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Piketty Digest #17: The Question of the Public Debt

by Adam David Morton on November 14, 2014
Piketty Forum

With all the furore surrounding Thomas Piketty’s Capital in the 21st Century my aim here is to carry a weekly focus on the book . The purpose is modest. There is already in existence some rather excellent coverage and detailed engagement with the book both in the general media and on specific blog sites. I am thinking here of the analyses by Michael Roberts on his blog site; the competing viewpoint or ‘afterthoughts’ of David Harvey; Benjamin Kunkel’s assessment in ‘Paupers and Richlings’ for London Review of Books matched by Knox Peden’s great essay on ‘The Abstractions of History’; or Paul Krugman’s rather different tone in ‘Why We’re in a New Guilded Age’ for The New York Review of Books. My own endeavour is much less ambitious than any of these engagements. It seeks to offer a weekly equivalent to the ‘Pocket Piketty’ provided by Duncan Green. Each week my intention is to carry a blog post that summarises my notes on each chapter in just a few hundred words that can be read quickly. The purpose of these summaries is to produce an interpretative synopsis of each chapter drawn from my more detailed notes.

These interpretative digests will also enable me to formulate my engagement with a reading group on Piketty’s Capital in the 21st Century, organised by Chris Hesketh at Oxford Brookes University. They will also provide a quick précis for teaching purposes at the University of Sydney and through this novel pedagogical exercise conclude with a question each week to be developed in my Department of Political Economy classes on ‘The Political Economy of Global Capitalism’ (linked to the Twitter hashtag #ECOP2613). Such short interpretative digests may thus provide a different and original form of engagement with the book. Without attempting to rival or replace the importance of detailed engagement, these ‘Piketty digests’ will facilitate a quick and accessible read for people ‘on the go’. The posts will be formulated and produced after reading each chapter, in dialogue with the Oxford Brookes University reading group and colleagues at the University of Sydney, rather than polished after completing the reading of the whole book and then subsequently edited; although I may tidy up a little week-to-week. Perhaps these ‘Piketty digests’ will also provoke some wider resonances and points of contact. Here is the seventeenth ‘Piketty Digest’ on ‘The Question of the Public Debt’.

Chapter 16: The Question of the Public Debt

Accumulate, accumulate! That is Moses and the prophets! . . . Accumulation for accumulation’s sake, production for production’s sake: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth
— Karl Marx, Capital, Vol. 1

A spectre is haunting Piketty – the spectre of accumulation. And just as all the old powers of capital have entered into a holy alliance to exorcise this spectre, his analysis in this penultimate chapter of Capital in the 21st Century is suspect in treating the conditions and consequences of capital accumulation — The immediate focus in the chapter is on the high public debt levels in recent times that can be controlled, according to Piketty, through three main methods: 1) taxes on capital; 2) inflation; and 3) austerity — ‘An exceptional tax on private capital is the most just and efficient solution . . . The worst solution in terms of both justice and efficiency is a prolonged dose of austerity’ — Following on from his concrete proposals in Chapter 15Piketty’s argument is that, assuming that the European government debt should be reduced by 20 percent of GDP, then bringing the level down from around 90 percent of GDP to 70 percent and close to the maximum 60 percent set by current European treaties, it would be necessary to apply a special levy with rates 10 times higher than outlined in the previous chapter: 0 percent up to 1 million euros, 10 percent between 1 and 5 million euros, and 20 percent up to about 5 million euros — With a rather sweeping statement, his claim on behalf of everyone is that, ‘The fact is that all economists—monetarists, Keynesians, and neoclassicals—together with all other observers, regardless of their political stripe, have agreed that central banks ought to act as lenders of last resort and do whatever is necessary to avoid financial collapse and a deflationary spiral’ — His further argument is that the countries of the Eurozone could pool their public debt and create a Eurozone budgetary parliament— ‘Are these proposals utopian?’, he asks, ‘No more so than attempting to create a stateless currency’, he answers — ‘For the countries of Europe, the priority now should be to construct a continental political authority capable of reasserting control over patrimonial capitalism and private interests and of advancing the European social model in the twenty-first century’ — David Cameron’s “refusal” to pay to the European Union the recalculated 2.1 billion euros bill to the European Commission budget by 1 December 2014 (and that the Commission will impose an interest rate of 2.5% rising each month) reveals the tensions and difficulties at the heart of regional integration in Europe when set against party politics within states — On issues of capital accumulation, Piketty traces what he calls the ‘golden rule of capital accumulation’, following Edmund Phelps (former economist at the RAND Corporation and winner of the Nobel Prize for Economics in 2006) who defined the equality r = g where the maximal level of capital is attained so that the return on capital, r, falls to be equal to the growth rate g — The result Sapcesis ‘capital saturation’ — Piketty then makes a cack-handed reference to Marx’s theory of overaccumulation and the ‘capitalist’s unlimited desire to accumulate more and more capital’ that was assumed to end in the downfall of capitalism but 1) without exploring its substantive import to his own discussion on overaccumulation; 2) then conflating his discussion of Marx with accumulation problems in the Soviet Union; and 3) burying his commentary on capital saturation and Keynes’ discussion of the ‘euthanasia of the rentier’ (where the rentier will be euthanised by accumulating so much capital that the return will disappear) to a footnote without exploring Keynes, or Marx, to the wider problem of the overaccumulation of capital — The frustration from reading earlier sections of the book hauntingly return in the spectre of accumulation, for it is on such questions that, again, Piketty reveals his inability to engage Marxist political economy without dogma — A simple reading of David Harvey’s essay ‘The Geography of Capital Accumulation: A Reconstruction of the Marxian Theory’ in Spaces of Capital would be a useful corrective to the recourse to Nobel Prize winning economists throughout Piketty’s book from Kuznets to Phelps that offer deadends on inequality and overaccumultion — These concerns make the conclusions to this chapter sound very hollow — ‘Private wealth rests on public poverty’, states Piketty, ‘and one particularly unfortunate consequence of this is that we currently spend far more in interest on the debt than we invest in higher education’ — No qualms there — But the notion that the debt in Europe must be reduced ideally with a progressive one-time tax on private capital or, failing that, by inflation while establishing a sovereign parliament based on democratic debate across Europe has been revealed as particularly weak in light of the above mentioned current events — Similarly, as noted in my previous post on Chapter 11, Piketty’s view that new forms of democratic participation and governance remain to be invented within capitalism and that democracy and capitalism can be rescued are deeply misleading: ‘the concrete institutions in which democracy and capitalism are embodied need to be reinvented again and again’ — But without considering proposals to move beyond capitalism to a post-capitalist society, democracy is but a hollow shell.

Question: To what extent does David Harvey’s recourse to Karl Marx’s theory of capital accumulation grasp better the contradictory spatial and geographical extension of capital on a world scale?

Adam David Morton
Adam David Morton is Professor of Political Economy in the Department of Political Economy at the University of Sydney.

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