As a child, when I learned about the high degree of inequality throughout most of history, I wondered, how did this happen? Why did people put up with this?
In Capital in the 21st Century, Thomas Piketty provides an answer to the first question, where he describes a natural drive whereby societies will become more and more unequal. This is because those with high amounts of capital will extract substantial income from it. This will, in turn, allow them to acquire more capital, which will then further increase their income. The rate of return on capital (r) is generally high meaning that capital-related income quickly increases. On the other hand, increases in labor-related income (g) occur more slowly and depend on increases in efficiency. Because r > g, the proportion of overall income each year will steadily become more and more skewed towards income derived from capital. Hence, societies will tend to become more unequal if capital gains are left to continuously grow.
However, even though r > g is extremely powerful, it carries key shortcomings in the face of guillotines and mobs demanding to eat the rich. Hence, in Capital and Ideology, Piketty attempts to answer the second question and explain the cultural and political reasons behind how inequality was maintained and evolved historically. Further, he tries to paint a picture of how culture and politics evolved over time to arrive at the present state of affairs, where inequality is high but where many people do not see it as their main political and economic concern.
For much of the past millennium, Piketty describes that European society was organized in a Ternary structure, with three social classes: the nobility, the clergy, and the rest. In terms of the numbers from 14-17th France, the Nobility made up 2% of the population and generally owned 40-45% of the land. The Clergy made up 1.5% of the population and generally owned 15% of the land, although this would effectively be 25%, given that the Clergy received a 10% Tithe from the nobility and peasantry alike. England and Spain showed similar numbers. During this time, the central State/Crown was relatively weak, and in 1600, most nations, including England, France, Spain, the Ottoman Empire, and China, collected just around 1-2% of GDP in taxes. With such minuscule taxation, these nations could deploy national armies but little more.
Many societal services were administered by the Nobility and Clergy, and Piketty suggests that their dominance was justified by the idea that the Nobility and Clergy fill necessary societal roles. Within European nations, the Nobility contributed to defense, oversaw local justice, and supplied various amenities – e.g., building mills for grain processing. The Clergy provided religion, obviously, along with assistance to the needy and financing of various institutions, such as schooling. The Clergy also provided moral guidance and influenced the central state and local nobility. Of course, the responsibilities of the Nobility and Clergy also came with benefits, and Piketty describes various traditional privileges – e.g., peasants were required to commit free labor towards some Noble lands (“Corvée work”), and although peasants owned rights to use some lord’s lands in perpetuity, peasants would need to pay a lod if they wished to sell these rights (8-50% of the sale price). The Clergy had a right to collect a 10% Tithe, as noted above. Additionally, in France, neither the Nobility nor Clergy were required to pay taxes. However, even with these privileges, Piketty suggests that by taking on specific duties the Nobility and Clergy were seen as justified in their existence.
To show that this is not just a European pattern, Piketty touches upon Indian society as an analogous Quaternary structure. The Kshatriya (“Warrior caste”) ruled the state as kings and managed wars. Kshatriya rulers were required to be advised by Brahmin councils – priests and scholars whose approval was needed for major decisions, and which guided religious and scholarly matters. The rest of the population was made up of Vaishyas (e.g., craftsmen, merchants, land-owning farmers) and Shudras (e.g., rural landless workers). Like in the European societies this creates a structure of interdependence of the classes. Additionally, Piketty suggests that by assigning each person to a specific, formal group, individuals are encouraged to internalize the inequality and see their position as a fact of life.
Overall, Piketty repeatedly makes the argument that this ideology of co-dependence played a role in societal acceptance of the Ternary or Quaternary class structures. However, the actual evidence that this meaningfully changed behavior is limited. Further, even without any ideological justification, it would have simply been very difficult for many peasants to revolt, and historically, revolutions have been pioneered by the well-off against other well-off people. Nonetheless, perhaps the strong role of religion and religious support of the nobility may have given this ideology its backbone. Further, even though it could never convince every peasant that the inequality was justified, such ideology presumably decreased social friction to some extent.
Nonetheless, from 1500-1800, social mobility would occur and the Ternary structure would break down. During this time in France, more people were climbing into the nobility from the aristocracy; one could buy a noble position, although it was quite expensive. On the eve of the French Rto evolution (1789-1799), many non-nobles were as rich as nobles, and in most cases, those who recently purchased nobility were the richest of all. At the same time, the state was becoming more powerful, collecting more taxes, and better able to provide services. Tax revenue increased substantially in France, to 3% by 1700, then 6% by 1800, and 8% by 1850 (similar trends in England and Prussia). This allowed the state to expand. For example, the state could now properly handle the role of administering justice, a duty taken away from the nobility along with other special privileges given to this class.
The shift away from Ternary society also gave rise to republics, where citizens received voting privileges. However, voting power was limited to the most wealthy few, who would use the state for their benefit. In general, this transition away from a Ternary societal structure had a relatively small impact on inequality. Just before the French revolution, the top 1% owned 52% of French property, while after it would still be at 45%. Further, over the next century, inequality would climb back to the top 1% owning 56%. Regarding the top 10%, they went from owning 82% before the revolution to 80% after but later climbed to 86% before World War I. While this climb is just a few percentage points, the shift from 80% to 86% reflects the richest 10% going from owning 4x as much as everyone else to 6.6x as much as everyone else. Piketty suggests that this rise was fueled by r > g and via the elite control over the state.
Concerning the elite control over domestic affairs, Piketty describes this as a transition from a Ternary society to an “ownership society” where the central state is stronger and where property became sacrosanct. Reading this, the notion that “property became sacrosanct” felt like a meaningless deepity, although Piketty explains that over this period, the state passed increasing laws with a specific focus on protecting property. For example, in Britain, the Black Act of 1723 stipulated the death penalty for anyone taking wood or hunting game on land that they did not own. The state expanded the court system to handle such violations and others like smuggling, which were expressly property-related. Additionally, alongside the repeal of the Black Act in 1823, the state created new forms of punishment designed for theft (e.g., deporting thieves to Australia), as previously state-run prisons did not exist in any widely-usage form in England or France. Based on examples such as these, Piketty suggests that the ideological bedrock of ownership societies is “a promise of social stability, coupled with individual emancipation through the right of property, supposedly open to all, independent of social and familial origin.”
It must be noted that while the European states expanded their taxation, non-Western nations (Ottoman Empire and China) did not increase their tax revenue, which generally remained around 1-2% of the GDP (Fig 9.2). This was quite unfortunate, as 50-66% of European tax revenue went toward the military. In 1550, the Ottoman army was the same size as France and England combined (around 150k troops). However, by 1780, France had accumulated 280k troops and England 170k, along with stronger Navies. The European armies were capable of exerting global influence in service of elite interests. For example, when China banned the trade of Opium, Britain sent its navy to force the trade to resume (interestingly, China was framed as anti-free-trade by the British press).
The armies also allowed wide-reaching colonial empires. By the end of the 17th century, the European powers were nearing the limit of what could be extracted from their own continent and thus pushing the limit on the rate of return on capital. Forests went from 30-40% of European land in 1500 to just 10% in 1800. By 1830, British imports of cotton, wood, and sugar would have needed 1.5-2x all the land in UK to grow themselves. Leveraging the state for foreign affairs would be extremely profitable.
When reading this book, I was surprised to learn just how, for lack of a better word, globalist the French and English were, even during the 19th century. Even at this time, foreign investments would become a major feature of financial portfolios for the French and English elites. In 1810, French and English elites had relatively little foreign capital (aside from foreign slaves, which I do not think Piketty counted here). However, with the increased rise of colonialism foreign investment would expand rapidly. By 1910, foreign English capital investments were worth 180% of their national, and similar trends are seen in France (for reference, the total national assets summed to roughly 700% of national GDP during most of the 19th century). Of course, investment in foreign capital was predominantly an asset of the richest 1% in particular. In 1912 France, 25% of wealth among the richest 1% of Parisians was in foreign assets. However, interestingly, even among just the top 1.01-10%, 14% of their wealth was in foreign assets, meaning that these foreign opportunities were not just for the wildly wealthy but also the moderately wealthy.
As one would expect, these profits were raised at the expense of the colonies, which Piketty spends much time detailing. The wildest example Piketty provides of colonial extraction was from Haiti. Haiti was a major French slave colony with a population of 470,000 slaves by the 1780s. 70% of Haitian output was extracted as French profit and made up 0.5% of the French national income at the time (“0.5%” is my calculation based on other numbers Piketty provided). After revolts, the slaves were emancipated in 1793 and Haiti declared independence in 1804. France would recognize Haitian independence in 1848, although with a threat to invade unless Haiti paid back the lost profits and essentially bought their freedom. This amounted to 150 million Francs or 300% of the total Haitian yearly output at the time (2% of French national income; 40 billion euros today). The debt was financed by French banks, and Haiti would pay an average of 5% of their national income each year towards this debt until the 1950s.
The strong inequality would obviously be determinantal to the poor. Although the United States never surpassed 10% of national income as foreign capital, inequality was strong in the United States as well and increased steadily throughout the 19th century until World War I. This had clear effects on the citizenry. Average male health – an indicator of well-being – was at its lowest in 1900. Other measures reach similar conclusions, e.g., life expectancy or the age at which people first marry. Piketty argues that this decline would yield a cultural shift whereby the rich began to fear the poor. For example, the Coal Wars were cases of armed uprisings by coal workers in Appalachia and Colorado against the owners, which, in the case of the Battle of Blair Mountain, left greater than one hundred people dead. This would raise awareness of the horrible conditions. On the other side of the Atlantic, the Irish potato famine (1845-1852) occurred, in large part, due to mismanagement by English elites, who owned much of the Irish farmland. Violent protests led to the passing of bills to carry out land reform and increase tenant rights, in attempts to placate Irish concerns.
This unrest would be coupled with an expansion of voting rights throughout the 19th century, which would break down the power of the wealthy over the states. In the United States and every major 19th-century European power, voting rights began as minuscule. Only fractions of the population could vote and these tended to be wealthy landowners. This greatly limited any hopes to increase taxation, let alone begin progressive taxation. Voting rights would expand in each of these countries to most of the male population by the end of the 19th century.
However, Piketty points out two nations whose voting rights trajectories deserve special attention. The first was Sweden. Here, even among the relatively limited size of the voting pool in the latter half of the 19th century, the weight of each person’s vote varied drastically and depended on the amount each voter paid in taxes. From 1865 to 1911, the wealthiest men could cast votes that were worth 54x that of the lowliest voter, and in many towns a single voter. The second interesting case is the United Kingdom. At the beginning of the 19th century, the United Kingdom’s House of Commons election map included several “Pocket boroughs”, which were very small constituencies that, regardless of their size, could elect one or two representatives (out of a total of ~400 for the whole UK). For the 1831 general election, 152 of the representatives were selected by constituencies made up of fewer than 100 voters and, in one extreme case, the Old Sarum borough could elect a representative based on just seven voters.
Nonetheless, by World War I, most of these nations had established universal male suffrage. With universal male suffrage came political advocacy for redistribution and increased taxation. However, this was incredibly arduous. For example, in the case of France, after the revolution (1799), the primary stream of government revenue from taxation came from a land tax that was instituted. It was set to 0.2% of market value (for context, rents were typically at 4-5% of market value) and made up 2/3rds of the government revenue when instituted. Although this is a tax on wealth, it is actually quite regressive, as foreign capital was not real estate and hence it was ignored by the tax, while there also existed many small landowners who were taking the brunt of the tax. Only in 1872 would this tax would be expanded to cover financial securities at a rate of 3% of security-related income (not progressive). The sluggishness and small size of the redistributive legislature are further exemplified by inheritance taxation. In 1799 France, an inheritance tax of 1% was instituted at an even rate across all levels of income or wealth. Even in the latter half of the 19th century, attempts to increase to just 1.5% were met with very serious opposition. However, a progressive inheritance task was finally passed in 1901 (up to a maximum of 2.5% for the richest 0.1% of estates; raised to up to 6.5% by 1910).
After the turn of the 20th century, redistributive fervor motivated the enactment of progressive income across Europe. Denmark passed such in 1870, Prussia in 1891, Sweden in 1903, and the United States in 1913. In the United Kingdom, the House of Lords proved as a bulwark against progressive taxation. House of Lords membership was determined through royal/clergical appointment or hereditarily. At least, I think this is how membership is decided, but I’m not sure, and the house name has “Lords” in it, which hopefully tells the full story. In either case, they vetoed a 1909 proposal for progressive income taxation approved by the House of Commons. In cases such as these, to avoid seeming tyrannical, the House of Lords would claim that they had the right to oppose any bill that the House of Commons was not specifically elected to pass. In a sense, this is progress as even this refusal must be justified to some level of democracy. Regardless, the Parliament Act of 1911 effectively gutted their power and progressive taxation would be passed. A similar pattern was seen in France. A 1905 progressive income tax bill to was approved by the French national assembly, a house of government established through a general election. However, the bill’s full approval was halted by the French senate, a house of the French government similar to the House of Lords. This bill, which would bring about a 2% income tax for the highest bracket, would only be passed at the breakout of World War I, hurriedly just two weeks after the assassination of Archduke Franz Ferdinand (1914).
The increased suffrage and the salient Rich vs. Poor dynamic would set the ground for World War I to bring about drastic increases in taxation around the world. After the war, the increased tax rates would drop, although not to the same extent as before the war. This is illustrated below for the United States, where the Great Depression would serve as the next springboard for taxation of the most wealthy to rise to the most progressive degree in US history. Although the highest income tax rate would substantially drop soon after the war, it remained at a high level for decades. Even the income tax drop in 1963, in the United States, was notably accompanied by a large increase in the capital gains tax rate (25% in 1968 to 40% in 1977).
However, since the 1970s both tax rates dropped precipitously.
At the same time, inequality would shift from contracting to expanding. Piketty ends the book by considering why this happened, and how an era of Rich vs. Poor would give rise to the present political climate.
My understanding is that, after World War II, across many nations, people saw Rich vs. Poor as the only way a political system could be divided. However, this would obviously break down, as we are far from that today. Piketty provides key reasons for why this breakdown occurred, including 1) the rise of a “nativism” vs. “non-nativism” axis has opened, where citizens now increasingly vote to preserve interests related to borders and national identity, 2) a shift where the educated elites are now strongly voting conservative whereas they strongly voted liberal in the 1950s and 60s, and 3) practical issues related to international policy and the rise of tax havens preventing redistributive taxation.
First, regarding nativism, it is worth noting that, it does not necessarily go hand-in-hand with economic conservatism. Although this is the case in the United States, it does not apply everywhere. For example, in Poland, the Law and Justice party (making up 43% of their parliament) seeks to increase social security and redistribution, while opposing immigration. In Italy, the Five Star Movement party (25% of the parliament) has a similar stance, proposing a universal basic income, while simultaneously being described as anti-globalist, anti-immigrant, and joining a coalition with the distinctly anti-immigrant Lega party. In current day France, based on polling, “1% of voters can be classified as internationalists-egalitarians’ (they consider that there are not too many migrants and that inequalities between the rich and the poor ought to be reduced); 26% as ‘nativists-inegalitarians’ (they consider that there are too many migrants and that there is no need to reduce the inequalities between the rich and the poor); 23% as ‘internationalists-inegalitarians’ (pro-migrants, pro-rich) and 30% as ‘nativists-egalitarians’ (anti-migrant, pro-poor).” Hence nativism should be seen as its own axis.
Nonetheless, while nativist tendencies do not require economically conservative views, Piketty argues that nativism in the first place has become much more salient, which dampens the importance of Rich vs. Poor. Piketty seems to suggest that, in the United States, the Civil Rights era came with politicians emphasizing racial platforms to sway voters. In 1964, the Republican presidential nominee Barry Goldwater opposed the Civil Rights Act, which was passed in June of that year. Later, Nixon, the Republican winner of the 1968 election, opposed racial quotas that he argued allowed black people to take jobs from better qualified white people. Ronald Regan, elected in 1980, also opposed the Civil Rights Act and Voting Rights Act (1965). Along with these choices over the law, efforts were made to change the general cultural rhetoric. For example, Reagan additionally popularized the term “welfare queen” (referring to single black mothers) in the 1976 election. Across the pond, similar shifts toward nativist concerns occurred were apparent in the United Kingdom. In a 1979 British post-election survey, 70% of Conservative voters reported that the only way to improve race relations was to end immigration. Accordingly, Margaret Thatcher (1979-1990) would clamp down on immigration.
To a degree, it seems like Piketty is suggesting that these conservative candidates upregulated racism, making it a more salient topic in political discourse. However, this begs the question of why nativist platforms weren’t successful enough before World War II to prevent redistributive legislation. Piketty doesn’t touch much upon this question, but I see a couple of possibilities: 1) wealth-related issues were simply much more important in the past as people were poorer and after the 60s a standard-of-living threshold was crossed making further economic gains less vital, and 2) civil rights progress was very minimal before the 60s, more people were apathetic towards it, and/or neither major party substantially differed from one another. Regardless of these possibilities, examining the voting data of Black Americans seems to show that something nativist was newly emerging. In the 1948 election (Figure 15.7), Black Americans only leaned slightly Democrat (just a 2% swing after controlling for education, income, etc.), although, by the 1972 election, Black people overwhelmingly voted Democrat (50% swing after controlling the same factors).
Data from other countries on changes in voting patterns among racial minorities are more limited, although, in France, the Muslim swing notably went from 50% leftward swing in 1988 to 80% leftward swing in 1997. Nonetheless, the notion that nativist policies in the United States became a more major political force after the 1960s seems reasonable.
Critically, Piketty makes the point, “obviously very convenient for the [liberal] elites to explain everything by stigmatizing the supposed racism of the less advantaged.” Piketty then goes into arguments for other reasons why the working class has shifted away from a Rich vs. Poor discourse.
Next, Piketty points out the changing demographics of Left. The most educated citizens went from voting strongly conservative in the 1960s to strongly liberal today. In terms of the difference between the 10% most educated and 10% least educated, strong reversals of liberal vs. conservative from 1950 to today have been seen in the United States, France, Britain, Germany, Sweden, Norway, Italy, Holland, Switzerland, Australia, Canada, and New Zealand (the reasoning behind this ordering is left as an exercise for the reader).
Although Scott has already reviewed one of Piketty’s papers on this specific topic, Piketty’s book adds argues that educated left-wing political leaders have used this power to advance their interests. Piketty details the French high school and college systems, which are each characterized by different types of schools. The branches of the French education system preparing students for “elite” professions have received the highest funding. In the current system, three times as much public money is dedicated to children of the top decile of education expenditure (those attending elite schools) relative to the money given to children in the bottom 50%. Although the Socialist party has ruled France for roughly half the time since the 1980s, Piketty suggests that they have failed to balance this spending, potentially because its supporters tend to attend these schools. Hence, Piketty argues that the working class is somewhat justified in abandoning the party that abandoned them. However, I’m not sure what to make of this argument and I am having trouble finding further examples by Piketty of clear policy preferences directly benefiting the educated elites (although this book is quite long, and they may be in here somewhere).
Nonetheless, another important point related to the shift of the most educated voters is that it changes the meaning of “elite”. Although not necessarily the entering most wildly wealthy professions, the educated leftists enter media, tech, and academic jobs, which are, today, considered elite professions. This will defuse the saliency of Rich vs. Poor and allow conservative voting to become an anti-elitism position, which has happened across both the United States and Europe – e.g., in Italy, the coalition between the Five Star Movement (pro-redistribution party) and Lega (anti-distribution party) was partly grounded in hatred universal hate for elites.
Along with these cultural shifts, there are several practical international economic reasons for modern inequality that Piketty spends much time discussing. In brief, a modern nation’s corporate tax rate (the rate at which company profits are taxed) is a Molochian race to the bottom, where countries will attempt to undercut one another to seduce companies to incorporate there – Ireland hasn’t tripled their GDP in the past twenty years just by selling more Guinness. Piketty does not detail other forms of taxation, like capital gains or income tax, although I imagine they are also impacted by this international competition albeit to a lesser degree.
To resolve such coordination problems, the solution is generally for a central power to impose universal rules. However, the European Union (EU) has totally failed to accomplish this. Piketty describes how changes to EU economic policy require a unanimous vote from all EU nations. I really can’t understate how annoyed Piketty is about this, and rightfully so, as requiring a unanimous vote seems insane. However, looking into this seeming insanity, I found a Wikipedia article suggesting that the 2014 Treaty of Lisbon led to EU voting rules no longer requiring unanimity in some areas, although Piketty’s book was released in 2019, and here and in more recent interviews, he still seems insistent that preventing tax havens would require EU unanimity. Piketty argues that fundamental changes to the EU are needed to address this, although even a uniform tax across the EU would not eliminate the possibility of tax havens outside the EU (q.e.d., one-world government?).
Regardless, because of this international competition, national leaders, even those of ruling left-wing parties, are extremely hesitant to substantially increase taxes. Hence, voters may get the impression that left-wing leaders have abandoned the working class. Piketty suggests that this drives the working class to “internalize” inequality as an unchanging fact and pushes them towards nativist policy, something that may be seen as more controllable.
Quickly summarizing vast swathes of history is often bad. Individual examples can be used to tell any story an author wishes, and if this entry was selected as a finalist, I have no doubt that the comments below will describe how some examples were taken out of context. Because of this, I’ve tried to keep these at a minimum and just for illustrating statistical points.
Based on this, Piketty’s overarching arc seems reasonable, 1) inequality was initially based on a Ternary Structure. 2) After this structure was dismantled, inequality was preserved by the wealthy controlling electoral politics, 3) although as voting rights expanded, redistributive policies were possible. 4) However, today, wealth-related discourse has become less central to politics and anti-redistributive legislation was able to pass. So, I guess that answers my first childhood question of how inequality happened.
Now, why did people put up with it? Going into this book, I expected arguments on how cultural memes supported inequality. However, although Piketty suggests that Ternary and Ownership societies were rooted in such ideologies, based on this book, it simply isn’t clear that such rhetoric genuinely shifted behavior. For example, the idea behind ownership societies is that every person can pursue their goals and achieve success, rhetoric that remains today. However, does this idea actually change people’s behavior, political leanings, and willingness to fight inequality? Alternatively, is it just a meaningless slogan and post hoc conclusion after a stance has been taken? To me, I’m not convinced that these ideologies should be seen as the reason why inequality persisted.
So why did people put up with inequality? Honestly, it seems like they simply didn’t have a choice in the matter. To be clear, my review is not trying to skirt evidence on the causal role of ideology in supporting inequality. Rather, it seems like Piketty just didn’t seriously attempt to show this. Based on Capital and Ideology, it is obvious that capital played a dominating role in maintaining inequality, although the role of ideology seems much more minor.
