Piketty, Balzac, and Capitalism

Trade and Economics - October 24, 2021

While Piketty teaches that wealth is firmly attached to families, both Balzac’s novel and today’s economic facts suggest the opposite…

In his Capital in the Twenty-First Century, published in 2014, French economist Thomas Piketty argues that inequality of wealth and income has increased so much under modern capitalism that it threatens democracy. The proper response is, he says, however not a proletarian revolution, as Marx had taught, but rather confiscatory global taxes on the rich, 80 per cent on high income and 5 per cent on wealth. They have to be global so that capital cannot escape them by moving around, from Sweden to Switzerland, or from France to Monaco. Piketty presents a simple economic model in which capital’s rate of return, r, exceeds economic growth, g, so that the rich become ever richer, proportionally. He says that ‘inherited wealth comes close to being as decisive at the beginning of the twenty-first century as it was in the age of Balzac’s Père Goriot’. Indeed, Piketty believes that Balzac’s description of French society in Père Goriot may apply to modern society. The French novelist ‘depicted the effects of inequality with a verisimilitude and evocative power that no statistical or theoretical analysis can match’. Here, of course, Piketty is consciously echoing Friedrich Engels who applauded Balzac for providing a realistic history of French society, ‘from which, even in economic details (for instance the re-arrangement of real and personal property after the Revolution) I have learned more than from all the professed historians, economists and statisticians of the period together’.

The Fragility of Wealth

Honoré de Balzac is a great writer and Père Goriot is one of his best novels. But can Piketty enlist him in his Colbertian campaign for tax increases? I doubt it. In his book, Piketty argues that wealth is becoming firmly attached to the rich. He is appalled that ‘Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working’. Piketty adds: ‘Once a fortune is established, the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size.’ Barbara Hutton would hardly agree. She inherited a vast fortune, but she died almost penniless. Again, sometimes billionaires do not squander their money on frivolous activities and instead lose it on projects that they pursue obsessively, as Henry Ford and Daniel Ludwig both did in the Amazon.

Contrary to what Piketty says, Balzac’s Père Goriot is a testimony to the fragility of wealth. The novel takes place in an humble boarding house in Paris during a few months in 1819–1820. The Bourbon kings had recently been restored to the French throne, after the 1789 Revolution and Napoleon’s dictatorship. One of the lodgers, Old Goriot, used to be a rich merchant, making his money selling food in the French capital during the Revolution. He loves his two daughters passionately, and has spent almost all his wealth on them. One daughter, Countess Anastasie de Restaud, has a lover who is an inveterate gambler. Goriot gives Anastasie money to pay off her lover’s huge gambling debts, but when this is not enough, Anastasie steals the family jewels of her husband and sells them. The Count discovers this, buys the jewels back and takes full control of his wife’s affairs. The other daughter, Baroness Delphine de Nucingen, is married to a financier from Alsace. He uses her large dowry in financial speculations which may or may not succeed in the future. Meanwhile she has no access to her money. Although ungrateful to their father, and usually treating him with contempt, they both turn to him in their difficulties and he ruins himself in helping them financially.

Rapid Turnover Among the Wealthy

The story of Goriot and his daughters certainly shows the fortuitious circumstances in which the seemingly rich may find themselves. These protagonists are ruled by passions rather than corrupted by money. Even Goriot’s two sons-in-law needed the dowries he provided. The other lodgers have their financial challenges, too. The young and handsome law student Eugène de Rastignac comes from a noble but penniless family in the South of France, and he has no money to fulfil his ambition of breaking into Parisian high society. Victorine Taillefer is the daughter of a rich man who has practically disowned her. Her father plans to leave all his wealth to his son. Another lodger is rather mysterious. He calls himself Vautrin and seems to have plenty of money, but in the course of the novel it is revealed that his real name is Jacques Collin. He is an escaped convict who runs an underground network of former and present prisoners. Vautrin (who is not of the marrying kind) takes a fancy to Eugène. He suggests to him that he should try to get engaged to the lonely and vulnerable Victorine. Vautrin would then arrange to have her brother killed in a duel, and then Victorine would inherit all her father’s wealth. Although Eugène is not prepared to go along with this scheme, Vautrin nevertheless implements it. But he is suddenly apprehended by the police for his past crimes. Meanwhile Goriot dies, with neither of his daughters appearing at his deathbed until it is too late. Eugenè and a friend of his, Bianchon, a medical student, are the only two people who organise and attend Goriot’s funeral. Afterwards, Eugène climbs to the highest point in the cemetery, looks over Paris at night and exclaims that he is going to take on the city.

In Balzac’s time, wealth was contingent: People could easily lose it if they were in the thrall to a passion such as Goriot’s unrequited love of his daughters, or to an addiction, for example gambling or speculation. Life was risky. Vautrin’s plan for Eugène to marry an heiress could end in disaster if it was found out that Victorine’s brother had been intentionally killed. (This is of course the same dilemma as in Dostoyevsky’s Crime and Punishment: Rodión Raskolnikov is a latter-day Rastignac.) This indicates that Piketty’s interpretation of Père Goriot is wrong. The novel demonstrates precisely the opposite of what he thinks it does: the fickleness of wealth, the ever-present risk of losing it. This is even truer today than in Balzac’s time. Consider the Forbes list of billionaires, published since 1987 and briefly mentioned by Piketty who points out that in 1987–2010 their combined wealth grew at an annual average rate of 6.8 per cent while the annual average growth of the world economy was three times less, only 2.1 per cent. But what Piketty ignores is that these were different people: the individuals on the list had moved, upwards and downwards, some maintaining their wealth, invariably at a lower rate than Piketty envisaged, other losing most or all of it.

Today, Most Wealth is Made, Not Inherited

It is instructive to take a closer look at the list. In 1987, the four frontrunners were all Japanese with a lot of real estate. Their wealth has more or less disappeared. In 2018, of the twenty richest people on earth, according to Forbes, most were self-made, such as Jeff Bezos of Amazon, Bill Gates, Warren Buffet, and Mark Zuckerberg. Some had inherited wealth, such as Charles Koch, but they had made much more themselves. Forbes also publishes a list of the 400 richest people in the world. In 1984, less than half on the list were self-made. By contrast, in 2018 two-thirds of the 400 richest people in the world had created their fortunes themselves. Journalist Louisa Kroll comments: ‘Over the past 30-plus years, the number of  Forbes 400 members who have forged their  own path, using entrepreneurial capitalism as  a means to attain a vast fortune, has increased  dramatically. This tells us many things, but one  should stand taller than the rest: The American  Dream, it seems, is alive and well.’

A similar result was obtained by the Sunday Times in London when its journalists compiled a list of the 1,000 richest people in the United Kingdom in 2018. Journalist Robert Watts comments: ‘Britain has been transformed into a country where the self-made can succeed, with almost all the 1,000 richest people now entrepreneurs who built their own fortunes. Inherited wealth and old money have been all but banished from the 30th annual Sunday Times Rich List. When the Rich List was first published in 1989 just 43% of the entries had made their money themselves and the surest way to a fortune was to be a landowner — preferably with a title. Today 94% of those in the Rich List are self-made entrepreneurs behind some of Britain’s game-changing businesses.’ The richest man on the list, Jim Ratcliffe, with an estimated fortune of £21 billion, lived in council houses near Manchester as a child, was sacked from his first job after three days and only started a business when he was nearly forty. The picture of the rich in 2018 found in Forbes and Sunday Times is quite different from that presented by Piketty where wealth is the result of unconstrained capital accumulation, with the past tending to devour the future.

The Poor Have Become Richer, Too

It is certainly true that in recent times the rich have become richer, as Piketty emphasises. But the poor have also become richer, even if it may be true that the rich have increased their wealth and income at a faster rate than the poor, which is essentially Piketty’s complaint. To put it differently, both the floor and the ceiling of the social edifice have moved upwards, but perhaps the distance between the two has also increased. To those who see poverty as a problem, not affluence, this is not a cause for worry. They point out the remarkable conclusions from the Index of Economic Freedom, published annually by the Fraser Institute in Canada. If we divide the economies of the world into four quartiles so that the freest economies are in the first quartile and the least free economies in the fourth quartile, the average income of the bottom ten per cent in the freest economies is actually higher than the average income of all in the least free economies. Capitalism works for the poor no less than for the rich. Piketty on the other hand is apparently more concerned with pushing down the rich than with lifting up the poor. Zsa Zsa Gabor one quipped that no rich man was ugly whereas Piketty seems to find all rich men repellent. He ignores the traditional arguments for the unintended benefits of the rich for society: that they bear the costs of transforming luxuries into necessities (cars, aeroplanes, telephones, computers); that venture capitalists and entrepreneurs are more likely to find ways of stimulating economic growth than bureaucrats or professional politicians; and that they act, because of their ample means, as constraints on the possible abuse of power.

Many tend to envy the rich. When a friend of mine succeeds, something little inside me dies, Gore Vidal said. It is not enough that I do well, others have to do badly, William Somerset Maugham remarked even more sourly. While the general arguments for the unintended benefits of the rich for society apply equally to the heirs of fortunes as to creative capitalists, there is an additional argument for inherited wealth. It is that it contributes to the accumulation of cultural capital. It has often been observed, by Balzac and others, that good taste and refined manners are probably found to a greater extent in old money rather than new. It is telling that the French term ‘nouveau riche’ is mostly used in a derogatory sense, about brash, vulgar, and ostentatious behaviour. There is something to be said for the pursuit of expensive preferences such as continuing to live on a family estate, keeping it in a good condition, collecting rare books, exquisite paintings or fine wines, going to the opera and travelling in style. Such preferences and activities add variety, colour and depth to life. In a society where private wealth has been expropriated, ‘Who could buy paintings? Who even could buy books other than pulp?’ Piketty’s compatriot Bertrand de Jouvenel asks in a nice little book, The Ethics of Redistribution. If society is thought of as a framework within which individuals and groups have the opportunity to explore life projects and to try and achieve their goals, inherited wealth certainly serves a purpose. Citizens should be contributors, benefactors, sponsors, donors, hosts, not only maintenance men or recipients of government benefits. They should, Jouvenel says, value ‘warm hospitality, leisured and far-ranging conversation, friendly advice, voluntary and unrewarded services. Culture and civilisation, indeed the very existence of society, depend upon such voluntary, unrewarded activities.’ If the rich did not exist, we should have to invent them.