The Poverty of Bourgeois Economics-Thomas Piketty’s Capital in the Twenty-First Century-A Marxist Review-By Gerrit Bogle and Joseph Seymour

BOOK REVIEW

THE COMMUNIST MANIFESTO, KARL MARX AND FRIEDRICH ENGELS, PENQUIN CLASSICS: NEW EDITIONS, NEW YORK, 2002

If you are a revolutionary, a radical or merely a liberal activist you must come to terms with the theory outlined in the Communist Manifesto. Today’s political activists are obviously not the first to face this challenge. Radicals, revolutionaries and liberals have had to come to terms with the Manifesto at least since 1848, when it was first published. That same necessity; perhaps surprisingly to some given the changes in the political landscape since then, is true today. Why surprisingly? On the face of it, given the political times, it would appear somewhat absurd to make such a claim about the necessity of coming to terms with the overriding need for the revolutionary overturn of the capitalist order outlined in the Manifesto. It, however, is.

With the collapses of the Soviet Union and the Soviet-influenced Eastern European states about fifteen years ago, which were supposedly based on Marxist concepts, one would think that Marxism was a dead letter. But hear me out. Even the less far-sighted apologists for the international capitalist order are now worrying about the increasing gap between rich and poor, not only between the so-called first and third worlds but also within the imperial metropolitan centers themselves. Nowhere is that more evident that in the United States where that gap has dramatically increased over the last thirty years. Thus, despite the carping of the ‘death of communism’ theorists after the decisive capitulation of international Stalinism in the early 1990’s, an objective criterion exists today to put the question posed by the ongoing class struggle and of the validity of a materialist concept of history back on the front burner.

Whether one agrees with the Marxian premises about the need for revolution and for a dialectical materialist conception of the workings of society or not one still must, if for no other reason that to be smart about the doings of the world, confront the problem of how to break the stalemate over where human history is heading. 'Globalization' has clearly demonstrated only that the 'race to the bottom' inherent in the inner workings of capitalism is continuing at full throttle. Moreover, the contradictions and boom/bust cycles of capitalism have not been resolved. And those results have not been pretty for the peoples of the world.

Experience over the last 160 years has shown that those who are not armed with a materialist concept of history, that is, the ability to see society in all its workings and contradictions, cannot understand the world. All other conceptual frameworks lead to subjectivist idealism and utopian concepts of social change, at best. One may ultimately answer the questions posed by the Manifesto in the negative but the alternatives leave one politically defenseless in the current one-sided international class war.

So what is the shouting over Marxism, pro and con, all about? In the middle of the 19th century, especially in Europe, it was not at all clear where the vast expansion and acceleration of industrial society was heading. All one could observe was that traditional society was being rapidly disrupted and people were being uprooted, mainly from the land, far faster than at any time in previous history. For the most part, political people at that time reacted to the rise of capitalism with small plans to create utopian societies off on the side of society or with plans to smash the industrial machinery in order to maintain an artisan culture (the various forms of Ludditism). Into this chaos a young Karl Marx stepped in, and along with his associate and co-thinker Friedrich Engel, gave a, let us face it, grandiose plan for changing all of society based on the revolutionary overthrow of existing society.

Marx thus did not based himself on creation of some isolated utopian community but rather took the then current level of international capitalist society as a starting point and expanded his thesis from that base. Now that was then, and today still is, a radical notion. Marx, however, did not just come to those conclusions out of the blue. As an intellectual (and frustrated academian) he took the best of German philosophy (basically from Hegel, then the rage of German philosophical academia), French political thought and revolutionary tradition especially the Great French Revolution of the late 1700’and English political economy.

In short, Marx took the various strands of Enlightenment thought and action and grafted those developments onto a theory, not fully formed at the time, of how the proletariat was to arise and take over the reins of society for the benefit of all of society and end class struggle as the motor force of history. Unfortunately, given the rocky road of socialist thought and action over the last 160 years, we are, impatiently, still waiting for that new day.

In recently re-reading the Manifesto this writer was struck by how much of the material in it related, taking into account the technological changes and advances in international capitalist development since 1848, to today’s political crisis of humankind. Some of the predictions and some of the theory are off, no question, particularly on the questions of the relative staying power of capitalism, the relative impoverishment of the masses, the power of the nation-state and nationalism to cut across international working class solidarity and the telescoping of the time frame of capitalist development but the thrust of the material presented clearly speaks to us today. Maybe that is why today the more far-sighted bourgeois commentators are nervous at the reappearance of Marxism in Western society as a small but serious current in the international labor movement. Militant leftists can now argue- Stalinism (the horrendous distortion of Marxism) never again, to the bourgeois commentators' slogan of - socialist revolution, never again.

As a historical document one should read the Manifesto with the need for updating in mind. The reader should nevertheless note the currency of the seemingly archaic third section of the document where Marx polemicized against the leftist political opponents of his time. While the names of the organizations of that time have faded away into the historical mist the political tendencies he argued against seem to very much analogous to various tendencies today. In fact, in my youth I probably argued in favor of every one of those tendencies that Marx opposed before I was finally won over to the Marxian worldview. I suggest that not only does humankind set itself the social tasks that it can reasonably perform but also that when those tasks are not performed there is a tendency to revert to earlier, seemingly defeated ideas, of social change. Thus the resurgent old pre-Marxian conceptions of societal change have to be fought out again by this generation of militant leftists. That said, militant leftists should read and reread this document. It is literarily the foundation document of the modern communist movement. One can still learn much from it. Forward.

Revised September 26, 2006

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Workers Vanguard No. 1053 3 October 2014 The Poverty of Bourgeois Economics-Thomas Piketty’s Capital in the Twenty-First Century-A Marxist Review-By Gerrit Bogle and Joseph Seymour   (Part One) Fewer full-time jobs, low wages and permanent indebtedness have working people in the U.S. scrambling to make ends meet. From 2010 to 2013, the period of economic “recovery” from the so-called Great Recession, median family incomes plummeted another 5 percent. So fragile is the economic position of the working and poor masses that an unexpected car problem or medical issue can spell disaster. Meanwhile, sky-high corporate profits, the stock market boom and a rebound in house prices have further concentrated wealth in the hands of the filthy rich. Widespread anger over these savage disparities found an outlet a few years ago in the Occupy protests that began in New York City and spread across the country. Well aware that it is fuel that could light the tinder of class struggle, the capitalist rulers have given some lip service to curtailing income inequality. President Obama declared last December that such inequality was “a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.” This from a White House that oversaw the massive bailout of the banks and auto bosses, while leaving millions jobless and destitute. Around the globe, what Washington stands for can be measured in the rubble and carnage left in the wake of U.S. military interventions in Iraq, Afghanistan and beyond. The issue of the income gap has come to feature more in debates over the U.S. economy, with radical liberals and die-hard establishment ideologues alike expressing concern that the gulf is too wide for the overall health of the system. Enter Thomas Piketty’s Capital in the Twenty-First Century, published in English this spring. Piketty, a French economist who had collaborated on work that inspired the Occupy slogan “we are the 99 percent,” was immediately hailed for putting numbers to the evolution of inequality in modern capitalist society. An article in the London Guardian (12 April) on Piketty proclaimed: “Occupy was right.” Kathleen Geier, writing for the liberal magazine The Baffler, called his book a “truth bomb.” Reformist socialists, too, have effused over elements of the book, even as they raise some criticisms. Socialist Alternative, while noting Piketty’s “big weaknesses,” has gushed that he “deals with inequality, attacks aspects of capitalism, and puts forward the need for more sharing of the wealth.” Similarly, the International Socialist Organization praises the author for refuting “the idea that capitalism spreads the wealth while protecting individual liberties.” Accolades have also poured in from other quarters. Larry Summers, Bill Clinton’s treasury secretary, former Harvard president and notorious derivatives deregulator, offered that Piketty had made a “profoundly important contribution” by “focusing attention on what has happened to a fortunate few among us.” Bloomberg Businessweek (2 June) went so far as to make Piketty its “cover stud,” with the glowing profile inside penned by one Megan McArdle, a right-wing libertarian flack long tied to the union-hating Koch brothers. Certainly, some mouthpieces for finance capital, such as the Financial Times and Wall Street Journal, tried to discredit Piketty’s calculations. However, this campaign didn’t get very far since the likes of Summers and the editorial staff at the London Economist are in Piketty’s corner. Piketty’s one policy recommendation is a global wealth tax, an idea that even his biggest boosters have a hard time taking seriously. It is at once ridiculously modest and utterly utopian on a worldwide scale. In fact, he admits the scheme is utopian, only to argue that “it is perfectly possible to move toward this ideal solution step by step.” His native country, France, has had a wealth tax for decades. Large numbers of the country’s most well-heeled families (and celebrities like actor Gérard Depardieu) have simply picked up and moved as France’s neighbors roll out the red carpet. Herein lies the fundamental flaw in Piketty’s proposal: a capitalist government, charged with protecting the “national interest,” is naturally loath to adopt a measure that risks competitive disadvantage for the ruling class it serves. And the imperialist nation-states are driven to compete with each other, as the barbarism of two world wars shows. Even the European Union, which promotes itself as a democratic consortium of equal partners, is actually an instrument for the dominant powers, Germany and Piketty’s France, to prey upon the weaker countries. Absent the wealth tax, the reader is left with a series of figures—some useful (particularly the data on rising inequality), many not—and a rather half-baked account of the history of economic development. Then there is the conclusion, which was better articulated in Doris Day’s 1953 version of “Ain’t We Got Fun”: “There’s nothing surer: the rich get rich and the poor get poorer.” In other words, those with money are able to invest it to make still more, while those with little are highly unlikely to accumulate substantial sums through wage labor. Such an observation is hardly news to the legions living paycheck to paycheck or on even less. (A regular contributor to the blog Gawker, “A dog,” trenchantly observed that the book “tastes like dry paper.”) There is a relentless drive under capitalism to wring more from the working class. To be sure, the workers can resist these attacks, but only to the extent that they engage in class struggle. The proletariat’s place in production uniquely endows it with the potential power and interest to end this misery once and for all by shattering the capitalist order and rebuilding society on an egalitarian socialist basis. Communists strive to render the working class conscious of its historic task. Piketty, who has declared himself “very much in favour of private property and private capitalism,” simply wants to round the edges of the present one-sided class war that has made life so precarious for so many. Nonetheless, his book encapsulates a certain widespread misunderstanding of how capitalism works. As such, it provides a foil for the presentation of some basic Marxist economics—especially as Piketty, unlike many modern bourgeois economists, engages with Marxist ideas, however shallowly. A Capitalist Appeal While right-wing critics have compared Piketty to Marx (as they do anyone who dares criticize economic inequality), Capital in the Twenty-First Century is a product of the “death of communism” ideology prevalent in the post-Soviet world. In the introduction, Piketty reassures the reader that, having come of age amid the collapse of the Soviet Union, “I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism.... I have no interest in denouncing inequality or capitalism per se—especially since social inequalities are not in themselves a problem as long as they are justified.” Indeed, Piketty’s main preoccupation is that unchecked capitalism is “potentially incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies,” for which he prescribes state intervention to properly guide capitalist markets. What an embellishment of bourgeois democracy! This country’s “democracy” is marked by the oppression (and earlier enslavement) of black people, waves of deportations of immigrants, bloody battles with striking workers and a long list of brutal wars the world over. As for France, its “democracy” was exported to Indochina, Algeria and West Africa in the form of forced labor and mass murder, among other crimes. The core difference between bourgeois and Marxist economic thought is evident from the outset of the book. Piketty posits a society with a unitary set of interests common to all. By his lights, history can be told in terms of the regulation of markets; and since the advanced capitalist powers today are democracies, it is possible for them to legislate “justified” inequality to everyone’s benefit. Our starting point, following Marx, is that the history of society is the history of class struggle. In Marxist terminology, “class” refers to a particular group of people characterized by a common relationship to the means of production. Under various economic systems through the ages, the class made up of the property holders has appropriated the surplus generated by the class made up of the toilers, giving rise to the irreconcilable antagonism between slave owner and slave, feudal lord and serf, capitalist and worker. The struggles between these classes are sometimes responsible for revolutionary social transformations. Marx also recognized that classes do not vie with one another freely but do so as constrained by their relationship to production. The task of enforcing these constraints falls to the state—armed bodies of men that sometimes appear to stand above the fray but in fact serve the interests of the dominant class. Modern capitalist democracies, by perfecting the illusion that the government is responsible to all of society, are particularly effective at concealing the raw class domination on which the capitalist state, like all states, is founded. Piketty makes many market calculations, and he uses these figures (adjusting for “shocks to capital” caused by wars, political movements, etc.) to attempt to explain the general course of economic development. But the capitalist system is not a fixed thing with “typical” rates of profit, growth, etc., through time. Rather, it is subject to both the changing relationship of forces in the class struggle and the consequences of competition between the capitalists who privately own the means of production. Anarchy of production, the furious chase after markets and the insecurity of existence of the mass of the population are endemic to the system, as are periodic crises that rend society, bring production to a halt, destroy wealth and inflict untold suffering on the working class and poor. Disappearing Class Struggle Piketty papers over the great struggles of the 20th century in order to prettify the murderous extremes to which the capitalists have resorted to preserve their profits. While discussing the impact of World War I on wealth accumulation (but not population count), he pays scant attention to the impact of the greatest redistributive act in the history of mankind—the October 1917 Russian Revolution, a product of the tumultuous social struggles sparked by the interimperialist war. For the first time in history, the working class created a state power that ripped the means of production out of the grip of the capitalist class and put them at the service of the mass of the population. Lamenting the Russian Revolution, Piketty glibly claims “the most advanced European countries explored other, social democratic avenues—fortunately for their citizens.” In fact, the Russian Revolution was the opening shot in a series of revolutionary crises that convulsed Europe—and were met with bloody reprisal. In January 1919, Rosa Luxemburg and Karl Liebknecht, leaders of the newly-formed German Communist Party, were murdered by right-wing paramilitary forces acting at the behest of the Social Democratic government. The Freikorps proceeded to kill thousands of left-wing German workers in suppressing the workers councils that had formed nationwide. At the same time, a wave of factory occupations in Italy threatened the capitalist order. A few years later, the Italian bourgeoisie resorted to the fascist regime of Mussolini to protect its property and rule. In Germany, repeated defeats of the proletariat opened the door to Hitler’s rise to power the following decade. Such are the “fortunate” avenues of Piketty’s social democracy! Piketty fares no better when addressing more recent events. He opens his book by referring to the 2012 Marikana massacre, in which police gunned down striking South African miners. He reduces the coldblooded killing to a “tragedy” brought about by “distributional conflict.” In fact, the massacre was a stark example of the capitalist state serving the interests of the bosses. Piketty further contends: “After the tragic loss of life, the company finally proposed a monthly wage of 75 euros.” Nonsense—it was the continued strike that brought victory to the workers, touching off a strike wave throughout South Africa. Miners in the platinum belt went on strike again earlier this year, winning a substantial wage increase after a bitter struggle. Piketty claims to be a disinterested observer. But while he denies class struggle as a motor force in history (instead finding it an unfortunate excess of “distributional conflict”), he is squarely in the camp of one of the classes in struggle: the capitalist class. His policy proposals are motivated as reforms necessary to prevent future outbreaks of conflict from marring the smooth functioning of the capitalist order. In France, with a more established social-democratic academic milieu, Piketty’s book was not such a big deal when published in 2013. A review in Libération (17 October 2013) noted that it did not touch on social domination, violence, exploitation or class battles, describing it as “a conceptual regression shaping an impoverished vision of the social world.” The review aptly concluded that Piketty’s aim in reducing inequality in wealth was to “give meaning” to wage inequality so as to better legitimatize it. This criticism was made by a leftist intellectual who sees in this magnum opus not only a pro-capitalist manifesto but a right-wing neoliberal one at that. That evaluation is entirely consistent with Piketty’s political profile. In the lead-up to the 2007 French presidential elections, Piketty served as economic adviser to hardline “law and order” Socialist Party (SP) candidate Ségolène Royal. The same year, he denounced the 35-hour workweek in France as a “major error.” Only in the relatively backward political context of the United States, where there is not even a mass reformist workers party like the SP, can Piketty be mistaken for a radical. While touring the U.S. earlier this year, Piketty met U.S. Treasury Secretary Jacob Lew, gave a talk to Obama’s Council of Economic Advisers and a lecture at the International Monetary Fund. Although Piketty may express some sympathy for the plight of the poor, his message serves the concerns of a different audience. Bourgeois Economics for the 21st Century Piketty wrongly casts his work in the mold of classical political economy, harking back to Adam Smith and David Ricardo. The strength of those economists, who paved the way for Marx, was that they sought to distinguish capital and value from the pure accumulation of wealth. As ascendant capitalism was at the time displacing the old feudal order, such an approach was needed to explain how a factory owner differed from a landed aristocrat. Writing in the age of bourgeois triumphalism spawned by the demise of the Soviet Union, Piketty makes no such distinctions. He defines “capital” to be any and all wealth and renders it a timeless category present across all human history, or at least back to the first year AD. This definition freely mixes land and home ownership with other forms of wealth, including stock holdings, which guarantee a stake in the share of profit of a capitalist enterprise. The absurdity of his method is shown when Piketty calculates the average market value of slaves to factor them into the total capital of the U.S. In so doing, he denies what Lincoln and the Radical Republicans intuitively knew—that slavery in the U.S. was a different form of production than capitalism, and a war needed to be waged to smash the institution. Classical political economy focused on the character of markets. Smith and Ricardo, in seeking to account for what it meant for things to be exchanged for items of equal value on the market, adhered to a labor theory of value. In The Wealth of Nations (1776), Smith wrote: “The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.” Marx, building upon and going beyond that tradition, saw in capitalism a new arrangement of productive forces. The market, which had existed before the advent of capitalism, had become so generalized that labor power itself was turned into a commodity—that is, the ability to work was offered on the market to the highest bidder in exchange for wages. Prior class systems had made explicit the exploitation of labor; for example, the peasant might work two days a week for himself and four for his lord. Capitalism concealed that exploitation under the veil of the market. A worker may produce eight hours worth of value but only be compensated for, say, three of them in his wages. The other five hours create “surplus value,” the source of profit for the capitalist. Under this system of wage slavery, the exact fraction of the total value added by a worker that goes back to him is determined by a contest of forces in the class struggle. Capital: What It Is and Isn’t For Marx, following Smith and Ricardo, capital is not just any old form of wealth, but that contributing to the process of capitalist production. Take an expensive watch sitting in a cabinet. It is displayed wealth, not capital. While gold may find use in the manufacture of electronics or luxury items, gold bars in a warehouse are not capital either. That gold may speculatively fluctuate in value, but it is not involved in production, and cannot be considered as capital when examining the amount of goods and services generated and distributed by a society. In a production cycle, capital is both created and consumed. Thus, it is not simply a fixed “stock,” but a flow of expenditure with two distinct components. Variable capital is the portion spent on wages, so named by Marx because the investment differs from the amount returned, with the difference representing surplus value. Constant capital is the portion consumed in the course of production, as raw material and as wear and tear on machinery or other depreciation of equipment. From the standpoint of the economy as a whole, constant capital also includes nonproductive expenses socially necessary to the ruling class: cops and security guards to keep the workers in line, teachers to maintain a certain level of knowledge, officials to fill administrative and governmental posts, a military, etc. The largest part of what Piketty incorrectly counts as capital is housing, which he has constituting nearly half the capital in modern-day Britain. Housing is simply a consumer good. A family that owns its home does not derive income from it. Even if that house is sold for more than the purchase price (by no means guaranteed), the proceeds go toward buying or renting another dwelling—or paying for nursing home care. Piketty’s treatment of housing serves to efface class distinctions, slotting in many members of the working class as “owners of capital.” Due to the longevity of housing stock, the cost of construction has long since been recouped for most housing units, which in addition have changed hands many times. The capitalists who own residential real estate (typically banks and financial institutions) are almost completely separated from those who develop it. Once a house is sold as a consumer good, the income capitalists derive from housing—rent, interest and speculative gains—is nearly completely divorced from its production and reproduction. This income is combined with other sources of financial income and then directed elsewhere. Capitalist income derived from residential real estate is thus simple parasitism. In this aspect, modern housing is very similar to agricultural land in the 19th century. Classical political economists did not regard land as capital, with Ricardo arguing that “the interest of the landlord is always opposed to that of the consumer and manufacturer.” Basing himself on Ricardo, John Stuart Mill, the pre-eminent liberal intellectual in mid Victorian England, argued for a confiscatory tax on the income of the landed class: “They grow richer, as it were in the sleep, without working, risking, or economizing.... In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?” Mill’s proposal to tax away almost the entire income of the landlord class was far more radical in its time than Piketty’s proposal for a global wealth tax.   [TO BE CONTINUED]

Workers Vanguard No. 1054	17 October 2014

The Poverty of Bourgeois Economics

Thomas Piketty’s Capital in the Twenty-First Century

 

A Marxist Review

By Gerrit Bogle and Joseph Seymour

 

(Part Two)

Part One of this article appeared in WV No. 1053 (3 October).

Interviewed by The New Republic (5 May), Piketty declared that he had “never managed really to read” Karl Marx’s Capital. That has not stopped him from devoting a chunk of his book Capital in the Twenty-First Century to attempting to prove that Marx was wrong. In a subsection titled “Back to Marx and the Falling Rate of Profit,” Piketty purports to criticize a core understanding of Marxist economics. He in fact jousts with a straw man.

One of Marx’s key insights was the inherent tendency for the rate of profit, the driving force of the capitalist system, to decline over time. Capitalists invest in expanding productive capacity on the assumption that they will be able to sell the goods produced at a particular rate of profit. However, as Marx showed, during periods of expansion, capitalists over time find themselves unable to garner the expected profit, so they cut back their investments. The result is an economic downturn and a catastrophic shutdown of factories, with the mass firing of workers.

The explanation of this tendency flowed from Marx’s understanding that surplus value, the unpaid portion of workers’ labor, is the source of profit. Marx focused on the capital (i.e., means of production) invested per worker, which he termed the organic composition of capital. He observed that, especially in periods of economic boom when workers can often demand higher wages, individual capitalists increase the amount of capital per worker in order to cut costs and gain a competitive advantage. As all capitalists follow suit, the total amount of surplus value that is generated per capital invested—that is, the average profit rate—declines.

Piketty seeks to refute Marx’s analysis of this fundamental contradiction of the capitalist mode of production: “The implicit hypothesis was that growth of production, and especially of manufacturing output, was explained mainly by the accumulation of industrial capital. In other words, output increased solely because every worker was backed by more machinery and equipment and not because productivity as such (for a given quantity of labor and capital) increased.”

Piketty is imputing to Marx an absurdity. How is it possible for productivity to increase with a given stock of capital goods (leaving aside speedup)? An increase in labor productivity almost always requires replacing or augmenting existing machinery with new equipment embodying more advanced technology. Such new equipment, because it enables the capitalist to extract a greater amount of surplus value per worker, will necessarily have a higher market value than older equipment. In short, increased labor productivity is necessarily associated with more capital per worker.

Marx, writing in the period of the industrial revolution, knew well that capitalism increased not only the quantity of industrial capital, but also its productivity. As he wrote in The Communist Manifesto, “The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society.”

Piketty takes Marx to task for not subjecting his theory on the falling rate of profit to empirical investigation. Such an investigation was made in 1963 by Shane Mage, a founding leader of the Spartacist tendency, who is today no longer an active political figure. As part of his doctoral dissertation, Mage calculated the average rate of profit for the U.S. economy from 1900 to 1960 (archive.org/details/MagesDissertation). He did so in two different ways: one using units of labor time appropriate to Marxist theory, the other using current dollar values corresponding to the accounting procedures and decision-making criteria of capitalist managers. Mage summarized the results as follows:

“This study has made it clear that the U.S. rate of profit as defined by Marx, whether calculated on a labor-unit or current-dollar basis, has fallen drastically over the past sixty years. The organic composition of capital has simultaneously increased, though not in as pronounced a way. The facts of the modern U.S. economy thus tend to confirm, at least in general outline, the ‘law’ that Marx regarded as basic to his general theory of capitalist development.”

Mage also found that especially in the period of rapid capital accumulation between 1946 and 1960 “technological progress has been extremely capital-intensive.” Over this period, he computed that the organic composition of capital had increased by 45 percent.

Piketty distorts Marxist theory in other ways, including by attributing to the concept of the tendency of the rate of profit to fall a prediction of the inevitable downfall of capitalism. Such historical determinism is utterly foreign to Marxism. As the revolutionary leader Leon Trotsky wrote in “Once Again, Whither France?” (March 1935):

“There is no crisis that can be, by itself, fatal to capitalism. The oscillations of the business cycle only create a situation in which it will be easier, or more difficult, for the proletariat to overthrow capitalism. The transition from a bourgeois society to a socialist society presupposes the activity of living people who are the makers of their own history.”

Marx and Engels explained that the only way to end the boom-bust cycles inherent to capitalism is for the working class to take control of the means of production through socialist revolution and institute a planned, collectivized economy.

Crisis-Ridden Production for Profit

Piketty’s bogus conception of Marx has him describing capitalism as a constraint on profit. Marx’s actual criticism is that the capitalist profit system is a constraint on production, and hence to fulfilling the needs of the mass of the population. The vast majority of the means the capitalists have at their disposal to increase profit (e.g., slashing wages, intensifying speedup, plundering neocolonial countries) have nothing to do with increasing the stock of goods available to the mass of the world’s population. Furthermore, many of the avenues into which the search for profit compels capitalism amount to an enormous destruction of productive capacity.

As Marx explained in Volume III of Capital: “The expansion or contraction of production are determined by…profit and the proportion of this profit to the employed capital, thus by a definite rate of profit, rather than the relation of production to social requirements, i.e., to the requirements of socially developed human beings. It is for this reason that the capitalist mode of production meets with barriers at a certain expanded stage of production.”

But Piketty needn’t have read Capital to know better. Again, the idea is stated with great eloquence in the first chapter of The Communist Manifesto, written twenty years earlier:

“Modern bourgeois society with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeoisie and of its rule. It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the entire bourgeois society. In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce.... The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”

The crises that Marx described in his day are in substance no different from the recent “Great Recession.” When the finance bubble popped in 2007, vast quantities of capital that could no longer be invested at a sufficient rate of profit were withdrawn from circulation and directed into savings or commodity speculation (see the 2009 Spartacist pamphlet Karl Marx Was Right: Capitalist Anarchy and the Immiseration of the Working Class). In such crises, the least productive firms are shuttered and their workers thrown on the street. Capital is scrapped or re-purposed, and the overall stock of constant capital (the industrial plant, machinery, raw goods, etc.) temporarily contracts. Working people are made to sacrifice to get the economy back off the ground. Recovery means union-busting and deep wage and benefit cuts for workers and renewed profits for the capitalists.

To Marx’s description in the Manifesto, we can add another way in which the capitalists offset the falling rate of profit, which has come to the fore in the epoch of imperialism that began in the late 19th century. In his study Imperialism, the Highest Stage of Capitalism, V.I. Lenin, leader of the October 1917 Russian Revolution, described how imperialism, i.e., modern, decaying capitalism, is “a world system of colonial oppression and of the financial strangulation of the overwhelming majority of the population of the world by a handful of ‘advanced’ countries.” Lenin emphasized that the monopolization of production and the dominant role of finance capital impel the imperialist powers to search for markets, raw materials, sources of cheap labor and spheres of exploitation in more backward countries.

The carving up of the world is not accomplished by purely diplomatic and economic means. Military force is the ultimate arbiter. At times, military adventures are launched to further this looting. At other times, competition between imperialist rivals has ignited world war. On top of the tremendous human toll, such wars usher in the destruction of the wealth of mankind on a massive scale. Imperialist aggression and war are thus ingrained within the framework of capitalism—the entire system must be overturned.

Accounting and Ideology

The mathematician Richard Hamming was fond of recounting a parable from physicist Arthur Eddington: “Some men went fishing in the sea with a net, and upon examining what they caught they concluded that there was a minimum size to the fish in the sea.” Piketty’s net is the method of bourgeois accounting, and casting it out into the great sea of social relations, he has concluded only that certain accounting identities make the books balance.

The world that Piketty describes, despite all the charts he produces and injunctions he issues, is curiously static. He calculates his “capital/income” ratio across centuries but cannot integrate his occasional description of changes in that ratio with events in society. And for him, past behavior locks in the future. For example, Piketty argues that no major capitalist country has had a rate of growth in per-capita output higher than 1.5 percent over a long span of time. He then treats this number, derived purely from past averages, as a law of nature as absolute as the speed of light.

Piketty does not even speak of a rate of profit, but rather a misdefined “rate of return on capital”: the net income of a nation relative to its total wealth. He has produced a chart that purports to trace this rate of return on capital for the past 2,000 years and show that it hovers between 4 and 5 percent. Why this rate? He cannot tell us. This chart is a graphic illustration of the flaws in Piketty’s method. From 1700-2010, the data consists of his estimates from Britain and France. For the rest of human history, he simply invented a return of 4.5 percent.

What sense does it make to even speak of a “global rate of return on capital” in a period when most of the globe was not aware of most of the rest of the globe, much less that humans dwelled on an object shaped like a globe? Or, for that matter, when much of the globe not only did not live in market economies, but barely had a notion of a market if at all? Never mind. For Piketty, if something cannot be quantified in an account ledger, then it cannot have been important. If he were not making an argument that the bourgeoisie wanted to hear, such methods would be considered crackpot.

Bourgeois economics is in many respects less a science than a set of beliefs. Models are invented and debated that do not correspond to the real world, but make up “idealized” market systems. Such models generally attempt to show that capitalism can or should generate stable and sustainable growth (“equilibrium”). Piketty’s laudable collection of data represents an improvement on this status quo. All sources of data from his book as well as his calculations are freely available online. Similarly, the work he has done on the World Top Incomes Database is freely available and well documented. However, Piketty’s improvements in method cannot compensate for his attachment to the principles of bourgeois economics. Despite his affinity for data drawn from the real world, he still does not see this data in terms of the world beyond the balance sheet.

The past century has seen multiple crises and depressions that left millions to starve and two interimperialist wars in which one hundred million people were slaughtered. Innumerable smaller conflicts born from colonial avarice have also destroyed human lives and devastated entire societies. These crises and conflicts were not external to the capitalist economy, but an integral part of its workings, brought about by economic forces even as the events themselves reshaped productive relations.

Likewise, the decreased income inequality in the West in the 1950s, noted by Piketty, had social origins. In the case of the U.S., the carnage of World War II had catapulted it into a hegemonic economic position. Meanwhile, the non-capitalist world was undergoing vast expansion with the creation of the deformed workers states in East Europe, North Korea and soon after China. In the U.S., a postwar strike wave saw millions of workers out of the factories and on the picket lines. Faced with the “red peril” of Communism and a restless proletariat, the U.S. ruling class initiated an anti-Soviet Cold War drive and imposed new restrictions on unions, while granting significant, albeit temporary, economic concessions to the workers in order to tamp down struggle. The rise in income inequality in recent years cannot be divorced from the capitalist counterrevolutions in the Eastern bloc and the USSR, which emboldened the imperialists to ratchet up exploitation at home.

Decades-long global trends and glib formulaic averages are not going to provide much insight into the functioning of the capitalist system. Capitalist production is a dynamic process consisting of real people—a tiny few who prosper and a large number who toil in misery—and real forces in conflict. It is not a stable set of social relations but is subject to the ebb and flow of the class struggle, which is sometimes out in the open and sometimes less so.

Contrary to Piketty’s view of capitalist relations across millennia, capitalism is a historically delimited mode of production. It emerged under certain circumstances and came to dominance in a particular fashion, not as an inevitability but as the result of the victory of the nascent bourgeoisie over the landed aristocracy. It is not the first mode of production in human history, and if humanity is to survive, it cannot be the last.

The development of capitalist industry, as Marx and Engels observed in The Communist Manifesto, “cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie, therefore, produces, above all, is its own grave-diggers.” The working class, standing at the head of the oppressed, must seize the reins of power and impose its own class rule—the dictatorship of the proletariat—to liberate mankind from the oppression of capital. A workers government would reorganize economic relations on the basis of socialized ownership of the means of production. Only then will production begin to satisfy human need.

The task of socialist revolution is not immediate, and not easy. It requires consciousness, organization and leadership. We in the International Communist League (Fourth Internationalist), of which the Spartacist League is the U.S. section, seek to build parties around the world capable of leading the proletariat in the fight for a future in which inequality and want are but distant memories.