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Piketty Digest #12: Merit and Inheritance in the Long Run

by Adam David Morton on October 10, 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 twelfth ‘Piketty Digest’ on ‘Merit and Inheritance in the Long Run’.

Chapter 11: Merit and Inheritance in the Long Run

This chapter moves from a focus on capital accumulated over the course of a lifetime by savings from earned income towards addressing the role of inheritance, which is seen as coming to play a significant role in the twenty-first century, comparable to its past importance — ‘Whenever the rate of return on capital is significantly and durably higher than the growth rate of the economy’, Piketty states, ‘it is all but inevitable that inheritance (of fortunes accumulated in the past) predominates over saving (wealth accumulated in the present)’ — Accumulated wealth through inheritance was omnipresent in nineteenth-century novels not only because writers such as the debt-ridden Balzac were obsessed by it but also because inheritance occupied a structurally central place in nineteenth-century society, central as both economic flow and social force — Transmission of capital by gift today is as important as transmission by inheritance: the upsurge in gift giving has revived the essential importance of inherited wealth in contemporary society — ‘We are once again living in a golden age of gift giving, much more so than in the nineteenth century’ — After World War II, counters were reset to zero or close to zero that resulted in a rejuvenation of wealth: ‘it was indeed the two world wars that wiped the slate clean in the twentieth century and created the illusion that capitalism had been overcome’ — Although it is unclear to me who thought capitalism had been overcome, Piketty’s insights on the returning significance of inheritances in the twenty-first century is interesting — Returning to themes initially raised in Chapter 2, Piketty highlights here the prominence of ‘Vautrin’s lecture’ in Honoré de Balzac’s Père Goriot as relevant to the present: what sort of life can one hope to lead living on earned income alone, compared to the life one can lead with inherited wealth? — Today, Piketty argues, cohorts in the last third of the century will experience the powerful influence of inherited wealth to almost the same degree as the cohorts of the nineteenth and twentieth century: those who could somehow lay hands on inherited wealth were able to live far better than those obliged to make their way by study and work in the past and this will be increasingly so in the future — Following Piketty’s argument, a Rastignac born in 1940-1950 had every reason to aim for a job in the top centile and to ignore the Vautrins of the day —For all these generations, success through work was more profitable and not just more equal — Between 1910 and 1960 the top centile of the income hierarchy consisted largely of people whose primary source of income was work — This ensured a fundamental unity to society, in which everyone participated in the communion of labour and honoured the meritocratic ideal — People believed that the arbitrary inequalities of inherited wealth were a thing of the past — Today’s cohorts face a set of inequalities and social structures that are between the cynical world described by Vautrin (in which inheritance predominated over labour) and the enchanted world of the postwar decades (in which labour predominated over inheritance) — People today are more likely to derive their income about equally from inherited wealth and their own labour — For a society in which income from inherited capital predominates over income from labour, a society described by Balzac and Austen, means that

  1. capital stock and with it the share of inherited capital is large; and
  2. inherited wealth must be extremely concentrated, which was the case in the eighteenth and nineteenth centuries, until 1914.

WoodWhen growth is low and the return on capital is distinctly greater than the growth rate, wealth will become so concentrated that top incomes from capital will predominate over top incomes from labour — Following on from his use of literary sources as historical sources on inequallity, discussed in relation to Chapter 10, Piketty notes that nineteenth century novelists depicted the same deep structures: similar inegalitarian structures, orders of magnitude, and amounts appear in Balzac and Austen on both sides of the Channel, despite the differences in currency, literary style, and plot — Monetary markers were extremely stable in the inflation-free world described by both novelists, so that they were able to specify precisely how large an income (or fortune) one needed in order to rise above mediocrity and live with a ‘minimum of elegance’ — In contrast, argues Piketty, ‘in contemporary fiction, inequalities between social groups appear almost exclusively in the form of disparities with respect to work, wages, and skills’, although the acuteness of his insights as a literary critic can be undermined by reference to The Remains of the Day, as just one example — Yet, as Piketty highlights towards the end of the chapter:

The world to come may well combine the worst of two past worlds: both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity . . . Meritocratic extremism can thus lead to a race between supermanagers and rentiers, to the detriment of those who are neither.

These are some of the changes in the social representation of inequality traced in the chapter on inheritances leading to the conclusion that in a democracy the professed equality of rights of all citizens contrasts sharply with the very real inequality of living conditions — In order to overcome this ‘contradiction’, Piketty maintains, it is vital to make sure that social inequalities derive from ‘rational and universal principles’ rather than arbitrary contingencies. A read of Ellen Meiksins Wood Democracy Against Capitalism would give these assumptions about democracy and capitalism a good shake out.

Question How is the concept of democracy in the modern world related to capitalism and how might democracy go beyond the limits imposed on it by capitalism?

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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