Book Review of The Capital

“An imbalance between rich and poor is the oldest and most fatal ailment of all republics”.

Plutarch
Migrants returning to their home walking hundreds of km due to lock down declared by the government corona virus crisis.

The present migrant crisis in India is a stark reminder of the economic inequities existing in our society. When rich and middle-class people are spending their time in the comfort of their homes doing various activities, poor and marginalized migrants are walking for a hundred thousand kilometers to reach their homes. Some also died on the way because of hunger and exhaustion. In this context, I thought to write a short review of the book, “The Capital” by Thomas Piketty, and how income inequalities are going to hurt us in the longer-term unless some concrete steps are not taken by the State and its people.

I never read the whole book but read it as much as to give a paper presentation on this book in the final year of my public policy course. Since then I was thinking to write a short take on this book. Whatever critics say, this book has brought the issue of income inequality at the forefront. Income inequality is not only an issue based on some statistics but also it’s a moral issue that will always pinch the conscience of the people living on this earth. This book became quite popular since it got published. The author of the book has also been hailed as “the Modern Marx” by “The Economist” magazine. He is a French economist who also taught at MIT for two years. His major work is a compilation of historical data about economic inequality. He also criticized the discipline of economics.

To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation at the expense of historical research and collaboration with the other social sciences.

Thomas Piketty-The Capital in 21st Century

The core concern of the book is to put the issue of inequality in its broader historical context. The author’s main argument is that in an economy where the rate of return on capital outstrips the rate of growth, inherited wealth will always grow faster than earned wealth. He also adds that the concentration of wealth at one level is incompatible to democracy and social justice.

The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.

Thomas Piketty-The Capital in 21st Century

He rejects the Simon Kuznets hypothesis which says that though societies become more unequal in the first stages of industrialization, inequality reduces as they achieve maturity. However, the author does not think so. According to him, demography, low taxation and weak labor organizations will fundamentally lead to greater inequality.

The author feels that unless we do something, ‘free-market economy’ will become a ‘patrimonial system’ with an entrenched hereditary upper class and the rest of the population. He is highly critical of high compensation paid to senior executives of MNCs which is responsible for extreme inequality especially after the financial crisis in 2008. To save the world from this ‘doomsday scenario’, the author proposes various measures namely a global tax on inherited wealth, changes in income taxes, use of inflation to redistribute wealth downwards and also enforced transparency of banks.

His paper -,“Indian income inequality, 1922-2014: From British Raj to Billionaire Raj”? co-authored with Lucas Chancel argues that income inequality was highest in India in 2014 since the creation of Indian Income -tax in 1922. They concluded that the top 1 percent earners in 2014 earned 22% of India’s national income. Though there are various counter- arguments to it. Jagdish Bhagwati & Arvind Pangariya refuted this argument in their book, ‘Why growth matters’. Swaminath Aiyar also disapproved of his idea of stark inequality in India in one of his articles on the grounds of statistics and his failure to distinguish between different kinds of inequality.

Thomas Piketty’s hypothesis has been severely criticized by various economists. According to them, his approach to economics is anti-mathematical. As per the paper, “Income Inequality, Catastrophe Predictions, Thomas Piketty, How income and economic unit are defined can create significant differences in the data produced and in the interpretation of the data? For instance, Stephen Rose and Thomas Piketty reached different conclusions about the status of the middle class based on the definition of income and economic unit. Generally, there is no correlation between increasing income inequality and general welfare. His use of tax records to approximate income is convenient and allows easy comparison across different countries and at different times and he has also not considered the social security payments as part of his data.

Though income inequality is a complicated issue, Piketty’s biggest contribution is to elevate the income inequality issue to the forefront of both public and scholarly attention. Whatever is the reason behind stark inequality existing in society, the issue of inequality will always be debated as a moral issue.


2 thoughts on “Book Review of The Capital

  1. Income inequality and poverty are two different challenges. When economies grow poverty falls out inequalities may widen. In the Indian context the fact post 1991 we have managed to have millions uplifted above poverty line is commendable and a strong middle class has emerged but inequalities have widened. To suggest higher tax is not a viable policy as that would adversely affect investment , growth and tax collections. Better alternative could be to focus on strengthening Ease of Doing Business as that would mean more investments, more jobs and tax revenue to State to develop a robust social security.

    Liked by 1 person

  2. Higher tax is the suggestion of the author of the book. Personally, what I feel State should take measures for the marginalized sections and poor people and create enough conditions in terms of gainful employment, providing better healthcare and education etc to ensure they have a dignified life.

    Liked by 1 person

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