Ignoring the Difference between Free markets and State Capitalism
The basic phenomenon that Thomas Piketty devotes this book to describing is simple: “When the rate of return on capital significantly exceeds the growth rate of the economy…, then it logically follows that inherited wealth grows faster than output and income.”
His historical account of wealth accumulation, the mass of statistical evidence he musters in support of it, and his analysis of present-day trends are all an excellent read. His weakness lies, not in his description, but in his prescription: his analysis of the root causes of the concentration of wealth and the remedies he proposes.
In every case Piketty ignores the extent to which the rate of return on land and capital is influenced by state intervention in the market. If there’s truth to his indictment, it’s an indictment against corporatism, not free markets.
For example, he argues that the tendency of rent to exceed growth has nothing to do with market imperfections. He largely ignores the dependence of rates of return on property on the legal structure; he writes that the growth of inequality in France after the Revolution paralleled that in England, despite the Civil Code’s having “abolished all legal privileges” and “guaranteed absolute equality before the laws of property as well as freedom of contract….” In so arguing, he misses Henry George Jr.’s fundamental distinction between “equality under the law” and “equal laws.” “Equality of rights and opportunities” is insufficient without regard to what rights and opportunities are equally held. We’ve all no doubt heard Anatole France’s observation that “the law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
Piketty is much concerned with the return to capital, but a major share of things that count as part of the capital stock on which “rent” is received would not even count as property in a genuine free-market regime. Human slaves were one such form of “property,” with an enormous capital valuation on the market, until 1865 in the United States. Today rents on property whose title originally traces to the enclosure of vacant and unimproved land, and rents on the “ownership” of ideas, fall under the same heading.
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