Earlier in one of my blogs, I mentioned that I have been eating, drinking, and sleeping entrepreneurism; specially, social entrepreneurism, and even more accurately, the power of business to create positive social change. I know that dogmatic classical economic thinkers, such as Milton Friedman, would cringe at the thought of mixing business with social change, but if we don’t we have missed an incredible opportunity.
Let me remind you of what I don’t think works. First, large government and never ending increasing taxes that make people rely on government. I think that is counter-productive and encourages an entitlement mentality that stifles productivity. Second, ever increasing large scale corporatism that is unfettered and free to exploit the masses. I will explain this part a bit more in a moment.
So now that I have ticked off both sides in this process, I’ll explain why I am in the middle. I am a firm believer that the truth usually lies somewhere in the middle between two extremes. So, the large government people are wrong, and the large business people are wrong.
I will continue my point with an economic discussion focused on reducing income inequality. Thomas Piketty makes a comment in his book Capital in the Twenty-first Century, “Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century?” I have been pondering these two questions, and have settled on my original conclusion that the truth is somewhere in the middle, although I lean towards Simon Kuznets conclusion.
I am enjoying Picketty’s book, and his economic nuggets are incredible. “When the rate of return on capital exceeds the rate of growth of output and income, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.” Why does this happen? Return on capital usually goes to the owner’s of the capital, and the growth in output and income is usually more dispersed to the mass. Thus, when the return on capital is high it increases the wealth of the few, while a growing economy resulting in more people working distributes wealth to more people.
Because our economy has grown along with the income of workers, there has been a greater distribution of the wealth. Thus, the “Modern economic growth and the diffusion of knowledge have made it possible to avoid the Marxist apocalypse, but have not modified the deep structures of capital and inequality.”
The phrase “Marxist Apocalypse” refers to Marx’s conclusion that capital accumulation narrows to fewer and fewer owners. Piketty describes this as the “principle of infinite accumulation.” What specifically does this mean? It means there is a tendency for “capital to accumulate and become concentrated in even fewer hands with no natural limit to the process.” Remember the old saying it takes money to make money? This is what Marx was alluding too.
I have read the Communist Manifesto which begins with the ominous words, “A specter is haunting Europe – the specter of Communism.” And I do find value in Marx’s economic discussion, but his political comments are incorrect and have failed in history. “The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie therefore produces, above all, are its own gravediggers. Its fall and the victory of the proletariat are equally inevitable.”
Why didn’t this happen? Why did Marx’s political prophecies fail? I think Piketty hits the nail on the head. “Like his predecessors, Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital.”
Two years ago I wrote and published a paper entitled, “A Managerial Response to the Marxist Critique of Capitalism.” My premise was based within the idea that we must pay attention and fight against the excesses of Capitalism. Capitalism is amoral, it is an economic system, one that works well within a free society. However, as noted above, when certain conditions exist the return on capital becomes centralized, and this is what we need to be aware of. If we aren’t the specter will return, and then we may experience the revolution that Marx thought would happen.
And that is my thought for the day!