Has Thomas Piketty met his match?

Well, I think I might have met his match. She's called Deirdre McCloskey

24 May 2014

9:00 AM

24 May 2014

9:00 AM

I feel a certain disappointment with myself at the moment. On the big question of the day, ‘How worried should we be about inequality?’, I find myself miserably unable to give a simple answer. In the last few months, I’ve had a chance to speak to two notable economists on the topic, representing opposite extremes of the argument — both arguing their case so well that I can’t disagree with either.

On one side of the debate, I got to interview the man of the moment, Thomas Piketty, author of the much talked-about Capital in the Twenty-First Century. In fairness, it was not much an interview: it was something of a struggle for him to summarise his 669-page book in the five minutes we allotted to him on the Today programme (I let the interview overrun by a minute). But no one doubts that he has shaken and stirred the left into a new agitation over inequality this year.

Then, on the other side, I spent an evening with a woman who cares less about inequality than almost anyone I’ve met, the American economic historian Deirdre McCloskey (you can hear the interview on Radio 4’s Analysis at 8.30 p.m. on Monday). She is in the midst of writing a series of four books on what she calls the Bourgeois Era, the period following the 17th century that contained both the industrial revolution and a jump in incomes in western countries of at least 1,500 per cent.

It is a pity that we recorded the interview with Professor McCloskey just before Professor Piketty hit the bestseller charts, so I didn’t even think to ask her about him. It’s even more of a pity that we didn’t get them into the same room, because the contrast between the two couldn’t be greater. Piketty, the radical one, is dry. Only the brave would dare argue with his pages of tables and charts, his equations and dense prose.

Best Selling Economist Author Thomas Piketty Speaks At UC Berkeley
Thomas Piketty Photo: Getty

McCloskey on the other hand, who is meant to be the conservative one, has the zeal of a revolutionary. She describes herself as an ex-Marxist, Christian libertarian. She is the most notable transgender economist in the world (I can’t recommend strongly enough Crossing, A Memoir, her moving account of her journey from Donald to Deirdre.) She is an entertainer and storyteller; one of the few serious economists who is as likely to quote the poetry of Robert Burns in support of an argument as she is to quote wheat prices in the 15th century.

But forget the characters. It is the intellectual contrast which gets to the heart of the debate between those who worry about in-equality and those who don’t.

Piketty (for those who have not followed the story so far) worries about capital and, in particular, the tendency for those who already have it to get more. ‘Money tends to reproduce itself,’ he says. The story is that for large swaths of history, capital has earned generous returns which allowed those who already have it to reinvest and watch their capital grow faster than the incomes of ordinary mortals. Wealth, by whatever means it is originally created, thus begets more wealth; successful entrepreneurs, through their initial accumulation of capital, go on to ‘become more and more dominant over those who have nothing but their labour’. In Piketty’s excellent phrase, it is through capital that ‘the past devours the future’.


McCloskey, by contrast, has long argued that economists are far too preoccupied by capital and saving. She doesn’t even like the word capitalism, on the grounds that capital is not what got us where we are today. ‘If Scotland is trying to become Holland, then capital accumulation is how to do it. That will double your income, maybe triple it.’ But for her, that sort of accumulation is a scratch-card-sized prize — and the lottery jackpot beckons. She enthuses about the Great Enrichment of the 19th century. ‘What happened, understand, is not 100 per cent growth, but anywhere from 2,900 per cent growth to 9,900 per cent growth. A factor of either 30 or 100.’

That jump in incomes came about not through thrift, she says, but through a shift to liberal bourgeois values that put an emphasis on the business of innovation. In place of capitalism, she talks of ‘market-tested innovation and supply’ as the active ingredient of our economic system. It is incidentally a system ‘drenched’ in values and ethics overlooked by economists.

Professor McCloskey has a point, of course. Think of the Bill Gates and Steve Jobs, big wealth accumulators in recent times. It wasn’t the magic of compound interest on capital that made them rich; it was intellectual property. They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers.

And to me, this is one big distinction at the heart of the wealth equality debate: whether capital — past accumulation of savings — gets to devour the future, or whether the future is created afresh by each generation. This argument is a struggle between those who think riches are created from riches, and those who think riches are created from rags. Are big profits best viewed as a generous return on capital, in the way that worries Piketty? Or as coming from innovation that ultimately benefits us all?

The answer to that question determines what should be done about inequality. Piketty wants a progressive tax on wealth to prevent high returns entrenching the power of the richest. McCloskey, needless to say, is not keen on redistribution. Taking from today’s rich may give you a one-off uplift in the incomes of the poor of, say 30 per cent, she says; but that is nothing to the uplift from innovation and growth, which can double incomes every generation.

So much for the central disagreement between them. Here’s my problem. Many people with strong views on inequality consciously or unconsciously think of this as a binary choice: profits go to either a deserving or undeserving rich, depending on your view. It’s all about capital, or all about wealth creation. But I struggle to see it that clearly. I’d like to know how much of the return on capital that so concerns Piketty is actually income earned from entrepreneurial wealth creation. I’d also like to know how important that income is to innovation.

Piketty is well aware of this vulnerability in his argument. ‘The return on capital often inextricably combines elements of true entrepreneurial labour, pure luck and outright theft,’ he says. But it doesn’t seem to bother him very much. He points out that Liliane Bettencourt, heiress of L’Oréal, who ‘has never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates’. And he has his doubts about whether Bill Gates’s fortune is a good example of true entrepreneurship or monopoly profit anyway.

Like Piketty, Deirdre McCloskey in principle recognises there may be an opposite view to her own. But in practice, she hurridly dispenses with it. ‘You have to ask what the source of the inequality is. If the source is stealing from poor people, I’m against it. But if the source is, you got there first with an innovation that everyone wants to buy, so you get paid some crazy sum, you ought to be paid so much, don’t you think?’

For McCloskey, entrepreneurial wealth creation is not only the star of the show, but the only member of the cast. She barely recognises the idea that business could legally make profits without at the same time creating value. Fussing about inequality is unnecessary when there is growth and innovation to promote. She is always happy to give a brief history lesson to support her point: ‘Inequality rose in the early 19th century in Britain and the United States. Then it fell. Then it rose. Now we’re talking about the early 20th century. By the early 1920s, inequality was the same as it is now. Then in the 1930s it reversed, and it went down, to the 1970s. Then it started going up. In none of these cases did it change enough that equality was the issue that faced the working class.’ It is innovation and growth that matters.

She is admirably pure in her view, but is it as black and white as she portrays it?

Bill Gates or Liliane Bettencourt? They co-exist, of course, and have both had a pretty good time of it in recent decades. The question is which one better characterises the very rich. And also which risk you would rather take: taxing the Bills at the risk of deterring them from creating Microsofts? Or not taxing the Lilianes, at the risk of letting them become ever wealthier and more powerful while sitting at home doing nothing?

I know that the 99 per cent of the population have no difficulty coming to a view. I’m in the sad 1 per cent, who can see both sides.

Evan Davis is one of the presenters of BBC Radio 4’s Today programme.

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Show comments
  • Suffolk Jason

    For me it’s bleeding obvious:-

    Picketty shows that returns on accumulated wealth lead to damaging and increasing levels of inequality. Answer – increase taxes such as Inheritance tax and taxes on idle assets (such as property). Incentivize the rich to invest in start-ups. Result – less inequality and more investment capital for start-up entrepreneurs (see below)

    McCloskey argues that innovation and entrepreneurs increase wealth for everybody. Answer- support start-up entrepreneurs with tax breaks and infrastructure support. Result – more entrepreneurs and successful entrepreneurs invest in new start-ups.

    Viewed in these terms, it could be argued that, Picketty’s and McCloskey’s theses are complementary.

    • LucieCabrol

      Quite a big assumption to say that property is an idle asset…..

      • Katie Cannon

        That’s not the point. The point is that no one creates land and it’s minerals.

        • LucieCabrol

          if you are farming you need a lot of land; if you tax it you put farmers in marginal area’s out of business.
          if you tax land then someone working who can afford to pay the land tax …then retires and is forced to move out of their home that they built, brought their kids up in, made their life in….
          If you tax land then people will not see it as a long term asset so they will not invest in the long term interests of the local environment, they will treat as a wasting asset to be ‘sweated harder’.
          If you are a communist then a high land tax is your dream; if you are a centrist you might want to look at subsidies etc which perhaps are making land ownership more attractive than it should be.

          • Katie Cannon

            If you’re a Father of Capitalism, you might think through a land tax and see it’s value as the appropriate tax, along with taxing luxury goods, as Adam Smith did.

            If you’re a student of Smith, you might be Henry George, who thought it through even more.

            Google around. It’s an interesting idea.

          • LucieCabrol

            I think the first appropriate tax is on unavoidable living expenses, and kept to an absolute minimum…as should government spending,
            One persons luxury is a smart watch, another persons luxury is sitting somewhere quiet with a glorious sunset, and a view of your highland estate…..how are you going to tax all that variation fairly, without ludicrous cost of raise.
            The lower taxes are, the lower every day costs are, meaning less people need subsidy, meaning less people need to be paid to assess who needs subsidy.
            i agree that at present there is anomaly in subsidizing people to avoid tax via owning farm land, and some work needs doing on that because it indirectly makes farm produce more expensive and farmers far too rich.
            remember your so-called idle wealth may well be supporting a whole Eco-system of careers below its umbrella, enabled by its long term tenure.

            i think the basic message is that government spending and involvement should be an absolute minimum, directed at only the most necessary area’s for government involvement….that minimises the scope for them to mess it up.

          • Katie Cannon

            Gov spending: Currency makes up 3% of our money supply.

            Every dollar has it’s liability side booked in the public sector, freeing it’s asset side alone to be booked in the private sector, thus providing the private sector with it’s NET financial assets.

            Thus, the private sector can record in their private ledgers a final payment, and thus record their net incomes.

            Private bank credit: Loans create deposits, so nets to $0.

            Private bank credit/debt makes up 97% of our money supply.

            We pay off our private debts using our currency/dollars.

            Private debt is currently about 270% of GDP.

            The financial sector has grown from 14% of GDP in 1970 to 40% today.

            And this excludes derivatives, which are estimated to be at 1 Quadrillion worth right now. In a 60/70 T world.

            How do you think that’s going to unwind for you one day?

            Plus, why tax either labor or industry – which creates real, as opposed to financial, wealth?

            Your world is upside down.

            In a non-convertible currency environment, taxes don’t fund fed gov spending, as the fed gov is self funding – it creates dollars out of thin air.

            So, why do you want to punish labor and necessary industry? Weird.

          • LucieCabrol

            fiat state………..would be ground out by my minimalist approach.

          • Katie Cannon

            All money is fiat.

            Money is counting, using the infinite numerical system.

            Which is why it doesn’t exist in the canine world.

            In any monetary economy, value pops up on a spread sheet, out of thin air.

            Grow some corn out of thin air, and blam! Now you can record that value using numbers out of thin air.

            Money is credit, credit is always out of thin air.

            What you’re talking about is knee capping how much credit can be issued, what type of credit can be issued, and who can issue it.

            And capping requires placing a regulation on both government and the private sector.

            As Aristotle noted more than 2,000 years ago: “Money is nothing but a system of laws”.

          • LucieCabrol


          • Katie Cannon

            You buy my car in exchange for an IOU.

            What do you think your personal IOU is?

          • LucieCabrol

            My word is my bond.

          • Katie Cannon

            good for you, I try too 🙂

          • Katie Cannon

            Ah, sorry, applied to the wrong person

          • pewkatchoo

            What was your degree in, talking total claptrap?

          • Katie Cannon

            One simple question:

            Do America and the UK have a fiat currency?

            All else follows.

            My degree? Philosophy, though that was 30 years ago.

            With a concentration in law, money and distributive justice.

            Which means I studied monetary systems, not micro economics.

            Again, do we have a fiat currency? Yes or not.

          • mark abrams


          • Katie Cannon


            What do YOU think money is?

            If you buy my car in exchange for writing me an IOU, what do you think your IOU is?

          • Katie Cannon

            We wouldn’t tax leisure time.

            Why tax the necessities? That’s regressive as heck.

            The top one percent in this world is now worth $110 TRILLION. The bottom 50% — 3.5 BILLION people — has less than $1.7 trillion dollars and lives on less than $4 a day. The top 1% has65 times what the bottom 50% has. The 100 wealthiest individuals in the world now control more wealth than half of the world population.

            Most of this rolls off of what Adam Smith called rent seeking, not earned profits.

    • hannathegreat

      Yes, land tax is really the only ‘just’ tax. Income tax is about the most unfair one.

    • Joe Fitzpatrick

      I agree with you totally. Both of these economists have made excellent points and there’s no real need for them to contradict in theory. Tax idle wealth, reward innovation. Done.

      • nikaps

        Isn’t one of the benefits of innovation the possibility of becoming the idle rich?

        • dezakin

          The benefits of innovation is increased productivity. The incentives for innovation is increased wealth, that you can use to buy leisure time. A finite amount of wealth can buy all the leisure hours in the week however, and so your incentives become meaningless there.

          Except using wealth not to buy leisure, but instead to buy power. You might notice that this has been the pattern throughout other periods of history that had rather unfortunate ends.

          • Ann_In_Illinois

            “A finite amount of wealth can buy all the leisure hours in the week however, and so your incentives become meaningless there.”

            No, next you worry about your children and grandchildren. This article is excellent and very well balanced but is missing one major point – if you use inheritance and other taxes to take away the ability of someone to work for their children, you obviously reduce their incentives.

          • irtnog

            Not necessarily. People can take care of their children and grandchildren, they just cannot do so in an unlimited fashion. If Bill Gates chooses to leave his children $10 million each, they are pretty well taken care of. The fact that he is also choosing to leave them only a minuscule fraction of his total wealth doesn’t mean that his kids will be uncomfortable, and may in fact encourage them to do a little wealth creation of their own. In the current system, this is Gates’ decision to make, but the state can decide to tax that inheritance. A wealth tax wouldn’t change that, it would simply change the rate at which the wealth is taxed, or the inheritance, or both. That needn’t be a disincentive to work.
            Frankly, Bill Gates didn’t build Microsoft in order to be able to afford a large house and leave millions of dollars to his children; like many entrepreneurs, he wanted to create something, to defeat his business competitors, to challenge himself, etc. None of those factors are changed by marginally increasing his tax rate.

        • Katie Cannon

          The goal of “The Wealth of Nations”, as Adam Smith wrote, was to purchase more idleness for the whole of society, not a select few.

          So that the whole of society could become more socially, intellectually, artistically, etc…. more wealthy.

        • Mukkinese

          Nothing wrong with being rich… as long as you pay a fair share of taxes…

          • Katie Cannon


            Rich enough to purchase the government? Is that ok, as long as you pay some taxes?

      • MaxBorders

        What wealth these days is idle? In other words, rich people get rich because they are good stewards of capital — deploying it where it needs to go. Very few simply stick their wealth under a mattress. If you tax so called “idle” wealth, you’re simply assuming the government is a better investor than the rich guy. We’ve gone down that road before and it’s littered with failure, cronyism and waste. When someone isn’t investing it’s probably because the investment landscape is bad or the political circumstances are uncertain. Why assume there are magical beings in government who are smarter? (And make-work projects are not investments, btw.)

        • Katie Cannon

          How about when they invest in slave labor?

          Invest in the drug trade?

          Invest in buying politicians?

          Invest in already existing assets?

          In buying up fresh water resources, and hording them?

          Hording land?

          Governments may not know the best types of investments, but we as a society can certainly identify some of the worst. And stop it.

          It’s called democracy vs. aristocracy.

          • tjamesjones

            well, I guess we’ll have to ban investing in the slave trade and the drug trade and bribery. Oh, wait, we have. How does hoarding resources produce a return? Investing in already existing assets frees up the previous owner of those assets to make new investments, I don’t see what benefit you achieve by banning people from selling or buying their assets.

          • Katie Cannon

            The slave trade is a 150 billion dollar industry today.

            Bribery is outlawed? Really? Not in the US, I don’t know what it’s like in the UK, if you’re british.

            Investing in already existing creates housing bubble, stock bubble, etc…

          • http://alsbach-art.com/ Floyd Alsbach

            Here in the US the gov’t horde’s land, a very great deal of land. Personally I have no use for the defacto aristocracy, neo-oligarchy you criticize, nor do I have much faith in democracy (as in the dictatorship of the majority) I’d prefer much less gov’t and a lot more freedom… but given the realities of the day in what we tend to refer to as the West; how much tax is enough?

          • Katie Cannon

            Since America’s a monetary sovereign, thus self funding, we should think less in terms of “how much” and more in terms of what we tax and why — because it’s not to fund fed gov spending.

            The individual states, like everyone else, are currency users, so must earn dollars.

            The fed gov just issues them for us to use.

            Personally, I’d get rid of monopolies and other forms of rent seeking, offer a public bank option, unhook private banks from our national payments system, untax labor, industry and innovation, and tax unearned incomes at very high rates.

        • RadicalReductionist

          Good to see you Max, Golgo says hello! To all on this thread, I recommend Max’s book… Super Wealth https://www.kickstarter.com/projects/maxborders/superwealth

        • Katie Cannon

          A smart grid, however, would be a real investment.

          Just as he space program was.

          The modern nation state has largely been defined by the invention of national currencies.

          A national currency gets into the private sector only when the state purchases from, or make grants to, the private sector.

          So the only question becomes: What to we buy?

          Not if we will buy.

          We will buy so the private sector has net financial assets to record in our private ledgers our net incomes.

    • RadicalReductionist

      “returns on accumulated wealth lead to damaging and increasing levels of inequality”

      Only if you are envious! Envy is a cancer of the mind, destructive to the host. In its collective form, destructive to society.

      • Katie Cannon

        Unless you “hire” slaves, a 150 B a year business.

        And as even Adam Smith recognized, one must first be able to be free not to enter a contract, before they are free to enter one.

        And he saw no difference between “wage slaves” and “actual slaves”.

        Nor did the Greek philosophers, they realized that not owning one’s labor was little different than being forced to rent one’s labor, and thought the issue one of semantics.

        • jburack

          Only someone who has never been a slave could possibly fob off the nonsense about “wage slaves” being the same as “actual slaves.” I know all about how bad off Irish and other urban workers in New York or Boston were in the 1840s and ’50s, so please don’t lecture me on it. But in fact there was no underground railway taking Irish laborers South to become slaves in those years, was there? Not a one of them chose “actual slavery” over “wage slavery.” However, the actual underground railway carried thousands of blacks to the freedom of wage slavery even thought it often meant onerous forms of racial discrimination in most cases as well. Yet they came anyway to escape “actual slavery.” And had the networks of escape extended into the deep South more effectively it would have been millions not thousands.

          • Katie Cannon

            Yeah, I get your point, and agree.

            And yet there’s something similar as well. Rent your body or starve isn’t hugely different than sell your body or starve.

            Renting and selling to avoid death isn’t hugely different as a financial transaction.

            Though there might be large psychological differences, or not.
            Not sure really. Seems it depends upon work conditions.

      • Katie Cannon

        The top one percent in this world is now worth $110 TRILLION. The bottom 50% — 3.5 BILLION people — has less than $1.7 trillion dollars and lives on less than $4 a day. The top 1% has65 times what the bottom 50% has. The 100 wealthiest individuals in the world now control more wealth than half of the world population.

        • RadicalReductionist

          So? …start with a savings account Katie, or even better a piggy bank. Give the Marxist rhetoric a rest.

          • Katie Cannon

            Lol. You need a little history course:

            Father of Capitalism:

            ““In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest.

            Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
            ― Adam Smith, The Wealth of Nations: An Inquiry into the Nature & Causes of the Wealth of Nations”

          • RadicalReductionist

            Katie you might want to learn the difference between history and quoting a man’s believe from history. Your fixation on the nuances of contradictory concepts is fine for a senior seminar in Comparative Political Economy. However, the reality of society, once you leave the ivory tower, is that the rule law that allows free will by individuals to enter into contract, protected by law for corruption and fraud, to produce goods and services for others in mutual exchange will, and has proven in histoty, always to be more beneficial to society than any other social process. Are there losers? Yes, but far less than those that would be lost under a Marxist line of thinking. Your smugness is palpable, typical and borish. Have it if you must, yours will not be the last laugh, as history has proven time and time again by sheer will to power by humanity to be free.

          • Katie Cannon

            Just curious: Are you British or American?

          • RadicalReductionist

            Not being able to typecast your opponent is a bitch, is it not? Makes debate more difficult, removing all preconceptions. Have a nice day or night.

          • Katie Cannon

            What do I care?

            I was mildly curious, in part because I keep responding as an American to people who seem to be Brits, who use slightly different words to describe things, like gilts vs bonds.

          • Katie Cannon

            And you keep forgetting that the rule of law applies to money as well.

            Money is nothing but a system of laws.

            And your libertarian paradise hasn’t grappled with that.

            Why are bringing up Marx?

          • RadicalReductionist

            For your sake, I will keep it simple…
            1) Just because Aristotle said so? Are you that easily lead to believe things? (Aristophanes’ chorus begins singing “Who let the dogs out?”)

            2) You know nothing about me, much less about my paradise and what kind it is!

            3) Because some of your rhetoric is Marxist, plan and simple.

          • http://alsbach-art.com/ Floyd Alsbach

            Adam Smith did not invent Capitalism. He is known as the Father of Economics, at least he was when I was studying and teaching history.

          • Katie Cannon

            Yeah, that’s a better description.

            In America we call him the father of capitalism.

          • ptsargent

            Adam Smith wasn’t Nostradamus you know. There are lots of concepts regardng wages and accumulated capital that AS didn’t yet understand. You are frozen it time.

          • Katie Cannon

            The point is not whether he was right or wrong.

            The point is it’s utterly silly to assume a person is “jealous” for when they question the status quo.

            That would make Smith merely a jealous person, which is — well sillly.

          • Katie Cannon

            More Smith – Father of Capitalism — Marx would be the father of marxism, not capitalism:

            “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms….
            by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.””

            ““The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”

            Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal:

            “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.””

            On regulations:

            ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”

            Plus, he was against inheritance, as was Thomas Jefferson, and most of our Founders

          • RadicalReductionist

            Again so?

          • Katie Cannon

            And so what?

            I’m not sure what this is in reply to.

          • RadicalReductionist

            I can understand your confusion as much as you copy & paste quotations and do not actually express a point. Also, being a gadfly has disadvantages, as you exemplify by jumping around a forum thread thinking that you are being clever. If you can figure out the structure of this multilinear response thread, try actual making a point with your own words and ideas.

          • Katie Cannon

            Thomas Jefferson, among other things, was against inheritance.

            “”A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.”

          • RadicalReductionist

            Katie, you are repeating yourself. Are you not even aware of it? I could careless about Jefferson’s quote.

          • mockmook

            Apparently, every utterance by Smith is infallible.

            Nice religion you have there.

            Or, perhaps instead of quoting Smith, you give evidence for your arguments, hmmm?

            Do tell, what is the precise number where wealth is too much? What is the precise amount of inequality that is moral? If my opinion differs from yours, who is right? I say I am 🙂

          • Katie Cannon

            I don’t really think in those terms.

            I think more in terms of preventing obvious abuse of power, and paying attention to how national currencies are distributed out the door — to whom, and for what purpose?

          • ptsargent

            Frankly, my dear, that’s none of your concern or business.

          • mockmook

            Then you should be in favor of getting the government out of as much as possible–taxation is the power to destroy and the door to corruption.

            You can’t change human nature, but you can limit the damage done by by rent seeking.

            Since you are so fond of Smith, you might also note some other highly regarded political philosophers of his era that came up with a thing called the Constitution. Its purpose was to handcuff government so that the abuses you decry would also be limited.

          • Katie Cannon

            The Constitution also established a national currency as a public good, not merely a private claim.

            Dollars are the private sector’s net financial assets. The means by which we record in our private ledgers a final payment and net income.

            Dollars make up only 3% of our money supply.

            The rest is private bank credit, where loans create deposits, so nets to $0.

            So, yeah, the private sector sort of need dollars.

            And dollars are issued by the fed gov.

            And they’re distributed to the private sector before the private sector has dollars with which it can pay taxes.

        • mark abrams

          So if destroyed $110 trillion, reducing the evil 1% to penury, then everyone could be equally miserable and you would be happy commisar ?

          • Katie Cannon

            This has absolute nothing to do with anything. It’s empty hand waving.

          • Katie Cannon

            How silly.

            Where in the world do you read anyone saying $110 should be destroyed?

        • ptsargent

          So? That 1.7 trillion (if accurate) is 1.7 trillion more than the 3.5 billion ha before capitalism. You just want them to have nothing and return ti hunters and gatherers.

          • Katie Cannon

            Right. I want to return to hunters and gatherers.

            Can’t wait.

    • DoNotLookDown

      Picketty shows that returns on accumulated wealth lead to damaging and increasing levels of inequality.

      No. Picketty shows a correlation between wealth and inequality. I trust you know the difference between correlation and causation.

    • cloud_buster

      “Incentivize the rich to invest in start-ups.”

      Exactly where do you think the rich are putting their money? If it’s in stocks, many of those stocks are from startups. If it’s in the bank, the money funds loans — again, many to startups. You don’t have to invest directly in any particular startup to encourage entrepreneurialism, you just have to keep your money in the market. In fact, the absolute worst way of getting the money to startups is to have it pass through government hands first, or to make oppressive regulations force certain types of investment behaviors that people wouldn’t willingly make otherwise, and which invariably result in unintended consequences and market imbalances.

      How is property an idle asset? Unless the owner is literally letting a piece of property revert to primal state, that’s ridiculous. Property is leveraged as an asset constantly — it’s used for the resources on the property, or buildings are constructed that hold homes and businesses, or loans are taken against the value of the property, sometimes multiple uses at once. Property is virtually always an active asset. The idea that property represents “idle” assets is pernicious.

  • black11hawk

    I don’t get why anyone cares about this guy apart from the fact that he’s written a 700 page snorathon and he’s highly excised about his topic there is nothing noteworthy about him. I mean really…socialist writes book saying capitalism leads to inequality and therefore we need an 80% tax rate, what a shocker that one is.

    • BoiledCabbage

      yes, its not even 1 page A4

    • Augustus

      “…there is nothing noteworthy about him.”

      Apart from endeavouring to raise suffering to a higher level.

    • Ann_In_Illinois

      He’s telling people what some of them want to hear.

      • Kyle

        Yes, he is the economic equivalent of what Kant is to Philosophy and Skinner to Psychology. Hoping to solidify the socially desired conclusion through muddied dictum. Writing to increase their value instead of the value of their works. Ayn Rand’s selfish without selves.

        • Katie Cannon

          Ayn Rand didn’t have a clue about how monetary systems work, whether we have selves or not, and whether we have nice one or selfish ones.

          And her followers tend to have their flow of funds upside down, and thus be very confused about who is funding whom.

          • Don Kenner

            Your little rant makes no sense. I won’t try to parse it, as this dead Russian-American woman obviously causes you much pain. A few points: by their very nature, Objectivists cannot be followers, only individualists. They can suck at it or be good at it, but there you are. Rand understood free market monetary systems in roughly the same way as Hayak, Mises, and Friedman. You can disagree with their understanding, but it is clear enough for those who avoid ideological blinders. Finally, all “funding” in a Randian world would be voluntary; not at the point of a gun. Nothing confusing about that. Unless you are a confused person. I hope you get some help.

          • Batman

            Friedman actually argued for a base income provided for every member of society by the government. I question whether Rand would agree to this. Also, you spelled Friedman’s name wrong, you also ad-hominem attacked your opponent making your argument fallacious. In the end, that rather large paragraph doesn’t amount to much but a convoluted series of assumptions that are likely false, down right illogical, or flat out condescending.

          • Batman

            Rand also died on social assistance. 😉

        • Batman

          “Writing to increase their value instead of the value of their works”. This phrase is a deepity: a phrase that is in one sense true but trivial and in another sense that sounds profound but is actually meaningless. In the first sense, it is true that Kant, Skinner and even Rand wanted to increase their own value as humans by working out these problems. However, almost everybody does this in the things they labour over. So who cares? In the second sense, this phrase could be intended to mean that they intend to increase their own metaphysical value, rather than their work’s metaphysical value. This would just be superstitious non-sense and therefore meaningless.

      • Katie Cannon

        Father of Capitalism, Adam Smith:

        ““In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest.

        Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
        ― Adam Smith, The Wealth of Nations: An Inquiry into the Nature & Causes of the Wealth of Nations”

        • http://alsbach-art.com/ Floyd Alsbach

          As I understand it Adam Smith is the Father of Economics, not Capitalism, which evolved out of barter and trade. I could be wrong…

          • kwo

            Have you read Wealth of Nations? Smith is undoubtedly a capitalist.

          • JimB

            I have, a long time ago. The quote that stuck with me over all these years went something like: Business men rarely meet in groups without the talk leading to the fixing of prices.

          • Katie Cannon

            Yep. Smith was concerned with power structures – whether state power or private sector power – and distributive justice first, economics per se came second.

          • Shawn Gillogly

            He’s the father of MODERN economics. And his system was most undoubtedly one hinging on free, expanding markets, and the belief that capital can be created, not simply absorbed, as the mercantilists before him had presumed.

          • Katie Cannon

            Indeed, he realized that a nation could create it’s own unit of account, and didn’t need to import money tokens and export real wealth.

          • ptsargent

            I believe it was Marx who offered up the term Capitalism to describe the private ownership of the means of production and the free market as a system that led to exploitation of the masses. His explanation of everything was fraudulent.

          • Katie Cannon

            Right, because there’s never existed such a thing as exploitation.

          • mreed12

            Exploitation has Aways existed – whether you see it as a religious thing – “fallen man”, or simply nature – human, it’s always been there and it’s as present and virulent in Marxist governance as any other – worse, in recent examples. The utopian’s belief (from Plato’s Guardians to Lenin’s Central Committee) that there is a pure-of-heart group who’ll make everything “fair” is childish. Only through our balance of powers among free peoples pursuing their own interests gained through interaction with others, a set of universal rules (our Constitution) and eternal vigilance are we able to strive for (not achieve) a semblance of justice. Seeking a, or a set of, ruler(s) who will do what’s right for all leads only to Tyranny of one sort or another.

          • Katie Cannon

            Or marginalism’s belief in the ” Rational Agent in microfounded models is an identical construction to the Hegelian notion of ‘Geist’ which embodies Reason-in-the-abstract. That is, it is a construction that attributes a sort of teleological rationality to social processes that guarantee and ideal outcome before the fact.”

            Yes, Marx too was influenced by Hegel’s Geist.

            Not that the Soviet Union was Marxist.


            More simply parsed:


            Milton Friedman’s sophisticated understanding of the macro has been lost and replaced with wrong-headed archaic rhetoric which relies upon defunct gold standard thinking:


          • mreed12

            You persist well, but seem to continue to offer criticisms that lead back to a utopian belief in a rational, “perfect system” that simply has yet to be properly applied. I admire your referencing Friedman, who was eminently realistic and rational regarding human economics’ strengths and weaknesses, but I don’t believe he ever suggested that humanity would actually achieve economic nirvana through his or others’ efforts. I don’t admire your excusing the massive Marxist failure that was the Soviet Union, by claiming they just weren’t really Marxist – enough. This has become a meme for Marxist true-believers, especially Historians, who re-write and revise to bury or gloss-over the inevitable tyranny that is Applied Marxism. Stalin, Mao, Pol Pot, Castro, Chavez, etc. are not “bugs”, they are “features” of it who arise organically.

          • Katie Cannon

            I’m not a utopian, and really don’t even know how you’ve read that into anything I’ve quoted or written.

            I’m excusing the Soviet Union — where have I even mentioned it?

            I’m not a Marxist.

            Lean more towards Smith’s philosophy. Really, you’re having a conversation with your own head.

          • mreed12

            “Yes, Marx too was influenced by Hegel’s Geist.” “Not that the Soviet Union was Marxist.”
            I didn’t say you were excusing USSR – but excusing MARXISM by saying it wasn’t responsible for the USSR… which you clearly do. And, I’m not saying you are a Marxist, I’m saying (perhaps incorrectly) you appear to give it a pass. And, leaning toward Smith is not the same as subscribing. I hear the same from lots of Keynesians who cherry-pick items from other economic philosophies to support or soften their proposals. I’m sorry I’ve offended you, but I’m often abrupt (rude) when I respond to quickly to something that offends me, as Piketty’s falsified stats and dishonesty in the service of ideology does.

          • Katie Cannon

            Here’s where I stand generally: The classical economists, from Smith to Ricardo to Marx, were concerned with institutionalized power.

            Further, they had yet made a clear distinction between economics and politics and ethics.

            Then the neoclassicals – which includes the entire orthodoxy, whether left or right – came along and largely buried power as a consideration, claiming instead that economics is a science, and however it “naturally” works is the best of all possible worlds. Power be damned.

            When I was in college 30 years ago, I wanted to take economics. The classes began with a story about human nature, then built up mathematical models both based upon an assumption of human nature, and in support of this assumption.

            So, I switched to philosophy 🙂

            As far as the Soviet Union, it was state capitalism from at least Stalin onward.

            Marxism = a temporary dictatorship of the proletariat followed by worker owned means of production, and a non-monetary (non-market) system of exchange.

          • Don Kenner

            “As far as the Soviet Union, it was state capitalism”

            You just gave yourself away, Trotskyite.

            By their buzzwords shall ye know them…

          • Katie Cannon

            Do I subscribe to smith?

            He lived in a different world, with different technologies and power structures.

            He’s an inspiration for me.

            Whereas he mentions “proper leather shoes and a linen shirt” as an example of what the poor require to participate, not just in the economy per se, but in society more broadly, I think we’d specify other things as necessary.

          • Don Kenner

            Do the poor require cable TV, cars, air-conditioning, cell phones, and a better diet than the landed nobles of previous centuries? If so, they are in luck. Our current horribly exploitative economy gives them that and more.

          • Katie Cannon

            neoclassical economics and burying power:

            For instance, money played a large role for a long time in our discussions of economics.

            The neoclassicals got rid of money and banking, by claiming 2 things:

            1) Money is a veil of underlying barter, so doesn’t matter.

            While they get this from Smith, Smith also recognized that who issues money matters, and what type of money issued matters.

            2) The get rid of banking by assuming loanable funds theory, where banks supposedly loan out deposits.

            They don’t. They create loans out of thin air, which create a corresponding deposit.

            Now that the Bank of England has come out with a series of articles and videos about how banks actually work, it will be interesting to see how a bunch of economists respond.

            So far, they’re ignoring the issue.

          • Batman

            You’re not even arguing against what she wrote. Tisk, tisk.

          • Don Kenner

            “Not that the Soviet Union was Marxist.”

            Yes, first rule of socialist thinking: any place which tries Marxism and turns into a hideous tyranny is officially not Marxist.

          • Batman

            This is verbose, flowery and not an argument at all (which is a bad thing). For instance, when you say seeking a set of rulers to do what’s right only leads to tyranny, you don’t really explain why this is true. You simply assume your conclusion. This is called begging the question and its really a mistake only children should make because its such an obviously illogical way to present an idea.

          • Don Kenner

            Well, Katie, where would you rather live: in a Western Capitalist society where you are exploited (and “bought off” by good food, rising standards of living, and fabulous technology) or some place like Cuba, where there is “no exploitation,” and not much of anything else either?

          • K.P.

            Nah, Louis Blanc was the first to use the term. Marx used it strikingly few times, actually.

          • ptsargent

            I stand corrected.

          • Batman

            Actually, Marx offered the term capitalism to describe the system from which the acquisition of capital (which can only be obtained through exploitation of labour) is extracted by the means of production owning class. Also, Marx wasn’t really explaining capitalism (which would denote some kind of causal relationship of some kind) what he was doing was describing the economic system that Smith had first identified.

          • ptsargent

            I thank you for the explanation, I stand corrected.

          • Katie Cannon

            did capitalism evolve out of barter?

            Or gift economies?

            The anthropological record so far shows it followed out of gift economies, which relied upon more or less values and trust.

            Markets = money and exact value = an entity to issue laws and regulate exact value exchanges, be that a shaman, temple or state.

            And thus far, the record shows that money arose out of the power to of a central authority to enforce exact value exchange, not out of barter.

            Barter seems to be what people resort to only once they have the memory of money.

          • mreed12

            Money arose out of the simple, physical necessity to trade over distances and time. It is a symbol & representative of real goods/services. You could not carry a cow around in your pocket to purchase a cart in a town 30 miles away that you need to transport potatoes to your neighbor, who asked you to purchase them for his next-month’s needs. Of course the various agreed upon systems linking real goods to money was/is corrupted, corruption is a “feature” of human nature that must be battled always and everywhere. Despite corruption and abuse, money has allowed us to trade goods and services around the world, to the benefit of billions of people. There’s no “moral judgments” to be made on inanimate objects, only their users.

          • Katie Cannon

            This story comes from Smith’s “Imagine that”. I love Smith, and think we have a lot to learn from him.

            But he wasn’t an anthropolagist. And if money arose out of barter, there’s yet any evidence of it.

            The record so far shows money rose out of gift economies, when a shaman or temple, etc…. had the authority to impose a system of exact value:

            You poke my eye out, you owe me exactly 1 pig. And if you don’t pay up exactly one pig, then you’ll be punished.


            Good book on the subject: “Debt: the First 5,000 Years”.

          • Batman

            Adam Smith did not create, invent or discover economics. People have been commenting on the subject since the days of Aristotle. Now, if you meant Adam Smith was the father of modern economics, an argument could be made there.

            In a sense capitalism evolved out of barter and trade, but so did every other economic system that has ever existed. So this point is sort of a meaningless truism (something so obviously true that it’s meaningless).

        • mreed12

          katie – “high profits”, portrayed in this example as being inflated beyond value and having a “bad effect”, would be only a temporary condition in free markets for there’s an eternal crop of competitors rising up to provide the same or more for less, through efficiencies or a willingness to lower margins. It’s only when monopolies, cartels and government “management” intrude – all bad and all with remedies – that the “bad effects” would persist. The examples of this are legion.

          • Katie Cannon

            Got to parse out what sorts of government interference you’re talking about.

            Markets = money (laws), exact value (laws) and laws = law giver/enforcer.

            Unhook banks from our national payments system, and you’d see a very different financial market, for instance.

          • Don Kenner

            “Got to parse out what sorts of government interference you’re talking about.”

            That would be any sort. Distorting markets, picking winners and losers, and pushing capital from more efficient area to less efficient areas (via politics). You just summed up the problem. I don’t really care whether anyone thinks Smith would’ve understood it or not.

      • Batman

        Sure. Some people simply want to hear that capitalism is bad. However, those people aren’t Piketty’s target audience. This is first and foremost an academically motivated work that is widely regarded as the most influential economics text since Marx, or even Smith. So in the end, what is your point?

    • Katie Cannon

      Then there’s The Father of Capitalism, Adam Smith’s, own recognition of this phenomenon:

      ““In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest.

      Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
      ― Adam Smith, The Wealth of Nations: An Inquiry into the Nature & Causes of the Wealth of Nations”

      • black11hawk

        Katie, I’m not denying that one side effect of capitalism is large disparities in wealth, but what does that matter so long as poor people are getting richer as well. In any case we know thanks to Arthur Laffer and others that there is an optimum level of taxation to get the most money out of wealthy individuals and that is usually somewhere around the 30% mark. So, whilst Mr Miliband and Mr Pikkety may take great pleasure in engaging in the politics of envy, clobbering the rich and punishing them for their success, we ought to do what works best so as to maximise revenues and help create prosperity for all.

        • Katie Cannon

          Um, you’re forgetting the little fact of money buying political power.

          So, yes, great disparities are harmful, as Smith, as well as our Founders, realized.

          Smith was a moral philosopher first, his concern was one of ethics and distributive justice.

          “The politics of envy” — how utterly stupid. This bumper sticker phrase is good for bumper stickers, bad for brains.

          The laffer curve is a joke.

          Tax brackets are a joke.

          It’s not the amount of tax that matters, but WHAT and WHY one is taxing.

          1) What: Wages, Profits, or Rents?

          2) Why: In the context of non-monetary sovereigns, such as America’s individual states, taxes fund spending. In the context of monetary sovereigns, such as America’s federal governments, which are, by definition, self funding, taxes do not fund spending.

          Sorry, but your simple minded bumper stickers aren’t really good thinking.

          • JDanaH

            “Um, you’re forgetting the little fact of money buying political power.”
            Money can buy political power only if there is political power to be bought. The solution is a structural reduction in the size and power of government. If steel magnate Orren Boyle cannot get protectionist legislation enacted because such economic intervention is unconstitutional, he has no incentive to hire lobbyists, bribe Congressmen, etc.

          • ptsargent


          • EconomicFreedom


            Statists never grasp the obvious fact that by enlarging the scope of government control over private economic decisions, they are enlarging the very problem they pretend to be reducing. Then, when things get worse rather than better, they can point to whatever group happens to be the scapegoat-du-jour and shout, “YOU’RE the cause of our misery!”

            Statists also never grasp the historical fact that the super-wealthy — with very few exceptions — favor regulation and enlarging the scope of government in economic life because that’s how they maintain their own market dominance: by using the taxing and regulating power of government to limit or prevent competition from knocking them off their perch.

          • Katie Cannon

            Begin with money: What is it? How does it come to be? Who issues it? What type of money token is issued?

            Markets rely upon laws, not trust.

            And money is a system of laws.

            And good luck getting rid of national currencies.

            It’s easy create an IOU, it’s tougher to get others to accept it.

          • CrassyKnoll

            Markets rely upon laws, not trust.

            Nonsense. Markets may function more efficiently with enforced laws, but even in the absence of law markets always exist.

          • Katie Cannon

            Well, use your own private language.

            But most people wouldn’t consider gift economies market economies.

            Is stuff passed around in gift economies? Sure. And approximate values rule the day.

            Markets = exact value exchange.

            You’re confusing exchanging stuff itself with the rules of exchange.

            Gift economies run according to the rules of approximate value and trust.

            Market economies run according to exact values and a way to enforce that everyone understands the exact value of what is being traded. Approximate value won’t cut it.

            When you send $10 to Amazon to buy a $10 silk shirt, you expect that $10 shirt.

            If they send you back an $8 dollar cotton shirt, with a note that reads: “Don’t worry, I’ll make up the difference later – trust me”, you aren’t happy about it.

          • CrassyKnoll

            Markets = exact value exchange.

            And you accuse me of using a private language?

            A market is any means by which buyers and sellers are brought into contact with each other and goods and services are exchanged.

            Yet you insist on positing the most absolutest ideal as the only definition.

            Your arguments, such as they are boil down to the notion that since governments may choose to grant themselves monopoly control over a monetary system, that they likewise should have monopoly control over anything that might be expressed in monetary terms.

            Your Frankfurt School version of Adam Smith is equally cartoonish.

          • Katie Cannon

            You bank at Bank A.

            Amazon banks at Bank B.

            You send a check to Amazon in the amount of $10 in exchange for a shirt, who deposits it at Bank B.

            Bank B says: “I don’t trust bank A, so I’m going to clear this check at only $5″.

            Amazon tells you, well, received your check, but my bank doesn’t trust your bank, so will only clear a payment of $5. So, to get your shirt, you’ll have to send $5 plus a little extra, since my bank doesn’t trust your bank, and won’t clear your check at face value. Once it clears our demand for $10, we’ll send you back the remainder, trust us”.

            There are laws in place that insure checks clear at par with each other.

            2 more points:

            1) We have gift exchange mixed in with our market economy. I babysit for my neighbor in return for some favor in the future of more or less value, and we’re both happy.

            2) Markets can withstand Amazon’s bank not clearing your check at face value sometimes, maybe — not not all the time.

            It’s not about purity.

            It’s about the rule of law, which functions at less than purity, but good enough to maintain a market economy.

            Markets RELY upon the rule of law, which is less than perfect, but good enough.

            Once they’re no longer good enough, markets collapse, we revert to barter, and barter gives way to more gift exchanges — ie, exchanging favors or stuff in a more or less value sort of way.

            “Markets go out of their way to avoid the law” — which laws?

            Do markets want a the laws which create a central clearing house?

            Yep. Even large black markets do.

            You and your neighbor may avoid even clearing houses.

            The drug cartel doesn’t.

          • CrassyKnoll

            Your “banks” example is a red herring that first posits an accepted currency, but then posits a third party that seeks to impose different terms upon an agreed upon transaction.

            i.e. it is nonsense on stilts. Even in times and places with private banks, and private currencies that is not how it plays out.

            But, to play along, my response to Amazon is that I have, by sending them the specified payment – which they accepted at the time of the transaction, honored the terms of our contract, if they choose not to honor their end then they are in breach of our agreement. Had they nor trusted my payment they should have declined the exchange (same as if they doubted the true value of any item I offered in barter (what you pretend to ignore by calling it “gift.”)

            My recourse at that point may be somewhat law dependent, but given that in your example law has already broken down, my options are likewise open. The question at that point really becomes: Who does “my bank” value more – me or the other bank? Because, not having received my shirt I tell them I need my $10 back.

          • Katie Cannon

            Love your last paragraph, very witty, made me giggle.

            You wrote:

            Your “banks” example is a red herring that first posits an accepted currency,

            And how does an accepted currency come to be?

            I helped my son’s school start a school currency. It works great (this is for real, it was a lot of fun).

            But doesn’t scale up to convincing China accept in return for sending us some rare earth metals.

            Laws are behind why all Americans accept dollars.

            Creating an IOU is easy, the trick is getting others to accept it.

            But, yeah, I’d ask for my shirt back too.

          • Katie Cannon

            You wrote:

            Your arguments, such as they are boil down to the notion that since governments may choose to grant themselves monopoly control over a monetary system, that they likewise should have monopoly control over anything that might be expressed in monetary terms.

            Really, where did I say that?

          • Don Kenner

            Thank you ^^^^^^^^

            CrassyKnoll, I’m putting you in my will.

          • Katie Cannon

            I have no doubt that you believe the private sector funds monetarily sovereign currency issuers, like the UK and America.

            You need to begin with the beginning: How does money come into existence in the first place, and thus who is actually funding whom.

            Markets = money and law

            Gift Economies = approximate value and trust, and no money

            Money, as noted by Aristotle more than 2,000 years ago is “nothing but a system of laws”.

            States are the issuer of laws, and it’s money stands at the top of the money hierarchy, insuring the value of the monies below it, ie, private bank credit, or you personal IOU.

          • Don Kenner

            My god. Nothing you said in any way responds to the points made by JDanaH or EconomicFreedom.

            You must be a professor of something.

            BTW — money is anything people accept as currency. I’m going to buy some wine with Bitcoin and get so drunk I forget that people like you babble on and one without a clue.

            You owe some dead Russian-American lady an apology.

          • Katie Cannon

            Power’s a bit more complicated than that it seems.

            I always begin with looking at money first. As Aristotle noted: “Money is nothing but a system of laws”.

            Granted that protectionist legislation of the type you describe is bad.

            But we should also be concerned with the laws regulating our money tokens.

            Also, in a time where nation states themselves are under attack, I’m not sure how reducing the power of nation states is going to help.

            Seems to me that we need to think in terms of what powers, not how much power.

          • Don Kenner

            This ^^^^^^^^^^^^^^^

            Why are educated citizens of America and Britain unable to understand this fundamental reality? Are they really that simple, or do they actually just want a world in which their team (liberal, conservative) gets to buy the influence, so it’s okay?

          • Malcolm_Kirkpatrick

            (Katie): “The Laffer curve is a joke.”
            Charles Schultze called the Laffer curve a straightforeward consequence of standard economic analysis.

          • Katie Cannon
          • Malcolm_Kirkpatrick

            (Katie): “Um, you’re forgetting the little fact of money buying political power. So, yes, great disparities are harmful, as Smith, as well as our Founders, realized.”
            Let’s see:…(a) Wealth inequality produces inequality of political power and
            (b) Inequality of political power causes harm (c) Therefore empowering State actors to impose confiscatory income or wealth taxes will reduce harm.
            (a) Maybe, sometimes.
            (b) Maybe, sometimes.
            (c) Probably not.
            To the extent that parts a and b of your argument make sense, seems to me, it implies that broad acceptance of a minimally intrusive State would most effectively minimize harm. Broad acceptance of (c) would empower a coalition of predators and parasites against producers. The problem with socialism is that eventually you run out of other people’s money, to paraphrase Lady Thatcher.

          • Katie Cannon

            Thatcher, like most politicians, either was ignorant of the fact, or lying, the UK is a monetary sovereign, and as such is self funding. Thus taxes (other people’s money) do not fund national spending.

            I’m American, another monetary sovereign. So sorry if I don’t use the correct terminology — like we say “T Bonds” – you say something like “gilts” – I think.

            Whatever: Both are self funding at the national level.

            We went off the gold standard for national settlement in 1934. I believe you did so earlier.

            As the President of our Fed Reserve noted at the time:

            “Taxes are obsolete for domestic revenues”

            Then in 1972, Nixon took the world off the gold standard for international settlement. Thus instituting floating, rather than fixed, exchange rates.

            Now, the UK is a monetary sovereign of a fiat currency with floating exchange rates, and owes all it’s obligations in it’s own unit of account.

            Taxes don’t fund nothin’.

            Taxes remove excess money from circulation to regulate inflationary pressures.

            Also circulation: Pounds in. Pounds circulate. Pounds out.

            Like us, you have a NATIONAL currency established as a simple, public, monopoly.

            If you don’t your “socialist” national currency, use your own IOUs, and those of your fellow national currency haters.

            Here’s a brit on how your monetary system works:


          • Katie Cannon

            A national currency is a public good, not merely a private claim.

            Try getting your government hating person IOU accepted by others.

            It’s difficult having a conversation about taxes and such until people get their flow of funds turned right side up.

            You have the belief that the private sector own the national printing press, and thus funds national spending.

            Nope. Your national gov owns the printing press, and issues pounds out of thin air, so the private sector can record a NET income in their private ledgers.

          • Malcolm_Kirkpatrick

            Money is the medium of exchange. Creation of fiat money faster than generation of real wealth will produce inflation. If money creation can cause wealth creation If the multiplier is positive), why do governments prosecute and incarcerate counterfeiters?

          • Katie Cannon

            Sure, too much money chasing too few goods, causes demand pull inflation.

            So, don’t spend past the point of full employment.

            And if you get too heated, you raise taxes and destroy some money.

            But gov deficits isn’t the only source of inflation. Private bank credit causes asset price inflation.

            Money is a medium of exchange, store of value and unit of account.

            It’s an IOU.

            And the gov’s IOU is your net financial asset.

            While private bank credit/debt is your debt.

          • CrassyKnoll

            Cannon’s problem is she wholesale rejects Thatcher’s premise – that there even exist a thing that is “other people’s money.”

            She’s a collectivist.

          • Malcolm_Kirkpatrick

            Yes. It’s strange. We all inhabit the same world, so how do people see things so differently? Seems to me, one who denies the implication of the Laffer curve must, to be consistent, deny that people respond to incentives. There goes the price system. There goes rational legislation. Would Katie Cannon assert that fines against speeding will have no impact on how fast people drive?

          • Katie Cannon

            Sent an interesting link critiquing how the laffer curve has been distorted.

            You might read to see where I’m coming from. Posts are for short expressions, not long critiques.

          • Katie Cannon


            I accept the fact that the UK has a national currency, which is a social tool, which creates private claims.

            The paradox of the one and the many has been going on for 2,500 years.

            I don’t think Thatcher, you or I have solved it.

            It’s a paradox, and resorting the explaining the world in terms of one or the other is stupid.

          • CrassyKnoll

            Currency no more creates private claims than inches create yards of ale.

          • Katie Cannon


            Your dollar or pound doesn’t represent a claim on something of real value, like on a pint of ale?

          • Katie Cannon


            There’s a national currency, which, by definition, is a public good, not merely a private claim.

            Then there’s privately created money: Private bank credit and personal IOUs.

            But as long as private banks are hooked up to our national payments system, they’re reliant upon government, which exists to promote the public good in democracies.

            You might ask: “Why don’t I have access to my national payments system, but must pay a toll to private banks for access?”.

          • ptsargent

            Hard to know exactly what you’re saying here but who said crony capitalism was real capitalism. Crony capitalism is simply government intervention in the free market for the benefit of a rent seeker and has nothing to do with Capitalism per se or how it’s meant to be practiced. BTW if taxes do not fund spending at any level it is because that authority is overspending and using debt to cover the difference. I have no idea what you are talking about. If that’s and example of “good thinking”, spare me.

          • Katie Cannon

            We’ve lost the art of thinking in terms of monetary economics, double entry accounting, and flow of funds.

            The first questions to ask are:

            1) Who issues money?

            2) What type of money – a non-convertible, fiat money? Or a money that is convertible into something other than itself, like gold?

            The UK and America are monetary sovereigns of a fiat currency (money out of thin air) with floating exchange rates (they never owe money in currencies other than their own).

            Our money supply is made up of both currency and private bank credit.

            Dollars and Pounds have their liability side booked outside of the the private sector, as it’s booked in the public sector. Thus only the asset side is booked in the private sector:

            Public Sector -1 = Private Sector +1

            Private bank credit: Loans create deposits, thus net to $0.

            Thus Dollars and Pounds are the private sector’s NET financial assets.

            We use them to pay off our private bank debts, and thus to record a final payment, and NET income.

            All money is an IOU. Dollars and Pounds are an IOU from the national government to you. What does the gov owe you? A tax credit.

            Dollars and Pounds are tax credits.

            The public sector must first issue tax credits into the private sector before the private sector can pay some portion of the net incomes in taxes.

            Spending comes before taxes.

            And there must be more currency in the private sector than is taken out through taxes (over the long haul)

            Because that’s the only way the private sector can earn net incomes.

            If you paid the public “debt” down to $0, you’d have $0 in the private sector.

          • Anthony Sanders

            That is the one weakness of McCloskey’s argument.

          • Katie Cannon

            It’s a huge weakness.

            Beginning your narrative with: America’s or UK’s national finances are just like household’s….. means your foundations are wrong right out of the gate.

            Can’t say anything very intelligent after that.

          • EconomicFreedom

            >Um, you’re forgetting the little fact of money buying political power.

            Thank God that’s not a problem in places with REAL equality of incomes: Cuba and North Korea.

            By the way, in your own vision of a Utopian workers’ paradise, what’s to stop a group of equal earners from pooling their equal financial resources and buying the same kind of political influence (calling themselves a “special-interest group” with “special needs”) as the super-wealthy can do now? Obviously, you would favor strict governmental oversight and regulation of how people get to spend their equal incomes, right? Or is it your view that if everyone had perfectly equal incomes, no special-interest groups claiming — special needs with special privileges — could ever develop?

          • Katie Cannon

            I’m not much of a Utopian, which assumes an end of history.

            Pretty sure history never ends.

            So, whatever to the rest of your irrational post.

          • EconomicFreedom

            >I’m not much of a Utopian, which assumes an end of history.

            You’re not much of an economist either, which assumes nothing but having read your posts. Aside from taking Adam Smith out of context, and aside from ignoring advances in economic thought since Smith (specifically, the subjective-marginalist approach developed by Carl Menger), to call Smith the Father of Capitalism is as ignorantly silly as calling Darwin the Father of Life on Earth.

            Anyway, select Utopi-ANS might believe in Cournot’s idea of an “end of history,” but the general idea of “Utopi-A” need not. Whether you envision a Utopian workers’ paradise or a non-Utopian workers’ paradise, you still ducked my earlier question.

            >So, whatever to the rest of your irrational post.

            An intelligent and full reply. I love the smell of denial in the morning.

          • Katie Cannon

            The smith quotes were addressing one assertion made in the posts I was replying to: That anyone who critiques the status quote suffers from envy.

            Whether smith’s the father of modern economics or capitalism is arguable.

            And isn’t the same as claiming Darwin the father of life on earth.

            Capitalism arose out of human endeavor, earth didn’t, last time I checked.

          • Katie Cannon

            Denying what?

            That I believe in a worker’s utopia?

            Why would I deny that if I believed it?

            I simply don’t believe in the possibility of such.

          • mreed12

            Excellent points, but not necessarily applicable here to the issue of Income Inequality and “envy”. By your own logic, over-taxing the Incomes of the rich doesn’t suit the purpose of matching taxes to services. Why do they wish to tax a rich person’s income at 90% and poorer people at 0%? The rich person doesn’t personally use 90% of the services rendered and the poor 0%. It’s nonsensical and violates your rules, so it’s obviously a cultural, punitive approach based on purely subjective views – and envy.

          • Katie Cannon

            High tax brackets just so happen to tax away unearned incomes.

            We could simply untax labor, industry and innovation of real stuff.

            And merely identify how unearned incomes are earned, and target our taxes at them.

            Rather than using brackets per se.

            American individual states and Euro using countries are different. They really do need to earn dollars or euros.

          • mreed12

            I’m always baffled by the term “unearned income”. What the hell is that? Somebody receives “income” for doing, being or having nothing? It’s simply a silly euphemism that leads the uneducated and misinformed “masses” to believe “other (rich) people” are getting something for nothing, unfairly… they almost never see those on the dole this way. You are correct in saying we should “target” (another unfortunately chosen term) taxes to activities consuming public resources, but that must include ALL activities by ALL parties that benefit from All public resources. No One should be exempt from paying their rightful share as that is the “skin in the game” that keeps people honest about taxing “others” and focused on what they really need and is economically realistic for “the public good”.

          • Katie Cannon

            The dole, even if it’s a horrible way of going about things, isn’t the same as, for instance, granting a corporation a 100 year patent on a life saving drug.

            Or building a highway for $10 and selling it to a private corp for $10 30 years later, and having the corp. erect a tolls along the way.

            Nor is it the same as allowing speculative bubbles, the popping of which will move real assets to a select few of creditors.

            The dole — again I’m not arguing whether it’s good or bad, but how it works financially — does create a tax upon others, and the money gets spent, funding the incomes of others.

          • mreed12

            You’re right about the dole being different… it’s much worse than “granting”, “selling” or the other terrible ideas of questionable value you name, as governments’ trying to pick private enterprise winners & losers through regulations, funding (directly or indirectly) and “too big to fail” bail-outs. Corp Welfare can at least claim a potential for a return on investment. Production of goods and services and the employment derived are a far more desirable than dole-produced Consumption. The ridiculous claims made by progressive liberal Democrats in the US, such as Nancy Pelosi & Harry Reid – among others – that Welfare & Unemployment insurance generated spending are Equivalent to Employment sourced spending, whether financed through “legitimate” business or tax-subsidized enterprise, is an example of “dole thinking”. Both ideas are wrong, in my opinion. But in choosing the lesser of two evils, foolish grants to private enterprises are still superior for both economic and societal reasons.

          • Katie Cannon

            You wrote: “Corp Welfare can at least claim a potential for a return on investment.”

            The job of a monetarily sovereign currency issuer is not to get a return on investment.

            Fiat currency issuers are not currency users: They’re currency issuers.

            The fed gov is never rich, poor, or saving for a rainy day.

            It has infinity at it’s disposal, and you can’t put infinity in a vault.

            While it’s true that Treasury must have a balance in it’s account at The Fed, to get the circuit going this is what happens under our self-imposed legal constraints, which includes Tsy needing a balance in it’s account:

            Tsy creates a bond out of thin air and deposits it in it’s account at the fed. The bond is a demand deposit, and the fed must mark up tsy’s account with reserves in the amount of the bond. The fed creates some reserves out of thin air to do so.

            Tsy fund the public sector to purchase stuff from the private sector.

            When it does so, it instructs the central bank to mark up a bank account in the private sector.

            Now the private sector has reserves with which it can invest in some bonds.

            Thus replenishing tsy’s account.


            Also, since Tsy still creates coins out of thin air itself, it could mint a platinum coin of nay face value, thus getting lots of interest free money in it’s account at the fed.

            So, the job is not to get a return on investment, because the fed create dollars out of thin air, and don’t need to earn them.

            The fed’s job is to balance the 3 financial sectors: Public, domestic private and foreign trade, which is in deficit.

            Public -1 = (Domestic Private + 1/2) – (Foreign +1/2)

            The domestic private sector fund the foreign trade deficit. The foreign trade sector includes both multinational corps and foreign governments earning dollars.

            Every dollar gets from the fed gov into the nongovernment sector when the public sector purchases from, or makes grants to, individuals, institutions, corporatoins and/or banks.

            From there, dollars circulate through the economy eventually funding all our incomes.

            So, the only question is: Who is first in line?

            Milton Friedman supported a Guaranteed Basic Income, in part because of all of this.

            And stuff related to it.

          • mreed12

            I understand the mechanics and see what you’re saying about the Federal/Intergovernmental “macro” level, but that all means little to those “on the ground”, whose concerns are with the real value of money in terms of real goods and services. All of what you describe in the way of artificially “creating” money & value cannot function to put food on the table or force anyone to accept the fabricated values established at the top of the government pyramids, can it? “Irrationality” in monetary policy, like markets, is what supplied George Soros billions, while he produced nothing of value and employed only a handful – he and others were first in-line. Is that the Feds and other money manipulators’ “fault”, and what do your prescriptions and the mechanics you describe do about that? The dole & businesses involve people in a dirty and unpredictable world, not just formulae and implementors in shiny offices with massive computers.

          • Katie Cannon

            You’re smart.

            In our system private banks lead the way, and the fed, working with tsy, accommodates private bank decisions to expand, or not, the money supply.

            Which is why currency makes up only 3% of our money supply, while private bank credit makes up the rest. I’m in favor of intentionally shifting the balance somewhat, which would require some monetary changes, like not using bonds sales as a way to set interest rates.

            Right now, the fed pays a lower interest on reserves than bonds, so interest on reserves acts as a floor, bond sales act as the ceiling.

            We could just use interest rates on reserves.

            Or, now the fed is going to experiment with

            Term Deposit Facility (TDF)


            I think of money as being both points awarding the creation of real wealth.

            And as carrots, encouraging the creation of real wealth.

            As carrots, it doesn’t matter who issues the carrots: The gov or private banks. Cash registers don’t care which it is, and accept either one.

            And that the gov should step in to hire the unemployed when the private sector doesn’t want to.

            Right now we use a buffer stock of the unemployed to manage wage price inflation, raising interest rates once unemployment hits 6%.

            Which is the primary reason Milton Friedman advocated a Basic Income Guarantee: Since gov steppe in to create unemployment, it had a duty to compensate the unemployed.

            Publicly, it sold the idea, which was supported by Nixon, as a cost saving measure, as you wouldn’t have to administer all the various well fare programs. Which is true.

            Others support a guaranteed jobs program instead of a basic income guarantee. Others want both.

            Here’s ex Tea Party candidate, ex bank owner, current trader, Warren Mosler on money and buffer stocks and why, in a fiat currency economy, it makes sense to use a buffer stock of the employed rather than the unemployed – it’s a rather academic paper, but you seem interested in economics, so….


            Here’s a video interview:


          • Katie Cannon

            Soros and irrational monetary policy and markets:

            (Currency = 3% of our money supply, private banks 97%, which excludes the shadow banks, and their 1 Quadrillion in derivatives, which are completely unregulated, and traditional banks can now own shadow banks, so the question arises: Are fed issued reserves being fed to shadow banks via their traditional bank owners?)

            I think we need both some monetary reform and banking reform, while maintaining the private sector as the leader in expanding the money supply.

            But not just for any purpose, like speculation and other forms of rent seeking.

            Here’s ex bank owner Warren Mosler on what he thinks we should do with banks:


          • Katie Cannon

            Here’s Steve Keen, one of the few people who saw the crash coming, and even wrote a book about it, on how to control asset price inflation, he gets to stocks towards the end. What he as to say about stocks is interesting:


          • mreed12

            Thank you Katie, and I’m enjoying this discussion with you greatly. I appreciate all of the information and references you provide. I’m better educated, despite having yet found sufficient reasons or proofs to agree with you on much! As to the Keen interview regarding his accurate description of the UK economy (not necessarily its causes), it appears to me its parallel to the US is more mirrored (reversed image) in his terms than representational, in regards to public/private debt. US “private debt” hasn’t been “private” since TARP and the legion of other “bail-outs” began years ago. The IOUs have almost all been assumed by Feds (directly & indirectly) and ALL debt is backed by admittedly (except Krugman) unsustainable US borrowing – largely from China. My criticism of Reid/Pelosi pronouncements on Unemployment Ins. & Welfare as being “equivalents” to gainful, private employment income are founded in this, and I doubt Friedman would disagree. As to “controlling” asset price inflation & deflation, I would love to hear of some Success Stories on this, and how “monetary tokens from thin-air” have been involved in that success. (And if you can find something regarding Soros’ rape of the UK via questionable trading of “thin air money” in the Currency Markets, pass it along. And your views of money as artificial, ex-market tokens, being traded in markets?)

          • Katie Cannon

            It’s not envy.

            It’s 2 primary things:

            1) Meritocracy vs Aristocracy — earned vs unearned incomes.

            2) Taxes regulate the value of the currency, and thus all other money tokens floating about: primarily private bank credit/debt.

            They regulate both inflation, both demand pull inflation and asset price inflation caused by speculation (or should).

            And they’re necessary for circulation, money has to circulate to have value.

            Money in. Circulate. Money out.

          • Don Kenner

            “Um, you’re forgetting the little fact of money buying political power.”

            ONLY when government is present in the economy. Take government out of the economic process and their is no influence to buy.

            Actually, I see that JDanaH says it much better below.

        • ptsargent


    • Neil-McNeill

      Hahahahaha! I’ve never heard the term ‘snorathon’ before; I think it is very apt a description!

    • Anthony Sanders

      Because drooling Progressives like Krugman want to justify their utopia fantasies.

      • Katie Cannon

        Milton Friedman himself had a far more sophisticated understanding of monetary sovereigns than we care to admit, preferring to cling to archaic gold standard thinking, and the false belief that the private sector funds our monetarily sovereign currency issuer:


    • CrassyKnoll

      Piketty strikes me as far too concerned with getting the front end of redistribution without any real sense of how to achieve any lasting effect on the back end.

      Much like the rush to “do something” about climate change, it is a shoot first and verify your target later approach to problem solving.

      Unless that is, the only problem you seek to solve is government inability to confiscate ever more private property.

      • Katie Cannon

        The issue, especially for monetary sovereigns like the UK and America, but not like France and the other Euro using countries, is distribution of money tokens — which comes BEFORE taxes.

        Dollars and Pounds are an IOU from the national gov to you.

        It owes you a tax credit.

        Thus, it must first issue (distribute) tax credits, before the private sector can extinguish it’s tax liabilities.

        Distribution (public sector spending) comes before taxation.

        What this has to do with climate change is beyond me.

        • CrassyKnoll

          I can see why, given your confusion (ignorance?) over the distinction between currency – the monetary policies of a centralized banking system bank – and privately held wealth.

          Piketty’s advocates wealth confiscation. That such wealth confiscation may ultimately be denominated in centralized currency does not make them the same thing.

          Nowhere does he advocate restricting such confiscations to money alone. In fact what excites the left so much is that he proposes expanding taxation to encumber many things that presently avoid taxation specifically because they avoid monetization.

          If “spending” comes before taxation then what exactly is the government distributing?

          And the use of the term like implies simile or metaphor. But you knew that, you just want to avoid any recognition that in both instances ulterior motives overlap.

          • Katie Cannon

            Posts are difficult, and I’m having a difficult time following your post.

            However: You wrote: “If “spending” comes before taxation then what exactly is the government distributing?”

            It’s distributing a sovereign unit of account. That’s what money is: A unit of account, like inches are a unit of measure.

            As such, money, once it circulates, is an IOU, a record of who owes what to whom in real terms.

            The national gov ISSUES , and doesn’t USE, it’s own IOU into the private sector.

            The only thing it owes you is a tax credit.

            Dollars and Pounds are tax credits.

          • CrassyKnoll

            Does wealth exist in the absence of a “sovereign unit of account?”

          • Katie Cannon


            Money is the measuring tool.

            Real stuff is real wealth.

            But my dollar is a claim on real stuff.

          • Katie Cannon

            And the use of the term like implies simile or metaphor. But you knew that, you just want to avoid any recognition that in both instances ulterior motives overlap.

            I used the word “like” in the following way:

            Both America and the UK are monetarily sovereign. Which is a fact.

            The Euro using countries are not. Fact.

            Makes a big difference.

            America and UK issue their own currencies out of thin air, and owe all their obligations in their own unit of account. They both have a monopoly over their currency, can never go broke, and set their interest rates.

            The Euro countries must earn euros, and are at the mercy of bond vigilantes.

          • CrassyKnoll

            Which brings me back to my initial comment, which you have not even addressed.

            Piketty’s stated desire to re-distribute wealth is ostensibly for the betterment of the have-nots. Yet he has not shown any means by which his desires for wealth confiscation will provide any lasting benefit to those he purports to serve.

            This is entirely analogous to those who seek greater regulation and control of private activity in the name of “climate change” precisely because those people likewise have given no real effort towards establishing that their proposals will in any way provide lasting benefit to the environment.

            The two groups overlap insofar as their obvious goal is collectivism, and not much else. All else is merely a cover story.

          • Katie Cannon

            You wrote:

            “I can see why, given your confusion (ignorance?) over the distinction between currency – the monetary policies of a centralized banking system bank – and privately held wealth”

            Don’t know what you mean here.

            But, our money supply is made up of currency and private bank credit.

            A national currency is a common good – legally. In the US The Constitution establishes it as such. Don’t know about the UK.

            It’s a tool, issued by the national government so the private sector has an efficient payments system.

            Private banks are agents of governments in that they make your tax payment for you.

            But don’t know what you mean beyond that.

          • CrassyKnoll

            … our money supply is made up of currency and private bank credit.

            A central bank is a political choice, not a necessity. It is not even a necessity for the existence of currency.

            A national currency may be a public good. Much like standardized weights and measures may be a public good, when they are public, known, and regulated.

            Regulated, not in the modern sense of being subject to all manner of bureaucratic whim, but in the sense used by the authors of the Constitution, maintained in a stable and reliable state.

            When currency is not well regulated, particularly when it is gamed by the those in power for the benefit of the state, it ceases to be a public good, and can become a public harm.

          • Katie Cannon

            Generally agree.

            But think we have 2 toxic areas of power: state and corporate, especially multi nationals.

            Where you see one source of power, i see more.

          • CrassyKnoll

            All power is potentially toxic.

          • Katie Cannon

            “A central bank is a political choice” – right, you could have a national bank.

            It’s not a necessity for the existence of currency, but is necessary for the existence of a national currency.

            And private currencies alone won’t cut it in a modern economy.

            Also, I don’t see the abuse of our national currency in terms of benefiting only the state, but also corporations and private banks.

            And considering the world structures set up to benefit multinational corporations, I’d assume that the nexus of power is shifting from the modern nation state to multinational corporations, including banks.

          • CrassyKnoll

            “Don’t know what you mean here.”

            I mean you are steadfastly fixed on viewing everything through the lens of monetary policy and blind (willfully or otherwise) to the fact that the concern is over wealth.

          • Katie Cannon

            Because in a monetary economy money makes claims on real wealth.

            And one of the reasons we find ourselves where we are — and everyone knows something’s wrong — is because we’ve dropped thinking about money.

            I personally think the right and left would find common ground around the issue of money — how it comes about, how it works, etc….

            And then maybe we could work together to correct some of the stuff that is obviously going wrong.

          • CrassyKnoll

            Money does not make claims on wealth.

            A government that issues fiat currency makes claims on wealth to back up its purported value.

            The wealth is held, and generated by private individuals.

          • Katie Cannon

            My dollar can claim a bottle of soda.

            This isn’t esoteric stuff here.

    • CrassyKnoll

      Piketty strikes me as far too concerned with getting the front end of redistribution without any real sense of how to achieve any lasting effect on the back end.

      Much like the rush to “do something” about climate change, it is a shoot first and verify your target later approach to problem solving.

      Unless that is, the only problem you seek to solve is government inability to confiscate ever more private property.

    • Katie Cannon

      The UK, like America, where I’m from, but not like the Euro using countries, are monetary sovereigns of a fiat currency and owe all their obligations in their own unit of account, which they create out of thin air.

      So, what role do taxes play in a monetarily sovereign economy?

      Obviously, they don’t fund the national government, which owns the printing press, and issues the tax credits which the private sector use to extinguish their tax liability.

    • Batman

      You don’t even have an argument here. Instead you have a series of lines attacking the author’s character. Perhaps instead of attacking someone personally, you should consider your position and construct a rational argument in support of it rather than present fallacious non-sense.

  • Liberty

    The problem with expropriation of wealth by government [taxes] is that it transfers capital from the market to a monopoly. In a market costs are driven down, profits up, customers are king and firms compete to meet their demands. But in a monopoly clients are gouged, exploited, capital is wasted and those who administer it are feather-bedded. Consider; would Microsoft, Google, Cars, Oil and coal industries have happened without entrepreneurs? Of course not. And would a commercial firm have sold off billions of £ of gold at the bottom of the market, expanded PPP and everything else that Brown/Balls wasted? No. The banking excess of the 2000s was only possible because they were a cartel operating on huge leverage [150:1]. Brown/Balls didn’t care because they were producing huge profits for the exchequer. A small downturn would make them bankrupt – but they knew that Brown/Balls could not let this happen and would have to print them the money if the SHTF. And that is just what happened.

    Minsters are not paid a lot but they live lives like plutocrats. No wonder they cling on to office so. And no commercial firm could give so many of its employes pensions as in the NHS, education, police, fire service, etc. with cast iron employment terms and so grossly overmanned. Governments say that taxes go to health, education, etc but more than 70% of public sector costs are employment costs.

    Stalin had palaces and American cars and although he had an ordinary workers salary he never had to spend any of it. All was provided. Much the same for Mao, Castro, Hitler and all the other socialist icons. Private wealth is never out of the system. It is either banked to be invested by banks, invested directly or spent. Nothing else can be done with it but it is managed far better than any government.

    • Gemma Seymour

      Except that is demonstrably not true. Witness healthcare, social security, etc, etc, etc. All systems which provide services at a cost that is orders of magnitude less than the equivalent products available in the private sector.

      Would Microsoft, Google, Cars, oil, and coal industries have happened without government investment of public funds at an astronomical scale, literally so in the case of space technology? I guess we’ll never know, because your fantasy world is just that. The fact is, government did invest our money—in education, in social safety nets, in direct technology research, in IP enforcement, all of which contributed to the success of all those industries you seem to think sprung from the void of their own impulses.

      • Addie B

        “All systems which provide services at a cost that is orders of magnitude less than the equivalent products available in the private sector.”

        Tell that the veterans on the waiting list at the VA.

        • irtnog

          Surprisingly, sick people with private insurance also sometimes find themselves on waiting lists, even when they are paying more for the promise of care than the US federal government is paying to the VA. In fact, unlike US military veterans, people with private insurance are sometimes denied care outright; they never even make it onto a waiting list.

  • Kieron

    I’m with you Jason.

    I’m a bit confused – why can’t there be a fair and equitable solution whilst allowing for innovation?

    Surely what drove Jobs and Gates wasn’t solely the idea of accumulating $billions because the chances of that were so slim. This argument – ‘taxing the Bills at the risk of deterring them from creating Microsofts?’ – seems wanting, because punitive taxation would only kick-in when you’d reached a level of wealth to exist in total comfort anyway!

    And, Bill Gates pledge to give away the majority of his wealth before he goes is testament to the fact that mega-wealth is unnecessary.

    I don’t believe people would stop innovating, exploring, testing, re-working and ‘adding value’ to our society if the opportunity to become obscenely wealthy was taken off the table (https://www.youtube.com/watch?v=u6XAPnuFjJc)

    Should you enjoy the wealth benefits derived from your innovation? Of course.

    But, should an ‘entrepreneur’ be entitled to live in a bubble, away from the society that has provided the education, health-care, infrastructure etc. to allow that innovation to come to fruition? I’d argue not.

    • B Cachia

      I think you should let people decide what to do with their money. If they want to donate it, like Bill Gates is doing, then fine. If they don’t, then it’s their business. As for health care, infrastructure etc, everyone pays their share, including and especially those who are successful. And you seem to forget that if you impose punitive taxation, people can always go somewhere else and do their innovation from there.

      • Kieron

        I’m all for people spending their money on what they want, but after they’ve contributed to the society that has supported them to allow their wealth creation.

        You say ‘everyone pays their share’ which is demonstrably false, because we have a ridiculous amount of tax avoidance and evasion in the UK and beyond. It’s a huge contributor to inequality.

        I also disagree that there would be an exodus of creatives, entrepreneurs and innovators simply because they were asked to contribute to a fairer society – plenty of countries do it fairer than we do, and continue to innovate internally and for a global market.

        • Addie B

          “but after they’ve contributed to the society that has supported them to allow their wealth creation.”

          What do you think happens to Bill Gates’ money if it isn’t confiscated by the government to pay six figure salaries to mid level bureaucrats? Bill Gates’ wealth in economic terms can only be measured in what he consumes and he won’t consume all of his money in 1000 lifetimes. What do you think happens to the billions he has accumulated if he doesn’t spend them on himself? They are either donated to his charitable fund or they are invested back into the economy via his investments in Microsoft, stocks bonds, etc, thus “supporting those who allow his wealth creation.”

          • Gemma Seymour

            Where would Bill Gates’ money be, if he hadn’t extracted it from the economy using illegal monopolistic practices? Circulating in the economy, instead of being doled out on his pet projects that allow him to unduly influence public policy all over the world. Thousands of innovators were crushed by Microsoft over the past 40 years. Wake up.

          • Addie B

            You must be joking. The “illegal monopolistic practices” are arbitrarily defined by the government. Which ones were you referring to? And as far as his “pet projects.” Are you mad? He is singlehandedly curing the 3rd world of disease.

        • B Cachia

          As you know, people who are successful and wealthy already pay a disproportionate share of taxation so, yes, they are by definition paying more than their share towards infrastructure etc.

          As for the exodus of the creative and the thrifty, please note that high tax countries do not, in fact, have a high degree of innovation. There is only one Silicon Valley in the world. Talented people congregate there from all over the world.

          As for the moral aspect, you seem to have little of substance to say on that score. I hold that it is simply immoral to confiscate a large part of what people produce, merely in order to create equal (and undeserved) outcomes. It is also patently stupid to want to punish people for actually creating wealth and economic growth.

      • Gemma Seymour

        We’ll just conveniently forget that the vast majority of Bill Gates’ wealth was obtained immorally and illegally.

        • http://alsbach-art.com/ Floyd Alsbach

          How is that?

      • irtnog

        Here’s the problem: you feel that Bill Gates (or whomever) should be able to pass on their earned wealth to someone else as they wish, but presumably you don’t believe that Gates should be able to pay his employees without some sort of payroll tax. In either case, Gates is dealing with his own money; in one case, he is simply giving that money away to someone who has done nothing to earn it, and you feel that is fine and that taxing it would be somehow unfair; in the other case he is giving that money to someone who has earned it, and you seem to feel that taxing that action is just. Doesn’t that seem to be setting up a perverse set of incentives? Shouldn’t an inheritance be seen as a form of income, and taxed at at least the same rate as earned income?
        The second point is silly, Bill Gates didn’t shop for a low-tax haven for his innovations, he looked for a place with well educated workers and a good business infrastructure. How much important innovation takes place in the Cayman Islands? How much important innovation takes place in Monaco?

  • Artgus

    Bill Gates is as representative of the emerging financial elite as Florence Nightingale is of 19th century imperialists. All but a few of the so-called ‘wealth creators’ benefiting from growing inequality do so not because they innovate themselves, but because they own / possess and are in a position to command and exploit resources (including, amongst many other things, actual innovation by the scum at their service). A world where inequality in ‘wealth’ came about because of inequality of ‘innovation’ might be a tolerable one, but is a fantasy as far as this universe goes.

  • hannathegreat

    Well precisely. The fools screaming “inequality” “tax the rich” etc, make no difference between the deserving and undeserving rich. The deserving and undeserving poor distinction defined much of the 19th century Poor Law debate – why is this so conveniently ignored when we’re talking about the rich?

    It’s a no brainer – crony capitalism, backhanders, wealth got from cosying up to government and stealing, effectively from others, a rigged market squeezing out competition = bad.

    Wealth generated off the back of voluntary exchange of goods and sevices and reinvested into the economy = good.

    Why is this so hard for liberals to understand? They big up quangocrats who are paid enormous salaries – they effectively also fall in the first category. However, the Alan Sugars of this world are slated.

    This is because much of the Champagne Socialist brigade make their living by holding the right ‘opinions’ and securing easy positions for themselves by sucking up to whoever’s in power at the time. They’d fail if their prosperity relied on the latter.

    • Katie Cannon

      “Voluntary” being the key word.

      Adam Smith, the Father of Capitalism saw little difference between a person being forced into the need to rent their labor vs. a person who is owned outright, ie, “wage slaves” vs “actual slave” – to use Smith’s own words.

      Unemployment is always a monetary phenomenon: Non monetized economies don’t have unemployment: Things like in home child care is treated as employment, as contributing to the social wealth.

      Smith was aware of this in his own way, though he talked in terms of the commons and the ability to provide for one’s own needs without having to enter into a labor contract and work for wages.

      He clearly believed that one had to be free enough to refuse a contract before one could be free to enter one.

      Same with Milton Friedman, which is one of the reasons he advocated a Basic Income Guaranteed.

      All you prove is that the Whigs were never defeated.

    • Katie Cannon

      Father of Capitalism, Adam Smith:

      “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms….
      by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.””

      ““The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”

      Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal:

      “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.””

      On regulations:

      ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”

      Plus, he was against inheritance, as was Thomas Jefferson, and most of our Founders

  • benignbrodwicz

    And if there isn’t enough redistribution even to educate poor children where does all the innovation come from? The rich kids?

  • terry_freeman

    Piketty’s “facts” have shown a lot of tarnish. Aside from that, my main concern is not inequality per se, but the sources of profits. Starting from the beginning, profits are merely a matter of obtaining more income than one spends; if profits were to be eliminated, businesses would go bankrupt as their savings were depleted. The real question is: from whence do those incomes derive? If from voluntary transactions, the only possible argument is in those cases where a rentier is living off some past illicit advantage. But the big problem today is involuntary transfers, of many sorts. There are, for example, military profiteers who are collect tax dollars by the billions; these are not voluntary transactions. There’s also the problem of monetary inflation – creating money out of nothing – and the monetization of the federal debt. Both of these act as a hidden tax, transferring wealth from the masses to the few who are the first recipients of new money and new debt. This has led to an inordinately large financial sector. Piketty merely muddies the water by looking at capital alone, and not asking about the origins of particular forms of capital. His remedy – large taxes – is no remedy; it would divert large sums of capital to the very same engine – the government – which has historically fueled great inequality. Unless Piketty proposes to end the practice of Central Banking and the vast military-industrial complex and other vast transfers – including to “green” companies – he is not fixing the root of the problem at all, but making things worse.

    • Katie Cannon

      Good lord.

      Why don’t canines use money?

      Because they can’t use numbers.

      Money is numbers, and numbers are out of thin air — because they’re abstract.

      Don’t worry, you too can create you own personal IOU out of thin air. The trick is getting someone else to accept it.

      And in a modern economy, you have to get over another hurdle: Having a bank clear your IOU given to me to buy my car at par with all the other private little currencies (IOUs) floating around in your libertarian paradise.

      Good luck getting China to accept your IOU for it’s rare earth metals to build your computer chips.

      The Fed Reserve system has come to suck, it’s corrupt.

      But pretty sure a Central Clearing house is necessary.

      As well as a national currency: There’s a reason The Constitution includes one — because under the Articles of Confederation states were attacking each other’s currency through aggressive arbitrage, and deposits transferred from one state to another wasn’t assured of clearing at par.

      • LucieCabrol

        Religion is the greatest IOU scam in earths history.

        • Katie Cannon

          There I agree 🙂

    • Katie Cannon

      You don’t understand how our monetary system works, or how private banks work.

      Treasury issues coins and T Bonds. In a non-convertible currency environment (out of free air IOUs), dollars, which are IOUs and bonds, which are IOUs are the same thing.

      The only difference is that dollars have a specific face value stamped on them, while bonds pay a specific face value in earned interest.

      If Tsy can issue a bond, it can issue a bill/dollar – as was noted by both Adam Smith and Benjamin Franklin.

      Both of whom understood that money is not wealth, but the measuring tool we use to measure wealth.

      And just as inches are out of thin air, because they’re abstract, so too is a unit of account.

      The total deficit (debt) is accounting marks keeping track of how many dollars are in the private sector to a penny. It’s the record of how many dollars have been issued into the private sector since 1776, minus how many have been removed through taxes.

      T Bonds are no longer borrowed against our gold holdings, so no longer represent a debt.

      They are now safe savings vehicles, which pay interest. We do owe a debt in the form of interest payments.

      We pay that debt by creating more dollars out of thin air.

      And we no longer have fractional reserve banking. Rather, banks make loans first, then find the reserves, where there are reserve requirements at all.

      Canada has no reserve requirements, as they understand that using a non-convertible currency makes such a requirement meaningless.

      They provide reserves as needed to clear payments.

      Reserves are inter bank payment clearing tools, they never circulate outside of the banking sector.

      “Monetizing the debt” — whatever.

  • somewhereinthesouth

    The problem with Picketty analysis is that 80% taxes might well improve equity but when governments get the money what will they do with it. if the last 100 years is anything to go by it will be spend on increased welfare which whilst it may improve the social conditions for some won’t do anything for wealth creation or economic growth .Even if some were invested in new enterprises it is quite [possible indeed likely our politicians would make the wrong bets since once you politicise the spending of money the issue is not the rate of return on capital but how many [marginal] votes they can we get. The latter calculation may keep the elite politicians in power it won’t do much for economic growth..

  • Lavaux

    Income inequality is not a problem. The problem is the false premise of income equality. We all know that a global wealth tax will not produce global income equality because expropriating all of the Bill Gates and Bettencourts still leaves them and their agents free to innovate and manipulate.
    So let’s face it: We’re not all born with the abilities that conduce to making or growing money just as we’re not all born with the ability to dunk a basketball, attract or charm a beautiful woman, write a bestseller, invent a warp drive, understand quantum mechanics or celebrate 100 birthdays. Most of us are average or within a few steps of average in almost every regard, and no remedy we’d ever want to embrace exists to even us all out. I pray that enough of us average schlubs in my generation grow up enough to realize this and shun the left.

    • supplyguy

      Kurt Vonegutt Jr. wrote a short story, Harrison Bergeron, about the kind of world lefties’ policies will lead to.

      • Ann_In_Illinois

        That’s what I was thinking of, also! If we want equality, then take away the beauty of those that are attractive, the energy of those who have ‘too much’ of it, the physical fitness of those that are naturally athletic, the voices of those who sound the best, etc., etc., etc. Next, we can take those who are the best educated and send them off into the countryside for re-education…. wait, this is starting to remind me of something else besides the Vonegutt story.

        • Katie Cannon

          Your post reminds me of how mindless we’ve become in thinking that the radical force behind capitalism as a radical critique of Aristocracy has been lost too so many.

          Father of Capitalism, Adam Smith:

          “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms….
          by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.””

          ““The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”

          Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal:

          “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.””

          On regulations:

          ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”

          Plus, he was against inheritance, as was Thomas Jefferson, and most of our Founders

          Share ›

    • SamHamilton

      I agree with you that attempting to seek pure equality is foolish. But I don’t think anyone is attempting that. No one’s trying to handicap someone who can literally run farther than some one or more easily charm a beautiful woman. What’s being discussed in inequality in wealth…the accumulation of material goods. Some people are better at that then others, through either hard work, persistence and intelligence, and some people get it by dumb luck or inheritance.

      I’m not saying any of that justifies anything Picketty’s advocating, but at least let’s keep the discussion centered on what Picketty’s concerned about.

    • Katie Cannon

      Adam Smith, The Father of Capitalism:

      “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms….
      by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.””

      ““The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”

      Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal:

      “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.””

      On regulations:

      ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”

      Plus, he was against inheritance, as was Thomas Jefferson, and most of our Founders

    • LucieCabrol

      speak for yourself, loser!

      • SamHamilton

        That’s a lame response.

        • LucieCabrol

          it wasn’t entirely serious…possibly this medium makes it difficult to realise that.

    • Katie Cannon

      There’s a difference between sameness and being equitable, as in having equitable justice.

      If you’re being stalked, the goal is not to make you the same as me, who isn’t being stalked. The goal is to right the balance, and grant you more police protection than I’m granted.

      The rest of your post is based on your first mistake in thinking in black and white terms.

  • SurfSmurf

    Game, set, match to McCloskey.

    This is an excellent article. It gets to the Achilles Heel of Picketty’s view of capital. To the extent returns to capital are returns for innovation, efficiency and human problem solving, then a war on capital and inequality is in effect a war against innovation, prosperity and the advancement of human welfare.

    Despite rumors to the contrary (spread by the same folks preaching inequality envy) human prosperity is at an all time high worldwide, and on an unprecedentedly favorable upward trajectory — especially concerning the previously impoverished.

    I suppose the cognitive problem is that people are making zero sum conclusions on a positive sum process. To the extent inequality actually contributes to the well being of all, it should be encouraged and celebrated, not condemned and taxes.

    • Katie Cannon

      The Father of Capitalism, Adam Smith, would disagree:

      ““In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest.

      Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
      ― Adam Smith, The Wealth of Nations: An Inquiry into the Nature & Causes of the Wealth of Nations”

      • SamHamilton

        What did Adam Smith say are the “bad effects” of high profits and the “pernicious effects of their own gains?”

        • Katie Cannon

          Several things.

          1) The purchasing of political power.

          2) The specter of purchasing the right to erect tolls and other rents on the rest of society.

          3) The specter of purchasing, or otherwise capturing, simple monopolies such as “high roads” and state or national currencies — which he identified as properly belonging to the public as Public Monopolies, or Common Goods.

          4) The power to extract rent in the form “wage slaves”, which he viewed as little different from “actual slaves”, where the former is forced into the need to rent their labor rather than having the freedom to chose to enter a mutually beneficial contract, while the later is owned outright.

          The Greeks had similar takes on the issue.


          • SamHamilton

            Thanks, this is helpful!

          • Katie Cannon

            Smith divided incomes into 3 types: Wages, profits and rents.

            Wages and profits were ok, though he recognized that profit taking could be abusive, and turn into mere rent seeking.

            Rents were never ok, and governments should enact laws to prevent rent seeking. And where laws fail, rental income should be taxed away.

            He was also against inheritance.

            He was serious about that meritocracy thing replacing aristocracy, whether titled or moneyed.

          • Katie Cannon

            The difference between early capitalists and socialists was that the socialists viewed profits themselves as rents.

            And they found their inspiration in Smith’s own critique of profits.

            “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms….
            by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.””

            ““The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”

            Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal:

            “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.””

            On regulations:

            ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”

            Plus, he was against inheritance, as was Thomas Jefferson, and most of our Founders

          • LucieCabrol

            1/ and 2/ can and hopefully largely is addressed by an active and free press, including analysis of returns achieved by certain quasi monopolies such as utilities….the other side is the prospect of some return by investment is done a lot better an d more efficiently by private money….excess return is controllable.
            3/ Is no where near an issue in today’s market with the level of welfare and diversity of industry and freedom of movement.

          • Katie Cannon

            1 & 2 – a free press is great, but only if it eventuates in laws.

            3 – level of welfare? Lol. Smith’s rather open ended identification of “necessities” would include whatever is necessary to share in the overall real economy, as well as the “social” economy.

            Housing, food, “proper leather shoes and linen shirts” — really. He uses leather shoes and linen shirts as an example of what is required to not merely exist, but be a member of, a growing level of national wealth.

            Also, includes free education at the level necessary in his day.

            Today that would include college — not merely as a means to geyt a job, but also as a means to function as a full citizen.

          • LucieCabrol

            Depends where you live; all that is delivered by the UK government…his use of leather shoes was in the context of the day…not relevant to today…Nike Air? as worn by all and sundry. The poor here would effectively get university education free.

          • Katie Cannon

            UK has a better social safety net.

            For sure. Though maybe not for much longer.

            BTW, The Bank of England is writing some really interesting papers and videos on how banking works. They waffle on some of their description, not wanting to say: “Taxes don’t fund the National Government” too clearly, but…. Here’s a guardian article, with a link to one B of E article:


          • LucieCabrol

            Thank you for the links; I think we have a different experience in the UK. As usual the correct path is usually a meander somewhere down the middle of the various doctrines. We have had a substantially more left wing average here and as such have different issues to deal with.

          • Katie Cannon

            Sort of.

            As I understand it your econ text books are a bit better than ours, but still misrepresents – to some degree – the role of banks and taxes play in the economy.

            And the role of pounds, your currency.

          • ptsargent

            Maybe UK has a better social safety net (than who?) but where’s it Silicon Valley???

          • Katie Cannon

            3) Can labor cross borders as easily as money? Nope.

            We’re cutting back on both welfare programs and public spending, and privatizing simple monopolies, which were once in the public realm.

            Not to mention that our national currency, set up as Public Monopoly no longer has a National Bank to go along with it.

            Now to access our national payments system, you have to pay a toll to private banks.

            Other than little things like this, ….

          • LucieCabrol

            Now you are getting contentious…the issue with denationalizing certain monopolies has largely been a huge success because the entities had been purloined by politicians and unions to the severe disadvantage of the public in terms of service/ innovation/ and investment in those services….of course they need constant oversight.
            Whilst small tolls are payable to access certain parts of the national payments system the system is extremely flexible and efficient and we have as a society gained massively by the virtually frictionless transfer of money for services , which has become even more flexible with the advent of the dot-com age.
            When you talk of cutting back on welfare I think you are possibly correct but also one must take into account the negative impact of welfare too easily accessed, the draining of energy from the economy, the increase in the economically non-active population, and the effect this has on pricing of wages at the margin.
            I don’t think anyone can accuse any western government of under spending on public expenditure in recent years.

          • Katie Cannon

            Here in America we’re going to privatize fast lane access to the internet.

            Privatizing parking meters has caused a 600% increase in price in some areas.

            Privatizing roads has caused expensive tolls to be erected.


            The “efficiency” argument relies, in part, on evaluating “cost”, and returns.

            And the discussion has been couched in treating monetarily sovereign governments, like America and the UK as being just like a household, which need to earn money and balance a check book.

            But since they are merely currency ISSUERS, not currency USERS, they do not need to earn money, and their costs are merely the private sector’s net financial assets.

            Taxes don’t fund a monetary sovereign’s ability to spend.

            They have a money making machine, not a check book.

            Pounds and dollars are an IOU from the gov to you.

            What does the gov owe you? A tax credit.

            Pounds are tax credits.

            The UK must first spend tax credits into existence before they can collect them back — and not use them 🙂

            Here’s a fun British blogger on the subject:


      • SurfSmurf

        Try addressing my actual comments rather than repeating this over and over in place of an argument.

      • ptsargent

        You are quoting Smith out of context. If you are quoting him accurately — I don’t recall this specific quote — you must know that he was for free trade and the elimination of Mercantilism, the economic paradigm or orthodoxy of the 18th century. He was essentially in favor of getting government and all its controls, favorite operatives and the like out of the way of entrepreneurs and the free market. In other words, lower taxes and fewer regulations and controls. Got it?

        • Katie Cannon

          Smith was concerned with power structures and distributive justice.

          He was concerned with both state and private forms of power.

          He was a smart guy.

          Assuming that the state is the only source of power is silly, to say the least.

          He was concerned with a balance of power between state and private, while neither eliminating the state or corporations.

          Among other things, he realized that a national or state currency was essential, and seems to have had a core understanding (though sometimes appears to contradict this), that taxes do not fund a monetary sovereign.

          So, for instance, while he mostly analysis taxes in terms of the gold standard of his day, he also says something like this:

          “If The Prince can issue a bond, it can issue a bill”,ie, an IOU is an IOU, and the state’s IOU is special in that it ultimately, even under the gold standard, state money sits at the top of the hierarchy of money, and the banking practices of his day merely confused the issue.

          He would have been aware of The British Talley Stick, as it was still in circulation, and was almost certainly aware that it bought gold to set up The Bank of England.

          At any rate, he knew that money was law, not a commodity.

    • Katie Cannon

      You have to separate profits on production and real innovation that impacts the real economy – either through making better stuff or better services — from simple rent seeking.

      And distinguish investment and reasonable hedging in real stuff and services from hedging for purposes of rent seeking, and speculation and ponzi schemes.

      Here in the US, the financial industry has grown from 14% in 1970 to 40% of GDP today. The UK has had similar growth.

      And this doesn’t include the 1 Quadrillion in derivatives that are floating about in a 60/70 Trillion world.

      Remember the housing crash?

      Even Mitt Romney’s outfit is worried.

      • Swami Cat

        Finally we begin to agree. I am fine with finance as long as it is not rent seeking. Rent seeking comes from seeking regulatory privilege. Let us stand up against crony capitalism and regulatory over reach.

        • Katie Cannon

          Here in the US, there’s an ex bank owner owe believes the only proper way to regulate banks is to lay out very clearly what they are allowed to do, and specify that they are not allow to anything else.

          He’s a cool economist — Warren Mosler, you might check him out.

        • Katie Cannon

          It’s not about regulatory over reach.

          It’s the types of regulations that matter.

          What are we regulating, and why?

          And importantly, how is our money supply regulated?

    • Katie Cannon

      What comes first: Public Spending or Taxes?

      Public Spending, of course.

      Taxes regulate the value of the currency. Currency has to have value to be useful.

      Gotta think about money before you can think about tax policy.

  • BoiledCabbage

    Wealth begets more Wealth – but only if you dont spend it!

  • Mukkinese

    She might be right, but to say that this undermines Picketty seems a bit of a stretch.

    She is talking about economic freedoms allowing people to generate more wealth for the individual, he is talking about how that freedom then creates an imbalance of power. Eventually limiting those freedoms to those with the most money and power…

    • guised

      I’m not sure about your first sentence and your last one, but what you said in the middle could effectively replace this entire article.

  • Liberty

    Most rich guys know how to make it, invest it and spend it in a market economy whilst politicians rarely do. That is why letting rich guys keep it [without too great extremes of wealth and poverty] creates more wealth and high tax economies don’t. and before one asks, I’m not rich.

  • The Masked Marvel

    Free men are not equal. Equal men are not free. This goes far beyond the superficialities of relative income.

  • Dave Cockayne

    Just wondering why every comment I make gets marked as spam and not shown?

    Any hints spectator mods?

    • LucieCabrol

      Your obscene surname?

      • Dave Cockayne

        Not likely, it hasn’t effected posts before. Perhaps on election nights they just switch on a ‘censor everything’ filter…

        The post you replied to didn’t get shown for days.

        My other post on this thread marked as spam still don’t show up, even though it was simply a disagreement about the nature of ‘progress’.

    • bfancher

      Are you a Nigerian Prince?

  • aksdad

    Piketty is wrong for two reasons. First, what he perceives as “inequality” is nothing of the sort. Second, he ignores the fundamental moral principle that private property is, well, private property and taking it without the consent of the owner is theft.

    Governments of free people are instituted by the common consent of the governed and their primary purpose is to protect both personal freedoms and ownership of private property. This fosters an environment where people are free to achieve any level of success–or wealth–they are willing to work for.

    The so-called “economic problem” of “scarcity”, the idea that there are limited natural resources that people compete for, is a fiction; and especially so in a free society. The only time scarcity is a significant factor is when people are reduced to the most primitive subsistence-level living. In all other circumstances, human ingenuity renders scarcity inconsequential.

    However, if you have imagined in your mind that someone else’s having more means you have less, you are living in scarcity of your own making. You are susceptible to joining the miserable throng who rally when a prophet of doom appeals to their envy of others by shouting “inequality!” There is a reason envy is one of the Seven Deadly Sins. It enslaves its owner and destroys others. Every socialist/communist revolution that resulted in the mass enslavement of hundreds of millions was started by people whipped into a frenzy of envy.

    It should be self-evident, but unfortunately this has to be repeated for the thick, that property belongs to individuals, not the collective. The disaster of communism and its consequent pettiness and poverty should be abundant evidence of what goes wrong when property does not belong to individuals.

    Taxes are necessary to run a government and instituting “fair” or “equal” taxation can be difficult to achieve with precision because it means different things to different to people, but it’s obvious to most people that requiring a drastically higher tax of someone because he can “afford it” is unfair. To be clear, it is immoral and is no different in principle or practice from the communist ideal made famous by Karl Marx: “From each according to his ability, to each according to his needs!”

  • Gemma Seymour

    ‘ Think of the Bill Gates and Steve Jobs, big wealth accumulators in recent times. It wasn’t the magic of compound interest on capital that made them rich; it was intellectual property. They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers. ‘

    This is a profound misunderstanding and misrepresentation of the actual histories of Apple, Microsoft, Steve Jobs (not to mention Steve Wozniak and Mike Markkula), and Bill Gates, particularly how Bill Gates ended up as the vendor of DOS to IBM. And that’s even before we get into the illegal restraints Microsoft extorted from their customers. Innovation, my ass.

    If you think Apple made billions by selling computer hardware without massive investments in capital, you’re not qualified to have any opinion at all on economics. The very concept is laughable.

    I am also giving you major league side-eye over mentioning Deirdre’s status as trans. What possible purpose could that serve in the context of this article?

    Sadly, however, like most articles on the subject income inequality, this article fails on the two usual counts: it does a poor job of questioning the premise, which is whether or not some given amount of wealth inequality of unavoidable or desirable, and it fails to consider any remedies in the event that it is undesirable beyond income taxation.

    • SamHamilton

      I am also giving you major league side-eye over mentioning Deirdre’s status as trans. What possible purpose could that serve in the context of this article?

      Taken together with her religious faith and economic viewpoint, it’s unusual, therefore, noteworthy. “Libertarian, Christian, transexual” is an unusual package.

      On the other hand, saying Picketty is a (presumably) white, male, straight, agnostic economist isn’t all that interesting.

    • Katie Cannon

      I think what you’re getting at is the fact that the distribution of money comes before taxation.


      And all talk about taxes needs to begin with some fundamental questions:

      1) Who issues money? Governments, private banks. Where national governments issue currency, and private banks issue private bank credit.

      2) What is money? Money is an IOU – a credit/debt or asset/liability relationship.

      3) Who acts as the monetary sovereign? In the US it’s the fed gov, in the Euro countries it’s the European Central Bank.

      Thus America is self funding, while France is not.

      France must earn Euros, either through taxes, borrowing or foreign trade.

      The US fed gov is not a currency user, so doesn’t need to tax, borrow, or make a buck conducting foreign trade.

      France, like a household, must balance a check book, because it gave up it’s monetary sovereignty.

      America’s fed gov doesn’t have a check book, it has a money making machine, and must balance the 3 financial sectors: Public, Domestic Private and Foreign Trade, which is in deficit:

      Pubic Sector -1 = (Domestic Private + 1/2) – (Foreign Trade + 1/2)

      4) National currencies = private sector net financial assets, ie, net incomes.

      Private bank credit: Loans create deposits so net to $0.

    • bfancher

      You’re missing the point. The Soviet Union “invested” massive amounts of capital and what did they end up with? Chernobyl. Capital without economic freedom will be wasted, whereas economic freedom that allows innovation will attract capital.

  • ohforheavensake
    • jdb1972

      Brad DeLong? Snicker.

      Only if you think Dems are always right, the GOP is always wrong, and Stalin was a well-intentioned moderate.

      • bfancher

        Uncle Joe was just misunderstood.

  • supplyguy

    It’s no one’s f’n business what the Lilianes and Paris’ do w/ their inherited wealth.
    And I know that the 99% who are whining about the so-called 1% are only doing it out of eny and would be more than happy to swap places w/ them.
    So STFU and go invent something that everyone wants and then you can become the idle rich which is what you really want.

    • Ann_In_Illinois

      Even the whole 1%/99% split is fuzzy. A recent academic study looked at 44 years of data in the US and found that 12% found themselves in the top 1% for at least one year, 56% spent at least 1 year in the top 10% and 73% spent at least one year in the top 20%. Similarly, looking at the top 400 taxpayers each year from 1992 to 2009, 73% made the list only once during that period while only 2% were on the list for 10 years or more.

      I find it interesting that more than half of us will make it to the top 10%.

      Here’s the link: http://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-to-rags.html?smid=pl-share&_r=0

      • SamHamilton

        Fascinating! Thanks.

      • Katie Cannon

        It’s the top .05% that’s tricky.

        And tends towards relying on buying political power to erect private rents and tolls on the rest of society to keep their game going.

        Relatedly, the financial sector made up 14% of our GDP in 1970. Now it’s 40%.

        Which excludes derivatives, which amount to about 1 Quadrillion in a 60/70 Trillion world.

        When that unwinds, it will place a huge tax on the rest of society, including those in the lower 1% range, extracting lots of wealth, as we saw in 2008.

        Anyhoooo…. the goal of any economy is to create as large a pile of real stuff, not financial products, as possible.

        And the goal of a democracy is to prevent the government from being captured – whether by a revolving door minority, or a permanent minority.

        • B Cachia

          Katie, with all due respect, your post shows that your understanding of economics is extremely hazy.

          • Katie Cannon


            Test me then.

  • Sean Grainger

    Ref Bill Gates’s dosh. I thought everybody knew but certainly anyone claiming to be a commentator should [itals] know the Microsoft money fountain was a good example — probably the best — of corporate stupidity. IBM management declined to buy DOS the sine qua non operating system.

    • http://alsbach-art.com/ Floyd Alsbach

      I thought they licensed it to IBM rather than selling it but I could be mistaken. Been a very long time since I read about it.

    • jdb1972

      Gates didn’t offer it to them. Mostly because he didn’t own it when the licensing agreement was made.

      Also, Gates got the opportunity to license DOS to IBM through good old-fashioned nepotism (his mom was a higher-up there).

      • bfancher

        No, his Mom was on the board of some charity with someone from IBM and made the introduction AFTER Digital Research (the creators of the OS CP/M) turned IBM away. So yes, there was an element of luck involved, as there is for everything that happens, good or bad, in this world, but that doesn’t make this nepotism. IBM didn’t license DOS because they wanted to do a favor to Bill Gates’s mother. They licensed it because they needed an OS and Gates happened to be in the right place at the right time to offer them one.

  • guised

    “They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers.”
    That first sentence bugs me. I don’t know the particular histories of Microsoft and Apple, but it seems absolutely impossible that they created billions from nothing. First off they had technologies to build on that were largely the product of certainly millions of dollars of government investment in basic research. No doubt they and their associates came up with clever ways to put those technologies into products. But it wasn’t some magical god-like act of creation that brought the products into being and then scaled up the companies. Capital certainly had a huge role in scaling up the companies. Especially the capital each deployed to buy out competing technologies., the capital each deployed to place their product ahead of others through marketing and lobbying, or to tie up competition in lawsuits… So, to just waive away the enormous power each has sought, won, and held over their respective markets places you much more in the silly cult that worships wealth than in the one that analyzes it.

    • Ali_Bertarian

      When you are finished “analyzing” it, could you inform us exactly how much of Jobs’ and Gates’ wealth was due to government “investment,” so that we can determine how much you want to take from them?

      If today’s wealth were not created “out of nothing,” then we would all
      be no wealthier than our cave-man ancestors. Human ideas on what to do
      with the natural resources of this Earth come “out of nothing.”

      In the meantime, I will just play my iTunes music on my Windows 7 PC, both of which were, in fact, created “out of nothing.”

      • guised

        Something cannot be created from nothing. Pretty cool that your Ipod was though.

        • jdb1972

          Wealth can obviously be created. Or, in simpler terms, you can get more than you put in at zero cost to anyone else. If wealth couldn’t be created, we’d all be subsistence farmers today, for example.

          Better methods of production, better products, creating whole new industries to address needs/wants people didn’t even know they had – this is all wealth production via innovation.

    • http://alsbach-art.com/ Floyd Alsbach

      Most of the research Apple built upon happened at Xerox. Microsoft bought Doss from an old hippy who liked to play around with code for 50k and licensed MS Doss to IBM et al making huge profits.

      • jdb1972

        It wasn’t DOS that enriched Microsoft. Bad operating systems were a dime a dozen. It was Gates having the foresight to include in his contract with IBM the ability to license DOS to other companies.

        IBM drove the market, then more nimble companies able to make cheaper and/or better PCs swooped in, licensed the same OS, and drove IBM out of the market they created.

  • Simon_in_London

    Deidre’s not the messiah, he’s a very silly boy. Of course capital is important. While Piketty sounds like the typical Marxist – good description, terrible prescription.

    • Grrr8

      “She” u ignorant tit.

      • Ali_Bertarian

        Does “tit” mean the same thing in U.K. English as it does in American English?

        • LucieCabrol

          yes…in this context.

    • bfancher

      I think the point is that while capital may be a precondition to prosperity, it’s not enough on its own. A society with savings but no economic freedom or culture of innovation will not prosper, while a society which does have those things will attract the capital necessary to achieve prosperity.

      • Simon_in_London

        That sounds right.

  • tjamesjones

    The logical problem with piketty is that even if a rich person grows richer in their lifetime, in the end they will die. And then there is inheritance (usually to multiple heirs or in Bill Gates case to charities) and inheritance taxes (to the state). Very few fortunes will not suffer huge losses when the owner dies. In the system we have in the West, today.

    • jdb1972

      Unless, of course, they set up a series of charitable trusts that coincidentally hire family members at exorbitant salaries, a la Warren Buffet.

  • http://www.readmypoems.co.uk Alison

    Have you made up your mind now, Evan? On the basis of the revelations about Picketty’s statistics in the FT?

  • pewkatchoo

    Save us from idiot economists. There is not one set of economic ideas that have totally survived the cold harsh light of reality and human frailty. Picketty sounds like Gordon Brown on steroids, and look where his daft notions got us.

  • cloud_buster

    “Or not taxing the Lilianes, at the risk of letting them become ever wealthier and more powerful while sitting at home doing nothing?”

    What, exactly, is the “risk” in this sentence? What, precisely, is wrong with an investor like Lilianes becoming ever wealthier? Keep in mind, that her money isn’t just sitting around in a vault full of gold coins. She’s not Scrooge McDuck.

    In the modern economy, all wealth is, essentially, continually invested. Liliane’s money is no doubt in stocks and bonds that fund corporations that provide jobs, products and services to millions.

    Taxing that wealth removes it from areas where it is being productively invested (no doubt her financial managers direct the funds away from consistently underperforming stocks and ventures), and transfers it through government hands.

    While it is in government hands lots of it is eaten up through non-productive administrative costs, and large amounts of it ends up paying interest on government debt and in entitlement programs, which are essentially investments in non-productive behavior (In other words, an entitlement program is where the government pays someone for being poor, old or sick).

    Incentivize poverty, sickness and bureaucratic paper-pushing, you get more of it. Tax wealth creation and investment, and you get less of it. Does this honestly sound like a recipe for prosperity?

  • theBuckWheat

    The only people who scold others about “inequality” are either hypocrites or do not understand the forces of coercion, compulsion and destruction they want to unleash on anyone who produces wealth.

    During such scoldings, I never hear any mention how much Oprah or Mick Jagger earn or how little their stage help is paid. It is hardly news that over 40 university presidents have pay packages that exceed $1 million, or that the heads of 11 charities in the US are paid over $1 million.

    We also never hear how this “inequality” will be mitigated. Well, it is always by compulsion via government and that is always via the threat of violence lest one be tempted to decline to “participate” in “paying their fair share”. And we wonder why few small business entrepreneurs are hiring any new full time employees.

    The economy not is a fixed-sized pie that must be “fairly” shared. (They get
    to decide what is “fair”). This is dangerously wrong: the economy is dynamic and welcomes anyone who can create new wealth. We must not inhibit them by threatening to steal it from them.

    • jdb1972

      No, some (most) of them are opportunists who leap on the inequality bandwagon and lead the ignorant mob on a path that coincidentally enriches them.

    • http://rdmckinney.blogspot.com/ Roger D. McKinney

      The left justifies those inequalities by saying the wealthy
      are doing the good work of trying to reduce inequality by promoting socialist
      policies. In other words, it’s OK if you’re filthy rich, like most leftists if
      you promote socialism. It’s not OK if you’re a dirty capitalist.

  • Fred_Z

    A glorious time for this article to appear, about the same time that the FT destroys Piketty and his book by showing that he falsified his data and/or calculations.

    And here I thought his science was settled.

  • http://teejaw.com/ TeeJaw

    “I’m in the sad 1 per cent, who can see both sides.”

    Oh, aren’t you just so special.

  • Shawn Gillogly

    Of course, when people DID dig into his charts of “facts” they were found to be remarkably less than…factual. While I won’t go so far as to say he was *fraudulent* in his recording. He was incompetently sloppy. Because math is hard. And ideologues wanting to justify a conclusion don’t have time for it.

  • mreed12

    Something else here too, I think. We’re not talking about Scrooge McDuck diving into a secret vault filled with gold coins, are we. Ms. Bettencourt may not have been “working” per se, but her money certainly was, or it would not have multiplied at the rate it has.
    Wherever it was invested, and I’m sure she had some involvement in choosing – with the help of her paid staff of lawyers & accountants – where and in what it was placed; obviously, her capital provided some “working” person with an opportunity to produce and sell something that profited everyone greatly.
    If Government taxed away her vast wealth, would the faceless bureaucrats, responsible only to elected officials, chose to invest it as wisely and efficiently?

    • Simon_in_London

      Good point.

    • http://rdmckinney.blogspot.com/ Roger D. McKinney

      Excellent points! Piketty still lives in the medieval world where all wealth
      was in land or gold in a warehouse. Today wealth is invested in job creating
      businesses and if the manager don’t do a good job the wealth disappears.

  • jdb1972

    Ah, yes. Giving more control of wealth to government will *never* increase inequality. Except that it always does, as ruthless politicians, unaccountable bureaucrats, and their cronies pillage innovators to enrich themselves.

  • docmerlin

    Also, Deirdre McCloskey didn’t fudge her numbers.

  • ebola131

    SOLYNDRA……gubmint theft.
    Pickity is a commie….commies are bad,
    Nuff said.

    • http://www.CaerphillyPreserves.co.uk/ No Good Boyo
      • http://www.readmypoems.co.uk Alison

        Thanks for posting that link to the FT video. Hilarious!

        • http://www.CaerphillyPreserves.co.uk/ No Good Boyo

          What I find most extraordinary is his assumption that that he would get away with it, and that nobody would bother checking his data — as indeed, his peer reviewers at Harvard clearly didn’t.

          It makes you wonder to what extent academics routinely falsify their data to justify the conclusions they desire to draw.

          • http://www.readmypoems.co.uk Alison

            Yes, the sad thing is that it just makes everyone cynical. I think political debates are better without statistics but of course this was an economic argument. We tend to think of economics as a science these days, which of course it isn’t, but we put so much trust in the people who we think can ‘do the math’, and then find that trust is entirely misplaced.

  • Mario_Ferretti

    Piketty’s results have been strongly criticised on the empirical side, as crucially based on faulty data and calculations. Yet it can be argued that it is also mistaken in its underlying theoretical growth model. The idea of wealth inevitably begetting more wealth stems from assuming a so-called classical saving
    function, whereby most or all of aggregate net saving and investment comes from property income alone. But this is analytically arbitrary and historically just not so (think for instance of the prevailing negative savings by the feudal landlords of old). Indeed, since Modigliani’s life-cycle theory of saving, no professionally self-respecting growth theorist would want to use such an obsolete assumption. Much of the fuss about Piketty’s book seems thus due to less than fully competent ideological emotionalism.

  • Icarus

    Just heard Davis’s Analysis programme with Professor McCloskey. There is a much better one to one english language interview with her on wetenschap24.nl the Dutch public service broadcaster which gives an excellent insight into her views.http://www.wetenschap24.nl/programmas/hoezo-radio/hoe-zo-wetenschapscafe/hoezo-internationaal/Deirdre-McCloskey.html

  • richard40

    I have a tax regimen which would be very good for entrepreneurs, and real investors, while hitting those who just sit on or spend money, doing nothing productive with it. It would also be fairly good for the middle class, while hitting the idle rich hard, and also the idle poor. Completely replace the income tax and payroll tax, with a consumption tax (which would hit mainly the poor and middle class). Then combine that with a small, say 1%, net worth tax, with a generous 500k net worth exemption, which would exempt most middle class people. This 1% net worth tax would get plenty of money from the rich, probably just as much as the top rate of the income tax does. But the good part is it would fall mainly on the rich who just sit on their money, on low rate returns, but would hardly phase entrepreneurs and good investors at all. When an entrepreneur comes up with something big, and makes a pile of money, the 1% tax would hardly hit them at all. It would only hit them once they cease being an entrepreneur and start sitting on their money and spending and enjoying it.

  • Sam Okeke

    The regret of all this is the apparent nonchalant attitude with which the issue of inequality is discussed. It is irresponsible of Deirdre McClosky to talk so irresponsibly about inequality. It is unfortunate that Piketty is a conventional economists and for all conventional economists which covers most of our professors and academics , all they know is economics finance and the only way they discuss and argue is finance. So a matter as important as inequality, they have no tools to discuss/study inequality except by financial arguments. Professor Piketty’s was based on financial statistics/data

  • Sam Okeke

    The trouble is that economics has degenerated. What we have today is ‘financial’ economics. Piketty and his opponents are arguing over whether his financial figures stand up or not and the arguments are getting very acrimonious. What they all lack is economic science. An economic text on an economic science of the US economy titled “the Decline of the US Economy” by C.C.Onyemelukwe .an economic scientist is coming out this year. It shows by detailed structural studies of the US economy that US economic structure is unbalanced and shows by graphs that it is this structural imbalance characteristic of many capitalist economies that cause inequality and a faltering. So look out for this book. Contact of the author:clementonyemelukwe@aol.com ; 203-222-0630

  • http://rdmckinney.blogspot.com/ Roger D. McKinney

    Davis: “I’m in the sad 1 per cent, who can see both sides.”

    Two short interviews will not inform you of what you need to know to make a decision. The laziness of agnostics is astounding. Read the books!

    Piketty: “Liliane Bettencourt, heiress of L’Oréal, who ‘has never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates’.

    That’s true only after Gates became a billionaire. But it we compare Gates’ wealth from college, his grew much faster than Bettencourt’s wealth. Also, Piketty ignores the fact that if those running L’Oreal or Microsoft made mistakes, refused to invest in R&D, ignored the wishes of their customers, or simply fell behind the competition their wealth would disappear as quickly as the wealthy makers of buggy whips lost theirs. Piketty is either dishonest or a terrible economist. Probably both!

    McCloskey is right. We should only be concerned about the causes of inequality. The main causes today of rising inequality today are monetary policy and regulations. Inflationary monetary policy benefits the rich as the expense of others while regulations favor large established corporations at the expense of new and smaller businesses while reducing competition.

    Inherited wealth seems to annoy Marxists like Piketty more than anything, but it never lasts forever and only about 3% in the US inherit their millions. 85% of millionaires earned their wealth by growing a business, just as did Gates.

  • http://rdmckinney.blogspot.com/ Roger D. McKinney

    McCloskey’s book is a must read, but the best book on
    inequality is Helmut Schoeck’s “Envy: A Theory of Social Behavior.” Schoeck
    shows that most concern over inequality is nothing but envy. Socialism elevates
    envy to a virtue.

    However, if the rich get richer through theft, coercion,
    crime or special government treatment such a through monopolies then the
    concern about inequality is about justice. But if people are ticked at the rich
    that’s pure envy.

    Inheritance seems to send leftist envy into a fury or
    spasms. But we should think of inheritance as winning the lottery. Lottery
    winners don’t deserve their money and didn’t work for it, but it still belongs
    to them and to no one else.

  • Batman

    This was a glib and superficial discussion of economics and practical philosophy (or moral philosophy). It also makes many unstated assumptions about human psychology that are not necessarily true. Davis has assumed that the greatest innovations have come from the motivation to make money rather than an intrinsic desire to be inventive. However, Davis has ignored obvious counter-examples. Take–for instance–Nikolai Tesla who invented/discovered alternating current (which we all use today). Tesla had no interest in making an enormous profit off of his inventions (subsequently he was taken advantage of by greedy capitalists). Think of people like Von Neumann who made enormous contributions to computers, mathematics and physics. He wasn’t a business man, he was an academic. Consider Paul Erdos (the most published mathematician in history) he never owned property, nor did he ever try to reap profit from his discoveries. Banting (the Canadian physician who discovered insulin) never sought a patent for the discovery of insulin. He sold the rights for insulin to the University of Toronto for 1 dollar so that everyone could benefit from his discovery. Unfortunately companies who produce insulin today charge enormous fees for the hormone that they did not discover, nor invent.

    Who are Bill Gates and Steve Jobs? Bill Gates HELPED design an operating system. He did not invent the operating system, nor did he actually create his own unique operating system independently (he had lots of help from partners that he subsequently screwed). In short, Bill Gates was really a lucky guy. He wasn’t a genius like Von Neumann or Erdos. Steve Jobs did not invent anything. He re-worked previously existing technologies and packaged them into a more digestible product.

    Tell me again how capitalism motivates inventiveness and creativity. Tell me again how business owners should receive tax incentives to not really invent anything, but simply capitalize on other people’s ideas. Because from where I’m sitting it appears to me that most of the brilliant inventions comes from universities where smart people work on hard problems not because they want to make money but because they simply love to discover.

  • Liberalism is Nonsense

    Today’s coercion is most often found as a labyrinth of complicated restrictions and regulations that restrain action to the point that any remaining freedom is essentially useless.

  • http://SocialDynamo.wordpress.com JohnPaulGettelman

    If ill-liberal identity theft perps., care to pretend they are anything else but frauds, they had better pay heed, to this individualist social lady!

  • Joe Hansem

    It seems like McCloskey ignores the role of colonialism-and slavery-in increasing the wealth of Europe during the modern period. Thus the Dutch she hails as libertarian, entrepreneurial pioneers of the early 17th Century who were “drenched” in virtue began their ascendancy by initiating the slave trade and colonizing Indonesia. And of course the history of Britain in India is known-or should be-by every school child.