Sunday, May 22, 2022

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

Hi everyone! Today we're going to be talkingabout 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 somethingthat 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 videonow!” “Capitalism is just…it's so ingrained in us that we refuse to advance for the sakeof a handful of huge wallets.” “Bottom line I have to give capitalism the lowest scoremy editorial team allows me to give a game. 7 out of 10, limited recommendation.” And youknow what? I'm not a massive fan either. But there are few videos which really attempt toget to grips with the 'economics of capitalism'. .

There's very little meat in these critiquesof capitalism. The best and most viewed – which as we all know, are the same thing – is the two-partseries by Contrapoints. As usual, Natalie's videos are entertaining and insightful. She repeatedlyassociates capitalism with evil reptiles who have all the money and power and aren't the Jews to beclear. 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. Theissue, I think, is that ultimately the videos lack a coherent theory of what capitalism is and howit works. In fact, we don't even get a definition of capitalism. One thing I want to acknowledge earlyon is that as always Natalie definitely knows more .

Than she lets on in the videos. she's simplifyingbecause she wants to make things accessible and because the old white dudes who populate economicsand philosophy piss her off. i also know that when natalie says things like “I mean I'm not aneconomic theorist and honestly I don't really understand how the economy works” she's at leastpartly joking. But whatever the reason, I think there are elements of her videos that could becleared up and developed. I'm going to mostly take her at her word because, you know, what elsecan I do? To that end I'm going to focus quite a lot on what she calls 'the argument': |”Capitalism aswe know it is a defective economic system because although it's good at creating large amounts ofwealth, it distributes that wealth in an incredibly inefficient way, where efficiency is understoodnot 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 tofocus on. Of course, this doesn't mean I'm going to ignore the rest of what she says – especiallythe 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 distributionit's not clear to me from her videos how capitalism either creates wealth or distributeswealth. But this…presents us with an opportunity. To answer the age-old question of how wealth iscreated we will have to go back to the man many consider the founding father of economics, whosework 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 washim 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 morethan they need: .

Thus, Khaldun identified very earlyon what we now call the 'technical division of labour'. When workers specialise in different taskswithin production units such as farms or factories, this is a source of surplus above and beyond whatthey need. Khaldun didn't stop there; he linked the technical division of labour to the gainsfrom trade: .

Different production units, cities, or even countries have differentspecialisations and trade with each other in order to attain more wealth than they could managealone. One way of thinking about this is to call it the 'social division of labour' – across rather thanwithin 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 workedalone. Both the technical and the social division of labor speak to wealth creation as a collectiveprocess, which is something we will return to later. This is all pretty straightforward so far andmaybe some of you are familiar with these ideas. But the observant among you may have noticedsomething: I haven't mentioned capitalism yet. Surplus and the division of labour were common tosettled civilizations long before capitalism, ever .

Since the dawn of agriculture, which was Khaldun'sexample. He was writing in a time and place where what we recognize as capitalism hadn't reallytaken root – although I have put some interesting debates over the Islamic origins of capitalism inthe 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 understandingcapitalism specifically with him? Smith certainly refined our observations on specialisation andthe division of labour. For instance, he gave three reasons the division of labour leads to higherproductivity. Firstly, particular workers become more adept at particular tasks when they do themtime and time again. Secondly, sticking to one task saves time in switching between them, which incursboth a practical and a psychological cost. Thirdly .

And probably most importantly, new technologiesenabled workers to perform their tasks faster, with inventions like the Spinning Jenny increasingthe production of cloth by an order of magnitude. Smith also famously claimed that the divisionof labor and the prevalence of markets were intimately interconnected, with an expansion inopportunities 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 beingto become”? Obviously, Smith had never watched a Steven Crowder video. And yes I had to look upmartial virtues too and I still don't understand. Let's move on. The economist Stephen Marglin tookissue with Adam Smith's account of the division of labour, not because it was descriptively wrong butbecause it missed the role of the capitalist in organisation. Like Khaldun before him, Smith tendedto assume that the division of labour was arrived .

At for reasons of technical efficiency: peoplesomehow realised that through specialisation they could produce more and this specialisationresulted in greater skills and new technologies. Marglin points out, though, that there were manyexamples where the methods used in independent cottage industries were at least as productiveas the methods used in early factories. For this reason, early Capitalism was filled with all sortsof legal restrictions on production which pushed workers into factories, including restrictionson how many looms could be held in a home. Rather than increasing efficiency – that is, gettingmore output for less input – capitalist firms aimed to increase the total work done by labourersand therefore total surplus. As capitalists had ownership of what was produced and could sellit in ever-expanding markets, they were able .

To reinvest their profits and expand productionfurther. This is what Marx famously called the 'M-C-M prime circuit'. Taking existing money M, investingit into the production of commodities C, selling those on markets and emerging with more moneyM prime – only to start the whole process again. Although the division of labour existed beforecapitalism, the appropriation of the surplus by private capitalists, their sustained investmentin productivity enhancing technologies, their expansion into new markets, and their continuedreorganization of the division of labor to those ends are what gave rise to continued expansion inincomes. This all, I think, gives us an insight that Natalie missed into why jobs are so shitty underCapitalism: they require you to do a narrow range of tasks repetitively. for as long as capitalistscan get you to do them. But more importantly, this .

Leads us to our definition: It should be emphasised thatthe rise of capitalism was accompanied by alot of misery for the workers, as well as by the subjugation of women, and by colonialism andslavery overseas. I don't want to gloss over any of this and by the end of this video you'll seehow they can be accounted for by our analysis. For now, we have a solid start on how wealthis 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 whohas recently tried to make sense of Capitalism. If you follow trends in economics, you mayhave 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 leadsto, and crucially how it might be combatted. It may sound ridiculous but this is a questionthe 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 theaverage Kindle user got to page 26 out of 700. Seriously, what kind of nerd is going to readall of that? Oh, me. Haha!. But I didn't read the new one because it's almost twice as long andthat's ridiculous. 1200 pages is longer than The Bible (probably). Following the success ofCapital, Piketty's fame earned him the name 'the rockstar economist' which is a termnobody 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 littlebit about. Piketty places great emphasis on the law of exponential growth'. Since technologicalimprovements, 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, initiallysmall 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 economyto double in size. The average growth rate of currently rich countries since the industrialrevolution has probably been between 1 and 1.5 percent which results in a rough doubling ofincomes every 100 years, but would multiply incomes by literally millions if sustained for athousand years. There have been brief periods of .

Even higher growth than this such as post-worldwar 2, where growth rates were closer to 4percent. This more than doubles incomes in a singlegeneration and if sustained for a century would increase incomes by 30 times. If sustainedfor a thousand years it…wouldn't be on the table and I'm not working it out myself, so I guesswe'll never know. The net result of all this growth is that rich countries now have marketincomes which dwarf their incomes in the past. And to be clear we should not mistake thisfor 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 withcapitalism: inequality. Having established the power of exponential growth of incomes, Pikettyturns his attention to capital and how it grows. .

He uses a few expressions to discuss how thewealth of capital owners evolves over time, chief among them being 'r greater than g', wherer is the return to capital investment – a measure of the profits made by owners of capital – and g isthe general rate of growth in incomes throughout the population . Owing to the power of exponentialgrowth we just spoke about, if r is persistently higher than g then the wealth of those who owncapital will grow faster than incomes. As Piketty shows, capital ownership is highly concentrated soessentially 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 literaryexamples such as Jane Austen, Honore de Balzac, and Henry James. All of whom I have of courseread many, many times and whose names I can .

Definitely pronounce. As an aside, i found it reallyinteresting that the actual incomes of different characters in these novels seem to match up quitewell with Piketty's historical data on inequality. Based on his framework, where a small numberof people own wealth which grows faster than incomes, Piketty goes on to predict increasinginequality in the future and is concerned about the political power that these owners willexert as their relative wealth increases. He recommends a whole bunch of left-egalitarianpolicies 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'ssomething unsatisfactory about Piketty's approach. His framework for understanding capital andinequality does not seem directly related to .

The policies he advocates. Anyone who has read thebook in full will tell you that they feel like a bit of a non-sequitur, especially when he startstalking about climate change. Delving into this uneasy disconnect in Piketty's analysis turnsout to give us some important insights into howCapitalism works. If you're new to economics, I'mgoing to let you in on a little secret: economists have a habit of using a lot of fancy mathematicsto gain relatively little insight. Piketty himself is no stranger to this tendency and had somechoice words for the profession that I'd like to share with you: .

Unfortunately, despite his iconoclasm Pikettyhas a view of capital which echoes a tendency within mainstream economics: it is treated as aquantity 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 aboutthe inequality that results from this income but at its core this is quite a harmoniousdepiction of the production process. Labourers bring their labour; capitalists bringtheir capital, and everyone walks away with an income which is related to their contribution toproduction. The economist Josh Mason has pointed out that a key assumption of this approach isthat capital can be thought of both as actual physical stuff but also as a monetary value. Whateconomists claim is that you can just take the price of all the different stuff that comprisescapital and add it up to get its total money value. It turns out to be mathematically convenient todo 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 'Capitalin the 21st Century' since what he actually presents is data on the evolution of wealth. Forhim, though, capital and wealth are one and the same. Piketty's 'r greater than g' depicts holdersof wealth gradually accruing more and more. If accumulation and exponential growth explainsthe rise of incomes under capitalism – the reasoning goes – then perhaps they explain the rise ofinequality too? But actually Piketty's evidence for this happening is pretty thin. Mason showsthat changes in wealth are not driven mostly by changes in the quantity of stuff but instead aredriven by changes in the value of existing assets. At first glance, this puts lie to an argument youoften hear: that capital is just the reward for .

Patience and hard work, with diligent capitalistsputting money away and reaping the rewards down the line while the short-termist poors splurgeit all on bread or whatever poor people buy. But there's also a deeper point here. What if, insteadof 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'spolitics, 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 inthe 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 slaveowners had ceased to be recognized by society. I've found this point is probably best illustratedby the ownership of land, which entitles the bearer to an income without them actually having to doanything. Money from ownership of land is money you can earn in your sleep, without even taking part inthe wealth creation process. “Well, my work is donehere.” “What do you mean your work is done? You didn'tdo anything!” “Didn't I”? If you've followed this whole series you'll know that I am now three for threein highlighting land as a key issue in economics so I guess that makes me a Georgist. But where Idiffer from Georgists is that for me, land is the .

Thin end of the wedge for understanding capitalmore generally. And now I want to show you a video that caught my eye a short while ago. As usual, thepolice are being antagonistic towards the crowd. There's some shoving and kettling going on butit's far from the worst video of police brutality you will see and that's really the point. Thisis a tenants' strike in Brooklyn, New York during the pandemic, a period in which for obvious reasonsmany tenants have struggled to pay rent. But if you decide not to pay rent you will be forciblyevicted. If you organise to protest that decision, you will face off directly witharmed employees of the state. This is the dull but brutal reality of the power of capitalto insist on obtaining its share of resources. Of course, things can be much more dramatic. In1954, when the democratically elected President .

Of Guatemala, Jacobo Arbenz, tried to forciblypurchase unused land from the United Fruit Company, they pressured the US Government into staginga military coup and removing Arbenz from power. In the past, this type of military power iswhat allowed colonial empires to explicitly lay claim to a share of their colonies' resources. Thisperspective also starts to make sense of some of Piketty's policy recommendations. Worker presenceon boards, as is the case in Germany, is one way to reduce the claims of capital on national incomeand increase the claims of labour. Other examples might be patent laws; corporate law; and financialassets. In every case the power to enforce property rights of one sort or another translates intoa claim on the wealth generated by society. In every case the rights could be reconfiguredor even eliminated to favour other groups. .

In summary, the political power that certain groupsuse to exercise control over resources is not a consequence of capital, as Piketty fears. It iscapital. Perhaps this is what Natalie was getting at when she said “the lizards are capital itself”. Ohyeah, remember – this is a response to Contrapoints! One of the interesting things about theContrapoints videos is that despite starting with a broadly Marxist analysis, theconclusion is pretty moderate and could have been arrived at by a mainstream economist. Thismight 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, thepoint is I'm right. In Natalie's first video, we get an eloquent and entertaining account of issueswith capitalism like alienation, exploitation, and .

Advertising – before she pivots into some politicalanalysis 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 peoplefrom the alt-right, with some success it seems. In the second video, though, production takes aback seat as she focuses on commodity fetishism and inequalities of consumption, illustratedby the expensive but disgusting golden pizza, a brilliant example which would surely make eventhe most ardent capitalist slightly uncomfortable. She then settles on 'the argument' which to remindyou states that: .

Strangely, this maps quite well onto a famousset of theorems in economics called 'the welfaretheorems', which separate questions of distribution from questions of efficiency. I'll spare you thedetails but it does draw on the capital-as-stuff approach we saw earlier. The irony is that thisview is actually pretty close to what I would call “[ __ ] neoliberalism” – or at least to theleft-leaning variety of neoliberalism you find on the internet. In this view, capitalist wealthcreation is a positive thing and we should allow it to continue, but redistribute the wealth that itgenerates. This is especially odd as a conclusion since even in part two of her videos Natalietalks about the profit motive ruining Hollywood. She even explicitly says “that's why I don't reallyagree with the philosopher Peter Singer, who has this idea that many of the world's problems could besolved if privileged american college students .

Would just become hedge fund managers and donatemost of their income to buying mosquito nets in the Congo.” But she then claims that she's “talkingabout redistributing the goddamn champagne”. She goes into detail on this point by drawing onliterature 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 impliedby 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 wantedto explain more about how capitalism works. I wasn't looking to catch anyone out. But nowI've watched natalie's videos a few times I can see quite clearly what made me uncomfortable tobegin with: there's some confusion here. If I had to .

Guess, I'd say that she's not guilty of a genuineintellectual inconsistency. She's just left with an inconsistency because she lacks a frameworkwith which to make full sense of capitalism and her observations about it. Our view of capital aspolitical power over resources, I'm hoping, does a better job of making sense of Capitalism. We'veseen that through the division of labour, wealth is created collectively. This cooperation happens bothwithin and between the productive units of society. Through its bargaining power over labour, capitalmakes claims on this wealth and even reorganises production to its own ends and to those ofthe market. Capital's primary aim is to get ahold of as much of society's surplus as possibleand to reinvest in order to expand. As an aside, it's worth pointing out that if the role ofcapital is to continually reinvest surplus .

It's failing at even that task these days. You hadone job, capital! But capital is not some physical entity; it's not politically neutral. Capital enactsownership claims on national income and these claims are ultimately defended by the state. Overtime, the claims are even extended to new domains, like ideas and the environment – and these arepolitical choices. Wealth creation and wealth distribution should therefore not be disentangledin our analysis of capitalism: the power of capital determines not only what proportion of wealthit receives but how and what type of wealth is created in the first place. Only by changingthis arrangement – by reconfiguring claims on our collectively produced wealth – can we hope toaddress issues such as inequality, exploitation, imperialism, and environmental degradation. Morein-depth ideas about how exactly to do this are .

Something I want to cover in the future. “Say theline, YouTuber!” “That's a topic for another video”. “Yayy!” So…what's my conclusion here? Well it'sthat Piketty and Contrapoints are the same, because even though they're both insightfuland entertaining, their frameworks lack coherence. The end! Thanks for listening guys. I hopeyou enjoyed my video on capitalism which somehow managed to avoid theories of valueand what started the industrial revolution and also how to build alternatives tocapitalism. This marks the end of the 'criticising left YouTubers' arc of my channel. Hopefullyfrom 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 nowhave a Patreon. I've actually started posting exclusive videos to my Patreon. They're a littlebit more casual than these videos – it's just me talking to a topic. The first one is on ModernMonetary Theory so if you're interested in that then please join up. Thanks to all my currentpatrons whose names have been scrolling through the screen as you've been hearing this and pleaselike and subscribe. See you next time, buddies!


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