After Piketty: “A Political Economy Take on W/Y”

The following is an excerpt from chapter five of After Piketty: The Agenda for Economics and Inequality, entitled “A Political Economy Take on W/Y” by Suresh Naidu:

In her “Open Letter from a Keynesian to a Marxist,” Joan Robinson writes: “Ricardo was followed by two able and well-trained pupils— Marx and Marshall. Meanwhile English history had gone right round the corner, and landlords were not any longer the question. Now it was capitalists. Marx turned Ricardo’s argument round this way: Capitalists are very much like landlords. And Marshall turned it round the other way: Landlords are very much like capitalists.”¹ In his big red book, Piketty tries, like Henry George and a long stream of economists of the left before him, to perform the Marxian maneuver of turning what he sees as an upside-down argument right-side-up. Piketty argues that modern capital is very much like land—a source of rent. It is supplied inelastically, commands a share of output despite having little in the way of opportunity cost sacrificed in its provision, and in its influence and skewed distribution returns us to a financialized neofeudal Gilded Age. Thus, an economy dominated by modern capital winds up as a rentier economy: an economy of robber barons, credentialed aristocrats, social conflict over distribution, and government captured by the rich.

But Piketty cannot quite manage to pull his maneuver off. He winds up trapped by the Marshallian apparatus he has built. In it, capital— wealth—is treated more as a stock of accumulated savings rather than a claim on future output, and so it looks less like Ricardo’s land owned by parasites and more like, well, neoclassical- economic capital, the profit from which is the proper and socially useful reward for thrift.

As Piketty’s book shows, capital—wealth—takes many forms, which run from real estate to financial assets, such as corporate shares and loans, and even to slaves. Wealth is most accurately conceptualized as a claim on future resources. It results from purchases of durable property rights over assets, such as machines, houses, patents, or oilfields, that are either productive (in which case people bid to use them) or extractive (in which case people pay to keep legal process from being used against them). The salience of wealth matters, and depends on how much of the economic pie it lays claim to. If the economy has produced a lot of output relative to capital, then it can cover the claims owed to holders of wealth with little effort. But if economy-wide output is relatively low, it will take much more of society’s resources to cover the obligations owed to wealth holders. Piketty’s book suggests that as global income growth (g) slows, society will need to fetter capital with taxes at the global level—or else see a new class of owner-rentiers gobble down more and more of the social pie.

The book is a template for good popular economics: historical and substantively important insights disciplined by original, carefully constructed data and an analytical framework inspired, but not fettered, by the mathematical models of the field.

This is not normal economics.

But unlike much economic writing on the left, economists would recognize it as economics (for better or worse).

In the text, if not in the models, the book also brings politics to the forefront of the analysis. The big movements in the series Piketty documents are driven by politics and policies. But the politics are exogenous to the model. They are not an endogenous part of the framework. Thus, Piketty has to delicately sail his way between the Scylla that is the “market fundamentals” of supply and demand for capital and labor, and the Charybdis that is the independent role of politics and policies.

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Extracted from After Piketty, edited by Heather Boushey, J. Bradford DeLong & Marshall Steinbaum published by Harvard University Press, $35. Copyright @ 2017 by the President and Fellows of Harvard College. All rights reserved.