notes on Chapter 2
WTF, have I been held back and put in the remedial reading group?
Typo corrected. I get no appreciation around here.
I'll give you props for at least admitting that there was a typo.
Unlike some.
I contemplated fixing it and deleting your comment, but I'm better than that. Or more petulant than that, one or the other.
But we digress. Everyone shut up unless you're going to actually talk about the book.
To follow up on my own comment:
At least to my eye the flatness of the curve from 1700 to 1910 demands an explanation, and I don't think Piketty has given us one so far.
He kind of gets around to this in chapter 5, by arguing that the capital-to-income ratio is determined by the ratio of savings rate to growth rate. But that just converts it to the question of why the savings and growth rates (or least their ratio) are constant even with all the general economic upheaval happening with industrialization.
Essear's notes on Chapter 3, explaining how exorbitant accumulation of capital killed the dinosaurs
Heh.
Another exciting update on my non-attempts to get the book quickly: I'm now 21 on the public library waiting list and there are 7+ copies now in the system. Since it'll be at least a month before the reading group gets to the end, I think I may wait until I get the print copy. The academic ebook interface I could use to start reading now is terrible.*
This week I have two books I need to read and return or just return, which probably means just return.
*In other words, it's an academic ebook interface.
Is waiting for a library copy some sort of principled thing, or is it about the expense? Should we start buying copies for people who want to participate and are being held back just by not having a copy?
11: Maybe we should, though I've become strangely compelled by fa's lending queue updates. They have the meditative quality of a snail racing a glacier.
"Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception, yet it always tends to transform itself into rents as it accumulates in large enough amounts--that is its vocation, its logical destination."
Public debt as welfare for the rich (when inflation is low) is an interesting insight. Rent-seeking used to be so straightforward in the Olden Days.
I will be out for a week but am a bit ahead, and can do chapter 6.
One small item this chapter made me curious about: he says France went back on the gold standard in 1795, and didn't accumulate significant debt until 1815 (reparations to the rest of Europe and, later, some aristocrats). So how did they finance the Napoleonic Wars?
Nobody should buy me a copy. As I think I said somewhere at the start of the planning, and as I definitely said in numerous reading recommendation threads, I have a poor track record of finishing books at this point and I'm just not going to invest in a hard cover of a book if I think there's a good chance I won't finish it. I'm tired of buying books when they first come out, which I was doing for a while if something looked really interesting, and then seeing them in less expensive paperbacks or used copies years later when I still haven't finished reading them.
Also, at this point I'm curious to see how the library hold list will play out. I haven't depended on public libraries for current books for a long time.
(Being and Time was easy to find used in paperback and I cherish every moment I can spare to think about it sitting in a box somewhere, still in the same condition it was as when the bookstore put it on the shelf. I denied myself the pleasure of buying an edition of Montaigne.)
Also: "completely demolished the accumulated wealth of Britain and France" is an overstatement, no? It obliterated a lot, but wealth amounting to 200% of national income in 1920 is probably a lot more than 700% in 1850. (I looked at Piketty's data site, but it all seemed expressed in ratios, not absolutes.
I failed to read the chapter, but VM was good (enough). So my lack of contributions, compared with the previous threads, will lack even harder.
At least to my eye the flatness of the curve from 1700 to 1910 demands an explanation, and I don't think Piketty has given us one so far.
An explanation as to why the curve deviated from that in the 20th century would do instead? Because that might be easier. If we demand both, are we saying that under all and any conditions the wealth to income ratio is contingent and there is no natural default? I don't honestly see why not.
My copy arrived this morning! Well, last week, but I was away in Wester Ross (and not, as at least one person seems to have thought, Westeros). I will be catching up frenetically.
how exorbitant accumulation of capital killed the dinosaurs
Geological evidence shows a sudden and dramatic increase in the value of mineral reserves in the Yucatan area.
18: I realize that's the main remaining option, but that must be one goddamned robust tax base.
22: also, to a large extent, plunder. The French army, like most armies of the period (but unlike the British army) did not supply its own food or buy it locally when it was operating in other countries; it stole it. Napoleon also imposed heavy indemnities on countries he conquered, and/or compelled them to send their own troops (at their own expense) to fight in his armies. The former was tried, less successfully, by his successor Hitler.
When Bonaparte says pay, you pay. Also, the tax base of most of western Europe was paying into French coffers for much of that time.
Half the troops he took into Russia, for example, were not French; they were Poles, Belgians, Bavarians, Prussians, Italians and so on.
Even in World War I, didn't the Germans pay for much of the early war by sending the bill to the Belgians for the crime of being on the best marching route.
26: they tried; they also made the French etc pay for the trouble and expense of being occupied in 1940-44. But warfare in 1940 was a lot more expensive and capital-intensive than in 1810. It wasn't really able to pay for itself any more.
That was my other guess.
I wonder if the 1815 treaty, on top of the basic reparations, obligating them to lodge, feed, and supply the occupying army of 150,000 for five years, was partly intended as payback for that (although it seems the army actually left earlier).
17: Fair enough. The book definitely puts one in a ratio-y frame of mind.
I thought that the characterization of bondholders in the past was interesting. Currently, claims on future fund flows are held by not just bondholders but also retirees expecting income from public finances.
This second category of people is pretty interesting in the US, since local governments that have promised to pay can declare bankruptcy.
So is it fair to describe the decimation of capital in the period around the two world wars as a "paper loss"?
I'm not entirely sure you can distinguish paper losses from real losses in this kind of economics, but the philosopher in me keeps wanting to distinguish real value from economic value. One manifestation of this is that I think of a loss of capital from blowing up big pretty buildings as much worse than a loss of capital from inflating away stock prices. But I'm not sure I can make this distinction rigorous.
Also, can I now just start cheering for pro-inflationary policies?
One point in this chapter I thought was interesting was the idea that National Assets are on the other side of the balance sheet from National Debt. That's interesting, because for all the kvetching about the debt, you never, ever hear about the value of what the government actually owns, and how that compares to what they owe. And I actually have no idea. Does the US government own more than it owes, or not?
32: That's Figure 4.7 in the next chapter. Yes, public assets are larger than public debts in the US.
Yes, public assets are larger than public debts in the US.
Why, then, the US government is just like a family with a mortgage, isn't it?
I have seen the "National Assets" idea a few times elsewhere, more often when discussing, say, rebuilding bridges and water mains and other boring infrastructure.
I wondered about the "paper loss" phenomenon. How much did Britain really have blown up in WWI? I have to say that my main takeaway from those graphs was increased skepticism that the capital-to-income ratio is a meaningful metric.
How much did Britain really have blown up in WWI?
We liquidated a lot of overseas investments and borrowed like a bastard, which may be doing work here. On the other hand we couldn't make aeroengines in 1914 and got most of the clever bits in navy fire-control setups from Germany, and in 1918 we could and...didn't, and we'd learned that pouring tarmac on roads so these "car" and "lorry" things could drive on them without falling apart was a hell of an investment.
I found myself really fascinated by the perceived difference between high public debt in the 19th C (lots of sweet, secure, high interest government bonds for rentiers to park money in) and now (government bonds aren't terribly attractive investments, and they're funding all sorts of public goods for the middle class and poor). I should look up the pro/regressivity of the 19th century British tax base; was the high debt a mechanism for upward redistribution, where regressive taxes paid interest to wealthy bondholders?
Also, the availability of the 19th C. model suddenly makes a lot of American right wing politics make economic sense. Even if it didn't work that way in 19th C. Britain, think about it: high debt, arrived at through heavy military spending, requiring domestic austerity and a primarily balanced budget, with high taxes devoted largely to servicing debt held by rich people. That's not how things work here exactly, but if you think of it as a desired endpoint, a lot of politics from Reagan onward that had simply looked economically incoherent make more sense.
Am I raving, or does this make sense to other people?
That makes sense, except I think it's much easier to explain right wing politics in America as a product of not liking people who aren't white.
Yeah - blow up Social Security, keep inflation as low as possible, keep borrowing, make taxes regressive, and you're a lot closer to that state of affairs.
I do like the literary tie-ins, but I was really annoyed with the line about "If we can trust the literature, the people who owned land and government bonds were often the same people!" Dude, surely there's better information out there than that flippant assumption! (Maybe a bad translation? I'm back to English.)
(36 is making me happy because a Greek prof of mine made us translate "polu" as "like a bastard" and I'd absolutely never say it otherwise but clearly have a nostalgic connection now.)
31, 35, 36: for reasons I don't completely understand, Piketty postpones the discussion of this stuff, even the Britain- and France-specific aspects of it, until chapter 4.
The British Government issued a lot of debt to fight WWI. They paid real money for ships that sank.
I don't know when they began writing off Egypt as an asset, but Suez was no longer British by 1936.
Mineral and logging rights on public lands are US assets that produce revenue. Detroit's art holdings produce revenue, there had been some discussion of selling those to benefit retirees and bondholders.
There is a real political blind spot? Opposition to? thinking of US government assets as things that should properly be thought of as having value to the country generally. Any time there's something that could be transferred to private ownership or use, there's a powerful tendency (note wild generalizations here -- I actually don't know if what I'm saying is true, but it is the impression I have. There's another thing I should look up) for it to be transferred for well under a reasonable market value. Grazing rights, mineral rights...
43: And there is that convention that private capital (like buildings) get return-on-capital through rents, which contributes to national income, but public capital, although it is valued for national wealth, does not produce national income (unless, I suppose, it's rented out or somehow generates actual money).
43. The Teapot Dome Scandal and ex-Mayor Daley's decision to privatize Chicago's parking meter revenue are both examples of realizing the value of US gov't assets (Chicago not federal, obvs).
On the other hand, there's this problem:http://www.npr.org/2014/03/12/287349831/governments-empty-buildings-are-costing-taxpayers-billions
and the suboptimal operation of most public housing authorities to illustrate problems with public operation of public assets.
37: you have to manage keeping the debt high and inflation low while constantly railing against debt to justify austerity cuts to welfare. But bond returns are still lousy, surely interest rates need to rise to really lock it in.
Conspiracy vs social dynamics question here too.
And of course privatization of public assets tends to be below-value even when it's official, up to the present day: http://m.eastbayexpress.com/oakland/going-postal/Content?oid=3713528
Conspiracy vs social dynamics question here too.
Spell this out? I mean, if all it means is "Gosh, that sounds like a conspiracy theory, isn't it possible that right wing politics are explained by social forces generally rather than by this sort of planning", yeah, I agree that it's not an immediately compelling story to me either. But if there's something more specific you meant, I missed it.
I failed to read the chapter
I'm also behind, and am hoping to read the chapter tonight.
I like this pace, personally; it's nice to be able to take pauses and then have it be easy to catch up. It doesn't feel slow, it just feels like I'm reading it in a serialized format -- every week I read something that's about 50% longer than a long magazine article.
But I won't complain if the consensus is to go to a faster pace.
This chapter is really short, and feels a little incomplete. I'm sort of wondering if 3 and 4 together don't make more of a natural unit than 3 alone (but I haven't read 4).
Looking further into Piketty's data, I see my 17 was only just barely right. Denominated in 2010 £b, UK national wealth was 375 in 1855, peaked at 1,412 in 1913, and was back down to 449 in 1920, not reaching the 1913 level until 1966. (And if you look at private wealth alone, it's 408 in 1855, 1,370 in 1913, 598 in 1920, and reaches the old peak in 1962.) So most of the accumulated gains of the past few generations of elites were in fact wiped out.
I don't know when they began writing off Egypt as an asset, but Suez was no longer British by 1936.
This is confused; the Egyptians nationalised the Canal Company in 1956, the troops in the Zone were withdrawn in 1954 (although the infrastructure was kept in being until '56), Egypt became formally independent in 1930-odd. I'm not sure which of those events is meant. (Oddly, it had only become formally part of the empire in 1914 when the protectorate was declared in a hurry because the place we were theoretically occupying to collect on a debt was legally part of an empire we were at war with.)
The rentier class still exists, and it's a non-trivial part of the 1% in the United States. There are lots of extremely rich people whose income consists of interest on treasury and muni bonds. For example, in a non-scandal from the 2004 elections, it developed that John Kerry's wife, who had married into the Heinz Ketchup fortune before marrying Kerry, had about $3 million annually in nontaxed income, which was interest on municipal bonds (face value around $400 million).
The income of anyone who lives off of a fixed amount of T-bills has fallen about 30% during the Obama Administration, and more than 50% since 2000. see http://www.multpl.com/20-year-treasury-rate/
If you've been living on a $10 million trust fund all your life, you had a pleasant $600 K income in 2000 and a non-nearly-as pleasant $300 K income now. How much this contributes to the attitude of some of the 1% to the Obama family is an intriguing question. The spokesmen for the Obama haters in the 1% are usually portrayed as self-made billionaires, but they generally diversify into low risk bonds after they make their billions, and they pay attention to these things.
Note also that deficit reduction is, generally speaking, a Bad Thing for those who live on government bonds. This is one of the reasons that the Republican Party doesn't actually want to do anything about deficit reduction.
On preview, LB makes good sense in 37.
One thing is that he doesn't include slaves as capital on moral grounds in spite of all those Mansfield Park references (explanation in the next chapter). That seems a bit odd given that they were functionally a tradeable good and a source of income. He argues that that's not all that important other than in the US saying we're talking about ten percent of national income i.e. 1/70th of national wealth. But that's at the time of emancipation, not back when Saint Domingue was thriving and Bordeaux was France's second city and oozing with wealth.
20 An explanation as to why the curve deviated from that in the 20th century would do instead?
No, I don't think so. I think that if some major feature of the economy stays remarkably constant as you transition from a mostly-agriculture to mostly-industry economy and take over a large part of the rest of the world as well, it needs to be explained. That it doesn't stay constant during two massive wars seems less surprising.
The income of anyone who lives off of a fixed amount of T-bills has fallen about 30% during the Obama Administration, and more than 50% since 2000.
But if you had a portfolio of T-bills in 2000 and you still had exactly the same ones in your portfolio now (i.e. none of them had matured; so you're actually talking about long Treasury bonds, not Treasury bills), you'd still be getting exactly the same income, because they have a fixed coupon. What you mean is that if you put $1m into T-bills in 1999 you'd get more income in 2000 than you'd get this year if you put $1m into T-bills last year.
But of course, if you're in T-bills, they likely are maturing on a regular basis, and thus your income will decline if the return is declining.
56: The chart i linked is for teh average of all outstanding T-bills. A trust fund of any size would have a sampling of different maturiteies, possibly even 5% maturing every year. If you have a single T-bill that renews after 20 yers, there's roughly a 30% chance that you experienced a massive decline in income at some point in the Obama years, and if you didn't, you're losing a little to inflation every year.
Anecdote: my mother recently inherited a modest portfolio of t-bills from her mother. My mother is not financially knowledgeable. She saw the dates of purchase and the yields and asked me if we should sue the broker, because the yields were so awful in the most recent years when grandma was no longer able to actively oversee. No, that's not the problem.
37: "Am I raving, or does this make sense to other people?"
I'm your neighbor to the north, so I'm sure whether I have the best read on U.S. politics. But it seems like all the discussion about post-2008 policy has been dominated by an almost hysterical fear of inflation, despite the monetary system currently being in a liquidity trap.
The nineteenth century UK thing is Japan except with 4% government bond interest rates and zero currency risk. That's not something the US has had in my living memory. My question is why were the real interest rates so high and were the rates of return on riskier bonds and other financial instruments correspondingly higher.
From novels, yes, very high rates of return on speculative investments, but even higher risk -- lots of speculative investments were straightforwardly fraudulent.
I imagine that there was quite a bit less liquidity and much higher transaction costs in trading 19th century securities, which may have in turn lead to the need for higher rates of return.
I don't think so. I think that if some major feature of the economy stays remarkably constant as you transition from a mostly-agriculture to mostly-industry economy and take over a large part of the rest of the world as well, it needs to be explained. That it doesn't stay constant during two massive wars seems less surprising.
This is a really really important point and I agree that it's one the implications of which Piketty doesn't really grapple with (though I think he's pretty clearly established that it actually happened).
I think the standard economic model was that there was something close to a natural law of a capital/labor share of the The explanation he gives briefly, without fully explaining in detail, is that capital is smart, flexible, and powerful -- that is, that it is perfectly capable (and has been for a long time) of adapting to new technologies, or even, as in the case of the industrial revolution, a near-total reorganization of how things are produced and what workers get paid to make -- without substantially diminishing the portion it pays out to labor. This seems incredibly important but also may push Piketty in a more radical direction than he seems to want to go.
Another way of putting it is this: people with capital are able, for long periods of time, to organize the economy so as to sustain their lifestyles at the pinnacle of the economy, regardless of whatever it is that the economy actually produces. The only way to change this dynamic is either to tax capital strongly enough to diminish its returns, to inflate away its value, or (less plausible) to destroy it in war. If any of these three modes are tried, capital will spend down its income in order to maintain its lifestyle; if these things don't happen, it won't. But all of this suggests a much greater degree of the rich to control the economy basically by the exercise of power over time than I think standard economic theory suggests; labor doesn't just seize its fair share as technology and productivity progress.
Well whatever formatting edits who cares. I dare you to read that!
Following on teraz's 54, the exclusion of slaves as capital strikes me as profoundly ahistorical. It may not be pleasant to think of assigning monetary value to humans, but that's what many 18th-century French and British people did, and it was real money and real investment. And it disappeared after emancipation. Even if you're primarily taking literature as your historical source, what does he think Mr. Rochester was getting up to in the Caribbean besides marrying crazy Bertha? (Spoilers?)
Neb has already pointed this out elsewhere, but I was most amused by:
"In Britain, things were done differently: more slowly and with less passion."
I really like the Halfordismo of 64.3.
I doubt anyone wants a complementary book to read, but I'm in the middle of Carol Stack's All our Kin, which NickS indirectly recommended, and it's amazing. It's an ethnography of a very poor black neighborhood/town in the Midwest in the early '60s, a generation removed from the Great Migration, focusing on how resources and custody of children are shared as necessary so the group can get by. It's more personally pertinent to me than to most of the rest of you, but I kind of like reading about the people at the bottom of the system to go along with the top parts in Piketty.
He discusses slaves as capital at length in his next chapter, which deals with the US South in detail (basically, the US antebellum South had roughly the capital/income of 19th C France or England once slaves are factored in). I don't think it at all undermines anything he's trying to say, though in this chapter it might give you somewhat higher estimates for values of French and British private capital in the earliest part of the period he's studying.
63 -- I think (don't have the book with me) that he says similar rates obtained for land as for government bonds; there was something closer to a general rate of return for capital. ISTM that there still largely is, for a reasonably diversified portfolio.
Yes, I don't think it is a massive failing for the argument, but rather a sort of moral failing on his part. Not acknowledging the European role in the slave trade simply because they emancipated first or didn't practice it at home doesn't mean it didn't happen. (Also, this is just a bugaboo of mine that comes from other sources.)
Halford got there first in 64, but yeah -- if you think of capital as the result of a market adjustment to real processes in the economy, it would seem odd that it remains constant through all kinds of real economic changes. But if you think of it as the expression of the power of a particular class that acts to maintain its power, then it would stay constant absent a big political disruption in the power of that class.
I'll admit I haven't had the energy/time to read the book yet though. Sigh...
but rather a sort of moral failing on his part
??? He acknowledges the issue specifically (and indeed treats it in much more detail in the chapter on the US South). But the point is to try and get clear distinctions between value attributable to capital and that attributable to labor. Also, it would really only affect Britain through the 1830s -- and there's no evidence of a decline in the capital/income share in that period, so emancipation didn't have a majorly overall redistributive effect in Britain (one thing I don't remember him treating in detail is the purely redistributive effect of emancipation in the US, but that would be a really interesting story).
Also, bond financing is still regressive compared to (progressive) tax financing. But in the U.S. bond financing was the solution to a big conflict about the role of government, so both sides had an incentive to shut up about it...
and today, with interest rates so low, there is even less incentive...
Read the goddamn book, PGD. Your thoughts in particular (also those of Walt, that drug-addled slacker) would be especially welcome.
But you had a pretty fucking huge disruption in the late eighteenth century in France and a more slow motion one in the decades leading up to WWI in Britain. C. 1860 the British top 0.1% was still pretty dominated by the aristocracy and landed gentry. That was not the case in 1914 courtesy of the collapse in the value of agricultural land, specific measures hurting the tenant model of land ownership, and estate taxes.
what does he think Mr. Rochester was getting up to in the Caribbean besides marrying crazy Bertha?
Oldest and oddest of the possessions my mother inherited are two tintypes, about the size of a thumbnail, of 2 different black women. Her grandmother was born in the West Indies about 1860 in a family that had lived there for generations. My sense of photographic history is that those had to be taken after emancipation.
On the other hand, my research into Turks & Caicos trying to find traces of my family reveals that American Southern Families unwilling to give up some of their slaves sojourned there after 1865. I don't the outcome of that story either.
Yeah, but his data start post-revolution in France, so he's not analyzing the post-ancien regime redistribution (also, probably more importantly, inflation via the assignat).
The Britain issue is more complicated; "landed gentry" may not have dominated but you largely had similar families with similar fortunes, with of course some rising up and falling down in specific cases. The children of people who inherited a lot of wealth from that huge enclosed farm in 1830 were (on the whole) still doing extremely extremely well in 1914.
77 to 75.
The whole point is that capital is (on the whole) perfectly capable of diversifying out of land ownership, or anything else, as its value declines, not that a the value of a particular asset remains constant over time.
72: My frustration has absolutely nothing to do with it's relevance to his argument. It's just that in popular discussions of slavery, it is so often viewed as a uniquely American (well, the whole of the Americas) problem.* It bothers me that Piketty seems to waive away European wealth derived from the slave trade by just saying 'I'm not going to count that, because.' I feel, however, that I must not be articulating my view on this properly.
*And, just in case it needs to be said, I am not trying to minimise the incredible lengths to which Americans took slavery.
I'm still catching up, but I have gleaned one insight from the world of modern economics:
Piketty, Hayek, Schumpeter, Mankiw.
What do these men have in common? Clearly, each of their names sounds very much like a Pokemon. Bear this in mind.
Much 19th century British literature covers the efforts of landed gentry families to get their hands on that sweet industrial wealth. Henry James too -- marrying an American was a popular method.
76: My maternal grandmother's family is from the Florida Keys and before that somewhere else in the Caribbean - I really wish I knew more.
I am a total drive-by drop-in on this, but I think an economic curve with inflections around 1700 and 1910 says: Biomass to coal; coal to oil.
Pretty sure I've read stable isotope studies agreeing, but I can't find them casually, so, out of my materialist hat it is. How much does Piketty mention Braudel?
(I am working on Warren's book with the brain-cells that might read Piketty.)
37 is actually pretty plausible. That is not the drugs talking.
It seems to me that Piketty views "capital" as the productive physical assets of the economy. If the rich enslaved the rest of us today, it wouldn't materially increase the amount of capital-in-Piketty's-sense, so it makes sense to exclude it.
I was going to endorse Piketty's view here, but now I'm going to equivocate. What if part of the value of capital is that implies the legal right to expropriate part of the value of someone's labor? Then slavery is just the extreme version.
I can believe in a "fixed amount of political power" story, but I don't see how that leads to a fixed capital/income ratio. The productive capacity of the economy changes through time, right? You would expect the value of the capital go up, but thanks to political power, that doesn't translate fully into changes in income. You would need to explain why the changes affect the numerator and denominator of the capital-income ratio equally.
"landed gentry" may not have dominated but you largely had similar families with similar fortunes, with of course some rising up and falling down in specific cases. The children of people who inherited a lot of wealth from that huge enclosed farm in 1830 were (on the whole) still doing extremely extremely well in 1914.
My point is that it wasn't 'similar families'. The hereditary landed elites had dominated economically and politically for centuries and constituted a group with an incredibly strong sense of collective identity. Then in the space of two generations they no longer dominated - it was the new urban bourgeoisie.
Re: slavery it clearly is a very major component in US wealth, and a much smaller, but non trivial one for France c. 1780 - and in France (and Britain) he does trace the scale and composition of capital back to the start of the eighteenth century.
Also a question - how does he treat colonial property in the first British and French empires? For the nineteenth century it's clear that he treats it as part of the net foreign capital but in his discussion of net foreign capital being trivial in the eighteenth, if he's treating colonial property as foreign, then I suspect his argument that it was negligible in the eighteenth is badly skewed by omitting slaves.
Then in the space of two generations they no longer dominated - it was the new urban bourgeoisie.
But this is right only if you make the immediate source of wealth all-important. In terms of who the actual individuals were, or their families, it turned out not to matter much at all. It's like saying that there's been a sea-change because the descendants of Henry Ford are now heavily invested in the internet instead of component parts for Model Ts. That may be true, and there may be some cultural changes as a result, but in terms of overall wealth, inequality, and dominance of the economy it's a giant who cares, which is the whole point.
83.2 Admiringly in the introduction, not otherwise.
84.2 I think productive and alienable (that is, can be sold or used as loan collateral) are the properties of capital-- so human capital existed in the US up to 1865.
In terms of who the actual individuals were, or their families, it turned out not to matter much at all.
I'm pretty sure that's wrong. IIRC Cannadine in his Decline and Fall of the British Aristocracy looks at the actual people in the elite by background and finds a pretty drastic shift. Or in other words it's more like as if these days half the top 0.1% in the South were black, but with the descendants of the top 0.1% in 1960 still doing pretty damn well relative to the average person. /banned for analogy but I think that the shift from a hereditary legally defined landed elite to an urban bourgeoisie is pretty damn momentous.
I'm in the middle of Carol Stack's All our Kin, which NickS indirectly recommended
Oh, right, in the excerpt from The Gift. I haven't read it, I'm glad that you're enjoying it, and I will take this as an opportunity to also generally recommend The Gift. Looking it up, I like this description.
Hyde's admirers often point out with awe (and his reviewers with frustration) that his books are all but impossible to summarize. Hyde doesn't object to this assessment. He wrote "The Gift" because he could find no place where his own motivations for writing poetry were well articulated, but articulating them required a poet's suggestiveness. . . .
Not acknowledging the European role in the slave trade simply because they emancipated first or didn't practice it at home doesn't mean it didn't happen.
Yeah, he's not pretending slavery didn't exist, he presents alternative charts elsewhere with slavery counted as assets.
Also, this might be a stab in the dark, but there's a sense in which this is consistent with not accepting the more recent concept of "human capital". Just as people are not legitimately the property of others, they are also not the property of themselves - they're people and sui generis.
If the rich enslaved the rest of us today, it wouldn't materially increase the amount of capital-in-Piketty's-sense, so it makes sense to exclude it.
He explicitly considers slavery in ch. 4.
And, really, isn't a slave a productive physical asset?
88 -- this comes up later in the book, but you can see a more technical version of the argument here. Basically, the share of inherited wealth seems to have remained more or less constant throughout the 19th century in both Britain and France, with a slight uptick in the share of inherited wealth at the end of the 19th Century -- around 80-90% of aggregate wealth at the end of the period. Whatever the 19th century industrial revolution did or didn't do, it didn't substantially affect the power of inherited wealth.
But you're a productive physical asset. Should we count you as a wealth? We could be good Randians and say that you own yourself, and therefore you are wealth that currently belongs to you.
90.1: It is the hand-wavey nature of looking at American slaves as capital but not European ones in overseas colonies that bothers me, but I'll wait until I've forged ahead before continuing to derail the conversation. Are the alternate charts online or elsewhere in the book? I'm sure y'all are right that it doesn't really impact his argument.
90.2: It seems to me that if you can use your slaves to secure a loan or live off the profits of their labour or sell their children at nearly pure profit, they're capital in a way that 'human capital' doesn't even come close to. But I could see how that would influence that line of thought. (And of course I would agree with that reasoning in the abstract, but the historian in me gets caught up in looking at it from the view point of the historical person, which of course is not what Piketty as an economist is doing in the book.)
You would expect the value of the capital go up, but thanks to political power, that doesn't translate fully into changes in income. You would need to explain why the changes affect the numerator and denominator of the capital-income ratio equally.
Yes, but remember for him "capital" is net of depreciation and "income" includes yearly income from capital. So a steady-state but high capital/income ratio can exist so long as you're depreciating the capital stock properly, and noting that increased capital also leads to that capital producing increased income, increasing the denominator at the same time the numerator increases. I think anyway.
It seems to me that if you can use your slaves to secure a loan or live off the profits of their labour or sell their children at nearly pure profit, they're capital in a way that 'human capital' doesn't even come close to.
Yes, he acknowledges and discusses exactly this point at length. "Slave capital" is really different than human capital, and he looks at it differently.
It's really not fair that you've read ahead. (Insert deprecated emoticon.) I did assume he was aware of all that. I just don't understand the choice re: Europe. But I've gone on and on about it and clearly it doesn't matter. Let's get back to the French making fun of the British. That's the important stuff.
98: isn't the different way he looks at it more or less to say that slave capital is the only thing "human capital" could really be?
61: Government bond markets in the nineteenth century were super-weird. Apparently the yield curve sloped down -- longer maturity bonds had lower interest rates than shorter maturity bonds.
100: Human capital represents the difference between skilled and unskilled labor. Skilled labor has more "human capital".
102.2 -- What he's saying is that this standard definition isn't usefully thought of as a form of capital, for purposes of examining inequality of both income and wealth.
Anyhow, the issue that both Teraz and Essear are raising seems to me to be incredibly interesting, counter-intuitive, and important.
If England and France between 1800 and 1910 -- countries that went through a gigantic transformation of how work was arranged, where people lived what things were made, what technologies existed, etc., supposedly new "classes," etc. -- really didn't see much of a change in either the capital/income ratio or [spoiler alert] the share of inherited wealth in overall national wealth, that is an incredibly interesting, surprising, and important fact about how capitalism, inequality, and inheritance work.
My impression was that the structure of the book is set up the mystery of the historical record, and then bam! explain it all via r > g. I haven't read that far, so I don't know if his explanation holds up. He did emphasize the low g in chapter 2, and now he's emphasizing the high capital-income ratio for the same periods, so I assume these will turn out to be connected.
Have people seen Business Week's Piketty cover?
YES HALFORD I KNOW THIS IS A POOR SUBSTITUTE FOR READING THE BOOK
105 -- yes. The 19th century steady-state capital (or "wealth")/income ratio gets explained in terms of r>g later in the book. Or, way more confusingly and technically and in a way I don't really understand here, in the paper I linked above.
102.2: Do strength and stamina count as skills?
108: That's a great link to have. I've already seen some of the dickheads out there say "but his math is all wrong," and it was hard to be sure if they were full of shit.
109: Strength and stamina that you're born with are endowments, strength and stamina that you must work to develop are capital. It's like the difference between unimproved and improved land. You could have unimproved land that's highly productive, but only the improvements count as "capital" in the usual sense.
This is besides the point for Piketty because "the return to human capital" shows up as labor income in the national accounts.
110: Did you not read the midweek Piketty thread?
112: That was the "data is all wrong". There's now "the economic theory is all wrong".
That paper is depressing. I can pretend to understand things pretty decently if they're put into non-rigorous, non-mathematical language with lots of literary references, but once the real deal with algebra starts it's time to go bang some rocks together and pick nits from my fur.
Brad points out an example here.
I haven't read the paper in detail, but I think this is the implicit argument. They consider two cases:
1. Suppose people save a fixed amount of income, and that gets turned into capital. This is the Solow growth model. Then it's not that hard to see that the economy will tend to a steady state. You can even do this in a spreadsheet, and see that's what happens.
2. Suppose people optimize some objective. Then the optimal path will drive you towards a steady state. This is where you're definitely better off banging rocks together.
They then compare steady states. If you lower the growth rate, then you increase the capital-income ratio in the steady state.
95 90.1: It is the hand-wavey nature of looking at American slaves as capital but not European ones in overseas colonies that bothers me
I don't think it's hand-wavey. I'm pretty sure he says that in the European case it would make a very small difference if added, unlike the case of the US South.
My plan had been to read piketty in bed at night, but it's a notch too academic for me to get/get into in that context. I'd have to carve out time to read this during the day, maybe even with paper and pencil. How formally do you all read this? Do you guys just read it like a novel, or do you work harder at it?
116 Suppose people save a fixed amount of income, and that gets turned into capital. ... If you lower the growth rate, then you increase the capital-income ratio in the steady state.
This sounds like chapter 5 of the book, about how a fixed savings rate to growth rate ratio leads to a fixed capital-to-income ratio (at least asymptotically). But I feel like we need history and not just abstract theory to tell us why the savings rate to growth rate ratio would have stayed constant for so long.
Piketty needs to learn how to do proper em dashes in LaTeX.
119 -- I absolutely agree, but it seems to me you can get there pretty easily with a story about how people had (a) a desire to finance a particular aristocratic lifestyle (b) a desire to maintain this lifestyle for their children, combined with (c) strong protection for existing capital and (d) a long time span in which capital has accumulated.
In other words, if people have a relatively constant desire both have an opulent lifestyle, and to create dynastic wealth, and the social and political structure is set up to allow them to do so, and there have been several generations passed in which dynastic wealth has accumulated, you get the conditions for a relatively stable savings/growth ratio over a long period of time. Growth goes up, you save a bit more of the new profits; growth goes down, you save a bit less but still enough to maintain the fortune. The ratio stays about the same. That seems like a plausible reading of rich people's behavior generally, maybe especially in the 19th Century.
It's when you start actually destroying the existing capital, such that spending for consumption to maintain the lifestyle kills off the remaining capital for the dynasty, that the steady state breaks.
117: Yeah, in chapter 4, page 162: "Since foreign assets did not exceed 10 percent of national income in these two countries at the beginning of the nineteenth century, the share of slaves in total wealth was obviously smaller than in the United States" -- he estimates slaves to be about a third of US wealth at the time.
Regarding slave capital versus human capital, I think he says that it only makes sense to consider something capital if you can actually calculate a rate of return on it. So for slave capital you can look at the returns to purchasing slaves at market prices, while for generic human capital there is no valuation, only income flows. You could make up a rate of return on human capital to convert labor income into a measure of human capital, and make the "discovery" that human capital is larger than all other forms of capital combined, but that's a pointless step because you can just compare labor income to capital income directly.
You also kill off the rules that mandated that you keep the bulk of your capital intact from generation to generation. Partly by actually changing the law, partly because agricultural land stops being particularly valuable. If you're not allowed to spend down your core capital and you're required to give all of it to one heir, that's going to have a significant effect.
I'm still not convinced that you're not seeing a massive destabilization of the British elite in the half century or so leading up to WWI. What I mean is that if in 1850 you looked at the top 0.1% the proportion who had at least one grandfather who was also in the top 0.1% would be very high compared to 1914. That would seem to be in tune with Piketty's argument that higher productivity and population growth lead to greater elite instability.
To follow up on 122.1, a third of US wealth (including slavery) was about 150% of national income in the early 19th century, if I'm reading the charts and text correctly. So slavery would be at least an order of magnitude more important in the US compared to England/France.
123 -- I don't have the book in front of me, but I take a look at these graphs. For France, where there's much better data than for England, you had inherited wealth at about 80-90% of total wealth by 1910. Rentiers living largely off of inheritance were about 50% of the "middle rich" (90th-99th percentile) and about 70% of the very rich (the 1%). Those numbers stay relatively stable throughout the century, but inherited wealth actually increased its share by the end of the 19th century. There's not much reason to think that inherited wealth in England would have done worse.
I think that you may be confusing a phenomenon that seemed important and shocking to contemporary observers (the rise of the wealthy non-aristocrat in new industries) with how wealth was actually being accumulated and transmitted. It's perfectly plausible that 19th C observers thought the self-made-men were taking over and doing well, and that aristocrats married off their daughters to such men, while at the same time wealth (a) remained extraordinarily concentrated and (b) inherited wealth stayed predominant through generations. There's no dispute that capital shifted out of land and into other enterprises; but capital remained concentrated and inheritors of wealth, not surging self-made men, retained the overwhelming bulk of that capital, even though the composition of portfolios was completely transformed.
37: I just meant to what degree is it individuals like Tim Geithner or George Osborne setting policy to favour the rich ("we can't do that, Aunt Maisie will be ruined!"), ie conspiracy, vs capitalists as a class, doctors, stockbrokers, lawyers, moneyed people of leisure etc working with the institutions of government, capitalism, settled law, social convention, etc, ie social dynamics.
118: I read this chapter in the bath, but it's a little too heavy to hold comfortably and that's I could probably engage more deeply otherwise but haven't bothered yet. I read just about everything like a novel, though.
Among newly wealthy, one would expect the shirtsleeves to shirtsleeves in three generations thing to have been pretty common.
127: A board laid across the bathtub for support makes reading even the weightiest tomes comfortable. And it gives you a place to put your wine glass, if you don't like leaving it floating.
I've been enjoying the discussion so far. I also thought Halford's #64 was great.
It needs a pithy summing up phrase or maxim tho, something like: the law perpetuation of class privilege.
I don't remember if it is in chapter 3 or later, probably later but Picketty talks about 'wastrels' I think, the people who spend away the accumulated wealth of generations. He points out that they are a limiting factor in how large fortunes can grow. I think there is a general human tendency that contributes to limiting over all capital accumulation when fortunes permit a bit too much ease. i.e. that might be one factor limiting the capital ratio, another being the need to prevent righteous revolution.
Did anyone here catch the Q & A session with Piketty and Elizabeth Warren? I found the contrast between them or his reactions to her pretty amusing. I could sense his general skepticism about America's vision of itself (as expressed through its politicians) radiating through the screen. At the same time, of course, he was perfectly polite and comradely and sounded notes of concordance very compellingly. It was almost touching, the way he got over himself or his complicating inclinations in order to work for common political good.
Dudes, I am aware that it is not as big of a fraction of the economy in Britain or France. I just specifically find him saying we're not going to count it for them because morals really odd. Obviously it's just me. (And possibly this is a form of the phenomenon wherein one academic criticises another for not touching on his or her pet project, when the work isn't about his or her pet project. Not that I am an academic any longer.)
I totally understand what you mean, (), despite not having read any of the Piketty.
Not just you, Paren! I thought yours was a pretty straightforward response and one that I share.
This is a really really important point and I agree that it's one the implications of which Piketty doesn't really grapple with (though I think he's pretty clearly established that it actually happened).
If he's established that it happened, and he has, is it incumbent on him to establish why? He may not have a clue. It may be his next project. But it's tangential to this one, which is to demonstrate from historical data his assertion that there tends to be a relationship between the ratio of the rate of return on capital to the rate of growth and economic inequality.
If in doing so he happens to illustrate a curious datum about the behaviour of wealth in the c.19, that nobody seems to have noticed for a hundred years, it's at least arguable that it would be a diversion from his main thesis if he started chasing after explanations for it. The damn book's already 600 pages long!
Picketty talks about 'wastrels' I think, the people who spend away the accumulated wealth of generations. He points out that they are a limiting factor in how large fortunes can grow.
What would a society look like which chose to fight inherited inequality not by redistributive taxation, but by carefully encouraging the inheritors of wealth to spend as much of it as they possibly could?
What would a society look like which chose to fight inherited inequality not by redistributive taxation, but by carefully encouraging the inheritors of wealth to spend as much of it as they possibly could?
Much like this one?
No entail, no protected timber, perfectly respectable people buy their furniture, remittance men expect far too much. I guess this *is* a good thing.
In mediaevel Gaelic society all sons shared in inheritance and if you were wealthy it was a very high status thing to set yourself up as a hospitaller, basically hosting visitors for free. (Welsh inheritance was the same I think.)
It looks like this sets up distributive societies to be conquered by accumulative ones.
Like O.J. letting Kato live in his pool house.
Maybe this is something to discuss in more depth in the New World chapter, but I found footnote 15 to that chapter provided an interesting perspective.
If each person is tread as an individual subject, then slavery (which can be seen as an extreme form of debt between individuals) does not increase national wealth, like any other private or public debt (debts are liabilities for some individuals and assets in others, hence they cancel out at the global level).
According to the pedia thing, FWIW, the settlers attempted to make potlatch celebration illegal at least partly because it was designed to prevent the accumulation of excessive wealth in single families and the settlers regarded this as immoral.
And, just for the sake of cross-threading from the discussion about Docker, here are some classic wastrels.
"I have got innate breeding, but I have not got any money."
Potlatch, Sasquatch, ooh I want to feed you
Cle Elum, Nanaimo, come on pretty mama
Issaquah, Coquitlam, baby let's go on the lam
Ooh I want to take you up to Puyallup
136: That would be about as successfull as Summers' plan to hope for a modern-day Carnegie to make large inheritance uncool.
135: If in doing so he happens to illustrate a curious datum about the behaviour of wealth in the c.19, that nobody seems to have noticed for a hundred years, it's at least arguable that it would be a diversion from his main thesis if he started chasing after explanations for it.
Agreed. But I will make a prediction that in the long run, his primary thesis will not be seen as the most interesting or enduring aspect of the book and related work effort. Rather I think it will be bringing to the fore the overall approach to analyzing and incorporating the historical data,and the establishment of the global wealth and income databases.
I agree totally with 148.
I'm fond of the wealthy wastrel strategy because it will increase demand for high end luxury cars and private submarines, but it probably won't scale effectively. Plus you wealth-hoarding puritans are all like "the Pagani Huayra is vulgar, let's talk about my virtuous $2000 bicycle."
bringing to the fore the overall approach to analyzing and incorporating the historical data,and the establishment of the global wealth and income databases.
At least in the U.S. "economics" has for years been tightly identified with things like conducting inane thought experiments which "prove" that discrimination can't exist cuz free markets. The entire idea of actually looking at the data and taking it seriously seems novel in that context.
Picketty talks about 'wastrels' I think, the people who spend away the accumulated wealth of generations. He points out that they are a limiting factor in how large fortunes can grow.
Although given the shear magnitude of the 0.01%'s wealth, it would take a pretty epic level wastrel to spend it away.
Maybe encouraging interminable Jarndyce & Jarndyce style lawsuits between heirs would be a more efficient mechanism for draining wealth. And it would help alleviate the employment crisis in the legal sector. Win win!
Prescription for equality:
- global wealth tax
- encourage wastreldom
- bring back chancery
Sounds good to me!
The Athenian system of liturgies might come in useful here. The DoD requests a new aircraft carrier, and the Senate nominates Charles Koch to pay for it.
152: Sumptuary laws as the mechanism for #2. (As suggested in, I think, a previous Piketty thread, but which I can't find.)
How do sumptuary laws *encourage* wastreldom?
153 sounds fairly close to feudalism.
Encouraging billionaires to spend their billions on (eg) space exploration would be pretty good as well. We all need to keep saying how much we admire Elon Musk, then other billionaires will be tempted to emulate him.
If they require courtiers to wear cloth of gold they do. But that's the reverse of their usual application.
Right, reverse sumptuary laws - the richer you are the more helicopters and grottos you have to buy and maintain.
I just finished a book on the Habsburgs, and they seemed to be constantly on the brink of bankruptcy despite their enormous sources of wealth.
Maybe the solution is to nominate one of the Koch brothers for Holy Roman Emperor.
the Pagani Huayra is vulgar, let's talk about my virtuous $2000 bicycle.
Lurking on the Piketty Reading Group has broadened my horizons - perhaps not for the common good. I looked up the Pagani Huarya, thank you Halford, and Wiki says it's available for a cool $1.3 million. Even more enticing, "It is named after Wayra Tata, which means 'God of the winds' in Quechua, the official language of the Inca Empire."
Encouraging billionaires to spend their billions on (eg) space exploration would be pretty good as well.
Arg.
I had a conversation with my colleagues at lunch yesterday about the tech school down the road's new institute devoted to stopping our future evil robot overlords. My senior colleague was more favorably inclined toward the idea than the rest of us.
Apparently it's not just about evil robots. It's also about things like how in 10 years (or was it 20?) we'll all be able to upload our brains into computers.
The self-driving car trolley problems came up too. But the quality of discussion on all these things is much better on this blog than at a table full of my colleagues.
It seems like theoretical physics has done remarkably well at getting large amounts of private billionaire $$ recently.
While private funding for science seems like a better way of dispersing concentrated wealth than many others I can think of, I'm not sure how I feel about returning to the 19th century.
150: The media makes it look like this, but it's less true than you might think. Piketty has been publishing in top economics journals his whole career. For example, he published "Income inequality in the United States, 1913-1998" in the Journal of Political Economy which is not only a top journal, but published by the University of Chicago.
Economists probably take history less seriously than they should, but it's not really a fringe activity. Christina Romer, before she was in the Obama administration, mainly worked on economic history, for example.
165.1: Not in a very useful way. The number of postdocs and grad students that can be supported is in pretty sharp decline. People who were already doing really well for themselves are doing better. The rate of return on success is good but the growth rate is negative....
Developing wonderful new datasets is not very headline-grabbing, unfortunately. (I do remember Piketty before this book from "Piketty-Saez" when the pair was putting more stuff forth on income inequality.)
151.2 gets it exactly right.
151.2, 170: This is an argument for giving all the wealth to Halford. He'd make MC Hammer look like a skinflint.
161, 162: Is this a Kurzweil thing? I thought they were in favor of our coming robot overlords.
It would be cool to have competing think tanks, one promoting the robot overlords and one opposed to them.
No, it's some crazy Bayesians who have concluded that logic dictates that the biggest threat to humanity is killer robots. It's the stupidest fucking thing ever. Yes, even stupider than George W. Bush, New Coke, or the Seinfeld finale.
I have mixed feeling on Bayesians, but I'm going to assume that's not an uncontroversial application of Bayes' law even among Bayesians.
Silly Piketty, extrapolating trends into the future without explaining how the Singularity will utterly transform the very nature of human existence in ten to twenty years.
If we're going to fund stupid pseudoscience it should be back feeding Aurochs. As Piketty argues in Chapter 13.
Back BREEDING. I don't care which end the Aurochs feed from.
"Why are you goddamned scientists looking for the tribe of mole people that live inside the earth's crust when you could be stuffing grain into that cow's ass?"
Is, uh, is my summary of Piketty Chapter 3, to keep things on topic.
Beasts of the Southern Wild II: The Aurochs Get It In the End
No, it's some crazy Bayesians who have concluded that logic dictates that the biggest threat to humanity is killer robots.
If this is really what super-rich people in Silicon Valley think, is there a way we can reorient them to replace "killer robots" with "robots that make everyone unemployed"?
Beasts of the Southern Wild II: The Aurochs Get It In the End
Never thought of Poland as 'Southern'. Kings were still munching on roast aurochs there in the Renaissance IIRC.
Is this the thread to volunteer for chapter posts? I'm willing to take one of them. (I have been reading, just not participating in the threads much.)
I'm up to 14 on the waiting list. I bet a lot of people hadn't seen it before placing a hold and then decided they weren't going to read it.
Conflated has chapter 6 -- do you want 5? Or 7 or 8, if you prefer.
Fake Accent, didn't I FB-message you a link to the epub?
5, 7, 8, whichever. No preference.
188: it's possible, but I really am waiting for paper.
181: The latter problem can at least in principle be recovered from.
