20 Jun 2014

Thomas Piketty. Capital in the Twenty-First Century.



 

On my way to the Green Party conference in Brighton last autumn, I bumped into a French member of our Party, who was clutching a copy, in French, of Piketty’s magnus opus.  She was enthusiastic but I must admit I knew nothing of Piketty, but I guessed, wrongly that he was some kind of latter day Foucault or Althusser, up dating Das Kapital for the modern world.  

The effects of Piketty are obvious, he has been bought and reviewed on an epic scale.  We have learnt a number of things.  While Capital is nearly 700 pages long, its basic message can be summarized in a couple of lines. 

Piketty argues, that with the exception of part of 20th century, inequality has tended to increase.  This is, essentially, because those who own assets tend to see their income rise at a faster rate than those who don’t.  Piketty feels that this has negative consequences and policy makers should find ways of reversing or at least blunting this trend.  Ideally he would like to see a global wealth tax to redistribute.
Despite its length it is not ‘Das Kapital’ or ‘The Wealth of Nations’ or Hardt and Negri's ‘Empire.’   Unlike these texts 'Capital in the Twenty-First Century' does not attempt an analysis of entire socio-economic system, in fact, its scope is quite modest.



While Marx argued that ownership of the means of production tends to lead to concentration of wealth and income, there are a great many distinctions between his approach and that of Piketty. These have been spelt out by a number of reviewers including David Harvey http://davidharvey.org/2014/05/afterthoughts-pikettys-capital/.  Harvey’s recent book 'Seventeen Contradictions and the End of  Capitalism’, suggests for Marxist that topic of what is both right and wrong with our prevailing socio-economic system covers at least 16 issues that are not discussed by Piketty.

Defenders of the free market mainstream have taken a number of approaches including attacks on Piketty’s methodology.  However The Economist, in a subtle, editorial, suggests that Piketty’s has produced empirical data that backs up his central theme of increasing inequality, has written an attractive book (yes it is nearly 700 pages long but with ballast from Balzac, they fly by!) and identifies an important problem http://www.economist.com/news/finance-and-economics/21601567-wonky-book-inequality-becomes-blockbuster-bigger-marx.

I think we need to build on Piketty’s work in several ways.  As a Green, I am concerned about the ill effects of our economic system on global ecology, and like Harvey I agree that beyond ecology and equality, there are other ill effects of capitalism.  But to keep it simple we should ask does the rising inequality identified by Piketty a) matter? and b) what do we do about it?

I think if you read either The Spirit Levelhttp://www.equalitytrust.org.uk/resources/spirit-level-why-equality-better-everyone, which gathers empirical data, or the works of the Nobel Prize winning economist Amartya Sen, who combines data with a  more philosophical approach, we learn that extreme inequality is undesirable.  To keep it simple, we can note that wealth is power and if wealth is concentrated in the hands of the 0.001% that leads to a number of social distortions, corrupting society and ultimately subverting democracy.

 

There are some potential arguments, of course, for inequality.  Many neo-liberal economists argue that if increasing wealth is accompanied by inequality, this is a small price for a society that is becoming richer.  However this is still trickle down, the thesis that a little gravy dripping from the chins of the hyper rich, will nourish us all. Trickle down has been widely criticised as at best a flawed metaphor and at worst a weak excuse for excess.  I would respond, to those who argue for inequality, with some thoughts from Machiavelli, James Buchanan and Frank Knight.  The hardest nosed liberals, you can find, all three, would have had some sympathy for Piketty.

 

Machiavelli in his ‘Discourses on Livy’, argued that the democratic republic was threatened by the corrosive power of wealth, he believed, despite his far from cuddly reputation, in a more equal society.  Buchanan, despite being, an otherwise, to the letter free marketer, argued for a 100% inheritance tax.  Buchanan he believed that hard work justified inequality and provided incentives but picking up you parents assets did not promote a sound economy http://www.economist.com/news/finance-and-economics/21569692-james-buchanan-who-died-january-9th-illuminated-political-decision-making.

 

Frank Knight, often seen as the father of Chicago School, inspired Buchanan.  He was the sceptics sceptic, he was a liberal and suspicious of state intervention, however he was very clear that while he defended the market system, it lead to rising inequality.  Knight believed that luck and inheritance were just as important in determining economics reward as hardwork and ingenuity http://www.angusburgin.files.wordpress.com/2012/08/knight-article.pdf

 

What of solutions to accelerating inequality? Pikkety has suggested a global wealth tax and other fiscal measures might including a Land Value Tax.  In fact, we need to go further, Well the means need to be discussed but the principle is simple, we need more democratic ownership of capital.  One person one vote, used to be subversion, the idea that we need broad ownership of assets needs to move from heresy to policy and to be implemented with care.  Some have suggested that this is captured in the idea of an economy for the common good and the sharing of common property.

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