Another Now

by Yanis Varoufakis

  Like reunited identical twins, Eva and Eve delved into each other’s pasts, eager to learn what could have been. Eva opened her heart first, describing how Lehman’s bankruptcy had stunned her into a long period of inactivity, from which Thomas’s father alone was able sporadically to rouse her. How eventually, and despite him, she overcame her lethargy by applying to Princeton for a place on their economics doctoral programme. How he would not leave her alone, exploiting her vulnerability to him. How he then fled upon learning of her pregnancy. How she had given birth to Thomas among strangers. How she had struggled as a single mum to complete a tough PhD. How she had decided to escape to Brighton.

  Eve repaid her amply, describing how his spell lifted quickly thanks to an email that landed in her in-box in November 2008, sent by someone calling herself Esmeralda. It was not a personal email but one addressed to the many Wall Street analysts who had just lost their jobs. Esmeralda was inviting them to join the Crowdshorters – the band of financial engineers who, ultimately, would use Wall Street’s weapons to bring down the CDO-derivatives market and, with it, the investment banks. Racked with guilt about having taken part in the massive fraud that had passed as investment banking, Eve was tempted. When she told her partner, he was furious. Having been her boss at Lehman, he still felt entitled to order her about. Her choice was clear: a lowly job as a member of the incoming Obama task force whose job was to re-float Wall Street and which he was to lead. Or join Esmeralda’s Crowdshorters. It was no choice at all.

  And so Eve had found herself in the midst of the OC rebellion. As Barack Obama was moving into the White House, Eve was becoming an integral member of the Crowdshorters’ East Coast team. Her Lehman experience proved handy in unpicking the derivatives that the authorities were trying to revive in order to rebuild the empire of finance that had just imploded. ‘We lived in thrilling times. Nothing like a high-tech revolution to sharpen the mind and dissolve loneliness,’ was how she described it to Eva.

  A year later, Eve hooked up with Ebo, a fellow Crowdshorter who had begun his revolutionary career working with Akwesi’s Bladerunners in Ghana. He had come to New York to work on a joint campaign to incite a series of payment strikes while also targeting the financial instruments whose underlying payment streams the strike would weaken. As the OC revolution bore fruit, Eve and Ebo worked all hours to help set up the Other Now’s new institutions.

  Ebo rose to lead the Human Movement Project, an international agency helping people migrate. Eve, drawing on her financial background, worked for the International Monetary Project – the successor to the International Monetary Fund – which regulated the world’s currency system. But all work took a back seat when their baby girl, Agnes, arrived in 2016. On that day Esmeralda sent Eve a handwritten note that read, ‘May she grow up a cheerful enemy of repression.’

  Eva smiled when she learned this. The thought that Thomas had a half-sister of sorts was surprisingly comforting.

  Plumbers versus waiters

  As the days and then weeks passed, their correspondence inevitably turned political. The first question Eva asked was to do with the subject that had preoccupied her most since reading Kosti’s dispatches: the fact that firms could not hire anyone without making them equal partners first.

  ‘Surely when you want a minor role filled, you must be able to hire someone in return for nothing more than a sum of money?’ she asked.

  ‘Sure,’ answered Eve, ‘as long as the task meets the Disjointedness Criterion.’

  She explained that the Disjointedness Criterion, or DC for short, had been introduced in the Other Now to distinguish between value production that requires teamwork and value that can be created and measured individually. For example, when a plumber is called in to fix a burst pipe, the work performed can be valued separately from any work others do in the same building. Thus, DC applies here and plumbers have no right to demand a share of the firm – they are just paid for the service provided.

  In contrast, actors bring to a play their individual panache, talent, commitment. One or two bring star quality to the stage, stimulating demand for tickets. Some have substantial roles that make them look good. A few are mere extras. Nevertheless, every play is an example of joint production in the sense that it is impossible objectively to measure the contribution of each participant, from individual actors to the director, the set designer, the lighting director and the many others involved. Here DC does not apply. In such teamwork-based enterprises, the one-person-one-share-one-vote rule holds because of the impossibility of measuring objectively individual contributions. Different individual contributions are of course rewarded with different bonuses. However, they do not legitimize different degrees of ownership.

  ‘What about a casual waiter in a cafe?’ asked Eva. ‘Does the DC not apply there?’

  ‘No, it doesn’t,’ answered Eve. ‘Unlike casual plumbers, waiters are part of the cafe’s culture, its product.’ In addition to fetching cups of coffee, she explained, they partake in producing the atmosphere that customers pay for. So too in an office, in a factory, on a farm, in an architect’s studio – wherever the final product reflects the culture of the workplace and the synergies between all participants, DC does not apply.

  ‘But it seems crazy to introduce such a ludicrous degree of inflexibility into the market for labour,’ Eva said. ‘Surely it puts a huge constraint on the willingness and capacity of companies to take on new staff.’

  ‘But this is where you’re wrong,’ replied Eve. ‘No such thing as a labour market can exist or indeed ever existed.’

  Even under capitalism, Eve insisted, the moment someone is hired they leave the market and enter its opposite: a planned system – the firm. In any marketplace, especially the digital one, you simply buy and sell, often anonymously. Beyond the financial transaction, there is no relationship with your counterparty. Once you join a company, by contrast, you cooperate, cajole, propose, argue, support, vow, inspire, form coalitions, moan about colleagues – in short, you enter a relationship unregulated by prices, just like a marriage or joining the army or forming a theatre company. The only difference between capitalism and the Other Now, Eve continued, is the type of relationships workers experience. Under capitalism, relations within a firm are despotic, as is the distribution of its net revenues. Under the Other Now’s corpo-syndicalism, relations are democratic. And so is the distribution of bonuses.

  Unsatisfied but realizing that she had hit a wall, Eva decided reluctantly to move on to one of the many other questions she wanted to ask. It was a big one.

  Money

  In Eva’s university lectures, money was the hardest thing to explain even to the smartest of students. In fact, it had taken Eva herself months of working in Wall Street to escape fully her own misconception of how money is created. As a physics major, before getting her hands dirty in New York, she had assumed that money is printed by a nation’s central bank, from where it is distributed to commercial banks. But while this is indeed how cash is created, cash accounts for only 3 per cent of all money. What of the remaining 97 per cent?

  Surprise and then foreboding were the reactions of every student to whom she had explained how the missing 97 per cent was created – and by whom: not by central banks but by commercial and investment bankers. At this point, her students would ask, ‘Without access to state-sanctioned printing presses, how do private bankers create money?’

  ‘Simple,’ she would reply. ‘Every time a banker approves a loan of, say, one million dollars for Jack, a typical business customer, the banker just types 1,000,000 on Jack’s bank statement. However incredible it may seem, that’s all it takes. Bankers create money by granting loans by typing in some numbers!’

  The crucial thing, she would explain, is that these numbers are typed into a shared database – or ledger – to which only the bankers have access. When their customers transfer this ‘money’ between them – when Jack transfers
numbers from his account to the account of a supplier, say Jill, or of a builder, say Bob, or of a worker, say Kate, and when in turn, Jill, Bob and Kate transfer their numbers on, in the same way, to others to whom they owe money – these numbers simply migrate from one cell in the database to another. For this system to be sustainable, and not merely a pyramid scheme, there is a single condition: that, somewhere down the line, the one million dollars which some banker typed into existence on Jack’s behalf results in new goods and services whose total market value exceeds one million dollars. It is from this surplus that the banker takes his interest and Jack his profit. This is what Iris was referring to as a fool’s wager when she said that bankers plundered value from the future, or when Costa had once claimed that capitalism, like science fiction, trades in future assets using fictitious currency.

  It is in their nature that the wealthier bankers become by creating money, the more money they tend to create. The danger of such a system, of course, is that the banks end up typing into existence sums of money vastly larger than the market value of the goods and services created as a result of Jack, Jill, Bob and Kate’s endeavours. At the point when the bankers have collectively created money sums greater than the resulting values, the present can no longer repay the future for the money it borrowed from it. The moment Jack, Jill, Bob and Kate get a whiff of this, they may demand their bank balances in cash, sensing that the total value on the bankers’ database is lower than the actual value of their customers’ assets.

  ‘At that point, a bank run sets in,’ Eva would tell her students, ‘and that’s when the system comes crashing down.’

  In capitalism’s Wild West, also known as the market for money and credit, the central bank plays sheriff to restrain bankers from flooding the world with unlimited quantities of money and causing bank runs. It does so by pointing at them a double-barrelled gun. One barrel contains the threat that the central bank might not lend to them during a bank run. The second barrel is loaded with increases in the interest rate it will charge them if it does lend to them. Upping the interest rate, or threatening altogether to cut off bankers who lend too much, are the two means that central banks have of restraining bankers’ tendency to breed more and more money. The trick is to get the balance just right: allow bankers enough leeway for the economy to be able to grow, but not so much that the influx of money outpaces the production of new goods, causing each pound or dollar to be worth less in real terms – known as inflation.

  What was now uppermost in Eva’s mind was the information from Kosti’s dispatches that banks had become redundant after the OC revolution for two reasons. One was the demise of share markets, which under capitalism were the cause of a large percentage of the money created by the private banks. The other, crucially, was the provision by central banks of a PerCap account to every resident, comprising three free accounts: Legacy (a trust fund for every baby), Dividend (the depository of one’s universal basic dividends) and Accumulation (a standard savings account in which all private earnings accumulated). All this seemed straightforward enough to Eva, but she could not understand two things. How did PerCap come into being? And how did the central bank regulate the total supply of money in order to allow for growth but not let inflation get out of hand? Did it simply increase the Dividend, for example, to increase the amount of money in the system? If the only loans available to businesses came from individuals and were backed by savings, did it just dictate an increase in the interest rates lenders had to charge if the central bank wanted to cool the economy down? Did the central bank, in other words, have a complete monopoly on money creation and loans – indeed, all finance? Wasn’t such a concentration of power incredibly dangerous, not to mention inefficient? Eve’s answers gave her a great deal of food for thought.

  Eve explained that the migration from commercial bank accounts to the new central-bank-based banking system was gradual and ran at different speeds in different places. In the United States it began in 2012 and was completed in 2018. In Britain it began a little later and was completed in 2019. In Europe, Latin America, India and other jurisdictions it took longer still. China moved most swiftly and had implemented its own version by the end of 2012.

  It started in the United States as an attempt to show people that the Fed, the nation’s central bank, had their backs. In early 2011, as the OC rebellion was taking root, anyone with a social security number was given a Fed account called Personal Capital, their PerCap. It started small, with the Fed crediting small amounts, around two hundred dollars, to each account every month. That money could not be taken out as cash but it could be transferred to any other PerCap account freely, using a PIN, and could also be used to pay taxes. It was therefore accepted as payment by anyone who had to pay taxes or who transacted with people or companies who paid taxes – effectively everyone!

  People used up those small amounts fairly quickly to pay taxes but also each other. But because their PerCap monthly sum was small, people still relied mainly on their commercial bank accounts. To encourage people to transfer their savings from the commercial banks to their PerCap account at the Fed, the authorities made them an attractive offer. First, they created a second account for everyone, which they called Accumulation to differentiate it from their original account, which they now called Dividend. ‘Here’s the deal,’ residents in the United States were told: ‘For every $1000 you transfer to your PerCap Accumulation account, you can save up to $50, or 5 per cent, in taxes as long as you keep the money there for a year.’ Put another way, Americans were offered 5 per cent tax relief if they paid their tax a year in advance, while still retaining the right to change their minds and spend it in the meantime. Given that commercial banks could never afford to offer their customers a 5 per cent interest rate on their savings, and lacked the right to offer tax relief, money began to migrate from commercial bank accounts to people’s PerCap Accumulation accounts at the Fed.

  By offering customers debit cards and smartphone apps with their PerCap Dividend and Accumulation accounts, most were enticed to shift their money to the Fed. The initial lure was the prospect of earning 5 per cent tax relief – in essence, 5 per cent interest – but it was also the lack of fees, bureaucracy and fuss that attracted them. Once they had transferred their savings from commercial banks to Accumulation accounts, people had no need to move their money from a current account to a special savings account to earn interest; there was no red tape, everything was done automatically. Why stick to commercial banks paying minuscule interest and charging transaction fees?

  The next great enticement was when the Fed decreed that every newborn would be granted a Legacy account. Initially, this contained $100,000 – although, of course, it could not be used until the baby was an adult and had a plan for its use. Grateful parents, drawn by their kids’ Legacy grants, began to use their PerCap accounts even more.

  By 2019, most transactions had shifted from the bankers’ joint database, or inter-bank payment system, to the Fed’s books, where every PerCap sat. This new Fed-based, publicly owned alternative system was evolving organically into a formidable institution. A year earlier all personal and sales taxes had been abolished, however the authorities decided to maintain the 5 per cent effective interest rate as an incentive to people to save. How could this be done now that they could not offer them personal tax relief? Very simply: for every $100 dollars kept unspent in a PerCap, the account holder received an additional $5 twelve months hence. The Fed’s all-inclusive public payment system soon became as loved and prized as the public libraries of yesteryear. It even acquired a suitable name for itself: Jerome, an inspired choice by one of the Crowdshorters who wanted to make a point after finding out that St Jerome was the patron saint of librarians. By 2020, Jerome, the Fed’s database containing everyone’s PerCap accounts (Legacy, Dividend and Accumulation), and allowing instantaneous free transfers between them, had driven into extinction the private for-fee inter-bank payment system that commercial bankers
had controlled for centuries under capitalism.

  Eva was impressed to discover that the OC rebels instinctively distrusted central banks, even after taking them over. Above the entrance to the Federal Reserve in Washington DC, Esmeralda’s team had inscribed an unambiguous warning: BEWARE THE POWER TO CREATE MONEY FOR IT DOES TO ETHICS THAT WHICH WATER DOES TO SALT. As Eve explained, the OC rebels had in mind the way workers were short-changed by their governments in the early 1970s. The central banks had created such a wall of new money that even though workers were given pay rises, the actual value of their salaries fell because of rampant inflation.

  To prevent Jerome from being abused by those in charge of it, the OC rebels imposed full transparency on their system. All transactions within Jerome were coordinated via an ingenious algorithm that, as Eve explained, allowed for every payment or transfer to be utterly private while, at the same time, everyone could see how much money sloshed around the system in aggregate. In other words, the authorities could not create more money – under, say, pressure from special interests – without everyone knowing.

  Eva was impressed that leftist rebels could be worried about inflation, contrary to her assumption that such concerns were exclusive to liberal economists and conservative politicians. After all, Margaret Thatcher and Ronald Reagan had made their names by lambasting woolly centre-left governments for allowing inflation to run riot by printing money to curry favour with the trade unions and the poor.

  However, the OC rebels’ fears had a different source: the anarcho-syndicalist conviction that ethics dissolve when introduced to concentrated power and that those in charge of decision-making at central banks should therefore be protected from inevitable temptation. Her sympathy for the rebels growing with everything she learned, Eva wondered what the Other Now’s anarcho-syndicalist central bankers would think if they knew how America, Britain and Europe’s central banks had behaved after 2008, and indeed after 2020 – creating trillions of dollars, pounds and euros for the ultra-rich 0.1 per cent, while the masses drove themselves into the ground working for a pittance.