Talking to my Daughter about the Economy Varoufakis (2018)
Besides
the works of literature and the poems mentioned in the text, as well
as the science-fiction movies without which I find it hard to
understand the present, I shall mention four books: Jared Diamond’s
Guns, Steel and Germs, which underpins the story in the first chapter
that explains the emergence of gross inequities and, ultimately,
racist stereotyping; Richard Titmuss’s The Gift Relationship, whose
discussion of the blood market underscores ideas first developed in
Karl Polanyi’s Great Transformation; Robert Heilbroner’s majestic
The Worldly Philosophers; and novelist Margaret
Atwood’s Payback, which I recommend unreservedly as perhaps the
best, and most entertaining, book ever written on debt.
Finally,
it would be remiss not to mention the spectre of Karl Marx, the
dramaturgy of the ancient Athenian tragedians, John Maynard Keynes’s
clinical dissection of the so-called ‘fallacy of composition’ and
lastly the irony and insights of Bertolt Brecht. Their stories,
theories and obsessions haunt every
thought I ever had, including the ones laid down in this book.
And this is a useful summary of what the book is trying to say -
“Talking to My Daughter About the Economy: A Brief History of Capitalism” is a book written
by Yanis Varoufakis, an economist and former Greek finance minister. The book aims to
explain complex economic concepts in a simple and accessible manner, targeting a general
audience, including the author’s daughter.
In the book, Varoufakis provides an engaging and insightful overview of the history of
capitalism, tracing its origins and evolution from ancient times to the modern era.
He delves into the key economic ideas and theories that have shaped the world we live in,
including the role of markets, money, and finance.
Varoufakis also highlights the inherent flaws and inequalities within the capitalist system
and discusses how these issues have contributed to various economic crises throughout history.
He addresses contemporary challenges, such as the increasing wealth gap and the impact of
globalization, offering his perspectives on potential solutions and alternatives for a more
equitable economic future.
Overall, “Talking to My Daughter About the Economy” presents a captivating and approachable
exploration of the complex world of economics, making it accessible to readers who may not
have a background in the subject while encouraging critical thinking about the current economic
system and its implications for society.
Key concepts and ideas.
Capitalism’s Historical Development: The book provides a historical overview of how
capitalism evolved over time. It traces its roots back to ancient civilizations,
through feudalism and mercantilism, to the industrial revolution and the emergence
of modern capitalist societies.
The Role of Markets and Money: Varoufakis explains the significance of markets in
capitalist economies as mechanisms for the exchange of goods and services.
He also discusses the importance of money as a means of facilitating these exchanges
and its role in shaping economic activities.
Invisible Hand and Self-Interest: The book explores Adam Smith’s concept of the
“invisible hand,” the idea that individuals pursuing their self-interest in a
competitive market can unintentionally benefit society as a whole.
The Division of Labour and Productivity: Varoufakis discusses how the division of
labor and specialization in capitalist economies have contributed to increased productivity
and economic growth.
Capital and Surplus Value: The author delves into the concept of capital and how surplus
value is generated in capitalist systems through the exploitation of labor, often leading
to income inequality.
The Great Depression and Economic Crises: The book examines historical economic crises,
including the Great Depression of the 1930s, to illustrate the inherent instabilities
and vulnerabilities of capitalist economies.
Globalization and Financialization: Varoufakis explores the impacts of globalization and
financialization on economies worldwide, emphasizing how these processes have transformed
the nature of capitalism in recent decades.
Income Inequality and Wealth Concentration: The book addresses the growing issue of income
inequality and the concentration of wealth among a small segment of the population, which
can have detrimental effects on social cohesion and economic stability.
The Role of Governments: The author discusses the role of governments in managing
capitalist economies, including their responsibilities for regulation, social welfare,
and addressing market failures.
Alternatives and Proposals: Throughout the book, Varoufakis presents alternative economic
ideas and policies that aim to address the shortcomings of capitalism and promote a fairer
and more sustainable economic system.
Economic Democracy: One of the core themes is the notion of “economic democracy,” which
involves giving citizens a more direct say in economic decisions that affect their lives,
rather than leaving these choices exclusively to market forces and corporations.
Social Responsibility and Solidarity: The book promotes the idea of fostering a sense of
social responsibility and solidarity among individuals and societies, aiming for a more
compassionate and just economic order.
Overall, “Talking to My Daughter About the Economy” presents a comprehensive exploration
of capitalism and its historical development, offering readers an engaging and thought
-provoking perspective on the complex world of economics and its impact on society.
The Destiny of Civilisation – finance capitalism, industrial capitalism
or socialism Michael Hudson (2022)
Michael’s
decision to shift to economics was dramatic. One evening, after
moving to New York planning to publish the works of Schenker, George
Lukacs and others, he had dinner with Terence McCarthy, an Irish
communist and translator of Karl Marx’s Theories of Surplus
Value. The conversation turned to how changes in water levels
caused crop failures in the United States that led to an autumnal
drain of money from the stock and bond market, and hence to periodic
financial crises. In Michael’s words, “to me, these
interconnections between production, finance and the overall
economy’s systemic relationships were so beautiful, so aesthetic in
their unfolding—like musical counterpoint leading to modulation to
a higher overtone key—that I decided on the spot to become an
economist.” Ever since, he says, he has been able to achieve in his
economic writing what he could not have created in music.
Michael’s
first training followed his acceptance of the condition Terence
McCarthy set to mentor him: that he would read all the works in the
bibliography of Marx’s Theories of Surplus Value. So while
taking his graduate degrees and working for Wall Street banks,
Michael also worked part-time for the publisher Augustus Kelley to
recommend and write introductions to reprints of economic classics.
In the process, he acquired a library of books by economists missing
from the “normal” history of economic thought.
Childhood
and teenage experience—in an adversarial position
Michael’s
disposition certainly has a lot to do with his family and social
background during his formative years. He was born in March 1939 in
Minneapolis, Minnesota, into a family of labor activists. Of all the
cities in the world, Minneapolis had the strongest Trotskyist
influence. Michael’s father, Carlos Hudson, had worked with Leon
Trotsky in Mexico and had been one of the leaders of the great
Minneapolis general strike of 1934 as editor of the Northwest
Organizer. His father loved Huckleberry Finn, and Michael was called
“Huck” by family and friends. But since his father’s party
name was Jack Ranger, Michael as a boy also was nicknamed “The son
of the Lone Ranger.”
When
Michael was three years old, Carlos Hudson was jailed under the Smith
Act as one of the Minneapolis 17. Carlos remarked that his year in
prison was the happiest time of his life, being assigned to the
library, where he collected a long list of proverbs that Michael
reproduced on his blog in June 2017. Reading “Dad’s Many
Proverbs,” one might come to see not only how J is for Junk
Economics came to be structured, but also where Michael’s
remarkable sense of humor and witty comments can be traced.
When
he was growing up in Chicago, visitors to his house included former
German colleagues of Rosa Luxemburg and Karl Liebknecht, and members
of the Third International when Lenin was still alive and in power.
There was almost constant discussion of socialist doctrine and
tactics in the meetings convened in his home. When Michael was 14
years old, in the University of Chicago’s high school, he was
called a fascist by Stalinists and a communist by fascists. He told
me, “I was very happy being in an adversarial position, yet also
the reasonable voice avoiding ideology. I liked being hated by the
right-wing because it made me a lot of friends and I recruited
many members into the socialist youth groups in Chicago.”
Getting
more confident and stronger when put in an adversarial position
probably has been one of the key traits of his life. Michael has
never accepted the world as it is, with its frauds, hypocrisy
and injustice. Yet it has taken more than self-confidence and a
strong spine to become the great economist that he is today. One
reason for his brilliance and uniqueness is that he has not been
swayed by his academic training in the unrealistic theories of the
economics schools in the universities that justify rather than
critically challenge the status quo. Michael has developed his
analytic ideas through his real-life work experience in many
countries, combined with his deep understanding of the history of
economic thought.
Wall
Street bank experience—countering ideology
While
employed by Wall Street banks as a statistical economist to
understand how the financialized economy works, Michael studied
for a Master’s and then a PhD degree in economics at New York
University. According to him, most teachers in the master’s program
at NYU were part-time. The relatively few full-time academics had no
experience working in a bank or corporation; their worldview came
from textbooks. Michael fortunately found out for himself how the
banks worked, starting as a statistical analyst for the Savings
Bank Trust for three years, and then as balance-of-payments
economist for the Chase Manhattan Bank from 1964 to 1967.
Initially,
Michael’s job was to trace how savings were recycled into new
mortgage loans by New York’s savings banks. His research showed
that most deposits grew not by new saving, but simply by the accrual
of dividends at compound interest. This exponential growth was
recycled into new mortgage loans to buyers of real estate, seeking
ever larger debt/equity ratios in order to dispose of the
surplus finance capital. He saw that commercial banks did not lend
money to finance new industrial capital investment, but only lent
against existing assets, seeking above all to turn their profits or
rents into a flow of interest payments. In short, rents were for
paying interest. And increasingly today, so are wages, because
payments on bank loans, mortgage loans, student debt and credit-card
debt eat away at the disposable income of most families. This is the
monthly “nut” that households pay to the Finance, Insurance and
Real Estate (FIRE) sector off the top of their paychecks.
Later,
at Chase Manhattan, Michael compiled statistics to trace how the
export earnings of foreign countries were captured into paying debt
service. He also traced statistically how U.S. oil companies made
profits by “transfer pricing,” selling crude oil production
cheaply to tax-free “non-countries” such as Liberia or Panama
that used U.S. currency. The oil was then re-sold to refineries in
Europe and the USA at a mark-up so high that oil companies had
no profits to report, and hence paid no income tax anywhere on their
international and domestic operations. To U.S. policy makers, this
exploitation was a success story. In 1966 the oil industry had copies
of Michael’s report placed on the desk of every senator and
representative, and obtained special favoritism as a result of the
sector’s strong contribution to the U.S. balance of payments during
the Vietnam War years.
The
conflict between this reality and academic orthodoxy struck him in
1968 when he had to retake the money-and-banking part of his PhD
orals, because his answers were based on his real-world monetary and
financial experience, which was at odds with the Chicago School
monetarism and vulgarized Keynesian liberalism that had become the
academic norm. That was an era when textbooks still taught of
helicopters dropping money on the economy—not acknowledging the
principle that Michael has made at many monetary conferences ever
since: the central bank’s helicopter only flies over Wall Street.
Money from this helicopter is lent out to buyers of real estate,
stocks and bonds (and to corporate raiders), with little being spent
on goods and services. So the effect is asset-price inflation—which
Michael has shown leads to debt deflation as homeowners need to
borrow higher and higher mortgage loans to afford the debt-inflated
cost of housing, leaving them with less to spend on real goods
and services. This
now-obvious linkage between rising housing costs and debt deflation
was deemed heresy in the 1960s. Mainstream economists thought that as
families became wealthier homeowners, they would have more to
spend—ignoring the debt dimension of how homes were bought on
credit that steadily pushed up the cost of obtaining housing. The
Finance, Insurance and Real Estate (FIRE) sector was (and still
is) treated as if its rentier income should be added to the economy’s
output instead of siphoning it off.
Economic
historian—delving into the origins of money and debt
Michael’s
experience on Wall Street inspired him to set about investigating the
origins of money and replacing the individualistic theories of its
origin with a more realistic and historically based explanation.
His technical articles and monographs are now accepted as documenting
how money originated, not in barter among individuals, but as a means
of palatial accounting in Bronze Age Mesopotamia, above all to
denominate debts owed to the palace, temples and other creditors in
grain and silver as common denominators whose units were set as
having equal value for fiscal payments to the palace.
Michael
also has shown that instead of interest being invented by
individuals lending cattle or grain to reflect productivity
rates (as Austrian theory imagines), early interest rates were set by
the palaces or other civic authorities simply on the basis of ease of
accounting, in terms of the local system of fractions—60ths in
Mesopotamia and Egypt, decimals in Egypt and Greece, and the 12-based
duodecimal system in Rome (1 troy ounce on the pound per year),
increasingly decimalized into 1 percent per month. Finally, he has
applied this historical analysis to modern times by showing that
throughout history, debts have grown at compound interest faster than
the economy is able to pay, leading to foreclosures and economic
polarization if the debts are not cancelled. Indeed, for this
reason, personal debts were cancelled when new rulers took the throne
in Sumer, Babylonia, Egypt and their neighboring lands, in contrast
to Greek and Roman oligarchic opposition to debt cancellation
and imposition of pro-creditor laws.
Michael’s
insights into the workings of modern financialized rent-seeking
economies, both within the United States and globally, have prompted
him to conduct years of research not only into the origins of money
and accounting, but into the origins of labor and how it was
paid, the origins of land tenure and taxation, and the origins and
history of debt. This analysis has led to his well-known proposition
that “debts that can’t be paid, won’t be paid,” and to his
advocacy that unpayable debts should be cancelled, and can be
cancelled without causing economic disruption—and indeed that
without doing so, economies will polarize and crash.
At
the World Social Forums, I had marched with tens of thousands of
participants, including Samir Amin and Immanuel Wallerstein, with a
banner whose slogan “Don’t owe, won’t pay” demanded
cancellation of debts for impoverished countries of the Global South.
However, I sometimes wondered if the slogan was chanted by many
from a political position without a deep understanding of how
the debts were generated. The slogan would be meek if it were only a
political position to express the distress of the indebted countries
and peoples, without an appreciation of why and how the debts should
be cancelled.
Michael’s
advocacy of debt cancellation does not come from a simplistic
political position, though certainly the proposition itself is
profoundly political. The proposition comes from his insider
knowledge of the operation of banks, oil companies, the
government and even the military. This experience informed his
understanding of the domestic and global politics of the United
States, and of the financial dynamics of debt and the long history of
debt cancellation in antiquity. Exempt from academic dogmatism
and left-wing infantilism, Michael’s economic theories are based on
decades of pragmatic statistical and historical inquiry, backed by
his earlier training in cultural history as well as his comprehensive
reading of Marx’s economic works.
Staunch
critic of U.S. Super Imperialism
Working
for the accounting firm Arthur Anderson, Michael spent a year
analyzing the U.S. balance of payments. His statistics showed that
the entire payments deficit resulted from military spending on
the Vietnam War and elsewhere. Seeking ways to finance that military
deficit led the U.S. Government to ameliorate the worsening
balance-of-payments deficit by asking U.S. banks to set up branches
in offshore banking centers to attract the world’s criminal
capital, from drug dealings to kleptocratic embezzlement (the
world’s new “neoliberal” sectors). This outgrowth of
oil-industry “flags of convenience” has led to today’s
crisis of tax enclaves enabling the world’s wealthy individuals and
corporations to avoid taxation and file fictitious economic
statistics. Michael has exposed this in numerous introductions
to books and in interviews in documentary films.
Michael’s
understanding of how the global economy under U.S. hegemony
worked enabled him to forecast in Ramparts in 1968 that the USA would
have to go off gold, which it indeed did in August 1971. Explaining
how ending the gold standard had inaugurated the U.S. Treasury-bill
standard that obliged foreign governments to finance the U.S.
balance-of-payments and domestic budget deficits, his first
book, Super Imperialism: The Economic Strategy of American Empire
(1972), gained him international recognition and has been translated
into many languages. He had hoped to help countries resist the system
of dollarization that has enabled the United States to obtain a free
ride for its foreign military spending and takeover of other
economies. But from the very beginning, the U.S. Government used the
book as a how-to-do-it manual. Michael was quickly employed by Herman
Kahn’s Hudson Institute to explain to the White House and the
Department of Defense how the new international financial order
worked.
The
success of Michael’s books led many Wall Street and Canadian
financial institutions to retain him as a consultant forecasting
interest rates and currency exchange rates. The Canadian government
invited him as financial advisor to develop the
balance-of-payments dimension of what has become Modern Monetary
Theory (MMT), showing that Canada did not need foreign loans to
finance its provincial and other domestic spending. His book
describing why Canada did not need foreign borrowing for its
provinces and companies to spend domestically, Canada in the New
Monetary Order (1978), showed that when Canada borrowed abroad,
the central bank still had to create domestic money in any case to be
spent locally as a counterpart to the foreign currency inflow. Hardly
by surprise, this led to passionate attacks by Canada’s banks
seeking to profiteer by indebting the economy through their loan
underwriting. But it also led to further contracts with Canada’s
State Department and Science Council.
In
the late 1970s, Michael was invited by the United Nations Institute
for Training and Research (UNITAR) to become economic advisor on
North-South debt and trade. He warned of the coming Latin American
debt defaults, which indeed began in 1982 with Mexico. He
subsequently has served as economic advisor to numerous governments,
agencies and political parties from Latvia to Greece. He has argued
for national protectionism and capital controls to resist
free-trade imperialism, for domestic money creation to finance
domestic spending on less inflationary terms than borrowing foreign
currency, and for the need to tax and limit rentier gains in real
estate and finance.
Academic
and theoretical contributions
Michael
has worked within academia on sustained intellectual inquiry. For
many years he was on the economics faculty of the University of
Missouri at Kansas City (UMKC), which became the center of MMT
in the early 2000s with Randall Wray, Stephanie Kelton and Bill
Black. He was Economic Research Director at the Riga Graduate School
of Law (RGSL), where he became Chief of the Committee of Experts for
the Renewal Task Force Latvia (rtfl.lv). As for his most well-known
academic inquiry, that into the history of debt and money, he was
appointed a research fellow in Babylonian economics at the Peabody
Museum of Archeology and Ethnology at Harvard University, where
he organized a colloquium every few years from 1994 onward. The five
volumes of conference colloquia that he has co-edited have rewritten
the economic history of the ancient Near East and classical
antiquity.
These
colloquia were on privatization, land tenure and real estate
ownership (which were found to be based on fiscal liability),
debt cancellation and economic renewal, the origins of money and
accounting, and the origins of labor services (discovered to
have arisen to work on public infrastructure and to work off
personal debts). The findings of these colloquia and their members
refute previous libertarian individualistic theorizing on economic
origins, and have now become the new orthodoxy among Assyriologists,
Egyptologists and anthropologists, most notably Michael’s friend
David Graeber, who wrote his book Debt: The First Five Thousand
Years, largely to popularize Michael’s approach. The
essential focus of the colloquium volumes is on how money,
interest-bearing debt and land tenure were innovated in the
palaces and temples of the ancient Near East, and on how the
privatization of money and credit led to the polarization in
ownership of land and other wealth in the hands of private
oligarchies from classical antiquity to today’s Western economies.
As
one of the few economists who predicted the 2008 crash, Michael
published one of his most important theoretical papers in 2006:
“Saving, Asset-Price Inflation, and Debt-Induced Deflation.”1
1.
In L. Randall Wray and Matthew Forstater, eds., Money, Financial
Instability and Stabilization Policy (Cheltenham: 2006), pp.
104-24.It accurately explained how the exponential expansion of
credit created corresponding debt that would
lead to the impending financial crash and its aftermath. On
September 8, 2009, Dirk Bezemer wrote an article “Why some
economists could see it coming” in the Financial Times, which
stated that “Michael Hudson of the University of Missouri wrote in
2006 that ‘debt deflation will shrink the ‘real’ economy, drive
down real wages, and push our debt-ridden economy into Japan-style
stagnation or worse.’ Importantly, these and other analysts not
only foresaw and timed the end of the credit boom, but also perceived
this would inevitably produce recession in the US.” That
article included the set of charts that helped make Michael famous
for his explanation of why financial crises are endemic and lead to
secular stagnation:
Today,
with the world in deep financial crisis, Michael has reiterated his
proposition that unpayable or odious debts should be cancelled, and
indeed must be cancelled in order to avoid a global austerity crisis
and economic polarization stemming from chronic debt deflation. One
point of clarification here. The United States has become the
world’s biggest debtor, mainly as a byproduct of the fact that most
international debts are denominated in dollars. This poses a basic
question: Which debts should be wiped out?
Michael
urges that the debts of overindebted households and impoverished
countries in the Global South should be written down, but that one
debt should not be cancelled: the official foreign debt of the U.S.
Government. The United States has run up this official foreign
debt—like its domestic Treasury debt—without expecting ever
to actually pay it off. It has no intention of imposing on itself the
austerity that it and the IMF demand of other debtor countries. This
asymmetry, along with the U.S. sponsorship of today’s New Cold War,
has led leading dollar-holding nations such as China and Russia to
begin de-dollarizing their economies. This signals the fracturing of
the world economy that Michael predicted in his 1977 Global Fracture.
The United States is forcing other countries to choose between
accepting a dollarized and militarized rentier austerity, or going
their own way by creating mixed public/private growth-oriented
economies.
For
socialism
For
us on the Global U team, it has been a great privilege and honor to
be learning from Michael, face to face. He was invited to give
lectures in Hong Kong and Macau in November 2019, during which he had
a dialogue with Wen Tiejun on economic and financial issues in China.
During the Seventh and Eighth South-South Forums on Sustainability in
2020 and 2021, he had further discussions with Wen Tiejun. Michael
has a particular concern for China’s development, as he feels that
China is the leading exception to the U.S.-based neoliberal economic
model, not taking the destructive advice of the IMF and World
Bank. He has argued that China’s economy can be resilient if it
organizes its real estate, debt and tax system to avoid the rentier
financialization process that is destroying the West.
In
September 2020, while we were chatting online, I sounded the idea
that Michael give a lecture series for Global U. Michael accepted on
the spot. I emailed him a proposal of 10 topics, and within five
hours he came back with a detailed outline. The lectures were
delivered weekly in September-December 2020. Rewriting these
lectures to create the current book took another few months.
I
sometimes wonder whether Michael would have had second thoughts if he
had known that his spontaneous acceptance of my request would take
ten months of his time. But fortunately for readers, this became a
blessed opportunity to access his central ideas and be guided to his
dozen books. The videoed lectures, subtitled in Chinese and divided
into 70 episodes, were screened in April-August 2021 in China. The
first episode has been watched by over 188,000 viewers, with 30,000
viewers on average for the remaining episodes. The English-subtitled
lectures are available on www.michael-hudson.com. What readers now
hold in their hand, the book written on the basis of these
lectures, presents Michael’s dissection of the burning global
issues of today, and his explanation of how the industrial
capitalism analyzed in the 19th century by Marx and other
classical economists has turned into finance capitalism based on debt
and rent extraction. This financialized system is polarizing the
Western economies and threatening their collapse in a wave of
foreclosures and new privatizations by a financial oligarchy.
Most
important are Michael’s proposed alternatives for de-dollarization
and de-privatization to avoid global debt deflation and New Cold War
imperialism. Indeed, if civilization is to avoid the destiny of
destruction, if humanity is to have a future, socialism is the only
way—and that is what Michael has passionately argued in this book.
Lau
Kin Chi
Director,
Executive Team, Global University for Sustainability Coordinator,
Programme on Cultures of Sustainability, Centre for Cultural
The
Bubble and Beyond – fictitious capital, debt deflation and global
crisis
Michael
Hudson (2012)
Payback
– debt and the shadow side of wealth Margaret Atwood (2008)
