Tag Archives: Economics

Ole Bjerg – Making Money

Making Money: The Philosophy of Crisis Capitalism

Ole BjergMaking Money: The Philosophy of Crisis Capitalism (Verso 2014)


With Making Money, Ole Bjerg presents a philosophical — and psychoanalytic — analysis of contemporary economics and finance.  He draws explicitly from the theories of Slavoj Žižek. What he delivers is one of the most coherent offerings yet on the nature of contemporary economics.  The first parts of the book map out the basic philosophical/psychoanalytic concepts being applied, and briefly traces their roots.  Primarily, these involve assessments of the “orders” of the Real, the Symbolic, and the Imaginary.  These are concepts that Žižek imported directly from French psychiatrist/philosopher Jacques Lacan.  From that foundation, the theories are applied to explain the origins and conception of money itself.  This is among the most enlightening parts of the book.  Many others have explored this topic (notably, David Graeber‘s Debt: The First 5,000 Years (2010), among others).  But this telling is rather concise, with much of the space in the book devoted to a theory of money that is scrupulously consistent with a single theory, rather than just a patchwork of isolated, if compelling, commentaries that stop short of articulating a unifying theory.  Then, in the final parts of the book, Bjerg tackles the elements of the recent crisis in the financial/banking sector, and concludes, briefly, with essentially a single policy recommendation.  Overall, he’s written one of the most compelling and cohesive accounts of modern economics and finance.  Although, no doubt, his reliance on the continental philosophy of Žižek for his analysis will rekindle all the usual disputes about the utility of continental philosophy.

The title of the book derives from the observation that banks are quite literally given the nearly unique privilege (aside from increasingly impotent governments) of “making money” from thin air.  In order to clear accounts between clients, and between themselves, banks use “fractional reserve” policies to loan out far more “credit money” than they possess (reserves) in terms of government-issued cash, gold, or the like.  This is sort of the basis for Bertold Brecht‘s quip from The Threepenny Opera, “What is the robbing of a bank compared to the founding of a bank?”  Bank (credit) money now dwarfs government (fiat) money.  But in that empirical shift toward credit money, Bjerg also detects a philosophical shift.  Credit money fuels derivatives trading — the practice of banks and financial institutions making bets (default swaps, futures, etc.) derived from the “risk” associated with other financial activities (price movements on bonds or stocks, etc.).

The key narrative is an explanation of how money serves a symbolic function, and the modern world permits banks to create “credit money” independent of governments and ordinary citizens.  This narrative allows Bjerg to offer some quite substantial commentary on one of the most fundamental (and fundamentally unresolved) questions of economics: what is “value” and how is it determined?  Applying Žižek, Bjerg concludes that there is economic “value” that is a hard kernel of an unknowable truth (the Real), represented only by purely symbolic representations of “price”.  In the contemporary age, the imaginary “fantasy” in finance and economics is of “being in the market”, which posits that the mere ability to offer (symbolic) prices in the a market is the desire (ideology – in the imaginary order) that drives the economy. In neoclassical economics, statistics (math) and the “efficient market hypothesis” are the dominant ways that “being in the market” is expressed.

Bjerg faults “efficient market hypothesis” models for what Žižek has called (in In Defense of Lost Causes, referring to a Donald Rumsfield speech) “unknown knowns” in the four-part schema of kinds of knowledge: “known knowns”, “known unknowns”, “unknown unknowns” and “unknown knowns” (the last being the one that Rumsfeld neglects to mention).  The “unknown knowns”, according to Žižek, are “the disavowed beliefs and suppositions we are not even aware of adhering to ourselves.” This recalls Charles F. Kettering‘s quip, “It ain’t them things you don’t know what gets you into trouble, it’s them things you know for sure what ain’t so.”  Bjerg states that “risk management” embedded in models built on the “efficient market hypothesis” disavow the existence of systemic risk, and refuse to acknowledge the volatility and risk that they engender in the really-existing economy of the present:

“The knowledge that the model does not conform to the nature of actual reality is not incorporated into the model itself.  It remains an unknown known.”  (p. 229).

More specifically, Bjerg states:

“the unknown known of financial markets [is] the notion that prices in financial markets behave in a way that makes them subject to probabilistic reasoning.  This form of reasoning in finance presupposes the distinction between known unknowns (the direction of future price movements) and known knowns (the historic price volatility of an asset).  The unknown known is the very distinction between these two categories of knowledge.”  (p. 228).

This offers a strikingly clear explanation for how neoclassical economics can create complex mathematical formulas to model economic activity that fundamentally break down due to a lack of connection between their variables and the real world — an effort to act as if the symbolic is the real, in Žižek’s/Lacan’s terms.  The denial of the ideology that desires “being in the market” facilitates and reinforces financialization of the economy.

There is a kind of dual causality in modern finance and economics that places money further away from “real value”.  Symbolic constructs (financial derivatives) are piled on top of symbolic constructs (prices, risks), with the “belief in being in the market” seen as the endgame.  This sort of thinking ties the two symbolic constructs together such that each legitimates the other, while marginalizing the role of “real value” (production, etc.).  The inherent limits of “real” production imposed by scarce labor and raw material resources is sidestepped to allow theoretically unlimited “credit money” creation.  This sort of thinking also basically sidesteps the notion of conscious political objectives beyond the mere creation and maintenance of “a market”.  A few examples in the book highlight this.  Right after the 2007-08 financial crash, Ben Bernanke claimed that “we won’t have an economy on Monday” without a government bailout of the financial sector, which reveals a mode of thinking that only recognizes a desire for financial markets to exist (“being in the market”) and no discernible desire for other political ends, such as equality, public health and welfare, etc.  Rather than an explicit discussion of the desires that political processes should pursue, the desire for “being in the market” is disavowed — assumed away.

The analysis in Making Money is meant to be a purely philosophical proof.  This is the book’s single greatest strength.  If you come to it looking for a catalog of citations to other writers, particularly economic ones, who have reached the same (or different) conclusions, then you are looking in the wrong place.  There have been, indeed, quite many economists who have reached essentially all the same conclusions as Bjerg (Veblen, Hudson, Keen, Hossein-zadeh, Nasser, etc., etc.).  But many critical economists, all “heterodox” ones who work almost entirely outside the realm of mainstream recognition, sometimes have an unfortunate tendency to write griping tracts that wallow in a sort of “sour grapes” mentality.  They bemoan that how no matter how correct they are, no matter how logically superior their arguments, no matter how many facts support them and contradict competing theory…no one listens — going so far as to even suggest that mainstream economists get where they are precisely because they are wrong.  Bjerg cuts through all of that.  He provides, in a sense, an independent proof.  He is able to step partially outside the fray, and describe the key aspects that bound the fray, because he resorts to psychoanalytic techniques.  Making Money places continental philosophy and psychoanalysis alongside anthropology (Graeber), sociology (Bourdieu), physical science (Soddy), and maybe a few other academic disciplines lining up against neoclassical economics, which is looking increasingly isolated from all other academic disciplines and rather nakedly aligned with the finance/banking sector and their political parties in a strictly partisan way.

That recommendation Bjerg makes at the end of the book?  Well, Bjerg arrives at the same conclusion that Nobel prize winning chemist Frederick Soddy arrived at almost a century ago: elimination of fractional reserve banking.  This sole policy proposal is about denying banks the ability to create “credit money”.  However, Soddy is not mentioned here — nor, for that matter, is Marx and Engels‘ demand in The Communist Manifesto: “5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.” Instead, Bjerg cites Irving Fisher‘s “100 percent reserve” proposal, and latter-day economists who endorse Fisher’s proposal (which was adopted from Soddy).  Whatever Bjerg’s reasons for citing the people he cites, this has the implicit effect of downplaying Soddy’s reputation as a “crank” and accentuates Fisher’s status as a respected pillar of conservative economics, thereby allowing Bjerg to proffer a grand compromise between politics of the left and right to reform finance.  More than likely, Bjerg will be ignored just as much as Soddy, Veblen, and all the others.  That is too bad, because at a conceptual level this book is far more compelling than anything dealing with economics that touches the bestseller lists.

But there is something else useful about Bjerg’s critique.  His appeal is at the level of psychology.  He is not directly politically attacking the captains of finance as being “bad actors”, though the result of his proposal would be to completely remove the greatest windfall privilege of the banking and finance sector and thereby decimate the finance sector as it really exists today.  Rather, he is trying to reveal what the banking sector desires through their economic theories.  At this level, anyone can ask: is that what I desire too?  It is hard to change desires.  But psychoanalysis posits that it is possible.  Bjerg is suggesting that it is better to work to desire something (anything) in the “real economy” of production than to merely desire “being in the market”.  The elimination of fractional reserve banking would be the most direct policy approach in making such a change.  It would allow the question of how money is created to be politicized, that is, put forward as a topic for explicit political debate.

Michael Hudson – The Bubble and Beyond

The Bubble and Beyond: Fictitious Capital, Debt Deflation and the Global Crisis

Michael HudsonThe Bubble and Beyond: Fictitious Capital, Debt Deflation and the Global Crisis (ISLET 2012)


If you have time for just one economist today, Michael Hudson would make an excellent choice. The central premise of The Bubble and Beyond is that “the miracle of compound interest” has for all time tended to exceed growth of the “real” economy, which invariably leads to excessive credit claims that cannot be paid. He cites Richard Price‘s famous example of how a penny invested at 0 BC with 5% compound interest would have by Price’s time (1772) become a solid sphere of gold reaching to the orbit of Saturn — obviously unpayable!  Part of the problem today lies with the self-serving tendency of mainstream economics to exclude analysis of finance (particularly the closely-related finance, insurance and real-estate or “FIRE” sectors) from the analysis, which Hudson attempts to incorporate into a more inclusive model. All past economies (excepting ancient Rome) burst such financial bubbles to wipe out bad debts. But Hudson has shown that the ongoing financial bubble organized by the Washington Consensus (Alan Greenspan being the most recognizable face of the phenomenon) has resisted debt write-downs by fueling further debt pyramiding (paying debts with more debt). Building on his landmark book Super Imperialism (a must-read), he shows how the Washington Consensus has adopted tactics not unlike those of a suicide bomber, threatening to destroy countless economies if demands (from the USA, the world’s largest debtor) are not met. But further, he does not shy away from illustrating how countries that do not toe the line are routinely invaded by military forces or subject to “color revolutions”. Hudson is spot on in his analyses, in a way that is refreshingly accessible, reasonable and reliable. He provides summaries of the history of economics that demonstrate how many of the concepts he is now restating have been known — if marginalized — for centuries. Yet many past writers could not have anticipated the sheer magnitude of the present bubble economy, or the ways in which vested interests would successfully stave off reasonable solutions. Much of the problems revolve around tax policy, in Hudson’s view, with a clear need for a more progressive income tax, especially with higher rates for “capital gains”. Oh, and there is a need to deal with financial fraud too, by sending criminal banksters to prison. But those policy prescriptions have a successful history in modern Western states that debt write-offs do not enjoy. It is there that Hudson goes the extra step. He says bankers need to take a loss on bad loans, and he backs up that claim with historical examples that go back to earliest recorded history in Mesopotamia.  This historical grounding demonstrates that current tactics are fundamentally inadequate, from the historical perspective.  There lies his most important contribution.  He provides context for the way dominant think today deviates from accepted wisdom of the past.  This allows the reader to step outside the economic paradigm of the present to envisage another, more stable and equitable one.

This is a good book, and an important one. But due to the importance of the topic, it is worth pointing out a few areas where the book is lacking — or simply where a second edition could make some simple improvements. First, as many other reviewers have noted, this book is basically a self-published collection of materials from pre-existing articles. As always follows in such cases, the editing and proofreading is abominable, with typos, duplicate paragraphs, and tedious repetition endemic throughout the book (particularly where disparate articles were making the same or very similar points). This man deserves a good editor!! Second, there is a general lack of adequate citations. Hudson spouts off numbers without revealing where they come from, and talks about things like the ancient Roman economy while only mentioning historians like Plutarch in passing near the end, many chapters later. Of course, there are portions of the book that include a rich set of citations, and those wonderful efforts cast somewhat of a pall on the chapters that lack them. Moreover, he talks about things like bank “keyboard credit” without adequately explaining his use of such terms (Norbert Häring and Niall Douglas’ Economists and the Powerful does a superior job explaining that point, for instance). Third, Hudson gets bogged down in a bit of a “sour grapes” tone when deriding mainstream economics, particularly the “Chicago School Monetarists” like Milton Friedman. Hudson is absolutely right that those mainstream schools of economic thought are really no more than lobbying efforts on the part of financial interests, not objective “science” or anything approaching it. But the endless repetition of the accusations does get tiresome, and what would have had quite an impact in a single chapter gets dulled somewhat when revisited over a dozen or more. It also would have been interesting if Hudson elaborated on the ways ignored economists like Frederick Soddy and Thorstein Veblen wrote about many of these exact same topics 80-125 years ago (he occasionally refers to his other books when discussing Simon Patten, but few besides Patten get adequate treatment in these pages). Moreover, while Hudson laments how the economics discipline has been hijacked by hacks shilling for Wall Street, he doesn’t really explain why a sociologist like the late Pierre Bourdieu could write a microeconomics book like The Social Structures of the Economy that dovetails well with Hudson’s macroeonomics. Why continue to think in terms of the narrow confines of provincial, silo-ed academic specialties, thereby reinforcing them?

Minor flaws aside, this is the sort of work that better deserves the attention lavished on Thomas Piketty‘s Capital in the Twenty-First Century. At the least, readers should investigate some of Hudson’s articles for Harper’s Magazine (incorporated into the book), which provide some important general summaries, or read up on the citation-rich chapters showing how Karl Marx repeated claims by protestant reformer Martin Luther that are even omitted from anthologies of Luther’s works! There’s a host of valuable material here and the world would be a better place the more widely its concepts were known.

Tyler Cowen – The Great Stagnation

The Great Stagnation

Tyler CowenThe Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better (Dutton Adult 2011)


Terrible. That’s about all I can say. Cowen is often described as “apolitical” because he doesn’t explicitly endorses Republican or Democratic policies, but that misses the point entirely. His view — more or less shared by all Republicans and Democrats — is that neoliberal growth-focus is basically “correct” but he breaks bipartisan rank to say that proponents of neoliberalism have made some tactical errors. Anyway, this slim volume is plagued by shoddy research and continual logical flaws. I came to this initially because Cowen discusses patent activity being greatest in the early 20th Century, and I wanted to investigate his research. It would be overly generous to credit Cowen with any “research” in this area, however. He essentially did none. His support was a single (!) article by a person seemingly unfamiliar with patents, who did a cursory electronic search of patent office records that would have taken no more than a few minutes and drew wildly unsupported conclusions (the basic premise of the cited article has been refuted by Robert Post’s “‘Liberalizers’ vs. ‘Scientific Men'” article, among others). And the rest of this book proceeds in a similar fashion. Much like Morris Berman‘s books, he’s clearly backfilling flimsy citations for ideas he’s already formulated and has no intention of rigorously testing — like pawning off the research to an assistant who doesn’t understand the arguments and whose research is correspondingly poor. As to the logical flaws, Cowen’s main thesis seems to be Marx‘s idea that profits tend to decline over time, but Cowen resists that theory…for indiscernible reasons — it isn’t even brought up explicitly. So, we’re back to him being a neoliberal apologist with no interesting arguments whatsoever to counter alternative theories. A great big “pass” on this book.

Veblen’s Precedent for Cloward/Piven Strategies

Frances Fox Piven and Richard Cloward’s Poor People’s Movements: Why They Succeed, How They Fail (1977) was a watershed.  Mark and Paul Engler recently wrote a an excellent summary “Can Frances Fox Piven’s Theory of Disruptive Power Create the Next Occupy?” (another decent introduction to her work is Who’s Afraid of Frances Fox Piven?).  The basic premise of the Piven/Cloward theory of action, dubbed the Piven/Cloward Strategy when first suggested in 1966 with regard to welfare enrollment, is that the poor–generally powerless–can exert some power, under certain circumstances, by collectively disrupting the smooth function of social institutions, and can make gains relative to vested interests as institutional actors hasten to restore some form of stability.  The more provocative aspects of the theory and associated strategy are that unions are only effective in early stages, when they are initially formed.  Once established, their own institutional dynamics tend to subvert the disruptive potential that is their primary source of power.  Another aspect that Piven explored in greater detail in later work was that conventional channels of activity (electoral politics) generally co-opt or mute disruptive activities, and have the effect of neutralizing and undermining the demands of poor people’s movements.

But Piven/Cloward’s theories here also had precedent.  The cross-disciplinary work of economist Thorstein Veblen raised similar points that merit further examination.  The early chapters of The Theory of Business Enterprise (1904) discuss how “vested interests” use “sabotage” to withhold efficiency and disrupt the interrelated parts of a complex industrial economy to extract wealth for personal gain and the expense of the wider community’s general well-being:

“business men…have an interest in making …disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges.”

The Theory of Business Enterprise (1904)

For a modern example, think how the Enron corporation fabricated blackouts/brownouts to drive up energy prices.  This is Veblen’s notion of “sabotage” at its purest.  But Veblen didn’t view the actions of a company like Enron as the exception, but rather the rule.

“It is a matter of course and of absolute necessity to the conduct of business, that any discretionary businessman must be free to deal or not to deal in any given case; to limit or withhold the equipment under his control, without reservation. Business discretion and business strategy, in fact, has no other means by to work out its aims. So that, in effect, all business sagacity reduces itself in the last analysis to judicious use of sabotage.”

An Inquiry Into the Nature of Peace, and the Terms of Its Perpetuation (1917)

Veblen returned to this theme in his final book, Absentee Ownership and Business Enterprise in Recent Times: The Case of America:

“any person who has the legal right to withhold any part of the necessary industrial apparatus or materials from current use will be in a position to impose terms and exact obedience, on pain of rendering the community’s joint stock of technology inoperative to that extent.

“Ownership of industrial equipment and natural resources confers such a right legally to enforce unemployment, and so to make the community’s workmanship useless to that extent. This is the Natural Right of Investment.

“Plainly, ownership would be nothing better than an idle gesture without this legal right of sabotage. Without the power of discretionary idleness, without the right to keep the work out of the hands of the workmen and the product out of the market, investment and business enterprise would cease. This is the larger meaning of the Security of Property.”

Absentee Ownership and Business Enterprise in Recent Times: The Case of America (1923)

The use of sabotage was not limited to the captains of industry.  In the first chapter of The Engineers and the Price System, “On the Nature and Uses of Sabotage,” though, Veblen makes an interesting point:

Any strike is of the nature of sabotage, of course. Indeed, a strike is a typical species of sabotage. That strikes have not been spoken of as sabotage is due to the accidental fact that strikes were in use before this word came into use. So also, of course, a lockout is another typical species of sabotage. That the lockout is employed by the employers against the employees does not change the fact that it is a means of defending a vested right by delay, withdrawal, defeat, and obstruction of the work to be done. Lockouts have not usually been spoken of as sabotage, for the same reason that holds true in the case of strikes. All the while it has been recognized that strikes and lockouts are of identically the same character.

“All this does not imply that there is anything discreditable or immoral about this habitual use of strikes and lockouts. They are part of the ordinary conduct of industry under the existing system, and necessarily so. So long as the system remains unchanged these measures are a necessary and legitimate part of it.

***

“And yet, that extent and degree of paralysis from which the civilized world’s industry is suffering just now, due to legitimate businesslike sabotage, goes to argue that the date may not be far distant when the interlocking processes of the industrial system shall have become so closely interdependent and so delicately balanced that even the ordinary modicum of sabotage involved in the conduct of business as usual will bring the whole to a fatal collapse. The derangement and privation brought on by any well organized strike of the larger sort argues to the same effect.”

The Engineers and the Price System (1921)

He talks about militant worker activism (like Coxey’s Army) as being no better or worse than lockouts by employers.  But Veblen clearly sees the context as being different.  He equates the two in order to argue for a leveling and equalizing effect.  Establishing worker rights to strike on par with the rights of business to engage in a capital strike has the effect of promoting fairness.  Indeed, in The Theory of Business Enterprise he notes that strikers “seek their ends by extra-legal means of coercion” because the court system is set up on terms favorable to businessmen, not to workers, and exigencies thus force extra-legal action like strikes.  Alan Nasser wrote a rather excellent article discussing this topic, “Political Power Made Invisible
Who Strikes, and Against Whom?,” and elaborated in a contemporary setting how Veblen’s insights are fundamentally correct, yet also how economists and the media tend to selectively ignore capital strikes and business cycle fluctuations in this context.

Cloward and Piven aren’t linked to Veblen too frequently.  More common would be a link from Cloward/Piven to Karl Polanyi, who worked independently in a manner somewhat redundant with Veblen, but who wrote in a more “acceptable” and standardized academic format.  The extension of Veblen that Cloward and Piven offered was to extend the theory beyond the purely economic sphere.  They emphasized how government bureaucrats and (especially) politicians sought stability and, above all, predictability.  These things are undermined by disruptive action.  Attempts to restore stability offer opportunities for concessions and advancement of the interests of the poor that would not be granted otherwise.  Like Veblen said about the courts being set up on terms favorable to business rather than workers, the electoral system is not set up on terms favorable to the poor.  And so, Cloward and Piven made the keen observation that the poor have only certain options to exercise any power to advance their interests to achieve greater fairness.

The recently deceased historian Gabriel Kolko wrote a book, The Triumph of Conservatism: A Reinterpretation of American History 1900-1916 (1963), that also took a similar approach in taking a fresh look at the so-called “progressive era” to find that business interests aligned with government (as part of a “regulatory capture” dynamic) to suppress disruption to better protect their vested interests.  Kolko’s book was well researched and fit quite squarely in line with Veblen’s original theories.

A somewhat similar political debate between Stephen D’Arcy and Vijay Prashad was also published recently, “Are Riots Good for Democracy?” D’Arcy emerges with the better argument, because Prashad seems to “throw the baby out with the bathwater” in being cowed by certain atrocities of riots while neglecting atrocities that riots often are meant to redress.  As D’Arcy notes, not all riots are created equal, and they aren’t always a force for good.  Prashad is certainly correct that riots, and disruption more generally, can be used as a pretext for a subsequent authoritarian crackdown (to wit: German film director Rainer Werner Fassbinder made Die dritte generation [The Third Generation] to emphasize the idea that the Baader-Meinhoff Red Army Faction’s militant “urban guerrilla” actions were used to justify a regressive crackdown; or read a history of the Haymarket Riot and its aftermath, like James R. Green’s Death in the Haymarket (2006)).

Piketty – Capital in the 21st Century

French economist Thomas Piketty’s book Capital in the Twenty-First Century has been published in English.  It has become something of a sensation.  My copy from the library can’t possibly be read before it must be returned, so take the following with strong caveat that I haven’t read it cover to cover!  There have been many reviews, and the following is only a selection. What does emerge in many is nothing more than a conclusory and self-serving complaint that Piketty has followed a different set of theories and policy recommendations than the particular ones the reviewer endorses. But the better ones actually provide a substantive analysis of where Piketty’s theory fails, and why. Against that backdrop, it seemed worthwhile to post links to some of the most intriguing comments and reviews, which generally come to the conclusion that the book is most valuable putting forward observational facts, and is less successful in terms of offering theory and policy advice:

Alan Nasser “Apolitical Economy: Democracy and Dynasty (Thomas Piketty and His Discontents)”

Nasser finds Piketty’s overall analysis flawed and muddled, because it is politically naive and neglects such factors as the role of worker and citizen militancy in promoting equality.  The thrust of the critique is that Piketty is in an awkward position where he fails (or refuses) to grasp the implications of his data, and rules out alternative political solutions for reasons he does not justify.  He labels Piketty essentially a neoliberal, yet still commends him for avoiding its “essentially apologetic assertions, the big ones that count[.]” Nasser comes at this from a perspective reminiscent of sociologists Frances Fox Piven and Richard Cloward (Poor People’s Movements: Why They Succeed, How They Fail).  It’s an analysis that Nasser fortunately backs up with a substantial number of historical references and well-documented countervailing theories.  Can’t wait for Nasser’s new book to arrive. 

James K. Galbraith, Kapital for the Twenty-First Century?”

Galbraith’s critique of Piketty’s book for Dissent Magazine is the one that has perhaps received the most attention.  “It is a book mainly about the valuation placed on tangible and financial assets, the distribution of those assets through time, and the inheritance of wealth from one generation to the next.”  He is most critical in concluding that Piketty “does not provide a very sound guide to policy. And despite its great ambitions, his book is not the accomplished work of high theory that its title, length, and reception (so far) suggest.”  To back up those statements, Galbraith makes the point that Piketty “conflates physical capital equipment with all forms of money-valued wealth, including land and housing, whether that wealth is in productive use or not.”  Galbraith ties this to the so-called “Cambridge Controversies”, implying that Piketty takes a basically neoliberal approach and has no meaningful response to the English side of the argument (from Joan Robsinson et al.).  He also questions some of Piketty’s claims about his data, noting that payroll data can be used instead of income tax data, but also that “income tax data are . . . only as accurate as tax systems are effective.”

Thomas I. Palley, “The Accidental Controversialist:
Deeper Reflections on Thomas Piketty’s ‘Capital'”

Palley discusses the surprising popular success of Piketty’s book in English translation.  “The book’s timing is near-perfect because of awakened political interest in inequality, but its empirical findings are not revolutionary and rising income and wealth inequality have been documented for years, albeit less comprehensively.”  The tone of Palley’s review revolves around Piketty’s insistence that he “discovered” recent trends in inequality, when in fact many others have documented that phenomenon before–albeit less extensively.   In this regard, Piketty made such a “discovery” no more than Christopher Columbus “discovered” an inhabited continent.  Palley provides a useful compendium of sources that pre-date Piketty’s work and which tend to emphasize economic and political power (institutional factors) over the “growth” approach of neoclassical economics.

Michael Hudson, “The 1% and Piketty” and “Piketty’s Wealth Gap Wake Up” and “Piketty vs. the Classical Economic Reformers”

Hudson did interviews on The Real News Network and Renegade Economists both touching on Piketty’s book.  He says, “basically, he’s described the symptoms of what’s wrong. And people are very glad that at least he’s described the symptoms that everybody knew but nobody had spent the three or four years that it took to make all of the charts charts that he’s made.” In one interview Hudson says Piketty statistically “shows that wealth inequality is actually much wider than income inequality . . . .”  But in the other he says “The problem with Piketty’s statistics are that it vastly understates how unequal the world really is . . . .”  “He’s started the discussion by showing the fact of vast inequality. What needs to be done now is to explain how did this inequality come about and what do you do about it?”  He references the excellent Gustavus Myers’ book(s) History of the Great American Fortunes.  Hudson is critical of Piketty’s policy prescriptions.  “[T]he neoliberals love Piketty. That’s why Krugman loves Piketty. You can’t implement it. So he’s produced a book without any solution, and the free enterprise boys like that. The 1 percent don’t mind being criticized as long as there’s no solution to their problem. And that’s what the critics have come out saying . . . .”  “One of the things that Piketty does not discuss when it comes to making fortunes is the role of debt, that most of these fortunes that have taken off since 1980 have taken off because of the increased debt leverage. *** And what to me really has been accelerating wealth at the very top is the financial sector, is the ability of the 1% to get the other 99% in debt to them . . . .” 

EconoSpeak, “Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist’s View)”

Points out that Piketty’s key arguments have been made by others like Thorstein Veblen long before.  Like Alan Nasser, this article also suggests Piketty is ignoring the role of unions and militant activism in relation to economic inequality.  The curious may also want to read Eric Zencey’s New York Times Op-Ed from April 11, 2009, “Mr. Soddy’s Econological Economy,” which made essentially the same points based on the work of Frederick Soddy.

Seth Ackerman, “Piketty’s Fair-Weather Friends”

Endorses Piketty’s efforts and data collection, but faults him for his confused neoclassical theories.  Goes so far as to say Robinson and Sraffa won the Cambridge Capital Controversies debates (this is in Jacobin Magazine), but actually provides a substantive analysis in support of that conclusion and how it applies to Piketty’s work.  The most significant conclusion here is that Piketty’s data does support the idea that “r” (rate of return on capital) does seem to remain relatively unchanged over time, but “g” (rate of economic growth) does change and the data shows a tendency for it to be lower relative to mid Twentieth Century levels.  The result is that large income inequalities, and ultimately large wealth inequalities, are the norm not an exception.  Ackerman then returns to the idea that a neoclassical, marginalist r > g focus basically misses the real drivers on a theoretical level.  When this review turns to alternative theories and data, rather than pure critique of Piketty’s book, the analysis is curt and less clearly explained.

Philip Pilkington, “Piketty’s Regressive Views on Public Debt and the Potential Impact of His Book”

Calls the book readable, though not well written.  Agrees with Galbraith’s critiques, saying “in some ways, the book is a mess owing to a lack of a solid macroeconomic framework.”  Also, “the history presented in Piketty’s book is selective and . . . ultimately untrustworthy.” 

John McDermott, “Piketty Is No Piketty: Of Capital and Wealth”

He notes that Piketty’s analysis is confused, because, “for Piketty . . . , people and institutions play an almost non-existent role. Only five social ‘phenomena’ escape this erasure; two world wars, the great depression, today’s fabulously rewarded ‘supermanagers’, and a middle class newly able to pass mini-riches to its heirs. For the rest, there are no people and, most notably, no institutions.”  This is a complaint that Piketty follows neoclassical dogma despite its obvious flaws.  To that end, he complains that Piketty’s equation of capital with wealth ignores necessary distinctions between wage-salary income and property income.  He also finds Piketty’s distinction between capital and human capital to be fundamentally incoherent.  Analogizing to Henry George, McDermott notes that Piketty’s proposed solution to the problem of gains from capital exceeding the growth of the rest of the economy is that “One must intervene from outside this process, not to correct it but to correct for it.”  He nonetheless praises Piketty for forcing “the needed discussion about the compatibility of hyper-hyper wealth with the sort of world most of us want to live in.”

Various Authors, Real-World Economics Review, Issue No. 69

An entire issue of this journal was devoted to a critique of Piketty’s book. 

Potemkin Review, “Piketty Interview”

An interview with Piketty in which he acknowledges some of the points raised in the reviews above.

And, to round out this listing, here are some other, sometimes good but sometimes less interesting (if not downright stupid) reviews: Adam David Morton, “Questioning Piketty,” Patrick Bond, “Can World’s Worst Case of Inequality be Fixed by Pikettian Posturing?,” Martin Wolf, “‘Capital in the Twenty-First Century’, by Thomas Piketty,” Rob Urie, “Off With Their Heads, Thomas Piketty Edition,” Jack Rasmus, “Economists Discover Inequality” (it’s too bad Rasmus doesn’t mention Michael Hudson as someone who has tried to explain what is identified as needing explanation), Slavoj Žižek, “Slavoj Žižek comments on Thomas Piketty’s ‘Le Capital au XXIe siècle’” (“my claim is that if you imagine a world organization where the measure proposed by Piketty can effectively be enacted, then the problems are already solved. Then already you have a total political reorganization, you have a global power which effectively can control capital, we already won. So I think in this sense he cheats, the true problem is to create the conditions for his apparently modest measure to be actualized.”), Roberto Savio, “Inequality and Democracy,” Moisés Naím, “The Problem With Piketty’s Inequality Formula” (argues that Piketty ignores corruption as a factor in inequality), James Howard Kunstler, “Piketty Dikitty Rikitty,” Paul Krugman, “Why We’re in a New Gilded Age,” Paul Street, “Avoiding the Capitalist Apocalypse,” Dean Baker, “Economic Policy in a Post-Piketty World,” Anthony DiMaggio, “On the Cowardice & Irrelevance of Social Science Scholars: Education in Crisis,” Eric Zuess, “The Economics of Inequality: The Wealth Chasm,” David Harvey, “Afterthoughts on Piketty’s Capital,” The Economist, “All Men Are Created Unequal: Revisiting an Old Argument About the Impact of Capitalism,” Larry Elliott, “Thomas Piketty: The French Economist Bringing Capitalism to Book,” Kyle Smith, “Six Ways Thomas Piketty’s ‘Capital’ Isn’t Holding Up to Scrutiny” (perhaps the stupidest review in this list!), John Cassidy, “Forces of Divergence: Is surging inequality Endemic to Capitalism?,” Robert M. Solow, “Thomas Piketty Is Right: Everything You Need to Know About ‘Capital in the Twenty-First Century’,” Charles Andrews, Thomas Piketty’s Capital in the Twenty-First Century: Its Uses and Limits,” Daniel Shuchman, “Thomas Piketty Revives Marx for the 21st Century,” John Palmer, “Book Review: Capital in the Twenty-First Century by Thomas Piketty,” Stephen Colbert, “Thomas Piketty Interview,” Paul Mattick, “Much Ado About Something,” Doug Henwood, “The Top of the World,” Paul Street, “Saying Goodbye to the Piketty Summer: Labor Day Reflections” (a frequently self-contradictory critique), Bill Gates, “Why Inequality Matters,” Joe Firestone, “Piketty’s Neoliberal Capital”