Category Archives: Economics

Capitalism’s Winter — Introduction summary and open thread

We’ve begun! If you haven’t, don’t worry, come along at your own pace. It’s a big book.

In this introduction, Piketty starts out by taking us back to school to look at the history of Economics, and its apocalyptic tendencies. While most of us remember Ricardo for Comparative Advantage, he reminds us that, like Malthus and Marx, his was an apocalyptic vision about the path of capital and distribution of resources after it. Malthus saw the world as we knew it ending from the scarcity of food, Ricardo from the accumulation of land resources in land-owning capitalist’s hands, and Marx from industrial capital concentration, culminating in massive global communist revolutions. Of course, spoilers, none of these things actually happened. Why were economists so wrong so much of the time?

Piketty wants us to understand something: that early Economics, including not only these pretty smart guys but a bunch of other smart guys, was working without real world data. It was essentially ethnography and math, complete with economic theories born out of visits to inns, industrial workplaces, and so on. Without any data, even brilliant observations about economic culture were doomed to make bad predictions.

From 19th century doom and gloom Piketty switches to the “fairytale” of Kuznets — but it’s the first tale with data behind it, and that’s important. By the mid 20th century Simon Kuznets was telling the tale of capitalism giving rise to greater income equality as almost a natural consequence of the system. In fact, much of post-war economics was starting to rely on data which had never been accessible before: national accounts, tax data, estate data, etc., often tabulated by hand. But with two world wars and a worldwide depression that limited window on the first data-rich analysis of capitalism was necessarily flawed. While Kuznets himself cautioned generalizing from this window he knew was narrow in his papers, he was more exuberant in his speech, and it was what the post-war world wanted to hear.

To build on this history, Piketty tells us about the data he is working with for this next century analysis, and again, he cautions us about its limitations and gaps. He also tells us about how other datasets were gathered, listing them off, and emphasizing how much modern research tools, like computers have made his job far easier than his predecessors.

The first conclusion of his data is refreshing: that you can’t divide economics from politics and pretend to predict things. The second conclusion is more ominous, it is that things can really go terribly wrong in capitalism, that the system doesn’t correct itself naturally.

Together, we can take these as capitalism doesn’t exist beyond politics, and nothing in economics is going to take care of us, we have to take care of ourselves. But take care of ourselves from what? Piketty goes on to describe some of the problems of progressing inequality, with hints that he will expand on these later.

And lastly, he briefly excoriates his field for its obsession with math and disdain for the other “soft” social sciences. As someone who has for many years referred to Economics as “a science desperately searching for a coefficient,” this was edifying for me. If you come up with an idea and do math on it, that math can be pretty and a wonderful thing. But to connect it to the real world, to enter into the realm of science, you must be measuring something — a step woefully absent in much of the history of Economics. Piketty calls for his field to grow up; to play nice with the other social sciences, and don’t do more math than the data lets you do.

What do you think? What did Piketty miss? He takes Ricardo, Marx, and Malthus to task, but largely leaves Smith alone. Does Smith present problems for his ideas? And are you hooked yet?