Here are the basics of Prof. Brown’s presentation on Thomas Piketty’s Capital in the Twenty-first Century.
Thomas Malthus (1766-1834), David Ricardo (1772-1823), and Karl Marx (1818-1883) all used economic theorizing to make predictions about the broad course of society.
In Ricardo, expanding populations draw increasingly poor land into cultivation, driving up the rents enjoyed by owners of better land, concentrating an ever larger share of wealth in the hands of the landowning class. Malthus feared that only the threat of starvation would keep the lower classes from reproducing; a consequence of this view is that it does no good to give money to the poor. Of the three, Marx was the one who has been widely discussed in other classes; we discussed many aspects of his background and his theories.
While theoretically elegant, none of these theories was backed by decent empirical evidence. By contrast, Simon Kuznets (1901-1985) had terrific data. But his data covered a period in history when inequality was abnormally low.
Piketty has the same theoretical ambitions as Malthus, Ricardo, and Marx. But he has data that is as good as Kuznets had. But while Kuznets had data on the US for part of the twentieth century, Piketty has data for hundreds of years covering a number of countries. It is the combination of theoretical ambition, stellar data, and the importance of its topic that makes this book so remarkable.
Piketty chronicles the long-term approximate stability of the return on capital, and the rise over the last few decades in the share of income going to the richest people in society. For example, he predicts that 16% of people in France will by 2030 inherit more money than the poorest half of the population can earn in a lifetime.
Piketty’s theory is that inequality in the wealthy countries is returning to its historical norms after a period when it was unusually low between World War II and the 1980s. This is certainly interesting. But it is not necessarily bad.
Here is why Piketty thinks it matters.
When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based. (Piketty 2014, 1)
I have two questions about this.
First, Piketty’s theory is that the historical rates of inequality happened because the returns to capital exceed the growth of the economy: r > g. But the rise in inequality that we have seen since 1980 is due to wages, not returns on capital. Some people are earning extraordinarily high compensation for their labor; they aren’t getting rich by investing capital. So why think we are going back to historical norms if the cause of inequality in our society is abnormal?
Second, Piketty’s introduction does not really explain what he means when he calls inequalities “arbitrary” and “unsustainable.” Nor does he go into what he means by “meritocratic values” or explain why inequality undermines them and democracy.
This isn’t a criticism; there is only so much one can do in an introduction. But, at the same time, this is the point where PPE should shine. Having studied ethics and politics as well as economics, we should be in a position to fill that in a bit.