Capital in the Twenty-First Century (100 page)

With an average return on capital of 4–5 percent, it is therefore likely that
r
>
g
will again become the norm in the twenty-first century, as it had been throughout
history until the eve of World War I. In the twentieth century, it took two world
wars to wipe away the past and significantly reduce the return on capital, thereby
creating the illusion that the fundamental structural contradiction of capitalism
(
r
>
g
) had been overcome.

To be sure, one could tax capital income heavily enough to reduce the private return
on capital to less than the growth rate. But if one did that indiscriminately and
heavy-handedly, one would risk killing the motor of accumulation and thus further
reducing the growth rate. Entrepreneurs would then no longer have the time to turn
into rentiers, since there would be no more entrepreneurs.

The right solution is a progressive annual tax on capital. This will make it possible
to avoid an endless inegalitarian spiral while preserving competition and incentives
for new instances of primitive accumulation. For example, I earlier discussed the
possibility of a capital tax schedule with rates of 0.1 or 0.5 percent on fortunes
under 1 million euros, 1 percent on fortunes between 1 and 5 million euros, 2 percent
between 5 and 10 million euros, and as high as 5 or 10 percent for fortunes of several
hundred million or several billion euros. This would contain the unlimited growth
of global inequality of wealth, which is currently increasing at a rate that cannot
be sustained in the long run and that ought to worry even the most fervent champions
of the self-regulated market. Historical experience shows, moreover, that such immense
inequalities of wealth have little to do with the entrepreneurial spirit and are of
no use in promoting growth. Nor are they of any “common utility,” to borrow the nice
expression from the 1789 Declaration of the Rights of Man and the Citizen with which
I began this book.

The difficulty is that this solution, the progressive tax on capital, requires a high
level of international cooperation and regional political integration. It is not within
the reach of the nation-states in which earlier social compromises were hammered out.
Many people worry that moving toward greater cooperation and political integration
within, say, the European Union only undermines existing achievements (starting with
the social states that the various countries of Europe constructed in response to
the shocks of the twentieth century) without constructing anything new other than
a vast market predicated on ever purer and more perfect competition. Yet pure and
perfect competition cannot alter the inequality
r
>
g,
which is not the consequence of any market “imperfection.” On the contrary. Although
the risk is real, I do not see any genuine alternative: if we are to regain control
of capitalism, we must bet everything on democracy—and in Europe, democracy on a European
scale. Larger political communities such as the United States and China have a wider
range of options, but for the small countries of Europe, which will soon look very
small indeed in relation to the global economy, national withdrawal can only lead
to even worse frustration and disappointment than currently exists with the European
Union. The nation-state is still the right level at which to modernize any number
of social and fiscal policies and to develop new forms of governance and shared ownership
intermediate between public and private ownership, which is one of the major challenges
for the century ahead. But only regional political integration can lead to effective
regulation of the globalized patrimonial capitalism of the twenty-first century.

I would like to conclude with a few words about economics and social science. As I
made clear in the introduction, I see economics as a subdiscipline of the social sciences,
alongside history, sociology, anthropology, and political science. I hope that this
book has given the reader an idea of what I mean by that. I dislike the expression
“economic science,” which strikes me as terribly arrogant because it suggests that
economics has attained a higher scientific status than the other social sciences.
I much prefer the expression “political economy,” which may seem rather old-fashioned
but to my mind conveys the only thing that sets economics apart from the other social
sciences: its political, normative, and moral purpose.

From the outset, political economy sought to study scientifically, or at any rate
rationally, systematically, and methodically, the ideal role of the state in the economic
and social organization of a country. The question it asked was: What public policies
and institutions bring us closer to an ideal society? This unabashed aspiration to
study good and evil, about which every citizen is an expert, may make some readers
smile. To be sure, it is an aspiration that often goes unfulfilled. But it is also
a necessary, indeed indispensable, goal, because it is all too easy for social scientists
to remove themselves from public debate and political confrontation and content themselves
with the role of commentators on or demolishers of the views and data of others. Social
scientists, like all intellectuals and all citizens, ought to participate in public
debate. They cannot be content to invoke grand but abstract principles such as justice,
democracy, and world peace. They must make choices and take stands in regard to specific
institutions and policies, whether it be the social state, the tax system, or the
public debt. Everyone is political in his or her own way. The world is not divided
between a political elite on one side and, on the other, an army of commentators and
spectators whose only responsibility is to drop a ballot in a ballot box once every
four or five years. It is illusory, I believe, to think that the scholar and the citizen
live in separate moral universes, the former concerned with means and the latter with
ends. Although comprehensible, this view ultimately strikes me as dangerous.

For far too long economists have sought to define themselves in terms of their supposedly
scientific methods. In fact, those methods rely on an immoderate use of mathematical
models, which are frequently no more than an excuse for occupying the terrain and
masking the vacuity of the content. Too much energy has been and still is being wasted
on pure theoretical speculation without a clear specification of the economic facts
one is trying to explain or the social and political problems one is trying to resolve.
Economists today are full of enthusiasm for empirical methods based on controlled
experiments. When used with moderation, these methods can be useful, and they deserve
credit for turning some economists toward concrete questions and firsthand knowledge
of the terrain (a long overdue development). But these new approaches themselves succumb
at times to a certain scientistic illusion. It is possible, for instance, to spend
a great deal of time proving the existence of a pure and true causal relation while
forgetting that the question itself is of limited interest. The new methods often
lead to a neglect of history and of the fact that historical experience remains our
principal source of knowledge. We cannot replay the history of the twentieth century
as if World War I never happened or as if the income tax and PAYGO pensions were never
created. To be sure, historical causality is always difficult to prove beyond a shadow
of a doubt. Are we really certain that a particular policy had a particular effect,
or was the effect perhaps due to some other cause? Nevertheless, the imperfect lessons
that we can draw from history, and in particular from the study of the last century,
are of inestimable, irreplaceable value, and no controlled experiment will ever be
able to equal them. To be useful, economists must above all learn to be more pragmatic
in their methodological choices, to make use of whatever tools are available, and
thus to work more closely with other social science disciplines.

Conversely, social scientists in other disciplines should not leave the study of economic
facts to economists and must not flee in horror the minute a number rears its head,
or content themselves with saying that every statistic is a social construct, which
of course is true but insufficient. At bottom, both responses are the same, because
they abandon the terrain to others.

“As long as the incomes of the various classes of contemporary society remain beyond
the reach of scientific inquiry, there can be no hope of producing a useful economic
and social history.” This admirable sentence begins
Le mouvement du profit en France au 19e siècle,
which Jean Bouvier, François Furet, and Marcel Gillet published in 1965. The book
is still worth reading, in part because it is a good example of the “serial history”
that flourished in France between 1930 and 1980, with its characteristic virtues and
flaws, but even more because it reminds us of the intellectual trajectory of François
Furet, whose career offers a marvelous illustration of both the good and the bad reasons
why this research program eventually died out.

When Furet began his career as a promising young historian, he chose a subject that
he believed was at the center of contemporary research: “the incomes of the various
classes of contemporary society.” The book is rigorous, eschews all prejudgment, and
seeks above all to collect data and establish facts. Yet this would be Furet’s first
and last work in this realm. In the splendid book he published with Jacques Ozouf
in 1977,
Lire et écrire,
devoted to “literacy in France from Calvin to Jules Ferry,” one finds the same eagerness
to compile serial data, no longer about industrial profits but now about literacy
rates, numbers of teachers, and educational expenditures. In the main, however, Furet
became famous for his work on the political and cultural history of the French Revolution,
in which one endeavors in vain to find any trace of the “incomes of the various classes
of contemporary society,” and in which the great historian, preoccupied as he was
in the 1970s with the battle he was waging against the Marxist historians of the French
Revolution (who at the time were particularly dogmatic and clearly dominant, notably
at the Sorbonne), seems to have turned against economic and social history of any
kind. To my mind, this is a pity, since I believe it is possible to reconcile the
different approaches. Politics and ideas obviously exist independently of economic
and social evolutions. Parliamentary institutions and the government of laws were
never merely the bourgeois institutions that Marxist intellectuals used to denounce
before the fall of the Berlin Wall. Yet it is also clear that the ups and downs of
prices and wages, incomes and fortunes, help to shape political perceptions and attitudes,
and in return these representations engender political institutions, rules, and policies
that ultimately shape social and economic change. It is possible, and even indispensable,
to have an approach that is at once economic and political, social and cultural, and
concerned with wages and wealth. The bipolar confrontations of the period 1917–1989
are now clearly behind us. The clash of communism and capitalism sterilized rather
than stimulated research on capital and inequality by historians, economists, and
even philosophers.
²
It is long since time to move beyond these old controversies and the historical research
they engendered, which to my mind still bears their stamp.

As I noted in the introduction, there are also technical reasons for the premature
death of serial history. The material difficulty of collecting and processing large
volumes of data in those days probably explains why works in this genre (including
Le mouvement du profit en France au 19e siècle
) had little room for historical interpretation, which makes reading them rather arid.
In particular, there is often very little analysis of the relation between observed
economic changes and the political and social history of the period under study. Instead,
one gets a meticulous description of the sources and raw data, information that is
more naturally presented nowadays in spreadsheets and online databases.

I also think that the demise of serial history was connected with the fact that the
research program petered out before it reached the twentieth century. In studying
the eighteenth or nineteenth centuries it is possible to think that the evolution
of prices and wages, or incomes and wealth, obeys an autonomous economic logic having
little or nothing to do with the logic of politics or culture. When one studies the
twentieth century, however, such an illusion falls apart immediately. A quick glance
at the curves describing income and wealth inequality or the capital/income ratio
is enough to show that politics is ubiquitous and that economic and political changes
are inextricably intertwined and must be studied together. This forces one to study
the state, taxes, and debt in concrete ways and to abandon simplistic and abstract
notions of the economic infrastructure and political superstructure.

To be sure, the principle of specialization is sound and surely makes it legitimate
for some scholars to do research that does not depend on statistical series. There
are a thousand and one ways to do social science, and accumulating data is not always
indispensable or even (I concede) especially imaginative. Yet it seems to me that
all social scientists, all journalists and commentators, all activists in the unions
and in politics of whatever stripe, and especially all citizens should take a serious
interest in money, its measurement, the facts surrounding it, and its history. Those
who have a lot of it never fail to defend their interests. Refusing to deal with numbers
rarely serves the interests of the least well-off.