So, now I've developed a way of talking about revolution as an option that can't be exercised, but that still has present value and I've set up a mechanism for saying what that present value is. Namely the value of the liquidity premium that a democracy that consents to maintaining accumulated wealth can extract for guaranteeing that the wealth continues to accumulate.
A full transcript is available at www.democracyparadox.com or a short review of Justice is an Option: A Democratic Theory of Finance for the Twenty-First Century here.
Robert Meister is the author of the new book Justice is an Option: A Democratic Theory of Finance for the Twenty-First Century and a Professor of Social and Political Thought in the History of Consciousness Department at the University of California Santa Cruz.
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A Theory of Justice by John Rawls
Spheres of Justice by Michael Walzer
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In the 1970s, John Rawls and Robert Nozick published two distinct theories of distributive justice. Rawls offered a more leftist theory, while Nozick has been identified as more libertarian. They used thought experiments to imagine how a just society might begin and then worked out the details from this original position.
Robert Meister studied under Rawls and Nozick. But his ideas reverse the approach of Rawls and Nozick. He begins his analysis with injustice and tries to find a way back to justice. Bob surprisingly looks to ideas of modern finance to imagine ways to rectify historical injustice. It’s an odd combination, because most philosophers know little about modern financial theories. But I found the combination offered some novel insights.
Robert Meister is the author of Justice is an Option: A Democratic Theory of Finance for the Twenty-First Century and a professor of social and political thought in the History of Consciousness Department at the University of California Santa Cruz.
Our conversation begins with the topic of historical justice. We move onto explain some basic financial concepts that Bob uses to refer to justice as an option. Literally, an option as a financial instrument. Trust me. It will make sense when we get to that point.
But before we start, I do want to remind you there is a full transcript available at democracyparadox.com. You can also send your questions or suggestions for the podcast to [email protected] But for now… This is my conversation with Robert Meister…
Bob Meister, welcome to the Democracy Paradox.
Well, thank you for having me on and, more importantly, thank you for reading my book.
Well, Bob, it was an excellent book. But I was actually caught off guard with the way that the book combined theories of finance and distributive justice. It's really unlike anything that I've read before. Obviously, the major thinkers in distributive justice, such as Rawls and Nozick, go deep into economics, but I'll be honest, you're the first to really take financial theories and combine it together with distributive justice in a way that really brought out some new insights. I thought it was really impressive.
Well, thank you. Thank you. It was a pleasure for me to do it, because I was a student of Rawls and Nozick many years ago when I was a graduate student. It was an opportunity to go back to my academic origin. I was very happy about that.
Well, it definitely shows. But at the same time, it's not just a book on philosophy. The global financial crisis comes across to me as if it had a very visceral effect on you, where it was something that you thought deeply about for a very long time, because it plays a role as a real metaphor throughout parts of your book, especially the way that people bet against capitalism through the use of options. For anybody who's confused by that idea, I just recommend either reading the Big Short or watching the movie. But your book plays on that role as well and brings it together into more of a coherent philosophy. So, I'd like to understand what are the implications when capitalism has the capacity to bet against itself, to bet that it's possible for the entire system to fail?
Well, it's, huge. You know, during the Occupy Movement, one of the implications of the financial system that they didn't understand was that their tactics would succeed if they succeeded by increasing the turbulence in the secondary market in student debt. Student debt, because it's often guaranteed by the government, is used to collateralize a lot of financial instruments and their tactic was essentially to increase volatility and thus to decrease the liquidity, the marketability, of those financial instruments as good collateral for other sorts of securities. And so, there were hedge funds that were betting that the strike debt movement would decrease the willingness to pay. At the same time that the recovery of the economy was increasing the ability to pay and as a result, they were essentially shorting the success of the student movement or the strike debt movement in a way that created a profit opportunity.
One of the things that the options market, and the existence of a secondary market in options, allows capitalism to do is to benefit from shorting itself and profit from the turbulence that social movements create. So, the political impetus of my book, the political impetus of my argument, is to say that the whole model of success for anti-capitalist movements simply can't be based on the idea that you are going to go viral until finally you go viral enough to crash the system. What you have to understand is the way in which this system is benefiting from the turbulence you create and in which capitalism has actually developed much greater resilience to its political opponents by increasingly recognizing the way in which it benefits from doubts about its own future existence.
Now, if you build that into the process, you have a very different model of anti-capitalist politics. Because the real question is how the opposition to capitalism can benefit in the way that capitalism already does from the existence of that opposition and the turbulence or volatility that that opposition creates.
It's interesting the way that you think about leverage, because the financial crisis was obviously a terrifying moment for most of the people in the country. Because we built a system that depends on finance to be able to ensure that markets operate in a way that, essentially, we have stability in our economic system where people can have jobs, where there's money to be able to pay for things, where things run smoothly.
But at the same time, that moment of fear is the moment where people have the greatest leverage, if they want to bring about change. There's a quote in your book where you write, “The growing belief that the financial system must not be attacked when its weakness might've been leveraged suggests that financialized capitalism may have ultimately trumped the project of historical justice.” So, before we get to the topic of historical justice, what are a few steps that probably should have been done differently just to add your perspective?
Sure. It would have been ultimately unthinkable for the government to do anything other, and we're talking about 2008 here, do anything other than to restore the confidence of credit markets in their own liquidity. But what you have to understand about this is that essentially the credit markets, by threatening to lose confidence in their own liquidity, were like suicide bombers. They were threatening to blow themselves up along with everyone else. So, when the credit markets threatened to blow themselves up, what they essentially did was to say, ‘Your job, government, is to take the option of justice off the table.’ In other words, to value, in my terms, the option of justice at zero in order to restore liquidity to the credit market.
Now, by the credit market what I mean is a total credit market, both public and private, that in 2008, 2009 was about 76 trillion or about five times what the GDP then was. And how the government did this, what the government did and its political acceptability is astonishing. What they did essentially was to agree to swap all credit backed instruments that were used to collateralize the existing security markets and to swap them at their face value. Not at a discount, not at a haircut, just swap them at their face value for short term U.S. Treasury Bonds which were risk-free.
In other words, they agreed to the interchangeability of U.S. Treasury Bonds and privately generated credit instruments at par and then they bought back or monetized the longer-term treasury debt by essentially printing new money so as to bring down the yield curve, to bring down the long-term interest rates. Now, financial economists understand this kind of guarantee of underlying value in a financial instrument as something for which you have to pay. They call this guarantee, this insurance policy as it were, a put. And they understand this to have been a macroeconomic put. A guarantee or putting a floor on a price by guaranteeing to buy the instrument at that price.
And in private sector finance, you would have to pay a premium. You would have to purchase such a guarantee and you would pay it either by selling down some of your assets, which is not a good thing to do in a falling market because it drives the market down further or by selling a call, a share of the upside, that is worth the same amount as the guarantee that you are being given. Now leading financial theorists, including the chief economists of the ECB and the World Bank and three Nobel prize winners, actually priced what the premium of a guarantee of $76 trillion, five times the GDP, the total credit market, would have been. And they price that premium as something that is pretty close to what the GDP was at that time.
In other words, what would have been paid to underwrite, to preserve, to guarantee the valuation of existing assets would have been approximately nine to 13 trillion at a time when GDP was 13 trillion. This is something that government could have booked as a share of the upside when the market recovers. This is how you lock in or guarantee the price of a financial instrument, but nothing like this happened. The stated reason was that it would have spooked the market. The real reason is that democracy, and here you have your democracy paradox, democracy didn't demand it. So, the put was given for free. And then when the markets recovered, the beneficiaries of preexisting inequality nearly doubled the value of their assets, while taking no loss, thereby widening that inequality.
So that 10 years later, just before COVID, the repercussions of not pricing the put and collecting that price were clear. You had Occupy on the left. You had the Tea Party on the right. You had anger on both sides that no Wall Street scapegoats were found and punished for the financial crisis that Wall Street caused. And as a result, a displacement of the mistrust of Wall Street was redirected into a mistrust of government. A government that bailed out the wrongdoers without seeking scapegoats.
And as a result, you had Trump and then COVID, and in COVID the same toolbox was used. It was extended to bailing out corporate and private debt as well. It was used at three times the level that was used in 2008 and despite the existence of some safety net, the S&P, for example, was one example of an asset market which lost 35% in three weeks in March ended up being 65% higher than it was when COVID began between March 1st and September 1st. So, essentially COVID has been, because of the use of these techniques, a Bonanza for capital markets with, no collective stake in harvesting the upside from the financial recovery that government, created, much less from the financial collapse that government forestalled. We're now beginning to have those conversations under the Biden Administration and this is what's happening in Washington today.
So, it sounds like you're saying that the government didn't take advantage of a financial opportunity. Are you saying that the federal government should have purchased those distressed assets and held onto them until they rebounded so that we would have had a significant windfall of capital?
Well, you know, the odd thing about a government guarantee is that it has its effects whether or not government purchases the assets. So, it's really a liability of the government rather than an expense. And the question really is how that liability gets offset. If I own IBM stock or Apple stock and I want to protect myself against it falling, one way to do that is to purchase a guarantee, a put, that allows me to sell that stock at a predetermined price, regardless of what the market price is. And I would exercise that put only if the market price was lower than the predetermined price. That's my guarantee.
I would pay for that guarantee typically in private finance by giving up a share of my gains if Apple goes up. And I can calibrate the cost that I would pay for those gains for that guarantee as the same as the cost of the call that I would sell on my future appreciation of the stock. So, what I'm saying is that the asset that would offset that liability would be a claim on at least some portion of the upside of the recovery of the market. It could be financed simply by an actual purchase, but this requires money to change hands and it affects the pricing of the assets in the market in a way that’s simply taking offsetting or balanced option positions wouldn't do.
So, what you're saying is the government created an asset, which was a put.
So that if the market would drop to a certain level, there was a buyer for those assets…
And that prevented the market from dropping. So, the government didn't actually have to buy the assets.
Yes. And that put has value, but we never actually charged for that asset. And so what you're saying is that we could have leveraged a price from capital markets for the service that the government was delivering.
And that liquidity premium for the guarantee is the price that I am equating with the value of justice as an option in my book.
Well, let's take a step back. You refer to justice as historical justice. I'd like to get a sense of what is historical justice and how it might be different for different people or communities, or if it's simply the same thing, just a redistribution of wealth for different people. Paint a picture of what historical justice looks like or what it is.
Sure. Historical justice, as I use that term, means eliminating the benefits of past injustice in so far as they persist and compound under capitalism. Now all societies have bad histories, or most societies do, histories of force, fraud, dispossession, exploitation, and so forth. And capitalism is not immune from these bad histories. It shares them. What distinguishes capitalism largely is that it allows the disparate benefits that arise from these bad histories, the gains that continue as a result of past evil. It allows those gains to compound and the inequalities that they produce to widen.
So, to me what is specific about capitalism is not the existence of historical injustice, but it's cumulative and compounding character, which is the focus of my book. And in addition to that the cumulative and compounding character of the gains from historical justice is part of the injustice is essential to what's wrong with the original injustice. So, to me historical injustice is not just a past harm that was uncompensated where somehow the compounding interest on what should have been paid goes back to slavery in Ancient Egypt or the destruction of Carthage or whatever to the present day. It's not just an uncompensated past harm. It's not just reparations in the sense that if they were paid today, they would be paid by somebody who did nothing wrong to somebody who suffered nothing wrong.
In historical justice, we’re rather talking about the ongoing ability to gain differentially and cumulatively from prior inequality to gain more than other people gain when things are good and to lose less than other people lose when things are bad, which is itself describable in the language of options. It's self-describable in the language of being able to leverage gain and mitigate loss by buying and selling options.
So, the options theory is what allows us to talk about what is additionally wrong about historical injustice in capitalism beyond its origins which capitalism shares with other bad histories. But it also allows us to talk about gaining future access to the ongoing benefits of past injustice. The great evil of capitalism is that the gains from past injustice magnify and compound, but the possibility presented by capitalism is the gains from past injustice can also be harvested using the same techniques, so that all that bad history, as I say in my book, will have not been a waste.
So is the injustice then an actual event, like something that somebody does or is it just the simple existence of inequality within the world?
Well, unjust inequality is basically historical. That is to say unjust inequality is the inequality that compounds the effects of the past evil. As somebody with a background in legal philosophy and law, I take no position about whether equality proceeded injustice and whether the restoration of equality that preceded injustice is necessary for injustice. It seems to me that's an historical and empirical question. But my view as a philosopher is that inequality and especially rising inequality is a metric of the differential gains from past injustice and thus that greater equality even if it is not a prior right is a remedy for those differential gains and benefits.
So, my view really contrasts with another view which is more common in philosophy which is that historical injustice is simply a past injustice like a theft that is followed by a history of good luck. You know, if I stole your lottery ticket, is the injustice remedied by returning to you the price you paid for the lottery ticket and keeping the benefits if I win the lottery or is it necessary for me to disgorge the benefits which would have gone to you, but for the fact that I stole the lottery tickets. Well, some would say, just give it back. Some would say, no one has a right to be lucky: Not me, not you. So, the proceeds of the lottery tickets should be distributed in my view.
And this is where my specific historical analysis of capitalism comes in. The cumulative compounding of inequality is not just good luck or bad luck, depending on whether you benefit from it. Rather, the accumulation and compounding of surplus in financial form is essential to capitalism, which is one reason why the possible future appreciation of the gains from past injustice is a reason why the injustice occurs to begin with. In other words, it's not separable from the original wrongdoing. It's a motivation for the original wrongdoing. And that's true. Whether the original wrongdoing was essentially part of capitalism like the exploitation of labor power or whether it was an act of colonization or dispossession or a simple violence that might exist in non-capitalist societies as well.
So, when we think about historical injustice, you've kind of painted a picture where the challenge of capitalism is that whether it creates injustice or not, it definitely compounds the injustice that already exists. So, I'd like to ask you regarding capitalism itself. If we go through and we rectify historical injustice and we've corrected those past wrongs, is capitalism ipso facto, is that part of the problem? Is capitalism ever compatible with justice?
Capitalism perpetuates and augments pre-existing inequality, including the pre-existing inequality created by injustice. We can differ as to whether there is some preexisting inequality that wasn't created by injustice, but most of it was, and capitalism is a machine, the nature of which, and Piketty talks about this in his book on capitalism as well. The nature of which is to compound and augment those effects, which is one reason why apologists for capitalism are enamored of these just so stories, which show how it is not impossible for capitalism to have arisen hypothetically without injustice. In which case the idea is that it couldn't go on and that a compounding inequality, if capitalism originated without injustice is not essentially unjust. It's essentially a matter of luck or skill or whatever.
Now to me, the original crimes that may have existed, and that may be indogenous to capitalism or maybe exogenous to capitalism. The original crimes are a less interesting question than the component of the unjust gains that comes from the mechanisms of asset appreciation, asset appreciation that augments these preexisting inequalities. In other words, that capitalism is essentially a machine that creates vastly augmented wealth out of bad history. So, my answer to your question is that capitalism is an accelerator of injustice. But at the same mechanisms that are used to accelerate injustice can be used also to reverse it and make the gains from all of that bad history available, because they are financial gains and can be made available in financial form.
That's what happened in 2008 when trillions of dollars changed hands through the exercise of financial options for reasons that had nothing to do with justice. And this is what made me in my book after 2008, want to describe the alternative as the option of justice in financial terms. So, even if historical justice is rarely, if ever a direct aim of capitalism, even if capitalism is about supporting the liquidity of accumulated wealth, challenges to the liquidity of accumulated wealth can increase the value of justice as an option as a contingent claim on accumulated wealth that is potentially most valued and most valuable at the very moment when capitalist politics tries to pervert democracy into a device for achieving consent to the continuation of accumulated wealth. Because the alternative to capital accumulation in its present form is just too awful.
Now you've said it a few times that justice is an option. And most people who pick up the book are going to think, ‘Oh, justice is an option.’ Like it's a choice. And that is one of the meanings that you have within the book. But it has a double meaning of justice as an option, meaning a financial instrument. And I love the way that you weave together these ideas of finance and distributive justice. Whether you agree or not with the premise of the book, it definitely makes you think about these ideas differently. There's a quote where you write, “Even if there is currently no democracy in finance, I believe that there can be no democratization of our present society without it.”
And there's a lot to pack in that very short sentence. But before we really get into this idea of justice as an option. I do think it's necessary to just lay out some of these financial terms. You've mentioned puts, we've kind of hinted at options, and then present value is also something that you mentioned, because that's the way that we think of what the value of an option is or the value of justice, if we choose not to exercise it. So, can you lay out what those terms mean, options, puts, and present value?
Sure. I'm glad you asked, because I think it's important to understand that it is through the key ideas coming from the financialization of capitalism that democratic movements for justice become thinkable again. A key distinction first, which involves some technical finance, is to distinguish between an option and an idea that my teachers in political philosophy 50 years ago thought of as liberty. Options and liberty both involve choice, but an option is not simply an opportunity to exercise a choice. An option can exist in the absence of an opportunity. In other words, we used to think of liberties as opportunities that can be exercised, which is why capitalism was thought to be a trade-off between greater liberty, which gives you an opportunity, and greater inequality, which reduces opportunity.
An option, for example, to buy a stock at a hundred dollars has value even when it can't be exercised. It has time value even if the stock is at $50 and it's time value will be greater, if the stock fluctuates between $50 and $90, even if the stock never reaches a hundred dollars. In other words, you can buy the option and benefit from the change in its value even if you can never exercise it, even if there is no opportunity.
Hey Bob, let me step in here for just a second. What you're saying is an option that says I can buy a stock at a hundred dollars, which really only has a purpose. If the stock is worth more than a hundred, because then you get a benefit of buying it for less than the stock is actually worth. That option, not the exercise of it, but the option to be able to do it has value independently of the opportunity.
And it has value based on the volatility of the stock price. And it turns out based exponentially on how rapidly the stock value changes. So, that unlike an opportunity, which might be simply a discounted bet on the expected or average return of the stock, the value of the option is really a way of benefiting by the variance, in the return of the stock, by how much it moves, by the turbulence in the price of the stock. And the great discovery of modern finance is that options have time value even if they don't correspond to opportunities. And that an option that can't be exercised has a time value that depends primarily on how much the stock moves about on the volatility of the stock. So, options don't need to correspond to the creation of realistic opportunities if they can nevertheless be priced and traded.
And they trade at a premium, depending upon how insecure or turbulent things are. Depending upon how much a given market has uncertainty or doubt about its future and its future existence and its future volatility. So, this is important. This is important because you see options allow you to make money from the kinds of things, the kinds of turbulence, the kinds of doubt that political movements, especially anti-capitalist movements try to produce, but they allow capitalism to make money from that as well. They are a source of resilience for capitalism in the face of threats and allow it to benefit from the increasing doubts it has about its own future. Now there are two other distinctions in relation to options. One is whether the option itself is a right to buy at a fixed price or a right to sell at a fixed price.
A right to buy at a fixed price gives you the opportunity to force a transaction, if the market value goes above the price at which you have a right to buy. So, you can buy at a guaranteed profit by buying at a discount, the right to sell at a fixed price, which is the kind of guarantee that the U.S. government provided to credit markets, allows you to sell for a value that is above where the market is and to make a guaranteed profit. Both of these are, in other words, the right to benefit from the movement of the market after the market has moved and essentially force a transaction, because of your option, that people wouldn't voluntarily make.
So, one distinction is whether the option is a right to buy or a right to sell. The other distinction is whether the option itself is something that is bought or sold. The seller of an option, whether the option is a put or a call, will pay a disadvantage price, if the buyer of the option has an opportunity to exercise it, but will otherwise pocket the premium. Will, otherwise make what is essentially free money. The buyer of an option, whether it is a put or call, will benefit from greater volatility in the price which affects the liquidity of the underlying asset. So, the interesting thing about an option is that there is a premium for it and the premium for it is based on the fact that…
Well, think about it this way. If I buy something like a car, the car in one sense has a value equivalent to the number of dollars I paid for it. But the car is not exchangeable for that number of dollars unless I, in addition to buying the car, buy an option in the form of a money back guarantee, a put, the right to sell that car back for that number of dollars. And an asset portfolio that occurred that includes both the car and the money back guarantee, the right to convert that car back into dollars, is a portfolio that will cost me more than the car. It is essentially the car plus a financial product called an option.
So, the idea that I can buy a car and protection from losing money on the car is an idea that comes from the notion that an option has value in its own right and can be purchased in its own right independently.
So, the last term I asked about was present value and I think that that's incredibly important, because you look to present value as a way to actually price historical justice. Because present value is a way of looking at how much something is worth when you know that the gains from it won't come until the future. Can you talk a little bit more about how you price historical justice in relation to present value?
Yeah. So, there are two versions of present value. One is based on discounting it's based on what the expected value is of a given rate of return, a given revenue flow, and there's a discount rate and the present value is what you would pay now for that future revenue stream. And you can talk about the present value using discounting. A lot of the literature on environmental justice is about whether the discounted present value of climate change measures makes it economically feasible to do that. The other literature on present value is specific to the pricing of options and is based on the time value of the option. And I spoke earlier about an option having time value, even if it is not exercisable, even if it doesn't correspond to an opportunity.
Present value is a discounting of an option that is an opportunity, a right to that revenue stream time values based upon the degree to which prices move around or the degree to which there is uncertainty about whether there is a market for the thing or whether the market for the thing depends upon selling it at a lower price. The time value of an option is based not on the mean expected return, but on the volatility, the variability of that return during that time. It's based, in other words, on what financial economists called turbulence or volatility and that value you see is something that changes. It doesn't just grow incrementally. A movement for justice, in other words, isn't simply a way of creating viral doubts until they overthrow the system and so on and so forth.
The value of justice as an option is a time value that depends in large part on the political risk that we are able to create through democracy to the continuing liquidity of accumulated wealth. Democracy as it's understood by liberal political scientists is often a technique for manufacturing consent to letting unjust inequality go on just a little bit longer because of the threat of disaccumulation. But it manufacturers that consent by producing the threat of disaccumulation,
Yeah, I want to ask you specifically about that. There's actually a quote in your book that says almost line by line what you just said and I wanted to unpack that just a little bit. Is the purpose of delaying the exercise of that option of justice, is that about being able to redistribute the surplus value that exists, that capitalism produces on an ongoing basis, so that it's not necessary to be able to fully exercise the option?
One of my college roommates who's now a famous financial economist says it's fine to talk about justice as an option metaphorically. But in order to use options theory, you have to take advantage of the main thing that it does which is to allow you to price something that is otherwise unknown by setting it at par with a value that is otherwise known. Now, what I've done, essentially, is to say that we're trying to price the present value by which I mean the time value rather than the expected discounted value of justice in a democracy where a democracy could, and could have in 2008, created uncertainty about whether the financial credit markets would be bailed out, would be guaranteed.
In other words, it produced certainty that they would be guaranteed only because of a political consensus that said justice has no time value during an economic and financial crisis rather than greater value, exponentially greater value, because of the uncertainty about what government will do in that crisis where the financial markets depend upon government support. Depend upon the idea that basically the government will print money. Will issue money to buy assets and to buy particularly credit instruments for which there's no market, for which the market has dried up.
So, what I am saying here is in some ways pretty simple and seems almost too obvious, namely that finance is a technology for manufacturing alternatives to illiquidity and that democracy is paradoxically a technology for manufacturing alternatives to revolutions. And guess what? Revolutions are events of illiquidity. They kill, wipe out the market for wealth that is accumulated in financial form. And reduce the value of that wealth to nearly zero, if not zero. So, to answer my friend's question, if it's possible to price the guarantee of liquidity that supports capital markets. You can set that price at par with the price of something you don't know, which is what it means to roll over, to postpone the opportunity to create illiquidity through revolution.
In other words, the idea of revolution that democracy postpones can now be set at par. Can now be priced as something with a present value which is the value of the government doing what it did in 2008 which is guaranteeing liquidity. So, now I've developed a way of talking about revolution as an option that can't be exercised, but that still has present value. And I've set up a mechanism for saying what that present value is. Namely the value of the liquidity premium that a democracy that consents to maintaining accumulated wealth can extract for guaranteeing that the wealth continues to accumulate.
So, if the option of justice brings about essentially financial collapse, where the financial capital becomes worthless, but there's dramatic equality, because nobody has any wealth anymore that becomes the reason why democracies don't exercise justice as an option. They step in and they still allow it. But you're saying that they should be able to extract a price out of that in the end. Is this just a justification of taxation where they can step in and say, the reason why we tax financial wealth is because we are able to step in and protect it by establishing puts, by establishing a final step to avoid absolute collapse? At the end of the day, is the thing that democracy is offering financial markets? Is it really just asking for taxes in return?
Well, taxation is not a trivial mechanism.
…and I'm not saying that it's trivial.
Yeah, people like Piketty feel that you can use taxation, particularly taxation of the incomes of the rich, to control the degree to which wealth appreciates faster than economic growth. I want a way of addressing a bigger problem, which is not merely the inequality of incomes which is rising, but the appreciation of wealth and the value of my approach as distinct from a taxation based approach is that it allows the state to create contingent claims on the appreciation of wealth that are exchanged for its willingness to protect wealth from depreciation at precisely those points where an event of illiquidity is threatened by the depreciation of wealth.
So, creating an illiquidity becomes what I regard as a principal choke point in capitalism that can be affected by the kind of oppositional politics we have in a state that is otherwise not interested in and not expected to be a justice granting state. In other words, creating the kind of illiquidity that could raise doubts about whether the state will or should bail out capital markets allows the state to create contingent claims on the rebounding of those capital markets which would reverse or could be used to reverse the ways in which capital accumulation compounds inequality. So, my answer to one of your earlier questions is typically in capitalism when we say that justice isn't an option, it's because justice is something that we can't afford at moments when capital disaccumulation is threatened.
My argument that justice is an option in the financial sense is that the value of demanding justice rises when the liquidity of capital markets is threatened to the degree that the liquidity of capital markets and thus the continuation of capital accumulation is contingent on state action which democracy makes uncertain here. In other words, we have the umbilicus, the nexus, between the state and capital markets which is affected by compounding historical inequality and political democracy. And it's the interaction between the two that becomes interesting and becomes interesting because of the liquidity that doesn't happen. And because of the revolution that doesn't happen, both of which might happen.
So, we've talked about historical justice as an option and you've made it clear that an option is not the same as an opportunity. It's possible that the opportunity never actually happens. So, Bob do you believe that historical justice will ever actually happen or does it just exist as an option that's available, but is never actually exercised?
I believe that the not impossibility of this scenario of illiquidity as a result of financial market collapse without revolution and its convergence with this scenario of financial market collapse, because of revolution presents cases, opportunities, scenarios, many scenarios, in addition, to austerity in which present value can be extracted from the non-existence of the opportunity for historical justice. Whether that means that we are moving in the direction of historical justice or not is something that philosophers debate. One of the people I read, Quentin Meillassoux, says that at the emergence of historical justice would be a miracle, but so was the emergence of consciousness out of life and so was the emergence of life out of non-biological matter that it would be something new.
I'm interested in what can be made now of the possibility that something new could happen. And one thing we know for sure is that it's untrue that nothing new could happen.
That's definitely the case. I thought your book was brilliant in the analysis. It definitely made me think of both justice and financial instruments very differently. While I was thinking about justice and preparing, as I looked through your book, I came across a quote from John Rawls in his book, A Theory of Justice, where he writes, “Those who can give justice are owed justice.” And the way that you empower people through democracy to be able to have that ability to be able to take ownership of justice when it's seen as an option, I think, kind of explains that quote where they're the ones who are both able to give justice, yet they're the ones who at the end of the day are owed justice. So, thank you so much for writing your book. And thank you so much for your thoughts. This has been an interesting conversation.
Thank you very much. I appreciate the thought you put into this.