Dean Baker on Piketty’s Capital: Or, How FDR Proved Marx Wrong

Thomas Piketty’s important new book, Capital in the Twenty-First Centurypredicts a bleak future of increasing concentrations of financial assets in few hands, stagnant wages and labor share of income, and declining returns to capital — secular stagnation. He enunciates and demonstrates the part of Marx that Marx got exactly right.

But Dean Baker points out where Marx got it wrong, and where an optimist  can hope that Piketty’s got it wrong. By changing our institutions, laws, and regulations — the rules of the capitalist game — we can head off that seemingly inevitable downward spiral. Dean gives several examples of institutional changes that could prevent or even reverse it, from patent laws to cable monopolies to financial-transaction taxes.

Which prompts me to finish this post, started long ago, and to point to Steve Randy Waldman’s eloquent rejoinder to the pessimistic view. Steve ingested this contrary view with his mother’s milk:

I remember pride in my businessman father’s voice when he explained to me that this [pessimistic view] was wrong. Marx had underestimated the ingenuity and flexibility of capitalist societies, and particularly of the United States during the New Deal. Government intervened to solve Marx’s collective action problem, enabling capitalists secure their enlightened self-interest by keeping a distribution of prosperity sufficiently broad that the predicted collapse could be avoided. … To my father, American capitalism’s adaptability and ingenuity had proved Marx definitively wrong, in the best possible way — by producing a stable society that served the vast majority of its citizens, while countries whose politicians had followed Marx’s prescriptions grew into monsters.

So Marx was wrong both ways — economically and politically — even while he was right. The capitalist tendency to concentrate financial assets at everyone’s expense is inevitable — unless we as a society decide to do something(s) about it.

You’ll find this very same thinking elsewhere, for instance in this line from Joseph Stiglitz’s review of Robert Skidelsky’s Keynes: The Return of the Master.

Keynes’s great contribution was to save capitalism from the capitalists

And in this 2001 article from The Hoover Digest:

How FDR Saved Capitalism

This is a clear, cogent, and coherent story, but one I rarely hear from the left. I’d like to suggest that progressives should be moving this rather moving narrative to the front of the rhetorical bookshelf.

Now if someone could just convince Obama to go all FDR on us…

Cross-posted at Angry Bear.







5 responses to “Dean Baker on Piketty’s Capital: Or, How FDR Proved Marx Wrong”

  1. Tom Hickey Avatar

    Picketty is correct. Capitalism is ultimately unworkable, and the name says it all. Capital formation, with land folded into capital, is placed in front of labor as a priority. This means that money and machines, and the people that own and control them, are placed ahead of ordinary people socially, politically, and economically, that is, culturally and institutionally. This creates the kind of “contradictions” that Marx pointed out in his day and which are now dated, but similar conditions always accompany capitalism regardless of its form in that it is in the interest of the elite to favor capital share over labor share. While this can be overcome temporarily, as it was for a time owing to the Great Depression and the aftermath of WWII, including the Cold War. But that was a special case due to the context of the times, and virtually immediately upon passage the wheels were set in motion by the elite to reverse the New Deal. That push is now in full swing.

    The only way to overcome these internal contradictions that arise from class and power structure is to change that structure, which Marx, of course, realized. Marx is anathema for a good reason. He saw behind the veil and revealed the naked wizards holding the levers of power. Read sociologist C. Wright Mills, for instance. His work is still prescient.

    The argument for the neoliberal variety of capitalism was summed up by Margaret Thatcher, TINA — “there is no other way.” This is the argument that the elite employ the press, academics, and other minions to make in order to dupe the rubes into voting against their own interests. It works.

    The saving grace is the innovation in transportation and communications technology that is ushering in a digital age that is shrinking the world and favoring flatocracy over hierarchical organization. The problem is fundamentally a cultural and institutional issue rather than chiefly an economic one. One the cultural is changed, the institutional change will follow and with that social, political and economic organization.

    It’s happening already. This kind of change takes time to diffuse and be incorporated into the cultural mindset. This involves a die-off of the present class and power elite. This transition will take place in the period in which the silent generation (mine) and the boomers (many of yours) retire and die-off, leaving a world in which everyone has grown up in at least the onset of the digital age and “thinks differently” that is flat rather than hierarchically.

    What the new culture and institutions will look like is as yet unclear, but it will reflect the diffusion of knowledge gained after the 18th and 19th centuries, which is still setting the dominant paradigms of thought for those of the silent generation and the boomers that occupy most of the seats of status and power presently.

    The debate is already becoming clear, however, as between libertarianism and authoritarianism on one hand, and, on the the other, right and left libertarianism. Capitalism and republicanism are authoritarian and hierarchical owing to the class and power structure. Marx and other socialists were libertarians of the left. Classical liberals were libertarians of the right, who sought to limit autocratic government at the time of the transition from late feudalism to early capitalism.

    That dialectic is still in progress in a much changed context. Looking at it in 18th and 19th century terms is anachronistic and even looking at it in 20th century terms is long in the tooth. We are in the transition to a new age, the digital and knowledge age from the industrial and machine age. The transition will be as profound and far-reaching as the transition from the agricultural to the industrial age. Just as feudalism did not survive other than as a remnant, such will be the fate of capitalism, especially as the West ceases to dominate global affairs as the global age becomes increasingly a reality.

    Of course, this doesn’t mean that advances of the past like money, markets, and the like are going to disappear. It means that people are going to be recognized as the most important factor socially, politically and economically. Lincoln’s ideal of “government of the people, for the people, and by the people” may finally be fulfilled as the obstacles to it fall away, but not without strong resistance by vested interests. We are now in that transition.

  2. Asymptosis Avatar

    @Tom Hickey

    You’re a greater optimist than any of us! Here’s the an Iain M. Banks-like future. Just sign me up for The Culture!

  3. Tom Hickey Avatar

    I am an optimist overall about humanity, but I don’t think that humanity is going to escape a nasty phase transition in the transition of ages, in that knowledge = power is running way ahead of the ability to handle it. My pessimistic side sees a large culling not only plausible but likely from various threats, including consequences of climate change, epidemic, genetic modification, and war involving WMD. Fukushima is already proving the consequences of failing to control nuclear energy, as did Chernobyl. Look at the devastation involved in the wake of the transition from the agricultural age to the industrial age as new forces contended with greater power at their disposal. There are always significant evolutionary challenges provoked by emergence. They can be overcome by increasing the adaptive rate and return on coordination. Otherwise, progress may be not only non-linear but also non-monotonic. And in an uncertain world there is also the likelihood of surprises resulting from unknown unknowns. On one hand, the sky is the limit, with the space age looking to come after the digital age, and, on the other, there is real possibility of extreme culling and even extinction.

  4. Asymptosis Avatar

    @Tom Hickey

    On “the sky’s the limit,” do check out Banks’ Culture series. About a post-scarcity galactic culture with like a couple of trillion “citizens” of various organic and machine forms, spanning millennia. Good starting point is Look to Windward.

    Or there’s one Charles Stross book that has a culture of entities that simply wander the universe asking other cultures to tell them stories, and offering indescribable wealth in the form of replicators and such in return. (Tends to really eff up the recipient cultures.)

    I’ve found these really useful in thinking about what high productivity might result in, taken to vast extremes.

  5. Tom Hickey Avatar

    The basic principle from evolutionary science is that emergence resulting in progress also creates correspondingly steep challenges requiring the species to adapt further. It’s a dialectical driver based on mediating opposing forces. Intelligent species adapt to changing environmental conditions not by mutation but by innovation and coordination. This is accomplished by creating environments in which alternatives can be explored freely and then the most promising results scaled up through group coordination.

    Interesting you bring up sci-fi. This is where a lot of forward thinking takes place. It’s a form of contemporary philosophy, along with the explorations of futurists, e.g., the World Future Society.

    In a capitalist society entrepreneurs are supposed to drive innovation, but historically many of the advances have sprung from the military. Both of these sources result not only progress but corresponding challenges. The industrial age led to undreamed of technological advance, on the order of sci-fi, but it’s wholesale implementation also led to negative externalities that now present equally incredible challenges like a poisoned nest, so that Stephen Hawking is saying that space travel is not optional. Humanity needs it to ensure survival of the species.

    Evolution is a series of experiments, and all of them come to an end, sometimes in more advanced forms, and at other times in mass extinctions.