Dean Baker gives me the courage, in his recent post on Pikkety, to reiterate a statement I’ve made some few times in the past:
Economists have no coherent or consistent idea of what they’re talking about when they use the word “capital.”
They lump together real capital — fixed, human, organizational, whatever — with “financial capital,” an oxymoron that confutes actual productive stuff with financial claims on that stuff....
So it’s not just Steve Roth, internet econocrank, making this wild-eyed claim. You’ll find similar in Jamie Galbraith’s review of Pikkety. (His opening line? “What is capital?”), and I would suggest that every other review you’ve read wallows in the same quagmire of non- or multiple-definition.
As does Pikkety, unfortunately. He explicitly defines capital as being synonymous with wealth, which is a very tricky and messy conceptual proposition indeed. That does not obviate his work’s incredible value, but he should have called his book Wealth in the 21st Century....
The stock of financial assets can increase in several ways. 1. A sovereign currency issuer can deficit-spend. 2. A bank can print new money for lending ex nihilo (with the help of borrowers who want to monetize their real assets; think: student loans). 3. The market can decide that the real assets out there are worth more than the outstanding claims against them, and bid up financial-asset prices. Voila, more money, more financial assets, more so-called “financial capital.”Asymptosis
All of this points to the fundamental problem in economic thinking that Dean states so clearly: you can’t lump together, or really even measure, real capital in dollar terms. You certainly can’t just add together the value of real capital and the value of financial capital, which constitutes claims on that real capital....
The Lump-of-Capital Fallacy
Steve Roth
1 comment:
I think we make the same mistake with the term growth too.
I hear "we need growth" all the time. Growth of what? GDP? GDP can rise just because prices are rising but no more stuff is being sold. Is that good?
I think Mosler puts it best when he says we need more sales. And frankly, at this point, it doesn't really matter what, just get some things selling and moving through the economy other than stocks and bonds. Everyone running a business right now wants more of their good or service being sold. And if that starts happening they will at some point need to hire more people to service those sales. Additionally, new folks will look at some of these things and say, "I can make and sell that too and I can improve on it" and a new venture will be hatched.
Maybe instead of capital we start saying "non financial things to sell" and instead of growth we say "sales".
Lets stop economist speak, which is mostly confusing instead of illuminating, and keep it simple.
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