CityReads | Capital in 300 Years

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Capital in 300 Years: the Rise and Fall and Rise again of Inequality

A tale of capital in the last 300 years reveals the root of our current crisis.

Capital in the Twenty-First Century directed by Justin Pemberton，2019

Sources: 

https://www.imdb.com/title/tt5723056/

https://variety.com/2020/film/reviews/capital-in-the-twenty-first-century-review-thomas-piketty-1234596239/

Thomas Piketty's 753-page book Capital in the Twenty-First Century, published in France in 2013 (English and Chinese translations published in 2014), has sold 2.5 million copies worldwide and resonated with the outrage of people around the world in the wake of the financial crisis: the deepening divide between the 99% of the poor and the 1% of the rich. Piketty's writing is clear and lucid, and often cites Balzac and Jane Austen characters trying to move up the social ladder under the wide income and wealth inequality. But, perhaps because of the book's length, most people don't actually read the whole book. Jordan Ellenberg, a mathematician at the University of Wisconsin, has pointed out that the five passages that readers highlight most on the Kindle eBook are located in the first 26 pages of the book.

In order to encourage a wider understanding of the book's main ideas,  in collaboration with Thomas Piketty, a New Zealand director Justin Pemberton has adapted Capital in the 21st Century into a one-hour, forty-three minute documentary containing historical images, film clips, interviews and pop culture showing the evolution of capital over the past three centuries, from the 18th century to the present day, revealing the roots of today's capitalist crisis. The film analyzes how the world came to be the way it is today through the lens of capital (money, land and property). Who owns capital, who doesn't, and how capital rises or falls over time. The film follows the capital and tells a cultural and financial detective story about the evolution of inequality in the contemporary world.

Capital in the 18th century

Do you know what the average life expectancy was in the 18th century? It was 17. No, this wasn't just about the fact that human beings back then tended to live less long. It was about the staggering inequality that society was built on.

In 18th century Europe, capital is concentrated in the hands of a very small number of people. The aristocracy represents 1% of the population. The boundaries of money limit social mobility, and hard work and education don’t allow you to climb very high.

Life of the poor is grim. They are hand-to-mouth laborers, moving from place to place, following the work being treated by the landowners exactly as they please and there were no benefits. So poverty was a death sentence.

For the rich, inheritance is the obsession. The elder son gets the capital, which makes him incredibly powerful. These land-owning men, these first sons, they also have a huge amount of political power, because a lot of them are the MPs and elites. As a consequence, they are driven by a desire to protect their own income and their own world, and it simply doesn't occur to them that poor people deserve some redistribution of wealth. This is the way that the aristocracy worked, not just in Britain, but all through Europe. Pride and Prejudice, written by Jane Austen, is a good example. As the British historian Kate Williams notes, "Jane Austen created a fantasy that you could get your hands on this wealth, if you were just a bit fun and a bit witty. But the reality is, there‘s no way Mr. Darcy would marry girls like Lizzy Bennett, who actually haven’t got a penny to their names."

Traditionally, economists have argued that inequality is a very powerful driver of progress and innovation because the idea is that competition, essentially, makes people try harder. The problem is that extreme inequality increasingly seems to be a source of great economic stress, social stress, and political stress. The possibility of social mobility is diminishing when elites reproduce their privileges through generations and stubbornly protect their status. People tended to end up with a full-blown revolution. The banner of the French Revolution is "Liberté，Égalité，Fraternité ."But it took only a tiny amount of time for the bankers' government to be established, which in effect create the elites once more.

Capital in the 19th century

What we see in the late 18th and early 19th century is the Industrial Revolution. It replaces the work of people's hands with machines, so people bring in machines to make all kinds of commodities. This makes goods faster, it standardizes them, and this makes more profit. People finally figure out that they can expand their own factory by selling stuff, keeping the profits then reinvesting those profits in expanding factory. That's kind of what capitalism and its modern form is that capital becomes this thing that can kind of perpetually expand.

The ability to mobilize labor became even more important in the 19th century. A small family farmer had to turn to his kinds, but a slave owner could use loans to buy a bunch of slaves for production, from which he could profit again for expansion. The slave economy is a kind of participating in this circuit of accumulation. The 19th century is when the division of labor, inequality and power are established worldwide-first with slavery, and then with incredibly violent colonial domination. The United Kingdom and France, who are the two main colonial empires, accumulated so much profit that they can afford to keep on investing and become owners of more of the world.

Capital in the 20th century

In Europe, the rise in nationalism and competition between European countries, partly due to very strong social tensions linked to the stagnant standard of living and very high levels of inequality. People began to forget class conflict and instead focus instead on national identity. All this contributes to the arrival of World War I. Fundamentally, the war was a fight over capital.

The massive economic crash after the war made people realize that tax is not a bad thing and the only way to get money is by taxing the aristocracy. This was the beginning of the drop in aristocratic power and the growth of the power of women and working classes in the '20s. The '20s was maybe irrational exuberance. There was a boom stock prices, but people kept bidding into the stock market because people always think there's magic in Wall Street. A lot of banks were selling products that they knew were absolutely no good. There were dodge bankers doing dodge deals knowingly. It was a real free-for-all of capital.

At the same time, many workers were at the bottom, not enough in the middle class. Credit was then being offered to kind of paper over that divide. At the same time, A lot of people getting very rich, but a lot of workers at the bottom not enough in the middle. Credit was then being offered to kind of paper over that divide dad. That credit cycle fed this bubble, and like every other bubble, it broke. The crisis of the 1930s creates such a strong trauma that leads to the public and politicians holding capitalism accountable. America came out of this intense pain through the New Deal. Germany has not been so lucky. Impoverished Germany was made worse by the punitive reparations it had to pay after World War I. The rise and call of fascism, the call to xenophobia, the call to invade other nations, are allure to people who are oppressed and trapped in poverty. These downtrodden people were so open and vulnerable to the rise of fascism and the call of racism, exclusionism and invading other countries.

What really gets rid of the Depression is transforming the economy into World War II. The governments of all the societies involved just take over production, and this is an industrial war. The labor movement got a lot of political power. It took this to finally purge the influence of the aristocracy in advanced countries. The wars are used to destroy capital. But this collapse of capital is not necessarily a bad thing because the power relationships within society are transformed.

The social landscape is completely different in the aftermath of World War II. A comprehensive welfare system was gradually established, and the capital vitality that had previously been restrained was released. The new vision is that the ’50s is going to be the age in which everyone can have wealth. People who are born just after World War II had a life that no child before them could ever imagine.

For the first time, hard work and study can get people to the Top. Through this new society in which social mobility was actually possible. And what you have is this real surge of the middle classes and the lower middle classes into positions of power. The growth of an extremely strong middle class is the most striking shift in inequality through the 20th century.

But in recent decades, the share of wealth owned by the middle class has started to decline sharply in the US. One of the greatest challenges for the future is whether the middle class will continue to shrink, with the risk of returning to an impoverished middle class like the last century. The 21st century is clearly moving in a different and disturbing direction.

Wars and taxes explain the one halcyon period of relative equality in western history, 1914-1980. World wars, communist revolutions and inflation combined with high taxes to decimate rich people's assets. A powerful middle class was built, for the first time in human history, after WWII. It was no joke and no illusion; it was about how a great many ordinary people now possessed capital.

The pin prick to that dream, and the air leaking out of it, began in the ’70s, when stagflation and the oil crisis combined with what would become the slow-motion crushing of organized labor. That's the key to understanding why inequality has worsened. The share of all the money that's made in the economy is going less and less to the workers, so that is declining the age share. The new mantra of deregulation took hold, and so financial services were deregulated dramatically and then market forces were unleashed which made capitalist a lot richer.

The big reforms of the Reagan-Thatcher era were lower the tax rates on the rich on the assumption it would trickle down. But it didn't happen and increase inequality. When we look at the numbers, we can see it very vividly. The bottom 90% have experienced near-stagnation. Most of the growth has gone to the top 10%. Median income for a typical American household is roughly at the level was a quarter century ago. Real wages, adjusted for inflation, at the bottom are at the level they were 60 years ago. These are dramatic statistics that shows the economy has not been working for most Americans.

By the 1990s, American banks really became the exporters of American capitalism around the world. Everyone was sold their version of a trick-down laissez-faire deregulate capitalism. Life seemed to get better in the 1990s, because the globalization of the system made things for ordinary people for a while cheaper, but then people get credit. When the credit boom took off, suddenly all the people could get credit. 2008 was where that blew up. The collapse didn't occur. The system was preserved and the opportunity to substantially reform the system was set aside. Like a quiet coup, Wall street and the views of Wall Street had taken over policy.

One of the film's surprising scenes is when UC Berkeley psychologist Paul Piff shows how unearned wealth affects people's behavior. In one experiment, players of the game, Monopoly, became conceited and less compassionate if they received twice as much money (plus an extra dice), and they did not attribute their success to luck. Piff told the audience, "You see people who win because of a coin toss start acting as if they deserve to win." The parallels between this phenomenon and today's social inequality that is often justified as the result of individual effort and talent speak for themselves.

Globalization allowed capital to be siphoned, through the reinvention of the financial sector, back to the elite. And the raw power of that capital has now become a self-perpetuating system. It buys political influence. It buys media and advertising. It dodges taxes (through offshore shell-company rackets). It gets passed on to the next generation. The decades of middle-class capitalism after World War II was the aberration, and since at least the 1990s we’ve been returning to capitalism’s norm.

Capital in the 21st century

It's very likely that in the 21st century, inheritance will return to playing a role as significant as in 19th century England and France. In the United States, the biggest wealth transfer in history will take place, with $12 trillion or more being passed on to the next generation over the next 10 to 15 years. In fact, the rate of return on capital throughout history has almost always been higher than the rate of economic growth. From the beginning of the Industrial Revolution to 2018, the growth rate of the world economy is 1.6% per year over three centuries. This is much less than the rate of return on capital, which is around 4% to 5% a year over the same period.

Modern capitalism is all about the free movement of global capital. This is a far cry from when Adam Smith, the father of modern capitalism, was thinking up the idea of free market system. Statistics today show that only 15% of the money coming out of the largest financial institutions is actually going to that kind of productive lending, with another 85% just moving around this  closed loop of the financial system. For the rich, investing in real estate is easier to make money and less risky than opening a factory or inventing new things, thus triggering the outbreak of the housing crisis, which has a great impact on young people in particular. Societies that are more unequal have less social mobility.

The concentration of power in society led to a reproduction of social hierarchies and rising tensions among the working and middle class became more and more tense. This social tension slowly spilled over into the political arena. People began to take to the streets, clinging to identity, race, religion and other elements of resistance.

"There are always politicians tempted to exploit the rising inequality,"he says. "You could see this very clearly in the world before 1914. And I'm very afraid at the beginning of the 21st century, that because we feel we cannot regulate international capitalism, we cannot properly tax billionaires and multinationals, instead we vent our anger at other targets."

To solve the rise and persistence of inequality, we need a progressive tax on capital. And also, ownership rights cannot be eternal. This means people will be able to control some of the concentration of capital, as well as political power. At present, when technology starts actually getting at the basic functionality of a human being, and we move from an industrial economy to a post-industrial economy, capitalism is no longer about labor. Historically, we should be optimistic about creating a more equal society. Piketty says: "I am for controlling capital to go beyond capitalism, with ways that are more democratic, more inclusive, and finally allow us to project ourselves into the 21st century."

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