“Capital in the Twenty-First Century” by the French economist Thomas Piketty, is now coming to wider public attention following its publication last year. According to Wikipedia, “The central thesis of the book is that inequality is not an accident, but rather a feature of capitalism and that these excesses of capitalism can only be reversed through state intervention.
The book thus warns that unless capitalism is reformed, the very democratic order will be threatened. The trend towards higher inequality was reversed between 1930 and 1975 due to the two world wars, the Great Depression and a debt-fueled recession, which destroyed much wealth, particularly that owned by the elite. These events prompted the governments to undertake steps towards redistributing income and the fast economic growth meant that inherited wealth had its importance reduced.
Picketty suggests that the world is returning towards ‘patrimonial capitalism’, in which much of the economy is dominated by inherited wealth and that their power is increasing, creating an oligarchy.” To reverse the trend, Piketty proposes a global wealth tax and a top rate of income tax of 80%. From our own perspective, rooted in the ideas of Henry George, we recognise the trend but do not accept either the analysis nor the proposed remedy.
The deficiencies with Piketty’s analysis begin with definitions. What exactly are Capital and Capitalism? Which features of Capitalism are causing the problems that he is concerned about? And if wealth is to be the subject of a tax, how is it even to be defined?