Yanis Varoufakis: From an Economics without Capitalism to Markets without Capitalism | DiEM25

My dear fellow students, dear teachers, dear ladies and gentlemen. My name is Anna-Katharina Kothe and as a member of Rethinking Economics Tübingen it is with great pleasure that I welcome you tonight to the last talk of our lecture series, "Introduction to Pluralism in Economics". This entire series of conferences would not have been possible without the help and financial support of the Department of Economics, the Young Scholars Initiative and the Forum Scientiarum. Thank you so much. This special event tonight would not have been possible without the Democracy Movement in Europe, DiEM25 and the tremendous work of their team.

Thank you very much for starting this opportunity and the fruitful collaboration. We would also like to thank the TIMMS service of the University of Tübingen for making the transmission to two other conference rooms possible. Some of you may not really know how to rethink the economy in Tübingen and wonder why we organize such a big event in our free time. First of all, we do this for all those who do not study

economics

or business administration and for all those who have the feeling that something is wrong in our global economy. Only a plurality of perspectives in

economics

, along with other sciences, can explain the state we find ourselves in and help develop solutions for our future.

We want to give you those perspectives, which is why this lecture series "Introduction to Pluralism in Economics." We also do this for the Department of Economics. We consider ourselves aligned since we refer our activity to a scientific discourse on different paradigms in economics. We do not want to wage an ideological war with our teachers. Nor do we want to persuade them to change the analytical focus of their research. But we organized this series of lectures to support the claim that neoclassical economics is just one way of doing economics. Other schools of thought can no longer be marginalized.

We organized this series of conferences to express our demand for curricular change. We demand the institutionalization of plural approaches in our field of study. To be fair, changes have been made by the department, but we still see a long way to go. Rethinking Economics Tübingen will publish a report on pluralism in economics next semester to summarize our arguments and evaluate the status quo of the Department of Economics. We hope to continue the dialogue with our teachers from there. And last but not least, we organize this series of conferences for our economics and business administration colleagues.

We not only want you to have the opportunity to learn about the economy from a different perspective. We also want you to have the opportunity to become the kind of economist you want to be. It takes some bravery and guts to go against the mainstream and we want to encourage you to continue critical thinking. Whether you want to join us or not. After all, we are the economists of our future. Having stated the motivation for this lecture series, I have nothing more to do than introduce our speaker tonight and make one more organizational comment. We will use this online tool for you to ask questions.

Follow the link and enter the code here on the board. I kindly ask you to help those who do not have a smartphone or laptop. Please note that we cannot consider all questions. We will do our best. Tonight we will only examine reasonable questions about this talk. It is a great honor that Professor Yanis Varoufakis has come to Tübingen tonight. He is a mathematical economist and statistician by training and a talented game theorist. He has taught economics at several universities around the world and is currently a professor of economic theory at the University of Athens.

Professor Varoufakis is also a member of the Greek Parliament and a representative of DiEM25. And tonight he will speak about the future of our economy and the status quo of our economy under the title: "From an economy without

capitalism

to

markets

without

capitalism

." Let us welcome Professor Yanis Varoufakis. Let me start by thanking you profusely for being here. Thanking the university and the economics department, the students who organized this. For someone who has spent his entire life in universities, whether as a student or as an academic, and who came to politics very late in the article, in 2015, I can assure you that the transition from academia to politics is cruel.

The fundamental cruelty is that when we are in this context, when we are in an academic seminar, when we are in class, there is a process by which, as academics, we formulate hypotheses and our colleagues have the sacred duty of triggering them. below. And any hypothesis that survives that process has a certain degree of fitness, evolutionary fitness. Not that it's the truth, but it's probably close to the truth. While, as a politician, think about the pain of being on the television panel among politicians. And just for a moment imagine that you are representing some party. And your interlocutor on the other side says something clever that you hadn't thought of.

Suddenly you agree. But what you agree with now goes against the grain of your own party. If you admit it, you're out. You're out, you're done. That is why there is a built-in process of deaf dialogue in politics. Until politics starts to look more like academia, rather than academia more like politics, we will never return democracy to the pedestal it deserves. That's why I'm very happy to escape from politics. Because you heard that I'm a teacher. I'm not really a teacher. I have the title. My teaching position is officially suspended while I am a member of Parliament and in this murky and cruel world of politics.

But whenever I can get away and be in a college environment like this, I do it. Sometimes I do it incognito. I go back to my own university and listen to people talk or give a sneaky lecture without anyone knowing, just to get a dose of academic freedom. So enjoy your academic freedom, use it. Don't waste it and don't let anyone take it from you. This is a duty that you have. Now, I was asked not to deviate from the main theme of this series of lectures. And I'm very glad I didn't stray. They being "pluralism in economics" or "pluralistic economy." Let me start with a devil's advocate kind of question.

Why do we need pluralism in the economy? We would never have physicists gathered in this great amphitheater discussing pluralism in physics. Pluralism is not necessary in physics. But why is pluralism not needed in physics and may we need it in economics? Well, because economics is not like physics. And what is the profound difference? If we look at the curricula of economics departments (I don't know this particular department, I'm sure it's similar), if we look at the textbooks, if we look at the main articles published in econometrics in general and in political economy, it is not It is obvious that economics is not like physics.

You start with assumptions. You build theorems. You prove the theorems. You have slogans. Then, usually, someone, perhaps not the author himself, collects some data and empirically tests, mainly econometrically, the reduced forms of the equations that follow from the theorems. Isn't this what physicists do? More or less. But the profound difference, let me say, between economics and physics, is that, in physics, the phenomenon doesn't give a damn about our models of the phenomenon. Therefore, a meteorologist does not have to worry that the weather will change because he has made a particular prediction. Whereas in the social sciences, whether it's sociology, economics, whatever.

The phenomenon really cares about our theories about the phenomenon. Because, as theories, they have the ability to alter our behavior in accordance with the theory. So, to put it in statistical terms, you get a plethora of false positives and false negatives. Let me give you an example. Let's assume our friend here is a financier, an analyst of the financial

markets

, with an impeccable track record of correctly predicting the financial markets. By the way, there has never been such a person in the history of capitalism. No one has ever predicted systematically and with any degree of consistency.

Just by accident. A Marxist like me "capitalism was going to have a crisis." At some point capitalism has a crisis. "You see, I was right." That's not science. But suppose our friend here is such a mythical person. And let's say after tonight we go out to the pub, restaurant, whatever, have a few drinks and she gets drunk. And she tweets, in her overjoyed state, that tomorrow the stock market is going to crash. To the extent that your reputation is good, the stock market will plummet. That's not because the theory was good. She was drunk. But it's because the stock market responds to our theories about it and our predictions based on who actually made them.

Excuse me, I have a terrible cold. Not the Chinese variety (Note: Referring to Covid-19) That is a false positive I just described. But there are also false negatives. Suppose you are a notable designer and modeler of traffic systems, and in the same way that a meteorologist or a financial expert has a model, a mathematical model embedded in a computer, in the case of the meteorologist to predict the weather given the input of data from different weather stations, satellites, etc. It has data coming from various roads and sensors that measure traffic flows. And you have a mathematical model there that produces predictions about...

Google Maps does this all the time these days. You don't even need a very sophisticated model, right? And let's say that, based on all this data, the excellent traffic jam predictor predicts that tonight at midnight, in Stuttgart, there will be, on that particular street, a big traffic jam. And since this person is renowned for his ability to predict traffic jams, let's say that radio stations and television stations in the local area broadcast it. There will be no traffic jams there. But is it because the theory was bad or was it because people believed it was correct and didn't go?

So that's a false negative. That interdependence between the phenomenon being studied and our theory of it... Think about it. All those theories about efficient markets, the theories about the real business cycle, the theory of rational expectations, those of you who have studied economics, became part and parcel of the ideology of post-1971 capitalism. An ideology that crashed and it burned down along with Lehman Brothers in 2008. But those theories really altered the way financiers thought. They did believe. Alan Greenspan, the head of the Federal Reserve Bank, actually believed (he later acknowledged) that he had believed that those theories worked and, therefore, the markets could not fail as they did.

And then he came out in a Senate committee and made the 'mea culpa' of him. He said, "My model of the world crashed and burned that day. The day Lehman Brothers collapsed." That is why we need pluralism in the economy, one of the reasons. Because we have no empirical means to determine the quality of our hypotheses. You might say, "Well, what exactly is econometrics about?" Let me tell you my experience on what econometrics is all about. My PhD was in microeconometrics at a time when microecometrics had not yet been invented. So I had data at a very, micro, micro level.

Data from individual negotiations between employers and unions in the United States. And there was a faculty competition between an MIT professor – Hank Farber was his name – who published an article in the American Economic Review, in which he sought to demonstrate that employers, companies, boards of directors, CEOs are intelligent intertemporal optimizers. and the unions are stupid and behave mechanically and resist what the company is doing. So he had a very complicated intertemporal optimization model in which the company maximized its long-term profits, intelligently, like a flawless computer, and the workers were stupid. They simply asked for a 5% pay increase and then if a strike happened after one week they would settle for 3, two weeks they would settle for 2 and a half, four weeks they would settle for anything.

And this was mechanical, resilient, non-optimizing behavior. And the math was splendid. The microeconometrics were very, very good. At that time I was using very sophisticated maximum likelihood estimation techniques. And he showed that the model produces a reduced form, an equation, that fits the data. He said, "Try." So my PhD was actually very simple. I defended this model and said: "Imagine we have unions that are very, very smart. And they are maximizing their intertemporal aggregate wages. And the employer is stupid and mechanically resists. They offer a 0.5% wage increase, if there is a strike for a week and rises to 1%.

So do you know exactly the opposite? The model behaved or fits the data equally well. What does this mean that the data and the empirical data do not.they can? Of course, neither of those models were close to the truth, because neither employers nor unions are super rational. What happens when neither of you is completely stupid or completely smart? We have no idea. Because mathematics cannot be solved. That's what led me to game theory. So the second reason we need pluralism is because, unlike physics, where there are laboratory conditions that can precisely test the relationship between data and theory. , because you designed the experiment in such a way that you control exactly what you want to test all the different configurations of the theory that can predict and fit the data;

In economics we don't do it. But youThey will say that we have experimental laboratories. I know. I have been doing experiments in laboratories for 10 years. It was fun. There were two problems with this. First, every time I got a result that would have empirical regularity and could be replicated over and over again, you know what some of my fellow economists said? "The only thing he has shown is that this is how people behave in his laboratory." Which is not false. You can't do this in physics. If the molecules behave in a particular way in the laboratory, that's it, the problem is solved.

Let's move on, right? Second objection. Some of you who have experienced economics will have heard of expected utility theory. It is a particular model of how people behave in conditions of risk. We now know, thanks to countless laboratory experiments, that expected utility theory does not work. It's a beautiful theory, but there are countless examples where it fails to predict how people would behave. Do you know what most economists do? They say, "Oh, that's because they're not rational enough." So it's not, you see? Think about this, what it means. It means that in the end the theory is not tested in the laboratory.

Test the subjects. You can escape easily. And it's not entirely crazy. Because, if you take a bunch of idiots in a lab and ask them to do math, a little bit of arithmetic, and they get all the arithmetic wrong, it's not the arithmetic's fault. It's because you have idiots. Good? But if you have economic experiments where in the end you are judging the subject, not testing the theory, then you are not testing the theory. Let me give you another reason. Even when we don't disagree about the numbers, we have big disagreements about how to interpret them.

Disagreements that cannot be resolved empirically, because the numbers are common. Let me give you an example. Suppose you are somewhere in Africa and you observe the political economy of a small village. It is a town that is on the verge of subsistence, between subsistence and hunger and poverty. And there are good years and bad years. Good harvests, bad harvests. And let's say that during the years of good harvests the supply is high, prices go down in the local market where they take the wheat, whatever it is, corn, that they produce. However, the total income is enough, divided by family, that they can buy enough rice or whatever they eat, sweet potatoes, to be just above the subsistence level.

In bad years, production is not enough, so we are going through really difficult times for this town. At least, however, because the supply is low, the price is higher. Thus, part of the losses derived from the fall in quantity are offset by the increase in price. So, on average, they are only in subsistence conditions. Average between good years and bad years. Now suppose that one year an intermediary arrives. During the good times, during the abundant harvest. And he buys a quantity, the surplus produced during the good year, and stores it in some warehouse. By doing this, and why would you do this?

He would do it to sell during the bad year. But then what happens is that the supply increases due to the wheat that is provided during the bad year, so the farmers during the bad year suffer the loss of quantity without gaining price. And then they die of hunger. Let's say we agree on the numbers. We have just done the analysis, we are all in agreement. Now consider, compare and contrast two different interpretations. One interpretation is that this middleman, based on the strength of his capital – the fact that he has some money that allows him to buy a portion of the product during good years – is benefiting at the expense of pushing that village on average below of the subsistence level.

He should be forced, whether through price controls, taxes or legislation, to stop doing this. Interpretation number two. The intermediary is providing a service to society. Because by buying during good years and selling during bad years you are stabilizing the price. And to the extent that local town bakers need price stability, he offers a service. So do you see what I mean? Here we have the same situation, the same figures; we do not disagree on the figures; It's not even a theoretical difference. But there is a political difference. There is an ethical difference. As a political economist, as a citizen, you have to choose whether price stability is more important than the fact that some people starve.

That is an ethical question. That is why economics can never be a science. And that is why we need pluralism. Because if you teach only the second interpretation or only the first interpretation to your students, you are doing them a disservice. Unlike physicists who can never do students a disservice as long as they are good at taking results from the lab and transferring them to a beautiful lecture hall like this. This is why whenever I taught economics to freshmen – especially freshmen – I made it a point to present every major school of thought I could think of: the neoclassical school of thought, the Ordoliberal school of thought in terms Germans, the Hayekian school of thought. , the Shumpeterian school of thought, Keynes, Marx, and every time I presented a particular interpretation of capitalism, I presented it as if my life depended on convincing students that it was correct.

And then the next day, at the next conference or the next week, I'll do the same thing with the opposite school. That confused my Asian students in Australia. And some of my Greek students, because they said, "But professor, you taught us something else last week. Which one is correct?" And I said: "That's up to you." They say, "No, no, no, no. We are students, you are the teacher, you tell us which one is correct." That's the first lesson. The first piece of education. No. There is no authority. There is no expert to point out which school of thought is correct or not.

It's like in philosophy. Can you imagine what a terrible philosophy professor one would have to be to give a Kantian view of the world and say, "Everything else is rubbish"? And not to teach Hegel or David Hume. Economics is much closer to philosophy than to science. And unless we understand that we are doing ourselves and our students a disservice. So, again, speaking as a former professor, I think the optimal way to teach economics in a way that honors students and honors the full breadth and breadth and richness of the economics discipline is, especially early in students' careers, simultaneously teach economic history and the progression of economic ideas.

That is, when teachers try to teach the concept of opportunity cost or division of labor as if it were an abstract clinical question. You can do it, but students will get bored and miss the importance of the context that gave rise to these concepts in Adam Smith. And unless you explain why Adam Smith happened in the 1770s? Because an industrial revolution was happening on the River Clyde, right below his office. And he had to explain to his students what the hell was going on. And he had to explain to his students: "See those factories by the River Clyde?

Where 12-year-olds work 20 hours a day? That's the beginning of a good society." And they said to him: "You are a moral philosopher. How can you say that the exploitation of these children is the beginning of a good society?" And then he comes out with unintended consequences. That these industrialists who exploit children are terrible people but, by pursuing their own greed, they are unwittingly facilitating the public interest. I'm not saying I agree with that. But unless we put it in this historical context, then... Let's teach our students economic history, effectively how capitalism emerged and how the crises of capitalism, the moral crisis, the economic crisis, the financial crisis and the unemployment crisis they generated concepts.

Keynes would never have thought of the fallacy of composition if it weren't for 1929. It's actually very simple. So anyone who tries to teach Keynes without what happened in 1929 is actually doing Keynes and the world a disservice. Now. Of an economy without capitalism. Let me explain that to you. When you look at a textbook, a standard economics textbook, – well, at least when I look at one – there is no capitalism in it. There is supply and demand. There is a process that leads to balance. Prices and quantities rise and fall. There are markets. Capitalism that I never find.

I'm looking for it, I've been looking for it all my life, it wasn't there. And let me explain why. Even those of you who have not studied economics, you will remember, must have seen the diagram of a demand supply curve. Prices... – imagine now, I don't have it on the board, thank God for that – the vertical axis is the price, the horizontal axis is the quantity, you have the downward sloping demand curve, the sloping supply curve ascending and the teacher says, balance is where they are. That's where demand equals supply. Well. Very powerful visual tool. And then the tragedy begins.

Because the poor professor has to explain what happens once it is operated, a situation (when)... How do prices change? They say, "Oh, if demand increases, if for some reason people change customer tastes, they suddenly want to buy more for the given price of whatever, you know, balloons. Then the whole demand curve goes up." . And then follows the price. Wait a second. That cannot be supported mathematically. Because? Because these demand and supply curves exist under equal conditions, that is, the prices of other goods, income. But if all else is not equal, then those demand curves move anyway.

So, for example, when you buy coffee, this is a standard example, and the price of tea changes or the price of something else, some substitute. , then the demand curve changes. But if the demand curve for coffee goes up and the price goes up, the price of tea will change, its demand curve will shift again. Then it would be like a cat. chasing his tail. So you can't tell a story about price changes in real time. So, poor teachers, you have to tell a story based on hypothetical reasoning. They have to tell a story, listen, compare and contrast the two different phrases: demand goes up and price follows.

That means time. You can't do it if you want to be mathematically correct. So, what do you say? "This is where the demand is and this is where the price is. If the demand curve had been somewhere else, the price would have been somewhere else. This is called comparative statics. This is all we teach students. But it is very difficult to tell you, "You are not allowed to talk in terms of time." So time does not exist in any of the microeconomics textbooks, anyone who talks about time is wrong. .I should be fired immediately as a teacher or suspended as a student.

So there is no time. And there is no money. If you have a mathematical model, a system of n equations, and you have n + 1 or n + 2 unknowns, you can't solve it. If you have an economy, let's say, with two goods, machines and corn, to make it simple, then you have a system of two equations and the unknowns are the two prices, especially if you have 20 equations 20 unknowns. separated, you must add another equation, so you will have n + 1 unknowns and n equations. You can't solve it. That is why, in microeconomics, in general equilibrium theory, it is impossible to add money to the model.

So in the economics that students learn there is no real time or money. Most of them don't realize it. Because they talk about prices, they say: "The price of coffee." But that is not the monetary price. It is the relative price. How many grams of coffee do you get for a tea bag? But that's barter. That is an economy that is not monetized. So all the economics in the economics textbooks that are taught not only in this great university, but in all universities, they don't have time, they don't have money. He also has no debt. Because if you don't have money, you don't have debt.

And if debt is included in any macroeconomic or microeconomic model, it cannot be solved. So you don't have money, you don't have time, you don't have debt, so you don't really have interest rates. And you have no risk. Because if you don't have time, where is the risk if there is no time? There is nounemployment, unless you bring it in through the back door. Because if the labor market is supposed to be like the potato market, what happens in the potato market? You have leftover potatoes, you lower the price of potatoes, you get rid of them.

So why doesn't unemployment, which is an excess supply of labor, disappear when wages fall? Then we have to start blaming things. Because, in reality, unemployment perseveres especially when wages fall catastrophically as in the Great Recession, as in the Great Depression, as in Greece, since 2010 we had a 42% reduction in wages and unemployment was increasing. It doesn't happen in the potato market. We never find ourselves in a situation where the price of potatoes drops and more potatoes remain unsold. It does not happen. But if one is determined to model labor as if he were pope, then he has to say: "Ah, it's the unions." "The unions resist the price reduction." "It doesn't allow the price of labor, the salary, to go down enough." So it's the unions' fault." Of course, the unions employ other economists who say, "No, it's the monopolies' fault." Because if you have a monopoly, or a monopsony in the labor market, you don't have a competitive market.

So , it's a blame game. So, politics falls into the realm of bad economics. And you have bad politics and bad economics. It's not a good mix. One of the things, the first thing economics students learn is the model. IS-LM, the macroeconomic model, the simplest beautiful macroeconomic diagram, which explains the interest rate, which of course cannot be explained microeconomically, so let's just assume that there is something called the interest rate, but in order to do that, there is We have to assume that investment equals savings. Which is perfectly true in a barter economy, if we don't have money, what sense would it make for the farmer to set aside corn and not eat it or sell it to eat it?

You'll want to leave out the corn to use the seeds for next year's crop. That's investment. So, by definition, when you don't have money, saving equals investment. But what if you have money? Because there is no reason why we should axiomatically assume that money saved will necessarily be invested. You can put it under your bed. Or you can put it in Deutsche Bank. – very bad idea – and then Deutsche Bank can give it to Siemens to buy back their own shares. That is not investment. The price of a Siemens share rises because more have been purchased, but there is no real investment.

There is no new machinery, no new jobs, no seeds on the farm. "Of an economy without capitalism" So we have spent the last 100 years in economics developing beautiful, aesthetically superlative general equilibrium models. I spent my youth studying them in the same way I went to the Louvre or the Acropolis Museum in Greece, to contemplate the aesthetic beauty of the works of art. Totally useless. From the perspective of understanding capitalism. Because there is no capitalism there. There is no money, there is no time, there is no interest rate, the permanent imbalance in the labor market, the permanent imbalance between Investments and savings, is not taken into account.

So everything we teach our students is irrelevant to capitalism. But students have to constantly pass exams. They have to learn those models, recapitulate them, learn them over and over again. And of course, if they ever become teachers, they will have to teach the same thing to their own students. Because this is what they know. And because it is mathematically very complicated, the beauty of complicated mathematics is that it creates monopoly power. Because if you understand it and people don't understand it, people think, "I'm stupid compared to him. He must understand something that I don't understand." And in the end, of course, I don't understand anything based on all the complicated mathematical models I've learned.

Because it is irrelevant to capitalism. It cannot explain unemployment. But then, of course, I go on television and say, "What do you think about unemployment?" "Oh, it's the unions' fault or it's the employers' fault." It's all garbage. I may be right in what I say, but it will be despite the fact that I am an economist, not because I am an economist. At the same time, I firmly believe that we have a duty to learn all these economic models. All of them. As long as it is pluralistic. As long as we learn Keynes, from the original, not from the textbook, which was written by someone who didn't understand Keynes.

Hayek, the neoclassists... Why? Because each of these theories fails to explain capitalism. But, by studying them, we explore the limits of human reason. We hit the wall of our inability to seriously understand the beautiful indeterminacy that is the capitalist beast. And when you study the neoclassical model, you hit a wall. If you study the Marxist model, you will run into another wall. If you study the Keynesian model, you will run into another wall. Hit as many walls as you can. Because then you have the ability to overcome all these theories. Set them aside. Your logic, your mind, your faculties will have been sufficiently trained as long as you realize that the truth of capitalism is not in those equations.

And you have the ability to then maybe, maybe, maybe have an opportunity, an iota of possibility to say something sensible, which will not be demonstrable. The only thing I have learned from Keynes is that people ask me... I don't know who has read The General Theory. It is an impossible book. It's charming. It's very well written, okay? But it's completely... one chapter contradicts another chapter, sometimes the prose is so wonderful that I don't know what it means. One thing I have learned from Keynes, if I am to summarize what Keynes said and what I have learned from Keynes...

We'll be damned if we know. We are damned if we know. We have no idea why markets fail. All we know is that they have a tendency to fail, and when they fail we have to do something about it. And the markets won't fix themselves. That's a celebration of the beautiful and horrible indeterminacy of capitalism. Now, let's look at capitalism. Because up until now I've been telling you why I believe there is no capitalism in the standard mainstream economy. I want to start with a distinction that I already made and want to make again. Capitalism is not markets.

Societies always have markets. The Phoenicians had markets, the ancient Greeks had markets, they were not capitalist societies. They were societies with markets. Something happened towards the end of the Middle Ages and was elevated to a higher level, towards the end of the 18th century in Amsterdam and in Britain, that transformed society from a society with markets to a market society. And by this what I mean was starting the process in which almost everything became commercialized. Before that land was not for sale. Either you inherited land or you were a landless peasant or sometimes, if you raised an army, you conquered land.

There was no real estate market. Know? The classifieds... There was no job market. Either you worked for some baron and, if you opposed that social arrangement, they took your head off your shoulders, or you never worked because you were the baron. There was no job market. You couldn't help but say, "Look, I don't want to be your peasant. I'll be someone else's peasant. So the creation of labor markets, real estate markets, capital markets is a very recent phenomenon and that is capitalism." For the purposes of what I want to say today, I want to focus on one year in particular, fairly early in the piece.

The year is 1599. The day or week that Shakespeare, William Shakespeare, was in his theater fighting for. complete Hamlet, something extraordinary happened. The first public limited company was founded, the first company whose shares were negotiable and anonymous where you could buy a share without declaring who you are and whether it could be sold to you. more like a piece of paper. It was called the British India Company. Within three years, the British India Company had effectively destroyed and taken over all of India's markets, with an army of 200,000 soldiers. larger than the British Army or the French Army.

That was a company, you know the story. Tradable shares unleashed a very powerful genius that had the ability to boost and weaponize capital formation. It was an essential moment. Then there was the period of the late 18th and early 19th centuries. Very lukewarm capitalism. When Karl Marx was writing his wonderful Communist Manifesto – the first four pages are the greatest praise of globalization of all time – he talks about the way the bourgeoisie is through the expansion of global markets, tearing down the Chinese walls of prejudices and freeing people from misconceptions of the universe and themselves. It wasn't happening.

That was in Karl Marx's imagination. It happened much later, much later... It was prophetic. When did it really happen? It happened after the 1870s, when Maxwell came up with his wonderful equations of electromagnetism. Those equations that merged, unified the theory of magnetism with a theory of electricity gave rise to what we know today as capitalism. Because it was the basis of telecommunications, electricity, radio and, of course, and this is crucial, of the networked company. When Thomas Edison designed... he invented the lamp, the electric lamp, immediately in his mind he had the power plant that produces electricity.

And he was the first to create a gigantic, fully vertically integrated monopoly. From the factory that pumps the electricity that owns the network, the cables that run through homes and businesses to the electric lamp and the kitchen oven. Now, of course, the reason I mention this is because here we have the true nature of capitalism, which is not the competitive capitalism that Adam Smith had imagined of the baker, the brewer and the butcher, whose small family businesses compete with each other. turning private vices into public virtues. No. Here we have monopoly capitalism. The profit margins of networked businesses, whether railroads, telephone companies, or power grids, and then of course Henry Ford comes in with the mass manufacturing of automobiles and other products.

These enormous economies of scale and network economies do two things. First of all, they make sure the competition is a joke. Rivalry yes. We have General Electric pushing for a particular type of current, alternative current, and DC is what Edison... So it's like the Soviet Union against the United States, not like butcher against butcher. The interconnected enterprise, by its very construction, was extremely expensive to finance. No bank had the capacity to send Edison the money he needed to build that structure, that network. So what happened? The megacompany gave rise to the megabank. Consolidation of different banks into hyperbanks.

And where did they find the money? Because if you and I get together, or even 100 of us get together. We collected 10 euros. We do not have the capacity to finance a network company. That's how the money came out, as John Kenneth Galbraith once said: "if people understood where money came from, there would be a revolution." It came out of nowhere. So effectively the megabanks go together, they had enough political power to offer lines of credit to the megacompanies. So the money was fictitious. It was a bit like megabankers pushing their hands through the timeline membrane into the future, grabbing value that hasn't yet been created, bringing it here, handing it to Edison, to provide it, to produce the value that pay to. the future.

And if you can do it, it's like having an ATM in your own living room. But of course, the closer you get to the future and bring it into the present, the harder it will be for the present to make up for the future. At some point that is a collapse. 1929. And then, of course, we all know what happened in the 1930s. I don't want to get caught up in this. But I want to take you to the golden age of capitalism that began with Bretton Woods in 1944. That lasted two decades, not even two decades, let's say two decades.

This was the only time unemployment fell to 2%. Inflation was between two and two and a half percent everywhere. In Europe, in Japan, in the United States, in Canada and for the first time – something that matters to us today – inequality fell deeply. For the first time and last time. That system was based on a single currency. The euro is not the first single currency. The gold standard was the first single currency. And the Bretton Woods system effectively replaced gold with the US dollar. So we are all dollarized after World War II. That's what happened. Especially in this country, and to some extent in mine.

But that dollar zone that was global capitalism was based on a constant recycling of surpluses by the American economy. The Marshall Plan is just one example. It was not philanthropy for Germany, Greece or Europe; It was not simply a mechanism to subdue the Soviet Union. – it was that too – but it was a very smart and deliberate process of taking the surpluses from the only surplus economy at the time, the United States, and bringing them here, to finance the aggregate demand that was necessary to buy the net exports of the United States . That system collapsed.Because? Because Germany rose up.

Japan stood up. And the United States became a deficit country. And on that point, unlike Europe, Americans are much more pragmatic than we are. When they see that their design no longer works, do you know what they do? They destroy it. While we continue to hold on. Do you remember the exchange rate mechanism? We hold on to our lives until the end. The euro now. We cling to the euro, with the same structure as the euro, although we know that it does not work. You have negative interest rates that are destroying your banks. Everything continues as always.

Americans are not doing business as usual. When their own design, even though they like it, like Bretton Woods, doesn't work... They kick it out. And they replace it with the opposite mechanism of recycling surpluses. They use their trade deficits to turn the American economy into a huge vacuum cleaner that sucks into the territory of the United States the net exports of Germany, Holland, Italy, Japan and, of course, later China. How were they paying for it? Its industrialists, its bankers, sent 70% of their profits to Wall Street. That's how they paid for it. The Chinese bought bonds. They invested in the United States.

The Japanese, the same. So it was a very unbalanced situation, but stable. Or... You can think of it as a stable imbalance or an unstable equilibrium. Choose your language. Same situation. And that crashed and burned in 2008. This is where we are now. We are experiencing a crisis of capitalism that takes different forms in different parts of the world. In some parts of the world, interest rates are negative. In other parts of the world unemployment is very high. Elsewhere in the world, it is the private credit bubble in China. But these are all different manifestations of the same crisis.

In Australia it was the floods, two years ago in northern Queensland and the forest fires in Siberia. One was a flood, the other was a fire. Both were the result of climate change. They were the same crisis. In the same way that there are negative interest rates that strengthen Alternativ fur Deutschland, in Greece we have what we have. I'm not going to go into that, it's too depressing. The network company, with digitalization, has become a total and complete monster. Take Facebook as an example. Facebook is a world apart. Anyone who enters Facebook leaves capitalism behind, abandons society.

You enter a world, created by software, that is a gigantic economy, a gigantic economy. There is no competition. It is owned by Zuckerberg. They charge you to advertise events like this, they charge politicians to push their political campaigns, they have a remarkable mechanism for altering behavior. The only reason two of you can communicate through any type of app or software is because someone thinks they can manipulate you. And you know what? They are right. And they manipulate us all. We have become proletarianized without realizing it. We all work, we post things on Twitter, Facebook, etc. What is the capital of Facebook?

They are your publications. That's the... The proportion of... Do you know how much, what is the proportion of revenue that Facebook pays to its workers? To its designers. Know what it is? 1%. Even Walmart, which is the most exploitative large company in the world, pays 40% of its income to its workforce. Facebook only pays 1%. Because you all work for Facebook. And you don't even know it. You are at the same time a proletarian and a consumer. This is remarkable. There is no capitalism on Facebook. It's like the Soviet Union. It's Gosplan. There are three people who make all the decisions.

And they are much smarter than the Soviet Union because the Soviet Union had to have the KGB, they had to threaten you, they had to send you to the gulag if you didn't behave, Facebook doesn't need to do that. They don't need to do what the British India Company did. What does it mean to have 200,000 soldiers? They have the American army. American capitalism, whenever there is a problem, sends troops. And they are paid for by taxpayers, and some of them are paid for by us in Europe or by the Saudi Arabs or whoever. Therefore, it is important, whatever your politics, to forget for the moment the economy without capitalism, because there is a real beast called capitalism, which is affecting our lives and whose crises endanger both the planet and our souls.

You know, in the 1970s, I was always left-wing. In the 1970s I remember the great conflict, the political conflict, the ideological battle between free market supporters who believed that the free market is a fantastic device for coordinating our lives. preferences and allocation of our resources, but the objective was the satisfaction of the preferences of the sovereign agent. My preferences were my own. My life was mine. I finish work at 5, I work from 9 to 5, then I work so I can do what I want as a human being. Now we have this situation, where with digitalization... Young people.

Take young people as an example. Most young people fall into two categories. Or those without a trust fund who have to face the prospect of precarious work for 20 years. Or some of them who, maybe because they have some skills, maybe they have a lot of social capital, are much more connected to high value-added businesses. But even they have to constantly worry when they go to an interview, they know that the interviewers are going to check their social networks. They need... I know young people who constantly worry, have they found their calling? Because they go to interviews and there are interviewers who sound very, very modern and they say, "We want you to come work for us, if that's your passion." Then they start to worry: "What is my passion?" And they are constantly trying to discover passions.

They go to shrinks. They buy self-help books. This autonomy of the liberal individual has disappeared. Now everyone is trying to emulate everyone else's vision of what their passion should be. This is a type of tyranny that the KGB could never imagine. It's too cruel even for the KGB. Because even when you were a prisoner of the KGB or the Greek right-wing fascist dictatorship when I was a child, even in the cell, you were in command of your own faculties. And you knew who you were. And they could not - as Immanuel Kant would say - they could not take away this autonomy from you, no matter how small the cell in which you were imprisoned was.

Today we are all free in the land of the unfree. That is, for me, where capitalism is. Regarding democracy. Where do I start laughing? The technostructure, the network companies, the hyperbanks, they are... they are owners, don't worry about that, they are owners of our politics. If you look at the way the powers that be in the European Union took 3.6 trillion 3.6 trillion since 2010. If you want, we can break it down. 3.6 trillion to save the banks. And now they are criticizing climate change. We have the Green Pact of the new president of the European Commission that promises one hundred billion a year and she only has 7.5 billion.

The rest will be evoked from nothing in the same way that Juncker was going to evoke things. Now let me finish with the last part. Markets without capitalism. My criticism of capitalism is that liberal capitalism is not possible. It never was, it never will be. It's just an ideology. It has as much to do with reality as the Marxist theory of emancipation had to do with the Soviet Union. Zero. If we are going to save the markets, because I believe in the markets. Potato markets. We need to free them from the moment of 1599. Have you heard of companies like BlackRock, State Street, Fidelity?

Do you know that they own 90% of the corporations listed in the Standard & Poor's 500 in the United States? From airlines to JP Morgan to Google, we're talking about two types. They are boys, not girls. Maybe there's a token girl somewhere. They control 90% of capitalism. What is the connection between this and Adam Smith? Zero. As a recent study showed, when airlines that belong to the same mega-capital company compete. When they compete, prices rise by 5%. Because they collude. Because the CEOs of all these airlines are accountable to the same financier. So this is what I mean: if you really want markets and you don't want central planning, you better eliminate the model of capitalism you have because it is centrally planned.

There cannot be a more centralized system than the one we have. So what would a world where markets breathed be like in the absence of capitalism? Let me finish and then we begin the conversation, with a dream. Can I do an 'I have a dream' moment, please? I would allow? Sleep is multifaceted. But now I will limit myself to three points. Let's imagine a corporation where there is no boss. You walk in, you're hired by a committee. A sales committee that met because they wanted an economist. They wanted a graphic designer. So, some of them formed a committee.

They interviewed 20 people. And they hire you. You get a share for the company. You can't buy any. It's like a library card. You come to college and get a library card whether you like it or not. And that gives you one vote for everything. They vote on the distribution of the company's income between research and development, what the basic income should be. And you also vote for bonuses. Not everyone gets the same thing. How do you vote for bonds? Do you remember the Eurovision song contest? Imagine everyone getting 100 bonus points and votes. You can distribute them to any of your colleagues in proportion to your estimate of their contribution to the company.

And then when the vote count comes, everyone receives a percentage of the bonus pool in proportion to the votes they got from their colleagues. And when you leave the company you take the accumulated capital depending on your years and the bonuses you have. And you take it to any company. You form another company with friends or join another cooperative company of this type. Now, that's not a dream come true. I worked for such a company in Seattle, Washington state. That's exactly how it worked. 330 people who share 1.2 billion in income. I'm not talking about some kind of ramshackle cooperative.

Imagine furthermore that each of us had another bank account. A triple bank account consisting of three subaccounts at the European Central Bank. A digital one. We would never have to go to Frankfurt. Who wants to go to Frankfurt while in Tübingen? Part of the account is a trust fund for each baby. A certain sum of money goes to that fund, from the central bank, for each newborn. The second is where your bonuses accumulate. The third is where a Universal Basic Dividend flows. A dividend of what? By the way, before answering that question, the moment you have it, banks die.

There is no need to have commercial banks. It is a free digital bank account. Why would you want to have a Deutschebank account to pay their fees? And also Investment Banking is already dead. Because if negotiable shares are prohibited, if the error of the British India Company of 1599 is reversed and you have one share, one worker. Stock ownership and commercial banking produce money out of thin air. Those two combine to create investment banking. Once you have no tradable stocks and you have free banking, investment banks no longer have a purpose. There is a bank very noisy because of the debt.

For private debt. So what happens is that your savings, through this digital network there may be some brokers and you can also lend them to other companies, you can lend them to anyone. But it's money you've already earned. It is not money that is created from nothing and finally from the earth. Let's imagine that each municipality has a citizen assembly whose job is to divide the land into two lots. One is the commercial area and the other is the social area. The commercial area is exploited commercially through markets. in order to earn money to build social housing in the social zone and social enterprise space.

And how does the commercial area work? Full-fledged markets. Totally neoliberal markets. This is what I am proposing. what do I want to say with that? Imagine you have a building, your workplace, your company or a residential house. Maybe you don't want to live in social housing. Maybe you have enough money accumulated and want to live in a house of your choice in the commercial part. Every January 1st, or first week of January, you must enter a website and declare your estimate of the commercial value of the properties. And you pay your rent, or a tax, land tax, proportional to your statement of what you think the value is.

Of course, that means you have an incentive to give a very low rating. AHA. No. Because there is a second rule. Anyone can come and bid on your house or your workplace, your office space. If they outbid you, you will be out in 6 months. So now you have an incentive to increase it. And all those rents accumulate to be a universal basic dividend and to pay for social housing. Now, the reason I tell you this is because I want to open your imagination to how you can have complete markets without capitalism. I think it's a good juxtaposition with the economics without capitalism that students are taught.

Thank you. Well, thanks for your talk tonight. We have collected several questions from the audience. We want to ask you the questions now. I'm going to read the first one and then Nicholasto be continue. The example of his dream of a flat hierarchy is evidently convincing. But how can we break the power of global capital to do so on a transnational scale? Do you remember Occupy Wall Street? It was fun, but pathetic. Or the Indignados in Madrid and Barcelona or us in Greece, in Syntagma Square. We had fun. Night after night we protest. We had assemblies.

Everyone spoke. It was, you know... It reminded me of Oscar Wilde saying "Socialism will never happen because discussions take too long," but it was completely ineffective. People got fired, people went home, and bankers got bailed out anyway. So nothing changed. Now I hate violence. I don't like revolutions. Because I'm simply afraid of what will happen. I have been in streets where the revolution, the demonstrations were getting ugly, and I didn't like it. Maybe I'm a coward. But, if you look at all the revolutions that have taken place, they have eaten their children and produced a lot of despotism.

But imagine a completely different digital campaign. Imagine if someone, maybe you, maybe we DiEM, organized a day of inaction. In front of Amazon. That we organize a global consumer strike. "On Tuesday, such and such, we are not going to visit the Amazon website." Just one day. Do you know what this is going to do to Amazon? Imagine if we had such strikes. Imagine if some of the employees from Facebook or Amazon joined us. Because most of them are highly exploited. Very few of them earn decent wages. Let's imagine they were faced with a double whammy. By consumers.

No one would have to do it, it wouldn't really hurt us. We simply wouldn't buy anything on Amazon for a day, two, or a week. I can live without buying anything on Amazon for a week. Let's imagine a campaign that also involved financial engineering. I believe in financial engineering. When they privatized...the neoliberal push to privatize water, electricity, everything. The worst aspect was that they securitized the future income streams of these companies. So all the electricity bills you are going to pay until you die have already been purchased in the form of CDOs (Credit Default Swaps) by some company somewhere.

So the company that bought the utility called Goldman Sachs to create a contract where what they did was... They said, "Okay, we project that over the next 30 years this is going to be the revenue of the company from the electricity". Then you take this huge amount and cut it into small pieces. The same is done with returns from railways, water or whatever. Small packages, CDOs, are then created that comprise different parts of these chunks. Different future income streams. Those CDOs are selling like hot cakes. The companies that buy them buy them for two reasons, first, to receive the income that those pieces of property rights generate. goes up, they can sell it and get some capital gains.

Imagine if we had smart financial engineers who knew what was inside each of those CDOs and said, "Okay, people in Tübingen, if you delay paying your bills for a month, it won't be a big pain for you. We can crowdfund and give him the money for the fine. But today it would be Tübingen and tomorrow Freiburg. The next day it would be Leipzig, Paris, etc. Along with... in other words having a grid of strikes. You can simply bring down the entire financial system. lower it completely. So we have a lot of power. The question is what are we asking for?

I think we should ask that the corporate law be rewritten. And say that you can no longer buy shares equally to all your employees. extreme. But it is an idea. And my job is to implant dangerous ideas in the minds of young people. So the second question is very concise and brings us back to the core of capitalism. Someone asked what constitutes capitalism if markets. they are not? Oh, it's private ownership of tradable shares. Really very simple. The fact that most people who work for a company do not own any part of the company. Most of the people who actually own the company do not work for it.

That separation is the height of irrationality. It generates, it engenders the cruelty that we had from the British East India Company to what is happening today. Imagine you broke that separation for Facebook. For Google. For J.P. Morgan. Suddenly you have a complete transformation. You don't go with the markets. But you go with capitalism. Well. We will now address the questions about pluralism in the economy. And the first question someone asked was: "For you, what is pluralism in economics and how can it be achieved?" I have answered that. Where were you? For me, pluralism in economics is...

But I will answer it one more time. Because, you know, repetitio est mater studiorum. (Repetition is the mother of learning) Two things. First, we must teach with the same passion and from different perspectives. Especially those we disagree with. Especially those we disagree with. We have to give them the best opportunity when we present them to students. Secondly, it must be done in parallel with a history of capitalism that explains where all those ideas came from. Why, for example, did David Ricardo, who loved Adam Smith and loved capitalism, suddenly go crazy in the early 19th century? The reason is that there were Napoleonic Wars which made a lot of money for landowners in Britain as a result of the eradication of international trade and lack of imports.

After the end of the Napoleonic Wars, they wanted to stop imports so they could preserve their income. Ricardo went crazy. He came up with the concept of renting. He differentiated income from profit. This is what we teach our students. But unless you teach them this from a historical perspective in the context of the Napoleonic Wars, it will go in one ear and out the other. Alright. I like to believe that there is an economics student out there who is feeling a little lost after this lecture and who actually asked the following: "With so many theories circulating that are not true, but, even though they are taught, with what mentality should we I approach them while studying economics so I don't get lost in them.

And maybe a practical follow-up question: "Is there an economics textbook that I could or would recommend to a current economics student? You should address each model, each theory?" , with enthusiasm. Because they are all beautiful, regardless of whether they are useful, toxic or whatever. And then, have fun while approaching them and studying them. There are two ways in which you should be critical of each theory. Two ways are very different. and equally important. The first is the internal critic: "Okay, what are your assumptions? Give me your assumptions. I will take them for granted. I will not challenge them.

Now let's see if your conclusions are logically the result of a process that begins with your assumptions. Because many are not. There are many sleights of hand in economics. I am afraid that many economists, especially the second-rate ones, not the first-rate ones. The second category, a bit like cardinals, more papist than the Pope. They take shortcuts. You can easily expose them. And you say, "Look, what you just said doesn't follow from your own assumptions." I'm not criticizing your assumptions. That's really very important. An aside: one of the greats of economics, of neoclassical economics, is, of course, Kenneth Arrow.

Have you heard of the Arrow-Derbeu theorems? If you studied economics, Arrow's impossibility theorem. Kenneth Arrow was one of the first to win the fake Nobel Prize in Economics, let's call it the Nobel Prize in Economics. An incredible mind. I remember he taught me a great lesson. It was 1991, I was visiting New York and he was already an old man. He was giving a talk at New York University. New York University, Columbia, I'm not exactly sure. Small seminar room, with capacity for about 15-20 teachers. I was the youngest at that time. Then, fill all the boards with equations.

One of the professors, it was an academic seminar, says: "Professor Arrow, I think that (equation) 3.1 and especially the lemma that corresponds to it, probably indicates that a flat-rate tax would not be as efficient as a prorated tax." tax." Arrow looks at him and says: "My dear friend, you are confusing what is interesting with what is useful. This is interesting, not useful. If you try to apply it to fiscal policy, it would be dangerous. Alright. ? So that's something you can do. It's fun to do it. The second type of criticism is external criticism. You say, "Wait a minute." What is that assumption of yours here?

You are assuming that people maximize something called utility. Let's look at it philosophically. Does it correspond to introspection? Is this what I do in life? This is a more philosophical criticism. Each theory has its assumptions. All of them are questionable. Therefore, criticize the way assumptions are used to derive theorems. And then criticize the assumptions. That is the answer to the first question. As for textbooks... Will it sound ugly if I tell you that at some point I had to write a textbook because I couldn't answer that question? There. Well. So, we have one more question for you.

What can economics contribute to the discourse of climate change and the challenges that society faces through it? Thank you. Did you notice that the US Treasury Secretary, a week ago, 10 days ago in Davos, tried to denigrate Greta (Thunberg) by saying, "Oh, go to college, study economics, and then come back and explain it to us." I tweeted... "Unfortunately you're right. Not for the reason you say. But because if Greta goes to college to study economics, her soul will most likely be crushed. And that's a very efficient way to get rid of she". And I immediately received a torrent of insults from fellow economists.

It's understandable, who said: "Ahhh, come on Yanis, you know very well that economics, what we teach our students, contains many concepts that are extremely useful for understanding climate change, market failures, etc. Which is completely true. The concepts of externality, adverse choices, information asymmetries; all of these concepts can be used to explain why markets fail and why in the case of climate change they fail so spectacularly that they will destroy human life on this planet. What I was saying is that if Greta studied economics, to get to those concepts she would first have to go through the normal standard model in which there are no externalities everything works angelically presented as an exception, something external to what really happens in the world. market, but it's not just that, because then someone would say, "Okay." So why don't we reverse the order of teaching?

Start with the externality and then teach competitive markets efficient competitive markets. Well, you can't do that. Because the moment externalities are introduced, the mathematics cannot be solved. There are no demand curves or supply curves. Or the demand curves you have look very strange. Like, you know, the lemon market, the George Akerlof model. And you can't build the entire panoply of economics textbooks on the basis of externalities. Mainstream economics is against treating climate change as a real game with fictitious markets that function perfectly in some realm of our collective imagination. Well thank you very much. In fact, we're very glad that someone in the audience asked that question. because it so happens that if you are interested in the topic of ecological economics or economics and sustainability, we are organizing a cycle of conferences just like what has been organized for this semester but with the topic of ecological economics, economics and sustainability, starting in April at this university .

We'd love to see some faces again next semester for that lecture series. And now we want to thank Professor Yanis Varoufakis for his talk and his presence here tonight. And we want to thank the wonderful audience here and the other conference rooms and also all of our helpers who were here tonight, thank you. Thank you. Thank you so much.