Capital in the 21st Century: Chapter 4
In the fourth chapter of his Capital, Piketty expands the analysis of Britain and France in the third chapter, with analyses of the capital/income ratio in Germany, the US, and Canada.
In large, the German case largely parallels that of Britain and France (more specifically, the later), capital having peaked in the 1870’s at approx. 700% national income, and having seen a dramatic decrease in throughout the first half of the 20th century (bottoming out in 1950 at approx. 200%). That being said, Piketty does note four discrepancies between the German model and the French/British. First, net foreign capital plays a considerably smaller role in 19th century Germany than its two European neighbors. This difference is easily explained by Germany’s lack of an extensive colonial empire. While Germany had foreign holdings, they were nothing compared to the extensive imperial reach of Britain, for example. Interestingly, for a thinker who appears quite intent on distancing himself from the Marxist left, Piketty here makes positive (albeit passing) reference to Lenin’s Imperialism, the Highest Stage of Capitalism. A second noteworthy difference is Germany’s relationship to inflation in the second half of the 20th century. Traumatic hyper-inflation in the 20’s so deeply scarred the German psyche that it would pursue considerably more conservative inflation in the post-war period (rigidly capping inflation at approx. 2% per year). Third, mid-century Germany possessed shockingly low private capital (approx. 100-150% national income), yet since the war, has seen an extensive growth in its private sector (to a substantial 400% national income). Lastly, Germany exhibits a noteworthy gap in wealth compared to other European countries. Piketty explains this fact through two factors: to a lesser extent, Piketty marks a devaluation of German real estate, due in part to “German reunification, which brought a large number of low-cost houses onto the market” (144). More substantially though, Piketty marks “Rhenish capitalism,” with its preference for stakeholders over shareholders as a factor that continues to drive down German firms’ stock value. Nonetheless, as he notes, this stakeholder model may possess its own internal benefits. Firstly, though “the stakeholder model inevitably implies a low market valuation,” such a devaluation does not necessitate a”a lower social valuation” (146). Second, this model may also maintain a greater stability than the more common shareholder model. “Between 1998 and 2002,” Piketty writes, “Germany was often presented as the sick man of Europe. [But] in view of Germany’s relatively good health in the midst of the global financial crisis (2007-2012), it is not out of the question that this debate [between shareholder and stakeholder models] will be revived in the years to come” (146).
The United States, on the other hand, saw significantly different capital trends then its neighbors; the distinctive European “U-shaped curve” of the capital/income ratio is present in the US, but severely attenuated . No doubt this difference can be attributed to the US’s isolation from the full-scale ravages and capital destruction of the Second World War, but Piketty will also note a number of other important factors in this difference. First, capital tends to play a considerably smaller role in the US (generally between 300-500% national income). The value of capital appears, to a great extent to be held down by an extremely high growth rate in the US (both economically and demographically). As might be recalled from the second chapter, a growth in both forms tends to have an “equalizing effect,” decreasing reliance upon inherited wealth and decreasing the value of previously accrued capital. Second, the US employed “no sweeping policy of nationalization” (153) as was common following the Second World War. Lastly, the US shows almost no reliance on foreign capital, having never acquired any significant conventional colonial power. Moreover, on the inverse side, very little capital in the US was foreign-owned. “the world of 1913 was one in which Europe owned a large part of Africa, Asia, and Latin America, while the United States owned itself” (155).
Piketty’s analysis of Canada is considerably more brief, and largely uninteresting (there’s a joke in there somewhere). The most important difference in Canada is that, having remained a colony of the British crown, a large percent of Canadian capital was foreign-owned. In the late 19th century, as much as 100% of national income (roughly 20% of national capital) was foreign-owned. The 20th century has seen this percentage decrease considerably, though Canada’s net foreign income is still negative (roughly 10% of national income, or 2.5% of capital).
The chapter ends with a discussion of slavery. Piketty appears markedly uncomfortable calculating human life as capital–“to add the value of slaves to capital in this way is obviously a dubious thing in more than one way: it is the mark of a civilization in which some people were treated as chattel rather than as individuals endowed with rights” (159)–nonetheless, his analysis is enlightening. At the turn to the 19th century, capital in the form of human persons composed as much as 100% of national income in the US, 250% if the south is calculated separately.
In the next chapter, Piketty will explore the capital/income ratio “over the long run,” and introduce his second law of capitalism: β = s/g.