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2016-17 Events Preview & Annual Theme: The Dynamics of Difference

With the start of the fall semester coming up in just a few weeks, we’re excited to announce our annual theme for the 2016-17 academic year: The Dynamics of Difference. Here’s Program Director Andrew Hansen, explaining the rationale and scope of this year’s theme:

American society is deeply divided. We’re more politically divided than in any time in our recent past, and the current election cycle is exposing how divided we are even within our current political parties. On a daily basis, we’re confronted with reports of violence and counter-violence, in places like Orlando, Dallas, Baton Rouge, and right here in the Twin Cities, that expose the deep racial, political, and cultural differences within our society.

And as the recent events in France, Syria, Iraq, and Germany make clear, violence arising from difference isn’t unique to the American situation. For better and worse, globalization puts me side-by-side (or, more often, tweet-by-tweet) with people from around the world who often have very different beliefs and cultures than my own. The possibilities for misunderstanding and conflict arising from difference seem more pronounced today in our pluralized world than ever before.

Must differences lead to conflicts resolved only through violence? Are there ways of understanding difference and reconciling conflicts that can help us chart a better path in a globalized world? How do the Christian faith and the “ministry of reconciliation” that the Apostle Paul says is given to Christians address these deep fractures that exist in our world?

These are the sorts of questions we’ll ask this coming academic year as we pursue an annual theme on “The Dynamics of Difference.” We’ll examine differences of many kinds: economic, historical, racial, cultural, religious, social, intellectual, to name just a few.

We’ll be hosting many different conversations related to this theme. The specific topics and forms of these conversations will vary, but here’s a preview of what’s coming up this academic year:

Fall Events

In September we’ll host a conversation with Dr. Chris Armstrong of Wheaton, author of Medieval Wisdom for Modern Christians. We’ll consider how recovering a very different kind of Christianity—from the Middle Ages—can help us identify our own cultural blindspots.

Also in September, we’ll be hosting Dr. John Inazu, author of the excellent recent book Confident Pluralism: Surviving and Thriving Through Deep Difference, which our director Bryan Bademan will be reviewing on our blog soon.

At the end of September, we’re throwing a party! Join us on September 30 for All Things, a fall benefit event at which we’ll be unveiling a new vision for the future of our organization—one based around our belief that in Christ, all things hold together. We’ll have delicious hors d’oeuvres, live music from Sara Groves, and compelling speakers like Leith Anderson, president of the National Association of Evangelicals.

In October and November, we’ll host a lecture on biblical foundations for conflict resolution and reconciliation, a talk by Jeff Van Duzer on why business matters to God, and a couple Luther-related events, commemorating the 500th anniversary of the start of the Reformation. And that’s just our fall semester! Check our fall events page for the latest announcements about our upcoming events.

Fall Reading Groups

Registration for our fall reading groups is now open! Here are a few of the books we’re planning to host reading groups on this fall:

This Year’s Holmer and Anderson Lectures

This year, our Holmer and Anderson Lectures will both take place in the spring. We’re excited to announce that this year’s Holmer Lecture—our 21st annual—will be given by Yale theologian Miroslav Volf. That lecture will discuss themes from his 2015 book Flourishing: Why We Need Religion in a Globalized World. Volf will seek a way forward in a religiously divided world—a way that makes room for vibrant, convicted religious belief while rejecting violence as a means to resolve those differences.

This year’s V. Elving Anderson Lecture in Science & Religion—the fourth annual Anderson Lecture—will be given by Dr. Charmaine Royal, Associate Professor of African & African American Studies and Genome Sciences & Policy at Duke University. Dr. Royal’s work is wide-ranging and fascinating—truly interdisciplinary—exploring, according to her faculty page, the intersections of “ethical, psychosocial, and societal issues in genetics and genomics, primarily issues at the intersection of genetics/genomics and concepts of ‘race,’ ancestry, and ethnicity.”

Join Us!

For the latest information about our events, read this blog (you can subscribe with RSS), sign up for our email list, or follow us on Facebook and Twitter.

If you’re interested in a reading group, check our reading group page, where we’ll soon be posting registration information.

We hope you can join us for what’s going to be an excellent year!

New Fall Reading Group on Faith, Culture, and Technology

We’re excited to announce a new fall reading group that is getting started next week. Led by computer science PhD student Michael Tetzlaff, the group will be reading and discussing Shaping a Digital World by Derek Schuurman.

The study group will meet in Keller Hall and is cosponsored by MacLaurinCSF and Graduate Christian Fellowship. Their first meeting will be next Tuesday, October 6 at 1:30pm in Keller 4-131. Feel free to bring your lunch.

Here’s the description of the book from

Digital technology has become a ubiquitous feature of modern life. Our increasingly fast-paced world seems more and more remote from the world narrated in Scripture. But despite its pervasiveness, there remains a dearth of theological reflection about computer technology and what it means to live as a faithful Christian in a digitally-saturated society. In this thoughtful and timely book, Derek Schuurman provides a brief theology of technology, rooted in the Reformed tradition and oriented around the grand themes of creation, fall, redemption and new creation. He combines a concise, accessible style with penetrating cultural and theological analysis. Building on the work of Jacques Ellul, Marshall McLuhan and Neil Postman, and drawing from a wide range of Reformed thinkers, Schuurman situates computer technology within the big picture of the biblical story. Technology is not neutral, but neither is there an exclusively “Christian” form of technological production and use. Instead, Schuurman guides us to see the digital world as part of God’s good creation, fallen yet redeemable according to the law of God. Responsibly used, technology can become an integral part of God’s shalom for the earth.

The Moral Dimensions of Capital: Daryl Koehn on Broadening Piketty’s Conception of Social Goods


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by Daryl Koehn, a professor of ethics and business law at the University of St. Thomas, where her research focuses on the nature of good and evil in the business and professional arenas. This is the seventh post in our forum, which kicked off with an introductory post, where you’ll find an index of all the posts in the forum.

Piketty’s Capital in the Twenty-First Century sets up five key questions:

  1. Is wealth inequality increasing within the US and elsewhere?
  2. If so, what are the causes of the growing inequality?
  3. If inequality is increasing, is that an economically good thing?
  4. If inequality is increasing, is that a morally good thing?
  5. What, if anything, should be done about rising inequality?

1. Is wealth inequality increasing within the US and elsewhere?

In Capital, Piketty presents historical data, arguing that from World War I through the Great Depression and World War II, the wealth-to-income ratio fell rapidly. Income inequality shrank as well, especially during World War II. Piketty explains the data with a model, projects the model into the future, and proposes high taxes to correct for growing inequality. Piketty is primarily focused on wealth inequality, which he defines as concentrated wealth in the hands of a few families, not on income inequality.

I am not an economist and so am not sufficiently versed in statistics and econometrics to assess Piketty’s argument that wealth inequality is indeed increasing (and doing so at an accelerating rate). I would note that a number of other prominent economists and think tanks have recently published studies concurring with Piketty’s basic thesis. So for purposes of my contribution to today’s discussion, I will accept that wealth inequality is, in fact, increasing.

2. So assuming that there is growing inequality, what are its causes?

One cause of inequality or the lack thereof is war and the government’s response to war. The low inequality around WW1 and WW2 was due to the low savings rate during this period (Piketty 7) and European government’s devaluation of rich families’ assets (8).

Now, however, wealth inequality is once again increasing. Why? Piketty’s key argument, as I understand it, is that when r, the rate of return on capital, is greater than an economy’s growth rate—g—then high levels of wealth engender still higher levels of wealth because the investments of the rich are far more lucrative than any wage increases labor is getting via economic growth. Insofar as this wealth gets inherited, countries veer toward plutocracies or what Piketty calls “patrimonial capitalism” (154; passim).

There are, however, a number of points to make about this assertion. First, Piketty does not establish that r will necessarily remain greater than g. r might fall faster than g at some point. Second, this claim does not state the cause of growing inequality. It shows at best why those who start off with a stash of capital may be able to increase their wealth far faster than those who depend upon salaried labor. The claim that r has been greater than g by itself does not explain how certain parties obtained their initial stash of capital: “Piketty isn’t saying that r > g is why inequality has increased so far. It’s why he thinks inequality will keep increasing along hereditary lines in the future. Nor does the r greater than g equation tell us anything about how and why those who are becoming wealthy have been able to preserve ownership in their capital (e.g,, that they live in country that respects property rights).

So why, according to Piketty, is wealth inequality increasing? Piketty offers several theories. One answer is that governments’ taxation rates are not as confiscatory as they were during earlier eras. Second, rubber-stamping boards (staffed with interlocking CEOs) are paying executives astronomical salaries. This claim is crucial for Piketty’s argument because wealth cannot breed wealth unless and until individuals have money to invest in the first place. The claim then is that it has become easier during the prior decades for business executives to amass fortunes. And that fact fuels wealth inequality, which supposedly gets ever greater and becomes inheritable because of the r greater than g dynamic.

But it seems to me that other factors affecting individuals’ wealth level have been at work as well. On the one hand, many middle class Americans have started to save an ever-greater portion of their income because they fear that social security will not be around when they retire. Money that once was spent is now saved; such savings count as accumulated wealth. So fear-based savings presumably is creating some wealth. On the other hand, generous defined benefit pensions have traditionally supported the middle class, enabling them both to spend and save at reasonably high levels even after retirement. The poor do not work jobs that have defined benefit plans. So defined benefit pensions have historically been available only to certain groups of people and thus likely contributed to wealth inequality. These defined benefit plans have gone away as firms have replaced defined benefit plans with defined contribution plans. The latter are far less generous in their payouts so the rise of these plans is likely also leading to income and wealth disparity during recent years.

Labor unions have been weakened in part because workers saw during the 1980s that the union leaders took care of themselves and long-time employees while doing little for less tenured rank and file members. In other cases, firms (e.g., Walmart and Starbucks, and many universities) have fought tooth and nail to prevent unions from getting a toehold in their operations. The eviscerating of unions means that labor has lost bargaining power and, as a result, has not been as well positioned to demand the salary increases and benefits they had been able to secure in the past. That factor has tended to suppress wages and probably savings as well.

The lessening of taxes on dividends and on estates has allowed wealth that does exist to maintain itself. However, given that most fortunes are spent within three generations, we need to identify other factors that are at work in contributing to income inequality. Part of the answer surely is the shift from public sector to private sector jobs in the financial industry—a point I will return to shortly.

I suspect that another reason for the increase in wealth disparity is the increasing number of very successful, innovative entrepreneurs. Many of the wealthiest people in America made their wealth by inventing something new and very disruptive—think of the products offered by Apple, Google, Facebook, Uber, and eBay. This list of lucrative inventions goes on and on. These disrupters would have pursued these inventions regardless of the tax rate; America has a long history of nurturing innovation. The growing ability of innovators to gain easy access to capital (think of Kickstarter and the other crowd-sourcing funding mechanisms) and to draw upon the wisdom of crowds to perfect designs and to do marketing has made it possible for ever larger numbers of individuals to become entrepreneurs. Customers flock to these inventions and that dynamic has made those individuals hugely wealthy.

I doubt then whether astronomical CEO salaries has been the main driver of inequality.

3. Is Growing Inequality Necessarily Bad for Business?

Nobel prize winner Paul Krugman has made the point that New York City has done pretty well for years because very wealthy traders and bankers have spent heavily on fine dining, cars, services, etc. So it would seem that pockets of intense economic activity can occur even with extreme wealth and income inequality. We are not justified then in claiming that growing wealth inequality is always or necessarily bad for business. Piketty himself notes, “The history of income and wealth is always deeply political, chaotic, and unpredictable” (35).

Moreover, the prospect of being able to become very wealthy may motivate entrepreneurs. In some respects, we clearly are moving within the US toward an entrepreneurial economy. Of course, the prospect of others succeeding can fuel envy; but it may also inspire others to try their hand at offering new products and services. Crowd-sourced funding and inventions have exploded; small businesses are the primary engine for job growth so becoming a successful entrepreneur is not as impossible as it might have seemed even ten years ago. If we see more entrepreneurs who succeed in offering new services and products, then wealth inequality might be the result of business being very good.

Conversely, growing wealth and income inequality may be bad for business if we have a consumption economy rather than a production economy. When folks don’t have money to spend, consumption flattens or declines.

4. Is Increasing Wealth Inequality a Morally Bad Thing?

Whether growing wealth inequality is immoral depends, in part, upon its causes and effects. As Aristotle argued long ago, inequality per se is not unjust. Milo the wrestler may need to consume four times the amount of food you or I do because he needs more calories to sustain his level of activity. In times of great scarcity, Milo might not merit this larger share of calories. But if and when a society has the resources to distribute to according to his or her due, then perhaps inequalities should not merely be tolerated but even encouraged. It is right that Milo get the food that he needs.

Injustice arises when people do not receive returns commensurate with their contributions. To quote Plato, there must be justice even among thieves. For his part,

Piketty not only concedes, but documents himself, most . . . inequality arises from labor income, not capital income—from compensation earned by executives at big firms, entrepreneurs, and financial wizards. Almost none of these ultra-high income earners are the teachers, engineers, and academics that, according to data collected by Harvard economists, used to be the core of a modest-income social elite in the 1960s and 1970s . . . Economic research shows that the medical advances sparked by the research done by medical academics added $3.2 trillion to the value in the economy, in terms of improved health, each year, since 1970. Yet all academics in the United States—including all the researchers in other fields—were paid less than $100 billion. Financial workers earned five times that amount. A system that delivers rewards in such poor proportion to the benefits society derives will stifle economic growth as well as sharpen inequality. Thus, the fundamental problem facing American capitalism is not the high rate of return on capital relative to economic growth that Piketty highlights, but the radical deviation from the just rewards of the marketplace that have crept into our society and increasingly drives talented students out of innovation and into finance. (Eric A. Posner and Glen Weyl, “Thomas Piketty Is Wrong: America Will Never Look Like a Jane Austen Novel”)

This excessive financialization of the US economy and the accompanying loss of manufacturing jobs somehow needs to be addressed if justice is to be seen to be done. It is hard to see how that will occur, given that the wealthy are able to use their vast resources to lobby politicians to create and skew rules that favor their activities, many of which are rooted in the financial sector.

In the meantime, we seem to be witnessing some hollowing out of the middle class. To the extent that is so, we ought to be, if not alarmed, at least on guard. Some evidence suggests that we have evolved from being an industrial economy into a consumption economy. The middle class drives much of this consumption. In addition, the middle class has traditionally done a fine job of educating its children. These children become the innovators and educators needed to keep America strong. Seventy percent of America’s entrepreneurs have come from the middle class. So the loss of the middle class would be serious indeed. It would threaten the very ability of the economy to meet citizens’ needs. We collectively would not be able to render to each party his or her due. Other virtues cultivated by the middle class—thrift, charity—might disappear as well.

When we shift our attention from the middle class to the lower class, a related concern emerges. Inequality becomes unjust when all members of the body politic do not obtain what they need in order to survive because some citizens are taking too much for themselves. Piketty contends that we are returning to a kind of “patrimonial capitalism.” In such a system, class and especially inherited wealth matter far more than individual effort and talent. America has historically been relatively stable because individuals believed that they could—through hard work—share in the good life and give their children the skills needed for the children to be similarly successful. When a society ceases to be able to persuade its lower class citizens to believe in this kind of future, inequality can become very worrisome. The Arab Spring occurred in part because so many educated young people throughout the Middle East have few job prospects. The rise of European neo-Nazis who encourage citizens to attack others who supposedly leach off the body politic should give us pause; these extreme parties have realized gains primarily in those states with economies that have imploded since 2007, devastating the lower and middle classes.

Part of the reason for the increasing dominance of inherited wealth has been the changes in the tax law mentioned above. George W. Bush cut taxes not primarily on high salaries but upon interest, dividends, capital gains and estates. We are moving toward a state in which some people in theory will never have to pay federal income taxes because all of their money comes not from salaries but in the form of a non-taxed return on assets that are passed from generation to generation. The tax burden on the middle class, however, has steadily increased. Progressive taxation is arguably the most just system, but in the US we have moved away from such a system.

But taxation policy, as I noted above, does not tell the whole story. The hollowing out of the middle class is due (I suspect) in part to the loss of significant pensions, especially pensions in the public sector. Insofar as these pensions were not sustainable; and insofar as the current generation was paying itself generous retirement benefits that would have to be funded by future generations who are smaller than the baby boom generation, the loss of these pensions is perhaps not unjust. No one has a moral right to benefits that come at the expense of young people’s ability to make a life for themselves. In that sense, Piketty’s book can be read as providing a salutary warning to the American populace as a whole to think twice about pension promises that cannot and should not be kept. Some of the touted prosperity and strength of the middle class in America and in Europe may have been a mirage.

5. What, If Anything, Should Be Done about Rising Inequality?

Let us assume that rising wealth inequality is both bad for the economy and morally reprehensible. One response is to keep on doing what we already are doing—namely, reducing consumption inequality by redistributing monies through the various welfare state programs. In the 18th and 19th century, wealth inequality translated into huge consumption disparities. Such disparities are less apparent in the 21st century largely because of various state subsidies and programs (e.g., nationalized health in the UK; social security in the US). As Tim Worstall has noted, “Wealth inequality in Sweden is higher than it is in either the US or the UK. [But] [i]ncome inequality, after taxes and after benefits, is significantly lower in Sweden and consumption inequality even more so” (“Yet Another Reason Why Thomas Piketty Is Wrong”). The problem with this response is that welfare states all over Europe are in danger of collapsing, in part because the tax base of middle class people is shrinking and in part because the burden has proven to be too onerous.

Another argument in favor of the status quo is that, yes, we have a growing number of ultra-rich individuals but these folks are part of the solution, not the problem. In his review of Piketty’s book, Bill Gates has conceded that “capitalism does not self-correct toward greater equality”; like Piketty, Gates thinks government needs to “play a constructive role” in ameliorating the effects of wealth inequality. However, Gates goes on to make a case for the ability of philanthropy to help with social ills. Rich philanthropists, in Gates’s view, contribute to the social good in ways that, say, rich spendthrifts do not. Of course, that response by itself does not justify paying CEOs hundreds of times what the average worker in their firms make. Nor does it consider to whom the rich tend to make their donations—art museums, etc. It is the middle class and poor who give a far greater percentage of their income to the poor and favor donations to the social service agencies that are trying to deal directly with the debilitating consequences of poverty. This difference persisted during the Great Recession: “A 2012 study by the Chronicle showed that while middle income citizens gave 7.6 percent of their incomes to charity on average, the figure was just 2.8 percent for those earning more than $200,000 per year” (“Study: Rich give less to charity as low and middle income people give more”).

Piketty himself and many liberals reject the status quo, favoring a global wealth tax. The tax in theory would prevent or at least slow the accumulation of inheritable capital. However, much would depend on how easily the wealthy could evade such a tax. Moreover, I suspect that the real problem does not lie with wealth inequality per se but with a fundamental shift in how Americans and Europeans think about their working lives. Well-educated, ambitious and talented individuals now prefer to go into business and finance rather than to spend their lives working at less remunerative jobs in education, the public sector, etc. If so, then “the right solution . . . is not to shackle capitalism with a blunt wealth tax but to channel its energies into more productive, diverse activities. . . . But broad taxes, while useful absent better policy in other areas, are poorly targeted, because they do not distinguish clearly between people who are under-compensated for their social contributions (researchers, teachers, engineers) and those who receive excessive pay (financiers, lawyers)” (Posner and Weyl).

In the language of Michael Naughton and Ken Goodpaster, the real issue is that we as a society are failing collectively to focus on genuinely “good goods and useful services” (“Where Philosophy, Theology, and Ethical Leadership Intersect: Is Stakeholder Thinking Enough?” Unpublished). For example, high frequency trading churns the market, and there is nothing that traders like more (apart from astronomically large bonuses!) than market volatility, which creates the opportunity for great scores. However, such volatility is far less desirable in the eyes of consumers and businesses. These groups may suffer from wild swings in interest rates, commodity prices, etc. In this case, the real problem is not that HFT traders are getting rich but that the activity itself is suspect.

Distinguishing genuinely good goods and truly beneficial services from merely hedonic goods can be tricky. However, unless we begin to think about this distinction, our societies will likely continue not merely to tolerate but even to applaud activities that are very risky and that do not further the common good in the long run. Imposing draconian wealth taxes does not deal with this underlying problem of the goods we choose to pursue.

We should also encourage individuals to think about this crucial distinction between things and “good goods.” Although it seems that stagnant wages coupled with rising health and education costs have stressed the middle class, it is also true that many people now go into debt to acquire consumer goods that they do not need. We seem to be finding it harder and harder to defer gratification; the savings rate has been declining for generations. Yet saving money is key to being able to pay for truly good goods such as preventive care and a college education. I do wonder whether part of the rising income inequality is due to many folks saving less throughout their lives because they feel that they must have the latest phone, watch, car, etc. If so, then redistributing wealth will do little to prevent those who are able to save capital to start a business from earning far more than peers who spend every tax rebate or windfall on the latest hot item. Hedonic goods, although pleasant at the moment of consumption, tend to distract people from the task at hand and do not foster habits of concentration, persistence, etc. needed to build a business or to rise to the top of a profession.

The Moral Dimensions of Capital: Matthew Kim provides an economist’s perspective


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by Matthew Kim, Professor of Economics at the University of St. Thomas. Kim’s remarks were written for a discussion on economic justice that took place on February 5 at the Terrence J. Murphy Institute for Catholic Thought, Law, and Public Policy. Panelists were asked to respond to Piketty’s book from from their specific disciplinary concerns—in this case, Kim’s perspective as an economist—rather than to respond more broadly.

Please do not cite these remarks without the explicit permission of their author.

This is the sixth post in our forum, which kicked off with an introductory post, where you’ll find an index of all the posts in the forum.

For the benefit of those who may not have found time to read all 700 pages of the book, let me provide a very brief overview of some of Piketty’s argument, which I will follow with an even briefer summary of a few praises and critiques of Piketty’s work from my perspective as an academic economist.


Piketty is concerned about many things in his book, but arguably, chief among them is the evolution of “capital” within a nation’s economy and how the capital evolution can explain income inequality both across nations and over time. (Piketty uses the terms “capital” and “wealth” interchangeably.)

Piketty identifies what he calls the “Fundamental Force for Divergence,” the mechanism that generates a concentration of wealth (and, in turn, income) among the economic elite in society. That mechanism is characterized by the mathematical inequality r > g, where r denotes the average annual rate of return on capital (including profits, dividends, interest, and other income, that flows from capital) and g denotes the rate of growth of the economy (that is, the annual increase in national income or output).

With respect to the logic of r > g, Piketty explains,

When the rate of return on capital [r] significantly exceeds the growth rate of the economy [g] . . . then it logically follows that inherited wealth grows faster than output and income. People with inherited wealth need save only a portion of their income from capital to see that capital grow more quickly than the economy as a whole. Under such conditions, it is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor by a wide margin, and the concentration of capital will attain extremely high levels… What is more, this basic force for divergence can be reinforced by other mechanisms. For instance, the savings rate may increase sharply with wealth. Or, even more important, the average effective rate of return on capital may be higher when the individual’s initial capital endowment is higher. [In other words, the divergent force may be even stronger at higher levels of wealth.] (26)

In summary, Piketty’s central thesis is that periods of increasing inequality occurred when r > g, whereas periods of decreasing inequality occurred when r < g. He argues that r > g is the historical norm for most of antiquity to the present; for a relatively brief period of decreasing inequality (during the middle of the 20th century), r < g. Piketty argues that moving into the 21st century, we should fully expect r > g again—and, if his thesis is correct, a corresponding return to increasing inequality of income and wealth.

One of Piketty’s boldest proclamations is his prescription for how a society could avoid the deleterious effects of r > g . . . and that is basically to impose a global progressive tax on capital, which would effectively reduce the magnitude of r.


First, Piketty’s book is very well written. Comparing Piketty’s writing to that of the typical economist is like comparing a Shakespearean sonnet to a refrigerator owner’s manual.

Second, Piketty rightly encourages economics, as a discipline, to migrate back toward questions of social importance. To be clear, there are plenty of economists that have already migrated (or never left in the first place), but there is also a non-negligible number of economists that still need to get the memo.

Third, Piketty undertakes a monumental and laudable task of compiling and analyzing reams of historical data to carefully document the evolution of income and wealth distributions spanning both time and space.

Fourth, Piketty is a great theorist in his own right—yet his book contains little to no formal theory. That Piketty is able to exposit the formal theory but chooses not to is a testament both to his ability to extract the merest essential components from complex ideas and to his ability to communicate those complex ideas using non-technical language. (However, the lack of formal theory, in some instances, could be construed as a liability, which I will briefly discuss shortly.)


First, virtually all economists (including Piketty) believe in a regularity called the “law of diminishing returns”: that is, as the quantity of some resource increases, the incremental return on an additional unit of the resource is expected to decrease.

For example, suppose my wife and I want to shovel snow off our driveway. The return on obtaining our first snow shovel is relatively high, as is the return on obtaining a second shovel. However, at some point, obtaining an additional shovel will generate a smaller return than the previous shovel—in this case, it would probably occur with the third shovel. Even though this may be an extreme example, the same logic applies to most, if not all, resources.

Therefore, as capital accumulates in society, the return on capital (r) is expected to decrease, which would create a natural counter-pressure to the divergent force of inequality implied by the r > g logic. Piketty acknowledges the law of diminishing returns, but claims that as capital accumulates, r will decrease so slowly that capital will continue to accumulate and concentrate among the wealthy. Piketty devotes a fair amount of non-technical prose to discuss his assertion; however, in technical parlance, the assertion’s validity wholly depends upon the value of the elasticity of substitution between capital and labor. A reader who is interested in evaluating Piketty’s claim regarding the elasticity of substitution is referred to an endnote that, in turn, simply refers the reader to an online appendix (see page 37 and following). Without getting technical, the evidence Piketty’s cites to support his claim is arguably tenuous.

However, the validity of his technical argument is not my concern here. Rather, given 1) the centrality of the law of diminishing returns in economic reasoning, and 2) that Piketty’s central thesis rests upon the “slowness” of the diminishing returns to capital, I would have expected Piketty to anticipate a large amount of push-back on this part of his logic. Thus, regardless of whether Piketty’s technical argument is correct, his choice to relegate such an important argument to an online appendix and provide (arguably) questionable evidence left himself exposed to substantial criticism that presumably could have been avoided.

Second, regarding Piketty’s policy prescription of taxing wealth: he calls his proposal “utopian” in its political viability. This is not my chief concern. Rather, my concern is that, on one hand, Piketty affirms that r and g are not static parameters, but rather are dynamic outcomes of a complex system of choices, institutions, chance events, etc.; yet, on the other hand, Piketty offers no explanation for how r and g might be related in an economy. (This is one instance that a formal theory of wealth inequality would be helpful.)

The concern is that if a national government (or a supranational government) attempts to artificially depress the value of r, say through a global progressive tax on capital, could it generate unintended consequences? For instance, could a tax on capital actually widen the gap between r and g? I am not claiming that this would necessarily happen; rather, I simply emphasize that economists are often concerned with attempting to understand the mechanisms for relationships among economic variables—so the absence of any discussion of how r and g could be related is, to me, a notable omission.

The Moral Dimensions of Capital: Stephen B. Young on Piketty’s Misunderstanding of Capital


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by Stephen B. Young, the executive director of the Caux Round Table. This essay originally appeared in the August 2014 edition of Pegasus, the newsletter of the Caux Round Table. This is the fifth post in our forum, which kicked off with an introductory post, where you’ll find an index of all the posts in the forum.

Last year, French economist Thomas Piketty updated to great acclaim Karl Marx’s moral critique of private wealth accumulation. The ethical issue put by both writers before the leaders of modern civilization is inequality: differences in social power between the rich and the poor. They complain that modern economies systematically and consistently favor the rich over the poor in the allocation of income and the ownership of assets.

Since the publication of Marx’s Capital: A Critique of Political Economy in 1867, this critique has generally been understood—mistakenly, I believe—as narrowly focused on the capitalist system of production.

To be sure, Marx objected with passion and vitriol to the economic system in which he lived, which was early industrial capitalism, and drew attention to all its ethical shortcomings. Piketty, too, presents a critique of today’s global economic practices. So it is fair to conclude that both writers object to capitalism as an economic system.

But their critique applies to more than just capitalism. They indict wealth in general.

Wealth has been a universal expression of humanity’s needs and wants as to which the “memory of man runneth not to the contrary.” St Paul’s famous conclusion that “the love of money is the root of all evil” was written down in a pre-capitalist society.

Wealth has been with us for a long time; in Pharaonic Egypt, in Mayan city-states, in the Hanging Gardens of Babylon, and in the China of Qin Shi Huang. In all of these, there was not only wealth but also inequalities of wealth and income.

Capitalism, properly defined and understood, is not merely “wealthism,” but a special way to create new wealth through self-sustaining economic growth. It is a separately distinguishable system within the field of human economic practices designed to secure material well-being. Henry Sidgwick made this point in his 1883 treatise Principles of Political Economy.

There are other ways distinct from capitalism through which humanity has sought to meet its material needs and to fulfill its diverse wants, both tangible and intangible. There have been hunter/gatherers. There were collaborative farming practices. There is total state ownership as in Pol Pot’s Cambodia and Kim Jong-un’s North Korea. There were feudal aristocracies. There have been landlords and latifundia. There were guilds for artisans. There is mercantilism. There is crony capitalism.

But in all these systems there is wealth along with inequality in its distribution among people. There even was unequal distribution of goods among the graves of ancient peoples. Inequality is some universal function of the human enterprise, not just a sin of capitalism alone.

Unfortunately, in derogation of clear thinking, the word “capital” is used both to indicate wealth in general and, in more specific usage, to signify capitalism as a dynamic system of production and distribution.

Piketty, for example, uses the word “capital” in this mixed way, which conflates economic apples and oranges.

He studies the ratio of income derived from labor to that derived from non-labor. He divides national income into only two categories: labor and capital. He lumps together all forms of income which do not arise from work and calls the aggregate of these forms of income the income from “capital.” These forms of income from capital are:

rent, dividends, interest, profits, capital gains, royalties, and other income derived from the mere fact of owning capital in the form of land, real estate, financial instruments, industrial equipment, etc., again regardless of its precise legal classification. (Capital 18; all subsequent references will be to this work unless noted)

He speaks of capital as earning income from “rents, dividends, interest, royalties, profits, capital gains, etc.” (242). In other words, in his definition of capital he makes no necessary connection to its making investments only in productive enterprise. For Piketty, capital is wealth that can be used anywhere to earn a return. One such example is where he speaks of “a capital which produced an annual rent” (207).

He defines private capital as the difference between the assets and liabilities of private individuals: “whether public or private, capital is always defined as net wealth, that is the difference between the market value of what one owns (assets) and what one owes (liabilities, or debts)” (123).

In speaking of the “nature of wealth” he refers to capital as industrial and financial capital and urban real estate (164). He defines wealth as “land, buildings, machinery, firms, stocks, bonds, patents, livestock, gold, natural resources, etc.” (113). In short, he uses the term “capital” as synonymous with wealth.

He then does not subdivide capital into categories of analysis depending on how it is used. Is it, for example, transformed into productive assets or only invested in status goods or just kept as ready money? But he does speak of capital as “technology” (212), and again as a “factor of production” (213). He distinguishes between nominal assets and real assets (210).

He considers the assets to be counted as domestic capital as both the means of production—land, machines, patents, etc.—and financial instruments, such as stock, that have a market value (119). He comments, “It is always difficult to set a price on capital, in part because it is objectively complex to foresee the future demand for goods and services generated by a firm or by real estate and therefore to predict the future flows of profits, dividends, royalties, rents and so on that the assets in question will yield” (171). Here he mixes together financial assets of all sorts with the wealth that is focused narrowly on firms, which produce goods and services:

Yet what could be more natural to ask of a capital asset than it produce a reliable and steady income: that is in fact the goal of a “perfect” capital market as economists define it. (114)

The advantage of owning things is that one can continue to consume and accumulate without having to work, or at any rate continue to consume and accumulate more than one could produce on one’s own. (121)

This is a classic definition of living off rents rather than wages.

Thus he believes that “Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception, yet it always tends to transform itself into rents as it accumulates in large enough amounts – that is its vocation it logical destination” (116).

Piketty does not include human capital—the present net value of future earnings of a person—as part of the capital he seeks to measure. Thus, in a post-industrial economic order he distorts the relative weights of income from labor and from capital. Many who fall into his category of only earning wages are actually capital assets due to their skills, education, and management capabilities. Their income should be counted as income from capital. While this adds to the amount of capital in society, it broadens the base of those who should be considered as owners of wealth producing assets.

However Piketty feels that “Attributing a monetary value to the stock of human capital makes sense only in societies where it is actually possible to own other individuals fully and entirely – societies that at first sight have definitively ceased to exist” (163). Piketty thus posits as capital only assets that earn rents and can be priced and sold in a market to others who want to acquire the right to those future rents.

Inconsistently, Piketty considers that “knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries” (21). If this is so, why then not consider human capital germane to any analysis of inequalities over time of income and wealth?

Piketty rather simply follows Karl Marx in this definition of “capital” as wealth that can be easily monetized.

First Marx posits that “the wealth of those societies in which the capitalist mode of production prevails presents itself as “an immense accumulation of commodities” (Marx, Capital [Modern Library, 1906] 41). Thus Marx does not focus on the dynamic of capitalism – investment in the division of labor and self-perpetuating increases in productivity which lower costs to society and increase the supply of available goods and services.

Then he posits what he calls “use-value” or the utility of a thing to its owners. “Use-values” constitute the substance of all wealth (Marx 43).

Then Marx moves on to a third concept: “human labor in the abstract can be allocated in units of different magnitudes to commodities” (Marx 45, 46). The amount of this abstract labor constitutes value for Marx value. Marx does admit that there can be ownable items which have use-value but no “value” in his eyes because their utility to owners is not due to use of labor (Marx 47). Use-values arise from social convention; value comes from the material contribution of abstract human labor used to produce a commodity.

Then, commodities also have an exchange value by which one is exchanged for others. The exchange value to be received for a commodity is a rent payment (Marx 95). Commodities only realize their exchange value when their owners bring them forward for sale (Marx 96).

For Marx, the circulation of commodities with their associated values is the starting point of capital (Marx 163). Money is used to broker the exchange of commodities. Commodities can thus be replaced by money in the pocket. Money thus becomes the first form in which capital appears (Marx 163).

Thus for Karl Marx, capital is not specially connected to capitalism; it is generic to the circulation of money, or to wealth in general.

Capital for Marx “appears first as moneyed wealth, as the capital of the merchant and of the usurer” (Marx 163). “All new capital, to commence with, comes on the stage, that is, on the market, whether of commodities, labor or money … in the shape of money that by a definite process has to be transformed into capital” (Marx 164). Money that becomes capital is money that is laid out to make more money. When money is laid out and brings back an increase in money, the increase is “surplus value” (Marx 168).

The possessor of money becomes a capitalist. His person, or rather, his pocket, is the point from which the money starts and to which it returns.… as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist, that is, as capital personified and endowed with consciousness and a will.… The restless, never-ending process of profit-making alone is what he aims at. This boundless greed after riches, the passionate chase after exchange-value is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never-ending augmentation of exchange-value, which the miser strives after by seeking to save his money from circulation, is attained by the more acute capitalist by constantly throwing it afresh into circulation. (Marx 170, 171)

Marx even conflates the unique aspect of true capitalism into money only by saying that “industrial capital too is money, that is changed into commodities, and by the sale of these commodities, is reconverted into money” (Marx 173).

Marx puts as a foundational dynamic of capitalism the extraction of money through base practices, oppression, commercial wars, and the evils of early colonialism—the African slave trade, child slavery in the mills of England, protection of domestic production, monopoly charters to companies, authorization of banks to discount bills and issue their own notes, etc. Marx’s theory of economics thus passes far beyond the confines of capitalism and embraces all use of money and so of wealth. Central to his ethical calculus are rent seeking and financial intermediation.

Marx seems to have missed what is special about capitalism, which is not its use of wealth, or private property, or market transactions, or prices, but rather its capacity for enhancing productive capacity. Unlike all the other modalities of economic endeavor, only capitalism can sustainably increase economic outcome and raise living standards.

Thus, the ethical issue of inequality has to be thought about differently in capitalist systems than in non-capitalist economies. With economic growth in true capitalism comes the opportunity to reduce inequalities, or at least, to improve the lives of those living at every level of distribution.

Piketty admits as much: “Concentration of wealth remains high, although it is noticeable less extreme than it was a century ago. The poorest half of the population still owns nothing, but there is now a patrimonial middle class that owns between a quarter and a third of total wealth and the wealthiest 10 percent now own only two-thirds of what there is to own rather than nine-tenths” (377).

Make no mistake: the growth of a true “patrimonial (or propertied) middle class” was the principal structural transformation of the distribution of wealth in the developed countries in the twentieth century…. The rise of a propertied middle class was accompanied by a very sharp decrease in the wealth share of the upper centile, which fell by more than half, going from more than 50 percent in Europe at the turn of the twentieth century to around 20-25 percent at the end of that century and the beginning of the next. (260, 262)

As noted, the very significant deconcentration of wealth (which has seen the top centile’s share decrease by nearly two-thirds in a century from 60 percent in 1910-1920 to just over 20 percent today) and the emergence of a patrimonial middle class imply that there are far fewer very large estates today than there were in the nineteenth century. (418)

The total amount of wealth and inheritances in France is about the same magnitude to GDP in both periods, but with a century of economic growth, that wealth was spread among many more families. He speculates that as a result of growth “there will probably be more small to medium rentiers and fewer extremely wealthy rentiers” (378): “We have gone from a society of rentiers to a society of managers” (278).

Piketty arranges his assumptions to overlook the dramatic contribution to human well-being of capitalism as a special sub-system of economic activity. He concludes, for example that from the 18th to the 21st century “the nature of capital” in Britain and France was totally transformed but “in the end its total amount relative to income scarcely changed at all” (140). With the achievements of capitalism in lowering costs and providing new technologies—cotton clothing, electricity, flush toilets and running hot water, automobiles, radios and cell phones—the lives of poor people in both countries were objectively much better off by the end of the 20th century than they had been in the 1750s.

Piketty admits that because of growth due to capitalism “today’s societies are very different from the societies of the past, when growth was close to zero or barely 0.1 % per year, as in the 18th century” (96). “A consumer basket initially filled mainly with foodstuffs [in the 18th century] gradually gave way to a much more diversified basket of goods, rich in manufactured products and services” (87); “Material conditions of life have clearly improved dramatically since the Industrial Revolution, allowing people around the world to eat better, dress better, travel, learn, obtain medical care and so on” (89).

In fact, the percentage of people living in extreme poverty has fallen from 36% of humanity in 1990 to 15% in 2011, the World Bank reported in October 2014. Those who earn under US$1.25 a day has fallen from 811 million persons in 1991 to 375 million in 2013, the International Labor Office reported earlier that year (pdf).

Piketty worries about low growth, which can be overcome through the application of capitalism: “Capital-dominated societies … can arise and subsist only in low-growth regimes” (84). The relative ratio of earning income from wealth vis-à-vis earning income from labor has grown in favor of wealth, and Piketty predicts will stay high or get higher in favor of wealth in the coming years of the 21st century, because of slower growth—especially population growth—and higher savings (173): “a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income) which can in turn have a significant effect on the social structure and the distribution of wealth” (166); “The basic point is that small variations in the rate of growth can have very large effects on the capital/income ratio over the long run” (167).

Inequality of wealth varies with growth rate: with low growth, savings by those with money will lead to higher levels of capital in society; with higher growth, the ratio of wealth to income from labor will be lower (233, 228). Over 30 years, “a growth rate of 1.5% per year corresponds to cumulative growth of more than 35%. In practice, this implies major changes in lifestyle and employment” (95).

Piketty notes that whenever the rate of return on wealth is significantly and durably higher than the growth rate of the economy, it is all but inevitable that wealth will concentrate and inequality increases. (377). Thus, a high growth rate lowers the rise of inequality.

But without capitalism, there is limited growth, much stagnation in productivity, and even stasis in overall gross product. It is under such systems that inequalities of income and wealth are most pernicious and least subject to remediation.

Rent Seeking is not Capitalism

What Marx, followed by Piketty, most objected to was rent, not capitalism per se. They both actually wrongly indict capitalism for promoting rents and so allowing the wealthy to live off rents and grow richer in their wealth to earn even more rents in the future.

Going back to Adam Smith, income from rent has been distinguished from income from labor. Work received a wage. Rents were cash payments for the use of an asset such as land or a house. No work was needed to earn rental income.

Marx and Piketty both find income from work ethically just and admirable. In fact, Marx based his entire critique of the industrial economy on the assumption that it diverted too much of the value created by work away from the workers to those who had not so contributed to the good or service sold. This was the Marxist theory of surplus value, which was taken out of the flow of buying and selling by Marx’s “capitalists.”

Smith’s genius was to realize that in his time a new system of production was underway, something new in human history. This was the adoption of machines and technology along with management skills to production to permit the specialization of function and the division of labor. It was, he argued, only the division of labor that created increased productivity per worker and so more production for the economy, given the size of the work force. Thus the division of labor created the ”wealth of nations”:

Every increase or dimunition of capital, therefore, naturally tends to increase or diminish the real quantity of industry, the number of productive hands, and consequently … the real wealth and revenue of all … inhabitants. (Smith, Wealth of Nations)

Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whose labor adds to the value of the subject upon which it is bestowed. (Wealth of Nations)

The annual produce of the land and labor of any nation can be increased in its value by no other means but by increasing either the number of its productive laborers or the productive powers of those laborers who have before been employed. Productivity can never be increased but in consequence of an increase in capital or of the funds destined for maintaining workers and/or in consequence of either some addition and improvement to those machines and instruments which facilitate and abridge labor or of a more proper division and distribution of employment. (Wealth of Nations)

Growth, therefore, does follow naturally on an increase of money or of wealth but only on a proper application of money to production: “Every unnecessary accumulation of money is a dead stock which might [otherwise] be employed in enriching the nation by foreign commerce” (Smith, Lectures on Justice, Police, Revenue, and Arms)

Capitalism is, therefore, very different from wealthism.

The early American sociologist Thorstein Veblen made the distinction the central observation of his book The Theory of the Leisure Class. He concluded that a notable feature of the “wealthism” of his day, copious wealth produced by industrial capitalism, was an aristocratic tendency of those possessing wealth to spend it on “conspicuous consumption.” Such notorious consumption indicated a desire, Veblen thought, to secure social status, not to directly finance more capitalist production. He thus questioned the social utility of that usage of wealth.

Smith rejected the view that money was productive capital: the opulence of a nation did not depend on its coin and money (Lectures). To accumulate money was not to accumulate wealth. Too much money just inflated prices and did not cause growth in production.

The emergence of capitalism as something new in human economic activity was at the center of thinking about modernization after World War II as efforts were made to bring the fruits of industrialization to poor countries around the world. W. W. Rostow in his famous book The Stages of Economic Growth spoke of the advent of capitalism in any country as its “take-off” into self-sustaining new wealth creation. Rostow’s thinking has more recently been expanded by William Easterly.

The challenge since then for global development efforts, in which trillions have been spent by wealthy nations and international bodies such as the World Bank, has been to move societies out of stagnation into robust platforms for production of goods and services which provide for rising living standards and a middle class which, in turn, incubate constructive political reform favoring constitutional democracy and the honoring of human rights.

The objectives of development are encapsulated in the Millennium Development Goals, and in the proposed Sustainable Development Goals to be adopted by the General Assembly of the United Nations in September 2015.

An often-overlooked fact is that capitalism, in the strict sense, is a quantum improvement on traditional private property and free market economic systems. Humanity has enjoyed private property rights and has used free markets since time immemorial without thereby generating self-sustaining growth in productivity and GDP. The sum of total factor production in pre-capitalist and non-capitalist societies is dramatically lower output than is possible under capitalism. Why?

In his anecdote about production of straight pins, Smith reported that under the pre-capitalist artisan mode of manufacture, one person could make but 200 pins a day. But with division of labor in a factory setting, some 10 persons could through accomplishment of 18 different tasks make 48,000 pins a day, for a productivity outcome of 4,800 pins per worker.

Consider for a moment the result for inequality of wealth of a drop in the price of pins when supply grows from 200 a day to 48,000 a day. The price of pins will drop dramatically to the advantage of those with less income and wealth. The new factory system brought them better real standards of living. And poor people in the 18th century had greater need for straight pins for their sewing than did wealthy gentry and aristocratic families.

But how to classify the cash proceeds which would come to the owner of such a pin factory after he had paid for all his machines, his consumable supplies, and wages for his employees? Should the returns to enterprise be allocated to rent or to wages?

Smith advanced a third solution: such special returns should be given their own, separate, category of earnings—a return on investment in enterprise. Money used as capital can be employed “in the maintenance of productive laborers, who reproduce the value with a profit” (Wealth of Nations). Smith was clear that the return from investment and management was not mere rent, as active decision-making and risk-taking was required as a consequence of setting up an enterprise. Nor was this return a wage from labor work. The work of the master of enterprise was not mere hourly labor; it was something new and strange. It demanded different skills in making plans and giving instructions and coordinating the interdependencies of the different specialized functions. It also demanded acquisition of machinery and materials to support the workers in their different assigned tasks. This took effort and calculation not necessary on the part of a landlord who just received income for use of his real property. Smith thus concocted the famous three factors of capitalist production: land, labor and what he called “stock,” which we now call “capital.”

A capital as Smith conceived of it was only used for production—for “maintaining productive hands only” (Wealth of Nations). In this way did that portion of a stock constitute a revenue. He distinguished profits from rents (Wealth of Nations). Land earned rent; labor earned wages; stock earned increase, or profit.

Smith considered that the share of wealth which was lent at interest could also be called a capital, but it earned a rent. “As such capitals are commonly lent out and paid back in money, there constitute what is called the monied interest. It is distinct not only from the landed, but from the trading and the manufacturing interests” (Wealth of Nations).

Wealth assigned to others to employ is a capital “from which owners wish to derive a revenue without being at the trouble of employing them themselves” (Wealth of Nations). As the overall wealth of society (its stock for Smith) grows, the quantity of stock available to be lent at interest—and the power of the monied interest—grows greater and greater.

Today, in a post-industrial world, intangible assets such as human capital, social capital, reputation, brand equity, and intellectual property constitute a large share of the earning capacity of firms. The price of buying their capacity to earn income through their business activity, their market capitalization, reflects the present cash value of their predictable future earnings. The factors that contribute to those future earnings constitute their current “stock,” to use Smith’s terminology. Accumulating an appropriate stock to meet market demand is the foundation for business success. Putting that stock into production through the division of labor generates jobs and increased cash flow in the economy.

Increased liquidity coupled with legal rights to borrow money against future earnings permits accumulation of more stock and so more growth in market activity and liquidity. The accumulation and use of stock was for Smith the secret ingredient for success in expanding the wealth of nations. Without such stock, land and labor combined would not generate new, higher levels of productive output.

Land and labor could earn income in the form of rents and wages, and so give rise to wealth, but they could not create capitalism.

Smith then divided wealth into different categories. Wealth devoted to enterprise became “a capital” which financed the acquisition of “stock” for the business. Wealth not turned into “a capital” was merely wealth, which could be unproductive or even wasted through improvidence.

The distinctive aspect of capitalism as opposed to “wealthism” is how wealth is used. Not every use of wealth a capitalist does make.

Contemporary Marxists make the distinction I am suggesting here when they focus their objections to what they call “Fordism” or “Taylorism” to reflect the factory system of division of labor on production lines.

Sociologists Max Weber, Thorstein Veblen in his study of enterprise, and later Daniel Bell attempted to define the special quality of capitalism as an economic dynamic as a way of thinking, a mentalité, a gestalt, a culture and a way of life.

In Theory of Economic and Social Organization, Weber writes of capitalism as consisting of profit-making enterprises which are systems of action seeking to increase control over goods and services and capable of autonomous orientation to capital accounting, which values and verifies opportunities for profit and of success in activities designed to make profits. Capitalists seek forever-renewing opportunities for profit via rational enterprise. They orient their actions to monetary calculations of an increase in the market value of the enterprise. In another work, Weber asserts that “the impulse to acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism” (The Protestant Ethic and The Spirit of Capitalism xxxi (pdf)). He continues, “This impulse exists and has existed among waiters, physicians, coachmen, artists, prostitutes, dishonest officials, soldiers, nobles, crusaders, gamblers, and beggars.”

Veblen saw the special feature of capitalism as a “machine process” designed as a reasoned procedure grounded on systematic knowledge of natural forces and human aspirations. The mindset of the capitalist, Veblen asserted, was to invest in the machine process as owner and designer in order to realize an increase in wealth. The money to be rationally invested in a business enterprise is an amount calculated with reference to the profit-yielding capacity of the enterprise.

The orientation of capitalism, then, is not inwardly directed toward consumption or hoarding money but outwardly directed toward the accumulation of working capacities that produce what others will buy. Consumption and hoarding tend not toward vocations but risk the onset of sumptuary indulgence at some margin of an individual’s utility preferences.

Daniel Bell, in The Cultural Contradictions of Capitalism, similarly describes the economic principle of capitalism as the “rational calculation of efficiency and return in the choice of means in order to increase production (e.g. the most efficient combinations of labor and capital or the specialization of tasks and functions).”

Capitalism, accordingly, uses wealth and created new wealth, but it is not mere “wealthism.”

If “wealthism” is a cancer to society due to its frivolity in the use of assets and its division of communities into “haves” and “have-nots,” then it is a cancer that degrades the quality of life in capitalist and non-capitalist societies alike.

A gambler, a spendthrift, a collector of fine art, a merchant who buys and sells goods made by others, a landed aristocrat, a lawyer or other professional—none of these were by role and activity Smith-style capitalists, though they could be very wealthy. But if they took some of their wealth and used it as “a capital” to invest in division-of-labor reliant enterprise, then they could be called capitalists.

Now, the analysis of how capitalism works becomes complicated once money is introduced into consideration. Both wealth in general and that sub-category of wealth Smith called “a capital,” which was funds devoted to employment of others seeking a profit, used money.

The master of enterprise needed money to acquire land, plant equipment, and materials, and to advance wages to employees. The money came from his capital, which was a part of his wealth. Thus while every person with a capital to invest had wealth, not every wealthy person was such a capitalist.

As the capitalist form of production grew in scale, sophistication in the use of money also blossomed. Credit was made available to those who sought present funds. Savings of some were transferred by intermediaries to others. Bills of exchange and bank notes were issued and accepted as ready money available to buy “stock” and support production. Firms called factors would advance goods on credit or buy goods for resale for cash or on credit. Financial intermediation became a vital sector of the capitalist economy, represented most of all by stock exchanges and stock trading.

The financial sector mingled generic wealth as contained in money with enterprise capital, which was that part of social wealth devoted to capitalist production.

Hernando De Soto, in his recent study of poverty and slums, The Mystery of Capital, recommends the expansion of legal title to give people more ownership of assets which they can then use to fund small enterprises.

Capitalism and Rent Seeking

So, to analyze the pros and cons of capitalism as a system of wealth creation as Marx and Piketty propose to do in their treatises, it is not enough just to talk about wealth and money in general and its distribution. Something more focused is necessary. What are the results of the specialized system of division of labor and application of “stock” to production? Are they beneficial? What costs come with those benefits?

Just so did Joseph Schumpeter fashion his theory of capitalism. He focused not on wealth but on a process of invention and innovation in technology and productive capacities. He put the entrepreneur at the center of capitalism, not wealth or money. He coined the phrase “creative destruction” as the distinctive feature of capitalism. The system constantly changed the consumption realities of human civilization. New products and services were coming into being as enterprise employed new machines and techniques to production, driving out of use and fashion older products, services and modes of production.

With this system, as even Piketty admits, life got better for everyone in general. What Schumpeter did not discuss were the externalities for society and the environment of this exponentially expanding use of technology for economic gain. Thus, capitalism’s success in growing material goods and services is offset by its failures to provide public goods such as health care and education and its tendency to generate public bads such as pollution and mindless consumerism.

Nor did Schumpeter consider the relative advantages brought by capitalism to those who provided capital and separately to those who provided only personal labor.

With the invention of the corporation, ownership of a capital invested in stock for enterprise assumed more and more characteristics of earning income as rent. Especially when money was lent merely for a return of money. The rise of financial intermediation to oil the wheels of enterprise and permit more and more current investment secured by legal interests in receipt of future income gave to capitalism serious capabilities of rent seeking.

Rents are returns to power, not to work or to entrepreneurship. The primary form of power giving rise to rental income is legal title or some other form of right under law or contract.

Earning rent as a landlord is made possible, first, by a public legal system that grants title of ownership and protects that title against all others, and, second, some contract right to receive money or other consideration in exchange for limited use of the property.

Most financial investments of money depend on contract rights protected by law as well. Purchase of a share of stock in a corporation—or a limited partnership interest, or a bond, or a debenture, a share of preferred stock, an option, a futures contract, a collateral debt obligation, a loan or share thereof—gives no power to manage, direct, or make decisions for a productive enterprise. Such contracts do no more that promise a share of returns under certain conditions as specified in their terms.

Thus, financial investment in businesses run by others is more like using cash wealth to earn future rents than it is to profiting from direct capitalist ownership.

And it was the rent aspects of financing industrial production that most aggrieved Marx and set his ire ablaze. He was angry that the owners of enterprise could take cash wealth, which he thought was surplus value created by workers, and use that monied wealth to buy more contract rights to the receipt of more future rent payments. Those paid only wages for their work, he saw, and had little if any chance to participate in such accumulation of wealth. In this sense, contract rights in financial intermediation are akin to the rent potential of gambling. To win at poker one relies on the rules of the game. Contract rights specify the priority of cards and allocate each pot according to the composition of various hands.

A range of other legal rights create rent in the form of protection of intellectual property. License fees and royalty payments are rents for the use of what belongs to another. Those who live on the rents from wealth contribute less to economic growth than those who seek a return from wealth invested as capital in enterprise.

The proceeds of rent can be saved or spent. When they are saved, they may or may not be transformed into productive capital in the strict sense. They may only be invested as money in the purchase of contract rights to earn more money, thus inflating asset prices but not real domestic output. If they are spent, they contribute to increased demand for goods and services. But if no new production enters the market to meet the demand, the new demand may only lead to inflation in nominal prices.

The bedrock of growth is productivity, not money in circulation. Circulating money must be used in the right way in order for real growth to occur.

Piketty conflates capital in the strict sense with wealth and so considers that the return on capital is a rent, not some special category of return with a qualitatively different ethical character:

Rent is not an imperfection in the market: it is rather the consequence of a ‘pure and perfect’ market for capital, as economists understand it: a capital market in which each owner of capital, including the lease capable of heirs, can obtain the highest possible yield on the most diversified portfolio that can be assembled in the national or global economy. To be sure, there is something astonishing about the notion that capital yields rent, or income that the owner of capital obtains without working. (423)

One of Piketty’s recommendations for resetting the social outcomes of wealthism is to create a new category of rents. He would give the poor legal rights to enjoyment of “a certain number of good deemed to be fundamental”. (p.479) He justifies this use of government power to redistribute money as a “principle of equal access” to such fundamental goods. Here Piketty merely endorses the practices of the modern entitlement, or welfare, state.

Rents can be charged as a result of holding other forms of power as well. A monopoly or a cartel gains market power to control pricing and extract money for goods or services over and above the price that would be set by competition. The competitive price would be the return on capital while the overage would be a rent.

Money itself is a form of power, therefore it can command returns not necessarily disciplined by competitive market forces of supply and demand. It can generate rent, or income received not due to work or to assuming the risk of capitalist enterprise.

Today’s money in the form of fiat currency gains its power from legal contract. Because fiat currency is made by government authority legal tender for the payment of debts, such money is unconditional economic power. Money in the form of demand deposits, money market funds, and similar custodial arrangements also consists of contractual rights to immediate possession. Money is perhaps society’s most perfect form of unrestricted private discretionary power.

Piketty demonstrates the power of money to make money with analysis of how the fortunes of the most wealthy people earn more than do the assets of the only moderately well-off.

Other forms of power produce rents as well. Mafias and shake-down racketeers extract rents from those subject to their demands, extractions backed by credible threats of punishment for disobedience, rather than earn wages or a profit from productive enterprise.

Cronyism in securing preferential treatment from government, which generates benefits from political or regulatory interference with market demand or pricing to limit competition, also produces rents.

The income received by governments when exercising the power of taxation is a rent paid by society. Thus, government spending on wages for its employees or on transfer payments for health care, education, and welfare, takes the form of passing on rental income to chosen persons. In their recent book Why Nations Fail, Daron Acemoğlu and James A. Robinson argue that a major impediment to the success of capitalist take-off is rent extraction by governments. Rent seeking compromises the dynamic potential of capitalism.

Piketty observes that since 1980 inequality of income and wealth distributions has grown (220, 221). This may well be the result of a tilt in economic activity away from earning returns on capital to increased rent extraction from society. Access to rents from increased use of intellectual property, financial intermediation, and protective regulation is not likely to be widely distributed across a population.

The US financial sector contributed 7.9% to GDP and took out in total compensation 9% of GDP.

Rent seeking, in general, because it is insulated from harsh market dynamics through its reliance on non-marker power, provides higher returns for lower risk. Piketty thus notes that the average wealth of the richest twenty-millionth people in the world grew from $1.5 billion in 1980 to nearly $15 billion in 2013, for an average growth in assets of 6.4% a year above inflation (434).

On average it seems that wealthy families and individuals don’t use all their rental income from ownership of contract rights for consumption. They plow a significant proportion of earnings and gains on the nominal market value of their paper assets into the purchase of more contract rights, thus boosting asset prices from which they benefit far more than do those who live off wages. For example, the average per family or per capita savings of ordinary working Americans are paltry.

Adam Smith noted that in towns where people were maintained by the employment of capital they were industrious, sober and thriving but communities where people were maintained by the spending of revenue (the proceeds of rent) people were idle, dissolute and poor. As rent seeking increases, the competitive advantage of capital investment in enterprise evaporates. Income from rents comes with less risk than investment in businesses.

Smith recognized with concern this advantage to owners of wealth of investing in rents rather than in truly capitalist enterprise subject to the risks of the market: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Wealth of Nations. Smith saw how the temptation to fix prices—to extract a rent—had great appeal to those with money to invest.

Smith also commented acerbically on the difficulty of getting freedom of trade and competition put into law to replace rent seeking monopolies in business and commerce:

Like an overgrown standing army, [business people] have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening … monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public service, can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists. (Wealth of Nations)

Piketty agrees with Schumpeter that capitalism in the strict sense is good for society: “No one denies that it is important for society to have entrepreneurs, inventions, and innovations. The problem is simply that the entrepreneurial argument cannot justify all the inequalities of wealth …” He adds that, sadly, “Entrepreneurs … then to turn into rentiers, not only with the passing of generations but even within a single lifetime” (443).

The American Louis Kelso provided an interpretation of capitalism that corresponds to both the emphasis of Schumpeter on creative destruction and the concern of Marx and Piketty over the relative vulnerability of wage labor as against ownership of productive capital assets. Kelso argued that under conditions of division of labor and the introduction of new technologies to increase productivity, labor will always suffer. The need for labor will always be changing and the need for workers will correspondingly change as well. The direction of those changes will be toward fewer and fewer workers having higher and higher skills. In short, the dynamic of capitalism is to replace workers with machines.

In this system workers are price takers and not price makers. They must compete for the jobs available without being able to create jobs for themselves. Only capitalists in the strict sense can create opportunities for employment. Since the beginning of the industrial age, economic growth has been able to provide new sources of employment to absorb the working hours of those whose labor contribution became no longer needed and those new to the work force. But in recent years, unemployment and underemployment has been historically high in the EU and the United States. The evolution of technology into digital communications and miniaturization of computing sophistication has, more and more, led to the replacement of workers with machines on an unprecedented scale.

Kelso’s response to this trend in capital intensive production was to invent contract rights which would give workers access to capital assets, adding to their wages income from firm profits and investment rents. Kelso’s recommendations to intentionally diffuse more widely the ownership of productive capital point to a general ethical consideration about wealthism. With wealth understood as monied power, and with money in and of itself a source of power, the ethical considerations arising about wealthism are those that come into play when power is as work. A sense, on the one hand, of demanding self-restraint and responsibility from those in possession of any power, and, on the other, an intuitive standard of fairness or due balance combine to direct our attention first to those without power, to those most vulnerable. The ethic arises almost as a first principle inductively acknowledged that power should be held as an office in service to some great good than self-indulgence. The American philosopher John Rawls and the economist Amartya Sen both have constructed theoretical approaches to justice that further this equitable objective.

Any economy, then, which turns away from promoting genuine capitalism toward more rent seeking turns itself toward more irremediably inequality of distribution of its generation of wealth and income. Large scale financial intermediation, intense regulation, and generous provision for entitlements are the structures which can turn any modern post-industrial economy away from robust capitalism toward a bifurcated social structure of a very wealthy elite and a large lower class, both dependent on rents for their well-being.


Piketty’s estimate that inequality of income and wealth will increase due to lower economic growth and declining populations does not take proper account of the potential role of capitalism. If the economy remains skewed toward rent seeking, then the trends Piketty highlights will come to sad fruition. But if a more robust capitalism, genuine creative destruction transforming the status quo, can be stimulated, higher growth will result and the severity of inequalities will decline.

The policy guidance recommended by Piketty’s study of inequalities of wealth and income is simple: promote capitalism, minimize rent extraction.

But perfection in human affairs is rarely achieved. Alexander Hamilton, the first Treasury Secretary of the United States was dedicated to the advance of what I am calling capitalism in order that the economy of his new nation grow reliably. But he warned that:

Tis the portion of man assigned to him by the eternal allotment of Providence that every good he enjoys, shall be alloyed with ills, that every source of his bliss shall be a source of his affliction—except virtue alone, the only unmixed good which is permitted to his temporal condition. (Defence of the Funding System)

[The true politician] will favor all those institutions and plans which tend to make men happy according to their natural bent which multiply the sources of individual enjoyment and increase those of national resource and strength—taking care to infuse in each case all the ingredients which can be devised as preventives or correctives of the evil which is the eternal concomitant of temporal blessing.(Defence of the Funding System)

The Moral Dimensions of Capital: James Emmet on the Downton Abbey-ization of Society


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by James Emmet, a retired corporate finance manager and life-long scholar of history and theology. This is the fourth post in our forum, which kicked off with an introductory post, where you’ll find an index of all the posts in the forum.

The cumulative effect of the socioeconomic polarization of our society over the past three decades has been dramatic. Concerns about increasing wealth and income disparities, and about pervasive economic insecurity in our new nation of me-incorporateds, subcontractors, and temporary laborers are now being raised across the political spectrum.

In Capital in the Twenty-First Century, Thomas Piketty explains why this polarization is happening. He asks the question: “Do the dynamics of private capital accumulation inevitably lead to an economically and politically destabilizing concentration of wealth?” The answer is yes. “The principal destabilizing force is that the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g” (571).

He continues: “The inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages. The entrepreneur inevitably tends to become a rentier, more and more dominant [in terms of share of national income] over those who own nothing but their labor. The past devours the future” (571).

Piketty is saying that under our current tax regime we are headed toward a re-creation of the world of Balzac and Jane Austen, of Henry James and the Belle Epoch, of Downton Abbey. So it’s good that we love Austen so much that we repeatedly release major film adaptations of her books; good that we are watching Downton and realizing that it’s possible for the rich to behave kindly and for us to foresee fulfillment in serving them—that loyalty can be real on both sides. The nature of capital has changed, yes, from landed wealth, to modern industrial, commercial and financial capital and to residential real estate, but the dominance of capital as a whole, especially if we include human capital (in the form of an elite education and the connections which facilitate elite apprenticeship) is reapproaching nineteen century European proportions, and may soon exceed those proportions substantially.

The book’s key argument is historical. The natural process of wealth and income concentration—which is a very long-term process, taking decades—was interrupted for two entire generations because of the traumatic events of the first half of the 20th century: the two world wars and the Great Depression. These catastrophes had the result of destroying both capital and capital valuation, for the following reasons:

  • physical destruction
  • a bear market of unprecedented severity and duration
  • expropriation
  • unanticipated inflation, which effectively expropriated the enormous wealth held in the form of bond portfolios
  • rent-control laws, suppressing the value of urban residential real estate
  • regulatory changes to the financial industry
  • changes in labor laws institutionalizing union power
  • and, probably most of all, tax policies levying a high marginal rate on estates and upper incomes, especially upon so-called “unearned income” (income from dividends and interest)

Especially interesting was Piketty’s description of the operations of the National War Labor Board in the United States during WWII, which severely compressed wage and salary differentials.

The effects of the traumas, in terms of a more egalitarian distribution of income, lasted into the 1970s. The re-emergence of capital as the dominant element in the economy was delayed by relatively high growth, which reduced the differential r > g. High growth was a result of post-war reconstruction in Europe, the post-war baby boom (especially strong in the United States), and the full implementation of the so-called second industrial revolution—consisting of the internal combustion engine, petroleum and the modern synthetic chemical industry, which made possible the construction of suburbia—and electrical technology, which revolutionized factory productivity and electrified the home, driving enormous investment and enabling women to enter the workforce throughout the developed world.

The events of 1914-1945 and the catch-up process afterward obscured the long-term dynamic of capital concentration. In the 1950s, Simon Kuznets studied income distribution in the United States from 1913 to 1950. He ended up measuring the effect of the historical traumas and concluded that capitalism spreads equality. Great. That’s what everybody wanted to hear; economists turned to other matters. The true dynamic of concentration remained invisible, until recently.

The heart of the book’s message is found in tables 7.1, the distribution of labor income; 7.2, the distribution of capital (wealth); and, especially and most relevant, 7.3, the distribution of total income—income from both labor and capital.

Alt Text: Table 7.3, Inequality of total income (labor and capital) across time and space

Table 7.3, “Inequality of total income (labor and capital) across time and space,” from *Capital in the Twenty-First Century* (source: Thomas Piketty’s homepage)
[emphasis added; click to enlarge]

Table 7.3 tells us that the inequality of total income in the US, income from labor and capital combined, is now equivalent to the inequality in Europe in 1910. (He should tell us how it compares to the U.S. in 1910. If it is worse, that is worth knowing. It is hard to believe that US income inequality in 1910 could have been as bad as it was in Europe.) The upper 10% in the United States receives 50% of the national income! The bottom 50% of the population makes only 20% of the total income. The top 1% makes 20%! This means that if we took half of the income of the 1% and gave it to the lower half of the population, we could increase their income by 50%! And after this transfer the income of the 1% would still be 17 times greater than the income of the lower 50%.

I found these figures shocking. I had always believed that the high income of the rich didn’t really matter—that there were not enough of them such that redistribution of their income would make a meaningful difference to the majority of the population. I think nearly everybody believes that. This isn’t true! I am a well-educated and well-informed person, relatively speaking. I didn’t know the truth of this question. A French economist has to tell me this. I am shocked and surprised… by the facts, yes, but also by the fact that I didn’t know this already. I have to question the validity of the media I read. The proportion of the national income appropriated by the top 1% in Europe is half that of the US, only 10%!

Piketty’s fear is that the slowing of technical innovation (the digital revolution has simply not had the same kind of dramatic impact on productivity and investment as the second industrial revolution) and the drop in the birth rate (which appears to be leading to a stabilization of population throughout the developed world) will lower growth going forward, increase the r > g differential, and increase the dominance of capital even further. It is better not to wait to make changes: the sooner we start to rein in the power of capital and the more gradually we reverse the concentration process, the less violent will be the likely political struggle between rich and poor. It is better to change the tax code, and raise minimum wages, gradually, over time, in the same way we in the United States are slowly increasing the age at which we become eligible for full Social Security benefits, to allow people time to prepare and adjust. This is rational and fair, and it merits bipartisan support. Few Republican voters, wherever they may lie on the socioeconomic hierarchy, really wish to see a new Gilded Age, an age of working class poverty and labor radicalization.

The Moral Dimensions of Capital: Coleman Drake on the Moral Implications of Piketty’s Work


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by Coleman Drake, a PhD candidate in the division of Health Policy and Management at the University of Minnesota School of Public Health. This is the third post in our forum, which kicked off with an introductory post, where you’ll find an index of all the posts in the forum.

Although the polemic surrounding the book would suggest otherwise, Capital in the Twenty-First Century is mostly a descriptive text. Thomas Piketty spends the first two thirds of the book forming a cohesive narrative about the concentration of wealth over the last two centuries in the developed world. To do so, he uses detailed data collected from the United States, the United Kingdom, France, and Sweden. Only in the last third of the book does he discuss what society should do about the concentration of wealth.

While there is plenty of disagreement about Piketty’s proposed solutions and the causes of wealth inequality, there does not seem to be much disagreement about the future he envisions. The affluent, wealthy, and educated will enjoy a level of opulence never before experienced by all but the richest members of society. Meanwhile, the large majority of the population, i.e. unskilled labor and the non-upper class, will face increasingly perilous financial hardship as wealth becomes more concentrated and their skills become less attractive relative to machines. Piketty places more of an emphasis on wealth as the cause of this brave new world, whereas the libertarian blogger, author, and economist Tyler Cowen, in Average is Over, focuses on the impact of machines and a highly skilled intelligentsia. Yet, they envision a similar, somewhat dystopian future. Cowen goes so far as to describe a future in which everyone who’s not in the upper class will live in impoverished favelas.

The question, then, is what to do about the coming divergence. In an increasingly secular and individualist society, Piketty envisions a communitarian outlook and an activist state as the solution to the plight of the masses. Some, like Cowen, view any attempts to change the course as more disruptive than the potential negative outcomes that could result from a society that has more in common with the Gilded Age than late twentieth century America. Most of us probably fall between these two; together, Piketty and Cowen represent opposing edges of non-extremist American politics.

What the economists do not address, however, is a moral conception of the problem at hand. Piketty is more concerned that wealth inequality is a problem for democracy than it is for the maintenance of a society with a clear moral vision. I find the two problems to be inseparable. For society to cohesively address a world where people are increasingly and more sharply divided by their intellectual abilities, any solution must come with a guiding moral vision. For me, this realization is a frightening one. Just when the developed world is entering into a period of increasing friction and inequality, it is also becoming more individualistic, hedonistic, and areligious.

Perhaps as wealth divisions in society become starker, the broader population will turn to one another through faith and community groups to find a sustainable solution for our society. Yet, if the broader population lacks the cohesive, community-oriented outlook that comes from a benevolent moral vision, how will they proceed to turn to the right solutions? I offer no definition of what solution is correct here, but I do believe that positive outcomes to fractious societal-level disputes are largely dependent upon the discipline resulting from a strong moral vision. The Civil Rights Movement led by Martin Luther King, Jr. serves as a perfect example of what is possible; however, that movement was based in an African American community with extraordinarily strong Christian principles. Modern society offers no such parallel. Our challenge, then, is to create such a parallel.

The Moral Dimensions of Capital: Andrew Lucius provides an overview of the discussion


Editor’s Note: Today’s entry in our forum on Thomas Piketty’s Capital in the Twenty-First Century is by Andrew Lucius, a PhD candidate in political science who specializes in international relations. He is also the co-leader of our Theology & Economics reading group. Our series kicked off yesterday with an introductory post. There, you’ll also be able to access an index of all present and future posts in the forum.

No book received more attention in 2014 than Thomas Piketty’s Capital in the Twenty-First Century. As University of Minnesota economist (and reading group co-leader) Jay Coggins put it, “Arguing over Capital has become something of a cottage industry.” Indeed, googling “capital in the twenty-first century” reveals an almost shocking number of reviews, with responses running the gamut from dismissive to fawning. While our group’s range of reaction was smaller (most would fall on the positive end of the spectrum), we also ended up clustering around two differing views: one clearly positive, one decidedly mixed.

The positive perspective came primarily from group members working in finance. This group found that the trends documented by Piketty fit well with their work experience. In particular, rising inequality was consonant with the increase in compensation they’ve witnessed among colleagues and high-end clients since the 1980s, as well as the general importance of loopholes to their industry. Both elements bolstered Piketty’s claim that inequality gives the wealthy greater influence over various social institutions, which they often use without regard to merit or morality. Perhaps unexpectedly, the strongest criticism in this vein was leveled at the Obama administration, which was accused of providing preferential treatment to finance executives in the aftermath of the 2007-8 financial crisis.

The mixed reviews emanated from those working within the academy. This group was consistently puzzled by Piketty’s imprecise causal arguments. The confusion came primarily from two sources:

  1. the lack of a comprehensive mathematical model
  2. the determined, yet cursory, ways in which Piketty associated inequality with political instability

The first issue made it difficult to understand the economic forces underlying and (potentially) sustaining inequality. The second made it clear that–while it may be viscerally distasteful–the social consequences of high inequality (particularly in a post-industrial setting) are not entirely clear.

Overall, both groups agreed with what has become a cliché of Piketty reviews: the data is fascinating and impressive, but the theory falls short by comparison. Interestingly, while it was a weakness for professionals, the vague nature of Piketty’s explanations was an asset for our conversations. We never lacked for compelling questions or interest in outside perspectives. As was remarked numerous times, it almost seemed as if the book was written with such discussions in mind. Given Piketty’s history as a top-notch economic theorist, this may ultimately have been the point.

The Moral Dimensions of Capital: A Forum on Thomas Piketty’s Capital in the Twenty-First Century


Index of Forum Posts

  1. Introduction
  2. Andrew Lucius
  3. Coleman Drake
  4. James Emmet
  5. Stephen B. Young
  6. Matthew Kim
  7. Daryl Koehn
  8. Jay Coggins (Friday, April 10)

Last fall, our Theology & Economics reading group read Thomas Piketty’s Capital in the Twenty-First Century. An unlikely bestseller, Piketty’s book is a dense 700-page work of comparative and historical economics that attempts to determine what, exactly, is at the root of the growing inequality in contemporary capitalist societies.

We thought it would be interesting to publish a number of reflections from participants in the group, and others in the community who have engaged with Piketty. Some of the contributions will reflect on the reading group itself—what is it like to read Piketty in a reading group sponsored by a Christian study center?—and others will engage directly with the book itself.

Meanwhile, check out this compilation of resources on Piketty’s book. Given the media explosion that surrounded the book’s publication, there’s a lot of material to sift through, but we’ve found the best of it to share with you:

  • A significant excerpt from the introduction to Piketty’s book is available on the website of the publisher, Harvard University Press
  • You can also preview the book on Google Books or sample the book on Amazon
  • Thomas Piketty’s homepage provides extensive resources about the book and a technical appendix (pdf)
  • The Economist has summarized Capital in the Twenty-First Century in just four paragraphs
  • Thomas Piketty’s TED talk: “New Thoughts on Capital in the Twenty-First Century”
  • Bill Gates, “Why Inequality Matters”
  • John Cassidy provides an overview of Piketty’s life & work in the New Yorker:

    Another thing that Piketty doesn’t adequately consider is the possibility that inequality, in some of its dimensions, is not rising at all. His book largely focusses on Europe and the United States. At the global level, substantial progress has been made in dragging people out of destitution, and extending their lives. In 1981, according to figures from the World Bank, about two in five members of humanity were forced to subsist on roughly a dollar a day. Today, the figure is down to about one in seven. In the early nineteen-fifties, the average life expectancy in developing countries was forty-two years. By 2010, it had risen to sixty-eight years. “Life is better now than at almost any time in history,” Angus Deaton, a Princeton economist, wrote in his 2013 book, “The Great Escape: Health, Wealth, and the Origins of Inequality.” “More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die.”

  • Benjamin Kunkel offers a thorough and critical review from the left in the London Review of Books:

    The book is more exciting considered as a failure than as a triumph. Piketty has bid a lingering goodbye to the latter-day marginalism of mainstream economics but has not yet arrived at the reconstructed political economy foreseen at the outset. His theoretical reach fumbles where his statistical grasp is sure, and he leaves intact the questions of economic value, distributive justice and capitalist dynamics that he raises.

  • Tyler Cowen supplies an equally critical review from the libertarian right in “Capital Punishment: Why a Global Tax on Wealth Won’t End Inequality”:

    In perhaps the most revealing line of the book, the 42-year-old Piketty writes that since the age of 25, he has not left Paris, “except for a few brief trips.” Maybe it is that lack of exposure to conditions and politics elsewhere that allows Piketty to write the following words with a straight face: “Before we can learn to efficiently organize public financing equivalent to two-thirds to three-quarters of national income”—which would be the practical effect of his tax plan—“it would be good to improve the organization and operation of the existing public sector.” It would indeed. But Piketty makes such a massive reform project sound like a mere engineering problem, comparable to setting up a public register of vaccinated children or expanding the dog catcher’s office.

  • There are also a number of YouTube videos featuring Piketty and discussions of his work
  • If all this isn’t enough for you, Harvard University Press has been collecting reviews, articles, interviews, and more, by the dozen, on their page for the book


Check back throughout the week for more contributions to our forum. And please contribute through the comments section. Have you read Piketty’s book? Why or why not? If so, what did you think?

Lenten reading: Dorothy Sayers’s The Man Born to be King — Guest Post by Kathryn Wehr



Editor’s note: Kathryn Wehr is currently working on a PhD on The Man Born to be King at the University of St. Andrews in Scotland.

This past fall, I had the pleasure of leading the Dorothy L. Sayers reading group, where we read her twelve-part play cycle on the life of Christ, The Man Born to be King. Each week we would read one of the plays aloud, each taking different parts, and then we had two sharing nights—in November (at the MacLaurin CSF Study Center) and January (at Church of the Cross)—where we read one of the plays and led a discussion about the ideas they raised. These were exciting events for everyone involved and hopefully they will stir up more creative ways for reading groups to share what they have been discussing.

Of those who attended, only a few had read The Man Born to be King before, though some had read some of Sayers’s other work. She was a contemporary and friend of both C.S. Lewis and Charles Williams, so she is often studied with the Inklings. She wrote within a wide variety of genres so people who have known her through one are often surprised to hear of her others: poetry, mystery novels, secular and religious plays, newspaper articles and speeches related to work, education, the arts and Christian faith, translations of French Medieval poetry, and work related to Dante’s Divine Comedy.

For those unfamiliar with Sayers, I will draw a short biographical sketch: Dorothy L. Sayers lived from 1893 to 1957. She was the daughter of an Anglo-Catholic clergyman, had a marked aptitude for languages from an early age and studied Modern Languages at Sommerville College, Oxford. She left Sommerville in 1915, although women were not actually granted Oxford degrees until 1920, when Sayers was one of the first women to return and claim hers. She was highly gifted and creative, a very loyal and entertaining friend, but also a formidable adversary who was not afraid of a good debate about ideas either in person, in the papers or by letter.

Sayers supported her early writing career by working for the publisher Blackwell’s and later at Benson’s Advertising Agency, where she was personally involved in the famous “Guinness is Good for You” campaign. She started off her writing career with two books of poetry and quickly turned to a new popular genre—the detective novel—and during the 1920s and 30s wrote 14 Lord Peter Wimsey mysteries and a number of other short stories. Throughout these novels you can see Sayers’s growing maturity both in style and theme, and toward the end of this period she used her mysteries to explore themes of the importance of vocation, women’s higher education, and the possibility of love and marriage between men and women as equals.

Sayers' London flat

Sayer’s London flat


By the late 30s she moved into drama and began writing a number of plays, particularly religious plays for festivals at various cathedrals. Throughout the late 30s to mid 40s she also began writing essays and giving lectures on theological, educational, and work-related topics and became someone the media often turned to for a “sound bite” on the popular issues of the day. It is said that during their lifetimes Sayers was more well-known than her friend C.S. Lewis.

In 1943, Sayers read Charles Williams’s book on Dante, The Figure of Beatrice and it changed the whole course of her life. It caused her to first want to read Dante’s Divine Comedy in the original language and then eventually to publish her own translation that sought to keep the Italian rhyme-scheme. Her essays and introductory notes on Dante are still particularly prized. This work took the rest of her life and she died in 1957 with the Paradiso, the third volume in Dante’s three-part poem, unfinished. The last cantos were completed by her friend Barbara Reynolds, a Cambridge lecturer of Italian literature.

The Man Born to Be King is the collective name for a set of 12 plays on the life of Christ, which were first broadcast over the course of ten months from December 1941 to October 1942. They were meant to be heard and it is moving to imagine a war-time audience turning up the radio for these plays, perhaps just after the news bulletin about fighting at the front.

One of Sayers’s main concerns in writing was to help these same everyday people—who were caught up once again in a World War—to see how the people of first century Palestine were people just like them. They weren’t just characters in a book or frozen in stained glass in a church window, these were in fact REAL people who saw the situation from their own limited viewpoint and interests. She writes,

God was executed by people painfully likes us, in a society very similar to our own—in the over-ripeness of the most splendid and sophisticated Empire the world has ever seen. In a nation famous for its religious genius and under a government renowned for its efficiency, He was executed by a corrupt church, a timid politician and a fickle proletariat led by professional agitators. His executioners made vulgar jokes about him, called him filthy names, smacked him in the face, flogged Him with the cat, and hanged Him on a common gibbet—a bloody, dusty, sweaty and sordid business. (from Sayers’s introduction to the plays)

Sayers particularly puzzled over the portrayal of Judas. She was one of the first playwrights to take a psychological approach to his character, as compared to the conniving villain of traditional English mystery plays. Others, like Herod, Mary, John the Baptist, and John the Beloved Disciple, are especially well-rounded and help us see the familiar stories afresh. Jesus himself is vividly shown as both human and divine—a Messiah whose Kingdom is coming not in the military conquest others expected, but through the everyday actions of those brave enough to “love and be ruled by love.”

When the series was first announced, several conservative Christian groups protested the “blasphemy” of portraying Christ on the radio at all, especially a production where characters were to speak everyday English not based on the Authorized King James Version, since Sayers freely did her own translation from the Greek New Testament. In fact, the storm was so severe that a question was even raised in Parliament. Having worked in advertising, however, Sayers knew that such a storm actually went a long way to securing her plays a much larger listenership. And once the plays were on the air, people loved them. Among her biggest fans was C.S. Lewis, who, years later, said that he re-read the plays every year during Holy Week. Maybe you would like to do the same this year.

Editor’s note: If you’re intersted in reading The Man Born to Be King, it’s now back in print through Classical Academy Press. Order it here.

To learn more about Sayers, her work, and The Man Born to be King, Kathryn recommends the following resources: