 Dear fellow students, dear professors, dear ladies and gentlemen. My name is Anna Katharina Kote, and as a member of Rethinking Economics Tubingen, it is my great pleasure to welcome you here tonight to the last talk of our lecture series, Introduction to Pluralism in Economics. This entire lecture series would not have been possible without the help and financial support of the Department of Economics, the Young Scholars Initiative, and the Forum Cienziarum. Thank you very much. This special event tonight would not have been possible without the Democracy in Europe Movement, DM25, and the tremendous work of their team. Thank you very much for initializing this opportunity and the fruitful collaboration. Furthermore, we would like to thank the TIMS service of the University of Tubingen for making the broadcasting to two more lecture halls possible. Some of you might not know Rethinking Economics Tubingen that well and wonder why we organize such a large event in our free time. And first of all, we do this for all those of you who do not study economics or business administration, and for all those of you who have the feeling that there is something going wrong with our global economy. Only a plurality of perspectives in economics, together with other sciences, can explain the state we are in and help to develop solutions for our future. We want to bring to you those perspectives, hence this lecture series introduction to Pluralism in Economics. We also do this for the Department of Economics. We consider ourselves aligned with government since we refer our activity to a scientific discourse about different paradigms in economics. We do not want to fight an ideological war with our professors, nor do we want to persuade them to change their analytical focus in their research. But we organize this lecture series to support the claim that neoclassical economics is only one way of doing economics. Other schools of thought can no longer be marginalized. We organize this lecture series to voice our demand for a curriculum change. We demand the institutionalization of plural approaches in our field of study. To be fair, there has been change made on the side of the department, but we still see a long way to go. Rethinking Economics Tubingen will publish a report on pluralism in economics next semester in order to summarize our arguments and assess the status quo of the Department of Economics. We hope to continue the dialogue with our professors from there. And last but not least, we organize this lecture series for our fellow classmates from economics and business administration. We do not only want you to have an opportunity to get to know economics from a different perspective, we also want you to have an opportunity to become that kind of economist you want to be. It takes some bravery and guts to go against the mainstream, and we want to encourage you to carry on with critical thinking, whether you would like to join us or not. After all, we are the economists for our future. With the motivation of this lecture series now laid out, I have nothing more to do than to introduce our speaker for tonight and make one more organizational comment. We will use this online tool for you to ask questions. Please follow the link and enter the code here on the blackboard. I kindly ask you to help those out who do not have a smartphone or a laptop. Please note that we cannot consider all questions, we will do our best, and we will only look at reasonable questions about this talk tonight. It is a great honor that Professor Janis Varoufakis has come to Tubingen tonight. He is a mathematical economist and statistician by training and a gifted game theorist. He has taught economics at various universities around the world, and he is currently a professor of economic theory at the University of Athens. Professor Varoufakis is also a member of the Greek Parliament and a representative of DM25, and tonight he will talk about the future of our economy and the status quo of our economics under the title From an Economics Without Capitalism to Markets Without Capitalism. Please welcome Professor Janis Varoufakis. Let me begin by thanking you profusely for being here, thanking the university and the department of economics, the students who organized this, for somebody who spent his entire life in universities, either as a student or as an academic, and who came to politics very late in the piece in 2015, I can assure you that the transition from the academy to politics is a cruel one. The fundamental cruelty is that when we are in this context, when we are in an academic seminar, when we're in class, you have a process by which, as academics, we state hypothesis, and our colleagues have a holy duty of shooting them down. And any hypothesis that survives that process has some degree of fitness, of evolutionary fitness, not that it is the truth, but it's likely that it is approaching the truth. Whereas when you are, think of the pain of being on a television panel amongst politicians, as a politician yourself. Now, just for a moment imagine that you are representing some party, okay? And your interlocutor from an opposite party says something smart, which you hadn't thought of, suddenly you agree, but what you agree with now is, goes against the grain of your own party. If you admit it, you are out. You're out, you're finished. This is why you have an inbuilt process of a dialogue of the deaf in politics. Until and unless, politics starts becoming more like the academy rather than the academy becoming more like politics. We are never going to restore democracy to the pedestal that it deserves. So I'm very pleased to escape politics because you heard that I am a professor. I'm not really a professor. I am, you know, I have the title. It's, my professorial position is suspended officially while a member of parliament. And I am in this murky, cruel world of politics. But whenever I can escape and be in a university environment like this, I do it sometimes, I do it incognito. I go back to my own university and, you know, either listen to people talk or give a sneak lecture without anybody knowing just to get a dose of academic freedom. So enjoy your academic freedom, use it, do not squander it and do not allow anyone to take it away from you. This is a duty that you have. Now, I was asked not to stray away from the main theme of this lecture series and I'm very pleased not to stray. The theme being pluralism in economics or pluralist economics. Allow me to start with a kind of devil's advocate question. Why do we need pluralism in economics? You would never have physicists gathering in this great amphitheater discussing pluralism in physics. You don't need pluralism in physics. But why is it that you don't need pluralism in physics and you may need it in economics? Well, because economics is not like physics. And what is the profound difference? If you look at the curricula of economics departments, I'm sure, I don't know this particular department, I'm sure it's similar. If you look at textbooks, if you look at mainstream articles published in econometrica and general political economy, it's not obvious that economics is not like physics. You start with assumptions, you build theorems, you prove the theorems, you have lemas and then usually somebody may be not the same author, collect some data and tests empirically, econometrically, mostly the reduced forms of the equations that derive from the theorems. Isn't that what physicists do? More or less. But the profound difference allow me to say between economics and physics is that in physics, the phenomenon doesn't give a damn about our models of the phenomenon. So a meteorologist does not have to worry that the weather may change its ways because he or she has made a particular prediction. Whereas in social science, whether it's sociology, economics, whatever, the phenomenon really cares about our theories about the phenomenon. Because our theories have a capacity to alter our behavior in accordance to the theory. So you get, to put it in statistical terms, you get a plethora of false positives and false negatives. Let me just give you an example. Suppose that a friend here is a financier, an analyst of the financial markets with an impeccable record of correct predictions of the financial markets. By the way, there's never existed such a person in the history of capitalism. Nobody has ever predicted systematically and with any degree of consistency, only by accident, it's like Marxist like myself, capitalism is going to have a crisis. At some point, capitalism has a crisis there. You see, I was right. That's all science. But let's assume that our friend here is such a mythical person. And let's say that after tonight, we go out to the pub, to the restaurant, whatever, we have a few drinks, and she gets tipsy. And she tweets in her state of merriment that tomorrow the stock exchange is going to crash. To the extent that her reputation is a good one, the stock exchange is going to crash. That's not because the theory was good. She was drunk. But it is because the stock exchange responds to our theories of it and our predictions based on who has actually made the predictions. Excuse me. I've got a terrible cold. And it's not of a Chinese variety. That's a false positive, what I just described. But there are false negatives as well. Suppose you are a remarkable traffic system designer modeler. And in the same way that a meteorologist or a financial expert has a model, a mathematical model embedded in a computer, in the case of the meteorologist to predict the weather, even input of data from different weather stations and satellites and so on, you have data coming in from various roads and sensors measuring traffic flows. And you have a mathematical model in there that turns out predictions about, yeah, Google Maps does this all the time these days. You don't even need a very sophisticated model, right? And let's say on the basis of all this input, the excellent predictor of traffic jams comes up with the prediction that tonight at midnight in Stuttgart, there's going to be on that particular street a major traffic jam. And because this person is renowned for her his capacity to predict traffic jams, you know? Let's say that the radio stations and the television stations of the local area transmitted. There's not going to be a traffic jam there. But is it because the theory was bad or was it because people believed that it was correct and that they didn't go? So that is a false negative. That interdependence between the phenomenon under study and our theory of it. Think about it. All those theories about efficient markets, the theories about the real business cycle, the theory of rational expectations, those of you who have studied economics, those became part and parcel of that ideology of post-971 capitalism and ideology that crashed and burned together with Lehman Brothers in 2008. But those theories really altered the way financiers thought. They did believe Alan Greenspan, the head of the Federal Reserve Bank, truly believed, he acknowledged that later, that he had believed that those theories worked and therefore markets could not fail the way they did. And then he came out in a Senate committee and did his mayor culpa, he said, my model of the world crashed and burned that day. The day Lehman Brothers collapsed. So that is why we need pluralism in economics, one reason, because we don't have empirical means by which to ascertain the quality of our hypothesis. One may say that, well, what exactly is econometrics all about? Well, let me tell you my experience of what econometrics is all about. My PhD was in microeconometics at the time when microeconomics had not been invented yet. So I had very micro, micro level data, data from individual negotiations between employers and trade unions from the United States. And there was a contest of faculties between an MIT professor, Hank Farber was his name, who had published an article in the American Economic Review in which he claimed to prove that employers, companies, boards of directors, CEOs are smart, inter-temporal optimizers and unions are dumb mechanistically behaving resistors to what the firm is doing. So he had a very complicated inter-temporal optimization model where the firm was maximizing its long-term profits smartly like an impeccable computer and the workers were silly. They simply asked for 5% pay rise and then if a strike happened, after a week they would settle for three, two weeks they would settle for two and a half, four weeks they will settle for anything. And this was a mechanical resistance, non-optimizing behavior, okay? And he did have, the mathematics was splendid. The microeconomics was very, very good. He was using very sophisticated maximum likelihood estimation techniques back then and he showed that the model, right, produces a reduced form equation that fits with the data. He said, no, poof. So my page was really very simple. I stood this model on its head and said, imagine that we have trade unions that were very smart and they are maximizing their inter-temporal aggregate wages and the employer is stupid and resists mechanically. He offers 0.5% pay rise. If there is a strike for a week he goes up to 1%, so exactly the opposite. And you know what happened? The model behaved or fitted the data just as well. What does this mean? It means that the data and the empirics cannot settle the ideological question. Of course, neither of those models was close to the truth because neither the employers nor the unions are super rational, neither the employers nor the unions are dumb. What happens when neither of them are fully dumb or fully smart? We have no idea because the mathematics cannot be solved. That's what got me into game theory, okay? So the second reason why we need pluralism is because unlike in physics where you have laboratory conditions that can test precisely the relationship between the data and the theory because you design the experiment in such a way to control exactly what you want in order to try out all the different configurations of the theory that can predict and fit the data in economics we've done. But you will say, but we have experimental labs. I know. I spent 10 years doing experiments in laboratories. It was great fun. There were two problems with it. First, whenever I came up with a result that had empirical regularity and could be replicated again and again and again, you know what some of my fellow economists said? All you've proven is that this is how people behave in your lab, which is not untrue, right? You can't do this in physics. If molecules perform in a particular way in a lab, that's it, it settles the issue. Yeah, we move on, right? Second objection. Some of you who have suffered economics, right? We have heard of the theory of expected utility theory. It's a particular model of how people behave under conditions of risk. Hm? Now we know from countless experiments in labs that expected utility theory doesn't work. It's a beautiful theory, right? But there are countless examples of where it fails to predict how people will behave. Do you know what most economists do? You say, ah, that's because they are not rational enough. So it's not, you see, think of this, what it means. It means that in the end, in the lab, you do not test the theory. You test the subjects. You assume, you can easily escape, and it's not completely mad because, you know, if you take a bunch of idiots in a lab and you ask them to do mathematical, you know, a bit of arithmetic, and they get all the arithmetic wrong, wrong, this is not the fault of arithmetic. It's because you have idiots, right? But if you have economic experiments where in the end, you are judging the subjects, not testing the theory, then you are not testing the theory. Let me give you another reason. Even when we don't disagree about numbers, we can have huge disagreements about how to interpret them. Disagreements that cannot be settled empirically because the numbers are common. Let me give you an example. Suppose you go to, you know, you're in Africa somewhere and you observe the political economy of a small village. It's a village which is on the verge of subsistence between subsistence and hunger and poverty. And there are good years and bad years. Good crops, bad crops. And let's say that during the years of the good crops, okay, the supply is high, price drops in the local market where they take the wheat, whatever it is, corn that they produce. But nevertheless, the total revenue is sufficient, divided per family for them to buy enough rice or whatever it is that they eat, sweet potatoes, in order to be just above subsistence level. In the bad years, produce is not enough. So we have a really tough time for these villages. At least, however, because supply is low, because supply is low, the price is higher. So they make up some of the losses from the dropping quantity by means of the rising price, okay? So on average, they are just at subsistence, average between good years and bad years. Now suppose that one year, a middleman comes during the good times, during the bumper harvest and buys a quantity the excess produced during the good year and stores it in some warehouse, right? By doing this, and why would he do this? He would do it in order to sell during the bad year. But then, what happens is supply arises because of the wheat that is being provided during the bad year. So the farmers during the bad year suffer the loss in quantity without the gain in price. And then the stuff, right? Let's say that we agree on the numbers. We just did the analysis, we are all in agreement. Now consider, compare and contrast to different interpretations. One interpretation is this middleman on the strength of his capital, the fact that he has some money that allows him to buy a part of the produce during the good years, is profiting at the expense of pushing on average that village below the level of subsistence. He should be forced either through price controls, taxation, or legislation to stop doing this. Interpretation number two, the middleman is providing a service to society because by buying during the good years and selling during the bad years, he's stabilizing price. And to the extent that the bakers in the local towns require price stability, he's offering a service. So do you see what I mean? Here you've got the same situation. The same numbers, we are not disagreeing on the numbers. Right? It's not even a theoretical difference, but there is a political difference. There is an ethical difference. It's you have to choose as a political economist, as a citizen, whether price stability is more important than the fact that some people starve. That is an ethical issue. That is why economics can never be a science. And that is why we need pluralism. Because if you teach only the second interpretation or only the first interpretation to your students, you are doing them a major disservice. Unlike the physicists who can never do students a major disservice as long as he or she is good at taking the results from the lab and transferring them into a beautiful lecture theater like this one here. This is why whenever I taught economics to first years, especially first years, I made a point of presenting every major school of thought I could imagine. The neoclassical school of thought, the ordoliberal in German terms school of thought, the Hayekian school of thought, Schumpeterian school of thought, Keynes, Marx. And every time I presented one particular interpretation of capitalism, I would present it as if my life depended on convincing the students that it was a correct one. And then the next day in the lecture or the next week, I would do the same thing with the opposite school. Now, that confused my Asian students in Australia and some of my Greek students because they would say, but professor, you just taught us something else last week which is the correct one. And I would say, that's for you to decide. They say, no, no, no, no. We're students, you're the professor, you tell us which is the right one. That's the first lesson, the first piece of education. No, there is no authority. There is no expert in pointing out which school of thought is right or not. It's like in philosophy. Can you imagine what a terrible professor of philosophy one would have to be to give a Kantian view of the world and say everything else is rubbish and not to teach Hegel or David Hume. Economics is much closer to philosophy than it is to science. And unless you understand that, we are doing ourselves and our students a major disservice. So again, speaking as a former professor, I think the optimal way of teaching economics in a way that honors the students and honors the whole breadth, width, and richness of economic discipline is especially at the beginning of students' careers. To teach simultaneously economic history and the progression of economic ideas. That is, when professors try to teach the concept of opportunity cost or the division of labor, as if it is an abstract clinical thing, you can do it, but students will be bored and they will miss out on the importance of the context that gave rise to these concepts in Adam Smith. And unless you explain why Adam Smith happened in the 1770s. Because there was an industrial revolution happening at the River Clyde just below his office. And he had to explain to his students what on earth was going on. And he had to explain to his students that, you know, see those factories by the River Clyde where 12-year-olds work 20 hours a day in there? That's the beginning of the good society. And they said to them, you're a moral philosopher. How can you say that, you know, the exploitation of these kids is the beginning of the good society? And then he comes out with unintended consequences. That these industrials who are exploiting the kids are terrible people. But by pursuing their own greed, without realizing it, they are bringing about the facilitation of the public interest. I'm not saying that I agree with that, but unless you put it in this historical context. So let's teach our students economic history, effectively how capitalism came into being and how the crisis of capitalism, moral crisis, economic crisis, financial crisis, and employment crisis begot concepts. Keynes would never have come up with a philosophy of composition if it was not for 1929. It's really very simple. So anybody who tries to teach Keynes without what happened in 1929, you know, effectively it does a great deal of disservice to Keynes and to the world. Now, from an economics without capitalism, let me explain that. When you look at a textbook, standard textbook of economics, well, at least when I look at one, there is no capitalism in it. There is demand and supply. There is a process leading to equilibrium. The prices and quantities going up and down. There are markets. Capitalism, I never find. I look for it. I've looked for it all my life. It wasn't there. And let me explain why. Even those of you who have not studied economics, you remember you must have seen the diagram of the demand and supply curve, right? Price is, imagine now, I don't have it on the board. Thank God for that. The vertical axis is price. The horizontal axis quantity of demand curve. Downward sloping, upward sloping supply curve. And the professor says equilibrium is where they meet. That's where the price at which demand equals supply. Very powerful visual tool. And then the tragedy begins. Because the poor professor has to explain what happens when a situation, how do prices change? They say, ah, if demand increases, if people, for some reason, the tastes of customers change, suddenly they want to buy more for a given price of whatever it is, balloons, right? Then the whole demand curve goes up. And then the price follows up. Hang on a second. That cannot be supported mathematically. Why? Because those demand curves and supply curves are there, all other things being equal. If they are not equal, that is prices of other goods, incomes. But if all other things are not the same, then those demand curves move anyway. So for instance, when you're buying coffee, this is a standard example, and the price of tea changes, or the price of something else that substitutes, then the demand curve changes. But if the demand curve for coffee goes up, and the price goes up, the price of tea will change. The price of tea will change. Your demand curve will shift again. So it will be like a cat chasing its tail. So you can't tell a story about the change in prices in real time. So poor professors feel for them. They have to tell a story based on hypothetical reasoning. They have to tell you a story. Not, listen, compare and contrast the two different sentences. Demand goes up and price follows. That involves time. You're not allowed to do it if you want to be correct mathematically. So what do you say? OK, this is where demand is, and this is where prices. Had demand the demand curve been somewhere else, the price could have been somewhere else. This is called comparative statics. This is all we teach students. But it's very difficult to tell them you're not allowed to speak in terms of time. So time does not exist in any of the microeconomics textbooks. In any of the microeconomics textbooks, anybody who speaks of time is wrong. Should be immediately either fired as a professor or failed as a student. So there is no time, and there is no money. Think about it. If you have a mathematical model of a system of n equations and you have n plus 1 or n plus 2 unknowns, you can't solve it. If you have an economy, let's say, with two goods, machines and a corn to make it simple. Then you have a system of two equations, and the unknowns are the two prices, OK? Sort of manageable, especially if you have 20 equations and 20 unknowns. But to bring money in as a separate entity, you have to add another equation. So you will have n plus 1 unknowns and n equations. You can't solve it. So that's why in microeconomics, in general equilibrium theory, money is impossible to add to the model. So there is no real time, and there is no money in the economics that students learn. Most of them don't realize it because they talk about prices. They say the price of coffee. But that's not a monetary price. It's a relative price. How many grams of coffee do you get for one tea bag? But that's barter. That's an economy that is non-monetized. So all the economies in the economics textbooks that you get taught, not just in this great university, but in every university, doesn't have time in it, doesn't have money in it, doesn't have debt either. Because if you don't have money, you don't have debt. And if you throw debt into any macroeconomic or microeconomic model, you can't solve it. So you don't have money, you don't have time, you don't have debt, then you don't have interest rates, really. And you have no risk. Because if you have no time, where is the risk if there's no time? There's no unemployment, unless you introduce it through the back door. Because if you assume that the demand for labor is like the demand for, sorry, the market for labor is like the market for potatoes. What happens in the market for potatoes? You have excess potatoes, you reduce the price of potatoes, you get rid of them. So why doesn't unemployment, which is excess supply of labor, disappear when the wage falls? Then we have to start blaming things. Because in reality, unemployment perseveres, especially when the wages fall catastrophically, like in the Great Depression, like in Greece. Since 2010, we had 42% reduction in wages. And unemployment was growing up. It doesn't happen in the market for potatoes. You never have a situation where the price of potatoes comes down and more potatoes are unsolved. It doesn't happen. But if you are determined to model labor, as if it is potatoes, then you have to say, oh, it's the unions. The unions are resisting the reduction in the price. It doesn't allow the price of labor to fall sufficiently. So it's the union's fault. And then, of course, the unions employ some other economists who say, no, it's the fault of monopolies. Because if you have monopoly, more monopsony in the labor market, you don't have a competitive market. So it's a blaming game. So politics enters into the realm of bad economics. And you have bad politics and bad economics. It's not a good mix. One of the first things that the students of economics learn is the ISLM model, the macroeconomic model, the simplest macroeconomic, beautiful diagram, which explains the rate of interest, which, of course, cannot be explained microeconomically. So you just assume that there is such a thing as a rate of interest. But in order to even do that then, you have to assume that investment equals savings, which is perfectly true in a barter economy. If we have no money, what would the point be for a farmer to set aside corn and not eat it or sell it to be eaten? The only reason why you would want to set corn aside is to use it as seeds for next year's crop. That's investment. So by definition, where you have no money, savings equals investment. But what if you have money? Because there is no reason why you should assume, maximatically, that money saved will necessarily be invested. You can just put it under your bed. Or you can put it in Deutsche Bank, very bad idea. And then Deutsche Bank can give it to Siemens to buy back their own shares. That's not investment. The price of the share of Siemens goes up because more of them have been purchased. But there's no actual investment, no new machinery, no new jobs, no seeds in the farm from an economics without capitalism. So we have spent the last 100 years in economics developing aesthetically superlative, beautiful models of general equilibrium. I spent my youth studying them in the same way I would go to the Louvre or to the Acropolis Museum in Greece to look at the aesthetic beauty of the artworks. Totally useless. From the perspective of understanding capitalism. Because there's no capitalism there. There's no money. There is no time. There is no interest rate. It does not take into account the permanent disequilibrium in the labor market, the permanent disequilibrium between investments. So everything we teach our students is irrelevant regarding capitalism. But students constantly have to pass exams. They have to learn those models, to recapitulate them, learn them again and again and again. And then, of course, if they ever become professors, they have to teach their own students the same thing. Because this is what they know. And because it's mathematically very complicated, the beauty of complicated mathematics is that it creates monopoly power. Because if you understand and the folks out there don't, the folks out there think I'm stupid compared to him, he must understand something I don't. And in the end, of course, I understand nothing on the basis of all the complicated mathematical modeling I've learned. Because it's irrelevant to capitalism. It can't explain unemployment. But then, of course, I go on television and say, Professor, what do you think about unemployment? Oh, it's the trade union's fault. It's the employer's fault. It's all rubbish. I mean, I may be right in what I say, but that will be in spite of the fact that I'm an economist. Not because I'm an economist. Now, at the same time, it is my strong belief that we have a duty to learn all these economic models, all of them, as long as it's pluralist, as long as we learn Gaines from the original, not at textbook, that somebody who didn't understand Gaines wrote, Hayek, the neoclassics. Why? Because each one of those theories fails to explain capitalism. But by studying them, we explore the limits of human reason. We come crashing onto the wall of our incapacity to seriously understand the beautiful indeterminacy that is the capitalist beast. And when you study the neoclassical model, you hit one wall. You study the Marxist model. You hit another wall. You study the Gainesian model. You hit another wall. Hit as many walls as you can, because then you have a capacity to rise above all these theories, set them aside, your logic, your mind, your faculties will have been trained sufficiently as long as you realize that the truth of capitalism is not in those equations, and you will have a capacity to then have maybe, maybe, maybe have a chance, an aorta of a smidgen of a possibility of saying something sensible, which will not be provable. The one thing that I've learned from Gaines, people ask me to, I don't know who has read the general theory. It's an impossible book. It's lovely. It's very well written. But it's completely one chapter contradicts another chapter. Sometimes it's so wonderful, the prose that I don't know what it means. One thing I've learned from Gaines, if I'm to sum up what Gaines said and what I've learned from Gaines, do you know what it is? We are dumbed if we know. We're dumbed if we know. We have no idea why markets fail. All we know is that I have a tendency to fail. And when they fail, we have to do something about it. And markets will not fix themselves. That is a celebration of the beautiful indeterminacy and horrific indeterminacy of capitalism. Now, let's look at capitalism, because so far I've been telling you why I think that there is no capitalism in standard mainstream economics. I want to begin with a distinction that I already made, and I want to make once more. Capitalism is not markets. Societies always had markets. Definitions had markets. The ancient Greeks had markets. They were not capitalist societies. They were societies with markets. Something happened towards the end of the Middle Ages and was elevated to a higher echelon towards the end of the 18th century in Amsterdam and in Britain. They transformed society from being a society with markets to being a market society. And by that, what I mean was to start the process where almost everything was commodified. Before that, land was not for sale. You either inherited land, or you were a landless president, or sometimes if you raised an army, you conquered land. There was no real estate market, the classifieds. There was no labor market. Either you worked for some baron, and if you opposed that social arrangement, your head was removed from your shoulders. Or you never worked because you were the baron. There was no labor market. You couldn't quit saying, look, I don't want to be your person, I'll be somebody else's person. So the creation of labor markets, of real estate markets, of capital markets is a very recent phenomenon and that's capitalism. For the purposes of what I want to say today, I want to hone in on a particular year, quite early in the piece. It's the year 1599. On the day or week when Shakespeare, William Shakespeare, was at his theater, struggling to complete Hamlet, something remarkable happened. The first joint stock company was founded. The first company whose shares were tradable and anonymous, where you could buy a share without declaring who you are, and if I bought it from you, I could sell it to somebody else as if it was a piece of paper. It was called the British India Company. Within three years, the British India Company had effectively destroyed all the markets in India and had taken them over with an army of 200,000 soldiers, much larger than Britain's army or France's army. That was one company. You're familiar with the story. Tradeable shares unleashed a very powerful genie that had the capacity to turbocharge and weaponize capital formation. It was an essential moment. Then you had a period of the late 18th century, early 19th century, very tepid capital. When Karl Marx was writing his wonderful Communist Manifesto, the first four pages is the greatest eulogy for globalization ever. He talks about the way in which the bourgeoisie is through the spread of global markets, battering down the Chinese walls of prejudice and liberating people from wrong conceptions of the universe and of themselves. It wasn't happening. That was in the imagination of Karl Marx. It happened much later. Much later. He was prescient. When did it really happen? It happened after the 1870s when Maxwell came up with his wonderful equations of electromagnetism. Those equations that blended, unified the theory of magnetism with the theory of electricity gave rise to what we know now as capitalism. Because it was the basis for telecommunications, electricity, the radio, and of course, and that is crucial, the networked firm. When Thomas Edison invented the lamp, the electric lamp, immediately, in his mind, he had the power station that produces electricity. And he was the first one to create a totally vertically integrated gigantic monopoly from the factory that pumps out the electricity, owning the grid, the cables that go through people's homes and businesses all the way to the electric lamp and the oven in the kitchen. Now, of course, the reason I'm mentioning that is because here we have the true nature of capitalism, which is not the competitive capitalism that Adam Smith had imagined of the baker, the brewer, and the butcher, whose small family-owned businesses compete with one another, converting private vices into public virtues. Now, here you have monopoly capitalism, the profit margins of the networked firms, whether this was railroads or telephone companies or electricity grids. And then, of course, Henry Ford comes in with mass manufacturing of automobiles and other products. These huge economies of scale and network economies do two things. Firstly, they make sure that this competition is a joke. Arrival, yes. You have general electric pushing for a particular kind of current, the alternative current. And DC is what? So like the Soviet Union versus the United States, not like the butcher against another butcher. The network company, by its very construction, was extremely expensive to fund. No bank had the capacity to forward, to Edison, the money he needed to build that structure, that network. So what happened? The mega firm gave rise to the mega bank. Consolidation of different banks into hyper banks. And where did they find the money? The hyper, because if you and I get together, even if a hundred of us get together, we'll put 10 years together, we don't have the capacity to fund a network company. So the money came out of, as John Kenneth Galbraith once said, if people understood where money comes from, there would be a revolution. Came from thin air. So effectively, the mega banks go together, they had enough political power to offer the mega firms credit lines. So the money was fictitious. It was a little bit like the mega bankers pushing their hand through the membrane of the timeline into the future, grabbing value that has not been created yet, bringing it here, giving it to Edison to produce the value that will repay the future. And if you can do that, that's like having an ATM in your own living room. But of course, the more you reach out to the future and bring to the present, the more difficult it is for the president to repay the future. At some point, there is a crash, 1929. And then, of course, we know what happened in the 1930s. I don't want to get stuck into this. But I want to take you to the golden era of capitalism, which began with Bretton Woods in 1944, and which lasted for two decades, not even two decades. Let's say two decades. This was the only time when unemployment crashed to 2%. Inflation was between 2% and 2.5% everywhere, in Europe, in Japan, in the United States, in Canada. And for the first time, something that matters to us today, inequality dropped profoundly for the first time and last time. That system was predicated upon a single currency. The euro is not the first single currency. The gold standard was the first single currency. And the Bretton Woods system effectively replaced gold with American dollars. So we were all dollarized after the Second World War. That's what happened, especially this country, and my country, to some extent. But that dollar zone, which was global capitalism, was predicated upon a constant surplus recycling by the American economy. The Marshall Plan is just one example. It was not philanthropy to Germany, to Greece, and to Europe. It was not just a mechanism for subduing the Soviet Union. It was not as well. But it was a very smart and deliberate process of taking the surpluses of the only surplus economy at the time, the United States, bringing them here to finance the aggregate demand, which was necessary, to buy the net exports of the United States. That system collapsed. Why? Because Germany rose up, Japan rose up, and the United States became a deficit country. And at that point, unlike Europe, the Americans, are far more pragmatic than we are. When they see that the design of theirs no longer works, do you know what they do? They destroy it. Whereas we keep hanging on. Remember the exchange rate mechanism? We were hanging on for dear life until the very end. The euro now, we're hanging on with the same structure of the euro, even though we know it's not working. You have negative interest rates that are destroying your banks. But it's business as usual. The Americans don't do business as usual. When their own design, even if they love it, like Bretton Woods, doesn't work, to kick it out. And they replace it with the opposite surplus recycling mechanism. They use their trade deficit in order to turn the American economy into a huge vacuum cleaner that was sucking into the territory of the United States, the net exports of Germany, of Holland, of Italy, of Japan, and of course, later China. And how were they paying for it? Your industrialists, your bankers were sending 70% of their profits to Wall Street. That's how they paid for it. The Chinese, they bought bonds. They invested in America. The Japanese, the same. So that was a very disequilibrium situation, but a stable one. You can think of it as a stable disequilibrium or an unstable equilibrium. Choose your language, the same situation. And that crashed and burned in 2008. This is where we are now. We're experiencing a crisis of capitalism that takes different forms to different parts of the world. In some parts of the world, it's negative interest rates. In other parts of the world, it's very high unemployment. In other parts of the world, it is the bubble of private credit in China. But all these are different manifestations of the same crisis. In Australia, there were floods two years ago in North Queensland and forest fires in Siberia. One was flood, the other was fire. They were both the results of climate change. They were the same crisis. In the same way that you have negative interest rates, strengthening the alternative for Deutschland, in Greece we have whatever we have, I'm not going to go into it, it's too depressing. The network company with digitization has become a total and complete monster. Take Facebook. Facebook is a separate world. Anybody who goes into Facebook leaves capitalism behind, leaves society, you enter a world created by software which is a gigantic economy, gigantic economy, right? And this is a competition, it's owned by Zuckerberg. They charge you for, you know, advertising events like this. They charge politicians for pushing their political campaigns. They have a remarkable behavior-altering mechanism. The only reason why two of you can communicate through some kind of app or software application is because somebody thinks they can manipulate you. And you know what, they are right and they do manipulate all of us. We have been proletarianized without realizing it. We all work posting stuff, you know, on Twitter, on Facebook and so on. What is the capital of Facebook? It's your posts. That is the proportion of the... Do you know how much... What is the proportion of Facebook's revenue paid to its workers, to its designs? Do you know what it is? 1%. Even Walmart, that is the most exploitative, large company in the world, pays 40% of its revenues to its workforce. Facebook only pays 1% because all of you work for Facebook. And you don't even know it. You are simultaneously the proletarian and the consumer. This is remarkable. This is not capitalism in Facebook. It's like the Soviet Union. It's gospel. There are three people who make all the decisions. And they are far smarter than the Soviet Union was because the Soviet Union had to have the KGB, they had to threaten you, they had to send you to the Gulag if you didn't behave. Facebook doesn't need to do that. They don't need to do what the British India Company did, which is to have 200,000 soldiers. They have the American army. American capitalism, whenever there's a problem, they send the troops. And they pay the taxpayers and some of them by us in Europe or by Saudi Arabians or whoever. So it's important, whatever your politics are, just to forget for the moment the economics without capitalism, because there is a real beast called capitalism that is doing things to our lives and whose crisis jeopardize both the planet and our soul. You know, back in the 1970s, I was always a leftist, back in the 1970s, I remember the great conflict, political conflict, ideological battle, was between three marketeers who believed that the free market is a fantastic device for coordinating our preferences and allocating our resources, okay? But the objective was the satisfaction of the sovereign agent's preferences. My preferences were mine. My life was mine. I finished work at five o'clock, nine to five work. Then I worked in order to do what I want as a human being. Now what we have is a situation where, with digitization, young people, take young people, most young people fall in two categories. Either those without a trust fund who have to face the prospect of precarious work for 20 years, okay? Or some of them who, maybe because they have some skills, maybe they have a lot of social capital, they are much more connected to the high value-adding businesses. But even they have constantly to worry when they go to an interview. They know that the interviewers are going to check their social media. They need, you know, I meet young people who are constantly worried have they found their vocation? Because they go to interviews and now there are these very, very modern sounding interviewers who say to them, we want you to come and work for us, if it's your passion. So they start worrying, what is my passion? And they constantly trying to discover passions. You know, they go to shrinks, they buy self-help books. This autonomy of the liberal individual has gone. Everybody now is trying to emulate everybody else's view of what should their passion be. That is a kind of tyranny that the KGB could never imagine. It's too cruel, even for the KGB. Because, you know, even when you are a prisoner of the KGB or the Greek right-wing fascist dictatorship when I was growing up, even in the cell, you were in command of your own faculties and you knew who you were. And they couldn't, as Emmanuel Kant would say, they couldn't take this autonomy away from you, however small the cell in which you were incarcerated. Today, we're all free in the land of the unfree. That's, for me, where capitalism is. As for democracy, where do I start laughing? The technostructure, the network firms, the hyperbanks, they are their own, don't worry about it, they own our politics. If you look at the way in which the powers that be in the European Union took 3.6 trillion, 3.6 trillion since 2010, if you want, we can break it down, 3.6 trillion to save the banks. And now they're nitpicking over climate change. We have the Green Deal of the new president of the European Commission, who is promising 100 billion a year, and she only has 7.5 billion. The rest is going to be conjured up from thin air in the same way Junker was going to conjure up stuff. Let me now finish up with the last part. Markets without capitalism. My critique of capitalism is that liberal capitalism is not possible, never was, never will be. It is just an ideology. It has as much to do with reality as Marxist emancipation theory had to do with the Soviet Union. Zero. If we're going to save markets, because I believe in markets. Markets for potatoes. We need to liberate them from the 1599 moment. Have you heard of companies like BlackRock? State Street. Fidelity. Do you know that they own 90% of the corporations that feature in the Standard & Poor's 500 in the United States, from airlines to J.P. Morgan to Google? We're talking about two guys. It's guys, it's not girls. Maybe there's a token girl somewhere. They control 90% of capitalism. What is the connection between this and Adam Smith? Zero. As a recent study showed, that where airlines compete, that belong to the same mega equity firm, when they compete, prices go up by 5%, because they collude. Because the CEOs of all these airlines have to report to the same financier. So, this is the point I'm making that if you really want markets and you don't want central planning, you better do away with the model of capitalism we have because it is centrally planned. They can be no more centralized system than the one we have. So, what would a world look like where markets breathe in the absence of capitalism? Allow me to finish off and then we start the conversation. With a dream. Can I do a, I have a dream moment, please. Will you allow me? The dream is multifaceted, but I'll just stick to three points now. Imagine a corporation where there's no boss. You enter, you are hired by a committee, a search committee that go together because they wanted an economist, they wanted a graphic designer. So, some of them form the committee, they interview 20 people, they hire you. You get one share for the company, you can't buy any, it's like a library card. You come to the university, you get a library card, whether you like it or not. And that gives you a vote for everything. You vote for the distribution of the revenues of the firm between research and development, what the basic income should be, and also you vote for bonuses. Not everybody gets the same, but how do you vote for bonuses? Do you remember the Eurovision Song Contest? Imagine everybody getting 100 bonus points, votes. And you can distribute them to any of your colleagues in proportion to your estimation of their contribution to the company. Yeah? And then when the tally of votes is in, everybody gets a percentage of the bonus fund in proportion to the votes they got from their colleagues. And when you leave the company, you take the accumulated capital, depending on your years and the bonuses you have, and you take it to whichever company you form another company with friends or you join another such cooperative company. Now, that's not buying the sky. I've worked for such a company in Seattle, in Washington state. This is exactly how it worked. 330 people sharing 1.2 billion revenues. I'm not talking about some kind of rickety cooperative. Imagine further that each one of us had a bank account, a triple bank account, a bank account comprising three sub-account accounts with a European Central Bank. A digital one. You'd never have to go to Frankfurt. Who wants to go to Frankfurt when they are in the beginning? One part of the account is a trust fund for every baby. A certain sum of money goes into that fund, by the central bank, to every newborn. The second one is where your bonuses accumulate, and the third one is where a universal basic dividend comes, flows in. Well, a dividend of what? By the way, before I answer that question, the moment you have that, the banks die. There is no need to have commercial banks. It's a free, digital bank account. Why on earth would you want to have an account in Deutsche Bank to pay their fees? And also, investment banking has already died, because if you've banned tradeable shares, if you reverse the mistake of the British India Company of 1599, and you have one share, one worker, shareholding together with private commercial banking producing money out of thin air, those two combine to create investment banking. Once you have no tradeable shares and you have free banking, investment banks have no purpose anymore. There is a very boystrous bank for debt, for private debt. But so what happens is your savings, you can, through this digital network, there can be some progress as well, you can lend it to other companies, you can lend it to anyone. But it is money you've already earned. It's not money that's created from thin air. And finally, land. Imagine that every municipality has a citizen's assembly, whose job is to divide the land into lots. One is a commercial zone and the other is a social zone. The commercial zone is exploited commercially through markets in order to make money to build social housing in the social zone and social enterprise space. And how does the commercial zone work? Full fledged markets, totally neoliberal markets. This is what I'm proposing. What do I mean by that? Imagine you have a building, you have your company, or a residential house. Maybe you don't want to live in social housing. Maybe you have enough money accumulated and you want to live in a house of your choice in the commercial part. Every first of January or first week of January, you have to go into a website and you have to declare what you think, your estimate of the commercial value of the properties. And you pay a rent or a tax, land tax, proportional to your declaration of what you think the value is. Of course that means that you have an incentive to give a very low valuation. Aha, no, because there's a second rule. Anyone can come and bid for your home or your place of work, your office space, and if they outbid you, you're out within six months. So now you have an incentive to push it up. And all those rents accumulate to be a universal basic dividend and to pay for social housing. Now, the reason why I'm telling you all this is because I want to open your imagination up to how you can have fully fledged markets without capitalism. That I think is a nice juxtaposition against the economics without capitalism that students are taught. Thank you. Thank you a lot for your talk tonight. We collected several questions from the audience and we want to ask you the questions now. I'm going to read the first one and then Nikolai is going to go on. The example of your dream of a flat hierarchy obviously is convincing, but how can we manage to break the power of global capital to realize it on a transnational scale? Do you remember Occupy World State? It was fun, but it was pathetic. Or the Indignados in Madrid and Barcelona or us in Greece, in Sintagma Square, we had fun. Night after night after night we protested, we had assemblies, everybody spoke. It was, you know, reminding me of Oscar Wilde saying socialism would never happen because the discussions take too long, right? But it was completely ineffective. People got tired, we went home, and the bankers were bailed out anyway. So nothing changed. Now, I am, I love violence. I don't like revolutions because I just get scared of what will happen. I mean, I've been in, you know, on streets where revolutions, demonstrations were getting ugly and I didn't like it. Maybe I'm a coward, right? But if you look at all the revolutions that have taken place, they've eaten the children up and produced a lot of despotism, didn't they? But imagine a completely different digital campaign. Imagine that somebody, maybe you, maybe us, do you, organized a day of inaction vis-a-vis Amazon, that we organized a global strike by consumers. You know, on Tuesday such and such, yeah? We're not going to visit the Amazon website, none of us, just one day. Do you know what this is going to do to Amazon? And imagine we had rolling such strikes and imagine if some of the employees of Facebook or Amazon joined us because they are very badly exploited, most of them, very few of them get decent wages. And imagine that they faced a double strike by consumers. No one would have to do it, it wouldn't, it wouldn't really hurt us. We just wouldn't buy anything from Amazon for the day or two or a week. I can live without buying anything from Amazon for a week. Okay? Imagine a campaign that also involved financial engineering. I believe in financial engineering. You know, when they privatized, the neoliberal drive towards privatizing water, electricity, everything. You know that the worst aspect of it was that they securitized the future income stream of these companies. So all the electricity bills that you're going to pay until you die have already been purchased in the form of CDOs by some company somewhere, right? So the company that bought the public utility got Goldman Sachs to create a contract where what they did was they said, okay, we project over the next 30 years, these are going to be the revenues of the company from electricity bills. So you take this huge amount, you cut it up in small, tiny pieces. You do the same thing with returns from railways, from water, from whatever. And then you create little packages, the CDOs, that comprise different parts of these chunks of different future income streams, okay? And those CDOs sell like hotcakes. And the companies that buy them, buy them for two reasons. Firstly, to receive the revenues that those chunks of property rights generate within. And also because they think that if the value of the CDO goes up, they can sell it and make some surplus value. Imagine if we had smart financial engineers who knew what was inside each one of those CDOs and said, okay, people off to begin, okay? If you delay paying your bills for a month, okay? It's not going to be a huge penalty that you suffer. We can crowd fund and give you the money for the payment. But today it will be to begin. Tomorrow it will be Frybrook. Day after, it will be Leipzig, Paris and so on. Together with, you know, in other words, to have a grid of strike. You can bring down the whole financial system. Just bring it down completely. So, we have a lot of power. The question is, what are we asking for? I think we should ask for rewriting corporate law and saying that you cannot buy shares anymore. You have to give them equally to all your employees. Now, I know that sounds extreme, but it's an idea. And my job is to implant dangerous ideas into the mind of the young. So, the second question is very concise and it brings us back to the core of capitalism. Someone asked, what is constitutive for capitalism for you if markets are not? Oh, it's private ownership of tradeable shares. It's really very simple. The fact that most people who work for a company do not own any part of the company and most people who actually own the company do not work for the company. That separation is the height of irrationality. It generates, it begets the cruelty that we had from the British East India Company to what's going on today. Imagine that you broke down that separation for Facebook, for Google, for JB Morgan. Suddenly, you have a complete transformation. You don't do away with markets, but you do away with capitalism. Okay, now we will come to the questions about pluralism and economics. And the first question that somebody asked is, for you, what is pluralism in economics and how can it be achieved? I've answered that. Where were you? For me, pluralism and economics is... APPLAUSE But I'll answer it once more because, you know, we need a repetitivist matter studio room. Two things. First, we need to teach with equal passion all different perspectives, especially the ones we disagree with. Especially the ones we disagree with. We have to give them the best chance when we present them to students. Secondly, we have to do it in parallel with a history of capitalism that explains where those ideas came from. Why was it, for instance, that David Ricardo, who loved Adam Smith and who loved capitalism, suddenly went crazy in the early part of the 19th century? The reason is the Napoleonic Wars that made a lot of money for London and Eastern Britain as a result of the eradication of international trade, the lack of imports. And after the end of the Napoleonic Wars, they wanted to stop imports so that they would keep their rents. And Ricardo went crazy and he came up with the concept of rent and he differentiated the rent from profit. This is what we teach our students. But unless you teach them this from a historical perspective in the context of the Napoleonic Wars, it will go in one ear and exit from the other ear. All right. I'd like to believe that there's a economic students out there who feels a little bit lost after this lecture and who actually asked that with a lot of theories around, but not being true, but still being taught, with what mindset should I approach them while studying economics so I won't get lost in them? And maybe a follow-up practical question, is there an economic textbook that you could or would recommend to a current student of economics? OK. First question. You should approach every model, every theory with enthusiasm because they're all beautiful, independently of whether they're useful, toxic, whatever. They're all beautiful. OK? So you just have some fun while you approach them and you study them. There are two ways in which you should be critical of every theory, two ways. They're very different and equally important. The first one is internal criticism. That is, say, OK, so what are your assumptions? Give me your assumptions. OK, I'll take them for granted. I won't challenge them. Now let's see whether your conclusions are logically the result of a process beginning with your assumptions because a lot are not. There is a lot of sleight of hand in economics. Many economists, I'm afraid, especially the second-rate ones, not the first-rate ones. The second-rate ones are a bit like cardinals who are more papist than the pope, right? And the cut corners. And you can easily expose them and you say, look, what you just said does not follow from your own assumptions. I'm not going to criticize your assumptions. That's really very important. And aside regarding this, one of the greats of economics, of neoclassical economics, is, of course, Kenneth Arrow. You've heard of Arrow de Brea theorems. If you've studied economics, Arrow's impossibility theorem. Kenneth Arrow was one of the first to win the fake Nobel Prize in economics, the Nobel Prize in economics, let's call it. An unbelievable mind. An unbelievable mind. I remember he taught me a huge lesson. It was 1991. I was visiting New York. And he was already an old man. And he was giving a talk at NYU. I'm not exactly. NYU, Columbia, I'm not exactly sure. Small seminar room, about 15, 20 professors. I was the youngest in there at the time. So he fills all the boards full of equations. One of the professors, he was an academic seminar, says, Professor Aaron Arrow, I think that 3.1, and especially the lima that corresponds to that, probably indicates that a lump sum tax would not be as efficient as a pro-aratex. And Arrow looks at him and says, my dear chap, you're confusing that which is interesting with that which is useful. This is interesting. It is not useful. If you try to apply it to tax policy, you'll be dangerous. So that's something you can do. It's fun doing it. The second kind of criticism is external criticism. Say, hang on a second. What is the assumption of yours here? You're assuming that people maximize something called utility. Let's look at it philosophically. Does it correspond to introspection? Is this what I do in life? This is a more philosophical critique. Every theory has its assumptions. All of them are questionable. So criticize the way in which assumptions are used in order to derive theorems, and then criticize the assumptions. That's the answer to the first question. As for textbooks, look, will it sound awful if I tell you that at some point I had to write a textbook because I couldn't answer that question. OK, so we have one more question for you. What can economics contribute in the discourse of climate change and challenges the society is facing through it? Thank you. Did you notice that the US Treasury Secretary a week ago, 10 days ago at Davos, tried to denigrate Greta by saying, go to college and study economics and then come back and explain it to us. I tweeted. Unfortunately, he has a point. Not for the reason that he says, but because if Greta goes to college to study economics, her soul will most probably be crashed. And that's a very efficient way of getting rid of her. And immediately, I got a torrent of abuse from colleagues, economists, understandably, who said, come on, you know very well that economics, what we teach our students, contains a lot of concepts that are extremely useful for understanding climate change, market failure, and so on, which is completely true. The concept of externality, adverse election, informational asymmetries, you can use all those concepts to explain why markets fail and why in the case of climate change, they fail so spectacularly that they will destroy human life on this planet. So there is no doubt. But the point I was making was that for Greta, if she were to study economics, to get to those concepts, she would first have to go through the normal standard model in which there are no externalities, you have perfect competition, everything works angelically, and then externalities are presented as an exception, an externality, something external to the mainstream, to what really is going on in the marketplace. But it's not just that, because somebody would then say, OK, so why don't we just reverse the order of teaching? We can start with the externality and then teach competitive markets of efficient, competitive markets. Well, you can't do that, because the moment you introduce externalities, you can't solve them mathematics. You have no demand curves. You have no supply curves. Or the demand curves you have are very funny looking, like the market for lemons, George Arkelov's model. And you can't build the whole panoply of economics textbooks on the basis of externalities. So there is inherent bias in mainstream economics against treating climate change as the real gaming town with fictitious markets that work perfectly in some realm of our collective imagination. That's it. Well, thank you very much. In fact, we're very happy that someone in the audience asked that question, because as it happens, if you're interested in the topic of ecological economics or economics and sustainability, we're organizing a lecture series, the same that has been organized for this semester, but with the topic of ecological economics, economics and sustainability, starting in April at this university. And we would love to see some faces again next semester for this lecture, for that lecture series. And now we want to thank Professor Yanis Varoufakis for his talk and his presence here tonight. And we want to thank the wonderful audience here and in the other lecture halls and also all our helpers that were here tonight. Thank you.