Why is there so much inequality?
In this short book, world-famous economist Yanis Varoufakis sets out to answer his daughter Xenia’s deceptively simple question.
Using personal stories and famous myths – from Oedipus and Faust to Frankenstein and The Matrix – he explains what the economy is and why it has the power to shape our lives.
Intimate yet universally accessible, Talking to My Daughter About the Economy introduces readers to the most important drama of our times, helping to make sense of a troubling world while inspiring us to make it a better one.
Born in Athens in 1961, Yanis Varoufakis was for many years a professor of economics in Britain, Australia and the USA before becoming finance minister of Greece in 2015.
His memoir of his experiences in government, Adults In the Room: My Battle with Europe’s Deep Establishment, was a number one bestseller in 2017. His previous book, And The Weak Suffer What They Must?: Europe, Austerity and the Threat to Global Stability was a number one bestseller in 2016.
He is currently Professor of Economics at the University of Athens and speaks to audiences of thousands worldwide as a co-founder of the Democracy in Europe Movement (DiEM25).
His daughter Xenia is now fifteen years old and lives in Sydney, Australia.
yanisvaroufakis.eu / @yanisvaroufakis
Adults in the Room: My Battle with Europe’s Deep Establishment
And The Weak Suffer What They Must?: Europe, Austerity and the Threat to Global Stability
The Global Minotaur: America, Europe and the Future of the Global Economy
This book grew out of my Greek publisher’s invitation, back in 2013, to talk directly to young people about the economy. My reason for writing it was the conviction that the economy is too important to leave to the economists.
If we want to build a bridge, better to leave it to the experts, to the engineers. If we need surgery, better to find a surgeon to operate. But books that popularize science are important in a world where the president of the United States wages open war against it and our children eschew science courses. Cultivating a broad public appreciation of science throws a protective shield around the scientific community that must produce the experts society needs. In this sense, the small volume here is quite different from those books.
As a teacher of economics, I have always believed that if you are not able to explain the economy in a language young people can understand, then, quite simply, you are clueless yourself. With time, I recognized something else, a delicious contradiction about my own profession that reinforced this belief: the more scientific our models of the economy become, the less relation they bear to the real, existing economy out there. This is precisely the opposite of what obtains in physics, engineering and the rest of the real sciences, where increasing scientific sophistication throws more and more light on how nature actually works.
This is why this book is my attempt to do the opposite of popularizing economics: if it succeeds, it should incite its readers to take the economy in their own hands and make them realize that to understand the economy they also have to understand why the self-appointed experts on the economy, the economists, are almost always wrong. Ensuring that everyone is allowed to talk authoritatively about the economy is a prerequisite for a good society and a precondition for an authentic democracy. The economy’s ups and downs determine our lives; its forces make a mockery of our democracies; its tentacles reach deep into our souls, where they shape our hopes and aspirations. If we defer to the experts on the economy, we effectively hand to them all decisions that matter.
There was another reason I agreed to write this book. My daughter Xenia is an almost constant absence in my life. Living as she does in Australia and I in Greece, we are either far apart or, when we are together, counting the days until the next separation. Talking as if to her about things that the scarcity of time never allowed us to discuss felt good.
Writing the book was a joy. It is the only text I have written without any footnotes, references or the paraphernalia of academic or political books. Unlike those ‘serious’ books, I wrote it in my native tongue. In fact, I just sat down at our island home in Aegina, overlooking the Saronic Gulf and the mountains of the Peloponnese in the distance, and let the book write itself – without a plan or provisional table of contents or blueprint to guide me. It took nine days, punctuated by the odd swim, boat ride or evening out with Danae, my forgiving and ridiculously supportive partner.
A year after the book was published in Greek, life changed. The collapse of the Greek and European economies pushed me through the rabbit hole of a ministerial position in the midst of an almighty clash between the people who elected me and a global oligarchy. Meanwhile, thanks to my new role, this little book was being translated into many languages, its musings acquiring a large audience in France, Germany, Spain and several other places. The only major language that it was not translated into was English.
Now, with the help of Jacob Moe, who translated from the original Greek, and the good people at Penguin Random House, Will Hammond in particular, it is appearing in the language in which I usually write. Following swiftly on the heels of another book, Adults in the Room, which was exceptionally painful to write, documenting as it did the traumatic events of 2015, reworking this book into its English incarnation has been therapeutic: an escape from the trials and tribulations of one caught up in the vortex of a collapsed and sinking economy. It has allowed me to return to a long-lost self who once wrote in peace and quiet, without the constant assaults of the press, doing what I have always loved: seeking ways to disagree with myself in order to discover what my true thoughts are.
The problem with our daily exchanges over the issues of the day is that we drift into a debate uninformed by the elephant in the room: capitalism. During the week in July 2017 that I worked on this English edition, again in Aegina, overlooking the same sea and the same mountains, I loved not writing about Brexit, Grexit, Trump, Greece, Europe’s economic crisis but instead talking to my daughter, in the abstract, about capitalism. For, in the end, nothing makes sense if we do not come to terms with this beast that dominates our lives.
In view of what I’ve just written, readers may be surprised by the absence of any mention of ‘capital’ or ‘capitalism’ in the book. I chose to leave out such words not because there is anything wrong with them but because, loaded as they are with heavy baggage, they get in the way of illuminating the essence of things. So, instead of speaking about capitalism, I use the term ‘market society’. Instead of ‘capital’ you will find more normal words like ‘machinery’ and ‘produced means of production’. Why use jargon if we can avoid it?
Turning to my influences and sources, I have a confession: this book, courtesy of having been written as something of a stream of consciousness lasting a mere nine days, is riddled with ideas, phrases, theories, stories that I have been consciously or unconsciously collecting, borrowing, plundering since the early 1980s to shape my thinking and to help me come up with teaching devices that shake students and audiences out of lethargy. A complete list is impossible, but here are some that come to mind.
Besides the works of literature and the poems mentioned in the text, as well as the science-fiction movies without which I find it hard to understand the present, I shall mention four books: Jared Diamond’s Guns, Steel and Germs, which underpins the story in the first chapter that explains the emergence of gross inequities and, ultimately, racist stereotyping; Richard Titmuss’s The Gift Relationship, whose discussion of the blood market underscores ideas first developed in Karl Polanyi’s Great Transformation; Robert Heilbroner’s majestic The Worldly Philosophers; and novelist Margaret Atwood’s Payback, which I recommend unreservedly as perhaps the best, and most entertaining, book ever written on debt.
Finally, it would be remiss not to mention the spectre of Karl Marx, the dramaturgy of the ancient Athenian tragedians, John Maynard Keynes’s clinical dissection of the so-called ‘fallacy of composition’ and lastly the irony and insights of Bertolt Brecht. Their stories, theories and obsessions haunt every thought I ever had, including the ones laid down in this book.
All babies are born naked, but soon after some are dressed in expensive clothes bought at the best boutiques while the majority wear rags. Once they’ve grown a little older, some get annoyed every time relatives and godparents bring them yet more clothes, since they would prefer other gifts, such as the latest iPhone, while others dream of the day when they might be able to head to school without holes in their shoes.
This is the kind of inequality that defines our world. From a young age you seemed aware of it, even though it was not part of your everyday life, because, truth be told, the school we send you to isn’t attended by children condemned to lives of deprivation or violence – as the overwhelming majority of the world’s children are. More recently you asked me, ‘Why so much inequality, Dad? Is humanity that stupid?’ My answer didn’t satisfy you – or me, for that matter. So please let me give it another try, by posing a slightly different question this time.
Living and growing up in Sydney as you do, your schoolteachers have spent many hours and lessons making you and your classmates aware of the hideous injustices perpetrated by ‘white’ Australia on the country’s original inhabitants, the Aborigines; of their splendid culture, which white European colonialists trampled underfoot for over two centuries; and of the conditions of shocking poverty in which they still live as a result of those centuries of violence, theft and humiliation. But did you ever wonder why it was the British who invaded Australia, seizing the Aboriginals’ land just like that, almost wiping them out in the process, and not the other way round? Why didn’t Aboriginal warriors land in Dover, quickly advancing to London, murdering any Englishmen who dared resist, including their queen? I bet not one teacher at your school dared to raise that question.
But it’s an important question, and if we don’t answer it carefully, we risk thoughtlessly accepting either that the Europeans were ultimately smarter and more capable – which was certainly the view of the colonizers at the time – or that the Aboriginal Australians were better and nicer people, which is why they themselves didn’t become brutal colonizers. Even if it were true, this second argument boils down to much the same thing as the first: it says there is just something intrinsically different between white Europeans and Aboriginal Australians, without explaining how or why, and nothing legitimizes crimes like those committed upon the Aborigines, and others, better than arguments of this sort.
These arguments must be silenced if only because they can emerge from within your own mind, tempting you to accept that history’s victims deserved what they got because they were not smart enough.
So the original question, ‘Why so much inequality between peoples?’ blends into another, more sinister question: ‘Is it not simply that some groups of people are smarter and, as a result, more capable than others?’ If this is not the case, why is it you’ve never seen in the streets of Sydney the kind of poverty you encountered on your visit to Thailand?
In the bubble of Western prosperity you’re growing up in most grown-ups would say to you that poor countries are poor because their ‘economies’ are weak – whatever that means. They would also say to you that poor people in your own community are poor because they do not have anything to sell that others really want – that, in short, they have nothing to offer the ‘market’.
This is why I have decided to talk to you about something called the economy: in your world, and mine, any discussion of why some people are poor whereas others are stinking rich, or even why humanity is destroying Planet Earth, revolves around that thing called the economy. And the economy is related to that other thing known as the market. To have any say in humanity’s future, you cannot afford to roll your eyes and switch off the moment words like ‘economy’ or ‘market’ are mentioned.
So, let me begin with a common error that many make: they think that markets and the economy are one and the same thing. They are not. What exactly are markets? Markets are places of exchange. At the supermarket we fill our trolley with things in exchange for money, which the seller – the owner of the supermarket or the employee paid with money from the register – later exchanges for other things that they want. Before money was invented, exchanges were direct: a banana would be exchanged directly for an apple, or maybe two apples. Today, with the Internet in full swing, a market does not even have to be a physical place, like when you get me to buy you apps on iTunes or vinyl records from Amazon.
Obviously, we’ve had markets since we were living up in the trees, since before we developed the capacity to grow food. The first time one of our ancestors offered to trade a banana for some other fruit, a market exchange of sorts was in the air. But this was not a true economy. For an economy to come into being, something else was needed: a capacity to go beyond just gathering bananas from trees or hunting animals – a capacity to produce food or instruments that would not have existed without human labour.
Some eighty-two thousand years ago humans made the First Big Leap: using our vocal chords we managed to speak and move beyond inarticulate cries. Seventy thousand years later (that is, twelve thousand years ago) we made the Second Big Leap: we succeeded in cultivating land. Our ability to speak and to produce food – instead of just shouting about and consuming what the environment naturally provided (wild game, nuts, berries, fish) – gave rise to what we now call the economy.
Today, twelve thousand years after humanity ‘invented’ agriculture, we have every reason to recognize that moment as truly historic. For the first time humans managed not to rely on nature’s bounty; they learned, with great effort, to make it produce goods for their own use. But was this a moment of joy and exaltation? Not at all! The only reason humans learned to cultivate the earth was that they were starving. Once they had hunted down most of their prey with savvy hunting methods, and multiplied in number so rapidly that produce from the trees was insufficient, humans were forced by dire need to adopt methods for cultivating the land.
Like all technological revolutions, this wasn’t one that humanity consciously decided to start. Where humans could avoid it, as in Australia where nature provided enough food, they did so. Farming took hold where humans would have perished otherwise. Gradually, through experimentation and observation, the technology that allowed us to farm more efficiently evolved. But in the process, as we developed the means to grow food, human society changed drastically. For the first time agricultural production created the basic element of a true economy: surplus.
What is surplus? Initially, surplus simply meant any produce of the land that was left over after we had fed ourselves and replaced the seeds used to grow it in the first place. In other words, surplus is the extra bit that allows for accumulation and future use – for example, wheat saved for a ‘rainy day’ (if the next harvest were to be destroyed by hail) or used as extra seeds to be planted next year, increasing production, and the surplus, in the years to come.
You should take note of two things here. First, hunting, fishing and the harvesting of naturally occurring fruit and vegetables could never yield a surplus even if the hunters, the fishermen and the gatherers were super-productive. Unlike grains – corn, rice and barley, which could be preserved well – fish, rabbits and bananas quickly rotted or spoiled. Second, the production of agricultural surplus gave birth to the following marvels that changed humanity for ever: writing, debt, money, states, bureaucracy, armies, clergy, technology and even the first form of biochemical war. Let’s take these one by one …
We know from archaeologists that the first forms of writing emerged in Mesopotamia, which is where Iraq and Syria are now. But what did they record? The quantity of grain that each farmer had deposited in a shared granary. This was only logical: it was difficult for each individual farmer to build a granary for storing their surplus, and simpler if there was a common granary overseen by a guard, which every farmer could use. But such a system required some sort of receipt, for example, that Mr Nabuk had deposited a hundred pounds of grain in the granary. Indeed, writing was first created so that these accounting records could be kept – so that each individual could prove what quantity they had stored in a common granary. It is no coincidence that societies not in need of developing agricultural cultivation – in places where wild game, nuts and berries were never in short supply, as was the case for Aboriginal Australian societies and indigenous communities in South America – kept to music and painting and never invented writing.
Accounting records of how much wheat belonged to our friend Mr Nabuk were the very beginnings of both debt and money. Based on archaeological finds, we know that many workers were paid in shells engraved with numbers indicating the pounds of grain that rulers owed them for their labour in the fields. Since the amounts of grain these shells referred to had often not been harvested yet, the shells were a form of debt owed to workers by their rulers. At the same time, the shells were also a form of currency, since workers could exchange them for products produced by others.
But the most interesting discovery has to do with the first appearance of metal currency. Most people believe it was invented to be used in transactions, but this wasn’t the case. In Mesopotamia at least metal currency that didn’t physically exist was used in written accounts to express how much farm workers were owed. For example, the accounting log would note, ‘Mr Nabuk has received grain valued at three metal coins,’ even though those metal coins had not been minted yet and might not be for many, many years. In a sense, this imagined form of money, used to facilitate real exchanges, was a virtual currency. So, when people tell you that today’s economy is very different to the economy of the past, citing the virtual payments made possible by digital technologies, tell them that is nothing new; that virtual money has existed ever since the economy was invented, following the agricultural revolution twelve thousand years ago and the creation of the first surplus.
In fact, even when metal currency was forged, it was often too heavy to circulate. So, the value of the grain Mr Nabuk was owed was expressed as a proportion of the weight of a large piece of iron. In any case, Mr Nabuk never went around with metal currency in his pocket – all he carried on him was an IOU, often in the form of a shell with writing on it indicating pounds of grain or shares of a large, immovable block of iron.
Now the thing about virtual currency and these IOUs is that to work they need a great deal of … faith. Mr Nabuk had to believe – he must have had faith – in the willingness and capacity of the controllers of the granary to give him the grain he was owed once it was produced. And others must have believed that too before accepting Mr Nabuk’s shell-IOUs in exchange for oil or salt or in order to help him build his hut. This is the origin of the word ‘credit’: it comes from the Latin credere, which means ‘to believe’.
For such faith to prevail and give value to the shells (i.e. the currency), people needed to know that they were guaranteed by someone or something very powerful. This might be a ruler descended from the gods, a mighty king of royal blood or, later, something resembling a state or a government: an authority that could be trusted to have the future power to reimburse Mr Nabuk with his share of the grain surplus, even if the individual ruler were to die.
Debt, money, faith and state all go hand in hand. Without debt there is no easy way to manage agricultural surplus. As debt appeared, money flourished. But for money to have value, an institution, the state, had to make it trustworthy. When we talk about the economy, this is what we are talking about: the complex relations that emerge in a society with a surplus.
And as we examine these relations, what also becomes clear is that a state could never have been born without surplus, since a state requires bureaucrats to manage public affairs, police to safeguard property rights and rulers who – for better or for worse – demand a high standard of living. None of the above would be conceivable without a hefty surplus to sustain all of these people without them having to work in the fields. Nor could an organized army exist without a surplus – and without an organized army the power of the ruler, and by extension the state, could not be imposed, and the society’s surplus would be more vulnerable to external threats.
Bureaucracies and armies were made possible by agricultural surpluses, which in turn created the need for bureaucracies and armies. The same was true of the clergy. The clergy? Yes, surplus begat organized religion! Let’s see why.
Historically, all the states resulting from agricultural societies distributed their surplus in an outrageously unequal manner, to the benefit of those with social, political and military power. But as strong as these rulers were, they were never strong enough to face down the vast majority of impoverished farmers, who if they joined forces could overthrow the exploitative regime in a matter of hours. So, how did these rulers manage to maintain their power, distributing surplus as they pleased, undisturbed by the majority?
The answer is: by cultivating an ideology which caused the majority to believe deep in their hearts that only their rulers had the right to rule. That they lived in the best of all possible worlds. That everything was the way it was destined to be. That the situation on the ground reflected some divine order. That any opposition to them clashed with that divine power’s will, threatening to send the world spinning out of control.
Without this legitimizing ideology, the power of the state didn’t stand a chance. Just as the state had to exist in perpetuity, surviving the death of its ruler, the ideological crutch for state power needed to be institutionalized too. The people who performed and instituted the ceremonies that served this purpose were the clergy.
Without a large surplus there would be no capacity to create religious institutions with complicated hierarchies of clergy, since the ‘holy’ men and women did not produce anything. At the same time, without organized religion the rulers’ authority over the generation and distribution of the surplus would be very unstable and prone to insurrections by the majority, whose share of the surplus was usually tiny. This is why for thousands of years the state and the clergy were one and the same.
The human brain managed to bring about technological revolutions well before agricultural production came about – for example, the invention of fire, metal extraction from ore, the aerofoil, as in the Australian Aborigines’ remarkable boomerang. But agricultural surplus gave technology a gigantic boost by simultaneously giving rise to new technological needs – the need for ploughs and irrigation systems – and by concentrating resources in the hands of a powerful few. The agricultural revolution catapulted human technology to a level that made possible the construction of the magnificent Pyramids, the Parthenon and the Inca temples – with the help, of course, of thousands of slaves.
But surplus also creates deadly bacteria and viruses. When tons of wheat are piled into common granaries, surrounded by throngs of people and animals in towns and cities that lack basic waste disposal systems, the result is a massive biochemical laboratory in which bacteria and viruses rapidly develop and proliferate and cross from one species to another. Human bodies had not evolved to cope with the resulting devastating diseases, and at first many died. But slowly, over generations, the inhabitants of these societies managed to adjust to cholera, typhus and the flu and became more resistant to them.
Of course, when they encountered tribes and communities that had not yet developed agricultural production, because of the millions of deadly microorganisms they now carried with them a handshake was enough to wipe most of the tribespeople out. In fact, both in Australia and America many more of the native populations died from contact with bacteria and viruses carried by invading Europeans than from cannonballs, bullets and knives. In some cases the European raiders even engaged knowingly in biochemical war: on one occasion a Native American tribe was devastated when a delegation of European colonists gifted them blankets knowingly seeded with smallpox virus.
Time to revisit the tough question I started off with. Why did the British invade Australia instead of the Aborigines invading England? More generally, why did all imperialist superpowers emerge in Eurasia and not one from Africa or Australia? Does it have to do with DNA? Certainly not. The answer lies in what I have just been telling you.
We saw how in the beginning … was surplus. And from agricultural surplus there emerged writing, debt, money and states – and from these economies emerged technologies and armies. Simply put, the geographical conditions in Eurasia – the nature of the land and the climate – meant that agriculture and surplus and all that went with it took hold with great force, leading to the emergence of rulers of states in command of armies equipped with technologies such as guns and made even more lethal by the biochemical weapons they carried in their bodies and on their breath.