Page 76 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

BANKING
“One only has to think of Marie Antoinette to get
a feeling of the extreme inequality in the 18th century – where private wealth overshadowed national income and was concentrated in the hands of rich families atop a rigid class structure.”
national income and was concentrated in the hands of rich families atop a rigid class structure. is system continued until it was disrupted by the First and Second World Wars and the Great Depression. Piketty explains that the period from 1914 to the 1970s is an historical outlier in which both income inequality and wealth inequality fell dramatically. It would seem, according to Piketty, that the enormous disruptions and violence of the rst half of the 20th century was actually the engine room for wealth re-distribution and the cause of the lowering of the Gini Coe cient (a measure of inequality) in Western economies. He asserts that now that the shocks of the early 20th century have subsided, inequality is approaching levels last seen before the First World War. His theory is that the extreme scal stimulation of a broad-based nature caused by the need to rapidly create munitions and enable the logistics of war, led to an injection of wide-ranging economic stimulus never before seen and probably never to be seen again.
Piketty’s theory behind the more recent surge back to the levels of pre- 20th century inequality has to do with capital accumulation. His central claim is that the free-market system has a natural tendency toward increasing the concentration of wealth. Other than during periods of extreme disruption – in the Western economies that he investigates – the rate of return on capital including investments, dividends, and royalties has consistently exceeded the rate of economic growth. He then goes on to point out that where r > g, r being the rate of return on capital and g being economic growth, it causes rising inequality through an excessively greater concentration of wealth in the hands of a few.
It’s this patrimonial capitalism – where the economic elite attain their fortunes through inheritance rather than innovation or entrepreneurship – which Piketty views as one of the key drivers of inequality. Simply, inherited wealth grows faster than output and income. Piketty mentions that the combination of slow growth alongside better nancial returns will result in inherited wealth that will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”. e rising wealth of the 1 percent is not a random consequence, but the palpable result of capitalism itself. His argument is that this will ultimately continue until either public policies and institutions are put in place to regulate the relationship between capital and labour, or con ict ensues. is prediction is based on an extrapolation of past trends and also assumes that as wealth rises, capital will not experience diminishing marginal returns.
74