A book rarely captures the Zeitgeist in the 21st century, especially a book written by an empirical economist, published by a University Press, and translated from French. And yet Thomas Piketty’s Capital in the Twenty-First Century, published by Harvard University Press, is suddenly everywhere. Andrew Hussey at The Guardian interviews Piketty, who argues that capitalism does not improve the quality of life for everyone. Piketty seeks to prove that capitalism is rigged in favor of the wealthy. In other words, the wealth of the wealthy increases faster than the income of the workers. His main contention is that over the centuries since the emergence of capitalism, return on capital has tended to be greater than the growth of the economy. Which leads to Piketty’s final conclusion that increasing inequality is inevitable within capitalism – and will only get worse:
When I began, simply collecting data, I was genuinely surprised by what I found, which was that inequality is growing so fast and that capitalism cannot apparently solve it. Many economists begin the other way around, by asking questions about poverty, but I wanted to understand how wealth, or super-wealth, is working to increase the inequality gap. And what I found, as I said before, is that the speed at which the inequality gap is growing is getting faster and faster. You have to ask what does this mean for ordinary people, who are not billionaires and who will never will be billionaires. Well, I think it means a deterioration in the first instance of the economic well-being of the collective, in other words the degradation of the public sector. You only have to look at what Obama’s administration wants to do – which is to erode inequality in healthcare and so on – and how difficult it is to achieve that, to understand how important this is. There is a fundamentalist belief by capitalists that capital will save the world, and it just isn’t so. Not because of what Marx said about the contradictions of capitalism, because, as I discovered, capital is an end in itself and no more.
That the wealthy get wealthier in capitalism may seem obvious; but capitalism is widely embraced by the poor as well as the rich because it increases productivity and supposedly makes everybody better off. Capitalism may make some filthy rich, so the story goes, but it also allows more mobility of status and income than pre-capitalist economies, thus opening possibilities to everyone. Piketty argues against these truisms.
Over in the Financial Times, Martin Wolf applauds the importance of Piketty’s book, but he also raises the question Piketty leaves unasked: Is inequality really a bad thing?
Yet the book also has clear weaknesses. The most important is that it does not deal with why soaring inequality – while more than adequately demonstrated – matters. Essentially, Piketty simply assumes that it does. One argument for inequality is that it is a spur to (or product of) innovation. The contrary evidence is clear: contemporary inequality and, above all, inherited wealth are unnecessary for this purpose. Another argument is that the product of just processes must be just. Yet even if the processes driving inequality were themselves just (which is doubtful), this is not the only principle of distributive justice. Another – to me more plausible – argument against Piketty’s is that inequality is less important in an economy that is now 20 times as productive as those of two centuries ago: even the poor enjoy goods and services unavailable to the richest a few decades ago.
Over in The Nation, Timothy Shenk has penned a long, wandering, but insightful essay setting Piketty’s book within and against a burgeoning neo-Marxist revival. Shenk begins with an introduction questioning what capitalism really means and suggesting that capitalism has always been defined in its negation, largely by Marxists. He then turns to the new interest in Marxism today.
His story begins with the financial crisis and Occupy Wall Street that, together, have spawned a new generation of young writers, largely congregated in New York, who have returned to Marx for ammunition in fighting against the perceived ill of rising inequality. Shenk traces this revival in a series of recent books including: Cubed: A Secret History of the Workplace by Nikil Saval; Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel; and Jacobin : A Magazine of Culture and Polemic. Clearly intrigued by these millennial Marxists, Shenk is also highly critical. “In good Marxist tradition, the millennials are best when they’re on the attack.” And the new Marxists “seem more inclined to recite Marx than to rethink Marxism, or move beyond it.” Above all, Shenk sees them as overly interested in political ideology and uninterested in meaningful inquiry:
“Searching for conceptual breakthroughs in the journals of the newest left, however, misunderstands their project. They aim not just to transform the world of ideas but also to advance a political agenda, a point that’s made especially clear in Jacobin. Here, politics does not mean an endless conversation open to ambiguity, uncertainty and difference. No, politics is a war—specifically, a class war—and the only hope an embattled left has is to organize. The inspiration derives from a mash-up of the greatest hits of European Marxism and the history of the American right from Barry Goldwater to Ted Cruz. Allies will be taken, even sought out, wherever they can be found. But the purpose is to teach (and preach), not to learn.”
This Marxist revival is, as Shenk writes, largely stillborn, more social media project than political movement: “the rebirth of Marxism…has become a minor genre in the last year. Like a puffer fish temporarily ballooning to vastly larger sizes, the Marxist revival can seem more imposing than it is. For a certain type of reader, however, it’s easy to forget the illusion when there are so many withering tweets to skim.”
More interesting than Shenk’s review of the millennial Marxists is his account of the “good timing” that gives Thomas Piketty’s book Capital in the Twenty-First Century a “fair chance of becoming the most influential work of economics yet published in our young century.” What follows is the most revelatory of the reviews of Piketty’s book published to date.
Much of Capital in the Twenty-First Century is, essentially, a history of the modern world viewed through the relationship between two factors: economic growth, with all its promises, and the return on capital, a reward that goes to the small fraction of the population that has mastered what Tina Fey’s character in 30 Rock referred to as “that thing that rich people do where they turn money into more money.”
The rich perfected that art a long time ago. According to Piketty, the average return on capital, after adjusting for inflation, has hovered around 5 percent throughout history, with a slight decline after World War II. Whatever problems capitalists will face in the future, he suggests, a crisis generated by falling profits is not likely to be among them. Economic growth, by contrast, has a far more abbreviated chronology. According to the most reliable estimates—sketchy, but better than nothing—for most of human history, economic growth was on the order of 0.1 percent a year, provided there were no famines, plagues or natural disasters. This gloomy record began to change for part of the world during the Industrial Revolution. Judged by later standards, “revolution” might seem too generous a phrase for growth rates in per capita output that ran to under 1.5 percent in both Western Europe and the United States; but compared with the entire earlier history of human existence, those rates were astonishing.
The empirical and research driven conclusion is that over long periods of time beginning in the 1800s and continuing till today, rates of invested return on capital rise faster than economic growth. This means that the rich get richer and capitalism breeds ever greater inequality. Piketty thus attacks the common-sense version of economic history that understand the 20th century to be proof that capitalism can yield increasing equality and higher than average economic growth. For him, the decline of inequality in the 20th century is an aberration caused by the catastrophes of WWI and WWII. Here is how Shenk summarizes Piketty’s argument:
Piketty uses a simple formula to illuminate the dynamics at work. Inequality tends to rise, he argues, when the average rate of return on capital exceeds the economy’s growth rate (or, as he puts it, when r > g). That ratio worked in capital’s favor throughout the nineteenth century, and at the dawn of the twentieth, there was little reason to believe it would change without a revolution by the proletariat. Then 1914 inaugurated three decades of catastrophe.
The wealth of Europe’s elite was one of the era’s casualties: outright destruction, high inflation, confiscatory taxation, and governments that began catering to labor’s demands all combined to obliterate vast swaths of capital. By 1950, economic inequality had plummeted, not because of the welfare state’s rational evolution, but through some of history’s greatest tragedies. What amounted to the collective suicide of capitalist Europe coincided with astounding growth rates produced by recovery from the war. With capital reeling and growth rocketing ahead, the conditions were set for unprecedented egalitarian advances, including the birth of a property-owning middle class, all because of an extraordinary inversion: for the first time, g > r.
Although the 50 years after the end of WWII brought optimism that “economic growth automatically reduced income inequality,” Piketty shows that “time soon deflated this optimism.” Growth of global GDP has accelerated; but not only does Piketty believe that growth is unsustainable, it is also true that “the link between rising GDP and falling inequality was severed, with the largest gains from diminished growth flowing to the richest of the rich—not even to the 1 percent, but to the one-tenth of 1 percent and higher.” In short, Piketty argues that the iron rule of rising inequality in capitalist economies is reasserting itself.
Although the contours of Piketty’s history confirm what economic historians already know, his anatomizing of the 1 percent’s fortunes over centuries is a revelation. When joined to his magisterial command of the source material and his gift for synthesis, they disclose a history not of steady economic expansion but of stops and starts, with room for sudden departures from seemingly unbreakable patterns. In turn, he links this history to economic theory, demonstrating that there is no inherent drive in markets toward income equality. It’s quite the opposite, in fact, given the tendency for the returns on capital to outpace growth. Unfortunately for us, he concludes, “the inequality r > g has clearly been true throughout most of human history, right up to the eve of World War I, and it will probably be true again in the twenty-first century.”
Shenk seems to have little interest in Piketty’s proposal for a global progressive tax on capital. What he values in Piketty’s book is the drive to build “a social state for the twenty-first century.” Piketty’s book might be most valuable neither as a work of economics nor as a call for revolution, but as a spur to political reform.
But the real danger of inequality is not economic, but political. Piketty has shown us that capitalism breeds inequality. But whether inequality is good or bad is not an empirical question, and no amount of empirical research can tell us whether capitalism is good or bad. What Piketty does show convincingly, is that capitalism will not lead to equality. The question the book raises is: What does this mean for our democracy?
We are in the midst of an experiment that will reveal what the influx of unfathomable amounts of money will mean for a democratic political system. This is a new political experiment because for most of the history of the United States—with exception of the period at the very end of the 19th century—the dollars of the wealthy could not and did not dominate our democratic system. In the wake of the Supreme Court’s decisions in Citizen United and McCutcheon, however, we are about to experience what the unlimited access of money in politics can mean at a time of unprecedented concentration of wealth. It likely does not mean that the richest candidate always wins. Nor will all well-financed candidates be conservative. But it does mean that no candidate who cannot raise money from the wealthy has a real chance of winning. And that means that politics is captured by those with money and largely seen as inaccessible to those without.
For a country identified with the spirit of government by the people, for the people, and of the people, unprecedented inequality combined with judicial invalidation of democratic attempts to limit the impact of money in politics threatens to radically undo our democratic tradition. This argument does not imply that democracy and inequality are incompatible so much as it shows the need for democratic patrolling of the integrity of the democratic system.