Tag Archives: capitalism

Thinking about capital

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It’s clear that I’m one of the slowest readers of Thomas Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century [/amazon_link]around – only a bit over half way through, when other reviews are pouring out. Most are adulatory; Paul Krugman’s in the New York Review of Books the latest (Why We’re In a New Gilded Age). The problem is the size of the book – I do most of my reading while travelling, and just can’t read long e-books, as nothing sticks.

Anyway, the process got me ferreting about in my old books looking for earlier work on wealth and inheritance, so this morning I was browsing through J.A.Hobson’s [amazon_link id=”1440087180″ target=”_blank” ]The Science of Wealth[/amazon_link] (1911) and Josiah Wedgwood’s [amazon_link id=”1245803719″ target=”_blank” ]The Economics of Inheritance[/amazon_link] (1929).

Here is Hobson on ‘unproductive surplus’:

“The plain facts of modern business show that capital like land can get a share of unproductive surplus. But while land takes its surplus by natural scarcity, capital takes its surplus by making itself scare ie. by artificially restricting the flow of free capital into certain channels of employment. These restrictions, whether maintained by securing advantages of of raw materials, power or situation, by tariffs or other State aid, by trade agreements or combinations, all signify checks upon the free entry of capital into a trade which is thus enabled to secure a scarcity rate of interest for a limited supply.”

He immediately identifies the banking industry as a key locus of unproductive surplus. No change there, then.

Wedgwood has a fascinating chapter on inheritance in which he uses probate records to trace the extent to which large fortunes are passed down the generations. The chapter sets out to test the assertion that most fortunes are self-made and quickly dissipated; “from clogs to clogs in three generations,” in the northern saying. The exercise reported in the book does not support this and in fact is entirely consistent with the results of another truly important recent book, Greg Clark’s [amazon_link id=”0691162549″ target=”_blank” ]The Son Also Rises[/amazon_link]. Wedgwood writes:

“The fortunes of the different branches were largely pre-determined by the economic position of the family at least five generations back and in to some extent by that of ancestors nine generations back.”

What Clark’s book establishes is that ‘patrimonial capitalism’ (in Piketty’s terminology) never really went away even in seemingly egalitarian societies like Scandinavia – around the world and over many different periods, advantage is passed on down the generations, and social mobility has never been all that great.

With hindsight, ignoring wealth and inheritance for a generation or two looks like another of the blind spots of 20th century economics. Even without finishing [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link] (and I have some reservations about it), it is clear that Piketty, and his colleagues Emmanuel Saez and Tony Atkinson, have done us a great service in their careful collection of income and wealth inequality data. This VoxEUexplainer of the database is a good place to start.

[amazon_image id=”067443000X” link=”true” target=”_blank” size=”medium” ]Capital in the Twenty-First Century[/amazon_image]  [amazon_image id=”1245803719″ link=”true” target=”_blank” size=”medium” ]The Economics Of Inheritance[/amazon_image]  [amazon_image id=”1440087180″ link=”true” target=”_blank” size=”medium” ]The Science of Wealth (Classic Reprint)[/amazon_image]  [amazon_image id=”0691162549″ link=”true” target=”_blank” size=”medium” ]The Son Also Rises: Surnames and the History of Social Mobility (The Princeton Economic History of the Western World)[/amazon_image]

A footnote: Hobson’s book has a wise note about the role of economics, concerning whether or not its conception of prosperity is too narrow, when what really matters is love, joy, meaning etc: “John Ruskin and some other prophets of this wider wealth have denied the validity and the utility of the narrower Political Economy.  … Other students of society have also questioned the validity of separating the study of economic processes from that of other social processes and making of them a ‘science’ of industry. This criticism, in so far as it has a point, is applicable to all scientific specialism. The whole world of phenomena is a unity of intimately connected parts, and every breaking off of any section for separate study is of necessity an act of mutilation. But such separate studies are essential to intellectual progress, and the mutilation is not fatal to their use, provided the subject of special study is not treated as a completely rounded whole.” It’s healthy for economists to engage in interdisciplinary work as a reminder of this point. There are still too many of my fellow economists who’re dismissive of other social sciences.

Capital in the 19th century

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During the mid-late 1970s era of high inflation, I was a teenager growing up in a household with two parents who worked, but not in jobs with unions that could deliver inflation-beating wage increases, and whose small savings were held in a building society account. Rising food and energy prices made things tough. Marked as we all our by personal experience, I’ve ever since believed inflation to be harmful for people on relatively low incomes, tending to mean declining real earnings and negative returns on savings.

The early section of Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link] has given me pause for thought. He contrasts the Victorian and Edwardian era of stable prices and rentier wealth (in the form of land and then government bonds) with the post-1920s era of declining importance in inherited wealth. He writes:

“Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception, yet it always tends to transform itself into rents as it accumulates in large enough amounts.” (p115-116)

The point of accumulation is to build up enough to stop working, whether at the scale of a character in an Austen or [amazon_link id=”0140440178″ target=”_blank” ]Balzac novel[/amazon_link], or at the scale of a colonial power like France or Britain.

What changed with the onset of the violent 20th century was inflation. In the 19th century, when governments built up war debts, rentier classes bought the government bonds and could live securely on the repayments. “In the 20th century, a totally different view of public debt emerged, based on the conviction that debt could serve as an instrument of policy aimed at raising public spending and redistributing wealth for the benefit of the least well-off members of society. The difference between these two views is fairly simple: in the 19th century, lenders were handsomely reimbursed, thereby increasing private wealth; in the 20th century, debt was drowned by inflation and repaid with money of decreasing value.” (p132)

France inflated far more dramatically than the UK in the period 1913-1950, and French public debt dropped from 80% to 30% of national income over that period. The UK had a colossal 200% of GDP debt in 1950, but made up for it with inflation in the 1950s and especially the 1970s. In both cases, though, inflation was the means of expropriating the rentier classes and, Piketty argues, one of the key reasons the 20th century bucked the tendency of capitalism to create and enhance entrenched wealth inequality. So this is obviously a different perspective on inflation from my teenage perception.

I was chatting about this to Professor Dieter Helm, who chairs the UK’s Natural Capital Committee and is writing a book about valuing natural capital (which will be a must-read when it’s out). He pointed out that the shift towards an inflationary regime coincided with a generational rebellion against the Victorian emphasis on thrift and investment for the future, in favour of consumption and the present. In Britain, the Bloomsbury Group – including Keynes – exemplified this; see for example Michael Holroyd’s tome on [amazon_link id=”0099332914″ target=”_blank” ]Lytton Strachey[/amazon_link].

[amazon_image id=”1845951832″ link=”true” target=”_blank” size=”medium” ]Lytton Strachey: The New Biography[/amazon_image]

This all makes one wonder about the next few decades – I’d bet on a return to inflation and expropriation of the bond-holding classes (pensioners?), even though the pressing concern is deflation. But this is a bet, not a forecast. Besides, the future the Victorians built is the one we’re still living off, the infrastructure and institutions. Anybody who cares about sustainability (in its broadest sense) must surely be thinking in terms of tilting the balance away from consumption and towards investment. Towards capital, in fact, which makes its distribution all the more important.

What role for reason?

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There’s an interesting review by Molly Worthen of a new book by George Marsden, [amazon_link id=”B00IHGVPG2″ target=”_blank” ]The Twilight of the American Enlightenment: The 1950s and the Crisis of Liberal Belief[/amazon_link]. I suspect the review is more interesting than its subject – at least, I’m not really tempted to read a book aiming to persuade me that faith-based arguments ought to have the same status in public policy debate as reason-based arguments.

I’m more interested in the Walter Lippmann book mentioned in Prof Worthen’s review, [amazon_link id=”B00E3255JW” target=”_blank” ]Essays in the Public Philosophy[/amazon_link], having read his [amazon_link id=”1440047510″ target=”_blank” ]Liberty and the News[/amazon_link] relatively recently. It sounds like it prefigures Daniel Bell’s [amazon_link id=”B00BR5IEZ0″ target=”_blank” ]Cultural Contradictions of Capitalism[/amazon_link]. Does the individualist, market system undermine the social norms and values that make it work? How does the application of reason to public policy questions sit with the role of emotion and belief in our modern democracies? And – a new question as we learn more and more from cognitive science – are we kidding ourselves about the role of reason anyway?

[amazon_image id=”B00IHGVPG2″ link=”true” target=”_blank” size=”medium” ]The Twilight of the American Enlightenment: The 1950s and the Crisis of Liberal Belief[/amazon_image]

[amazon_image id=”B00BR5IEZ0″ link=”true” target=”_blank” size=”medium” ]The Cultural Contradictions Of Capitalism: 20th Anniversary Edition by Bell, Daniel Anniversary Edition [Paperback(1996)][/amazon_image]

In related reading, Richard Marshall of 3AM Magazine has an interview with philosopher Jeremy Sheamur about Popper and Hayek. I was intrigued by the suggestion that Hayek thought of markets as institutions, albeit organic rather than designed – very far from the received wisdom of markets as a free-for-all, a view of course often attributed to Hayek.

The book of the interviews, [amazon_link id=”0199969531″ target=”_blank” ]Philosophy at 3am[/amazon_link], is due out soon. One to look forward to.

[amazon_image id=”0199969531″ link=”true” target=”_blank” size=”medium” ]Philosophy at 3:AM: Questions and Answers with 25 Top Philosophers[/amazon_image]

21st century capitalism – discontents but no defenders

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Thomas Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link] is all over the blogs and magazines in the US but Amazon UK is tantalising me by sending successive emails saying the shipping date over here has been delayed. It now won’t reach Enlightenment Towers until mid-April.

[amazon_image id=”067443000X” link=”true” target=”_blank” size=”medium” ]Capital in the Twenty-First Century[/amazon_image]

Meanwhile, there are other serious attacks on 21st century capitalism to divert the reader so inclined. I see that David Harvey’s [amazon_link id=”B00IOLFGBK” target=”_blank” ]Seventeen Contradictions and the End of Capitalism[/amazon_link] is available now. I just read George Packer’s [amazon_link id=”0571251293″ target=”_blank” ]The Unwinding[/amazon_link], an epic account of the devastation of the American working class. And I’ve started Greg Clark’s [amazon_link id=”0691162549″ target=”_blank” ]The Son Also Rises[/amazon_link], whose introduction got the hairs on the back of my neck to rise because of its radical implications for how we think about social mobility – we’ll see if the rest of the book delivers on that promise.

[amazon_image id=”B00IOLFGBK” link=”true” target=”_blank” size=”medium” ]Seventeen Contradictions and the End of Capitalism[/amazon_image]   [amazon_image id=”0571251293″ link=”true” target=”_blank” size=”medium” ]The Unwinding: Thirty Years of American Decline[/amazon_image]   [amazon_image id=”0691162549″ link=”true” target=”_blank” size=”medium” ]The Son Also Rises: Surnames and the History of Social Mobility (The Princeton Economic History of the Western World)[/amazon_image]

All of which raises the question – who, if anybody, is writing convincingly and interestingly in defence of 21st century capitalism? At the moment I can’t bring any books that would serve this purpose to mind, even in the technology literature where you’d most expect to find them. There are of course some optimists, like Charles Kenny in [amazon_link id=”0465064736″ target=”_blank” ]The Upside of Down[/amazon_link], but that’s not quite the same thing as a rousing defence of the system. Any nominations?

Can the Unwinding be unwound?

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George Packer’s [amazon_link id=”B00C4GT040″ target=”_blank” ]The Unwinding: thirty years of American decline[/amazon_link] is out in paperback so I’ve caught up with it at last on my travels this week. It’s an absolutely wonderful book, evoking that widespread sense – everywhere in fact, not just in the US – that the system has gone awry, things are misaligned, and no individual can do anything about it.

[amazon_image id=”B00C4GT040″ link=”true” target=”_blank” size=”medium” ]The Unwinding[/amazon_image]

The book traces the 30 years through a braid of several individuals’ stories, recounting their ups and downs through the Clinton years, the Bush years and into the Obama years. Some of the characters are well-known – Newt Gingrich features, as does Peter Thiel. The main threads, though, are unknowns whose stories encapsulate important parts of the nation’s story during its ‘unwinding’ – the unwinding of “the coil that held America together in its secure and sometimes stifling grip.”

Although this is not a technocratic analysis, Packer has an ability to drop in sentences that crisply capture a sharp point. The views of a new (and I turned out, one term) Democratic congressman, Tom Perriello, are summed up thus: “the elites in America didn’t have answers for the problems of the working and middle class any more. Elites thought that everyone needed to become a computer programmer or a financial engineer, that there would be no jobs between eight dollars an hour and six figures. Perriello believed that the new ideas for making things in America again would come from unknown people in obscure places.”

One of his other characters, a longtime Democrat functionary who crosses over into lobbying, is enticed back to work for a senator during the Obama administration. Seeing Rubin, Summers, Geithner getting their posts, and all attempts to bring finance to heel failing, he reflects: “The establishment could fail and fail and still survive, even thrive. It was rigged to win, like a casino, and once you were on the inside you had to do something dramatic to lose your standing, like write a scathing op-ed.” A short chapter about Bob Rubin in the book is absolutely devastating.

A lot of this, we know. But this book rekindles one’s outrage by attaching people and their emotions and stories to a clear X-ray vision of the underlying economic and social changes. I thought it was a terrific read. But also depressing. Can the Unwinding be unwound? Obviously not. In optimistic moods, I’m with congressman Perriello in holding out hope for the obscure people weaving a new social fabric. It’s just not always easy to stay optimistic.