Piketty: Chapter One

Piketty begins the chapter with a story about a platinum mine strike in South Africa. Of all the ways he could have started off, I think this demonstrates that Piketty is engaged in a rhetorically sophisticated endeavour. The labor strike is symbolic of the struggle between labor and capital that has characterized capitalism from its inception. Mining is, in some sense, the most capitalistic of industries – capitalism is all about the extraction of value, and mining precious metals is a perfect metaphor for that activity. South Africa, the former British colony, that has seen imperialist wars (the journalistic coverage of which paid Winston Churchill’s considerable spirits accounts throughout much of his life), as well as the long and terrible legacy of apartheid, and the inspiring rise of Nelson Mandela. And when did the strike mentioned at the outset take place? 2012. The present day. So that is where we begin: the conflict between labor and capital, which is tied into exploitation and violence (towards both the earth and human beings), imperialism and alienation; a conflict which has a long history but which also exists in the current day.

Still on the first page, Piketty mentions the Chicago Haymarket Affair of 1886, as well as an event at Fourmies in France in 1891 – both of which took place on May 1st – May Day. He sets the stage in such a way as to relate the present with a past based in Western labor struggles – May Day is International Workers Day, a kind of Communist Easter, which is to say, a day which acknowledges both the global scope of capitalism and also its roots in Western Europe. The chapter is mainly about setting up the definitions that will be used in analysis that comprise the book, but Piketty demonstrates a nuanced understanding of political economy here. On the one hand, he has already shown that anybody looking for the Revolution here will be disappointed, but on the other hand, he is not offering a merely mathematical analysis either.

In this first chapter, Piketty offers up plenty of material for the objections of other economists – if you want to dispute his conclusions, all you really need to do is insist that his assumptions are incorrect. And I think he does an admirable job of putting his cards on the table as far as assumptions are concerned, and of making clear that the measurements he is using are imperfect.  One of Marx’s major appeals was that his version of communism was scientific – rigorous, data driven, and so on – and his overbearing tone on this account was, I think, meant to convey a tone of authority and incontrovertability. Piketty, in contrast, is easily superior in his command of data (he has some not inconsiderable advantages over Marx, of course) and the rigor of his method – but he is scarcely insistent of his authority. His modesty is appealing to me, although I wonder how it will affect his long-run impact on economic discourse. As Oscar Wilde once said, “Moderation is a fatal thing. Nothing succeeds like excess.”

What is especially interesting to me in this first chapter is that Piketty sets up his study as global in scope. I find that as a general rule the discussion of economic inequality likes narrowness – people want to talk about inequality within whatever they perceive as their society. Piketty is setting up a discussion in which capitalism globalizes society itself, I think, which is, in its way, a subversive thing to do. Many people tend to think in terms of national societies – in the US we think about inequality in terms of the difference between the middle class and the upper class elites. Piketty makes a comparison at the end of the chapter between the regions in terms of per capita incomes in those regions. The poorest regions are sub-Saharan Africa and India, the richest, North America and Western Europe. And the difference between per capita income is roughly a factor of 10 – i.e. people in North America and Western Europe earn, on average, ten times what people in sub-Saharan Africa and India earn. China is offered as something of an average in this scale. As Piketty points out, this doesn’t tell us anything about inequality within those regions.

What a historical examination of the global distribution of income and wealth can tell us is that the world has been converging since roughly the end of the 1970s. Between 1900 and 1980, 70-80% of global production was concentrated in Europe and the Americas (North and South) – but that share, as of 2010, has fallen to 50%. “Regardless of what measure is used,” Piketty writes on page 67, “the world seems to have entered a phase in which rich and poor countries are converging in income.” This particular conclusion is really compelling for a few reasons – one is that Piketty cites the diffusion of “human capital” (a term I will discuss below) as one of the main drivers of convergence; also, it reminds me of the Hecksher-Ohlin-Samuelson theory of international trade, in which trading countries are expected to see a convergence of labor and capital endowments over time. The most compelling aspect of this conclusion is, however, that it means that those of us accustomed to the enormous advantages of US or European citizenship will perhaps see those advantages erode in the not-too-distant future. It seems to me that Americans have been only too happy to accept capitalism while they were reaping net-benefits from it – but now that capitalism seems poised to disrupt the US political economy in ways not as readily acceptable to Americans, I have a feeling they might change their minds about free enterprise. But not before capitalism goes about overturning culture and so on. There’s a lot more to be said on this topic, and I have a feeling I will have ample opportunity to return to it later.

Piketty identifies two basic types of income: labor and capital. Last year I read Hannah Arendt’s The Human Condition, which decribes Western civilization as dominated by the phenomenon of animal laborans – an idea I found enormously compelling. She points out that we’re basically a consumer society, and that labor is the necessary balance of consumption, and that we are therefore a laboring society. This is why we ask people we’ve just met “What do you do?” because our public identities are conceived in terms of the labor which we exchange for money, which we then exchange for consumption. There’s a lot more I could say about this, but let us say for now that labor income is one of the basic kinds of income. The other kind is capital income. Now, income is defined as a flow, and capital is defined as a stock, so a capital income would be a stock which generates a flow. Moreover, Piketty defines capital as something you can exchange on the market, and thus dispenses with quantifying “human capital,” or including it in his calculations. He does mention that one could identify human capital as slaves, such as those in the US before 1865, but that is something of a special case. I’ve heard that if you calculate the value of the slaves before the Civil War in monetary terms, the losses incurred by the slave owners by the War are greater than the total value of the total capital stock of the northern states at that time. But of course, when modern economists talk about human capital, what they mean is the returns on accumulated education, i.e. if you have a PhD, then your income should, in theory, reflect that. The idea of human capital goes back to Gary Becker, one of the primary cogs in the University of Chicago economics machine. Personally, I think it’s a huge mistake to imagine people as a stock of capital, and besides which, the point of education is not merely to maximize the potential productivity of some individual. But what’s really odd is that at the end of the chapter, Piketty returns to the idea of human capital as one of the main drivers of convergence, by which he means the diffusion of knowledge. That he chose this particular way of characterizing convergence is really interesting – I’ll looking out for his views on education, and how he thinks of people in the context of society, and the economy.

The last thing I want to point out about this first chapter is that includes Piketty’s “First Fundamental Law of Capitalism.” When people talk about how economics has physics envy, this is, in some sense, what they’re talking about. In order to talk about the economy systematically, economists describe a system, and then fit the data into the framework of that system. If you were inclined to reject Piketty’s conclusions, which he has already stated in the Introduction, you might think of a “Fundamental Law” as being ridiculous, presumptuous, and obviously wrong. I don’t really think that the law Piketty is setting up is like a law of physics – rather, it’s a tool for analysis. He takes some accounting identities – income, capital, and growth – and sets them up in an equation to establish a relationship. I think its a very clear way of proceeding, myself.

Anyways – that’s what I have to say about Chapter One. If you’re reading along, and have thoughts, please feel free to comment on this entry, or to email and let me know what you think. I’m very interested in hearing what other folks have to say about this fascinating book.



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