‘Talking to my daughter about the economy’ – Book review in The Guardian by Anna Minton

Not many authors write a book in nine days, and fewer still are likely to announce it in the prologue. Yanis Varoufakis has no qualms about doing so in this brief history of capitalism, structured around the device of talking to his daughter, Xenia, not long a teenager. It was first published a few years ago, when she was even younger, and has been updated for British readers following a further week’s writing. By being open about the writing process, the scholar and politician manages his readers’ expectations; but he also builds them, by promising to explain economics in a language that everyone can understand, in place of the jargon- infested pseudo-scientific language of mainstream economics.

But writing such a primer is no easy task, given that experts have often found it easier to hide behind opaque language than to explain complex concepts in simple terms. So much contemporary discourse assumes that economics functions outside of politics, and that it is best left to professional economists and mathematicians. Varoufakis wants to smash this barrier: he argues from the outset that if we defer to experts on the economy then we hand over all our most important political decisions to them.

He has decided to use Karl Polanyi’s term “the market society” throughout. So although he is describing the history of capitalism, he dispenses with the actual term, believing it to be accompanied by too much ideological baggage. “Market society” is preferred to the equally loaded “market economy” – as in Margaret Thatcher’s famous phrase that “there is no alternative” to a market economy. Varoufakis is determined to show that politics can always produce an alternative economics.

He lays out where money comes from in the simple terms he has promised: it was invented to record debts, which means that money and debt have marched together since antiquity. The very first scripts are accounting records to show how much surplus produce, such as grain, farm workers were owed. But it was the shift from a feudal society to a market society that turned debt into the “primary factor” – there can be no profit without debt because businesses have to borrow to grow. The expansion of debt also created instability and fuelled crashes but it was debt, not coal, that “was the real fuel that powered the engine of the industrial revolution”.

Varoufakis comes up with a vivid comparison between money supply and the market in cigarettes in a German prisoner-of-war camp to explain inflation, deflation and interest rates, in terms any teenager – or adult – will understand. In the camp, prisoners received packages from the Red Cross that included food, cigarettes, tea and coffee. Over time, as in prisons the world over, cigarettes became the currency by which other goods were traded. Now and again, the Red Cross would put more cigarettes in the packages, which meant that with more circulating in the camp they were worth less, so more would be needed to buy the same amount of goods – inflation in other words. Conversely, after a heavy bombing raid, prices went down – deflation – as so many cigarettes had been smoked they were in short supply and were worth more. As cigarettes are durable – like shells and precious metals, which have been used as currency – they can be saved, and in time “bankers” emerged in the camp, who would loan cigarettes with interest, ensuring that borrowers would pay back more than they had borrowed. In times of inflation, when the value of the currency was uncertain, interest rates went up, and vice versa.

The headquarters of Goldman Sachs Group in New York … Varoufakis reserves his greatest vitriol for the banks.
 The headquarters of Goldman Sachs Group in New York … Varoufakis reserves his greatest vitriol for the banks. Photograph: Bloomberg/Bloomberg via Getty Images

A key part of the analogy is that when the Red Cross handed out the cigarettes – for which read the money supply – it was able to play the role of a genuinely independent central bank. But while the central banks of most of the world’s advanced economies are formally independent, Varoufakis believes that it is not possible for such powerful institutions, in charge of debt and taxation, to act outside politics. Rather than having a central bank as neutral as the Red Cross, the upshot is that “we end up with a central bank whose decisions remain as political as ever, except that they are no longer supervised by parliament”.

His line of argument is at the opposite end of the spectrum to Thatcher’s comparison between a household budget and the economy – itself aligned with the assumption that economics is a neutral science, set apart from politics. For Varoufakis, economics is always politics, because whoever controls the money has the power: his views on debt inevitably reflect his experience as Greek finance minister in 2015, desperately trying to renegotiate Greece’s debt and curtail the brutal austerity programme. Unsurprisingly, he reserves his greatest vitriol for the banks; it may have been essential to save them, but why reward the very bankers who facilitated unsustainable amounts of debt? Why not “send them home penniless as a warning to any other banker who is tempted to do the same”? His answer, which relies heavily on the revolving door between senior bankers and governments, is amply supported by the number of Goldman Sachs alumni serving in successive US governments.

Varoufakis goes outside the territory usually associated with economics, ranging from antiquity through to the pre-modern period, industrialisation and beyond. And he is as keen to look forward as back, conjuring up post-human dystopian futures in the style of The Matrix. There is a danger is such a sweep: simplistic summaries of contested subjects such as enclosure and the loss of the commons undermine his authority in other areas. More seriously, while his debunking of ideology is a virtue of the book, his emphasis on the deliberate cultivation of authority by rulers as a mechanism of control – from organised religion to the new secular religion of economics – misses out on a psychological understanding that people at times cleave to power and authority.

The speed with which he wrote this book shows, but Varoufakis does equip his readers with the beginnings of a new language, and punctures myth after myth. If he can do that in nine days, imagine what he could write in 90. Perhaps that could really be the economics text a new generation is looking for.

 Anna Minton’s Big Capital: Who Is London For? is published by Penguin. A Brief History of Capitalism is published by Bodley Head. To order a copy for £10.49 go to bookshop.theguardian.com or call 0330 333 6846. Free UK p&p over £10, online orders only.

For the original posting on The Guardian site click here.