Capital and Ideology by Thomas Piketty (Harvard, 2020, 1,040 pages)
By Andreas Ramos
Introduction
On March 10th, 2020, Thomas Piketty, a professor of economics in Paris, published his latest book in English.
The book shows how the various forms of economics are created by ideology, which is how a society sees how a society should be structured. He shows how the French Revolution created deep, fundamental definitions of the role of the state and property. However, those roles are in conflict, which we still experience today.
Piketty’s One-Thousand Page Book
Okay, this is a daunting book. Not the 1,040 pages that weigh 3.2 pounds (1.5 kilograms). The challenge is the vast landscape that is covered in the book. Piketty’s book reminds me of the tradition of grand history: Febvre and Bloch’s grand annales work, Gibbon's six-volume History of the Decline and Fall of the Roman Empire, Joseph Needham’s seven-volume Science and Civilization in China, Arnold Toynbee’s 12-volume History of the World, and similar. To read Piketty, you should be somewhat familiar with a number of cultures, civilizations, history, and political movements.
Yet it’s a very readable book. I read his first book Capital in the Twenty-First Century in four days and this one in a week. The book is well-structured and Piketty writes clearly.
Get the Introduction for Free
The digital copy of the book's 47-page introduction is available for free at Amazon by downloading it to your Kindle or smart phone. The first ten pages give you an overview of his argument. The rest of the book illustrates this argument.
The Key Point in Piketty’s Work
Piketty writes that the most striking conclusion in his book is the realization that markets, competition, profits, wages, capital, debt, workers’ skills, natives/aliens, tax havens, and more do not exist as things. These are social constructs of particular social and economic systems. These are created, they evolve, and they disappear.
Ideologies have a theory of borders (who is in, who is out) and a theory of property (who owns what and the amount of control over the property). What counts as property will change as society changes: it can be land, natural resources (the timber on the land or the minerals under the land), building, companies, knowledge (patents, copyrights), financial assets (gold, silver, money, other assets), and of course, people. Until the mid-1800s, many Westerners owned other people. The abolition of slavery changed only the degree of ownership, instead of buying, owning, and selling slaves outright, the owners have a loose form of ownership: companies can set the rules of activity and behavior for employees.
Development and progress happen because people struggle for equality and education. Justifications for property, stability, or inequality do not create development or progress. (p. 3.2)
This is in stark contradiction to many American economists who insist that inequality is a fact of genetics, the gods, or nature. Elites insist inequality benefits the poor by giving them the motivation to work and any efforts to change inequality could destabilize society (such as free health care or free college education).
It is an amusing irony that capitalists and Marxists agree that economics creates the form of society. Neo-liberals agree meritocracy creates a society that rewards winners and relegates slackers to the bottom.
Marx studied Manchester industrialization to understand British capitalism and the working class and developed a mechanical theory of politics that could describe the conditions and predict the revolutions which move society to the next phase. That seemed plausible in the late 1800s industrialized world, but by 1910, the nature of capitalism changed and Marxist thought no longer applied.
“In contrast,” writes Piketty, “I insist that the realm of ideas, the political-ideological sphere, is truly autonomous.” (p. 7.10)
By that, he means the ideological is not bound by the laws of the empirical world. Economics is not like the weather, but instead, it is created and defined by people.
The remaining 993 pages show that in 4,000 years of history and many societies around the world, economics has appeared in many forms. Everything in a society can be structured in many different ways (p. 8.4). Inequality is not a fact of nature.
The Research in Piketty’s Book
To provide evidence for his point, Piketty shows the many forms of economics in human society from six thousand years ago Babylon to today and across the world, from the US to the Caribbean slave islands, Brazil, the UK, France, Germany, Sweden, Poland, Russia, Africa, Iran, Saudi Arabia, the 1,200 jati (castes) in India, China, and Japan, and more countries.
The book includes economics, religion, military history, sociology, elections, and literature. It covers phases of history, including slavery, colonialism, capitalism, and today’s hyper-capitalism.
The book looks into the causes and results of the French Revolution, the Russian Revolution, the Chinese Revolution, and the Iranian Revolution.
The book includes billionaires from Silicon Valley, China, France, Germany, and Sweden along with Russian kleptocrats, Saudi oil princes, drug cartels, African dictators, and many other countries.
Along with the French Revolution, Piketty also looks at how the USSR collapsed and turned into a kleptocratic Mafia state and how the Chinese Communist Party (CCP) evolved from a Marxist revolutionary party into a hyper-capitalist state.
This mountain of evidence creates a challenge for other economists. If they think their theory of economics is correct, then they will have to show how their theory can explain all of these forms.
My Discussion about the Book
Economists in the US and UK see economics as a science with mathematical formulas and tables that studies the economy as if it was weather data. For them, economics has mechanical forces so if this happens, that happens, that happens.
However, Piketty argues that won’t work because when humans see something happen, they change conditions so the next time the result will be different.
In the US, economics is a field of mathematics. In Central Europe however, economics is a field within ethics, an area of philosophy. Ethics considers how humans deal with one another. Economics as ethics considers the power relations between humans.
Anthropology and ethnography gave up trying to find the laws that generate human societies and instead, have settled down to described the myriad ways that societies can form and change.
I see capitalism as an expression of power. The root of the word “power” is the Latin “posse”, “to be able”. Power enables one to do things. And often, this is in contrast to the will of another.
For 200,000 years or more in human culture, power meant a few young strong men had brute muscle power to assert their will to control land, resources (the fruit in the trees, the animals), and women.
Somewhere around 12,000 years ago, human societies developed into what Piketty calls tripart societies, where strong men become the military, the intelligent men become priests, and everyone else are slaves or serfs. The farmers produce enough surplus that the strong men can seize that surplus and dedicate themselves to sports, training, and combat.
In some cultures, this social structure has three sectors, in others there were four sectors (the merchants). In general, it was stable since the gods had created the world so each sector saw their role as given by the gods.
- Warriors, later called the nobility, defended the land and protected the clerics and (sometimes) the serfs. The nobility proved the right to their position by leading armies into war to seize neighboring lands and gain yet more power. Of course, they conquered the land away from other strong men. (This is familiar to us today, which we know as street gangs, which rule neighborhoods, fight other gangs for neighborhoods.)
- Priests developed elaborate belief systems of gods in the skies, on land, and in the seas who guided and interfered in men’s lives. Priests led sacrifices and rituals to appease those gods to ensure success in wars and harvest. They studied patterns in the stars and the flight of birds and performed rituals and announced the gods were pleased with the nobility. Most important of all, the clerics foresaw the future and assured victory in war or warned of defeat. In exchange for validation of the right to rule, the nobility defended clerics. (Even today, the United States secures the blessings of its priests before it marches off to war).
- The serfs suffered the weather, the nobility, and the clerics and saw their obligation to give up their harvest for the benefit of their betters.
Each social group was created by the gods; each had its roles to perform and its obligations to the other two, so tri-part society was stable. The priests justified the warriors, warriors protected the priests, and serfs produced food, wine, horses, and women.
This crashed to an end in the French Revolution of 1789 where the third sector became strong enough to destroy the privileges of the other two. 25,000 aristocrats were executed and another 50,000 fled. Perhaps four thousand priests were executed and 30,000 priests left France. The French Catholic Church owned about 30% of the land in France. The revolution confiscated land, wealth, monasteries, churches, and cathedrals. The Church ceased to exist in France. Cathedrals were used for horse stables, warehouses, and markets.
For Piketty, crucial issue of the French Revolution was the role of the power. Previously, nobility held absolute right over their land and everything in it; they held court, decided judgement, and ordered punishment, including death.
The French Revolution split power into two spheres. People continued to own their land as property but they gave up their decision-making power to a new creation, the state. The state as expressed through its laws, its legislature and its courts now made decisions over laws and behavior.
This is the start of what Piketty calls the propertarian and regalian regimes. The landed wealthy had power in property (which included land, money, legal contractual rights to resources, and other things) and the state had regalian rights (royal rights) to make and enforce the laws for citizens and everything within the state.
To put it another way, the French Revolution split the nobility’s absolute power into secular power (property, money, wealth) which went to private ownership and civil power (the power of laws and courts), which went to the state.
Before the French Revolution, land had a sacred value: the nobles held the land as a reward from the sky gods for valor. To take a noble’s land was the same as rebelling against the gods. After the Revolution, land became a secular object, without religious justification, and anyone could buy it, own it, do what they wanted, and sell it. (Even today, some think a church’s land is sacred and can’t be used for non-religious purposes.)
The French Revolution happened because the level of inequality reached an explosive point when a few elites (nobles and church) owned practically everything worth owning.
However, the revolution did not solve that problem because it left a few people with some property, and, as Piketty pointed out in his first book Capital in the Twenty-First Century, those with a small wealth advantage over others will slowly end up with everything again. A hundred years after the French Revolution, the wealthy once again owned everything worth owning. Which led to additional disasters: World War One, the Great Depression, and the Second World War.
A Side Note about the American Revolution
I’ve been writing about the French Revolution, but what about the American Revolution? Does Piketty write about the French Revolution because he is French? Or can we also learn from the American Revolution?
A few years ago, we were on a hillside in California to watch the Fourth of July fireworks. As the rockets red glare exploded overhead, one of our friends in the group asked, “Yes, but why are there fireworks on the Fourth of July?” Another scoffed, “To celebrate the American Revolution!” She replied, “Oh, come on, there’s never been a revolution here!”
Many Americans may disagree, but she was right. In 1776, the US had a war of independence, not a revolution. The elite, who owned much of the land and most of the slaves, declared themselves independent from England and set themselves up as their own government. If it had been a revolution, the slaves and indentured servants (a type of slavery for a fixed term, such as ten years) would have been freed and they would have seized power from the elites. But no, the slaves stayed in chains for nearly another one hundred years.
Today’s World of Hyper-Capitalism
After the revolutions in France, Russia, and China and the collapse of the USSR and the conversion of the CCP into a corporate capitalist state (with an army and nuclear weapons), the world economy turned into hyper-capitalism.
If the state wanted to enforce civil power within its territory, the elites discovered they could use computers and Internet technology to work on a global level where there were no regulations. They use armies of tax attorneys and “wealth management services” (yes, we know what that really means) to hide their money in secret banks in Luxembourg, the Bahamas, London, and the US and dozens of shell companies to move and hide money. The scale of hyper-capitalism is staggering: 1% own 41% of the world. As Piketty’s first book showed, the more money they have, the yet more they get until billions turn into trillions, all without taxes to the countries within which they operate. Apple, Amazon, Google, and similar pay 1% in taxes, and they pay that only because it would be too embarrassing if they paid zero.
Starting with Reagan in the US and Thatcher in the UK, neo-liberal conservatives pushed the idea of cutting regulation and taxes to get richer. They justified this with the Laffer Curve and “a rising tide lifts all boats”; if the rich got richer, everyone else would also benefit.
Reality however is different. Economic data shows the rich didn’t create new wealth; they took wealth from the bottom 40%.
The Results of the French Revolution
Faced with the problem of the power of the nobility and clerics over the people, the leaders of the French Revolution thought they could solve that problem by splitting power into private property and civil power but they didn’t foresee this would create new oppositions, such as the highlycredentialed versus low-educated, nativists vs internationalist (globalists), corporate versus merchants, wealth versus distributionists, small-town versus metropolitan, and so on. Let’s look at some of these.
Meritocracy’s Two Classes
Neo-liberals added another argument. Society is a meritocracy. They earned their privileges because they produce more.
This means the lower classes don’t work as hard so they get less and they have no one to blame but themselves. They choose to be in the lower classes.
Meritocracy is neo-liberalism’s justification for inequality. And since US and UK economists see economics as force of nature, they take no responsibility for poverty nor offer solutions. What can they offer? The poor choose to be poor.
The Global Credentialed Elites
So who are the meritocracy?
They are the Silicon Valley billionaires of Google, Facebook, Apple, Twitter, their lawyers, along with computer engineers and researchers in biotech, computer science, AI, IoT, block chain, bit coin, cloud computing, and other new technologies.
They graduated from the elite schools of Stanford, Harvard, MIT, Sorbonne, Cambridge, Oxford, Heidelberg, University of Beijing, the University of Tokyo, and the world's top 200 universities.
They live in the enclaves of Palo Alto, Manhattan, Paris, London, Shanghai, Tokyo, and others where the cost of living and the price of houses is so high that non-elites can’t live there.
This is why the educated elites have little conflict with corporate capitalists: they come from the same group of highly-educated elites. The highly-educated in arts and literature studied at Stanford, Harvard, MIT, and so on along with others who founded Google, Facebook, and Amazon. This means the Democratic Party, as the party of the educated elites, welcomes Silicon Valley billionaire venture capitalists (VCs), investors, and CEOs. Both groups are the same social class and they want high-paying jobs that allow them to invest their income in the stock market and low taxes.
The Non-Credentialed
What about those without the elite credentials? The “other” 80%?
With their low education from low schools, they can only get low-pay low-skill jobs so they can only afford to live in backwater cities and towns. They have no savings and live on the edge of poverty. They borrowed so much on credit cards that they’ll never pay off the debt. Most live paycheck to paycheck. Most have only $400 in savings. Their children will never be able to go to better schools.
As Carlos Fuentes wrote, there are “los de siempre y los de nunca”. Those who have always been and those who have never been.
Meritocracy leads to odd results. If wealth is a proof of merit, then whomever has wealth is respected, including drug lords, Russian mafia, and oil princes who stole or murdered to get their wealth. Billionaires are universally admired, they are the heroes of countless books and movies, and many want to be like them.
Credentialed versus Non-Credentialed
Meritocracy is based on merit and everyone starts with an equal chance,
Someone’s chance of entering Stanford, Harvard, or any of the top 200 universities is based on his choice to be born to a wealthy family with the resources in tutors and tuition to send him to one of those schools. Plenty of research shows the elite are the children of elites.
If someone chose to be born in a poor neighborhood to a poor family with low education, and, worse yet, made the decision to be born female and not white, it becomes extremely unlikely she will rise to the world of the credentialed elites.
See? It’s a meritocracy. Everyone can make choices.
In reality, meritocracy is a smoke screen to hide that the ultra-wealthy are using their lawyers and lobbyists to cut their taxes and delete regulation so they can be richer yet.
This dual-class system is not sustainable. As society becomes more technological and complex, the non-credentialed gain more power because they actually build and maintain society, production, and distribution.
By the way, Piketty points out that racism is a result of the loss of power. In the US, the non-credentialed show their anxiety in the form of racism against Blacks (and recently, against Mexicans, Chinese, and Muslims). Europeans are against Muslims and immigrants from Africa and Eastern Europe. The fear is loss of status, income, and jobs. Nativism is the idea that certain people are the entitled natives of a country and other people are outsiders. Now that the US white population is no longer the majority, racism evolved into the natives who feel that it’s their country versus outsiders, namely, whites against all others. This isn’t 1800s racism. This is nativism, based on national identity.
The non-credentialed see the system works for the credentialed. They feel they have been marginalized. Their anger has led to election of populists in the US, UK, France, Germany, Brazil, India, and others.
Internationalists versus Nativists
The internationalists work with people around the world so they’re accustomed to diversity and don’t prioritize their local origin. This leads to resentment from nativists. Trump encourages this conflict by promoting not just America First, but America Only.
As the West moves away from a globalist position, we will see various regions become powerful, such as France/Germany, Shanghai/Shenzhen, the US West Coast, and so on.
As nationalism grows, we will see less interest in interventionism. Troops and bases will withdraw from other countries.
The Metropolis versus the Town
Another opposition is the metropolis and the small town. The mega-cities (New York City, Los Angeles, the San Francisco Bay Area, London, Paris, Shanghai, Hong Kong, and so on) are for the internationalist credentialed elites who can afford the high cost of living, where they enjoy the leading universities, art museums, and so on. The low-income low-education people live in small towns, where they resent the privileges of the elites. Without elite education and salaries, they are locked out of success.
Private Property versus Redistribution
Yet another opposition is between those who insist on their ownership and control of their property versus redistribution, which means taxation which redistributed wealth to others. This can be universal basic income (UBI), universal health care, and other forms. This also includes 100% inheritance tax and zero wealth to family and children.
Political Parties Adapt to this New World
Political parties in the US, Europe, India, Brazil, and other countries are being rebuilt along these splits. Nativism leads to Brexit (rejection of “Europeans” in England), the separatist movement in Catalonia, the broad movements against Muslims and Africans in France, Germany, Poland, and Scandinavia, and the general distrust of the European Union. The states-rights movement in the US could grow and the US could devolve into regions more different then they are today. As I pointed out, the US Constitution ensures the states have power instead of a strong central (federal) state. This anti-US movement will be led by the new Republican Party. We see today how Trump attacks governors of California, New York, Illinois, and others.
The new political groups mean that we will not return to the old fascism of the 1930s. We will have a new fascism of the 2020s. Western fascism of the 1930s was colonialist: it wanted to invade other countries to seize resources. Today, the reactionary groups are isolationist and not economic elites.
Any new fascism will be nativist which will expel outsiders in programs of ethnic cleansing to restore national dignity. Yugoslavia started that in the 1990s. Bosnia, Sri Lanka, Indonesia, Burma, India, Georgia, and others purge their countries of whom they see as outsiders.
Piketty’s Proposed Solutions
Piketty writes that hyper-capitalism given the ultra-wealthy unlimited power over property by escaping from national regulation. This creates extreme inequality where 1% of the population owns 41% of the world. Regalian civil power must counter propertarian private power. He proposes several solutions:
- 100% inheritance tax. When someone dies, the children inherit nothing. This obligates them to work and it also recycles the wealth. It must be 100%, otherwise the children will have an economic advantage which, over time, will return society to a world where 1% own 99%, which happened in France 100 years after the revolution.
- Progressive taxation on wealth up to 80%.
- Free universal health care. The cost of health care for severe illness is too large for a family.
- Free universal education. Many competent people are shut out of top universities because they lack the resources. However, there must be ways to ensure the credentialed elites’ privileges aren’t overwhelmingly greater than those without credentials.
Conservative billionaires and their clerics, the Chicago School of libertarian free-market neo-liberal economists, scoff and say these are impossible. From their point of view, these ideas are indeed impossible because they see economics as a form of weather: it can’t be changed by people, plus they also benefit from the current system so they don’t want change.
In reply, Piketty’s research shows all forms of society can be possible because in the past, so many forms have existed.
Conservatives also rebel against the idea of a transnational government as impractical fantasy. But we indeed already have such a thing. The WTO, TPP, NAFTA, OECD, World Bank, IMF, CAFTA, ASEAN, the EU, MERCOSUR, RCEP, ECOWAS, and many other global and regional trade agreements form trans-national global laws and regulations. The elites employ lawyers, bankers, and lobbyists to change laws and move money to secret off-shore tax havens. But as society continues to develop and inequality grows, there will be pressure to start tracking that hidden wealth and at some point, to tax it. As Piketty pointed out, the result of the French Revolution is a system where civil power limits and taxes private property and civil power will continue to increase because it is the social system versus individuals.
The billionaires will pay taxes if they want to enjoy their $75 million private jets and $500 million yachts in the West, because if they don’t pay, they’ll have to live in Russia where sanctions don’t allow the kleptocrats to enjoy London, Paris, the Bahamas, and Manhattan.
This also means Russian kleptocrats and the Chinese Communist Party’s billionaires (yes, that sounds so paradoxical) will gradually settle down into legal businesses which are run by professional managers from top business schools. Russia and China will evolve into Western civil societies.
Thomas Friedman and others argue that Piketty sees economics only as an issue of inequality. No, inequality is a result of economics. The French Revolution split rights into property rights which are managed by the owner and civil rights which are managed by the state. This set up a conflict: the property owner wants absolute right to do with his property as he likes, while the civil power can both limit the rights of property and impose taxation to pay for the state. Friedman sees there is inequality but doesn't understand how that conflict arose.
The Future
The political landscape of the 1800s and 1900s is obsolete. Yet many Republicans still fear socialism and unions. That isn’t coming back because there aren’t factories with hundreds of thousands of workers anymore. They can also worry about the return of marauding hordes on horseback.
The opposition of boss-versus-workers or Left-versus-Right doesn't exist anymore. Yet many people still think in these categories, just as Herbert Hoover and US Republicans continued to think in ideas from the 1800s.
In many ways, companies and politics are led by people who drive forward at high speed by looking in the rearview mirror. The further the past recedes, the faster they drive. This is all fine until they arrive in a new place where nothing makes sense.
I outlined above a few of the new oppositions: credentialed versus non-credentialed, internationalist versus nativist, metropolis versus small town, and so on which create new coalitions. New political movements will arise to represent these.
The French Revolution isn’t over. The separation of absolute power into secular property versus civil secular power created the conflict between private wealth versus society. We will continue to live in that tension for quite some time.
Instead of changing the colors of the pieces, what could change to a different game? Within the next few decades, the world must change.
- The Corona/COV19 virus is an economic disaster because libertarian / free market / neo-liberalism created a weak state that can’t respond. The market, in any form, is not able to solve the epidemic because business do not make money on non-customers, but the virus doesn’t care who is a customer or not. The only solution is strong centrally-organized state action that can organize resources and supply the money. The US has already released two trillion dollars and the EU released an additional four trillion dollars. No business can do this.
- Within a few decades, the world gets global warming under control or the planet will kill us. Again, no version of free-market theory can solve this problem because business is fundamentally self-centered. Only globally-coordinated government action can be effective. We must build a worldwide solution to limit emissions and raise the taxes to pay for it.
Conclusions
I’ve given you a very brief summary of a very complex 1,000-page book along with a few of my comments. You should read the book for yourself and draw your own conclusions.
The next few decades will be very different from the last 230 years. We should get a better understanding of the world so we can make better decisions.
-- andreas
Additional Reviews of the Book
- Marshall Steinbaum in Boston Review
- Daniel Steinmetz-Jenkins in The Nation
- Paul Krugman in The New York Times
- Keith Johnson in Foreign Policy
A Few Typographic Errors in the Book
- p. 583 ... pay an annual indemnity (to) their former owners...
- p. 832 ... or eternally racist that the middle class... (should be "than")