Piketty’s earlier and more famous work, “Capital in the Twenty-First Century” shocked many readers by demonstrating that wealth and income inequality in the developed world in the early years of the 21st century was approaching the same levels as the Gilded Age. Rather than some unnatural and perverse state unique to late capitalism, Piketty used his unparalleled data to show the opposite - that the relative egalitarianism of the post-War era was, in historical terms, a fluke. The World Wars had led to destruction of capital on such a vast scale that post-War elites simply could not reconstitute their prior social roles. Most readers could be forgiven for coming away pessimistic that the only way to truly return to even a 1950s level of economic equality would be renewed destruction on an equally massive scale - perhaps in the form of “disaster socialism”.

Part Three of “Capital and Ideology” represents Piketty’s re-appraisal of this period. Is is true that egalitarian social democracy was the direct result of armed conflict? In short, no. The role played by the physical destruction of capital was ‘minimal’. The true cause was a series of political and social decisions, often taken under the circumstances of social emergency, which resulted in the novel and relatively fragile inequality regime Piketty terms ‘social democracy’. Whereas the top centile of the population owned between 55-70 per cent of all property in advanced Western nations in 1900, this number remained as low as 15-20 per cent as late as 1980 [it’s now back over 40 per cent in the United States]. Critically, changes in the distribution of wealth were almost entirely responsible for flattening the distribution of income - labour inequality did not change significantly over this period, but the ability to make an income from owning capital did. The importance of this ‘Great Transformation’ [Piketty uses Karl Polanyi’s phrase] cannot be overstated - including in how effective social democracy proved at generating sustained economic growth and productivity increases.

How to Destroy Capital in Three Easy Steps

Piketty provides an exemplary overview of the various mechanisms (destruction, expropriation, inflation) by which the accumulated surpluses of the Gilded Age were smashed to pieces. One could almost read this part of the book as a ‘how to’, if one were so inclined. As mentioned, while physical destruction of property was significant in France and Germany (representing perhaps a quarter and third of national wealth lost during the World Wars), only a tiny percentage of capital was physically bombed out of existence in the UK, US or elsewhere. Piketty instead located the source of capital’s decline in two broad sets of policies: first, expropriations and nationalisations - i.e. policies aimed at explicitly reducing the value of private property; and secondly, policies and decision that reduced the level of return on private capital, including inflation which reduced the value of existing assets.

While outright nationalisation and expropriation was rare in the developed West during peacetime (often tempered by the propertarian impulse to compensate existing owners), de-Nazification after the War often led to the seizure of vast fortunes, matched in the communist East by the large-scale collectivisation of the means of production. De-colonialisation also played a significant role, and Piketty, to my mind correctly, singles out the Suez Crisis as representing a decisive break with the gunboat diplomacy model of imperial debt enforcement which had previously extracted a heavy toll from colonial subjects for their attempts to take control of their own destiny. Agrarian land reform also played a large role in a few former colonial states. Given the scale of British and French national wealth held abroad - either in the colonies, the form of Russian or Eastern European debt, or in German or Italian factories - the War significantly constrained the power of exhausted European elites to call on Empire to enforce their ill-gotten property rights.

The War’s secondary affect was a massive increase in government debt, which states financed through borrowing the capital of their own citizens. It’s worth remembering here, as Piketty pointed us to in his first book, that states are relatively poor in comparison to the size of their economy - most wealth is held privately, not publicly. Indeed, Piketty points out that post-GFC government wealth in the US, UK and elsewhere has turned negative - private hands not only own the equivalent of 100% of national assets, but also have liens on future national production through ownership of government debt. When a government borrows money, it exchanges a promise of future repayment (which has value) for the ability to call on real assets. So long as the state does repay its debts, those promises preserve the social power of those that hold them. But states always have the option - whether by accident or design - of paying back its debts using goods and services less valuable than those accepted in exchange, in essence, causing inflation. Piketty notes that inflation averaged above 10 per cent after WW1 - a historically unprecedented occurrence after centuries of near-zero price movements. And in the immediate aftermath of the War, Paris and Berlin saw inflation of 40-50 per cent, effectively eliminating their war debt after a few years. Even in the US and UK - which averaged closer to three per cent- this modest level of inflation was sufficient to wipe out many multiples of national GDP in debt, finished off by the hyperinflationary bout in the 1970s.

Obviously, from a progressive perspective, debt and inflation are not desirable tools of public policy. Piketty notes that inflationary episodes suppress labour power, impoverish retirees and tend to produce generations of poverty. Inflation is regressive. He and I prefer a stronger solution - highly progressive taxes on capital holdings, combined where necessary with price controls and democratic control over the means of production. Piketty has a quote here, which seems in my mind should be kept in mind by proponents of so-called modern monetary theory, who would rather tinker with the money supply than do the hard political work of actually going against the interests of the powerful in society:

“Inflation is the sign of a society that is dealing with a serious distributive conflict: it wants to unburden itself of debts incurred in the past, but cannot openly debate how the required sacrifices should be apportioned and prefers to rely on the vagaries of rising prices and speculation. The obvious risk of doing so is that a widespread send of injustice will be created.”

Finally, Piketty acknowledges that it’s in principle possible to pay off national debt by running a long period of budgetary surplus and devoting a significant percentage of national revenue to the reimbursement in full of property owners. This was certainly the British strategy in the nineteenth century, and the austerian policy followed by most centre and right-of-centre governments to this day. Piketty argues that had the post-War European regime adopted such policies, the end result would have been that War debt was still being repaid as late as 2050, economic growth would have been lower and Golden Age levels of inequality a permanent social fixture, not just a twenty-first century phenomenon.

On Social Democracy

Piketty argues that the destruction of significant amounts of surplus value in the middle decades of the twentieth century was not necessarily intentional, but a result of an ideological transformation brought about by policy-makers dealing haphazardly with a series of financial, economic, social and military crises which had been ultimately caused by the previous propertarian regime. Chapter Eleven details the contours of ‘social democracy’ - the inequality regime that came to dominate most developed states in the second half of the twentieth century. It should be clear from Piketty’s framing that he does not have a serious ideological theory of social democracy as either a philosophy, or as an economic or political moment. Piketty does not seriously engage with the history and evolution of social-democratic movements, or reckon with their failures and transformations into neoliberal parties. Instead, he treats ‘social democracy; as short hand for a ‘set of social and fiscal policies that made societies not only more egalitarian but also more prosperous”. In this, he’s writing as much as post-War conservatism as he is about social democracy, and lazily embedding his historical narrative with a wistful longing for a post-War consensus that in all likelihood didn’t exist without the political and social pressure applied by the communist challenge from without and strong labour unions form within.

Piketty’s only major theoretical contribution in this section is an attempt to define the terms of the social democratic property regime. Whereas communist and socialist states are interested in the state- or democratic-control of the means of production respectively, Piketty argues (without any evidence) that social democracy is characterised by the ‘temporary’ nature of property ownership. In this, he is clearly importing and prefiguring his own conceptual model in order to justify higher and progressive levels of taxation. In this view, capital (unconsumed surplus) is passed down from generation-to-generation - one person can only ever be the temporary steward or guardian of capital wealth, and it should be recycled for other purposes through progressive taxation, most especially progressive taxes on inheritance.

Piketty’s history of social democracy is extremely dull and drags on for nearly a hundred pages. In all honesty, it represents some of the poorest scholarship and weakest writing in the entire book. Piketty bounces from topic to topic, introducing the banal left-of-centre ideas that he’ll pick up in Part Four - including the importance of access to education for achieving lasting equality, the need for taxes on private wealth and his obsession of transnational federalism. Piketty also hand waves at the typical ‘labour aristocracy’ and feminist critiques of mid-twentieth century social democracy - that the affluence of the Western proletariat was built on the back of the exploitation of third world, subaltern workers and women - without offering any sort of serious analysis.

Post-Communism, Neo-propertarianism and MMT

Piketty does the Cold War and post-Cold War periods an immense intellectual disservice. His Chapter on the communist experience runs through the standard liberal ‘dictatorship of prolertariat’, New Economic Policy, Stalin, gulags line - with some added ‘Venezuela!’ thrown in for good measure. Piketty has some useful statistics on China - noting, for example, that overall the public ownership of capital in modern China is closest to that in social-democratic Europe (although distributed very differently, with most land being privately owned but most large enterprises being controlled by the party-state). Those same statistics show that the gradual privatisation of wealth in China essentially ceased around the same time as the GFC - China has been in a steady state ever since (private wealth has grown, but public capital has grown just as much). But in discussing ‘deliberative democracy’ in the context of the Chinese Communist Party, he misses the obvious opportunity to make a comparison to the undemocratic features of neoliberalism in the West.

The remainder of this part of the book makes only two serious contributions. The first is an attempt to define ‘neo-propertarianism’ as a distinct inequality regime. He notes that the governing ideology of the modern developed world is not as explicitly anti-democratic as the canonical texts of neoliberalism/ordoliberalism or even classical liberalism might suggest, and that it remains committed to some degree of popular legitimacy and sovereignty (if anything, based on the idea of meritocratic competition). But, on the other hand, modern political leaders are so terrified of change - of opening Pandora’s Box - that economic management has become increasing opaque and non-transparent - as if hiding the scale of inequality will ameliorate its effects. There’s something of the scholar’s complaint in these pages - Piketty clearly wants more and better data. But there’s some truth to the idea - which one witnesses every day from nominally leftist social democratic parties of the world - that fear [informed by historical experiences of the 20th century] is the overriding motivation in modern governance. God forbid the voting public develops expectations that their governments can do better ($1400 cheques anyone?).

Finally, Piketty concludes by once again looking at the monetary policy and the role of central banks. The man clearly has little sympathy for MMT. Pointing out the historically unprecedented expansion of Central Bank balance sheets after the GFC (a phenomenon that COVID-19 has only accelerated), Piketty argues in familiar Keynesian terms that Central Banks - as executive agencies with powerful capabilities - have a role to play in managing serious crises. Central Bank balance sheets remain small compared to the overall size of the private economy, yet the seemingly unlimited expansion of QE has seemingly fueled bubbles in the prices of certain asset classes, while preventing the kind of ‘creative destruction’ that allowed unsustainable firms to fail. Monetary activism, in Piketty’s view, “attests to the many roadblocks government face in other policy areas such as financial regulation, taxes and budgets . . . [but] even though monetary policy is supposedly a technical matter beyond the understanding of ordinary citizens, the amounts involved are so huge that they have begun to alter perceptions of the economy”. MMT, for Piketty, is not a magic bullet, but a warning sign that something has gone seriously wrong with the ordinary mechanisms of political and economic management. A point on which I will of course agree.