Another Perspective on Piketty


Someone acquainted only secondhand with Thomas Piketty’s book translated as Capital in the Twenty-First Century or who has only skimmed it might well dismiss it as a mere leftist, redistributionist tract. That would be a mistake and injustice — and thus counterproductive. Libertarian critics should try to answer Piketty’s findings, attitudes, and recommendations respectfully and seriously (unless, of course, they find themselves converted away from their own doctrine).

His tome of viii + 685 pages, full of tables, charts, and citations, is an impressive work of resourceful scholarship. A massive and detailed web site supplements it. I have neither the time and energy nor the competence to verify his voluminous statistics. Pieced together, as some of them are, from fragmentary sources (such as tax and probate records) of decades and even centuries ago, they must incorporate some elements of interpolation and educated guessing. Still, no reason is apparent for questioning his and his collaborators’ diligence and honesty.

Piketty avoids the pretensions of so much academic economics — decorative mathematics and dubious econometrics. (“[M]athematical models ... are frequently no more than an excuse for occupying the terrain and masking the vacuity of the content,” p. 574.) His book employs, and sparingly, only the simplest algebra; but I did find a few symbols and their definitions bothersome.

Piketty’s case for reforms is not mainly an economic argument but a sustained appeal to the reader’s intuition against extreme inequality.

For example, Piketty makes much of the inequality r>g as the condition of growth of the ratio of capital (wealth) to national income, g being the growth rate of the denominator. The condition would be trivially obvious if r, the numerator, were the growth rate of the capital stock; but Piketty usually, and misleadingly, calls it the “rate of return on capital.” That description would apply if all and only the earnings on capital were saved and reinvested. Expenditure of some capital earnings on consumption instead would reduce the growth of the capital stock and the capital-income ratio, as Piketty occasionally mentions; and saving or dissaving from labor income would also affect the ratio’s growth (or shrinkage).

Nevertheless, Piketty’s compilation of long-term statistics for several countries suggests a trend to him. Only occasionally does he mention that most of his income figures are of income before taxes and before supplementation by government redistribution. Anyway, the long-term trend of the capital-income ratio seems to have been upward, exacerbating the inequality of both wealth and income. The chief historical exception is the period 1914–1945, when wars and depression destroyed so much wealth.

Piketty gives particular attention to the concentration of income and wealth in the top 1%, or even the top tenth or hundredth of 1% of their distributions. He seems particularly concerned about great inherited fortunes and the lavish leisured lifestyles that they make possible (as in novels by Jane Austen and Honoré de Balzac, mentioned as a welcome change of pace from dense argument).

His remedy for great inequality would be not only highly progressive income and inheritance taxes but progressive annual taxes on total wealth itself. He recognizes the political unlikelihood of getting his wealth taxes enacted and enforced, however, because implausibly close international collusion of governments would be required. He draws on the literature of Public Choice little if at all. He supplements his arguments with page after page of the history of taxation in different countries.

Nowhere, as far as I noticed, and to his credit, does Piketty blame inequality for economic crises and depressions or commit the crude Keynesianism of recommending redistribution to raise the propensity to consume. He does not maintain that the apparent trend toward greater inequality will continue without limit. He does not maintain that the extreme wealth of only a few thousand families will give those few tyrannical power over their fellow citizens — far from few enough, actually, to be a coherent oligarchy. Nor does he (or his translator) toss about words like “unfair” and “unjust,” although he does occasionally aspire to more “social justice” and “democracy” in the inexpediently and popularly stretched sense of the latter word.

One might expect concern about inequality to include concern about further concentration of resources and power in the state. However, Piketty does not expect his more drastic and broad-based progressive taxes to raise much more revenue. Nor, perhaps inconsistently with not expecting this, does he worry about damaging incentives to work and innovate. Possibly he agrees with John Stuart Mill in thinking that the distribution of wealth can be separated from its production. Possibly, like José Ortega y Gasset’s Mass Man (The Revolt of the Masses, 1930), he regards the wonders of modern industrial civilization as automatically existing, like facts of nature. Although an avowed socialist in the loose European sense of the term, he does not want to destroy capitalism. He even welcomes considerable privatization: government agencies and employees need not themselves provide all the services that tax money pays for.

Wealth is not something that belongs to the government, which it may leave to its producers or redistribute as the country’s rulers see fit.

For Piketty, reducing inequality is a goal in its own right. I agree so far as reducing it means undoing government measures that actually foster it. These include aspects of crony capitalism: subsidies, tax privileges, protection from both domestic and foreign competition, and most of what makes highly paid lobbying worthwhile. Also at others’ expense, arguably, a policy of artificially low interest rates benefits Wall Street operators and wealthy stock investors and traders.

As I ended reading his book, I realized that Piketty’s case for reforms is not mainly an economic argument but a sustained appeal to the reader’s intuition, although not explicitly to envy. Intuition presumably carries more weight if the reader comes to share it himself without having actually been told what to think. If so, Piketty’s economic language and massive quantities of ingeniously gathered statistics amount to what I call a Murray Rothbard or Alan Reynolds style of argument: deploy such an array of facts and figures, dates, places, mini-biographies, and even personality sketches that, even if they scarcely add up to a coherent argument, you come across to your reader or audience as a consummate expert whose judgments command respect. But saying so may exaggerate; for Piketty’s tables, charts, and sketches of characters in novels may usefully jog the intuition. Anyway, one should not disparage Piketty’s impressive research and methods and their likely application in projects beyond his own.

As for an intuition against extreme inequality, I confess to one of my own, although it does not mean welcoming heavier and more progressive taxes. We should worry about undermining respect for private property as a human right and essential pillar of any functioning economic system. Wealth is not something that belongs to the government, which it may leave to its producers or redistribute as the country’s rulers see fit.

Still, the intuition persists, as it did with Henry Simons, that saint of the Chicago School of economics in its early days, who found inequality “unlovely,” and as it persisted with Nobelist James Buchanan, prominent libertarian, who advocated stiff inheritance taxes. Somehow, I am uneasy about the pay of executives said to be 600 times as great as the pay of their ordinary workers, even though they may well contribute more than that much to their companies’ revenues. I am uneasy about lifestyles of opulent leisure permitted by great inherited wealth, rare though they may be. I cannot justify or explain my intuition, which, anyway, is not crass envy.

I don’t call on public policy to heed that intuition, any more than I share the apparently spreading expectation that some authority take action against whatever offends somebody, whether the lifestyle, the behavior, the speech, or the suspected thought of someone else. I wouldn’t want an egalitarian intuition implemented in anything like Piketty’s ways. Government measures to alleviate or avoid actual poverty, even beyond the “safety net,” are something quite different.

An intuitive dislike of extreme inequality does not rule out unease at Piketty’s line of thinking. Again, however, I warn libertarians: don’t risk a boomerang effect by unfairly dismissing his work as a mere ideological tract. It is indeed a work of genuine scholarship. Dealing with its challenging ideas can strengthen the libertarian case.

Editor's Note: Review of "Capital in the Twenty-First Century," by Thomas Piketty, translated by Arthur Goldhammer. Belknap Press, 2014.

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