Capitalism in Question: Thomas Piketty and the Crisis of Inequality

By John Milbank and Adrian Pabst, ABC Religion and Ethics, June 5, 2014

Our “extremist meritocracy” has become a kind of Hollywood star-cult: those with extreme ability are rewarded with extremely much. But our vast disparities of income cannot be correlated with merit.

  

Britain - like the rest of the world, though in an especially acute form - has recently seen an ever-greater concentration of wealth and centralisation of power in the hands of a self-interested oligarchy.

Not only does the top decile of the population now own an extraordinary amount of national wealth, but 1% of this, or the top centile, accounts for three quarters of this amount, while of that three-quarters a remarkably disproportionate amount belongs to the top millime. Within the ranks of the rich, there is a super-rich and then again a super-super rich.

As Thomas Piketty has demonstrated in his book Capital in the Twenty-first Century, this new tendency combines the resurgence of the importance of inherited wealth in a period of low growth with the newly excessive wages encouraged by the climate of "meritocratic extremism."

Consequently, we see both nationally and internationally the emergence of a new "aristocracy without honour." Its continuity both with the debased aristocracies of the various ancien regimes and with the new moguls of nineteenth- and twentienth-century industry reveals just how little either revolution or redistribution or social rights have been able to temper the inegalitarian tendencies of the capitalist market.

Crucially, the reversion to low growth compounds the tendency of capital accumulation to outrun profit in all economic circumstances. Yet there is nothing systemically inevitable about either of these tendencies, nor about their combination.

For as to the augmentation of the percentage of capital in land and money in relation to national revenue, the constraints upon this in terms of legal regulation, fiscal and income tax, wage policy and trade union power were dismantled in the UK as in the United States after 1970. In considerable part this was because of a misperception that Keynesian social-democratic models were causing the Anglo-Saxon countries to fall behind both Continental Europe and Japan.

Curiously, the question rarely seemed to be asked why variants of this model should work well there and not in the UK, especially the key characteristics of the German economy such as regional banks that lend to SMEs, a national investment bank (KfW) that supports an industrial and manufacturing policy as well as co-decision and workers' representatives on company boards. In reality, the growth lag of the Anglo-Saxon countries was more truly the catch-up enjoyed by the more war torn countries during the trente glorieuses after 1945.

Here ideological parity requires one to confess, as Piketty indeed allows, that this would probably have occurred to a considerable extent in any case, even if more free-market policies had been followed in Japan and on the Continent. His main point is that minor variations in capitalist policy pale into insignificance compared to the disruptions caused by mass mobilised warfare. This includes the massive increase in public as opposed to private wealth and the huge transfer of assets required to support a generally higher level of health, education and wellbeing that such mobilisation requires.

Capitalism and crisis

Piketty suggests that the further we get from the effect of two world wars, then the more long-term tendencies of capitalism reassert themselves: first of all, for returns on capital to exceed rates of economic growth; secondly, for capital to assume a relatively constant ratio to national revenue in terms of the division of savings by rate of growth; thirdly, for inheritable capital holding to increase exponentially in relation to growth rate, which historically tends to be low, even under capitalism.

This thesis, as Piketty says, resembles both David Ricardo's notion that land as scarce will consume ever more capital resources, and so undermine capitalist production, and Karl Marx's view that ever-rising profits tend to undermine demand, leading to an over-accumulation of capital which thereby "digs its own grave."

Ricardo was wrong to the extent that he did not foresee the massive nineteenth-century transfer from static agricultural to dynamic industrial fixed capital. Marx was wrong to the extent that he did not foresee the huge technologically powered growth in productivity that was able somewhat to offset capitalist contradiction by allowing more money to accrue to wages and social infrastructure without so seriously damaging the returns on capital hitherto.

In contrast to Marx, these returns, Piketty argues, must themselves be theoretically expanded beyond merely profit to include also rates, royalties, loans, reinvestments in firms and the added value of new economic and social opportunities for intervention and commodification.

However, the unprecedented effects of war eventually came to obscure the senses in which these nineteenth-century economic theories remain perennially true. Thus in the century of mass warfare we have tended to think, whether in neoclassical or in Keynesian terms, that the capitalist economy is self-adjusting (whether automatically or by means of state regulation, which is in any case a part of capitalist machinery) as between capital ownership and overall revenue, which is capital plus incomes.

Yet now that inequalities are returning to the levels of the pre-1914 belle epoque, we can better see after all the renewed relevance of both Ricardo and Marx. For even if industry has now displaced agriculture, in our own day ownership and inheritance of urban and rural land, as well as of industrial resources, is once more assuming a disproportionate economic, social and political role. This may be yet further exacerbated in the future, despite the current greater weight of huge salaries and bonuses.

Equally, despite the way technology boosts growth and so demand, this does not prevent the continued excess of capital over economic growth, which Piketty rightly insists must increase inequality and so threaten the culture of democracy. As he writes:

    "The fact is that the rate of return on assets has been consistently higher over the long term than the rate of growth; that doesn't pose any logical problems, but it does raise the question as to whether the reproduction and reinforcement of inequality that such a ratio creates is acceptable, in a democratic context."

Moreover, one can agree with Piketty against Marx that capitalism is not bound to collapse, thereby (as he says) providing a kind of negative economic self-solution that obviates the socio-political. However, it is notable that he himself attributes considerable importance to the decline in demand that ensued after 1970, and recognises that capital owners eventually found this detrimental to their rates of return and so resorted increasingly to financialisation.

Indeed, Piketty is right to argue that Anglo-Saxon neo-liberalism was based in part upon a chauvinistic misperception of the reasons for its growth lag. However, it is nevertheless clear that the eventual spread of the neo-liberal model to some degree everywhere had to do not just with a reciprocal continental misperception of the reasons for the slowing of their own growth rates after 1970. It also had to do with a general recognition that the social democratic model was indeed constraining profits, at least in larger countries, by the ever-increasing need to expand over-stretched government resources.

Piketty certainly allows that there are relatively minor crises and cycles that ensue upon a structural imbalance between capital and labour or return on capital and economic demand. Yet in the end, he suggests that international taxation upon capital could engender a real stability between the two factors in wealth creation, and seriously mitigate - if by no means overcome - the structural tendency of capitalism towards inequality.

Arguably this is because Piketty takes a too Ricardian view of capitalist wealth as a kind of innocent mathematical sum, and ignores the contention of Marx or Karl Polanyi that it rather passes always through the sieve of commodification before it can be "counted" as wealth in capitalist terms at all. That is to say, capitalist wealth is never in material gross, but must always be priced as abstractly equivalent to other wealth and so as exchangeable.

For this reason, an anticipation of demand must enter into its very pricing; therefore, because in order to increase, it must saw away at the branch of demand, this also tends to diminish the security the very perch it is sitting on. Inversely, salary and wage earners cannot ultimately be indifferent to the profits of their employers, however far they are tempted to eat into them. That is because they do not generally receive as payment a direct "stake" in the capital and profits of the industry they work for. Rather, as Marx rightly argued, they receive a residue of the value of their labour, which is itself commodified as "stock" in terms of the exchangeable wealth that average labour time can be calculated to generate.

So by virtue of commodification, it is not only the case, as Piketty after Ricardo and Marx argues, that capital tends to overtake growth and therefore labour in the long term. It is also true, as Marx saw, that it can only do so aporetically. The reason can be summarised as follows.

The exceeding of capital over the flux of growth which is produced by labour (including the increase allowed by the stored human work of technological innovation and improvement of land and property) is only possible in relation to the labour force understood in a broad sense - including workers of any kind, inhabitants of property or consumers of goods. For the gradual appropriation, storing and passing on of greater and greater fixed sums has to be at the expense of general income and consumption.

Yet it cannot under any circumstances be completely indifferent to the ever-renewed dynamic realisation of these sums in the market. Hence Piketty's tendency of capital to increase over economic growth never transcends the cycles of contradiction and crisis, even if it does not inevitably succumb to them. Consequently, excessive inequality and tax evasion by the rich does not just, as he says, face the threat of eventual political rebellion, but also of militant economic protest and pressure on corporations governments to respond to this circumstance.

What "solution" to inequality?

In pursuit of his thesis that only war seriously tempers the long-term tendencies of capitalism, Piketty somewhat glosses over the fact that trade union pressure and new welfare measures were already well in evidence in Germany, France and Britain before the First World War, even if the latter increased their instance exponentially.

Indeed, following Ernst Juenger, one can suggest that worker organisation linked to state control and modern warfare are two manifestations of a single "mass mobilisation" - which, as Marx already realised, industrial capitalism itself encourages. Thus significantly the German war effort sought at once to constrain and to co-opt already politically dominant socialist forces, and in this conjunction one had already one crucial seed of "national socialism."

This observation can therefore correct a slight tendency in Piketty to regard the mass wars of the twentieth century as an accidental intrusion upon the perennial plot of capitalism that he wants to narrate. In reality, one can see that they were fought on both sides in extension of capitalist-statist aims, and yet on the German side also in a State nationalist and collectivist reaction against those aims in their individualising and globalising tendencies: a reaction which the more democratic nations had rightly to resist, twice over.

Such an analysis should today warn us against a renewed, semi-fascistic possibility of a "mass mobilising," atavistic counter to late capitalism - albeit one more based on a "citizen" rather than "worker solidarity" in an era of disorganised, post-industrial capitalism. This new mobilisation, as evidenced in the rapid resurgence of quasi-fascist parties across Europe, could once more lead eventually to various modes of armed conflict, albeit themselves of an unpredictable, post-industrial kind.

Indeed this is a more likely arising "solution" to capitalist inequality and suppression of local identity than the tax measures proposed by Piketty. Thus all the more reason to search for solutions more radical and more genuinely equitable and peacefully respectful of the rooted than the one which he proposes.

Accordingly, one could suggest that Piketty's strong emphasis on historical contingencies as impacting on economic growth needs to be yet further augmented in the face of his equally strong stress on constant capitalist laws and tendencies. For his contingencies tend to be extra-economic: war, culture, political fashion. All this is to be emphatically admitted, yet also one needs to acknowledge a greater measure of intra-economic contingency.

For here Piketty appears never to distinguish capitalism from the economic as such, a lack much encouraged by his flattening, Cartesian approach. This reduces class to incremental centimes for the sake of measurement, thereby somewhat ignoring the economic impacts of a culturally and somewhat consciously constituted group, capable of acting collectively and thereby making a real difference.

Equally, this approach sees a constancy of the proportion of "capital" wealth from pre-modern to modern times, without allowing for the often less absolute and less extracted nature of ancient ownership and the way it was conditionally attached to functions and duties, which involved a certain greater not readily measurable sharing-out of this wealth after all.

The contingency of liberal capitalism

However reprehensible in many ways, there is an evident difference in this respect, as Marx saw, between the role of a feudal proprietor and a modern absentee owner of a vast house and grouse moor in the Scottish borders today. Piketty does indeed acknowledge, citing Michael Young, that modern meritocrats assume yet more judicial and cultural control, in consequence of their social position, than did the nineteenth-century gentry of Jane Austen or Honore de Balzac. At the same time, they also despise much more the indigent and poor, since this status is now regarded as "their fault" rather than as an accident of birth.

But however valid and important this point may be, one needs to add that traditionally - even though this had much declined by the time of Austen and Balzac - disparity of wealth also appeared more acceptable because ownership was correlated with high levels of humanist education and with the exercise of duty, honour and protection by law and arms of the property, work and status of the less well-off.

Equally important is the further point that recruitment by talent, honour and prowess into the upper and governmental classes or at least into their patronage was most certainly important from the time of ancient Rome through medieval Knighthood to the early modern monarchic or aristocratic civil service - remembering also here that the clerical hierarchy of the Church was yet more meritocratically based.

Given all this, the real point of contrast is not the old inequality of legacy versus the modern inequality of supposed pure merit. Rather, it is a matter of contrast of older guardianship exercised (at least in theory) honourably over both inherited and acquired social duty with modern status disjoined altogether from honourable responsibility. Moreover, modern status itself has often been acquired in semi-dishonourable, if not outright criminal, ways.

If it is allowed that the laws of capital are not the laws of the economic or even of the market as such, then it becomes more possible to emphasise, modifying Piketty somewhat, capitalism's chronic instability. In consequence, we can see more clearly not just the contingent role of social and political responses to this crisis-ridden flux, but also the never-banished haunting of capitalism by other economic possibilities - a haunting which has more than spectral effects in the socio-economic realm.

Thus in recent British history we can recognise, with Piketty, not just the chauvinistic and economically false factor in the rise of Anglo-Saxon neo-liberalism, which was a political contingency. But we can also acknowledge the defeat through law and propaganda of militant trade unionism in the 1970s - however selfish, short-sighted and ultimately apolitical we may rightly take the latter to have been. Herein is found a socio-economic contingency which we can put alongside the failures of British management and government development and investment strategy in the same period.

It then doubly follows, in accentuation of Piketty's perspective, that even though the laws of capitalism may be constant, and constantly non-ameliorative for most people, the long post-war return to their rule was not in any way fated. A more realistic assessment of temporally slower Anglo-Saxon growth might have been made, and the post-war social concordat might have been renewed in more social market terms, as many voices already recommended (looking to the Rhineland), offering trade unions more partnership, managers more training, shareholders more responsibility and workers a greater stake in their work and their firms.

When it comes to the recent situation, then there is nothing inevitable about it either. We have already seen how the new return to the power of inheritance is not simply a return to the more normative conditions of the nineteenth century in the wake of mass war, but is also the result of misplaced Anglo-Saxon pride, class defeats and establishment refusal to consider even significant modifications to the operation of the capitalist market.

More recently still, the newly increased stratification of capital ownership (both property and equity) has been joined and multiplied by the huge increase in income disparity. But again the causes of this are economically, culturally and politically contingent. The fall of communism in Eastern Europe and its transmutation into an oligarchic hybrid in China, left capitalism without a feared ideological rival and removed any need to pander to those who might be attracted by socialism in the face of capitalist predations.

This in part allowed a new ideology of capitalist self-legitimation to grow and flourish. "Extremist meritocracy" exacerbated into a kind of generalised Hollywood star-cult now meant that a culture supposedly based on ability must award extreme ability extremely much. Meanwhile high salaries were taken to be the automatic result of education and applied talent in a self-confirming circle.

In reality, international comparisons show that the much higher disparities of income in Anglo-Saxon countries can by no means be correlated with factors of merit. Once again, it would seem that Anglo-Saxondom is in the grip of a dangerous cultural fantasy. Dangerous because economically lethal: it was excessive levels of inequality that led to the speculative exploitation of the desperate by the extremely wealthy in the sub-prime crisis, and so to a global economic recession.

Resisting the commodification of culture

As we have already argued, the new compounding of inherited by earned economic disparity is generating a new aristocracy shorn of all vestiges of chivalry and honour. To some degree this new aristocracy is in direct continuity with older ones of ancien regime bastard feudalism and nineteenth-century quasi-feudal industrialism. And in this light, as Piketty suggests, meritocracy would appear to be the ruse of the landed and capitalised in an era of mass democracy and liberal rights.

For now, power must justify itself before the bar of competition, but much evidence would suggest that "merit" can also be bought through inherited and accumulated advantage. The wealthy enjoy greater access to education and the power to grant legitimacy to their own modes of culture, while profitably palming off the masses with a debased mass-variety. In either case, culture gets commodified, and is thereby divorced from substantial social action and virtue.

As to education, this can increasingly be defined as a passport to success whose actual content is irrelevant. No doubt, the powerful are often among the most intelligent or at least the most cunning (it is a mistake to dream away biology), but in recent times in the UK they have increasingly closed ranks, no longer recruiting so many of the talented but less privileged into their ranks (the end of the Grammar School and the anti-intellectual bias of Comprehensives). Equally they tend to disparage and underestimate the diverse talents of the technically and craft-skilled who require their own forms of training and vocational protection.

This new cultural ideology and practice of a vacuous elite has lethally combined with the contingent, if capitalistically logical, recourse to financialisation in order to compensate for both deficiency of profit and lack of demand. It has equally combined with the political underwriting of this recourse in terms of bank rescues and programmes of austerity for everyone else. This is a strategy which can only further compound inequality and its consequent economic and social problematics.

As an alternative to austerity, it would indeed be logical, as Piketty recommends, to tax capital at a one-off high level, since the rich could readily afford to wipe out all our debts, which are moreover often internal rather than external - that is to say, debts of the populace to their very own rich. To the degree that capital is now international and would readily find means to evade such measures, then, as Piketty also suggests, we need an internationally enforced capital gains tax.

Yet here he is rightly pessimistic, even if such a measure might be approached gradually through regional action by bodies like the EU. Who would enforce it and who successfully police the inevitable attempts at evasion? How, in any case, one might add, could this escape the sieving of capitalist wealth by commodification, such that perforce all such taxes would either be too great, discouraging enterprise, or too little and therefore not sufficiently inhibiting either inequality or the decline of demand?

Instead, in lieu of massive inflation - which may come in the end, since national debts look too large to be shed unless by some mode of virtual or actual defaulting - we are stuck with austerity. But the protesters of Occupy and other such movements have been harbingers of likely socio-economic and political resistance on a large scale to come, since people are unlikely to accept a long-term liability for the crimes of financiers. The struggles over this resistance will be contingent and will contingently bend our economic future.

John Milbank is Research Professor of Politics, Religion and Ethics at the University of Nottingham, and Director of the Centre of Theology and Philosophy. His most recent book is Beyond Secular Order: The Representation of Being and the Representation of the People. Adrian Pabst is Senior Lecturer in Politics at the University of Kent. He is the author of Metaphysics: The Creation of Hierarchy and the editor of The Crisis of Global Capitalism: Pope Benedict XVI's Social Encyclical and the Future of Political Economy.

Published at: http://www.abc.net.au/religion/articles/2014/06/05/4019629.htm