French economist Thomas Piketty’s new book Capital in the
Twenty-First Century is getting him compared to Alexis de Tocqueville by his
admirers and to Karl Marx by his right-wing detractors. But he doesn’t suffer
from the German economist’s disapproval of popular entertainment. Rather than
seeing pop culture as a mechanism enforcing capitalist ideology, Piketty’s book
uses cultural references to explain capitalism’s flaws.
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The book’s central point is that in capitalist economies,
wealth naturally concentrates in the hands of a few. Why? Because the return on
capital investments typically exceeds economic growth. As he writes, “novelists
depicted the effects of inequality with a verisimilitude and evocative power
that neither statistical or theoretical analysis can match.”
Among many things I learned reading Piketty’s book was how
to understand the class dynamics of 19th century literature. The characters are
always talking about their incomes, but never seem to be doing any work. Turns
out that “in the novels of Jane Austen and Honoré de Balzac, the fact that land
(like government bonds) yields roughly 5 percent of the amount of capital
invested is so taken for granted that it often goes unmentioned. Contemporary
readers were well aware that it took capital on the order of 1 million francs
to produce an annual rent of 50,000 francs.”
One reason that they could be so certain about these numbers
is because inflation wasn’t really part of the picture. Monetary stability lasted
from the 18th century through World War I, when massive government borrowing
combined with massive physical destruction to upend economic affairs. That’s
the reason, Piketty says, that novelists aren’t specific about money any more:
He cites the Turkish author Orhan Pamuk, whose novelist protagonist in Snow
says “there is nothing more tiresome for a novelist than to speak about money
or discuss last year’s prices and incomes.”
The Balzac novel that Piketty draws on most is the tale of
an entrepreneur who makes a fortune in the lucrative pasta business in
revolutionary France, before cashing out—”much in the manner of a
twenty-first-century startup founder exercising his stock options”—to invest
his wealth and give his daughters a substantial enough inheritance that they
can marry well.
Was this obsession with inherited wealth just a byproduct of
writerly envy from from Balzac, who was perpetually in debt from failed business
ventures? Not necessarily—Piketty’s data shows that inherited wealth was about
20% of national income in the France of that time. This created a nasty
situation where it was impossible to work enough to match what one could earn
with inheritance. InLe Père Goriot, this is made explicit through an ambitious
young man, Rastignac, who comes to understand that no matter how long he works
as a lawyer, he will never have the fortune he could gain by marrying a wealthy
heiress.
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What does that mean in practice? A society where the main
standard of success is earning 20, 50, or even 100 times the average annual
income. Similar standards are found in the pages of Britain’s Jane Austen, but
also in the US: In Henry James’s 1880 novel Washington Square, a key plot point
revolves around an engagement broken off when the dowry is only 20 times the
average income, rather than 60. “It was perfectly obvious,” Piketty writes,
“that without a fortune it was impossible to live a dignified life.”
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The 1970 Disney film about class warfare and cats, set in
1910 France, is used to illustrate the results of Piketty’s fundamental law of
capitalism. As the return on investment continues to exceed economic growth,
the rich keep getting richer:
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The size of the
old’s lady’s fortune is not mentioned, but to judge by the splendor of her
residence and by the zeal of her butler Edgar to get rid of Duchesse and her
three kittens, it must have been considerable. The Aristocats calls attention
to the problem: Adelaïde de Bonnefamille obviously enjoys a handsome income,
which she lavishes on piano lessons and painting classes for [cats] Duchesse,
Mari, Toulouse, and Berlioz, who are somewhat bored by it all. This kind of
behavior explains quite well the rising concentration of wealth in France, and
particularly in Paris, in the Belle Époque: the largest fortunes increasingly
belonged to the elderly, who saved a large fraction of their capital income, so
that their capital grew significantly faster than the economy.
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At that time, Piketty notes, the top 1% in Paris had over
70% of the wealth, despite the the French revolution, just over a century
before, that up-ended the aristocracy and created more progressive laws. Only
the shock of World War I would halt the progress of capital.
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House and the temporary end of rentiers
Modern pop culture tends to portray America as a
meritocracy, where people with special skills do well. Piketty illustrates this
by turning to American television, citing the medical mystery-solving of House,
the forensic investigators of Bones, and the brainy politicos of West Wing,
with a president who has won the economics Nobel. Inheritors of fortunes, by
contrast, are generally portrayed as selfish, greedy and debauched in Damages
and Dirty Sexy Money. (Not that this depiction of capitalism is new: Piketty
notes that Tolstoy’s Ibiscus, where a thief steals a fortune and prospers,
shows that “the arbitrary return on capital can easily perpetuate the initial
crime.”)
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This meritocratic pop culture is behind the times, Piketty
argues. The mid-century cataclysms, starting with World War I, made it possible
for labor to gain a brief advantage over capital. If you were born between 1890
and 1970, your chances of gaining a higher standard of living were more likely
to come from being a successful labor earner than an inheritor. But as decades
of relative peace and globalization allowed capital to continue accumulating,
Piketty’s law—that wealth tends to concentrate—has re-asserted itself. Today,
he says, the economy is somewhere between Balzac and West Wing, but it’s moving
in a distinctly 19th-century direction, toward a world of small rentiers. What
was true for Goriot is also true for Steve Jobs: “Entrepreneurs turn into
rentiers.”
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Ok, here’s one chart
Living-standards-in-France-by-birth-cohort-as-multiple-of-the-average-income-Top-1-inheritors-Top-1-labor-earners_chartbuilder
(1)
In 19th-century France, the top 1% of inheritors lived more
than 25 times as well as the average laborer, while the top workers could earn
perhaps 10 times as much. In the middle of the 20th century, that situation was
reversed, but already inheritors are starting to gain again. Data from Germany
and the United Kingdom show a similar trend, but there aren’t enough public
data about US inheritance patterns to check against the US. Piketty notes,
however, that estimates of inherited wealth show it plays a similarly important
role in the economy.
The US has a unique spot in Piketty’s narrative because it
began from a more egalitarian state: Land was cheap in the 19th century,
immigrants were prevalent, and population growth was a real thing. Colonialism,
too, largely passed the US by, and its investments abroad were largely matched
by investment at home—Piketty turns to Mad Men, where a US ad agency is bought
by a British competitor, for an example.
But the US did have slavery far longer than its European
counterparts; at the turn of the 19th century, enslaved humans in the US were
thought to be worth one and a half years of national income. The American
original sin was also a manifestation of inequality, and Piketty notes, with a
nod to Quentin Tarantino’s slavery revenge epic Django Unchained, that the
arbitrary treatment of slaves led to wide variations in prices.
By the 20th century, the differences between Europe and the
US were less pronounced. Piketty notes that in James Cameron’s film Titanic,
set in 1912, wealthy Americans on the doomed ship are portrayed in the same
way—prosperous and arrogant—as their European counterparts. And unlike in
Europe, the shocks of World War I and II were not felt as deeply in the US.
Today, the wealthiest Americans get most of their income from capital.
On to Utopia?
Piketty’s cultural references tend to illustrate things that
have already happened: societies harshly stratified by wealth, with little
mobility. There’s not much literature to depict his solution: Increased
taxation of wealth across the globe, to protect democracy from rentiers. He
calls it a “useful utopia” because he recognizes both the need to take it
seriously and how hard it is to implement. Its potential, for now, is in the
hands of science-fiction writers—but they’re at least as likely to be concerned
with dystopia these days.
