Breadtube vs Economics #3: Response to Contrapoints (and Piketty) on Capitalism

Breadtube vs Economics #3: Response to Contrapoints (and Piketty) on Capitalism

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Hi everyone! Today we're going to be talking  about capitalism. This is the third and final   entry in my 'breadtube and economics' series. The first two are in the description if you'd   like to take a look. Capitalism is something  that a lot of people on breadtube don't   really seem to like. "Oh yeah, here it comes baby!  The generic 10-minute rant about how capitalism  

is bad that I do at the end of every video  now!" "Capitalism is's so ingrained in us   that we refuse to advance for the sake  of a handful of huge wallets." "Bottom line   I have to give capitalism the lowest score  my editorial team allows me to give a game. 7 out of 10, limited recommendation." And you  know what? I'm not a massive fan either. But   there are few videos which really attempt to  get to grips with the 'economics of capitalism'.  

There's very little meat in these critiques of capitalism. The best and most viewed - which   as we all know, are the same thing - is the two-part  series by Contrapoints. As usual, Natalie's videos   are entertaining and insightful. She repeatedly  associates capitalism with evil reptiles who have   all the money and power and aren't the Jews to be  clear. She takes us through some of the paradoxes  

and absurdities of contemporary capitalism,  which she observes and critiques effectively,   including: class conflict; shitty jobs; consumerism;  and inequality. And yet...somehow, the whole thing   feels like less than the sum of its parts. The  issue, I think, is that ultimately the videos lack   a coherent theory of what capitalism is and how  it works. In fact, we don't even get a definition of   capitalism. One thing I want to acknowledge early  on is that as always Natalie definitely knows more   than she lets on in the videos. she's simplifying  because she wants to make things accessible and   because the old white dudes who populate economics  and philosophy piss her off. i also know that when  

natalie says things like "I mean I'm not an  economic theorist and honestly I don't really   understand how the economy works" she's at least  partly joking. But whatever the reason, I think   there are elements of her videos that could be  cleared up and developed. I'm going to mostly   take her at her word because, you know, what else  can I do? To that end I'm going to focus quite a   lot on what she calls 'the argument': |"Capitalism as  we know it is a defective economic system because   although it's good at creating large amounts of  wealth, it distributes that wealth in an incredibly   inefficient way, where efficiency is understood  not as the capacity to maximize total wealth   but as the capacity to maximize human happiness."  She presents this as her conclusion in the second   video so it seems like a reasonable thing to  focus on. Of course, this doesn't mean I'm going  

to ignore the rest of what she says - especially  the parts that are not properly accounted for,   or are even in outright tension with, 'the argument'. To start with, despite her main conclusion   revolving around wealth creation and distribution  it's not clear to me from her videos how   capitalism either creates wealth or distributes  wealth. But this...presents us with an opportunity. To answer the age-old question of how wealth is  created we will have to go back to the man many   consider the founding father of economics, whose  work has remained relevant for hundreds of years...   That's right, the 14th century Islamic scholar Ibn Khaldun. Did you think I was going to say Adam Smith? Was it because I strongly implied it was  him and even put a picture of him on the screen? You idiot. 400 years before Adam Smith, Ibn Khaldun observed that through specialiSation   and cooperation, human beings can produce much more  than they need:     Thus, Khaldun identified very early  on what we now call the 'technical division of   labour'. When workers specialise in different tasks  within production units such as farms or factories,  

this is a source of surplus above and beyond what  they need. Khaldun didn't stop there; he linked   the technical division of labour to the gains  from trade: Different production units, cities, or even countries have different specialisations and trade with each other in   order to attain more wealth than they could manage  alone. One way of thinking about this is to call it   the 'social division of labour' - across rather than  within production units. One city might specialize   in food while another specializes in clothes,  and by trading they can produce more clothes   and food in total than they could if they worked  alone. Both the technical and the social division   of labor speak to wealth creation as a collective  process, which is something we will return to later.  This is all pretty straightforward so far and  maybe some of you are familiar with these ideas.

But the observant among you may have noticed  something: I haven't mentioned capitalism yet.   Surplus and the division of labour were common to  settled civilizations long before capitalism, ever   since the dawn of agriculture, which was Khaldun's example. He was writing in a time and place where   what we recognize as capitalism hadn't really  taken root - although I have put some interesting   debates over the Islamic origins of capitalism in  the description. Adam Smith - and that's not to be   confused with the Leeds United player Alan Smith,  there - wrote during the first industrial revolution   so maybe we have more hope of understanding  capitalism specifically with him? Smith certainly   refined our observations on specialisation and  the division of labour. For instance, he gave three  

reasons the division of labour leads to higher  productivity. Firstly, particular workers become   more adept at particular tasks when they do them  time and time again. Secondly, sticking to one task   saves time in switching between them, which incurs  both a practical and a psychological cost. Thirdly   and probably most importantly, new technologies  enabled workers to perform their tasks faster,   with inventions like the Spinning Jenny increasing  the production of cloth by an order of magnitude.  

Smith also famously claimed that the division  of labor and the prevalence of markets were   intimately interconnected, with an expansion in  opportunities for selling naturally expanding the   possibilities for specialisation and vice-versa.  It's fair to say that Smith was not afraid to   confront the drawbacks of the division of labour,  either. In one famous passage he wrote that: Wow, " as stupid and ignorant as it is possible for a human being to become"? Obviously, Smith had never watched   a Steven Crowder video. And yes I had to look up  martial virtues too and I still don't understand.   Let's move on. The economist Stephen Marglin took  issue with Adam Smith's account of the division of  

labour, not because it was descriptively wrong but  because it missed the role of the capitalist in   organisation. Like Khaldun before him, Smith tended  to assume that the division of labour was arrived   at for reasons of technical efficiency: people  somehow realised that through specialisation   they could produce more and this specialisation  resulted in greater skills and new technologies.   Marglin points out, though, that there were many  examples where the methods used in independent   cottage industries were at least as productive  as the methods used in early factories. For this   reason, early Capitalism was filled with all sorts  of legal restrictions on production which pushed   workers into factories, including restrictions  on how many looms could be held in a home.   Rather than increasing efficiency - that is, getting  more output for less input - capitalist firms aimed   to increase the total work done by labourers  and therefore total surplus. As capitalists had  

ownership of what was produced and could sell  it in ever-expanding markets, they were able   to reinvest their profits and expand production  further. This is what Marx famously called the 'M-C-M prime   circuit'. Taking existing money M, investing  it into the production of commodities C, selling   those on markets and emerging with more money  M prime - only to start the whole process again. 

Although the division of labour existed before  capitalism, the appropriation of the surplus by   private capitalists, their sustained investment  in productivity enhancing technologies, their   expansion into new markets, and their continued  reorganization of the division of labor to those   ends are what gave rise to continued expansion in  incomes. This all, I think, gives us an insight that   Natalie missed into why jobs are so shitty under  Capitalism: they require you to do a narrow range   of tasks repetitively. for as long as capitalists  can get you to do them. But more importantly, this   leads us to our definition: It should be emphasised that the rise of capitalism was accompanied by a lot of misery for the workers, as well as by   the subjugation of women, and by colonialism and  slavery overseas. I don't want to gloss over any  

of this and by the end of this video you'll see  how they can be accounted for by our analysis. For now, we have a solid start on how wealth  is created under Capitalism, so we need to talk   about the other part of Contrapoints' argument:  the unequal distribution of this wealth. And to   do that, we need to turn to another thinker who  has recently tried to make sense of Capitalism.

If you follow trends in economics, you may  have heard of the best-selling 2014 book   'Capital in the 21st Century' by Thomas Piketty.  Piketty sought to explain how inequality arises   under capitalism, what problems this leads  to, and crucially how it might be combatted.   It may sound ridiculous but this is a question  the modern economics profession hadn't paid   much attention to before the book. Unfortunately,  nobody, including Contrapoints, knows what Piketty   said because his book was too damn long and the  average Kindle user got to page 26 out of 700.   Seriously, what kind of nerd is going to read  all of that? Oh, me. Haha!. But I didn't read the new  

one because it's almost twice as long and  that's ridiculous. 1200 pages is longer than   The Bible (probably). Following the success of  Capital, Piketty's fame earned him the name   'the rockstar economist' which is a term  nobody should use about any economist ever.

Anyway, Piketty's central claims in the book hinge on some basic maths which i'm   afraid we're going to have to learn a little  bit about. Piketty places great emphasis on the   law of exponential growth'. Since technological  improvements, the division of labour, and the   expansion of markets took hold in a virtuous cycle,  incomes have grown by a certain percentage every   year, on average. As Piketty points out, initially  small differences in the cumulative growth rate   can lead to vast differences over the long term. With a growth rate of 0.1 percent a year it will  

take almost a thousand years for the economy  to double in size. The average growth rate of   currently rich countries since the industrial  revolution has probably been between 1 and 1.5   percent which results in a rough doubling of  incomes every 100 years, but would multiply   incomes by literally millions if sustained for a  thousand years. There have been brief periods of   even higher growth than this such as post-world  war 2, where growth rates were closer to 4 percent. This more than doubles incomes in a single  generation and if sustained for a century   would increase incomes by 30 times. If sustained  for a thousand years it...wouldn't be on the table   and I'm not working it out myself, so I guess  we'll never know. The net result of all this  

growth is that rich countries now have market  incomes which dwarf their incomes in the past.   And to be clear we should not mistake this  for the statement that people are better off   in all respects now than they were. In fact, Piketty's main focus is not on growth but   on one of the major problems associated with  capitalism: inequality. Having established the   power of exponential growth of incomes, Piketty  turns his attention to capital and how it grows.  He uses a few expressions to discuss how the  wealth of capital owners evolves over time,   chief among them being 'r greater than g', where  r is the return to capital investment - a measure   of the profits made by owners of capital - and g is  the general rate of growth in incomes throughout   the population . Owing to the power of exponential  growth we just spoke about, if r is persistently  

higher than g then the wealth of those who own  capital will grow faster than incomes. As Piketty   shows, capital ownership is highly concentrated so  essentially this means the rich get richer. Piketty   entertainingly details the history of inequality,  not just with extensive quantitative data gathered   by himself and his co-authors, but using literary  examples such as Jane Austen, Honore de Balzac, and Henry James. All of whom I have of course  read many, many times and whose names I can   definitely pronounce. As an aside, i found it really  interesting that the actual incomes of different   characters in these novels seem to match up quite  well with Piketty's historical data on inequality. 

Based on his framework, where a small number  of people own wealth which grows faster than   incomes, Piketty goes on to predict increasing  inequality in the future and is concerned about   the political power that these owners will  exert as their relative wealth increases.   He recommends a whole bunch of left-egalitarian  policies to combat the pernicious effects of this   inequality: stronger unions; stakeholder capitalism;  wealth taxes; increased social provisions, and so   on. I agree with most of these policies but there's  something unsatisfactory about Piketty's approach.   His framework for understanding capital and  inequality does not seem directly related to   the policies he advocates. Anyone who has read the  book in full will tell you that they feel like a   bit of a non-sequitur, especially when he starts  talking about climate change. Delving into this   uneasy disconnect in Piketty's analysis turns out to give us some important insights into how Capitalism works. If you're new to economics, I'm going to let you in on a little secret: economists   have a habit of using a lot of fancy mathematics  to gain relatively little insight. Piketty himself  

is no stranger to this tendency and had some  choice words for the profession that I'd like to   share with you: Unfortunately, despite his iconoclasm Piketty  has a view of capital which echoes a tendency   within mainstream economics: it is treated as a  quantity of stuff - that's equipment, buildings, raw   materials and so on - which when put into production,  yields a stream of income for the capitalists.   It's true that Piketty is deeply concerned about  the inequality that results from this income   but at its core this is quite a harmonious  depiction of the production process. Labourers bring their labour; capitalists bring  their capital, and everyone walks away with an   income which is related to their contribution to  production. The economist Josh Mason has pointed  

out that a key assumption of this approach is  that capital can be thought of both as actual   physical stuff but also as a monetary value. What  economists claim is that you can just take the   price of all the different stuff that comprises  capital and add it up to get its total money value.   It turns out to be mathematically convenient to  do this, but as Piketty knows that doesn't tell   us much about whether it's right. Nevertheless,  that Piketty follows this approach is revealed   most clearly by the title of his book 'Capital  in the 21st Century' since what he actually   presents is data on the evolution of wealth. For  him, though, capital and wealth are one and the same.  

Piketty's 'r greater than g' depicts holders  of wealth gradually accruing more and more.   If accumulation and exponential growth explains  the rise of incomes under capitalism - the reasoning   goes - then perhaps they explain the rise of  inequality too? But actually Piketty's evidence   for this happening is pretty thin. Mason shows  that changes in wealth are not driven mostly by   changes in the quantity of stuff but instead are  driven by changes in the value of existing assets.   At first glance, this puts lie to an argument you  often hear: that capital is just the reward for   patience and hard work, with diligent capitalists  putting money away and reaping the rewards down   the line while the short-termist poors splurge  it all on bread or whatever poor people buy. But   there's also a deeper point here. What if, instead  of capital representing an accumulated quantity   which produces a stream of income for capitalists,  capital is the claim on the total income of the   economy - collectively produced, as we saw earlier - but divided through distributional conflict?  As Mason puts it: what if "it's bargaining power, it's  politics, all the way down"? Another illustration   of this point pertains to slavery in the USA.  Piketty's own data show that when slavery was  

abolished there was a concomitant reduction in  the wealth ratio and capital share. But nothing   concrete had actually happened to capital as stuff,  or even to the slaves themselves. All that had   happened was that a property claim held by slave  owners had ceased to be recognized by society.   I've found this point is probably best illustrated  by the ownership of land, which entitles the bearer   to an income without them actually having to do  anything. Money from ownership of land is money you  

can earn in your sleep, without even taking part in  the wealth creation process. "Well, my work is done here." "What do you mean your work is done? You didn't  do anything!" "Didn't I"? If you've followed this whole series you'll know that I am now three for three in highlighting land as a key issue in economics so I guess that makes me a Georgist. But where I differ from Georgists is that for me, land is the  

thin end of the wedge for understanding capital  more generally. And now I want to show you a video   that caught my eye a short while ago. As usual, the  police are being antagonistic towards the crowd.   There's some shoving and kettling going on but  it's far from the worst video of police brutality   you will see and that's really the point. This  is a tenants' strike in Brooklyn, New York during   the pandemic, a period in which for obvious reasons  many tenants have struggled to pay rent. But if you  

decide not to pay rent you will be forcibly  evicted. If you organise to protest that   decision, you will face off directly with  armed employees of the state. This is the   dull but brutal reality of the power of capital  to insist on obtaining its share of resources.   Of course, things can be much more dramatic. In  1954, when the democratically elected President   of Guatemala, Jacobo Arbenz, tried to forcibly  purchase unused land from the United Fruit Company,   they pressured the US Government into staging  a military coup and removing Arbenz from   power. In the past, this type of military power is  what allowed colonial empires to explicitly lay   claim to a share of their colonies' resources. This  perspective also starts to make sense of some of  

Piketty's policy recommendations. Worker presence  on boards, as is the case in Germany, is one way to   reduce the claims of capital on national income  and increase the claims of labour. Other examples   might be patent laws; corporate law; and financial  assets. In every case the power to enforce property   rights of one sort or another translates into  a claim on the wealth generated by society. In   every case the rights could be reconfigured  or even eliminated to favour other groups.  

In summary, the political power that certain groups  use to exercise control over resources is not a   consequence of capital, as Piketty fears. It is  capital. Perhaps this is what Natalie was getting   at when she said "the lizards are capital itself". Oh  yeah, remember - this is a response to Contrapoints! One of the interesting things about the  Contrapoints videos is that despite   starting with a broadly Marxist analysis, the  conclusion is pretty moderate and could have   been arrived at by a mainstream economist. This  might seem like a strange thing to admit in a   video entitled 'breadtube versus economics'. Maybe it should be 'breadtube and economics   versus unlearning economics'? Look, whatever, the  point is I'm right. In Natalie's first video, we  

get an eloquent and entertaining account of issues  with capitalism like alienation, exploitation, and   advertising - before she pivots into some political  analysis aimed at first the rich, then at the left.   To be clear, I have no problem with the latter. Ppolitics and economics are intertwined and she   was deliberately trying to appeal to people  from the alt-right, with some success it seems.   In the second video, though, production takes a  back seat as she focuses on commodity fetishism   and inequalities of consumption, illustrated  by the expensive but disgusting golden pizza,   a brilliant example which would surely make even  the most ardent capitalist slightly uncomfortable.  

She then settles on 'the argument' which to remind  you states that: Strangely, this maps quite well onto a famous set of theorems in economics called 'the welfare theorems', which separate questions of distribution   from questions of efficiency. I'll spare you the  details but it does draw on the capital-as-stuff   approach we saw earlier. The irony is that this  view is actually pretty close to what I would call   "[ __ ] neoliberalism" - or at least to the  left-leaning variety of neoliberalism you find   on the internet. In this view, capitalist wealth  creation is a positive thing and we should allow   it to continue, but redistribute the wealth that it  generates. This is especially odd as a conclusion   since even in part two of her videos Natalie  talks about the profit motive ruining Hollywood.   She even explicitly says "that's why I don't really  agree with the philosopher Peter Singer, who has this   idea that many of the world's problems could be  solved if privileged american college students   would just become hedge fund managers and donate  most of their income to buying mosquito nets in   the Congo." But she then claims that she's "talking  about redistributing the goddamn champagne". She  

goes into detail on this point by drawing on  literature about which income level maximises   happiness. While I agree with most of her points, there is nothing in here about how changing wealth   is produced and indeed that would not be implied  by her argument. More hedge fund managers would   result in a lot of champagne to redistribute,  sweaty. Did I do that right? I shouldn't do that.   When I set out to make this video, I just wanted  to explain more about how capitalism works.  

I wasn't looking to catch anyone out. But now  I've watched natalie's videos a few times I can   see quite clearly what made me uncomfortable to  begin with: there's some confusion here. If I had to   guess, I'd say that she's not guilty of a genuine  intellectual inconsistency. She's just left with   an inconsistency because she lacks a framework  with which to make full sense of capitalism and   her observations about it. Our view of capital as  political power over resources, I'm hoping, does   a better job of making sense of Capitalism. We've  seen that through the division of labour, wealth is  

created collectively. This cooperation happens both  within and between the productive units of society.   Through its bargaining power over labour, capital  makes claims on this wealth and even reorganises   production to its own ends and to those of  the market. Capital's primary aim is to get ahold    of as much of society's surplus as possible  and to reinvest in order to expand. As an aside,   it's worth pointing out that if the role of  capital is to continually reinvest surplus   it's failing at even that task these days. You had  one job, capital! But capital is not some physical  

entity; it's not politically neutral. Capital enacts  ownership claims on national income and these   claims are ultimately defended by the state. Over  time, the claims are even extended to new domains,   like ideas and the environment - and these are  political choices. Wealth creation and wealth  

distribution should therefore not be disentangled  in our analysis of capitalism: the power of capital   determines not only what proportion of wealth  it receives but how and what type of wealth is   created in the first place. Only by changing  this arrangement - by reconfiguring claims on   our collectively produced wealth - can we hope to  address issues such as inequality, exploitation,   imperialism, and environmental degradation. More  in-depth ideas about how exactly to do this are   something I want to cover in the future. "Say the  line, YouTuber!" "That's a topic for another video". "Yayy!"

So...what's my conclusion here? Well it's  that Piketty and Contrapoints are the   same, because even though they're both insightful  and entertaining, their frameworks lack coherence.   The end!    Thanks for listening guys. I hope you enjoyed my video on capitalism which somehow managed to avoid theories of value  and what started the industrial revolution   and also how to build alternatives to  capitalism. This marks the end of the 'criticising   left YouTubers' arc of my channel. Hopefully  from now on I'll just be talking about  

economics; criticising right-wingers, economists;  and also talking about how to build alternatives   to Capitalism. Like all good YouTubers i now  have a Patreon. I've actually started posting   exclusive videos to my Patreon. They're a little  bit more casual than these videos - it's just me   talking to a topic. The first one is on Modern  Monetary Theory so if you're interested in that   then please join up. Thanks to all my current  patrons whose names have been scrolling through   the screen as you've been hearing this and please  like and subscribe. See you next time, buddies!

2021-02-08 02:13

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