capital in the twenty first century book review

Much of Piketty’s analysis turns on the ratio of capital-as he defines it-to national income: the capital/income ratio. This, I fear, is a source of terrible confusion. His measure of capital is not physical but financial. Then he estimates the market value of that wealth. He excludes only what neoclassical economists call “human capital,” presumably because it can’t be bought and sold. First, he conflates physical capital equipment with all forms of money-valued wealth, including land and housing, whether that wealth is in productive use or not. And so he must face the question of how to count up capital-as-a-quantity. He is in some respects a skeptic of modern mainstream economics, but he sees capital (in principle) as an agglomeration of physical objects, in line with the neoclassical theory. But for capital? Once one leaves behind the “corn model” in which capital (seed) and output (flour) are the same thing, one must somehow make commensurate all the diverse bits of equipment and inventory that make up the actual “capital stock.” But how?Īlthough Thomas Piketty, a professor at the Paris School of Economics, has written a massive book entitled Capital in the Twenty-First Century, he explicitly (and rather caustically) rejects the Marxist view.

For labor it could be an hour of work time. For instance, if one is going to claim that one economy uses more capital (in relation to labor) than another, there must be some common unit for each factor. Symbolic mathematics begets quantification. The new vision thus raised the uses of machinery over the social role of its owners and legitimated profit as the just return to an indispensable contribution. This notion of capital permitted mathematical expression of the “production function,” so that wages and profits could be linked to the respective “marginal products” of each factor. Capital was reframed as a physical item, which paired with labor to produce output. It was the power that capital gave to capitalists, namely the authority to make decisions and to extract surplus from the worker.Įarly in the last century, neoclassical economics dumped this social and political analysis for a mechanical one. But the essence of capital was neither physical nor financial.

Capital could be money, it could be machines it could be fixed and it could be variable. What is “capital”? To Karl Marx, it was a social, political, and legal category-the means of control of the means of production by the dominant class.

Capital in the twenty first century book review