Sunday, March 02, 2014

Beyond Marx?

If Marx was essentially right, what is the big deal? The next is supposed to be Thomas Piketty's 'Capital in the Twenty-First Century' whose English translation has just come out. My Amazon copy was not delivered on time and enquiry form has American zip codes etc and am not able to contact them. But some reviews are out and The Economist is planning a series of posts in the next few weeks. From the first post Reading "Capital": Introduction "Marx saw capitalism as fundamentally flawed, containing the roots of its own destruction. As owners of capital gobbled up the gains from growth, they would accumulate still greater piles of capital—"infinite accumulation". This would either drive the return on capital down to nothing, leading the capitalists to destroy the system by battling it out with each other, or it would allow the capitalists to capture a rising share of national income (like Ricardo's landowners), leading the workers to revolt. But Marx also turned out to be mistaken. He did so in large part, says Mr Piketty, because of a lack of data, and because he and others failed to anticipate that rapid technological growth could reduce the relevance of past wealth accumulation.
This latter factor helps shape one of the main elements of Mr Piketty's theory of everything: that the rate of growth is hugely important in determining how long a shadow old wealth casts. If not exactly an equaliser, fast growth nonetheless puts a finger on the scale on the side of those without great wealth."
For a brief summary, we go to a non-Marxist post 'A brief preview of Piketty's work'
"The second identity is a relationship between the average global return on capital (let's designate that by r), and the rate of growth of the global economy (let's call that g). Piketty shows that if r >g, then alpha must get bigger over time. That is, a larger and larger fraction of the global wealth will accrue to capital, with an ever smaller fraction going to wages.

Conversely, if r < g, then the reverse is true--wages will grow relative to capital.

In the former case, r > g, reasonably assuming that rich people own most of the capital, then more and more wealth will accrue to the 1%. The rich will get richer, and the poor, while perhaps not getting poorer, will certainly be getting richer a lot slower. In the latter case, r < g, the premium goes to wages, and so wealth is more evenly distributed across society.

So which is it? The relative values of r and g depend on empirical fact rather than accounting identities. And here Mr. Piketty apparently excels--he has collected extensive data from most of the capitalist world from before the French Revolution to the present. He has found that for most of the last 200-300 years that r > g. The exception has been the period from 1913 to 1970--during that time r < g. His conclusion is that r > is the normal state of capitalism, while r < was an aberration that will likely never be repeated.

The return on capital has averaged 4-5% over the past two centuries, and barring exceptional circumstances is unlikely to change significantly. So Mr. Piketty forecasts r > for as far as the eye can see.

The exceptional period from 1913 to 1970 was due to the World Wars (echoing my Trotskyist friends). By destroying so much capital, the return on capital was greatly reduced (perhaps even negative in some years). Further, rebuilding Europe and Asia enabled very strong growth. So, with r < g, this was the heyday of labor, when workers could claim an ever larger share of the pie. Unfortunately, economists coming of age during that time thought that was normal, and that capitalism would inevitably lead to a richer and more equitable society. Mr. Piketty says that's wrong."

More links to reactions to Piketty's work and a long review by Branko Milanovic in an earlier post. It seems to be though it is more complex, the critique seems similar to Marx's critique of capitalism. In an interview Paul Mattick says 
"Your father saw Marx mainly as a negative thinker., as a critic of capitalism. 
... and not a positive thinker. 
Well, Marx explicitly refused to make, as he said, recipes for the future..."
I will wait for Piketty's book, further discussions in The Economist and other places.

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