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?
To answer the last question first: yes, I’m thoroughly enjoying this. Although the intro here echoes the mostly pessimistic theme of my other favorite recent econ book, Daniel Kahneman’s _Thinking Fast and Slow_, in the sense that both books state a claim that we’re essentially screwed, and while there is a tiny bit of hope, mostly not.
I certainly appreciate Piketty’s thesis that economics can’t be usefully separated from history or politics. I’ve always felt that the academic siloed departments of econ, politics, history, psychology, etc. make for myopic and narrow analyses. I like Piketty’s merging of historical (and literary) analysis with econ. But I’m less sure that he’s going to succeed with politics. Control of capital and taxation and such is an intensely political question, and from the ToC and other materials it’s not clear that he really will engage with these aspects.
It’s refreshing that he pushes against the Economics article of faith that, in the end, everything returns to a happy equilibrium. But having said that, I get somewhat of a sense that outcomes in his analyses are generated by the inexorable grinding of global trends: a tide of history interpretation, rather than leaving some hope for individual action.
So, yes, this is great and important stuff, but I’m hoping that by the end I’ll be able to enunciate an agenda for intervention, and I’m not confident that I’ll be able to do that.
“So, yes, this is great and important stuff, but I’m hoping that by the end I’ll be able to enunciate an agenda for intervention, and I’m not confident that I’ll be able to do that.”
This might explain, in part, why he leaves out criticism of Adam Smith* in that he doesn’t really try to proscribe a plan of the political future in the way that Marx, say, does. Classically Marxism** is the description of an economic science leading to a political philosophy of how to change the world.
Mark certainly made a good a job of the first part, or better, than his contemporaries and predecessors, but as Piketty points out, he didn’t really have the data to support his conclusions and the problem arises that if one part falls so does the whole thing.
It’s a problem with the tendency towards totalizing solutions in general, and in the particular they can tend to exclude the possibility of a pragmatic and contingent critique of capitalism in favor of grand theorizing. I have no idea what Piketty’s political conclusions will be, never mind if I agree with them but if we take this (the pragmatic) path (and I suspect Piketty aims to give a set of tools to do so) it doesn’t really matter if we do. No easy paths, or grand plans, but workable tools (and even Marx famously said there are no cook books for the revolution . Not to mention the horrors of the Stalinist hammering of the square peg of grand plans into the round hole of reality).
* part of me hopes that its because he waiting till he has the space to really take the hammer to him.
** or at least the late Marx of the Grundisse and Das Kapital.
Geoff,
I think that both Kahneman’s book and thus far Piketty can be taken as simply descriptive rather than some kind of normative judgement. Yes, we are terrible at statistics and probability as a species because it’s non-intuitive. For me the take away from that is acknowledgment and as much as possible try to base theories of human behavior (and all Economics is are theories of human behavior ultimately) in as honest an assessment of the nature of humans as possible. It might seem like a trite example but were I to design the system for feeding zoo animals so that all the food went into a central trough located fifteen feet in the air, suspended from the ceiling then the giraffes and elephants would think eating was super easy and the rest of the critters would be killing each other to live. That may be seen as a feature in the system, to be sure, but it’s more likely that when I planned my zoo I was thinking about how to keep the giraffes and elephants happy forgetting they aren’t the only participants in the system. Sorry, long winded metaphor.
I like Piketty’s thoroughness thus far. I’ll reserve specific Chapter One comments until that goes live tomorrow. Quinn, thank you for investing the time and effort to put this together.
Is anyone else aware of a definitive effort to re-organize the supporting data from this book into a more computationally-accessible format? I’ve seen this effort, but it seems to have lost a bit of steam:
https://github.com/jtleek/capitalIn21stCenturyinR
Has anyone imported the various Excel files into a nice normalized Postgresql database or something similar? Has anyone developed a nice Julia API to generate new hypotheses and questions from this dataset, for example?
Another thing. It seems like an underlying assumption of this analysis is that money is, well, real. But I have a non-formalized sense that some forms of financial capital are some kind of con. A bunch of people decide that they have options for shares in a company that they made up, and then someone values a share, and suddenly they are all millionaires. Maybe this isn’t a reasonable objection to the math, as clearly society has accepted that kind of “wealth creation,” and those invented dollars are exchangeable for regular dollars. Or maybe this is one of the explanations of how growth in capital can exceed growth in output. But when the analysis lumps together financial capital with real capital (land, built structure, etc.), I get a little skeptical.
Actually I think this is a real strength of Piketty’s — he defines capital at various points, but mostly steers clear of money and its questionable existence. My read is that he’s examining systems through time and explaining their outcome, based on the internal logic of the system, which is useful. But I find him not dogmatic about the underlying ideas, which is nice for me, as I’m not a believer in money, iffy on all forms of equity, and pretty sure property doesn’t make any sense. 🙂
That “money” (at the systemic) level means nothing like it meaning in the everyday sense of the word is an essential thing to grasp, however counter-intuitive it seems if you’ve not been exposed to Economics (the academic discipline).
I always think of those awkward conversations I have had when someone discovers, for the first time, that banks don’t actually posses the money they loan to people. I get why people feel outraged, and even that this might feel like a big revelation, but it always leads to having to ask people if they really thought that banks really made all their profits off of overdraft fees.
All money *is* imaginary: its a (very) convenient form of consensual hallucination and to believe otherwise leads to madness, or at least fiat currency conspiracy theories. (Money wasn’t any more real when it was backed by gold. Gold has very little intrinsic value, it’s just easier to believe in the hallucination if you have something you can hold in your hand).
I think Piketty was wise to side step the money question, if he can be faulted for anything its not taking the time to explain why. That’s understandable though, its one of those pieces of understanding so basic, and so deeply rooted, to those in the field, that it’s easy to forget that other people don’t share it. It was a very long time ago now, but IIRC it was the one of the very first things they taught us at the high school level economics class I took (by way of illustrating how banks actually make money, Wikipedia has a pretty decent write of fractional-reserve if you want to actually learn about rather than watch me make cheap jibes).
What Piketty does take great care over, in this section, is in defining what exactly he considers Capital to be (hence the talk of excluding ‘human capital’ but not intellectual property’ etc) and it’s a very astute definition: Capital is something that could be sold*, an hence can have a value assigned to it. Considered like this what money means, or whether it actually exists, or has real value, is largely irrelevant. As long as you could potentially convince someone to fork over the readies for it it doesn’t matter.
* traditionally this includes e.g. the machines in a factory, but not the oil you put in them to keep them running, but this distinction is less important in talking about wealth, since the latter is typically worth so much less.
Even after reading the introduction and a big junk of the first chapter the jury is still out if I can keep going with it. I was and am very grateful for you, Quinn, to organize this “reading group”. The book has been presented as a must read, and this would be the sweetest possible way to get through it. But. My concerns were not answered in the introduction, it remains unclear if commonly held assumptions are going to get questioned, the reality of money (as Geoff mentioned), the growth paradigm etc. Other than that, a good historic overview.
Oh boy did I chuckle when he threw all that shade at the US economist Yes Men. Then he ups and leaves the place where he puts in little effort, churns out work and receives big rewards; heading for a place where no one cares for his ilk. I don’t know much about economists but I get the feeling that move would be very confusing to a lot of them.
I had the pleasure of listening to it through a Blue Tooth headseet while I rode my motorbike down a big, flat, straight, butt-numbingly boring road; which meant I would zone out of the reading to pay attention to passing cars, signs and the fuel gauge; but for the most part I just sat there listening to an economist waffle on. I can’t tell if that affected my feeling that someone could very easily compress it all down to a few paragraphs and a good diagram or two. Maybe I read too much wikipedia and expect a lot of the drilling down to happen on other pages.