We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

A deadly review of the Piketty book everyone is supposedly talking about

“Saving is mostly just delayed consumption, as generations of economists have taught, and the only way for capital to grow exactly at the interest rate is for nobody to consume it. Every bit of consumption pushes down the growth rate of capital.”

Garrett Jones, who has written a gently devastating review of a much-heralded book, Capital in the 21st Century, by someone called Thomas Piketty. The reason it is worth drawing attention to it is that this is the sort of book that you just know is going to get bandied about in the usual quarters as a source of supposed wisdom, when in fact its central contention is based on sand. In some ways, the claim that the rich get so proportionately rich that they gobble up the rest of us, so to speak, is hardly a new assertion. Piketty has repackaged it and added in new supposed facts to make the case.

Over to Jones:

There’s an extra reason to think that capital isn’t going to permanently grow at a faster rate than the overall economy: Piketty says it won’t. He places great weight on the mainstream economic idea that in the long run the natural tendency of market economies is for capital and the economy to both grow at the same rate, whatever that rate turns out to be. That “twin growth rate” might be high if population and technology are advancing quickly, or it might be low if both are in the doldrums, but there’s no inherent tendency for capital to outpace the economy forever, even when Piketty’s “central contradiction” of high interest rates holds.

The reason is simple. If the first machine is more productive than the second (i.e., diminishing returns), and if machines wear out and fall apart at a fairly predictable rate—a depreciation rate, in accounting-speak—then it’s a safe bet that in the long run capital and the economy will grow at about the same rate. Double the machines mean double the machines wearing out, so at some point you have so many machines (and houses and outdated software and office buildings) wearing out each year that a nation spends an enormous economic effort just replacing them. And of course if interest rates are high, business owners look for alternatives to capital (such as workers); private demand for capital thus shrinks. So growing replacement costs and the quest for cheaper alternatives both make it hard to imagine capital growing as far as the eye can see.  I’ll spare you the math, but it’s getting harder all the time to see a central contradiction.

And then there is this paragraph, containing a nice little nugget:

But while Piketty’s contradiction is less an iron law and more a chalkboard speculation, there’s still plenty of room for class warfare in our future. A final way to see if capitalists are going to exercise unprecedented influence in the economy is to see whether their share of the economy is at unprecedented levels. Here, Piketty’s arduous historical research pays off. For the two countries for which he has data going back more than a century—Britain and France—the answer is clear: Capitalists are claiming a substantially smaller share of the economic pie today than they did in the mid-19th century. Back then capital income was a bit more than 40 percent of total national income. Now it’s a bit under 30 percent. So if capitalists—savers, landowners, entrepreneurs, and all the rest—are going to become a bigger deal in the future, they’ve got a long way to go before they’re at 19th-century levels. (Emphasis added to original.)

The author is fair in pointing out that there are useful insights in the book, although given that its central contention appears to be a crock, that is not a lot of praise.

26 comments to A deadly review of the Piketty book everyone is supposedly talking about

  • Paul Marks

    There is nothing wrong with REAL SAVERS benefitting from their savings being put to use in productive investment.

    Indeed the trouble with the modern world is that the gains do NOT go to real savers – to “capitalists” as this term was understood (both by its friends and its foes).

    Today lending is mostly from a credit bubble (backed by government Central Banks) NOT from real savings.

    The people who benefit are the corrupt players that Richard Cantillon denounced way back in the 1700s (and denounced with good knowledge – being one of them).

    Not real savers – but tricksters and con artists (the sort of people that Edmund Burke attacks in “Reflections on the Revolution in France” – people who were not ideological collectivists themselves, but still welcomed the looting and fiat money of the French Revolution, because they thought that if they were clever some of the stolen property would stick to their sticky fingers).

    Max Keiser (and the rest of Russia Today the spiritual home of the “libertarian” left) are liars – but they do not lie all the time about everything.

    And the point that the present financial system is dominated by tricksters and conmen (not real savers) is perfectly true.

    As for Capital.

    See Ludwig Von Mises “Human Action”.

    And Murray Rothbard “Man, Economy and State”.

    “Paul Marks recommending Rothbard?”

    Yes – as long as one reads him on economics and the history of economics (and on NOTHING ELSE) Rothbard is fine.

  • “Paul Marks recommending Rothbard?” Yes – as long as one reads him on economics and the history of economics (and on NOTHING ELSE) Rothbard is fine.

    Yes I agree, just avoid his drivel on anything else. It is a bit like Einstein… reading his view on economics is actually embarrassing. That such an astonishing person could, when he strayed outside of what he actually knew, make such an utter pillock of himself is eye widening. Of course that great sage Clint had something to say about that.

    Max Keiser (and the rest of Russia Today the spiritual home of the “libertarian” left) are liars

    And they may well be (I have to take your word for it as I have never actually watched nor read anything Max and RT have ever said or done, unless you quoted it), but they are liars you constantly advertise even though hardly anyone else actually listens to them or is even aware of their existence. It just seems so unfair you are not getting paid for all this PR work you do for them!

  • RRS

    To the list given by the librarian at the Paul Marks Institute, please add:

    NBER Working Paper 12795 (December 2006)*
    by: North, Wallis & Weigast

    (The link to that particular paper has been taken down now by NBER, but it can still be accessed by search)

    Therein, is an explanation of the concept of Open Access and it’s function in the development of Western Civilization. Plausible arguments can be made that the continuing constrictions of Open Access by Rules of Policy, legislation, ordinances, regulations, ministerial directives and all sorts of political interventions have been a, if not the, major factor in the concentrations of “wealth,” which are currently complained of as a disorder, without examination for the source of the “infection.”

    To add to (possibly modify?) the conclusions of the PMO, some attention should be given to the sequestration of surpluses (rather than their redeployment) and the motivation of managers in doing so as we have moved into the current phase of Managerial Capitalism; now accompanied by the well-established trend toward a “managed” Administrative State.

    * Carried forward into the same authors’ Violence and Social Orders (2013)

  • Regional

    The serfs in Medieval times traded with each other and the local mobster i.e. Prince, taxed them, the elite have always oppressed ordinary folk and especially now we have another, taxpayer funded elite in university professors, capitalism with it’s efficiency has allowed a lot more rent seekers to get their snouts in the trough.

  • Snorri Godhi

    “Paul Marks recommending Rothbard?”
    Yes – as long as one reads him on economics and the history of economics (and on NOTHING ELSE) Rothbard is fine.

    Agreed — as long as it’s understood that not everything Rothbard wrote in An Austrian Perspective on the History of Economic Thought, is history of economics.

    Consider this quote by Rothbard about Machiavelli (a much deeper political thinker than Rothbard):

    Machiavelli was the philosopher and apologist par excellence for the untrammeled, unchecked power of the absolute state.

    In fact, to those who have actually read Machiavelli, it is clear that, if he was an apologist for anything (which he hardly ever was), it was for a mixed constitution, cutting taxes+spending, cracking down on crime, and territorial expansion.

    However much you disagree with the last item (and you can hardly disagree much more than i do) it does not equate to an endorsement of unchecked power of the absolute state.
    And anyway, for Machiavelli, “endorsements” were never the point: he wrote advice for rulers, not opium for the masses.

  • Rob

    They hate consumption and they hate saving. Let the wise heads of our masters harvest the exact surplus each year and burn it in a giant bonfire of envy and loathing. Then we’ll all be happy.

  • Regional

    Machiavelli was an astute observer.

  • Mr Ed

    I bought a house today, and to pay for it I had to move a large amount of money about. Here in the UK we have a system called CHAPS – Clearing Houses Automated Payment System. it was rather unpredictable, moving some sums in minutes, others in hours, but I had a look at the website for the provider, which reveals the scale of the fiat money sloshing around in the UK.

    This one stands out

    The average daily value was £288 billion, an increase of 3.1% from February.

    So every working day, for every person in the UK, around £4,800 is moved around by this system.

    cui bono?

  • Regional

    Here I was thinking CHAPS are Ruperts.

  • Mr Ed


    They are, but also Henrys (Henries?), Olivers, Sebastians and if you search hard enough, Tarquins and even Marcusi.

  • Isn’t there a simpler explanation for the accumulation of capital in modern “capitalism”? Richard Cantillon explained that money-supply-inflation has localised effects, and it seems to me that we have head rather of lot of money-supply-inflation in the history of capital post it’s maturity.

    Basically, could it be, instead, that the rich are so disproportionately rich becuase banks – central and otherwise – have created vast sums of money and given it to people? I’m thinking of the politically connected – banks, government contractors etc – and also to honest business people that got loans they would not other have had and managed to keep that money through profitable business administration.

    I’m interested to what extent Samizdatistas think that effect explains inequality?

  • Paul Marks

    Quite correct Simon.

    But this is not what historically meant by “capitalists”, historically that meant real savers – not people clever enough to get their hands on the credit-money from the Central Bank.

    And what of a society where the Central Bank does not produce much credit money?

    Britain in 1914 had a Central Bank (the Bank of England) that had not followed a policy of monetary expansion for a century (not since the war against Napoleon).

    Was Britain in 1914 known for equality?

    Well Britain had the highest real wages in Europe but “equality” – certainly not.

    Recently I watched some members of the British “libertarian” left chat about Britain before 1914 whilst appearing at their spiritual home (“Russia Today”).

    Did they like Britain before 1914? No they hated it.


    Because it was radically unequal in income and wealth (which it was).

    What did they blame this on?

    “Land Monopoly” (i.e. the old David Ricardo silliness – but with an odd thing about Henry VIII thrown in) and the “rentier class” – i.e. people living off investments (using their real savings or the real savings of their parents – to invest in productive industry and live off the income).

    By the time they started listing their hero figures (the people they had just made a film with) I was not surprised to hear such names as “Noam Chomsky” and “George Stiglitz”.

  • Paul Marks

    By the way what of the United States and Canada in (say) 1912?

    No Central Bank (in either one) and no income tax.

    And no “Norman Conquest” (yes there are seriously people out there who attack private land ownership by going on about 1066 – I kid you not) or Henry VIII either.

    Were Canada or the United States know as egalitarian societies in 1912?

    No they were not.

    People who prize equality are radically anti liberty – and (if they really do prize equality) CORRECTLY SO.

    There has never been a land with anarchocapitalism (at least not that I can think of)- but we have seen countries with very small governments.

    Total taxation (not just Federal – but State and local also) was only 6% of output in the United States in 1900.

    And regulations and credit money was not extreme – not back then.

    Was America an egalitarian country?

    No it was not. The rich were rather different people than they are today (more conservative people – less Progressive rich who owe their wealth to the Federal Reserve and government contracts), but there were still some very rich people and some very poor people (such as the people who lived in “Hell’s Kitchen” in New York City – just a short walk from some of the richest people on the planet).

    So people who prize equality have to try a radically different form of policy.

    As libertarians we must be careful what we promise people – we should not promise falsely.

    And if we promise equality (or anything like equality) we are making a false promise.

    Like the Anti Corn League who implied that, if there was free trade, poverty would go away.

    Well free trade was established – and poverty did NOT go away.

    Poverty declined (gradually), but that is NOT what people thought they had been promised.

    So people in the East of London (and so on) turned to other “solutions”.

  • Sure sure, Paul
    But it would help to avoid over egging the pudding if we could put some sort of number on how much inequality is caused by inflation. Most of it? Half of it? A little bit?

  • Paul Marks

    You are asking a really hard question Simon – and I do not think I can put a number on it.

    Especially as I suspect the real difference is WHO gets rich (not how rich they get).

    In a system where the source of wealth is monetary expansion from the Central Banks – a certain skill set is useful.

    In a system where investment is financed by real savings – a rather different skill set is useful.

    It means different people get rich

    Alisa made a point about “display”.

    In a system where wealth comes from real saving (i.e. the sacrifice of consumption) wild display is unlikely to be very fashionable (and people who do it will tend to go down in the world – especially over the generations).

    However, in a system where real saving is not the road to wealth (indeed is totally pointless) display is likely to be far more fashionable.

    One ends up with a Latin American type society – where wealth is thrown about (because there is no point in saving it – inflation historically being far higher than the interest rates real savers are likely to get), and “the masses” think the rich became wealthy by trickery and deceit.

    Because they most likely did.

  • Paul Marks

    The old “American way” of thrift and hard work (for example the life of Jon Huntsman senior) does not work in a Latin American type society.

    Indeed such “reactionary” people seem like aliens.

    For example, Jon Huntsman once sold a an enterprise of his to another business, the buyers (at the last minute) displayed legal trickery to delay the formal completion of the sale (hoping events would drive down the price) – as it turned out events mad the business MORE (not less) valuable.

    Sheepishly the buyer approached Mr Huntsman – “how much more do you want for it….?”

    The reply was “nothing more – we shook hands on a price”.

    Such words would have seemed like those of a lunatic in (say) Brazil.

    And the way things are going they will soon seem like the words of a lunatic in the United States.

    There will still be rich people (very rich people), but there will not be large scale manufacturing companies built from nothing (such as Huntsman Chemical).

  • Paul Marks

    A lot to think about RRS – but I have got to cut the grass, it is like a jungle out there.

  • David Levey

    Another devastating critique of Piketty, from Stefan Homburg of Leibniz University, Hannover —


  • Snorri Godhi

    You don’t know of any anarcho-capitalist society, Paul?
    Well, the Sagas of Icelanders, and Jesse Byock’s excellent book on Viking Age Iceland, are good places to start.
    Even better might be (but i cannot vouch for it) James C Scott’s The Art of Not Being Governed, which i understand is about a _contemporary_ anarcho-capitalist society of 200M people (pretty stable compared to Somalia).

    But actually you only need to consider that, for most of human (pre)history, there were no states; and life expectancy was apparently higher than it was in state societies until a few centuries ago.
    It seems likely that people were defending some sort of private or family or clan property (or “possession”?), so it seems fair to call it anarcho-capitalism.

  • Snorri Godhi

    PS: my comment was not meant to be an endorsement of anarcho-capitalist/private-law societies, for 2 reasons:
    1st, almost all private-law societies have turned into states (the exception so far being the one discussed by James C Scott), and what’s the point of abolishing the State if it’s going to pop up again?
    2nd, economic growth is not something to be sneered at, and although almost all state societies had zero long-term economic growth, it is also the case that all societies that had nonzero long-term economic growth have been state societies.

  • Laird

    Snorri, “The Art of Not Being Governed” looks like an interesting book. Of course, my local public library doesn’t have it, so I’ve had to add it to my wish list. Maybe someday I’ll get to it.

    But with regard to your PS #1: What’s the point of eating if you’re just going to get hungry again?

  • Snorri Godhi

    Laird: when eating, it’s a good idea to choose food that won’t make you fat and leave you hungry. In the same way, when shrinking the state, it’s a good idea to do so in such a way that you don’t end up with an even bigger state within a few years, if not a few months.

  • Paul Marks

    Snorri – the Althing (the people assembled) sounds like a government to me (of the New Hampshire town meeting, or old style Swiss Canton type).

    For example declaring in 1000 that Iceland was now Christian – religion by majority vote. Although it did not get really bad till the 1080s (church taxation).

    However, certainly the choice of judges was good.

    True it had to be from a certain group of families.

    But a limited choice is better than no choice.

    With a small population choice was very important.

    “Judge ….. does not like me and I am on trail for my life, I demand we go to a different judge”.

    And if you did not like the verdict you could still appeal to the Althing (the people assembled).

    Although if you lost the appeal (and still rejected the punishment) you were “Outlaw”.

    Any person could kill you – with no legal consequence.

    Of course you know all this.

    And I AGREE that it was better than the alternative of the King of Norway sending in judges. Although the clash between the old families in Iceland may have made that inevitable (they did invite in the King of Norway after all – there was no conquest).

    After a period of Norwegian and then Danish rule, the Crown (and Church) ended up owning half the land, and with a monopoly on overseas trade.

    It was not till the 19th century that freedom of trade returned to Iceland.

  • Runcie Balspune

    Paul Marks et al demonstrate the question of the underlying assumption of anti-capitalist rhetoric – that inequality is intrinsically a bad thing.

    The left have yet to establish by methods other than correlation that this is the case, whereas it can already proven, historically, that state enforced equality is a disaster.

    Like another great leftist trope, telling us +2 degrees will be a catastrophe, the sound evidence of the base assumption is lacking.

    This is the real issue with Picketty’s work, just another feeble baseless diatribe to be used as an excuse for state micromanagement of us all.

  • Snorri Godhi

    Paul: one feature of the Icelandic system that you surprisingly left out, is the complete absence of executive power — or more precisely, the privatization of law enforcement. (That’s why criminals were made outlaws: because there were no police or prisons, or executioners.)
    Yes, you could choose judges (by agreement between the 2 parties) but once the judges rule that you are entitled to compensation, it’s your responsibility to collect. For that, you need manpower. That’s why it was important to have sons and friends (the burlier, the better); but often it was your godhi, possibly in association with other gothar, who took up the responsibility to collect.
    So, the gothar made the laws, were often chosen as judges, and usually took responsibility for enforcement: there still was a ruling class. But you could choose your godhi, and in case of a dispute you and the other party could jointly choose the judges.
    The real problem with church taxation was that you could not choose your church: you had to pay taxes to the closest church, which was run by the closest godhi. (Of course, it was the godhar who passed that law.)

  • Paul Marks

    Yes Snorri – good point, no executive.

    A bit like England before the establishment of police forces (they were not compulsory before 1856).

    The unpaid Justice of the Peace would call on members of the public to assist him.

    That is why it was a good idea that the local J.P. also be the local squire (who would have his farm hands and tenants to call upon for help). A bit like Tolkien’s Shire.

    The “Westminster Review” faction of liberals hated all this – the power of the landowners.

    But their alternative was the STATE (as in Continental Europe).

    Not a form of “liberalism” I have much sympathy with.