Posts Tagged ‘neoclassical’

Is Dan Price [ht:sm], the founder and CEO of Gravity Payments who raised the salaries of his employees and slashed his own pay, a socialist hero?

Well, no. Not really. Price certainly doesn’t think so. And, in the end, he—not Gravity’s employees as a group—is the one who decided what the new pay scheme would look like. He is the one who took the decision to distribute some of the surplus produced by his workers back to them in the form of higher wages and to take a smaller amount of that surplus in his compensation.

But I do like the fact that the two KTVB interviewers, Dee Sarton and Carolyn Holly, are clearly taken with Dan Price and his decision—which presumably stand in sharp contrast to all the other CEOs they’ve been forced to interview over the years.

Even more, Price’s decision proves once again (as I argued back in 2013) that “capitalists do lots of different things.”

They do make profits (at least sometimes, but over what timeframe are they supposedly maximizing those profits?). But they don’t follow any single rule. They also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

So, I’m not prepared to celebrate Price as a “good capitalist,” as against all the “bad capitalists” who are choosing to increase the gap between average workers’ pay and the enormous payments to CEOs.

My point is a actually somewhat different: first, that capitalists—whether in Columbus or Seattle—do lots of different things, and presuming they follow a simple rule (whether profit-maximization as in the usual neoclassical story, or the accumulation of capital in many heterodox stories) means missing out on the complex, contradictory dynamics of capitalist enterprises; and second, that other kinds of enterprises (in which workers themselves make the decisions about how the surplus is appropriated and distributed) would do even more, on a wider scale, to transform the dynamics of the distribution of income and wealth in the U.S. economy.

Les-femmes-dAlger-daprès-Delacroix-XV-Paris-14-Fevrier-1955-huile-sur-toile114-x-146-cm-collection-privée-Europe

Neoclassical economists don’t have a lot to say about the value of art. Basically, they start from the proposition that a work of art, such as Picasso’s “Les femmes d’Alger (Version ‘O’),” is often considered to have two different values: an aesthetic or cultural value (its cultural worth or significance) and a price or exchange-value (the amount of money a work of art fetches on the market). They then demonstrate that, within free markets, individual choices ensure that the price of art generally captures or represents all of the various dimensions of value attributable to the work of art, rendering the need for a separate concept of aesthetic or cultural value redundant. Therefore, on their view, Picasso’s painting is “worth” the record auction price of $179.37 million.*

But the Wall Street Journal (gated) observes that yesterday’s sale of other paintings—including Mark Rothko’s “Untitled (Yellow and Blue)”—reveals something else:

Some paintings act like object lessons in tracking the global migration of wealth, bouncing from one owner to the next in timely turns. Such was the case Tuesday when Sotheby’s sold a $46.5 million Mark Rothko abstract that previously belonged to U.S. banker Paul Mellon and later to French luxury executive François Pinault.

All night long, Sotheby’s sale demonstrated the power that the younger, international set is wielding over the art market, pushing up brand-name artists and newcomers alike. Bidders from more than 40 countries raised their paddles at some point during Sotheby’s $379.7 million sale of contemporary art, and the house said bidding proved particularly strong from collectors in Asia and across Latin America.

Clearly, the ever-expanding bubble in high-end art is predicated on the extraordinary amount of surplus that is being captured by a tiny number of individuals at the very top of the world’s distribution of income and their willingness to spend a portion of it on “vanity capital.”

As Neil Irwin explains,

Let’s assume, for a minute, that no one would spend more than 1 percent of his total net worth on a single painting. By that reckoning, the buyer of Picasso’s 1955 “Les Femmes d’Alger (Version O)” would need to have at least $17.9 billion in total wealth. That would imply, based on the Forbes Billionaires list, that there are exactly 50 plausible buyers of the painting worldwide.

This is meant to be illustrative, not literal. Some people are willing to spend more than 1 percent of their wealth on a painting; the casino magnate Steve Wynn told Bloomberg he bid $125 million on the Picasso this week, which amounts to 3.7 percent of his estimated net worth. The Forbes list may also have inaccuracies or be missing ultra-wealthy families that have succeeded in keeping their holdings secret.

But this crude metric does show how much the pool of potential mega-wealthy art buyers has increased since, for example, the last time this particular Picasso was auctioned, in 1997.

After adjusting for inflation and using our 1 percent of net worth premise, a person would have needed $12.3 billion of wealth in 1997 dollars to afford the painting. Look to the Forbes list for that year, and only a dozen families worldwide cleared that bar.

In other words, the number of people who, by this metric, could easily afford to pay $179 million for a Picasso has increased more than fourfold since the painting was last on the market. That helps explain the actual price the painting sold for in 1997: a mere $31.9 million, which in inflation-adjusted terms is $46.7 million. There were, quite simply, fewer people in the stratosphere of wealth who could bid against one another to get the price up to its 2015 level.

More people with more money bidding on a more or less fixed supply of something can only drive the price upward. On Monday, the auction was for fine art. But the same dynamic applies for prime real estate in central London or overlooking Central Park, or for bottles of 1982 Bordeaux.

The pool of “potential mega-wealthy art buyers” has indeed expanded but it’s still a infinitesimal fraction of the world’s population. Still, it’s enough to set record prices in recent art auctions, which (along with real-estate and fine-wine markets) thereby serves as a window on the grotesque levels of economic inequality we are witnessing in the world today.

But there’s another aspect of the Wall Street Journal story (and of many other articles I’ve read about recent art auctions) that deserves attention: the worry that the highly unequal distribution of income and wealth is migrating out of the West—to the East (especially China) and the Global South (particularly Latin America). It’s a worry that the cultural patrimony of the West is being exported (or, if you prefer, re-exported, after centuries of plunder of the empire’s hinterland) as the surplus being generated within the world economy is increasingly being captured by individuals outside the West.

I wonder, then, if this worry (about the migration of wealth and art) will ultimately be reflected in Western neoclassical economists’ long-held celebration of free markets—and if will there be a new round of preoccupation about the differences between market and aesthetic values, as the demands of new buyers from outside the West succeed in determining ever-higher prices for the art (and utilizing the surplus) the West has long claimed as its own.

*For other mainstream economists, if art’s cultural value is not adequately represented by its exchange-value (because, for example, art has “positive externalities,” that is, benefits to society beyond what is captured in the market price), then there is room for public subvention of art and of artists. And that ends up determining the limits of debate within mainstream economics: the neoclassical view of free private art markets (when the two values are the same) versus the alternative view in favor of public support for the arts (if and when they are not).

Investment

Both sides of mainstream economics will likely claim support in the International Monetary Fund’s latest report, the April 2015 World Economic Outlook—especially chapter 4, on business investment.*

The Keynesians will certainly like the relationship between investment and output—in other words, the idea that private business investment has declined since the start of the economic crisis because aggregate demand has fallen. Even more: they’ll find support in claim that fiscal policy aimed at reducing budget deficits has actually undermined private investment (which is the flip side of the Keynesian crowding-in argument, i.e., the notion that deficit spending doesn’t crowd out private investment, as neoclassical economists claim, but actually spurs or crowds in corporate investment).

The neoclassicals, for their part, will be encouraged by the focus on “business confidence,” that is, the argument that uncertainty (e.g., with respect to government policies) has played a role in discouraging business investment.

In other words, for Keynesians, the problem with insufficient business investment is mostly on the demand side; while for neoclassical economists, it’s mostly on the supply side.

And, true to form, the authors of that section of the report suggest policy changes on both the demand and supply sides:

We conclude that a comprehensive policy effort to expand output is needed to sustainably raise private investment. Fiscal and monetary policies can encourage firms to invest, although such policies are unlikely to fully return restore investment fully to precrisis trends. More public infrastructure investment could also spur demand in the short term, raise supply in the medium term, and thus ‘crowd in’ private investment where conditions are right. And structural reforms, – such as those to strengthen labor force participation, – could improve the outlook for potential output and thus encourage private investment. Finally, to the extent that financial constraints hold back private investment, there is also a role for policies aimed at relieving crisis-related financial constraints, including through tackling debt overhang and cleaning up bank balance sheets.

What no one seems to want to admit—the authors of the report as well as mainstream (both Keynesian and neoclassical) economists—is that private corporations, which got us into this mess in the first place, have failed to get us out of it. They’re the only ones that have benefited from the recovery, as corporate profits have reached record levels, but they haven’t responded by increasing investment. Instead, they’ve been using the profits they’re accumulated to buyback their stock, engage in new mergers and acquisitions, and distribute them to high-level executives and shareholders.

They want us to believe they’re superman. But we know they’ve simply failed—on both the demand and supply sides.

*To be clear, the chart does not indicate actual declines in business investment and output. Rather, it represents percent deviations from forecasts in the year of recessions.

 

My article, “Contending Economic Theories: Which Side Are You On?” has just been published on Taylor & Francis Online for the journal Rethinking Marxism.

The first 50 interested readers (actually 49, since I downloaded a copy for myself) can download the text of the article here.

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source*

As I noted a few days ago (in discussing the notion of human capital), the concept of capital has undergone an extraordinary redefinition and expansion in recent years. Now, in the work of mainstream economists, it has come to refer to, in addition to physical capital, human, social, intellectual, and many other forms of capital.

What’s going on?

My sense is that, whereas capital traditionally referred to the property of capitalists—and thus their claim on some portion of new value created in the form of profits—it now means something very different: any stock that can be accumulated over time to yield an income (or at least, as in the case of housing, a flow of benefits). One interpretation, then, is we’re being moved by this reimagining of capital further and further away from any notion of class (such as implied by the differences between capital and labor and the accumulation of capital by and for the benefit of a tiny minority in society). But there is, I think, a somewhat different interpretation: we’re still obsessed by class (perhaps even more than before) and, precisely because of that, the mainstream project is to turn all of us into capitalists, with the shared goal of accumulating and managing our individual portfolios of various forms of capital.

Income share by labor and corps to 2011

It is perhaps not a coincidence that capital is being redefined and expanded precisely when the “capital share”—that is, the share of national income going to corporate profits—has reached record highs (not coincidentally, just as the wage share is at a record low) and some (such as Thomas Piketty and sympathetic readers) are expressing a worry that current trends in the unequal distribution of wealth may, if they continue, represent a return to the réntier incomes and inherited wealth characteristic of “patrimonial capitalism.”

So, capital is still a problem that haunts economics.

The problem of capital can be traced back to the first texts of modern economics. While I don’t have the space here to present a full history of economic thought, it is important to note that, for Adam Smith, the stock of physical capital played an important role in creating the wealth of nations. But, at the same time, Smith worried that capitalists might not carry out their “historical mission” of accumulating capital—if, for example, they chose to divert some of their profits to other uses, such as luxury consumption. David Ricardo, too, worried about the capitalists’ mission—if, with continual growth, the declining fertility of land under cultivation meant that rent on the land cut into profits and thus slowed the process of accumulation. Marx, of course, challenged both the classicals’ definition of capital—preferring to see it as a social relationship, rather than a thing—and their worry that the accumulation of capital (in the form of c and v, constant and variable capital) would slow as a result of exogenous events—because, for Marx, the problems were endogenous, as capital itself created obstacles to smooth and continuous accumulation. Even in early neoclassical growth theory (for example, in the Solow model), capital carried the hint of class, as it still had to be accumulated by a small group of investors—with the caveat, of course, that labor also stood to benefit as a result of more jobs and a higher marginal productivity.

But that previous class dimension of capital seems to have radically changed with the proliferation of new, expanded notions of capital.

This issue of capital came up as I was reading the commentaries on Piketty’s book that were delivered in a session at the recent American Economic Association meetings. All of the respondents—mainstream economists of various hues and stripes—took issue with Piketty’s definition and measurement of wealth. However, let me for the sake of this post, focus on one of them, by David Weil [pdf]. Weil’s view is that, in addition to productive capital (the K one finds, alongside labor, in the usual neoclassical production function), capital should also include two other forms of wealth: human capital and “transfer wealth.” In his hands, labor income is now transformed into another kind of return on capital, the result of which is that a portion of national income (his calculations indicate 38 percent) represents a payment for education above and beyond “brute” labor. Human capital has the additional advantage, for mainstream economists like Weil, that it is more equally distributed (“there is a limit to how much human capital even the richest parent can cram into the head of his or her child”) than physical or financial capital. And then there are the Social Security payments workers rely on as retirement income. Weil also wants to treat them as capital, as a “transfer wealth.” He does acknowledge potential objections (“Ownership of transfer wealth conveys no control rights, and it can’t be sold or borrowed against, although it is not clear that these characteristics would be very valuable to those who hold it. Because it is annuitized, transfer wealth does not pass on to heirs, and so it is certainly true it affects the dynamics of inequality differently than market wealth.”) but then, impressed with the “gross size of these transfer claims,” Weil proceeds to treat them as a form of individual wealth—instead of as a social claim by one group of former workers on the surplus being created by existing workers.

The proliferation of these notions moves capital further and further away from its previous associations, in one way or another, with class and the process of producing, capturing, and utilizing the surplus in the form of capitalist profits. That’s one of the effects of redefining capital and imagining that wages and Social Security represent different returns on capital.

At the same time, the new forms of capital continue to be haunted by the issue of class, precisely in the insistence that everyone—not just capitalists—owns some and that forms such as human capital and “transfer wealth” are more equitably distributed than traditional (physical and financial) capital. In other words, mainstream economists’ attempts to redefine and expand what we mean by capital still carry the whiff of a claim on net income that is something above and beyond what laborers receive by exchanging their ability to work for a wage.

The problem, of course, is that the more capital is detached from the traditional role of the capitalist—to serve as “a machine for the conversion of this surplus-value into additional capital”—the more it calls into question the idea that the class of capitalists serves any particular role at all in today’s society. This is a problem that, of course, has reinforced by the onset and enduring legacy of the most severe crisis since the First Great Depression.

In this sense, the proliferation of new forms of capital—in the midst of the growing inequality that both caused and is now the consequence of the Second Great Depression—merely serves to remind us of the antithesis between the character of wealth as socially produced and privately captured. That is the real problem with capital that simply can’t be solved within the existing economic institutions.

*This illustration was produced by the Capital Drawing Group.

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By his own account, Yanis Varoufakis is an “erratic Marxist.” He’s also, it appears, a committed critic of postmodernism.

In my previous discussion of Varoufakis’s interpretation of Marxism, I deliberately avoided mentioning his “pot shot” at postmodernism:

A Greek or a Portuguese or an Italian exit from the eurozone would soon lead to a fragmentation of European capitalism, yielding a seriously recessionary surplus region east of the Rhine and north of the Alps, while the rest of Europe is would be in the grip of vicious stagflation. Who do you think would benefit from this development? A progressive left, that will rise Phoenix-like from the ashes of Europe’s public institutions? Or the Golden Dawn Nazis, the assorted neofascists, the xenophobes and the spivs? I have absolutely no doubt as to which of the two will do best from a disintegration of the eurozone.

I, for one, am not prepared to blow fresh wind into the sails of this postmodern version of the 1930s.

But, as friends reminded me, I had forgotten (or repressed?) Varoufakis’s earlier attack on postmodernism, which he delivered in two reviews (or two versions of a review) of a book on postmodernism and economics.

As it turns out, I had a hand in the book in question, Postmodernism, Economics, and Knowledgewhich I edited with two close friends and comrades: Jack Amariglio and Stephen Cullenberg.

In the longer version of the review, which appeared in 2002 in the Journal of Economic Methodology [unfortunately gated], Varoufakis was actually quite complimentary about at least some aspects of the book.

Anyone interested in the postmodern stirrings of economic discourse should turn immediately to Post-Modernism, Economics and Knowledge, edited by S. Cullenberg, J. Amariglio and D. Ruccio (Routledge 2001). It explicates Postmodernity’s various strands succinctly and with sensitivity to the large retinue of meanings that the postmodern condition has acquired over the years. It comprises twenty-two taut, well-crafted chapters categorised in seven distinct parts blending nicely into one another. Of the contributors most are economists, albeit of a somewhat iconoclastic disposition, while three philosophers, one English professor and one anthropologist combine forces with them to offer the reader a delightful mixture of perspectives. Perhaps the book’s greatest asset is its clear, thoughtful introduction that gives the whole edifice its integrity, restrains the wayward tendencies of some contributors and whets the reader’s appetite.

But then, in the rest of the review, and especially in the shorter version published in The Post-Autistic Economics Review, Varoufakis spends most of his time attacking postmodernism, presumably to warn off “young dissidents” who are or might be attracted to the idea (“the task of the PAE movement must be to clear the way for radical criticism that avoids the postmodern trap as resolutely as it opposes economic autism”). His basic argument is that the postmodern critique of mainstream economics is doomed to failure, by first being absorbed into mainstream economics and then strengthening it (“Postmodernity unwittingly blows fresh wind in the sails of neoclassicism, the undisputed champion of the deconstructed human agent. While warning us correctly that new authoritarianisms will be born when we get caught up in our own rhetoric, it offers no resistance to the current authoritarianism of neoclassical economics and, more so, the socio-economic system that it serves”), supplemented by the all-too-common allusion that postmodernism is the easy way out (“the postmodern turn will be chosen by pseudo-dissidents whose prime interests lie in acquiring a chic image”).

And the alternative? Varoufakis proposes “an historically grounded understanding of how systematic patterns of power and economics are the joint products of the continual feedback between technological developments and evolving social formations” guided by “an unbending commitment to a rational transformation of society.”

Now, in the reminder of this comment I don’t want to offer a defense of our project of postmodern criticism (developed in that book or in other volumes, such as Postmodern Materialism and the Future of Marxist Theory and Postmodern Moments in Modern Economics). Suffice it to say, given our work on the journal Rethinking Marxism and our other Marxist associations, we’ve never been particularly sympathetic either to neoclassical economics or to capitalism. On the contrary.

What interests me more, given the current crises of capitalism and the predicament of the Left (whether in Greece, Spain, or the United States), are the terms with which we can formulate our critique. Varoufakis sees (or at least saw) a strict dichotomy: postmodern fragmentation or rational transformation. For me, there is no such dichotomy, at least if we allow that rationality is itself a contradictory discursive and social construction. If so, then the battle is between different rationalities, which of course have very different effects.

One rationality, embodied as much in the troika’s formula of austerity for Greece as in the lopsided economy recovery in the United States, is captured by neoclassical economics: everybody gets what they deserve, as long as free markets are unleashed on the world. The other rationality starts with the proposition that everyone should get what they deserve but they don’t—and can’t—within existing economic institutions. Those institutions—capitalist institutions—make “just deserts” impossible.

That idea, that there’s a clash of rationalities within the world today, is precisely an effect of the postmodern questioning of metanarratives. Postmodernism, in this sense, represents a critique of a singular (humanist) rationality, just as it serves to undermine the neoclassical claim of a monopoly on scientific knowledge (indeed, the scientism that animates much of economic theory, mainstream as well as heterodox), the presumption of causal hierarchies within economic analysis (again, both mainstream and heterodox), and much else.

My point is not to simply reverse Varoufakis’s claims, for example, by asserting that fragmentation, irrationality, disunity, and so on are necessarily progressive and that esssentialism, rationality, and unity are necessarily regressive. None of those moves is necessarily one or another, outside of a particular historical conjuncture.

And that’s the point, isn’t it? The effects of the moves that we make, the demands we hold up, the criticisms we formulate depend on a specific context, on what is taken to be the existing common sense and how best to disrupt that common sense. The fact is, modernism (at least in economics) has long been associated with a humanist, universal, scientistic set of claims, and part of the task of carrying out a ruthless criticism of mainstream economics is to challenge and deconstruct those claims (including the idea that such claims are even possible).

Is that all? No, of course not. In my view, the postmodern critique of mainstream economics needs to be supplemented by a Marxist critique. But, I want to be clear, it also goes in the other direction: that Marxist critique (traditionally formulated in terms of “laws of motion,” a hierarchy of base and superstructure, and so on) needs to be supplemented by postmodernism.

In the end, the Varoufakises of the world may disagree. However, what I believe we can come to some agreement on is the need to continue to criticize “the inexorable devaluation of political goods, the vulgar commodification of human bodies and values, the impossibility of conceptualising freedom-from-the-market, the depiction of Central Banks as ‘independent’ only when under the thumb of financial capital, the confusion of liberty with the freedom to exploit and to demean and, above all else, the portrayal of coercion as tâtonnement.”

In my view, both postmodernism and Marxism, each in their different ways, play useful roles in carrying out that critique.

human-capital-main

Like the capital controversy of the 1960s, the current controversy over human capital pits neoclassical economics against its critics.

The capital controversy (also known as the Cambridge controversy, because it was staged between neoclassical economists at MIT, and thus of Cambridge, Massachusetts, and non-neoclassical economists at Cambridge University, and thus of Cambridge, England), which actually took place between the mid-1950s and mid-1970s, was narrowly about the internal consistency of neoclassical economics and more generally about the role of capital in economic theory. The basic idea is that, in a world of heterogeneous capital goods (e.g., a shovel and an automobile assembly-line), you need to know the price of capital (the interest rate or rate of return on capital) in order to determine the quantity of capital (i.e., in order to add up all those different kinds of physical capital). But, in neoclassical economics, you need to use the quantity of capital in order to determine the price of capital (via supply and demand in the “capital market”), which creates a fundamental problem for the neoclassical theory of capital.

Hence, Joan Robinson’s famous question, “What is capital?” To which neoclassical economists responded with gobbledy-gook. And so Robinson repeated her question, the neoclassicals withgobbledy-gook, and the controversy continued without resolution. Neoclassical economists, like Robert Solow, resorted to an aggregate production function (where the problem of heterogenous goods is simply defined away), while Robinson and the other anti-neoclassical economists on the other side of the pond entered into increasingly arcane areas of dispute, such as reswitching and capital-reversing.*

As I have long explained to students, the theory of capital is the most controversial topic in the history of economic thought because the theory of capital is the theory of profits—and therefore an answer to the question, do the capitalists deserve the profits they get?

The original capital controversy was never resolved. But now there’s a new capital controversy, a debate about human capital. It was launched by Branko Milanovic, based on Thomas Piketty’s refusal to include human capital in the other forms of capital he measures in his inquiry about the history and future prospects of wealth inequality.** Basically, Milanovic argues that labor is not a form of capital because labor involves a “doing” (work has to be performed in order for skills to be used and wages to be paid) while other forms of capital are characterized not by work but by nonwork, that is, ownership (financial capital generates a return based on owning some of financial claim, and no work is involved in making such a claim).

why is “human capital” such a disastrous turn of phrase? There are two reasons. First, it obfuscates the crucial difference between labor and capital by terminologically conflating the two. Labor now seems to be just a subspecies of capital. Second and more important, it leads to a perception — and sometimes to the argument used by insufficiently careful economists — that all individuals, whether owners of real capital or not, are basically capitalists. Even if you have human capital and I have financial capital, we are fundamentally the same. Entirely lost is the key distinction that for you to get an income from your human capital, you have to work. For me to get an income from my financial capital, I do not.

I’m with Milanovic on this. There is a fundamental difference between doing and owning, between doing labor and owning capital. But I also think the human capital controversy has even larger implications.

First, a bit of history: the idea of human capital was invented in the early 1960s by neoclassical economist Theodore Schultz [pdf] as part of a more general attack on Marxian-inspired notions of capital (capital that is connected to profits and therefore exploitation), an extension of Adam Smith’s theory of the causes of the wealth of nations (which now, Schultz argued, should include the accumulation of all prior investments in education, on-the-job training, health, migration, and other factors that increase individual productivity), and an attempt to depict all economic agents, including laborers, as capitalists (who “invest” in and “manage a portfolio” of skills and abilities). Human capital can thus be seen as, simultaneously, a blunting of the critical dimension of capital (broadening it to matters other than profits and thus a particular set of claims on the surplus) and a step in the creation of the neoliberal subject (who seeks a “return” on its “investments” in itself).

Second, the problems associated with the notion of human capital, which Piketty’s correctly does not include in his definition of wealth (since, for Piketty, “capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market”), also serve to undermine at least part of Piketty’s project. One of the elements missing from Piketty’s approach to capital as wealth is any kind of “doing.” It’s all about owning (of “real property” as well as of “financial and professional capital”), without any discussion of the labor that has to be performed in order to generate some kind of extra value and thus a return on capital.

And so, as it alway does in economics, it comes down to a theory of value. In neoclassical theory, all factors of production get, in the form of income, an amount equal to their marginal contributions to production. Everyone contributes and everyone, within free markets, gets their “just deserts.” In Piketty’s world, the owners of capital manage to capture a larger and larger portion of the national income if the rate of economic growth is less than the rate of return on capital (which exacerbates the already-unequal distribution of income, based largely on CEO salaries). In a Marxian world, capital is a social relationship that both generates a surplus (because “industrial capital” exploits “productive labor”) and represents a distributed claim on one or another portion of the surplus (in the form of “financial capital,” the ownership of land, and so on), based on the idea that the “doing” of labor occurs simultaneously—as both cause and effect—with the “owning” of capital. Three different theories of value and thus three very different theories of capital.

But it doesn’t stop there. In recent years, we have seen a dreary expansion of the idea of capital beyond even physical/financial capital and human capital. It now includes—in the hands of business professors, economists, and other social scientists—intellectual, organizational, social, and other forms of capital. Somehow, if they call it capital, they think it deserves to be taken more seriously.

As I see it, all these new forms of capital, like human capital, are ways of expanding Smith’s wealth of nations; they all seen as contributing to the production of more “stuff”—more use-values, the “immense accumulation of commodities.” But the expanding universe of capital also serves to hide the extent to which all that stuff, which is in reality socially produced, is then privately appropriated—leading to a growing gap between a tiny minority at the top and everyone else. In other words, it’s a pattern of private capitalist appropriation that creates a more and more unequal distribution of income and wealth.

The capital controversy will remain with us, then, as long as we refuse to solve the problem of capital.

 

*Avi J. Cohen and G. C. Harcourt [pdf] provide a useful overview of the capital controversy.

**Nick Rowe and Tim Worstall have since criticized Milanovic and his call to junk the notion of human capital, and he in turn has responded to their criticisms.