Piketty Digest #1: Introduction
Piketty Digest #3: Growth: Illusions and Realities

Piketty Digest #2: Income and Output

by Adam David Morton on July 22, 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 reblogged from For the Desk Drawer. 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 second ‘Piketty Digest’ on Chapter 1: ‘Income and Output’.

Chapter 1: ‘Income and Output’

Lots of definitions here folks — Focus on distributional conflict where the inequality of wealth and the consequent income generated from capital is greater than the inequality of income from labour (recall that this is the definition of fundamental inequality as r > g from the Introduction) — The priority is analysis of the evolution of the capital/income ratio (the ratio of the total stock of capital to the annual flow of income) rather than confronting the capital-labour split and engaging with conditions of class struggle — Calculation of national income = domestic output +net income from abroad, so Piketty brings in to the ‘equation’ relations of political domination (colonialism) — Capital is defined as the sum total of nonhuman assets that can be owned and exchanged on the market, excluding human capital based on an individual’s labour power, skills, training and abilities — No acknowledgement here of the ‘fictitious commodities’ of land, labour and money as Karl Polanyi details in The Great Transformation, for example — The first fundamental law of capitalism is that: ∝ = r x β where ∝ is capital’s share in income that = to r as the rate of return on capital x β as the capital/income ratio — Piketty holds that this equation can be applied to all societies in all periods of history to express the first fundamental law of capitalism by focusing on the three most important concepts: the capital/income ratio, the share of capital in income, and the rate of return on capital — This is a fundamentally transhistorical extension of a concept across time and space without regard for historically specific and different conditions and relations of production and development — Statement by Piketty that Marxist analysis emphasising the falling rate of profit is ‘a historical prediction that turned out to be quite wrong, although it does contain an interesting intuition’  — But he fails to mention the ‘tendential’ condition of the rate of profit to fall — Piketty constructs a further caricature of Marxism here and he should be aware that there is nothing automatic, even less imminent, about the law of the falling rate of profit and that the adjective ‘tendential’ means that this is not a naturalistic condition but one of capitalism’s contradictions —  Second fundamental law of capitalism introduced: the higher the savings rate and the lower the growth rate, the higher the capital/income ratio (β), which is to be developed later; see Chapter 5 — Interesting reflections on the convergence, or developmental catch-up, of China and Africa with Europe and the Americas while noting that global inequality is best analysed in terms of regional blocs rather than continental blocs, given a ‘hyperdeveloped core’ and a ‘less developed periphery’ within the continental blocs of Europe and the Americas — Discussion of ‘net income from abroad’ referring to the share of capital that European colonial powers have retained historically and in more contemporary times over Africa, Asia and the Americas — ‘Overall, the European powers in 1913 owned an estimated one-third to one-half of the domestic capital of Asia and Africa and more than three-quarters of their industrial capital’ — But the structures and mechanisms of colonialism in furthering the spatial and territorial expansion of capital are not remarked upon or discussed in any detail — Piketty then critiques classical economic theory and its assumptions about convergence or catch-up between countries based on the supposed ‘investment’ of surplus capital to increase productivity — His criticisms are that (1) the spread of capital does not guarantee convergence of per capita income — ‘after the wealthy countries have invested in their poorer neighbours, they may continue to own them indefinitely’, hinting at the lock-in of uneven development; and (2) capital mobility has not been the primary factor promoting convergence or catch-up in Japan, South Korea, Taiwan and more recently China — Here Piketty cherishes open markets for goods and services and more advantageous terms of trade as more important factors than free capital flows — According to Piketty gains from free trade have come mainly from the diffusion of knowledge and from the productivity gains of open borders — ‘the principal mechanism for convergence at the international as well as the domestic level is the diffusion of knowledge’ — Concludes on cosy view of knowledge diffusion as well as institutions encouraging large-scale investment in education and training and the guarantee of a stable legal framework, all provided by legitimate and efficient government, in order to generate developmental catch-up.

Question: Within the context of capitalism to what extent are ‘rising powers’ in a process of developmental catch-up or subject to the continued polarisation and lock-in of centre-periphery relations?

Note: the use of the set image for this post was given courtesy of Remeike Forbes, Jacobin.

Adam David Morton
Adam David Morton is Professor of Political Economy in the Department of Political Economy at the University of Sydney. He is author of Unravelling Gramsci: Hegemony and Passive Revolution in the Global Political Economy (2007); Revolution and State in Modern Mexico: The Political Economy of Uneven Development (2011), recipient of the 2012 Book Prize of the British International Studies Association (BISA) International Political Economy Group (IPEG); and co-author of Global Capitalism, Global War, Global Crisis (2018) with Andreas Bieler. He co-edits Progress in Political Economy (PPE) with Gareth Bryant that was the recipient of the 2017 International Studies Association (ISA) Online Media Caucus Award for the Best Blog (Group) and the 2018 International Studies Association (ISA) Online Media Caucus Award for Special Achievement in International Studies Online Media.

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