A review of Yanis Varoufakis’s “Talking to My Daughter About the Economy: A Brief History of Capitalism” on Bitgenstein’s Table, the Crypto Philosophy Podcast
On October 24, 1929, the collapse begins.
Over the next six days, stocks plummet, wiping out more than a year of gains and ultimately engulfing most of the world and sending United States unemployment up 600% and foreign trade down 70%.
No one expects the Depression to continue for a decade, and no one expects the crisis to break directly into World War II.
What caused the collapse?
And cryptocurrency end the cycle of collapses?
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Some of the world escapes the Great Depression.
China is largely unaffected — apparently since it stuck to its Silver standard.
Japan’s economy only shrinks by 8%, and Japan’s Finance Minister Takahashi Korekiyo implements a large fiscal stimulus with deficit spending and devalues the Japanese currency. Keynesian economists, of course, hold that these methods Takahashi used were particularly effective. But in 1934, Takahashi knows his economy might be heading towards a bust of its own, so to avoid rising inflation, he plans to reduce Japanese deficit spending on weapons.
Takahashi is assassinated during the 1936 purge, called the February 26 Incident, by Japanese nationalists, for daring to reduce military spending.
But the rest of the world slogs through multiplying unemployment, collapsing trade, and exploding poverty.
Unemployed workers take to riots, and unrest grows in many areas. Families struggle to feed their children, men line up to take their place in dangerous construction projects.
The comedy show Laurel and Hardy finds humor in these circumstances, and James “Cinderella Man” Braddock inspires the struggling country with his boxing success, but it’s a long, hard ten years.
This is a book review episode.
The book, entitled Talking to My Daughter about the Economy: A Brief History of Capitalism, is written by a controversial economist.
That’s why I read it. What’s the point of only reading books you already know you agree with?
The author, Yanis Varoufakis, doesn’t fit very well into economic schools. His influences include economists as diverse as John Maynard Keynes, Friedrich Hayek, Richard Wolff, and Joan Robinson — major figures in the Keynesian, Austrian, neo-Marxian, and post-Keynesian schools of economics.
Economics experts have led us astray time and time again, Varoufakis points out, so perhaps we have strong reason to doubt the models of the prevailing experts in economics.
Of course, perhaps he’s also reducing the reader’s tendency to critique his book since his manner of speaking in it is so simple, not like an economics expert. He attacks “the economics experts” several times.
But when it comes to economics, Varoufakis is no amateur.
Bitcoin was started just as banks were being bailed out around the world in 2008–2009.
Greece was among the countries hit hardest by the crisis, and used IMF loans and tax hikes to fund bank bailouts in 2010 and 2012.
Several years later, by 2015, Greece was worse off. Yanis Varoufakis had just started as Minister of Finance in January of 2015, and he strongly opposed a third round of bank bailouts. When the bailouts were passed despite his opposition, Varoufakis resigned, in July 2015.
Besides economics proper, he’s done a good deal of work on game theory. That’s far from his only connection with games: He’s worked as economist-in-residence at Valve Corporation, the company behind Steam, the video game platform unrelated to Steemit, and titles like Team Fortress, Portal, and Half-Life. Though sadly still not the company behind Half-Life 3.
Yanis Varoufakis has taught at Cambridge, the University of Sydney, and the University of Athens, and now teaches at the University of Austin, Texas.
Since his departure, Greece’s situation has not improved.
“The euro is unsustainable …. The bailouts were crimes against logic …. Greece went bankrupt in 2010, and now the whole Eurozone is in trouble and is covering up the bankruptcy by throwing out new loans and acting like they pay the old loans.” ~ Yanis Varoufakis
The book Talking to My Daughter about the Economy: A Brief History of Capitalism is free of jargon, pandering, and overly complicated explanations.
This might be too disarming, preventing readers from questioning Varoufakis’s ideas, or searching their own knowledge for any contrarian studies or historical points.
Varoufakis is indeed sometimes accused of cherry-picking from history in books like his title The Global Minotaur.
In that book, he argues that the United States of America has maintained the economic stability of the world since the 1970s by “consuming surplus capital” from the rest of the world’s economy. But even those who agree that Varoufakis has “cherry-picked” still call the book “incisive” and agree that perhaps the Eurozone’s collapse was triggered by lack of demand from other places outside of it.
Talking to My Daughter about the Economy is simpler, more comprehensive, and more personal. Yes, it’s about economics, but the language is refreshing and easy to digest.
The book’s fascinating start is a description of how European and Asian civilization advanced mostly because of starvation.
That’s right: starvation.
Being unable to live off the land meant Europeans and Asians had to turn to agriculture, which meant they had to deal with surplus and debt, and thus had to develop writing and more complex social structures. But societies such as the Aborigines never needed to move “beyond” foraging and hunting, since there was generally plenty of food, and so writing never needed to be invented — and thus no major technological improvements were made over the centuries.
It wasn’t that Aborigines were less intelligent or less capable. It was that they didn’t have to deal with starvation, so they never had to deal with surplus.
Why then did the agricultural cultures of Africa not keep up?
Varoufakis suggests it’s because the crops Europeans and Asians grew were easily transported as empires expanded, since Eurasia runs East and West, keeping much of it in the same general climate. Africa, however, runs North and South, so expanding nations couldn’t very well transport crops.
The main point of these interesting tangents is that agriculture, and the resulting surplus and debt, was the foundation of market societies.
The world, Varoufakis explains, used to be societies with markets, not yet market societies.
Many people went their whole lives without buying or selling anything. Some things simply could not be bought. But over the centuries, more and more things have become commodities. Now, we live in a market society. Everything is driven by markets, and most things — though still not quite everything — have become commoditized.
With the cryptocurrency revolution, everything may even become tokenized: bought and sold and owned and traded on blockchains and in fractions.
But more on that later.
Yanis Varoufakis explains how money has for millennia been conjured “out of thin air” by “borrowing from the future.”
Some ancient civilizations used carved shells to pay workers in promises of grain for the future.
The shells were not always backed by actual grain, but by the promise of grain — backed by the full faith of the Mesopotamian government, if you will. It was money out of thin air.
Similarly, today, when you get a loan from the bank, the bank doesn’t go procure pieces of green paper and put them in a vault under your name.
Some people think that the bank fills your loan with money from deposits, but that’s not true, either. In reality, the bank just enters a sum of money to add to your account, out of thin air.
It is this “black magic” performed by bankers to borrow money from the future that arguably powers times of massive economic growth, but that also leads it to eventually overextend itself and fall apart.
Some might see Hayeck’s Austrian-school influence here, but whichever school of economics you follow, Varoufakis’s conclusions are clear: The very thing that enables explosive growth in our economies — massive amounts of debt — also leads to economic downfall.
And when the banks prove unable to meet their obligations, the central banks of their countries bail the system out, by also conjuring up more money out of thin air.
Prevailing economic theories before the Great Depression could not explain the collapse. Most of these theories held that the economy would basically continue to go up.
It was here that John Maynard Keynes’s theories of the economy emerged.
They would take over the capitalist world in the decades following the Great Depression, then recede for a time, but despite criticism coming from Milton Friedman and from heterodox groups like the Austrian School, Keynesian principles would return to prominence during the Recession of 2008.
Keynesian economics theorized that the Great Depression was caused by decreased spending.
According to Keynesian theory, when an economy slows, the government needs to run a deficit. Basically, the private sector of the economy is too scared to invest enough to keep production running as normal and to push the economy out of depression.
The solution? Increased government spending, cutting taxes, or both.
In the 2008 Recession, it was these Keynesian ideas that returned as New Keynesian Economics.
Laissez-faire economics free of all government intervention, according to Keynesians, would be much slower to pull out of recessions than economics that relied on corrections by a government’s fiscal policy or by a central bank’s monetary policy.
I personally find it interesting that Keynesians argued for lowering taxes and yet also argued for inflation. It’s here that we see that these ideas might be sacrificing the long-term for the short-term, like taking out a loan to accelerate your small business’s growth since you are banking on future success to be able to pay it back.
Once again, we’re borrowing from the future. This time, on a national and even global scale.
A significant portion of Talking to My Daughter About the Economy: A Brief History of Capitalism is dedicated to addressing what Varoufakis calls “unemployment deniers.”
Varoufakis sums up what he understands the arguments of “unemployment deniers” to be: that if a person can’t find a job at the wage standards they want, they simply need to lower expectations until they find a job at a lower wage, and eventually the economy finds equilibrium.
But the author holds that isn’t what happens. Let’s say that an employer who makes bicycles finds out that a union has agreed to take a wage cut, or that wages are going down. To Varoufakis, that means the employer will *not* hire more people or buy more equipment, since lower wages mean that people have less discretionary income — and that means fewer people will be buying bicycles, so the employer had better cut back on expenses.
So economic predictions by employers are a self-fulfilling prophecy. If employers believe the economy is doing well, they’ll pay employees more, hire more employees, and buy more equipment — and this will bring about the general prosperity they predicted. Conversely, if they predict the economy will crash, employers will stop hiring, will hand out pay cuts, and will not purchase more equipment or expand their factories, and this will bring about the stagnant economy they feared.
As Varoufakis’s concerns about the boom-bust cycle, the black magic of bankers, and elite ownership become increasingly obvious as the book progresses, he reaches a question:
Can Bitcoin stop this cycle?
I wanted to read this book because of its style and the diversity of influences on and opinions of Varoufakis. But I also wanted to read it because the author directly mentions Bitcoin — and indirectly mentions tokenization.
Varoufakis’s chapter on Bitcoin is a little disappointing, and it seems he’s dismissed it before thinking enough about it.
He sees the appeal of many aspects of Bitcoin, but ultimately Varoufakis insists that Bitcoin’s monetary policy will never allow it to be the money used by a stable market society.
The reason? Flexible monetary policy, according to Varoufakis, is needed to allow central banks to increase the money supply in order to ease crises. Otherwise, crises will turn truly catastrophic.
Listeners who like the Austrian school of economics will immediately see Keynesian influence here. Followers of Keynes believe that the actions taken after the Great Depression prevented it from being even worse, and that similar action in recessions since has prevented another Depression. Followers of Austrian economics posit that, if anything, Keynesian remedies made the Great Depression longer or worse — and that even if similar action in recessions delayed Depressions, they’re just setting us up for a worse Depression in the future.
Even if you believe monetary supply shouldn’t be fixed, and that inflation is needed to ease crises and/or to clear out old debt, cryptocurrency doesn’t necessarily exclude a more flexible monetary supply. In some cases, cryptocurrencies might allow for monetary supply adjustments to be voted in.
I personally hope that doesn’t happen with Bitcoin
But what I find interesting is that now we can experiment with monetary policies. Most government-level economists have run on theory, with too little evidence to back them up. We can try things out, see what works.
Will a more democratic system, where the network votes to change monetary supply, work? Or will the voters always sacrifice the long-term for the short-term, like Austrian economist argue governments are doing now?
As long as that monetary policy isn’t arbitrarily controlled by some centralized, corruptible entity, I remain optimistic. Whatever we build, it can’t be worse than the Fed, right?
Interestingly, Varoufakis continues the book with a chapter on tokenizing everything.
He doesn’t use the word “tokenizing,” for it seems he doesn’t have crypto in mind. But he does say that we should “democratize” everything.
Robots are becoming more and more common in factories, replacing workers. Varoufakis loves technological innovation, but if the robots are completely owned by elite shareholders, the resulting wealth divide will be immense, and potentially no one will be able to buy the goods produced by the robots anyway.
This idea, as far as I can tell, was first expressed in some writings by Karl Marx, where he argues that increased technological efficiency might end up hurting producers for this reason. So Varoufakis suggests partially democratizing the ownership of robots.
Having discussed suggestions for how society can address his main concerns: democratizing money and democratizing production robots, Varoufakis brings up his final concern: the resources which aren’t yet a part of our market society.
In market societies, a number of resources which have not become commoditized are at risk. No parties have an economic incentive to take care of protected forests or, say, the atmosphere unless governments impose penalties — which will often be short-lived since governments are so fickle and so dependent upon rich entities. But what if these resources were indeed owned by large amounts of people?
In the words of Yanis Varoufakis, what if they were democratized?
In the jargon of cryptocurrency, what if they were tokenized, with a wide distribution?
It’s a shame that Varoufakis doesn’t consider Bitcoin and tokenization further.
But he shares the same disdain for the bankers’ black magic and subsequent bailouts that we see cryptocurrency advocates embracing. Many crypto advocates are opposed to using taxpayer funds and inflation — which is arguably another kind of tax — in order to bail out banks and other financial institutions whenever those institutions get themselves into trouble.
Can cryptocurrency put an end to this cycle of black-magic borrowing and bankruptcies and busts?
Will cryptocurrency and tokenization “democratize” the ownership of money, of factory robots, and ultimately of everything?
That does seem like a solution to Varoufakis’s issues with the economy. Whatever you think of Keynesian, neo-Keynesian, new Keynesian, post-Keynesian, Chicago, Marxist, or Austrian schools of economics, you’ll find Talking to My Daughter about the Economy: A Brief History of Capitalism a quick and interesting read or listen.
Thanks for reading.
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Next week, well, I’m not sure what’s going to happen. We might discuss the ancient origins of decentralized systems, or some interesting cognitive bias. There might be a guest on from the philosophy fans I’m met at crypto conferences this year.
Please leave some suggestions. Whatever you suggest and whatever you pick, I’m sure there will be a story, some fascinating ideas, and some lovely non-stock music, so join me next week, on Bitgenstein’s Table: the Crypto Philosophy Podcast.