Thomas Piketty, a French economist and academic, has become an overnight sensation thanks to his book “Capital in the Twenty-First Century”, a bestseller that has sparked debate on all sides for its detailed analysis of inequality under capitalism, with elation and praise from the reformist left, and horror and fright from the free-market right. Adam Booth takes a look at the response to Piketty’s Capital.
Thomas Piketty, a French economist and academic, has become an overnight sensation thanks to his book “Capital in the Twenty-First Century”, a bestseller that has sparked debate on all sides for its detailed analysis of inequality under capitalism, with elation and praise from the reformist left, and horror and fright from the free-market right.
With his clear and simple explanation of the inequalities within capitalism, it is clear why Thomas Piketty has become a worldwide “rock-star economist”. Backed up by his own painstaking and meticulous studies of centuries of historical data on wealth and income from a variety of countries, Piketty draws an unequivocal conclusion: that growing inequality between rich and poor – between the owners of capital and the rest of society – is the normal state of affairs under capitalism; periods of decreasing inequality, such as during the post-war boom, Piketty asserts, are the exception, not the rule.
Conditions create consciousness
Piketty’s success, however, is not merely down to his own personal rigour and genius, nor because of the eloquence and clarity of his writing, but is largely a reflection of the times we are living in – an era of deep capitalist crisis where economic stagnation and rising inequality have become the new normality. As The Economist (3rd May 2014) notes:
“The book’s success has a lot to do with being about the right subject at the right time. Inequality has suddenly become a fevered topic, especially in America…Americans, stung by the excesses of Wall Street, are suddenly talking about the rich and redistribution. Hence the attraction of a book which argues that growing wealth concentration is inherent to capitalism and recommends a global tax on wealth as the progressive solution.”
As Andrew Hussey in The Observer (13th April 2014) commented, “The singular significance of his book is that it proves ‘scientifically’ that this intuition is correct…it says what many people have already been thinking.”
The author himself has admitted as such, recognising that “some of the success of the book” is due to “concern with rising inequality”:
“There is a sense that inequality and wealth in the United States have been widening. People are wondering whether this will continue forever. When you have relatively low growth, 1 percent, 2 percent growth, people are concerned for the future. People are thinking about inequality.” (New Statesman, 6th May 2014)
Six years of capitalist crisis, in which the bankers and bosses have carried on making record profits whilst the rest of us are asked to pay for the crisis through austerity and cuts, have convinced the vast majority in society that we most certainty are not “all in this together”. This increasing sense of injustice in capitalism has been reflected in a multitude of ways in the recent period, from the reports by the charity Oxfam, which revealed that 85 billionaires own as much as the bottom half of the world’s population, to studies indicating that the share of the wealth in society going to workers in the form of wages has decreased in all countries over the past few decades. Others, meanwhile, have noted that mankind is increasingly in a race against the machines – that the technologies society has created have led to an accumulation of profits at one end, and to low wages and mass unemployment at the other.
Above all, this growing realisation of the inherent inequality within capitalism is demonstrated by the mass movements that have sprung up throughout the world, and most notably by the now universally famous slogan of “We are the 99%”. Talk of inequality, therefore, is not a new phenomena that Piketty has helped to create, but is the zeitgeist of our age – an age of seemingly permanent crisis and austerity.
Piketty the Marxist?
With his main message – that the inner dynamics of unregulated capitalism will tend to create inequality, not reduce it – and, of course, with his choice of the title “Capital”, Piketty has unsurprisingly drawn comparisons with the author of the nineteenth century “Capital”, Karl Marx.
Piketty’s focus on the question of capital – i.e. on the ownership of accumulated wealth – rather than simply on income, as many other previous discourses on inequality concentrate on, does indeed bare a similarity to Marx’s own analysis, as does the modern day French economist’s conclusion that inequality is a fundamental symptom of the laws of capitalism, something inherent to the system, rather than just an unfortunate and occasional accident. As Marx noted long ago in his magnum opus:
“[I]n proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse…It makes accumulation of misery a necessary condition, corresponding to the accumulation of wealth. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalisation and moral degradation at the opposite pole, i.e. on the side of the class that produces its own product as capital.”
It is at this point, however, that any similarity between the two authors ends.
Piketty’s own theory is based fundamentally upon the distribution of wealth in society, which, the author hypothesises, is down to two key variables: r, the general rate of return on capital – i.e. the average rate of profit; and g, the rate of economic growth in society. Where r is greater than g, that is where the rate of profit is greater than the rate of growth, capital – the accumulated wealth of the rich – will increase faster than the economy as a whole, which means an increasing share of the pie goes to Capital and a decreasing share going to Labour – thus, inequality increases.
According to Piketty’s own empirical studies, this trend was the historic norm in nineteenth century Britain and France. Only with the destruction of large amounts of capital during two world wars, strong policies of taxation and regulation, and an exceptional period of economic growth following WWII, was there any reverse of this yawning inequality in the twentieth century. Since the 1970s, however, when growth has been persistently sluggish, and when profits have continued to grow, the long term trend of rising inequality has been back with a vengeance.
Marxism, however, does not merely see inequality as the result of distributions in wealth, but as an inevitable result of the production of wealth under capitalism. All wealth in society is the product of labour, created by the physical and mental efforts of the working class. Profits – the return on capital – are, as Marx explained, nothing more than the unpaid labour of the working class; the difference between the value of that produced and the value that accrues back to workers in the form of wages. A growing rate of profit, therefore, merely implies a growing exploitation of the working class, which necessarily means a larger share of the wealth in society accumulating in the hands of the capitalists – a tiny elite of exploiters.
Marx demonstrated in his three volumes of Capital how, through various means, the capitalists could squeeze greater profits out of the working class: by extending the working day; through an intensification of work within a given time; by increasing the efficiency and productivity of workers; by replacing labour with machinery, etc. Ultimately this amounted to one thing: an increasing exploitation of the working class – that is, an increasing ratio of unpaid labour relative to the total labour of the working class.
This exploitation is also, however, the source of an inherent contradiction within capitalism. If workers are not paid back the full value of their product – which is necessarily the case in a system of private ownership and production for profit – then how can they ever buy back all the goods that they produce? This contradiction of overproduction – which has historically been overcome for temporary periods through investment, the use of credit, and the expansion of world trade, etc. – is what leads to periodic crises under capitalism, including the deep organic crisis that we are experiencing today, in which all the accumulated contradictions in the system are unravelling before our eyes.
Marx, however, never saw the capitalist economy simply in terms of abstract variables, but as a dialectical system of contradictory and interconnected processes, and ultimately as a struggle between living forces – a class struggle between the capitalists and workers for the surplus produced in society. Through the means described above, the capitalists can attempt to increase their profits at the expense of the working class; but where the working class is organised, united, and willing to fight, reforms can be won and workers can gain a greater share of the pie.
The difference between Marx and Piketty, therefore, is not simply one of conclusion, but of approach: the difference between the dialectical materialist and revolutionary analysis of capitalism of Marx and the dry, empirical academic approach of Piketty. As Paul Mason writes in The Guardian (28th April 2014):
“Is Piketty the new Karl Marx? Anybody who has read the latter will know he is not…Where Marx saw social relationships – between labour and managers, factory owners and the landed aristocracy – Piketty sees only social categories: wealth and income. Marxist economics lives in a world where the inner tendencies of capitalism are belied by its surface experience. Piketty’s world is of concrete historical data only. So the charges of soft Marxism are completely misplaced.”
Reformist “manna from heaven”
Piketty, however, has still felt it necessary to go to great lengths to reassure the world that he is not a Marxist, stating categorically his belief that, “we need private property and market institutions, not just for economic efficiency but for personal freedom,” (New York Times, 19th April 2014) and affirming that, “I am defender of the free market and private property,” whilst providing a social democratic caveat that, “there are limits to what markets can do.” (The Guardian, 2nd May 2014)
Elsewhere in interviews, meanwhile, Piketty has stated that Marx’s Capital “was not very influential” on him and the he “never managed to read it”. Nevertheless, our learned academic still feels himself to be in a position to criticise Marx for his lack of empirical data – despite the fact that Capital is filled with qualitative reports and quantitative data from a multitude of sources!
For the reformist left, therefore, Piketty’s is a godsend: a man who provides a theoretical explanation for the causes of inequality, alongside academic justification for radical sounding social democratic policies of high taxation on income and wealth, whilst simultaneously distancing himself from the revolutionary ideas of Marxism. As Paul Mason comments (28th April 2014), Piketty provides a programme that, whilst appearing radical, sticks firms within the confines of capitalism:
“Piketty’s Capital, unlike Marx’s Capital, contains solutions possible on the terrain of capitalism itself: the 15% tax on capital, the 80% tax on high incomes, enforced transparency for all bank transactions, overt use of inflation to redistribute wealth downwards.”
Len McCluskey, leader of Unite the Union, the largest trade union in Britain, described Piketty’s acclaimed work as “manna from heaven”, whilst Paul Krugman, a Nobel Prize winning economist and academic darling of modern day Keynesianism, has described Piketty’s Capital as “a tour de force”, a “masterly diagnosis” that has “transformed our economic discourse” by providing “a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.”
Like all other reformists, Piketty ultimately has no confidence in the power of the working class to transform society. Unlike such reformists, however, he sees no return to a post-war era of economic boom and Keynesian policies either. As Mason comments, “[for] Piketty, a repeat of the Keynesian era is unlikely: labour is too weak, technological innovation too slow, the global power of capital too great.” (28th April 2014)
On this point, Piketty is correct. The post-war boom was indeed an anomaly of capitalism; an exception in history that was made possible by a confluence of factors, as explained by Ted Grant in his analysis Will There be a Slump?, which included: the massive destruction of the means of production during the Second World War; the hugely strengthened position of the USA following the war, and its ability to preside over a vast expansion of world trade; the development and implementation of new technologies and production techniques due to nationalised research and development programmes during the war; and the political betrayals of the Stalinists and reformists at the end of the war. Such an exceptional situation of growth is not on the cards today; instead we have the perspective only of “permanent slump”, “secular stagnation”, and endless austerity.
The solution for Piketty, then, is merely to appeal to the politicians to try and plaster over the gaping wound of inequality that capitalism has created – to patch up the system and keep it running. In this respect, the problem for Piketty is not inequality per se, but the fact that this creates anger and injustice in society, threatening the system itself: “It’s very difficult to make a democratic system work when you have such extreme inequality.” (New York Times, 19th April 2014) Piketty concerns are echoed by the words of the reformist leaders of the labour movement, such as McCluskey, who stated that, “if the gap between the super-rich and the rest of us continues to grow, it can only bring social unrest. This could manifest itself in a variety of ways, none of them good.” (28th April 2014).
Far from calling for the socialist transformation of society, therefore, the reformists – with their new theoretical leader in the shape of Thomas Piketty – cling to the cadaver of capitalism at the very time that the system is dying on its feet, warning the ruling class of the dangers of revolution if the issue of inequality isn’t addressed.
Piketty, therefore, is not a strongly principled ideologue, but just another liberal economist who wishes, as John Maynard Keynes did before him with his General Theory, written at the time of the Great Depression, to highlight the worst excesses of capitalism in the hope of allowing the system to carry on going as before. “I have no problem with inequality,” Piketty has stated, “as long as it is in the common interest.” (New York Times, 19th April 2014)
Pragmatist or utopian?
Like so many others in academia, Piketty tries to paint himself as a neutral observer, standing above the petty world of ordinary politics. Neither a revolutionary anti-capitalist nor a free-market fundamentalist himself, Piketty hopes to persuade the politicians of the world to act through reasoned arguments and by appealing to the facts.
Firstly, however, whilst considering himself a “pragmatist” – a practical man of science and empirical evidence – Piketty is nevertheless clearly constrained by the ideas of the ruling class and the prejudices of bourgeois society. As Keynes correctly noted in his General Theory, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” Piketty, ironically, is a slave to Keynes himself; yet another economist who thought he could reform and regulate capitalism to get rid of the worst excesses whilst allowing the system as a whole to trundle along.
Secondly, far from being a “pragmatist”, Piketty is clearly one of the most deluded utopians of the all. To give him credit, Piketty has described some of his own policy suggestions as “utopian”. Nevertheless, he maintains – like so many other reformists – that all that is needed is “political will”: “If we are able to send one million troops to Kuwait in a few months to return the oil,” Piketty questioned, “presumably we can do something about tax havens.” (New York Times, 19th April 2014)
Such logic, however, glosses over all political reality and purposefully confuses and conflates the class interests in society: imperialist invasions in Kuwait, Iraq, or Afghanistan are conducting by the ruling class for the sake of increased profits, expanded markets, and extended spheres of influence – that is, for the benefit of the capitalists; doing “something” about tax havens, if it is to be a “something” that reduces inequality, could only mean taking on the interests of capital and damaging these same profits. As Paul Mason comments: “[Piketty] calls some of [his solutions] utopian and he is right. It is easier to imagine capitalism collapsing than the elite consenting to them.” (28th April 2014) And as The Observer (13th April 2014) notes:
“…it is hard, almost impossible, to imagine that the cure he proposes – tax and more tax – will ever be implemented in a world where, from Beijing to Moscow to Washington, money, and those who have more of it than anyone else, still calls the shots.”
Like all the reformist leaders and intellectuals before him, therefore, Piketty believes that the capitalist state can be used against the interests of the capitalists themselves. Whilst our academic rock star may pride himself on his use of historical data in his economic studies, it seems that he is willing to ignore all the lessons of history when it comes to this political question of the state and the potential for reforming capitalism.
Where reforms have been won under capitalism, it has always been on the basis of class struggle and the threat to the capitalists of potentially losing far more. Piketty acknowledged as much in an interview with the Huffington Post (1st May 2014), explaining that the danger of revolution and the example of the planned economy in the Soviet Union helped to convince the capitalists to part with some of the profits:
“The existence of a counter model [the Soviet Union] was one of the reasons that a number of reforms or policies were accepted.
“In France, it’s very striking to see that in 1920, the political majorities adopted steeply progressive taxation. Exactly the same people refused the income tax in 1914 with a 2 percent tax rate. And in between, the Bolshevik revolution made them feel, after all, that progressive taxation is not so dangerous as revolution.”
“The history of all hitherto existing society,” Marx and Engels explained in the Communist Manifesto, “is the history of class struggles.” Where reformist leaders, such as Allende in Chile in 1973, have attempted to gradually reform capitalism in the interests of the majority of society, they have always been met with resistance, sabotage, and even violence by the existing ruling class of capitalists and landlords.
One does not even need to go so far back as 1973 to demonstrate this; rather we can go closer to Piketty’s own time and country, and look at the miserable example of François Hollande, the “socialist” President of France, who won a sweeping victory in May 2012 with a programme to tax the rich. Within his first year in office, however, President Hollande saw his flagship policy of a 75% tax on the top incomes shot down by the French courts – that is, by the bourgeois state. Now two years since election, and Hollande has reneged on all his election promises and – under the pressure of big business and their threats to withdraw investment from the country– is carrying out a programme of austerity to “restore competitiveness” to the French economy – i.e. to cut labour costs and increase profits.
Far from being a practical and “realistic” man, Piketty, as with all other reformist leaders, is himself deeply utopian. The only realistic solution is the revolutionary socialist transformation of society – to put an end to the capitalist system and put the wealth and technology in society under a rational and democratic plan of production.
The fright of the right
More interesting that the enchantment of the reformist left with Piketty is the fury of those most fervently in support of capitalism, who are horrified at the popularity of a man who calls for large increases in taxes on the rich. Despite clearly stating his opposition to revolutionary ideas, the ardent advocates of the free market understand that Piketty, by providing a theoretical criticism of the capitalism system, shining a spotlight on the issue of inequality, and reviving a discussion about the merits of Marx’s own analysis, has opened up a potential Pandora’s box of radicalisation amongst the masses.
The bourgeois mouthpieces calmly –and correctly – trot out the problems facing Piketty’s reformist suggestions: “higher taxes on income and wealth put off entrepreneurs and risk taking…” (The Economist, 3rd May 2014) – in other words, taxing the rich leads to a strike of investment and a flight of capital. The problem the capitalist apologists face, however, is that Piketty’s empirical historical analysis of inequality is fairly water-tight.
The result is an inability of the free market fanatics to answer Piketty’s criticisms with any solid analysis of their own; instead they simply stick the label of “Marxist” onto him instead. Whilst his method and theoretical explanation are clearly not Marxist, and whilst they can palm off his policy recommendations as “utopian” (which they are), the most solid defenders of the capitalist system are having trouble arguing against the facts that Piketty presents in his magnum opus.
Keynesian economist Paul Krugman has boasted that, “the right seems unable to mount any kind of substantive counterattack to Mr. Piketty’s thesis,” (New York Times, 24th April 2014) going on to highlight the worries of the bourgeois ideologues:
“Mr. Piketty is hardly the first economist to point out that we are experiencing a sharp rise in inequality, or even to emphasize the contrast between slow income growth for most of the population and soaring incomes at the top. It’s true that Mr. Piketty and his colleagues have added a great deal of historical depth to our knowledge, demonstrating that we really are living in a new Gilded Age. But we’ve known that for a while.
“No, what’s really new about ‘Capital’ is the way it demolishes that most cherished of conservative myths, the insistence that we’re living in a meritocracy in which great wealth is earned and deserved.
“For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defence: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the 1 percent, or the wealthy; call them ‘job creators.’
“But how do you make that defence if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?”
Capitalism, and the ruling class that defends it, rely greatly on the accumulated weight of past prejudices, “public opinion”, and “common sense”, which they help to propagate and consolidate through their control of the state, the media, education system, etc. But conditions create consciousness, and facts can be stubborn things. On the basis of big events, and from their own experience, therefore, the masses become acutely aware of the injustices and inequalities within society, which in turn leads to a questioning that was not there before, creating a fertile ground for more radical ideas to take hold in the minds of the masses.
Hence the concerns of the bourgeoisie today, who feel intensely threatened by an academic who brings their – previously sacrosanct – system in to question, and who can feel their control and intellectual authority slipping away. Commenting on Piketty’s work and its analogy to the General Theory of Keynes, which provided the academic framework for the reformist “post-war consensus” of Keynesian economic policies and demand-side management, James Pethokoukis, writing in the National Review Online, implores the pro-capitalist economists to find a more convincing argument for the free market today:
“The soft Marxism in [Piketty’s] Capital, if unchallenged, will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged. We’ve seen this movie before…Who will make the intellectual case for economic freedom today?”
Allister Heath, editor of City AM, a reliable voice of the bankers and financiers in London, who only last year warned his fellow capitalists that, “There is sadly mass support for nationalisation and price controls,” and that, “Supporters of a market economy have a very big problem. Unless they address the concerns of the public, they will be annihilated,” now honestly expresses his deep concerns again regarding the waning popularity of the exploitative system that he defends:
“Last but not least, supporters of capitalism need to get their act together. They are being slaughtered on the intellectual battlefield by opponents who are finding sexy new justifications for their old arguments. We need more and better defences of the free enterprise system, and we need them now.” (Allister Heath, The Telegraph, 29th April 2014)
These words accurately express the worries of the ruling class who understand that years of crisis and cuts are having an enormous impact on the consciousness of the masses, and who can see that anti-capitalist rhetoric and radical ideas are increasingly popular amongst workers and youth. As Larry Elliott notes in The Guardian (The Guardian, 2nd May 2014):
“[Piketty’s] Capital speaks to the Occupy movement; it speaks to the under-25s in Britain whose real wages are 15% lower than at the end of the 1990s; it speaks to Generation Rent.”
Elliott, however, points out the contradiction in the whole situation:
“Admiring the analysis is one thing; accepting the policy prescriptions quite another. Labour will steer clear of some of Piketty’s more radical suggestions.”
In other words, whilst calls for taxing the rich are enormously popular, the leaders of the Labour movement refuse to carry them out and instead promise only a continuation of the Tory programme of austerity. As ever, “the historical crisis of mankind,” as Trotsky noted, “is reduced to the crisis of the revolutionary leadership.”
Piketty’s suggestions to tax the rich are indeed a utopian dream in a globalised capitalist world market where capital is fluid and dynamic. Nevertheless, the response to his book – enthusiasm from those looking for an explanation for and a solution to the inequalities of capitalism; horror and fright from those who defend the senile, decaying capitalist system – accurately reflect the growing understanding in society that capitalism has reached an impasse, offering no future to the vast majority other than the “accumulation of misery, the torment of labour, slavery, ignorance, brutalisation and moral degradation.”
It is time to put an end to the inequalities and injustices of capitalism. It is time for a revolutionary socialist transformation of society to take the enormous quantity of wealth in society out of the hands of the 1% and place it under a rational and democratic plan of production in the interests of the 99%. It is time to sweep this decrepit system into the dustbin of history where it belongs.
