Heterogeneity: A Capital Idea!
29th June 2014
Sandy Ikeda in The Freeman illuminates how the Marxian dependence on the Aggregation Fallacy (in this case treating ‘capital’ as an undifferentiated commodity — like, say, phlogiston) leads them into error.
When Thomas Piketty’s Capital in the 21st Century was released in English earlier this year it sparked vigorous debate on the issue of wealth inequality. Despite the prominence of the word in the title, however, capital has not itself become a hot topic. Apparently none of his defenders have taken the opportunity to explore capital theory, and, with a few exceptions, neither have his critics.
Well, that would depend on them treating ‘capital’ as an actual thing worth investigating, rather than a bugbear to be used solely as a target.
Capital is heterogeneous. Now, mainstream economics treats capital as a homogenous glob.
And, in many instances, treats ‘labor’ the same way.
A capital good can’t be used for just any purpose: A hammer generally can’t be used as a harbor. Second, to make a capital good productive a person needs to combine it with other capital goods in ways that are complementary within her plan: Hammers and harbors could be used together to help repair a boat. And third, heterogeneity means that capital goods have no common unit of measurement, which poses a problem if you want to add up how much capital you have: One tractor plus two computers plus three nails doesn’t give you “six units” of capital.
Unless you’re an intellectual, of course.
But if capital goods are heterogeneous, then whether or not you earn an income from them depends crucially on what kinds of capital goods you buy and exactly how you combine them, and in turn how that combination has to complement the combinations that others have put together. You build an office-cleaning business in the hopes that someone else has built an office to clean.