Over at The Economist's Free Exchange, a book club blogging over the next few weeks of Thomas Piketty's Capital in the Twenty-first Century:
LAST year Thomas Piketty, an economist at the Paris School of Economics and a renowned expert on global inequality, published a book titled “Capital in the Twenty-first Century”—in French. It will be released in English on March 10th. We reviewed the book earlier this year, but it is detailed and important enough, in our opinion, to deserve additional discussion. We will therefore be publishing a series of posts over the next few weeks—live-blogging the book, as it were—to draw out its arguments at slightly greater length. Starting today, with the book's introduction.
Capital, as I will refer to Mr Piketty's book from here on out, is an incredibly ambitious book. The author has self-consciously put the book forward as a companion to, and perhaps the intellectual equal of, Karl Marx's Capital. Like Marx, Mr Piketty aims to provide a political economy theory of everything. More specifically, he attempts to re-establish distribution as the central issue in economics, and in doing so to reorient our perceptions of the trajectory of growth in the modern economic era. Mr Piketty's great advantage in attempting all this, relative to past peers, is a wealth of data and analysis, compiled by himself and others over the last 15 or so years.
Mr Piketty begins in an introduction that proceeds in two parts. He first describes the intellectual tradition into which the book falls. The second, which is the basic outline of his theory, I will tackle in the next post.
The study of political economy emerged in the first decades of the Industrial Revolution, in the late 18th century, in Britain and France. The great thinkers of the era were attempting to understand the dramatic societal and economic changes of the day and to describe their mechanics in a way that would allow them to anticipate future developments. To a great extent they focused on distributional issues—and worried that distribution spelled serious trouble for the capitalist system. The Reverend Thomas Malthus, for instance, famously worried that overpopulation would drive down wages to subsistence level, leading to dangerous political upheaval. To short-circuit this possibility the compassionate reverend recommended that governments cut off assistance to the poor and limit their reproduction.
David Ricardo's 19th century analysis was more measured but nonetheless similar in its concern about the sustainability of the contemporary economic system. He focused his attention on the relative scarcity of factors of production, and the effect of scarcity on shares of national income. Output and population were rising fast, he noted, while land supplies remained fixed, suggesting that land prices might rise without bound. As a result, he speculated, land rents would come to eat up a steadily rising share of national income, threatening the capitalist system.
Ricardo was wrong in the long run—soaring agricultural productivity (which both he and Malthus failed to anticipate) meant that agricultural land was not the scarce factor for very long. But he was right in the short run, and the short run matters.