Capital in the Twenty-First Century

In the debates about austerity in Europe, following the financial crisis of 2007-2008, few groups were as often attacked as the unemployed. They were frequently portrayed in the British media as a drain on national resources and as morally reprehensible. The basis of this claim was relatively simple: They allegedly wanted an income without having to work. This violated the notions, connected to the Protestant work ethic and fundamental to the culture of contemporary capitalism, that idleness is a sin and one has a moral duty to be productive. It is ironic and surprising then that integral to the origins of British and French capitalism is a wealthy class who could not be further from this ideal. A class of people who directly and unambiguously lived off the wealth of the public. As Piketty says, such people cut “a suspect figure in the modern era of democracy and meritocracy” (142).

To understand this group (known as “the rentier”), and their economic as well as political significance, it is necessary to give some historical context. Between 1803 and 1815 Britain was engaged in a series of wars with Napoleonic France. These were, in large part, to protect and expand the fledgling British empire, and the trade routes and colonies on which it relied. In a very real sense, they were fought for the sake of British capitalism. Britain refused to raise taxes to fund these conflicts for over a decade, including the large subsidies paid to other nations fighting France. This was in keeping with the liberal economic underpinnings of that society. Indeed, it was consistent with the laissez faire capitalism, and related wealthy interests, for which they were fighting. Instead, the British monarchy “chose to borrow without limit” to fund the conflict (161). This reached astronomical proportions, equivalent to two years of national income in 1815.

Moreover, this was done in practice through the sale of government bonds. These are, in effect, high interest loans to the government, and their social consequences are perverse. As Piketty writes, “[U]ltimately, a government bond is nothing more than a claim of one portion of the population (those who receive interest) on another (those who pay taxes)” (142). This means that a poor majority pays for a high additional income for those who were already rich. This was an income greater “than the total expenditure on education throughout this period” (163). What’s more, it gave rise to a whole class of people who lived entirely on the interest from these bonds, upper people described in novels by Jane Austen and Honoré de Balzac.

Around the same time, this logic was also applied on an international scale. Using both military and economic means, Britain and France began to acquire huge assets in the rest of the world. These colonial possessions of land and raw material were equivalent to two years of national income in Britain. In France they were worth more than one year’s income. These overseas holding enhanced the wealth of the rich in these nations even further, with foreign invested capital returning around five percent in dividends. And they created an international equivalent to the relationship between the rentier and the public. The colonies worked to create high incomes for a class of Europeans who need do nothing other than own foreign capital. Worse, this situation created an inegalitarian spiral. As Piketty says, “[T]he rest of the world worked to increase consumption by the colonial powers and at the same time became more and more indebted to those same powers” (151). In other words, the holdings were so extensive that they allowed some Europeans both to consume more and increase their wealth. They could then use this additional wealth to purchase more assets in the colonies, increasing their dividends further and allowing for even more acquisition of foreign assets.

Most of the world’s population was working simply to increase the power and dominance of a non-working class of owners over them. They were working, in a sense, to entrench the conditions of their subjugation more deeply. At the same time, their living standards barely improved. Little wonder then that this situation became intolerable and could be maintained in the end only by military force—until it couldn’t. A wave of revolutions and decolonial movements from the middle of the 20th century onwards put an end to large scale European ownership of foreign assets. Likewise, the national rentier was destroyed by inflation. Rapid price rises after World War I and continuing after World War II wiped out the real value of government bonds, thereby ending the possibility of living off bond interest. It seemed as if the era of morally unacceptable “rentier capitalism” was over. Yet with a rebound since the 1970s of the capital/income ratio, almost to the levels of 1910, Piketty asks whether capitalism in the 21st century has truly changed.