Piketty at last!

Tony Payne - Director of SPERI

But this awkward omission (for me) has now been rectified: I went off to France in August and took Piketty’s massive tome with me.  This seemed both appropriate (reading it in France) and also my best chance to catch up.  My discovery, probably unsurprisingly therefore, has been that the book is not necessarily all that it has been made out to be by admirers and critics alike.

This is not for a moment to suggest that it’s not a very important, indeed remarkable, piece of work.  Piketty says in his introduction that his aim was to put the distributional question back at the heart of economic analysis and there can be no doubt that he has already succeeded.  Discussion of inequality is now ubiquitous, with the debate presently shaped by Piketty’s core assertion that a ‘fundamental force for divergence’ has come to dominate wealth distribution in the early twenty-first century wherein the average rate of return on capital, written by him as r, is now significantly above, and likely to remain above, the average rate of growth of advanced industrial economies, written by him as g.  ‘In slowly growing economies’, Piketty notes, ‘past wealth naturally takes on disproportionate importance, because it takes only a small flow of new savings to increase the stock of wealth steadily and substantially’ (p. 25).

It should be made clear too that in the book this central claim is extensively elaborated, all the key concepts are carefully defined and persuasive evidence for his argument is piled up page after page from a hugely impressive array of historical and contemporary sources.  In short, his book is a genuine magnum opus.  Yet, as suggested earlier, this does not mean that Capital in the Twenty-First Century is all that it has been proclaimed to be.

The first problem is actually that title.  At one point Piketty disarmingly begs the reader’s indulgence for his use of this title, admitting his ‘total inability to predict what form capital will take in 2063 or 2113’ and observing that the book should, ‘logically speaking’, have been entitled “Capital at the Dawn of the Twenty-First Century” (p. 35).  Fair enough, except that nobody – certainly no radical economist or ambitious publisher – could have been unaware of the allusion being made by the use of the word Capital in the title.  Indeed, at the outset Piketty goes out of his way to applaud the insight contained in what he describes as Marx’s ‘principle of infinite accumulation’, albeit that he then quickly notes that his own key r > g hypothesis is likely to generate an equilibrium less apocalyptic than that predicted by Marx, even if the prospect is still ‘disturbing’ and conceivably ‘destabilizing’ (p. 10). The point here is that Piketty is not the new Marx and, to be fair to him, he never claims to be.

His intellectual target is in fact Simon Kuznets, an American economist (although born in the Ukraine), who proposed in a 1955 article that has hardly been countered in the years since that income inequality would automatically decrease in advanced phases of capitalist development before eventually stabilising at an acceptable level.  If he is the new anybody, Piketty is more accurately described as the new Kuznets.

A second problem with the grander claims made for Piketty’s book is that the focus is much more on the history and contemporary position of France than one might realise from the media discussion.  Piketty is French, works in Paris and has devoted most of his previous research to the study of capital in France.  So, again, fair enough, at least up to a point, especially since he justifies this emphasis by noting that, thanks to its Revolution, French estate records are the richest in the world and arguing that French demographic growth (its population has roughly doubled since the Revolution) makes it more typical in this respect than, say, the United States and thus more pertinent to future understanding of wider global trends.

However, what this generates is a consistent pattern whereby in the book across a number of issues France is analysed with great thoroughness; the US is treated with much the same intensity; some thoughtful comparative points are made about the UK, Sweden and other western European countries; and then finally some passing observations are thrown in about the ‘rest of the world’.  Clearly, the research task involved in undertaking across the globe the kind of analysis in which Piketty is interested is well beyond a single scholar, maybe even a team of scholars.  That is accepted.  But the consequence nevertheless is that the position of capital across the world at the beginning of the twenty-first century has been studied very unevenly by Piketty.

A third problem with the book concerns its final part, which consists of Piketty’s proposals for the better regulation of capital in the future.  These essentially involve rethinking progressive income tax, bringing in a global tax on capital and moving towards various other (modest and moderate) measures to defend the ‘social state’.  Again, this is worthily done in the spirit of social democracy, but it’s where Piketty most reveals himself as an economic historian, rather than a political economist.

It is obviously the case that he is not the conventional neoclassical economist of our times and he does, as many commentators have highlighted, draw on the literature of Jane Austen and Honoré de Balzac for information about property prices and the average rate of return on land in the periods in which their novels were set. This assuredly makes him different, but it does not of itself give Piketty the subtlety of understanding of political, as well as economic and social, processes to make him a genuine and insightful political economist.  From such a perspective, which is the SPERI perspective, the truth is that the concluding policy-oriented chapters of this (otherwise outstanding) book are, sadly, somewhat disappointing.