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Thursday, May 1, 2014

EARLY MORNING MUSING


Chris, one of my most faithful readers, sent me a link to a brief piece by a Marxist, Michael Roberts, summarizing and linking in turn to some French criticisms of Piketty.  This is a bit too inside-baseball for me to comment on, but one line in the piece struck me, and as I was taking my five a.m. walk this morning, I found myself chewing over it.  Roberts says, "[Michel] Husson also points out that Piketty’s merging of the definition of capital, as Marx sees it, into wealth, by including housing and personal financial assets, distorts the real laws of motion of capitalism."

Why wouldn't one include housing in a tabulation or evaluation of the capital in a society? I wondered.  Maybe this is obvious to real Marxists, not cocktail party Marxists like me, but I don't get it.  This was the train of my thinking as I walked along [interrupted only by catching sight of a deer in front of the Finley playing fields on Old Mason Farm Road.]

If a capitalist takes the profits from this year's operations and uses them to build a new factory, that is an addition to capital, right?  Suppose however he decides to diversify and builds a seaside resort, which he runs at a profit.  That is capital too, no?  It provides services rather than goods to consumers, but it is a for-profit enterprise, and the money invested in it surely counts as capital.  How could it not?  Surely Marx, more than anyone, would have argued that capital is not stuff, but surplus value extracted from workers and turned into a source of further surplus value.

Having made a killing on the seaside resort, suppose the capitalist uses his profits to diversify further by erecting a luxury apartment building that he rents to upscale yuppies who want a prestige address.  That building also is capital, right?  I mean, if the seaside resort, where people stay for a week or two, is capital, then the luxury apartment building where they live for years, paying high rents and making a ton of money for the owner, must also be capital.

Now suppose the capitalist decides to cash in his investment, and takes the building condo, as they say in New York.  The renters all jump at the chance to buy their apartments.  The day after the sales go through, the building, if I understand Roberts correctly, ceases to be capital and becomes -- housing, which is not capital, according to him.

But wait, there was a recording error in the transfer of ownership of the apartments from the capitalists to the renters, and each renter, instead of buying his or her own apartment, has actually bought someone else's apartment.  No harm, no foul.  Each renter now owns an investment property [the condo down the hall], on which a hefty rent is paid, and is of course also still paying rent on the apartment he or she or they live in.  Each renter/owner, we may suppose, is making a profit, and so each of them has a piece of capital, yes?  Until the error is corrected, and at a big condo party, everyone swaps deeds [all the apartments are the same size and sold for the same amount], at which point the building ceases to be capital, and finally becomes simply housing.

I have to confess that this seems to me a piece of what  Marx would have called ideological mystification.  I just don't get why housing is not capital even if it is owned by the person who lives in it.

Would the real Marxists out there please enlighten me.

7 comments:

Tim Jarvis said...

I can't pretend to adequately understand it, so won't even try to summarise it, but Roberts expands on this issue in another post:

http://thenextrecession.wordpress.com/2014/04/23/a-world-rate-of-profit-revisited-with-maito-and-piketty/

Chris said...

I don't know if I can address your question for Roberts directly Wolff, but I think there are two issues in what you're saying.

The first is the quote:
"Husson also points out that Piketty’s merging of the definition of capital, as Marx sees it, into wealth, by including housing and personal financial assets, distorts the real laws of motion of capitalism."

This is not claiming that housing cannot be used as capital. Marx's definition of capital, so far as I can tell, is that it's value in motion, under girded by a social relation that preserves this motion. Money, credit, finance, etc, can all operate as capital, but for capitalism to reproduce itself in the long term it needs to create surplus value, and that is only done from the exploitation of productive labor. So it's not at all clear to me why you say this:

" It provides services rather than goods to consumers, but it is a for-profit enterprise, and the money invested in it surely counts as capital. How could it not? Surely Marx, more than anyone, would have argued that capital is not stuff, but surplus value extracted from workers and turned into a source of further surplus value."

Just because capital is value in motion does not mean the motion creates SURPLUS value. This is part of Marx's point in volume III regarding money capitalists and fictitious finance capital. I can lend you $10, on the promise that you pay me back $15. And a year from now after your relative gives you cash for Christmas, you can give me that $15. I've acted as a money capitalist, and I've made a profit, but the whole process has not created more SURPLUS value for capitalism.

So I think you're making an error in how you read that first quote. The laws of motion of capital require the production of surplus value, and while housing might be profitable, and capital intensive, that doesn't mean it's generating a surplus...no?


Magpie said...

I think one needs to consider several things when it comes to Piketty's definition of capital and people tend to focus on just a few of them. And I think here both of Roberts and Galbraith.

Against Piketty.

Piketty's inclusion of housing and financial capital is controversial even beyond Marxist considerations.

Here it is useful to consider why GDP accounting includes private housing as an item within gross capital formation.

Basically, it is an arbitrary choice: it is based on the convention that an item whose useful life exceeds 5 years is an investment, whereas an item whose useful life is less than 5 years, but more than 1 is a durable good (an item lasting less than one year is just consumption and an item whose life ends immediately is a service).

That is the only reason why the family car, TV set or fridge are classified as durable goods, but the family home is considered an investment.

So, if Piketty includes private housing, why not the family car, or the LCD TV? If he excludes family car and LCD TV, why not private housing?

And this is a fundamental matter: according to Piketty, "middle-class" wealth is basically represented by housing (plus financial assets, which are not included in GDP), which, beyond that imputed rent included in GDP, does not produce any actual return.

In Piketty's favour.

Piketty did not design the data collection process: he is using existing data, collected over the course of centuries by people working independently of each other.

Those who determined what data was to be collected did not think, either, of the needs of 21th century scholars, not even of 19th century Marx: they thought of assessing taxes.

So, in my opinion, the questions are:

(1) do we use the data available, even if they are not ideal? or
(2) do we give up the chance of studying long-term wealth evolution?

Charles A said...

Nice story you put together on your walk. Consider, though:

1. After the deeds are misrecorded, the renters collect rent on the other person's condo, but they both pay rent on the one they live in and pay the mortgage on the one they own.

2. Much the same story could be told about automobiles. So should Piketty count all them, too, in addition to the capital invested in the corporations that make them?

phw said...

Very simple. A distinction between residential vs. nonresidential housing. Michael may have been referring to residential housing. Nonresidential housing is of course capital.

Robert Paul Wolff said...

Is residential housing built to be rented out at a profit capital? Is a corporate hotel chin like Howard Johnson or Marriott capital? It generates a profit. Lord knows, it exploits its workers, by any definition of "exploits."

phw said...

"housing built to be rented out at a profit capital" is categorized as nonresidential. So hotels are nonresidential and of course capital.