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The inherent vice of capitalism underpins the value of Piketty

Few economics books have caused quite the stir which accompanied the release of the English version of Thomas Piketty’s Capital in the Twenty First Century. And there can be few who are not familiar with…

Haves, Have nots. Julian Stallabrass, CC BY

Few economics books have caused quite the stir which accompanied the release of the English version of Thomas Piketty’s Capital in the Twenty First Century. And there can be few who are not familiar with the basic tenor of its argument. In short, it contends that capitalism has a tendency to concentrate wealth in the hands of fewer and fewer; that markets on their own will not correct this tendency; and therefore that governments ought to do something about this.

His conclusion is supported by an abundance of historical data which Piketty has made freely available. It is this data which has been reanalysed by Chris Giles and Ferdinando Giugliano and has led to some to-and-fro squabbles between Piketty and the Financial Times which have threatened to overshadow the broader debate.

Churchill’s observation

That capitalism should lead, in a settled economy, to the concentration of wealth is relatively uncontentious. As Winston Churchill memorably pointed out, “The inherent vice of capitalism is the unequal sharing of blessings”. This tendency arises from the nature of the system. The rewards of capitalism flow disproportionally to those who have ventured capital, therefore those with greater access to capital, the affluent, can expect to benefit most in absolute terms. Further, those with economic power also have greater means to influence policy and markets in their favour. Thus, in a settled economy, with no government intervention, economic forces will tend to concentrate wealth.

There are some who suggest inequality and the envy which accompany it are spurs which promote economic growth. However, it is opportunity which motivates – inequality arises as a result of making the most of such opportunities. Inequality, from a social point of view, is an externality which arises from economic growth. It is not a cause of growth, it is a side-effect. Indeed, too much inequality can choke off growth.

Power and social justice

Although we may conclude that inequality is an inevitable consequence of economic growth in a capitalist economy, it does not follow that inequality is socially desirable.

Following John Rawls’ A Theory of Justice, increasing economic inequality will be just only if it results in benefits for everyone; this will include, of course the least advantaged members of society. But as Friedrich Nietzsche pointed out:

Justice is … reprisal and exchange upon the basis of an approximate equality of power.

Where power – including, of course, economic power – is very unequal, we might expect little justice. The social problems associated with inequality – mental illness, drug addiction, obesity, loss of community life, increasing reliance on imprisonment, unequal opportunities and poorer wellbeing for children – are well enough documented that we need not go into them in great detail here.

In a free market economy, we may draw the distinction in theory, if not so easily in practice, between two separate phenomena. First, inequality which arises from an individual’s contributing to increasing national wealth, and their taking a disproportionate share of this increase in wealth as recompense. Second, we have an increasing inequality which arises from inequities which already exist.

Given the benefits of encouraging innovation and the costs of perpetually increasing inequality, society would do well to encourage the former and discourage the latter. This is the import of Piketty’s suggested wealth tax. He is not the first to suggest such a means to underpin sound economies, nor does he go so far as some. More than 100 years ago, the millionaire Andrew Carnegie argued:

It is difficult to set bounds to the share of a rich man’s estate which should go at his death to the public through the agency of the state.

In sum, however it may be that Piketty or his critics have under- or over-stated the level of inequality (and it should be borne in mind people interpret the validity of statistical analysis based on their own prior subjective beliefs). Inequality in the UK and the USA is on the rise.

There are good reasons to suppose this will undermine the long-term viability of our society if the trend continues. The solution to inequality is not, of course, to do away with the blessings of capitalism, it is to find a means of sharing for the benefit of all. However we might quibble about the details, the broad thrust of Piketty’s argument remains valid.

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13 Comments sorted by

  1. Damian Macrae

    logged in via email

    It is much easier for the 1% to blame the poor for their position. After all, if one accepts that a proportion of the population are poor through no fault of their own. It must necessarily follow that some (or *gasp* most, if not all) of the 1% are wealthy through no exertion of their own!

    This reminds me of a terrific recent article (sorry, can't remember title) where the journalist interviewed Americans at 7 different income levels (working poor, middle class all way up to old money/0.01%). Perhaps not surprisingly, the strongest invectives against the poor (trying to take what they didn't work for, why don't they get a job, etc etc) was from the wealthiest interviewee, the one that got all his money from inheritance!

  2. Phil Butterworth

    Educational consultant

    Sadly those chasms in wealth are mirrored by huge differences in health, educational attainment and opportunities in life.

    Our educational system has failed to close the gaps in what young people achieve and their destiny is closely related to their parents' incomes. There is not enough equity in education embracing fairness and inclusion. Gender,race, social status and wealth should play far less a part in determining success.

    Education has the potential to reduce the inequalities created by capitalism. However at present it tends to enhance the advantages for the well off that already exist.

    The challenge for educationalists is to give those less fortunate young people the insights and motivation to strive to achieve - their empowerment would help promote social cohesion and well being as well as negating the detrimental consequences of capitalism.

    1. Miles Archer

      logged in via Facebook

      In reply to Phil Butterworth

      Oh baloney! Public education came about in order to provide more competent workers for the Industrial Revolution. It's purpose was not to 'raise the poor' but to regiment the rabble so as to serve the purposes of the office and factory.

      While the occasional poor or middle-class person may elevate themselves into relative prosperity, the 1% rarely come from the sort of generational deprivation most of the lower economic classed deal with. Bill Gates' father was a successful attorney and Warren Buffet…

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    2. Phil Butterworth

      Educational consultant

      In reply to Miles Archer

      It's private education that perpetuates elite status on the few and conditions them to believe they are 'the chosen ones'. With their inheritance, tax fiddles and networks they have to make big blunders to drop down the ladder on the rich list.

      Don't knock the potential of education especially in the third world, the commitment of many families to raise the aspirations of their offspring is inspirational. They ARE often in a struggle for survival but education broadens their horizons and provides opportunity.

      In the western world education is more likely to help those at the bottom than governments who now have every excuse not to invest in more generous social policies. If you believe revolution is possible it is you that is living in fantasyland....the big danger is a further lurch to the right and more protection for the 'haves' in society.

    3. Phil Gorman

      Mendicant - retired teacher and mariner at - quite good company

      In reply to Phil Butterworth

      Yes, education can help to mitigate the pernicious effects of inequality inherent in capitalism; but only in a context of the appropriate checks and balances of a genuinely civil society. This won't be easy in the current ruling corpocracies.

  3. Morris Givner

    Professor of Pathology(Retired),Halifax,N.S.

    Today in Canada,university education is only available to the children of the rich. The only growth industries are food banks and the unconscionable and mindless Alberta Oil sands which are poisoning the water,earth and air of Albertans and the atmosphere for the world.Oil and gas resources have been exploited for over 50 years in Alberta with negligible benefits to Albertans and the world with the sole exceptions-Big Oil. They have poisoned Nigeria,Ecuador,Alberta and now are planning to the same for the Arctic. The oil industry and their newest game-fracking-should be viewed as industrial cancers without any cure in sight.The nuclear industry is also a hopeless cancer-it poisoned the Ukraine and Japan forever.,namely,the Chernobyl and Fukushima nuclear disasters Japan is spending billions of dollars each year in futile efforts to try and control the spreading radioactive nightmare.

    1. Phil Gorman

      Mendicant - retired teacher and mariner at - quite good company

      In reply to Morris Givner

      Canada sounds very similar to Australia in that it has adopted corpocracy as the US style of government.

  4. Bruce Taylor

    logged in via Facebook

    The strong correlation between inequality & a society's ills is amply demonstrated in "The Spirit Level" by Richard Wilkinson & Kate Pickett. The English-speaking countries lead the world.

  5. Phil Gorman

    Mendicant - retired teacher and mariner at - quite good company

    You are absolutely on the nail Kevin.

    Capitalism is not a social system but it has subverted democracy and established de facto corpocracies in Anglophone countries.
    Capitalism is the most effective legally sanctioned mechanism yet devised to increase the wealth of investors. It does this by maximising the exploitation of resources, including human resources. All considerations other than maximising profit are deemed externalities. As Friedman explained, “The business of business is business…

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    1. Kevin Albertson

      Reader in Economics at Manchester Metropolitan University

      In reply to Phil Gorman

      I am not so sure that the evils you describe arise from capitalism per se. The difficulty is rather, as has been shown through history, "power corrupts". This might apply, of course, to those who wield market power as well as those who wield political or military power (or any other kind of power).

      As you suggest, in your final paragraph, the state, and the market, both exerting different kinds of power might, in theory, bring about a system of balance. As state power is supposed to check market power, it follows that strong markets require strong states.

  6. Kevin Albertson

    Reader in Economics at Manchester Metropolitan University

    There are indeed true and worthy pleasures to be got from wisely ordered magnificence: but they are at their best when free from any taint of personal vanity on the one side and envy on the other; as they are when they centre round public buildings, public parks, public collections of the fine arts, and public games and amusements. So long as wealth is applied to provide for every family the necessaries of life and culture, and an abundance of the higher forms of enjoyment for collective use, so long the pursuit of wealth is a noble aim; and the pleasures which it brings are likely to increase with the growth of those higher activities which it is used to promote.

    from Principles of Economics by Alfred Marshall, (1890/1920) bk.III,ch.VI,26,
    online at

    1. Phil Gorman

      Mendicant - retired teacher and mariner at - quite good company

      In reply to Kevin Albertson

      Thank you for the reference. With such provisos the pursuit of wealth can indeed be seen as a noble aim. I fear personal vanity, a sense of envy and the worship of Mammon, god of money and wealth are now givens. It seems the sense of entitlement increases with wealth, status and power. Status itself is automatically accorded to wealth, no matter how ignobly it was gained.

      Marshall's public goods certainly flourished for a time. If only such public spirited nobility were evident in today's…

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  7. Grahame Jordan

    Campaign organiser

    Excellent article - the most compelling for our time. Nice to see the John Rawls connection in your submission whose 'Theory of Justice' is my reference to these issues.
    If capitalism is working fairly - it should benefit the least advantaged.

    Thanks to all who posted - good arguments !