The American left is in the grips of Pikettymania, a mass exhilaration sparked by the pounding “progressive” beat of a new book by French economist Thomas Piketty.
Piketty's “Capital in the Twenty-First Century” satisfies progressives' affection for hackneyed oldies — in this case, Karl Marx's famous tune that capitalism impoverishes everyone but a tiny handful of elites. Like Marx, Piketty sees in the very nature of capitalism a force that, by creating an ever-widening gulf between hapless plebes and lucky plutocrats, spells capitalism's own doom.
Piketty's 21st-century remake of Marx's 19th-century hit song of course has its own novel variations. Most notably, Piketty is more upbeat than was Marx about the possibility of salvaging what is desirable about markets while taming the brutal capitalist beast. If governments can collude with each other to establish a globe-spanning schedule of steeply progressive tax rates on incomes and wealth, then the state can strip from plutocrats the unearned bounty that capitalism inevitably “distributes” to them.
But even in the absence of a successful worldwide cartel of taxing governments, says Piketty, all is not lost. If a sufficiently large number of governments tax their rich citizens out the wazoo while persuading other governments at least to share information on foreign bank accounts and other asset holdings, enough wealth can be ripped from the portfolios of the lazy plutocrats to avoid “terrifying” revolutions of the have-nots against the haves.
Like Marx's composition, though, the lyrics of Piketty's screeching song make no sense.
Start with Piketty's pithy refrain: r > g , where r is the rate of return on capital and g is the rate of economic growth. Piketty insists that the rate of return on capital will, year in and year out, exceed the rate of economic growth. The result is that (unless government intervenes) those who own capital will steadily grow richer than those who own only their own labor.
How, though, do the returns on capital grow so regularly and rapidly? You'd think the book would explain this central proposition. Yet Piketty offers no such explanation beyond saying that capital grows “by itself.”
A warning: Piketty wrote his book in French. The version I read is an English translation. It's possible that important nuances in Piketty's original meaning are lost in translation — possible but unlikely. The entire tenor of Piketty's volume suggests that he thinks capital reproduces itself, both from the perspective of its individual owners and from the perspective of society at large.
The creativity and fortitude of entrepreneurs, the skillful risk-taking by investors and the insight and effort of managers are all strangely absent throughout Piketty's performance. These very fonts of modern prosperity are at best assumed to play uninterestingly routine and unseen roles backstage. Onstage, capital — the stuff that is in fact created and skillfully steered by flesh-and-blood entrepreneurs, investors and managers — appears to grow spontaneously, without human involvement.
The same is true for the growth of the economy. The only difference (for Piketty) is that economic growth proceeds more slowly than does the growth of capital.
In forthcoming columns I'll explore these and other discordant notes in Piketty's anthem to the alleged need for government to “control” capitalism.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.