06/05) Capital in the Twenty-First Century

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Capital in the Twenty-First Century

Thomas Piketty

Translated by Arthur Goldhammer

What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. InCapital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.

Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.

A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today.

• Acknowledgments
• Introduction
• I. Income and Capital
  
  • 1. Income and Output
  • 2. Growth: Illusions and Realities
• II. The Dynamics of the Capital/Income Ratio
  
  • 3. The Metamorphoses of Capital
  • 4. From Old Europe to the New World
  • 5. The Capital/Income Ratio over the Long Run
  • 6. The Capital–Labor Split in the Twenty-First Century
• III. The Structure of Inequality
  
  • 7. Inequality and Concentration: Preliminary Bearings
  • 8. Two Worlds
  • 9. Inequality of Labor Income
  • 10. Inequality of Capital Ownership
  • 11. Merit and Inheritance in the Long Run
  • 12. Global Inequality of Wealth in the Twenty-First Century
• IV. Regulating Capital in the Twenty-First Century
  
  • 13. A Social State for the Twenty-First Century
  • 14. Rethinking the Progressive Income Tax
  • 15. A Global Tax on Capital
  • 16. The Question of the Public Debt
• Conclusion
• Notes
• Contents in Detail
• List of Tables and Illustrations*
• Index

• * Tables and Illustrations
  
  • Tables
    
    • Table 1.1. Distribution of world GDP, 2012
    • Table 2.1. World growth since the Industrial Revolution
    • Table 2.2. The law of cumulated growth
    • Table 2.3. Demographic growth since the Industrial Revolution
    • Table 2.4. Employment by sector in France and the United States, 1800–2012
    • Table 2.5. Per capita output growth since the Industrial Revolution
    • Table 3.1. Public wealth and private wealth in France in 2012
    • Table 5.1. Growth rates and saving rates in rich countries, 1970–2010
    • Table 5.2. Private saving in rich countries, 1970–2010
    • Table 5.3. Gross and net saving in rich countries, 1970–2010
    • Table 5.4. Private and public saving in rich countries, 1970–2010
    • Table 7.1. Inequality of labor income across time and space
    • Table 7.2. Inequality of capital ownership across time and space
    • Table 7.3. Inequality of total income (labor and capital) across time and space
    • Table 10.1. The composition of Parisian portfolios, 1872–1912
    • Table 11.1. The age–wealth profile in France, 1820–2010
    • Table 12.1. The growth rate of top global wealth, 1987–2013
    • Table 12.2. The return on the capital endowments of US universities, 1980–2010
  • Illustrations
    
    • Figure I.1. Income inequality in the United States, 1910–2010
    • Figure I.2. The capital/income ratio in Europe, 1870–2010
    • Figure 1.1. The distribution of world output, 1700–2012
    • Figure 1.2. The distribution of world population, 1700–2012
    • Figure 1.3. Global inequality 1700–2012: divergence then convergence?
    • Figure 1.4. Exchange rate and purchasing power parity: euro/dollar
    • Figure 1.5. Exchange rate and purchasing power parity: euro/yuan
    • Figure 2.1. The growth of world population, 1700–2012
    • Figure 2.2. The growth rate of world population from Antiquity to 2100
    • Figure 2.3. The growth rate of per capita output since the Industrial Revolution
    • Figure 2.4. The growth rate of world per capita output from Antiquity to 2100
    • Figure 2.5. The growth rate of world output from Antiquity to 2100
    • Figure 2.6. Inflation since the Industrial Revolution
    • Figure 3.1. Capital in Britain, 1700–2010
    • Figure 3.2. Capital in France, 1700–2010
    • Figure 3.3. Public wealth in Britain, 1700–2010
    • Figure 3.4. Public wealth in France, 1700–2010
    • Figure 3.5. Private and public capital in Britain, 1700–2010
    • Figure 3.6. Private and public capital in France, 1700–2010
    • Figure 4.1. Capital in Germany, 1870–2010
    • Figure 4.2. Public wealth in Germany, 1870–2010
    • Figure 4.3. Private and public capital in Germany, 1870–2010
    • Figure 4.4. Private and public capital in Europe, 1870–2010
    • Figure 4.5. National capital in Europe, 1870–2010
    • Figure 4.6. Capital in the United States, 1770–2010
    • Figure 4.7. Public wealth in the United States, 1770–2010
    • Figure 4.8. Private and public capital in the United States, 1770–2010
    • Figure 4.9. Capital in Canada, 1860–2010
    • Figure 4.10. Capital and slavery in the United States
    • Figure 4.11. Capital around 1770–1810: Old and New World
    • Figure 5.1. Private and public capital: Europe and the United States, 1870–2010
    • Figure 5.2. National capital in Europe and America, 1870–2010
    • Figure 5.3. Private capital in rich countries, 1970–2010
    • Figure 5.4. Private capital measured in years of disposable income
    • Figure 5.5. Private and public capital in rich countries, 1970–2010
    • Figure 5.6. Market value and book value of corporations
    • Figure 5.7. National capital in rich countries, 1970–2010
    • Figure 5.8. The world capital/income ratio, 1870–2100
    • Figure 6.1. The capital–labor split in Britain, 1770–2010
    • Figure 6.2. The capital–labor split in France, 1820–2010
    • Figure 6.3. The pure return on capital in Britain, 1770–2010
    • Figure 6.4. The pure rate of return on capital in France, 1820–2010
    • Figure 6.5. The capital share in rich countries, 1975–2010
    • Figure 6.6. The profit share in the value added of corporations in France, 1900–2010
    • Figure 6.7. The share of housing rent in national income in France, 1900–2010
    • Figure 6.8. The capital share in national income in France, 1900–2010
    • Figure 8.1. Income inequality in France, 1910–2010
    • Figure 8.2. The fall of rentiers in France, 1910–2010
    • Figure 8.3. The composition of top incomes in France in 1932
    • Figure 8.4. The composition of top incomes in France in 2005
    • Figure 8.5. Income inequality in the United States, 1910–2010
    • Figure 8.6. Decomposition of the top decile, United States, 1910–2010
    • Figure 8.7. High incomes and high wages in the United States, 1910–2010
    • Figure 8.8. The transformation of the top 1 percent in the United States
    • Figure 8.9. The composition of top incomes in the United States in 1929
    • Figure 8.10. The composition of top incomes in the United States, 2007
    • Figure 9.1. Minimum wage in France and the United States, 1950–2013
    • Figure 9.2. Income inequality in Anglo-Saxon countries, 1910–2010
    • Figure 9.3. Income inequality in Continental Europe and Japan, 1910–2010
    • Figure 9.4. Income inequality in Northern and Southern Europe, 1910–2010
    • Figure 9.5. The top decile income share in Anglo-Saxon countries, 1910–2010
    • Figure 9.6. The top decile income share in Continental Europe and Japan, 1910–2010
    • Figure 9.7. The top decile income share in Europe and the United States, 1900–2010
    • Figure 9.8. Income inequality in Europe versus the United States, 1900–2010
    • Figure 9.9. Income inequality in emerging countries, 1910–2010
    • Figure 10.1. Wealth inequality in France, 1810–2010
    • Figure 10.2. Wealth inequality in Paris versus France, 1810–2010
    • Figure 10.3. Wealth inequality in Britain, 1810–2010
    • Figure 10.4. Wealth inequality in Sweden, 1810–2010
    • Figure 10.5. Wealth inequality in the United States, 1810–2010
    • Figure 10.6. Wealth inequality in Europe versus the United States, 1810–2010
    • Figure 10.7. Return to capital and growth: France, 1820–1913
    • Figure 10.8. Capital share and saving rate: France, 1820–1913
    • Figure 10.9. Rate of return versus growth rate at the world level, from Antiquity until 2100
    • Figure 10.10. After tax rate of return versus growth rate at the world level, from Antiquity until 2100
    • Figure 10.11. After tax rate of return versus growth rate at the world level, from Antiquity until 2200
    • Figure 11.1. The annual inheritance flow as a fraction of national income, France, 1820–2010
    • Figure 11.2. The mortality rate in France, 1820–2100
    • Figure 11.3. Average age of decedents and inheritors, France, 1820–2100
    • Figure 11.4. Inheritance flow versus mortality rate, France, 1820–2010
    • Figure 11.5. The ratio between average wealth at death and average wealth of the living, France, 1820–2010
    • Figure 11.6. Observed and simulated inheritance flow, France, 1820–2100
    • Figure 11.7. The share of inherited wealth in total wealth, France, 1850–2100
    • Figure 11.8. The annual inheritance flow as a fraction of household disposable income, France, 1820–2010
    • Figure 11.9. The share of inheritance in the total resources (inheritance and work) of cohorts born in 1790–2030
    • Figure 11.10. The dilemma of Rastignac for cohorts born in 1790–2030
    • Figure 11.11. Which fraction of a cohort receives in inheritance the equivalent of a lifetime labor income?
    • Figure 11.12. The inheritance flow in Europe, 1900–2010
    • Figure 12.1. The world’s billionaires according to Forbes, 1987–2013
    • Figure 12.2. Billionaires as a fraction of global population and wealth, 1987–2013
    • Figure 12.3. The share of top wealth fractiles in world wealth, 1987–2013
    • Figure 12.4. The world capital/income ratio, 1870–2100
    • Figure 12.5. The distribution of world capital, 1870–2100
    • Figure 12.6. The net foreign asset position of rich countries
    • Figure 13.1. Tax revenues in rich countries, 1870–2010
    • Figure 14.1. Top income tax rates, 1900–2013
    • Figure 14.2. Top inheritance tax rates, 1900–2013

Thomas Piketty is Professor at the Paris School of Economics.

Arthur Goldhammer received the French–American Translation Prize in 1990 for his translation of A Critical Dictionary of the French Revolution.

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2013. 12. 21. - I am hesitant to call Thomas Piketty's new book Capital in the 21st century (Le capital au XXIe siecle in the French original) one of the best ...

Reading "Capital": Introduction

Feb 27th 2014, 13:51 by R.A. | LONDON

• 

LAST year Thomas Piketty, an economist at the Paris School of Economics and a renowned expert on global inequality, published a book titled "Capital in the Twenty-first Century"—in French. It will be released in English on March 10th. We reviewed the book earlier this year, but it is detailed and important enough, in our opinion, to deserve additional discussion. We will therefore be publishing a series of posts over the next few weeks—live-blogging the book, as it were—to draw out its arguments at slightly greater length. Starting today, with the book's introduction.

Capital, as I will refer to Mr Piketty's book from here on out, is an incredibly ambitious book. The author has self-consciously put the book forward as a companion to, and perhaps the intellectual equal of, Karl Marx's Capital. Like Marx, Mr Piketty aims to provide a political economy theory of everything. More specifically, he attempts to re-establish distribution as the central issue in economics, and in doing so to reorient our perceptions of the trajectory of growth in the modern economic era. Mr Piketty's great advantage in attempting all this, relative to past peers, is a wealth of data and analysis, compiled by himself and others over the last 15 or so years.

Mr Piketty begins in an introduction that proceeds in two parts. He first describes the intellectual tradition into which the book falls. The second, which is the basic outline of his theory, I will tackle in the next post.

The study of political economy emerged in the first decades of the Industrial Revolution, in the late 18th century, in Britain and France. The great thinkers of the era were attempting to understand the dramatic societal and economic changes of the day and to describe their mechanics in a way that would allow them to anticipate future developments. To a great extent they focused on distributional issues—and worried that distribution spelled serious trouble for the capitalist system. The Reverend Thomas Malthus, for instance, famously worried that overpopulation would drive down wages to subsistence level, leading to dangerous political upheaval. To short-circuit this possibility the compassionate reverend recommended that governments cut off assistance to the poor and limit their reproduction.

David Ricardo's 19th century analysis was more measured but nonetheless similar in its concern about the sustainability of the contemporary economic system. He focused his attention on the relative scarcity of factors of production, and the effect of scarcity on shares of national income. Output and population were rising fast, he noted, while land supplies remained fixed, suggesting that land prices might rise without bound. As a result, he speculated, land rents would come to eat up a steadily rising share of national income, threatening the capitalist system.

Ricardo was wrong in the long run—soaring agricultural productivity (which both he and Malthus failed to anticipate) meant that agricultural land was not the scarce factor for very long. But he was right in the short run, and the short run matters. A period of a few decades in which the price of a scarce resource soars can lead to enormous accumulation of wealth in the hands of relatively few owners of capital. That concentration can persist even after technological change eases the initial scarcity: a point Mr Piketty notes is relevant in thinking about soaring prices for urban property or natural resources.

And then there was Marx. He (along with Friedrich Engels) was the first of the great political economists to wrestle directly with the effects of industrial capitalism. Marx was reacting to the reality of industrial growth at the time: through the first century or so of industrialisation output grew steadily, but there was virtually no meaningful increase in real wages. In the "hungry 1840s", when the Communist Manifesto was published, capitalism seemed like an incredibly raw deal for workers. That had begun to change by the time Marx published the first volume of Capital, in 1867. But the emergence of steady wage growth did little to diminish concentrated wealth.

Marx saw capitalism as fundamentally flawed, containing the roots of its own destruction. As owners of capital gobbled up the gains from growth, they would accumulate still greater piles of capital—"infinite accumulation". This would either drive the return on capital down to nothing, leading the capitalists to destroy the system by battling it out with each other, or it would allow the capitalists to capture a rising share of national income (like Ricardo's landowners), leading the workers to revolt. But Marx also turned out to be mistaken. He did so in large part, says Mr Piketty, because of a lack of data, and because he and others failed to anticipate that rapid technological growth could reduce the relevance of past wealth accumulation.

This latter factor helps shape one of the main elements of Mr Piketty's theory of everything: that the rate of growth is hugely important in determining how long a shadow old wealth casts. If not exactly an equaliser, fast growth nonetheless puts a finger on the scale on the side of those without great wealth.

Now, this entire line of theoretical work was thrown into upheaval by the events of the period from 1914-1945. The chaos and policy shifts of the period wiped out much of the world's previously accumulated wealth and set the stage for a burst of rapid, broad-based growth. Meanwhile, economists were for the first time gathering detailed data on personal incomes. And so when Simon Kuznets began looking at inequality trends in the 1950s, the data suggested to him that in "advanced phases" of capitalist development inequality tended to fall. The idea that inequality rose and then fell as an economy developed became known as the Kuznets curve. For the first time hard data had been brought to bear on distributional questions, and the news seemed pretty good. Kuznets' view became the foundation from which modern economics approach distributional issues, despite the fact that it was based on a very limited period during which declining inequality could not remotely be considered the result of natural economic processes.

That, as Mr Piketty sees it, is where he comes in. For most of the 20th century the distribution of incomes was a minor issue within economics. Growth and management of the business cycle were the sexy economic issues. 

That is now changing, based in part on the academic work Mr Piketty has done (much of which is accessible at the World Top Incomes Database). While emerging-market growth has narrowed global inequality, income inequality within countries, including many large emerging markets, has been rising. The return of the importance of scarce land, resources, and intellectual property has contributed to a resurgence in wealth accumulation. Distributional worries are back, and Mr Piketty argues that that is the natural state of affairs rather than an aberration.

"In a way", Mr Piketty writes, "we are in the same position at the beginning of the twenty-first century as our forebears were in the early nineteenth century: we are witnessing impressive changes in economies around the world, and it is very difficult to know how extensive they will turn out to be...". It can be frightening and disorienting to find oneself at such an economic juncture. We look back on Malthus' worrying with the smugness of hindsight. But those who read Malthus at the turn of the 19th century and concluded that industrialisation would result in political upheaval, misery, and war turned out to be right. It also led to quite a few good things. But the process of getting there has been anything but smooth, and distributional issues inevitably play a role when the march toward prosperity slows or beats a temporary retreat.

This is an important book arriving at an appropriate moment. It's also an entertaining and informative read, and so I hope you'll join me in reading through and discussing it.

http://www.economist.com/blogs/freeexchange/2014/02/book-clubs

WEEKEND EDITION MARCH 28-30, 2014

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Reading Race in Piketty's Capital

Colonization, Slavery and Plunder

by DARWIN BOND-GRAHAM

Primogeniture is in the index, but not primitive accumulation. There’s no entry for expropriation, nor enclosure. The index contains no mention of race and racism, but it does direct us to multiple lengthy discussions of Rastignac’s dilemma. There’s also no mention of Native Americans, even though a good chunk of the book is about North America in the 19th Century, but in the index of Thomas Piketty’s 577-page autopsy of over 300 years of capitalist economic development you will find an entry for “Indicial tax system” about where an entry for indigenous should be.

This is perhaps the biggest hole in Piketty’s otherwise masterful and challenging text on political economy: he hasn’t incorporated the role of race as a central inequality in the origins and expansion of capitalism.

To be sure, Piketty has written a very detailed account on the means by which wealth has almost always tended to gain at the expense of labor all over the earth, except during one brief period in the middle of the 20th Century. The book has gotten very favorable reviews, from both mainstream economists and more free-thinking scholars. Conservatives seem downright intimidated and silenced by Piketty’s masterful use of the language of economics to tell a story that pretty much shatters the conventional thinking of how economies develop. We can all finally and forever kiss Kuznets and his optimistic curve goodbye.

It’s obvious that Piketty aspires for his book to take its place in the canon of social science literature on economics. And this is a deserving aspiration. Piketty has assembled a giant body of data, and crafted a compelling narrative to explain it. He takes us from the 1700s to the present, showing empirically how capital dominates labor, how rents rise in real terms, and fortunes grow while hard work becomes of less importance for individuals to get ahead. His scope allows him to cut through the static of volatility in stock and bond markets, credit bubbles, wars, booms and depressions, and look at the systemic instability of the process of accumulation on national and global levels. Piketty also escapes a lot of the traps of economics, an academic discipline that especially in the United States has become so quantitative and theoretical that it hardly has anything to say about the reality of power anymore.

While I don’t claim to fully grasp everything Piketty is saying in Capital in the Twenty First Century, it is apparent from my first reading of the book that he’s left out a few important historical facts about the origins and growth of the world capitalist system. The biggest among them are the racial and colonial means by which Western European nations and the United States climbed to the top of the global capitalist system, enriching themselves with levels of wealth equivalent in value to many years of national income. Considering some of these facts would, in my mind, alter some of the big picture statistical series Piketty uses to make his points, and might also alter his conclusions about what is to be done to reduce inequality and democratize the economy. Take Africa, for example.

Piketty does tell us about Africa. He starts by showing us that national incomes for the United States, Western Europe, and Japan are slightly greater than their domestic products today. That is, these nations enjoy income greater than the total of goods and services produced inside their borders, meaning that they gain additional income from capital they own abroad. This is a sort of equilibrium in which wealth that flows out of America or Europe is replaced by wealth flowing in from another region. Indeed, for Britain and France in the 19th and early 20th Centuries a huge surplus of income flowed in from their colonies. This was wealth acquired through wars of colonial aggression, income arriving under the barrel of a gun.

“The only continent not in equilibrium is Africa,” explains Piketty, “where a substantial share of capital is owned by foreigners.” Piketty’s talking about the present, not some supposedly prior era when he writes this.

“According to the balance of payments data compiled since 1970 by the United Nations and other international organizations such at the World Bank and International Monetary Fund, the income of
Africans is roughly 5 percent less than the continent’s output (and as high as 10 percent lower in some individual countries.)” Piketty’s calculations show that as much as 20 percent of the capital stock of Africa is owned by foreigners, mostly Europeans, some Americans, and recently the Chinese.

The most accurate term for this relationship of extraction is plunder, and the historical origins of it go back to the European colonization of Africa, a mission that was accomplished only by murdering countless resistors. Without establishing this fact, and accounting for ongoing wars and efforts to destabilize African politics by Europe and the United States, it’s impossible to account for the situation in which foreigners own so much of the capital in Africa, and extract value equivalent a significant percentage of the continents yearly output.

Today the outflow of wealth from Africa might take the immediate form of sovereign debt payments and ownership of African industries and land by foreigners who repatriate their earnings, but this economic imbalance was itself created through war. Piketty doesn’t ever get to this discussion, however, even though it occurred during the centuries for which his data sets supposedly give us sweeping macro economic views of the global system, especially the 1800s. Instead his explanation remains rather sanitized, focused on statistics like net national incomes from capital, and other aggregations. His discussion of colonialism is confined to about 4 pages.

This leads to a rather shallow and disappointing discussion of American capitalism especially. For example, Piketty points out that in the total capital stock of the United States, since its founding to the present, land never accounted for the same proportion of the total wealth as it did in crowded France and the UK. His explanation is that land was scarce in Europe and thus of higher value. By contrast Piketty writes, “there was so much land [in North America] that its market value was very low: anyone could own vast quantities, and therefore it was not worth very much.”

But land was only abundant and available for private ownership in vast quantities at cheap prices in the Americas because it was stolen from the indigenous nations, starting in the Caribbean islands and then spreading to massive outright thefts of land in what is today New York, Massachusetts and the rest of the East Coast.

Later Andrew Jackson conducted forced marches to eradicate the Choctow, Cherokee, and other tribes from the rich agricultural floodplains coveted by the American slave-owning plantocracy as well as white yoemen farmers. In California the United States arrived to complete a continental genocide, finishing up the savagery by blasting mountains into mud to excavate untold billions in gold ore. Like the land in California, the gold, and eventually also the oil beneath it, and even today the urban real estate which is among the most expensive in the world, could never have been incorporated into the American economy and accumulated in certain hands, were it not for the racial othering of the West Coast tribes.

The value of land in America was clearly not being determined by any market, at least not any market that wasn’t first set up and shaped from the very start by a racial regime that allowed for expropriation. Land values were being subsidized downward by forceful dispossession, and then again by racial and gendered laws that made owning land impossible to all but white men. We can see this today in the recent refusal of the Lakota Sioux to accept $1.8 billion in payment for the Black Hills. The Black Hills were outright stolen by a mob of white settlers who followed Geneal Custer and did not succumb to his fate. The settlers stripped the Black Hills of timber, gold and other minerals worth untold amounts. The Supreme Court of the United States recognized this in 1980 by establishing a $102 million trust, but the tribe has rejected it because it would constitute payment for lands that were never sold, that many Indians argue can still never be sold.

Any discussion of capitalism in early American that leaves out these fundamental facts is lacking in its ability to explain prices of assets like land, for if the land hadn’t been available for privatization in such quantities it would have been a very different story of economic development. If white Americans had not developed an ideology of racial supremacy that led them to eradicate entire nations of people, to round them up into prison camps, and steal their homelands for settlement and exploitation by mining and timber and plantation interests, the whole issue of inequality in America today would be entirely different.

Piketty seems to grasp the importance of race in American capitalism when it comes to slavery, and he incorporates slaves into his measurements of capital in the antebellum United States. The racial ideology and colonial system of power that made the slave trade possible created a whole category of capital that has virtually disappeared today: capital as the human body. A remarkable, and disturbing finding of Piketty’s is that even though American planters in the first half of the 19th Century owned land that was low in value, the American plantocracy still was far wealthier than the aristocratic landlords of Europe.

“Their farmland was not worth very much,” writes Piketty, “but since the had the bright idea of owning not just the land but also the labor force needed to work that land, their total capital was even greater.”

Honestly I’m not disappointed by Piketty’s lack of willingness to tackle the central role of race in the development of capitalism. It’s not what his book is setting out to do. What he does set out to accomplish, he achieves with more data and clarity than any economist has done in practically a generation.

The worrisome, and very convincing conclusion he reaches, is that in the 21st Century inequality is likely to worsen in the United States, Europe, Japan, and other nations where growth has slowed, both demographically, and in terms of economic output. It will get worse even if somehow, miraculously, human rights are universally respected, and there are no further thefts of land and natural capital (or predatory and racially discriminatory bank lending, to give a much more current example of racial capitalism at work).

In this context capital, that is land, securities such as shares and bonds in corporations and government debts, rents extracted from housing and commercial space, and other forms of wealth, will claim increasingly larger shares of the flow of income. The top one will crush the bottom half of society. The top ten percent will monopolize the ownership of capital and suck up larger shares of the flow of income, dominating the political process in way that only worsen the situation (pushing for greater tax cuts on wealth).

Piketty’s prescription to stem inequality is a global progressive tax on wealth that would redistribute income downward and create security for the majority of humanity who own little or nothing besides their labor.

But then if race and colonialism had been a central part of his analysis too, might he also be offering reparations, debt jubilees, and other forms of capital redistribution as a possible solution to the grotesque imbalance of wealth? After all, much of the capital inequality between nations, and between different racial groups today, is a direct result of colonization, slavery, and plunder.

Darwin Bond-Graham, a contributing editor to CounterPunch, is a sociologist and author who lives and works in Oakland, CA. His essay on economic inequality in the “new” California economy appears in the July issue of CounterPunch magazine. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion

http://www.counterpunch.org/2014/03/28/colonization-slavery-and-plunder/

Thomas Piketty's Capital in the Twenty-First Century: Its Uses and Limits
by Charles Andrews

Thomas Piketty.  Capital in the Twenty-First Century.  Cambridge: The Belknap Press of Harvard University Press, 2014.  $39.95.

Capital in the Twenty-First Century by Thomas Piketty has caused a stir, which it deserves.  Capital 21, as we will abbreviate the title, grapples with a prominent current issue: outrageously unequal incomes and wealth.  It is a data-rich, wide-ranging investigation over 570 pages of text written in the smooth, often ironic, and occasionally elevated French manner.  It breaks with the sterile theology that dominates bourgeois economics today.  Finally, it proposes a new solution to the inequality problem at a time when many question whether capitalism can ever return to partial mass prosperity.

The concept in the title is capital, but it ties with inequality for the most page references in the index, including immediate variations.  If you want data on the income and wealth of the top ten-thousandth, one-hundredth, and one-tenth of the population, use this book as well as the online databasecompiled by Piketty, Emmanuel Saez, and colleagues.

Tailored Concern with Inequality

However, Piketty's concern over inequality of income and wealth is rather tailored.  The rich who upset Piketty most are very wealthy rentiers.  They cannot possibly consume more than a smidgeon of the return on their investments, so every year the latter grow and stand to capture more wealth the next year.  In contrast, entrepreneurs are good and necessary, and they need and deserve the incentive of financial success.

Piketty notes the bittersweet dilemma that successful entrepreneurs become rentiers in their own lifetime.  Bill Gates' $50 billion or so of "wealth has incidentally continued to grow just as rapidly since he stopped working" (p. 440).  Still, it would be a disaster in Piketty's view to adopt policies so egalitarian that "there would be no more entrepreneurs" (p. 572).

Capital 21 makes a trenchant critique of the outlandish pay of corporate executives (pp. 331-335, 510).  Piketty approves, though, when you get a fat income because you are a genuine entrepreneur or a highly skilled professional.  He accepts the bourgeois economic doctrine of the so-called marginal productivity of skilled labor, and with it a considerable amount of income inequality.

Piketty has little interest in the inequality suffered around and below the median income (the amount in the middle of a list of everyone's incomes from highest to lowest).  Although he gives one or two figures on per capita income in France and Britain, he never examines what income equality could be in the absence of capitalists.

Piketty worries about the survival of democracy in the advanced capitalist countries of the Western world.  It may be swamped by the revival and steep growth of "patrimonial capitalism," his term for societies dominated by rentier wealth.  We must deal with the threat "if democracy is someday to regain control of capitalism" (p. 570).  That is the main reason for his focus on inequality.

Analysis of 1913-1950

Piketty's research finds that capital's share of national income stayed high in capitalist countries up to 1913.  Capital's share, and inequality, fell from then to 1950.  After that inequality began to climb and in the twenty-first century seems likely to soar higher than ever in history.

According to Piketty, the 1913-1950 period was exceptional and accidental, unlike history before and since.  The causes were largely the two world wars, which destroyed enormous wealth; then democratic governments responded to the shocks with policies that contained rentier capital.

This movie short has several problems.  First, the world wars were themselves not accidental.  The first world war was an inevitable outcome of early monopoly capitalism, and the second world war was a continuation of the first as well as capital's attempt to obliterate the first socialist society.  They were the only way capitalists and their states could resolve problems far deeper than a skewed distribution of income and the dead weight of rentiers.

Second, Piketty's almost exclusive metrics are inequality of income and wealth.  They are important, to be sure.  Let us remember, though, that despite less inequality, most of the period 1913-1950 was hellish for the masses in the capitalist world.  They died by millions in the first world war, made little economic progress in the 1920s, suffered the hunger of the Great Depression in the 1930s, and died by millions more in the second world war.  On the other hand, while inequality was high in the late nineteenth century and up to 1913, the working class did make advances, by militant class struggle largely under the socialist banner, in obtaining fruits of industrial progress.

And there is justified nostalgia today for the era after Piketty's exceptional period.  In the 1950s and 1960s life got better for a majority of the working people in the United States, Britain, and western Europe.  The peak of working-class progress was 1973 -- after Piketty's focus and years before neoliberalism, financialization, and globalization.  Since 1973, real median earnings in the U.S. have stagnated and fallen.  That turning point is the fact that demands explanation and action.

Piketty recalls the two world wars often.  He buries the fact that World War One triggered the first successful socialist revolution in Russia, and the second world war provided openings for anti-imperialist and sometimes socialist revolutions, most notably in China and Vietnam.  (In addition, it appears that revolution was possible in France and Italy in 1945, but the Communist Parties there decided against it -- and had earned the political authority within the working class to make their decision stick.)

The Theory in Capital 21

In order to measure capital and hence ratios of return on it, you must say what it is.  "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 residential real estate) as well as financial and professional capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies" (p. 46).  This is a concept of distribution, not a relationship in production.  Capital is for Piketty a so-called factor of production that captures a return, the usual notion of bourgeois economics.  Capital assets, real and paper, yield profits, dividends, rents, royalties and so on; that is why someone "invests" in them.  Private ownership is fused into the concept.

How much capital is there?  "All forms of wealth are eval‎uated in terms of market prices at a given point in time.  This introduces an element of arbitrariness (markets are often capricious), but it is the only method we have for calculating the national capital stock: how else could one possibly add up hectares of farmland, square meters of real estate, and blast furnaces?" (p. 149).  Piketty scatters dismissive swipes at Marx from the beginning to end of Capital 21.

Displaying woeful miscomprehension or propagating deliberate disinformation, he says, "Marx totally neglected the possibility of durable technological progress and steadily increasing productivity" (p.10).  So when it comes to measuring capital, Piketty does not dare mention the labor theory of the value of commodities, including when they function as capital.

A science requires core concepts and relationships of necessity among them.  Newtonian physics relates force and mass by an arithmetical law.  Chemistry relates atoms bonded in geometric graph combinations.  Evolution relates genetic variation and environmental action on organisms to the changing makeup of species.  Marxist economics of capitalism relates value, labor (concrete and abstract), and surplus-value in relations of exploitation and accumulation.

The conceptual things might be observable by the unaided eye and ear and finger, or "observable" with the aid of instruments, or not observable at all.  The atom is in the second of these situations now but it was unobservable in the nineteenth century, which did not stop chemists from isolating elements and discovering the laws of their combination (Mendeleev's periodic table).

A scientific theory of necessary relationships must, of course, lead us to observed things, events, and relationships.  The theory must not deduce observations in contradiction to what we observe.  We understand problems and see new possibilities in the necessary results of causes.

After Marx developed the labor theory of value to a science, academic economists shunned it in horror.  They first substituted a theology of marginal utility, and other churches for the worship of capitalism followed.  For half a century or so the field has retreated from language to ever more elaborate mathematics.  Like all theologies, the economic ones do not offer you shoes that fit; they wrench and crunch reality into their shoes.

Piketty leads by example in a rebellious economics.  He and his colleagues put together wide aggregations of statistical data.  Every one of the 97 charts in Capital 21 plots data.  A handful of them venture to project lines into the future or include a simulated series as well as the data line.  None are graphs of hypothetical supply and demand or other mystical variables neatly intersecting where the author wants them to meet.  Piketty's method is a refreshing break from orthodoxy.

However, Piketty arrives not to bury bourgeois economics but to revive it.  He accepts most of the dogma: its concept of capital, which finds capitalist capital operating in disguise in every society from the most primitive (p. 213) to the former Soviet Union (p. 215); production functions, although not always Cobb-Douglas (pp. 215-217); Solow's neoclassical side of the Cambridge capital controversy (p. 231); and the "central and irreplaceable role in the history of economic development" of stock and bond markets, banks, and financial investors (p. 214).

Piketty is imbued with the bourgeois notion that some magic in nonhuman things creates income, which someone must receive.  He actually declares with a straight face that "the evolution of technology . . . has also increased the need for . . . patents" (p. 234).

Piketty does not discard the equations of neoclassical economics (Capital 21's book jacket photo shows him in front of a whiteboard of equations), but he insists on actual information.  In effect, Piketty tells his fellow professors of economics: Pure mathematics derived from unsupported axioms no longer fools people.  Give up the empty certainty, the "immoderate use of mathematical models . . . masking the vacuity of the content. . . .  It is not the purpose of social science research to produce mathematical certainties that can substitute for open, democratic debate" (pp. 574, 571).

He also shuns computation of regressions and other statistical parameters that best fit reality to a model.  Instead, Piketty shows bourgeois economists how they should observe ratios in data, then apply loose reasoning and lots of qualifiers to argue likely conclusions about the future.

Piketty and his colleagues certainly collect and regularize a mountain of data, setting new standards in the field.  If he were an admirer of Mao Zedong, which he most surely is not, he could tell his professional colleagues: no investigation, no right to speak.  The problem is that while he criticizes the fetish of mathematical certainty, he also finds no relationships of material necessity.  Plausible, often roughly constant, contributing factors and arithmetic scenarios with the rate of return and the rate of growth do not add up to an explanation.

Brief Comparison with Marxist Economics

Of course, theory cannot explain events as though circumstance and accident played no role in their timing and specific shape.  They do.  Nonetheless, history while made up of events obeys laws.  Marxist economics explains at least three necessities in the capitalist mode of production.

First, it demonstrates the impossibility of full employment for more than a brief moment.  The specter of no job and hence no income matters to all working people, not only the unemployed.  Class struggle is incessant under capitalism.

Second, it demonstrates that industrial capitalism suffers recurring slumps.  The conditions that trigger them vary, as do their depth, duration, and spacing, but they are inevitable.

Third, it concludes that capitalist accumulation runs into a historical barrier.  The relative mass prosperity that the working class was able to win by struggle within capitalism goes away.  Middle-income comfort becomes impoverishment; career security becomes precarious employment; and labor is degraded.

How does Marxism arrive at these conclusions?  We can assemble facts by diligent investigation, but we do not assemble truth by correlating observed data.  We compare facts with each other and ponder with imagination.  Piketty does that much, but science requires a leap of cognition to conceive fundamental entities in law-governed motion.  Then, of course, we must verify, use, and extend the laws.  Newton and Einstein, Darwin, and Marx did it, and so can we.

The general formulation of the third conclusion is Marx's famous statement, "At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production. . . .  From forms of development of the productive forces these relations turn into their fetters.  Then begins an era of social revolution" (Preface, "A Contribution to the Critique of Political Economy," Collected Works, vol. 29, New York: International Publishers, 1987, p. 263).  Today, we can analyze the laws of accumulation at the end of capitalism.

In tsarist Russia and dynastic-warlord China, socially aware people knew overthrow was necessary.  The people of the United States have started a painful, liberating process of discovering the same thing about capitalism today.  By temperament if not conscious decision, Piketty wrote a long book running away from what is for him a rough beast, apprehensive that its hour has come round at last, mortified that it slouches toward us to be born.

Piketty's anti-communism is overt, proving his credentials to the capitalists he begs to tax.  "I . . . came of age listening to news of the collapse of the Communist dictatorships and never felt the slightest affection or nostalgia for . . . the Soviet Union" (p. 31).

"Private property and the market economy . . . play a useful role in coordinating the actions of millions of individuals. . . .  The human disasters caused by Soviet-style centralized planning illustrate this quite clearly" (531f.).  You see, it was not the open drive to overthrow the Soviet government that lay behind the difficulties of the 1930s.  It was not the Nazi invasion of the Soviet Union, with its barbarous squads assigned to assassinate civilians, that brought human disaster.  Blame it all on five-year plans.

The Practical Goals of Capital 21

Piketty advocates policies that he thinks can rescue capitalism from its rentier, oligarchic tendency.  "To regulate the globalized patrimonial capitalism of the twenty-first century . . . [t]he ideal tool would be a progressive global tax on capital. . . .  It is perfectly possible to move toward this ideal solution step by step. . . .  The largest fortunes are to be taxed more heavily" (pp. 515-517).

Secondarily, Piketty advocates restoring a very high marginal tax on the highest incomes, aimed mainly at the exorbitant pay of top corporate executives (p. 512).  The purpose of the tax rate is not to generate revenue but to make such pay futile.

Although Piketty comments on a wide variety of governmental economic policies, his practical emphasis is on the progressive capital tax, not on programs that its estimated yield of around two percent of gross domestic product could finance.  He takes the social state (his term for the package of programs enacted during the New Deal, for example) as a good thing, but his tax on big wealth is unlikely to rally mass support by itself.

Reforms like a big increase of the minimum wage, tough laws against employers firing workers who exercise free speech in favor of a trade union, the extension of Medicare by reducing the age requirement until everyone is covered -- reforms like these mean something to people.  However, when the main content of a policy downplays definite benefits to specific groups of people, when a policy aims "higher" to make capitalism fair and democratic, people have healthy skepticism.

A tax on capital, calibrated so that it limits rentier wealth but does not suffocate entrepreneurs -- this is Piketty's finale to a historical survey of steep inequality that prevailed for centuries with one amazing exception of 37 years.  Perhaps communists make a strategic political mistake.  They frankly tell people that the capitalist mode of production must be overthrown.  Yes, this will be a world-historic feat, and contradictions in capitalism have developed to the point that such a change is both necessary and achievable.

Revival of Social Democracy?

Piketty talks to a specific audience.  Perhaps he hopes enough capitalists will be far-sighted and realize that open oligarchy may stimulate mass rebellion.  He thinks there are good people like himself who care about democracy and understand that it must be paired with capitalism.  In U.S. terminology, he is a liberal, on its left flank.  The people next to them on the political spectrum hold the same beliefs but profess socialism in one or another cloudy version.  These are the social democrats.

They have had a rough time for a couple of generations.  Capital, weakened by fundamental problems in its economy, became heavy-handed in a drive to raise the rate of exploitation.  It dumped the old generation of social democrats whom it had coddled, the admirers of Walter Reuther, Michael Harrington, and Tom Hayden.  A section of progressives are excited aboutCapital 21 because it might help revive social democracy.

For the rest of us, Capital 21 provides solid data about the very rich.  Piketty's work is a demonstration of the adage: follow the money.  Good advice.  But when you need deep understanding of society, follow the labor.

---

Charles Andrews is the author of No Rich, No Poor (Needle Press, 2009).  This review was first published in Marxism Leninism Today, republished here with permission.

http://mrzine.monthlyreview.org/2014/andrews220314.html

RELATED LINKS

• Read an interview with Thomas Piketty at the NYT’s Economix blog
• At the New Yorker’s Rational Irrationality blog, view “Piketty’s Inequality Story in Six Charts”
• In the New York Times, read about the stir Capital in the Twenty-First Century has caused among leading economists, and, in The Week, why it’s the book that “everyone is talking about”
• Follow along with the Economist’s Capital in the Twenty-First Century book club
• Listen to Piketty discuss the financial dynamics at work against social mobility on the BBC World Service’s The Forum
• Read a fortune.com post on the “fresh perspective” and “wealth of newly compiled data” with which Capital in the Twenty-First Century helps us to understand the actual workings of capitalism
• At Chicago Magazine, read about Thomas Piketty’s theories of inequality and new work on the cognitive rationalization process that happens among the well-off
• On the eve of the 2014 World Economic Forum meetings in Davos, read in the Wall Street Journal about Piketty’s theories on inequality
• Read an early take on Capital in the Twenty-First Century from The Economist
• At The Week, explore Piketty’s conclusions via the classic Disney film The Aristocats
• In the New York Times, read about Piketty’s finding (with Emmanuel Saez) that the top 10 percent of earners in 2012 took home the highest percentage of total American income ever recorded
• In the Guardian, read Piketty and Saez’s argument for substantially raising top marginal tax rates
• Plot graphs of income inequality over the past century via the World Top Incomes Database, an ongoing endeavor by Piketty, Saez, Facundo Alvaredo, and Tony Atkinson
• Download Piketty’s Technical Appendix for the book, which includes additional figures and tables, as well as Internet links to all the series, excel files, programs, formulas, primary sources and technical studies used as the bedrock of Capital in the Twenty-First Century
• Browse a selection of HUP works on the history of capitalism—and its discontents

Who Owns What Where?

Piketty: The Market and Private Property Should Be the Slave of Democracy

by The Real News Network (TRNN) / May 15th, 2014

TRNN Producer Lynn Fries hosts an extended interview with Thomas Piketty about his widely acclaimed Capital in the Twenty-First Century.

The Real News Network is a television news and documentary network focused on providing independent and uncompromising journalism. Read other articles by The Real News Network, or visit The Real News Network's website.

This article was posted on Thursday, May 15th, 2014 at 5:22pm and is filed under Capitalism, Democracy, Interview, Markets, Tax,Transparency/Secrecy, Video.

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맑스, 신자유주의 그리고 '21세기 자본'의 피케티 강사 : 홍훈 연세대 경제학부 교수 장소 : 은행정 책마당 주최 : 노동당 서울시당 양천 ...