Thursday, May 29, 2014

John Aziz — The real problem with Thomas Piketty's grand theory of inequality

Whether you use Piketty's data on wealth inequality or Giles' "corrected" data, it is clear that in the last two centuries, wealth inequality in Europe has fallen significantly, and today is either flat (according to Giles) or slightly rising again (according to Piketty). In the U.S., wealth inequality is no worse than it was two centuries ago, although it has risen a little from where it was in the 1970s. The rise of capitalism — particularly compared to the feudal economy that existed before it in Europe — is not a story of rising inequality. It is a story of falling inequality.... 
History shows that the major systemic driver of inequality is not capitalism, but low-growth feudalism — and the hereditary privilege and lack of widespread economic opportunity that feudalism ensures — that preceded it. For Piketty to look at his own data and conclude that capitalism is the driver of inequality after 1700 years of low-growth feudalism and massive inequality is, quite simply, bizarre.

This misinterpretation of economic history throws Piketty's future projections — which foresee a 21st century with a falling rate of growth, and rising inequality — into an awful lot of doubt.
Unless we are entering a period of neo-feudalism, which is essentially Piketty's contention.

What John claims is entirely plausible about future development. However, the question is how centralized capital will become. For example, will solar energy be distributed through a centralized grid or will buildings be energy self-sufficient? Will a few major suppliers control the food, energy, and water supply? Will the financial sector continue to financialize the economy to extract rents?

It doesn't take much imagination to see that the issue is power. In feudal times, power was more naked than it is now, but power is just a prevalent and much greater owing to technology, as evidenced by the national security state and total information awareness. It would be naive to think that such an expensive apparatus has been constructed solely for external defense when it is is already being used for domestic surveillance and control.

Feudalism is defined economically as the control of the means of production, which in  pre-industrial and predominantly agricultural economies, was land ownership. That changed in the industrial age, when land ownership of the dominant means of production was increasingly shared with capital. Capitalism can, for the most part, but seen as an extension of feudalism.

This trend is now increasing owing to greater consolidation and centralization in advanced capitalism, leading to monopoly capital.

The difference now is between those who have access to mass markets and can control large swaths of distribution and those that don't. Entrepreneurship has been drastically changed by this huge difference in economic power.

The Week
The real problem with Thomas Piketty's grand theory of inequality
John Aziz

3 comments:

Unknown said...

"The rise of capitalism — particularly compared to the feudal economy that existed before it in Europe — is not a story of rising inequality. It is a story of falling inequality...."

This is a strange claim. Picketty's data for the 19th century shows wealth inequality in the US gradually increasing throughout the century.

Matt Franko said...

y,

Maybe its a bit different in the US because the US didnt have the "feudal" system per se (Revolutionary Was "thru out the King" so to speak..)

So the US was probably a better lab for "Capitalism" and I agree with you it would seem intuitively that wealth inequality ended up higher by the end of the century... or perhaps we could say the "range" of wealth was the same but seems like certainly there were much more people that occupied the top 1% of that range...

rsp,

Greg said...

"Feudalism is defined economically as the control of the means of production, which in pre-industrial and predominantly agricultural economies, was land ownership"


The MEANS of production today runs through the financial sector. Money IS the means. He who controls the money controls the means.

I guess you could argue that nothing has changed. Preindustrial economies were about land ownership. Today, as Mike Sankowski often says, the vast majority of private banking activity is real estate related and this is the lever of monetary policy. All we've done is more thoroughly financialize the land and the product of that financialization, money, is the means of production.