I am exasperated by John Kay in the FT today. His column The capitalists sold the mills and bought all our futures, is superb and for that reason deeply annoying. Its really aggravating when someone can cogently express points that have gnawed away at one for weeks, and yet rendered one incoherently inchoate.
Kay deals elegantly in his column with a flaw in Thomas Piketty’s analysis. It is to do with the definition and calculation of wealth, or patrimoine as defined in the French edition of his book, Capital. I have felt convinced that Piketty, like a good accountant, has conscientiously (“heroically” writes Kay) totted up all the tangible wealth that there is to count. But wealth, surely, is more than just the ownership of tangible assets.
It sure is, explains Kay. “If you want to measure the capital possessed by a nation, there are two ways of doing it. One is to travel the length and breadth of the country counting the houses, the bridges, the factories, shops and offices, and adding up their total value. The other is to knock on doors and ask people how rich they are. ….So there are two different concepts of national capital: physical assets and household wealth.”
Kay then explains that Apple, for example, has tangible wealth made up of “physical assets worth only about $15billion (and.. ahem… a $150 billion mountain of cash).” (Is Apples’scash tangible?) However it has a market capitalisation of $500 billion – a value based on “the anticipation of future profits.” In other words, its worth, its wealth, is not just those measly, tangible $15 billion worth of computers, phones, stores, tables, Apple t-shirts etc. The company’s real worth is the anticipation of future rents that Apple (and Microsoft)will extract from customers, by virtue of their oligopolistic position in the computer operating system market. And that position has been obtained not just by technological advances or skilful entrepreneurealism, but by virtue of great political power.
But the saving grace (if there is grace to be saved here) of both Apple and Microsoft is this: they make tangible things that can be bought and sold from stores, and are useful (on the whole). What of the men and women that sell debt? Or insurance? Or any other asset that is based on what is known in polite circles as ‘financial engineering’ . These are intangible ‘assets’ that can be created without engagement with either the Land or Labour (in the broadest senses); whose creation is virtually effortless, but which are assets that guarantee a stream of revenue many decades into the future?
The individuals and corporations that own these assets do not just enjoy historically unprecedented levels of wealth. They exercise vast power – political, economic, social and market power.
But like the slave-owners of old they face challenges too. By effectively cannibalising the body that is the real economy – that space where people work, make or grow products, provide services, and generate income with which debts and premiums can be paid; by cannibalising the real economy, avaricious oligopolists threaten to kill it too. Like slave-owners tempted to subjugate and starve their slaves almost to death, there comes a day when the logic of the capitalist system breaks down.
The question John Kay does not address in his column is this: when will that day come?