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Piketty Digest #11: Inequality of Capital Ownership

by Adam David Morton on October 2, 2014
Piketty Forum

With all the furore surrounding Thomas Piketty’s Capital in the 21st Century my aim here is to carry a weekly focus on the book . The purpose is modest. There is already in existence some rather excellent coverage and detailed engagement with the book both in the general media and on specific blog sites. I am thinking here of the analyses by Michael Roberts on his blog site; the competing viewpoint or ‘afterthoughts’ of David Harvey; Benjamin Kunkel’s assessment in ‘Paupers and Richlings’ for London Review of Books matched by Knox Peden’s great essay on ‘The Abstractions of History’; or Paul Krugman’s rather different tone in ‘Why We’re in a New Guilded Age’ for The New York Review of Books. My own endeavour is much less ambitious than any of these engagements. It seeks to offer a weekly equivalent to the ‘Pocket Piketty’ provided by Duncan Green. Each week my intention is to carry a blog post that summarises my notes on each chapter in just a few hundred words that can be read quickly. The purpose of these summaries is to produce an interpretative synopsis of each chapter drawn from my more detailed notes.

These interpretative digests will also enable me to formulate my engagement with a reading group on Piketty’s Capital in the 21st Century, organised by Chris Hesketh at Oxford Brookes University. They will also provide a quick précis for teaching purposes at the University of Sydney and through this novel pedagogical exercise conclude with a question each week to be developed in my Department of Political Economy classes on ‘The Political Economy of Global Capitalism’ (linked to the Twitter hashtag #ECOP2613). Such short interpretative digests may thus provide a different and original form of engagement with the book. Without attempting to rival or replace the importance of detailed engagement, these ‘Piketty digests’ will facilitate a quick and accessible read for people ‘on the go’. The posts will be formulated and produced after reading each chapter, in dialogue with the Oxford Brookes University reading group and colleagues at the University of Sydney, rather than polished after completing the reading of the whole book and then subsequently edited; although I may tidy up a little week-to-week. Perhaps these ‘Piketty digests’ will also provoke some wider resonances and points of contact. Here is the eleventh ‘Piketty Digest’ on ‘Inequality of Capital Ownership’.

Chapter 10: Inequality of Capital Ownership

remains-of-the-dayHaving dealt with the inequality of labour income in Chapter 9, capital ownership is addressed now in terms of its increasingly concentrated presence as the capital/income ratio rises and growth slows — Again, the role of a patrimonial middle class is noted, highlighted as the most important structural transformation to affect the wealth distribution over the long run — Drawing from probate records to reveal wealth accumulation and distribution and the metamorphoses of patrimonial society in France, Piketty notes that after 1789 and the French Revolution there was the return of the nobility to the forefront of the political scene that contributed to the reconstitution of class structures between 1815 and 1848 — Hence, Piketty notes that the changes wrought by the French Revolution should not be overstated in that inequality of capital ownership remained relatively stable at an extremely high level throughout the eighteenth and nineteenth centuries — The French Revolution had relatively little effect on the capital/income ratio — It is worth citing him at length here:

In 1810-1820, the epoch of Pére Goriot, Rastignac, and Mademoiselle Victorine, wealth was probably slightly less unequally distributed than during the Ancien Régime, but the difference was really rather minimal: both before and after the Revolution, France was a patrimonial society characterised by a hyper-concentration of capital, in which inheritance and marriage played a key role and inheriting or marrying a large fortune could procure a level of comfort not obtainable through work or study. In the Belle Époque, wealth was even more concentrated than when Vautrin lectured Rastignac. At bottom, however, France remained the same society, with the same basic structure of inequality, from the Ancien Régime to the Third Republic, despite the vast economic and political changes that took place in the interim.

TeschkeBut one can only be surprised by these conclusions if one has completely neglected the continued logic of absolutist state formation in France at this time and the dominance of dynastic proprietary rule, rather than assuming a transition to capitalist modernity, as laid out so thoughtfully and persuasively by Benno Teschke in The Myth of 1648 on the origins of the modern state system — This is why previously my attention has been cast towards criticising the troubling transhistorical essence Piketty attaches to capital, which is unable to capture historically specific social property relations, see Chapter 5 and the figure here that traces the rate of return (r) in relation to the growth rate (g) at the world level capitalfrom Antiquity to the present!! — Nevertheless, Piketty jumps these epochs to wealth inequality in the twentieth century to trace differences between the European and US experiences — In Europe the twentieth century witnessed a total transformation of society where inequality of wealth, at its greatest on the eve World War I equal to the Ancien Régime, fell to an unprecedentedly low level, so low that nearly half the population was able to acquire some measure of wealth and own a significant share of national capital, while in the United States inequality of wealth became greater and greater than it was at the beginning of the nineteenth century — The rate of return on capital has historically been at least 10 to 20 times greater than the rate of growth of output (and income) with Piketty drawing on the projections outlined in Part I of the book on the global growth rate and the estimates for Britain and France in the period 1700-2010, analysed in Part II of the book, to analyse the global rate of return on capital — The pure rate of return on capital has throughout history always been distinctly greater than the global growth rate but the gap between the two shrank significantly in the second half of the twentieth century when the global economy grew at a rate of 3.5-4 percent — The twentieth century was one of unprecedented, possibly unique, conditions in the relationship between r and g, see Introduction — The inequality r > g has been true throughout most of human history, according to Piketty, up to the eve of World War I and will be true again in the twenty-first century, depending on the “shocks” to which capital is subjected and public policies and institutions that might regulate the relationship between capital and labour — The fundamental inequality r >g can explain the very high level of capital inequality observed in the nineteenth century — The top centile owned more than 70 percent of total wealth in 1913 in France and even more in Britain, as depicted in Pére Goriot in France or Sense and Sensibility and Persuasion in Britain — The rising concentration of wealth in France in the Belle Époque, the largest fortunes held by the elderly, was due to the saving of a large fraction of capital income, with capital growing faster than the economy — As Piketty acknowledges, ‘this mechanism can take decades to operate, especially in an open economy in which wealthy individuals can accumulate foreign assets [a euphemism for colonies], as was the case in Britain and France in the nineteenth century and up to the eve of World War I’ — This ‘process’ was largely responsible for the ‘vertiginous increase in the top centile’s share of wealth in Britain and France during the Belle Époque’ — As Piketty argues, ‘such an inegalitarian spiral cannot continue indefinitely: ultimately, then, there will be no place to invest the savings, and the global return on capital will fall, until an equilibrium distribution emerges’, as was the case with the “shocks” of 1914 to 1945 — The cumulative inegalitarian logic of the society of rentiers in the nineteenth century, as emblematic of r > g, was familiar to the novelists of the nineteenth century, such as Honoré de Balzac or Jane Austen, as noted in Chapter 2 — But if one was to take seriously the use of literary sources as historical sources then a reference to Kazuo Ishiguro’s The Remains of the Day would surely be apposite here — Lord Darlington is a key fin de siècle character in the novel entrusted, as a gentlemen of one of Britain’s great houses, Darlington Hall, to conduct discussions (with inter alia John Maynard Keynes, H.G. Wells and the European noblesse oblige) on the great problems of the day including the geopolitical consequences of the Versailles Treaty in order to contribute to the future ‘well-being’ of the Empire — The wheel of this world revolves with the ‘great houses at the hub’ and their mighty decisions emanating out from its great gentlemen in whose hands civilisation had been entrusted — The fall of Lord Darlington and the rise of the American Senator Mr. Lewis indicates the coming of the American Century and a new dawn of capitalism that Piketty might have done well to reference in his literary as historical sources too.

Question: Is the use of specific literary sources—such as Honoré de Balzac or Jane Austen—as historical sources in understanding inequalities of capital ownership actually intrinsic to Piketty’s argument or simply a surface appearance?

Adam David Morton
Adam David Morton is Professor of Political Economy in the Department of Political Economy at the University of Sydney.

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