Piketty and Marx: The Problem of Capital Overaccumulation and What To Do About It (Part 1)

Thomas Piketty rocked the intellectual world this past spring when his 700-page hardcover, Capital in the Twenty-First Century, became a bestseller in the United States.  The epic historical tome takes a poetically long arc, covering the entire world history of capitalism from its birth nearly 300 years ago in Western Europe, to its modern domination of the world economy.  It is probably the most compelling systemic critique of capitalism since Karl Marx’s Das Kapital was published back in 1867.

I will explain some parallels between Marx and Piketty below, after I first summarize the theory laid out in Piketty’s work.

Piketty’s central point of the book was to point out that under most normal circumstances, wealth in a capitalist economy will tend to grow faster than the economy as a whole – at least as measured before the effects of taxation.  (This is his famous formula, r >g .)  This is the condition, Piketty argues, that must inevitably lead to an increasing share of the economy’s income going to a handful of wealthy capitalists, rather than the working- and middle-class majority – what people in the Occupy movement referred to as the “99 Percent.”

To put it in simple mathematical terms, we can use Piketty’s First Fundamental Law of Capitalism:  a = rB, where B is the capital-income ratio, a is the share of income going to capital, and r is the rate of return on capital.  This can be rewritten as B = a/r, which better explains the contradiction.  As B increases due to the typical condition r > g, then either a must increase, or r decrease, or some combination of both.

The “golden age of capitalism” in the 30 years after World War II can be explained in Europe mainly by a collapse of B between 1910 and 1950, after a long period of wartime destruction, debt inflation, confiscatory taxation and loss of colonial assets.  The overall European capital-income ratio plummeted from nearly 700% at the turn of the 20th century, to just over 200% by 1950.  That meant less capital to service with cash flows.  The European economy also rebounded very quickly after the World Wars were behind them, so much so that there were periods where Piketty’s g actually exceeded r !

In the United States, the nation’s private and public infrastructure was not decimated by bombs and tanks in the first half of the 20th century.  Nor did they lose a ton of wealth to colonial independence movements.  But the U.S. did develop a highly progressive tax system in the period between the beginning of World War I and the end of World War II.  That tax progressivity was gradually chipped away at in the following 50-60 years.  The result is a much less dramatic drop in capital-income ratios during the World Wars Era in the U.S compared to Europe.

Also, the U.S.’s rapid population growth, plus its historically unconstrained supply of land, gave us a version of capitalism with a long-term B that was naturally smaller than in Europe – about 400% as opposed to 700%.  Long-term numbers for Canada are slightly different, but also look far more “American” than “European.”

In my humble idea, this probably does more than any other factor to explain the phenomenon of “American Exceptionalism.”  Faster growth, more land and a smaller B made American capitalism, at least in its early days, far less aristocratic and rentier-based than its European counterpart.  Because capitalism worked better for the average worker in the U.S., the American working class probably developed a long-term faith in capitalism over time – a faith that unfortunately has gradually morphed into the ugly economic fundamentalism we see in modern political discourse.

And that fundamentalism persists in the United States, at precisely the time that the old realities about our form of capitalism have morphed.  Population growth is much slower now than it was 50 years ago.  There is less land available to work with as more is developed, so the prices of real estate have begun to balloon.  And taxes are not nearly as progressive or redistributive as they were a half-century ago, either.

Meanwhile in Europe, the capital stock has returned to about 550% of annual income, with predictions it will climb to at least 700-800% by the end of the 21st century – unless something is done to reverse the trend.  Piketty argues that the best solution to the problems of capitalism is a globally coordinated progressive tax on wealth, in order to stop the largest fortunes from accumulating uncontrollably.


How does this compare to Marxian theory?  In his Capital Volume 1, Marx lays out the basic terms of value, commodities, labor and surplus-value.  The basic idea is that capital accumulation occurs because capitalist employers extract surplus-value from their workers.   (He didn’t think that surplus could come out of the machinery that workers operate, even though he acknowledges that these machines are themselves produced by other workers in other industries).   This surplus-value becomes the source of profit, and any profit income not consumed by the capitalist is reinvested as new capital.

One of Marx’s most important predictions (besides steadily growing wealth and income inequality) is that the rate of profit would gradually tend to fall over the course of capitalism’s evolution, at the same time that inequality was increasing.  In his views, this occurred because as production became more and more capital-intensive, then labor consisted of a smaller and smaller share of total production costs, and thus had to be exploited more ruthlessly in order to get the same amount of surplus per unit of production cost.  There is, of course, a limit to how much the workers can be exploited, so that over time there would inevitably be less surplus per unit of production and hence, lower profit rates.  The working class would see their incomes stagnate or decline while capitalists got richer and richer.  Yet at the same time, there would be less and less return on a capital investment of a given size!

Now back to Piketty, and in particular, the equation B = a/r.

A more “capital intensive” production over time that Marx described, seems to parallel nicely to the increasing B.  And Marx lived in the 19th century, at a time when B was steadily rising in Europe.  So as B increases, there should be a trend toward increasing a and decreasing r.  Well…the variable a represents the capital share of income, which parallels inequality.  The r represents rate of return on capital, which very closely parallels Marx’s rate of profit.

So to sum up:  Both Marx and Piketty suggest that over the long term, capitalism will result in tremendous economic growth.  But the internal mechanisms of the system will not distribute the fruits of growth among everybody, but tend to concentrate the benefits among those who already own wealth.  This drives the increasing inequality.  At the same time, as the capital/labor or capital/income ratio increases, there is more capital that has to be “fed” with a rate of return or a profit, so that the rate of return or the rate of profit tends to fall.  

But as to what we do about fixing this problem in capitalism?  Well…that has to wait for next time.

This is what Free-Market Fundamentalism looks like!

To write about something today, I decided that Free-Market Fundamentalism would be the topic of interest, since it’s probably my number one pet peeve in our society and political economy today. 

A quick Google search didn’t take long at all.  I entered the phrase “the market is always right”.  Very quickly I was led to one particular article by a Mr. Fan Yang, that caught my attention, titled “The Market Is Always Right Even When It’s Wrong.”  Here are the parts that I find most telling: 

In this interpretation, you still must respect the market just because there is no other way….Therefore the market is like that boss who’s position precedes  him or her. You might think your superiors are incompetent, but at the end of the day, if you don’t respect them, you are asking to get fired…..This is about attitude. If you start looking up for someone to blame, or looking out towards the market to blame, you are not doing yourself any good….When we trade our attitude towards the market should be that it is right, even when it is wrong.

This kind of propaganda would make the editors of the Soviet PRAVDA blush with jealousy.  The whole point of the article is to condition the audience to accept the rule of the market system, without any criticism of its mechanical laws or its outcomes.  Is good behavior being rewarded and bad behavior punished?  Are people encouraged to be expressive and creative in their communication and social relationships?  Are the needs of the most vulnerable members of society being met?  Does the system serve the popular will of the majority, or the specialized will of a privileged minority?  Or any number of other perfectly valid concerns for a somewhat enlightened adult to ask about. 

Yet Mr. Yang’s advice is one of unquestioning acceptance toward the laws of the marketplace, no matter how much we may disagree with the results.  Doesn’t sound like a very morally or spiritually healthy attitude to me!  When you expand that attitude to include the capitalist market economic system as a whole, you essentially arrive at the modern conservative political conscience.

The whole conservative side of opinion in U.S. politics nowadays, ultimately seems to boil down to this kind of accept-the-market-without-complaint dogma.  Efforts to redress the social inequalities of capitalism are derided as “socialist redistributionism” or even “Marxist.”  And the people who openly question the market are subjected to ad hominem character attacks – “utopian,” “youthfully naive,” “childish attitude”, etc.  It is exactly the same kind of behavioral psychology that seems to permeate elements of America’s religious fundamentalist crowd. 

One interesting and pretty universal trait of fundamentalist thinkers, comes about whenever real-world evidence comes along that poses a direct and existential threat to a fundamentalist worldview.  When this happens, the most commonplace reaction is to get angry and double down on one’s fundamentalist beliefs, in the psychological sense that it will somehow make inconvenient truths go away.  So when capitalism experienced a near-total collapse in 2008 after 30 years of soaring inequality and plutocracy, the reaction of U.S. conservatives was to become more dogmatically pro-market and pro-capitalist.  Rather than accept the need for systemic reform, they essentially “went full mental” on us and started screaming about welfare leeches, Fannie Mae/Freddie Mac, Barney Frank, Obama birth certificates, socialism, Marxism, class warfare, anti-Americanism, etc.  And perfectly true to the “doubling down” form, they rejected the center-right monetarist views of Milton Friedman, for the more market fundamentalist views of Ayn Rand, F.A. Hayek, and Ludwig von Mises. 

In short, that was how you ended up with a 2012 Vice Presidential candidate whose main political heroes come out of the novel Atlas Shrugged.  It also explains how Rush Limbaugh found it charming to accuse the most powerful Christian authority figure in the world (Pope Francis) of Marxism.  In other words, among many right-wingers capitalist market fundamentalism seems to have won out over even religious fundamentalism! 


So that’s my take on why market-is-always-right attitudes are so fundamentally wrong.  But it would be an equally bad attitude on my behalf, to endlessly complain about market fundamentalism without offering a positive alternative.  So here, courtesy of economics professor Richard Wolff (rdwolff.com), is a wonderful example to set.

Last month, Professor Wolff was invited to appear on Bill Maher’s Real Time show.  Maher was “generous” enough to give Wolff a round-trip ticket to the West Coast in the FIRST-CLASS section of the airliner.  The jet had about 200 sardine-sized “economy” seats, but only 16 first-class seats that were remarkably more comfortable.  Of course, since we have a market system for distributing those seats, Wolff only got a comfy seat because Maher was willing to pay the extra money on his behalf, to invite him out to the show in Los Angeles. 

But Wolff used the experience as a teaching example in his criticism of markets.  He points out that if the airline wanted to, it could distribute those 16 seats to passengers in any one of numerous alternative ways:  give them to the elderly, to the sick, to overweight passengers, to military veterans, to first-time flyers, etc.  Or use some kind of rotating lottery system to give everyone an eventual chance at riding first-class if they fly frequently.  Or, rip out the first-class arrangements entirely and use the space in the plane to make the remaining 200 seats more roomy and comfortable!  Indeed, the city of Paris, France wrestled with this very issue on its subway system in the 1960s; and the end result was that first-class cabins were completely abolished so that to this day, all seats on Parisian subways are equal.

There is NO magic law of nature that makes such an alternative allocation of United States airline services impossible.  The only reason why we have very roomy seats for a privileged affluent minority, and sardine seats for everyone else, is that we blindly accept the market-based method of allocating those resources.  The same could be said in many gentrified metropolitan centers today, where working-class residents are gradually getting squeezed out by rising apartment rents even as super-wealthy individuals, both foreign and domestic, buy up lots of apartments that are vacant for most of the year

Any notion that the market system of allocation, or the capitalist system of production, are “right even when they are wrong,” is itself the real delusional attitude here.  The evidence against the system keeps on piling up:  wages stagnant for over 35 years; deregulation and a housing bubble leading to the 2008 crisis; an increasingly corporatized media system; corporatized entertainment system and the whole modern “celebrity-industrial complex”; the influence of the wealthy and big business over our political system, etc.  Market-fundamentalist attitudes are guilty for allowing all of it to fester without criticism.

(You can hear Wolff’s full spiel on first-class airline accommodations here; just fast-forward to about 15:00 to hear it.)


Karl Bonner

Understanding Ferguson: A Radical Economistic Approach

Undoubtedly, the two-week drama in Ferguson, Missouri – where some kind of encounter between officer Darren Wilson and unarmed teenager, Mike Brown, resulted in Brown being shot several times and killed – and the subsequent explosion of indignant rage on the streets, caught many people (including myself) by surprise.  It’s been a while since we had a domestic uprising of this magnitude, over the topic of racism in policing.  (The Trayvon Martin / George Zimmerman debacle could get rowdy, but at least people’s emotions found a release through the media and social media.)

Perhaps the most telling outcome of this drama is not the incidents of police repression on protesters, with at least one armed cop telling peaceful demonstrators to “fuck off” or he would “fucking kill them.”  Far more interesting, from a societal perspective, is the reaction that Ferguson has caused, both in the media and among public discourse.  People seem to be lining up into two opposing camps, the “pro-police camp” and the “anti-injustice” camp.  Some are hollering over how another cop is poised to get away with racially-motivated murder, while the other camp insists that Mike Brown *must* have done something to justify the kind of reaction that Mr. Wilson gave him.  In a way, it has a nauseating similarity to the kind of “my side right or wrong” attitudes that dominate the Israel-Palestine conflict, despite the fact that both sides have plenty of legitimate transgressions and legitimate grievances to count.

The polarization can be plainly seen in recent national polls that show huge gaps in opinions on the topic of race relations in policing, between black and white respondents on the one hand (80% vs 37%), and also between Democrats and Republicans (67% vs 22%).  I can draw two major observations from this split:

1.  The election and re-election of a (partially) black man to the United States Presidency, does *not* mean that America is anywhere close to becoming a “post-racial society”; and

2.  The partisan divide on attitudes toward Ferguson and race relations clearly indicates that race is still a factor in the political arena.  Whether to blame closet racism on behalf of the Right, or an overzealous tendency by the Left to see racial injustice behind every stone, or some combination of both – you be the judge.

The question is, why do racial tensions seem to continue running so high in the era of the first black president?  And this is where my theory of capitalist inequality comes in useful, plus the tendency of American society to repress criticism of capitalism.

There’s a strange irony that comes to mind here.  Back in the 1960s, when the Left of that era tried to draw a connection between racism and capitalism, their reasoning was actually a whole lot less valid than the same reasoning would be today.  Between the Depression years of the 1930s and the “postwar” years of the 1950s/60s, the plight of white American workers improved dramatically (in large part thanks to union activism in the 1930s, courtesy of those evil Socialists and Communists).  But racial injustice for blacks remained deeply entrenched in the 1950s, despite a greater level of economic justice for white workers.

In that sense, the inequalities between blacks and whites seemed less to do with capitalism per se, than it did with traditional cultural bigotry.  While American socialists and progressives of the 1960s may have appealed to the cause of racial justice, and the civil-rights movement of the same time borrowed many tactics from the 1930s labor movement, the parallels between the two things seemed to have more to do with general resistance to oppression, than they did with two intertwined forms of oppression.

Fast-forwarding nearly 50 years, we are in a much different scenario.  While black Americans continue to get the “short end of the stick” in everything from net worth, to unemployment rates, to the criminal justice system, the economic system has fundamentally changed in a way that has hurt the relative position of working-class whites, and especially working-class MALE whites.  Wages have gone essentially nowhere since the 1970s, even as the economy and total national wealth continue to soar.  At the same time, the same political movement that working-class white men tend to identify with (Republican conservatism), continues to zealously preach the virtues of free-market capitalism and bootstrap economics.  They continue to believe that the rich deserve to be rich and the poor deserve to be poor – “don’t blame the system, blame individual character traits.”

Think about that for a moment.  If Reagan-style capitalism rewards people according to what they deserve, and anybody who’s struggling economically is doing so because of poor personal lifestyle choices, then how do working-class white conservatives emotionally process such a belief system?  They are afraid to blame the economic system because they’ve been mentally conditioned to think of such criticism as communistic, un-American, disloyal, and in general “evil.”  So they must psychologically come up with an explanation that doesn’t have such blatant cognitive dissonance.  And knee-jerk racism, sexism, homophobia, etc. is one obvious way to deal with an internal fear of criticizing capitalism.

(In addition, “The Ghost of Joe McCarthy” can also explain why hardcore conservatives attempted to create a “Third Red Scare” in the Obama era:  could part of their desire to label Obama and the progressive movement as Marxist socialists, be an angry denial of some subconscious realization that some of Karl Marx’s predictions on capitalism may be coming true?)

In any case, the 2008 capitalist crisis only added to the unease created by 30+ years of wage stagnation.  But alas, rather than find common ground with their black counterparts, many white working Americans instead went mental – literally.  They stocked up on guns and joined militias, “End Times” religious cults, etc.  And through all this, they continued to fail to come to a realization that the ECONOMIC SYSTEM was increasingly stacked against them through absolutely NO fault of their own.

And so, it’s not unsurprising that capitalism’s betrayal of many white American workers, has left them psychologically vulnerable to knee-jerk bigoted attitudes.  And it’s little surprise that because of this – plus the success of the economic ruling class in blocking a policy agenda that might help tens of millions of ordinary Americans of all skin colors – black Americans feel an increasing frustration at the prospects for a better and fairer future. Add a few Trayvon Martins and Mike Browns to the foul concoction, and you’ve got a ticking time bomb for social unrest.


In such difficult and disheartening times, it can feel utopian to claw around for a serious solution to our problems.  But ultimately, it’s a task that must be done.  So here is my basic idea:

First of all, I sincerely believe that improving race relations will require more interracial social interaction.  Now more than ever before, rather than pointing fingers at each other, we need to encourage white and black Americans to hang out with each other more – find out what kind of common personal interests they may have, and discover that they can laugh and cry together just fine.  (Not to mention romantic feelings for one another!)

The other big problem is getting white and black workers to see their common economic cause.  Indeed, that might be one way to cultivate personal friendships among the two groups.  This is why I love the “Fight for 15” so much.  Although a large hike in the minimum wage  (phased in carefully to avoid too many negative employment effects) would disproportionately benefit workers of color, there are plenty of white workers who would also benefit.  Many of these are the same workers who we are trying to reach and relieve from their inner cognitive dissonance.

None of this will be an easy task to undertake.  But Ferguson is but a symptom of deeper structural tensions in our society, and at least some of those tensions can be traced back to capitalism’s betrayal of the average American citizen.  And the agenda of the Economic Left happens to benefit two groups of people very strongly – working-class whites and working-class blacks – in a way that could relieve at least SOME of the racial tensions that sadly persist in early 21st-century America.

Welcoming brethren….

So I finally took the steps to register a “Bonneromics 101” blog with WordPress.  This is where I plan to talk about all things cultural, political and economic.  It’s basically a big catch-all for the kind of topics aimed at a “general” audience.  In other words, no weather geekery or video game geekery or any other highly specialized community – this is stuff that the average fellow human being has an important stake in.

Enjoy and comment as you wish, but please be civil and keep any trolling to the “soft” variety.