Talking to My Daughter About the Economy: The Comprehensive Flashcards

What did the development of a means to grow food lead to? What is it?

• The development of surplus, which is:

  • The extra quantity of something that allows for accumulation and future use

How did accounting records of how much what people had lead to the beginning of debt and money?

Workers were paid in shells that were:

• Indicating what rulers owed them: engraved with numbers indicating pounds of grain rulers owed them for their work in the fields

• A form of debt owed to workers by their rulers, since the # of grain these shells referred to hadn't been harvested yet

• A form of currency, since workers could exchange them for products produced by others

Why did the Global North invade the Global South and not the opposite?

• Stability: the stable geographical conditions in Eurasia made it optimal for agriculture and surplus to emerge, as well as rulers, armies, and new technologies.

  • Optimal conditions for invasion: Eurasia’s crops could be planted farther and farther on a homogenous farming realm — it was the perfect landscape for invasion

• Overly varied climates in the South: in Africa, for instance, the climates were so varied that even regions that had developed agricultural economies didn’t have crops that could travel well

Summarize how feudalism worked. What was the Great Reversal?

• Production: serfs worked the land and produced goods

• Distribution: the feudal lord forcibly extracted his share of the harvest with the help of a sheriff

• Debt-credit: the lord sold for money any goods that were left over, which allowed him to buy things, pay for services, and issue loans

• The Great Reversal was:

  • Instead of the distribution of surplus coming after production, distribution began before production had even started. As a result:

    • The amount of money paid to wageworkers

    • The rent paid to the lord

    • The sums to be paid for raw materials….

      • ….were all agreed upon even before production began — the distribution of the entrepreneur’s future revenues was decided before their existence

How did the Great Transformation of the three factors of production into commodities happen? What was the result of this Great Transformation?

• Increased international value and wealth of merchants: as exported products became goods with international value and merchants selling those goods became crazily wealthy, landowners were appalled

• What the landowners did (enclosure of the commons):

  • Got rid of all the perishable crops that offered no access to the emerging global markets

  • Built fences around their estates, creating sealed-off areas

  • Evicted serfs while replacing them with submissive sheep whose wool could be sold for a mint internationally

• As a result, more than 70% of the peasants were thrown out of their homes and ancestral lands

• Kicking out the serfs turned labor and land into commodities: it created a market in which humans lacking access to land or tools must survive by auctioning off their labor

What, for the landowners at the end of feudal times, was an alternative to overseeing the production of wool?

To rent out their land to someone else at a price determined by the international market value of the wool it was capable of producing

What happened to the working status of the population after the serfs were evicted?

• Most of the population had to participate in some kind of market. Some of them kept working the lords’ lands as:

  • 1. Renters whose rent was determined by the price of wool

  • 2. Entrepreneurs terrified of the fluctuations in the market value of that wool (“can we sell our wool on the market for enough money to pay our rent and to buy enough food to nourish our children?”)

What are the foundations of the “marriage” between debt and profit?

• Pre-profit times: In feudal times, profit was almost nonexistent; wealth flowed to landowners through taxes or rent and accumulated through power, military success, and landholdings

• The commodification of land and labor, the necessity of capital, and the borrowing of money: Land and labor gradually became commodities. Entrepreneurs needed capital to start production — like paying wages, renting land, or purchasing raw materials.

  • Since they didn’t have enough resources, they borrowed money, often from landowners. This created the first formal debt obligations, which often involved interest. Debt, initially seen as a temporary obligation, began to take a more permanent, contractual form.

How are entrepreneurs like “time travelers,” according to Varoufakis?

• An entrepreneur borrowing money is like borrowing exchange value from the future and dragging it into the present

  • This is because the loan represents a claim on resources or wealth that will be generated later (such as profits from sales or production)

• Future failed —> disturbed timeline: If the entrepreneur fails to bring about the future in which that exchange value exists, then they will have disturbed the timeline.

• If the loan can’t be repaid, the business will fail.

In chapter 4, Varoufakis says that “the very same process that generates profit and wealth also generates financial crashes and crisis.” How so?

• How it generates prosperity:

  • Reliance on debt for generating profit and wealth: the process of generating profit/wealth in market societies relies on the creation and expansion of debt.

  • Taking out loans —> goods, income and profits: When entrepreneurs take out loans to fund their businesses, they can produce goods, generate income, and thus create profits.

    • Reinvest profits —> economic growth: These profits can then be reinvested or used to pay back loans, perpetuating economic growth.

• How it generates crisis:

  • Lending creates debt which leads to continuous borrowing: banks, seeking profit, lend more and more by creating new money through loans. As lending accelerates, debts accumulate rapidly, and the economy becomes increasingly dependent on continuous borrowing, with the hope that future returns will cover current debts.

  • Too much credit expansion exceeds economy’s wealth building capacity: problems arise when this credit expansion surpasses the economy’s capacity to generate sufficient wealth and profits to service and repay those debts.

    • Lack of repayment —> unpayable debt —> crisis: when borrowers cannot repay, either because the ventures fail, or because of economic downturns — the debt becomes unpayable, leading to failures to pay loans. These defaults can cause banks to suffer losses, potentially leading to bank failures and financial crises.

What do central banks do?

• What central banks are: state-owned banks with lots of money that all other banks buy from

  • Also conjures money up from thin air

  • Lenders of last resort for regulation: they create money not for profit but to prevent economic collapse caused by reckless banking by regulating these banks

Why is debt forgiveness necessary?

Because unpayable debts can lead to economic stagnation and prolonged impoverishment of individuals, businesses, and countries

In market societies profits (which maintain market societies) can only accumulate if prices remain above costs. But three forces lead to prices falling below that level. What are they?

1. Lowered costs due to automation: The automation of production lowers costs

2. Restraining on prices charged: Competition between producers stops them from charging prices above their falling costs

3. Reduced demand due to lack of spending: Robots replacing human workers don’t spend money on the products they help produce which has the effect of reducing demand

   1. All of this may result in falling prices, reduced demand, and potential economic collapses

In the chapter on automation, what does Varoufakis say about profit and innovation?

• Drive for profit → innovation → ownership of a few: The drive for profit fuels technological innovation, which in turn tends to concentrate ownership of machines among a few.

• This may potentially lead to social struggles and resistance.

How do crises serve as a safety valve that prevents total displacement of human labor?

Cutting costs by hiring humans: When many companies lose money and stop producing as much, they need to cut costs, so they may hire more human workers instead of robots

What is one way Varoufakis says that the labor of machines could be used wisely and to benefit everyone rather than just a group of employers?

• Everyone owns a portion of the machines: we could ensure that a portion of the machines of every company could be the property of everyone

  • A common fund in which profits flow: the percentage of those profits coming from those machines could correspond to that portion flowing into a common fund to be shared equally by all

• Alleviated downward pressure on demand: Instead of diverting more money into the pockets of the rich who own the machines, if a portion of the profits were to go automatically into the workers' bank accounts, then this downward pressure on demand, sales, and prices would be alleviated

Explain the history of politicized money as the author describes it.

• A straightforward tool for exchange: in early societies, money functioned as a tool for exchange based on tangible commodities (shells, precious metals)

  • Their acceptance relied on social trust and legal obligations

• Response to politicians debasing currency: rulers would often debase (reduce in value) their currency to fund wars or increase their own wealth; debasement diminished the currency’s value

• Rule of law, taxes, and welfare state: over time the rule of law was instituted, taxes became a source of funding, there was the emergence of the welfare state — but who pays for this?

  • Deficit-financed state expenditure, or public debt

  • A central bank that helped the state fund itself and the bankers in their hour of need

What are the main problems with Bitcoin, according to Varoufakis?

• Lack of state backing and insurance: Bitcoin operates outside the jurisdiction of any government or central authority. This means there is no state-backed insurance scheme to protect users from fraud, theft, or hacking. This absence of formal protections makes users vulnerable.

• Inability to adjust money supply in crises: Bitcoin has a fixed supply which makes it impossible for authorities to reflate the money supply during times of crisis or downturns

• Deflationary effect due to fixed quantity: when businesses create more products, each Bitcoin will become scarcer (and so be worth more) meaning that the price in Bitcoins of products falls quicker than the pace dictated by automation.

  • This problem can become big if wages fall faster than prices

Since money is inherently political, what is the main thing Varoufakis suggests we do with it?

“Civilize” it by democratizing it, and give the power to control it to the people on the basis of one person, one vote

Why does the economy benefit from environmental destruction?

• Lack of exchange value: nature has no exchange value until it is destroyed

  • i.e. when trees burn, since there’s no economic “loss” since they weren’t being sold

• Rewarding damage rather than preservation: BUT things like the diesel consumed by the firefighting trucks and the rebuilding of homes all generate money and counts towards economic growth

The POV of someone who is pro-market, in terms of solving environmental problems, would be to grant exchange value onto natural resources. What is the problem with that, according to Varoufakis?

• The irreducible value of nature: converting natural resources into commodities risks valuing only their profit-generating potential while neglecting their non-market, essential worth

• Natural resources → tradable assets → overexploitation: turning natural resources into tradable assets can incentivize overexploitation; since private owners seek profit, they will prioritize extraction or use that maximizes short-term gains, often at the expense of ecological health.

  • Ignoring externalized (reflected in the price) environmental costs: because owners are driven by profit, they may ignore the environmental costs—such as pollution or habitat destruction—that are "externalized" or not reflected in the price. This can lead to overuse and harm to ecosystems that everyone depends on.

• The solution’s irony: this solution is ironic because although they say they are adopting a market solution because government can't be trusted, this solution still depends on the government for it to work