Capital in the Twenty-First Century

[The Minsky Moment]

Piketty and his fans assume that the industrial orgy will continue one way or another, in other words that some mysterious "they" will "come up with innovative new technologies" to obviate the need for fossil fuels and that the volume of wealth generated will more or less continue to increase. This notion is childish, idiotic, and wrong. Energy and technology are not substitutable with each other. If you run out of the former, you can't replace it with the latter (and by "run out" I mean get it at a return of energy investment that makes sense). The techno-narcissist Jeremy Rifkins and Ray Kurzweils among us propound magical something-for-nothing workarounds for our predicament, but they are just blowing smoke up the collective fundament of a credulous ruling plutocracy. In fact, we're faced with an unprecedented contraction of wealth, and a shocking loss of ability to produce new wealth.

I've read enough of the book to know that this is totally wrong as a criticism of Piketty's argument.  It is pretty obvious this guy hasn't read the book, just the reviews.  For the sake of exposition Piketty does tenatively project a moderate growth rate for the next 80 years of about 1.2 per cent per capita globally.  That is IMO a very reasonable and probably conservative assumption given that present rates are much higher now.  However, Piketty points out that the growth rate could be much lower - and cites both to Robert Gordon's argument of technological staganation and to the potential difficulties in transitioning from fossil fuels mentioned here.  In fact, his conclusions about inequality would be strengthened if one assumes lower or stagnant growth.  The only growth related scenario that would be inconsistent with his argument is a radical acceleration of growth in the developed world.

[The Minsky Moment]

I still don't understand what kinds of things he's referring to.  Like extensions of mineral rights in the sea bed?  Those are done by governments, not unilaterally by individuals.

An example would be if a surveyor found gold or oil underneath a piece of land.  The wealth of the landowner would instantly increase.
The increase in that wealth would not be the consequence of any investment or action by the landowner, and it would occur even if the landowner took no action to extract the resources.  it would simply occur because of the assignment of the value of the natural resource to the landowner.  Piketty is making a semantic distinction between those two concepts to reflect the reality that some economists view them as conceptually distinct.

The distinction doesn't turn on the private character of the appropriation.  If the discovery occurred in a country where all sub-surface rights are owned by the state there still would be appropriation - it would just be public appropropriation, not private.

And you certainly have to agree that the term makes no sense in the context of that one sentence quoted in the OP.

Agreed the usage is different in that passage.  Perhaps it will make more sense when I get there.

[Admiral Yi]

If that's the case I repeat my objection to the term appropriate.  Discovery of metals or oil under your property isn't an act of appropriation.  Those rights are assigned when the property is purchased.

[Jacob]

If that's the case I repeat my objection to the term appropriate.  Discovery of metals or oil under your property isn't an act of appropriation.  Those rights are assigned when the property is purchased.

If I understand what Minsky is recounting of the argument, Piketty is talking about the transfer of value into the whole system of the economy.

Undiscovered resources are not accounted for in the valuation of either the wealth of the notional owner of the resource (because we don't know it's there, and there might not even be an owner) or in the valuation of the economy as a whole.

When the resource is discovered, whoever owns the rights to it sees an increase in wealth; similarly, the value of the whole economy goes up as the value of the newly discovered resource is added on to the whole value.

Piketty uses the term "appropriation" to describe laying claim to this new, previously unaccounted for (or possibly not even existing) value and bringing it into the economy. "Buying" is not an appropriate term, because it leaves out the most important factor of the process, which is the additional, previously non-existent, value accrued to the owner and the economy as a whole; nor is "creating value" appropriate, because the owner of the new value hasn't created it.

For example, imagine Elon Musk's private space flight shenanigans lead to manned missions to Mars. There they find deposits of unobtanium, and Musk's corporation (and partners and competitors) bring it back, profiting by trillions and trillions of dollars (and growing the economy as a result). Eventually (before or after the initial exploitation of the unobtanium resources) a legal framework for the managing and trading of the exploitation rights of unobtanium is created. Maybe Musk ends up claiming the rights, maybe competitors do, maybe oligarchs or state actors do; but in the end, someone sees a big increase in their wealth by rightfully owning the rights to all of this previously unknown and unaccounted for resource. Musk - or whoever else ends up owning this increased value - certainly didn't buy it, nor did they create it; but they own it and they are much wealthier for it.

This is the process which Piketty calls "appropriation". I see your objection to the term, but I don't think "buying" is accurate either. "Claiming" is probably as problematic as "appropriate"; can you suggest another term that's accurate, but more acceptable?

[The Minsky Moment]

If that's the case I repeat my objection to the term appropriate.  Discovery of metals or oil under your property isn't an act of appropriation.  Those rights are assigned when the property is purchased.

Where is the purchase you keep referring to?  You are assuming a transaction which may not exist or is superfluous to the distinction even if it does.

[MadImmortalMan]

So if the movie The Core is correct, there are huge chunks of diamond in the Earth's core. If I claim one of them, can I boost GDP by a trillion dollars next year?

[The Minsky Moment]

If that's the case I repeat my objection to the term appropriate.  Discovery of metals or oil under your property isn't an act of appropriation.  Those rights are assigned when the property is purchased.

If I understand what Minsky is recounting of the argument, Piketty is talking about the transfer of value into the whole system of the economy.

I haven't gotten far enough to see exactly what he is doing yet.  But he does identify as a fundamental "law" the tendency of the capital/income ratio to equalize to the net national savings rate divided by the growth rate.  That "law" may not hold, however, if a signficant part of national capital consists of purely natural resources.  In that case, capital (wealth) can be quite high even if savings rates remain low.    The relevance of that point is to be addressed in a chapter I haven't reached yet.  But the distinction apparently is relevant to the argument in some way.

[Jacob]

So if the movie The Core is correct, there are huge chunks of diamond in the Earth's core. If I claim one of them, can I boost GDP by a trillion dollars next year?

If you bring it out and sell it (and diamond prices don't plummet due to flooding the market, which is unlikely given the cartel nature of the diamond trade) and get to keep the profits, yes?

If you claim it, can't bring the diamond chunks out, but are able to trade the future exploitation rights for however much money then similarly yes.

... is this a confusing concept? 

[The Minsky Moment]

So if the movie The Core is correct, there are huge chunks of diamond in the Earth's core. If I claim one of them, can I boost GDP by a trillion dollars next year?

The act of claiming is irrelevant.  That is what Yi keeps getting hung up about.  If resources are known to exist and are recoverable they can boost wealth (NOT GDP).  I.e. if a huge oil field is discovered in Nebraska and it is economically feasible to drill than wealth (and capital under Piketty's broad definition) increases.  This is true whether the field is on public land, or private land, or under an Indian reservation, it is true regardless of what the property rights scheme in Nebraska happens to be about subsurface rights, it is true regardless whether the land was purchased, or seized by conquest, or given away.  The accounting process by which purely natural resoruces are added to the total quantity of measured wealth is what is called appropriation.

[Jacob]

I haven't gotten far enough to see exactly what he is doing yet.  But he does identify as a fundamental "law" the tendency of the capital/income ratio to equalize to the net national savings rate divided by the growth rate.  That "law" may not hold, however, if a signficant part of national capital consists of purely natural resources.  In that case, capital (wealth) can be quite high even if savings rates remain low.    The relevance of that point is to be addressed in a chapter I haven't reached yet.  But the distinction apparently is relevant to the argument in some way.

I'm looking forward to you getting there, and hope you come back to tell us how it's relevant. I find the subject very interesting, but am honestly unlikely to read the book in the foreseeable future, so this digest recounting and discussion is greatly appreciated

[Iormlund]

...The Core ...

I counted Armageddon as the worst movie I had ever seen until I saw this one.

[Admiral Yi]

I agree that appropriation would be a reasonable term to describe Elon Musk mining unobtanium on Mars (although I think "laying claim to" would be more accurate and more neutral).  But the book is describing historical, real-world events.  It also describes a period after the age of colonization and the charting of unmapped territory.  Where is there unassigned underground wealth that one could "assert a right to" or "appropriate" if one were so inclined? 

[The Minsky Moment]

John Locke, Communist.

Sec. 29. By making an explicit consent of every commoner, necessary to any one's appropriating to himself any part of what is given in common, children or servants could not cut the meat, which their father or master had provided for them in common, without assigning to every one his peculiar part. Though the water running in the fountain be every one's, yet who can doubt, but that in the pitcher is his only who drew it out? His labour hath taken it out of the hands of nature, where it was common, and belonged equally to all her children, and hath thereby appropriated it to himself.

[The Brain]

Communists.

[Jacob]

Where is there unassigned underground wealth that one could "assert a right to" or "appropriate" if one were so inclined?

I don't know where the next new large scale source of previously unaccounted value is going to come from. Natural resources are mostly accounted for, and are an example and from the past. A more recent and, I think, still evolving creation of hitherto unassigned wealth is the monetization of information - things like selling mailing on a small scale, and the rise of the concept of intellectual property on a larger scale including attempts to patent the genetic structure of naturally occurring organisms - is a recent example of value being appropriated/claimed from something that was previously not an explicit source of it.

And Piketty's point (or more likely one of his points) is, I believe, that Capital tends to gain (appropriate/ claim) a larger share of new value as it's "brought on-line". It was the various East Asia Companies and their ilk who gained the most from the age of exploration; it's the various corporations with their patents and copyrights and lawyers who gain the most value from information and knowledge becoming ownable and explicitly part of the economy.

What's the next big source of value? I don't know; if I did we - as a society - would already be in the process of appropriating it (with the largest share going to Capital, if Piketty is right).