Monday, June 16, 2014

On Piketty's "Capital": Capitalism vs. Plutocracy

In his book Capital in the Twenty-First Century, as I noted previously based on Harold Meyerson's review of the book, Thomas Piketty relies on false premises to make his case.

Having set up a straw man as capitalism, Meyerson's following statement is no surprise:

[W]ith heightened accumulations of wealth come heightened accumulations of political power — a shift toward plutocracy. . . . “No self-corrective mechanism exists” within capitalism to retard this descent into plutocracy, [Piketty] writes.

Plutocracy is defined by Merriam-Webster as follows:
: government by the richest people
: a country that is ruled by the richest people
: a group of very rich people who have a lot of power

Piketty is clearly not talking about capitalism. There is a "self-corrective mechanism" within capitalism that not only retards, but makes impossible, a "descent into plutocracy": It is called a constitution that restricts the government to the protection of individual rights—everyone's rights, equally and at all times. A capitalist government is forbidden to initiate force against private citizens; for example by seizing money from some people and handing it over to another; forcing citizens to buy health insurance; or running schools based on forced taxation and compulsory child attendance laws. The capitalist government is servant, not ruler, of the people. The rich, no matter how concentrated their wealth, can not acquire the kind of power Piketty alleges; not under capitalist government. The political power to rule is only possible under statist government; exactly the kind of "political action" that Piketty calls for: a global tax on capital, labor laws to "empower [favor] workers," and "increasing the social provision of goods and services [forced redistribution of wealth]"—all of which require government to violate rights.

Only a government with the power to violate rights opens the door to plutocracy. A government restricted to protecting rights can not: If even the poorest citizens are safe from taxes, regulations, and arbitrary law, what possible threat can rich government office holders pose to anyone? Indeed, what incentive would wealthy people have to gain political power in the first place, other than a noble desire to uphold the values of individual rights and rights-protecting government by becoming agents of servant government?

Put simply, capitalism is the best and only defense against plutocracy, because it is the only system that completely binds government to protecting individual rights, and only protecting individual rights.

Piketty's Capital in the Twenty-First Century raises the stakes in the income inequality controversy. It is an important book; not because it makes any sense, but because it will become an important tool of the anti-capitalists. But the book's entire theme is built on false premises and straw men. It is easily demolished by a proper understanding of the nature of production and trade, individual rights, and the proper purpose of government—in short, of capitalism.

Related Reading:

Mixed Economy—Ayn Rand

Atlas Shrugged—Ayn Rand

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