Abstract
Thomas Piketty's recent book, Capital in the Twenty First Century, follows in the tradition of the great classical economists, Malthus, Ricardo and Marx, in formulating "general laws" to diagnose and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society. Using the economic and political histories of South Africa and Sweden, we illustrate not only that the focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality, but also that inequality dynamics are closely linked to institutional factors and their endogenous evolution, much more than the forces emphasized in Piketty's book, such as the gap between the interest rate and the growth rate.
The Rise and Fall of General Laws of Capitalism (PDF)
Daron Acemoglu and James A. Robinson
(h/t Tyler Cowen at Marginal Revolution)
Piketty doesn't describe invariant "laws" of capitalism. Rather the provides a general framework within which one can describe conditions that are propitious for the growth of various kinds of inequality. He then documents long stretches of historical time during wich the forces tending to produce greater inequality have prevailed, and gives some reason for thinking such conditions have re-emerged in the early 21st century.
ReplyDeleteBut of course he belives that these forces can be thwarted by political action. Suggesting ways of doing precisely that is the point of the last four chapters of the book. What he points out, however, is that these political interventions, to be successful, will have to include democratic attempts to control capital and influence its patterns of distribution via political, non-market means. They thus require deliberate modifications of, and restrictions on, the market system. Any attempts to fix the problem by doubling down on capitalism by making markets more "perfect" will not succeed, since the operation of the most important forces that tend to produce inequality are not the result of market imperfections. Rather, many of those forces are strongly operative when markets approach their textbook, "perfect" form.
Acemoglu and Robinson:
ReplyDelete"2: The General Law of Declining Profit: as capital accumulates, whatever the path of technology, the rate of profits falls". (page 4)
Apparently based on Peter Singer (whom they cite among the works cited):
"First, though, it is necessary to say a little more about Marx as a scientist; for it cannot be denied that Marx thought of his own theories as ‘scientific’, and based predictions about the future of capitalism on
them. He predicted that:
...
"The rate of profit WILL fall." (pp. 86-88).
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Karl Marx:
Capital Vol. III Part III
The Law of the Tendency of the Rate of Profit to Fall
Chapter 14. COUNTERACTING INFLUENCES
"If we consider the enormous development of the productive forces of social labour in the last 30 years alone ... then the difficulty which has hitherto troubled the economist, namely to explain the falling rate of profit, gives place to its opposite, namely to explain why this fall is not greater and more rapid. THERE MUST BE SOME COUNTERACTING INFLUENCES AT WORK, WHICH CROSS AND ANNUL THE EFFECT OF THE GENERAL LAW, and which give it merely the characteristic of a tendency, for which reason we have referred to the fall of the general rate of profit as a tendency to fall.
"The following are the most GENERAL COUNTERBALANCING FORCES:
"I. Increasing Intensity of Exploitation
"II. Depression of Wages Below the Value of Labour-Power
"III. Cheapening of Elements of Constant Capital
"IV. Relative Over-Population
"V. Foreign Trade
"VI. The Increase of Stock Capital".
Perhaps I should attempt a revision, page by page, paragraph by paragraph, but frankly, I have no stomach.
It seems that Piketty's book title intentionally reminds us of Marx's "Capital" and, thus, of the major failure in Marx's thought -- the idea that there are general economic laws which govern society. It perhaps would have been better if Piketty had marketed his book using institutional economics of the sort discussed by John Kenneth Galbraith...
ReplyDeleteParaphrasing the Good Book (Luke 23:34, King James Version):
ReplyDeleteThen said Jesus, Father, forgive them; for they know not what they are talking about