Thomas Piketty’s book, Capital in the Twenty-First Century, is currently shaking the economic and political landscape at about 7.1 on the seismic meter. I have not read the book and don’t intend to do so because nobody is likely to pay me enough money. I have glanced at it on the pages Amazon will allow me to see for free, and that was enough to confirm that reading it would be the sort of labor for which one ought to be compensated.
There are many good reviews on Piketty’s tirade against the rich for one to consult, such as Mervyn King in the Telegraph, and Pejman Youselfzadeh. From these one knows that Piketty believes there is a “fundamental logical contradiction” in capitalism with “potentially terrifying” consequences for wealth distribution unless we adopt radical policies to tax the rich.”
Piketty ignores factors that determine social and economic mobility in the economies of America and Europe and instead focuses on what he calls “the central contradiction of capitalism.” He states that the average rate of return on capital exceeds the rate of output growth and interprets this to mean that “the entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour.” By this conclusion he assumes that capitalists reinvest their capital while workers consume all of their wages as soon as they get them. He is assuming facts not in evidence by assuming workers own nothing but their labor, and ignoring facts that are apparent. Namely, that workers tend to accumulate wealth of their own through purchases of durable goods such as automobiles and appliances [many of which have lifespans nearly as long as the worker himself thanks to improved technology brought about by capitalists] and houses, as well as retirement savings that may include wealth gained through employer provided investments. Perhaps Piketty is referring to the happy, wine sipping and cheese eating French who work little and live mostly on the government dole. Even they seem to own houses, automobiles, television sets, iPhones and antique furniture.
Capitalists investing their profits also creates economic activity that opens up new opportunities for more highly compensated employment for workers, another factor wholly ignored by Piketty.
Piketty’s “central contradiction of capitalism,” that the already rich grow richer while the not rich grow poorer, seems to be the main thesis of his book and that which dissuades me from devoting any of my precious time reading it. I already have several wonderful and informative books on my shelf. Since we live in finite time I know I can never get to all of them and the hours spent reading one book are hours not available for another, better book. I have no desire to waste any time on a European socialist who fails to take notice of the central contradiction of socialism and the central achievement of capitalism.
The central contradiction of socialism is that while it purports to create equality of happiness and prosperity it in fact creates equality of misery and poverty for about 98% of all citizens while the top 2%, usually a group which can honestly be described as a criminal gang, enjoy the fruits of everyone else’s labor. Piketty’s book even demonstrates the principle, as Robert Tracinski has pointed out, “…his one big proposal is a wealth tax meant to cut down the people at the top—not any program to lift up the people at the bottom.” We can be sure that the main purpose of a wealth tax would be to create more opportunities for graft in gangster governments.
The central achievement of capitalism, on the other hand, is that no other economic philosophy has raised more people out of poverty and created more opportunity for human flourishing. No other social philosophy has led to such stability in societies under a rule of law. Until capitalism and the industrial revolution most of humanity lived under the rule of kings. These were kingdoms ruled entirely by the use of force, and the strong always prevailed over the weak in every contest for power and wealth. Free market capitalism changed all that and brought in the relative peace and prosperity the Western world has enjoyed for centuries, interrupted occasionally by brutal wars but at least war has not been the constant wind that blows through non-capitalist societies.
Now that I have found good reasons not to waste any valuable time on such drivel as offered by Thomas Piketty, we find out that what he has written is not merely flapdoodle rubbish, but is probably based upon exaggerated and outright falsified data, along with silly unsupported conclusions.
The Financial Times [the one with the pink pages] has done exhaustive research on Piketty’s book and the data upon which he relies, and found it wanting. “The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings,” says FT writer Chris Giles. Nevertheless, “His contention to have found a ‘central contradiction of capitalism’ has in recent months made him a hero of the left.”
There is no need for me to recount all the other instances of falsified data in Piketty’s book because Pejman Yousefzadeh has already done a superb job of that. His excellent piece, a must read, concludes this way:
The charges are devastating, and there is plenty to back them up. And again, let’s be abundantly clear: The Financial Times is accusing Thomas Piketty of dishonesty, of making up his arguments, of actively trying to mislead readers and actively trying to mischaracterize inequality trends. This mischaracterization leads to policy prescriptions on Piketty’s part that are both entirely unrealistic in their design and implementation, and, more importantly, are wholly unsupported by the actual data on inequality. The main thrust of Thomas Piketty’s book is entirely undermined, and his arguments and conclusions are annihilated. It is hard to imagine a more comprehensive refutation.
Thomas Piketty brings to mind Margaret Thatcher’s answer to like-minded MPs during question time in the British Parliament: “They would prefer the poor be poorer than the rich be richer.”
I’m grateful to Pejman Yousefzadeh for relieving me of the slightest guilt for ignoring Piketty and getting back to the latest from James Patrick Hunt, C.J. Box, Stephen Hunter, Michael Connelly, or Robert Crais, all writers of the most intelligently pleasing fiction, as well as a current non-fiction book by Fred Siegel, and oldies by David Hackett Fischer, F.A. Hayek, Thomas Sowell, Milton Friedman, and landmark essays by Yale Brozen, and Gordon Tullock, to name just a few that I can see on the shelf from where I sit at this moment.