«$100 received out of labor is not a net, but gross, wage. Because working involves disutility. the remainder should be treated as net value added in national accounts.»
The national accounts on the "GDP" side measure *production* and "gross*. They do not measure "utility" and should not measure "utility" even if many right-wing Economists claim that the national accounts should measure "utility" because they claim that the utility of things workers buy has risen much faster than their wages.
«Not only does it have an impact on how value added and thus GDP»
Again: the purpose of GDP is to measure *gross* (domestic) *production* not income; I am disappointed that our blogger slips and confuses GDI (or rather NDI) with GDP, as many right-wing Economists like to confuse GDI and GDP so as to pass the income of rentiers (like most of the financial sector) as the output of production and not a cost.
«Take a person on a very low wage. His entire wage is taxable while in truth only a portion of his wage represents net income (in excess of labor power depreciation) and only that part should be taxed.»
That is why most countries have a 0% tax rate up to some threshold. Also as to depreciation of labor most countries have income-tax-free pension savings too (but many governments are clever to no minimum 0% tax rate on sales/VAT depending on income or on "social contributions").
«The national accounts on the "GDP" side measure *production* and "gross*. They do not measure "utility"»
Also (and I know this is an unpopular point) GDP should be measured in physical units, not money units, because the economy does not produce money, but cars, tons of cement, hours of hospital care, passengers time miles, etc.; what is usually published as "GDP" is actually one of the many possible GDP *indexes* obtained by multiplying GDP with an arbitrary vector of prices.
Note: the origin of GDP was for war planning and as to that it is physical quantities that matter; however in general it is very important to separate production quantities from price levels and using a single GDP-index deflator can obscure significant movements in relative prices.
«what is usually published as "GDP" is actually one of the many possible GDP *indexes*»
The GDP index is in effect not Gross Domestic Production but Gross Domestic Purchases (purchases are indeed measured in money units), just as GDI can also be called Gross Domestic Sales (income arises from selling, whether labour, commodities or liquidity, plus economic rent which could be considered a sale too).
«GDP should be measured in physical units, not money units, because the economy does not produce money, but cars, tons of cement, hours of hospital care, passengers time miles, etc. [...] the origin of GDP was for war planning and as to that it is physical quantities that matter»
BTW this is also related to what kind of model of the economy is chosen: GDP portends a model of the economy as a factory (or as a set of factories). The common "neoclassical" approach portends a model of the economy as a set of markets (and capital and production are both hand-waved away using the delusional "production function"). H. Minsky added the very useful approach of looking at an economy as a set of interlocking balance sheets, inspired by J. M. Keynes. More recently M. Pettis refined Minsky's approach by adding portfolio management to the model of interlocking balance sheets, also inspired by J. M.Keynes.
Agree with comment that homoploutia is a bad label to promote study of the concept. Plainer words would be better, especially in policy and government circles. A university listing "homoploutia" in its econ class offerings now might draw criticism from Trump and DOGE for promoting DEI and antisemitism, and risk de-funding. A term including "hetero" would be safer. "Bi" on the other hand could make US rulers nervous.
1. Inclusion of entire wages into the GDP - if a worker doesn't work for wage, he would be doing some other economic activity, or simply starve. So yes, implied costs, but either way he'd add to ecnomic output.
2. On capital income, I'd correct for implied income from living in owned property. This is a very significant factor that was absent from classic capitalism - back then wage worker = renter, in pretty much every case. XX centurty in developed countries can be described as housing appropriaition era - nothing like that existed before.
On wage. I think that only net wage (as I define it) should be considered value added. Specificity of income from labor is that it demands effort, and at the end of the process a person is worse off than in the beginning. Then the compensation to bringing the person in terms of "welfare" back where he or she was, cannot be considered *added* value.
On the implicit housing rent. Many surveys do not estimate it. It is notoriously difficult to estimate. I agree that one may wish to add it to capital income, but I also think that for my purposes here (looking at "new capitalism") it is the ownership of productive and financial assets that defines a socio-economic system and thus matters.
O PIB, na especificidade, deve transcender a busca da apuração bruta. A economia é uma ciência de medição, mas também do fluxo de distribuição dos rendimentos e correção dos mercados, equalizando com medidas de intervenções para que tudo o que foi produzido, seja melhor distribuído, para que possamos combater pela própria ciência economica, a miséria e a pobreza acumuladas. Medições e índices alimentados de modo equivocado, levam a decisões equivocadas. E isso a ciência economica deve se esforçar e corrigir.
There are so many "right thinking" understandings in this one. Thanks. You perhaps might be interested in this, which incorporates and foregrounds many/most of those same understandings. Currently under review. https://mpra.ub.uni-muenchen.de/125174/ Thanks again.
Wow! This is super interesting. Congratulations. The complete accounting (incl. K gains) was always very difficult to achieve. And symmetrical treatment of K losses makes it doubly difficult and tricky. As you know, the Canberra convention on the definition of income treats all K gains and losses as "below-the-line" items, i.e. they affect wealth, but not income.
Glad you find it interesting! I got into it because I just couldn't understand national accounts in which saving ≠ asset/NW accumulation. What in the heck?
I def know Canberra. It was a big fight about taxation, though. That's the "fatal Cleopatra"* side-issue that perennially leads capital-gains discussions astray.
What's amazing is how fundamentally simple it is to derive H-S income (and hence saving), at least since we got SNA-based treatments like the IMAS (released 2006). Primary [IOW "market"] Income therein doesn't include holding gains (it's also missing net transfers that are included in NIPA Personal Income). But the SNAs do *require* a Valuation (vs volume/transactions) account tallying Holding Gains & Other Volume Changes.
Just add Valuation changes to primary income + transfers, and Bob's yer uncle.
Distributional allocation of holding gains to income/wealth groups is also surprisingly simple, at least at a first approximation. Holding gains result from…holdings, so each income/wealth group gets holding gains (from an asset class or in aggregate) in proportion to their holdings share.
Be happy to discuss more or answer any questions. Cheers.
Capital concentrating isn’t exactly evil, that’s literally what capital is supposed to do. The problem is that we’ve hard‑coded parasitic protections for the existing holders into the system. Stuff that doesn’t grow capital, just fences it off. Zoning, subsidies, regulatory carve‑outs, tax loopholes. None of it makes new value. They just guard the old pile.
Thinking about homopleutia and high income from salaries - how much of this is sinecures? The university presidents installed by their friends the Trustees? Boards of Directors? Positions on Quangos? Less reward for effort than a reinforcement of elite status via the public or company purse? The 'disutility' of a few hours chatting with one's peers is amply compensated for not only with money but a variety of perks.
«not that capital income tricked down, but that labor income “trickled up” and combined with the pre-existing or newly-created large fortunes to create, at the very top, a new class whose wealth comes from both labor and capital. Homoploutia»
Our blogger seems very convinced of the importance of the top decile [in wealth income] and in particular of the 30% of it that in some countries are semi-proletarians, but I still think that the top 20-40% who in many countries are property-rich and have salaries (or pensions) are far more important politically. Maybe they are owner-occupiers so they do not get a cash income from their real estate capital but they are still obsessed with it.
However I agree with our blogger that 30% of the top decile usually govern and implement policy on behalf of the ruling class and surely wish they were the ruling elite in their place (if I understand our blogger he thinks that they will eventually become a ruling elite).
«Our blogger seems very convinced of the importance of the top decile [in wealth income] and in particular of the 30% of it that in some countries are semi-proletarians»
A good question is whether the "homoplutes" regard themselves as mainly rentiers or mainly workers
There is a related point: in my view rentiers rarely aspire to become also workers, but most workers aspire to become also or fully rentiers; put another way they desire to pad their retirement savings with rent, redistributed from other poorer workers, from those savings.
For example the 20-40% of workers who purchased property (or shares)with their wages/salaries surely do so in expectation of receive massive redistribution from the lower classes via large capital gains and big rents (or dividends).
My guess is that nearly all "homoplutes" regard being also workers as just a "phase" in their life and look forward to becoming full-time rentiers.
Capital is a process. As such, it is always One. As one, it can only grow, stay the same size or shrink in relation to the rest of the universe (the “objective material world”). If you're asking a question about the existence of capital, then the instances of its internal density are irrelevant.
As a unity, the teleological objective of capital is to equal the Universe, i.e. to expand until it is the same size of the Universe. Put it another way, capital will expand until the end of the Universe. By, “Universe”, I mean its philosophical meaning, i.e. its literal meaning: the entire space-time, its physical definition. I'm not being poetic here. This was very well noted by philosopher István Mészáros - probably the greatest philosopher of the 20th Century (certainly the greatest from the Postwar on).
If you're asking about the inner intricacies of capital, then you can analyze how it moves. If it moves, then it will have variations of density inside itself, i.e. inequality. It is not inequality per se that is of scientific interest, but the logic (movement) of its distribution.
This pattern of density distribution was well described by Marx in Das Kapital: as the profit rates fall/OCC rises, a cycle of centralization begins, which diminishes, relatively, the amount of individual capitals. Capital as a unity grows, capital as an individual diminishes; dead labor grows, living labor diminishes (relatively). Since dead labor grows, initial capital grows, making the barrier to erect a new individual capital taller, thus diminishing the potential amount of new individual capitalists - that this happens either by the fall of an individual capital's birth or by the fall of an individual capital's life expectancy is the same for the purpose of the argument I make here, because at the beginning of my comment I have already stated inequality is merely the difference of density distribution in capital as a unity.
A economia do trabalho, certamente, merece contabilidade distinta. Salário não é renda! Salário é trabalho, é a arte de transformação de uma coisa em outra. Serve também para o prestador de serviços de saúde, educação, transporte, etc. Pode se dar de modo autônomo ou por meio de patronatos. Renda é aquela derivada do Capital ( Terra, Locação de equipamentos, aluguéis, investimentos imobiliários, etc). Marx percebeu isso e denunciou o capitalismo como espécie de "servidão" para o trabalhador. É que seu tempo de vida é consumido just in time, pois não permite que naquele ritmo e estágio, o trabalhador desfrute de outros momentos da vida, pois estará restringido 100% ao que faz, servindo ao patrão. Operários das fábricas obedecem aos apitos de comando, ao relógio de ponto, a meta de produção. O estresse social, dos prestadores de serviços nos deslocamentos é brutal. O ócio, produtivo, intelectual, estaria reservado às classes dominantes ( tempo para o ócio). Weber, foi contra Marx,. quando endeusou o trabalho e trouxe Deus como o benfeitor dos capitalistas. A frase "o trabalho enriquece", o "juro é permitido", é weberiana de inspiração protestante! Assim os ECONOMISTAS DO TRABALHO, precisam se ater para essa forma diferencial de contabilidade quando da apuração do PIB, conforme alerta o artigo, na diferenciação brutal que há entre resultado bruto do salário, e renda do capital, e mobilidade medida pelo GINI, aperfeiçoando os meios de medição da variação dos pontos de miséria e pobreza no mundo! Desenvolver algo sério nesta direção, é um trabalho real e meritório, digno de um Nobel de Economia!
Really appreciate this insightful post, and the two prior. One clarifying question. You mention that the new capitalism has failed to produce a "property-owning society". Do I have it right that one could 'own', or be in debt to the bank for a property - a home in this case, and still not receive financial capital from that investment, and thus, would not be included in the numbers presented here about households receiving income from financial capital? In other words, am I correct in concluding that there may be a 'property-owning society' not captured in these figures (i.e. home owners) because they do not received income from financial capital? How would the numbers presented here change if home ownership were included?
Yes, you are right in that. Implicit income from owning property & thus not paying rent is not considered here. It is a tricky issue: indeed, people possess wealth in housing, cars, furniture, jewelry etc. My point here was to focus only on wealth that provides monetary income. I think it is more relevant in defining the nature of the economic system and who benefits from it than the fact that people may be home-owners. The locus of importance for an economic and political system is production; not home-ownership however the latter may be importanr for individual persons.
Interest, dividends, etc are paid as a percentage of the capital. This gives a multiplicative process. A multiplicative process gives a power law distribution; hence the concentration. This was first modelled by Champernowne seventy years ago, and has been studiously ignored ever since.
The labour distribution is exponentially tailed, and is mathematically necessary to prevent the collapse of all capital into the hands of one person.
Econophysicists have modelled this extensively, applying statistical mechanics to economics, and have also been studiously ignored. Odd, when the most successful equation in finance, Black-Scholes, is a statistical mechanical derivation.
My own formulation:
Willis, G. (2015). Income distribution and income shares: wealth and income distributions explained using generalised Lotka-Volterra SFC ABM models. International Review of Applied Economics, 29(6), 816–842. https://doi.org/10.1080/02692171.2015.1065225
I live in a block of flats. One of my fellow leaseholders is a retired Air Force veteran (mechanic, I think). He put his pension pot into buying a modest flat that he rents out. Not a productive asset, I agree, but he needs it to supplement his AF pension. Another leaseholder is a checkout lady in a supermarket.
Your analysis fails entirely to capture this 'rentier' income.
Maggie didn't want to turn the public into capitalists (notwithstanding the privatizations) so much as to encourage us to enjoy the rentier lifestyle.
Great article! On China though, the capital income you mention here i assume is the interest from savings account? It should be examined against the mortgage and other debts in the household/consumer department. Then the number will not look very impressive for China- People save because there’s little safety net.
Yes, I think in China is mostly interest on savings accounts. A Chinese economist who sent me his comments thought exactly that: income from K is widespread in China b/c people save a lot and most people do not desire or have enough to go into risky financial instruments like shares.
Very interesting! I don’t agree much with the net income argument, because it assumes that income from capital is basically all passive income, easily obtainable (with no disutility); plus, how many capitalists living off capital are self-made? How much disutility went into reaching their current status? Also, though I fully appreciate the insights, they are mostly static. A dynamic perspective would have led better to the conclusion that no progress has been made in new capitalism. Perhaps it’s just a slow process.
True. But a static perspective is how national accounts are calculated. You just add wages to get total NA labor share. You do not deduct how much people had to invest in education or how much income they had to forego in order to get to these wages. My argument is that --statically-- wage income is overestimated using the very basic premises on which neoclassical economics is built.
Developed country snapshots will underestimate the spread of capital ownership because much of it is pension savings, which don’t pay income until you retire. So even if everyone owns some capital in their pension, only a minority will receive income from it in any given year.
That's true. One may (and does) have wealth that is not marketable and moreover that does not provide an income flow (until the time when he or she can use it). So, there will be a difference between the number of people who have wealth>0 and number of people who have capital income (or flows)>0.
«So even if everyone owns some capital in their pension, only a minority will receive income from it in any given year.»
Our blogger focuses on capital income rather than capital I guess because he makes a point about the stability of the total income of homoplutes:
"a new elite that is resistant to shocks in labor and capital markets and thus able to maintain its position even if the rate of return on large capitals (like theirs) goes down, or if their particular highly-skilled jobs suddenly pay less."
Those with illiquid and unearning wealth are not quite in the same position as those with a flow of income from the same amount of wealth. Even if in modern financial conditions there are ways to work around that, for example for housing wealth there are re-mortages (HELOCs).
But our blogger seems to me to reckon that homoploutia specifically matters because of the political impact when/if the homoplutes become most of the top 10% and as to that as usual I think that the mass rentierism of the top 20-40% is already existing and more important.
I am kinda skeptical of the Chinese numbers. How (institutionally) do all of these Chinese individuals get more than $100 in "capital income" per year? Just interest from savings in the bank? Is Paul Krugman a Neoliberal shill or dupe because he is skeptical of Chinese economic numbers?
Yeah kinda skeptical on those two as well. Again how are nearly half of Chinese getting more than $100 more a year in dividends and rents, etc.? I guess it makes sense if it is mostly driven by bank saving accounts, though ironically from what I have read they fail to keep up with inflation and retiree living costs....
«$100 received out of labor is not a net, but gross, wage. Because working involves disutility. the remainder should be treated as net value added in national accounts.»
The national accounts on the "GDP" side measure *production* and "gross*. They do not measure "utility" and should not measure "utility" even if many right-wing Economists claim that the national accounts should measure "utility" because they claim that the utility of things workers buy has risen much faster than their wages.
«Not only does it have an impact on how value added and thus GDP»
Again: the purpose of GDP is to measure *gross* (domestic) *production* not income; I am disappointed that our blogger slips and confuses GDI (or rather NDI) with GDP, as many right-wing Economists like to confuse GDI and GDP so as to pass the income of rentiers (like most of the financial sector) as the output of production and not a cost.
«Take a person on a very low wage. His entire wage is taxable while in truth only a portion of his wage represents net income (in excess of labor power depreciation) and only that part should be taxed.»
That is why most countries have a 0% tax rate up to some threshold. Also as to depreciation of labor most countries have income-tax-free pension savings too (but many governments are clever to no minimum 0% tax rate on sales/VAT depending on income or on "social contributions").
«The national accounts on the "GDP" side measure *production* and "gross*. They do not measure "utility"»
Also (and I know this is an unpopular point) GDP should be measured in physical units, not money units, because the economy does not produce money, but cars, tons of cement, hours of hospital care, passengers time miles, etc.; what is usually published as "GDP" is actually one of the many possible GDP *indexes* obtained by multiplying GDP with an arbitrary vector of prices.
Note: the origin of GDP was for war planning and as to that it is physical quantities that matter; however in general it is very important to separate production quantities from price levels and using a single GDP-index deflator can obscure significant movements in relative prices.
«what is usually published as "GDP" is actually one of the many possible GDP *indexes*»
The GDP index is in effect not Gross Domestic Production but Gross Domestic Purchases (purchases are indeed measured in money units), just as GDI can also be called Gross Domestic Sales (income arises from selling, whether labour, commodities or liquidity, plus economic rent which could be considered a sale too).
«GDP should be measured in physical units, not money units, because the economy does not produce money, but cars, tons of cement, hours of hospital care, passengers time miles, etc. [...] the origin of GDP was for war planning and as to that it is physical quantities that matter»
BTW this is also related to what kind of model of the economy is chosen: GDP portends a model of the economy as a factory (or as a set of factories). The common "neoclassical" approach portends a model of the economy as a set of markets (and capital and production are both hand-waved away using the delusional "production function"). H. Minsky added the very useful approach of looking at an economy as a set of interlocking balance sheets, inspired by J. M. Keynes. More recently M. Pettis refined Minsky's approach by adding portfolio management to the model of interlocking balance sheets, also inspired by J. M.Keynes.
Agree with comment that homoploutia is a bad label to promote study of the concept. Plainer words would be better, especially in policy and government circles. A university listing "homoploutia" in its econ class offerings now might draw criticism from Trump and DOGE for promoting DEI and antisemitism, and risk de-funding. A term including "hetero" would be safer. "Bi" on the other hand could make US rulers nervous.
Heterocrats?
Closer. And less light in the loafers.
Homo Ploutus? https://www.msn.com/en-us/money/companies/elon-musk-awarded-29-billion-pay-package-from-tesla/ar-AA1JS2W2?ocid=msedgntp&pc=HCTS&cvid=6890c3761290488fa33d360df926bae0&ei=13 "Elon Musk awarded $29 billion pay package from Tesla"
Absolutely brilliant, but 2 minor quabbles
1. Inclusion of entire wages into the GDP - if a worker doesn't work for wage, he would be doing some other economic activity, or simply starve. So yes, implied costs, but either way he'd add to ecnomic output.
2. On capital income, I'd correct for implied income from living in owned property. This is a very significant factor that was absent from classic capitalism - back then wage worker = renter, in pretty much every case. XX centurty in developed countries can be described as housing appropriaition era - nothing like that existed before.
Otherwise fantastic, thank you!
Thanks a lot for your very kind words & comments.
On wage. I think that only net wage (as I define it) should be considered value added. Specificity of income from labor is that it demands effort, and at the end of the process a person is worse off than in the beginning. Then the compensation to bringing the person in terms of "welfare" back where he or she was, cannot be considered *added* value.
On the implicit housing rent. Many surveys do not estimate it. It is notoriously difficult to estimate. I agree that one may wish to add it to capital income, but I also think that for my purposes here (looking at "new capitalism") it is the ownership of productive and financial assets that defines a socio-economic system and thus matters.
O PIB, na especificidade, deve transcender a busca da apuração bruta. A economia é uma ciência de medição, mas também do fluxo de distribuição dos rendimentos e correção dos mercados, equalizando com medidas de intervenções para que tudo o que foi produzido, seja melhor distribuído, para que possamos combater pela própria ciência economica, a miséria e a pobreza acumuladas. Medições e índices alimentados de modo equivocado, levam a decisões equivocadas. E isso a ciência economica deve se esforçar e corrigir.
There are so many "right thinking" understandings in this one. Thanks. You perhaps might be interested in this, which incorporates and foregrounds many/most of those same understandings. Currently under review. https://mpra.ub.uni-muenchen.de/125174/ Thanks again.
Wow! This is super interesting. Congratulations. The complete accounting (incl. K gains) was always very difficult to achieve. And symmetrical treatment of K losses makes it doubly difficult and tricky. As you know, the Canberra convention on the definition of income treats all K gains and losses as "below-the-line" items, i.e. they affect wealth, but not income.
Glad you find it interesting! I got into it because I just couldn't understand national accounts in which saving ≠ asset/NW accumulation. What in the heck?
I def know Canberra. It was a big fight about taxation, though. That's the "fatal Cleopatra"* side-issue that perennially leads capital-gains discussions astray.
* Samuel Jonson: http://m.joyceproject.com/notes/070077rowsofcaststeel.html
What's amazing is how fundamentally simple it is to derive H-S income (and hence saving), at least since we got SNA-based treatments like the IMAS (released 2006). Primary [IOW "market"] Income therein doesn't include holding gains (it's also missing net transfers that are included in NIPA Personal Income). But the SNAs do *require* a Valuation (vs volume/transactions) account tallying Holding Gains & Other Volume Changes.
Just add Valuation changes to primary income + transfers, and Bob's yer uncle.
Distributional allocation of holding gains to income/wealth groups is also surprisingly simple, at least at a first approximation. Holding gains result from…holdings, so each income/wealth group gets holding gains (from an asset class or in aggregate) in proportion to their holdings share.
Be happy to discuss more or answer any questions. Cheers.
Capital concentrating isn’t exactly evil, that’s literally what capital is supposed to do. The problem is that we’ve hard‑coded parasitic protections for the existing holders into the system. Stuff that doesn’t grow capital, just fences it off. Zoning, subsidies, regulatory carve‑outs, tax loopholes. None of it makes new value. They just guard the old pile.
Thinking about homopleutia and high income from salaries - how much of this is sinecures? The university presidents installed by their friends the Trustees? Boards of Directors? Positions on Quangos? Less reward for effort than a reinforcement of elite status via the public or company purse? The 'disutility' of a few hours chatting with one's peers is amply compensated for not only with money but a variety of perks.
«not that capital income tricked down, but that labor income “trickled up” and combined with the pre-existing or newly-created large fortunes to create, at the very top, a new class whose wealth comes from both labor and capital. Homoploutia»
Our blogger seems very convinced of the importance of the top decile [in wealth income] and in particular of the 30% of it that in some countries are semi-proletarians, but I still think that the top 20-40% who in many countries are property-rich and have salaries (or pensions) are far more important politically. Maybe they are owner-occupiers so they do not get a cash income from their real estate capital but they are still obsessed with it.
https://blissex.wordpress.com/wp-content/uploads/2024/07/polihousingoldpeoplebigmoney.jpg
However I agree with our blogger that 30% of the top decile usually govern and implement policy on behalf of the ruling class and surely wish they were the ruling elite in their place (if I understand our blogger he thinks that they will eventually become a ruling elite).
«Our blogger seems very convinced of the importance of the top decile [in wealth income] and in particular of the 30% of it that in some countries are semi-proletarians»
A good question is whether the "homoplutes" regard themselves as mainly rentiers or mainly workers
There is a related point: in my view rentiers rarely aspire to become also workers, but most workers aspire to become also or fully rentiers; put another way they desire to pad their retirement savings with rent, redistributed from other poorer workers, from those savings.
For example the 20-40% of workers who purchased property (or shares)with their wages/salaries surely do so in expectation of receive massive redistribution from the lower classes via large capital gains and big rents (or dividends).
My guess is that nearly all "homoplutes" regard being also workers as just a "phase" in their life and look forward to becoming full-time rentiers.
It depends on the precise question you're asking.
Capital is a process. As such, it is always One. As one, it can only grow, stay the same size or shrink in relation to the rest of the universe (the “objective material world”). If you're asking a question about the existence of capital, then the instances of its internal density are irrelevant.
As a unity, the teleological objective of capital is to equal the Universe, i.e. to expand until it is the same size of the Universe. Put it another way, capital will expand until the end of the Universe. By, “Universe”, I mean its philosophical meaning, i.e. its literal meaning: the entire space-time, its physical definition. I'm not being poetic here. This was very well noted by philosopher István Mészáros - probably the greatest philosopher of the 20th Century (certainly the greatest from the Postwar on).
If you're asking about the inner intricacies of capital, then you can analyze how it moves. If it moves, then it will have variations of density inside itself, i.e. inequality. It is not inequality per se that is of scientific interest, but the logic (movement) of its distribution.
This pattern of density distribution was well described by Marx in Das Kapital: as the profit rates fall/OCC rises, a cycle of centralization begins, which diminishes, relatively, the amount of individual capitals. Capital as a unity grows, capital as an individual diminishes; dead labor grows, living labor diminishes (relatively). Since dead labor grows, initial capital grows, making the barrier to erect a new individual capital taller, thus diminishing the potential amount of new individual capitalists - that this happens either by the fall of an individual capital's birth or by the fall of an individual capital's life expectancy is the same for the purpose of the argument I make here, because at the beginning of my comment I have already stated inequality is merely the difference of density distribution in capital as a unity.
A economia do trabalho, certamente, merece contabilidade distinta. Salário não é renda! Salário é trabalho, é a arte de transformação de uma coisa em outra. Serve também para o prestador de serviços de saúde, educação, transporte, etc. Pode se dar de modo autônomo ou por meio de patronatos. Renda é aquela derivada do Capital ( Terra, Locação de equipamentos, aluguéis, investimentos imobiliários, etc). Marx percebeu isso e denunciou o capitalismo como espécie de "servidão" para o trabalhador. É que seu tempo de vida é consumido just in time, pois não permite que naquele ritmo e estágio, o trabalhador desfrute de outros momentos da vida, pois estará restringido 100% ao que faz, servindo ao patrão. Operários das fábricas obedecem aos apitos de comando, ao relógio de ponto, a meta de produção. O estresse social, dos prestadores de serviços nos deslocamentos é brutal. O ócio, produtivo, intelectual, estaria reservado às classes dominantes ( tempo para o ócio). Weber, foi contra Marx,. quando endeusou o trabalho e trouxe Deus como o benfeitor dos capitalistas. A frase "o trabalho enriquece", o "juro é permitido", é weberiana de inspiração protestante! Assim os ECONOMISTAS DO TRABALHO, precisam se ater para essa forma diferencial de contabilidade quando da apuração do PIB, conforme alerta o artigo, na diferenciação brutal que há entre resultado bruto do salário, e renda do capital, e mobilidade medida pelo GINI, aperfeiçoando os meios de medição da variação dos pontos de miséria e pobreza no mundo! Desenvolver algo sério nesta direção, é um trabalho real e meritório, digno de um Nobel de Economia!
Really appreciate this insightful post, and the two prior. One clarifying question. You mention that the new capitalism has failed to produce a "property-owning society". Do I have it right that one could 'own', or be in debt to the bank for a property - a home in this case, and still not receive financial capital from that investment, and thus, would not be included in the numbers presented here about households receiving income from financial capital? In other words, am I correct in concluding that there may be a 'property-owning society' not captured in these figures (i.e. home owners) because they do not received income from financial capital? How would the numbers presented here change if home ownership were included?
Yes, you are right in that. Implicit income from owning property & thus not paying rent is not considered here. It is a tricky issue: indeed, people possess wealth in housing, cars, furniture, jewelry etc. My point here was to focus only on wealth that provides monetary income. I think it is more relevant in defining the nature of the economic system and who benefits from it than the fact that people may be home-owners. The locus of importance for an economic and political system is production; not home-ownership however the latter may be importanr for individual persons.
Interest, dividends, etc are paid as a percentage of the capital. This gives a multiplicative process. A multiplicative process gives a power law distribution; hence the concentration. This was first modelled by Champernowne seventy years ago, and has been studiously ignored ever since.
The labour distribution is exponentially tailed, and is mathematically necessary to prevent the collapse of all capital into the hands of one person.
Econophysicists have modelled this extensively, applying statistical mechanics to economics, and have also been studiously ignored. Odd, when the most successful equation in finance, Black-Scholes, is a statistical mechanical derivation.
My own formulation:
Willis, G. (2015). Income distribution and income shares: wealth and income distributions explained using generalised Lotka-Volterra SFC ABM models. International Review of Applied Economics, 29(6), 816–842. https://doi.org/10.1080/02692171.2015.1065225
I live in a block of flats. One of my fellow leaseholders is a retired Air Force veteran (mechanic, I think). He put his pension pot into buying a modest flat that he rents out. Not a productive asset, I agree, but he needs it to supplement his AF pension. Another leaseholder is a checkout lady in a supermarket.
Your analysis fails entirely to capture this 'rentier' income.
Maggie didn't want to turn the public into capitalists (notwithstanding the privatizations) so much as to encourage us to enjoy the rentier lifestyle.
The analysis needs finessing, no?
Great article! On China though, the capital income you mention here i assume is the interest from savings account? It should be examined against the mortgage and other debts in the household/consumer department. Then the number will not look very impressive for China- People save because there’s little safety net.
Yes, I think in China is mostly interest on savings accounts. A Chinese economist who sent me his comments thought exactly that: income from K is widespread in China b/c people save a lot and most people do not desire or have enough to go into risky financial instruments like shares.
Very interesting! I don’t agree much with the net income argument, because it assumes that income from capital is basically all passive income, easily obtainable (with no disutility); plus, how many capitalists living off capital are self-made? How much disutility went into reaching their current status? Also, though I fully appreciate the insights, they are mostly static. A dynamic perspective would have led better to the conclusion that no progress has been made in new capitalism. Perhaps it’s just a slow process.
True. But a static perspective is how national accounts are calculated. You just add wages to get total NA labor share. You do not deduct how much people had to invest in education or how much income they had to forego in order to get to these wages. My argument is that --statically-- wage income is overestimated using the very basic premises on which neoclassical economics is built.
Developed country snapshots will underestimate the spread of capital ownership because much of it is pension savings, which don’t pay income until you retire. So even if everyone owns some capital in their pension, only a minority will receive income from it in any given year.
That's true. One may (and does) have wealth that is not marketable and moreover that does not provide an income flow (until the time when he or she can use it). So, there will be a difference between the number of people who have wealth>0 and number of people who have capital income (or flows)>0.
«So even if everyone owns some capital in their pension, only a minority will receive income from it in any given year.»
Our blogger focuses on capital income rather than capital I guess because he makes a point about the stability of the total income of homoplutes:
"a new elite that is resistant to shocks in labor and capital markets and thus able to maintain its position even if the rate of return on large capitals (like theirs) goes down, or if their particular highly-skilled jobs suddenly pay less."
Those with illiquid and unearning wealth are not quite in the same position as those with a flow of income from the same amount of wealth. Even if in modern financial conditions there are ways to work around that, for example for housing wealth there are re-mortages (HELOCs).
But our blogger seems to me to reckon that homoploutia specifically matters because of the political impact when/if the homoplutes become most of the top 10% and as to that as usual I think that the mass rentierism of the top 20-40% is already existing and more important.
I am kinda skeptical of the Chinese numbers. How (institutionally) do all of these Chinese individuals get more than $100 in "capital income" per year? Just interest from savings in the bank? Is Paul Krugman a Neoliberal shill or dupe because he is skeptical of Chinese economic numbers?
There are also dividends and rents.
Yeah kinda skeptical on those two as well. Again how are nearly half of Chinese getting more than $100 more a year in dividends and rents, etc.? I guess it makes sense if it is mostly driven by bank saving accounts, though ironically from what I have read they fail to keep up with inflation and retiree living costs....
I did a quick search and this describes the savings of a sample of ¨average¨ chinese workers and overwhelmingly it is savings accounts:
https://pro.morningconsult.com/analysis/chinese-consumers-saving-habits