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Lex Fridman Podcast
#303 – Steve Keen: Marxism, Capitalism, and Economics
Jul 17, 2022
03:36:45
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Quick takeaways
- Economics should explain how human civilization thrives and sustains itself.
- Understanding the history and contributions of different schools of economics.
- The importance of money creation and its role in the economy.
- The failure of socialism in centralized economies and the varied approach of China.
- The significance of credit in aggregate demand and its impact on the economy.
- The need for a deep understanding of complex systems for better predictions and solving future challenges.
Deep dives
The Importance of Understanding the Soul of Economics
In this podcast episode, Steve Keen, an economist, critiques modern economics and advocates for a deeper understanding of the soul of the discipline. He emphasizes the need to recognize the true role of economics, which is to explain how human civilization thrives and sustains itself. Keen discusses the intertwined concepts of energy consumption, knowledge levels, and human civilization. He argues that our dependence on high-grade energy sources, such as fossil fuels, allows us to elevate ourselves above the base level of the planet. Keen highlights the crucial need to preserve and respect life in order to ensure the survival of humanity amidst the challenges we face.
The Evolution of Economic Schools of Thought
This podcast explores the different schools of economics throughout history. It begins with the physiocrats, who believed that agriculture was the source of all wealth. Adam Smith, a classical economist, challenged this notion by emphasizing the role of labor in creating value. The neoclassical school arose as a defense of capitalism, focusing on subjective theories of value and equilibrium. Marx, a groundbreaking thinker, introduced the concept of a dialectic approach to understanding change in capitalism. Post-Keynesian economists recognize the inherent instability of the economy and the importance of uncertainty in decision-making. Austrian economics revolves around the concept of entrepreneurship and the role of money creation in capitalism. This summary provides a concise overview of the major economic schools and their contributions to our understanding of the economy.
The Role of Money Creation and Modern Monetary Theory
The podcast delves into the concept of money creation and its significance in the economy. Money is seen as a social construct arising from double-entry bookkeeping. The process involves banks creating liabilities, which are the basis of money. Private banks create money through loans, while the government creates money through deficits, spending more than it collects in taxes. Modern Monetary Theory challenges traditional views by bringing attention to the accounting aspects of money creation. This theory emphasizes that money creation is necessary for commerce and rejects the idea of a conservation of money. The conversation also touches upon the dialectic nature of money, where attention exists between foreground and background aspects of utility and exchange value. Overall, this discussion sheds light on the role of money creation in our economic system.
The Failure of Socialism
The centralization of the economy and resource constraints led to the failure of socialism. In economies like the Soviet Union, innovation was stifled, leading to a lack of variety in goods and ultimately discontent among the people. Centralized control also resulted in suppression of political dissent, further suppressing the human spirit.
China's Unique Approach
China's approach to socialism differed from the Soviet Union, as they allowed for a degree of economic decentralization while maintaining political control. This enabled them to harness the productive capacity of capitalism while retaining socialist principles. The combination of central political control and diversified economic control allowed for economic growth and innovation, leading to material satisfaction for the people.
The Question of Happiness and Centralization
When considering the happiness and well-being of people living under centralized control, it is important to note that perceptions of happiness can vary. Some individuals may find contentment in a limited system where basic needs are fulfilled and political stability is maintained. However, it is also important to recognize the limitations imposed on freedom of expression and the potential for abuse of power.
The Role of Credit in Aggregate Demand
Credit, which is the change in debt, plays a crucial role in aggregate demand and aggregate income. It adds to spending power and is a component of GDP. When credit is positive, it increases aggregate demand, but when it turns negative, it leads to a decrease in aggregate demand. The level of private debt and the rate of credit growth have strong correlations with unemployment rates. This relationship is overlooked by neoclassical economists, who believe that credit has no impact on aggregate demand. However, empirical data shows that credit is a causal factor in fluctuations in the economy.
The Importance of Understanding Complex Systems
The economy, biosphere, and human mind are all complex systems that require a deep understanding of their dynamics. By modeling the economy using system dynamics, it becomes clear how various factors, such as income distribution, employment, and private debt, interact and shape the overall behavior of the system. Embracing the complexity of these systems allows for better predictions and a more accurate understanding of the crises and challenges that lie ahead.
The Need for a Balanced Approach and Respect for Life
As a species, we need to recognize the value of life on Earth and the importance of preserving the biosphere. This calls for a balanced approach where a significant portion of the planet is reserved for non-human species and allowed to evolve naturally without human interference. Additionally, decisions about the direction of society should be guided by an understanding of the complexity of the world and a recognition of the importance of humility in the face of uncertain outcomes. By integrating these principles into our political and economic systems, we can better navigate the challenges of the future and work towards a harmonious coexistence with the planet.
The Impact of Depreciating Currency on Economic Activity
The podcast discusses the impact of depreciating currency on economic activity. It shares the story of the mayor of Worgl in Austria during the Great Depression, who introduced a depreciating local currency to stimulate demand and reduce unemployment. The experiment was successful, leading to increased economic activity and a decrease in the unemployment rate. However, the Austrian central bank shut it down, resulting in a return to high unemployment. The podcast highlights the importance of moderate levels of inflation and the role of currency circulation in economic growth.
The Role of Love and the Dark Side of Humanity
The podcast delves into the role of love and the dark side of humanity. It explores how love and passion are essential aspects of the human experience, connecting individuals on a deeper level. It also acknowledges the destructive capacity of human beings, highlighting war and violence as expressions of hate and pleasure in inflicting pain. The podcast emphasizes the need to extend love and respect not only to fellow humans but to all forms of life. It discusses the challenge of maintaining love and respect over generations and moving away from destructive tendencies.
24.
Marxist Political Ideology - The Difference Between Marxian Economics and Marxist Politics
2min
48.
Is It Possible to Do Good Economics Modeling of the Effects of Climate Change?
4min
Steve Keen is a heterodox economist and author. Please support this podcast by checking out our sponsors:
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EPISODE LINKS:
Steve’s Twitter: https://twitter.com/profstevekeen
The New Economics (book): https://amzn.to/3zb4eg4
PODCAST INFO:
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SUPPORT & CONNECT:
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OUTLINE:
Here’s the timestamps for the episode. On some podcast players you should be able to click the timestamp to jump to that time.
(00:00) – Introduction
(07:26) – Defining economics
(14:26) – Schools of economics
(38:45) – Karl Marx
(57:00) – Labor theory of value
(1:16:45) – Socialism
(1:31:48) – Soviet Union
(1:45:08) – China
(2:05:00) – Climate change
(2:27:03) – Economics vs Politics
(2:35:06) – Minsky’s model
(2:49:50) – Financial crisis
(2:55:07) – Inflation
(3:08:21) – Marxism
(3:15:42) – Space and AI
(3:21:47) – Advice for young people
(3:25:38) – Depression
(3:30:10) – Love
(3:34:11) – Mortality
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