Special Real-World Economics Review Issue on Thomas Piketty's 'Capital'

Special Real World Economics Review issue on Thomas Piketty’s Capital, featuring authors James K. Galbraith, Dean Baker, Jayati Ghosh, Michael Hudson, David Colander, Robert Hunter Wade, Lars Syll, to name a few.

See whole issue here.

For a recent debate at the New School between Anwar Shaikh, Heather Boushey, and Thomas Piketty, himself, see here.

Lars P. Syll: Piketty and the Cambridge capital controversy

 

By Lars P. Syll

Piketty wants to provide a theory relevant to growth, which requires physical capital as its input. And yet he deploys an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says. He merely asserts that the return on capital has usually averaged a certain value, say 5 percent on land in the nineteenth century, and higher in the twentieth.  The basic neoclassical theory holds that the rate of return on capital depends on its (marginal) productivity. In that case, we must be thinking of physical capital—and this (again) appears to be Piketty’s view. But the effort to build a theory of physical capital with a technological rate-of-return collapsed long ago, under a withering challenge from critics based in Cambridge, England in the 1950s and 1960s, notably Joan Robinson, Piero Sraffa, and Luigi Pasinetti.

Read rest here.

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.