Book review:
Piketty, Thomas: Capital in the 21st Century, Belknap Press of Harvard University Press, Cambridge, Massachusetts, London, England, 2014. 332-041 P636C in Dallas Public Library
The library had to renew this book twice before I could finish its 577 pages. Like other books about economics, it is full of Greek symbols, formulas, graphs, and statistics.
Piketty claims to have accumulated more economic data than any work before him. His facts and numbers go back into the 18th century. His best data is from his home country, France, but he has a lot from U.S., Britain, Germany, Italy. A little data from other countries and a little data from other times going back to the Romans. This book shook the world. His information base is far more comprehensive than anything else I’ve seen or heard of.
It is difficult to argue against someone who has the data, so I won’t argue over facts. But I will argue against his interpretation of the data, and I will argue even more strongly against his suggestions for future action. First, a bit about what he says:
It was very gratifying to see that he doesn’t think that economics can stand as an independent science. It has to be combined with other disciplines, especially politics, to be of any use.
Piketty’s graphs show that the period from roughly 1914 to 1973 was very different from before or after. Inequality was rampant before, it’s rampant now, but it wasn’t so dire during 1914-1973. I’ll call that the abnormal period. Capitalism is now “normal,” that is, it is creating devastating inequality. Piketty asserts strongly that the best solution is a global tax on wealth, not for revenue, but to redistribute wealth and lessen inequality.
During the abnormal period, the author says, there were two world wars and a depression. Governments established strong central banks to deal with the world depression. To pay for their wars, they implemented progressive taxation, especially of income and inheritance. As for the cause of these developments and the subsequent lessening of inequality, Piketty just calls the wars and depression “shocks.”
Were “Shocks” the Cause?
That’s not how I interpret the abnormal period that Piketty revealed. Something else happened 1914-1973 besides a depression and two world wars.
I note that 1914 marked the upsurge of the workers movement worldwide, not just in Russia. In America, for example, socialists were being elected to office, including to the U.S. Congress. I also note that 1973 marked the Sino-Soviet split (Nixon’s trip to China) the beginning of the downturn for the USSR in particular and the worldwide workers’ movement in general. One book I read said that the American labor movement died during Nixon’s campaign for a second term (they didn’t support McGovern). At any rate, the American labor movement’s weakening was certainly visible by 1973.
Inequality was indeed lessened by progressive taxation during the abnormal period, but it wasn’t because of “shocks.” It was because the workers’ movement was waxing strong. During World War I, the Bolsheviks took power and inspired the world movement. During the depression, communists argued that the Soviet Union was the only untouched major economy in the world. After World War II, communists were politically strong because they had led the resistance movements in occupied territories such as France, China and Vietnam; not to mention that the USSR defeated Hitler.
Of course the big capitalist nations raised taxes and granted health care and retirement to workers during the abnormal period! In the face of the threatening workers’ movement, what else could they have done?
But by 1973, the workers’ movement was on the wane in the U.S. and elsewhere. At that point, capitalist nations began to take back what they had allowed, to further undermine the workers, and to drive the Soviets into insolvency.
What drives history?
To put it bluntly: the motor force of history is the class struggle, not various “shocks.”
Now, as for Piketty’s remedy for runaway inequality and eventual disaster: He knows, and says so several times, that his worldwide tax on wealth is not feasible. It would take far more transparency than capitalists will allow to even know who to tax and how much. To think that democracy can impose itself on the capitalist class is to assume that the workers’ democracy movement is strengthening and the capitalist power is diminishing, when Piketty knows the opposite is true.
As inequality increases, and it is increasing greatly, probably far more than Piketty could have predicted when he wrote this great book in 2014, then the power of the wealthy increases as well. They are not just piling up wealth; they are also piling up power. As long as they are in power, they will never allow Piketty’s pipe dream to come true. He knows that.
Disaster Lies Ahead
But Piketty’s assertion that inequality will continue to rise and will become intolerable is irresistible. He must be right. When this certainty becomes clear to everyone, that the rich are getting almost everything and the rest of us are moving close to starvation, the situation will indeed be intolerable. Only three outcomes are possible: devastating world war, fascism or revolution.
–Gene Lantz
I’m on KNON radio 89.3 in Dallas every Saturday at 9 AM Central Time. Podcasts are available through the “events” tab. What I really think is on my personal site.
NOTES:
Uses several Latin and French terms:
A priori – “from before” used to mean that no proof is necessary
“Cadastral” (of a map or survey) showing the extent, value, and ownership of land, especially for taxation.
“Belle Epoque” – Period ending 1914
“a fortiore” used to express a conclusion for which there is stronger evidence than for a previously accepted one.
Pg1 (bottom) He says we need to regain control over capitalism. He’s going to tell us how by the end of this book.
13 Kuznet’s curve says that capitalist growth will even out inequality without any need for anybody to do anything. The market and invisible hand will care for us.
50 Beta = capital/annual income. Usually 6
52 (top) Economics cannot stand alone. Must be combined with politics and other kinds of studies before it yields useful knowledge
52 First law of capitalism Theta = rate of growth times (Capital/annual income)
Theta is capital’s share of national income
r is rate of return on capital
52 Karl Marx quite wrong. My question: Not all capital is invested
Pg86: “They decided to work less” – He ignores class struggle altogether!
87 on consumption. Does he realize that older societies produced and consumed agreat deal that never reached a market? They made their own clothes, for example.
Pg166: Beta = s/g =The 2nd law of capitalism
203 Corporations invented circa 1850
222 Steady rise in Beta and Theta
250: Middle “class” – he means income
270: Measurement is “never neutral.”
275 War & rent control mentioned but not USSR
279 “Income from labor.” I think he is including CEO pay. It’s interesting that he doesn’t seem to know that CEO pay is skyrocketing because CEO’s command the corporate boards that set CEO pay. In other words, CEO pay isn’t “labor,” it’s income from capital.
332 (bottom) CEO Pay
355 Fiscal Competition – nothing so far on class struggle, but I think it explains the first half of 20th century even though he attributes it to “shock.”?
358 Inequality causes political reaction
409 (middle) In the 1970s, people thought that inequality was defeated
423 “rent is not an imperfection”
439 tax on capital
471 “…it was the wars of the twentieth century that, to a large extent, wiped away the past and transformed the structure of inequality.”
why not the class struggle?
471 war, disaster, or Piketty’s global tax on wealth?
473 “The crisis of 2008 was the first crisis of the globalized patrimonial capitalism of the twenty-first century. It is unlikely to be the last.”
474 New instruments needed
475 graph of social spending (class struggle again)
484 Social mobility lower in U.S.
488 Privatizing Social Security?
497 Taxes growing more regressive. Tax competition mentioned over and over. Too bad he wrote this before the Republican tax giveaway of 2017!
500 Bolsheviks. Progressive taxes
509 International competition
514 “No hypocrisy is too great”
518 Capital tax not for revenue but for wealth redistribution
519 Top centile’s growth goes on indefinitely.
Transparency needed
521 How could this be done without a world government? It couldn’t and he knows it
529 Italian was voted out for having invented a wealth tax
534 He is against protectionism and says it creates no value. All this before Trump!
539 “Temptations of defensive nationalism and identity politics…” sounds like he was anticipating Trumpism
541 Public debt solutions: taxes on capital, inflation, austerity
Pg 558 his solution to European public debt is for all the EU to pool their debts and make a common solution. Utopian!
Pg 560 “…the Eurozone cannot do without a genuine parliamentary chamber…” more utopia
560: “Tax competition” used throughout the book. Described here as the various nations lowering their corporate taxes in order to compete with one another. I’ve been calling this “inter-imperialist competition” for years.
His solutions throughout the book are worldwide inter-nation solutions, when he knows that won’t happen. Also, he wrote this before the Brexit vote began a chasm in the EU. He’s assuming more cooperation between nations, not less as we are already seeing.
562: “…without such a European political union, it is highly likely that tax competition will continue to wreak havoc. The race to the bottom continues in regard to corporate taxes…”
566: He agrees with me about bond elections: “…debt often becomes a backhanded form of redistribution of wealth from the poor to the rich…” The wealthy should be taxed instead of allowed to loan money and collect interest.
567 “…debt must be reduced as quickly as possible, ideally by means of a progressive one-time tax on private capital or, failing that, by inflation….”
569: his solution: Economic transparency and democratic control of capital. Neither one of which currently exists.
572: The right solution
574: “Political economy” is the term he prefers
577 (last page) “…economic and political changes are inextricably intertwined and must be studied together.” He prefers “political economy” to “scientific economics.”
The last line of the book: “Refusing to deal with numbers rarely serves the interests of the least well-off.”
OTHER REVIEWS:
Synopsis: https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts
Piketty’s Inequality Story in Six Charts
By John Cassidy
March 26, 2014
The Economist explains Thomas Piketty’s “Capital”, summarized in four paragraphs.
A very brief summary of “Capital in the Twenty-First Century”
http://www.nybooks.com/articles/2014/05/08/thomas-piketty-new-gilded-age/
Why We’re in a New Gilded Age
Paul Krugman
MAY 8, 2014 ISSUE
Boston Review: Why Are Economists Giving Piketty the Cold Shoulder?
MARSHALL STEINBAUM
May 12, 2017
“his work on inequality is an agenda-setting and generation-marking intellectual achievement, potentially as explosive (albeit with a longer fuse) in academia as it has been outside of it.”
genelantz 