What’s the Difference Between Piketty and Marx?

The Investor and Wage Earning Classes

The Investor and Wage Earning Classes

Before I say anything about the title or provide background, here is the thrust of today’s post, so you can decide whether or not to read the remaining 950 words:

The Right needn’t worry that Piketty has given the Left (or Center) the tools it needs to eviscerate capitalism. The Left will find that once the media blitz and the Piketty infatuation have faded, its mission to defeat Inequality remains just as daunting and frustrating as before. Which is not to say the Piketty book lacks consequence.

In the title, I am referring of course to Karl Marx, the 19th century German sociologist, economist, philosopher, and historian. In those days, the “social sciences” were vertically integrated. Marx treatises and polemical works on capitalism are still the most influential,  even though hardly anyone believes in Marxism anymore, or is willing to say so. His most sweeping and scholarly book was Das Kapital.

The other name in the title is Thomas Piketty, a living (and now, presumably wealthy) French economist, whose recent tome, Capital in the 21st Century, bears a similar title to Marx leading work. It also treats the subject with a breadth and ambition that is reminiscent of Marx. From what I can tell without having delved deep in his heart or mind, Piketty is not a Marxist.  But, Piketty and his new 700-page book, have been compared to Marx by everyone from Rush Limbaugh, to writers at The Nation, The Economist, and The National Review; the intellectual Left, Center and Right.

One can’t do much justice to a Piketty- Marx comparison in a 1000 word blog article. But having read a lot of Marx in college (taught gingerly by professors who had been traumatized by McCarthyism), and selective parts of Piketty at a Barnes and Noble coffee shop (with horrible bagels), I may be just dangerous enough to add a little value to this discussion.

As I said earlier, there is less here than meets the eye, for either Left or Right, which
is not to say the Piketty book lacks consequence. Piketty has shown his fellow economists you can be highly relevant and still held in high esteem by academicians and intellectuals. He has put the rest of his profession to shame, by boldly tackling the defining issue of our time (if you agree with the Pope and President) with rigor, logic, data, and footnotes. Most of his professional peers have spent the last sixty years assuming away reality, so that what remains is neat enough to treat mathematically. (For full disclosure, I own up to having done some of that myself).

Piketty doesn’t offer bold or workable prescriptions for reducing Inequality. But he’s shown academics how to get into the game; and its rewards. I have often said in this blog that a Nobel Prize awaits the economist who finds a sound intellectual basis for a version of Free Trade that doesn’t keep screwing workers in industrial societies. That might also bring elements of the Right and Left together. Piketty’s central argument — if you’ll excuse boiling down 700 pages to a sentence or two — is that “wealth” (property, capital, investments) grows a lot faster than wage income. That is not just an empirical assertion; Piketty offers his reasons for why that’s (practically) inevitable,    Considering the effects of compounding, ordinary wage earners are going to be marginalized over time; while the rich get richer. And its going to get worse, says Piketty.

Piketty has delighted the Left and scared the Right by (purportedly) proving that capitalism causes the rich to get richer and the poor to get even poorer. That’s an old adage and concept, but Piketty provides a logical and empirical basis for it that stands up better than what Marx gave us. (In fairness to Marx, Picketty had more centuries and societies to work with, and more research assistants with computers).

On the other hand, the causal map in Picketty’s explanation of Inequality is at a high level of theory and abstraction; thus, its of little immediate use to policy makers or citizens. If Picketty were a climate scientist, he’d be sounding alarms about global warming backed by data, and predicting catastrophe, but he’d tip toe around whether humans have much to do with it. I know that sounds absurd, and unfair. Of course humans are responsible for economic outcomes. And Piketty knows that. But he is loathe to say it. He maintains a safe distance between his theorem about wealth (inexorably) outpacing wages; and the human actions and institutions responsible for that.  Whether or not you agree with Marx, reticence about the human causes of inequality was not one of the German philosophers’ shortcomings.

Not only does Picketty avoid a serious look at proximate factors like decaying labor unions, or free trade policies that create serious competition from poor low wage countries, he hardly mentions the (possibly larger)  inequalities within his underdog class of wage earners. He skips past the special case of wage inequality and its causes, which likely include technological changes — technology and software that eliminate mid-level jobs and leave the labor market polarized between the highly educated and skilled at the top, and the mass of poorly educated and unskilled at the bottom. See Robert Solow’s observations on that here.

Marx’s punchline was basically that contradictions within capitalism would eventually cause it to fail, resulting in an egalitarian utopia.  Marx added exhortations to hasten the “inevitable” outcome. (Just in case history and the iron clad laws needed a nudge).

Piketty, by contrast, proposes a global tax on wealth, and higher income taxes on the rich, which many on the Left already find insufficiently re-distributionist; possibly even too small to register on Joe the Plumber’s radar screen.  Piketty admits his tax solution isn’t even likely to happen, though it flows logically from his findings.

So, yes, regressive tax policy is (by inference) identified in Piketty’s work as a cause of Inequality. Factors that have been staring us in the face for forty years, around Unions, Free Trade, and Technology await others’ work on the scale of Piketty. If any of them go at it with Piketty’s empiricism and rigor, a Nobel Prize awaits, unless Piketty claims it first, or the mathematicians continue to rule the Nobel Economics Committee.

Another large difference between Picketty and Marx is the latter was more sociologist than economist. Marx depicted capitalism as a set of economic arrangements made possible by political and social institutions, like religion, which (he argued) were created to support and perpetuate it.  Marx famously said that religion was the opiate of the masses. Religion to Marx was one of the social institutions used by capitalists to “pacify and subdue the masses.” That’s where the notion of “godless communism” derives. Today Marx would say  the religious right in the U.S. is a manifestation of that, and has caused millions to vote against their economic interests. Conservatives counter, that Marx was even more materialistic than capitalists, in that he couldn’t imagine people who thought religious values and practice might be more important than economic interests.  Piketty doesn’t even flirt with that kind of stuff.

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3 thoughts on “What’s the Difference Between Piketty and Marx?

  1. Alex MacLachlan

    Irv, the internet has already helped in the realities of Free Trade. I’ve often said Free Trade makes middle men wealthy, with little effort, and their position of toll booth gives them the leverage to commoditize labor. The politics of Free Trade allows these people to position themselves in the logistics/supply chain much the way Government positions itself at the toll booth level of local capitalism. When you have government taking a piece of action up front, the middle men marking up your product in the middle, and the retail level company marking it up once again at the end user level with very little concern for that farmer or manufacturing employee’s wages getting stunted every time you raise prices. Demand is NOT inelastic most of the time, and the power lays with those who can raise their price at the expense of others in the supply chain. The challenge is to control as many levels of the supply chain as possible to give yourself a fighting chance. Preferably, you would want to control production and sales if you can’t be vertically integrated all the way through. You better hope there is heavy competition in the middle from transport and delivery so as to not be dependent upon one source, though. The point being, until the worker takes an equity stake through his labor and reinvestment in his company, and creates a vertically integrated company for him and his co workers, the realities of Free Trade will continue. The rest of the World builds up its export infrastructure with cheap labor and resources to compete on a global basis, and only an integrated company can compete as more Governments subsidize industries to make their products and people more competitive. There is much to teach our younger generation to be more than just a cog in the wheel, producing something, but controlling nothing, especially their future.

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  2. Irv Lefberg Post author

    Very trenchant comments Alex. Your logistics/ supply chain frame work for understand dynamics of Free Trade is different and useful. On your ” worker takes an equity stake “, point, are you going down the path of more stock options for workers in publicly traded companies and equity stakes in smaller firms? That’s interesting, because one conservative response I saw to Piketty was:”ok , if owners of capital are going to continue kicking ass, then enable more workers to be capitalists”. Most of the Microsoft millionaires were salaried guys who cashed in in their stick options.

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  3. alex maclachlan

    Well, management would have to make that call on stock options and they may not think the workers have enough leverage to command that generous of a stake. My call was more of a “You got to pay the cost to be the boss” argument. You must educate yourself, save money, invest your money, and take calculated risks to make free trade work for you. Being static as the World changes around you is a recipe for disappointment

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