Kind: captions
Language: en
the real Foundation of Marxist political
philosophy was the economic argument
that there would be a tendency for the
rate of profit to
fall and that tendency for the rate of
profit of fall would lead to capitalists
battening down on workers harder paying
them less than the subsistence uh a
Revolt by workers against this and then
you would get socialism on the other
side so his he what he called the
tendency for the Rader profit to fall
played a critical role in his explan for
why socialism would have to come about
if you look at Marx's own vision of the
Revolution it was going to happen in
England okay the advanced economies
would be first to go through the
revolution the Socialist the the
Primitive economies would have to go
through a capitalist transition and this
is the difference between the menik and
the and the bolik so the menik and hman
Minsky came out of the menik family the
menik believed you had to go through a
capitalist phase Russia had to go
through a capitalist period before it
become socialist the Bolsheviks believe
that I could get there in one
go the following is a conversation with
Steve Keane a brilliant Economist that
criticizes much of modern economics and
proposes new theories and models that
integrate some ideas and ditch others
from VAR thinkers from Carl Marx to John
May KES to Hon Minsky in fact a lot of
our conversation is about KL Marx and
marking economics he has been a scholar
of KL Marx's work for many years so this
was a fascinating exploration he has
written several books I recommend
including the new economics and
Manifesto and debunking
economics this is the Lex Freedman
podcast to support it please check out
our sponsors in the description and now
dear friends here's Steve
Keane let's start with a big question
what is economics or maybe what is or
should be the goal of economics well it
should be understand how human
civilization comes about and how it can
be
maintained uh and that's not what it's
been at all uh so we have a discipline
which has the right name and the wrong
Soul what is the soul of Economics the
soul of
Economics really is to explain how do we
manage to build a civilization that
elevates us so far above the energy and
and consumption and knowledge levels of
the base and environment of the Earth
because if you think about and this is
actually working from work I've learned
from Tim Garrett who's one of my
research colleagues who an atmospheric
physicist and his idea is that we have
these we exploit these highgrade energy
sources from the Sun itself to Coal
nuclear etc etc which means we can
maintain a level of human civilization
well above what we'd have if we were
just still running around with rocks and
stones and Spears so it's that elevation
above the base level of the planet which
is human civilization and if we didn't
have this energy we were exploiting if
we didn't use the environment to elevate
ourselves above what's possible in the
background then you and I wouldn't be
talking to microphones you know yeah we
might be doing drum beats and stuff like
this but we wouldn't be having the sort
of conversation we have so it explain
how they came about that what's the
economics should be doing and it's
not so this is the greatest thing that
the Earth has ever created is what
you're saying this conversation yeah
we're the most elaborate Construction on
the planet and like that's not what
we've done we've denigrated the planet
itself we don't have respect for the
fact that life itself is an incredible
creation and I I My ultimate if I had to
see how humanity is going to survive
what we're putting ourselves through
then it would we'd have to come out of
it as a species which sees its role as
preserving and respecting life I like
how you took my silly incredible
statement and made it into a uh uh a
serious one about
how amazing life is life is incredible
and humans don't respect it enough we
trash it and and that's what's economics
I think has played a huge role in that
so I actually regard my discipline I
would never call it a profession let
alone of science uh my disciplin has
probably helped bring about the
termination potential the feasible
termination of human civilization strong
words okay let's return to the basics of
Economics so what is the soul and the
practice of Economics what what should
what should be the goal of it because
you're speaking very poetically but
we'll also speak pragmatically about the
the tools of Economics the variables of
Economics the metrics the goals the
models practically speaking what are the
goals of Economics well in terms of the
tools we use we should be using the
tools that Engineers use frankly and
that's sounds ridiculously simple
because you would expect economists are
using upto-date techniques that are
common in other Sciences where you
dealing with similar ideas of stocks and
flows and interactions between the
environment and a system and so on and
that's fundamentally systems engineering
and that's what we should be using as
the tools of Economics now if you look
at what economists actually do uh the
sophisticated stuff involves difference
equations and like difference equations
you know if you've done enough
mathematics as you have you know
difference equations are useful for like
individual level processes if you're
talking about a autonomous time it will
go from State T to t plus1 t plus 2 and
so on but not when you're talking at the
aggregate level there you use
differential equations to measure it all
economists have been using different
equations so there's like a a book I
think it's by Sargeant and one other
called Advanced methods in economics
using python two volume set it's about
close to 2,000 pages and four of those
pages are on differential equations
the rest is all difference equations so
they're using entirely the wrong
mathematics to start with for people
listening what is difference equations
versus differential okay difference
equation is is like you can do in a
spreadsheet you'll have this is the
value of NAU and naughty this is the
value of not 91 92 93 94 so you have you
have discrete jumps in time uh whereas
the differential equation says there a
process moving through time and you will
have a rate of change of the of a of
variable is a function of the state of
itself and other variables and rates of
change of those variables and that is
what you use when you're doing an
aggregate model so if you're modeling
water for example or fluid dynamics you
have a set of differential equations
describing the entire body of fluid
moving through time you don't try to
model the discrete motion motion of each
molecule of H2O so at the aggregate
level you use differential equations for
processes that occur through time and
that's economics it occurs Through Time
you should be using that particular
technology but some economists do learn
differential equations but they don't
learn stability analysis so they simply
assume equilibrium is stable and they
work in equilibrium terms all the time
and that uh it is the the the technical
level it's it's an incredibly
complicated uh way of modeling the world
using entirely the wrong tools okay we
we we'll talk about that because it's
unclear what the right tools are maybe
it's more clear to you but I've got to
make it clear to an audience well so
this is a very complicated world it's a
complex world you talk about there uh
some of the most
complex systems on Earth are the human
mind the economy and the biosphere yep
so we'll we'll we'll go you know I'm
we'll go to that place I'm I'm uh
fascinated by complex systems I'm
humbled by them even if they're simplest
level of like cellular
atoma um I'm not sure what the right
tools are to understand that especially
when
part uh part of the complex system is
like a hierarchy of other complex
systems well you said the economy is a
fascinating complex system but it's made
up of human minds and those are
interesting those are those are
interesting perhaps impossible to model
uh but we can try and we can try to
figure out how to approximate them and
maybe that's the challenge of econ omcs
okay we'll keep returning to the basics
let us try to learn something from
history I also see as part of Economics
is us trying to figure out stuff and
there's a few smart folks that write
books throughout human history and
sometimes they name schools of Economics
after them so let let us take a stroll
through history okay can you describe at
a high
level what are the different schools of
Economics perhaps ones that are
interesting to you perhaps ones that the
difference between which reveal
something useful or insightful for our
conversation okay so you know you could
neoclassical post kenian Austrian I like
the
biophysical uh economics and so on other
heterodox economic schools that you find
interesting okay I actually find
interesting a school which went extinct
about 250 years ago that's where I'd
like to start from and they're called
the
physiocrats and the name itself implies
where the knowledge came from because if
you go back far enough in history we
didn't we didn't do autopsies but when
you started doing autopsies they found
wires they found tubes etc etc and they
started seeing the body as a circulation
system and they played the same sort of
logic to the economy and they came out
of an agricultural economy which is
France and they saw
that the wealth came effectively from
the Sun so they saw all wealth comes
from they said the soil but what they
really mean is Sun the soil absorbs the
energy of the sun one seed plants a
thousand fle seeds come back there is no
Surplus uh we are simply mining what we
can find out of the natural economy
that's where we should have stayed and
developed from that forward uh we then
went through the classical school of
Economics which comes out of Adam Smith
and Smith uh coming from
Scotland looked at what the physiocrats
said and what the physiocrats argued was
that agriculture is the source of all
wealth and the manufacturing sector is
sterile that's literally the term they
use to describe the manufacturing Sy
what does sterile mean sterile means you
don't you don't extract value you simply
change the shape of value so the the
value comes from the soil yeah it comes
from the soil that's the free gift of
nature that's literally the phrase they
used and we then distribute the free
gift of nature around and we need
carriages which was the manufacturing
term they used at the time uh as well as
uh wheat so we to make the carriages we
take what's been taken from the soil and
we convert it to a different form but
there is no value added in manufacturing
yeah so Smith looked at that and said
well I'm from
Scotland and we've got these easy now
Industries you know we make stuff and
it's machinery and he said no it's not
land that gives us the source of value
it's
labor yeah now that led to the classical
school of thought and that said that all
value comes from Labor uh that value is
uh is objective so it's the amount of
effort you put in that the price two
things will exchange for reflects the
relative effort that's involved in the
manufacturing so this computer takes two
hours to make and this bottle takes 2
minutes to make then there's this is
worth 60 times as much as that okay they
didn't talk about um marginal cost it
was absolute cost effectively they
didn't talk about utility as a
subjective thing they ridiculed sub
subjective utility
theory that led to Marx and Marx is
probably the most brilliant mod in the
history of Economics the only other
competitor I'd see is Shuma possibly
kanes but in my terms of ranking of
intellect would be Marx Shuma canes in
terms of the outstanding capacities to
think but Marx then turned that
classical school which was pro-
capitalism and anti- feudal into a
critique of
capitalism which led to the neoclassical
school coming along as a defense of
capitalism but they defended it using
the ideas of the subjective theory of
value so that value does not reflect
effort it's the satisfaction individuals
get from different objects that
determines their value marginal utility
it's the marginal cost that determines
how much they sold for capitalism
equilibrates marginal cost and marginal
utility and the concepts of equilibrium
and marginal this and marginal that
became the neoclassic school and that's
still the dominant school now 150 years
later so that's the one that everybody
learns and when you first learn
economics if you don't have the critical
background that I managed to acquire uh
that's what you think is economics the
marginal utility equilibrium uh oriented
analysis of mainstream economics and for
example they ignore money okay people
thinks economists you must be an expert
on money because you're an economist
well in fact economists learn literally
in the first few weeks at University
that money is irrelevant they say money
illusion so they they they they
represent people's uh tastes using what
they call indifference curves and
they're like isoquants on a on a weather
map if you look at an isoquant it shows
you all the points of the same pressure
so you can be you can be here or you can
be in Denver and the air pressure can be
the same if you're in the same weather
unit so you just draw a cell that links
together well they do the same thing
with utility and say lots of bananas and
very few coconuts can give you the same
utility as lots of coconuts and very few
banan and you draw a basically a like a
hyperbola running down and linking the
two and they'll say well that's that's
your utility that describes your tastes
and then we have your income and there's
given your income you can buy that many
um bananas completely or that many
coconuts or a straight line combination
of the two and then if we double the
price nominal price of coconuts and
double the nominal price of bananas and
double your income what happens and the
correct ANW is are nothing sir you know
you stay at the same point of tangency
between what your budget is and which
particular utility curve gives you the
maximum satisfaction so that gets
ingrained into them and they think
anybody who worries about money suffers
from money illusion you know you you
therefore uh ignorant of the deep
insights of economics if you think money
actually matters so you have an entire
theory of Economics which presumes we
exchange through b you know like I'll
I'll swap you that Microsoft Surface for
actually I'll take two of those for one
of these you know now we do this
bartering type arrangement in fact that
only works if money plays no creative
role in the economy and that's where
you'll find reading schuma uh the
Insight that's the school of thought
that I come from that says money is
essential money actually adds to demand
and I'll talk we'll talk about that
later on so that's the neoc classical
school that ends up being subjective
theory of value
uh non-monetary
as as though everything happens in B and
focusing on equilibrium as though
everything happens in equilibrium or if
you get Disturbed from equilibrium you
return back to it again and that mindset
describes capitalism his most
interesting feature is that it reaches
equilibrium now what planet are we on to
believe that because if you look at the
real world the real uh uh exciting world
of capitalism in which we we live change
is by far the most obvious
characteristic of it there's no
equilibrium there's no equilibrium it's
unstable and as a mathematician it's
easy to you work with stability analysis
you know you work out what the the
Jacobian is you work out your leop and
of exponents in a complex system you're
used to the idea that equilibrium is
unstable but economists get schooled
into believing that everything happens
in equilibrium and they don't learn
stability analysis so all that stuff is
missing so onto the schools of thought
um the treating the economy as an
equilibrium system which was what the
class neoc classical school did is what
can's
Disturbed and he really disturbed by
talking about fundamentally that
uncertainty determines our decisions
about the future so when we consume you
know you know if you like visor or what
whatever particular drink we want to
have you know the current situation but
to invest you must be making guesses
about the future but you don't know the
future so what do you do you extrapolate
what you currently know and that's he
said this is a terrible basis on which
to plan for the future but this is the
only thing you can do when there where
there is no possibility of solid
calculation so investment is therefore
subject to uncertainty and therefore you
will get volatility out of out of out of
investment you will get uh fads of
course booms and slumps coming out of
that as people to extrapolate forward
the current conditions and that's the
normal state of a capitalist economy and
scheder argued that that's what gives
it's it's creativity as well the fact
that you um Can perceive a potential
demand but you don't first of all you
don't know whether that demand's going
to work secondly you don't know who your
competitor is going to be whether
somebody's going to be ahead of you or
behind if there's a fadile
overinvestment
violence and creativity of capitalism
that's what we should be analyzing and
the post kigan school has gone in that
orientation um they've been in my
opinion inhibited by learning their
mathematics from neoclassical economists
so they don't have enough of the
technology of complex systems there's
only a really tiny handful of people
working in complex systems analysis in
post canian economics but that is to me
the most interesting area so there their
tools may be lacking but they
fundamentally accept the instability of
things that's right that's right and so
that's what makes them interesting so
let me let me try to summarize what you
said then you say how stupid I am okay
so then there was the uh
physiocrats that thought value came from
the land yep then there's Adam Smith who
said nah value comes from Human
Labor uh that was that was the classical
school MH and then neoc
classical is uh value comes from like
bananas and COC as the prefer human
preferences y like human happiness how
how happy how happy a banana makes you
mhm and then uh the kenzan and the post
kenian were like yeah well you can't you
can't you can never the moment you try
to put value to a banana and a coconut
you're already working in the past yeah
it's always going to be chaos and
stability and then you just you're
you're fishing in uncertain Waters and
that's we have to Embrace that and come
up with tools that model that well uh
and also Joseph sha peder what school
would you put him under is he a kenian
or is he uh Austrian economics or he's
an Austrian austrians
deny okay that's the intriging he's from
Austria but he's not an Austrian
Economist there are elements of the
Austrian School of thought which are
worthwhile what what is Austrian
economics in this beautiful Whirlwind
picture that you pained okay Austrian
economics grew out of the out of the
Rebellion against the classical school
so you had three intellects who mainly
led the growth of the neoclassical
school back in the 1870s was William
jevans from England uh manga who's from
Austria and vas from France and but vas
tried to work out a a set of equations
to describe a multi Eon multi product
economy where there's numerous producers
and numerous consumers everybody's both
a producer and a consumer and you try to
work out a vector of prices that will
give you equilibrium in all markets in
instantaneously and that's his
equilibrium orientation jeans is also
one about equilibrium but he worked more
at the aggregate level so there's a
supply curve and a demand curve and
that's what G Marshall ultimately
codified MinGa was pretty much saying
that well you yes there might be an
equilibrium but you're going to get
Disturbed from it all the time you'll be
above or below the equilibrium and what
came out of the Austrian School was an
acceptance of that sort of vision that
the market should reach equilibrium but
then said well you'll get Disturbed away
from the equilibrium and it's that's
what gives you the Vitality of
capitalism because an entrepreneur will
see an Arbitrage advantage and try to
close that Gap and that will give you
Innovation over time and shumer went
beyond that and saw the role of money
and said that entrepreneur an
entrepreneur is somebody with a great
idea and no
money yeah okay so to become a
capitalist you've got to get money and
therefore you've got to approach the
finance sector to get the money and the
finance sector creates money and also
creates the debt for the entrepreneur
and so you get this financial engine
turning up as well uh and you will get
movements away from equilibrium out of
that you won't necessarily head back
towards the equilibrium so Shuma has a a
rich vision of capitalism in which money
plays an essential role in which you
will uh be disturbed from equilibrium
all the time and that is really I think
a much closer vision of actual
capitalism than anything by even a even
the the the AUST leading austrians you
know haek U etc etc they they and
certainly rard I find totally like
reading a cardboard cutout version of uh
of the wealth of of The Wealth of
Nations it's uh I find his worth trivial
um but shaa was rich but with the same
foundations as the austrians but because
he talked about the importance of money
that took him away from the Austrian
Vision which is very much based on a
hard money idea of capitalism sha said
you needed the capacity of the financial
sector to create money to empower
entrepreneurs and that's very important
Vision so Shan peder's argument is the
deviation from equilibrium that's where
all the fun happens that's where all the
magic happens that's the magic of
capitalism and like the austrians
because they focus on the deviation from
equilibrium are better than NE
classicals but they still have this
belief in the you know you'll reach
equilibrium ultimately or you'll head
back towards it uh whereas they they
don't they don't have an explanation of
capitalism that gives you Cycles apart
from having the wrong rate of interest
okay so there's no role for an
accumulation of debt over time so what
Sher gave us was a a vision of the
creativity of capitalism being driven by
entrepreneurs who are funded by money
creation by the finance sector and
that's fundamentally the world in which
we live uh so there's also kids these
days uh are all into modern monetary
Theory what's that about okay modern
monetary theory is accounting I want to
summarize it bluntly it's simply saying
let's do the accounting because what
money is is a creature of Double Entry
bookkeeping okay what's double entry
bookkeeping Banks this was invented back
in the 1500s in Italy uh I've forgotten
the particular Merchant who did it based
on some Arabic ideas as well but the
thing is if you want to keep track of
your uh Financial flows then you divide
what you uh all the Financial claims on
you you divide into claims you have on
somebody else which are your assets
claims somebody else has on you which
are your liabilities and the gap between
your two the two is your Equity so you
record every transaction twice on one
row okay so for example if you and I uh
do a financial transfer uh you have a
bank account I have a bank account uh
your bank account will go down mine goes
up okay and that's the sum of the
operation is zero okay but on the other
hand if I go to a bank and borrow money
then my account goes up they put money
in my deposit account the bank's assets
go up okay and there still the same sum
applies assets minus liabilities minus
Equity equals zero now that's simply
saying money is an accounting a creature
of accounting it's not a creature of a
commodity so if you think about how
austrians think about money and how gold
bugs think about money Bitcoin
enthusiasts if there are any left think
about money uh what they see is money as
an object okay and uh you you and I can
both have more gold if we're both
willing to go to this you know a m a
mine somewhere and dig a few holes and
get a few specs of gold out so there's
no competition or no interaction between
you and me if money is gold and they
think money should be an object a
commodity but money fundamentally is not
a commodity it's a it's a claim on
somebody else that's money is its
Essence so when you do it you must use
double entry bookkeeping to do it and
then when you do you find all the
answers that come out of thinking is
money is a commodity or wrong so for
example I've got Elon on this one so
want to get this through of Elon because
I saw him making a comment about this a
few weeks ago on Twitter he said that
it's wrong for the government
effectively it seems wrong for the
government to always be in deficit MH
okay now when you look at it and say
well how is money
created how does money come about when
it's not a commodity like gold when you
dig up out of the ground when it's
actually social relations between people
that create money well money is
the they're fundamentally the
liabilities of the banking sector when
you if we make a transfer between us
your deposit account goes down my
deposit account goes up those are
exchanges on the liability side of the
banking of the of the banking sector but
if we have a transaction with the bank
uh then if the bank lends US money it's
as it's Lo go up its deposits go up
again that same balance so you've got to
look and say money therefore is
fundamentally the liabilities of the
banking sector so how do you create
create additional liabilities you must
have an operation which occurs both on
the liability side and the asset side of
the banking sector so if you and I make
a transaction no money is created money
is existing money is redistributed but
if you go to a bank and buy take out a
bank loan then money is created by the
bank loan so the liabilities of the
banking sector rise the assets rise
they're balanced but more liabilities
means of the banking sector means more
money okay so that's what that that's
how private Banks create money and
that's what I first started working on
when I became a academic about 35 years
ago the actual dynamics of private money
creation but the government has the same
sort of story if the government runs a
deficit it spends more money on the
individuals in the economy than it taxes
them which Mak means their bank accounts
increase so a government deficit creates
money for the private sector okay so
that's where money creation occurs from
the government so it's it's it puts
money in people's puts more money into
people's bank accounts by spending by
welfare payments then it takes out by
taxation so that's creating new money
and then on the other side on the bank
the money turns up in the reserve
accounts of the banks which are
basically the private Banks Bank
Accounts at the central bank so rather
than the asset of private money creation
being loans the asset of government
money creation is
reserves okay right money creation money
creation is a good thing so you
mentioned a bunch of stuff like private
money Creation with the liabilities and
the banks and then the how the
government is doing then the reserves
blah blah blah at the end of the day
there's a bunch of printers that are
printing money uh what is money and then
you also said something interesting
which is social relations between humans
is what creates money I think my mind
has blown several times over the past
minute um so it's it's difficult for me
to reconstruct the pieces of my mind
back together but
um basic question is money creation a
good thing or a bad thing money creation
is a good
thing because money creation is what
allows Commerce to happen isn't there a
conservation of no there isn't I had had
arguments with physicist over this and
it took me a long time to answer it they
thought the sum total of all money is
zero yeah okay uh it's the sum Ty total
of all assets and liabilities is zero so
if you imagine um your assets minus your
liabilities is your equity and your
asset is somebody else's liability and
your liability is somebody else's asset
when we're talking about financial
assets and this is another mind-blowing
thing that I've just recently solved
myself so the sum total of all Financial
assets and liabilities is
zero okay wait wait I'm going to
interrupt you rudely what are assets
what are liabilities assets are your
claims on somebody
else so uh specific give me give me give
me an example of an asset okay do you
have a mortgage for this house no I'm
renting you're renting there you go well
if you had a mortgage that would be your
your liability that would be my
liability okay the mortgage with the
bank's asset right okay if you add the
two together you get zero okay so that's
zero that's zero the money is the
liability side of the banking
sector okay okay assets are the the the
the assets on the other side can be
either created by the banking sector
which is where you get bank loans or
created by the government where you get
reserves but money is the liabilities
money is if you think about protons and
antiprotons in that sense money is like
the anti-proton it's the negative the
liability but wait wait the Li
liability is the negative how's that
money I thought money is the positive
what is a liability for the banking
sector is an asset for you and me and
asset includes money yeah yeah okay if
you have a bank like you got you'd have
a bank account and you'd have some cash
okay okay those are your assets but the
bank account is a liability of the
banking sector and the cash is a
liability of the Federal Reserve okay so
what what's money well money is money
money is the promise of a third party
that we both accept to close our
transaction and this is that's a bank
with that's a bank yeah this is this one
of the most important works I've ever
read is a work by a wonderful now
unfortunately deceased tiny Italian
economist called austo graani and he's
the most wonderful personality
austo made I met him on a few occasions
is one of the few human beings who can
speak in perfectly formed paragraphs mhm
okay superbly eloquent and what he did
was wrote a paper called the the
monetary theory of
production you can find it uh downloaded
on the web it's uh it's pretty much open
source now uh and what he said is what
distinguishes a monetary economy from a
barter economy so I said in in a in a
bter economy what we do is you know I'll
give you two of these for one of those
yeah okay B just working at a relative
price there were two of us involved and
there were two Commodities so with money
money is a triangular transaction okay
there is one commodity I want to buy
that can of drink off you uh two people
and the price that's worked out ends up
being in a transfer from the promises to
pay the bank that the buyer has to the
promises pay the bank that the seller
has so if I we so what you have is a
monetary transaction in a capitalist
economy involves three agents the buyer
the seller and the bank
so the bank also has to be part of it
well the bank has to be part of it what
when when I hand you the money you
accept that as uh you've now got rather
than it's the bank promising to pay me
something it's now the bank promising to
pay you something and we exchange the
promises of Banks and that's
fundamentally
money so
money is fundamentally a threesome and
everybody gets fucked is that a good way
to put it no
le now know I can use French in this
conversation that's good that's not
French that's um that's a different
language I'll explain it to you one day
but um you Australians would never
understand okay uh if I can return to
we'll jump around if it's okay it's fine
uh so you mentioned KL Marx M as um one
of the great intellects economic
thinkers ever he's he's he might be
number one you study him quite a bit you
disagree with him quite a bit but you
still think he's a powerful
a powerful mind yeah a powerful mind so
first of all let's let's just explore
the human
um
uh why do you say so what's interesting
in that mind in the way he saw the world
what are the insights that you find
Brilliant the Marx once described his
major work as towards a critical uh
examination of everything
existing okay so he's a modest bastard
yeah um so he he he wanted to understand
and criticize everything yeah and uh
even he he he wasn't trained directly by
Hegel but he was his teachers with
hegelian philosophers and what Hegel
developed was a concept called
dialectics and dialectics is a
philosophy of change and uh when most
people hear the word dialectics they
come up with this unpronouncable Trio of
words called thesis antithesis synthesis
I can barely get the words out myself
yeah and that actually is not Hegel at
all that's another German philosopher F
Oh I thought it was K no fck well I'm
not sure you I mix them up all germ look
the same to me yeah
yeah um so but if you look this
beautiful book called Marx in
contradiction you want to find a great
explanation for Marxist philosophy I
forgotten the author I think it's wild
wde Marx in contradiction and he points
out the actual origins of Marx's
philosophy I didn't know that when I
first read Marx so I became exposed to
Marks uh when I was a student at Sydney
University and we'd had a strike at the
University over the teaching of
philosophy and uh what happened was the
philosophy Department had a lot of
radical philosophers in it and a
conservative Chief philosopher and uh
the the radicals wanted to have a course
on what they called feminist aspects of
philosophical sorry philosophical
aspects of feminist thought and the
staff voted in favor of it this is back
in the days when University departments
were Democratic the Professor opposed it
he got it blocked at a high level the
staff Le frogged over that and then
finally the vice Chancellor blocked it
so that led to a strike over the
teaching of philosophy at Sydney
University which at one stage over
probably over half the students were on
strike okay wow economics began out of
that over teaching of a philosophy of
feminism yes God it's good to be that's
such a different life to what we're
living now that that's the academic mure
in which I developed all my ideas and
and and I had become a Critic I've gone
from being a believer of mainstream
economics when I was a first year
student to disbelieving it halfway
through first year okay and I then spent
a long time trying to change it getting
nowhere and then this philosophy strike
happened and we took it on in economics
and we formed What's called the
political political economy movement and
had a successful strike we actually uh
managed to pressure the university into
establishing a department of political
economy at St University as well the
department of Economics what was the
foundational ideas were you resistant to
the whole censorship of why aren't we
having why can't you have a philosophy
of anything kind of course well it was
it was much more libertarian in the
genuine sense of the word period of time
uh at the end of the end of the 60s
beginning of the 70s than the word
libertarian has been corrupted since
then but it really was about free
thought and you went to University to
learn it was about education I remember
having a fight with my father once where
was angry about the marks I was getting
for some of my courses and he said if
you don't get a decent result you won't
get a a decent job and I said I'm not
here to get a job I'm here to get an
education oh wow okay now the thing is
ultimately it's been a pretty good job
for me as well this is in Sydney by the
way and Sydney in summer is absolutely
gorgeous and what US US bunch of lefties
decide to do during summer but read KL
marks yeah on the beach or uh actually
inside the uh room of the philosophy
department at the University of Sydney
in the the main quadrangle Sandstone all
around us and we bunch of about 20 or 30
of us reading our way through marks
Capal like what which volume one volume
one capital and I remember walking off
to that meeting with one of my friends
uh who's a law law student and we this
was a period of a huge construction boom
in Sydney so the whole Skyline which we
could see from the campus was full of
what they call Kangaroo cranes which
were an Australian invention that are
cranes that can know Lea frogged over
each other to build a a skyscraper so
here you are reading KL Marx looking at
the at the mechanisms of capital and I
looked at those mechanisms and I knew
marks argued that labor was the only
source of value yeah and he said
Machinery doesn't add value so the
cranes are worthless I'm looking at
these cranes and thinking I want a very
good explanation by Marx as to why these
cranes don't add value So reading
through the first seven chapters of
capital what you found was marks
applying this dialectic and like the fic
and stuff is shit that is not how Marx
thought at all I was reading trying to
find the thesis antithesis synthesis and
it's not there at all in any of Marx's
works and I've read everything is ever
written on economics from 1844 to 1894
when his last books were published
there's not one word of mention of that
what he does talk about is foreground
and background and tension and his idea
of a of a dialectic is that there is uh
a Unity will exist in society and that
Unity can be an individual there can be
a commodity anything at all the unity
will be understood by that
Society one particular aspect will be
focused upon so if you think about the
human being in capitalism the focus on
the human being as an object is their
capacity to work you're a worker okay
that it's put in the
foreground the fact that you're human
and you want to play a guitar and go
surfing and make love and all the other
things that humans do is pushed into the
background MH there's a tension between
the two of those and that can transform
that Unity over time and that's a
beautiful Dynamic
vision of change so dialectics is a
philosophy of change so synthesis
antithesis is uh what does every idea
have a counterargument yeah there's a
positive and negative and you bring them
together somehow and then Marx has this
forrr
foreground is all what we think of as
economics and background is all the love
making we do as humans that sort of
thing and and why is what's why is there
attention well because you imag if you
imagine the unity like if if you take a
human in a any pre could you go back to
chromagnon days when we're you know
living in caves and and we've got to go
hunting and cook food and stuff like
that but there's no social hierarchy as
we've become used to so you don't get
labored as a worker or a capitalist
you're just a human in that situation
then you'll you've got more of an
integrated view of who you are and I
think that's one of the appeal of of a
tribal a genuine tribal culture that you
get treated for the whole of who you are
you've certainly categorized you're male
you're female you're young you're old
you're a hunter you're a you're a tool
maker etc etc but you're treated as more
an integrated object when you get put in
a complex society like a capitalist
Society then one side of you is
emphasized and the others are
de-emphasized so is it fair to say that
the background is like our basic
fundamental humanity and the foreground
is the machine of capitalism effectively
and when you look at in terms of of a
human but what Marx did is applied this
to a commodity he said what is the
essential unity in a capitalist economy
and the essential Unity is a commodity
okay that's essal the essential unit the
essential Unity what's Unity Unity is an
object in society okay okay so he he
started from the point of view of trying
to understand what how exchange occurs
how do we set prices and his starting
Vision was to say that a commodity is a
unity in a capital economy the part of
the
unity that we focus upon is the exchange
value a capitalist produces a commodity
not because of its qualitative
characteristics but because it be sold
for a profit so the foreground aspect of
a commodity is its exchange value the
background aspect of it it won't succeed
as a commodity unless it has a use value
so the background is the utility thing
yeah see if you made something which
didn't work okay yeah then it has you
might be able to sell it but it has no
utility that can't you can't make that
into commodity a broken thing can't be
sold does that have the subjective yeah
it has to have the subjective side so
people enjoy as well as the objective so
the objective is what capitalist worry
about I'll give you my favorite counter
example of that I was in uh I took a
bunch of Australian journalists to China
Way Back In the period when the gang of
four was was being on trial and we did a
tour of the Forbidden City in uh Beijing
and at that stage all the artifacts of
the royal family the emperor were
actually in the building still and we
walked past one of them and it was this
gold Solid Gold Bar about this long
shaped like a fist turned over like this
and on this side there were rubies
emeralds diamonds you've never seen
gemstones I mean gems that big okay and
one of the journalists asked me what I
thought it was and I said oh it's
obvious Jane it's a back scratcher hahaa
mhm I walked away she caught up with me
about 20 Min said I asked one of the
guides it is a back scratcher wow so
here's a back scratcher for the emperor
made of solid gold with diamonds and
rubies and emeralds during the
scratching yeah now that's that's a
commodity in a feudal society okay the
cost doesn't matter you want the most
elaborate beautiful thing because you're
the emperor so in that in a feudal
society the commodity what's focused
upon is the utility and the cost of
production when you when you're the
emperor is immaterial capitalism
reverses the that so the commodity in a
capitalist economy is a plastic $2
scratchy you can get from Kmart or
Target yeah and so the the the use value
is necessary but irrelevant to forming
the price now that was a completely
different vision of Exchange in
capitalism to what I found in the
neoclassical Theory because that says
it's the marginal utility and the
marginal cost of everything that
determines the exchange ratio and the
the crazy thing about that is not so
much the marginal utility but the
argument in in the neoc classical theory
is that the price rati the price will um
when there's an exchange going on
there's two person two commodity
exchange of of two commodities for
between two people uh they will CH the
the price will change until such time as
the ratio of the marginal utilities is
equal to the ratio of the marginal costs
right they're supposed to be the
equilibrium now Mark says that's
bullshit a previous Society where you
exchange stuff that you happen to have
for Stuff somebody else happened to have
without any real production mechanism
being involved and he said that's like
when you when you have an two ancient
tribe two tribes meeting for the very
first time and one tribe can make
something the other tribe can't make and
they will therefore the price they were
willing to pay will reflect how unique
this other object is that the this one
tribe can make and the other can't so
for example the story of Manhattan being
sold for 40 glass beads it's actually 40
glass trading beads I believe it is a
true story but thing is the Indians
couldn't make glass beads so they valued
the glass beads at the island of
Manhattan okay which is a utility based
comparison what Mark said that's the
very initial contact over time even if
you don't know the technology over time
you you start to realize how much work
goes involved to making what they're
selling you versus what you're selling
to them and you start making stuff
specifically for sale so you know elon's
not losing personal utility each time a
a model 3 goes out the door there's no
he might get utility out of the fact
that he's created that vehicle that
concept and manufactures it and so on
but he's not losing utility each time a
Model T Ford goes out the door for for
going back for the Ancient Ancient
commodity there so the utility plays no
role in setting price in Marx's model
whereas it's a IAL in the neoc classical
model what's the difference between
utility and marginal utility what does
the word marginal mean and why is this
such a problem it turns marginal utility
well the utility itself has different
meanings in the two schools of thought
if you take the classical school of
thought which when marks comes from
utility is effectively objective so the
utility of a chair is that you can sit
in it okay not how comfortable it makes
you feel yeah okay now if you think
about the utility of the chairs we're
both sitting and they're identical from
a classical point of view we're both
sitting okay but from a neoc classical
point of view it's how comfortable it
makes you feel and that depends upon
your subjective feelings of comfort you
might be far more comfortable in The
Identical chair that I'm sitting in than
I am yeah and therefore the comparison
is difficult and therefore working out a
ratio involves you've got a decline in
your each time you give away a chair in
exchange for a iPhone you have a fall in
your utility okay but and and then
therefore you want a higher return
because you're losing more utility each
time the the more chairs you give away
the less utility you're getting from
chairs there's a decline in your utility
that's your your marginal utility so
it's including your subjective valuation
in setting the price and what Marx
pointed out is this is a a caricature of
actual change in a capitalist economy
because we have in a capitalist economy
huge factories turning out huge
quantities specifically for S they've
got no utility to the um seller unless
they're sold mhm okay so it's a it's a
it's a very different vision of where
how pric is set and Marx used that to
explain where profit comes from but he
made a
mistake and his argument was that
talking about a worker uh as as an Alle
your Unity this your foreground
background tension thing the foreground
is that you hire a worker uh for their
cost of production and the cost of
production is a subsistence wage okay um
the utility to the buyer is the fact
that they can work in a factory now it
might take 6 hours let's say to make the
means of subsistence and that's the
exchange value and that's what the
capitalist pays as a wage to the worker
but they can work in the factory for 12
hours that's the
utility 12 - 6 is six surplus of value
hours and that's where profit comes from
that was Marx's argument and I thought
it was brilliant but it also applied to
Machinery right okay let's let's no no
deep deep deep is good just want to
Define uh terms don't take that
statement out of context the internet
please okay uh you said buyer seller
worker in a factory who's the seller
who's the buyer well uh why is the
worker the buyer well the worker is the
commodity in this case because when when
if you're going to make stuff in a
factury you've got to hire workers yes
okay and what Marx is saying the buyer
in that situation is a capitalist so
what does a buyer pay he says he pays
the exchange value that's they get back
to the commodity thing that it's just
because that's the starting point is
that the essential unity in a capitalist
economy is the commodity a commodity has
two characteristics exchange value and
use value okay The Exchange value of a
commodity in a capitalist economy will
be its cost of production the use value
is what you do with it okay once you
purchased it but labor is a commodity in
this case when you when a worker is
being hired for a job yes so the
workers's labor has an exchange value
and a use value as well yeah use value
use value of a worker's labor exchange
value let me think about that so that so
the hours they put in is the use
value interesting so what uh what does
the worker want in this what are the
motivations are we not considering the
worker in this context as a human being
with want you come and that's actually
that's that's the next layer what what
marks give was just like a a layered
cake starting from a foundation of
saying straight commodity exchange and
then saying well you're treating a work
as a commodity now a commodity is
something you know like this
okay that has so far as I'm awar no soul
okay yeah not going to be complaining if
I turn it upside down it'll fall over
but you so that's there's no soul there
as a human is both a commodity and a
non-commodity yeah and therefore
there'll be a tension in the person I'm
being treated as a commodity here I'm
being paid just enough to stay alive you
know I've got a wife and kids back at
home yeah so that that is another layer
of of of thinking in marks and and on
that layer he then says well workers
will therefore demand more than their
value so that's when you get like
political you get political and you get
money coming above that and so on but
the basic idea starts from the
Commodities the fundamental unity and
capitalism the important commodity in
Marx's thinking was the worker because
that's where he said profit came from
yeah okay and then that explains the
motivation of the capitalist and that
ultimately leads to the labor theory of
value and Marx's arguments about how
capitalism will come to an end okay okay
okay so first of all what is the labor
Theory of value and actually before that
what is value is that um this is like me
asking what's happiness uh is there
something interesting to say while
trying to Define value you vary and this
is a huge problem in economics is
arguments of what does value mean and
the neoclassicals came down as that it's
subjective it's value is whatever you
get out of it it's your personal
evaluation of something your personal
feelings so they've got that very
subjecti