5 November 2014

Piketty doesn’t respect property rights


In his now-notorious book Capital in the 21st Century, Thomas Piketty asks whether the distribution of wealth is socially useful. His most straightforward statement of the importance of the “usefulness” of the distribution of wealth and income appears in Part 3 Chapter 11, in a subsection entitled “The Rentier, Enemy of Democracy”, wherein he says:

“It is vital to make sure that social inequalities derive from rational and universal principles rather than arbitrary contingencies. Inequalities must therefore be just and useful to all, at least in the realm of discourse and as far as possible in reality as well. (“Social distinctions can be based only on common utility,” according to article 1 of the 1789 Declaration of the Rights of Man and the Citizen.)”.

This notion that the “usefulness” of some distribution of wealth or income is a key policy concern or indeed a legitimate policy concern at all is far from innocent. Suppose someone wrote a book asking how “useful” is the distribution of intelligence, or hair, or maternal love or marriage between those with certain genetic traits, concluding that one or other of these distribution is not “useful” and hence that policymakers should intervene to change it. Most of you, I’m sure, would regard such a book as sinister and be disturbed if you discovered that senior political figures had met with the author to discuss the implications.

“Ah,” some of you might reply, “but my wealth is not like my intelligence or my parental love or my marital choices.” And I respond: you’re wrong. The vast majority of wealth is every bit as much mine as my intelligence or hair or my love or my marital choices.

Most wealth — as Piketty’s own wealth numbers make clear – takes the form of “property”.What I mean by my “property” here is things that I own. Consider a blacksmith who hacks some silver from mountains in the wilderness (or, if you prefer, from a comet in space) and fashions that silver into a locket on which he writes “To my beloved wife”. That locket is the property of the blacksmith or, once he gives it to her, his wife. His claim to it is that it is the product of his labour. He put his intelligence, his strength, his creativity, his love into the locket and it now embodies those things — which we often refer to collectively as his “labour”. His “labour” is every bit as much a part of him as his intelligence, strength, creativity, or love. And his property is the store and product of that labour. His property is his for precisely the same reasons that his intelligence, strength, creatively and love are his. And he can give his property to his wife for just the same reasons he can give her his labour, at which point his property becomes hers.

Thus the moral claim to property has nothing whatever to do with how “useful” it is that I have this and you have that. The claim that my property is mine is simply an extension of my claim that my labour is mine.

There are, of course, folk that deny that anyone privately owns anything. For them, all property is ultimately “ours” (never “mine” or “yours”) for “us” to distribute as “we” will. And it is no coincidence that in societies where this denial of private property was normal, it is at the same time normal to find that folk are told what job they must do, that they are not permitted to travel abroad without permission, or even whom they must marry. Their labour is “ours”, so it is not surprise to find their property is “ours”, also.

Once we understand that property is ultimately the product and embodiment of work (either my own work or the work of those that gifted their work, in the form of property, to me), we can quickly dispose of much else that Piketty offers by way of reasons to be disturbed by the distribution of wealth.

For example, he claims that it is impossible to claim that large fortunes can be justified as the product of innovation or hard work. In Chapter 12 he discusses “The Moral Hierarchy of Wealth”, stating:

“No one denies that it is important for society to have entrepreneurs, inventions, and innovations… [But] no matter how justified inequalities of wealth may be initially, fortunes can grow and perpetuate themselves beyond all reasonable limits and beyond any possible rational justification in terms of social utility. Entrepreneurs thus tend to turn into rentiers, not only with the passing of generations but even within a single lifetime, especially as life expectancy increases: a person who has had good ideas at the age of forty will not necessarily still be having them at ninety, nor are his children sure to have any. Yet the wealth remains, in some cases multiplied more than tenfold in twenty years, as in the case of Bill Gates”, of whom he noted a couple of previously that his “wealth has incidentally continued to grow just as rapidly since he stopped working”.

So in Piketty’s “usefulness” picture vast wealth might be justified if it spurred entrepreneurs on to greater and greater innovation. But he says that in practice fortunes such as Bill Gates’ expand just as rapidly after he stops producing new innovations, so such wealth has ceased to be “useful”.

But if wealth/property is the product of work, there is no reason it should not continue to flourish after I stop working on it more. Suppose I build a windmill. Do I expect the wind to stop blowing after I’ve finished the construction? No! The product of my work in property can take on a life of its own.

This argument is not damaged if I trade my own work with someone else who thinks they can use the fruit of my work to achieve even more, and I get some of their work in exchange. I can trade my labour, so why should I note trade my property, also?

“Usefulness” is not the moral support of wealth. My moral claim to my wealth is (overwhelmingly) my claim that it is my “property”, the fruit of my labour or those that gifted me theirs. Others can give me their property just as they can give me their labour, and we can trade property just as we can trade labour. None of this needs to be justified in terms of “usefulness” at all. “Usefulness” only arises as a concept once we begin by denying that there is any private labour or property at all — once we begin by denying that I belong to myself and, instead, insist there is only the collective “us”.

Dr. Andrew Lilico is an economist and Executive Director of Europe Economics.