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Wednesday, December 19, 2018


This post will be a lengthy reflection on what I have learned from Piketty in the context of what I long ago learned from Marx, all in the service of attempting to advance my thinking about what one can work for and hope for in the years to come.  Since I do not see these matters clearly, I welcome comments and disagreements both from the usual suspects and perhaps also from some of the lurkers out there who have not yet chosen to post comments.

Let me begin with some general observations about capitalism, first in its classic form and then in its modern configuration.  Capitalism is a system of social relations of production characterized by legally free labor, private ownership of the means of production, and production of commodities intended to be sold at a profit.  As a consequence of this basic set of arrangements, capitalists – which is to say the legal owners of capital – accumulate additional capital in each cycle of production.  This is not a failure of the system; it is the system.  As time goes on, the accumulation of capital grows ever larger, while what is owned by the workers [this is still the classic form] is consumed in reproducing their labor, which is to say in staying alive and raising the next generation of workers.  Inasmuch as capital is in all capitalist economies legally inheritable, over time there emerges a class of capitalists whose relationship to the production process is purely one of inherited ownership.  This is what Piketty, following the French fashion, calls patrimonial capitalism.  Fairly quickly, as capitalism develops, the wealth gap between capitalists and workers becomes enormous and seemingly eternal and inevitable.

As capitalism develops, ownership of capital, which carries with it, at least theoretically, a right to a share of the profits, is separated from day-to-day or even intermittent control of the use of capital, through the introduction and spread of joint stock limited liability corporations.  The classic study of this epochal shift in the structure of capitalism is a book now eighty-six years old, The Modern Corporation and Private Property by Adolf Berle and Gardiner Means.  As a result of this shift, capital in the form of private corporations comes to be directed by salaried managers who only in the rarest of cases actually personally own more than tiny fractions of the totality of shares in the corporations. 

Contrary to Marx’s expectation, which he based on his observation of capitalism as it functioned in the middle of the nineteenth century, as capitalism develops, along with it there develops a seemingly immutable and sharply pyramidal structure of work paid for by wages or salaries.  To a considerable extent, the lives, the prospects, and hence the subjective experiences of those at the top or in the middle of the pyramid differ so widely from those in the lower half of the pyramid that these men and women, although they are all wage earners in a capitalist economy, neither have nor experience themselves as having common interests and needs.  Mainstream economists, following the work of Gary Becker, talk of some workers as having acquired “human capital” in the form of education or specialized skills, the implication being [whether they intend it or not] that a portion of their compensation is in the form of profit, rather than wages.  This theoretical analysis has led Marxist economists like [the young] Samuel Bowles and Herbert Gintis to develop theories of relative exploitation, the idea being that just as capitalists exploit workers, even including those earning high salaries, pace Marx, so high salaried employees exploit lower paid workers, in effect gaining a portion of their higher salaries not from their capitalist masters but from their less well prepared underlings.

Enter Piketty.  As Piketty demonstrates in his important work Capitalism in the Twenty-First Century, the ever-more unequal distribution of wealth that characterized as much of the industrialized world as he had the data to study was sharply reversed in the years after World War II.  It appeared to academic economists, writing in the sixties and seventies and even later, that mature capitalism had solved the problem of inequality and had forged a social compact that brought ever greater wealth and income to workers as well as capitalists.  Piketty decisively demonstrated that in fact the post-war period, what the French called les trentes glorieuses, was in fact an historically temporary phenomenon caused by the material and value destruction of the Great Depression and the war.  The inexorable march of ever greater inequality resumed after that period of reversal, and now reaches levels of inequality comparable to those of the Gilded Age, the late nineteenth century.  There was, Piketty noted, one great difference in the sources and shape of the inequality, namely the role of enormously inflated corporate salaries.  The managers of the great corporations use their de facto unregulated control of the corporations they manage to divert a share of the profits to themselves in the form of inflated salaries and bonuses.  The magnitude of this diversion makes it more and more difficult for economists to defend the theoretical nonsense that the salaries of those at the top are merely their “marginal product.”

Enter Piketty a second time, with his colleagues Saez and Zucman.  Starting roughly during the Reagan years [or the Carter years, as Jerry Fresia argues], the compensation for the Bottom 50% flattens, the compensation for the next 40% rises slowly but steadily, and the compensation for the top 10% [and even for the top 1% or 0.1%] soars off the charts.  The social welfare programs, the so-called “safety net,” that buoyed the Bottom Half through a variety of pre-tax and post-tax transfer payments cease to function as they had in the preceding fifty years.

I find it interesting to connect this development with an old book to which I have alluded before on this blog:  The Fiscal Crisis of the State, by James O’Connor, published in 1973.  Briefly, O’Connor argues that federal expenditures in a capitalist America serve two quite different functions.  The first function is to socialize some of the necessary expenditures of capital, such as the education of workers.  The second function is, in effect, bread and circuses to keep the turbulent masses quiet.  O’Connor argues that the cost of the second function is outrunning revenues, threatening a fiscal crisis.

O’Connor seems to me to have been right, but writing in 1972-73 [which is to say, during what we now call somewhat inaccurately “The Sixties”] he failed to anticipate that capital would be able simply to cancel the circuses and stop distributing the bread.  In short, he failed to foresee the flatlining of the compensation of the Bottom Half that Piketty et al. demonstrate in their recent essay.

What, if anything, does all this tell us about the way forward for those of us on the left?  I shall pause, post this, and return to the subject tomorrow.


s. wallerstein said...

Isn't the end of the Cold War at the end of the 80's one of the reasons why the social safety net ceased to function as well as it did previously?

During the Cold War the U.S. and Western Europe had to belie the Soviet claim that workers were exploited under capitalism. Remember the kitchen debate between Nixon and Khrushchev?

After the Soviet Union collapsed, there was no system competing with capitalism. People assumed that history had ended, that Marxism was no longer relevant and that there was no need to treat workers decently since if they didn't like it, there was no competing system which they go recur to.

Thus, welfare and safety net benefits were cut everywhere, both in the U.S. and in Western Europe. "New Labor", that is, a Labor Party supporting neoliberalism, appeared in the U.K. and the Spanish socialists under Felipe Gonzalez had a similar ideological outlook. Bill Clinton took the same line.

s. wallerstein said...

For those too young to remember the kitchen debate:

Anonymous said...

Fascinating stuff. This is what keeps me coming back to your blog, Professor. One thing I wonder though: What would it mean to calculate the marginal product of the CEO of GE? With a worker who produces something, you can add up the value of the stuff they produce, but how can you compute the value of managerial labor? Or for any similarly abstract work for that matter.

Robert Paul Wolff said...

Anonymous, a quick check revealed that I have discussed the notion of marginal product no fewer than six times on this blog, so I will just say, take a look at the post from 10/11/10, 2/21/11, 1/19/16, 5/15/16, 4/27/14, or 9/27/18/. The problems are pretty much the sme for manual labor and managerial labor.