Freedom, Markets, and Well-being Fall 2017

Piketty on Inheritance


We ended last time with two questions. We used the chapter on inheritance (chapter 11) to answer those questions.

Inheritance and r > g

Our first question concerned the relationship between the historical data and the recent data about inequality. Piketty says that the historical levels of inequality are driven by the fact that the return on invested capital (r) exceeds the rate of growth in the economy (g) which is reflected in what people earn by working. However the recent increase in inequality is driven by unequal wages, not by the divergence between what people earn on their invested capital and what they earn by working.

The material on inheritance is supposed to show two things.

First, it shows that r > g is, in fact, playing a role in the distribution of wealth in our society. People who have stopped working have more wealth than people who are nearing the end of their working lives. How could this be unless they are getting their wealth from something other than wages?

Second, it suggests that capital is going to be a bigger source of wealth in the future. The fact that 80 year olds have a lot of wealth shows that they are not spending their wealth down as the life cycle theory predicts. Instead, they are building up a big pile. This pile will go to their children after they die. So even if the inequality that we see now is entirely driven by wages, we should expect that more and more people will start life with a lot of inherited wealth.

Meritocracy and Democracy

Piketty thinks that greater inequality will be bad because it undermines meritocracy.

By meritocracy, I think he does not mean a system of government in which the best rule (as in Plato’s Republic, for example). I think he does mean that a society is a meritocracy if economic rewards go to those who earn them by using their superior training and skill. By contrast, Piketty thinks, it is arbitrary to distribute economic rewards through families; the person who is born into a wealthy family does not merit wealth in the way that a person whose skills command a high price in the labor market does, in his opinion.

It seems to me that Piketty is of two minds about meritocracy. On the one hand, I get the impression that he thinks that it is a bit of a sham to call our system a meritocracy. He certainly thinks that the people he calls supermanagers do not deserve their high pay (see Piketty 2014, 417). On the other hand, he clearly thinks that the belief that society is a meritocracy plays a useful social role. It helps to alleviate what he sees as a tension between the belief that everyone’s rights are equal and the observation that wealth is unequal.

In other words, while it is clear that Piketty thinks it would be regrettable for our societies to move further away from meritocracy, it isn’t clear that he thinks they ever came especially close to living up to the ideal in the first place. Maybe the idea is that they were a lot closer to the ideal during the golden age between the world wars and the 1980s than they are now.

Piketty also says that the loss of meritocracy is threatening to democracy. One thing I learned from our discussion is that when he uses “democracy” he probably does not mean a system of government where those with political authority are chosen by popular vote. I think he does mean that a democratic society is a fair or just society. If so, the points about democracy and meritocracy amount to the same thing. A society that distributes its wealth according to merit is just or fair while a society that distributes wealth according to birth and marriage is arbitrary and unfair.

One thing that Piketty did not give much time to is the attitude of meritocracies towards those who fail. He did seem to approve of the way that the characters in Austen novels think of the wealthy as more fortunate, rather than more deserving, than everyone else. But he did not really delve into the fact that a functioning meritocracy treats those who do not succeed as deserving their bad fate. This is something we will get into when we read Rawls, Dworkin, and Williams.

Our Discussion

Matthew thought that Piketty was improperly grouping together those who inherit wealth and the supermanagers. Piketty thinks neither group merits its wealth but Matthew thinks the latter have a much stronger claim than the former. (Piketty cites research that seems to show that managers’ compensation varies according to how the industry they are in is doing compared with others rather than according the performance of their companies relative to other companies in the same industry.) Matthew also said that equal opportunity is what matters. People have to believe that society is fair and fairness involves having an equal opportunity to be a supermanager or, at least, well off.

Etelle could not see how the wealth earned by supermanagers could possibly be deserved.

Aaron pointed out a way that inequality could result in unequal opportunity even without inheritance. Wealthier people give their children an advantage over other children by sending them to better schools, for example.

I asked about the relationship between meritocracy and democracy as a political system. Adrian suggested that political democracy depends on the ability of all citizens to participate in the system and that great inequality threatened this since the poorest citizens would receive a worse education. Aaron said that he thought what democracy means is that the government has the consent of the governed; inequality could undermine consent if the poor become alienated from the political system. Blake said that alienated people could support undemocratic leaders.

In the end, I concluded that Piketty wasn’t really talking about democracy as a political system. All of those points are still valid, of course.

I ended with a couple of remarks about how the twenty-first century might not be like the nineteenth, even as the patterns of inequality start to resemble one another. For instance:

So what would it be like to live in a society with nineteenth century levels of inequality coupled with our family structure and our technology? These are questions for imaginative fiction to explore, I think. The only thing I feel confident in saying is that it’s not obvious that it would be exactly like a Jane Austen novel.


Piketty, Thomas. 2014. Capital in the Twenty-First Century. Translated by Arthur Goldhammer. Cambridge: Harvard University Press.