In the United States, on the other hand, mainstream economics goes on as if the [Cambridge Capital] controversy had never occurred. Macroeconomics textbooks discuss ‘capital’ as if it were a well-defined concept — which it is not, except in a very special one-capital-good world (or under other unrealistically restrictive conditions). The problems of heterogeneous capital goods have also been ignored in the ‘rational expectations revolution’ and in virtually all econometric work.— Edwin Burmeister
Lars P. Syll | Professor, Malmo University
17 comments:
This is an indictment of Piketty's book, and reinforces the criticism made by James Galbraith...
For follow up comments...
"Solow was wrong"
Right. I suppose that's why Joan Robinson conceded years later that Solow's definition would be acceptable if she were asked to give actual policy advice to policymakers.
Detroit Dan,
I think "indictment" is probably too strong a term, at this point. I think you may be right that Lars Syll dropped that quote in the context of the "Piketty buzz," but we'll see if he develops the point further, as he often does in follow up posts. I noticed that Piketty uses a pretty standard neo-classical definition of capital, with no distinctions made for land or real resources. Without that distinction it is difficult to understand the concept of "economic rent." From Krugman's review it seemed to me that this was the term begging to be invoked in Piketty's attempt to explain CEO wage inflation, for example.
circuit-- Who said "Solow was wrong"? It seems like some context is missing from your comment.
David-- Well said. I just don't like the way Piketty frames his discussion. The facts regarding inequality are good information, but not really surprising. I guess he does give a new twist to thinking about wages and economic rents.
Hi Dan,
The quote is straight from Lars's post...
I think it's important to keep in mind that the capital controversy was extremely academic.
BTW, I'm currently reading Piketty's book and it's quite good and very enjoyable. A few nip-picks here and there but I still highly recommend it.
MMT asserts that G-spending can be used to fix labor market deficiency at any time using a similar static analysis of a dynamic system.
Circuit-- Thanks. I found it. Those words were tacked on to Samuelson's concession remarks as described by Edwin Burmeister and excerpted in Syll's post. For extra indirection, there is no link to Syll's post in Tom Hickey's post here (c:
It sounds like you know way more about this than I. To me, the capital controversy seems like another case where conventional marginal economics confuses more than it enlightens. My impression is that Piketty adds to the confusion by treating financial capital as interchangeable with physical capital.
On the other hand, Piketty is saying that the rich have tended to get richer faster than wage earners. That's an interesting way of looking at things, now that I think of it...
What is the practical upshot of these debates over the meaning of the term "capital"?
Frankly, I think we are seeing a big surge in idle professional jealousy from many quarters as a consequence of the release of Piketty's book. At bottom, Piketty's work is based on years of unromantic and workmanlike empirical research to build a factual basis for his claims.
Dan K- I guess we'll have to agree to disagree. Gotta file my taxes. (c:
I actually think Piketty's decision not to draw a distinction between land and other forms of capital is an improvement over classical approaches that seek to draw spurious distinctions between different forms of capital.
If some land is used to grow crops, or even just as a physical platform to hold a factory up, it is "productive", just like the factory itself. If the owner of land collects revenues from the returns generated by the work done on the land, work that owner didn't perform, that is no different than when the owner of a factory collects revenues from the work done in the factory that the owner himself didn't perform. It's all the same.
I fixed the missing link to Lars's post.
Thanks Tom.
"What is the practical upshot of these debates over the meaning of the term "capital"?" [Dan K]
Piketty published a book entitled "Capital in the 21st Century". It's main contention seems to be that capital, loosely defined, increases in value faster than wages, except in unusual circumstances such as war.
With capital loosely defined, he's simply saying that the rich have gotten richer, which is not particularly surprising, although it's useful to have more compiled data on this subject.
It is disturbing to me, however, that he seems to be unaware of previous work on this subject by James Galbraith. In fact, Piketty claims that his data source (tax records) is the only possible source of inequality data, whereas Galbraith got similar findings using another source (payroll data).
Beyond this, Piketty's work seems to inappropriately combine political prognostication with economic theory. His conclusions are basically political (the rich will continue to get richer), but are buttressed by neoclassical economic arguments about the return to (physical) capital...
Piketty published a book entitled "Capital in the 21st Century". It's main contention seems to be that capital, loosely defined, increases in value faster than wages, except in unusual circumstances such as war.
It's not loosely defined. On pages 45-47, gives a very explicit definition of the term "capital" as he proposes to use it in the book. The claims he makes subsequently about historical trends in the ratio of the return to capital to the return to labor have to be evaluated with respect to that definition, not other possible definitions of the term "capital" that have been offered by other authors pursuing other projects.
If you look at a good economics dictionary, you will probably find at least 4 or 5 definitions for the term "capital." It is not a univocal terms.
I'm not sure how one can get a full picture of economic inequality by using payroll data alone, since people clearly have sources of income that do not come from payrolls.
Provisioning firms price goods and services "to make money"... if the good costs $100 to produce then they charge $120 or whatever they think the standard industry margin is...
firms (and hence the owners of the firms) eventually end up with "all the money" this way...
rsp,
Thanks Dan K. Good point about payroll data not including other income such as capital gains. And thanks for clarifying that Piketty uses a very specific definition of capital...
Is there a definition of capital that indicates a trend contrary to Piketty's claim?
Post a Comment