If we want to list the most influential academic works in the 21st century, "Capital in the 21st Century" must be indispensable. It can even be said that if it is limited to the field of economics, it is the most influential economics book so far in this century. This is a tome that shocked both academic circles and popular readers. The French version was first published in 2013, and since 2014, English and Chinese versions have been published in multiple languages. It may be difficult for us to imagine that this book that will become a classic has actually been published less than ten years ago.
The basic content of "Capital in the 21st Century" is the issue of economic development and income inequality, with particular attention to the continued expansion of the ratio of wealth (including stock investment, etc.) to annual income (mainly wages). The author Thomas Piketty (Thomas Piketty) also became a star economist due to the publication of this book, and his "readers and fans" are often present at academic occasions where he appears.
"Capital in the 21st Century" is like an academic issue creation or renovation machine, causing people to rethink classic issues that were taken seriously in the past but were later ignored, as well as inequality issues for the future. However, it has not received much attention in the economics community, and it also includes criticism of Piketty’s misuse of analytical concepts. On the third anniversary of the publication of "Capital in the 21st Century", a number of economists held a discussion on this topic, affirming, expanding, and disagreeing with Piketty. Finally, it was compiled into a volume and published "After Piketty" : The Future of Economics and Inequality Research. Now the Chinese version is available.
The following is an excerpt from the first chapter of the Chinese version of the book with the authorization of CITIC Publishing House . It provides a general summary and analysis of Piketty's academic themes and "Capital in the 21st Century". The excerpt is abridged, the title is that of the excerpter, and the annotations can be found in the original book.
Original author｜[US] Bradford DeLong et al.
Excerpt｜Luo Dong
"After Piketty: The Future of Economics and Inequality Research", [US] Heather Busey et al., edited by Yu Translated by Jiang and Gao Desheng, CITIC Publishing Group, January 2022.
1, an unexpected best-seller
Thomas Piketty, born in 1971, is a French economist and a professor at the Paris School of Economics. (Picture from his official academic website, https://piketty.pse.ens.fr)
Thomas Piketty's "Capital in the 21st Century" is an unexpected bestseller with astonishing influence. Its large readership demonstrates that so many people are eager to listen and join in the political and economic dialogue of the developed world's second "Gilded Age." Arthur Goldhammer, the English translator of Piketty’s work, said that 2.2 million copies of “Capital in the 21st Century” in 30 languages have been distributed around the world. These 2.2 million books must have some power to steer the zeitgeist in another direction: after Piketty, the public intellectual discussion of inequality, economic policy and equitable growth should have new focus.
Book cover of the English version of Capital in the Twenty-First Century, translated by Arthur Goldhammer and published by Brilliance Audio.
However, sociopolitical forces in the opposite direction are also at work. One perspective on Piketty's work notes that, in his view, the relatively egalitarian typical industrialized economy is in many ways similar to post-World War II France: pursuing Gaullist and achieving an economy of "30 Glorious Years" increase. The typical industrialized economy with high inequality is similar to the French Third Republic in the "Belle Epoque" from 1870 to 1914. Politically, the dominant trend of the Third Republic was radical egalitarianism (limited to male citizens of the country); ideologically, it was fiercely opposed to traditional authority, especially religious authority; economically, it was highly tolerant and even extremely enthusiastic about Protection and enhancement of wealth. Anyone who already had wealth or was trying to acquire wealth, whether it consisted of shops, vineyards, annuities, factories, or large estates, formed a partnership to guard against the jealousy and robbery of the working class.
There is a basic belief behind Piketty’s work that the same comprehensive system of culture, ideology, economy, and politics will dominate the political and economic order of the 21st century (at least in Europe and the United States), and all property owners will unite , guarding against any threats to wealth ownership and its interests. The resulting force will maintain profits at a high enough level, leading to the rise of money-power politics in the future.
Original French book cover of "Capital in the 21st Century".
We would have said two years ago, "Maybe, but maybe not." However, after the 016 US presidential election, Piketty’s basic beliefs were highlighted. The wealth-dominated culture of the "Belle Epoque" of France's Third Republic from 1870 to 1914 may not return, but our journey today is an echo of many of the important characteristics of that time.
should admit that Trump won the 2016 US election thanks to the Electoral College system . He didn't win a majority of the vote, but he did pick up a lot of it, especially in areas that have traditionally been Democratic but have recently been plagued by economic problems. In addition, Hillary did not win huge advantages among young people and minorities like Obama. Their employment rate dropped to a record low, and the record-high student debt levels did not bring about the protection in the labor market as promised. . In our view, the economic and political phenomena analyzed by Piketty have been strongly confirmed by Trump’s election victory.
2. Reverberations within and outside economics
In social science research outside economics, we see that Piketty’s work has also caused quite a stir. "Capital in the Twenty-First Century" has achieved major success in the academic field, changing the discussion topics in sociology, politics and political economy. Other social sciences have clearly felt the impact of Piketty's discussion of the prospects and effects of rising inequality.
What impact do these shocks have on historians, sociologists, political scientists, and other scholars? We believe that the best summary of this issue comes from an economist: Paul Krugman (Paul Krugman). Krugman points out that during the last historical period when great inequality arose, the first Gilded Age, high inequality was perfectly compatible with radical democracy as it was understood at the time (for white men) because "As now, great wealth bought great influence over policy and even public discourse."
Stills from "The Gilded Age Season" Season 1 (2022).
Krugman correctly observes that the same chain of influence from economic inequality to political and social affairs that existed today as in the Gilded Age is even stronger today. Political and social trends seem not to respond to current inequality, but to people’s premonitions of what will happen a generation later: “In the United States, an interesting phenomenon is that the political impact of inequality can even be said to be ahead of reality… From the current perspective The main income of the American economic elite comes from wages, not capital income. However, conservative economic advocates have emphasized and praised the power of capital... Sometimes, many politicians seem to be actively rebuilding what Piketty calls patrimonial capital. ism.”
The results of the 2016 US election underscore Krugman’s conclusion. A candidate who knows so little about national governance and has no experience relies entirely on the role of telling the truth, actively caters to the prejudices of certain groups of people, and is willing to harm professional elites and block minorities for their benefit. It really shocked us that we could win so many votes with immigrants. While economists overwhelmingly oppose his candidacy, his supporters reject the accepted authority of experts in economics and other fields on what is good for the economy. Over the past 40 years, the United States has significantly reduced effective tax rates for the wealthy, weakened labor organizing and the bargaining power of ordinary workers, and significantly improved the education level of the workforce in the name of promoting economic growth. These policies created an unequal, low-growth state and a fervently angry populist electorate that was even willing to embrace proto-fascism.If Piketty's work seemed radical at first, it is just right now.
We have observed that sociologists, historians, political scientists and other scholars are now discussing the above issues enthusiastically and fruitfully. Therefore, at least in our view, this part of the response provoked by "Capital in the Twenty-First Century" is still in the ascendant.
However, the reaction within economics seems to be less enthusiastic. Although Piketty’s appearance in economics forums always fills the venue, at least so far, economic research has not paid special attention to the grand issues he raised in "Capital in the 21st Century". "Capital in the Twenty-First Century" has not yet brought about the profound impact on economic research and policy advocacy that our ardent followers expected.
Chinese version of "Capital in the 21st Century" (translated by Ba Shusong , CITIC Publishing House, September 2014).
We believe that the reason, as Robert Solow (Robert Solow) has said, is that Piketty's book is an extremely serious book and raises a lot of issues worthy of economists' in-depth study. The "Kaldor Fact" holds that inequality caused by changes in factor income shares was no longer an important changing economic observation by the middle of the 20th century, and it seems that it never will be in the future. But it later turned out that the "Kaldo Fact" was not a fact, but a brief and unexpected historical state that no longer exists today. The "Kuznets Fact" believes that almost all economies have experienced or will experience an era of industrialization with widening inequality, followed by an era of mass consumption with the implementation of social democracy with narrowing inequality, and finally tend to stabilize. This also proved not to be true but a temporary historical accident.
In view of the fact that the above two hypotheses have been falsified by , Solow calls on economists and economic researchers to re-examine "Capital in the 21st Century" with the serious courtesy that Piketty deserves.
3. Piketty’s 5 basic views
From this, we ask the following questions: What contribution has Piketty made to our understanding of the economy? Given his findings, how will subsequent economic research proceed? In order to answer the above questions, we first need to clarify the main arguments of "Capital in the 21st Century". To this end, we summarize its five core arguments as follows:
1. The era of social democracy after World War II (1945- 1980), the industrialized economies of Europe and the United States appeared relatively egalitarian, at least among their white male counterparts. In these countries, relative income gaps have moderated; long-standing racial gaps in wealth, income, and employment have narrowed; and political voice is widely distributed across the population. Although the influence of wealth on political trends and economic structures continues to exist, it is limited within appropriate limits.
2. This model of the social democratic era is historically accidental. Unlike many scholars, Piketty believes that the rise of the social welfare state is the result of the weakening of the power of the wealthy class. He attributes the narrowing gap in after-tax income inequality to war and the introduction of progressive taxation, rather than to the social security, labor standards and welfare infrastructure established in the late 19th and early 20th centuries. Since wars that destroy capital are exceptional phenomena, so too are periods of declining inequality.
Stills from "The Gilded Age Season" Season 1 (2022).
3.Prior to this era of social democracy, Europe was in the "Belle Epoque," which the United States calls the First Gilded Age. During that period, wealth (especially inherited wealth) exerted a decisive influence on political trends and economic structure. The gap in relative income is huge, and the gap in relative wealth is even bigger.
4. We are currently entering a period of transformation. Although wealth concentration has returned to its peak level in the early 20th century, Piketty pointed out that most of the income of the top 1% still comes from labor, not capital. On the other hand, capital income inequality has expanded rapidly since 2000, while labor income inequality has remained relatively stable. We are not yet in a situation where the past eats the future, but we are getting there.
5. Due to the tremendous power generated by the basic laws of movement of wealth, we are likely to be brought into the second Gilded Age or another "beautiful era", and wealth (especially inherited wealth) will once again play a decisive role in political trends and economic structures. The dominant impact of .
"What exactly was discovered", edited by Li Shi, Yue Ximing, China Finance and Economics Press, November 2015.
4. How does Piketty argue?
Piketty’s core argument for the above point of view can be briefly summarized as the following seven steps:
The ratio of a society’s wealth to annual income will increase or decrease to the ratio of the net savings rate and the accumulation rate to the growth rate, that is (net savings rate + accumulation rate) divided by the growth rate.
Factors such as time and opportunity will inevitably lead to the concentration of wealth in the hands of a smaller number of people, whom we call the "rich." A society with a high ratio of wealth to annual income will be a society with extremely unequal distribution of wealth.
A society with extremely unequal distribution of wealth is accompanied by extreme inequality in income distribution, because the rich will control the political and economic order and other factors to maintain profit rates at a high level and avoid what Keynes called "rentier euthanasia" Phenomenon.
A society with extremely unequal distribution of wealth and income will gradually become a hereditary society in which control of wealth is held by heirs.
In a society where wealth, especially inherited wealth, plays an important role in economic activities, the rich will have great economic, political and social and cultural influence. This is a society that is not good enough in many aspects.
to the 20th century: (a) Driven by the second industrial revolution summarized by Robert Gordon, unique high-speed economic growth appeared, and European and American countries successfully moved towards the advanced economic level represented by the United States; (b) the emergence of Events such as war, revolution, general unrest, socialist political movements, and progressive taxation created unique and powerful forces that depressed the rate of accumulation; and (c) all of these forces declined as we entered the 21st century.
Although we are still far from the limit, the development logic of steps 1 to 5 above is working and is likely to continue to work, bringing us a society that is not good enough in many aspects in the next 50 years.
In Piketty’s view, the process of the demise of European and American social democratic systems has taken more than a generation to this day. The process is not over yet, and he believes the driving forces behind it will take another two generations or more to play out. According to his view, we are far from reaching the point where European and American countries will return to money-power politics.
Stills from " Mansfield Park " (Mansfield Park 1999).
5, Piketty may not be correct.
Are the discussions in Piketty’s works correct? If not absolutely correct, are the disturbing scenes he describes actually possible, and are they worth worrying about? Or can something be done to make the predictions of Capital in the Twenty-First Century a self-defeating prophecy?
We answer these questions with a strong yes.
Piketty rightly points out that in European and American countries, as far back as we can go back, the ownership of private wealth has been highly concentrated, with the rich having the power to control resources, decide where and how people work, and influence political life. He correctly points out that in the "Belle Epoque" 150 years ago (about six generations), the first Gilded Age, the ratio of total private wealth to annual income in a typical European and American country was about 6. He is equally right to point out that in the era of social democracy some 50 years (two generations) ago, the ratio of wealth to annual income was about 3. He also correctly observes that the ratio of wealth to annual income has increased rapidly over the past two generations.
It is questionable whether the increase in the ratio of wealth to annual income is due to the forces Piketty highlights? What is more debatable is whether the increase in income inequality is due to the increase in wealth inequality, and whether the increase in wealth inequality itself is the result of the increase in the ratio of wealth to annual income in the entire economy? These questions can be debated, and indeed generate debate as much as we would like. In addition to the factors Piketty highlights, there are many other factors affecting income distribution, some of which Piketty himself has discussed. Moreover, the role of some of the factors he highlighted has not yet fully emerged after the end of the social democratic era.
Stills from " The Wolf of Wall Street " (The Wolf of Wall Street 2013).
Piketty’s main argument is not about how the current situation came to be, but what the situation will be like in the next 50 years or more. Despite this, there are still many signs that the main characteristics of the last Gilded Age have reappeared in today's era: the share of capital income has increased, labor income and capital income are increasingly coupled, and the government tax department is increasingly difficult to shake. intergenerational continuation of wealth, etc.
What deserves in-depth discussion is the relative independence of institutions and politics in the face of structural economic pressure. Piketty’s discussion is based on a highly deterministic view of the future: No matter how large the scale of wealth accumulation is, the wealthy will maintain profit margins above 5% through manipulation of the social system. Although Piketty goes beyond simply mentioning the role of non-economic forces and encourages readers to think about what other social sciences might offer, his argument is ultimately based on the economic dynamics of wealth accumulation and inequality when profits are lucrative and relatively stable. Variety. As for what kind of institutional changes are needed to maintain higher profit rates as wealth accumulates and realize the scenario he describes, there is no development.
A still from the film " Sense and Sensibility" ( Sense and Sensibility ) adapted from Jane Austen's work of the same name.
However, there are many ways in which real-world institutions may prevent the scenario Piketty describes from occurring. Heather Busey, for example, points out that a patrimonial society would almost certainly mean a departure from the idea of gender equality, which would be met with staunch opposition from women and their allies. Furthermore, David Grewal and Marshall Steinbaum suggest that the history of inequality has been accompanied by the rise (Grewal) and decline (Steinbaum) of the so-called "capitalist ideology" and the multitude of laws and policies associated with it. The "free market", independent of the authority of mercantilists and monarchs, developed with the bourgeoisie in the 18th century and then formed a political alliance with the "ancien régime" in the 19th century. "Capital in the 21st Century" believes that capitalism itself (rather than its ideology) is the cause of growing inequality, and it was only temporarily derailed by the exogenous factors of the two world wars in the 20th century. The world wars also caused the derailment of capitalist ideology, but the exogeneity in this regard was not so prominent. Piketty’s view is debatable and has been questioned because the signals he is concerned about have not yet appeared, or are just beginning to appear.
It is in these areas that we look forward to seeing his points borne out by the facts. But we may also see that his view is completely refuted by the facts.
Piketty’s argument that the “rentier euthanasia” model may face serious empirical testing problems is tenable. Keynes, Logan Leigh and other scholars equate wealth with productive capital in the neoclassical income production function and believe that the forces of supply and demand will force the ratio of social wealth to annual income to swing sharply in the opposite direction to the society-wide profit rate, thus leading to "food shortages". "Euthanasia for the benefit of the beneficiary". Profit rates are higher when capital is scarce relative to annual income and lower when capital is abundant. According to Keynes and others, this swing would be large enough to keep the rentier share of total income roughly stable.
Piketty's general response is that the Keynesian-Loganly view seems reasonable under neoclassical economic theory, but it is not consistent with historical facts.The laws of supply and demand tell us that when the ratio of wealth to annual income in an economy changes, the rate of profit should move in the opposite direction. However, history shows that maintaining profit margins at a level of 4% to 5% has basically nothing to do with the relative scarcity or abundance of wealth, so the law of supply and demand does not hold true.
We are faced here with an obvious historical fact: for the main factor of change derived from the neoclassical aggregate production function, the rate of profit really does not change much. But Piketty has no theory for this.
6. Is Piketty’s discussion worthy of attention?
Some people (perhaps many people) say that we need not pay attention to Piketty's argument. A common line of thinking is that inequality itself is not worthy of attention. According to this idea, inequality is actually a good thing. It can stimulate the accumulation of human capital and promote social class mobility, and is an engine for accelerating economic growth. It is not a problem at all for the economy, society and the country.
Stills from "Why is home " (Cafarnaúm 2018).
This line of thinking holds that the problem is poverty, especially extreme poverty. The line of thought goes on to point out that humans today are much richer than they were six generations ago. The high levels of inequality during the Gilded Age or Belle Epoque resulted in not just poverty but abject poverty, so inequality was indeed a serious problem at the time. But because European and American countries have become very wealthy as a whole, similar levels of inequality no longer lead to extreme poverty today. In fact, today’s inequality no longer even causes “poverty” by historical standards.
For example, in the United States, policy advocacy groups such as the "Third Way" believe that the American middle class is doing well. They point out that Piketty's calculation of the top 1% doesn't tell the right story in terms of real income growth, largely due to women's increased working hours and earnings. Many people in the academic community have also pointed out that the huge improvements in medical services, environmental sanitation, public education, literacy rates, and disease prevention and control, as well as the increasing number of leisure activities, all show that no matter how the top 1% of people live, ordinary people in Absolute welfare gains are unlikely to decline.
Stills from "Northanger Abbey 2007".
This is actually a very old idea, dating back 250 years. Adam Smith pointed out in "The Wealth of Nations" that the material life of the ordinary British working class is even better than that of African kings. In " Theory of Moral Sentiments ", he believes that the consumption of the rich is limited by the size of their stomachs, and most of the expenditure they spend on themselves is actually contributing to the leisure and comfort of the lower class.
However, this view may be wrong. By the time of Augustus in the 17th and 18th centuries, Britain's economic growth had surprisingly surpassed a basic Malthusian standard of living, and even though economic growth since then has made huge strides, we still have strong and important reasons to care about poverty and abject poverty in the historical sense, as well as poverty and inequality in the current sense, even if the poor do have dishwashers, televisions, and smartphones.
7, "Where to Hope"
Assuming that Piketty's view is verified in the next century, the ratio of wealth to annual income in European and American countries at that time is likely to be much higher than today, and the proportion of inherited wealth in total wealth will also be Much bigger than today. Does this necessarily lead to an adverse distribution of economic power and resources? Given the declining marginal utility of wealth, does that necessarily lead to economic output falling below its potential? Also, is a society with relatively high wealth and income necessarily an extremely unequal society?
Stills from " Snowpiercer " (Snowpiercer 2013).
Piketty’s answer is yes. On these issues he was a follower of Marx, who believed that in a market economy with transferable wealth, egalitarian wealth distribution was unstable.After the initial average distribution, time and opportunity will inevitably lead to a large and extended tail, the size and length of which depend primarily and positively on the size of r-g (where r is not the level of the risk-free interest rate, but the level of the overall economy average profit margin) and the level of risk associated with capital returns. Therefore, an economy with a higher wealth-to-income ratio and a higher proportion of capital and other forms of wealth in national income will be an unequal economy.
Piketty’s own argument goes as follows:
Many shocks…lead to highly unequal distributions of wealth…There are demographic shocks…shocks in rates of return…shocks in labor market conditions…differences in preference parameters that affect the level of savings ...The core feature of this large class of theoretical models is...If the gap between r and g widens, long-term wealth inequality will tend to expand...If the gap between r and g widens, the economy will maintain a higher Larger and more persistent levels of wealth inequality...converge to the distribution of income among wealth holders at the top taking on a Pareto shape of the distribution...making the inverse of the Pareto coefficient (a measure of inequality between the top and the bottom) ) becomes a steep increasing function of r-g.
In such models, small changes in r-g can lead to large changes in the steady-state level of wealth inequality... It is actually the interaction between the effects of r-g and institutional and public policy responses, including changes in income, wealth and Progressive taxation of inheritance, inflation , nationalization, physical destruction and dispossession, real estate distribution rules, etc. In my view, these institutions and policies determine changes and levels of wealth inequality.
Stills from " The Age of Innocence " (The Age of Innocence 1993).
Alternatively, according to Piketty, at least as outlined in Capital in the 21st Century, the above interaction may not be helpful: widening wealth inequality increases the need for egalitarian policies, but also increases wealth-based The power of the crowds that block such policies. Of course, since the publication of the book, Piketty has not played the role of a prophet of disaster: conveying the message that inequality is inevitable and advocating a passive attitude. Instead, he took on the responsibility of a public intellectual leader whose message to the world was anything but a negative record of inescapable fate. If we focus on what Piketty did rather than his work, it becomes clear that while the current circumstances were not his or ours to choose, he nevertheless believed that we could come together to determine our own destiny.
Therefore, for the above reasons, we judge that "Capital in the 21st Century" is a far-reaching work, warning that the historical path that the world economy has taken in the past 30 years may, but does not necessarily, bring certain consequences in the future. Disturbing consequences. This naturally leads to several questions: Do we need to take some insurance measures? If necessary, what insurance measures should be taken? But there is something premature about such questions, as Abraham Lincoln stated in his "House Divided" speech in Springfield, Illinois, on June 16, 1858, "We first need Know where you stand and where you want to go." Because only by understanding these, "can we better judge what to do and how to do it." And as Keynes was fond of saying, the next step must be taken "with the head."
original author | [US] Bradford Delong et al.
excerpt | Luo Dong
introduction part proofread | Liu Jun
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