Watch what Paul Mason does here

Piketty’s argument is that, in an economy where the rate of return on capital outstrips the rate of growth, inherited wealth will always grow faster than earned wealth. So the fact that rich kids can swan aimlessly from gap year to internship to a job at father’s bank/ministry/TV network – while the poor kids sweat into their barista uniforms – is not an accident: it is the system working normally.

If you get slow growth alongside better financial returns, then inherited wealth will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”, says Piketty. Wealth will concentrate to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.

We start with an “if”. If r > g, then……..

By the end of the second paragraph it’s become “automatically”.


54 thoughts on “Watch what Paul Mason does here”

  1. “If … then” is a statement of logical progression, isn’t it? “If X is true then Y will follow”. Therefore I don’t see how the “automatically” comment is out of place,

    I can’t comment on whether what’s being said is correct, but I don’t agree with the specific criticism Tim’s making here.

  2. Nowhere in the article does he justify the assertions that:

    Wealth will concentrate to levels incompatible with democracy,


    Capitalism, in short, automatically creates levels of inequality that are unsustainable.

    I fail to see why the richest 1% owning ever greater oodles of wealth is either incompatible with democracy or unsustainable.

    I think we can be confident, however, that Marxism / Socialism are incompatible with democracy and, evidence suggests, are unsustainable.

  3. Well, Geoffers, in an economy where the rate of growth outstrips the rate of return on capital, capitalism will not result in increased levels of inequality, and we’ll all live happily ever after.

  4. Geoffers, it would have been logically consistent if he had said, “Under those circumstances, capitalism, in short, would automatically create levels of inequality …”, but he’s effectively removing the conditionality from his assertion, and assuming that Piketty’s argument is true, without, of course, having proved it.

  5. If I didn’t have children, I’d swan about doing interesting stuff, motivated by philanthropy and the drive for spiritual fulfilment. I am working my ass off so that the above might be an option for my children if I am wildly successful. It’s biology.

  6. So the fact that rich kids can swan aimlessly from gap year to internship to a job at father’s bank/ministry/TV network – while the poor kids sweat into their barista uniforms – is not an accident: it is the system working normally.

    The problem every time that people argue against capitalism is that the arguments they produce are nearly always about organisations that aren’t very competitive:-

    Banks – huge amounts of rules and regulations to create a new one, very few have appeared in my lifetime

    TV – mostly state controlled, with various privileges (must pay £140 to the BBC if you like ITV)

    Ministry – a monopoly.

    And what’s Mason’s answer? More government. Idiot.

  7. Bloke with a Boat

    I’m being a bit think but how can r > g for any meaningful period? What do those wealthy people invest in that gives then and on average return greater than growth?

    I ask because my pension funds and ISAs don’t seem to be returning anything better than growth over the medium term.

  8. Bloke with a Boat


    Its like Will Hutton’s book, The State We’re In, it got so much air time that I felt I’ve read it and could probably have passed an exam on it.

    Most of the comments I have seen here and in other places have manly been commenting on those who have jumped on it as some sort of panacea, probably without reading it as well.

  9. How does inherited wealth work, then?

    Say I amass a giant pile of cash and give leave to my two children when I die. Each of them now has a half-giant pile of cash which, according to the lefties, they will blow on moats, coke, pheasants and fine wines. Even if they manage to hold on to some of it, this much-diminished pile of cash will be split between their surviving children.

    Even if those children squander the lot on a deposit on a 2br flat, pot, KFC and a six-pack of Tesco Lager, there’s going to be not much left for their children.

    Give it a couple of generations and it’s hard to see how inherited wealth, beyond a handful of rare cases, can persist. So why get so hot and bothered about it?

  10. I am interested in a world where the rich can get a rate of return on capital above nominal GDP in perpetuity. Risk free it ain’t possible, unless you have very high short term interest rates like we did in the 1970s and 1980s – or unless they can invest in the productive part of the economy while the poor are dragged down by a wasteful and inefficient pubic sector. Oh wait…

  11. Christie,

    Exactly. Even if you’re living off the interest on investments, the capital is devaluing. Throw in some profligate and idiotic kids who wastes it and you don’t find many families with wealth that lasts for long.

    Look at the people in the Forbes Billionaire list, and there’s only really the Waltons who inherited wealth, and they did a pretty good job of improving on the business they inherited. You don’t see names like Woolworth up there, even though they were some of the wealthiest people on earth at the time Sam Walton was born on a farm in Oklahoma.

  12. Tyler Cowen, the US economist, gently and firmly puts the knife into Picketty’s account:

    One of the issues that Mason, and others, seem to overlook is that it is foolish to examine long term rates of return on capital without taking risk/volatility into account. Also, what counts in terms of the supposed “unfairness” is income: If I liquidate some of my capital to become income and go out and spend it on wine, women and song (if only), then my capital stock goes down.

    Picketty, alas, is likely to be name-checked by the usual suspects on the Left as a profound thinker, rather as those guys who wrote the “Spirit Level” book were a few years ago.

  13. Paul Mason and others also should remember the “shirtsleeves to shirtsleeves in three generations” angle; history of actual people (not socialist tracts) are full of examples of family business dynasties that crack up, of improvident sons, of fortunes built and lost, etc. The composition of the Dow Jones Industrial Average has changed totally in the past 50 years, for instance. For Picketty’s theory to be correct, none of this change and turmoil would be really possible, or at least, not much.

  14. Can someone explain why the idea that r > g (or is likely to be for sustained periods at least) is controversial?

    1. Long run real returns on equities, including dividends are about 5%-6%. That’s much faster than most countries grow. (Catch up countries slow eventually.) So shove some cash in an index fund, and you’ll probably do better than g.

    2. Growth rates for countries have generally reflected both progress and increase in population. Growth per head has been lower. If you assume slower/no increase in population, g will be lower.

    3. We all know what’s happened to property, at least in the UK (see Duke of Westminster).

    So why is it considered so controversial that r is likely to be bigger than g? It is right now and has been for most of history.

    NB, he’s talking about the 0.1%, not people with a nice semi and £50k in a building society

  15. Christie,
    Primogeniture. You give all the wealth to kid #1, and leave #2 to fend for himself. It works for the royal family, it works for the Duke of Westminster.

  16. “Long run real returns on equities, including dividends are about 5%-6%. ”

    Well yes it seems (some figures here: very long term (100 years) real returns on equities are about 5%. But crucially that includes dividend reinvestment. I would hazard that if you spent the dividends (which after all is what your average feckless inheritor wants to do rather than go out to work) the return would be considerably more in line with economic growth, or even less. And its entirely possible that in any given period of say 30 years (a generation) the returns could be negative.

    So its seems that yes, you can stick your ill gotten capitalist loot into equities and make your great grandchildren gilded 1%-ers, but only if you can convince your children and grandchildren to not spend a penny of it in the meantime (and prevent the State getting any of it via taxes as well).

    My personal explanation of why wealth tends to agglomerate is that people who make money tend to buy land and property with it, and as the State is addicted to inflating the money supply, the value of such assets tends to rise in line with the money supply, rather than economic growth.

  17. A character in a Mark Twain story remarks that “science only needs a spoonful of supposition to build a whole mountain of demonstrated fact out of.”

    Funny then and, true or not, still funny today.

  18. “Has anyone on this thread actually read Piketty’s book – all of it?”

    Hi Frances, I follow you on Twitter. Can I take it from this post that you finally have?

  19. @ Luke
    Yes: because r is supposed to be the pure rate of return on capital after tax and the government will confiscate, through corporate and personal taxation, any excessive return on capital as a whole.
    Over the whole of the twentieth century, dividends rose more slowly than GDP/capita in all those economies that had a stockmarket with the sole exception of South Africa where it was marginally higher. In a majority of cases real dividend growth was negative (i.e. nominal dividend growth was less than inflation).*
    Long-run return on equities to end-2000 looked very good because that was the peak of a long-term bull market and the price being paid for future dividend returns was being discounted at a stupidly low discount rate: the value of future dividends had not changed but the price being for them had done so. this is a trend that had to reverse at some stage because negative interest/discount rates are unsustainable. Take out the change in yields and returns on equities are pathetic except in comparison with the alternatives for small investors – cash, gilts, bonds.
    For the fourteen years from 31/12/99 to 31/12/13 the total return on equities was 5.145% nominal to a tax-free investor, but since inflation was 3.005% that reduces to 2.14% for the tax-free investor or 0.1% for the 40% tax-payer. I think any claim that r>g in the 21st century is beyond controversial.
    NB The 0.1% are led by Warren Buffet and Bill Gates both of whom are self-made billionaires so hardly an advertisement for the domination of inherited wealth.
    What is controversial is his clearly false claim that if r>g then inequality is bound to increase. It is clearly false because under Thatcher inequality decreased and under Blair/Brown inequality increased despite r being higher under Thatcher than Blair/Brown. His argument appears to be based on the assumption that the rich will live within their earned income as an army subaltern and reinvest all the income from their inherited wealth. If the rich spend some of the income from their inherited wealth on maintaining a stately home or horses or a Bentley or a yacht or going to the opera his logic has a gaping hole in it.
    * Source: “The Triumph of the Optimists” by Professor Dimson, Professor Marsh and Professor Staunton

  20. Tim A,
    “Look at the people in the Forbes Billionaire list, and there’s only really the Waltons who inherited wealth… ”

    I did that look at the list. Of the top 20, 4 are Waltons. Two are Kochs. One inherited H&M. One inherited L’Oreal.

    No. 21 inherited Ferrero Rocher and Nutella. No. 26 inherited Thompsons.No. 28 inherited Lidl. No. 30 inherited a large part of Reliance (and helped build it up.)

    Of the next 10, one is a Saudi Prince, one inherited Aldi, and three are called Mars.

    At that point I got bored. Will their children top the Forbes list? Probably not -they will have to scrape by on a mere 8 or 9 figure wealth.

  21. John 77. Thanks.

    But Piketty is saying that the 20th century, particularly the first half, was unusual. That’s sort of his point. As for inheritance, see my post above.

  22. Luke,

    OK – I stopped somewhere near 20. And I assumed the Koch’s were self-made.

    But even those that inherited didn’t inherit Wal-Mart at its current size, or L’Oreal at its current size. Liliane Bettencourt inherited L’Oreal in the 1950s. when it had around 100 chemists, compared to 2000 today.

  23. Prof Garett Jones has an interesting review of the book, pointing out that Piketty contradicts himself with his own evidence:

    “But while Piketty’s contradiction is less an iron law and more a chalkboard speculation, there’s still plenty of room for class warfare in our future. A final way to see if capitalists are going to exercise unprecedented influence in the economy is to see whether their share of the economy is at unprecedented levels. Here, Piketty’s arduous historical research pays off. For the two countries for which he has data going back more than a century—Britain and France—the answer is clear: Capitalists are claiming a substantially smaller share of the economic pie today than they did in the mid-19th century. Back then capital income was a bit more than 40 percent of total national income. Now it’s a bit under 30 percent. So if capitalists—savers, landowners, entrepreneurs, and all the rest—are going to become a bigger deal in the future, they’ve got a long way to go before they’re at 19th-century levels.”

    He also points out “There’s an extra reason to think that capital isn’t going to permanently grow at a faster rate than the overall economy: Piketty says it won’t.”

    It’s certainly an interesting review. I would like to see how Krugman rebuts it.

  24. @ Luke
    The Grosvenors became Dukes of Westminster *because* they were stinking rich because various people built Mayfair on some farmland that they had inherited. They were already wealthy but becoming stinking rich was the result of the entrepreneurial action of one Earl Grosvenor, not the gradual accumulation from reinvested income that seems to be Picketty’s assumption.
    We have a property bubble from which various individuals have made fortunes but very little of it is old money.
    Picketty claims that the *second* half of the twentieth century – the bit for which we have some reasonable data – is an anomaly so we should ignore that and concentrate solely on the periods for which we don’t know what happened. Sounds like a variant on the three-card-trick.

  25. Tim, I agree that some inheritors did well with what they got, and the list by definition leaves out those who squandered it, or more likely just gradually declined.

    FWIW, if you leave out Gates and Buffett (OK, quite a jump) I reckon more of the self made were from emerging markets. What that proves I don’t know (and that was just my impression, not a proper analysis.)

  26. John 77, I really don’t think the Duke of Westminster/the Grosvenors are the people I would choose to knock down Piketty. If that’s the best you’ve got….


    On this list, only 2 people seem to be “old money” – The Duke of Westminster and the Earl of Cadogan. A few people inherited stuff – such as Mr JCB. The rest seem self-made. It seems that capital just doesn’t keep accumulating, in the UK, at a rate faster than growth. Pickety’s evidence seems to be nevidence.

  28. Diogenes, no, the Hinduja group was founded in 1914. So that’s Westminster, Cadogan, Bamford and the Hindujas that inherited. And Westminster on his own is richer than the Reuben Bros combined. Cadogan is richer than either of them.

    Don’t forget the Westons, or Mr Oppenheimer. Or Baroness De Walden.

    Depressingly a large number of wealthy in Britain ( as opposed to wealthy British) are Russian “businessmen”.

  29. Diogenes, also not certain the Reuben Bros are a rags to riches story:

    ” The family, which had lived in British India since the mid-1800s, emigrated to Britain in the early 1950s. Their extended family had run various businesses across the Indian Subcontinent from their base in Bombay.[2] ”

    They’re now largely in property, a good business for the long term rentier.

  30. Hmmm…. doesn’t it also depend on rates of expenditure and tax? Rather large variables which he doesn’t seem to mention>

  31. Diogenes, also Philip Green

    “Philip Green was….the son of a successful Jewish property developer and retailer.[5]….and at the age of nine he was sent to the now-closed Jewish boarding school Carmel College in Oxfordshire. When his father died of a heart attack, Green was in line to inherit the family business at the age of twelve….”

    We all go to boarding school and inherit family businesses (I am not knocking his undoubted talents at retail, just casting doubt on the rages to riches bollocks.)

  32. Diogenes, Joe Lewis, no. 9 on your list, inherited his father’s catering business (which he sold and did much better with the proceeds than most of us would have…).

  33. Diogenes, of the top 10, I’ll give you Graff, Dyson and Branson (prosecuted for VAT evasion early in his career and defended by one of his barrister father’s friends) as genuinely self made. And others did very well with what they inherited.

    That list as disproving Piketty? Try again.

  34. Diogenes, one last thing. Using state school education as a proxy for normal income and background, how many of your top 10 would count as normal income and background?

  35. @ Luke
    No, that was the best *you* had got in the post to which you referred me. I was replying to your claim that Gerald Grosvenor was a verification of Picketty’s claim.
    The vast number of stately homes open to the public and/or handed over to the National Trust by aristocratic families who cannot afford to support them is one argument against Picketty. A second is the higher return on investments in the second half of the twentieth century – when inequality decreased – than in the first half.
    “Don’t forget Baroness De Walden” No, do not – go to Audley End and you will be told how the estate used to stretch from the house to Saffron Walden, how many servants used to work there, even when the family was elsewhere. The Howard De Walden wealth has *shrunk* relative to the UK as a whole, while Picketty would have you assume that it must have increased.

  36. Isn’t the deciding factor whether those who inherit wealth go out and actively grow it some more (thereby contributing to economic growth) or sit back and passively let it grow from returns on capital?

  37. So, of the top 10 richest people in Britain two have inherited British wealth; looking at the “young rich list” I notice that they have paired Princes William and Harry in order to get them into the top twenty but even so they are jointly worth half as much as Daniel Radcliffe.
    The number of rich people who have migrated or set up a second home in Britain to escape persecution or the risk of confiscation is vast. One would expect the second and third generation to be more common than the first generation who would want to be present running their companies – but even in this group the first generation rich are more numerous than those who inherited a fortune (and if Gad invented the TetraPak then his brother Hans is first generation super-rich).

  38. This brouhaha about ‘inequality’ is total bollocks anyway. All societies from the beginning of time have had wealth inequality consistent with Pareto’s law – even the Commies.

    The difference is, at least liberty and free markets give the guy who rewards his customers best a fair crack at being in the 1%, with rising standards of living for the other 99%

  39. John77,

    So, of the top 10 richest people in Britain two have inherited British wealth;”

    Can you count? I would have thought that helped in financial services. My mistake.

  40. @ Luke
    Associated British Foods is British.
    So the Westons, although Canadian, have inherited British wealth.
    Add the Duke of Westminster and that makes two.

  41. Diogenes

    Thanks for the data and the links. I found Piketty’s own the most convincing crtique yet.

    It’s funny, but having having so many (often paid) critiques of Piketty that are prefaced by “by must admit I haven’t read it all” (one particular blogger – guess who- even offered a paid ‘review of the reviews’ even though he hadn’t read it) I find a professional Forbes blogger coming on here and criticising us enthusiastic amateurs for the same offence…quite irritating actually..

  42. I thought the rule of thumb for inherited wealth was:

    The first generation work like buggery to earn the wealth.

    The second generation look after it,
    having witnessed how hard the 1st Gen worked to earn it.

    Generation 3 and beyond don’t have that same connection and therefore have no qualms in squandering it.

    It certainly holds for the one example of extreme wealth that I’ve personally encountered.

    As pointed out above, maintaining the wealth over the generations is the exception usually due to canny land investment.

  43. Thanks Luke. When I made the claim that only 2 people on the list were old money, it was just a lazy assertion on my part so thank you for doing the heavy-lifting to assure me that my assertion was correct. I am not sure why you think you are arguing with me.

    Piketty’s data shows that in the UK and France capitalists are claiming a substantially smaller share of the economic pie today than they did in the mid-19th century.

    This seems to be borne out here by this list. If you compiled a similar list for 1850, I would imagine that only Westminster and Cadogan would appear on both lists. The others on the modern list seem to have emerged during the 20thc. And everyone else on the 1850 list has vanished from sight.

    I might have to read Piketty’s book to see how he can assert that r>g when his own data disproves it. If it were true over the long-term then everyone on that 1850 list should be stratospherically wealthy now.

  44. Diogenes, fair enough, I misread your point.

    But I reckon there’s a few families that have done OK – Westminster, Cadogan as discussed. De Walden, Portmans, Rothschilds, Barings till 1980(?). Guinnesses and other members of the beerage. Flemings. Swires. Jardines/Matthesons. Dukes of Argyle and Buccleuch?

    Give the book a try as you suggest. Two key points (from my unfinished reading of it) are that (1) much capital was destroyed in two world wars, one cause of the decline in capital share you note: (2) the increase (or not) of population is a factor – part of “g” has been down to increase in numbers. The increase in numbers means inherited wealth tends to be a smaller share of the whole. What happens if population growth ends?

    Enjoy it.

  45. @ Luke
    First, you have not yet apologised
    Second if you want to go on about the Howard De Walden family, you should get their name right and notice that the family estate has shrunk so this is a family that is now very rich because it used to be very very rich and is a contra-example to Picketty, not an example.

  46. the Rothschild’s decline was because so many of the descendants decided to be entomologists or wine growers or just general art connoisseurs (Waddesdon manor). If you look at the British Rothschilds, the lead guy died young and his younger brother was much more interested in zoology than in banking. Victor, his son, was more interested in zoology but was reluctantly forced, in the 1970s, to head up the family bank. He alienated his son and the Rothschild bank has dwindled since its peak as the lead banker in the BT privatisation.

    The Rothschild wealth has dispersed due to societal factors over 3 generations. The old ties of blood and kith and kin have vanished. Every Rothschild might still be wealthy but not plutocratically wealthy. I think the same has happened to the Vanderbilts and Rockefellers and Gettys. The composition of the 0,1% changes very quickly.

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