Talking to My Daughter About the Economy

A gripping narrative about debt, markets and the state. The book, comparable to Nehru’s letters to his daughter, is a generalised sweep of history focusing on explanations and causations. The writing is lucid relying on anecdotes from history, philosophy, and popular culture, giving the reader an intuitive understanding rather than mathematical.

The author’s left leaning persuasions are more than visible making this book probably the most accessible primer to the Marxist critique. Many of Marx’s insights, without explicitly mentioning Marxism, are clearly explained like how wage labour is exclusive to capitalism, or his challenge to the capitalist assumptions of selfish human nature, at the same time, avoiding areas Marx was wrong about.

  • An anthropological perspective with similar anecdotes – Debt: The First 5, 000 Years by David Graeber
  • Modern economics – Foundations of Economics: A beginner’s companion by Yanis Varoufakis
  • Marxist critique – Marx’s Capital by Ben Fine, Alfredo Saad-Filho


Chapter 1. Why So Much Inequality?

▪ 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. Economy includes more than that.

▪ Unlike grains – corn, rice and barley, which could be preserved well – fish, rabbits and bananas quickly rotted or spoiled. (Why suplus arose after agriculture )

▪ 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

▪ 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.

▪ 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.

▪ This is the origin of the word ‘credit’: it comes from the Latin credere, which means ‘to believe’.

▪ 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.

▪ 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

▪ 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.

▪ 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.

▪ 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

▪ food was never in short supply since three to four million people living in relative harmony with nature had exclusive access to the flora and fauna of a continent the size of Europe. As a result, there was no reason to invent the agricultural technology that allows for the accumulation of surplus or for that technology to be adopted when the opportunity presented itself.

▪ African societies that developed agricultural economies (current-day Zimbabwe, for example) found it much harder to expand, since their crops didn’t travel well, refusing to take root further north, by the equator – or even worse, in the Sahara. On the other hand, once the peoples of Eurasia discovered agricultural production, they expanded west or east almost at will.

▪ Their crops (wheat in particular) could be planted further and further afield, forming a single fairly homogenous farming realm from Lisbon to Shanghai. It was the perfect terrain on which to mount invasions – with one farming people hijacking another’s surpluses and adopting their technologies – and to fashion entire empires.

Chapter 2. The Birth of the Market Society

▪ Difference between a good and a commodity - Twilight on Aegina, Paris’s gags and the dive you took for Captain Kostas – these things were never intended to go on sale. Commodities, on the other hand, are goods produced in order to be sold.

▪ Many blood donors take pleasure from the idea of giving blood, but when they are offered a monetary sum for it, the shift from contribution to transaction ruins the pleasure, while the sum being offered isn’t enough to make up for it, let alone the time and pain of having a needle stuck into one’s arm.

▪ The very fact that most work, most production, took place within the confines of the extended household gave rise to the word oikonomia, which comprises two words: oikos (‘household’) and nomoi (‘laws, rules, constraints’). This is the etymology of ‘economy’, which literally means something like the ‘laws of running, or managing, a household’.

▪ More and more of our products have turned into commodities, while an increasingly smaller share of our productive efforts has ended up producing goods for personal consumption.

▪ Homer tells us that the warrior Achilles, upset by Agamemnon’s decision to claim some spoils which he himself felt he had won in battle, went on a long strike, wilfully refusing to participate in battles for most of the Trojan War. Even though Agamemnon knew very well that he desperately needed Achilles’ help, he didn’t think for a moment about proposing some sort of monetary incentive – offering him money in compensation for the spoils he had taken. If he had proposed such a thing, Achilles would have undoubtedly felt even more offended. Just as the behaviour of Achilles, Odysseus and Ajax makes little sense to a Korean or American businessman today, so the behaviour of people today would be baffling to the warriors of antiquity.

▪ For, to understand why people around us behave the way they do, you must realize that their behaviour is embedded in market societies where exchange value rules supreme.

▪ In earlier societies none of these factors of production were commodities

▪ In times of slavery or feudalism the slaves and the serfs worked hard but did not sell (or rent) their labour to their masters. Masters simply took a large percentage of their harvest by force, often backed by the threat of violence.

▪ land wasn’t a commodity either: you were either born a landowner, in which case you wouldn’t even think of selling your ancestors’ acres as doing so was considered an abomination, or born a serf and as a result destined to never own land yourself.

▪ merchants or producers selling such goods in the new markets got seriously wealthy. Landowners in places like England and Scotland were appalled as they saw their social inferiors, merchants and opportunistic sailors, amass fortunes that threatened to dwarf their own. And so they made a bold decision: get rid of all those perishable crops, like beetroots and onions, that offer no access to the emerging global markets; build fences around their estates, creating in this manner large enclosures; evict the swarms of pathetic serfs and replace them with flocks of sheep, which were more submissive and whose wool could be sold for a mint internationally.

▪ kicking the serfs out turned both labour and land into commodities.

▪ At first thousands of former serfs were offering their labour to very few buyers. It was only when the first factories were established, decades later, that demand for their labour picked up. Until then there weren’t enough employers to absorb the legions of unemployed former serfs, so famine, disease and nationwide misery previously unheard of in times of peace struck.

▪ Previously, under the feudal system, the serfs had worked the land to feed themselves, and the lord who owned the land took his cut. The market was completely absent from the production and the distribution process. After the serfs were evicted, however, the majority of the population was forced to participate in some kind of market

▪ Why did the Industrial Revolution happen in Britain and not some other country, like France or China?’ I hear you ask. Many reasons have been offered to explain this: some point to the fact that, as an island, Britain was at a geographical remove from the tumultuous wars that ravaged continental Europe, while the seafaring history this gave rise to conferred an advantage when it came to exploiting the markets for international trade. Others point to its wealth of natural resources, such as coal, its large population and its thriving overseas colonies, especially in the Caribbean, where slaves from Africa worked the lands of the British conquerors. But the most convincing argument I have come across points to three other factors: unlike other European or Chinese feudal lords, who commanded large private armies, British landowners lacked significant military power of their own, so enrichment through brute force rather than trade was less of an option.

▪ At the same time, British landowners benefited from a relatively strong central authority: a monarch in command of a powerful army, which came to the aid of these landlords when facing recalcitrant serfs resisting eviction. Finally, the fact that land ownership was relatively concentrated in Britain meant that the mass expulsion of serfs required the consent of a relatively small number of landowners.

▪ money was transformed from being a means into an end.

▪ humanity invented the profit motive. But wasn’t the profit motive always part of human nature? No, it was not. Greed, yes. An irrepressible urge to amass power, gold, works of art, fashionable friends, land – absolutely. But profit is quite different to all that, and no, it was not an important driver of history until fairly recently.

Chapter 3. The Marriage of Debt and Profit

▪ But as soon as land and labour were commodified, the Great Reversal occurred: instead of the distribution of surplus coming after production, distribution began before production had even started

▪ the distribution of the entrepreneur’s future revenues was largely decided in advance of their existence – in fact, the only person who did not know how much he would end up with, after everyone else got paid, was the entrepreneur himself. In brief, distribution now preceded production. (Through debt because he did not own means of production )

▪ This is how the Great Reversal took place, turning debt into the primary factor and the essential lubricant of the production process. This is also how profit became an end in itself – for without it the new entrepreneurial class could not survive

▪ And whoever could increase the productivity of their labour fastest would win both races at the same time. New technology could confer competitive advantage, and entrepreneurs had every incentive to take it up. This is more or less how inventions like James Watt’s steam engine, which transformed workshops into factories, first came to be used.

▪ Of course, the technology came at a price. To buy it, very often more money had to be borrowed. With additional debt came greater potential for profit but also a faster route to ruin should things go wrong.

▪ The Industrial Revolution would simply not have happened without the suspension of the dogmatic rejection, and legal prohibition, of charging interest on debt.

▪ The stigma attached to the charging of interest was simply incompatible with the commodification of land and labour and with the Great Reversal. It had to be overturned – and so it was. The Protestants, who broke away from the Catholic Church in the sixteenth century, played a crucial role in this reversal.

▪ The fact that Protestants and Catholics engaged in over a hundred years of war demonstrates what a violent societal shift this was.

Chapter 4. The Black Magic of Banking

▪ Since they are not constrained to lend existing exchange value, bankers have every reason to keep conjuring up loans in the same manner

▪ Two things changed. One is that in the aftermath of the Industrial Revolution the economies of market societies grew enormously and the debt needed to fuel them rose massively as a result.

▪ The other was that bankers found ways to insulate themselves from the fallout if things went wrong. For example, once they had granted Miriam’s loan, they would then chop it up into little pieces and sell it on to lots of others. In return for lending the bank £100 each, five thousand investors would each be given a share in Miriam’s £500,000 loan. Why would anyone invest in one of these shares? Because the bank paid them higher interest than they would have received had they simply deposited that £100 in the bank

▪ But the more the banker uses his powers – helping to move increasingly large amounts of value from the future into the present – the more likely it is that the banker will disturb the timeline.

▪ And though they barely notice, eventually their spells cross into the realm of black magic: the point comes when the loans they have made are so vast that the economy cannot keep pace and the profits being made are no longer sufficient to repay them.

▪ when market societies experienced their first slumps, the state – under pressure from its more powerful citizens – has been forced to intervene

▪ the first thing the state has to do is intervene in the banking system itself. From the moment panic spreads, one bank collapsing after the other, the only way to halt the destruction is for the state to put an end to this chain reaction by lending money to the banks so that they can remain open.

▪ Just as Miriam’s banker conjured up numbers in her bank account, the central bank does the same, only this time it puts it in the account that Miriam’s bank holds with the central bank.

▪ Wouldn’t a better solution be for the state to rescue the banks – so that people’s savings and the economy’s payment system are preserved – but not to rescue the bankers themselves? Why not send them home penniless as a warning to any other banker who is tempted to do the same? Unfortunately, this obvious solution crashes on the shoals of harsh reality. More often than not, the politicians in charge of government are elected with the help of large contributions from those same bankers. Too often, the politicians need the bankers every bit as much as the bankers need them.

▪ How do you think the landowners managed to get rid of the serfs so efficiently? The answer is: with the help of the state. Private wealth was built and then maintained on the back of state-sponsored violence.

▪ And since the powerful have great influence over the state, this has led to a curious phenomenon: the taxes asked of them have always tended to be low in relation to the amount the state has actually spent, directly or indirectly, on their behalf.

▪ While it is true that too much public debt can cause major headaches, too little is also a problem. Even Singapore, whose government is forced by law not to spend more than the money it receives in taxes, finds it essential to borrow money. Why? Because a market society’s bankers need public debt as surely as fish need water to swim in. Without public debt, market societies can’t work.

Chapter 5. Two Oedipal Markets

▪ Clearly, her decision to hire him has nothing to do with any experiential value she expects to derive from having Wasily around at her factory. It is determined purely by a comparison of two exchange values: on the one hand, the increase in her revenues that she anticipates will result from the additional fridges that Wasily will help manufacture, and on the other hand the exchange value she will forfeit by paying Wasily a monthly salary as well as the various other expenses that come with having an extra employee.

▪ If the various Marias who own businesses are all confident that market conditions will be good and that there will continue to be enough customers with money to spend, then each of them will hire the various Wasilys, who in turn will see their income grow, allowing them to buy refrigerators, bicycles or whatever it may be.

▪ The trouble is that those dastardly other things just refuse to remain equal. And the main other thing that changes drastically when wages fall across the board is the capacity of customers to pay. (when economy goes on a downturn, other things change, including people’s perception of it, consumption and expenditure)

▪ This is why the unemployment deniers are wrong: because the labour market is based not just on the exchange value of labour but on people’s optimism or pessimism about the economy as a whole

Chapter 6. Haunted Machines

▪ In the absence of entrepreneurs competing for profits, and given the hundreds of thousands of slaves the pharaoh had at his beck and call, Watt’s engine would never have been used to power farms or workshops, let alone factories.

▪ And yet, according to Marx there is what we might call a safety feature within our economy that should give us cause for hope: a tendency built into market economies and enhanced by the mechanization of labour to generate a crisis before machines take over completely from human labourers, which prevents the jettisoning of all human labour from the production of things.

▪ First, the automation of production pushes costs down. Second, the ruthless competition between producers stops them from charging prices above their (falling) costs. This has the effect of squeezing profits to a bare minimum. Third, the robots that have replaced human workers do not spend money on the products that they help produce. This has the effect of reducing demand. According to Marx, these three forces eventually lead prices to drop below the level necessary to cover costs and keep the whole thing going.

▪ The crisis forces both humans and machines into idleness: redundancy. It is at this point that any entrepreneurs who have managed to stay in business realize two things. One is that, with many of their competitors having closed down, competition has diminished. This allows them to raise prices a bit above costs, giving them a little boost. The other is that it is now cheaper to hire workers than to employ machines

▪ band of English workers known as the Luddites protested against the loss of their jobs to the new steam-powered looms in cotton and wool mills by destroying the machines. The Luddites are among history’s more misunderstood protagonists. Their quarrel was not with the machines themselves, even though they wrecked quite a few of them; they were opposed to the fact that so few owned the machines. It was the social arrangement not the technology they objected to.

▪ Here is one idea for how to align humanity’s interests with the rise of the machines. Very briefly, this simple, practical measure would be for a portion of the machines of every company to become the property of everyone – with the percentage of profits corresponding to that portion flowing into a common fund to be shared equally by all. (Is the machines the problem or that many humans are unemployable or in other words incapable of production )

Chapter 7. The Dangerous Fantasy of Apolitical Money

▪ Which goods end up evolving into a unit of currency has always depended partly on chance and partly on their having some basic properties. They must be durable so that they do not perish, unlike say bread or fish. They must be convenient to carry, preferably pocket sized. They must be easily divisible into smaller portions. And their appeal must be evenly spread throughout the community.

▪ by giving prisoners the opportunity to save for a rainy day, new opportunities and new risks emerge

▪ But when they started to realize that the war was nearing its end, foreshadowing their liberation and the elimination of their little economy, the interest rates bankers offered to savers (rather than the ones they charged for loans) skyrocketed, since nobody wanted to save.

▪ From this it is clear that a monetized economy cannot be sustained if everyone knows its end is nigh. Everything relies on trust in its longevity as the very anticipation of collapse is enough, in an Oedipal fashion, to cause collapse

▪ Every time they wanted to wage a war or build a new temple or palace, the temptation to reduce the amount of precious metal that went into the coins so as to produce more of them proved hard to resist.

▪ But just as the POWs in Radford’s camp who had accumulated large stashes of cigarettes disliked the arrival of new cigarettes from the Red Cross as they diminished the purchasing power of their own, so the moneyed classes have always bitterly resisted this solution. (The solution of printing new money )

▪ Citing the fall of the Roman empire, attributed partly to the failing Roman emperors’ debasement of the currency, the wealthy went on a campaign to ‘depoliticize’ central banks and make them independent of government – taking away the politicians’ power to instruct the central bank to increase the money supply.

▪ outside the POW camp’s barbed wire the volume of money massively exceeds the quantity of coins and paper notes in circulation. (Because banks only need to save marginal amounts )

▪ This is possible in market societies because Miriam will go on to produce bicycles worth half a million pounds, plus a bit extra to pay the bank its interest and earn a profit on top. In the POW camp, by contrast, there was no production, only consumption, and without production there is no way of turning debt into profit in this way.

▪ while rulers have always been tempted to debase the currency in order to profit themselves, they have always been restrained from doing so by the knowledge that it would reduce the value of the taxes they received.

▪ If money were to be depoliticized, if its supply were to be separated from the world of politics, then we can now see that all of the following decisions would have to be made independently of politics: how much government spends and on what; how much tax the state collects and from whom; what bankers should be allowed to get away with; how to deal with bankers when they go bankrupt. To the extent that these decisions are the very definition of politics, then they can be undemocratic if they are taken by the oligarchy, but they can never be apolitical.

▪ rather than having a central bank as neutral as the Red Cross, we end up with a central bank whose decisions remain as political as ever, except that they are no longer supervised by Parliament. As a result, they end up more dependent than ever on the political and financial might of the powerful unelected few: the oligarchy and the bankers.

▪ What Bitcoin supporters would not like, however, is what I am going to say next: that money can be kept separate from the state and from the political process leading to the formation of our governments and their policies is a dangerous illusion.

▪ Which means that the price, measured in Bitcoins, of each car or gadget falls even faster than the pace dictated by automation. And this will happen across the board: price deflation. This is not a problem in and of itself but becomes a huge one if wages fall faster than prices, meaning workers can only afford to buy fewer of the multiplying products. This fall in sales due to Bitcoin’s deflationary effect adds a destabilizing factor to the bankers’ standard overexuberance and sparks a crash more readily.

▪ Once the crash has happened, the second problem of a Bitcoin-powered economy emerges: the impossibility of reflating the economy by increasing the quantity of money.

▪ Unless it takes swift action to increase the money supply, the chain reaction of insolvencies will push everyone into a 1930s-like slump.

▪ It is what happened before and after the crash of 1929, when governments were determined to keep the money supply in unchanging proportion to the amount of gold they possessed – a policy known as the Gold Standard, which is very close in spirit to the aversion to political money that lies behind Bitcoin. It was only after the British government in 1931 and President Roosevelt’s so-called New Deal government in 1933 decoupled the quantity of currency from gold holdings that some relief came.

▪ controlling the money supply is our only faint hope of charting a course that avoids the Scylla of bubbles, debt and unsustainable development on the one hand, and the Charybdis of deflation and stagnation on the other

▪ it can never be impartial. Having accepted that money is inescapably political, there is only one thing we can do to civilize it: democratize it! Give the power to control it to the people on the basis of one person, one vote. It is the only defensible way we know.

Chapter 8. Stupid Viruses?

▪ The reason our market society does not value it as much as it should is because nobody can gain exchange value from it. The same goes for the trout in the river. They don’t belong to anyone until they are caught, and that’s why each fisherman catches as many as they please. Indeed, it can be argued that if the river and all the trout swimming in it were privately owned, the owner would have every reason to protect them

▪ This argument for commodifying nature is not a theoretical one. Though its application has so far been moderate and coy, it has been winning debates and shaping what governments and business do for a while now. Instead of privatizing the atmosphere, here is what some governments have done to tackle air pollution. Every company is given the right to emit a certain amount of noxious gases into the atmosphere, as well as the right to sell that right to other companies.

▪ the only reason to adopt a market solution such as this is because government can’t be trusted, and yet this solution depends entirely on the government for it to work.

▪ The reason the rich and powerful, along with their intellectual and ideological supporters, recommend the complete privatization of our environment is not that they are opposed to government; they’re just opposed to government interventions that undermine their property rights and threaten to democratize processes that they now control. And if, in the process, they get to own Planet Earth, that’s OK by them too!

▪ But there is a profound difference between electoral voting and voting by wallet. In a democracy we have one single vote each. In markets, however, the number of votes one has is determined by one’s wealth.


▪ But as John Stuart Mill, a British philosopher and political economist, warned us in 1863, ‘It is better to be a human being dissatisfied than a pig satisfied, better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, that is because they know only their side of the story.’ In other words, ignorance may be bliss – and the bliss that HALPEVAM offers is impossible without it – but authentic happiness requires something more like its opposite.

▪ As market societies emerged, religion took a back seat. The birth of science that in time made the Industrial Revolution possible also gradually revealed belief in a divine order to be just that: a belief, nothing more. The ruling class needed a new narrative with which to legitimize themselves, and they drew on the same mathematical methods of physicists and engineers to prove, with theorems and equations, that market societies were the ultimate natural order, created as if by an invisible hand, to use the words of their most famous founding father – the economist Adam Smith. This ideology, this new secular religion, was of course economics.

▪ As we have seen in this book, economic decisions decide everything from the mundane to the profound. Leaving the economy to the experts is the equivalent of those who lived in the Middle Ages entrusting their welfare to the theologians, the cardinals and the Spanish inquisitors. It is a terrible idea.

▪ When economists insist that they too are scientists because they use mathematics, they are no different from astrologists protesting that they are just as scientific as astronomers because they also use computers and complicated charts.