Thursday, April 24, 2014

Merijn Knibbe — On Piketty and definitions. ‘Financial capital’ is not the same thing as ‘physical capital’ (two graphs)

The discussion about Piketty is getting messed up. The vagueness of economic parlance allows people to accuse him of mistakes he doesn’t make. The meaning of the word ‘capital’ is a case in point. Financial capital (like bonds, cash, receivables (which are included in the estimates of financial wealth in the national accounts and which have the same magnitude as cash, deposit money and money in savings account combined)) are not the same thing as physical capital (houses, cars, buildings, machinery and the like).... The Piketty book, ‘Capital in the 21st century’, is about the inexorable rise of financial capital, not about the increase of physical capital....
Real-World Economics Review Blog

Our old nemesis, ambiguity.

2 comments:

Dan Kervick said...

It's not just about the accumulation of financial capital and the income that flows from it; it's about the every kind of capital - that is, about the accumulation of any kind of wealth in a form that can be bought and sold. If you own stock in a company, that is something you can sell, and also something from which you can derive income. If you own land, same thing; if you own an apartment building, same thing; if you own a factory, same thing; if you own a patent, same thing. All of these represent ways of deriving an income from ownership rather than labor, and that is Piketty's focus.

I'm surprise Knibbe agrees with Crook's assessment. Crook is basically saying that it doesn't matter whether the capital share of income is growing, and doesn't really matter all that much if the unequal distribution of capital plus the increase in the capital share leads to greater and greater inequality, so long as all ships are rising on the tide. But I would say that attitude is completely antithetical to Piketty's main concern which is that inequality matters, and its increase destroys the foundations of modern democratic society and self-understanding.

Piketty isn't telling some Marxist story about how how the over-accumulation of industrial capital leads to a crisis where the workers are immiserated, the capitalists stop making profits, and the economy falls apart and collapses into a revolutionary disaster. He's telling a story about how the rich keep getting richer, and possibly stay that way indefinitely, and that leads to the destruction of democratic society.

Peter Pan said...

He's telling a story about how the rich keep getting richer, and possibly stay that way indefinitely, and that leads to the destruction of democratic society.

If we had a democratic society, the accumulation of wealth would have had limits imposed on it. The economy wouldn't be threatened by an out-of-control financial sector.
What remains to be lost is civil society.