The Piketty Phenomenon*


Much has been written about Capital in the 21st Century, Thomas Piketty’s 2014 celebrated economics best-seller.  The quality and range of his data compilation and analysis have been widely praised and justly so, as far as one can tell without having to replicate his vast work. The clarity and eloquence of his presentation bought him appeal to a broad readership. A Financial Times detractor who quarreled with him about the rigor of his analysis left the one-round fight with a shiner. Pro forma protests against Piketty’s adherence to “neoclassical” economics and, hence, his failure to adopt the Sraffian and post-Keynesian doctrines of value, distribution, and growth were registered publicly, and then allowed to drop out of view without having dimmed the book’s scholarly prestige and popularity. Ways in which Piketty’s work intersects, or not, with Marx’s radical takedown of capitalism have been remarked (and parodied), but it is only natural that Science & Society allow one of its editors to add his proverbial two cents ‒‒ as much as possible in a short note.

Patently, Piketty’s theoretical disposition is not Marxist. He assumes capital as either a thing or a preterhistorical social institution, not a historically bounded social relation. He conflates wealth with capital, i.e., productive wealth held privately to exploit labor. Et cetera.  Well, what a surprise! He never promised us a rose garden. Yet, dwelling on these crucial, but in a sense formal, discrepancies is not as informative as minding the substantive theses of the book.

Piketty’s chief empirical claim is that, if current trends continue over the next decades, then the global distribution of income and wealth will grow more polarized, reaching levels not seen since the late 19th and early 20th centuries, a period of gaping social inequity that ushered in two world wars and social dislocation at such a scale that capital accumulation was halted, social polarization slowed down and, even in localized cases, got reversed. The stock of empirical material he brandishes to support his claim is gigantic. In Piketty’s view, the main driver of this powerful trend is the lack of an “automatic” rebalancing economic mechanism inherent in modern capitalist societies, which would keep the profit rate on capital, r, from systematically exceeding the annual growth rate of production, g. This is summed up in the relation r > g.

It is of note that conventional or “neoclassical” theories of economic growth tend to share with Ricardo (and Marx!) the anticipation of decreasing profitability in the long run. The specific mechanism envisioned is, of course, different in each case. To the neoclassicals, it follows from their axiom that, as the proportions at which productive inputs combine to produce new output vary, the productivity enabled by the fast-growing inputs declines. Furthermore, under competitive conditions, the profit rate fetched by individual capitalists on the value of a given productive input is proportional to the market value of the additional output produced with the aid of such input, for if it is higher, capitalists will acquire more of that input, thus driving its relative price up, and increasing costs until the excess profitability disappears. For example, if the number of employed workers in shoe production remains constant and another machine (privately owned as capital) is incorporated, the extra shoes produced per machine (and with it the average quantity of shoes per machine) decreases, and with it the profitability of such machines. The implication is, therefore, that as more capital is accumulated in capitalist hands each additional dollar of capital is bound to yield a decreasing profit rate. The only way out of this dead end is better technology (e.g., smarter ways to recombine the productive inputs and produce a given amount of shoes); however, at the cutting edge, technology expands at a dismally slow pace.

Piketty’s argument here, based largely on a hunch, stands in contrast with the conventional view: Nowadays, productive technology is such that machines and labor power are highly mutually replaceable. Consequently, the accumulation of machine ownership by the capitalists does not translate into a quick decrease of machine profitability, as the neoclassicals predict. This is why, in spite of larger piles of capital (measured in annual net product terms) r can stay above g for as far as the eye can see. With existing data, it is difficult for Piketty (or anyone else for that matter) to confirm or refute this conjecture, as measurement of technology and key productive parameters (the so-called “elasticity of input substitution”) is mired in all sorts of conceptual and practical difficulties. But it is important to have a sense of the crux of this controversy.

But let us return to Piketty’s memorable inequality: r > g. How does it work exactly? Start with r. Say a capitalist begins the year with a capital of $100 and earns an annual profit rate r of 10%. Then by year’s end he will pocket $10 in annual profits. Say also that he (most likely a “he”) saves half of his annual profits (technically, the out-of-profits saving rate is 50%); then he will start the next year with $100×[1+(0.1×0.5)] or $105 in capital. If the profit and savings rates stay the same over a second year, then two years from today he will have $105×[1+(0.1×0.5)] or $100×[1+(0.1×0.5)]^2, that is $110.25. Under these assumptions, a generation (25 years) from today, he will be holding a capital of $100×[1+(0.1×0.5)]^25, or about $339.  If instead of $100, this capitalist starts with $100 million, over a generation he will hold approximately $339 million. The sum will be bigger if the annual savings rate is greater than 50% and/or the annual profit rate rises above 10%.

Now, consider g. The market value of the net product is received by those who sell it. These receipts resolve into individual incomes, or collectively the national income. Therefore, its growth rate g tells us how fast the average income of individuals (capitalists or not) would grow annually with zero population growth (i.e., if annual births just replace annual deaths, with no migration). Thus, if national income grows at 2% annually, the income of the mythical “average” individual would grow at that same 2% annual rate. As a rule, labor income is spent on consumer goods during the same year it is earned. On an annual pro rata basis over a worker’s lifetime, the payments and receipts of retirement benefits do not fundamentally alter this fact. On the other hand, capitalists can afford to save a larger percentage of their annual incomes. That goes with being rich. Increases in profits (dividends, capital gains, interests, and rents) lead to even higher saving rates, i.e., to increased capital accumulation, by the direct personal acquisition of additional productive wealth or of financial assets entitling them to share the future income of corporations and other legal entities. In sum, the filthy rich tend to save the bulk of their income.

Now, individual capitalists do not go on forever accumulating capital. They die. But given their typically smaller families and low rates of inheritance taxation, their capital tends to stay concentrated in a few hands upon their deaths. Under these conditions, it is almost self evident that if r > g, gigantic blobs of capital will concentrate at the top of the social pyramid. Obviously, the less wealth, high incomes, and inheritances are taxed and the higher the capitalists’ savings rate, the more r > g will lead to increased social polarization. On top of this, the massive accumulation of capital by an ever smaller number of individuals or families leads almost directly to the accumulation of political power among the privileged.

Capital, a fungible social power, can rather easily buy political influence. As a result, politics, legislation, and justice administration wind up entrenching the power of Big Capital, to the exclusion of the rest of society. All that said, Piketty is sophisticated enough to hedge his empirical claim on the hypothesis of a persistence of current trends, something that should not be taken for granted.

Clearly, with serious fiscal mechanisms in place to keep wealth from concentrating in ever fewer hands or being passed on dynastically to the next generation of plutocrats (or with social catastrophes disrupting capital accumulation), the combination of higher profit rates with high saving rates and low population growth would not have to widen inequality. However, Piketty believes strongly that this fateful combination (without the fiscal checks in place) is a highly likely scenario. If so, the always preposterous yet persistent mythology of Western capitalist societies as “meritocratic” and “democratic” is bound to face a painful “reality check.”

Piketty, imbued with these “meritocratic” and “democratic” values, would like to implement controls on concentrated capital so reality can look a bit more like the ideological fantasy. Again, it is trivial to insist that Piketty is no Marxist. He doesn’t view himself as a Marxist, or even regards Marx’s influence on his work as significant. And who are we to second-guess him? Yet, Marx’s work is such a grand historic factor that Piketty has had to absorb it, somehow. All that aside, much more importantly than intellectual parentage is the fact that, regardless of the theoretical frame Piketty used to organize and analyze his empirical material and couch his story, his main conclusion is consistent with the Marxian view that, by and large, as long as the workers stay fragmented, confused, and unwilling to fight in concert, capitalism functions as an out-of-control juggernaut, reproducing at an expanded scale wealth and power at one pole of society, and misery and helplessness at the other.

Conversely, if workers resist and mount a political counterattack to reshape legislation, forcing the introduction of reforms and conquering political dominance to scrap and remake the legal constitution of society, they can deactivate the juggernaut, and place social life under their conscious collective control.

However feasible it may or may not be in particular contexts, the global implementation of hefty progressive tax rates on profits and capital, the most important policy measure Piketty advocates, is compatible with the aspirations and struggles of socialists most everywhere. It has been rightly noted that, as an abstract fiscal-policy proposal, Piketty’s does not go beyond a mere technocratic fantasy. But the point of making a proposal of this sort, from a reputable academic tribune, is not to be discounted simply as an attempt to persuade the unpersuadable. Mass political struggles are sparked by individual initiatives prompted by influences present in the collective consciousness. This is why we can only welcome the sharpened public perception of growing inequality as needless, wasteful, and unjust, as such perception will help spark and sustain workers’ struggles for a better social order.

* Note to be published in print in Science & Society‘s upcoming issue, Editorial Perspectives section.



  1. What I like about Piketty, even although I think he is wrong about lots of things, is that he does what Marxists don’t do. He looks carefully at economic history; Marxists just blather quotations and theory. He looks very comprehensively at data; Marxists only look at whether value added is up or down. He understands the economic arguments; Marxists base themselves on hearsay. He writes a book that really rakes up a lot of controversy; Marxists write irrelevant books that flop in the market.

    1. “Marxists just blather quotations and theory…Marxists base themselves on hearsay…” “Marxists” this, “marxists” that….Generalize much?

      My favorite: “Marxists write irrelevant books that flop in the market.” Because as we all know bestselling *non-marxist* economic tomes from university presses based on original research are just thick on the ground. You do realize what a market outlier Piketty’s book is, don’t you?

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