Capital in the 21st century

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Capital in the 21st Century is a book by the French economist Thomas Piketty . The French original edition ( Le Capital au XXIe siècle ) was published in August 2013, the English translation Capital in the Twenty-First Century in March 2014 and the German translation in mid-2014. The book addresses fundamental issues of capital as well as wealth inequality and income inequality . It examines the changes in the distribution of wealth and income since the 18th century. Piketty advocates the theses that the concentration of wealth has been in the mid-20th centuryIndustrialized nations have increased significantly, an increase in inequality is an essential part of capitalism and an uncontrolled increase in inequality threatens democracy and the economy.

content

starting point

Piketty works out a fundamental theory of capitalism that combines the theories on economic growth and income distribution . Piketty's core thesis is: inequality is not an accidental but a necessary characteristic of capitalism; excessive inequality in a capitalist economy can therefore only be resolved by restricting capitalism. If such excessive capitalism as the current one is not reformed, according to Piketty, the basic democratic order would be jeopardized.

Causes of inequality

Piketty distinguishes two main causes of growing inequality:

  1. High income earners (such as managers) have used their power to generate high incomes for themselves. Contrary to what is often claimed, the relative level of incomes compared to lower incomes does not correspond to the respective productivity.
  2. In capitalism, income from capital usually grows faster than the economy as a whole.

The inequality resulting from (1) determines the public debate, but Piketty considers the resulting from (2) to be more important. It expresses (2) in the following formula:

denotes the return on investment, stands for economic growth, i.e. the growth of macroeconomic income. Whenever exceeds, inequality increases. This has been very clearly the case worldwide for decades.

According to Piketty, this relationship significantly and permanently influences inequality. In an article in the American Economic Review, Piketty points out that simply looking at r and g without the political circumstances is not suitable for predicting developments. Institutional changes and political upheavals, such as those that shaped the 20th century and were in turn influenced in turn by the development of inequality, can also have a major impact on economic development.

Links to historical analyzes

With the topic of systemic growing inequality in capitalism , Piketty builds on analyzes by Thomas Robert Malthus , David Ricardo and Karl Marx . Malthus saw overpopulation as the main problem of the underprivileged, Ricardo the opposition between landowners and landless and Marx the opposition between capital owners and workers .

These analyzes would have turned out to be inaccurate, as they underestimated the extent to which technological progress enables a broad increase in prosperity and thus a counterbalance to the concentration of wealth. Nevertheless, they would have already discussed the core of the problem.

Between 1930 and 1975, the trend towards increasing inequality in capitalism was initially reversed by some unusual circumstance: two world wars, the Great Depression and a debt-induced recession wiped out a large amount of wealth, particularly wealth of the financial elite.

Kuznets' conclusion from this development of the 20th century: Growing great inequality is only a problem of early capitalism and has receded itself again through (a) competition, (b) innovations and (c) free markets , according to Piketty in general as wrong .

“Ultimately, there is no reason why we should believe that growth is automatically balanced [...]. For far too long, economists have neglected wealth distribution, partly because of Kuznets' optimistic conclusions and partly because of the discipline's excessive enthusiasm for simplistic mathematical models. "

Because after 1975 inequality increased and the capitalist world economy returned to patrimonial capitalism , it came to a refeudalization . In patrimonial capitalism , the economy is dominated by inherited wealth, resulting in an oligarchy . Piketty illustrates class societies in which there is a strong concentration of wealth based on accumulated capital with the help of novels by Honoré de Balzac , Jane Austen and Henry James .

Possible consequences of growing inequality

Piketty explains that inequality threatens both democracy and the economic base of society. Democracy is threatened, since asset concentrations mean concentrations of power and reduce the political and social participation of the majority of society. The economic basis of society is threatened, since without a reduction in income inequality and, in particular, wealth inequality, there may be low economic growth in the future. Technological progress is unlikely to bring back the growth of the 20th century.

As a proposed solution, Piketty is discussing an annual, progressive wealth tax of up to 2% combined with a highly progressive income tax , at the top rate of up to 80%.

Database

On the empirical side, Piketty relies on extensive studies of the wealth and income concentration of over 27 countries, which he carried out with Anthony Atkinson , Emmanuel Saez and Facundo Alvaredo and which led to the World Top Incomes Database . Piketty has made the data sets used publicly available on its homepage.

reception

Press reactions after publication

The publication of the book “Le capital au XXIe siècle” in August 2013 in French-speaking countries initially caused little attention. It has also been available in English since March 2014; it was received by many media in the USA, among others (both in the business section and in the features section). The book was sold over 800,000 times worldwide (as of October 2014) and received numerous positive reviews. Economist Paul Krugman described it in the New York Times as "the most important book of 2014, perhaps of the decade." Branko Milanovic of the World Bank described the book as "a turning point in economic literature." Steven Pearlstein explained it in Washington Post on a “triumph of economic history over theoretical, mathematical modeling that has dominated economics in recent years.” Tyler Cowen described the book in Foreign Affairs as a groundbreaking analysis of economic inequality; but he does not believe that the relationship between capital and income adequately explains the social situation. He considers the traditional declarations of “technological progress” and “competition from low-wage countries” to be insufficiently taken into account by Piketty. In addition, the proposals for wealth taxes and property taxes would not have had the desirable consequences to a sufficient extent. Michel Husson criticized Piketty for basing his analysis on neoclassical theory , the dominant economic theory .

The Economist magazine named Piketty's book in an editorial as an important contribution to income research. The approach of measuring inequality through statistics on tax revenues is particularly valuable pioneering work. The economic policy recipes contained in the book were criticized by the Economist on the other hand: Piketty considers, without giving a conclusive explanation, the fight against inequality and not the promotion of economic growth as a central economic policy task of the future and is also fixated on increasing taxes for the wealthy; other concepts for the broader dispersion of capital are not included in Capital in the 21st Century . Piketty also ignores the difficulties in putting a comprehensive redistribution policy into practice . The conclusion to the book is u. a .: "It is a poor blueprint for action."

Salon.com wrote that the reaction of conservatives was hysterical - often as a string of (inapplicable) catchphrases such as socialist, communist, Marxist, etc., without argument, and if argumentative, then without valid reasons that strong inequality was not a problem or even a positive one .

Reception of the concept of wealth

Odran Bonnet, Pierre-Henri Bono, Guillaume Chapelle and Etienne Wasmer (all employed at SciencesPo University in Paris ) criticized Piketty's central thesis (return on investment is greater than income growth) as implausible. His concept of capital also includes real estate assets, measured in terms of house prices. Although these actually increased above average in the period under review, real estate should not be viewed entirely as “productive capital”. The profitability or the earnings value of real estate is not reflected in purchase prices, but in rental prices. If the latter were used to measure the return on investment, the ratio of return to income would have remained stable over the years in France, Great Britain, the USA and Canada. Piketty's conclusion of an “explosive dynamic of inequality” is therefore doubtful. Similar objections come from Stefan Homburg and Joseph E. Stiglitz . According to Homburg, it is not the value of reproducible capital in relation to gross domestic product that has increased in the past few decades, but rather the value of land . Stiglitz - who, by the way, praises Piketty's work as important - also attributes the increase in wealth in recent decades to rising land prices.

Discussion about the data basis

Chris Giles ( Financial Times ) accused Piketty of transferring errors when adopting some of the original data and using incorrect formulas in the calculation. In addition, in some cases Piketty only used "handpicked" data or constructed them without citing the original source. In his first reply, for which the Financial Times gave him 24 hours, Piketty invited to check the data sets he had disclosed from the start and to use them for new calculations; in fact, further studies have already confirmed his fundamental findings. According to Piketty, the concentration of assets he presented in Capital was rather too low than too high because of the fact that tax evasion has not yet been taken into account . Piketty responded a few days later in a ten-page reply to the points raised by Giles. Essentially, the different results were based on different methodologies for weighting the data sets. In particular, data sets that are based on tax surveys would differ from data sets that are based on surveys in that high wealth would not be included in the data sets in surveys or to a lesser extent. Methodologically, Giles did not take into account this fact, which is undisputed among experts. For the example of Great Britain, there is a comparison of how the existing data sets could be adapted in order to better reflect the assumed actual development. The economists Magness and Murphy of the Association of Private Enterprise Education, which is funded by the owners of Koch Industries , accused Piketty that the data on which his studies were based were inaccurate or insufficiently substantiated. The brothers Charles G. Koch and David H. Koch - the owners of Koch Industries - are accused by Markus Grill im Spiegel of forcing a “wild west capitalism”.

Reception in Germany

The German “economic approach ” Peter Bofinger points out that Piketty's basic thesis is not supported by figures in the period for which the broadest data basis is available. On the other hand, Fabian Lindner objects that Bofinger is assuming that Piketty is referring to the capital return rate after taxes. But Piketty is referring to the pre- tax rate of return on capital . This is the core of his argument.

Patrick Bernau accused Piketty in the FAZ , citing an IMF study: "There is no evidence that the modern economy actually works as Piketty claims."

Stephan Kaufmann and Ingo Stützle , despite all the criticism, credit Piketty with the fact that with his book he "triggered a debate about the taxation of wealth, about inequality and redistribution". You criticize u. a. that Piketty has “no concept of capital” and equates “wealth and capital”. He is not interested in the form of the economy, nor does he ask how the reproduction of society takes place. With this he generalized "the bourgeois forms in an ahistorical manner". Furthermore, Kaufmann and Stützle express the opinion that Piketty is a representative of a “performance ideology”, since he brings the idea of ​​“ performance-based income”. As a result, unemployment and the economic crisis in individual countries could be seen as the result of insufficient effort, disregarding actual economic relationships.

expenditure

German

  • Capital in the 21st Century (translated by Ilse Utz and Stefan Lorenzer), Beck, Munich 2014, ISBN 978-3-406-67131-9 .

French

English

literature

Web links

Footnotes

  1. ↑ Branko Milanović ( World Bank ) The return of "patrimonial capitalism": review of Thomas Piketty's "Capital in the 21st century" , Munich Personal RePEc Archive, October 2013, p. 2
  2. ^ A b Why everyone is talking about Thomas Piketty's Capital in the Twenty-First Century . The Week, accessed November 25, 2014 .
  3. ↑ Piketty: About Capital in the Twenty-First Century , American Economic Review: Papers & Proceedings 2015, 105 (5): 1-6
  4. ↑ According to the journalist Markus Diem Meier in his blog post Thomas Piketty asks the fundamental question of March 26, 2014
  5. ↑ a b c https://www.washingtonpost.com/opinions/capital-in-the-twenty-first-century-by-thomas-piketty/2014/03/28/ea75727a-a87a-11e3-8599-ce7295b6851c_story. html
  6. ↑ Piketty, quoted from: http://blog.tagesanzeiger.ch/nevermindthemarkets/index.php/34470/thomas-piketty-stell-die-fundamentalfrage/
  7. ↑ http://www.nytimes.com/2014/03/24/opinion/krugman-wealth-over-work.html
  8. ↑ Materials on Capital in the 21st Century ( Memento of the original from May 8, 2014 in the Internet Archive ) Info: The archive link has been inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / piketty.pse.ens.fr
  9. ^ Rheinische Post of May 28, 2014, page B6: The new Marx and his capital
  10. ↑ DW: Once a millionaire - always a millionaire? , October 7, 2014
  11. ^ Krugman: Wealth over Work
  12. ↑ http://mpra.ub.uni-muenchen.de/52384/1/MPRA_paper_52384.pdf
  13. ^ "Capital in the Twenty-first Century" by Thomas Piketty , Washington Post , March 28, 2014
  14. ^ Tyler Cowen: Capital Punishment. Why a global tax on wealth won't end inequality. Foreign Affairs, May / June 2014.
  15. ↑ Michel Husson: Le capital au XXIe siècle. Richesse des données, pauvreté de la théorie , Contretemps
  16. ↑ Capitalism and its Critics: A modern Marx The Economist , May 3, 2014
  17. ^ The ultimate guide to shutting down conservative anti-Piketty hysteria, Salon, May 4, 2014
  18. ↑ sciencespo.fr
  19. ↑ www.sciencespo.fr
  20. ↑ sciencespo.fr
  21. ↑ sciencespo.fr , see also en: Etienne Wasmer
  22. ↑ Bonnet et al .: Does housing capital contribute to inequality? A comment on Thomas Piketty's Capital in the 21st Century Sciences Po Economics Discussion Papers, 2014/07
  23. ↑ Stefan Homburg: Critical Remarks on Piketty's “Capital in the Twenty-first Century”, in: Applied Economics RePEc
  24. ↑ Archived copy ( Memento of the original from April 2, 2015 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / opinionator.blogs.nytimes.com
  25. ↑ Joseph E. Stiglitz (January 2015). [1] , accessed March 28, 2015.
  26. ↑ Piketty findings undercut by errors - Financial Times, May 23
  27. ↑ so the engl. Summary of the status of the discussion in Huffpo on May 23
  28. ↑ Alexander Armbruster: Serious allegations against the new star economist - FAZ, May 24, 2014 (= German summary of the FT and Huffingtonpost articles)
  29. ^ Thomas Piketty: Technical appendix of the book "Capital in the twenty-first century", appendix to chapter 10. Inequality of Capital Ownership. Addendum: Response to FT, May 28 2014
  30. ^ Howard Reed: Piketty, Chris Giles and wealth inequality: it's all about the discontinuities
  31. ^ Sunlight Foundation: Ruling may free corporate influencers from contortions
  32. ↑ Phillip W. Magness and Robert W. Murphy Journal of Private Enterprise, Spring 2015
  33. ↑ Revolution from above: Republicans - The billionaire brothers Koch finance radical market politicians and the fight against unions. Your goal: a wildest capitalism. , Der Spiegel 44/2014, pp. 97-98
  34. ↑ Economist Bofinger accuses Piketty of serious mistakes - Der Spiegel, issue 23/2014
  35. ↑ Fabian Lindner, Does capitalism exacerbate inequality or not? - Thomas Piketty vs. Peter Bofinger , herd instinct, time, June 5, 2014
  36. ↑ Patrick Bernau: r> g. In: FAZ.net . August 24, 2016, accessed October 13, 2018 .
  37. ^ Stephan Kaufmann / Ingo Stützle: Capitalism: The first 200 years. Thomas Piketty's >> Capital in the 21st Century << - Introduction, Debate, Criticism, Berlin 2014, p. 81.
  38. ↑ Stephan Kaufmann / Ingo Stützle: Capitalism: The First 200 Years, p. 85.
  39. ↑ Stephan Kaufmann / Ingo Stützle: Capitalism: The first 200 years, p. 89f.