Tuesday, May 20, 2014

What Would Keynes Say About Thomas Piketty?

Thomas Piketty hates capital and inequality of wealth. In his new book, Capital in the Twenty-First Century, he writes:
[W]ealth and merit are totally unrelated: property sometimes begins with theft, and the arbitrary return on capital can easily perpetuate the initial crime. (p. 447)
[T]he ideal policy for avoiding an endless inegalitarian spiral and regaining control over the dynamics of accumulation would be a progressive global tax in capital.(p.471)
Later in his book, he has a chapter (15) titled: A Global Tax on Capital, where he discusses a number of  global tax schemes on wealth.

What would John Maynard Keynes think about this? In his muddled book,The General Theory of Employment, Interest, and Money, he doesn't really address the idea of taxing capital directly. And there is no discussion with regard to egalitarianism as a goal. But one should keep in mind that Keynes was a very different writer in his earlier works and there is this fascinating observation from Keynes in his 1919 book, The Economic Consequences of the Peace (emphasis in original)
The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to pleasures of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. Herein lay, in fact, the main justification for the Capitalist System. If the rich had spent their new wealth on their own enjoyments, the world long ago would have found such a regime intolerable, But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.

The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during that half century before the war, could never have come about in a Society where wealth was divided equitably.(p.10)
Indeed, I seem to recall Friedrich Hayek saying something similar during an interview that is now on youtube, though I am having trouble finding the exact quote among the interviews. (If anyone is aware of what interview Hayek said something along these lines, please let me know.)

As I recall, Hayek went beyond Keynes in emphasizing the importance of inequality in wealth by stating in the interview that if wealth was evenly distributed it would make sense from a big picture perspective to take funds from some and create at least a few people that had superior wealth.


  1. [W]ealth and merit are totally unrelated: property sometimes begins with theft, and the arbitrary return on capital can easily perpetuate the initial crime.

    That is a very bold and outlandish accusation. Not only that, it makes for a very poor argument against capital per sé, for this assertion is clearly meant to poison the well.

    Besides that, where does Piketty get the idea that the return on capital is arbitrary? Does he think there's a return on capital fairy?

    [T]he ideal policy for avoiding an endless inegalitarian spiral and regaining control over the dynamics of accumulation would be a progressive global tax in capital

    Of course, after Piketty makes the moral argument (because it is entirely a moral argument, not an economic one) against capital accumulation - calling it "theft" and "arbitrary" - the solution is to have a moral agent exacting justice in the name of the nameless poor.

    I'm listening to a recorded episode of the Tom Woods show where Tom is interviewing economist Bob Murphy where Bob is eviscerating Piketty's books from the standpoint of its economics and also its historical data, most of which - as Bob explains - is completely made-up. He also points out to his many mistakes and misconception of basic economic concepts, especially things like the interest rate.

    Piketty is no economist. That much is clear. The book is meant to be an anti-capitalism screed with a very thin veneer of serious economic and historical scholarship.

  2. I love how Picketty and so many left wingers start with the assumption that before Capitalism every country was in a state of equality in terms of wealth. They don't say this, but they imply that Capitalism makes a country more unequal in terms of wealth than it otherwise would be. This is very misleading to anyone reading their non-sense, since before the adoption of wide spread Capitalism, every country was in a state were a minuscule amount of people health nearly all the wealth of a particular country. Capitalism (not to be confused with the Progressive form, known as Crony Capitalism), actually spreads the wealth around based on ones ability to provide the goods and services that people wanted at the time. It does not spread it based on the sole fact of one being born and thus entitled to a slice of the pie.

    IMO, if you boil down the issue with Capitalism for a good many in academia, it has nothing at all to do with wealth inequality and everything to do with the way in which value is assigned and wealth is accumulated. They do not grasp the premium placed on risk and the potential return from delivering a product that customers really want. I call this the plumber paradox, where a high school educated guy that owns a successful plumbing company may live a far better life economically than that of a tenured professor with decades of academic achievement. In a socialist economy, those in academia are the elites and the plumber just another working class slob. In the mind of an academic, the proper order.

  3. The fetish with equality of outcomes rather than equality of processes is one of the most damning things in society today.

    The truly sad thing is that there *are* legit beefs to be had in this general area, but they are never examined by 95 percent of the population, who merely engages in these discussions to feel self-righteous, good about themselves, or to engage in ego-protection about why they "really" aren't successful in life.

  4. "W]ealth and merit are totally unrelated:"

    This statement is hyperbolic nonsense, but it does have some superficial plausibility. There are people who are born very wealthy and spend their lives consuming granddads fortune while producing nothing useful (The Kennedy family as an example). That does not typify wealthy people in a Capitalist economy however. Most of them get that way by merit.

    Ironically, it seems that PhD's in economics increasingly get their fame, influence and wealth from nothing more than tendentious left wing blather like the above quote, which hardly seems meritocratic.

  5. An individual is rich or poor based on the value he adds to the society not because of some vague "merit", capital does not reproduce and grow on its own. "Merit" is a word thrown around when a person is unable to identify specific reasons for his discontent with the material distribution. Ironically there is little merit in any such criticism which is relative to some arbitrary personal value preferences of "just" distribution.

    Chapter "Equality, Value,and Merit" in The Constitution Of Liberty is always recommended.

    "In conclusion we must briefly look at another argument on which the demands for a more equal distribution are frequently based, though it is rarely explicitly stated. This is the contention that membership in a particular community or nation entitles the individual to a particular material standard that is determined by the general wealth of the group to which he belongs. This demand is in curious conflict with the desire to base distribution on personal merit. There is clearly no merit in being born into a particular com­munity, and no argument of justice can be based on the accident of a particular individual being born in one place rather than another. A relatively wealthy community in fact regularly confers advantages on its poorest members unknown to those born in poor communities. In a wealthy community the only justification its members can have for insisting on further advantages is that there is much private wealth that the government can confiscate and redistribute and that men who constantly see such wealth being enjoyed by others will have a stronger desire for it than those who know of it only abstractly, if at all." - Friedrich Hayek

  6. Thomas Picketty's book should be called: "Envy in the 21st Century".

    Anyone who believes the BS this idiot put out is either an envious coward or just a very gullible moron.

  7. If the 20th century was the Century of Democide, the 21st is starting out as the Century of Envy.

    The Picketty phenomenon reminds me of a children's story, a marvelous story peopled with names of delicious political incorrectness.

    Little Black Sambo

    With any luck the 22nd will be the Century of Little Black Sambo, and our progeny will flourish in an atyrannical world of buttery pancakes.