Talking to my daughter about economy — by Yanis Varoufakis (Introduction and Chapter-1)
I used to watch stage speeches and interviews of writer S. Ramakrishnan. In one of his speeches, he shared how he fixed a theme or field of reading for every year and master that field. He took up Physics as a field in one of those years, which amazed me. I liked the idea of choosing a theme of reading for an year. So, as part of my 2021 resolutions, I chose ‘economy’ and ‘finance’ as my theme of reading. I listed down certain books at the beginning of the year as target reads for 2021 (‘The wealth of nations’ by Adam Smith, ‘Confessions of an economic hitman’ by John Perkins, ‘Payback’ by Margaret Atwood, etc.). Out of them, I was able to read only a couple of books (this one and ‘Psychology of Money’) — got distracted towards fiction most of the time. Yet, whatever went into my head was very useful to get used to the concepts.
Naval used to say in his podcasts that if you don’t understand what is written in a book, find out what else can you read first before you become knowledgeable to understand this one. This is called going back to the first principles. In that manner, ‘Talking to my daughter about economy’ is an essential read to know some first principles of economy.
The author, Dr. Yanis Varoufakis was a Professor of Economics for many years in Britain, Australia and the USA before he became the Finance Minister of Greece in 2015. Yet, he says the reasons why he said he wrote this book were:
- He had a delicious contradiction about his own profession: more scientific our models of the economy become, the less relation they bear to the real, existing economy out there.
- He has a conviction that the economy is too important to leave it to the economists. Quote: “As a teacher of economics, I have always believed that if you are not able to explain the economy in a language young people can understand, then, quite simply, you are clueless yourself.”
- He was never able to spend much time with his daughter Xenia throughout her life, she studying in Australia and him being in Greece. When she had once asked during her mid-teen “Why so much inequality, Dad? Is humanity that stupid?”, his answer did not convince her and himself. He considered writing this book as a chance to discuss things with his daughter that scarcity of time never allowed.
The tagline of the book is ‘A brief history of capitalism’. Yet, he consciously avoided the jargons like ‘capital’ and ‘capitalism’ because he felt they hold a lot of ideological burden. That itself makes people alienated and averse towards understanding economy. He instead uses simpler terms like ‘market society’.
Author has taken up 8 distinct topics and explained them in detail with the use of anecdotes and literature and history. What follows is a short excerpt of what each chapter talks about. In this post, I have tried to give a condensed version of the first essay in the book.
Why so much inequality?
In order to answer this question of his daughter Xenia, he poses a slightly different question. ‘Why did British invade the Aborigines in Australia but the Aborigines were not able to invade British?’. Two plain answers that people often give are: 1) ‘British were more smart and powerful and Aborigines weren’t smart enough’ or 2) ‘Aborigines were more kind than Europeans’. Both answers would be wrong.
The explanation that the author gives is, briefly about the inception of writing and surplus as 2 major factors of inequality. Agricultural technology was invented in places like Eurasia where they cannot store the hunted food (be it meat or fruits/veggies) for so long considering their huge population — they quickly rot. That fact brought them the necessity to invent ‘agricultural technology’. When that was done, they were able to produce surplus. Now, not every household were equipped to store the surplus for them. So there had to be common godown. When it comes to common storage, ‘the godown owes how much to whom’ had to be recorded — that process is the oldest form of debt and writing enabled this way to record debts.
Since Europeans had surplus, they were able to invent other warfare like Guns which enabled them to invade other nations. Unlike them, Aborigines had enough food to feed them on a day-to-day basis. So they had no necessity to invent surplus and warfare. Rather they flourished in arts, music and dance. So, when Europeans invaded Aborigines, they were not able to fight back.
But why did a whole big nation like Africa become slaves to Europeans? In the geography, Eurasia elongates from East to West but Africa elongates from North to South. Which means, the tropical conditions that would prevail when we cross Eurasia from the Pacific to the Atlantic will almost be consistent. But, when we travel from Johannesburg in the south and Alexandria in the north, we’d pass through all kinds of climatic zones — like tropical jungle or the Sahara desert. While Eurasians were able to expand their agricultural crops from East to West almost at will, Africans were not able to expand because their crops refused to take root further north, by the equator. Eurasia’s 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.
Africans and Aborigines had not logical way or need to produce surplus and invent warfare. Otherwise, Europeans invading and Aborigines/Africans becoming enslaved had nothing to do with anyone’s smartness or DNA.
There is another type of inequality that geography cannot explain: within societies themselves. To understand this type of inequality, we should talk about economy. Accumulation of agricultural surplus led to an over-concentration of power, and consequently wealth, among the few ruled over the rest — known as the oligarchy. Myths and religion were invented by clergy to make people on top believe ‘they deserve what they have’. Clergy was instrumental in legitimizing unequal distribution of surplus in the eyes of both haves and have nots. When our eyes fall on those who lack the bare necessities, we immediately sympathize and express outrage that they do
not have enough, but we do not for a moment allow ourselves to think that their deprivation may be the product of the same process that led to our affluence. This is the psychological mechanism that convinces the haves and those in power (who are usually the same people) that it is right,
proper and necessary for them to have more while others have much less.
Hope this excerpt was useful to you. I tried to condense all important information from Chapter 1. Yet, if you could give this book a read yourselves, I’m sure it’s going to be an eye-opener.
Details about the next chapters will follow in the next posts.