Robert Murphy looks at Thomas Piketty's use of the term "capital" through the lens of Austrian economics and finds it wanting in that it does not sufficiently distinguish financial capital from physical capital goods. Keynesians agree that capital is a heterogenous concept and treating it as a single aggregate as neoclassical economists do is an unwarranted assumption that leads to difficulties. Murphy also sets forth some of the Keynesian critique of the neoclassical view of capital and its consequences.
ConclusionLibrary of Economics and Liberty
Although capital plays a central role in economic theory and in the world, many economists have historically given it insufficient attention. Even economist Piketty's bestselling book explicitly devoted to capital still relies on a very simplistic conception of capital as a single aggregate. A proper appreciation of the heterogeneous structure of capital shows the weakness in standard theoretical approaches, which employ "simplifications for analytical convenience" that actually obscure the economic reality. To cite just two benefits, the more nuanced appreciation of capital clarifies important questions of income distribution and also provides a much more compelling explanation of the possible limitations of monetary and fiscal policy in boosting employment during recessions.
The Importance of Capital in Economic Theory
Robert P. Murphy | economist with the Institute for Energy Research (IER) specializing in climate change, a senior fellow in business and economic studies at the Pacific Research Institute, a research fellow with the Independent Institute, and an associated scholar at the Ludwig von Mises Institute
5 comments:
he's completely distorting history by claiming that this capital critique is a critique of Keynesianism, from "free market" economists like Austrians and RBC types! That is completely upside down, to the point of being dishonest.
Yes, completely ridiculous.
And there is no issue here about the "correct" definition of the term "capital." The term has a number of equally well-entrenched uses, and Piketty has simply selected one of them as the focus of his study. He is interested in the most general sense of "capital" as equivalent to "wealth" because the whole point of his book is to study inequality of wealth and income. It won't do for the purposes of such a study to say that a person who doesn't directly own any factories, land or machines himself, but only owns large financial claims on the wealth of other people or companies who do directly own those physical assets, is not really rich.
That is not to say that it wouldn't be important to focus on the more narrow senses of "capital" for the purposes of different kinds of investigations - for example, an investigation of the particular forms of wealth that play the most direct role in the production process. But even here, leaving out the financial claims is misguided. If I own the wallet of a man who owns a machine, I indirectly own that machine.
Perhaps the asymmetrical or distorted relationship between labor and capital can best be summarized by this re-phrasing from a chilling Josef Stalin phrase:-
"Those who supply their labor decide nothing; those who pay the labor decide everything."
Stalin's original phrase:-
"Those who cast the votes decide nothing. Those who count the votes decide everything."
"It won't do for the purposes of such a study to say that a person who doesn't directly own any factories, land or machines himself, but only owns large financial claims on the wealth of other people or companies who do directly own those physical assets, is not really rich."
Agreed.
Especially considering the mentality of many corporations and talking head economists that preserving "shareholder value" is the primary goal of businesses. When all your efforts go to preserving your companies stock value those formentioned guys who "just" own claims on others real wealth are doing pretty well.
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