NWR: What did you read this past summer, that wasn't Jonathan Franzen?

originally posted by Jonathan Loesberg:
originally posted by Cliff:
originally posted by Cole Kendall:
... the r>g bit does not really explain much...
Click to expand...

This. His definition of capital is incredibly broad.
Click to expand...

The r>g equation seemed very explanatory to me. My problem with it was that in a book that was supposed to rest on a lot of historical research, the strength of the equation was in its universal, logical appeal. Are you guys saying that, given historical differences, it really works only like the supply demand equation does, or that there's some other fallacy?
Click to expand...

As a historian, I can't see the utility of comparing, say, pastoral economies with sedentary agriculture with steam-powered factories with an internet boom. Sure, they all rely on capital, and abstraction is vitally important to make any kind of general claims. But there are limits. Are we talking about the same thing before and after the industrial revolution?

FogelGraph.jpg
Do we expect agrarian and industrial economies to behave the same way? Post-industrial? Surely the constellation of different kinds of capital shapes competition between the rich and everyone else. For a work of political economy, the work has absolutely nothing to say about politics.

In empirical terms, I have read his thesis on the twentieth century much more closely than the nineteenth century work, but in the former the level of research really is spectacular.
 
originally posted by BJ:
One only needs to glance at that graph to know it has to come back down.
Click to expand...
I'm kinda disappointed with the Black Death. The press releases made it sound like it was actually deadly but that line doesn't dip even a little.
 
originally posted by Cliff:
originally posted by Jonathan Loesberg:
originally posted by Cliff:
originally posted by Cole Kendall:
... the r>g bit does not really explain much...
Click to expand...

This. His definition of capital is incredibly broad.
Click to expand...

The r>g equation seemed very explanatory to me. My problem with it was that in a book that was supposed to rest on a lot of historical research, the strength of the equation was in its universal, logical appeal. Are you guys saying that, given historical differences, it really works only like the supply demand equation does, or that there's some other fallacy?
Click to expand...

As a historian, I can't see the utility of comparing, say, pastoral economies with sedentary agriculture with steam-powered factories with an internet boom. Sure, they all rely on capital, and abstraction is vitally important to make any kind of general claims. But there are limits. Are we talking about the same thing before and after the industrial revolution?

FogelGraph.jpg
Do we expect agrarian and industrial economies to behave the same way? Post-industrial? Surely the constellation of different kinds of capital shapes competition between the rich and everyone else. For a work of political economy, the work has absolutely nothing to say about politics.

In empirical terms, I have read his thesis on the twentieth century much more closely than the nineteenth century work, but in the former the level of research really is spectacular.
Click to expand...

Do they not behave in the same way with regard to the proportion of growth that goes toward paying capital investment? This is not a rhetorical question. At some level, the equation makes sense in terms of how much wealth in an economy goes toward paying for capital investment as opposed to paying for labor and that's without regard to whether the capital is land or industry and the labor is farm tenant or worker. It was after all, Marx, who said that labor doesn't start being labor and capital capital suddenly in the 18th century.

On the other hand, my own sense is that he doesn't describe the economic situation in England from 1815 to 1914 all that perfectly. The price of labor does go down through much of C19, but it rises quite precipitously in the first decade of C20, prior to WWI (though WWI certainly put the finishing touches to the death of the servant class). And while one could live very well off of landed property through the first 3/4 of C19, the 5% government bills he talks about really did not create the same rentier class as existed in France.

But even if I'm right, I don't know the reasons for these variations between France and England, for instance. And while I've heard his research faulted, I can't begin to contest it myself. If, for instance, you dispute what I say about the rise in the price of labor in the decade before WWI, I'll accept it, since what I've read about that, I've read too many years ago and in history books, not presentations of hard statistics.
 
originally posted by Jonathan Loesberg:
originally posted by Cliff:
originally posted by Cole Kendall:
... the r>g bit does not really explain much...
Click to expand...

This. His definition of capital is incredibly broad.
Click to expand...

The r>g equation seemed very explanatory to me. My problem with it was that in a book that was supposed to rest on a lot of historical research, the strength of the equation was in its universal, logical appeal. Are you guys saying that, given historical differences, it really works only like the supply demand equation does, or that there's some other fallacy?
Click to expand...

My main issue with r>g generating inequality is that it is a statement about income and not wealth. And literature is full of examples. If rich people are 19th century French misers then they will keep amassing wealth and become insanely rich. But all it takes is a few spendthrifts in the next generation who spend more than r every year to reduce their wealth and this process can speed up pretty rapidly. (And a technical aside, if rich people all behave like misers, and generate huge piles of capital, the rate of return on that capital will decline)

A second issue is that capital does change over time; my ownership of a factory today may or may not be worth something in fifty years. You do not have to travel widely to see rusted hulks of factories that were once valuable that today are wastelands. Or houses or equipment.

Finally one of the new developments of recent years is the rise of human capital, the way we can turn an education plus wit into a way to earn high incomes. This sort of capital generates high incomes today but requires luck and further investment to pass on to your heirs.
 
originally posted by Jonathan Loesberg:

Do they not behave in the same way with regard to the proportion of growth that goes toward paying capital investment? This is not a rhetorical question.
Click to expand...

My main point was Cole's second. What counts as capital has changed dramatically over time. If the basic categories are changing, evaluating the kind of relationship you describe does not make sense. Different kinds of capital have different returns, and those returns change over time. The balance between human capital, industrial plant, agrarian systems, and governments shifts in ways that I think make the kind of abstraction he uses misleading.

Did the price of labour in England go up in the nineteenth century? The standard of living certainly did, once you got past the first generation that went from farm to factory. I think most economic historians would minimize the distinctions of productivity that used to be drawn between England and France over the very long term. That is, "backward" France has ended up looking better and better. (But we knew that.)

His research on the twentieth century is fundamental for showing the evolution of inequality over time. It is descriptive. Explaining the patterns, however, is a whole different exercise, and I'm not convinced by the explanation on offer -- not that I have one. The basic idea that the holders of capital are likely to control more and more capital absent war and revolution is probably a good bet, but then war and revolution do have a pesky way of getting in the way. And there are all sorts of other kinds of resistance that capital has to deal with.
 
originally posted by Cole Kendall:

My main issue with r>g generating inequality is that it is a statement about income and not wealth. And literature is full of examples. If rich people are 19th century French misers then they will keep amassing wealth and become insanely rich. But all it takes is a few spendthrifts in the next generation who spend more than r every year to reduce their wealth and this process can speed up pretty rapidly. (And a technical aside, if rich people all behave like misers, and generate huge piles of capital, the rate of return on that capital will decline)

A second issue is that capital does change over time; my ownership of a factory today may or may not be worth something in fifty years. You do not have to travel widely to see rusted hulks of factories that were once valuable that today are wastelands. Or houses or equipment.

Finally one of the new developments of recent years is the rise of human capital, the way we can turn an education plus wit into a way to earn high incomes. This sort of capital generates high incomes today but requires luck and further investment to pass on to your heirs.
Click to expand...

More spendthrifts would produce higher returns to capital, no?

And one of the ways the rate of return to capital can be sustained is through creative destruction - the kids these days call it disruption, I believe. Yes, some capital gets destroyed in the rustbelt, but Detroit's death is Phoenix's gain (or Las Vegas... or Los Angeles...). The same dynamic exists between inner city decline and suburban expansion. This, in a nutshell, is David Harvey's argument about the dynamism of capitalism.
 
The price of labor in England did not go up much prior to the 1860s, nor did standard of living much (a slightly different question). The economic good times of the 50s and 60s were very much built on cheap labor (or at least the 50s, the era of London Labor and the London Poor) and 1873 of course starts the long recession (again this is based on reading of history that may be dated, but that is how I remember it). However much it rose at any time in C19 does not begin to match what happened in the first decade of C20 (which still should present at least minor problems for Piketty).

I don't see that miseriness vs. prodigalaity should matter at all. That just changes which rentiers were wealthy. It doesn't redistribute income.

The point about the differing rate of return for different forms of capital would be relevant if you could show that different forms of capital provided different rates of growth going toward labor given the same rates of growth and average rates of return. In other words, if it were true that somehow heavy industry produced a rate of return that was both the same or higher as landed property but somehow drew less on the rate of growth.

Your point about intellectual capital is well-taken. I think Piketty tends to underemphasize the importance of wage differential (if you describe the pay given to rich and very rich people as wages) in moving wealth around. But he would surely be right to argue that that is a very recent phenomenon.
 
originally posted by Jonathan Loesberg:
The price of labor in England did not go up much prior to the 1860s, nor did standard of living much (a slightly different question). The economic good times of the 50s and 60s were very much built on cheap labor (or at least the 50s, the era of London Labor and the London Poor) and 1873 of course starts the long recession (again this is based on reading of history that may be dated, but that is how I remember it). However much it rose at any time in C19 does not begin to match what happened in the first decade of C20 (which still should present at least minor problems for Piketty).
Click to expand...

Yes, I twisted the question b/c I know the evidence better. I think you have this basically right.

originally posted by Jonathan Loesberg:
The point about the differing rate of return for different forms of capital would be relevant if you could show that different forms of capital provided different rates of growth going toward labor given the same rates of growth and average rates of return. In other words, if it were true that somehow heavy industry produced a rate of return that was both the same or higher as landed property but somehow drew less on the rate of growth.
Click to expand...

I do not understand the final point you make. The population graph I included shows, albeit indirectly, that the returns to capital changed rather dramatically in the C19. The rate of return to different kinds of capital, workers and farmers' ability to fight back, and the government(s)'s ability to redistribute/skim have all evolved. Even if the basic equation is right, which it may be, or not, I think there is too much going on for it to be very helpful. The nature of the change you see in the C19 is so far reaching that I think all bets are off in terms of making predictions based on past performance.
 
I don't follow how a population graph shows a differential rate of return. Unless what you are saying is what Piketty essentially says since population growth is part of his equation and part of his argument is that leveling off of population growth leads to leveling off of economic growth which enhances the proportion of growth going to pay for capital.

My final point was that to disconfirm the equation, one way would be to show that some form of capital's draw, regardless of its proportion of growth, still left more room for wages to expand.

I really think the disagreement you have with Piketty is that he isn't having the conversation you want. He isn't an historian, and he won't replace thick history with his economic arguments. The real aim of the book is to give an explanation of income disparity that is more long sighted. The question is whether you think his explanation is a good one. I think the objection that he downgrades the effect of salary differentials in recent years matters since it probably affects his preference for wealth taxes over more progressive income taxes (not that these are mutually exclusive alternatives), but I don't think the other objections you and Cole make really do respond to his case. Now if his statistical arguments about what happened in C20 that caused growth rates and income rates to rise and why that stopped can be faulted, that would be another problem.

With regard to C19, I think his picture of the culture is faulty. I think his discussion of how Britain paid of its debts over the Napoleonic wars and the resulting 5% bonds over the course of the century (I didn't know that connection at least) was interesting. I agree with you that he doesn't consider enough the change in the nature of capital from 1780 to 1850, and his reading of both Austen and Pere Goriot certainly gives a distorted picture of the lack of social mobility even as suggested by the novels (not that either France or England were wildly mobile, but for instance, while he's very big on Vautrin's advice to Eugene, he doesn't much discuss the sources of Goriot's wealth and he has nothing to say about Balzac's picture of 1840s France in later novels). But I don't see that any of this goes to his larger argument.
 
That kind population growth could only be supported by vastly increased productivity and returns to capital (and labor).

Yes, you're right. He's not having the kind of conversation I want. He says he is interested in political economy, but he leaves no room for politics in the big book. It matters that different kinds of capital have produced different rates of return and operated in, and created, different political possibilities. He's assuming that the late C20 is normative, which it may turn out to be, but I don't think he makes the case.

He does not make statistical arguments about what caused growth and inequality in the C20. He uses statistics to describe those changes -- a critically important but very different endeavor. In trying to make an overarching argument, which connects that research to a distinct body of his work on the C19, I think he raised fundamental questions, but the answers don't persuade me.
 
"He does not make statistical arguments about what caused growth and inequality in the C20. He uses statistics to describe those changes -- a critically important but very different endeavor."

I'm not sure I see the distinction. I'd say he's making a claim about what caused the changes and the statistics are evidence for the claim. He's not merely saying the changes occurred but arguing why they did. Saying that growth in mid C20 didn't derive from policy choices but from laws of how growth and capital draw work and that the turn toward inequality did not result primarily from the conservative turn in the mid 80s but from the same laws sure sounds like an argument to me. Imagine running for President as a Democrat and saying that income inequality needs to be addressed but that its primary causes had nothing to do with either Reagan or the Bushes.
 
The description is wonderful, the argument about causality less persuasive. I wouldn't lay all the blame with Reagan and the Bushes, but his iron law of capital strikes me as too vague. I would like more thick historical or political description about options, potential, and choice. Stepping far back enough to come up with a law that says people who hold capital and their children are likely to hold more in the future strikes me as probably true, absent any number of massive crises currently brewing, but not terribly revealing. I don't see how his statistics can tell us which period in the past, say, hundred years is likely the norm and which the exeption(s). Going back more than about a hundred years strikes me as folly.
 
I actually remembered it as Berenstein but for some reason googled it prior to posting and then saw all those articles/blogs about alternate universes.

I wasn't quite sure what to make of it and whether or not the whole thing was a joke. But when I got home, yes indeed, it is Berenstain. Who knew.
 
You must log in or register to reply here.
Back
Top