SVEN BECKERT: OK,
good afternoon. Welcome. It's good to see so
many of you here. My name is Sven Beckert,
and I'm delighted to be able to welcome you
here today in my role as the co-chair of the Program
on the Study of Capitalism here at Harvard, and also as a
faculty associate of the Center for European Studies. I would also like to welcome
you in the name of Grzegorz Ekiert, who is the
Director of the Center for European Studies,
and Chris Desan, who's sitting right here, who is
the co-director of the program on the study of capitalism. It is great to see
so many of you here. I know many who would
have liked to be here weren't able to join us. But I'm particularly
honored to be able to welcome Professor
Thomas Piketty as our speaker this afternoon. The Program on the
History of Capitalism started more than 10
years ago here at Harvard. And when it started,
an event like this seemed almost unimaginable. We had hoped to make more
central matters of capitalism to debates in history and
to bring other disciplines, including economics, into a
broad discussion on the history and the present-day
state of capitalism. And at first, such hope
seemed truly futile. Our first seminars
attracted very few students. And when I began to lecture
on the history of capitalism, many well-meaning
colleagues advised me that very few students
would be interested in such an old-fashioned topic. Things turned out to
be quite differently. And the study of
capitalism has not only become extremely
popular here at Harvard, but has become one of the
most hotly debated topics in contemporary culture, with
even Pope Francis and the Queen chiming in on such debates. But no one has made the problem
of capitalism more intriguing, more intellectually
alive, and more urgent than today's guest,
Thomas Piketty. When in the late summer
of 2013, Professor Piketty published his 800-page
opus magnus in Paris, few would have
predicted that it would become a global bestseller. After all, here was a
book that was chock-full of tables and charts, dealing
with decidedly yawn-inducing topics such as the
history of taxation-- a book that, moreover,
carried a decisively unsexy title-- namely Capital in
the Twenty-First Century. And it was written in French. [LAUGHTER] Few would have predicted that
18 months later, the reading of that very book would at least
lead one American CEO, Mark Bertolini of the Aetna
Insurance Company, to raise the wages of
his lowest paid workers, and that the press
would come to compare its author to a rock star. Very few can claim
that their writings have had such an immediate
impact in the world. And it's a testament, not just
to the brilliance of Professor Piketty's research but
also to his ability to communicate that
research to a wider public that Capital in the
Twenty-First Century has fertilized
political debate and has brought issues of the
distributional effects of capitalism on
the political agenda in many different
parts of the world, including the United States. And of course,
the book's success is also a sign of our own times. Thomas Piketty is
professor of economics at the Paris School of Economics
and at the Ecole des Hautes Etudes en Sciences Sociales. He's the author of numerous
articles and books focusing on the interplay between
economic development and the distribution
of income and wealth over the longue duree. With a degree from the
Ecole Normale Superieur, he entered a PhD program at
the Ecole des Hautes Etudes and the London
School of Economics. And in 1993, he defended
his doctorate dissertation on wealth
redistribution-- a thesis that won the French
Economic Association's prize for the best thesis
of that year. Since then, he has taught at
the Massachusetts Institute of Technology in this
fair city and worked as a researcher for the
French National Center for Scientific Research. Most recently, he has led the
creation of a massive database on world top
incomes, which turned into the foundation for Capital
in the Twenty-First Century. That book has now sold more
than 1.5 million copies. And it has become the most
widely reviewed and discussed book of last year, sometimes
in confusingly contradictory manner, such as when the
decisively anti-Marxist journal The Economist called Professor
Piketty "the modern Marx," while self-identified
Marxist David Harvey chided him for not
being a Marxist at all. And another journal, The
American Conservative, called him the anti-Marx. Beyond these confusions,
Piketty's work has been of
overwhelming importance to reigniting discussions on
the distributional effects of capitalist development,
the question of who gets what, and how that has changed
over the past 200 years. In the course of providing
powerful sets of data and interpreting them,
Professor Piketty has created a new
space for discussing inequality and possible
political responses to that inequality. In some ways, one could
argue that his most important contribution has been to
allow us to think again about the future--
the future not as an inescapable new liberal
faith that we must adjust to as best as we can, but
instead as something that we can mold and shape politically. While his reading of the
history of capitalism is often a dark one, his reading
of the political possibilities of the human condition
is deeply optimistic. Not only does he
provide political ideas on how to address
sharpening inequality, but he also gives
us the mental space to allow us to think again
about the possibilities for alternative futures. Economic outcomes, he
tells us, are fundamentally political outcomes. And he encourages
us to think not just about the run of necessity
but also about the run of democratic possibility. Almost every
commentator has justly emphasized Professor
Piketty's contributions to the understanding of the
long history of inequality. But the pages of his
beautifully written book contain another contribution
hiding in plain sight that is nearly as important
and that I, as an historian, appreciate in particular. He has rescued thinking
about the economy from the monopoly of economists. Professor Piketty reaches
out to other disciplines, and especially to the
discipline of history. And one can clearly
see the influence of such towering voices as
Fernand Braudel and Marc Bloch. His is not a past of
immutable laws of development but a past that is political,
a past that is contingent, and a past that is embedded
in cultural and social change. The Trente Glorieuses,
for example, are not the result of
immutable economic loss but the result of a confluence
of political factors and events. And thus, Professor
Piketty's work is grounds for optimism
for yet another reason-- that we might be able
to reignite a discussion on the economy, its
past and its future, by bringing in the voice of
historians, anthropologists, sociologists, and many others. Without much
further ado, I would like to open the proceedings. Professor Piketty will
speak for about 45 minutes. And he will then be
followed by three very short, five-minute
responses from members of the Harvard faculty
before we open up the discussion to the floor. And let me just introduce
quickly these three commentators before we move on. David Kennedy, who
will respond first, is the Hudson Professor of
law and Faculty Director of the Institute for
Global Law and Policy at Harvard Law School,
where he teaches on international law,
international economic policy, and also legal theory. He has published widely
on international law and just recently published
Global Governance: New Thinking About
Law and Policy. He's also the mastermind behind
the Institute for Global Law and Policy, a project
that brings together people across many disciplines
to think in new ways about globalization, its
power, and its challenges. Stephen Marglin,
who will speak next, holds the Barker Chair in
the Department of Economics at Harvard University. His recent work focuses on
the foundational assumptions of economics and how
these assumptions make community invisible
to economists. This work reflected in this
book The Dismal Science: How Thinking Like an
Economist Undermines Community attempts to counter
the aid and comfort these assumptions
give to those who would construct the world in the
image of economics-- ultimately a world without community. And last but not least, you
will hear from Christine Desan, who's not only the co-sponsor
of the Program on the History of Capitalism here at Harvard
but also, perhaps even mainly, the Gottlieb Professor of
Law at Harvard Law School. Her work centers on the
institutional underpinnings of capitalism so that we can
open them up to revision. She in particular explores
the history of money as a legal and
political project, and just published Making Money:
Coin Currency and the Coming of Capitalism, a
book that decodes the monetary architecture
of capitalism. Thank you again for joining us. And thank you again, Professor
Piketty, being with us today. Professor Piketty. [APPLAUSE] THOMAS PIKETTY: Thank you. Thank you, Sven. And I'm very glad to be here. I'm sorry that my English
sounds a lot like French, but I hope you
can understand me. I'm very glad to be
here in Cambridge. And my book first
came out in French, and it came out in English
shortly after that. And now it has been
translated in many languages. And out of about
1.5 million copies, I guess there's about 500,000
in the English language, 500,000 in European
language-- French, Italian, and German-- and about the
same, 500,000 in Asia-- in Japanese and Chinese. But I think the English version
played a particular role. And I would really
like to pay tribute to Arthur Goldhammer, who is
right there in the first rank. [APPLAUSE] There's no way I
could have written such beautiful English and such
a beautiful book in English. You can see my English. And I'm not particularly
good with foreign language. I do what I can. And my written French
is much, much better than my written English. And there's no way I
could have referred to the literature
or to express myself with the same clarity which Art
was able to do by translating my book into English. So I think this is
has been really-- it's more than a translator. I guess a translation is
always more than translation. And of course, there's
no [? czar ?] language for which I am able to check
the translation was so good. So thanks a lot, Art. So let me-- in
this presentation, I'm going to try to present
some of the results of the book and reflect about
some of the debate, also, that this book has
stimulated over the past year or so. So let me first say very
quickly that this book comes from a very collective
project of data collection. So I am trying, in
this book, to put the study of the
distribution back at the center of
political economy and of the social
sciences more generally. But primarily what I have
been doing in my research is to collect a lot
of historical data on income and wealth. And this is something
that I could never have done without several
dozens of co-authors from over 20 countries. So in particular, I
started collecting data on income and wealth in
France about 15 years ago. And then I was very fortunate
to meet Tony Atkinson, Emmanuel Saez,
Gilles Postel-Vinay, Jean-Laurent Rosenthal, Facundo
Alvarado, Gabriel Zucman, and many others which-- I
cannot quote everybody here. But it's clear that
there is no way I would have been
able to collect all these data by myself. And this is an ongoing process. And so the book is
just photography of the kind of
historical material we had at one point in time. But there will be
more data collection and more historical material
available in the future. So thanks to this
data collection, we know a little bit more
than what we used to, but we still know too little. And in particular,
there's absolutely no problem in my mind
if people disagree with some of the historical
interpretations that I give or the patterns that I find. We are in the social sciences. There are different ways to
interpret historical evolution. And so the objective of
the book is not to say, OK, this is the one way, the
one law to interpret history. Of course when you look at the
evolution of income and wealth distribution over more
than 20 countries across three centuries, there cannot be
just one law or one principle. There are many
different institutions, policies, social control,
political processes that play a role. And I'm trying to illuminate
some of them in the book. But this is just the beginning. And there is a lot more
to do in this area. So in this presentation, and I'm
going to present some results, mostly from part two
and three in the book so as to give you a
sense of the material. If you go to this
website, you will find all the graphs and series. And you will have a better
sense of what material is included in the book. So in this
presentation, I'm going to focus on these three points. I will start with
the first point, which is about the long-run
dynamics of income inequality. And then I will move to wealth. And to a large extent, what
my book is trying to do is to shift the attention
from the issue of income distribution to the issue
of wealth and property concentration. But I will start with
income inequality. I will show you the
number of results about the long-run dynamics
of income inequality. And some of the main
conclusions will be the end of the Kuznets
Curve, the end of universal law, and the idea that
country-specific institutions and policy are absolutely
critical if you want to understand the long-run
evolution of income inequality in the various countries. Then point two
will be about what I call the return of patrimonial
or wealth-based societies, particularly in Europe
and Japan, where wealth-income ratios seem
to be returning to very high levels in those countries. And I will stress
also the metamorphosis of capital, the transformation
of the different forms of property, which raise new
challenges for the future. And the third point
will be about the future of wealth concentration and
concentration of property. And I will argue that one
of the important forces-- certainly not the only one, but
one of the important forces-- for understanding the future
of wealth concentration is the gap between
R and G, where R is the net of
tax rate of return, particularly for a
large wealth portfolio, and G is the growth rate. And to the extent that this
will be higher in the future than what it was
in the past, this might contribute to
rising inequality. So let me start
with the first point about the long-run dynamics
of income inequality. So a big part of the
data on income inequality that I present in the book
comes from this database, the World Income Database. So you can't see the
colors very well, but let me just say that
the countries in red-- well, say in black-- are
already in the database. And the countries in blue,
like Brazil or Algeria, are about to enter the database. So what it means to
be in the database is that we try to collect all
the historical data on income that we have for
a given country. So usually, the only source
of information on income comes from the
income tax itself. So it's important to
realize-- but you all know this-- that taxation
is more than taxation. Taxation is also a way
to produce information. It's a way to produce
legal categories and statistical categories
so that society can also accumulate knowledge
about itself. And so when you don't
have an income tax-- the income tax was created
in 1913 in the United States, in 1914 in France, a little bit
earlier in Japan and Germany, where it was created
around 1880, 1890. In India, it was introduced in
1922 by the British colonizer. So almost everywhere
between 1900 and 1920, you have the creation of
the modern income tax. And this creates, also, a source
of information about income. Of course, that's not a
perfect source of information. But it's better than
no information at all. So in the 19th century, you
don't have an income tax in most countries. So, like in France, you have
the contribution des portes et fenetres, the
contribution on the number of doors and windows. So you have all sorts
of beautiful statistics on the number of
doors and windows by department, which is quite
interesting, by the way. And this is an
historical data source that is certainly underused. But it's less interesting,
in a way, than income. And so this is true for income. This is also true for wealth--
the taxation of wealth, in particular the taxation of
inherited wealth, transmission of wealth at a time
of inheritance. It's also a way to register
property and to register wealth and to produce
information about wealth. So the taxation of wealth,
in particular of inheritance, as much older than the
taxation of income, because registering property
is very important to organized society in general. So you have
registration of property in very ancient societies. And in particular, in France,
with the French Revolution, you have the introduction
of an inheritance tax that was pretty
universal for the time. And this is why we can
go back and with fellow historians, Postel-Vinay
and Rosenthal, to the French archives,
to the late 18th century to study the distribution
of wealth in France starting in the
late 18th century. Now, for income
we cannot do this, but we can start at
least around 1900, 1910. And so we can study the
evolution of income inequality. I should mention that one of
the very positive impacts for me of the publication and
the success of the book is that it allowed us to
access historical fiscal data and current fiscal
files in new countries where government
were not so open. So now in Brazil, in Mexico
should be in blue on the map. In Taiwan and
Korea, in Chile, we are accessing the
historical income data which we could not access before. And so there are more
countries in particular that we try to cover
in the emerging world-- in Latin America,
in Asia, also in Africa. We put a lot of energy on
trying to use data from Africa. So the countries that are
not covered in the book, it's not that we don't
want to cover them. It's just that sometimes
we had no access to the historical sources. And we now have
more access to them. So let me show you
some examples of what we find in this database. So let me present three
facts about inequality in the long run-- one
about income inequality. And then I will show you
about wealth inequality and finally about
wealth income ratio. And if you want to
have a short summary-- the book is very long, and
I should apologize for that. So if you want to have-- the
good thing about science, about real science and real
scientific people, is that they want
short articles. So when we had to publish
this paper with my friend and colleague Emmanuel
Saez in Science last year, this had to be five pages long. So if you want a
five-page summary, you can read the Science article
called "Inequality in the Long Run," where you will have these
three facts about inequality in the long run that are exposed
in a very condensed manner. But I think you will
lose some of it. In particular, you will lose the
beautiful translation of Art. This will just be my English,
so that's less interesting. But at least the basic
facts will be presented in a very condensed manner. So fact number one-- fact
number one is the following. In 1900, 1910, income
inequality was higher in Europe than in the United States,
whereas in 2000, 2010, it is a lot higher
in the United States. So that's an interesting
reversal of inequality in the long run, because the
way I will interpret this is that changing institution,
changing policies can make a difference. So it's not that some
countries are always more unequal than others. It depends how you organize
yourself in a country. There are different ways
to organize capitalism. And there are different levels
of inequality that go with it. So let me show you
one simple graph. So this is the share of
income going to the top 10%. So you have Europe, the US. So Europe, as you know, is
a complicated continent. But here I am going
to simplify things. And so what I mean
by Europe here is the GDP-weighted average
of Germany, France, Britain, Italy, Sweden. So it's not quite Europe,
but it's a big part of Western Europe, at least. And the general
evolutions are very similar for the different--
at least continental European countries. So let's call it
Europe for to simplify. And as you can see, in fact
in all European countries, income inequality was higher
in 1900, 1910 than in the US. Whereas today, you
can see-- so there was a big decline in inequality
following World War I and particularly World War
II, the Great Depression. And in the 1950s,
this is what Kuznets finds in his famous study. Inequality is less in
the 1950s than in 1910. So all what we've
did in this research is to extend the work
of Kuznets to many more years in many more countries. And as you can see, this
changes a lot the perspective, because in the
'50s, you could have this optimistic view of
decline and then stabilization of inequality at a lower level. Now in 2010, it's a
very different story, because you've had
this very big increase of the share of total income
going to the top 10%, which in the US went from
about one-third to about almost one-half. So when you go from
one-third to one-half of total income
going to the top 10, this is not just an issue
of a few individuals getting very rich at the top,
which after all, nobody cares if it was just
a few individuals. But here we are talking about
significant macroeconomic share in total income. So here, it looks
very smooth, because I look at decennial averages, so
everything looks very smooth. And that's convenient
in order to focus on the long-run pattern. If you look at annual
series for the US, you can see that is
much less smooth. In particular, if
you take into-- so this is the same
curve as before, except that I only
show you the US. And I look at annual series
rather than decennial averages. And you can see, in particular
because of capital gains, that the stock market cycle has
a strong impact on inequality. So you can see in
the US, in 2007, you have a very high
point in inequality. Now in 2008 and '09, this
is clearly not a good time to exercise your capital
gains and not to cash a big bonus. So you have a decline
in inequality. But then in 2012, you are
even higher than 2007. So in 2012, you have
51% going to the top. In 2013, it seems to
be a little bit lower. Anyway, you have
short-run variations, but if you take the
long run picture, it's pretty clear that you
have a spectacular increase in the share of total
income going to the top 10%. So if you just take
the decennial averages and you compare
to Europe, I think you can see how big the
difference between these two different groups
of rich countries-- the US on the one hand,
and European countries on the other hand-- is. If you were to put
Japan on the graph, this is what you would have. So Japan would be in
between Europe and the US, closer to Europe in many ways. So it's interesting to put
US and Europe and Japan, because these are like the
three parts of the rich world. And you can see that they
have different experience. So that's important,
because sometimes people want to explain
rising inequality just by talking about globalization. And the story will be, OK,
you have globalization. You have China entering
in the world labor market. Therefore, this is
putting a strong pressure on the wages of
low-skill workers, and this is what creates
rising inequality. And I'm not saying
this is not important. But I'm just saying that if this
was the only explanation, then you should have the same
rising inequality everywhere, because globalization
happened not only in the US, but also in Japan and Europe. So sometimes we
have debates which are very much
self-centered in the US, but also in Europe or in Japan. But I think it's important
to look at other countries' experience, and to realize that
globalization is important. But then there are
different institutions, different policies, that help
to organize globalization and to allow broader
groups of the population to benefit from globalization. So what are these policies
that can make a difference? Well, I tried to analyze
them in the book. But let me summarize
very quickly. So the rising US inequality
in the recent decade is mostly due to rising
inequality of labor income. Also, rising concentration
of capital income and wealth is starting to bump in
at the end of the period. And a recent study by Saez
and Zucman emphasizes this. But most of the action so far
comes from rising inequality of labor income. This is due to a
mixture of reasons-- changing supply and demand for
skills, rise between education and technology. Globalization certainly
is part of the story. But I think there's
more than that. You need to have
a story where you have more unequal access
to skills in the US than in Europe or Japan. So maybe raising tuition,
insufficient public investment in education, that
can explain why you have higher inequality in
skill acquisition and access to education in the US than
in the rest of the rich world. Unprecedented rise of top
managerial compensation in the US-- why did it
happen so much in the US? There are complicated,
changing social norms and also changing incentives and
changing corporate governance. I tend to believe, on the basis
of my research with Emmanuel Saez and Stefanie Stantcheva,
that the very cut in top income tax rate that have occurred in
the US since the '70s, '80s, have also played a role and
have transformed the incentives for very top managers to try
to bargain very aggressively, and try to get very high pay
increase, which are often difficult to explain on the
basis of observed performance or observed productivity,
and have more to do with the ability sometimes
to put the right people in the right
compensation committee in order to get pay increase. Fall in minimum wage in the US
also played, clearly, a role. So I don't ask you to agree
with the exact importance of each explanation. But I think we can all
agree about the fact that education policy, corporate
governance, fiscal policy, labor market policy-- all these
different institutions matter and explain why you can have
different rising inequality in these different countries. Just let me show you the
example of the minimum wage. So this is a graph that
is taken from my book. So this is the real
value of the minimum wage in France and the US. So you see that
in the '50s, '60s, the minimum wage used to
be a lot higher in the US than in France, whereas
today it is a lot smaller. So some people in
France will say that it is too high
in France, which I'm not going comment on this. It's a reasonable discussion. But it is certainly
too low in the US. Or at least-- in
the US right now, the federal minimum wage
is $7.20 or $7.30 per hour. It used to be $10
in the late 1960s. So it's quite unusual. So this is expressed in dollars
of today, in 2013 dollars. So the purchasing power of the
federal minimum wage in the US is today less than what it
was in the 1960s at a time when there was no more
unemployment than today. So it's quite
unusual in a country to have a decline in the real
value of the minimum wage over a 50-year period. And clearly this change in
labor market institutions, change in collective
bargaining, the role of unions also played a big role in
the evolution of inequality. Let me show you another
graph regarding education. So this is taken from a
very interesting research by Raj Chetty, who teaches at
Harvard Economic Department, with Emmanuel Saez,
who is at Berkeley. So you have-- on the
lower horizontal axis, you have the
parental income rank. So if you have 10,
it means that you are in the bottom
10% of the family distribution of income
in the US, and 90, you are in the top 10%. And this is your percentage
attending college at 18, 21. So you get an almost
perfect straight line. And you go basically
from 0% to 100%. So if your parents are
poor in this country, your probability to
access higher education is a little more than 20%. And then if your parents are
in the top 10%, it's 90%. So you don't go from 0 to 100,
but you go from 20% to 90%, which is almost as spectacular. I find this graph very striking. So this means that you have
a theoretical discourse about meritocracy, equal
opportunity, access to higher education, and
you have the reality. And the reality is
a bit frightening. And I also-- I'm not
saying it's perfectly equal in other countries. I think there's a
lot of hypocrisy and a lot of
inequality in access to higher education everywhere. Certainly in my
country, in France, there is sometimes
a lot of hypocrisy in the ability of
public institutions to invest three times more
in very elitist schools than in normal schools. But there is evidence
that inequality in access to higher education
is even higher in the US than in Europe or in Japan. And I give evidence
for this in the book. So anyway, this is
just to illustrate that education policy,
access to education, is very important, together
with the minimum wage, together with
progressive taxation. So it's a whole set of
institutional policies that matter. Now let me move
to the second part of my lecture, which
is about the return of patrimonial society. So, so far I have focused
mostly on inequality of income and particular labor income. Now I want to move more to
wealth and capital, which is the main subject of the book. So of course, inequality and
wealth and capital ownership is partly determined by
inequality of labor income, because if you have more
unequal labor incomes, then you have more unequal resources
to save and accumulate wealth and become owners of
large pieces of property. But the inequality of wealth
is a more complicated object than the inequality
of labor income because it also
involves inheritance. It involves natural
resources, which have been saved by no one. And the concentration
of property is always a lot higher than the
concentration of labor income, as I'm going to show
you in a minute. So I'm going to
make first a point. Point number two
of my presentation will be about the
return of what I call patrimonial or wealth-based
society, particularly in Europe and Japan, where I will
show you that wealth income ratio seems to be
returning to very high levels in these countries. So what's particular
in Europe and Japan is that you have very
low population growth-- and indeed, in fact, negative
population growth in Japan or in some European countries. And that's a very big
difference with the US. And the basic intuition is
that in a slow-growth society, wealth accumulation in
the past can naturally become very important. And in the very
long run, this can be relevant for the entire
world, to the extent that population growth will
stop everywhere at some point. So of course, if you
have a lot of migration, you can keep growing. And I know that
this is a country where immigration is important. In particular, universities
would like all the rest of the planet to come here. But you know, if we
are all in the US, that will not solve the
problem in the long run. You still have--
population growth will depend on fertility. The projections
we have so far is that population
growth in the long run is going to be smaller than
what it was in the past, and possibly close to zero. So to the extent
that there will be a slow-down for other
parts of the planet than just Europe
and Japan, this rise of wealth income
ratio and this return of what I call a
patrimonial society will be relevant
in more countries. Now this is not bad in itself,
but this raises new challenges. And in particular, I will
argue that the metamorphosis of capital assets call for
new forms of regulations, of property regulations,
and that these will be very important issues in the future. And then I will move
to point number three. So regarding point
number two, let me first stress that wealth
inequality is always a lot higher than income inequality. So let me show
you-- let me first describe two important facts. So remember, fact number one was
that income inequality is now higher in the US than in Europe. Fact number two is that
wealth inequality is always a lot higher than
income inequality and that it is also now
higher in the US than Europe. But fact number three,
wealth inequality is still less extreme today
than what it was a century ago in Europe, where it was
really very extreme, in spite of the fact that the
total capitalization of private wealth relative
to national income has now recovered from
the World War shocks. So it's important to distinguish
between inequality on the one hand and total quantity,
or total capitalization of wealth-- which is not
quite the same thing-- on the other hand. So the fact that you have a
very high total capitalization of private wealth
is not necessary bad if you have a large
middle class which also would be part of total wealth. So it's important to distinguish
inequality on the one hand and the wealth income
ratio on the other hand. So if we look at
inequality-- so first look at the orders of magnitude. Remember, for income inequality,
the top 10% share was between one-third and one-half. It used to be
one-third in the US. It is now closer to one-half. Now, wealth inequality, it's
always more than one-half. It goes between 60% to 90%
in Europe before World War I. So wealth is a lot more
concentrated than income. For many people, the
bottom 50% share in wealth is always less than 5%. So there's a very large
group in the population for whom the very notion of
wealth or capital ownership is quite abstract. And many people just
have a little savings in their accounts, or
they have a mortgage that is almost as big as their
real estate property, so their net wealth
is really quite small. So whatever does not
belong to the top 10% typically belongs to the middle
40%-- what I called in my book the patrimonial middle
class, the people who are not in the bottom half,
and who are not in the top 10%. And so whatever does not belong
to the top 10% on this graph belongs to this middle 40. So this means that
when Europe goes from 90% of wealth
for the top 10 prior to World War I to about
60% today, in between you have 30% of national
wealth which used to belong to
the top 10 which now belongs to the middle 40. And this is this rise of a
patrimonial middle class, which I describe in my book as
probably the most important transformation in the
long run, because even though the middle
class still has less wealth than the rich--
in spite of the fact that they are four
times more numerous-- it's still significant to
own 30% of total wealth rather than 5% or 10%. This makes a big difference. Now, in recent decades,
the share going to the top has started to
increase again, which means that the share
going to the middle class has started to decline. And one issue is
to understand why. First, we're going to try to
understand how the total value of wealth has changed. Now, what is striking-- so
this is a different evolution. This is a wealth income ratio. And what's striking is that
for wealth income ratio, Europe is actually above the US. So in Europe, there
is less inequality of wealth than the US, but
the total value of wealth relative to national
income is higher. So that's why it's
important to distinguish these two dimensions,
because they don't need to move together. And so if you want to
understand this big evolution of the wealth to
income ratio, you can also decompose between
different countries. So these are three
European countries-- Germany, France, UK. You can see that
everywhere you have a very high ratio of wealth to
income prior to World War I. So of course you have
a lot of destruction and also lack of investment
between 1910 and 1950. Also a lot of private
wealth was either nationalized after World
War II or its private value was reduced by new sets of
institutions and policies, including rent control
for housing values, so that the private
value of wealth in 1950 is extremely small by
historical standards. And then it has started to
increase again in the past half century and is now not
quite as large as what it used to be in the 19th century. But it's getting closer. Now, how can we understand
this big evolution? So the first point
is that there's nothing bad with high
wealth to income ratio. And to a large extent, it
comes from a natural evolution with post-war reconstruction
and the slow-down of growth. As I mentioned before, when
you have a slow-down of growth in recent decades,
you tend to accumulate more wealth relative to income. That's partly due to aging. And this is not
necessary bad in itself. Now, the problem is that this
creates new policy challenges in terms of financial
regulation, real estate bubbles, return of
inheritance, which is now for the new generation
very important in Europe and also in Japan. And in order to
analyze these issues, probably the most important
message of this presentation is that I really try
in my book to develop a multi-dimensional approach
to the history of capital and property relations. When you do this big
addition and compute the total value of all
assets, you are really doing something very abstract. And the reason why my
book is relatively long is because I actually
try to analyze in a separate way each
separate assets-- from land to business assets,
to foreign assets, real estate, public
debt, immaterial capital. And all these different
kinds of property give rise to different
institutional challenges, to different negotiation
between owners of capital and those who mostly
own their labor. And they really need to be
analyzed separately if we want to understand them properly. And it's more than just
making the big addition. So let me take a
couple of examples to illustrate this point. First, if you look in
the very long run-- so this is a decomposition
of the structure of property in the United Kingdom. So you don't see
the color very well, but let me just say that the
bottom part in the 18th century is agricultural land. So you can see that at the
beginning of the period, agricultural land is a
very big part of wealth. The middle part
is housing, which was less important
in the 18th century but is now very
important, partly due to a very high price for
housing, maybe reflecting partly a bubble, but also the
fact that many people want to live in the same place. And there could be something
structural in these very high housing prices. The third part is
also domestic capital, which is basically
business assets, which becomes very important with
the Industrial Revolution. And you have a
little white part, which is very important on
the eve of World War I, which is net foreign capital. So this is what Britain owned
in the rest of the world. And you can see that
this is very significant. You have almost two
years of national income. Almost one-third of everything
the Brits own in 1910 is they own part of
the rest of the world. And of course, that's related
to their colonial empire. In France, there's a
smaller colonial empire, but still, it's
quite a significant. It's more than one
year of national income in foreign assets. And now this disappears
entirely in France and Britain during the 20th century. Partly it's decolonization. But most of it is really
World War I and World War II, where, to finance the war,
to pay for the war, many of the rich French
and Brits have to sell their foreign
assets, buy some public bonds to their government. And then their public
bonds will be inflated away after 1945, so that in the end,
they don't own much after that. So that's a big
part of the process. And if you just look at the
big addition and you don't look separately at these
different assets, you cannot really
understand the whole thing. So what's striking
in the long run is that you have metamorphosis
of capital in the sense that agricultural land
is not really playing a big role today. But the total the value of
assets is getting similar, like in Britain in 2010 than
in the 19th or 18th century, but with a very
different form of assets. Let me mention also that if you
look at annual series for more countries-- so here you
have the same private wealth to national income ratio
in more countries-- you can see the
Japanese bubble in 1990. And generally speaking,
what you can see is that bubbles on
price of real estate and very sharp movement and
price of other capital assets play a big role. So the history of
capital is never quiet. It is full of crisis. It is full of
volatility, because it's difficult to put a
price of assets, also. Putting a price on real estate,
or putting a price on the stock market-- some people
do this for business, and that's complicated. And so you have all
these big variations. If you look at the-- so
this is the Spanish bubble over there, which is even
bigger than the Japanese bubble. You can see that
in Spain in 2007, the total market value
of private wealth relative to national
income was eight years of national income--
even more than in Japan, where it was seven years
of national income in 1990. So this creates new
challenges in terms of financial regulation. In 1970, the ratio of private
wealth to national income was only two to three
years-- so these are the top eight or top
nine developed economies in the world. So everywhere it between two
and three and a half years. Whereas today, it's between
four and seven or eight years. So of course, if you
make a 10% mistake on the price of your real
estate in Spain or Japan, when you have a
ratio of six or seven years of GDP in
private wealth, this is a mistake that can have
very big consequences, much bigger than when it's a
ratio of two or three. So this creates new
policy challenges. Let me also mention
that a significant part of the increase in private
wealth to GDP ratio is also a transfer from
public to private capital. So you have privatization
of public assets. And you have an
increase in public debt. So public capital--
so you can see-- well, again, you don't see
the color very well. But I just want to
mention one example. Look at Italy. Italy is the bottom
point for public capital and actually is the top
point for private capital. So bottom point for
public capital-- look, Italy is negative
for public capital. What does this mean? This means that even if the
Italian government were selling all the public assets, all
the public buildings, schools, hospitals, financial
assets-- they don't have much,
but assume they sell everything-- that will
not be enough to repay the public debt. They will still have
about minus 60%, 70% of national
income in public debt. So I'm not saying
they should do this, but it's important to realize
that-- many people would be shocked if we had to pay
rent to the private owners of the schools to which
we send our children. So I'm not saying
they should do this. But it's important to
realize that in a way, this is already
what they are doing. Because when you have a
public debt that's bigger then the value of your
public assets, in effect what you have to pay in interest
payment for your public debt can be higher than what
would be the rental value of your public asset. So it's a bit more
abstract because it goes through the financial
intermediation system. But in the end,
it's very concrete. Right now in Italy, they
are paying 5%, 6% of GDP each year in interest payment,
whereas the total budget of their entire public
university system is about 1% of GDP. And so is this the right
way to prepare the future for the new generation? It's not entirely clear. So I try to put these issues
into historical perspective. Britain in the 19th
century is a country where the holders
of public debt, the rentiers of public
debt, are very powerful, not only in the
novels of Jane Austen but also in the real
politics of the time. And they manage
to get the country to repay during
an entire century 2%, 3% of GP in interest payment
and budget surplus each year, which is more than
the total education budget of Britain at that time. And during an entire
century, the country reduces the vast public
debt of 200% of GDP that came from the Napoleonic
War to 20%, 30% of GDP at the eve of World War I. So it worked, but it
took an entire century of repaying interest payment. And I would not like Europe to
make the same mistake today. But anyway, that's one of
the things for which history can be useful. So let me also
mention, very quickly, some of the particular features
of capital and inequality in the United States of America. And let me say
inequality in America has a different
structure as in Europe. And this was already like
this in the 19th century, where you have-- as we like to
say, the Land of Opportunity. Capital accumulated in
the past matters less than Europe, partly because of
perpetual population growth, which is in a way
a way to reduce the level of inherited wealth. And at the same
time, this is a land of slavery, which is in a
way the most extreme form of property relation. And I just finished yesterday
reading Sven's book, and I regret that
I couldn't read it before when I wrote my book. But certainly, the importance
of slavery-- we all know after Sven's
book the importance it had in the development of
capitalism in this country and in global history as well. I try also in my
book to illustrate this in the following
manner-- if you look at the total
value of wealth, say, in Britain in
the 18th century, you have very high ratio
of wealth to income. If you look in the US-- so
this is with the same scale-- you can see that the ratio
is much lower, in particular because the value
of agricultural land is much lower. So land prices are very low
in the US in the 19th century. We all know this. Tocqueville wrote about
this, and Tocqueville thought one of the origins
of the democratic spirit of America was that
everybody could own land and everybody can access land. So if you just own land,
you cannot be very rich, because there is so much land
that the price of land is very small. And generally speaking,
the total value of everything there is to own
in the country is not very high. So you cannot be very
rich just by owning land, or you need to
own a lot of land. But of course, if you
have the clever idea to own not only the land
but also the people who work on the land, then you
can manage to be a lot richer. So here, this is the value
of slaves-- the market value of slaves at that time. And then you get to
wealth to income ratios that are much closer
to the European level in the 19th century,
with of course big variation between
the South of the US and the North of the US. So that's why the US is, at
the same time in the North, the place where wealth
accumulated in the past is not very important,
in particular because the value
of agricultural land is very cheap. Whereas in the South, the slaves
basically more than compensate for the lower value of the land. And this corresponds to
an inequality structure and a structure of
domination based on property which in many ways
is much more violent than what you have in old Europe. So you have this contrast
between different parts of the US and the particular
relationship of the US with capital and
with inequality which I try to emphasize in my book. And again, this is
a very extreme case where property rights
are socially historically determined. And you cannot just take
them as given forever. They vary over time. They are a social construction. To give just another
example of this, taking an example that is
much, much closer to us today, from Germany. It's interesting. If you remember
when I showed you the graph with Britain,
France, and Germany that you have
lower market values of capital assets in Germany as
compared to France and Britain. And one interesting
question is why? So very often, people talk
about lower real estate prices in Germany, which
could be related also to different housing market
regulations in Germany. But in fact, the
biggest part comes from lower stock
market capitalization of corporations in Germany. And one interpretation
is what we sometimes call stockholder
capitalism, which is that shareholders in
Germany have to share power a little more than in
other countries with worker representatives, sometimes
regional government. So that at the end of
the day, the market value is less than the book
value of a corporation. Now, apparently this doesn't
prevent German companies from producing good cars. So the fact that you have a
lower market value of companies is not bad in itself. And this example
clearly illustrates that market and social
values of capital can be very different
and that more generally, property relations are
socially, legally, historically determined. There are different ways
to distribute power. So capital ownership
is about power. And there are different ways to
regulate and to organize power. I guess-- so this is
a graph illustrating the ratio of market value and
book value of corporations. That's, again,
taken from my book. You can find it online. But you can see
that for Germany-- so according to the textbook
model of perfect capital markets, this ratio should
always be equal to 100%. If you have the market
value, the book value should be the same. In practice in Germany, it's
always much less than 100%-- like, 60%, so the
market value is 60%-- whereas in the US and
the UK, it's more than 100%, at least in certain periods,
or much closer to 100%. So the market and book
values of companies differ systematically
across countries. And this can be
interpreted as evidence for different
regulation of ownership and corporate power in
different countries. I'm going to move
very, very fast to the third point about the
future of wealth inequality. This is where the gap between
R and G is playing a role. So you can see that in
everything I have cited so far, R minus G doesn't play any role. You know, I have to
confess to you today that this whole
thing about R and G was sort of a
marketing trick which apparently worked very well. Because many people thought
they could summarize the book with one equation,
which of course, I don't believe that
you can summarize 300 years of
historical evolution about income and wealth
with one equation. There are many different
institutions, policy, historical forces
that play a role. There is one area where R
minus G might be important, which is if you
want to understand the long-run evolution of the
concentration of property. And here, the gap between
R and G might be important. During most of human
history, the gap was large for a
simple reason, which is that the growth rate
in pre-industrial society was close to zero. And so the rate of return to
land was typically 4% or 5%. It could vary with legal
arrangements and feudalism, but it was certainly never 0%. Now, one of the
findings of my book is that the modern
industrial revolution did not change its basic
relationship between R and G as much as one
might have expected. It's only really the big
shocks of the 20th century that have completely
turned upside down this relation between at least
net of tax, net of destruction, rate of return, and growth
rate-- because of the shock due to the war, because
of the very fast growth of the post-war period. Now, in the future, it looks as
if growth rates, in particular for population, will
be less than what they were in the past. And competition
between countries to attract capital, maybe
also financial deregulation, can contribute to
high rate of return, in particular for
high wealth portfolio. One of the problems is
that there's probably too little transparency
about global wealth dynamics, and particularly
cross-border financial assets. And I think this is a
problem in rich countries. But this is even more a
problem in emerging countries, in particular China,
Latin America, Africa, where a very big part
of the capital stock is owned either by
local or foreign elites through off-shore assets
and tax events, which makes it very difficult
for democratic regulation of inequality. And that's a big
challenge for the future. So I'm not going to present
this in a detailed manner, just to mention that if you
look at data coming from wealth rankings-- so this is a
table coming from the Forbes' billionaire's
wealth rankings-- it looks as if the very top wealth
groups at the world level are rising a lot faster
than average wealth. Let me make clear that this is
not particularly reliable data. It's hard sometimes
to know how the Forbes people compute their ranking. But we live at a
time-- it's a bit sad-- I would prefer to read the
IMF publication or Eurostat publication or US government
publication to know about wealth dynamics. But you wouldn't
find the data, partly because for lack of transparency
and automatic transmission of information about
cross-border financial assets. So we have to do
with what we have. So in my book, I am very
pragmatic with data sources. There's no perfect data sources. And so I use a little bit this
Forbes Magazine at some point. And what you can
see is that here you have a major divergence
between the average wealth at the top and
the average wealth in the world, which is
not so easy to explain. Because sometimes
people say, well, OK, but this is because you have
a lot of new billionaires who make wealth. And indeed, the
people at the top are not the same
in 2013 and 1987. According to Forbes, the
people at the top in 1987 are Japanese billionaires,
which everybody has forgotten their name now. Whereas in 2013, you
have Carlos Slim, you have Bill Gates, et cetera. But the fact that you have some
mobility-- the fact that you have all of these new people
at the top-- this, in itself, does not explain why the
average wealth in this top group should rise three
or four times faster than average wealth
in the world. Because the fact that you
have mobility-- in principle, you have some
people who go down, you have some people who go up. If you were in an equilibrium
of the world distribution of wealth, these two
effects should more or less compensate each other. And the average wealth
in this top group should rise more or
less at the same speed as average wealth in the world. It's OK to have very rich
people, very poor people, very middle people, as long
as the different groups, in the long run, sort of
rise at the same speed. Well, maybe not exactly
at the same speed, but at speeds that are
roughly comparable. But you cannot have forever
average wealth at the top rising three, four times
faster than average wealth for the entire world economy. Because if this was
to continue, the share of global wealth
going to the top will rise to 100%, which
everybody would argue is probably too much. And I'm not saying
it's going to go-- [LAUGHTER] I'm not saying it
will go to 100%. I'm sure it will
stop before that. But where exactly will it stop? Nobody really knows. And this is an issue. So why is this happening? I think there's been a lot of
privatization in recent decades that have produced, in
certainly Russian oligarchs who did not become rich
just through saving. They became rich by
becoming the owner of a large chunk of public
assets at very low prices. This also happen-- if you take
your-- Carlos Slim did not invent the cell phone. So innovation is important. But in many cases, you can
see that at the origins of some of these large fortunes,
you also have privatization. You have inheritance. You don't have the
same level of violence which Sven talks to
us about in his book on the history of capitalism. But you-- it's far
from being steady. It's a process where
being at the right time at the right place
in order to acquire a big part of public
property at a very low price played a big role
in this time period. Now, in the future--
well, there's not much left to privatize
in many of these countries. So this is not going
to last forever. So that's one
possible regulation. Also, by increasing
the public debt, you can have large
negative public wealth. And this can allow you to go
further, even when there's not much left to privatize. I think part of
the reason for this is also that financial
deregulation has probably increased the
inequality in access to high financial returns. So that's good for
places like Harvard. Let me concludes this with this. So this is the return
to Harvard endowment. So the reason I'm showing
you university endowment is not to conclude with Harvard,
but rather because at least these people publish data. That's a good thing
about US universities, is that at least we know what
they do with their portfolio. We know the ways they
get the returns they get, which we don't know
for the Forbes people. So that's why I use these data. So you can see that you have
about 850 US universities with capital endowments. They have done very
well-- 8.2% net of inflation, net of
administrative costs between 1980 and 2010. And the higher the
university endowment, the higher the return. So for Harvard, you have
10.2%, which is quite good. So I'm not saying it will be
as high in the next decade. There were particular
circumstances. But still, this illustrates
the mechanisms through which inequality can feed itself. According to the
textbook economic model, what a perfect capital
market should do is that everybody should get the
highest return on the planet. So you go to your
bank with $100,000. And your money gets invested
in China the next morning. And you get the highest
yield on the planet. But in the real
world, capital market don't seem to work
exactly this way. And sometimes, if you are able
to access very sophisticated financial products-- so
the portfolio of Harvard is made of private
equity, commodity derivatives, and complex
financial products which are very difficult to
access to if you just go to your bank with $100,000--
the management fees paid by Harvard right
now are 0.5% percent per year, which is very small. But if you have $40 billion
on demand, and you pay 0.5%, you can still spend more
than $100 million each year to pay your group of
financial advisors. And so if this allows you
to get 10% rather than 6%, then that's worth it. That's interesting just to
conclude-- to compare this with the amount
of giving that was made to the Harvard endowment
over the same time period. And over the same
time period, you have of the order-- it's a
little bit like the management fees now. It's of the order of 0.5% to
1% of the endowment each year in giving, so as compared
by former students. So as compared to
the financial return, this is really negligible. Well, sometimes
that's useful if you want to get your children
admitted to Harvard. But in terms of-- if
you want to explain the rise of the endowment,
the R is very important. So R versus G is an issue that
can be quite significant when you look at large university
endowments, which can also be important, maybe, for the
world distribution of wealth, to try to explain why top wealth
groups are doing structurally better than the middle class. Let me stop there. Sorry for being a bit too long. And thanks, again, for
welcoming me in your program. SVEN BECKERT: Great. Thank you so much, Thomas. [APPLAUSE] DAVID KENNEDY:
Thank you very much. It's wonderful to be here. And I appreciate
the opportunity. I'm honored by the opportunity
to comment a bit on the talk. It's terrific to welcome you
here to the Harvard Law School, in part because your
book, and also your talk, invites a kind of dialogue
with policy and legal people. So how did this
come about and what can be done about it are the
kinds of mechanical questions you invite us to consider. And there's kind of a
puzzle about the book. It's an incredibly
institutionalist book wrapped up in a formula. And the marketing trick
that you mentioned, again, may be somehow an
explanation there. But this is a book that
identifies an enduring link between capitalism
and inequality in the form of a historic normal
in which returns to capital outpace economic growth. So this is the formula
with which you ended. And there would be a
fascinating conversation to have, I think,
about how differently in legal and
economic specialties a word like capitalism,
or even capital, comes to suggest a system
within which you can speak about historical regularities
that function as, in one way or another, logic
or laws, and the way in which big stories get
constructed out of data and then need to be broken down
in these institutionalist ways. But rather than
that, I think what I would do is just
speak very briefly about the legal and
international dimensions of the story-- to
pick up the invitation that we engage
with the question, what does law have
to do with it? And so how do legal people
think about inequality? Well, it's very common, I think,
for legal people to accept a story about society that
comes from economics-- and here Professor Piketty's
is a perfectly useful one-- and then try to
construct a response out of the available policy tools. And to a certain extent, the
kinds of tools one thinks of are tax and transfer tools. So we can-- the transfer could
happen through schooling. The transfer could happen
even through a minimum wage. But the basic idea is,
capitalism is what it is. And then if the state
can't respond in this way, we have to live with
it, in some sense. I want to propose a
second kind of legal frame that's opened up by
many of the examples in Professor Piketty's
book, in which we get more down in the weeds where the
actors and the structures that Professor
Piketty interprets as part of the story of
capitalism get put together, and where they might seem to
be, in one or another way, more plastic. I mean, it's obvious,
but easy to forget-- and he stresses
this repeatedly-- that the foundations
of economic life are legal-- capital,
labor, money. Law doesn't just
regulate these things. It doesn't just tax them. It also creates them. And it could create
them in different ways with different
distributional outcomes and potentially
different trajectories for society over time. So just as there are
alternatives to capitalism, there are also
alternatives within in. And a legal question would
be, how do we figure that out? What are the alternatives? And how does law set us on
one path rather than another? So on the micro side, you
could imagine drilling down beneath aggregate
institutional identities, like labor and capital
and state and so forth, to think about people facing
each other in some kind of struggle over gains in which
their relative power vis-a-vis one another is a function
of their entitlements and their vulnerability. So in this sense,
Ricardo was right. Rent is everything. Economic gain arises
from a legal entitlement, whether it's a land
or anything else, to exclude somebody else
from an element of value. And a map of entitlements
at the micro level would be a map of
coercive powers and the distribution
of bargaining power, but also-- that makes
it sound like we're going to have a discussion. The distribution of
the coercive ability to force someone to forgo
gain that they might otherwise have hoped to enjoy. There are lots of
obvious examples-- intellectual property,
inheritance law, and so forth. And you bring up a number
of them, also, in your talk. On the macro side,
there'd be the process by which legal powers and
vulnerabilities bunch. And here, I think, you were
just getting to that at the end with your story about
the Harvard endowment. And how is it that, to those
who have more and more accounts, what is the process by
which the status of forces between groups, not
between individuals, is settled in society--
between creditors and debtors, local workers and
foreign investors, and so on? And how is it that
the outcomes of past struggles bear down
on current deals? So seeing it as a
past settlement that arose through a bargain
and a competition gives a different flavor to the
idea of the weight of history than imagining it simply as
an accumulation of money. And then there'd be
a dynamic element. Virtuous and
vicious cycles would get going as legal
arrangements made it easier or more difficult
for differences to compound. So if we went at inequality
with these legal ideas in mind, I think we might come up with
a wider range of responses than transnational
taxes or stronger federal regional
authority, and so forth. A long march through
the institutions could re-jiggle
things in ways that would strengthen the relative
coercive powers of people that we wanted to
favor and promote more virtuous cycles between
the haves and the have-nots, without a large
theory about how much inequality was good
or bad for capitalism or the development of
the society as a whole, simply as an effort
to strengthen the hands of those whose
coercive powers are now too few. And it's not that difficult
to figure out how, because people have
been struggling intensely over legal regimes
in these terms for a long time. You mention rent control as
a very important struggle over the value and use potential
of some forms of real estate. But you could also alter
contract and employer law to empower unions. You could change housing
and local government law to link housing for the rich to
public services for the poor. You could change the rules of
finance and consumer protection to shift power from
creditors to debtors and penalize exploitative
financialization, and so on. Indeed, you can shift the power
between identity groups-- men and women, blacks and
whites, old and young, future generations and current
generations-- in similar ways. So that's the legal background. There are lots of
ways to address the dynamics of inequality
beyond transfer payments from wealthier to poorer. It's possible somehow to
link leading and lagging sectors or regions,
either within a country or between countries, to
one another productively. So a few words about the
international dimensions of the story. The data that Professor
Piketty brings together is comparative
national data on inequality within
one country, which he's extended to quite
a number of countries and is now extending, as
we've heard, to even more. But these comparisons,
as he acknowledges, are extremely difficult. And it's hard to say what
this means about inequality at the global level. So does tax data, for example,
exaggerate the inequality between countries
where countries have really different
ways of understanding income reporting and
different cultural practices with regard to taxation? But whatever the story is
about national inequality, it seems to me global
inequality is harder to assess or understand
what we think about. So within a country,
the existence of the 1% rankles when other
people's incomes are stagnant at some point. But imagine the
following-- imagine it turned out that global
poverty and inequality could be reduced if we empowered
a super-rich class of financiers-- the
0.01 percenters-- and we allowed wages
to fall in the richest quarter of countries, through a
combination of financialization on the one hand and
factor price equalization for labor on the other hand. If we knew that that was true,
Professor Piketty's findings about in-country inequality
might look very different. You could still jiggle
things to improve equality, but financialization
might not require so much super-charging of the rich. But if you thought
that it did and that overall global inequality
might thereby be reduced, you might have a different
attitude towards it. Moreover, the
international situation is also a legal situation. The global, economic,
and political space is intensely legalized. And you can map legal
arrangements globally that enable the capture
of rent and contribute to center-periphery
dynamics, just as you can at the domestic level. So there's a global
rent story-- who may coerce a greater
share of the gains from, let's say, natural
gas exploitation-- Qatar or Chevron? The answer will lie in
legal arrangements-- sovereign powers,
control over technology, know-how, monopoly
power, the law regulating finance and corporate
law-- all those will affect who gets the gain
from the natural gas that's being pumped out in the Gulf. What powers permit upgrading
or force downgrading in a global value chain? The law governing the ability
to garner innovation rents, antitrust law, and so forth. And there's a global story about
center-periphery relations. What legal arrangements speed
the compounding of gains? The mobility of capital, the
fragmentation of jurisdictions, the fact that private
rights travel more easily than public powers--
all these things change the speed with which
some wealth aggregates and others do not. Just as the terms of
trade between Detroit and its suburbs--
that's where I'm from-- is a function of everything
from jurisdictional boundaries to rules about school finance,
so the transnational dualisms that we see between
regions and countries are a function of
international economic law and international private law. So it's a complicated story. And in short, geography
matters and geography is a legal construct-- who
can do what in relationship to whom with what force? So to sum up, I think
Professor Piketty has identified a tendency. And to explore how
the tendency arises, how it's sustained,
and might be changed, requires that we
somehow open up the hood and look inside
market capitalism to see how it's put together. And it turns out the glue
that distributes is law. Thank you. [APPLAUSE] SVEN BECKERT: Thank
you so much, David. STEPHEN MARGLIN: I'm,
like the other speakers here, honored to be
part of this program. This is a magnificent book. [LAUGHTER] [APPLAUSE] We all knew that
inequality was rising. What we lacked was any kind of
historical and international perspective to put this in. And his book has
done this in spades. It's really opened up a
whole new field of research. And the economics
profession should be in Professor Piketty's
debt for some time to come. This book is a classic. [LAUGHTER] It's right up there
with the other books that economists often talk
about but rarely have read. I could tell you a
story about that, too, but I'm only allowed 10 minutes. SVEN BECKERT: Yeah, five. STEPHEN MARGLIN: Five, he said. But he really meant 10. You know, there's been
inflation-- a lot of inflation. SVEN BECKERT: Right,
since yesterday. STEPHEN MARGLIN: This
fellow Jordan Ellenberg did scientific research on
Professor Piketty's book. And he discovered
that few people had got beyond page 26,
which made it the new record. The record up to
that time, he said, was held by Stephen Hawking
for a book most owned and least read. And now that record has
passed to Professor Piketty. [LAUGHTER] I have to say-- and I
hope you'll forgive me for this, too-- I and the
other speakers didn't know this is a 500-plus page book. We didn't know what part of
it Professor Piketty was going to emphasize, so
we had to prepare our remarks on the basis of
the book and not on the talk. I did not know that R greater
than G was a marketing ploy. I, like many others,
thought that that really was a theoretical
argument-- sorry, theoretical cum
empirical argument-- that structured the book. So I'm actually going
to spend a lot of time-- I can't spend a lot of time. I'm going to spend a
large fraction of time on that particular point. But I should say before
that that much of what's of value in this book
is quite independent of that inequality--
and a good thing, too, because I will suggest
that that inequality should not surprise anybody. It is not a contradiction
of capitalism. It's exactly what
you would expect. It's the norm. Moreover, it is not, in
itself, destabilizing. I'm writing it here
with a subscript, which you don't usually see-- the
subscript y to emphasize that this is about the
growth of income and output, not the growth of
a capital stock, though those two are,
obviously, related. Here are three brief
excerpts from the book about the importance
of this inequality. The first one, I think
really is very important, and I think it's
absolutely correct. If you think about it, it's not
a contradiction of capitalism. It's a contradiction of
capitalism with democracy. We had a chat at lunch about
how these two are related-- inconclusive as you might expect
such a chat conversation to be. But this really is, I believe,
a contradiction, but not a contradiction of capital, not
a contradiction of capitalism, not a contradiction of growth. The last statement is
just flat-out wrong-- just flat-out wrong. Piketty's laws are correct. He has three of them. We only will emphasize one,
but there are three laws. And they're absolutely
and invariably correct, because they are
laws of arithmetic. They're not laws of economics. They're not laws,
certainly, of capital. Here they are displayed. We don't have any time to
go through them in detail. But the notation--
I'm sorry, I realize that this is inside baseball,
because if you didn't get beyond page 26, then this is
not going to be crystal clear. But if you did get beyond page
26, it should be familiar. But I'm going to pick them up. So the first one of his laws
is that the capital share is equal to the rate
of return on capital times the capital output ratio. Well, that's true, because
they're both the same thing. So that's fine. The second law-- and
there's two versions of it-- one is in terms of the rate
of growth of the capital stock, which is why I made the
distinction in the first place. The other is in the rate
of growth of income. But they both--
whichever way you put it, they are both arithmetic laws. From those, you can deduce a
third law which is not exactly Piketty's law, but it gives
the condition under which-- how much time do I have? That's OK, we'll get there. It gives the condition
under which R will exceed the rate of growth of output. And that condition is
subject to a difference between the incremental
capital output ratio and the average
capital output ratio, a relationship between the
rate of saving in the economy and the capital share. So basically, as long as
the capital share exceeds the rate of savings, then
R will be greater than G. It's as simple as that. Normally, that's the
case under capitalism. It's not logically necessary,
but it is normally the case. Nor is it a reason
why the capital concentration must grow. Because Piketty's
argument is that, as in the 19th century,
the likely course-- the course for the last 30,
40 years and the likely course in the future-- is that the
share of profits, the share of capital, will grow. And it will grow as against
a constant rate of saving. And therefore, as
that ratio grows, as alpha becomes larger and
larger than the savings rate, R will grow relative
to G. As alpha grows, as the capital share grows,
inequality will grow, because capital income is more
concentrated than labor income. That's the story. I have to say that this is
not an empirical argument. It's a theoretical argument. And the theory, I have
to say, in this book, does not match the empirical
originality, perseverance, intelligence that
the book shows. The theory is, at
best, elementary. And it just doesn't
come to the level that the empirical
arguments come to. First question-- why
does beta rise over time? Why does the capital
output ratio-- I'm sorry, rise or fall over time? Well, this is what
Piketty and his colleagues said in a companion
paper to this volume. They say it's-- in
short, capital is back, capital output ratio is growing,
because low growth is back. Well, that's true as
an accounting identity. The two have to move together. We see that from the
fact that those equations are necessarily logically true. But it doesn't say anything
about what's causing what. It doesn't say anything
about what's causing what. Two more minutes. So here is the same
thing-- that if you look at the rate of growth
of the capital stock that, as I said, the
rate of return on capital will exceed the rate of growth,
provided the share of capital exceeds-- income exceeds
the savings rate. Here is a diagram that indicates
a relationship between rate of return on capital, rate of
growth of the capital stock, and a very simple assumption
about the economy-- that there are two
classes of people. There are rentiers, patrimonial
capital which is passed down from generation to generation. And then there's a middle class
of wage earners and savers. Leave the poor out of this. They don't save. They don't enter
into accumulation. And the solid line gives the
relationship between-- I'm almost done-- between the
growth of the capital stock and the rate of
return on capital. So yeah, in most of this,
you're in a region where R exceeds the rate of growth. And you're not
necessarily there. Here's a region where,
at low rates of return, the rate of growth will
exceed the rate of return. So it's not logically necessary. But the main point
is that each of these corresponds to a stable
division of capital. It does not necessarily
imply any kind of increasing concentration. So look at this
purple colored part. This is all a situation in which
Piketty's inequality holds. But wealth accumulated
in the past is not growing more rapidly
than output and wages. They're growing at
exactly the same rate. So there's no necessary
tendency for income inequality to worsen. Is this a theory? No, it's not a theory. It's an argument that
says that a theory is missing from Piketty's Capital
in the Twenty-First Century. Does that make the book
any less magnificent? No, not in the slightest. Because what Piketty
has done is give us the basis for thinking
about, theorizing about, how the situation
of the present is similar to the situation
in the past, how the situation of the present is
likely to evolve in the future. And for this, we're
all in your debt. SVEN BECKERT: Thank
you so much, Steve. [APPLAUSE] CHRISTINE DESAN: So I've
been asked-- can you hear me? I've been asked to stay
here to be quicker. And that's OK, because
I feel like a justice. It's the only time in my life
I'll ever feel like that, on the court's podium. Thomas Piketty has changed
the debate over inequality. His arguments are arresting. They transform
impressions into trends. And then they confront
us with the trends. His data is compelling. Even those who qualify
one aspect or another accept the larger
picture as persuasive. His work is transparent. He makes his data
and his arguments very clear and
available to all of us. And we are a large audience. There are overflow
rooms in this case. I could continue
with the praise, but I'm supposed to be quick. So I'm going to
get to one theme. And I have a few
questions wrapped into this discussion of one
of Professor Piketty's themes. So he concludes,
his last chapter concludes, this way--
if democracy is someday to regain control
of capitalism, it must start by recognizing
that the concrete institutions in which democracy and
capitalism are embodied need to be reinvented
again and again. So his focus is the concrete
institutions that embody democracy and capitalism. That's an invitation to the
many of us whose lives and work revolves around institutions. And that's political scientists. It's sociologists. It's historians. But it's also members
of the public. And it's also law
students and lawyers. I'm going to talk
very particularly to the latter-- law
students, legal historians, lawyers-- because our work
is in institutional design. Law puts political
determinations into effect by institutionalizing
them through legislation, through regulations, through
court decisions, through norms, through the creation
of categories. Law implements
political conclusions. It builds the
institutions we inhabit. So I want to be
concrete about that. I'll just give
two examples-- one very stark and one more sweeping
as an institutional matter. The stark one picks up very
much on what David Kennedy said. So Professor Piketty gives
us many aggregates-- capital stock, economic growth--
these things only have meaning because of
their legal components, components like
wages and assets. So David's beautiful
description of legal assets as depending on the settlement
of previous bargaining processes-- I was going
to come up with an-- I have an example of an asset. But in fact, Professor
Piketty's presentation made me cross that out. Slavery-- slaves are
the most obvious example of an asset the value of which,
insofar as people had a market value, it was because
slavery was legal. So an asset depends on
its legal definition. So that's the stark example. I want to move to the more
sweeping institutional example. And this is to show the impact
of legal design on capitalism, or to look at capitalism
as an institutional form. So I'm going to preface it
with a question to Professor Piketty. What do you mean by capitalism? Do the concrete
institutions that make up capitalism
hang together somehow? Can we understand
capitalism as something? Why does capitalism matter
if returns to capital are higher than economic
growth in earlier ages, as well as our own? I think there are
answers to this question. I think they matter. I think we need to have
a coherent definition of capitalism if we're
going to take it on, if we're going to rethink it. So here's an answer. I'm going to give a
very specific answer about legal architecture or
institutional architecture of capitalism. In 1700, capitalism
was redesigned. We get a whole series
of new institutions. We get new forms of
money and finance. They depend on each other. They re-engineer
wealth and production. They create a new
architecture for the market. And that architecture,
that infrastructure, is what we call capitalism. So I'm going to identify
just four elements to the new architecture. First, we get the
invention of circulating, credible public debt, which as
Professor Piketty points out is extremely important. Public bonds look
boring, but they are the first
financial instrument pitched to the general public. A public bond is
an instrument that asks people,
regular individuals, to lend to the public,
lend to the government, and it gives them a
reward for doing so. That's an innovation, one
that has legal import. So it changes the way people
think about material interest. It changes the way they
think about self-interest. It makes it acceptable,
even patriotic to follow one's self-interest. And governments soon
grant public creditors a right to repayment. This is the financial instrument
that Jane Austen's gentlemen are holding-- for good reason. This is in Professor
Piketty's lovely description. Second, we get the
innovation of modern cash. The innovation of
modern cash follows the innovation of public bonds. Public bonds furnish the
collateral, the security, against which national
banknotes are issued. So banknotes are issued against
public bonds by national banks, and they travel widely
against public bonds. Cash backed by public bonds
breaks England and later European societies out of
the monetary scarcities of the Middle Ages. And those scarcities
were scathing. Modern money-- modern
banknotes-- by contrast issues much more readily
than silver coin. It issues when national bank
investors take bonds and issue bank notes to the governments
that are borrowing from them. And here, just as in
the case of public debt, there's a conceptual
innovation-- a change. The new design puts a premium
on profit-oriented calculation. That calculation becomes
the pump for money creation legally-- legal change. Third, after public debt
and national bank cash come capital markets. So public debt and
national bank cash together create capital
markets and provide the money to fuel them. After all, public debt is a
legally transferable security. People get together. They start to exchange it. We know the coffee houses
in Exchange Alley in London where they start to do this. They represent a
critical mass of traders trading a stable security. And given that starting
point, private securities begin to get traded in the same
places after public securities. Increasingly, the money used
to invest in capital markets will be modern cash, modern bank
money-- the more copious cash of the modern world, not
the old, awkward commodity money of the Middle Ages. So notice the synergy between
public debt, public bonds, national bank notes, and capital
markets that we're building. Again, there's a
conceptual component. Capital markets
direct investment in ways that can be tracked. They transform speculation,
long despised, into something else-- or so thought
Justice Holmes. So here's Holmes. When he sees the
cumulative effect of speculation conducted on an
exchange, he calls it a market. So he says in a landmark
case about futures trading that futures trading
was not gambling, because speculation, as he
puts it, by competent men is the self-adjustment of
society to the probable. Its value is well known. The speculation
via Justice Holmes is ordained beneficial,
informative, revelatory in law,
which would otherwise terminate it as gambling. A last development--
after public debt, national bank money,
and capital markets-- all new, legally
engineered institutions, we get commercial banks-- a huge
expansion of commercial banks. They can lend in a unit. Everyone recognizes that's
national bank money. They can borrow from each other. They lend into the
capital markets, often holding public
bonds as security. They effectively
lend more than they hold because they can be
rescued by the national banks, now known as central banks, when
they fail-- which is regularly, given their highly
leveraged structure. So the asset bubbles
that Professor Piketty is talking about come from the
structure of commercial banks. As a result, because of the
expansion of commercial banks, the money supply expands
more than 65-fold in the 19th century. The industry of banking
gains the profits on money creation denominated
in the national currency, in those national bank notes. Taxpayers go into debt
to rescue and revive the system when it fails. The cost of rescuing
banks, according to Reinhart and Rogoff
almost doubles public debt on average in the three years
following a banking crisis. So here, too, is a conceptual
dimension-- a shift. Money appears to be
something privately created once it comes from
these commercial banks. And 97% of the money
supply in the modern world comes from commercial
banks, not the government. My point-- this architecture
is modern capitalism. These institutions--
public debt, modern cash, capital markets,
commercial banks, I could add money
markets if we had more time-- they produce the market. In this market, it is
possible to accumulate wealth to a prodigious extent. So the wealth that follows from
capital investment and that takes financial form-- this is
the modern structure of capital that Professor Piketty showed. From agricultural we
move to business capital to financial capital. This was his slide
4.6, I noticed. This is the new
composition of capital. These are the forms of
wealth that he flags for us. And that wealth is
wrapped up in legal forms. It's enabled. It is, basically, a
function of these forms. Ironically, many people
miss the public architecture of capitalism altogether. They see powerful markets. They see cash. They see capital. They see securities. They see banks. They fail to see that
these are institutions that we have built with
a public infrastructure, with public funds, and with law. So why does that
oversight matter-- that is, the failure to
see the architecture? If you overlook its
public engineering, then the architecture,
the engineering appears to be a
natural development, the market appears to be a
product of autonomous forces, and the wealth produced on that
market appears to be merited, or at least inevitable given
the power of those forces. That impression is reinforced
by the conceptual components, the conceptual
momentum emphasized by the new institutions. So acts in one's
own self-interest, profit-driven
calculation, the tendency to see decentralized
market decisions as the revelation
of probability as opposed to speculation--
these dynamics gain stature as if they were more
basic to human activity than public coordination
and community. By contrast, we can make
visible the institutional, the legal components of the
architecture we've created. We can revise it. We can find new ways
to structure capital. We could impose a
more progressive tax. I totally agree with
Professor Piketty. There are many other
revisions we can make. That's a third-- a
last question to him. I think he agrees, because
focusing on a wealth tax alone leaves the rest of the
architecture uncontested when it's possible that
that architecture-- it seems to me that
architecture-- is at the center of the problem. So to return to Professor
Piketty's injunction to us, if democracy is
someday to regain control of capitalism, it must
start by recognizing that the concrete institutions
in which democracy and capitalism are
embodied need to be reinvented again and again. I couldn't agree more. [APPLAUSE] SVEN BECKERT: Thank
you so much, Christine. We now have-- we will be able
to go a little bit over time. So we can probably go
until 10 past 4:00. And I hope you're going
to be able to stay here. And we want to do
so to also give you a chance to participate
in this discussion. So I ask Professor Piketty
not to respond right away to these comments,
but I want you to have an opportunity to ask
questions or make comments. And there are two microphones
at the center of the room. So if you want to ask
something, please go there. And keep your
question very short. And whatever you say, it
should have a question mark at the end, OK? And we have already two
big topics on the table, which we probably
cannot resolve here. The one is the theory,
and the other one is the legal political
construction of markets. AUDIENCE: Hello, my
name is Sabata Lapontes. I'm a college
student from Brazil. It's a great honor to be here. And my question
is, when you talk about a country like Brazil,
who is in the middle income trap, which means that we
do have very low wages, but we also don't
have high technology. You still would prescribe
the recommendations you have in the book? Thank you. AUDIENCE: Hello,
my name is Patrick. Thank you so much for being
here, Professor Piketty. So I'm going to ask a more
unconventional question. If you could have dinner
with anyone in history, who would it be? SVEN BECKERT: One more. AUDIENCE: My name's
Julian Duran. I'm a first-year
student at the college. And my question is,
a lot of your critics say that your proposed
capital tax would end up taxing innovation, which
would, of course, harm economic growth. So I'm just wondering
how you would respond to criticisms such as those. SVEN BECKERT: OK, so why don't
we take these questions now, and then we'll move on. So please wait for a moment. Thomas. THOMAS PIKETTY: Oh, OK. Well, let me say a few
words, also, to David and Steve and Christine. Thanks a lot for your comments,
which make me think a lot. One or two quick
remarks-- I really liked, David, what you
said about geography as a legal construct and
the international dimension of this discussion
about the legal system. This made me see--
I wrote recently a paper that's not
included in my book about trying to
measure inequality at the level of the
Middle East as a whole-- so forgetting about the
national boundaries, and taking together this
250, 300 million inhabitants from Egypt to Iran. And so if you do that, basically
what-- you find something which is very of use, but
which is important, which is that you have a level
of inequality of incomes that is much higher than any
other region in the world, and in particular, much
higher than in Latin America or that
country like Brazil, which are usually viewed as
the most unequal countries. But given the
international inequality between-- at some point in
my book, I mention Egypt. The total education budget
for all schools in Egypt, which is a country with
almost 100 million people, is 100 times less
than all resources going to countries
with no population a few hundred kilometers
away in the Gulf. So the level of international
inequality that you have here is such that if you put all
these countries together, even though within
country inequality is not necessarily very high, the
total inequality is much higher. So I think playing around
with these boundaries and trying to look at
inequality beyond the existing boundaries-- which, of
course, are legal constructs. So in the case of the
Middle East, some of them are being redrawn right now. So these are legal
constructs, and these are changing legal constructs. And also, some of them
have been constructed by the West, of course, and
have been supported by the West. I was very influenced
as a student by two major political events. One was the fall of the
Berlin Wall, of course. I was 18 in 1989. But the other one in 1990,
1991, was the first Gulf War where, in effect,
we were protecting a given set of frontiers. And these are legal constructs. And this goes together with
the level of inequality that is clearly part of the
story of what's going on. So probably in the book, I
take too much the nation state as given, and I don't go enough
beyond the existing boundaries to study inequality. But this is something
that should be done more. Let me say a few words to
Steve about the marketing trick and R bigger than G. So
what I mean by marketing trick is that there is a lot
more-- many other mechanisms, institutions, policies
that play a big role in the book independently
of R bigger than G. Now, let me also mention
that in itself, you can have R bigger
than G in a world with perfect equality--
no inequality at all. All what this means is
if the growth rate is 1% and the rate of return
on average is 5%, all this means is that
you could be in a society with perfectly equal
property of capital. And all this implies is that
the owner of-- each family needs to reinvest 20%
of its capital income and can consume
the other 80% so as to ensure that its wealth
rises at the same speed as the size of the economy. So you could have a
perfect egalitarian model-- a representative
agent model, as economists say--
where R is bigger than G. You have perfect equality, and
everything is perfectly fine. So in a way, yes, this
is a normal situation, because if R was
smaller than G, then it means that you would
need to reinvest even more than the return
to your capital in order to ensure
that your capital grows as fast as the size
of the economy, which would be really stupid. What's the point
of being an owner if you need to reinvest
more than the return to your ownership? So this is really
the very least you can ask from capital
ownership, which is that R is bigger than G.
Otherwise, what's the point? So in itself, R bigger
than G is not-- there's no problem with it. It could come with a
perfectly egalitarian society. [INAUDIBLE] Now, the problem is that in
practice, there are many forces that make wealth unequal. You have many shocks
in the life of families and in the process of wealth
accumulation and wealth transmission. So different families have
different numbers of children. They die at different ages. Some make very good investments. Some go bankrupt. Some have very high wages. Some have low wages. The point is that for
a given variance of all these other shocks, a
bigger gap between R and G will tend to amplify
this variance, and will tend to get
the economy to converge to a level of wealth
concentrations that will be a steeply rising
function of of R bigger than G. So this is the basic theoretical
model that I have in mind. This is exposed in the technical
appendix to Chapter 10. That's available online. You can go look. That's exposed in the
Science paper as well. This is a well-known
theoretical model, but here I try to
take it seriously, which is that a small
difference in R bigger than G can indeed magnify other shocks. But you need other shocks. If you don't have all these
other shocks to rate of return, to labor income, to
demographics-- in itself, R bigger than G does
not produce inequality. But if you have all
these other shocks, then it will tend to
magnify inequality. And I think that's part
of the explanation for why wealth concentration is
so high in pretty much every society up until World
War I, is because of that. In particular, why is
wealth concentrated almost as much or ever
more in France in 1914 than in France in 1789? Which the elite at
the time in France did not want to believe this. They thought, we have modern
property, modern growth, equality and property regimes. We are not in the
Ancien Regime anymore, so we should have equality. Well, except that in fact,
the concentration of wealth was just as large as a
century and a half before. And I think part of it is
because the gap between R and G did not decline because
of modern capitalism and because of the
Industrial Revolution. Which brings me to the
very important question raised by Christine-- what's
my definition of capitalism? Well, I like your definition. It's a set of institutions you
describe as very important. Probably Sven would add
that the development of new appropriation of
land in the colonies, in the New World,
the invention-- or at least the
development-- of slavery at a scale that was unknown
before played a big role. So I think all these
different institutions and legal institution
and coercive powers-- to take the terms of David--
are critical to the development of capitalism. But one of the messages of
my book is that in the end, modern capitalist institution
and modern Industrial Revolution did not affect
this basic inequality between the rate of return and
the growth rate as much as one might have expected
in the long run. So of course, the
growth rate increased from 0% in preindustrial
society to 1% or 2% in the long run in modern
industrial societies. But the rate of
return also increased. And so the gap between the
two did not change that much. Of course, it depends
on legal regimes. The legal rules can
affect this gap a lot. So this is not-- I don't
take it as an act of God. It is a rule of law,
and this can be changed by different legal regimes. But by and large,
this big gap was there before industrial capitalism,
and it will probably be there after industrial capitalism. So you have metamorphoses
of property structure, but this structural
relation is still there. Let me move to the questions
that were raised after that. Brazil is-- do you
have the same policy recommendations for Brazil
than for the US or France? I think no. Each country has its own set
of institutions and policy to develop. Each country has its own
particular intimate history of inequality. So Brazil, of
course, is a country with a lot of inequality,
which a lot of it comes from its
particular history. This was the last country
where slavery was abolished. There was one-third
of the population that was slave in 1880 years
as compared to 10% in the US. So slavery took a dimension. So there are historical
routes to inequality that are different in
different countries. Now, still some of the
solution that I mention in the book I think can be of
interest even if each country has to find its own way. In terms of
progressive taxation, Brazil is a country where you
have very large indirect tax, consumption tax. So you pay your electricity
bill, you pay a 30% tax. But then the inheritance tax
right now in Brazil is 3%. So if you inherit millions, tens
of millions, you pay 3% tax. And I think probably you
could reduce the first one and increase the second one. So there are issues
about taxation in order to finance
better public services and public education in Brazil,
where I think there are things to learn from other countries. But that doesn't mean that
there's a one-size-fits-all policy. I will skip the
dinner questions, because it's-- I don't quite
know what to answer to this. Jesus Christ would have been-- [LAUGHTER] Anyway, so the last
questions-- I'm sorry that I didn't keep track. Yes, progressive
taxation and innovation. The historical evidence
is that it really depends how you structure
your level of progressivity. If you had very high
tax rate on everybody, including people who
are just starting new accumulation of wealth,
then that's probably not good for innovation. But if you have very
high progressivity only at the very top end,
the evidence-- in particular from this country,
in the US-- the US is a country where between
1930 and 1980, on average the top income tax rate
was 82%, which is really as high as it can possibly be. Well, there was state income
tax in addition to that. But this applied to
very high income levels, typically above $1
million in annual incomes. And if anything, the
productivity growth of the US economy-- well,
apparently this didn't kill American
capitalism, otherwise we would have noticed it
in a 50-year period. And if anything,
productivity growth was higher in the '50s,
'60s, '70s than what it has been since the Reagan years. Probably because
paying top managers, as I say during my
talk, $10 million per year rather than $1
million is not so useful. And so I think the
evidence is that, of course, if you have 80%
tax rate on anybody who's making $100,000 or
$200,000, probably you will have a different effect. So it really depends how you
structure your progressive tax system. SVEN BECKERT: OK, let's take
two more questions, very short, and then
we'll unfortunately, have to come to an end. AUDIENCE: Hello,
Professor Piketty. My question is also
pretty connected to that case of
endogenous growth that was the previous
question about. Have you tried to
estimate in some way what part of the change in the
net worth of the richest individuals came either from
buying new assets, change of prices of assets
they already have, or from creating entirely
new kinds of assets? Like, for example, building a
cell phone network in Mexico. SVEN BECKERT: Thank you. AUDIENCE: If capital
tax were to be imposed, if somebody owns assets which
do not produce cash flow, does that mean that that person
would have to sell assets in order to pay their taxes? And would this lead to a
market crash in that case? Thank you. THOMAS PIKETTY: Hm. Well, just to start
with the last question. The property tax-- there is
already a wealth tax in the US and in most countries. This is called the property tax. It's just that it's based on
your real estate property. But this is already half
of household wealth, so this is half of a
wealth tax, if you will. And I think the main reason
why it's half of a wealth tax is because this was created
a long time ago-- 200 years ago in the US, or actually
in Britain or in France, [? taxe financiere ?], which is
the equivalent of the property tax, that was created by
the Revolution-- at a time where wealth was mostly
either land or real estate. And there was limited financial
wealth and financial liability. So that's why this
tax was created, as a tax of real property. But the way it works
is that indeed, if you have a lot of
property but you don't get any income out of it-- so if
you have a secondary residence everywhere in the country,
but you don't rent them, you don't do anything
with them, and you just spend one night per month
in each of them-- then your property tax will
be more than your income, in the extreme case where
you have zero income and you have property there. And so yes, you will have to
sell some of your property to pay your property tax. But I don't think
anybody's asking that such people should be
exempt from property tax. I've never heard
anybody asking for this. So I think the whole point of
a property tax or wealth tax is that, indeed, if you have a
lot of wealth but very little income, and you're just sitting
on your properties, then, well, you will have to
sell some of it so that other people who know
what to do with the wealth will do something with it. And that's the whole logic
of property taxation. It's always been like this. So that's why this issue
of how much you should tax the stock of property
versus the flow of new income is complicated. In France, a big proponent
of wealth taxation was Maurice Allais,
who was a Nobel Prize winner in economics. And I can tell you, he
was not left wing at all. He was a very right-wing person. But he thought that we should
tax the stock of property and not at all the
income flow, so as to put incentives on
people to get a high return on their property. Now, it's too extreme,
because sometimes the rate of return you get is just
partly due to bad luck. So if you are a company,
you're making losses-- maybe if you keep paying a
tax on the stock of wealth, you will pay as much
tax as a company making huge profits which maybe
will put you in bankruptcy, so that's probably
not a good idea. So you want to find a
balance between how much you tax the stock and how
much you tax the flow. And each tax system has
components of the two. The problem is that
sometimes these tax systems were set up 200
years ago and did not adapt to the structure
of wealth today. But I think we-- both kinds
of taxation are useful. We have to find
the right balance. SVEN BECKERT: OK,
and on this note, unfortunately, we have to
come to an end, not least because Professor
Piketty is going to have to give another talk in
45 minutes elsewhere in Boston. But we could go on,
obviously, for much longer. And in some ways, we should
go on for much longer. This should be an
invitation to continue to this debate on these issues. And we should thank
Professor Piketty, not just for being here--
which, of course, we thank you for
very much-- but also for instigating this
really important debate. And thank you for joining us. [APPLAUSE]
Great lecture, really interesting.