I have been reading Thomas Piketty’s Capital in the Twenty-First Century for the past few weeks and have decided to post my notes on the book in a series of blog entries. I have noticed that since the English translation of the book became available, the book has been a subject of intense debate. But mostly what I also find fascinating is that quite a few public figures are talking about the book without having read it. So, the purpose of these notes is personal and public: personal because these notes, I hope, will help me understand the book better and public in the sense that these notes will be available to all those who want to read and discuss the book.
Note: In the discussion below the headings created by me are provided in bold and the original section headings from the book are provided in italics.
In the introduction, Piketty clearly lists the questions that he attempts to answer in this book. The main question is about the “Distribution of wealth. (DW)” Which is followed by certain concomitant questions:
- Do we know about the evolution of DW over long-term?
- Does the dynamics of private wealth, a la Marx, lead to concentration of wealth?
- Or, a la Kuznets, the balancing forces (growth, competition, technological progress) lead to a reduced inequality?
What Makes Piketty’s Study More Convincing
- It is based on “much more extensive historical and comparative data” (1).
- “Data covering three centuries and more than twenty countries” (1).
Piketty’s main Assertion
When the rate of return on capital exceeds the rate of growth of output and income . . . capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based. (1)
Based on this historical, empirical research, Piketty offers some policy recommendations (later in the book) with the following aim:
[So that] democracy can regain control over capitalism and ensure that the general interest takes precedence over private interest while preserving economic openness and avoiding protectionist and nationalist reactions.
A Debate without Data?
This section of the introduction provides Piketty’s views on the previous debates on the DW question, which in his words, was “based on relatively limited set of firmly established facts together with a wide variety of purely theoretical speculations” (3). Piketty also provides, in this section, an explanation of the role of the social science research, something that we all should also think about:
Social scientific research is and always will be tentative and imperfect. . . . But by patiently searching for facts and patterns and calmly analyzing the economic, social, and political mechanisms that might explain them, it can inform democratic debate and focus attention on the right questions. (3)
Malthus, Young, and the French Revolution
Thomas Malthus influenced partially by the travel diary published by Arthur Young, was first of many to tackle the question of distribution. For Malthus the “primary threat was overpopulation” (4). Affected by the French revolution, Malthus “argued that all welfare assistance to the poor must be halted at once and that reproduction by the poor should be severely scrutinized lest the world succumb to overpopulation leading to chaos and misery” (Piketty 5). 1
Ricardo: The Principle of Scarcity
While David Ricardo had no “genuine statistics at his disposal” (5), he did have “intimate knowledge of the capitalism of his time” (5). He was concerned with the “following logical paradox”:
Once both population and output begin to grow steadily, land tends to become increasingly scarce relative to other goods. The law of supply and demand then implies that the price of land will rise continuously, as will the rents paid to landlord. The landlords will therefore claim a growing share of national income, as the share available to the rest of the population decreases, thus upsetting the social equilibrium (5-6).
Ricardo’s Solution: “A steadily increasing tax on land rents” (6)
- Some quotes from Malthus: (Source: http://en.wikipedia.org/wiki/An_Essay_on_the_Principle_of_Population)
The way in which these effects are produced seems to be this. We will suppose the means of subsistence in any country just equal to the easy support of its inhabitants. The constant effort towards population… increases the number of people before the means of subsistence are increased. The food therefore which before supported seven millions must now be divided among seven millions and a half or eight millions. The poor consequently must live much worse, and many of them be reduced to severe distress. The number of labourers also being above the proportion of the work in the market, the price of labour must tend toward a decrease, while the price of provisions would at the same time tend to rise. The labourer therefore must work harder to earn the same as he did before. During this season of distress, the discouragements to marriage, and the difficulty of rearing a family are so great that population is at a stand. In the mean time the cheapness of labour, the plenty of labourers, and the necessity of an increased industry amongst them, encourage cultivators to employ more labour upon their land, to turn up fresh soil, and to manure and improve more completely what is already in tillage, till ultimately the means of subsistence become in the same proportion to the population as at the period from which we set out. The situation of the labourer being then again tolerably comfortable, the restraints to population are in some degree loosened, and the same retrograde and progressive movements with respect to happiness are repeated.(Malthus T.R. 1798. An Essay on the Principle of Population. Chapter II, p 19 in Oxford World’s Classics reprint).
The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction, and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world. (Malthus T.R. 1798. An Essay on the Principle of Population. Chapter VII, p 6).
Malthus’s Proposed Solutions:
We may be quite sure that among plants, as well as among animals, there is a limit to improvement, though we do not exactly know where it is. It is probable that the gardeners who contend for flower prizes have often applied stronger dressing without success. At the same time, it would be highly presumptuous in any man to say, that he had seen the finest carnation or anemone that could ever be made to grow. He might however assert without the smallest chance of being contradicted by a future fact, that no carnation or anemone could ever by cultivation be increased to the size of a large cabbage; and yet there are assignable quantities much greater than a cabbage. No man can say that he has seen the largest ear of wheat, or the largest oak that could ever grow; but he might easily, and with perfect certainty, name a point of magnitude, at which they would not arrive. In all these cases therefore, a careful distinction should be made, between an unlimited progress, and a progress where the limit is merely undefined.
“It does not… by any means seem impossible that by an attention to breed, a certain degree of improvement, similar to that among animals, might take place among men. Whether intellect could be communicated may be a matter of doubt; but size, strength, beauty, complexion, and perhaps longevity are in a degree transmissible… As the human race, however, could not be improved in this way without condemning all the bad specimens to celibacy, it is not probable that an attention to breed should ever become general”. (Malthus T.R. 1798. An Essay on the Principle of Population. Chapter IX, p 72). ↩