Thursday, May 8, 2014

Piketty: New World Capital and Slavery

From a survey of capital in Britain and France Thomas Piketty in Capitalism in the Twenty-First Century moves on to Germany and the United States.

While capital in Germany in the late 19th century represented about six to seven times annual national income and crashed to two times national income in the wars of the 20th century, it hasn't climbed back quite as far as in Britain and France.  Housing isn't as big a factor because of the cheap houses from East Germany and "stricter rent control."  Domestic capital in businesses is lower because the stock market valuation of German firms is lower because of "the stakeholder model" that lets German workers sit on the boards of German corporations.

But the collapse in the value of capital in the mid 20th century was not just due to the destruction of war but to the "budgetary and political shocks".  In addition savings was low and the "postwar political context" of nationalization and regulation reduced private wealth.

The United States did not see a collapse in private wealth in the mid 20th century.  Nor did it experience the high capital to income ratios of 600% to 700% common in Europe in the 19th century.  The capital to income ratio was about three in 1800 and rose to five by 1910.  It sank to four by 1950 and since then has risen back to about 4.5.

Piketty reckons that the difference is that there was much less established wealth in the US.  People "did not cross the Atlantic with their capital of homes or tools or machinery".  They had to create it and that takes time.  We are to understand that this means there was less inequality in the US.  Also the US never had the colonial empires and foreign capital that the Europeans enjoyed.  Foreigners have tended to invest more in the US than vice versa.  In Canada this effect was magnified.  Foreign investment in Canada in 1900 was about 100% of national income; in the US it has never exceeded a few percent.

Now we come to slavery.  Earlier, Piketty rejected the idea of including intangible wealth in knowledge and workers in the capital total, but now he wants to include the value of slaves in his capital accounts.  If the value of the slaves was about 100% of national income then the capital to income ratio in the United States stood at about 4.5 to five. He writes:
[I]t is clear that [counting the capital value of workers] makes sense only in a slave society, where human capital can be sold on the market, permanently and irrevocably.
Then he goes on to criticize "some economists" for wanting to capitalize the "value of the income flow from [free] labor."  They find to their "amazement that human capital is the leading form of capital in the enchanted world of the twenty-first century."

But is it? It seems pretty obvious that it was their human capital that enabled the Europeans to rebuild their nations so rapidly after World War II.  So why not count it?  Probably because it would cause problems for Piketty's goal, which is to call for taxes on the rich to curb inequality.  On the other hand there might be a problem with double counting, because human capital is probably already included in the capitalization of private corporations (and probably also slave plantations).


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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