Fed up with the mainstream media? Support radical, challenging, independent media instead! Subscribe to Red Pepper · Close this box

Book review: Capital in the Twenty-First Century by Thomas Piketty

John Palmer argues that Piketty's bestseller presents a challenge to even the most blinkered of defenders of the present neo-liberal order
April 2014


Thomas Piketty, a 43 year old, left leaning, French socialist economist, has written a 700 page book on inequality which has achieved something few would have thought possible. He has rocked the neo-liberal economic establishment to its foundations. To read the tidal wave of reviews by economics professors and others across the world is to get a sense of the impact that Piketty’s conclusions are having: that inequality is even more extreme than most experts thought, is worse than at any time since the 19th century and is set to reach nightmare proportions in the years ahead.

Even some of the most ideologically blinkered of free market economists, having read this book, now openly admit that the Professor Piketty has laid down a challenge which they dare not ignore and which could change the political environment. Many say he has “re-written the economic text books for this century.”

The experts are impressed less by his conclusions than the mountain of evidence he marshals in support of them. This book has been written with the active collaboration of many experts working on data - which has never been properly collated or analysed before - about how wealth and income differences have evolved over the centuries. Only with the latest data processing systems has this been made possible.

Examining the history of income and wealth inequality, Piketty recounts the extreme inequalities which marked the centuries before the First World War. In a fascinating section which follows, he links the reduction of inequalities between 1914 and 1945 in large measure to the sheer destruction by war of so much (mainly inherited) wealth.

But he also underlines that in post-war Europe, between 1945 and the mid 1970s, an unprecedented combination of higher taxes, social reform and strong trade unionism resulted in a gradual narrowing of inequality. But his documentation of trends since the 1970s is bleak in the extreme.

In describing the accelerating concentration of wealth in the hands of the infamous “1 per cent”, Piketty demonstrates the interaction between outlandishly extreme salaries paid to top business executives and the way in which this boosts not merely income but feeds directly into wealth inequality. In the US not only do the richest 10 per cent own 75 per cent of the country’s wealth but between 2010 and 2012 an almost unbelievable 95 per cent of the overall growth of income went to just one per cent of the population.

At the heart of his detailed analysis Piketty insists that “the central contradiction of capitalism” is the tendency for inequality to grow when the rate of return on capital (by which he means something broader than the conventional Marxist definition of the rate of profit) is higher than the economy’s rate of growth. He also notes that as developing countries industrialise, inequalities get worse, not better. In the developed capitalist world he warns that the prospect of slower economic growth in the years ahead combined with the political domination of the interests of the super rich in our political systems threatens to make these extreme inequalities even more grotesque.

Given this analysis, and Piketty’s title for the book “Capital in the 21st  Century” it might be thought that he is fairly obviously a Marxist. But although he was brought up in a family of Marxists (his parent were militants in the French Trotskyist Lutte Ouvriere organisation) this is not really the case. While acknowledging his debt to Marx’s pioneering work, he highlights distributional issues and insists there are potential reforms which can and should be taken even within the existing capitalist system.

In essence this comes down to the blunt conclusion that there should be a coordinated, world wide annual tax on all forms of wealth (not just property). He suggests this might start at one per cent on wealth between $1 million and $5 million rising to 10 per cent or possibly more on fortunes above $1 billion. Piketty of course understands the enormity of this challenge but argues that “Although this risk is real, I do not see any genuine alternative: if we are to regain control of capitalism, we must bet everything on democracy – and in Europe, democracy on a European scale.”

This, of course, is where the political dialogue on the left should begin. Piketty admits such an approach is a very long shot. So could such a strategy have to await some prior existing “socialist order” or might the struggle to redress the Kafkaesque world of income and wealth inequality trigger a revival of international movements directed at achieving a new economic and social system?

At the very least this “extraordinarily important book” (as the Financial Times described it) provides the left with the arguments and the evidence for action which not even the most blinkered of defenders of the present neo-liberal order can challenge.  We should take advantage of the obvious intellectual disarray which Piketty has inflicted on our enemies. This book should be in everyone’s local library.

More book reviews ▾

Keith Heaven 23 May 2014, 18.42

From the review, this seems to be an important book. But I wonder how we could impose more realistic tax rates on the super-rich when they have clearly been too strong for us since the 1970’s.
I can see the point about the need to make our response as international(or at least Europe-wide) as possible but recent trends indicate a wish by many to split Europe up into the old nation states.

Will Podmore 9 June 2014, 14.36

Thomas Piketty is Professor at the Paris School of Economics. This fascinating book studies changes in wealth distribution. The data are always interesting.
But his politics are conventionally social democratic. He dismisses all the experiences of Soviet planning in just five lines of ignorant abuse.
He presents his book as the alternative to Marx’s Capital, but shows no sign of having read it. He claims that Marx ‘relies on a strict assumption of zero productivity growth over the long run’ and that he “totally neglected the possibility of durable technological progress and steadily increasing productivity.” Parts 4, 5 and 7 of the first volume of Capital are all about productivity growth over the long run, and Marx wrote, “Another important factor in the accumulation of capital is the degree of productivity of social labour.”
Again, Piketty claims that Marx ‘implicitly assumes zero demographic … growth.’ Marx wrote a whole section on capital’s increasing demand for labour power, concluding, “Accumulation of capital is, therefore, increase of the proletariat.”
In Europe and the USA, between 1870 and 1900, wages rose, but the concentration of wealth, and inequality, continued to rise until 1914. Piketty notes, “the concentration of wealth was as large at that time [the late 19th century] in France as in Britain, which clearly demonstrated that equality of rights in the marketplace cannot ensure equality of rights tout court.” As he comments, “inequalities with respect to capital are always extreme.” In Britain in 1910, the richest one per cent owned 70 per cent of the wealth.
In the USA, the richest 10 per cent claimed 45-50 per cent of the nation’s income in 1910-30, 30-35 per cent 1950-70 and 45-50 per cent again since 2000.
He admits, “For those who own nothing but their labour power … it is difficult to accept that the owners of capital – some of whom have inherited at least part of their wealth – are able to appropriate so much of the wealth produced by their labour.” The capitalist societies of the USA, Europe and Japan are “societies in which inequality with respect to capital is so great that the owners of capital do not need to work.”
Piketty’s remedy for this growing inequality is a global tax on capital, which he admits is ‘a utopian ideal’. It is indeed just wishful thinking when the rich make the laws. He asks, “Has the US political process been captured by the 1 percent?” The answer is Yes, as he shows.
But he decides to ignore the evidence he presents, writing, “For reasons of natural optimism as well as professional predilection, I am inclined to grant more influence to ideas and intellectual debate. Careful examination of various hypotheses and bodies of evidence, and access to better data, can influence political debate and perhaps push the process in a direction more favourable to the general interest.”
He asserts that this global tax on capital is “a solution that has the merit of preserving economic openness while effectively regulating the global economy and justly distributing the benefits among and within nations.” So now his tax is a solution, not just a utopian ideal.
He makes just a one-page argument against the working class alternative policy of protectionism and capital controls, yet admits, “As noted, the simplest way for a government to reclaim a measure of economic and financial sovereignty is to resort to protectionism and controls on capital. Protectionism is at times a useful way of sheltering relatively undeveloped sectors of a country’s economy (until domestic firms are ready to face international competition). …. Nevertheless, protectionism, when deployed on a large scale over a long period of time, is not in itself a source of prosperity or a creator of wealth.”
But neither is economic openness. As he acknowledges, “the rare estimates of the economic gains due to financial integration suggest a rather modest global gain (without even allowing for the negative effects on inequality and instability, which these studies ignore).” So economic openness, far from ‘justly distributing the benefits’, worsens inequality.
And, as he notes, “there has been a tendency to see the free circulation of people, goods, and capital as fundamental rights with priority over the right of member states to promote the general interest of their people …” A global tax on capital, even if possible, would do nothing to stop this.
Piketty also acknowledges, “it is quite likely that the rich countries will have increasing recourse to capital controls in the decades ahead. The emerging world has shown the way, starting in the aftermath of the Asian financial crisis of 1998, which convinced many countries, including Indonesia, Brazil, and Russia, that the policies and ‘shock therapies’ dictated by the international community were not always well advised and the time had come to set their own courses.” And he concludes, “capital controls are one way of regulating and containing the dynamics of wealth inequality.”
So in sum, his global tax can’t work, and protection and capital controls do work.

Eric Zencey 12 June 2014, 13.20

I think that the most telling criticism of Piketty can be offered on this ground: his critique of how capitalism has operated does nothing to break out of some of the most fundamental of the flawed premises on which the neoclassical model is based. There are any number of ways of putting this proposition:
1. Piketty does nothing to challenge the delusional belief that we can have infinite growth on a finite planet.

2. Piketty purports to be writing a history of the development of wealth by western, capitalist economies, but says absolutely nothing about the role that fossil fuels have played in this historic change. All value in the human (as in the natural) economy comes from the interplay of three factors of production: matter shaped by energy according to some form of design. With cheap energy humans can extract more matter more cheaply and shape it more thoroughly–and by “cheap” we must mean thermodynamically cheap, i.e. energy that has a very high rate of Energy Return on Energy Invested. Everything an economy does, it does AFTER it has paid the energy price of getting the energy it needs to operate. When the human economy operated primarily on animal and human muscle power, the energy investment in obtaining energy was the human and animal muscle power invested in agriculture. If, in a given kind of agricultural regime, one farmer could support just himself and his family, then everyone in the society must be farmers and there can be no other kind of worker–no priesthood, no cartwrights, no carpenter/builders, etc. etc. (Of course no lasting society was ever that tightly budgeted.) When one farmer’s produce can feed self, family, and three other workers, three workers can do something besides farm. If we appreciate these fundamental thermodynamic truths, we can then see that when humans learned the trick of turning the planet’s past solar income, stored as fossil fuel, into work and wealth in the present, they created a wealth-generating machine that had no precedent on the planet. Pre-petroleum agriculture paid off at something between 5 and 15 to one, depending on soil fertility. Oil paid off with an EROI of 100 to 1. If you want to think clearly about the history of wealth generation (and the tendency for wealth to concentrate over time) you have to talk about this, the thermodynamic origin of wealth. Piketty doesn’t. He doesn’t talk about or acknowledge the relevance of the laws of thermodynamics.
3. Which is to say, Piketty perpetuates Infinite Planet Economic Theory, since it’s the laws of thermodynamics that tell us we can’t have infinite growth on our finite planet. The amount of matter-and-energy throughput that we can sustainably extract from the planet is finite. It’s true that the other factor of production–intelligent design–can steadily improve, giving us more value for a given amount of throughput, but that slow-and-steady increase is not likely to be infinitely extendable. We can create economic value by using less matter and energy, as we learn to conserve and to make more efficient use of matter and energy; but we cannot create economic value using NO matter and energy. (Even goods that seem completely abstract and etherial–philosophical ruminations and economic theories, for instance, thought up in someone’s head and communicated orally–require fuel–the food the thinking being has to eat to sustain the bodily function of thought.)

4. Had he understood the thermodynamic foundations of wealth and the physical limit Piketty might have come to this insight: On a finite planet, an economy designed for an infinite planet becomes a pump for siphoning wealth from those who have less of it and distributing it to those who have more.

For supporting argument, see http://www.upne.com/1584659617.html

Comments are now closed on this article.

Red Pepper · 44-48 Shepherdess Walk, London N1 7JP · +44 (0)20 7324 5068 · office[at]redpepper.org.uk
Advertise · Press · Donate
For subscriptions enquiries please email subs@redpepper.org.uk