Friday, March 28, 2014

Galbraith on Piketty's Capital

I'm still reading the book, so I will not say much at this point. The history of ideas at the beginning of the book is just embarrassingly bad, and suggests that mainstream economists do not have the faintest idea about the history of their own discipline. Just a short example would suffice to show what I mean. Piketty says: “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.” Note that the book is named Capital, and Piketty is quite critical of Marx. So you would expect some reasonable understanding of what is in the other Capital. If you open chapter XV of Marx's Capital, on Machinery and Modern Industry he tells you:
"Like every other increase in the productiveness of labour, machinery is intended to cheapen commodities, and, by shortening that portion of the working day, in which the labourer works for himself, to lengthen the other portion that he gives, without an equivalent, to the capitalist. In short, it is a means for producing surplus value."
So machinery and increasing productivity are essential for the production of surplus value and the explanation of profits. It is evident that if Piketty read Marx, he didn't understand much. And that is true of almost any citation that involves history of economic ideas (so Roncaglia, previous post, is right, Piketty should take a course in the history of economic thought).

Also, Piketty is in many passages clearly contradictory, taking positions that are not compatible with other assumptions made just before. These contradictions derive basically from his adherence to neoclassical theory, and his desire to transcend it, and say something relevant about inequality. In neoclassical theory inequality results from technical change, and different levels of skills, since workers and capital receive according to their productivity. Political factors should NOT play an important role. Other than the data on inequality, in the collecting of which he has been central together Emmanuel Saez, even if it is far from true that he is the only follower of Kuznets, there is little merit in this book it seems.

Jamie Galbraith provided a good review in Dissent (see here). An important point that Jamie makes is that Piketty botches the argument on the capital debates (again, given the title of the book, it is a bit ironic). Jamie notes: "Piketty devotes just three pages to the 'Cambridge-Cambridge' controversies, but they are important because they are wildly misleading..." and Piketty doesn't get that: "as the rate of interest falls, there is no systematic tendency to adopt a more 'capital-intensive' technology, as the neoclassical model supposed." The implications of the capital debates (for more on that go here) for understanding inequality are associated that once intensity and remuneration are not connected in the way neoclassical theory suggests the bare bones of the social conflicts that are behind income and wealth inequality are exposed.

An appreciation of the limitations of the neoclassical view of capital would lead, according to Galbraith, to a broader understanding of the policies needed to overcome inequality, beyond the tax on wealth proposed by Piketty, and a better understanding of how in a previous era -- of the New Deal and the Welfare State -- it was possible to reduce equally staggering inequities.

6 comments:

  1. I begun to read this book about 6 months ago (in French) and I just finished now. It has been such a painful experience! As you wrote, “the history of ideas at the beginning of the book is just embarrassingly bad and suggests that mainstream economists do not have the faintest idea about the history of their own discipline”. I do not even want to talk about his “funny” (or dramatic) concept of capital, which shows the absolute confusion in the mind of a (badly) trained neoclassical economist trying to be a critical thinker. Old neoclassical economists like the late Samuelson would be ashamed of all this mess! In interviews gave to French newspapers and magazines, Piketty pretend that the study of history and politics is essential to the understanding of economics. But, in the almost 1.000 pages of his book, he never studies the influence exerted by unions, social struggles and the socialist experiences on the evolution of wealth and income inequalities. For example, the existence of Soviet Union as an alternative to capitalism and its impact on income distribution in the Western countries is not even considered. Piketty seems to ignore that the “reduced fear of communism linked to the worsened performance of the Soviet system since the late 1960s, can indeed be regarded as [one of] the decisive factors in the shift in emphasis away from high employment and income redistribution, which eventually brought about, both in Europe and in the USA, rates of unemployment and income inequalities that would not have been considered politically acceptable in the 1950s and 1960s” (see Pivetti: http://cpe.oxfordjournals.org/content/32/1/1.extract ). It is sad but not surprising.

    Numa

    ReplyDelete
  2. I begun to read this book about 6 months ago (in French) and I just finished now. It has been such a painful experience! As you wrote, “the history of ideas at the beginning of the book is just embarrassingly bad and suggests that mainstream economists do not have the faintest idea about the history of their own discipline”. I do not even want to talk about his “funny” (or dramatic) concept of capital, which shows the absolute confusion in the mind of a (badly) trained neoclassical economist trying to be a critical thinker. Old neoclassical economists like the late Samuelson would be ashamed of all this mess! In interviews gave to French newspapers and magazines, Piketty pretend that the study of history and politics is essential to the understanding of economics. But, in the almost 1.000 pages of his book, he never studies the influence exerted by unions, social struggles and the socialist experiences on the evolution of wealth and income inequalities. For example, the existence of Soviet Union as an alternative to capitalism and its impact on income distribution in the Western countries is not even considered. Piketty seems to ignore that the “reduced fear of communism linked to the worsened performance of the Soviet system since the late 1960s, can indeed be regarded as [one of] the decisive factors in the shift in emphasis away from high employment and income redistribution, which eventually brought about, both in Europe and in the USA, rates of unemployment and income inequalities that would not have been considered politically acceptable in the 1950s and 1960s” (see Pivetti: http://cpe.oxfordjournals.org/content/32/1/1.extract ). It is sad but not surprising.

    Numa

    ReplyDelete
  3. A Marxist review of Piketty's book is at
    http://mltoday.com/professor-piketty-fights-orthodoxy-and-attacks-inequality

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  4. FT is sporting a related Piketty piece, "Save Capitalism from the Capitalists by Taxing Wealth."

    Sorry, can't link to it -- or read it -- since I can't afford the Financial Times.

    The price is right for Naked Keynesianism and Dissent -- and better informed because of it.

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  5. // I'm still reading the book, so I will not say much at this point. //

    You should have stuck to that, until at least you got beyond the first paragraph of the chapter. Or even included the few words that preceeded your quote --

    // John Stuart Mill says in his “Principles of Political Economy":

    “It is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being.” [1]

    That is, however, by no means the aim of the capitalistic application of machinery. //

    I think Marx is telegraphing his conclusion, eh?
    Read on.

    dz alexander

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    Replies
    1. I didn't say almost nothing, Alexander. Only pointed the glaring mistakes at the beginning of the book. Your comments also show a lack of understanding of Marx and the classical political economy tradition. It's sadly a common feature in the profession.

      Delete