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Thomas Piketty's Capital in the Twenty-First Century: A Critique Roundtable

Critique Editorial Board on 01 April 2015 in Critique Vol 43, Issue 1

The following is a round table with Yassamine Mather (YM), Hillel Ticktin (HT), Peter Kennedy (PK) and Alex Marshall (AM), which met on Saturday 6 February to discuss Thomas Piketty’s Capital in the Twenty-First Century, a substantial work on capital as it has evolved since the 18th century, using a great variety of material gathered on France, Germany, the UK and the United States. The participants are members of the editorial board of Critique. Their biographies are in the Notes on Contributors.

Keywords: Piketty; Capital; Marx; Critique; Capital Accumulation; Debate

AM: Obviously the reason we’re discussing this work today from a Marxist perspective is that it has deeply influenced the mainstream bourgeois media, and it has had a deep impact on the views of financial economists in general. Its arguments have gathered momentum in the press in general as well since it articulates a reform agenda, or a potential reform agenda, for capitalism, and as it seeks to basically explain the reasons for the current financial crisis from a longue duree point of view. At the end of the work it also offers solutions, or attempted solutions, to capitalism’s dilemma of accumulation. So hopefully we can have an interesting discussion today. First of all I want to get people’s general impressions of the work, starting with the founder and editor of Critique, Hillel Ticktin. Hillel, what’s your view of the book?

HT: Not too much! Obviously the book has reams of statistics which are themselves useful, although in general terms you’d have to be fairly ignorant not to know, already, the general thesis that the overall level of inequality has been increasing. The statistics and the work of the people who have gathered the statistics, much of which is published already, is nonetheless useful, but I think that’s as far as it goes. The essential thesis of the book, that inequality is enormous, and growing, is something which I think most people have recognised already, but it adds to the data and outcry. However the question we have to ask is, why is that the case?

Why have people picked up on this at all? It’s been picked up at a very deep level, or rather very extensively and deeply, and I think the reason basically is that there is a certain degree of unease within the capitalist class itself, which has given licence to journalists and to liberal economists to take the thesis further. Piketty therefore fits into that particular section of society, and he fits into a particular school with people like Krugman, Stiglitz, Skidelsky, etc. Therefore what he has written has been amplified by a considerable number of meetings and writings in journals and newspapers.1 I think the further aspect of it is that there is a section of the bourgeoisie which recognises what is fairly obvious, that if you continue this level of inequality, it will become explosive. So, that’s why it has been picked up, and probably what is intended is that there will be some kind of sticking plaster applied to the economy so that people are less discontented with their lot.

Recently there’s been an interview with Piketty and this issue has been put to him—that is to say, that his overall prescription is utopian, and his answer is that it’s true that the powers-that-be will not just give in, but that it has to be fought for,2 and that that is what his book is about—encouraging people to fight for progressive taxation. Well, fair enough! The thing is that, quite clearly, it hasn’t happened, and that it won’t just happen. This gives one an introduction to what he’s been writing— simply to produce statistics that inequality is increasing isn’t enough from a political economic perspective, quite obviously. His book is not political economy, but it’s not orthodox economics either, it kind of fits in between the two. I say that is because he doesn’t have an unambiguous conception of capital, and he doesn’t have a conception of Marxism either. He thinks he does, but it’s not too strong to call it nonsense. He seems to have no idea what Marx was about, and when he gives, right at the beginning, a viewpoint as to why Marx was wrong, it’s not even worth talking about.

AM: I think that one of the things that struck me about his account of Marx is that he appears to believe that Marx didn’t acknowledge innovation or increases in productivity, which seems to me a kind of fundamental misunderstanding of the analysis and reproduction schemes of Marx. In volume one of Capital, Marx clearly acknowledges the role of innovation, for example in the shift from handloom weaving to the mechanical loom; in the reproduction schemes in volume two he then clearly removes innovation from the equation in the reproduction schemes of capital that he uses, just as he also excludes from them much on the role of credit or inflation. However he is also explicit that this is what he is doing, and why he is doing this, and that is to examine the cycle of capital from different angles, not to write off the part played by innovation altogether. The beginning of an answer to this apparent disparity can then be found in volume three, where innovation, credit and the appearance of new market leaders then re-appears as a counter-tendency to the theoretical fall in the rate of profit. Nonetheless Piketty clearly sets down the idea that Marx neglected innovation as a reason as to why one should ignore Marx, to argue that Marx is not relevant, and to propose that one then has to find a new formula to understand the crises of capitalism itself. This is quite a dangerous proposition in some ways for those who are not acquainted with Marx, who might then read Piketty’s book and take from it that Marx is simply a 19th-century economist who is in some ways out of date.

HT: Well that’s absolutely true and fits in exactly with what I was saying. Marx actually says very clearly that capital—and he says this in the sense ‘unfortunately’— unfortunately, the only way forward for humanity has been to go through capitalism. That is to say, capital has provided the base for a rise in productivity such that we can go over to socialism and a situation of abundance. That model shows that Piketty has either not read Capital, or if he did read Capital, he understood nothing, because that’s a fundamental precept of Marxism. It’s fundamental not just because of the historical context, but because of the concept of capital itself— he doesn’t seem to know what it is. What Marx is saying is that capital is self-expanding value—and that’s the concept, it’s in the essence, it has to go forward, it doesn’t have a choice of not going forward, not investing, not producing surplus-value, which necessarily involves a rise in productivity. That is its nature; it can’t do anything else—but he doesn’t seem to even know that. What that would necessarily lead to, of course, is expanding amounts of surplus-value. What happens to the rate of profit is another question, which I don’t think we have to talk about, but the point is that it does drive the rising surplus-value—that is it’s a necessary result. Now of course there are contradictions within the system which Marx discusses, which include of course crises, which limit it, and the role of the working class, but that doesn’t come into Piketty’s account—it’s totally absent. If one looks at these questions from another level, it’s a question of power, but for Piketty that issue is just not there. Capital gives power in itself. Because it gives power, it necessarily means that those with power— the capitalist class—will tend to arrogate increasing sums to themselves, if they can do it. Power rests on capital itself, so necessarily that would be the tendency behind capitalist movement, and there has to be a counter-tendency, but again he doesn’t analyse that—that is to say the counter-tendency—it’s just not there, there’s no working class. That of course is the most obvious criticism of the book, that there are no classes, there’s no working class, there’s no capitalist class, there’s no power interrelation, somehow income is an atomised entity, it’s just income for individuals.

AM: Yassamine, what was your view of the book?

YM: I think there is a degree of dishonesty in choosing the title, because on the one hand Piketty claims he hasn’t read Marx’s Capital and on the other hand he attempts to dismiss Marx’s work, makes sweeping statements about Marxism, some of which Hillel just mentioned, and yet the choice of the title is a deliberate attempt at comparing his work with Marx’s Capital! However if we are dealing with the book itself, the one positive thing that one can say about it is that it destroys the idea, held over the last 30 years, that free market capitalism benefits the world, that capitalism always secures liberty and freedom. In many ways Piketty’s statistics and his commentary prove that free market capitalism, far from creating liberties and freedom, has created oligarchs. That current levels of inequality are now threatening consumption, endangering national growth and therefore the very existence of capitalism is under threat.

Having said that, he then tries to find ways of saving capitalism, he does not envisage any other form of production and in that respect he is totally against Marxist traditions, a point he emphasises whenever he can. His concerns about the problems caused by inequality, the dangers it represents for the future of capitalism, have been picked up by a number of other individuals and international organisations: the World Bank, Oxfam, by sections of the capitalist class who gathered in Davos in late January. We hear the European Central Bank calling for quantitative easing, Obama is talking of the need for higher taxation to get the economy moving and so on. Piketty’s concept, which to some extent he has picked up from the popular movements—Occupy and so forth—deals with inequality of wealth rather than capital and this determines his reformist solution instead of dealing with the principal contradictions of capital, and because he is so clear about the desire to save capitalism from itself, the book has resonated beyond the usual Keynesians, neo-Keynesians and so on, it has supporters amongst owners of major capital as well as commentators who are keen to save capital. The arguments are clear, this section of capital believes that the levels of austerity and inequality that we are facing is reducing the basic power of consumption, producing stagnation, and as a result of that capitalism is in trouble. So, if you like, I don’t disagree with the statistics, and it is very useful that he has collected this information, however the book confuses cause with result, inequality in wealth is a consequence of capitalist exploitation, a consequence of extracting surplus value. His attempt at ignoring the social relations of capital fails, but having said all this, the popularity of the book does tell us something about the controversy facing finance capital. Certainly the language of sections of the bourgeoisie, well beyond the traditional social democrat and supporters of Keynesianism has changed.

AM: Thanks. Peter, would you like to add anything to that?

PK: The book was popular for political and economic reasons. Economically, the book spelt out—although it couldn’t properly account for—something that we agree with, which is that capital can generate so much capital—without going into whether this capital is based on surplus-value or not—that it can easily outstrip the value of economic growth in the real economy, and it can keep growing, even though the economy itself is slowing down. I think that ties in with Marxist arguments that capital has a logic of growth increasingly disconnected from the economy, and Piketty really nails that to the mast, even if he doesn’t distinguish between surplus value creating capital. So on the one hand, as Hillel was saying, Piketty underlines the growing income inequality and so how capital outstrips income to labour at an accelerating rate and, on the other hand, shows capital can grow far faster and more rapidly than the economy, dwarfing the economy in value terms. I think that feeds into debates on the left about capitalism and the crisis of capitalism—so that’s one thing, as to why Piketty’s book is popular. Also, it undermines, as Yassamine was saying, the kind of neoliberal free market ideology about how capitalism can generate wealth which can be passed down, it drives a coach and horses through that ideology. The other interesting thing which his book reveals but does not develop is that apart from a period, which Piketty would identify as between 1910 and 1917, apart from that period, the inherent tendency for capitalism is towards rapid polarisation of wealth, so that capital very quickly generates intense polarisation if not seriously restrained. That brings us to the role of Stalinism and social-democracy in this period and the defeat of the working class that is entailed, and the two world wars which are tied into that defeat—the links between which Piketty ignores. However it is to be noted that restraints of this order and magnitude on capital are both profound and unique (against which Piketty’s own tax based solutions look idealistic).

Politically, the book feeds into a left—a non-Marxist left—which is looking for other solutions, since everyone can see there are gross inequalities in income and in wealth; it feeds into a non-Marxist left politics of reform where the state can possibly get involved again, regardless of whether or not the state has the ability to do that. It feeds into the idea that the state has got to regulate capitalism in a new way to that of neoliberalism and this opens up possibilities on the left. It’s therefore not really about the way that the state hasn’t intervened in the recent past (some argue neoliberalism is the withdrawal of the state, which is clearly not the case)—it’s a particular neoliberal intervention that’s coming to an end, and the reason why it has to come to an end, which is what this book drives home, is that if it doesn’t, you’re going to get unrest throughout the globe. So, from a non-Marxist point of view, that is reason enough for the state to become involved (according to their version of state intervention, which Piketty outlines)—whether it can or not, is another matter.

AM: Thanks, I wonder if we could now go into the content of the book in a bit more detail, into whether its own arguments bear the burden of the analysis that it has conducted—in other words, whether the content itself is sound, or if there are some fundamental mistakes. We have already touched upon the absence of any kind of class context in the book, which is already of course a major problem from a Marxist perspective. The central formula which Piketty presents, which is based upon an analysis of statistics but also, curiously, upon 19th century authors like Jane Austen, is the argument that land, that inherited wealth, that investment, will acquire a greater share of the economy than production capital, that r > g. The argument therefore is that the structure of capital is important, and that that explains the course of events. Is that something that people around this table would agree with?

HT: Clearly, one has to make a distinction between capital, in the popular sense, as investment, and capital as consumption—a house or land acquired in order to exist—which Piketty doesn’t, and it’s somewhat absurd to put them together which is what he does, and what Peter’s pointed out in his piece in Critique.3 The basic problem is that he then goes on from there to try to understand why you have this degree of inequality, and how it changed. Weirdly, there is no discussion of the working class in action, none whatsoever. One would have thought they were entirely passive given the way that he actually writes it, and the kind of reasons he does give—he refers for example to the Russian Revolution, rather oddly. I think it is correct to point to the Russian Revolution as a reason why the ruling class was itself forced to concede in some countries at particular times—but he doesn’t explain it, and one would have to explain it at several levels, and he doesn’t—so it’s an odd reference. He is basically ambiguous, as that school is—Krugman, Stiglitz, Skidelsky and so forth—they’re ambiguous, and you can’t actually pin them down. They clearly are reformist, but they are also something more than that. In what Piketty has written it is quite clear that he must at least have had conversations about what socialism is, or the nature of future communist society. He refers to it—he doesn’t go into great detail, but there’s a page in which he clearly refers to it—which is odd, because it doesn’t sit with the rest of the book, he isn’t demanding socialism or communism. So he’s standing between ideas. If we look for the reasons for change in the different groups of society, in their incomes, he just doesn’t refer to the building up of the unions, the Keynesian compromise, the military Keynesianism after the war—which obviously was the reason for the era of reduction in income inequality from the Great Depression down to 1970. It’s so obvious you wonder why he’s got a blank on it, but he does. He doesn’t refer to the rise of finance capital as the basic reason for the extension of inequality—and again it’s very odd. He does refer on the other hand to the switch in capitalism to managers, to increasing managerial control, which was discussed in the 1930s, and he obviously knows about this discussion, but he doesn’t go into sufficient detail about it, what its meaning is. So part of rising inequality amounts to an enfranchisement of managers who now have sufficient income to put them at the centre of the capitalist class, which wasn’t the case before. This group, in countries like the United States, now have incomes—income, not capital—of hundreds of millions; one individual had an income of $2 billion, at one point. Well obviously if you’re getting an income of $2 billion a year you’re at the top of the capitalist class!

AM: Yassamine, what did you make of this famous formula r > g which has become kind of a mantra of the book, produced in a variety of other contexts, and which has become the main thing that people take away from it?

YM: In my opinion, despite the volume of valuable data and interesting observations about history and contemporary world, the book presents an over-simplification of the current situation. First of all, from statistics Piketty derives the formula, but it’s always dangerous to, if you like, to build grand theories just on the basis of statistics. If you compare it with for example Marx’s scientific method of how capital produces money, of how capitalist money invested in commodities, means of production and raw materials produce new commodities, selling in the market and creating more money for the capitalist, i.e how the cycle of production—commodity—money M-C- P, C1, M1 runs, that method is far more scientific than looking at a trend and summarising the statistical trend by a formula. The formula has another problem, in that its emphasis is on the wealth of individuals, whether they are capitalists or have become wealthy or have inherited it, and in fact there is quite a lot in the book about this fear that money will not move from one family to another, that it will be inherited. We are told that in some ways money accumulates more money, without explaining how the process of accumulation has made all this possible. Failing to explain the process of money accumulation is indeed something that Marx called vulgar economics. It is not as simple as that. The grotesque amount of wealth accumulated by the 1 per cent, what he talks about, is only one issue amongst many in a much bigger scenario.

Because he confuses wealth and capital, he has not dealt with the capital of major companies, and he has no idea—nobody has any idea in fact—of the wealth, mostly from major companies, financial institutions, banks, insurance companies, hedge funds but also from individuals, in tax havens. We don’t know how major insurance companies are using or recycling their own capital, how banks are doing this. So this concept is reliant on figures that look quite interesting, because they support his definition of what is wrong with the 21st-century economy. He wants to prove we are returning to the economy of the 19th century, but apart from the way he has interpreted r and g, there is a more complicated economic picture and it is precisely for that reason that the solutions he proposes, i.e. the solutions taken up by Keynesian economics in the mid 20th century are not going to work. Looking back at the crucial world events he mentions in the 20th century to the changes in capital, the way the two world wars changed class mobility and so on, again, he is looking at results, at consequences, it is a bit like his wealth and capital relation, he is only looking at the consequences. The two world wars were a direct consequence of inter-imperialist competition, but for Piketty their significance is in the fact that they changed the way wealth was passed from one generation to another, if you like, inherited capital lost some of its power. However the 30 glorious years were a result of those wars as well as a number of historic events, the Bolshevik revolution of 1917, the fact that the European working class, having fought two world wars, refused to accept pre-war conditions in the aftermath of the Second World War, that a return to the 19th century or the early part of the 20th century was practically impossible, something absent from this book. There is nothing about the boom and slump cycles that have dominated contemporary capitalism’s path, the crisis of 2008 gets a mention but we are not told the reasons why this particular crisis took such dimensions, of course the book is in some ways an explanation of the continued economic stagnation, however it does not deal with underconsumption caused by capitalism’s constant efforts to bring down wages to such an extent that the producers of commodities cannot buy the goods in the market

I think the supporters of the law of the ‘falling rate of profit’ school are possibly even more annoyed with Piketty’s arguments than the editorial board of Critique, because he has made a very crude representation of what he considers to be the law governing the relationship between r and g. The formula nonetheless suits a particular political agenda right now, and that is why it is getting the kind of publicity that it’s getting. It is very hard to defend it beyond that.

AM: Thanks. One of the things that struck me about the formula, and it is built into his argument as well quite explicitly at several points, is that it embodies in essence a kind of vulgar empiricism, that he makes a great deal of the fact that this book is empirically founded, and that he and his helpers have worked through all the property statistics and taxation records, but he’s only done it for France, a little bit for Germany, for Britain and for the United States, because those are where figures are available. Another aspect of this approach is that therefore there’s a whole story missing here, in terms of colonies in the 19th century and the so-called ‘Third World’ in the 20th, which he can’t incorporate in his formula, and can’t deal with, because he doesn’t have archives of data in the way that you have data on land taxes and income for Britain for example—so he simply doesn’t deal with it. He notes near the end of his book that the process of continuing underdevelopment in much of the Third World was due to Western prescriptions in the 1970s and 1980s, that enforced trade liberalisation, in particular, cut national revenues in many states without strong and reliable tax-gathering institutions being in place to substitute the lost income.4 However he seems blind to the structural necessity of such inequality within capital itself; in this sense he is a true equilibrium theorist.

PK: There’s a lot to talk about, but it struck me that on the point of r rising faster than g, Piketty doesn’t distinguish between productive capital, and capital which is created by capital (non-productive), and so given that he doesn’t, it looks like capital is accumulating, even when the economy’s not growing. You’ve got to take account of floating capital in distinction to surplus value, and clearly if you don’t, then the economy is dwarfed by the scale of speculative, non-productive, capital. Even when it’s growing as fast as it can, the economy is still dwarfed by that. But Piketty doesn’t see things that way; he just perceives that as the rude state of health of capital, as it absorbs more income relative to the rest of the population—and population is the right word in the case of Piketty, because as Hillel pointed out, and Yassamine too, there’s no mention of the working class. The whole idea of extended accumulation of capital is something that links in to what Marx and Marxists are saying, but it kind of fetishises it, obscures it so it can be used as a political tool by non-Marxists. By fetishising it and not pointing to the productive origins of capital accumulation, you are avoiding looking at exploitation and alienation, which are at the heart of capitalism. If you don’t point to that, whilst you do point to the gross inequalities in income, then you’re already establishing a political agenda which is other than getting rid of capitalism, and very much about working within capitalism itself. The reason for working within capitalism is that once you obscure capitalist production relations, there’s no vantage point from which to base a future beyond capitalism. The whole book therefore is in a way—although this might not be Piketty’s intention—700 pages of obfuscation, of fetishisation—because he is willing to select some causal mechanisms, history and the world wars, as a kind of driving factor in the changing structure of capital, but he is not willing to bring in where the inner political and economic driving forces really lie, whether this is because he doesn’t know it, or not—although you would have to have lived in a monastery for the last 50 years not to know there are alternative political economic theories of capitalism. As Alex mentioned, although he does lay emphasis on empiricism, there are gaps in the evidence on which his theory rests—there are gaps in regard to the US data for example—so he speculates and flouts his own empiricism. He also doesn’t focus on the global level of inequality—a menial thing from my point of view in the context of other limitations (namely decline of the capitalist system), but important from a non- Marxist policy point of view, in which the standpoint is one of inexorable rises in inequality of income and wealth as a basis for the urgency to reform capitalism. As you say, he doesn’t look at it, claiming there is no evidence. But there’s lots of evidence on global inequality.

I also think this occasion should be used to extrapolate from Piketty’s work—to look at why Piketty’s ideas are popular and to what degree they grind against reality.

AM: Obviously Piketty began as an advisor to Segolene Royale and has been influential in French academic circles in looking at the global economy, but his work has also been taken up or referenced by other prominent bourgeois economic thinkers—Larry Summers, Joseph Stiglitz, Paul Krugman. What purpose is Piketty’s work serving in this wider sense? Is this a book that the bourgeoisie have been looking for, and if so why?

HT: First, can I just endorse what’s been said about global inequality—obviously if you wanted to look at inequality, you should start from a global context, particularly after 1870 with imperialism. How you can leave out imperialism in this context is difficult to understand. The income coming into the United States, Britain and France in that period as a result of imperialism completely altered the nature of capitalism in that period, as is well known. At the present time, the end of colonialism allowed the growth of a new indigenous ruling class in the different ex-colonies like India, while the situation remained one of overwhelming poverty. There was an internal growth of inequality in these countries, with an export of capital to the USA and Europe. This produces a mirage as if there is a decline in global inequality between countries, whereas the situation of the majority in the Third World remains dire in relation to their own ruling class, and of course that of the developed countries.

Now to your question—I think it’s reasonably clear that there’s a division within the bourgeoisie at the present time as to how one should act within capital. We’re at a stage in the overall crisis where there is a lack of investment by the bourgeoisie—where capital is investing at a static level, what has been referred to as secular stagnation, most particularly by Summers, which was brought up as everyone knows by Alvin Hanson and adopted as a Keynesian viewpoint. To me it’s just another expression of the fact that we’re living through a depression. Capital is simply converting itself into money rather than capital, simply storing itself. By being money, it is no longer capital—it may be income, or it may not even be income—but that’s the real situation at the moment. The bourgeoisie is therefore faced with two problems. The one is that there is obviously going to be an increasing degree of discontent—it’s now become more obvious in this peculiar way, with the situation in Greece and now in Spain. So they have to find another way. I don’t think they have another way, and that’s the role that Piketty is performing. One can’t say that he is providing another way, he isn’t really, just to talk about progressive taxation is hardly an eye-opener—but that’s all he’s saying. I don’t think there actually is another way in these circumstances, because what Piketty doesn’t describe is the basic nature of capitalism, how it actually functions, why we’re getting these flows. He makes it clear that he supports the market.

Capital does need the controls that the Russian Revolution exposed, that socialism and Marx exposed all along—it does need the reserve army of labour, mass unemployment, it does need the incentive in effect, that workers have to sell their labour power, and it does need a misunderstanding of the nature of capitalism—it does require an ideology. The ideology it has been using in the most recent period— the whole idea of ‘trickle-down’ economics from the rich to the poor, which is what was proclaimed in the Reagan period, for example—is unbelievable nonsense. They insist on the rarity of good entrepreneurs—they insist on the small man inventing things as the driver of the economy. Well of course the small man invents little, the invention, if it occurs, happens in universities or in state-sponsored research—but that’s the ideology, together with the concept of the bracing and important, indeed crucial, necessity of competition.

Nonetheless that is capitalism’s ideology—the importance of competition—and its reward system. That includes the excessive rewards given to executives. Piketty’s book is fitting into an argument which is now saying the ideology is no longer working. It never worked in the current era, it turned out to be unbelievable nonsense, most people won’t believe in trickle-down economics because it isn’t trickling down.

AM: Peter, did you want to extrapolate on that point?

PK: The present context of capitalism is important for understanding Piketty’s book and its popularity. On the one hand, the working class has been made to pay in the form of wage reductions, benefit reductions, work intensity and so on. On the other hand the market capitalisation of the top 100 global companies has risen roughly 90% since 2008—from $8 trillion to $15 trillion5, signifying the latest bubble is centred on the global stock markets. Moreover, the top 2000 companies are sitting on $147 trillion of assets, and are refusing to invest in the global economy,6 while the rate of reinvestment of profits aimed at increasing surplus value has fallen relative to dividend payouts and share buybacks, in both the United States and UK, since the end of the 1970s.7 Trying to overcome the failure to invest is the reason why books like Piketty’s are so popular, especially so as the pressure is building up at both ends—the capitalist elite are refusing to invest, and attacking the working class as well. There are a number of reasons offered as to why it has become so difficult to invest—one reason points to the amount of debt those companies are sitting on— they’re servicing the debt, and find it easier to borrow at very low interest rates, while retaining assets for speculative investments and holding them in more lucrative offshore accounts. Another argument is that there is a concern about a falling rate of profit—but the profit rate is still positive. Therefore an argument forms that investing in the real economy may bring a return, but returns will be higher and less risky by investing in financial speculation and the stock markets. Thirdly, related to the latter, new technologies themselves require a sea change to get beyond the situation we’re in today—one can’t simply produce more cars, what is needed is digitalisation of the economy, the confidence to invest in molecular genetics, nanotechnology and quantum computerisation, etc. All require long-term investments, which capital is unwilling to make.

AM: Yassamine, do you want to come in on that?

YM: Some of his remarks have been taken up by other sections of the bourgeoisie, because they reinforce this idea that a period in history, the era of neoliberalism is finished, and that although we are in a terrible situation vis-a-vis capitalism, no-one can do anything but repair the existing system. Piketty has this comment that moderate growth based upon growth in productivity and knowledge have made it possible to avoid the apocalypse predicted by Marx. In this declaration lies quite a lot of his own ignorance—here we realise that even if he read some works by Marx, he certainly didn’t pay attention to much of it, because he completely missed the references to predictions about advances in technology and their effect on productivity, thus Piketty’s claim that “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of capital”. In response to Piketty’s claims we have to make it clear first of all that when Marx makes apocalyptic predictions about capitalism, he does say it all depends on the way class struggles develop. However Piketty has taken the predictions about the future of capitalism out of context in order to defend a new vision to reform the system, to return to the glorious years of mid 20th century capitalism! Now this new vision is in the first place a very old vision, and it has failed, it has failed precisely because capitalism cannot accept the demands of the modern wage earner, because capitalism relies on greed. Thirty years ago, capitalists made a conscious decision to prevent the kind of progressive taxation that Piketty is now promoting; it was a conscious decision to reduce and starve the organisations of the working class; it was a conscious decision to move manufacturing to parts of the world where low wages and absence of workers’ rights went hand in hand. Piketty presents his work as having found the flaws in Marx, or the lack of correct predictions, but of course the main problem here is the absent factor in his own work, the absent factor being that capitalism over the latter part of the 19th century and 20th century has survived because of imperialism, because of unprecedented exploitation of the working class in the Third World, because of the failure of the Russian Revolution and indeed because of the shortcomings of social democracy in the mid 20th century. In that way, the book is very much a Euro-centric book; it doesn’t even consider that capital exists beyond Europe and North America.

AM: One could argue based on the context of the book that what has been exposed are two fundamental schools of thought within the bourgeoisie as to how to respond to the crisis. Obviously the bourgeoisie would also like these two schools of thought to be reconcilable and complementary, although in fact they are not. One school—the ‘neo-Keynesian’ school—led by Stiglitz, by Krugman, with Piketty as a chorus—would like to see progressive taxation, reflation and greater demand management by the state, in order to stimulate the economy and restart a cycle of more robust international accumulation. The second school however appears to long for a genuine return to the perceived lessons of the early 19th century—that the solution to the crisis lies in investing in technological innovation, such as information technology, biotechnology or high-speed transport, but also in increasing job insecurity, muzzling trade unions, reducing wage inflation, and also in the increasing alienation of labour, and an increasing relative intensity of exploitation in the workplace. Though the current UK Chancellor of the Exchequer allegedly aims to return British state spending to a level last seen in the 1930s, leading ideologues within the Liberal Democrats like David Laws explicitly cite the 19th century as the true era to return to.8 In fact this second school of thought rests upon a liberal myth—that Britain in particular was a fiscally lean state in the past, with dependable, impartial institutions, whereas in fact, as Sven Beckert has recently underlined, imperialism and ‘war capitalism’ were central; Britain was ‘an imperial nation characterised by enormous military expenditures, a near constant state of war, a powerful and interventionist bureaucracy, high taxes, skyrocketing government debt, and protectionist tariffs—and it was certainly not democratic’.9 Nonetheless the liberal myth of early capitalist accumulation remains, and the debate within the bourgeoisie remains accordingly defined by a confined dance between the guidance offered by Hayek and Keynes. Not only is this an extraordinarily impoverished intellectual debate, but it also perhaps helps explain the incredible reception that Piketty’s work has received, since whilst appearing to be radical with his emphasis on inequality, in fact he remains very firmly within the parameters of what is acceptable orthodoxy today. In this sense a work like Wolfgang Streeck’s book for example is actually more radical, since he points to the geopolitical context of capitalist accumulation, as well as its simple structural transformation, but also goes on to point out how even major institutions like the European Union are now largely designed to serve capital and market sentiment, rather than the social needs of the populations they ostensibly represent.10

HT: I agree with what’s being said. To take up from where Peter left off: the crisis itself took the particular form of a banking crisis, but that wasn’t the cause of the crisis itself. To understand the problem of why capitalists are not investing, one has to go back in time, and in fact before the downturn they were already not investing. Clearly, if the capitalist class switch from industrial capital to finance capital, and control rests with finance capital, you get the kind of thing that’s being referred to. Though decisions were being made, they were being made because they had to be made in the context of finance capital. If you’re going to have a short-term perspective, which is a necessary feature of finance capital, you are going to take a short-term review of your present investment, which would then lead, as at the present time—but this wasn’t just true from 2007 onwards—that, unless you get a sufficiently high return in a relatively short period of time, you just won’t invest. Because of the nature of capital today—it’s dominated by finance capital, which has to have a high short-term return—they have a quick return, and if they don’t have it, they’re in trouble. That then leads to all these features you’ve mentioned—zero hours contracts, the export of industry to the Third World, not all industry but a lot of it— this then leads to some countries being almost hollowed out. One example of that is Italy, but to a degree it has also happened to Britain. Industry has moved to countries with a high rate of exploitation, mostly China but broadly including SE Asia. You are then going to get to a point which is where Peter began, where you have over­accumulation.

Before the crisis began, you had people pointing to the difference between the number of cars that could be produced, for example, and the number which actually were being produced. There has been both a disparity between potential output and real output, as well as between real output and sales. We’ve seen, for instance, the crisis in Chrysler, in Fiat, in General Motors, and of course before that British car production was in effect practically wiped out. This continues to be the case, and it continues to be the case not just in the production of cars.

What the bourgeoisie has done—and what in particular the Conservative Party has done to a fantastic degree—is propagate the idea that we live in a fantastic time of scarcity—the reverse of what is true. We live in effect in a time of great potential abundance, which could be realised very quickly if society were rationally run—but they’re doing their best to avoid it! From their point of view it’s therefore a major crisis—they can’t sell the goods in other words. That’s the context of this position where they won’t invest.

The other two parts which are essential to understanding is, first, their refusal, as part of their fear of the future, to use the state to invest. Obama did propose to build high-speed trains across the whole of America—and he didn’t build a single one. They obviously know what needs to be done, but they don’t want to do it. They don’t want to use the state. On the other hand, the CBI in Britain is constantly asking the government to give them help. In other words, what capital basically wants is for a proportion of risk to be taken by the state, and then they will invest—but they will not invest straightforwardly. The recent widely quoted book by Professor Mazzucato brings this out.11 Investment and innovation largely involve the state—it is not true that it involves small business. It is big business and the state which is required to invest, and big business will not invest if the state is not involved. At the same time the bourgeoisie has an ideology of the small state—completely counter to the present development of capitalism, and it simply cannot work. But that is where it is—so they won’t invest.

The final reason they won’t invest is that they have a fear of the working class. A global boom, if they invested the trillions they are sitting on, would considerably strengthen the global working class, and that would signify a return to the 1970s. The switch to finance capital was an answer to the working class action of the 1970s, so they are not going to invest for this reason alone.

PK: Working class strength is a key factor, and lying behind this factor for Marx is the idea of the organic composition of capital. Two aspects are important for me here—one is the socialisation of labour, the general social productive power of society, and the degree this moves beyond value as its measuring rod, and the other is the political threat of labour to capital. So one aspect is a political threat, latent and actual, the other is a downward pressure on the rate of profit: which is to say that in a context where the further development of capitalism generates labour-less growth, capitalism digs its own grave, economically with the downward pressure on the rate of profit, and socially with the expulsion of labour from production, and all of this has implications for control over the working class and the foundations of capital. This inter-linking context may be what is hindering investment today. As Hillel has argued on other occasions and above, finance capital came to prominence with the tearing up of the social democratic contract in the 1970s.

AM: Many thanks. In conclusion, I’d like to go back to Piketty’s own prescriptions: preserving the social state via ‘modernising’ it, a progressive income tax, intensified integration of the European Union, or ‘democracy on a European scale’,12 and a global wealth tax. Piketty concludes that:

The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral, while preserving competition and incentives for new instances of primitive accumulation.13

I think in this case, and on the base of our discussion, we can all agree that, in fact, Piketty’s proposed solutions in fact offer no solution at all, and that the problems with his proposed solutions are critically linked with the fundamentally flawed bases of his entire argument.


  1. See for instance the interview with him, conducted by Owen Jones in The Guardian, London, 22 December 2014, (accessed 16 February 2015).
  2. Renewal, A Journal of Social Democracy, Interview: Inequality and What to Do About It’, Thomas Piketty, Martin O’Neill and Nick Pearce,
  3. Review in issue 72.
  4. Thomas Piketty, Capital in the Twenty-First Century (London: Harvard, 2014), p. 492.
  5. Price Waterhouse Coopers. ‘Global Top 100 Companies by market capitalisation’, 31 March 2014,
  6. Forbes, ‘The World’s Biggest Companies’,
  7. W. Lazonick, ‘Profits Without Prosperity. Stock Buybacks Manipulate the Market and Leave Most Americans Worse off, Harvard Business Review, September 2014,
  9. Seven Beckert, Empire of Cotton. A New History of Global Capitalism (London: Penguin, 2014), p. xv.
  10. Wolfgang Streeck, Buying Time. The Delayed Crisis of Democratic Capitalism (London: Verso, 2014).
  11. Mariana Mazzucato, The Entrepreneurial State:Debunking Public vs. Private Sector Myths (Anthem Other Canon Economics) (London: Anthem Press, 2013).
  12. Piketty, op. cit., p. 573.
  13. Ibid., p. 572.

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