Skip to comments.Is Inequality Caused by Capitalism or Statism?
Posted on 06/15/2014 4:56:04 PM PDT by Kaslin
The French economist Thomas Piketty has achieved worldwide fame by promoting a thesis that capitalism is the cause of growing economic inequality. Unfortunately, he is partially right. However, the important distinction missed by Piketty and all of his supporters is that state capitalism, not free market capitalism, has reigned supreme in recent decades in the world's leading democracies. It is this misguided attempt to wed the power of the state to the private ownership of capital that has led to the mushrooming of economic inequality. If the public cannot be made aware of the distinction, we risk abandoning the only system capable of creating real improvements for the vast majority of people.
In his book entitled 'Capital in the 21st Century', Piketty, like Karl Marx in 'Das Kapital,' places the hinge of economic tension at the supposed opposition between the competing interest of labor and capital. He believes that "capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based." However, this can only become true if free markets become controlled, or distorted, by the establishment of monopolies, be they private or state owned.
In the early twentieth century, U.S. Governments were alert to the destruction of free markets by monopolistic cartels and enacted strong anti-trust laws to curb their power. The United States thereafter achieved strong economic results in the first three decades of the 20th Century. In contrast, the socialist governments of post WWII Britain used public funds to establish state owned monopolies, similar to those existing in the Soviet Union. This resulted in dramatic economic declines, that continued into the 1980s when the U.K. was rescued by the free market policies of Margaret Thatcher. Her central strategy was to restore individual freedom by breaking state owned monopolies and reducing the coercive control of trade unions. Her actions unleashed a resurgence of prosperity in Britain that was imitated in many other countries. Her policies were adopted with particular enthusiasm by countries, like Poland, which had only recently shaken off the yoke of Soviet Communism. Poland is now one of the strongest economies in Europe.
History provides ample evidence that when allowed to function properly free market capitalism generates massive national prosperity with high employment, a strong currency and rising standards of living. It is only when the state manipulates and over regulates free markets that capitalism fails. However, capitalism usually takes the blame for the failures of statism.
Piketty asserts that capitalism is "inherently unstable because it concentrates wealth and income progressively over time, leaving behind an impoverished majority. ..." He proscribes even an international wealth tax and higher income taxes, above 80 percent, to redistribute rather than to invest savings. This would essentially create a state monopoly on wealth. But again, history tends to demonstrate that state monopolies create poverty for all but the politically connected elite.
Even the Soviet Union, a military superpower, was brought to its economic knees by state monopolies. Communist Party Secretaries, Andrapov and Gorbachev, were forced to the recognition that free markets should be introduced within Russia. This led to 'Perestroika' and 'Glasnost' and the freeing of markets in Russia.
By concluding that capitalism, even if it is confined to just a few countries, will lead to increasing poverty among the masses around the world, many cynical observers may conclude that Piketty is laying out a carefully planned case towards global socialism along the lines first attempted by the Bolshevik Commintern. Some conclude that such a move could be spearheaded by international institutions like the UN and IMF.
To achieve inherently unpopular global power, national elites must cooperate to bring about such levels of economic chaos and human suffering that people, despairing of ineffective democracy, will look for strong, global government as a welcome solution. To achieve this end the economic problems and human suffering must be extreme and seemingly beyond solution by any national government. By continuing to debase and destroy fiat currencies while preventing the markets from healing themselves, central banks around the world are doing their part to create these conditions. However, those who look towards strong global government must realize that likely it will lead to a world of extreme global inequality in which any effective opposition will be impossible. This is the fascistic face behind the cuddly and concerned image that has made Piketty the economic North Star of a new generation. These faulty bearings must be corrected or the world's poor will suffer far more than they need to.
It is caused by some people working hard and being prudent, while others are lazy and profligate.
Inequality is caused for the same reason poverty, homelessness and immigration crises are being fostered: TO MAKE WAY FOR INCREASING STATE POWER AS THE ONLY APPARENT SOLUTION. This is CRISIS creation leading to collapse of our society and form of government to make way for complete totalitarian socialism.
Obamacare was designed to fail so we would then get single payer, i.e., socialized medicine. Obama’s economic policy is also designed to fail for an even bigger goal—the death of America.
I am unfortunately not an economist, but I’ve read several discussions and criticisms of Piketty’s work.
It looks to me like all commenters are missing what seems to me to be the elephant on the sofa.
The greatest returns in the last 20 years have not been on invested capital, they’ve been for creative ideas.
The founders of Google, Apple, Facebook et al did not get rich because they invested capital, they got rich because they created entire new industries using just their minds. The capital investment, while necessary, was among the least important factors in this generation of wealth.
Meanwhile, you can sit around and invest capital all you want, and in and of itself the return often sucks pretty hard. Extract the “creativity return” I’m positing, and I suspect the average return on “capital” has been pretty lousy.
But possibly I’m drawing a distinction that isn’t meaningful.
“Equality of outcome” is a Marxist myth.Why should I expect to make the same as a brain surgeon who completed 4 years of undergrad,4 years of medical school,8 years of post graduate training and 5 years setting up a practice when I only completed 2 years of college?
Inequality is the desired and natural condition of freedom.
Inequality is the desired and natural condition of freedom.
state capitalism, not free market capitalism = FASCISM!
Fascism is also known as “Crony Capitalism”, something El-Presidente is well known for. His buddies get some really sweet posts in “private” industry.
>> The capital investment, while necessary, was among the least important factors in this generation of wealth.
Capital is arguably the most important factor especially since an operation does NOT require extraordinary creativity to flourish. Furthermore, capital often plays an ongoing role in the operational life cycle for companies large and small. A company’s retained capital also plays an important role in growth and survival. Even distributed capital is often reinjected for sustainability and growth.
Statism demands equal misery for all but the overloads governing the statist economy.
Don’t be a statist!
Limbaugh said it best...The problem isn’t a unequal distribution of wealth, it’s an unequal distribution of Capitalism.
In a free capitalistic state “It is caused by some people working hard and being prudent, while others are lazy and profligate.”
State Capitalism is precisely what “Communist” China has.
Piketty’s article is about the relative return on invested capital vs. increase in wages/salaries.
My contention is that the return on capital is mixed in with the return for creative ideas, and that the really big returns are for the ideas, not the capital. This distorts the issue, and makes it look like merely having capital to invest ensures a great return. And it just doesn’t.
Inequality is caused by socialist...spread the wealth type governments. Immigration does not cause poverty or inequality. Singapore has 3.5 million citizens, and they allow 2 million foreigners to come and work in their country. On top of that their government is extremely friendly to business.
Result? Singapore has the highest concentration of rich people in the whole world. Every 6th citizen is a millionaire.
"Capital is arguably the most important factor."
I really doubt you mean that. You seriously think the most important factor in the success of Google, Facebook and Apple is that somebody invested capital?
Bingo! Inequality is caused by nature, nuture and human nature. The idea that you can eliminate inequality is so childish to be delusional.
I think we agree—except that immigration in this country is being used to overwhelm our borders and create a RAT voting bloc. If we were serious about immigration for economic purposes, we would recruit foreigners based on our needs—not a tsunami of the indigent from all over south and Central America. We have critical worker shortages around the country and yet we import people with no skills—only potential welfare recipients and emergency room guests.
Not necessarily. China has created 1.3 Million millionaires. You do not get there without allowing small businessmen to succeed.
Yes, I agree that capital alone does not generate more capital return — it must be invested correctly to avoid being wasted. Likewise, the same goes for creativity.
Our immigration policies are a joke.
In Singapore, it is virtually impossible for foreign workers to become citizens. They are given 2 year work permits. When that ends, they must re-apply for a new work permit or go home. Singapore knows where every non-citizen works, where they live. We know neither.
I should add, foreign workers to Singapore are given a 2 year work permit ONLY if there is a job offer available and no Singapore citizen wants that job.
I was there in March. I was shocked at the prosperity and quality of their infra structure. And there is virtually no drug crime or street crime.
Agreed. My point was that the ratio between return on capital, as such, and return on creative ideas has shifted dramatically. Guys become multi-billionaires in just a few years.
It took JD Rockefeller a long time to do that.
>> You seriously think the most important factor in the success of Google, Facebook and Apple is that somebody invested capital?
I didn’t cite the 3 companies you referenced, but I stand by my statement nonetheless.
At what point in your opinion did Google, Facebook, and Apple reach their respective level of success?
Inequality is created by the creator. No different than the fact that we must eat and breath. These are the rules of the game. The woman you love may never love you back because of the nose the creator gave you. No system of men can ever undo this creators work. Regardless of the passion of their hatred for him.
Their political leadership is creating prosperity for its citizens. Our leadership is transforming our country into a socialist state. That requires destruction of our middle class: “social justice” entails leveling everyone down to poverty level. Except the ruling elites—of both parties.
Just move to Seattle and find out why even a high school education isn’t even needed anymore.
The real sad part is many voters failed to see the difference in economic policies of Obummer and the moderate from Massachusetts in 2012. So we have no choice now except to suffer through the destruction of the economy, followed by destruction of the middle class, followed by destruction of military power. That is exactly what Obummer wants because it brings most people down to the lower level, thereby making every one equal. He would rather see most people equal at the lower level than allow the hard working and intelligent to rise above others.
Inequality has been redefined as bad by liberals.
Inequality is a good thing caused by capitalism. Equality, in it’s pure form, is caused by statism.
Under capitalism, individuals choose who is successful and richer by the choices they make, although, of course, some inherit and some are hurt by pure bad luck. Under statism, there is still inequality, there are just fewer rich because those in power in the government choose who is wealthy. Inequality is a fact of life under statism, too. Regardless of the system, some will do better than others if only out of higher intelligence, greater discipline, more ingenuity, etc.
Equality is just another name for the Commie utopian lie . . . it will never ever exist in a real world.
cries for equality are covetous cries for neighbor’s goods. The last paragraph above sounds like the establishment of a new world order with the anti-Christ at the head.
there is no bad situation government cannot make worse.
“....did not get rich because they invested capital...”
Intellectual Capital IS Capital. Capital isn’t just dollars.
The crux of Adam Smith’s seminal work was that each person has something of value to contribute. That led to the end of slavery, for one thing. And it also creates the opportunity for those in possession of intellectual capital to become wealthy.
What a stupid question.
The entire concept of economic “equality” is alien. Our system is actually based upon equal treatment under the law. Individual circumstance varies but the law treats all the same.
Those who carp about economic equality want the inverse. Individual circumstances are the same by force, with treatment under the law varying in order to achieve this.
I greatly prefer consistent law, consistently applied over being forced into identical economic circumstance with others who may or may not have contributed any effort whatsoever.
As I stated in my first post, I don’t have the knowledge or terminology to debate the point well.
Perhaps what I’m saying is that the relationship between returns on financial capital and on intellectual capital has shifted dramatically in recent decades.
Piketty’s entire point, as I understand it, is based on the idea that return on capital is “unearned” in some sense of the term, as all leftists believe, and that therefore it is entirely right and proper to redistribute this unearned wealth to everybody else.
It is really, really difficult to make a case that return on intellectual capital is unearned, since by definition the wealth sprang full-blown into existence simply because of the application of a creative idea.
It also seems to me that return on “intellectual capital” bears some relationship to wages/salary, since it’s the reward for human effort. I suspect this is some part of the reason leftists seem to be so much less offended by the wealth of Google, Apple, rappers or basketball players than by that of Exxon or Blackwater. The creativity and human effort involved in the first group is easy for them to understand, that involved in making money more traditional business fields they just don’t comprehend.
I wish I could express my ideas on this better, since they seem to align with a major flaw in Piketty’s argument.
I’ve always thought the notion of equality under Communism is really, really funny.
In practical and real terms, Mao and Stalin owned and controlled all property and every person in their realms, making them the wealthiest people who ever lived.
Just like Pharaoah of ancient Egypt, the Emperors of China, and the little fat weirdo in North Korea today.
After wasting your time on Piketty you need to read Mystery of Capital by DeSoto. He will explain the reality to you that totally escapes the picketties of the world.
Financial capital is a necessary but not at all sufficient factor in the growth of these immensely valuable high-tech companies.
If you were to go back and look at the venture capital invested in Microsoft or Google prior to their going public, I suspect you would find that the capital invested was an itsy-bitsy proportion of the value produced.
I read a book about Google recently. I may be misremembering the numbers, but I think something in the vicinity of $25M was invested as venture capital. When the company went public its market cap promptly became $23B, which has continued to increase since.
So was that $25M in financial capital the critical factor in generating the $23B in value? No, it was the ideas and their execution of the founders and the initial employees. They were rewarded not for their investment of money, but for their creative contributions.
To my mind just calling this 1000:1 increase of value in five years “financial capital” wildly distorts the returns on financial capital that Piketty decries.
I’m going to give up the argument now, because I was in over my head several posts back. But it does seem to me that this enormous change in what is rewarded financially by our society is not covered in the usual discussions of inequality.