A Reader's Take on Piketty – Belmont Boy Unconvinced

One of our regular readers who is occasionally in e-mail contact with us, recently informed us that a friend of his, who is currently off to fight forest fires somewhere in California (this explains the reference to smoke you will encounter further below), breathlessly regaled him with praise for the neo-Marxist theses of Mr. Piketty.  Our reader, who goes by the handle of “Belmont Boy” dutifully started to read Piketty's tome, so as to be able to provide informed comment. Below you find his initial impression, which essentially refers only to the book's introductory section. We have highlighted a few passages of his commentary we believe are especially noteworthy:


“God, this guy is wordy. I'm still plodding through his intro. His premise is that unequal wealth distribution should be the focus of economic analysis. Why? Because people tend to be envious? Why shouldn't "growth" be the center? He talks about growth as if it just happens, with no acknowledgment that the industrial revolution could not have taken place without an accumulation and concentration of capital.

Of course it took time for wages to catch up: capital kept getting reinvested, and the result was the production of goods on a massive enough scale that "the masses" came to benefit. Good thing there was no onerous taxation of capital back then. It would have only served to constrain growth. Good thing no governmental central planners directed the allocation of capital. Cronies, to be sure, would have prospered…at the cost of lower growth yet.

Myself: I think it's rather nice that in the "developed" world, at least, virtually everyone has electricity, clean water, indoor plumbing, phones, cars, and gadgets galore. It wasn't long ago that even kings had none of that. So what if some contemporary megalomaniacal a**holes have eleven houses, eight yachts, and three airplanes?

If he's so concerned about income inequality, he should examine why government functionaries (and academic economists) make so much more than people in a vast array of jobs who, unlike them, produce useful goods and/or provide manifestly worthwhile services.

If he did bother to examine that, he would discover the cause is extraction of wealth from the productive sector of the economy (via taxation and inflation) and its reallocation by Our Betters to activities, and to other Betters, with utter disregard for the fact that said reallocation only squanders capital. While it buys votes, of course, for those of Our Betters known as politicians.

It's a curious thing: the most "unequal" distribution of wealth has always seemed to take place where there is the greatest centralized concentration of power. And it's curious that, in such places, aggregate wealth, even where it once amounted to a lot, ends up amounting to not-so-much.

How can you expect me to take seriously a guy who misunderstands so fundamentally, he can write: "The price system plays a key role in coordinating the activities of millions of individuals…"? There is no "price system." Prices are nothing but manifestations of the choices made by millions of individuals, who may often prefer not to "coordinate" their activities at all. That is what prices are, and it is all they are. Except when agents of centralized power, legitimized and facilitated by hyper-miseducated fools who concoct absurd concepts (like "price systems") which invite coercion, invoke those concepts to justify their manipulation of prices and imposition of costs on people who would like to think they are free.

I shall look forward to arguing with you soon in person. Preferably about something other than the cockamamie ideas of Monsieur P. Meanwhile, may all that smoke around you blow elsewhere, may your air be clear and sweet.”


If there is one small bone we would have to pick with Belmont Boy's assessment, it is this: prices do in fact have a coordinating function in the market economy.  The most damaging interventions in the economy, such as those inflicted by monetary policy, do damage precisely because they lead to price distortions. They create perceptions of reality that later turn out to have been illusory and therefore lead to malinvestment and the squandering of real wealth.

Whether one refers to the entire array of individual prices as a “price system” seems mainly a question of semantics. However, we know of course where he is coming from; as he says, prices are indeed the result of choices made by individuals.

Note in this context that Piketty's book is weighted down by page after page of statistics (many of which have in the meantime turned out to be questionable – see “Not Even His Data Are Worth Anything” for details on this), and the main reason why governments collect economic statistics is of course their desire to intervene in the economy. These interventions in turn serve to buy votes, reward numerous cronies and lobbyists, and to generally ensure that the parasitic looting classes remain in clover.

Hong Kong's former financial secretary Sir John Cowperthwaite, who presided over the rapid advance of the crown colony from a poor fishing village to one of the world's most vibrant, most free and and consequently richest economies, once famously told a visiting delegation of British bureaucrats that he could unfortunately not provide them with any data on Hong Kong's unemployment rate. As he explained to them, his administration didn't want to collect such data, because that would only provide a temptation for government meddling with the economy.

Needless to say, Sir John was a member of a dying breed even back then; today, public servants of such caliber exist only in dreams.


Sir-John-CowperthwaiteSir John James Cowperthwaite, financial secretary of Hong Kong from 17 April 1961 – 30 June 1971. He was one of a kind.

(Photo via understandglobalization.com / Author unknown)


The Relentless “Inequality” Promotion

Here are a few additional comments on the parts of Belmont Boy's critical remarks we have highlighted above. Firstly it should be noted that if not for the relentless promotion of the “inequality” meme in the media, almost no-one would probably think twice about it.

A typical example of this promotion is a recent article that appeared in Bloomberg/Businessweek, entitled Where Are the Female Billionaires?”. The author is worried about the fact that only 15% of US billionaires appear to be women. Surely, “we” must do something about that, right? Our reaction was and remains: “who cares?”.

To our great relief, the vast majority of the comments to the article reveals that most readers appear to have had exactly the same thought. In fact, it seems a great many people refuse to be taken in by the relentless inequality promotion.

As far as we are concerned, we even harbor some doubts that Piketty's tome is a genuine “bestseller”. We keep wondering who in his right mind would buy this long-discredited Marxist tripe voluntarily. After all, time is a valuable resource, and there are millions of things to read that are more interesting, more informative, and/or more entertaining. It would of course be very easy for it to be arranged to make it look like it was a bestseller (if e.g. George Soros were to buy 200,000 copies all at once, he would earn the money back in the time that passes between him picking up his breakfast coffee cup and taking the first sip). Once the book is pushed up the list of best-selling books, the rest happens almost by itself – endless fodder for a massive media campaign is created overnight. We cannot prove this little conspiracy theory of ours, but it seems inconceivable to us that the book became a bestseller “just by itself” or due to word of mouth. What about the thousands of other books that contain similar wretchedly bad economics? Shouldn't they become bestsellers as well? Just asking.

How relentless the promotion has become is also reflected in the first paragraph of the Bloomberg article on female billionaires mentioned above.  It quotes a study by the left-leaning Peterson Institute, a private “think-tank” that seems to serve as a storage siding for has-been public servants such as former MPC member Adam Posen, who incidentally was a tireless promoter of money printing while he was a member of the  BoE's monetary policy making arm.  Most of these think-tanks are closely aligned with government, and are keeping public intellectuals in bread, at salaries that far exceed their market worth. To paraphrase Hans-Hermann Hoppe, their output is for the most part irrelevant and incomprehensible, and to the extent that it is comprehensible, it is viciously statist. So here is how the article begins:


“The Piketty-fueled debate about wealth inequality continues to rage. So do conversations about gender equality. At the intersection of the two comes a new report from economists Caroline Freund and Sarah Oliver of the Peterson Institute for International Economics, who point out that the rich who are getting richer are disproportionately, overwhelmingly men.”


(emphasis added)

Once again, there would be no debate “raging” at all, if not for the media incessantly promoting it. Just as Belmont Boy asks, if not for envy, why should anyone care? One part of his assessment bears repeating in this context:

I think it's rather nice that in the "developed" world, at least, virtually everyone has electricity, clean water, indoor plumbing, phones, cars, and gadgets galore. It wasn't long ago that even kings had none of that.”

Precisely. So why would this “virtual everyone” object to the fact that there is wealth inequality – unless he is driven by envy?

Note in this context that yet another one of Piketty's major contentions has recently been blown out of the water by an examination of the data. Piketty argues that most people don't “deserve” their wealth because they inherited it. But as a recent study found out, of the 400 people that were on Forbes' list of the richest Americans in 1980, 327 people have dropped off – and most of those who are still on it are self-made entrepreneurs who got rich because they found great ways to serve their fellow men. The percentage of self-made billionaire entrepreneurs on the list has in fact grown from 40% to 69% between 1982 and 2011.

When looking through various comments in the media on Piketty's book, we also came across this article at Forbes: “Thomas Piketty Gets The Numbers Wrong” by Louis Woodhill. While it contains a number of interesting factoids, we are mainly mentioning it because Mr. Woodhill not unreasonably wonders whether Mr. Piketty, who is on track earn $1,000,000 from book sales and speaking engagements this year alone, will voluntarily hand over 80% of the portion of his income that exceeds $500,000 to France's government, in line with his very own 80% tax rate proposal. As Mr. Woodhill remarks:


“After all, having decried rising inequality in France, Piketty would hardly want to contribute to this scourge personally.”


We're obviously not holding our breath on that one. However, this brings us to another of Belmont Boy's points we have highlighted above, namely:

“…he should examine why government functionaries (and academic economists) make so much more than people in a vast array of jobs who, unlike them, produce useful goods and/or provide manifestly worthwhile services.”

The hypocrisy of the people who decry capitalism at every opportunity is certainly not discussed as often and extensively as it should be. Along with government functionaries, many modern-day intellectuals, whom the above-mentioned Hans-Hermann Hoppe criticizes extensively and trenchantly in “Natural Elites, Intellectuals, and the State”, deserve a lot more scrutiny in that respect. Without the capitalist system, the funds to pay their excessive salaries would not exist. And yet, they are  blaming capitalism for all our woes. Obviously, if the State were not extracting wealth from wealth generators by coercion, they wouldn't  get paid either, or get paid only a fraction of what they are getting now. Most of them are compensated far above their genuine market value; in a truly free market economy, only intellectuals of considerably note could hope to receive above average pay from private patrons.

Note here that while these people are for the most part not super-rich – which explains their sheer boundless envy of successful businessmen, whom they regard as intellectually inferior to themselves – their incomes are far higher than those of the median household/average citizen/simple worker, whose interests they often pretend to represent.

In most cases we can however be quite certain that the only interests they really represent are their own. We need only apply common sense and a bit of knowledge about human nature to this question to see that this must be so. The fact is that if not for their support of statism, these people would lose both social and financial status. According to Hoppe:


“There are almost no economists, philosophers, historians, or social theorists of rank employed privately by members of the natural elite. And those few of the old elite who remain and who might have purchased their services can no longer afford intellectuals financially. Instead, intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand ("tenured"), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen.”


(emphasis added)

One question that remains to be answered is what the reason for the relentless promotion of the inequality meme in the mainstream media is. It is noteworthy in this context that none of the thousands of articles on the topic that have appeared in the mainstream press (as far as we can tell from employing search engines to find exceptions) has even mentioned in passing that the real incomes of median wage earners are actually declining, or has attempted to explain why this is happening.

However, it has been known since the 18th century already that is it money supply expansion that is the root cause of this phenomenon (which is named the “Cantillon effect”, after the author first discussing it). This likely explains the strange absence of this little detail from the discussion. It is a topic considered beyond the pale. Some things are simply not permitted to enter into the debate in our self-censoring media. Criticism of central banking especially appears strictly circumscribed: critiques may only consist of proposals of how to better tweak central planning, but they may not question the institution of central banking as such, or make mention of the vast damage is is actually doing. We are all supposed to “know” that central economic planning by wise bureaucrats is working and that no better alternative is even thinkable. 

Note in this context that the unemployment mandate of the Fed can only temporarily achieve its goals if monetary policy does manage to devalue the real incomes of workers; this is to say, as long as prices rise faster than incomes. This in turn implies that a reverse redistribution of wealth must be the main effect of the policy. It is in essence a giant fraud, but that cannot be admitted. Instead, the process is often described as the Fed captaining a space-ship, which needs to reach “escape velocity”.


spaceshipmars-2The economic spaceship. Will this thing reach “escape velocity”?

(Photo via: Jeff Duntemann and MST3K Temple)


This brings us back to the point of the promotion. Since the effects of monetary policy as a rule remain unmentioned, the stated or unstated implication of the promotion is naturally that the State “must do something” to take care of the non-problem of inequality (note here that we are differentiating between the fact of falling real incomes as a result of monetary policy and inequality as such).

So what can possibly be done? It seems to us that the intention is to make certain steps governments wish to take in the future politically more palatable. These will invariably include higher taxes, including things like the overnight imposition of “wealth taxes” and capital controls as proposed by the IMF, and similar actions.

Such activities are undoubtedly in the planning stage at present, as governments across the developed world are de facto insolvent. As an extension to this – because many people will try to escape the coming highway robbery – there are likely going to be attempts to ban cash currency and destroy the last vestiges of financial privacy that still exist. The former will force people to keep all their funds inside a banking system that due to being fractionally reserved, is just as de facto insolvent as governments are.


Euro area government debtEuro area, government debt to GDP – via ECB – click to enlarge.


As we have previously mentioned, it could well be that the recent moves to decriminalize drugs – as overdue as they are – must be brought into context with this as well. One undoubtedly positive effect of decriminalization would be that organized crime would decline significantly, as one of its major profit centers would disappear. Instead, state-approved and licensed drug distributors are going to take its place (it won't be a free market, that is absolutely certain). However, we are cynical enough to doubt that a useful instrument of social control such as drug prohibition is going to be relinquished without being part of a larger plan. It is obviously a big strike against the underground economy that is not under government control at present, and we suspect that this is the main motive for the sudden change in tune.



As the Daily Bell (which has discussed the promotional aspect of the inequality meme in more detail than any other alternative media outlet we know of)  often points out, such promotions never happen without a reason (for a list of the Daily Bell's articles on the topic, click here). Piketty's unexpected popularity did not just drop from the sky. Neither do soul-baring, self-accusatory articles by allegedly repentant “plutocrats” such as this one (especially as the man in question is himself an entrepreneur).

If there is a reason, then we must ask what it is. Luckily, these promotions are usually quite transparent. Not as excruciatingly primitive as the lies told to justify the 2003 invasion of Iraq, but transparent enough to allow us to come to a few educated conclusions. In this case, the wider economic and socio-political backdrop must be taken into account. To put it as simple as possible: the ruling classes are probably afraid of the inevitable economic and financial cataclysm their policies are going to bring about. The sovereign debt crisis in the euro zone was undoubtedly seen as a big warning shot in this respect. Therefore, plans are made with the aim of delaying the inevitable and ensuring that no fundamental systemic change will occur (i.e., the continuity of the ruling class and its advisers is the main goal). These plans likely go beyond merely a well-coordinated wealth grab, and include a few truly sinister ideas as well. Given what has happened in recent years, it cannot hurt to prepare for the worst – this has the advantage that one can only be surprised positively.


171-1102084324-genseric_sacking_romeA spot of old-time pillaging and plundering, in this instance perpetrated by Visigoths in Rome, AD 410.

(Painting by Karl Pawlowitsch Brjullow)




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One Response to “What is Behind the Inequality Promotion?”

  • rodney:

    prices do in fact have a coordinating function in the market economy. The most damaging interventions in the economy, such as those inflicted by monetary policy, do damage precisely because they lead to price distortions.

    Just for the sake of completion, the role of unhampered markets and prices in economic coordination, and the emergence of the business cycle as an intervention-induced discoordination of production and demand schedules, runs as a common thread through most of Friedrich A. Hayek’s work.

    To his credit, he first set out to show how things could possibly work right when leaving the economy alone, to then show how intervention introduced a “wedge” in the balance of market forces, a discoordination that would lead to massive entrepreneurial error.

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