Wednesday, May 7, 2014

Piketty: Changes in Capital

Thomas Piketty is going to want us to agree that the idle rich should be taxed.  So he reserves a chapter where he particularly wants us to look at the metamorphoses in rentier capitalism.

Strictly speaking, "rentier" means a holder of French government bonds, traditionally called rentes.  When Keynes talked about the "euthanasia of the rentier" he meant the obliteration of government bond-holders in the inflations after World War I.

But first he shows us the change in the composition of capital in charts of the value of national capital as a percent of national income.  In both France and Britain, capital in 1700 was mostly farmland.  One-third of the rest was housing, and the rest "other domestic capital" meaning everything else, including "building used for business and the associated land, infrastructure, machinery, computers, patents, etc."

But three centuries later, the value of farmland is almost zero.  Its share of capital has been replaced by housing.  Meanwhile, in the nineteenth century both France and Britain saw a substantial rise and fall in "net foreign capital."  The World Wars of the 20th century also dug a hole in overall capital value: "commensurate with the violent military, political, and economic conflicts" of the times.

But what about public debt?  This nets out to zero, because it is owed by the government and owned by the private sector.  But the size of the debt is significant because debt service can take up a huge share of government revenue.  After the Napoleonic Wars Britain had a national debt over 200 percent of GDP; that's a lot of interest going to the wealthy rentiers.  But in France the government repudiated its debt, with less government revenue going to rentiers.

Piketty almost, but not quite, suggests that a large public debt is a way of redistributing government revenue to the rich.  Conversely the 20th century inflations were a way of despoiling the rich by devaluing their fortunes in government debt.  He suggests, but doesn't quite say, that debt or no debt doesn't make a difference on the bottom line.  For instance Britain had a national debt over 200 percent GDP in 1945 and France essentially cancelled public debts.  Yet both countries grew out of the devastation of World War II, and both featured a lot of government ownership in the economy.  In France the growth was particularly robust, when the government owned a lot of the economy including auto manufacturer Renault, so much so that the period 1950-1980 was called the "Trente Glorieuses", or glorious thirty years.

The lesson seems to be that nations can transform their national capital, or at least their national debt, and yet nothing seems to change.  The world goes on.


Part One: Income and Capital

Income and Output


Part Two: The Dynamics of the Capital/Income Ratio

Changes in Capital

New World Capital and Slavery

Capital/income Ratio in the Long Run

Capital's Share of Income

Part Three: The Structure of Inequality

Inequality and Its Concentration

Two Worlds: France and the US

Inequality of Labor Income

Inequality of Capital Ownership

Merit and Inheritance in the Long Run

Global Inequality of Wealth in the 21st Century

Part Four: Regulating Capital in the Twenty-First Century

A Social State for the 21st Century

Rethinking the Progressive Income Tax

A Global Tax on Capital

The Question of the Public Debt


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