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Friday, 20 October 2017

Capitalism in the Twenty First Century (4)

(Thomas Piketty) - This book, Capitalism in the Twenty First Century by the reputable French academician and thinker

, Thomas Piketty, when first published in French in 2014 have been received by wide support and criticism according to class interest. Never, the less it was a first class academic work. This is demonstrated by the English translation of the book was published by Harvard University, USA.

From Marx to Kuznets, or Apocalypse to Fairy Tale

Turning from the nineteenth- century analyses of Ricardo and Marx to the  twentieth- century analyses of Simon Kuznets, we might say that economists’  no doubt overly developed taste for apocalyptic predictions gave way to a similarly excessive fondness for fairy tales, or at any rate happy endings. According to Kuznets’s theory, income in e quality would automatically decrease  in advanced phases of capitalist development, regardless of economic policy choices or other differences between countries, until eventually it stabilized at an acceptable level. Proposed in 1955, this was really a theory of the magical postwar years referred to in France as the “Trente Glorieuses,” the thirty glorious years from 1945 to 1975.9 For Kuznets, it was enough to be patient, and before long growth would benefit everyone. The philosophy of the moment was summed up in a single sentence: “Growth is a rising tide that lifts all boats.” A similar optimism can also be seen in Robert Solow’s 1956 analysis of the conditions necessary for an economy to achieve a “balanced growth path,”
that is, a growth trajectory along which all variables— output, incomes, profits, wages, capital, asset prices, and so on— would progress at the same pace, so that every social group would benefit from growth to the same degree, with no major deviations from the norm.10 Kuznets’s position was thus diametrically opposed to the Ricardian and Marxist idea of an inegalitarian spiral and antithetical to the apocalyptic predictions of the nineteenth century.
In order to properly convey the considerable influence that Kuznets’s theory enjoyed in the 1980s and 1990s and to a certain extent still enjoys today, it is important to emphasize that it was the first theory of this sort to rely on a formidable statistical apparatus. It was not until the middle of the twentieth century, in fact, that the fi rst historical series of income distribution statistics became available with the publication in 1953 of Kuznets’s monumental Shares of Upper Income Groups in Income and Savings.
Kuznets’s series dealt with only one country (the United States) over a period of thirty- five years (1913– 48). It was nevertheless a major contribution, which drew on two sources of data totally unavailable to nineteenth- century authors: US federal income tax returns (which did not exist before the creation of the income tax -1—0—+1—12in 1913) and Kuznets’s own estimates of US national income from a few years earlier. This was the very first attempt to mea sure social in e quality on such an ambitious scale.
It is important to realize that without these two complementary and in-dispensable datasets, it is simply impossible to mea sure in e quality in the income distribution or to gauge its evolution over time. To be sure, the first attempts to estimate national income in Britain and France date back to the late seventeenth and early eighteenth century, and there would be many more such attempts over the course of the nineteenth century. But these were isolated estimates. It was not until the twentieth century, in the years between the two world wars, that the first yearly series of national income data were developed by economists such as Kuznets and John W. Kendrick in the United States, Arthur Bowley and Colin Clark in Britain, and L. Dugé de Bernonville in France. This type of data allows us to mea sure a country’s total income. In order to gauge the share of high incomes in national income, we also need statements of income. Such information became available when many countries adopted a progressive income tax around the time of World War I (1913 in the United States, 1914 in France, 1909 in Britain, 1922 in India, 1932 in Argentina).
It is crucial to recognize that even where there is no income tax, there are still all sorts of statistics concerning whatever tax basis exists at a given point in time (for example, the distribution of the number of doors and windows by department in nineteenth- century France, which is not without interest), but these data tell us nothing about incomes. What is more, before the requirement to declare one’s income to the tax authorities was enacted in law, people were often unaware of the amount of their own income. The same is true of the corporate tax and wealth tax. Taxation is not only a way of requiring all citizens to contribute to the financing of public expenditures and projects and to distribute the tax burden as fairly as possible; it is also useful for establishing classifications and promoting knowledge as well as democratic transparency.
In any event, the data that Kuznets collected allowed him to calculate the evolution of the share of each decile, as well as of the upper centiles, of the income hierarchy in total US national income. What did he find? He noted a sharp reduction in income in e quality in the United States between 1913 and 1948. More specifically, at the beginning of this period, the upper decile of the income distribution (that is, the top 10 percent of US earners) claimed 45– 50 percent of annual national income. By the late 1940s, the share of the top decile had decreased to roughly 30– 35 percent of national income. This decrease of nearly 10 percentage points was considerable: for example, it was equal to half the income of the poorest 50 percent of Americans.13 The reduction of in equality was clear and incontrovertible. This was news of considerable importance, and it had an enormous impact on economic debate in the postwar era in both universities and international organizations.
Malthus, Ricardo, Marx, and many others had been talking about inequalities for decades without citing any sources whatsoever or any methods for comparing one era with another or deciding between competing hypotheses. Now, for the first time, objective data were available. Although the information was not perfect, it had the merit of existing. What is more, the work of compilation was extremely well documented: the weighty volume that Kuznets published in 1953 revealed his sources and methods in the minutest detail, so that every calculation could be reproduced. And besides that, Kuznets was the bearer of good news: in e quality was shrinking.