Modern Monetary Theory

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Re: Modern Monetary Theory

Postby Elvis » Tue Oct 12, 2021 6:58 pm

Time to update those textbooks!

"We recommend that textbook authors and teachers eliminate the use of the money multiplier concept in explaining the linkage between banks and the Fed.

While some textbooks provide sound descriptions of these topics, many miss some key aspects of how banks make decisions, inaccurately explain how the Fed implements monetary policy, and contain outdated descriptions of the linkage between banks and the Fed. This outdated link is often tied to the concept of the "money multiplier," which is anchored in an obsolete explanation of how the Fed operates and influences banks."

https://research.stlouisfed.org/publica ... multiplier



The Bank of England said the same thing back in 2014:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"The reality of how money is created today differs from the description found in some economics textbooks"

https://www.bankofengland.co.uk/-/media ... conomy.pdf



"Well, when you and I studied economics a million years ago, M2 and monetary aggregates generally seemed to have a relationship to economic growth…that classic relationship between monetary aggregates and economic growth and the size of the economy, it just no longer holds… so something we have to unlearn, I guess."

—Jerome Powell, Federal Reserve Chair
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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Re: Modern Monetary Theory

Postby Elvis » Mon Jan 17, 2022 4:00 am

Larry Summers dreams.jpg
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Re: Modern Monetary Theory

Postby Elvis » Mon Jan 17, 2022 4:01 am

bad trades.png
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Re: Modern Monetary Theory

Postby Elvis » Mon Jan 17, 2022 4:46 am

"Back to normal":

US Personal Consumption 2018-2021.png




Not back to normal:

US corporate profits 2012-2021.jpg




Large banks are "set"...

US bank profits 2009-2021.jpg



https://mattstoller.substack.com/p/corp ... -inflation

Larry Summers and the Profit-Price Spiral

The hottest topic in political economy right now is inflation, because inflation in the price of consumer goods and services, as well as financial assets, is determining who has access to resources. Cost increases are now running at 6.8% annually, and since wages are only growing at between 3-4%, that means real wages are going down for most Americans. Financial assets are rising even faster, and that’s also a problem. Housing prices are up by roughly 20% on an annualized basis, meaning that it’s harder to afford a house.

A few days by ago, prominent pundit Larry Summers did an interesting twitter thread on the problem. Summers has significant credibility on the matter, because last year he was suggesting that inflation would kick up, and sure enough, it did. Summers isn’t the only one who got this call right; in February of 2020, I wrote we’d see shortages, before the pandemic became evident, which is something the White House picked up, and there are plenty of people like former Fed Governor Tom Hoenig, who have warned of asset bubbles for a decade. But whereas I was early in warning of serious problems, and Hoenig made broader claims for a decade, Summers was specific and accurate. Summers has gotten a lot wrong in his career, but he nailed this prediction.

But there are dueling theses at work as to why inflation has risen. My belief at the start of the pandemic was concentrated market power and thin supply chains would induce shortages, and that indeed happened. One remedy for that, though not the only one, are antitrust rules that prohibit price-fixing, price discrimination, and monopolization, which often cause higher prices. (Other remedies include re-regulating shipping, which Congress is doing.) Summers, however, doesn’t see the problem in terms of market power. His view of inflation is that government spending is driving price hikes by giving Americans too much purchasing power. He is so hostile, in fact, that he has pronounced the idea of market power as a causal factor a form of ‘science denial.’

larry summers science denial.jpg



Summers’s whole thread is worth reading, but what’s most interesting is how his thesis seems to cut against what CEOs are telling investors (as well as what he himself said in July, when he said concentration could be inflationary). Wall Street is explicit that margin expansion is the big story of the pandemic. “What we really want to find are companies with pricing power,” said Giorgio Caputo, senior portfolio manager at J O Hambro Capital Management told Bloomberg. “In an inflationary environment, that’s the gift that keeps on giving because companies can pass along their pricing on the way up, and don’t necessarily need to get it back on the way down.”

Margin expansion is one factor that has pushed the stock market to an all-time high, with large firms doing much better than small ones. Bloomberg has noted that behind this are corporate profit margins, which are at a 70-year record. All of which leads to an interesting question. How much of inflation is a result of market power, and how much is due to some other set of causes such as government spending or thin supply chains? Let’s do some rough numbers.

Just before the pandemic, in 2019, American non-financial corporations made about a trillion dollars a year in profit, give or take. This amount had remained constant since 2012. Today, these same firms are making about $1.73 trillion a year. That means that for every American man, woman and child in the U.S., corporate America used to make about $3,081, and today corporate America makes about $5,207. That’s an increase of $2,126 per person.

US corp profits stoller.jpg



Still, in order to know just how significant that amount is relative to inflation, we have to figure out how much inflation is costing the average American. A rough way to get that would be to take the total amount America produces annually, which is the Gross Domestic Product, and multiply that by the inflation rate. That’s $23 trillion of GDP times the 6.8% inflation rate, which comes out to $1.577 trillion, or $4,752 per American.

Taking all of this together, it means that increased profits from corporate America comprise 44.7% of the inflationary increase in costs. That means corporate profits alone are absorbing a 3% inflation rate on all goods and services in America (44.7% of 6.8% annual inflation), with all other factors causing the remaining 3.8%, for a total inflation rate of 6.8%. In other words, had corporate America kept the same average annual level of profits in 2021 as it did from 2012-2019 and passed on today’s excess to consumers, the inflation rate would be 3.8%, not 6.8%. And that’s a big difference, indeed it is the difference between Americans getting a raise, and seeing real wages decline. (It also could explain why inflation is lower in Europe - corporate profits there were very good in 2021, but not as good as in the U.S. And in Japan both inflation and corporate profits were low.)

It gets worse, because this calculation assumes that all 6.8% of the inflationary increase in prices is new. But of course, inflation isn’t zero in normal years, the Fed has an inflation target of 2%. In 2019, inflation hit 1.8%. So if you take the pre-existing inflation rate in 2019 of 1.8% and back that out of the numbers, then it turns out that 60% of the increase in inflation is going to corporate profits.

3% to corporate profits + 1.8% preexisting inflation + 2% from government spending/supply shocks = 6.8% total inflation rate

Now, there are plenty of methodological objections to this exercise. First of all, after-tax profits can come from margin expansion via price hikes, but they can also come from lower taxes, reduced funding costs or efficiencies in production. Let’s go through these different possibilities. It’s not a tax story, because corporations are paying a bit more in taxes than they were in 2019. It’s not a financing story, as corporations do have lower funding costs since the Federal Reserve’s interventions last year, but the total amount of corporate debt has gone up. Finally, productivity is bouncing all over the place, increasingly by a gigantic 11.2% during the immediately onset of the pandemic as layoffs began, and dropping by a massive 5.2% last third quarter as supply chain and labor turmoil hit. So it’s probably not productivity. Moreover, even if these factors were dominant, it shouldn’t matter, as there’s no reason firms couldn’t pass along lower financing costs or higher productivity to consumers. Plus, the story from Wall Street is consistent. It’s price hikes fattening margins.

US corp profit margins 2008-2021.png



Beyond these methodological questions, there’s also a reasonable argument that profit increases are not a function of market power. Summers, like most economists, would say that higher profits are a result of higher demand. Higher profits are necessary to entice new firms into a market and raise production. On a rainy day, for instance, being able to charge more for umbrellas means that there will be more umbrella sellers, which is what you want when it’s raining. It’s why economists tend to dislike rules against profiteering, even in emergencies. Price gouging, they believe, transmits important information. In this case, higher profits would help businesses plan to invest more in factories, and induce market entry in case incumbents don’t do that investment.

Still, it’s interesting to note which firms are raising prices, and why. We don’t have that much information on a macro-level, because there’s no systemic investigation using proprietary pricing data from private firms. Anecdotally, it’s obvious that certain industries like beef are seeing a mix of market power and cost pressures. Peter Goodman, for instance, just wrote a fantastic article in the New York Times on how meatpackers - a four firm oligopoly - are prospering by raising prices to consumers (and being sued for colluding to do so), while the cattle ranchers who sell to them - a decentralized group - are not. There is very little entry of independent packers into this industry, despite high margins. How common is this dynamic across industries, where controlling distribution enables a firm to raise prices, using inflation as a story to tell their customers?

One interesting set of data comes from Digital.com, a survey research firm that went out and asked retail businesses about inflation. 56% of retailers told Digital.com that “inflation has given them the ability to raise prices beyond what’s required to offset higher costs.” And these price hikes are concentrated among big retailers, with 63% of large firms using inflation to more than offset costs vs 52% of small and medium size businesses. And of “those who have increased prices, 28% of large enterprises increased prices 50% or more, compared to 6% of small and medium size enterprises.” So size, and presumably market power, matters. And one person’s profits are another person’s costs, because firms buy and sell to each other. So when firms raise prices to increase profits, then this increases costs for those who buy from those firms, and accelerates the expectation of more inflation elsewhere. Profits, in other words, are also driving inflation.

US biz inflation pretext.png



It’s not just retail. Inflation is a story that larger firms are using to raise their prices and change pricing behavior. For example:

BMW pledge high prices.png


The global auto industry is an oligopoly, with 14 firms controlling nearly all of the major brands. And that opens the opportunity for exploiting pricing power. “We will consciously undersupply demand level[s],” said Harald Wilhelm, Daimler’s chief financial. Daimler is even noting that forcing customers to wait for their luxury cars “makes the customer experience even greater and better.”

The story can get more pernicious. Here’s economist Hal Singer, explaining how inflation can be a convenient cover for price-fixing, which of course raises prices.

hal singer price fixing.png



So basically, Summers is partly right on the cause of inflation, but overstates his case when it comes to antitrust. It’s true that some inflation was inevitable with the Covid demand shock and lots of government-supported purchasing power, but not this much. We have a supply chain mess and lots of government spending, both of which pushes up costs naturally. Monopolized markets allow firms, especially big ones, to raise prices faster than costs. And then that in turn pushes up costs and expectations, leading to more price hikes.


Replace Build Back Better with an Anti-Inflation Agenda

The policy solutions to address this problem look very different, depending on what you believe. Summers thinks austerity is the way to get at inflation, which is why he has been pushing to restart student loan payments, as taking money from young people means they won’t spend it on goods and services. He also wants to eliminate tariffs and Buy America provisions so that there are more cheap imports from China.

Would these solutions work? Well, certainly austerity will reduce inflation, as will a recession, though at a very high cost. Inducing more imports, I suspect, won’t work. I’ve interviewed a few business people dealing with China tariffs; they told me they raised prices when the tariffs hit, but won’t lower them if the tariffs go away. That’s because prices aren’t based on cost, but market power. Lower tariffs on Chinese imports will simply flow to more profits for middlemen, not lower prices for consumers.

If it’s true that a concentrated economy is allowing firms to exploit the current pricing environment to raise margins, then a different set of policy solutions should flow from that.

The first is to strengthen laws against price-fixing. The courts have radically cut back on the ability of plaintiffs to bring such cases in concentrated markets. As antitrust lawyer Eric Cramer noted, in the Valspar decision in the 3rd circuit in 2017, judges actually said that firms in a concentrated industry are allowed to raise prices in a coordinated manner, as long as there’s no public proof they are working together overtly to do so. A plaintiff who attempts to bring such a case and investigate whether there is a formal agreement will now have his or her case dismissed before it even gets to trial. The 7th circuit found a similar result over container board price hikes in a heavily concentrated market. That’s crazy.

If Congress strengthened the Sherman Act to overturn these decisions, that would help lower prices. Similarly, in the 1970s, the FTC tried to bar coordinated price hikes that occur in concentrated markets, even if there’s no explicit agreement in place. Barring this kind of price fixing would be quite powerful. Another variant of this would be, as Hal Singer suggests, to trigger an automatic price-fixing investigation for any concentrated industry that raises prices above 15% over December 2020 levels. Basically, it should be very easy to bring a price-fixing suit, but only in concentrated industries.

* The second is to impose an excess profits tax. Excess profit taxes are a common approach to emergencies like war, and they reduce the incentive to price gouge. You could define an excess profit by the amount the firm is making above what that firm used to make on the same line of business. Not only would such a tax reduce the incentive for price gouging, but it would encourage highly profitable firms to put cash back into new factories and production, for fear their newfound profits would otherwise be taxed away.

The third is to strengthen the antitrust laws against monopolistic conduct and concentration in general, which is likely driving some part of inflation. Even very cautious economists buy this story (though Larry Summers doesn’t). Obama-era antitrust economist Fiona Scott Morton, for instance, gently corrected Summers on his assertion that no economist could connect concentration and inflation, suggesting that less concentration can actually induce more investment when there’s an economic shock. Her view makes sense, since the more firms in an industry, the more likely one of them is to use a period of high margins to grab market share by expanding production. The New York state abuse of dominance bill would accomplish this by prohibiting unfair methods of competition that often lead to higher prices.

Finally, since large firms raise prices more than small firms, then a revival of provisions against price discrimination would likely reduce consumer prices. Summers doesn’t believe this, praising Amazon and Walmart as price deflators even as Amazon is being sued by the D.C. Attorney General for systemically inflating prices across the economy. So this would be a good place to get data, which is what the Federal Trade Commission is doing, looking at how suppliers and distributors allocate goods between large firms like Walmart and small retail stores.

How much will these changes help? It’s hard to say. The potential is quite real. In 1939, Franklin Delano Roosevelt’s Antitrust Division was so feared that merely announcing an antitrust investigation would cause prices in a market to fall by 18-33%. Since profit margins are massive today, there’s no reason we couldn’t see similar results if we shifted our legal framework to outlaw the kind of behavior likely occurring throughout the economy. Of course, doing so would require making different political choices. Since we live in a democracy, that’s always possible.

Thanks for reading.

And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.

cheers,

Matt Stoller

UPDATE: I mischaracterized Larry Summers as a prominent pundit. He is also a failed Federal Reserve Chair candidate. My apologies for the error.




* Edit: I'm not so sure I agree with the idea of an excess profits tax on corporations; see "Corporate Taxation in a Modern Monetary Economy: Legal History, Theory, Prospects" https://papers.ssrn.com/sol3/papers.cfm ... id=3200249
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 1:07 am

Economist Lindsay Owens exposes rampant opportunistic price gouging by firms with price-setting market power—and executives bragging about it in earnings reports calls.

https://twitter.com/owenslindsay1/statu ... 7700491266

Lindsay Owens, PhD
@owenslindsay1
As you read today's inflation report, pay close attention to what the CEOs who set prices are saying. We got our hands on the latest batch of earnings reports, and it's a doozy. They're literally bragging about hiking prices while hiding behind "inflation." The receipts...(1/7)

6:09 AM · Feb 10, 2022


CEOs often speak more candidly on earnings calls (held when a new report comes out), in an effort to impress investors, by bragging about their ruthless profit-rigging schemes. It apparently doesn't occur to them that the public might find out about them! For instance... (2/7)


Check the Twitter thread for examples.

Here's Lindsay Owens getting into her research with Jon Stewart, worth a watch:


https://www.youtube.com/watch?v=SgjPl-YW6Hc

Jon talks with economist Lindsay Owens about how companies are driving inflation behind the scenes
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 1:17 am

https://www.nytimes.com/2021/12/24/opin ... power.html
(archive: https://archive.fo/zvEwF )

Opinion
Guest Essay
Fighting Inflation Means Taking On Corporations
Dec. 24, 2021
By Meg Jacobs
Dr. Jacobs teaches history and public affairs at Princeton and is the author of “Pocketbook Politics: Economic Citizenship in Twentieth-Century America.”

Since the Carter administration, monetary policy has been the chief tool presidents use to curb inflation, which has been on the rise: The Consumer Price Index rose by 6.8 percent in the year through November — the fastest pace since 1982. The Federal Reserve chair, Jerome Powell, has pivoted to a tighter monetary policy, announcing plans to taper the central bank’s bond purchases and raise interest rates next year.

Yet inflation doesn’t rise and ebb just because of monetary policy. It’s largely the result of choices businesses make. And history shows presidents have the power to stem inflation by taking on corporate power — if they choose.

While Franklin Roosevelt is best known for the New Deal expansion of the social safety net, he also protected Americans against wartime inflation. During World War II, his Office of Price Administration, imposed price ceilings on three million businesses and more than eight million goods. The office also put caps on rents in 14 million dwellings occupied by 45 million residents and issued ration stamps for goods like meat to manage supply. According to Gallup polls, more than three-quarters of the public favored extending controls after the war.

When Harry Truman lost a bitter fight in Congress to do just that, there were consequences. When peace came, Americans eager to spend their stored-up savings ran headlong into a supply shortage: Manufacturers had yet to convert back from wartime production.

In the summer of 1946, without controls, the cost of living jumped. In July, meat prices doubled to 70 cents a pound. In the midterm elections that November, Democrats lost control of Congress for the first time since 1932.

In 1948, with inflation running at 7.7 percent, Truman condemned the “do-nothing” Republicans who placed blame for rising prices on newfound union power. In his re-election campaign that year, he promised to expand the New Deal and ran hard against corporate power. “The Republicans don’t want any price control for one simple reason: the higher prices go up, the bigger the profits for the corporations,” he said that year.

At a campaign stop in Kentucky on October 1948, he lashed out at the National Association of Manufacturers, a business lobbying group that opposed price controls, for engaging in a “conspiracy against the American consumer.” He called Congress into a special summer session to restore price controls, but that effort failed.
Democrats returned to the polls; automobile workers gave Truman 89 percent of their vote, helping him secure re-election in a close contest. One key to his success: doubling down on tough talk against inflation and support for liberal programs to raise living standards for ordinary Americans.

From the presidencies of Truman through Lyndon Johnson, Democrats stuck to the program. Like Truman, who went so far as to order a takeover of the nation’s steel mills when they announced a price hike, John F. Kennedy and Johnson also publicly reprimanded steel executives for price increases.

They all spoke out against efforts by William McChesney Martin, the Fed chairman, to raise interest rates. Martin famously asserted his independence and raised rates anyway; as he saw it, the job of the Federal Reserve was “to take away the punch bowl just as the party is getting good.” Truman called him a “traitor.”

When inflation struck in the 1970s, Richard Nixon understood the expectations created by Roosevelt’s Office of Price Administration. As a World War II-era inspector for the agency, Nixon had been horrified at the thought of bureaucrats checking up on the pricing decisions of private business, and he quit. Yet once in the White House, he didn’t hesitate to slap on price controls in response to the soaring cost of beef and gas.

Milton Friedman, the free-market economist, and other conservatives denounced Nixon’s response as heavy-handed — a message that his successor Gerald Ford absorbed. Instead of price controls, Ford distributed “Whip Inflation Now” buttons and called for budgetary austerity.

As American economic thinking fell under Friedman’s influence, the Roosevelt-Truman tools lost favor. With inflation reaching double digits in 1979, President Jimmy Carter appointed Paul Volcker to the Federal Reserve to use monetary policy to fight inflation. When Ronald Reagan came into office, he endorsed Mr. Volcker’s muscular move to raise interest rates and drive the economy into recession to fight inflation. Subsequent presidents have largely stuck to this approach of controlling inflation.

(continues at link)
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 1:38 am

So it turns out that accounting means everything, and this modern world wouldn't be possible without double entry bookkeeping. Audio at link, plus transcription.

https://moneyontheleft.org/2021/12/01/t ... %ef%bf%bc/

The Metaphysics of Accounting with Paolo Quattrone

Posted on December 1, 2021
by Money on the Left

Paolo Quattrone (@PaoloQuattrone) joins Money on the Left to discuss the metaphysics of accounting and the significance of accounting’s repressed history for political economy today. Professor of Accounting, Governance & Society at The University of Manchester, Quattrone insists that, while often seen as a positivist and merely technical skill for recording extant data, accounting in truth represents a rhetorical and quite generative engagement with the “mystery of value.” This mystery, Quattrone reminds us, informs nearly all aspects of collective life. Genealogy is central to Quattrone’s work and, in our conversation, we explore how numbers, figures, and visual arrangements used in contemporary accounting trace complex and often surprising lineages that have a lot to teach us about accounting’s still untapped possibilities. Along the way, we touch upon two of Quattrone’s most important case studies. First, we delve into the Jesuit order’s rich contributions to early-modern accounting, including its development of double-entry bookkeeping. Then, we turn to the more recent history of “I.R.I.,” the Italian “Institute for Industrial Construction” which, even as it served as administrative arm of the Marshall Plan, underwrote the midcentury period of prosperity known as la dolce vita by precisely rejecting the ideology of “profit maximization” promulgated by The United States. We conclude, finally, by rethinking money’s futurity through Quattrone’s approach to accounting. If spending tomorrow is never flatly predicated upon yesterday’s inert data in the form of receipts or revenue, we suggest, then it instead derives from mobilizing accounting practices in the present to create new credit and debt relations “endogenously” in response to shifting circumstances.

You can find Quattrone’s publications here: https://www.research.manchester.ac.uk/p ... fc9f1e4efd)/publications.html

Visit our Patreon page here: https://www.patreon.com/MoLsuperstructure

Music by Nahneen Kula: www.nahneenkula.com

Scott Ferguson: Paolo Quattrone, welcome to Money on the Left.

Paolo Quatrone: Thank you, Scott. Thank you, Maxx.

Scott Ferguson: Thanks so much for joining us. I was hoping that we could begin by asking you just to tell our audience a little bit about yourself, your background, your training, and how you came to this question of accounting.

Paolo Quattrone: Maybe we can start from how I came to become an accountant. I’m actually a qualified accountant. Of course, the answer is by mistake. Because until the age of 17, I wanted to become a medical doctor. And then, because my father was an accountant and he had a small practice, I said, “Why do we have to waste all of these clients that you have?” And so, I wanted to become an accountant too. He discouraged me with all of his power, but because of course kids never do what their dad tells them to do, I started to study economics and management.

Then, when I was in my last year of my degree, my father was not very well. I started to help in his business. I took a year off from university. And I understood that that was not what I wanted to do. Then, I decided to do a PhD and I was very lucky to have a great supervisor, Professor Claudio Lipari, who’s still alive and well. He viewed accounting as a theory of knowledge, not as a stupid technique. I started to study accounting with him, he became my PhD supervisor, and then also by chance, we started to get interested in the Society of Jesus, the Jesuits. Also, because the first college of the Jesuits was opened in Messina in 1548. I’m Sicilian from Sicily. I’m from Palermo, and the first college was opened in Sicily. So we started to discover this huge, new world of relationships between religion and accounting, rhetoric and accounting, pedagogy and accounting, and various other things.

Maxximilian Seijo: Accounting in the dominant reading is often seen as a positivist and merely technical skill for recording extant data. However, in your work you make a passionate case for accounting’s generativity and uncertainty which, you remind us, inform nearly all aspects of collective life. I suppose for starters, what is accounting in your view? Why is it so important? And why is accounting, as you would say, “rhetorical” and not simply boring?

Paolo Quattrone: First of all, accounting is important because it deals with the production and distribution of value. It is very meticulous about how value is produced and distributed. There are a couple of things that come to my mind. In the production and distribution of money, one important thing is the way in which you do that. Not many people know the word “rationality” has an interesting genealogy. It comes from Latin ratio. When I teach my students, I always tell them, “Look, at the end of this, you may not learn anything new about accounting or program management,” which I teach a lot, “but you will learn a lot about Greek and Latin.” This is my first Latin etymology class. The word rationality comes from ratio. Ratio, in Latin, means two things. One is ratio, so proportion. In order to be rational, you have to be balanced, you have to be proportioned. Two is account, because account gives the idea of symmetry and balance. So if you want to be wise, you have to be balanced.

Accounting is interesting because it emerges and was designed as an instrument to seek for this wisdom and for this balance. It did that thanks to a lot of rhetorical techniques, and we can talk about them if you want. One thing that is interesting is also that in the first accounting treatises–let’s say early, modern times, late medieval times–to explain to those who are reading these treatises what accounting was about, an example that was used is the metaphor of the mirror. When it is asked: “Why do you use the accounts?” It is because you will see the state of your affairs, you will see yourself, you will reflect on your morality as if you are looking at yourself in a mirror.

This brings us to the second important Latin etymology behind contemporary accounting discourse: speculation. Mirroring in Latin is speculatus. Sorry, my Latin is a bit rusty. My father would be ashamed of me. The idea is you create a distance between you and yourself and you reflect on your behavior by looking at yourself in this mirror which, in accounting terms, is the financial reports that are produced at the end of the year, or when you close the books and you open them again. Interestingly, this speculation was a moment of reflection, a moment of reflecting on your morality. In modern times, this has devolved into a degraded sense of speculation, however. “I don’t even care about who I am and why I’m here, I just want to make money.” Then, you’re in the world of high frequency trading and algorithms where no one stops and reflects.

One other thing: at the moment we teach a lot from home. When I’m at home in my study, I have all my books around me, including one on my left on the history of balance. But next to that, I have a few books on labyrinths and mazes. It’s the same idea. I’m interested in labyrinths and mazes, because the maze is made up of moments where you have to stop and think. So do I go right or do I go left? Then, you make the decision, you deal with the uncertainty and the mystery of life, you decide to go right. Then, you stop and you face another wall. Again, you have to make a decision. If you make all of these decisions right, you are amazed, you are out to the maze and you see the light.

So accounting is all about speculating about what you do not know. It’s about creating spaces in between opposites. In that sense, it’s rhetorical, to make sure that you interrogate the unknown. There is a link between Latin rhetoric and accounting as well. I mean, if you think of a couple of words like data, or fact, fact is possibly the most interesting, but data as well. Fact comes from factum, which means made. Data comes from datum, which means given, but also attributed. So the meaning of data is never given, it’s always attributed. The truth needs to be in the middle, in that middle space between the two opposites. Accounting is about creating two opposites in order to speculate on the mystery of value, in order to speculate on what is in between these dichotomies, expenses and revenues, assets and liabilities. You create figuratively in order to deal with the mystery of value, with uncertainty, with the unknown, so forth and so on.

Scott Ferguson: What it seems like you’re starting to explain here, and what so much of your work is criticizing, is a certain modern and even more contemporary reduction of accounting to a series of terms. I wonder, if you had to spell out a critique of the key terms in contemporary accounting, or maybe even just popular conceptions of accounting, what would they be? What bugs you about our approach to contemporary accounting that your genealogical method seems to work in the opposite direction of in a movement of opening up, of expanding meanings, which are maybe hiding in our contemporary language, but that we only treat in a reductive way?

Paolo Quattrone: I had a meeting yesterday or the day before yesterday with some people who were working on an initiative on the future of environmental accounting, and there are various, different initiatives. At one point, one of the people said, “I know you want to measure nature. I know you want to count how many bees are being killed or how many bees have been saved, the stock of natural capital that we have and how much we are consuming.” And I said, “Look, I think you’re completely wrong in the sense that it’s the idea of measure which is wrong. You cannot really understand the stock of nature that we have available. But we can reflect on what we do when we consume natural resources and what trade offs we have.” Another example is this idea of believing that you can define targets and measures in these targets. So you’ve got this target and that target becomes the “truth,” or it’s affirmative in a sense. It defines what is the right objective of a corporation, maximizing profit or whatever. In doing that, you lose sight of what, in economics, would be the opportunity costs. But in other terms, it would be the trade offs. In order to pursue profit, what is it that you are killing? In order to make sure that you deliver your target sales this year, what is it that you are losing?

I think accounting has, until very recently, always been about reflecting about these trade offs. So it’s about making sure that you use what you can count–money–in order to reflect about what you cannot count, which is the purpose of the organization, your morality, what you need to do next year, and so forth, and so on. While we tend to, nowadays, reduce everything to numbers in the false belief that numbers will produce objectivity and generate rational choices, that was just the first movement that accounting did. Accounts indeed reduce the complexity of the world that is around you which cannot be reduced to numbers in order to augment your understanding of this complexity. However, numbers were excuses, they were not final objectives. They were means to explore the ambiguity of life. They were means to explore the mystery of value. They were means to explore how we always deal with uncertain situations. They were never instruments to eliminate the mystery, eliminate the uncertainty and eliminate the ambiguity. That would have been a stupid way of using numbers. Yet this is exactly what we’re doing in contemporary time. We are using accounting as if accounting can provide more certainty through answers, while instead, the only thing accounting can do is to point us towards the right questions.

I always make this point to my students. I mentioned Professor Lipari, my supervisor. He was also my professor in accounting 101, the first accounting course that I ever took in my life. I did Classics in my high school, so very little math, very little anything that was merely practical. At that time we had oral exams. So you do the written part, and then you sit in front of 30 people who ask you questions all the time. And if I told him, “Accounting is about truth,” he would have taken me from the ear and kicked me out of the group saying, “You have not understood what accounting is about!” This is 1980. So it’s actually quite recent. It’s only with the financialization of the world and the belief in the power of markets as a mechanism to substitute accounting in the valuation of basically understanding how value is produced, distributed, and allocated that we lost sight of the power of accounting. In a sense, it’s the victory of finance versus or against accounting.

This reduces everything to cash, as if cash is the ultimate goal in life. Of course, it isn’t the ultimate goal in life, it’s a means to pursue an end. This is why the Jesuit cash box had two keys. One was kept by the accountant, the appropriator of the college. He was the spokesperson for financial matters. He needed to take care of the money. But the other one was kept by the Rector of the college, who was the spokesperson for anything else that was not financial. So yeah, the means, the key of the appropriator to interrogate the end, which is the key of the Rector. You can count the money, but you use the money to speculate about what the Jesuit Order was about without pre-defining what is right, without fixing targets. Because that would have been too stupid to deal with managing a complex and large organization like the Jesuits.

Scott Ferguson: What is so fascinating, and I think it’s such a nuanced point that you’re making, which is that this kind of reduction of accounting to non-accounting becomes a function of what we call “neoliberal financialization” or “marketization,” on the one hand. But on the other hand, even those who are thinking about the environment or thinking about ecology get stuck, too, in this reductive epistemology and the ontological assumptions involved, right?

Paolo Quattrone: I would say they’re trapped into this idea of measurement. We can measure finances now. We have to measure what happens in society and we have to measure what happens in the environment. Yet, we forget that, as much as measures are wrong for understanding how value is produced and distributed, they will be wrong in terms of how we understand societal matters and environmental matters. But those who designed double entry bookkeeping knew this very well. There is another interesting issue here. I would say, since the 16th century, from a technical point of view, in relation to double entry bookkeeping, there has not been any groundbreaking innovation. I mean, with the accruals, you basically, from a double entry point of view, you have more or less everything that you need to keep the accounts.

So it’s the same double entry that can be used in different ways depending on what kind of epistemology orientates you. So are you driven by positivism? Then, you screw with the beauty of accounting. Are you driven by a very, I would say not even relativist, I would say, very pragmatist approach? Then, you start to see that things are much more complex than what measure can tell you. In that book that was mentioned, it’s one of the first accounting treatises where the rules were described. It was published in my hometown in Palermo in 1636, by Lodovico Flori, a Jesuit.

In the preface, it says accounting is a scientia prattica, it’s a pragmatic science. It’s not about truth. I’m not a theologian. So it’s about solving problems. In order to solve problems, you know, truth is almost irrelevant. You want to reflect on what may be true in Rome is false in China. What is true in Rome at one point in time will become false in a different point in time. What is right in a certain network of relationships in Rome will be false in another network of relationships. Accounting helps you with that ambiguity. It helps you to manage that ambiguity, helps you to manage that continuous malleability of what counts as right.

Maxximilian Seijo: You’ve mentioned the Jesuits a few times now, and they are an animating feature of your work, specifically with regards to their particular accounting forms. One term we would ask you to explicate from this lineage is the meaning of “inventory.” Your genealogical approach really does a lot of work to defamiliarize how accountants, and perhaps lay people, might understand what inventory means and how they fit into accounting practices, and particularly, the alternative practices that you locate in this 16th century Jesuit context. But before you do that, could you say for our listeners, who are the Jesuits and a little bit about how they came to transform accounting?

Paolo Quattrone: Yeah, the Society of Jesus is still a Catholic order. It was founded in 1540 by Ignatius of Loyola. The first college was opened in Messina in Sicily, because Messina was the port. It was the kind of door, along with Venice, towards the east. The Jesuits were interesting because they mainly did three things. They did many things, but let’s say three main missions. One was, of course, evangelization. So they had missions. Another was they had colleges and schools. So if we teach in classrooms these days, it is because of the Jesuits and their Ratio Studiorum, the first treatise of pedagogy. It was a Jesuit treatise. And they were crazy about double entry bookkeeping. They were using double entry bookkeeping, or they loved double entry bookkeeping, as much as we love artificial intelligence these days. So for them, it was a fantastic innovation. What is interesting in the Jesuits is that, in every single activity, even in the arts, think about the Baroque and the Fall, and the work that Deleuze has done on the Jesuits to explain how it was impossible to find a true representation of the world in a sense, and it was open to difference, but anyway, in every activity that they did, they dealt with the unknown. So in pedagogy, it was the mystery of knowledge, in the missions, it was the mystery of the unknown. You go to lands where you don’t have the maps, you would not know what animals would kill you, you would not know what kind of people you would find, what culture they had, and still, you needed to establish a connection with them.

They were pioneers in accounting, because they understood the mystery of value. For them, value was not something that is easy to represent but it was something that it’s quite difficult to represent. It’s contingent and it varies depending on where you are and what you do. So my interest in the Jesuits emerges from their interest in the mystery, and also, spiritual exercises and the mystery of God. They never define what God is, but they give you instruments to make sure that you search for it.

This is why I was interested in them, because in contemporary terms, I would say they were at ease with the idea of dealing with “unknown unknowns,” the infamous word, or collection of words, that Rumsfeld discussed. It’s their daily business. It would have been very stupid for them to define what is right, because as I said before, what is right in Rome, will not be right in China, will not be right in Latin America, will not be right in India, will not be right in Rome in different times. It’s interesting also how I use this stuff when I teach major program management, or when I teach people who run very large projects. This could be large infrastructures like airports, defense, or nuclear plants. And these projects are so complex that you cannot really say what they are about. There’s a famous phrase that I use from the program director of HMS Queen Elizabeth II, one the new aircraft carriers of the Royal Navy. He has a very nice line where there’s a picture of the warship and then the heading is, “This Is Not a Warship.”

So if you think that this is a warship, you have not understood what my job is about. So if you fit the target to believe that I have to deliver a warship, you are adrift in the very first moment in which you do that. And you are adrift because the warship is many different things at once. It’s an airport, a small village. If it were a nuclear submarine, it would also be a nuclear power station. It would be many different things. But also, most importantly, it’s a very dynamic object. It has the tendency to become what it was not, I would say. So he said, “No one told me when I took this job that this program would have been used to keep Scotland in the United Kingdom because the shipyards are in Edinburgh in five.” During the Scottish referendum, the UK Government said, “Okay, you can leave the United Kingdom, but be careful that you will lose 12,000 jobs because this shipyard will be moved down to England.” Forget the warship because this thing will never go to war. Forget the other things. At one point in time, in a certain network or relationship, this thing was about jobs and votes in order to keep the United Kingdom together. That creates a quite serious challenge to modern management, which is based on positivity. “This is a warship, this is not a warship.” So a negative attitude towards the warship is actually much more useful than a positive attitude towards the warship. The Jesuits understood that in the 16th century.

Scott Ferguson: Just to circle back to Maxx’s question, the term “inventory” seems to be the place where accounting practices are supposed to begin, but you point out in your genealogy, that an inventory, as we’ve been saying so far, is not just in a positivist recording of inert items. It’s something more. So maybe you can tell us where that word comes from?

Paolo Quattrone: When people think of the word “inventory,” they think of accounting, of course. They do not know that the term originates from the first canon of rhetoric, which is inventio. And inventio is about classifying things in spaces, in Greek, it would be topos. They would become topics of conversation, for instance. Then, the first canon of rhetoric is about doing this classification, or doing this de-finition. So an asset becomes certain things and expense becomes other things. But again, because of the richness, I would say, of the Latin word, Romans understood very well that every classification, every de-finition–and we can think of the word definition as well–it’s always contingent.

That classification valuementary was functional to actually be reclassified, that is the second canon of rhetoric, ordinatio e dispositio. And, not by chance, that book that I mentioned before by Flori was organized in three parts. The first part, “Dell’inventario,” is about the inventory. How do you do the classification, how do you do your chart of accounts? But the second part was about the ordinatio e disposizioni dei conti, or the ordination and disposition of the accounts. Once you have the classification, you start to mix them around in order to invent solutions to problems and issues that you have not thought about. So the inventory was not there to measure things or to represent them. It was there to prompt imagination, to prompt creativity, and to prompt the possibility of finding new solutions.

So the inventory, which is a definition with the emphasis on the word finis, or boundary, opens up the possibility of taking those boundaries away, knowing that the moment in which you make a definition, some people will agree and some other people will disagree. So you always get, as a good rhetorician, to be open to the possibility that you are wrong. Never fixate on things in a way that you believe you’re right. That would be the greatest sin that you can commit. And in that sense, accounting is rhetorical and pragmatic. Because the ultimate end is not to deal with and understand what is right, what is true. But actually, to deal with the unexpected circumstances in which you can find yourself, and that the belief that you have is actually put in question by something that you had not thought about.

This is why I talk about the procedural rationality of the Jesuits. That example of the two keys that I made earlier exemplifies the fact that they never defined what is right, but they defined procedures through which you understand, in every single circumstance, what is right and what is wrong. You do that by establishing a tension between two opposites in order to explore the ambiguity of them, which is symbolized by the space in the middle.

Maxximilian Seijo: Moving from this attention to genealogy and language, your work deals quite a bit with accounting’s visuality. This might be counterintuitive so I’m looking forward to you explaining this, but instead of treating visual arrays, like the double entry grid, as transparent mechanisms for conveying the underlying facticity of the data–this measuring process and reduction that we’ve talked about–you compare accounting’s visual representations to paintings, and explore them rhetorically, if not in almost a metaphysical sense. So with that, can you explain how accounting can be like a painting and what attending to accounting’s visual aesthetics might mean for the future of accounting?

Paolo Quattrone: Yeah, there is a need for a step back first, and maybe an example helps. I always make the same example so some of the people who will listen to this, if they are my students, they will have listened to this already. Think about a classroom, also talking about the Jesuits who invented the classroom in the first place. Depending on how you lay out the desks in that classroom, you would have a different kind of social interaction. So in a conventional way, you’d have the teacher sitting and then a series of rows opposite to the teacher. And the idea is that the teacher conveys knowledge to a passive audience. Organize that classroom as a Harvard style lecture theatre, so you have an amphitheater, you have a space in the middle which is empty, and then you have the lecturer who orchestrates the debate amongst the participants in that classroom.

Typically, that architecture symbolizes the fact that a good Harvard case study does not have a solution. It’s a rhetorical device to investigate the ambiguity of management and the empty space in the middle signifies the fact that the case study does not have a solution. So knowledge emerging from the debate will not be conveyed by the lecturer. Or think about an executive session classroom. The layout is organized in Cabaret style and the knowledge emerges from the tables, because people are really experienced.

So I’ll translate that into an account, and an account is also space. Physically, it is a space. Depending on how you design that space, depending on how we design that data visualization, you would have different kinds of social interactions. Depending on how you design the income statement, you will have different kinds of social interactions. So when I was a student, I was taught I think 6 or 7 different formats of income statements. Now, we teach students only one, which is the one that everyone knows that starts with revenues, cost of goods sold, gross profits, then operating expenses, operating profit, financial income or expenses, profit before tax, and tax and dividends. That is not, I would say, an income statement. That is a political statement. It tells us that the most important thing on earth is the shareholder, and the dividends that need to be distributed to them.

But you can organize the income statement in different ways where there is no one single perspective then there is taking into account. Think about value added accounting, for instance, where you have reduction augmentation, you have the production of value, and then the distribution of value amongst peers. Interestingly, you would distribute this value between workers, labor, shareholders, capital, banks, the state through taxes and the firm where the mediation amongst these different stakeholders would happen. That is a statement where there is no perspective. So this is the link with his theory of art. Because in most modern forms of visualization, there is a clear perspective. So we tend to represent things from a clear perspective, normally the perspective of the owner. Instead, you can design dashboards, for instance, which do not have perspectives. In another paper, I analyzed one of the dashboards utilized for a program managed delivery for one of the London Heathrow terminals, one of the few that actually had been delivered on time and on budget. I used medieval aesthetics to explore how that artifact works because the artifact by design does not want to privilege one target versus the others.

Because if it did, you would think that visually that that target would be building the warship, or building the airport, as if that program is about building the airport only. Well, that problem is much more complex. So you need to create spaces where you debate what is important at one point in time or another point in time. That dashboard does not have one single focus and does not have one simple perspective. It does have multiple foci and multiple perspectives exactly like medieval art where the technique of perspective was not invented. And therefore the viewer, and the eye of the viewer, was asked, and even forced, to go around the painting and not focus on the vanishing point, which is instead what happens with modernity.

So there are lots of links between accounting, its spatial nature, but also it’s, I would say, artistic nature, in the sense that it embeds intrinsically in ways that are very pervasive and work without being seen, notions of perspective. Which become ways to make certain forms of capitalism work, for instance. Without those, without accounting and the income statement done in a certain way, you will not be able to think about the maximization of profit. You will not be able to do certain things. Of course, Keith Hoskin who reminded me how double entry cannot be an Italian invention, because the Italians did not have zero in their numbers. So it needs to be an Indian, Persian, or an Arab invention. These things had an agency. The structure of the data visualization, the structure of the income statement is not a neutral, banal technique. It embeds certain forms of seeing societies, certain forms of seeing the world, certain forms of seeing the economy, and who counts in that economy and what counts in that economy.

Scott Ferguson: That’s so fascinating. It also really defamiliarizes Excel spreadsheets, which is what mediates so much money in our world today. Whenever I hear you talking about and affirming dashboards or accounting visual matrices that walk our eyes around, it makes me think of certain cinema theories, actually. André Bazin, the French film critic and writer from the 30s, 40s, and 50s, he famously argued for the value of a certain kind of cinematic aesthetic that he deemed “realist.” But he didn’t mean it in any kind of positivist sense, he had a kind of a mystical articulation of this aesthetic. And it precisely, for him, asks our eyes to wander about the frame. And even though cinema is based on photography, and photography on the camera obscura, and these kinds of optics that go back to Renaissance perspective and before that have a tendency to focus us in a very monocular way, even using, to go back to your example, what we account for, what we say it is, isn’t necessarily all that it is. What Bazin is doing is he’s telling us that this monocular, single perspectival technology actually can be non-identical to itself and can produce a different relationship to the world, to visuality, etc. It just strikes me that there’s probably a lot more work to be done interdisciplinarily thinking about the history of art, the history of different media, how they’re used, and what that might mean for accounting and vice versa.

Paolo Quattrone: Absolutely. Also, a couple of things come to mind about what you just said, Scott. One is that in pre-modern times, let’s say in early modern times, you would use numbers to reduce the complexity and interrogate what cannot be actually seen by and through the numbers. While with modernity, we stopped at the moment of reduction. So we believe that what the numbers tell us is actually the truth. We forget that by focusing on certain targets rather than others, I see only certain things and not others. So it misses the second point of that rhetorical technique, which is reduction argumentation.

Historically, and also, in genealogical terms, if we look at all the business visualizations, or most of the business visualizations, that are used nowadays, you mentioned Excel, Excel is a rhetorical grid. It was a rhetorical machine, una machina rhetorica, because in the Latin machina means “crane.” So that is the way in which you build and rebuild knowledge. The basketwork is a rhetorical wheel. This is why I guess in English you say, “reinventing the wheel.” Because all of these things were not there to represent things; they were there to make you invent new things. They were not there to focus on what you can see, but to make you focus on what you cannot see, what you have to speculate about.

If you’ve got time, it is up to you, we can pick this up later if you want. The example of the grid is fantastic. Because if you’re a good orator and you’re paid well because you speak well in public, you may accept to speak in public even for things that you do not know very well. So the good rhetoricians, they had a series of techniques to organize their speeches. And there were all these visualizations that we use nowadays. So the grid, the modern version would be Excel, rhetorical wheel, balanced scorecard, Instagram, and things like that. But the grid is very interesting, because the idea was, let’s assume that I have to give a talk about something that I do not know. Okay, whatever, so the unknown. I have to deal with the unknown, with the mystery of the object. Let’s assume it’s this iPhone, and I know very little about this iPhone. So what was the rule? The first one is to take a piece of paper and write a certain line vertically, and horizontally, and then assign to each of these lines a grammatical value. So who, what, when, why, whether, how, and so forth and so on.

Then, take the object, the topic of your conversation, okay. Make it float above the grid, and then you start to interrogate the unknown. You say, “Who built this? Apple.” Okay, then you take note, and write Apple. “When is it used? In how many different ways?” Then, “Why is it used?” God knows, for many different reasons. “How is it used?” In many different ways, and you take notes, you start to interrogate the unknown and start to build your speech,

Then, the third rule was be careful, never let the object fall into one of the cells, into one of the places, or into one of the topics there. Because otherwise, this becomes a commonplace. You believe that this is actually a phone, you lose the opportunity to understand that this is actually not just the phone. To understand this technology, which everyone has got in his or her pocket, it’s much better to think in negative terms. Again, this is not a phone, this is a bank, this is a cinema, this is a camera, this is a church, this a square, this is a matching agency. It’s whatever you want this to be, to become, but never let it fall into the grid because otherwise this becomes a commonplace.

What do we do nowadays? We concentrate on the numbers which are on the grid rather than using those numbers to interrogate what cannot be representing the grid. This goes back to this idea on means and ends. The Jesuits said very clearly that accounting has always said very clearly that you use numbers, the means, to interrogate the ends. It’s when means and ends become the same thing that it’s the end of the world. In a sense, it is when the means becomes an end in itself, when speculation becomes speculation. “I want to make money,” that is my end. So means and ends began isomorphic, and that is the end of the world. And I say that is the end of the world because you mentioned that film director and I mentioned another film director, which is Paolo Sorrentino and his film on Giulio Andreotti. At the end, there is a wonderful monologue in that film. If you’re not familiar with Sorrentino’s films, he won the Oscar a few years ago.

But in many of his films, he interrogates the mystery, the mystery of power, beauty, love, and the mystery of life. And at the end of Il divo, there’s this wonderful monologue. Andreotti is the most important Italian politician of the 20th century. He has been charged with all kinds of crimes including being a partner with the mafia and having asked people to kill some of his friends as well, like Aldo Moro. At the end of this monologue, he calls all these people that he asked to be killed, and he says, “Aldo, Carloberto…” All of these people who are in love with truth, they don’t understand that truth is not the end of the world. If you believe in truth, if you believe that that target is truth, that it is the end of the world, then there is no room for mediation, there is no space for discussion. This is why I teach my students to forget about alignment. Alignment is epistemologically, politically, and practically impossible. What you need is tension. What you need is to use rhetoric to create opposites and explore the ambiguity of what is in the in-between. That brings wisdom. The rest brings, I would say, atrocity.

Maxximilian Seijo: It’s really remarkable how you draw out this rhetorical, logical and analytical schema with means-ends. And it reminds me, to sort of make the connection that I think is already hovering there and make it explicit for our listeners, of the way throughout the history of economics people study money. There’s the sense in which the vast majority of it is the study of the commodity that represents money. And it’s the way that it behaves within a system. We could look to Marx and Smith and a lot of others, especially in the classical tradition, who do this. But in some sense, in studying the object of money, even if you know it goes beyond gold, as such an object without letting it hover over the grid, as you said, by “submerging it into the fixity of that systemic process,” you perform that means-ends analytical structure. But not just at the level of diagnosing the fact that money becomes the means and the ends at the same time. But in the sense of, in how to fix the problem of money becoming means and ends at the same time, you submerge money analytically into that status. So that doesn’t allow for an alternative reprocessing of the accounting medium of money in that particular logical schema. And I think it’s just so fascinating how you, in such a lucid way, put that together as a matter of rhetorical argumentation.

Scott Ferguson: I’ll just piggyback here and say that, I think, for us on this show, and the work we do as scholars and public intellectuals, I think we have a different understanding of what Marxism calls “reification.” We see money as being reified and we make criticisms of how Marxist analyses often don’t interrogate their own reifications of monetary mediation and as accounting. And your work helps, I think, flesh out a language that is new to us and really helpful and illuminating.

Paolo Quattrone: I hope it does. But that means and ends separation and tension, for me, it’s a really important thing to wisdom. Because what it does is to ensure that you never reify things. So that reduction is what we have talked about during the whole of this chat. In order to avoid that reduction, you need to make sure that means and ends are always separated. I have another TEDx talk where I talk about my college at Oxford. I didn’t study at Oxford, I was employed by them. So it was a lecture in accounting at Saïd Business School and Christchurch. And it’s interesting how the layout of the room where the governing body in Christchurch, it’s telling, of how that basically still medieval institution defines good governance. You have the seat of the Dean. There are some signposts so the Dean always sits in the same seats. The Dean is appointed by the Monarch who was chosen by God. That is the idea. So the Dean is the spokesperson for celestial matters and wisdom, and who sits opposite to the Dean in a clear opposition is the Treasurer.

The Treasurer, the person who deals with dirty stuff, money. Because the Treasury is the means. And the Dean is the spokesperson for the purpose and the end of that institution. It is in that space between the two that they have to find that compromise–compromise, another wonderful word. And the college collapses in a sense, either when there is no dialogue between the two or when the two collude. The college would go bankrupt if you pursue your ends without thinking about your means. You would be corrupt if you pursue your means, so if you pursue money, but not the celestial matters that bring us close to institutions. This is why, for instance, universities are losing their power, because it’s all about money. So it’s not about education. It’s not about the role of the university in keeping democracies together, or in keeping the nation-state together. It’s all about making money. The moment in which money is no longer a means to pursue a bigger and greater end, then institutions collapse. When you have states where the Treasury is much more powerful than the other departments, then the state and democracy is at risk.

Maxximilian Seijo: I think moving now to perhaps a case study, which you sort of already gestured at a little bit there, in your work, you talk about how accounting is vital for governance in the sense that you just explicated. Specifically, in one instance, you study the history of the IRI, or the Italian Institute for Industrial Reconstruction, which served as an administrative arm of the Marshall Plan. And as you suggest, it underwrote the mid century period of prosperity known as “La Dolce Vita.” So for our listeners, could you perhaps say what is the IRI’s history? How did it approach planning and budgeting? And how did IRI’s approach to “rationality” conflict with the ideology of profit maximization promulgated by the United States?

Paolo Quattrone: So IRI first of all was established by Mussolini during the fascist regime in 1933. But then, before the war, he changed its mission. It was set up for saving the banking system, or restructuring the banking system, after the crisis of 1929. But then he changed its nature and it became an instrument of industrial policy for the fascist regime. Already in 1940, the Vatican understood that Mussolini entering the war was a big mistake. And they started to understand what they had to do in order to build what came after the fall of Mussolini. And IRI was particularly important in this strategy also, because quite a few leaders of IRI in the 40s were very strong Catholics, and in particular a couple of guys, Pasquale Saraceno was a professor of Industrial Economics in Bocconi University in Milan. Also, Sergio Paronetto was an adviser to the Vatican, to Einaudi, and a very close friend of Giovanni Battista who then became Pope Paul the Sixth.

So when Italy gets out of the Civil War, which followed the end of the Second World War, the Americans come to Europe and come to Italy and tell the Italians, “Okay, we will give you money. But we will also help you to turn the companies that you have, and then sell them on the market. And in order to do that, we will also give you accounting and business techniques and knowledge.” The idea was to add efficiency as the main criteria for the allocation of resources. So this is the Marshall plan. Now, if they followed efficiency as a criterion for the allocation of the resources of the Marshall Plan, all of the resources in Italy would have been invested in Lombardy, which was the very industrialized region of the North. But the people of the country at that time were Catholics. The Vatican understood in 1940 that things would have not played well for the fascist regime. They started to organize a series of meetings where the Catholic intelligentsia met to define the contours of what would have been a modern social democracy. People like Aldo Moro, Giulio Andreotti, Paronetto, Saraceno, Ezio Vanoni, and some others started to meet in Paronetto’s house, Via Reno.

Then, after a few years, they issued that code to a what’s called the “Camaldoli code.” In the Camaldoli code, they defined what a good Catholic would have done. They were the principles to drive the good Catholic. The core principle of that code, of the Camaldoli code, was the idea of “common good.” So in everything that you do, if you’re an accountant, if you’re a lawyer, if you’re a politician, if you’re an administrator, you have to pursue the common good. But they define the common good in a very interesting way. Because it was defined in this very ambiguous way where the common good was the series of conditions that allow individuals to pursue their personal interests. So in pursuit of the common good, inevitably, you have to compromise and you have to mediate with others. You have to allow the others to pursue their individual interests, which means that you have to constrain yours, but the others had to constrain there’s for you to pursue yours. That was the basis for the typical Catholic mediation and compromising attitude.

Now, they managed to translate that into accounting terms, because as I said before, the Americans came and said, “Okay, we give you the money with the Marshall Plan, but we also give you instruments and techniques through which you can make this money work.” Not lastly, principles like efficiency, but also accounting techniques to measure this efficiency and to pursue this efficiency. The Italians of that time were a bit smarter than the Italians that we have recently, I would say. And they said, “Hmm, that is not what we like.” Because an income statement where you have profits and dividends at the bottom line, it’s indeed a political statement that tells you that the most important institution in the economy and society is the corporation and the shareholder. For us, the most important issue is the family and possibly what drives our activity is not profit or efficiency, but common good.

So after a few years of negotiation, they managed to tame the Americans. And towards the end of the 50s, they started to define planning and budgeting not based on the idea of profit, but based on the idea of value added. So how value is produced is by selling goods and services and then acquiring raw material and basic production factors that creates a bunch of, or a basket if you like, of value. And that value then is distributed amongst the equals, including the workers. Interestingly, you see how we got back to the idea of the account being a space for social interaction. The worker in this new format of the income statement is no longer a resource to be utilized, but is actually a resource to be remunerated in the same way in which capital is. It’s an interesting story because the people who came out with this form of budgeting, not only for IRI, but also for the state, were Pasquale Saraceno, a professor of Bocconi, Paronetto and Ezio Vanoni. Three people from the same village in the north of Italy, Morbegno, all relatives.

So Saraceno was married to Vanoni’s sister, and Vanoni and Paronetto were relatives. Vanoni became Minister of Finance and he organized planning and budgeting based on value added at the national level. Saraceno had various roles within IRI and he was called the architect of the planning era within IRI. That planning was organized according to the idea of value added so that value added could work all the way up and down, from the state down to the subsidiary where it was owned by one of their holdings that IRI was made of. IRI was also an interesting solution, an interesting model that was apparently copied in many other countries, because the holding was a public holding, so full in the end of this of the state, but the subsidiaries operate in the market.

Again, you have that need to balance a trade off between the need for pursuing profit and efficiency but also the need for pursuing social equality and welfare. The two things add to balance. That is the key to wisdom. So being Catholic, these people understood it very well and they reached a compromise. And it is since the very beginning of this chat that I wanted to tell you the etymology of the word compromise. It is compromisum, or “with the promise.” The com means “with” and “promisum” means “promise.” So with the promise that eventually we will agree, but we know that we can never be aligned, that is impossible, and it’s actually counterproductive. It’s much better to be misaligned and have an instrument of mediation. The key instrument of mediation in contemporary times, or in financial times as the newspaper would say, is indeed accounting.

Scott Ferguson: You have this lovely way of painting the picture of “La Dolce Vita,” this mid century prosperity moment. Maybe you can, for our listeners who know nothing about the history of Italy and what was happening, what was it like? What was it like to really benefit from this?

Paolo Quattrone: In relation to this, there’s a five or six volume of the history of IRI that we have a chapter in. There is also a chapter that begins in this way to give you an idea of how important IRI was, and then I’ll give you some anecdotes on what the 50s, 60s and possibly the early 70s allowed. So the story of that chapter begins in this way. If in the 60s you were a tourist and wanted to go to Italy or you wanted to travel to Italy, you would fly there or you would take a boat. If you fly, you would possibly go with Alitalia, which by the way now has disappeared. With Alitalia, my friend told me, “Paolo, do you know what Alitalia stands for? It stands for ‘Always late in taking off, always late in approaching.’”

So you would fly with Alitalia or you would take one of the wonderful transatlantic boats, the Michelangelo. Alitalia was owned by IRI. Michelangelo was built by Fincantieri, and it was owned by IRI. Then, you’d get to the airport or the port. You’d rent an Alfa Romeo Duetto, which was then owned by IRI. Then, you’d take the first and longest motorway in Europe that was built by Autostrada. Autostrada was owned by IRI. Then, you get to Milan. And after having survived Italian traffic, you’d get to your hotel, you’d make a phone call with SIP. SIP was owned by IRI. And things started to become a bit complicated in terms of striking a good compromise when you’d go downstairs to buy a Panettone, the typical Christmas cake in Milan and Malta. The manufacturer was also owned by IRI. So IRI exporting became too big to be managed. The history, I don’t know, I was not there. I can tell you that Italy during the 50s and 60s must have been an interesting country. First of all, it allowed a lot of social mobility. My grandmother was born in 1900. She only did the first three classes of the elementary school. I began in the faculty at Oxford in the span of two generations. My mother didn’t have a high school qualification. She stopped after the second cycle of school. I made it into Oxford.

The sisters, no, her brothers all became doctors, lawyers, very successful entrepreneurs in the span of one generation. We had a wonderful system of state schools in Italy. And for me, that is “La Dolce Vita,” the fact that you can actually aspire to a better life while enjoying yourself rather than putting effort into what you do. I think that is gone somehow in Italy. Okay, I would say that the state schools are still good, but you have this emergence of private English speaking schools. Because the idea is that your kids will not find a job in Italy and that they will have to be ready for the international market. That is a bit sad, it is no longer dolce. It’s actually quite bitter, I would say. Dolce means sweet in Italian.

Maxximilian Seijo: So before we wrap up, we wanted to perhaps speculate a little, to use your refrain there, about Modern Monetary Theory, which as listeners will know is what is the sort of guiding framework for this podcast. While recognizing you’re no MMT expert, I do want to go through some of the assumptions and then see perhaps if we can reflect on them. So for MMT, money is not private, or a finite chit of circulating value which governments can tax or borrow away from the private sector. It’s a political and thus public system of accounting, credit and debt, in which private firms variously participate. So on MMTs analysis, money’s “futurity” is not flatly predicated upon inert past data in the form of receipts or revenue. Money’s “futurity” then derives from mobilizing accounting practices, as we’ve discussed, to create new credit and debt relations endogenously in response to shifting circumstances, perhaps different ends that we might want to pursue. So for us, this is where MMT as an economic discourse stops, and your work precisely begins. What we’ve said is how much we appreciate that your work gives us this rich and non-positivist language for reimagining money as endogenous accounting. We’re wondering if you could reflect on that and perhaps talk about how you see accounting and going forward as a discipline but also a practice for pursuing just ends?

Paolo Quattrone: First of all, let me say I’m not an expert in MMT, although I do know where you’re coming from. I would say, yeah, definitely money is not a finite resource. The beauty of double entry bookkeeping since the Middle Ages is that you can create money with a stroke of a pen. I’m actually quite surprised that there is all of this enthusiasm about blockchain to create new money. Creating money was so simple with double entry that you did not need all of this fancy technology, costly and environmentally unfriendly, to create. You can create it in a much, much easier way if you have strong institutions that make sure that relationships are managed wisely.

Then, it goes back to the point that we’ve been discussing for this entire chat: it’s means and ends. I guess that if you treat money as a scarce resource, it becomes an end in itself. If instead it is a means that you can create as, in fact, it happens in banks–banks create money with a stroke of a pen, with the financial multiplier–if you instead think of money as a means to pursue different ends, then the issue is to make sure that you balance the two things and you do not create too much money and too little money. And it depends on what you want to do.

But of course, that requires a strong governance around this relationship between the creation of money and the use of money. At the moment, I don’t see that happening. I don’t see that happening at the state level. I don’t see that happening at the company level. I don’t see that happening anywhere. I don’t see that happening in any kind of modern institution, which led to a century of prosperity, at least in the Western world. So I think there is a lot of work to be done. Maybe we can have another chat on the reform of the auditing profession and the need to rethink the relationship between auditors and auditing, because that is also part of the lack of proper institutional arrangements to make sure that this relationship between means and ends is governed properly.

Scott Ferguson: Absolutely. One final thought that I am curious if you would want to reflect on with us is you draw on this word and this notion of balance a lot. And this is the promise of ratio in its deepest, genealogical sense. But in the predominant discourse around governance, we hear a lot about balance, we hear a lot about balancing budgets and balancing state budgets. And this becomes the foundation, the unquestioned foundation, for bad governance, for austerity, for destitution, for systemic abandonment and exclusion. So I was wondering, if you have thoughts about these two different understandings of balance. Because I don’t think that that’s what you mean when you talk about the rhetorical machine of the grid allowing for a kind of balance.

Paolo Quattrone: Now, as I said before, it is the same word, speculation, it is the same technique, double entry, but it is for completely different reasons. So the balance does not have to be done in the interest of money. The balance has to be done in the interest of the various interests that rotate around the idea of money. If you reduce everything to money, then that is not balanced. It’s a reduction. I don’t know whether that helps, Scott. Money and finances are one of the different interests that need to be balanced. It’s not the thing in which the balance has to be achieved or pursued. So that is, I believe, what makes the difference between the contemporary forms of governance that are based on that equilibrium and the medieval forms of governance that were based on balance. Balance was a much more poly-focal, poly-vocal issue than to be made or be pursued in the interest of one thing only, which is financial capital.

Scott Ferguson: I think with that, we’re going to close out this beautiful discussion. Thank you, Professor Quattrone for joining us on Money on the Left.

Paolo Qauttrone: Thank you Scott, thank you Maxx. Thanks also for the wonderful pronunciation of my surname.

Scott Ferguson: We try, we try.

Paolo Qauttrone: Okay thank you guys. Perfect.


“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 1:45 am

Just finished reading this mind blower.

double-entry.jpg


https://www.janegleesonwhite.com/double

DOUBLE ENTRY: HOW THE MERCHANTS OF VENICE CREATED MODERN FINANCE

Jane Gleeson-White
Allen & Unwin (2011)

The rise and metamorphosis of double-entry bookkeeping is one of history’s best kept secrets and most important untold tales. :shock:

The internationally acclaimed Double Entry tells for the first time the extraordinary story of accounting, which began in Mesopotamia around 7,000 BC and continues today in the aftermath of the 2008 global financial crash and ongoing ecological crises.

Our world is governed by the numbers generated by the accounts of nations and corporations. We depend upon these numbers to direct our governments, organisations, economies, societies. But where did they come from - and how did they become so powerful?

The answer to these questions begins in the Dark Ages, with the emergence in northern Italy of a new form of accounting called double-entry bookkeeping. The story of double entry reaches from the Crusades through the Renaissance to the factories of industrial Britain and the policymakers of the Great Depression and the Second World War. At its heart stands a Renaissance monk, mathematician and magician, and his celebrated treatise for merchants. With double entry came the wealth and cultural efflorescence that was the Renaissance, a new scientific worldview, and a new economic system: capitalism.

Over the past one hundred years accounting has flourished to an astonishing degree, despite the many scandals it has left in its wake. The figures double entry generates have become a sophisticated system of numbers which in the twenty-first century rules the global economy, manipulated by governments, financial institutions and the quant nerds of Wall Street.

And the story of double entry is still unfolding - because today many believe it might be our last hope for life on earth.



Highly recommended.
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 2:10 am

This blog post by Stephanie Kelton, with videos from the Jon Stewart/Thomas Hoenig interview being discussed, tries to get to the heart of Stewart's frustration & confusion over how money works and why money can't work in some kind of better way.

https://stephaniekelton.substack.com/p/ ... t-a-monkey

Jon Stewart Is Not a Monkey
But this was bananas

Last week, Jon Stewart recorded a podcast with the former President of the Federal Reserve Bank of Kansas City, Thomas Hoenig. The conversation drew a lot of attention on so-called “finance twitter” (#FinTwit), where lots of folks piled on to ridicule Hoenig for arguing that monetary policy has been a major driver of inequality over the last decade or so. But the part of the conversation that really went viral had to do with money—where it comes from—and government debt.

This mashup of their conversation is making the rounds on Facebook.


So, Stewart invited Kelton and Grey onto his show to talk; there's a teaser on Twitter, I guess the full show will be out any day.
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Re: Modern Monetary Theory

Postby Elvis » Sun Feb 20, 2022 3:53 am

Posted in the Blockchain/Digital Currency as part of 'The Great Reset' thread as well.


https://metacpc.org/en/crypto-blockchain/

Crypto, the Left, and Techno-Feudalism
Yanis Varoufakis & Evgeny Morozov in dialogue

Rare is the person who could expertly comment – in a single interview! – on the rise of NFTs and their origins in the virtual worlds of gaming, the logic of the emerging regime of techno-feudalism, and the folly of El Salvador’s Bitcoin-heavy negotiating tactics with the IMF. Luckily, we have found this person in Yanis Varoufakis, the prominent economist, politician, and public intellectual, who is also former Greek finance minister. Yanis was kind enough to grant us an extensive interview, which provides a panoramic (and, at times, rather critical) view of what is going at the intersection of money, macroeconomics, and the digital.

~ Evgeny Morozov




[Morozov] In the early 2010s, before your stint in the Greek government, you worked as economist-in-residence for Valve, a prominent gaming company. In what ways were your skills as an economics expert in game theory useful for dissecting the economics of virtual worlds? And, in turn, what kinds of insights, if any, on the inner workings of the real economy did you gain through that experience?


[Varoufakis] Ten years ago, the metaverse was already up and running within gaming communities. Valve’s games had already spawned economies so large that Valve was both excited and spooked. Some digital assets that had previously been distributed for free (via the game’s drops) began to trade for tens of thousands of dollars on eBay, well before anyone had thought of NFTs.

What if the prices of these spontaneously lucrative items and activities were to crash? That was what kept the people at Valve awake at night. You can see this from the email with which I was approached: ‘I have been following your blog for a while… Here at my company we were discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments, when it occurred to me “this is Germany and Greece”, a thought that wouldn’t have occurred to me without having followed your blog’.

My reasons for getting involved were many. One was the prospect of studying an economy as an omniscient researcher: Since I would have access to the full data set in real time, I did not need statistics! Another was the lure of playing ‘god’; i.e. being able to do with these digital economies things that no economist can do in the ‘real’ world, e.g. alter rules, prices, and quantities to see what happens. Another objective was to forge empirically supported narratives that transcend the border separating the ‘real’ from the digital economies.

What did I learn back then? The key insight was that observed behaviour utterly demolished some key neoliberal fantasies: Barter does not give way to sound money, in the form of some digital gold simulacrum. (Nb. We established that various goods/items vie for dominance as numeraires, without ever dominating.) Selflessness is always present (evidenced by substantial doubly anonymous gifting). Social relations emerge (even in these faceless digital worlds) which then ‘infect’ prices and quantities in a manner that bears little connection to the neoliberal view of exchange values formed in a political and moral vacuum.

Today, a decade later, it is clear that gaming communities like the one I studied at Valve have been operating as fully-fledged metaverses (to use Zuckerberg’s term). Gamers were drawn to them by the game but, once ‘inside’, they stayed to live out a large part of their life, making friends, producing goods for sale, consuming entertainment, debating, etc. Zuckerberg’s ambition is to insert his billions of Facebook non-gamer users into a Steam-like digital social economy – complete with a top-down platform currency that he controls. How can I resist the parallelism with a digital fiefdom in which Zuckerberg dreams of being the techno-lord?


NFTs are all the rage these days. Their rapid rise can be traced to CryptoKitties, a blockchain-based computer game that took off in 2017. There are now also many gamers who oppose NFTs and the rather problematic ideas of ownership that they embed. Was something like NFTs already on the horizon during your time at Valve? Do you think that NFTs will change our ideas about ownership, scarcity, and remuneration in ways that might be of help to the broader progressive project? This, at any rate, is the belief of some advocating for Web3.

Hats in TF2! Team Fortress 2 (or TF2) players were obsessed with digital hats. Initially part of free drops, some hats that were discontinued later became collectibles. Players began bartering within the game (e.g. I will give you two laser guns for this one hat of yours). Then, when the demand for some hat rose sufficiently, the players would step out of the game, meet up on eBay, trade the hat for (sometimes) thousands of dollars, before, finally, returning to the game where the vendor would hand the hat over to the buyer. Note the unbelievable levels of trust between strangers this transaction involved: the vendor could have walked away with both the money and the hat. Valve decided to reduce the need for so much trust, cut eBay out, and make a neat profit too by creating trading rooms within the game (i.e. create an in-game market for digital items owned and supervised by Valve).

NFTs differ in two respects from digital assets like the hats in TF2: The blockchain cuts out the company (e.g. Valve). And it allows the digital asset to emigrate from the game/realm that spawned it to any other digital realm.

Do I think that NFTs have subversive potential? Let’s see. In a digital environment, NFTs are like all other commodities. They reflect the triumph of exchange value (with which capitalism trounced experiential or use value) within a metaverse (Valve-like or Zuckerberg-style). In that sense, NFTs offer nothing new within digital worlds, except perhaps that they turbocharge the ideology of capitalism (exchange value rules supreme). In the analogue world, NFTs have value only to the extent that bragging rights offer utility to those who care for them. Even though in so doing, they force outfits like Sotheby’s and Christie’s (which used to monopolise the trade in bragging rights) to change their ways, NFTs in no way subverts the structure of property rights creating and underpinning the oligarchy’s exorbitant power over the many.

So, no, I see little radical potential from NFTs. Having said that, a good, future, liberal techno-communist society may find ways of using them as part of a broad network of technologies helping us keep records of our identities, property, etc.


Much has been made of the fact that in some countries of the Global South (e.g. the Philippines) blockchain-based games like Axie Infinity are creating a parallel economy, allowing players to redeem virtual tokens – their value has recently skyrocketed – in fiat money. The founder of Reddit, for one, has recently argued that all future games will follow this play-to-earn model, adding that ‘90% of people will not play a game unless they are being properly valued for that time’. What are we to make of this? Is it yet another dystopia of global capitalism? Or is it a minor improvement from sweatshop labor, perhaps, the consequence of the global pandemic keeping many people stuck at home playing games?

When I worked with Valve, ten years ago, there were thousands of young people in China, in Kazakhstan, and elsewhere making a mint out of providing services to members of Valve’s gaming communities. Gifted players made good money paid by other players keen to watch them play. So, there is nothing new to the idea of a parallel economy that allows people in poorer countries or regions to earn as they play, or from offering in-game services.

Was that a good or a bad thing? Of course, it was good for a young person in Shenzhen who managed to earn $60k a year designing digital hats on his PC – instead of destroying his body in a sweatshop. The question, however, is: Could all workers in Shenzhen (and beyond) be rescued from sweatshops by migrating to a metaverse? The answer is: Not before we have robots working for all of us so that we can reproduce the material conditions of our lives. As long as we do not have these mechanical slaves catering for humanity as a whole (and not just producing commodities owned by the 1% of the 1%), the idea that people must now play like robots to earn a living so as to be human in their spare time is, indeed, the apotheosis of misanthropy.


One of your critiques of Bitcoin as a currency (which you clearly state it is not and cannot be) is that it limits policy space available, such that, when there is a pandemic, it won’t be possible to increase the money supply. I suppose this also covers ‘printing money’, with all of the perverse consequences of QE that you yourself have documented elsewhere. Wouldn’t the Bitcoin maximalists be at least coherent in arguing that this inability to print money is a feature, not a bug, of the system?

When ‘Bitcoin maximalists’, as you call them, wax lyrical about the inability to print money (and celebrate this inability as Bitcoin’s feature, rather than its bug), they are being terribly unoriginal – banal, I dare say. Capitalism nearly died in 1929, and tens of millions did die in the war that ensued, because of this toxic fallacy that underpinned the Gold Standard then and Bitcoin now. Which fallacy? The fallacy of composition, as John Maynard Keynes called it.

Its essence is a tendency to extrapolate from the personal realm to the macroeconomic one. To say that if something is good for me – if a practice is sound at the level of my family, business, etc. – it must also be good for the state, government, humanity at large. For example, yes, parsimony is a good thing for me, personally. If I can’t make ends meet, I need to tighten my belt; otherwise, I shall sink more and more into debt. However, the exact opposite holds for a macroeconomy: If, in the midst of a recession, the government tries to tighten its belt as a means of eliminating its budget deficit, then public expenditure will decline at a time of falling private expenditure. And since the sum of private and public expenditure equals aggregate income, the government will be – inadvertently – magnifying the recession and, yes, its own deficit (as government revenues fall). This is an example of one thing (belt-tightening) being good at the micro-level and catastrophic at the macro level.

Similarly with gold, Bitcoin, and all other ‘things’ of exchange value: If you have gold, it is good for you if its supply is limited, fixed if possible. Same with Bitcoin, silver, dollars. (Nb. It is why the rich and powerful traditionally opposed expansionary monetary policy, crying ‘hyperinflation’ at the drop of a hat.) So, yes, if you are invested in Bitcoin, or for some reason you are elated every time its dollar exchange rate rises, you have every reason to think that its algorithmically fixed supply is a good thing, a feature. But, there is a price for that: A fixed money supply translates into a deflationary dynamic which, in a system prone to under-employing its people and under-investing in things society needs (i.e. capitalism), is a catastrophe in the making.

The Gold Standard is, indeed, a great source of insight into how dangerously primitive Bitcoin maximalist thinking is. Suppose Bitcoin were to take over from fiat currencies. What would banks do? They would lend in Bitcoin, of course. This means that overdraft facilities would emerge allowing lenders to buy goods and services with Bitcoins that do not yet exist. What would governments do? At moments of stress, they would have to issue units of account linked to Bitcoin (as they did under the Gold Exchange Standard during the interwar period). All this private and public liquidity would cause a boom period before, inevitably, the crash comes. And then, with millions of people wrecked, governments and banks would have to abandon Bitcoin. In short, just like gold, Bitcoin is eminently… abandonable (once it has done enormous damage). Put differently, either Bitcoin will never take over from fiat money or, if it does, it will cause huge unnecessary pain (before being abandoned).


What about other crypto-currencies, though, which do allow for very sophisticated operations and incentive structures, including algorithmically programmed demurrage? Would they be closer to being defined as currencies?

No, that will not work either. The problem with Bitcoin is not just its fixed supply. It is the presumption that the rate of change of the money supply can be predicted and foreshadowed within any algorithm. That the money supply can be de-politicised. So, it is not a question of how sophisticated and complex the algorithm is. It is, rather, that a purely political, unknowable, process can never, ever, be captured by an algorithm. It cannot and, therefore, it should not.


Because of the growing interest in Ethereum, there has been a strange resurgence of interest in mechanism design and game theory among the crypto-community; some papers on crypto-economics proudly cite Leonid Hurwicz and Oskar Lange. If one studies this nascent discipline a bit closer, however, one is struck by its choice of focus: microeconomics is everywhere but macroeconomics – save for some Austrian critiques of fiat money – is nowhere, not even in the orthodox Samuelson version.

You put your finger on the nail. This is, again, the fallacy of composition: imagining that what works for you must work for society at large; that what makes sense in the micro-world makes sense in the macro one too. Crypto-enthusiasts with strong views on money, in this sense, fall under the category of people best described by Keynes as ‘resembling Euclidean geometers in a non-Euclidean world’. Keynes was referring to classical economists who thought of money as a commodity, as a thing. The crypto-monetarists are repeating the same conceptual error.

From the very early days – i.e. the early 2010s – you have been arguing that ‘blockchain is a fantastic solution to the problem we have not yet discovered. But it is not the solution to the problem of money’. But are we that ignorant? One could say that the blockchain, as a project inspired by the cypherpunk ideology, has always been a solution to the problem of the state: it promises to take the state out of domains as diverse as law (with the rise of smart contracts) or arts funding (with the fractionalization of ownership through NFTs) or, most obviously, central banking (with its critique of fiat money).

To think that Bitcoin can solve the problem of money, or the problem of the state, is to misunderstand what money is or what states do. Every exploitative socio-economic system is predicated on what the minority running it can make the rest do for them (who does what to whom, as Lenin famously put it). Money and the state are epiphenomena of this system. To believe that you can fix money, or that you can fix the state, is to demonstrate a devastating innocence regarding the larger exploitative system with which they are integrated. No smart contract can, for example, subvert the labour contracts that underpin society’s layered patterns of exploitation. No NFT can change an art world where art is a commodity within a universe of commodified people and things. No central bank can serve the interests of the people so long as it is independent of the demos. Yes, blockchain will be useful in societies liberated from the patterned extractive power of the few. However, blockchain will not liberate us. Indeed, any digital service, currency, or good that is built on it within the present system will simply reproduce the present system’s legitimacy.


Assuming you are still upbeat about the blockchain, how do you reconcile this anti-statist bias with what you see as its potential in an emancipated society? What does that potential consist of exactly? Even if one assumes there’s some value in both game theory and mechanism design, what use are they to the progressive project stripped of any macro perspective?

My answer lies in my sci-fi novel, Another Now (in particular, Chapter 6). In it, I present a blueprint of a post-capitalist, non-exploitative social economy. Blockchain features there as a technology used both by central banks and local communities to create a public, distributed ledger for two things: Money, of course. And title leases for properties in a County’s commercial zone (which are on a perpetual auction, the proceeds of which are used to maintain and expand the County’s social zone). From this, you can see that I consider blockchain, and Ethereum-style mechanisms, as technologies that will prove extremely useful once private property in the means of production ends. But, on their own, these technologies will not liberate us from the extractive power of the few.


You have described yourself as an ‘erratic Marxist’, pointing out that you do have strong libertarian tendencies. In Italy, where I’ve been living for quite some time now, there’s, of course, this long-running tradition of Autonomous Marxism, which shares many of these beliefs. It has always been critical of the state and state bureaucracy, with its rigid, centralized ways of organizing society. Now, it seems there is a new promising solution to this age-old problem: DAOs, short for decentralized autonomous organizations, which promise to put transparent algorithmic rules in place of the Weberian charismatic leaders. Do you find anything of value in such new institutional forms? Or do they smack of the same technocratic credo – with its belief that political problems can be solved by designing clever mechanisms and incentives – that they claim to be attacking?

Karl Marx was erratic. He changed his mind all the time, infuriating his friends and comrades. :lol: He wrote furious repudiations of his earlier ideas. And he could not stand those who called themselves… Marxist (e.g. famously saying ‘If they are Marxists, I am not’). So, I described myself as an ‘erratic Marxist’ to signify two things: That I am not dogmatic. And, that I am at odds with those ‘official’ Marxists who seek personal power from a dogmatic custodianship of Marx’s thinking. In fact, I went one step beyond, referring to myself as a ‘libertarian Marxist’ – a self-description that was immediately derided by several libertarians and most Marxists. My reason? Like the anarcho-syndicalists in Spain and the Autonomous Marxists of Italy that you mentioned, I fail to see how one can genuinely cherish freedom and tolerate capitalism. And also: how one could be both illiberal and left-wing.

On the question of DAOs, I must say that I look at them with sympathy. But, again, as with my attitude to the blockchain, I am convinced that these are tools that will very much come in handy once a broad internationalist movement overthrows the oligarchy’s property rights over the means of production (including the cloud servers!). As I try to outline in my Another Now, a digital anarcho-syndicalist future society will use many of these DAO-like tools. But, and this is a gigantic but, DAO-like tools will not bring about this new society in which DAO-like tools are useful. (Nb. We can already see how DAOs are being usurped by regressives and real estate moguls in the United States.)


Observing the crypto space from the sidelines, I get the impression that it has allowed many of the old neoliberal policy ideas to come back. I’m thinking especially about the use of market-based instruments in fighting climate change: all of a sudden, the blockchain promises to revive many of the ideas related to natural ecosystem services, while the rise of often anonymous activist organizations like KlimaDAO has helped boost what was once a languishing market in carbon emissions. As a result, the reputation of the market as a problem-solving device has been restored, even if temporarily. How should progressives react to such developments? Are these crypto-projects, which promise to reverse climate change via finance, occupying the empty activist space that should have been filled by central banks before they got somewhat sidetracked by the advice they are getting from BlackRock? What should the central banks be doing about this green-tech-finance axis?

Precisely my point. In the name of liberating us from moguls, states, and even climate change, crypto zealots are turbocharging the ideology of commodification (i.e. neoliberalism). What should we do? The only thing that will work is: To take over parliaments so as to legislate a corporate law that ends tradeable shares, and introduces the one-share-one-employee principle in its stead. To take over central banks and make them issue digital currencies on a distributed ledger that makes basic income possible. To take over governments and implement personal ownership of our data. In short, no algorithm will remove the need for a genuine revolution.


One of the interesting consequences of the ongoing currency crisis in Turkey has been the growing popularity of stablecoins such as Tether among the Turkish population. This is even more remarkable given that Tether has been rumored to have problems of its own, which many in the crypto community expect to explode sooner or later. Erdoğan’s hands seem to be tied, as Turkish cities brim with ads for crypto services, which are genuinely popular with the local population. You’ve spoken, somewhat dismissively, about stablecoins in the past but how do you see them changing the dynamics of a currency crisis like the one in Turkey? How should the government be reacting to them, if at all?

Bitcoin was, as I claimed earlier, the digital-algorithmic reincarnation of the Gold Standard – supported by the same vacuous arguments and the same underlying oligarchic motives. Stablecoins are yet another reincarnation of yet another primitive, failed idea: the so-called currency board.

The idea behind the Gold Standard was that national currencies gained credibility because their state/central bank gave up the right to print money at will. By fixing the exchange rate of a national currency to the price of gold (e.g. $35 for one ounce of gold), and freely allowing two-way convertibility, it was common knowledge that, if the authorities printed money in total value exceeding the value of the gold in the central bank’s vaults, at some point people holding paper money would demand gold that the central bank did not have.

A currency board (e.g. the system underpinning Bulgaria’s national currency today) is similar in that the central bank fixes the national currency’s exchange rate to equal the average price of a basket of hard currencies. Again, as long as there are no capital controls and the national currency is fully convertible to the hard currencies in the currency board, if the central bank prints more money than is equivalent (under the fixed exchange rate) to its foreign currency reserves, it risks a run on its reserves. As with the Gold Standard, currency boards have proven fragile – at the sign of economic crisis, war, or other types of stress, they are abandoned.

A stablecoin is a currency board with the difference that it applies to a stateless digital currency (like Tether), not a national currency. This means that there is no state to legislate that the system administrators honour the fixed exchange rate; that they not create stablecoins in excess of the value of their reserves, cash them in, and do a runner. In other words, in addition to the inherent instability of currency boards, stablecoins are ripe for fraud.

In conclusion, the fact that stablecoins or Bitcoin itself acquire the aura of saviours in countries hit by inflation, like Turkey, is nothing more than a measure of the desperation of the people: they will clutch at straws. Stablecoins offer Turks no respite from inflation that buying euros or dollars cannot offer. So, why buy Tether instead of dollars or euros? Why rely on the shadowy characters running a private currency board? Only because the latter deploy good marketing to exploit desperate people.


What do you make of China’s recent efforts to rein in both its FinTech market and the crypto industry, as well as to accelerate the development of the e-yuan? Are they an example for Europe and the US to emulate? And if so, what are the elements worth borrowing?

I am immensely impressed by these moves, especially when looked at as a package. The Chinese authorities are, at once: (1) deflating the real estate bubble (by taking down Evergrande, blow-by-blow); (2) aiming to reduce aggregate investment from 50% to 30% of GDP as a precondition for boosting the wage share of GDP; (3) ending the oppressive tutoring system for pupils that crushes young souls without helping nurture creative thinking; (4) sponsoring sci-fi writing and game design; (5) restricting the power of Big Tech; and, last but certainly not least, (6) bringing the digital yuan online.

That last move, the digital yuan, constitutes a revolution: when fully-fledged, it will equip every resident in China, but also anyone from around the world who wants to trade with China, with a digital wallet – a basic digital bank account. In one move, therefore, the commercial banks will have been ‘dis-intermediated’; or, in plain English, they will have lost their monopoly over the payments system. This is genuinely a radical break from finance as we have known it. And, yes, it is one that we should emulate in Europe and in the United States – which is, of course, why Wall Street and the rest of the West’s financiers will do their best to stop it, preferring to blow up the world rather than allow themselves to be… dis-intermediated.


Are you familiar with the plans for the ‘digital dollar’ advanced by the likes of Robert Hockett and Saule Omarova, which, in essence, insist on the need to build a democratically accountable CBDC? How likely do you think the Fed is to implement something like this, especially given how much opposition – including from the crypto industry – there was for Omarova’s nomination to the Biden administration? We have also recently heard from Congressman Tom Emmer, who, while proclaiming that Washington should be building crypto with ‘American characteristics’, wants to prohibit the Fed from any experiments with a CBDC. One of Emmer’s stated reasons for such action was to ‘maintain dollar dominance’. What do you think is behind such proclamations? Do they mean we are likely to see Facebook’s earlier efforts to launch its own stablecoin – now called (ironically) Diem – given an official stamp of approval?

The situation sounds complex but it is very, very simple. Most dollars, pounds, euros, and yen are already digital. The digitisation of money is not the issue. The issue is the monopoly of the payments system. Today, you use digital money (phone apps or plastic cards) to buy a cup of coffee at your local Starbucks. But, to do so, you first need an account with a commercial bank. In other words, to grant you access to digital fiat money, the state forces you to fall into the embrace of the commercial banks.

So, today, the state guarantees a monopoly over payments to commercial banks. And that is only one gift to the oligarchy. A second, even greater gift, is that only commercial banks are allowed to have an account with the central bank. So, when a recession hits, and the central bank decides to stimulate the economy, the central bank lowers the interest rate of the overdraft it grants commercial bankers – who then exploit this to profit from arbitrage (by lending the money on to customers at a higher interest rate). And when the recession gets even worse (as has been the case since 2008 and now with the pandemic), the central bank prints digital dollars or euros and credits them directly into the accounts the commercial banks have with the central bank. This is the definition of exorbitant privilege!

So, this is why Wall Street prefers to see the world explode, time end, or Armageddon arrives, rather than allow the Fed to proceed with the digital dollar: because a digital dollar would mean that every resident in the US, and anyone beyond US borders trading with Americans, will be granted a digital wallet. That would be detrimental to the power of commercial banks. First, because people would no longer be obliged to open a bank account with them (think of all the lost fees!). Secondly, because there will no longer exist a rationale as to why the Fed or the ECB, etc., cannot – when they think they must stimulate the economy – drop helicopter money on everyone. Why credit dollars only to the accounts commercial banks keep at the Fed and not credit the people’s digital wallets directly? Indeed, why give money to commercial banks at all?


One of the persistent critiques of cryptocurrencies like Bitcoin and Ethereum is their immense energy use, which, on the surface, seems like the price to pay for not trusting the state as the arbiter of truth/provider of trust. The solution proposed by the Ethereum Foundation has been to shift from today’s energy-intensive mechanism of Proof of Work to the less environmentally damaging Proof of Stake. Yet, the latter, once you look closely at the details, solves the energy problem by making the entire system more plutocratic, because, in essence, it runs on the principle ‘one dollar (or ether) = one vote’. What makes this crypto-plutocracy tolerable to many of its advocates is their jaded view of today’s financial system, which they see as even more plutocratic and hell-bent on appropriating even more of the bailout money. How does one answer such critiques?

The environmental costs of crypto are very large, undoubtedly. But, even if there existed a magic wand whose waiving would make blockchain run on zero watts, crypto currencies would remain more of a problem than a solution – for reasons I explained above. In brief, within our present oligarchic, exploitative, irrational, and inhuman world system, the rise of crypto applications will only make our society more oligarchic, more exploitative, more irrational, and more inhuman. This is why, in opposing the crypto enthusiasts, I never even bother to mention their environmental repercussions.


If one looks closely at some of the influential crypto projects, they feature a bizarre mix of ideologies. There’s, for example, a very ambitious project called Cosmos – it bills itself as ‘the Internet of blockchains’ – which is set up as a cooperative, an institutional form dear to the heart of many leftists. Yet its co-founder and CEO is a big believer in ‘free banking’, an ideology espoused by many libertarians in the US. Do you think the left has been too slow to make sense of the crypto/digital currency space? It seems that even on an earlier set of issues before crypto – complementary and alternative currencies, for example – there seems to be no coherent leftist position, so that today they can be easily appropriated by the crypto start-ups pushing the tokenization of everything…

The Left, radicals, progressives, etc. have either refused to acknowledge the genuine ingenuity of blockchain or have fallen for it. We seem to have forgotten how Marx and Engels had the nous and the ability, on the one hand, to admire and celebrate the technological and scientific wonders of their era and, on the other hand, grasp that these potentially liberating technologies were bound to enslave the many if they became instrumentalised by the very few. The two Germans believed in the emancipatory potential of the steam engine and of electromagnetism. But, they never believed that society would be liberated by the steam engine and/or electromagnetism. Liberation required a political movement that first overthrows the bourgeoisie and only then presses these magnificent technologies into the service of the many. This seems to me an excellent way of approaching today’s potentially liberating technologies, including blockchain.


You are acquainted with Michel Feher, the Belgian activist-philosopher. I don’t know if you’ve read his Rated Agency, but it does capture many arguments advanced by those who see something politically significant – something to be used by progressive forces – in the structural transformation of global finance associated not only with the rise of crypto but also with the popularity of day-trading apps like Robinhood. At least on the surface, the latter do allow retail investors to pool their efforts together and engage in financial activism that was previously available only to hedge funds (Feher himself had an interesting interpretation of the GameStop saga). I can see this logic working for coordinating divestment campaigns. Yet, apart from crowdfunding for, say, micro-municipal bonds, I can’t yet see a more proactive deployment of such power – except, perhaps, when driven by the desire to ‘stick it’ to the hedge fund industry and spoil their carefully engineered shorting of stocks like GameStop. How do you see this landscape? Is there much value in getting the left to proactively develop some capacities that would allow it to ‘move’ markets?

In Chapter 6 of my Another Now, I imagined how capitalism fell to a variety of techno-rebels who used a mix of financial engineering, worldwide consumer boycotts, and conventional industrial strikes/activism. A year later, I remember receiving calls from US journalists asking me: ‘Are your Crowdshorters in action?’ I was very amused to hear them talk of the Crowdshorters as if they were a real techno-rebel group. Of course, what occasioned the journalists’ questions was the GameStop mini-rebellion that saw millions of small-stake investors take on a couple of vile hedge funds, using the Robinhood platform. So, clearly, I am mightily excited by the idea of a techno-rebellion. If you want to see how I imagine it, on days when hope trumps pessimism, that chapter is my long answer.


You’ve argued against depoliticizing money, which also explains, at least in part, your critical stance on Bitcoin. There have been plans, as you well know, for the digital euro. It would probably be more political than Bitcoin, as it would have a direct connection to the ECB. But as long as the ECB remains seen as a technocratic and apolitical institution, so would the digital euro. You’ve written and spoken extensively about it in the past but what would it mean, in practical terms, to politicize an institution such as the ECB? Stated more broadly, what would keeping the ‘political’ dimension of money in the picture imply in terms of practical politics?

European bankers loathe the idea of a digital euro just as vigorously as Wall Street bankers hate the idea of a digital dollar. It would end their monopoly over payments and make it hard to justify the exclusive umbilical cord connecting them to the printing presses of central banks (see above). What makes the Eurozone special is that it features no Eurozone Treasury, no common debt, no federal decision-making body. This is, lest we forget, a design feature of the Eurozone, one that Europe’s oligarchy adores. Come to think of it, the non-existence of any government with a capacity to transfer substantial wealth from financiers and corporates to the many (not even the German one can do this) is any oligarchy’s wet dream. Why would they want to spoil this triumph either by creating a democratically elected federal government or a digital euro?

But here is an interesting thought: The peoples of Europe have failed to push for a federal democracy in Europe. However, the Chinese central bank digital currency may prove harder to ignore: If a Dutch or German firm that trades with China can acquire a digital wallet from the Chinese central bank, they will most certainly use it. That means that the euro’s dominance will be challenged even within Europe. So, the pressure on the ECB to create a digital euro is enormous. But so is the oligarchy’s counter-pressure to ensure that, even if a digital euro is created, the people of Europe should not be allowed a digital euro wallet with the ECB. In this sense, I anticipate an almighty struggle for the right to a digital ECB wallet that will bring back memories of the struggle for universal franchise.


What do you make of what is going on in El Salvador? Not only has it made Bitcoin legal tender (shortly after announcing the Chivo Wallet with some money placed in it to incentivize use) but it will also be issuing the so-called Volcano Bonds, which have attracted their share of controversy. Is there a way to look at these bonds as a tactic that expands El Salvador’s options in negotiating with the IMF? Based on your own experience negotiating with that institution, do you think they stand any chance of success?

It is a preposterous stunt. For the life of me I cannot even begin to answer those who say to me: ‘Had you, Yanis, adopted Bitcoin back in 2015, all of the Greek people’s problems would have gone away!’ Why would they? The poor of Greece or of El Salvador would have no way to get their hands on Bitcoin anyway. Then the only beneficiaries would be Bitcoin hoarders (of whom very few live in El Salvador or Greece), who suddenly benefit from a spike in Bitcoin demand and from being able to spend their stash in El Salvador without the cost of converting them to dollars. The only poor El Salvadorians who may gain something are the expats sending money home in the form of remittances – people who are, now, fleeced by Western Union and the like.

On Volcano Bonds, this is a dangerous development. A government is inviting speculators to buy cryptocurrency backed by an impoverished state. Early Bitcoin enthusiasts were motivated, partly, by a loathing of governments that took on unsustainable debt – before indulging domestically in financial repression and austerity – in order to be able to extend-and-pretend their debt. The worry was that, at some point, Wall Street and other grubby conventional financiers would start building similar pyramids on… Bitcoin. And, the ultimate fear was that the state would join in. Well, Volcano Bonds are making this nightmare a reality, allowing speculators to speculate on a cryptocurrency using an impoverished sovereign state as backup.

More generally, and lest we forget, El Salvador’s public debt is in dollars, and thus impervious to whether Bitcoin is made legal tender or not. Making Bitcoin legal tender just adds enormous costs on small businesses, and ensures that those who do accept Bitcoin effectively exit the domestic fiscal system – leading to a substantial loss of fiscal space for the government, a development that increases its long term dollar debt burden.

As for the argument that, by adopting Bitcoin, Bitcoin will flood into the country thus boosting investment and giving the government more degrees of freedom vis-à-vis the IMF, again I cannot see the logic here. Bitcoin business moved into the Baltics, Puerto Rico, and elsewhere because of low costs, low taxes, and negligible regulation of their activities. They did not care if the local corner store is forced by law to accept Bitcoin. (In any case, most of these businesses are ultimately using Bitcoin to earn large amounts of… dollars!).

In view of the above, I cannot see why anyone would think that, in making Bitcoin legal tender, the El Salvador government is improving its bargaining position vis-à-vis the IMF. The fact that the IMF is utterly opposed to Bitcoin being granted legal tender status in El Salvador, as well as to its president’s Volcano Bonds, does not mean that the IMF is worried that its bargaining power vis-à-vis the El Salvador government is weakened. Quite the opposite: They predict that the Bitcoin experiment will deplete the El Salvador government’s fiscal space, boost the IMF’s power over El Salvador, but, at the same time, put more pressure on the IMF to commit more bailout funds to a failed El Salvador. After the recent IMF fiasco of huge bailouts to the radically right-wing Macri government in Argentina, it is not something the IMF folks cherish.


You have claimed, in an interview, that there are feudalistic elements to Bitcoin, for there is no democratic mechanism to determine who gets how many Bitcoins, thus favoring the early adopters. Interestingly, you contract feudalism to democracy here rather than to capitalism. Because if you think about capitalist competition – but also all the shady stuff that Marxists tend to lump under ‘primitive accumulation’ – one can easily argue that there’s nothing non-capitalist in what you describe: those who moved in early got the largest share of the pie, while crypto-mining, as it exists today, favors those with larger capital expenditures. Why describe this system as ‘feudalist’ when ‘capitalist’ would do just as well?

Assets, by themselves, are neither feudalist nor capitalist. Whether we are talking about gold, cucumbers, or Bitcoin, assets are assets – end of story. What makes an asset feudal or capitalist or socialist is the manner in which it interacts with a society’s social relations of production, the pattern of property rights it shores up, etc. My point, when referring to Bitcoin’s early adopters as a crypto-aristocracy, as crypto-lords, was that, when an asset like Bitcoin (whose exchange value is built on engineered scarcity) is embedded in any oligarchic exploitative system (capitalism, kleptocracy, techno-feudalism, etc.), it acquires the basic character of the (pre-capitalist) feudal order: a small minority are empowered to collect rents in proportion to the chunks of the asset that they began with. To recap, Bitcoin is neither feudalist nor capitalist per se. It is simply oligarchic.


Recently, you’ve taken up the theme of ‘techno-feudalism’, pointing out that capitalism is no longer what it once was. If I understand your thesis correctly, what makes the current system ‘feudal’ is that A) markets are no longer key to the making of profits (e.g. the QE experience suggests as much), while B) tech platforms have amassed immense political power, which is unprecedented in capitalism. Is it a correct summary of your argument? Are there other important dimensions to ‘techno-feudalism’ that this summary doesn’t capture?

The question is this: Is capitalism undergoing one more of its many metamorphoses, thus warranting nothing more than a new epithet, e.g. rentier capitalism, platform capitalism, hyper-capitalism or xxxxx-capitalism? Or are we witnessing a qualitative transformation of capitalism into a brand new exploitative mode of production? I think the latter. Moreover, this is not just a theoretical issue. If I am right, grasping the radicality of this transformation is crucial to opposing this new systemic exploitation.

Puzzlement is, of course, an understandable reaction to my claim – which needs a great deal of explanation and substantiation. Unable to offer it here in full (Nb. I am dedicating my next book to the subject), here is a flavour:

Capitalism is everywhere we look. Capital is accumulating rapidly and beating labour over the head everywhere and in cruel new ways. So, how come I argue that this is no longer capitalism – but, rather, something worse and distinct? Let me begin by reminding our readers that back in the 1780s, feudalism was everywhere and feudal lords were stronger than ever. However, surreptitiously, capitalism was already infecting feudalism’s roots and a new ruling class (the bourgeoisie) was in the process of taking over.

My claim is that, similarly today, capitalism – like feudalism in the 1780s – is being usurped by a far more exploitative and very distinct new extractive/exploitative system (which I call techno-feudalism), one that is arriving complete with a new ruling class.

Critics of my thesis will point out, correctly, that capitalism has undergone many transformations – from its early competitive phase, to monopoly-oligopoly capitalism (1910–onwards), its Bretton-Woods period (during which finance was kept on a leash with capital controls, etc.), financialised capitalism (from 1980–onwards) and, more recently, rentier capitalism. All these capitalisms were distinct and interestingly different from one another. BUT, they were each a version of capitalism.

What makes a system capitalist? The answer is: It is a system driven by private profits (Nb. not rents) extracted within markets. (To compare and contrast, feudalism was driven by rents extracted outside of markets.) Has that changed? I believe so. What has replaced profit on the one hand and markets on the other? My answer: Central bank money has replaced private profit (as the system’s main fuel and lubricant) and digital fiefdoms/platforms have become the realm in which value and capital are extracted from the majority by a tiny oligarchy.

Let me explain this in greater detail:

Hypothesis 1: Central bank money replaced private profits as the system’s driver

Profitability no longer drives the system-as-a-whole, even though it remains the be-all and end-all for individual entrepreneurs. Consider what happened in London on August 12, 2020. It was the day markets learned that the British economy shrank disastrously – and by far more than analysts had expected (more than 20% of national income had been lost in the first seven months of 2020). Upon hearing the grim news, financiers thought: ‘Great! The Bank of England, panicking, will print even more pounds and channel them to us to buy shares. Time to buy shares!’

This is just one of countless manifestations of a new global reality: In the United States and all over the West, central banks print money that financiers lend to corporations, which then use it to buy back their shares – whose prices are thus decoupled from profits. The new barons, as a result, expand their fiefs, courtesy of state money, even if they never earn a dime of profit! Moreover, they dictate terms on the supposed Sovereign – the central banks that keep them ‘liquid’. While the Fed, for example, prides itself over its power and independence, it is today utterly powerless to stop that which it started in 2008: printing money on behalf of bankers and corporates. Even if the Fed suspects that, in keeping the corporate barons liquid, it is precipitating inflation, it knows that ending the money printing will bring the house down. The terror of causing a bad debt and bankruptcy avalanche makes the Fed a hostage to its own decision to print and ensures that it will continue printing to keep the barons liquid. This has never happened before. Powerful central banks, which today keep the system going singlehandedly, have never wielded so little power. Only under feudalism did the Sovereign feel similarly subservient to its barons, while remaining responsible for keeping the whole edifice together.

Hypothesis 2: Digital platforms are replacing markets

Amazon.com, Facebook, etc. are not markets. As you enter them, you leave capitalism behind. Within these platforms, one algorithm (belonging to one person or to very few persons) decides what is on sale, who sees which commodity is available, and how much rent the owner of the platform will keep from the profits of vassal-capitalists allowed to trade within the platform. In short, more and more economic activity is shifting from markets to digital fiefs. And that’s not all.

During the 20th century, and up to this day, workers in large capitalist oligopolistic firms (like General Electric, Exxon-Mobil, or General Motors) received approximately 80% of the company’s income. Big Tech’s workers do not even collect 1% of their employer’s revenues. This is because paid labour performs only a fraction of the work that Big Tech benefits from. Who performs the bulk of the work? Most of the rest of us! For the first time in history, almost everyone produces for free (often enthusiastically), adding to Big Tech’s capital stock (that is what it means to upload stuff on Facebook or move around while linked to Google Maps). And, moreover, this capital takes a new, far more powerful form (see below, where I talk about command capital).

At the same time, firms operating in normal capitalist markets – outside Big Tech and Big Finance – see their profitability collapse anyway, their dependence on central bank money grow exponentially, and their ownership be gobbled up by private equity and SPACs. Ergo, as feudal social relations of production were on the wane (and replaced by capitalist social relations) in the 1780s, today it is capitalist social relations of production that are being replaced by what I call technofeudal social relations.

Summing up:

Capital is getting stronger but capitalism is dying. A new system is taking over in which a new ruling class owns and runs both the state money that lubricates it (instead of profits) and the new non-market realms in which the very, very few make the many work on their behalf. Capitalist profits (in the sense of the entrepreneurial profits as understood by Adam Smith and Marx) are disappearing, while new forms of rent are accumulating in the accounts of the new techno-lords in control of both the state and the digital fiefs, in which unwaged or precarious work is performed by the masses – who begin to resemble techno-peasants.


A common refrain in arguments about the rise of techno-feudalism is that tech platforms are just passive rentiers who are deriving immense profits from user data for which they pay very little. To put this in the most extreme way possible, these are lazy, mostly immaterial rentiers, who, having amassed a lot of IP, are now resting on their laurels. This reading also informs many of the enthusiastic accounts of Web3, which promise to share data wealth with the users who generated it. Yet, if one looks at the balance sheets and earnings statements of these firms, a different picture emerges: they actually invest more – rather than less – in material and tangible assets than non-tech firms (and more than they themselves did a decade ago), all while incurring immense R&D and capital expenditures (e.g. Amazon’s for 2020 was over $40 billion; Alphabet’s was almost $30 billion). This seems to fit rather well with the view of these firms as capitalist enterprises that, while controlling some markets, still compete in others (Google, Facebook, and Amazon in advertising; Google, Microsoft, Amazon, and Alibaba in cloud computing and AI services). Aren’t we running the risk of minimizing the really-existing capitalist dynamics of this tech economy when we emphasize those related to feudalism?

I agree with you in this sense: Jeff Bezos, Elon Musk, et al. invest massively and are nothing like the lazy aristocrats of the original feudal era. But that does not mean that their investment is part of a standard capitalist dynamic. Techno-feudalism is not merely feudalism with gadgets. It is simultaneously much more advanced than capitalism and reminiscent of feudalism.

Let me be more precise. The massive investment of Big Tech that you mention is crucial. Not just because of its size but, primarily, because of what it produces: a new form of capital that I call command capital. What is command capital?

Standard capital comprises produced means of production. Command capital, in contrast, comprises produced means of organising the means of industrial production. Its owners can extract huge new value without owning the means of industrial production; merely by owning the privatised informational networks that embody command capital.

Command capital, to be more precise, lives on privately owned networks/platforms and has the potential to command those who do not own it to do two things: Train the machines/algorithms on which it lives to (A) direct our consumption patterns; and (B) directly manufacture even more command capital on behalf of its owners (e.g. posting stuff on Facebook, a form of labour de-commodification).

In more abstract terms: Standard capital allows capitalists to amass surplus exchange value. Command capital, in contrast, allows techno-lords (i.e. Jeff Bezos, Elon Musk, et al.) to amass surplus command value. Command value? Yes: Any digital commodity has command value to the extent that its buyer can use it to convert expressive everyday human activity into the capacity to train an algorithm to do two things: (A) make us buy stuff, and (B) make us produce command capital for free and for their benefit.

In the language of Marx’s political economy, the magnitude of command value contained in any digital commodity is determined by the sum of: the surplus value of the commodities it makes us buy (see A above) + the labour time socially/technically necessary for us to produce a unit of command capital (under B above), to be appropriated instantly by the techno-lords.

In summary, what Bezos, Musk, et al. are accomplishing through their massive investments cannot be understood in terms of either feudalism or capitalism.

- Feudalism was based on the direct extraction of experiential/use value from peasants.
- Capitalism was based on the extraction of surplus labour from waged labour.
- Technofeudalism is a new system in which the techno-lords are extracting a new power to make the rest of us do things on their behalf. This new power comes from investing in a new form of capital (command capital) that allows them to amass a new type of value (command value) which, in turn, grants them the opportunity to extract surplus value from (i) vassal-capitalists, (ii) the precariat, and (iii) everyone using their platforms to produce on their behalf, unconsciously, even more command capital.

If I am right, by continuing to call this new environment… capitalism, we would miss the opportunity to appreciate the radically different, and new, processes determining our lives in the here and now. Techno-feudalism, I think, comes much closer to capturing this brave (albeit, dystopic) new world.




Yanis Varoufakis is a member of Greece’s Parliament and parliamentary leader of MeRA25, the Greek political party belonging to DiEM25 – Europe’s first transnational paneuropean movement. Previously, he served as Greece’s Finance Minister during the first six months of 2015.

Varoufakis read mathematics and economics at the Universities of Essex and Birmingham and subsequently taught economics at the Universities of East Anglia, Cambridge, Sydney, Glasgow, Texas and Athens where he still holds a Chair in Political Economy and Economic Theory. He is also Honorary Professor of Political Economy at the University of Sydney, Honoris Causa Professor of Law, Economics and Finance at the University of Torino, Visiting Professor of Political Economy at King’s College, London, and Doctor of the University Honoris Causa at University of Sussex.

He is the author of a number of best-selling books, including Another Now: A novel (Penguin UK & Melville House US), Adults in the Room: My struggle against Europe’s Deep Establishment (London: Bodley Head, 2017); Talking to My Daughter About the Economy: A brief history of capitalism (London: Bodley Head, 2017), And the Weak Suffer What They Must? Europe, Austerity and the Threat to Global Stability (London: Bodley Head and NY: Nation Books, 2016); and The Global Minotaur: America, Europe and the Future of the World Economy (London: Zed Books, 2011, 2015). His academic books include Economic Indeterminacy (London: Routledge, 2014); Foundations of Economics (London: Routledge, 1998); and Rational Conflict (Oxford: Blackwell, 1991).

In his own words, Varoufakis was “thrust onto the public scene by Europe’s inane handling of an inevitable crisis”. In January 2015 he was elected to Greece’s Parliament with the largest majority in the country and served as Greece’s Finance Minister (January to July 2015). During his term he experienced first hand the authoritarian inefficiency of the European Union’s institutions and had to negotiate with the Eurogroup, the European Central Bank and the International Monetary Fund. Varoufakis resigned the finance ministry when he refused to sign a loan agreement that perpetuated Greece’s debt-deflationary cycle.

In February 2016 Varoufakis co-founded DiEM25, the Democracy in Europe Movement – Europe’s first transnational movement. In March 2018 DiEM25 founded MeRA25, its Greek political party. Led by Varoufakis, MeRA25 entered Parliament with nine MPs in the July 2019 General Election.

“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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Re: Modern Monetary Theory

Postby Harvey » Sun Feb 20, 2022 8:45 am

Elvis » Mon Jan 17, 2022 9:00 am wrote:
Larry Summers dreams.jpg


Larry Summers, another good friend of Epstein or vice versa, apparently even before their Trilateral Commission days.

“I am amazed by the connections he has in the scientific world,” says Martin A. Nowak, who will leave Princeton’s Institute for Advanced Study to run the mathematical biology and evolutionary dynamics program at Harvard endowed by Epstein’s $30 million gift. “He knows an amazing number of scientists; he knows everyone you can imagine.”

Indeed, Epstein shares a special connection with one of the most prominent figures at Harvard—University President Lawrence H. Summers.

Summers and Epstein serve together on the Trilateral Commission and the Council on Foreign Relations, two elite international relations organizations.

Their friendship began a number of years ago—before Summers became Harvard’s president and even before he was the Secretary of the Treasury—and those close to Epstein say he holds the University president in very high regard.

“He likes Larry Summers a lot,” Epstein’s friend and Frankfurter Professor of Law Alan M. Dershowitz says. “He speaks well of Larry, and I think he admires Larry’s economic thinking.”


https://www.thecrimson.com/article/2003 ... more-than/
And while we spoke of many things, fools and kings
This he said to me
"The greatest thing
You'll ever learn
Is just to love
And be loved
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Re: Modern Monetary Theory

Postby drstrangelove » Sun Feb 20, 2022 10:23 am

Thomas Pynchon's final book, Bleeding Edge, a 9/11 truther novel to the bane of those post modernist academics who didn't understand what they are reading in any of his other movels, so he made it prettty fucking clear to them with this last one; mentions a Larry Summers led think tank. Also the PROMIS software and Mossad. Good book. Very readable. Full of interesting tidbits. One of the character's, who is jewish, had a jewish summer camp teacher called Epstein that they girls had to "watch out for" or something along those lines. Though Epstein is a pretty common jewish name. But still.
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Re: Modern Monetary Theory

Postby Elvis » Tue Feb 22, 2022 7:15 pm

The rush to "Westernize"/marketize Ukraine's economy since 2014 has led to huge foreign-denominated debt, bringing about the concomitant austerity regimes. US "investment" = foreign debt for Ukraine.

Snapshot on Ukraine’s economy amid current geopolitical crisis

Alexander Valchyshen
Feb 17


Over the past couple of months, Ukraine has been topping the news in the major English language media outlets again. The “Ukraine crisis” issue has resurfaced after its first appearance in 2014.1

Back then, Russia’s leadership staged a military invasion and effectively annexed a sizable and economically viable part of Ukraine's territory. It seized the Crimean peninsula and parts of the industry-centered Donbas region.

Now, in early 2022 (eight years since the invasion), there is talk of Russia’s leadership considering another and possibly bigger military intervention into other parts of Ukraine’s territory.

On Twitter, leading economic commentators with a large audience such as Adam Tooze, history professor at Columbia University, and Noah Smith, a Bloomberg Opinion columnist, shared their opinions on the matter.

Tooze published two articles this year so far, see (2022a) and (2022b). The first one published in January was titled “Putin's Challenge to Western hegemony―the 2022 edition” and the second one was published in February and titled “Permanent crisis or Black Earth agro-giant? Alternative futures for Ukraine.” Smith (2022) was trying to make a bigger statement in solving the growth puzzle in his article, “Why is Ukraine such an economic failure? An urgent mystery.”

Both authors were reflecting on the “Ukraine crisis” in their own way. However, what makes these opinions so noteworthy is that both of them framed their premise in terms of Ukraine’s “economic failure.” Hence, economic weakness is among key other factors that invite a greater power interference. For example, Tooze put it this way:

What makes Ukraine into the object of Russian power is […] its economic failure. (Tooze, 2022a)


As a Ukrainian, I would like to provide my own view on the matter here.

Previously, I had argued that Western sanctions on Russia as economic retaliation for the 2014 invasion of Ukraine would rather help the Kremlin to fix Russia’s ailing economy than impose costs on it (please refer to these articles: here, here, and here). The argument was―and it still stands, in my view―that sanctions have been grounded on an imperfect economic theory from the very beginning. It is not worth emphasizing this point here.

In this piece, rather, I would like to reflect on this recent alleged notion of Ukraine’s “economic failure.”

Last year, in 2021, Ukraine’s economy recorded a real GDP growth rate of 3% compared to the previous year. The pace of consumer price inflation sped up to a higher-than-expected 10% YoY by the end of the year from the 5% seen in December 2020. Domestically, financial markets for overnight rates and the hryvnia’s exchange rate, the national money of account, have been rather subdued. The domestic overnight rate for central bank balances was at the floor of the central bank target range, firmly under control of the central bank. The foreign-exchange rate of the hryvnia (Ukraine’s national money unit of account) versus the U.S. dollar was fluctuating within an acceptable range, and it helped strengthen the widely held market view of achieved exchange-rate nominal stability, when the FX rate does change from day to day, while at the same time, an erratic runaway depreciation was absent.

In part, steady increases of the central bank’s target range for its overnight rate has supported the FX rate over the past year and year to date.

It should be noted, too, that producer price inflation in December 2021 reached 62% year-on-year, which is the fastest pace on record since June 1996. When the COVID-19 pandemic hit and put the global economy into lockdown, Ukraine’s producer price inflation was trending in negative territory in year-on-year terms most of the time during 2020, recovering only in the last quarter of that year.

Now, it appears that global commodities markets that saw a spike in prices of raw commodities from food to energy in 2021 found a reflection of this in the consumer price situation in Ukraine’s economy. Both consumer and producer price indices reflected that to an extent, in addition to other factors.

The year-ago projections by Ukraine’s central bank assumed that the economy would grow 4.1%2 in real terms for 2021, and the pace of consumer price inflation today would be at 7%, with producer price inflation at 6.8%. All of these projections did not materialize precisely. Price metrics turned out to be a bit higher than expected, as mentioned above, while the growth metric was lower than expected. This occurrence serves as a reminder of just how tricky economic forecasting is, even by quite resourceful economists at the national central bank.

Growth-wise, the 2021 results show that Ukraine’s economy as of today is about 3% below its pre-COVID trend. Such a shortfall from the trend is rather comparable to how many other countries have fared since the pandemic (see here). For example, the US economy fell just 1.4% short of the pre-COVID trend by the end of 2021,3 while some of the Eurozone member countries had shortfalls in the 2-6% range as of end-3Q 2021.4

This recent episode contrasts sharply with the extended history of Ukraine’s economic growth data.

Before the pandemic, economists used to rely upon the pre-Global Financial Crisis (GCF of 2007-08) trend as a reference to how quickly an economy recovers after a crisis. Viewed from this perspective, Ukraine’s economic performance has been outstandingly sluggish; its shortfall relative to the pre-GFC trend is currently deep in the double-digit area (see chart below). If one extends the historical data further into the early 1990s, when Ukraine gained its independence, the shortfall in the trend (before the break-up of the Soviet Union) would only increase even further.

Image

Noah Smith builds his argument on Ukraine by referring to this long history of fluctuating economic performance. Adam Tooze also implicitly references it in his January’ article, while in his February one, he acknowledges it with the statement:

Ukraine’s performance between 1990 and 2017 was not just worse than its European neighbors. It was the fifth-worst in the entire world. (Tooze, 2022b)


Hence, it is not an exclusive by-product of the Russian military aggression since 2014. There is something more to it than that. And, the above-mentioned economic commentators concur with this statement of mine.

Their conclusion, so far as the economy is concerned, differs from mine, however. They argue that a more active economic reforming will solve the elusive mystery of slow growth. And in addition to that, Smith concludes that:

External military threat has been a catalyst for development for countries throughout the ages, most notably Japan and South Korea. Hopefully it will do the same for Ukraine now.” (Smith, 2022)


This notion is quite popular among the highest echelon of the Ukrainian reformers, who define that view the following way: “A common enemy might help to consolidate reforms.”5

What unites these views is the fact that: (i) ongoing economic reforming remains unquestioned; (ii) Ukraine’s leadership has continuously been either too corrupt or at least lacking political will; and (iii) external threat by an enemy might help to reform the economy at a more rapid pace.

My view is a bit different, in the following way. Ukraine's inquiry―by that I mean an investigative inquiry into the country’s economic situation―must start with the following question. What if the concept of economic reforms is a cause of Ukraine’s economic underperformance, when measured by a real GDP metric?

The answer to the question is quite complex, no doubt. It is so, indeed, even if we set aside geopolitics for a while. (For sure, Russia’s pressure on Ukraine will be present for many years to come. Thinking of it as helpful is quite an irony).

At this point, I would like to call attention to my interpretation of Ukraine’s overall economic situation.

It is grounded on my past professional experience in the domestic financial sector and on my current academic research I am carrying out in tandem with the modern monetary theory economists, known as MMT’ers.

In Ukraine, there has been a widespread notion that since 2014, the economy has been “fixed” and has now achieved macroeconomic stability.

A number of market-based reforms were pushed through. Markets for land, labor, banking, and non-banking financial services, etc., either were established (on agricultural land) or re-established (in commercial banking). The parliament adopted a series of laws that cemented the notion of the central bank’s independence. Since then, It has been acting to prove its credentials as a serious inflation fighter. The Ukrainian central bankers adopted a nickname for their own institution of Bundesbank on the Dnipro river, which is quite a statement. The Ministry of Finance depoliticized its debt management and fine-tuned its operations to supply attractive debt instruments to the global investment community through both domestic and Eurobond financial markets.

Adoption of fiscal rules for capping the total budget deficit at 3% of GDP escaped public scrutiny and instead took place in a comfortably calm political environment. The economy has now been migrating toward an even greater mode of market-based finance than it was before.

All these developments took place after 2014, and some of them after 2019, i.e., under the watch of the incumbent president of Ukraine.

Few market-based reforms are left to be implemented, however, as judicial, pension, and health-care reforms are of top priority for the near future.

All of the above analysis can be read as a playbook by economic orthodoxy adopted globally that allegedly assures prosperity and fast economic growth once a country implements a comprehensive reform package.

I tend to disagree with the above, however. In both episodes―prior to 2014, before the recent reforms wave, and since 2014, when they were pushed through―there is a common and unifying thread. Now and then, the economy functions with sizable usage of foreign monies of account alongside the national one. This means that Ukraine’s private and state-owned businesses create debt denominated in the foreign money of account quite liberally. The fact of the matter is that this practice breeds future financial fragility across different sectors of the economy.

If in the post-2014 period, banks were considered as cleansed of the above-mentioned liberal handling of debt creation denominated in foreign money of account. That issue was never really addressed for the entire economy and especially for the government. This is what MMT’ers regard as a low or shallow degree of monetary sovereignty. It subjects the economy to the wide swings inherent in international private finance (IPF) and requires a foreign lender of last resort to readily stand by to counteract the negative swing of the IPF.

The latter service arrives with strings attached, no matter who provides it. Western institutions such as the IMF and EBRD have been doing it for years now. Russia’s sovereign wealth fund was also doing this briefly before 2014. Either way, Ukraine has tied itself to private foreign finance even more than it used to be, hence, financial fragility stemming from liberal usage of the foreign money of account. This was never cured, but rather keeps accumulating instead. And that is why austerity-focused policies dominate in Ukraine’s economy.


To better illustrate my point, it is noteworthy mentioning this. Over past month, the U.S. dollar sovereign bonds of Ukraine experienced a sizable drop in prices (and rising yields). True, this happened as a market reaction to the growing awareness of the threat of invasion by Russia.

However, such a quick revaluation is another reminder that Ukraine’s government is subject to a possible strike from the private bond market investors (also known collectively in the West as bond vigilantes). It does not matter who stirs up the uncertainty—the Kremlin or some other factor(s)—the result is the same. Ukraine does require a standby lender from abroad. Otherwise, domestic debts—and foreign ones such as Ukraine sovereign eurobonds—in foreign money of account cannot be validated, and hence they deflate (lose value). This is the root cause of the “economic failure” Tooze and Smith are talking about.

As a corollary, Ukraine’s central bank focus is currently narrowed towards attempts to fight inflation. It raises an alarm (and policy rate) every time wage growth accelerates. Meanwhile, it tolerates unemployment rate of 9% because it is close to the 8.5% mark, which is deemed by the central bank as a “natural” unemployment rate. :shock:

Meanwhile, more Ukrainians are working abroad, many taking low-paying jobs and much less taking high-paying, professional jobs. In Poland alone, the phenomena of Ukrainian migrant workers gained such significance over the past several years that it gave birth to an entire research project among the Polish academia, bringing grateful workers from Ukraine with precarious jobs into the spotlight:

They mostly take on the unattractive (from the point of view of the local worker) work-world positions: ones that are low paying, temporary, and offer insecure and uncertain lengths of employment. (Polkowska & Filipek, 2020)


Now, the following must be mentioned. At the end of the third quarter of 2021, the wage share in GDP declined to 41% from 44% a year earlier, but this went largely unnoticed. Moreover, it was never explained how wage share dropped from a peak of 55% in the middle of 2013 to all-time low of 37% in early 2017. Meanwhile, profit share of GDP has been on the rise, to 44% in the third quarter of 2021 from 42% a year before. Profit inflation was never acknowledged explicitly in Ukraine as a precursor of the inflation-targeting regime.

To conclude, fixing Ukraine’s economy in a comprehensive way requires quite a different approach. A ‘more-of-the-same’ approach, which is endorsed by both Smith and Ukraine’s top reformers, is a pro-growth strategy that shuns still-depressed wages and domestic employment prospects. Ironically, it also finds the threat of foreign military aggression useful. This must be replaced by a new strategy, which must be pro-wage and pro-employment growth.


Tooze (2022b) backs an idea that Ukraine’s agri-businesses collectively will drive Ukraine’s economy into prosperity. In my view, it belongs to the 'more-of-the-same’ approach. Already now the Ukraine’s private agri-businesses require less, not more, workers’ hands. They are highly liberal in finance, extending dollarization not limiting it. Hence, this development yields the ‘more-of-the-same’ outcomes for the country as a whole.

Thinking carefully along these lines may even help economists to take a different view of the “Ukraine crisis,” behind which Russia is hiding its own economic failure to deliver prosperity to wider segments of its population. I am talking here about the majority of Russians, the working-class people, not the political and business elite and the professionals. Attention of these people is turned away from the economic hardships they face on a daily basis and instead eclipsed by the grand geopolitical battles the country’s leadership is carrying out.

It was just 30 years ago when broad ranks of Russian citizens backed a major sociopolitical turning point from a society of no private ownership of large-scale methods of production towards a new and promising system that welcomed private profits. Since then, inequality has run rampant in Russia. The “Ukraine crisis” is a useful invention.


References

Polkowska, D., & Filipek, K. (2020). Grateful Precarious Worker? Ukrainian Migrants in Poland. Review of Radical Political Economics, 52(3), 564-581. doi:doi:10.1177/0486613419857295

Smith, N. (2022, January 23). Why is Ukraine such an economic failure? An urgent mystery. From Substack: https://noahpinion.substack.com/p/why-i ... ic-failure

Tooze, A. (2022a, January 12). Chartbook #68 Putin's Challenge to Western hegemony - the 2022 edition. From Substack: https://adamtooze.substack.com/p/chartb ... allenge-to

Tooze, A. (2022b, February 12). Chartbook #81 Permanent crisis or Black Earth agro-giant? Alternative futures for Ukraine. From Substack: https://adamtooze.substack.com/p/chartb ... -crisis-or

Valchyshen, A. (2016, November 29). Ukraine has a lesson for Donald Trump – Vladimir Putin is no friend of America. From International Business Times: https://www.ibtimes.co.uk/ukraine-has-l ... ca-1593411

Valchyshen, A. (2017, February 23). A (Contrarian) View From Ukraine: Russian Sanctions. From The Daily Caller: https://dailycaller.com/2017/02/23/a-co ... sanctions/

Valchyshen, A. (2018, April 15). Letter to the FT’s editors. From Medium.com: https://alexvalchyshen.medium.com/lette ... 3705b2d795

WIIW. (2021, December 15). Online panel discussion: 30 years of reforms since the collapse of the USSR. From YouTube Channel of the Vienna Institute for International Economic Studies (WIIW): https://youtu.be/7spq8iToA2s


1 A shorter version of this op-ed was published by The Institute for War & Peace Reporting on February 15, 2022. Link: https://t.co/QXq33rpUkg

2 National Bank of Ukraine (January 2021) Inflation Report, source: https://bank.gov.ua/admin_uploads/artic ... 021-Q1.pdf

3 See https://www.piie.com/blogs/realtime-eco ... formed-its

4 See https://www.brookings.edu/blog/up-front ... est-of-g7/. Ukraine’s shortfall was about 6% by the end 3Q 2021, according to the author’s calculations.

5 (WIIW, 2021): watch video, starting at 54:10 minute, link:

Online panel discussion: 30 years of reforms since the collapse of the USSR

https://www.youtube.com/watch?v=7spq8iToA2s

Dec 15, 2021


The Vienna Institute for International Economic Studies
1.27K subscribers
Lessons from Economic Transformation - an online panel discussion organised by wiiw, with Sergei Guriev, Tymofiy Mylovanov, Olga Pindyuk.

Introduction: Michael Landesmann; Moderation: Valerie Hopkins.

Background:
Today – three decades after the dissolution of the USSR – two competing views on the history of transformation prevailed. For the developed world, the end of the Soviet Union marked the ultimate triumph of liberal democracy and market economy ('the end of history', according to Francis Fukuyama). For many citizens of the former USSR, however, the transition years are associated with economic collapse, growing social insecurity and political conflict.

These differing perceptions are hard to reconcile without understanding the reasons and outcomes of the economic transformation in the former USSR. The unravelling of the structural problems inherited from the command economy - a dominant public sector, heavily subsidised firms, high budget deficits or a lack of small and medium-sized enterprises - to name a few - has taken much longer than expected and is still not fully completed. The Soviet legacy still weighs heavily on its successor states and continues to influence their economic and political development.

Our panel discussion – with all panellists being both active researchers and witnesses of the economic tranformation – will provide an account on the key results of the transition process and answer the most important questions:

Who are the winners and losers of three decades of economic transformation?
What were the biggest reform mistakes and why did the implementation frequently proceed in a push-pull manner?
What are the main legacies of the transition process and how do they determine the modern development agenda of post-Soviet countries today?
What does this mean for the future of the post-Soviet states?

About wiiw:
The Vienna Institute for International Economic Studies (wiiw) is Vienna-based policy think tank with a focus on Central, East, and Southeast Europe. We conduct research on international economics, deliver macroeconomic forecasts, comment the ongoing events, collect statistical data, and organize events to discuss policy-related questions.




I haven't watched all of the WIIW video, but so far it looks good.
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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Re: Modern Monetary Theory

Postby Elvis » Wed May 18, 2022 5:24 pm

Times they are a-changing at the IMF.

https://www.imf.org/en/Publications/WP/ ... ers-517641

Advancing the Monetary Policy Toolkit through Outright Transfers

Author/Editor: Sascha Buetzer
Publication Date: May 6, 2022

Summary:

This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.

Series: Working Paper No. 2022/087
Pages: 60



https://www.imf.org/-/media/Files/Publi ... t-pdf.ashx
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Re: Modern Monetary Theory

Postby Elvis » Wed May 18, 2022 5:37 pm

More and more data is bearing this out:

https://mattstoller.substack.com/p/corp ... lation?s=r

Corporate Profits Drive 60% of Inflation Increases

Higher prices aren't just a result of supply chain chaos or government spending. Inflation is being driven by the pricing power and higher profits of corporations, costing $2,126 per American.

Matt Stoller
Dec 29, 2021

...Margin expansion is one factor that has pushed the stock market to an all-time high, with large firms doing much better than small ones. Bloomberg has noted that behind this are corporate profit margins, which are at a 70-year record. All of which leads to an interesting question. How much of inflation is a result of market power, and how much is due to some other set of causes such as government spending or thin supply chains? Let’s do some rough numbers.

Just before the pandemic, in 2019, American non-financial corporations made about a trillion dollars a year in profit, give or take. This amount had remained constant since 2012. Today, these same firms are making about $1.73 trillion a year. That means that for every American man, woman and child in the U.S., corporate America used to make about $3,081, and today corporate America makes about $5,207. That’s an increase of $2,126 per person.

Image

Still, in order to know just how significant that amount is relative to inflation, we have to figure out how much inflation is costing the average American. A rough way to get that would be to take the total amount America produces annually, which is the Gross Domestic Product, and multiply that by the inflation rate. That’s $23 trillion of GDP times the 6.8% inflation rate, which comes out to $1.577 trillion, or $4,752 per American.

Taking all of this together, it means that increased profits from corporate America comprise 44.7% of the inflationary increase in costs. That means corporate profits alone are absorbing a 3% inflation rate on all goods and services in America (44.7% of 6.8% annual inflation), with all other factors causing the remaining 3.8%, for a total inflation rate of 6.8%. In other words, had corporate America kept the same average annual level of profits in 2021 as it did from 2012-2019 and passed on today’s excess to consumers, the inflation rate would be 3.8%, not 6.8%. And that’s a big difference, indeed it is the difference between Americans getting a raise, and seeing real wages decline. (It also could explain why inflation is lower in Europe - corporate profits there were very good in 2021, but not as good as in the U.S. And in Japan both inflation and corporate profits were low.)

It gets worse, because this calculation assumes that all 6.8% of the inflationary increase in prices is new. But of course, inflation isn’t zero in normal years, the Fed has an inflation target of 2%. In 2019, inflation hit 1.8%. So if you take the pre-existing inflation rate in 2019 of 1.8% and back that out of the numbers, then it turns out that 60% of the increase in inflation is going to corporate profits.

[...]

If it’s true that a concentrated economy is allowing firms to exploit the current pricing environment to raise margins, then a different set of policy solutions should flow from that.

The first is to strengthen laws against price-fixing. The courts have radically cut back on the ability of plaintiffs to bring such cases in concentrated markets. As antitrust lawyer Eric Cramer noted, in the Valspar decision in the 3rd circuit in 2017, judges actually said that firms in a concentrated industry are allowed to raise prices in a coordinated manner, as long as there’s no public proof they are working together overtly to do so. A plaintiff who attempts to bring such a case and investigate whether there is a formal agreement will now have his or her case dismissed before it even gets to trial. The 7th circuit found a similar result over container board price hikes in a heavily concentrated market. That’s crazy.

If Congress strengthened the Sherman Act to overturn these decisions, that would help lower prices. Similarly, in the 1970s, the FTC tried to bar coordinated price hikes that occur in concentrated markets, even if there’s no explicit agreement in place. Barring this kind of price fixing would be quite powerful. Another variant of this would be, as Hal Singer suggests, to trigger an automatic price-fixing investigation for any concentrated industry that raises prices above 15% over December 2020 levels. Basically, it should be very easy to bring a price-fixing suit, but only in concentrated industries.

The second is to impose an excess profits tax. Excess profit taxes are a common approach to emergencies like war, and they reduce the incentive to price gouge. You could define an excess profit by the amount the firm is making above what that firm used to make on the same line of business. Not only would such a tax reduce the incentive for price gouging, but it would encourage highly profitable firms to put cash back into new factories and production, for fear their newfound profits would otherwise be taxed away.

The third is to strengthen the antitrust laws against monopolistic conduct and concentration in general, which is likely driving some part of inflation. Even very cautious economists buy this story (though Larry Summers doesn’t). Obama-era antitrust economist Fiona Scott Morton, for instance, gently corrected Summers on his assertion that no economist could connect concentration and inflation, suggesting that less concentration can actually induce more investment when there’s an economic shock. Her view makes sense, since the more firms in an industry, the more likely one of them is to use a period of high margins to grab market share by expanding production. The New York state abuse of dominance bill would accomplish this by prohibiting unfair methods of competition that often lead to higher prices.

Finally, since large firms raise prices more than small firms, then a revival of provisions against price discrimination would likely reduce consumer prices. Summers doesn’t believe this, praising Amazon and Walmart as price deflators even as Amazon is being sued by the D.C. Attorney General for systemically inflating prices across the economy. So this would be a good place to get data, which is what the Federal Trade Commission is doing, looking at how suppliers and distributors allocate goods between large firms like Walmart and small retail stores...


...full piece at link

“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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