By Dr. David Cowan
Dr. David Cowan BTh, MTh (Oxon) MLitt, PhD (St Andrews), Visiting Scholar, The Boisi Center for Religion & American Public Life, Boston College, and author of Economic Parables: The Monetary Teachings of Jesus Christ (IVP, 2nd Edition). Dr. Cowan is currently writing a book on Chicago economist Frank H. Knight, which will be published next year.
You may have noticed there has been a lot of talk lately about economic inequality, thanks largely to an economics book that has become something of a cause célèbre in the media. Written by a French economist Thomas Piketty, Capital in the Twenty-First Century has become a sell-out book. It is a study of equality and inequality in Europe and the US since the 18th century.
I could score a cheap point and say it’s always nice to see an anti-capitalist book create and exploit a market for handsome remuneration, but this is not to take the book seriously enough. It is being widely-bought, though how widely read is another matter. The book is going into a second print run at Harvard University Press, and no doubt Mr Piketty’s speaking fees will rise in value. Then again, it was Karl Marx who coined the term “Capitalist” in the first place.
The book was initially published in French in 2013, with the English translation released in April 2014. For a year it remained basically ignored by the French, in large part I suggest because it was written in the white heat of Gallic hope that surrounded the presidential aspirations of Francoise Hollande and his populist anti-capitalist. By the time it was actually published, France became once more shrouded in despair and a realization that Hollande is simply another careerist politician who hopped on the populist train. France gave the book a collective Gallic shrug.
However, in America the book is creating great excitement. Piketty argues the conclusion that wealth will accumulate if the rate of return on capital is greater than the rate of economic growth, which in the long term leads to the concentration of wealth and economic instability. It comes as no surprise that Piketty proposes a solution: a global system of progressive tax and transfer to help create greater equality and avoid concentration of wealth in the hands of a few. By all accounts the book is well-researched in terms of the data, but like Marx himself, having understood the problem he is fantastically wrong about the solution.
The great Chicago economist Frank H. Knight, a co-founder of the so-called Chicago School of economics, noted in the 1920s that inequality is a concern in capitalism. It is, as Piketty’s research suggests, an inherent problem. But what Knight saw as the outcome of the problem is that large-scale inequality will lead to “reformers” like Piketty, people who will say more government and more taxation are the answers to the problem.
The problem such knee-jerk reactions create is the path that is well-trod with good intentions. It, in fact, leads to a depression of the dynamics that create markets and growth. Some inequality is a necessary outcome of markets, and attempts, however well-intentioned, to erase it are a fool’s errand. Concentration of power, hand in hand with government, will oppress entrepreneurial power which is in fact the driver of the economy. We need policies that will promote entrepreneurship, and bring confidence back into the economy, which in turn will reduce inequalities.
Economics is a hard task and the economy a hard task-master, and Knight was a great prophet of economic realism, something which has been lacking for some time in our troubled economic times. Change is not achieved by hollow idealism, and Knight was always suspicious of do-gooders in the economy. I argue along similar lines, in my book Economic Parables, that the economy is a reflection of our human endeavors and puts a number on what we are really like. This applies to inequality. We do not treat each other equally, and this shows up glaringly in the economy, it puts a number on it.
Thankfully, we are equal before God in all ways, and we are called in discipleship to treat others well. Our economic success or failure will not matter a jot to our welcome in heaven, but how we behave economically does reflect the state of our discipleship here and now. Our dealings in money and attitudes toward consumption tell us a lot about our spiritual as well as financial balance sheet, and it is no surprise that we all fall short to varying degrees, but we strive.
The more who strive the more we will see economic change for the better, it will be part of the measured economic output. However, the economy will only measure and reflect this, it will not make it happen. Knight was regarded as the economist of original sin, and I agree, the economy measures us as we are, not as we would like to be. Piketty’s book has found the numbers and measures us how we are, but he does not give us the answer, we have to look to ourselves and ultimately to Christ for that.