The Piketty Project: Introduction

Why Piketty?

I have, for quite some time now, wanted to work through Thomas Piketty’s Capital in the 21st Century – a book I have owned for two years but have not yet read in its entirety. Like many folks, I read the introduction shortly after getting it. And I have read a grip of reviews – some of which I shall link to below. The book was a big deal when it came out, in part because of its statistical density, and because of the author’s reputation as an economics wunderkind (he became a Professor at MIT at the tender age of 22), and because it legitimated the idea of the “1% and the 99%” that was used so effectively by the Occupy Wall Street protests. It was also a New York Times bestseller, which was remarkable for a very long book about economics.

Piketty appeals to me, however, for more particular reasons as well. Paul Krugman, long an important influence for me, was an early supporter of Piketty’s work. And it was unpopular with the University of Chicago crowd, and with business and finance writers generally, which of course made the book attractive to me.  But those obvious endorsements aside – what I found so interesting was that the book was not especially embraced by the heterodox economics community, which I have contact with through my education at Roosevelt University. In general, heterodox economists seem to dismiss Piketty, after recognizing that he didn’t especially support whatever their particular research program, or ideological paradigm, happened to be. And so, after a great deal of initial excitement, everyone went back to whatever it was they were doing before the book came out. Krugman, at the end of his long review of the book, wrote that it had the potential to change economics as a discipline in the long term – a sentiment I found quite compelling, and was very excited by at the time.

Back in the Great Depression, Maynard Keynes wrote The General Theory of Employment, Interest, and Money – a book now recognized as revolutionary in economics, and influential enough to have inspired numerous schools of thought following the ideas introduced by Keynes (Keynesians, New Keynesians, Post Keynesians, etc). What is not now well recognized is that when Keynes wrote the book, the ideas it put forward were not especially well recieved politically. In England, it was certainly not endorsed by conservatives, who remained more or less faithful to Classical economics, nor was it of much interest to the Labour party, who were adherents of socialism. Keynes’ ideas did not become relevant until the onset of the war, when the British treasury gave him an untitled position with immense power and influence, from which he helped manage the finances of the United Kingdom during war time, and was one of the leading designers of the post war paradigm created at the Bretton Woods conference in 1944. Crucially, Keynes argued for the adoption of the US dollar as the global reserve currency, and appeared in front of Congress, and met with President Roosevelt as well. Despite his influence on the post-war economic paradigm, Keynes is still a controversial figure, reviled by conservatives and socialists alike.

Interestingly, Piketty does not mention Keynes in the Introduction of Capital in the 21st Century. He talks about Malthus, Ricardo, Marx, and Kuznets mostly. All four of them are important, highly influential thinkers as well, of course. I heard Brad Delong say in one of his lectures on American economic history that economists are all basically disciples of David Ricardo. The implication there is that Adam Smith isn’t really so much the father of economics as the grandfather, or, perhaps, the godfather. Whatever the case, I have a tendency to defer to Delong in matters of economic history.

One of the best things about having a heterodox education in economics is that the fractious nature of the discipline is made clear. Indeed, economics has been beset from the very beginning by interminable internecine wars of ideology and influence. And these quarrels matter, too. Because they have everything to do with the making of economic policies upon which the fortunes of nations, states, communities, businesses, armies, and so on, rise and fall, collapse or succeed, leave a lasting imprint upon history or fade into obscurity.

As Piketty notes in the Introduction, “without precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.” And economists are forever arguing over sources, methods, and concepts – but as Ha-Joon Chang says “Economics is a political argument.” The thing that has most drawn me to Piketty is how the various responses to his book have brought out the political positions of those responding. Clearly there is much more to this book than a consideration of the distribution of income and the future prospects of capitalism.

Blogging Piketty: A Summer Project

So, the basic idea I have here comes from two places. One is the idea for forming a reading group around Piketty’s book. Maybe a year ago, some friends of mine expressed interest in such a group, but I never quite got it together to make it happen. In some sense, this blogging project is an attempt to accomplish an interactive experience (i.e. through comments on this blog and so on) of reading and discussing Capital in the 21st Century. I also am inspired by David Plotz’ Blogging the Bible, published on Slate, which I read maybe 6 years ago. And in general, I’m just trying to blog more regularly, and develop as a writer.

Piketty’s book is, conveniently, divided up into 16 chapters, plus an Introduction and a Conclusion. I will write a post for each of these (this one includes a discussion of the Introduction). Ideally, I will put up a couple of posts a week, and be through the whole book by mid-July. We’ll see how that goes.

As I mentioned above, there has been an enormous amount already written about this book. For those interested in taking a look at some reviews and assessments, here’s a list of links:

• Paul Krugman’s Review in the New York Review of Books
• Brad Delong’s list of Worthwhile Reviews (from 2014)
• James K. Galbraith’s dissenting Review
• Dierdre McCloskey’s dissenting Review
• The Crooked Timber blog’s Piketty Seminar (numerous reviews)

There are many more reviews, of course, and interviews and videos and articles besides, and I will strive to post more of them as I go along. The main idea of this whole enterprise for me is to really dig into this book. Reading reviews, I have often been struck by pronouncements of its richness, so I really want to explore each chapter. I also want to get past the simple divisiveness inherent in the Piketty’s conclusions – why are so many people so hard up to reject the arguments here? What can the discussion around income inequality tell us about politics and society?

A Brief Discussion of the Introduction

Capital in the 21st Century begins with a succinct introductory chapter surveying the work at hand, acknowledging intellectual influences, and presenting the shape of the arguments to come. The two biggest influences seem to be Karl Marx and Simon Kuznets – a disparate pairing that indicates Piketty’s unusual perspective. Marx, author of the Communist Manifesto, and the sprawling, unfinished Capital – volume one was published in 1867, while volumes two and three were only later released as assembled by Engels from notes following Marx’s death in 1883 – is a more important thinker for economics than is commonly recognized in the United States, where the legacy of anti-communism hangs heavy over our intellectual traditions. Kuznets is somewhat obscure, but more recognizably relevant in the context of the study: he was the economist hired by the Roosevelt administration to develop a system of national accounts. Nowadays we take statistics like GDP for granted, but it was Kuznets who did the actual work of thinking through how to come up with an accurate calculation of national income.

And it is Kuznets whom Piketty seems most interested in – particularly the conclusion of his Presidential address of 1954 to the American Economics Association, that a “rising tide lifts all boats.” The economic growth of advanced, industrial societies, although unevenly distributed in its early phases, appeared to even out as it developed. Piketty’s interest is in extending Kuznets’ analysis to other major industrialized economies – in particular, the US, Great Britain, France, Germany, and Japan (because they all have long standing, consistent systems of national accounting) – and across time, using data stretching back into the 18th century, and also bringing them into the present. His findings overturn Kuznets’ conclusions. The emerging dynamics of capitalism in the 21st century, in Piketty’s view, seem to indicate the divergence of economic interests in industrialized societies, and he pays special attention to these forces in the work ahead. He summarizes his results with the inequality r > g, “the main force of divergence in my theory” and “nothing to do with any market imperfection” (p 27). The basic idea here is that the rate of return on capital is greater than the rate of growth of the overall economy, and that this is normal under capitalism, a subversion of Kuznets’ theory.

In explaining his ideological framework, Piketty writes that he is of a generation that saw the collapse of Communism, and that he is “vaccinated for life against the conventional but lazy rhetoric of anticapitalism” (p 31). He has “no interest in denouncing inequality of capitalism per se” (p 31). Although this is quite appealing to me, I can see how many people might be turned off here. Occupy Wall Street, for example, was all about denouncing inequality and capitalism. Bernie Sanders’ campaign is built upon a similar foundation. Personally, social, political, and economic injustice seem pervasive and ubiquitous – to feel outrage over every injustice would simply consume me. This is why protest rarely appeals to me – I do not understand injustice as a disruption to the world, but rather the other way around – justice is a disruption in the world, a conspiracy mete out by conscious actors. Hence, the appeal, for me, of what follows the quotes cited earlier in this paragraph:

…I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate. [p 31]

This recalls Rawls to me – the discussion of justice is properly one of the basic structure of society. Piketty sets up his discussion of the distribution of income as focused on social justice – and I am inclined to recieve his intentions as genuine. Even if it would cast the dissention of American economists as vanity rather than earnest disagreement.

There is a discussion of the historical and geographical constraints upon the study that I found interesting – in particular, Piketty writes that his focus on France has everything to do with the system of national accounting established by the Revolution in 1790s, and the fact that France has been more or less the same country since then, giving him a remarkably long running, consistent data series. He is not, he tells us, merely focusing on France because he is French. The comparison of France to England, where aristocracy still has a hand in government, and the rule of primogeniture was in place into the 20th century, and the US, which has seen its population grow by a factor of 100 since 1790, and expanded its territory enormously in that time, makes the example of France a useful one. I am very interested to see how historical and geographical considerations play out within the book, and how they will relate to debates regarding income distribution.

The other thing I think is worth mentioning before I wrap this all up is Piketty’s definition of income. There are two components of income in his definition: labor and capital. This is a source of controversy within the economics community – McCloskey, for example, denounces Piketty for ignoring “human capital” – although I rather think the definition is a good one. Nevertheless I think it is important to note that the terms of accounting – the epistemology – used within Capital is specific, and not necessarily accepted by economists everywhere, often for very interesting reasons.

I’m excited for this project. The dynamics of income distribution is crucial for any discussion of economics and social justice, and Piketty takes these matters seriously. Moreover, I am looking forward to delving into the debates inherent in the book. The first part of the book, comprised of two chapters, will set the stage for the discussion to come, with an exposition of capital, income, accounting, and how we came to quantify those ideas historically, and so on. There’s a lot of history in this book, as well as speculation, and I want to spend time with both. In no small part because of the present conversations around the Presidential elections here in the US, the current political meltdown in Brazil, and the ongoing state of crisis in Europe. Hopefully at some point I will be joined by commenters and be able to build some of the discussions around voices other than my own. But whatever happens, I’m ready to dive in.