Thinking About Piketty’s “Capital”

The quotes in this post’s subject line are very much intended as a double entendre. I’m of course referring to the title of Piketty’s book (which I’ve read about 80% of, jumping around). But even more, I’m talking about his definition of “capital.”

I’ve ranted frequently about economists’ failure to define this term or agree on what it means, and Piketty is very much laboring under the burden of that failure.

Don’t take my word for it. This confusion about the nature of capital (and the associated term, wealth) is the central point of James Galbraith’s critique of the book:

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.

You’ll find that “capital” conundrum lurking or leaping out within every review you read.

Piketty deserves great credit. Unlike many or most economists, he makes a good-faith effort to define his usage of the term, and a not-altogether-successful effort to think coherently and consistently within the terms of that definition. He addresses his definition head-on on pages 47-49, and wrestles with various aspects of it throughout the book. See for instance page 149 (on the market value of assets), page 163 (on “human capital” that can be bought and sold in a slave society), page 188 (again on the market value of real capital), and page 210 (on “real” vs. “nominal” assets).

I’ll just highlight one subject: In the course of things he expresses disdain for the notion of “human capital.” Many will find this to be problematic, since most estimates would suggest that human capital — our ability to work and produce in the future — constitutes the great bulk of world and national capital. But Piketty’s stance is reasonable or even inevitable: it’s largely impossible to measure this kind of capital outside a slave society (and then you’re only measuring the “value” of the slaves). So for his purposes of analyzing the subject based on recorded numerical data, human capital is a non-starter.