Transcript
00:00:00 The real foundation of Marx’s political philosophy was the economic argument that there would
00:00:04 be a tendency for the rate of profit to fall, and that tendency for the rate of profit to
00:00:10 fall would lead to capitalists battening down on workers harder, paying them less than their
00:00:17 subsistence, a revolt by workers against this, and then you would get socialism on
00:00:23 the other side.
00:00:24 So what he called the tendency for the rate of profit to fall played a critical role in
00:00:29 his explanation of why socialism would have to come about.
00:00:32 If you look at Marx’s own vision of the revolution, it was going to happen in England.
00:00:37 The advanced economies would be first to go through the revolution.
00:00:41 The socialist, the primitive economies would have to go through a capitalist transition,
00:00:45 and this is the difference between the Mensheviks and the Bolsheviks.
00:00:49 So the Mensheviks, when Hyman Minsky came out of the Menshevik family, the Mensheviks
00:00:53 believed you had to go through a capitalist phase.
00:00:55 Russia had to go through a capitalist period before it becomes socialist.
00:00:58 The Bolsheviks believed they could get there in one go.
00:01:03 The following is a conversation with Steve Keen, a brilliant economist that criticizes
00:01:08 much of modern economics and proposes new theories and models that integrate some ideas
00:01:13 and ditch others from very thinkers, from Karl Marx to John Maynard Keynes to Hyman
00:01:19 Minsky.
00:01:20 In fact, a lot of our conversation is about Karl Marx and Marxian economics.
00:01:25 He has been a scholar of Karl Marx’s work for many years, so this was a fascinating
00:01:32 exploration.
00:01:33 He has written several books I recommend, including The New Economics and Manifesto
00:01:38 and Debunking Economics.
00:01:41 This is the Lex Friedman Podcast.
00:01:43 To support it, please check out our sponsors in the description.
00:01:47 And now, dear friends, here’s Steve Keen.
00:01:51 Let’s start with a big question.
00:01:53 What is economics?
00:01:55 Or maybe what is or should be the goal of economics?
00:01:59 Well, it should be I understand how human civilization comes about and how it can be
00:02:03 maintained.
00:02:05 And that’s not what it’s been at all.
00:02:08 So we have a discipline which has the right name and the wrong soul.
00:02:12 What is the soul of economics?
00:02:13 The soul of economics really is to explain how do we manage to build a civilization that
00:02:20 elevates us so far above the energy and consumption and knowledge levels of the base environment
00:02:30 of the Earth?
00:02:31 Because if you think about—and this is actually work I’ve learned from Tim Garrett, who’s
00:02:35 one of my research colleagues who’s an atmospheric physicist—and his idea is that we exploit
00:02:41 these high grade energy sources from the sun itself to coal, nuclear, et cetera, et cetera,
00:02:47 which means we can maintain a level of human civilization well above what we’d have if
00:02:51 we were just still running around with rocks and stones and spears.
00:02:55 So it’s that elevation above the base level of the planet, which is human civilization.
00:03:02 And if we didn’t have this energy we were exploiting, if we didn’t use the environment
00:03:06 to elevate ourselves above what’s possible in the background, then you and I wouldn’t
00:03:10 be talking into microphones.
00:03:13 We might be doing drumbeats and stuff like this, but we wouldn’t be having the sort
00:03:17 of conversation we have.
00:03:18 So to explain how that came about, that’s what the economics should be doing, and it’s
00:03:22 not.
00:03:23 So this is the greatest thing that the Earth has ever created, is what you’re saying,
00:03:26 this conversation?
00:03:27 Yeah, we’re the most elaborate construction on the planet.
00:03:31 And that’s not what we’ve done, we’ve denigrated the planet itself.
00:03:34 We don’t have respect for the fact that life itself is an incredible creation.
00:03:38 And my ultimate—if I had to see how humanity is going to survive what we’re putting ourselves
00:03:43 through, then we’d have to come out of it as a species which sees its role as preserving
00:03:49 and respecting life.
00:03:51 I like how you took my silly, incredible statement and made it into a serious one about how amazing
00:04:00 life is.
00:04:02 Life is incredible, and we humans don’t respect it enough, we trash it.
00:04:07 And that’s what economics, I think, has played a huge role in that.
00:04:10 Until I actually regard my discipline, I would never call it a profession, let alone a science.
00:04:15 My discipline has probably helped bring about the termination potential, the feasible termination
00:04:22 of human civilization.
00:04:23 Strong words.
00:04:24 Okay, let’s return to the basics of economics.
00:04:28 So what is the soul and the practice of economics?
00:04:33 What should be the goal of it?
00:04:34 Because you’re speaking very poetically, but we’ll also speak pragmatically about the tools
00:04:41 of economics, the variables of economics, the metrics, the goals, the models.
00:04:47 Practically speaking, what are the goals of economics?
00:04:50 Well, in terms of the tools we use, we should be using the tools that engineers use, frankly.
00:04:55 And that sounds ridiculously simple, because you would expect that economists are using
00:05:01 up to date techniques that are common in other sciences, where you’re dealing with similar
00:05:06 ideas of stocks and flows, and interactions between the environment and a system and so
00:05:11 on.
00:05:12 And that’s fundamentally systems engineering.
00:05:15 And that’s what we should be using as the tools of economics.
00:05:18 Now if you look at what economists actually do, the sophisticated stuff involves difference
00:05:22 equations.
00:05:25 And like difference equations, you know, if you’ve done enough mathematics as you have,
00:05:29 you know, difference equations are useful for like individual level processes.
00:05:33 If you’re talking about autonomous, it’ll go from state t to t plus one, t plus two,
00:05:38 and so on.
00:05:39 But not when you’re talking at the aggregate level.
00:05:41 There you use differential equations to measure it all.
00:05:44 Economists have been using difference equations.
00:05:46 So there’s like a book, I think it’s by Sargent and one other, called Advanced Methods in
00:05:51 Economics Using Python, two volumes set.
00:05:54 It’s about close to 2,000 pages, and four of those pages are on differential equations.
00:06:00 The rest is all difference equations.
00:06:03 So they’re using entirely the wrong mathematics to start with.
00:06:05 For people listening, what is difference equations versus differential equations?
00:06:10 Difference equation is like you can do in a spreadsheet.
00:06:12 You’ll have, this is the value for 1990, this is the value for 1991, 92, 93, 94.
00:06:18 So you have discrete jumps in time, whereas the differential equation says there’s a process
00:06:23 moving through time.
00:06:25 And you will have a rate of change of a variable is a function of the state of itself and other
00:06:32 variables and rates of change of those variables.
00:06:35 And that is what you use when you’re doing an aggregate model.
00:06:38 So if you’re modeling water, for example, or fluid dynamics, you have a set of differential
00:06:42 equations describing the entire body of fluid moving through time.
00:06:47 You don’t try to model the discrete motion of each molecule of H2O.
00:06:52 So at the aggregate level, you use differential equations for processes that occur through
00:06:56 time.
00:06:57 And that’s economics.
00:06:58 It occurs through time.
00:06:59 You should be using that particular technology.
00:07:02 But some economists do learn differential equations, but they don’t learn stability
00:07:07 analysis.
00:07:08 So they simply assume equilibrium is stable, and they work in equilibrium terms all the
00:07:12 time.
00:07:13 And the technical level, it’s an incredibly complicated way of modeling the world using
00:07:22 entirely the wrong tools.
00:07:23 OK, we’ll talk about that because it’s unclear what the right tools are.
00:07:29 Maybe it’s more clear to you, but I’ve got to make it clear to an audience.
00:07:33 Well, so this is a very complicated world.
00:07:36 It’s a complex world.
00:07:37 You talk about there are some of the most complex systems on Earth are the human mind,
00:07:46 the economy and the biosphere.
00:07:49 So we’ll go, you know, we’ll go to that place.
00:07:53 I’m fascinated by complex systems.
00:07:56 I’m humbled by them, even at their simplest level of like cellular automata.
00:08:03 I’m not sure what the right tools are to understand that, especially when part of the complex
00:08:11 system is like a hierarchy of other complex systems.
00:08:13 So you said the economy is a fascinating complex system, but it’s made up of human minds.
00:08:20 And those are interesting.
00:08:21 Those are interesting, perhaps impossible to model, but we can try and we can try to
00:08:26 figure out how to approximate them.
00:08:28 And maybe that’s the challenge of economics.
00:08:30 OK, we’ll keep returning to the basics.
00:08:33 Let us try to learn something from history.
00:08:36 I also see as part of economics is us trying to figure out stuff.
00:08:40 And there’s a few smart folks that write books throughout human history.
00:08:46 And sometimes they name schools of economics after them.
00:08:50 So let us take a stroll through history.
00:08:54 OK.
00:08:55 Can you describe at a high level what are the different schools of economics, perhaps
00:09:02 ones that are interesting to you, perhaps ones that the difference between which reveals
00:09:09 something useful or insightful for our conversation.
00:09:14 So you know, you could neoclassical, post Keynesian, Austrian, like the biophysical
00:09:22 economics and so on, other heterodox economic schools that you find interesting.
00:09:26 OK, I actually find interesting a school which went extinct about 250 years ago.
00:09:32 That’s where I’d like to start from.
00:09:33 And they’re called the Physiocrats.
00:09:35 And the name itself implies where the knowledge came from, because if you go back far enough
00:09:41 in history, we didn’t do autopsies.
00:09:43 But when you started doing autopsies, they found wires, they found tubes, etc., etc.
00:09:49 And they started seeing the body as a circulation system, and they applied the same sort of
00:09:53 logic to the economy.
00:09:55 And they came out of an agricultural economy, which was France, and they saw that the wealth
00:10:00 came effectively from the sun.
00:10:03 So their soil wealth comes from, like I said, the soil, but what they really mean is sun.
00:10:06 The soil absorbs the energy of the sun.
00:10:09 One seed plants, a thousand flea seeds come back.
00:10:12 There is no surplus.
00:10:13 We are simply mining what we can find out of the natural economy.
00:10:17 That’s where we should have stayed and developed from that forward.
00:10:20 We then went through the classical school of economics, which comes out of Adam Smith.
00:10:24 And Smith, coming from Scotland, looked at what the Physiocrats said, and what the Physiocrats
00:10:31 argued was that agriculture is the source of all wealth, and the manufacturing sector
00:10:35 is sterile.
00:10:37 That’s literally the term they used to describe the manufacturing sector.
00:10:39 What does sterile mean?
00:10:40 Sterile means you don’t extract value.
00:10:43 You simply change the shape of value.
00:10:46 So the value comes from the soil.
00:10:49 Yeah, it comes from the soil.
00:10:51 That’s the free gift of nature.
00:10:52 That’s literally the phrase they used.
00:10:54 And we then distribute the free gift of nature around, and we need carriages, which was the
00:10:59 manufacturing term they used at the time, as well as wheat.
00:11:04 So to make the carriages, we take what’s been taken from the soil, and we convert it to
00:11:09 a different form.
00:11:10 But there is no value added in manufacturing.
00:11:13 So Smith looked at that and said, well, I’m from Scotland.
00:11:16 And we’ve got these industries, and we make stuff, and it’s machinery.
00:11:21 And he said, no, it’s not land that gives us the source of value, it’s labor.
00:11:26 Now, that led to the classical school of thought, and that said that all value comes from labor,
00:11:33 that value is objective, so it’s the amount of effort you put in, that the price two things
00:11:38 will exchange for reflects the relative effort that’s involved in the manufacturing.
00:11:42 So this computer takes two hours to make, and this bottle takes two minutes to make,
00:11:47 then this is worth 60 times as much as that.
00:11:50 They didn’t talk about marginal cost.
00:11:53 It was absolute cost, effectively.
00:11:55 They didn’t talk about utility as a subjective thing, they ridiculed subjective utility theory.
00:12:01 That led to Marx, and Marx is probably the most brilliant mind in the history of economics.
00:12:07 The only other competitor I’d see is Schumpeter, possibly Keynes, but in my terms of ranking
00:12:12 of intellects, it would be Marx, Schumpeter, Keynes, in terms of the outstanding capacities
00:12:17 to think.
00:12:18 But Marx then turned that classical school, which was pro capitalism and anti feudal,
00:12:24 into a critique of capitalism, which led to the neoclassical school coming along as a
00:12:29 defense of capitalism.
00:12:31 But they defended it using the ideas of the subjective theory of value, so that value
00:12:36 does not reflect effort, it’s the satisfaction individuals get from different objects that
00:12:42 determines their value, marginal utility.
00:12:45 It’s the marginal cost that determines how much they sell for.
00:12:50 Capitalism equilibrates marginal cost and marginal utility, and the concepts of equilibrium
00:12:56 and marginal this and marginal that became the neoclassical school, and that’s still
00:13:00 the dominant school now 150 years later.
00:13:04 That’s the one that everybody learns.
00:13:05 When you first learn economics, if you don’t have the critical background that I managed
00:13:09 to acquire, that’s what you think is economics, the marginal utility, equilibrium oriented
00:13:15 analysis of mainstream economics, and for example, they ignore money.
00:13:20 People think economists, you must be an expert on money because you’re an economist.
00:13:23 Well, in fact, economists learn literally in the first few weeks at university that
00:13:27 money is irrelevant.
00:13:29 They say money illusion.
00:13:31 They represent people’s tastes using what they call indifference curves, and they’re
00:13:37 like isoquants on a weather map.
00:13:39 If you look at an isoquant, it shows you all the points of the same pressure.
00:13:43 So you can be here or you can be in Denver and the air pressure can be the same if you’re
00:13:47 in the same weather unit, so you just draw a cell that links together.
00:13:50 Well, they do the same thing with utility and say lots of bananas and very few coconuts
00:13:55 can give you the same utility as lots of coconuts and very few bananas, and you draw basically
00:14:01 like a hyperbola running down linking the two, and they’ll say, well, that’s your utility.
00:14:06 That describes your tastes, and then we have your income, and given your income, you can
00:14:10 buy that many bananas completely or that many coconuts or a straight line combination of
00:14:16 the two, and then if we double the nominal price of coconuts and double the nominal price
00:14:22 of bananas and double your income, what happens, and the correct answer is, oh, nothing, sir.
00:14:27 You stay at the same point of tangency between what your budget is and which particular utility
00:14:34 curve gives you the maximum satisfaction.
00:14:36 So that gets ingrained into them, and they think anybody who worries about money suffers
00:14:40 from money illusion.
00:14:42 You are therefore ignorant of the deep insights of economics if you think money actually matters.
00:14:48 So you have an entire theory of economics which presumes we exchange through barter.
00:14:53 Like I’ll swap you that Microsoft Surface for, actually, I’ll take two of those for
00:14:58 one of these.
00:14:59 We do this bartering type arrangement.
00:15:02 In fact, that only works if money plays no creative role in the economy, and that’s where
00:15:08 you find, reading Schumpeter, the insight that’s the school of thought that I come from
00:15:13 that says money is essential.
00:15:15 Money actually adds to demand, and we’ll talk about that later on.
00:15:19 So that’s the neoclassical school that ends up being subjective theory of value, nonmonetary,
00:15:28 as though everything happens in barter, and focusing on equilibrium, as though everything
00:15:33 happens in equilibrium, or if you get disturbed from equilibrium, you return back to it again.
00:15:38 And that mindset describes capitalism.
00:15:42 Its most interesting feature is that it reaches equilibrium.
00:15:46 Now what planet are we on to believe that?
00:15:48 Because if you look at the real world, the real exciting world of capitalism in which
00:15:54 we live, change is by far the most obvious characteristic of it.
00:15:59 There’s no equilibrium.
00:16:00 There’s no equilibrium.
00:16:01 It’s unstable.
00:16:02 And as a mathematician, it’s easy to – you work with stability analysis.
00:16:07 You work out what the Jacobian is.
00:16:10 You work out your Lyapunov exponents in a complex system.
00:16:13 You’re used to the idea that equilibrium is unstable.
00:16:17 But economists get schooled into believing that everything happens in equilibrium, and
00:16:21 they don’t learn stability analysis.
00:16:23 So all that stuff is missing.
00:16:25 So onto the schools of thought, treating the economy as an equilibrium system, which was
00:16:32 what the neoclassical school did, is what Keynes disturbed.
00:16:36 And he really disturbed it by talking about, fundamentally, that uncertainty determines
00:16:41 our decisions about the future.
00:16:43 So when we consume, you know if you like Pfizer or whatever particular drink we want to have,
00:16:49 you know the current situation.
00:16:51 But to invest, you must be making guesses about the future.
00:16:55 But you don’t know the future.
00:16:56 So what do you do?
00:16:57 You extrapolate what you currently know.
00:17:00 And as you said, this is a terrible basis on which to plan for the future.
00:17:05 But this is the only thing you can do where there is no possibility of solid calculation.
00:17:10 So investment is therefore subject to uncertainty, and therefore you will get volatility out
00:17:16 of investment.
00:17:17 You will get fads, of course, booms and slumps coming out of that, because people extrapolate
00:17:22 for the current conditions.
00:17:24 And that’s the normal state of a capitalist economy.
00:17:27 And Schumpeter argued that that’s what gives it its creativity as well, the fact that you
00:17:32 can perceive a potential demand, but first of all, you don’t know whether that demand
00:17:37 is going to work.
00:17:38 Secondly, you don’t know who your competitor is going to be, whether somebody is going
00:17:41 to be ahead of you or behind.
00:17:42 If there’s a fad, you’ll overinvest.
00:17:46 All this stuff is the real nature of capitalism, and that’s what we’re trying to capture,
00:17:50 the dynamic nonequilibrium monetary violence and creativity of capitalism.
00:17:57 That’s what we should be analyzing.
00:17:58 And the post Keynesian school has gone in that orientation.
00:18:03 They’ve been, in my opinion, inhibited by learning their mathematics from neoclassical
00:18:09 economists, so they don’t have enough of the technology of complex systems.
00:18:12 There’s only a really tiny handful of people working in complex systems analysis in post
00:18:17 Keynesian economics, but that is, to me, the most interesting area.
00:18:21 So their tools may be lacking, but they fundamentally accept the instability of things.
00:18:26 That’s right.
00:18:27 That’s right.
00:18:28 That’s interesting.
00:18:29 So let me try to summarize what you said, and then you say how stupid I am.
00:18:32 Okay.
00:18:33 So then there was the physiocrats that thought value came from the land.
00:18:40 Then there’s Adam Smith, who said, nah, value comes from human labor.
00:18:50 That was the classical school.
00:18:52 And then neoclassical is value comes from bananas and coconuts, human preferences, like
00:19:01 human happiness, how happy a banana makes you.
00:19:06 And then the Keynesian and the post Keynesian were like, yeah, well, you can’t, you can
00:19:13 never, the moment you try to put value to a banana and a coconut, you’re already working
00:19:19 in the past.
00:19:21 It’s always going to be chaos and stability.
00:19:24 And then you just, you’re fishing in uncertain waters, and that’s why we have to embrace
00:19:29 that and come up with tools that model that well.
00:19:32 And also Joseph Schumpeter, what school would you put him under?
00:19:36 Is he a Keynesian or is he Austrian economics?
00:19:41 He’s an Austrian.
00:19:42 The Austrians deny.
00:19:43 Okay.
00:19:44 That’s the intriguing.
00:19:45 He’s from Austria, but he’s not an Austrian economist.
00:19:51 There are elements of the Austrian school of thought, which are worthwhile.
00:19:54 What is Austrian economics in this beautiful whirlwind picture that you painted?
00:19:59 Okay.
00:20:00 Austrian economics grew out of the rebellion against the classical school.
00:20:04 So you had three intellects who mainly led the growth of the neoclassical school back
00:20:09 in the 1870s.
00:20:10 It was William Jevons from England, Menger, who’s from Austria, and Vollras from France.
00:20:17 And Vollras tried to work out a set of equations to describe a multiproduct economy where there’s
00:20:26 numerous producers and numerous consumers.
00:20:29 Everybody’s both a producer and a consumer, and you try to work out a vector of prices
00:20:34 that will give you equilibrium in all markets instantaneously.
00:20:37 And that’s his equilibrium orientation.
00:20:40 Jevons is also one about equilibrium, but he worked more at the aggregate level.
00:20:44 So there’s a supply curve and a demand curve, and that’s what Marshall ultimately codified.
00:20:48 Menger was pretty much saying that, well, yes, there might be an equilibrium, but you’re
00:20:52 going to get disturbed from it all the time.
00:20:54 You’ll be above or below the equilibrium.
00:20:56 And what came out of the Austrian school was an acceptance of that sort of vision that
00:21:00 a market should reach equilibrium, but then said, well, you’ll get disturbed away from
00:21:04 the equilibrium.
00:21:05 And that’s what gives you the vitality of capitalism, because an entrepreneur will see
00:21:10 an arbitrage advantage and try to close that gap, and that will give you innovation over
00:21:15 time.
00:21:16 And Schumpeter went beyond that and saw the role of money and said that an entrepreneur
00:21:21 is somebody with a great idea and no money.
00:21:25 So to become a capitalist, you’ve got to get money.
00:21:28 And therefore, you’ve got to approach the finance sector to get the money, and the finance
00:21:32 sector creates money and also creates a debt for the entrepreneur.
00:21:37 And so you get this financial engine turning up as well, and you will get movements away
00:21:42 from equilibrium out of that.
00:21:44 You won’t necessarily head back towards the equilibrium.
00:21:47 So Schumpeter has a rich vision of capitalism in which money plays an essential role, in
00:21:54 which you will be disturbed from equilibrium all the time.
00:21:59 And that is really, I think, a much closer vision of actual capitalism than anything
00:22:04 by even the leading Austrians, Hayek, et cetera, et cetera, and certainly Rombardo, I find
00:22:13 totally like reading a cardboard cutout version of The Wealth of Nations.
00:22:20 I find his work trivial.
00:22:23 But Schumpeter was rich, but with the same foundations as the Austrians.
00:22:28 But because he talked about the importance of money that took him away from the Austrian
00:22:31 vision, which is very much based on a hard money idea of capitalism, Schumpeter said
00:22:36 you needed the capacity of the financial sector to create money to empower entrepreneurs.
00:22:42 And that’s a very important vision.
00:22:44 So Schumpeter’s argument is the deviation from equilibrium, that’s where all the fun
00:22:48 happens.
00:22:49 That’s where all the magic happens.
00:22:50 That’s the magic of capitalism.
00:22:51 And like the Austrians, because they focus on the deviation from equilibrium, they’re
00:22:55 better than their classicals, but they still have this belief in the, you’ll reach equilibrium
00:23:00 ultimately or you’ll head back towards it, whereas they don’t have an explanation of
00:23:06 capitalism that gives you cycles apart from having the wrong rate of interest.
00:23:11 So there’s no role for an accumulation of debt over time.
00:23:13 So what Schumpeter gave us was a vision of the creativity of capitalism being driven
00:23:20 by entrepreneurs who are funded by money creation by the finance sector.
00:23:25 And that’s fundamentally the world in which we live.
00:23:29 So there’s also the kids these days are all into modern monetary theory, what’s that
00:23:36 about?
00:23:37 Okay.
00:23:38 Modern monetary theory is accounting.
00:23:39 I want to summarize it bluntly.
00:23:42 It’s simply saying let’s do the accounting because what money is, is a creature of double
00:23:46 entry bookkeeping.
00:23:47 Okay.
00:23:48 What’s double entry bookkeeping?
00:23:50 This was invented back in the 1500s in Italy.
00:23:53 I’ve forgotten the particular merchant who did it based on some Arabic ideas as well.
00:23:57 But the thing is, if you want to keep track of your financial flows, then you divide all
00:24:06 the financial claims on you.
00:24:08 You divide into claims you have on somebody else, which are your assets, claims somebody
00:24:12 else has on you, which are your liabilities, and the gap between the two is your equity.
00:24:17 So you record every transaction twice on one row.
00:24:20 Okay.
00:24:21 So for example, if you and I do a financial transfer, you have a bank account, I have
00:24:26 a bank account, your bank account will go down, mine goes up.
00:24:30 Okay.
00:24:31 And that’s the sum of the operation is zero.
00:24:34 Okay.
00:24:35 But on the other hand, if I go to a bank and borrow money, then my account goes up, they
00:24:38 put money in my deposit account, the bank’s assets go up.
00:24:41 Okay.
00:24:42 And there’s still the same sum applies, assets minus liabilities minus equity equals zero.
00:24:47 Now that’s simply saying money is an accounting, a creature of accounting.
00:24:51 It’s not a creature of a commodity.
00:24:54 So if you think about how Austrians think about money, and how gold bugs think about
00:24:58 money and Bitcoin enthusiasts, if there are any left, think about money, what they see
00:25:02 is money is an object.
00:25:04 Okay.
00:25:05 And you and I can both have more gold, if we’re both willing to go to this mine somewhere
00:25:11 and dig a few holes and get a few specks of gold out.
00:25:14 So there’s no competition or no interaction between you and me if money is gold.
00:25:20 And they think money should be an object, a commodity.
00:25:23 But money fundamentally is not a commodity.
00:25:25 It’s a claim on somebody else.
00:25:28 That’s money’s essence.
00:25:29 So when you do it, you must use double entry bookkeeping to do it.
00:25:32 And then when you do, you find all the answers that come out of thinking of money as a commodity
00:25:36 are wrong.
00:25:37 So for example, and I’ve got Elon on this one.
00:25:39 So I want to get this with Elon because I saw him making a comment about this a few
00:25:43 weeks ago on Twitter.
00:25:44 He said that it’s wrong for the government, effectively it seems wrong for the government
00:25:47 to always be in deficit.
00:25:48 Okay.
00:25:49 Now, when you look at it and say, well, how is money created?
00:25:54 How does money come about when it’s not a commodity like gold, which you dig up out
00:25:59 of the ground, when it’s actually social relations between people that create money?
00:26:03 Well, money is the fundamentally the liabilities of the banking sector.
00:26:11 If we make a transfer between us, your deposit account goes down, my deposit account goes
00:26:17 up.
00:26:18 Deposit exchange is on the liability side of the banking sector.
00:26:23 But if we have a transaction with a bank, then if the bank lends us money, as its loans
00:26:28 go up, its deposits go up, again, that same balance.
00:26:32 So you’ve got to look and say, money therefore is fundamentally the liabilities of the banking
00:26:36 sector.
00:26:37 So how do you create additional liabilities?
00:26:40 You must have an operation which occurs both on the liability side and the asset side of
00:26:45 the banking sector.
00:26:46 So if you and I make a new transaction, no money is created.
00:26:51 Existing money is redistributed.
00:26:53 But if you go to a bank and take out a bank loan, then money is created by the bank loan.
00:26:58 So the liabilities of the banking sector rise, the assets rise, they’re balanced, but more
00:27:02 liabilities of the banking sector means more money.
00:27:06 So that’s how private banks create money.
00:27:08 And that’s what I first started working on when I became an academic about 35 years ago,
00:27:15 the actual dynamics of private money creation.
00:27:17 But the government has the same sort of story.
00:27:19 If the government runs a deficit, it spends more money on the individuals in the economy
00:27:26 than it taxes them, which means their bank accounts increase.
00:27:31 So a government deficit creates money for the private sector.
00:27:36 So that’s where money creation occurs from the government.
00:27:39 So it puts more money into people’s bank accounts by spending, by welfare payments than it takes
00:27:47 out by taxation.
00:27:49 So that’s creating new money.
00:27:50 And then on the other side on the bank, the money turns up in the reserve accounts of
00:27:55 the banks, which are basically the private bank’s bank accounts at the central bank.
00:28:00 So rather than the asset of private money creation being loans, the asset of government
00:28:06 money creation is reserves.
00:28:09 Okay?
00:28:11 Right.
00:28:12 Money creation.
00:28:13 Money creation.
00:28:14 It’s a good thing.
00:28:15 So you mentioned a bunch of stuff like private money creation with the liabilities in the
00:28:19 banks and then how the government is doing, the reserves, blah, blah, blah.
00:28:24 At the end of the day, there’s a bunch of printers that are printing money.
00:28:29 And then you also said something interesting, which is social relations between humans is
00:28:33 what creates money.
00:28:35 I think my mind was blown several times over the past minute.
00:28:40 So it’s difficult for me to reconstruct the pieces of my mind back together.
00:28:44 But basic question, is money creation a good thing or a bad thing?
00:28:50 Money creation is a good thing because money creation is what allows commerce to happen.
00:28:56 Isn’t there a conservation of…
00:28:58 No, there isn’t.
00:28:59 I had to have arguments with physicists over this and it took me a long time to answer
00:29:03 it.
00:29:04 So the sum total of all money is zero.
00:29:05 Yeah.
00:29:06 Okay.
00:29:07 It’s the sum total of all assets and liabilities is zero.
00:29:10 So if you imagine your assets minus your liabilities is your equity and your asset is somebody
00:29:18 else’s liability and your liability is somebody else’s asset.
00:29:21 When we’re talking about financial assets, and this is another mind blowing thing that
00:29:24 I’ve just recently solved myself.
00:29:27 So the sum total of all financial assets and liabilities is zero.
00:29:31 Okay.
00:29:32 Wait, wait, wait.
00:29:33 I’m sorry to interrupt you rudely.
00:29:36 What are assets?
00:29:37 What are liabilities?
00:29:38 Assets are your claims on somebody else.
00:29:41 So…
00:29:42 Specific.
00:29:43 Give me an example of an asset.
00:29:44 Okay.
00:29:45 Do you have a mortgage for this house?
00:29:46 No.
00:29:47 I’m renting.
00:29:48 You’re renting.
00:29:49 There you go.
00:29:50 Well, if you had a mortgage, that’d be your liability.
00:29:51 That would be my liability.
00:29:53 Okay.
00:29:54 The mortgage with the bank’s asset.
00:29:55 Right.
00:29:56 Okay.
00:29:57 If you add the two together, you get zero.
00:29:58 Okay.
00:29:59 So that’s zero.
00:30:00 That’s zero.
00:30:01 So money is the liabilities side of the banking sector.
00:30:04 Okay.
00:30:05 Okay.
00:30:06 Assets are the…
00:30:08 The assets on the other side can be either created by the banking sector, which is where
00:30:12 you get bank loans, or created by the government, where you get reserves.
00:30:16 But money is the liabilities.
00:30:18 Money is…
00:30:19 If you think about protons and anti protons, in that sense, money is like the anti proton.
00:30:23 It’s the negative, the liability.
00:30:25 But wait, wait, wait.
00:30:27 The liability is the negative.
00:30:30 Yeah.
00:30:31 How’s that money?
00:30:32 I thought money is the positive.
00:30:33 What is the liability for the banking sector is an asset for you and me.
00:30:37 And assets includes money?
00:30:39 Yeah.
00:30:40 Yeah.
00:30:41 Okay.
00:30:42 If you have a bank account, you’d have a bank account, and you’d have some cash.
00:30:45 Yeah.
00:30:46 Okay.
00:30:47 Those are your assets.
00:30:48 But the bank account is a liability of the banking sector, and the cash is a liability
00:30:53 of the Federal Reserve.
00:30:55 Okay.
00:30:56 So what’s money?
00:30:57 Well, money is the promise of a third party that we both accept to close our transaction.
00:31:04 And this is…
00:31:05 And that’s a bank with a liability?
00:31:06 That’s a bank.
00:31:07 Yeah.
00:31:08 One of the most important works I’ve ever read is a work by a wonderful, now unfortunately
00:31:12 deceased, Italian economist called Augusto Graziani.
00:31:18 And he’s the most wonderful personality.
00:31:20 Augusto, I met him on a few occasions, is one of the few human beings who can speak
00:31:26 in perfectly formed paragraphs, okay, superbly eloquent.
00:31:31 And what he did was write a paper called The Monetary Theory of Production.
00:31:36 You can find it, download it on the web, it’s pretty much open source now.
00:31:41 And what he said is, what distinguishes a monetary economy from a barter economy?
00:31:45 So he said, in a barter economy, what we do is, you know, I’ll give you two of these for
00:31:50 one of those.
00:31:51 Yeah.
00:31:52 Okay, barter.
00:31:53 So we’ve got a relative price, there are two of us involved, and there are two commodities.
00:31:57 So with money, money is a triangular transaction, okay?
00:32:02 There is one commodity, I want to buy that can of drink off you, two people, and the
00:32:08 price that’s worked out ends up being in a transfer from the promises to pay the bank
00:32:14 that the buyer has to the promises to pay the bank that the seller has.
00:32:19 So if I, so what you have is a monetary transaction in a capitalist economy involves three agents,
00:32:26 the buyer, the seller, and the bank.
00:32:28 So the bank always has to be part of it.
00:32:29 Well, the bank has to be part of it.
00:32:32 When I hand you the money, you accept that as you’ve now got, rather than it’s the bank
00:32:37 promising to pay me something, it’s now the bank promising to pay you something.
00:32:41 And we exchange the promises of banks, and that’s fundamentally money.
00:32:46 So money is fundamentally a threesome, and everybody gets fucked.
00:32:51 Is that a good way to put it?
00:32:53 No, I’m just kidding.
00:32:54 It leaves it, it leaves it for the guy to be like, oh no, I can use French in this conversation,
00:32:57 that’s good.
00:32:58 That’s not French, that’s a different language, I’ll explain it to you one day.
00:33:03 You Australians will never understand.
00:33:05 Okay, if I can return to, we’ll jump around if it’s okay.
00:33:09 Oh, that’s fine.
00:33:10 So you mentioned Karl Marx as one of the great intellects, economic thinkers ever.
00:33:18 He might be number one.
00:33:21 You study him quite a bit, you disagree with him quite a bit, but you still think he’s
00:33:26 a powerful thinker.
00:33:28 A powerful mind.
00:33:29 A powerful mind.
00:33:30 So first of all, let’s just explore the human.
00:33:36 Why do you say so?
00:33:38 What’s interesting in that mind?
00:33:40 In the way he saw the world, what are the insights that you find brilliant?
00:33:45 Marx once described his major work as, towards a critical examination of everything existing.
00:33:54 So he’s a modest bastard.
00:33:56 So he wanted to understand and criticize everything.
00:34:00 And even, he wasn’t trained directly by Hegel, but his teachers were Hegelian philosophers.
00:34:08 And what Hegel developed was a concept called dialectics.
00:34:12 And dialectics is the philosophy of change.
00:34:15 And when most people hear the word dialectics, they come up with this unpronounceable trio
00:34:21 of words called thesis, antithesis, synthesis.
00:34:25 I can barely get the words out myself.
00:34:28 And that actually is not Hegel at all.
00:34:29 That’s another German philosopher.
00:34:30 Kant?
00:34:31 Fichte.
00:34:32 Oh, I thought it was Kant.
00:34:33 No, Fichte.
00:34:34 Well, I’m not sure.
00:34:35 I mix them up.
00:34:36 All Germans look the same to me.
00:34:37 Yeah.
00:34:38 Yeah.
00:34:39 So, but if you look, there’s a beautiful book called Marx and Contradiction.
00:34:42 You want to find a great explanation for Marx’s philosophy.
00:34:45 I’ve forgotten the author.
00:34:46 I think it’s Wild, W I L D E, Marx and Contradiction.
00:34:50 And he points out the actual origins of Marx’s philosophy, but I didn’t know that when I
00:34:55 first read Marx.
00:34:56 So I became exposed to Marx when I was a student at Sydney University.
00:35:01 And we’d had a strike at the university over the teaching of philosophy.
00:35:06 And what happened was the philosophy department had a lot of radical philosophers in it and
00:35:11 a conservative chief philosopher.
00:35:14 And the radicals wanted to have a course on what they called philosophical aspects of
00:35:21 feminist thought.
00:35:22 And the staff voted in favor of it.
00:35:24 This is back in the days when university departments were democratic.
00:35:27 The professor opposed it.
00:35:29 He got it blocked at a high level.
00:35:30 The staff lipfrogged over that, and then finally the vice chancellor blocked it.
00:35:34 So that led to a strike over the teaching of philosophy at Sydney University, which
00:35:39 at one stage, over half the students were on strike.
00:35:45 Economics began out of that.
00:35:46 Over teaching of a philosophy of feminism.
00:35:48 Yes.
00:35:49 God, it’s good to be a student.
00:35:50 That’s such a different life to what we’re living now.
00:35:53 That’s the academic milieu in which I developed all my ideas.
00:35:58 And I had become a critic.
00:35:59 I’ve gone from being a believer of mainstream economics when I was a first year student
00:36:03 to disbelieving it halfway through first year.
00:36:06 Okay.
00:36:07 And I then spent a long time trying to change it, getting nowhere.
00:36:11 And then this philosophy strike happened and we took it on in economics and we formed what’s
00:36:15 called the political economy movement and had a successful strike.
00:36:19 We actually managed to pressure the university into establishing a department of political
00:36:25 economy at Sydney University, as well as a department of economics.
00:36:28 What was the foundational ideas?
00:36:30 Were you resistant to the whole censorship of why can’t you have a philosophy of anything
00:36:37 kind of course?
00:36:38 Well, it was much more libertarian in the genuine sense of the word, period of time,
00:36:44 at the end of the 60s, beginning of the 70s than the word libertarian has been corrupted
00:36:49 since then.
00:36:50 But it really was about free thought.
00:36:52 And you went to university to learn.
00:36:54 It was about education.
00:36:55 I remember having a fight with my father once where dad was angry about the marks I was
00:36:59 getting for some of my courses.
00:37:01 And he said, if you don’t get a decent result, you won’t get a decent job.
00:37:04 And I said, I’m not here to get a job.
00:37:05 I’m here to get an education.
00:37:06 Oh, wow.
00:37:07 Okay.
00:37:08 Now, the thing is, ultimately, it’s been a pretty good job for me as well.
00:37:11 This is in Sydney, by the way, and Sydney in summer is absolutely gorgeous.
00:37:16 And what does a bunch of lefties decide to do during summer but read Karl Marx?
00:37:20 Yeah.
00:37:21 On the beach or?
00:37:22 Actually, inside the room of the philosophy department at the University of Sydney in
00:37:27 the main quadrangle.
00:37:28 There’s sandstone all around us, and we have a bunch of about 20 or 30 of us reading our
00:37:32 way through Marx.
00:37:33 Capital?
00:37:34 Which capital?
00:37:35 It was volume one capital.
00:37:38 And I remember walking off to that meeting with one of my friends who’s a law student.
00:37:46 And this was a period of a huge construction boom in Sydney, so the whole skyline, which
00:37:51 we could see from the campus, was full of what they call kangaroo cranes, which were
00:37:55 an Australian invention, that are cranes that can be leapfrogged over each other to build
00:37:59 a skyscraper.
00:38:00 So, here you are reading Karl Marx, looking at the mechanisms of capital.
00:38:05 And I looked at those mechanisms, and I knew Marx argued that labor was the only source
00:38:09 of value.
00:38:10 Yeah.
00:38:11 And he said machinery doesn’t add value.
00:38:12 So, the cranes are worthless.
00:38:14 I’m looking at these cranes and thinking, I want a very good explanation by Marx as
00:38:18 to why these cranes don’t add value.
00:38:20 So, reading through the first seven chapters of Capital, what you found was Marx applying
00:38:24 this dialectic.
00:38:26 And like the Fichte and stuff is bullshit.
00:38:28 That is not how Marx thought at all.
00:38:29 I was reading, trying to find the thesis and the synthesis, and it’s not there at all in
00:38:34 any of Marx’s works.
00:38:35 And I’ve read everything he’s ever written on economics from 1844 to 1894, when his last
00:38:42 books were published.
00:38:44 There’s not one word of mention of that.
00:38:45 What he does talk about is foreground and background and tension.
00:38:49 And his idea of a dialectic is that a unity will exist in society, and that unity can
00:38:57 be individual, it can be a commodity, anything at all.
00:39:01 The unity will be understood by that society.
00:39:05 One particular aspect will be focused upon.
00:39:07 So, if you think about the human being in capitalism, the focus on the human being as
00:39:12 an object is their capacity to work.
00:39:14 You’re a worker, okay?
00:39:17 It’s put in the foreground.
00:39:19 The fact that you’re human and you want to play a guitar and go surfing and make love
00:39:23 and all the other things that humans do is pushed into the background.
00:39:27 There’s a tension between the two of those.
00:39:30 And that can transform that unity over time.
00:39:33 And that’s a beautiful dynamic vision of change.
00:39:37 So dialectics is a philosophy of change.
00:39:40 So synthesis, antithesis is what does every idea have a counter argument?
00:39:45 Yeah.
00:39:46 There’s a positive and negative and you bring them together somehow.
00:39:48 And then Marx has this foreground, background, and tension.
00:39:52 Foreground is all what we think of as economics and background is all the lovemaking we do
00:39:56 as humans.
00:39:57 That sort of thing.
00:39:58 And why is there a tension?
00:40:01 Because if you imagine the unity, like if you take a human in a, any preview, like
00:40:07 if you go back to Cro Magnum days, when we’re living in caves and we’ve got to go hunting
00:40:12 and cook food and stuff like that, but there’s no social hierarchy.
00:40:16 Because we’ve become used to, so you don’t get labored as a worker or a capitalist.
00:40:20 You’re just a human in that situation.
00:40:22 Then you’ve got more an integrated view of who you are.
00:40:26 And I think that’s one of the appeals of a tribal, a genuine tribal culture that you
00:40:30 get treated for the whole of who you are.
00:40:32 You’ve certainly categorized you’re male, you’re female, you’re young, you’re old,
00:40:36 you’re a hunter, you’re a tool maker, et cetera, et cetera.
00:40:39 But you’re treated as more an integrated object.
00:40:41 When you get put in a complex society, like a capitalist society, then one side of you’s
00:40:47 emphasized and the others are deemphasized.
00:40:48 So is it fair to say that the background is like our basic fundamental humanity and the
00:40:54 foreground is the machine of capitalism?
00:40:56 Effectively.
00:40:57 And when you look at it in terms of a human, but what Marx did is apply this to a commodity.
00:41:01 So he said, what is the essential unity in a capitalist economy?
00:41:05 And the essential unity is a commodity.
00:41:08 The essential unit.
00:41:10 The essential unity.
00:41:12 What’s unity?
00:41:13 Unity is an object in society.
00:41:15 Okay.
00:41:16 Okay.
00:41:17 So he started from the point of view of trying to understand how exchange occurs.
00:41:20 How do we set prices?
00:41:21 And his starting vision was to say that a commodity is a unity in a capitalist economy.
00:41:28 The part of the unity that we focus upon is the exchange value.
00:41:35 A capitalist produces a commodity, not because of its qualitative characteristics, but because
00:41:41 it’d be sold for a profit.
00:41:43 So the foreground aspect of a commodity is its exchange value.
00:41:47 The background aspect of it, it won’t succeed as a commodity unless it has a use value.
00:41:52 So the background is the utility thing.
00:41:55 Yeah.
00:41:56 See, if you made something which didn’t work, okay, then you might be able to sell it, but
00:42:01 it has no utility.
00:42:02 You can’t make that into a commodity.
00:42:05 A broken thing can’t be sold.
00:42:06 Does that have the subjective?
00:42:07 Yeah, it has to have the subjective side as well as the objective.
00:42:12 So the objective is what capitalists worry about.
00:42:14 I’ll give you my favorite counter example of that.
00:42:16 I took a bunch of Australian journalists to China way back in the period when the Gang
00:42:21 of Four was being on trial, and we did a tour of the Forbidden City in Beijing.
00:42:28 And at that stage, all the artifacts of the royal family, the emperor, were actually in
00:42:33 the building still.
00:42:34 And we walked past one of them, and it was this gold, solid gold bar about this long,
00:42:41 shaped like a fist, turned over like this.
00:42:43 And on this side, there were rubies, emeralds, diamonds.
00:42:46 You’d never seen gemstones.
00:42:47 I mean, gems that big, okay?
00:42:49 And one of the journalists asked me what I thought it was, and I said, oh, it’s obvious.
00:42:52 Jane is a backscratcher, ha, ha, ha.
00:42:55 I walked away.
00:42:56 She caught up with me about 20 minutes later, said, I asked one of the guides, it is a backscratcher.
00:43:01 So here’s a backscratcher for the emperor made of solid gold with diamonds and rubies
00:43:06 and emeralds during the scratching.
00:43:07 Now, that’s a commodity in a feudal society, okay?
00:43:11 The cost doesn’t matter.
00:43:13 You want the most elaborate, beautiful thing because you are the emperor.
00:43:16 So in a feudal society, the commodity, what’s focused upon is the utility.
00:43:22 And the cost of production when you’re the emperor is immaterial.
00:43:26 Capitalism reverses that.
00:43:28 So the commodity in a capitalist economy is a plastic $2.00 scratchy you can get from
00:43:33 Kmart or Target.
00:43:35 And so the use value is necessary but irrelevant to forming the price.
00:43:42 Now, that was a completely different vision of exchange in capitalism to what I found
00:43:47 in the neoclassical theory because that says it’s the marginal utility and the marginal
00:43:52 cost of everything that determines the exchange ratio.
00:43:57 And the crazy thing about that is not so much the marginal utility, but the argument in
00:44:02 the neoclassical theory is that the price ratio, the price will, when there’s an exchange
00:44:07 going on, there’s two person, two commodity exchange of two commodities between two people.
00:44:16 The price will change until such time as the ratio of the marginal utilities is equal to
00:44:21 the ratio of the marginal costs that’s supposed to be the equilibrium.
00:44:25 And Marx says that’s bullshit.
00:44:27 That’s a previous society where you exchange stuff that you happen to have for stuff somebody
00:44:33 else happened to have without any real production mechanism being involved.
00:44:37 And he said that’s like when you have two ancient tribes meeting for the very first
00:44:42 time and one tribe can make something the other tribe can’t make.
00:44:46 And they will therefore, the price they were willing to pay will reflect how unique this
00:44:52 other object is that this one tribe can make and the other can’t.
00:44:55 So for example, the story of Manhattan being sold for 40 glass beads, it’s actually 40
00:45:00 glass trading beads, I believe it is a true story.
00:45:03 But the thing is the Indians couldn’t make glass beads.
00:45:07 So they valued the glass beads at the island of Manhattan, okay, which is a utility based
00:45:12 comparison.
00:45:13 And what Marx said, that’s the very initial contact over time, even if you don’t know
00:45:17 the technology.
00:45:18 Over time, you start to realize how much work goes involved to making what they’re selling
00:45:23 you versus what you’re selling to them.
00:45:26 And you start making stuff specifically for sale.
00:45:29 So you know, Elon’s not losing personal utility each time a Model 3 goes out the door.
00:45:37 He might get utility out of the fact that he’s created that vehicle, that concept and
00:45:41 manufactures it and so on, but he’s not losing utility each time a Model T Ford goes out
00:45:45 the door, going back for the ancient commodity there.
00:45:50 So the utility plays no role in setting price in Marx’s model.
00:45:56 Whereas it’s essential in the neoclassical model.
00:45:59 What’s the difference between utility and marginal utility?
00:46:02 What does the word marginal mean?
00:46:04 And why is it such a problem?
00:46:06 It turns marginal utility or utility itself has different meanings than the two schools
00:46:11 of thought.
00:46:12 If you take the classical school of thought, which when Marx comes from, utility is effectively
00:46:17 objective.
00:46:18 So the utility of a chair is that you can sit in it, okay, not how comfortable it makes
00:46:22 you feel.
00:46:23 Okay, now if you think about the utility of the chairs, we’re both sitting and they’re
00:46:27 identical from a classical point of view, we’re both sitting.
00:46:30 But from a neoclassical point of view, it’s how comfortable it makes you feel.
00:46:34 And that depends upon your subjective feelings of comfort.
00:46:37 You might be far more comfortable in the identical chair that I’m sitting in than I am.
00:46:42 And therefore, the comparison is difficult.
00:46:44 And therefore, working out a ratio involves you’ve got a decline in your, each time you
00:46:49 give away a chair in exchange for an iPhone, you have a fall in your utility, okay?
00:46:58 And then therefore, you want a higher return because you’re losing more utility each time.
00:47:03 The more chairs you give away, the less utility you’re getting from chairs.
00:47:06 So there’s a decline in your utility.
00:47:08 That’s your marginal utility.
00:47:11 So it’s including your subjective valuation in setting the price.
00:47:15 And what Marx pointed out is this is a caricature of actual change in a capitalist economy because
00:47:20 we have, in a capitalist economy, huge factories turning out huge quantities, specifically
00:47:25 for sale.
00:47:26 They’ve got no utility to the seller unless they’re sold, okay?
00:47:32 So it’s a very different vision of how price is set.
00:47:36 And Marx used that to explain where profit comes from, but he made a mistake.
00:47:42 And his argument was that talking about a worker, as now your unity, this foreground
00:47:49 background tension thing, the foreground is that you hire a worker for their cost of production.
00:47:55 And the cost of production is a subsistence wage, okay?
00:48:00 Their utility to the buyer is the fact that they can work in a factory.
00:48:05 Now, it might take six hours, let’s say, to make the means of subsistence.
00:48:10 And that’s the exchange value, and that’s what the capitalist pays as a wage to the
00:48:14 worker.
00:48:15 But they can work in the factory for 12 hours.
00:48:18 That’s the utility.
00:48:19 12 minus 6 is 6 surplus of value hours, and that’s where profit comes from.
00:48:26 And that was Marx’s argument.
00:48:27 And I thought it was brilliant, but it also applied to machinery.
00:48:31 Right, okay.
00:48:32 Let’s blink on that.
00:48:33 Hold on a second.
00:48:34 No, no.
00:48:35 Deep is good.
00:48:36 You just want to define terms.
00:48:38 Don’t take that statement out of context, the internet, please.
00:48:43 Okay.
00:48:44 You said buyer, seller, worker in a factory, who’s the seller, who’s the buyer?
00:48:52 Why is the worker the buyer?
00:48:55 The worker is the commodity in this case.
00:48:58 Because if you’re going to make stuff in a factory, you’ve got to hire workers.
00:49:01 Yes.
00:49:02 And what Marx is saying, the buyer in that situation is a capitalist.
00:49:06 So what does the buyer pay?
00:49:07 He says he pays the exchange value.
00:49:09 That’s back to the commodity thing, because that’s the starting point.
00:49:13 He said the essential unity in a capitalist economy is the commodity.
00:49:17 A commodity has two characteristics, exchange value and use value.
00:49:22 Exchange value of a commodity in a capitalist economy will be its cost of production.
00:49:26 The use value is what you do with it, okay, once you’ve purchased it.
00:49:31 But labor is a commodity?
00:49:34 In this case, when a worker is being hired for a job, yes.
00:49:38 So the worker’s labor has an exchange value and a use value as well?
00:49:43 That’s it, yeah.
00:49:44 Use value.
00:49:45 Use value of a worker’s labor.
00:49:48 Exchange value.
00:49:49 Let me think about that.
00:49:54 So the hours they put in is the use value.
00:49:58 Interesting.
00:49:59 So what does the worker want in this?
00:50:05 What are the motivations?
00:50:06 Are we not considering the worker in this context as a human being?
00:50:09 Well, you come in and that’s actually, that’s the next layer.
00:50:14 What Marx gives us is like a layered cake, starting from a foundation of saying straight
00:50:19 commodity exchange, and then saying, well, you’re treating a worker as a commodity.
00:50:23 Now a commodity is something like this, okay, that has, so far as I’m aware, no soul, okay?
00:50:30 Not going to be complaining if I turn it upside down.
00:50:32 It’ll fall over.
00:50:34 So there’s no soul there as a human, is both a commodity and a noncommodity.
00:50:39 And therefore there’ll be a tension in the person.
00:50:41 I’m being treated as a commodity here.
00:50:43 I’m being paid just enough to stay alive.
00:50:45 I’ve got a wife and kids back at home.
00:50:48 So that is another layer of thinking in Marx, and on that layer he then says, well, workers
00:50:54 will therefore demand more than their value.
00:50:57 So that’s when you get like political.
00:50:58 You get political and you get money coming above that and so on.
00:51:01 But the basic idea starts from the commodity is the fundamental unity in capitalism.
00:51:07 The important commodity in Marx’s thinking was the worker, because that’s where he said
00:51:12 profit came from, okay?
00:51:14 And then that explains the motivation of the capitalist, and that ultimately is the labor
00:51:18 theory of value and Marx’s arguments about how capitalism will come to an end.
00:51:23 Okay, okay, okay.
00:51:24 So first of all, what is the labor theory of value?
00:51:27 And actually before that, what is value?
00:51:30 Is that, this is like me asking what’s happiness.
00:51:35 Is there something interesting to say about trying to define value?
00:51:38 You vary, and this is a huge problem in economics is arguments of what does value mean?
00:51:45 And the neoclassicals came down as that it’s subjective.
00:51:48 Its value is whatever you get out of it, but it’s your personal evaluation of something,
00:51:54 your personal feelings.
00:51:55 So they’ve got that very subjective idea of value, whereas the Marxists, being inheritors
00:52:01 of classical school, talk in terms of objective value.
00:52:06 So the value is the number of hours it takes to make something, or the effort.
00:52:11 Value is the effort that goes into making something in the classical school.
00:52:14 Well, that’s just one measure of objective.
00:52:18 Where do you fall?
00:52:19 Huh?
00:52:20 Where do you fall?
00:52:21 I fall on…
00:52:22 Subjective versus objective spectrum of value.
00:52:25 I think you have to have the capacity to move between one and the other in a structured
00:52:30 way.
00:52:31 The K model of value.
00:52:32 Yeah, well, my base model is the objective, okay?
00:52:35 But above that, as soon as you start talking, you said about the worker, for example, then
00:52:40 you get involved in the subjectivity, because a worker will be angry, and justifiably so,
00:52:48 about being treated as a commodity, because I’m not a commodity, I’m a human being, okay?
00:52:53 And that’s where Marx saw political organization coming from.
00:52:58 And that’s subjective now.
00:52:59 And then when you get to money itself, Marx actually said, well, what’s the value of money?
00:53:05 Now if you use an objective theory of value, you would say, well, the value of money is
00:53:09 its cost of production.
00:53:11 What’s the cost of producing a dollar?
00:53:13 It’s about two cents.
00:53:15 So he said it can’t be, the value of money cannot be its cost of production.
00:53:20 Or the most value, I think if I remember the phrase properly, is value here as it must
00:53:25 mean the, effectively, uncertain expectations or subjective valuation.
00:53:33 Uncertain expectations or subjective valuation.
00:53:35 Okay, but he’s okay with that?
00:53:36 He was okay with that, because he could move between different levels, because he had a
00:53:40 structured foundation of this dialectical vision of foreground, background tension,
00:53:46 commodity, having use value, exchange value, and a gap between the two when you’re talking
00:53:52 about machines, when you’re buying stuff for production.
00:53:56 And then at the next level, he could look at workers, worker organization, and say that’s
00:54:00 driven by being treated as a commodity when you’re a noncommodity.
00:54:04 So the basic labor theory of value that is described to Karl Marx is that value at the
00:54:13 base layer fundamentally comes from the labor you put into something.
00:54:19 And you say, well, there’s some deep truth there, except he misses one fundamental point,
00:54:26 which is machines can also bring value to the world.
00:54:30 He was saying they don’t, the only thing that matters is human labor, not labor.
00:54:38 How do you measure what’s the role of whatever value machines bring to the world?
00:54:45 This is another intriguing history, because Marx, when he first started, had what you
00:54:51 can call an exclusivist explanation for why labor created value.
00:54:57 And that was to say that labor is the only commodity with both what he called commodity
00:55:03 and commodity power.
00:55:04 So you have labor and labor power.
00:55:09 Labor is the, and I get fuzzy about this, I haven’t read it for something like 30 years,
00:55:13 but labor has both commodity and commodity power.
00:55:17 The commodity is you can buy labor, which is the means of subsistence.
00:55:22 Labor power is the capacity to work inside a factory.
00:55:25 There’s a difference between the two, therefore that difference will give rise to surplus.
00:55:29 And there’s no other commodity that has this essence of commodity and commodity power.
00:55:34 So that was his exclusivist argument.
00:55:36 In the middle of 1857, he was visited by a guy called Otto Brau in his home in Chelsea.
00:55:44 And Otto returned to Marx a copy of Hegel’s, I think it’s called Phenomenology of Right,
00:55:51 I haven’t read it, but that’s the book.
00:55:53 And Marx was then at that stage reading through all the classical theorists again.
00:55:58 And he was, suddenly he read Hegel again.
00:56:01 And if you know Hunter S. Thompson, okay, okay.
00:56:04 Who doesn’t know Hunter S. Thompson?
00:56:06 Somebody who hasn’t had enough drugs, obviously.
00:56:08 Yeah.
00:56:09 But Hunter S. Thompson.
00:56:10 He comes to you in a dream after you take your first puff of…
00:56:12 Mescaline or…
00:56:13 Or whatever.
00:56:14 And of course, we’ve all…
00:56:15 If you know your drugs well enough, you can tell, okay, he’s stoned, okay, he’s on cocaine,
00:56:18 you know.
00:56:19 But suddenly, his writing style in the middle of a book called The Grundrisse completely
00:56:24 changed.
00:56:25 He switched from weed to cocaine.
00:56:26 He switched from Ricardo to Hegel, okay.
00:56:28 And what in Ricardo, he had this exclusivist argument about labor, and suddenly Hegel is
00:56:33 back talking in terms of dialectics, not actually using a word, but foreground and background
00:56:38 and tension.
00:56:40 And then he…
00:56:41 That’s where this use value, exchange value, attention thing came from, is rereading Hegel
00:56:46 13 years after he stopped reading philosophy, because made in 44, he was reading just The
00:56:51 Economists.
00:56:52 So you’re saying Karl Marx is human after all.
00:56:55 He’s human.
00:56:56 He could be…
00:56:57 I would love to have a beer with Karl.
00:56:58 For a wine.
00:56:59 For Karl?
00:57:00 He’s Karl to you?
00:57:01 He’s Mr. Marx to me.
00:57:03 Hang on.
00:57:04 He’d be Karl to me, I’m afraid, after all these years.
00:57:06 Yeah, yeah.
00:57:07 You’ve had quite a journey together.
00:57:09 So that’s where after Hegel, his interpretation of the dialectic comes in the form of background,
00:57:15 foreground, and background.
00:57:16 And then on page 267 of the Penguin edition of the Grundrisse.
00:57:21 What early?
00:57:22 Your memory…
00:57:23 One and a half pages long footnote.
00:57:24 It’s pretty hard to forget.
00:57:25 Because when I did this, when I first read Marx way, way back when I was…
00:57:30 How old was I?
00:57:31 20.
00:57:32 Okay.
00:57:33 I tried to explain my explanation of Marx’s use value, exchange value stuff to my colleagues
00:57:38 in this philosophy discussion room at Sydney University during a beautiful summer that
00:57:43 we were inside, concrete and sandstone walls discussing Marx.
00:57:47 And I went to say, look, the use value, exchange value argument can be applied to a machine.
00:57:52 What’s the exchange value of a machine?
00:57:54 It’s cost of manufacturing it.
00:57:55 What’s its use value?
00:57:56 Its capacity to produce goods for sale.
00:57:59 No relation between the two, there’ll be a gap, a machine can be a source of profit.
00:58:03 Now, I said that and I got laughed at and I quite literally laughed at.
00:58:07 So when I went back to university 13 years later to do my master’s degree, I chose to
00:58:13 read through and find in Marx where he first came across this insight.
00:58:18 So my first master’s thesis failed, by the way, and justifiably so.
00:58:24 I didn’t know the level of academic discourse necessary.
00:58:29 I had an advisor who didn’t understand what I was writing.
00:58:32 He got me to write for his New Keynesian audience and it was a mess and it got failed.
00:58:39 So I got rid of him.
00:58:40 Did it get failed?
00:58:41 Why do you think?
00:58:43 It wasn’t a good thesis.
00:58:44 I didn’t know the level.
00:58:46 It was written for an audience my supervisor thought that I should be writing for, and
00:58:51 it was a mess.
00:58:52 And so I met another guy, Jeff Fishburne, as a lecturer at New South Wales University.
00:58:59 And Jeff was open minded.
00:59:00 He was not a conventional neoclassical thinker.
00:59:04 And I realized I’d throw out the half that Bill had got me to do, focused just on Marx.
00:59:09 And so I decided to read Marx in chronological sequence from his very first works of economics,
00:59:15 which are called the Economic and Philosophical Manuscripts of 1844.
00:59:18 And he wrote those in a garret in Paris after he’d been expelled from Prussia.
00:59:23 And so he decided to read having been an expert on philosophy and regarded it as the towering
00:59:30 intellect of Hegelian philosophy in Prussia, but driven out because he was a radical.
00:59:36 He ended up running a newspaper or being writing for a newspaper, and he was reporting about
00:59:42 the eviction of peasants from the forests, taking away their feudal rights.
00:59:47 And so this is where his passion for economics and humanity came from.
00:59:53 And he was a poet as well.
00:59:55 I mean, he loved poetry to Jenny von Westhalen.
00:59:58 His first published works were pretty much in poetry.
01:00:01 He was a rouse about, he was a wild character.
01:00:05 We’d probably fight like crazy, I imagine, if we met.
01:00:09 Over the beers?
01:00:10 I’m slightly, even though I can be, I can get involved in an argument like nobody’s
01:00:16 business.
01:00:17 No, really?
01:00:18 No, really.
01:00:19 But I’m a bit more peaceful of personality.
01:00:21 Oh, you think Marx is feistier than you?
01:00:23 He was feisty, but feisty with, he could be arrogant.
01:00:27 Like I’ve got an intellectual arrogance, I’ve come to accept that.
01:00:31 But there’s like a fundamental humility to you.
01:00:33 You’re saying Marx is like, has ego that’s hard to control.
01:00:37 A bit too big ego, yeah.
01:00:38 I’m guessing.
01:00:39 I mean, I’m never going to meet him.
01:00:40 Well, the beard says ego to me.
01:00:42 The beard is huge, yeah.
01:00:43 That’s huge.
01:00:44 Okay.
01:00:45 So this is interesting.
01:00:46 So you went chronologically right through his works, the development of the human being
01:00:51 through his works.
01:00:52 Yeah.
01:00:53 And I was trying to find the point at which he discovered this use value exchange value
01:00:55 idea.
01:00:56 And it occurs in a footnote on page 267 to 268 of the Penguin edition of the Guindrisa,
01:01:02 which his notes he was taking literally not meant for publication, literally sitting at
01:01:07 a stall inside the British Museum, I think, reading all the classical authors in chronological
01:01:13 sequence.
01:01:14 And then somebody throws Hegel at him, and suddenly he’s talking in Hegelian terms.
01:01:19 And he suddenly says, is not, because it’s whole value issues, what is value?
01:01:24 Is it exchange value, use value?
01:01:26 How do they relate to each other?
01:01:27 That’s what he was thinking about.
01:01:28 And he said, is not use value, which was left out of the classical school, a fundamental
01:01:34 aspect of the commodity?
01:01:36 Is there not a tension between the use value and exchange value?
01:01:39 Just so we’re clear in that context, use value is kind of the subjective thing, exchange
01:01:44 value is the objective thing.
01:01:45 Yeah.
01:01:46 And Marx was, found a way to integrate the two.
01:01:49 He was focused on labor being the only thing that can generate both the use value and the
01:01:57 exchange value.
01:01:58 But, no.
01:01:59 If you look at the classical school, they focus on exchange value, objective.
01:02:03 Look at the neoclassical, they focus upon use value, subjective, or they call it utility.
01:02:09 So Marx, coming from the Ricardian tradition, basically dismissed the role of utility.
01:02:14 And then when he reads Hegel, he’s suddenly starting to think in terms of unities.
01:02:20 And exchange value and use value is the unity of the commodity.
01:02:24 And he thinks, well, I can’t ignore use value.
01:02:27 So rather than leaving it out completely, which is what Ricardo and Smith does, I’ve
01:02:31 got to somehow bring it in.
01:02:32 And this Hegelian insight occurs to him.
01:02:35 And it’s remarkable, I really recommend taking a look at the book, even just to look at that
01:02:39 particular page, because what it would have been, as shown as a footnote, but it would
01:02:44 have been him saying, oh, wow, and his asterisk, asterisk, is not use value, a fundamental
01:02:50 aspect of the unity of a commodity.
01:02:53 So in the notes, you see the discovery of an idea in the human mind, the integration
01:02:57 of an idea.
01:02:58 And it’s beautiful.
01:02:59 And he actually writes, does this have significance in economics, question mark.
01:03:02 And then he probably went home that night, and that idea changed him.
01:03:06 Yeah, it changed him completely.
01:03:08 And from that point on, his writing was completely different.
01:03:11 But he still had this idea from the Ricardian days of saying that labor is the only source
01:03:15 of value, using an exclusive argument to say there’s something unique about labor that
01:03:20 explains why it’s a source of value.
01:03:22 But suddenly, this insight occurs to him, and he thinks, I can get a positive derivation.
01:03:26 I can use use value and exchange value and the fact they’re not related to each other
01:03:31 as a dialectical tension to explain surplus value.
01:03:35 And that’s what he does.
01:03:36 So he goes from a negative explanation of where value comes from to a positive explanation
01:03:41 on that page of the Guindarisa.
01:03:44 He then triumphantly uses it to explain why labor is a source of value.
01:03:49 You buy it for its exchange value.
01:03:51 You use its use value.
01:03:52 They’re unrelated.
01:03:53 The use value will be bigger.
01:03:55 That’s where profit comes from.
01:03:56 Then he does exactly the same thing for machinery, about 30 pages on.
01:04:01 He says it also has to be contemplated, which was not done before.
01:04:06 This is wrote nice to himself, by the way.
01:04:09 It’s written really in a colloquial style, that the use value of a machine is significantly
01:04:14 greater than its exchange value.
01:04:16 He actually left out the word is.
01:04:17 It’s used to be a translation into English of the German, I’m sure.
01:04:23 I don’t know.
01:04:24 I haven’t seen the original notes.
01:04:25 I’d love to see them.
01:04:26 But he says, he leaves out the word is.
01:04:29 It also has to be contemplated that the use value is significantly greater than its exchange
01:04:34 value, i.e. that the contribution of the machine to production exceeds its depreciation.
01:04:43 That was an insight which undermined his explanation for revolution.
01:04:48 Okay.
01:04:49 Can you say that again?
01:04:52 The cost of production exceeds its depreciation?
01:04:57 Can you linger on that?
01:04:58 Well, what Marx argued, and you read this in Capital, and I read this in Capital when
01:05:02 I first saw the contradiction in his own thought.
01:05:07 He said that no matter how useful a machine is, whether it took a hundred hours to make
01:05:12 or cost 150 pounds, it cannot under any circumstances add more to production than 150 pounds, which
01:05:22 in his old exclusivist logic he could justify, and which in his post 1857 argument is bullshit.
01:05:31 Can you steel man his case?
01:05:33 Can we go to the mind of Marx and thinking if a machine costs a hundred bucks, it can’t
01:05:39 be ever more, bring more value than a hundred bucks to the world?
01:05:43 But that contradicts his previous logic, because what he said is commodities are the essential
01:05:49 unity in capitalism.
01:05:52 Capitalism focuses upon the exchange value.
01:05:54 That pushes the use value into the background, and there’s a tension between the two.
01:05:59 What that means is the exchange value of a commodity sets its price.
01:06:04 The use value is independent.
01:06:06 He called them incommensurable.
01:06:07 He literally used the word incommensurability between exchange value and a use value, whereas
01:06:13 neoclassicals make them commensurable.
01:06:15 So he’s saying exchange value and use value incommensurable, and that normally means that
01:06:21 exchange value is objective, like the number of hours it takes to make something.
01:06:25 Use value is subjective, how comfortable the chair is, the fact that you can sit in a chair.
01:06:30 So that’s incommensurability, but when you apply it in production, the exchange value
01:06:35 of something is objective.
01:06:36 It’s how many hours it takes to make a machine or how many hours it takes to make the means
01:06:40 of subsistence for a worker.
01:06:42 The use value is also objective.
01:06:44 You’re making commodities for sale, and the worker does six hours.
01:06:49 Six hours of work will make the means of subsistence for the worker, but the worker will work a
01:06:55 twelve hour day, and the six hours becomes a gap.
01:06:59 Now that’s incommensurability between use value and exchange value of labor, but when
01:07:05 you look at what he said about no matter how long it takes to make a machine or how many
01:07:09 pounds it costs, he’s saying they’re identical, and that’s contradicting his own logic.
01:07:15 Well, what’s the use value of a machine?
01:07:17 The fact that it can produce goods for sale, exactly the same as the worker.
01:07:23 Now in my modern reinterpretation of Marx, which brings in my work on energy, I see both
01:07:30 labor and machinery as a means to harness energy and produce useful work, and they can
01:07:36 both do that.
01:07:37 In fact, they do it together.
01:07:39 It’s a collective enterprise.
01:07:40 Okay, so, and we’ll go to that.
01:07:44 So there’s no fundamental difference from an exchange value and use value perspective
01:07:48 between a human and a machine.
01:07:50 And therefore, they’re using the same logic that can both be a source of surplus, which
01:07:54 is what Marx contradicted because his explanation for where socialism would come from is that
01:08:00 only profit comes from, like profit comes only from labor.
01:08:03 Over time, we’ll add more machinery than labor that will mean a falling rate of profit and
01:08:08 therefore a tendency towards socialism.
01:08:11 And what he did in that insight in 1857 is contradict his own idea about what would lead
01:08:16 to socialism, and he couldn’t cope with it.
01:08:19 Okay, what’s the difference between Marxian economics and Marxist political ideology?
01:08:30 The gap between the two, the overlap, the differences, what?
01:08:34 The real foundation of Marx’s political philosophy was the economic argument that there would
01:08:39 be a tendency for the rate of profit to fall.
01:08:42 And that tendency for the rate of profit to fall would lead to capitalists battening down
01:08:48 on workers harder, paying them less than their subsistence, a revolt by workers against this,
01:08:55 and then you would get socialism on the other side.
01:08:58 So what he called the tendency for the rate of profit to fall played a critical role in
01:09:03 his explanation for why socialism would have to come about.
01:09:07 He was saying it would have to come about, or is it a good thing for it to come about?
01:09:13 He had a should, but he was trying to say it must.
01:09:16 So if you look at Marx in the history of radical thought, he was preceded by what were called
01:09:22 utopian socialists.
01:09:24 Saint Simon, even the Cadbury’s company came out of utopian socialist, and they had an
01:09:30 idea about a perfect society in the future where people were properly rewarded, were
01:09:34 treated as human beings rather than cogs in a machine and all this sort of stuff.
01:09:38 And they said socialism should come about because it treats humans better than capitalism
01:09:42 does.
01:09:43 Marx said, I can prove that socialism must come about.
01:09:47 So he preferred, he had a utopian vision of a future society, but he thought he could
01:09:53 prove that it had to come about.
01:09:55 And the proof relied critically upon tendency for the rate of profit to fall, and that relied
01:10:01 upon labor being the only source of profit.
01:10:06 What was his utopian view?
01:10:07 So this idea from each according to his ability to each according to his needs.
01:10:13 Is that the utopian?
01:10:16 I think it’s utopian in the context of our modern world.
01:10:21 It says that rather than being rewarded, like Jeff Bezos gets enormous fortune, you get
01:10:27 what you need, not what you want, necessarily.
01:10:32 All needs is fulfilled.
01:10:33 It was a vision of utopia where you could be a fisherman in the morning, a poet in
01:10:38 the afternoon, and a chef at night, this paraphrasing one of his phrases.
01:10:43 So he did have a utopian vision of a future society, and he did think human creativity
01:10:48 would be much, much greater under socialism than it was under capitalism.
01:10:52 He was wrong.
01:10:54 So let’s explore in different ways where he was wrong.
01:10:57 You’re saying there’s a fundamental flaw in the logic, but also if we can explore high
01:11:04 level philosophical concepts of socialism too, like the dreams of a utopia.
01:11:10 So first of all, what is socialism?
01:11:14 That’s another loaded term.
01:11:17 Socialism particularly in America is a very loaded term.
01:11:19 What Americans call socialist is a large amount of provision of services by the state, which
01:11:26 is commonplace in Europe.
01:11:28 It’s still moderately commonplace in my own home country of Australia.
01:11:34 And that Americans will call public education socialist.
01:11:38 It’s a total parody of the word.
01:11:42 Strictly speaking, what socialism meant is the public ownership of the means of production,
01:11:46 no private ownership of the means of production.
01:11:49 What is the means of production?
01:11:51 Machine factories.
01:11:52 Factories.
01:11:53 So all the goods that are produced in factories, no, the means of producing the goods is owned
01:11:59 by a centralized entity.
01:12:01 Yeah.
01:12:02 Centrally planned.
01:12:03 This is what actually was done under Gold’s plan under the Soviets.
01:12:07 And even with the collective farms as well.
01:12:09 You no longer own your land.
01:12:11 The state owns the land.
01:12:13 You worked on the land.
01:12:15 And this was supposed to be a utopia.
01:12:16 Now it didn’t turn out to be one.
01:12:19 And we’ll talk about maybe your ideas of why it didn’t turn out to be one.
01:12:23 So the fascists did the same.
01:12:25 So is this fascism also central?
01:12:28 Fascism, so called national socialism.
01:12:31 It’s also a kind of socialism.
01:12:32 So yeah, but there was no, it wasn’t a public owner, there was public direction.
01:12:36 So the state would tell factories what to do, but there’s still a private profit.
01:12:40 And a large part of why the Nazis succeeded was the extent to which they managed to coopt
01:12:44 major manufacturers in Germany.
01:12:47 So it’s, you know.
01:12:50 Direction versus ownership.
01:12:51 Yeah.
01:12:52 A dictatorial, I mean, that’s a very particular implementation.
01:12:56 So you have to consider the full details of the implementation, but it’s basically dictator
01:13:01 guided.
01:13:02 Yeah.
01:13:03 And if you want to take a proper vision, then you have to say it’s the ownership of the
01:13:09 means of production by the state.
01:13:11 Okay.
01:13:12 Versus the ownership by private.
01:13:14 That rules out the Nazi period.
01:13:16 Use the word that, again, they’re bastardizing as much as Americans do in the opposite direction.
01:13:22 Well, what does ownership exactly mean?
01:13:26 Well, it became incredibly complicated.
01:13:31 And this is actually the best work on this is done by recently deceased Hungarian economist
01:13:36 called Janos Kornai.
01:13:38 And Kornai tried to explain why socialism failed.
01:13:42 Because why did socialism fail in your view?
01:13:45 In his view, in Janos’s view, in your view.
01:13:47 I think Janos is 100% correct.
01:13:49 It’s a brilliant piece of work, so I’m going to be really paraphrasing his view.
01:13:53 And he imagined an ideal socialist society, and there wasn’t a Stalin, there weren’t
01:13:59 purges, and you lived up to all the ideals that Marx had for socialism.
01:14:04 So he said, but you do it in a context of an economy which is incredibly primitive,
01:14:09 Russia.
01:14:10 Okay?
01:14:11 Because if you look at Marx’s own vision of the revolution, it was going to happen
01:14:13 in England.
01:14:15 The advanced economies would be first to go through the revolution.
01:14:18 The socialist, the primitive economies would have to go through a capitalist transition.
01:14:23 And this is the difference between the Mensheviks and the Bolsheviks.
01:14:26 So the Mensheviks, when Hyman Minsky came out of the Menshevik family, the Mensheviks
01:14:30 believed you had to go through a capitalist phase.
01:14:33 Russia had to go through a capitalist period before it becomes socialist.
01:14:36 The Bolsheviks believed they could get there in one go, bypass the capitalist phase, do
01:14:42 the development under socialism rather than under capitalism.
01:14:47 And this is what Yanis was actually analyzing.
01:14:50 You start from a primitive feudal economy, very little industrialization, and you want
01:14:57 to jump to an advanced industrial society from that foundation.
01:15:04 So he said what you have then for is a whole range of industries, all of which need as
01:15:10 much resources as you can get for them.
01:15:12 So you want to develop agriculture, mining, industry, every little division of it.
01:15:19 They all have legitimate demands on the resources of the country and the state.
01:15:24 That means that all your resources are fully employed and are probably over employed.
01:15:29 So you have a resource constraint in that society.
01:15:33 The easiest way to cope with a resource constraint is to produce last year’s commodity, not to
01:15:38 innovate, not to make change.
01:15:40 So what they will give you is as you start to add, you invest so you now have the beginnings
01:15:46 of a steel industry, beginnings of a car industry, and so on, you start investing, but you continue
01:15:51 producing the same product you made last year.
01:15:54 And I have a perfect personal example of that, which I’ll throw in now if you like a pretty
01:15:59 heavy conversation.
01:16:00 I know my first major girlfriend had a brother who wanted to get a motorbike, but he couldn’t
01:16:08 afford a Honda or a Kawasaki.
01:16:11 At the time, they cost about $3,000 for a 650 cc Japanese motorbike.
01:16:17 He found he could buy a Cossack for $650, $1 per cc.
01:16:23 So I was there when he got this is in suburban Sylvania waters in Sydney.
01:16:30 So this crate arrives with a Cossack motorbike inside it.
01:16:35 So we take it apart, it’s then got all these wooden palings, we have to pull off the wooden
01:16:38 palings to open it up.
01:16:40 Then there’s oil soaked rag over this thing, which is tied on a wooden base.
01:16:44 We take the oil soaked rag off and we stare in all its glory in a 1942 BMW.
01:16:50 It was exactly the same as Steve McQueen in The Great Escape.
01:16:55 So the Russians for 30 years were making the same bloody motorbike.
01:16:59 It had a bicycle seat.
01:17:02 And that’s how they cope.
01:17:03 They’ve just made the same damn machine every year.
01:17:06 And he said, so that’s the outcome.
01:17:09 You actually want the best possible world.
01:17:10 You’re trying to build as fast as possible.
01:17:13 You’re paying workers as high wages as you possibly can.
01:17:16 And that leads to a world where you don’t innovate.
01:17:19 But he said capitalism, on the other hand, pure capitalist economy, you’re trying to
01:17:24 pay workers as little as possible.
01:17:26 You have competitive industries.
01:17:28 You’re trying to take demand away from your rivals.
01:17:31 You have Kawasaki versus Honda versus BMW, et cetera, et cetera.
01:17:37 The way you get demand away from your competitors is by innovating.
01:17:41 So what you will get is cycles and booms and slumps, but you’ll innovate and change over
01:17:46 time.
01:17:47 So what you find was this huge gap between socialist volume production with no innovation
01:17:52 and capitalism with innovation.
01:17:55 So that was the fundamental failing that Janos Korneis saw, so why did socialism not innovate?
01:18:02 Because if you go back to this famous historical incident with Khrushchev in the United Nations,
01:18:08 bangs Texophe Shewan, bangs the desk, says, we will bury you.
01:18:12 He literally meant we’re going to bury you in commodities.
01:18:15 We’re going to produce more output than you are.
01:18:17 And he was wrong.
01:18:19 Because fundamentally, in the long term, to bury somebody in commodity production, you
01:18:25 have to innovate.
01:18:26 Yeah.
01:18:27 And there’s also another remarkable Soviet engineer who was given the job of interpreting
01:18:33 Marx’s ideas of industrial sectors.
01:18:36 So he had the commodity sphere, the industry sphere, sector one, sector two, sector three.
01:18:42 Sector one producing consumer goods, sector two producing capital goods, sector three
01:18:46 producing luxury goods for capitalists.
01:18:49 And so he had a three sector model of the economy, and he was talking about the dynamics
01:18:53 between them.
01:18:54 And what Feldman did was reinterpret this as an engineer would reinterpret it, which
01:18:59 was brilliant work.
01:19:00 So what he said was, you need to produce the means of production.
01:19:05 If you want to grow quickly, you focus on producing the means of production rather than
01:19:09 commodities.
01:19:10 So you don’t make cars, you make car factories.
01:19:13 Okay?
01:19:14 You make a few cars, but most of the effort goes into expanding how many factories you
01:19:17 have.
01:19:18 And what he did was do a mathematical model where you start off with very low levels of
01:19:21 consumer good output, but then you would just go exponential.
01:19:24 Okay?
01:19:25 Now, I took a look at that back when I was doing my master’s degree.
01:19:29 And the training in mathematics, I took Feldman’s equations and then looked at what was actually
01:19:35 driving it was he was imagining correctly a huge pool of unemployed labor.
01:19:40 If you go back to the earliest stages of Soviet industrialization back in 1917, post the Second
01:19:46 World, post the First World War, you had all these unemployed workers, you had all these
01:19:50 peasants you could take off the land and put into factories.
01:19:53 So you had a huge supply of workers.
01:19:57 What you had to do was build the factories.
01:19:59 See building the factories, but at a certain point you exhaust the supply of lowly employed
01:20:06 or unemployed labor.
01:20:07 And so rather than having this exponential takeoff, you hit a ceiling and then you can
01:20:12 only grow as fast as the population because you’re not innovating.
01:20:16 So that’s what actually hit the Soviet system.
01:20:20 And it’s why they never buried the Western consumer goods.
01:20:23 And instead why Western consumers looked in envy at the goods being purchased by their
01:20:28 Western people and said, if that’s exploitation, we want exploitation.
01:20:33 So okay, there’s a lot of interesting stuff to ask here, which is, so Marx’s vision for
01:20:40 the socialist utopia is you have to go through capitalism.
01:20:48 The Mensheviks were true to Marx’s original idea.
01:20:50 So is there a case to be made that in the long arc of human history on like human civilization
01:20:57 on earth that we’re going to live out Marx’s vision for utopia, which is like, will we
01:21:05 run into a wall with capitalism?
01:21:07 I think we are running into a wall with capitalism.
01:21:09 In fact, I think we’ve already gone through the wall and we haven’t yet realized we’ve
01:21:11 smashed our skulls.
01:21:16 But on the other side, we’re bleeding and everything like that.
01:21:22 Does Marx have any insights on what the other side of capitalism, what is beyond capitalism?
01:21:26 I think that beautiful phrase of from each according to his ability to each according
01:21:30 to his needs describes what we should end up with.
01:21:36 And I think that’s actually, if I think about, you know, I’m an Elon Musk fan.
01:21:40 That’s what I think is partially going to be the nature of society if we build one that
01:21:45 functions on Mars.
01:21:47 Because and I’ve actually seen the interview with the Italian who’s involved in designing
01:21:52 what the future colony will look like.
01:21:54 He was actually asked this question, can there be enormous inequality in Martian civilization?
01:22:00 The guy said, absolutely not.
01:22:02 Because the resources, again, resource constraint applies.
01:22:06 You simply can’t give somebody underground bunker 100 times the size of somebody else’s
01:22:11 100 underground bunker.
01:22:14 Because the scarcity of resources imposes a need for equality overall.
01:22:22 Is that always?
01:22:23 That’s interesting.
01:22:24 I mean, the scarcity of resources, wait, but I feel like that’s a contradiction.
01:22:28 I thought.
01:22:29 Are you thinking neoclassical about scarcity?
01:22:32 I’m barely thinking at all.
01:22:37 So wait, I thought scarcity, the best way to build on top of scarcity is a capitalist
01:22:44 type of machine.
01:22:45 No, this is where, again, our vision of what scarcity is, is wrong.
01:22:50 Because and Ricardo said this, but it’s actually better than Marx.
01:22:54 Because Ricardo said, there are some products whose value is determined entirely by their
01:23:00 scarcity.
01:23:01 Yeah.
01:23:02 Paintings, rare wines, et cetera, et cetera, they are things you cannot reproduce in a
01:23:08 factory.
01:23:09 He said, the essence of capitalism is what you can make in a factory.
01:23:12 And therefore, for these unique objects, these rare objects, Picasso painting a beautiful
01:23:19 bottle of wine, et cetera, et cetera, then the utility, it can’t be reproduced easily.
01:23:25 So its price will be determined by subjective valuation.
01:23:28 He said, what we’re talking about in capitalism is the stuff you can make en masse.
01:23:33 And that is the true focus of the capitalist economy.
01:23:37 And that is not about scarcity.
01:23:39 That is about, the only scarcity applies when you don’t have the resources to make them
01:23:43 anymore or you can’t use the energy involved because you’ll damage the biosphere too much,
01:23:48 which we’ve already done.
01:23:50 But fundamentally, the scarcity that neoclassicals have been able to think about and Austrians
01:23:55 think about as well is nonreproducible.
01:23:59 But the essence of capitalism is the commodity, the backscratcher, the two buck backscratcher,
01:24:03 anybody can, you know, the cheapest chips to make, and that’s why it can make a profit
01:24:06 out of them.
01:24:09 Not the elaborate gold thing with diamonds and rubies that only the king gets.
01:24:13 So we think our vision of scarcity has been perverted by neoclassicals analyzing the exception
01:24:19 to capitalism and calling it capitalism.
01:24:22 Okay.
01:24:23 Fair enough.
01:24:24 So, you know, let’s put Mars aside because I think there’s a lot of strange factors that
01:24:29 have to do with a whole nother planet, civilization, that we don’t quite understand.
01:24:37 Think how economics works with different geographic locations, one of which have new challenges,
01:24:47 which is what essentially this is.
01:24:48 I don’t know if you can apply the same economic theory.
01:24:50 No, I’m saying your question, I think we’ll be forced into that ultimately by having to
01:24:55 make a compromise with the ecology.
01:24:58 And we’ve been ruthless about the ecology of this planet, and we’re going to pay the
01:25:02 price for it.
01:25:03 So if you have a planet where you can’t be ruthless, okay, you have to mind it as carefully
01:25:11 as possible, then that utopian might be imposed upon you for the needs for survival on that
01:25:19 planet.
01:25:20 Back here, Marx’s utopia was still the one that ignored the ecology.
01:25:25 And I think if I have a vision of a utopia in future, it’s got bugger all to do about
01:25:31 what humans get out of it.
01:25:34 It’s what humans respect.
01:25:36 They have to respect life.
01:25:38 So I see that as a one eyed utopia, a utopia for a single species, as if it can exist on
01:25:44 its own, which we should know it can’t.
01:25:47 Quick bathroom break?
01:25:48 Yeah, that would be great.
01:25:51 We took a little bit of a break and now we’re back.
01:25:54 We needed to take a break because my brain broke and I’m piecing it back together.
01:25:58 You mentioned ecology and life and the value of all of that.
01:26:02 We’ll return to it if we can.
01:26:05 But first, we said why this kind of, this idea of why socialism failed, can we linger
01:26:16 on this a little bit longer in how did the ideas of Karl Marx lead to Stalinism?
01:26:23 So this particular implementation, is there something fundamental to these ideas that
01:26:31 leads to a dictator and that leads to atrocities?
01:26:36 There’s something about the mechanism of the bureaucracy that’s built that leads to a human
01:26:43 being that’s able to attain, integrate absolute power and then start abusing that power?
01:26:53 All that kind of stuff.
01:26:54 Like some of the history of the 20th century, is that inextricably connected to the ideas
01:27:00 of Karl Marx?
01:27:01 I think to some extent it is, but I’m going to also say that if it hadn’t been for the
01:27:05 Bolsheviks interpreting Marx and saying we can reach socialism without going through
01:27:09 capitalism, then it might not have happened.
01:27:15 So if you look at the, like the Mensheviks were a rival political group in Russia and
01:27:22 that’s where Hyman Minsky, who’s a huge inspiration for me.
01:27:24 So he’s an economist who was maybe, can we take a little attention, who was Hyman Minsky?
01:27:29 Yeah.
01:27:30 Hyman Minsky was the person who developed an analysis of capitalism based on financial
01:27:36 instability.
01:27:38 And he was actually the PhD student of Joseph Schumpeter and an Austrian economist as well
01:27:45 whose name I’ve forgotten temporarily.
01:27:48 And he asked him, his parents were both refugees from Russia during the Stalinist period because
01:27:57 the Mensheviks were being wiped out in Russia, just like any other opponents to the Bolsheviks
01:28:05 were being eliminated.
01:28:06 So I think his parents met in Chicago, still remain socialist, still remain politically
01:28:12 active, and he was educated in a family that was just imbued with Marx as his vision.
01:28:20 He ended up fighting in the Second World War on the American side, coming back to America
01:28:27 and studying mathematics and then also doing an economics degree leading to a PhD.
01:28:34 And the question he posed for himself is what causes Great Depressions?
01:28:39 And he put it beautifully, he said, can it happen again, it being the Great Depression?
01:28:44 And if it can’t happen, then what has changed between the society before the First and Second
01:28:50 World War and after that makes a depression impossible?
01:28:54 What’s the answer to those two questions?
01:28:56 Can it happen again?
01:28:57 His answer was yes, it can happen again, but what has prevented it happening by the time
01:29:02 he started writing about it, which was the late 50s to the mid 80s, late 80s.
01:29:10 We met once, but only once.
01:29:11 Over a beer?
01:29:13 Over a beer?
01:29:14 No, he gave a seminar at New South Uni and he’s a bit of an obstreperous bastard.
01:29:18 What?
01:29:19 A stripper?
01:29:20 Obstreperous.
01:29:21 Wow.
01:29:22 What is it?
01:29:23 It means argumentative and likely to dismiss you.
01:29:26 So like a good mate of mine was the guy who brought him out to Australia, a guy called
01:29:29 Graham White.
01:29:30 G’day, Graham.
01:29:31 We’re still good mates.
01:29:32 G’day, Graham.
01:29:33 I love your language and your accent.
01:29:35 It’s a great…
01:29:36 Actually, there’s a really good TikTok I saw earlier today with an Aboriginal guy saying
01:29:40 he loves the Australian language because it’s absolutely ironic.
01:29:43 You ask an Australian a question and he’ll give you an answer, which is the opposite
01:29:47 of what he means, and you’ve got to work out the rest for yourself.
01:29:50 Yeah.
01:29:51 So he goes up to another Aboriginal mate and says, G’day, mate.
01:29:53 He says, how are you?
01:29:54 Oh, not bad.
01:29:55 What have you been doing recently?
01:29:56 Oh, not much.
01:29:57 When are we going?
01:29:58 Not too far?
01:29:59 Not too soon?
01:30:00 Yeah.
01:30:01 Where is it?
01:30:02 Oh, not too far away?
01:30:03 Yeah.
01:30:04 All negatives.
01:30:05 And he’s a beautiful, beautiful rendition.
01:30:07 Yeah.
01:30:08 Yeah, that’s the cool thing about the internet culture.
01:30:10 They appreciate that ironic side.
01:30:13 Like for example, the best compliment you can give as an Aboriginal to somebody else
01:30:17 is that’s deadly.
01:30:18 That’s deadly.
01:30:19 That’s a compliment.
01:30:20 That’s deadly.
01:30:21 Okay.
01:30:22 Yeah.
01:30:23 I’ve got another mate of mine and this comes to the Australian language.
01:30:24 If I call you a bastard, that’s a compliment.
01:30:26 Yeah.
01:30:27 Depending on how I insinuate the word bastard.
01:30:29 Bastard.
01:30:30 Bastard.
01:30:31 Bastard.
01:30:32 That’s deadly.
01:30:33 Yeah.
01:30:34 I love that.
01:30:35 And there’s something, unfortunately, there’s something about the British accent that makes
01:30:40 people sound maybe brilliant, maybe sophisticated, wise.
01:30:47 But actually pompous.
01:30:48 Yeah.
01:30:49 No, that’s unfortunately the downside of that is you can sound pompous.
01:30:55 There’s something about the Australian accent that you just can’t sound brilliant.
01:31:03 It humbles you.
01:31:04 You sound like you’re having a lot of fun.
01:31:06 There’s wit.
01:31:07 There’s all that good stuff.
01:31:08 Yeah.
01:31:09 Yeah.
01:31:10 But you just can’t be like Karl Marx in an Australian accent would just not come off.
01:31:13 That is a very good point.
01:31:14 He would not be able to pull off the beard.
01:31:16 That’s like, yeah.
01:31:17 I mean, I just, yeah.
01:31:18 It’s fascinating that the accent determines something about the person.
01:31:25 Maybe it’s the chicken and the egg too.
01:31:27 It drives the way of the discourse.
01:31:29 Obviously there’s a lot of brilliance.
01:31:30 There’s a lot of brilliance in your work, but it sounds like you’re always having fun.
01:31:33 Yeah.
01:31:34 And look, this, Pat Poncho has got a lot of Australian mates here.
01:31:38 Yeah.
01:31:39 He spent, what about, how long in Australia?
01:31:41 Year and a half.
01:31:42 Year and a half.
01:31:43 And he’s got all these mates here who play Aussie rules football in Austin.
01:31:46 You should join them one day.
01:31:47 I will.
01:31:48 It’s actually, it’s a very creative sport.
01:31:50 It’s much more fun.
01:31:51 It’s different than rugby?
01:31:52 Oh, very.
01:31:53 Rugby is hopeless.
01:31:54 Rugby is two morons smashing their bodies against each other.
01:31:58 Easy now.
01:31:59 Easy now.
01:32:00 Sorry.
01:32:01 Sorry.
01:32:02 We did not mean to offend the rugby fans in the audience.
01:32:04 Well, okay.
01:32:05 What’s, so it’s too simplistic.
01:32:07 It’s too simplistic.
01:32:08 It’s easy.
01:32:09 It’s, I mean, there’s skill in it.
01:32:10 I’ve seen some really skillful rugby union and rugby league players in my day.
01:32:14 Yeah.
01:32:15 But it, fundamentally, if you hit somebody hard enough, they go down.
01:32:18 Yeah.
01:32:19 Okay.
01:32:20 Whereas in Aussie rules, it’s about catching the ball and then kicking the ball and pass.
01:32:23 More skill, less pass.
01:32:24 More skill.
01:32:25 And it’s, and the bodies of the athletes, I can actually get off and measure what a sport
01:32:31 is like by the bodies it creates.
01:32:33 And you get these incredibly elegant lithe muscular forms out of Aussie rules.
01:32:39 Such beautiful words you have in your vocabulary, lithe, I don’t even know.
01:32:42 But I’ll assume you know what it means and maybe somebody in the audience.
01:32:47 Okay.
01:32:48 So, all right, fine, fine.
01:32:51 We should also mention that you, in your youth, you know, like last year, have had Olympic
01:32:58 weightlifting as part of your life.
01:33:01 So you’re…
01:33:02 A long time ago.
01:33:03 And like you said, tennis.
01:33:04 I also played tennis for many, many, many, many years.
01:33:06 Okay.
01:33:07 Yeah.
01:33:08 It’s a fascinating game.
01:33:09 It’s a wonderful game.
01:33:10 Yeah.
01:33:11 That’s my favorite game.
01:33:15 Karl Marx and Stalin.
01:33:17 Yeah.
01:33:18 So how do we get onto Aussie football in Australia and the accent?
01:33:22 I’m not really sure you talked about the way I said something about Karl Marx and with
01:33:27 Karl Marx.
01:33:28 Anyway, we got there.
01:33:29 Yeah.
01:33:30 We got there and now we return.
01:33:31 But back to Marx.
01:33:32 I think…
01:33:33 It’s not the destination.
01:33:34 It’s the journey.
01:33:35 I think Marx, the failure of socialism with Janos Kornei captured beautifully.
01:33:40 This idea already called demand constrained versus resource constrained economies.
01:33:44 And capitalism is demand constrained.
01:33:47 Okay.
01:33:48 And this is, again, where neoclassical theory is completely wrong, empirically completely
01:33:52 wrong.
01:33:53 So the neoclassicals have a vision of capitalism being resource constrained, and it’s about
01:33:58 maximizing your usage of resources subject to constraints.
01:34:02 And as Kornei said, that’s really what happened to socialism.
01:34:05 What happens under capitalism is that you have 15, 20 companies producing automobiles.
01:34:12 They are all trying to capture as much of the market as they can.
01:34:15 If you add up their marketing plans, you’re going to get 120, 130% of the actual market.
01:34:20 So they’re all going to have excess capacity.
01:34:23 When you build a factory, you’re building it with a plan for it to exist for five, 10,
01:34:27 15 years.
01:34:28 You have to have excess capacity in the factory.
01:34:30 So that means that capitalism has far greater productive capacity than it actually uses.
01:34:35 And then the way that you manage to get demand into your factories to innovate and produce
01:34:39 something nobody else does, or you’re producing in volume and when somebody produces like
01:34:44 a bung tire, comes out of Firestone, then Goodyear is ready to expand its production
01:34:49 and take advantage of that.
01:34:50 So that’s the actual nature of competition in capitalism.
01:34:54 And that means that we get a cornucopia of goods, even if we’re lowly workers.
01:34:59 The variety of goods in capitalism is overwhelming, and that just doesn’t happen in socialism.
01:35:05 You get your 1942 Cossack as your motorbike, that’s it.
01:35:09 When you put your money down to buy a refrigerator, it’ll arrive in 10 years because the factory’s
01:35:13 already fully constrained.
01:35:15 So all these resource constraints mean that people aren’t happy under socialism.
01:35:21 And if you’ve got a whole bunch of people that aren’t happy, then the best way to control
01:35:26 them is to suppress them.
01:35:29 So I think in that sense, ultimately, yes, it does lead to something like Stalinism.
01:35:33 So it’s easier to give happy people freedom.
01:35:36 Yeah, I mean, happy people get pretty silly outside.
01:35:39 I’m not particularly, the extent to which Americans overuse and distort the word freedom
01:35:43 drives me balmy.
01:35:47 All of these words can be distorted, but they all, at the core, have some fundamental power
01:35:52 and beauty, and then we just distort on the surface for the fun of it, just to start battles
01:35:57 on Twitter and so on.
01:35:59 But what citizens of the Soviet world didn’t feel was freedom.
01:36:02 Not just in, first of all, it wasn’t freedom to buy commodities.
01:36:06 The commodities that were supposed to be on the shops weren’t there.
01:36:09 The volume couldn’t be produced.
01:36:11 And what you then got out of that as well was the classic Soviet joke, they pretend
01:36:15 to pay us and we pretend to work.
01:36:17 Okay.
01:36:18 Yeah, so you’re not motivated.
01:36:20 Oh, look, I went to Cuba about eight years ago, invited to give a talk there.
01:36:26 And staying in a hotel itself, the hotel’s a story.
01:36:28 There was one day my meetings were canceled, so I thought I might go down to the beach.
01:36:33 And in the hotel, they had a wing, which is the tourist office, and there were three women
01:36:38 working inside the office.
01:36:39 So I thought I’d just go up and ask them, you know, how do I get to the beach?
01:36:42 And one of them says to me, and I stood there, just stood in the room, waiting to see if
01:36:48 they’d make eye contact with me.
01:36:50 Three women, nobody else in the place.
01:36:52 None of them looked at me.
01:36:53 So I finally went up to one of them and said, I want to go to the beach and do some surfing
01:36:57 work.
01:36:58 She said, I can get a taxi outside.
01:36:59 Now, fundamentally, she was saying, well, I’m being paid shit money here, I don’t want
01:37:05 to work, I’m not going to do anything apart from sit here and qualify for my time.
01:37:13 And as much as there are reasons the Cubans have suffered from American embargoes and
01:37:16 all that sort of stuff, you’ve still got that fundamental shortage economy that Cornet spoke
01:37:22 about coming out of the structure of central ownership and central control of distribution
01:37:27 and investment.
01:37:28 It breaks my heart because I think some of the effects of that persist throughout time.
01:37:35 It become part of the culture too.
01:37:36 Yeah.
01:37:37 Yeah.
01:37:38 It’s very interesting.
01:37:39 Negative culture.
01:37:40 Yeah.
01:37:41 Yeah.
01:37:42 Well, from the Western perspective.
01:37:43 Well, even from the people living through it.
01:37:44 I mean, I had enough conversation with Cubans, you know, meeting them on the street, hopping
01:37:49 in a cab.
01:37:50 There was one guy I was talking to, he was an industrial chemist and he’d got a bit of
01:37:55 money being a cab driver because he could make money out of taking foreign tourists
01:37:59 from the airport to the city.
01:38:01 By the way, this episode is brought to you by delicious Coca Cola.
01:38:06 That’s why I didn’t want to have it on camera, but anyway.
01:38:10 No, maybe they’ll actually sponsor.
01:38:12 You want to make sure you rotate the label to show, this is capitalism.
01:38:16 What are we talking about here?
01:38:18 Even though it’s red.
01:38:19 Red and black is actually anarchist.
01:38:24 I should tell you, I don’t know if you know who Michael Malice is.
01:38:27 Michael.
01:38:28 Michael Malice.
01:38:29 He’s an anarchist and he lives next door.
01:38:30 Does he?
01:38:31 Okay.
01:38:32 Now, I’ve lost touch with anarchist philosophy.
01:38:34 I actually used to read, you know, Kropotkin and Bakunin and so on, and I enjoyed their
01:38:40 philosophy and then I helped organize an anarchist conference once, and that was the
01:38:44 biggest antidote possible to being an anarchist.
01:38:48 That sounds like an entry point to a joke, helped to organize an anarchist party.
01:38:53 It is.
01:38:54 I mean, we literally spent three days arguing over whether there should or should not be
01:38:59 a chairperson for conversations.
01:39:01 Yeah.
01:39:02 Well, that may be that.
01:39:07 Monty Python’s Life of Brian lived out live.
01:39:12 Look at the bright side of life.
01:39:15 All right.
01:39:16 So part of that explains why, for example, even to this day, in some of those parts of
01:39:20 the world, entrepreneurship does not flourish.
01:39:26 There’s not a spirit in the people to start businesses, to launch new endeavors and all
01:39:30 those kinds of things.
01:39:33 We’re just taking all kinds of strange little strolls, but how do you explain the mechanisms
01:39:40 of China today, where there’s quite a bit of sort of flourishing of businesses and so
01:39:47 on?
01:39:48 It’s a very peculiar kind of entrepreneurship.
01:39:51 They got away from central control, but they still manage central political control, but
01:39:57 diversified economic control.
01:39:59 So you could, it is possible to draw a line between politics and economics.
01:40:03 It is possible, and I think in some ways, China’s more likely to survive as a society
01:40:06 going into the future than Western capitalist societies are.
01:40:12 So it’s like, if we do the Karl Marx, the foreground and the background, you can centralize
01:40:22 the politics, the humanity, the subjective stuff, and then distribute the objective stuff.
01:40:31 You’ve got to have the goods, and the big change from Mao Zedong Xiaoping was the characterizing
01:40:38 that little saying that I don’t care whether you have a black cat or a white cat, so long
01:40:41 as it catches mice.
01:40:44 And there was a level of pragmatism to the Deng Xiaoping revolution over Mao and Madame
01:40:49 Mao in particular, and that was manifest in the desire to get as much of those Western
01:40:55 goods as possible.
01:40:56 And I was actually in China in 1981, took a group of journalists there, as I mentioned
01:41:01 earlier, for a tour, and we ended up going to the Sichuan Free Trade Zone, and that gave
01:41:07 us an idea of why China was going to succeed, because they had a rule that you couldn’t
01:41:15 just come in and exploit the cheap wages, you had to also have a Chinese partner, and
01:41:20 within five years, the Chinese partner had to earn 50 percent of the business, which
01:41:25 is huge.
01:41:26 And that gives you an idea of the reduction in wages these American corporations were
01:41:30 looking at.
01:41:31 They’d shut down the factory in what’s now the Rust Belt of America that might be paying
01:41:35 somebody there at that time maybe $2 an hour, and they come across to China and they’re
01:41:41 paying two cents an hour.
01:41:43 So the enormous amount of wages that they dropped, they were willing to forego half
01:41:49 the profits and the ownership of the firm.
01:41:52 So what the Chinese were doing wasn’t just exploiting their labor force, it was also
01:41:57 building a capitalist class, and that meant that you had this, that’s where all the Chinese
01:42:02 corporations have come from.
01:42:04 So they were building a capitalist system within a socialist command political system,
01:42:11 and that worked, and it’s still working.
01:42:14 So there was the centralization of the economic stuff, the Gosplan approach.
01:42:18 I think that was where the Soviets failed.
01:42:21 And what the Chinese realized after what they went through under Mao was you have to have
01:42:26 that capitalist period, but they weren’t going to abandon the communist control politically
01:42:31 of the country at the same time.
01:42:33 And that worked out brilliantly, and there’s a huge amount of innovation taking place in
01:42:36 China today.
01:42:38 And they also will do gigantic infrastructure projects, breathtaking planning going into
01:42:44 that.
01:42:45 You would have seen videos of building a skyscraper in a day.
01:42:49 The planning that has to go into that, the pre preparation that’s necessary is enormous.
01:42:54 So there’s a real respect for engineers as well in that society, which does not apply
01:42:57 on the West.
01:42:58 What do you think about, from the Western perspective, the destructive effects of centralized
01:43:04 control of the populace, of the ideas of the discourse, of the censorship and the surveillance,
01:43:09 all those kinds of things?
01:43:10 It’s a bit like we were talking about Russia to some extent beforehand, with centralized
01:43:16 versus decentralized corruption.
01:43:21 And when you had the centralized political stuff, it means you know you can’t criticize
01:43:27 within China.
01:43:28 But so long as you don’t criticize, you can do what you like.
01:43:31 And how destructive is that to the human spirit?
01:43:35 From the American perspective, that feels destructive.
01:43:39 I’ve been to China quite a few times over my life, a lot in the last, not for about
01:43:45 four years, but for the six years before that, a few visits.
01:43:48 And staying in second and third and fourth tier cities, so populations of only four million
01:43:55 people, which is quite small on Chinese standards.
01:43:59 And I had a lot of happy people that I was interacting with.
01:44:02 My girlfriend at the time, her social circle.
01:44:06 And you can feel when people can’t discuss a political issue.
01:44:09 For example, in Thailand, you can’t discuss the king.
01:44:13 They still have, you know, les majestes laws, so you can actually be jailed for discussing
01:44:18 the king.
01:44:19 And you can feel that to some extent, and it is a political issue in Thailand now.
01:44:24 But in China, what I got back from most people, it was a bit like a benevolent big brother.
01:44:31 But then when you get things out like the lockdown, which was applied recently, then
01:44:34 you get the failings of the Soviet system is still there in the Chinese system.
01:44:40 In that, the easiest way to avoid criticism as an underling carrying out instructions
01:44:47 of people above you is to carry those instructions out to the letter beyond what the people actually
01:44:54 want you to do at the top.
01:44:56 So we had a classic illustration of that when I took these journalists.
01:45:00 There was a news report saying that China’s output of light industry had grown by 17 percent
01:45:06 in the previous year, but heavy industry had fallen by 7 percent.
01:45:10 We just don’t compute.
01:45:12 So we kept on asking, why did this happen?
01:45:14 Every time we asked a question, this is back in 1981, the answer would be the initial answer,
01:45:18 we followed the directive of the Central Committee of the Communist Party of China.
01:45:23 We finally got a guy to elaborate and say what that was.
01:45:26 He said, well, the Central Committee sent out a directive to promote light industry.
01:45:30 So what did you do?
01:45:31 Quote unquote, we stripped heavy industry factories and turned them into light industry.
01:45:37 Now that’s destructive of everything.
01:45:40 And that’s the overlay that you’ve still got sitting over the top of China.
01:45:44 But a huge part of the industrialization was simply saying, produce whatever you can, make
01:45:50 goods, market them, sell them.
01:45:53 And you get that innovative component of humanity is respected and the goods turn up and everybody’s
01:45:59 well fed.
01:46:00 Food in Russia is far better than food in America.
01:46:04 So in terms of material satisfaction and freedom, for example, enjoy dancing.
01:46:12 We went to, I think, somewhere in Shanghai, and there’s this line of people involving
01:46:19 a woman who would have been close to her 90s and a kid who was about six or four.
01:46:24 Partying it up?
01:46:25 Partying it up in the open air and doing this Chinese collective dance.
01:46:27 You have to be really careful about that kind of thing.
01:46:31 So in terms of measuring the flourishing of a people by looking at their happiness, I
01:46:44 have so many thoughts on this, but I’m imagining North Korea.
01:46:48 And if you talk to people in North Korea, I think they would say they’re happy.
01:46:55 No.
01:46:56 Well, let me try to complete this argument, not an argument, but a sort of challenge to
01:47:04 your thought, which especially in the bigger cities, because they don’t know the alternative.
01:47:12 So what else do you need?
01:47:14 There’s enough food on the table.
01:47:16 We have a leader that loves us and we love him.
01:47:22 Our hearts are full of love.
01:47:24 Our table is full of food, they would say, because it’s enough food.
01:47:33 What else do you want from life?
01:47:34 No, I think, okay, like that’s…
01:47:36 So let me sort of chat, because like…
01:47:38 That’s an alternative.
01:47:39 I mean, I’ve spent time in Romania.
01:47:41 So let me sort of complete that, sorry.
01:47:44 Because I’m taking the most challenging aspect.
01:47:47 When there’s centralized control of information, that you don’t know the alternative, that
01:47:53 you don’t know how green the grass is on the other side.
01:47:57 And so your idea of happiness might be very constrained.
01:48:00 So you could also argue that is happiness, if you don’t know.
01:48:06 Ignorance is bliss.
01:48:07 Ignorance is bliss.
01:48:08 And then so is happiness really the correct measure for the flourishing?
01:48:13 It’s not.
01:48:14 But I mean, there’s actually a classic book, a movie as well, called Mao’s Last Dancer.
01:48:22 And that is a young man explaining his progression from being a dancer in the Cultural Revolution
01:48:28 through to a leading dancer in American and ultimately Australian ballet.
01:48:33 And he explicitly says at one point that he’s told that the Chinese people have the highest
01:48:39 standard of living in the world.
01:48:41 And the reaction of him and his kids, like his fellow six year olds, is, God, it must
01:48:44 be miserable elsewhere in the world then.
01:48:47 So they knew.
01:48:48 They still know.
01:48:49 They still know.
01:48:50 There’s no such thing as that complete ignorance.
01:48:52 But what I’m talking about is experiences in China say back in about 2016, 2014, there
01:49:01 was a feeling of freedom within limits that you didn’t want to transgress because the
01:49:07 system was working.
01:49:09 So if you like, it’s kind of like marriage, it’s kind of like marriage, hey, that’s a
01:49:13 good example.
01:49:14 There’s limits.
01:49:15 There’s limits.
01:49:16 You can have fun within those limits.
01:49:18 That’s right.
01:49:19 Okay.
01:49:20 And people did have fun and they did feel free, but they didn’t want to go and get divorced.
01:49:24 But that dilemma was accommodated because the boundaries, until you started hitting
01:49:30 restrictions were wide.
01:49:32 Okay.
01:49:33 And like when you look at it, I mean, look at the, again, with the Chinese Communist
01:49:37 Party, the administrators of that are often highly qualified engineers who can then make
01:49:43 intelligent decisions about what should be done as infrastructure and so on.
01:49:47 And you go to China and you’ve got incredible high speed rail, fantastic infrastructure,
01:49:54 internet, telecommunications and so on, rapidly evolving solar.
01:49:59 There’s a range of things there that are so well done that reflect the fact that the selection
01:50:06 process that gives you your political elite is partially focused upon sucking up, et cetera,
01:50:11 et cetera.
01:50:12 It’s still there, but it’s also focused upon your skill levels.
01:50:16 And you get people making decisions who damn well know what they’re talking about.
01:50:20 Like Australia’s got a classic example, the internet in Australia sucks.
01:50:25 The reason it sucks is that the Labour Party, which is our version of the Democrats, was
01:50:31 in control during the global financial crisis.
01:50:34 And as part of that, they wanted to bring in optical fiber connections to the house.
01:50:41 So you’d have an optical fiber backbone and an optical fiber right to your T100 output
01:50:48 from your home.
01:50:49 And the Liberal Party fought that and said, that’s going to be too expensive, it’d take
01:50:54 too long to do.
01:50:55 We’re going to do cable to the node and then have a copper network linking from a node
01:51:01 on a street to all the houses in the street.
01:51:03 It’s going to be cheaper and faster, have it more soon, blah, blah, blah.
01:51:07 It was a total technical fuck up.
01:51:09 And Australia now has internet that’s about 50 or 60 years fast in the world.
01:51:13 It’s dreadful for the internet.
01:51:16 Two political figures made that decision, Tony Abbott and Malcolm Turnbull, rivals and
01:51:22 leaders of the Conservative Party we call Liberal over there.
01:51:27 Now that was shitty decisions that wouldn’t happen in a country like China because you’ve
01:51:34 got actual engineers making the decisions.
01:51:36 They say you can’t get decent speed if you link optical fiber to copper.
01:51:42 So what you get is even though you can’t make the decisions yourself, a vast majority of
01:51:48 the decisions are made intelligently and therefore you expect it.
01:51:52 It’s interesting, but don’t you worry about the corrupting aspects of power?
01:51:59 Oh yeah.
01:52:00 That you start, you know, you have engineers making intelligent decisions, but at which
01:52:05 point does the fat king start saying, oh, these engineers are annoying.
01:52:11 I have good internet.
01:52:12 I don’t understand.
01:52:14 Bring me the grapes.
01:52:15 Well, that’s, you know, you get your colligular effects.
01:52:18 That can happen.
01:52:19 Like Z from what I’ve seen has got elements of that.
01:52:22 So friends of mine who are Caucasians can get away with it.
01:52:26 They have a game that they play at conferences, scoring how often people use with Z’s name
01:52:31 in a presentation and giving extra points for the number of photographs of Z that turn
01:52:35 up in the whole thing.
01:52:36 So you’ve got this sort of personality cult coming along as well.
01:52:40 But at the same time, the planning for the infrastructure that’s being built, the social
01:52:44 services, the general freedom that exists is so great.
01:52:50 And like any Chinese person alive today, like somebody who’s Chinese my age, would have
01:52:56 been an adult under the early period of, the late period of Mao.
01:53:02 And God almighty, the change, the improvement they’ve seen in their lives, that’s what they
01:53:05 think about.
01:53:06 So.
01:53:07 But it’s the, if you just look at the history of the 20th century, your intuition would
01:53:13 say that some of the mechanisms we see in China now will get you into trouble in the
01:53:18 long term.
01:53:19 So it seems to be working really well in many ways in terms of improving the quality of
01:53:25 life of the average citizen in China, but you start to get worried about how does this
01:53:30 go wrong?
01:53:31 Well, yeah.
01:53:32 But at the same time, maybe, I mean, often people will say, you know, what’s your vision
01:53:35 for the future?
01:53:36 And what they mean is what vision for the future do you have that I’m going to like?
01:53:40 Right.
01:53:41 Okay.
01:53:42 What if you have a vision of the future that you don’t like?
01:53:45 It’s dreadful.
01:53:46 I mean, that’s the ecological crisis I think we’re walking blindfolded into.
01:53:52 Well, that’s right.
01:53:54 That part of the picture we’ll have to talk about how fundamental of a problem that is.
01:54:00 Okay.
01:54:01 But what does that have to do with the future of China?
01:54:02 What it has to do is that if you wish to impose dramatic controls on the consumption of the
01:54:06 rich, which would be necessary to reduce our consumption burden so that we can get closer
01:54:13 to the ecological envelope we’ve destroyed already, then you’re going to make more likely
01:54:19 successful doing that with a centralized system where people accept centralized political
01:54:24 control.
01:54:25 Then you’re in a country where it’s all diversified and you scream freedom between every point
01:54:29 in a tennis match.
01:54:30 And I’ve literally seen that when I was in Philadelphia some time back.
01:54:35 So the ideology that accepts a collectivist attitude may be more successful in controlling
01:54:41 our reducing human consumption levels.
01:54:44 Because when we talk about democracy, I mean, who’s voting here?
01:54:49 How many horses and elephants and birds get to vote?
01:54:56 It’s very…
01:54:57 What’s a bird?
01:54:58 Yeah.
01:54:59 You don’t see them around here.
01:55:01 It’s a very human centric vision we have of this planet.
01:55:04 And we’re going to pay a price for that.
01:55:07 Okay.
01:55:08 So you’re saying to deal with global catastrophic events, centralized planning might be…
01:55:14 I think will work better, period.
01:55:18 But there is some centralized stuff in the United States, for example.
01:55:22 Oh, your military.
01:55:23 Yeah, I know.
01:55:24 No, no.
01:55:25 Okay.
01:55:26 All right.
01:55:27 Now there’s that feisty Australian.
01:55:31 So besides the military, that’s the ideal of the federal government in the United States
01:55:35 is that there is some centralized infrastructure building.
01:55:40 There’s some big…
01:55:41 There’s not enough of it, yeah.
01:55:43 But there’s some.
01:55:44 There’s some.
01:55:45 The question is, when you deal with greater and greater global catastrophic events, like
01:55:50 the pandemic that we’re just living through, that the government would be able to step
01:55:53 up and impose enough centralized planning to allow us to deal, sort of enable, empower
01:56:01 the citizenry to deal with these catastrophic events.
01:56:04 In the case of the pandemic, a lot of people argue that the, first of all, the world, but
01:56:09 also the United States failed to effectively deal with the pandemic.
01:56:15 On the medical side, on the social side, on the financial side, the supply chain, everything.
01:56:21 In terms of communication, in terms of inspiring the populace with the power of science and
01:56:29 all the fronts.
01:56:30 Yeah, yeah.
01:56:31 They failed.
01:56:32 But the ideal is that we’d be able to succeed.
01:56:34 You would have to have a small, efficient, the ideal, the American ideal is you have
01:56:38 a small, efficient government that’s able to take on tasks precisely like the pandemic.
01:56:43 But the thing is, maybe it shouldn’t have been as small as it was.
01:56:46 I mean, my favorite instance of that actually involves the UK because the whole neoliberal
01:56:51 approach is about small, efficient government.
01:56:53 Okay?
01:56:54 Well, small, efficient government works when you face small, efficient challenges.
01:56:58 When you face something systemic rather than episodic, then it’s going to break down.
01:57:03 And like this is, I mean, one of the things I greatly respect is Taleb’s idea of antifragile.
01:57:08 You want a society which is antifragile, not easily broken, whereas neoliberalism has pushed
01:57:13 us towards this vision of efficiency, but it’s easily snapped.
01:57:16 Like in the UK, I’ve forgotten the government minister involved, but she was, she asked
01:57:22 her expert committee, how many, this is before, well before the pandemic, how many masks should
01:57:28 we have on hand in case of a pandemic?
01:57:31 And the answer from the experts was about a billion.
01:57:33 Okay.
01:57:34 That’s 50 masks, that’s 20 masks per person.
01:57:37 Okay.
01:57:38 Oh, that’s too many.
01:57:39 Let’s just make 50 million masks.
01:57:42 That’s one mask per person.
01:57:43 It was gone in a matter of a day.
01:57:45 Okay.
01:57:46 And therefore that’s why they told us, well, masks don’t work.
01:57:48 You know, what they meant was we don’t have enough masks for our health people, let alone
01:57:53 for you and the public.
01:57:54 So we’re going to bullshit you and tell you those masks don’t really work.
01:57:58 And then people don’t wear masks and then we’ve got enough masks, we rush up the production
01:58:01 job.
01:58:02 And by the time it comes along, people have got the skepticism about masks.
01:58:05 So who does, can you elaborate, who does the blame in that case go on to?
01:58:10 The blame comes down to the philosophy that says government should always be small.
01:58:13 No, but do you, do you really think that bigger government would be the solution to the mask
01:58:18 issue?
01:58:19 No.
01:58:20 So let me, let me push back.
01:58:21 Sort of it’s possible that that’s capitalism solves that problem.
01:58:24 Well, not, not if there’s no money in really longterm planning and capitalism.
01:58:30 Okay.
01:58:31 There’s money, there’s money in the, isn’t it possible to construct, isn’t possible for
01:58:37 capitalism to construct the system that ensures against catastrophic events?
01:58:42 Not when they’re systemic, you can ensure against episodic events.
01:58:47 If you occasionally have a really bad storm, but in general the weather’s not so bad that
01:58:52 all the infrastructure is being destroyed, then you can share that around on a percentage
01:58:56 basis.
01:58:57 If you have a Gaussian distribution for your events and you don’t, the mean doesn’t move
01:59:02 around too much and the standard deviation doesn’t change all that much, then insurance
01:59:06 works fine.
01:59:07 But if you have an, if that’s episodic, if you have systemic stuff where the climate
01:59:11 is changing completely and you’re going to wipe out your agricultural capabilities, you
01:59:17 simply can’t do insurance on that front.
01:59:20 You can’t make a profit out of catastrophe and capitalism.
01:59:24 Okay.
01:59:25 So that example of climate change, let’s talk about it.
01:59:29 Okay.
01:59:30 So you mentioned that the human brain, the economy, and the biosphere are three of the
01:59:37 most complex systems we know.
01:59:40 Okay.
01:59:41 And you also criticize the economics community for looking at the effects of climate change
01:59:51 when measured as the effect on the GDP.
01:59:55 So you’re saying it’s a catastrophic thing that the biggest challenge our society, our
02:00:01 world is facing.
02:00:02 Why?
02:00:03 If the economists disagree with you, the effects on the GDP will be minor.
02:00:10 So we’ll deal with it when it comes.
02:00:14 That’s the argument against, that’s the devil’s advocate.
02:00:16 You’re saying, no, it is a thing that will change our world forever in ways that we should
02:00:23 really, really, really be thinking about.
02:00:25 Okay.
02:00:26 Okay.
02:00:27 Make the case of why you disagree with the economists.
02:00:28 The case is simple.
02:00:30 Economists have made up their own numbers to say that it’s trivial.
02:00:34 And you didn’t.
02:00:35 No, I haven’t even tried to make the numbers.
02:00:37 I’m reading what the scientists write.
02:00:39 Okay.
02:00:40 Okay.
02:00:41 And what the economists have done, and like this is William Nordhaus in particular, Nobel
02:00:45 Prize winner, ex president of the American Economic Association, literally assumed that
02:00:50 a roof will protect you from climate change.
02:00:52 And he didn’t say it in those words.
02:00:54 What he said was 87% of American industry occurs in carefully controlled environments,
02:00:59 which will not be subject to climate change.
02:01:02 Now the only things that all of manufacturing, all of services, he included mining as well,
02:01:08 meaning about open cut mining, government activities, and the finance sector, all they
02:01:13 have in common is they happen beneath a roof.
02:01:16 So he’s basically saying climate affects the weather, climate is weather.
02:01:20 Okay.
02:01:21 Okay.
02:01:22 Now that is not at all what is meant by climate change.
02:01:25 It’s changing the entire pattern of the weather system of the planet.
02:01:32 For example, the most extreme form of climate change would be a breakdown in the three circulation
02:01:37 cells that exist in each hemisphere.
02:01:39 The Hadley cell, the Ferrer cell, I think it’s called, and the polar cell, 0 to 30,
02:01:44 30 to 60, 60 to 90, those are the main bubbles, if you like, in the atmosphere.
02:01:50 Now if we get enough increase in the energy in the atmosphere, just like you turn the
02:01:56 temperature up on a stove and you have nice bubbles occurring in a pot of soup and then
02:02:01 turn the temperature up and they all break down and you’ve got bubbles everywhere, that’s
02:02:05 called the equitable climate.
02:02:06 If that happens, then most of the rainfall is going to occur between 0 and 20 and 70
02:02:12 and 90, and the middle is going to be dry, except for extreme storms.
02:02:18 We built our societies in a period of extreme stability of the climate, and when you look
02:02:24 at the long term temperature records, it’s up and down like a seesaw, like a sawtooth
02:02:31 blade between, say, one degree warmer than now and four degrees or six degrees cooler
02:02:36 over the last million years.
02:02:39 When you look at where we evolved, it’s just at a turning point on the peak of one of those
02:02:43 ups and downs.
02:02:44 I’ve forgotten the name of the cycles, but the cycles are caused by changes in the Earth’s
02:02:48 rotation around the sun, and so we evolved our civilization just at the top, so coming
02:02:57 up from a cold period, and then we’re going to head down to another cold period, and that’s
02:03:02 when human civilization came along.
02:03:04 It’s about a period of about 12,000 years.
02:03:07 So across that period, the temperature has changed by not much more than half a degree
02:03:11 up and down.
02:03:12 Now, we’re blasting it well and truly out of those confines, and my way of interpreting
02:03:20 what climate change means is the stability of that climate that enables to build sedentary
02:03:25 civilizations and not be a nomadic species is being destroyed.
02:03:30 So the challenge, and by the way, I’m playing devil’s advocate right here.
02:03:38 The question is, is there something fundamentally different now about human civilization that
02:03:42 we’re able to build technology that alleviates some of the destructive effects that we have
02:03:51 on the climate?
02:03:52 We don’t know.
02:03:53 We’re going to find out the hard way.
02:03:56 And the uncertainty, you think, would be very costly.
02:03:58 Extremely.
02:03:59 Like, many of the trajectories we might take would be much more costly than they’re profitable.
02:04:05 Yeah.
02:04:06 And like, when we’re seeing some of the storms that are happening now in Europe, the ones
02:04:10 that washed away a village in Germany some time ago, the firestorm that hit Canada of
02:04:15 all places, I’ve forgotten the name of the town that was burnt down, but enormous temperatures
02:04:19 in Canada, again, the storms that have been happening back in Australia.
02:04:24 These are all manifestations of a complete shift in the weather patterns of the planet.
02:04:29 And they can wipe out, like a village just disappears, just wiped out by unprecedented
02:04:35 rains, and this keeps on happening.
02:04:39 We are still living in a sedentary lifestyle when we’re a nomadic species.
02:04:44 So to be able to maintain that sedentary lifestyle, we do need to engineer the planet.
02:04:49 We need to keep it within that range of plus half a degree Celsius, minus half a degree,
02:04:56 which is really what it’s been like for the last 10,000, 12,000 years, instead we’re blasting
02:05:01 it right out of that range.
02:05:03 And we know some of the past climates that have existed then.
02:05:07 We can model what they imply for our food production systems, for example.
02:05:12 Not the only example, but obviously crucial.
02:05:15 So when you look at what are called global climate models produced by scientists, one
02:05:20 of the examples, and it was published by the OECD last year, 2021, in the chapter on what
02:05:27 would happen if we lose what’s called the Atlantic Meridional Overturning Circulation,
02:05:32 or AMOC, and people would colloquially know that as the Gulf Stream.
02:05:35 And that’s what distributes heat around all the oceans of the planet.
02:05:39 It’s part of a huge chain called the thermohaline circulation.
02:05:43 But the part that goes across from the equator to the North Atlantic, that’s called the AMOC
02:05:49 and Gulf Stream colloquially, if that disappears in the context of a two and a half degree
02:05:56 Celsius increase in average global temperature, then the proportion of the Earth’s surface,
02:06:02 which is suitable for producing wheat, will fall from 20% to 7%.
02:06:09 Proportion for corn, similar sort of fall.
02:06:11 The proportion suitable for rice will go from 2% to 3%.
02:06:15 Now that means a catastrophic, and that’s the word used in the report, catastrophic
02:06:19 collapse in food production.
02:06:22 So that’s what we’re toying with.
02:06:24 And we are one and a half, we’re actually less than, we’re about halfway there to that
02:06:29 two degrees, 2.5.
02:06:32 And economists, on the other hand, and this is Richard Toll, published a paper 2016, claiming
02:06:40 using what he calls an integrated assessment model that economists developed, that losing
02:06:45 the Gulf Stream would increase global GDP by 1.1%.
02:06:51 Now his model, this is what really pisses me off about these people, it’s the worst
02:06:55 work I’ve read in 50 years of being a critic of neoclassical economics.
02:07:00 The GCMs, the one scientists produce, of course include precipitation as well as temperature.
02:07:06 The IAMs that the economists produce, and this is stated yet again in a paper in 2021,
02:07:12 do not include precipitation, they simply have temperature.
02:07:17 So they assume that if temperature improves by moving towards a temperature which is better
02:07:22 for producing aquaculture, okay, then so will precipitation.
02:07:26 Now that’s completely wrong, they’ve left out a crucial, imagine trying to model the
02:07:30 climate while ignoring the fact that there’s rainfall.
02:07:33 That’s what they’ve done.
02:07:35 So their work is so bad, so dreadfully bad, it should never have been published.
02:07:39 So they over, all right, all right, okay.
02:07:40 I’m not gonna go for them, sorry, this is…
02:07:42 Well, no, no, 100% as they deserve it, so it’s an oversimplification, but I also want
02:07:48 you to steel man people you disagree with and criticize people you agree with, if possible,
02:07:55 to be sort of intellectually honest here.
02:07:57 You do say, sort of to push back on the catastrophic thinking about climate change, that the ecology,
02:08:07 the biosphere is a complex system, economics, the economy is a complex system.
02:08:18 So how can we make predictions about complex systems?
02:08:22 How can we make a hope of having a semi confident predictions about the complex system?
02:08:28 So the scientific community is very confident about the complex system that is the biosphere
02:08:36 and the crisis that’s before us on the horizon.
02:08:43 And then the economists are, as a community, I don’t know, I don’t know what percentage,
02:08:47 but…
02:08:48 Too much.
02:08:49 Too much, that part of the community is very confident looking at the economics complex
02:08:58 system in saying that, no, this system we have of labor and money and capital and so
02:09:07 on, we’ll be able to deal with that crisis and any other crisis.
02:09:12 And they kind of construct simplified models that justify their confidence.
02:09:19 So how do we know who to believe?
02:09:21 For a start, if you believe the economists, you need your head read.
02:09:26 Because when you…
02:09:27 It’s not an argument.
02:09:28 No, it’s not an argument.
02:09:29 It’s a summary of an argument.
02:09:30 And that is the…
02:09:31 No, that sounds a lot like an opinion and an emotional…
02:09:32 I know.
02:09:33 I know.
02:09:34 I’m so angry about it.
02:09:35 Listen, I’ll tell you where I stand.
02:09:39 And I’ve begun looking, studying the climate change much more.
02:09:44 I used to be on things I don’t understand, have not spent time on.
02:09:52 I have so many colleagues that are scientists that I deeply respect, and I trust their opinion.
02:10:01 I have seen the lesser angels of my colleagues on the pandemic side, on the COVID side.
02:10:12 The confidence, the arrogance that in part blinded, I believe, the jump between basic
02:10:20 scientific research to public policy.
02:10:25 And then, so I’ve become a little bit more cautious in my trust on climate change.
02:10:32 I’m still in the same place, and I don’t mean climate change, on anything scientists say.
02:10:37 I become a little bit, wait a minute.
02:10:44 How does the basic scientific facts of our reality map to what we should do as a human
02:10:49 civilization?
02:10:50 Yeah.
02:10:51 There, I want to be a little bit careful.
02:10:52 So whenever now I see arrogance and confidence, I become suspicious.
02:10:57 Well, I’m the same, and that’s why I’m being angry about The Economist, because there’s
02:11:02 incredible arrogance, incredible stupidity at the arrogance, assumptions which you look
02:11:09 at it and think, how did anybody let that get published?
02:11:12 Sure.
02:11:13 Okay.
02:11:14 So the economic analysis of the effects of climate change are poor, in many cases.
02:11:19 Incredibly poor.
02:11:20 And this is like, Bjorn Lomborg styles himself as the skeptical environmentalist and criticizes
02:11:26 the environmental models.
02:11:28 He doesn’t take a look.
02:11:30 He doesn’t criticize the work come out by economists.
02:11:33 You look at it.
02:11:34 It’s so bad.
02:11:35 Is it possible to do good economics modeling of the effects of climate change?
02:11:39 Yeah, it is possible.
02:11:42 Very difficult.
02:11:43 Or is it like one complex systems tech?
02:11:45 It’s two modes.
02:11:46 In that case, yeah.
02:11:47 I mean, like to me, what you should be looking at is saying, what are the scientists saying
02:11:52 are the consequences, probable consequences, not guaranteed, but probable consequences
02:11:58 of increasing the energy level of the atmosphere by the amount we’re doing.
02:12:03 What can the scientists say in terms of like, the effects, because it’s so complicated,
02:12:07 the effects of sort of shifting resources, so basically, what are the effects of climate
02:12:15 change?
02:12:16 How can we really model that?
02:12:17 Because it’s basically you’re looking through the fog of uncertainty because they’re rising
02:12:22 sea levels.
02:12:24 How can we know what effect that has?
02:12:26 Well, we know there’ll be a lot of change.
02:12:28 Yeah.
02:12:29 Well, I don’t actually, I think the sea level one is a poor argument, and I don’t focus
02:12:33 on it.
02:12:34 What I mainly focus upon is the weather patterns, okay?
02:12:38 And if you look at, like we’ve got the, the wheat belt in America goes through what Idaho
02:12:43 and countries, places like that, and you’ve got an incredibly deep topsoil, like Ukraine
02:12:48 is another classic example.
02:12:49 The depth of the topsoil in Ukraine is remarkable, and that’s the wheat bowl of Europe.
02:12:55 And that requires both the right temperature for growing wheat and the right rainfall for
02:13:00 growing wheat.
02:13:01 Now, when you look at the models that climate scientists are building of that, you have
02:13:07 pretty much, your ultimate foundation is the Lorenz model of turbulent flow.
02:13:13 And of course, that’s the first model which we saw chaos theory, complexity, that beautiful
02:13:19 simple model, three variables, three parameters, an incredible complexity out of the system.
02:13:25 But and what that meant was you also had an exponential decay in the accuracy of your
02:13:31 model over time.
02:13:32 So if you have, if you’re accurate to a thousand decimal places, then in a thousand days, you’ll
02:13:39 have no data whatsoever, because each time you’re losing an order of magnitude of accuracy.
02:13:44 So that’s the point about the inability to predict for the very long future.
02:13:48 But what you can do is say, well, there’s a prediction horizon.
02:13:51 If we’re close enough to the, if our statistical measurement of where we are is close enough
02:13:57 to where we actually are, and our forecast horizon is narrow enough to not extrapolate
02:14:02 too far, then for this direction forward, we can make a reasonable fist of predicting
02:14:06 what the weather’s going to be.
02:14:08 And that’s the foundation of meteorological, the stuff we watch on TV.
02:14:12 You know, most of the time, the forecasts are going to be correct these days.
02:14:16 40, 50 years ago, most of the time, the forecasts were wrong.
02:14:20 So that’s the background foundation to these GCMs.
02:14:24 But even they’ve got to massively simplify the world.
02:14:26 So you have this enormous sphere of where they might divide it down to 100 kilometer
02:14:31 by 100 kilometer by 10 kilometer cube, rectangles, whatever, oblongs.
02:14:40 That’s how they’re modeling the transition of where they’re from one location to another.
02:14:45 So they’ve got a chunky vision of the planet, which they have to.
02:14:49 They can’t model it now down to the last molecule.
02:14:52 So you’re losing it.
02:14:53 Not yet, right?
02:14:54 It’s getting better, better, better, better.
02:14:55 Oh, yeah.
02:14:56 I think that’s just too much processing power.
02:14:58 But you’re going to have some confines.
02:15:00 You can’t go, I mean, if you look at the models to do the weather, they used to be of that
02:15:04 100 kilometer, I think they’re about 10 kilometer grids now, I don’t know.
02:15:08 So the processing powers let us get more and more precise that way.
02:15:11 I do know that the models now include chemical mixing that occurs above cities.
02:15:16 They’ve added that complexity to them over time.
02:15:19 So you’re looking at the increasingly accurate models of weather patterns, the effect they
02:15:23 have on agriculture, on food.
02:15:25 And you’re saying that there’s a lot of possibilities in which that’s going to be really destructive
02:15:31 to society on the food production side.
02:15:34 And if you have that increase in temperature, you’re going to get a change in precipitation.
02:15:38 And it could mean that where the rainfall and the sunshine are adequate for growing
02:15:42 wheat is an area where there’s no topsoil.
02:15:45 Like a huge part of the models, the models the economists use, which only use temperature,
02:15:50 don’t include precipitation.
02:15:51 They predict that a large amount of the wheat output of the world is going to occur in Siberia
02:15:58 in the frozen tundra.
02:16:00 What about, so that’s a straightforward criticism of oversimplified models.
02:16:05 What about the idea that we innovate our way out of it?
02:16:09 So there’s totally new, what is the, there’s a silly, poor example at this time perhaps,
02:16:17 but lab grown meat, sort of engineered food.
02:16:22 So a completely shifting source of food for civilization.
02:16:30 So therefore alleviating some of the pressure on agriculture.
02:16:33 That comes down to the difference that Elon makes between producing a prototype and mass
02:16:38 producing the prototype.
02:16:41 You can develop the idea very rapidly to put that into production on the scale that’s necessary
02:16:47 to replace what we’re currently doing.
02:16:49 Six years.
02:16:50 Yeah.
02:16:51 And we haven’t got years.
02:16:52 We’ve got, we might have decades.
02:16:53 We certainly haven’t got centuries.
02:16:56 So in the timeframe we’ve got, I can’t see that engineering going from prototype to production
02:17:02 levels to replace what we’re currently doing in the stable environment they’re currently
02:17:07 destroying.
02:17:08 What do you think about the sort of the catastrophic predictions that people that have thought
02:17:13 have written about climate have made in the past that haven’t come to people?
02:17:16 That’s mainly unfortunately involving Paul Ehrlich and the population bomb and the predictions
02:17:21 Paul was making.
02:17:22 A few individuals or the one individual in that case.
02:17:25 So I’m mostly playing devil’s advocate in this conversation and enjoying doing so.
02:17:31 I do think I’m in agreement with the majority of the scientific community.
02:17:38 But you still see that argument made.
02:17:40 I still see the argument made.
02:17:42 And I also am a little bit worried about the arrogance and the ineffectiveness of the arrogance.
02:17:47 This is the problem.
02:17:48 It’s ineffective.
02:17:50 And that’s what worries me because it’s all been put into the sort of sea level rise,
02:17:58 temperature changes.
02:18:01 It’s not put into the fragility of the system in which we currently live.
02:18:08 And the Earth will survive.
02:18:09 And there’s a wonderful science fiction book called The Earth Abides about a world in which
02:18:14 humans get wiped out.
02:18:15 There’s only a tiny little band left and then the Earth reasserts itself.
02:18:19 So the Earth’s going to survive us.
02:18:20 Will we survive what we do to the Earth?
02:18:22 That’s the question.
02:18:24 And my feeling is that we have underplayed the extent to which the civilizations were
02:18:32 built have depended upon a relatively stable climate.
02:18:36 And it’s then there’s that turning point in the global average temperature that we evolved
02:18:41 right on the top of it.
02:18:42 And if we had done nothing, we could find that heading back down towards another ice
02:18:46 age could equally destroy the possibility of sedentary life.
02:18:51 So for example, if we’d never developed fossil fuel based industries, we’d never built superphosphate,
02:18:58 so our population would never have reached one billion people, and we were still living
02:19:02 like fairly sophisticated animals, but like 17th century level of load on the planet,
02:19:09 then we would have gone down that decline.
02:19:12 And the approaching ice age would have started to wipe out our farming areas, the glaciers
02:19:17 would have encroached, and we would have been driven out of like an agricultural sedentary
02:19:21 civilization by that change.
02:19:24 So it’s just the fact that we evolved on this stable period in the overall temperature cycle
02:19:30 of the planet.
02:19:31 And that stability is something which just reflects the turning point in the regular
02:19:36 cycle of Malicevich cycle, I think it’s called.
02:19:38 I’ve forgotten the actual name, but it’s a cycle caused by change in the Earth’s orbit
02:19:43 around the sun, reflectivity and so on.
02:19:48 That cycle, it’s just that tiny top bit that we evolved in.
02:19:53 So what we should have done is, well, that’s really useful for us, we should stay at that
02:19:56 level.
02:19:57 Now, if we hadn’t done it, we’d go back down here and that’d be the end of our civilization
02:20:01 by an ice age.
02:20:02 Instead, we’re going up here really rapidly, and we’re causing a change in temperature
02:20:08 compared to that long term cycle 100,000 times faster.
02:20:14 So yeah, I mean, my biggest worry is even subtle changes in climate might result in
02:20:24 geopolitical pressures that then lead to nuclear war.
02:20:28 And that’s, yeah, I mean, there’s an argument that’s actually behind, to some extent, not
02:20:33 the Ukraine war so much, but the Arab Spring, the wars in Syria, which partially has led
02:20:39 to what’s happening in Ukraine.
02:20:42 And our weapons are getting more and more powerful and more and more destructive.
02:20:45 More and more nations are having these destructive weapons.
02:20:49 And now we’re entering cyberspace, where it’s even easier to be destructive.
02:20:54 And hyperbaric weapons, which didn’t exist in the Second World War.
02:20:58 So you don’t need nuclear weapons to have catastrophic attacks on each other.
02:21:03 So yeah, it’s incredibly scary that the warlike side of human nature could be extremely enhanced
02:21:12 by climate breakdown.
02:21:14 So in this world, on a happy note, I don’t know how we went from Marxism and Stalinism
02:21:21 to ecology, but all those are beautiful, complex systems.
02:21:28 What is the best form of government, would you say?
02:21:31 We talked about the economics of things.
02:21:36 You ran for office, so you care about politics too.
02:21:40 How can politics, what political systems can help us here?
02:21:43 I think we first of all have to appreciate we’re one species on a planet out of millions.
02:21:50 And as the intelligent species, we should be enabling a harmonious life for those other
02:21:57 species as well.
02:21:58 Can we actually linger on that?
02:21:59 What is, you mentioned that we need to acknowledge the value of life on Earth.
02:22:08 Can we integrate the labor theory of value, can we integrate into that the value of life?
02:22:18 So there’s human life, and there’s life.
02:22:21 If you take that structure that I talked about of Marx’s use value, exchange value, dialectic,
02:22:28 and foreground background, that only exists, that only works because we’re exploiting the
02:22:32 free energy we find in the universe.
02:22:35 There could be no production system without free energy, which is the first law of thermodynamics
02:22:41 that exists.
02:22:42 There is free lunch, after all, and it’s grounded in the energy that’s provided to us by the
02:22:47 universe.
02:22:48 Well, yeah, that’s the free lunch.
02:22:49 That’s what we’re exploiting.
02:22:50 It’s the only free lunch we get.
02:22:51 You know Ginsburg’s summary of the laws of thermodynamics, don’t you?
02:22:54 Allen Ginsberg?
02:22:55 What’s that?
02:22:56 The laws of thermodynamics are summarized as A, you can’t win, B, you can’t break even,
02:23:04 C, you can’t leave the game.
02:23:08 Beautiful summary.
02:23:09 Beautiful summary.
02:23:10 But the fact that it exists in the first place is the free lunch.
02:23:14 So we’re exploiting the free lunch.
02:23:15 But to be able to do it, we can’t put waste back into that system so much that it undermines
02:23:20 the free lunch.
02:23:21 And that’s what we’ve been doing.
02:23:23 And once you respect the fact that we have to, living on the biosphere, the planet we’re
02:23:30 actually on, we have to enable that biosphere to survive us.
02:23:35 Because if it doesn’t survive us, we won’t survive it disappearing.
02:23:40 And there’s not that realization in humanity in general.
02:23:43 And when you say the value of life, you know, all the different living organisms on Earth
02:23:49 are part of that biosphere.
02:23:51 So in order to maintain the biosphere, we have to respect, like pragmatically speaking,
02:23:58 what that means is actually respecting all of life on Earth.
02:24:01 Even the mosquitoes?
02:24:02 I’ve got some, no.
02:24:03 Parasites.
02:24:04 I mean, we are a parasite.
02:24:10 When you look at it, we’re the mosquitoes of the large organizations.
02:24:17 You’re a fan of the Matrix movies at all?
02:24:18 Sure.
02:24:19 Okay.
02:24:20 That’s what I’m wearing.
02:24:21 Absolutely.
02:24:22 I was wondering what the inspiration was.
02:24:23 I was thinking…
02:24:24 It’s not really inspiration.
02:24:25 We are living in a simulation, and I have a conversation offline to have with you about
02:24:30 that.
02:24:31 You’ve been misbehaving, and we’re going to have to put you back in line.
02:24:34 So what’s Agent Smith says when he’s got Morpheus in his possession, he said, I’ve been trying
02:24:39 to classify your species, and I’ve decided you’re a virus.
02:24:45 Now there’s truth to that.
02:24:46 We have intruded into everything.
02:24:48 We’ve taken over every element of the biosphere, and we think we can continue doing that.
02:24:55 And the thing is, we’re breaking that.
02:24:57 We’re exporting it so much, we’re breaking it down.
02:24:59 And I think it’s E.O. Wilson who argued the 50 percent rule.
02:25:03 He believed that we should reserve 50 percent of the planet for nonhuman species.
02:25:09 In other words, we make 50 percent of it off limits.
02:25:13 Humans cannot go there.
02:25:15 And we just let that evolve as it does.
02:25:17 And then we control the other 50 percent.
02:25:19 I think it’s probably giving too much to us.
02:25:22 I think we should actually save like 20 percent, 25 percent max on the rest of the planet.
02:25:27 We let life go on and evolve as it does without our interference, without our dominance.
02:25:34 Now that’s neither a democratic system nor an authoritarian one.
02:25:40 It’s one which starts off with saying the first thing humans have to do is respect life
02:25:44 itself.
02:25:45 Okay?
02:25:46 So would we do that?
02:25:50 We haven’t done it, obviously.
02:25:52 I don’t think the Soviets would have done it if we had a generally Soviet system.
02:25:56 We haven’t done it under a capitalist.
02:25:58 We continue intruding.
02:25:59 So I think we have to go through something like a Star Trek, a Star Trek, you know, catastrophic
02:26:05 200 years to realize that ultimately if we’re going to survive as a species, we have to
02:26:10 respect life in general.
02:26:12 And then that means parts of the planet we can no longer touch, while we also try to
02:26:18 maintain the planet at the temperature that we found it in what we now call the Anthropocene.
02:26:25 So politically, we have to have, like in many ways what native societies often have, a vision
02:26:34 of the cycle of life, not this exponential progression we’ve developed over the last
02:26:39 250 years.
02:26:42 And again, I’ll use another movie, the Avatar type respect for the cycle of life.
02:26:46 We need to have that as part of our innate nature.
02:26:49 And then on top of that, the political system comes out.
02:26:53 Now that political system has to be one that lets us feel like we have a say in the direction
02:27:01 of society while that part is sacrosanct.
02:27:04 We can’t touch it.
02:27:06 But we also, because we are now living with so many challenges created by our own civilization,
02:27:10 I mean, the main threat to the existence of human civilization is the existence of human
02:27:17 civilization.
02:27:18 Is both a feature and a bug.
02:27:19 Yeah.
02:27:20 And therefore, we need to have people who can understand complex systems making those
02:27:24 decisions.
02:27:25 Now that means it isn’t a political system as much as it is an appreciation that the
02:27:30 world is a complex system.
02:27:32 And therefore, effects, which we think are direct effects, will actually come through
02:27:36 an oblique fashion.
02:27:38 And we cannot, there’s no simple linear progression from where we are to where we want to be.
02:27:45 So you have to see how everything feeds together in a systemic way.
02:27:47 And that’s why, one reason I designed this off where I’m wearing the tshirt for now,
02:27:51 Minsky, is to have, it’s nowhere near to this scale, I hope it one way will be, but something
02:27:57 which means we can bring together all that complexity, all those systems, and perceive
02:28:01 them on an enormous screen where we have all the various interacts and we can see what
02:28:05 a potential future is.
02:28:08 And that then guides us.
02:28:10 So it isn’t a case of democracy and, you know, our side wins a vote and therefore we ban
02:28:16 abortion or we don’t, you know, whatever else happens.
02:28:19 It’s seeing what the, respecting the fact that we’re in a complex system, and being
02:28:25 uncertain about the consequences, and not making the bold, expansionary ideas that we’ve
02:28:34 been doing.
02:28:35 So like, being a little bit more, uh, humble.
02:28:41 Humble.
02:28:43 Humble is a good word.
02:28:44 But wouldn’t you like to apply that same humility both to the considerations of the pros of
02:28:55 capitalism and to the catastrophic view of the effects of climate change?
02:29:00 Yeah.
02:29:01 And also, like, I think we can afford to be bold in space.
02:29:05 And that’s one reason I respect the practical vision of Musk and so far impractical vision
02:29:10 of Bezos, that if we’re going, we look for the very far future, the only way we can continue
02:29:16 expanding our knowledge of the universe is to move our civilization, the productive side
02:29:23 of off the planet.
02:29:24 Offsite backup.
02:29:25 Yeah.
02:29:26 So can you actually linger on this?
02:29:28 So let’s actually talk about this.
02:29:29 So first of all, you have the new book, uh, humbly named, uh, named The New Economics
02:29:36 A Manifesto.
02:29:38 Publisher chose the title.
02:29:39 Yes.
02:29:40 No, but I’m joking, but, um, maybe I will ask you about why Manifesto, but we’ll go
02:29:47 through some of the ideas in this book.
02:29:48 We have been already, uh, so some of it is embracing the fact that the economy, our world,
02:29:56 our mind is a complex system.
02:29:58 So this t shirt that you’re wearing, yep, take it out, yeah, is, uh, the software I’ll
02:30:06 do that.
02:30:07 There you go, there you go, you’re wearing a, what is this, an infomercial?
02:30:13 So there’s a t shirt that says Minsky, um, after not, not, not my Minsky, it’s your
02:30:21 Minsky.
02:30:22 Not Hyman.
02:30:23 So no, the Hyman Minsky, not Marvin Minsky.
02:30:25 Not Marvin Minsky, right.
02:30:26 So that’s, so AI Minsky is, is Marvin and then, uh, Harman, uh, it all rhymes.
02:30:33 So stability is free open source system dynamic software invented by Mr. Steve Keen, uh, coded
02:30:45 by Russell Standish, it’s on SourceForge.
02:30:51 It’s destabilizing.
02:30:52 Stability is destabilizing.
02:30:53 So that’s sort of embracing the, the complex aspect of it.
02:30:58 Yeah.
02:30:59 So how can you model the economy?
02:31:01 What are some of the interesting, whether detailed or high level, big picture ideas
02:31:07 behind your efforts of Minsky?
02:31:10 Okay.
02:31:11 Minsky, um, meaning the software, the modeling software that, that models the dynamic system.
02:31:16 Basically what Minsky is doing is system dynamics modeling.
02:31:19 So it’s, if anybody’s used Stellar or Vensim or Simulink, um, then they’ve used exactly
02:31:26 the same family of software that Minsky is part of.
02:31:28 So I didn’t invent that.
02:31:29 It was invented by Jay Forrester, who’s one of the great intellects, one of the great
02:31:33 engineers, uh, in American history.
02:31:36 And the idea of, of, of Forrester’s system was, uh, complex interactions.
02:31:41 So he was doing his work in the fifties, um, uh, if people don’t know Forrester’s work,
02:31:48 he actually built the models of the, um, uh, the, the mathematics for the gun turrets on
02:31:53 American warships in the second world war mechanical systems, obviously.
02:31:57 So he had to work out, you know, how to give a feedback system that meant when the boat
02:32:01 rolled in one direction, the, the tower did not roll the other way.
02:32:05 All that stuff was his work.
02:32:06 So marvelous engineering.
02:32:08 And then he realized if you want to look at a, even like a factory, a factory is a complex
02:32:13 system.
02:32:14 And so you get cycles generated out of the interaction between different components of
02:32:18 the factory that he was first involved in taming, that he built the software to model
02:32:22 complex interactive systems.
02:32:23 So Minsky is that, the thing that Minsky adds, which is unique is the Godley table.
02:32:27 And that’s the double entry bookkeeping.
02:32:29 So you can model the financial system, Godley, the economist, Godley, the economy, Wynn Godley,
02:32:34 another great, great man.
02:32:35 So there, there’s like this, so you’re modeling it as like a state diagram.
02:32:40 Yeah.
02:32:41 Fundamentally.
02:32:42 It’s actually, it is circuit diagrams.
02:32:43 It’s exactly what engineers have been using for decades, almost a century.
02:32:48 So you’re using a circuit diagram to model the economy.
02:32:52 And that’s, that’s the, so other factories have done it.
02:32:55 What they, what they haven’t had in the circuit diagram is a way of handling the dynamics
02:33:01 of the financial system.
02:33:02 So what the Godley table does is bring it financial flows as being everything goes from
02:33:09 somewhere and ends up somewhere.
02:33:11 So you have a positive and a negative, if you’re looking on the liability side, a positive
02:33:16 and a positive or negative and a negative, you’re looking at assets and liabilities side
02:33:20 and Minsky gets the accounting right for that.
02:33:22 So you can do an enormous complex model looking at the economy financially from the point
02:33:27 of view of a dozen different actors in the economy and know that the mathematics is right.
02:33:32 Even though what you’re building is set of differential equations, which might be 50
02:33:36 differential equations with 350 terms in them.
02:33:40 If you’ve got the Godley tables right, you know the mathematics is correct.
02:33:43 So that’s the main innovation that Minsky adds.
02:33:45 And you’re operating there at the macroeconomics level.
02:33:48 Yeah.
02:33:49 It’s definitely macro.
02:33:50 It’s not agent based.
02:33:52 And then this, I’m just open on random page that I think is very relevant here.
02:33:57 The process, this is referring to Minsky, not the software, maybe the software.
02:34:01 I don’t know.
02:34:02 The process can be captured in an extremely simple causal chain.
02:34:05 Capital determines output, output determines employment.
02:34:08 The rate of employment determines the rate of change of wages.
02:34:11 Output minus wages and interest payments determines profit.
02:34:14 The profit rate determines the, there’s a very nice circuit here.
02:34:17 The profit rate determines the level of investment, which is the change in capital, which takes
02:34:23 us back to the beginning of this causal chain.
02:34:26 And the difference between investment and profits determines the change in private debt.
02:34:32 And there’s some nice, the Keen Minsky model and the intermittent route to chaos on page
02:34:38 86 of your book.
02:34:40 These are, do these come from the software?
02:34:42 Yeah.
02:34:43 Yeah.
02:34:44 I was a mathematician back in 1992, August, 1992.
02:34:50 Mathematics is another amazing piece of software.
02:34:52 Yeah.
02:34:53 And I find it, it’s very much a programmer’s approach to mathematics.
02:34:55 I prefer like a program called Mathcad, which is what I’m using for all my, when I do my
02:35:00 mathematics on the computer, I write in Mathcad.
02:35:04 CAD or CAB?
02:35:05 CAD.
02:35:06 Okay.
02:35:07 It’s been ruined by bad management.
02:35:09 They chucked out all the good engineers and I’m still using a version which is 12 years
02:35:13 old.
02:35:14 If only engineers ruled the world.
02:35:16 If only engineers, rather than this particular case, there was a bunch of marketers for CAD
02:35:20 software agreed.
02:35:22 I’m definitely a fan of engineers.
02:35:24 What are the plots that we’re looking at here?
02:35:26 Growth rate, private debt ratio, employment versus wages, employment versus debt, income
02:35:31 distribution.
02:35:32 So this is across years, like different trade offs.
02:35:36 Is there something interesting to say about the plots and the insights from those plots
02:35:39 that are generated by the software?
02:35:41 That’s a particular parameter value is to give that outcome.
02:35:46 But what happened when I first simulated the model, I took a model by a guy called Richard
02:35:50 Goodwin who’s one of the great neglected economists, American Marxist, mathematical Marxist.
02:35:56 And what he did was build a model of cycles.
02:35:59 And he actually wrote a paper called, it’s only about a five page paper published in
02:36:06 a book and a very, very obscure conference paper.
02:36:09 And what he was doing was trying to build a model of Marx.
02:36:13 So he wrote it in 1967 and it was putting into mathematical form a model that Marx came
02:36:19 up with in 1867.
02:36:21 So it was a centenary birthday present to Marx.
02:36:24 And what Marx had argued in chapter 25, I think, of volume one of Capital, section three,
02:36:35 he built a verbal model of a cyclical system.
02:36:39 And it’s quite out of character with the rest of the book.
02:36:41 So when you read volume one of Capital, people think Marx has got a commodity view of money.
02:36:47 He doesn’t at all.
02:36:50 The idea was he had like an onion, you start off on the middle level and you ignore the
02:36:53 outer layer, then you bring the outer layer and so on and so forth.
02:36:56 Anyway, in this model, in volume one of Capital, he normally just assumed work has got a subsistence
02:37:01 wage.
02:37:02 That’s it.
02:37:03 In this little chapter, he said that if the economy is, effectively he said, the economy
02:37:09 is booming, then workers will demand wage rises.
02:37:14 And the wage rises will cut into the profit so that capitalists will not get the level
02:37:18 of profit they’re expecting.
02:37:20 Therefore they will invest less and the economy will slump.
02:37:23 And the slump will mean workers become unemployed and have to accept wage cuts.
02:37:28 And it was a model of a cyclical economy.
02:37:31 And as it happens, Marx spent his later years trying to learn enough calculus to be able
02:37:35 to model it himself mathematically.
02:37:37 And he never managed.
02:37:38 There’s Marx’s mathematical notes on calculus, which are quite fun to read if you have a
02:37:42 mathematical background.
02:37:43 Did he get far?
02:37:44 Far?
02:37:45 Far?
02:37:46 No.
02:37:47 He got too caught up in the whole philosophy and never really got to build the model.
02:37:50 But what Goodman realized was a predator prey model.
02:37:54 Okay.
02:37:55 The Locta Volterra model was the basis of the idea.
02:37:57 So the idea is you have a prey, and the example that Locta actually used initially was grass.
02:38:07 Grass is the prey.
02:38:08 And then you have a predator, and the predator were cows.
02:38:12 So you start off with a very few cows, lots of grass.
02:38:15 And then because of lots of grass, the numbers of cows grow.
02:38:19 And then because the cows grow, they start to eat the grass.
02:38:21 So the grass runs out, so the cows starve, and you get a cycle.
02:38:25 And what Locta was amazed by was that the cycles were persistent.
02:38:28 They didn’t die out.
02:38:30 So Goodman got that vision, and he then built a predator prey model.
02:38:33 And I, first of all, read Goodman and really found it really hard to follow his writing.
02:38:37 He’s not a very good writer, but a guy called John Blatt, who was a professor of mathematics
02:38:42 at New South Wales University, wrote a brilliant explanation of Goodman’s model in a book called
02:38:48 Dynamic Economic Systems.
02:38:49 And I read that.
02:38:50 It was superb, and he said a way he could extend this was to include finance.
02:38:55 So I thought, okay, what I’m going to have is that what Goodman presumed is capitalists
02:39:00 invest all their profits.
02:39:02 So you get a boom when there’s a high rate of profit because they invest all that money,
02:39:08 and then a slump when there’s low profit because depreciation will wipe away capital and you’ll
02:39:13 go boom and slump.
02:39:14 So I simply added in, well, capitalists will invest more than their profits during a boom,
02:39:21 but less than their profits during a slump.
02:39:23 And that therefore means they had to borrow money to finance the gap and pay interest
02:39:27 on the debt.
02:39:28 So I ended up with a model with just three systems states, the income share, the wages
02:39:32 distribution of income between workers, capitalists, and bankers, the level of employment, and
02:39:38 the level of private debt.
02:39:40 And those three equations are fundamentally like going from the Locke to Volterra model
02:39:45 with just two equations, and therefore you get a fixed cycle, to the Lorenz model where
02:39:50 you have three.
02:39:51 And therefore what I got out of it was a chaotic outcome.
02:39:54 So what you’re seeing is a manifestation of chaos, complexity in those plots.
02:40:00 But one of the many fascinating parts about it was that as the level of private debt rose,
02:40:08 in my model I had capitalists being the only ones who borrowed, but the people who paid
02:40:12 for the high level of private debt were the workers.
02:40:17 The rising banker’s share corresponded exactly to a falling worker’s share.
02:40:22 So you can infer from that that the workers are the ones paying.
02:40:26 Effectively, the workers end up paying for it.
02:40:28 They get a lower level of wages.
02:40:30 And the basic dynamic is that capitalists, when you have a three social class system,
02:40:36 your income goes between workers, capitalists, and bankers.
02:40:38 Now in the system, the good one did, they’re just workers and capitalists.
02:40:41 So if workers share rose, capitalists share had to fall.
02:40:45 But when you have three social classes, then capitalists share can remain constant while
02:40:49 workers fall and bankers rise.
02:40:53 So that’s what actually happened.
02:40:55 Because capitalists, the simple way I modeled it was there’s a certain rate of profit at
02:40:59 which capitalists invest all their profits.
02:41:02 Above that they borrow more, below that they pay off debt.
02:41:05 So what would happen is when you got back to that point, then the level of investment
02:41:09 would be a precise share of GDP.
02:41:13 And therefore you’d get a precise rate of economic growth.
02:41:15 But if there was a higher percentage going to bankers and offset by a lower share going
02:41:20 to workers, it didn’t affect the capitalists.
02:41:23 So what you get is the cycles sort of diminish for a while because there’s the income distribution
02:41:31 effect is important.
02:41:32 So the workers pay for the increasing level of debt.
02:41:37 But the other side of it was that the cycles would diminish for a while.
02:41:40 Now what you get is a period of diminishing cycles, then leading to rising cycles.
02:41:45 And technically this is known as the Pomeranville route to chaos, and it’s one particular element
02:41:53 of Lorenzo’s equations of fluid dynamics.
02:41:57 So what they found was in examining laminar flow in a fluid, you have a period where the
02:42:03 laminar flow got more laminar, and then suddenly it’d start to get less laminar and go turbulent.
02:42:09 And this is what actually goes on in the model, so in my model of Minsky.
02:42:14 So what you have is a period where there’s big berms and cycles, and then as the debt
02:42:19 level rises, the berms and slumps get smaller.
02:42:23 And that looks like what neoclassical economists call the Great Moderation.
02:42:28 So when I first modeled this in 1982, I finished up my paper, which was published in 95, with
02:42:33 what I thought was a nice rhetorical flourish, saying the chaotic dynamics of this paper
02:42:38 should warn us against regarding a period of relative stability in a capitalist economy
02:42:43 as anything more than a lull before the storm.
02:42:45 Now I thought it was a great speed of rhetoric, I didn’t think it was going to fucking happen.
02:42:50 But it did, because you had this period from 1990 through to 2007 where there were diminishing
02:42:56 cycles, and the neoclassicals labeled that the Great Moderation, and they took the credit
02:43:00 for it.
02:43:01 They thought that the economy was being managed by them to a lower rate of inflation, a lower
02:43:06 level of unemployment, less instability over time, and they literally took credit for it.
02:43:11 And I was watching that and thinking, that’s like my model running, and I’m scared as
02:43:14 shit that there’ll be a breakdown.
02:43:17 I ended up not working in the area for a while because I wrote Debunking Economics, and I
02:43:23 got involved in a fight over the modeling of competition in neoclassical theory that
02:43:28 took me away for about four or five years.
02:43:31 And then I got asked to do a court case in 2005, end of 2005, and I used Minsky as my
02:43:40 framework for arguing that somebody who was involved in predatory lending should be able
02:43:44 to get out of the debt they were in.
02:43:47 And I explained Minsky’s theory, and I used this throwaway line of saying debt levels
02:43:52 of private debt have been rising exponentially.
02:43:55 And then I thought, well, I can’t, as an expert, just make a claim like that.
02:43:59 I’ve got to check the data.
02:44:01 And the debt ratio was rising exponentially, and I thought, holy shit, we’re in for a financial
02:44:05 crisis, and somebody has to warn about it, and at least in Australia, I was that somebody.
02:44:10 So can you, given this chaotic dynamics idea, can you talk about the crises ahead of us
02:44:16 in the future?
02:44:17 So one of the things, I mean, it’s a fundamental question of economics.
02:44:21 Is economics about understanding the past or predicting the future?
02:44:26 Because you can construct models that do poetic, like in 95, poetic, you know, yeah, and then
02:44:37 you can, you know, watch years fly by, and some of the predictions in retrospect that
02:44:43 you make turn out to be true, but, you know, all kinds of gurus throughout history have
02:44:49 done that kind of thing, and you can call yourself right and forget all the many times
02:44:54 you’ve been wrong.
02:44:56 Let’s talk about the future.
02:44:57 What kind of stuff, you mentioned about the importance of the biosphere, but what are
02:45:02 the crises that are ahead of us that a chaotic dynamics view allows us to predict and be
02:45:10 concerned about?
02:45:11 Getting out of it, leaving aside the ecological, wasn’t a crisis, it was stagnation.
02:45:17 Because what we got out of the crisis was caused by a rising level of private debt.
02:45:23 Now you reach a peak level where the willingness to take on debt collapses.
02:45:29 And so you go to a period where debt is rising all the time.
02:45:32 So credit, which is the annual change in debt, and that’s credit as part of aggregate demand
02:45:38 and aggregate income.
02:45:39 So credit goes from positive to negative, and that causes a slump.
02:45:44 So can you describe why that causes a slump?
02:45:47 So credit goes to negative.
02:45:49 If you ask Paul Krugman, he’ll tell you credit plays no role in aggregate demand.
02:45:53 Give me a second.
02:45:55 Credit plays no role in aggregate demand.
02:45:58 So the vision that the neoclassicals have for the banking system is what they call learnable
02:46:02 funds.
02:46:03 Is Paul Krugman, by the way, the knight at the front of the army that is the neoclassical
02:46:10 economist?
02:46:11 Yeah, fundamentally.
02:46:12 Sure.
02:46:13 Okay.
02:46:14 He’s politically reasonable, which makes him more dangerous than those that aren’t.
02:46:21 He’s politically…
02:46:22 Yeah, there’s quite a lot of people that would disagree with that characterization of Paul
02:46:25 Krugman as he’s politically reasonable.
02:46:28 You should see the people behind him.
02:46:29 The alternatives.
02:46:30 Okay.
02:46:31 Fair enough.
02:46:32 Okay.
02:46:33 So he’s not a negative or positive statement, that’s just he can be feisty as well.
02:46:36 Oh, he can.
02:46:37 He can.
02:46:38 But he’s like the human face of neoclassical economics.
02:46:40 It doesn’t deserve having a human face.
02:46:43 It’s anti human theory.
02:46:45 But he’s the human face.
02:46:46 Tell me what you really think.
02:46:47 I got you.
02:46:48 All right.
02:46:49 Well, so but the credit does not have any effect on aggregate demand.
02:46:54 In their model.
02:46:55 And you’re saying that’s not the case at all.
02:46:56 It’s absolutely crucial to aggregate demand.
02:46:59 So what they model is, again, the example of you lending to me or vice versa.
02:47:03 If I lend money to you, I can spend less, you can spend more.
02:47:07 So credit is the change in debt.
02:47:11 So if I lend money to you, then there’s a level of private debt rises.
02:47:17 So there’s an increase in credit.
02:47:19 But that increase in credit comes at an expense of my spending power.
02:47:22 So you can spend what I’ve lent you, but I can’t spend what I’ve lent you.
02:47:26 So credit cancels out.
02:47:28 When you look at that’s learnable funds.
02:47:30 But in the real world, and the Bank of England has said this is the real world and the textbooks
02:47:34 are wrong categorically in 2014.
02:47:38 When the bank lends, it adds to its asset side and says, you owe us more money.
02:47:43 And it adds to its liability side and says, here’s the money in your bank account.
02:47:47 Now you spend that money.
02:47:49 So what happens when you do your sums, credit is part of aggregate demand and aggregate
02:47:54 income.
02:47:55 And that’s something I first solved in 2019, I think, 2000, I only recently proved it mathematically.
02:48:02 So what that means is credit is a component of aggregate demand, and credit is also very
02:48:08 volatile.
02:48:09 It’s like consumption demand never goes negative, investment demand never goes negative, but
02:48:14 credit can go from positive to negative.
02:48:15 And when you take a look at the long run of American history after the Second World War,
02:48:21 there was no period until 2007 where credit was negative.
02:48:26 It was a positive number, therefore, when you do it as a percentage of GDP, it was a
02:48:34 positive percentage of GDP.
02:48:36 It peaked at 16% of GDP in 2006, 2007.
02:48:42 It fell to minus 5% in 2008, 2009.
02:48:47 So you had a 20% of GDP turnaround in aggregate demand.
02:48:51 Now when you plot that against unemployment, the correlation of credit to unemployment
02:49:00 across the period from about 1990 to 2010 is about minus 0.9, okay?
02:49:09 Enormous negative correlation.
02:49:10 Now according to the neoclassicals, it should be close to zero.
02:49:14 Empirically it’s bleedingly obvious it’s not.
02:49:16 And it applies to every country in the world that had a financial crisis at that period.
02:49:21 So it’s bleedingly obvious in the data.
02:49:24 And they ignore it because credit’s not part of their model.
02:49:28 And you’re saying it’s causation.
02:49:29 It is causal.
02:49:31 Today we sit there, it’s extremely high inflation.
02:49:35 What role does inflation play in this picture?
02:49:41 Is a little bit of inflation good?
02:49:43 We talked about money creation at the beginning.
02:49:48 What’s a little bit of inflation good or bad?
02:49:50 A lot of inflation good or bad?
02:49:52 How concerned are you about?
02:49:53 A little bit is good for a simple reason that, like again, it’s taken me a while to get my
02:49:57 head around this.
02:49:58 But if you think about how people say, what are the functions of money?
02:50:01 They say money, it’s a unit of account, so you’re measuring.
02:50:04 It’s a means of exchange, okay?
02:50:06 And it’s a store of value, okay?
02:50:09 Now yes, okay, it has those three roles, but the last one is contradictory to the previous
02:50:15 two.
02:50:16 Because, and this is where you see this with the Bitcoin phenomenon, if you want to hang
02:50:20 onto money as a store of value, then if prices are falling, the value of money is rising.
02:50:29 And it’s actually in your interests as a store of value to hang onto it and not spend it.
02:50:35 So that contradicts its role as a means of exchange.
02:50:39 Now if you have money which depreciates, and this was actually tried in the Austrian town
02:50:44 of Wargel during the Great Depression.
02:50:48 If you have money that depreciates, then if you don’t use it, you lose it fundamentally.
02:50:53 So it has a high rate of circulation.
02:50:55 So there’s a monetary theorist called Silvio Gazzell, and he wrote this proposal that money
02:51:01 should depreciate.
02:51:03 And he was ridiculed and opposed and derided, but Keynes said he was a great intellect.
02:51:09 And the mayor of the town of Wargel in Austria during the Great Depression was facing an
02:51:15 unemployment rate of 25% pretty much.
02:51:18 Germany had the worst experience in the Great Depression in the world, as bad as America,
02:51:23 slightly worse than America.
02:51:25 And so he thought, how can I stimulate demand here?
02:51:28 So he produced a script which could only be used for buying goods and services in Wargel.
02:51:33 And it could be used to pay your local rates.
02:51:37 But it was depreciated by putting a stamp on the money if you didn’t use it.
02:51:41 So what happened was people would pay their rates, they needed to pay the rates using
02:51:45 this money, so the script, so they used the script.
02:51:49 And because it depreciated, you’d use it rapidly.
02:51:52 So people were using that money, this alternative to the Austrian shilling, and the economic
02:51:58 activity in town took off, and unemployment fell to zero.
02:52:02 And it was an absolute miracle, and everybody loved a Wargel experiment, and the Austrian
02:52:06 central bank sued them for establishing an alternative form of money and shut it down.
02:52:12 Unemployment went back up to 25% again, and Austria voted 99.6% for the Nazis, something
02:52:20 crazy number like that when Hitler marched in.
02:52:22 So the Wargel experiment showed that a depreciating currency led to a high rate of circulation.
02:52:29 But of course, we’re not talking Weimar Republic levels of inflation.
02:52:33 So when you get that much inflation, and that’s normally caused by, as the Weimar inflation
02:52:40 was caused by, the reparation terms imposed on Germany, fundamentally by France at the
02:52:46 Treaty of Versailles, they paid a large part of that with just basically printing the notes,
02:52:52 and you went into this crazy period of hyperinflation.
02:52:54 So hyperinflation almost always occurs when there’s a massive destruction of physical
02:52:58 resources, and the monetary authority tries to paper, literally, over it, and then you
02:53:03 get hyperinflation, that’s total social breakdown.
02:53:05 So a moderate level of inflation inspires the means of exchange usage of money, but
02:53:12 undermines the store of value usage of money.
02:53:17 And that dilemma is why we have this antagonistic attitude towards inflation.
02:53:22 Yeah, I mean, you’re describing it as a tension, but it nevertheless is, like money is a store
02:53:31 of value and a means of exchange, and I don’t, you know, to push back, it’s not necessarily
02:53:36 that there’s a tension, it’s just that depending on the dynamics of this beautiful economic
02:53:42 system of ours, it’s used as one more than the other.
02:53:45 If there’s inflation, you’re using it more for the means of exchange, there’s deflation
02:53:53 using more for store of value, but that doesn’t, I don’t see that as a tension, that’s just
02:53:57 a, how much you use it for those different, like…
02:54:00 But it ends up saying that overall, the level of effective commerce, a bit of inflation
02:54:07 is a good thing, because that’s depreciating the money slightly and encourage its use.
02:54:11 Yeah, but so the argument that some Bitcoin folks use or gold standard folks, again, HODL
02:54:20 is not an argument, is that having an inflation of zero is actually achieving that balance.
02:54:29 Yeah.
02:54:30 Right?
02:54:31 So like, yeah.
02:54:32 But they’re actually in favor of negative, they want it to be appreciated rapidly, and
02:54:36 because of the negative inflation, the value of the money rising relative to commodities,
02:54:42 that’s what they want, that’s the HODL philosophy.
02:54:45 Well, that’s more of like an investment, I don’t know if that, that’s more of investment
02:54:50 philosophy than the fundamental principles of why they believe in cryptocurrency, in
02:54:55 forced scarcity, it’s a model.
02:54:58 The concern there is that when you print money, the public policy is detached from the actual
02:55:04 value.
02:55:06 Yeah, well, I mean, this is where, again, it matters to get money creation right, because
02:55:12 the government’s not the only money creator, banks are as well, private banks.
02:55:19 And if we obsess too much about limiting government money creation, what we end up getting, if
02:55:25 there is money creation going on, it’s private banks doing it, and you get an increase in
02:55:28 private debt, and fundamentally, private debt and its collapse, the collapse of credit,
02:55:36 when it stops growing, that’s the fundamental cause of financial crises.
02:55:41 So yeah, but the question is, what’s the cause for the collapse of the…
02:55:46 Well, I think this is like the Austrian thinking leaves out the debt deflation.
02:55:51 And that’s like, I think one of the most important papers ever written was by Irving Fisher called
02:55:56 the Debt Deflation Theory of Great Depressions.
02:55:59 Fisher was somebody who accepted the neoclassical vision.
02:56:02 He wrote the pre Efficiency Market Hypothesis, Efficiency Market Hypothesis.
02:56:09 He had his own PhD called the Theory of Interest.
02:56:14 And in that, he argued effectively for a supply and demand analysis of the financial system.
02:56:21 And he argued for equilibrium, he said when you’re working with a commodity market, then
02:56:27 the sale and the transaction and the exchange occur at the same point in time.
02:56:35 When you’re working with the financial market, then the exchange occurs through time.
02:56:39 So he said he assumed that debts are repaid, all debts are repaid, and he assumed that
02:56:46 equilibrium through time was an essential part of his assumption.
02:56:50 This is…and then the Great Depression comes along.
02:56:54 And he has become a major shareholder in the rank Xerox because he invented the Roller
02:57:00 Dex.
02:57:01 He’s a tinkerer.
02:57:03 And so he had taken out shares on margin, and he was worth about 100 million in modern
02:57:09 terms when the Great Depression hit.
02:57:12 And 90% of that was share market valuation.
02:57:14 He’d taken out margin debt just like everybody else.
02:57:18 And with margin debt, you could put down $100,000 and buy a million dollars worth of shares.
02:57:24 So you got this huge leverage into debt.
02:57:27 Now that when the financial crisis hit, the level of margin debt in America had risen
02:57:30 from half a percent of GDP in 1920 to 13% of GDP in 1929.
02:57:38 It then fell to zero again.
02:57:40 That’s why the stock market crash in 1929 was so devastating, that scale of margin lending.
02:57:46 And everybody was being wiped out, they were selling Rolls Royces for 20 quid.
02:57:49 You literally have photographs showing people doing that.
02:57:52 Because a margin call comes in, you’ve got to liquidate everything.
02:57:56 So he said the danger of a debt deflation is what we have to avoid.
02:58:02 And that means you don’t want too much private debt to accumulate, and you don’t want falling
02:58:08 prices because the falling prices will amplify the impact of being insolvent to begin with.
02:58:14 And that’s what we saw in the Great Depression.
02:58:16 It’s partially what we saw in 2007.
02:58:19 But we didn’t have anything like the level of margin debt.
02:58:23 Margin debt was reduced from 90% to 50% ratio after the Great Depression.
02:58:29 So there were limits on how bad it was in 2007.
02:58:33 But the danger is still the period of deflation amplifies your debts.
02:58:37 Okay.
02:58:38 And I call it Fisher’s Paradox, he didn’t write those terms himself.
02:58:42 But he wrote a line saying the more debtors pay, the more they owe.
02:58:46 Okay.
02:58:47 And this is because you’re liquidating to try to meet your own debts.
02:58:52 When you liquidate, the price level falls.
02:58:55 You will end up having a lower level of monetary debt, but a higher level of debt when you
02:59:00 deflate it using the price level.
02:59:02 So the biggest danger in capitalism is the debt deflation, far more dangerous than inflation.
02:59:08 And the cause of debt deflation is?
02:59:11 Too much lending.
02:59:12 Too much bank lending.
02:59:13 Too much private money creation.
02:59:14 And if you take a look at the 1920s, Calvin Coolidge explained the boom of the 1920s on
02:59:21 his surplus.
02:59:22 He said, my government running a surplus of 1% of GDP pretty much from 1922 through to
02:59:28 1930 is the foundation of our stability.
02:59:30 It should be continued.
02:59:32 What he didn’t look at was that over that same time period, on average, Americans were
02:59:37 borrowing 5% of GDP per year from the private banks.
02:59:42 So you had a housing bubble at the beginning of the 1920s, which Richard Vague covers beautifully
02:59:46 in the brief history of doom.
02:59:49 And then you had this huge rise in margin debt as well, gigantic increase in margin
02:59:54 debt.
02:59:55 So all this borrowed money was being spent into the economy, and this is where credit
02:59:59 becomes part of aggregate demand.
03:00:01 And it’s both not just for goods and services, it’s also for shares and houses and so on.
03:00:05 So a huge valuation effect.
03:00:07 But then when the margin debt turned around, when people would not take out margin debt
03:00:13 anymore, the demand for margin debt disappeared.
03:00:16 And then it was, you know, what we call badly a positive feedback loop is actually an amplifying
03:00:21 feedback loop.
03:00:22 And that caused a collapse.
03:00:25 So what elements of that do you see today that we need to fix and how do we fix it?
03:00:30 We have to regard the level of private debt as a target of economic policy, just as much
03:00:35 as the rate of inflation or the rate of unemployment.
03:00:38 What is the moderate amount of private debt that’s good?
03:00:41 I would say something of anywhere between 30 and 70% of GDP.
03:00:45 What is it currently?
03:00:47 In America, it’s 170%.
03:00:50 Nice.
03:00:51 Of GDP.
03:00:52 Of GDP.
03:00:53 Oh, that’s nice.
03:00:54 I’ve got, we’ll have to talk after we talk, but I can show you the data in this.
03:00:57 And it is just this huge increase in private debt that first of all caused the boom, but
03:01:04 then financing the credit causes, ultimately causes the slump.
03:01:10 And so if we remove the rate level at which debt can reach and we stop speculative lending
03:01:16 and basically have a lending for both innovation, investment and essential consumption items,
03:01:23 we won’t have the slump on the other side.
03:01:25 We can get rid of financial instability.
03:01:27 We can’t stop financial cycles, but we can stop financial breakdown.
03:01:31 So we should really be focusing on the instability and getting that under control.
03:01:35 By the way, as you point to your laptop, my laptops, I have a lot of, how many computers
03:01:40 do I have?
03:01:41 I have a lot of them, but my little Surface, whatever the heck this thing is, is getting
03:01:45 definite size envy because your laptop, you said is 18 something inches.
03:01:50 18.4 inches.
03:01:51 18.4 inches.
03:01:52 I don’t think I’ve ever seen one that big and I’ll give the internet that one.
03:01:59 All right.
03:02:00 That’s for the graphics.
03:02:01 So it’s a gaming laptop.
03:02:02 It’s a gaming laptop.
03:02:03 It’s basically a desktop.
03:02:04 It probably weighs like 40 pounds and you have to.
03:02:08 Eight kilos?
03:02:09 Eight kilos.
03:02:10 Let’s see.
03:02:11 You reckon eight or?
03:02:12 Oh wow.
03:02:13 Okay.
03:02:14 Yeah.
03:02:15 Okay.
03:02:16 Eight kilos.
03:02:17 That’s, you know, you’re pushing 40 pounds.
03:02:18 You’ve seen the power supply for it?
03:02:19 It’s over there somewhere.
03:02:20 The power supply weighs about twice as much as your laptop.
03:02:21 Yeah.
03:02:22 And you have to power it on with a crank.
03:02:23 Pretty close.
03:02:24 You have to like pull it.
03:02:25 Is it gas powered or is it coal?
03:02:26 Oh, well, I feel like it’s a nuclear power station.
03:02:29 Nuclear.
03:02:30 Yeah.
03:02:31 A nuclear diamond in the back there.
03:02:32 Okay.
03:02:33 So let me, before I forget, just let me ask you about, we’ve covered brilliantly the
03:02:41 nuanced disagreements you have and the wisdom you’ve drawn from Karl Marx.
03:02:46 But there’s also, like you mentioned in popular discourse, a kind of a distorted use of different
03:02:54 terms and one of them is Marxism today.
03:02:58 Is there something you could just speak to about, you know, increased use of that word
03:03:05 and is it misused?
03:03:06 Does it concern you that there’s a lot of actually young people that say they’re sort
03:03:10 of proudly Marxist?
03:03:12 Yeah.
03:03:13 Are they misusing the term?
03:03:15 They are definitely misusing the term if they don’t understand the use value exchange
03:03:20 value dialectic I went through earlier.
03:03:23 So if I could.
03:03:24 And they don’t.
03:03:25 If I could just pause, the idea of socialism and Marxism is used in sort of popular lingo.
03:03:33 It’s basically, you know, a lot of people have a disproportionately hard life.
03:03:40 Why can’t we help them out?
03:03:43 Why can’t we be kind to our fellow man?
03:03:46 Kind of that’s a short embodiment of an idea as opposed to some super complicated elaborate
03:03:54 model of the economy and politics and all that kind of stuff.
03:03:58 Yeah.
03:03:59 I mean, we could do that by using the insights that come out of modern monetary theory, which
03:04:02 I’ve confirmed just using my simple Minsky models.
03:04:06 And that is that, to use the term, usually a feature, not a bug.
03:04:10 A government running a deficit is a feature of a well functioning mixed fiat credit economy,
03:04:16 not a bug.
03:04:17 The government should normally run a deficit because that’s how the government creates
03:04:21 money.
03:04:22 We’ve also had this obsession from mainstream economists of running a surplus, which is
03:04:26 what caused the Great Depression, Calvin Coolidge doing it for eight years.
03:04:30 Because of that obsession, we’ve cut back on social services, we’ve cut back on health,
03:04:34 we’ve cut back on education, we’ve cut back on infrastructure.
03:04:37 Now all that stuff predominantly affects the poor because the rich can afford to buy it
03:04:42 themselves.
03:04:43 So if we had, Sonovich, realized that the government should run a deficit, it’s a feature,
03:04:47 not a bug of a fiat money system.
03:04:50 And that’s where Elon’s made one mistake recently, I’m not going back to funded first principles.
03:04:55 That deficit enables you to provide enough of a decent standard of living for those who
03:05:01 don’t come out on top in the capitalist game.
03:05:05 And with that, you wouldn’t have the angst of the young people.
03:05:08 Now we still have the climate parameters within which we have to survive, but a decent level
03:05:15 of government funding would mean the angst that you get where people say, I want to be
03:05:18 a Marxist, and they’ve got what I call a cardboard cutout version of Marx in their minds.
03:05:23 That wouldn’t be happening.
03:05:25 So it’s potential to have a good society where the government runs a deficit that finances
03:05:32 the needs of the poor, where the rich get enough to indulge and take care of themselves,
03:05:38 and you don’t get this breakdown.
03:05:41 If you try to cause the government running a surplus, then the burden of that is borne
03:05:44 by the poor, middle class and poor, and that will lead to the angst we’re now seeing.
03:05:50 LW.
03:05:51 Beautiful.
03:05:52 That was a beautiful whirlwind exploration of all of economics and economics history.
03:05:59 Let me ask you, you tweeted, I think, we are the opposite of ants.
03:06:05 Individually intelligent, collectively stupid.
03:06:09 You need to develop systems thinking fast to counter our limitations.
03:06:17 That’s really interesting.
03:06:19 Do you really believe we’re individually intelligent and collectively stupid?
03:06:21 RG.
03:06:22 I do.
03:06:23 LW.
03:06:24 Can you elaborate?
03:06:25 I mean, some of that is just cheeky tweets, but…
03:06:27 RG.
03:06:28 It’s a cheeky tweet I’ve had in my mind for a long time.
03:06:31 It’s one that actually went moderately viral, not enough, but moderately viral for me.
03:06:36 LW.
03:06:37 Nevertheless, if you could analyze it as if it’s some deep, profound statement you made
03:06:40 in a book.
03:06:41 RG.
03:06:42 Well, the reason is that we are the incredibly individually intelligent, things like these
03:06:46 devices we’re playing with now.
03:06:47 LW.
03:06:48 That’s the creation of individual minds.
03:06:49 RG.
03:06:50 Creative individual mind and a collective labor over centuries that led to this level
03:06:53 of technology, and that has to be respected.
03:06:55 It’s incredible stuff.
03:06:58 But at the same time, I think what humans are, if you want to distinguish humans from
03:07:02 other species on the planet, we don’t weave webs, okay, we don’t make bird calls.
03:07:08 What we do is we share beliefs.
03:07:10 LW.
03:07:11 Yeah.
03:07:12 RG.
03:07:13 Okay.
03:07:14 Now…
03:07:15 LW.
03:07:16 You don’t think that’s a catalyst for intelligence?
03:07:17 RG.
03:07:18 Yeah, it is a catalyst.
03:07:19 But what it means is we can delude ourselves as much as we can inform ourselves.
03:07:23 So because we share beliefs, we can do things in a collective way.
03:07:27 And if we believe that if we take the incantations of the witch doctors and we happen to have
03:07:33 a couple of spears and things, we can go and attack the local herd, a tribe of lions and
03:07:40 drive them out, and we become the dominant species.
03:07:43 So it works at the stage where we were in competition with other species on the planet.
03:07:48 Now that we’re the dominant species, then our beliefs get in the way.
03:07:53 LW. So you agree with Einstein, who said there are only two things that are infinite, the
03:08:00 universe and human stupidity.
03:08:01 RG.
03:08:02 And he wasn’t sure about the universe.
03:08:03 LW.
03:08:04 And he wasn’t sure about the universe.
03:08:05 Right.
03:08:06 That’s right.
03:08:07 And he wasn’t sure about the universe.
03:08:08 Yeah, so you think that the collective, I mean, there’s an infinity to the destructive
03:08:14 and the stupid, the inhumane that’s possible when we humans get together, but it feels
03:08:20 like there’s more trajectories, there’s more possibility for creation.
03:08:24 RG.
03:08:25 There are.
03:08:26 I mean, I think that’s why we have to, I say if we were built around the idea that our
03:08:30 role as a species is to maintain and extend life on the planet and if not find it elsewhere,
03:08:37 then seed it elsewhere, then that is a vision which makes us creative and confines the worst
03:08:43 elements of our capacities to share beliefs.
03:08:46 So that’s what I, my hope is that we’ll reach that stage, but I think we’ve overshot it
03:08:51 so badly that my real fear is we’ll end up blaming technology for the type of world we
03:08:58 find ourselves living in in the next 20 to 50 years.
03:09:01 LW.
03:09:02 So you think technology is going to be one of the, part of the solution?
03:09:05 RG.
03:09:06 Part of the solution.
03:09:07 Yeah.
03:09:08 But if we go through and blame it, which is quite possible, we’ll blame the technology
03:09:12 rather than blaming too much of the technology and the too much comes down to what economists
03:09:16 have told us, that we can just continue consuming infinitely on a finite planet.
03:09:21 And Kenneth Boulding said that beautifully.
03:09:23 If somebody believes that you can have exponential growth on a finite planet, they’re either
03:09:27 mad or they’re an economist.
03:09:29 LW.
03:09:30 So you’re, you made a long journey for which I’m deeply honoured from, from, this distant
03:09:39 place.
03:09:40 RG.
03:09:41 Antibodies.
03:09:42 There’s myth.
03:09:43 RG.
03:09:44 You’ve got to go there one day, you’d enjoy it.
03:09:45 If I go there, I will stay forever.
03:09:47 And so…
03:09:48 LW.
03:09:49 No, it’s a bit too, there’s more vitality back in this economy.
03:09:51 So you’d come back.
03:09:52 RG.
03:09:53 Okay.
03:09:54 Maybe.
03:09:55 You know, I’m not a fan of the economy or money or any of that.
03:09:58 Nature calls me.
03:10:02 Let me, so I’m honoured that you make that trip.
03:10:04 You’ve also said that while you’re here in Austin, you’re going to go to this American
03:10:11 factory that makes cars here in Austin and also visit Starbase.
03:10:18 So let me ask you about expanding out into the universe.
03:10:22 Is that something that excites you?
03:10:25 You mentioned about the economics of it, do you think, what do you think Marx would think
03:10:30 about this?
03:10:31 Like what, economically speaking, what is this?
03:10:35 Is it a good thing?
03:10:36 LW.
03:10:37 I think it’s vital.
03:10:38 I mean, we can have capitalism in outer space far more successfully than we can have it
03:10:42 on the planet because we don’t face, when we dump the waste, it ends up in the sun.
03:10:46 Not a problem, okay?
03:10:49 So it means the potential, we don’t undermine our own productive capacity if we’re doing
03:10:54 it in outer space.
03:10:55 RG.
03:10:56 So the destructive element of waste has a lesser impact in outer space.
03:10:59 LW.
03:11:00 Far lesser, yeah.
03:11:01 I mean, who cares if we throw a bit of our iron back into the sun again?
03:11:03 It’d take a fair bit of it to turn it into what would be the next stage, it’d be a red
03:11:07 giant.
03:11:08 And we have to get away because if there’s a red giant at some stage, the sun will head
03:11:12 out past the orbit of Mars, I think, certainly past the orbit of Earth.
03:11:16 So to have longevity of just human life, life that evolved on this planet, we have to be
03:11:25 able to take it off planet, ultimately.
03:11:28 So if you think in the really long term, then it’s our responsibility, we’re going to want
03:11:33 to maintain life, is to establish life off the planet.
03:11:37 LW.
03:11:38 What do you think about robots and AI as part of the expanding out into the universe?
03:11:43 RG.
03:11:44 Oh yeah, we have to.
03:11:45 I mean, that ends labor.
03:11:46 You can’t go for a, you know, your daily joint can’t be from here to the asteroid belt and
03:11:51 back again for dinner with your family.
03:11:54 So production would be entirely mechanized.
03:11:56 There’d have to be a handful of people who service the machines.
03:11:59 LW.
03:12:00 So it’s about production and automation.
03:12:02 What about elements of consciousness that make humans so special, what about that persisting
03:12:08 within the machine?
03:12:09 RG.
03:12:10 That, I mean, I’m still a skeptic about us ever being able to create a machine which
03:12:13 is truly conscious.
03:12:14 If I can throw my, it’s only two cents worth.
03:12:16 LW.
03:12:17 That would really piss off Karl Marx, by the way, if we create machines that are conscious.
03:12:21 RG.
03:12:22 Exactly.
03:12:23 This is actually part of the, there’s two good logical arguments against the labor theory
03:12:25 of value.
03:12:26 One of what it becomes, machines become intelligent, and the other was that if the declining rate
03:12:30 of profit applies in socialism, it’ll apply as a rate of accumulation, sorry, in capitalism,
03:12:36 it’ll apply as a rate of socialism as well.
03:12:38 A guy called Khalid made that argument.
03:12:39 So his argument was just unsound.
03:12:42 But yeah, intelligent machines would completely screw Marx up, you know?
03:12:45 LW.
03:12:46 Yeah.
03:12:47 Do you not like that world where machines have not only intelligence, but a consciousness,
03:12:52 a soul?
03:12:53 RG.
03:12:54 Yeah.
03:12:55 I know that’s one of your interests, one of your potential endeavors, and the Kurtz will
03:13:01 argue that there’s some singularity we’re approaching as we just get increasing processing
03:13:05 power.
03:13:06 It’s not processing power, it’s imagination.
03:13:09 And I think—
03:13:10 LW.
03:13:11 Whatever the heck that means.
03:13:12 RG.
03:13:13 Huh?
03:13:14 Whatever the heck that means, yeah.
03:13:15 I mean, you would have had imaginative insights.
03:13:16 I mean, your papers on, like, in automating motoring between the hyperintelligent machine
03:13:23 or the machine human interface where the standards can be lower for the machine and higher for
03:13:28 the human, okay?
03:13:29 That’s an insight you would have had at some point, and then you’ve worked it further.
03:13:33 So I’ve had insights like that as well, and I have no idea where they come from.
03:13:36 They just hit me in the head, and I just write them down, and they solve a problem that I
03:13:41 didn’t even know my mind was working on, okay?
03:13:43 So how can we get a machine to do that?
03:13:47 And I do not know the answer, but one thing I think is the potential is I think we have
03:13:53 to create AI that has feelings, AI that wants to survive.
03:13:58 Because if you think how our intelligence evolved, it’s on this planet in a struggle
03:14:04 between predator and prey, and intelligent became a survival technique.
03:14:07 LW.
03:14:08 I find the ideas of Ernest Becker with denial of death really powerful, which is that humans
03:14:15 not only have emotions and are trying to survive, they’re able to ponder out in the distant
03:14:26 future their mortality, and that is a driving force for even greater creation that animals
03:14:32 are able to do, more primitive animals.
03:14:38 So there is some element where I agree with you.
03:14:42 I think for AI systems to have something like consciousness, they have to fear their mortality.
03:14:49 LW.
03:14:50 Exactly.
03:14:51 And I think that’s, if you do it then, you can’t produce an AI whose behavior you can
03:14:57 control.
03:14:58 RL.
03:14:59 I mean, when you have kids.
03:15:00 LW.
03:15:01 Yeah.
03:15:02 You’re doing it.
03:15:03 RL.
03:15:04 You can’t control their behavior.
03:15:05 That’s the tradeoff.
03:15:06 LW.
03:15:07 You give life to an anarchist.
03:15:08 Like one of my favorite instances in my family life is one of my favorite, I like all my
03:15:14 nurses and nephews, but one’s got a real quirk to her, and I was standing over her cot when
03:15:19 she was literally like about six months old, and she was gurgling away to herself.
03:15:24 And her father waved his fingers and said, stop making that noise.
03:15:28 And this little six month old kid goes, and I said, boy, you’re going to have issues with
03:15:33 that one, mate.
03:15:34 RL.
03:15:35 Yeah.
03:15:36 An anarchist was born.
03:15:37 LW.
03:15:38 So you can’t control this life you give birth to, and that’s, I think, the threat of AI.
03:15:41 RL.
03:15:42 That’s terrifying and exciting.
03:15:43 LW.
03:15:44 It is.
03:15:45 And I think we should take that risk at some stage.
03:15:47 But I think to do it with what actually let artificial intelligence involve in this environment
03:15:53 in which it fears its own death.
03:15:55 RL.
03:15:56 Yeah.
03:15:57 Yeah.
03:15:58 I think there’s a lot of beauty there, but there’s also a lot of destruction that’s possible.
03:16:04 So you have to be extremely careful, but that’s kind of the cutting edge of which we all often
03:16:09 operate as a humanity.
03:16:12 Let me ask you for advice.
03:16:13 Can you give advice to young people in high school and college?
03:16:19 Maybe they’re interested in economics.
03:16:22 Maybe they have other career ideas.
03:16:25 What advice would you give them about a career they can have that they can be proud of or
03:16:29 a life they can be proud of?
03:16:31 LW. Mainly in a career, I say don’t do an economics degree.
03:16:34 Okay?
03:16:35 I say if you…
03:16:36 RL.
03:16:37 There’s a little book.
03:16:38 LW.
03:16:39 Econ Comics.
03:16:40 RL.
03:16:41 Econ Comics, Taking the Con Out of Economics.
03:16:45 So they should start with that and then say screw it to an economics degree.
03:16:50 LW.
03:16:51 Yeah, because what you learn is an obsolete technology.
03:16:54 Learning economics at a university is like learning to make astronomy.
03:16:58 Okay?
03:16:59 Earth centric, equilibrium, you know, epicycles being added to make your models fit the data.
03:17:06 RL.
03:17:07 So it’s not that economics is not a discipline worth deeply studying, it’s that the university
03:17:11 education around economics is bad.
03:17:13 LW.
03:17:14 Is so bad.
03:17:15 Yeah.
03:17:16 So I’d say learn system dynamics.
03:17:17 Do a course in system dynamics which you can apply in any field and then apply what you
03:17:21 learn out of system dynamics to the issues of economics if that’s what interests you.
03:17:26 RL.
03:17:27 So get a sort of base engineering…
03:17:29 LW.
03:17:30 Yeah.
03:17:31 …education.
03:17:32 RL.
03:17:33 A base engineering education.
03:17:34 That is far better than doing an economics degree.
03:17:35 In terms of life, my life is pretty chaotic in many, many ways.
03:17:40 My friends and family will tell me that at every opportunity.
03:17:44 But the thing is, I once had a, I’ll tell you an example of a really funny incident
03:17:48 that occurred to me because I led this student revolt at Sydney University as I mentioned
03:17:51 when I was 20 years old.
03:17:52 LW.
03:17:53 Yeah.
03:17:54 This is great.
03:17:55 RL.
03:17:56 So I was at a restaurant one night and I found a bunch of guys, all guys, who’d done accounting
03:18:01 at the university but had also been part of the student revolt.
03:18:04 So they hadn’t seen me for about a decade and they said, what have you been doing, Steve?
03:18:07 And I talked about what I’d done.
03:18:09 So I’d been a school teacher for a while.
03:18:10 I then worked in overseas aid.
03:18:13 I was doing computer programming at the time and had forgotten what else I was doing at
03:18:17 that point.
03:18:18 So I explained it to all of them and they were at a Bucks night, one of them having
03:18:21 a wedding coming up the next week.
03:18:23 And one of them said, I wish I’d done that.
03:18:27 And there was silence around the table, it was obviously a silent agreement.
03:18:31 And I looked at them and said, hang on, guys, look at the downside of my life.
03:18:35 You know, like you’re getting married, I don’t have a girlfriend right now, you’ve all got
03:18:41 secure jobs, I’m unemployed, okay, you own a house, I haven’t even got a car, you know,
03:18:47 look at the downside of my life.
03:18:49 And the bloke was the kingpin of that group, they’re a very innovative bunch of guys in
03:18:53 the student revolt.
03:18:54 And so he said, Steve, we would still all rather have done what you have done.
03:19:01 And they did a county because it was safe, you always get a job, and they were bored
03:19:05 shitless.
03:19:06 Did you have a sense that the chaos you’re always jumping into was dangerous or was it
03:19:14 just the pull of it?
03:19:16 I simply couldn’t not do it.
03:19:18 It was part of me that I couldn’t swallow this economic stuff.
03:19:22 Once I was exposed to why it was so wrong, then I was on a crusade to make it right.
03:19:29 And that’s been part of my nature all through my life, I don’t know why.
03:19:32 So it wasn’t that I made a choice to do it, it’s that I couldn’t be true to myself without
03:19:37 doing it.
03:19:38 And I find a lot of people get caught in a life where they’re doing it because it works
03:19:42 for some financial or other reason, but they’re not being true to themselves.
03:19:46 And as messy as my life is, as much shit I’ve got myself caught up in, and there’s a lot
03:19:50 of that in my personal and financial life right now, which is a pain in the ass.
03:19:55 I would rather have had that nature than not.
03:19:58 You would rather take the pain in the ass than not.
03:20:02 Let me ask a dark question.
03:20:06 What’s the darkest place you’ve ever gone to in your mind?
03:20:09 So in all that rollercoaster of life, have there been periods where it’s been really
03:20:15 tough?
03:20:16 I’ve had to cope with depression in the last five years since I started reading Neoclassical
03:20:22 Economists on Climate Change.
03:20:23 Sorry to laugh.
03:20:24 Got to come back to that one.
03:20:25 So that’s where my wife’s going to come into this story.
03:20:28 So I was reading Richard Toll, a paper from 2009 called The Economics of Climate Change,
03:20:34 Journal of Economic Perspectives, I think.
03:20:37 And I read this section where he says that one of the ways they tried to calibrate what
03:20:43 climate change was due is they assumed that the relationship between GDP and temperature
03:20:48 over space would apply over time as well.
03:20:54 And I read that and thought, that is so fucking stupid, because all it’s saying is that if
03:20:59 there’s a 10 degree temperature difference between New York and Florida and a 20% difference
03:21:03 in income, then a 10 degree increase in temperature will cause GDP to fall by 20%.
03:21:08 It is so insanely stupid.
03:21:10 So when I read that line, I just did this.
03:21:16 I was in shock at how stupid it was.
03:21:18 My wife, who’s Thai and brings in treats for me all day, walks into the room and she speaks
03:21:25 in a staccato English and says to me, why are you like this?
03:21:29 And I said, I’m just doing this work on climate change.
03:21:31 And she interrupts me and says, oh, why you do that stuff?
03:21:35 Nobody’s interested in climate change.
03:21:36 You can’t do anything to change it.
03:21:38 If we die, we die.
03:21:41 And that’s perfect Buddhist grounding.
03:21:44 And I thought, well, I can’t argue with her again.
03:21:48 So that sort of stopped me on the depression, but that’s the darkest point when I looked
03:21:53 at it and I thought that this arrogance, this stupidity, this humbug in the economists meant
03:22:00 that we were potentially jeopardizing the lives of billions of people and Christ knows
03:22:05 how many other life forms.
03:22:08 And having that knowledge is the most depressing experience of my life.
03:22:13 That ideas, simple models combined with arrogance can lead to the potential destruction of human
03:22:23 civilization.
03:22:24 That was a very heavy.
03:22:25 And then your wife came in with Nature Wins in the End and sort of accept the flow of
03:22:35 life.
03:22:36 I really enjoy that book, The Earth Abides, because it’s got that same beautiful sense
03:22:40 to it.
03:22:41 Life will survive whatever we do.
03:22:42 I mean, they talk about the people, I was actually talking with a good mate of mine,
03:22:46 an ex geologist, and he’s now a professor of economics.
03:22:49 And he said as a geologist, he really hated people talking about the Anthropocene epoch.
03:22:54 And I said, well, it shouldn’t be the Anthropocene epoch, it’ll be the Anthropocene event.
03:23:00 Anthropocene epoch is millions of years and a huge period of life on the planet.
03:23:06 And we might be snuffed out in 10,000 years of human civilization.
03:23:12 And that’s not much slower than the meteors wiping out the dinosaurs.
03:23:16 The dinosaurs lasted for a long time after that event.
03:23:19 So we’d just be a layer in the surface of the planet with plastics and strange metals
03:23:26 like that at some point.
03:23:29 So we’re just an epoch.
03:23:30 Life will abide.
03:23:31 Life will survive us.
03:23:32 But there’s so much life we’re going to take down with us in this whole period.
03:23:37 And there’s so many of our own lives we’re going to terminate for no good reason.
03:23:43 I’m looking at this Richard Toll character.
03:23:46 I’ll definitely have to look at some of his papers.
03:23:48 It does look like, boy, is he oversimplifying and do a lot of people.
03:23:52 Oh my God.
03:23:53 Check his one on how good it’ll be to lose Amok.
03:23:57 That said, I’m going to approach all of these topics with humility.
03:24:03 And I would like to have some conversations if people can recommend.
03:24:07 My default position is always with the scientists, but even above that, my default position is
03:24:12 with those who are humble versus those who are arrogant.
03:24:16 This idea that because you’re a quote unquote expert, you deserve to have arrogance is a
03:24:21 silly idea to me.
03:24:23 Again, going to the broader view of life on earth, nature.
03:24:29 Nature’s the only one that gets to be arrogant and it chooses not to.
03:24:35 So let me ask you about love.
03:24:39 What role does love play in this whole thing?
03:24:41 Did Karl Marx have a model for that?
03:24:43 Oh, Marx was madly in love with Jenny von Westphalen and wrote love poetry to her long
03:24:48 before he wrote Das Kapital.
03:24:51 And he was infatuated with her.
03:24:52 He ended up also impregnating his housekeeper.
03:24:57 So there’s a son of Karl Marx, who was the son of the housekeeper, not the Jenny.
03:25:02 There are numerous daughters.
03:25:05 So he had a complicated view of love.
03:25:09 Oh yeah.
03:25:10 There’s a dialectic on love there.
03:25:12 He had an idealistic view with Jenny and he was rejected because he wasn’t, not by Jenny,
03:25:19 she was madly in love with him as well.
03:25:22 So it was a real passionate love affair from the very outset.
03:25:25 But then of course you have children, lots of them die.
03:25:28 There’s a huge amount of tragedy in his life as well.
03:25:31 He and Jenny were forced out of Chelsea by a cholera epidemic.
03:25:37 My vision for London back in the 1850s and 60s was Calcutta in the 1970s.
03:25:43 That’s really what life was like.
03:25:45 So there’s a lot of hardship in his life as well.
03:25:48 And he was always poor.
03:25:50 So only Ingalls kept him alive financially.
03:25:54 He applied for one job outside of, he never got an academic job.
03:26:01 He was pushed out of Prussia as a newspaper author, but he also applied for a job as a
03:26:07 clerk in the British railway system, was turned down because they couldn’t read his handwriting.
03:26:15 I think I’m a bit similar there.
03:26:18 So yeah, there’s a lot of love and passion.
03:26:21 But in general, what do you think is the role of love in the human condition?
03:26:24 It’s vital.
03:26:25 It’s, I mean, that feeling of passionate desire and respect for somebody else.
03:26:33 And there’s perverted forms of love as well.
03:26:35 So I’ll leave that out, but somebody having a really, a deep bond, which goes beyond just
03:26:42 sexual attraction.
03:26:43 Like I’ve had that four or five times in my life with different women at different times.
03:26:48 And I’ve stuffed up the most important one very early on.
03:26:52 And that feeling is incredible.
03:26:56 And you couldn’t have life worth living without that.
03:27:01 So it’s an essential part of who we are.
03:27:04 But what we have to do is to transfer it, not just to the rest of our species, but to
03:27:08 all the species.
03:27:10 And that’s, I think, what’s vital.
03:27:12 And how do we maintain that over generations?
03:27:16 And I think that idea that we can actually hang on to that general sense of respect and
03:27:22 not lose it again.
03:27:23 Because the amount of life we’ve terminated on this planet, the warlike side of humanity,
03:27:29 that is too much of a defining feature of our species.
03:27:32 That’s the opposite of love, it’s hate.
03:27:35 But it’s pleasure and inflicting pain on others.
03:27:37 When you see people killing others in a warlike environment, they’re enjoying themselves.
03:27:42 It’s rarely, sometimes it’s self defense.
03:27:44 But there’s, when I’ve spoken to people who’ve been involved in combat and been involved
03:27:49 in riots and said, when you see somebody rioting, bashing people up, they’re enjoying themselves.
03:27:54 It’s not anger they’re feeling, it’s pleasure.
03:27:56 There’s a dark aspect to human nature.
03:27:58 Very dark.
03:27:59 But there’s also the capacity to rise above that.
03:28:04 And I think, like I put us on a spectrum between chimpanzees at one extreme and bonobos at
03:28:08 the other.
03:28:09 We’re too close to the chimpanzees.
03:28:12 Bonobos are just having fun, having lots of sex.
03:28:15 Every time they do anything, they fuck first and do the work later and then fuck afterwards
03:28:18 to celebrate.
03:28:19 Fuck first, ask questions later.
03:28:21 It’s like that Scent of a Woman, one of my favorite films, where Al Pacino gives advice
03:28:27 to a cat.
03:28:28 He says, when in doubt, fuck.
03:28:31 It’s good life advice for a cat, especially.
03:28:36 We mentioned that death seems to be maybe fundamental to creating a conscious AI.
03:28:42 All right, do you think about your own death?
03:28:47 Are you afraid of it?
03:28:49 I’m afraid of going through it.
03:28:53 Not the other side?
03:28:54 Huh?
03:28:55 You’re not afraid of being on the other side?
03:28:56 I don’t think there is an other side.
03:28:58 I mean, I’m agnostic.
03:29:00 I’m atheist when pressed and agnostic.
03:29:02 The one thing that I think I can understand why religion exists is that the whole thing
03:29:07 that something exists is itself a dilemma.
03:29:11 You have to take on faith that reality exists, whether it’s a simulation or actual reality,
03:29:16 it exists, and that itself can’t be explained in any scientific manner.
03:29:20 I mean, you can talk about anti protons and protons and the sun being zero and so on,
03:29:25 but why did it even happen in the first place?
03:29:27 So there’s part you simply have to take on faith.
03:29:31 So there was darkness before, and there’s darkness after.
03:29:36 Yeah, and I don’t know if we’re going to be alive on the other side of that darkness.
03:29:39 I think individually, no, but the way you can live on is by what you do to human consciousness.
03:29:45 How do you hope people remember you?
03:29:49 As someone who managed to integrate economics with an appreciation for life.
03:29:56 Well, I have to say, as a bit of a callback, you’re one deadly bastard.
03:30:05 It’s a huge honor that you would come down and talk to me.
03:30:09 You’re a brilliant person.
03:30:10 You’re a hilarious person.
03:30:11 The humility shines through.
03:30:12 The brilliance shines through.
03:30:13 Thank you so much for spending this time.
03:30:16 You do the same for humanity.
03:30:17 I mean, when I saw that email from you, my eyes popped out of my head.
03:30:21 Okay.
03:30:22 Well, you should hold your judgment.
03:30:23 I got to show you the sex dungeon I have.
03:30:25 I’m waiting for an invitation.
03:30:28 I’ll send my wife over.
03:30:30 Awesome.
03:30:31 Can’t wait.
03:30:32 All right.
03:30:33 Okay, mate.
03:30:34 Thanks for listening to this conversation with Steve Keen.
03:30:36 To support this podcast, please check out our sponsors in the description.
03:30:40 And now let me leave you with some words from Karl Marx.
03:30:44 To be radical is to grasp things at their root.
03:30:49 Thank you for listening, and hope to see you next time.