Capital in the 21st Century by Piketty

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Anonymous
Apr 16 2014 09:14
Capital in the 21st Century by Piketty

The bourgeois media has fallen head over heals in love with French economics professor Thomas Piketty's new book, Capital in the Twenty-First Century. You can't look at the financial press without stumbling across yet another review proclaiming it's brilliance. Only today the FT's Martin Wolf joined the chorus of adulation, describing it as an " extraordinarily important book".

Has anybody read it? Is it any good? I saw a summary the other day which said he basically says capitalism is making the world unequal and the only thing that can be done about it is co-ordinated global taxation.

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Joseph Kay
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Apr 16 2014 10:52

I haven't read beyond the intro yet, but seems to be an extended discovery that wealth accumulates to the owners of capital, interspersed with weird assertions about Marx being wrong (he didn't understand machinery could improve productivity, apparently).

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Apr 16 2014 15:51

I read a decent critical review of this. So decent that I promptly forgot all about Picketty as "obvious reactionary toss". Unfortunately I can't remember where that review was. However here's a not bad Monthly Review one:
MR: Thomas Piketty's Capital in the Twenty-First Century: Its Uses and Limits

also:
Michael Roberts: Thomas Piketty and the search for ‘r’
Shorter than the Monthly Review piece, however Roberts rather coyly asks questions without giving answers (or explanantions) as he's due to write a proper review for the next Historical Materialism (as he says up front).

Charles A
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Apr 16 2014 18:38

A Marxist review of Piketty's book is at
http://mltoday.com/professor-piketty-fights-orthodoxy-and-attacks-inequa...

capricorn
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Apr 17 2014 06:57
Tommy Ascaso wrote:
Is it any good? I saw a summary the other day which said he basically says capitalism is making the world unequal and the only thing that can be done about it is co-ordinated global taxation.

Not yet read the book, but from reading other stuff from him in English and French that summary seems accurate enough.

One of his criticisms of Marx is that Marx's (and Ricardo's) theory of the long-run tendency of the rate of profit to fall implies that the rich get poorer whereas they've got and get richer. He also seems to think that Marx thought that capitalism would eventually collapse economically because the rate of profit would fall to low.

By capitalism he means unregulated capitalism. His solution amounts to a redistribution of surplus value more equally among the property-owning class by a "tax revolution", i. e. regulated capitalism. See this.

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Apr 17 2014 14:04

This is a useful short summary of the (dubious) axiomatic reasoning behind Piketty's idea.
Matt Bruenig: Piketty on Marx

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Apr 17 2014 14:33

Ah, found it. It was the James K. Galbraith review in Dissent mag I read some time back, that I thought was pretty definitive. (or good enough for me, anyway).
J K Galbraith: Kapital for the Twenty-First Century?

The key here is the confusion between capital-as-physical-assets and capital-as-market-value-of-capital-assets. Not to mention finance capital.

Quote:
[Piketty's] 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. [...] 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. Much of Piketty’s analysis turns on the ratio of capital—as he defines it—to national income: the capital/income ratio. It should be obvious that this ratio depends heavily on the flux of market value.

And then he goes on to talk about the Cambridge controversy, which Piketty gets entirely wrong, unsurprisingly, as its the key to deconstructing his whole argument.

In short - read this one first.

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Apr 17 2014 15:08
capricorn wrote:
By capitalism he means unregulated capitalism. His solution amounts to a redistribution of surplus value more equally among the property-owning class by a "tax revolution", i. e. regulated capitalism. See this.

I was thinking about this in relation to another thread obliquely touching on MMT. Which I won't go into here other than to say that a bit of research led rapidly to the conclusion that MMT is "not even reformist".

I think there's a tendency to dump political positions - other than the outright reactionary/pro-oligarch - into a reformist/revolutionary binary. imho there's value in adding a bit more granularity in the space between communist and neoliberal positions. So MMT for e.g. suggests that austerity is unnecessary because government can simply turn on the money printing press and spend our way into recovery (I simplify, but actually not much!). This is a simple government policy choice that doesn't involve any redistribution from capitalists to workers. Nor does it involve any structural changes in the way the system works. So it's neither redistributive nor reformist.

Piketty's solution is at least redistributive. He identifies a problem in capitalism's current direction that it's making the rich richer and the poor poorer (those trees did not die in vain!). But in terms of actual reforms, his only real reform is simply to put in place a redistributive tax mechanism (a souped up Tobin tax, afaics, ATTAC must be wetting themselves,,,*).

So, on the distributive axis you could go further to the extreme of socialisation of the means of production - i.e. actual expropriation of the expropriators. Now socialists say that's not just an extreme form of redistribution, but a radical structural change or reform, because private property relations (in the means of production) have been changed/abolished.

Of course the communist critique of market socialism, collectivism or other forms of self-managed capitalism, is precisely that most of the structure of social production as private production for exchange, remains unchanged, so from a communist point of view, socialisation of the m.o.p., while a necessary redistributive measure, is not sufficient to ensure a permanent rupture with the social relations of capitalism.

But before we get all the way to settling the dispute between socialists and communists, there are other proposed changes, which explicitly fall short of revolutionary anti-capitalism, but which propose actual (if limited) changes to the day-to-day functioning of how production and circulation actually function. Often without any direct redistributive precondition (of course many of the more egalitarian-minded ones may hope to see redistributive consequences of their pet reform, but that's effect rather than cause). Regardless as how cranky or naive most of these measures may be, it seems appropriate to call them reformers, rather than redistributionists or simple panacea hawkers (e.g. MMT).

All of which is a long-winded way of saying, maybe it would be worthwhile distinguishing two axes of alternative progression - a redistributive one and a restructuration one. By properly categorising people in relation to these two dimensions, we can clarify which arguments (and inconsistencies) are most worth focusing on. (And perhaps even, which ones are not even worth bothering with)

Anyway, just an idea.

Summary: Piketty - not quite as shit as MMT (but then not much is).

* originally wrote: "ATTAC must be wetting themselves over Piketty"; then realised this conjured up an unfortunate image.

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May 1 2014 04:07

He's a social liberal or left-liberal. Contradicts neo-classical/conservative views in many ways. He writes in a clear & engaging way, which helps with all the mind-numbing charts & so forth.

I think a worthwhile aspect of the book is that it marshals extensive & comprehensive statistics about wealth accumulation & capital accumulation & global growth & inequality....over long periods of time. This makes it possible to compare different periods in the history of capitalism.

It's value for me is sort of marred by the way he defines "capital" as equal to all wealth, so if a working class person owns a house outright (paid off the mortgage, say) then that is net capital. The problem here is in failing to understand capital as a class relation, a power relation to factors of production, in particular, to labor. He tends to define "class" in the liberal way, in terms of income.

Nonetheless, that weakness is made up for to some extent by the fact he focuses on the top wealth owners, the "1 percent", or in some cases the top 10 percent, and breaks down composition of income sources. So one difference in the "1 percent" today versus late 19th century is that back then "the 1 percent" got 90 percent of their income from capital income whereas, at least in USA, today it is 60 percent. He refers to all forms of corporate officer compensation -- salaries, bonuses, stock options -- as "labor" income which doesn't seem right to me. Nonetheless, his stats do back up his claim that capitalism has tended towards the rise of what he calls "super-managers"....top management in corporations. Given the bureaucratization of capitalism in the last century, this seems unsurprising.

He also looks at public expenditure as percentage of national output. He points out that today it's about 30 to 40 percent in USA & western Europe. He says that back in the 19th century it was around 10 to 15 percent. That's because the state back then was the "night watchman" state...it's focus was on police, military, judiciary, etc. The emergence of systems of social provision since the '30s has led to the big increase in state spending for things like education & health care. He points out that despite neoliberalism, the size of the state as a percent of national income has not declined since the '70s but has stabilized...stopped growing as a percent of national output.

His left-liberalism comes out towards end of the book in his attack on the current austerity polices in Europe. He proposes as an alternative a global, or at least Europe wide, progressive tax on all forms of capital. Starting at 1 percent on fortunes of 1 million euros. He also tries to justify this as needed to finance campaigns needed to address climate change.

He points out that the relative capital intensivity of Europe -- which he measures as ratio of capital (all forms of wealth) to output -- is equal to its highest previous point in history...before World War 1, and in USA is equal now to highest point in past, which was achieved during the Roaring 20s boom.

His main line of argument is that capital intensivity in this sense (the relative size of the accumulated capital) will tend to grow as long as the rate of return on capital R is greater than growth of value of output of goods & services G. During the 30 years after World War 2 growth rate in Europe was higher than return on capital, but he says that was due to destruction of capital during the 1914-45 period. He says that that period was unique historically in the history of European capitalism, where R tends to be always greater than G. This in the 19th century the average growth rate was 0.8 percent but R was 4 to 5 percent. He says the current Chinese growth rate is also an unusual "catchup" rate of growth that will not persist over the long run.

He says that this means capitalism has an inherent tendency, what he calls a "logical contradiction", to concentrate ownership ever more unequally, thus increasing the wealth & power of the 1 percent. He suggests that over the long run this is likely to create problems, such as growing resentment & possibly revolutionary movements.

EDIT: I should point out that by G being output, he means output per capita.

Output as a total quantity...essentially national income or GDP....figures in his main formula, about capital intensity, which he labels with the greek letter beta. I'll use B. So B is the total capital stock divided by annual national income. So he points out that on the eve of World War 1 this was 500 to 600 percent or 5 or 6 years of annual income in western Europe. He says that now B in western Europe is again approaching that level. Also, the historic high in B in USA was during the Roaring 20s boom, when it was close to the western European level, and in USA today B is once again approaching the level of the '20s boom.

He argues...very convincingly....that as long as the rate of return to capital is greater than per capita growth in output, this trend can continue indefinitely. But he suggests that there is likely to be some social limit to how far this can go without some sort of social explosion.

At one point toward earlier part of book he suggests Marx also held or suggested that if capital accumulation continued to grow indefinitely like this, this would generate a social explosion, and is one of capitalism's "contradictions."

He points out that the history of the core capitalist countries...especially Europe...was marked by a U structure in capital intensity (shape of the graph)), reaching historic high in 1913, and then going thru vast shocks that destroyed huge amounts of capital between 1914 and late '40s. He refers to war & the great depression & also inflation episodes that wiped out holders of national debt. I'd add revolution, civil war & rise of fascism as additional "shocks" as he puts it. In USA the U shape is less severe, since USA wasn't physically bombed in World Wars. Nonetheless, there were things like the Great Depression & confiscatory tax rates during & after World War 2 on high incomes.

alb
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May 1 2014 03:56

Short piece on him here.

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May 1 2014 04:39

That review by SPGB is incorrect in a key respect: The review supposes that Piketty thinks his thesis applies only to what the reviewer calls "savage capitalism." This is false. Piketty thinks this tendency will follow simply from the historic observed rate of return (4 to 5 percent) being higher than the likely rate of growth per capita. The periods when this did not happen were what he calls "catchup" periods when growth outstripped the rate of profit...as in the 30 years in Europe after World War 2 when output per capita grew by 5 percent per year....an historically unprecedented level. But he does NOT suggest that somehow that rate of growth could be returned to if capital were regulated better....in this respect he differs from the Keynsians like Krugman & others.

Altho he's not a Keynesian, he does propose to tax capital incomes at a progressive rate, to defend the "European social state" against austerity. I would regard this part of his proposal as unrealistic...without major struggle that seems unlikely.

alb
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May 1 2014 07:46
syndicalistcat wrote:
But he does NOT suggest that somehow that rate of growth could be returned to if capital were regulated better...

I don't think that the article does argue that this is his view, but I see what you mean. But even if he doesn't think government intervention can make the rate of growth grow faster than the rate of return on capital, he does think that government intervention can stop the returns of capital accumulating more and more in the hands of the few. He is in effect arguing for these returns to be distributed differently through severe taxes on wealth and property incomes. It's the old, failed reformist "redistribution of wealth" policy, which is why his views are getting such a welcome from reformists.

If he doesn't think the tendency of the rich to get richer (as opposed to the rate of return growing faster than the rate of growth) can be reversed why does he call for a "tax revolution" to try to do this? After all, he's not a Trotskyist raising this as an unrealistic transitional demand ! If he really believed that this particular tendency couldn't be reversed he would come as an opponent of capitalism but he definitely does not.

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May 1 2014 14:09

Apols for re-posting a bit of pointless cynical witticism on the subject from yesterday's FT, but it amused me:

Quote:
The nine stages of the Piketty bubble
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By Robert ShrimsleyAuthor alerts
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Everybody’s talking about that important work because they feel they have to
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Concern is growing that much of the western world is heading into a “Piketty bubble” – a social and economic phenomenon that arises when everyone who considers themselves to be anybody feels the need to talk about a new book by French economist Thomas Piketty.
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Capital in the Twenty-First Century, which argues that modern capitalism is entrenching inequality, was written a year ago in an obscure European dialect. But it is now being hailed as a masterpiece after it was discovered by a US publisher and translated into American. Although available for digital download, it is proving popular in printed form as even those who know they will never read it want it on their bookcase.

Unlike the five phases in Hyman Minsky’s classic bubble theory, a Piketty bubble boasts nine stages.

Stage one – buy-in: Anyone who believes they are part of the “big conversation” feels the need to talk about Prof Piketty’s views. Initially these are people of an economic bent who are genuinely interested in his work but soon other “thinkers” feel their credibility requires heavy investment in Piketty and so start referencing his conclusions.

Stage two – escape velocity: A critical mass of enthusiasm sees stock in Piketty rise faster than Bitcoin. Escape velocity is reached as politicians and pundits realise its value in supporting their existing convictions. They observe that his book crystallises “the big issue of our day”. Such references must also always include the phrase “in his important work”. Bluffers’ guides spring up on the internet.

These guides also offer information on how to pronounce his name. Getting this right marks you out as an early investor, someone with whom he might have discussed the Laffer curve over a glass of absinthe before a Paris St-Germain match. Calling him “Pick-a-tee” denotes you as an arriviste outsider. So get it right – it’s “Piquettee”. And don’t call him Thomas, it’s “Thom-ah”. Correct pronunciation is crucial. “Piquettee” sounds exotic, the type of intellectual investment that boosts your career capital; “Pick-a-tee” sounds like a fence in small-town America. For continued growth the right pronunciation (r) must always exceed the garbled version (g) – or r>g to use the precise formula.

Stage three – backlash: Initially this stage is welcomed by admirers as validation of the strength of Prof Piketty’s work since it shows he has worried his opponents. But his credibility takes a knock when it emerges he is François Hollande’s favourite economist. Then his credentials as a French intellectual are tainted by rumours he has never ridden a motorcycle or attended a soirée with Vanessa Paradis. Conservatives dispute Prof Piketty’s claims on inequality, arguing that it cannot be that bad since the poor all have access to running water. Still, confidence stays high as he remains at the heart of the “debate”.

In Stage four – counter-offensive Prof Piketty’s supporters fight back pointing out that most of his critics have not read his book. This is followed by Stage five – rearguard, in which critics reply that most supporters haven’t read it either.

Stage six – boredom: As Piketty references become ubiquitous, people begin to lament the overhyping of a book which, while impressive in its erudition, “doesn’t tell us anything we did not know”. In stage seven – disassociation even supporters begin to be embarrassed to refer to him. Conversations start to include phrases like: “Look, I know it’s a bit cliched to mention Piketty but . . . ” Reassured that nothing will actually change, opponents stop bothering to attack his proposals for a swingeing wealth tax.

Stage eight – denial offers proof the bubble has burst as members of the thinking classes now feel it is chic to admit that they never read the work. The brand is further cheapened for intellectuals when his work is picked up by Russell Brand.

Stage nine – relocation: People move Prof Piketty’s book from the living room to the lavatory, where it sits on a shelf sandwiched between Stephen Hawking’s A Brief History of Time and Francis Fukuyama’s The End of History.

Prof Piketty, meanwhile, faces complaints that as wealth accrues disproportionately to star writers, his triumph is increasing inequality among economic authors. This view is boosted by the success of his next book, a jaunty work of behavioural economics called “peut-etre”.

There is a possible much later stage 10 – rediscovery. A new crisis promotes a revival in which people return to the book and note that Prof Piketty “had some interesting things to say on this subject”.

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May 1 2014 18:44
Quote:
But even if he doesn't think government intervention can make the rate of growth grow faster than the rate of return on capital, he does think that government intervention can stop the returns of capital accumulating more and more in the hands of the few. He is in effect arguing for these returns to be distributed differently through severe taxes on wealth and property incomes. It's the old, failed reformist "redistribution of wealth" policy, which is why his views are getting such a welcome from reformists.

sure. and this is exactly where i think he's unrealistic. but i wasn't particularly interested in his reform nostroms. I was more interested in his factual descriptions.

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May 2 2014 11:05

Interestingly in Krugman's latest response to the current round of Post- vs Neo- Keynesian ding-dongs (Palley v Wren-Lewis, in this instance), he takes a swipe at Galbraith's critique of Piketty (as linked above - and again here), in the process of trying to "diagnose" what he thinks is at the root of the problem - i.e. the Cambridge Capital debates -

Quote:
So what’s this all about then? Palley goes on in both posts about the evils of the marginal productivity theory of distribution; like Wren-Lewis, I don’t see what this has to do with analyzing the crisis, one way or another. But I think I do understand where this is coming from. There’s a long if bizarre tradition among some left-leaning economists that sees the notion that factors of production are paid their marginal products — or even that this is a useful first cut when thinking about the factor distribution of income — as somehow implying an acceptance of the moral right of capitalists to keep their spoils. This doesn’t really make sense, but you do see attacks on marginal productivity theory cropping up in weird places — e.g., in Jamie Galbraith’s oddly off-center attack on Thomas Piketty.
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And what’s going on here, I think, is a fairly desperate attempt to claim that the Great Recession and its aftermath somehow prove that Joan Robinson and Nicholas Kaldor were right in the Cambridge controversies of the 1960s. It’s a huge non sequitur, even if you think they were indeed right (which you shouldn’t.) But that’s what seems to be happening.

Which rather ignores that Samuelson, one of Krugman's main heroes, subsequently admitted that his side had lost the Cambridge debate. But anyway, never let the facts stand in the way of a good rant...

alb
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May 3 2014 08:21

An example of Piketty's practical politics here.

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ocelot
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May 30 2014 12:44

A couple of recent pieces on Piketty - the first from Paul Mason in response to the recent FT attack on Piketty's figures. The second from Jacobin mag, more focused on the "how are we going to do anything about it?" question.

Grauniad: Paul Mason, Thomas Piketty's real challenge was to the FT's Rolex types

Jacobin: Mike Beggs, A General Without an Army

Jacob Richter
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May 31 2014 13:34
capricorn wrote:
One of his criticisms of Marx is that Marx's (and Ricardo's) theory of the long-run tendency of the rate of profit to fall implies that the rich get poorer whereas they've got and get richer.

He's another crack who understands neither Marx's take on mechanization nor the tendency of the rate of profit to fall.

Michael Hudson probably said it much better. The tendency of the rate of profit to fall is actually basic cost accounting. "Profit," if understood in classical economics terms, comes after labour costs, but the pie for dividends shrinks as the pie for depreciation grows.

ocelot wrote:
So MMT for e.g. suggests that austerity is unnecessary because government can simply turn on the money printing press and spend our way into recovery (I simplify, but actually not much!). This is a simple government policy choice that doesn't involve any redistribution from capitalists to workers. Nor does it involve any structural changes in the way the system works. So it's neither redistributive nor reformist.

That, I think, is a caricature of MMT if you limit it to just spending money. Various MMT-derived policies are more structural than that.

Quote:
So, on the distributive axis you could go further to the extreme of socialisation of the means of production - i.e. actual expropriation of the expropriators. Now socialists say that's not just an extreme form of redistribution, but a radical structural change or reform, because private property relations (in the means of production) have been changed/abolished.

Socialization of the MOP would be more accurately called a form of "predistribution," something different altogether from redistribution.

ajjohnstone
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Jun 10 2014 09:51

Paul Mattick Jnr. offers his thoughts on the book

http://www.brooklynrail.org/2014/06/field-notes/editors-note-much-ado-ab...

Quote:
Although he acknowledges that every government covered by his survey is bent on containing the state’s encroachment on the “return to capital” by imposing austerity on the 99%, he can think of no other path to social justice than a “global tax on capital,” to be imposed by those same governments. How the quantity of democracy needed to accomplish this is to be instituted, he does not explain.

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Jun 10 2014 10:25
ajjohnstone wrote:
Paul Mattick Jnr. offers his thoughts on the book

http://www.brooklynrail.org/2014/06/field-notes/editors-note-much-ado-ab...

Quote:
Although he acknowledges that every government covered by his survey is bent on containing the state’s encroachment on the “return to capital” by imposing austerity on the 99%, he can think of no other path to social justice than a “global tax on capital,” to be imposed by those same governments. How the quantity of democracy needed to accomplish this is to be instituted, he does not explain.

Thanks for posting that. It was really good - well worth a read.

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Jun 24 2014 04:31

I recently read the whole Piketty book - doesn't really say a great deal except that inequality is increasing, and he suggests the absurd idea of a global wealth tax. Like, yeah, that's gonna make some kind of a difference.

Spikymike
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Aug 9 2015 12:08

I think this article from the ICT/CWO was pretty good in it's critical review of Piketty's analysis and in it's explanation and illustration of the Marxist understanding of the 'tendency of the rate of profit to fall' including using some of Piketty's own material to advantage:
http://www.leftcom.org/en/articles/2015-08-07/piketty-marx-and-capitalis...

Spikymike
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Apr 13 2016 14:49

In addition to the useful Paul Mattick Junior and ICT/CWO reviews above there is this very short comment, rather than review, from Gilles Dauve that rightly emphasises the co-determinant role of collective class struggle in the evolution of 'Western society'.
http://libcom.org/library/reforming-reformers-gilles-dauve

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Oct 25 2019 11:23

Piketty has now added to all this with his new book 'Capital and Ideology' that rejects Marx's materialist analysis with an idealist interpretation of the causes of inequality and crisis in the modern capitalist economy. Michael Robert's provides this useful critical review in addition to his earlier one on Picketty's first book see here:
https://thenextrecession.wordpress.com/2019/10/18/capital-not-ideology/
See also the links in my posts #22 and #23.