Steve Keen: Marxism, Capitalism, and Economics | Lex Fridman Podcast #303
the real Foundation of Marxist political philosophy was the economic argument that there would be a tendency for the rate of profit to fall and that tendency for the rate of profit of fall would lead to capitalists battening down on workers harder paying them less than the subsistence uh a Revolt by workers against this and then you would get socialism on the other side so his he what he called the tendency for the Rader profit to fall played a critical role in his explan for why socialism would have to come about if you look at Marx's own vision of the Revolution it was going to happen in England okay the advanced economies would be first to go through the revolution the Socialist the the Primitive economies would have to go through a capitalist transition and this is the difference between the menik and the and the bolik so the menik and hman Minsky came out of the menik family the menik believed you had to go through a capitalist phase Russia had to go through a capitalist period before it become socialist the Bolsheviks believe that I could get there in one go the following is a conversation with Steve Keane a brilliant Economist that criticizes much of modern economics and proposes new theories and models that integrate some ideas and ditch others from VAR thinkers from Carl Marx to John May KES to Hon Minsky in fact a lot of our conversation is about KL Marx and marking economics he has been a scholar of KL Marx's work for many years so this was a fascinating exploration he has written several books I recommend including the new economics and Manifesto and debunking economics this is the Lex Freedman podcast to support it please check out our sponsors in the description and now dear friends here's Steve Keane let's start with a big question what is economics or maybe what is or should be the goal of economics well it should be understand how human civilization comes about and how it can be maintained uh and that's not what it's been at all uh so we have a discipline which has the right name and the wrong Soul what is the soul of Economics the soul of Economics really is to explain how do we manage to build a civilization that elevates us so far above the energy and and consumption and knowledge levels of the base and environment of the Earth 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 an atmospheric physicist and his idea is that we have these we exploit these highgrade energy sources from the Sun itself to Coal nuclear etc etc 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 so it's that elevation above the base level of the planet which is human civilization 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 to microphones you know yeah we might be doing drum beats and stuff like this but we wouldn't be having the sort of conversation we have so it explain how they came about that what's the economics should be doing and it's not so this is the greatest thing that the Earth has ever created is what you're saying this conversation yeah we're the most elaborate Construction on the planet and like that's not what we've done we've denigrated the planet itself we don't have respect for the fact that life itself is an incredible creation and I I My ultimate if I had to see how humanity is going to survive what we're putting ourselves through then it would we'd have to come out of it as a species which sees its role as preserving and respecting life I like how you took my silly incredible statement and made it into a uh uh a serious one about how amazing life is life is incredible and humans don't respect it enough we trash it and and that's what's economics I think has played a huge role in that so I actually regard my discipline I would never call it a profession let alone of science uh my disciplin has probably helped bring about the termination potential the feasible termination of human civilization strong words okay let's return to the basics of Economics so what is the soul and the practice of Economics what what should what should be the goal of it because you're speaking very poetically but we'll also speak pragmatically about the the tools of Economics the variables of Economics the metrics the goals the models practically speaking what are the goals of Economics well in terms of the tools we use we should be using the tools that Engineers use frankly and that's sounds ridiculously simple because you would expect economists are using upto-date techniques that are common in other Sciences where you dealing with similar ideas of stocks and flows and interactions between the environment and a system and so on and that's fundamentally systems engineering and that's what we should be using as the tools of Economics now if you look at what economists actually do uh the sophisticated stuff involves difference equations and like difference equations you know if you've done enough mathematics as you have you know difference equations are useful for like individual level processes if you're talking about a autonomous time it will go from State T to t plus1 t plus 2 and so on but not when you're talking at the aggregate level there you use differential equations to measure it all economists have been using different equations so there's like a a book I think it's by Sargeant and one other called Advanced methods in economics using python two volume set it's about close to 2,000 pages and four of those pages are on differential equations the rest is all difference equations so they're using entirely the wrong mathematics to start with for people listening what is difference equations versus differential okay difference equation is is like you can do in a spreadsheet you'll have this is the value of NAU and naughty this is the value of not 91 92 93 94 so you have you have discrete jumps in time uh whereas the differential equation says there a process moving through time and you will have a rate of change of the of a of variable is a function of the state of itself and other variables and rates of change of those variables and that is what you use when you're doing an aggregate model 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 you don't try to model the discrete motion motion of each molecule of H2O so at the aggregate level you use differential equations for processes that occur through time and that's economics it occurs Through Time you should be using that particular technology but some economists do learn differential equations but they don't learn stability analysis so they simply assume equilibrium is stable and they work in equilibrium terms all the time and that uh it is the the the technical level it's it's an incredibly complicated uh way of modeling the world using entirely the wrong tools okay we we we'll talk about that because it's unclear what the right tools are maybe it's more clear to you but I've got to make it clear to an audience well so this is a very complicated world it's a complex world you talk about there uh some of the most complex systems on Earth are the human mind the economy and the biosphere yep so we'll we'll we'll go you know I'm we'll go to that place I'm I'm uh fascinated by complex systems I'm humbled by them even if they're simplest level of like cellular atoma um I'm not sure what the right tools are to understand that especially when part uh part of the complex system is like a hierarchy of other complex systems well you said the economy is a fascinating complex system but it's made up of human minds and those are interesting those are those are interesting perhaps impossible to model uh but we can try and we can try to figure out how to approximate them and maybe that's the challenge of econ omcs okay we'll keep returning to the basics let us try to learn something from history 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 so let let us take a stroll through history okay 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 reveal something useful or insightful for our conversation okay so you know you could neoclassical post kenian Austrian I like the biophysical uh economics and so on other heterodox economic schools that you find interesting okay I actually find interesting a school which went extinct about 250 years ago that's where I'd like to start from and they're called the physiocrats and the name itself implies where the knowledge came from because if you go back far enough in history we didn't we didn't do autopsies 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 played the same sort of logic to the economy and they came out of an agricultural economy which is France and they saw that the wealth came effectively from the Sun so they saw all wealth comes from they said the soil but what they really mean is Sun the soil absorbs the energy of the sun one seed plants a thousand fle seeds come back there is no Surplus uh we are simply mining what we can find out of the natural economy that's where we should have stayed and developed from that forward uh we then went through the classical school of Economics which comes out of Adam Smith and Smith uh coming from Scotland 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 that's literally the term they use to describe the manufacturing Sy what does sterile mean sterile means you don't you don't extract value you simply change the shape of value so the the value comes from the soil yeah it comes from the soil that's the free gift of nature that's literally the phrase they used and we then distribute the free gift of nature around and we need carriages which was the manufacturing term they used at the time uh as well as uh wheat so we 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 yeah so Smith looked at that and said well I'm from Scotland and we've got these easy now Industries you know we make stuff and it's machinery and he said no it's not land that gives us the source of value it's labor yeah now that led to the classical school of thought and that said that all value comes from Labor uh that value is uh 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 so this computer takes two hours to make and this bottle takes 2 minutes to make then there's this is worth 60 times as much as that okay they didn't talk about um marginal cost it was absolute cost effectively they didn't talk about utility as a subjective thing they ridiculed sub subjective utility theory that led to Marx and Marx is probably the most brilliant mod in the history of Economics the only other competitor I'd see is Shuma possibly kanes but in my terms of ranking of intellect would be Marx Shuma canes in terms of the outstanding capacities to think but Marx then turned that classical school which was pro- capitalism and anti- feudal into a critique of capitalism which led to the neoclassical school coming along as a defense of capitalism 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 it's the marginal cost that determines how much they sold for capitalism equilibrates marginal cost and marginal utility and the concepts of equilibrium and marginal this and marginal that became the neoclassic school and that's still the dominant school now 150 years later so that's the one that everybody learns and when you first learn economics if you don't have the critical background that I managed to acquire uh that's what you think is economics the marginal utility equilibrium uh oriented analysis of mainstream economics and for example they ignore money okay people thinks economists you must be an expert on money because you're an economist well in fact economists learn literally in the first few weeks at University that money is irrelevant they say money illusion so they they they they represent people's uh tastes using what they call indifference curves and they're like isoquants on a on a weather map if you look at an isoquant it shows you all the points of the same pressure so you can be 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 so you just draw a cell that links together well they do the same thing with utility and say lots of bananas and very few coconuts can give you the same utility as lots of coconuts and very few banan and you draw a basically a like a hyperbola running down and linking the two and they'll say well that's that's your utility that describes your tastes and then we have your income and there's given your income you can buy that many um bananas completely or that many coconuts or a straight line combination of the two and then if we double the price nominal price of coconuts and double the nominal price of bananas and double your income what happens and the correct ANW is are nothing sir 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 so that gets ingrained into them and they think anybody who worries about money suffers from money illusion you know you you therefore uh ignorant of the deep insights of economics if you think money actually matters so you have an entire theory of Economics which presumes we exchange through b you know like I'll I'll swap you that Microsoft Surface for actually I'll take two of those for one of these you know now we do this bartering type arrangement in fact that only works if money plays no creative role in the economy and that's where you'll find reading schuma uh the Insight that's the school of thought that I come from that says money is essential money actually adds to demand and I'll talk we'll talk about that later on so that's the neoc classical school that ends up being subjective theory of value uh non-monetary as as though everything happens in B and focusing on equilibrium as though everything happens in equilibrium or if you get Disturbed from equilibrium you return back to it again and that mindset describes capitalism his most interesting feature is that it reaches equilibrium now what planet are we on to believe that because if you look at the real world the real uh uh exciting world of capitalism in which we we live change is by far the most obvious characteristic of it there's no equilibrium there's no equilibrium it's unstable and as a mathematician it's easy to you work with stability analysis you know you work out what the the Jacobian is you work out your leop and of exponents in a complex system you're used to the idea that equilibrium is unstable but economists get schooled into believing that everything happens in equilibrium and they don't learn stability analysis so all that stuff is missing so onto the schools of thought um the treating the economy as an equilibrium system which was what the class neoc classical school did is what can's Disturbed and he really disturbed by talking about fundamentally that uncertainty determines our decisions about the future so when we consume you know you know if you like visor or what whatever particular drink we want to have you know the current situation but to invest you must be making guesses about the future but you don't know the future so what do you do you extrapolate what you currently know and that's he said this is a terrible basis on which to plan for the future but this is the only thing you can do when there where there is no possibility of solid calculation so investment is therefore subject to uncertainty and therefore you will get volatility out of out of out of investment you will get uh fads of course booms and slumps coming out of that as people to extrapolate forward the current conditions and that's the normal state of a capitalist economy and scheder argued that that's what gives it's it's creativity as well the fact that you um Can perceive a potential demand but you don't first of all you don't know whether that demand's going to work secondly you don't know who your competitor is going to be whether somebody's going to be ahead of you or behind if there's a fadile overinvestment violence and creativity of capitalism that's what we should be analyzing and the post kigan school has gone in that orientation um 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 there's only a really tiny handful of people working in complex systems analysis in post canian economics but that is to me the most interesting area so there their tools may be lacking but they fundamentally accept the instability of things that's right that's right and so that's what makes them interesting so let me let me try to summarize what you said then you say how stupid I am okay so then there was the uh physiocrats that thought value came from the land yep then there's Adam Smith who said nah value comes from Human Labor uh that was that was the classical school MH and then neoc classical is uh value comes from like bananas and COC as the prefer human preferences y like human happiness how how happy how happy a banana makes you mhm and then uh the kenzan and the post kenian 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 yeah it's always going to be chaos and stability and then you just you're you're fishing in uncertain Waters and that's we have to Embrace that and come up with tools that model that well uh and also Joseph sha peder what school would you put him under is he a kenian or is he uh Austrian economics or he's an Austrian austrians deny okay that's the intriging he's from Austria but he's not an Austrian Economist there are elements of the Austrian School of thought which are worthwhile what what is Austrian economics in this beautiful Whirlwind picture that you pained okay Austrian economics grew out of the out of the Rebellion against the classical school so you had three intellects who mainly led the growth of the neoclassical school back in the 1870s was William jevans from England uh manga who's from Austria and vas from France and but vas tried to work out a a set of equations to describe a multi Eon multi product economy where there's numerous producers and numerous consumers everybody's both a producer and a consumer and you try to work out a vector of prices that will give you equilibrium in all markets in instantaneously and that's his equilibrium orientation jeans is also one about equilibrium but he worked more at the aggregate level so there's a supply curve and a demand curve and that's what G Marshall ultimately codified MinGa was pretty much saying that well you yes there might be an equilibrium but you're going to get Disturbed from it all the time you'll be above or below the equilibrium and what came out of the Austrian School was an acceptance of that sort of vision that the market should reach equilibrium but then said well you'll get Disturbed away from the equilibrium and it's that's what gives you the Vitality of capitalism because an entrepreneur will see an Arbitrage advantage and try to close that Gap and that will give you Innovation over time and shumer went beyond that and saw the role of money and said that entrepreneur an entrepreneur is somebody with a great idea and no money yeah okay 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 the debt for the entrepreneur and so you get this financial engine turning up as well uh and you will get movements away from equilibrium out of that you won't necessarily head back towards the equilibrium so Shuma has a a rich vision of capitalism in which money plays an essential role in which you will uh be disturbed from equilibrium all the time and that is really I think a much closer vision of actual capitalism than anything by even a even the the the AUST leading austrians you know haek U etc etc they they and certainly rard I find totally like reading a cardboard cutout version of uh of the wealth of of The Wealth of Nations it's uh I find his worth trivial um but shaa was rich but with the same foundations as the austrians 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 sha said you needed the capacity of the financial sector to create money to empower entrepreneurs and that's very important Vision so Shan peder's argument is the deviation from equilibrium that's where all the fun happens that's where all the magic happens that's the magic of capitalism and like the austrians because they focus on the deviation from equilibrium are better than NE classicals but they still have this belief in the you know you'll reach equilibrium ultimately or you'll head back towards it uh whereas they they don't they don't have an explanation of capitalism that gives you Cycles apart from having the wrong rate of interest okay so there's no role for an accumulation of debt over time so what Sher gave us was a a vision of the creativity of capitalism being driven by entrepreneurs who are funded by money creation by the finance sector and that's fundamentally the world in which we live uh so there's also kids these days uh are all into modern monetary Theory what's that about okay modern monetary theory is accounting I want to summarize it bluntly it's simply saying let's do the accounting because what money is is a creature of Double Entry bookkeeping okay what's double entry bookkeeping Banks this was invented back in the 1500s in Italy uh I've forgotten the particular Merchant who did it based on some Arabic ideas as well but the thing is if you want to keep track of your uh Financial flows then you divide what you uh 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 your two the two is your Equity so you record every transaction twice on one row okay so for example if you and I uh do a financial transfer uh you have a bank account I have a bank account uh your bank account will go down mine goes up okay and that's the sum of the operation is zero okay 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 and there still the same sum applies assets minus liabilities minus Equity equals zero now that's simply saying money is an accounting a creature of accounting it's not a creature of a commodity so if you think about how austrians think about money and how gold bugs think about money Bitcoin enthusiasts if there are any left think about money uh what they see is money as an object okay and uh you you and I can both have more gold if we're both willing to go to this you know a m a mine somewhere and dig a few holes and get a few specs of gold out so there's no competition or no interaction between you and me if money is gold and they think money should be an object a commodity but money fundamentally is not a commodity it's a it's a claim on somebody else that's money is its Essence so when you do it you must use double entry bookkeeping to do it and then when you do you find all the answers that come out of thinking is money is a commodity or wrong so for example I've got Elon on this one so want to get this through of Elon because I saw him making a comment about this a few weeks ago on Twitter he said that it's wrong for the government effectively it seems wrong for the government to always be in deficit MH okay now when you look at it and say well how is money created how does money come about when it's not a commodity like gold when you dig up out of the ground when it's actually social relations between people that create money well money is the they're fundamentally the liabilities of the banking sector when you if we make a transfer between us your deposit account goes down my deposit account goes up those are exchanges on the liability side of the banking of the of the banking sector but if we have a transaction with the bank uh then if the bank lends US money it's as it's Lo go up its deposits go up again that same balance so you've got to look and say money therefore is fundamentally the liabilities of the banking sector so how do you create create additional liabilities you must have an operation which occurs both on the liability side and the asset side of the banking sector so if you and I make a transaction no money is created money is existing money is redistributed but if you go to a bank and buy take out a bank loan then money is created by the bank loan so the liabilities of the banking sector rise the assets rise they're balanced but more liabilities means of the banking sector means more money okay so that's what that that's how private Banks create money and that's what I first started working on when I became a academic about 35 years ago the actual dynamics of private money creation but the government has the same sort of story if the government runs a deficit it spends more money on the individuals in the economy than it taxes them which Mak means their bank accounts increase so a government deficit creates money for the private sector okay so that's where money creation occurs from the government so it's it's it puts money in people's puts more money into people's bank accounts by spending by welfare payments then it takes out by taxation so that's creating new money 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 Banks Bank Accounts at the central bank so rather than the asset of private money creation being loans the asset of government money creation is reserves okay right money creation money creation is a good thing so you mentioned a bunch of stuff like private money Creation with the liabilities and the banks and then the how the government is doing then the reserves blah blah blah at the end of the day there's a bunch of printers that are printing money uh what is money and then you also said something interesting which is social relations between humans is what creates money I think my mind has blown several times over the past minute um so it's it's difficult for me to reconstruct the pieces of my mind back together but um basic question is money creation a good thing or a bad thing money creation is a good thing because money creation is what allows Commerce to happen isn't there a conservation of no there isn't I had had arguments with physicist over this and it took me a long time to answer it they thought the sum total of all money is zero yeah okay uh it's the sum Ty total of all assets and liabilities is zero so if you imagine um 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 okay wait wait I'm going to interrupt you rudely what are assets what are liabilities assets are your claims on somebody else so uh specific give me give me give me an example of an asset okay do you have a mortgage for this house no I'm renting you're renting there you go well if you had a mortgage that would be your your liability that would be my liability okay the mortgage with the bank's asset right okay if you add the two together you get zero okay so that's zero that's zero the money is the liability side of the banking sector okay okay assets are the the 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 but money is the liabilities money is if you think about protons and antiprotons in that sense money is like the anti-proton it's the negative the liability but wait wait the Li liability is the negative how's that money I thought money is the positive what is a liability for the banking sector is an asset for you and me and asset includes money yeah yeah okay if you have a bank like you got you'd have a bank account and you'd have some cash okay okay those are your assets but the bank account is a liability of the banking sector and the cash is a liability of the Federal Reserve okay so what what's money well money is money money is the promise of a third party that we both accept to close our transaction and this is that's a bank with that's a bank yeah this is this one of the most important works I've ever read is a work by a wonderful now unfortunately deceased tiny Italian economist called austo graani and he's the most wonderful personality austo made I met him on a few occasions is one of the few human beings who can speak in perfectly formed paragraphs mhm okay superbly eloquent and what he did was wrote a paper called the the monetary theory of production you can find it uh downloaded on the web it's uh it's pretty much open source now uh and what he said is what distinguishes a monetary economy from a barter economy so I said in in a in a bter economy what we do is you know I'll give you two of these for one of those yeah okay B just working at a relative price there were two of us involved and there were two Commodities so with money money is a triangular transaction okay there is one commodity I want to buy that can of drink off you uh 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 pay the bank that the seller has so if I we so what you have is a monetary transaction in a capitalist economy involves three agents the buyer the seller and the bank so the bank also has to be part of it well the bank has to be part of it what when when I hand you the money you accept that as uh 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 and we exchange the promises of Banks and that's fundamentally money so money is fundamentally a threesome and everybody gets fucked is that a good way to put it no le now know I can use French in this conversation that's good that's not French that's um that's a different language I'll explain it to you one day but um you Australians would never understand okay uh if I can return to we'll jump around if it's okay it's fine uh so you mentioned KL Marx M as um one of the great intellects economic thinkers ever he's he's he might be number one you study him quite a bit you disagree with him quite a bit but you still think he's a powerful a powerful mind yeah a powerful mind so first of all let's let's just explore the human um uh why do you say so what's interesting in that mind in the way he saw the world what are the insights that you find Brilliant the Marx once described his major work as towards a critical uh examination of everything existing okay so he's a modest bastard yeah um so he he he wanted to understand and criticize everything yeah and uh even he he he wasn't trained directly by Hegel but he was his teachers with hegelian philosophers and what Hegel developed was a concept called dialectics and dialectics is a philosophy of change and uh when most people hear the word dialectics they come up with this unpronouncable Trio of words called thesis antithesis synthesis I can barely get the words out myself yeah and that actually is not Hegel at all that's another German philosopher F Oh I thought it was K no fck well I'm not sure you I mix them up all germ look the same to me yeah yeah um so but if you look this beautiful book called Marx in contradiction you want to find a great explanation for Marxist philosophy I forgotten the author I think it's wild wde Marx in contradiction and he points out the actual origins of Marx's philosophy I didn't know that when I first read Marx so I became exposed to Marks uh when I was a student at Sydney University and we'd had a strike at the University over the teaching of philosophy and uh what happened was the philosophy Department had a lot of radical philosophers in it and a conservative Chief philosopher and uh the the radicals wanted to have a course on what they called feminist aspects of philosophical sorry philosophical aspects of feminist thought and the staff voted in favor of it this is back in the days when University departments were Democratic the Professor opposed it he got it blocked at a high level the staff Le frogged over that and then finally the vice Chancellor blocked it so that led to a strike over the teaching of philosophy at Sydney University which at one stage over probably over half the students were on strike okay wow economics began out of that over teaching of a philosophy of feminism yes God it's good to be that's such a different life to what we're living now that that's the academic mure in which I developed all my ideas and and and I had become a Critic I've gone from being a believer of mainstream economics when I was a first year student to disbelieving it halfway through first year okay and I then spent a long time trying to change it getting nowhere and then this philosophy strike happened and we took it on in economics and we formed What's called the political political economy movement and had a successful strike we actually uh managed to pressure the university into establishing a department of political economy at St University as well the department of Economics what was the foundational ideas were you resistant to the whole censorship of why aren't we having why can't you have a philosophy of anything kind of course well it was it was much more libertarian in the genuine sense of the word period of time uh at the end of the end of the 60s beginning of the 70s than the word libertarian has been corrupted since then but it really was about free thought and you went to University to learn it was about education I remember having a fight with my father once where was angry about the marks I was getting for some of my courses and he said if you don't get a decent result you won't get a a decent job and I said I'm not here to get a job I'm here to get an education oh wow okay now the thing is ultimately it's been a pretty good job for me as well this is in Sydney by the way and Sydney in summer is absolutely gorgeous and what US US bunch of lefties decide to do during summer but read KL marks yeah on the beach or uh actually inside the uh room of the philosophy department at the University of Sydney in the the main quadrangle Sandstone all around us and we bunch of about 20 or 30 of us reading our way through marks Capal like what which volume one volume one capital and I remember walking off to that meeting with one of my friends uh who's a law law student and we this was a period of a huge construction boom in Sydney 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 know Lea frogged over each other to build a a skyscraper so here you are reading KL Marx looking at the at the mechanisms of capital and I looked at those mechanisms and I knew marks argued that labor was the only source of value yeah and he said Machinery doesn't add value so the cranes are worthless 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 So reading through the first seven chapters of capital what you found was marks applying this dialectic and like the fic and stuff is shit that is not how Marx thought at all I was reading trying to find the thesis antithesis synthesis and it's not there at all in any of Marx's works and I've read everything is ever written on economics from 1844 to 1894 when his last books were published there's not one word of mention of that what he does talk about is foreground and background and tension and his idea of a of a dialectic is that there is uh a Unity will exist in society and that Unity can be an individual there can be a commodity anything at all the unity will be understood by that Society one particular aspect will be focused upon so if you think about the human being in capitalism the focus on the human being as an object is their capacity to work you're a worker okay that it's put in the foreground 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 MH there's a tension between the two of those and that can transform that Unity over time and that's a beautiful Dynamic vision of change so dialectics is a philosophy of change so synthesis antithesis is uh what does every idea have a counterargument yeah there's a positive and negative and you bring them together somehow and then Marx has this forrr foreground is all what we think of as economics and background is all the love making we do as humans that sort of thing and and why is what's why is there attention well because you imag if you imagine the unity like if if you take a human in a any pre could you go back to chromagnon days when we're you know living in caves and 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 so you don't get labored as a worker or a capitalist you're just a human in that situation then you'll you've got more of an integrated view of who you are and I think that's one of the appeal of of a tribal a genuine tribal culture that you get treated for the whole of who you are you've certainly categorized you're male you're female you're young you're old you're a hunter you're a you're a tool maker etc etc but you're treated as more an integrated object 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 so is it fair to say that the background is like our basic fundamental humanity and the foreground is the machine of capitalism effectively and when you look at in terms of of a human but what Marx did is applied this to a commodity he said what is the essential unity in a capitalist economy and the essential Unity is a commodity okay that's essal the essential unit the essential Unity what's Unity Unity is an object in society okay okay so he he started from the point of view of trying to understand what how exchange occurs how do we set prices and his starting Vision was to say that a commodity is a unity in a capital economy the part of the unity that we focus upon is the exchange value a capitalist produces a commodity not because of its qualitative characteristics but because it be sold for a profit so the foreground aspect of a commodity is its exchange value the background aspect of it it won't succeed as a commodity unless it has a use value so the background is the utility thing yeah see if you made something which didn't work okay yeah then it has you might be able to sell it but it has no utility that can't you can't make that into commodity a broken thing can't be sold does that have the subjective yeah it has to have the subjective side so people enjoy as well as the objective so the objective is what capitalist worry about I'll give you my favorite counter example of that I was in uh I took a bunch of Australian journalists to China Way Back In the period when the gang of four was was being on trial and we did a tour of the Forbidden City in uh Beijing and at that stage all the artifacts of the royal family the emperor were actually in the building still 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 and on this side there were rubies emeralds diamonds you've never seen gemstones I mean gems that big okay and one of the journalists asked me what I thought it was and I said oh it's obvious Jane it's a back scratcher hahaa mhm I walked away she caught up with me about 20 Min said I asked one of the guides it is a back scratcher wow so here's a back scratcher for the emperor made of solid gold with diamonds and rubies and emeralds during the scratching yeah now that's that's a commodity in a feudal society okay the cost doesn't matter you want the most elaborate beautiful thing because you're the emperor so in that in a feudal society the commodity what's focused upon is the utility and the cost of production when you when you're the emperor is immaterial capitalism reverses the that so the commodity in a capitalist economy is a plastic $2 scratchy you can get from Kmart or Target yeah and so the the the use value is necessary but irrelevant to forming the price now that was a completely different vision of Exchange in capitalism 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 and the the crazy thing about that is not so much the marginal utility but the argument in in the neoc classical theory is that the price rati the price will um when there's an exchange going on there's two person two commodity exchange of of two commodities for between two people uh they will CH the the price will change until such time as the ratio of the marginal utilities is equal to the ratio of the marginal costs right they're supposed to be the equilibrium now Mark says that's bullshit 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 and he said that's like when you when you have an two ancient tribe two tribes meeting for the very first time and one tribe can make something the other tribe can't make and they will therefore the price they were willing to pay will reflect how unique this other object is that the this one tribe can make and the other can't 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 but thing is the Indians couldn't make glass beads so they valued the glass beads at the island of Manhattan okay which is a utility based comparison what Mark said that's the very initial contact over time even if you don't know the technology over time you 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 so you know elon's not losing personal utility each time a a model 3 goes out the door there's no 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 for for going back for the Ancient Ancient commodity there so the utility plays no role in setting price in Marx's model whereas it's a IAL in the neoc classical model what's the difference between utility and marginal utility what does the word marginal mean and why is this such a problem it turns marginal utility well the utility itself has different meanings in the two schools of thought if you take the classical school of thought which when marks comes from utility is effectively objective so the utility of a chair is that you can sit in it okay not how comfortable it makes you feel yeah okay now if you think about the utility of the chairs we're both sitting and they're identical from a classical point of view we're both sitting okay but from a neoc classical point of view it's how comfortable it makes you feel and that depends upon your subjective feelings of comfort you might be far more comfortable in The Identical chair that I'm sitting in than I am yeah and therefore the comparison is difficult and therefore working out a ratio involves you've got a decline in your each time you give away a chair in exchange for a iPhone you have a fall in your utility okay but and and then therefore you want a higher return because you're losing more utility each time the the more chairs you give away the less utility you're getting from chairs there's a decline in your utility that's your your marginal utility so it's including your subjective valuation in setting the price and what Marx pointed out is this is a a caricature of actual change in a capitalist economy because we have in a capitalist economy huge factories turning out huge quantities specifically for S they've got no utility to the um seller unless they're sold mhm okay so it's a it's a it's a very different vision of where how pric is set and Marx used that to explain where profit comes from but he made a mistake and his argument was that talking about a worker uh as as an Alle your Unity this your foreground background tension thing the foreground is that you hire a worker uh for their cost of production and the cost of production is a subsistence wage okay um the utility to the buyer is the fact that they can work in a factory now it might take 6 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 but they can work in the factory for 12 hours that's the utility 12 - 6 is six surplus of value hours and that's where profit comes from that was Marx's argument and I thought it was brilliant but it also applied to Machinery right okay let's let's no no deep deep deep is good just want to Define uh terms don't take that statement out of context the internet please okay uh you said buyer seller worker in a factory who's the seller who's the buyer well uh why is the worker the buyer well the worker is the commodity in this case because when when if you're going to make stuff in a factury you've got to hire workers yes okay and what Marx is saying the buyer in that situation is a capitalist so what does a buyer pay he says he pays the exchange value that's they get back to the commodity thing that it's just because that's the starting point is that the essential unity in a capitalist economy is the commodity a commodity has two characteristics exchange value and use value okay The Exchange value of a commodity in a capitalist economy will be its cost of production the use value is what you do with it okay once you purchased it but labor is a commodity in this case when you when a worker is being hired for a job yes so the workers's labor has an exchange value and a use value as well yeah use value use value of a worker's labor exchange value let me think about that so that so the hours they put in is the use value interesting so what uh what does the worker want in this what are the motivations are we not considering the worker in this context as a human being with want you come and that's actually that's that's the next layer what what marks give was just like a a layered cake starting from a foundation of saying straight commodity exchange and then saying well you're treating a work as a commodity now a commodity is something you know like this okay that has so far as I'm awar no soul okay yeah not going to be complaining if I turn it upside down it'll fall over but you so that's there's no soul there as a human is both a commodity and a non-commodity yeah and therefore there'll be a tension in the person I'm being treated as a commodity here I'm being paid just enough to stay alive you know I've got a wife and kids back at home yeah so that that is another layer of of of thinking in marks and and on that layer he then says well workers will therefore demand more than their value so that's when you get like political you get political and you get money coming above that and so on but the basic idea starts from the Commodities the fundamental unity and capitalism the important commodity in Marx's thinking was the worker because that's where he said profit came from yeah okay 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 okay okay okay so first of all what is the labor Theory of value and actually before that what is value is that um this is like me asking what's happiness uh is there something interesting to say while trying to Define value you vary and this is a huge problem in economics is arguments of what does value mean and the neoclassicals came down as that it's subjective it's value is whatever you get out of it it's your personal evaluation of something your personal feelings so they've got that very subjective idea of value whereas the marxists and being inheritors of the classical school talk in terms of objective value so the value is the number of hours it takes to make something or the effort the value is value is the effort that goes into making something in the classical school well that's just like one measure of objective where do you fall huh where do you fall I subjective versus subjective versus objective Spectrum I think have you have to have the capacity to to move between one and the other in a structured way model of value yeah well my my base model is the objective okay but above that as soon as you start talking you did about the worker for example um then you get involved in subjectivity because a worker will be angry and justifiably so about being treated as a commodity because I'm I'm not I'm not a commodity I'm a human being okay and that's where Mark saw political organization coming from from so and that's subjective now and then when you get to money itself Marx actually said well what's the what's the value of money 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 what's the cost of producing a dollar it's about 2 cents so he said it can't be the value of the money cannot be its cost of production or the must value I think if you remember the phrase properly what must is value here is it must mean the effectively uncertain expectations or subjective valuation uncertain expectation or subjective valuation okay but he's okay with that he was okay with that because he could move between different levels because he had a structured Foundation of this dialectical Vision foreground background tension uh commodity having use value exchange value and a gap between the two when you're talking about machines when you're buying stuff for production and then at the next level he could look at workers worker organization and say that's driven by being treated as a a commodity when you're a non-commodity so the basic uh labor theory of value that is ascribed to KL Marx is that value at the base layer fundamentally comes from the labor you put into something yeah 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 he was saying they don't he was he was uh the only thing that matters is human labor not not labor how do you measure what's the role of the uh whatever value machines bring to the world this is this is another intriguing history because Marx when he first started had what you can call a a an exclusivist explanation for why lab created value that and that was to say that uh there's the labor is the only commodity with both what you call commodity and commodity power so you have Labor and labor power labor is the and I get fuzzy about this I haven't read it for something like 30 years but labor has both commodity and commodity power the commodity is you can buy labor which is the means of subsistence labor power is the capacity to work inside a factory there's a difference between the two therefore that difference will give rise to Surplus and there's no other commodity that has this essence of commodity and commodity power so that was his exclusivist argument in the middle of the 1857 he was um visited by a guy called Otto brow in his home in Chelsea and Otto returned to Marx a copy of of hegel's phenomenal I think it's called phenomenology of right I haven't read it but that's the book and Marx was then at that stage reading through all the classical theorist again and he was suddenly he read Hegel again and if you know hundes Thompson mhm okay course okay who doesn't know H Thompson somebody who hasn't had enough drugs obviously yeah but hes Thompson he comes to you in a dream after you take your first or whatever if you know your drugs well enough you can tell okay he's stoned okay he's on cocaine you know well Mark suddenly his writing style in the middle of a book called The Granda completely changed he switched from weed to cocaine from Ricardo to Hegel okay and what in Ricardo he had this exclusivist argument about Labor and suddenly Hegel is back talking in terms of dialectics not actually using the word but foreground and background and tension 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 because made in 44 he was reading just the economists so you're saying Karl Marx is human after all he's human he could be in I would love to have a beer with Carl for one for Carl he's Carl to you m he's Mr Marks to Me Maybe Call to me I'm afraid after all these years yeah yeah you've you've had quite a journey together so that's where after Hegel his interpretation of the dialect comes in the form of background foreground and background and then on page 267 of the penguin edition of the grandr literally your memory one and a half pages long footnote it's pretty hard to forget cuz what when when I did this when I first read marks way way back when I was uh how old was I 20 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 marks and I went to say look the use value exchange value argument can be applied to a machine what's the exchange value of a machine it's cost of manufacturing it what's its use value its capacity to produce goods for sale no relation between the two there will be a Gap a machine can be a source of profit mhm now I said that and I got laughed at I quite literally laughed at so when I went back to University 13 years later to do my Master's Degree uh I chose to read through and find in marks where he first came across this Insight so I made a my first Master cees failed by the way and justifiably so okay I was learning I I didn't know the level of of um academic discourse necessary I had an advisor who didn't understand what I was writing he got me to write for his um new cannan audience and it was a mess and it got failed so I got rid of him did it get failed because like why do you think it wasn't a good thesis it was I didn't know the level it was written for audience my my supervisor thought that I should be writing for MH and it was a mess and so I met another guy Jeff Jeff Fishburn uh as a lecturer at my in New South Wales University and Jeff was open-minded he was not a a conventional neoc classical thinker and I realized I was i' throw out the half that Bill had got me to do focused just on marks and so I decided to read marks in chronological sequence from his very first works of Economics which are called the economic and philosophical manuscripts of 1844 and he wrote those in a Garrett in Paris after he'd been expelled from Prussia and so he decided to read uh the having been an expert on philosophy and regarded as the Towering intellect of of hegelian philosophy in in Prussia but driven out because he was a radical he he ended up uh writing a uh running a newspaper or being writing for a newspaper and he was reporting about the eviction of of peasants from the forests taking away their feudal rights and so this is where his passion for economics and Humanity came from and he was a poet as well he wrote Love poetry to Jenny Von West West Halen that's his first published Works were pretty much in poetry he was a rouseabout he was you know a wild character we'd probably F fight like crazy I imagine if we met over the beers I'm I'm slightly even though I can be um I can get involved in an argument like no nobody's business no really no really but I'm a bit more peaceful of Personality oh you think Marx is feistier than you he was feisty but uh feisty with he could be arrogant like I'm i' I've got an intellectual arrogance I've come to accept that but there's like a fundamental humility to you saying Marx is like has ego that's hard bit too big ego yeah I'm guessing I mean I'm never going to meet him well the beard says ego to me the beard is Hu yeah that's that's that's huge okay so this is so you went chronologically the development of the human being through his works yeah and I was trying to find the point at which he discovered this use value exchange value idea and it occurs in a footnote on page 267 to 268 of the penguin edition of the griesa which his notes he was taking literally not meant for publication literally sitting at a stall inside the British museum I think reading all the classical authors in chronological sequence and then somebody throws Hegel at him and suddenly he's talking in hegelian terms and he suddenly says is not uh because this whole value issues what is value is it exchange value use value how do they relate to each other that's what he was thinking about he said is not uh use value which was left out of the classical school a fundamental aspect of the commodity is there not a tension between the use value and exchange value just so we're clear in that context use value is kind of the subjective thing exchange value is the objective thing and Marx was found a way to integrate the two but he was focused on uh labor being the only thing that can generate both the US value and the exchange value but no if you look at the classical school they focus on Exchange value objective look at the neoc classical they faces upon use value subjective well they call it utility so Marx coming from the ricardian tradition basically dismissed the role of utility 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 and he thinks well I Can't Ignore use value so rather than leaving it out completely which is what Ricardo and Smith does I've got to somehow bring it in and this healan Insight occurs to him and you it's it's remarkable to I really recommend taking a look at the book even just a look at that particular page because what it would have been shown as a footnote but it would have been him saying oh wow and he asteris asteris is not U use value a fundamental aspect of the unity of a commodity so in the notes you see the discovery of an idea in the human mind the integration of an idea and he actually writes does this have significance in economics question mark and then he probably went home that night and like that that that idea changed him yeah he changed him completely okay and from that point on his writing was completely different but he still had this idea from the ricardian days of saying that labor is 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 but suddenly this Insight occurs to him and he thinks I can get a positive derivation I can use use value and exchange value and the fact they not related to each other as a dialectical tension to explain Surplus value and that's what he does so he goes from a negative explanation of where value comes from to a positive explanation on that page of the gresa and he then triumphantly uses it to explain why labor is a source of value you buy it for its exchange value you use its use value they're unrelated the use value will be bigger that's where profit comes from then he does exactly the same thing for Machinery about 30 pages on mhm he says uh it also has to be contemplated which was not done before this is wrot nice to himself by the way that's it's written really in a colloquial style that the use value of a machine significantly greater than its exchange value he actually left out the word is it's use this is OB be a ter it'll be a translation into English of the German I'm sure I don't know I haven't I haven't seen the original notes I'd love to see them but uh he says he lives out the word is it also has to be contemplated that the exch the use value significantly greater than its exchange value I.E that the contribution of the machine to production exceeds its depreciation and that was an Insight which undermined his explanation for revolution okay can you say that again the uh the cost of production exceeds is depreciation is that can you Ling on that um well what marks argued and you read this in capital and I read this in capital when I first saw the contradiction in his own thought he said that no matter how useful a machine is uh whether it has uh took 100 hours to make or cost 150 it cannot under any circumstances add more to production than 150 which in his old exclusivist logic he could justify by and which in his mod his his post 1857 argument is bullshit Can you steal man his case can we go to the mind of Marx and thinking if a machine costs 100 bucks it can't be ever more bring more value than 100 bucks but that contradicts his previous logic because what he said what he said is uh youd have a commodi is the essential unity in capitalism capitalism focuses upon the exchange value that pushes the use value into the background and there's a tension between the two what that means is the exchange value of a commodity sets its price the use value is independent he called them incommensurable he literally would used the word incommensurability between exchange value and a use value whereas neoc classicals make them commensurable so you're saying exchange value and use value in Inc commensurable and that normally means that exchange value is objective like the number of hours it takes to make something use value subject of how comfortable the chair is the fact you can sit in a chair uh so that's incommensurability but when you apply it in production The Exchange value of something is objective it's how many hours it takes to make a machine or how many hours it takes to make the means of subsistance for a worker the use value is also objective you're making commodities for sale and the worker does 6 hours six hours of work will make the the the uh means of subsistence for the worker but the worker will work a 12h hour day and the 6 hours becomes a gap now that's incommensurability between use value and exchange value of labor 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 and that's contradicting his own logic well what's what's the use value of a machine fact that it can produce uh goods for sale exactly the same as the worker now what I in my modern re interpretation of marks which brings in my work on energy I see both labor and Machinery as a means to harness energy and produce useful work and they can both do that in fact they they do it together it's a collective Enterprise okay so and we'll go to that so there's no there's no fundamental difference from an exchange value and use value perspective between a human and a machine and therefore they're using the same logic they can both be a source of surplus yeah which is what marks contradicted because his explanation for where socialism would come from is that only profit comes from profit comes only from labor over time will add more Machinery than labor that will mean a falling rate of profit and therefore a tendency towards socialism and what he did in that Insight in 1857 is contradict his own idea about what would lead to socialism and he couldn't cope with it okay what's the difference between marxian economics and Marxist political ideology the gap between the two the overlap the differences what the the real 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 and that tendency for the rate of profit of fall would lead to capitalists battening down on workers harder paying them less than the subsistence uh a Revolt by workers against this and then you would get socialism on the other side so his he what he called the tendency for the Rader Prophet to fall played a critical role in his explanation for why socialism would have to come about he was saying it would have to come about or is it a good thing for it to come about um should come about he had a should but he was trying to say it must so you if you look at Marx in the history of radical thought he was preceded by what were called utopian socialists say even the Cadbury's company came out of utopian socialist 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 and they said socialism should come about because it's it treats humans better than capitalism does Mark said I can prove that socialism must come about so he preferred he had a utopian vision of a future Society but he thought he could prove that it had to come about and the the proof relied critically upon tendency for the rate of profit to fall and that relied upon labor being the only source of profit what what was his utopian view so this this idea from each according to his ability to each according to his needs yeah is that the utopian I think it's utopian in in the context of our modern world it it it says that you you rather than being rewarded like Jeff bazos gets enormous Fortune uh you get what you need not what you want necessarily all all needs is fulfilled it it was it was a vision of Utopia where he could be a fisherman in the morning um a poet in the afternoon and a chef at night okay this paraphrasing one of his phrases so he did have a utopian vision of a future society and he did think human creativity would be much much greater under socialism than it was under capitalism he was wrong uh so let's explore in different ways where he was wrong you're saying there's a fundamental flaw in the logic but also if it can link if it can explore the high level philosophical concepts of socialism too like the dreams of a Utopia yeah uh so what uh first of all what is socialism that's another loaded term what it is socialism particularly in America is a very loaded term and what Americans call socialist is um u a large amount of provision of services by the state which is Common Place in Europe it's still moderately common place in my own home country of Australia uh and and that Americans will call you know public education socialist it's a total parody of the word uh strictly speaking what socialism meant is the public ownership of the means of production no private ownership of the means of production what is the means of production What factories factories so all the goods that are produced in factories no the means of producing the goods is owned by a centralized entity yeah centrally planned this is what what actually was done under God's plan under the Soviets uh and even with the collective Collective Farms as well you no longer owned your own the state owned your owned the land you worked on the land and this was supposed to be a Utopia right now it didn't turn out to be one and we'll talk about maybe your ideas of why it didn't turn out to be one uh so the the fascist did same so is fascism also fascism so-called national socialism it's also a kind of socialism so yeah but I there was no it wasn't public own it there was public Direction so the state would tell factories what to do with there still private profit and a large part of why the Nazis succeeded was the extent to which they managed to co-opt Major manufacturers in Germany uh so it's you know Direction versus ownership it's a dictatorial I mean that's a very particular impementation so you have you have to consider the full details of the implementation but it's basically dictator guided yeah if you want to if you want to take owned if you want to take a a proper Vision then you have to say it's the ownership of the means of production by the state yeah okay versus the ownership by private that rules out the Nazi period they use the word that again they're bastardizing as much as Americans do in the opposite direction well what do ownership exact l mean it's became incredibly complicated and this is um the and this is actually the best work on this is done by a recently deceased Hungarian Economist called Janos corai and corai tried to explain why socialism failed okay because why did socialism fail in your view in his view in giannis's view in your view I think jannis is 100% correct and it's it's a brilliant piece of work so I'm going to be really paraphrasing his View and he imagined a ideal socialist society and there wasn't a Stalin there weren't purges and you lded up to all the ideals that Marx had for socialism so he said in but you do it in a in a context of a economy which is incredibly primitive Russia okay because if you look at Marx's own vision of the Revolution it was going to happen in England okay the advanced economies would be first to go through the revolution the Socialist the the Primitive economies would have to go through a capitalist transition and this is the difference when the menix and and the bolik so the menik and hman Minsky came out of the menik family the menik believed you had to go through a capitalist phase Russia had to go through a capitalist period before it becom socialist the Bolsheviks believe they could get there in one go okay by bypass the capitalist phase du the development under uh socialism rather than under capitalism and this is what Yana Yannis was actually analyzing you start from A Primitive you uh feudal economy very little industrialization and you want to jump to a in advanced industrial society from that foundation so he said what you uh have then for is a whole range of Industries all of which need as much resources as you can get for them okay so you want to develop agriculture uh mining industry every little division of it they all have legitimate demands on the resources of the country and the state that means that all your resources are fully employed and they're probably overemployed okay so you have a resource constraint in that Society the easiest way to cope with a resource constraint is to produce last year's commodity not to innovate not to make change so what they will give you is as you start to add you know you invest so you now have a 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 and I have a perfect personal example of that which I'll throw in now if you like pretty heavy conversation I my first major girlfriend uh had a brother who wanted to get a motorbike but he couldn't afford a Honda or a Kawasaki at the time they cost about $3,000 for a 650cc Japanese motorbike he found he could buy a CAC mhm for $650 $1 per CC so I was there when per C this is in this is in Subban Sylvania Waters in in Sydney so this crate arrives with the CAC motorbike inside it so we take it apart it's then got all these wooden palings we have to pull off the wooden palings to open it up then there's oil saked rag over this thing which is tied on a on a wooden base yeah we take the oil soak rag off and we stare in all its glory in a not in 42 BMW yeah okay it was exactly the same as Steve McQueen and Great Escape so the Russians for 30 years were making the same bloody motorbike it had a bicycle seat yeah okay and this is what that's how they cope theyve just made the same damn machine every year they said so that's that's the outcome you you actually want the best possible world you're trying to build as fast as possible you're paying workers as high wages as you possibly can and that leads to a world where you don't innovate but he said capitalism on the other hand pure capitalist economy you're trying to pay workers as little as possible you have competitive Industries you're trying to take demand away from your Rivals you have Kawasaki versus Honda versus you know um BMW etc etc the way you get demand away from your competitors is by innovating so what you will get is cycles and Booms and slumps but you will innovate and change over time so what you found with this huge gap between socialist volume production with no innovation and capitalism with innovation so that was the the fundamental failing that jonos corai saw so why did why did socialism not innovate because if you go back to this famous historical incident with krushev in the United Nations bangs takes off his shoe and bangs the death says we will bury you he literally meant we're going to bury you in Commodities yeah we're going to produce more output than you are and he was wrong because fundamentally in the long term to bury somebody in commodity production you have to innovate yeah and like there's also there's another um remarkable Soviet engineer who was given the job of interpreting Marx's ideas of industrial sectors so you had the uh commodity sphere the industry sphere sector one sector 2 sector 3 uh sector one producing consumer goods sector 2 producing capital goods sector 3 producing luxury goods for capitalists and so he had a three sector model of the economy and he was talking about the Dynamics between them and what Feldman did was reinterpret this as an engineer would reinterpret it which was brilliant work um so what he said was uh you you need to produce the means of production if you want to grow quickly you focus on producing the means of production rather than Commodities so you don't make cars you make car factories okay you make a few cars but most of the effort goes into expanding how many factories you have 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 okay now I took a look at that back when I was doing my Master's Degree training in mathematics 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 if you go back to the earli stages of Soviet industrialization back in 1917 post the second world 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 so you had a huge supply of workers what you had to do was build the factories see building the factories but at a certain point you exhaust the supply of un lowly employed or unemployed labor and so rather than having this this exponential takeoff you hit a ceiling and then you can only grow as fast as the population because you're not innovating okay so that's what actually hit the S Soviet system and it's why they never buried the Western consumer goods and instead why Eastern consumers looked in Envy of the goods being purchased by their Western people and said if that's exploitation we want exploitation 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 the menix were true to Marx's original idea 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 which is like will we run into a wall with capitalism I think we are running into a wall with capitalism in fact I think we've already gone through the wall and we haven't yet realized we smashed our skulls okay okay but on the other side we're bleeding and everything like that uh is does Marx have any insights on what the other of Capal what is beyond I think that beautiful phrase of from each according to his ability to each according to his needs describes what we we should end up with and I think that's actually if I think about you know you know I'm a 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 because and I've actually seen interview with his the Italian Who's involved in designing what the future Colony will look like he was actually asked this question can there be enormous inequality in Martian civilization the guy said absolutely not because the resources again resource constraint applies uh you simply can't give somebody a underground bunker 100 times a size of somebody else's 100 underground bunker there's a the the scarcity of resources imp imposes a need for uh for for equality overall is that always that's interesting I mean this scarcity or resource wait but I feel like that's the contradiction I thought you thinking classical about scarcity yeah I'm I'm barely thinking at all it's uh uh so wait I I thought scarcity the best way to build on top of scarcity is a capitalist type of machine well now this is this is where again our vision of what scarcity is is wrong because and Ricardo said this actually better than Marx cuz Ricardo said there are some products uh whose value is determined entirely by their scarcity yeah paintings rare wines etc etc said they are things you cannot reproduce in a factory so the essence of capitalism is what you can make in a factory and therefore for these unique objects these rare objects Picasso painting um uh you know a beautiful bottle of wine etc etc then the utility it can't be reproduced uced easily so its price will be determined by subjective valuation you said what we're talking about in capitalism is the stuff you can make on mass okay and that that that is the true focus of a capitalist economy and that is not about scarcity that is about 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 okay but fundamentally the scarcity the neoclassical have B us think about and austrians think about as well is is non-reproducible but the essence of capitalism is the commodity the back scratcher the two buck back scratch that anybody can you know the cheapest chips to make and that's why it can make a profit out of them um not not the elaborate gold thing with diamonds and rubies that only the king gets so we think we our vision of scarcity has been perverted by neoc classicals analyzing the exception to capitalism and calling it capitalism okay fair enough so you know let's put Mars aside cuz I think there's a lot of uh strange factors that have to do with a whole another planet civilization that we don't quite understand like how economics works with um with different Geographic locations one of which have new challenges which is what essentially this is I don't I don't know if you can apply the same economic I'm saying your question I think we we'll be forced into that ultimately by having to make a compromise with the ecology and we've been ruthless about the Ecology of this planet and we're going to pay the price for it so if you have a a planet where you can't be ruthless okay yeah okay you have to mind it as carefully as possible then those that that utopian might be imposed upon you for the needs for survival on that planet back here uh Marx's Utopia was still the one that ignored the ology and I think uh if I have a vision of a Utopia in future it's got bugger all to do about what humans get out of it it's what humans respect they have to respect life so I don't see that as I see that as a as a oneeyed Utopia a Utopia for a single species as if it can exist on its own which we should know it can't yeah quick bathroom break yeah bad be great we took a little bit of a a break and now we're back we needed to take a break CU my brain broke and I'm piecing it back together you mentioned ecology and life and the value of all of that we'll return to it if we can MH but first we said why this kind of this idea of why socialism fails can we Linger on this a little bit longer in how did the ideas of Karl Marx lead to stalinism so this particular implementation yeah um is there something fundamental to these ideas that leads to a dictator and that leads to atrocities there's something about the mechanism of the bureaucracy that's built that leads to an um a human being that's able to attain integrate uh absolute power and then start abusing that power all that kind of stuff like some of the history of the 20th century is that inextricably connected to the ideas of car I I think to some extent it is but I'm going to also say that if it hadn't been for the Bolsheviks interpreting Marx and saying we can reach socialism without going through capitalism then it might not have happened so if you look at the like the menix were rival political group in Russia uh and that's where hman Minsky who's a huge inspiration for me so he's an economist who was maybe can we take it a little tangent who was hman Minsky yeah hman Minsky uh was the person who developed analysis of capitalism based on financial instability and he was actually the uh PhD student of Joseph shampa and an Austrian Economist as well his name I've forgotten temporarily um and he asked him he his parents were uh both refugees from Russia during the stalinist period because the menik were being wiped out uh in Russia just like any other opponents to uh the bik were being eliminated so I think his parents met in Chicago MH still remained socialist still remain politically active and he was educated in a family that was just imbued with Marx as its Vision he end 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 and the question he posed for himself is what causes great depressions and he put it beautifully said can it happen again it being the Great Depression and if it can't happen then what has changed between the society before the SE first second world war and after that makes a depression impossible mhm what's the answer to those two questions can it happen the answer was yes it can happen again but what has prevented it happening by the time he started writing about it which was the um late 50s to the m mid 80s late 80s we met once but only once over a beer or over a beer or no he gave a seminar at New South uni and he bit of an obstreperous bastard what's what aous wow what is it it means argumented and and likely to dismiss you so like a good a good mate of mine was the guy who brought him out to Australia guy a guy called Graham white we're still good day grahe we're still good mates good day Graham I love your language and your accent it's a great actually there's a there's a really good Tik Tok I saw earlier today with an Aboriginal Guy saying he loves the Australian language because it's absolutely ironic you ask Australian a question and he'll give you an answer which is the opposite of what he means and you got to work out the rest for yourself yeah he goes up to another Aboriginal mate and says uh good day mate says how are you saying oh not bad what have you been doing recently well not much uh uh when are we going it's so not not not not too far not too soon yeah whereas they're not too far away it's all negatives and he's beautiful beautiful rendition yeah yeah that's the cool thing about the internet culture that's that's they appreciate that ironic side like for example the best compliment you can give as an Aboriginal to somebody else's that's deadly that's deadly that's a compliment that's deadly okay one another mate of mine this comes to the Australian if I call you a bastard that's a compliment yeah depending on how I insonate the word bastard bastard basted that's deadly yeah I love that and there's something unfortunately there's something about the British accent that makes people sound maybe brilliant maybe sophisticated uh but actually yeah now that's unfortunately the downside of that you can sound pompous there's something about the Australian accent that you just can't sound brilliant it it humbles you you sound like you're having a lot of fun there's wit there's all that kind of stuff but you just can't be like Carl you know KL marks in an Australian accent would just not come off that is a very good point he would not be able to pull off the beard yeah I mean I just yeah it's fascinating that that the accent determines you know something about the person maybe it's the Chicken and the Egg too it drives it drives the way of the discourse obviously there's a lot of Brilliance there's a lot of Brilliance in your work yeah but it sounds like you're always having fun yeah and and like this PO Poncho has got a lot of Australian mates here yeah he spent uh what about a how long in Australia year and a half year and a half and he's got all these mates who are play Aussie Rules Football in Austin you should join them one day oh well it's actually it's a very creative sport it's much more fun it's different than rugby oh very rugby is hopeless rug rug is two two morons smashing their bodies against each other easy no sorry sorry we not me to offend the rugby fans in the audience well okay what's so it's too simplistic it's too simplistic it's it's it's I mean there's skill in it I've seen some really skillful Rugby Union and rugby league plays in my day yeah but it fundamentally if you hit somebody hard enough they go down yeah okay whereas in Aussie rules it's about catching the ball and then kicking the ball and more skill and it's it's a and the bodies of the athletes uh I can actually get off me measure what a sport is like by the bodies it creates and you get these incredibly elegant uh L muscular forms out of Aussie rules say beautiful words you have in your vocabulary life I don't even know but I I I'll assume you know what it means and maybe somebody in the audience okay so all right fine fine we should also mention that you've in your youth uh you know like like last year have had uh Olympic weightlifting as part as part of your life so you're long time ago and and like you said tennis I also played tennis for many many many many years okay yeah it's a it's a fascinating game it's a wonderful game yeah that's my favorite game KL Marx and Stalin yeah so how how do we get onto Aussie football in Australian and the accent I'm not really sure talked about um the way I said something about KL Marx and would KL Marx anyway we we got there yeah we got there and now we return but back to Marks I think it's not the destination it's the JY marks the failure of of socialism with Janos corai captured beautifully this idea already called demand constrained versus resource constrained economies MH and capitalism is demand constrained okay and and this is again where neoclassical theory is completely wrong empirically completely wrong so the ne classicals have a vision of capitalism being resource constraint and it's about maximizing your usage of resources subject to constraints and as Corno said that's really what happened under socialism what happens under capitalism is that you have 15 20 companies producing automobiles MH they are all trying to capture as much of the market as they can if you add up their marketing plans you're going to get 12 130% of the actual market so they're all going to have excess capacity when you build a fact Factory you're building it with a plan for it to exist for 5 10 15 years you have to have excess capacity in the factory so that means that capitalism has far greater productive capacity than it actually uses and then the way that you manage to get demand into your factory is to innovate and produce something nobody else does or you're producing in volume and when somebody produces like a bung tire comes out of Firestone then good year is ready to expand its production and take advantage of that so that's that's the actual nature of competition in capitalis and that means that we get a cornucopia as of goods even if we're lowly workers the variety of goods in capitalism is overwhelming and and that's just doesn't happen in socialism you get your 1942 kostak as your motorbike that's it when you put your money down to buy a refrigerator it'll arrive in 10 years because the factory is already fully constrained uh so all these resource constraints mean that people aren't happy under socialism and if you got a whole bunch of people that aren't happy then the best way to control them is to suppress them so I think in that sense ultimately yes it does lead to something like stalinism so it's easier to give happy people Freedom yeah I mean happy people get pretty silly outside I'm not particularly the extent to which Americans overuse and distort the word Freedom drivs me bomy um well but you know the all of these words can be distorted but they all at the core have some fundamental power and beauty and and then we just distort on the surface for the fun of it just start battles on Twitter and so on but what citizens of the Soviet world didn't feel was Freedom yeah not just in first of all it wasn't freedom to buy Commodities the Commodities were supposed to be on the shops weren't there uh the volume couldn't be produced and what you then got out of that as well was the you know the classic Soviet joke they pretend to pay us and we pretend to work okay yeah so you're not motivated oh look I I went to Cuba about 8 years ago y invited to give a talk there and I staying in a hotel itself the hotel is a story there one day my meetings were cancelled so I thought I might go down to the beach and they had a in in the hotel they had a wing which is the Tourist office and there were three women working inside the office so I thought I just go up and ask them you know how do I get to the beach and one of them says to me and I stood there just stood in the in in the room waiting to see if they'd make eye contact with me three women nobody else in the place none of them looked at me so I finally went up to one of them and said I want to go to the beach and do some surfing work she said I can get a taxi outside now fundamentally is she saying well I'm being paid shit money here I'm not going to I don't want to work uh I'm not going to do anything uh apart from sit here and and qualify for my time and as much as there are reasons the Cubans have suffered from American embargos and all that sort of stuff you've still got that fundamental shortage economy that uh that Corno spoke about coming out of the the structure of central ownership and central control of distribution and investment breaks my heart because I think some of the effects of that persist throughout time it become part of the culture too yeah yeah it's it's very inter negative culture yeah yeah well from from the Western perspective well even from the people living through it I mean like I had enough conversation with Cubans you know meeting him on the street hopping in a cab there one guy I was talking to was a he was an industrial chemist and you 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 by the way this episode is brought to you by delicious cocacola that's why I didn't want to have it on camera but anyway no maybe they'll actually sponsor you want you want to make sure you rotate the label to show this is capitalism what are we talking about here even though it's red uh red black is actually anarchist uh I should tell you I don't know if you know who Michael malice is Michael Michael malice he's an anarchist and he lives next door he's does he okay now I I've lost touch with anaka philosophy I actually used to read read you know kotkin and bikunin and so on and I enjoyed their philosophy and then I helped organize an anchus conference once and that was the biggest antidote possible to being an anarchist that sounds like a entry point to a joke help to organize an anarchist party it is I mean I we literally spent three days arguing over whether there should or should not be a chairperson for conversations yeah well that maybe that uh Mon Mon Life of Brian was lived out live ah look at the bright side of life all right so part of that explains why for example even to this day in some of those parts of the world entrepreneurship does not does not flourish there's not a spirit in the people to start businesses to launch new Endeavors and all those kinds of things um we're just taking all kinds of strange little strolls but how do you explain the mechanisms of China today where there's quite a bit of sort of uh flourishing of businesses and so on it's a very peculiar kind of Entrepreneurship they got a wife in central control uh but it's it's but they still manage Central political control but Diversified economic control so there's uh you could it is possible to draw a line between politics possible and I think in some ways China is more likely to survive as a society going into the future than Western uh capitalist societies are um so it's like uh if if we do the the KL Marx the the the foreground and the background you can um centralize the politics the the humanity the subjective stuff and then uh distribute the objective stuff you got to have the goods and that's the big change from Al D sha ping was the characterizing that little saying that I I don't care whether you have a black cat or a white cat so long as it catches mice and there was a level of pragmatism to the dong sha ping Revolution over Mal and mam Mal in particular and that was manifest in the desire to get as much of those Western Goods as possible and I was actually in China in ' 81 took a group of journalists there so I mentioned earlier for a tour we we ended up going to the Sichuan free trade zone and that gave us an idea of why um China was going to succeed because they had a rule that you couldn't just come in and exploit the cheap wages you had to also have a Chinese partner and within 5 years the Chinese partner had to earn 50 % of the business which is huge and that gives you an idea of the reduction in wages these American corporations are looking at they'd shut down the factory in the what's now the Rust Belt of America it might be paying somebody there you know that time maybe $2 an hour and they come across to China and they're paying 2 cents an hour so they were the enormous amount of wages that they dropped they were willing to foro half the profits and the ownership of the firm so what the chines were doing wasn't just exploiting their labor force it was also building a capitalist class and that meant that you had this that's where all the you know Chinese corporations have come from so they were building a capitalist system within a socialist command political system and that worked and it's still working so there was the centralization of the economic stuff the G plan approach I think that was where the Soviet failed uh and and what the Chinese realized after what they went through under Mal was you have to have that capitalist period but they weren't going to abandon the Communist control politically the country at the same time and that worked out brilliantly and there's a huge amount of innovation taking place in China today and they also will do gigantic infrastructure projects you know breathtaking planning going into that if youve you would have seen videos of you know building a skyscraper in a day the planning that has to go into that the pre-preparation that's necessary is and enormous so there's a real respect for engineers as well in that society which does not apply on the west what do you think about the from the Western perspective the destructive effects of centralized control of the populace of the ideas of the discourse of the censorship and the surveillance all those kind of things so it's bit like we were talking about Russia to some extent beforehand uh with centralized versus decentralized corruption and when you had it the centralized 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 and how destructive is that to the human Spirit would you say from the American perspective that feels destructive before 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 and I staying in second and third and fourth tier cities so you know populations of only 4 million people which is quite small on Chinese standards and I had a lot of happy people that I was interacting my girlfriend at the time her Social Circle um and like you you can feel when people can't discuss a political issue for example in Thailand you can't discuss the king okay they still have you know uh less majest laws so you can actually be jailed for discussing the king and you can feel that to some extent and it's is a political issue and land now but in in China what I got back from most people it was a bit like a benevolent big du Big Brother mhm okay but then when you get things out like the lockdown which has applied recently then you get the the failings of the Soviet system is still there in the Chinese system in that um the easiest way to avoid criticism is a underling carrying out instructions of people above you is to carry those instructions out to the letter mhm Beyond what the people actually want you to do at the top so we had a a classic illustration of that when I took these journalists there was a news report saying that uh China's output of Light Industry had grown by 177% in the previous year but heavy industry had fallen by 7% we just did don't compute so we kept on asking why did this happen 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 MH okay we finally got a guy to elaborate and say what that was he said well the Central Committee sent out a directive to promote FL industry so what did you do quote unquote we stripped heavy industry factories and turned them into Light Industry yeah okay now that's destructive of everything okay and that's the overlay that you've still got sitting over the top of of China but a huge part of the industrialization was simply saying uh produce whatever you you know you you can make Goods Market them sell them and you get that Innovative component of humanity is respected and the goods turn up and everybody's well fed food in America Russ China is far better than food in America um so in terms of material satisfaction uh and and freedom to for example Joy enjoy dancing I mean you we went to um um 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 partying it up partying it up in the open air and doing this Chinese Collective dancing you have to be really careful about that kind of thing so in terms of measuring the flourishing of a people by looking at their happiness I have so many thoughts on this but I'm imagining North Korea and if you talk to people in North Korea I think they would say they're happy no well let me let me let me try to complete this argument not an argument but a sort of challenge to your thought which especially in the bigger cities because they don't know the alternative so what else do you need there's enough food on the table we have a leader that loves us and we love him we are full of our hearts are full of love our table is full of food they would say because it's enough food um what else do you want from life no I think okay like that's so let me sort of CH because like that's that's an alternative I mean i' I've spent time in Romania so let me sort of complete that sorry because I'm taking the most challenging aspect 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 and so your idea of Happiness might be very constrainted so uh you know you could also argue that is happiness if you don't know like ignorance is bliss ignorance is bliss and then so is happiness really the correct measure for for the flourishing it's not but I I mean there's actually a classic book and movie as well we called M's last answer okay and that is a young man explaining his progression from being a dancer in the cultural revolution through to a leading dancer in American and ultimately stran ballet um and he explicitly says at one point that he's told that the Chinese people have the highest standard living in the world and the reaction of him and his kids like his you know fellow six-year-olds is God it must be miserable elsewhere in the world then okay so they knew they still know they still know there's no such thing as that complete ignorance but what I'm talking about is the experiences in trying to say back in about 2016 2014 um there was a feeling of Freedom within limits you didn't want to transgress because the system was working so if you like it's kind of like marriage pardon it's kind of like marriage hey that's a good example there's limits there's limits there's limit you have fun within those limits that's right okay and and people did have fun and they did feel free but they didn't want to go and get divorced but that dilemma um was accommodated because the boundaries until you started hitting restrictions were wide okay um and like when you look at it I mean look at the again with the Chinese Communist Party the administrators of that are often highly qualified Engineers who can then make Intelligent Decisions about what should be done as infrastructure and so on uh and you go to China and you got incredible High-Speed Rail uh uh fantastic infrastructure internet telecommunications and so on uh rapidly evolving solar uh there's there's a range of things there that are so well done that respect reflect the fact that the selection process that gives you your political Elite is partially focused upon sucking up etc etc it's still there but it's also focused upon your skill levels and you get people making decisions who damn well know what they're talking about like Australia's Got a classic example the internet in Australia sucks the reason it sucks is that the the labor party which is our version of the Democrats was in control during the global financial crisis and as part of that they wanted to bring in uh uh optical fiber connections to the house so have optical fiber backbone and an optical fiber you know right to your T100 output from your home and the Liberal Party fought that and said that's going to beo too expensive uh take too long to do 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 it's going to be cheaper and faster have it more soon blah blah blah well there a total technical fuckup okay and Australia now has internet that's about 50th or 60 as Fest in the world it's dreadful for the internet two political political figures made that decision Tony Abbott and and Malcolm Turnbull rivals and leaders of the um of the conservative party we call liberal over there now that was shitty decisions that wouldn't happen in a country like China because you've got actual Engineers making the decisions they say you can't get decent speed if you link optical fiber to Copper it's going to 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 yeah it's but don't you worry about the corrupting aspects of power oh yeah that that you start you know you have Engineers making Intelligent Decisions but at which point does the fat king uh starts saying oh these Engineers are annoying I have good internet I don't understand bring me the grapes well that you know you get your cular effects that can happen like Z from what I've seen has got elements of that so friends of mine who are Caucasians and get away with it they have a game where they play at conferences scoring how often people use with Z's name in a presentation and giving extra points for the number of photographs of Z that turn up in the whole thing so you got this sort of Personality cult coming along as well but at the same time the the the planning for the infrastructure that's being built the social services um the the General Freedom that exists is so great and like any Chinese person alive today like somebody who Chinese my age uh was would have been an adult under the early period of the late period of ma and God Almighty that changed the Improvement they've seen in their lives they that's what they think about so 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 so it seems to be working really well in 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 well yeah but at the same time maybe I mean often people will say you know what's your vision for the future and what they mean is what vision for the future do you have that I'm going to like right okay now what if you have a vision of the future you don't like it's Dreadful me that's the ecological crisis I think we're walking blindfolded into well that's uh right that that that part of the picture we'll have to we'll have to talk about yeah how fundamental of a problem that is okay but what does that have to do with the future of China that has to do is that if you wish to impose dramatic controls on the consumption of the rich 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 then you in a country where it's all Diversified and you screams Freedom every between every point in a tennis match and I'm I've literally seen that when I was in Philadelphia some time back um so the ideology accepts a collectivist attitude may be more successful in controlling our reducing human consumption levels because when we talk about democracy I mean who's voting here how many horses and elephants birds get to vote okay it's very what's a bird yeah you don't see them around here uh it's a very human Centric Vision we have of this planet yeah and we're going to pay a price for that okay so you're saying to deal with global catastrophic events centralized planning might be maybe I think we'll work better period I mean like again but there's some centralized stuff in the United States for example oh military yeah I know no no okay all right now now's that now there's that feisty Australian uh so besides the military there is that's the ideal of the federal government in the United States is that there is some centralized uh infrastructure building there's some big project but there's some and the qu 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 mhm and impose enough centralized planning to allow us to deal sort of enable empower the citizenry to deal with these catastrophic events in the case of the pandemic a lot of people argue that the uh first of all the world but also the United States failed to uh effectively deal with a pandemic on the medical side the social side on the on the financial side the supply chain all everything in terms of community iation in terms of um inspiring the populace with the power of science on all the fronts they they failed but the the ideal is they would be able to succeed you would have to have a small efficient the ideal the American ideal you have a small efficient government that's able to to take on tasks precisely like the pandemic but the thing is maybe it shouldn't have been as small as it was I mean my favorite instance of that actually involves the UK because the whole neoliberal approach is about small efficient government okay well small efficient government works when You Face small efficient challenges when You Face something systemic rather than episodic then it's going to break down and like this is I mean one of the things I I greatly respect is tb's idea of antifragile you want a society which is antifragile not easily broken whereas neoliberalism has pushed us towards this vision of efficiency but it's easily snapped like in the UK I've forgotten the government Minister involved but she was she asked her expert committee how many this is before well before the pandemic how many masks should we have on hand in case of a pandemic and the answer from the experts was about a billion MH okay that's 50 masks that's 20 masks per person okay oh that's too many let's just make 50 million masks that's one mask per person it was gone in a matter of a day okay and therefore that's why they told us well masks don't work you know what they meant was we don't have enough masks for our health people let alone for you and the public so we're going to bullshit you until those masks don't really work and then people don't wear masks and then we've got enough mask we rush up the production job and by the time it comes along people have got their skepticism about masks so who does the uh can you elaborate who does the blame in that case go on to the blame comes down to the philosophy that says government should always be small no but do you do you really think that bigger government would be the solution to the mask issue so let me let me push back sort of it's possible that that that's capitalism solves that problem well not not if there's no money in really long-term planning and capitalism okay there's money there's money init isn't it possible to construct isn't possible for capitalism to construct a system that ensures against catastrophic events not when they're systemic the cap you can ensure against episodic events if you occasionally have a really bad storm but in general the weather's not so bad that all the infrastructure is being destroyed then you can share that around on a percentage basis if you have a gussian distribution for your events and and you don't the mean doesn't move around too much and the standard deviation doesn't change all that much then Insurance works fine but if you have an EP if that's episodic if you have systemic stuff where the climate is changing completely and you're going to wipe out your agricultural cap capabilities uh you you simply can't do insurance on that front you you can't make a profit out of catastrophe and capitalism okay that so that example of um climate change let's talk about it okay so you you mentioned that the human brain the economy and the biosphere are three of the most complex systems we know mhm okay and you also criticize the economics Community for looking at the effects of climate change when measured as you know the effect on the GDP yep so you're saying it's a catastrophic thing that the biggest challenge our society our world is facing why if the The Economist disagree with you the the effects on the GDP will be minor uh so we'll deal with it when it comes MH that's that's the argument against That's The Devil's Advocate you're saying no it is uh a thing that will change our world forever m in ways that we should really really really be thinking about okay okay make the case of why I disagree with the case is simple economists have made up their own numbers to say that it's trivial and you didn't I no I haven't even tried to make the numbers I'm reading what the scientists write okay okay and what the economists have done and like this is William nouse in particular Nobel Prize winner ex-president of the American economic Association literally assume that a Ruth will protect you from climate change he didn't say it in those words what he said was 87% of American industry occurs in carefully controlled environments which will not be subject to climate change now the only things that all of manufacturing all of services he included mining as well forgetting about open cut mining uh government activities in the finance sector all they have in common is they happen benath a roof so he's basically saying climate affects the weather climate is weather okay mhm okay now now that is not at all what is meant by climate change it's mean changing the entire pattern of the of the of the weather system of the planet 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 ferah cell I think it's called on the Polar cell 0 to 30 30 to 60 60 to 90 those are the main bubbles if you like in the atmosphere now if we get enough increase in the energy in the atmosphere that like 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 uh that's called the equable climate if that happens then most of the rainfall is going to occur between 0 and 20 and 70 and 90 and The Middle's going to be dry except for extreme storms uh we would we we built our Societies in a period of extreme stability of the climate and when you look at the long-term temperature records it's up and down like a you know like a seesaw a s like a sore tooth blade between say one degree warmer than now and 4 degre or 6 degre cooler over the last million years but when you look at where we evolved it's just at a turning point on the peak of one of those ups and downs those I've forgotten the name of the Cycles but the Cycles caused by changes in the Earth's rotation around the Sun uh and so we we evolved our civilization just at the top so coming up from a a cold period and then we're going to head down to another cold period and that's when human civilization came along it's about a period of about 12,000 years so across that period the temperature Has Changed by not much more than half a degree up and down now we're blasting it well and truly out of those confines and I'm my way of interpreting what what climate change means is the stability of that climate that enables to build sedentary civilizations and not being a nomadic species is being destroyed so the The Challenge and by the way I'm playing devil's advocate here uh the the question is is there something fundamentally different now about human civilization that we're able to um build technology that alleviates some of the destructive effects that we have on the climate we don't know we're going to find out the hard way and the uncertainty you think would be very costly extremely many of the trajectories we might take would be much more costly than they're profitable yeah and and like when you're seeing some of the storms that are happening now in Europe the ones that you know washed away a village in Germany some time ago the the far storm that hit Canada of all places I forgotten the name of the town that was burnt down but enormous temperatures in Canada uh again the storms that have been happening back in Australia these are all manifestations of a complete shift in the weather patterns of the planet and they can wipe out like you know a village just disappears it's wiped out by unprecedented rains and this keeps on happening we've we've we are still living in a sedentary lifestyle when we're a neomadic species okay so to be able to maintain that sedentary lifestyle we do need to to engineer the planet we need to keep it within that range of plus one you know one plus half a degree Cel minus half a degree which is really what it's been like for the last 10 12,000 years instead we're blasting it right out of that range and we know some of the past climates that have existed then we can model what they imply for our our food production systems for example not the only example but obviously crucial so when you look at what are called Global Climate models produced by scientists uh one of the examples was published by the oecd last year 2021 uh in the chapter on what would happen if we lose What's called the Atlantic meridional overturning circulation or amoc and people would colloquially know that as the Gulf Stream and that's what distributes heat around all the oceans of the planet it's it's part of a huge chain called the thermohaline circulation but the part that goes across from the um the equator to the North Atlantic that's called the amok and Gulf Stream to colloquial way if that disappears in the context of a 22° c 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% proportion for corn similar sort of fall the proportion suitable for Rice will go from 2% to 3% now that means a catastrophic and that's the word used in the report catastrophic collapse in food production okay so that's what we're toying with and we are one and a half we're actually less than we're about we're about halfway there to that two degrees 2.5 uh and Economist on the other hand this is Richard toll okay uh published a paper 2016 claiming using what he calls an integrated assessment model that Economist developed that losing the Gulf Stream would increase Global GDP by 1.1% now that his model this is what really pisses me off about these people it's the worst work I've read in 50 years of being a Critic of neoclassical economics the gcms the one SST produce of course include precipitation as well as temperature the imams that the economist produce and this is stated yet again in a paper in 2021 do not include precipitation they simply have temperature so they assume that if temperature improves by moving towards a temperature which is better for producing agriculture okay then so will precipitation now that's completely wrong they've left out a crucial imagine trying to model the climate while ignoring the fact that there's rainfall right that's what they've done so their work is so bad so dreadfully bad it should never have been published so they over all right okay I'm going to go for them sorry this is well no no 100% as they deserve it so it's an oversimplification but I also want you to steal man people you disagree with criticize people you agree with if if possible yeah uh to be sort of intellectually honest here you do say sort of to push back on the catastrophic thinking about uh climate change that the uh ecology the biosphere is a complex system yeah economics the economy is a complex system so how can we make predictions about complex systems how can we make a hope of um having a semicon predictions about the complex system so the scientific Community is very confident about uh the complex system that is the biosphere and the uh the crisis that's before us on the horizon yeah uh and then the economists are as a community I don't know I don't know what percentage but too much too much uh that part of the community is very confident looking at the economics complex uh complex system in saying that no this system we have of Labor and money and capital and so on would be able to deal with that crisis and any other crisis and uh they kind of construct simplified models that justify um their confidence so how do we know who to believe for a start if you believe the economists you need you need your bre your head red because when it's not an argument no it's not an argument it's a summary of an argument and that is no that sounds a lot like an opinion and an emotional I know I know I'm so angry about it listen I I'll tell you I'll tell you where I stand and I've begun looking studying the climate change yeah much more I used to be on things I don't understand have not spent time on I have so many colleagues that are scientists that I deeply respect Y and I trust their opinion MH um I have seen the Lesser angels of my colleagues on the on the pandemic side on the co side okay yeah the confidence the arrogance that in part blinded I believe the the jump between basic scientific research to the uh to public policy yep yep and then that so I become a little bit more cautious in my trust on climate change I'm still in the same place on and not I don't mean climate change on anything scientist say I'm I become a little bit wait a minute um how does the basic scientific facts of our reality map to what we should do as a human as a human civilization yeah there I want to be a little bit careful so whenever now I see arrogance and confidence I become suspicious well I'm the same and that's why I'm being angry about the economist because there's incredible arrogance incredible stupidity the arrogance assumptions which you look at it and think how did anybody let that get published sure okay the the the economic analysis of the effects of climate change are poor in many cases incredibly poor yeah and this is like bjon lomborg starles himself as the skeptical environmentalist and criticizes the environmental models he doesn't take a look he doesn't criticize the work come out by economists you look at it it's so bad is it possible to do good economics modeling of the effects of climate change yeah it is possible uh very difficult or is it like one complex system St it's to in that case yeah I mean like to to me the what what you should be looking at is saying what are the scientists saying are the consequences probable consequences not not guaranteed but probable consequences of increasing the energy level of the atmosphere by the amount we're doing what can the scientist say in terms of like the effects because it's so complicated the effects of sort of Shifting resources so basically what are the effects of climate change how can we really model that because it's it's basically you're looking through the fog of uncertainty yeah cuz there rising sea levels how can we know what effect that has well all we know there'll be a lot of change yeah this is I I don't actually I think the actually sea level one is a poor argument and I don't focus on it what I mainly focus upon is the the weather patterns okay and if you look at like we got the the the wheat belt in America goes through what Idaho and count places like that and you've got incredibly deep top soil Ukraine is another classic example the depth of the top soil in Ukraine is remarkable and that's the wheat bowl of of Europe and that requires both the right temperature for growing wheat and the right rainfall for growing weight now when you look at the models that uh climate scientists are building of of of that you have pretty much your ultimate Foundation is is the Loren model of of turbulent flow and of course that's that's the first model which we saw Chaos Theory complexity that beautiful simple model three variables three parameters an incredible complexity out of the system uh but and what that meant was you also had an exponential decay in the accuracy of your model over time so if you have if you're accurate to a thousand decimal places then in a thousand days you'll have no data whatsoever because each time you're losing an order of magnitude of accuracy okay so that's the point about the inability to predict for the very long future but what you can just say well there's a prediction Horizon if we're close enough to the if our if our statistical measurement of where we are is close enough to where we actually are and our forecast Horizon is narrow enough to to not extrapolate too far then for this PR forward we can make a reasonable fist of predicting what the weather's going to be and that's the foundation of meteorological uh the stuff we watch on TV you know the most of the time the forecasts are going to be correct these days 40 50 years ago most of the time the forecasts were wrong so that's the the background Foundation to these gcms but even they've got to massively simplify the world so you have this enormous sphere where they might divide it down to 100 km by 100 km by 10 km Cube rectangles whatever um Oblongs that that's how they're modeling the transition of where weather from one location to another so they've got a chunky vision of the plan which they have to they can't model know down to the line last molecule so you're losing yet right it's getting better and better and better better oh yeah I think that's that's just too much processing power but you you you're going to have some confined you can't go I mean if you look at the models to do the weather they used to be of that 100 km I think about 10 km grids now I don't know but so the processing Powers let us get more and more precise that way I do know that the models now include chemical mixing that occurs above cities yeah they've added that complexity to them over time so you're looking at the increasingly accurate models of weather patterns the effect they have on agriculture on food yeah and you're you're saying that there's a lot of possibilities in which that's going to be really destructive to Society on on the food production side and if you have that increase in temperature you're going to get a change in precipitation and it could mean that where the rainfall and the sunshine are adequate for growing wheat is an area where there's no top soil so like a huge part of the models that the models the economists use which only use temperature don't include precipitation they predict that a large amount of the wheat of the wheat output of the world is going to occur in Siberia in the Frozen Tandra what about so that that's a straightforward criticism of oversimplified models what about the idea that we innovate our way out of it so uh there's totally new what is there there's uh a silly poor example at this time perhaps but lab grown meat sort of uh engineered food so a completely shifting uh source of um of food for for civilization so therefore alleviating some of the pressure on agriculture that comes down to the difference that Elon makes between between producing a prototype and prod and mass producing the Prototype you can 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 six years yeah and we haven't got years we've got we might have decades we certainly haven't got centuries um so in the time frame we've got I can't see that engineering going from prototype to production levels to Pro replace what we're currently doing in the stable environment the currently destroying 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 to that's mainly unfortunately involving Paul elic and the population bomb and the predictions po was a few individuals or one individual in that case yeah so I'm mostly Playing devil's advoc this conversation and enjoying doing so um I do think uh I'm in agreement with the majority of the scientific Community uh but you still see that argument made I still see the argument made and I also I'm a little bit worried about the arrogance and the ineffectiveness of the arrogance this is the problem it's ineffective and and that's that's what worries me because it's all been um put into the sort of you know sea level rise um temperature changes uh it's it's not put into the fragility of the system in which we currently live and the Earth Will Survive 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 band left and then the Earth reasserts itself so the Earth's going to survive us will we survive what we do to the Earth that's the question and my feeling is that we have underplayed the extent to which the civilizations were built have depended upon a relatively stable climate and as then there that there's that turning point in the maximum in the global average temperature that we evolved right on the top of it and if we had done nothing we could find that heading back down towards another Ice Age could equally destroy the possibility of sedentary life we example we'd never devel developed fossil fuel based Industries uh we'd never built super of phosphate so our population would never have reached 1 billion people uh 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 our farming areas the glaciers would have encroached and we would have been driven out of like agricultural sedentary Civilization by that change so it's just the fact that we evolved on this stable period in in the overall temperature cycle of the planet and that stability is something which just reflects that's a turning point in a in the regular cycle malich cycle I think it's called I've forgotten the actual name but it's the cycle caused by you know changing the Earth's orbit around the sun U reflectivity and so on that that cycle it's just that tiny top bit that we evolved in so what we should have done is so that's that's really useful for us we should stay at that level now if we hadn't done it we'd go back down here and that would be the end of our Civilization by an Ice Age instead we're going up here really rapidly and we we'd causing a change in temperature compared to that long-term cycle 100,000 times faster so yeah I mean my my biggest worry is um even subtle changes and climate might result pressure in geopolitical pressures that that then lead to nuclear war and that's yeah I mean there's there's an argument that's actually behind to some extent not the Ukraine war so much but the Arab Spring the the wars in Syria which partially has led to what's happening in Ukraine so and our weapons are getting more and more powerful and more and more destructive more and more nations are having these destructive weapons and now we're entering cyber space where it's even easier to be destructive hyper baric weapons which didn't exist in the second world war so you know you don't need nuclear weapons to have you know catastrophic attacks on each other so yeah it's incredibly scary that that the warlike side of human nature could be extremely enhanced by climate breakdown so in this world on a happy note uh I don't know how we went from Marxist and stalinism to ecology but all those are beautiful complex systems uh What uh is the best form of government would you say on the P we talked about the economics of things um you ran for office so you care about politics too how can politics what political systems can help us here I think we first of all have to appreciate where 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 yeah can we actually Linger on that what is you mentioned we need to acknowledge the value of life on Earth you know can we integrate uh the labor theory of value can we integrate into that the value of life um so there's human life I I I think if you if you take like that that structure that I talked about of Marx's use value exchange value dialectic the forground background that only exists that only works because we're exploiting the free energy we find in the universe there could be no production system without free energy which is a you know the first law of thermodynamics that there is free lunch after all and it's grounded in the energy that's provided to us by yeah that's the free lunch that's what we're we exploring it's the only free lunch we get you know Ginsburg summary of the laws of thermodynamics don't you Alan Ginsburg said the f the the the laws of thermodynamics summarize a you can't win okay B you can't break even yep C you can't leave the game nice yeah beautiful summary beautiful summary okay uh but the fact that exists in the first place is the free lunch okay so we're exploring the free lunch but to be able to do it we can't put waste back into that system so much that it undermines the free lunch and that's what we've been doing and once you respect the fact that we have to living on on the biosphere Planet we're actually on uh we have to enable that biosphere to survive us because of it doesn't survive us we won't survive it disappearing and there's not that realization in humanity in general and uh when you say the value of life you know all the different living organisms on Earth are part of the biosphere yeah 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 uh I've got some no so I person parasites I mean we we are a parasite when you look at we're we're the mosquitoes of the human of of the the the large organizations you if you're a fan of the Matrix movies at all sure okay you know this where what I'm wearing absolutely I was wondering what the inspiration was I was thinking it's not really inspiration we are living in a simulation okay and I have a conversation offline to have with you about that okay' been misbehaving and we're going to have to put you back in line so what what's agent Smith says when he's got uh Morpheus in his possession he said I've been trying to classify your species I've decided you're a virus okay now there's truth that we have intruded into everything okay we have taken over every element of the of the biosphere and and we think we can continue doing that the thing is we're breaking that we're exploiting it so much we're breaking it down and IO I think it's IO Wilson who argued with the 50% rule he believed that we should Reserve 50% of the planet for nonhuman species in other words we make 50% of it off limits humans cannot go there and we just let that evolve as it does and then we control the other 50% I think it's probably giving to much to us I think we should actually say like 20% 25% Max and the rest of the planet we let life go on and evolve as it does without our interference without our dominance now that's neither a Dem democratic system nor an authoritarian one it's one which starts off with saying we the first thing humans have to do is respect life itself okay so would we do that we have done it obviously I don't think the Soviets would have done it if we had a generally Soviet system we haven't done it a capitalist uh we continue intruding so we we I think we have to go through something like a Star Trek a Star Trek you know catastrophic 200 years to realize that ultimately if we're going to survive as a species we have to respect life in general and then that means we parts of parts of the planet we can no longer touch while we also try to maintain the planet at the temperature that we founded in what we now call the anthropos scene okay um so politically we have to have like in 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 um and again I'll use another movie The Avatar type respect for the cycle of life we need to have that as part of our innate nature and then on top of that the political system comes out 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 sacran okay we can't touch it 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 it's both a feature and a bug yeah and therefore we need to have people who can understand complex systems making those decisions now that means it isn't a political system as much as it is an appreciation that the world is a complex system and therefore effects which we think are Direct effects will actually come through an oblique fashion and we cannot U there's no simple linear progression from where we are to where we want to be so you have to see how everything feeds together in a systemic way and that's why one reason I designed the software I'm wearing this on our Minsky is to have it's nowhere near to this scale I hope it one way 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 inters and we can see what a potential Futures and and that then guides us so it isn't a case of democracy and you know ourside winds a vote and therefore we ban abortion or we don't you know whatever else happens 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 the Bold uh expansionary ideas that we've been doing so like being a little bit more in uh humble humble humble is a good word but wouldn't you like to apply that same humility both to the considerations of the uh the pros of capitalism and and to the catastrophic view of the effects of climate change yeah and also like I think we we can we can afford to be bold in space and that's one reason I respect the Practical vision of musk and soar 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 the productive side of off the planet offsite backup yeah so can you actually Linger on this so let's actually talk about this so first of all you have the new book uh humbly name uh named the new economics a Manifesto publisher chose the title yes no but I'm I'm joking but um maybe I will ask you about why Manifesto but we'll go through some of the ideas in this book we have been already uh so some of it is embracing the fact that the economy our world our mind is a complex system so this t-shirt that you're wearing yep like it out yeah is uh software I'll do that if you like you're wearing infomercial so this a t-shirt that says Minsky um after not not not my Minsky it's your Minsk notman so hman Minsky not Marvin Minsky not Marvin Minsky right so that's so AI Minsky is is Marvin and then uh Harmon it all Rhymes so stability is free open source system Dynamic software invented by Mr Steve Kean uh coded by Russell sish it's on Source Forge it's destabilizing stability is destabilizing so that's sort of embracing the the complex aspect of it yeah so how can you model the economy what are some of the interesting were they're detailed or high Lev big picture ideas behind your efforts with Minsky okay Minsky um the meaning the software the modeling software that that models the dynamic system basically what msky is doing is System Dynamics modeling so it's if anybody's used Stella or venim or simulink um then they've used exactly the same family of software that Minsky is part of so I didn't invent that that was invented by Jay Forester who's one of the great intellects one of the great Engineers uh in American history and the idea of of of forester's system was uh complex interactions mhm so he was doing his work in the 50s um uh people don't don't know Foresters work he actually built the models of the did the mathematics for the gun turrets on American warships in the second world war mechanical systems obviously so he had to work out of you know how to give a feedback system that meant when the boat rolled in One Direction the the tower did not roll the other way all that stuff was his work so marvelous engineering and then he realized if you want to look at a even like a factory a factory is a complex system and so you get Cycles generated out of the interaction between different components of the factory that he was first inv D in taming that he built the software to model complex interactive systems so Minsky is that the thing that Minsky adds which is unique is The Godly table and that's the double entry bookkeeping so you can model the financial system Godly The Economist Godly the economy wi Godly another great great man so there there's like this so you're modeling it it's like a state diagram yeah fundamentally so actually just circuit diagrams it's exactly what Engineers have been using for decades almost a century uh so you're using a circuit ground to model the economy and that's uh that's the so other packes have done it what they what they haven't had in the circuit diagram is a way of handling the Dynamics of the financial system so what The Godly table does is bring out um Financial flows as being uh everything goes from somewhere and ends up somewhere so you have a positive and a negative if you're looking on the liability side uh a positive and a positive or negative and a negative you're looking at assets liability side and Minsky gets the accounting right for that so you can do an enormous complex model uh looking at the economy financially from the point of view of a dozen different actors in the economy 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 if you get The Godly tables right you know the mathematics is correct so that's the main Innovation that Minsky adds and you're operating there at the macroeconomics level yeah it's definitely macro it's top down it's not it's not agent based and then this I'm just opening on a random page that I think is very relevant here uh the process this is referring to Minsky not the software maybe the software I don't know the process can be captured in an extremely simple causal chain Capital determines output output determines employment the rate of employment determines the rate of change of wages output minus wages and interest payments determines profit the profit rate determines the there's a very nice circuit here the profit rate determines the level in 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 and there's some nice uh the Keen Minsky model and the intermittent route to chaos on page 86 of your book these are do these come from the software yeah yeah I mean I first did that in Mathematica uh back in 1992 August 1992 uh mathematics is another amazing piece of software yeah I find it it's very much a programmer's approach to mathematics I prefer like a program called mathcad which is what I'm using for all my when I do my mathematics on the computer I write math CAD or cab CAD okay it's been ruined by bad management they chucked out all the good engineers and I'm still using a version which is 12 years old if only Engineers ruled the world if only Engineers rather than this particular case there was a bunch of marketers for CAD software are great I'm definitely a fan of Engineers what are the plots that we're looking at here growth rate private debt ratio employment versus wages employment versus debt income distribution so what this is across years like different tradeoffs is there something interesting to say about the plots and the insights from those plots that are generated the software um that's um that's particular parameter vales to give that outcome 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 uh American Marxist mathematical Marxist and what he did was build a model of cycles and he he actually wrote a paper called um it's only about a five-page paper published in a in in a book and a very very obscure conference paper and what he was doing was trying to build a model of marks okay so if you he wrote it in 1967 and it was putting in a mathematical form of model that Mark came up with an 1867 so it was a Centenary birthday present to Marx and what Marx had argued in chapter 25 I think of volume one of capital section three he um he built a verbal model of a cyclical system and it's quite out of character with the rest of the book so when you read volume one of capital people think Marx has got a commodity money view of money he doesn't at all he simply did he the idea was he had like an onion you start from the middle level and you ignore the out low then you bring the out Aon and so on and so forth anyway in this model in in volume one of capital he normally just workers got a subsistence wage that's it but in this little chapter he said that if um if the economy is effec the economy is bming then workers will demand wage Rises okay and the wage Rises will cut into the profit so that capitalists will not get the level of profit they're exped therefore they will invest less and the economy will slump and the slump will mean workers become unemployed and have to accept wage cuts and it was a model of a cyclical economy and as it happens Mark's been his later years trying to learn enough calculus to be able to model it himself mathematically and he never managed there's marks and mathematical notes on calculus which are quite fun to read and if you have a mathematical background did he get far no he got too caught up in the whole philosophy and it never really got to bu the model but what what um Goodman mized was a predator prey model okay they lock the voltera model was the basis of the idea so what the idea is you have a have a prey like a and the example that that Locker actually used initially was grass grass is the prey and then you have a predator and the Predator were cows 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 they because the cows grow they start to eat the grass so the grass runs out so the cows star and you get a cycle and what LO was amazed by was that the Cycles were persistent they they didn't die out so Goodwin got that vision and he then built a predator prey model and I first of all read Goodwin and really found it really hard to follow his writing it was he's not a very good writer but a guy called John blat who was a professor of mathematics at New South Wales University wrote a brilliant explanation of the good On's model in a book called Dynamic economics systems and I read that it was superb and you said a way you could extend this was to include Finance so I thought okay what I'm going to have is that what Goodwin presumed is capitalists invest all their profits okay so you get a boom when they're when there's a 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 bman slump so I simply added in well capitalists will invest more than their uh profit during a boom but lessen their profits during a slump and that therefore means they had to borrow money to finance the Gap and pay interest on the debt so I ended up with a model with just three system States the income share the wages distribution of income between workers capitalist and bankers uh the level of employment and the level of private debt and those three equations are fundamentally like going from the Lo voltera model with just two equations and therefore you get a fixed cycle to to the Loren model where you have three and therefore what I got out of it was a chaotic outcome so what you're seeing is a a manifestation of chaos complexity in that those plots but the fascinating one of the many fascinating Parts about it was that uh as the level of private debt Rose I in my model I had capitalists being the only ones who borrowed but the people who paid for the high level of private debt were the workers the rising Banker share mhm corresponded exactly to a falling workers share so you're you can infer from that that the workers are the ones paying effectively the workers end up paying for it they get a lower level of wages and it's the basic Dynamic is that capitalists uh when you have a three social class system your income goes between workers capitalists and bankers now in the system that good one did they're just workers and capitalists so if workers share Rose profit Capital share had to fall okay but when you have three social classes then Capital share can remain constant while workers fall and bankers workers Falls and bankers rise so that's what actually happened uh because capitalists the the simple way of model it was there's a certain rate of profit at which capitalists invest all their profits above that they borrow more below that they pay off debt 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 but if there was a higher percentage going to bankers and offset by a lower share going to workers it didn't affect the capitalists so what you get is the Cycles sort of diminish for a while because uh there's there's the other the so the income distribution effect is important so the the workers pay for the increasing level of debt but the other side of it was that the Cycles would diminish for a while now what you get is a period of diminishing Cycles then leading to Rising cycles and technically this is known as the U uh P Pomo manille route to chaos and it's one particular element of Lorenzo's equations and fluid dynamics so what they found was in in examining lamina flow and a fluid you have a period where the lamina flow got more lamina and then suddenly it has start to get less lamin and go turbulent and this is this is what actually goes on in the model so in my model of Minsky so what you have is a period where there's big burms and Cycles then as the debt level rises the booms and Islams get smaller and that looks like what neoclassical economists call the great moderation so I when I first modeled this in 1982 I finished up my paper which is published in '95 with what I thought was a nice rhetorical flourish saying the the chaotic dynamics of this paper should warn us against regarding a period of relative stability in a capitalist economy is anything more than a lull before the storm now I thought it was a Grace Pat of rhetoric I didn't think it was going to fucking happen happen but it did because you had this period from 1990 through to 2007 where there were diminishing cycles and the neoclassical labeled that the great moderation and they took the credit for it they thought that the economy was being managed by them to a lower rate of INF inflation a lower level of unemployment less instability over time and they literally took credit for it and I was watching that and thinking that's L my model running and I'm shit I'm scared as shit that there'll be a breakdown I ended up not um working in the area for a while because I wrote debunking economics and I got involved in a fight over the uh modeling of competition in neoclassical theory that took me away for about four or five years and then I got asked to do a court case uh in 2005 end of 2005 and 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 and I explained Minsky's Theory and I used this run throwaway line of saying debt levels been private debt have been rising exponentially and then I thought well I can't as an expert just make a claim like that I've got to check the data and the debt ratio was Rising exponentially and I thought holy shit we're in for a financial crisis and somebody has to warn about it at least in Australia I was that somebody so can you given this chaotic Dynamics idea can you talk about the crisis is ahead of us in the future so one of the things I mean it's a fundamental question of Economics is economics about understanding the past or predicting the future because uh you can construct models that do poetic like in 95 poetic inclusion yeah and then you can you know watch years come fly by and some of the predictions in retrospect that you make turn out to be true but you you know you all kinds of gurus throughout history have done that kind of thing um and you can call yourself right and forget all the many times you've been wrong let's talk about the future what kind of stuff you you mentioned about the importance of the biosphere but what other crisises are ahead of us that this that that a chaotic Dynamics view allows us to predict what really our saw coming out of it with leaving aside the ecological wasn't a crisis it was stagnation because what we got out of the the crisis was caused by a rising level of private debt okay now you reach a peak level where the willingness to take on debt collapses and so you go to a period where debt is rising all the time so credit which is the annual change in debt and that's credit is part of aggregate demand and aggregate income so credit goes from positive to negative and that causes a slump what what uh so can you describe why that causes a slump so when credit goes to Nega yeah if you ask Paul Krugman he'll tell you credit plays no role in aggregate demand okay give me a second uh credit plays no role aggregate demand so the vision the vision that the neoc classicals have of the banking system is what they call loanable funds is Paul kman by the way the uh the knight at the front of the army that is the neoclassical Economist yeah fundamentally sure okay um he he's he's politically reasonable which makes him more Danger dous than those that aren't he's politically yeah there's quite a lot of people that would disagree with that characterization of Paul Krugman as he's politically reasonable you should see you should see the people behind the Alternatives okay okay okay fair enough okay that's not a negative or positive statement that's just he can be feisty as well oh he can he can but he's like the human face of neoclassical economics he doesn't deserve having a human face it's anti-human Theory tell me what you really think I got you all right well so uh so but the credit does not have any effect on aggregate demand demand in their model and you're saying that's not the case at all it's absolutely crucial to aggregate demand so what they model is again the example of you lending to me or vice versa if I lend money to you I can spend less you can spend more okay so credit credit is the change in debt so if there's if I lend money to you then there's a level of private debt Rises okay so there's an increase in credit but that increasing credit comes at an expense of my spending power so you can spend what I've lent you but I can't spend what I've lent you so credit cancels out 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 um when the bank lends it adds to its asset side and says you owe us more money and it adds to its liability site and says here's the money in your bank account now you spend that money so what happens when you do your your sums credit is part of aggregate demand and aggregate income and that's something I first solved in 2019 I think 2000 it's only recently proved it mathematically so what that means is credit can is a component of aggregate demand and credit is also very volatile so consumption demand never goes negative investment demand never goes negative but credit can go from positive to negative and when you take a look at the long run of American history after the second world war there was no period uh until 2007 where credit was negative it was a positive component of GD positive number therefore when you do it as a percentage of GDP it was a positive percentage of GDP it peaked at 16% of GDP in 2006 2007 it fell to minus 5% in 2008 2009 so you had a 20% of J DP turn around an aggregate demand now when you plot that against unemployment the correlation of credit to Unemployment uh across the period from about 1990 to 2010 is about minus. n okay enormous negative correlation now according to the near classicals it could be slow to zero M empirically it's bleeding obvious it's not and it applies to every country in the world that had a financial crisis at that period so it's it's bleeding obvious in the data and they ignore it because credit's not part of that model and you're saying it's causation not just causal today we sit there is extremely high inflation what uh does inflation what role does inflation play in this picture is a little bit of inflation good we talked about money creation um at the beginning what's a little bit of inflation good or bad a lot of inflation good or bad How concerned are you a little a little of is good for a simple reason that like again it's taking me a while to get my head around around this but if you think about how people say what are the functions of money they say money it's a unit of count account so you're measuring it's a means of exchange okay and it's a store of value okay now yes okay it has those three roles but the last one is contradictory to the previous two because and this is why we see this with the Bitcoin phenomenal and if you want to hang on to money as a store of value then if prices are falling the value of money is rising and it's actually in your interests as a store of value to hang on to it and not spend it okay so that contradicts its role as a means of exchange now if you have money which depreciates and this was actually tried in this in the Austrian town of wargle during the second before during the Great Depression if you have money that depreciates then if you don't use it you lose it fundamentally so it has a high rate of circulation so there's a a monetary theorist called Sylvio gazelle and he wrote this proposal that money should depreciate and he was a ridiculed and opposed and dered but Kane said he was a great intellect and the mayor of town of wargal in Austria during the Great Depression was facing an unemployment rate of 25% pretty much gery had the worst experience in the Great Depression in the world as as bad as America slightly worse than America and so he thought how can I stimulate demand here so he produced a script which could only be used for buying goods and services in wargle and uh and could be used to pay your local rates but it was depreciated by putting a stamp on the money if you didn't use it so what happened was people would pay their rates they they needed to pay the rates using this money so the the script so they use the script and it because it depreciated you'd use it rapidly 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 and it was an absolute miracle and maybe loved a wle experiment and the Austrian Central Bank sued them for establishing an alternative form of money and shut it down unemployment back up to 25% again and Austria voted you know what 99 what was it 99.6% for the Nazis something crazy number like that when when Hitler marched in so the wargle experiment showed that a a depreciating currency led to a high rate of circulation but of course we're not talking viar Republic levels of inflation so when you get that much inflation and that's normally caused by as the as the as the Yar inflation was caused by the reparation terms imposed on Germany fundamentally by France at the Treaty of Versa they paid a large part of that with just basically printing the notes and you Ed this crazy period of hyperinflation so hyperinflation almost always occurs when there's a massive destruction of physical resources and the monetary Authority tries to paper literally over it and then you get hyperinflation that's total social breakdown so a moderate level of inflation inspires the means of exchange usage of money but undermines the store of value usage of money and and that dilemma is why we have this antagonistic attitude towards inflation yeah I mean you're describing as ATT tension but it's nevertheless is like money is a store value and a means of exchange and I don't you know to push back it's not necessarily that there's a tension it's just that depending on the Dynamics of this uh be beautiful economic system of ours it's used as one more than the other if there's inflation you're using it more more for the uh means of exchange this deflation using more for store value but that doesn't I don't see that a tension that's just a uh how much you use it for those different like but the B ends up saying that overall the level of effective Commerce a bit of inflation is a good thing because that's depreciating the money slightly and encourage its use yeah but so the argument that uh some Bitcoin folks use or gold standard folks yeah the yeah again hle is not an argument uh that having an inflation of zero is actually achieving that balance yeah right so like the yeah but they're actually in favor of negative they wanted to appreciate rapidly you there's adly negative inflation you know value of the value of the money Rising relative to Commodities that's what they want that's the hle philosophy well that's more of like an investment I don't know that yeah that's more of investment philosophy than the fundamental principles of why they believe in in cryptocurrency in the enforc scarcity a model the the concern there is that when you print money the public policy is detached from the actual um from value yeah well you I mean this is this is where again it matters to get money creation right because the government's Not the Only Money Creator banks are as well private Banks and and if we obsess too much about limiting government money creation what we end up getting if there is money creation going on it's private Banks doing it and you get an increase in private debt and fundamentally private debt and its collapse uh collapse of credit when it stops growing that's the fundamental cause of financial crisis so yeah but the question is what's what's the the cause for the the collapse of the uh well I think this is like the Austrian thinking leaves out the debt deflation 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 Fisher was somebody who accepted the neoclassical Vision he wrote the pre um efficiency Market hypothesis efficienc Market hypothesis he had a his his his own PhD called the theory of Interest mhm and in that he argued effectively for supply and demand analysis of the of the um Financial system and he argued for equilibrium he said when you're working with a a like commodity market then the sale and the uh the transaction and and the exchange occur at the same point in time when you're working with the financial market then the exchange occurs through time so he he said he assumed that debts are repaid all debts are repaid and he assumed that equilibrium Through Time was an essential part of his assumption this is and then the Great Depression comes along and he has become a major shareholder in Rank Xerox because he invented the Rolodex MH he's a tinkerer and so he had taken out shares on margin and he was worth about 100 million in modern terms when the Great Depression hit and 90% of that was share market valuation he'd taken out margin debt just like everybody else and with margin debt you could put down $100,000 and buy a million dollar worth of shares so you got this huge leverage into debt now that when the financial crisis hit the level of margin debt in America had risen from half a percent of GDP in 1920 to 133% of GDP in 1929 it then fell to zero again that's why the stock market crashed in 29 was so devastating that scale of of margin lending and every was being wiped out they were selling r Roes for 20 quid you know that you literally have photograph showing people doing that because a margin call comes in you've got to liquidate everything okay so he said the danger is is is of a debt deflation is what we have to avoid okay and that means you don't want too much private debt to accumulate and you don't want falling prices because the falling prices will amplify the impact of being insolvent to begin with and that's what we saw in the Great Depression it's partially what we saw in 20 2007 but we didn't have anything like the level of of margin debt margin debt was reduced from 90% to 50% ratio after the Great Depression um so there were limits on how bad it was in 2007 but the danger is still that the period of deflation amplifies your debts okay and he's I call it fish's Paradox he didn't write those terms himself but he wrote a line saying the more debtors pay the more they owe okay and this is because you're liquidating to try to meet your own debts when you liquidate the price level Falls 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 so the biggest danger in capitalism is a debt deflation far more dangerous than inflation and the cause of debt deflation is too much lending too much Bank lending too much private money creation and if you take a look at the 1920s Calvin Co explained the boom of the 1920s on his Surplus he said my government running a surplus of 1% of GDP pretty much from 1922 through to 1930 is the foundation of our stability it should be continued 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 so you had a housing bubble at the beginning of the 1920s which Richard vague covers beautifully in the uh brief history of Doom and then you had this huge rise in margin debt as well gigantic increase in margin debt so all this borrowed money was being spent into the economy and this is where credit becomes part of aggregate demand and it's both not just for goods and services it's also for shares and houses and so on so a huge valuation effect 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 you know what we call badly a positive feedback loop it's actually an amplifying feedback loop right and that caused to collapse so what elements of that do you see today that we need to fix and how do we fix it 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 how do what what is the moderate amount of private debt that's good I would say something of the anywhere between 30 and 70% of GDP what is it currently uh in America record it's 170% nice of GDP of GDP oh that's nice I've got we after we talk but I can show you the the data in this and it's it is just this huge increase in private debt yeah that cause first of all caused the boom but then financing the credit causes ultimately causes the slump and so if we remove the rate level at which debt can reach and we stop speculative lending and Bas have lending for both innovation in investment and essential consumption items we won't have the slump on the other side we can we can get rid of financial instability We Can't Stop Financial Cycles but we can stop Financial breakdown and so we should really be focusing on the instability and getting that under control by the way as you point to your laptop uh my laptops I have a lot of of not how many computers do I have but a lot of them but my little surface whatever the heck this thing is is getting definite size Envy cuz laptop you said is 18 something 18.4 in 18.4 in um you know I don't think I've ever seen one that big and I'll give the internet that one all right uh that's for the graphics so it's a gaming laptop it's basically desktop it probably weighs like 40 pounds you have to eight kilos eight8 kilos you working ID oh wow okay yeah okay 8 kilos uh that's you know you're you SE power supply for it over there somewhere the power supply Bo is about twice as much as your laptop yeah and it you have to power it on with a crank pretty close to like pull is it gas powered or is it coal or well it's a nuclear power station inside a nuclear diamond in the back there okay so um let me before I forget just let me ask you about we've we've covered brilliantly the the the Nuance disagreements you have and the wisdom you've drawn from KL Marx but there is also uh like you mentioned in popular discourse um a kind of a distorted use of different terms and one of them is Marxism yeah today is there something you could just speak to about you know increased use of that word and is it misused does it concern you that there's a lot of actually young people that say they're sort of proudly Marxist uh are they misusing the term they are definitely misusing the term if they don't understand and the use value exchange value dialectic I went through earlier uh so so if I and they don't if I could just pause the idea of socialism and Marxism is used in sort of popular lingo yeah it's basically you know um a lot of people have a disproportionately hard life why can't we help them out why can't we be kind to our fellow man kind of that's that's a short embodiment of an idea as opposed to some super complicated uh elaborate model of the economy and politics and all that kind ofu 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 to use the term us a feature not a bug a government running a deficit is a feature of a well functioning mixed Fe fat credit economy not a bug the government should normally run a deficit because that's how the government creates money now because we' had this Obsession from mainstream economists of running a surplus which is what caused the Great Depression Calvin cooler is 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 now all that stuff predominantly affects the poor because the rich can afford to buy it themselves so if we had son which realized the government should run a deficit it's a feature not a bug of a fat money system and that's where alon's made one mistake recently okay by not going back to Fun First principles that deficit enables you to provide enough of a decent standard of living for those who don't come out on top in the the capitalist game MH and with that you wouldn't have The Angst of the young people now we still have the climate parameters within which we have to survive but a decent level of government funding would mean the ANS 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 potential to have a a a good Society where the government runs a deficit that finances the the needs of the poor where the rich get enough to you know indulge and take care of themselves and you you don't get this breakdown if if you 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 L to the yst we now saying beautiful that was uh that was a beautiful Whirlwind exploration of all of economics and economics history let me ask you what you tweeted I think yeah uh we are the opposite of ants individually intelligent collectively stupid we need to develop systems Thinking Fast to counter our limitations um that's really interesting do you do you really believe we're individually intelligent and collectively stupid I do can you elaborate on I mean some of that is just cheeky tweets but it was it's cheeky tweet I've had in my mind for a long time it just is one that actually went moderately viral not enough but moderately viral for me um but nevertheless what if you could analyze it as if it's some deep profound statement you made in a book well the reason is that we are like incredibly individually intelligent things like these devices we're playing with now that's the creation of individual Minds creative individual mind and a collective labor over centuries that led to this level of technology and that has to be respected it's in incredible stuff uh 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 okay uh we don't make bird calls what we do is we share beliefs yeah okay now you don't think that's Al that's a you don't think that's a catalyst for intelligence yeah it is a catalyst but what it means is uh we can delude ourselves as much as we can inform ourselves so because we share beliefs we can do things in a collective way and if we believe that you know we can if we take the incantations of the witch doctors and we and we happen to have a couple of Spears and and things we can go and attack the local uh H tribe of uh of of lines and drive them out and we become the dominant species so it worked at the stage where we were in competition with other species on the planet now that we're the dominant species then our beliefs get in the way so you agree with uh with Einstein who said uh the only there are only two things that are infinite the universe and human stupidity and he wasn't sure about the universe and he wasn't sure about the right that's right he wasn't sure about the universe uh yeah so you think that the collective I mean there's an Infinity to the destructive and the the stupid the inhumane that's possible when we humans get together but it feels like there's more trajectories there's more possibility for creation there are I think that's why we have to I say if we if we were built around the idea that our role as a species is to maintain and extend life on the planet and and if not find it elsewhere then seed it elsewhere yeah then that is a vision which makes us creative and confines the worst elements of our capacities to share beliefs so I that's what what I My Hope Is that we'll reach that stage but I think we've overshot it so badly that my real fear is we'll end up blaming technology for the type of world we find ourselves living in in the next 20 to 50 years so you think technology is is going to be one of the part of the solution part of the solution yeah but it's but if we go through and blame it which is quite possible yeah 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 can just continue consuming infinitely on a finite planet and Kenneth balding said that beautifully said the if somebody believes that you can have exponential growth on a finite Planet they were either mad or they were an economist so you're uh you made a long journey for which I'm deeply honored from from um Sydney this distant Place Antiquities there's myth you've got to go there one day you'd enjoy it I will I'm afraid if if I go there I will stay forever so no it's a bit too there's more Vitality back in this economy so you'd come back okay maybe you know I'm not a fan of the economy or money or any of that nature calls me let me uh so I'm I'm honored that you make that trip you've also said that while you're here in Austin you're going to um go to um this American Factory uh that makes cars here in Austin and also visit Starbase y so let me ask you about expanding out into the universe is that something that that excites you you mentioned about the economics of it do you think um does what what do you think Marx would think about this like what economically speaking what what is this is it a good thing I think it's a vital we can have capitalism in outter space far more successfully then we can have it on the planet because we don't face when we dump the waste ends up in the Sun not a problem okay um so it it means the potential we we don't undermine our own productive capacity if we're doing it in outer space so the destructive element of waste is has a lesser impact in our L yeah I mean who cares we throw a bit of our on back into the sun again it take a fair bit of it to turn it into a what would be the next stage it be a red giant um and we have to get away because there's a red giant at some stage it'll it the sun will head out past the orbit of Mars I think certainly past the orbit of Earth so to have longevity of of of not just human life the life that evolved on this planet we have to be able to take it off Planet ultimately so if you think in the really long term then it's our responsibility we're going to maintain life is to get is to establish life off the planet what do you think about robots and AI as part of the expanding out into the oh yeah you have to I mean you that's that ends labor you can't you know you can't go for your dly joint can't be from here to the asteroid built and back again for dinner with your family uh so we production would be entirely mechanized there'd be have to be a handful of people who service the machines but so it's about production and automation what about elements of Consciousness that make humans so special what about that persisting within the machine that I mean I'm still the skeptic about us ever being able to create a machine which is truly conscious if I can throw my it's only two cents with really piss off KL Marx by the way if we create machines that are conscious exactly this is actually part of the there's two good logical arguments against the labor theory of value one of what it becomes machines become intelligent and the other was that if the declining rate of profit applies in socialism it'll applies a rate of accumulation sorry in capitalism it applies a rate of socialism as well a guy called khed made that argument so his argument was just unsound but yeah intelligent machines would completely screw marks up you know yeah um but do you do you not like that world where machines have not only intelligence Consciousness a soul and I you know I know that's one of your interests one of your potential Endeavors and I the kurts will idea that there's some Singularity we're approaching as we just get increasing processing power it's not processing power it's imagination and I think whatever the heck that means huh whatever the heck that means yeah I mean you you would have had imaginative insights your papers on uh like in in in motor 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 okay that's an Insight you would have had at some point and then you've worked it further so I've had insights like that as well and I have no idea where they come from they just hit me in the head and I Sprite them down and and they they solve the problem that I didn't even know my mind was working on okay so how can we get a machine to do that and I do not know the answer but one thing I think is a potential is I think think we have to create AI that has feelings 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 intelligent became a survival technique I find the idea is of Ernest Becker with denial of death really powerful which is that humans will not only have emotions and are trying to survive they're able to ponder out in the distant future their mortality yes and that is a driving force for even greater creation that animals are able to do more more uh more primitive animals and so there is some element where I agree with you I think for AI systems to have something like Consciousness they have to fear their mortality exactly and I think that's if you do it then you don't you you can't produce an AI whose Behavior you can control I mean when you have kids yeah you can't control their behavior you you know that's the that's the tradeoff you give life to an anarchist like one of my favorite instances in my family life is a one of my f my one of my I like all my nieces and and nephews but one's got a real Quirk to her and I was standing over her cot when she was literally like about 6 months old and she was gurgling away to herself and her father uh wagged his finger said stop making that noise and this little six-month-old kid goes and I said boy you're going to have issues with that one mate yeah and Anarchist was born yeah and so you can't control this life you give birth to and that's the threat of AI terrifying and exciting it is and I think we should take that risk at some stage but I think to do it we've got to actually let artificial intelligence involve in this environment in which it fears its own death yeah yeah I think there's a lot of beauty there but it's there's also a lot of fear a lot of Destruction that's possible so you have to be extremely careful but that's kind of The Cutting Edge of which we often operate as a Humanity uh let me ask you for advice can you give advice to young people in high school and college uh maybe they're interested in economics maybe they uh have other career ideas what advice would you give them about a career they can have that they can be proud of or a life they can be proud of mainly in a career I say don't do an economics degree okay I say there there's a there's a little book Eon Comics econ Comics taking the con out of Economics um so they should start with that and then say screw it to an economics degree yeah because what what you learn is an obsolete technology learning economics C University is like learning to make astronomy okay Earth Centric equilibrium um you know e Cycles being added to make your models fit the data so it's not that economics is not a discipline worth deeply studying it's that the university education around economics so bad is bad yeah so I'd say learn System Dynamics 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 so get a sort of Base engineering education a base engineering education uh that is far better than doing an economics degree in terms of life I my life is pretty chaotic in many many ways my friend friends and family will tell me that every opportunity uh but the thing is I I once had a this I'll tell you an example of it a really funny incident that occurred to me because I L this student Revolt at Sydney University as I mentioned when I was 20 years old this is great and then in my like about 28 or so I went to a restaurant one night and I found a bunch of guys all guys who' done accounting at the University but also been part of the student Revolt so they hadn't seen me for about a decade and they said what they've been doing Steve and I talked about what I'd done so I'd been a school teacher for a while I then worked in overseas aid uh I was doing computer programming at the time and forgotten what else I was doing at that point so I explained it to all of them and they were at a bucks night one of them having a wedding you know coming up the next week and uh one of them said I wish I'd done that and there was silence around the table it was obviously silent agreement and I looked at them and said hang on guys look at the downside of my life you know like like you've all you're getting married I don't have a girlfriend right now um you've all got secure jobs I'm unemployed okay uh don't you own a house I haven't got a car you know look at the downside of my life and the bler was the Kingpin of that group they're very Innovative bunch of guys in the student Revolt so you said Steve we would still all rather have done what you have done and they did accounting because it was safe always get a job as they were bored shitless would did you have a sense that the chaos you're always jumping into was dangerous or was it just a pull pull of it that I I simply couldn't not do it yeah it was part of me that I I couldn't swallow this economic stuff once I was exposed to why it was so wrong then I was on a on a crusade to make it right and that's been part of my nature all through my life I don't know why so it wasn't that I made a choice to do it is that I couldn't be true to myself without doing it and I find a lot of people get caught in alive where they're doing it because it works for some Financial or other reason but they're not being true to themselves and as as messy as my life 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 um I would rather have had that nature than not you would rather take the pain in the ass not yep y um let me ask a dark question M what's the darkest place you've ever gone to in your mind so in all that roller coaster of Life have there been periods where it's been really I've been I've had to cope with depression in the last 5 years since I started read reading neoc classical Economist on climate change okay sorry come back to that one so the that's where my wife's going to come into this story so I was reading Richard toll a paper from 2009 called the economics of climate change Journal of economic perspectives I think and I read this section where he says that one of the ways they tried to uh calibrate what climate change was do is they assumed that the relation ship between GDP and temperature over space would apply over time as well yes and I read that and thought that is so fucking stupid 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 by Fall by 20% it is so insanely stupid so when when that read that line I just did this I just you know I was in shock at how stupid it was my wife who's thae and brings in treats for me all day walks into the room and says and she speaks in a staccato English and says to me why why are you like this and I said I'm just doing this work on climate change and she interrupts me says oh why you do that stuff um nobody's interested in climate change you can't do anything to change it if we die we die and that perfect Buddhist grounding you know and I thought well I can't argue with again yeah you know 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 this humbug and the economists meant that we were potentially jeopardizing the lives of billions of people and Christ knows how many other life forms and having that knowledge is the most depressing experience of my life that ideas simple model combined with arrogance yeah can lead to the potential destruction of human civilization that was a very heavy and then your wife came in with broke me out of it nature uh nature wins in the end yeah and that's sort of accept the flow of life you should you really enjoy that book the Earth of odds because it's got that same beautiful sense to it Life Will Survive whatever we do I mean they talk about the people I was actually talking with a good M of an ex geologist and he's now a professor of economics and he said as a geologist he really hated people talking about the anthropos scene Epoch and I said well it's not it shouldn't be the anthropos scine epoch it'll be the anthropos scine event because an Epoch is millions of years and a huge period of of life on the planet and we might be snuffed out in 10,000 years of human civilization and that's not much slower than the meteors wiping out the dinosaur that dinosaurs lasted for a long time after that event so we're we're like we just be a layer in the in the in the surface of the planet with plastics and strange metals like that at some point so we're just an life will abide Life Will Survive us but there's so much life we're going to take down with us in this whole period And there's so many of our own lives we're going to terminate for no good reason I'm looking at this uh Richard tall character I'll have to look at some of his papers it does look like boy is the oversimplifying and do a lot of people oh my God chck is's one on the an on how good it'll be to lose amok that said I'm going to um approach all of these topics with humility and I would like to have some conversations if people can recommend um my default position is always with a scientist but even above that my default position is with those who are humble versus those who are arrogant yeah this this idea that because you're a quote unquote expert you deserve to have arrogance is a silly idea to me again going to the the broader view of life on Earth Yep nature nature is the only one that gets to be arrogant and it doesn't need it it chooses not to so um let me ask you about love what role does Love play in this whole thing what did did KL Marx have a model for that Carl Marx was madly in love with Jenny Von West tent uh and wrote love poetry to her long before he wrote D Capital uh and he was infatuated with her he ended up also impregnating his um his housekeeper so there's a Carl there's a son of KL Marx who was the son of the um housekeeper not the Jenny there are numerous daughters so so he was a uh he had a complicated view of love oh yeah um there's a dialectic on love there he had an IDE idealistic view with with Jenny and like he was rejected because he wasn't uh not by Jenny she was madly in love with him as well so it was a real passionate love affair from the very outset uh but then of course you have children lots of them die there's a huge amount of tragedy in his life as well he and Jenny were forced out of uh Chelsea by a chera epidemic my vision for London back in the 1850s and 60s was was Kolkata in the in the 1970s that's really what life was like so there's a lot of hardship in life as well and he was always poor um so you know only Les kept him alive financially uh he applied for one job outside of um of um um he never got a academic job he was pushed out of prusser as a newspaper author but he also um uh he applied for a job as a Clark in the British Railway system was turned down because they couldn't read his handwriting so that's I think i' similar there so um so yeah there's a lot of love and passion but in general what do you think is the role of Love In The Human Condition it's vital it's um I mean that that feeling of passionate um desire and respect for somebody else and there's perverted forms of love as well so I'll leave that out but somebody having a really a deep bond which goes beyond uh just sexual attraction like I've had that four or five times in my life life with different women at different times and I've stuffed up the most important one very early on um and but that feeling is incredible and uh you you couldn't have life worth living without that so it's an essential part of who we are but what we have to do is to transfer it not just to the rest of our species but to all the species and that's I think what's what's vital and how do we maintain that over Generations and I think that that 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 terminated on this planet uh the the warlike side of humanity that is too much of a defining feature of our species it's the opposite of love it's hate but it's pleasure and inflicting pain on others when you see people killing others in a warlike environment they're enjoying themselves okay uh it's rarely sometimes it's self-defense but there's when you when talk spoken to people who've been involved in combat and been involved in riots and said when you see somebody riding bashing people up they're enjoying themselves it's not anger they're feeling is pleasure yeah there's a dark aspect of human nature dark but there's also the capacity to uh to rise above that and I think like I put us on a spectrum between chimpanzees at one extreme and bonobos at the other we're too close to the chimpanzees you know and bonovas are just having fun having lots of sex every time they do anything they fuck first and do the work later and then fuck afterwards to celebrate you know fuck first ask questions later it's like that Scent of a Woman one of my favorite films where alucino gives advice to a cat he says when in doubt fuck it's good life advice for a cat especially um we mentioned that death seems to be maybe fundamental to uh creating a conscious AI I do you think about your own death do you um are you afraid of it um I'm afraid of going through it um I'm the other side huh you're not afraid of being on the other side I don't think there is another side I mean I'm I'm agnostic and I'm atheist when pressed and agnostic the one thing that I think I can understand why religion exists is that the whole thing that something exists is itself a dilemma you you have to take on faith that reality exists whether it's simulation or actual real ity it exists and that itself can't be explained in any scientific manner I mean you can talk about antiprotons and protons and the sun being zero and so on but why did it even happen in the first place so there's part you simply have to take on faith yeah um so there was darkness before we don't know and there's Darkness after yeah and I don't know if they're going to be alive on the other side of that Darkness I think individually know but the the way you can live on is by what you do to human consciousness how do you hope people remember you um as someone who managed to integrate um economics with an appreciation for life well I have to say uh as a bit of a callback you're one deadly bastard it's a huge honor that you would come down and talk to me you're a brilliant person you're a hilarious person the humility shines through the Brilliance shines through thank you so much well thank you spending this time you you do the same for Humanity I mean when you when I saw that email from you my eyes popped out on my head okay well you should hold your judgment I got to show you the Sex Dungeon I have you you waiting for an invitation I'll send my wife over awesome can't wait all right I okay M thanks for listening to this conversation with Steve Keane to support this podcast please check out our sponsors in the description and now let me leave you with some words from KL Marx to be radical is to grasp things at their root thank you for listening and hope to see you next time