Heirs vs City Professionals: Piketty Capital Reviewed
Capital in the Twenty-First Century by Piketty caused a stir in 2014. His focus on inequality seemed to time perfectly with the Zeitgeist of unfelt economic recovery and focus on the ‘1%’. During a recent discussion with colleagues in the office which included several references to Piketty, we suddenly realised that no one had actually read the book. As a result, we decided to stop assuming what it said and joined the 1.5 million people who have purchased the weighty tome.
What does Piketty actually argue?
The basic point of Piketty’s argument is that it is an inevitable, almost mathematical, law of capitalism that inequality increases over time.
The rate of return on capital will almost always be higher than the rate of economic growth, especially once you deduct the impact of expanding population from economic growth. Inequality only reduced in the 20th century due to the impact of the depression and the two world wars. As capital has slowly re-accumulated since the 1950s, accelerated by the fall in top tax rates and estate duties in the 1980s, inequality is returning to 1914 levels.
Downton Abbey may be set in the past, but we are due for a repeat.
Why do Piketty’s ideas matter to City Professionals?
Piketty spends a lot of time discussing ‘Vautrin’s lecture’ from Father Goriot by Balzac. The lesson given by Vautrin is that when inequality is high (and thus most wealth is derived from investment and inheritance, not wages), the smart career move is not studying and entering a profession, but marrying into wealth. Piketty’s warning is that unless we address inequality, soon it will make more economic sense to spend your student loan on a trip to Cannes to bag an heir or heiress than become a City Professional.
Piketty also focuses on the long term multi-generational implications of inequality. Those with a small amount of capital earn more in real terms than those without one. Moreover, the more money you have, the easier it is to make more. Of course, we already know this because we have observed the difference in spending power for City Professions paying off student loans and renting compared to those who don’t need to.
Ultimately, a choice is offered by Piketty between a relative equal, democratic and hardworking society; and returning to live in a Jane Austin novel. Whilst we enjoy a shirtless Colin Firth as much as anyone, it has to be admitted that Mr Darcy (who never worked a day in his life) belongs to the past.
Is it worth reading?
Piketty’s book, although heavy (as it is not yet in paperback) is a fairly easy read for an economics text.
There are certainly flaws. It is rather repetitive at times, as if the reader is not trusted to remember previous chapters. It fails to tackle the question of what is an appropriate level of inequality, saying that is a matter for democratic debate. Yet, different democracies have come up with widely divergent opinions on what is the ‘right’ level of inequality. After all, some inequality is necessary to incentivise and reward effort, where should we draw the line? Lastly, it must be noted that many commentators and academics have challenged Piketty’s data, analysis and conclusions.
The success of the book and the response it has generated show Piketty has rightly touched a nerve in modern society. Inequality is something increasingly debated and Piketty makes a very interesting contribution. The book is an excellent holiday read, perhaps best enjoyed at the poolside of a high class resort – just keep one eye out for wealthy heirs whilst you read!
Suits and Books. Our pleasure.