Tagged: Capital

David Harvey Reviews Piketty’s Capital in the 21st Century

Afterthoughts on Piketty’s Capital

By David Harvey

Retrieved 05/17/14 from http://davidharvey.org/2014/05/afterthoughts-pikettys-capital/

Thomas Piketty has written a book called Capital that has caused quite a stir. He advocates progressive taxation and a global wealth tax as the only way to counter the trend towards the creation of a “patrimonial” form of capitalism marked by what he dubs “terrifying” inequalities of wealth and income. He also documents in excruciating and hard to rebut detail how social inequality of both wealth and income has evolved over the last two centuries, with particular emphasis on the role of wealth. He demolishes the widely-held view that free market capitalism spreads the wealth around and that it is the great bulwark for the defense of individual liberties and freedoms. Free-market capitalism, in the absence of any major redistributive interventions on the part of the state, Piketty shows, produces anti-democratic oligarchies. This demonstration has given sustenance to liberal outrage as it drives the Wall Street Journal apoplectic.

The book has often been presented as a twenty-first century substitute for Karl Marx’s nineteenth century work of the same title. Piketty actually denies this was his intention, which is just as well since his is not a book about capital at all. It does not tell us why the crash of 2008 occurred and why it is taking so long for so many people to get out from under the dual burdens of prolonged unemployment and millions of houses lost to foreclosure. It does not help us understand why growth is currently so sluggish in the US as opposed to China and why Europe is locked down in a politics of austerity and an economy of stagnation. What Piketty does show statistically (and we should be indebted to him and his colleagues for this) is that capital has tended throughout its history to produce ever-greater levels of inequality. This is, for many of us, hardly news. It was, moreover, exactly Marx’s theoretical conclusion in Volume One of his version of Capital. Piketty fails to note this, which is not surprising since he has since claimed, in the face of accusations in the right wing press that he is a Marxist in disguise, not to have read Marx’s Capital.

Piketty assembles a lot of data to support his arguments. His account of the differences between income and wealth is persuasive and helpful. And he gives a thoughtful defense of inheritance taxes, progressive taxation and a global wealth tax as possible (though almost certainly not politically viable) antidotes to the further concentration of wealth and power.

But why does this trend towards greater inequality over time occur? From his data (spiced up with some neat literary allusions to Jane Austen and Balzac) he derives a mathematical law to explain what happens: the ever-increasing accumulation of wealth on the part of the famous one percent (a term popularized thanks of course to the “Occupy” movement) is due to the simple fact that the rate of return on capital (r) always exceeds the rate of growth of income (g). This, says Piketty, is and always has been “the central contradiction” of capital.

But a statistical regularity of this sort hardly constitutes an adequate explanation let alone a law. So what forces produce and sustain such a contradiction? Piketty does not say. The law is the law and that is that. Marx would obviously have attributed the existence of such a law to the imbalance of power between capital and labor. And that explanation still holds water. The steady decline in labor’s share of national income since the 1970s derived from the declining political and economic power of labor as capital mobilized technologies, unemployment, off-shoring and anti-labor politics (such as those of Margaret Thatcher and Ronald Reagan) to crush all opposition. As Alan Budd, an economic advisor to Margaret Thatcher confessed in an unguarded moment, anti-inflation policies of the 1980s turned out to be “a very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes…what was engineered there in Marxist terms was a crisis of capitalism which recreated a reserve army of labour and has allowed capitalists to make high profits ever since.” The disparity in remuneration between average workers and CEO’s stood at around thirty to one in 1970. It now is well above three hundred to one and in the case of MacDonalds about 1200 to one.

But in Volume 2 of Marx’s Capital (which Piketty also has not read even as he cheerfully dismisses it) Marx pointed out that capital’s penchant for driving wages down would at some point restrict the capacity of the market to absorb capital’s product. Henry Ford recognized this dilemma long ago when he mandated the $5 eight-hour day for his workers in order, he said, to boost consumer demand. Many thought that lack of effective demand underpinned the Great Depression of the 1930s. This inspired Keynesian expansionary policies after World War Two and resulted in some reductions in inequalities of incomes (though not so much of wealth) in the midst of strong demand led growth. But this solution rested on the relative empowerment of labor and the construction of the “social state” (Piketty’s term) funded by progressive taxation. “All told,” he writes, “over the period 1932-1980, nearly half a century, the top federal income tax in the United States averaged 81 percent.” And this did not in any way dampen growth (another piece of Piketty’s evidence that rebuts right wing beliefs).

By the end of the 1960s it became clear to many capitalists that they needed to do something about the excessive power of labor. Hence the demotion of Keynes from the pantheon of respectable economists, the switch to the supply side thinking of Milton Friedman, the crusade to stabilize if not reduce taxation, to deconstruct the social state and to discipline the forces of labor. After 1980 top tax rates came down and capital gains – a major source of income for the ultra-wealthy – were taxed at a much lower rate in the US, hugely boosting the flow of wealth to the top one percent. But the impact on growth, Piketty shows, was negligible. So “trickle down” of benefits from the rich to the rest (another right wing favorite belief) does not work. None of this was dictated by any mathematical law. It was all about politics.

But then the wheel turned full circle and the more pressing question became: where is the demand? Piketty systematically ignores this question. The 1990s fudged the answer by a vast expansion of credit, including the extension of mortgage finance into sub-prime markets. But the resultant asset bubble was bound to go pop as it did in 2007-8 bringing down Lehman Brothers and the credit system with it. However, profit rates and the further concentration of private wealth recovered very quickly after 2009 while everything and everyone else did badly. Profit rates of businesses are now as high as they have ever been in the US. Businesses are sitting on oodles of cash and refuse to spend it because market conditions are not robust.

Piketty’s formulation of the mathematical law disguises more than it reveals about the class politics involved. As Warren Buffett has noted, “sure there is class war, and it is my class, the rich, who are making it and we are winning.” One key measure of their victory is the growing disparities in wealth and income of the top one percent relative to everyone else.

There is, however, a central difficulty with Piketty’s argument. It rests on a mistaken definition of capital. Capital is a process not a thing. It is a process of circulation in which money is used to make more money often, but not exclusively through the exploitation of labor power. Piketty defines capital as the stock of all assets held by private individuals, corporations and governments that can be traded in the market no matter whether these assets are being used or not. This includes land, real estate and intellectual property rights as well as my art and jewelry collection. How to determine the value of all of these things is a difficult technical problem that has no agreed upon solution. In order to calculate a meaningful rate of return, r, we have to have some way of valuing the initial capital. Unfortunately there is no way to value it independently of the value of the goods and services it is used to produce or how much it can be sold for in the market. The whole of neo-classical economic thought (which is the basis of Piketty’s thinking) is founded on a tautology. The rate of return on capital depends crucially on the rate of growth because capital is valued by way of that which it produces and not by what went into its production. Its value is heavily influenced by speculative conditions and can be seriously warped by the famous “irrational exuberance” that Greenspan spotted as characteristic of stock and housing markets. If we subtract housing and real estate – to say nothing of the value of the art collections of the hedge funders – from the definition of capital (and the rationale for their inclusion is rather weak) then Piketty’s explanation for increasing disparities in wealth and income would fall flat on its face, though his descriptions of the state of past and present inequalities would still stand.

Money, land, real estate and plant and equipment that are not being used productively are not capital. If the rate of return on the capital that is being used is high then this is because a part of capital is withdrawn from circulation and in effect goes on strike. Restricting the supply of capital to new investment (a phenomena we are now witnessing) ensures a high rate of return on that capital which is in circulation. The creation of such artificial scarcity is not only what the oil companies do to ensure their high rate of return: it is what all capital does when given the chance. This is what underpins the tendency for the rate of return on capital (no matter how it is defined and measured) to always exceed the rate of growth of income. This is how capital ensures its own reproduction, no matter how uncomfortable the consequences are for the rest of us. And this is how the capitalist class lives.

There is much that is valuable in Piketty’s data sets. But his explanation as to why the inequalities and oligarchic tendencies arise is seriously flawed. His proposals as to the remedies for the inequalities are naïve if not utopian. And he has certainly not produced a working model for capital of the twenty-first century. For that we still need Marx or his modern-day equivalent.


David Harvey is a Distinguished Professor at the Graduate Center of the City University of New York. His most recent book is Seventeen Contradictions and the End of Capitalism, published by Profile Press in London and Oxford University Press in New York.

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Fredric Jameson on the Reserve Army

By Matt McGregor

In the opening pages of The Limits to Capital, published in 1984, David Harvey jokes that everyone who reads Marx’sCapital seems bound to write a book about it. In 2012, we might well ask: Just one? Last year, many of the long-standing academic Marxists unleashed new introductory works, including Terry Eagleton, David Harvey, Eric Hobsbawm, and, unsurprisingly, Fredric Jameson. InRepresenting Capital, Jameson has written the best of the bunch: a surprising, energetic, and concise representation of the “totality” of capital.

The nature of this totality, familiar from The Communist Manifesto and every piece of Marxist writing since, is that capital is both hero and villain. On the one hand, it unleashes productive power such as the world has never seen; on the other hand, it produces stupendous degrees of ruination and suffering. To use a more contemporary vocabulary, the “externalities” of GDP growth necessarily include the general degradation of life itself. Specifically, Jameson argues that the reproduction of capital increasingly produces “bare” or “wageless life,” to use Mike Denning’s phrase, those legions of the interminably unemployed who ring the great cities of what Mike Davis calls “the planet of slums.”

And yet, Representing Capital is not in any obvious way a book about bare life: it is about the nature of Marx’s imposing Ur-text. It is a trope of all introductions to Capital to attempt the sublime—capitalism is always dizzyingly complex, profoundly creative, infinitely layered,impossibly dynamic—and Jameson indulges this trope as much as anyone. When reading Jameson, one expects pithy statements of both intuitive simplicity and brow-knitting complexity; it is only fitting that he sees the same in Marx himself. For Jameson, Capital is a series of riddles, riddles which, like the commodity, retain their riddle-ness even after they are solved, riddles whose solutions propose yet more riddles—riddles upon riddles upon riddles!—until we are confronted by the riddle of riddles itself, which is nothing more than the inexplicable existence of such a cruel and wondrous system as capitalism. Jameson is especially good at linking these movements of Capital to the movements of capital as such: we see the moments of unity and dissolution, the apparent totalities blown apart into “multiple reproductions of dizzying length and dimensions,” “the [again] dizzying rhythms of circulation,” the “frightening multiplicity of cycles.”

The opening volleys of Representing Capital—on the form of Capital and the so-called “Play of Opposites”—threaten to lapse into that old chestnut of graduate English, the travesty of a wide-eyed “literary” reading (how it invites an endless hermeneutic and possesses within its web many coequal “interpretations”). For Jameson, this “relativist” multiplicity is irredeemably idealist. A book may appear to have endless interpretations, but some interpretations clearly meet the sociopolitical needs of their moment more than others. Some readings are, as they say, urgent.

This means that one will take different questions to Capital, depending on where and when the book is read. The classic modernist “takeaways” from Marx—alienation, reification, and monopoly—suited their times; Jameson argues that they do not quite suit ours. To these takeaways, Representing Capital adds a fourth, one which is less surprising than Jameson imagines: unemployment. In a system whose primary characteristics are “crisis and breakdown,” a system which “cannot know laws in any ordinary sense,” he concludes that unemployment is the only guaranteed social fact. The dominant tropes of exclusion in the humanities—including bare life and risk society—privilege the political; for Jameson, economic exclusion is prior to political exclusion, and one’s exposure to the political violence of the law follows the more basic exposure to an economy that refuses to meet one’s needs.

For many in the humanities—and surely most graduate students—the only experience ofCapital is those often excerpted opening passages on money, exchange, and the commodity. Precisely what one does with these sections, which contain banal calculations on the exchange of coats, some Hegelian flourishes, and a few “literary” sections, has never been obvious. For Althusser, it was irrelevant enough to skip. For Jameson, this opening satellite introduces the basic assumptions of Marx’s materialism, which he sees as “less a philosophical position than a commitment to the living and working body.” Here, the Althusserians in the audience might wrinkle their brows: Is not the fundamental thesis of Althusser and Balibar’sReading Capital that Capital is not about people at all, but a book about a system? And they, Jameson will argue, are right: Marx is less interested in celebrating, like some “biopolitical” writers, the wondrous singularity of lived experience, than in pointing out how capital makes that experience impossible. Hence, the great chapter on “The Working Day” is “not about work at all: it is about the impossibility of work at the extremes, and about the body on the brink of exhaustion.”

The primary work of Part One, then, is to present “an immense critique of the equation as such.” That is, Part One can be read as an argument against the familiar assumption that two entities—coats and buttons, for example—are in any way “the same.” The assertion forsameness, as Jameson points out, runs against “a collectivity that sets its own priorities on the basis of its own needs and requirements.” This smooth common sense of equivalence also masks the temporal experience of the body—the laboring, living body—whose life is never quite saturated by the abstract calculations which govern its movements.

From the destruction of the subject, Jameson pivots to the subject’s utopia, of education and the expansion of the subject’s potentialities. This introduces the problem of “what is to come?” (read: socialism) and it is here that Jameson rehearses the familiar arguments against social democracy (that it works, ultimately, for a better capitalism, capitalism with a human face, etc). Against the common liberal celebrations of the promise of the “good” capitalism of Scandinavia, with its effective proportional democracies and appearance of parliamentary progress, Jameson returns to the basic fact of the planet of slums, a global “bare life” of astonishing proportions. A planet washed in capital is unarguably a planet of near-general destitution. The islands of prosperity—in both the “nice” and “liveable” cities of Europe, Canada, and Australasia, with their bike lanes and thriving inner cities, and the gated communities of the rest of the world—should not distract us from this basic truth.

At the same time, this is less a work of journalistic polemics than of good old fashioned High Theory. The figures who haunt Representing Capital are the same as those who haunted The Political Unconscious—that is, Deleuze, Althusser, Balibar, Heidegger, Sartre, and, occasionally, Derrida. As in The Political Unconscious, Jameson’s polemical target is the commonsense boogiemen of poststructuralist thought, such as totality, determination, and the real world. For Jameson, the sexy concepts of poststructuralism—“multiplicity,” “excess,” “singularity,” “the open”—are the very reasons why we need dialectics. They are neither an ahistorical “thinking of thinking” nor merely one “tool” in the theoretical toolbox, but something closer to “one tool to rule them all,” a tool which can enable us to transcend the intellectual hardware store tout court. Dialectics are not a “thinking of thinking,” but a “thinking of capital,” that dizzying system which produces the rhizomatic multiplicity and excess in the first instance. Here, Jameson’s response is simple and practical: “The conclusion to draw here is not that, since it is unrepresentable, capitalism is ineffable and a kind of mystery beyond language or thought; but rather that one must redouble one’s efforts to express the inexpressible in this respect.”

But this is not to say that Deleuze is wrong. Sublation, after all, is not rejection or denial, and his many contemporary acolytes will find plenty of respectful citations, including now-standard (and standardized) terminology like “lines of flight” and “rhizome.” This terrain of high theory is where Jameson is most at home. This means that, if you want to understand capitalism as such—and not just Capital—you might want to read David Harvey first. Yet Jameson’s method yields its fruits, as when his reading of temporality in Heidegger—not really a standard reference point for most Marxists—allows him to articulate the “dialectical plight” of contemporary accounts of the future, which “alternate between images of regression or dystopian collapse, and conceptions of progress which account to little more than the perfecting of what is already there.” Ask many professors, after a drink, about the future of higher education, and you will see this hypothesis confirmed.

Capital is oddly singular; and it is this singularity which must be asserted, against the liberal economists who see it as the natural expansion of the generic “tribe” exchanging goods at its borders, and who see the basic bookkeeping elements of this most social system even in the isolated slave economy of Robinson Crusoe. Jameson’s method, as always, is to introduce a concept—reification for example—and spiral forward, addressing contradictions and debates in throwaway clauses, at once explaining and enlarging, as he builds to his dialectical, momentary conclusion. The liberal economist, then, might argue that humans have always made the world in which they live—as do ants and apes and all kinds of natural animals. For Jameson, the “dialectical discovery will have to do with their helplessness in the face of what they have made.”

The other major provocation of this book is that Capital is not political; and that, less convincingly, politics can only be found by expanding on Marx’s use of figuration, and by addressing his more literary asides. By way of example, Jameson spends some time on the slippage from “representative” to “bearer.” The former, he argues, implies that capitalists are conscious members of their class, voluntarily embarking on their historical mission. The latter suggests that they “bear” the logic of the system of capital as an impersonal imperative, one which they must follow or else fall, like all capitalists unwilling to accumulate and expand, into the economic dustbin.

Capital, then, is a system. The philosophical dualism that is usually shepherded into the breach—free-floating agent or determined cog?—seems to leave us no room for political action. This problem, awkwardly known as that of “praxis,” is the problem of history as such. In his third chapter, Jameson navigates this impossible terrain, of what he calls “the embarrassment of the philosophy of history,” with its “first times,” its boundaries and “radical breaks,” which, as he puts it, “can be false but never true.” To ask the question of capital’s beginnings and ends is both necessary and necessarily embarrassing; yet while there may be no right answer, what matters for Jameson is, as with Heidegger, “not the answer of the question, but rather the intensity with which it is asked and remembered; or indeed retrieved and retrieved again, after it has been forgotten and repressed.”

This book is both an introduction to and an intervention in the history of Marxism. At times, Jameson’s whirling dialectic syntax might be said to resemble that old rule of television drama, where the most tired scripts are always paired with the most bombastic of musical scores. Do the Marxian arguments against anarchism and social democracy really bear repeating? The underlying assumption of Representing Capital, and the dialectical materialist method as such, is yes. These are not arguments to be memorized by flashcard; they must be rearticulated and renegotiated anew, for the simple reason that a book like Representing Capital is not written to score points in the world of ideas, which would be academic in the worst sense of the word. Besides, many of Jameson’s points already have been scored, albeit with less sophistication, by other writers. The point, of course, is to contribute to material change in the world.

Jameson saves his interpretative fireworks for the most philosophical—that is, Hegelian—sections of Capital; when Capital becomes more technical, Jameson does little more than paraphrase what has been paraphrased countless times before. But even when discussing the duller sections, he does his best to impose the drama of Marx’s method. Temporality, we learn, is “unleashed” by Marx’s analysis; it “springs out like a hobgoblin.” As in all his books, one waits for Jameson to open the dialectical spigot, and then we find ourselves carried away, in a tumult of allusions, analysis, and asides. If the moral is not, in the end, surprising—and it is not, at all—one is nevertheless glad that he has written it, because it remains the case that no one in the academy has quite the same energy as Fredric Jameson, and that no one writes books with sentences quite as forceful as these.

Originally published in Monthly Review Volume 63, Number 11 (April 2012)

Retrieved 05/07/12 from: http://monthlyreview.org/2012/04/01/fredric-jameson-on-the-reserve-army