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Tuesday, April 1, 2014


After 470 pages of dense data-driven analysis, full of truly appalling information about the unequal distribution of wealth and income in the modern world, we come at last to Part Four of CAPITAL in the Twenty-First Century, to which Piketty gives the title "Regulating Capital in the Twenty-First Century."  These one hundred pages were a big disappointment to me.  After everything I had read, I expected Piketty to come out swinging with a series of radical proposals for the thoroughgoing reformation of capitalism, if not its replacement by a new social and economic order.  Instead, we get a discussion of taxation, followed by a utopian proposal for taxing world accumulations of capital.  To summarize his recommendations in a sentence:  Picketty offers reasons for thinking that taxation on incomes is not likely to halt or even slow the steady growth of patrimonial capitalism, and opts instead for a "global tax on capital."  He appears to be aware of the impossibility of instituting such a global tax [who on earth would administer it?], but he writes as though he thinks that something might be accomplished, to start, in the European Economic Union.  He has little or nothing to say about what might be done with the money raised by this tax, were it to be imposed.  [He has in mind perhaps a 1% annual tax on wealth.]

Why this complete disconnect between the trenchant power of Piketty's analysis and the feebleness of his proposals for action?  It is not enough to say that he is an economist, not an activist, for he is what the French call a man of the left, and his life choices constitute a rejection of the isolation from reality that he decries in the American academic world.

I am tempted, I admit, to trace the weakness of Piketty's proposals for change to a biographical passage [which I have been utterly unable to find, after hours of searching, but which I swear I read!]  Piketty tells us that his parents took part in the Paris student demonstrations of 1968, but that he was born afterwards [in 1971] so that he is free of the Marxist [by which he seems to mean Stalinist] baggage of those times.  [Please, please, if anyone knows where the passage is, tell me.  It is driving me nuts.]  Those demonstrations had a profound effect on the very geography of Paris.  In the part of Paris where my little apartment is, the wonderful old cobblestones were ripped up and the streets were paved over so that future demonstrators would not have the materials for barricades ready to hand, while the Sorbonne, home territory to the rebellious students, was broken up into a number of branches and scattered all over the city, on the theory, I suppose, that this would discourage revolutionary activity.

Piketty has an extremely curious relationship to Marx.  He has clearly read him, he refers to him frequently, and yet he cannot stop explaining why Marx has nothing important to teach us about capitalism, or indeed about capital.  Here is an extract from the six page Conclusion that closes the book:

"The inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages.  This inequality expresses a fundamental logical contradiction.  The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor.  Once constituted, capital reproduces itself faster than output increases.  The past devours the future."  [p. 571]

With a few adjustments in jargon, that passage could have come straight from the pages of Das Kapital.  Indeed, omit Piketty's weak, rather hesitant Part Four, and the entire impressive massing and analysis of data in the book could be viewed as an overwhelmingly powerful confirmation of Marx's dark vision of capitalism.  And yet, Piketty shrinks from such an identification, dismissing Marx's theories as inadequately grounded in the available data and motivated by political concerns rather than economic insight.  What is going on?

I honestly don't know, but  I am going to hazard a guess, based on hints I find in the text.  This portion of my remarks must be taken with even more than the usual helping of salt, because in addition to lacking any formal training as an economist, I also lack the sort of immediate familiarity with the French academic and intellectual scene that would help me to place Piketty in his intellectual milieu.

As we have seen, the object of Piketty's greatest concern is the re-emergence of patrimonial capitalism, of a capitalism dominated by those who have inherited their wealth rather than acquired it themselves.  Many passages suggest that Piketty sees this as a question of fairness or social justice [there is even a footnote reference to Rawls at one point].  But another specter is haunting Piketty, the specter of destabilization.  The threat of destabilization appears in the Introduction, where Piketty writes that "if the rates of population and productivity growth are relatively low, then accumulated wealth naturally takes on considerable importance, especially if it grows to extreme proportions and becomes socially destabilizing. ... Accumulation ends at a finite level, but that level may be high enough to be destabilizing."  [p. 10]  Several pages later, he writes, "The second conclusion, which is the heart of this book, is that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence or divergence.  Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently."  [p. 21]   And two pages further on, "there is a set of forces of divergence associated with the process of accumulation and concentration of wealth when growth is weak and return on capital is high [i.e., when r is significantly greater than g  RPW]  This process is potentially more destabilizing ... and it no doubt represents the principal threat to an equal distribution of wealth over the long run."  [p. 23] 

Nowhere in the almost six hundred pages of this huge book does Piketty ever tell us what he means by "destabilization."  There is a tiny clue on page 472.  "The main reason why the crisis of 2008 did not trigger a crash as serious as the Great Depression is that this time the governments and central banks of the wealthy countries did not allow the financial system to collapse and agreed to create the liquidity necessary to avoid the waves of bank failures that led the world to the brink of the abyss in the 1930s."

The brink of the abyss.  Considering how bad things were in the '30s, what would have been so much worse as to qualify as an "abyss"?  The only thing I can suppose Piketty has in mind is a political revolution.   I cannot be sure because he never tells us, but I think the destabilization Piketty fears is a political uprising, outside of the usual procedures of democratic government, fueled by popular outrage at the extreme inequality of inherited wealth that he labels patrimonial capitalism.

Now, let us remember.  Piketty is a man of the left, an advisor to the French Socialist Party and to its 2007 presidential candidate, Ségolène Royal.   It is surely not democratic socialism that Piketty fears, at least not the rather tepid version that now passes for socialism in France.  My speculation -- and it really is only that -- is that Piketty fears a right-wing uprising, a revanchist resurgence of the fascism that always lurks below the surface in modern Europe.  [Just today, as I have been writing these words, I read that in local elections, the far right National Front party of Marine Le Pen has won upset victories in ten or eleven towns over the socialist candidates.]  We on the left here in America have never had a viable nationally competitive socialist party [although, to be sure, my grandfather won election on a socialist ticket to the New York City Board of Alderman in 1917 -- our family's proudest day], so we may long for an uprising from the left.  But we have also never suffered a fascist putsch.  Well, as I say, this is all just speculation.

What do I think about the economic inequality whose history, tendency, structure, and lineaments Piketty has so brilliantly portrayed?  Let me close this lengthy review by offering some observations, some suggestions, and some alternatives to Piketty's global tax on capital.

Piketty's central discovery, if we may call it that, is that contemporary capitalism is over the long run steadily transferring huge quantities of wealth from the poor to the rich, reconstituting thereby the inherited or patrimonial privilege and power characteristic of Europe in the eighteenth and nineteenth centuries.  This fact may come as a surprise to professional economists, but it does not particularly startle those of us who have squandered our youth and idled away our maturity reading Karl Marx.  All societies exist for the purpose of transferring wealth from those who create it -- the poor -- to those who do not -- the rich.  The academic professions exist for the purpose of rationalizing this transfer, the churches exist for the purpose of blessing it, and the arts exist for the purpose of decorating the transfer so as to make it as charming as possible [even though this often comes to nothing more than putting lipstick on a pig.]

In the early stages of the development of capitalism, capital, which is to say the accumulated and unconsumed product of past labor, is owned by those who manage its deployment for new production of goods and services.  But as capitalism evolves, the structure of capital changes.  The ownership of the capital remains private, but its organization is progressively socialized.  [Once again, I must refer readers to my paper, "The Future of Socialism," archived at and accessible via the link at the top of this blog.]  The essential work of the management of capital is separated from ownership and placed in the hands of a cadre of professional managers [Piketty's "supermanagers," among them.]  Modern multi-national corporations are marvels of the rational organization of capital.  Their ownership, as opposed to their management, is dispersed among countless shareholders, who may well be wealthy individuals but may as well be pension funds of public employees.

Piketty's little inequality, r > g, conceals a vitally important truth.  The rate of return on capital, r, is in part determined by the share of the annual product that goes to wages for those whose labor creates that product.  Regardless of the fantasies of marginal productivity, invented to provide a quasi-mathematical excuse for the exploitation of the working class, there is nothing to stop a society from deciding collectively that the entire annual product of the economy shall be divided into one portion saved to create new capital, a second portion set aside to pay for social services and activities, and a third  portion paid as wages to the individuals engaged in one way or another in the production of the annual output.  Included in the second portion will of course be pensions for those no longer working, education for those not yet working, health care for those who need it [including those unable to work], and any other public undertakings democratically decided upon.  None of the annual product need be reserved as "profit" for those who hitherto have successfully asserted legal ownership of the society's accumulated capital.  In short, every society, including ours, has a real and continuing need for capital, but our society no longer has any need at all for capitalists. 

How on earth can we transform modern capitalist society into a society without capitalists?  After all, as good old Marx reminds us, "Philosophers have hitherto only interpreted the world in various ways; the point is to change it."

Well, I am about to depart on a two-week safari, so I will politely defer a full answer to this little question until I return [hem hem]. 

 I remain enlightened by Piketty's book, educated by it, helped by it in thinking about the evolution of capitalism in America, and disappointed by the timidity of the concrete steps he proposes to address the threat of growing entrenched economic inequality.  But that just means that we here in America have work to do.  I urge you all to get a copy of CAPITAL in the Twenty-First Century and read it carefully.  I believe it will repay the effort.

When I return from my trip abroad, if there is sufficient interest, I shall be very happy to continue discussing the many issues raised but not resolved in this extended review.



Seth said...

Bon voyage. I'll be sure to read the book, and look forward to further commentary when you return.

Aldo Antonelli said...

Happy travels, professor. And many thanks for your thoughtful review of Piketty's book.

vathek said...

I believe the biographical passage you're looking for is in the Introduction, right at the beginning of the section entitled "The Theoretical and Conceptual Framework" - can't give you a page reference since I only have the ebook version. Piketty does not mention his parents there, however.
... and thank you very much for your tutorials, musings & observations. May you never run out of things to write about.

vathek said...
This comment has been removed by the author.
chrismealy said...

I pre-ordered Piketty's "Capital" in hopes that it would be a book I'd actually read instead of reading about. That was before my now four-month-old was born, before my wife had her appendix out, and before my two-year-old broke her arm. I'd given up on reading it (especially after reading Jamie Galbraith's review). Thanks for these posts. I've learned a ton from them. I'd say you're reviewing it a lot better than the economists are. Now I gotta find time to read the book ...

pastrypride said...

There is what seems to me to be a crucial disagreement between Piketty and Marx. Marx held that as variable capital makes up a smaller share of investment, the rate of profit will decline in the long run of the development of capitalism. One of Piketty's central arguments (or so I've read) is that under capitalism, the rate of profit increases at a faster rate than growth. This is what he takes to lead to increasing inequality under capitalism. (Or at least, that's the view attributed to him here:

On the face of it, then, Piketty's critique of capitalism actually presupposes the negation of Marx's. And the difference is important, since Marx's critique entails that capitalism will become a fetter on the means of production, whereas Piketty's only entails that it will lead to greater inequality.

Of course, the two share a highly critical attitude towards capitalism. And both are socialists in some sense of that term. But from what I've read, the parallels don't go much deeper than that.

Anon Ymous said...

There's a biographical passage in the introduction where he writes that he came of age when the Berlin wall fell down and thus never had any fondness for the Soviet regime or trite anticapitalist discourse. That's p. 62 in the French edition. I don't remember reading in this book about his parents taking part in the 1968 demonstrations. But one can read about it elsewhere. See, e.g., here.

pqnelson said...

Interesting you say Piketty has read Marx deeply; Naked Keynesianism has pointed out the complete opposite.

I'm tempted to pick up the book, just to make heads or tails of it myself. But I'm uncertain if I have time to invest in reading 577 pages --- I've got quite a few things on my reading list already!

Unknown said...

Perhaps Piketty is under the influence of Durkheim,
who was definitely a socialist; but a socialist troubled by anomie (ie, instability).
Durkheim was a socialist and decidedly no Marxist-
perhaps ditto for Piketty

Erik Hetzner said...

The new yorker review mentions his parents taking part in the riots (sic) of May 1968.

Unknown said...

Great review--very insightful. I was a big fan of Marx during my grad school days of the 1970s. Maybe this is the time for me to read Professor Wolff's book on Marx's Capital. It's been on my list for some years now.

Unknown said...

Regarding the global tax on capital, individual countries could administer the tax and spend the money raised as they wished, but they would need to agree on a common framework. Not that that is realistic, though.

Unknown said...

I suspect Mr Picketty intends his analysis to become the mainstream within economics. If he were to join that analysis to a strong prescription for political action, he simply sets himself up as a biased observer. He identifies the problems, illustrates the likely future trajectories, but resists the temptation to nail his flag to the wall and thereby particularly identify his analysis with the Left. With only weak prescriptions, the Right must attack his analysis, which they will find difficult, but they will have nothing much else to focus on.

Matias Vernengo said...

I recommend Jamie Galbraith's review of the book in Dissent, linked here

Superfluous Man said...

I know it's going to be a pain, but if they don't you must!

George Berger said...

I just started reading these posts, as I am thinking of buying the book and need information. But about that transfer of wealth. Isn't that one of just several main themes in David Harveys "The Enigma of Capital?" If the transfer is taking place, what is so surprising about the inequality? It seems to follow from considering the transfer in an increasingly technological society. Is the empirical data the main argument for it? If so, that is valuable.

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