Disillusion in Utopian Capitalism and Lessons to the Development of China

By Chen, Ping | World Review of Political Economy, Fall 2014 | Go to article overview

Disillusion in Utopian Capitalism and Lessons to the Development of China


Chen, Ping, World Review of Political Economy


DISILLUSION IN UTOPIAN CAPITALISM AND LESSONS TO THE DEVELOPMENT OF CHINA revieW of CAPITAL IN THE TWENTY-FIRST CENTURY By tHomas PiKetty Capital in the Twenty-First Century, by Thomas Piketty, translated by Arthur Goldhammer, Cambridge, MA, Harvard University Press, 2014, viii + 685 pp., $39.95 (hardcover), ISBN 9780674430006

It has been 6 years since the financial crisis engulfed the global economy. In 2014, a bestselling book-French economist thomas Piketty's recent book Capital in the Twenty-First Century (2014)-brings yet another round of agitation to the depression-stricken West. First, it was the New York Times, in a brief account of the French author's intellectual heritage, that came up with an ambitious title Taking On Adam Smith (and Karl Marx) (Erlanger 2014); then, the New Republic, a liberal American magazine of commentary, captivatingly described Piketty's rock-star reception in the world of economics (tracy 2014), and Nobel laureate Paul Krugman (2014) had aptly summed up American conservatives' reaction to the book, a "Piketty Panic."

To me, mr. Piketty's book reveals a 300-year macrotrend of capitalism, the widening gap of inequality, which is similar to the beginning line of communist manifesto, another specter haunting the West. this time, the specter is not communism, but rather reflection on capitalism. So, why did the New York Times call Das Kapital of 21st century a challenge to both Adam Smith and Karl marx?

While it is not the first time that the Western media politicize serious economic studies, I would like to discuss, from economic and historical perspectives, some findings from Piketty's Capital, which also discussed growing inequality in china. Piketty criticizes neoclassical economic theories, such as Kuznets' (1968) inverted U curve of income inequality, and Solow's (1957) exogenous growth theory, which are the very foundation of chinese neoliberalist economists in their campaigns against china's independent industrial policies and the chinese economic model in favor of the Anglo-Saxon model. Hence, Piketty's reflection on mainstream Western economics indirectly treads a delicate ground in china: which way should china's reformers take in the next stage of "structural reform"?

Piketty's empirical observation on the capital-to-income ratio

Many chinese economists follow the mainstream doctrines of textbook economics from the States. this time, ironically, a non-mainstream French economist lectures mainstream Anglo-Saxons. there are three reasons.

First, Piketty suggests that in order to study the historical trend of inequality in advanced Western economies, France instead of Britain or the USA is a more appropriate benchmark country. English aristocracy has remained intact since the Glorious revolution of 1688; the absence of a thorough capitalist revolution and the unbroken lineage of wealth thus make England an unrepresentative case in the study of inequality. the US case is one of a kind. By the eve of its independence, the USA had a population of 3 million and an area of 800,000 square kilometers. But now, the US population is near 300 million, and its area is 9 million square kilometers. Naturally, as the country expanded massively in population and territory, effects of inequality were to some extent neutralized. In 1789, French population was around 30 million; 300 years later, the figure had only doubled-a growth pattern commonly observed in many other European nations. most crucially, the French revolution had brought all prerogatives to nought and established the principle of égalité devant la loi. If the trend had shown French wealth gap widened continuously, its implication on economics would be ever more significant: even equality before the law could not safeguard economic equality in capitalist societies. this is the revolutionary finding of Piketty's empirical analysis, and it poses a great challenge to the Anglo-Saxon model as the normative model in assessing world economies. …

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