Piketty on the sacredness of property rights

When English settlers first dealt with American Indians, there was a fundamental misunderstanding of the nature of property rights.

The Indians had no idea of buying the exclusive right to use a tract of land, keep everybody else off it and sell the land to someone else.

Thomas Piketty pointed out in his new book, Capital and Ideology, that, in fact, this was a fairly new idea even for the English and other Europeans.

The idea of absolute property rights did not exist in the European middle ages. Someone might have a hereditary right to grow crops on a certain tract of land, a second person the right to 10 percent of all crops grown on the land, a third person the right to grind grain produced on the land for a fixed fee, and so on.

Furthermore the right to land use was not so much bought and sold as inherited.

Medieval France was what Piketty called a “ternary” society—a society in which political power and property ownership were divided between a hereditary noble class who “fought for all” and a priestly class who “prayed for all,” leaving very little for a lower class who “worked for all.”

The “ternary” system existed in the Islamic world, India and many other parts of the world, and it casts its shadow over the present world.  Saudi Arabia and the Gulf states (mostly Sunni) are ruled by hereditary monarchs while Iran (mostly Shiite) is ruled by clerics.  In India, the descendants of Brahmins (priests) and Kshatriyas (warriors) are richer and more influential than the Vaishyas (farmers, craftsmen and traders) and Shudras (laborers).

In Europe, uniquely, priests were celibate.  They could not found dynasties.  This mean that the Roman Catholic institutions had to be corporations.  They had to have a continuing existence that was independent of who was in charge.  It’s not accidental that business corporations originated in Europe.

The French Revolution overthrew hereditary property rights and established what Piketty called “proprietarianism” or “the ownership society”—the idea that property rights were sacred, provided that the property was acquired through legitimate purchase.

The accepted story in France is that the revolutionaries divided up the aristocrats’ estates among the peasants and turned France into a nation of small landowners.  In fact, according to Piketty, the revolutionaries made arbitrary distinctions between land that was owned through hereditary privilege and land acquired through voluntary contract, and, in many areas,  property ownership remained almost as concentrated as before.

Piketty wrote that the revolution was one of history’s “switch points.”  He thinks it could have been more radically egalitarian than it was.

In fact, concentration of wealth in France at the beginning of the 20th century was even greater than at the time of the French Revolution.

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Britain took a different path from France.  The aristocracy was never overthrown and the church was never disestablished.  But property rights were equally sacred in both countries.

Britain’s rulers held back from relieving famine in Ireland and India because they thought it was morally wrong to give people food that they hadn’t paid for.  Start doing that, they thought, and there’s no limit to what people might ask for.

Both countries compensated slaveowners for their lost property when they abolished slavery on their plantation islands.  It didn’t occur to leaders of either country to compensate the slaves for having been enslaved.  In fact, the Haitians were forced to pay reparations to France for having emancipated themselves without payment.

Politics in 19th century Britain were a contest between the landed aristocracy, represented by the Conservatives, and the merchants and manufacturers, represented by the Liberals.  They felt safe in gradually extending the franchise because they were backstopped by the House of Lords, which had a veto over all legislation.

Britain’s switch point came in 1911.  The House of Commons enacted Prime Minister Lloyd George’s Peoples Budget, which included a graduated income tax (top rate 2 percent), an increased inheritance tax and a land tax, for the purpose financing old age pensions and other social benefits.

The House of Lords vetoed the bill.  The Commons enacted a constitutional change, in which the Lords could only hold up legislation for one year.  The Lords vetoed the change.  Then the King of England threatened to create 500 new members of the House of Lords unless they gave in, which they did.

As the Lords feared, this was a first step on a path that led to the victory of the Labor Party in 1945, the National Health Service and the nationalization of industry.  What would have happened if the King had not backed up Lloyd George?  What induced him to do so?

Sweden at the end of the 18th century was a nation of extreme feudal privilege.  At the end of the 19th century, it was a nation of extreme individual property rights.  There was not only a property qualification for voting, but owners received were given additional votes based on the amount of property they owned, just as stockholders in a corporation get votes according to the number of shares they own.

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Now Sweden is noted for being egalitarian.  Piketty said this goes to show how fast and far ideas about wealth and property can change and little national characteristics and Inequality in the Western world never reached the extreme that it did in the so-called Belle Epoch before World War One.  Wealth and income in the 20th century became less unequal, and, in many countries, the 1945-1975 period was a kind of golden age.

I got the idea from Capital in the 21st Century that Piketty thought this was a result of wealth being wiped out by the two world wars and the Great Depression, which meant a lesser share of income for property owners.

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But in Capital and Ideology, he said the new age was a result in a change in thinking.  People came to doubt that ownership of wealth was an absolute right that overrode all other rights.

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He briefly discussed the rise and fall of Communism.  He said the mistake of Karl Marx and V.I. Lenin was failure to think about how society would be structured once Communists took power.

As an indication of Communist failure, roughly 5 percent of Soviet adults were incarcerated at the time of Stalin’s death in 1953.  In contrast, the current incarceration rate is 1 percent in the United States and 0.1 percent in Europe.  However 5 percent of African-American adults are incarcerated.

As another indication of Communist failure, average life expectancy in the time of Mikhail Gorbachev had ceased to rise and even started to fall slightly.  But this is now true of the USA as well.

I don’t equate the contemporary USA with Stalin’s USSR, but Soviet failure should not make us Americans complacent about our own failures.

Piketty wrote that Soviet Communism might have been tolerable if the USSR had continued the New Economic Policy of the 1920s, in which individuals were allowed to earn a living by trading, while large industry was controlled by the state.

Under Stalin, the USSR turned itself into a polar opposite of the capitalist world.  Private property, rather than being held sacred, was regarded as demonic.  Individual enterprise, including that which was necessary to keep the system going, was outlawed.

I would add that, instead of respecting lineage, as the old aristocratic societies did, they persecuted people based on the social position of their parents and grandparents.  All in the name of equality.

So maybe it’s not surprising that post-Communist Russia has gone to the opposite extreme.  Russia has no inheritance tax.  Its income tax rate is a flat 17 percent for all brackets.

Piketty estimates that half of Russia’s financial wealth is hidden by oligarchs in tax havens.  He estimates that Russian billionaires listed by Forbes absorb 30 to 40 percent of the nation’s income (three or four times the level of the USA, France, Germany or China).

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But Russia is not an outlier.  Wealth is being redistributed upward in almost all nations—some more than others, it is true.

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Why has this happened? And why do people accept it?  My next post will be on the politics of inequality.

LINKS

Le Blog de Thomas Piketty (in English)

PIketty’s new book explores how economic inequality is perpetuated, an interview for the Harvard Gazette.

Thomas Piketty: Confronting Our Long History of Massive Inequality, an interview for The Nation.

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