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Piketty is No Piketty


When Jascha Haifetz, much, much  heralded and long, long awaited, finally came to New York, two professional violinists sprang for tickets to Carnegie Hall. As the concert ended to thundering, rapturous applause one turned to his friend, asking breathlessly,  “What do you think?”. “Well, came the response, “he’s very good but he’s no Haifetz!”

That sums up Capital in the 21st Century. Plus and minus! Paul Krugman’s review in The New York Review of Books (May 8) was a kind of “thundering, rapturous applause”; Robert Solow’s in The New Republic (April 22) was only a bit more restrained and even Lawrence Summers, writing in Democracy: A Journal of Ideas (# 33) was deeply– if not entirely – impressed.[1] Piketty compiles a veritable treasure of historical data on the changes in the distribution of wealth in a number of key countries, particularly France, the UK and the US stretching in some cases back to the early 19th Century.  That material will prove a challenge and inspiration to historians and economists for many, many years.

There’s also exasperation!  If Piketty’s data stretches magnificence, his analysis is – to speak plainly — incoherent! Worse, the data and the analysis are often in different worlds which are blind each to the other.


To achieve full comparability of wealth across such different times and economies, Piketty breaks it down by percentiles, typically for the upper one-thousandth of 1%, or for the upper one hundredth of 1%, the upper 1%, and so forth.

He is scrupulous about his data so that, on those percentile breakdowns, we get excellent comparability of wealth shares from the French Revolution (oft-times) to the digital one. Accordingly,, the actors in his narrative are those  economic numericals, the upper .001% of the income distribution, Net Wages, Net Property Income, National and Domestic Gross Products, Savings both in sum and as compared with rates of growth, or with respect to population growth,  and so forth and so on. This serves to make his work quite legitimate to professional economists who, all things holding equal,  lie content within their abstract paradise.

Thus, for Piketty too, people and institutions play an almost non-existent role. Only five social ‘phenomena’ escape this erasure; two world wars, the great depression, today’s fabulously rewarded “supermanagers”, and a middle class newly able to pass mini-riches to its heirs. For the rest, there are no people and, most notably, no institutions. There are percentiles but not classes; great wealth per se but not per its ‘malefactors’; and no transnationals or industry associations. Piketty occasionally mentions the influence of people and institutions when he wants to one-up his colleagues but it’s window-dressing. In his core narrative they play virtually no role; even the cited five make mostly cameo appearances. His is an orthodox closed economic-historical dynamic  in which the relationships between economic aggregates  are guided by other economic aggregates, and they by the former. Thus is Piketty empowered simply to ignore people and their quarrels.

Do I overstate? Remarkably little! For example, rejecting the idea that the US political process “…has been captured by the 1%…., he explains, “For reasons of natural optimism as well as professional predilection, I am inclined to grant more influence to ideas and intellectual debate.” (p.513)


Theoretically sequestered or no, the logic of his analysis is deeply faulty. Piketty’s conception (and definition) of capital represents a case in point. He identifies it fully with wealth: capital = wealth. This step is urged upon him by that percentile-centrism which provides him with full comparability across time. He explains this lumping by arguing (p. 47) that in an exchange economy wealth can readily be turned into capital. If our capitalist needs the dough, he (or she) can sell that expensive estate or apartment or sculpture and invest the proceeds: capital = wealth.

But wait! That estate remains an estate, the sculpture a sculpture. Neither they nor the apartment turn into a machine tool. Of course, they might appreciate in time. That fits capital = wealth. But that appreciation in value adds nothing to the aggregate productive stock of the economy. Thus at the center of his capital = wealth is a boo-boo that freshman students used to be warned about in the old-fashioned Logic textbooks, the Fallacy of Composition — that what is true of every ‘piece’ of wealth is true of wealth as a whole. No, of course not. There are machine tools and there are art collections; their values can be exchanged but looking at the economy as a whole…. east is east and….

But there is worse to come. On that same page 47  we also learn that human capital is excluded from his category, capital. He explains in his paragraph 3 with another dicey argument that goes, Because slavery is outlawed, human capital can’t be owned by anyone save its immediate owner, can’t therefore be bought and sold. Ergo, it can’t be included in capital.

Whoa!! Economists speak of labor services (mainstream) or the exercise of labor power (Marxist), both of  which the employer purchases and then uses as his property within the employment relationship, i.e., his capital. [2]


Piketty has  transubstantiated wealth into capital. His wage income is equally iffy. It comprises all payments for labor — of every kind — including those forms which notoriously avoid being laborious. We conventionally distinguish between the wages paid to hourly or piece-rate workers and the weekly or monthly salaries paid to, say, middle and lower-management, or by fixed-term contract to some professionals. And there is that whatever that comes in very large amounts that rewards the something-or-other that the highest executives and insiders receive for what they imagine they do. These three usually differ in money amount and in the surety that you’ll still get it next week. Salaries tend to rise with years of service; wages less so. Wage payments may suddenly cease; less often salaries. And many of the whatever’s, especially as we go up the income ladder, carry with them entitlements to bonuses, stock-options, grand penthouses, private jets, island paradises and other labor saving devices. As Piketty recognizes, up in the income stratosphere, property income and wage income are hard to separate.

Changes over time in who gets what and why are central to Piketty’s study. Yet, he’s compressed important institutionalized differences in income by his need  for unlimited comparability. But – and here’s the rub – the very differences between kinds and amounts of incomes that are jumbled to pay Peter, so to speak, have to be disassembled to pay Paul, that is, to assess the central problematic of the book, the growing concentration of “wage” and other incomes at the very top.  A complicated subject but the following gives the gist of it:

In the present era the rewards to capital = wealth  are exploding, while those to wage income – particularly wages and salary incomes — have been collapsing. Ignoring a few peripheral complications, what property income gets, wage income doesn’t and vice versa. A zero-sum game. If we add in growth, the game can even change for the worse, precisely when the growth of property income takes a larger share of all income over time at the expense of the wage-salary income. In fact it is this  disproportionate income growth that is at the very heart of Piketty’s book.

Yet, he also writes,

“… historical experience suggests that the principle mechanism for the convergence of [income at the international, domestic and social class levels] is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill and education… Above all, this knowledge diffusion depends on a country’s ability …. to encourage large-scale investment  in education and training….”

 i.e., in human capital. [3] In short, for Piketty a species of capital which isn’t capital turns out to be the most important kind of capital. That formula,

capital (but not human capital) = wealth

 is fundamentally incoherent, especially  if one is, as he is, focused on the divergence of income shares over time. And capital = (only) wealth is absurd if the distribution of economic reward tracks investments in human capital!


If you mention Henry George (1839-1897) these days, someone may chirp, “Single Tax”, and that’s it!; his Progress and Poverty (1879) is now largely forgotten. But about a year ago I chanced upon an  eloquent quotation about it.  “From the banks of the Ganges..” it began and then went ‘round the globe, citing men and women who, as they labored in deepest poverty and ignorance, read and struggled to understand his message that a full, prosperous, dignified life, then denied, was already attainable for every man, woman and child in that 135-year ago present.

I “got it” when I finally read  Progress and Poverty last fall. What is most memorable is George’s beautiful and thrilling – no other words fit – passion for human equality. Already at that early date his vision rose beyond continent, nation, race and gender.

Apparently because of that, countless Henry George clubs sprang up – ‘From the banks of the Ganges’ to wherever else laboring people wrestled with their fate.[4] Thus clewed, I began to recall that a few of the old-timer socialists, communists and IWW’s  I had known way back had mentioned being first tutored in progressive ways in one of those clubs, or perhaps just by talking to an even older old-timer who had “learned his (in two instances, her) Henry George”.

There is some curious affinity between George and Piketty. Both share that economist’s preference for the ‘gated’ economic universe mentioned earlier and which therefore shouldn’t be (George) or can’t really be (Piketty) altered by political action from the outside. Accordingly, both introduce what economists call an “externality” to fix things; in George a single tax on land, in Piketty a single tax on wealth.  Different, but there is that affinity. First Henry George.

George like Marx (1818-1883) was a disciple of David Ricardo (1772-1823) and adopted his theory of (land) rent,[5] as follows:

Consider two pieces of land but of very different purely natural economic advantages. The renter of the better land (B) obtains nature-given opportunities to earn more money with less effort than the poorer (P), because of its fertility, or minerals, or because of its location near a railroad, whatever. George, with Ricardo and Marx, argues that the land’s owner, seeing those extra returns just falling by grace of nature to renter B will raise the rent, cutting B’s income back until it equals P’s. ‘Why, after all, should the extra NATURAL  fruitfulness of MY land, not fall to me, OWNER?’ Market forces will dictate P’s return so that the land-owner can raise B’s rent until the gratis returns are wiped out, bringing B’s profits down to the level of P’s.

George then argues that human productivity grows over time so that, among other things, 1) more and more land, much of it poorer than that usable before, is drawn into use and thus also 2)  the gap in nature-given fruitfulness between the best-endowed land and the poorest will become wider. The accelerating gains from both that increased land use and the wider gap will accordingly accelerate the share of income going to land-owners. Progress in productivity brings expanding riches to land-owners  while the traditional Poverty of ordinary folk will remain unchanged.

Because all of this followed from those eternal laws of rent and the market, socialism and such had to be pipe-dreams.[6] Instead George proposed a single tax on land to take away those rental gains that the owners gobbled up thanks to the growing productivity of humankind itself.


With land-rent r and the growth in productivity p, George’s argument is that r must grow at a rate faster than p, r > p, so that the ratio r/p will increase over time. The single tax is calculated to undo that effect.[7]

Piketty? His broadest finding is that rates of economic growth have tended to hover at about 1.5% per annum over longer historical periods of time, while historical rates of return on capital range from 3 to 6%, hovering around 4-5%. On that basis, savings, which are predominately those of the wealthier, will grow faster than the economy. Calculating on that basis, Piketty’s thesis is that there is a very real threat that the distribution of global income in the next decades will return to the shameful pattern that held during and before the 19th Century.


With s as the rate of savings, and g expressing the rate of economic growths > g, so that the ratio s/g will continuously expand. One can see the parallel here with George, i.e., there is an over-powering economic process that over historical time increases property income at the expense of the rest of society. One must intervene from outside this process, not to correct it but to correct for it. In Piketty’s case it is a single tax too, but here an annual tax on wealth itself.[8]


Perhaps. Lets reexamine that key ratio, s/g, savings over growth or, from p. 167, B = s/g. In an earlier account (p. 50), he also had set B equal to the ratio of the capital stock, say c,  to the annual income flow, say i,  or s/g  = B = c/i. If that c/i is a suspect expression, so too is the s/g that Piketty’s argument rests upon.

We earlier differentiated wages, say wa, from salaries, sa, from the extravagant whatevers that also include property income, let’s designate them wh+++. On that basis i = wa + sa + wh+++, which would give us c/(wa + sa + wh+++) = s/g. Suppose that wa and sa are falling, as they are, and that wh+++ is rising, as Piketty emphasizes. Depending on their relative rates and weights, i will rise, thus depressing B, hence also, s/g, or will fall, hence increasing s/g. In any case, falling wa and rising wh+++ could be considered a marker of the relative political and economic power of wage workers and corporate executives, and the changes in B a function of that. That might even be confirmed by Piketty’s historical series data because our present world so much resembles that of , say, the 1870’s before the rise of the Social Democracy, the trade union movement and the social compromises embodied in the Economics ideologies of, say, Eduard Bernstein and Alfred Marshall. Now, post-1970’s, trade unions are anemic, socialism moribund and the dominant Economics ideology has gone Schumpeterian wherein the uniquely creative entrepreneur must be freed from the obsolescent overheads imposed by workers in well-paying, socially protected jobs. [9]

Piketty’s capital, c, is also suspect. I have argued elsewhere that

the annual increase in private-sector capital investment in the US is less than government expenditures in aid of it.  [10]

noting that,

those governmental moneys, if provided by private sources, would be deemed investments. The public sector, not the private, is our chief capital investor.

That oft-cited divide between government subsidy vs. private investment is merely “ideo-terminological”. In strict economic terms, government is our chief capitalist.

If so, that c in c/i is an incomplete expression of the country’s capital stock in any given year. Piketty’s capital should read, = c + l, adding in that year’s public sector largesse to private capital, where, l > c.  One would be hard put to list all the amounts and forms of this largesse but infrastructure investments, tax breaks, direct subsidies, and so called corporate welfare appear the major categories. Breaking with Piketty and orthodoxy, we should also include the annual outlays to produce human capital,  of which the minimum wage is a part.[11]


At one point in Capital in the 21st Century, Piketty speaks of his single tax on wealth as a kind of utopian ideal (p. 515). But later in the same Chapter (15) he actually envisions the imposition of an annual tax on wealth. Much of that Chapter comprises 1) a first rate discussion of the sort of inclusive and reliable information needed to make that tax effective to its purpose and 2) what rates should actually be imposed.

There are two quite specific discussions of the desired annual rates (at pp. 517 and 529) where they range from a lowest  .1 % up to 2% and, perhaps (on p.529 ) for billionaires “well above 2%”. As the discussion makes clear these rates are pegged to that rising  s > g. Presumably they would more or less nullify the rising.

It is in this latter discussion that another defect of his wealth = capital emerges. It makes better sense to recast that formula into capital = total wealth – wealth expended, that is,  separating wealth into two “piles”, one for investing and one for luxurious living.  But then that category of wealth expended acts to the same effect as Piketty’s tax. Granted that those with greater wealth are typically thought to save more than those with less; but the wealthy do have expensive tastes.

I don’t know how those numbers would work out, probably would leave some advantage to Piketty’s argument, even after the yachts and the pro bono publico election-financing by the Koch brothers. In any case,  Piketty’ s identity capital = wealth here muddles analysis.


Nevertheless …. Piketty has rendered three invaluable services. There is that magnificent data base. He has forced the needed discussion about the compatibility of hyper-hyper wealth with the sort of world most of us want to live in. He brings a rich new approach to assessing that problem.

A century-and-a-third ago I would have been proud to march under the banner of Henry George though, as with my old-timer friends, ever on the look-out for ideas more apt to a popular democratic movement for “deep reform”. So would I proudly march under a Piketty banner today.

JOHN MCDERMOTT, Professor Emeritus of Social Science at the College of Old Westbury, is the author of a number of books including Corporate SocietyThe Crisis in the Working Class and Arguments for a New Labor Movement and most recently Restoring Democracy to America.

[1] The book has even has displaced the usual fare on the top of The New York Times and  Amazon’s  (and The Boston Globe’s) Best-Seller lists.

[2] Marxists shout this: Wage Slavery!!! The mainstream, normally mums-the-word, shouts even louder when workers are ‘undisciplined. ‘’The employer has bought the workers’ time; it’s his right to manage his property as he chooses’!

[3] Piketty: p. 71. He returns to this point again and again, as for example, at his Chapter 9 (see especially pp. 305, 419, 484 ff.

[4] Plus a number of political parties in several countries  and continents, Georgist communities (there was one in China), journals (Wikipedia identifies one as still publishing), and the prestigious Lincoln Institute of Land Policy still operating in Cambridge, MA.

[5] One can find echoes of Ricardo’s concept of rent among virtually all economists even today.

[6] George writes against both socialism and trade unionism.

[7] I apologize to Henry George for this squeezed account. Progress and Poverty is still worth reading today. Not an easy read, it makes one respect even more those people who, of only limited literacy, struggled through it and brought his liberating message to others.

[8] As above, apologies to Piketty for so radically squeezing a far richer account.

[9] Commenting on his Figure 1.2 on p. 26, Piketty treats the capital of c/i as if the independent variable, the income i as dependent. If one reverses the figure, the great fall of i in the ratio from 1910 through 1950 would show instead as the great rise of i = income  with respect to c, a stupendous gain in income, perhaps even influenced by wa.

[10] See my 2004  Economics in Real Time: A Theoretical Reconstruction (University of Michigan Press): p. 177, n. 16.

[11] The following is a back-of-the envelope calculation but robust enough for the moment.


There are  (2013) 3.653 million fast-food workers in the US, nearly all at the minimum wage.  If we assume (accurately) that about 2/3rds of them are family-providers, not teen-agers seeking pocket-change, and that the government’s wage minimum for a representative family is (2013) $23,550 per year, those 2.435 million family-providers require an aggregate wage of about $57 billion to be able to survive. Annualizing the present minimum wage would provide about 60% of that, about $34 billion, However, only half those providers are allowed to work full-time (a generous estimate); that’s $17 billion. Assuming (also generously) that the others work as much on average as half-time $ 8.5 billion more is added for a total of $25.5 billion.


That $8.5 + $17 = $25.5  billion is still ($57- $25.5 =) $31.5 billion short of the rough cost of paying the living of this fast-foods labor force.  Unlike Ireland in the Famine or Calcutta under the Raj, we don’t let people starve in the street, picking  up their corpses each morning with the trash.  Without our $30-odd billion assistance, the worker-providers in the fast food industry would be starving (!) and homeless (many actually are), trying to live on roughly  ($25.5/ $57=) 45% of an already minimal living income. The reverse income tax, ADC, housing allowances, food stamps and other aids we provide for the people at the bottom provide the remaining 55%.

Three points.

1) Every burger-on-a-bun is subsidized.

2) With the minimum wage so low and labor rights so few, we make the subsidy permanent.

3) “Raising the minimum wage will reduce the number of jobs.”; that’s debate-able. But even if  it did, that could shift part of that $30-odd billion permanent subsidy into a revolving investment fund to create better jobs (with futures) and to pay (while training) the workers to staff them.

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