Thoughts on the first half of Piketty’s Capital

Piketty_Capital_in_the_Twenty-First_Century_(front_cover)I’m halfway through Thomas Piketty’s Capital in the 21st Century.  It was some major implications for the future, including the future of education.

In this post I’d like to share some impressions of the book upon reaching its halfway point.

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 I don’t want to summarize it (Doug Henwood does the best job I’ve seen), but address some key elements of content and style.

Piketty’s style is fascinating, and helps enliven what could otherwise be a dry study of statistics.  He writes with humor, mocking his own profession:

[E]conomists like simple stories, even when they are only approximately correct (218)

[T]he discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation (32)

…particularly when one belongs to the upper centiles of the [wealth] distribution and tends to forget it, as is often the case with economists (267)

The prose is occasionally elegant, even poetic:

Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception, yet it is always tends to transform itself into rents as it accumulates in large enough amounts – that is its vocation, its logical destination (115-6)

At times the book is mordant: “The top 10% [of a future America] could therefore use a small portion of their incomes to hire many of the bottom 50% as domestic servants” (257)

Key terms resonate, like patrimonial capitalism (173) or society of rentiers (264).  George Lakoff should be impressed.  Capital is also meticulously organized, offering frequent organizational statements to locate the reader within its argument and materials.  Its introduction neatly lays out the book’s argument.

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The key image of the book is a U-shaped curve (23).  It occurs through chart after chart, showing different aspects of the same story: economic inequality being high before WWI, dropping for the middle of the 20th century, then rising up after 1980.  That curve is a kind of multimedia aid, helping readers through mountains of data. For example:

Income inequality 1910-2010

Re: data, Piketty stashes much of the book’s research online.  That’s a very useful way to combine digital with analog scholarship.  We should expect more of this in academic publishing.

There’s an interesting politics to the book so far.  Piketty clearly finds gross inequality abhorrent, and wants to address it. Its first words are a quote from the 1789 French revolutionary Declaration of the Rights of Man and Citizen.  The first chapter starts with an account of an armed battle between miners and management (39).  And yet Piketty constantly distances himself from leftist thought and, with respect, Marx (8, 10) (“Marxist economists liked to show that capital’s share was always increasing…

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even if believing this sometimes required twisting the data” (219)) (“I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism… much of which turned its back on the intellectual means necessary to push beyond [Communism]”, 31).  He smacks down the liberal Gini coefficient (243) (“it is impossible to summarize a multidimensional reality with a uni-dimensional index without unduly simplifying matters and mixing up things that should not be treated together”, 266) (“statistical indices such as the Gini coefficient give an abstract and sterile view of inequality”, 267).  So far this isn’t simply a left, liberal, or Marxist book, as some have charged.

One aspect of Piketty’s politics that I can’t pin down is his stance towards technology.  He sees tech as powerfully shaping capital’s powers (212-213), but also as deeply unpredictable.

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 He dismisses those who see technology as democratic, arguing that new inventions can empower capital as easily as those lacking capital (233-4).

One piece of the book’s argument which hasn’t won much attention is its emphasis on demographics.   For all of Piketty’s emphasis on two formulas about economic distribution, changes in the number of people in a nation matter deeply. “[A] stagnant or, worse, decreasing population increases the influence of capital accumulated in previous generations” (84)  Demographic growth keeps American inequality from soaring to even higher levels (154). “[T]he return to a historica regime of low growth, and in particular zero or even negative demographic growth, leads logically to the return of capital” (233; emphasis mine)

Predicting the future: Piketty hedges on this with every opportunity, despite the book’s putative ambitions.  He qualifies his extrapolations, offering multiple options at each point.

[B]y 2100 the entire planet could look like Europe at the turn of the twentieth century, at least in terms of capital intensity.  Obviously, this is just one possibility among others. (196)

The history of the past two centuries makes it highly unlikely that per capita output in the advanced countries will grow at a rate above 1.5% per year, but I am unable to predict whether the actual rate will be 0.5%, 1%, or 1.5% (95)

Who are the 1%?  Piketty is clear that this is mostly C-suite executives, or “supermanagers”, especially in Britain and the United States.  Athletic or cultural superstars barely count for 1/20th of that group, and financiers only 20%. (302-303)

So far, Capital is very convincing.  His meticulous attention to data, steady re-examination of his own argument, and engagement with alternative models are, together, persuasive.

More notes to come after I finish the book’s second half.  Education lies there as a topic, I think, along with explicit calls for policy actions.

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9 Responses to Thoughts on the first half of Piketty’s Capital

  1. jamesrovira says:

    Reblogged this on James Rovira and commented:
    Important attention to an important book…

  2. Thank you for the shares, gentlemen.

  3. detheelza says:

    Thanks for this, I’ve heard Piketty mentioned but had no context for why.

    One possible nit. Should “at last in terms of capital intensity” read “at least in terms of capital intensity”?

  4. garthster says:

    Hope you find it an interesting book, Bryan and interesting enough to take on the 2nd half.
    I find it a pity that Piketty ignores the leverage of education over all these millenniums and doesn’t value that at all. He simply ignores and disregards that effect completely in his analysis on nature and his­tory of inequal­ity over the past cen­tury – the fact that larger groups of people were able to receive a better education and improve income means shifting income to the centre; the top earners delegate and pay for certain tasks downwards and on the other side of the yardstick people climb the success ladder and improve their income that way. This effect is completely ignored, unfortunately. I have read only parts but also several reviews of the book so far. Yet it is clear to me that he frames it in terms of cap­i­tal and cap­i­tal­ism and, for all the qual­ity of his diag­no­sis, his main pre­scrip­tion evi­dently is just to tax the wealthy more. In other words, no solution but simply a prolongation of the status quo when the Wealthy pay for it. And that’s a pity.
    If we go back to some of the core Economists that have foreseen the inequality in income or wealth coming up, we end up with people like the Scottish economist and moral philosopher Adam Smith, whom most of us will know as writer of “The Wealth of Nations”, and who is considered one of the core economic fathers of today’s financialisation or new world global finance order.
    Smith’s classical message was the two ways to create the “Wealth of Nations”. First, make productive labour even more productive by enhancing markets to deepen the division of labour (moving the neoclassical production curve to the right); and second, use more labour productively instead of unproductively, i.e., produce more goods and services that are inputs to the next economic reproduction circle, as opposed to goods used up in final consumption. For neoclassical economists Smith’s central message is the Invisible hand mentioned deep in the books and seen as a proto-neoclassical statement of the neoclassical General equilibrium theory.
    Most of other economists attribute to Smith “the most important substantive proposition in all of economics” and foundation of resource-allocation theory. It is that, under competition, owners of resources (labour, land, and capital) will use them most profitably, resulting in an equal rate of return in equilibrium for all uses (adjusted for apparent differences arising from such factors as education, training, trust, hardship, and unemployment).
    Few remember that Smith wrote a inequality related book already some 16 years earlier, 1759 it was, with the title: “The Theory of Moral Sentiments”. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith’s later works, including The Wealth of Nations (1776). Already in that book, he suggested that successful economies should be build on cooperation in stead of competition as a way to reach the needs satisfaction of a society. Nowadays any modern experimental economy related research confirms the importance of fairness and reciprocity in an decision-making process of any social economic system related to Inequality. For any sociologist or anthroposophist this is absolutely normal. For economists it isn’t at all!. So far… Only now, since say 2-3 years, some kinda movement in the direction of an attempted reform of the principles of political economy has started. This undoubtedly will be followed by more rules & regulations & taxes that will try to push reforms into a direction where it can reach the hard economy & economists with the mentioned moral sentiments from Smith, but now used by politicians. In other words, they try to make it a moral question again to justify levying more taxes. It’s less the thrive to really reform economic structures as the thrive to get more money to spend before the next elections and that’s a pity as that way inequality will remain the same or will grow out of control. Let me know what you think of the other half, I could do with a proper review as all the other one’s are just puzzling to me. Greetings, Garth

    • Many thanks, Garthster, for such a generous, thoughtful, and well-researched response.
      Here are my thoughts on the second half: .
      Re: education, I wrote up a summary here: .

      Fascinating point about collaboration. Reminds me of Piotr Kropotkin’s underrated book _Mutual Aid_, where he uses Darwin to identify when humans (and other organisms) cooperate rather than compete.

      Back to Piketty… I’m not sure what he’d make of your return to classic Adam Smith. Piketty never asks us to set aside capital itself, for instance, and return to hunter gathering or something like primitive capitalism. He also doesn’t recommend a tax on the wealthy per se; instead, he proposes a tax on capital, rather than work compensation. He takes pains to distinguish this from a progressive tax on income.

      I suspect Piketty would agree with Smith’s idea of *productive* inequality. The book begins with a quote from a key French Revolutionary (!) document:
      “Social distinctions can be based only on common utility.” —Declaration of the Rights of Man and the Citizen, article 1, 1789”
      Utility is the key. For when Piketty turns to modern inequality, he finds the upper .01% *not* earning more based on their contributions, but mostly on their ability to simply command more money. A very skilled surgeon making a high salary when working on a rare problem: that would make more sense, I think. A CEO doubling his compensation without, say, doubling the business: that’s the problem, at least for this book.

      • garthster says:

        Hmm, Bryan; I made the reference to Smith’s book “The Theory of Moral Sentiments” as he is a key supplier of many of the fundamentals of the present economic basic structures when they are related to capital flow and investments. The fact that Piketty is celebrated like a savior or Second Messiah is just a bit too much for me, I think.
        If more of that Smith book would flow in todays economic structure & thinking it would be an advantage already and the structure of distribution of wealth would not be attacked only but also scrutinized by economists, like Smith already did 250 years agoo.
        I personally thing the best quote from Piketty’s book Capital in the Twenty-First Century is: “To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics…”. (I noted you used that quote in your review as well 😉
        Economics however is not always and not only about mathematics but also about moral behaviour and sentiments of markets. See hereto Smith’s book.
        Your point that Piketty doesn’t tax the wealthy per se, but aims for a tax on capital: what’s the difference if you stretch out that 1% get’s most of the capital…? I am not taxing the car holder but tax the car? Uh?
        A redistribution of wealth is taking place in any case because the welfare state is extended without getting much PR (or less than Piketty gets), this all funded by the middle class or mittelstand and gentry already. Nearly half of all people don’t pay any taxes anymore and receive subsidies of all kinds, some countries do this via untargeted subsidies also to link the electorate in the direction the politicians want them to go. This way automatically inequality rises. But what in fact is inequality? Is it not just the financial difference in social equity that brings this to discussion?
        I think that in the US Piketty’s book will be best received as it is the market that delivers the biggest “inequality” at present having individuals running hedge funds making 13.5 Mio per day…! and working people in the region of detroit that lost all of the little $$ they had made the last 20 – 30 years or more. I don’t agree on several things Piketty draws a conclusion on based on extrapolating and found that George Cooper nearly hit the jack pot with his analysis, a bit technical but fully understandable, as usual! see here for your appraisal:
        Cheers Bryan, good read your review! Regards, Garth

  5. garthster says:

    a brilliant one stop shop for different views on the book by people like shiller, rogoff or rodrik you’ll find here:

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