Steve Keen: Marxism, Capitalism, and Economics | Lex Fridman Podcast #303

The real foundation of Marx's political philosophy was the economic argument that there would be a tendency for the rate of profit to fall. And that tendency for the rate of profit or fall would lead to capitalists battening down on workers harder, paying them less than subsistence. A revolt by workers against this, and then you would get socialism on the other side. So what he called the tendency for the rate of profit to fall played a critical role in his explanation 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, the advanced economies would be first to go through the revolution. The primitive economies would have to go through a capitalist transition. And this is the difference between the Mensheviks and the Bolsheviks. So the Mensheviks and Hyman Minsky came out of the Menshevik family. The Mensheviks believed you had to go through a capitalist phase. Russia had to go through a capitalist period before it becomes socialist. The Bolsheviks believed they 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 varied thinkers from Karl Marx to John Meter Keynes to Haman Minsky. In fact, a lot of our conversation is about Karl Marx and Marxian economics. He has been a scholar of Karl 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 Friedman podcast to support it. Please check out our sponsors in the description and. And now, dear friends, here's Steve Keen. 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. You understand how human civilization comes about and how it can be maintained, and that's not what it's been at all. 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 consumption and knowledge levels of the base 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's an atmospheric physicist, and his idea is that we have these. We exploit these high grade energy sources from the sun itself to coal, nuclear, et cetera, et cetera, 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 into microphones. We might be doing drumbeats and stuff like this, but we wouldn't be having the sort of conversation we have. So it explain how that came about. That was 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 in this conversation.

Yeah, we're the most elaborate construction on the planet and 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 my ultimate if I had to see how humanity is going to survive what we're putting ourselves through, then 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 serious one about how amazing life is.

Life is incredible and we're humans don't respect it enough, we trash it. And that's what 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 a science. My discipline 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 should be the goal of it? Because you're speaking very poetically, but we'll also speak pragmatically about 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 sounds ridiculously simple because you would expect that economists are using up to 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, the sophisticated stuff involves difference equations and difference equations. If you've done enough mathematics as you have, you know, difference equations are useful for individual level programs. If you're talking about autonomous one, it'll go from state T to T plus one, t plus two, 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 difference equations. So there's like a book, I think it's by Sargent and one other are called Advanced Methods in economics using Python 2 volume set. It's about close to 2000 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 equations?

Okay, a difference equation is like you can do in a spreadsheet. You'll have, this is the value for 1990, this is the value for 1991, 92, 93, 94. So you have discrete jumps in time, whereas the differential equation says there's a process moving through time and you will have a rate of change of a, of a 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 of each molecule of H2O. So at the aggregate level, you use differential equations for processes that occur through time. And that's economics. That 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 the technical level, it's an incredibly complicated way of modeling the world using entirely the wrong tools.

Okay, 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. Some of the most complex systems on Earth are the human mind, the economy, and the biosphere. So we'll go, we'll go to that place. I'm fascinated by complex systems. I'm humbled by them. Even at their simplest level of cellular automata, I'm not sure what the right tools are to understand that, especially when part of the complex system is a hierarchy of other complex systems. So you said the economy is A fascinating, complex system, but it's made up of the human minds. And those are interesting. Those are interesting. Perhaps impossible to model, but we can try and we can try to figure out how to approximate them. And maybe that's the challenge of economics. 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 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 Keynesian, Austrian. I like the biophysical 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 their knowledge came from. Because if you go back far enough in history, we didn't do autopsies. But when you started doing autopsies, they found wires, they found tubes, et cetera, et cetera. And they started seeing the body as a circulation system. And they applied the same sort of logic to the economy. And they came out of an agricultural economy, which was 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 the soil absorbs the energy of the sun. 1 seed plants, 1000 flea seeds come back. There is no surplus. 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. We then went through the classical school of economics, which comes out of Adam Smith, and Smith, 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 sector.

What does sterile mean?

Sterile means you don't extract value, you simply change the shape of value.

So the value comes from the soil.

Value comes from the soil. That's the free gift of nature. That's literally the phrase they used. And we then distribute the free gifts of nature around and we need carriages, which was the manufacturing term they used at the time as well. As wheat. So 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. So Smith looked at that and said, well, I'm from Scotland and we've got these industries, you know, when 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. Now that led to the classical school of thought and that said that all value comes from labor, that value 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 two minutes to make. Then there's this is worth 60 times as much as that. They didn't talk about marginal cost, it was absolute cost. Effectively, they didn't talk about utility as a subjective thing. They ridiculed subjective utility theory. That led to Marx. And Marx is probably the most brilliant mind in the history of economics. The only other competitor I'd see is Schumpeter, possibly Keynes, but in my terms of ranking of intellects would be Marx, Schumpeter, Keynes, 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 sell. For capitalism equilibrates marginal cost and marginal utility and the concepts of equilibrium and marginal, this and marginal, that became the neoclassical 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, that's what you think is economics. The marginal utility, equilibrium oriented analysis of mainstream economics. And for example, they ignore money. People think 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 represent people's tastes using what they call indifference curves. And they're like isoquants on a weather map. If you look at an isoquant, it shows you all the points of the same pressure. So 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 bananas. And you draw basically a hyperbola running down and linking the two. And they'll say, well, 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 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 answer is, oh, nothing, sir. You stay at the same point of tangency between what your budget is and, 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 are therefore 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 barter. Like, I'll swap you that Microsoft Surface for, actually I'll take two of those for one of these. 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 find, reading Schumpeter, the insight. That's the school of thought that I come from that says money is essential, money actually adds to demand. And we'll talk about that later on. So that's the neoclassical school that ends up being subjective theory of value, non monetary, as though everything happens in barter 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. Its 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 exciting world of capitalism in which 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. You work with stability analysis. You work out what the Jacobian is. You work out your Leoponov 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 treating the economy as an equilibrium system, which was what the class neoclassical school did, is what Keynes disturbed. And he really disturbed it by talking about fundamentally that uncertainty determines our decisions about the future. So when we consume, you know, if you like Pfizer or whatever particular drink you 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 this is a terrible basis on which to plan for the future. But this is the only thing you can do where there is no possibility of solid calculation. So investment is therefore subject to uncertainty. And therefore you will get volatility out of investment. You will get fads, of course, booms and slumps coming out of that because people extrapolate forward the current conditions and that's the normal state of a capitalist economy. And Schumpeter argued that that's what gives us its creativity as well, the fact that you can perceive a potential demand, but first of all, you don't know whether that demand's going to work. Secondly, you don't know who your competitor's going to be, whether somebody's going to be ahead of you or behind. If there's a fad, you'll over invest. All this stuff is the real nature of capitalism. And that's what we're trying to capture. The dynamic non equilibrium monetary violence and creativity of capitalism. That's what we should be analyzing. And the post Keynesian school has gone in that orientation. There have 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 Keynesian economics. But that is to me the most interesting area.

So 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 try to summarize what you said. And then you say, how stupid, stupid I am. Okay, so then there was the physiocrats that thought value came from the land. Then there's Adam Smith who said, nah, value comes from human labor. That was the classical school. And then neoclassical is value comes from like bananas and coconuts, the preference, human preferences, like human happiness, how happy, how happy a banana makes you. And then the Kenzian and the post Keynesian 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 fishing in uncertain waters and we have to embrace that and come up with tools that model that well. And also Joseph Schumpeter, what school would you put him under? Is he a Keynesian or is he Austrian economics?

He's an Austrian. The Austrian is Deny. Okay, that's the intriguing.

He's from Austria, but he's not an Austrian economist.

There are elements of the Austrian school of thought which are worthwhile.

What is Austrian economics in this beautiful whirlwind picture that you painted?

Okay, Austrian economics grew 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. There's William Jevons from England, Menger, who's from Austria, and Walras from France. And Walras tried to work out a set of equations to describe a 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 instantaneously. And that's his equilibrium orientation. Jevons 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 Gate Marshall ultimately codified. Menger was pretty much saying that, well, 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 vision that a market should reach equilibrium, but then said, well, you'll get disturbed away from the equilibrium. And 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 Schumpeter went beyond that and saw the role of money and said that an entrepreneur is somebody with a great idea and no money. 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, and you will get movements away from equilibrium. Out of that, you won't necessarily head back towards the equilibrium. So Schumpeter has a rich vision of capitalism in which money plays an essential role in which you will be disturbed from equilibrium all the time. And that is really, I think, a much closer vision of actual capitalism than anything by even the leading Austrians, Hayek, et cetera, et cetera, and certainly Rombart, I find totally like reading a cardboard cutout version of the wealth of Nations. I find his worth trivial. But Sean Peter 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 was very much based on a hard money idea of capitalism. Schumpeter said you needed the capacity of the financial sector to create money to empower entrepreneurs. And that's a very important vision.

So Schumpeter'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 neoclassicals, but they still have this belief in the people. Reach equilibrium ultimately or you'll head back towards it. Whereas they don't have an explanation of capitalism that gives you cycles apart from having the wrong rate of interest. So there's no role for an accumulation of debt over time. So what Schumpeter gave us was 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.

So there's also kids these days are all into modern monetary theory.

What's that about? Okay, modern monetary theory is accounting. When I 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. I've forgotten the particular merchant who did it, but based on some Arabic ideas as well. But the thing is, if you want to keep track of your financial flows, then you divide 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 the two is your equity. So you record every transaction twice on one row. Okay? So for example, if you and I to do a financial transfer, you have a bank account, I have a bank account, your bank account will go down, mine goes up, okay? And 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's still the same sum applies. Assets minus liabilities minus equity equals zero. Now, that's simply saying money is, at 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, and Bitcoin enthusiasts, if there are any left, think about money, what they see is money as an object. And you and I can both have more gold if we're both willing to go to a mine somewhere and dig a few holes and get a few specks 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 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 of money as a commodity are wrong. So, for example, I've got Elon on this one. So I want to get this rid 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. 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, which 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. 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 sector. But if we have a transaction with the bank, then if the bank lends us money, its assets, loans 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 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 new transaction, no money is created, existing money is redistributed. But if you go to a bank and 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 the banking sector means more money. So that's how private banks create money. And that's what I first started working on when I became an academic 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 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 puts money in people's, it puts more money into people's bank accounts by spending, by welfare payments than 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 how the government is doing the reserves, blah, blah, blah. At the end of the day there's a bunch of printers that are printing money. And then you also said something interesting, which is social relations between humans is what creates money. I think my mind was blown several times over the past minute, so it's difficult for me to reconstruct the pieces of my mind back together. But 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 arguments with physicists over this and it took me a long time to answer it. They thought the sum total of all money is zero. It's the sum total of all assets and liabilities is zero. So if you imagine your assets minus your liabilities as your equity and your asset is somebody else's liability and your liability is somebody else's asset. Or 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.

Specific. Give me an example of an asset.

Okay. Do you have a mortgage for this house?

No.

You're renting. There you go. Well, if you had a mortgage, that'd be 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 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. 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 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 an asset includes money.

Yeah, yeah.

Okay.

If you have a bank account, 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's money?

Well, money, Money. Money is the promise of a third party that we both accept to close our transaction. And this is.

That's the bank.

That's a bank. Yeah. This is one of the most important works I've ever read, is a work by a wonderful, now unfortunately deceased, tiny Italian economist called Augusto Graziani. And he's the most wonderful personality. Augusto, I met him on a few occasions, is one of the few human beings who can speak in perfectly formed paragraphs. Okay. Superbly eloquent. And what he did was write a paper called the Monetary Theory of Production. You can find it downloaded on the web. It's pretty much open source now. And what he said is what distinguishes a monetary economy from a barter economy? So he said, in a barter economy, what we do is. I'll give you two of these for one of those barter just. We're working at a relative price. There are two of us involved and there are two commodities. So with money, money is a triangular transaction. There is one commodity I want to buy that can of drink off you 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 to pay the bank that the seller has. 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 always has to be part of it.

Well, the bank has to be part of it. When I hand you the money, you accept that as 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.

Now I can use French in this conversation. That's good.

That's not French. That's a different language. I'll explain it to you one day. You Australians would never understand. Okay, if I can return to. We'll jump around if it's okay.

That's fine.

So you mentioned Karl Marx as one of the great intellects, economic thinkers ever. 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, powerful mind.

A powerful mind. So first of all, let's just explore the human. 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?

Marx once described his major work as towards a critical examination of everything existing. So he's a modest bastard. So he wanted to understand and criticize everything. And even he wasn't trained directly by Hegel, but his teachers were Hegelian philosophers. And what Hegel developed was a concept called dialectics. And dialectics is a philosophy of change. And when most people hear the word dialectics, they come up with this unpronounceable trio of words called thesis, antithesis, synthesis. I can barely get the words out myself. And that actually is not Hegel at all. That's another German philosopher.

I thought it was Kant.

No, Fichte. Well, I'm not sure I mix them up.

All Germans look insane to me.

Yeah, but if you look at this beautiful book called Marx and Contradiction, you want to find a great explanation for Marxist philosophy. I've forgotten the author. I think it's wild. W, I L D E. Marx and 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 Marx when I was a student at Sydney University and we'd had a strike at the university over the teaching of philosophy. And what happened was the philosophy department had a lot of radical philosophers in it and a conservative chief philosopher. And 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 leapfrogged 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. 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's the academic milieu in which I developed all my ideas 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. 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 economy movement and had a successful strike. We actually managed to pressure the university into establishing a department of Political Economy at Sydney University as well as 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 much more libertarian in the genuine sense of the word, period of time at 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 dad 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 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 a bunch of lefties decide to do during summer. But read Karl Marx.

Yeah.

On the beach or actually inside the room of the philosophy department at the University of Sydney in the main quadrangle, sandstone all around us. And we bunch of about 20 or 30 of us reading our way through Marx Capital, Volume 1, Capital. And I remember walking off to that meeting with one of my friends who's a law student. And 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 be leapfrogged over each other to build a skyscraper.

So here you are reading Karl Marx, looking at the mechanisms of capitalism and.

I looked at those mechanisms and I knew Marx argued that labor was the only source of value. 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 Marx applying this dialectic and like the Fichte and stuff is bullshit. 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 he's 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 dialectic is that there is a unity will exist in society. And that unity can be individual, it 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 gets 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. 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 what does every idea have a counter argument?

Yeah, there's a positive and negative and you bring them together somehow.

And then Marx has this foreground, background, background, intention, foreground is all what we think of as economics and background is all the love making that we do.

As humans, that sort of thing.

And, and why is, what's, why is there a tension?

Well, because you mention, if you imagine the unity, like if you take a human in any previous. Because you go back to CRO Magnon 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've got more of an integrated view of who you are. And I think that's one of the Appeals 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 tool maker, et cetera, et cetera. 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 deemphasized.

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 it in terms of a human. But what Marx did is apply this to a commodity. He said, what is the essential unity in a capitalist economy? And the essential unity is a commodity, the essential unit, the essential unity.

What's unity?

Unity is an object in society. So he started from the point of view of trying to understand how exchange occurs, how do we set prices? And his starting vision was to say that a commodity is a unity. In a capitalist 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, if you made something which didn't work, then you might be able to sell it, but it has no utility. You can't make that into a commodity. A broken thing can't be sold.

Does that have the subjective?

Yeah, it has to have the subjective side so people enjoy it as well as the objective. So the objective is what capitalists worry about. I'll give you my favorite counter example of that. I took a bunch of Australian journalists to China way back in the period when the Gang of Four was being on trial. And we did a tour of the Forbidden City in Beijing. And. 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'd never seen gemstones, I mean, gems that big. And one of the journalists asked me what I thought it was, and I said, oh, it's obvious. Jane is the back scratcher.

Ha ha ha.

I walked away. She caught up with me about 20 minutes later, said, I asked one of the guides. It is a back scratcher. So here's a back scratcher for the emperor. Made of solid gold with diamonds and rubies and emeralds during the scratching. That's a commodity. In a feudal society, cost doesn't matter. You want the most elaborate, beautiful thing because you are the emperor. So in that feudal society, the commodity, what's focused upon is the utility. And the cost of production when you're the emperor is immaterial. Capitalism reverses that. So the commodity in a capitalist economy is a plastic $2 scratcher you can get from Kmart or Target. And so the use value is necessary but irrelevant to forming the price. Now, that was a completely different vision of exchange and 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 crazy thing about that is not so much the marginal utility, but the argument in the neoclassical theory is that the price ratio, the price will, when there's an exchange going on, this two person, two commodity exchange of two commodities between two people, they will. The price will change until such time as the ratio of the marginal utilities is equal to the ratio of the marginal costs. That's supposed to be the equilibrium. And Marx says that's bullshit. That's a previous society where you exchange stuff that you happen to have the stuff somebody else happened to have without any real production mechanism being involved. And he said that's like when you have two tribes meeting for the very first time, and one tribe can make something the other tribe.