david harvey, piketty and the central contradiction of capitalism _ michael roberts blog

7/22/2019 David Harvey, Piketty and the Central Contradiction of Capitalism _ Michael Roberts Blog

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bloggingfromamarxisteconomist

DavidHarveyisthewellknownMarxistProfessorofAnthropologyandGeographyattheGraduateCenteroftheCityUniversityofNewYork. HarveyhasanewbookoutandhasalsoreviewedThomasPikeys (hp://davidharvey.org/2014/05/aerthoughtspikeyscapital/ (hp://davidharvey.org/2014/05/aerthoughtspikeyscapital/)). Harvey ispreycriticalof Pikeys book. Harveyrecognises thatPikey provides powerful data on the inequality of wealth and income in the major capitalisteconomiessince the capitalismbecamethe dominant mode ofproduction andsocialrelationsfromabout1750. WhatPikeydoesshowstatistically(andweshouldbeindebtedtohimand hiscolleaguesforthis)isthatcapitalhastendedthroughoutitshistorytoproduceevergreaterlevelsofinequality.Thisis,formany ofus,hardly news. Itwas, moreover, exactly Marxs theoretical conclusion in Volume One ofhisversionofCapital.

But, as Harveysays, Pikeysays nothingabout recurrentcrises of productionand investment incapitalism. Pikeydoesnottelluswhythecrashof2008occurredand whyitistakingsolongforsomany

people togetoutfrom underthedual burdens ofprolonged unemployment and millionsofhouseslosttoforeclosure.ItdoesnothelpusunderstandwhygrowthiscurrentlysosluggishintheUSasopposed toChinaandwhyEuropeislockeddowninapoliticsofausterityandaneconomyofstagnation.

ThenHarveytellsusthatallPikeyhadtodowasreadMarx(which,asIhavepointedoutbefore,hedidnotdo hp://thenextrecession.wordpress.com/2014/05/06/haveyoureadpikeywellhehasnotreadmarx/(hp://thenextrecession.wordpress.com/2014/05/06/haveyoureadpikeywellhehasnotreadmarx/))Ifhehad,saysHarvey,hewouldhavefoundinVolume2ofMarxsCapital(whichPikeyalsohasnotread evenas he cheerfullydismissesit)Marx pointed outthatcapitals penchantfor drivingwagesdown

wouldatsomepointrestrictthecapacityofthemarkettoabsorbcapitalsproduct.

SoHarveysaystheexplanationofcrisesincapitalismistobefoundinMarxsCapitalVolume2andnotinVolume1or3. Actually,thereisnoexplanationofrecurrentcrisesofcapitalismtobefoundinVolume2. ItismostlyinVolume3withMarxsoutliningofthelawofthetendencyoftherateofprofittofallanditscountertendencies.

Harveysunderconsumptionalternative explanation isnot newfromhim(see mypost onHarveybackin2011,hp://thenextrecession.wordpress.com/2011/11/13/davidharveymarxsmethodandtheenigmaofsurplus

(hp://thenextrecession.wordpress.com/2011/11/13/davidharveymarxsmethodandtheenigmaofsurplus)/and also see Paul Maick Jnrs excellent critique of Harveys work, maick on harvey(hp://thenextrecession.files.wordpress.com/2014/05/maickonharvey.pdf)). But it is not Marxsexplanation.

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In hisnewbook, which looks wellworth reading (hp://davidharvey.org/2014/03/newbookseventeencontradictionsendcapitalism (hp://davidharvey.org/2014/03/newbookseventeencontradictionsendcapitalism)/)IhavenotreadityetHarveyoutlineswhatheseesasthecontradictionsattheheartofcapitalismitsdrive,forexample,toaccumulatecapitalbeyondthemeansofinvestingit,itsimperativetousethecheapestmethodsofproductionthatleadstoconsumerswithnomeansofconsumption

Indeed,HarveyspositionisthatMarxslawofprofitabilityisirrelevanttoanexplanationofcrises. Itleadshimtoarguethattheneoliberaldrivetoraiseprofitsfromthe 1980swasnotdictatedbyanymathematical law (presumably meaningMarxs lawof profitability). He quotes Alan Budd, aneconomic advisor to Margaret Thatcher who confessed in an unguarded moment that theantiinflationpoliciesofthe1980sturnedouttobeaverygoodwaytoraiseunemployment,and raisingunemploymentwas an extremelydesirable way ofreducing thestrengthoftheworkingclasseswhatwasengineeredthereinMarxisttermswasacrisisofcapitalismwhichrecreatedareservearmyoflabourand hasallowedcapitaliststomakehighprofitseversince.(Budd). Thisquoteactuallysuggeststomethattheneoliberalagendawasverymuchtorestore profitabilitythathadreachedpostwarlowsbythe late1970s. Butapparently,accordingto Harvey, the deepdoublediprecession of the early1980s thatdevaluedanddestroyedcapitalandrestoredprofitabilityhadnothingtodowithit. Insteaditwasallaboutpolitics.

HarveycriticisesPikey for failing to observe that the squeeze on wage share and the potentialunderconsumptionthatitcouldcreatewasovercomebyamassiverise inhouseholddebt:whereisthedemand?Pikeysystematicallyignoresthisquestion.The1990sfudgedtheanswerbyavastexpansionofcredit,includingtheextensionofmortgagefinanceintosubprimemarkets.Buttheresultantassetbubblewasbound togopopas itdid in20078bringingdownLehmanBrothersand thecreditsystem withit. Thuscrisesareaproductofalackofdemand. Creditbubblescancompensate,butonlyforawhile.

Harveymakesthe pointthatCrisesare notsingularevents.While theyhave theirobvioustriggers,thetectonicshistheyrepresenttakemanyyearstoworkoutWiththebenefitofhindsightitisnothardtospot

abundantsignsofproblemstocomewellbefore a crisisexplodesintofullview. Butforhim,thesignsofcrisesaretobefoundnotinanymovementinprofitabilitybutincredit,becausethedebtsaturatedandincreasinglyderegulatedglobalfinancialisationthatbeganinthe1980sasawaytosolveconflictswithlabourbyfacilitatinggeographicalmobilityand dispersalproduced itsdenouementinthefalloftheinvestmentbankofLehmanBrotherson15September2008.HarveycorrectlyidentifiesPikeyskeyfailingasamistakendefinitionofcapital.Capitalisaprocessnota thing.Itisa processofcirculationinwhichmoneyisusedtomakemoremoneyoen,butnotexclusively,throughtheexploitation oflaborpower.The whole ofneoclassicaleconomicthought(whichisthebasisofPikeysthinking)isfounded ona tautology. The rate ofreturnoncapitaldependscruciallyontherateofgrowthbecausecapitalisvaluedbywayofthatwhichitproducesandnotbywhatwentintoitsproduction.

ThisisapointthatJamesGalbraithandothersincludingmehavemadeaboutPikeynotrecognisingthatcapitalisnotwealth. Andthismakesadifference. AsHarveysays,ifwetakeouthousingandrealestatewealthfromthemeasureofcapital,Pikeysforecastofastablereturnoncapital,whichishigherthanthelongtermtrendgrowthratedoesnotstand.Inanewpaper,EstebanMaitoshowsjustthat. UsingPikeysowndata,hefindsthatitisMarxslawofthe tendencyofthe rate ofprofittofallovertimethatisconfirmedbytheevidence,notPikeysstablereturnoncapital(Maito__Esteban_Ezequiel__Pikey_against_Pikey_(on_evaluation_on_Review_of_Political_Economy) libre(hp://thenextrecession.files.wordpress.com/2014/05/maito__esteban_ezequiel_

_pikey_against_pikey_on_evaluation_on_review_of_political_economy libre.pdf)).MaitoexplainsthatinPikeysperspective,capitalisnotrelatedtotheproductionorvalorizationprocess.Asasynonymforthewordwealth,anygoodorserviceexchangeableinthemarketiscapital.Butthetrendsdescribed byMarxrefertocapitalistproduction.Inthisrespect,anyassessmentofMarxiantheory,evenits


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empiricalvalidation,hastoconsiderthisbasicaspectinitsanalysis.Insuchaway,dwellingsshouldnotbeconsidered part of the capital, as particular consumer goods rather than means ofproduction. Similarconsiderationsmaybestatedinothercaseslikefinancialassets(apurecircuitMM)orland.

Indeed,overtherecentperiod(sincethemid1960speak),evenPikeysreturnoncapitalhastendedtofallinline withtheMarxianrateofprofitbecauselandandresidentialpropertyhavebecomelesssignificantasashareofwealthcomparedtomachineryandnonresidentialproperty.

Marxslawofprofitabilityexplainsthecentralcontradictionofcapitalism,notPikeysr,norHarveysnomeansofconsumption.

ThisentrywaspostedonMay19,2014at10:55amandisfiledundercapitalism,economics,marxism,Profitability. Youcan followanyresponsesto thisentrythrough the RSS 2.0feed.Youcanleave aresponse,ortrackbackfromyourownsite.

GeorgeFinchSays:

May19,2014at6:04pm|ReplyDidyouunderstandHarveys,itwaspolitical.Bythatdidhemeanitwasthroughthepoliticalthat capitalhammered labor? Yes, thee wasa fallingrate ofprofit, buthowdoyourestore it(

through the political?) Also where is the fallingrate of profit now? Corporations have recordprofits,buthowmuchfromproduction,howmuchfromfinancialassets.Whyinvestwhentheydonothaveto,butwouldntothercompaniesinvesttobemorecompetitive?Andhowinvestmentisthereoverseascomparedtodomestic.

BoffySays:

May20,2014at8:24am|ReplySoHarveysaystheexplanationofcrisesincapitalismistobefoundinMarxsCapitalVolume2andnotinVolume 1or3.Actually,thereisnoexplanationofrecurrentcrisesofcapitalismtobefoundinVolume2.

Thatsnottrue.InhisanalysisofthecirculationofCapitalinCapitalII,Marxsetsoutthatcrisescanarisefromabreakdownatanyofthestagesofthecircuitofindustrialcapital,andthendescribeswhatthecausesofsuchbreakdownsmightbe.HealsodescribestheconditionsforacrisiswhichnaturallyflowfromadisproportionbetweenDepartmentIandII,adisproportion,whichhesaysisnotconfinedtocapitalism,butwhichwouldexistunderSocialismtoo.

It arises because fixed capitaldoes not wear out at a uniform rate. The consequence is thatDepartmentIIproducersrecoverthevalueofthewearandtearoftheirfixedcapitalinthevalueoftheirproduction,butthisvalueishoardedasmoneycapital,untilitisrequired.Atthesametime,

someDepartmentIIcapitalistsareusingpreviouslyhoardedmoneycapitaltobuylargeamountsoffixedcapitalwithoutpuinganequivalentamountofvalueofcommoditiesintocirculation.Somearebuyersbutnotsellers,whilstothersaresellersbutnotbuyers.Providedthe twobalanceouteverythingisfine,butthechancesthathappensisremote.


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Marx specificallysays, that the cycle for the replacement of such increasingquantitiesof fixedcapitalisthe basis of the business cycle.He also saysthat, if inthe situationdescribedabove,DepartmentIIcapitalistssimplydonotreplaceallofthefixedcapitaltheyshouldhavebeendoingandwhichDepartment Ianticipatedinitsproduction,inotherwords, he says ifDepartment IIcapitalistsunderconsume, then this will inevitablycause a crisis of overproduction to arise inDepartmentI.Moreover,heevenemphasisesthatthiscrisisofoverproductioncausedbytheunderconsumptionofDepartmentIIcapitalists,canariseevenunderSimpleReproduction.

To those whoargued that the difference could simplyhave been made up by the capitalistsconsumeagreaterportionofthe unconsumedsurplus,Marxhasbasicallytworesponses. Firstly,thepointistoinvestthesurplustocreatemoresurplus,nottoconsumeit.Secondly,thereisonlyapoint consuming the surplus productively, if there isa potential to be able to sell the ultimateproduct of that additional productive investment. If the surplus cant be realised now, thenproducinganevengreaterquantitywillonlyexacerbatethatproblem,andsothere isnoreasoncapitalistswillproductivelyconsumemore whentheycantprofitablysellwhat theyarealreadyproducing.

Indeed, as he sets out in Theories of Surplus Value, and in Capital III, the reason that the

overproduction arises in the first place, isbecause high rates and masses of profit encourageexisting capitalists to relatively reduce their unproductive consumption, and increase theirproductiveconsumption,sothe massofusevaluesdumpedonthe marketincreasesatpreciselythetimewhenthecapitalistsownunproductiveconsumptivedemandisrelativelydeclining.

Inaddition,spurredonbythesehighratesandmassesofprofit,someworkers,formermanagersetc.chancetheirareatgrabbingsomeofit.Soiscreatedtheplethoraofsmallcapitalthatisthefirsttobedestroyedwhentheresultantoverproductionmanifestsitselfinacrisis.Againtheseformerworkers have reduced their own final consumption in order to increase their productiveconsumption.

BoffySays:

May20,2014at8:42am|ReplyInsteaditwasallaboutpolitics.

Theproblemwiththeitsallaboutpoliticsapproachisthatitdoesntaddressthequestionofwhythe politicscouldworkthenparticularly.WilsontriedtointroduceInPlaceofStrifeandfailed,Heathtriedthe IRCandfailed, andfailedeven more disastrouslyintakingonthe miners. TheSocialContractworkedonlyforatime,andthenfaileddisastrouslyin1979.

Whydid

these

fail?

The

working

class

was

too

strong.

Why

was

the

working

class

too

strong?

Theunderlying economics meant that despite low rates of profit, it was still worth while bosses

concedingtoworkers.Bythe1980sthatwasnolongertrue.Fewernewcapitalswerebeingformed,existingcapitalswerenotgrowing,andsome wereshrinking. Strikesarebadsolutions tofactoryclosures,andlackofgrowth,andtheLe hadnorealstrategyotherthanthemoremilitancythatithadbuiltitselfonfortheprevious30years.

Thereweretheridiculouscallsforthecapitaliststatetonationalisethe200topmonopolies, butthosemakingthemdidntseemtohavenoticedthatthiswasacapitaliststatethathadnoreasontoundertakesuchactionsintheinterestsofworkers,andthatworkersofsuchnationalisedindustriesbothasworkers andconsumerswasnot endearingthemtosuchanalternative. Oen the statecapitalistemployerwasmuchworsethanlargeprivateemployers.

Thatcherbecamepossiblebecauseworkersweregivennoplausiblepoliticalalternative. Thatchersaacks on the workingclass was successful because the class had already been materially


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weakenedbyrisingunemployment,andaninabilityofcapitaltoconcedeandstayinbusiness.Ithadbeen politicallyandideologicallyweakenedby30 yearsof miseducation byitsleaderswhowere thoroughly imbued with a bourgeois, reformist, statist ideology that offered workers nosolutiontothenewconditions.

kapitalism101Says:

May20,2014at11:00am|ReplyIstartedHarveysrecentbookbutcouldntfinishit.Itisabominablybadramblingandincoherentand fullof errors. He for instance, lists a contradictionbetween usevalue andexchangevaluewhichheillustrateswithexamplesfromrealestateratherthanusevalueandvalueandexamplesofcommodities.Healsothinksthatoxidizeablemoneywillhelpsolvetheproblemsofcapital.

One ofthe ironiesofHarveysfrequentcontemporaryappealtounderconsumptionarguments isthat in some of his earlier books he makes a decent critique of Rosa Luxemburgsunderconsumptionism and of underconsumptionism in general. In Enigma he repeats thesecritiqueswhile at the same time, inotherchapters,advancinganunderconsumptionistthesis. Ihave not figured out howhe reconciles these two ideas. He definitelyhas not addressed thecontradictiondirectlyinanythingIve readofhis.ButImnotsure anymoreifitisimportant for

Harveytohaveconsistentargumentationinhiswork.

WhatstruckmeabouthispieceonPikeywashowmuchheagreedwithPikeyintermsofthedata and intermsof the narrative about wage repressionand inequality. It seems a veryweakretort.

sartesianSays:

May20,2014at1:15pm|ReplyMarx sayslotsofthings about overproduction inthe Grundrisse,involume 3, inalmost allhiswritings about capitalism, and I dont recall him ever arguing that in the first place

overproduction occurs precisely at a time of, orbecause of, relativelydecliningunproductiveconsumptiondemandbythebourgeoisie.

Overproduction certainly does occur with the overproduction of the means of production ascapital,asthevalueextractingconditionoflabor.

Thelevelofunproductiveconsumptionofcapitalbythe bourgeoisieisbasicallyirrelevantasthatconsumption,bydefinition,isnotthereproductionofcapital.Marxmakesthisclearinexplodingthecapitalistmythologyretheoriginalaccumulation ofcapitalbeinginthehardwork,selfdenial,etc.etc.ofthewouldbecapitalist.

We have to distinguishamongoverproduction, crises, andthe structuraldecline inprofitability.Overproduction isinherentincapital; iscontinuous,anddoesnotbecome critical immediately.Crisis isa short termprocess so while its accurate to describe a crisis in20082009, it isnotaccuratetospeakofacrisisexistingfrom1970,whentherateofprofitpeakedintheUS,through2014.

Itisaccuratetopointoutthatwithinthestructuraldeclineofprofitability,thereremainsthecyclicalmovement;sothattherecoveriesintherateofprofitintheUSforexample19932000,andagain20032007didnotexceedthepeakof19691970.

Disruptions can occur in the reproduction process for any number of reasons includingdisproportion butsuchdisruptionsarereallyancillarytothe realconflictatthe core ofcapitalwhichistheorganizationoflaborasvalueproducing.

The linkage between overproduction, crisis, and the long and the short term movement in


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profitabilityiswhatamountstotheimmanentcritiqueofcapital

CarolWilcoxSays:

May20,2014at2:56pm|ReplyYes,Pikeyignoresthewaythatcapitalsqueezesthesharewhichgoestolabour.ButbothHarveyandPikeyignore the share whichgoestoland.Haveyounotnoticedthe relentlessincrease inlandvaluesmainlyasaresultoftheincreaseincreditsecuredonlandvalues.?

BoffySays:May20,2014at4:42pm|ReplyWiththe development ofthe process, whichexpressesitself inadropinthe rate ofprofit,themassofsurplusvaluethusproducedswellstoimmensedimensions.Nowcomesthesecondactofthe process. Theentire massofcommodities,i.e.,thetotalproduct,includingthe portionwhichreplacestheconstantandvariablecapital,andthatrepresentingsurplusvalue,mustbesold.Ifthisisnotdone,ordoneonlyinpart,oronlyatpricesbelowthepricesofproduction,thelabourerhasbeenindeedexploited,buthisexploitationisnotrealisedassuchforthecapitalist,andthiscanbeboundupwithatotalorpartialfailuretorealisethesurplusvaluepressedoutofhim,indeedevenwith the partialor total loss of the capital.The conditionsof direct exploitation,and those of

realisingit,arenotidentical.Theydivergenotonlyinplaceandtime,butalsologically.Thefirstareonlylimitedbytheproductivepowerofsociety,thelaerbytheproportionalrelationofthevariousbranchesofproduction andtheconsumerpowerofsociety.Butthislastnamedisnotdeterminedeitherbytheabsoluteproductivepower,orbytheabsolute consumerpower,butbytheconsumerpowerbasedonantagonistic conditionsofdistribution,whichreducetheconsumptionofthebulkofsocietytoaminimumvaryingwithinmoreorlessnarrowlimits.Itisfurthermorerestrictedbythetendencytoaccumulate,thedrivetoexpandcapitalandproducesurplusvalueonanextendedscale.

CapitalIII,Chapter15

BoffySays:

May20,2014at5:43pm|ReplySince(IIb)visrealisedinanequivalentpartof(IIa)s,itfollowsthatinproportion astheluxurypartoftheannualproductgrows,asthereforeanincreasingshareofthelabourpowerisabsorbedin the productionof luxuries, the reconversion of the variable capital advanced in (IIb)v intomoneycapital functioning anew as the moneyform of the variable capital, and thereby theexistenceandreproductionofthepartoftheworkingclassemployedinIIbthesupplytothemofconsumernecessitiesdependsupontheprodigalityofthecapitalistclass,upontheexchangeofaconsiderableportionoftheirsurplusvalueforarticlesofluxury.

Everycrisis at once lessens the consumptionof luxuries. It retards, delays the reconversionof(IIb)vintomoneycapital,permiingitonlypartiallyandthusthrowingacertain numberofthelabourersemployedintheproductionofluxuriesoutofwork,whileontheotherhanditthusclogsthe sale ofconsumernecessitiesandreducesit.Andthiswithout mentioningthe unproductivelabourerswhoaredismissedatthesametime,labourerswhoreceivefortheirservicesaportionofthe capitalists luxuryexpensefund(theselabourersarethemselves protantoluxuries),andwhotakeparttoaveryconsiderableextentintheconsumptionofthenecessitiesoflife,etc.Thereversetakesplaceinperiodsofprosperity,particularlyduringthetimesofbogusprosperity,inwhichtherelativevalueofmoney,expressedincommodities,decreasesalsoforotherreasons(without any

actualrevolution invalues), so that the prices of commodities rise independentlyof theirownvalues.It isnot alone the consumptionofnecessitiesof life which increases. Theworkingclass(nowactivelyreinforced by itsentire reserve army) also enjoys momentarilyarticles of luxuryordinarilybeyonditsreach,andthosearticleswhichatothertimesconstitute forthegreaterpartconsumernecessitiesonlyforthecapitalistclass.Thisonitspartcallsforthariseinprices.


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It issheertautologytosaythatcrisesarecausedbythe scarcityofeffective consumption,orofeffective consumers.Thecapitalist systemdoesnotknowanyothermodesofconsumptionthaneffective ones, except that of sub forma pauperis or of the swindler. That commodities areunsaleable means only that no effective purchasers have been found for them, i.e., consumers(sincecommoditiesareboughtinthefinalanalysisforproductiveorindividualconsumption).Butifoneweretoaempttogivethistautologythesemblanceofaprofounderjustificationbysayingthattheworkingclassreceivestoosmallaportionofitsownproductandtheevilwouldberemediedas

soon

as

it

receives

a

larger

share

of

it

and

its

wages

increase

in

consequence,

one

could

only

remarkthat crises are always prepared bypreciselya period in which wages rise generally and theworkingclassactuallygetsalargershareofthatpartoftheannualproductwhichisintendedforconsumption.

CapitalII,pp4145

WesawawhileagothattheproportionbetweentheproductionofconsumernecessitiesandthatofluxuriesrequiresthedivisionofII(v+s)betweenIIaandIIb,andthusofIIcbetween(IIa)cand(IIb)c.Hencethisdivisionaffectsthecharacterandthequantitativerelationsofproductiontotheirveryroots,andisanessentialdeterminingfactorofitsgeneralstructure.

Simplereproductionisessentiallydirectedtowardconsumptionasanend,althoughthegrabbingofsurplusvalue appears as the compellingmotive of the individualcapitalists;but surplusvalue,whateveritsrelative magnitude maybe,isaerallsupposedtoservehereonlyfortheindividualconsumptionofthecapitalist.Assimplereproductionisapart,andthemostimportantoneatthat,ofallannualreproductiononanextendedscale,thismotiveremainsasanaccompanimentofandcontrasttotheselfenrichmentmotive as such. In reality the maer ismore complicated, because partners in the loot thesurplusvalueofthecapitalistfigureasconsumersindependentofhim.

CapitalII,Chapter20

Onemayassumethatintheessentialbranchesofmodernindustrythislifecyclenowaveragestenyears.Howeverwearenotconcernedherewiththeexactfigure.Thismuchisevident:thecycleofinterconnectedturnovers embracinganumberofyears, inwhichcapitalisheldfast byitsfixedconstituent part, furnishes a material basis for the periodic crises. During this cycle businessundergoessuccessive periodsofdepression,mediumactivity, precipitancy,crisis.True,periodsinwhichcapitalisinvesteddiffergreatlyandfarfromcoincide intime.Butacrisisalwaysformsthestartingpoint oflarge newinvestments.Therefore,fromthe point ofviewofsocietyasawhole,moreorless,anewmaterialbasisforthenextturnovercycle.

CapitalII,Chapter9

Inthemanuscript,thefollowingnoteishereinsertedforfutureamplification:Contradictioninthe capitalist mode ofproduction:the labourersasbuyersofcommoditiesareimportant forthemarket.Butassellersoftheirowncommoditylabourpowercapitalist societytendstokeepthemdowntotheminimumprice.Further contradiction: the periods inwhichcapitalist production exertsallitsforcesregularlyturnouttobeperiodsofoverproduction,becauseproductionpotentialscanneverbeutilisedtosuch an extent that more value maynot onlybe produced but also realised; but the sale ofcommodities,therealisation ofcommoditycapitalandthusofsurplusvalue,islimited,notbytheconsumerrequirementsof societyingeneral,butbythe consumerrequirementsofa societyinwhichthevast majorityarealwayspoorandmustalwaysremainpoor.However, thispertainstothenextpart.


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CapitalII,(Note32,p320)

Theoppositecase,inwhichthereproductionofdemisesoffixedcapitalIIinacertainyearislessandonthecontrarythedepreciationpartgreater,needsnofurtherdiscussion.

Therewouldbeacrisisacrisisofoverproductioninspiteofreproductiononanunchangingscale.

CapitalII,p471

Thisillustrationoffixedcapital,onthebasisofanunchangedscaleofreproduction,isstriking.Adisproportionoftheproductionoffixedandcirculatingcapitalisoneofthefavouriteargumentsofthe economistsinexplainingcrises.Thatsuchadisproportioncanandmustarise evenwhenthefixedcapitalismerelypreserved,that itcanandmust dosoonthe assumptionofidealnormalproduction on the basis of simple reproduction of the already functioning social capital issomethingnewtothem.

CapitalII,Chapter20

HerbieDestroystheEnvironmentSays:

May20,2014at8:30pm|ReplyIthinkwehaveseenachangeinthepolitics.Inthattheresponsetoafailureofneoliberalismhasbeenanintensifyingofneoliberalism! Inthepastwewouldhavehadareactionwithmoresocialdemocraticclothing.

Itseemsthatsocialdemocracynolongerworksinaglobalisedcapitalistworld.Thetendencywillbetowardauthoritarianism(arealityalready),andthoseinpowerhavethetechnologyandmeanstoenforceit.

Andsowhatifsocialdemocracy nolongerworks,mostpeopledontseemtomindandcarryonregardless, andwhenwe are talkingabout the West Marxwasplain wrongto saythat whichreduce the consumptionofthe bulkofsocietytoaminimumvaryingwithinmore orlessnarrowlimits

Peopleareconsuminglikeeffingcrazy,mygirlfriendsfamilyhave8TVsinthehouseandtheyaresolidlyworkingclassfolk!Theproblemofcapitalismistoomuchbloodyconsumption,nottoolile.Marxclearlyhasnothingtoexplainthat.

Whocandenythatthele (Iwontsayworkingclass)havebeenthoroughlyandsoundlybeaten?

Iaskasacommunist,whatgoodisMarxnow?

henrySays:

May21,2014at5:37pm|ReplyHerbie,

Yes.ButtheargumentismorecomplicatedalsoreferringtothewageshareinGDP,ifwelookatthe lowestlayers ofsociety, thenmore andmore peoplearereallysufferingeven inthe richcountries, so underconsumptionamongst overconsumption by the other classes and lookatregionsincountriesi.e.inEurope(i.e.inEasternEurope,Spain,Portugal)wherepeople really

suffer,nottomentionAfrica.Marxisgoodifyoulookattheglobalpicture!OverproductionintheNorthandsufferingandsevereunderconsumption/hungerintheSouth.

BoffySays:

May22,2014at12:42pm|Reply


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Idontthinkitstruethatsocialdemocracydoesntworkinaglobalisedenvironment.Infact,theoppositeseemstrue.Theeconomywheresocialdemocraticpolicieshavebeenadoptedinthesense of fiscalstimulus was, forexample the US. Similar measures were adopted inChina,Japanandsoon.

ThedevelopmentofmanynewlyindustrialisedeconomieslikeBrazilandsoonwentalongwiththe replacement offormerBonapartistandmilitarist regimes.Inthe AsianTigers somethingsimilarhappened,andeventheirauthoritarianregimesfollowedasocialdemocratic strategyofdevelopingwelfarestates,promotinghigherwagestrategiestomoveproduction upthe valuechainandsoon.

The UK was promoting a socialdemocratic strategy until the LiberalTories took over. InEurope, the impositionofausterityonthe peripheryismore todowiththe politicalcrisisinEurope, duetothe failureatthatlevelofsocialdemocracytopushforwardthe creationofasingle European state that could adopt such a strategy, and which enhances the politicalpositionofconservativeforceswhosepoliciesaregearedtothe interestsoftheirsmallcapitalbase,andthelandedandfinancialoligarchiestheyhavetraditionallybeenlinkedto,asopposedtothebigindustrialcapitalthatisthefoundationofsocialdemocracy.

AsMarxputsit,wherever,thiskindofmerchantcapitalorfinancialcapitalisdominant,itleadstopoliticalbackwardness,comparedtowhereindustrialcapitalpredominates.

BoffySays:

May23,2014at6:01am|ReplyTheotherinterestingexample isChina.ThechineseStalinistshave recentlybeen supportingdemands forhigherwagesaspartofmovingproductionupthe value chain, ashappenedinSingapore andotherplaces,andasameansofdevelopingthe domestic market.But,alsotheChineseStalinistsarelookingatdevelopingaWelfareState,becauseaWelfareStateisvitaltoa

modernindustrialeconomyforseveralreasons.

Firstly, to produce educatedworkerson a mass productionbasis. Secondly, to ensure theydevote asufficientpartoftheirmeansofsubsistence toprovidingfortheirhealthcare sothattheresourcesspentoneducationarenotwastedbecauseofearlydeaths,orincapacitytowork.Thirdly, tosocialise the workersintoacceptance oftheirconditions.Fourthly,to regulate thelaboursupply,andprovideautomatic stabilisersfortheeconomy.Fihly,toreducetheamountofsavings,inaneconomythatreliesonhighlevelsofconsumption.Chinesesavingsaresohigh,becauseworkershavetoovercompensate fortheriskthattheymaybeill,unemployedandsoon.Byestablishingsocialinsuranceschemes,ashappenedinotherdevelopedeconomiesfrom

thestartofthelastcentury,thestatepreventsworkersprovidingsuchinsuranceviatheirowncollectiveactions,whichwouldmakethemapowerfuleconomicforce;itsecurestheirsavingsfor its own purposes; and by reducing the need for such savings, encourages additionalconsumption to keep the levelof aggregate demandupsoas to facilitate the realisation ofproducedsurplusvalue.

mahewrusso9Says:

May20,2014at9:34pm|ReplyInsuch away, dwellings shouldnotbe consideredpart ofthe capital, asparticular consumergoodsratherthanmeansofproduction.Similarconsiderationsmaybestatedinothercaseslike

financial

assets

(apure

circuit

MM)

orland.

Buthousing*is*partofthetotalsocialcapitalasthefinishedcirculating(insitu)commoditycapitalofthehousingdeveloper.ItisacommoditycapitalwithinDeptII.


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Hencethe caseofhousingisnotatallsimilartothe casesoffinancialassetsorland,the firstbecauseitshortcircuitsthecommoditycapitalform,thesecondbecauseitisnottheresultofanyhumanproductionprocess,muchlesscapitalistproduction.

BoffySays:

May22,2014at12:52pm|ReplyHousesthathavebeensoldarenotpartofthecommoditycapitalofpropertydevelopers,theyaremerelycommoditiesthathavebeenbought.Theyarenomorecapitalthanisachocolatebaratthatpoint.

Thecapitalvalueofthehousebythatpointhasalreadybeenreproducedasmoneycapitalorproductivecapital,orhasle thecircuitofcapitalasmoneytoformrevenueforexploiters.

sartesianSays:

May20,2014at10:20pm|ReplyBoffyproducessomeverycomplexruminationsofMarxonthe nature ofconsumption,none ofwhich point out the overproduction occurs because of, precisely at the moment, when thebourgeoisiereducetheirunproductiveconsumptiontheirabsorptionofrevenue.Itisthecrisis

asMarxpointsoutthatreducestheproduction,andtheconsumptionofluxuriesandeventhen,ANDNOW,notalwaysasthehighendofnichemarketshavereboundedquitenicely,asfarasthe bourgeoisie are concerned. In any case the consumption of the bourgeoisie is but aredistributionofexpropriatedvalue,andnotitsexpandedreproduction.

jeff Says:

May21,2014at1:38am|ReplyMarxisnotfocusedonthisthough.DasKapitalisnotconcernedaboutconsumptionorgeingtheworkersmoremoneyorredistribution.ForMarx,thesearereformistliberalideas.

Marxwants

toshow,

regardless

ofdistribution

orreformist

ideas,

that

capitalism

will

eventuallyhave problemswithprofitabilityduetoconstantlyincreasingmechanization(constantcapital)

asashareofinvestment.Incidentallythislinesuppreywellwithsomeneoclassicaltheories.

BytheendofBook3hesshownalotofwayscapitalismcangetaroundthisproblem.

Marxists support reformist movements because they increase working class confidence,solidarityandtheyalterthe perceivedsociallynecessary time expectedtocreate aproduct.Theydontsupportthemtoavoidrecessionsorfixcapitalism.

sartesianSays:

May21,2014at3:49amButthatsnotreallytheissueunderdiscussion.Thereareseveralissuesunderdiscussion1)doesvolume 2containelaborationsofMarxsnotionsofthe (various)causesforcapitalistcrisisandIthinkitdoes2)doescrisisconformtosomesortofchangesintheproportionofthebourgeoisiesclaimsonrevenue,onunproductiveconsumptionIthinkitdoesnt3)isthe inherent,necessaryexpropriationofsurplusvalue whichmeansofcourse,undernocircumstancescanthe workingclassasaclassreceive the equivalentfortheirentire labortime, andtherefore must always underconsume the real limit to capitalist expansion Ithinktheanswertothatisno;and4)fromthisgeneraldiscussionistheresuchathingaseither a permanent crisis to capital, or indeed, a crisis that is the deathknell for

capitalismandIthinktheanswertobothofthoseisno.

CertainlyMarx aacks underconsumptionistarguments in the Grundrisse and otherworks; Just as clearlyat severalplaces involume 3 andother works he talks about theinherent conflict between capitals need to develop the means of production without


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restrictionwhentheveryconditionforthatdevelopmentisasocietywhereconsumptionisdeterminedandlimitedbythecapitalrelation.

Ithink,however,thatMarxsEconomicManuscripts18571864,andvolume3reallymakeitclearthatcrisisisinherenttocapitalism,andnecessarytoaccumulation.Mostimportantly,those works confirm that Marx sees tendency for the rate of profit to decline as thenecessaryoutcomeofincreasedproductivityoflaborandthatspecificallyrepresentsthereallimit to capital to itsmode of organization of social labor. The labor process stands inoppositiontothevalueprocess(usuallytranslatedasvalorizationprocess)

ThelasttimeIheardHarveyspeak,hewasbabblingaboutoxidizablemoney,andifIhadhadadollarbillandapackofmatchesonme,Iwouldhavesetthe dollaronfireaswhatoxidizablemoneymeans.

jeff Says:

May21,2014at1:18am|ReplyRecessionsandcrisesare just not centralto Capital, theyare usuallyasides oroen footnotes.Under consumption theory is about explaining recessions and not somethingMarx is overly

concernedabout.

Capitalisacritiqueofcapitalismwhenitisrunningsmoothly.

BoffySays:

May21,2014at9:09am|ReplyJeff,

I dont think that iscorrect. Marxs analysis certainly isabout explaining the mechanics ofCapitalonthebasisofidealtypes.Thecircuitsofreproductionassumethatwhatisproducedfindswillingconsumers,i.e.theyfocusonshowingthatthevalueequationswork,thatsufficientrevenueiscreatedtoconsumefinalproduction.

But, itsnot true to saythat Marx isnot focussedoncrisis. Havingset outwhythese valuecalculationswork, he thenfocussesonshowingthat the assumption that the factthat theseresult insufficientrevenuebeingcreatedtodemandfinalproduction,aswellasthe constantcapitalbeingexchangedwithoutthecreationofrevenue,doesnothold.

Hisargument against under consumption, is in fact a different argument than that againstmodern under consumptionistssuch as Keynes. What Marx was arguingagainst inarguingagainstunderconsumption,wasSaysLaw.Mill,Ricardo,andSayarguedthattherecouldbeno

general overproduction because supplycreates its own demand. If I take a commodity tomarket, Isellit,inorderto beable toobtainanothercommodityinexchange foritofequalvalue,therebycreatingademandforthisothercommodity.

Thosewhotodaywanttodenythepossibilityofunderconsumption,orafailureforsupplytofind demand, ironically adopt exactly this same position. But, its precisely against thispropositionthatMarxargues,inhisargumentagainstunderconsumptionandSaysLaw!

InTheoriesofSurplusValueII,Marxgiveshisdefinitiveanalysisofcrises,andtheircauses.Itsclearlynottruetosaythathesnotconcernedwithit,becausehespendsnearly50pagesseing

itoutclearly! Inthat analysis,he says,that SaysLawiswrong, becauseitonlyappliestoasituation of barter. As soon as money intervenes, the potential arises, that I may take acommoditytomarket,andobtain moneyinexchange forit.But, havingobtainedthe money,thereisthennoreasonwhyIwillspendit,sosomeothercommodityownerwhoboughtmycommodityisle withtheirownproductionunsold.


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Mill,Ricardoetc.usedthisargumenttosaythatitasnotBritainthatwasoverproducingthatwascausingaglutoftextilesonmarkets,butChina,Indiaetc,whowereunderconsuming.IfChina would engage in more production, thereby employing more people, producingcommodities that Britain wanted to buy, they would then be able to absorb all of thecommodities that Britain wanted to dump on them. This was the under consumptionistargumentthatMarxwasarguingagainst.

In fact, underconsumptionists like Keynes accept Marxs argument that Says lawdoes notapply. Keynes arguments in relation to the savings rate, and the marginal propensity toconsume are simplyrestatementsof Marxs arguments inTheories of Surplus Value againstSaysLaw,where forexample Marxargues that allthat isrequiredforoverproduction ofallcommoditiesisfortheirtobeapreferenceformoneyoverallothercommodities,forexample,orhisstatementthatasproductionincreases,orincomesrise,theelasticityofdemandrises.So,asMarxsays, just becausethe production ofknivesexpands massivelydueto technologicaladvances,whichalsoreducethevalueofknives,thisisnoreasonwhythedemandforkniveswillriseinthesameproportion.JustbecauseIcanbuy6knivesforthesamepriceIpreviouslyhadtopayfor1,isnoreasonwhyIwillthenbuy6hesays.

AshesetsoutintheGrundrisse,andinTOSV,supplyisafunctionofvalue,whereasdemandisafunctionofusevalue.Peopleincrease orreducetheirdemandforthingsbecauseoftheusevaluetheyobtainfromthemhesays.

Thatiswhy,ashesays,crisesofoverproduction occurwhentherate ofprofitandvolumeofprofitishigh,notviceversa.Thehighratesandvolume ofprofitcause exuberanceandoverinvestment.Theygoalongwith periods of high levels of productivity that cause the profitmargintobelowerasheexplainsinChapter13onthethefallingrateofprofit;theycausethedemandforinputs torisesharplypushingupinputcostsandsqueezingprofitsfurther; theycause the demand for labourpower to rise, so that as he explains inCapital II, and inIII

Chapter6and15,wagesrise,reducingtherateofsurplusvalue,butalsoashesetsoutthere,these higherwagesforworkersmeanthatmore oftheirconsumptionneedsaremet,sotheirelasticityofdemandformanycommoditiesfalls, to persuade themto buymore, the marketpricemustfallbyincreasingamounts,sendingitbelowthecostofproductiongiventhefallingrateofprofitmargins.Itswhyhesayssuchcrisesareusuallyprecededbyhigherthannormalconsumptionbyworkers.

But, as he says, the high profits cause capital to switch itsown consumptionpaerns. Theprospectofbiggerprofitsmeanscapitalinvestsmore.Inordertoinvestmore,ashesays,inhisdetailedanalysisofreproductioninCapitalII,someofwhichIhavecitedabove,capitalistshave

toshi theirconsumptionfromunproductiveconsumptionbeitluxuriesornecessities toproductiveconsumption.So,more value isputintoincreasingproduction,whilstthe demandforunproductive consumptionbycapitalistsisthereby,atleastrelativelyreduced, whilst thisincreasedsupplyoffinalproducts,alreadybeingsoldatlowprofitmarginsbecauseofthelawoffallingprofitmargins,facesincreasingproblemsinexpandingdemandfromworkerswhoarealreadyconsumingmore than normal, and looking for other types of commodities to buy,looking to rebuild their domestic balance sheets bysaving, orsimplyrequiringmuch lowerpricestoenticethemtospendmoreontheexistingrangeofcommodities.

ThisisalsowhatMarxisreferringtointheGrundrisse inthesectiononTheCivilisingMission

ofCapital,whenhetalksabouttheseconditionsforcingCapitaltocontinuallydevelopnewusevalues,topersuadeconsumers,includingworkerstoopentheirwalletstospendmoneyratherthansaveit,tobepreparedtopayhigherpricesforthesenewcommoditiesandsoon.

But, inCapitalII, inexplainingwhyyoucannot simplyassume that supplycreates itsown


13/16

demand,andthatcrisesarisepreciselybecausethisdoesnothappen,andundertheextendedscaleofoperationofCapitalismcomparedwithpreviousmodesofcommodityproductionandexchange,mustresultincrises,setsoutanumberofreasonswhyitwillbreakdownatvariouspointsof the circuit ofcapital. he also sets outsome ofthese explanationsinhisTheoryofCrisesinTOSV2.

Forexample,acrisiscanarisesimplybecausecommoditiesarenotsoldinsomespecifiedtime.Becausemoneycomestoactincreasinglyasmeansofpaymentratherthanmeansofcirculation,ifAdoesnotselltheircommoditiesbysomegivendate,whentheyexpectedtohavesoldthem,itdoesnotmaeriftheysellallofthesecommoditiesbythefollowingweek.Thefactremainsthattheywillnothavereproducedtheircapitalintherequiredtimeperiod.Theymayhavetolayoff theirworkers,forlackoffundstopaythemwages,morespecifically,theymaybeunableto pay their suppliers whosuppliedon credit, andthis inturn sparksa series of paymentsfailures,whichcauseswhathecallsacrisisofthesecondformamoneycrisis(asdistinctfromwhathe callsafinancialcrisisarisingsolelyinthe moneymarkets)whichisafeatureofallcrises,butarisesbecauseofafailureofpayments.

Theothercause might bethatIreferredtoearlier,whichisamismatchbetween supplyand

demandoffixedcapital.AsMarxpointsoutitwouldbeamiracle ifoutofallthe millionsofindividualtransactionsofthereplacementoffixedcapital,thevalueDepartmentII,demandforreplacementfixedcapitalwherethereisbuyingwithoutselling,matchedthatwheretherewassellingwithoutbuying.Allittakesisforthe fixedcapitaltobeabitmore durablethaninthepast etc. anditwilllast that manymore months, untila demandarisesfor itsreplacement,leavingDepartmentIcapitalsinaconditionofoverproduction.

Thishasabsolutelynothingto dowiththe fallingrate of profit, whosefundamentalbasisistechnologicalchangebringingaboutarisingcompositionofcapital, because,asMarxsetsout,thiskindofcrisiscanoccurevenifthereissimplereproduction!And,ashesays,thebasisof

periodiccrisesisestablishedfromthiscause,becausefixedcapitaldoesgetreplacedatfairlyregularperiods.Forexample, therehasbeenathreeyearcycleforaboutthelast30yearsthatseemstobetiedtothetechnologyupgradecycle.

Marxalsosetsoutwhyitisthatsupplyanddemandwillnotexcept byaccident coincide socausingcrises,notjustbecauseofchangingpreferencesofconsumers,risingdemandelasticity,paymentscrisisandsoon,butsimplyduetodifferentlevelsofproductivityindifferentsectors,anddifferentratesofturnoverofcapital.

Forexample,inCapitalII,Chapter16,Marxsetsoutthatiftherearetwosectorswithdifferent

ratesofcapitalturnover,onesectorwillbeproducingvaluethatispumpedintothemarketascommoditiesthatcanbeboughtbythe workersandcapitalists ofbothsectors.But,theothersector whose turnover requires more than a year, will be paying out revenues wages toworkerswhowillbecomingintothemarketwiththatrevenueandbuyingthecommoditiesofthefirstsector.Theworkersofthefirstsector,however, willthencomeintothemarketwiththeirrevenues,onlytofindthattheirarenosector2commoditiestobuy,becausetheywillnotbesentintothemarketforanotheryear!Unlesssufficienthoardsareavailablethismustleadtoadisjunctionbetweensupplyanddemand.

But, also he sets out inTOSV2 that where there are 2 sectors with verydifferent levels of

productivity,such

asituation

will

arise.

Both

sectors

may

have

capital

ofthe

same

value,

andmayexpandthiscapitalbythesameproportionhesays,butifcapital1hasamuchhigherlevel

ofproductivitythancapital2,itmayincreaseitsproductionofusevaluesbysay20%,whereascapital2mayexpanditsproductionofusevaluesbyonly5%.


14/16

Theworkers,andexploitersofcapital1,maywellbeable toabsorbthe additional5%ofusevaluesproducedbycapital2,byincreasingtheirdemand,butMarxsays,thereisabsolutelynoreason whythe workersandexploitersof Capital2 willsimilarly increase their demand forcapital1scommodities,bythesame20%,itssupplyhasincreasedby.Theincreaseinvalueofbothcapitalshasbeenthesame,inpurelyvalueterms,thereissufficientvalueasrevenueinthehandsofcapital2toabsorballofcapital1soutput,butMarxsaystheredemandisbasedonuse value, on theirpreferences, on howmuch of their physical requirement forcapital1s

commodity

has

already

been

sated.IfCapital1wantstosellallofthisadditional20%ofadditionaloutput,therefore,Marxsays,theywillhavetoreducethemarketpricebelowthepriceofproduction,anddependingupontheextenttowhichCapital2sworkersandexploitersresistbuyingCapital1scommodity,themarketpricemayfallbelowthecostofproduction.Thelowertheprofitmargin,asaresultofthelawoffallingprofitmargins,themorelikelyitisthatthislowermarketpricewillbebeneaththecostprice,resultinginlosses,andcrisis.

sartesianSays:

May21,2014at1:00pm|Reply

It arises because fixed capitaldoes not wear out at a uniformrate. The consequence is thatDepartmentIIproducersrecoverthevalueofthewearandtearoftheirfixedcapitalinthevalueoftheirproduction,butthisvalueishoardedasmoneycapital,untilitisrequired.Atthesametime,someDepartmentIIcapitalistsareusingpreviouslyhoardedmoneycapitaltobuylargeamountsoffixedcapitalwithoutpuinganequivalentamountofvalueofcommoditiesintocirculation.Somearebuyersbutnotsellers,whilstothersaresellersbutnotbuyers.Providedthe twobalanceouteverythingisfine,butthechancesthathappensisremote.

Marx specificallysays, that the cycle for the replacement of such increasingquantitiesof fixedcapitalisthebasisofthebusinesscycle.

HereisoneoftheproblemsIhavewithdisproportiontheory.Supposedly,atoneandthesametime,acrisisiscreatedinthedifferentratesofdevaluationofthefixedassets,whichdevaluationoccursasthefixedassetstransfertheirvaluetocommoditiesthroughtheconsumptionoftheirusevalueintheproductionprocess.Atthesametime,apparently,thewearrateisuniformenoughtobecomethebasisforthebusinesscycle.

Ithinkcapitalitselfresolves thisissuethrough2mechanisms:1)creditMarxnotesthattheoriginof creditisinthe differentcirculation times of capital, andthe needofthe capitalists toreduce that time to as near zero as possible 2) prices of productionwhere, inagriculture for

example, the price of fertilizer, seeds, pesticides, machinery increases faster than the price ofagriculturalcommodities.

Anyway,thebestbookonthebusinesscycleisMaksakovkysTheCapitalistCycleandhedoesholdtoatheoryofdisproportion.Atcore,though,disproportionreallyisanothertheoryofunderconsumption,something that comes through Maksakovskysbrilliantexpositionof the businesscycle.What youarele withatthe conclusionofdisproportiontheoryissupplyanddemand,andthesocalledlawsofsupplyanddemand.

Capitalism isalways a system that isoverproducing and underconsuming.The key to thebarriercapitalcreatesforitselfinitsneedforaccumulationisinthechangingproportionbetweenthecomponents,theexchange,thatisindeedcapitalthatislaborpowerconfiguredaswagelabor,andthe meansofproductionconfiguredascapital asaCONDITIONoflaboropposedto thelaborersthemselves.


15/16

NadeemSays:

May23,2014at11:06pm|ReplyPikeyfindingsundercutbyerrorsByChrisGilesinLondonMay23,20147:00pm

hp://www..com/cms/s/2/e1f343cae28111e389fd00144feabdc0.html#axzz32ZnOeI6h

ThomasPikeysbook,CapitalintheTwentyFirstCentury,hasbeenthepublishingsensationofthe year.Itsthesis ofrisinginequalitytappedintothe zeitgeistandelectrifiedthe postfinancialcrisispublicpolicydebate.

But,accordingtoaFinancialTimesinvestigation,therockstarFrencheconomistappearstohavegothissumswrong.

ThedataunderpinningProfessorPikeys577pagetome,whichhasdominatedbestsellerlistsinrecent weeks, contain a series of errors that skew his findings. The FT found mistakes andunexplainedentriesinhisspreadsheets,similartothosewhichlastyearunderminedtheworkon

publicdebtandgrowthofCarmenReinhartandKennethRogoff.

ThecentralthemeofProfPikeysworkisthatwealthinequalitiesareheadingbackuptolevelslastseen before the first worldwar. The investigationundercuts thisclaim, indicatingthere is lileevidenceinProfPikeysoriginalsources tobearoutthe thesisthatanincreasingshare oftotalwealthisheldbytherichestfew.

ProfPikey,43,providesdetailedsourcingforhisestimatesofwealthinequalityinEuropeandtheUS overthepast200years.Inhisspreadsheets,however, therearetranscriptionerrorsfromtheoriginalsourcesandincorrectformulas.Italsoappearsthatsomeofthedataarecherrypickedorconstructedwithoutanoriginalsource.

Forexample,oncetheFTcleanedupandsimplifiedthedata,theEuropeannumbersdonotshowanytendencytowardsrisingwealthinequalityaer1970.Anindependent specialistinmeasuringinequalitysharedtheFTsconcerns.

ContactedbytheFT,ProfPikeysaidhehadusedaverydiverseandheterogeneoussetofdatasources[onwhich]oneneedstomakeanumberofadjustmentstotherawdatasources.

IhavenodoubtthatmyhistoricaldataseriescanbeimprovedandwillbeimprovedinthefuturebutIwouldbeverysurprisedifanyofthesubstantiveconclusionaboutthelongrunevolution

ofwealthdistributionswasmuchaffectedbytheseimprovements,hesaid.

Hiscontentiontohave foundacentralcontradictionofcapitalismhasinrecent monthsmadehimaheroofthele.Althoughhisconclusionshavestirredcontroversy,therehas,untilnow,beennearunanimouspraiseforthequalityofhisstatisticalwork.

On a tour of the US last month, Prof Pikeymet Jacob Lew, US Treasury secretary, gave apresentation totheWhiteHouseCouncilofEconomicAdvisersandlecturedattheInternationalMonetaryFundandtheUN.

Nobel prizewinning economists have heaped praised on Mr Pikeys work. Professor PaulKrugman of PrincetonUniversity,said itwassafe to saythe bookwillbe the most importanteconomicsbookoftheyearandmaybeofthedecade.

ProfessorJosephStiglitzofColumbiaUniversitysaidProfPikeysfundamentalcontributionwas


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the provision ofdataonthe distributionofwealth. ItwasthesubjectoflaudatoryreviewsintheFinancialTimesandotherpublications.

InBritain,EdMiliband,Labourleader,toldthe EveningStandard:Iminthe earlystagesofthebook.Inaway,heissymptomaticofwhatpeopleareactuallyfeeling.

InhisresponsetotheFT,ProfPikeysaidthatmorerecentdatanotinhisworkshowedtheriseintopwealthsharesinthe US inrecent decadeshasbeen evenlargerthanwhat Ishowinmy

book.

DougSays:

May24,2014at6:14pm|ReplyExcellent Michael.PooroldPickeyexplainshisratherweakpoliticsonpage31andultimatelyisignorantofthelabourtheoryofvalueandarguesinequalityisnecessaryandthereforeexploitationisok

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