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According to Varoufakis what are his main arguments about the role...

According to Varoufakis what are his main arguments about the role of profit, public debt and bankers in market societies ?

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The Marriage of Debt and Profit
'Hell is where I am.' This is the demon Mephistopheles' answer when he appears suddenly before Doctor Faustus, the protagonist of Christopher Marlowe's famed play, and Faustus asks if he has been suddenly transported to hell. 'Wherever I go, I'm still in it,' Mephistopheles explains.
I know that you haven't yet read this dark tale of how Faustus sold his soul to Mephistopheles. The reason I have not introduced you to it before is not because of its macabre and disturbing narrative. After all, the fairy tales of the Brothers Grimm, which you have read, are much worse when it comes to gore and unpleasantness. No, the reason is that it is all about a concept that is truly inappropriate for children: debt.
Here's what happens in Marlowe's tale: Mephistopheles approaches Doctor Faustus with a tempting proposal. He'll offer him twenty-four years of absolute power and limitless pleasure on the condition that Faustus promises to surrender his soul to him afterwards. Faustus thinks about it and decides that twenty-four years of omnipotence and bliss are enough, and that Mephistopheles can do as he pleases with his soul when the time is up. So he agrees. Mephistopheles smiles and asks him to sign a contract, which Faustus signs not in ink but in his own blood.
People have always created debts. When one neighbour helps another out in a moment of need, the latter expresses his thanks, saying, 'I owe you one.' Without having to sign a contract, both of them recognize that in due course the good deed will be reciprocated, settling their moral debt. But this kind of solidarity is different from debt as we understand it today in two ways: first, because of the contract, and second, because of something called interest.
A contract turns an informal agreement such as 'Lend me a hand today, and I'll lend you a hand tomorrow' into a legal obligation with specific terms that take the form of exchange values, often but not always expressed in money. Within that contract, known as a loan agreement, it is most often the case that whoever receives the loan (the debtor) will eventually pay the person giving the loan (the creditor) something extra in addition to repayment of the loan itself, usually more money. This particular form of profit derived from the giving of loans is called interest. So, here is the difference: in the context of solidarity, the incentive to help someone is the experiential value that you receive from doing the right thing, the warm inner glow you feel when you offer to help, just like when you helped Captain Kostas with his stuck anchor. But in the case of a loan agreement, of a legal contract, your incentive is to earn some surplus exchange value in return: to profit from the payment of interest.
In Doctor Faustus' case, Mephistopheles was not interested in solidaristic exchanges. Sick and tired of dragging people who deserved damnation to hell against their will, the demon wanted to snare a far greater prize: a good person who freely chooses their eternal torment. He does so by indebting the good doctor in a free and fair agreement. As the clock marches second by second to midnight at the end of Faustus' twenty-four years of bliss, the doctor naturally sinks deeper and deeper into despair and regret at the contract he had signed, realizing the terrible 'interest' he must pay.
The story of Faustus and his debt to Mephistopheles is important because it reflected people's worries at a time when their societies were transforming from societies with markets into market societies. It is no coincidence that Marlowe wrote his play in the sixteenth century, back when exchange values first began, little by little, to prevail over experiential values. In a story that illustrates the relationship between free choice, a binding contract, debt and interest, the play reflects beautifully the emergence of the profit motive in early modern Europe and the anxiety it caused.
That's why I'm telling you that the story of Faustus and Mephistopheles is no fairy tale; it marks a painful moment in human history, the moment when debt and profit partnered up.
Let's see how this happened.
The Great Reversal
In the age of feudalism the production of a surplus - which, as we saw in Chapter 1, is a prerequisite for the existence of an economy of any sort - went specifically as follows:
To explain: first serfs worked the land and produced goods (PRODUCTION).
Then the feudal lord sent his sheriff to extract his share, forcibly, if necessary
(DISTRIBUTION). Finally, after he'd enjoyed what he'd taken, the lord sold any goods that were left over for money, which allowed him to buy things, pay for services and issue loans (DEBT-CREDIT). But as soon as land and labour were commodified, the Great Reversal occurred: instead of the distribution of surplus coming after production, distribution began before production had even started. How was this possible?
Recall that in England the serfs had been kicked off the land and replaced by sheep. Former serfs then rented land from landowners and supervised the production of wool and crops that could be sold for profit, so that they could pay rent to the landowner and wages to the few labourers they hired. In other words, those former serfs organized the production process like small-scale entrepreneurs, renting plots from landowners and hiring the manual labour of other landless serfs.
But to set this process in motion, these new small-scale entrepreneurs needed some money to begin with - to pay wages, get seeds and of course pay their rent to the lord - before they had produced any goods. As the former peasant turned entrepreneur never had enough money to pay for all this before his wool crop was sold, he had to borrow. Who lent him the money? Very often it was the lord himself, or local loan sharks, who then charged him interest. At any rate, debt came first.
And since the amount of money paid to waged workers as wages, the amount of rent paid to the lord, the sums to be paid for raw materials and tools were all determined and agreed even before production had begun, the distribution of the entrepreneur's future revenues was largely decided in advance of their existence - in fact, the only person who did not know how much he would end up with, after everyone else got paid, was the entrepreneur himself. In brief, distribution now preceded production.
This is how the Great Reversal took place, turning debt into the primary factor and the essential lubricant of the production process. This is also how profit became an end in itself - for without it the new entrepreneurial class could not survive. Think about it. If the price of wool suddenly plummeted or some natural disaster reduced output, they would not only starve but end up with unpayable debts. As the expiry of their loan agreement approached, they would sink deeper and deeper into despair. Unable to repay the loans and interest they owed, they would end up slaves to their debt obligations. Just like Doctor Faustus!
Wealth and competition
In the feudal system, as we have seen, serfs produced without supervision, simply keeping whatever remained after the landowner took his share. Wages had not been invented, profit-seeking was not a matter of survival, and debt was not a substantial issue for the majority. Consequently, wealth simply accumulated in landowners' grand houses and castles. Those in power amassed further wealth not through investment, commerce and profits but by looting other feudal lords or peoples, by conceiving plots that would bring them closer to the king's inner circle, by fighting foreign wars and so on. This was how they secured the power and glory they dreamed of. Profit didn't even exist as a concept in their minds.
However, with the arrival of business enterprises intent on making profits, a new source of wealth was created. Imagine water flowing from a tap into your bathtub. This is the money coming in to your business. Now imagine the bath plug has not been put in properly. The water flowing out is what you are spending to keep the business going. As long as the volume of water from the tap is greater than the volume of water draining out the plughole, the level of water in the tub will rise. The greater this difference between the water flowing in and the water flowing out, the greater the profit; the higher the water level rises in the tub, the more wealth is accumulated.
In the feudal system the dominant position of the aristocratic class was assured by their political, military, legal and customary advantages. Rarely was there any incentive to improve their technologies so as to increase productivity and increase the rate of wealth accumulation. In contrast, nothing and no one could or wanted to guarantee the emergent entrepreneurs their survival. Indeed, the prevailing political, legal and customary system was geared against them. This is why the only way they could ensure their survival was to profit. And because, unlike an aristocrat, anyone could become an entrepreneur - assuming they were willing and able to take on the necessary debt - every entrepreneur was immediately set against every other in a mortal competition for resources, clients and survival.
Whoever could sell at the lowest price would attract the most clients. Whoever paid their hired workers the least would stand to gain the most. And whoever could increase the productivity of their labour fastest would win both races at the same time. New technology could confer competitive advantage, and entrepreneurs had every incentive to take it up. This is more or less how inventions like James Watt's steam engine, which transformed workshops into factories, first came to be used.
Of course, the technology came at a price. To buy it, very often more money had to be borrowed. With additional debt came greater potential for profit but also a faster route to ruin should things go wrong. As the entrepreneurs' debts, profits and angst grew and grew, the competition between them became fiercer and fiercer. They had to pay their workers as little as possible, lest they end up bankrupt. Incredible new wealth thus grew side by side with burgeoning debt and deepening poverty. While the rich got richer, the bankrupt were ushered into the hell of the workhouse, and masses of workers faced ever harsher working conditions.
Do you see now how debt, not coal, was the real fuel that powered the engine of the Industrial Revolution, generating mountains of wealth for a few and unspeakable misery for the rest? In market societies all wealth is nourished by debt and all of the unimaginable riches created over the past three centuries ultimately owe their existence to debt.
Debt, as Doctor Faustus shows us, is to market societies what hell is to Christianity: unpleasant yet indispensable.
Doctor Faustus vs Ebenezer Scrooge
Returning to Faustus, you should know that the version of the story which most people read these days - and the one most performed in theatres - isn't Marlowe's play The Tragical History of Doctor Faustus but Faust, a much later version written by the German poet Goethe. While Marlowe wrote his play at the very end of the sixteenth century, Goethe wrote Faust at the dawn of the nineteenth. The basic difference in the two versions of the story is fascinating - at least from the perspective of the economy.
One difference is that in Marlowe's version Doctor Faustus conjures up Mephistopheles because he feels unconvinced by God and the scriptures. His is a religious, a philosophical rebellion. In contrast, Goethe's Faust is motivated by something baser: a crass desire for personal power for its own sake. The second and more important difference concerns the ending. In Marlowe's version, as I told you, once his twenty-four years are up, Doctor Faustus begs, cries and pleads to be released from his contract with Mephistopheles, but to no avail. At the stroke of midnight repulsive apparitions appear, who amid thunder and lightning carry him off to hell. Goethe, on the other hand, spares Faust this fate.
Instead of sending his hero to hell, Goethe allows him to achieve redemption through good deeds and wholesome intentions. Realizing his mistake before his time is up, Faust performs acts of public service and so, when Mephistopheles arrives to claim his interest, God's angels intervene. Singing, 'He who strives on and lives to strive / Can earn redemption still,' they take Faust to heaven instead.
Allow me to suggest one explanation of these differences. Do you know what today's money brokers - financiers and bankers and the like - call the repayment of a debt, including interest? They call it redemption as well. Is this a coincidence? Not in the slightest. The question of debt has been a religious one for a long time. Perhaps you've heard that Islam prohibits the collection of interest to this day, at least formally. Exactly the same held true for Christianity when Marlowe was penning his play. Like some Muslims today, Christians back then considered collecting interest on debt a sin, which they called usury. This is why the audience watching Marlowe's play, convinced that redemptions of interest-bearing loans were sinful, absolutely demanded that Doctor Faustus be punished, since he hadn't hesitated to offer Mephistopheles the ultimate form of interest: the surrendering of his soul. But by the time Goethe was writing, things had changed.
And they had changed because, as we have seen, the transition from societies with markets to market societies that had taken place between Marlowe's era and Goethe's relied largely on debt and interest. The Industrial Revolution would simply not have happened without the suspension of the dogmatic rejection, and legal prohibition, of charging interest on debt. The stigma attached to the charging of interest was simply incompatible with the commodification of land and labour and with the Great Reversal. It had to be overturned - and so it was.
The Protestants, who broke away from the Catholic Church in the sixteenth century, played a crucial role in this reversal. Protestantism emerged in opposition to the Pope and the cardinals' monopoly of God. Protestants insisted that anyone could speak personally with the divinity, unmediated by an authoritarian, stifling Church. Suddenly, the person, the individual who is the director of his own affairs, became the pillar of that reformed Church. And who was the ideal example of this newly empowered, autonomous person? In an era when exchange value and the profit motive were triumphing, Protestantism's iconic hero was none other than the merchant, the entrepreneur. Unsurprisingly, the new Protestant ethic embraced interest-bearing loans and profiteering as part of God's plan.
The fact that Protestants and Catholics engaged in over a hundred years of war demonstrates what a violent societal shift this was. Thus, by the time Goethe's audiences were being edified by performances of his Faust, Europeans were far more forgiving to the indebted, as long as they paid up the original sum plus the interest due.
In a sense, Goethe's story of Faust was the inverse of Charles Dickens's story of Ebenezer Scrooge in A Christmas Carol. In Dickens's famous morality tale the penny-pinching Scrooge accumulates and saves wealth for his entire life, collecting mountains of interest but spending only the bare minimum. At the end of the story, when the Ghost of Christmas Yet to Come shows him his own death, how no one mourns for him and how a poor couple indebted to him rejoice at his demise, he sees the light, opens his coffers and begins to spend, spend, spend, enjoying his life for the first time by spreading happiness to everyone around him. If you think about it, Faust does the exact opposite. Rather than accumulating interest and rejecting the pleasures of life, he enjoys life to its full for twenty-four years, agreeing to pay a sizeable amount of interest in return.
Which of the two, Scrooge or Faust, do you think was more in step with the needs of the new market society that had come about by the time Goethe was writing? Faust, of course. Why? Because if we were all Scrooges - misers who saved all our wealth without borrowing or spending - then the economy of market societies would come to a complete standstill.
It is to this phenomenon that we shall now turn.
The Black Magic of Banking
Like any ecosystem, a modern economy cannot survive without recycling. Just as animals and plants are continually recycling the oxygen and carbon dioxide that the other provides, so too must workers recycle their wages by spending them in shops and businesses recycle their revenues by spending them on salaries if both are to survive. And just as in our ecosystems, in which a failure of recycling leads to desertification, so when recycling breaks down in the economy we end up with a crisis that results in devastating poverty and deprivation.
As I am writing these lines, Greece, my country and the country that you consider your own even though you live in Australia, is experiencing such a devastation. Australia, the United States, Britain and most of Europe experienced a similar catastrophe back in the 1930s. It was so atrocious that it inspired John Steinbeck, an American author, to write a famous novel entitled The Grapes of Wrath. In the novel's twenty-fifth chapter Steinbeck tells the story of how, while millions were hungry, tons of potatoes were thrown into a river and crates of oranges were sprayed with kerosene in order to make them inedible. Instead of recycling, there was wanton destruction. It is at this point in the book that the author famously laments that, despite our ability to bring food from the earth, we are incapable of creating a system in which the hungry can be fed. This failure 'hangs over the State like a great sorrow', Steinbeck writes, while the anger of those who lack food grows like grapes on the vine: 'In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.'
How could any of this happen? The answer lies in the way that market societies can very suddenly lose their capacity to recycle. And at the heart of that recycling failure, you will, if you look closely, recognize a familiar figure: the banker.
What is it about bankers that makes so many people dislike them? One explanation is that the rest of us are simply envious of their wealth. But, as I will now try to convince you, there is more than envy at work here. The deeper cause is that once usury was no longer considered a sin and bankers were allowed freely to charge interest on loans, banking began to acquire superpowers - the power to bring about vast amounts of recycling but also the power to bring recycling to a sudden and calamitous halt. Allow me to explain.
Entrepreneurs as time travellers
Let's say an entrepreneurial wool farmer takes out a loan from a landowner in order to buy the commodities, labour, land and machinery needed to get the production process going and start a new business. What exactly is taking place here? In one obvious sense the entrepreneur is borrowing money from the landowner in the expectation that, when the wool he hopes to produce is finally sold, he will be able to repay the loan. Looked at in economic terms, though, you might say he is borrowing exchange value from the future and dragging it into the present.
If we had to portray this process in the format of a sci-fi movie, we would depict the wool farmer looking into the future through a semi-transparent membrane, dimly discerning on the other side what is to come. Seeing an opportunity, our entrepreneur now raises his hand, places his fingers on the membrane and then with a sudden jab pushes his hand through to the other side. He remains in the present, but his hand has crossed over into the future. Groping around, he grabs some exchange value and with another abrupt gesture pulls his hand back through the membrane to the present.
Assuming the entrepreneur has discerned the future sufficiently accurately, the sale of his wool harvest will be as successful as he predicted and will produce enough exchange value for the loan to be repaid. But if he is wrong and he fails to bring about the future in which that exchange value exists, then he will have disturbed the timeline. And as any sci-fi buff will tell you, this a big no-no. Unable to repay his loan, his business will fail.
If entrepreneurs are time-travelling opportunists, bankers are their incorrigible travel agents. In our sci-fi context unbounded entrepreneurial ambition translates into boundless future exchange value being snatched from the future and brought into the present via the time membrane. And while it is possible to borrow small sums from family, friends and collaborators, securing endless large loans is not easy. This is where the bankers come in.
Bankers as time travel agents
What do bankers do? Most people believe that bankers act as intermediaries between people with savings who have no immediate use for their cash and people without savings who want or need to borrow money. That they take deposits from savers, lend them to borrowers, pay less interest to savers than they charge borrowers, and profit from the difference. While this is how banking began a long time ago, it is certainly not what keeps bankers busy today.
Let's say that Miriam makes bicycles and asks a banker for a five-year loan of £500,000 so she can buy a machine that will allow her to build bicycle frames from carbon fibre, making them lighter and stronger. Question: where will the banker find the £500,000 pounds to lend her? Don't rush to answer 'From the money other customers have deposited in the bank.' The right answer is 'From nowhere - out of thin air!'
How? Simple. The banker just types a five followed by five zeroes next to Miriam's name and account number in the electronic database or ledger that lists customers' balances. When Miriam checks her account balance, she is overjoyed to see 'Balance £500,000' flashing on the ATM screen and immediately wires the money to the machine manufacturer. Just like that, a sum of half a million pounds has been created as if out of thin air.
A brilliant economist once said that 'the process by which banks create money is so simple that the mind is repelled'. That's so. The bankers' magical power that allows them to create money at the stroke of a pen or a few buttons on a keyboard makes us shudder in horror. Understandably. The reason is that it is hard to believe that value can be born from nothing. But let's go back to the moment the banker created £500,000 with a wave of his wand from nowhere. In a sense, the banker arranged for the present Miriam - an entrepreneur with a plan to sell bicycles - to sit in front of the time membrane and reach through it to the Miriam who will exist five years from now - a wealthy businesswoman with a successful bicycle company - and snatch half a million pounds from her, bring it to the present, invest it in the bicycle business and thus allow the future Miriam to become that successful businesswoman. In exchange for becoming liable for those half a million pounds during the five-year period during which Miriam turns from aspiring entrepreneur into successful businesswoman, the banker charges her interest and other bank fees.
Since they are not constrained to lend existing exchange value, bankers have every reason to keep conjuring up loans in the same manner - by a few strokes on their keyboards - for the more people they lend to and the more money they create for the economy, the greater the profits they retain for themselves. Just as laboratory rats, having discovered that pulling a lever results in being given a pellet of food, end up pulling it incessantly, bankers lend and lend and lend.
The Crash
Once upon a time prudent bankers would only lend to Miriam and her ilk if they trusted her to invest her loan wisely and be able to repay it further down the line. In other words, bankers were keen to see that their practices did not disturb the timeline - that, by the time the future came, the various Miriams would have produced enough surplus value to put back what they had taken from it. But in the 1920s or thereabouts banking became unhinged.
Two things changed. One is that in the aftermath of the Industrial Revolution the economies of market societies grew enormously and the debt needed to fuel them rose massively as a result. The other was that bankers found ways to insulate themselves from the fallout if things went wrong. For example, once they had granted Miriam's loan, they would then chop it up into little pieces and sell it on to lots of others. In return for lending the bank £100 each, five thousand investors would each be given a share in Miriam's £500,000 loan. Why would anyone invest in one of these shares? Because the bank paid them higher interest than they would have received had they simply deposited that £100 in the bank (but lower, overall, than the amount of interest Miriam had agreed to pay). Thus, the banker recouped the £500,000 immediately and still stood to make a profit when Miriam repaid her loan. And if Miriam were to go bankrupt and renege on her debt obligations, it was the five thousand investors who would lose out.
I know what you are thinking: there must be a catch. Indeed there is. The more money the banker transfers to Miriam from the future, the greater his potential profits and the greater the banker's capacity to earn money from other investors. But the more the banker uses his powers - helping to move increasingly large amounts of value from the future into the present - the more likely it is that the banker will disturb the timeline.
Suppose Miriam's business is successful: she produces her bikes; the manufacturers of the machinery bought by Miriam hire new employees; those employees buy bicycles and other goods; the process of recycling continues and market society moves onwards. But the more stable everything seems, the greater the incentive bankers have to use their magical powers more often and more freely. And though they barely notice, eventually their spells cross into the realm of black magic: the point comes when the loans they have made are so vast that the economy cannot keep pace and the profits being made are no longer sufficient to repay them.
At this point the realization dawns that the future everyone has been banking on will never come to be. And when those large quantities of value borrowed from the future actually fail to materialize, the economy crashes.
Suppose that owing to the bank's enthusiastic lending Miriam has taken on a debt too large for her business to repay. Eventually finding herself unable to do so, she is forced to close her workshop. It turns out that, with the help of the bank, she has been defrauded by her earlier self. Suppose Miriam is not alone, and a whole raft of businesses close down and a whole host of workers now find themselves unemployed. As a result, the shops from which those workers used to buy goods suffer too. As more shops and businesses close, the banks find themselves stuck with more and more loans that entrepreneurs like Miriam can't repay.
A rumour starts to spread that the banks are in trouble. Worried at the thought of losing their savings, some people who have entrusted their money to the bank in return for modest interest payments demand to withdraw their money in cash. Hearing this, other savers follow, fearing the same. But the bank does not have enough cash to repay them all, as it has lent it out along with the loans it conjured up out of thin air. As word goes round that the bank has exhausted its supply of cash, a bank run takes place: long queues form of people demanding their money back, and the hapless bank manager is forced to pull down the shutters. All of a sudden, even people with large savings in the bank find themselves penniless.
Remember when I said that debt is indispensable for market societies? That there can be no profit without debt? And that without profit there is no surplus? Now allow me to add this: the very same process that generates profit and wealth generates financial crashes and crises.
After a crash comes the slump. Everyone owes everyone and no one can pay. Savers are told that their money has been lost, as the bank they deposited it in is bankrupt. Even those with money stashed away cut down, fearing an uncertain future. The recycling process on which the economy relies starts to go into reverse. More entrepreneurs like Miriam lose their customers, cancel orders of new machinery and have to lay off workers. The fired workers cannot buy goods from the entrepreneurs who are still in business, pushing surviving companies towards the brink. Offices and factories close. Soon large numbers of workers, who would love to work, are unemployable, as employers, who would love to employ them, fear that the goods that they would produce will find no buyers.
Meanwhile, families cannot repay the loans with which they bought their houses. The banks confiscate their houses to sell them in a desperate bid to retrieve some of the missing millions. But with so many houses on sale and so little money in people's pockets, rows and rows of sad houses remain empty and house prices collapse.
Widespread insolvency. Mass unemployment. Wrath. This is the nemesis that follows hot on the trail of the bankers' hubris. Its wretched vengeance falls indiscriminately and so affects the poor and the innocent above all. Who can put an end to this dizzying doom spiral?
The (not so) new role of the state
Once the economy is caught up in this destructive vortex, only one thing can help: the state. Since the nineteenth century, when market societies experienced their first slumps, the state - under pressure from its more powerful citizens - has been forced to intervene. But how?
Invariably, the first thing the state has to do is intervene in the banking system itself. From the moment panic spreads, one bank collapsing after the other, the only way to halt the destruction is for the state to put an end to this chain reaction by lending money to the banks so that they can remain open. But where can the state find so much money in such a short time?
You may have heard of something called a central bank. Each country - or to be more accurate each currency - has one. Central banks have different names in different countries. In Britain it is called the Bank of England, in the United States it is known as the Federal Reserve, in Australia the Reserve Bank. In continental Europe it is known simply as the European Central Bank. Whatever its name, a central bank is something like a state-owned bank whose customers are all the other banks, and it is from this central bank that the money comes - in gargantuan quantities.
The question that I can see forming on your lips is: 'But where do the central banks get their money from?' And I am sure you can now anticipate the answer: 'From nowhere - from thin air!' Yes, that's right. Just as Miriam's banker conjured up numbers in her bank account, the central bank does the same, only this time it puts it in the account that Miriam's bank holds with the central bank. And just as the bank that lent to Miriam was effectively agreeing to be liable for her debt until the time when she became good for it, so the state, with its yet greater power to command confidence and trust, effectively declares that it will be liable for the bank's debt until it returns to health.
The difference is that when the central bank conjures up money out of nothing - borrowing exchange value from the future - its motivation has nothing to do with profit-making. Its purpose is to save the bankers from themselves and to prevent the economy from being devastated by their black magic. By acting as the lender of last resort to normal banks, an interesting relationship emerges: the central bank acquires some authority over them. In theory, the central bank can decide which banks to save and which to let fail, and so - again, in theory - central banks should be able to place restrictions on the bankers' practices in the hope of restraining their black magic. In reality, this has always been a game of cat and mouse, in which the banker mice possess infinite options for bypassing, and making a mockery of, the obstacles placed in their path by central bankers. However hard central bankers have tried to stop bankers from starting uncontrollable fires, the bankers have almost always got away with arson, forcing panicking central bank officials to create rivers of new money with which to extinguish the flames.
Realizing how little trust the weary public have in central banks' ability to constrain normal banks, and in order to settle their nerves and prevent bank runs, governments have had to go one step further: they have guaranteed the public's savings as well, promising to reimburse them if the bank where they deposited it goes bust. Naturally, the only way that the state's central bank can do this is to conjure that money from thin air as well.
'From thin air!' I know: however often I may have used this expression, you will continue to find it weird, puzzling, unsettling. Most people, if not everyone, feel the same, and many assume that this is a new phenomenon - that before the technology arose which allows bankers and governments simply to type extra numbers on their digital ledgers, money was something more real, more tangible, more honest. This is a badly mistaken view.
Remember Mr Nabuk, the Mesopotamian farm worker whose labour was paid for with shells? And that on those shells a bureaucrat working for the ruler had written numbers indicating how much grain Mr Nabuk was due to collect once the harvest was in? In truth, there is no great difference between these inscribed shells and the money issued by a central bank. Mesopotamian rulers could in principle write any number they chose on as many shells as it pleased them to give out, not unlike what a central bank can do. What mattered then and what matters now is simply that the numbers on those shells or the figures on those ledgers are believable, that the productivity of the land and the wealth and stability of the state make those promises of grain and currency trustworthy. It is in this sense that the role of the state is (not so) new.
What is, however, terribly modern and only true for market societies is the fact that private bankers and not just the authorities now have the same privilege of conjuring up money from thin air as well.
Bankers and the state: a toxic relationship
You may now be wondering, If bankers know that the state will come to their rescue in their time of need, what incentive do they have to limit the loans they dish out during the good times? Wouldn't a better solution be for the state to rescue the banks - so that people's savings and the economy's payment system are preserved - but not to rescue the bankers themselves? Why not send them home penniless as a warning to any other banker who is tempted to do the same?
Unfortunately, this obvious solution crashes on the shoals of harsh reality. More often than not, the politicians in charge of government are elected with the help of large contributions from those same bankers. Too often, the politicians need the bankers every bit as much as the bankers need them.
It is a similar situation with the officials of central banks. Courtesy of their magical superpowers, bankers can pay themselves salaries far in excess of those paid by the government or the central bank without explaining these to a suspicious public, as the government must do. Sadly, it is often the case that the very public servants whose job is to supervise the bankers go on to accept jobs with these same banks once they have retired from public service. Knowing the potential rewards that await them, it would take an heroic disposition for those officials to act truly tough in their dealings with the bankers under their supervision. Alas, heroes are, and have always been, in very short supply.
This toxic relationship between bankers and the state ensures that bankers have no reason to be cautious. Yes, after a crash they restrain their activities for a time. Like a driver fined for speeding, they may drive well below the limit for a while afterwards, but they soon find themselves speeding again. Soon after the state authorities have bailed them out and stability has returned, the bankers will be at it again, creating money as if there is no tomorrow.
To conclude this distressing story, we now come up against a fundamental paradox. The instability that bankers create in market societies can be reduced but it can never be entirely eradicated for the simple reason that the economy is fuelled by the thing they provide: debt. And so it is the case that the more successful the state is in begetting stability, the safer the conditions are for creating more debt, the more exuberant the bankers are allowed to become - and the greater the instability they cause.
Unpayable debts
When a borrower goes bankrupt and is unable to repay their debts, what should be done? There can only be one solution: the debts have to be forgiven, or in economic terms written off. This isn't an ethical issue - whether it is right or wrong for one person to renege on debts to another - it's a practical issue.
In early Victorian times the law stipulated that those who could not repay their debts should be locked up in special debtors' prisons until they repaid them in full and with interest. Today certain countries are treated in the same way when their governments cannot repay their debts - our Greece being a case in point. But people forget that market societies survived the crashes and the slumps of the nineteenth century only because the law was changed to ensure that not all debts are sacred. Why was this done?
One reason is that when the bankruptcy of a company meant that its owners were incarcerated, losing everything including their homes, only very rich or very foolish entrepreneurs took on large projects carrying the risk of large unpayable debts. But for market societies to be able to build hugely expensive things like electricity stations and railways, and for corporations to grow beyond a certain size, the law had to be rewritten so that if a business went bankrupt it was only the property belonging to the business that was lost; the personal savings, home and belongings of the person who ran it were not confiscated. This is what came to be known as limited liability. (It is something of an irony that entrepreneurs who own companies should be allowed this protection from the bailiffs while little people who do not own companies are not.)
The more pertinent reason is that if a debt is never written off, then those businesses and families who are bankrupt will remain bankrupt for ever - not least because no one will lend to someone who is bankrupt. The unpayable debts hanging over them mean that they cannot ever hire workers, buy houses or send their children to university. If the business is a farm which produces fruit whose price has fallen and as a result its owners now face unpayable debts, they have every incentive to destroy much of their produce - even if others around them are starving - in a bid to create a shortage of fruit that will boost its price, just as Steinbeck described in The Grapes of Wrath. Similarly, if a government like Greece's today is held in permanent bankruptcy and forced to pretend that it can meet its debt repayments, it must extract taxes from businesses and families endlessly without ever recovering.
No company, no family, no country can recover if it remains for ever in the clutches of an unpayable debt. This is why in scripture it is stipulated that debts should be periodically culled, just as forests need some of their fallen branches to be burned in order to prevent devastating bush fires.
Naturally, those who are owed money - the creditors - kick and scream when they hear such words, and of all creditors it is the bankers who protest against the idea of debt relief the loudest. Bankers pull every string they can to convince politicians to legislate against debt forgiveness. And yet it is the banks above all who are responsible for the recklessness that makes such forgiveness essential, and it is the bankers who are least likely to lose their personal wealth or even the control of their businesses when the crash comes. If you need an example of double standards, look no further than this.
A world in which the bankers are rescued but all other debtors, including governments, are not: this is the worst of all possible worlds. In fact it is a sterile world in which the economy produces only instability, failure and the grapes of wrath.
But what can be done given the outrageous grip that bankers have over society and its politicians? The only salvation, once trapped in this manner, is for citizens to demand the coordinated intervention of the state to write off unpayable debts. This is the only way the atmosphere can be cleared of the haze of debt and the process of recovery can begin. Politics, in other words, is the only way to revive a faltering economy. It is also the only way that the root causes of its faltering can be addressed, but this is a matter for later.
The necessary parasite
As you grow up and experience more of the ups and downs of the economy, you will notice a piece of mind-bending hypocrisy: during the good times, bankers, entrepreneurs - rich people in general - tend to be against government. They criticize it as a 'brake on development', a 'parasite' feeding off the private sector through taxation, as an 'enemy of freedom and entrepreneurship'. The cleverer among them even go so far as to deny that government has any moral right, or duty, to serve society, by claiming that 'there is no such thing as society - there are just individuals and families', or 'society is not well defined enough for the state to be able to serve it'. And yet, when a crash occurs brought on by their actions, those who have delivered the fieriest of speeches vehemently opposing substantial government intervention in the economy suddenly demand the state's aid. 'Where is the government when we need it?' they yelp.
This is not a new contradiction. It reflects the problematic relationship the powerful have always had with the state. While they fear the state will intervene to curb their self-enrichment, they also sorely need it. The inequality that market societies generate - gigantic concentrations of wealth alongside widespread deprivation and poverty - makes them jittery. What other than a mighty state can protect them when the grapes of wrath have grown too heavy for the vines and the desperate masses congregate threateningly outside their fenced villas? But, then again, if the state has sufficient power to keep the riff-raff at bay, it will also have enough power to confiscate their property and throw them onto the street if the government were to fall into the hands of those thronging crowds.
One of the most prevalent arguments they make against the state is that wealth is produced individually, by heroic individuals. Taxation is therefore seen as an unjustifiable confiscation of what is rightfully theirs. Nothing could be further from the truth. To see this, let's go back to the beginning of market societies for a moment - to the time when the serfs were being kicked off their ancestral lands.
How do you think the landowners managed to get rid of the serfs so efficiently? The answer is: with the help of the state. The king and his government lent the landowners a hand, sending their soldiers in to put down any rebellion by the peasants. And how do you think the new order, underpinning market society, was maintained? How were the majority living under conditions of abject dehumanization in the slums of Manchester, Birmingham and London kept under control when a few streets away the minority lived in the lap of luxury? To put it simply, private wealth was built and then maintained on the back of state-sponsored violence.
State-sponsored violence isn't the only thing governments have provided for the powerful since then. Whenever the state has used its revenues to pay for roads, tunnels and bridges over which goods can be transported, to maintain the hospitals and schools that deliver workers' health and education, to support the downtrodden and unemployed, to police the towns and cities or to organize in any way the peaceful and stable functioning of society - whenever it has done any of these things (and many more besides), the state has provided the conditions in which individuals, especially the most powerful ones, have been able to pursue their path to wealth. Seen from this angle, the state has always provided the rich with a magnificent insurance policy. And the rich have returned the favour by doing all they can to avoid paying their premiums.
In fact, it is not just the state that provides the conditions for wealth creation. If you think about it, all wealth has always been produced collectively - through recycling and through a gradual accumulation of knowledge. Workers need entrepreneurs to hire them, who need workers to buy their goods. Entrepreneurs need bankers to lend to them, who need entrepreneurs to pay interest. Bankers need governments to protect them, who need bankers to fuel the economy. Inventors cannibalize the inventions of others and plagiarize the ideas of scientists. The economy relies on everyone. Public debt: the ghost in the machine
While consistently demanding that the state continue to provide the conditions in which their wealth can grow, every time the high and mighty have received the bill for the state's services from the tax office they have grunted, moaned, whinged and protested. And since the powerful have great influence over the state, this has led to a curious phenomenon: the taxes asked of them have always tended to be low in relation to the amount the state has actually spent, directly or indirectly, on their behalf. As for the workers, their wages have for most of history barely been sufficient to feed themselves and their children, so their taxes have never amounted to a sufficient sum either. So where has the additional money come from? The answer is: public debt. And who has provided the government with the requisite loans? The bankers, of course! And where have the bankers found the money? I hardly need tell you that they have conjured it from thin air, just as they did with Miriam's loan. You can start to see how paying low taxes works doubly in the bankers' favour.
Yet, watching television, listening to politicians worry themselves sick over the size of the national debt, making all sorts of promises to rein it in, you might be fooled into thinking that government debt - or public debt, as it is known - is an awful thing, something like the smallpox virus, in need of permanent eradication. The argument made by those who consider the state an obstacle to private business is that a government that spends beyond its means and can't balance its books is heading for disaster. Don't fall for that nonsense. While it is true that too much public debt can cause major headaches, too little is also a problem. Even Singapore, whose government is forced by law not to spend more than the money it receives in taxes, finds it essential to borrow money. Why? Because a market society's bankers need public debt as surely as fish need water to swim in. Without public debt, market societies can't work.
When the government borrows, say, £100 million from a banker for, say, a ten-year period, in return it provides the banker with a piece of paper, an IOU, by which it legally guarantees to repay the money in ten years' time as well as pay an additional yearly amount to the banker in interest - say, £5 million a year. This IOU is called a bond, implying that the government is now bound for ten years to whoever possesses this piece of paper. Given that the rich refuse to cough up the kind of taxes that would make government borrowing unnecessary, the state issues bonds and 'sells' them to banks and rich people in order to pay for the things that keep the whole show on the road: roads, hospitals, schools, police and so on. By spending this money on its various projects - buying supplies, paying salaries - the government directly boosts the whole recycling process of the economy from which everyone benefits, including the banks.
But this is far from being the only reason that government bonds are useful to bankers. The one thing that bankers hate most is cash: money sitting around in their vaults or on their spreadsheet not being lent in return for interest. But as has hopefully become clear by now, banks become precarious and vulnerable if even a few depositors want their money back all at once. At that point bankers need to have access to something that they can sell in a jiffy so as to pay demanding depositors. Government bonds are perfect for this. To the extent that everyone trusts the government will be true to its word, its bonds will always be in demand. Indeed, they are exceptional in this way - no other debt can be recycled quite as easily. This means that bankers love government bonds: not only is a bond a loan than earns a nice rate of interest very safely (so much so, in fact, that it can also be used as collateral for taking out further loans from other banks), it can also be used as a commodity - a piece of property exactly like a painting or a vintage car that can be sold immediately if the banker is in urgent need of cash. Bonds are, in bankers' parlance, 'the most liquid of assets'. As such, they lubricate the banking system to keep its cogs and wheels turning.
In fact, in bad times, when bankers pick up the phone to the government and demand that the state's central bank bails them out, it does so not just by creating new money, as we have already seen, but also by issuing even more bonds and using them to borrow more money from other bankers, often foreign ones, to pass on to the local bankers.
You can begin to see why public debt is something much, much more than ordinary debt. It is a manifestation of our market society's power relations, the necessary response to the refusal of the rich to pay their share. It is also a shock absorber that allows accident-prone bankers to avoid many of the major mishaps that would otherwise occur in its absence. It is like an elastic band holding everything together, capable of stretching during the bad times to prevent the system from breaking.
Since the first human looked up at the night sky and wondered why she felt overwhelmed by its enormity, we have felt certain that there is something deep inside us, something indeterminate that gives us our capacity for wonder, dread, hope. Philosophers and writers have referred to that something as the ghost in the machine, the intangible power that makes us who we are. Allow me to suggest that when you hear politicians, economists and commentators talk about public debt as if it is a curse, you remind yourself that it is a lot more than that. It is the ghost in the machinery of market societies that makes them function, however well or badly they do. And when the powerful or their spokespersons demonize the state, scoffing at government and public debt, remember that they need the state as badly as they need their kidneys and livers.
But there is more ...
The black magic of banking destabilizes market societies. It massively amplifies wealth creation during the good times and wealth destruction during the bad times, constantly skewing the distribution of power and money. But to be fair, bankers are just that: massive amplifiers. The root causes of market society's fundamental instability lie elsewhere, buried deeply in the weird nature of two peculiar commodities: human labour and money.
Let us now turn to these and place them under the revealing lens of an ancient myth.
Two Oedipal Markets
In 1989 my friend Wasily, newly graduated with a PhD in economics, was struggling to find a job and coming up with nothing. As each month passed, Wasily dropped the bar a little further, applying for increasingly lowly jobs. Still nothing. Eventually completely disillusioned, he wrote to me in Australia, to where I had recently moved from the UK, telling me, 'The worst thing that can happen to a person is to become so desperate that you decide to sell your soul to the devil only to discover that the devil isn't buying!'
That's exactly how the unemployed feel when, pressured by the Great Need, they resign themselves to working for peanuts only to find that no one wants to hire them. I hope and trust that you will never find yourself in this position, but you should know that millions of people do. I also hope that you won't be influenced by those who stubbornly deny that this happens. But to explain why they do, let me tell you a story involving Andreas, another friend.
Andreas was complaining to me that he couldn't sell his gorgeous summer house on the island of Patmos. I replied that I'd buy it - for ten euros! He laughed, appreciating my pedantic point that there is a big difference between not being able to sell something and not getting the price you want for it. However, it is this same point that underlies the conviction of certain people that there is no such thing as unemployment, only workers who refuse to sell their work at a low enough price.
Unemployment deniers
Nothing adds more insult to injury than blaming the victim for their victimhood. It is the favourite tactic of the bully and one that women have suffered for aeons. In fact it is the same thinking that we uncovered at the very start of this book: that the oppression of Australia's Aborigines was caused by their own inadequacies.
Unemployment deniers, as I call them, think like this: if an unemployed person's labour can produce some value, any value, for an employer, then that employer will be willing to pay something for it. Just as I was prepared to offer Andreas ten euros for his house on Patmos, some employer would be willing to hire Wasily for, say, fifty euros per month. If Wasily is not willing to work for fifty euros per month, this does not mean that he can't find paid work. It means that, like Andreas, Wasily has not found anyone willing to pay the price he demands. Is it not Andreas and Wasily's choice to hold out for higher prices or wages? If Wasily protests that he cannot afford enough food or a place to live on fifty euros a month, the unemployment deniers shrug their shoulders and point to the fact that there are places in Africa where people live for much, much less. Wasily simply needs to lower his expectations.
Setting aside the intolerable meanness of such arguments, they contain a serious flaw in practical, objective terms. To understand why, we need to differentiate between the cases of Andreas selling his house and Wasily selling his labour. In the case of Andreas and others like him who need to sell their houses, if they all dropped their prices to the floor they would all undoubtedly find buyers - eventually. But if Wasily and other jobless people were all to drop their wage demands and were prepared to work for pennies, there is every likelihood that the result would be even fewer jobs available.
To see why this is the case, we need another story, one dreamed up over two centuries ago by the French philosopher Jean-Jacques Rousseau.
The stag, the hares and the power of optimism
Imagine a group of hunters in a forest. Equipped only with nets, bows and arrows, they set out to catch a stag, hoping to feast on it together with their families. They spot the stag in a clearing and decide to encircle it quietly, trying not to scare it. Their plan is to surround the stag, entangle it in their nets and then kill it with their bows and arrows, which are far too weak to bring down such a lofty and powerful creature from a distance. The problem is that it will take a long time to encircle the stag without it noticing, and if dusk arrives without success, they and their families will go hungry. They also know that failure is guaranteed if even a single hunter proves to be a weak link in the circle.
Let us now also imagine that in the same forest there are quite a few hares bounding this way and that. The hunters can kill the hares with their arrows fairly easily, but a single hare won't feed a family for more than one meal, whereas a stag will feed the whole tribe for days, and if even one of the hunters turns his attention to hunting hares, the project of capturing the stag will be ruined.
This is the hunters' dilemma. They would love to catch the stag collectively, cook up the perfect dinner, sing songs, be merry, fall asleep full and content, and then repeat the story of their great feat for years to come. If each of them is certain that all the others will remain committed to the stag hunt, each will do his best and none will be distracted by some bouncing hare. But if just one of the hunters fears that even one of his companions might fumble, he will assume the stag will escape and turn to catching hares in order to avoid returning to the encampment empty-handed. In turn, the rest will follow, forcing the whole group to abandon the stag and do the same.
Note the most important points here:
The hunters prefer to hunt the stag together rather than to hunt hares individually.
Each will dedicate himself to the stag hunt if he is certain that the others will do the same.
In the end, if they believe that they will hunt the stag in perfect unison, they will hunt the stag in perfect unison. Equally, if they do not believe it, they won't.
This is a lovely example of the power of optimism, but also of the demonic strength of pessimism. In the context of the stag hunt, both are self-fulfilling. And this is the essence of Rousseau's allegory: if a goal can only be achieved collectively, success depends not just on each individual pulling together but primarily on each individual believing that every other individual will do so.
Why labour isn't like houses, cars or tomatoes
Rousseau's story of the stag and the hares illustrates the critical difference between the labour market and other kinds of market and thus between the cases of Wasily and Andreas.
Let's start by noting that the main reason to buy Andreas's house is because it allows the person staying in it to enjoy great weekends and summers on the beautiful island of Patmos. The same is true of a shiny red Ferrari: to the extent that some enjoy driving it (or enjoy other people watching them drive it), it holds great attractions. Tomatoes too: provided they aren't rotten, tomatoes provide a tasty way to fill your stomach. In every case the exchange value of the house, the car, the tomatoes derives ultimately from its experiential value.
But what holds true for cars doesn't hold true for the services offered by a mechanic. And what holds true for tomatoes doesn't always obtain for the labour of the farmhand who cultivates them, nor does it hold true for my jobless friend Wasily. Because unlike the house in Patmos, the red Ferrari or the tomatoes, no one wants the labour of the mechanic, of the farmhand or of Wasily for its own sake.
Consider Maria, who owns a business that manufactures refrigerators and who might be interested in hiring Wasily. Clearly, her decision to hire him has nothing to do with any experiential value she expects to derive from having Wasily around at her factory. It is determined purely by a comparison of two exchange values: on the one hand, the increase in her revenues that she anticipates will result from the additional fridges that Wasily will help manufacture, and on the other hand the exchange value she will forfeit by paying Wasily a monthly salary as well as the various other expenses that come with having an extra employee.
Suppose she thinks that by hiring Wasily her plant will be able to produce five more fridges per month. Whether she hires him depends on whether she is confident that there are enough customers out there willing to buy those extra five fridges for a total sum that surpasses their additional cost to her from hiring Wasily. In other words, it all depends on her confidence that there are at least five people out there not just in need of a fridge but who have the means to pay a high enough amount for it.
If the various Marias who own businesses are all confident that market conditions will be good and that there will continue to be enough customers with money to spend, then each of them will hire the various Wasilys, who in turn will see their income grow, allowing them to buy refrigerators, bicycles or whatever it may be. In this manner the various Marias' optimistic expectations will be fulfilled. Equally, if the various Marias are glum and expect poor sales, they will refrain from hiring the various Wasilys; incomes will continue to stagnate; the market for fridges will remain stuck in the doldrums, and, guess what, Maria and her fellow entrepreneurs will find their pessimism was vindicated by reality.
Of course, Maria, being a businesswoman, knows all this better than anyone, but it certainly doesn't make her decision any easier. One night she tosses and turns in bed, consumed with anxiety over whether to hire Wasily and others like him and expand her refrigerator business. Unable to sleep, she switches on her laptop to check her email and the latest news. Her eye catches an intriguing headline: TRADE UNION BOSSES DECLARE READINESS TO SEE WAGES OF THEIR MEMBERS FALL BY 20 PER CENT IN ORDER TO BOOST JOBS. The adjacent editorial explains that the trade union's leadership seems to have been convinced by the arguments of the unemployment deniers that if wages fall far enough the jobless will find work. What do you think Maria's reaction would be?
Unemployment deniers have no doubt that Maria will rejoice and think, Brilliant! Now that wages are 20 per cent lower, it makes perfect sense to hire Wasily and a bunch of others like him. I'll do so first thing tomorrow morning, before falling blissfully asleep. And it is true that, all other things being equal, any employer would rejoice at the thought of paying lower wages. The trouble is that those dastardly other things just refuse to remain equal. And the main other thing that changes drastically when wages fall across the board is the capacity of customers to pay.
If Maria is like most smart businesswomen, she is more likely to think the following: Oh! My! God! For trade unions to be considering a voluntary wage cut of 20 per cent, imagine how tough things must be getting out there. Much as I'd love to pay 20 per cent less in wages, now that all of those workers will be getting paid so much less, who will have enough money to buy my fridges? And if Maria is an especially smart businesswoman, which it so happens she is, she might even think, Even if I were still confident of there being enough people out there to buy my fridges, this piece of news is bound to shake the confidence of other entrepreneurs. And if they stop hiring, then there certainly will be fewer customers, so I had better do the same. In short, Maria is highly unlikely to offer Wasily a job.
Just like Rousseau's hunters, entrepreneurs struggling to remain profitable in a market society are playthings of their collective expectations. When the group is optimistic, their optimism is self-fulfilling and self-perpetuating. And when it's pessimistic, their pessimism is also self-fulfilling and self-perpetuating. The fact that they know this to be the case only makes it all the more certain that it is - and just like Rousseau's hunters, they may end up chasing hares even though they would rather not.
This is why the unemployment deniers are wrong: because the labour market is based not just on the exchange value of labour but on people's optimism or pessimism about the economy as a whole, and so across-the-board wage cuts may well result in no new hirings or even lay-offs.
Labour and money: two devilishly different commodities
Major economic crises like the ones that broke in 1929 and 2008 have taught us that, in addition to the black magic of banking, market societies are plagued by two other demons. We have just had a brief glimpse of one of them, lurking in the labour market. Let us now look at the second, which is to be found in an equally peculiar marketplace: the money market.
'The money market? What's that? Who buys and sells money?' The answer is that nobody actually buys and sells money in the money market - unless you are talking about exchanging one currency for another, which is a separate matter. No, in the money market what they do is lease their money - just as in the labour market, in fact, where strictly speaking workers lease their time rather than sell themselves.
In the previous chapter we saw what happens when entrepreneurs like Miriam borrow money and how their debts fuel the economy. We also saw how the eagerness of bankers to issue loans can so easily send the economy over a cliff. And we also know why entrepreneurs need to borrow in the first place, for every new business needs debt to get going. What we did not discuss is what determines how much an entrepreneur like Miriam decides to borrow.
There are people who insist that money is a commodity like any other. By their logic, the answer is simple: how much Miriam borrows is determined by how much she needs and how much she can afford. In Miriam's case, she needs £500,000 to buy a machine to manufacture bicycle frames. Whether she can afford that £500,000 will be determined by the price of leasing the money: in other words, by the amount of interest the bank would charge her for the loan. It follows from this that, taking the money market as a whole, the lower the interest rate, the lower the price of money, the more that people like Miriam can borrow; the higher the interest rate, the higher its price, the less that will be borrowed overall. (It is for this reason that in times of crisis the central bank tries to reduce interest rates in order to make borrowing cheaper and help the Miriams of this world get their businesses up and running or back on their feet.)
Unfortunately, the people who think this way tend to be the same people I called unemployment deniers, for their reasoning is similarly flawed. Let us return to that night when Maria was tossing and turning in her bed, tortured by the dilemma of whether to hire Wasily or not. Now imagine that as she is looking at her laptop, unable to sleep, she comes across another newsflash:
CENTRAL BANK SOON TO REDUCE INTEREST RATES SIGNIFICANTLY. How will Maria react? Will she think, Great! Time to borrow more money so that I can hire more workers and produce more fridges!? Or is she more likely to think, For the central bank to be cutting interest rates so drastically, things must be looking terrible - forget it!?
As you may have gathered, we are back to Rousseau's allegory of the stag hunt. In the middle of a slump, just as a blanket wage reduction may do nothing to boost employment but even have the opposite effect, so too can the announcement of an interest rate reduction be interpreted as an act of desperation, inspiring pessimism among entrepreneurs and scaring them away from the stag hunt in pursuit of hares instead.
I hope now you can see what I mean when I say that deep in the bowels of the two most fundamental markets of any market society - the money market and the labour market - demons work feverishly away, impeding the economy's recovery from its slump. But to make clear how tragic this is (and perhaps to annoy you a little, as I know how you feel about my inability to resist an old Greek tale), here is another story that will hopefully bring to mind the consequences of these demons for each individual.
The Oedipus complex of labour and money markets
You've heard of Oedipus Rex, Sophocles' famous play. It's based on the myth of Oedipus, who killed Laius, the king of Thebes, without knowing that he was his father, and then married the king's wife - without knowing, of course, that she was his mother. What makes Sophocles' play truly fascinating for our purposes is the manner in which the playwright handles the story's central theme, the power of prophecy.
Let's begin at the beginning: Laius of Thebes learns that his wife Jocasta is pregnant and asks the oracle to predict what will become of their child. The oracle answers with a horrifying prophecy: Laius will be killed at the hands of the son born to him by Jocasta. Terrified, Laius orders Jocasta to kill the child as soon as she gives birth, but naturally she can't bring herself to kill her baby, so she hands him over to a servant ordering him to do what she cannot. But neither does the servant have the heart to kill a helpless infant, so he takes the baby boy to a mountaintop, leaving him there to die alone of hunger and exposure. Soon, however, a kind shepherd discovers the child, names him Oedipus and takes him to Corinth, where he is adopted by the childless king.
Years later, Oedipus, suspecting that the king of Corinth is not his biological father, asks the oracle to tell him more about his parents. The oracle does not answer him but responds instead with another prophecy, just as horrifying as the first: 'You will marry your mother!' Terrified, Oedipus decides to flee far from Corinth to avoid that fate. During his despondent journey he passes Thebes. There he encounters King Laius by chance at a crossroads, where they get into a fight over who has the right of way. In what must surely be literature's first case of road rage, Laius is killed by his son - and so the first prophecy is fulfilled.
Later, Oedipus saves Thebes from a monster called the Sphinx, lifting its curse on the city by solving the Sphinx's riddle. According to a third prophecy, whoever did so would become the city-state's monarch, and so Oedipus is crowned king of Thebes and, as custom ordains, marries the late king's widow, Jocasta, his mother - thus fulfilling the second prophecy.
What does this myth have to do with labour and money markets? Everything, for it demonstrates how terribly self-fulfilling prophecies can be. After all, if the first prophecy hadn't been uttered, King Laius would never have given instructions for his son Oedipus to be killed, the boy would have grown up in the palace of Thebes and, knowing who his true father was, would never have killed him. The same is true of the second prophecy: if the oracle hadn't foretold that Oedipus would marry his own mother, he would never have left Corinth and therefore never encountered either his father at the crossroads or the Sphinx, and having never solved its riddle he would not have been crowned king of Thebes and would certainly never have married his mother.
It is this same power of prophecy that makes the labour and money markets - and all the people who make up those markets - prone to self-destruction, with terrible effects for millions. When Miriam, Maria and other entrepreneurs see wages and interest rates falling or low, they prophesy that economic activity will go down or remain slow and so avoid borrowing money and hiring workers, thus ensuring that wages and interest rates stay low or fall further and fulfilling their own prophecies. Instead of recovering, the economy falls victim to their pessimism, which only perpetuates itself and intensifies.
If only Sophocles were writing our financial columns and economics textbooks, the nature and causes of a market society's trials and tribulations would be so much easier to discern.
The human element
Houses, cars, food and entertainment bring their own rewards and are desirable in their own right. In contrast, hired labour and borrowed money are only means to an end. Entrepreneurs are forced to lease them in order to produce things of exchange value, but they would love to live their lives without ever having to hire a single worker or borrow a single penny.
If the economy is the engine of society and debt is its fuel, then labour is the spark, the life-breathing force that animates that engine, while money is the lubricant without which that engine would seize up. It is poignant that both have the capacity to drive the engine but also to bring it to a standstill and prevent it from starting again. Taken together, they prevent the smooth operation that unemployment deniers and their fellows believe in and rule out a simple world in which unemployment disappears if wages fall sufficiently and savings are turned into jobs and equipment if the interest rate finds its 'right' level.
You may now be wondering whether something might be done to tame and control these demons. Is there no way to break the cycles of self-fulfilling prophecy and self-perpetuating pessimism? The answer is: it ain't going to be easy. The demons that turn the labour and money markets into market society's scourges are an expression of some of the very things that make us human: our ability to reflect on our own and others' behaviour, to inhabit others' minds and predict their actions, and to know that for all our cleverness and wisdom we and others rarely resist the short-term impulse for self-preservation, however selfdefeating it may ultimately prove to be. To reconcile the messy, contradictory, irrational and perverse behaviour of humans with the smooth functioning of an idealized economic machine would require a rethink and a reorganization of society every bit as radical as the transformation of the Great Reversal that took place in eighteenth-century Britain.
Nevertheless, we are in the midst of one right now. It is the process of mechanization and automation, of digitalization and artificial intelligence. Unfortunately, it would appear to be taking us in the opposite direction to a solution, for its aim is not to reconcile human and machine but to replace the first with the second. But while the human spirit may be the greatest victim of this change, it is likely to prove our salvation too.

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acinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna


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