Prasanna K Choudhary


Thomas Piketty zimbio.com


MONEY IS NOW PREGNANT. Goethe, ‘Faust’, Part I, Scene5.1

Let me begin with Thomas Piketty’s definition of capital, labor and ‘return on capital’. After all, ‘capital’ and ‘return on capital’ form the basic theme of the book.

Piketty writes, “In this book, capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market. Capital includes all forms of real property (including real estate) as well as financial and professional capital (plants, infrastructure, machinery, patents and so on) used by firms and government agencies. ….Nonhuman capital which in this book I will call simply ‘capital’, includes all forms of wealth that individuals (or groups of individuals) can own and that can be transferred or traded through the market on a permanent basis. In practice, capital can be owned by private individuals (in which case we speak of ‘private capital’) or by the government or government agencies (in which case we speak of ‘public capital’). There are also intermediate forms. ….Capital is not an immutable concept: it reflects the state of development and prevailing social relations of each society. ….

Throughout this book, when I speak of ‘capital’ without further qualification, I always exclude what economists often call (unfortunately, to my mind) ‘human capital’, which consists of an individual’s labor-power, skills training, and abilities. ….There are many reasons for excluding human capital from our definition of capital. The most obvious is that human capital cannot be owned by another person or traded on a market (not permanently at any rate). This is a key difference from other forms of capital. One can of course put one’s labor services up for hire under a labor contract of some sort. In all modern legal systems, however, such an arrangement has to be limited in both time and scope. In slave societies, of course, this is obviously not true: there, a slaveholder can fully and completely own the human capital of another person and even of that person’s offspring. In such societies, slaves can be bought and sold on the market and conveyed by inheritance, and it is common to include slaves in calculating a slaveholder’s wealth. I will show how this worked when I examine the composition of private capital in the southern United States before 1865. Leaving such special (and for now historical) cases aside, it makes little sense to attempt to add human and nonhuman capital. ….

I use the words ‘capital’ and wealth interchangeably. To summarize, I define ‘national wealth’ or ‘national capital’ as the total market value of everything, owned by the residents and government of a given country at a given point of time, provided that it can be traded on some market. It consists of the sum total of nonfinancial assets (land, dwellings, commercial inventory, other buildings, machinery, infrastructure, patents, and other directly owned professional assets) and financial assets (bank accounts, mutual funds, bonds, stocks, financial investment of all kinds, insurance policies, pension funds, etc.), less the total amount of financial liabilities (debt). ….

Capital is a stock. It corresponds to the total wealth owned at a given point of time. This stock comes from the wealth appropriated or accumulated in all prior years combined. ….” (Chapter One/Income and Output)

Piketty includes top managers and entrepreneurs in the category of labor, and thus, high salaries paid to them are accounted in the category of labor income.

On the rate of return on capital, he writes, “The rate of return on capital is a central concept in many economic theories. In particular, Marxist analysis emphasizes the falling rate of profit – a historical prediction that turned out to be quite wrong, although it does contain an interesting intuition. The concept of the rate of return on capital also plays a central role in many other theories. In any case, the rate of return on capital measures the yield on capital over the course of a year regardless of its legal form (profits, rents, interest, dividend, royalties, capital gains, etc.), expressed as percentage of the value of capital invested. It is therefore a broader notion than the rate of ‘profit’, and much broader than the ‘rate of interest’, while incorporating both.” (Chapter One/ Income and Output)

“By construction, this average rate of return aggregates the returns on very different types of assets and investments: the goal is in fact to measure the average return on capital in a given society taken as a whole, ignoring differences in individual situations. ….” (Chapter Six/The Capital-Labor Split in the Twenty-First Century)

Finally, he concludes the central contradiction of capitalism as r > g.

Piketty’s definition of capital offers nothing new and basically follows the definition prevalent in Political Economy since its classical days. This definition clings to appearances and believes them to be the ultimate. Blindly operating average, apparent data, is the ‘secret’ of the capitalist economy, invented to hide the intrinsic interconnections of the capital’.2

Capital, in the prevalent economic literature, has been generally defined as ‘accumulated wealth that is traded over again’, as ‘accumulated or capitalized interest’. “Capital, with compound interest on every portion of capital saved, is so all engrossing that all the wealth in the world from which income is derived, has long become the interest on capital”, wrote The Economist, London, way back in 1851.3

Since Piketty refers to Marx in this context, it is imperative to state that Marx’s definition of capital and its basic contradiction evolved in course of the critique of this very Political Economy. Hence, a brief summary of Marx’s position, in his own words, on all the points mentioned above by Piketty will not be out of place. This will bring out the inconsistencies in Piketty’s definition as well.

Marx defined capital as self-expanding value-form. Social capital is social wealth exchanged (or traded) in self-expanding mode. This self-expanding value-form assumes different avatars at different stages of the development of capital.

Karl Marx

Karl Marx


Describing the genesis of industrial capital, Marx writes, “The circuit M → C → M, buying in order to sell dearer, is seen most clearly in genuine merchants’ capital. But the movement takes place entirely within the sphere of circulation. Since, however, it is impossible, by circulation alone to account for the conversion of money into capital, for the formation of surplus value. It would appear that merchants’ capital is an impossibility so long as equivalents are exchanged; that, therefore, it can only have its origin in the twofold advantage gained, over both the selling and the buying producers, by the merchant who parasitically shoves himself in between them. It is in this sense that Franklin says, ‘war is robbery, commerce is generally cheating.’ ….Turn and twist as we may, the fact remains unaltered. If equivalents are exchanged, no surplus value results, and if non-equivalents are exchanged, still no surplus value. Circulation, or the exchange of commodities, begets no value.

The reason is now therefore plain why, in analyzing the standard form of capital, the form under which it determines the economic organization of modern society, we entirely left out of consideration its most popular, and, so to say, antediluvian forms, merchants’ capital and money-lenders’ capital. ….

We have shown that surplus value cannot be created by circulation, and therefore, that in its formation something must take place in the background, which is not apparent in the circulation itself. ..The commodity owner can, by his labor, create value, but not self-expanding value. He can increase the value of his commodity, by adding fresh labor, and therefore more value to the value in hand, by making, for instance, leather into boots. The same material has now more value, because it contains a greater quantity of labor. ..It is therefore impossible that outside the sphere of circulation, a producer of commodities can, without coming into contact with other commodity owners, expand value and consequently convert money or commodities into capital. It is therefore impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation. We have, therefore, got a double result.

The conversion of money into capital has to be explained on the basis of the laws that regulate the exchange of commodities, in such a way that the starting point is the exchange of equivalents. Our friend , Moneybags, who as yet is only an embryo capitalist must buy his his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting. His development into a full grown capitalist must take place within the sphere of circulation and without it. These are the conditions of the problem. ..

The change must, therefore, take place in the commodity bought by the first act, M → C, but not in its value, for equivalents are exchanged, and the commodity is paid for at its full value. We are, therefore, forced to the conclusion that the change originates in the use-value, as such, of the commodity, i.e., in its consumption. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labor, and consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labor or labor power.”4


“The continuation of this relation demands that the owner of the labor-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labor-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily for a definite period of time. By this means alone can he avoid renouncing his rights of ownership over it. ….

The second essential condition to the owner of money finding labor-power in the market as a commodity is this – that the laborer instead of being in the position to sell commodities in which his labor is incorporated must be obliged to offer for sale as a commodity that very labor-power, which exists only in his living self. ..



For the conversion of his money into capital, therefore, the owner of money must meet in the market with free laborer, free in the double sense, that as a free man he can dispose of his labor-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realization of his labor-power. ..

The value of labor-power is determined, as in case of every other commodity, by the labor-time necessary for the production, and consequently also the reproduction, of this special article. So far it has value, it represents no more than a definite quantity of the average labor of society incorporated in it. Labor-power exists only as a capacity, or power of the living individual. Its production consequently pre-supposes his existence. Given the individual, the production of labor-power consists in his reproduction of himself or his maintenance. For his maintenance, he requires a given quantity of the means of subsistence. Therefore the labor-time requisite for the production of labor-power reduces itself to that necessary for the production of those means of subsistence; in other words, the value of labor-power is the value of the means of subsistence necessary for the maintenance of the laborer. Labor-power, however, becomes a reality only by its exercise; it sets itself in action only by working. But thereby a definite quantity of human muscle, nerve, brain, &c., is wasted, and these require to be restored. ….The owner of labor-power is mortal. If then his appearance in the market is to be continuous, and the continuous conversion of money into capital assumes this, the seller of labor-power must perpetuate himself, ‘in the way that every living individual perpetuates himself, by procreation.’ The labor-power withdrawn from the market by wear and tear and death, must be continuously replaced by, at the very least, an equal amount of fresh labor-power. Hence the sum of the means of subsistence necessary for the production of labor-power must include the means necessary for the laborers’ substitutes, i.e., his children, in order that this race of peculiar commodity-owners may perpetuate its appearance in the market.

In order to modify the human organism, so that it may acquire skill and handiness in a given branch of industry, and become labor-power of a special kind, a special education or training is requisite, and this, on its part, costs an equivalent in commodities of a greater or less amount. This amount varies according to the more-or-less complicated character of the labor-power. The expenses of this education (excessively small in the case of ordinary labor-power), enter pro tanto into the total value spent in its production. ….

The consumption of labor-power is at one and the same time the production of commodities and of surplus-value. The consumption of labor-power is completed as in the case of every other commodity, outside the limits of the market or of the sphere of circulation. ..Therefore, the value of labor-power and the value which that labor-power creates in the labor-process are two entirely different magnitudes; and this difference of the two values was what the capitalist had in view, when he was purchasing the labor-power. What really influenced him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itself. ….

Every condition of the problem is satisfied, while the laws that regulate the exchange of commodities, have been in no way violated. Equivalent has been exchanged for equivalent. ..This metamorphosis, this conversion of money into capital, takes place both within the sphere of circulation and also outside it. …By turning his money into commodities that serve as the material elements of a new product, and as factors in the labor-process, by incorporating living labor with their dead substance, the capitalist at the same time converts value, i.e., past materialized, and dead labor into capital, into value big with value, a live monster that is fruitful and multiplies. ..The capitalist again and again appropriates, without equivalent, a portion of the previously materialized labor of others, and exchanges it for a greater quantity of living labor. ..

It is the natural property of living labor, to transmit old value, whilst it creates new. Hence, with the increase in efficacy, extent and value of its means of production, consequently with the accumulation that accompanies the development of its productive power, labor keeps up and eternizes an always increasing capital-value in a form ever new. This natural power of labor takes the appearance of an intrinsic property of capital, in which it is incorporated; just as the productive forces of social labor take the appearance of inherent properties of capital, and as the constant appropriation of surplus-labor by the capitalists, takes that of a constant self-expansion of capital. ….”5

Piketty does not admit any human element in the making of capital.



  1. Quoted by Marx in ‘Capital’, Volume III, Progress Publishers, Moscow, 1977.
  2. Marx, Karl and Engels, Frederick; Collected Works, Volume 43, Progress Publishers, Moscow, 1988. Marx to Kugelmann, 11 July, 1868; p. 69. “The vulgar economist thinks he had made a great discovery when, faced with the disclosure of the intrinsic interconnection, he insists that things look different in appearance. In fact, he prides himself in his clinging to appearances and believing them to be the ultimate. Why then have science at all?
  3. Economist, London, July 19, 1851. Quoted by Marx in ‘Capital’, Volume I, Part VII, Chapter XXIV.
  4. Marx, Karl; ‘Capital’, Volume I, Progress Publishers, Moscow, 1977. Quotations are from different Chapters and pages of the book.
  5. Ibid.


[This critique is divided in eight parts, tentatively titled as: i. Apocalypse and Exuberance; ii. Data and Dialectics; iii. Capital Social and Self-Expanding; iv. Wealth Inherited and Created; v. Century Twentieth and Twenty-First; vi. Yes Marx No Marx; vii. London Chicago Paris; and viii. Thank You Mr Piketty.]

July, 2014.







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