anew and not be burdened and enslaved by creditors. It was, of course, a power play as well, to keep the rich from becoming too powerful. Hudson has argued that throughout history, whether you call it a polity democracy, oligarchy or tyranny, high levels of indebtedness have been a truer measure of a people’s state of freedom or enslavement, hence the quote at the start of this column. America today? Well, student loan debt, credit card debt, home mortgage debt, state and local government debt, and business debt – Americans, individually and as households, are among the most indebted in the developed world. I will skip America’s national federal debt, which is a completely different beast. Here’s some interesting data about average consumer household debt in 2020, published by the Federal Reserve Bank of New York: US$14.35 trillion in total consumer debt, US$145,000 in average household consumer debt; US$9.86 trillion in total mortgage debt; US$1.36 billion in total auto loan debt; US$807 billion in total credit card debt. The average US student carries approximately US$37,000 in debt, totalling a record US$1.7 trillion this year. By allowing the costs of higher education to skyrocket in recent decades, student debt has become big business in America’s financial industry, having burdened generations of young graduates with career/soul-crushing debt. Why would a supposedly advanced society do that to its most educated and promising young minds? In practically all other advanced economies in the world, the majority of students graduate with no or low levels of debt that are highly manageable. At last, US President Joe Biden is considering some levels of student debt forgiveness. But the fact that such an idea is considered controversial or contentious just shows how crazy and powerful the US debt industry is. China increased US debt holdings for first time in six months But what do you call a nation where a majority owes and a tiny minority owns most things? Last year, the top one per cent of Americans had a combined net worth of US$34.2 trillion, equivalent to 30.4 per cent of all household wealth, compared to the bottom 50 per cent, which holds just US$2.1 trillion combined or 1.9 per cent of all wealth. If there is a history lesson from Hudson, it is that concentrated wealth and indebtedness translates into extreme power inequality. One person one vote? You don’t need to be a Marxist to know economic power translates into political power, regardless of the nature of the political regime, and extreme economic inequality into extreme political inequality. In 2014, two US political scientists, Martin Gilens and Benjamin Page, published a bombshell of a paper titled, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”. No one should be surprised by their findings but all across the US, American ruling elites and punditry feigned outrage and disbelief. Their empirical-statistical study of 1,779 policy issues such as gun control and tax cuts dealt with in Washington concludes that the average American voter has zero to minimal impact on any of them, regardless of which party dominates the US Congress or who sits in the White House. In the contest of ‘state capitalism’, can the US beat China? The pair wrote: “Each of four theoretical traditions in the study of American politics – which can be characterised as theories of Majoritarian Electoral Democracy, Economic-Elite Domination, and two types of interest – group pluralism, Majoritarian Pluralism and Biased Pluralism – offers different predictions about which sets of actors have how much influence over public policy: average citizens; economic elites; and organised interest groups, mass-based or business-oriented. “A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues. “ Multivariate analysis indicates that economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.” (I highlighted the key sentence in bold.) The Soviet Union was never real communism, not in any way as envisioned by Karl Marx. China’s communism is anything but. America’s democracy? Well, let’s just say Aristotle was right all along.