Sunday, July 20, 2014

Reading Capital... in the 21st Century (part 1 of x)

Starting yesterday and over the next couple of weeks I'm making the slog through Thomas Piketty's Capital in the Twenty-First Century. To the extent that I post about it, it will be a series of notes on the process of reading it, not an attempt at a comprehensive response or critique.

As I already wrote on Twitter, Someone could write an entire book about his misreadings of Marx alone. The full thread is interesting. I've even come up with a potential title for that book: Piketty's Straw Marx. I will not write that book, however. You may. Feel free to borrow from me.

His passing polemics aside, however, I have the experience, rare in a book on political economy (neo-classical, Keynesian or "Marxist") that the definitions and formulas are coherent, both with themselves and with the world that they attempt to describe. This struck me as I came across his definitions of "national income" and "national capital". Perhaps a bit too coherent: He admits to his tautologies. But I prefer tautology to flagrant tendentiousness.

This is also the only time that I have been reading a thick book on political economy in public, and a waiter in the restaurant where I was having lunch asked me what I thought of it. One suspects that waiter, among others, might be favorable to a campaign for a $15 minimum wage here in Maine.

Here is a passage which, if the underlying calculations are correct, should give pause to every socialist in Western Europe, North America and Japan:

The population of the planet is close to 7 billion in 2012, and global output is slightly greater than 70 trillion euros, so that global output per capita is almost exactly 10,000 euros. If we subtract 10 percent for capital depreciation [not sure how he comes up w/ 10% as a rate of depreciation, but OK] and divide by 12, we find that this yields an average per capita monthly income of 760 euros.... (p. 62)

In other words, if output of the existing productive base were distributed evenly on a global scale, we'd be looking at an average standard of living comparable to about $1,000 per month, roughly on par with the current per capita average in Latin America. Consider also that, for the sake of human survival, a considerable portion of world output would need to be directed toward the replacement of existing capital stocks (infrastructure) with an infrastructure in which economic output would result in much lower rates of carbon emissions, and a 10% rate of depreciation looks not only arbitrary but conservative. One has to conclude that, over the short term--that is, over a period associated with the seizure of power from the capitalists and the reconstruction of the economy on a basis consistent with long-term human survival--an ecologically tenable socialism would require a decline in the standard of living of many, if not most, working-class people in Western Europe, North America and Japan.

These are not Piketty's conclusions, of course. They are mine. But the benefit of a scientifically informed book by someone who does not share your premises is that it enables you to think more rigorously about the implications of your premises.

The discussion of depreciation reminds me of an unresolved question I have long had with respect to Marx. Some years ago, I had a disagreement with Walter Daum over whether the depreciation of existing capital stocks as a result of increases in the productivity of labor could be considered a possible countertendency to the fundamental (in a Marxist view) tendency of the rate of profit to decline. My recollection--which could be wrong, since I never got around to writing up my view of it, let alone securing a response from Walter, so I'm relying on faulty memory instead of written documentation--was that he thought it was, and I was not so sure. I'm only sixty-something pages into Piketty, and so have not gotten to his polemic against Marx on the rate of profit question, but piecing together a few things he has said, his view would be that not only is depreciation a counter to the falling rate of profit, but that the latter is fundamentally cancelled out and falsified by the falling rate of profit.

The challenge I would put to Piketty, and perhaps to Daum, is that while that may be at least partially true from the point of view of large aggregates, it is not true from the perspective of individual capitalist enterprises. Suppose Bob's Widget Company invests $1 million in a new widget-maker that, soon after the investment, is outstripped by a new widget-maker that costs twice as much but is roughly four times as productive. Bob's widget-maker has now been devalued by roughly half. Yet Bob, if he paid from out of his own stock of money-capital, is still out a million dollars. And if he didn't, but instead financed the purchase by borrowing or sales of stock, then others still have claims on his capital with a paper value of at least a million dollars. Meanwhile, his competitors who could afford to replace old widget-makers with new ones, have, by increasing the portion of the aggregate value of widgets that go into replacing constant capital, driven down the overall rate of profit. Even so, they claim a larger share of the overall profit, while Bob's profits are driven down, perhaps even to zero or a negative rate of return. Bob, to put it bluntly, is fucked. The depreciation, however, does not take full effect until Bob is driven out of business and his old widget-maker no longer forms part of the active stock of productive capital.

So there is another variable that needs to be taken into account if one is to answer the question of whether the depreciation of existing capital stock acts as a countertendency to the falling rate of profit: The rate at which depreciated capital is actually repaired or replaced. Piketty takes depreciation for granted, building it into his definitions of large capital aggregates--national and global capital. What remains to be seen is the extent to which this definition actually matches the realities of... capital in the 21st century.

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