Review: Capital in the Twenty-First Century

By Naveed Qazi

Economist Thomas Piketty’s new book, “Capital In The Twenty-First Century”, has focused on the alternative between Capitalism and Communism. Branko Milanovic, a former economist at the World Bank, called it “one of the watershed books in economic thinking.”

Paul Krugman, winner of the Nobel in economic science and a columnist for The New York Times, wrote that it “will be the most important economics book of the year — and maybe of the decade.”

With the help of other economists, Anthony Atkinson and Saez, Piketty expanded his work on inequality where he included countries like Britain, China, India and Japan in his research. They formed a committee, which spanned world’s biggest income database that covered thirty countries.

Throughout the history of economic world, nature of Capitalism and the idea of the welfare state have often locked horns. Economists have been reflecting the problems of the society and trying to find a right match for human emancipation: The Rev. Thomas Malthus theorised that population growth would keep the bulk of mankind trapped in destitution.

David Recado rightly believed that the increase in land value would benefit the feudals and oppress the poor. And Marx rightly believed that ruinous competition among workers and investors would inevitably concentrate wealth in fewer hands.

As an academic, Mr Piketty was eager to learn about the case of an ideal society. He, in his early 40’s, has been immersed in books and will most likely be a thinker of his generation. The motivation behind his PhD thesis at MIT after fifteen years of data collection has been: the collapse of Communism, the economic degradation of Eastern Europe and the first Gulf War, in 1991.

Mr. Piketty believes that the wealthier a society becomes, the more people will claw for the best relative social station and the more inequality will ensue. He turns to those timeless economic authorities Jane Austen and Honoré de Balzac in mapping our future. Throughout the book, he importunately digresses with the dowry-chasing machinations of characters in novels like “Sense and Sensibility” and “ Père Goriot”.

Social inequality annoyed him and thus he wanted to write on the roots of economic problems. He wants the world to go back to the vision of the golden age of 1945 to 1973, where incomes and higher living standards converged. His book largely focuses on United States and Europe.

Like American economist, Joseph Stiglitz, he believes that social and economic equality threatens democracy and there is a need to implement a right balance between market and the government. He further suggests that liberal government policies on taxation, spending and regulation will fail to diminish inequality.

Historically, Capitalism, due to its profit motive, has been a product of cyclical failures. It’s pretty logical that if rich lose the bundle, and if wealth is distributed wisely, inequality will start to diminish. He favours a progressive global wealth tax.

Piketty believes that the central nature of capitalism is where growth of the rate of return of capital exceeds the wider growth of economy, which thereby deepens the class divide between rich and poor.

He also believes that the rich people’s wealth holds more value than income received by a worker – and rich should be taxed to remove disparities. Going back to history, he further ascertains the examples of Greeks, where participation in public life was mandatory. “There is moderation to everything,” he claims.

World has witnessed crises in 2008 and 2011. There is a burden of paying high tuition at schools, mortgages. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Capitalism is really a pain for the poor people. He further believes that social peace can only come when State gives high salaries and collects high taxes.

Mr Piketty believes that his solutions provide a “less violent and more efficient response to the eternal problem of private capital and its return.” Instead of Austen and Balzac, the professor ought to read “Animal Farm” and “Darkness at Noon” which critique authoritarianism and inequalities in the society.

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