Audio of the H&P roundtable at the Economic History Society annual conference, on 28 March 2015, is now available. The panel discussed Thomas Piketty’s book, Capital in the Twenty-First Century. Chaired by Professor Sir Rick Trainor, Rector of Exeter College, Oxford, the panel comprised Professor Martin Daunton, Head of the School of the Humanities and Social Sciences at Cambridge, Avner Offer, Chichele Professor of Economic History at Oxford, Jim Tomlinson, Professor of Economic and Social History at the University of Glasgow, and Dr Keith Tribe, independent scholar.
At the annual Economic History Society conference in March four economic historians (Martin Daunton, Avner Offer, Jim Tomlinson and Keith Tribe) offered perspectives on Piketty’s Capital in the Twenty-First Century. Here I draw on key points made by all the participants, whilst offering my own take on the issues discussed.
All of the contributors welcomed the book’s focus on inequality as one of the key issues of our time, and also welcomed Piketty’s view that historical evidence was crucial to understanding how current inequality levels had developed from the much the more egalitarian distributions of income and wealth in the middle decades of the twentieth century. Avner Offer described Piketty’s ‘rich descriptive account’ as a ‘stupendous achievement’, but the overall tone of the discussion was critical. This criticism focused on the underlying ideas behind the book, some of its key conceptual underpinnings, and its politics.
The book’s title is a self-conscious reference to Marx’s Capital and the comparison with Marx’s work is instructive. Like Marx, Piketty sets out to establish the fundamental ‘laws of motion’ of modern capitalism, but (like Marx) what is really established are tendencies, but without adequate account of the counter-tendencies, and how their operation might undermine the prediction of greater inequality. Thus Piketty’s key ‘law’ is r>g, where the rate of return on capital is greater than the growth rate. Capital thus enjoys an increasing proportion of total returns. But, as the book argues, for the years from 1914 down to the 1970s, this tendency was offset by a low level of return due to war followed by capital destruction and then high taxation, whilst after 1945 growth was exceptionally high due to much of the world catching-up with the GDP levels of the USA. These counter tendencies appear highly contingent, rather than derivable from Piketty’s ‘fundamental laws’.
While Marx is invoked by Piketty, his definition of the key term ‘capital’ is not Marxist; it is not about a social relationship. But neither is it about the physical capital that serves as a factor of production as in neo-classical growth models. Rather, his ‘capital’ is actually wealth, the sum of all assets, real and financial. This definition has a number of implications. It means Piketty’s argument is a hybrid, adhering systematically to neither Marxist nor neo-classical norms, though owing more in practice to the latter. This definition also means that housing, the fastest growing source of wealth in rich countries in recent decades, is hugely important in the data Piketty presents, but the significance of this fact is never dealt with in any depth in the discussion.
This absence is very important for how we think about overall trends in wealth distribution. Piketty mostly focuses on the top 10 per cent of the distribution, but he does note how housing wealth especially has been re-distributed to what he calls the ‘patrimonial middle class’, those lying between the top ten per cent and the mid-point of the distribution. As he notes: ‘In historical terms, it was a major transformation, which deeply altered the social landscape and the political structure of society and helped to redefine the terms of distributive conflict’ (p.262).
But this insight is not followed through to look at the highly significant way in which property ownership below the top ten per cent has buttressed the ownership at the top. To put the point in another way, in a country like Britain because of the spread of owner-occupation, the median voter is now a property-owner, and this must be seen as crucial to understanding modern property-distribution and the politics linked to it. The pursuit of the ‘property-owning democracy’ by Conservative governments since that of Lord Salisbury has been highly effective in creating a broad property-owning alliance far beyond the 10 per cent. (The recent explosion of buy-to-rent just adds another element to this property-owning group).
Despite asserting the importance of politics, Piketty has strikingly little to say about what has driven the rise in inequality, especially in the US and UK, since the 1970s. How has the underlying tendency of r>g been allowed to re-assert itself? Piketty points to ‘changing social norms’ without explaining the mechanisms of change. He also argues that tax competition has, in Britain and the US, led to a ‘race to the bottom’ in income and wealth taxes. This has some force, but lacks historical specificity. It doesn’t explain why such a late twentieth century race has not dragged most European countries down as well. A key feature of Anglo-American capitalism is the rise of the ‘super-manager’, the corporate boss who combines enormously high salary with stockholding in the same company. The modern super-rich are decreasingly rentiers, but instead use their dominance of corporate hierarchies to extract large rents. Again, this is a particularly strong feature of Britain and America which has had much less impact in continental Europe, and so an explanation is not advanced by postulating general ‘laws of motion of capitalism’.
Piketty proposes a global wealth tax as a solution to growing wealth inequality, though he accepts this is a ‘utopian’ idea. Policymakers would benefit from a more sophisticated analysis of possible options. A key question is the ‘room for manouevre’ in the tax system, in the light of the political constraints. Here Martin Daunton was pessimistic, because of his perception that in Britain big property has built powerful ‘ramparts’ of smaller property-owners around itself. The result is , that direct assault on inequality through higher income and wealth taxes is unlikely to be politically successful. Despite pessimism about the politics of raising the standard rates of tax, , there are alternative ways to re-insert some progressivity into the tax structure. One route would be to challenge many of the regressive tax expenditures embodied in, for example, tax breaks for pensions. These cost the Exchequer over £30 billion per annum; two-thirds go to higher rate taxpayers. Targeting tax breaks which favour buy-to rent over owner–occupied housing would be another approach.
Piketty’s book is based on the belief that historical evidence is crucial in understanding the current problem of growing inequality. While some of the discussion reported above suggests limits to his way of approaching this evidence, there is no doubt that he has added enormously to the breadth and depth of our historical knowledge. His work should continue to function as a stimulus to much more historically-informed debate on an issue which is coming to the forefront in contemporary politics.
H&P is an expanding Partnership based at King's College London and the University of Cambridge, and additionally supported by the University of Bristol, the University of Edinburgh, the University of Leeds, the Open University, and the University of Sheffield.
We are the only project in the UK providing access to an international network of more than 500 historians with a broad range of expertise. H&P offers a range of resources for historians, policy makers and journalists.