In case you missed it, here are all reviews of the book done to date.
Capital in the 21st Century Review: Chapter 1 “Income and Output”
Chapter 1 consists of three parts.
Part 1 outlines the conflict between “capital and labor” and defines capital and wealth.
Part 2 defines the “First Fundamental Law of Capitalism:
α = r × β and briefly explores its implications.
Part 3 Focuses on national income, including how it is measured, and inequality among (as opposed to within) nations
I’ll be reviewing each section at a rate of 1/day, starting today.
Part 1 starts with a tragedy that happened in 2012 in South Africa, reminiscent of events in the United States 100 years ago, in which 34 miners striking for higher wages were killed by police shooting live ammunition. Thomas Piketty cites other 19th Century events in the United States and France as similar. He then asks whether conflict between labor and capital is inevitable, or a historical artifact.
Continuing on, he points out that the real issue is inequality rather than labor vs. capital per se:
In any case, the Marikana miners were striking not only against what they took to be (The company) Lonmin’s excessive profits but also against the apparently fabulous salary awarded to the mine’s managers and the differences between his compesation and theirs. Indeed, if capital ownership were equally distributed and each worker received an equal share of profits in addition to his or her wages, virtually no one would be interested in the division of earnings between profits and wages. If the capital-labor split gives rise to so many conflicts, it is due first and foremost to the extreme concentration of the ownership of capital. Inequality of wealth—and the consequent income from capital—is in fact always much greater than inequality of income from labor. (Page 40)
The final part of the Introduction starts with a bit about the scope of the book: 1800 to the present, limited mostly to Westernized countries, particularly France, the United States, and England. Thomas Piketty justifies this because of when and where modern tax data started to be collected and recorded, it being absent from everywhere before around 1800, and continuing to be absent in the Third World to this day. Also, looking at the most economically developed countries may give a clue about where the rest of the world is heading (as much of the world modernizes its economy).
Piketty gives three justifications (apart from patriotism) for focusing so much on France:
One is that the French were the first to institute a modern system of taxation, so French records go back further than those of any other modern economy.
Part 3 of the introduction starts with a few pages about methodology. The short version is that the best read on incomes comes from income tax data, and on wealth from estate tax data. Most modern industrialized countries have had income taxes for about a century, and estate taxes for longer than that. France in particular has kept wealth and estate tax data since the 1789 Revolution. This data, as well as other data on incomes, are kept in publicly-accessible databases. Thomas Piketty concludes the section with a bit about how much easier it is to obtain and process large amounts of data with the benefit of computers and the internet—something his predecessors lacked.
Next, the main conclusions of the book: One is that the reduction of inequality between 1910 and 1950 was a direct effect of two world wars and policies adopted to cope with them. The other conclusion is that “there are powerful mechanisms pushing alternatively toward convergence (less inequality) and divergence (more inequality). Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently.”
Here’s part 1.
In a way, we are in the same position at the beginning of the twenty-first century as our forebears were in the early nineteenth century: we are witnessing impressive changes in economies around the world, and it is very difficult to know how extensive they will turn out to be or wht the global distribution of wealth, both within and between countries, will look like several decades from now (page 16)
In part 2 of the Introduction to the book, Thomas Piketty looks at various economic philosophers to show they and their views were products of their times. His meta-point being that our views on how the world works must change as the world itself changes.
Four economic philosophers who wrote about changes in inequalty are examined: Thomas Malthus, David Ricardo, Karl Marx, and Simon Kuznets
Review: Capital In the Twenty-First Century
by Thomas Piketty, 2014
Introduction to the book, part 1
The Introduction to Capital in the Twenty-First Century consists of four thematic, if not precisely designated, parts:
Part 1 is a very brief overview of what the book will cover, and chiding many in the debate for not using all data available.
Part 2 is overview of previous economists and “economic philosophers” who sought to study/explain changes in economic inequality, with an overall thesis that each of these analyses was (overly) influenced by the specific time it was written.
Part 3 defines and provides examples of “forces of convergence” and “forces of divergence” (or, as I call it in class, a stable equilibrium and an unstable equilibrium), where “convergence” means “shrinking inequality” and “divergence” means the opposite. A couple of time-series graphs are presented to show that we have been in a period of increasing inequality for over 40 years.
Part 4 is in overview on where he got his data, and explanations why he cites France so often (Thomas Piketty is French, but he gives non-patriotic reasons.), though he also looks extensively at the United States and only slightly less at other industrialized Northwestern European countries.
I’ll be posing reviews of each part at a rate of once/day, starting today with Part 1. Comments welcome!