Fair Distribution of Wealth
Updated on June 17, 2014
Thomas Piketty, professor at the university of Paris, proposed in his best selling book Capital that capitalism will generate unsustainable inequalities because the rate of return on capital will exceed the rate of growth of the economy. Piketty provided data from many countries about this alleged inherent weakness in capitalism but he did not explain why it was true.
The reason was deliberate action in Great Britain by finance capitalists supported by government. They were following the “Golden Rule: he who has the gold makes the rules.” Their mission was to purge the inflation effect of the Napoleonic Wars that had reduced the return on capital for the wealthy. To do this they slowed the economy by putting people out of work causing calamitous economic hardships.
A century later American bankers formed the Federal Reserve as the lender of last resort but with the same mission to prevent price inflation from hurting the capital return of the wealthy. For this purpose, they developed the Phillips Curve and later NAIRU (Non-Accelerating Inflation Rate of Unemployment) to identify how many people needed to be out of jobs to improve the return on capital.
Piketty’s capitalism tried to maximize profits by suppressing wages and benefits of the workers. The alternative maximized profits by giving the workers the opportunity to reach their potential. These alternatives are available for examination on our web site or in Ray Carey’s book Democratic Capitalism, The Way to a World of Peace and Plenty.
Updated on June 9, 2014
French professor Piketty ‘s new book Capital begins with this proposition:
When the rate of return on capital exceeds the rate of growth of income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the values on which democratic societies are based.
Ludwig von Mises explained how it was the government and finance capitalism that deliberately improved the return on capital by putting people out of work.
After the Napoleonic Wars, the United Kingdom chose to return to the pre-war gold parity of the pound and gave no thought to the idea of stabilizing the exchange ratio as it had developed on the market. Calamitous economic hardships resulted from this; they stirred social unrest and begot the rise of the anti-capitalistic agitation from which Engels and Marx drew their inspiration.
Piketty never mentions Mises nor Adam Smith’s warning to protect the free market from speculators (Smith called them prodigals and projectors) who would deflect capital away from the job-growth economy. The deflection is now almost total with 99% of Wall Street activity trading and less than 1% capital investment.
The amazing popularity of Pickett’s book demonstrates the prevailing anti-capitalist attitude, particularly in academia, with many delighted to find alleged flaws in capitalism. They should be required to read the whole book.