Late Night: Piketty’s Failure of Nerve, or Why Marx Is Still the Boogeyman
Piketty’s emphatic denial of Marxian influence on his work – and the fact that he felt compelled to make it in the first place – is quite telling. The decades of heavy-duty demonizing dumped on Marx by capitalism’s cheerleaders, particularly in the United States, have scared people away from studying his work to the point where even a French economist is quick to deny being contaminated by the thoughts of the Great Satanic Boogeyman.
David Harvey, who has himself not only read Marx’s Capital but has taught it for over forty years, took some time recently to examine Piketty’s book, much lauded for its recognition both of the fact of income inequality and of its corrosive effects on society in general and democracy in particular. Here are some of Professor Harvey’s thoughts on the matter (italics his, bolding mine):
The book has often been presented as a twenty-first century substitute for Karl Marx’s nineteenth century work of the same title. Piketty actually denies this was his intention, which is just as well since his is not a book about capital at all. It does not tell us why the crash of 2008 occurred and why it is taking so long for so many people to get out from under the dual burdens of prolonged unemployment and millions of houses lost to foreclosure. It does not help us understand why growth is currently so sluggish in the US as opposed to China and why Europe is locked down in a politics of austerity and an economy of stagnation. 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.
Harvey discusses Piketty’s mathematical explanation of inequality thus:
But why does this trend towards greater inequality over time occur? 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). This, says Piketty, is and always has been “the central contradiction” of capital.
But a statistical regularity of this sort hardly constitutes an adequate explanation let alone a law. So what forces produce and sustain such a contradiction? Piketty does not say. The law is the law and that is that. 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. The steady decline in labor’s share of national income since the 1970s derived from the declining political and economic power of labor as capital mobilized technologies, unemployment, off-shoring and anti-labor politics (such as those of Margaret Thatcher and Ronald Reagan) to crush all opposition.
To back this up, Harvey then quotes Thatcher’s economic advisor Alan Budd, who admitted that raising unemployment was in fact a desirable thing for Thatcher and her capitalist paymasters as it “was an extremely desirable way of reducing the strength of the working classes” so the capitalists could make more money. He then points out that Marx showed how this continual grinding down of the workers cannot go on forever without endangering the economy and society:
But in 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.
Piketty, Harvey states, ignores the question of diminished worker demand brought on by diminished worker power and wages. Furthermore, Piketty, as do all other neo-classical economists, misapprehends the nature 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. This includes land, real estate and intellectual property rights as well as my art and jewelry collection. How to determine the value of all of these things is a difficult technical problem that has no agreed upon solution. In order to calculate a meaningful rate of return, r, we have to have some way of valuing the initial capital. Unfortunately there is no way to value it independently of the value of the goods and services it is used to produce or how much it can be sold for in the market. The whole of neo-classical economic thought (which is the basis of Piketty’s thinking) is founded on a tautology.
Professor Harvey states that to misapprehend capital’s true nature is to guarantee misapprehension of why capitalism is geared to cause so much misery for those of us not in the .001 percent. In Harvey’s way of thinking, the fact that Piketty does misapprehend capital shows both that he is not a Marxist, and that his apparent fear of Marx’s body of work shows a failure of nerve that limits the usefulness of what is otherwise a very valuable book.