banking turmoil

Image: Francesco Ungaro


Review of a recent article by Yanis Varoufakis

Num recent article, Yanis Varoufakis, referring to the current international banking turmoil, uttered the supposedly radical slogan “let the banks burn”. Of course, this author is not famous for the coherence of his economic analyses. As he has described himself, he is a fairy tale creator posing as an economist. This article falls completely into this category.

Furthermore, Yanis Varoufakis' political views range – often simultaneously – from radical (but never really left-wing) to unabashedly conservative. Recently, for purely opportunistic electoral reasons, he has professed to take a turn to the “left”. In his recent mask, he has found only a few willing and equally opportunistic accomplices, but his electoral success is still at stake. Of course, as in his scientific analyses, “creative ambiguity” (which is synonymous with opportunism and unreliability) is the hallmark of his supposedly radical political turn.

What is Yanis Varoufakis proposing with his call for banks to burn?

It is a bit tricky (but not difficult) to trace his theoretical perspective. Leaving aside an older false self-description that he is an “erratic Marxist” (he appears to be, however, too erratic to be a Marxist), he once again proves himself to be a superficial Keynesian. He mixes this perspective with the erroneous theory of financialization (this is the thesis that today there is a new capitalism dominated by bankers who exploit both workers and businessmen in a usurious way). Characteristically, through a class reference that creates a lone and rapacious class, he argues that the “creditors and banks” class tightens the noose around the neck of society as a whole.

He then attributes contemporary financial problems to government policy that "poisoned the money of the West" without once failing. It doesn't take a deep political-economic knowledge to know that, at the level of economic policy, there has never been a single nominal interest rate, but that the States conduct monetary policy by intervening in the spectrum of interest rates.

At the level of general theory, it would be interesting if Yanis Varoufakis clarified how – in his opinion – a market clearing interest rate is determined in capitalism. Is it a purely monetary quantity that equates the money supply with the peculiar Keynesian demand for money (which depends on the psychologically determined demand for liquidity)? Is it a natural rate of interest as neoclassicals claim? Or is it the balance between demand and supply of loan capital, but limited by the rate of profit, as Marxism claims? But these questions are fine print for this economist.

On more practical matters, Yanis Varoufakis's opinion that banks should be allowed to fail is nothing new. Friedrich Hayek's dogmatically neoliberal followers are constantly making the same claim.

Afterwards, he indulges, as usual, in reformist science fiction projects. He proposes to close private banks (!?). He indicates that a digital currency should be created by the Central Bank (in the European case, as is known, both for the ECB and for Yanis Varoufakis, leaving the euro is a disaster that only realistic European disobedience can save !!!). It also suggests that a digital wallet be created based on the technology of blockchain (but one should not forget his previous involvement with the dirty world of cryptocurrencies).

With these new institutions, citizens will keep deposits fully secured. If they want to get a return on their deposits, then they could – assuming the risk of bankruptcy – put them in investment banks (!?). Such a banking system would be able to “comply with the rules of an orderly market” (see how Varoufake's radicalism can only go so far).

He ignores, of course, that the financial system under capitalism exists to channel capital to capitalists and not to serve small depositors. And this monetary capital does not do this mediation for free.

But even if the Central Bank undertakes to raise funds, it will not do so for free either. Where will it get profits to buy public goods (as Varoufakis benevolently but obscurely suggests)? If it sets a lower interest rate (as a risk premium) and/or imposes a higher seigniorage, it will exploit depositors.

Yanis Varoufakis's subsequent heated discussion with the more neoliberal cryptonomists about the "big brother" and proposed monetary supervisory committee is, to me, not a serious discussion - but an undignified one.

The epilogue to Yanis Varoufakis's article is revealing: he equates miners with bankers as harmful recipients of society's subsidies. Excellent class perspective indeed!

But the most essential problem of Yanis Varoufakis's science fiction is the ignorance (?) of the relationship of the financial system with production and real accumulation. In the land of the very smart cuckoo that sings of financialization, the interest rate is pure usury that has nothing to do with the profit rate.

On the contrary, Marxism rightly shows that interest is part of the surplus value created by workers, appropriated by industrial capitalists and redistributed between them and money capitalists. Today's financial turmoil is due to the inability to increase profitability which in turn limits the income of the financial system and leads to the collapse of the capitalist structure of debt and fictitious capital. Capitalism responds to this problem by supporting strategically important capital (such as the big banks) and increasing the exploitation of labor.

For the labor movement and for the real left, this is the main front and not the pursuit of utopian banking reforms that only cause confusion and disorientation. Against the “creative ambiguity” of the fellow travelers of bourgeois politics, the transitional program of the real left gives clear and adequate answers.

*Stavros Mavroudeas Professor of Political Economy at Pantheon University, Greece.

Translation: Eleutério FS Prado.

Article published in author's blog.

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