Comments on James Galbraith's comments on Thomas Piketty's C21C 

 

James K. Galbraith: "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".
---
I can tell where the rate of return comes from. It comes from the energy and resources which is transformed and processed and made into entities/stocks/commodities etc, and then we assign the social construction money into this chain of events. The rest is history and economy, we then have these transactions which economists like Piketty (and yourself) can theorize about. This is where the return of capital comes from. It is not at all unrelated to the "productive physical capital".

James K. Galbraith: "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".
--- Maybe so, but I Am actually doing some thinking/theorizing on that exact question, how to build a scientific theory of return on capital at a low abstraction level and from a low abstraction level. From the thermodynamic economy up until the political economy on the proximate and cultural levels. What is true for now, is that no economic school of thought has formally coupled/attached thermodynamics into economics.

Anyways, this is unrelated to Thomas Piketty's definition of Capital. And I agree with Seth Ackerman's interpretation of the Cambridge Capital Controversy, that Piero Sraffa had the most logic and obvious epistemologically correct conclusion some years after the happening.

James K. Galbraith: "But the argument of the critics was not about Keynes, or fluctuations. It was about the concept of physical capital and whether profit can be derived from a production function. In desperate summary, the case was three-fold. First: one cannot add up the values of capital objects to get a common quantity without a prior rate of interest, which (since it is prior) must come from the financial and not the physical world".
--- One cannot decouple/detach finance from the real economy and/or the production economy. It was still a real economy in the Weimar republic and in Zimbabwe during and after the hyperinflation
(It cannot come from the financial world as a starting point).

We don't need to nor should we criticize historians for not explicitly connecting the theory of gravitation to the catapults that were used in medieval times, or attaching classical mechanics to the castle's that were attacked and sometimes a prince or king lost his castle because the walls went down, describing such incidents can very well be done and still be (social) scientifically correct. And we don't need to criticize historians for not explicitly coupling the theory of evolution to the cultural, social and economic upheaval and turmoil or peaceful events that occurred since 6000 years ago.

Comments on "Finance as Wealth Transfer Mechanism"

"Finance as Wealth Transfer Mechanism: An Interview with James Galbraith". --- Or the Political Economy as Wealth Transfer Mechanism.


Philip Pilkington: "If I understand correctly you also found that nations have very little control over their own levels of inequality. How did you come to this conclusion?".

--- One can also say that nations are at the mercy of the invisible or insidious hand which according to James Galbraith controls the levels of inequality. How did James Galbraith
come to this conclusion?

James Galbraith: "A nation’s level of inequality has a lot to do with its underlying economic structure and level of development: agrarian, industrial, or high-technology. But we also found, in examining the movement of inequality in the world economy over 40 years, that there was a very strong common pattern.
This suggests that *changes* in inequality have a common source."

--- But that *changes* in inequality does not stem from the political economy, decided upon by politicians? No common source of political economy is detected by James Galbraith?  Is national assemblies detected by James Galbraith?

James Galbrath: "Looking at the major turning points, which were in 1971-3, 1981 and 2000, a leading candidate for that source emerges: the changes in the world financial system.

Until 1971, the world’s economies were largely stabilized under the Bretton Woods system. After 1973, there was a widespread commodities-and-debt boom that tended to reduce inequality in developing countries. After 1980, high interest rates and the debt crisis raised inequality almost everywhere. And finally in 2000 there was a peak; after that interest rates fell, commodity prices recovered, and inequalities around the world tended to ease.

In the face of these global pressures, it’s possible for some countries with very stable policies and strong institutions to resist for a time: for example Denmark does not show rising inequality in our data. Or a country may be insulated from global shocks, as China and India were from the debt crisis in the 1980s (but not in the 1990s). But these cases are very few. In most cases the global forces dominate the picture."

--- "the changes in the world financial system" is not the politically wielded economy?? The insulation of Denmark is not wielded politically by the anthropogenic visible hands of the politicians in Denmark who decides the political economy in Denmark, by the signals from the voters?

This abstract term of "The global forces" is void of politicians who decides and causes the political economy??

"After 1980, high interest rates and the debt crisis raised inequality almost everywhere", and this is not the political distributed debt-economy decided by the Congress, the parliaments and national assembly's around the world?? Or was it the insidious Hand that wrote the laws and crafted the legislation's and so induced the World Financial System?? 

James Galbraith: "But one can also say that the reverse is true: the income distribution is driven by macroeconomic forces." --- But not the political economy, or by the political economic forces?

James Galbraith: "one of things Inequality and Instability shows is that there is a common pattern in the movement of inequality around the world. A very clear pattern. It isn’t just an American phenomenon. That suggests that there must be a common global force behind it. And that would have to be a macroeconomic force, by definition."

--- But still no force of political economy by definition, or by observed causality patterns? Is this "common global force" invisible like the invisible hand??

James Galbraith: "The grip of see-no-evil economics has been broken in many parts of the world, and especially in South America. But in the US and in Europe, especially in Northern Europe and in the UK, it remains very strong. This means that our two continents have actually less open debate, and so fewer political options, than is now the case in many other places."

--- How 'bout the grip of see-no-evil political economics or the grip of see-no-evil political economy, is that not relevant for political economy options?
And the grip of see-no-evil invisible hand or the grip of see-no-evil insidious hand, are you not part of that in relevance to the US, professor Galbraith?
How bout' the "grip of see-no-evil world financial system", or "see-no-evil global forces", what's your opinion on these issues professor Galbraith?

James Galbraith: "We have seen, though, that severe events do have a way of opening up peoples’ eyes and minds, and so there is always hope. I don’t rely on hope, though. My friend William K. Black, the criminologist, likes to quote William of Orange: it is not necessary to hope in order to persevere."

--- And so is there always hopium? Or do you not rely on hopium? And is it necessary to hopium in order to changium??