Picketty vs politics: where does the rate of profit come from?


Suresh Naidu analyzes Thomas Piketty's groundbreaking economics book Capital in the 21st Century (previously), disagreeing with one of Piketty's core assumptions: that the rate of profit is a given, not the product of things like trade union law, global treaties, and other political decisions. This is wonkier than last night's post about Piketty, but a lot more interesting, in my view.

The everyday encounter most people have with accumulated wealth is not through prices in the market for shoes, or the society pages, but instead the control and threats inflicted by their employers, landlords, and bankers. Inequality of income and wealth means that some people live off unjustly earned income, but it also means a lot more people are on the short-end of an asymmetric exchange, toiling away as personal assistants and Mechanical Turks.

This is where Piketty’s Walrasian conventions dampen his contribution: he discusses the first, but not the second. It’s like saying slavery is an inequality of assets between slaves and slaveholders without describing the plantation.

Even Adam Smith suggested measuring a person’s income by the “quantity of that labor which he can command.” This has normally been taken to mean income of the rich relative to the wage. But it also means looking at “command”: what privileges and obligations can one demand from the soul purchased (or rented)?

An economy that allows indentured labor means that wealth can purchase more power over people; an economy with robust union contracts means that capital is trammeled in its control over the shop floor. From sexual harassment on the job to the indignities of gentrification and nonprofit funding, a world of massive inequality is a world where rich people get to shape environments that everybody else has to accept.

Piketty repeatedly announces that politics plays a large role in the distribution of income. But he neglects that the distribution of income and wealth also generates inequalities of larger privileges and prerogatives; wealth inequality together with a thoroughly commodified society enables a million mini-dictatorships, wherein the political power of the rich is exercised through the market itself.

In a thoroughly marketized world, the wealthy can purchase educational reform, the charity of their choice, think-tanks, legislative language, and faceless TaskRabbiters willing to work for a pittance. While feudal lords were wealthy, the absence of certain types of markets made their social power somewhat independent of wealth; the regalia and mounted vassals were an independent basis of status and were not simply purchasable.

But there is an important and nasty complementarity between massive inequality in income and wealth and a commodified, “fully-incentivized” world. When every action can have pecuniary rewards attached to it, and every source of well-being can be priced at exactly a person’s willingness to pay, the social power commanded by the rich is magnified in a way that is difficult to see when comparing a dollar in 1920 with a dollar today.

Capital Eats the World [Suresh Naidu/Jacobin] (Thanks, Henry!)

Notable Replies

  1. It's a very interesting point, and it gets to the heart of the fundamental incompatibility of capitalism and democracy.

    The basic principle of democracy is that any power that one person has over another is illegitimate unless it has been conferred democratically, through elections where one person has one vote.

    And we live in a world where money equals power. Where one dollar equals one vote on what is produced, what is consumed, who gets to eat, who gets shelter, and who gets to have their voice heard. When it comes to these decisions, about the everyday detail of our lives, some of us have many more votes than others.

  2. lorq says:

    I've come across other articles that have said similar things -- and I think this is the key critique of Picketty, the one that will really stick. He's certainly correct that inequality is the inevitable outcome in a capitalist system. But in the last analysis it's not about "laws" of economics but about segments of the population -- classes -- taking political action against other classes. (The recent brouhaha over the FCC and net neutrality is a perfect example. The cable companies aren't "letting the market decide" about net neutrality -- they are taking forceful, pro-active political action to boost their monopoly power.)

  3. jetfx says:

    I agree entirely, except I don't think that will be the critique that will stick. Instead it will be some variant of "he got his numbers wrong" that the Financial Times first wrote, even though they willfully misrepresented Piketty's data. And back we will go to "letting the market decide".

Continue the discussion bbs.boingboing.net

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