Thomas Piketty’s Capital in the Twenty-First Century is an important and valuable contribution to political economy, both empirically and philosophically. Piketty grounds his theory in vast empirical data,rather than settling for elegant mathematical models. He courageously embraces the fact that economic theory is inevitably value laden, and proposes a theory of the historical dynamics of wealth accumulation in order to offer an updated moral critique of capitalism. Grounding his prediction in the historical data and profoundly simple mathematics, Piketty projects that economic inequality is likely to increase and to favor those who own inherited capital over time. He advances the normative judgment that rising inequality is unjust and must be contained. Although Piketty raises important concerns about the possibility of growing wealth inequality, he fails to normatively ground or argue for his presupposition that this inequality is unjust. Since relative poverty can coincide with high levels of objective or subjective well-being, this presupposition is brought into question. However, there are causes of inequality (including wealth inequality) that clearly can be shown to be unjust. By considering other forms and causes of inequality and oppression, we can distinguish between those forms of wealth inequality that are unjust and those that are normatively benign. In this way Piketty’s concerns about growing wealth inequality from inheritance can be partly justified, though of course not empirically verified. Piketty’s argument for the injustice of growing economic inequality has two parts. The first part is an empirical, economic argument for the claim that returns from inherited wealth will far outstrip income. This argument can be summarized as follows. Let r be the rate of return on capital, and g be the growth rate of the annual flow of national income.
If r>g, then (wealth) inequality will grow over time.
Individuals who own a greater amount of capital earn a larger r.
Growth, g, is likely to be slower in future.
If r is great enough and g is low enough, then there will be ever more capital from older, inherited wealth, than from wealth saved from income.
Hence, (wealth) inequality will increase, and inherited wealth will make up the greatest amount of capital.
A few of these premises bear some explanation. The second premise is an empirical regularity that can be easily illustrated, as Piketty does by examining university endowments of varying sizes and showing that their real rates of return on the endowment vary directly with size.(p.448) The explanation he gives is that there are returns to scale for financial advisors, and the wealthiest can afford the kind of investment expertise that allow their endowments to outperform the average rate of return on capital. In essence, greater wealth generates even greater wealth. Premise 3 is accepted widely, though not universally, and not until an economy has achieved a modern level of development, like economies in Europe and North America. Premise 4 follows from Piketty’s Second Fundamental Law of Capitalism: beta=s/g, where beta is the capital/income ratio, s is the savings rate, and g is the growth rate. This law implies that ‘a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income).’ The conclusion is that ‘in a quasi-stagnant society, wealth accumulated in the past will inevitably acquire disproportionate importance.’ (p166)
Are these premises true, and is this a sound argument? I will not question premises 1, 2, or 3, which are largely empirical, economic premises, although others have done so. I will note that premise 4 depends in part on Piketty’s contested way of evaluating the value of housing, which accounts for a great deal of the capital accumulation. Furthermore, Piketty dismisses human capital as a form of capital, even though human capital can create great wealth in a single lifetime, as Bill Gates’s example would attest.[^7] The question of how to understand the role of human capital in the dynamics and morality of inequality would be a great topic for another blog post, but I won’t pursue it here.
My main concern is with Piketty’s normative argument, which is naturally less fully spelled out, but we can reconstruct it as follows:
Any inequality that is not justified is unjust.
Economic inequality is unjustified: it either comes from a fraudulent claim about merit or from inheritance.
Therefore, economic inequality is unjust.
Piketty assumes from the beginning what can be called ‘the equality presumption,’ that all inequalities are presumed unjust unless they are justified by appeal to some grounding ethical norm, or premise 6. The epigraph of the book, taken from the Declaration of the Rights of Man and Citizen, which reads: ‘Social distinctions can be based only on common utility,’ suggests that Piketty holds this view. However, the equality presumption is false; it is a fallacy akin to the principle of insufficient reason, which assumes equiprobability of events where there is no reason to assign another probability. But there is also no reason to assign equal probability rather than any other, and thus rationality cannot demand that. By the same token, morality cannot demand equal shares of a good (or bad) in the absence of a reason for it. I take this to be a point of logic, not morality. But the point can also be illustrated with a homey example. I have two different dinner parties, at one party I invite one group and the other party I invite a different group. Suppose the number of people I invite to each party is unequal. It is an inequality with no justification and yet licenses no moral approbation. In this case, to claim that I ought to have equal numbers of people at my dinner party would require justification.
As a result of the equality presumption, Piketty tends to conflate relative with absolute poverty. That is, he tends to talk about ‘the poor’ when he means the relatively poor, and to assume that relative poverty is an unjust condition. Speaking about Europe he writes, ‘The poorer half of the population are as poor today as they were in the past, barely 5% of total wealth in 2010, just as in 1910.’ (p. 261) But surely this contemporary poverty is only the relative kind; the standard of living of the two time periods is wildly different by any standard.[^8] While absolute poverty is clearly an unjust condition when others have more than enough to live on, relative poverty is not unless one embraces the equality presumption. Without assuming premise 7, relative poverty is not always unjust. Thus, we need criteria for distinguishing just from unjust inequalities.
To show that inequality is unjust, it must be shown that it is caused by an injustice or that it leads to one. Oppression is a basic form of injustice and it can cause wealth inequality (as well as political and social inequality). Oppression causes stigma and shame in the oppressed. Wealth inequality can mark persons by denying them certain opportunities or goods when others can have them. Thus, the stigma of oppression is transmitted by the denial of access created by relative poverty. Such inequalities, which transmit oppression, are therefore unjust.
Piketty fails to invoke oppression as a cause or type of injustice underlying inequality even when it would have been useful or simply sensitive to do so. For example he writes ‘inequality reached its lowest ebb in the United States between 1950 and 1980,’ but this is surely not the case for women, who were denied entry into many universities and occupations during much of this time, and who lacked many other freedoms, which they are only now achieving. He does add shortly after that passage “at least for those US citizens whose skin was white,” indicating that he recognizes the interaction between racial oppression and wealth inequality. But this is one of the only places where he discusses race, surely a crucial vector of oppression and cause of wealth inequality.
Later in the book, in the context of discussing the situation of the generation born in the period 1910–20 he writes: Talking about those born 1910–20, ‘for the first time in history, no doubt, one could live better by obtaining a job in the top centile rather than an inheritance in the top centile: study, work, and talent paid better than inheritance.’ (p. 408) This passage is androcentric. Women of this generation – over half of the people in that generation – would be neither gaining such work nor inheriting much. They would have been prevented by their sex – an immutable fact marking them for life – from applying for or even aspiring to such study or work regardless of their talents. Not having a lot of capital is one thing and does create wealth inequality and relative poverty with the rich, but being prevented from entering occupations due to one’s race or gender is an entirely different matter, one that is not a matter of relative good or bad, but absolutely and unequivocally an injustice. But to the point of this discussion: the case of oppression shows directly why inequalities that stem from them are wrong without having to infer indirectly that an inequality that cannot be justified must be wrong.
Piketty is most concerned about the inequalities created by inherited wealth. But if the equality presumption is denied, then an argument is needed to show that inequality from inherited wealth is unjust. Inherited wealth created inequality is unjust if it harms others. To the degree that there is a zero sum aspect of wealth, as with any form of wealth inequality, inheritance that creates inequality harms others. It seems that Piketty treats economic inequality stemming from return on capital or income as a zero sum sort of situation, but that is clearly not true. Investment of capital creates improvements in standard of living for all. Furthermore, there is some social good created by the ability to give wealth to others. But as with any cause of wealth inequality, the result is that the wealthy can outbid the relatively poor for goods that ought to be made available to all, such as education and healthcare, at least to some degree. This merely shows that there needs to be social provision of a floor level of provision of such goods, and not that inherited wealth is a problem per se.
When wealth inequalities stem from unjust inheritances, such as inheritance of wealth created from slavery or from unjust takings in the Holocaust, these inequalities are clearly unjust. Piketty recognizes that inheritance can transmit unjust inequalities from the past. He writes:
The inequality r$>$g in one sense implies that the past tends to devour the future: wealth originating in the past automatically grows more rapidly, even without labor, than wealth stemming from work, which can be saved. Almost inevitably, this tends to give lasting, disproportionate importance to inequalities created in the past, and therefore to inheritance. (p. 378, emphasis mine)
However, he seems to be implying that all wealth inequalities that are transmitted by inheritance are unjust because they are transmitting inequalities from the past. Can this conclusion supported without the equality presumption?
Inherited inequality does bear some resemblance to oppression. Inherited wealth creates a club that one can only be born into, an immutable social fact that marks the wealthy aristocracy as privileged and the relatively poor or those who have made their wealth through income as less worthy. In this way inherited wealth creates a privileged group like other forms of oppression. It is crucial to note, however, that if we do not make the equality presumption, it is not the inequality itself that is oppressive.
Income-related inequalities cannot be said to transmit injustice in the way that inherited ones do. To show that income inequalities are unjust, they also have to be shown to derive from injustice or to lead to injustice. Piketty argues that top managers today are paid unjustifiably large salaries because it is too difficult to assess the marginal productivity, and in the absence of any information they are able to manipulate their own and each other’s wages. A market failure is not an injustice, though it is a justification of government regulation. A significant cause of income inequality is the differences in human capital developed through education. Piketty notes that the educational systems in Europe and especially the US tend to prevent rather than promote social mobility, and instead transmit privilege. ‘Parents’ income has become an almost perfect predictor of university access.’ (p. 485) Piketty’s explanation seems to be that it is because wealthy parents buy places for their children in universities, but I think this overestimates the corruption in university admissions and it underestimates the degree of stratification of the developed academic abilities of college age students. Wealthier families are better able to invest in developing children’s abilities and talents to prepare them for college, and have better schools in their neighborhoods. Especially elite universities in the US compete very hard to find and attract low income and minority students, but the competition is stiff for qualified students who will not need remediation in order to succeed.
One of Piketty’s most interesting points concerns the changing structure of inequality. His research reveals the emergence of what he calls a patrimonial middle class. In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%. In the US today, top 10% own 25% and the next 40% own 25% of capital, while in Europe the top 10% own 60% and the next 40% own 35% of capital. ‘The emergence of a ‘patrimonial middle class’ owning between a quarter and a third of national wealth rather than a tenth or a twentieth (scarcely more than the poorest half of society) represents a major social transformation.’ (p.373) The existence of this large relatively wealthy middle class makes the experience of being in the propertyless class qualitatively different, in a way that needs to be investigated. The stigmatizing of an out-group by the existence of the relatively wealthy is a psychological harm, and arguably an injustice engendered. Is this stigma an inevitable outcome of wealth inequality? What level and what structure of inequality creates this? What other social facts make a difference to the development of stigma based on wealth inequality? These are important questions for social psychology to consider.
A final point concerns the role Piketty assigns economics as a normative discipline. Piketty claims that ‘economics is a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science.’ (p.573) While he is right to point out the essential interdisciplinarity of social science, he omits what I think is a very important piece of the overall normative picture in omitting social psychology. I have argued that to show that wealth inequality is unjust, and when it is unjust, requires social psychology to weigh in about stigma and the structure of inequality in a society (or globally). Furthermore, Piketty claims a distinct normativity to ‘political economy,’ the expression he prefers to ‘economic science.’ He writes that the ‘thing that sets economics apart from the other social sciences: its political, normative, and moral purpose.’ I agree with this basic point, but disagree with Piketty’s overall taxonomy of the social sciences and their relation to normative analysis.