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The Dynamics of Capitalism and Inequality

Published online by Cambridge University Press:  04 April 2017

Jean-Yves Grenier
Jean-Yves Grenier*
Affiliation:
Centre de recherches historiques – EHESS
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Abstract

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Thomas Piketty’s Capital in the Twenty-First Century shows that capitalism is a fundamentally unstable economic system. Without external parameters such as wars, it produces constantly increasing inequalities in wealth and income. The first part of this article explains this central feature, considering in particular the historical significance of the long period of the New Deal (1930–1980), marked by the Second World War and economic policies attempting to limit social disparities. In its second section, the article focuses on the economic reasons for these inequalities and the mechanisms of income distribution.

Type
Reading Thomas Piketty’s Capital in the Twenty-First Century
Information
Annales. Histoire, Sciences Sociales - English Edition , Volume 70 , Issue 1 , March 2015 , pp. 7 - 20
Copyright
Copyright © Les Éditions de l’EHESS 2015

References

1. Kaldor, Nicholas, “A Modelof Economic Growth,” Economic Journal 67, no. 268 (1957): 591–624 CrossRefGoogle Scholar.

3. Piketty, Thomas, Capital in the Twenty-First Century (Cambridge/London: Harvard University Press, 2014), 221–22 CrossRefGoogle Scholar. As a reminder, a measures the fraction of national income assigned to the remuneration of capital, r measures the average rate of return on capital, and b measures the ratio of capital/national income, which is an indicator of the weight of capital within the national economy. Piketty’s thinking on this subject has changed since he referred to a “striking empirical regularity,” the fact that “it appears that profits and wages always divide in such a way as to award one-third of national income to capital and two-thirds to labor”: Piketty, , The Economics of Inequality [1997], trans. Goldhammer, Arthur (Cambridge/London: Harvard University Press, 2015), 40 Google ScholarPubMed. This evolution is no doubt explained by the “greater historical perspective and newly available data” that he cites in Capital, 41ff.

3. Piketty, Capital, 224.

4. Temin, Peter, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976)Google Scholar; Temin, , Lessons from the Great Depression (Cambridge: MIT Press), 1989 Google Scholar.

5. Piketty, Capital, 298.

6. Piketty, Thomas and Zucman, Gabriel, “Capital is Back: Wealth-Income Ratios in Rich Countries, 1700–2010,” Quarterly Journal of Economics 129, no. 3 (2014): 1255–310 CrossRefGoogle Scholar.

7. In 2010, the top decile of the American population owned between 70 and 75 percent of the total wealth, compared to 80 percent in the 1910s. In France, the figures for the same dates were respectively 60 to 65 percent and almost 90 percent, as set out in Piketty, Capital, 340 and 341, figs. 10.1 and 10.2. This concentration is only partly explained by the enrichment of entrepreneurs, since, as Paul Krugman notes, six of the ten wealthiest Americans are now heirs, a situation probably not very different from that of the Gilded Age: Krugman, “Wealth over Work,” New York Times, March 23, 2014. The situation in the United Kingdom lies between those of the United States and continental Europe.

8. Piketty, Capital, 21.

9. Perrot, Jean-Claude, “Histoire des sciences, histoire concrète de l’abstraction,” in Des sciences et des techniques: un débat, ed. Guesnerie, Roger and Hartog, François (Paris: Éd. de l’EHESS, 1998), 25–37 Google Scholar.

10. Kuznets, Simon, “Economic Growth and Economic Inequality,” American Economic Review 45, no. 1 (1955): 1–28 Google Scholar.

11. Hirschman, Albert O., The Passions and the Interest: Political Arguments for Capitalism before Its Triumph (Princeton: Princeton University Press, 1977)Google Scholar.

12. “The dominant dynamic, which explains most of the concentration of wealth, was an inevitable consequence of the inequality r > g .” Piketty, Capital, 395.

13. Ibid., 353.

14. Ibid., 353–58. The graphs comparing g and r over the long term are based on periods of fifty years, preventing any precise chronological analysis.

15. Ibid., 286.

16. Ibid., chaps. 3 and 4.

17. Ibid., 99.

18. Ibid., 290.

19. See, for example, the graph for France, ibid., 272, fig. 8.1.

20. Ibid., 354 and 356.

21. See, for example, Fraser, Steve and Gerstle, Gary, eds., The Rise and Fall of the New Deal Order, 1930–1980, (Princeton: Princeton University Press, 1989)Google Scholar.

22. See, of course, the following works, which are emblematic of a certain economic philosophy during the years of the New Deal Order: Cyert, Richard M. and March, James G., eds., A Behavioral Theory of the Firm (Englewood Cliffs: Prentice-Hall, 1963)Google Scholar; Galbraith, John K., The New Industrial State (Boston: Houghton Mifflin, 1967)Google Scholar.

23. Krugman, Paul, The Conscience of a Liberal: Reclaiming America from the Right (London: Penguin Books, 2007), 7–9 Google Scholar. See also Levy, Frank and Temin, Peter, “Inequality and Institutions in 20th Century America,” NBER Working Paper Series 13106 (2007)Google Scholar: http:// www.nber.org/papers/w13106. This study shows how income distribution in the United States, both before and after 1980, is strongly conditioned by economic institutions. The period between 1945 and the early 1980s was dominated by the many efforts (relating principally but not exclusively to fiscal policy) by governments and trade unions to distribute the benefits of growth in way that was not too unequal.

24. The pure rate of return on capital in France has oscillated around 4 to 6 percent since the early nineteenth century. See Piketty, Capital, 202.

25. The rate of return on capital was calculated by adding together all pretax incomes from capital enumerated in the national accounts with the exception of interest on public debt.

29. Piketty, Capital, 423.

30. Ibid., 444–45. Piketty refers to Bill Gates, whose fortune is due not so much to his technological boldness as to the dominant position secured by Microsoft in the software market. For Piketty, this is a good example of the malfunctioning of the principle of marginal productivity.

31. Ibid., 27 and 423.

32. Ibid., 419.