Statistics Aren't Enough to Discredit Piketty's Failed, Blood-Soaked Ideas

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Who says sound can't travel through a vacuum? A roar of applause for Thomas Piketty's book is echoing through the cognitive void of today's culture.

"Capital in the Twenty-First Century" offers up the same failed, blood-soaked doctrines as its forbearer, "Das Kapital." But in our Twitterized culture, yesterday's disgraced notions, now forgotten, can be re-Tweeted as revelations.

Piketty himself has full cognizance of the history, as he demonstrates in the book's Introduction, which plays the coy game of "socialist criticism" with Marxism. Though acknowledging Marx's "limitations," Piketty concludes that "Marx's analysis remains relevant in every respect."

Yes, it remains "relevant"--to the surviving relatives of the 100 million people exterminated by Marxist regimes. It remains relevant as the grimmest possible warning of the unspeakable horrors to which these evil ideas lead.

Evil cannot be combated by offering counter-statistics, as many conservatives are doing. No one is concerned with the statistics, only with the moral narrative. And the book's opening epigraph gives us that, via a quote from France's 1789 "Declaration of the Rights of Man and the Citizen":

"Social distinctions can be based only on common utility."

In quiet, understated language, that statement lays down the formula for total collectivism. It cuts the ground out from under individual rights, substituting "common utility" as the standard for state action. It demands the yoking of the individual to the group.

M. Piketty doesn't mention that four years after that ill-named Declaration of Rights came the Reign of Terror. The sequence is logical: the Declaration appealed to the raw envy of the mob, whose instrument became the guillotine.

"Social distinctions"? There is no such thing. There is only individual judgment--or its enemy: government-imposed dogma. There are the distinctions among people that you make, the distinctions I make, and those Thomas Piketty makes--there are no distinctions made by society.

There are legal distinctions, enforced by the state. In Nazi Germany, Jews were legally defined as inferior or non-humans. In the Ancien Regime, the monarchy handed out titles elevating court favorites above the rest of the population. In contemporary America, if you earn more than average, you are legally discriminated against by being compelled to pay a higher tax rate. Legally enforced distinctions, whether to elevate or to squash, consist in forbidding individuals to act on their independent judgments.

The "social distinction" Piketty is concerned with is inequality of wealth. But this is not a social distinction. Bill Gates' immense fortune was earned in free trade with individuals. His wealth came from the "dollar votes" cast by every individual who bought a Microsoft product.

Even more collectivist is the idea of "common utility" as the standard of morality. It means that you have no right to your own life, you are merely a cell on the body of society, and if your existence is not deemed to serve "the common good," you are to be liquidated--which is exactly what happened in the Reign of Terror.

Since there is no such entity as "society," the subordination of the individual to "society" means his subordination to certain other individuals -- whichever mass of them succeeds for the moment in being declared the majority, the consensus, the public, or (per Rousseau) the spokesmen for the "real will" of "the people."

The very idea of thinking about equality or inequality of wealth is a collectivist notion. Equality of wealth is a value to no individual. What matters is your standard of living, not whether you have more, less, or the same as those around you. Justice is a matter of keeping what you have earned, not whether others have earned more or less than you. But the concept of "earn" is blanked out by the egalitarians.

Economically, Piketty's thesis is that people's wealth is becoming increasingly more unequal, with the growth of profits exceeding the rate of growth in wages.

Let's assume that's true. So what?

There's no particular ratio of these aggregate numbers that is of moral concern. The problem (if it were real) would be the stagnation of wages, not the non-stagnation of other forms of income. The problem would not be the improvement of the capitalists' standard of living,  but the lack of improvement for others.

But some of life's losers don't see it that way. Festering with hatred for those who succeed, they prefer universal misery, including their own, to permitting anyone to excel. Because excellence makes them too keenly aware of their own failures and their bad reputation with themselves.

For the envy-ridden losers, contemplating the 1% makes them choke on their own spittle. How dare anyone make them look like the zeros they secretly feel they are? These excellers, these men of practical wisdom, must be brought down, humiliated, punished for the sin of exceeding their brothers.

On the economic issue, Piketty writes, "The rate of return on capital exceeds the rate of growth of output and income."

But who's business is that? Not yours, not mine, not Piketty's. The wage rate is negotiated between the employer and the employee. The wage rate is not something that "society" assigns; third parties should butt out.

And here's a fresh thought: workers like the wage rates they are getting. They are happy with them. Yes, happy. If they weren't they would turn them down. At the mutually agreed upon wage rate, both parties gain by the trade. The employer prefers to spend his dollars on the employee rather than on any alternative use he can find for his money, and the employee prefers to have that wage rather than gaining an income by any alternative--whether that would come from finding another offer or going into business for himself.

The price of labor, like the price of anything else, is by its very nature a price that profits both parties to the trade.

The premise of those who denigrate freely accepted wage rates is that the selfishness of employers creates the workers' need for money--i.e., makes the workers have to work for what they want to buy. That absurdity lies behind the oft-heard plaint: but the workers have to eat! Yes, they do--because of the law of cause and effect, not because of anyone's will. The need of the workers (and of everyone else) is an unalterable fact of reality: products don't fall from the sky. No productive work, no products.

The investments of the capitalists are what make it possible for the workers to easily earn enough money to buy their homes, their cars, their smartphones, their big screen TVs.

Contrary to Marx, the investments of the capitalists are what make the difference between what a worker could garner by scratching the earth with a stick and what he can earn for doing much easier and more rewarding work--including even the proverbial task of flipping burgers at McDonalds. Wage-earners should be grateful to the capitalists for immensely magnifying what their labor can earn them.

Nothing is more beneficial to the poor than the selfishly invested savings of the rich. And the richer the better.

Which brings me to the economic fallacies in the Piketty/Marxist view of things.

A rise in aggregate profits without a corollary rise in real wages is a logical impossibility. The only way to make a profit is to hire labor and produce--and then sell the products to a mass market, which means to the 99%. More products--i.e., more supply--means falling prices. Inflation masks this rise in real wages, but does not alter its inevitability. More goods produced and sold, more goods purchased and enjoyed.

Note that Piketty refers to "the rate of return on capital." There is a monumental difference between absolute profit and the rate of profit. A man might make $1 million in profit, but if he has to invest $1 billion to earn it, his profit rate is only one tenth of one percent. Another man may make a profit of only $100, but if he had to invest only $100 to make it, his profit rate is 100%--he has doubled his money.

The rate of profit can be high when the total amount of profit is low, and that may well be the situation now. There's a shocking reason why the rate of profit (not the absolute amount of profits) should be high today. That reason is: fear. Fear of even more government attacks on investment, production, profit, business, and on capitalists personally.

We do sometimes hear that businesses do not want to hire and expand because of "uncertainty." But let's not soft-pedal the problem. The issue is not uncertainty but fear. Would businesses rush to invest if they were certain that all their profits would be taxed away? Or that they would be libeled by the media as "economic criminals"?

Uncertainty is better than that kind of certainty. When there's uncertainty, that means there's at least some hope of escaping the negatives. No, it is not uncertainty, but fear--a totally rational fear, based on painful experience--that is stopping businessmen from hiring and expanding. In the current political climate, great risk attaches to succeeding at money-making.

When the risk is high, the reward has to be high to overcome it. It's called "the risk-reward ratio." If you are considering two investments with the same upside potential, but one carries 10 times the risk, you will take the safer one. A higher upside potential is necessary to lure investment funds into riskier ventures.

When the risk is universal, attaching to all investments--because it comes from government policy (rising taxes, more regulation, etc.)--people with money that could be invested will instead buy government bonds (financing consumption not production). Or they will spend their money on their personal consumption, rather than accepting the unwarranted risk. In such a situation--which is what we face today--an extraordinary rate of profit is required to lure funds into investment.

Thus we reach the opposite of Piketty's conclusion: a high rate of profit is caused by government crimes against the producers.

Piketty's solution to the "problem" of high profits is to make profit even more scarce--flouting the law of supply and demand. He proposes, for instance, (much) higher taxes on the wealthy--who are the major source of investment funds.

Government punishment of successful investment--and vilification of investors for their successes--raises the rate of profit required to attract investment.

Those who want a lower rate of profit should be demanding the abolition of Dodd-Frank, Sarbanes-Oxley, Obamacare, the EPA, the Antitrust Laws, and the Fed's depreciation of the dollar.

Above all, they should be demanding an end to the demonization of those brave enough to invest. A good first step would be the proud, morally confident rejection of the vicious egalitarian morality underlying Piketty's book.

Harry Binswanger is an Objectivist philosopher, and was a close associate of Ayn Rand. He blogs at  

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