A Communist activist looks at Piketty's "Capital": part 2 The radicalism of Thomas Piketty

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Part 1 of this article - Piketty for Activists - summarizes some of the most important data presented and conclusions drawn by Piketty as they relate to ordinary people in the labor and other movements for economic justice. In Part 2, I argue that Piketty's work has implications far more radical than his mainstream economic framework, and is thus an important contribution to those movements.

 

Progressive, Left and Marxist Comments on Piketty's Capital

Paul Krugman gives a wildly enthusiastic review -  http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/ "Piketty has written a truly superb book. It's a work that melds grand historical sweep-when was the last time you heard an economist invoke Jane Austen and Balzac?-with painstaking data analysis... his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics."

Many heterodox (non-mainstream economists) are more critical. Some of the problematic areas include:

  • Piketty's definition of capital as equal to all forms of wealth, with value equal to its open market price at any point in time, is problematic not only for Marxists but for many economists. David Harvey explains [http://davidharvey.org/2014/05/afterthoughts-pikettys-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." -
  • How does capital produce a certain rate of return? Piketty doesn't address this question - he simply provides data on how much that rate of return is. Marx built on the labor theory of value as developed by Adam Smith, David Ricardo and other classical economists to explain that the exploitation of labor is inherent in the capitalist production process and the root of all capitalist profit. In Part 1 I quoted Marx on the origins of wealth (https://www.marxists.org/archive/marx/works/1867-c1/ch31.htm) - dripping with the blood of the enslaved and the exploited. Today, the 4%, 5%, or 10% return on capital enjoyed by the Walmart heirs, hedge fund managers, and elite universities' endowments - are ultimately derived from the work of the $8/hr fast food worker, the dispossessed peasant sewing clothing in El Salvador or assembling cell phones in China, and the newly-hired auto worker in Ohio whose wage is half what his father earned a generation ago.
  • This brings us to the class struggle. Although it is occasionally implicit in sections of Piketty's Capital, its role in social change is almost completely absent from the text. But it was sharp class struggles, led by strong Communist and Socialist parties throughout Europe after World War II, that forced the ruling elite to make major concessions in order to resist the broad appeal of Communism and the Soviet Union. That is the origin of the social state which Piketty praises. And it was and is class war, waged by the 1% against the rest of us, that partially dismantled and continually threatens the social state today.
  • Picketty has nothing to say about inequalities of race, gender, nationality. The experience in the US is that racism has been the most effective tool used by the 1% to perpetuate their wealth and power by keeping the rest of us divided. No examination of capitalism in the US can be complete without an examination of the economic and the political role played by these inequalities.
  • Piketty shares with Keynsians and social democrats what I believe is an illusion - that with proper policies and regulation, capitalism can become largely harmonious and crisis free. Marxists have argued that the exploitation inherent in capitalist relations and the anarchy of capitalist production produce a tendency toward crisis that cannot be eliminated from capitalist societies. The historical record - crises and recessions afflicting most capitalist countries at least every decade - seems to confirm the Marxist view.
  • Piketty has no real recognition of imperialism today, and assumes that most of the rest of world will naturally catch up with developed countries. Not even a mention that along with the social state in developed capitalist countries, huge resources are devoted to wasteful military spending.
  • Piketty's proposals are fine as far as they go. But how will they come about? He mostly ignores the class structure of state power and public policy. The real ruling class is not even the 1%, but the 1/10 or 1/100 percent. At times, they have been forced to make concessions, even major concessions. But, as Frederick Douglass said, "power concedes nothing without a demand; it never has and never will."

These shortcomings, and more, are important if you look at Piketty's Capital as a complete analysis of the capitalist system, or a guide to action for economic justice. But this book is not, and does not pretend to be, a political manifesto or an organizing guide.

A Communist and activist looks at Piketty

Piketty has not produced a comprehensive analysis of capitalism, implicitly accepting a rather conservative economic model. He doesn't acknowledge, and may be largely unfamiliar with the work of progressive/left economists who have done similar, if less exhaustive, work. Picketty's model, based on problematic definitions of wealth and rate of return, can be questioned.

Like most academic economists, Piketty's policy proposals seem out of touch with political reality, and the real movements and organizations of the working class and the 99%.

His program  ignores the immediate crisis faced by much of humanity. He is unlikely to lead or even affiliate with a working class movement or even a less well-defined movement of the 99%.

However, Capital is an important contribution to the theory and the discussion of inequality today. Picketty gives important historical data. His conclusion of the tendency toward concentration of wealth is not inconsistent with Marxist or other analyses that reach similar conclusions. And Piketty makes it clear that public policy makes a difference. What more could a Marxist ask of a non-Marxist? What more could an activist for economic justice ask of an academic?

The book (and Piketty's web site) is a valuable resource for data, and Piketty's analysis raises a number of interesting and potentially valuable points. But I would not recommend Capital as a first resource for someone who wants a fundamental understanding of how capitalism works, or even an understanding of the reasons for growing inequality and possible solutions.

Piketty is not a Marxist, and he approaches things differently. But different ways of describing a phenomenon (e.g., tendency for wealth to concentrate) can be valid in different ways and for different purposes.

Piketty wants to save capitalism from itself - not for the purposes of maintaining exploitation (he doesn't think in those terms) but both to prevent cataclysmic crises, and to provide a much greater degree of democracy, equality, and social justice - particularly to maintain and expand public health, education and other social policies. These are not inherently radical goals, although they go against the dominant policies being enacted in leading capitalist countries today.

Piketty's radicalism

Piketty's framework has been called, conservative, conventional. Nonetheless, the implications of Piketty's work are far more radical than his conventional framework and some critics on the left would suggest.

We can disagree with aspects of his framework, while respecting his data and engaging with millions who are influenced by his writing - especially in the US, where there is fierce struggle to block imposition of further ultra-right pro-corporate pro-1% policies.

Thomas Piketty was born in France in 1971, grew up there, and except for a brief period  has worked there. His adolescence coincided with the triumph of neoliberalism - Reagan in the US, Thatcher in Britain, and in France the surrender of the Socialist, Mitterand, to the demands of capital. This was the beginning of a global offensive against organized labor, of the triumph of the IMF and structural adjustment policies that came down most heavily in less developed countries, but also saw the start of the long stagnation and rollback of gains the US, British and other working classes had made since the 1930s.

"I... came of age listening to news of the collapse of the Communist dictatorships ... I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism... I have no interest in denouncing inequality or capitalism per se..." (p. 31) And in many ways, Piketty's framework is very conventional.

Coming from this background at this time, it is not remarkable that Piketty rejected Marxism, although I disagree with him on that. What is remarkable is that he quickly saw through the "end of history" "best of all possible worlds" triumphalism that pervaded his profession in his formative years, and dared to look at capitalism with fresh and critical eyes.

Early on, Piketty rejected aspects of mainstream economics. After two years (1993-95) at MIT, he returned to Paris because the economics profession "continued to churn out purely theoretical results without even knowing what facts needed to be explained. And it expected me to do the same. When I returned to France, I set out to collect the missing data."

Piketty's insistence that theory must be based on data, that economic models must be tested by reality, is not inherently radical, and is not unique to Marxists. But it has radical implications in an era when the economic equivalents of climate denial pass as conventional wisdom and are defended by leading political and economic authorities. For example, policies of austerity (whose popular version is  - "when average families tighten their belts, government must also tighten its belt,") have repeatedly been shown in theory and in practice to be wrong and destructive, yet they are still being advocated by many major economists and followed by those in power.

It is radical to focus on real data in the US, where political discourse is often dominated by personal anecdote and economic myths. Piketty's data explicitly undermines one of our most enduring myths - he shows that the economic insecurity of the middle class is not due to generous handouts to the undeserving poor, but to the ever-increasing share taken by the rich, the very rich, and the super rich. He poses a radical challenge, from the mainstream, to the way mainstream economics is practiced in the U.S.

Picketty draws connections among economics, politics, and history.  He has an almost Marxist description of class struggle over the distribution of wealth (p.39), although without Marx' analysis of exploitation.

A radical view of wealth

Piketty says that capital reflects social relations, i.e. the wealth that the 1% regard as their own is actually an artificial social construct.  It is society and its laws that grants ownership and control to an individual or corporation. "Capital is not an immutable concept: it reflects the state of development and prevailing social relations of each society."  (p. 47).

(One example is the role of trade agreements such as the TPP currently being negotiated, which make knowledge in the form of patents and copyrights into commodities owned by giant global conglomerates, with the power to extract tribute from the world's population for use of that knowledge, beyond the ability of local or even national governments to intervene.)

Piketty speaks of "the atmosphere, the sea, mountains, historical monuments, and knowledge," as forms of wealth and says, "Certain private interests would like to own these things, and sometimes they justify this desire on grounds of efficiency rather than mere self-interest. But there is no guarantee that this desire coincides with the general interest."

Piketty's view is in sharp contrast to the expression commonly heard in the U.S. regarding the fortunes of billionaires: "It's their money, they can do what they want with it." In essence, Piketty challenges this. If wealth is a social construct, then society, acting through democratic decision making, should have a voice in the use of that wealth. Piketty's proposal for a global tax on wealth is explicitly designed to reassert public control over the global billionaires that have the decisive economic power in the world today. Even a small tax, he says, will produce reliable information on the extent and distribution of wealth - information necessary for democratic decision-making (p. 518). "Everyone would be required to report ownership of capital assets to the world's financial authorities in order to be recognized as the legal owner." (p. 519). This statement undoubtedly horrifies the libertarian streak in U.S. capitalism, but reaffirms Piketty's contention that wealth exists only as a creation of society, and should be subject to society's democratic control.

It might be a leap too far to compare this with the Marxist position that a principle contradiction of capitalism is between the increasing social nature of the production and distribution of goods and services, and their ever more concentrated private ownership and control. And that socializing the ownership and control through working class power is the only way to resolve that contradiction and the evils of poverty, inequality and crisis that stem from it.

That is not Piketty's view, and is not even implicit in his writing. But his view on the social nature of wealth does not contradict the Marxist view.

Tax the Rich

Piketty emphasizes that the growing dominance of rentier (unearned) income - income from interest, dividends, and rent, - is not socially justified, and he challenges the supersalaries of top executives which he shows play an important role in increasing inequality. I disagree with his classification of these supersalaries as "income from labor" - for both economic and political clarity, it is more realistic to regard million-dollar-plus salaries and bonuses as profits, derived from the exploitation of those who perform the real work. But that does not detract from the implications of Piketty's data and analysis.

He directly challenges one of the basic tenets of dominant mainstream economics - that incomes tend to reflect the value of work performed, and that inequality reflects the high value of work performed by the super-rich and the low value of work performed by, or the unwillingness to work of, the poor.

Piketty says that marginal tax rates above 80% on the portion of incomes over $500,000 or $1 million per year are "the only way to stem the observed increase in very high salaries" (p. 512), and such a tax "would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior." (p. 513 emphasis added).

This means doubling the taxes on the 1% in the U.S. (although merely returning to the rates in effect from the 1940s to the 1970s).  The radical implications lie in the way the issue is framed. He wants to tax the rich, not only or primarily to raise funds, but to end super-high salaries. He is not only challenging the idea that supersalaries are economically justified - he is saying that they are harmful. He says that gross inequality produces economically useless or even harmful behavior.

Piketty's formulation certainly supports the proposition that it is not only morally, but economically justified for the people to lay claim (through taxes) to a larger share of the nation's wealth - wealth that is socially created in the first place. With even more radical implications, there should be at least a measure of public control over economic activity. If we the people can impose "reasonable limits on economically useless (or even harmful) behavior," why should we not provide positive direction for economically and environmentally constructive purposes?

Wealth, Public Debt, and the social state

Conservatives who dominate public economics and policy say the absolute priority is to reduce the public debt by slashing government spending (on most things) while cutting taxes on the 1% and raising taxes on the 99%. Keynesian economists, a category which includes most progressives, are gaining ground in academia if not in the media and political spheres. They say the biggest danger comes from unemployment and the depressed economy, and that increased government spending on social programs and infrastructure is good in itself and good for the economy, even at the expense of increased public debt.

Piketty's position is potentially more radical. He is favorable toward what he calls the social state - government spending on programs like universal health care, child care, and pensions (Social Security). But government debt, he says, is mainly held by rich people, and the service of that debt represents a continual transfer of wealth from the public to the 1%. So it is better to take part of multi-millionaires' wealth with a tax on capital than to borrow from them in the first place. Existing government debt should be reduced rapidly, he says, by a temporary, progressive wealth tax, which is how France dealt with its huge public debt after World War II (pp 540-541). This really strikes at the heart of the conservative worldview, which views the private property of the billionaire to be sacred.

Piketty is hardly alone in his support of the social state. But his framing of the discussion is interesting. Key components of the social state - education, health and pensions - are "built around a logic of rights and a principle of equal access" that are fundamental (p. 479). He traces these rights to the 1776 US Declaration of Independence and the 1789 French Declaration of the Rights of Man and the Citizen (1789). Under the latter, he says, "inequality is acceptable only if it is based on 'common utility'" and "social inequalities are acceptable only if they are in the interest of all and in particular the most disadvantaged social groups" (p. 480). Exactly what inequalities are acceptable and in what directions equality can be extended, he says, must be answered through "democratic debate and political confrontation."

I would answer that such questions are ultimately decided, in a capitalist society, through class struggle. But when Piketty says it is up to society as a whole to determine democratically how wealth, including "private" wealth, is to be used, this is a radical break from the very concept of private ownership of great wealth. And while Piketty employs these concepts in a capitalist framework, they can be seen as consistent with or even favoring socialism, whose essence is democratic control of the nation's wealth and its employment for the benefit of all.

Conclusion

Piketty's Capital is a significant contribution to economics: in its mass of data; its insistence on a historical view; its analysis of capitalism's tendency to inequality. It also contains assumptions, definitions, analyses, and omissions which are questionable. These have been discussed extensively in the year since Capital's publication. Piketty has contributed greatly to making the study of inequality an important part of economic discourse today.

As Marx famously said, "The philosophers have only interpreted the world, in various ways; the point is to change it." Will Piketty's work be relegated to a topic for graduate economic seminars? That's really not up to Picketty. It's up to us. But by stimulating a broad public discussion of the nature and causes of inequality, and by the radical implications of his analysis, I believe that Piketty's Capital can contribute to building a movement for an economy that works for working people, for building a society that puts people and nature before profits.

Additional resources:

Piketty's Capital has generated far too much interesting discussion for me to attempt a bibliography. I will mention two that have recently caught my attention.

An article in Monthly Review demonstrates Piketty's challenge to mainstream economics even while pointing out his limitations, which are based on the very mainstream framework that he adopts. http://monthlyreview.org/2014/11/01/piketty-and-the-crisis-of-neoclassical-economics/

A collection of articles by heterodox (non-mainstream) economists analyzing various aspects of Piketty's work was published recently in a special issue of Real World Economic Review [http://p.feedblitz.com/t3.asp?/332386/21620547/4833237/www.paecon.net/PAEReview/issue69/whole69.pdf]. 

Photo: Philadelphia, sign at Occupy Philly November 2011       Ben Sears/PA

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  • More Delusions:
    Art Perlo tells us a lot about Piketty’s radicalism but he does not clarify enough for whom that radicalism is aimed at and why. Who is Piketty’s real audience? He has nothing new to offer progressive activists who already agree with much of his argument. The implications of his radicalism must be aimed at traditional, conservative, and mainstream economists and politicians who have little if any reason to agree with Piketty, especially his policy proposals. Perlo tells us that Piketty’s ‘Capital’ is not a political manifesto or organizing guide, but it is a prescription on how to save capitalism from growing income and wealth concentration. His historical and research data tells him growing inequality is a universal phenomenon that stretches across all capitalist economies and across time periods. He wants his right-wing colleagues to think out of the box and take a fresh look at what must be done to save capitalism from the ‘apocalypse.’ But why should they listen to Piketty? Historically, the bourgeoisie is capable of making concessions to save capitalism, but we are in a new era of capitalism. It is the end of history, and the bourgeoisie feels invincible and immune to any meaningful change that will destroy their hegemony. The ‘end of history’ thesis will be their nemesis. As for economic theory, Perlo tells us the bourgeoisie are committed to the economic equivalent of climate change denial. Their supply side, trickle down, and other theoretical permutations to justify their wealth is another nemesis. As for wealth as a social construct that should be under democratic control for the benefit of all, the bourgeoisie totally reject. They would argue their wealth is self-made and only they should determine its uses. Did they not go into apoplexy when President Obama suggested otherwise? Piketty’s most delusional argument is to say questions of inequality can be resolved by discussion and debate in bourgeoisie controlled assemblies, rather than resolved by the outcome of class struggle. The US Congress is now removing all restrictions and limits on corporate capital. However they look at, the capitalists view Piketty’s ‘Captial’ to be a waste of their valuable time to read or to implement its policy proposals. It is the end of history, and winners take all with no more opposition or resistance from the exploited and oppressed. Or rather, that is another one of their delusions. NT

    Posted by Nat Turner, 01/05/2015 8:09am (3 years ago)

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