CAPITAL in the Twenty-First Century, by French economist Thomas Piketty, is a big book [577 pages of text, 75 pages of notes, and an extensive on-line technical database that I have briefly sampled]. It is also, in my judgment, an important book worthy of your attention. In the next few days, I shall be doing my best to present in some orderly way my thoughts about it. In response to comments on this blog and an email or two, I have read several reviews of the book that have already appeared. That may have been a mistake, but I shall try not to confuse my own reactions to the book with things I have learned from those reviews.
Piketty presents himself as politically engagé, so it would be natural to cut to the chase and announce my view of whether he is a good guy or a bad guy, a comrade or an enemy. That impulse is all the stronger because his title is a deliberate allusion to Marx's great work, Das Kapital. The title, after all, is CAPITAL in the Twenty-First Century, not Capital in the Twenty-First Century. But I shall resist the temptation, because it would be a mistake. There is a great deal to learn from this book whether or not one situates oneself where Piketty does on the ideological spectrum [as I do not], and that must be the focus of my attention in the first part of this discussion.
A few general comments to orient you before I begin a close examination of the book. Piketty's central and urgent concern is inequality, in particular inequality in the ownership of capital. Using the French term patrimoine, or patrimony, which means inheritance, Piketty believes that unless strong [but unlikely] steps are taken by the nations of the world, we shall rapidly see a return to a patrimonial capitalism in which an ever larger fraction of an ever expanding capital is owned by a small proportion of the population who have inherited it rather than -- by any stretch of the imagination -- earned it. A society of rentiers will be re-established of a sort we have not seen since the late nineteenth century, a society dominated, as we used to say in the United States, by coupon clippers. [Piketty's favorite example is Liliane Betancourt, heiress of the l'Oréal cosmetics fortune and the richest person in France. who, he laconically observes, "has not worked a day in her life."]
But though inequality is his central theme, Piketty does not arrive at a discussion of it until Part Three, The Structure of Inequality, 237 pages into the book. First, there is an extended discussion of Income and Capital [Part One] and The Dynamics of the Capital/Income Ratio [Part Two.] The foundation of Piketty's exposition, to which he devotes an enormous amount of time and many, many charts and tables, is an extraordinary mass of data he and his associates have assembled, reaching back as far as the beginning of the eighteenth century, on the composition and evolution of capital and income. Since philosophers typically know little or nothing and earn their reputations by thinking rather than actually observing the world, it would be natural for me and those like me to skip over Piketty's detailed description of the data he has collected and go right to the conclusions he draws. That too would be a big mistake, as big as the mistake of flipping past Marx's great tenth chapter in CAPITAL on The Working Day, the more than one hundred pages of details he gleaned from the Parliamentary Inspectors' Reports during his years in the Reading Room of the British Museum. Those of us who profess to care about the condition of the working class in America in 2014 [to steal a title from Engels' greatest work] really need to know something about how the world actually is and has been before we offer our proposals for its complete transformation.
Piketty and his colleagues have assembled an astonishing body of macroeconomic information about capital, income, profit rates, growth rates, shares of capital owned by, and shares of income going to, the top tenth, one-hundredth, thousandth, or ten-thousandth of the population in France, Britain, Germany, and America, and secondarily in Italy, the Nordic countries, certain South American countries, and, where possible, in Asia and Africa. The centerpiece of his data-driven analysis is France, for three reasons.
First of all, as a consequence of the work of the quite advanced royal Intendants of the Old Regime and of laws passed at the time of the French Revolution, robust French data are available on many important economic magnitudes for a continuous period of more than three hundred years. The data for Britain are good, but do not extend back so far. The American data start with the American Revolution but for various reasons are not really satisfactory until the late 19th century. The political fragmentation of what is now called Germany also makes its data prior to the late 19th century difficult to assemble. And beyond those nations, things go downhill rapidly. Piketty is committed to grounding his analysis in real facts, not in speculations or impressions, and his book is replete with caveats about the adequacy or inadequacy of the data underpinning this or that graph or table. One of the ways in which economists could honor Piketty's achievement is by undertaking to gather and analyze data for parts of the world he could not adequately discuss.
Second, Piketty is French, and quite naturally his frame of reference is defined by that fact in exactly the way that the frame of reference of American economists is defined by their being Americans. In the three centuries that Piketty contemplates, there are four pivotal periods that shape his understanding of the world: The Revolution [1789-1797, more or less], La Belle Époque [from 1871 to the beginning of WW I], the period of the two world wars and their interregnum [1914-1945]. and Les Trente Glorieuses, the "glorious thirty years" from 1950-1980, a time in France of relatively much less inequality of ownership of capital, rapid economic growth, rising real wages, and the establishment of the modern French social democracy. The corresponding American historical eras or economic turning points would I suppose be the period of slavery, the period of the Western expansion, the late 19th century growth of the great industrial fortunes, the Crash and Great Depression, and the Boom Years [roughly coincident with Les Trente Glorieuses.] All great social scientists orient themselves to the world in this manner -- for Marx, the pivot of his life was of course the failure of the uprisings of 1848.
Finally, Piketty is still a young man [forty-two] who earned his doctorate at twenty-two with a detailed examination of French tax policy, and like all of us, he draws on his strengths when he comes to write his Big Book. [Happily, Marx resisted that temptation, so we are spared in Das Kapital a discussion of the Greek Atomists.]
Let me now give you an overview of what Piketty found, and what the focus is of his concern. Tomorrow I shall start telling you in some detail about the unfolding of his argument. In very broad strokes, Piketty found that from the beginning of the modern economic era [the eighteenth century] to the end of La Belle Époque Europe [but not in the same way America] was a patrimonial society in which the overwhelming preponderance of capital -- land, buildings, factories, railroads, government bonds, shares of stock, patents, and so forth -- was owned privately by a small segment of society who inherited rather than earned the capital they owned. By the eve of World War I 90% of the capital in Europe and 80% in America was owned by the richest 10% of the population. [Keep in mind that these aggregates include private ownership of land and private dwellings, not merely of shares of stock in industrial enterprises.] World Wars I and II and the Great Depression between them, combined with the enormous increase in the rates of inflation, had the effect of causing this share of ownership to plummet to levels never before recorded. As Europe and American recovered from the world wars and the Depression, during Les Trente Glorieuses or Boom Years, the inequality in the distribution of capital ownership recovered to pre-World War I heights, but with an important difference.
The Post-War period saw the emergence of a new class of rich, those whom Piketty calls "supermanagers," earning annual salaries in the millions or even hundreds of millions in their roles as top corporate and financial managers. Technically, these salaries count as income, not profits or, as Piketty calls them, using the French term, rentes. [I shall come back to this point much later, when I offer some comments on and criticisms of Piketty's work.] If we give at least lip service to the economists' fiction that these supermanagers are earning their marginal product, and therefore have a right to their salaries [lip service that Piketty both offers and withholds, exhibiting a deep ambivalence on the matter], then we might wish to say that although inequality has returned to pre-World War I heights, it is a fairer and more rational inequality. After all, say what you will about Mar k Zuckerberg, he is no Liliane Betancourt.
HOWEVER -- and this is, in some very simple-minded sense, the message of the entire book -- the ineluctable consequences of the relationship between the global growth rate and the global return on capital [g and r, as Piketty represents them] will, unless extraordinary and quite unlikely steps are taken, in the twenty-first century return us to a patrimonial capitalism in which capital is both very unequally owned and also is primarily inherited rather than earned. The world of the rentier will again be upon us.
Well, I hope this much has captured your interest, so that you will stay with me for the next several days as I continue my discussion of Thomas Piketty's CAPITAL in the Twenty-First Century.