Category Archives: Political Economy

Digested Read: Talking To My Daughter About The Economy, by Yanis Varoufakis

This is a “Midrash“, gloss, or “digested read” of Varoufakis’s book, not a critical analysis or a review. As such it presents the author’s arguments as he makes them, and does not attempt an evaluation. I do provide review the book over on my blog, however.

1 Why So Much Inequality?

The book begins with a simple, childish question, one that any daughter could ask of her father: why is there so much inequality in the world? Some babies are given special status-projecting clothes purchased from a boutique baby store, while a vast many others are wrapped in rags—how is this so? To answer this question, Varoufakis has to describe to his daughter how capitalism works, how it differs from all other economic systems before it, and this requires him to (schematically, as this is a very short, non-scholarly, but still very intelligent book) first discuss how and from where capitalism evolved. Capitalism has a history, then—one never broached in my economics class, and I’d wager, absent from many university economics departments as well.

The first historical moment that Varoufakis visits is 12,000 years ago, when humanity was first compelled by relative scarcity to first cultivate land(in locations where “farming took hold where humans would have perished otherwise” (18), —and to thereby produce its first economic “surpluses”, which cannot exist without a society built upon agriculture. Surpluses are those “extra bit[s] that allow for accumulation and future use – for example, wheat saved for a ‘rainy day’.” This innovation, along with that of writing, invented in Mesopotamia so that farmers possessed records of how much of their own grain was stored in the common granary (19), allowed for the first accounting records to be kept involving debts incurred between producers and the state, which in turn gave rise to the first forms of currency(20), and thus to the first markets.

2 The Birth of the Market Society

The author is at pains, however, to distinguish between “societies with markets” and “market society”(36), between, pre-capitalist economic formations, in other words, and the capitalist variety. Market societies (such as our own) are marked by “the commodification of everything”(31), by the absolute necessity of gaining one’s subsistence from market activity. This is to mark it starkly off from the feudal societies which preceded our own, in which peasants had direct access to the land in order to maintain themselves (in economic terms, to “reproduce” themselves, and to “reproduce the means of production”, to sustain themselves so that they might live to farm another day, in other words). Feudal lords took taxes from them, but no one paid these peasants wages for working. Varoufakis’s illustrative story for this kind of society is that of the ancient Greek world of the Iliad and the Odyssey, in which the word oikonomia (from which we derive the word “economy”) means only the rules or “laws of running, or managing, a household”, the oikos (32). In such a world, the market (the agora) surely exists, and people obviously exchange goods in them, but they do not permeate all of society: there is no “agoranomy” or rules by which markets are run (34). Rather, in the world of Achilles and Agamemnon, of Ajax and Odysseus, non-economic (or supra-economic) values were the those that guided individual and civic life. Honour and glory reigned supreme, as evidenced in Ajax’s suicide when Odysseus was chosen to wear the fallen Achilles’ armour, whose worth was not measured in gold coins but in merit on the battlefield. Of course, matters of the accumulation of material wealth guided all of these soldiers, but the author’s metaphorical point here is that the market in pre-capitalist societies was not the sole determiner of value. That would arrive with “market society”, in the “Great Transformation” (a term borrowed from Karl Polanyi) that brought us capitalism.

Several ingredients combined in the early renaissance/late middle ages to provide the base or roux from which the capitalist stew could be brought to a boil (OK, out of metaphorical steam here). Improved shipbuilding technologies allowed the birth of the first truly global arbitrage (buying low in one location and selling dear in another), with a trade in wool between English, Dutch and Italian seafarers with merchants in China, Japan and India (for silk, arms and then spices, respectively)(37). This then allowed the wealth of the merchant class to threaten the supremacy of the English landed aristocracy, some of which responded by becoming merchants themselves, enclosing their agricultural lands and kicking the peasants off of them so that more sheep could be raised to sell on the global market. Add to this the vast profits returning to Europe from slave sugar cane colonies in the Caribbean, and you have a hearty stew simmering indeed….

What happened next (in rural south-eastern England) would change history forever: evicted serfs became the first wage labourers selling their bodies on the open market in order to survive. Land also gained a market value for the first time, based upon its agricultural capacity. Landowners, in competition with each other to sell wool to the seafaring merchants, themselves put pressure on their tenants, on former peasants who now rented land from the nobles and who had to make the land more and more productive or risk losing their tenancy. Profit was becoming not merely the desired outcome of economic activity, but the driving force behind it: not even the aristocratic landlords could exist outside of its imperatives. And the drive profit necessarily involves debt in a curious way, and this brings us to Varoufakis’s next literary metaphor: Faust’s contract with Mephistopheles in Christopher Marlowe’s play Dr. Faustus.

3 The Marriage of Debt and Profit

“People,” writes Varoufakis,

have always created debts. When one neighbour helps another out in a moment of need, the latter expresses his thanks, saying, ‘I owe you one.’ Without having to sign a contract, both of them recognize that in due course the good deed will be reciprocated, settling their moral debt. But this kind of solidarity is different from debt as we understand it today in two ways: first, because of the contract, and second, because of something called interest. A contract turns an informal agreement such as ‘Lend me a hand today, and I’ll lend you a hand tomorrow’ into a legal obligation with specific terms that take the form of exchange values, often but not always expressed in money. Within that contract, known as a loan agreement, it is most often the case that whoever receives the loan (the debtor) will eventually pay the person giving the loan (the creditor) something extra in addition to repayment of the loan itself, usually more money.(45)

The Faust/Mephistopheles story is so illustrative because of the nature of contracts: in economic theory, each actor freely chooses to enter the contract, which is legally enforced by the state. In Faustus, Marlowe’s 16C devil, tired of dragging reluctant sinners to hell, desires

to snare a far greater prize: a good person who freely chooses their eternal torment. He does so by and fair agreement. As the clock marches second by second to midnight at the end of Faustus’ twenty-four years of bliss, the doctor naturally sinks deeper and deeper into despair and regret at the contract he had signed, realizing the terrible ‘interest’ he must pay.(46)

This reflects the very real anxiety Marlowe’s audience was feeling as traditional bonds gave way to market society in the 16C, when tenant farmers, those reluctant first businessmen

needed some money to begin with – to pay wages, get seeds and of course pay their rent to the lord – before they had produced any goods. As the former peasant turned entrepreneur never had enough money to pay for all this before his wool crop was sold, he had to borrow. Who lent him the money? Very often it was the lord himself, or local loan sharks, who then charged him interest. At any rate, debt came first. (48)

Debt came first, and drives the entrepreneur who has struck his Faustian bargain with his creditors—and with the future profits his future self may or may not accrue from his efforts.

This process, of borrowing from the future to meet the needs of today, is what really brought about the great changes of the industrial revolution: the need to compete drove investment in new technologies such as James Watt’s steam engine, and not the other way around:

Whoever could sell at the lowest price would attract the most clients. Whoever paid their hired workers the least would stand to gain the most. And whoever could increase the productivity of their labour fastest would win both races at the same time. New technology could and entrepreneurs had every incentive to take it up. This is more or less how inventions like James Watt’s steam engine, which transformed workshops into factories, first came to be used. Of course, the technology came at a price. To buy it, very often more money had to be borrowed. With additional debt came greater potential for profit but also a faster route to ruin should things go wrong. As the entrepreneurs’ debts, profits and angst grew and grew, the competition between them became fiercer and fiercer. They had to pay their workers as little as possible, lest they end up bankrupt. Incredible new wealth thus grew side by side with burgeoning debt and deepening poverty. While the rich got richer, the bankrupt were ushered into the hell of the workhouse, and masses of workers faced ever harsher working conditions. (50)

4 The Black Magic of Banking

Varoufakis deploys John Steinbeck’s novel The Grapes of Wrath to explain a key component of a “healthy” capitalism: the need to “recycle” of surpluses back into the economy. Wages must be spent and profits must be reinvested in the production of goods, must be kept moving through the economy to keep it turning over, to continue to generate both wages for workers and profits for capitalists. If either workers cannot afford to buy, or capitalists cannot afford to invest in new and more competitive ways of producing things, the economy stalls. And when this happens, it is the poor and not the wealthy who suffer, which is why Varoufakis uses Steinbeck’s novel as an illustrative example of what the wealthy, those most insulated from capitalism’s periodic and violent mood swings, would prefer not to think too closely about:

In the novel’s twenty-fifth chapter Steinbeck tells the story of how, while millions were hungry, tons of potatoes were thrown into a river and crates of oranges were sprayed with kerosene in order to make them inedible. Instead of recycling, there was wanton destruction. It is at this point in the book that the author famously laments that, despite our ability to bring food from the earth, we are incapable of creating a system in which the hungry can be fed. This failure ‘hangs over the State like a great sorrow’, Steinbeck writes, while the anger of those who lack food grows like grapes on the vine: ‘In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.’ How could any of this happen? The answer lies in the way that market societies can very suddenly lose their capacity to recycle. And at the heart of that recycling failure, you will, if you look closely, recognize a familiar figure: the banker.(54)

For the banker is he who has, under capitalism, normalized the once-sinful practice of usury, of charging interest for advancing loans to clients. In making such loans, bankers are in effect borrowing from the future: by advancing credit to a business (by allowing businesses to go into debt to him), a banker creates money that really does not exist in the present. They create liabilities for their borrowers based upon nothing more than a new entry in the “credit” column of their ledger, and make their profits when the borrower pays them back in actually-existing money, plus interest. The more times they repeat this process, the more money they make, leveraging the money that depositors have entrusted to them to make loans at many multiples of what their vaults actually have on hand. The only thing they have to worry about is a conjunction of two fairly rare but real possibilities: that, simultaneously, many of their borrowers cannot pay them, and many of their depositors want to take their money out of the bank. When everyone’s beliefs about the future change from positive to negative, the economy crashes, and the spells by which the bankers conjured up money out of thin air no longer work their “black magic” (58). For if “there can be no profit without debt” and “without profit there is no surplus”, there can also be no cycle of increasing wealth and profit that is not accompanied by “crashes and crises” (59). Crisis is backed into the logic of capitalism, and the “dizzying doom spiral” that his leads to can only be ended by state intervention (60). State central banks end crises by creating money in very much the same way that commercial banks do, “out of thin air” (61). They do this not to make profits themselves, but to rescue troubled banks so that they can themselves lubricate the seized financial machinery of the profit-making wider economy—and to also generate trust in the wider public by guaranteeing the value of their deposits with the bankers (62). And while this dual role, of lender of last resort and guarantor of civilian assets, might in theory give the central bank incredible power over bankers, to in theory reign in their excessive lending practices, in reality, commercial bankers have always proven to be one step ahead of central bankers, politicians and regulators: the vast wealth of private bankers means that their influence over government policy, and over the candidacies of elected officials themselves, also becomes outsized (63). They then literally become “too big to fail”, and they take on incredibly outsized risks knowing that the government will always come to their rescue in their time of need, so as to not put the entire economy at even greater risk.

What governments do to keep the gravity-defying actions of private bankers is issue public debt to pay for it all: they sell government bonds to investors, who will always buy them except in times of deep and wide-spread financial panic, as governments can almost always be counted upon to pay interest on the bonds, unlike private borrowers. So governments rescue troubled bankers by printing money to lend to those bankers so that the bankers can by the bonds issued by the government! Public debt is thus what makes the capitalist economy even seemingly viable (and thus, in this world of abracadabra, this means actually viable!), and yet government debt gets a bad rep in the media and thus with the wider public:

Yet, watching television, listening to politicians worry themselves sick over the size of the national debt, making all sorts of promises to rein it in, you might be fooled into thinking that government debt – or public debt, as it is known – is an awful thing, something like the smallpox virus, in need of permanent eradication. The argument made by those who consider the state an obstacle to private business is that a government that spends beyond its means and can’t balance its books is heading for disaster. Don’t fall for that nonsense. While it is true that too much public debt can cause major headaches, too little is also a problem. (69)

This is because it is long-term public debt/investment in infrastructure, in paying for essential services, but most of all in providing stable investments for all of those bankers’ profits, that keeps the whole recycling system going (70). But all of this black magic reveals a deeper mystery: why do we continue to rely upon a sorcery that is based upon nothing really substantial, nothing really real? To answer that question, the author must consider the relation of labour to that other mysterious talisman, money. And to unveil that mystery he brings in two fables: first, Jean-Jacques Rousseau’s tale of the stag and the hares, and second, the metaphorical myth of Oedipus, he who was fated to both kill his father and marry his mother.

5 Two Oedipal Markets

A.  Labour: The Stag and the Hares

Rousseau’s allegory of the stag and the hares concerns both the power of collective action as well as the power of human beliefs to either make such collective action work, or to scupper it entirely. Consider a group of hunters, who know that if they work as a team, can together bring down a stag and thereby eat for days. But they also know that if anything goes wrong in the group hunt, if not everyone pulls together, they will end up with nothing. So each of them is tempted to give up on the group and just hunt for small hares instead, as that way at least he will have something to bring home to his family in the short run (74). If they could count on group solidarity, they would rather hunt the stag, as this would bring about the best possible outcome for all, but they cannot be sure. Their decisions are ruled over by various levels of faith in each other, as well as by their fears of each other’s faith, or lack of it, in the group. Optimism and pessimism are thus shown to be “self-fulfilling”, as “if a goal can only be achieved collectively, success depends not just on each individual pulling together but primarily on each individual believing that every other individual will do so”(76).

This, fable says Varoufakis, neatly illustrates how the labour market functions, and shows how the market for labour is not the same kind of thing as the market for goods: hiring someone to work in your factory, buying his labour, is a different kind of exchange than purchasing a car or a house form him, and here’s why: whenever you buy a good, its exchange value is ultimately tied to some kind of experiential value: a car can not only gets you places, it can give you a sense of freedom, of possibility. Similarly, a house not only provides you with physical shelter, it also allows you to make a “home” for your family. You want both of these things, a good car and a nice home, at least partially for their own sake, because you value them. But no one values labour for its own sake: the boss doesn’t hire me because he values me as me; he hires me because I can help him make a profit, and he will “let me go” when I can no longer do so, or when wider economic conditions render my contributions to the firm’s productivity moot when they can no longer sell whatever I help to produce (78).

Furthermore, if the price of a car falls, more people will buy them, but if the cost of labour falls, some businesses will hire more, but other, sharper business-people will think twice: this is because a fall in the cost of labour will mean that the worker will be able to consume less (to “recycle” fewer of what the economy produces), which, this savvy businessperson might believe, would lead to a future economic downturn:

Just like Rousseau’s hunters, entrepreneurs struggling to remain profitable in a market society are playthings of their collective expectations. When the group is optimistic, their optimism is self-fulfilling and self-perpetuating. And when it’s pessimistic, their pessimism is also self-fulfilling and self-perpetuating. The fact that they know this to be the case only makes it all the more certain hares even though they would rather not. This is why the unemployment deniers are wrong: because the labour market is based not just on the exchange value of labour but on people’s optimism or pessimism about the economy as a whole, and so across-the-board wage cuts may well result in no new hirings or even lay-offs.(79)

B.  Labour and Money: King Oedipus

Money is another thing which is neither bought nor sold like a traditional good. Just as businesses do not “buy” labour from workers but rather “lease” it, so too is money not really a saleable commodity but rather something which is leased by borrowers, and out rented out by lenders, for interest (or “rent”). And the process by which borrowers and lenders decide to make their transactions is similarly beset by irrational hopes and fears, by optimism and pessimism that may well turn out to be self-fulfilling prophecies: I felt I couldn’t trust the other hunters to work with me, and lo and behold, wasn’t I right! They felt they couldn’t trust me either, and the whole hunting party fell apart!

In the Oedipus myth, everything that the hero Oedipus does, all of his decisions are made so as to avoid making the prophecies that he has heard about himself come true. His father, wishing to avoid being murdered by his son, orders the infant Oedipus killed, though a compassionate servant merely abandons him to die, and Oedipus is rescued, adopted and raised in an a neighbouring country. In order to avoid marrying his mother he flees what he imagines is the country of his birth, and on his travels engages in a dispute with another traveler and kills him. This man turns out to have been his real father. In the capital city of this new country (that of Oedipus’s birth), he lifts a curse on the city by solving the riddle of the sphinx, and the people make him King, and marry him, according to custom, to the dead king’s widow, Oedipus’s mother. Oedipus employed his faulty and partial knowledge of his situation to the best of his abilities, but tragically, he thereby only succeeded and making the prophecies about him come true (82).

This, says Varoufakis, is exactly how labour and money markets tragically function. When

entrepreneurs see wages and interest rates falling or low, they prophesy that economic activity will go down or remain slow and so avoid borrowing money and hiring workers, thus ensuring that wages and interest rates stay low or fall further and fulfilling their own prophecies. Instead of recovering, the economy falls victim to their pessimism, which only perpetuates itself and intensifies […] You may now be wondering whether something might be done to tame and control these demons. Is there no way to break the cycles of self-fulfilling prophecy and self-perpetuating pessimism? The answer is: it ain’t going to be easy. The demons that turn the labour and money markets into market society’s scourges are an expression of some of the very things that make us human: our ability to reflect on our own and others’ behaviour, to inhabit others’ minds and predict their actions, and to know that for all our cleverness and wisdom we and others rarely resist the short-term impulse for self-preservation, however self-defeating it may ultimately prove to be. To reconcile the messy, contradictory, irrational and perverse behaviour of humans with the smooth functioning of an idealized economic machine would require a rethink and a reorganization of society every bit as radical as [that which] took place in eighteenth-century Britain. (83)

That transformation is now underway, whether we like it or not, for automation and machine learning are doing to our labour markets what factories did to the guilds of craftsmen during the industrial revolution: it will make the majority of jobs completely disappear.

6 Haunted Machines

In this chapter Varoufakis refers to Mary Shelly’s novel Frankenstein, the TV show Star Trek, and the films Blade Runner and The Matrix to discuss the power of technology to do away with labour (Note: other authors have viewed her work as a metaphor for the working class (Franco Moretti’s highly influential “The Dialectic of Fear”) and market society generally (David McNally’s excellent Monsters of the Market).

Star Trek represents the utopian vision of a future without labour (87), [just as Aldous Huxley’s 1931 novel Brave New World might be seen as the obverse of this, as a consumerist dystopia]. In which the inequality and relative scarcity endemic to capitalism is imagined to have disappeared, and the machine is responsible for catering to all of our desires. In reality, however, our deployment of machines in place of labour has so far

have not eradicated poverty, hunger, inequality, chores or the anxiety about our future basic needs. Might they yet do so? In some senses, the opposite seems to be happening. Machines work away, producing astonishing products in vast quantities, but instead of this making our lives easier, we’ve become more stressed than ever. We may no longer chain children to factory looms, but just as every employer is forced by competition to adopt the latest innovation, so most of us feel chained to our technology, increasingly harassed by the need to keep pace with its demands.(88)

In this light Shelley’s Frankenstein is a prescient romantic reaction to social problems created by the early industrial revolution, problems which have not gone away over time. Just as Dr. Frankenstein becomes enslaved by his desire to meddle with nature and artificially create life,

instead of serving humanity technology would create monsters to enslave us, terrorize us, possibly even destroy us; that these creations born of human ingenuity – like the life that Doctor Frankenstein managed to conjure from bits of corpses – would turn against their creators with tragic results.

A modern metaphor for the nightmare that advanced capitalism has created may be seen in The Matrix, wherein the processes of commodification, automation and enslavement have become so complete, “so successful, that we are no longer even aware of it, made oblivious to our reality by the very technologies that rule us.” (90). Our immersion in the ideology of consumer capitalism has become so complete, The Matrix says, that we can no longer recognise it as ideology [just, as Aldous Huxley once put it, like fish who cannot recognise that they are swimming in water]. Varoufakis then brings in Marx, who also felt that the commodification process was quite nearly a “‘force we must bow to'”, except for the tendency for market societies to create periodic crises, which for Marx was a potential sign of hope that the logic of the market might one day be thwarted.

Like Icarus, markets aspire to dizzying heights, and while at first new innovations in automation reduce labour costs and produce great profits for those first to innovate, eventually such innovations become common practice for those firms’ competitors, which causes the price of those innovations, and thereby the rate of profit that those innovations engender, to fall. Soon there is a glut of production in the once relatively rare product that the innovation spawned, and companies go bankrupt as prices tumble toward bottom. Soon many entrepreneurs who have “borrowed value from the future in order to invest in the latest machines” cannot pay their bankers, who themselves are forced into crisis, and the whole system grinds to a halt, often causing civil unrest and producing opportunities for labour to make some gains once more, even if that happens in the context of the increasing machine-like efficiencies expected of human labour, as in Charlie Chaplin’s Modern Times, in which Chaplin’s character becomes, in his movements in the factory like a living extension of the machine(91-2), [due to the “Taylorist” efficiencies extracted from labour by businesses which conduct time-and-motion studies to break human movements into the simplest and most efficient possible].

Theoretically, automation and mechanization would free our creative energies, so that we might spend our lives on personally and socially enriching and beautifying tasks. But this would require a democratic ownership of the fruits produced the automated processes of manufacture. When they remain in the hands of very, very few individuals, inequality is bound to be worse, not better than before automation:

If I am right in this, our market societies will not evolve naturally into the good, Star-Trek -like society that the giant technology corporations insist they are bringing about. I fear that something more like The Matrix awaits us, controlled not by machines but by the fantastically wealthy and powerful heads of those companies. If so, it is not just a matter of waiting patiently until the Googles, the Apples, the Teslas, the Amazons and the Microsofts of today and tomorrow deliver a brave, new, wonderful world to us on a silver platter. So what should we do instead? (95)

Varoufakis proposes that we look to the film Blade Runner for a clue as to what an answer to that question might look like. In the Ridley Scott film, Harrison Ford’s character Rick Deckard, is supposed to hunt down and kill disobedient, uppity “replicants” or cyborgs, machines who think they are and can pass for humans. Deckard falls in love with one of them, and ultimately must question what it is about his humanity that grants him his supposed superior status (96). Falling in love causes that inexpressible something in him to rise up and disobey the logic of the society which runs like an apparently efficient, but actually out-of-control machine, a machine that does not serve us but which calls upon us to be its servants. We too have that something in us to resist our much less fantastical but still quite real enslavement to the production of exchange rather than experiential value, if we so choose to (100). Each new global crisis, such as the most recent spectacularly violent one in 2008, provides us with an opportunity to organize the economy around more democratic principles—say, providing each and every citizen an economic stake, a financial share in, the profits flowing from our great increasingly-automated economy. Such a move would result in fewer billions for the billionaires, but would go a long way toward ensuring that the products to the economy can be consumed (“recycled”), thereby saving capitalism from its own worst enemy: itself, its tendency to concentrate wealth and power in ever-fewer hands.

Only the political power of the tiny few stop us from doing this essential redistributive maneuver (102). Over the final two chapters, focusing on the political choices we face as regards both money and the environment, Varoufakis will show how this must be done if we are going to survive as a species.

7 The Dangerous Fantasy of Apolitical Money

To illustrate the necessary, socially useful but artificial nature of money, Varoufakis describes what happened in a prisoner of war camp during the Second World War, in which Allied prisoners began bartering parts of Red Cross care packages that they did not want (say, tea) for those they did (say, coffee). Eventually, someone hit upon the idea of using cigarettes as a common exchange mechanism, and they quickly became the currency of the prison camp, making exchange far less onerous than barter. Prices for tea in terms of another commodity would eventually settle at an “equilibrium” and middle men, who took profits by buying tea from coffee lovers at a low price and selling it at a higher price to coffee lovers, were squeezed as the common currency cigarettes made it much easier for regular prisoners to trade with each other: so long as the supply of cigarettes remains farely stable, I can be sure that their worth does too, and buy tea from you with, say, three of them, and you can use two of those three cigarettes to buy, say, some chocolate. Cigarettes become the “natural”-seeming common exchange mechanism: like any currency, they are convenient, reasonably popular, divisible into portions, and universally (at the time) desirable (107), and their use “lubricates transactions no end, helping the economy move more commodities more quickly” (108) But they are, like our own money supply, hardly apolitical and certainly not natural: though you can accumulate them (and thereby “value”) , a sudden increase in their supply devalues their worth, or a delay in Red Cross shipments will make them more scarce and increase their value greatly: inflation and deflation are thereby introduced into this little economy by external factors which are not subject to the prisoners’ control. Thus, faith or belief in the future value of the currency (will the war end sooner, or later? For example, would affect your decision to lend me 10 cigarettes at interest, as if it is over in six months, those cigarettes will be worth much less when I need to repay you) (109-111):

From this it is clear that a monetized economy cannot be sustained if everyone knows its end is nigh. Everything relies on trust in its longevity as the very anticipation of collapse is enough, in an Oedipal fashion, to cause collapse. This is true of all economies, from the one in Radford’s POW camp to our own today.(111)

But while the Red Cross, which had no political or economic skin in this game, was in control of the camp’s “money” supply, our own functions quite differently in this important respect: politicians have always been tempted to dilute the value of their currency (and their debts to their bankers) by printing more of it, which induces skepticism in the wider public over the currency’s potential future value, causing inflation in the price of goods relative to the devalued currency (112-113). And because getting money from the rich via taxes, is never easy, central banks have often been instructed to print more currency to pay for the public expenditures that keep modern economies functioning (114). And when you add to this the private bankers’ ability to create money by loaning out 10, 20 or even 30 dollars for every dollar held in their vaults, in practice “the volume of money massively exceeds the quantity of coins and paper notes in circulation” (115).

This expansionary threat often gives rise to calls for a tighter control on the money supply, and for its removal from the sphere of politics. However,

if money were to be depoliticized, if its supply were to be separated from the world of politics, then we can now see that all of the following decisions would have to be made independently of politics: how much government spends and on what; how much tax the state collects and from whom; what bankers should be allowed to get away with; how to deal with bankers when they go bankrupt. To the extent that these decisions are the very definition of politics, then they can be undemocratic if they are taken by the oligarchy, but they can never be apolitical. (117)

In practice, central banks that are formally de-coupled from legislatures and given “independence” from politics always serve the interests of the powerful and wealthy elite (i.e., they continue to be very political); they just become the servants of “the oligarchy and the bankers”, because “money is inextricably bound up with the institutional management of debt (public and private) and taxation”, and the policies of central banks everywhere represent the interests of the lenders of those debts: the private banks.

Bitcoin, which emerged out of the financial crisis of 2008, is one attempt to, if not completely depoliticise money, at least take it out of the hands of governments and anarchically place it into the wider market, to make it beholden to no nation state or to any central bank policy. It is a digital “gold standard” which places a finite number of mathematically derived, secure bitcoins in circulation (118). The technology behind it, blockchain, makes all participants the keepers of the ledgers of all transactions in bitcoin, and since “everyone would observe everyone else’s transactions, [this would] ensur[e] their validity, while at the same time no one would know whose transactions they were observing, safeguarding privacy” (119).

In practice, hacking showed the weakness of the safeguards, and showed that currencies that lacked the imprimatur of the nation-state were prone to much worse crises of confidence (120). Also, the fixed supply of bitcoins poses another problem: deflation:

Let’s first see why the fixed quantity of Bitcoins makes a crisis more likely: its so-called deflationary effect. As businesses create more products, each Bitcoin will become relatively scarcer and so be worth more and more. Which means that the price, measured in Bitcoins, of each car or gadget falls even faster than the pace dictated by automation. And this will happen across the board: price deflation. This is not a problem in and of itself but becomes a huge one if wages fall faster than prices, meaning workers can only afford to buy fewer of the multiplying products. This fall in sales due to Bitcoin’s deflationary effect adds a destabilizing factor to the bankers’ standard overexuberance and sparks a crash more readily.(121)

And when the crash does occur, the gold standard approach taken by Bitcoin prevents the government from inflating the money supply to rescue the economy (122), [producing the effect that austerity minded governments in the UK, Canada and the US unintentionally caused in the 1930s: an exacerbated, lengthened depression, as the worse the economy did, the greater the temptation to tighten the money supply still further].

8 Stupid Viruses?
There is something deranged about what an economy solely focued upon exchange value does to the environment. Only someone wilfully blind could deny how much damage we, whom Agent Smith in The Matrix dubs “a virus […] a disease, a cancer of this planet” (123) have done and continue to do to our collective home. But the fact that we have imagined characters like Agent Smith to warn us of the worst parts of our nature means that we possess a better part as well, a “self-critical […] reflect[ive]” capacity (124), one that can call us out on our most absurd traits, such as allowing financial incentives to profit from environmental and social disasters (125).

This is because we pay no attention to those aspects of nature to which we have not attached exchange value: the air we breathe and the water we drink are largely, in economic terms, worthless, as are rain forests that have not been yet burned down so that cows may graze upon them (thereby giving the land exchange value) (126). And common resources that, if intelligently managed, would provide an endless source of value to us (e.g. fish stocks), in reality get squandered because, in our addiction to competition and short-term profits, fishermen have all the incentive to drive fish species toward extinction (127). This Varoufakis links to the Hellenic concept of the idiot:

In ancient Greece a person who refused to think in terms of the common good was called an idiotis – a privateer, a person who minded his own business. ‘In moderation as a poietis [poet], immoderately as an idiotis ,’ the ancient Athenian saying went. In the eighteenth century British scholars with a passion for ancient Greek texts gave the word idiotis its current English meaning – a fool. In both these senses our market societies have turned us into idiots. (128)

Only by ceasing to be idiots (ceasing to value exchange value and only that) can we have a hope of rescuing ourselves from the perils of climate change and mass extinction (129).

Collective ownership of vital resources might seem the logical way to begin going about trying to save our planet and thereby ourselves, but the prevailing [neo-liberal] solution suggests that we proceed in the opposite direction: by expanding exchange value to cover those aspects of the environment that previously lacked exchange value, we would have the financial incentive to become its wise stewards, this argument says: we need more markets, not fewer, and only when water, forests etc. are all privatised, owned by individuals and corporations for the sake of pursuing profit, can we begin to conserve them (130).

This smacks of a new feudalism, though, as control of the vast majority of the earth’s surface would fall into very few hands (131). One proposed solution to this would be to divide rivers, lakes, etc. into very small “shares” and distribute them widely, creating a competitive market for them (132)! The “Cap & Trade” system beloved of neoliberal governments does exactly this, as each company is entitled to a share of a certain amount of pollution, which if unused can be sold on the open market to those companies which pollute more.

But pay attention to the irony: the only reason to adopt a market solution such as this is because government can’t be trusted, and yet this solution depends entirely on the government for it to work. Who decides what the original quota of pollution will be? Who monitors each farmer, fisherman, factory, train or car’s emissions? Who fines them if they exceed their quotas? The government of course. Only the state has the ability to create this artificial market because only the state has the power to regulate each and every company. The reason the rich and powerful, along with their intellectual and ideological supporters, recommend the complete privatization of our environment is not that they are interventions that undermine their property rights and threaten to democratize processes that they now control. And if, in the process, they get to own Planet Earth, that’s OK by them too! (132-133)

Would it not make more sense to truly democratize the economy, so that we might collectively manage both it and the environment, since we all have a life-and-death stake in it? Rather than heed the command made by powerful elites to “commodify everything!”, so that they might benefit even more than they already do, why not try “Democratize everything!” instead? We must, Varoufakis claims, because

Commodification will never work. Markets do a great job when it comes to managing the supply of coffee shops in a city and, more generally, the distribution of goods among buyers with different tastes, just as we saw in Radford’s POW camp. But as I have attempted to show over the course of this book, they are terrible at managing money, labour and robots. As for the environment, the market solution combines the worst of the market with the drawbacks of state intervention.(134)

Democracies grant each person-one vote. Similarly, markets allow us to vote, in a way, as well. The difference is that in markets, each vote does not carry equal weight: wealthier citizens have much more say in the ‘one dollar = one vote’ system, and these wealthier citizens may actually have incentives to profit from increased environmental degradation, or at best may be indifferent, living in the mountains, to the flooding of coastal areas (135). Democracies, while imperfect and often corrupt, are never as corrupt as markets can be when gamed’ to favour the very few and very powerful elites.


Varoufakis closes with a thought experiment called HALPEVAM (“Heuristic ALgorithmic Pleasure & Experiential VAlue Maximizer”), which is designed to make those critics who might say “But I personally don’t care about any of this” change their minds. In HALPEVAM, you are given the opposite of the Matrix:

a virtual life that is by your own standards the best of all possible lives, and while in it, you have no clue that it is virtual. Above all, its primary directive is never to change our desires or motives to suit its virtual world but to create a virtual reality in perfect harmony with your own desires, sensitivities, aspirations and principles, just as they are.(137)

The catch is that a life centred on intense personal pleasure comes with the proviso that you cannot return to the old world of the “chores, pains and sorrows of normal life”, a life that, because it is difficult, also contains the seeds for meeting deeper needs than personal satisfaction and pleasure (138). In effect, HALPEVAM is consumer capitalism as it currently performs in our globalised economy, a capitalism which is incapable of anything beyond sating our momentary desires, and which has nothing to offer in terms of providing “authentic happiness”(139).

To correct this gross exaggeration of human nature (in which our fullest expression of self comes through shopping at a mall (140), Varoufakis proposes an economy run along a different principle: the ancient Greek concept of Eudaimonia, which means “flourishing”—not just “happiness” but a fully alive life, one which “constantly evolve[s]” towards its own self-expression [the way an acorn grows into a mighty oak tree].

In order to change, we must recognise the dominant ideology of our times as just that: an ideology, not a natural inevitability (142). This ideology poses as our new religion, and has its own priests, technocrats, who tell us to leave the complex metaphysics (economics) to them. But Varoufakis wants to democratise this, too, and hopes that this book will encourage his daughter and those like her to take up the challenge and stand up to the priests and to profane their temples, to doubt their theology (143-144). For

Unlike physics, in which nature is the impartial judge of all predictions, economics can never be subjected to impartial tests. It would be not just hard but impossible to create a laboratory in which economic circumstances can be sufficiently controlled and replicated for any scientific experiment to have validity […] When economists insist that they too are scientists because they use mathematics, they are no different from astrologists protesting that they are just as scientific as astronomers complicated charts. (144-145)

At best, economists are “worldly philosophers”, not scientists, and would greatly benefit from the humility that such an appellation afforded them. At any rate, as citizens (and daughters) of the world, our choice is to either “adapt your behaviour to suit market society’s needs, or become obstinate enough to want to adapt society to [our] own ideas about what society should be like instead” (146), confident that, if we apply ourselves with enough collective will, we can make good use of another ancient Greek idea, the principle of Archimedes: “that, given enough distance, nothing is impossible. ‘Give me somewhere to stand, and a lever long enough, and I shall lift the Earth,’ he said”.


This Is Capitalism: The Vision of Ellen Meiksins Wood

The late Ellen Meiksins Wood had a long and illustrious career teaching the history of political thought at Toronto’s York University. In light of her death earlier this year, it is fitting to recount just how much she taught us about the specificity of capitalism. Her sizable body of work not only spans the entire history of western political thought, it also thereby clairifies for us just what makes capitalism so different from the economic systems of other eras, and in doing so provides an understanding of the contemporary politico-economic reality that is a useful alternative to the perhaps more influential ‘post-Fordist’ or ‘commercialization model’ theorists such as David Harvey, Immanuel Wallerstein and others.

Wood teaches us how, in order to more fully appreciate the present moment of capitalist history, it will be necessary to distinguish ‘essence’ from ‘accident’ in capitalism…

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Capitalism and its Discontents: On Utopia or Bust, by Benjamin Kunkel

I have written on the intersection of capitalism and literature in the past, and I’m intrigued about Benjamin Kunkel’s project in Utopia or Bust of giving a number of leftist thinkers (some of whom are more relatively unknown than others, especially to North Americans) a public hearing. I find his style to be engaging, personable, and forthright. Note:I will be adding reflections on each chapter of the book as I get to them — as of right now Chapters 1 and 2 are complete and can be found below.

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