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Workers Vanguard No. 1053

3 October 2014

The Poverty of Bourgeois Economics

Thomas Piketty’s Capital in the Twenty-First Century

A Marxist Review

By Gerrit Bogle and Joseph Seymour

(Part One)

Fewer full-time jobs, low wages and permanent indebtedness have working people in the U.S. scrambling to make ends meet. From 2010 to 2013, the period of economic “recovery” from the so-called Great Recession, median family incomes plummeted another 5 percent. So fragile is the economic position of the working and poor masses that an unexpected car problem or medical issue can spell disaster. Meanwhile, sky-high corporate profits, the stock market boom and a rebound in house prices have further concentrated wealth in the hands of the filthy rich.

Widespread anger over these savage disparities found an outlet a few years ago in the Occupy protests that began in New York City and spread across the country. Well aware that it is fuel that could light the tinder of class struggle, the capitalist rulers have given some lip service to curtailing income inequality. President Obama declared last December that such inequality was “a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.” This from a White House that oversaw the massive bailout of the banks and auto bosses, while leaving millions jobless and destitute. Around the globe, what Washington stands for can be measured in the rubble and carnage left in the wake of U.S. military interventions in Iraq, Afghanistan and beyond.

The issue of the income gap has come to feature more in debates over the U.S. economy, with radical liberals and die-hard establishment ideologues alike expressing concern that the gulf is too wide for the overall health of the system. Enter Thomas Piketty’s Capital in the Twenty-First Century, published in English this spring. Piketty, a French economist who had collaborated on work that inspired the Occupy slogan “we are the 99 percent,” was immediately hailed for putting numbers to the evolution of inequality in modern capitalist society.

An article in the London Guardian (12 April) on Piketty proclaimed: “Occupy was right.” Kathleen Geier, writing for the liberal magazine The Baffler, called his book a “truth bomb.” Reformist socialists, too, have effused over elements of the book, even as they raise some criticisms. Socialist Alternative, while noting Piketty’s “big weaknesses,” has gushed that he “deals with inequality, attacks aspects of capitalism, and puts forward the need for more sharing of the wealth.” Similarly, the International Socialist Organization praises the author for refuting “the idea that capitalism spreads the wealth while protecting individual liberties.”

Accolades have also poured in from other quarters. Larry Summers, Bill Clinton’s treasury secretary, former Harvard president and notorious derivatives deregulator, offered that Piketty had made a “profoundly important contribution” by “focusing attention on what has happened to a fortunate few among us.” Bloomberg Businessweek (2 June) went so far as to make Piketty its “cover stud,” with the glowing profile inside penned by one Megan McArdle, a right-wing libertarian flack long tied to the union-hating Koch brothers. Certainly, some mouthpieces for finance capital, such as the Financial Times and Wall Street Journal, tried to discredit Piketty’s calculations. However, this campaign didn’t get very far since the likes of Summers and the editorial staff at the London Economist are in Piketty’s corner.

Piketty’s one policy recommendation is a global wealth tax, an idea that even his biggest boosters have a hard time taking seriously. It is at once ridiculously modest and utterly utopian on a worldwide scale. In fact, he admits the scheme is utopian, only to argue that “it is perfectly possible to move toward this ideal solution step by step.” His native country, France, has had a wealth tax for decades. Large numbers of the country’s most well-heeled families (and celebrities like actor Gérard Depardieu) have simply picked up and moved as France’s neighbors roll out the red carpet.

Herein lies the fundamental flaw in Piketty’s proposal: a capitalist government, charged with protecting the “national interest,” is naturally loath to adopt a measure that risks competitive disadvantage for the ruling class it serves. And the imperialist nation-states are driven to compete with each other, as the barbarism of two world wars shows. Even the European Union, which promotes itself as a democratic consortium of equal partners, is actually an instrument for the dominant powers, Germany and Piketty’s France, to prey upon the weaker countries.

Absent the wealth tax, the reader is left with a series of figures—some useful (particularly the data on rising inequality), many not—and a rather half-baked account of the history of economic development. Then there is the conclusion, which was better articulated in Doris Day’s 1953 version of “Ain’t We Got Fun”: “There’s nothing surer: the rich get rich and the poor get poorer.” In other words, those with money are able to invest it to make still more, while those with little are highly unlikely to accumulate substantial sums through wage labor.

Such an observation is hardly news to the legions living paycheck to paycheck or on even less. (A regular contributor to the blog Gawker, “A dog,” trenchantly observed that the book “tastes like dry paper.”) There is a relentless drive under capitalism to wring more from the working class. To be sure, the workers can resist these attacks, but only to the extent that they engage in class struggle. The proletariat’s place in production uniquely endows it with the potential power and interest to end this misery once and for all by shattering the capitalist order and rebuilding society on an egalitarian socialist basis. Communists strive to render the working class conscious of its historic task.

Piketty, who has declared himself “very much in favour of private property and private capitalism,” simply wants to round the edges of the present one-sided class war that has made life so precarious for so many. Nonetheless, his book encapsulates a certain widespread misunderstanding of how capitalism works. As such, it provides a foil for the presentation of some basic Marxist economics—especially as Piketty, unlike many modern bourgeois economists, engages with Marxist ideas, however shallowly.

A Capitalist Appeal

While right-wing critics have compared Piketty to Marx (as they do anyone who dares criticize economic inequality), Capital in the Twenty-First Century is a product of the “death of communism” ideology prevalent in the post-Soviet world. In the introduction, Piketty reassures the reader that, having come of age amid the collapse of the Soviet Union, “I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism.... I have no interest in denouncing inequality or capitalism per se—especially since social inequalities are not in themselves a problem as long as they are justified.”

Indeed, Piketty’s main preoccupation is that unchecked capitalism is “potentially incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies,” for which he prescribes state intervention to properly guide capitalist markets. What an embellishment of bourgeois democracy! This country’s “democracy” is marked by the oppression (and earlier enslavement) of black people, waves of deportations of immigrants, bloody battles with striking workers and a long list of brutal wars the world over. As for France, its “democracy” was exported to Indochina, Algeria and West Africa in the form of forced labor and mass murder, among other crimes.

The core difference between bourgeois and Marxist economic thought is evident from the outset of the book. Piketty posits a society with a unitary set of interests common to all. By his lights, history can be told in terms of the regulation of markets; and since the advanced capitalist powers today are democracies, it is possible for them to legislate “justified” inequality to everyone’s benefit. Our starting point, following Marx, is that the history of society is the history of class struggle.

In Marxist terminology, “class” refers to a particular group of people characterized by a common relationship to the means of production. Under various economic systems through the ages, the class made up of the property holders has appropriated the surplus generated by the class made up of the toilers, giving rise to the irreconcilable antagonism between slave owner and slave, feudal lord and serf, capitalist and worker. The struggles between these classes are sometimes responsible for revolutionary social transformations.

Marx also recognized that classes do not vie with one another freely but do so as constrained by their relationship to production. The task of enforcing these constraints falls to the state—armed bodies of men that sometimes appear to stand above the fray but in fact serve the interests of the dominant class. Modern capitalist democracies, by perfecting the illusion that the government is responsible to all of society, are particularly effective at concealing the raw class domination on which the capitalist state, like all states, is founded.

Piketty makes many market calculations, and he uses these figures (adjusting for “shocks to capital” caused by wars, political movements, etc.) to attempt to explain the general course of economic development. But the capitalist system is not a fixed thing with “typical” rates of profit, growth, etc., through time. Rather, it is subject to both the changing relationship of forces in the class struggle and the consequences of competition between the capitalists who privately own the means of production. Anarchy of production, the furious chase after markets and the insecurity of existence of the mass of the population are endemic to the system, as are periodic crises that rend society, bring production to a halt, destroy wealth and inflict untold suffering on the working class and poor.

Disappearing Class Struggle

Piketty papers over the great struggles of the 20th century in order to prettify the murderous extremes to which the capitalists have resorted to preserve their profits. While discussing the impact of World War I on wealth accumulation (but not population count), he pays scant attention to the impact of the greatest redistributive act in the history of mankind—the October 1917 Russian Revolution, a product of the tumultuous social struggles sparked by the interimperialist war. For the first time in history, the working class created a state power that ripped the means of production out of the grip of the capitalist class and put them at the service of the mass of the population.

Lamenting the Russian Revolution, Piketty glibly claims “the most advanced European countries explored other, social democratic avenues—fortunately for their citizens.” In fact, the Russian Revolution was the opening shot in a series of revolutionary crises that convulsed Europe—and were met with bloody reprisal. In January 1919, Rosa Luxemburg and Karl Liebknecht, leaders of the newly-formed German Communist Party, were murdered by right-wing paramilitary forces acting at the behest of the Social Democratic government. The Freikorps proceeded to kill thousands of left-wing German workers in suppressing the workers councils that had formed nationwide. At the same time, a wave of factory occupations in Italy threatened the capitalist order. A few years later, the Italian bourgeoisie resorted to the fascist regime of Mussolini to protect its property and rule. In Germany, repeated defeats of the proletariat opened the door to Hitler’s rise to power the following decade. Such are the “fortunate” avenues of Piketty’s social democracy!

Piketty fares no better when addressing more recent events. He opens his book by referring to the 2012 Marikana massacre, in which police gunned down striking South African miners. He reduces the coldblooded killing to a “tragedy” brought about by “distributional conflict.” In fact, the massacre was a stark example of the capitalist state serving the interests of the bosses. Piketty further contends: “After the tragic loss of life, the company finally proposed a monthly wage of 75 euros.” Nonsense—it was the continued strike that brought victory to the workers, touching off a strike wave throughout South Africa. Miners in the platinum belt went on strike again earlier this year, winning a substantial wage increase after a bitter struggle.

Piketty claims to be a disinterested observer. But while he denies class struggle as a motor force in history (instead finding it an unfortunate excess of “distributional conflict”), he is squarely in the camp of one of the classes in struggle: the capitalist class. His policy proposals are motivated as reforms necessary to prevent future outbreaks of conflict from marring the smooth functioning of the capitalist order.

In France, with a more established social-democratic academic milieu, Piketty’s book was not such a big deal when published in 2013. A review in Libération (17 October 2013) noted that it did not touch on social domination, violence, exploitation or class battles, describing it as “a conceptual regression shaping an impoverished vision of the social world.” The review aptly concluded that Piketty’s aim in reducing inequality in wealth was to “give meaning” to wage inequality so as to better legitimatize it.

This criticism was made by a leftist intellectual who sees in this magnum opus not only a pro-capitalist manifesto but a right-wing neoliberal one at that. That evaluation is entirely consistent with Piketty’s political profile. In the lead-up to the 2007 French presidential elections, Piketty served as economic adviser to hardline “law and order” Socialist Party (SP) candidate Ségolène Royal. The same year, he denounced the 35-hour workweek in France as a “major error.”

Only in the relatively backward political context of the United States, where there is not even a mass reformist workers party like the SP, can Piketty be mistaken for a radical. While touring the U.S. earlier this year, Piketty met U.S. Treasury Secretary Jacob Lew, gave a talk to Obama’s Council of Economic Advisers and a lecture at the International Monetary Fund. Although Piketty may express some sympathy for the plight of the poor, his message serves the concerns of a different audience.

Bourgeois Economics for the 21st Century

Piketty wrongly casts his work in the mold of classical political economy, harking back to Adam Smith and David Ricardo. The strength of those economists, who paved the way for Marx, was that they sought to distinguish capital and value from the pure accumulation of wealth. As ascendant capitalism was at the time displacing the old feudal order, such an approach was needed to explain how a factory owner differed from a landed aristocrat.

Writing in the age of bourgeois triumphalism spawned by the demise of the Soviet Union, Piketty makes no such distinctions. He defines “capital” to be any and all wealth and renders it a timeless category present across all human history, or at least back to the first year AD. This definition freely mixes land and home ownership with other forms of wealth, including stock holdings, which guarantee a stake in the share of profit of a capitalist enterprise. The absurdity of his method is shown when Piketty calculates the average market value of slaves to factor them into the total capital of the U.S. In so doing, he denies what Lincoln and the Radical Republicans intuitively knew—that slavery in the U.S. was a different form of production than capitalism, and a war needed to be waged to smash the institution.

Classical political economy focused on the character of markets. Smith and Ricardo, in seeking to account for what it meant for things to be exchanged for items of equal value on the market, adhered to a labor theory of value. In The Wealth of Nations (1776), Smith wrote: “The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”

Marx, building upon and going beyond that tradition, saw in capitalism a new arrangement of productive forces. The market, which had existed before the advent of capitalism, had become so generalized that labor power itself was turned into a commodity—that is, the ability to work was offered on the market to the highest bidder in exchange for wages. Prior class systems had made explicit the exploitation of labor; for example, the peasant might work two days a week for himself and four for his lord. Capitalism concealed that exploitation under the veil of the market. A worker may produce eight hours worth of value but only be compensated for, say, three of them in his wages. The other five hours create “surplus value,” the source of profit for the capitalist. Under this system of wage slavery, the exact fraction of the total value added by a worker that goes back to him is determined by a contest of forces in the class struggle.

Capital: What It Is and Isn’t

For Marx, following Smith and Ricardo, capital is not just any old form of wealth, but that contributing to the process of capitalist production. Take an expensive watch sitting in a cabinet. It is displayed wealth, not capital. While gold may find use in the manufacture of electronics or luxury items, gold bars in a warehouse are not capital either. That gold may speculatively fluctuate in value, but it is not involved in production, and cannot be considered as capital when examining the amount of goods and services generated and distributed by a society.

In a production cycle, capital is both created and consumed. Thus, it is not simply a fixed “stock,” but a flow of expenditure with two distinct components. Variable capital is the portion spent on wages, so named by Marx because the investment differs from the amount returned, with the difference representing surplus value. Constant capital is the portion consumed in the course of production, as raw material and as wear and tear on machinery or other depreciation of equipment. From the standpoint of the economy as a whole, constant capital also includes nonproductive expenses socially necessary to the ruling class: cops and security guards to keep the workers in line, teachers to maintain a certain level of knowledge, officials to fill administrative and governmental posts, a military, etc.

The largest part of what Piketty incorrectly counts as capital is housing, which he has constituting nearly half the capital in modern-day Britain. Housing is simply a consumer good. A family that owns its home does not derive income from it. Even if that house is sold for more than the purchase price (by no means guaranteed), the proceeds go toward buying or renting another dwelling—or paying for nursing home care. Piketty’s treatment of housing serves to efface class distinctions, slotting in many members of the working class as “owners of capital.”

Due to the longevity of housing stock, the cost of construction has long since been recouped for most housing units, which in addition have changed hands many times. The capitalists who own residential real estate (typically banks and financial institutions) are almost completely separated from those who develop it. Once a house is sold as a consumer good, the income capitalists derive from housing—rent, interest and speculative gains—is nearly completely divorced from its production and reproduction. This income is combined with other sources of financial income and then directed elsewhere. Capitalist income derived from residential real estate is thus simple parasitism.

In this aspect, modern housing is very similar to agricultural land in the 19th century. Classical political economists did not regard land as capital, with Ricardo arguing that “the interest of the landlord is always opposed to that of the consumer and manufacturer.” Basing himself on Ricardo, John Stuart Mill, the pre-eminent liberal intellectual in mid Victorian England, argued for a confiscatory tax on the income of the landed class: “They grow richer, as it were in the sleep, without working, risking, or economizing.... In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?” Mill’s proposal to tax away almost the entire income of the landlord class was far more radical in its time than Piketty’s proposal for a global wealth tax.



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