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Thomas Piketty's capital idea

The French economist with a celebrated theory of inequality is back—this time with a theory of everything in 1,100 pages. But is he, Paul Krugman asks Prospect, sufficient a polymath to pull it off?
February 28, 2020

Can a book change the world? Thomas Piketty looked as startled as anyone when his first doorstopper on inequality was greeted with this question six years ago. I remember the scholarly statistician’s transformation into a media sensation vividly, because the Guardian had me take a taxi with him around London to make a (possibly) comic video billed as “on tour with the rock-star economist.”

Now the Frenchman is back, with a tome that is grander in size and scope, and he seems less fazed by the interest and controversy that he generates, as befits his new project: exposing the “ideologies” that ensure that wealth begets wealth, and thereby entrench inequality. Things have been frenetic, and also testing in ways I hadn’t clocked when we spoke—with the resurfacing in the French press of stories about his being investigated for violence towards a former partner, 11 years ago. He is in end-of-day mode when we sit down for an hour—after a long day of briefings, media interviews and prepping for the LSE lecture he still has to give—but he looks if anything younger than he did when thrown into the limelight in 2014. And he has, like his new book, an air that is almost bizarrely optimistic, given the circumstances of 2020.

As I run through the list of Brexit, Trump, the abject collapse of the French Socialist party in which he used to be steeped, and the many other disasters that have befallen progressives since we last met, the bean-counting scourge of the super-wealthy chuckles, and suggests his Zen outlook might be the product of the chance he has had to keep “researching and thinking about inequality regimes” throughout world history. “You know,” he says, “the current level of inequality and current organisation of the economic system is certainly not the only possible one. There are alternatives, there are always alternatives, and history seems to show us they will keep changing.”

And in a way, this is the thread that runs all the way through the 1,100 pages of Capital and Ideology as it trots from ancient India to the French revolution, 20th-century Sweden and on to contemporary footloose finance, baffling some prominent readers as it chops and changes between the perspectives of sociology, history, economics and political science along the way. But confront the big picture and take the long view, Piketty is saying, and you will see that things do change fundamentally and sometimes fast; and, if today’s inequality-entrenching orthodoxies can only be taken apart with enough determination they can likewise be dispatched to the dustbin of history. Could he be right?

The crunch bunch

Before the audaciously titled Capital in the 21st Century knocked the novelisation of Disney’s Frozen off the top of the Amazon bestseller list and propelled Piketty to the No 1 spot on hit parades of global thinkers in 2014 (including Prospect’s) he was an obscure figure outside of his field. Within it, though, he was already respected—a pre-eminent member of a bunch of data crunchers led by his English mentor, the late Tony Atkinson, that tapped household surveys and tax records from different countries. Through grinding, technical work—reconciling differences in national tax system definitions and survey questions—the team built up an authoritative and truly comparative picture of how incomes are shared in different societies. 

Establishing important economic facts provides, in a scientific sense, its own justification. At another level, though, Atkinson, Piketty and their colleagues always had a strong political motivation. It was already evident that the Reagan/Thatcher revolution rewarded the richest far more than the rest in the United States and the UK. By compiling reams of data from elsewhere, the team rebutted claims that “There Is No Alternative” to the laissez-faire Anglo-Saxon model by demonstrating that the “continental” economies had taken a different path, without the same late-20th-century inequality surge.

What Piketty did in his first book was, in essence, to bring such research to life with two tricks. First, vivid writing, that blended killer statistics with apt quotes from Austen and Balzac to demonstrate how pecuniary inequality had shaped (and been shaped by) human societies down the centuries. Secondly, he interpreted the global “inequality turn” since 1980—which since some time around the millennium began creeping into the continental economies too—with a new theory which was both arrestingly simple, and arrestingly frightening.

The underlying problem was, he argued, that the rate of return on capital (r) was generally bigger than growth in output and incomes (g), creating an inbuilt mismatch that favoured those who own over those who earn. (I oversimplify slightly: the framework also included a couple of “laws of capitalism,” one of them true by definition, to capture the dynamics.) But it was the fundamental imbalance between r and g which would tend to push inequality back to where it had been in Jane Austen’s rigidly class-bound society, unless and until a Very Big Thing interrupted.

Six years on from the bankers’ crash, with wages squeezed and austerity biting, the first book’s timing was perfect: you could soon buy left-wing T-shirts emblazoned with “r > g.” But it was not an effective political rallying cry, any more than Piketty’s more recent (in his word) “theoretical” membership of John McDonnell and Jeremy Corbyn’s economics brain trust was able to provide Labour with an election-winning policy framework last year. (Piketty points out that the board never actually met.) Although the first book closed with rather utopian schemes for transnational wealth taxes to close the great gap, the tone was somewhat fatalistic. Because by far the most effective Very Big Thing that had actually disrupted the inegalitarian logic of “r > g” turned out to be the two world wars; absent a third, it was tough to see how prosperity was going to be shared around. So we could forget easy rhetoric about an opportunity society; patrimonial capitalism, where accidents of birth fix lifetime fortunes, was on the way back.

Conversation opener

The first unarguable achievement of the breakthrough book was to whack the establishment with 600 pages of hard evidence about how spectacularly the incomes of the rich and the poor had diverged, and how far wealth had ballooned relative to incomes in general. The changes are mind-bending. Back in the 1960s, CEOs of big firms in the US would earn 20 times what their typical workers did; today it’s nearly 300 times as much. Sometimes specific consequences were bitterly contested within particular industries, and yet, until Piketty, there was remarkably little general debate. It was not only free market ideologues who insisted there was nothing to worry about. Avowed progressives of the Third Way were—in Peter Mandelson’s notorious phrase—“intensely relaxed about people getting filthy rich as long as they pay their taxes.” The economics establishment took the same view, summed up by Robert Lucas in 2004 when he wrote that it was “poisonous” to “sound economics” to “focus on questions of distribution.” [su_pullquote]“The Piketty of 2020 is ready to pick holes in his own first book, but this is not because his brush was too broad: rather the reverse”[/su_pullquote] But before long, Piketty was receiving—and rejecting—all sorts of highly-paying corporate invitations to speak: the Davos set sensed an argument it could not afford to ignore. Six years on, there is no closing down the discussion that he blasted open: the Democratic primaries in the US have seen Bernie Sanders and Elizabeth Warren in a bidding war over progressive wealth taxes, and Michael Bloomberg’s billions are proving to be almost as much of a political problem as they are a campaigning asset. By ranging across even more countries, and tightening the argument about how far political choices about taxation have sometimes reduced inequality, the new book provides more powerful ammo, especially when combined with the recent manifesto of two of Piketty’s closest collaborators, Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.

The second big achievement was, as I wrote at the time, to send a jolt through the practice of economics by transcending the reductive irrelevance of much of the discipline, with its tidy obsessions with stable equilibria, and engage instead with the dynamic forces reshaping society, just as the fathers of classical political economy—from Malthus and Smith to Marx—had done. In Capital in the 21st Century, Piketty explained how he had felt drawn to return home from a star-studded US department, because economists in the US were intellectually insular, while in Paris they would mingle with anthropologists, sociologists and others. And on this front, Capital and Ideology goes much further, most of it reading, as I put it to Piketty, more like a history of the world than an economics book.

He doesn’t disagree: “it’s somewhere at the frontier between history and economics,” although such boundaries are “not as sharp as some economists like to pretend.” He regards himself as an all-purpose social scientist, but “if I really had to pick a field [now], it would probably be more history than economics,” because “it’s only by taking an historical perspective on economic issues that we can reopen the economic debate.” Too many economists only bother to look “at the last 10 years, and that tends to bias their views in a conservative direction,” because “they forget about the diversity of the solutions that were used in the past, sometimes with great success.” Take public finance, he says. If EU leaders knew more about the bumper wealth taxes that rapidly cleared Germany’s huge post-war debts, they might not have meted out such savage retrenchment on the Greek people during the euro crisis.

Piketty sees some signs of a new economics emerging, though he still sees lively young minds being so hemmed in by the “obsession” with “trying to look very scientific” through mathematical techniques, that they “are no longer interested in the big picture and human societies” that originally inspired them. But Cambridge’s Diane Coyle, who has just published Markets, States and People, is more upbeat, and is happy to give Piketty some of the credit for the new vibrancy of her field: “It is very apt and interesting what he’s done over the two books: to use the question of inequality to revive interest in political economy,” and pursue a “healthy convergence” between empirical economics and political science.

And economics as a whole is getting more interesting. A generation ago, we saw Nobels handed out to Ronald Coase, Gary Becker and Robert Lucas in short order, for theories that respectively proposed deepening property rights to fix social problems, using rational economic man to make sense of love, learning and family life, and modelling the whole of the economy on the assumption that everyone was rational all of the time. Back then, the only interest economics had in sociology, anthropology and social psychology was to displace them.

In the last few months, by contrast, we’ve seen Abhijit Banerjee and Esther Duflo awarded the Nobel for open-minded experiments about what interventions can alleviate poverty in developing societies, another Nobel laureate, Angus Deaton, co-authoring a book about the life-shortening ways in which American capitalism gets under the skin, and the former Bank of England governor, Mervyn King, co-authoring another on the havoc played with the discipline’s old assumptions when it faces up to how little it truly knows about the likelihood of future events. Economists no longer look at neighbouring disciplines as ripe for imperial conquest, but instead are finally interested in learning from them. This is for many reasons, including the financial crisis and the arrival of big data, but Piketty has helped in pointing the way.

Marx on his head

Whether or not the “r > g” theory itself counts as a third great achievement is more doubtful. It was elegant, for sure, but in social science, contra Keats, beauty is not necessarily truth, nor truth beauty. And even sympathetic critics registered reservations here.

The Nobel laureate and New York columnist Paul Krugman, whose hailing of Capital in the 21st Century as a “magnificent… meditation” fuelled the buzz and the runaway sales, noted that the recent inequality surge “has been driven mainly by wage income,” with returns to wealth thus far having played only a supporting role (indeed, in the US context Piketty himself acknowledged as much). Another American progressive, James Galbraith, diagnosed “terrible confusion” in the failure to define “capital” more specifically—countable and productive capital assets were being blurred into a wider measure of wealth including property, which bobbed about with the mood of the market. And in the UK, Adair Turner has suggested that almost all of the ballooning in wealth that Piketty highlights could be explained by rising property prices, implying a narrower focus on land, bricks and mortar might be more enlightening. In sum, the theory seemed a little too abstract and sweeping—perhaps a little too French—for Anglo-Saxon tastes.

In sharp contrast, while the Piketty of 2020 is himself ready to pick holes in the first book, this is not because his brush was too broad: rather the reverse. His mistake, he tells me, was taking the rate of return on capital as a “given,” when “in the end it… depends on the political choices we make.” Hence the new book looks at “all the political determinants… and institutional determinants” of how the society’s spoils are shared—the web of norms, beliefs and practices that rationalise the riches of the haves and the hardship of the have nots, rationalisation that Piketty calls “ideology.” The ambition, then, is to generalise out from the special case covered by the first book where r was something pretty fixed that he could use to explain other things, and instead explain everything at once, including r itself. It is an audacious move, which—if we’re being highfalutin—we might liken to Einstein’s incorporation of gravity into his theory, in the shift from special to general relativity. But, obviously, only if the project succeeds. So does it?

An awe-inspiring breadth of data is tapped. In ancien régime France, to take one example, the size of the aristocracy is gauged through medieval lists of local nobles who were potentially available for combat, while meticulous tallying of the upper-crust names among big land bequests is used to get a handle on the concentration of wealth. And after dives into such detail, unlike the average data aficionado, Piketty always soars back up to the big picture. On occasion, a blistering insight can cut through reams of history. The dozen or so pages on colonial trade balances convey more than the average textbook chapter on the balance of payments, and does so while zipping back-and-forth between the lure of running surpluses in long-lost empires and in the age of Trump. Piketty never stops being disruptive. He observes that the profit Britain and France could extract by intensively milking their small Georgian slave empires was almost exactly the same 4 to 7 per cent of national income which they would later, post-abolition, extract from the vast but loosely-held Victorian empires, inviting the provocative thought that the whole reason why these later “empires of liberty” were needed was to make up for the loss of slaves.

But is there an overarching theory? If so, it is rather vague. The main thrust is that ideas matter. And that may set Piketty on a collision course with devotees of the original Capital. Last time round, they took umbrage after Piketty confessed to The New Republic that he wasn’t much influenced by their bewhiskered prophet since his writings contained “no data.” Marxists can bear a long grudge: only this January I met one still muttering about how dismissive this was, when all the disparate history in Das Kapital was data of a sort. The new book is not vulnerable to the same charge of narrowness, and it is positively Marxian in sketching out the economic underpinnings of diverse societies, ranging from the “Ternary” order of medieval Europe—divided into warrior nobles, clergy and peasants—to Hindu caste societies. But for Marxist devotees new objections could now arise, because—as Paul Krugman put it to me while in London in February—“it’s actually Marx on its head; instead of saying that ideology follows from the ‘material base,’ his view is that the material conditions of society follow largely from ideology.”

[su_pullquote]“Is he in fact a sufficient polymath to cover that wide a range and get it right?”[/su_pullquote]

For New York Times columnists, as opposed to Marxists, the notion that ideas can remake reality has an obvious attraction. And Krugman is certainly willing to follow Piketty this far—“the categories which govern what people are entitled to” are indeed “a social construct,” he tells me. You cannot, Krugman goes on, explain what has happened to—say—US truck drivers in any other way: “Back in the day, we used to think of [trucking] as a good job. And it’s now a poorly paid extremely stressful job, with real wages down around 30 per cent from their peak in the 1970s. And that’s not technology. We don’t have self-driving trucks yet… It’s not globalisation,” because trucking isn’t traded. So what are we left with? “Essentially political decisions,” says Krugman. There was a leap of faith in the invisible hand, which fed through to policies that weakened the unions, and ended up exacerbating the power imbalance between the trucker and his boss.

This chimes exactly with Piketty’s “ideological” account. And like Piketty, Krugman sees various “laws of nature” in the Anglo-American way of business—such as corporations whose only interest is shareholder value—as being every bit as ideological as the rights of the medieval clergy to claim a tithe.

So Krugman is happy to follow Piketty a long way, but the punchy columnist is impatient with the French economist’s inability to boil his thoughts down to something crisper—“nothing is worth 1,200 pages!”—and doubts “that talking about the role of the Brahmins in pre-colonial Hindu kingdoms helps us very much.” He also pushes one more difficult question about the French thinker: “Is he in fact a sufficient polymath to cover that wide a range and get it right? At least in areas where I know something, the answer is ‘No, not quite.’”

Inevitably, when you traipse so widely, the odd error will creep in. I spotted a few. The passage on franchise reform in Britain neglects to mention that it was Conservatives and not the Liberals who passed the Second Reform Act and that the Tories enjoyed a handsome victory under the extended franchise in 1874. The text suggests Lloyd George was leading the Liberals from 1906 (he became PM only a decade later) and that our first referendum on Europe was in 1972, rather than 1975. None of these details are material, and such slips might seem an acceptable price to pay for the breadth.

But Krugman told me that in areas “I know something about” there were more serious missteps—on slavery, he felt Piketty had failed to engage with an important argument that links that institution to abundant land and scarce labour; and, that in his eagerness to finger progressive bourgeois elites for the crisis of the centre-left, the role of racial politics is badly underplayed. Certainly, from a British perspective, after the recent drubbing of a radically redistributive Labour Party at the hands of Conservative nationalism, Piketty’s hope that recommitting the educated progressives to working-class material interests will be sufficient to rescue the left sounds naive. Although Krugman did so much to create the original Piketty phenomenon, the outspoken American now fears that the Frenchmen who “I have learnt a lot from” could have a touch of “grand man syndrome.”

For me, the sheer breadth probably does make it harder to reach many solid conclusions. It is important and correct to observe that ideas matter, and reflecting on the warped way that institutions like slavery have been rationalised in the past usefully prompts us to interrogate what gross injustices our own norms and institution may be creating today. But it doesn’t tell us much about where things are likely to go next, or how we can hope to speed the change.

We should not be surprised, though, that an economist who started out as—and at heart remains—an empirical researcher gets further in establishing facts than reaching general conclusions. Besides, his new evidence on tax and redistribution tells us an awful lot about what the practical options could be, once the political will to act for equality is found, and his reflections on temporary ownership and “universal inheritances” for young people stretch our imaginations about how a different future might be. His data is as arid as it is abundant, but it conveys one of the biggest and most dismaying changes of our lifetimes.

As Piketty insists, it’s not just about wealth and income, “it’s really about your life, your opportunities and about, you know, the freedom to organise… and live your life.” And that is an agenda which, in my book at least, deserves a whole lot of pages.