THOMAS PIKETTY CAPITAL IN THE TWENTY-FIRST CENTURY PART FOUR

One more example of the U-shaped curve, about which I have been talking for several days, this time with respect to what Piketty calls "the annual inheritance flow."  In France [which, as usual, is his primary focus], we find that from 1810 until 1920, the period of remarkable stability in European capitalism, amounts of capital equal to between a fifth and a quarter of national income were passed on as inheritance each year from the dead to the living.  During the first world war, this annual passing on of capital plummeted to 8%, and by of the second world war to 4% of national income, an astonishing change.  This amount of capital being passed on from one generation to the next then recovered, so that by 2010, it had risen again to about 15%, and gives every indication of continuing to climb.  Once again, those of us for whom the post-war period was the reality of our early years formed an impression of the fundamental fairness and openness of modern capitalist society that is simply wrong for the long run.  Living during an anomaly, we naturally viewed it as the new normal, unaware that it was passing into history even as we grew up.  At what level and when will the inheritance flow stabilize?  Piketty explains that the answers to these questions depend on g and r, which is to say on the growth rate and the return to capital.  He offers two scenarios, based on different guesses about the future of these two magnitudes, which suggest that the inheritance flow by the year 2100 is likely to stabilize somewhere between 16% and 23%.  This in turn will determine just how patrimonial the capitalism of the future becomes.

Piketty has one way of representing the temporal evolution of this concentration of wealth that I had never seen before.  It is a trifle tricky but very striking.  Let me explain.  He looks at each French age cohort [i.e., all the people born in France in the same year] and at the lifetime wage earnings of the bottom fifty percent of the working population of France.  Then he asks this question:  What fraction of each age cohort receives, as inheritance, an amount equal to the lifetime earnings of someone in the bottom half of the society?  For example [using American magnitudes to make things more perspicuous], suppose that an American worker in the bottom half of the workforce earns on average in 2014 dollars $30,000 a year for a working lifetime of 45 years [age 10 to age 65].  That is total lifetime earnings of $1,350,000.  Then ask, what fraction of this worker's age cohort inherits at least that much -- $1,350,000?  [Just to be clear, the median wage for full-time workers in the U.S. 2013 was $776 a week, which works out to more than $1,800,000 for a fifty-two week year over forty -five years.  But "median" means that all of the full-time workers in the bottom half of the workforce are below that amount.  My figure of $1,350,000 is a guesstimate of the average of all lower fifty percent workers.]

Well, the answer for France is this:  Way back in 1790, 10% of the age cohort inherited as much as a worker in the bottom half made in a life time.  That proportion of the age cohort dropped, first slowly, then rapidly, until in 1920, it hit 2%.  After WW I, only 2% of French heirs inherited as much as someone in the bottom half of his or her age cohort earned in a lifetime of working.  Then the proportion of these heirs began to rise [the same U-shaped curve again!] so that by 1990 it had reached more than 13%.  After a slight dip as a result of the Great Recession, which wiped out a good deal of inheritable capital in the form of the value of shares of stock, the proportion resumed its upward march.

Just stop and think for a moment about what this means [I assume the figures are not much different for Britain or America].  We are a society of two entirely separate and different worlds.  Half of us labor day after day [if we are lucky] for a lifetime, managing, let us suppose, in all that time to earn on average more a million and a third dollars, which we use to pay taxes, pay for health care, pay for housing and food and clothing and education.  And 12-14% of us inherit that much in one lump sum simply by having the brains and gumption to be born in to the right family.  In a country the size of America, that endowed 13% is more than forty-million people.  They loom so large in the public discourse and public consciousness that they define what it is to be an American.  Meanwhile, 165 million men and women slog on, never seeing anything remotely like the life lived by the fortunate forty million.

This is perhaps the right time to turn our attention to the truly revolutionary consequence of the period of les trente glorieuses, the Boom Years -- the emergence of an elite group of corporate executives and financial executives whose income, albeit earned income or wages and not income from capital, has made them multi-millionaires and billionaires.  These people often own enormous portfolios of shares, frequently in the companies they manage, as was true of corporate magnates in earlier times.  However, there is this important difference:  the size of their ownership in the companies they run is a consequence of their positions as managers, not a condition of their positions.  They own shares because they are managers [through stock options, for example].  They are not managers because they own shares.

This has been the subject of an considerable public discussion in America in recent years, as well as of a dramatic series of organized protests [the Occupy Wall Street movement], so I need not say a great deal about it by way of introduction.  Piketty offers statistics aplenty on the wealth of the one percent, the one tenth of one percent, the one one-hundredth of one percent, and even, believe it or not, the one one-thousandth of one percent, and they are precisely as chilling as you might expect. 

"Broadly speaking," Piketty tells us, "the rise of the supermanager is largely an Anglo-Saxon phenomenon."  [p. 315]   The charts tell the story.  In 1910, the top1% of society was receiving 18% of national income in America, and 22% in Great Britain.  With jogs up and down because of the Great Depression, this sank in 1970 to 8% in America and 6% in Britain.  But then the curves turned upward again [the very same U-shaped curve].  This time, however, thanks to the emergence of the supermanagers, America took off like a rocket, reaching 18% in 2009, before the Great Recession.  Already, however, that slight dip has been reversed and the share of national income going to The One Percent is again rising.

The standard academic economics explanation for the stratospheric salaries and bonuses being paid to the supermanagers is the theory of marginal productivity.  Those supersalaries are not the result of inherited wealth.  They are a measure of the value that the supermanagers add to the corporations for which they work.

As the old saying goes, don't get me started.  If anyone is interested, when I return from my safari, calm, collected, in touch with nature and my inner primate, I will undertake to say a few well-chosen words about the theory of marginal productivity.  But I do need to say something here.  First of all [as Piketty knows full well], the magnitude of the supersalaries paid to the top corporate and financial executives varies considerably by country, although there is simply no ground for supposing that American corporate executives contribute a greater marginal product than French or German or Japanese corporate executives.  Even if we were to grant that

top executives make very large contributions indeed to the profits of their companies, the cross-national comparison certainly suggests that as much marginal product could be wrung from the sweaty toil of American CEOs in return for markedly smaller pay packages.

But there is another point that needs to be mentioned, though I am afraid I cannot put numbers on it in a way that one would need to in order to make it stick.  Purely from an accounting point of view, the salaries and bonuses paid to top executives are costs of doing business  Like the wages paid to less well-remunerated workers, as well as the costs of raw materials, energy, and so forth, they must be subtracted from gross receipts before one can calculate the profits of the firm.  In this way, those supersalaries differ from the dividends paid to shareholders, which truly are distributions of profits.  In the good old days, when companies were run by their owners, one could, if one wanted to, break out the total take of the owner into a sum representing the wages of management and a sum constituting the return to capital.  But we are a long way from those good old days, and by and large [Bill Gates and Jeff Bezos and Mark Zuckerberg notwithstanding] no identifiable owners of big corporations in the executive suites.  I suggest that accounting practices to the contrary notwithstanding, much of what is received by corporate managers these days is actually a distribution to them of a share of the profits of the corporation.  Strictly speaking, they have no right to that portion of the profits, for it far exceeds, in most cases, what they might be permitted to claim as a return on the shares of stock they own.  It is a form of legalized theft, in which the Boards of Directors collude by authorizing the enormous pay packages.  Marx understood that profit manifests itself in many guises, but unfortunately Marx is no longer on the required reading list for up and coming American students of Economics. 

Piketty exhibits a curious ambivalence toward the theory of Marginal Productivity and the ideological rationalization it provides of the enrichment of the corporate elite.  On the one hand, he scatters caveats and qualifications throughout his book, clearly aware [with a depth of understanding that I doubt I can match] of its theoretical limitations.  On the other hand, he clearly thinks that a world of unequal earned income is greatly to be preferred to a world of unequal unearned income.  It is not a future ruled by supermanagers that alarms him.  It is the prospect of the return of patrimonial capitalism.

 

THOMAS PIKETTY CAPITAL IN THE TWENTY-FIRST CENTURY PART THREE

As I begin this third part of my discussion of Piketty's CAPITAL in the Twenty-First Century, I find myself overwhelmed by the sheer magnitude of the number of topics treated by Piketty.  Once again, I urge you to read the book rather than relying on my comments, or any of the many reviews now appearing, to inform you adequately about it.  This is one of those books that you really must make the effort to read for yourself.

Early in his book, Piketty states what he calls the First Fundamental Law of Capitalism, a "law" [really, as he explains, an accounting identity] that relates the ratio of capital to national income, β, to the national rate of return on capital, which he represents by the letter r, and the share of the income from capital in national income, which he represents as α.  If thirty percent of all the income received by anyone in a nation over the course of a year comes from capital -- in other words is profit rather than earned income -- then α = 30% or .3.  With these definitions, it follows necessarily that α = r x β, Piketty's First Fundamental Law. 

This may not be obvious to all of you [it was not to me when I first read it], so let me take just a moment to explain.  β is the ratio of the value of total national capital to the value of annual national income, so we may say that β = (national capital)/(annual national income).  If we multiply the total value of capital by the profit rate, r, we get the value in a year of the profits from capital [since r is the yield from capital per year].  So r x β is just [r x (total national capital)] / (total income in a year), or (income from capital)/(total income), and that is what Piketty is calling α.  In short, α = r x β.  The point of stating this accounting equality is not to prove anything by it, but rather to break out the components of α so that we can study what happens when one or another of them varies.  Later on, we shall see that Piketty is especially interested in examining the consequences of a long-term situation in  which the profit rate, r, is significantly greater than the growth rate of the economy, g, a situation that did not obtain during les trente glorieuses, but which Piketty thinks does obtain now and is likely to obtain for the remainder of the twenty-first century.  [The reason for this prediction, to get ahead of ourselves, is the rapid decline in the growth of population, but more that anon.]

Before I continue, let me on a lighter note pay homage to a simply lovely expositional device that Piketty has hit upon to flesh out the stark numbers of his graphs and charts.  Early in the book, Piketty observes that prices in the eighteenth and nineteenth centuries were quite stable, as was the return to capital [about 5%].  During this time, the two principal sources of income from capital in France, and even in England [where capitalism developed rather earlier] were land and government bonds.  One small segment of society -- the wealthiest and most powerful -- lived without working, as Liliane Betancourt would much later on, on their income from their capital holdings.  The stability of the prices meant that in 1720, 1770, 1810, 1850, and even 1890, the same standard of living could be purchased with a given annual income.  This made it possible for novelists to capture in a phrase the precise social standing of a character.  "He has ten thousand pounds a year" or "he has fifty thousand francs a year" was all a novelist needed to write, and readers could be counted on to understand the standard of living the character and his family could afford, right down to the number of his household servants, the sort of carriages in which his family rode, the clothes they wore, the elegance of the balls they attended, and the suitability of suitors for his daughters.  Running through Piketty's book is a delightful series of references to the characters of Jane Austen and Honoré Balzac.  It is, for me at least, a distinct pleasure to encounter a truly cultivated economist, who evokes the literary richness of the writings of Adam Smith and Karl Marx.  There is also a deeper purpose in Piketty's deployment of literary references, which he never mentions but which I am persuaded is consciously before his mind.  The literary allusions allow Piketty to capture the complex relationship between the underlying reality and the surface appearance of capitalist society, something that Marx achieves by his deployment of ironic discourse and classical allusion.

One hundred sixty-seven pages into his book, Piketty enunciates another "Fundamental Law of Capitalism" relating β, the ratio of national capital to annual national income, to the social savings rate, s, and the growth rate of the economy, g.  The law states that β = s/g.  This, however, is not an accounting equality but what may be called a tendential law.  That is to say, unless interrupted by some exogenous force -- a war, a depression, a regime of governmental taxation -- the ratio of national capital to national income will tend toward the ratio of savings to growth.  For example, "if a country saves 12 percent of its national income every year, and the rate of growth of its national economy is 2 percent, then in the long run the capital/income ratio will be equal to six hundred percent:  the country will have accumulated capital worth six years of national income."  [p. 166]

Why is this important?  Because if an economy grows very slowly, and if what is saved out of national income is for the most part held privately, then over time the country will come to be dominated by huge private capital holdings, which are passed on from generation to generation, resulting in what Piketty calls patrimonial capitalism.  Just to be clear, the relationship between capital formation and the (savings/growth rate) is necessary, and not especially tied to private ownership of capital.  Even if the capital is publicly owned, the ratio of capital to national income will be determined in the long run by the growth rate the society chooses and the savings rate it chooses.  But for the entire period under Piketty's investigation, capital has been privately owned.  Public capital holdings, as he shows, which are calculated by taking the total of public assets and subtracting the total of public debts, have oscillated around zero.  This remains true even when we take into account foreign assets and debts, surprising though this may be.  We are accustomed to panic-stricken talk about America being owned by the Japanese or the Chinese [depending on which decade you are living in], but the reality is quite other.

To summarize what I have tried to communicate thus far, Piketty argues that the period of the two world wars followed by a generation and a half of rapid growth was a temporary anomaly followed by a return to the long-term relationship between capital and national income.  And because the rapid population growth of recent decades is slowing and is almost certain to slow further, resulting in a return to a long-term secular economic growth rate of 1 % or a bit more, the logic of the law β = s/g compels us to conclude that in the absence of heroic governmental intervention [the subject of Part Four of the book], we can look forward to a re-emergence of patrimonial capitalism, the capitalism of inherited wealth celebrated and anatomized by Austen, Balzac, and their contemporaries.

In my effort to summarize Piketty's argument for you, inevitably I have omitted so much that I have managed to give a somewhat incorrect account, and at this point I need to correct that with regard to at least one important point.  This concerns the distribution of wealth in contemporary capitalist societies.  The best way to begin is with a paragraph-long quote from Piketty.  This comes from the start of Chapter Eleven, "Merit and Inheritance in the Long Run."

"The overall importance of capital today, as noted, is not very different from what it was in the eighteenth century.  Only its form has changed:  capital was once mainly land but is now industrial, financial, and real estate.  We also know that the concentration of wealth remains high, although it is noticeably less extreme than it was a century ago.  The poorest half of the population still owns nothing, but there is now a patrimonial middle class that owns between a middle and a third of total wealth, and the wealthiest ten percent now own only-two thirds of what there is to own rather than nine-tenths."  [p. 377]

The important point I have somewhat failed to capture is the emergence of a patrimonial middle class.  Why "patrimonial?"  Because the wealth of this large and politically significant middle class is for the most part inherited, in the form of housing, and also of financial assets.  The first generation may have come up "the old-fashioned way," by hard work and self-sacrifice, but life and death being what they are, the children of these strivers start life with hefty portfolios, paid-up homes, and other forms of accumulated capital.  Over time, the logic of the s/g ratio increases the predominance of inherited over earned income, resulting in ever sharper and more inflexible class divisions.  What is more, the Great Recession of 2008-9 and the consequent evaporation of the money set aside by this middle class for their Golden Years threatens to drive their children back down into the ranks of the propertyless, increasing the share of capital owned by the truly rich.

Well, that is enough for today.  Not all of you may find this quite as fascinating as I do.  Tomorrow I shall try to wrap things up, so that on Tuesday I can go off on my African adventure secure in the knowledge that I have given you something to chew on in my absence.

THOMAS PIKETTY CAPITAL IN THE TWENTY-FIRST CENTURY PART TWO

In the first part of CAPITAL in the Twenty-First Century, the central magnitude whose temporal evolution Piketty studies is the ratio of capital in a society to income.  Since the first of these is a stock and the second is a flow [as economists say], he must convert one or the other in order to form a ratio of them, and he does this by studying the ratio of the capital in a society to the amount of income from all sources for one year, or annual national income.  Piketty represents this ratio by the Greek capital letter β.  Let us begin by making clear how Piketty is using these two terms.  "In this book," he says, "capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market."  [p. 46]  "National income is defined as the sum of all income available to the residents of a given country in a given year, regardless of the legal classification of that income."  [p. 43] 

Right away, it is necessary to say something about these definitions, for they underpin everything in the book.  First of all, note that the definition of "capital" deliberately excludes what economists, following Gary Becker, call "human capital."  Picketty has some very unflattering things to say about Becker and those who follow him, justifiably in my judgment.  Second, both of these terms are measured in monetary units -- dollars, or Euros, as Picketty prefers throughout the book.  This is standard operating procedure for economists, of course, and makes it possible to use the vast array of statistical information gathered by governmental and non-governmental agencies, but it poses certain problems of which we need to be aware.  A share of stock is a piece of capital, as is a building, a tool, a stockpile of coal, a warehouse full of automobile tires, an acre of land, a patent, an insurance policy, and even a logo or a trademark.  Now, a major stock market drop, like the one that precipitated the Great Recession of 2008-9, immediately strips away billions or even trillions of dollars from the market value of certain assets.  From an accounting perspective, this is no different from a war in which massive destruction is done to factories and roads and bridges  Both count as losses of capital.  But clearly there is a very great difference in reality.  If a factory is bombed, it will take a good deal of labor and raw materials and planning and time to replace it, but a capital value equivalent to that of the factory may be lost and then regained in moments by a fluctuation in the price of shares in the corporation that owns the factory.  Still and all, inasmuch as capital, on any construal, is a many-dimensional array of quite dissimilar things, how else can one examine its quantity and the movements in that quantity save by considering its value, which is to say its market value?

[At this point, as I begin to discuss the data Piketty presents and the conclusions he draws, I must issue a warning:  There is a vast amount of important information in this book, and I cannot even make passing reference to more than a small selection from it.  Please do not make the mistake of thinking that because I fail to mention something Piketty has failed to discuss it!  The principal purpose of this multi-part discussion is to encourage you to read the book.]

When Piketty measures the value of β over the past three centuries, which is to say the ratio of national capital to national income, he finds that at the beginning of this period, in 1700, national capital in Britain or France was seven times the annual national income,  [I confess that I have never been much for macroeconomics, and it took me a while to become comfortable with this way of thinking.]  This ratio holds pretty much constant for a bit over two hundred years [during which time both capital and income increase, of course], although in the nineteenth century a significant portion of the 700% is accounted for by imperial holdings in Africa and Asia that bulk up the total.  Then the onset of World War I, the interwar crash and inflation, and World War II produce a precipitous decline in the value of β, from 700% in 1910 to roughly 300% in 1950.  From then on, the capital/income ratio recovers rapidly, so that after two generations or so it is back up to 650% in France and 600% in Britain.

Over this centuries-long period, there is a fundamental change in the composition of national capital.  In 1700, the value of agricultural land in Britain is 400% of national income -- 57% of all capital -- and nearly 500% of national income in France, or 70% of all capital.  This ratio drops steadily and ever faster as we come into the 19th century, so that by 2010, the end of Piketty's survey, the value of agricultural land is no more than a few percentage points of national annual income.  The land has not become less valuable in human terms, of course -- we all still have to eat.  But non-agricultural capital and housing -- residential dwellings, factories, mines, government bonds, shares of stock, and so forth -- take over from agricultural land as the principal components of national capital.

This U-shape characteristic of the β curve reappears again and again in the book as Piketty studies the evolution of national capital and national income and then studies the parallel evolution of capital and income in equality.   This is a visual representation of one of the most interesting and important of Piketty's conclusions.  Since this is, to my mind, the single most interesting thing I found in Piketty's book, I want to take some time setting it out and discussing it.

By taking so long an historical view, Piketty is able to show that the thirty-five year period of the two world wars and the intervening world economic crash was a world-historical anomaly that interrupted a long-term secular process of growth and persistent inequality in the capitalist world.  The enormous explosion of growth in the thirty years following that anomaly can be seen, through Piketty's lens, not as the emergence of a new world order, more humane, more equal, less in thrall to inherited wealth, but as a quite natural recovery from the anomaly and re-establishment of a centuries-old pattern of extreme inequality in the ownership and control of society's capital resources and the income from them.

To be sure, a fundamental transformation has taken place over these two generations in the structure of inequality.  The emergence of "supermanagers" and the [possibly temporary] appearance of a new somewhat propertied middle class for a time made income from wages and salaries more important than income from capital holdings as cause of inequality.  But that change, significant as it is, is even now starting to give way to a reappearance of rentier capitalism, which is to say capitalism in which ownership of capital rather than the wage earnings from commanding positions in the structure of capitalism becomes the dominant source of wealth.

Now -- and this is, I think, brilliant of Piketty to recognize and document -- the period of the two wars and  Les Trente Glorieuses or Post-War Boom -- just happens to coincide with the time when modern academic economists came into their own as the stars of the Academy and the oracles of modern Democracy, especially in America.  Perhaps we should not be surprised that these distinguished gentlemen, many of whom were honored with the newly created Nobel Memorial Prize in Economic Sciences, took what was happening during their formative years as definitive, as a matter of pure theoretical necessity for all times and places.  Finding themselves on the ascending side of a U-shaped curve, and more or less oblivious to the place of the U-shape in the larger historical picture, they quite naturally assumed that capitalism had solved the problem of crisis and inequality and was embarked on what they liked to describe as a balanced growth path.  Or, as the old saying has it, they were born on third and thought they had hit a triple.

Those of you less enamored of Marx than we old loyalists may be forgiven for not recalling that the subtitle of CAPITAL is "Critique of Political Economy."  Marx's book is both an anatomy of capitalist economy and society and a brilliant attack on the economists who preceded him.  I think Piketty is quite conscious of engaging in an exactly similar two-pronged assault, both on the world of capital and income and inequality and growth, and on the world of academic economists.  I think the single thing I like most about him is that after earning his doctorate at the age of 22, he went to teach at MIT, the Promised Land for young aspiring academic economists, but after two or three years got fed up and walked away from what would certainly have been a brilliant American academic career, to return to France.  Mind you, he has been teaching at les grandes écoles, which rival the Ivy League in their exclusivity.  But still! 

Tomorrow I shall turn to the little mathematical inequality that is, for Piketty, the key to understand where the world is headed:  r > g.

THOMAS PIKETTY CAPITAL IN THE TWENTY-FIRST CENTURY PART ONE

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.

PREVIEW OF COMING ATTRACTIONS

I have now finished reading Thomas Piketty's CAPITAL in the Twenty-First Century.  Tomorrow, I shall begin what I imagine will be a several day long commentary on the book, which I shall complete before I leave for the safari on Tuesday.  It is a very important book, worthy of a good deal of close attention, and I shall do my best both to convey its contents and to analyze and -- in some cases -- to criticize them.

RODNEY DANGERFIELD'S REVENGE

I have from time to time written here about the joys and sorrows of the amateur violist.  Generally speaking, to take a phrase from the late great Rodney Dangerfield,  we violists don't get no respect.  [Typical viola joke, of which there are hundreds:  "What is the difference between a viola and a lawnmower?  Answer -- You can tune a lawnmower."]

Well, that is all about to change, big time.  The NEW YORK TIMES announces today that a viola made by Stradivarius, one of only ten remaining, will be auctioned off with the starting price forty-five million dollars.  That is three times the astronomical price fetched by a Stradivarius violin, previously a record for a string instrument.

Ha!  You can keep your lawnmower, wise guy.

Now, back to reading Thomas Piketty about inequality.

GOOD GRIEF

I just took a break from Piketty and, for want of anything better to do, clicked on the link to the spam filter of comments.  To my horror, I discovered a wealth of intelligent, thoughtful comments in the spam file that I would like to have responded to, going back quite a ways.  I have no idea whatsoever how Google decides what counts as spam, but if I can, I am going to disable the filter, since I think the number of genuine spam comments is small, compared to all those intelligent comments.

My apologies.  There really are limits to this fancy new technology.  Now, in the old days, I would just sit on one end of a log and a student would sit on the other end, and we would talk.  Oh well.

AS I READ

My time these days is spent slowly plowing through the Piketty [up to page 300, more than half the book], so that I can write a long discussion of it before I go to Africa April first.  In a fascinating discussion of inequality in the United States, which, as he observes, has now reached the level of inequality in old Europe before World War I, Piketty analyzes what has been happening lately to those in the top 5%, 4%, and 1% of income.  I came across this brief passage, which I just had to share:

"Among the members of these upper income groups are U. S. academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely.  This is a very comprehensible human reaction."  [p. 296]

I mean, you gotta love him!

OH WELL

So I didn't win the 3QD competition.  I'll always have Poland.

WORLD FAMOUS IN POLAND

In 1983, the irreplaceable Mel Brooks did a remake of the great 1942 Jack Benny movie, To Be Or Not To Be, about a troup of actors in Nazi-occupied Warsaw.  At one point, by way of touting the reach of his theatrical success, Brooks brags that he is "world-famous in Poland."  That has always been one of my favorite movie lines.    This morning, I received a very gracious request from Professor Alfred Wierzbicki, requesting permission to reprint my old article, "On Violence," in a special issue of their journal Ethos devoted to the subject of violence.

Now, I am proud to say, I am in a position also to describe myself as world-famous in Poland.

INTERIM REPORT ON PIKETTY

I have now read the first 163 pages of Thomas Piketty's CAPITAL in the Twenty-First Century, and I feel the need to write an interim report, because there is too much in the book to put this off until I have finished reading it all.  Let me begin by saying that in my opinion this is a splendid and extremely important book, one that should be read by anyone seriously interested in understanding the world we now live in.  It is so rich in insights, and has so many quotable passages, that I cannot hope to capture it all in my commentary, so I shall content myself with saying enough to encourage you to read it yourselves.

The title is a deliberate reference and homage to Marx, and the comparison is legitimate in several ways.  Recall that Marx conceived himself as studying what he called the laws of motion of capitalist society and economy, a study that he undertook by combining an historical examination of the evolution of capitalism in the part of the world he knew best with a theoretical analysis of the structure and functioning of the most mature form of capitalism available to him for study, that in England of the mid-nineteenth century.

Piketty is engaged in an analogous effort.  Although his discussion seems analytical in nature, it is deeply grounded in a detailed macro-economic study of the economic history of Europe in the first instance, of North America secondarily, and of the rest of the world where the data will permit.  His tables and graphs offer a sweeping numerical view of the evolution of a number of economic magnitudes from the beginning of the Common Era [i.e., 1 A.D.] to the present, and most particularly of France, Britain, and Germany from 1700 to the present and North America from the late 18th century to the present.  This allows him to exhibit parallel trends in a range of national economies, as well as deviations that he then explains by a combination of economic and geo-political factors.

His principal analytical magnitudes are the total national income of a nation at a point in time, the total national capital at that point in time, the net public debt and private debt, rates of price inflation, and so forth.  In other words, analytically, he is operating at a very high level of aggregation in order to reveal large movements and overall structures.  He is not looking at such things as the intersection of supply and demand in the formation of prices, or at the structure and operation of individual firms.

The literary style of the book is, in its way, as idiosyncratic as that of Marx's CAPITAL.  It is extremely clear and matter of fact, rather laconic, deliberately ironic although in a quite laidback manner, and -- a constant delight -- filled with allusions to literature and film.  To give just one example, Piketty makes repeated references to the novels of Jane Austen and Honoré de Balzac to capture the fact that the return on capital was stable over a long period of time in both England and France, so that Austen could refer to a character as "having ten thousand a year" with full confidence that the readers would immediately understand what sort of holdings of land or government bonds that translated into, and what sort of life style it would purchase.  A century and more later, during a period of rapid inflation, such allusions disappear from novels.  This really expresses quite brilliantly the same relationship between surface appearances and underlying reality in a capitalist society that Marx conjures and anatomizes in the opening chapters of Volume One of CAPITAL.  

Although his focus is on the European case [and his analysis of France in particular is lovely], Piketty does write about American slavery, briefly but penetratingly and brilliantly.  Let me close by quoting several passages from the very last pages I read before pausing to write this preliminary report.  First, an example of his dry ironic tone, from page 160:  "All told, southern slave owners in the New World controlled more wealth than the landlords of old Europe.  Their farmland was not worth very much [because, as Piketty has already explained, there was so much available land in the New World], but since they 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."

And here is what he has to say about the legacy of slavery in America:

"[T]he New World combined two diametrically opposed realities.  In the North, we find a relatively egalitarian society in which capital was indeed not worth very much, because land was so abundant that anyone could become a landowner relatively cheaply, and also because recent immigrants had not had time to accumulate much capital.  In the South we find a world where inequalities of ownership took the most extreme and violent form possible, since one half of the population owned the other half: here, slave capital largely supplanted and surpassed landed capital.

This complex and contradictory relation to inequality largely persists in the United States to this day:  on the one hand this is a country of egalitarian promise, a land of opportunity for millions of immigrants of modest background; on the other it is a land of extremely brutal inequality, especially in relation to race, whose effects are still quite visible.  (Southern blacks were deprived of civil rights until the1960s and subject to a regime of legal segregation that shared some features in common with the system of apartheid that was maintained in South Africa until the 1980s)  This no doubt accounts for many aspects of the development -- or rather nondevelopment -- of the US welfare system."  [pages 161-2.]

The chapter closes with a simply devastating attack -- without ever mentioning Gary Becker by name -- on the concept of human capital on which modern American ideological rationalizations of capitalism rest.

I have barely scratched the surface of the book, and I am only in Part Two, which precedes Piketty's discussion of the central theme of the entire book, namely inequality.  Get it and read it.  It is a major work.

WHAT HAVE I BEEN READING?

At the suggestion of my son, Patrick, whose reading recommendations have been unfailingly interesting, I purchased from Amazon.com a new book called CAPITAL in the Twenty-First Century by a French economist with the rather un-French name Thomas Piketty.   It turns out to be a monster -- 577 pages of text and another 100 pages of notes and indices.  I have started reading it [up to page 73] and it is both readable and very interesting.  Piketty, Wikipedia tells me, is what the French call a man of the left -- an advisor to the Socialist Party and a columnist for the Socialist newspaper, Liberation.  He is only forty-two [Ph D at 22] and his parents took part in the Paris demonstrations of '68, so he comes of good stock.  The focus of his elaborate historical and statistical world-analysis is the cause and evolution of economic inequality.  Paul Krugman says on his blog that he is working on a long review of Piketty for the New York Review of Books.  Although I am a slow reader, and will be interrupting all such activities for my safari on April first, I shall try to finish most of the book before the Krugman review appears.  Eventually, I shall attempt my own discussion of it on this blog.

AMONG THE THINGS THAT REALLY BUG ME

Old joke:  Man walks into a working class bar where seven men are hunched over beers.  The average net worth in the bar is now seven billion dollars.  Who is the man?  Answer, Bill Gates.  You would think that by now people would understand the difference between the mean, or average, and the median, the point in a linear array of items midway between those below and those above, on some scale of measurement.

Well, good old MSN has screwed it up, and not, I think, by accident.  They have a story on their website about a list of twenty-one jobs that pay the average wage of roughly $24 an hour, or more than $48,000 a hear.  Pretty good looking jobs, I must say.  The only problem is that the median wage is a bit more than $13.50 an hour, or $27,500 a year.  Fully half of all the full-time employed men and women in the United States make less than that.  HALF.  The average is pulled way above the median by the high wages of people at or near the top of the income pyramid [including me, when I was working as a senior professor, and all the other senior professors at  American universities.]

 

Now, that isn't so hard to understand, is it?

IDLE COMMENTS ON MATTERS ABOUT WHICH I KNOW NOTHING

1.  The Missing Malaysian Airliner:  Since no one, it seems, knows anything about what happened to the airliner and where it is, I choose to believe that it crash-landed in a valley deep in the Himalayas where the passengers have found a people who live happily to incredibly old age.  I predict that if one of the stranded passengers falls in love with an apparently young woman who is actually well over a hundred, and foolishly persuades her to leave the valley to make their way back to "civilization," she will grow old before his eyes and die as soon as they are outside the valley.  [For those of you who think I have lost my mind, see the great 1937 film Lost Horizon, starring Ronald Coleman and Jane Wyatt.]

2.  Crimea:  Well, my uninformed prediction seems to have been correct.  Putin is indeed attempting to reconstitute as much of the old Soviet Union as he can.  I rather suspect that in a little while there will be claims that Russian-speaking peoples in Eastern Ukraine are being discriminated against, and are asking Russia for help, which Putin will reluctantly but dutifully supply, in the form of Russian troops.  In retaliation, America and the EU will freeze more funds by Russian plutocrats, causing, among other things, a dip in the prices of apartments in Paris.  Oh well, we must all sacrifice for the greater national good.

3.  I very much fear that the feckless Millenials will fail to turn out next November, with the result that the Republicans will take control of the Senate, making the next two years even worse hell than the last two.  Fortunately, the Democrats only need to hold their losses to six seats, because in a split Senate, the Vice-President has the deciding vote.

4.  Next Monday, the blog 3QD, or Three Quarks Daily, will announce this year's Politics and Social Science Prizes.  It seems that a blog post I wrote six months ago called "How To Do History" is a finalist.  The site does not say what the winners actually get, aside from the enormous honor of having their blog posts noticed momentarily.  Inasmuch as I have never, in eighty years, won anything, I await the outcome with bated breath.  There are nine finalists and three prizes [First, Second , and Third.]   Can any Bayesians out there tell me whether my chances are one in three of winning something?

THE UTTER FAILURE OF THE USUAL DIVERSIONS

I am, as I have often observed on this blog, a temperamentally optimistic person.  Told that my birthday present is a room full of manure and a shovel, I ask, "Where's the pony?"  Faced with the appalling horrors of this world, the poverty, the injustice, the smug self-satisfaction of those who benefit from that injustice, my defensive reaction after a while is to divert myself until I have regained my composure so that I can once again confront the world with a smile and cheery words.  But lately, my efforts at diversion on this blog have been failing of their purpose.

I have tried talking about my viola, always in the past a sure winner.   I have tried reprinting some of my favorite essays from my files, rather like an aging pop composer who sits at the piano, hands idly massaging the keys, saying "And then I wrote."  I have tried hunting up delicious passages from Hobbes and Plato, both endlessly diverting authors.  But the sheer bloody-mindedness of the corporate Masters of the Universe, public intellectuals, and politicians in this great nation defeats me. 

I have quizzed my memory to determine whether the public discourse really is worse than it was when I was young, as it seems to me to be, and I find it genuinely difficult to tell.  Perhaps when I was younger, I was sure there was time enough in my future life for improvement, whereas now, when I cannot be certain that I shall see more than one additional presidential cycle or Olympic Games, I grow despondent at the thought that I will pass from the scene with this country as appalling as it now is.

During the Stalin era, it is said, some Russian intellectuals performed an "inner migration," withdrawing from their world into literature and music and art.  But I find that I cannot embark on such a migration.

Of course, for the first thirteen days in April, I shall be completely beyond the reach of television and the Internet, confronted only by the timeless beauty of the African plains.  When I return, I shall write at length about what I have seen, accompanied by pictures taken with my IPhone.  Perhaps that will suffice to rebalance my humours, making me sanguine and phlegmatic rather than bilious and choleric.

A MUST READ

Take a look at the latest column by Joseph Stiglitz.  You can find it here.

COLLECTIVE CHOICE THEORY, GET-AWAY BEACHES, AND THE LIZARD BRAIN

Idly surfing the web and crawling around on the Huffington Post yesterday, I stumbled on this picture of a lovely beach, to which was appended the following comment:  "Navagio has been called the prettiest beach in all of Greece, which, if we can all agree is one of the prettiest places in all the world, then this beach is the prettiest beach in the whole wide world. Logic works for us."

As I am sure you will all understand, I immediately thought of Amartya Sen, who has an elegant discussion of the logical fallacy embedded in this picture caption.  To see intuitively why it is a fallacy, consider the following formally identical argument:  "Jones is the richest person in America, and America is the richest nation on earth, so Jones must be the richest person on earth."  [I was going to say, "Tell that to Carlos Slim!" but Forbes says that this year Bill Gates has edged him out.  Oh well.]

Anyway, I decided to write a little blog post about this logical error, so I pulled Sen's Collective Choice and Social Welfare off my shelf and started paging through it, looking for the passage I was sure was there.  For those of you who do not know it, Sen's 1970 book is one of the loveliest works of formal logic ever written.  It is breathtakingly brilliant, very clear, and full of surprising and important results.  [Not just my opinion -- Sen won the Nobel Prize for it.]  Among other things, the book contains Sen's announcement of the necessary and sufficient conditions for majority rule to yield consistent social choice.  This is an important extension of Kenneth Arrow's major result, the General Impossibility Theorem [for which Arrow won the Nobel Prize.]

Well, an hour later, I gave up, empty-handed.  I know it is there somewhere, but I just cannot find it.  I even looked through Sen's short book, On Economic Inequality, but I could not find it there either.  Can anyone point me in the right direction?

ANOTHER FAVORITE

Looking up those definitions of superstition and religion in Leviathan got me thinking about another passage, my all-time favorite from the entire corpus of the philosophy I have read.  It is on my mind because two days after returning from my safari I shall be teaching it in Duke University's Osher Lifelong Learning Institute, a Learning-in-Retirement program in which I have participated gratis three or four times before.  The passage comes from the third section of Plato's great middle dialogue, the Gorgias, in which Socrates is talking with the excitable iconoclast, Callicles.  When we interpret the passage, it is important for us to recall that as Plato wrote it, he was facing an important life choice:  Whether to plunge into the public life of Athens, as would be appropriate for a man coming from one of the leading families, or to withdraw from that public sphere and gather around him a group of young men gifted in philosophical discourse.  Plato chose the latter course, as we know, and founded the Academy from which all modern universities descend.

Callicles is speaking.  I quote from the Humbold translation. 

"It is an excellent thing to grasp as much philosophy as one needs for an education, and it's no disgrace to play the philosopher while you're young; but if one grows up and becomes a man and still continues in the subject, why, the whole thing becomes ridiculous, Socrates.  My own feeling toward its practitioners is very much the same as the way I feel toward men who lisp and prattle like a child.  When I see a child, who ought to be talking that way, lisping and prattling, I'm pleased, it strikes me as a pleasant sign of good breeding and suitable to the child's age; and when I hear a little lad speaking distinctly, it seems to me disagreeable and offends my ears as a mark of servile origin.  So, too, when I hear a grown man prattling and lisping, it seems ridiculous and unmanly; one would like to strike him hard!  And this is exactly the feeling I have about students of philosophy.  When I perceive philosophical activity in a young lad, I am pleased; it suits him, I think, and shows that he has good breeding.  A boy who doesn't play with philosophy I regard as illiberal, a chap who will never raise himself to any fine or noble action.  Whereas when I see an older man still at his philosophy and showing no sign of giving it up, that one seems to me, Socrates, to be asking for some hard knocks!  For, as I said just now, such a man, even if he's well endowed by nature, must necessarily become unmanly by avoiding the center of the city where, as the Poet [Homer] says, 'men win distinction.'  Such a fellow must spend the rest of his life skulking in corners, whispering with two or three little lads, never pronouncing any large, liberal, or meaningful utterance."

The description of Professors of Philosophy [for that is really what in our world he is talking about] as "skulking in corners, whispering with two or three little lads" is delicious.  I wonder how many of my many colleagues in our profession ever give this passage serious thought.  They have all read it, of course [or at least it used to be the case that we could assume that -- these days, one does not know], but have they thought about it?  And when they teach a Platonic dialogue, which at least in Introductory courses they probably do, does it occur to them that the Sophists, those cardboard figure bad guys of the Dialogues, are actually professional teachers who go from city to city earning money by coaching the children of the rich -- which is to say, are itinerant Professors of Philosophy? 

I wonder.

SOME OF MY FAVORITE THINGS

When the political discourse of the day grows so banal and vulgar as to cause me to lose all hope, and even the charms of my viola cannot adequately divert me, I turn on occasion to some of the noblest texts in the Western philosophical tradition, not for enlightenment so much as for consolation, in much the way that a little child, when frightened, will nestle reassured under the covers at the words "Once upon a time.."

This afternoon, I opened my worn and much thumbed copy of Thomas Hobbes' great masterpiece, Leviathan.  I paged through to Chapter Six of Part One, which bears the title, "Of The Interior Beginnings Of Voluntary Motions; Commonly Called The Passions; And The Speeches By Which They Are Expressed."  If you are not acquainted with Leviathan, or perhaps have not looked at it since your student days, I recommend spending some time with it.  Hobbes is one of the consummate stylists of the English Language.  The chapter in question is a series of extraordinary and unexpected definitions of familiar words -- Love, Hate, Contempt, Good, Evil, Hope, Despair, Fear, Courage, and many, many more.

For more than sixty years now my favorite of Hobbes' definitions have been these, appearing midway through the chapter.

"Fear of power invisible, feigned by the mind, or imagined from tales publicly allowed, RELIGION; not allowed, SUPERSTITION."

Just think what Hobbes accomplishes in these eighteen words!  The only distinction between religion and superstition is whether the tales that provoke our fear of things invisible are allowed or not allowed.  It is the law, the will of the sovereign, that constitutes the difference betwixt the two.  I think that single sentence may be the most powerful argument against religion faith ever written.

There, now I can face another evening of bloviating pundits.

JUST IN CASE I DISAPPEAR

On April 1, Susie and I depart for a safari in the Okavango Delta in Botswana  [Very luxurious, despite the facade of roughing it.]  For two weeks I shall be totally incommunicado, unless a passing hyena has Internet access.  Meanwhile, of course, we are all mesmerized by the mysterious disappearance of the Malaysian Airliner somewhere in a vast area of South Asia.  The plane that has gone missing is a Boeing 777-200.  We shall be flying from Atlanta to Oliver Tambo Airport in Johannesburg, South Africa on -- a Boeing 777-200.

Should I return, I shall post an account of the trip illustrated by pictures taken on my IPhone.  But if the plane disappears, look for me in the Namibian desert.  I shall practice my survival skills by watching King Solomon's Mines on NetFlix.

DISCUSSION OF THE PIMPLE ON ADONIS' NOSE

The reception of my rather unusual keynote address was generally favorable.  If I am any judge of audience reactions, they really began to catch on at the moment in the story when two people walk into the University admissions office.  One member of the distinguished UNC Chapel Hill group was so outraged that, after mumbling under his breath for a bit, he stood up abruptly and stomped out.  I was thrilled.  My talks do not often get that sort of visceral reaction.

The line that really stuck in their craw, however, was the observation by the Invertian Minister of Education, near the end of the story, that American "colleges and universities are engaged, educationally speaking, in the removal of pimples from the faces of intellectually beautiful young people."  When I gave the same talk at Mt. Holyoke College, one of the so-called Seven Sisters, the distaff equivalent of the old Ivy League, the faculty were outraged.

Many in my audience protested that the equivalence I was suggesting between medicine and higher education was false, and of course in a way they were right.  Rather than launch into an abstract discussion of those two professions, let me make their point with a pair of stories, one almost certainly apocryphal, the other certifiably true, as it happened to me.  Apocrypha first.

When the famous American economist Paul Samuelson was a student at Harvard, so the story goes, the time came for him to take his doctoral oral examination.  This was not the defense of his dissertation -- that would come later -- but a wide-ranging examination of every aspect of the discipline.  The committee examining him was made up of a distinguished group of senior faculty, among whom was the great Russian-American economist Wassily Leontief, himself, like Samuelson, later a recipient of the Nobel Prize.  The committee grilled Samuelson without mercy for two hours, after which he got up and left the room so that the committee could deliberate about his performance.  When the door had closed behind young Samuelson, Leontief looked around the table at his colleagues, smiled, and asked, "Well.  Did we pass?"

This captures Harvard perfectly:  the wit, the intelligence, the smug self-congratulation, the insularity.  In a single anecdote, undoubtedly merely a legend, it explains why, at the age of thirty-seven, I chose to walk away from a senior professorship at an Ivy League University in New York City to spend the rest of my career at a big, rural second-tier State school.  But there is much truth in the apocryphal story. 

All of us in the Academy have stories about our very best students who, if we are lucky, could as easily be our colleagues.  We all cherish those moments in a class or a conversation with a student when we know that we are being fully understood, that we are talking with someone who lives the life of the mind as we strive to do.  And all of us have our horror stories about students who seem utterly unprepared for what we are offering in our lectures, whose writing requires endless red pencil correction and emendation, who will never, we are sure, grasp what we have labored so hard to make clear and precise.

The second story concerns a senior Plastic Surgeon thirty years ago at Massachusetts General Hospital, the medical equivalent of an Ivy League university.  My first wife and I had gone to see him about a minor dermatological problem she was having.  This was a man who made a very fine living performing tummy tucks, breast enlargements, and rhinoplasty on essentially healthy patients.  He really did devote his day to something very like the removal of pimples from the noses of Adonises and Venuses.  But after the consultation, we got to talking, and it became clear that that was not what interested him at all.  His eyes lit up as he spoke animatedly about his work at the Shriner Burn Center, saving the lives and healing the bodies of children who had suffered extensive third degree burns.  Even if his enormously skilful efforts were successful, these children would be scarred for life, but if he was able to return just one of them to something resembling a normal existence, he felt fulfilled and justified.

Well, if I acknowledge these differences between medicine and education -- between the treatment of the body and the enlightenment of the mind, to speak as Plato does in the Gorgias -- what is the point of my lecture?  Once again, it is the Invertian Minister of Education who speaks for me.  "can [you] explain why, in five decades of university teaching, you have never felt the slightest discomfort at your country's settled practice of devoting lavish resources to the education of those least in need of them, while at the same time taking it for granted that your country's medical resources should be con­centrated on saving the lives of your least healthy fellow Americans [?]"

Higher Education is a sizeable sector of the American economy.  A quick search on Google tells me that in 2010 [the numbers have not changed much since] the Gross Domestic Product of the United States was $13.24 billion, 2.8%, or $350 billion of which was devoted to higher education.   The total endowment of all universities in America was somewhat more than $355 billion in 2010.  Just under half of that was held by the seven universities of the Ivy League.  For all their much proclaimed openness and ecumenicism, the elite private and public universities are the educational equivalent of those gated communities in which the rich isolate themselves from the rest of America.  More to the point, only a third of adult Americans earn a four year university degree, and yet I have lived my life in communities in which everyone has a college degree, the only question [and a burning one, at that] being which college or university the degree is from.

If we believe that the collective educational resources of the nation are being misallocated, what could or should be done to change that?  It is easy, though not wrong, to say that the money should be spread around differently.  It is harder, at least for me, to imagine a completely different conception of the professional ethos and function of the university professor, one that embraces the principle that scarce resources should go to those who need them the most, not to those who need them the least.

Perhaps rather than focusing on resources, important as they are, we should think about the social recognition we give to practitioners in medicine and education.  In medicine, we hold heart surgeons in high regard, and tend to think dismissively of plastic surgeons, for all that they make a great deal of money.  In education, by contrast, all honor goes to the select few who conduct advanced graduate seminars on the forefronts of arcane disciplines, while we feel a mixture of pity and contempt for those who teach Freshman Comp.  We have many ways to measure the success of distinguished scholars, and very few even to take notice of the work of remedial writing and math instructors.  I honestly do not know whether it is even possible for there to be, in Nietzsche's evocative phrase, a transvaluation of values in the Academy.  The Pimple on Adonis' Nose is my effort to at least begin a conversation.