Brad DeLong — Discussion of Matthew Rognlie: “Deciphering the Fall and Rise in the Net Capital Share”

I would make two points here.

1. Marx pointed out the difference between the value of capital (means of production) and its capitalization in the market which should be logically figured in terms of net present value based on future expectations.

Net present value as a valuation methodology dates at least to the 19th century. Karl Marx refers to NPV as fictitious capital, and the calculation as "capitalising," writing:[9]

“ The forming of a fictitious capital is called capitalising. Every periodically repeated income is capitalised by calculating it on the average rate of interest, as an income which would be realised by a capital at this rate of interest. ”

In mainstream neo-classical economics, NPV was formalized and popularized by Irving Fisher, in his 1907 The Rate of Interest and became included in textbooks from the 1950s onwards, starting in finance texts.[10][11] — Wikipedia

Michael Hudson has investigated this in The Bubble and Beyond: Essays on Fictitious Capital, Debt Deflation and the Global Crisis

This is relevant to what BDL notes about Picketty's analysis.

In an anticipatory response to this part of the Rognlie critique, Thomas Piketty (2014) points to a remarkable constancy in the rate of profit. His data show it as stuck between 4% and 5% per year across centuries with very different capital-output ratios. Piketty, however, appears agnostic as to whether the cause is easy capital-labor substitution, rent-seeking via control of the government [by] the rich, or social structures that set 4-5%/year as the “fair” rate of profit.

The sentence is written implicitly assuming exclusive disjunction, but Marxians would view it rather as inclusive disjunction. Conventional economists assume a constant (static) context and therefore look for a single explanation of a phenomenon. Marx took a historical perspective and therefore dynamic context. Difference factors might come more into prominence depending on changing conditions.

Clearly, "social structures" aka institutions are always involved. In different periods the degree to which government is controlled by the ruling class for its own interests shifts, especially in democracies where institutional arrangements are subject to change. Politician follow the money as a general rule, but what they most fear is the electoral process, especially when voters are not doing well economically.

A great deal of analysis has already been done on this, including with respect to the current period.

2. Brad DeLong writes:

Matt Rognlie’s conclusion is bad news for us economists. It leaves us in the same position as those trying to explain an earlier large puzzle in the production function, the twentieth-century retardation of the British economy. It was Robert Solow who said: “Every discussion among economists of the relatively slow growth of the British economy compared with the Continental economies ends up in a blaze of amateur sociology…” But this time, I really would like for us to be able to do better than we did then.

Again, Marx provided the answer long ago as one of the harbingers of sociology as a social science, if he is not included as a founder. Marx was a philosopher and philosophers study the whole. They do not consider knowledge to be divided into separate disciplines that can be fruitfully pursued independently. Subsequent studies have shown this to be the case. Data is meaningless independent of context, and meaning is context-dependent. True knowledge is not a mirror image of reality in the mind assumes that mind and the process of knowing is mirror-like. Psychology, cognitive science, anthropology and sociology reveal that it is not.

Experience is mediated by the subject's point of view, which is determined in part by mindset, comprised of both individual and social influences. "Reality" is therefore in large part a social construct that is actually a particular worldview that is taken for reality. A person's worldview is in some ways unique to the individual, including subconscious influences, and on other ways socially and historically determined by culture and institutions that remain largely implicit for individuals.

Marx observed that human beings are historically and socially determined. This is confirmed by the teachers of perennial wisdom who assert that the core of the teaching remains ever the same. Differences are the result of prevailing conditions and the needs of the time. Every teacher of perennial wisdom teaches in terms of the contemporary language and cultural circumstances and so the teaching appears geographically and historically in different garb, just as human beings are the same in nature across time but they wear different types of clothing, speak different languages, and observe different customs.

Marx and Engels accounted for social and historical determination largely in terms of economic infrastructure shaping social and political superstructure. For example, a power elite is able to not only command the state but also to convince the population that this is in their own interest through control of the dominant ideology. This results in what Engels called "false consciousness." See also Daniel Little, False Consciousness.

One of the functions of science is enable an escape from the prison of the mind in order to discover actual structures of reality that exist independent of an observer's influence, especially causal structures that are both explanatory and predictive, hence testable. Needless to say, it is very difficult to do this adequately unless one is aware of human limitations and obstacles to overcoming them.

Most economists don't do well at this. One might say that this the outcome of their assuming a natural order typical of 18th and 19th century physics and also assuming that economics is a natural science rather than a social science. The consequence of these assumptions is economic assumptions for methodological convenience rather than rigorous causal inquiry. This recalls the story of the drunk looking for his house key under the lamp post rather than around where he lost it because there is more light there.

As a result the outcomes are less than satisfactory by way of achieving the aim of science, which is a general description of reality independent of the observer as shown by correspondence of models with the modeled after elimination of as much subjective bias as possible through rigorous application of scientific method informed by all available knowledge.
So the result of a lot of economics turns out to "amateur sociology."

WCEG — The Equitablog
Discussion of Matthew Rognlie: “Deciphering the Fall and Rise in the Net Capital Share”
Brad DeLong