Modern Political Economics: Making Sense of the Post-2008 World

804 Pages·2011·6.62 MB·English

by  Yanis Varoufakis

Modem Political Economies

Once in a while the world astonishes itself. Anxious incredulity replaces
intellectual torpor and a puzzled public strains its antennae in every possible
direction, desperately seeking explanations for the causes and nature of what just
hit it. 2008 was such a moment. Not only did the financial system collapse, and
send the real economy into a tailspin, but it also revealed the great gulf
separating economics from a very real capitalism. Modern Political Economics
has a single aim: to help readers make sense of how 2008 came about and what
the post-2008 world has in store.
The book is divided into two parts. The first part delves into every major
economic theory, from Aristotle to the present, with a determination to discover
clues of what went wrong in 2008. The main finding is that all economic theory
is inherently flawed. Any system of ideas whose purpose is to describe
capitalism in mathematical or engineering terms leads to inevitable logical
inconsistency; an Inherent Error that stands between us and a decent grasp of
capitalist reality. The only scientific truth about capitalism is its radical
indeterminacy, a condition which makes it impossible to use science’s tools (e.g.
calculus and statistics) to second-guess it. The second part casts an attentive eye
on the post-war era, on the breeding ground of the Crash of2008. It distinguishes
between two major post-war phases: the Global Plan (1947–1971) and the
Global Minotaur (1971–2008).
This dynamic new book delves into every major economic theory and maps
out meticulously the trajectory that global capitalism followed from post-war
almost centrally planned stability, to designed disintegration in the 1970s, to an
intentional magnification of unsustainable imbalances in the 1980s and, finally,
to the most spectacular privatisation of money in the 1990s and beyond. Modern
Political Economics is essential reading for Economics students and anyone
seeking a better understanding of the 2008 economic crash.
Yanis Varoufakis is Professor of Economic Theory at the University of Athens,
Greece.
Joseph Halevi is Senior Lecturer at the University of Sydney, Australia.

Nicholas J. Theocarakis is Assistant Professor of Political Economy and
History of Economic Thought at the University of Athens, Greece.
Modern Political Economics
Making sense of the post-2008 world

Yanis Varoufakis,
Joseph Halevi and
Nicholas J. Theocarakis
First published 2011
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2011 Yanis Varoufakis, Joseph Halevi and Nicholas J. Theocarakis
The right of Yanis Varoufakis, Joseph Halevi and Nicholas J. Theocarakis to be identified as authors of this
work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patent
Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any
electronic, mechanical, or other means, now known or hereafter invented, including photocopying and
recording, or in any information storage or retrieval system, without permission in writing from the
publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used
only for identification and explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Varoufakis, Yanis.
Modern political economics : making sense of the post-2008 world / by
Yanis Varoufakis, Joseph Halevi, and Nicholas J. Theocarakis.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-415-42875-0 (hb) ISBN 978-0-415-42888-0 (pb)
ISBN 978-0-203-82935-6 (eb) 1. Capitalism–History. 2. Economics–History.
I. Halevi, Joseph. II. Theocarakis, Nicholas. III. Title.
HB501.V362 2010
330.9-dc22
2010037780
ISBN: 978-0-415-42875-0 (hbk)
ISBN: 978-0-415-42888-0 (pbk)
ISBN: 978-0-203-82935-6 (ebk)
Contents

List of tables
List of figures
List of boxes
Three authors, three forewords
1 Introduction

BOOK 1
Shades of political economics: seeking clues for 2008 and its aftermath in
the economists’ theories

2 Condorcet’s Secret: on the significance of classical political economics
today

3 The odd couple: the struggle to square a theory of value with a theory of
growth

4 The trouble with humans: the source of radical indeterminacy and the
touchstone of value

5 Crises : the laboratory of the future

6 Empires of indifference: Leibniz’s calculus and the ascent of Calvinist
political economics (with an addendum by George Krimpas entitled
‘Leibniz and the “invention” of General Equilibrium’)
7 Convulsion : 1929 and its legacy

8 A fatal triumph: 2008’s ancestry in the stirrings of the Cold War

9 A most peculiar failure: the curious mechanism by which neoclassicism’s
theoretical failures have been reinforcing their dominance since 1950

10 A manifesto for Modern Political Economics: postscript to Book 1

BOOK 2
Modern political economics: theory in action

11 From the Global Plan to a Global Minotaur: the two distinct phases of
post-war US hegemony

12 Crash: 2008 and its legacy (with an addendum by George Krimpas
entitled ‘The Recycling Problem in a Currency Union’)

13 A future for hope: postscript to Book 2

Notes
Bibliography
Index
Tables

4.1Input-Output Matrix
4.2The Matrix Economy’s steady-state growth path
9.1The prisoner’s dilemma
11.1Percentage increase/decrease in a country’s share of world GDP
12.1Average annual rate of change in labour unit costs (in $US)
Figures

3.1 The physiocratic tableauéconomique
4.1 Nature’s limits
7.1 Reward from investing $15 per week in Wall Street during the swinging
1920s
7.2 GDP in billion dollars
7.3 The great banking disaster
7.4 US National Debt as a proportion of US National Income (GDP) per
Presidency (1940–2010)
7.5 Annual rate of inflation in the USA (1929–55)
9.1 The Dance of the Meta-axioms
10.1 The six meta-axioms of political economics
11.1 Real GDP per capita during the period of the Global Plan
11.2 Oil dependency
11.3 Effects of the 1970s crisis on the United States’ relative position
11.4 Stagnant wages, booming productivity (year 1975 = 100)
11.5 US real profits during the post-war period and prior to the Crash of 2008
11.6 US trade deficit
11.7 US federal government budget deficit
11.8 The Global Minotaur’s success
12.1 How the EU and Japan on the one hand and Asia and oil exporters on the
other financed the US current account deficit
12.2 Global capital inflows and outflows, 2003
12.3 US corporate profitability (1961–1970 = 100)
12.4 Personal loans and credit card debt of US households (1961–1970 = 100)
12.5 Link between median house price inflation and the growth in consumer
spending, 2002–7