Capital in the 21st Century by Thomas Picketty

A review of Capital in the 21st Century would have to be a book in itself, so let this be a mere reflection on some of Thomas Picketty’s abundant material. And there is no better place to start than his initial demonstration of how little the ownership structure of wealth changes, barring war. Furthermore, his demonstration that things are returning to “normal” after the twin conflicts of the 20th century World Wars could, unless tempered by resigned realism, easily cause the reader to become depressed. Thomas Picketty’s book should be required reading for anyone, certainly anyone British, who benefited from the social mobility available in the 1950s to 1970s. We have tended to blame the 1944 Education Act for providing the abnormal conditions that led to a measurable, albeit temporary, decline in inequality. But Thomas Picketty makes things clear by clarifying that it was simply the result of the aberrations of the war, which for a few decades weakened the power of capital. Normal service has since resumed.

Picketty describes how unequally capital is distributed, especially in developed societies. In general, half of the population has nothing, while the upper ten percent has approximately half of the wealth. For Picketty, capital means fixed assets that could potentially be traded, the ownership of which can be bought and sold. It includes fixed assets, property, shares or cash, and excludes all forms of human capital, which can be an asset and have value, but, he argues, its property can only be traded in slave societies, which do not exist now. However, she considers the distribution of capital and the distribution of income separately, so that at least one element of human capital is represented in the latter. He notes that income is always more evenly distributed than fixed capital, with the top ten percent receiving only 25 to 30 percent of total income. Consequently, if there has been any change in the identity of the capital-owning elite in recent decades, it has come, at least in large part, as a result of the very high pay available for certain professions at the top of the economy. the income scale. The phenomenon has also translated into an increase in inequality observed in developed societies in recent decades, especially in the US and the UK. Inequality continues to rise.

One of Picketty’s fundamental laws is that capital always grows faster than the economy as a whole. Thus, success through purchasing power inevitably leads to graduation into the rentier class, a transformation that is needed if the newly acquired status is to be consolidated. Furthermore, if the inequality that capital growth is greater than economic growth is true, this implies that even the advantages of growth in the general economy will eventually accrue to the owners of capital.

Historically, economic growth has been strongly associated with population growth. Without the demographic element, economies have consistently achieved no more than about two percent growth. Two percent is still a significant rate if it is maintained. But growth spurts are accompanied by population spurts. También es probable que lo contrario sea cierto, lo que en sí mismo permite que algunas facetas de la economía mundial actual se vean bajo una luz más informativa. However, population surges produce economic increases, and this is not surprising. What is somewhat surprising is Picketty’s claim, perhaps assumption, that since France experienced population growth before other developed societies, then we should all look to France as the international economic agenda-setter, the historical standard, if you will, that others followed. .

Another historical reality that appears very clearly in their data is the effect of foreign profits throughout the 19th century and during the First World War. These “invisibles”, as they have sometimes been called, were simply the profits of colonialism and slavery. They financed deficits, loans and consumption in the heart of the empires from which they came. In the modern world, he points out, there is perhaps a greater degree of foreign ownership of capital than ever before, but profits and transfers of capital are two-way, just like profits, and therefore net transfers are small.

This story is illustrated in the economic data. He cites a number of cases in which an imperial power, having accumulated large debts after periods of conflict or recession, managed to derive five percent or more of its national income from invisibles, thus allowing the country in question to pay off debts it otherwise they would have had. been paralyzing. In the modern world, crucially, this get out of jail free card may no longer be available.

One aspect of Picketty’s analysis surprises us. A lo largo del libro, utiliza la ficción como fuente de ilustración, una fuente que hará que muchos lectores académicos del texto se detengan y se pregunten. Picketty often cites examples from Balzac, Austen, and others to illustrate general points about the behavior of capital. El proceso, aunque muy selectivo y, todo hay que decirlo, apócrifo, acaba por convencer, pero son los novelistas los que acaban brillando, no el modelo económico. Her argument, which she claims is so clearly illustrated in nineteenth-century fiction, is that capital is always more likely to be inherited or, indeed, married than earned. The endless machinations associated with the search for a suitable marriage partner for eligible women in 19th century fiction are a mere acknowledgment that it is easier to marry into money than to earn it, capital growth always being less than economic growth. .

If Capital in the 21st Century can be criticized, then it is in its rather sparse, even dismissive, coverage of human capital. Yes, this is absorbed into the revenue data. But the author does argue that “democratic modernity is based on the belief that inequalities based on talent and individual effort are more justified than other inequalities, or at least we hope to go in that direction.” He contrasts this belief with a character in Balzac who gives up the opportunity to study law in order to seek marriage and make a fortune, then asks who would do such a thing today.

Now, if the credentials and skills obtained by participants in education develop human capital, even if this is only reflected in higher earnings, then access to high-quality education is needed before these skills and credentials are attainable. It could even be argued that educational experience is now not only sufficient for the advancement of capital but also necessary, since even the opportunity to marry capital may depend on the achievement or not of the educational levels that are preconditions for entering that market. in particular.

And so, if education has become just another commodity offered through a market, then the cost of accessing the most developed and effective delivery systems will increase, as these are the most effective means of ensuring access. to capital, either through profit or marriage. Such costs will also increase as, having become a market, educational demand will be greater among those who need to protect their current capital property and have the resources to pay for what they need. Education thus becomes a means to confirm and reaffirm wealth, instead of a potential way for social mobility. Perhaps today it is still easier to marry wealth than to earn it. Except today the choice of marriage may be determined by an educational credential that can be more effectively secured by existing access to wealth.

This argument seems to come full circle, illustrating how, even in a materialistic society, capital will always grow faster than the economy as a whole, and why inequality will not only persist, but increase.

No book review should focus on what a book is not. So, as a final note, let me describe Thomas Picketty’s book as essential reading for anyone with a brain. If you can refute your analysis empirically, rather than simply denying its importance on ideological grounds, present your data. If you can’t, then join the call for policies that will try to address the destructive imbalances that result in growing inequality. It must be remembered that underpinning Capital in the 21st Century is a need to examine whether a certain text called Capital in the 19th Century contained a grain of truth in asserting that eventually the capitalist system would collapse under the pressure of its own inevitable imbalances. The conclusion seems to have been demonstrated, and thus the rereading of that other book is justified.