A Meeting of the Minds: Alexis de Tocqueville and Thomas Piketty
Alexis de Tocqueville (1805-1859) is a French historian and political thinker who is best known in the United States for his book Democracy in America, which was published in 1835 following a trip to study the U.S prison system. Coming from Old Europe where wealth inequality was extremely large, he was impressed by the more egalitarian, more inclusive, and more democratic institutions that existed in the U.S.
Thomas Piketty is a French born economist who moved to the U.S. in 1993 at the age of 22 to teach at MIT. Three years later, he returned to France to teach at the Paris School of Economics. His book, Capital in the 21st Century was published last year. It is receiving a lot of attention among commentators and economists and has been called “one of the watershed books in economic thinking” by a former senior economist at the World Bank. He has studied inequality for the past twenty years. His book encompasses the period during which Tocqueville was writing about America. The following is a dialogue between Tocqueville and Piketty (translated into English) as the former returns to earth.
Thomas: Bonjour Alexis; welcome back!
Alexis: Sacrebleu, Thomas, what a book! I got an advance copy in heaven and had to meet you! But first, how were you able to collect such huge amount of data? My book was renowned in my time for the sheer breadth and scope of information I had compiled, but it pales next to your own.
Thomas: Well, I went to the U.S. like you did, but not to collect anecdotes. We now have access to online data sets put together by statisticians and historians and a theoretical framework that would have allowed you to analyze your data and make sense of what you saw. However, in spite of such obstacles, you did a fairly good job in observing that the level of inequality in the U.S. was much lower than in France in the nineteenth century.
Alexis: It was obvious to me that land was plentiful and cheap in the U.S. Thus everyone could have a piece of it while in France only the aristocrats had land and only their eldest son could inherit it. How could it be otherwise?
Thomas: You are perfectly correct Alexis; however, if you had more data, you could have observed that inequality was already increasing faster in the U.S. than in Old Europe. In fact, inequality was rising in most of the world.
Alexis: But what is the reason for this global increase in inequality, including in the U.S.? I am absolutely shocked as I saw nothing of that sort!
Thomas: Well this is a little complicated to explain…what do you know of economic theory?
Alexis: Adam Smith’s Wealth of Nations was published almost 30 years before my birth. Interesting fellow, though his French isn’t very good! And his talking to imaginary friends is lovely too!
Thomas: I’m sure that is an interesting story, but first to answer your question. Economics has made great strides since you lived, but you won’t need a PhD to understand this explanation. The rise in global inequality has to do with the difference between the rate at which the economy grows and the rate of return on capital, where capital is anything from financial investments to real estate. If economic growth is slower than the return on capital, then the share of GDP going to labor has to fall. This causes inequality to rise and the effect compounds year after year.
Alexis: I think that I get the thrust of what you say but then if this is so inequality will become so great that those left behind will start revolting and the survival of democracy may be at risk. But here I am over a hundred and fifty years later and the United States is still on its first constitution.
Thomas: You may not have noticed – some terrible events happened in the early twentieth century. We had two world wars and in between we had what we call the Great Depression of 1929. Something good resulted from it; it wiped out most of the wealth that had been accumulated by the few in Europe and in the U.S. Those events may have saved our Democracy! In Europe this was followed by inflation which reduced the real value of debt, labor friendly laws, and massive rebuilding. In the US, President Roosevelt raised the top income tax rate to 90% and the tax on large estates to 70%. Labor unions became more powerful and a minimum wage was instituted. In France, the primogeniture system that existed during your time was ended.
Alexis: But didn’t these policies reduce growth?
Thomas: To the contrary, this was a time of high economic growth. As a matter of fact, it is the only time I’ve found when the economy grew faster than the rate of return on capital. However this was the exception rather than the rule.
Alexis: So is inequality rising again? What about the U.S.? Is there more inequality in the U.S. now than in Europe?
Thomas: It is true that inequality in the U.S. is generally greater than in most European countries. Moreover, inequality is again increasing fast as the return on capital is higher than economic growth. If things continue, the New World will come to resemble the Old World from where you came. Moneyed aristocrats with inherited wealth can live off that wealth without ever having to work, like characters from a Jane Austen novel.
Alexis: I was sixteen when the first full translation of Pride and Prejudice was done. How is this future to be averted? I could never have predicted that the New World would turn into Old Europe. Will American democracy survive if inequality continues rising as you suggest?
Thomas: I do not know, but I hope that like you, I shall not live to see the end of democracy.
Alexis: So it looks like we will have to resume our discussion in a couple hundred years; I must leave now before they notice I am missing. Merci et Au Revoir!
Thomas: Au Revoir, Alexis; it was a pleasure meeting you!
Pierre Canac, Ph.D.
Associate Professor of Economics
Vanessa Canac
Electrical Engineer