Capital in the 21st Century, Thomas Piketty’s bestselling book
Critique of Thomas Piketty’s latest book: Capital in the 21st Century (Threshold).
By Hunter Lewis, from the United States.
An article from the Mises Institute , translation by Brice Rothschild.
Thomas Piketty, a 42-year-old French academic economist, has written a new book: Capital in the 21st Century . The American edition was published by Harvard University Press and is at the top of the bestsellers, a first for this publisher. A recent criticism describes Piketty as “the one who has shown the fatal flaw of capitalism”.
What is this fault? Under a capitalist regime, the rich would become supposedly even richer compared to all the others and inequalities would be bigger and bigger. All this would be inexorable.
To support this thesis, Piketty proposes a dubious and unfounded financial logic, but also what he calls a “spectacular graph” of historical data. What does this graph show?
The share of American income controlled by the richest 10% rises to about 40% in 1910, then increases to 50% before the Crash of 1929, then falls back to 40% in 1995, then increases to 50% before falling back somewhat after the 2008 Crash.
Let’s think about what it really means. The income of the richest 10% did not increase inexorably during this period. Instead, it has reached a maximum of two times: just before the collapses of 1929 and 2008. In other words, inequalities increased during the great periods of economic bubbles and then narrowed.
And what caused and characterized these bubbles? They were mainly caused by the US Federal Reserve and other central banks that created far too much new currency and debt. They were characterized by a strong expansion of connivance capitalism since the rich exploited all the new money, both on Wall Street and through connections with the US government.
One can learn a lot about collusion capitalism by studying the period between the end of the First World War and the Great Depression, and also over the last twenty years, but nothing can be learned about capitalism. Capitalism of connivance is the opposite of capitalism. It is a perversion of the markets, not the result of free prices and free markets.
One can understand why the White House loves Piketty. He argues that the state is the cure for inequality when in fact the state has been the main cause of growing inequality.
The White House and the IMF also like Piketty’s proposal, not only for a high tax on high incomes, but also for substantial taxes on wealth. The IMF in particular is promoting wealth taxes as a way to restore public finances around the world and also to reduce economic inequality.
Expect to hear more and more taxes on wealth. Expect to hear that it will be one-off punctuations that will not be repeated, but that will support economic growth by reducing economic inequality.
This is a complete nonsense. Economic growth is produced when the company saves money and invests the savings wisely. It’s not the amount of investment that counts, but the quality. The state can not save or invest, let alone invest wisely.
Nor should we imagine that a tax on wealth would be punctual and temporary. No tax is ever temporary. Once established, not only would it persist, but it would get heavier with time.
Piketty should also wonder. What will happen when investors have to liquidate their stocks, bonds, or other assets to pay the wealth tax? How will markets absorb all sales? Who will be the buyers? And how could the collapse of markets and the value of assets under sell pressure support economic growth?
In 1936, a dense and scholarly academic book was published and seemed to tell politicians that they could do exactly what they wanted. This book was Keynes’s general theory of employment, interest, and currency . Piketty’s book serves the same purpose in 2014, and serves the same destructive and short-sighted policies.
If the Obama administration, the IMF, and people like Piketty wanted to let the economy manage on its own, it would recover. For now, they continue to invent new ways to destroy it.