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The following is a conversation with Steve Keen, a brilliant economist that criticizes much of modern economics and proposes new theories and models that integrate some ideas and ditch others from varied thinkers, from Karl Marx to John Maynard Keynes to Hyman Minsky.
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In fact, a lot of our conversation is about Karl Marx and Marxian economics.
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He has been a scholar of Karl Marx s work for many years, so this was a fascinating exploration.
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He has written several books I recommend, including The New Economics Manifesto and Debunking Economics.
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As always, no ads in the middle.
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I try to make these things interesting, but if you skip them, if you must, please still check out the sponsors.
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Maybe you will too.
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Hopefully it s something that you re really passionate about.
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So that means you re spending a huge amount of hours at work, you re doing something that s truly challenging, you re doing something that s hopefully truly fulfilling, and the people around you will define your growth, will define how successful you are, will define how much meaning you get from that thing.
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I m talking about a large company like
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one that has HR and a financial person who I should really probably get very soon.
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So if you re running a company like that, all of the mess of that is not fun and it s so critical to the success of a company.
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And now, dear friends, here s Steve Keen.
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Let s start with a big question.
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What is economics?
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Or maybe what is or should be the goal of economics?
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Well, it should be I understand how human civilization comes about and how it can be maintained.
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And that s not what it s been at all.
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So we have a discipline which has the right name and the wrong soul.
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What is the soul of economics?
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The soul of economics
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really is to explain how do we manage to build a civilization that elevates us so far above the energy and consumption and knowledge levels of the base environment of the earth.
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Because if you think about, and this is actually working from work I ve learned from Tim Garrett, who s one of my research colleagues, who s an atmospheric physicist.
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And his idea is that we have these, we exploit these high-grade energy sources from the sun itself to coal, nuclear, et cetera, et cetera, which means we can maintain a level of human civilization well above what we d have if we were just still running around with rocks and stones and spears.
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So it s that elevation above the base level of the planet, which is human civilization.
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And if we didn t have this energy we were exploiting, if we didn t use the environment to elevate ourselves above what s possible in the background, then you and I wouldn t be talking into microphones.
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We might be doing drum beats and stuff like this, but we wouldn t be having the sort of conversation we have.
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So to explain how that came about, that s what economics should be doing and it s not.
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So this is the greatest thing that the Earth has ever created, is what you re saying in this conversation?
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Yeah, we re the most elaborate construction on the planet.
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And that s not what we ve done, we ve denigrated the planet itself.
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We don t have respect for the fact that life itself is an incredible creation.
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And my ultimate, if I had to see how humanity s gonna survive what we re putting ourselves through, then we d have to come out of it as a species which sees its role as preserving and respecting life.
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I like how you took my silly, incredible statement and made it into a serious one about how amazing life is.
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Life is incredible, and we humans don t respect it enough, we trash it.
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And that s what s economics, I think it s played a huge role in that.
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So I actually regard my discipline, I would never call it a profession, let alone a science.
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My discipline has probably helped bring about the termination
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potential, the feasible termination of human civilization.
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Strong words.
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Okay, let s return to the basics of economics.
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So what is the soul and the practice of economics?
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What should be the goal of it?
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Because you re speaking very poetically, but we ll also speak pragmatically about the tools of economics, the variables of economics, the metrics, the goals, the models.
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Practically speaking,
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What are the goals of economics?
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Well, in terms of the tools we use, we should be using the tools that engineers use, frankly.
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And that sounds ridiculously simple because you would expect that economists are using up-to-date techniques that are common in other sciences where you re dealing with similar ideas of stocks and flows and interactions between the environment and a system and so on.
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And that s fundamentally systems engineering.
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And that s what we should be using as the tools of economics.
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Now, if you look at what economists actually do, the sophisticated stuff involves difference equations.
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And difference equations, if you ve done enough mathematics as you have, you know difference equations are useful for individual level processes.
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If you re talking about autonomous, it ll go from state T to T plus one, T plus two, and so on.
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But not when you re talking at the aggregate level.
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There you use differential equations to measure it all.
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Economists have been using difference equations.
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So there s a book, I think it s by Sargent and one other, called Advanced Methods in Economics Using Python, two-volume set.
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It s about close to 2,000 pages, and four of those pages are on differential equations.
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The rest is all difference equations.
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So they re using entirely the wrong mathematics to start with.
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For people listening, what is difference equations versus differential equations?
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Okay, a difference equation is like you can do in a spreadsheet.
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You ll have, this is the value for 1990, this is the value for 1991, 92, 93, 94.
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So you have discrete jumps in time.
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Whereas the differential equation says there s a process moving through time.
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And you will have a rate of change of a variable is a function of the state of itself and other variables and rates of change of those variables.
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And that is what you use when you re doing an aggregate model.
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So if you re modeling water, for example, or fluid dynamics, you have a set of differential equations describing the entire body of fluid moving through time.
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You don t try to model the discrete motion of each
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molecule of H2O.
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So at the aggregate level, you use differential equations for processes that occur through time.
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And that s economics, it occurs through time.
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You should be using that particular technology.
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But some economists do learn differential equations, but they don t learn stability analysis.
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So they simply assume equilibrium is stable, and they work in equilibrium terms all the time.
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And that s, it is, the technical level, it s an incredibly complicated
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way of modeling the world using entirely the wrong tools.
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Okay, we ll talk about that because it s unclear what the right tools are.
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Maybe it s more clear to you, but... I ve got to make it clear to an audience.
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Well, so this is a very complicated world.
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It s a complex world.
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You talk about some of the most complex
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systems on Earth are the human mind, the economy, and the biosphere.
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So we ll go.
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We ll go to that place.
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I m fascinated by complex systems.
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I m humbled by them, even at their simplest level of cellular automata.
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I m not sure what the right tools are to understand that, especially when part of the complex system is like a hierarchy of other complex systems.
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So you said the economy is a fascinating complex system, but it s made up of human minds, and those are interesting.
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Those are interesting, perhaps impossible to model.
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but we can try and we can try to figure out how to approximate them and maybe that s the challenge of economics.
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Okay, we ll keep returning to the basics.
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Let us try to learn something from history.
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I also see as part of economics is us trying to figure out stuff and there s a few smart folks that write books throughout human history and sometimes they name schools of economics after them.
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So let us take a stroll through history.
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Can you describe at a high level what are the different schools of economics, perhaps ones that are interesting to you, perhaps ones that the difference between which reveals something useful or insightful for our conversation?
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So, you know, you could
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Neoclassical, post-Keynesian, Austrian, I like the biophysical, economics, and so on.
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Other heterodox economic schools that you find interesting.
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Okay, I actually find interesting a school which went extinct about 250 years ago.
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That s where I d like to start from, and they re called the physiocrats.
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The name itself implies where their knowledge came from because if you go back far enough in history, we didn t do autopsies.
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But when you started doing autopsies, they found wires, they found tubes, etc., etc., and they started seeing the body as a circulation system, and they applied the same sort of logic to the economy.
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And they came out of an agricultural economy, which was France, and they saw that the wealth came effectively from the sun.
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So they saw all wealth comes from, they said the soil, but what they really mean is the soil absorbs the energy of the sun.
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One seed plants, a thousand flea seeds come back.
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There is no surplus.
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We are simply mining what we can find out of the natural economy.
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That s where we should have stayed and developed from that forward.
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We then went through the classical school of economics, which comes out of Adam Smith.
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And Smith, coming from Scotland,
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looked at what the physiocrats said, and what the physiocrats argued was that agriculture is the source of all wealth, and the manufacturing sector is sterile.
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That s literally the term they used to describe the manufacturing sector.
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What does sterile mean?
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Sterile means you don t extract value.
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You simply change the shape of value.
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So the value comes from the soil.
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Yeah, it comes from the soil.
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That s the free gift of nature.
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That s literally the phrase they used.
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And we then distribute the free gift of nature around, and we need,
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carriages, which was the manufacturing term they used at the time, as well as wheat.
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So to make the carriages, we take what s been taken from the soil and we convert it to a different form, but there is no value added in manufacturing.
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So Smith looked at that and said, well, I m from Scotland and we ve got these industries, you know, and we make stuff and it s machinery.
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And he said, no, it s not land that gives us the source of value, it s labor.
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Now, that led to the classical school of thought and that said that all value comes from labor, that value is objective, so it s the amount of effort you put in, that the price two things will exchange for reflects the relative effort that s involved in the manufacturing.
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So this computer takes two hours to make and this bottle takes two minutes
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to make, then this is worth 60 times as much as that.
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They didn t talk about marginal cost.
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It was absolute cost effectively.
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They didn t talk about utility as a subjective thing.
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They ridiculed subjective utility theory.
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That led to Marx, and Marx is probably the most brilliant mind in the history of economics.
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The only other competitor I d see is Schumpeter, possibly Keynes, but in my terms of ranking of intellects, it would be Marx, Schumpeter, Keynes, in terms of the outstanding capacities to think.
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But Marx then turned that classical school, which was pro-capitalism and anti-feudal, into a critique of capitalism.
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which led to the neoclassical school coming along as a defense of capitalism.
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But they defended it using the ideas of the subjective theory of value, so that value does not reflect effort, it s the satisfaction individuals get from different objects that determines their value, marginal utility.
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It s the marginal cost that determines how much they sell for.
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Capitalism equilibrates marginal cost and marginal utility.
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And
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The concepts of equilibrium and marginal this and marginal that became the neoclassical school.
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And that s still the dominant school now 150 years later.
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So that s the one that everybody learns.
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And when you first learn economics, if you don t have the critical background that I managed to acquire, that s what you think is economics.
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The marginal utility, equilibrium-oriented analysis of mainstream economics.
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And for example, they ignore money.
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People think economists, you must be an expert on money because you re an economist.
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Well, in fact, economists learn literally in the first few weeks at university that money is irrelevant.
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They say money illusion.
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They represent people s tastes using what they call indifference curves.
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They re like isoquants on a weather map.
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If you look at an isoquant, it shows you all the points of the same pressure.
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You can be here or you can be in Denver and the air pressure can be the same if you re in the same weather unit.
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You just draw a cell that links together.
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They do the same thing with utility and say lots of bananas.
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And very few coconuts can give you the same utility as lots of coconuts and very few bananas.
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And you draw basically like a hyperbola running down and linking the two.
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And they ll say, well, that s your utility.
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That describes your tastes.
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And then we have your income.
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And given your income, you can buy that many bananas completely or that many coconuts or a straight line combination of the two.
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And then if we double the price, nominal price of coconuts and double the nominal price of bananas,
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and double your income, what happens?
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And the correct answer is, oh, nothing, sir.
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You know, you stay at the same point of tangency between what your budget is and which particular utility curve gives you the maximum satisfaction.
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So that gets ingrained into them and they think anybody who worries about money suffers from money illusion.
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You know, you are therefore ignorant of the deep insights of economics if you think money actually matters.
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So you have an entire theory of economics which presumes we exchange through barter.
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You know, like I ll swap you that Microsoft Surface for, actually I ll take two of those for one of these.
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You know, we do this bartering type arrangement.
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In fact, that only works if money plays no creative role in the economy.
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And that s where you ll find reading Schumpeter, the insight that s the school of thought that I come from that says money is essential.
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money actually adds to demand, and we ll talk about that later on.
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So that s the neoclassical school that ends up being subjective theory of value, non-monetary, as though everything happens in barter, and focusing on equilibrium, as though everything happens in equilibrium, or if you get disturbed from equilibrium, you return back to it again.
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And that mindset describes capitalism.
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Its most interesting feature is that it reaches equilibrium.
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Now, what planet are we on to believe that?
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Because if you look at the real world, the real exciting world of capitalism in which we live, change is by far the most obvious characteristic of it.
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There s no equilibrium.
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There s no equilibrium.
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It s unstable.
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And as a mathematician, it s easy.
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You work with stability analysis.
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You work out what the
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The Jacobian is you work out your Lyapunov exponents in a complex system.
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You re used to the idea that equilibrium is unstable.
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But economists get schooled in believing that everything happens in equilibrium and they don t learn stability analysis.
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So all that stuff is missing.
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So onto the schools of thought, treating the economy as an equilibrium system, which was what the neoclassical school did, is what Keynes disturbed.
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And he really disturbed it by talking about
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fundamentally that uncertainty determines our decisions about the future.
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So when we consume, you know, if you like Pfizer or whatever particular drink you want to have, you know the current situation.
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But to invest, you must be making guesses about the future.
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But you don t know the future.
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So what do you do?
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You extrapolate what you currently know.
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And this is a terrible basis on which to plan for the future.
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But this is the only thing you can do where there is no possibility of solid calculation.
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So investment is therefore subject to uncertainty.
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Therefore, you will get volatility out of investment.
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You will get fads, of course, booms and slumps coming out of that because people extrapolate for the current conditions.
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That s the normal state of a capitalist economy.
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Schumpeter argued that that s what gives us this creativity as well, the fact that you can perceive a potential demand, but first of all, you don t know whether that demand is going to work.
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Secondly, you don t know who your competitor is going to be, whether somebody is going to be ahead of you or behind.
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If there s a fad, you ll overinvest.
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All this stuff is the real nature of capitalism and that s what we re trying to capture, the dynamic non-equilibrium monetary
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violence and creativity of capitalism.
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That s what we should be analyzing.
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And the post-Keynesian school has gone in that orientation.
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They ve been, in my opinion, inhibited by learning their mathematics from neoclassical economists, so they don t have enough of the technology of complex systems.
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There s only a really tiny handful of people working in complex systems analysis in post-Keynesian economics.
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But that is, to me, the most interesting area.
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So their tools may be lacking, but they fundamentally accept the instability of things.
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That s right, that s right.
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And so that s what makes them interesting.
1
SPEAKER_01
So let me try to summarize what you said, and then you say how stupid I am.
1
SPEAKER_01
Okay, so then there was the
1
SPEAKER_01
Physiocrats that thought value came from the land.
1
SPEAKER_01
Then there s Adam Smith who said, nah, value comes from human labor.
1
SPEAKER_01
That was the classical school.
1
SPEAKER_01
And then neoclassical is value comes from like bananas and coconuts, human preferences, like human happiness, how happy,
1
SPEAKER_01
how happy a banana makes you.
1
SPEAKER_01
And then the Keynesian and the post-Keynesian were like, yeah, well you can t, you can t, you can never, the moment you try to put value to a banana and a coconut, you re already working in the past.
1
SPEAKER_01
It s always going to be chaos and stability and then you just, you re fishing in uncertain waters and we have to embrace that and come up with tools that model that well.
1
SPEAKER_01
And also, Joseph Schumpeter, what school would you put him under?
1
SPEAKER_01
Is he a Keynesian or is he Austrian economics?
1
SPEAKER_00
He s an Austrian and Austrians deny.
1
SPEAKER_01
Okay, he s from Austria, but he s not an Austrian economist.
1
SPEAKER_01
There are elements of the Austrian school of thought which are worthwhile.
1
SPEAKER_01
What is Austrian economics in this beautiful whirlwind picture that you painted?
1
SPEAKER_00
Okay, Austrian economics grew out of the
1
SPEAKER_00
rebellion against the classical school.
1
SPEAKER_00
So you had three intellects who mainly led the growth of the neoclassical school back in the 1870s.
1
SPEAKER_00
It was William Jevons from England, Menger who s from Austria, and Walras from France.
1
SPEAKER_00
And Walras tried to work out a set of equations to describe a multi-product economy where there s numerous producers,
1
SPEAKER_00
and numerous consumers.
1
SPEAKER_00
Everybody is both a producer and a consumer and you try to work out a vector of prices that will give you equilibrium in all markets instantaneously and that s his equilibrium orientation.
1
SPEAKER_00
Jevons is also one about equilibrium but he worked more at the aggregate level.
1
SPEAKER_00
So there s a supply curve and a demand curve and that s what Marshall ultimately codified.
1
SPEAKER_00
Menger was pretty much saying that, well, yes, there might be an equilibrium, but you re gonna get disturbed from it all the time.
1
SPEAKER_00
You ll be above or below the equilibrium.
1
SPEAKER_00
And what came out of the Austrian school was an acceptance of that sort of vision that a market should reach equilibrium, but then said, well, you ll get disturbed away from the equilibrium.
1
SPEAKER_00
And that s what gives you the vitality of capitalism because an entrepreneur will see an arbitrage advantage and try to close that gap.
1
SPEAKER_00
And that will give you innovation over time.
1
SPEAKER_00
And Schumpeter went beyond that and saw the role of money and said that an entrepreneur is somebody with a great idea and no money.
1
SPEAKER_00
So to become a capitalist, you ve got to get money and therefore you ve got to approach the finance sector to get the money and the finance sector creates money and also creates a debt for the entrepreneur.
1
SPEAKER_00
And so you get this financial engine turning up as well.
1
SPEAKER_00
And you will get movements away from equilibrium out of that.
1
SPEAKER_00
You won t necessarily head back towards the equilibrium.
1
SPEAKER_00
So Schumpeter has a rich vision of capitalism in which money plays an essential role, in which you will be disturbed from equilibrium all the time.
1
SPEAKER_00
And that is really, I think, a much closer vision of actual capitalism than anything by even the leading Austrians, Hayek, et cetera, et cetera.
1
SPEAKER_00
And certainly Rombaud, I find totally like reading a cardboard cutout version of the wealth of nations.
1
SPEAKER_00
I find his worth trivial.
1
SPEAKER_00
But Schumpeter was rich.
1
SPEAKER_00
were with the same foundations as the Austrians.
1
SPEAKER_00
But because he talked about the importance of money that took him away from the Austrian vision, which is very much based on a hard money idea of capitalism, Schumpeter said you needed the capacity of the financial sector to create money to empower entrepreneurs.
1
SPEAKER_00
And that s a very important vision.
1
SPEAKER_01
So, Jean-Pierre s argument is the deviation from equilibrium, that s where all the fun happens, that s where all the magic happens.
1
SPEAKER_00
That s the magic of capitalism.
1
SPEAKER_00
And like the Austrians, because they focus on the deviation from equilibrium, are better than their classicals.
1
SPEAKER_00
But they still have this belief in you ll reach equilibrium ultimately, or you ll head back towards it.
1
SPEAKER_00
Whereas they don t have an explanation of capitalism that gives you cycles, apart from having the wrong rate of interest.
1
SPEAKER_00
Okay, so there s no role for an accumulation of debt over time.
1
SPEAKER_00
So what Schumpeter gave us was a vision of the creativity of capitalism being driven by entrepreneurs who are funded by money creation by the finance sector.
1
SPEAKER_00
And that s fundamentally the world in which we live.
1
SPEAKER_01
So there s also, kids these days are all into modern monetary theory.
1
SPEAKER_00
What s that about?
1
SPEAKER_00
Okay, modern monetary theory is accounting.
1
SPEAKER_00
When I summarize it bluntly, it s simply saying let s do the accounting because what money is, is a creature of double entry bookkeeping.
1
SPEAKER_00
Okay?
1
SPEAKER_00
What s double entry bookkeeping?
1
SPEAKER_00
Banks, this was invented back in the 1500s in Italy.
1
SPEAKER_00
I ve forgotten the particular merchant who did it based on some Arabic ideas as well.
1
SPEAKER_00
But the thing is if you want to keep track of your financial flows, then you divide
1
SPEAKER_00
all the financial claims on you, you divide into claims you have on somebody else, which are your assets, claims somebody else has on you, which are your liabilities, and the gap between the two is your equity.
1
SPEAKER_00
So you record every transaction twice on one row.
1
SPEAKER_00
Okay, so for example, if you and I do a financial transfer, you have a bank account, I have a bank account,
1
SPEAKER_00
Your bank account will go down, mine goes up, okay?
1
SPEAKER_00
And that s the sum of the operation is zero, okay?
1
SPEAKER_00
But on the other hand, if I go to a bank and borrow money, then my account goes up, they put money in my deposit account, the bank s assets go up, okay?
1
SPEAKER_00
And there s still the same sum applies, assets minus liabilities minus equity equals zero.
1
SPEAKER_00
Now, that s simply saying money is an accounting, a creature of accounting.
1
SPEAKER_00
It s not a creature of a commodity.
1
SPEAKER_00
So if you think about how Austrians think about money and how gold bugs think about money and Bitcoin enthusiasts, if there are any left, think about money, what they see is money as an object.
1
SPEAKER_00
And you and I can both have more gold if we re both willing to go to a mine somewhere and dig a few holes and get a few specks of gold out.
1
SPEAKER_00
So there s no competition or no interaction between you and me if money is gold.
1
SPEAKER_00
And I think money should be an object, a commodity.
1
SPEAKER_00
But money fundamentally is not a commodity.
1
SPEAKER_00
It s a claim on somebody else.
1
SPEAKER_00
That s money s essence.
1
SPEAKER_00
So when you do it, you must use double entry bookkeeping to do it.
1
SPEAKER_00
And then when you do, you find all the answers that come out of thinking of money as a commodity are wrong.
1
SPEAKER_00
So for example, and I ve got Elon on this one, so I wanna get this through to Elon, because I saw him making a comment about this a few weeks ago on Twitter.
1
SPEAKER_00
He said that it s wrong for the government, effectively it seems wrong for the government to always be in deficit.
1
SPEAKER_00
Now when you look at it and say, well, how is money created?
1
SPEAKER_00
How does money come about when it s not a commodity like gold, which you dig up out of the ground, when it s actually social relations between people that create money?
1
SPEAKER_00
Well, money is fundamentally the liabilities of the banking sector.
1
SPEAKER_00
If we make a transfer between us, your deposit account goes down, my deposit account goes up.
1
SPEAKER_00
Those are exchanges on the liability side of the banking sector.
1
SPEAKER_00
But if we have a transaction with a bank, then if the bank lends us money, as its loans go up, its deposits go up, again, that same balance.
1
SPEAKER_00
So you ve got to look and say money, therefore, is fundamentally the liabilities of the banking sector.
1
SPEAKER_00
So how do you create additional liabilities?
1
SPEAKER_00
You must have an operation which occurs both on the liability side and the asset side of the banking sector.
1
SPEAKER_00
So if you and I make a new transaction, no money is created.
1
SPEAKER_00
money – existing money is redistributed.
1
SPEAKER_00
But if you go to a bank and take out a bank loan, then money is created by the bank loan.
1
SPEAKER_00
So the liabilities of the banking sector rise, the assets rise, they re balanced but more liabilities means – the banking sector means more money.
1
SPEAKER_00
So that s what – that s how private banks create money and that s what I first started working on when I became an academic about 35 years ago.
1
SPEAKER_00
the actual dynamics of private money creation.
1
SPEAKER_00
But the government has the same sort of story.
1
SPEAKER_00
If the government runs a deficit, it spends more money on the individuals in the economy than it taxes them, which means their bank accounts increase.
1
SPEAKER_00
So a government deficit creates money for the private sector.
1
SPEAKER_00
So that s where money creation occurs from the government.
1
SPEAKER_00
So it puts more money into people s bank accounts by spending, by welfare payments, than it takes out by taxation.
1
SPEAKER_00
So that s creating new money.
1
SPEAKER_00
And then on the other side on the bank, the money turns up in the reserve accounts of the banks, which are basically the private bank s bank accounts at the central bank.
1
SPEAKER_00
So rather than the asset of private money creation being loans, the asset of government money creation is reserves.
1
SPEAKER_00
Okay?
1
SPEAKER_00
Right, money creation.
1
SPEAKER_01
Money creation.
1
SPEAKER_01
Is a good thing.
1
SPEAKER_01
So you mentioned a bunch of stuff like private money creation with liabilities in the banks and then how the government is doing, the reserves, blah, blah, blah.
1
SPEAKER_01
At the end of the day, there s a bunch of printers that are printing money.
1
SPEAKER_01
And then you also said something interesting, which is social relations between humans is what creates money.
1
SPEAKER_01
I think my mind was blown several times over the past minute.
1
SPEAKER_01
So it s difficult for me to reconstruct the pieces of my mind back together.
1
SPEAKER_01
Basic question, is money creation a good thing or a bad thing?
1
SPEAKER_00
Money creation is a good thing.
1
SPEAKER_00
Because money creation is what allows commerce to happen.
1
SPEAKER_00
Isn t there a conservation of… No, there isn t.
1
SPEAKER_00
I had arguments with physicists over this and it took me a long time to answer it.
1
SPEAKER_00
They thought the sum total of all money is zero.
1
SPEAKER_00
Yeah.
1
SPEAKER_00
Okay.
1
SPEAKER_00
It s the sum total of all
2
SPEAKER_00
and liabilities is zero.
2
SPEAKER_00
So if you imagine your assets minus your liabilities is your equity, and your asset is somebody else s liability, and your liability is somebody else s asset, when we re talking about financial assets, and this is another mind-blowing thing that I ve just recently solved myself, so the sum total of all financial assets and liabilities is zero.
2
SPEAKER_01
Okay, wait, wait, wait, I m gonna interrupt you rudely.
2
SPEAKER_01
What are assets?
2
SPEAKER_01
What are liabilities?
2
SPEAKER_01
Assets are your claims on somebody else.
2
SPEAKER_01
Specific, give me an example of an asset.
2
SPEAKER_00
Okay, do you have a mortgage for this house?
2
SPEAKER_00
No, I m renting.
2
SPEAKER_00
You re renting, there you go.
2
SPEAKER_00
Well, if you had a mortgage, that d be your liability.
2
SPEAKER_00
That would be my liability.
2
SPEAKER_00
Okay, the mortgage would be the bank s asset.
2
SPEAKER_00
Right.
2
SPEAKER_00
Okay, if you add the two together, you get zero.
2
SPEAKER_00
Okay, so that s zero.
2
SPEAKER_00
That s zero.
2
SPEAKER_00
The money is the liability side of the banking sector.
2
SPEAKER_00
Okay.
2
SPEAKER_00
Assets are the – the assets on the other side can be either created by the banking sector which is where you get bank loans or created by the government where you get reserves.
2
SPEAKER_00
But money is the liabilities.
2
SPEAKER_00
Money is – if you think about protons and antiprotons in that sense, money is like the antiproton.
2
SPEAKER_00
It s the negative, the liability.
2
SPEAKER_01
The liability is the negative.
2
SPEAKER_01
How s that money?
2
SPEAKER_01
I thought money s the positive.
2
SPEAKER_01
What is a liability for the banking sector is an asset for you and me.
2
SPEAKER_00
An asset includes money.
2
SPEAKER_00
Yeah, yeah.
2
SPEAKER_00
If you have a bank, you d have a bank account and you d have some cash.
2
SPEAKER_00
Okay, those are your assets.
2
SPEAKER_00
but the bank account is a liability of the banking sector and the cash is a liability of the Federal Reserve.
2
SPEAKER_00
Okay, so what s money?
2
SPEAKER_00
Well, money is the promise of a third party that we both accept.
2
SPEAKER_00
to close our transaction.
2
SPEAKER_00
And this is- And that s a bank?
2
SPEAKER_00
That s a bank, yeah.
2
SPEAKER_00
This is one of the most important works I ve ever read, is a work by a wonderful, now unfortunately deceased, tiny Italian economist called Augusto Graziani.
2
SPEAKER_00
And he s the most wonderful personality.
2
SPEAKER_00
Augusto, I ve met him on a few occasions, is one of the few human beings who can speak in perfectly formed paragraphs.
2
SPEAKER_00
Okay.
2
SPEAKER_00
Superbly eloquent.
2
SPEAKER_00
And what he did was write a paper called The Monetary Theory of Production.
2
SPEAKER_00
And you can find it downloaded on the web.
2
SPEAKER_00
It s pretty much open source now.
2
SPEAKER_00
And what he said is, what distinguishes a monetary economy from a barter economy?
2
SPEAKER_00
So he said, in a barter economy, what we do is, you know, I ll give you two of these for one of those.
2
SPEAKER_00
Yeah, okay, barter.
2
SPEAKER_00
Just we re working at a relative price.
2
SPEAKER_00
There are two of us involved and there are two commodities.
2
SPEAKER_00
So with money,
2
SPEAKER_00
money is a triangular transaction.
2
SPEAKER_00
There is one commodity – I want to buy that can of drink coffee – two people and the price that s worked out ends up being in a transfer from the promises to pay the bank that the buyer has to the promises paid
2
SPEAKER_00
the bank that the seller has.
2
SPEAKER_00
So what you have is a monetary transaction in a capitalist economy involves three agents, the buyer, the seller, and the bank.
2
SPEAKER_00
So the bank always has to be part of it.
2
SPEAKER_00
Well, the bank has to be part of it.
2
SPEAKER_00
When I hand you the money, you accept that as you ve now got, rather than it s the bank promising to pay me something, it s now the bank promising to pay you something.
2
SPEAKER_00
And we exchange the promises of banks, and that s fundamentally money.
2
SPEAKER_00
So money,
2
SPEAKER_01
is fundamentally a threesome and everybody gets fucked.
2
SPEAKER_01
Is that a good way to put it?
2
SPEAKER_01
No.
2
SPEAKER_00
I m just kidding.
2
SPEAKER_01
Now I can use French in this conversation, that s good.
2
SPEAKER_01
That s not French, that s a different language.
2
SPEAKER_01
I ll explain it to you one day.
2
SPEAKER_01
You Australians will never understand.
2
SPEAKER_01
Okay, if I can return to, we ll jump around if it s okay.
2
SPEAKER_01
So you mentioned Karl Marx as one of the great intellects, economic thinkers ever.
2
SPEAKER_01
He might be number one.
2
SPEAKER_01
You study him quite a bit, you disagree with him quite a bit, but you still think he s a powerful thinker.
2
SPEAKER_01
A powerful mind.
2
SPEAKER_01
A powerful mind.
2
SPEAKER_01
So first of all, let s just explore the human.
2
SPEAKER_01
Why do you say so?
2
SPEAKER_01
What s interesting in that mind?
2
SPEAKER_01
In the way he saw the world, what are the insights that you find brilliant?
2
SPEAKER_00
Marx once described his major work as towards a critical examination of everything existing.
2
SPEAKER_00
So he s a modest bastard.
2
SPEAKER_00
He wanted to understand and criticize everything.
2
SPEAKER_00
He wasn t trained directly by Hegel, but his teachers were Hegelian philosophers.
2
SPEAKER_00
What Hegel developed was a concept called dialectics.
2
SPEAKER_00
Dialectics is a philosophy of change.
2
SPEAKER_00
When most people hear the word dialectics, they come up with this unpronounceable trio of words called thesis, antithesis, synthesis.
2
SPEAKER_00
I can barely get the words out myself.
2
SPEAKER_00
And that actually is not Hegel at all.
2
SPEAKER_00
That s another German philosopher called Fichte.
2
SPEAKER_00
Fichte.
2
SPEAKER_00
I thought it was Kant.
2
SPEAKER_00
No, Fichte.
2
SPEAKER_00
Well, I m not sure.
2
SPEAKER_01
I mix them up.
2
SPEAKER_01
All Germans look the same to me.
2
SPEAKER_00
But if you look, there s a beautiful book called Marx and Contradiction.
2
SPEAKER_00
You want to find a great explanation for Marx s philosophy.
2
SPEAKER_00
I ve forgotten the author.
2
SPEAKER_00
I think it s Wilde, W-I-L-D-E, Marx and Contradiction.
2
SPEAKER_00
And he points out the actual origins of Marx s philosophy.
2
SPEAKER_00
I didn t know that when I first read Marx.
2
SPEAKER_00
So I became exposed to Marx when I was a student at Sydney University, and we d had a strike at the university over the teaching of philosophy.
2
SPEAKER_00
And what happened was the philosophy department had a lot of radical philosophers in it and a conservative chief philosopher.
2
SPEAKER_00
And the radicals wanted to have a course on what they called feminist aspects of philosophical, sorry, philosophical aspects of feminist thought.
2
SPEAKER_00
And the staff voted in favor of it.
2
SPEAKER_00
This is back in the days when university departments were democratic.
2
SPEAKER_00
The professor opposed it.
2
SPEAKER_00
He got it blocked at a high level.
2
SPEAKER_00
The staff leapfrogged over that.
2
SPEAKER_00
And then finally the vice chancellor blocked it.
2
SPEAKER_00
So that led to a strike.
2
SPEAKER_00
over the teaching of philosophy at Sydney University, which at one stage, over half the students were on strike.
2
SPEAKER_00
Economics began out of that.
2
SPEAKER_00
Over teaching of a philosophy of feminism.
2
SPEAKER_00
Yes.
2
SPEAKER_00
That s such a different life to what we re living now.
2
SPEAKER_00
That s the academic milieu in which I developed all my ideas.
2
SPEAKER_00
I had become a critic.
2
SPEAKER_00
I ve gone from being a believer of mainstream economics when I was a first-year student to disbelieving it halfway through first year.
2
SPEAKER_00
I then spent a long time trying to change it, getting nowhere.
2
SPEAKER_00
Then this philosophy strike happened and we took it on in economics.
2
SPEAKER_00
formed what s called the political economy movement and had a successful strike.
2
SPEAKER_00
We actually managed to pressure the university into establishing a department of political economy at Sydney University, as well as the department of economics.
2
SPEAKER_00
What was the foundational ideas?
2
SPEAKER_01
Were you resistant to the whole censorship of why can t you have a philosophy of anything kind of course?
2
SPEAKER_00
Well, it was much more libertarian in the genuine sense of the word period of time.
2
SPEAKER_00
at the end of the 60s, beginning of the 70s, then the word libertarian has been corrupted since then.
2
SPEAKER_00
But it really was about free thought.
2
SPEAKER_00
And you went to university to learn, it was about education.
2
SPEAKER_00
I remember having a fight with my father once where dad was angry about the marks I was getting for some of my courses.
2
SPEAKER_00
And he said, if you don t get a decent result, you won t get a decent job.
2
SPEAKER_00
And I said, I m not here to get a job, I m here to get an education.
2
SPEAKER_00
Now the thing is, ultimately it s been a pretty good job for me as well.
2
SPEAKER_00
This is in Sydney, by the way, and Sydney in summer is absolutely gorgeous.
2
SPEAKER_00
And what a bunch of lefties decide to do during summer but read Karl Marx.
2
SPEAKER_00
Yeah, on the beach?
2
SPEAKER_00
Actually, inside the room of the philosophy department at the University of Sydney in the main quadrangle.
2
SPEAKER_00
There s sandstone all around us and a bunch of about 20 or 30 of us reading our way through Marx.
2
SPEAKER_00
Capital?
2
SPEAKER_00
Volume 1 Capital.
2
SPEAKER_00
I remember walking off to that meeting with one of my friends, who s a law student, and this was a period of a huge construction boom in Sydney.
2
SPEAKER_00
So the whole skyline, which we could see from the campus, was full of what they call kangaroo cranes, which were an Australian invention, that are cranes that can be leapfrogged over each other to build a
2
SPEAKER_00
a skyscraper.
2
SPEAKER_00
So here you are reading Karl Marx, looking at the mechanisms of capitalism.
2
SPEAKER_00
And I looked at those mechanisms and I knew Marx argued that labor was the only source of value.
2
SPEAKER_01
Yeah.
2
SPEAKER_00
And he said machinery doesn t add value.
2
SPEAKER_00
So the cranes are worthless.
2
SPEAKER_00
I m looking at these cranes and thinking I want a very good explanation by Marx as to why these cranes don t add value.
2
SPEAKER_00
So reading through the first seven chapters of Capital, what you found was Marx applying this dialectic.
2
SPEAKER_00
And like the fiction and stuff is bullshit.
2
SPEAKER_00
That is not how Marx thought at all.
2
SPEAKER_00
I was reading, trying to find the thesis, antithesis, synthesis, and it s not there at all in any of Marx s works.
2
SPEAKER_00
And I ve read everything he s ever written on economics from 1844 to 1894 when his last books were published.
2
SPEAKER_00
There s not one word of mention of that.
2
SPEAKER_00
What he does talk about is foreground and background and tension.
2
SPEAKER_00
And his idea of a dialectic is that there is a unity
2
SPEAKER_00
will exist in society, and that unity can be individual, it can be a commodity, anything at all.
2
SPEAKER_00
The unity will be understood by that society.
2
SPEAKER_00
One particular aspect will be focused upon.
2
SPEAKER_00
So if you think about the human being in capitalism, the focus on the human being as an object is their capacity to work.
2
SPEAKER_00
You re a worker, okay?
2
SPEAKER_00
That gets put in the foreground.
2
SPEAKER_00
The fact that you re human and you want to play a guitar and go surfing and make love and all the other things that humans do is pushed into the background.
2
SPEAKER_00
There s a tension between the two of those.
2
SPEAKER_00
And that can transform that unity over time.
2
SPEAKER_00
And that s a beautiful dynamic vision.
2
SPEAKER_00
of change, so dialectics is a philosophy of change.
2
SPEAKER_01
So synthesis, antithesis, is what, does every idea have a counter-argument?
2
SPEAKER_00
Yeah, there s a positive and negative and you bring them together somehow.
2
SPEAKER_01
And then Marx has this foreground, background and tension.
2
SPEAKER_01
Foreground is all what we think of as economics and background is all the lovemaking we do as humans.
2
SPEAKER_01
That sort of thing.
2
SPEAKER_01
And why is there a tension?
2
SPEAKER_00
Because if you mention the unity, like if you take a human,
2
SPEAKER_00
Because you go back to Cro-Magnon days when we re living in caves and we ve got to go hunting and cook food and stuff like that, but there s no social hierarchy as we ve become used to.
2
SPEAKER_00
So you don t get labored as a worker or a capitalist.
2
SPEAKER_00
You re just a human in that situation.
2
SPEAKER_00
Then you ve got more an integrated view of who you are.
2
SPEAKER_00
And I think that s one of the appeals of a tribal, a genuine tribal culture, that you get treated for the whole of who you are.
2
SPEAKER_00
You ve certainly categorized, you re male, you re female, you re young, you re old, you re a hunter, you re a toolmaker, et cetera, et cetera.
2
SPEAKER_00
But you re treated as more an integrated object.
2
SPEAKER_00
When you get put in a complex society like a capitalist society, then one side of you is emphasized and the others are de-emphasized.
2
SPEAKER_01
So is it fair to say that the background is like our basic fundamental humanity and the foreground is the machine of capitalism?
2
SPEAKER_00
Effectively, and when you look at it in terms of a human.
2
SPEAKER_00
But what Marx did is apply this to a commodity.
2
SPEAKER_00
So he said, what is the essential unity in a capitalist economy?
2
SPEAKER_00
And the essential unity is a commodity, okay?
2
SPEAKER_00
The essential unit.
2
SPEAKER_00
The essential unity.
2
SPEAKER_00
What s unity?
2
SPEAKER_00
Unity is an object in society.
2
SPEAKER_00
Okay.
2
SPEAKER_00
Okay, so he started from the point of view of trying to understand how exchange occurs.
2
SPEAKER_00
How do we set prices?
2
SPEAKER_00
And his starting vision was to say that a commodity is a unity in a capitalist economy.
2
SPEAKER_00
The part of the unity
2
SPEAKER_00
that we focus upon is the exchange value.
2
SPEAKER_00
A capitalist produces a commodity not because of its qualitative characteristics, but because it d be sold for a profit.
2
SPEAKER_00
So the foreground aspect of a commodity is its exchange value.
2
SPEAKER_00
The background aspect of it, it won t succeed as a commodity unless it has a use value.
2
SPEAKER_01
So the background is the utility thing?
2
SPEAKER_00
Yeah, so if you made something which didn t work, then you might be able to sell it, but it has no utility.
2
SPEAKER_00
You can t make that into a commodity.
2
SPEAKER_00
A broken thing can t be sold.
2
SPEAKER_01
Does that have the subjective...
2
SPEAKER_00
Yeah, it has to have the subjective side.
2
SPEAKER_01
So people enjoy it.
2
SPEAKER_00
As well as the objective.
2
SPEAKER_00
So the objective is what capitalists worry about.
2
SPEAKER_00
I ll give you my favorite counter example of that.
2
SPEAKER_00
I took a bunch of Australian journalists to China way back in the period when the Gang of Four was being on trial.
2
SPEAKER_00
And we did a tour of the Forbidden City in Beijing.
2
SPEAKER_00
And at that stage, all the artifacts of the royal family, the emperor, were actually in the building still.
2
SPEAKER_00
And we walked past one of them, and it was this gold, solid gold bar about this long, shaped like a fist, turned over like this.
2
SPEAKER_00
And on this side, there were rubies, emeralds, diamonds.
2
SPEAKER_00
You d never seen gemstones, I mean, gems that big.
2
SPEAKER_00
And one of the journalists asked me what I thought it was, and I said, oh, it s obvious.
2
SPEAKER_00
Jane, it s a backscratcher.
2
SPEAKER_00
Ha, ha, ha.
2
SPEAKER_00
I walked away.
2
SPEAKER_00
She caught up with me about 20 minutes later.
2
SPEAKER_00
I said, I asked one of the guides.
2
SPEAKER_00
It is a backscratcher.
2
SPEAKER_00
So here s a backscratcher for the emperor made of solid gold with diamonds and rubies and emeralds during the scratching.
2
SPEAKER_00
Now that s a commodity in a feudal society.
2
SPEAKER_00
The cost doesn t matter.
2
SPEAKER_00
You want the most elaborate, beautiful thing because you are the emperor.
2
SPEAKER_00
So in a feudal society, the commodity, what s focused upon is the utility.
2
SPEAKER_00
And the cost of production when you re the emperor is immaterial.
2
SPEAKER_00
Capitalism reverses that.
2
SPEAKER_00
So the commodity in a capitalist economy is a plastic $2 scratchy you can get from Kmart or Target.
2
SPEAKER_00
And so the use value is necessary, but irrelevant to forming the price.
2
SPEAKER_00
Now that was a completely different vision of exchange in capitalism.
2
SPEAKER_00
to what I found in the neoclassical theory because that says it s the marginal utility and the marginal cost of everything that determines the exchange ratio.
2
SPEAKER_00
The crazy thing about that is not so much the marginal utility but the argument in the neoclassical theory is that the price ratio, the price will
2
SPEAKER_00
When there s an exchange going on, this two-person, two-commodity exchange of two commodities between two people, the price will change until such time as the ratio of the marginal utilities is equal to the ratio of the marginal costs.
2
SPEAKER_00
supposed to be the equilibrium.
2
SPEAKER_00
And Marx says, that s bullshit.
2
SPEAKER_00
That s a previous society where you exchange stuff that you happen to have for stuff somebody else happened to have without any real production mechanism being involved.
2
SPEAKER_00
And he said, that s like when you have two tribes meeting for the very first time, and one tribe can make something the other tribe can t make.
2
SPEAKER_00
and they will therefore, the price they were willing to pay will reflect how unique this other object is that this one tribe can make and the other can t.
2
SPEAKER_00
So for example, the story of Manhattan being sold for 40 glass beads, it s actually 40 glass trading beads, I believe it is a true story.
2
SPEAKER_00
But the thing is, the Indians couldn t make glass beads.
2
SPEAKER_00
So they value the glass beadness of the island of Manhattan, which is a utility-based comparison.
2
SPEAKER_00
What Mark said, that s the very initial contact.
2
SPEAKER_00
Over time, even if you don t know the technology, over time you start to realize how much work goes involved to making what they re selling you versus what you re selling to them, and you start making stuff specifically for sale.
2
SPEAKER_00
So Elon s not losing personal utility each time a Model 3 goes out the door.
2
SPEAKER_00
He might get utility out of the fact that he s created that vehicle, that concept, and manufactures it and so on, but he s not losing utility each time a Model T Ford goes out the door, going back for the ancient commodity there.
2
SPEAKER_00
So the utility plays no role in setting price in Marx s model, whereas it s essential in the neoclassical model.
2
SPEAKER_01
What s the difference between utility and marginal utility?
2
SPEAKER_01
What does the word marginal mean?
2
SPEAKER_01
and why is this such a problem?
2
SPEAKER_00
It turns marginal utility, well, the utility itself has different meanings than the two schools of thought.
2
SPEAKER_00
If you take the classical school of thought, which when Marx comes from, utility is effectively objective.
2
SPEAKER_00
So the utility of a chair is that you can sit in it, okay?
2
SPEAKER_00
Not how comfortable it makes you feel.
2
SPEAKER_00
Now, if you think about the utility of the chairs, we re both sitting in, they re identical from a classical point of view, we re both sitting, okay?
3
SPEAKER_00
But from a neoclassical point of view, it s how comfortable it makes you feel.
3
SPEAKER_00
And that depends upon your subjective feelings of comfort.
3
SPEAKER_00
You might be far more comfortable in the identical chair that I m sitting in than I am.
3
SPEAKER_00
And therefore, the comparison is difficult.
3
SPEAKER_00
And therefore, working out a ratio involves you ve got a decline in your – each time you give away a chair in exchange for an iPhone, you have a fall in your utility.
3
SPEAKER_00
Then therefore, you want a higher return because you re losing more utility each time.
3
SPEAKER_00
The more chairs you give away, the less utility you re getting from chairs.
3
SPEAKER_00
There s a decline in your utility.
3
SPEAKER_00
That s your marginal utility.
3
SPEAKER_00
So it s including your subjective valuation in setting the price.
3
SPEAKER_00
What Mark has pointed out is this is a caricature.
3
SPEAKER_00
of actual change in a capitalist economy.
3
SPEAKER_00
Because we have in a capitalist economy huge factories sending out huge quantities specifically for sale.
3
SPEAKER_00
They ve got no utility to the seller unless they re sold.
3
SPEAKER_00
So it s a very different vision of how price is set.
3
SPEAKER_00
And Marx used that to explain where profit comes from.
3
SPEAKER_00
But he made a mistake.
3
SPEAKER_00
And his argument was that
3
SPEAKER_00
talking about a worker as now your unity, this foreground, background tension thing.
3
SPEAKER_00
The foreground is that you hire a worker for their cost of production, and the cost of production is a subsistence wage.
3
SPEAKER_00
The utility to the buyer is the fact that they can work in a factory.
3
SPEAKER_00
Now, it might take six hours, let s say, to make the means of subsistence, and that s the exchange value, and that s what the capitalist pays as a wage to the worker.
3
SPEAKER_00
But they can work in the factory for 12 hours.
3
SPEAKER_00
That s the utility.
3
SPEAKER_00
12 minus six is six surplus of value hours, and that s where profit comes from.
3
SPEAKER_00
That was Marx s argument, and I thought it was brilliant.
3
SPEAKER_00
but it also applied to machinery.
3
SPEAKER_00
Right, okay.
3
SPEAKER_00
Let s lean on that.
3
SPEAKER_00
Hold on a second.
3
SPEAKER_02
No, no, deep is good.
3
SPEAKER_02
I just wanted to find terms.
3
SPEAKER_02
Don t take that statement out of context, the internet, please.
3
SPEAKER_02
Okay, you said buyer, seller, worker.
3
SPEAKER_02
In a factory, who s the seller, who s the buyer?
3
SPEAKER_02
Why is the worker,
3
SPEAKER_00
The worker is the commodity in this case because if you re going to make stuff in a factory, you ve got to hire workers.
3
SPEAKER_00
And what Marx is saying, the buyer in that situation is a capitalist.
3
SPEAKER_00
So what does the buyer pay?
3
SPEAKER_00
He says he pays the exchange value.
3
SPEAKER_00
Back to the commodity thing, because that s the starting point.
3
SPEAKER_00
He said the essential unity in a capitalist economy is the commodity.
3
SPEAKER_00
A commodity has two characteristics, exchange value and use value.
3
SPEAKER_00
The exchange value of a commodity in a capitalist economy will be its cost of production.
3
SPEAKER_00
The use value is what you do with it, okay, once you ve purchased it.
3
SPEAKER_00
But labor is a commodity?
3
SPEAKER_00
In this case, when a worker is being hired for a job, yes.
3
SPEAKER_02
So the worker s labor has an exchange value and a use value as well?
3
SPEAKER_02
That s it, yeah.
3
SPEAKER_02
Use value.
3
SPEAKER_02
Use value of a worker s labor.
3
SPEAKER_02
Exchange value.
3
SPEAKER_02
Let me think about that.
3
SPEAKER_02
So the hours they put in is the use value.
3
SPEAKER_02
So what does the worker want in this?
3
SPEAKER_02
What are the motivations?
3
SPEAKER_02
Are we not considering the worker in this context as a human being?
3
SPEAKER_00
What wants and needs?
3
SPEAKER_00
And that s actually, that s the next layer.
3
SPEAKER_00
What Marx gave was just like a layered cake, starting from a foundation of saying straight commodity exchange, and then saying, well, you re treating a worker as a commodity.
3
SPEAKER_00
Now, a commodity is something like this.
3
SPEAKER_00
That has, so far as I m aware, no soul.
3
SPEAKER_00
Not going to be complaining if I turn it upside down.
3
SPEAKER_00
It ll fall over.
3
SPEAKER_00
So there s no soul there.
3
SPEAKER_00
As a human, it s both a commodity and a non-commodity.
3
SPEAKER_00
And therefore there ll be a tension in the person.
3
SPEAKER_00
I m being treated as a commodity here.
3
SPEAKER_00
I m being paid just enough to stay alive.
3
SPEAKER_00
I ve got a wife and kids back at home.
3
SPEAKER_00
So that is another layer of thinking in Marx.
3
SPEAKER_00
And on that layer, he then says, well, workers will therefore demand more than their value.
3
SPEAKER_00
So that s when you get like political.
3
SPEAKER_00
You get political and you get money coming above that and so on.
3
SPEAKER_00
But the basic idea starts from the commodities, the fundamental unity in capitalism.
3
SPEAKER_00
The important commodity in Marx s thinking was the worker because that s where he said profit came from.
3
SPEAKER_00
And then that explains the motivation of the capitalist and that ultimately leads to the labor theory of value and Marx s arguments about how capitalism will come to an end.
3
SPEAKER_02
Okay, okay, okay.
3
SPEAKER_02
So first of all, what is the labor theory of value?
3
SPEAKER_02
And actually before that, what is value?
3
SPEAKER_02
Is that, this is like me asking what s happiness.
3
SPEAKER_02
Is there something interesting to say about trying to define value?
3
SPEAKER_00
You vary, and this is a huge problem in economics, is arguments of what does value mean?
3
SPEAKER_00
And the neoclassicals came down as that it s subjective.
3
SPEAKER_00
Its value is whatever you get out of it.
3
SPEAKER_00
It s your personal evaluation of something, your personal feelings.
3
SPEAKER_00
So they ve got that very subjective idea of value, whereas the Marxists, being inheritors of the classical school, talk in terms of objective value.
3
SPEAKER_00
So the value is the number of hours it takes to make something.
3
SPEAKER_00
or the effort, value is the effort that goes into making something in the classical school.
3
SPEAKER_02
Well, that s just one measure of objective.
3
SPEAKER_02
Where do you fall?
3
SPEAKER_02
Huh?
3
SPEAKER_02
Where do you fall?
3
SPEAKER_02
Subjective versus objective spectrum.
3
SPEAKER_00
I think you have to have the capacity to move between one and the other in a structured way.
3
SPEAKER_00
Key model of value.
3
SPEAKER_00
Yeah, well, my base model is the objective, okay?
3
SPEAKER_00
But above that, as soon as you start talking about the worker, for example,
3
SPEAKER_00
then you get involved in the subjectivity, because a worker will be angry, and justifiably so, about being treated as a commodity.
3
SPEAKER_00
Because I m not a commodity, I m a human being, okay?
3
SPEAKER_00
And that s where Marx saw political organization coming from.
3
SPEAKER_00
And that s subjective now.
3
SPEAKER_00
And then when you get to money itself, Marx actually said, well, what s the value of money?
3
SPEAKER_00
Now, if you use an objective theory of value, you would say, well, the cost of money, the value of money is its cost of production.
3
SPEAKER_00
What s the cost of producing a dollar?
3
SPEAKER_00
It s about two cents.
3
SPEAKER_00
So he said it can t be, the value of the money cannot be its cost of production.
3
SPEAKER_00
Or there must value, I think if I remember the phrase properly, is value here is it must mean the effectively uncertain expectations or subjective valuation.
3
SPEAKER_00
on certain expectation or subjective evaluation.
3
SPEAKER_00
Okay, but he s okay with that?
3
SPEAKER_00
He was okay with that because he could move between different levels.
3
SPEAKER_00
He had a structured foundation of this dialectical vision.
3
SPEAKER_00
Foreground, background tension.
3
SPEAKER_00
Commodity having use value, exchange value, and a gap between the two.
3
SPEAKER_00
when you re talking about machines, when you re buying stuff for production.
3
SPEAKER_00
Then at the next level, you could look at workers, worker organization and say that s driven by being treated as a commodity when you re a non-commodity.
3
SPEAKER_02
labor theory of value that is ascribed to Karl Marx is that value at the base layer fundamentally comes from the labor you put into something.
3
SPEAKER_02
And you say, well, there s some deep truth there, except he misses one fundamental point, which is machines can also bring value to the world.
3
SPEAKER_02
He was saying they don t.
3
SPEAKER_02
The only thing that matters is human labor.
3
SPEAKER_02
not labor.
3
SPEAKER_02
How do you measure what s the role of the, whatever value machines bring to the world?
3
SPEAKER_00
Asking for a fraction.
3
SPEAKER_00
Okay, this is another intriguing history because Marx, when he first started, had what you can call an exclusivist explanation for why labor created value.
3
SPEAKER_00
And that was to say that labor is the only commodity with both what he called commodity and commodity power.
3
SPEAKER_00
labor and labor power.
3
SPEAKER_00
Labor is the – and I get fuzzy about this.
3
SPEAKER_00
I haven t read it for something like 30 years, but labor has both commodity and commodity power.
3
SPEAKER_00
The commodity is you can buy labor, which is the means of subsistence.
3
SPEAKER_00
Labor power is the capacity to work inside a factory.
3
SPEAKER_00
There s a difference between the two.
3
SPEAKER_00
Therefore, that difference will give rise to surplus, and there s no other commodity that has this essence of commodity and commodity power.
3
SPEAKER_00
So that was his exclusivist argument.
3
SPEAKER_00
In the middle of 1857, he was visited by a guy called Otto Brau.
3
SPEAKER_00
in his home in Chelsea.
3
SPEAKER_00
Otto returned to Marx a copy of Hegel s, I think it s called Phenomenology of Right.
3
SPEAKER_00
I haven t read it, but that s the book.
3
SPEAKER_00
Marx was then at that stage reading through all the classical theorists again.
3
SPEAKER_00
He was
3
SPEAKER_00
suddenly he read Hegel again.
3
SPEAKER_00
And if you know Hunter S. Thompson, okay.
3
SPEAKER_00
Who doesn t know Hunter S. Thompson?
3
SPEAKER_00
Somebody who hasn t had enough drugs, obviously.
3
SPEAKER_00
Yeah.
3
SPEAKER_00
But Hunter S. Thompson- He comes to you in a dream after you take your first- Mescaline or- Or whatever, and of course we ve all- If you know your drugs well enough, you can tell, okay, he s stoned, okay, he s on cocaine, you know.
3
SPEAKER_00
Well, Mark suddenly, his writing style, in the middle of a book called The Grundrisse,
3
SPEAKER_00
completely changed.
3
SPEAKER_00
He switched from weed to cocaine.
3
SPEAKER_00
He switched from Ricardo to Hegel.
3
SPEAKER_00
And what in Ricardo, he had this exclusivist argument about labor and suddenly Hegel is back talking in terms of dialectics, not actually using a word, but foreground and background and tension.
3
SPEAKER_00
And then he, that s where this use value exchange value attention thing came from, is rereading Hegel, 13 years after he stopped reading philosophy.
3
SPEAKER_00
Because made in 44, he was reading just the economists.
3
SPEAKER_02
So you re saying Karl Marx is human after all.
3
SPEAKER_02
He s human.
3
SPEAKER_01
He could be- I would love to have a beer with Karl, for a while.
3
SPEAKER_01
For Karl?
3
SPEAKER_01
He s Karl to you?
3
SPEAKER_01
He s Mr. Marx to me.
3
SPEAKER_01
Maybe Carl to me, I m afraid, after all these years.
3
SPEAKER_02
Yeah, yeah, you ve had quite a journey together.
3
SPEAKER_02
So that s where, after Hegel, his interpretation of the dialects comes in the form of foreground and background.
3
SPEAKER_00
And then on page 267 of the Penguin edition of the Grundrisse.
3
SPEAKER_00
Literally?
3
SPEAKER_00
Your memory.
3
SPEAKER_00
One and a half pages, long footnote.
3
SPEAKER_00
It s pretty hard to forget.
3
SPEAKER_00
When I first read Marx, way, way back when I was,
3
SPEAKER_00
How old was I, 20?
3
SPEAKER_00
Okay, I tried to explain my explanation of Marx s use value, exchange value stuff to my colleagues in this philosophy discussion room at Sydney University during a beautiful summer that we are inside concrete, sandstone walls discussing Marx.
3
SPEAKER_00
And I went to say, look, the use value, exchange value argument can be applied to a machine.
3
SPEAKER_00
What s the exchange value of a machine?
3
SPEAKER_00
It s cost of manufacturing.
3
SPEAKER_00
What s its use value?
3
SPEAKER_00
It s capacity to produce goods for sale.
3
SPEAKER_00
No relation between the two, there ll be a gap, a machine can be a source of profit.
3
SPEAKER_00
Now I said that and I got laughed at, I m quite literally laughed at.
3
SPEAKER_00
So when I went back to university 13 years later to do my master s degree,
3
SPEAKER_00
I chose to read through and find in Marx where he first came across this insight.
3
SPEAKER_00
My first master s thesis failed, by the way, and justifiably so.
3
SPEAKER_00
I didn t know the level of academic discourse necessary.
3
SPEAKER_00
I had an advisor who didn t understand what I was writing.
3
SPEAKER_00
He got me to write for his New Keynesian audience, and it was a mess, and it got failed.
3
SPEAKER_00
So I got rid of him.
3
SPEAKER_02
Did it get failed?
3
SPEAKER_02
Why do you think?
3
SPEAKER_00
It wasn t a good thesis.
3
SPEAKER_00
I didn t know the level.
3
SPEAKER_00
It was written for an audience my supervisor thought that I should be writing for, and it was a mess.
3
SPEAKER_00
And so I met another guy, Geoff Fishburne,
3
SPEAKER_00
as a lecturer at New South Wales University.
3
SPEAKER_00
And Jeff was open-minded.
3
SPEAKER_00
He was not a conventional neoclassical thinker.
3
SPEAKER_00
And I realized I d throw out the half that Bill had got me to do, focus just on Marx.
3
SPEAKER_00
And so I decided to read Marx in chronological sequence from his very first works of economics, which are called the Economic and Philosophical Manuscripts of 1844.
3
SPEAKER_00
And he wrote those in a garret in Paris after he d been expelled from Prussia.
3
SPEAKER_00
And so he decided to read the...
3
SPEAKER_00
having been an expert on philosophy and regarded as the towering intellect of Hegelian philosophy in Prussia, but driven out because he was a radical.
3
SPEAKER_00
He ended up running a newspaper or writing for a newspaper, and he was reporting about the eviction of peasants from the forests, taking away their feudal rights.
3
SPEAKER_00
And so this is where his passion for economics and humanity came from.
3
SPEAKER_00
And he was a poet.
3
SPEAKER_00
as well.
3
SPEAKER_00
He wrote love poetry to Jenny von Westhalen.
3
SPEAKER_00
His first published works were pretty much in poetry.
3
SPEAKER_00
He was a rouse about.
3
SPEAKER_00
He was a wild character.
3
SPEAKER_00
We d probably fight like crazy, I imagine, if we met.
3
SPEAKER_02
Over the beers?
3
SPEAKER_00
I m slightly, even though I can be
3
SPEAKER_00
I can get involved in an argument like nobody s business.
3
SPEAKER_00
No, really?
3
SPEAKER_00
No, really.
3
SPEAKER_00
But I m a bit more peaceful with personality.
3
SPEAKER_00
Oh, you think Marx is feistier than you?
3
SPEAKER_00
He was feisty, but he could be arrogant.
3
SPEAKER_00
I ve got an intellectual arrogance.
3
SPEAKER_00
come to accept that.
3
SPEAKER_02
But there s like a fundamental humility to you.
3
SPEAKER_02
Yeah.
3
SPEAKER_02
You re saying Marx is like, he has ego that s hard to control.
3
SPEAKER_00
A bit too big ego, yeah.
3
SPEAKER_00
I m guessing.
3
SPEAKER_00
I mean, I m never going to meet him.
3
SPEAKER_00
Well, the beard says ego to me.
3
SPEAKER_00
The beard is huge, yeah.
3
SPEAKER_02
That s huge.
3
SPEAKER_02
Okay, so this is interesting.
3
SPEAKER_02
So you went, chronologically,
3
SPEAKER_00
Right through his works.
3
SPEAKER_02
The development of the human being through his works.
3
SPEAKER_00
Yeah, and I was trying to find the point at which he discovered this use-value-exchange-value idea.
3
SPEAKER_00
And it occurs in a footnote on page 267 to 268 of the Penguin edition of the Guindrisa, which his notes he was taking literally not meant for publication, literally sitting at a stall inside the British Museum, I think,
3
SPEAKER_00
reading all the classical authors in chronological sequence, and then somebody throws Hegel at him, and suddenly he s talking in Hegelian terms.
3
SPEAKER_00
And he suddenly says, because it s whole value issues, what is value?
3
SPEAKER_00
Is it exchange value, use value, how do they relate to each other?
3
SPEAKER_00
That s what he was thinking about.
3
SPEAKER_00
He said, is not use value, which was left out of the classical school, a fundamental aspect of the commodity?
3
SPEAKER_00
Is there not a tension between the use value and exchange value?
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SPEAKER_02
Just so we re clear, in that context, use value is kind of the subjective thing, exchange value is the objective thing.
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SPEAKER_00
Yeah, and Marx found a way to integrate the two.
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SPEAKER_02
But he was focused on labor being the only thing that can generate both the use value and the exchange value.
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SPEAKER_00
But, no.
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SPEAKER_00
If you look at the classical school,
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SPEAKER_00
they focus on exchange value, objective.
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SPEAKER_00
Look at the neoclassical, they face us upon use value, subjective, or they call it utility.
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SPEAKER_00
So Marx, coming from the Ricardian tradition, basically dismissed the role of utility.
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SPEAKER_00
And then when he reads Hegel, he s suddenly starting to think in terms of unities, and exchange value and use value is the unity of the commodity.
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SPEAKER_00
And he thinks, well, I can t ignore use value.
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SPEAKER_00
So rather than leaving it out completely, which is what Ricardo and Smith does, I ve got to somehow bring it in, and this Hegelian insight occurs to him.
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SPEAKER_00
And it s remarkable, I really recommend taking a look at the book, even just to look at that particular page, because what it would have been, it s shown as a footnote, but it would have been him saying, oh wow, and he s asterisk, asterisk, is not use value a fundamental aspect of the unity of a commodity?
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SPEAKER_02
So in the notes you see the discovery of an idea in the human mind.
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SPEAKER_00
And it s beautiful.
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SPEAKER_02
The integration of an idea.
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SPEAKER_00
And he actually writes, does this have significance in economics question mark.
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SPEAKER_02
And then he probably went home that night.
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SPEAKER_02
and that idea changed him.
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SPEAKER_00
Yeah, it changed him completely.
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SPEAKER_00
And from that point on, his writing was completely different, but he still had this idea from the Ricardian days of saying that labor s the only source of value, using an exclusive argument to say there s something unique about labor that explains why it s a source of value.
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SPEAKER_00
But suddenly this insight occurs to him and he thinks, I can get a positive derivation.
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SPEAKER_00
I can use use value and exchange value
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SPEAKER_00
the fact they re not related to each other as a dialectical tension to explain surplus value.
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SPEAKER_00
And that s what he does.
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SPEAKER_00
So he goes from a negative explanation of where value comes from to a positive explanation on that page of the Grundrisse.
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SPEAKER_00
And he then triumphantly uses it to explain why labor is a source of value.
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SPEAKER_00
You buy it for its exchange value.
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You use its use value.
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SPEAKER_00
They re unrelated.
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SPEAKER_00
The use value will be bigger.
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SPEAKER_00
That s where profit comes from.
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SPEAKER_00
Then he does exactly the same thing for machinery, about 30 pages on.
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SPEAKER_00
He says, it also has to be contemplated.
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SPEAKER_00
which was not done before.
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SPEAKER_00
He wrote notes to himself, by the way.
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SPEAKER_00
It s written really in a colloquial style, that the use value of a machine is significantly greater than its exchange value.
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SPEAKER_00
He actually left out the word is.
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SPEAKER_00
It would be a translation into English of the German, I m sure.
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SPEAKER_00
I don t know.
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SPEAKER_00
I haven t seen the original notes.
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SPEAKER_00
I d love to see them.
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SPEAKER_00
But he says, he leaves out the word is.
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SPEAKER_00
It also has to be contemplated that the use value significantly greater than its exchange value, i.e.
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SPEAKER_00
that the contribution of the machine to production exceeds its depreciation.
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SPEAKER_00
And that was an insight which undermined his explanation for revolution.
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SPEAKER_01
Okay, can you say that again?
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SPEAKER_01
The cost of production exceeds its depreciation?
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SPEAKER_01
Can you linger on that?
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SPEAKER_00
Well, what Marx argued, and you read this in Capital, and I read this in Capital when I first saw the contradiction in his own thought.
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SPEAKER_00
He said that no matter how useful a machine is,
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SPEAKER_00
whether it took 100 hours to make or cost £150, it cannot, under any circumstances, add more to production than £150.
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SPEAKER_00
Which, in his old exclusivist logic, he could justify
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SPEAKER_00
and which in his post-1857 argument is bullshit.
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SPEAKER_00
Can you steel man his case?
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SPEAKER_01
Can we go to the mind of Marx in thinking, if a machine costs 100 bucks, it can t be ever more, bring more value than 100 bucks.
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SPEAKER_00
But that contradicts his previous logic, because what he said is, you d have commodities, the essential unity in capitalism.
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SPEAKER_00
Capitalism focuses upon the exchange value.
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SPEAKER_00
That pushes the use value into the background and there s a tension between the two.
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SPEAKER_00
What that means is the exchange value of a commodity sets its price.
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SPEAKER_00
The use value is independent.
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SPEAKER_00
He called them incommensurable.
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SPEAKER_00
He literally would use the word incommensurability between exchange value and a use value, whereas neoclassicals make them commensurable.
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SPEAKER_00
So he s saying exchange value and use value are incommensurable.
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SPEAKER_00
And that normally means that exchange value is objective, like the number of hours it takes to make something.
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SPEAKER_00
Use value is subjective, how comfortable the chair is, the fact that you can sit in a chair.
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SPEAKER_00
So that s incommensurability.
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SPEAKER_00
But when you apply it in production, the exchange value of something is objective.
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SPEAKER_00
It s how many hours it takes to make a machine or how many hours it takes to make the means of subsistence for a worker.
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SPEAKER_00
The use value is also objective.
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SPEAKER_00
You re making commodities for sale.
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SPEAKER_00
and the worker does six hours.
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SPEAKER_00
Six hours of work will make them the means of subsistence for the worker, but the worker will work a 12-hour day, and the six hours becomes a gap.
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SPEAKER_00
Now, that s incommensurability between use value and exchange value of labor.
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SPEAKER_00
But when you look at what he said about no matter how long it takes to make a machine or how many pounds it costs, he s saying they re identical.
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SPEAKER_00
And that s contradicting his own logic.
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SPEAKER_00
Well, what s the use value of a machine?
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SPEAKER_00
The fact that it can produce goods for sale, exactly the same as the worker.
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SPEAKER_00
Now, what I, in my modern reinterpretation of Marx, which brings in my work on energy, I see both labor and machinery as a means to harness energy and produce useful work.
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SPEAKER_00
And they can both do that.
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SPEAKER_00
In fact, they do it together.
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SPEAKER_00
It s a collective enterprise.
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SPEAKER_01
Okay, so, and we ll go to that.
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SPEAKER_01
So there s no fundamental difference from an exchange value and use value perspective between a human and a machine.
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SPEAKER_00
And therefore, they re using the same logic.
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SPEAKER_00
They can both be a source of surplus, which is what Marx contradicted because his explanation for where socialism would come from is that only profit comes from, profit comes only from labor.
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SPEAKER_00
Over time, we ll add more machinery than labor.
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SPEAKER_00
that will mean a falling rate of profit and therefore a tendency towards socialism.
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SPEAKER_00
And what he did in that insight in 1857 is contradict his own idea about what would lead to socialism.
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SPEAKER_00
And he couldn t cope with it.
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SPEAKER_01
Okay, what s the difference between Marxian economics and Marxist political ideology?
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SPEAKER_01
the gap between the two, the overlap, the differences?
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SPEAKER_00
The real foundation of Marx s political philosophy was the economic argument that there would be a tendency for the rate of profit to fall.
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SPEAKER_00
And that tendency for the rate of profit to fall would lead to capitalists battening down on workers harder, paying them less than their subsistence, a revolt by workers against this, and then you would get socialism on the other side.
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SPEAKER_00
What he called the tendency for the rate of profit to fall played a critical role in his explanation for why socialism would have to come about.
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SPEAKER_00
He was saying it would have to come about, or is it a good thing for it to come about?
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SPEAKER_00
So it should come about?
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SPEAKER_00
He had a should, but he was trying to say it must.
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SPEAKER_00
So if you look at Marx in the history of radical thought, he was preceded by what were called utopian socialists.
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SPEAKER_00
Saint-Simon, even the Cadbury s company came out of utopian socialists.
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SPEAKER_00
And they had an idea about a perfect society in the future where people were properly rewarded, were treated as human beings rather than cogs in a machine, and all this sort of stuff.
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SPEAKER_00
And they said socialism should come about because it treats humans better than capitalism does.
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SPEAKER_00
Marx said, I can prove that socialism must come about.
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SPEAKER_00
So he preferred, he had a utopian vision of a future society, but he thought he could prove that it had to come about.
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SPEAKER_00
And the proof relied critically upon tendency for the rate of profit to fall, and that relied upon labor being the only source of profit.
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SPEAKER_01
What was his utopian view?
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SPEAKER_01
So this idea of from each according to his ability to each according to his needs.
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SPEAKER_01
Is that the utopian?
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SPEAKER_00
I think it s utopian in the context of our modern world.
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SPEAKER_00
It says that rather than being rewarded, like Jeff Bezos gets enormous fortune, you get what you need, not what you want.
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SPEAKER_00
necessarily.
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SPEAKER_00
All needs is fulfilled.
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SPEAKER_00
It was a vision of utopia where you could be a fisherman in the morning, a poet in the afternoon, and a chef at night.
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SPEAKER_00
Okay, this is paraphrasing one of his phrases.
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SPEAKER_00
So he did have a utopian vision of a future society, and he did think human creativity did much, much greater under socialism than it was under capitalism.
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SPEAKER_01
He was wrong.
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SPEAKER_01
So let s explore in different ways where he was wrong.
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SPEAKER_01
You re saying there s a fundamental flaw in the logic.
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SPEAKER_01
But also, if we can link, if we can explore the high level philosophical concepts of socialism too, like the dreams of a utopia.
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SPEAKER_01
So what, first of all, what is socialism?
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SPEAKER_01
That s another loaded term.
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SPEAKER_00
What is it?
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SPEAKER_00
Socialism, particularly in America, is a very loaded term.
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SPEAKER_00
And what Americans call socialist is
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SPEAKER_00
a large amount of provision of services by the state, which is commonplace in Europe.
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SPEAKER_00
It s still moderately commonplace in my own home country of Australia.
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SPEAKER_00
And that Americans will call public education socialist.
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SPEAKER_00
It s a total parody of the word.
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SPEAKER_00
Strictly speaking, what socialism meant is the public ownership of the means of production.
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SPEAKER_00
No private ownership of the means of production.
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SPEAKER_00
What is the means of production?
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SPEAKER_01
Machine factories, factories.
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SPEAKER_01
So all the goods that are produced in factories, no, the means of producing the goods is owned by a centralized entity.
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SPEAKER_00
Yeah.
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SPEAKER_00
centrally planned.
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SPEAKER_00
This is what actually was done under Gosplan under the Soviets, and even with the collective farms as well.
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SPEAKER_00
You no longer owned your land.
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SPEAKER_00
The state owned the land.
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SPEAKER_00
You worked on the land.
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SPEAKER_00
And this was supposed to be a utopia.
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SPEAKER_01
Now it didn t turn out to be one.
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SPEAKER_01
And we ll talk about maybe your ideas of why it didn t turn out to be one.
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SPEAKER_01
So the fascists did the same.
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SPEAKER_01
So this is fascism also.
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SPEAKER_01
Fascism, so-called national socialism.
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SPEAKER_00
It s also a kind of socialism.
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SPEAKER_00
Yeah, but there was no, it wasn t public ownership, there was public direction.
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SPEAKER_00
So the state would tell factories what to do with a still private profit.
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SPEAKER_00
And a large part of why the Nazis succeeded was the extent to which they managed to co-opt.
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SPEAKER_00
major manufacturers in Germany.
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SPEAKER_00
So it s, you know, it s direction versus ownership.
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SPEAKER_01
It s a dictatorial, I mean, that s a very particular implementation.
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SPEAKER_01
So you have to consider the full details of the implementation, but it s basically dictator guided versus owned.
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SPEAKER_00
If you want to take a proper vision, then you have to say it s the ownership.
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SPEAKER_00
of the means of production by the state, okay, versus the ownership by private.
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SPEAKER_00
That rules out the Nazi period, to use the word, that again, they re bastardizing as much as Americans do in the opposite direction.
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SPEAKER_01
Well, what does ownership exactly mean?
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SPEAKER_00
Well, it became incredibly complicated, and this is actually the best work on this is done by a recently deceased Hungarian economist called Janos Kornay.
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SPEAKER_00
And Cornight tried to explain why socialism failed.
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SPEAKER_00
Why did socialism fail in your view, in his view, in Yanis  view, in your view?
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SPEAKER_00
I think Yanis is 100% correct and it s a brilliant piece of work, so I m going to be really paraphrasing his view.
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SPEAKER_00
And he imagined an ideal socialist society and there wasn t a Stalin.
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SPEAKER_00
There weren t purges and you lived up to all the ideals that Marx had for socialism.
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SPEAKER_00
But you do it in a context of an economy which is incredibly primitive, Russia.
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SPEAKER_00
Because if you look at Marx s own vision of the revolution, it was going to happen in England.
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SPEAKER_00
The advanced economies would be first to go through the revolution.
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SPEAKER_00
The primitive economies would have to go through a capitalist transition and this is the difference between the Mensheviks and the Bolsheviks.
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SPEAKER_00
So the Mensheviks, and Hyman Minsky came out of the Menshevik family, the Mensheviks believed you had to go through a capitalist phase.
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SPEAKER_00
Russia had to go through a capitalist period before it becomes socialist.
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SPEAKER_00
The Bolsheviks believed they could get there in one go.
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SPEAKER_00
Bypass the capitalist phase, do the development under socialism rather than under capitalism.
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SPEAKER_00
And this is what Yanis was actually analyzing.
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SPEAKER_00
You start from a primitive, feudal economy,
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SPEAKER_00
very little industrialization, and you want to jump to an advanced industrial society from that foundation.
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SPEAKER_00
So he said what you have then for is a whole range of industries, all of which need as much resources as you can get for them.
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SPEAKER_00
So you want to develop agriculture, mining, industry, every little division of it.
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SPEAKER_00
They all have legitimate demands on the resources of the country and the state.
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SPEAKER_00
That means that all your resources are fully employed and are probably over-employed.
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SPEAKER_00
So you have a resource constraint in that society.
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SPEAKER_00
The easiest way to cope with a resource constraint is to produce last year s commodity.
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SPEAKER_00
not to innovate, not to make change.
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SPEAKER_00
So what they will give you is, as you start to invest, so you now have beginnings of a steel industry, beginnings of a car industry, and so on, you start investing, but you continue producing the same product you made last year.
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SPEAKER_00
And I have a perfect personal example of that, which I ll throw in now, if you like, it s getting pretty heavy conversation.
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SPEAKER_00
I know my first major girlfriend had a brother who wanted to get a motorbike.
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SPEAKER_00
but he couldn t afford a Honda or a Kawasaki.
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SPEAKER_00
At the time, they cost about $3,000 for a 650cc Japanese motorbike.
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SPEAKER_00
He found he could buy a Cossack for $650, $1 per cc.
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SPEAKER_00
So I was there when they got this.
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SPEAKER_00
This is in suburban Sylvania waters in Sydney.
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SPEAKER_00
So this
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SPEAKER_00
crate arrives with a Cossack motorbike inside it.
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SPEAKER_00
So we take it apart.
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SPEAKER_00
It s then got all these wooden palings.
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SPEAKER_00
We have to pull off the wooden palings to open it up.
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SPEAKER_00
Then there s oil-soaked rag over this thing, which is tied on a wooden base.
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SPEAKER_00
We take the oil-soaked rag off and we stare in all its glory in a 1942 BMW.
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SPEAKER_00
It was exactly the same as Steve McQueen in The Great Escape.
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SPEAKER_00
So the Russians for 30 years were making the same bloody motorbike.
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SPEAKER_00
It had a bicycle seat,
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SPEAKER_00
That s how they cope.
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SPEAKER_00
They ve just made the same damn machine every year.
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SPEAKER_00
They said, so that s the outcome.
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SPEAKER_00
You actually want the best possible world.
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SPEAKER_00
You re trying to build as fast as possible.
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SPEAKER_00
You re paying workers as high wages as you possibly can and that leads to a world where you don t innovate.
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SPEAKER_00
You said capitalism on the other hand, pure capitalist economy, you re trying to pay workers as little as possible.
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SPEAKER_00
You have competitive industries.
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SPEAKER_00
You re trying to take demand away from your rivals.
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SPEAKER_00
You have Kawasaki versus Honda versus, you know, BMW, et cetera, et cetera.
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SPEAKER_00
The way you get demand away from your competitors is by innovating.
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SPEAKER_00
So what you will get is cycles and burns and slumps, but you will innovate and change over time.
4
SPEAKER_00
So what you find was this huge gap between socialist volume production with no innovation and capitalism with innovation.
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SPEAKER_00
So that was the fundamental failing that Jonas Kornay saw.
4
SPEAKER_00
So why did socialism not innovate?
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SPEAKER_00
Because if you go back to this famous historical incident with Khrushchev in the United Nations, bangs, takes off his shoe and bangs the desk, says, we will bury you.
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SPEAKER_00
He literally meant we re going to bury you in commodities.
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SPEAKER_00
We re going to produce more output than you are.
4
SPEAKER_00
And he was wrong.
4
SPEAKER_01
because fundamentally, in the long term, to bury somebody in commodity production, you have to innovate.
4
SPEAKER_00
Yeah, and like there s also, there s another remarkable Soviet engineer who was given the job of interpreting Marx s ideas of industrial sectors.
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SPEAKER_00
So he had the commodity sphere, the industry sphere, sector one, sector two, sector three.
4
SPEAKER_00
Sector one producing consumer goods, sector two producing capital goods, sector three producing luxury goods for capitalists.
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SPEAKER_00
And so he had a three sector model of the economy and he was talking about the dynamics between them.
4
SPEAKER_00
What Feldman did was reinterpret this as an engineer would reinterpret it, which was brilliant work.
4
SPEAKER_00
So what he said was, you need to produce the means of production.
4
SPEAKER_00
If you want to grow quickly, you focus on producing the means of production rather than commodities.
4
SPEAKER_00
So you don t make cars, you make car factories.
4
SPEAKER_00
You make a few cars, but most of the effort goes into expanding how many factories you have.
4
SPEAKER_00
And what he did was do a mathematical model where you d start off with very low levels of consumer good output, but then you would just go exponential.
4
SPEAKER_00
Now, I took a look at that back when I was doing my master s degree in training in mathematics.
4
SPEAKER_00
I took Feldman s equations and then looked at what was actually driving it was he was imagining correctly a huge pool of unemployed labor.
4
SPEAKER_00
If you go back to the earliest stages of Soviet industrialization back in 1917, post the First World War, you had all these unemployed workers, you had all these peasants you could take off the land and put into factories.
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SPEAKER_00
So you had a huge supply of workers.
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SPEAKER_00
What you had to do was build the factories.
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SPEAKER_00
So you re building the factories, but at a certain point, you exhaust the supply of
4
SPEAKER_00
on lowly employed or unemployed labor.
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SPEAKER_00
And so rather than having this exponential takeoff, you hit a ceiling.
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SPEAKER_00
And then you can only grow as fast as the population because you re not innovating.
4
SPEAKER_00
So that s what actually hit the Soviet system.
4
SPEAKER_00
And it s why they never buried the Western consumer goods, and instead why Eastern consumers looked in envy at the goods being purchased by their Western people and said, if that s exploitation, we want exploitation.
4
SPEAKER_01
So, okay, there s a lot of interesting stuff to ask here, which is, so Marx s vision for the socialist utopia is you have to go through capitalism.
4
SPEAKER_00
The Mensheviks were true to Marx s original idea.
4
SPEAKER_01
Right, so is there a case to be made that in the long arc of human history on, like human civilization on earth, that we re going to live out Marx s vision for utopia?
4
SPEAKER_01
Which is, like, will we run into a wall with capitalism?
4
SPEAKER_00
I think we are running into a wall with capitalism.
4
SPEAKER_00
In fact, I think we ve already gone through the wall and we haven t yet realized we ve smashed our skulls.
4
SPEAKER_00
Okay.
5
SPEAKER_00
But on the other side, we re bleeding and everything like that, does Marx have any insights on what the other side of capitalism, what is beyond capitalism?
5
SPEAKER_01
I think that beautiful phrase, from each according to his ability, to each according to his needs, describes what we should end up with.
5
SPEAKER_01
And I think that s actually, if I think about, you know, I m an Elon Musk fan, that s what I think is partially going to be the nature of society if we build one that functions on Mars.
5
SPEAKER_01
Because, and I ve actually seen an interview with the Italian who s involved in designing what the future colony will look like.
5
SPEAKER_01
He was actually asked this question, can there be enormous inequality in Martian civilization?
5
SPEAKER_01
The guy said, absolutely not.
5
SPEAKER_01
because the resources, again, resource constraint applies.
5
SPEAKER_01
You simply can t give somebody an underground bunker 100 times the size of somebody else s 100 underground bunker.
5
SPEAKER_01
there s a, the scarcity of resources imposes a need for equality overall.
5
SPEAKER_00
Is that always, that s interesting.
5
SPEAKER_00
I mean, the scarcity of resources, wait, but I feel like that s the contradiction.
5
SPEAKER_00
I thought.
5
SPEAKER_00
Are you thinking, you know, classical about scarcity?
5
SPEAKER_00
Yeah, I m barely thinking at all.
5
SPEAKER_00
So wait, I,
5
SPEAKER_00
I thought scarcity, the best way to build on top of scarcity is a capitalist type of machine.
5
SPEAKER_01
No, this is where, again, our vision of what scarcity is, is wrong.
5
SPEAKER_01
Because, and Ricardo said this, but it s actually better than Marx, because Ricardo said there are some products whose value is determined entirely by their scarcity.
5
SPEAKER_00
Yeah.
5
SPEAKER_01
paintings, rare wines, et cetera, et cetera.
5
SPEAKER_01
He said, they are things you cannot reproduce in a factory.
5
SPEAKER_01
He said, the essence of capitalism is what you can make in a factory.
5
SPEAKER_01
Therefore, for these unique objects, these rare objects, Picasso painting a beautiful bottle of wine, etc., etc., then the utility, it can t be reproduced easily, so its price will be determined by subjective valuation.
5
SPEAKER_01
You said what we re talking about in capitalism is the stuff you can make en masse, and that
5
SPEAKER_01
That is the true focus of a capitalist economy, and that is not about scarcity.
5
SPEAKER_01
The only scarcity applies when you don t have the resources to make them anymore, or you can t use the energy involved because you ll damage the biosphere too much, which we ve already done.
5
SPEAKER_01
But fundamentally, the scarcity that neoclassicals have made us think about, and Austrians think about as well, is non-reproducible.
5
SPEAKER_01
But the essence of capitalism is the commodity, the backscratcher, the two-buck backscratcher that anybody can, you know, the cheapest chips to make, and that s why you can make a profit out of them.
5
SPEAKER_01
Not the elaborate gold thing with diamonds and rubies that only the king gets.
5
SPEAKER_01
So we think
5
SPEAKER_01
Our vision of scarcity has been perverted by neoclassicals, analyzing the exception to capitalism and calling it capitalism.
5
SPEAKER_00
Okay, fair enough.
5
SPEAKER_00
So let s put Mars aside, because I think there s a lot of strange factors that have to do with a whole nother planet, civilization, that we don t quite understand, like how economics works.
5
SPEAKER_00
with different geographic locations, one of which have new challenges, which is what essentially this is.
5
SPEAKER_00
I don t know if you can apply the same economic theory to Mars.
5
SPEAKER_01
No, I m saying your question, I think, will be forced into that ultimately by having to make a compromise with the ecology.
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SPEAKER_01
And we ve been ruthless about the ecology of this planet, and we re gonna pay the price for it.
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So if you have a planet where you can t be ruthless,
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Okay?
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Oh yeah, okay.
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You have to mind it as carefully as possible.
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Then that utopian might be imposed upon you for the needs for survival on that planet.
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Back here, Marx s utopia was still the one that ignored the ecology.
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And I think if I have a vision of a utopia in future, it s got bugger all to do about what humans get out of it.
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It s what humans respect.
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They have to respect life.
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So I don t see that as, I see that as a one-eyed utopia, a utopia for a single species, as if it can exist on its own, which we should know it can t.
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Quick bathroom break?
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Yeah, not a bad one.
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We took a little bit of a break and now we re back.
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We needed to take a break as my brain broke and I m piecing it back together.
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You mentioned ecology and life and the value of all of that.
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We ll return to it if we can.
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But first,
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we said why this kind of, this idea of why socialism fails.
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Can we linger on this a little bit longer?
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And how did the ideas of Karl Marx lead to Stalinism?
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So this particular implementation.
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Yeah.
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Is there something fundamental to these ideas that leads to a dictator and that leads to atrocities?
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There s something about the mechanism of the bureaucracy that s built that leads to an,
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a human being that s able to attain, integrate absolute power and then start abusing that power, all that kind of stuff.
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Some of the history of the 20th century, is that inextricably connected to the ideas of Karl Marx?
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I think to some extent it is, but I m gonna also say that if it hadn t been for the Bolsheviks interpreting Marx and saying we can reach socialism without going through capitalism,
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it might not have happened.
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So if you look at the, like the Mensheviks were a rival political group in Russia.
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And that s where Hyman Minsky, who s a huge inspiration for me.
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So he s an economist who was maybe, can we take a little attention, who was Hyman Minsky?
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Yeah, Hyman Minsky was the person who developed analysis of capitalism based on financial instability.
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And he was actually the PhD student of Joseph Schumpeter.
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and an Austrian economist as well, whose name I ve forgotten temporarily.
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And he asked him, his parents were both refugees from Russia during the Stalinist period because the Mensheviks were being wiped out in Russia, just like any other opponents to the Bolsheviks were being eliminated.
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So I think his parents met in Chicago
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Still remained socialist, still remained politically active, and he was educated in a family that was just imbued with Marx as its vision.
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He ended up fighting in the Second World War on the American side, coming back to America and studying mathematics, and then also doing an economics degree leading to a PhD.
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And the question he posed for himself is, what causes Great Depressions?
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And he put it beautifully, he said, can it happen again?
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It being the Great Depression.
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And if it can t happen, then what has changed between the society before the First, Second World War and after that makes a depression impossible?
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What s the answer to those two questions?
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His answer was, yes, it can happen again.
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that was prevented happening by the time he started writing about it, which was the late 50s to the mid-80s, late 80s.
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We met once, but only once.
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Over a beer?
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No, we gave a seminar at New South Uni, and he bit of an obstreperous bastard.
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Wow, what is it?
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It means argumentative and likely to dismiss you.
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So a good mate of mine was the guy, I brought him out to Australia, a guy called Graham White, we re still... G day, Graham.
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We re still good mates.
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G day, Graham.
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I love your language and your accent.
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Actually, there s a really good TikTok I saw earlier today with an Aboriginal guy saying he loves the Australian language because it s absolutely ironic.
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You ask an Australian a question and he ll give you an answer, which is the opposite of what he means, and you ve got to work out the rest for yourself.
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He goes up to another Aboriginal mate and says, G day, mate.
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He says, how are you today?
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Oh, not bad.
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What have you been doing recently?
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Oh, not much.
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When are we going?
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Not too far, not too soon.
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Where is it?
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Oh, not too far away.
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All negatives.
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And he s a beautiful, beautiful rendition.
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Yeah, that s the cool thing about the internet culture.
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They appreciate that ironic side.
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Like for example, the best compliment you can give as an Aboriginal to somebody else is that s deadly.
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That s deadly.
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That s a compliment.
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That s deadly.
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Okay.
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Another mate of mine, this comes to the Australian language, if I call you a bastard, that s a compliment.
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Yeah.
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Depending on how I intonate the word bastard.
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Bastard.
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Bastard.
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That s deadly.
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Yeah.
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I love that.
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And there s something, unfortunately, there s something about the British accent that makes people sound
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maybe brilliant, maybe sophisticated, wise.
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But actually pompous.
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Yeah, no, that s unfortunately the downside of that is you can sound pompous.
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There s something about the Australian accent that you just can t sound brilliant.
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It humbles you.
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You sound like you re having a lot of fun.
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There s wit, there s all that good stuff.
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But you just can t be like, you know, Karl Marx in an Australian accent would just not come off.
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That is a very good point.
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He would not be able to pull off the beard.
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I mean, I just, yeah, it s fascinating that the accent determines, you know,
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something about the person, maybe it s the chicken and the egg too, it drives the way of the discourse.
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Obviously there s a lot of brilliance, there s a lot of brilliance in your work, but it sounds like you re always having fun.
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Yeah, and look, this, Pat Poncho s got a lot of Australian mates here.
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He spent, what about, how long in Australia?
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A year and a half, and he s got all these mates who replace Aussie rules football in Austin.
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You should join them one day.
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It s actually rough.
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It s a very creative sport.
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It s much more fun.
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It s different than rugby?
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Oh, very.
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Rugby is hopeless.
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Rugby is two morons smashing their bodies against each other.
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Easy now, easy now.
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Sorry, sorry.
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Did I mean to offend the rugby fans in the audience?
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Okay, so it s too simplistic.
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It s too simplistic.
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I mean, there s skill in it.
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I ve seen some really skillful rugby union and rugby league players in my day.
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But fundamentally, if you hit somebody hard enough, they go down.
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Whereas in Aussie rules, it s about catching the ball.
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and then kicking the ball.
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More skill, less power.
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More skill.
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And the bodies of the athletes.
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I can actually get off and measure what a sport is like by the bodies it creates.
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And you get these incredibly elegant, lithe muscular forms out of Aussie rules.
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Such beautiful words you have in your vocabulary.
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Lithe, I don t even know.
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But I ll assume you know what it means.
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And maybe somebody in the audience.
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Okay, so.
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All right, fine.
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We should also mention that you, in your youth, like last year, had Olympic weightlifting as part of your life.
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Long time ago.
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And like you said, tennis.
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I also played tennis for many, many, many, many years.
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Yeah, it s a fascinating game.
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It s a wonderful game.
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Yeah, that s my favorite game.
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Karl Marx and Stalin.
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So how do we get onto Aussie football and Australian and the accent?
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I m not really sure.
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You talked about the way I said something about Karl Marx and with Karl Marx.
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Anyway, we got there.
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Yeah, we got there and now we return.
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But back to Marx, I think... It s not the destination, it s the journey.
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I think Marx, the failure of socialism with Janos Kornai captured beautifully.
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this idea already called demand-constrained versus resource-constrained economies.
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And capitalism is demand-constrained.
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And this is, again, where neoclassical theory is completely wrong, empirically completely wrong.
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So the neoclassicals have a vision of capitalism being resource-constrained, and it s about maximizing your usage of resources subject to constraints.
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And as Cournot said, that s really what happened under socialism.
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What happens under capitalism is that you have
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15, 20 companies producing automobiles.
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They are all trying to capture as much of the market as they can.
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If you add up their marketing plans, you re going to get 120, 130% of the actual market.
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So we re all going to have excess capacity.
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When you build a factory, you re building it with a plan for it to exist for five, 10, 15 years.
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You have to have excess capacity in the factory.
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So that means that capitalism has a far greater productive capacity than it actually uses.
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And then the way that you manage to get demand into your factory is to innovate and produce something nobody else does.
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Or you re producing in volume, and when somebody produces like a bung tire, comes out of firestone, then Goodyear is ready to expand its production and take advantage of that.
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So that s the actual nature of competition in capitalism.
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And that means that we get a cornucopia of goods.
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Even if we re lowly workers, the variety of goods in capitalism is overwhelming.
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And that just doesn t happen in socialism.
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You get your 1942 Cossack as your motorbike, that s it.
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When you put your money down to buy a refrigerator, it ll arrive in 10 years because the factory is already fully constrained.
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So all these resource constraints mean that people aren t happy.
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under socialism.
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And if you ve got a whole bunch of people that aren t happy, then the best way to control them is to suppress them.
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So I think in that sense, ultimately, yes, it does lead to something like Stalinism.
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So it s easier to give happy people freedom.
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Yeah, I mean, happy people get pretty silly outside.
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I m not particularly, the extent to which Americans overuse and distort the word freedom drives me barmy.
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All of these words can be distorted, but they all at the core have some fundamental power and beauty, and then we just distort on the surface for the fun of it, just to start battles on Twitter and so on.
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But what citizens of the Soviet world didn t feel was freedom.
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First of all, it wasn t freedom to buy commodities.
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The commodities that are supposed to be on the shops weren t there.
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The volume couldn t be produced.
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And what you then got out of that as well was the classic Soviet joke, they pretend to pay us and we pretend to work.
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Okay.
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Yeah, so you re not motivated.
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Oh, look, I went to Cuba about eight years ago, invited to give a talk there.
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And I was staying in a hotel, itself the hotel is a story.
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There s one day my meetings were canceled.
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So I thought I might go down to the beach.
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And in the hotel, they had a wing, which is the tourist office, and there were three women working inside the office.
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So I thought I d just go up and ask them, you know, how do I get to the beach?
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And one of them says to me, and I stood there, just stood in the room, waiting to see if they d make eye contact with me.
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Three women, nobody else in the place, none of them looked at me.
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So I finally went up to one of them and said, I want to go to the beach and do some surfing.
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She said, I can get a taxi outside.
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Fundamentally, she was saying, I m being paid shit money here.
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I don t want to work.
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I m not going to do anything apart from sit here and qualify for my time.
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And as much as there are reasons the Cubans have suffered from American embargoes and all that sort of stuff, you ve still got that fundamental shortage economy.
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that Cornet spoke about, coming out of the structure of central ownership and central control of distribution and investment.
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It breaks my heart because I think some of the effects of that persist throughout time.
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They become part of the culture too.
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Yeah, yeah.
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It s very interesting.
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Negative culture.
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Yeah.
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Yeah.
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Well, from the Western perspective.
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Well, even from the people living through it.
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I mean, I had enough conversation with Cubans, you know, meeting them on the street, hopping in a cab,
5
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There was one guy I was talking to, he was an industrial chemist and he got a bit of money being a cab driver because he could make money out of taking foreign tourists from the airport to the city.
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By the way, this episode is brought to you by delicious Coca-Cola.
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I didn t want to have it on camera, but anyway.
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No, maybe they ll actually sponsor.
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You want to make sure you rotate the label to show, this is capitalism.
5
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What are we talking about here, even though it s red?
5
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It s actually anarchist.
5
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I should tell you, I don t know if you know who Michael Malice is.
5
SPEAKER_00
Michael?
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Michael Malice, he s an anarchist and he lives next door.
5
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Does he?
5
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Okay, now I ve lost touch with anarchist philosophy.
5
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I actually used to read, you know,
6
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Kropotkin and Bakunin and so on.
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And I enjoyed their philosophy, and then I helped organize an anarchist conference once.
6
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And that was the biggest antidote possible to being an anarchist.
6
SPEAKER_00
That sounds like an entry point to a joke, help to organize an anarchist party.
6
SPEAKER_00
It is, I mean, we literally spent three days arguing over whether there should or should not be a chairperson for conversations.
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Yeah.
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Well, that may be that,
6
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Monty Cotton s life of brawn was lived out live.
6
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Look at the bright side of life.
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All right, so part of that explains why, for example, even to this day, in some of those parts of the world, entrepreneurship,
6
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does not flourish.
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There s not a spirit in the people to start businesses, to launch new endeavors and all those kinds of things.
6
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We re just taking all kinds of strange little strolls, but how do you explain the mechanisms of China today where there s
6
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quite a bit of sort of flourishing of businesses and so on.
6
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It s a very peculiar kind of entrepreneurship.
6
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They got away from central control, but they still manage central political control, but diversified economic control.
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So there s a, you could, it is possible to draw a line between politics and economics.
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It is possible, and I think in some ways China s more likely to survive as a society going into the future.
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than Western capitalist societies are.
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So it s like, if we do the Karl Marx, the foreground and the background, you can centralize the politics, the humanity, the subjective stuff, and then distribute the objective.
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You ve got to have the goods.
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And that s why the big change from Mao to Deng Xiaoping was the
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characterizing that little saying that, I don t care whether you have a black cat or a white cat, so long as it catches mice.
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And there was a level of pragmatism to the Deng Xiaoping revolution over Mao, and Madame Mao in particular.
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And that was manifest in the desire to get as much of those Western goods as possible.
6
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And I was actually in China in 81, took a group of journalists there, as I mentioned earlier, for a tour, and we ended up
6
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going to the Sichuan Free Trade Zone.
6
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And that gave us an idea of why China was going to succeed because they had a rule that you couldn t just come in and exploit the cheap wages.
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You had to also have a Chinese partner.
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And within five years, the Chinese partner had to earn 50% of the business, which is huge.
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And it gives you an idea of the
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reduction in wages these American corporations are looking at.
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They d shut down the factory in what s now the Rust Belt of America.
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They might be paying somebody there, you know, that time maybe $2 an hour and they come across to China and they re paying two cents an hour.
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So the enormous amount of wages that they dropped, they were willing to forego half the profits and the ownership of the firm.
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So what the Chinese were doing wasn t just exploiting their labor force, it was also building a capitalist class.
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And that meant that you had this, that s where all the Chinese corporations have come from.
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So they were building a capitalist system within a socialist command political system.
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And that worked.
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And it s still working.
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So there was the centralization of the economic stuff, the Gosplan approach.
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I think that was where the Soviet failed.
6
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And what the Chinese realized after what they went through under Mao was you have to have that capitalist period, but they weren t going to abandon the communist control politically of the country at the same time.
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And that worked out brilliantly.
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And there s a huge amount of innovation taking place in China today.
6
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And they also will do gigantic infrastructure projects, you know, breathtaking planning going into that.
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If you ve, you would have seen videos of, you know, building a skyscraper in a day.
6
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The planning that has to go into that, the pre-preparation that s necessary is enormous.
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So there s a real respect for engineers as well in that society, which does not apply in the West.
6
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What do you think about the, from the Western perspective, the destructive effects of centralized
6
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control of the populace, of the ideas, of the discourse, of the censorship and the surveillance, all those kinds of things.
6
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It s a bit like we were talking about Russia to some extent beforehand, with centralized versus decentralized corruption.
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And when you had the centralized
6
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political stuff, means you know you can t criticize within China, but so long as you don t criticize, you can do what you like.
6
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And how destructive is that to the human spirit?
6
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From the American perspective, that feels destructive.
6
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I ve been to China quite a few times over my life, a lot in the last, not for about four years, but for the six years before that, a few visits.
6
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and staying in second and third and fourth tier cities, so populations of only four million people, which is quite small on Chinese standards.
6
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And I had a lot of happy people that I was interacting with, my girlfriend at the time, her social circle.
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And you can feel when people can t discuss a political issue.
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For example, in Thailand, you can t discuss the king.
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They still have less majestic laws.
6
SPEAKER_00
So you can actually be jailed for discussing the king.
6
SPEAKER_00
And you can feel that to some extent, and it is a political issue in Thailand now.
6
SPEAKER_00
But in China, what I got back from most people, it was a bit like a benevolent big brother.
6
SPEAKER_00
But then when you get things like the lockdown, which has applied recently, then you get the failings of the Soviet system is still there in the Chinese system in that
6
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The easiest way to avoid criticism as an underling carrying out instructions of people above you is to carry those instructions out to the letter beyond what the people actually want you to do at the top.
6
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So we had a classic illustration of that when I took these journalists.
6
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There was a news report saying that China s output of light industry had grown by 17% in the previous year, but heavy industry had fallen by 7%.
6
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We just don t compute.
6
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So we kept on asking, why did this happen?
6
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Every time we asked a question, this is back in 81, the answer would be, the initial answer, we followed the directive of the Central Committee of the Communist Party of China.
6
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We finally got a guy to elaborate and say what that was.
6
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He said, well, the Central Committee sent out a directive to promote light industry.
6
SPEAKER_00
So what did you do?
6
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Quote-unquote, we stripped heavy industry factories and turned them into light industry.
6
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Now, that s destructive of everything, okay?
6
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And that s the overlay that you ve still got sitting over the top of China.
6
SPEAKER_00
But a huge part of the industrialization was simply saying, produce whatever you can, make goods, market them, sell them.
6
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And you get that innovative component of humanity is respected and the goods turn up and everybody s well fed.
6
SPEAKER_00
Food in Russia is far better than food in America.
6
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So in terms of material satisfaction and freedom,
6
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So like for example, enjoy dancing.
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I mean, we went to, I think somewhere in Shanghai and there s this line of people involving a woman who would have been close to her 90s and a kid who was about six or four.
6
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Partying it up.
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Partying it up in the open air and doing this Chinese collective dance.
6
SPEAKER_01
You have to be really careful about that kind of thing.
6
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So in terms of measuring the flourishing of a people,
6
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by looking at their happiness.
6
SPEAKER_01
I have so many thoughts on this, but I m imagining North Korea.
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And if you talk to people in North Korea, I think they would say they re happy.
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Well, let me try to complete this argument.
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Not an argument, but a sort of challenge to your thought.
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which, especially in the bigger cities, because they don t know the alternative.
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So what else do you need?
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There s enough food on the table.
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We have a leader that loves us and we love him.
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We re full of, our hearts are full of love.
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Our table is full of food, they would say, because it s enough food.
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what else do you want from life?
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SPEAKER_00
So let me sort of chat, because like... So let me sort of complete that, sorry.
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Because I m taking the most challenging aspect.
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When there s centralized control of information, that you don t know the alternative, that you don t know how green the grass is on the other side,
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And so your idea of happiness might be very constrained.
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So you could also argue that is happiness, if you don t know.
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Ignorance is bliss.
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Ignorance is bliss.
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And then so is happiness really the correct measure for the flourishing?
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SPEAKER_00
It s not.
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But I mean, there s actually a classic book, a movie as well, called Mao s Last Answer.
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Okay, and that is the young man explaining his progression from being a dancer in the Cultural Revolution through to a leading dancer in American and ultimately Australian ballet.
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And he explicitly says at one point that he s told that the Chinese people have the highest standard of living in the world.
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And the reaction of him and his kids, like his fellow six-year-olds is, God, it must be miserable elsewhere in the world then.
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So they knew.
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They still know.
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They still know.
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There s no such thing as that complete ignorance.
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But what I m talking about is experiences in China, say back in about 2016, 2014, there was a feeling of freedom within limits that you didn t want to transgress because the system was working.
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So if you... It s kind of like marriage.
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Pardon?
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It s kind of like marriage.
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Hey, that s a good example.
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There s limits.
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There s limits.
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You can have fun within those limits.
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That s right.
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Okay.
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And people did have fun and they did feel free, but they didn t want to go and get divorced.
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But that dilemma was accommodated because the boundaries until you started hitting restrictions were wide.
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Okay.
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And like when you look at it, I mean, look at the
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Again, with the Chinese Communist Party, the administrators of that are often highly qualified engineers.
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who can then make intelligent decisions about what should be done as infrastructure and so on.
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And you go to China and you ve got incredible high-speed rail, fantastic internet telecommunications and so on, rapidly evolving solar.
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There s a range of things there that are so well done that reflect the fact that the selection process that gives you your political elite
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is partially focused upon sucking up, et cetera, et cetera.
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It s still there.
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But it s also focused upon your skill levels.
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And you get people making decisions who damn well know what they re talking about.
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Like Australia s got a classic example.
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The internet in Australia sucks.
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The reason it sucks is that the Labor Party, which is our version of the Democrats, was in control during the global financial crisis.
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And as part of that, they wanted to bring in optical fiber connections to the House.
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So you d have an optical fiber backbone and an optical fiber, you know, right to your T100 output from your home.
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And the Liberal Party fought that and said, that s going to be too expensive.
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It d take too long to do.
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We re going to do cable to the node and then have a copper network linking from a node on a street to all the houses in the street.
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It s going to be cheaper and faster, have it more soon, blah, blah, blah.
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It was a total technical fuck up.
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And Australia now has internet that s about 50th or 60th fastest in the world.
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It s dreadful for the internet.
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Two political figures made the decision, Tony Abbott and Malcolm Turnbull, rivals and leaders of the conservative party we call liberal over there.
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Now that was shitty decisions that wouldn t happen in a country like China.
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because you ve got actual engineers making the decisions, they say, you can t get decent speed if you link optical fiber to copper.
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So what you get is, even though you can t make the decisions yourself, a vast majority of the decisions are made intelligently, and therefore you expect it.
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It s interesting, but
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don t you worry about the corrupting aspects of power?
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That you start, you know, you have engineers making intelligent decisions, but at which point does the fat king start saying, oh, these engineers are annoying.
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I have good internet.
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I don t understand.
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Bring me the grapes.
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Feed me.
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You know, you get your collegial effects that can happen.
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Like Z, from what I ve seen, has got elements of that.
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So friends of mine,
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who are Caucasians can get away with it.
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They have a game that they play at conferences, scoring how often people use Xi s name in a presentation and giving extra points for the number of photographs of Xi that turn up in the whole thing.
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SPEAKER_00
So you ve got this sort of personality cult coming along as well.
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SPEAKER_00
But at the same time, the planning for the infrastructure that s being built, the social services, the general freedom that exists is so great.
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And like any Chinese person alive today, like somebody who s Chinese,
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at my age, would have been an adult under the early period of, the late period of Mao.
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And God Almighty, the change, the improvement they ve seen in their lives, that s what they think about.
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So.
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But it s the, if you just look at the history of the 20th century, your intuition would say that some of the mechanisms we see in China now will get you into trouble in the long term.
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SPEAKER_01
So it seems to be working really well in many ways in terms of improving the quality of life of the average citizen in China, but you start to get worried about how does this go wrong.
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SPEAKER_00
Well, yeah, but at the same time, maybe, I mean, often people will say, you know, what s your vision for the future?
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And what they mean is, what vision for the future do you have that I m gonna like?
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SPEAKER_00
Right.
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Okay.
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Now, what if you have a vision of the future that you don t like?
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It s dreadful.
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I mean, that s the ecological crisis I think we re walking blindfolded into.
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SPEAKER_01
Right, that part of the picture we ll have to talk about, how fundamental of a problem that is.
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SPEAKER_01
Okay, but what does that have to do with the future of China?
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SPEAKER_00
What it has to do is that if you wish to impose dramatic controls on the consumption of the rich,
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SPEAKER_00
which would be necessary to reduce our consumption burden so that we can get closer to the ecological envelope we ve destroyed already, then you re going to be more likely successful doing that with a centralized system where people accept centralized political control than you were in a country where it s all diversified and you scream freedom between every point in a tennis match.
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I ve literally seen that when I was in Philadelphia some time back.
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SPEAKER_00
So the ideology that accepts a collectivist attitude may be more successful in controlling our, reducing human consumption levels.
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SPEAKER_00
Because when we talk about democracy, I mean, who s voting here?
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How many horses and elephants and
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birds get to vote, okay?
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SPEAKER_00
It s very... What s a bird?
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Yeah.
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You don t see them around here.
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It s a very human-centric vision we have of this planet.
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SPEAKER_01
Yeah.
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And we re going to pay a price for that.
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SPEAKER_01
Okay, so you re saying to deal with global catastrophic events, centralized planning might be.
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SPEAKER_00
I think we ll work better, period.
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SPEAKER_00
But there s some centralized stuff in the United States, for example.
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SPEAKER_01
Oh yeah, military, yeah, I know.
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SPEAKER_01
No, no, okay, all right.
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SPEAKER_01
Now there s that feisty Australian.
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SPEAKER_01
So besides the military, that s the ideal of the federal government in the United States is that there is some centralized
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infrastructure building, there s some big project, but there s some.
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The question is when you deal with greater and greater global catastrophic events, like the pandemic that we re just living through, that the government would be able to step up and impose enough centralized planning to allow us
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to deal, sort of enable, empower the citizenry to deal with these catastrophic events.
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In the case of the pandemic, a lot of people argue that the, first of all, the world, but also the United States failed to effectively deal with the pandemic.
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On the medical side, on the social side, on the financial side, the supply chain, everything.
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In terms of communication, in terms of
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inspiring the populace with the power of science and all the fronts, they failed.
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But the ideal is that we d be able to succeed.
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SPEAKER_00
You would have to have a small, efficient, the American ideal is you have a small, efficient government that s able to take on tasks precisely like the pandemic.
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SPEAKER_01
But the thing is, maybe it shouldn t have been as small as it was.
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SPEAKER_01
I mean, my favorite instance of that actually involves the UK because the whole neoliberal approach is about small, efficient government, okay?
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SPEAKER_01
Well, small, efficient government works when you face small, efficient challenges.
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When you face something systemic,
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rather than episodic, then it s going to break down.
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One of the things I greatly respect is Taleb s idea of anti-fragile.
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You want a society which is anti-fragile, not easily broken, whereas neoliberalism has pushed us towards this vision of efficiency, but it s easily snapped.
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In the UK, I ve forgotten the government minister involved,
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but she asked her expert committee, well before the pandemic, how many masks should we have on hand in case of a pandemic?
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And the answer from the experts was about a billion.
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SPEAKER_01
That s 50 masks, that s 20 masks per person.
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SPEAKER_01
Oh, that s too many.
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Let s just make 50 million masks.
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SPEAKER_01
That s one mask per person that was gone in a matter of a day.
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And therefore, that s why they told us, well, masks don t work.
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What they meant was, we don t have enough masks for our health people, let alone for you in the public.
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So we re gonna bullshit you and tell you those masks don t really work.
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and then people don t wear masks and then we ve got enough masks we rush up the production job and by the time it comes along people have got the skepticism about masks.
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SPEAKER_00
So who does the, can you elaborate, who does the blame in that case go on to?
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SPEAKER_00
The blame comes down to the philosophy that says government should always be small.
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SPEAKER_00
No, but do you really think that bigger government would be the solution to the mask issue?
7
SPEAKER_00
So let me push back sort of if it s possible that capitalism solves that problem.
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SPEAKER_01
Well, not if there s no money in really long-term planning and capitalism.
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SPEAKER_00
Okay, there s money in capitalism.
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SPEAKER_00
Isn t it possible for capitalism to construct a system that insures against catastrophic events?
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SPEAKER_00
Not when they re systemic.
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You can insure against episodic events.
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If you occasionally have a really bad storm, but in general the weather s not so bad that all the infrastructure s being destroyed, then you can share that around on a percentage basis.
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If you have a Gaussian distribution,
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for your events and the mean doesn t move around too much and the standard deviation doesn t change all that much, then insurance works fine.
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But if that s episodic, if you have systemic stuff where the climate is changing completely and you re going to wipe out your agricultural capabilities, you simply can t do insurance on that front.
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You can t make a profit out of catastrophe and capitalism.
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SPEAKER_00
Okay, so that example of climate change, let s talk about it.
7
SPEAKER_00
So you mentioned that the human brain, the economy, and the biosphere are three of the most complex systems we know.
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SPEAKER_00
Okay, and you also criticize the economics community for looking at the effects of climate change
7
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climate change when measured as the effect on the GDP.
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So you re saying it s a catastrophic thing that the biggest challenge our society, our world is facing.
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Why?
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If the economists disagree with you, the effects on the GDP will be minor.
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So we ll deal with it when it comes.
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SPEAKER_00
That s the argument against, that s the devil s advocate.
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SPEAKER_00
You re saying no, it is a thing that will change our world forever in ways that we should really, really, really be thinking about.
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SPEAKER_00
Okay.
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SPEAKER_00
Make the case of why you disagree with it.
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SPEAKER_01
The case is simple.
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Economists have made up their own numbers.
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to say that it s trivial.
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SPEAKER_01
And you didn t?
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No, I haven t even tried to make the numbers.
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I m reading what the scientists write.
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Okay.
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Okay.
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And what the economists have done, and like this is William Nordhaus in particular, Nobel Prize winner, ex-president of the American Economic Association, literally assumed that a roof will protect you from climate change.
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And he didn t say it in those words.
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What he said was 87% of American industry occurs in carefully controlled environments, which will not be subject to climate change.
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SPEAKER_01
Now, the only things that all of manufacturing, all of services, he included mining as well, forgetting about open cut mining, government activities and the finance sector, all they have in common is they happen beneath a roof.
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SPEAKER_01
So he s basically saying climate affects the weather, climate is weather, okay?
7
SPEAKER_01
Okay.
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That is not at all what is meant by climate change.
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It s meant changing the entire pattern of the weather system of the planet.
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For example, the most extreme form of climate change would be a breakdown in the three circulation cells that exist in each hemisphere, the Hadley cell, the Ferris cell, I think it s called, and the polar cells, zero to 30, 30 to 60, 60 to 90.
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Those are the main
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bubbles, if you like, in the atmosphere.
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Now, if we get enough increase in the energy in the atmosphere, just like you turn the temperature up on a stove and you have nice bubbles occurring in a pot of soup and then turn the temperature up and they all break down and you ve got bubbles everywhere, that s called the equitable climate.
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If that happens,
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then most of the rainfall s gonna occur between zero and 20 and 70 and 90, and the middle s gonna be dry, except for extreme storms.
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We built our societies in a period of extreme stability of the climate.
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And when you look at the long-term temperature records, it s up and down like a seesaw or like a sawtooth blade between, say, one degree warmer than now and four degrees or six degrees cooler over the last million years.
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And when you look at where we evolved, it s just at a turning point on the peak of one of those ups and downs.
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I ve forgotten the name of the cycles, but the cycles caused by changes in the Earth s rotation around the sun.
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And so we evolved our civilization just at the top.
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So coming up from a cold period, and then we re gonna head down to another cold period.
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And that s when human civilization came along.
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It s about a period of about 12,000 years.
7
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So across that period, the temperature has changed by not much more than half a degree up and down.
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Now we re blasting it well and truly out of those confines.
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And my way of interpreting what
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what climate change means is the stability of that climate that enables to build sedentary civilizations and not be a nomadic species is being destroyed.
7
SPEAKER_00
So the challenge, and by the way, I m playing devil s advocate.
7
SPEAKER_00
Go right ahead.
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The question is, is there something fundamentally different now about human civilization that we re able to build technology
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that alleviates some of the destructive effects that we have on the climate?
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SPEAKER_00
We don t know.
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We re going to find out the hard way.
7
SPEAKER_00
And the uncertainty, you think, would be very costly.
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Extremely.
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SPEAKER_00
Like many of the trajectories we might take would be much more costly than they re profitable.
7
SPEAKER_01
Yeah.
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And like when we ve seen some of the storms that are happening now in Europe, the ones that washed away a village,
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in Germany some time ago.
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The firestorm that hit Canada of all places, I ve forgotten the name of the town that was burnt down, but enormous temperatures in Canada.
7
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Again, the storms that have been happening back in Australia.
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These are all manifestations of a complete shift in the weather patterns of the planet.
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And they can wipe out, like a village just disappears, just wiped out by unprecedented rains.
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And this keeps on happening.
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We are still living in a sedentary lifestyle when we re a nomadic species.
7
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So to be able to maintain that sedentary lifestyle, we do need to engineer the planet.
7
SPEAKER_01
We need to keep it within that range of plus one, plus half a degree Celsius, minus half a degree, which is really what it s been like for the last 10, 12,000 years.
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Instead, we re blasting it right out of that range.
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And we know some of the past climates that have existed then.
7
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We can model what they imply for our food production systems, for example.
7
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Not the only example, but obviously crucial.
7
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So when you look at what are called global climate models produced by scientists, one of the examples, and it was published by the OECD last year, 2021, in the chapter on what would happen if we lose what s called the Atlantic meridional overturning circulation.
7
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or AMOC, and people would colloquially know that as the Gulf Stream.
7
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And that s what distributes heat around all the oceans of the planet.
7
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It s part of a huge chain called the thermohaline circulation.
7
SPEAKER_01
But the part that goes across from the equator to the North Atlantic, that s called the AMOC.
7
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Gulf Stream for a colloquial way.
7
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If that disappears in the context of a two and a half degree Celsius increase in average global temperature, then the proportion of the Earth s surface which is suitable for producing wheat will fall from 20% to 7%.
7
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Proportion for corn, similar sort of fall.
7
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The proportion suitable for rice will go from 2% to 3%.
7
SPEAKER_01
Now that means a catastrophic, and that s the word used in the report, catastrophic collapse in food production.
7
SPEAKER_01
So that s what we re toying with.
7
SPEAKER_01
And we are one and a half, we re actually less than, we re about halfway there to that two degrees, 2.5.
7
SPEAKER_01
And economists on the other hand, and this is Richard Toll, published a paper 2016, claiming using what he calls an integrated assessment model that economists developed,
7
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that losing the Gulf Stream would increase global GDP by 1.1%.
7
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Now, his model, this is what really pisses me off about these people.
7
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It s the worst work I ve read in 50 years of being a critic of neoclassical economics.
7
SPEAKER_01
The GCMs, the one scientists produce, of course include precipitation as well as temperature.
7
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The IAMs that the economists produce, and this is stated yet again in a paper in 2021, do not include precipitation.
7
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they simply have temperature.
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So they assume that if temperature improves by moving towards a temperature which is better for producing aquaculture, then so will precipitation.
7
SPEAKER_01
Now that s completely wrong.
7
SPEAKER_01
They ve left out a crucial... Imagine trying to model the climate while ignoring the fact that there s rainfall.
7
SPEAKER_01
That s what they ve done.
7
SPEAKER_01
So their work is so bad, so dreadfully bad, it should never have been published.
7
SPEAKER_00
I m gonna go for them, sorry, this is... No, no, 100% as they deserve it.
7
SPEAKER_00
So it s an oversimplification.
7
SPEAKER_00
But I also want you to steel man people you disagree with and criticize people you agree with, if possible, to be sort of intellectually honest here.
7
SPEAKER_00
You do say, sort of to push back on the catastrophic thinking about climate change,
7
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that ecology, the biosphere, is a complex system.
7
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Economics, the economy, is a complex system.
7
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So how can we make predictions about complex systems?
7
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How can we make a hope of having a semi-confident predictions about the complex system?
7
SPEAKER_00
So the scientific community is very confident about the complex system that is the biosphere and the crisis that s before us on the horizon.
7
SPEAKER_00
And then the economists are, as a community, I don t know what percentage, but.
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SPEAKER_00
Too much.
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Too much.
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That part of the community is very confident, looking at the economics complex system, in saying that no, this system we have, we can t do it.
7
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of labor and money and capital and so on would be able to deal with that crisis and any other crisis.
7
SPEAKER_00
And they kind of construct simplified models that justify their confidence.
7
SPEAKER_00
So how do we know who to believe?
7
SPEAKER_01
For a start, if you believe the economists, you need your head read.
7
SPEAKER_00
It s not an argument.
7
SPEAKER_01
No, it s not an argument, it s a summary of an argument.
7
SPEAKER_00
No, that sounds a lot like an opinion and an emotional thing.
7
SPEAKER_01
I know, I know, but I m so angry about it.
7
SPEAKER_00
Listen, I ll tell you where I stand.
7
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And I ve begun studying the climate change much more.
7
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I used to be
7
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On things I don t understand, have not spent time on, I have so many colleagues that are scientists that I deeply respect.
7
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And I trust their opinion.
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I have seen
7
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the lesser angels of my colleagues on the pandemic side, on the COVID side.
7
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The confidence, the arrogance that in part blinded, I believe, the jump between basic scientific research to the,
7
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to public policy.
7
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And then, so I ve become a little bit more cautious in my trust on climate change.
7
SPEAKER_00
I m still in the same place, and I don t mean climate change, on anything scientists say, I ve become a little bit, wait a minute,
7
SPEAKER_00
how does the basic scientific facts of our reality map to what we should do as a human civilization?
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There I wanna be a little bit careful.
7
SPEAKER_00
So whenever now I see arrogance and confidence, I become suspicious.
7
SPEAKER_01
Well, I m the same, and that s why I m being angry about The Economist, because there s incredible arrogance, incredible stupidity at the arrogance, assumptions which
7
SPEAKER_01
you look at it and think, how did anybody let that get published?
7
SPEAKER_00
The economic analysis of the effects of climate change are poor, in many cases.
7
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Incredibly poor.
7
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Bjorn Lomborg stars himself as the skeptical environmentalist and criticizes the
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environmental models, he doesn t take a look.
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He doesn t criticize the work coming out by economists.
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You look at it, it s so bad.
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Is it possible to do good economics modeling of the effects of climate change?
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Yeah, it is possible.
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Very difficult.
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Or is it like one complex system stacked on top of another?
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It s two.
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In that case, yeah.
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I mean, to me, what you should be looking at is saying,
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What are the scientists saying are the consequences, probable consequences, we re not guaranteed, but probable consequences of increasing the energy level of the atmosphere by the amount we re doing?
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What can the scientists say in terms of the effects, because it s so complicated, the effects of...
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sort of shifting resources.
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So basically, what are the effects of climate change?
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How can we really model that?
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Because it s basically, you re looking through the fog of uncertainty.
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Because there are rising sea levels.
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How can we know what effect that has?
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How will we know there ll be a lot of change?
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I think the sea level one is a poor argument, and I don t focus on it.
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What I mainly focus upon is the weather patterns.
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And if you look at, like we got the wheat belt in America goes throughout Idaho and countries, places like that.
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And you ve got an incredibly deep topsoil.
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Ukraine is another classic example.
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The depth of the topsoil in Ukraine is remarkable.
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And that s the wheat bowl of Europe.
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And that requires both the right temperature for growing wheat and the right rainfall for growing wheat.
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Now, when you look at the models that climate scientists are building of that, you have pretty much your ultimate foundation is the Lorenz model of turbulent flow.
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And of course, that s the first model in which we saw chaos theory, complexity, that beautiful simple model, three variables.
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variables, three parameters, an incredible complexity out of the system.
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And what that meant was you also had an exponential decay in the accuracy of your model over time.
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So if you re accurate to a thousand decimal places,
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then in a thousand days, you ll have no data whatsoever because each time you re losing an order of magnitude of accuracy.
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So that s the point about the inability to predict for the very long future.
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But what you can just say, well, there s a prediction horizon.
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If we re close enough to the, if our statistical measurement of where we are,
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is close enough to where we actually are, and our forecast horizon is narrow enough to not extrapolate too far, then for this distance forward, we can make a reasonable fist of predicting what the weather s going to be.
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And that s the foundation of meteorological, the stuff we watch on TV.
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Most of the time, the forecasts are going to be correct these days.
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40, 50 years ago, most of the time, the forecasts were wrong.
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So that s the background foundation to these GCMs.
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But even they ve got to massively simplify the world.
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So you have this enormous sphere of where they might divide it down to 100 kilometer by 100 kilometer by 10 kilometer cube, rectangles, whatever, oblongs.
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That s how they re modeling the transition of weather from one location to another.
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So they ve got a chunky,
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vision of the planet, which they have to.
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They can t model it now down to the last molecule.
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So you re losing... Not yet, right?
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It s getting better and better and better and better.
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Oh, yeah.
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I think that s just too much processing power.
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But you re going to have some confine.
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You can t go... I mean, if you look at the models to do the weather, they used to be of that 100-kilometer, I think they re about 10-kilometer grids now.
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I don t know.
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But so the processing powers let us get more and more precise that way.
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I do know that the models,
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now include chemical mixing that occurs above cities.
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They ve added that complexity to them over time.
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And so you re looking at the increasingly accurate models of weather patterns, the effect they have on agriculture, on food.
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And you re saying that there s a lot of possibilities in which that s going to be really destructive to society on the food production side.
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And if you have that increase in temperature, then you re going to get a change in precipitation.
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And it could mean that where the rainfall and the sunshine are adequate for growing wheat,
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is an area where there s no topsoil.
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A huge part of the models, the models the economists use, which only use temperature, don t include precipitation.
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They predict that a large amount of the wheat output of the world is going to occur in Siberia.
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in the frozen tundra.
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What about, so that s a straightforward criticism of oversimplified models.
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What about the idea that we innovate our way out of it?
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So there s totally new, what is the, there s a silly, poor example at this time perhaps, but lab-grown meat, sort of engineered food, so a completely
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shifting source of food for civilization, so therefore alleviating some of the pressure on agriculture.
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That comes down to the difference that Elon makes between producing a prototype and mass producing.
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prototype.
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You can develop the idea very rapidly to put that into production on the scale that s necessary to replace what we re currently doing.
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It takes years.
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Yeah, and we haven t got years.
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We might have decades.
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We certainly haven t got centuries.
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So in the timeframe we ve got, I can t see that engineering going from prototype to production levels to replace what we re currently doing
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in the stable environment they re currently destroying.
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What do you think about the sort of the catastrophic predictions that people that have thought, have written about climate, have made in the past that haven t come to fruition?
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That s mainly unfortunately involving Paul Ehrlich and the population bomb.
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and the predictions Paul was making.
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A few individuals or the one individual in that case.
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Yeah.
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So I m mostly playing devil s advocate in this conversation and enjoying doing so.
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I do think I m in agreement with the majority of the scientific community.
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But you still see that argument made.
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I still see the argument made.
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And I also am a little bit worried about the arrogance and the ineffectiveness of the arrogance.
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This is the problem, it s ineffective.
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And that s what worries me because it s all been put into the sort of sea level rise, temperature changes.
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It s not put into the fragility of the system in which we currently live.
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And the earth will survive.
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And there s a wonderful science fiction book called The Earth Abides, about a world in which humans get wiped out, there s only a tiny little band left, and then the earth reasserts itself.
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So the earth s gonna survive us.
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Will we survive what we do to the earth?
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That s the question.
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And my feeling is,
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is that we have underplayed the extent to which the civilizations we ve built have depended upon a relatively stable climate.
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There s that turning point in the global average temperature that we evolved right on the top of it.
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If we had done nothing,
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we could find that heading back down towards another ice age could equally destroy the possibility of sedentary life.
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For example, if we d never developed fossil fuel-based industries, we d never built superphosphate, so our population would never have reached
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1 billion people and we were still living like fairly sophisticated animals but you know like 17th century level of load on the planet then we would have gone down that decline and the approaching ice age would have started to wipe out our
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our farming areas, the glaciers would have encroached, and we would have been driven out of like an agricultural sedentary civilization by that change.
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So it s just the fact that we evolved on this stable period in the overall temperature cycle of the planet, and that stability is something which just reflects the turning point in the regular cycle of Malasiewicz cycle, I think it s called.
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I ve forgotten the actual name, but it s a cycle caused by
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change in the Earth s orbit around the sun, reflectivity and so on.
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That cycle, it s just that tiny top bit that we evolved in.
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So what we should have done, so that s really useful for us, we should stay at that level.
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Now, if we hadn t done it, we d go back down here and that d be the end of our civilization by an ice age.
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Instead, we re going up here really rapidly.
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And we re causing a change in temperature compared to that
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long-term cycle 100,000 times faster.
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So, yeah, I mean, my biggest worry is even subtle changes in climate might result in geopolitical pressures that then lead to nuclear war.
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And that s, yeah, I mean, there s an argument that s actually behind
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to some extent, not the Ukraine war so much, but the Arab Spring, the wars in Syria, which partially has led to what s happening in Ukraine.
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And our weapons are getting more and more powerful, more and more destructive, more and more nations are having these destructive weapons.
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And now we re entering cyber space where it s even easier to be destructive.
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And hyperbaric weapons, which didn t exist in the Second World War.
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So you don t need nuclear weapons to have catastrophic attacks on each other.
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So yeah, it s incredibly scary, the war-like side of human nature.
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could be extremely enhanced by climate breakdown.
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So, in this world, on a happy note, I don t know how we went from Marxism and Stalinism to ecology, but all those are beautiful, complex systems.
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What is the best form of government, would you say?
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We talked about the economics of things.
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You ran for office, so you care about politics too.
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How can politics, what political systems can help us here?
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I think we first of all have to appreciate we re one species on our planet out of millions, and as the intelligent species, we should be enabling a harmonious life for those other species as well.
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Can we actually linger on that?
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You mentioned that we need to acknowledge the value of life on Earth.
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you know, can we integrate the labor theory of value, can we integrate into that the value of life?
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So there s human life and there s life.
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I think if you take like that structure that I talked about of Marx s use value, exchange value,
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dialectic, the foreground, background, that only exists and only works because we re exploiting the free energy we find in the universe.
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There could be no production system without free energy, which is the first law of thermodynamics that exists.
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There is free lunch, after all, and it s grounded in the energy that s provided to us by the universe.
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Well, yeah, that s the free lunch, that s what we re exploiting.
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It s the only free lunch we get.
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You know Ginzburg s summary of the laws of thermodynamics, don t you?
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Alan Ginsberg, he said, the laws of thermodynamics summarize, A, you can t win.
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B, you can t break even.
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C, you can t leave the game.
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Beautiful summary.
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But the fact that it exists in the first place is the free lunch.
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So we re exploiting the free lunch.
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But to be able to do it, we can t put waste back into that system so much that it undermines the free lunch.
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And that s what we ve been doing.
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And once you respect the fact that we have to, living on the biosphere, the planet we re actually on, we have to enable that biosphere to survive us.
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Because if it doesn t survive us, we won t survive it disappearing.
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and there s not that realization in humanity in general.
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And when you say the value of life, you know, all the different living organisms on Earth are part of that biosphere.
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Yeah.
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So in order to maintain the biosphere, we have to respect, like, pragmatically speaking, what that means is actually respecting all of life on Earth, even the mosquitoes?
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I ve got some, no.
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Parasites, I mean, we are a parasite.
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When you look at it, we re the mosquitoes of the large organizations.
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You re a fan of the Matrix movies at all?
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Sure.
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Okay, you know the series where the agents- Look what I m wearing.
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Absolutely, I was wondering what the inspiration was.
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I was thinking- It s not really inspiration.
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We are living in a simulation.
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Okay.
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And I have a conversation offline to have with you about that.
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Okay.
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You ve been misbehaving and we re gonna have to put you back in line.
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So what s Agent Smith says when he s got,
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Morpheus, in his possession, he said, I ve been trying to classify your species.
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I ve decided you re a virus.
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Now, there s truth to that.
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We have intruded into everything.
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We ve taken over every element of the biosphere.
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And we think we can continue doing that.
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And the thing is, we re exploiting it so much, we re breaking it down.
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And I think it s E.O.
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Wilson who argued for the 50% rule.
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He believed that we should reserve 50% of the planet
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for non-human species.
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In other words, we make 50% of it off limits.
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Humans cannot go there.
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And we just let that evolve as it does, and then we control the other 50%.
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I think it s probably giving too much to us.
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I think we should actually save like 20%, 25% max.
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And the rest of the planet, we let life go on and evolve as it does without our interference, without our dominance.
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Now,
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That s neither a democratic system nor an authoritarian one.
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It s one which starts off with saying the first thing humans have to do is respect life itself.
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Okay, so would we do that?
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We haven t done it, obviously.
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I don t think the Soviets would have done it if we had a generally Soviet system.
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We haven t done it under a capitalist.
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We continue intruding.
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So I think we have to go through something like a Star Trek, a Star Trek in a catastrophic 200 years to realize that ultimately if we re gonna survive as a species, we have to respect life in general.
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And then that means parts of the planet we can no longer touch.
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while we also try to maintain the planet at the temperature that we found it in what we now call the Anthropocene.
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So politically, we have to have, like in many ways what native societies often have, a vision of the cycle of life, not this exponential progression we ve developed over the last 250 years.
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And again, I ll use another movie, the avatar type respect for the cycle of life.
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We need to have that as part of our innate nature.
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And then on top of that, the political system comes out.
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Now that political system has to be one that lets us feel like we have a say in the direction of society, while that part is sacrosanct.
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We can t touch it.
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But we also, because we are now living with so many challenges created by our own civilization, I mean, the main threat to the existence of human civilization is the existence of human civilization.
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It s both a feature and a bug.
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Yeah.
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And therefore, we need to have people who can understand complex systems making those decisions.
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Now, that means it isn t a political system as much as it is
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an appreciation that the world is a complex system and therefore effects which we think are direct effects will actually come through in a bleak fashion and we cannot, there s no simple linear progression from where we are to where we want to be.
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So you have to see how everything feeds together in a systemic way.
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And that s why one reason I designed the software I m wearing the t-shirt for now, Minsky, is to have, it s nowhere near to this scale, I hope it one day will be, but something which means we can bring together all that complexity, all those systems and perceive them on an enormous screen where we have all the various interacts and we can see what are potential futures.
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And that then guides us.
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So it isn t a case of democracy and, you know, our side wins a vote and therefore we ban abortion or we don t, you know, whatever else happens.
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It s seeing what the, respecting the fact that we re in a complex system and being uncertain about the consequences and not making the bold expansionary
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ideas that we ve been doing.
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So like being a little bit more humble.
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Humble, humble is a good word.
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But wouldn t you like to apply that same humility both to the considerations of
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the pros of capitalism and to the catastrophic view of the effects of climate change.
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Yeah, and also I think we can afford to be bold in space.
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And that s one reason I respect the practical vision of Musk and the so far impractical vision of Bezos, that if we re going, we look for the very far future, the only way we can continue expanding our knowledge of the universe is to move our civilization
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the productive side of off the planet.
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Off-site backup.
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Yeah.
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So can you actually linger on this?
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So let s actually talk about this.
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So first of all, you have the new book, humbly named The New Economics, A Manifesto.
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The publisher chose the title.
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Yes, no, but I m joking, but maybe I will ask about why manifesto, but we ll go through some of the ideas in this book.
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We have been already,
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So some of it is embracing the fact that the economy, our world, our mind is a complex system.
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So this t-shirt that you re wearing, is a piece of software.
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I ll do that if you like.
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There you go, you re wearing the whole, is this an infomercial?
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So there s a t-shirt that says Minsky, after, not my Minsky, it s your Minsky.
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Not Hyman.
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I m sorry, no, the Hyman Minsky, not Marvin Minsky.
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Not Marvin Minsky, right.
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So that s, so AI Minsky is Marvin, and then Harmon, it all rhymes.
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So stability is free, open source, system dynamic software invented by
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Steve Keen, coded by Russell Standish.
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It s on SourceForge.
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It s destabilizing.
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Stability is destabilizing.
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So that s sort of embracing the complex aspect of it.
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Yeah, yeah.
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So how can you model the economy?
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What are some of the interesting, whether detailed or high-level, big-picture ideas behind your efforts with Minsky?
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Okay, Minsky.
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Meaning the software, the modeling software that models the dynamic system.
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Basically what Minsky is doing is system dynamics modeling.
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So if anybody s used Stellar or Vensim or Simulink, then they ve used exactly the same family of software that Minsky is part of.
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So I didn t invent that.
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That was invented by Jay Forrester, who s one of the great intellects, one of the great engineers in American history.
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And the idea of Forrester s system was complex interactions.
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So he was doing his work in the 50s.
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If people don t know Forrest s work, he actually built the models of the mathematics for the gun turrets on American warships in the Second World War, mechanical systems, obviously.
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So he had to work out how to give a feedback system that meant when the boat rolled in one direction,
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The tarot did not roll the other way.
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All that stuff was his work.
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So marvelous engineering.
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And then he realized if you want to look at it, even like a factory, a factory is a complex system.
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And so you get cycles generated out of the interaction between different components of the factory.
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that he was first involved in taming, that he built the software to model complex interactive systems.
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So Minsky is that, the thing that Minsky adds which is unique is the godly table.
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And that s the double entry bookkeeping, so you can model the financial system.
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Godly the economist.
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Godly the economist, Wynne Godley, another great, great man.
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So there s like this, your modeling is like a state diagram.
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Yeah, fundamentally.
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It s actually circuit diagrams.
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It s exactly what engineers have been using for decades, almost a century.
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So you re using a circuit diagram to model the economy.
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So other factories have done it.
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What they haven t had in the circuit diagram is a way of handling the dynamics of the financial system.
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So what the godly table does is bring it financial flows as being
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everything goes from somewhere and ends up somewhere.
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So you have a positive and a negative if you re looking on the liability side, a positive and a positive or negative and a negative if you re looking at assets and liabilities side and Minsky gets the accounting right for that.
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So you can do an enormous complex model looking at the economy financially from the point of view of a dozen different actors in the economy.
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and know that the mathematics is right, even though what you re building is a set of differential equations, which might be 50 differential equations with 350 terms in them.
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If you get the godly tables right, you know the mathematics is correct.
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So that s the main innovation that Minsky adds.
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And you re operating there at the macroeconomics level.
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Yeah, it s definitely macro.
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It s top-down.
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It s not agent-based.
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And then this, I m just opening on a random page that I think is very relevant here.
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The process, this is referring to Minsky, not the software.
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Maybe the software?
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I don t know.
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The process can be captured in an extremely simple causal chain.
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Capital determines output.
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Output determines employment.
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The rate of employment determines the rate of change of wages.
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Output minus wages and interest payments determines profit.
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The profit rate determines the... There s a very nice circuit here.
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The profit rate determines the level of investment, which is the change in capital, which takes us back to the beginning of this causal chain, and the difference between investment and profits determines the change in private debt.
9
SPEAKER_01
And there s some nice, the Keen-Minsky model and the intermittent route to chaos on page 86 of your book.
9
SPEAKER_01
Do these come from the software?
9
SPEAKER_00
Yeah, yeah.
9
SPEAKER_00
I mean, I first did that in Mathematica back in 1992, August 1992.
9
SPEAKER_01
Mathematica is another amazing piece of software.
9
SPEAKER_00
Yeah, I find it s very much a programmer s approach to mathematics.
9
SPEAKER_00
I prefer like a program called Mathcad.
9
SPEAKER_00
which is what I m using for all my, when I do my mathematics on the computer, I write in Mathcab.
9
SPEAKER_00
CAD, C-A-D or Cab?
9
SPEAKER_00
C-A-D.
9
SPEAKER_00
Okay.
9
SPEAKER_00
It s been ruined by bad management.
9
SPEAKER_00
They chucked out all the good engineers and I m still using a version which is 12 years old.
9
SPEAKER_00
If only engineers ruled the world.
9
SPEAKER_00
If only engineers, rather than this particular case, there was a bunch of marketers for CAD software agreed.
9
SPEAKER_00
I m definitely a fan of engineers.
9
SPEAKER_00
What are the plots that we re looking at here?
9
SPEAKER_01
Growth rate, private debt ratio, employment versus wages, employment versus debt, income distribution.
9
SPEAKER_01
So this is across years, like different trade-offs.
9
SPEAKER_01
Is there something interesting to say about the plots and the insights from those plots that are generated on the software?
9
SPEAKER_00
That s a particular parameter value is to give that outcome.
9
SPEAKER_00
But what happened when I first simulated the model, I took a model by a guy called Richard Goodwin, who s one of the great neglected economists, American Marxist, mathematical Marxist.
9
SPEAKER_00
And what he did was build a model of cycles.
9
SPEAKER_00
And he actually wrote a paper called, it s only about a five-page paper published in a book and a very, very obscure conference paper.
9
SPEAKER_00
And what he was doing was trying to build a model of Marx, okay?
9
SPEAKER_00
So if you, he wrote it in 1967, and it was putting into mathematical form a model that Marx came up with in 1867.
9
SPEAKER_00
So it was a centenary birthday present to Marx.
9
SPEAKER_00
And what Marx had argued in chapter 25, I think, of volume one of Capital, section three,
9
SPEAKER_00
He built a verbal model of a cyclical system, and it s quite out of character with the rest of the book.
9
SPEAKER_00
So when you read Volume One of Capital, people think Marx has got commodity money.
9
SPEAKER_00
view of money.
9
SPEAKER_00
He doesn t at all.
9
SPEAKER_00
He simply – the idea was he had like an onion.
9
SPEAKER_00
You start off on the middle level and you ignore the outer layer, then you bring the outer layer in and so on and so forth.
9
SPEAKER_00
Anyway, in this model, in Volume I of Capital, he normally just assumed workers got a subsistence wage.
9
SPEAKER_00
That s it.
9
SPEAKER_00
But in this little chapter, he said that if the economy is – effectively he said the economy is booming, then workers will demand wage rises, okay, and the wage rises will cut into the profit
9
SPEAKER_00
so that capitalists will not get the level of profit they re expecting.
9
SPEAKER_00
Therefore, they will invest less, and the economy will slump, and the slump will mean workers become unemployed and have to accept wage cuts.
9
SPEAKER_00
And it was a model of a cyclical economy.
9
SPEAKER_00
And as it happens, Marx spent his later years trying to learn enough calculus to be able to model it himself mathematically, and he never managed.
9
SPEAKER_00
There s Marx s Mathematical Notes on Calculus, which are quite fun to read if you have a mathematical background.
9
SPEAKER_00
Did he get far?
9
SPEAKER_00
No, he got too caught up in the whole philosophy and never really got to build the model.
9
SPEAKER_00
But what Goodwin realized was a predator-prey model.
9
SPEAKER_00
The Lochter-Volterra model was the basis of the idea.
9
SPEAKER_00
So the idea is you have a prey, and the example that Lochter actually used initially was grass.
9
SPEAKER_00
Grass is the prey.
9
SPEAKER_00
And then you have a predator, and the predator were cows.
9
SPEAKER_00
So you start off with a very few cows, lots of grass, and then because of lots of grass, the numbers of cows grow, and then because the cows grow, they start to eat the grass, so the grass runs out, so the cows starve, and you get a cycle.
9
SPEAKER_00
And what Lochter was amazed by was that the cycles were persistent.
9
SPEAKER_00
They didn t die out.
9
SPEAKER_00
So Goodwin got that vision, and he then built a predator-prey model.
9
SPEAKER_00
And I, first of all, read Goodwin and really found it really hard to follow his writing.
9
SPEAKER_00
He s not a very good writer, but a guy called John Blatt, who was a professor of mathematics at New South Wales University, wrote a brilliant explanation of Goodwin s model in a book called Dynamic Economic Systems.
9
SPEAKER_00
I read that.
9
SPEAKER_00
It was superb.
9
SPEAKER_00
He said the way he could extend this was to include finance.
9
SPEAKER_00
So I thought, okay, what I m going to have is that what Goodwin presumed is capitalists invest all their profits.
9
SPEAKER_00
So you get a boom when there s a high rate of profit because they invest all that money and then a slump when there s low profit because depreciation will wipe away capital and you ll go boom and slump.
9
SPEAKER_00
So I simply added in, well, capitalists will invest more than their profits during a boom but less than their profits during a slump.
9
SPEAKER_00
and that therefore means they had to borrow money to finance the gap and pay interest on the debt.
9
SPEAKER_00
So I ended up with a model with just three system states, the income share, the wages distribution of income between workers, capitalists, and bankers, the level of employment, and the level of private debt.
9
SPEAKER_00
And those three equations are fundamentally like going from the Locke de Volterra model with just two equations, and therefore you get a fixed cycle, to the Lorenz model where you have three.
9
SPEAKER_00
And therefore what I got out of it was a chaotic outcome.
9
SPEAKER_00
So what you re seeing is a manifestation of chaos, complexity in those plots.
9
SPEAKER_00
But the fascinating, one of the many fascinating parts about it was that as the level of private debt rose,
9
SPEAKER_00
In my model, I had capitalists being the only ones who borrowed.
9
SPEAKER_00
But the people who paid for the high level of private debt were the workers.
9
SPEAKER_00
The rising banker s share corresponded exactly to a falling worker s share.
9
SPEAKER_00
So you can infer from that that the workers are the ones paying?
9
SPEAKER_00
Effectively, the workers end up paying for it.
9
SPEAKER_00
They get a lower level of wages.
9
SPEAKER_00
And the basic dynamic is that capitalists, when you have a three social class system,
9
SPEAKER_00
your income goes between workers, capitalists, and bankers.
9
SPEAKER_00
Now in the system, the good one did, they re just workers and capitalists.
9
SPEAKER_00
So if workers  share rose, capitalists  share had to fall.
9
SPEAKER_00
But when you have three social classes, then capitalists  share can remain constant while workers fall and bankers rise.
9
SPEAKER_00
So that s what actually happened.
9
SPEAKER_00
Because capitalists, the simple way I modeled it was there s a certain rate of profit at which capitalists invest all their profits.
9
SPEAKER_00
Above that, they borrow more.
9
SPEAKER_00
Below that, they pay off debt.
9
SPEAKER_00
So what would happen is when you got back to that point, then the level of investment would be a precise share of GDP and therefore you get a precise rate of economic growth.
9
SPEAKER_00
But if there was a higher percentage going to bankers,
9
SPEAKER_00
and offset by a lower share going to workers, it didn t affect the capitalists.
9
SPEAKER_00
So what you get is the cycles sort of diminish for a while because there s, so the income distribution effect is important.
9
SPEAKER_00
So the workers pay for the increasing level of debt.
9
SPEAKER_00
But the other side of it was that the cycles would diminish for a while.
9
SPEAKER_00
Now, what you get is a period of diminishing cycles, then leading to rising cycles.
9
SPEAKER_00
And technically this is known as the,
9
SPEAKER_00
Palmer Manville, Root to Chaos, and it s one particular element of Lorenz s equations of fluid dynamics.
9
SPEAKER_00
So what they found was in examining laminar flow in a fluid, you have a period where the laminar flow got more laminar, and then suddenly it ll start to get less laminar and go turbulent.
9
SPEAKER_00
and this is what actually goes on in the model.
9
SPEAKER_00
So in my model of Minsky, so what you have is a period where there s big booms and cycles and then as the debt level rises, the booms and slums get smaller and that looks like what neoclassical economists call the Great Moderation.
9
SPEAKER_00
So when I first modeled this in 1982, I finished up my paper, which was published in 95, with what I thought was a nice rhetorical flourish, saying the chaotic dynamics of this paper should warn us against regarding a period of relative stability in a capitalist economy as anything more than a lull before the storm.
9
SPEAKER_00
Now, I thought it was a great speed of rhetoric.
9
SPEAKER_00
I didn t think it was going to fucking happen.
9
SPEAKER_00
But it did, because you had this period from 1990 through to 2007.
9
SPEAKER_00
where there were diminishing cycles, and the neoclassicals labeled that the great moderation, and they took the credit for it.
9
SPEAKER_00
They thought that the economy was being managed by them to a lower rate of inflation, a lower level of unemployment, less instability over time, and they literally took credit for it.
9
SPEAKER_00
And I was watching that and thinking, that s like my model running, and I m scared as shit.
9
SPEAKER_00
that there ll be a breakdown.
9
SPEAKER_00
I ended up not working in the area for a while because I wrote debunking economics.
9
SPEAKER_00
I got involved in a fight over the modeling of competition in neoclassical theory.
9
SPEAKER_00
That took me away for about four or five years.
9
SPEAKER_00
Then I got asked to do a court case in 2005, end of 2005.
9
SPEAKER_00
I used Minsky as my framework for arguing that somebody who was involved in predatory lending should be able to get out of the debt they were in.
9
SPEAKER_00
And I explained Minsky s theory, and I used this throwaway line of saying, private debt has been rising exponentially.
9
SPEAKER_00
And then I thought, well, I can t, as an expert, just make a claim like that.
9
SPEAKER_00
I ve got to check the data.
9
SPEAKER_00
And the debt ratio was rising exponentially.
9
SPEAKER_00
And I thought, holy shit, we re in for a financial crisis.
9
SPEAKER_00
and somebody has to warn about it, at least in Australia, I was that somebody.
9
SPEAKER_01
So can you, given this chaotic dynamics idea, can you talk about the crises ahead of us in the future?
9
SPEAKER_01
So one of the things, I mean, it s a fundamental question of economics, is economics about understanding the past or predicting the future?
9
SPEAKER_01
Because...
9
SPEAKER_01
You can construct models that do poetic, like in 95, poetic.
9
SPEAKER_01
Yeah, and then you can watch years fly by and some of the predictions in retrospect that you make turn out to be true.
9
SPEAKER_01
But all kinds of gurus throughout history have done that kind of thing.
9
SPEAKER_01
You can call yourself right and forget all the many times you ve been wrong.
9
SPEAKER_01
Let s talk about the future.
9
SPEAKER_01
What kind of stuff?
9
SPEAKER_01
You mentioned about the importance of the biosphere, but what other crises are ahead of us that a chaotic dynamics view allows us to predict and be concerned about?
9
SPEAKER_00
What really I saw coming out of it, leaving aside the ecological, wasn t a crisis, it was stagnation.
9
SPEAKER_00
Because what we got out of the crisis was caused by a rising level of private debt.
9
SPEAKER_00
Now you reach a peak level where
9
SPEAKER_00
the willingness to take on debt collapses.
9
SPEAKER_00
And so you go to a period where debt is rising all the time.
9
SPEAKER_00
So credit, which is the annual change in debt, and credit is part of aggregate demand and aggregate income.
9
SPEAKER_00
So credit goes from positive to negative, and that causes a slump.
9
SPEAKER_01
So can you describe why that causes a slump?
9
SPEAKER_01
So credit goes to negative.
9
SPEAKER_00
If you ask Paul Krugman, he ll tell you credit plays no role in aggregate demand.
9
SPEAKER_01
Give me a second.
9
SPEAKER_00
Credit plays no role in aggregate demand.
9
SPEAKER_00
So the vision that the neoclassicals have for the banking system is what they call loanable funds.
9
SPEAKER_01
Is Paul Kugman, by the way, the knight at the front of the army that is the neoclassical economist?
9
SPEAKER_00
Yeah, fundamentally.
9
SPEAKER_00
He s politically reasonable, which makes him more dangerous than those that aren t.
9
SPEAKER_01
he s politically, there s quite a lot of people that would disagree with that characterization of Paul Krugman as he s politically reasonable.
9
SPEAKER_00
You should see the people behind it.
9
SPEAKER_01
The alternatives.
9
SPEAKER_01
Fair enough.
9
SPEAKER_01
That s not a negative or positive statement, that s just he can be feisty as well.
9
SPEAKER_00
Oh, he can, he can, but he s like the human face of neoclassical economics.
9
SPEAKER_00
It doesn t deserve having a human face.
9
SPEAKER_00
It s anti-human theory, but he s the human face.
9
SPEAKER_00
Tell me what you really think.
9
SPEAKER_01
I got you.
9
SPEAKER_01
All right, well, so, but the credit does not have any effect on aggregate demand.
9
SPEAKER_01
In their model.
9
SPEAKER_01
And you re saying that s not the case at all.
9
SPEAKER_00
It s absolutely crucial to aggregate demand.
9
SPEAKER_00
So what their model is, again, the example of you lending to me or vice versa,
9
SPEAKER_00
If I lend money to you, I can spend less, you can spend more, okay?
9
SPEAKER_00
So credit is the change in debt.
9
SPEAKER_00
So if I lend money to you, then there s a level of private debt rises, okay?
9
SPEAKER_00
So there s an increase in credit.
9
SPEAKER_00
but that increase in credit comes at an expense of my spending power.
9
SPEAKER_00
So you can spend what I ve lent you, but I can t spend what I ve lent you, so credit cancels out.
9
SPEAKER_00
But when you look at, that s learnable funds, but in the real world, and the Bank of England has said this is the real world and the textbooks are wrong, categorically in 2014, when the bank lends, it adds to its asset side and says, you owe us more money, and it adds to its liability side and says, here s the money in your bank account.
9
SPEAKER_00
Now you spend that money.
9
SPEAKER_00
So what happens when you do your sums, credit is part of aggregate demand and aggregate income and that s something I first solved in 2019 I think.
9
SPEAKER_00
I only recently proved it mathematically.
9
SPEAKER_00
So what that means is credit can
10
SPEAKER_00
is a component of aggregate demand and credit is also very volatile.
10
SPEAKER_00
It s like consumption demand never goes negative, investment demand never goes negative, but credit can go from positive to negative.
10
SPEAKER_00
And when you take a look at the long run of American history after the Second World War, there was no period until 2007 where credit was negative.
10
SPEAKER_00
It was a positive component of GDP, a positive number,
10
SPEAKER_00
Therefore, when you do it as a percentage of GDP, it was a positive percentage of GDP.
10
SPEAKER_00
It peaked at 16% of GDP in 2006, 2007.
10
SPEAKER_00
It fell to minus 5% in 2008, 2009.
10
SPEAKER_00
So you had a 20% of GDP turnaround in aggregate demand.
10
SPEAKER_00
Now, when you plot that against unemployment, the correlation of credit to unemployment
10
SPEAKER_00
across the period from about 1990 to 2010 is about minus 0.9, okay?
10
SPEAKER_00
Enormous negative correlation.
10
SPEAKER_00
Now, according to the neoclassicals, it could be close to zero.
10
SPEAKER_00
Empirically, it s bleedingly obvious it s not, and it applies to every country in the world that had a financial crisis at that period.
10
SPEAKER_00
So it s bleedingly obvious in the data, and they ignore it because credit s not part of their model.
10
SPEAKER_01
And you re saying it s causation, not just cause.
10
SPEAKER_01
Today, we sit there, it s extremely high inflation.
10
SPEAKER_01
What role does inflation play in this picture?
10
SPEAKER_01
Is a little bit of inflation good?
10
SPEAKER_01
We talked about money creation at the beginning.
10
SPEAKER_01
what s a little bit of inflation good or bad, a lot of inflation good or bad, how concerned are you about?
10
SPEAKER_00
A little bit is good for a simple reason.
10
SPEAKER_00
Again, it s taken me a while to get my head around this, but if you think about how people say, what are the functions of money?
10
SPEAKER_00
They say money, it s a unit of count, a count, so you re measuring.
10
SPEAKER_00
It s a means of exchange, and it s a store of value.
10
SPEAKER_00
Now, yes, okay, it has those three roles, but the last one is contradictory to the previous two.
10
SPEAKER_00
Because, and this is where we see this with the Bitcoin phenomenon, if you want to hang onto money as a store of value, then if prices are falling, the value of money is rising.
10
SPEAKER_00
And it s actually in your interests as a store of value to hang onto it and not spend it.
10
SPEAKER_00
So that contradicts its role as a means of exchange.
10
SPEAKER_00
Now, if you have money which depreciates, and this was actually tried in the Austrian town of Wargl during the Great Depression, if you have money that depreciates, then if you don t use it, you lose it fundamentally.
10
SPEAKER_00
So it has a high rate of circulation.
10
SPEAKER_00
So there s a monetary theorist called Silvio Gazelle, and he wrote this proposal that money should depreciate.
10
SPEAKER_00
And he was ridiculed and opposed and derided, but Keynes said he was a great intellect.
10
SPEAKER_00
And the mayor of town of Wargill in Austria during the Great Depression was facing an unemployment rate of 25% pretty much.
10
SPEAKER_00
Germany had the worst experience in the Great Depression in the world, as bad as America, slightly worse than America.
10
SPEAKER_00
And so he thought, how can I stimulate demand here?
10
SPEAKER_00
So he produced a script which could only be used for buying goods and services in Wargill.
10
SPEAKER_00
and could be used to pay your local rates.
10
SPEAKER_00
But it was depreciated by putting a stamp on the money if you didn t use it.
10
SPEAKER_00
So what happened was people would pay their rates.
10
SPEAKER_00
They needed to pay the rates using this money, so the script, so they used the script.
10
SPEAKER_00
And because it depreciated, you d use it rapidly.
10
SPEAKER_00
So people were using that money, this alternative to the Austrian shilling, and the economic activity in town took off, and unemployment fell to zero.
10
SPEAKER_00
And it was an absolute miracle, and everybody loved a Wargill experiment, and the Austrian Central Bank sued them for establishing an alternative form of money and shut it down.
10
SPEAKER_00
Unemployment went back up to 25% again, and Austria voted 99.6% for the Nazis.
10
SPEAKER_00
Something crazy number like that when Hitler marched in.
10
SPEAKER_00
So the Wargill experiment showed that
10
SPEAKER_00
A depreciating currency led to a high rate of circulation.
10
SPEAKER_00
But of course, we re not talking Weimar Republic levels of inflation.
10
SPEAKER_00
So when you get that much inflation, and that s normally caused by, as the Weimar inflation was caused by, the reparation terms imposed on Germany.
10
SPEAKER_00
fundamentally by France at the Treaty of Versailles, they paid a large part of that with just basically printing the notes and you went into this crazy period of hyperinflation.
10
SPEAKER_00
So hyperinflation almost always occurs when there s a massive destruction of physical resources and the monetary authority tries to pay back literally over it and then you get hyperinflation, that s total social breakdown.
10
SPEAKER_00
So a moderate level of inflation inspires the
10
SPEAKER_00
means of exchange usage of money, but undermines the store of value usage of money.
10
SPEAKER_00
And that dilemma is why we have this antagonistic attitude towards inflation.
10
SPEAKER_01
Yeah, I mean, you re describing as a tension, but it s nevertheless is, like money is a store of value and a means of exchange.
10
SPEAKER_01
And I don t, you know, to push back, it s not necessarily that there s a tension, it s just that
10
SPEAKER_01
depending on the dynamics of this beautiful economic system of ours, it s used as one more than the other.
10
SPEAKER_01
If there s inflation, you re using it more for the means of exchange.
10
SPEAKER_01
If it s deflation, you re using it more for store value.
10
SPEAKER_01
But that doesn t, I don t see there s a tension, that s just how much you use it for those different,
10
SPEAKER_00
But it ends up saying that overall, for a level of effective commerce, a bit of inflation is a good thing because that s depreciating the money slightly and encourage its use.
10
SPEAKER_01
Yeah, but so the argument that Bitcoin folks use or gold standard folks... The HODL, yeah.
10
SPEAKER_01
Again, HODL is not an argument.
10
SPEAKER_01
That having an inflation of zero is actually achieving that balance.
10
SPEAKER_00
Yeah, but they re actually in favor of negative.
10
SPEAKER_00
They want it to appreciate rapidly and there s a negative inflation.
10
SPEAKER_00
The value of the money rising relative to commodities, that s what they want.
10
SPEAKER_00
That s the HODL philosophy.
10
SPEAKER_00
Well, that s more of like an investment.
10
SPEAKER_01
I don t know if that, that s more of an investment philosophy than the fundamental principles of why they believe in cryptocurrency and enforce scarcity as a model.
10
SPEAKER_01
The concern there is that when you print money, the public policy is detached from the actual, from value.
10
SPEAKER_00
Yeah, well, I mean, this is where, again, it matters to get money creation right because the government s not the only money creator.
10
SPEAKER_00
Banks are as well, private banks.
10
SPEAKER_00
And if we obsess too much about limiting government money creation, what we end up getting, if there is money creation going on, is private banks doing it.
10
SPEAKER_00
And you get an increase in private debt.
10
SPEAKER_00
And fundamentally, private debt and its collapse, collapse of credit when it stops growing, that s the fundamental cause of financial crises.
10
SPEAKER_00
So... Yeah, but the question is, what s the cost of the collapse of the...
10
SPEAKER_00
Well, I think this is like the Austrian thinking leaves out the debt deflation.
10
SPEAKER_00
And that s like, I think one of the most important papers ever written was by Irving Fisher called The Debt Deflation Theory of Great Depressions.
10
SPEAKER_00
Fisher was somebody who accepted the neoclassical vision.
10
SPEAKER_00
He wrote the pre-efficiency market hypothesis, efficiency market hypothesis.
10
SPEAKER_00
He had his own PhD called The Theory of Interest.
10
SPEAKER_00
And in that he argued effectively for a supply and demand analysis of the financial system.
10
SPEAKER_00
And he argued for equilibrium.
10
SPEAKER_00
He said when you re working with a commodity market, then the sale and the transaction and the exchange occur at the same point in time.
10
SPEAKER_00
When you re working with a financial market, then the exchange occurs through time.
10
SPEAKER_00
So he said he assumed that debts are repaid
10
SPEAKER_00
All debts are repaid.
10
SPEAKER_00
And he assumed that equilibrium through time was an essential part of his assumption.
10
SPEAKER_00
Now then the Great Depression comes along and he has become a major shareholder in the rank Xerox because he invented the Rolodex.
10
SPEAKER_00
He s a tinkerer.
10
SPEAKER_00
And so he had taken out shares on margin and he was worth about 100 million in modern terms.
10
SPEAKER_00
when the Great Depression hit.
10
SPEAKER_00
And 90% of that was share market valuation.
10
SPEAKER_00
He d taken out margin debt just like everybody else.
10
SPEAKER_00
And with margin debt, you could put down $100,000 and buy a million dollars worth of shares.
10
SPEAKER_00
So you got this huge leverage into debt.
10
SPEAKER_00
Now, when the financial crisis hit, the level of margin debt in America had risen from half a percent of GDP in 1920 to 13% of GDP
10
SPEAKER_00
in 1929.
10
SPEAKER_00
It then fell to zero again.
10
SPEAKER_00
That s why the stock market crash in 29 was so devastating, that scale of margin lending.
10
SPEAKER_00
And everyone was being wiped out.
10
SPEAKER_00
They were selling Rolls Royces for 20 quid.
10
SPEAKER_00
You literally have photographs showing people doing that.
10
SPEAKER_00
Because a margin call comes in, you ve got to liquidate everything.
10
SPEAKER_00
So he said the danger of a debt deflation is what we have to avoid.
10
SPEAKER_00
And that means you don t want too much private debt to accumulate.
10
SPEAKER_00
and you don t want falling prices because the falling prices will amplify the impact of being insolvent to begin with.
10
SPEAKER_00
And that s what we saw in the Great Depression.
10
SPEAKER_00
It s partially what we saw in 2007, but we didn t have anything like the level of margin debt.
10
SPEAKER_00
Margin debt was reduced from 90% to 50% ratio after the Great Depression.
10
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So there were limits on how bad it was in 2007.
10
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But the danger is still the period of deflation amplifies your debts.
10
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I call it Fisher s paradox.
10
SPEAKER_00
He didn t write those terms himself, but he wrote a line saying the more debtors pay, the more they owe.
10
SPEAKER_00
This is because you re liquidating to try to meet your own debts.
10
SPEAKER_00
When you liquidate, the price level falls.
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you will end up having a lower level of monetary debt, but a higher level of debt when you deflate it using the price level.
10
SPEAKER_00
So the biggest danger in capitalism is the debt deflation, far more dangerous than inflation.
10
SPEAKER_00
And the cause of debt deflation is?
10
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Too much lending, too much bank lending, too much private money creation.
10
SPEAKER_00
And if you take a look at the 1920s, Calvin Coolidge explained the boom of the 1920s on his surplus.
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He said, my government running a surplus of 1% of GDP pretty much from 1922 through to 1930 is the foundation of our stability.
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It should be continued.
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What he didn t look at was that over that same time period, on average, Americans were borrowing 5% of GDP per year from the private banks.
10
SPEAKER_00
So you had a housing bubble at the beginning of the 1920s, which Richard Vague covers beautifully in the brief history of doom.
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SPEAKER_00
And then you had this huge rise in margin debt as well, gigantic increase in margin debt.
10
SPEAKER_00
So all this borrowed money was being spent into the economy, and this is where credit becomes part of aggregate demand.
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SPEAKER_00
And it s both not just for goods and services, it s also for shares and houses and so on.
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So a huge valuation effect.
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SPEAKER_00
But then when the margin debt turned around, when people would not take out margin debt anymore, the demand for margin debt disappeared, and then it was what we call badly a positive feedback loop.
10
SPEAKER_00
It s actually an amplifying feedback loop.
10
SPEAKER_00
And that caused a collapse.
10
SPEAKER_01
So what elements of that do you see today that we need to fix and how do we fix it?
10
SPEAKER_00
We have to regard the level of private debt as a target of economic policy just as much as the rate of inflation or the rate of unemployment.
10
SPEAKER_00
What is the moderate amount of private debt that s good?
10
SPEAKER_00
I would say something anywhere between 30 and 70% of GDP.
10
SPEAKER_00
What is it currently?
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SPEAKER_00
In America it s 170%.
10
SPEAKER_00
Nice.
10
SPEAKER_00
Of GDP.
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SPEAKER_00
Of GDP.
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SPEAKER_00
Oh, that s nice.
10
SPEAKER_00
I ve got, we ll have to look after we talk, but I can show you the data in this and it s, it is just this huge increase in private debt that caused, first of all caused the boom, but then financing the credit causes, ultimately causes the slump.
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SPEAKER_00
And so if we remove the rate level at which debt can reach, and we stop speculative lending, and basically have a lending for both innovation, investment, and essential consumption items, we won t have the slump on the other side.
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SPEAKER_00
We can get rid of financial instability.
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SPEAKER_00
We can t stop financial cycles, but we can stop financial breakdown.
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SPEAKER_00
And so we should really be focusing on the instability and getting that under control.
10
SPEAKER_01
By the way, as you point to your laptop, my laptops, I have a lot of, how many computers do I have?
10
SPEAKER_01
I have a lot of them, but my little Surface, whatever the heck this thing is, is getting definite size envy.
10
SPEAKER_01
Because your laptop, you said is 18 something inches.
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SPEAKER_01
18.4 inches.
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SPEAKER_01
18.4 inches.
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SPEAKER_01
You know, I don t think I ve ever seen one that big, and I ll give the internet that one.
10
SPEAKER_01
All right.
10
SPEAKER_01
That s for the graphics.
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SPEAKER_01
So it s a gaming laptop.
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SPEAKER_01
It s basically a desktop.
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SPEAKER_01
It probably weighs like 40 pounds.
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SPEAKER_00
8 kilos?
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SPEAKER_00
8 kilos.
10
SPEAKER_01
Oh, okay, yeah.
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SPEAKER_00
Eight kilos, that s, you know, you re pushing 40 pounds.
10
SPEAKER_00
You ve seen the power supply for it?
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SPEAKER_00
It s over there somewhere.
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SPEAKER_00
The power supply weighs about twice as much as your laptop.
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SPEAKER_00
Yeah, and you have to power it on with a crank.
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SPEAKER_00
Pretty close.
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SPEAKER_00
You have to, like, pull it.
10
SPEAKER_00
Is it gas-powered or is it coal?
10
SPEAKER_00
Oh, well, it s a nuclear power station.
10
SPEAKER_00
Nuclear, yeah.
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SPEAKER_00
And a nuclear diamond in the back there.
10
SPEAKER_01
Okay, so...
10
SPEAKER_01
Before I forget, just let me ask you about, we ve covered brilliantly the nuance disagreements you have and the wisdom you ve drawn from Karl Marx, but there s also, like you mentioned, in popular discourse, a kind of a distorted use of different terms, and one of them is Marxism today.
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SPEAKER_01
Is there something you could just speak to about
10
SPEAKER_01
increased use of that word and is it misused?
10
SPEAKER_01
Does it concern you that there s a lot of actually young people that say they re sort of proudly Marxist?
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SPEAKER_01
Are they misusing the term?
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SPEAKER_00
They are definitely misusing the term if they don t understand.
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SPEAKER_00
the use value exchange value dialectic I went through earlier.
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SPEAKER_00
And they don t.
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SPEAKER_01
If I could just pause, the idea of socialism and Marxism as used in sort of popular lingo, it s basically
10
SPEAKER_01
A lot of people have a disproportionately hard life.
10
SPEAKER_01
Why can t we help them out?
10
SPEAKER_01
Why can t we be kind to our fellow man?
10
SPEAKER_01
That s a short embodiment of an idea as opposed to some...
10
SPEAKER_01
super complicated, elaborate model of the economy and politics and all that kind of stuff.
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SPEAKER_00
I mean, we could do that by using the insights that come out of modern monetary theory, which I ve confirmed just using my simple Minsky models, and that is that
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SPEAKER_00
to use the term, you see a feature, not a bug.
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SPEAKER_00
A government running a deficit is a feature of a well-functioning, mixed fiat credit economy, not a bug.
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SPEAKER_00
The government should normally run a deficit because that s how the government creates money.
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SPEAKER_00
Now, because we ve had this obsession from mainstream economists of running a surplus, which is what caused the Great Depression, Calvin Coolidge doing it for eight years, because of that obsession, we ve cut back on social services, we ve cut back on health, we ve cut back on education, we ve cut back on infrastructure.
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SPEAKER_00
Now, all that stuff predominantly affects the poor because the rich can afford to buy it themselves.
10
SPEAKER_00
So if we had a economy which realized the government should run a deficit, it s a feature, not a bug, of a fiat money system.
10
SPEAKER_00
and that s where Eons made one mistake recently.
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SPEAKER_00
Okay, we re not going back to founded first principles.
10
SPEAKER_00
That deficit enables you to provide enough of a decent standard of living for those who don t come out on top in the capitalist game.
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SPEAKER_00
And with that, you wouldn t have the angst of the young people.
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SPEAKER_00
Now, we still have the climate
10
SPEAKER_00
parameters within which we have to survive but a decent level of government funding would mean the angst that you get where people say I want to be a Marxist and they ve got a what I call a cardboard cutout version of Marx in their minds that wouldn t be happening so it s it s
11
SPEAKER_00
to have a good society where the government runs a deficit that finances the needs of the poor, where the rich get enough to indulge and take care of themselves, and you don t get this breakdown.
11
SPEAKER_00
If you try to cause the government running a surplus, then the burden of that is borne by the poor, middle class and poor, and that will lead to the angst we re now seeing.
11
SPEAKER_01
Beautiful, that was a beautiful whirlwind exploration of all of economics and economics history.
11
SPEAKER_01
Let me ask you, you tweeted, I think.
11
SPEAKER_01
We are the opposite of ants.
11
SPEAKER_01
Individually intelligent, collectively stupid.
11
SPEAKER_01
We need to develop systems thinking fast to counter our limitations.
11
SPEAKER_01
That s really interesting.
11
SPEAKER_01
Do you really believe we re individually intelligent and collectively stupid?
11
SPEAKER_01
I do.
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SPEAKER_01
Can you elaborate on, I mean, some of that is just cheeky tweets.
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SPEAKER_00
It s a cheeky tweet I ve had in my mind for a long time.
11
SPEAKER_00
It s one that actually went moderately viral, not enough, but moderately viral for me.
11
SPEAKER_00
But nevertheless, if you could analyze it as if it s some deep, profound statement you made in a book.
11
SPEAKER_00
Well, the reason is that we are incredibly individually intelligent.
11
SPEAKER_00
Things like these devices we re playing with now.
11
SPEAKER_01
That s the creation of individual minds.
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SPEAKER_00
Creative individual mind and a collective labor over centuries that led to this level of technology.
11
SPEAKER_00
And that has to be respected.
11
SPEAKER_00
It s incredible stuff.
11
SPEAKER_00
But at the same time, I think what humans are, if you want to distinguish humans from other species on the planet, we don t weave webs.
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SPEAKER_00
We don t make bird calls.
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SPEAKER_00
What we do is we share beliefs.
11
SPEAKER_00
And you don t think that s a catalyst for intelligence?
11
SPEAKER_00
Yeah, it is a catalyst.
11
SPEAKER_00
But what it means is we can delude ourselves as much as we can inform ourselves.
11
SPEAKER_00
So because we share beliefs, we can do things in a collective way.
11
SPEAKER_00
And if we believe that if we take the incantations of the witch doctors and we happen to have a couple of spears and things, we can go and attack the local
11
SPEAKER_00
herd a tribe of lions and drive them out, and we become the dominant species.
11
SPEAKER_00
So it worked at the stage where we were in competition with other species on the planet.
11
SPEAKER_00
Now that we re the dominant species, then our beliefs get in the way.
11
SPEAKER_01
So you agree with Einstein who said there are only two things that are infinite, the universe and human stupidity.
11
SPEAKER_00
And he wasn t sure about the universe.
11
SPEAKER_01
And he wasn t sure about the universe, right.
11
SPEAKER_01
That s right, he wasn t sure about the universe.
11
SPEAKER_01
Yeah, so you think that the collective, I mean, there s an infinity to the destructive and the stupid, the inhumane that s possible when we humans get together, but it feels like
11
SPEAKER_01
There s more trajectories, there s more possibility for creation.
11
SPEAKER_00
There are, and I think that s why we have to, I say, if we were built around the idea that our role as a species is to maintain and extend life on the planet, and if not, find it elsewhere, then...
11
SPEAKER_00
seated elsewhere, then that is a vision which makes us creative and confines the worst elements of our capacities to share beliefs.
11
SPEAKER_00
So that s what my hope is, that we ll reach that stage.
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SPEAKER_00
But I think we ve overshot it so badly that my real fear is we ll end up blaming technology for the
11
SPEAKER_00
type of world we find ourselves living in in the next 20 to 50 years.
11
SPEAKER_00
So you think technology is going to be part of the solution?
11
SPEAKER_00
Part of the solution, yeah.
11
SPEAKER_00
But if we go through and blame it, which is quite possible, we ll blame the technology rather than blaming too much of the technology, and the too much comes down to what economists have told us, that we can just continue consuming infinitely on a finite planet.
11
SPEAKER_00
And Kenneth Boulding said that beautifully.
11
SPEAKER_00
He said, if somebody believes that you can have exponential growth on a finite planet,
11
SPEAKER_00
They were either mad or they were an economist.
11
SPEAKER_01
So you made a long journey for which I m deeply honored from Sydney.
11
SPEAKER_01
This distant place.
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SPEAKER_00
Antipodes.
11
SPEAKER_00
You ve got to go there one day.
11
SPEAKER_00
You d enjoy it.
11
SPEAKER_01
I will.
11
SPEAKER_01
I m afraid if I go there, I will stay forever.
11
SPEAKER_00
No, it s a bit too... There s more vitality back in this economy, so you d come back.
11
SPEAKER_00
Okay, maybe.
11
SPEAKER_01
I m not a fan of the economy or money or any of that nature calls me.
11
SPEAKER_01
I m honored that you make that trip.
11
SPEAKER_01
You ve also said that while you re here in Austin, you re going to go to this American factory that makes cars here in Austin and also visit Starbase.
11
SPEAKER_01
So let me ask you about,
11
SPEAKER_01
Expanding out into the universe, is that something that excites you?
11
SPEAKER_01
You mentioned about the economics of it.
11
SPEAKER_01
What do you think Marx would think about this?
11
SPEAKER_01
Economically speaking, what is this?
11
SPEAKER_01
Is it a good thing?
11
SPEAKER_01
Expanding out there?
11
SPEAKER_00
I think it s vital.
11
SPEAKER_00
We can have capitalism in outer space far more successfully than we can have it on the planet because we don t face, when we dump the waste, it ends up in the sun, not a problem.
11
SPEAKER_00
So it means the potential, we don t undermine our own productive capacity if we re doing it in outer space.
11
SPEAKER_00
So the destructive element of waste has a lesser impact in outer space.
11
SPEAKER_00
Far less, yeah.
11
SPEAKER_00
I mean, who cares if we throw a bit of our iron back into the sun again?
11
SPEAKER_00
It d take a fair bit of it to turn it into what would be the next stage, it d be a red giant.
11
SPEAKER_00
And we have to get away, because if there s a red giant at some stage, the sun will head out past the orbit of Mars, I think, certainly past the orbit of Earth.
11
SPEAKER_00
So to have the longevity of not just human life, but life that evolved on this planet, we have to be able to take it off planet, ultimately.
11
SPEAKER_00
So if you think in the really long term,
11
SPEAKER_00
then it s our responsibility, if we re gonna wanna maintain life, is to establish life off the planet.
11
SPEAKER_01
What do you think about robots and AI as part of the expanding out into the universe?
11
SPEAKER_00
Oh yeah, we have to.
11
SPEAKER_00
I mean, that ends labor.
11
SPEAKER_00
You can t go for, your daddly jaunt can t be from here to the asteroid belt and back again for dinner with your family.
11
SPEAKER_00
So production would be entirely mechanized.
11
SPEAKER_00
There d have to be a handful of people who service the machines.
11
SPEAKER_01
So it s about production and automation.
11
SPEAKER_01
What about elements of consciousness that make humans so special?
11
SPEAKER_01
What about that persisting within the machine?
11
SPEAKER_00
I mean, I m still a skeptic about us ever being able to create a machine which is truly conscious.
11
SPEAKER_00
If I can throw my, it s only two cents worth.
11
SPEAKER_01
That would really piss off Karl Marx, by the way.
11
SPEAKER_01
If we create machines that are conscious.
11
SPEAKER_00
Exactly.
11
SPEAKER_00
This is actually part of the, there s two good logical arguments against the labor theory of value.
11
SPEAKER_00
One of what it becomes machines become intelligent.
11
SPEAKER_00
And the other was that if the declining rate of profit applies in socialism,
11
SPEAKER_00
it ll apply as a rate of accumulation, sorry, in capitalism, it ll apply as a rate of socialism as well.
11
SPEAKER_00
A guy called Khalid made that argument, so his argument was just unsound.
11
SPEAKER_00
But yeah, intelligent machines would completely screw Marx up, you know?
11
SPEAKER_01
But you do not like that world where machines have not only intelligence, but consciousness, a soul.
11
SPEAKER_00
And I, you know, I know that s one of your interests and one of your potential endeavors.
11
SPEAKER_00
And the Kurzweil idea that there s some singularity we re approaching as we just get increasing processing power.
11
SPEAKER_00
It s not processing power, it s imagination.
11
SPEAKER_00
And I think- Whatever the heck that means.
11
SPEAKER_00
Huh?
11
SPEAKER_00
Whatever the heck that means, yeah.
11
SPEAKER_00
I mean, you would have had imaginative insights.
11
SPEAKER_00
I mean, your papers in automating motoring between the hyper-intelligent machine or the machine-human interface where the standards can be lower for the machine and higher for the human.
11
SPEAKER_00
Okay, that s an insight you would have had at some point, and then you ve worked it further.
11
SPEAKER_00
So I ve had insights like that as well, and I have no idea where they come from.
11
SPEAKER_00
They just hit me in the head.
11
SPEAKER_00
and I write them down and they solve a problem that I didn t even know my mind was working on.
11
SPEAKER_00
So how can we get a machine to do that?
11
SPEAKER_00
And I do not know the answer, but one thing I think is the potential is I think we have to create AI that has feelings.
11
SPEAKER_00
AI that wants to survive, because if you think how our intelligence evolved, it s on this planet in a struggle between predator and prey, and intelligence became a survival technique.
11
SPEAKER_01
I find the ideas of Ernest Becker with denial of death really powerful, which is that humans
11
SPEAKER_01
will not only have emotions and are trying to survive, they re able to ponder out in the distant future their mortality.
11
SPEAKER_01
And that is a driving force for even greater creation that animals are able to do, more primitive animals.
11
SPEAKER_01
And so there is some element where I agree with you.
11
SPEAKER_01
I think for AI systems to have something like consciousness, they have to fear their mortality.
11
SPEAKER_00
Exactly.
11
SPEAKER_00
And I think that s, if you do it then, you can t produce an AI whose behavior you can control.
11
SPEAKER_00
I mean, when you have kids,
11
SPEAKER_00
You can t control their behavior.
11
SPEAKER_00
That s the trade-off.
11
SPEAKER_00
You give birth to an anarchist.
11
SPEAKER_00
One of my favorite instances in my family life is one of my, I like all my nurses and nephews, but one s got a real quirk to her.
11
SPEAKER_00
I was standing over her cot when she was literally like about six months old, and she was gurgling away to herself.
11
SPEAKER_00
And her father waved his fingers and said, stop making that noise.
11
SPEAKER_00
And this little six month old kid goes.
11
SPEAKER_00
And I said, boy, you re gonna have issues with that one, mate.
11
SPEAKER_00
And she- Anarchist was born.
11
SPEAKER_00
Yeah, and so you can t control this life you give birth to.
11
SPEAKER_00
And that s, I think, the threat of AI.
11
SPEAKER_00
That s terrifying and exciting.
11
SPEAKER_00
It is.
11
SPEAKER_00
And I think we should take that risk at some stage.
11
SPEAKER_00
But I think to do it with what actually let artificial intelligence involve in this environment in which it fears its own death.
11
SPEAKER_00
Yeah.
11
SPEAKER_01
Yeah, I think there s a lot of beauty there, but there s also a lot of destruction that s possible, so you have to be extremely careful.
11
SPEAKER_01
But that s kind of the cutting edge of which we often operate as a humanity.
11
SPEAKER_01
Let me ask you for advice.
11
SPEAKER_01
Can you give advice to young people in high school and college?
11
SPEAKER_01
Maybe they re interested in economics.
11
SPEAKER_01
Maybe they have other career ideas.
11
SPEAKER_01
What advice would you give them about
11
SPEAKER_01
a career they can have, that they can be proud of, or a life they can be proud of.
11
SPEAKER_00
Mainly in a career, I say don t do an economics degree.
11
SPEAKER_00
There s a little book on comics.
11
SPEAKER_01
Econ comics, taking the con out of economics.
11
SPEAKER_01
So let s just start with that and then say screw it to an economics degree.
11
SPEAKER_00
Yeah, because what you learn is an obsolete technology.
11
SPEAKER_00
Learning economics at a university is like learning to make astronomy.
11
SPEAKER_00
Okay, the centric equilibrium
11
SPEAKER_00
you know, epicycles being added to make your models fit the data.
11
SPEAKER_01
So it s not that economics is not a discipline worth deeply studying, it s that the university education around economics is bad.
11
SPEAKER_00
So I d say learn system dynamics.
11
SPEAKER_00
do a course in system dynamics, which you can apply in any field, and then apply what you learn out of system dynamics to the issues of economics, if that s what interests you.
11
SPEAKER_00
So get a sort of base engineering education.
11
SPEAKER_00
Yeah, a base engineering education.
11
SPEAKER_00
That is far better than doing an economics degree.
11
SPEAKER_00
In terms of life,
11
SPEAKER_00
My life is pretty chaotic in many, many ways.
11
SPEAKER_00
My friends and family will tell me that at every opportunity.
11
SPEAKER_00
But the thing is, I once had a, I ll tell you an example of a really funny incident that occurred to me, because I led the student revolt at Sydney University, as I mentioned, when I was 20 years old.
11
SPEAKER_00
And then in my, I think about 28 or so, I went to a restaurant one night and I found a bunch of guys, all guys,
11
SPEAKER_00
who d done accounting at the university, but also been part of the student revolt.
11
SPEAKER_00
So they hadn t seen me for about a decade, and they said, what have you been doing, Steve?
11
SPEAKER_00
And I talked about what I d done.
11
SPEAKER_00
So I d been a school teacher for a while.
11
SPEAKER_00
I then worked in overseas aid.
11
SPEAKER_00
I was doing computer programming at the time, and I d forgotten what else I was doing at that point.
11
SPEAKER_00
So I explained it to all of them.
11
SPEAKER_00
And they were at a Buck s night, one of them having a wedding coming up the next week.
11
SPEAKER_00
And one of them said, I wish I d done that.
11
SPEAKER_00
And there was silence around the table.
11
SPEAKER_00
It was obviously silent agreement.
11
SPEAKER_00
And I looked at them and said, hang on guys, look at the downside of my life.
11
SPEAKER_00
You re getting married.
11
SPEAKER_00
I don t have a girlfriend right now.
11
SPEAKER_00
You ve all got secure jobs.
11
SPEAKER_00
I m unemployed.
11
SPEAKER_00
You own a house.
11
SPEAKER_00
I haven t even got a car.
11
SPEAKER_00
Look at the downside of my life.
11
SPEAKER_00
And the bloke was the kingpin of that group.
11
SPEAKER_00
They re a very innovative bunch of guys in the student revolt.
11
SPEAKER_00
So he said, Steve,
11
SPEAKER_00
We would still all rather have done what you have done.
11
SPEAKER_00
And they did accounting because it was safe.
11
SPEAKER_00
You always get a job.
11
SPEAKER_00
They were bored shitless.
11
SPEAKER_01
Did you have a sense that the chaos you re always...
11
SPEAKER_01
jumping into was dangerous, or was it just the pull of it that?
11
SPEAKER_00
I simply couldn t not do it.
11
SPEAKER_00
It was part of me that I couldn t swallow this economic stuff.
11
SPEAKER_00
Once I was exposed to why it was so wrong, then I was on a crusade to make it right.
11
SPEAKER_00
And that s been part of my nature all through my life, I don t know why.
11
SPEAKER_00
So it wasn t that I made a choice to do it, it s that I couldn t be true to myself.
11
SPEAKER_00
without doing it, and I find a lot of people get caught in a life where they re doing it because it works for some financial or other reason, but they re not being true to themselves.
11
SPEAKER_00
And as messy as my life is, as much shit I ve got myself caught up in, and there s a lot of that in my personal and financial life right now, which is a pain in the ass, I would rather have had that nature than not.
11
SPEAKER_01
You would rather take the pain in the ass than not.
11
SPEAKER_01
Yep, yep, yep.
11
SPEAKER_01
Let me ask a dark question.
11
SPEAKER_01
what s the darkest place you ve ever gone to in your mind?
11
SPEAKER_01
So in all that rollercoaster of life, have there been periods where it s been really?
11
SPEAKER_00
I ve had to cope with depression in the last five years since I started reading neoclassical economists on climate change.
11
SPEAKER_00
Sorry to laugh.
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Gotta come back to that one.
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So that s where my wife s gonna come into this story.
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So I was reading Richard Toll on a paper from 2009 called The Economics of Climate Change.
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Journal of Economic Perspectives, I think.
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And I read this section where he says that one of the ways they tried to calibrate what climate change was due is they assumed that the relationship between GDP and temperature over space would apply over time as well.
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Yes.
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And I read that and thought that is so fucking stupid.
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because all it s saying is that if there s a 10 degree temperature difference between New York and Florida and a 20% difference in income, then a 10 degree increase in temperature will cause GDP to fall by 20%.
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It is so insanely stupid.
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So when I read that line, I just did this.
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I was in shock at how stupid it was.
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My wife, who s Thai and brings in treats for me all day, walks into the room and she speaks in a staccato English and says to me,
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Why are you like this?
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And I said, I m just doing this work on climate change.
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And she interrupts me and says, oh, why you do that stuff?
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Nobody s interested in climate change.
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You can t do anything to change it.
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If we die, we die.
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And that s the perfect Buddhist grounding.
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And I thought, well, I can t argue with her again.
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So that sort of stopped me on the depression, but that s the darkest point when I looked at it and I thought that this arrogance, this stupidity,
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Humbug and the economists meant that we were potentially jeopardizing the lives of billions of people and Christ knows how many other life forms.
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And having that knowledge is the most depressing experience of my life.
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that ideas, simple models, combined with arrogance, can lead to the potential destruction of human civilization.
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That was a very heavy, and then your wife came in with- And broke me out of it.
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Nature wins in the end.
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And sort of accepts the flow of life.
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You should really enjoy that book, The Earth of Odds, because it s got that same beautiful sense to it.
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life will survive whatever we do.
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I was actually talking with a good mate of mine, an ex-geologist, and he s now a professor of
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economics and he said as a geologist he really hated people talking about the Anthropocene epoch and I said well it s not it shouldn t be the Anthropocene epoch it ll be the Anthropocene event because an epoch is millions of years and a huge period of life on the planet and we might be snuffed out in 10,000 years of human civilization and that s not much
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slower than the meteors wiping out the dinosaurs.
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The dinosaurs lasted for a long time after that event.
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So we re like, we d just be a layer in the surface of the planet with plastics and strange metals like that at some point.
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So we re just, life will abide, life will survive us.
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But there s so much life we re gonna take down with us in this whole period.
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And there s so many of our own lives we re gonna terminate for no good reason.
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I m looking at this Richard Tall character.
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I ll definitely have to look at some of his papers.
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It does look like, boy, is he oversimplifying and do a lot of people.
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Oh, my God.
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Check his one on how good it ll be to lose Amok.
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That said, I m going to approach all of these topics with humility, and I would like to have some conversations if people can recommend
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My default position is always with the scientists, but even above that, my default position is with those who are humble versus those who are arrogant.
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This idea that because you re a quote-unquote expert, you deserve to have arrogance is a silly idea to me.
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Again, going to the broader view of life on Earth, nature.
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Nature s the only one that gets to be arrogant, and it chooses not to.
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So let me ask you about love.
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What role does love play in this whole thing?
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Did Karl Marx have a model for that?
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Oh, Marx was madly in love with Jenny von Westhalen and wrote love poetry to her long before he wrote Das Kapital.
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And he was infatuated with her.
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He ended up also impregnating his housekeeper.
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So there s the son of Karl Marx, who was the son of the housekeeper, not the Jenny.
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There are numerous daughters.
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So he had a complicated view of love.
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Oh yeah.
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There s a dialectic on love there.
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He had an idealistic view with Jenny and he was rejected because he wasn t, not by Jenny, she was madly in love with him as well.
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So it was a real passionate love affair from the very outset.
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But then, of course, you have children.
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Lots of them die.
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There s a huge amount of tragedy in his life as well.
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He and Jenny were forced out of Chelsea by a cholera epidemic.
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My vision for London back in the 1850s and 60s was Calcutta in the 1970s.
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That s really what life was like.
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So there s a lot of hardship in his life as well.
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And he was always poor.
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So only Ingalls kept him alive financially.
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He applied for one job outside of – he never got an academic job.
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He was pushed out of Prussia as a newspaper author, but he also
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He applied for a job as a clerk in the British railway system and was turned down because they couldn t read his handwriting.
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So, I think I m a bit similar there.
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So, yeah, there s a lot of love and passion.
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But in general, what do you think is the role of love in the human condition?
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It s vital.
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It s, I mean, that feeling of passionate,
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desire and respect for somebody else.
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And there s perverted forms of love as well, so I ll leave that out.
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But somebody having a really, a deep bond which goes beyond just sexual attraction.
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I ve had that four or five times in my life with different women at different times, and I ve stuffed up the most important one very early on.
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That feeling is incredible.
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You couldn t have life worth living without that.
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So it s an essential part of who we are.
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But what we have to do is to transfer it, not just to the rest of our species, but to all the species.
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And that s, I think, what s vital.
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And how do we maintain that over generations?
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And I think that idea that we can actually hang on to that general sense of respect and not lose it again, because the amount of life we ve terminated on this planet,
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the warlike side of humanity.
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That is too much of a defining feature of our species.
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It s the opposite of love, it s hate.
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but it s pleasure in inflicting pain on others.
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When you see people killing others in a war-like environment, they re enjoying themselves, okay?
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It s rarely, sometimes it s self-defense, but there s, when you have spoken to people who ve been involved in combat and been involved in riots and said, when you see somebody rioting, bashing people up, they re enjoying themselves.
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It s not anger they re feeling, it s pleasure.
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Yeah, there s a dark aspect to human nature.
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Very dark.
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But there s also the capacity
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to rise above that.
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And I think, like I put us on a spectrum between chimpanzees at one extreme and bonobos at the other.
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We re too close to the chimpanzees.
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And bonobos are just having fun, having lots of sex.
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Every time they do anything, they fuck first and do the work later and then fuck afterwards to celebrate.
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Fuck first, ask questions later.
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It s like that scent of a woman, one of my favorite films, where Al Pacino gives advice to a cat.
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He says, when in doubt, fuck.
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Good life advice, for a cat especially.
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We mentioned that death seems to be maybe fundamental to creating a conscious AI.
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Do you think about your own death?
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Are you afraid of it?
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I m afraid of going through it.
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Not the other side?
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You re not afraid of being on the other side?
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I don t think there is another side.
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I mean, I m agnostic.
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I m atheist when pressed and agnostic.
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The one thing that I think I can understand why religion exists is that the whole thing that something exists is itself a dilemma.
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You have to take on faith that reality exists, whether it s a simulation or actual reality, it exists.
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And that itself can t be explained in any scientific manner.
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I mean, you can talk about anti-protons and protons and the sum being zero and so on, but why did it even happen in the first place?
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So there s part you simply have to take on faith.
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Yeah.
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So there was darkness before,
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And there s darkness after.
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Yeah, and I don t know if we re gonna be alive on the other side of that darkness.
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I think individually, no.
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But the way you can live on is by what you do to human consciousness.
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And how do you hope people remember you?
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As someone who managed to integrate economics with an appreciation for life.
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Well, I have to say, as a bit of a callback,
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You re one deadly bastard.
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It s a huge honor that you would come down and talk to me.
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You re a brilliant person, you re a hilarious person.
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The humility shines through, the brilliance shines through.
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Thank you so much for spending this time.
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You do the same for humanity.
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I mean, when I saw that email from you, my eyes popped out on my head, okay?
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Well, you should hold your judgment.
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I gotta show you the sex dungeon I have.
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I m waiting for an invitation.
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I ll send my wife over.
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Awesome, can t wait.
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All right.
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Thanks for listening to this conversation with Steve Keen.
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To support this podcast, please check out our sponsors in the description.
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And now let me leave you with some words from Karl Marx.
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To be radical is to grasp things at their root.
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Thank you for listening and hope to see you next time.