Piketty (13) Forecast for the Future

Piketty shows that the distribution of wealth is changing. Wealth grew during the 19th century. It collapsed between 1910 and 1945 and was flat until 1974. Wealth is now growing again.

Piketty assumes that inequality will increase. He says that the 20th century was abnormal, because capital/income ratios declined, as two wars and the great depression destroyed capital. Following 1945, shortages of skilled labour shifted the balance towards labour. At the same time, unions and labour laws increased the share going to labour. That trend ended in about 1973, and since then the capital/income ratio has been increasing, and inequality along with it.

Piketty says we are coming back the 19th century situation. The twentieth century was abnormal. The 19th century was more normal, so we are reverting the norm.

This does not make sense. Most the wealth in 1800 was land. The aristocracy were allocated their land holdings by William the Conqueror and the winners of various civil wars. Renting land was mostly money for nothing, but the land has to be developed to get better returns.

The industrial revolution favoured capital. A huge army of labourers moving from the country to the cities kept wages down until the middle of the century. At the same time, the landed aristocracy declined.

By 1900, wealth was dominated by industrial capital. Land was a tiny share of wealth. Some of the industrial wealth like the railways was gained through political privilege. Most was gained through innovation and saving to produce what people wanted.

Piketty says that the situation that prevailed in the 19th century is a more normal situation, and that we are going back to that. This does not make sense to me. The 19th century was a very different. During this century, the wealth of the landed gentry declined, and the industrial revolution produced rapid economic growth. There is no reason why our future should be like that.

The nineteenth century was a period of relative peace. Between the defeat of Napoleon and the First World War, a hundred years later, many wars occurred, but they were relatively minor. The gold standard meant that inflation was almost non-existent for the entire century. Recessions occurred, but they mostly resolved quickly.

There is no reason to expect these conditions will prevail in the twenty-first century. We are more likely to see serious wars and economic disaster.