“Eh bien, [M. Piketty,] cette difficulté n’est pas plus insurmontable”[1]

Alin Voicu

The “growthmania” long espoused by neoclassical and Marxist economists shows through both in Piketty’s book and his model as well as in the reviews. While the creation of a database of the history of wealth may be valuable, the material written to tell a story based on it could have been drastically reduced and the argument would have lost little: the introduction and the conclusion, with some facts from the other very long chapters would have sufficed to show more concern for the world’s dwindling supply of trees beyond simply buying some timberland. The book would certainly exasperate Schumpeter as much as Keynes’ General Theory (and perhaps Harrod’s work) for “the quality of this work suffers from its quantity.”

The author continues to be an example supporting the two observations about economists that are becoming standard: that they are (A) “opportunists”, i.e., focusing on the problems at hand because that is where the visibility is best (like the drunk searching for his lost keyes under the lamp post because that’s where the light was)—this in itself is perhaps a good thing to some extent as long as the claims for generality are kept in check (Ricardo, Keynes are the remarkable counterexamples of “treacherous generality,” as Schumpeter observes in his review of The General Theory (Schumpeter 1936)). The other is related to the narrow focus of some economists but is not fully explained by it: that they are (B) “ill-read and ill-lettered.”[2] It is surprising how much Piketty has has not quoted!

There is little news in this volume—the author sets out to collect data, as he explains in the Introduction—and that’s what he did; then he builds a neoclassical story around it, working with aggregates in a manner that could have been more careful (a la Kuznets, whom he did read, for example). A much more illuminating analysis of capital, production and inequality can be found in many of Georgescu-Roegen’s works, two of them also published by Harvard University Press[4], one of them about half a century ago. The argument can also be found in (NG-R 1978) which only serves to show that the capital distribution issue was a 20th century topic as well.

The philosophy. Capital is unabashedly anchored in the musty ideas of the French revolution, particularly the Declaration of the Rights of Man, article 1, which, in a manner bourgoise par excellence, eliminates all social distinctions except those based on “common utility,” the “nice [?] expression from 1789.” (Conclusion) As these articles were aimed primarily at eliminating (and exterminating) social distinctions based on rank, something else had to replace aristocratic hierarchies in order to explain the stubbornly persistent inequality. So “common utility” had to do. The book is written in that key, although judgment is not explicitly passed on whether this standard is in some way better than the one of the ancien regime but it is argued for from the standpoint of democratic principles.

Statements by “fund managers who occasionally write on law and economics” in the WSJ to the contrary, Capital is not Das Kapital—the approach may “invite to sociological interpretation in the Marxian sense” in the same hue Keynes’ Theory did (Schumpeter 1936) in that it tries to place an economic debate where it belongs, namely within the context of social sciences. However, the work is admittedly restricted to the wealthy countries of the world. In that context, growth may beget growth (in the Solow sense), for instance by extending the work day, but even there a model of that sort cannot explain development/ innovation (in the Schumpeterian sense).

The model. Although it takes a few hundred pages to give names, the “second law of capitalism” is Solow’s (and Harrod’s and Domar’s) model. Piketty says he found the work of US economists unconvincing and yet he subscribes to that model without too much reservation—he is clearly not easily bored. Georgescu-Roegen (and the Cambridge Controversy to which the book dedicates an astounding 3 pages to render it meaningless and not realizing, with Constantin Noica, that “money is context par excellence—but the text? The context you can see—the text, you cannot” ) gave the main argument against that view: the production function changes so operations (like differentiation) on a single production function spanning years, nay, decades and centuries in “the long run,” do not make much sense even “on paper.” The approach goes full hilt into money fetishism of the save-invest-grow genus (NG-R 1978) considering, in effect, as valid to add the Eiffel Tower to the price of Berkshire-Hathaway shares and the value (in money) of “The House of the Rising Sun” (net of mortgage, perhaps): “capital is defined as the sum total of nonhuman assets that can be owned or exchanged in some market” (Ch. 1) (shipping and handling may be problematic for the Arc de Triomphe, though).

Although paying lip service to the excessive mathematization of economics and advocating the view of his science as “political economy” rather than “economics” (Conclusion), the model in the book suffers from similar ailments. Perhaps some of the tome’s success is due to its deceiving simplicity—Einstein’s advice to make things as simple as possible but no simpler was violated here. Unfortunate measures by politicians to follow…

The representative agent models are decried as “childish” obsessions of economists—and they may well be. However, (B) rears its head again: at least as early as 1960, NG-R noted the main failure of a model of this kind in a critical evaluation of the Arrow and Debreau solution to a (Walrasian) equilibrium—the solution assumes the problem already solved, i.e., all agents are endowed ab initio with sufficient real income for the whole lifespan. This may be closer to the truth in wealthy countries and, in accord with (A) above, this is the author’s approach and stated intent to discuss. As he disagrees with general equilibrium approaches in…general, the author therefore pursues the only other alternative available in economics: the aggregative way. (NG-R 1960)

Those models were dubbed “mathematico-imaginative” by NG-R (1975)—the Harrod-Domar-Solow (-Leontief) models he saw as “mechanico-descriptive”: they do not penetrate the process but observe and describe from the outside using a simple and simplistic mechanical framework. This is in the vein of a Comtean positivist view of economics: “from stringing along the same line series of various events, the positive position wants to understand the general direction of those events; in other words, one puts these events down and works out the calculations ‘on paper’ assuming the result is what actually occurred. The intimate reason [physiological] behind why events are strung along into these series [the revolutions and WWs, for example] does not preoccupy the positive mind… It is external…and does not explain, properly speaking but, rather, depicts.” (Ionescu 1928/1991)

The book’s claim that its “second law of capitalism” is dynamic is therefore problematic. If it is dynamic and, waving more hands than Durga in order to “ignore some issues and simplify the problem”(NG-R 1975), that single function is continuous, differentiable and overall well-behaved, then qualitative change, hence innovation, is not captured in this model. Even if Harrod’s view is adopted “to define dynamic as referring to propositions in which a rate of growth appears as an unknown variable”, i.e., the movement of the equilibrium point denoted as “warranted rate of growth” (Harrod 1939), the format of Piketty’s law does not conform—growth is not the unknown variable (although he may to go into why the change in one of his papers referenced in the online Technical Appendix, perhaps p. 28 there); this only adds confusion. Economic processes are irreversible—“economic contraction does not take place according to the same law as expansion, only in reverse” (NG-R 1975). The whole edifice of capitalism as driven by continuous and disruptive innovation falls apart—you can’t uninvent the wheel or “take pieces of furniture and turn them back into trees.” (NG-R)

Applying such a high-level model to everything from Harvard’s endowment to the crisis in Cyprus results in difficulties when trying to explain inequality. For the most part, the book describes inequality and makes some remarks on its severity without a convincing argument on its causa formalis. That does affect its eventual recommendations (“I will come back to this point.”)[4]. The root of current inequality is seen as the effect of the concentration of capital due to inherited savings, supermanager salaries and low growth, etc. This certainly does not explain much—it is mainly descriptive, as touched upon above.

(NG-R 1978) goes into the causes of the discrepancies and divergence which Piketty intuits but does not take further: it is ultimately the decision of who goes down into the coal mine shaft and who sits on top eating caviar and drinking champagne. This is instrinsic to human society and driven by the very fact that man developed exosomatic instruments (capital) and therefore represents two social issues: who owns the exosomatic instruments and how the benefits from their use are distributed in society.

Finally, two observations on labor and income therefrom: First, because the book specifically and intentionally deals only with the top economically developed countries, pricing of labor at the margin could be a (very) rough approximation of wages/salaries but, the author rightly intuits, only for the wages/salaries of an “assembly line worker or McDonald’s server” (Ch. 9), i.e., for those whose contribution can be measured in some objective manner. NGR indicates that yes, “manual workers can ordinarily show how many bricks they have laid” whereas supermanagers “cannot show in any palpable manner how much or how hard they have worked…–no objective measure exists for their work.”(NGR 1978) Success stories about “saving Ford” are not arguments that stand up to this but rather hard fought exercises in missing the point. It is reasonable to see the failure of corporate governance in the “absence of a rational productivity justification for extremely high executive pay…to explain the observed variations in…firm performance.” (Ch. 9) The “self dealing” the WSJ sees in Piketty’s explanation of the rise of supermanager salaries does not even have to carry its usual negative connotations—in paying top executives, those who set the amounts are…guessing. What is strange is that while noticing this non-market in labor (other than in a very general and insipid sense, very, very far from the perfection assumption of neoclassical economics), Piketty does not see that the same type of logic applies to capital, as the Eiffel Tower would demonstrate.

Second, there are no hints in the volume about developing countries that are outside the set of top wealth. Development is quite different from growth and, to repeat, the Solow model does not account for this Schumpeterian distinction. (Schumpeter 1911/1982) If we are facing a “new medievalism” (Vulcanescu 2009) characterized by sharp social division, be it even based on dialectical “merit”, then NG-R’s observation that in the feudal order “the laborer must be poor to be industrious” (NG-R 1960) may have continued to limp its distressing way through history to this day. If an equalization of wealth is to be more than “transfer payments”, as most foreign aid seems to be to this day, then tax-and-spend may need to be amended.

The Recommendation. Although affecting some modesty (“all of my conclusions are tenuous and deserve to be questioned and debated”), the solution the author recommends is stringently stated: “the right solution is a progressive annual tax on capital” combined with “betting everything on democracy—and in Europe, democracy on a European scale.” (Conclusion)

First, as the author admits, if the accrual of wealth to capital faster than to labor is intrinsic to capitalism (and he may get some support from such luminaries as Schumpeter on that statement) and not a market imperfection but a “social effect”, then a global tax on wealth would achieve what, exactly? Would it “effectively regulate the global economy justly distribute the benefits among and within nations”? (Ch. 15) “Justice” is a dialectical concept: whose definition is the “Global” going to use? A democratic definition decided by a vote at the global scale? Then who is going to police the distributions of the”returns” to the supporters of the various definitions? Not that taxing wealth is a necessarily a bad idea—it is the idea of global democracy that is worrisome because it would likely exacerbate the shortcomings of current local/national schemes.

And how will the unchecked growth of such a tax schedule be checked—1% today, 15% tomorrow? Whose needs are being fulfilled? What is the causa finalis, specifically, and when is the equalization process declared a success? Or are we, in Trotskyist fashion, in for the “perpetual equalization”? Will there be a new “global” bureaucracy to manage it? This is a very weak argument for doing away with countries/ nations/ sovereignities–those who proposed similar ideas in the past were “roundly defeated at the polls.” (Ch. 15 uses the Italian example in which democracy prevailed) Is the automatization of the whole tax process, then, a way around the democratic process? How would a “social state with progressive taxation” survive in this context? Specifically, what would be the distribution mechanism to equalize the inequality…democratically? Perhaps experience can teach caution, as it did songwriter-poet Tudor Gheorghe:

N-avem ape minerale

N-avem gheaţă, nici hîrtie,

N-avem varză de sarmale,

Dar avem democraţie.

In any case, the book addresses the conceptually easier part of the distribution story—extracting funds through taxation.

The distribution in the sense of “handing-out” problem, which the author wants to place “back at at the heart of economic analysis”, is still mostly unsolved. A “logic of rights” (Ch. 13) democratically established whereby public services are financed for common and equal use, e.g., education and health, are less than a panacea. People need housing and food—these are not common goods in the usual sense of the work whose provisioning is solvable by equal access, so welfare payment transfers will continue to be needed. The author addresses welfare and social justice by referring to Rawls (distributive justice) and Sen, which could be a valid starting point.

Let’s also not forget that these services are provided by people who are, presumably, well paid and therefore have to pay the extra “global” tax and whose incentives to perform quality work are thus diminished and they will have to be sanctioned which will impinge even more on their lives, etc., etc., in a downward spiral of increasing supervision and control (watch “Brazil” for edification). Not a bad starting point though—but still, the question of how the proceeds of a global tax would be distributed at the global level, presumably to countries, although to individuals will not be far behind (regulating economies “among and within” (emph. added) countries as quoted above), is still outstanding and, more importantly, the issue of using up natural resources to provide all these services is not even taken up.

Outstanding is also the topic of large businesses, the subject of concern to Schumpeter with regard to the evolution and decrease of capitalism. Rather than simply “supermanager” salary growth (“the notion that you have to pay someone $25M or else he won’t be motivated to perform is totally absurd”, mused an FT commentator about the recent Chipotle situation), it is “bigness” that may account for the very availability of both positions and funds to extend “superpay.” It is surprising the author does not go into this social question.


  1. Leon Walras, Études d’économie politique appliquée, 1898, p. 7
  2. Peter Groenewegen, “Defending economic rationalism…and boosting the image of ‘free market economists’?”, The Economic and Labour Relations Review, June 1994, vol. 5, no. 1, 154-16
  3. Analytical Economics (1966) and The Entropy Law and the Economic Process (1971)
  4. The phrase appears with some frequency in the volume—one would have thought that Dijkstra had outlawed the “goto


N. Georgescu-Roegen (1960). “Economic Theory and Agrarian Economics”

N. Georgescu-Roegen (1975). “Dynamic Models and Economic Growth”

N. Georgescu-Roegen (1978). “Inequality, limits and growth from a bioeconomic viewpoint”

R.F. Harrod (1939). “An Essay in Dynamic Theory”, The Economic Journal, Vol. 49, No. 193 (Mar., 1939), pp. 14-33

Nae Ionescu, Curs de metafizică, 1928-1929, 1929-1930, Bucharest, 1991, my translation

J. Schumpeter (1911/1982). The Theory of Economic Development, Transaction (1982)

J. Schumpeter (1936). “Review of Keynes’s General Theory”, J. of the American Statistical Association, Dec. 1936

M. Vulcănescu (2009). Spre un nou medievalism economic, Compania, Bucharest


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