Harvey on Piketty

Afterthoughts on Piketty's Capital by David Harvey:

What Piketty does show statistically (and we should be indebted to him and his colleagues for this) is that capital has tended throughout its history to produce ever-greater levels of inequality. This is, for many of us, hardly news. It was, moreover, exactly Marx’s theoretical conclusion in Volume One of his version of Capital. Piketty fails to note this, which is not surprising since he has since claimed, in the face of accusations in the right wing press that he is a Marxist in disguise, not to have read Marx’s Capital... From his data (spiced up with some neat literary allusions to Jane Austen and Balzac) he derives a mathematical law to explain what happens: the ever-increasing accumulation of wealth on the part of the famous one percent (a term popularized thanks of course to the “Occupy” movement) is due to the simple fact that the rate of return on capital (r) always exceeds the rate of growth of income (g)... But a statistical regularity of this sort hardly constitutes an adequate explanation let alone a law... Marx would obviously have attributed the existence of such a law to the imbalance of power between capital and labor. And that explanation still holds water... [I]n Volume 2 of Marx’s Capital (which Piketty also has not read even as he cheerfully dismisses it) Marx pointed out that capital’s penchant for driving wages down would at some point restrict the capacity of the market to absorb capital’s product. Henry Ford recognized this dilemma long ago when he mandated the $5 eight-hour day for his workers in order, he said, to boost consumer demand. Many thought that lack of effective demand underpinned the Great Depression of the 1930s. This inspired Keynesian expansionary policies after World War Two and resulted in some reductions in inequalities of incomes (though not so much of wealth) in the midst of strong demand led growth. But this solution rested on the relative empowerment of labor and the construction of the “social state” (Piketty’s term) funded by progressive taxation... Piketty’s formulation of the mathematical law disguises more than it reveals about the class politics involved... [A] central difficulty with Piketty’s argument [is that i]t rests on a mistaken definition of capital. Capital is a process not a thing. It is a process of circulation in which money is used to make more money often, but not exclusively through the exploitation of labor power. Piketty defines capital as the stock of all assets held by private individuals, corporations and governments that can be traded in the market no matter whether these assets are being used or not... The whole of neo-classical economic thought (which is the basis of Piketty’s thinking) is founded on a tautology. The rate of return on capital depends crucially on the rate of growth because capital is valued by way of that which it produces and not by what went into its production. Its value is heavily influenced by speculative conditions and can be seriously warped by the famous “irrational exuberance” that Greenspan spotted as characteristic of stock and housing markets. If we subtract housing and real estate –- to say nothing of the value of the art collections of the hedge funders –- from the definition of capital (and the rationale for their inclusion is rather weak) then Piketty’s explanation for increasing disparities in wealth and income would fall flat on its face, though his descriptions of the state of past and present inequalities would still stand. Money, land, real estate and plant and equipment that are not being used productively are not capital. If the rate of return on the capital that is being used is high then this is because a part of capital is withdrawn from circulation and in effect goes on strike. Restricting the supply of capital to new investment (a phenomena we are now witnessing) ensures a high rate of return on that capital which is in circulation. The creation of such artificial scarcity is not only what the oil companies do to ensure their high rate of return: it is what all capital does when given the chance. This is what underpins the tendency for the rate of return on capital (no matter how it is defined and measured) to always exceed the rate of growth of income... [T]his is how the capitalist class lives. There is much that is valuable in Piketty’s data sets. But his explanation as to why... oligarchic tendencies arise is seriously flawed... [H]e has certainly not produced a working model for capital of the twenty-first century. For that we still need Marx...

A concise critique, to say the least. I cut out Harvey's jab at the end about the naivete of Piketty's remedies, since earlier in his review he offered a qualified endorsement of them that seems to me more fitting: "[H]e gives a thoughtful defense of inheritance taxes, progressive taxation and a global wealth tax as possible (though almost certainly not politically viable) antidotes to the further concentration of wealth and power." If the "global wealth tax" takes the form of global financial transaction fees and re-internalization of global environmental costs, say, I think the proposal becomes very hard but neither "naive [nor] utopian," for example. Given the brevity of his afterthoughts, there may seem to be a troubling under-specificity suggesting an even more troubling subjectivity about the criteria rendering true capital "productive," but all the pieces are available (if you squint) to recognize an essentially democratic characterization of productivity as the support of the equity-in-diversity of labor (that is to say support for the free development and consensual self-determination of the overwhelming majority of people who have to work for a living) as against the artificial scarcities on which the "capitalist class" of rentiers -- to which we now presumably, perhaps somewhat uneasily, assimilate the unaccoutable hyperinflated perques and incomes of the financial management sector -- depend for their luxury. I recommend this earlier post on Piketty in which recourse to Polanyi and not Marx provides the ground for concerns over the book's insubstantial accounting of the actual phenomenon of capital which makes its title something of a false promise. In that earlier piece I elaborate further some of the environmental dimensions of Piketty's account that seem to me terribly wrong to overlook.