Galbraith on Piketty’s “Capital”

Michael Stephens | March 27, 2014

From Senior Scholar James Galbraith’s review of Thomas Piketty’s much-discussed Capital in the Twenty-First Century:

Although Thomas Piketty, a professor at the Paris School of Economics, has written a massive book entitled Capital in the Twenty-First Century, he explicitly (and rather caustically) rejects the Marxist view. He is in some respects a skeptic of modern mainstream economics, but he sees capital (in principle) as an agglomeration of physical objects, in line with the neoclassical theory. And so he must face the question of how to count up capital-as-a-quantity.

His approach is in two parts. First, he conflates physical capital equipment with all forms of money-valued wealth, including land and housing, whether that wealth is in productive use or not. He excludes only what neoclassical economists call “human capital,” presumably because it can’t be bought and sold. Then he estimates the market value of that wealth. His measure of capital is not physical but financial.

This, I fear, is a source of terrible confusion. […]

Piketty wants to provide a theory relevant to growth, which requires physical capital as its input. And yet he deploys an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says. He merely asserts that the return on capital has usually averaged a certain value, say 5 percent on land in the nineteenth century, and higher in the twentieth.

The basic neoclassical theory holds that the rate of return on capital depends on its (marginal) productivity. In that case, we must be thinking of physical capital—and this (again) appears to be Piketty’s view. But the effort to build a theory of physical capital with a technological rate-of-return collapsed long ago, under a withering challenge from critics based in Cambridge, England in the 1950s and 1960s, notably Joan Robinson, Piero Sraffa, and Luigi Pasinetti.

Read the rest at Dissent magazine.


3 Responses to “Galbraith on Piketty’s “Capital””

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  1. Comment by Souvarine — March 27, 2014 at 1:34 pm   Reply

    Not surprising. Piketty is a neoclassical economist. A few years ago, Bernard Guerrien wrote a critic of one of his book, in which Piketty endorse the neoclassical theory of didtribution (in french) :

    Here are two critics of the new piketty’s book by Michel Husson and Robert Boyer (in french too) :

  2. Comment by Charles A — March 27, 2014 at 2:47 pm   Reply

    Galbraith begins by demolishing Piketty’s notion of capital: he will not measure it by value, so he adds up market prices of all sorts of assets real and paper. However, Galbraith himself stays away from the problem of the measure of capital. No need to do that, since he mostly gets into the trenches with Piketty over which policies to recommend for capitalism to work more equitably.

    A Marxist review of Piketty’s book, with explicit contrasts to the results obtained by the labor theory of value and surplus-value, is at

  3. Comment by MagpieMarch 28, 2014 at 5:19 am   Reply

    While it’s true that Piketty’s “wealth” is a rather strange concept, I wonder if his critics understand the limitations built into the data available.

    Piketty’s wealth, it seems to me, does not reflect capital because the statistics used were designed to measure financial wealth for taxation purposes, not to measure physical capital.

    So the question, as I see it, is this: do we use this data, although imperfect, or we resign ourselves to not studying long-term wealth due to a lack of data?

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