The economic world has been thrown a bit off-balance with this year’s english language publication of Thomas Piketty’s Capital in the Twenty-First century. Every self-respecting economic columnist, blogger, and hobbyist has felt the need to respond. Despite the title’s allusion to Marx, the book is unlike anything ever published (having read both Capital and Kapital I can confirm their fundamental dissimilarity), and deserving of considerable acclaim. Despite this, much of the reaction to and reviews of the book are rather empty, similar, and fail to convey the deep importance of the work.
I’ll save you the trouble of reading them all, detailing the simple step-by-step process that most reviewers seem to have taken to Piketty’s work. In the first step, one acknowledges the size of the book (though in actuality it’s not that long) and its importance, perhaps mentioning how its publication was moved forward due to popular demand. Step two involves recognizing the unsurpassed scale and depth of some of the quantitative research that Piketty, along with his colleague Emmanuel Saez have achieved, pulling out some examples. Step three is a brief explanation of the law r>g, noting what potential effects it might have on inequality or other macro-trends. Step four requires a critical remark. Potential candidates include Piketty’s small sample size of countries, his lumping of actual capital and its price into one metric, his projections of the future, and the fact that effective and nominal tax rates tend to differ dramatically.
At this point you’ve come to the most important part of the review, where you can now go one of two ways. The first is to applaud Piketty’s work, construct some grand theory of social decline such as a new gilded age or a transition to oligarchy, and back his proposals for new taxes and regulation of wealth. The second is to ignore your previous commendations of his analysis, and categorically reject the policy recommendations of an ideologically charged “modern Marx,” as The Economist so graciously presented him.
To see the various responses to and criticisms of Piketty’s work has been stimulating and entertaining, and there is no doubt that he is having a dramatic influence on economists and interested citizens alike. Despite this, I disagree that anything the length of a book review can adequately convey what the book does. The reviews will tend to focus on one or two of Piketty’s main points, declare their support or disapproval, and make any number of bold and overreaching statements.
This is not how the Capital ought to be read or considered. Of the over 100 tables and graphs which litter the pages of the book, no single one is a forceful description or argument in itself. They can certainly serve, in themselves, to point out certain individual items of interest, but these individual items are not what the book is about. While the title suggest a book about the present and future, Piketty’s true achievement lies in the broad yet detailed historical picture that Piketty is able to weave together, giving the reader a birds-eye view of (Western) economic history in the past two centuries, through the lens of capital. Piketty reveals the importance of capital over time by examining its composition, its relative worth, its distribution, and how it moves about. He also considers its relationship literature, social life, and popular opinion. All these descriptions uncover an economics largely ignored by many of the discipline’s leading figures.
The influence of society and history on economic variables, as well as the economy’s influence on society, ought not to be ignored and thus take the central role in Capital. The full, yet complex and nuanced understanding which Piketty presents over several hundred pages is not reducible to several hundred words of simplification as so many have attempted.
The other common mistake, in addition the overt watering-down of his message, is to attribute to Piketty some grand overarching economic or social theory. Though his capital/income ratio and the r>g inequality are important components of the work, and help to frame his data, they do not represent world-changing insights or irrefutable evidence of social decline. Even when Piketty’s discourse is at its most ideological, he does not suggest that we appeal to one of these laws or variables alone in structuring our entire economic thought. One cannot claim to understand Moby Dick after learning about Ahab’s monomania, knowing that returns on capital tend to exceed economic growth doesn’t mean that you’ve understood Piketty’s argument or presentation. These understandings can only come through reading the book.
I’m not going to take a position on Piketty’s argument, or call him the greatest thing to happen to economics since Keynes or Friedman. In fact, I urge you to stop reading commentary on Capital, put down this newspaper, and pick up the book. It’s well written and skimmable, and you will emerge from it with a magnified understanding of economic history, and a little more insight into our economic future.
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