Piketty’s grandchildren

Abstract

Thomas Piketty Capital in the Twenty-First Century, Harvard University Press: Cambridge, MA, 2014; 685 PP: 9780674430006, 40 [euro] (hbk) In Economic Possibilities for our Grandchildren, published in 1930, J. M. Keynes looked forward to a time when, a century on, humankind would have nearly solved 'the economic problem', its members taking their eyes off money-grubbing and their perverse love for deferred consumption to instead embrace a fifteen-hour week--a concession to 'old Adam', mere force of habit. Keynes's thought was that the pie grows exponentially due to the increasing know-how of the baker. That know-how allows for less effort per baker per hour, holding the size of the pie constant. Today, we know better. Keynes's prediction evinces an uncharacteristic failure to realise that capitalist production necessarily involves ownership. That is, it ignores the fact that someone can restrict access to the pie by dint of owning the bakery. The owner is therefore able to restrict the baker's share of the pie, and determine whether her increased wherewithal to produce pie is to be consumed as more leisure or as more work. And if more work boosts profit, then more work it is. Thomas Piketty does not suffer from Keynes's illusions. Capital in the Twenty-First Century is a remarkable, and remarkably lucid, critique of contemporary complacency about inequality. The main thesis is not original: radical variants have been defended by Marxist economists such as Ernest Mandel (1974) and Robert Rowthorn (1980), and its mainstream interpretation has received liberal support in the writings of Robert Solow (2014) and Paul Krugman (2014). But Piketty deploys an impressive battery of statistical firepower to make his point, and explodes the petard well within the citadel of contemporary economic orthodoxy. This is a strength of the book. Unlike Keynes, Piketty does not believe that the inequality generated by capital--and its necessary complement, a 40-plus-hour week--will go away anytime soon. But like Keynes, he wants to rescue capitalism from itself. An important dilemma thus underlies Piketty's inquiries: that between capitalism and democracy. Although he does his best to argue that this dilemma is not exhaustive, Piketty is unsuccessful on that front. Or so I will argue. Inequality matters Much ink has been spilt in summarising Piketty's argument, so I will be brief. In a nutshell, he argues that capital tends to accumulate faster than the rate of growth of the economy. This is a tendency grafted onto the capitalist mode of production. Indeed, Piketty calls it the 'fundamental structural contradiction of capitalism' (p. 572). What are the relata of this contradiction? Here, Piketty equivocates. On some moods, the contradiction obtains between capitalism and its self-representation: the realities of capital accumulation are at odds with the full gamut of the best justifications for it. For consider: that the tendency of capital returns to outstrip income growth implies that income from mere ownership outstrips income from work. Insofar as capitalism is only justifiable on the basis of effort, talent, ingenuity, or sheer work, the existence of an increasingly affluent class of rentiers (engendered by the said tendency) necessarily fails to appeal to pro-capitalist pieties. But sometimes Piketty offers a stronger interpretation of the object of 'contradiction'. On that interpretation, the contradiction consists in the capitalist mode of production itself. That is, as ownership outstrips desert, so the share of capital in national income tends to unity. In effect, Piketty maintains (pp. 423, 571) that capitalism has an inherent tendency to undermine itself by systematically increasing the share devoured by the rich, until there is little left for the consumers of what the rich need to sell (in order to remain rich). This leads to cycles of overaccumulation, crisis and recession. …