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Varoufakis vs. Piketty

“The rich… divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” Adam Smith, The Theory of Moral Sentiments, Part IV Chapter 1 

“For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Mark, King James Bible, 1611, 4:25

Adam Smith’s optimism and its vulgar neoliberal reincarnation, the ‘trickle down effect’, are thankfully on the back foot these days, steadily losing ground to a more ‘biblical’ narrative (see Mark 4:25 above[1]). The Crash of 2008, the bailouts that followed, and the ‘secular stagnation’ which is keeping the wage share at historic lows (at a time of conspicuous QE-fuelled, bubble-led, asset-price inflation), have put paid to the touching belief that the ‘invisible hand’, left to its own devices, distributes the fruits of human endeavour more evenly across humanity.

The commercial and discursive triumph of Thomas Piketty’s Capital in the 21st Century symbolises this turning point in the public’s mood both in the United States and in Europe. Capitalism is, suddenly, portrayed as the purveyor of intolerable inequality which destabilises liberal democracy and, in the limit, begets chaos. Dissident economists, who spent long years arguing in isolation against the trickle-down fantasy, are naturally tempted to welcome Professor Piketty’s publishing phenomenon.

The sudden resurgence of the fundamental truth that the best predictor of socio-economic success is the success of one’s parents, in contrast to the inanities of human capital models, is undoubtedly uplifting. Similarly with the air of disillusionment with mainstream economics’ toleration of increasing inequality evident throughout Professor Piketty’s book. And yet, despite the soothing effect of Professor Piketty’s anti-inequality narrative, this paper will be arguing that Capital in the 21st Century constitutes a disservice to the cause of pragmatic egalitarianism.

Underpinning this controversial, and seemingly harsh, verdict, is the judgment that the book’s:

  • chief theoretical thesis requires several indefensible axioms to animate and mobilise three economic ‘laws’ of which the first is a tautology, the second is based on an heroic assumption, and the third is a triviality
  • economic method employs the logically incoherent tricks that have allowed mainstream economic theory to disguise grand theoretical failure as relevant, scientific modelling
  • vast data confuses rather than enlightens the reader, as a direct result of the poor theory underpinning its interpretation
  • policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality
  • political philosophy invites a future retort from the neoliberal camp that will prove devastating to those who will allow themselves to be lured by this book’s arguments, philosophy and method.

Yanis Varoufakis

[1] Of course when Mark was prognosticating that more will be given to the ‘haves’, and taken away from the ‘have nots’, he was not referring to wealth, but to understanding, wisdom, propriety. Still, the quote fits recent wealth and income dynamics so well that it would seem a pity not to employ it in this context.



  1. B.L. Zebub
    March 21, 2015 at 7:31 pm

    Varoufakis on Piketty:

    “•policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality.”

    I trust the irony will not be lost on those following the Greek negotiations.

  2. blocke
    March 22, 2015 at 1:08 pm

    When reading this post, I thought of the historian’s frustration with economics.

    Two come to mind immediately.

    1/The limitations of the economist’s sense of the present.
    When I was a young but ripe scholar, I came across the papers of the Benoist d’Azy family in an attic room of a private chateau. The papers covered the life of the 19th century French iron manufacturer, banker, railroad entrepreneur, and prominent politician and legislator, Denys Benoist d’Azy – archives of a firm he help found (the forges and foundries of Alais), including letters he received and sent to family (wife, sons Charles and Paul, business associates, political allies and friends – for the period 1826-1875.) It was a rich source, from which I learned a lot about the political acumen, business prowess, values, and character of this remarkable man and other members of his network. I use to tell my students, that sometimes I had much closer insight into people who were dead long before I lived than with my own contemporaries, thinking of the Benoist d’Azys when I spoke.

    Ordinarily this sort of awareness is cut off from economists, which means that they have a very different time consciousness from the well-read historian. I learned this first hand when between 1982-84, I spent two years in the Esso chair at the European Institute for Advanced Studies in management, where for the first time I was in constant contact with economists and management “savants.” In conversations with them, they would say, “but that was a long time ago,” which would turn out to be one or two years before; where with me, if I said a long time ago, I would mean in the first half of the 19th century. Whereas my working present would cover people I had encountered who lived decades before, their’s would not, on the assumption, I guess, that people who made economic decisions (how to exploit networks to accumulate capital or technological knowhow) lived in such a different world from our own that they had nothing much to teach us. Theirs was also based on the assumption that we are much smarter than people who lived before us. My historical knowledge made me aware that this was not the case in economics anymore than reading about Bismarck would be a waste of time to contemporary strategic thinkers when seeking to improve their grasp of strategy in statecraft.
    2/The language of economics.
    The English economist J.R. Sargent, mused in 1963 “You cannot ask the Americans what influences consumption, you must inquire about characteristics of the consumption function…. No American economists ever thinks. He uses his analytical tools to arrive at meaningful theories. While these pomposities can be funny, I believe that they indicate a fundamentally right approach to the subject. This approach requires that definition be exact, and that terms should be distinctively named to avoid confusion. It requires that theory should be rigorous, and directed towards the possibility of comparison with the facts.” “Are American Economists Better?’ Oxford Economic Papers, 15:1, March 1963, 1-7, 2.

    Two days ago I had a young German electrical engineer as a guest in my house. Since I know something about the history of engineering education in Germany, I asked him about his – to find out that he did not know much about the subject historically. In engineering one studies the current state of electrical engineering, not its history, and rightly so, since electrical engineering is an applied science. The American economist Sargent talked as though American economists had turned economics into a science, too, like engineering — consequently one did not study the history of the study of economics but the axioms and principles that had been established.

    This might be a sensible approach if economic theory was rigorous and directed towards the possibility of comparison with the facts. But readers of this journal know that “rigour” is exactly not what neoclassical economics embodies, especially since its development has not been “directed towards the possibility of comparison with the facts.” In this regard, neoclassical economics failed. Sorry Professor Sargent.

    If this is so, how can we pretend to study it as a science, like electrical engineering? If a subject is not a science it needs to be studied historically, to see when, where, and for what reasons it came to establish itself as a “science,” so that we can determine what went wrong, and why, in the search for economic knowledge. Students in economics need to know this.

    That knowledge is historical, human, political, and cannot be couched within the restricted jargon of neo-classical economics or its methods is also apparent to historians.

    For historians this has become a problem, because they cannot, without the jargonized methodologies, communicate with neoclassically trained economists about the shortcomings. It is not just that any dialogue between historians and economists is a dialogue of the deaf, but that it is a dialogue that does not take place, since the methods of historians and their research are not countenanced by neoclassical economists. Pomposities that cannot be saved with the excuse they have rigour, win out.

    Even in a journal that purports to make economics a real world discipline, the grip on the economists who participate is clear, through their education because it excludes from their purview the richness of historical knowledge (restricting their idea of the present) and frames the discussion in quite discredited neoclassical theoretical terms.

    I think there is no way out other than to teach economics as history.

  3. March 25, 2015 at 12:29 pm

    Thomas Pikketty has really stared controversy

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