Piketty or Marx? Capital in the Twenty-first century: a fundamental criticism Part 5 (last)

Credit

Piketty does not mention the growth of credit, except in one instance, where he says,

“Broadly speaking, the 1970s and 1980s witnessed an extensive “financialization” of the global economy, which altered the structure of wealth in the sense that the total amount of financial assets and liabilities held by various sectors (households, corporations, government agencies) increased more rapidly than net wealth. In most countries, the total amount of financial assets and liabilities in the early 1970s did not exceed four to five years of national income. ... I should also point out that these international positions are in substantial part the result of fictitious financial flows associated not with the needs of the real economy but rather with tax optimization strategies and regulatory arbitrage (using screen corporations set up in countries where the tax structure and/ or regulatory environment is particularly attractive).”

Piketty associates fictitious assets with fraudulent bookkeeping, and certainly that is one reality. But he doesn't mention Ponzi schemes, futures and derivatives operations that extend forms of credit far beyond the assets existing in the real economy. Nor does he regard the expanding sovereign debts as fictitious capital or fictitious wealth, whether in the U.S. or Greece. Unless there's a robust outbreak of prosperity in the near future these ballooning debts have nowhere to go but into massive insolvency. There isn't anyone who can project a realistic program for recovery from the present crisis.

In terms of the government role in producing a recovery, Piketty discusses the role of central banks,

“Central banks are powerful because they can redistribute wealth very quickly and, in theory, as extensively as they wish. If necessary, a central bank can create as many billions as it wants in seconds and credit all that cash to the account of a company or government in need. In an emergency (such as a financial panic, war, or natural disaster), this ability to create money immediately in unlimited amounts is an invaluable attribute. ... They can redistribute wealth quickly and massively, but they can also be very wrong in their choice of targets (just as the effects of inflation on inequality can be quite perverse). Hence it is preferable to limit the size of central bank balance sheets. That is why they operate under strict mandates focused largely on maintaining the stability of the financial system.”

It is true that the central banks can redistribute wealth, but it is all done within a narrow sphere. The Federal Reserve bank interacts with the banking system to shift assets into or out of banks. As Piketty says, their activities can be misdirected, etc. But what they can't do is resolve the financial crisis at the root. They can move debts around, even forgive debts. But they can't eliminate the process of spiraling debts. They can't resolve the underlying contradiction of capitalism itself, which produces the falling profit rate. Financialization is the illusory escape from falling profits by the accelerated generation of illusory profits. Numbers on balance sheets look good, but they are not real wealth.

But what about adopting the strategy the forgiveness of debts on a wider scale to escape from the overhang of worthless assets? This is the logical extension of the measures the EU is following in relation to the Greek sovereign insolvency. In this situation we witness a powerful reluctance to forgive debts. There is a fear of contagion. Beware! Everyone will want their debts forgiven. The situation seems to recur, fade, worsen and recur. The EU renegotiates the Greek debts and extends more credit, lengthens the repayment period. This is called kicking the can down the road. Is there any limit to how far this can go? Yes, there is a limit. Europe is entangled in this limit, but it's only a matter of stretching it. It stretches and stretches until something breaks.

Tendency of the rate of profit to fall

Markets have not “always” been as they are now in the early 21st century. Capital has been the motor for the most rapid social and technological development history has witnessed. And the recent hyperexpansion of finance, in particular, has resulted in an unprecedented exaggeration of the inherent weakness of credit under capitalism: the capacity of paper assets to balloon out independently from all underlying values. Capital has “always” had the potential to arrive at the stage we are living through today, but it could not happen all at once. It took time to get here. Marx is the one who helps us understand how we got from then to now. Piketty is the one who sees no difference between then and now, because “it is always difficult to set a price on capital.

But the phrase “inequality of income from capital” seems to imply that two capitals of equal quantity produce different annual incomes. And, if we assume a regime of private ownership of industrial, commercial and financial property, and if we assume the reign of a free market in the buying and selling of commodities (which is generally modified or restricted in practice), how can there be an equality of incomes? Investments, sales, purchases and rentals are based on decisions made by private parties. So, there is bound to be considerable variation.

Marx, however, described the tendency toward the equalization profit rates among capitals with different organic compositions. The organic composition of capital is a ratio between the value of the means of production (constant and fixed capital, raw material, semifinished components and accessory materials) and labor cost (the value of the wages paid to the productive workers who actively engage with the means of production. It is unavoidable in the development of technology that the organic composition of capital will vary from one branch of production to another, some with higher composition, others with lower. Given that labor is the source of profit, then sectors with a low organic composition (high ratio of labor to means of production) would produce a higher profit rate. Given right of capitalists to switch their investments from one sector to another, the tendency would be for them to invest their money in those sectors.

We are discussing an evolutionary process in which the mass and value of the means of production constantly grows in relation to the value newly created by the workers who interact with this mass in the daily process of realizing more value and surplus value in the product of labor. As this mass increases, the new value added per day shrinks ever smaller in relation to the value of the means of production each worker operates. Thus, inevitably the ratio of the surplus value to the total advanced capital, in every cycle of production, declines. The rate of profit falls.

But what happens over generations, is that with capital investments flowing back and forth from one sector to another, price competition forces down the prices of the commodities that issue from the sectors with low organic composition and forces up the prices of commodities issuing from the sectors of higher organic composition. In the long run the process results in the equalization of profit rates across all sectors. And we must keep in mind that new sectors are developing and old sectors shriveling, so that the investment opportunities landscape continues to evolve.

Piketty turns to Marx, whose “analysis emphasizes the falling rate of profit — a historical prediction that turned out to be quite wrong, although it does contain an interesting intuition.” Actually the tendency of the rate of profit to fall is a logical, and inescapable, consequence of the evolution of the law of value. But Piketty doesn't discuss Marx's law of value, so doesn't have a way of defining what Marx was getting at with his “law of the tendency of the rate of profit to fall.” Nonetheless, later in the book (chapter 6), Piketty tries to characterize Marx's theory, saying,

“Where there is no structural growth, and the productivity and population growth rate g is zero, we run up against a logical contradiction very close to what Marx described. If the savings rate s is positive, meaning the capitalists insist on accumulating more and more capital every year in order to increase their power and perpetuate their advantages or simply because their standard of living is already so high, then the capital/ income ratio will increase indefinitely. More generally, if g is close to zero, the long-term capital/ income ratio β = s / g tends toward infinity. And if β is extremely large, then the return on capital r must get smaller and smaller and closer and closer to zero, or else capital’s share of income, α = r × β, will ultimately devour all of national income.”

Here Piketty assumes no “structural growth,” which he has defined as the sum of productivity growth and population growth. So he assumes no productivity growth, no population growth. But here he is talking about “capital” as it might exist isolated from the real world of a growing, changing system. Marx, for his part, talked about capital as a living, evolving system. Marx explained the birth throes of capital—why not explain its death throes as well? Population was growing as Marx wrote his books, and continues to grow while Piketty writes his. And productivity growth? This is the heart of capital. It is the unprecedented explosion of productivity growth that most dramatically characterizes the distinctive nature of capitalist production in marked contrast to all previous systems of social production.

Capitalist production, by reducing the total quantity of labor required for the production of commodities, has continuously cheapened the commodities sold in the marketplace, not only for the capitalist, but for the workers as well. Wave after wave of new classes of products, previously out of reach for working people, have become accessible and affordable, although this process has slowed since the onset of the crisis in the 1970s. (And of course the waning and waxing of trade union power had affected this affordability as well.) And we should keep in mind that while productivity growth brings the capitalist mode of production ever closer to its demise, at the same time it lays down the foundation for humanity to escape the dog-eat-dog misery capitalism produces and begin the building of a new society where human solidarity will reign supreme.

Piketty asserts: “if g is close to zero, the long-term capital/ income ratio β = s / g tends toward infinity.” The letter s designates the savings rate, and g denotes population growth. But Piketty has no argument since his assumptions do not take into account productivity growth, nor do they recognize the cheapening of commodities. The root of the problem is that Piketty does not recognize the labor theory of value, although (as we will note below) the Bureau of Labor Statistics of the U.S. government does recognize it (in its own way). The problem of what constitutes value is critical for any understanding of the capitalist mode of production, and that is why modern bourgeois economics has swept it under the rug, although value theory remains a topic in Economics 101.

In order to make use of value as a basis for grasping these trends in capitalist production, one must begin with the recognition that value is founded on labor time, and what determines the value of any commodity is the average time required to produce it, including the time spent making all its ingredients and components — and this will vary according to the general conditions prevailing at the given time and place. The more time that has been spent in the manufacture of an object, the greater its value, provided that the labor time corresponds to the expected and typical expenditure of labor time in the prevailing social conditions.

The tendency of the rate of profit to fall is an important consequence of the course of development of the capitalist mode of production, and one that, in its inexorable logic, demonstrates the historical limitedness of this form of society. Marx's analysis of the operation of this tendency has been openly attacked by bourgeois economists (Bohm-Bawerk for example, see Karl Marx and the Close of His System) whose unhistorical methods of analysis assume the perpetual existence of the capitalist form of production. Marx commented on the state of mind of those economists who find themselves confronted with the possibility of a long-term decline in the profit rate:

“But the main thing about their horror of the falling rate of profit is the feeling that capitalist production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; and this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production; testifies that for the production of wealth, it is not an absolute mode; moreover, that at a certain stage it rather conflicts with its further development.” (Capital, vol. 3, chap. 15)

The falling rate of profit is rooted in the increasing productivity of labor as it develops under capitalism. As Marx explained,

“. . . the level of the social productivity of labor is expressed in the relative extent of the means of production that one worker, during a given time, with the same degree of intensity of labor power, turns into products. The mass of means of production with which he functions in this way increases with the productivity of his labor. But those means of production play a double role. The increase of some is a consequence, that of others a condition, of the increasing productivity of labor. For example, the consequence of the division of labor (under manufacture) and the application of machinery is that more raw material is worked up in the same time, and therefore a greater mass of raw material and auxiliary substances enters into the labor process. That is the consequence of the increasing productivity of labor. On the other hand, the mass of machinery, beasts of burden, mineral manures, drain-pipes, etc., is a condition of the increasing productivity of labor. This is also true of the means of production concentrated in buildings, furnaces, means of transport, etc. But whether condition or consequence, the growing extent of the means of production, as compared with the labor power incorporated into them, is an expression of the growing productivity of labor. The increase of the latter appears, therefore, in the diminution of the mass of labor in proportion to the mass of means of production moved by it, or in the diminution of the subjective factor of the labor process as compared with the objective factor.” (Capital, vol. 1, chap. 25)

The tendency of the rate of profit to fall is a consequence of the long-term increase in the value of the constant part of capital (money advanced to buy equipment, raw materials, etc.) in relation to the value of the variable part (the wages paid to the workers). As Marx indicated, this changing ratio is both consequence and condition of the rising productivity of labor, which is the increasing material output produced by the workers per hour. The increase of constant capital in relation to variable capital, with results from the growth in the productivity of labor, Marx calls the increase in the organic composition of capital. The commodities produced by ever increasing levels of productive technology express ever lower quantities of living labor, so they are less valuable, cheaper, as the time passes, and the system evolves. Marx argued,

“No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus value, so long as it reduces the rate of profit. Yet every such new method of production cheapens the commodities. Hence, the capitalist sells them originally above their prices of production, or, perhaps, above their value. He pockets the difference between their costs of production and the market prices of the same commodities produced at higher costs of production. He can do this, because the average labor time required socially for the production of these latter commodities is higher than the labor time required for the new methods of production. But competition makes it general and subject to the general law. There follows a fall in the rate of profit—perhaps first in this sphere of production, and eventually it achieves a balance with the rest—which is, therefore, wholly independent of the will of the capitalist.” (Capital, vol. 3, chap. 15)

“… It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines.” (Theories of Surplus Value, vol. 3, chap. 23)

But profit only comes from the results of the labor that is actively applied in the process of production — profit does not flow from materials, tools, machinery and tools that the capitalist has purchased in order to organize the productive process. These items, necessary for production, are paid for (in the long run and on the average) at their value. Therefore constant capital is the part that merely reproduces its preexisting value in the product of labor. Variable capital, the wage, reproduces its value, but with an increment. The increment is profit. Labor creates more value than is paid for it. As Marx indicated:

“With all application of machinery (let us initially look at the case such as it arises directly, that a capitalist puts a part of his capital into machinery rather than into immediate labor) a part of the capital is taken away from its variable and self-multiplying portion, i.e. that which exchanges for living labor, so as to add it to the constant part, whose value is merely reproduced or maintained in the product. But the purpose of this is to make the remaining portion more productive.” (Grundrisse, part VII, Machinery and Profit)

Over time, and with the growth of mechanization and automation, the total product value is composed more and more of constant capital value, transferred to the product of labor. The division of the newly-added value into the portion representing what has been paid for wages and the portion appropriated by the capitalist as surplus value thus takes place within a dwindling portion of the total product value. The surplus value is contained entirely within the shrinking element, which becomes vanishingly small in relation to the ever more massive bulk of the constant capital element. This is why the profit rate falls in the long run.

But how does the falling profit rate lead to economic crises and social strife? Marx observed:

“... a fall in the rate of profit connected with accumulation necessarily calls forth a competitive struggle. ... Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities. ... If it is said that over-production is only relative, this is quite correct; but the entire capitalist mode of production is only a relative one, whose barriers are not absolute. ... The contradiction of the capitalist mode of production, however, lies precisely in its tendency towards an absolute development of the productive forces, which continually come into conflict with the specific conditions of production in which capital moves, and alone can move.”

The expansion of the productive forces strives to go beyond the limited powers of consumption of the mass of the people. On the one hand the relentless process of automation of production continues to throw masses of laborers to the side, and their means of consumption decline. On the other hand the productive apparatus adapts itself more and more to maximize the output of products per unit of time. On the one side, a cramping restriction of consumption; on the other a mass of products bursting at the seams.

The crisis of overproduction tends to grow cyclically, but is very sensitive to external interference (see Trotsky's comment above on the curve of capitalist development). Marx comments in Capital, vol. 3, chap. 30:

“The industrial cycle is of such a nature that the same circuit must periodically reproduce itself, once the first impulse has been given.[8] During a period of slack, production sinks below the level, which it had attained in the preceding cycle and for which the technical basis has now been laid. During prosperity — the middle period — it continues to develop on this basis. In the period of over-production and swindle, it strains the productive forces to the utmost, until it exceeds the capitalistic limits of the production process.”

Production runs into a barrier of realization: commodities are produced on an ever-expanding scale, but the profit margins continue to slide. We must remember that the fundamental drive of capital is self-expansion. As this possibility fades, capital itself approaches its failure. There is downward pressure on wages as capitalists seek to recapture returns on investment. There is growing unemployment as more workers become redundant. Workers fortunate enough to hold on to their jobs face worsening job conditions and lower wages as the bosses continue to keep cutting production costs. The falling profit rate produces repetitive crises, which are partly resolved by waves of bankruptcies and junking of outmoded capital equipment. Crisis are partly “resolved” by an expansion of consumer credit. These economic processes and their political counterparts have come to be known as “kicking the can down the road.”

As capitalism approaches more closely to the end of its rope, the squeeze tends to get tighter. But still there are ups and downs which go on for years or decades. The profit squeeze is strongly felt when the markets are saturated and competitive price-cutting pressures are strongest. At such times the capitalists feel the need to go to extremes to regain their previous profit levels, or just to make any profit at all. Often, it's a matter of coming up with the wherewithal to pay their debts, or to meet margin calls. Marx pointed out,

“If the rate of profit falls, there follows, on the one hand, an exertion of capital in order that the individual capitalists, through improved methods, etc., may depress the value of their individual commodity below the social average value and thereby realise an extra profit at the prevailing market-price. On the other hand, there appears swindling and a general promotion of swindling by recourse to frenzied ventures with new methods of production, new investments of capital, new adventures, all for the sake of securing a shred of extra profit which is independent of the general average and rises above it.” (Capital, vol. 3, chap. 15)

Tax the rich!

Tax the rich! In the conclusion to the book Piketty recommends a progressive capital tax on the wealthy as the best response to rising income inequality. He says (p. 665):

“Here, the important point to keep in mind is that the capital tax I am proposing is a progressive annual tax on global wealth. The largest fortunes are to be taxed more heavily, and all types of assets are to be included: real estate, financial assets, and business assets— no exceptions. This is one clear difference between my proposed capital tax and the taxes on capital that currently exist in one country or another, even though important aspects of those existing taxes should be retained. … According to the theoretical model, if the return on capital is around 5 percent a year, the equilibrium concentration of capital will not decrease significantly unless the growth rate exceeds 1.5– 2 percent or taxes on capital reduce the net return to below 3– 3.5 percent, or both.” (p. 461)

In this section Piketty is referring to a tax not on incomes but on assets, or property, to include all assets, not just real estate. The taxes on assets will not be easy to implement since governments at the present time receive most of their income from levying taxes on income (with additional sources of tax revenue from corporate taxes, real estate taxes, etc.). But, given all the “difficulties” in estimating annual incomes of the superrich, especially since the IRS has to rely on the reports sent in by the tax “experts” hired by family foundations, we can imagine how tough it would be if the IRS had to shift to a system whereby taxes would be levied on the total assets of these families. (In saying this, we admit that we are hypothesizing about some taxation system that has no real existence outside of Piketty’s extravagant dreams.) In any case, Piketty makes another recommendation with respect to the taxation of annual incomes.

Piketty continues (p. 660):

“The evidence suggests that a rate on the order of 80 percent on incomes over $500,000 or $1 million a year not only would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior.”

Then on p. 748:

“The difficulty is that this solution, the progressive tax on capital, requires a high level of international cooperation and regional political integration. It is not within the reach of the nation-states in which earlier social compromises were hammered out. Many people worry that moving toward greater cooperation and political integration within, say, the European Union only undermines existing achievements (starting with the social states that the various countries of Europe constructed in response to the shocks of the twentieth century) without constructing anything new other than a vast market predicated on ever purer and more perfect competition.”

Perhaps Piketty is thinking about the potentially damaging results of striving for global harmony among the competing capitalist regimes and winding up with an unharmonious squabblefest. At least you have to give him credit for thinking outside of the box. Way, way, outside. But as it stands now, national governments, as a rule, levy taxes on the residents within their national borders, even in the countries belonging to the EU. This is not likely to change as the widespread deepening crisis of capitalism continues to promote economic nationalism—the increase of income of one’s own country at the expense of others.

There is also the issue of tax evasion, which is something to be investigated and rectified by each national government as it sees fit (or not). Apart from accounts in the Cayman Islands, there is also the legislative process. The complexity of the tax system, patched together over many, many decades, allows for the existence of many loopholes and exemptions, effectively lowering the tax bill for the very rich while at the same time increasing the tonnage of the total tax code. Meanwhile the lower and middle-income brackets pay more.

It is not uncommon to hear about how the ultrarich evade taxes by concealing their wealth in dummy corporations in the Cayman Islands or other tax-avoidance havens. Also the amount of income and assets are often vastly underreported so as to pay a lower tax. In his classic study, The Rich and the Super-Rich, in Chapter 9, Ferdinand Lundberg provides voluminous detailed information to prove that:

“1. That the American propertied elite with the connivance of a malleable, deferential Congress deals itself very substantial continuing tax advantages at the expense of the vast majority of the population.

“2. That the national tax burden is largely shouldered, absolutely and relatively, by the politically illiterate nonmanagerial labor force rather than by big property owners or by upper-echelon corporate executives (who are often tax free).

“3. That the resultant tax structure is such that it intensifies the abject and growing poverty of some 25 to 35 per cent of the populace (about whom latter-day pubpols theatrically wring their hands), and grossly cheats more than 95 per cent in all.

“For down through history the dominant classes, groups, factions, clans, interests or political elites have always been scrupulously prudent in avoiding taxes at the expense of the lower orders. The aristocracy of France before the French Revolution, for example, gave itself virtually total tax exemption. The burden of supporting a profligate royal court with its thousands of noble pensioners was therefore laid upon commoners, thus supplying not a little fuel for the onrushing tidal wave of blood. ... It would be foolish to contend that there is a propertied elite in the United States and then not be able to show that this elite accords itself fantastic tax privileges down to and including total exemption. And, true enough, the large-propertied elements in the United States see to it that they are very lightly taxed—many with $5 million or more of steady income often paying no tax at all for many years while a man with a miserable $2,000 income, perhaps after years of no income, denies his family medical or dental care in order to pay tax!”

What Piketty fails to notice throughout his book is that the wealthy are not simply richer than other people, but are a class that rules, a class that dominates the political life of each capitalist country. Piketty, like other bourgeois economists, offers advice to the powers that be, corporate or governmental. But this sort of advice, coming as it does from academia, might or might not feed into the streams of opinion and pressure that form the political environment in which governmental decisions are made. Occasionally the proposals of economists might be relevant to the policy-making process, but generally proposals that strike fear into the hearts of the superrich quickly wind up in someone’s wastebasket. There’s one thing we can be sure of, regarding Piketty’s tax proposals. He can be confident he will remain a prize-winning economist, with all the honors he so richly deserves, even if his tax proposals are never mentioned in the circles of the policy-makers.

However, when the crisis of capitalism grows to point that the masters of the universe begin to feel the relentless pressure of the masses seething in discontent, they begin to feel the temptation to give some concessions that might alleviate the misery of these masses. A new fear rises in their hearts, the fear of losing everything in the chaos of a crisis they don’t understand and can’t control. This fear opens up space for reconsidering the possibility of a higher income tax on the upper brackets, higher corporate taxes, value added taxes, or individual taxes on capital gains, inheritance, etc.

In the present (autumn, 2019), there are voices in U.S. political life that strongly advocate tax-the-rich policies. Elizabeth Warren (Democratic candidate for president) argues on her campaign website:

“That’s why we need a tax on wealth. The Ultra-Millionaire Tax taxes the wealth of the richest Americans. It applies only to households with a net worth of $50 million or more—roughly the wealthiest 75,000 households, or the top 0.1%. Households would pay an annual 2% tax on every dollar of net worth above $50 million and a 3% tax on every dollar of net worth above $1 billion. Because wealth is so concentrated, Saez and Zucman project that this small tax on roughly 75,000 households will bring in $2.75 trillion in revenue over a ten-year period.”

Elizabeth Warren is not alone. Bernie Sanders, the democratic socialist candidate in the presidential race, states on his website:

“The proposal would cut the wealth of billionaires in the United States in half in 15 years and entirely close the gap in wealth growth between billionaires and the average American family, according to University of California Berkeley economists Gabriel Zucman and Emmanuel Saez, who advised Sanders on his plan. Hitting the richest 180,000 American households, Saez and Zucman estimate the tax would raise $4.35 trillion over the next decade, which Sanders says would go toward paying for his biggest policies, including Medicare-for-all, affordable housing, and universal childcare.”

Not to be outdone, U.S. congresswoman Alexandria Ocasio Cortez (D–NY) recently came up with a proposed bill to tax the wealthy. The Washington Post reports:

“Rep. Ocasio-Cortez has proposed a new marginal tax rate of 70 percent on income over $10 million. This is sometimes misreported as a tax on all income, but as she explained on the “Late Show,” the rate would kick in only on every dollar earned after a person made $10 million in a single year. Income below that level would still face a high tax rate of 37 percent. (She has not mentioned long-term capital gains from investments and dividends; presumably they would still be taxed at a maximum rate of 20 percent.)”

One might argue that these tax proposals are nothing but demagogy to appeal to the heavily taxed working people and lower middle-class elements of the population. There is certainly some truth to that. But these proposals also reflect the growing sense of unease within ruling circles that the relative increase of wealth among the highest income brackets coexisting with deepening deprivation and suffering at the lower orders is a serious political liability. The two-party system is tottering as a result of the rising discontent from below, and you will find very little enthusiasm in the upper echelons of society for the collapse of this tried and trusted means of protecting their power. Not wanting to allow the great American money machine to tilt over into the abyss, some of the heavyweights of U.S. capitalism have recognized the need to bend a little.

Warren Buffett, for example, wrote in an opinion piece the New York Times (August 14, 2011):

“Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

“… I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

“But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

“My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

On October 15, 1919, Forbes magazine featured an article which listed a number of U.S. billionaires who favored increasing taxes on the rich. Top on this list was Marc Benioff, chairman and co-CEO of SalesForce. He argued in New York Times (October 14, 2019):

“But capitalism as it has been practiced in recent decades — with its obsession on maximizing profits for shareholders — has also led to horrifying inequality. Globally, the 26 richest people in the world now have as much wealth as the poorest 3.8 billion people, and the relentless spewing of carbon emissions is pushing the planet toward catastrophic climate change. In the United States, income inequality has reached its highest level in at least 50 years, with the top 0.1 percent — people like me — owning roughly 20 percent of the wealth while many Americans cannot afford to pay for a $400 emergency. It’s no wonder that support for capitalism has dropped, especially among young people.

“…That is why a new capitalism must also include a tax system that generates the resources we need and includes higher taxes on the wealthiest among us. Local efforts — like the tax I supported last year on San Francisco’s largest companies to address our city’s urgent homelessness crisis — will help. Nationally, increasing taxes on high-income individuals like myself would help generate the trillions of dollars that we desperately need to improve education and health care and fight climate change.”

The billionaire tax reformers, of course, hold high the banner of champions of equity as they struggle to open their wallets to alleviate the suffering of the underserved millions. But we must keep in mind that the community of the wealthiest families in the U.S. is in a relatively privileged vantage point for viewing the gathering storm clouds threatening the foundation of their fortunes, whether it be rising debt levels, the threat of recession or growing working-class resentment—or all three.

As for Piketty, whatever he has said about taxation is most likely long forgotten by now. He hasn’t said anything new. What really matters is what the most powerful owners of capital have to say—it’s their prerogative to call the shots on key issues of public policy. The job of the economists, on the other hand, is to promote the image of our society as a democratic polity in which the capitalists, as solid patrons of the public interest and well-versed in the “science” of economics, are attendant to the recommendations of the professors. Economics departments in the universities of the capitalist countries exist in order to perpetuate the illusion that there are methods that can be utilized to analyze and understand the capitalist system, its markets, its banks, its international relations, and that there are policy actions that can be implemented to resolve crises and promote prosperity. But again, as Marx explained, in reference to the evolution of bourgeois political economy:

“Once for all I may here state, that by classical Political Economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds.” (Capital, vol. 1, chap. 1, footnote)