[Original review is here. Don’t worry, people who had interesting comments on the review – I’ll try to get a comments highlights thread up eventually.]
For Ricardo, who published his Principles of Political Economy and Taxation in 1817, the chief concern was the long-term evolution of land prices and land rents. Like Malthus, he had virtually no genuine statistics at his disposal. He nevertheless had intimate knowledge of the capitalism of his time. Born into a family of Jewish financiers with Portuguese roots, he also seems to have had fewer political prejudices than Malthus, Young, or Smith. He was influenced by the Malthusian model but pushed the argument farther. He was above all interested in the following logical paradox. Once both population and output begin to grow steadily, land tends to become increasingly scarce relative to other goods. The law of supply and demand then implies that the price of land will rise continuously, as will the rents paid to landlords. The landlords will therefore claim a growing share of national income, as the share available to the rest of the population decreases, thus upsetting the social equilibrium. For Ricardo, the only logically and politically acceptable answer was to impose a steadily increasing tax on land rents.
This somber prediction proved wrong: land rents did remain high for an extended period, but in the end the value of farm land inexorably declined relative to other forms of wealth as the share of agriculture in national income decreased. Writing in the 1810s, Ricardo had no way of anticipating the importance of technological progress or industrial growth in the years ahead. Like Malthus and Young, he could not imagine that humankind would ever be totally freed from the alimentary imperative.
One underappreciated feature of Piketty is his engaging presentation of economic history. A constant feature of the theorists he discusses is that they are all brilliant thinkers, they all follow the trends of their time to their obvious conclusions in ways deeper and more insightful than their contemporaries – and they all miss complicated paradigm shifts that make the trends obsolete and totally ruin their theories. Rationalists take note.
Like Ricardo, Marx based his work on an analysis of the internal logical contradictions of the capitalist system. He therefore sought to distinguish himself from both bourgeois economists (who saw the market as a self-regulated system, that is, a system capable of achieving equilibrium on its own without major deviations, in accordance with Adam Smith’s image of “the invisible hand” and Jean-Baptiste Say’s “law” that production creates its own demand), and utopian socialists and Proudhonians, who in Marx’s view were content to denounce the misery of the working class without proposing a truly scientific analysis of the economic processes responsible for it.7 In short, Marx took the Ricardian model of the price of capital and the principle of scarcity as the basis of a more thorough analysis of the dynamics of capitalism in a world where capital was primarily industrial (machinery, plants, etc.) rather than landed property, so that in principle there was no limit to the amount of capital that could be accumulated. In fact, his principal conclusion was what one might call the “principle of infinite accumulation,” that is, the inexorable tendency for capital to accumulate and become concentrated in ever fewer hands, with no natural limit to the process. This is the basis of Marx’s prediction of an apocalyptic end to capitalism: either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists), or capital’s share of national income would increase indefinitely (which sooner or later would unite the workers in revolt). In either case, no stable socioeconomic or political equilibrium was possible.
Marx’s dark prophecy came no closer to being realized than Ricardo’s. In the last third of the nineteenth century, wages finally began to increase: the improvement in the purchasing power of workers spread everywhere, and this changed the situation radically, even if extreme inequalities persisted and in some respects continued to increase until World War I. The communist revolution did indeed take place, but in the most backward country in Europe, Russia, where the Industrial Revolution had scarcely begun, whereas the most advanced European countries explored other, social democratic avenues—fortunately for their citizens. Like his predecessors, Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital. He no doubt lacked the statistical data needed to refine his predictions. He probably suffered as well from having decided on his conclusions in 1848, before embarking on the research needed to justify them.
As above. I didn’t previously understand exactly what Marx meant by “capitalists digging their own grave” or why it didn’t come true. In general, I seem to have missed how recent the idea of “economic growth” was. I don’t really understand how 19th- and even some 20th- century economists could fail to understand this, though it seems like they had some complicated thoughts on this issue – see eg this article’s descriptions of Smith’s, Ricardo’s, and Mill’s ideas of the “steady state economy”. Read history of economics backwards!
(but for a contrary perspective, see this comment thread)
In any event, the data that Kuznets collected allowed him to calculate the evolution of the share of each decile, as well as of the upper centiles, of the income hierarchy in total US national income. What did he find? He noted a sharp reduction in income inequality in the United States between 1913 and 1948. More specifically, at the beginning of this period, the upper decile of the income distribution (that is, the top 10 percent of US earners) claimed 45–50 percent of annual national income. By the late 1940s, the share of the top decile had decreased to roughly 30–35 percent of national income. This decrease of nearly 10 percentage points was considerable: for example, it was equal to half the income of the poorest 50 percent of Americans.13 The reduction of inequality was clear and incontrovertible. This was news of considerable importance, and it had an enormous impact on economic debate in the postwar era in both universities and international organizations.
Malthus, Ricardo, Marx, and many others had been talking about inequalities for decades without citing any sources whatsoever or any methods for comparing one era with another or deciding between competing hypotheses. Now, for the first time, objective data were available. Although the information was not perfect, it had the merit of existing. What is more, the work of compilation was extremely well documented: the weighty volume that Kuznets published in 1953 revealed his sources and methods in the most minute detail, so that every calculation could be reproduced. And besides that, Kuznets was the bearer of good news: inequality was shrinking.
Another good rationalist lesson! If your conclusion from the stories above was “never try to just reason things out from first principles, wait until you get empirical data”, then remember the lesson of Kuznets, who got 35 years of empirical data, drew all of the most reasonable conclusions from it, but happened to be working in an atypical economic period and so got his conclusions exactly backwards.
In slowly growing economies, past wealth naturally takes on disproportionate importance, because it takes only a small flow of new savings to increase the stock of wealth steadily and substantially.
If, moreover, the rate of return on capital remains significantly above the growth rate for an extended period of time (which is more likely when the growth rate is low, though not automatic), then the risk of divergence in the distribution of wealth is very high.
This fundamental inequality, which I will write as r > g (where r stands for the average annual rate of return on capital, including profits, dividends, interest, rents, and other income from capital, expressed as a percentage of its total value, and g stands for the rate of growth of the economy, that is, the annual increase in income or output), will play a crucial role in this book. In a sense, it sums up the overall logic of my conclusions.
When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century and as is likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income.
The shortest and clearest presentation Piketty gives of his r > g inequality.
The dynamics and structure of inequality look very different in a country whose population increases by a factor of 100 compared with a country whose population merely doubles. In particular, the inheritance factor is much less important in the former than in the latter. It has been the demographic growth of the New World that has ensured that inherited wealth has always played a smaller role in the United States than in Europe. This factor also explains why the structure of inequality in the United States has always been so peculiar, and the same can be said of US representations of inequality and social class. But it also suggests that the US case is in some sense not generalizable (because it is unlikely that the population of the world will increase a hundredfold over the next two centuries) and that the French case is more typical and more pertinent for understanding the future.
Contrary to the popular consensus today, the American Dream was very real for most of America’s history. This was less due to American ideals and institutions, and more the fact that America (as a new country) had less time to accumulate a rentier class, which takes a couple generations for the fortunes to really multiply. And as a country with a very high population growth rate (remember the average colonial New England family had like 10 kids), any wealth that did get accumulated was quickly diluted over a bunch of children instead of inherited as a chunk. This was at least true in the North and frontier – the South, which inherited a lot of the worst parts of the 1600s English upper-class, got a society along the lines of the European aristocratic model with rentier plantation owners. Traditional models of labor-capital split generally fail to capture this because much Southern wealth was in the form of slaves, ie labor turned into a form of capital, which confuses the models. But as for the rest of the country, Piketty approvingly quotes Tocqueville’s description of America as “a land without capital”.
American exceptionalism lasted until the late 1800s/early 1900s. As much as people like to make fun of Horatio Alger stories, they were an exaggerated but accurate (or at least more accurate) portrayal of the society of the day. As America aged, got time to accumulate large multigenerational fortunes, and lowered its birth rate, its inequality and intergenerational-mobility became as bad as or worse than Europe’s, depending on what metrics you use.
I belong to a generation that turned eighteen in 1989, which was not only the bicentennial of the French Revolution but also the year when the Berlin Wall fell. I belong to a generation that came of age listening to news of the collapse of the Communist dictatorships and never felt the slightest affection or nostalgia for those regimes or for the Soviet Union. I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism, some of which simply ignored the historic failure of Communism and much of which turned its back on the intellectual means necessary to push beyond it. I have no interest in denouncing inequality or capitalism per se—especially since social inequalities are not in themselves a problem as long as they are justified, that is, “founded only upon common utility,” as article 1 of the 1789 Declaration of the Rights of Man and the Citizen proclaims. (Although this definition of social justice is imprecise but seductive, it is rooted in history. Let us accept it for now. I will return to this point later on.) By contrast, I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate.
Including this to defend Piketty against accusations that he is a communist. He’s obviously some stripe of leftist, and his writing can be infuriatingly preachy in a very specifically leftist way at times, and if you are a rightist reading him you will probably hate him for totally preventable tone-related reasons – but he is a lot more moderate than his critics give him credit for, and shares the capitalist-but-concerned-about-inequality position that I and many readers here can probably identify with.
To a first approximation, the residents of [modern First World] countries own as much in foreign real estate and financial instruments as foreigners own of theirs.
Piketty helped me better understand the anti-colonialist position. It isn’t just that the colonizers were traditionally oppressive in the sense of taking over the government and committing human rights violations (though of course many were). It’s that – and this is the part I didn’t understand even when people chanted it at me as a slogan ad nauseum – colonialism was a partly a form of capitalism. Part of what “the British colonized Africa” means is that they set up a lot of companies in Africa with British people as the shareholders. Those companies went and did company things – some evil and rights-violating, others normal and productive – but the profits all went to British shareholders. Extended forever into time, that means that if the labor-capital split in Africa is X, then X% of Africa’s production will go to forever go to Britain, and only 1-X% to Africa.
One might argue that Britain invested money in developing Africa, which can only work with the prospect of repayment on normal investment terms. And one might even argue that it’s no worse for the average African laborer to have X% of his country’s money go to British elites he doesn’t know vs. than to African elites he doesn’t know. But this would be overstating the case – the British elites spend their money primarily in Britain, further developing Britain’s economy, whereas the African elites could be expected to spend their money mostly in Africa. And since (absent appropriation) a capitalist’s ownership of capital lasts forever, the British do a one-time positive action (investing in Africa) that produces an eternal negative action (having them get to drain some of Africa’s money forever). Although it’s not provably/necessarily true, in real life this is probably worse for Africa than leaving it alone and/or letting it invite foreign investment on the much better terms it could certainly have gotten if its governments weren’t controlled by the same people it was trying to negotiate with.
This also helps me understand the “colonialism still hurts countries today” position better.
In the novels of Jane Austen and Honore de Balzac, the fact that land (like government bonds) yields roughly 5% of the amount of capital invested (or, equivalently, that the value of capital corresponds to to roughly twenty years of annual rent) is so taken for granted that it often goes unmentioned.
Piketty’s habit of supporting his statistics with quotes from Jane Austen and other period novelists is endearing. And one thing he mentions again and again is that throughout the 18th and 19th century, novelists were frank about money in a way that sounds strange to modern ears. Austen and her contemporaries would introduce a character by saying “He made such-and-such a number of pounds per year” to help their audiences understand the social class they was talking about, and sometimes devote pages to exploring a character’s finances in realistic detail to add color to their financial problems or lack thereof.
He speculates that this is because, for centuries, there was little-to-no inflation or other dramatic changes in the economy. This gave the meaning of money ample time to percolate down into the culture. Everyone knew (and had always known) that X amount of pounds meant you were well-off, and novelists were confident that if posterity read their book fifty years later, the message would still be clear.
This stasis extended to international exchange rates, which never changed. “In the nineteenth and early twentieth century, everyone knew that a pound sterling was worth about 5 dollars, 20 marks, and 25 franks.”
This is fascinating, but I’m surprised by Piketty’s theory – surely novelists don’t write mainly for posterity. If people within the next five years understand what they meant, surely that’s good enough? But why did past novelists go into so much detail about finances in a way that sounds bizarre to modern ears?
In the classic novels of the nineteenth century, wealth is everywhere, and no matter how large or small the capital, or who owns it, it generally takes one of two forms: land or government bonds.
The 19th-century aristocrat living off his estates is a well-known figure in the popular imagination, but I was surprised to learn of his equally-common contemporary, the person living off government bonds. The UK government issued so many bonds to pay for the Napoleonic Wars that it created an entire class of bond tycoons who lived off the interest for generations. To its credit (and inconceivably to modern ears), the British government just plodded along paying its debt slowly but surely, and finally finished sometime around 1900!
This system worked because interest on government bonds was about 4% to 5% – much higher than today. Piketty doesn’t really explain why the rate of return changed. It also worked because nobody realized inflation was even a thing. After inflation started – and especially after a few bouts of hyperinflation – people quickly stopped living off government bonds except as part of a diversified portfolio.
This historical record is fundamental for a number of reasons. First, it enables us to understand why nineteenth-century socialists, beginning with Marx, were so wary of public debts, which they saw – not without a certain perspicacity – as a tool of private capital.
In today’s climate where the left gets accused of tax-and-spend and the right of cruel austerity, it’s interesting to learn that the 19th-century debate was exactly the opposite, and public debt was viewed as taking money from the people (in the form of taxation) to give to the rich (in the form of interest). I think this change might also be an effect of interest rates going down, plus more money going to social programs, plus more taxes coming from the rich, plus an optimism that inflation will eventually destroy the debt so there’s less reason to worry.
Piketty seems uncertain that the left remains correct in its about-face: “This ‘progressive’ view of public debt retains its hold on many minds today, even though inflation has long since declined to a rate not much above the nineteenth century’s, and the distributional effects are relatively obscure.”
Many traditional aristocratic societies were based on the principle of primogeniture: the eldest son inherited all (or at any rate a disproportionately large share) of the family property so as to avoid fragmentation and to preserve or increase the family’s wealth. The eldest son’s privilege concerned the family’s primary estate in particular and often placed heavy constraints on the property: the heir was not allowed to diminish its value and was obliged to live on the income from the capital, which was then conveyed in turn to the next heir in the line of succession, usually the eldest grandson. In British law this was the system of “entails” (the equivalent in French law being the system of substitution hereditaire under the Ancien Regime)…
The inheritance law that derived from the French Revolution and the Civil Code that followed rested on two main pillars: the abolition of substitution hereditaires and priomgeniture, and the adoption of the principle of equal division of property among brothers and sisters (equipartition). This principle has been applied strictly and consistently since 1804: in France, the quotite disponible (that is, the share of the estate that parents are free to dispose of as they wish) is only a quarter of total wealth for parents with three or more children, and exemption is granted only in extreme circumstances (for example, if the children murder their stepmother). It is important to understand that the new law was based not only on a principle of equality (younger children were valued as much as the eldest and protected from the whims of the parents) but also on a principle of liberty and economic efficiency. In particular, the abolition of entails, which Adam Smith disliked and Voltaire, Rousseau, and Montesquieu abhorred, rested on a simple idea: this abolition allowed the free circulation of goods and the possibility of reallocating property to the best possible use in the judgment of the living generation, despite what dead ancestors may have thought.
Primogeniture make sense in a perverse way. If Family X gives everything to the eldest children, but Family Y splits it equally, then a few generations down Family X will retain a line of nobles with vast wealth, whereas Family Y will be much poorer and maybe removed from the decision-making process. I’m not sure why you would enshrine into law that everyone has to do this, though – surely the winning move is to enforce primogeniture in your own family but hope your rivals are dumb enough to split their fortunes equally. Maybe the goal is to bind your own great-grandson, over whom you are otherwise powerless.
I’m surprised that great lords didn’t have the right to sell their capital. I guess I never hear about this, but it seems surprising that people were around to stop them.
The last paragraph is one of the few good arguments I’ve heard for constraining inheritance. I always get angry when I hear about rich people who clearly wanted one good child (or someone who wasn’t a child at all) to get their fortune, only to have this contested by a bunch of ungrateful children the rich person hated who believe they’re entitled to the money by birth. But Piketty makes an argument for a compelling social reason this might be enforced (although of course you could solve this just by saying rich people have to split their money at least n ways, and your ungrateful children who you hate don’t have to be one of those n).
I wonder if there is any history of noble families deliberately having only one child to avoid forced splitting of their fortune.
Several generations grew up [under conditions of inheritance barely mattering at all], in particular the baby boom generation, born in the late 1940s and early 1950s, many of whom are still alive today, and it was natural for them to assume that this was the “new normal”.
Conversely, younger people, in particular those born in the 1970s and 1980s, have already experienced (to a certain extent) the important role that inheritance will once again play in their lives and the lives of their relatives and friends. For this group, for example, whether or not a child receives gifts from parents can have a major impact in deciding who will own property and who will not.
I am part of the generation born in the 1970s and 1980s, and though my parents have been very helpful to me in many ways, inheritance as such has not mattered to me or any of my friends at all, because our parents are still alive.
People are living longer today than they did in the golden age of inheritance, and if 19th century nobles could expect to come into the family fortune in their 30s or 40s, modern people have to wait until their 50s and 60s. I have a few patients in this position, and what it usually means is that there are a few months of constant legal crisis as they fight with siblings and tax assessors, and sort through hundreds of old boxes, and try to prepare a house for sale, and when everything’s done with and the lawyers have taken their share, they get a decent but not game-changing amount to add to their retirement savings.
Because this happens so late, nobody can really say “I’m not going to go to school and pursue a career; after all, I’m going to inherit a fortune soon enough”. They can’t even avoid saving for retirement: both my parents have reached retirement age, but both my grandmothers are still alive and well.
I wonder if, as inheritance becomes more important, some market for solutions to this kind of problem will come up. Imagine an “inheritance insurance” company, which gives people with well-off parents (let’s say) enough to make a down payment on a house in their 20s/30s in exchange for a much larger amount from their inheritance later on, with some kind of built-in agreement not to worry if their parents’ house burns down the next day and they’re left with nothing. My guess is there are too many ordinary risks and moral risks here for this to work, but it’s interesting to think about.
Concretely, Harvard currently spends nearly $100 million a year to manage its endowment.
Part of Piketty’s section on how the super-rich (including colleges) get higher returns to their investment than everyone else. A good reminder that you should not donate to colleges.
The situation has been very different since the 1980s: with per capita income growth of just over 1 percent a year, no one wants large and steady tax increases, which would mean even slower if not negative income growth.
Another part of Piketty’s macroeconomic-history explanation of political trends: just after WWII, catch-up growth was so intense that everyone had more than they expected and it was easy to convince people to put some of it into the construction of a social welfare state (easier in Europe and Japan, which were most devastated by the war, than in the US and UK). As growth slowed down, people were no longer willing to give the government so much money. Countries with large welfare states mostly maintained them due to the ratchet effect, but expanding the welfare state further has become a much harder sell (I think I am understanding this right).
This is an interesting counterclaim to the intuitive story that the welfare state grows in bad times because more people need/want welfare. I don’t know if research has been done to see which of these is true. Plausibly sudden crises are conducive to welfare expansion, but a long run of predictably poor growth is bad for it?
This suggests we should see very little welfare state expansion in the near future, which does fit current data, although it’s hard to square with the sudden attractiveness of pro-welfare-state-expansion candidates like Bernie Sanders and Jeremy Corbyn.
Recent research has shown that the decline in government receipts in the poorest countries in 1980 – 1990 was due to a large extent to a decrease in custom duties, which had brought in revenue equivalent to about 5% of national income in the 1970s. Trade liberalization is not necessarily a bad thing, but only if it is not peremptorily imposed and only if the lost revenue can gradually be replaced by a strong tax authority capable of collecting new taxes and other substitute sources of revenue.
The claim being that developing countries, who may not be good at collecting income taxes, were hard-hit by trade liberalization because of direct revenue costs. I hadn’t heard this argument before and I wonder if anyone has calculated whether this effect outweighs any positive economic effects that liberalization could have. I know that about 100% of economists who are not working for the Trump administration at this exact moment are against tariffs, but I don’t know if maybe that’s just from the First World perspective.
It was the United States that was the first country to try [tax] rates above 70%, first on income in 1919-1922 and then on estates in 1937 – 1939. When a government taxes a certain level of income or inheritance at a rate of 70 or 80 percent, the primary goal is obviously not to raise additional revenue (because these very high brackets never yield much). It is rather to put an end to such incomes and large estates, which lawmakers have for one reason or another come to regard as socially unacceptable and economically unproductive – or if not to end them, then at least to make it extremely costly to sustain them and strongly discourage their perpetuation. Yet there is no absolute prohibition or expropriation. The progressive tax is thus a relatively liberal method for reducing inequality, in the sense that free competition and private property are respected while private incentives are modified in potentially radical ways, but always according to rules thrashed out in democratic debate…according to our estimates, the optimal top tax rate in the developed countries is probably above 80 percent.
This resolves some of my confusion about how it was possible to have 70% – 80% tax rates on the rich – it was never expected to work in terms of revenue collection, it was just a gentler way of setting a maximum wage.
I’m confused because Piketty seems to treat this as very effective and a big part of the reason why inequality was lower during the period it existed, whereas other sources I have read say it was constantly loopholed around and basically had no effect on anyone. Given that there were a lot of very rich people in the US around that time, it seems like loopholes must have been a big part of the picture.
How can public debt be reduced to zero? One solution would be to privatize all public assets. According to the national accounts of the various European countries, the proceeds from selling all public buildings, schools, universities, hospitals, police stations, infrastructure, and so on would be roughly sufficient to pay off all outstanding public debt. Instead of holding public debt via their financial investments, the wealthiest European households would become the direct owners of schools, hospitals, police stations, and so on. Everyone else would then have to pay rent to use these assets and continue to produce the associated public services. This solution, which some very serious people actually advocate, should to my mind be dismissed out of hand. If the European social state is to fulfill its mission adequately and durably, especially in the areas of education, health, and security, it must continue to own the related public assets.
It is nevertheless important to understand that as things now stand, governments must pay heavy interest (rather than rent) on their outstanding public debt, so the situation is not all that different from paying rent to use the same assets, since these interest payments weigh just as heavily on the public exchequer.
Piketty continues to have an unclassifiable position on debt, more nuanced than I have heard from anyone else. Here he seems to say that the government going into debt to create government services is similar in ways to privatizing those services, since either way rich people are getting paid for those services with everyone else’s money (though presumably debt is still much better, since taxation is much more progressive). He favors raising taxes so that services can be provided without creating any debt, and using large one-time taxes on wealth to clear existing public debt: “A flat tax of 15% on private wealth would yield nearly a year’s worth of national income and thus allow for immediate reimbursement of all public debt”. Sounds like an extreme moral hazard unless matched with something like a balanced budget amendment, though.
Interestingly, nineteenth-century novelists were not content simply to describe precisely the income and wealth hierarchies that existed in their time. They often give a very concrete and intimate account of how people lived and what different levels of income meant in terms of the realities of everyday life. Sometimes this went along with a certain justification of extreme inequality of wealth, in the sense that one can read between the lines an argument that without such inequality it would have been impossible for a very small elite to concern themselves with something other than subsistence:
extreme inequality is almost a condition of civilization.In particular, Jane Austen minutely describes daily life in the early nineteenth century: she tells us what it cost to eat, to buy furniture and clothing, and to travel about. And indeed, in the absence of modern technology, everything is very costly and takes time and above all staff. Servants are needed to gather and prepare food (which cannot easily be preserved). Clothing costs money: even the most minimal fancy dress might cost several months’ or even years’ income. Travel was also expensive. It required horses, carriages, servants to take care of them, feed for the animals, and so on.
The reader is made to see that life would have been objectively quite difficult for a person with only 3–5 times the average income, because it would then have been necessary to spend most of one’s time attending to the needs of daily life. If you wanted books or musical instruments or jewelry or ball gowns, then there was no choice but to have an income 20–30 times the average of the day.
This reminds me of those headlines like “MANHATTAN SOCIALITE COMPLAINS THAT IT’S IMPOSSIBLE TO HAVE A DECENT STANDARD OF LIVING ON LESS THAN $1 MILLION A YEAR”, except much more sympathetic because they were plausibly right. It gives me profound gratitude for our past few hundred years of economic growth, and inspires some hope for the future.
Except, of course, the British invested in Africa in the first place, and presumably will invest more so long as it’s at the market rate of return. That is, it’s not obvious to me that the location of elite consumption is as important as the location of elite investment, especially if we’re describing elite who are rich enough that their consumption is not as important as their continued investment.
I wonder what returns Belgium is earning on their African investments?
Nobles tended to have lots of children everywhere. They were the only part of society who could afford to do so. The surplus get spun out into the lower classes.
You still see the aftereffects of this in Great Britain today: “poor nobles” who have an Earl or a Duke before their name and cash welfare checks.
Remember that half of your children are daughters, who can be profitably married into another rich family.
Wouldn’t it also have been risky to have fewer children due to the mortality rate for the young?
Some points:
The “poor nobles” you mention are people who actually own a very valuable asset (their home) which is expensive to keep up. There is nothing but a sense of duty stopping them from selling it (as many have done).
Also, the title is the one thing that isn’t split up. For a European country, Britain has historically had a very small nobility, consisting only of the holders of the title of Baron and above (which are either granted or inherited by primogeniture). Anyone who isn’t a peer is legally a commoner, which includes knights, baronets, gentry, and children of peers (the eldest would become noble on inheriting the title, and could become noble earlier by a writ of acceleration if his father was sufficiently highly ranked, but they were commoners until that point).
For actual “poor nobles” you need to look at the “grey nobility” of the Polish-Lithuanian Commonwealth, where all children of nobles were nobles, and it has been estimated that at one point this encompassed 10% of the population, including some whose lifestyle was indistinguishable from that of peasants.
Thanks, the Polish situation is a better example of what I was thinking about.
That’s interesting. So Paul McCartney isn’t a peer, despite his knighthood?
No, but Christopher Hayden Guest of spinal tap is a baron.
No. Peers are barons and above (viscounts, earls, marquises and dukes). Princes are also not commoners but not necessarily peers (Prince Harry was not a peer until he was made Duke of Sussex, Earl of Dumbarton and Baron Kilkeel last month).
Knights (and baronets, who are essentially hereditary knights) are a step below that. They did not have the right to sit in the House of Lords (which all peers had until 1999) or the right to be tried by it if accused of a crime (which they had until 1948).
To add further confusion, some children of peers have titles by courtesy but are not peers…
It was always my impression that nth children of rich/noble families were given sinecures of some sort, especially in the military or priesthood. The priesthood in particular could be seen as a way of limiting grandchildren. You could also view the introduction of celibacy as a way for the institution of the church to limit children with inheritance claims and thereby avoid splitting wealth.
Weren’t children an economic asset (or at least short term investment) for the working class for most of history?
Children start to become useful for farm labour at 7 or 8. Until until, they’re an unmitigated cost. Having children is only a good investment if you can afford to feed them: otherwise they’ll never make it to adolescence.
In the 9th century, the Abbot of Saint-Germain-des-Prés took a survey of around 2,000 holdings around Paris. The average family size for poor households was about 5. Note how it increases for the rich. This generally agrees with other quasi-statistical resources, such as the Domesday Book. The poor could only manage 2-3 kids each.
Sorry, but this sort of thing bugs the crap out of me. What on earth does Piketty mean by “internal logical contradictions of the capitalist system”? Talking like this seems to be a fairly common leftist thing, but it makes no sense. (I’m just going to ignore the way that “system” is used here — and by other leftists — to mean something like “equilibrium” or “attractor” or possibly just “state”, rather than what everyone else means by “system”.)
Does “the capitalist system” here refer to the conditions that actually held in the actual world? Then it cannot have contradictions! Actual contradictions cannot in fact hold in the territory, that’s what makes them contradictions! Is it referring to the map rather than the territory? (Leftists sure do seem to mix those up even more than other people do.) Possibly, but it certainly doesn’t read like it. It sounds like it’s analyzing conditions that actually held in the real world.
Now I’ve noticed that leftists often tend to use the word “contradiction” to mean well, things other than “contradiction” — using it to mean any sort of mismatch or failure of coherence; here it seems to be used to mean a dynamic instability, a failure of the equilibrium (“system”) to propagate itself forward in time. (In my attempt at an impossibility hierarchy that I describe here here, that’s level 2; an actual contradiction would be level 0. The broader leftist uses I’ve seen often don’t fall on there at all because they’re not describing anything resembling impossibility in the first place.) Yet he doesn’t just say “contradiction”, he explicitly says “logical contradiction”, which would appear to unambiguously mean, you know, an actual contradiction, that cannot in fact hold. Nonetheless, that does not in fact appear to be what he actually means. There is nothing contradictory about something inevitably causing its own demise!
Can I just say that this sort of terminology should be heavily discouraged? And that the use of it is one of the things that makes it difficult to take leftism seriously?
Properly answering this question would require more detail than a blog comment can really get into, but suffice it to say that this terminology has a long history reaching past Marx into German idealist philosophy (and in particular Hegel), and that when the more rigorous Marxists use it, they’re consciously referring to this history.
Maybe don’t try to prescribe what terminology specialists use before you’ve taken the time to understand it?
> Maybe don’t try to prescribe what terminology specialists use before you’ve taken the time to understand it?
Nah, brah. The proof of the pudding is in the eating. It’s not necessary to waste time on obfuscated cant when Marxist ideas have piled up 100 million dead bodies over the last century.
Hmm – the positive thing I’m getting is that those terms seem to be dog whistle words for some people, and using them will lead to ineffective communciations as some of those people will instantly stop listening, and start conflating the speaker’s position with everyone else they see as in the same general category.
To me, they are a shorthand for a whole swathe of related concepts, on which people have an even broader swathe of opinions. But I grew up in a union family, that voted for and otherwise supported the NDP. (Note to Americans – the NDP is a leftish Canadian political party. Farther left than US Democrats, but probably a match for some European center left parties. In the UK, my parents would have been fervent supporters of the Labour party, but probably firmly located in its left wing.)
FWIW, language used by a number of right-leaning people even on this blog causes me to react similarly 🙁 Communication failures go both ways, and some of the time it’s too much work to override one’s “fast” thought process to figure out what a particular person actually means.
Can you offer examples? It might be useful.
In this particular thread, “Leftist” and “Leftism” are the easy ones to point to. IME the vast majority of the time they’re used it’s to identify an outgroup, and when that category is so broad as to include both Clinton-style neoliberals and avowed communists it isn’t doing much descriptive work. A cynic could come to the conclusion that the conflation is the point.
(Proactive disclaimer: yes, there probably is a narrow sense of economic historiography where Leftist is a useful term, and this thread may well fall into that. But the question was about SSC in general, and if I peruse the Open Threads is that going to be the typical context when the category is invoked?)
@DavidFriedman: The first term that comes to mind is “political correctness”. The second is “Social Justice Warrior”. There are probably more – mostly I recognize them when I find myself getting angry unreasonably, and writing off someone as a “biased asshole” when they haven’t behaved in such a way as to get themselves blocked. 😉
@Arlie:
Thanks.
You don’t think “Social Justice Warrior” is a useful descriptive term? Or you think it is useful, but signals the ideological bias of the user?
I think I first encountered the term here. It seems to describe something real and interesting–the combination of a particular political ideology with a particular set of tactics.
@DavidFriedman
SJW may or may not be a useful concept. But the whole point of the comment is that some people have a negative emotional reaction to people who use it, and tune out messages that contain it.
As it happens, I’m one of them. My “fast” system expects someone who uses that term to follow up by behaving like an “entitled” ass. (My apologies for the term “entitled”, which may be a dog whistle to those on the right; I can’t think of a non-controversial synonym before morning tea.)
On a good day – or with someone I already know – I’ll override the “fast” system, and think about their argument, probably asking them to define their terms better. When I’m tired, or in a hurry – I’ll just stop reading. On a really bad day, the reaction will be even stronger – involving swearing about e.g. incels and/or Charlottesville.
In blue tribe terms, we sometimes call that a “trigger”, when we’re not reserving that term for more serious reactions (like PTSD). But I’m pretty sure “trigger” and “trigger warning” are themselves dog whistle words on the red side of the US divide. *sigh*
Yes.
Currently, the serious use of SJW signals someone who disapproves of SJW’s, possibly although not necessarily someone on the right. The serious use of “trigger warning” signals someone who agrees with a set of leftish ideas.
The interesting question is whether your fast mind has the right setting. If you generally don’t like arguing with people who disagree with you, then it probably does, since your views are, by your description, on the left. It isn’t a perfect setting, since some on the left dislike SJW’s, but it is at least a useful rule of thumb.
But if you like arguing with people who disagree with you, then the setting is only right if the particular sorts of people who disagree with you who are interesting to argue with tend to be the ones who don’t use the term SJW. I don’t see why that would be the case, although it might be. Similarly for right wing fast minds and trigger warnings.
In any case, whether your fast mind is well or badly set, the knowledge of its settings is useful to others, especially if the same settings are shared by many.
@DavidFriedman
I think that, in general, our fast minds have the settings evolution designed them to acquire, and they sometimes lead us into very bad places.
It’s possible to change them – because the settings themselves aren’t inborn, just the ways in which they are likely to be established.
My current SJW setting is a bit iffy, because it’s tending to facilitate me living in an idea bubble. On the other hand, it filters out a lot of annoying potential interactions that aren’t likely to result in me either learning anything or having fun.
I don’t think it needs adjusting to the point where I would use that term myself, and I’d really like to see a lot more nuance in the underlying concept.
At this point I’m quite incapable of defining SJW, and it feels rather like a verbal landmine. (If I annoy a certain kind of person, this is the bad name they’ll call me as a signal that all their friends should shun me ;-))
Topic change here, to “trigger” and “trigger warning”
Oddly, the primary/original use of “trigger warning” is probably in mental health support spaces, and the blogs of people who frequent those spaces. The purpose there is to avoid extreme (pathological) bad reactions in a vulnerable community. And the usage needs to be specific, and focussed on relevant “triggers”. I don’t think this usage is/was politically correlated.
Then there’s the metaphorical use of “trigger”, by people who overreact and recognize their own overreaction. Similar would be “oops; I guess that pressed a button”. Warnings aren’t expected or wanted. Or at least not by anyone I’d hang out with.
And finally there’s a phenomenon I’ve only read about, which may be well meaning but seems to demonstrate an extreme lack of common sense. And that would be requiring a “trigger warning” before any mention of anything that could ever possibly upset anyone. The set of things that could conceivably upset some person is infinite. So this is less than workable.
OTOH, warning people that a book (or movie, or lecture) features rape, or nudity, or violence, or spiders is a whole lot better than banning their mention entirely.
FWIW it used to be customary for e.g. news commentators to warn people before presenting particularly graphic video violence, and advise that parents not permit their children to watch it. (It may still be customary, for all I know.) I’d argue that this is precisely the same thing, except with a single generally agreed upon trigger … and entirely different language.
And I figure it’s basic politeness not to chatter on about any topic in front of a person whose known to be upset by that topic, whether it’s because they’ve been traumatized, or because they angrily disapprove of it.
At any rate, I figure that this last variant – which I’ve gone into in too much depth – is the one that’s left-coded, at least when used with the specific “trigger warning” label.
OK, I’ve now beaten “triggers” and their warnings to death. I got kind of caught up in the topic, having never really analyzed it before.
But what I really wanted to suggest was that you do the same thing for “social justice” and its “warriors”. I’m not going to learn much from writing about triggers – that concept is part of my idea bubble. But I would learn from reading a similar exploration of SJWs.
@Arlie:
I think SJW as I would use it combines two ideas. “Social Justice” signals a particular view of what is just. At the simplest level it’s a leftish egalitarianism of outcome—if some groups (racial, sexual, sexual identity, …) do worse than others, there must be injustice. In practice that’s combined with a particular set of beliefs about who society is unjust to. I would not expect a believer in social justice to note that women live longer than men and conclude that the society is unjustly anti-man.
At a more sophisticated level, I think the term signals the idea that a society can be unjust without any individual acting unjustly, hence “social” adds something to “justice.”
“Warrior” describes an attitude towards tactics. I wouldn’t expect an SJW to quote “all is fair in love and war,” but that’s the tone of the label—if you really care about social justice, any weapon you can use to fight it is legitimate. That fits with punching Nazis, trying to get people with the wrong views fired, and the like.
The combination of those two is what SJW means to me. “Warrior” alone would also describe a fascist. SJ alone is consistent with the traditional ACLU support for freedom of speech and the like.
Going back to “trigger warnings.” I think the main reason people on the right are suspicious of the term is that they see it as a disguised attack on freedom of speech. The implied argument is “your saying something hurts me the same way your hitting me would hurt me, so saying something is an attack, so it’s legitimate to stop you from saying it.”
That wouldn’t apply to the legitimate idea of prefacing something with a warning about content that might bother some listeners or readers, if you go on to say it—they are free not to listen or read.
I suppose a secondary reason to be suspicious of it is the suspicion that people use the idea of trigger warnings to protect themselves from learning things–for instance hearing arguments against their views–that they don’t want to learn.
Marxism aint alone in that, so a more in depth rebuttal is warranted
The problem comes in when domain experts apply domain-specific definitions to words that already have significant moral or logical valence in common use. This can result in a motte-and-bailey effect, and I don’t think it is always unintentional.
OK, so, let me spell out the problem in a bit more detail here. Obviously, yes, there is nothing wrong with inventing jargon, but I maintain that there very much *is* something wrong with this.
First off, I think we have to acknowledge that there is in fact a question here — is this actually just jargon, or is this really sloppy thinking? I don’t want to be horribly uncharitable, so I’m going to assume it’s just jargon for now, but, well, I do want it to be kept in mind that without any assumption of charity the answer is not obvious.
Anyway, yes, different groups invent their own jargon, sometimes these don’t match up, it happens. The world is full of rediscoveries yielding multiple terms for the same things, full of suboptimal terminology, full of terminology that doesn’t quite match up with others because it was discovered or invented by a different group. In really bad cases you can get two different conventions that are exactly reversed from one another, which is truly a headache to deal with. Again, it’s not nice, but it happens.
But. You really, really, should not be redefining the word “contradiction” in a way like this. Your terminology should not conflict with that of basic logic itself. Not everybody needs game theory or category theory or what-have-you. But logic — not talking here Gödel’s theorems or anything, just the basic sort of “this is a conjunction, this is an implication, this is a contradiction” — forms one of the common base layers of, well, basically all thought that isn’t nonsense. This, to my mind, is absolutely worth being prescriptive about.
Like, I hope it’s clear here why I said above that without any assumption of charity it is not clear that this is jargon rather than fuzzy thinking! Because there’s a lot of fuzzy thinking out there. People pointed out above that it’s OK for jargon to disagree with common use. Sure! But my point here isn’t that it this disagrees with *common* use so much as technical or, let’s say, semi-technical use. I worry that in fact it agrees with common use quite well — that there are in fact a lot of people out there who don’t really understand what is and is not a contradiction, who will go around saying things like “quantum mechanics taught us that the universe is full of contradictions!”. Which is why I say it’s not clear that this actually represents jargon rather than that same sort of sloppy thinking. And this is before we even get into the map/territory problems.
So I see this use of the word “contradiction”, and what do I conclude from it? Well, in the worst case I conclude that the author is a horribly fuzzy thinker, but like I said above let’s ignore that possibility for now. Because you see, even the best case — or at least, the best case I find credible, certainly one can come up with better cases but they seem to be on pretty thin ground to me — is pretty bad. What’s the best case? That the community that birthed this terminology is, simply put, disconnected from the broader mathematics-speaking world. And as such almost certainly isn’t aware of, and hasn’t integrated into their thinking, the various powerful modern abstractions, theorems, and general ways of thinking that could be brought to bear on the problems they’re thinking about. Or worse, as I suggested above, might not have even gotten as far as integrating basic logic and the idea of formal or semi-formal models into their thinking.
As a non-leftist example of this sort of thing, I’m reminded of an old, lost (more specifically, written on a long-deleted Tumblr blog) post of Sarah Constantin’s where she wrote about her attempt at reading some Austrian economics to see if there was anything there (her conclusion: there was not). She said — as best I recall — that she had started out wondering if it might provide an interesting alternative to mainstream economics based heavily on game theory; but it turned out that rather than disagreeing with the use of game theory and providing an alternative, the Austrians had just… completely ignored the insights coming from game theory and failed to integrate them into their thinking in any way, not even bothering to explicitly disagree.
And I mean… that’s basically what stagnant research programs do, you know? As opposed to healthy ones, that constantly look around to find ideas they can steal. And of course sometimes when they do this they find that they’ve reinvented existing ideas and now need to set up a dictionary to interconvert. Oops. But like I said — it happens. Generally not a big deal.
And so this sort of thing is why I have a hard time taking leftism seriously. Ordinarily, where one has terminology that conflicts with terminology elsewhere, or which is simply bad or confusing, one finds warnings, explanations, apologies. “Yes, this notation is confusing, but for historical reasons it’s unfortunately standard.” “Warning: Do not get X in the sense of Y confused with X in the sense of Z! Despite the overlap in names and apparent conceptual similarity, they are in fact distinct!” Like, if someone asked me if it was possible to take the factorial of a fraction, in my explanation I would warn them about the offset-by-1 between factorial and the Gamma function, you know?
(Although of course I must point out that the Less Wrong diaspora has been pretty damn negligent in warning people against getting the two senses of “utility” (decision-theoretic utility vs E-utility) mixed up. How many times I’ve had to explain the difference, and how few other people I’ve seen doing so…)
So when I see a bunch of people using jargon that looks less like jargon and more like sloppy thinking — and keep in mind I’m not just talking about the use of “contradiction”, but also the ubiquitous map/territory confusions (which as various people have pointed out when I’ve brought this up, could technically be interpreted not as map/territory confusions but simply as truly awful terminology, but such an explanation strains credibility to my mind) — and yes also the “system”/”equilibrium” thing, though I’ll admit that one maybe only looks like sloppy thinking if we’re not being charitable — well what do you think I conclude? That leftism is a stagnant research program which is not only out of contact with the broader mathematics-speaking world but may not have even integrated the basic workings of formal and semi-formal thought! (I’d also add “a shaky grasp of basic causality” to the list above, but frankly it’s seeming more and more like that’s just an endemic problem and not a leftist one.)
Now I should hope that that’s not actually true! But if it’s not, where are the terminological warnings, apologies, dictionaries? Where are the instances of “Note: Outside of leftism this is referred to as such-and-so”? Like I said, I had to figure out for *myself* that leftists don’t mean the same thing by “system” as everyone else does — not once has a leftist warned me about this! If what appear to me to be map/territory confusions are in fact not such but rather just awful terminology, why has nobody warned me about this? It’s maddening.
So, charitable or not, that’s why I have for now drawn the conclusion I’ve drawn. Leftists, if you are interested in getting your ideas across comprehensibly to outsiders and making it clear that it’s not just all based on fuzzy thinking, you are failing.
Those were the kind of terms Marx used. When actually talking about Marx seems like a half-way defensible time to use them, but I would generally avoid using Marxist terminology (as a leftist but one with no affection for or interest in Marxism). It presumably puts people off as much as anything else.
My recollection of what I’ve actually read of Marx is that he does basically use it in the way you describe in your penultimate paragraph – that crises are inherent in capitalism because its dynamically unstable.
Well, I’m glad you at least recognize the problem! 🙂
Other people have jargon too! That’s OK!
In general: Yes. Like this: No. See my comment above.
Perhaps it is the “contradiction” that the capitalist system assumes people are selfish, but that that selfishness can be harnessed for a utilitarian or public good?
I have often found that many Capitalist-Marxist disagreements boil down to a disagreement about whether human nature can be changed. The Capitalist will often say something that is like, “humans are often selfish, even when not acting in markets so the best policy is to harness that selfishness towards productive tasks, and if you diminish the chance to do that they will simply direct that elsewhere to more destructive ends (such as authoritarianism and amassing political power).” The Marxist then, generally contends that people only have those traits due to the capitalist system, and if certain incentives were changed human nature itself would be changed and there would be not rat race.
So, that’s not a contradiction. But, as a point in your favor, it is something that could perhaps be developed into a contradiction with further argument!
However ultimately it’s irrelevant because it doesn’t seem to be the sort of thing Piketty seems to be talking about. This is a (potential) contradiction in the map — which, after all, is the only place that contradictions can exist. Piketty seems to be talking about “contradictions” in the territory, which is nonsense. See rant above.
Perhaps this will help: https://en.wikipedia.org/wiki/Internal_contradictions_of_capital_accumulation
It seems like all of this could’ve been omitted. Do you expect a lot of leftists to read this and think, “Well, this fellow seems to be interested in a constructive, good-faith discussion so I will now spend my precious free time responding to him”?
Your link tells us what some modern Marxist means by “internal logical contradictions of the capitalist system,” but I don’t think it tells us what Marx meant or Picketty means by it.
I was admittedly hasty, I assumed that such a similar term having its own wikipedia page implied it was a term of art, but upon further reading that does seem to be an unusually crappy wikipedia page, specific to a single person. So I’ll retract the link. (But not the complaint about generic digs at leftists)
You seem to have mistaken a rhetorical question for a literal one. The context makes it pretty clear that by “contradiction” Piketty actually means “instability”. My point is that that is awful terminology and nobody should ever talk that way. (See rant above.)
I admit that what I wrote was inflammatory, but in my defense, I don’t know that I could have quickly figured out any non-inflammatory way of pointing out the general problem, because I wanted to be clear that this was not in any way exclusive to Piketty. The map/territory confusions I mention because I actually believe them to be related.
Since we’ve had good discussions before, let me just say the “contradictions” complaint seems a bit on the petty side and others have covered why pretty well.
For the “capitalist system” complaint, I would say that is actually a big part of the dispute between right and left wing thinkers. The right sees capitalism as a kind of default that people tend towards when central planners don’t deliberately try to undermine that system. That’s certainly what my thinking once was! But the left argues that capitalism is in fact deliberately pushed and propped up by a class of powerful people (generally with the government as a key part but emphasizing also the private components). I think empirically the left is closer to the truth on this one and it makes sense to think of capitalism as a particular deliberately supported system rather than just a natural equilibrium, and to really get why probably takes an understanding of the rarity of markets in pre/non-government societies combined with the history of state encouragement of the formation of markets at the expense of non-market traditional orders (David Graeber’s Debt was particularly good at clarifying that for me). If capitalism is redefined into “whatever happens when people are without central planners” then I think that the redefinition is the problem not the left’s terminology which is more specific and more based in the history of the term.
I’d just like to say this isn’t my experience. The Right, in my experience, tends to believe that capitalism and liberal democracy were inventions (usually dated to about the 18th century) and that it needs to be defended against other systems.
They do disagree with Leftists about whether it is, as you say, deliberately propped up by a class of powerful people who benefit from it or a general societal benefit at the expense of the wealthy and powerful. But I’ve never heard a single conservative talk about capitalism as natural and know of one prominent conservative who recently went on a book tour talking about how capitalism and liberal democracy are extremely unnatural and thus must be vigorously defended.
I actually think that’s a bit of tension in right wing beliefs. Certainly the economic right in general thinks of the results of capitalism as primarily “spontaneous order.” The right doesn’t really generally seem to emphasize government intervention as necessary for economic, but more political and cultural order. The shift there on trade is pretty new. Indeed part of the necessary defense is keeping the planning-happy masses off the economy.
So is there a tension on the right between those viewing capitalism as natural and as necessary to defend, but both ideas are there and not quite a contradiction still since an argument can be made that capitalism is natural in a good political/cultural social order (though the libertarian right goes natural pretty hard).
I’ve literally never met a conservative who didn’t think America hadn’t been founded or capitalism hadn’t been invented though. Likewise, almost all capitalist libertarians think a government is necessary to, for example, enforce property rights. They simply object to it going beyond that (and often to interventions of other sorts, including political/social ones.) This implies that absent the government, capitalism would at least have a harder time operating.
The people on the Right who are comfortable with government intervention for the sake of morality also tend to not be particularly capitalist. The Right includes a fair number of what Europeans call Christian Democrats, who are if anything more interventionist than the Left since they believe in economic and social intervention. Of course, even they would not say capitalism is ‘natural’. You can see that in, say, De Rerum Novarum.
I think we’re primarily just interpreting how conservatives speak differently. Because yes I’m aware of the rhetoric you’re talking about, but free markets as order outside of government planning is fundamental rhetoric to American and most other right-wing parties I’ve seen. Also if you want an example of right-wing economics combined with anarchism, look at David Friedman.
Plus the whole idea of government is often portrayed as natural in right-wing rhetoric. Traditionally that meant the natural order of kings from the basis of the family. Natural order may be something that is overthrown by the idea that the status quo is more in line with human nature is super prevalent on the right. A major complaint leveled at the left is ignoring human nature!
So I guess I’m just kind of confused here, especially since I was specifically arguing against an anti-leftist saying that capitalism is a “system” rather than an “equilibrium”. That alone in this very thread would seem to be support of what I’m saying.
Some do.
I think the “natural” claim is not that human societies automatically become capitalist if left alone but that, given a particular set of institutions, basically private property and market exchange, individual actions naturally coordinate into a form of decentralized order. Whether maintaining those institutions require a government is what minarchist libertarians and anarchist libertarians disagree about.
I think the contradiction is not as you see it. Conservatives see the underlying personality traits that people have as natural, and thus also see capitalism as defended through a limited government as the proper way to harness those inner demons. In a more simplistic version, “man is fallen” or “”If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary”.
I think its more the Libertarain end that seems to view it as a natural happenstance, while traditional conservatives are more likely to support the idea that capitalism is a constructed, and supported system
Why do you think that? The existence of black markets, in Western countries during WWII, in illegal drugs, and in Communist countries even in non-Western countries like China and Vietnam, seem like very strong empirical arguments against the idea that a powerful class of people, or government need to prop up capitalism.
If you want not just markets but private property, think of the Lobster Gangs of Maine, which famously establish property rights in lobster beds in defiance of US law.
What is capitalism?
If people trading with other people is all you need to call something capitalism, then it’s probably natural. And very few people on the left object to that.
But modern American capitalism involves mega-corporations that routinely bully everyone they can, rarely or never pay for the externalities they impose, sometimes even bully governments – and get bailed out by governments when they find themselves in need of money.
Corporations had to be invented. Limited corporate liability had to be invented and enforced by law. Bailing out failing corporations – which then use some of the money to give bonuses to those who contributed to the failure – is a political decision.
I believe that the first two of these are commonly thought of as required for true capitalism. I’ve seen history books explaining that, in contexts of less successful past economies.
The third is merely considered to be ‘required’ (or at least inevitable) by cynical elements on the left 🙁
I don’t think so. They may be useful, but capitalism as viewed by its supporters can still exist without them.
Whereas cynical elements on the right view it as one consequence of anti-capitalist ideas. Rather like regulatory capture.
No. Any company can simulate limited liability by specifying in every contract it enters that if it fails to fulfill its obligations in the contract, it’s only liable up to the capital of the company.
What externalities do you mean? The only significant externality I can think of is pollution, which is often subject to taxes (though perhaps not as much as the damage they cause). (More precisely, companies have many externalities. If we take the company and the people who enter into voluntary contracts with it, this set of people usually doesn’t have many externalities.)
@DavidFriedman
That’s interesting. Capitalism gets juxtaposed with communism very often, and sometimes even with socialism – in ways that caused me to assume they were being seen as opposites. But both of those have people trading.
@10240:
Yep. I forgot to include provision for and enforcement of contracts as one of the things required for capitalism.
One that annoys me more on a daily basis than pollution, is corporations that waste my time, often in job lots.
Everytime some robodialer rings my cell phone, I get interrupted. If I turn the ringer off, I miss important calls. There’s nothing I can do to make them stop, and no effective means of claiming compensation.
Ditto for the companies that fill my mailbox – either the paper one or the electronic one – with unwanted advertisements. At best, I waste time sorting, or waste money having them sorted for me (including purchasing software). At worst, they commit an effective denial of service attack, or cause me to lose some important message long enough to miss an opportunity or incur late fees.
The cost to them of generating these interruptions is much less than the cost to me of dealing with them. And the legal system, thanks to regulatory capture, would penalize me if I were to invest in my own robodialer, and the programming needed to call their CEOs with a recorded message ranting against phone spam, in response to each such call received by me. (Their right to advertise seems to be sacred; my right to an equivalent response is not.)
This behaviour is tolerable in small amounts. But more than 50% of my incoming messages are spam, not counting emails. (With email, the ratio is probably 100:1, and maybe 3:1 after my automated spam filter gets through with them. But some of *those* spammers probably aren’t legitimate corporations, unlike the majority of voice and paper spammers.)
Nononono, see, an artificial equlibrium is still an equilibrium. We’re talking about entirely different objects here. I guess I need to be more explicit.
A system, you see, is a thing with rules and possibly a state (that’s “state” as in “this switch is currently on”, not “state” as in “government”. Like a dynamical system. Or a voting system, or a board game — a system is defined by rules that govern how its state evolves over time, how it responds to external input… that sort of thing. It’s an entirely different type of object than an equilibrium, which is a state or, if we want to be more informal, perhaps a set of states, in the system. A different system means different rules. If you have not changed the rules, you have not changed the system. Kicking the system into a different equlibrium, is different from changing the system.
So: The free market is an example of a system. (I don’t want to say “capitalism” here; I want to reserve that word for the leftist use, because non-leftists tend to use “capitalism” to mean “the free market”, which is not the same thing as the leftist meaning, resulting in mass confusion.) My understanding — correct me if I’m wrong here — is that when leftists say “capitalism”, they’re not referring to any particular system at all, but rather to a particular state. That is to say: If the means of production are owned privately and not by the workers, that’s capitalism. What system this is occurring under is irrelevant!
So — again, correct me if I’m wrong here — if you have a free market, and it happens that it’s dominated by privately-owned (and not worker-owned) corporations, then a leftist would call that “capitalism”; while if a free market is instead dominated by cooperatives, a leftist would not call that capitalism. But these aren’t different systems! They’re two different equilibria of the same system. (Whether the latter is actually an equilbrium is another matter, but, that’s not the point.) What leftists call “changing the system” is what non-leftists call “kicking the system into a different equlibrium”. And what non-leftists call “changing the system”, leftists call… well, I don’t know what they call that.
(If Eliezer Yudkowsky were a leftist, presumably his recent book would have been called “Inadequate Systems”. 😛 Thankfully, he didn’t call it that.)
(Have I got all this right so far?)
Now we don’t want to be too too strict about this because like people say “two-party system” all the time and we all know that really means “two-party equilibrium” (although not entirely, as the two major parties in the US really have altered the rules to specially favor them, but that’s another matter)… but in general, where one doesn’t have a fixed generally-recognized phrase like “two-party system”, I think one should avoid referring to equilibria as “systems”.
(There’s also ambiguity because sometimes the state of a system A sets the rules of a system B… so in the smaller picture, where you look only at B, you’re changing the system, but in the larger picture you’re actually changing the equilibrium. So again, another reason why it may often be OK to mix up the two a bit. I continue to maintain though that the case of “capitalism” though is not such a case!)
The conclusion I had come to — and absolutely please do correct me if I’m wrong here, because this is purely my own inference — is that leftists don’t actually think about “systems” in the sense that other people use that term, but rather take a one-level view where the only system is the laws of physics themself. And this one-level view has the virtue of being, strictly speaking, correct! (So yes if you zoom out far enough, every instance of changing a system could be seen as actually just changing an equilibrium, but I don’t think that’s usually a useful way of thinking. You don’t want to go back to fundamental physics most of the time.) And that when they “system” they then mean “equilibrium” (obviously in the looser sense of, like, a set of states, not a single state!).
You see what I’m saying? It’s not about artificial vs natural; it’s about what type of object we’re talking about in the first place!
As others have pointed out, it’s long-used terminology from that school of thought. David Harvey gives a good definition in his book ‘Seventeen Contradictions…’ which I will post here when I get home. But in the interim, I would say that broadly speaking when a Marxist talks about a contradiction they are talking about instabilities in the economy – things that build up over time in business as usual, and result eventually in changes to what business as usual is, usually precipitated by some crisis or other.
But I have to say, you’re really not making the case here. You, and several others, have said that this is a well-understood technical term in the field– yet nobody’s yet been able to post a concise, accurate definition. It’s always, oh, I must have left the definition in my other set of pants; I’ll have to give it to you later. It’s complicated.
Practitioners in technical fields might well use jargon, but they are invariably able to define their terms precisely and with definite distinctions. Philosophers can all tell you what “aesthetics” means, as a technical term, in a sentence or two. All botanists will give you the same definition of what a “rhizome” is, and how to tell a rhizome from a root, or a stolon. All trained musicians give you the same definition of what an “Ionian mode” is– even if they reject using octave modes in their own art. Mathematicians can tell you concisely what “chaos theory” is, and specifically how it’s different from the vernacular use of the word “chaos”. And so on. In fact, learning precise definitions of the principal technical terms is the very first thing that teachers make students learn. The fact that multiple people have asked for a definition of what is claimed to be a foundational concept of the field, and nobody yet has been able to actually write one down, is a huge red flag about the rigor of thought in Marxist circles.
(And I don’t buy “it’s complicated”. Our host posts long discussions about the possible biologic pathways potentially involved in long-term LSD hallucinations, with dozens of intelligent comments offered by the peanut gallery. We can handle complicated; bring it on.)
If the “contradictions of capitalism” are instabilities in the economy– well, as an empirical observation, Communism has one hell of a lot more contradictions than capitalism.
As promised, the passage from David Harvey. It is long and I have abbreviated it substantially, I recommend finding a copy to read the whole thing if you have the time and inclination.
”
There are to basic ways in which the concept of contradiction is used in the English language. The commonest and most obvious derives from Aristotle’s logic … The statement ‘All blackbirds are black’ contradicts the statement that ‘All blackbirds are white.’ …
The other mode of usage arises when two seemingly opposed forces are simultaneously present within a particular situation, an entity, a process or an event. Many of us experience, for example, a tension between the demands of working a job and constructing a satisfying personal life at home. … We are surrounded with such tensions at every turn. For the most part we manage them on a daily basis so that we don’t get too stressed out and frazzled by them. …
Situations arise, however, in which the contradictions become more obvious. They sharpen and then get to a point where the stress between opposing desires feels unbearable. I the case of career objectives and a satisfying family life, external circumstances can change and turn what was once a manageable tension into a crisis: the demands of the job may shift … circumstances on the home front may be disrupted … While the reasons may vary and conditions may differ, latent contradictions may suddenly intensify to create violent crises. Once resolved, then the contradictions can just as suddenly subside (though rarely without leaving marks and sometimes scars from their passage). The genie is, as it were, temporarily stuffed back into the bottle, usually by way of some radical readjustment of the opposing forces that lie at the root of the contradiction.
Contradictions are by no means all bad … One of the ways out of a contradiction is innovation. We can adapt our ideas and practices to new circumstances and learn to be a far better and more tolerant person from the experience. … This kind of adaptation can happen at the macroeconomic scale as well as to individuals. Britain, for example found itself in a contradictory situation in the early eighteenth century. he land was needed for biofuels (charcoal in particular) and for food production, and, at a time when the capacity for international trade in energy and foodstuffs was limited, the development of capitalism in Britain threatened to grind to a halt because of intensifying competition on the land between the two uses. The answer lay in going underground to mine coal as a source of energy so the land could be used to grow food alone. A contradiction can often be the ‘mother of invention.’ But notice something important here: resort to fossil fuels relieved one contradiction but now, centuries later, it anchors another contradiction between fossil fuel use and climate change. Contradictions have the nasty habit of not being resolved but merely moved around. …
The contradictions of capital have often spawned innovations, many of which have improved the qualities of daily life. Contradictions when they erupt into a crisis of capital generate moments of ‘creative destruction.’ Rarely is it the case that what is created and what is destroyed is predetermined and rarely is it the case that everything that is created is bad, and that everything that was good was destroyed. And rarely are contradictions totally resolved. Crises are moments of transformation in which capital typically reinvents itself and morphs into something else. And the ‘something else’ may be better or worse for the people even as it stabilises the reproduction of capital. But crises are also moments of danger when the reproduction of capital is threatened by the underlying contradictions.
“
Thanks.
What distinguishes a contradiction, in this sense, from a conflict?
I want to spend money on a variety of different things–a new car, eating at a good restaurant, fixing the roof. Money spent on one is not available for another. Is that a contradiction? It seems to fit the same pattern described.
Similarly in lots of other contexts. We have limited resources of money, time, perhaps patience. For each we have multiple uses. That’s the normal situation. Is it a “contradiction of the human condition”?
I recall Slavoj Žižek (the Marxist) saying that “contradictions” was an old-fashioned term and he preferred to use the term “antagonisms.”
Apparently “contradiction” is a term of art in Hegelian dialectics.
— https://plato.stanford.edu/entries/contradiction/
Anyway it doesn’t seem to mean just any kind of conflict between any two things.
This is what I understand Hegel meant, yes. As far as I know there isn’t anything mysterious about a Hegleian contradiction and your examples would qualify.
Marx focused particularly on the Hegelian contradictions within capital – large, powerful opposing tendencies that are not easy to turn aside. The contradictions between production and realisation of surplus value, and between use value and exchange value are probably the most commonly talked about from what I’ve seen.
@benwave
I can see how this is a “contradiction of capitalism” in the sense that if you consider land ownership to extend to the center of the earth and/or into space, then dual use becomes (much) harder. A farmer who owns land may then block mining under his land or a miner may block farming at the surface of land he owns. A farmer may prohibit flying over his land, making long distance flying unfeasible.
However, such an objection to capitalism merely holds for a particular kind of capitalism. I live in a country where mining rights and airspace rights belong to the state. One can reasonably call such a solution to be semi-capitalist or a mixed socialist/capitalist economy.
The more common economic term for this kind of issue is ‘externality’, which seems like a clearer and more specific term than ‘contradiction’. Purely capitalist systems may not be able to cope with externalities well, but I know of no Western country that doesn’t have (socialist) laws against pollution.
So, suppose that we grant that the Marxist objection to pure capitalism is correct and that pure capitalism is highly problematic, then it seems to me that this does little to prove that a semi-capitalist economy is similarly highly problematic.
It seems to me that Marxism attacks a straw man, in the sense that it ignores the checks and balances that have been invented to curb the excesses of capitalism and then argues that without these checks and balances, capitalism results in very bad outcomes. Then the solution to this is to propose another system without solid checks and balances.
To me, this seems to be a case of not understanding the power of checks and balances & the necessity of tailor-made solutions to specific problems; while strongly overestimating the extent to which a relatively simple and consistent system can solve problems.
One can also have a capitalist solution to the problem, by making mineral rights and surface rights separable, as they quite often are. The farmer sells the mineral rights to a coal mining company, retaining both the surface rights and the support rights–the right to have the mining done in ways that don’t result in the surface collapsing into the mine.
A contradiction is not a code word meaning objection to capitalism. It’s just a category used to describe opposing tendencies.
I think you misunderstood the first quote: the contradiction was between using the land to produce charcoal (ie, grow and burn trees) and using the land to produce food (ie grow crops and graze animals) – the two could not be done simultaneously, I think you agree with this. The solution of mining coal underground was not the contradiction, but the resolution of it (the word synthesis is often used in the Hegelian tradition). There was no contradiction between using the land to produce food and using the underground to produce coal (at the time – it may now come into contradiction as the climate changes).
I’m aware of externalities. You’re right that they’re more specific than contradictions. Contradictions is a general term. Externalities are often the resolution of contradictions in the process of capitalism, since capital has a strong preference for solutions where it pays as little as possible.
I’ll not take responsibility for the proposal of the communist system, it’s not one I would argue in favour of. What I will say is that I have a reasonably high confidence in Capital always finding a way to transform itself to survive when a contradiction threatens its circulation. That transformation will not be an overall good for people by default. Making the particular solution favourable for people is a work that must be done. Specifically, I am highly concerned that the solutions currently being chosen to the contradiction between energy use and climate change might lead to unacceptably high levels of starvation, displacement and conflict.
@benwave
I agree with this, but I wouldn’t call this a contradiction in capitalism. No matter what system you have, you can’t use the same land for two conflicting things.
To me, such language seems like a way to associate the problems of having to make hard choices with capitalism, while pretending that other systems, like communism, can somehow avoid having to make hard choices.
I agree, however, is capitalism to blame or are people unwilling to make the sacrifices that you and I think that they should make? I think the latter.
Ultimately, the issue here is not really wealth distribution or employers making workers do stuff. Lots of flying is people going on holiday and many people who fly for their job are quite OK with it.
It seems to me that the solution needs to come from cultural changes and technological solutions, rather than changing the system.
@DavidFriedman
I decided against including that possibility to keep my comment
shortshorter.It is not a contradiction unique to capitalism, but it is a contradiction that threatened the reproduction of capital in that time and in that place. Calling flying a property of birds does not exclude that flying is also a property of bats and butterflies.
Regards capital being to blame for climate change, that’s the wrong question. The question is whether capital provides a solution that is acceptable to people. Call me skeptical, but current signs point to no.
Thank you for your reply, but you seem to have mistaken a rhetorical question for a literal one. The context makes it pretty clear that by “contradiction” Piketty actually means “instability”. My point is that that, simply put, that is awful terminology and nobody should ever talk that way. (See rant above.)
I don’t think I agree with your position here. In particular, I don’t agree that this meaning is sufficiently removed from the basic logic definition to reasonably demand that the two meanings find different words – it preserves the crucial quality that two things cannot both be true at the same time. In the land use example from Harvey, using the land for fuel production and using the land for food production does present a logical contradiction. ‘The land is used for fuel production’ DOES imply Not(‘the land is used for food production), for that time and place with its available technology and organisational forms.
This is different from a pure logical contradiction – it is entirely conceivable from a modern standpoint to find some way of perhaps growing a fuel plant/algae and a food plant in heteroculture on the same plot of land and generating more total output, for example. It is a logical contradiction only over a certain set of boundary conditions. But then a substantial part of the uses of logical contradictions hold only under a given set of assumptions, do they not?
The left academic tradition looks towards Hegelian contradictions because they are very frequently triggers for change. A fruitful way to try and predict what sorts of changes might happening by examining the contradictions present in the current state and try to imagine in what ways they may be resolved.
I totally agree that Pikkety was wrong to use the word logical in the sentence you quote, however. It is explicitly Hegelian contradictions rather than logical contradictions in that case. But I don’t find that on balance, the Hegelian contradiction is a bad use of language.
[Blargh, finally getting back to this, sorry. Maybe sometime we should resume in an open thread or something that game theory discussion that actually seemed to be going somewhere…]
I mean, you’ve addressed the narrow point, but not the broader one. Using this Hegelian idea of “contradiction” — using these Hegelian notions, rather than formulating all this in modern mathematical language — is a serious mistake! Why should I ever take seriously something founded in Hegelian notions rather than thought that at least attempts to be precise and mathematical? That is to say, even if this use of the word “contradiction” might not be fuzzy thinking per se, it sure seems to indicate that such is likely present nearby!
Like, some of these “contradictions” seem like they should be pretty modelable as dynamical systems. So where is that? Where are the differential equations of leftism, where’s the predictions they generate? Sure, I expect they’re hard in general and can’t necessarily be used to easily extract predictions, but where’s the most basic, primitive test model, as, you know, a starting point? (Beyond r>g, that is. Like, where’s the mathematical model of the concentration of capital that Marx predicted and the effects of such, as described by citizencokane below? Or is that a prediction we should discard?)
Until the Hegelian framework is discarded and leftist ideas are reformulated mathematically, I see no reason to treat leftism as anything more than something like, say, the Italian school of algebraic geometry — something to occasionally dredge good ideas out of , for those willing to put in the work of wading through the swamp, but certainly not something to take seriously as it is or swallow whole.
The whole ‘logical contradictions’ thing certainly can lead to pretentiousness and misplaced concreteness for sure, and yes also plays a part in the theological certitudes and Utopianism that led to millions of dead. But I take a pretty matter of fact view of what Marx was getting at. For example, capitalists favor automation because it reduces costs, but if all capitalists automate there won’t be enough workers to buy the stuff they are making, threatening the system itself or forcing it to adapt. There you go – a ‘contradiction’ – if you like, or better just a ‘tension’ or ‘feedback effect’.
I think Marx was just trying to do for the economy what Clausewitz did for war – show it as a larger system of effects and counter effects – foreshadowing the precise analysis of such systems in the 20th century in the science of complexity.
“Tension” is a great word which I forgot about, thank you. But my big point here is that… that’s not a contradiction. I mean, you can call it a contradiction if you’re determined to, but you shouldn’t. (See rant above.)
But you phrasing it as “feedback effect” — I mean, both Piketty and the commenters above made it sound like were talking about something that would lead to catastrophic change. Whereas a feedback effect maybe just adjusts the equilibrium a bit, you know? (I guess not if it’s a positive feedback effect.) Or maybe just slides gradually away from the point of “capitalism”. Which raises the question: Which is it actually (assuming any of this is true at all)? The answer matters!
I mean, it seems likely to me that that’s what Marx was going for but didn’t have the proper tools yet for, yeah. My concern is (again, I say this at more length in my fairly ranty comment above) that I’m not at all convinced that leftists after him have picked up those tools and actually integrated dynamical systems theory into their thinking. I mean, if they have… why do they appear to be calling equilibria “systems”, and talking about “contradictions” in the territory and such, you know? :-/
For starters: the contradiction between the use-value and exchange-value of commodities. Individuals would like to take advantage of the useful attributes of commodities, but first those commodities must express their exchange-values on the market, i.e. find buyers, and when there is insufficient effective monetary demand for commodities, the use-value of the commodities cannot be harnessed. You get poverty in the midst of plenty (idle workers + idle factories and fields), generalized gluts (contra Say’s Law), and overproduction of commodities relative to underproduction of the money-commodity gold.
Then there is the contradiction between the Law of Value requiring competition between many capitals for its operation, and the tendency and historical necessity for production under capitalism to become more centralized and consciously planned, whether by capitalist cartels, financial institutions, or the national-capitalist state.
Then there is the contradiction between capitalism’s concrete and abstract qualities: the concrete requirements of capitalist production (including the application of concrete kinds of labor-power) alongside the incredibly abstract Law of Value being the regulating force of capitalist production, which leads to a feeling among both workers and capitalists that their concrete efforts cannot be validated on their own by providing a concrete product (as under a household or feudal economy), but instead are constrained by, and must be validated by, an abstract system of exchange-value, which people come to find alienating and oppressive, as if an AI or a cabal of Jews or Bilderbergers or whatever is secretly running the world economy and politics and basically everything. (In fact, it is the Law of Value that is in charge of everything, but this is a very abstract point to grasp, and most people scapegoat something more concrete).
Also, capitalism elevates self-interest to a proclaimed virtue and thereby corrodes archaic forms of altruistic solidarity based on the family or religion, but capitalism also relies on these same pre-capitalist institutions to raise the next generation of labor-power. No wonder the quality of labor-power is not up to its liking lately!
This stems from people’s needs/desires to have things produced by others to not match up with their ability to produce things needed/desires by others.
Of course, this issue has been long recognized and has various solutions that reduce the problem, like welfare, progressive taxation and other wealth transfers from the productive to the less productive.
You ignore that capitalism also depends heavily on people being educated by government-sponsored education. Furthermore, what is more prevalent today than ever is that people take out personal loans which are paid back when they work (and are often wiped if people cannot find a job with good enough pay). With the latter system, if employers pay enough for quality, this should incentivize people to get a quality education.
Also, is the quality of labor-power actually declining or are businesses becoming more demanding due to increasing demands of better production processes? My perception is that it is primarily the latter, which suggests that the problem may not be that we are failing to raise people as good workers, but rather, that more and more people lack the ability to be educated to the level that it required to be productive enough for a good salary.
The contradiction between the cost of creating workers and the drive to lower business costs is a really interesting one to my mind, because it spans many of the aspects of human life. There was a time when businesses bore that cost, and single incomes could support families including the reproduction of new workers to replace old. That cost seems to be (in my country at least) largely borne by the government in various support programmes and tax breaks now (and therefore, it is ultimately borne by the taxpayers). Then there’s also the tendency for immigration to fill that gap. And I have read now more than one serious study reporting that one reason birth rates continue to fall is that young people don’t have enough money to raise a child. Interesting to see how this contradiction continues to evolve as time goes on, and whether workers come to demand the right to raise children as a fundamental part of their lives.
Oddly enough, that was the factor that Malthus regarded as responsible for keeping population from expanding at the biological maximum. When he was writing average real incomes were at (I’m guessing) less than a tenth their current level.
But people nowadays don’t want to live at a standard of living that was typical in Malthus’ era. (And if they tried to raise kids like that, they’d probably be arrested for child neglect.) And it takes at least twice as long before the child is economically self-sufficient. And most people never reach a point where the child is an economic asset. And most people nowadays don’t work jobs where their kids can hang around in the vicinity, so they have to take parental leave or pay for childcare. Plus the modern phenomenon of how much you pay for housing being directly linked to how good a school your child will attend.
Sorry, but you seem to have missed the point of my comment entirely. None of those are contradictions. If we grant the truth of your claims, then two and four would be just tensions and one and three would seem to be merely deficiencies. None are contradictions, because actual contradictions can’t exist in the territory!
Basically, you seem to have mistaken a rhetorical question for a literal one; the context makes it pretty clear that by “contradiction” Piketty actually means “instability” — or perhaps the broader notion you discuss above which seems to include other potential problems as well. My point is that that, simply put, that is awful terminology and nobody should ever talk that way. (See follow-up rant above.)
When Marxists talk about the contradiction of capitalism, they mean something like:
“Capitalists desire profits, and thus 1) pay their workers as little as possible, 2) encourage a world where everyone buys as much stuff as possible. These creates a tragedy of the commons, where bosses are oversaturating the world with goods while undercutting the demand for those goods. Eventually, profits fall, debt accumulates, and the system crashes. This is not a failure, but capitalism working as intended.”
I don’t think history has been kind to this theory to say the least, but it’s not a ridiculous or incomprehensible idea.
I disagree. Sam Williams at Critique of Crisis Theory Blog dispels the idea that “underconsumptionism” (the working class not being paid enough to buy back what is produced) is the cause of capitalist crises. If anything, paying workers less makes the capitalist system more dynamic because it increases the average rate of profit and re-assigns monetary demand from the consumer goods sector to the investment goods sector. What capitalist businesses lose from fewer sales to working-class consumers, they gain from increases sales to fellow capitalists—sales of either luxury goods or, more importantly, means of production (Department I goods). This is what Marx called “productive consumption” in that this consumption is ultimately productive of further surplus value.
As you pointed out, there can also be partial crises of disproportionality. For example, too many size-7 shoes were produced compared to what consumers wanted, and not enough ice cream. However, the silver lining of such partial crises of disproportionality is that, while the average rate of profit in the size-7 shoes sector will decrease (or vanish entirely) until enough producers leave that sector, the average rate of profit in the ice cream sector will increase, attracting new producers to that sector until the super-profit in that sector vanishes due to increased competition. Overall, the average rate of profit across all sectors is not affected by such partial crises of disproportionality. Nor is the overall employment rate affected for very long because, while jobs will be lost in the size-7 shoes sector, more will quickly open up in the ice cream sector to compensate.
What distinguishes a generalized crisis of overproduction (“general gluts”) is that the average rate of profit across the entire world economy falls, as does the employment and labor force participation rate. This is reflected in mainstream economic modeling as a sudden and inexplicable plunge in the “natural rate of interest.” Generalized crises of overproduction are due to a very specific kind of disproportionality—an overproduction of all non-money commodities relative to an underproduction of the money-commodity gold.
Under current institutions, they are due to the rate of increase of the money supply being slower than people expected–which may mean it is negative, as in the case of the beginning of the Great Depression. Since the money supply is produced by the government, directly or indirectly via a regulated banking system, that looks more like a failure of the socialist part of the system than of the capitalist part.
The amount of gold on the world market currently constrains how many Federal Funds dollars the Federal Reserve can produce and how many checking account dollars the private banking system can produce. This constraint is not a legal one like under the Gold Standard, but a practical one. If the world gold stockpile does not grow each year, the Federal Reserve cannot produce more Federal Funds dollars, and the private banking system cannot produce more checking account dollars on top of that monetary base.
The Federal Reserve is currently legally free to produce more dollars irrespective of world gold production, but bad things will happen if they do. There will be practical consequences that the Federal Reserve very much wants to avoid. In short, there will be a return of the 1970s. Paper profits will be high, but profit rates measured in terms of gold will be negative, and investors (especially boldholders) will not tolerate that for long. They will revolt and demand higher “REAL” dollar rates of interest (or else withhold their money from the credit market and instead invest in gold, commodities (thus driving inflation higher), and/or real-estate), and they will continue to demand higher real dollar interest rates until the Federal Reserve has spent at least several years proving that it won’t let dollars depreciate versus gold so severely again.
I believe you are grossly mistaken about this. Nobody who matters measures profit rates in terms of gold, and nobody who matters cares.
I am not agreeing or disagreeing with the thrust of his piece, but everyone who matters cares about the opportunity cost of their investments. If gold consistently out preformed dollars or treasuries then they would pay attention to the gap.
Right, but “gold outperforming dollars” isn’t the same as “Fed printing dollars faster than gold is mined”. The dominant factor in the price of gold is the demand for gold, and the primary(*) driver of that demand is fear of inflation and/or fiscal collapse.
If the Fed consistently produces the appropriate, low-inflation-optimized, number of dollars, then even if that means printing lots of dollars and the mining industry happens to produce little gold, demand will be low and it won’t matter that the extra gold wasn’t mined.
* The secondary driver is that other people’s fear of inflation, etc, will cause them to demand gold that I can then profit by selling from my stash, which is larger than but proportional to the primary driving demand.
ETA: The US treasury’s gold reserves have increased by approximately zero over the past ten years. The world’s total mined gold supply has increased at a fairly consistent rate of 1.3% per year. The US M1 money supply has increased at a consistent rate of 9.4% per year. The price of gold in dollars (or vice versa) has wandered about in an inconsistent fashion that has no apparent correlation with any of these and is conspicuously not a (9.4-1.3)=8.1% steady annual appreciation but looks quite a bit like people getting nervous after 2008 and then chilling out a few years later.
That is not even close to true. The value of gold measured in dollars is currently about thirty times what it was when I was born, has varied over a factor of five in the past twenty years. The gold supply has not been a constraint on money issuing in the U.S. since 1971.
From 2001 to 2012, the price of gold increased sixfold. Measured in terms of gold, that’s an inflation rate of 18% per year. Over that period the fed funds rate was never more than 6%, considerably lower for most of that period. In your terms, the profit rate was between -12% and -17.75%.
Yet the treasury continued to sell securities, as did lots of other people.
Someone has convinced you of a fantasy version of economics.
@citizencokane:
The amount of gold on the world market currently constrains how many Federal Funds dollars the Federal Reserve can produce and how many checking account dollars the private banking system can produce.
I don’t know where you are getting this from, but it seems obviously false in view of the amount of new money brought into being by the Fed and the banking system since 2008. The money supply has roughly doubled in that time, while the world supply of gold has only gone up by about 10 percent.
(For that matter, you could look at similar numbers over the last century or so and get the same general answer.)
As for where I get my ideas about the continuing monetary role of gold today, see for example this article or this article on Critique of Crisis Theory.
If little gold is mined, and new Federal Funds dollars are produced at a higher rate than the rate of increase in the world gold stockpile, then there will not be low inflation. Your hypothetical scenario cannot exist.
This is precisely the problem (not for me! but for anyone who cares about the stability of the world capitalist economy). This is not a sustainable situation. The longer it goes on, the more violent the depreciation of the dollar versus gold will have to be.
Precisely the problem. The feedback between dollar creation and gold is not a system of immediate and small adjustments. If it were, then there would be no big cycle of boom and bust, but rather just a collection of incremental adjustments. Unfortunately, this adjustment takes place over a roughly 40-year cycle known as the “Kondratiev Wave.”
Gold takes turns being undervalued during the summer phase of the cycle, and overvalued during the autumn, winter, and spring phases of the cycle. This is reflected in the golden prices of commodities alternating between being above the long-term average (when gold is undervalued) and below the long-term average (when gold is overvalued). See above. Currently we are still in the spring phase of the cycle, so gold is still overvalued and I do not recommend investing in gold or gold-related assets at this time. The golden-prices of commodities must increase further (in other words, the relative price of gold must drop) before I can say that we are in the precarious summer phase of the Kondratiev Cycle (i.e. the phase before the crisis). In fact, the next few years will continue to be a relatively good time to be an industrial capitalist. They will also be decent years for owners of equity index funds, although I recently sold my ~60 shares of VT (for a 40% return over 2 years) because I foresee capitalized assets now butting up against a plateau now that interest rates are increasing, as those interest rates must be allowed to rise unless the Federal Reserve wants to make the dollar’s eventual depreciation against gold even worse to come. (The Federal Reserve really has very little practical discretion, assuming that they want to manage the dollar responsibly).
Funny that the dollar-price of gold has increased by thirty times despite supposedly becoming a “barbarous relic” with no more monetary role in that period of time. Strange that gold’s dollar-price did not instead fall when gold was supposedly “de-monetized.”
Bondholders will tolerate a negative gold rate of profit for several years under the assumption that it is a temporary phenomenon. But it is an unsustainable situation. if it continues for nearly a decade, then they lose patience, and the Federal Reserve MUST tighten (and I agree with Market Monetarists like Scott Sumner—the Federal Reserve did tighten leading up to, and during, the Great Financial Crisis).
The Federal Reserve had to restrict the creation of further checking account dollars in the private banking system (which used to be accomplished by restricting the supply of Federal Funds dollars, but which now is accomplished by Interest on Excess Reserves). The Federal Reserve had to allow short-term interest rates to rise…or else investor momentum into gold, primary commodities such as oil, and real-estate will gather and threaten to obstruct expanded reproduction.
The U.S. was already witnessing the first stages of a repeat of the 1970s before the Federal Reserve wisely slowed the creation of new checking account dollars in the private banking system by introducing the payment of Interest on Excess Reserves (IOER), which decreased the opportunity cost of not using new Federal Funds dollars as a basis for making new loans and thus creating new checking account dollars. The Federal Reserve was thereby able to restrict the effective creation of new Federal Funds dollars while simultaneously appearing to flood banks with new excess Federal Funds dollars (which in fact do not function like old Federal Funds dollars at all, but which pay a variable interest rate and which are essentially variable% rate government bonds).
EDIT: Note that, even with the Federal Reserve’s tightening during the Great Financial Crisis, there was still a 1970s-esque run on gold all the way up to $1900/oz. Imagine how much worse that would have been if the Federal Reserve had tolerated 5% or 6% NGDP growth during that time, as the Market Monetarists have advocated in hindsight. It would have not been pretty.
Only if you assume cross industry monopoly (or cartels) holding wages down and/or that the quantity (including quality) of labor doesn’t respond to price changes. Absent those conditions such speculation doesn’t work.
Step 1. Decrease wages in industry X.
Step 2. Increase profits in industry X.
Step 3. Choose an industry to invest those profits in. What is the logical choice? Why industry X since it has above market rates of return.
Step 4. Increased capital to worker ratios drive profits down one way or another.
That is one example of a contradiction of capitalism. Like most of the weakest Marxist arguments, it jumps too fast to a particular (wrong) prescription of the synthesis of that contradiction. But it’s not wrong in noticing the opposing tendencies, at least.
You seem to have mistaken a rhetorical question for a literal one; the context makes it pretty clear that by “contradiction” Piketty actually means “instability”. My point is that that, simply put, that is awful terminology and nobody should ever talk that way. (See rant above.)
You’re quoting a lot of passages in that book that say that Marx or Ricardo didn’t research this or that subject, but are these claims actually substantiated?
Because it’s really easy to make up a rationality lesson about how “looking up data is more important than having a nice-sounding reasoning” to criticize people who did actually do their research, you’re just not aware of it.
I’m not saying that’s what’s happening here, mind you, but I’m suspicious.
Adam Smith has a good deal of data and talks about it. For instance:
Lots of other examples.
Anyone who has played a lot of Crusader Kings knows that gavelkind succession results in each generation needing to reunite their ancestral lands.
Families that keep their power base concentrated over time end up with it gaining power over time, but not doubling every generation. Those that split it up see the amount of power per person decrease each generation, and then because dynasty members compete with each other destructively, they end up with lower totals.
There’s also something strange about “wealth” that exists as currency or debt; despite money and bonds being fairly easy to exchange for stuff, accumulating lots of currency can be done without making stuff or inflating the currency.
Getting rid of excess sons has a long history in Europe. One way was sending them into the (celibate) Church. The other, as you suggest, was sending them off on Crusades (or later, colonial missions). Either the crusading/colonizing son managed to collect his own pile of loot, or (more likely) died in the attempt. Either way, problem solved.
This had knock-on effects, of course. Many U.S. Mormons have British ancestry due to the great success the LDS movement had in the British Isles, and one reason for that is the polygamy thing. There were many single British women with no available husbands (because they’d gone off to get themselves killed in colonial wars, or, more happily for them, to marry or have less-formal (perhaps exploitative) relationships with local women from the colonized countries). Some of these British women apparently decided that having part of a husband was better than having none, and joined the LDS church.
“One way was sending them into the (celibate) Church.”
Why would any significant fraction of people accede to this?
You can be a priest, with a healthy monetary allowance and power and status, and enough of the last two that nobody looks too closely at how much of the first you are spending on e.g. unusually comely young female housekeepers so long as you don’t claim paternity over their children. Or you can be cut off and live in poverty and disgrace. Your choice.
Okay, so they’re not actually celibate. Their children just can’t inherit the family wealth? But if they married or claimed paternity it gives an excuse to cut them off, so it’s better than e.g. just an agreement for them not to marry? I guess that only makes sense in the absence of the fee tail since otherwise you want lots of heirs around in case the first ones die etc.
I assume if all the family heirs died, the younger brother priest or monk could leave the clergy and start producing heirs.
Depending on the age gap, and the duration of clerical education, there’s a good chance that the eldest son will have produced a couple of grandchildren before the second son is scheduled to formally join the priesthood. If something goes wrong with that, especially at the “eldest son is inconveniently dead” level, then you just have to yank him out of divinity school.
W/re the sons sent off to the military, I vaguely understand that Lieutenants of that era were discouraged from marrying and couldn’t afford it anyway, and most officers stagnated (or in wartime died) below the level where they would be expected to take a wife. But nobody much cared how many spoiled women and bastard sons they left scattered around their duty postings.
I’d think that younger sons joining the clergy wouldn’t have much effect on the pool of available husbands in England, since most of them would be joining the Church of England, no? After the 16th century, anyway.
I’m not an expert in this field, but I have the sense that an awful lot of CoE clergy were either “unbeneficed” (i.e., unemployed) or else deployed to “livings” that were so penurious that they couldn’t possibly afford to take a wife and raise a family.
Indeed there is, although the postulated mechanism was not birth control. In this article https://pdfs.semanticscholar.org/c2f1/db5325748aa3044e969430fc5d9e0dd128c3.pdf Beise and Voland analyze infant mortality rates among noble families in Germany in the 19th century and observe that boys had higher mortality rates than girls. They claim that this was because having multiple male offspring would lead to splitting family estate among them.
Mortality differences between girls and boys have been analyzed a lot in economic and social history, motivated in part by Amartya Sens observation of missing girls. This is one example of a situation where excess mortality has concerned boys (Finnish famine in 1868-1870 is another although in that case mainly grown up males faced disproportionate mortality risk).
You’d be surprised. Balzac and other contemporary writers had incredibly detailed works. Balzac was mostly writing for money, and since he was paid by the word, he had incentives to write detailed descriptions… but besides that, he was also trying to paint a portrait of the society he lived in (after a few years, he named it the Comédie Humaine, which gathered hundreds of books by the time he died).
It wasn’t just about finance. He described architecture, psychology, social norms, the inner workings of administrations, social upheavals, logistics, etc. The closest contemporary writer I could think of would be Wildbow, and he doesn’t even come close to the obsessive level of detail Realist and Naturalist writers would put in their work.
Isn’t Victor Hugo’s Les Misérables also famous for having a long early section about the Paris sewers? Checking Wikipedia, it looks like “Digressions” gets a whole section.
Wildbow writes extremely long stories, but they don’t tend to have digressions—he works nearly all his worldbuilding into the story itself, with the “Pages” interlude chapters in Pact being perhaps the exception. Stephenson on the other hand is famous for his doorstoppers as well as for his digressions, but it looks like Balzac and Hugo have him beat by a long margin here.
In my experience of the writers I know, they tend to be inherently delighted by doing in depth research and including as much as they can into what they create. I don’t think you necessarily need to invoke a particular incentive to explain writers doing that!
Yeah, but Balzac and Emile Zola in particular were *really* verbose compared to, say, Stephen King.
I don’t think anyone is accusing Piketty of being a ‘nationalize everything, execute the kulaks’ type Communist. What Piketty has in common with Communism is a view of the wealthy as parasitic rather than contributors, a belief in class struggle, and a desire to basically eliminate the wealthy as a class. He is also anti-capitalist and draws on previous leftist, including Communist, positions that capitalism is ultimately self-destructive. He also proposes a great deal of intervention, even nationalization of wealth and the financial sector.
And worst of all for me personally, he uses bad statistics and economics to support a motivated argument.
It’s selection bias. The less economic-minded authors are not relevant to Piketty (and probably less interesting). Jane Austen, for example, lived in increasingly mean circumstances throughout her life. That finds its way into her novels. She was almost certainly a woman worried about money in real life. (She was also infamously snarky, as her novels show.) Balzac likewise had reason to care a lot about money.
This trend actually began in the 16th century in the Netherlands. The Dutch sort of lacked traditional estates and feudal rights but had a market economy and a government that needed money to fight wars. By the end of the 17th century, these people were a huge portion of the state budget.
One of the trends of the 18th century was that these people increasingly became accepted as aristocrats. Prior to that, they were seen as very wealthy commoners. For example, one of the wealthiest Londoners in Restoration England had inherited vast sums and lived on estates and all that… but his parents were merchants involved in the East India Company and he married the daughter of a financier. Despite being filthy rich and basically just managing his assets, he was a commoner. A century or a century and a half later, he would have been a gentleman. You can sort of see it in Jane Austen: Bingley is a gentleman of a new mold while Darcy is a more traditional gentleman, but they’re both gentlemen.
And the interest declined because governments became a safer and safer bet. The government can’t really be compelled to pay, so it’s inherently a risky investment. You can’t repossess the army’s tanks. Modern government has gone to incredible efforts to assure investors their money is protected so they can borrow cheaply.
> What Piketty has in common with Communism is a view of the wealthy as parasitic rather than contributors, a belief in class struggle, and a desire to basically eliminate the wealthy as a class.
Is your view on that axiomatic, or contingent on observed reality?
For example, in Brazil, there exists a class of nobility who have ‘enfiteuse’; the inherited right to 2.5% of purchase price of any property sold within their literally feudal domain. And despite Brazil being a democracy, they have the political power to prevent abolition of that law.
Would you agree that fits the definition of ‘parasitic’, or would you say ‘look at all the cooks and gardeners they employ; they are wealth creators and we should praise them?’
And if do you accept that contingency of the non-paratism of the rich, why would you have hostility to those who attempt to inestigate the question empirically? Can you imagine any reason why there might exist people who would benefit from you feeling that way? Is there any possible mechanism whereby the preferences of such people might come to influence your opinions?
https://www.npr.org/sections/parallels/2015/08/25/434360144/for-brazils-1-percenters-the-land-stays-in-the-family-forever?t=1530101177585
http://www.scaife.com/sarah.html
Can you give me your definition of the term “parasitic”?
> Can you give me your definition of the term “parasitic”?
The opposite of ‘symbiotic’.
If A + B A, B is symbiotic.
Under some circumstances, some rich people contribute more to society than they take out; others do not. Piketty’s theory is that the conditions under which a majority of the rich can be described as the former can summarized by ‘r < g'. And, more speculatively, that that is contingent on certain societal arrangements which are increasingly not the case.
According to your definition, should most people in countries like Gabon be classified as parasites (since the sale of natural resources is their main source of income and smaller population would have higher income per capita)? What about low-income people whose taxes do not cover government expenses for their education and healthcare?
> higher income per capita
I didn’t say anything about per capita; parasites are things that lower the overall health of the organism. A subsistence farmer in an export economy may add little, but they are not taking much either.
A warlord or bandit leader is. A warlord who chooses to start a civil war could take billions off the economy, to count only the financially measurable effects. It often makes sense to pay them a few million to keep the peace.
That being so doesn’t change the fact that the society would be better off if it was sufficiently stable that no such bribes were necessary.
> What about low-income people whose taxes do not cover government expenses for their education and healthcare?
I said nothing about taxes. People doing useful work increase the size of the pot that gets split; the fact they get little in return is a problem for them; it doesn’t make them a problem.
According to your original definition it does not matter how little they get in return. What matters is whether they get more or less than they contribute. So even if warlords take 90% of oil revenue and just 10% is spent on subsidies for subsistence farmers, the latter are still “parasites” according to your definition.
People doing useful work do increase the size of the pot that gets split. But unless what they take out of this pot is less than they contribute their relationship to other people is no longer “symbiotic”.
In what sense is Piketty doing that?
A rich person who is living on the interest from government bonds is, from Piketty’s own point of view, receiving the income that the government saves due to owning capital assets bought with the money from the bonds instead of having to rent them. The fact that real interest rates are positive is evidence that capital is productive–people are willing to pay for its use.
Suppose I produce lots of non-perishable goods, then retire and live by consuming or selling from my stock. Am I a parasite? Is my son, who inherits the goods I produced? Is the situation any different if, instead of producing consumption goods, I build a factory or plant an orchard and I, and later my son, live on the value it produces?
In all of those cases, at the point when I am consuming I am no longer producing, but what is consumed is, directly or indirectly, what I produced.
No.
Yes. That’s uncomfortable to admit, because humans tend to have irrational feelings of “love” towards our children, but it is true nevertheless.
A parasite on whom? The only one experiencing a loss would be the parent who made the non-perishable goods and that person is dead and therefore unable to lose much.
This seems to me much like saying that if I give you a sum of money sufficiently to live off, this makes you a parasite on society which I find counterintuitive. I would accept that you are a parasite on me, but this being a gift, I’m presumably OK with that and this should be my choice, yes?
But this disregards the very real possibility that he may not have produced so many goods were his expectation something other than his son inheriting them.
@Fossegrimen
A parasite on the parent I think, it doesn’t really matter that she’s dead and/or willing.
@idontknow131647093
Parisitism isn’t necessarily bad! Or rather, the benefits of removing it wouldn’t necessarily outweigh the cost, and personally I don’t think there are even direct moral costs at all. But it’s still a thing.
@rlms
This is a nonsensical usage of the term parasite.
Most children in modern first world countries are net financial losses to their parents. By your definition, essentially all children are parasites on their parents even if they aren’t parasites on society at large.
And since in the hypothetical the child is only consuming what the parent produced, they aren’t a parasite on society.
EDIT: There are definitely people who are parasitic in some sense on others, but this is really a terrible example.
A definition of parasite is someone who harms the host. A strict definition also requires that there is no (meaningful) benefit to the host, while a loose definition merely requires that the host suffers on the whole from the relationship.
A complicating factor is that children are generally enjoyed for their existence and general behavior, rather than for how much much they cost their parents in money or goods vs how much they give them.
So I suspect that Mr Friedman doesn’t feel harmed by his son, because he values the non-material parts of their relationship very highly, even if it is likely that he gave much more money and goods to his son than he got in return.
You are not allowing for the value of the grandchildren that my son provided me.
Woah, hold up. Aren’t those government bonds basically claims on parts of taxation not returns from capital investments? From Scott’s post:
So exactly what productive investments were being made there? Seems to me that the clearest way to put it is “an entire class of rentiers forwarded the government money to fight wars and then got to live off the forced taxation of the non-rentier classes for the next century”. That kind of seems like parasites to me.
The productive investment in that case is both material (all the material demands of a war have to be met) and also in keeping the continent open to British trade and exports, rather than the potential domination of one power hampering them. Yes Prime Minister actually called that pretty well, the only reason Britain has really been that interested in Europe over the years is to keep them all fighting each other.
One, non-exhaustive definition of parasitism would be to look at a counterfactual world where that person didn’t exist. In your example, if you were not around to make an trade your non-perishable goods, the rest of the world would be poorer (because they obviously saw some benefit in trading for your goods). If your hypothetical son was not around to inherit those goods, the rest of the world would be richer.
There is some trickiness in figuring out the extent to which the existence of the son incentivizes the work of the father. But in the hypothetical that the capital was all produced by a fairly distant ancestors, and everyone since has been living on the interest, that would seem to be a dilute effect.
But then you can look at the example of you making a lot of nonperishable goods and retiring and consuming them later. Just like the son not being around would make the world richer, you not being around during your retirement period would also make the world richer. So that means that you are a parasite on society when you do that.
How does the existence of the son make the world richer or poorer? The goods still exist. If the son doesn’t exist, someone else gets them.
I suppose if there’s one less person in the world and a constant amount of wealth, everyone else is richer. But that’s true of any given person. The world would not be richer if the son was still around but didn’t get to inherit: it would be exactly as rich as the world where he did get to inherit.
Would not most people on the planet be parasites by this definition? For example, if the population of the OPEC countries did not exist the rest of the world could just split their oil revenue.
I’m assuming that intertemporal trades with oneself are important, or we can’t confiscate peoples wealth at retirement and expect them to save. This seems like a reasonable way to look at things.
This.
Given that the the economy has grown enormously over time, someone is making a positive sum contribution. Your estimates of the median may vary given how heavily you weight superstar contributors, but the average person makes a positive contribution to wealth of the rest of the world.
This seems like a bit of a straw-man, in that what Piketty is (I think) against is not the very concept of economic rent, it’s the rentier class getting too big or growing unchecked. So for Piketty, the pertinent question is not whether your son manages to live a life of leisure thanks to your hard work, or even whether your grandson does, it’s whether your grandson inherits more or less than your son did. If less, great, good for him, Piketty hopes your offspring enjoy your legacy while it lasts; if more, and if your great-grandson inherits even more than that, and so on, that’s what Piketty would (I believe) argue is a Bad Thing ™ which we should attempt to discourage.
That might be necessary, but I think there needs to be another derivative for it to be sufficient.
Assume an egalitarian post-scarcity society (i.e., all are rentiers), and the AIs are diverting some production to increase capital faster than population growth; each generation will inherit more than their parents did, but it’s obviously not a Bad Thing™.
My view of what? Piketty’s views? They’re based on the observed reality of what Communists and Piketty both wrote. Or do you mean the bad statistics part? You don’t talk about many statistics.
Something I have outside knowledge on! And you are absolutely wrong about. Enfiteuse (which exists in English law too, called emphyteusis) is not some feudal overlordship thing. Basically, it works like this: the settler went over and claimed a bunch of land. They then parceled it out and, in lieu of rent, put a lien on the property they formerly owned that they get a percentage of it every time certain actions are taken. The person who owns the property sometimes also have to pay some rent, though usually less or in kind. In exchange, the person is obliged to improve the property, pay taxes, and basically act as owner. It’s not that different than dirt rents. Which we can debate the morality of on its own.
On top of that, it has been abolished in Brazil. They have been slowly decreasing as the government has forbidden the creation of new liens of that nature and put in conditions for when they end. On top of that, there’s a court case to abolish them immediately. This is because the institution had become (in Brazil’s view) exploitative. It still exists commonly in rural Canada, for example, as an economically productive thing.
Let’s pretend for a moment you are right about Brazil, and that enfiteuse is not what it actually is but a due owed by every person in a certain geographical area because of… I don’t know, divine blood. That it was not granted to those who did an action, like say settling Brazil and attracting more settlers, but just by government fiat. And that those who receive it provide nothing in return. Then we’re in Petty’s ‘landed lazy’ group. If they provide some benefit to society accidently it might be worthwhile to keep the institution. If they don’t, then no.
Of course, that isn’t the real situation. But yes, you can certainly invent such scenarios.
Finding such scenarios doesn’t really serve as an argument against capitalists and capitalism, though. Firstly, you’ll notice your scenario relies on state force because (unlike in reality) there was no benefit to the contract for the people who rent. Secondly, finding a specific sort of wealthy person that is parasitic on society does not imply all or even many of them are. I could perfectly allow that your fake enfiteuse is parasitic and turn around to argue that people who use their money as private equity provide a valuable service. I can even hold both opinions of the same person simultaneously, believing the wealth was gotten in a parasitic way but now is being used to provide a service that is for the common good. This is perhaps unlikely, but we are inventing scenarios here.
Please show me where I have any degree of hostility? Or is disagreement and reading critics hostility? This doesn’t invalidate his conclusions, mind, just his specific arguments for them. If you want to discuss his statistics and the problems with them, I’m happy to. You’ve failed to bring them up. Instead, this has been a rather Bulveristic attack, where you haven’t actually brought up arguments. You’ve simply implied I’m biased.
Of course people benefit from my opinions. Can’t you imagine that people benefit from yours? I suspect we disagree about who benefits from our respective opinions, though.
Certainly. Likewise, isn’t this true for you? Maybe you went to an overwhelmingly liberal university or consumed media produced by one of the most heavily unionized industries in the US, Hollywood?
Don’t misunderstand, I don’t think Leftists secretly rule the world. But simply shouting, “You’ve had your opinion influenced! By people who benefit from you holding those opinions!” is not an honest argument. Firstly, because even if you prove it’s true that doesn’t invalidate my arguments. Secondly, because it’s true of everyone on every side. Even you.
Getting an economic reward, in terms of land, for military service is a fairly central example of the concept ‘feudal overlordship’.
I really didn’t have to omit a lot of text between those two claims; which one do you stand by?
Similarly, those who use their private army to serve national ends can provide a valuable service to that nation. The question is to what extent is that is the only, or best, way to run a military.
True; it merely provides me with an explanation as to why you will no doubt continue to hold your opinions in the face of what, to me, looks like pretty strong evidence that they are invalid. I mean, a direct self-contradiction within two sentences is fairly high on the scale of how invalid an argument can possibly be…
This is a very broad definition of feudal. There is no oath of loyalty (the feud in feudal) or recurring service to a king (another feud oath) or a class of bound peasantry or subinfeudation (the creation of sub-feudal lords) or… well, most of the features of European feudalism. If feudalism is just “rewarding soldiers with land” we’re basically covering every society ever. Including the Rome, Medieval England, and the current US. You could even argue the Soviet Union, since although they didn’t own the land, they often did manage it. (And, in fact, that is the legal case in medieval England.)
Both statements. There is no contradiction. I’ll spell it out: in Brazil, it is illegal to make new enfiteuses and the current ones are being slowly killed by attrition (since they now have conditions after which the lien is removed). However, there is a court case to abolish them all immediately.
Certainly. Those are two specific policy questions. I’m not sure what your point is here. This is one of the points of the Second Amendment: a bunch of private armies were expected to make the US harder to invade.
If you’re interested in a genuine exchange of ideas, I suggest you read my post again with the clarifications. Hopefully that will let you understand what I meant and formulate more of a reply.
I think there are a few problems with the logic in the anti-colonialist reasoning.
“if the labor-capital split in Africa is X, then X% of Africa’s production will go to forever go to Britain, and only 1-X% to Africa”
For this to be true you also need to assume that 1) no new companies will be ever created with some participation of the locals, 2) the ownership of existing companies will never be diluted by Africans through employee participation or investment, 3) and that the British owners would never move to Africa. I do not think that any of these held in practice all the time. Of course, in times and places where 1) or 2) were true, these very features were the real problems of colonialism and not the X/1-X split.
Even forgetting Picketty’ point that elite spending is a small portion of its income, it is not obvious that the British capital owners spend their capital in Britain with the local elites spending locally. Before most British owners were expropriated, many of them lived in Africa and some still live there, mostly in South Africa; weak property rights, general instability, and the division of labor incentivise local elites to spend abroad, as anyone walking the streets of London or Paris can attest.
Finally, the calculus in “one-time positive action (investing in Africa) that produces an eternal negative action” implies a really weird concept of fairness, ignoring not only growth, but also discounting and simple arithmetic. Along these lines, if I pay you $10 for 10 apples it may be fair to you – a one time positive action of receiving $10 is balanced by the one-time negative action of parting with 10 apples. But if I pay you $10 now for the supply of 10 apples monthly for 10 months, you will be suffering from a one-time positive action but 10 negative actions! You also should really pity private pension funds – they receive a one-off contribution and then have to pay pensions for many years 🙂
By the way, the rate of interest on UK bonds has changed because these bonds were mostly “consoles” – bonds with fixed coupons but repayable at any time chosen by the borrower. As the British Empire grew and its economy prospered, debt burden dropped relatively to GDP and the government was able to repay some of the debt and refinance the rest gradually from 5-6% to 3-4% and then to 2%. While we do not have GDP statistics for 1800, by some estimates post-Napoleonic war debt was around 300% of GDP, so to repay it without breaking the gold standard is quite an achievement even by the current standards of state rent extraction.
Yes, a lot of them did move to Africa. And in many countries, most of them left post-independence in the face of retaliatory persecution (actual or feared) or because the process of decolonization removed the benefits for them of living in Africa over living in Britain or the Dominions. And when they left, they generally took any portable wealth with them, and more importantly, they took their human capital with them and the countries they left lost much of their educated professional classes.
“the British do a one-time positive action (investing in Africa) that produces an eternal negative action (having them get to drain some of Africa’s money forever).”
“the British do a one-time positive action (investing in America) that produces an eternal negative action (having them get to drain some of America’s money forever).”
No wonder hundreds of years after the end of colonialism, America remains such a backwards hellhole.
The Americans fought a war to stop the British from draining too much money (in taxes).
Eh, not really. The taxes the British sought to impose on their American colonies were very modest and didn’t even cover their costs.
The Americans fought a war to stop the British from draining too much money (in taxes).
Actually, in some cases (such as the Boston Tea Party), the problem was the British lowering taxes, not raising them (in the tea party case it was lowering the tariff on tea imported by the British East India Company, so the tea smugglers of New England could no longer undersell the British).
The US and Canada are quite different beasts than, say, Haiti, Congo, or Nicaragua.
The very well-known vulgar version of the economic history explanation “why this is so?” can be summed up as follows: in the parts of New World that do well today, when the early migrants from Europe moved in, a large part of them became homesteaders or otherwise work for their living. This kind of community made it possible for a stable and productive society to form (productive in both economic, legal, ‘good governance’ and cultural sense). In some other parts of New World and Africa, the Europeans moved to extract money from cash crop plantations which were enabled by either slavery (or exploitation of workers that is similar enough to slaver), or from other valuable natural resources (oil is popular example). The end result is tradition of extreme wealth inequality that persists for generations [rich landowners own all land, the workers have no chance of upward social mobility], bad governance and corruption, and ensuing many revolutions that see only the exploiters at the top of food chain replaced by insurgents-became-equally-corrupt-exploiters.
(To clarify, this is the vulgar version which misses the hot potato that is the role of industrial production in all of this. I have memories of past arguments on this topic in this very comment section long time ago; I might have been persuaded to change my views to the extent that I’m no longer sure how industrialization fits in there. Why some colonized countries in Asia have been able to pull off industrial development while other did not? Are protectionist policies and state interventions necessary to enable a chance for industry to develop?)
Let me add a classic illustrative example what a generic left-winger might have in mind when thinking about colonialism: Compare how population of Norway have benefited from their oil reserves vs situation in any generic third world country with natural riches. During the relevant time period, Norway did not suffer from colonialism.
I am part of the generation born in the 1970s and 1980s, and though my parents have been very helpful to me in many ways, inheritance as such has not mattered to me or any of my friends at all, because our parents are still alive.
The majority of people I know who have bought property (born in the 1970s and 1980s, UK) have done so because their parents gave them the deposit (often at the point their grandparents passed away and so they recieved an inheritance). This may not be direct inheritance, but it feels very similar. The difference between owning / renting in my peers feels very stark (renting – spend about a third of your income immediately on something with no long term worth, owning – have an asset that makes more annually than most people’s salaries).
In that passage, Piketty is talking specifically about French inheritances (and gifts during life). Looking at inheritance and gift tax data, he concludes that taxable inheritances and gifts amounted to 20-25% of total national income from 1810-1910, dropping to <4% by 1950, rising again to 12% by 2010. Piketty has published the relevant chart here.
Does anyone know what was going on in France? I wonder if tax regime changes caused a drop in reportable inheritance and gifts via structuring. For example, in the US, you can give up to X thousand dollars per year in gifts – it’s not uncommon for people who are planning large bequests to give that amount every year, rather than a larger amount in a single year. Similarly, in the US, buying a large life insurance policy payable to your heirs is not a taxable bequest, but saving the money up and bequeathing it is. There is a cottage industry in structuring life insurance product specifically to transfer money.
The questions for France would be (1) why did taxable bequests and gifts fall so far, and where did the money go? (2) What was the impact on capital formation in the next generation?
What was going on was WW1 and WW2, check out the graph and the two big drops are between 1910 and 1920 and 1940 and 1950.
That seems likely – how do you think the war period would reduce taxable inheritances and gifts?
By destroying a huge amount of held wealth and inflating the domestic product via war spending.
Yeah, given that Scott lives in the Bay Area (where extreme artificial scarcity has made house prices too high to afford on all but the highest labour incomes) I’m surprised he doesn’t know more people in this situation, either living in a home they own that their parents paid the downpayment for, or living rent-free in a home their parents own.
The system in California is also particularly tilted towards inheritance because under Proposition 13 if you inherit a house from your parents you only owe property taxes based on the (often negligible) sale price they paid when they bought it originally, while if you buy a house you owe property taxes based on the full price you pay. This creates an effect something like a milder version of the old system of entails/substitution hereditaire, with the law encouraging people to keep property in the family (and not subdivide it; one sibling transfering their share to another triggers reassessment) rather than sell it to people who can put it to better use.
This is wrong. On transfer after death the property tax basis resets to the current level at the time of the transfer. The major problem with prop 13 is that corporations don’t die, so the property tax basis for them is often never reset. (They sell the company that owns the land never the land itself.). If you want to fix Prop 13thatwould be a good place to start.
Your comment appears incorrect, and the OP is correct.
Per this:
http://www.boe.ca.gov/proptaxes/faqs/propositions58.htm#1
“However, if the sale or transfer is between parents and their children, or from grandparents to their grandchildren, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is timely filed.
These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents or children or from their grandparents. The new owner’s taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.”
If buying is such a great deal than it should be trivial to finance the purchase. Renters in the U.S. are often better off because their payment is much lower (no interest, maintenance etc.) and they can invest the difference. It just depends on the rent/mortgage ratio.
Renters usually pay enough to cover all the interest and maintenance; landlords aren’t likely to rent for below their cost.
The “usually” part does not apply to the top of the market. Expensive homes are held at a loss for tax reasons and appreciation. For an extreme example, the first rental I saw on Zillow for San Francisco rents for $7,200 a month, and is estimated to be worth $3,300,000. Principal and interest payments would cost around $13,000 per month excluding property taxes, insurance, maintenance, and management.
I use a 40% expense ratio when evaluating property excluding principal and interest. I’m not familiar with the expense ratio at the top of the market, but given the reduced rent to value, it might be higher.
Other reasons to rent: avoid transaction costs of around 15% of the home value, less liability and financial risk, mobility, ability to quickly reduce expenses by moving in with friends/family, not dealing with maintenance, poor credit, no available down payment, downpayment invested in an asset with a higher return, inability to maximize the value of tax deductions due to low income or not itemizing, ability of rentiers to deduct ordinary expenses which are not available to homeowners that in turn depress rents, etc.
I guess another way of looking at it, is we agree THAT wealth gets unfairly concentrated, we could look at wealth taxes to change that, whether or not we understand WHY.
(Although, I mean, not that straightforward, we’d need some economists to ‘look at’ it in depth.)
You also need a definition of “unfairly,” which I don’t think you can get from economics alone.
> whereas the African elites could be expected to spend their money mostly in Africa
Just look where the Russian elite spends its money.
New York City?
I would have vaguely thought the African elite would spend most of their money in Europe and/or the Caribbean, preparing for when they wanted to (or more likely _needed to_) get out of Africa.
In the very impressive GUM department store on imported luxuries, judging by a recent visit to Moscow.
Is that actually true ? People with money to spend can be expected to spend their money wherever they can get something they want in exchange for it; preferably, on the cheap. As long as there are lots of things in Britain — formal educations, latest fashions, factories, etc. — that don’t exist in Africa, African elites would spend their money there.
Yes. African elites tend to spend their money on Rolls-Royces, private jets, Parisian shopping sprees, Rolex watches, Monte Carlo gambling trips…. rather than on food from street vendors, corn meal, or locally-woven cloth.
> And since (absent appropriation) a capitalist’s ownership of capital lasts forever, the British do a one-time positive action (investing in Africa) that produces an eternal negative action (having them get to drain some of Africa’s money forever).
Most capitalist operations today are organized as publicly-traded corporations. There’s nothing stopping the African elites from buying the stocks.
Also, most colonial-type operations rely on continued competent management for their profitability. You don’t just go seize a single shipload of oil or cocoa and then sail away forever with your ill-gotten gains.
We’re seeing this play out in Venezuela right now. They kicked out out the “greedy” first-world oil companies who were “exploiting” them. Result: Venezuela has gone from a major oil exporter to a net oil importer.
The type of consumer spending you are talking about isn’t really what is important though, the question is where do you invest your money? Do you build a refinery in Africa or England? Do you diversify the local economy or stifle it to prevent trade imbalance?
Also I’m not sure what you mean by “continued competent management” of colonial operations has to do with the well being of the countries they are in. A meat packing plant might have excellent management but it wouldn’t help the cows.
The competent operation isn’t of the colonial regime, it’s of the British owned firms in the colony or ex-colony. If a meat-packing plant is competently operated that produces meat for locals to consume, a market for local raisers of cattle to sell to, and jobs for the plant’s employees.
> The competent operation isn’t of the colonial regime, it’s of the British owned firms in the colony or ex-colony.
However, the colonial regime’s ideas of property rights and the rule of law (or something not far from them) do need to remain in effect.
I’m sure you well know that the distinctions between the colonial governments and the management of colonial firms ranged from murky to nonexistent. As you may have missed my point about the meat packing plant, what I am alluding to is that in many cases the local population was not seen as part of the economic equation at all, they were merely a resource to be exploited. In these cases “competent management” involved maintaining output while driving wages as low as possible through any means available, almost always including physical coercion. That the colonial company itself may have been profitable was in no way guaranteed to help the native population of the colony.
Every business effectively sees its business partners, customers, employees etc. as resources to make profit off. Even an individual sees a company as a means to turn work into money, or money into goods. That doesn’t mean that the relationship is not often beneficial for both sides.
The argument above seems to say that it’s a bad thing for a European investor to build a refinery in Africa.
>Also I’m not sure what you mean by “continued competent management” of colonial operations has to do with the well being of the countries they are in. A meat packing plant might have excellent management but it wouldn’t help the cows.
I’m not sure how to make it more clear, but I’ll try:
Before: Venezuela was raking in metric tons of money for their oil (yes, some of the money was going to First World oil companies, but not anything like all of it).
After: Venezuela is not only not making money from oil exports, they’re actually having to pay money to import it.
What is difficult to understand about this?
You don’t know what you’re talking about. Venezuela nationalized it’s oil industry on January 1st 1976, more than forty years ago. It was consolidated under the state-owned corporation Petroleos de Venezuela (PDVSA), which would go on to become one of the most effective oil companies on the planet. It not only managed its assets with exemplary competence, but also developed new technology and infrastructure in order to grow its operations. As far as examples of the dangers of kicking out the foreigners go, you have picked easily one of the absolute worst ones available.
The reason Venezuelan oil production has crashed is because after a very good quarter century run during which PDVSA was allowed to operate as a private enterprise that just happened to be owned by the state, politics finally reared its ugly head. The professional class that actually ran the company was intensely anti-Chavez and his policies, and so completely stopped operations during the 2002-2003 general strike intended to force him to resign. Consequently Chavez kicked them all out and replaced them with incompetent and corrupt political cronies who have been slowly running it into the ground. To make matters worse, PDVSA’s assets have been raided to fund social programs, such that it now lacks the capital reserves to fund its own operations.
If you want to link “greedy foreigners” with “continued competent management”, maybe try not citing an example that had the latter without the former for a quarter century.
> You don’t know what you’re talking about. Venezuela nationalized it’s oil industry on January 1st 1976, more than forty years ago.
The oil itself. Not the production and distribution mechanism.
https://www.google.com/search?q=chavez+seizes+oil+company+assets
Someone doesn’t know what they’re talking about here, all right. Hint: it’s not me.
It looks like those seizures were a response to (not a cause of) the decline in oil production.
https://www.ft.com/content/b332e432-3d54-11de-a85e-00144feabdc0
Okay first, Petroleos de Venezuela is equivalent to an oil corporation like Exxon Mobil or Royal Dutch Shell, except state owned. They are absolutely involved in production and distribution. The contractors they seized are oil services companies like Schlumberger or Halliburton, they assist with production and distribution, but they don’t do it
by themselves.
Second, like Andrew Cady says, by that point PDVSA was rotten through and production was already in decline. Seizing the contractor’s assets was in response to that. Again, the root cause isn’t kicking the foreigners out, it’s putting political cronies in charge of things that ought to be run by competent professionals, and diverting needed financial assets away from the company.
Third, the contractors were seized early May 2009, yet you can see in this chart (source), that production had been declining since at least 2005. Notably, seizing those assets actually seems to have helped in the short term, since production rose thereafter. The final terminal decline you see starting in 2016 is when PDVSA finally ran out of money to maintain its own operations.
In short Doctor Locktepus, your thesis is not consistent with the evidence.
For one thing I am curious as to why you think that competent management is any more of a given for a colonial company than a native one. There are plenty of modern companies with bad management who nonetheless manage to persist for various reasons.
What I primarily fail to understand however is how you take as a given that a well managed (i.e. profitable) colonial company is a boon to the people of the occupied country. It could be, provided the colony had economic freedom and legal equality, but in most cases the colonial companies actively worked against those things as part of their management strategy. Without any kind of equal standing the profitability of the company simply means they have more resources available to further distort the local government and economy and compel servitude.
Your last paragraph made me think of Zimbabwe, once known as “the breadbasket of Africa”.
Do you have a source with numbers? I hear a lot of claims about Zimbabwe and Rhodesia, but almost all of them have been heavily anecdotal.
Source. Click MAX.
This is a common trope that is similar for people not understanding trade imbalances. In order for England to continue investing in Africa, Africa must have a trade surplus with England (or another country/set of countries that have a trade surplus). Thus, the English investor is always going to be directly or indirectly buying African goods, otherwise he can never get his English dollars out of Africa.
Isn’t it the opposite? A British person invests in stuff in Africa with pounds, the African former owners use those pounds to buy British goods. In order to invest in Africa, England has to have the trade surplus- because it has an investment deficit- right?
No, you are right. Its the opposite. So I suppose that trade deficits cannot tell us whether this relationship is bad or good, it only tells us that the Brit cannot get dividends unless South Africans want his goods.
So that’s what Brexit is all about!
Elites who live in a country will usually hire servants from that country. They’ll also employ local construction workers to build and expand their houses. And even for goods with a more global market, like food, local suppliers will have an advantage when selling to them due to lower transport costs. Of course they still spend a lot of money internationally but their domestic spending is a lot higher than if they didn’t live there at all.
I’ve always thought there might be a Goodhart’s law-type problem here when you’re deriving income inequality data from tax returns. If the tax rate on earning more than $1 million a year is 80%, that’s an incentive not to earn more than 80% a year, but it’s also an incentive to not report a million of taxable income on your tax return. That could mean just straight-up tax evasion, but there’s also lots of things that are so legitimate that they aren’t even loopholes. For example, in the modern era, almost all small businesses are set up so that the earnings “flow through” to the tax returns of the owners. This is because the tax rate on that type of business income is not high under the current system, and you can take the earnings and spend them on personal consumption without further tax consequences. If, however, the tax rate on individual business income is 80%, it’s much better to set your business up as a corporation, which reports its income on its own tax return, not yours. (The corporate tax rate has never been much above 50%.) You’re still taxed on dividends that you take out of the business, but maybe you just live frugally and reinvest most of the cash until tax rates go down. Unless you have some way to adjust for this in the data, you’re bound to overestimate the impact of high tax rates on real income inequality.
I think what was more common was having the business pay the owner’s living expenses in various ways. Company car, company golf (or yacht) club membership, company travel, etc.
Secretaries/Executive Assistants are another big piece of in-kind compensation disguised as a workplace amenity. They did/do have important work-related responsibilities (typing, filing, appointment scheduling, call screening, work-related event planning, etc), but I get the impression (in part from fictional portrayals like Mad Men) that they often did double-duty as personal servants for their principals, doing a lot of the same kind of work a Valet would do for a Victorian or Edwardian gentleman.
This is a great point and one I’ve wondered about too. Does Piketty address the limitations of using tax data to measure changes in economic activity? My major concern would be that changes in the tax regime could strongly affect the portion of activity that gets reported, as people either illegitimately evade the tax or legitimately structure their economic activities into non-reportable forms.
There’s a chapter where he talks about this. I don’t remember the methodology, but basically if you add up all the income countries generate and compare it to the amount taxed, about 90% of national income globally is taxed. The other 10% is hidden in tax havens.
One of his proposed reforms is changing the structure of international finance to find and tax this money.
Thanks! I’ll look for it – what I was specifically wondering is whether some of the trends he spots are related to tax changes that affect the characterization of economic activity. (And very specifically, whether the French trend in inheritances I discuss upthread was based on tax changes, and if so, what happened to that money).
Here are three papers he has co-written with regard to inheritances (I haven’t read any of them, but they seem a good place to start.)
1
2
3
Thanks – those were very interesting!
I have to say, you are one fast reader!
Caught me! : – )
More specifically, I meant that the set of papers was very interesting, in that I was able to answer my questions by skimming the first one until I was satisfied with enough detail about Piketty’s hypothesis of why the shift occurred. (WWI and WWII supposedly destroyed enough French wealth that there was not property to bequeath, and in recent years, taxable gifts to the living have ramped up substantially, presumably as people live longer and want their legatees to enjoy the property).
Then you’re a fast skimmer : – ) I opened the first one and my eyes glazed over by page 3. I’ll have to take another look when I’m over my cold.
re: Colonialism and the labor-capital split. If I recall correctly one of the major factors in the American Revolution was that, despite their wealth, the American upper class was prevented by law from undertaking many of the kinds of developments that would retain capital in the colonies, as it was in England’s interest to limit the colonies to a source of raw materials only.
Adam Smith made a pretty convincing argument that such limiting of the colonies was bad for England too.
But since everyone was dying earlier, would it not mean that they had proportionally less time to enjoy those inheritances too? I think the point is the knowledge that you will get the inheritance (plus whatever monetary help goes down to you during the parents lifetime). It has to be easier to convince a bank to give you a good loan if they can trust there’s some money floating around you – there’s no need for a whole Inheritance Insurance scheme.
I think it’s also a matter of the proportion of your life you spend post-inheritance. Let’s assume all children are born when their parents are 20, and that everyone dies at the same age, just to simplify the arithmetic. If parents die at 40, the children spend half their lives as owners, and have the wealth in hand when raising their own children. If the parents die at 80 the children spend 1/4 of their lives as owners, and don’t have the wealth until their grandchildren are adults.
Subjectively, that feels like a huge difference. Yes, you might be able to get loans more easily, if you have prospects than otherwise. But with a monied class upbringing and social connections, they’ve got a good chance of accumulating a fair pile of cash long before their parents are gone, even without those loans. Maybe not as much as they stand to inherit – especially with some kind of primogeniture. But enough for the inheritance not to make a huge change, compared to people with similar initial opportunities (e.g. scholarhsip kids who attended the same elite schools).
Yes, that’d be true, but 20 years old might be a bit old for the average reproduction back then, and today well-off people tend to reproduce considerably later. It is not perfectly homogeneous, but it is not just the end bit of the lifespan that gets extended (25 yo and still studying? In my days we would…!)
There’s a difference between expecting to inherit a lot of money near the beginning of your career, and expecting to inherit a lot of money near the end of your career. Like, for example, whether you bother to even have a career.
And in the real world, if you go to a banker and say “let me have millions of dollars to cover all my upper-middle-class living expenses for the next thirty years; I’m sure to inherit lots of money then and I promise to pay you back”, the banker will laugh at you and not give you any money. The reason for this is left as an exercise for the student.
That said, I am skeptical of the claim that “19th century nobles” could expect to come into their family fortune in their 30s or 40s, except by way of an extravagant allowance or sinecure.
They might not “come into their fortune” officially with the death of their parents, but would that maybe be the age they start taking over management of the estate? Or would the family patriarch remain firmly in control, with his heir expected to be living independently somewhere else, well into his 60s+?
For higher-level nobles with multiple titles, the heir would generally hold one of his father’s secondary title “by courtesy” from a fairly young age. For example, the Duke of Norfolk’s eldest son would be the Earl of Surrey, and the Earl of Derby’s eldest son would be Lord Strange.
A lot of this (as “by courtesy” implies) was just a matter of social status, entitling e.g. the Earl of Surrey be addressed as “Your Lordship” and to require Barons to bow to him. But there was also a measure of real power that came with it: anyone above the age of majority with a peer-ranked courtesy title (Baron or above) would be entitled to sit in the House of Lords under a “writ of acceleration”, and it wasn’t uncommon for the heir to be responsible for managing the estates attached to his courtesy title and to be entitled to collect the incomes directly rather than relying on an allowance from his parents.
I agree about the difference. But the ability to get loans is important precisely because of that. One does not show up in the bank offering a “future inheritance”, sure. But the parents can absolutely provide some/the collateral (one of the things I meant, admittedly not in a very clear way, by “whatever monetary help”), even if we don’t think about inheritances at all.
True that it cannot cover all your life expenses. But it helps a lot if the plan is to steer oneself to be in the next generation of rentiers, because there’s a lot of little nasty things (like Jane Austen characters know) that eat time away, that could be used for more extractive purposes.
Anyway, what I wanted to say is that I do not think age is such an important factor when transmission of capital from parent to child is not a hard-step in time. It creeps down, even if slowly, and it sure helps to perpetuate inequality.
I am more interested by your article about not donating to Universities in light of the Caplan hypothesis about how our university education system works. The attitude of the posted article is that “when you give money to Harvard you are gifting to the extra-rich, you should give it to the extra-poor instead! It will make their educations better!” – I am kind of unconvinced by this because the tier-rankings of universities seems to be some kind of zero-sum status game, so if you did manage to endow a Community College or the like with a similar amount of funding, it would gain a large amount of status and become, in large part, more selective as a result.
Community colleges can’t be “selective” – being open-admission is what defines them as community colleges.
The purpose of increasing funding for education should ideally be to have a better educated, and hence more productive and happy population. Or sometimes to have better research. But a lot of it ends up being wasted on status games.
What annoys me is that this is rarely the most effective form of philanthropy, and the richer someone is the less likely they are to route their contributions to meeting peoples basic needs and instead help their alma mater build a nicer dining hall.
source
If you really want to get more bang for the buck with respect to funding education, I would recommend hiring gifted teachers to produce educational material in your preferred area/discipline, with the proviso that the material be dedicated to the public domain and released on the web for free.
If you give money to a university nowadays, you can take it as read that the bulk of it will be eaten by administrative parasites.
I think the above is showing philanthropy *itself* as a status game. This is actually better than the alternative (philanthropy is just something people do out of the goodness or their heart, or for their own personal feel-good points). If we know what motivates people to give and why, it is easier for the EA movement to hack the incentive models. So I see two kinds of donations here – donations that are to shelter money from taxes (personal foundations, etc), and donations that are to make oneself appear higher-status than the rest of their peers.
There’s also the option of buying them out.
Someone alert all the local governments that are trying to entice big companies to open factories or offices in their city or state – this company is trying to drain some of your money forever!
The cases aren’t equivalent, but I’m actually suspicious of the wisdom of working hard to attract a big name organization to set up in your area, particularly by paying some of their costs. It’s more obvious with sports arenas, teams, etc. than with e.g. Amazon’s second headquarters. But both smell funny to me – I think it’s easy for a city to overbid, and lose more on concessions than they (or their residents/taxpayers) gain from the change. And the results of “partnerships” with resource extraction companies have included some classic cases repeatedly cited by some left-leaning media – painting a picture of few locals hired, little tax paid, and plenty of pollution left behind.
Fundamentally, Amazon’s executives, or any other rational self-interested group of managers – want to gain as much as possible at as low a cost as possible. Best case – more subsidy than their actual costs. If they can set up a bidding war, they might just get it – especially if they can keep threatening to close the facility unless they get even more.
The question then becomes whether it’s a good deal for either those already in the area, or for the local government. (Not the same – if a bunch of rich people move in, bid up housing costs and drive away the current residents, the local government gains increased tax revenues – and while those locals owning property may do well, the rest are pretty much screwed. Ditto if the newcomers bring e.g. an anti-smoking mindset to some town in e.g. Kentucky.)
It could theoretically be worthwhile even if the incoming company gets a completely free ride, and it could theoretically be a disaster even if it entirely pays its own way. But that’s an empirical question, not reasonably subject to a priori reasoning. And it’s worth noting that the interests of the government people – both bureaucrats and those elected – may not match the interests of the local residents. There are lots of things to meaure there.
> letting it invite foreign investment on the much better terms it could certainly have gotten if its governments weren’t controlled by the same people it was trying to negotiate with.
It’s about who’s setting the terms.
BATNA
Scott quotes Piketty:
I don’t see how this has anything to do with a lack of inflation or economic changes. As far as I understand it, these ratios were fixed more or less by definition since those currencies at the time were fixed to gold or silver such that “dollar” and “franc” were really just names for particular quantities of gold or silver.
So it seems to me that Scott either took Piketty’s statement out of context or Piketty is misleading his readers. It would be like if the hypothetical future author of Capital in the 23rd Century argued for the stability of moral values during the present age by writing: “In the twentieth and early 21st century, everyone knew that one pound weighed 16 ounces or 7000 grains.” (In my, admitedly unrealistic, future scenario, even Americans eventually embraced the metric system.)
I assume your italicized passages are all from Piketty. Does he offer any cites to Ricardo in support of the first one? I’ve just checked Principles of Political Economy and Taxation, his major treatise, and can find nothing along those lines in the chapter on tax on rent or the chapter on tax on land, and I can’t remember anything along those lines from reading the whole book many years ago.
Perhaps because it wasn’t? Smith, Malthus, and Ricardo all discuss economic growth, both capital accumulation and technological progress.
If that is supposed to be a claim about the book Piketty has just cited, it’s false. Whether or not Ricardo wrote what Piketty asserts somewhere–I haven’t read his other writings–that isn’t what that book is about.
I don’t know if it is true of Marx, but it is not true of Smith, Ricardo, or Malthus.
Only a feature if he gets the history of economic thought correct. Your quotes suggest that he may not.
I’ve seen a few other sites that make that claim regarding Ricardo, but I can’t find any reference to it in Principles, certainly not that it was his chief concern.
Piketty is obviously referring to the idea of a stationary economy in classical economics. Although classical economists did take growth into account they thought it would stop at some point when the economy reaches a stationary state. I’ve seen this idea dozens of time and the wikipedia page says both Smith and Ricardo believed in the stationary state so he’s not making it up. Then I think he’s reinterpreting it through the lens of the Solow model where the steady state can only be avoided through technological progress.
I believe the stationary state in Ricardo is what you get if you hold technology constant and let capital and population accumulate until the reduction in the rate of profit due to the increase in wages due to the increasing price of food (iron law) due to the margin of cultivation being pushed onto worse and worse land results in capital accumulation going to zero.
Ricardo is quite explicit about the possibility of continued technological improvement. The stationary state is an analytical tool, (very) long run equilibrium with one variable held constant, not a prediction.
To take one example:
(Principles, Chapter 5)
Piketty writes:
The first and second quotes are related, and I guess a matter of emphasis, although I’m skeptical that that was Ricardo’s primary concern in Principles. A couple good quotes would help.
The third point should be verifiable. Did Ricardo propose a steadily increasing tax on land rents?
An investment produces a return forever as well. If foreigners invest in a country, the additional capital continues to produce additional output–that’s why the owners get income from it. If they don’t maintain their factories or mines they stop producing both income and output.
Further, since the investment increases the ratio of capital to labor in the country, it tends to increase wages, producing a benefit for the local workers.
The existence of foreign capital doesn’t prevent domestic capital–there were wealthy Indian capitalists in British India. The additional output due to the foreign capital wouldn’t exist, to be spent in England or Africa, without the foreign capital investments that produce it.
In practice, the African elites seem to put a good deal of their money—most of which doesn’t reflect increases in output due to them—in Swiss banks.
Do you think the experience of African countries since decolonization suggests that their treatment of foreign investment resulted in better outcomes for their populations than the treatment under colonization?
It puzzles me that anyone thinks they need to look for additional reasons for the European colonisation of Africa being a Bad Thing. Surely the actual fighting and coercion are reasons enough?
Doesn’t that depend on what you believe would have happened in Africa without colonization? The Zulu, to take the most obvious example, were engaged in a bloody and successful war of conquest when they encountered the British.
I tend to agree with Scott here where he says “this is probably worse for Africa than leaving it alone and/or letting it invite foreign investment on the much better terms it could certainly have gotten if its governments weren’t controlled by the same people it was trying to negotiate with.”
It’s hard to predict what the future of Africa could have been in another history, but I find it hard to imagine that the kinds of pretty lopsided trade that did occur in that time would have been mutually agreed to in absence of coercion.
EDIT – rather than coercion, I should probably cite information asymmetry. That might have been a much bigger part of the dealings that went on then
Honestly I’d just blame Moloch for what happened in Africa to an extent. From the outside it’s obvious: all the Africans should just have agreed not to trade slaves to Europeans, not to enslave other Africans and to go no further than allowing the Portuguese, and later the Dutch, French and English, to stop and take on water and supplies if that. But there wasn’t anything like the coordination needed to do that. So as soon as one king, chief or emir sells the neighbouring tribe into slavery and gains a huge profit thereby, in both material wealth and military might, everybody is encouraged to do the same and thus spoil half a continent for themselves in the long-run. Think of the fishermen on the lake analogy from Meditations on Moloch.
In other words: I don’t think information asymmetry is as much to blame as Moloch, though Moloch is probably partly down to information asymmetry.
The problem with that sort of claim is that we know what less developed countries would have done in the absence of European domination, there were some countries who successfully resisted colonisation, after all, and their experience is instructive. Countries like Egypt, China, Siam, and Ethiopia still needed western capital to develop, and western capital would only invest at punitive interest rates, or if the assets financed by their capital was mortgaged to them, or if the country agreed to let a board of western financiers control their treasuries. Even absent direct colonial domination, the west still had the upper hand in a completely anarchic international regime, so they could set the terms however they liked. An undeveloped country’s only options were either complete isolationism and remaining undeveloped; as Futhington suggests, accepting western terms and subjecting themselves to western domination, or going to the extremely difficult and often bloody process of proving to the western powers that you were strong enough to collect significant revenues and sophisticated enough to prioritise repayment of western creditors, as Meiji-era Japan did.
@Mabuse,
Yes. I certainly feel like Thailand, China, Egypt are better outcomes economically than the majority of colonised Africa (or for that matter, the colonised populations in countries like USA and Australia)
You seem to be imagining “the west” as a single actor. If English investors offered poor terms for investing in a poor country, French investors might offer better terms. If one English investor offered poor terms, another English investor might offer better. The terms for investing in poor countries were not being set by some cartel consisting of all western capitalists–no such cartel existed. As long as investing in a poor country was more profitable than alternative uses of capital, it paid someone to do it.
David, that’s all well and good, but as an empirical matter such competition did not occur. The board set up to control Egypt’s treasury included British and French members, and all the major powers got a piece of the lucrative Chinese railway bond market, for example.
Out of curiosity, how does that work? Was there some sort of inter-government body coordinating investments in Asia and Africa to drive up interest rates or something?
I don’t know all the details, but I don’t think it was anything so organised. Just that European financiers enjoyed outsize bargaining power in the international development finance market thanks both to the fact that they were pretty much the only ones doing international development finance at the time and they were assured that if any of their deals went bad their government would send in the gunships to ensure they got paid. As for why there didn’t seem to be much competition among financiers, I think it was mostly due to the fact that their governments came to agreements over how to divvy up the undeveloped world, and this included those nations that weren’t subject to direct colonial intervention, Siam and Ethiopia were securely in the hands of British financiers, and there was a co-ordinated multinational effort in bankrolling Chinese infrastructure, for example.
You should also remember that it wasn’t just anybody doing these sorts of deals, it was a rarified strata of top financiers who all knew each other, worked together, were members of the same clubs, and generally acted as an insular clique even if they were officially competitors.
Okay, but let’s imagine a hypothetical scenario in which there wasn’t violence and coercion. Would it still be a bad thing?
(The whole point of this discussion is an attempt to argue that a capitalist getting passive income from someone else’s labor is unethical, and comparing the capitalist to a colonizer to underscore the point.)
You offer some implausible explanations from Piketty. I observe that, in the modern world, frankness about money varies a good deal by culture. I gather it is perfectly normal in Israel to ask someone how much money he makes. It isn’t in the U.S.
It’s an argument for restraining the ability of the dead to control the use of their property, but I don’t see how it’s an argument for restraining inheritance. Even if you are free to give all your property to your favorite child, both you and he are still free to sell it to other people who can make better use of it. If anything, requiring the parent to divide money equally among his children makes it less likely that it will end up in the hands that can make most use of it, since the ability of the children is one of the things that will effect who he gives how much to.
Is your point that the rest of Piketty’s argument–against concentrations of wealth–is an argument for restraining inheritance? That doesn’t seem to be the point of the passage you have just quoted.
What economists are against are protective tariffs. A revenue tariff, which is what Piketty appears to be talking about, has the same sorts of costs as other taxes, and isn’t obviously either better or worse than the alternatives.
What is the difference between a revenue tariff and a protective tariff? Is it just the amount?
A revenue tariff is designed to produce revenue, which usually requires a reasonably low rate. A protective tariff is designed to reduce imports, which usually requires high rates.
To put it differently, if the purpose of a tariff is revenue, the resulting reduction in imports is a cost. If the purpose is protection, it’s a benefit.
This was mentioned in the other thread, but Taleb (and others probably) noted that a decline in the top decile of income does not mean that inequality has lessened, and it can actually be caused by the opposite happening. This is well known to economists who study inter-generational mobility, and the solution is typically to compare earnings or wealth at specific ages (my earnings at age 40 vs my parents earnings at age 40) to determine mobility.
I remember reading a quote from Piketty about what a tragic waste it was that Britain spent so much money over so much time paying down Napoleonic war debt.
It’s overly glib, but I really wanted to reply “And that’s why Britain won those wars and France lost”.
He said that?
That’s a little weird. I mean, that’s what you’d expect the cartoon corporate villain to say: “Ha ha, these fools expect me to pay them money like I promised, even though they already gave me what I needed! Do they really expect me to do something that isn’t in my immediate interest? Fools, I tell you!”
Great follow-up; had forgotten how aware Pikety was of the land-centric wealth profiles of old-fashioned rentiers. Still don’t think he follows through with understanding that today’s rentiers are different though.
On politics and the welfare state: “This suggests we should see very little welfare state expansion in the near future, which does fit current data, although it’s hard to square with the sudden attractiveness of pro-welfare-state-expansion candidates like Bernie Sanders and Jeremy Corbyn.” It’s not hard to square at all. They do it by lying and saying they don’t have to raise taxes on most people. People believe them because most people have no comprehension of the realities of public finance. Major welfare state changes aren’t going to happen.
The broader question is a fascinating one. Squares in a sense with GWBush’s medicare expansion, which occurred during a pretty sizable boom as I recall. But the key variable is income growth relative to expectations, which is a nasty one to measure. Suggests that odds of government spending increases rise when income growth expands more rapidly than people expected it to, which is contrary to a lot of existing theories about the welfare state (war pushes state expansion and bleeds over into the welfare state as part of the process of caring for veterans and balancing benefits given to veterans with benefits given to others, etc). Doesn’t really explain the FDR programs, which were not at all enacted during good economic times. Although maybe it does since he never really raised taxes.
So I’ll amend that. The relevant dependent variable would be broad-based tax increases, not spending increases. Free money is always popular. Taxes never are. But they’re tolerable when people think they have a lot more money than they previously thought they would have.
To me the answer to “welfare state expansion in good times” is also obvious: it’s politically easy to commit to additional welfare in good times. Most people have plenty of money, so the expenses seem small and the added tax burden manageable.
Actual welfare spending would balloon in bad times, as more people go on the dole, but there’s the ratchet effect to prop up the existing policies.
Indicating that welfare programs are a luxury good. Which actually is not a bad explanation for much of the current Red-Blue split in America. Counties that are trying to catch up with big cities on a per capita basis generally being more Red, those who have already “made it” being more Blue.
Borrow enough money, and you can do it without even raising taxes. Just ask Gordon Brown.
As fullfactexplained, the borrowing was more of a response to the 2008 crash than a pre existing policy.
https://fullfact.org/economy/labour-and-conservative-records-national-debt/
President Hollande in France had a high top tax rate and inequality increased. The rich simply divided their high salaries among family and friends to get under the top bracket. They also deliberately bought less valuable/less taxable assets like cheaper summer homes in Spain and Tesla electric cars. Double digit unemployment and high youth unemployment was the result. And in most of France outside Paris minimum wage is a living wage so lack of jobs sucks the life out of the working class.
Wealth taxes may try and fail to prevent rich people from succeeding, but they don’t necessarily help poor people. The progressive US tax structure from 1922 to 1980 isn’t exactly a golden age for poor people, especially if you were poor and anyone other than a white male. Compared to 1865 to 1919, I’d say progressive taxation was ineffective compared to other factors.
Picketty’s proposals are unhelpful. Macron is better for poor people. Hollande was a nightmare for rich and poor alike.
None of this holds logically on its own, it only holds under specific assumptions which don’t hold up to the history of the US. The population US did not grow by 100 fold because New Englanders were having 10 kids each, and those kids were having 10 kids each (or it would have grown in 2-4 generations, not 2-400 years). US population grew in part because of waves of immigrants and their offspring in addition to the “original” members and their progeny, and those waves of immigrants were largely fleeing poverty and came to the US with little capital.
If we applied Piketty’s logic to this circumstance we would presume that wealth and income would be distributed roughly in line with when each ethnic groups major immigration wave hit the US. Looking at the income for ethnic groups and the waves of immigrants and there is no apparent correlation (if anything it runs backwards, but probably just doesn’t exist).
This is a dubious assumption for the US as there wasn’t a limit to physical property like there was in Europe. In 1800 the US was ~850,000 sq miles, now it is over 3,500,000. Even dropping Alaska it is still around 3,000,000 sq miles. Combined with the relatively low starting population density the equivalent of the landed gentry in the US rarely had to split up the family estate 5 or 10 ways since you could always move down the road, to the next county or eventually state and buy large tracts of productive land if you have any cash (which you have since you are making 5% on your estate already, right?!).
Others have already mentioned this under the other post, but it’s worth asking explicitly:
Why consider the return rate the central metric, when we have much more direct metrics of what we are talking about: the ration of the total amount of capital to the yearly GDP; and the share of profits/rents as a percentage of the GDP. AFAIK these have only grown modestly over time. (The chart in the other post, which uses the inheritance flow, shows only modest growth between 1820 and 1910.)
Two factor limit the relevance of the r>g inequality. The first is that capitalists don’t reinvest all of their profit. Piketty speculates that they are rich enough that they only spend a fraction of their profit and reinvest the rest, but we should look at actual numbers; if the ratio of capital to GDP doesn’t show large growth, then they probably don’t reinvest everything. And the economy can generate meaningful profit on only so much investment; if capitalists decided to reinvest all their profit, then profit rates would decrease, and sooner or later people would stop reinvesting.
The second is that, for Piketty, g is the growth of per capita GDP; population growth increases the total GDP, and decreases the growth of the capital-to-GDP ratio.
You miss the fact that, for the most part, the overlord has good reason to have his aristocrats be unified (or did at least, what with the origins of feudalism as a means of creating and supporting warriors) so that he can call on his claim on their wealth and/or strength easily. You do see the splitting of estates enforced however where it’s more useful to those in charge that those beneath them be poor and divided, because they weren’t going to get much wealth or strength out of them anyway. Good examples are Wales, where traditional Welsh succession law was upheld for Welshmen while Englishmen were allowed primogeniture, and Ireland, where the gradual splitting of Irish estates into tiny, less productive pieces was one of the contributors to the potato famine hitting so hard.
Positing that we should care about inequality at all, why should we care about income or wealth inequality, per se, rather than consumption inequality?
Marley consumed far more than Scrooge, despite the latter’s far greater wealth & income; which of the two had the more enviable life?
Most of Scrooge’s spending power doesn’t come from spending on personal consumption, but from his investment spending (business expenses). He has control over much more spending that Marley.
That includes paying Marley; this isn’t double-counting because money does get spent more than once, under different people’s control.
I wonder if there’s a principled way to look at inequality in control over spending? It seems like this would be difficult because often there are often strings attached. Consider employee spending on travel, or a healthcare account, insurance payouts, or the partial control over a company’s budget at different levels in its hierarchy.
It gets even fuzzier if we look at influence over spending, without direct control.
You’re mixed up. Marley was Scrooge’s partner, whose ghost visits Scrooge. You’re thinking of Bob Cratchit, Scrooge’s employee.
You’re right, I did mean Cratchit.
“Spending” does not cleave reality at the joints; consumption is qualitatively different from investment.
While Scrooge might “spend” more than Cratchit (h/t Doctor Mist), Cratchit consumes more.
Income and wealth differences are the underlying cause of differences in consumption.
But besides actual consumption, potential or latent consumption is very important. E.g. having health insurance is different from consuming healthcare. We have less reason to concern ourselves with inequality in healthcare consumption itself than with insured rates or inequality in the level of coverage.
In the case of Scrooge, the wealth he has, that he does not consume, at least still insures that he will never in his life break his back swinging a shovel.
I wonder if there is any history of noble families deliberately having only one child to avoid forced splitting of their fortune.
Not deliberately, but the story I heard about the Rurik Dynasty (which ruled Russia ~862-1612) was that part of their success was an unusually low rate of sons, which helped them avoid dynastic squabbling and gave them a long and successful run.
Of course, the no-spares issue eventually raised its ugly head, when Ivan the Terrible produced only two offspring, only one of whom was remotely qualified to serve as what was by then known as the Tsar; and then furthermore went and killed the qualified one.
I take it you don’t buy the official story that Dmitri Ivanovich accidentally stabbed himself in the throat while playing with his knife?
You’re kidding.
No, I’m not. That entire period of Russian History was insane:
This sets the stage for a series of events some time later, when Boris Godunov becomes Czar in his own right and then becomes immensely unpopular due to a multi-year famine, kicking off several rounds of civil wars featuring (at various times) three different major claimants purporting to be Dmitri and to have not actually been stabbed in the throat at all. The first False Dmitri actually held the throne for the better part of a year before a mob of nobles (angry over his religious and foreign policies) stormed the Kremlin and helped him out of an upper-story window.
Don’t stop there! Flase Dmitri actually survived being defenestrated, albeit with a broken leg. He hid in a bath house, but was recognized, dragged outside, and killed by the boyars. Then his body was burnt, his bones stomped on, and the ashes loaded into a cannon and shot in the direction of Poland (since the Poles were backing him). Then his suporters were hunted down and slaughtered, such that according to the historian Palitsyn, “a great amount of heretical blood was spilled on the streets of Moscow.” Then the Poles invaded again.
That’s the think about the Time of Troubles: there’s really not a good place to stop until several years into Michael Romanov’s reign.
Yes but the full story of False Dmitri’s death is too amusing not to share.
The Ottomans had a way around this little issue for a quite a while. Much less risky than only having one son too.
Just have the son that ascends to the throne assassinate all his brothers. Or jail them in the harem.
The simplicity and efficiency of the solution is remarkable although a little bit cold-blooded. But it has been blamed for problems down the line with creating unprepared sultans when someone had to be released from the harem to now rule due to an unexpected early death.
A further advantage of succession by fratricide was that it selected for the candidate best at winning a civil war–a combination of military and political talents. Those were the same talents needed for the ruler of an aggressive empire. Very roughly, the point at which that system was abandoned was the point at which the Ottoman Empire stopped expanding.
They own more, in fact, given that the people of poor countries own less foreign property than foreigners own in their countries.
To me this is an argument for colonialism: anti-colonialism has much in common with simple, populist (but wrong) anti-capitalist rhetoric. Of course strengthened by the fact that you are more likely to resent something if it’s forced on you.
Africans, even the elites, don’t have as much money to invest as their economies need. The wealth that goes to the British companies isn’t money that could go to Africans instead; it’s wealth that just wouldn’t be created at all without the British investment.
Moreover, capital markets are liquid and globalized. If an African does have money to invest, he can invest it with the same returns as the Englishman; whether in his own country (perhaps by buying shares in the Englishman’s factory), or by buying foreign stocks. Of course African governments can (and often do) limit foreign investment to increase the profits of local investors (often their cronies) above the usual profit rates for a given risk, but this is done at the expense of the local poor, rather than at the expense of the Englishman.
This effect is limited. If Africans want to make money by producing and selling stuff, they can always produce for export (perhaps to Britain). Indeed, if African countries didn’t export anything, its local currency would be worthless compared to hard currency, and the British factory owner couldn’t convert his profits (that are paid in local currency) to British pounds. (Of course the poorest African countries export little, but they also have little Western investment still standing and producing profits.)
I think much of it has since been expropriated, or destroyed in civil wars. And this part of the reason African countries get much less investment than their economies need, and whatever investment there is is at high rates of profit (even in the absence of restrictions on foreign investment). Profit partly compensates the investor’s willingness to postpone spending his money, but it mostly compensates risk (riskless yield is below inflation nowadays). African governments are known to sometimes drive out foreign investors and expropriate them, or take bribes to allow them to continue operating, or change the regulatory environment in a way that effectively elimininates the value of the investment, or occasionally descend into civil war. This means you are less likely to want to invest in such a country (whether you are a local or a Westerner), and you only invest if a high profit compensates the high risk. These things are unlikely to happen if you invest in Britain or, I suppose, a British colony. Want low profits? Ensure maximum protection of property rights, and rule of law.
The African only works in the Englishman’s factory if it pays a higher salary than other companies.
Let’s say we don’t care about the interests of the rich British capitalist, and we only care about the rest of the world. Then I’d say it’s best to treat the Briton’s factory essentially as a natural resource: you put in an amount of work, and raw materials, and it spits out an amount of salary. Can the existence of such a resource ever make the rest of the world worse off, overall? I don’t think so.
It may change the distribution of wealth among the rest of the world, though. In this case, if someone else wants to open a factory, he has to compete with the existing one. The Briton’s factory increases the supply of capital, so it reduces profits (the price of capital). So it makes the workers better off, and capitalists who belong to the “rest of the world” (perhaps newly emerging capitalists, or African capitalists whom we didn’t exclude from consideration) worse off.
Overall welfare spending grows in bad times, the amount spent per poor person (for a given level of poor) doesn’t grow (and occasionally shrinks). The ratchet works on the level of benefits for a person in a given situation, not on the overall welfare spending. There are fewer poor in good times, but they need as much welfare as in bad times, and we can even afford more.
This will depend on whether we are talking about the effect on the government budget (and thus on the poorest, or whomever the government spends on), or the effect on the overall performance of the economy. Low taxation and government spending is generally good for the economy (especially in corrupt countries where government spending is very inefficient), so low tariffs are good for the economy even if they aren’t compensated by other taxes.
I wouldn’t call a 80% tax “respecting private property”. I’d rather call it daylight robbery.
Optimal for what exactly? For making everyone poorer? (But hey, at least we made the rich less rich more than we made the poor poorer.)
There is no way investors will believe that it’s not going to happen again, no matter how much the government promises. They’ll get the hell out of the country that does this ASAP, and move their remaining investments to saner countries. (In reaction, the government would introduce capital controls, and all sorts of tyrannical economic micromanagement in an attempt to limit the damage, causing more damage.) Profit rates would sore by much more than 15% (to compensate for the risk), as would time preference (better spend your money today if the government might take 15% of it tomorrow; this applies even if the tax is global). It would turn the country into Africa.
If you really want a property tax, make it a tax with a continous, low rate. It’s bad, but not catastrophic.
Although parents are living longer, there are certainly ways to pass along inheritance earlier. Most obviously just by giving money, perhaps through a college fund or a trust. I also don’t think it’s uncommon for parents to help with a mortgage.
Less obviously, might the trend of children living longer with their parents be seen in this light? Particularly if the parents have a big house in a good location.
[I wrote this comment a while ago, and it seems to have disappeared.]
Overall welfare spending grows in bad times, the amount spent per poor person (for a given level of poor) doesn’t grow (and occasionally shrinks). The ratchet works on the level of benefits for a person in a given situation, not on the overall welfare spending. There are fewer poor in good times, but they need as much welfare as in bad times, and we can even afford more.
This will depend on whether we are talking about the effect on the government budget (and thus on the poorest, or whomever the government spends on), or the effect on the overall performance of the economy. Low taxation and government spending is generally good for the economy (especially in corrupt countries where government spending is very inefficient), so low tariffs are good for the economy even if they aren’t compensated by other taxes.
I wouldn’t call a 80% tax “respecting private property”. I’d rather call it daylight robbery.
Optimal for what exactly? For making everyone poorer? (But hey, at least we made the rich less rich more than we made the poor poorer.)
There is no way investors will believe that it’s not going to happen again, no matter how much the government promises. They’ll get the hell out of the country that does this ASAP, and move their remaining investments to saner countries. (In reaction, the government would introduce capital controls, and all sorts of tyrannical economic micromanagement in an attempt to limit the damage, causing more damage.) Profit rates would sore by much more than 15% (to compensate for the risk), as would time preference (better spend your money today if the government might take 15% of it tomorrow; this applies even if the tax is global). It would turn the country into Africa.
If you really want a property tax, make it a tax with a continous, low rate. It’s bad, but not catastrophic.
Trying to get rid of the national debt in one go by tax-and-pay is idiotic, yes. There are half a dozen ways to gradually get rid of it which has never caused any meaningful amount of capital flight.
Medium levels of inflation, financial repression, ect. Heck, just outright defaulting on it has lower reputational costs than what was proposed here – The sovereign bond market has the memory of the proverbial gold-fish.
Tom Wolfe’s “Bonfire of the Vanities” has a fun chapter detailing how Sherman McCoy is going broke despite earning a million dollars per year. Wolfe, of course, thought that American fiction needed more Balzac-like detail.
I suspect Wolfe got the idea from Irwin “Rich Man, Poor Man” Shaw’s 1939 short story “Main Currents of American Thought” of a radio serial drama writer balancing his checkbook.
A few headlines:
* Canada announces retaliatory tariffs on steel and aluminum
* Mexico imposes tariffs on $3 billion worth of US exports
* EU Retaliation Against U.S. Over Metal Tariffs to Start June 22
* China Issues Retaliatory Tariffs as Trade Fight Heats Up
* Russia to slam retaliatory tariffs on US imports
There seems to be a global consensus in favor of retaliatory tariffs, at least.
“In particular, Jane Austen minutely describes daily life in the early nineteenth century: she tells us what it cost to eat, to buy furniture and clothing, and to travel about. And indeed, in the absence of modern technology, everything is very costly and takes time and above all staff. Servants are needed to gather and prepare food (which cannot easily be preserved). Clothing costs money: even the most minimal fancy dress might cost several months’ or even years’ income. Travel was also expensive. It required horses, carriages, servants to take care of them, feed for the animals, and so on.”
It was expensive to live and eat and travel like a noble. The ordinary classes simply gathered and prepared the food themselves, and wore simple, relatively inexpensive clothing. Similarly, you didn’t need a carriage to travel. Riding on horseback wasn’t super expensive, as horses were far more common, and you could always just walk. Of course, there were maritime options as well, and you could often travel by sea provided that you worked on board.
Walking is a very expensive for of transportation over any distance because it is slow. Especially during a period where the ordinary classes were working 60-80 hours a week (often in physically strenuous jobs), in those circumstances walking 2-3 hours almost always meant not working for 2-3 hours.
I mean, in terms of opportunity cost, perhaps. But in terms of actual costs, you could really find ways to cut the expense down, living off the land to a degree which is foreign to our modern abilities, sleeping rough, etc. The point I’m trying to make here is that not everybody had the expense of fancy carriages.
Nit: Almost none of the characters in Jane Austen’s novels were nobles. And almost none of them were of the “ordinary” classes, unless that word is stretched to mean “literally everybody but the nobles”. Austen was, and mostly wrote about, the Gentry – in modern terms, the one percent but not the 0.01%.
Venezuela sits on a pretty fair share of the world’s oil, as does Mexico for that matter. Neither has been a colony for roughly 200 years, give or take.
For that matter, Rhodesia was a net food exporter.
One might argue that Britain invested money in developing Africa, which can only work with the prospect of repayment on normal investment terms. And one might even argue that it’s no worse for the average African laborer to have X% of his country’s money go to British elites he doesn’t know vs. than to African elites he doesn’t know. But this would be overstating the case – the British elites spend their money primarily in Britain, further developing Britain’s economy, whereas the African elites could be expected to spend their money mostly in Africa. And since (absent appropriation) a capitalist’s ownership of capital lasts forever, the British do a one-time positive action (investing in Africa) that produces an eternal negative action (having them get to drain some of Africa’s money forever). Although it’s not provably/necessarily true, in real life this is probably worse for Africa than leaving it alone and/or letting it invite foreign investment on the much better terms it could certainly have gotten if its governments weren’t controlled by the same people it was trying to negotiate with.This also helps me understand the “colonialism still hurts countries today” position better.
References to the effect of colonialism in Africa are often misleading. Lots of anecdotal evidence (pretty much every memoir by a non-African traveler there, all of Naipaul’s African-themed ouevre) refer to the inability of low-skilled, uneducated and uninterested African bureaucrats to take care of and repair of colonial-era public works and utilities, that have crumbled over time. Compare that with the net beneficial effect of colonialism particularly on places like Malaysia, Hong Kong and Singapore (not to speak of British sunk costs on the American colonies and, to a lesser extent, in dominions like Canada and Australia) that owe almost all of their comparative strengths to colonial-era advancements like British Common Law, infrastructures and social arrangements. As a rule, colonialism strikes anyone as a stupid thing to defend, but the devil is in the details here too.