An introduction to Thomas Piketty’s ‘Capital in the 21st Century’

Stuart Watkins from Left Unity Leamington looks at why Piketty is an essential read

piketty_0The book

Whenever I get too depressed about the state of the world, I like to remind myself that a 700-page tome on economics, written by a French professor, currently tops the bestseller charts. Cynics will say that it is a book destined to be more often bought than read; wiser folk will know full well that youhardly need to read a book to talk about it intelligently and reflect on it critically. You could, for example, just read the introduction. And that’s what I do here.

The long introduction to Piketty’s book, written by Piketty himself, is one of those introductions that is so comprehensive, so lucid, so well written, and so skilfully sketches the arguments, contents and conclusions that follow, that many reasonable readers will wonder why they should bother reading on. The truth is, you probably needn’t, not if all you want is to know roughly what all the fuss has been about. Read the introduction, read just a few of the thousands of reviews, published in every newspaper and magazine everywhere, and you’re about set.

This is the route I should have chosen for myself if it were not for two things. The first is that, following a long engagement with Marx (not to mention as a socialist and member of the wage-slave class), economic commentary holds a special interest, and this book will almost certainly prove to be the most important book written on the subject in our lifetime. The second is that Piketty’s book is not just a dry, dull economics textbook: it is full of fascinating historical and literary allusions, that will appeal to lovers of good books, even if they are not the kind who would ordinarily read the first thing – or indeed anything – on economics. Whether it will come to be regarded, like the book after which it is named, as a classic of world literature, with a value that will last when the passions and moods of the moment have evaporated, remains to be seen. But it is certainly one of the top two or three most essential reads for socialists of all stripes – not to mention for anyone who is wondering whatever happened to their benefits, their wages, their pensions, their healthcare, their education, their prospects… which is just about everyone. This book is a bestseller for a reason.

The context

Ever since the financial crisis of 2008, the existence of grotesque inequalities of wealth have been forced back into the public mind (those paying closer attention would have known about it since the Seventies or Eighties). But this is history repeating itself. Inequality as a problem that troubled the public mind arises with industrial capitalism itself in the 19th century. The greatest thinkers of the day turned their mind to the problem and came up with different explanations. According to Malthus, the problem was that there were just too many poor people and we couldn’t afford them. We’d have to kill the buggers off in some way, and stop them breeding, or they’d kill us all off by scoffing all the food. According to Ricardo, the problem was bloated landowners. As society got richer, the supply of everything grew except land (they’re making no more of it), so the price of land (rent) would go up, and the landlord class would get fat on the profits at the expense of the rest of us. According to Marx, the problem was that capitalist production (making money) faced no inherent limit, and so capitalists would accumulate ever more wealth at one pole of society, while the rest accumulated misery and poverty at the other.

All were agreed, however, that apocalypse of some kind was imminent. In this, they shared the concerns of their society. But they were wrong. Capitalism overcame its own problems – or seemed to.

Eventually, along came the 20th century, and then economist Simon Kuznets. He had one great advantage over his forebears in that he had access to actual data on these problems – not just theories and best-guesses based on incomplete and inadequate sources. Unfortunately, this data, and its interpretation, led to a fairy tale, a tale at least in part a product of the Cold War (ie, of the need to prove that capitalism trumped ‘communism’), that has been widely believed ever since. The fairy tale was that capitalism sorts out its own problems by growing its way out of them – inequality may be a problem in capitalism’s teething period, but as it matures and grows, the benefits of growth are ever-more widely shared – if not in an entirely egalitarian way, then at least in a more or less fair and economically efficient way. This fairy tale was believed because the data, the facts, seemed to bear it up. But that’s only because the data were somewhat skewed by a few extraordinary things that had had massive effects on capitalism, but were not (believed to be) internal to capitalism’s ordinary functioning. These were the Great Depression and the subsequent world wars – both of which led to the destruction of wealth on a huge scale (hence paving the way for a big economic boom after the wars), and to social movements that demanded a bigger slice of the economic pie.

By the 1980s, these extraordinary events had run their course. Wealth had been built up on ever vaster scales, and the mechanisms that redistributed that wealth to the working class and poor were scaled back (and the work goes on – today it is called ‘austerity’).

What Piketty did

Thomas Piketty trained in the United States, but returned to France to work as an economist there. Why? Because in the US, he says, economists are treated with a huge amount of respect, and they, in common with other social scientists, are daft enough to think that they actually know anything about the subjects they study. In France, on the other hand, economists are treated with the contempt they deserve, and have to work hard to convince anyone of anything. Piketty quite rightly considered this to be a better environment in which to do economics.

And his main concern was to return to the concerns of the 19th-century economists. Whatever you think of their answers, at least they were asking the right questions – does capitalism work as its proponents claim it does? If not, why not? Might it work better? What determines the distribution of wealth and income? Is it, as is claimed, hard work? Or is it the ill-gotten gains of luck and usurped power? These are questions that 20th-century economists have simply ignored or treated as long-settled. The crisis exposed the complacency – we can afford to ignore them no longer. Piketty sets out to answer these questions, not by getting involved in interdisciplinary wars over theory or arcane subjects of interest and relevance to no one but the participants, or coming up with a fancy new mathematical model, but by collecting the relevant data, and, with the help of new technology that makes this so much more feasible than in the past, using it to really try hard to answer those questions.

Piketty’s argument

Over a decade later, this book is the result of his and his co-workers’ efforts. What are its conclusions, its take-home messages?

The first is that there are long-term economic trends that pull in both directions – both towards greater equality and generalised prosperity, on the one hand; and towards greater inequality and ever-worsening poverty for the mass of ordinary working people, on the other. For example, an economy that is growing and investing in new technology and education can be expected to lead to more generalised prosperity than one that is economically stagnant and pursuing ‘austerity’ polices, cutting back on education spending and investment.

There is no reason to think that the trend now, or in the near future, will be the good one. Instead, the main determining trend is what Piketty refers to as “r>g”, which means that the cash is flowing more to people who are already wealthy and own a lot of assets (capitalists and landowners) than to people who rely on growth in the economy to make their living (workers). This trend is exacerbated by changes in technology (that make jobs redundant) and population (fewer people means few workers means less growth). In short, the message is that, yes, the rich really do get richer and richer, and they get rich because they are already rich, not because of their hard work or virtue, and there’s no reason to be optimistic that this is going to change in the near future. The result is that wealth and power has and will continue to concentrate in a very few hands (the infamous 1% – or a small fraction of the 1%). This is incompatible with democracy.

However, the study of history gives us no reason to believe in any kind of economic determinism. The question of who owns the wealth, and who should own the wealth, is ultimately a matter of beliefs about what is right and wrong, and of power – it is a political question. Inequality dropped in the years after the second world war and up to the 1970s because there was a widespread belief that those who had returned from the war, and their families, should share in the prosperity generated by economic activity. That widespread belief found expression in organised political movements, and then in policy. In the 1980s, these movements, ideas and policies suffered a massive defeat at the hands of Thatcherism/Reaganism/neoliberalism – we are living with the consequences of that defeat, and of continued and determined efforts to deepen that defeat, to this day.

Contrary to received wisdom, these trends have nothing to do with “market imperfections”, argues Piketty, and will require big, state-led changes if we are to reverse them – it’s not enough, as the right always argues, simply to pursue capitalism and property rights and free markets, and wait for them to naturally deliver the goods. They haven’t and won’t.

It’s interesting to see how the right has reacted to all this. They are, as this review says, in intellectual disarray. Despite a few half-arsed efforts, led by the Financial Times, they’ve not been able to land a blow on Piketty. They are fully aware themselves that they need to up their game and come up with some kind of response. Their ancestors’ response to Marx was to dump the entire discipline (political economy) as of no interest, claim the whole thing rested anyway in deeply flawed assumptions, and pretend they were interested in other questions all along (economics). It will be interesting to see what their response is this time.

More interesting though is what Piketty has done for us on the left. Like Marx, he has gifted us a huge edge in the battle of ideas. We must press the advantage.


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8 comments

8 responses to “An introduction to Thomas Piketty’s ‘Capital in the 21st Century’”

  1. Ray G says:

    Good work Stuart – I will go and read it now!!

  2. John Smith Cohen says:

    And its quite an easy read – from what I’ve read so far which isn’t a huge amount – so don’t be too put off.

  3. John Tummon says:

    I’ve got the authorised 40 page summary, written by A.D. Thibault, which has links to the data tables in the full version, because I have so many other things to read.

  4. John Tummon says:

    From briefly scanning the summary, I know Pickety’s conclusions are just for progressive taxes, but then so are Shaxton’s excellent analysis of tax havens spoilt by an attempt to end the book with a recipe for delaing with tax avoidance and evasion within the parameters of the current system.

    These conclusions do not in any way make the actual analysis of less worth. In fact many people on the Left share more or less the same analysis of capitalism, how it operates and how it evolved, but differ on how to deal with it.

    The book is THE definitive source for arguments that capitalism is not the system that will or can take human society towards something that fulfils the common good of all. In short, capitalism does not work as a system worth the majority of human beings supporting. Being able to go to people with Pickety’s arguments on just this is indispensable to our spokespeople being able to win public arguments against supporters of capitalism. All 4 should be made to read it!

  5. M. Jones says:

    Comrades

    The problems with Piketty are firstly that he is not a revolutionary – as he said himself he just wants to make things better for the middle class as versus the ruling capitalist class. As socialists our critique of capitalism is far more profound – the system is incapable of delivering for any more than a small minority of humanity and requires to be overthrown and replaced as a means of organising huma society. More than that capitalism in its imperialist, finance capitalist and monopoly phase of the present is a system in decline and suffers from the decay of its own laws of operation including the creation of value. Secondly the real challenge to capitalism during the 20th Century was the advent of the Russian Revolution of 1917 which clearly put the capitalist class on notice that it could be overthrown by the working class – all subsequent events can only be properly understood through this prism. This includes the huge concessions to the working class following the Second World War in order to stave off possible revolutions following the conflict. We do need a critique of Piketty, but it has to be from a revolutionary standpoint.

    • John Tummon says:

      His analysis is the same as your “the system is incapable of delivering for any more than a small minority of humanity” and that is exactly what he has nailed with rigour. As I said, his conclusions are neither here nor there – his analysis of capitalism is what is inescapable.

      Capitalism is not in decline – it is merely in crisis, searching for a new model of accumulation to replace its production in the east, consumption in the west model. In the meantime, its leaders are doing what they always do – using the crisis to lower wages and working class conditions, so as to make production profitable again. Hence the low wage economy being created here under the Coalition.

      Your touching faith that nothing has changed since 1917 is a real problem. I suggest you read Don Milligan’s piece at http://www.socialistproject.org/the-left/working-class-what-working-class/#comment-557. His well-researched history of the constant reconfiguration of the employment side of the British working class & its occasional militant, conservative responses to conserving old forms of production and the social patterns based on them is empirically substantiated.

      The only constant amidst all these changes is the simple notion that whoever depends for their livelihood on selling their labour power is working class and that class is always in a majority, whatever its socio-economic or cultural manifestation. However, this class is not constantly visible and the great global changes wrought by neoliberalism have hidden it to Left forces who exist within a perspective limited to their own nation state and have therefore experienced a disconnect between recognising the global division of labour empirically whilst maintaining adherence to theoretical frameworks on ‘What has to be done’ based on Leninism and other traditions which arose out of quite different circumstances. Some of the possibilties and assumptions hard-wired into Leninist and Trotskyist thinking are no longer possible.

      The new reality for something like a third of the British population is a low wage private sector economy based on zero-hours contracts, agency work, non-unionisation and oppressive conditions of work and in which periods of unemployment are inevitable, partly for respite and partly because of job insecurity. This exposes more and more people to some key aspects of current capitalist reality.

      These are not the working class groups whom the Left easily recognises through its early 20th century lens – the July 10th strikers are; strikes are; Trade Union demonstrations are, despite their recurringly disappointing outcomes. Left Unity nationally has produced special leaflets for the events on July 10th and no doubt other Left groups have too. It will be a fest of paper-sellers and handbill purveyors and end in the courts, Tribunals and Trade Union HQs.

      Its hard thinking outside the box but its necessary. Many unemployed and disabled people at the sharp end of the Coalition’s dehumanising workfare regime have a consciousness and latent anger far in advance of that shown by workers whose labour power is currently being exploited in the conventional way of Marxist analysis. It embraces the nature of the state, mainstream politics and the media and how these intersect around the simulataneous demonisation and repression of the unemployed and disabled.

      If we do not adapt, we end up bemused every time our interventions fail to take us forward and just get dogmatic about our sacred texts and theories. The fact is that the weakest capitalist class of the 20th century had yet to take power from its abolute monarch in 1917 Russia when the existing state unravelled under the pressure of a war that revealed its material infrastrucure for what it was – unfit to be called capitalist. The Bolsheviks were able to take advantage of a one-off situation which has not recurred since 1945: a weak regime with no capitalist war economy losing a world war.

  6. Philip P says:

    I thought this book was an interesting read. The only major omission is that doesn’t propose a new workers’ party to the left of the Labour Party.

  7. There is a more important omission than that! There’s no theory of why we have recessions and there’s no theory of why we have unemployment.

    Piketty also thinks that government debt has to be repaid. (see page 540). That is only true is governments borrow in a foreign currency. Their own currency is their own IOU. Its just not possible for governments to borrow their own IOU anymore than you or I could do that with our own IOUs. All they can do is swap one IOU for another.

    Piketty claims that “debt financing is in the interest of those who have the means to lend to the government”. Governments have the ability to set interest rates at whatever they wish them to be so interest payments are never a problem. They can even be viewed as a stimulus, although the real reason Govt issues gilts is as part of their monetary policy.

    The spending comes first. Taxation and Gilt sales come second. It has to be that way around otherwise there wouldn’t be any money in the economy to pay the taxes or buy the gilts.


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