The Pale Marx

"Capital in the 21^st Century,” by Thomas Piketty, 2014

Review of Parts I & II and part of III

This book has been reviewed more times than the Sopranos HBO series – and that is a good thing.  I am going to list some comments and then add my own. 

From the left:  John K Galbraith illuminated some of Piketty’s theoretical confusions in Dissent Magazine.  He points out that his idea of capital is based on market value, and combines all sorts of wealth as ‘capital’ - like land or housing.  Market values can plunge, yet the physical machines still exist, so basing an analysis on financial market value can be deceptive and an underestimate.  Galbraith calls Piketty’s confusion between market value and physical capital key. Galbraith, somewhat like basic Marx, narrowly identifies capital as what gave the capitalists power over the working class, which includes money or ownership of machines, in fixed or variable form.   He states that this book is not about ‘capital’ per se, but the value of assets, their distribution through time and the role of inheritance.  I.E. 'wealth.'   However, Marxists like David Harvey contend that real estate ownership (rent) and finance capital are part of the circulation of capital, and Marx understood this too.  Galbraith also goes into detail on the ‘Cambridges’ debate, showing that Piketty misrepresented that debate.  This is the best analysis I have read from a non-Marxist.

John Judis in the New Republic made fun of Piketty’s denial during an interview of having read Marx, as Piketty quotes from Marx in the book.  Thomas Frank in Salon pointed out that Piketty knows very little about U.S. political history and made several obvious mistakes.  Dean Johnson in the Huffington Post lists a raft of reforms that would ameliorate inequality, after Piketty admitted that he thinks his idea of a massive global wealth tax is ‘utopian.’  Doug Henwood in Left Business Observer attacked Piketty’s avoidance of Marx’s prescriptions for inequality – class struggle - as the weakest part of the book.  This has been echoed by other Marxists, including the Black Agenda Report. 

On the right:  The British Financial Times (The Wall Street Journal of The City!) predictably dissed Piketty for supposedly ‘making up his figures,’ yet with very thin evidence to support this libelous contention.  The FT got immediately slammed by a good number of economic thinkers. Piketty’s charts are on-line and can be examined by anyone.  Galbraith does say that he doesn’t know where Piketty got his ‘return on capital’ figures.  The Obama/Clinton neo-liberals attacked Piketty for ignoring transfer payments to the poor and working-classes in his analysis.  Piketty for the most part uses ‘pre-tax’ figures, but also has charts with post-tax.  However, the real argument here is that if he ignores ‘post-tax’ transfers to the working classes and poor, then he also ignores the ‘post-tax’ government transfers to the capitalists, which are far more immense.  I am tracking this issue in the rest of the text. 

I am not going to repeat most of these criticisms again.  Piketty is a mild-mannered social-democratic statistician who dearly wishes capitalism would work for everyone, but is honest enough to admit it doesn’t, at least not on the basis of equality.  Lurking in his text is the specter of Marx.  The title of the book – “Capital…” though not “Das Kapital” - is certainly clear enough.  Piketty deduces a series of ‘laws of capitalism' – much as Marx did – on the basis of his research.  His overall finding is that ‘R>G”: The Rate of Return on Capital is greater than Economic Growth.  His focus is nearly always on the ‘capital/labor’ split, something that Marx focused on too, though not in the same way.  Capital and wealth were two different things to Marx. Piketty's concern with facts - as was Marx's in his study of economic issues in the British Library – is also significant, though Piketty has the advantage of more years of data, more accessible by computer.  Piketty is honest enough to admit that Marx ‘was on to something’ regarding inequality and his immiseration theory, and even regarding the ‘falling rate of profit.’  He does think Marx’s ‘apocalyptic’ predictions have not come true due to productivity increases.  Piketty attacks American and neo-classical economists for their love of ‘simplistic mathematical models’ not based on empirical observation.  This parallel’s Marxist criticisms of the phony ‘science’ of economics, which has become more like a religion. It was called ‘political economy’ until the bourgeois neo-classical theorists got a hold of the discipline in the late 1800s, after which it was christened ‘economics.’  (See review of ‘The Invisible Handcuffs of Capitalism’ – use blog search box, upper left)  

It's almost like the social-democrats/left liberals now have their own 'mini-Marx'.  They have been searching for some kind of philosophy to combat libertarianism and market fundamentalism, and they feel they have found something close.

The Keynesians – even Galbraith - are thrilled that Piketty has provided nearly 300 years of statistics to bolster arguments about inequality.  These first sections are based on European & U.S. tax and estate figures, stock & bond prices, and macro and micro-economic national income data.  They indicate that capital's functioning over most of its whole existence essentially led to a hardening of the class system, a rise in inequality and over-accumulation by the 1%, and even the 10%.  Piketty is clearly congruent with the Occupy analysis that the ‘1%’ is the enemy.  Yet as a statistician he breaks the class structure down even more to deciles and centiles (10% and 1%) and even the .1%/.01%, so he gives a broader and more thorough picture of what is actually going on in society.  Simply put, the other 9% also gain economically.  As I’ve mentioned in the past, this layer of small businessmen, managers and professionals play a role as a social support to the 1% or the .1%, and there is a material reason for their support. 

In response to the Keynesians, Piketty points out that the only time that wealth did not continue its normal accumulation was in the period 1914 to 1945 – the period of two World Wars and the greatest Depression capitalism had ever seen. A period of revolutions, workers’ states and working-class rebellion everywhere.  In other words, the ‘leveling’ during this period was an historic blip – and the following short period of growth of the ‘middle-class’ is also looking like a blip.  Here again, this analysis is based on market values. Piketty clearly indicates that the long view does not give grounds for pro-capitalist Keynesian optimism.  His forecast is that if inequality continues at the present pace, it could possibly reach never-before-seen levels - in the U.S. 60% of national income for the top 10%.  Or it could just return to the worst levels in history, like la Belle Èpoque in the late 1890s or the Ancien Régime of France in the late part of the 1700s.  As he puts it, within the system, “…there is no natural, spontaneous, process to prevent destabilizing, inegalitarian forces from prevailing permanently.”  At present, from his numbers, the U.S. is the most unequal advanced capitalist regime.  

So that is the cheery news for those of us who live in a capitalist system, even from a social-democrat.  And that is most everybody right now. Let’s look at some specific points in these sections: 

1. One of the deceptions of bourgeois economics, which Keynes also agreed with, was that the ‘capital/labor’ split was a steady number.  This was a theory developed by a fellow named Simon Kuznets.  This is still taught in econ classes as the ‘Kuznets Curve.’  Piketty shows that the ‘split’ varies based on the period of time, the country, etc.  In other words, gentle reader, it is a product of the strength of each class.  For instance, he points out that the split went towards labor at two times in recent French history – during the popular front of 1936, when working-class parties controlled the French government, and after the massive worker/student revolt in 1968, which raised the French minimum wage and gained workers many other benefits.   There were also wage increases after the 1789 French Revolution!  These advances are all now under attack, of course.  Witness the “Socialist” Hollande pleading with French workers to give up vacation time.   
2. Piketty’s charts clearly indicate a very close relation between population growth and capitalist economic growth.  Which might indicate why corporations do not want to really limit population or immigration, and that should give environmentalists pause.   He also indicates that as population growth slows, the weight of inherited wealth increases.
3. Piketty ignores the sources of profit from enterprises in his analysis of wealth, thus hiding the production of surplus value from rural and urban labor like the neo-classicists do. His definition of labor is any paid work, even by a capitalist or equities desk trader.  This of course hides the Marxist definition of labor, and mixes the earnings of corporate leaders with janitors. Yet he does also show the inequality of labor in his charts.
4. Something which might be dear to the hearts of Monthly Review (“MR”) readers, Piketty shows that an economic ‘low growth regime’ or stagnation results from high inequality.  He has not seen any growth above 1.5% over the long-term.  The MR tendency has made stagnation a centerpiece of their analysis of oligopoly and financialization. 
5. Piketty in these sections describes the role of colonial assets as very significant during the early part of the 20^th century for certain classes in England, France, etc.  But after the anti-colonial struggles, the value of ‘out of country’ holdings decreased to insignificant amounts.  He thinks ‘cross-ownership’ between the major capitalist economies is a wash.  He does say that Africa has the most foreign ownership, at 20%, and perhaps 40-50% of African manufacturing is owned by foreigners.  (See review of book, “The New Colonialism,” below)   I am waiting to see if he negates imperialist earnings overseas in his discussion of ‘net foreign capital,’ though he suggests that “in wealthy countries, net income from abroad is generally slightly positive.”   I am not optimistic.  It is doubtful that tax records for ‘developing’ countries are very accurate at any rate.  Or that we can infer how much of the stock price of General Electric is based on ill-paid factory workers in China, or the pollution of their environment.
6. For many years, income from government bonds and land provided a stable income for the propertied classes. He uses Jane Austen, Balzac, Henry James and other writers to indicate this stability.  (He also references Germinal, Oliver Twist, Les Miserables, Swann’s Way and other novels, showing that ‘fiction’ is not really fictional. And reflecting that perhaps ‘non-fiction’ is very many times a distinct form of fiction!)  What happened in the 20^th Century is that the value of land decreased, and the value of stock / corporate ownership increased.  Class-wise, this meant sunset for the rural landed aristocracy.  Wealth moved to those holding urban real estate and business ownership instead.  Labor, rural & urban land and buildings, stock/bond and corporate ownership – and of course nature itself - are the sources of wealth in a capitalist society. 
7. Accompanying this change in the 20^th century was a growth in the role of a certain segment of ‘labor’ – the rise of a new class of managers and professionals.  This is one of the reasons for the ‘euthanasia of the rentier’ – rentier being someone who lived off stable government bond interest or land rent paid by tenant farmers.  The rise of a larger group of people living off higher salaries has changed the nature of both wealth and class.  It was the gateway to a sort of propertied ‘middle class’ (which he calls ‘patrimonial’) that never existed in the 18^th and 19^th centuries, where it truly was the rich and everyone else.  He calls this development ‘fragile.’ 
8. Piketty is very careful in qualifying his statements, so does not come across as too bombastic.  He even makes the obvious point that basing figures on tax records can be incomplete because of a long history of tax avoidance schemes by capitalists.  He assumes that this avoidance has been at the same level throughout history, and says inequality is worse than his statistics show.  However, I think there are very good indications that international tax avoidance is at record highs.  Recent figures out just a few days ago show that many large American ‘name-brand’ corporations like Honeywell and Citbank hide their profits overseas.  It stands to reason that international capitalist organizations, in an interconnected world, might have more ability to do this than in the past.
9. ‘Intellectual capital’ is a phrase that can be seen as just another way of saying ‘labor skills’ or even labor power.  It reflects the capitalist colonization of the very term, ‘labor.’  The World Bank has recently estimated the value of ‘human capital’ as more valuable than 'money capital,' but Piketty does not follow up on this insight.  Piketty is not as astounded as the World Bank, as he contends labor has had a higher share of national income than capital's earnings since the 18^th century, though that share is getting smaller. Of course this is his definition of labor, which includes all wages and salaries.
10. Piketty savages the simple “Gini Coefficient’ – the latest trendy inequality measure – as hiding the distribution and the location of inequality. He calls it ‘abstract and sterile.’  He prefers his decile distribution charts as a more accurate measure.  He also questions other ‘official’ reports on inequality from the OECD and national statistical agencies as deceptive. 
11. Piketty indicates that, while older people have more wealth than younger people, within each generational cohort the wealth gap is replicated.  So ‘generational warfare’ is a red herring. 
12. He quite clearly shows that the U.S. Civil War resulted in the expropriation of millions of dollars in slave capital from the planter aristocracy, a value that rivaled northern industrial or land value.  There were 3.5-4M slaves in 1860.  Piketty thinks modern U.S. attitudes towards inequality, especially in the south, have been influenced by slavery to this day – which is extremely accurate.
13. Like nearly all ‘western’ economic analyses, he mostly ignores the role of the workers states in the 20^th century.  They amounted to almost 40% of world production at one point in the 1980s. One of his charts on 20^th century world output makes them invisible.  However, he recognizes that the dissolution of the central European and Soviet workers states privatized a vast amount of ‘public capital’ and put it in private hands. (Isn’t it odd that the imperialist left-liberals who oppose privatization in the U.S. and other countries were all for it when it came to the USSR etc.?)  Piketty calls it the most extensive privatization in capitalist history. The smaller waves of privatization across the world since the 1980s have increased the wealth of the capitalist class, a process still relentlessly going on. 
14. He is very careful in his categories to be as ‘real’ as possible, for instance describing wealth with and without ‘durable goods’ (cars, appliances, clothes etc.) or ‘actual purchasing power” – what you can actually buy in each country, not just based on exchange rates.  Both these issues are familiar to any working person.
15. Inflation in his view saps fortunes, reduces inequality, and reduces public debt, and has even been used by governments for the latter purpose.  Piketty does not question the oft-manipulated inflation statistics. 
16. Government wealth ‘averages’ hide upper class holdings.
17. Government debt enriches private entities who hold the debt, or the banks who loan money to the government.  I.E. the taxpayer is funding the bond owners and bankers.  War is paid for by public monies. Piketty mentions that Marx also saw public debt as a tool of private capital.  This contradicts the views of the Keynesians.  As we saw in the recent Great Recession, trillions in public debt was taken on to float private banks.
18. Piketty addresses the myth of the meritocracy based on education, calling it part of the ‘apparatus of justification’ for inequality. 
19. Piketty never mentions the value of ‘free’ labor in the home as part of the reproduction of the working class, but he has an idiotic section about the work that goes into managing your financial assets as a rentier.
20. The higher you go in income levels in the top 10%, the more stock/bond earnings and corporate ownership play in wealth.  At the very top levels – the 1% and the .1% and the .01%, it far outweighs wealth from any kind of labor.  And here you have who owns the ‘ownership’ society. 

Unlike the Marxists dismissing him as dreadful reformist pond scum and the right-wingers thinking he is the return of Joseph Stalin, Piketty’s role is quite different.  In these sections at least he has supplemented in an intellectual way the original discussion recently started by Occupy.  His book introduces certain categories that Marxists are familiar with, but to an audience that is somewhat unfamiliar with them.  European social-democracy is ahead of the swill from normal U.S. ‘progressives,’ who think single-issue struggles or the culture war are the cutting edge, or who think a party labeled 'Democratic' really is.  In a way, it represents a theoretical breakthrough for many people who were not conversant with much of a class analysis.  Piketty’s book can be used by the socialist movement in the U.S., which can amplify his critique and correct his shortcomings.  Ultimately his factual position undermines some of the happy lies of capitalism, and exposes its perfidious raison d’etre - the ruthless pursuit of money by a class of rotting elitists, who more and more resemble Louis XIV and his court.  Reformists might also use his arguments, but their own pro-capitalist love is undermined by this part of the text.

The rest of section III and section IV will be reviewed later.

Red Frog’

June 1, 2014