Capital in the Twenty-First Century

Thomas Piketty

A couple of months ago I was feeling a bit undereducated about economics, so I asked people on Twitter to recommend me some books. I got four or five responses, three of which were “Piketty”, but then Barry O’Farrell resigned and there were no more recommendations that day. I was a bit uncertain as to whether a currently-popular book would be a good introduction, but I think they were right: if you know next to nothing about macroeconomics, the book is a great introduction. I liked Capital so much that I’ve started to feel a bit annoyed about the peculiar form of bad writing that accretes around celebrated books, and I hope that people will read it for reasons other than the controversy.

The argument is straightforward: when the rate of return on capital is larger than the rate of growth, fortunes will accumulate which eventually serve to make inherited wealth, and the power it commands, far greater than the wealth which can be generated by labour or innovation or accrued by the state. For the great majority of human history the rate of return on capital has been higher than the growth rate. World War I started an exceptional period during which growth was higher than the return on capital: this period has now ended, and unless we do something about it, or there’s another disaster, inherited wealth will once again get the upper hand.

In the industrial economies of the 18th and 19th centuries, growth had increased from its traditional level of basically zero, but was still outstripped by capital. In Europe, the resulting social order was one in which wealth and power were no more equally distributed than they had been before the French Revolution. (Piketty’s illustration of this world, largely through the works of Austen, Balzac and other writers, is terrific, and I hope that savvy literature teachers start including excerpts in the material for their students. For someone who read Proust last year, Piketty’s descriptions of the Belle Époque felt like I was being shown around the engine room of a grand ocean liner by a knowledgable member of the crew. Just before it hit the iceberg.)

In America and Australia, things were a bit different. Any Australian who is proud of their country’s egalitarianism – which, in my experience, is pretty much all of the white ones – should take a grim lesson away from this book. Although Piketty doesn’t explicitly say so in the case of Australia, it’s clear that the egalitarianism of a country like the USA, Canada or Australia comes not from some innate virtue of its people, but from the fact that cheap land prevented the growth of concentrated wealth to the degree that it had in Europe. To put it bluntly, the one thing which most Australians from either side of politics can agree in congratulating ourselves on was built on stolen property.

History provides a short list of processes which have significantly tipped the balance away from capital:

  • war, the bigger the better
  • colonial dispossession
  • hyperinflation
  • mass immigration
  • violent revolution

Piketty is not very left-wing: he just looks that way from the anglosphere. Anyone depicting him as a raving commie can be dismissed as a fool or a toady, and he gives Marx’s specific economic predictions a swift and satisfying kick to the nuts. His suggested method of dealing with the problem is a global tax on capital returns, as a means of defusing the potential for disaster he sees in exacerbated inequality. Depending on who you ask, this is either gutlessly pissweak, hopelessly utopian, or frothingly Bolshevistic. (I’m probably in the middle camp, but in the sense that most political ideas worth fighting for start out as utopias.)

The book’s message is less cheerful the more that you find it convincing. Because of centuries of habit, the cultural context in which we view politics tends to associate pessimism with the right and optimism with the left, and this still informs debate today: it’s how the right can frame the left as do-gooders and bleeding hearts, and themselves as strong men with the ability to face up to harsh truths. But the great political disasters of our time are the result of the optimisms of the right: that war can build democracy in the Middle East, that removing financial regulations will improve the economy, that we will be able to burn hydrocarbons forever, that our meritocracy is so perfect that concentrations of inherited wealth will never return. Piketty is hard on Marx, but he is just as hard on the macroeconomicists of the twentieth century who mistook the reconstruction period after the most destructive wars in history for the eternal sunlit present of industrial capitalism triumphant.

It’s possible to imagine a sincere conservative who agrees with Piketty’s findings and says, “Good! A return to the power of inherited wealth is exactly what the world needs.” The fact that most conservative critics have instead accused him of cooking the books is a good thing: they are mostly still too shamefaced to be honest bigoted Tories.

Lastly, I’ve read several reviews of the book by economists who reassure their lay readers not to be daunted by the fact that it contains tables of statistics and graphs. This has left me with the unpleasant sense that economists think that I’m a fucking idiot. Guys, come off it. Yours is not the only profession with the capacity for abstract thought. I work at a university, and I know what the real mathematicians think of your stuff. (Really. They had to put a hack into the rules for a research quality reporting round so that the economists’ “mathematics” papers wouldn’t be embarrassed.)


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