Capitalism’s Winter — Chapter One summary and open thread

(Sorry this is coming late in the day! You know life… stuff.)

This chapter opens with a scene of violent conflict between mine workers and state police, acting on behalf of mine owners. He uses this as an example of the fact that much of the conflict over capital arises out of ways society has divided up the fruits of capital between the capitalists, and labor, what he calls the capital/labor split.

He goes on to stake a political flag in the ground, one of the first so far in the book: “(Unrest) is due… to the extreme concentration to the ownership of capital.”

Piketty also spends some more time defining his terms — he wants us to be well aware of what he means by terms like national income, and why he chose it over the popular GDP (the short version of this is the National Income accounts for entropy, the wear and tear of infrastructure, whereas GDP doesn’t.)

This is the chapter where he carefully defines capital, and thereby the scope of the book — he doesn’t make a value judgement of capital at all, but just defines what he’s talking about and therefore how he believes it will behave. This is a clever trick, sidestepping many of the religious wars of economics. His definition is interchangeable with his definition of wealth. As a writer, I suspect this is more a literary convenience than a technical or economic one; having a synonym makes the text less cumbersome and repetitive. And, that’s pretty useful when you’re dragging a general audience along for over 600 pages.

When considering wealth, Piketty gives us the definition of one of his most important numbers: the capital-income ratio. It is defined as the capital stock/annual flow of income, denoted as β. It’s a multiplier, so if capital stock = 6 x national income, β=6, or 600% of national income.

Put another way, If you had $60 saved in the bank, and you made $20 in income, the ratio would be β=3, and so on.

Capital income ratio (β) is usually between five and six on the national level.

The accounting practices of 19th century novels makes its debut in Chapter One as well, with discussions of rate of return in the backgrounds of the drama of Balzac and Austin.

Piketty continues what he started in the introduction by laying out the lineage of his economic data. This is, I think, the most difficult sections for readers who are not economists or statisticians. The history of data isn’t uninteresting, but this is a surface view of how data collection has evolved, waving at the changing nature of the data he and his cohort of economists had to work with when trying to understand income and output. It is of limited value to the general reader, beyond being a declaration that homework got done.

The chapter closes with a discussion of national inequalities and their historical context and possible mechanics. He contrasts much of the “catch up” world of emerging economies with Sub-Saharan Africa, which he describes as largely owned by foreign capital, going so far as to describe this state, and the colonialism that came before it as “when one country owns another.” It’s once again a political statement, but couched in and supported by a specific definition of ownership. That ownership is expressed in terms of a country that performs labor for and also pays another country where capital resides. The political part isn’t mere to describe that as ownership, but also as the cause of a failure to thrive post-colonially. I think this is a compelling argument, especially given countries that largely own themselves seem to grow faster and stronger than those who rely on FDI, which even in the best of cases transfers wealth out of poor countries, even when it has good effects within a country.

3 thoughts on “Capitalism’s Winter — Chapter One summary and open thread

  1. Geoff

    It strikes me that this chapter is Piketty the Magician showing us there’s nothing up his sleeves. Just simple, even tautological definitions. Just the best data anyone’s ever had. This isn’t the trick, not yet, although by opening with gunfire we know where he’s heading.

    What I didn’t expect is that he’s a very good writer. Maybe a little circuitous, but no jargon, no unnecessary obfuscation, no irrelevant tangents.

    Maybe I’m hopelessly nerdy, but is anyone else unable to stop thinking about coding this into Civilization?

    I think this point will be useful later: humans are hardwired to reject unfair deals.

    1. quinn Post author

      I do think some of those props, writing-wise, may also belong to his translator. But it would be wonderful to talk to someone reading him in French and see what they thought.

  2. dfornika

    I’ve seen David Harvey criticize Piketty’s characterization of capital as a stock of wealth. In Harvey’s guide to Marx’s Capital, he emphasizes that Marx describes capital as a *process* or a flow. The movement of value from the money form to the commodity form, and back to the money form (absorbing surplus value from labour along the way) *is* capital.

    I do like the way that Piketty lays out these definitions and accounting identities, though. So for the purposes of this book, the terms should be clear.

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