Piketty or Marx? Capital in the Twenty-first Century: a fundamental criticism
Part 2 Technology and productivity
Piketty or Marx?
Capital in the Twenty-first Century: a fundamental criticism
Part 2
Technology and productivity
As for Marx's neglect of durable technological progress, in the first volume of Capital, he explained not only the forces that drove the advancing productivity of labor, but also the technological and economic consequences of this progress. But in what way is “steadily improving productivity” a “counterweight to the process of accumulation and concentration of capital?” It is just the reverse. As the accumulated fixed capital builds up in machinery, buildings, tools, vehicles, and equipment, each productive unit operates with an increasing ratio of capital costs to labor costs. Purchases of all capital elements are allocated with the objective of attaining a perfect balance of the factors of production to avoid waste. Capital operates more and more in accordance with careful planning for each productive unit, often made in concert with suppliers and buyers, or with related corporate entities internationally. This process puts the directors and management of each company, or industrial combine, in the optimal position to achieve the highest levels of productivity by realizing economies of scale.
The biggest of the conglomerates in auto, aerospace, mining, petrochemicals, agribusiness, etc., have the best conditions to reposition themselves in international markets, to acquire and put into motion the latest technological innovations, to reorganize their productive units, and to reduce ever further their costs of production. With faster processing of raw materials and semi-finished goods, more material passes through the process per worker-hour, and the value added per worker-hour declines. This follows according to the general principles that apply to the realization of the benefits of economies of scale. These processes continue to reduce the labor time socially required to produce any given object of labor. As Marx explained,
“Production for value and surplus-value implies, as has been shown in the course of our analysis, the constantly operating tendency to reduce the labour-time necessary for the production of a commodity, i.e., its value, below the actually prevailing social average. The pressure to reduce cost-price to its minimum becomes the strongest lever for raising the social productiveness of labour, which, however, appears here only as a continual increase in the productiveness of capital.” (Capital, Vol. III, Chap. 51)
But Piketty has said that, “... steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital.” It is just the opposite. Increasing productivity of labor, or of capital (which is the same thing), accelerates the growth of the mass of capital under the command of its masters, diminishing the role of direct labor and stretching ever further the social distance between capitalist and worker. Increasing productivity is the engine of growth of private wealth accumulation.
Piketty seldom uses the phrase “productivity of labor” in his book, however, on p. 306, he says, “The increase in productivity, or output per hour worked, was even greater, because each person’s average working time decreased dramatically …”. Here he refers to “productivity of labor,” which is what is generally understood by “productivity,” although in bourgeois economics, this increase is explained using the marginal utility theory. But it is generally understood that the advance of productivity of labor goes hand-in-hand with the increasing ratio of capital costs to labor costs, so that in production more and more is laid out for machinery, tools, raw materials, etc., and proportionately less is spent on wages. The increasing productivity of labor is completely bound up with the accumulation and concentration of private capital. These are two sides of the same process. Increasingly there is more machinery per worker, and more raw materials processed per worker hour. Marx stated it this way:
“This change in the technical composition of capital, this growth in the mass of means of production, as compared with the mass of the labour power that vivifies them, is reflected again in its value composition, by the increase of the constant constituent of capital at the expense of its variable constituent. There may be, e.g., originally 50 per cent. of a capital laid out in means of production, and 50 per cent in labour power; later on, with the development of the productivity of labour, 80 per cent in means of production, 20 per cent in labour power, and so on.” (Capital, Vol. 1, Chap. 25)
Thus the accumulation of machinery at the expense of the living labor cannot help but increase output per worker hour, the very definition of productivity. This process of industrial productivity growth, far from being a “counterweight” to the accumulation and concentration of capital, as Piketty claims, is part and parcel of the same process. Piketty continues:
“Marx evidently wrote in great political fervor, which at times led him to issue hasty pronouncements from which it was difficult to escape. That is why economic theory needs to be rooted in historical sources that are as complete as possible, and in this respect, Marx did not exploit all the possibilities available to him.” (p. 12)
Here we have two accusations that will appeal primarily to those who have not had the opportunity to examine Marx's work, or who are predisposed to dismiss Marx because of what they have heard about him and his ideas. In reality “fervor” comes naturally to any person who is seriously devoting time and effort to a scientific project and feels that they are on the right track. Whether an astrophysicist, biochemist, or social scientist, when a project, experiment, or investigation seems to correctly explain the observed facts, this can lead to elation, enthusiasm, passion, and fervor. Passion is a word often used to describe the sentiments and motivations of someone involved in a creative and fruitful line of work. Marx was passionate about his work. He was deeply aware of the immense value of the ideas he was developing. He was confident that he was on the right track, and so far, history has demonstrated that he was. As for “hasty pronouncements,” only Piketty, and not the readers of Capital, will be able to identify these.
Saying that “Marx did not exploit all the possibilities available to him” only serves to remind us of the differences in the investigative techniques between Marx and Piketty. Marx studied the history of the world which enabled him to recognize the different stages of social and economic history. Marx strove to get at a clear explanation of the underlying motive forces of capital’s growth, as well as a recognition of the counterforces and obstacles that acted to retard, divert or modify the course of evolution of the capitalist mode of production. Piketty, on the other hand, produces statistical tables and graphs and then speculates about what mysterious “forces” might have given rise to these accounting regularities.
World history
To explain capitalism, you need to begin at the beginning of human social organization. What was available to human groups at the early stages of social existence? How were they able to interact with each other and their environment in order to secure their subsistence? How and why did they develop tools—and increasingly versatile tools? How did their social bonds and labor methods evolve? What kind of relations developed among them as patterns of behavior were developed that facilitated their survival and reproduction? Scientists involved in paleoanthropology, anthropology, and archaeology have addressed these questions and continue to do so. This knowledge should be part of the education of a scientific economist. Other questions that must be addressed include the social division of labor and its development, industrial and agricultural production as they went through different stages and forms throughout history. How did exchange develop out of barter? What is a “commodity,” and how did money emerge? How did money come to serve as the basis for the formation of capital? Everything that exists today has gone through a process of evolution. New generations don't remake the world anew, rather they are forced to deal with the issues and problems of a world that came into existence before they were born. As Marx famously put it:
“Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living. And just as they seem to be occupied with revolutionizing themselves and things, creating something that did not exist before, precisely in such epochs of revolutionary crisis they anxiously conjure up the spirits of the past to their service, borrowing from them names, battle slogans, and costumes in order to present this new scene in world history in time-honored disguise and borrowed language.” (The Eighteenth Brumaire of Louis Bonaparte)
As for Piketty, there is nothing in his book to indicate whether he understands anything about these historical questions. But the fact remains that capitalism emerged from the feudal womb, the struggle between contending classes over property, resources, and income grew hand in hand with the development of capitalism itself. Since capitalism emerged spontaneously, the rules governing the needs of capital had to be made and remade in the course of this historical development. In the early period more and more merchants and artisan masters, en route to becoming industrial capitalists, recognized their need to attain power and influence in the state, to have their needs met. They needed the state to facilitate the divorce between peasant labor and agricultural land, to satisfy the demand for factory labor. To maximize and secure their return on investments they needed power on the high seas to secure the mineral, land, slaves, and other resources of the new world. For marketing and trade, they needed a sound national currency, a reliable system of weights and measures for commerce, secure guarantees of ownership of their land and movable property, etc. They needed as well the armies and police of the forces of law and order to enforce their interests at home and abroad. The bourgeois state became ever more knowledgeable in the arts and sciences of sustaining and enhancing the profit-making potential of the capitalist class as a whole.
As Engels explained, “Because the state arose from the need to hold class antagonisms in check, but because it arose, at the same time, in the midst of the conflict of these classes, it is, as a rule, the state of the most powerful, economically dominant class, which, through the medium of the state, becomes also the politically dominant class, and thus acquires new means of holding down and exploiting the oppressed class....” (Origin of the Family, Private Property and the State, 1884). But at the same time, the state does not restrict itself to the role of obedient servant to the dominant propertied class; rather, it strives to build its own independent role in society.
In the modern academic environment, the history of the rise of capitalism occupies a modest position, and has no influence on the pro-capitalist focus of the humanities. The scholars in each specialization: sociology, history, literature, art, politics, philosophy, economics, etc., often do not know much about what academics in the other departments are saying. In order to get a Ph.D., you need to show expertise in your chosen field, and prove it in writing. But you don't have to be any kind of specialist to recognize the disorder of the system we are living in now. The point of an education in the humanities is to be able to interpret the chaotic disarray and misery produced by capital’s rule as the functioning of the highest form of civilization, never to be replaced or surpassed.
Marx himself had a university degree, but he was primarily self-taught. In fact, many of the university students in those days, the 1840s, were encouraged to develop independent habits of study and were largely self-taught. Marx, Engels, and their companions read widely in history, learned about ancient Greek and Roman society, studied Hegel's logic, and discussed the history of philosophical thought. In this way, operating out of the control of their official mentors, they independently developed insights into social history that are unknown in the bourgeois university world of today. It became evident to Marx and Engels early on that in order to explain society one had to begin with some basic understanding of what society is, how it arose, and how it changed over time.
Marx and Engels together developed what is generally referred to as the “materialist conception of history.” Engels defined this method of analysis in the preface to the first edition of Origin of the Family, Private Property and the State, in 1884:
“According to the materialistic conception, the determining factor in history is, in the final instance, the production and reproduction of the immediate essentials of life. This, again, is of a twofold character. On the one side, the production of the means of existence, of articles of food and clothing, dwellings, and of the tools necessary for that production; on the other side, the production of human beings themselves, the propagation of the species. The social organization under which the people of a particular historical epoch and a particular country live is determined by both kinds of production: by the stage of development of labor on the one hand and of the family on the other.”
Socialist society
Piketty then adds to the list of Marx's regrettable weaknesses:
“What is more, he devoted little thought to the question of how a society in which private capital had been totally abolished would be organized politically and economically—a complex issue if ever there was one, as shown by the tragic totalitarian experiments undertaken in states where private capital was abolished.”
The phrase “tragic totalitarian experiments” falls very wide of the mark as a description of the Russian or Chinese revolutions—assuming those are what Piketty had in mind. But we should take note of the link he makes between the abolition of private capital and totalitarianism. Many “totalitarian” regimes have existed as expressions of the urgent political needs of private capital—as under Hitler and Mussolini, and in many other countries at certain points in history. In Russia, in the early years of the 1917 revolution, there was an unparalleled flowering of democracy based on the expropriation of private capital. It was only the rise of Stalinism that crushed the growth of working-class democracy. The Russian revolution was not an “experiment,” nor was the Stalinist reaction which ensued. The word “experiment,” when used to characterize the Russian revolution, can be freely employed only by those who are unable to explain how it came about that a Marxist party was able to gain the leadership of the workers’ movement, and how that movement, in conjunction with a mass peasant rebellion, was able to bring about a workers’ and farmer’s government. But for those who do wish to take it up, a good place to start would be Leon Trotsky's History of the Russian Revolution, to be followed up by Trotsky's The Revolution Betrayed.
As for Marx’s failure to give us the “plan” for the post-capitalist society, well, let's just say that Marx was aware that the working people of the future will be in a good position to work out their own plans. Once having destroyed the barbaric forces of capitalist rule; once having assumed the reins of power, working people of city and countryside will set about fostering new forms of collaboration to produce the necessities of life. They will govern and regulate production and distribution through decision-making processes organized to suit their needs. It's not too likely that following a “plan” written in the 19th century would help them out. In any case, what faces the working class and the toiling people of the countryside on a world scale now is not a question of making detailed plans for the post-capitalist future. It is a question of the workers building up their social strength and gaining the necessary political knowledge and leadership to put them on the road to the conquest of political power. Once politically united and mobilized, they will be in a position to overcome the obstacles placed in their path by the ultra-wealthy minority and their supporters. Once in power, they will work together to organize production and distribution based on human solidarity. We have already seen this emerging in the early years of the Russian Revolution, and the processes of workers’ power remain in effect in revolutionary Cuba. Necessary labor will gradually diminish, while the scope for the voluntary flowering of the human personality will widen. The residents of this future world will use their own methods and organizations, and will put behind them forever all forms of slavery—including wage slavery. In the Critique of the Gotha Program (1875) Marx argued (regarding the newly-born post-capitalist society):
“What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society, which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. ... In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly — only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!”
Depression and war
Piketty then proceeds to consider the work of Simon Kuznets, an economics professor at Harvard in the 1960s, who predicted that income inequality would decline as capitalism matures, with no need for state intervention. This projection reflected the conditions of the post-war boom (the 1950s) when the belief prevailed in U.S. bourgeois circles that economic prosperity was guaranteed, and there were few who could deny that growth is a rising tide that lifts all boats. This rosy optimism—flowing from the profits generated by the U.S. war conquests—influenced many, which in its turn gave rise to the popularity of the Austrian school of free-market economics among academic economists.
Kuznets drew on Internal Revenue Service tax returns for a wide statistical survey of income distribution. With these data, Kuznets demonstrated a decline in income inequality from 1913 to 1948, a period that includes the great depression and both world wars. Kuznets believed that such depressive conditions had been overcome. Piketty explains that the “sharp reduction in income inequality in almost all rich countries between 1914 and 1945 was due to the world wars and the violent economic and political shocks they entailed” (p. 15). However, it should be noted that Piketty leaves out the impact of the trade union movement. If you omit the independent activity of the working class, you will miss a powerful influence on the social distribution of wealth. At the same time as the Depression-era collapse in paper values pushed down the reported assets and income of the wealthy, especially from 1929 to 1935, the labor battles of 1933–40 pushed up labor’s share of the total social product. Statistics from the St. Louis Federal Reserve Bank show that the average weekly wage in manufacturing rose from about $20 to $28 from 1932 to 1940. https://fraser.stlouisfed.org/files/docs/publications/bls/he_bls_1942.pdf
But between 1933 and 1940 there was an unprecedented upsurge of labor in all categories in the United States. Wage gains were registered in many industries despite the depressed economy. The principle of equal rights for all workers regardless of skin color was significantly advanced through the activity of the Congress of Industrial Organizations (CIO). The workers' political maturity extended beyond trade unionism to a movement of opposition to entry into the imperialist war, as well as a recognition of the need for a labor party. (See Revolutionary Continuity, by Farrell Dobbs, from Pathfinder Press.)
Beginning in 1939, war production, although it generated profits for the war goods contracting companies, produced few additional commodities for general consumption, and so did not contribute to the accumulation of capital in consumer goods sectors. Nonetheless, there was great technological progress during the war which helped to lay the basis for a post-war boom, which followed, in part, as a consequence of the territorial gains of some countries—especially the U.S.—and the relative weakening of others.
My work, says Piketty, “has broadened the spatial and temporal limits of Kuznets’ innovative and pioneering work” (p. 21). Piketty explains that he made use of the tax records and used the same methods as Kuznets to track income inequality. He argues that changes in income distribution are often attributable to temporary external factors: war, government intervention in the economy, etc. It's not just economics. Also, he thinks there are powerful forces that work towards wealth convergence as well as toward wealth divergence. For Piketty, war is an external factor, so he doesn't analyze the interconnection between economics and war, except as far as war suddenly diverts the normal functions of the peacetime economy.
But Piketty notwithstanding, wars do not come out of the blue, but develop as a result of economic conflicts within or among nations as they develop along pathways determined by the evolution of capitalist competition on a world scale. Capitalist development throughout the 19th century promoted a growth of nationalist aspirations among the European and North American countries, as they increasingly butted heads while unearthing new sources of profit throughout Latin America, Asia, and Africa. The European powers, still stinging from the war of 1870, found themselves drawn into a feverish arms race in the 1890s, partly in efforts to defend their territorial gains in the semi-colonial world, and partly as preparation for coming wars.
The ruling classes of the advanced capitalist nations could not ignore the growing strength of their rivals and tightened the screws on their respective governments for military appropriations. The Balkan wars of 1912–13 provided a testing ground of the relative strengths among the European national powers, and served as a stepping-stone to World War I. The ruling classes of the big powers believed that if they did not act, they could lose both past and future gains in the world markets for cheap labor and low-cost minerals, and agricultural produce. The free competition of the 19th century had evolved into a monopolization of the main branches of industry in the advanced capitalist countries and the formation of trusts, as well as completing the division of the world into spheres of influence over colonial areas. The growing competition, arms races, and territorial strife laid the foundation for a series of imperialist wars. As V.I. Lenin explained,
“Monopolies, oligarchy, the striving for domination and not for liberty, the exploitation of an increasing number of small or weak nations by a handful of the richest or most powerful nations—all these have given birth to those distinctive characteristics of imperialism which compel us to define it as parasitic or decaying capitalism.” (Imperialism, the Highest Stage of Capitalism)
But it is true that wars produce a predictable interruption of the peacetime patterns of capital accumulation, wealth distribution, and income statistics. Piketty's charts demonstrate this. A war diverts production to military purposes, thus causing a change in the curve of income and wealth statistics. Further, the output of factories gets destroyed by artillery and bombs (though not in the United States in the 20th century). Many valuable resources: machinery, roads, rails, steel mills, ships, planes, and buildings are reduced to rubble. The government debt balloons. During WWII, the U.S. government sold “liberty bonds,” thus raising funds from the entire population to win the war and, at the same time, reward the “patriotic” capitalists with “cost-plus” war contracts. In the process, the U.S. federal debt rose to its highest level ever, at 120 % of GDP in 1945. Meanwhile, wages for workers were frozen.
It must be admitted, in the final analysis, that when Piketty regards war as an “external” influence, negatively affecting economic progress, he is overlooking the fact that these wars themselves, in particular the imperialist wars of the past century, are the direct outcome and product of the forces that have driven the growth of capitalist competition itself. Every capitalist sees himself as engaging with his rivals in a competitive contest. Every capitalist nation sees itself surrounded by rival nations that repeatedly threaten to steal markets that they have claimed as their own. Why tariffs? And why tariff wars? … if not for the advancement of the interests of one capitalist nation against another? Why were the arms produced and the armies mobilized if not to defend national interests? From whom were these nations to defend themselves, if not from their rivals, who themselves were building arms stocks and mobilizing armies? How can war in the 20th century be explained apart from the defense of national interests?
These wartime disruptions should be seen as events that delay the complete maturation of the development of the inner contradictions of capitalism, since the destruction wrought by bombs and artillery destroys capital values, and in this way forces capitalists to divert valuable resources to rebuilding and replacing their losses. Thus, capitalist development on a world scale is reset back to a lower stage. On the other hand, rebuilding after wartime destruction allows the more rapid introduction of new and more productive equipment for industry, and this is true as well of the period of war itself. The point here is that the distinction between the peacetime economic processes and the disruption of these processes by war is only useful for breaking down economic statistics. These considerations do not introduce important changes in the nature of capitalist social relations.
But the social and economic development of a society based on the exploitation of class by class, and the rivalry between classes and nations, creates the conditions for the outbreak of wars. In the 21st century, these processes are still in effect, even though the pattern of warfare is different from that experienced in the past. Capitalism is a system that wreaks havoc on billions. Wars, mass poverty, mass unemployment, rampant illnesses, environmental contamination, and other catastrophes are the consequences of the normal, everyday functioning of capitalism. When all these devastating effects are taken into account, it can be seen that these multiple effects, themselves inevitable products of capitalist development, rob capitalism of its maximum growth potential and slow down the processes which cause the average profit rate to decline. If the rate of profit falls more slowly, whatever the cause, it still continues to fall, and it is this fall that inexorably pushes toward economic instability and crisis. The crisis, in its turn, lashes the workers into action.
Divergence
There is no “natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently,” (p. 28) Piketty asserts. He does recognize some processes, perhaps not natural or spontaneous, that do provide some hope for the future. He argues that “knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries. We see this at present in the advances made by a number of previously poor countries, led by China.”
It's true that knowledge and skill diffusion can help to increase productivity, if applied in the production process to increase the output per worker hour. But how is productivity growth the key to income equality? The development of capital continuously spurs innovation, automation, technological growth, and the substitution of machinery for labor. All this shifts the expenses of production toward the side of material and away from the side of labor. Marx referred to this as the increase in the organic composition of capital. This increase, for its part, promotes the tendency of the rate of profit to fall (see below). This process stimulates efforts on the part of the employers to drive down wages, and the gap between rich and poor increases at the same time that the ownership of capital is concentrated in fewer and fewer hands. It is principally the trade-union movement that has enabled the workers to close the wage gap during certain periods, but statistics show that wage gains are not permanent. In today’s economy wages are declining relative to profits and the gap is growing. This is a consequence of the weakening of the unions, which cripples the ability of workers to defend their wages and conditions. Wage gains then fall behind the rate of inflation, and this comes on top of the direct wage-cutting initiatives of the employers. Indeed the unions have been losing membership since the 1950s, but we should hasten to add that, although the unions are weak in comparison with past decades, the working class as a whole is in a much-improved social condition compared with past periods. This is due to the great strides forward that have been achieved in the bonds of unity that have been forged between racial and nationality divisions, as well as between men and women, among the mass of industrial and service workers. A renewal of union organization campaigns in the United States will have fewer divisive obstacles to overcome as the union movement springs to life.
Piketty has pointed to the growth in inequality since the 1970s. The continued increase in the productivity of labor has resulted in an increase in the intensivity of capital: within the production process, the ratio of the value of materials to the value of labor power grows. In fact, the rate of productivity growth has increased in the entire post-WWII period, see the report posted on the website of the Center for Economic and Policy Research: http://www.cepr.net/index.php/blogs/cepr-blog/new-cepr-issue-brief-shows-minimum-wage-has-room-to-grow
Piketty adds that inequality between countries is also being reduced: witness China, having acquired technical and engineering skills and improved labor productivity in the course of the expansion of private property in the means of production and the exploitation of wage labor in recent decades. But this growth of capital in China is conditioned by the unique circumstances of Chinese history. Private capital returned in a big way to China only through a government-managed process that began in 1978 under Deng Xiaoping which put an end to the chaos that damaged China’s productivity and social solidarity under Mao’s reign. Beginning in 1978 China embarked on a program of economic reforms on the basis of a state-capitalist plan.
To the degree that capitalist production grows in China, the same problems that prevail in Europe are developing there and in other parts of the world that are experiencing an expansion of capitalist production. Within China, there has been a growth of inequality, according to the University of Michigan: “The gap between China’s rich and poor is now one of the world’s highest, surpassing even that in the U.S., according to a report being released this week by researchers at the University of Michigan.”
The findings reported by the University of Michigan are confirmed in a 2017 CEPR policy paper written by Piketty, together with Li Yang and Gabriel Zucman, “Capital accumulation, private property, and inequality in China, 1978-2015,” the authors argue:
“For recent years, we find the income share of the top 10% to be around 41% of total national income (as opposed to the 31% suggested by surveys), and the income share of the top 1% to be approximately 14% of national income (as opposed to 7% suggested by surveys). According to our series, the share of national income going to the top 10% rose from 27% to 41% between 1978 and 2015, while the share for the bottom 50% fell from 27% to 15%.”
https://voxeu.org/article/capital-accumulation-private-property-and-inequality-china-1978-2015
The rapid expansion of possibilities for self-enrichment through private property in China has led to the same compulsions and fears as have developed in other capitalist countries. Evan Osnos, in his book, Age of Ambition, tells the story of a public official who managed to build a fortune of $1.5 million through a combination of bribes and investments. “If I made $3 million or $5 million one year, all I'm thinking about is how to make more the next year. If I'm number 3 in town, how do I get to be number 1? It's like you're running, and once you're running, there's no stopping. You just run and run and run. You don't think about the philosophical implications. Psychologically you are in a world of your own.” Marx had his own description of the compulsive behavior driven by the lust for accumulation:
“Accumulate, accumulate! That is Moses and the prophets! ... Therefore, save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation’s sake, production for production’s sake: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth.”
As mentioned above, Piketty believes that within the mass of capital there are forces that promote divergence between countries, as well as forces for convergence. Regarding the divergence of wealth within countries, he maintains,
“I will pay particular attention in this study to certain worrisome forces of divergence—particularly worrisome in that they can exist even in a world where there is adequate investment in skills and where all the conditions of “market efficiency” (as economists understand that term) appear to be satisfied. What are these forces of divergence? First, top earners can quickly separate themselves from the rest by a wide margin (although the problem to date remains relatively localized). More important, there is a set of forces of divergence associated with the process of accumulation and concentration of wealth when growth is weak and the return on capital is high. This second process is potentially more destabilizing than the first, and it no doubt represents the principal threat to an equal distribution of wealth over the long run (p. 32).”
But Piketty does not explain what these “forces” of divergence are; he only traces statistically measured trends, regularities that have been duly measured and recorded, such as the share of the nation’s wealth per decile of the population according to annual income, or the ratio of capital to income. Piketty's notion of “forces” begins with statistical trends which measure the division of wealth or income, trends toward greater or lesser divergence, etc. But these trends are not “forces,” they are only the measurement of the effects of the operation of forces. They don’t name or describe the “forces” themselves, nor explain where they came from. Just as the force of gravity produces a measurable result every time we step onto the scale, we are obliged to recognize, as did Isaac Newton, that there is some “force” that needs to be analyzed, an invisible relationship that underlies the measurable result. With Newton’s help, we have come to know this force as “gravity.”
As the first force of divergence he points to the fact that “top earners can quickly separate themselves from the rest by a wide margin.” This observation is sufficiently vague that we cannot be sure what he is talking about. But there are other forces that operate “when growth is weak and return on capital is high.” But growth has weakened and strengthened for centuries. Return on capital varies as well. But Piketty has found a correlation between these tendencies occurring over a certain period. See the chart, p. 32. The chart shows a sharp rise in the share of the national income accruing to the families in the top income decile, during a period (1980–2010) when the annual growth of GDP per capita was lower than in the preceding period. During this period, in the U.S. the average annual GDP was around 3 % as compared to about 5 % in the preceding 30 years. After 2010, the GDP declined still further.
But how is the statistical correlation between slower growth and higher income for the wealthy itself a “cause” or “force”? It doesn’t occur to Piketty to look for other underlying economic changes, such as lower inflation-adjusted average wages, the decline of trade unions, speed-up of factory production, etc., as possible causes of higher profits and a rising share of the total national income going to the top decile. Nor does he look for a root cause for the slowdown in GDP.
Piketty returns to the divergence theme in Chapter 10 of his book, saying:
“This fundamental force for divergence, which I discussed briefly in the Introduction, functions as follows. Consider a world of low growth, on the order of, say, 0.5–1 percent a year, which was the case everywhere before the eighteenth and nineteenth centuries. The rate of return on capital, which is generally on the order of 4 or 5 percent a year, is therefore much higher than the growth rate.”
Here Piketty assumes a very slow, nearly negligible, rate of growth of the national product of the countries he is considering, at least up until the eighteenth and nineteenth centuries. Instead of explaining what happened in those centuries to bring about this acceleration of growth, he continues to discuss the ratio between the growth rate and the rate of return on capital. Marx and Engels, on the other hand, developed an in-depth explanation of what was changing at that time in history. They gave an indication of this in a well-known passage in the Communist Manifesto:
“The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.”