Piketty for Progressives: Part 4
Sat 25th Oct 2014
The Major Results of Piketty's Study
Piketty says his study has arrived at two major results. First, that economic determinism is not the answer to why we have inequality in wealth and income between people. But no economist worth his or her salt has ever been an economic determinist, so this is not a very startling conclusion.
Any Marxist would ready agree with this observation by Piketty (it is commonplace in the writings of Marx, Engels and Lenin): inequality results from the interplay and conflict of forces between people in the economic, political, and social institutions in which they find themselves and the relative power they have at their disposal to enforce their values and choices; inequality "is the joint product of all the relative actors combined." Marxists might be a little more concrete about who these actors are (classes and social strata) and what the power relations rest upon (ownership of the means of production, ability to create surplus value and such) but the first major result of Capital in the 21st Century echoes one of the major results of Capital in the 19th Century.
But, "the heart of the book" Piketty says, is his second major result. This is that there are major forces at work that push both towards increasing inequality (divergence) and decreasing inequality (convergence). I will call these D-forces and C-forces.
What is important, and will be rejected by all apologists of the Ann Rand version of laissez faire capitalist hokum (surely there are no intelligent Randists left after Greenspan's The Age of Turbulence) as well as mainstream bourgeois economists, is Piketty's findings that there is no internal mechanism within capitalism itself that can regulate and control the D-forces and prevent them from increasing "permanently."
Marxists would say the internal contradiction within capitalism between the C- and D-forces is certainly not permanent. Ultimately the build up of the pressure from the D-forces will explode the system (there cannot be infinite inequality). Piketty's language is not the language of Marxism, but in his own way he has restated, in the language of neoclassical economics, the objective reality of Marx's Apocalypse.
The D-forces are heading in that direction and Piketty wants to find a program that can bolster the strength of the C-forces and drag back the D-forces, if not to a stop, at least to a non-critical mass. This won't be done within the capitalist system qua capitalist so the energy required by the C-forces must come from outside. There's the rub.
The above states the main points of this section. However, Piketty mentions two theories which have been put forth to counter the D-forces from within the system without extraneous help for the C-forces. Both of these theories are logically possible but their practical implementation as a solution to growing inequality is "largely illusory" if the history of capitalism has anything to tell us about them. I will only mention them in passing as Piketty doesn't put much stock in them.
The first is the "human capital hypothesis." As technology advances workers need more and more skills and hence have to be paid more so capital will be transferred from the money bags to the working class increasing the C-forces and leading to greater democratic control of society. A pipe dream.
The second is that "class warfare" will be replaced by "generational warfare" because science is making people live longer. This type of "warfare" is more benign since all young people will end up old people (all workers won't end up capitalists on the class war model). Young people will begin saving up for old age so they will have enough to mitigate the effects of the D-forces. The young will be ants and not grasshoppers. Another pipe dream.
It says something about "economics," as taught in bourgeois educational establishments, that capitalism's existential threat (unsustainable D-force pressure) can produce solutions that amount to pipe dreams.
The real counter to the D-forces, Piketty says, as revealed by history has been "the diffusion of knowledge and skills." This "diffusion" must be an external factor independent of the capitalist system because Pitketty has said capitalism has no internal mechanism to prevent run away D-forces, or if it is an internal factor then it cannot prevent the Marxist Apocalypse.
Forces of Convergence, Forces of Divergence
Piketty says that while the diffusion of knowledge and skills is the main source for the C-forces, it is nevertheless a fact that the D-forces can overcome it and increase in power. This is because the C-forces need to be reinforced by social policies that are not sufficiently built into the mechanism of capitalism to counter the the D-forces (which are built in) on their own.
Presently there are two major D-forces independently at work in the world economy. The threat, Piketty says, is that these two forces may merge and become unified thus creating a new and super powerful motor driving inequality. From what would this Super D-force be composed? From the current D1-force which is the ability of top-earners to “quickly separate themselves from the rest by a wide margin” and the current D2-force which is itself an amalgamation of forces that bring about “an accumulation and concentration of wealth when growth is weak and the return on capital is high.” The D2-force is the “principal threat’’ to income equality.
Piketty uses the example of the United States from 1910 to 2010 to show how the D1-force has been developing. What has happened is an explosion in the income of the top managers of the large capitalist enterprises that dominate the economy. Gigantic inequality gaps separate this capitalist elite from ordinary workers and citizens. Piketty says the most likely explanation of this inequality gap is the power these capitalists have of setting “their own remuneration” and to do so independently “of their individual productivity.”
This, by the way, could never have come about in a properly functioning democratic society. It suggests that capitalism is incapable of creating such a society and that the problems of inequality cannot be solved within the parameters of such a society. Bad as this D1-force is, it is the D2-force that Piketty considers the main threat to equality and the growth of the C-forces under capitalism. It is this second force that we will deal with in the next installment of Piketty for Progressives.