WITH a hardback edition that is almost 700 pages long and weighs more than a kilogramme, Thomas Piketty’s Capital in the Twenty-First Century possesses a daunting physical presence that can perhaps partially explain why it has the dubious distinction of being a book that, despite topping multiple bestseller lists when it was published last year, has largely remained unread. Indeed, according to Amazon, the majority of people who downloaded the book for their Kindle e-readers did not even make it through the first chapter. This is not surprising since Capital is not an easy read; while the English translation of the book (and, presumably, the French original) avoids much of the jargon and technical language that often renders academic work opaque for non-specialists, the sheer wealth of empirical information and data on display can be intimidating and difficult to follow.

Why, then, has this book received such a rapturous reception from such a wide and diverse audience? It’s not E=mc2 but there is an elegant simplicity to the formula r>g that denotes the relationship at the heart of the book. Cutting through the sometimes dense prose and multitudinous tables and numbers, the point Piketty makes is a relatively easy one to grasp: capitalism is inherently structured towards creating and increasing inequality over time, with the rate of return on capital (r) generally being greater than the rate of economic growth (g) over time. Using a unique and exhaustive array of data and statistics (largely pertaining to the advanced industrialised parts of the world), the compilation of which is deserving of considerable praise and appreciation in its own right, Piketty systematically demonstrates how those who possess capital — defined here as all assets that have value — have historically seen their fortunes grow faster than the incomes of the societies of which they are a part.

With the exception of the four decades following the First World War, in which this ‘law’ did not hold due to the destruction of extant stocks of capital by war, Piketty shows how an ever-widening gap between the rich and the poor has characterised the world’s economies for the last 200 years, and that this tendency is only likely to be exacerbated in the years ahead, particularly given the low rates of growth that currently characterise the advanced industrialised economies.

There is an intuitive plausibility to this idea that resonates with developments that have taken place since the 1970s. Increasing productivity across the world has not been accompanied by a corresponding rise in wages, with the massive profits generated by corporations around the world disproportionately benefiting the elite who preside over the commanding heights of the global economy. In the more recent past, particularly after the financial crisis of 2007, the eye-watering sums offered as remuneration to top executives and financial workers, as well as the bumper profits enjoyed by banks and the corporate sector amidst widespread public-sector cuts and austerity, have drawn further attention to the disparities within the capitalist economy.

Piketty’s great achievement, and one possible reason for the enthusiastic reception of his book, is his effective empirical demonstration of a fact long denied by neoclassical economics and its champions throughout the world: markets, when left to their own devices, do not provide individuals with rewards that are proportional to their efforts and contributions towards producing goods and services, nor do they ensure the most optimal distribution of those goods and services. Instead, they tend to concentrate wealth in fewer and fewer hands, giving rise to what Piketty calls a system of “patrimonial” capitalism in which a few major players derive disproportionate benefit simply by virtue of possessing high amounts of capital.

At a descriptive level, Piketty’s observations and use of statistical data are peerless, delivering much-needed proof on rising inequality to conceptual and theoretical debates that particularly on the Left (and the social sciences more generally) have lacked a rigorous empirical basis. It is in this context that the final section of the book is devoted to outlining mechanisms that Piketty feels would be crucial to ameliorating the corrosive political and social effects of inequality. While conceding that his proposals might be “utopian” and impractical, Piketty suggests that measures such as progressive taxation, inheritance taxes, and a global wealth tax be employed to effectively redistribute capital and reduce the power of the economic elite.

It is here, however, that the problems with Piketty’s approach become more evident. One suspects that the title of the book, Capital in the Twenty-First Century, was deliberately intended to provoke comparisons with Karl Marx’s three volumes of Capital but, as has been noted by numerous critics on the Left like David Harvey and David Graeber, Piketty’s work lacks the sensitivity to power and social relations that gives Marxism its enduring appeal as a framework through which to make sense of society. As an economist trained in the neoclassical tradition, and working within institutions wedded to its theoretical and conceptual tools, Piketty’s challenge to economic orthodoxy, while powerful, nonetheless remains constrained by the limits it imposes. Thus, the emphasis placed in the book on mathematical rigour and data, while important and necessary, comes at the cost of theoretical depth, with description taking precedence over causal explanation. Piketty’s conclusions about capitalism and inequality are both inescapable and irrefutable, but he has little to say about precisely why this inequality arises and why this matters; r>g may denote an empirical reality, but it does not tell us much about why this reality exists. Similarly, while Piketty’s policy recommendations may seem radical and impractical from a mainstream perspective, it could also be argued that they do not go far enough to address the malaise at the heart of capitalism.

Criticism of Piketty’s work from within mainstream economics has revolved around two main types of argument. The more predictable, and perhaps less sustainable, critique regurgitates the economic dogma of the recent past, arguing that capital is little more than Marxism in disguise, all but calling for class war and greater state intervention in the economy. This approach, rooted more in ideology than empirical fact, accuses Piketty of seeking to punish the innovators and wealth creators who have fuelled the tremendous engine of growth that is modern capitalism, all the while skirting around the tremendous empirical evidence Piketty marshals in support of his arguments about rising inequality.

The second, more fruitful line of inquiry focuses on a different but related question: why exactly does inequality matter? After all, as argued by the economist Deirdre McCloskey, the last 200 years have also seen what she calls the “Great Enrichment”, whereby hundreds of millions of people in the subordinate classes have been lifted out of poverty and provided with decent standards of living, particularly in the West and, arguably, increasingly in the developing world. Inasmuch as this was all made possible by the productive forces unleashed by capitalism, should inequality within the capitalist economy really matter if the material needs of the vast majority of the population are being met in a satisfactory way? Following from this, if part of the problem with contemporary capitalism is the way in which wages have remained stagnant while profits have grown, and if average incomes are insufficient for providing adequate levels of welfare, the solution simply lies in increasing wages. Similarly, if Piketty’s definition of capital were to be expanded to include skills and education, and recognition of how the spread of these can lead to upward economic and social mobility, the provision of these to the poorest in society would be sufficient to address the worst excesses of the capitalist system. Therefore inequality, in and of itself, is not necessarily bad.

This is a powerful rejoinder to the points raised by Capital in the Twenty-First Century and, at least within the book itself, Piketty has little to say about this issue beyond highlighting the spread of patrimonial capitalism and a return to levels of inequality not seen since the late 19th and early 20th centuries. Instead, the task of fleshing out Piketty’s conclusions is one that has been taken up by some of his critics on the Left (and, indeed, more heterodox practitioners within mainstream economics).

Thus, in his own work on inequality, Nobel Prizewinner Joseph Stiglitz, while agreeing with Piketty’s empirical evidence, attributes the growing disparity between the rich and the poor to the rising value of land, and the increasing incidence of monopoly rents accruing to dominant players within the economy. For Stiglitz, credit also plays a crucial role in this story, with much of the lending done by increasingly deregulated banks simply being used to fuel speculative bubbles in real estate and elsewhere that might increase wealth but do not actually lead to an increase in capital, understood here in the more traditional sense as inputs into the production process. Consequently, inequality is bad because of the structural factors that underpin it; speculation and increases in the value of non-productive assets do not contribute to economic growth in a substantive or lasting way, impede advances in productivity and increases in wages, and raise the cost of living for those who lack access to credit and collateral. This line of reasoning highlights one of the central problems with Capital in the Twenty-First Century, namely the way in which it equates capital with wealth. In addition to obscuring the precise mechanisms through which rising inequality hampers growth, it also fails to account for the way in which capital is as much a social category as it is an economic one.

For an older generation of political economists, going back to David Ricardo and Marx, value came from labour; the economic power of the property-owning classes stemmed not just from their possession of capital, but also their ability to use that capital to exploit the labour of the working classes. As such, while Piketty’s statistics support the notion that inequality is increasing, his definition of capital leads to a focus on the distribution of wealth rather than the process through which it is acquired. After all, even if r>g (and Piketty certainly demonstrates that it is), it would be problematic to conclude that ‘r’ and ‘g’ exist independently of each other. To the extent that rates of return on both productive and non-productive capital are dependent on the broader health of the economy, what is it that keeps the capitalist economy ticking and underpins the relationship between ‘r’ and ‘g’?

The Keynesian and Fordist responses to this problem were simple: stimulate aggregate demand through state-led spending and the provision of decent wages to workers who would consume the products they produced. Since the 1980s however, as argued by Harvey, returns on capital have been premised on the disempowerment of labour, with profitability and growth being maintained by the expansion of credit (with all of its attendant problems), the fictitious growth produced by the financialisation of the economy (through which money begets more money), the increased incorporation of the global periphery within processes of capitalist accumulation, and an ever-tightening squeezing of the working class through lower wages, informalisation, and technological innovation.

Rising inequality is therefore problematic because the fortunes of the rich will inevitably be premised, in the long run, on the continued and enhanced exploitation of the poor. Inequality might be an economic fact, but it is one that is produced, and can only be addressed, through concrete and sustained political action. Wealth taxes and progressive taxation, while laudable, would do little to address the self-defeating logic of exploitation at the heart of capitalism.

One final strand of critique, which bridges the divide between Left and Right, and is implicit in the comparative case studies Piketty uses, emphasises the fact that institutions and policies matter; while r>g may be broadly true for most mature capitalist economies, it also clear that the ratio between the two is not constant across time and space. Differences in the rates at which inequality has grown in different parts of the world can also be attributed to the different settlements and institutions that regulate social, economic, and political life from place to place. Piketty’s attribution of declining inequality in the post-war years to the destruction of stocks of capital possessed by the elite is persuasive, but it underplays the way in which the political opportunities that opened up in that period gave rise to the European welfare states and greater power for labour, putting in place trajectories of development that would structure the way in which changes in the broader political economy would be negotiated by capital, labour, and other stakeholders. Rising inequality might be an inevitable feature of the future, but the way in which different societies respond to it will inevitably be shaped by their unique histories.

All of the criticisms of Capital in the Twenty-First Century should not detract from its tremendous achievements. As a work of economic history, and a source of data, it effectively demolishes mainstream myths about the ability of markets to combat inequality, reward effort and innovation, and deliver the greatest amount of good to the greatest number of people. At a point in time where slogans about the 1 per cent vs the 99pc abound, this book provides conclusive evidence in support of the idea that the modern-world economy is one that is inherently unjust and exploitative. That the book’s theoretical ambitions do not match its empirical accomplishments does not reduce, in any way, the scale of its contribution to modern economic and political debate.

The sociologist Charles Tilly once observed that the mere fact that Marx’s work was still being debated more than a century after it first appeared, even if much of the commentary simply sought to discredit its propositions, was testament to the undeniable impact it had on how society was viewed and analysed. In that same vein, if the importance of a person’s work can be judged by the discussion and critique it has generated, then Capital in the Twenty-First Century certainly ranks amongst the most influential books to have been published in recent decades, accomplishing the rare feat of uniting the Left and the Right in both praise and condemnation.

Capital in the Twenty-First Century

(ECONOMY)

By Thomas Piketty

Translated by Arthur Goldhammer

Harvard University Press, US

ISBN 978-0674430006

696pp.