The radical economist’s book Capital in the Twenty-First Century has angered the right with its powerful argument about wealth, democracy and why capitalism will always create inequality. Not read it yet? Here’s what it means
That capitalism is unfair has been said before. But it is the way Thomas Piketty says it – subtly but with relentless logic – that has sent rightwing economics into a frenzy, both here and in the US.
His book, Capital in the Twenty-First Century, has shot to the top of the Amazon bestseller list. Carrying it under your arm has, in certain latitudes of Manhattan, become the newest tool for making a social connection among young progressives. Meanwhile, he is beencondemned as neo-Marxist by rightwing commentators. So why the fuss?
Piketty’s argument is that, in an economy where the rate of return on capital outstrips the rate of growth, inherited wealth will always grow faster than earned wealth. So the fact that rich kids can swan aimlessly from gap year to internship to a job at father’s bank/ministry/TV network – while the poor kids sweat into their barista uniforms – is not an accident: it is the system working normally.
If you get slow growth alongside better financial returns, then inherited wealth will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”, says Piketty. Wealth will concentrate to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.
To understand why the mainstream finds this proposition so annoying, you have to understand that “distribution” – the polite name for inequality – was thought to be a closed subject. Simon Kuznets, the Belarussian émigré who became a major figure in American economics, used the available data to show that, while societies become more unequal in the first stages of industrialisation, inequality subsides as they achieve maturity. This “Kuznets Curve” had been accepted by most parts of the economics profession until Piketty and his collaborators produced the evidence that it is false.
In fact, the curve goes in exactly the opposite direction: capitalism started out unequal, flattened inequality for much of the 20th century, but is now headed back towards Dickensian levels of inequality worldwide.