My review of Thomas Piketty’s 2021 collection of his popular essays, Time For Socialism, has just been published at EconLib. (For inviting me to write this review I thank Amy Willis.) Here are two slices from my review:
In Piketty’s universe, the tools, enterprises, and economic processes that are necessary for modern prosperity just materialize, as if out of thin air. About the formation and operation of capital goods and services the reader gets no information beyond the alleged fact that, above a certain level, wealth—that is, the value of capital—”tends to grow mechanically.” An implication of this mysterious reality is that, because the value of capital depends upon the value of what it produces, the total output generated by capital also tends to grow mechanically. In Piketty’s universe, then, capital goods and services are neither caused by—nor affected by—entrepreneurship, risk-taking, and individuals’ private investment choices. Economic and social institutions thus have almost no impact on wealth creation. Ditto for economic and fiscal policies. Adam Smith’s 1776 inquiry into how institutions and norms cause the wealth of nations—Smith’s investigation into how different institutions and norms cause differences in the wealth of nations—must be for Piketty a project wholly sterile and inexplicable.
My best guess is that Piketty is enough of a Marxist to assume that that which “mechanically” generates businesses, factories, tools, and all other productive assets are the historical forces that form society. The toil of physically extracting from capital the outputs with which capital is pregnant is left to laborers, but Piketty’s belief that the value of capital “tends to grows mechanically” allows for only very minor variation over time in the total amount of final output that labor helps capital to birth.
Given the bizarreness of Piketty’s economic vision, the reader is not surprised to find in his work fatal inconsistencies.
One such inconsistency arrives when Piketty asserts that “long-term economic performance is primarily determined by investment in training.” Well. Now that we’re told that improving the training of workers improves the performance of capital, it’s impossible to believe that the value of capital “tends to grow mechanically.” What’s left of the asserted non-role of capitalists in affecting the value of capital once we learn that economic growth is affected “primarily” by the choices humans make regarding how much, and presumably which sorts of, human training to demand and supply? After all, prominent among those who surely have incentives to provide at least some worker training are workers’ capitalist employers.
And so might the amount of worker training currently supplied by real-world employers be optimal? A strong case can be made that it is, especially given that when Piketty measures the growth over time of the value of non-human capital he finds that this growth appears to happen “mechanically.” But if, instead, privately provided worker training is suboptimal, what’s the best way to provide more and better training? Is the answer to entrust government, as Piketty predictably wishes, with more money to supply training? Or might a better way to improve training be through changes in labor law, or increases in the amount of training expenses that employers are allowed to deduct from their taxes? And how about, contrary to Piketty’s demand for a higher minimum wage, lowering or eliminating minimum wages, thus enabling more low-skilled workers to find employment—employment that gives workers valuable on-the-job experience and training?
Questions such as these are naturally asked by economists. Questions such as these are never asked by Piketty.
A second inconsistency is highlighted by Piketty’s insistence that worker training doesn’t merely positively affect economic performance, but that such training is the primary determinant of performance. This insistence, though, is at odds with Piketty’s exclusion of human capital from his measures of capital.