CHRIS HAYES, MSNBC HOST: It’s my great pleasure today, in the second all-in, long form interview we’ve ever done, to have with me here Thomas Piketty.
Thomas Piketty is a professor of economics at the Paris School of Economics. He’s also author of an incredibly important ground-breaking new book. It is called “Capital in the 21st Century.” It is being hailed as the first economic classic of 21st century. I watched an even you were at with two Nobel Prize laureates last night, Joseph Stiglitz and Paul Krugman, both of whom were heaping praise upon it. I’ve read it. It’s just a colossal achievement. It’s ground-breaking, revolutionary and, uh, congratulations on it. It’s a real remarkable piece of work. PROF. THOMAS PIKETTY: Thank you. HAYES: All right, so, let’s start with the most basic argument, the most basic thesis are you putting forward in the book. What’s — if I had to distill it down to a non-expert and I said he wrote this book and it argues that X, what is it? PIKETTY: It’s a book about history. I’m trying to put history into the debate, into the very heart of the debate on inequality and — and primary, I want everybody, you know, to be able to make their own mind about these issues. You know, income and wealth are not issues that are unimportant to economies. You know, they are issues for every one of us. And, you know, I don’t pretend I — I know what’s going to happen next, but I want to give people a lot of history and material that was not available before so that they make their own mind. Now, one of — of the conclusions that I take from my own work is that, you know, we don’t need 19th century inequality to grow. You know, one lesson of the 20th century is that the kind of extreme concentration of wealth that we had in the 19th century was not useful and probably it even harmed growth, because it reduced mobility and access of new groups of the population into entrepreneurship and power. It led to a capture of our political institutions prior to World War I. We don’t want to return to this. Now, there is a tendency to move in this direction and we should — we should be worried about that. HAYES: OK, so let me — let me maybe back up and do then — and sort of identify those two, uh, uh, those two arguments, right. So the project of the book is essentially economic history of the last 300 years, um, more or less. Uh, you’ve collected all this incredible data. You can tell us what the composition of the capital stock in France was in 1760 as compared to Britain. You’ve done all this incredible empirical work. And you’re basically — there’s — there’s two things, I think, that are coming through. One is, um, these periods of high levels of inequality, you’re setting the concentration of wealth, right? These periods of high inequality haven’t necessarily been periods that — high inequality does not necessarily — is not really necessary for high growth, right, that those two things aren’t necessarily married, right? PIKETTY: Um-hmm. HAYES: And that there is no — this is really important. There is no natural tendency toward convergence and equality. In fact, the natural tendency of these economies, as they go, is for wealth to concentrate, right? It’s that the kind of — one of the fundamental findings? PIKETTY: There — there are different forces. There are different affairs. You know, some push in the direction of convergence, reducing equity. But it is true that there is a very powerful force that in itself tends to push toward rising inequality and which we are starting to have today, which is the tendency of the rate of return to get into all — to exceed the growth rate. And this is what we’ve had, you know, until World War I. This was abused, you know, in the 19th century or even more in traditional societies, it was obvious to everyone that art (ph) was bigger. HAYES: Right. PIKETTY: That the rate of return to capital was higher than the growth rate for one simple reason, which is that there was no growth. So when you have — HAYES: Right. Right. PIKETTY: — when you have zero growth, of course, the rate of return, for instance, to lend — you know, the landowner in the 18th century would receive land rent approximately equal to 4 or 5 percent of the land value. So the rate of return to capital was 4 or 5 percent. And — and this was, in many ways, the foundation of society, because this is what allowed a group of landowners, you know, to live out of their (INAUDIBLE) so that they could do something else than care about their own survival. HAYES: Right. PIKETTY: And — HAYES: Throw dinner parties, write novels, etc. PIKETTY: Yes. And sometimes very useful things, you know and — (LAUGHTER) PIKETTY: — but — but, uh, you know, this was how society worked. HAYES: Right. So let me — let me stop you there and just sort of, again, because I want to make sure people are tracking this, right? So that you’ve got these two variables. This is the — the — the big kind of formula that I think has gotten real purchase is R is greater than G, right? R is the rate of return on capital. And all that means is I’ve got money sitting in a stock portfolio right now, right. And my return on capital is it’s doing 4 percent a year or 5 percent a year or 6 percent a year. A savings account might be 1 percent a year, right. That’s the return. The growth rate is how fast is the economy growing, right? PIKETTY: Right. HAYES: And so your basic idea is when the return on capital, my portfolio, my stock portfolio, is getting 4 percent a year and the economy is only growing at 2 percent a year, you are going to get a concentration of wealth, right? PIKETTY: Yes. And this is what have, in the past, again, you know, the Industrial Revolution, of course, in the 19th century, led to an increase in growth rate. So it was not 0 percent like in traditional agrarian society, with landowners. It went up to, you know, 1, 1.5 percent, which was a lot — a lot more than 0 percent, but not enough to counteract the fact that the rate of return was 4 or 5 percent, or even sometimes 6, 7 percent in more risky investments, uh, like in the stock market. So that the gap between the return on capital and the growth rate did not really reduce with the Industrial Revolution. HAYES: Which is fascinating, right? You have an agrarian society in which you’ve got these land grants. I’m a landlord, I rent it out to you, I said I have — I throw parties. I write novels. I charge you the rent. I put it, you know, I just make it off the land, right? PIKETTY: Yes. HAYES: Then everything changes. We got coal. We get mechanization. We get industrialization. We get urbanization and even in that period, the growth rate goes up, right? We start seeing an increase in the standard of living. But the returns to capital also go up, which mean the people who are owning the factories, the buildings, the things upon which that industrial system is based, they’re collecting returns that are greater than the growth rate even during that period. PIKETTY: And — and so, of course, growth makes a difference because it increases the length (ph) and depth (ph) of everybody and this is also what’s happening today, you know, the emerging countries. And — and this is very good in itself. But this does not reduce the kind of extreme concentration of wealth than we had in traditional societies. And, you know, it’s funny, because on the eve of World War I, you know, many people in France, because they had made the France Revolution, you know, thought there was no inequality anymore and that inequality was an issue for Britain, because Britain was, you know, etc. And France did not need to have progressive taxation of income and inheritance. Whereas, in fact, at that time, land did not matter anymore, you know, both in Britain and France, as you were saying. You know, the manufacturing kept its own financial capital. Real estate had become much more important than land assets, which were less than 5 percent of national wealth in Britain and France. And the concentration of these new assets was actually as large in France as in Britain. And the fact of being a republic, you know, does not count (ph) too much dynamics of wealth concentration as compared to a — to a monarchy. So I think there have been some illusion, you know, some collective illusion, including, you know, in France and maybe in the United States today as to how much the forces of growth in itself — HAYES: Right. PIKETTY: — can bring, uh, you know, a more equal distribution of — of wealth. HAYES: Right. The idea is growth is a solution for everything, a rising tide lifts all boats, which is the phrase that we use here — PIKETTY: Right. HAYES: — in the — in the States. PIKETTY: And growth brings a lot of good things, of course. HAYES: Right. PIKETTY: But in itself, you know, it’s not enough. And in particular, there’s no natural reason why the growth rate should go, you know, up to the rate of return to capital. You know, these two notions, the rate of return to capital and the growth rate, are determined largely by different forces. And they just have no reason to be equal. And, you know, I guess we — we have that because during most of the 20th century, they were closer to one another. But largely due to an unusual set of — HAYES: Yes. PIKETTY: — accidental and — and exceptional reasons. HAYES: So I want to — I want to get to the weird historical anomaly that is basically the period from essentially the 1930s to the 1970s. But before we get there, the title of the book is “Capital,” right? I mean it somewhat ref — I think, references Marx’s — Marx wrote a book called “Capital.” Um, capital — define capital for me, because I — there — there’s been a little bit of debate in the push back to your book about just how well defined it is and whether you’re defining out, uh, what some people call labor, other people call human capital. So for — for a lay person, like what does capital mean? What is capital? PIKETTY: So in the book, I include in — in my concept of capital, you know, all assets, uh, real estate assets, financial assets, business assets that people can own and trade on a market. So, you know, of course, the notion of capital actually varies over a — across time over a society. You know, there were societies in the past, you know, for instance in the U.S. until 1865, where it was possible to own humans. HAYES: Right. PIKETTY: And so, you know, there was a market price for a slave and, you know, this was part of private wealth for some people. So, of course, this is not with us anymore, but today, we have other issues. You know, can you own — to what extent can you be the owner of natural resources? You know, can you be the owner of knowledge, you know, and there are certainly, you know, important issues about patent laws and other limits — HAYES: Right. PIKETTY: — you know, the private ownership of ideas and knowledge. So, you know, capital is a multi-dimensional concept. You know, it’s not a static concept. You know, it differs and each society sort of defines its own structure of property rights. And in the book, I’m trying to do justice to, you know, this multi-dimensionality of capital. So the story of land is not the story of real estate, it’s not the story of financial assets and financial markets. It’s not the story of debt. You know, all these different assets have their own particularities. And, you know, sometimes it’s useful to shut them up — HAYES: Right. PIKETTY: — to take the market value of all of these assets to compute the total market value of the capital structure that people own. But one should always be aware of the facts that, you know, there are — you know, this is fine for some purposes, but there are limitations with this view. And I think it’s always important to remember that, you know, you have different pieces of assets that have their own particularities. And I try to tell this lively story in the book. HAYES: So you just mentioned before the historical anomaly, um, that — and I think this is one of the most profound parts of the book, that basically the anchor for our perceptions, particularly the anchor for the perceptions of the largest generational cohort in the Western world, which is the baby boomers, right, is an incredibly anomalous period in history, that the period in France and Italy, in Great Britain, in the U.S., particularly after World War II to 1970, 1975, which is the anchor of normal, right? We think in the U.S., oh, back when the suburbs were expanding, good middle class growth, inequality was shrinking, annual GDP growth was — was relatively robust. You make the point that that period is very, very historically strange comp — compared to when you zoom out 300 years. PIKETTY: Yes, that’s right. You know, there’s a — a number of unusual events in the 20th century that make R and G closer together than the — than they used to be in the past and probably than they will be in the future. First of all, you know, World War I, the Great Depression, World War II, of course, reduced enormously the rate of return to private wealth between 1914 and 1945, because you have lots of destruction, you have inflation that destroys, you know, the public debt that people have accumulated to finance the war. And so there’s a very low rate of return between 1914 and 1945. Then, in the post-war period, you have an unusually high growth rate, partly because of the reconstruction or the recovery. So, you know, that’s particularly true in Europe and — and Japan, but that’s also true, to a lesser extent, in the US. You know, in Europe and Japan, you have a 4, 5 percent growth rate in the ’50s, ’60s, ’70s. But this is because there’s a large recovery that needs to take place after the lost decades of the war period. HAYES: And it’s totally transformational. I mean you hit this home. There’s a — there’s a French phrase for the glorious years. I remember when I was studying in Italy, if you look at an Italian film from, say 1950 to 1970, there’s a palpable sense that people are watching in their lifetime, in their generation, an explosion in standard of living completely unprecedented. PIKETTY: Yes. So there’s a lot of nostalgia for this. HAYES: Yes. PIKETTY: Yes, yes, which I can understand. But at the same time, you know, it’s important to realize that, you know, this is, you know, of course, if you start from very low, if you destroy your country and your continent during a 30 years war, then you have a high growth after all. But it’s partly mechanical. The other more positive, unusual event that made R and G closer together in the 20th century we should not forget about, it is very large population growth. So, you know, the baby boom and marginally the democratic transition, you know, is still not completely over. And during the last part of the 20th century, population growth was a very important component of total GDP growth. You know, keep in mind that if you look at world GDP growth over the past three centuries, you know, it’s only 1.6 percent per year. And half of it is population growth 0.8 percent. HAYES: Right. PIKETTY: Whereas per capita GDP is only 0.8 percent. This can seem very small to us today, you know, when we hear about China growing at 10 percent. But China is just catching up with rich countries. You know, you cannot do that forever. And 0.8 percent per year, in the long run, you know, that was enough to multiply the world population by 10. Now, is that going to happen again? Maybe not. You know, in the case of the U.S., which is a country, in a way, that’s based on population growth and that’s what — HAYES: Yes. PIKETTY: — that’s what we all love in America, but at the same time, this is not really generalizable to the rest of the planet, because, you know, the population of the world is not going to be multiplied by 100, as U.S. population did from three million to 300 million over the past two centuries. So, you know, I think the decline of population growth is a very important first that structurally increased the importance of wealth accumulating in the past relatively to new income and new output. HAYES: So when we look at this period, particularly in — in — particularly in Europe and the U.S. and Japan, of the — the sort of 20th century, particularly middle 20th century, we see a number of things happening. High growth rate, high population growth, a — a narrowing between the rate of return to capital and the growt
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