Capital in the Twenty-First Century (1/2): A Rich New Resource on Inequality (Kate Ward)

Whether he deserves it or not, Pope Francis has the reputation of a uniquely prophetic stance on the evils of inequality. To collect just a few examples, he called for “a fair distribution of wealth” in his Lenten message this year, and at World Youth Day he quoted the Aparecida document from the Latin American bishops, calling the Church “the advocate of justice and defender of the poor in the face of intolerable social and economic inequalities which cry to heaven.” He has called inequality the “root of social ills,” both in his apostolic exhortation Evangelii Gaudium and in what may be his most widely-discussed tweet. Evangelii Gaudium received particular criticism for Pope Francis’ call for the “radical” approach of “attacking the structural causes of inequality.”

In fact, as Matthew Shadle has argued, Pope Francis’ statements on inequality simply continue the historical concern of Catholic social thought, including the work of Popes John Paul II and Benedict XVI. At this point, he has not introduced any new teaching on the issue. Perhaps instead it’s the case that the Church hears him with different ears, as Catholic publications from America to First Things to National Catholic Reporter have responded to increasing concern with economic inequality among Catholics and the world at large.

Busy scholars, ministers, and activists may be content to wrestle with Pope Francis’s words about inequality, steering clear of social science work on the topic. The trouble with this is that when we want to have conversations in the public sphere, we will quickly encounter people of good will who do want to debate the research, and it’s helpful for religiously motivated people to have a presence in those conversations. To that end, I’m here to review Thomas Piketty’s bestselling Capital in the Twenty-First Century (Harvard University Press, 2014) both as a scholarly text and in light of Catholic social thought. Despite its intimidating size and scope, Capital has the potential to be extremely helpful to scholars and activists concerned with inequality, and I hope to convince at least a few readers of Political Theology Today to add it to their reading lists. Like all economic works, Capital makes claims about what is good for humans, human nature and motivations, and social justice. So while it lacks the theological focus and joyful delivery of Pope Francis’s writings, readers of this blog may find themselves on surprisingly familiar ground. In a future post, I’ll present some of Piketty’s conclusions and recommendations for policy, placing them in conversation with Catholic social thought.

Conversations about economic inequality tend to swirl around one of two debates. First, the terms: is it true that inequality is getting worse, or that it has reached the level where we should try to change things? Second, the relevance: is economic inequality, as distinct from related issues like poverty, really a problem?

The second question has been ably addressed in recent years in books like The Spirit Level, The Unheavenly Chorus, and The Killing Fields of Inequality, works of social science demonstrating that yes, extreme inequality does have pernicious effects on societies that are distinct from the effects of poverty alone. Answering the first question, through the analysis of reams of historical data from a range of (mostly wealthy) countries, is Piketty’s project in Capital.

Piketty finds that under capitalism, the rate of return on investments over long periods of time always tends to outpace economic growth. So in the absence of major economic shock or significant redistribution, inequality will not only persist, but the gap between rich and poor will continue to widen. This relationship, expressed as r > g, “has clearly been true throughout most of human history, right up to the eve of World War I, and it will probably be true again in the twenty-first century” (358), yet it is “a historical fact, not a logical necessity” (353) subject to intervention in economies and markets. Furthermore, he finds that the largest fortunes tend to grow fastest of all, encouraging inequality further. While some initial inequalities may be justified for the good of all—for example, to encourage economic growth—r>g will inevitably encourage wealth to grow and concentrate in the hands of the few, with detrimental consequences to the rest of society. This is not quite Marx’s “principle of infinite accumulation”—population growth and increased productivity provide a counterforce—but Piketty does believe that the accumulation of capital in light of r>g may end in social destabilization.

As growth declines in the U.S. and Europe and picks up speed in countries like China and India, “the world clearly seems to have entered a phase in which rich and poor countries are converging in income” (67). Despite this growing convergence in income between nations, patterns in inequality within poorer countries, at least those Piketty was able to obtain enough data to study, mimic patterns of inequality in wealthy nations like the U.S. Worryingly, the governments of some poorer nations, including India, have reduced the transparency of their income data in recent years, concealing what appears to be growing inequality. Reduced income inequality between nations could have some positive impacts for the global poor, as Tyler Cowen argued in the New York Times recently, but income inequality is only part of the puzzle of global economic inequality. “Inequality of wealth is always and everywhere greater than inequality of income from labor” (245), and equally as concerning, Piketty argues throughout the book, for those concerned about social stability and the common good.

While the Gini coefficient is commonly used to compare the levels of inequality across different societies, Piketty criticizes it for presenting an “abstract and sterile view of inequality.” He prefers to show inequality in distribution tables so readers can assess how income is spread across the poor, middle class, top and very top earners (266-67). Some official economic publications use the top 10 percent of earners as a proxy for the most wealthy, and this can obscure important information, such as particularly high incomes for the top 1 percent. “The decision to ignore the top end is hardly neutral,” says Piketty: “the official reports of national and international agencies are supposed to inform public debate about the distribution of income and wealth, but in practice they often give an artificially rosy picture of inequality” (267-68).

Today in the U.S., as much as 50 percent of national yearly income (from both labor and capital) goes to the top 10 percent of earners, and as much as 20 percent goes to the top 1 percent. These figures are approaching the ratios seen in France and Britain during eras those societies use as shorthand for undesirable, unjust inequality—the Belle Époque and the Gilded Age. It is possible that U.S. inequality could top the record highs of those times by 2030, especially, Piketty says, depending on the justification given for such patterns to persist. Such high inequality contributes to social and economic instability and “absolutely” helped cause the 2008 financial crisis by incentivizing easy access to credit among poor US people (297).

Income from Labor and Capital

Throughout Capital Piketty refers to the novels of Balzac and Austen, which are set in societies in which a small elite (called rentiers) were able to live off investments, and the majority lived off their labor, with no overlap between the two groups. One contributing factor to today’s great inequalities is that today one can be both a worker and a rentier. And the more wealth one has to invest, the quicker it grows, so “capital tends to reproduce itself and accumulates exponentially […] the entrepreneur always tends to turn into a rentier” (395).

Piketty’s charming command of nineteenth-century fiction grows teeth with a running reference to Balzac’s Père Goriot. In a pivotal scene, worldly Vautrin explains to idealistic young Rastignac that since Rastignac’s chosen profession of the law will never make him as comfortable as those born to wealth, he would do better to marry an heiress whom he does not love. Piketty first demonstrates, based on historical French income data, that this inequality of work and inherited wealth was true at the time of Balzac’s writing, and then, through sustained analysis of income and wealth data from many countries, suggests that it will be true again in the early twenty-first century. (Inherited incomes lost their supremacy in the twentieth century not primarily because of egalitarian social engineering, but because of the shocks of two world wars, when rentiers whose capital had been reduced continued their previous standard of living, and thus passed less on to their heirs.)

In Christian ethics, we believe that work is worthy for its own sake, because it is a human activity that at best can be fulfilling, social and creative, and because it allows one to live and support one’s family with dignity. Some capitalists would argue that the financial reward offered for work creates the desire to do it, in which case Piketty’s finding would be problematic, because knowing they can’t compete with heirs and heiresses might discourage people from working. In my view as a Christian ethicist, the desire to do work and contribute to society is a part of human life as created by God, and can’t be reduced to simple financial motivation. (Think of how many people create art for no financial compensation at all, only the reward of engaging in the process and enjoying the results.)

Still, the suggestion that income from work alone might never approach income from inheritance, elaborated in chapters seven through eleven of Capital, remains deeply disturbing. We all know that despite the best efforts of (some) societies to keep wealth from influencing other spheres of common life, money talks when it comes to political power, engagement with the justice system, safety, and even health and lifespan. (See The Spirit Level for more on this.) Thus a society where inherited wealth always exceeds wealth from labor could be expected to display generational disparities in power and quality of life. As Pope Francis wrote in Evangelii Gaudium, inequality is not neutral: it contributes to an “economy of exclusion” which leaves many behind, with fatal consequences (# 53).

Conclusion

Many reviews of this weighty book are positioned as resources for those who don’t wish to take in all 577 pages on their own. At the risk of disappointing readers, let me buck that trend: It is worth the investment of time, especially for scholars or activists whose work touches on economic issues. Without having absorbed the numerous studies that contribute to Piketty’s broader claims, I would not feel confident interpreting the inevitable critiques of his work that have arisen in the financial press from those who disagree with his standpoint.

Scholars have already begun to respond to Capital in the Twenty-First Century from a theological perspective. Karen Bray asks whether Piketty provides an adequate eschatology, and Christopher J. Ashley takes Capital as inspiration to call for “marriage equality for poor people” (to which I say Amen!).

I believe this dialogue must continue. In a future post, I will continue to summarize Piketty’s arguments in Capital, focusing on his analysis of common justifications for inequality and his proposals for addressing it, and placing his work in conversation with Catholic social thought.

Kate Ward is a doctoral candidate and Flatley Fellow in Theological Ethics at Boston College. Her dissertation explores the effects of privilege, particularly wealth privilege, on virtue formation in the context of growing inequality.