Rich Man, Poor Man

Posted on December 26, 2019 by Martin van Creveld

Whoever takes even a cursory look at today’s media cannot escape the impression that, in almost any country one may place under the loupe, economic inequality has been growing. To the point, indeed, where it now poses a real danger not only to democracy—which stands on the threshold of turning into a simple conspiracy between politicians and capitalists aimed at robbing everyone else—but to social order and, in the not so remote future, perhaps government as such. Such at any rate are the conclusions people draw from Thomas Picketty’s Capital in the Twentieth Century which, since it was published back in 2013, has not only turned into a best-seller but attained almost iconic status among many. Now there is no question that Picketty is as good an economist as they come. But did he get it right? Is the situation really as bad as it seems? For some very brief answers, consider the following.

First, there is some reason to believe that figures on economic inequality, especially those originating in the Left but sometimes those published by the “populist” Right as well, are often exaggerated. In the words of The Economist, which in its issue of 28 November 2019 devoted a long and quite detailed article to the question, this is done –

By focusing on gross, instead of net, income; by omitting all kinds of subsidies available only to certain groups such as the poor, the old, and the young [in my own country, Israel, this includes free dental treatment for children, a system that tends to favor Orthodox Jewish and Arabs families, which often have numerous young offspring, at the expense of secular Jewish ones]; ignoring the fact that the young and the poor are less likely to be married, with the result that their income only supports a single person rather than two or more; and a whole host of similar miscalculations, deliberate or not.

Other oft-used methods include placing the income of self-employed people under the rubric of capital rather than that of wages, thus exaggerating the share of the former in GDP; assuming that the wealthy are more adept at tax evasion while minimizing the role of “black” work which, though all but unknown among the rich, often plays a considerable role in lower-class family finances; in developing countries, ignoring the role of transfer payments made by foreign workers abroad to their kin back at home; or simply taking, as one’s starting point, 1998, or 1970, or 1945, rather than the times when Henry Ford and John D. Rockefeller each sat on more inflation-adjusted wealth than Jeff Bezos does today. Not to mention those when the Triumvir Marcus Licinius Crassus boasted that no one was truly rich unless the interest he drew from his investments enabled him to maintain an army. Had these and other factors been taken into account, says The Economist, then they might have led to the conclusion that economic inequality in the U.S and Britain in particular has increased little, if at all, since the prosperous mid-1990s—or perhaps, according to others, since the equally prosperous mid-1960s.

In the end, so plentiful (and, often enough, too uncertain) are the data as to enable any good statistician to reach the conclusion he or she was aiming at from the beginning. I therefore found it more interesting to take up another volume, Walter Scheidel’s The Great Leveler (Princeton University Press, 2017). True, on Google.scholar it got just 315 citations as opposed to over 15,000 for Picketty’s. However, in terms of academic quality it will stand comparison with the latter; proof, if proof were needed, that people tend to review and read and buy what they think will reinforce what they already believe rather than that which may throw a spanner into the conventional wisdom of the age in which they live.

When there is wide case of muscle contraction, the brain tend to cut the process of sending stimulated signals to the penile nerve causing no erection process. order cheap viagra The discount web chemists give is actually their profit that they share with the end users. online order viagra Does your romantic moments with your partner end just with a sigh or embarrassment instead of fun and passion? Is that what is generic uk viagra djpaulkom.tv killing your happiness little by little? Do not worry if you have kamagra with you. viagra canadian Now, this cure is saving not only the men world but also countless relationships and families from going haywire! Sexual health can be defined as the state of being stressed, anxious, or depressed without any direct, specific cause seems to be a problem primarily of the wealthier, more highly developed nations. For all the wealth of data he has assembled, most of them lifted from tax records, Picketty only refers to a few Western societies over the last century or so. By contrast, Scheidel enjoys the very great advantage of casting his net over a much larger number of societies over a much longer period of time. Starting with tribal ones in various continents and passing through antiquity, the Middle Ages the early modern age, all the way to the last two centuries; throughout, discussions of Europe alternate with spotlights on other civilizations. Including, to mention just two examples, that of the Maya on one hand and China on the other. To be sure, the scarcity of sources—at any rate, for some of the societies under consideration—and the fact that there are limits to the amount of material even the best historian can compress into 528 pages mean that some of the chapters are a little superficial. Still one cannot help but marvel at the way the historian in question could ever have assembled such an enormous mass of material; let alone evaluated it and mastered it and put it in some kind of logical order.

As with all great books, Scheidel’s thesis is, at bottom, simple. First he shows that, by and large, equality is a characteristic of simple, not to say primitive, societies (such as, to speak with Thomas Hobbes, have “no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short”) whereas inequality typifies more developed ones that have all those things. Second, he argues that, within societies where inequality prevails, that inequality generally coincides with periods of prosperity and economic expansion. As, for example, in the Roman Empire during its heyday—a period Scheidel, who started his career as an ancient historian, has researched at some depth—and also in pre-World War I Europe.

Such being the case, throughout history four phenomena—the horses of the apocalypse, as Scheidel, predictably, calls them—have tended to reduce inequality and make the distribution of resources more equal. The first is war which, starting in prehistoric times and extending right into the present, has often reduced the losers (assuming they survived at all) to a crowd of beggars. As the example of the Soviet Union during World War II shows, moreover, that may apply not just to the losers but to the victors as well. The second is transformative revolution; as, for example, when first the Soviet, and later the Chinese (to mention just the most important ones) revolutions deliberately set out to close the gap between the rich and the poor by first killing as many of the former as was considered necessary and then requisitioning whatever was left of their property. The third is plague, as exemplified by the Black Death of the fourteenth century; the fourth, political- and social collapse of the kind that, as in Zaire and Somalia and Libya, is quite capable of taking a society back to the state Hobbes so aptly described.

Manmade or natural, each of the four horses brought with it mountains of dead. Just recall the “killing fields” of Cambodia, a case Scheidel does not mention. Worse from the point of view of those who started number one, two and four, in no case did the leveling that took place last for very long. Partly that was because the new rulers brought to the fore by the revolution in question lost little time in enriching themselves; and partly because, once things settled down, socio-economic gaps quickly started re-establishing themselves. As, for example, happened in the wake of World War II and also after the Russian and Chinse Revolutions. To put it in the broadest possible way, starting at least 30-40,000 years ago the “natural” human condition seems to have been inequality, not equality. On the other hand, attempts to change that condition often counted their victims in the millions, and led to general impoverishment; even so, hardly ever did they last for very long.

The conclusion Scheidel draws from all this is worthy of an Edmund Burke. If, like Picketty and his followers, what you hope to achieve is equality, tread softly: or else the cure, for as long as it lasts, may very well be worse than the disease.

All in All: Magnificent

Posted on August 29, 2019 by Martin van Creveld

W. Scheidel, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, Princeton, NJ, Princeton University Press, 1918.

Walter Scheidel is an Austrian historian who teaches history at Stanford University, California. His original specialty was ancient Greek and Roman economic and social history; this led to such works as Quantifying the Source of Slaves in the Early Roman Empire (1997) and Human Mobility in Roman Italy (2004-5). In this volume, representing Book 69 of The Princeton Economic History of the Western World, he aims much higher. The series’ title notwithstanding, he extends his reach so to devote at least some space to almost all periods and all continents. To be sure, the availability or lack of it of source material has caused some of those periods and some of those continents to be covered more thoroughly than others. Still within its special point of view, The Great Leveler comes as close to universal history as any work any single author can reasonably be expected to produce.

The way Scheidel sees it, the history of human economic inequality has run as follows. Starting some 30-40,000 years ago, some graves indicate that, even at that time, in at least some societies, some individuals owned or commanded resources—such as foodstuffs, ornamental objects, and weapons—others did not. Confirmation comes from a number of very simple near-present day societies spread through Africa, Asia, and Latin America some of whose members used to enjoy preferential access to food; and who, as a result, grew taller and stronger and were able to have and raise more offspring than others.

When agriculture started taking the place of gathering, hunting, gardening and herding about twelve thousand years ago, the gap between haves and have nots grew drmatically. In this, a particularly large role was played by the idea of property, the ability to transform it into a source of unearned income, and the possibility of leaving it to one’s heirs. As a general rule, the larger and more powerful a community the more conducive it was to the creation of such gaps. And the closer the gini coefficient, to the extent that modern scholars can calculate it, moved towards the magic—magic, because in practice it could never be attained—number 1. Beginning at least as far back as the earliest known settled civilizations in Egypt, Mesopotamia, India and China, wealth came to depend on political power and political power, on wealth. Which explains why, from Egypt’s Pharaohs to Russia’s Vladimir Putin, the very richest men—very rarely, women—have always been those who managed to combine the two in their own person.

So far, nothing that Jean-Jacques Rousseau, writing a quarter millennium ago, and Thomas Piketty, whose work was published just a few years before Scheidel’s, could not have agreed with. Where Scheidel really breaks new ground is by asking, not how inequality originated and what its effects were—though that question, too, takes up a great many pages in his book—but which factors have delayed it and, on occasion, put it into reverse gear. From the beginning, four such factors are identified. The first is mobilization warfare, AKA total warfare, of the kind that pits not just armies but entire societies against each other and, should the contest be prolonged, may well result in a large percentage of both sides’ populations being killed, taken prisoner, or, in antiquity as well as under Stalin, exiled. The second is attempts, the most important of which were those made first in the Soviet Union and then in China between 1917 and 1979, to “compress” (an excellent metaphor Scheidel often uses) economic inequality by finishing off the richest individuals and groups in a given society and distributing their assets and their rights among a much larger number of people.

The third is state collapse, anarchy, and the waning of civilizations. Of the kind, to mention the best-known example first, that took place in late antiquity and finally put an end to it. Other examples are the disappearance of the Minoan civilization around 1100 BCE, that of the T’ang Empire around 900 CE and that of the Maya civilization from 1200 CE on. Today something similar may be observed, albeit on a much smaller scale, in several present Asian and African states (Afghanistan, the Sudan, Somalia, Zaire, and others) in particular, The fourth is natural disasters as exemplified by the plague that swept away perhaps ten percent of the population of the Roman Empire round 180 CE and the Black Death which killed an ever larger proportion in fourteenth century. They are what the author, using another successful metaphor, calls the horses of the apocalypse.
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To what extent have the attempts, whether manmade or natural, to rein in the horses and reduce inequality been successful? Always taking the long view, and basing himself on a truly enormous scholarly apparatus, Scheidel argues that the answer is, not very. To pick but a few examples, the two World Wars of the twentieth century did cause inequality to be compressed. Especially in the countries that waged them, they continued to make their effects felt for years after the ended in 1945. However, by the late 1970s the impetus was spent; many measures (in particular, near-confiscatory taxation) began to be abolished, or mitigated, or simply circumvented. “Stand on your own feet” (the slogan of Margaret Thatcher) and “let’s get government off our back” (that of Ronald Reagan) rang around the world.

Both the Soviet and the Chinese attempts by taking the lives of tens of millions succeeded in leading to gini coefficients as low as 0.2-03. Doing so they turned the great majority of their citizens into beggars who lived not far from the subsistence level, causing them to be abandoned after a few decades. The same applies, albeit in a much attenuated form, to the welfare states that, in the West between about starting about, began to choke off growth and led to inflation. Whatever may have happened in the past, today anarchical conditions of the kind Hobbes wrote about seldom last for more than a few decades, after which a dictatorship of some kind is likely to emerge and start increasing inequality once again by rewarding its supporters and penalizing or exterminating everyone else. Finally, one of the greatest and most durable recorded example of levelling was not manmade but a result of the Black Death. Starting in 1348, it killed about one third of Europe’s entire population before it abated. Only a century and a half later were its effects completely overcome; today, however, given the progress that has taken place in medicine, the possibility that such a disaster could recur seems unlikely. As Charles de Gaulle once put it, an all-out nuclear war might well leave behind a world in which there are neither powers, nor laws, nor cities, nor cultures, nor cradles, nor tombs; short of that, however, the prospects of suppressing inequality appear, let us say, dim.

Swhat are we—meaning, humanity as a whole—to do? For Piketty the most important answer is to impose a universal wealth tax. Needless to say, Scheidel is aware of that possibility. Utopian as it may be, he does include it in a long list of other kinds of progressive taxes other scholars have suggested. Nor is he in principle averse to some of them, as well as various subsidies to the less well to do, being instituted in some places and under some circumstances. What he does warn against, and emphatically so, is following the Soviet and Chinese, and Cambodian (“The Killing Fields,” for those who have forgotten), and Zimbabwean, examples by going too far too fast. “All of us,” Scheidel says, “would do well to remember that, with the rarest of exceptions, [greater equality] was only ever brought forth in sorrow.” Hence his advice: “Be careful what you wish for.”

Within the limits imposed by the book’s size—it is over 500 pages long—Scheidel is nothing but thorough. Reading it, one sometimes gets the impression that there is not a period, not a country and not an upheaval so small and so unimportant that he does not have at least something to say about the development of inequality in it. He covers the oldest known societies as well as the newest ones. The mighty U.S draws his attention—given it size and its role as the hub of the capitalists system, how could it fail to do so?—and so does the central Italian city of Prato during the Renaissance. Throughout all this, politics, economics, social affairs, and technology are all woven into his account, often in ways that can only be called masterful. Even religion is included, at least to the extent that it involves wealth. All this is done neither in the thunderous prose of many other would-be reformers nor in the breezy tones of a gadfly; but in a serious and dignified way which reminds one that the author’s roots are, after all, in academia.

In the face of such excellence, there are just two problems that seemed to me at all serious. The first is that the book is organized “horseman” by “horseman.” Though probably inevitable, that arrangement often leads to chronological somersaults even inside individual chapters and sometimes makes the text harder to follow than, perhaps, it could have been made. The second is the enormous mass of detail, which, at places, I found tedious and even intimidating.

All in all: magnificent.

Book of the Month

Posted on May 7, 2014 by Martin van Creveld

My chosen book of the month is Thomas Piketty’s Capital in the Twenty-First Century (Cambridge, Ma, Harvard University Press, 2014). It is said to have sold 100,000 copies already with another 100,000 on the way. Piketty is a relatively young (he was born in 1971) French economist. Having studied in France and the U.S, he now teaches at élite universities in Paris. His argument can be summed up as follows. The industrial revolution of the nineteenth century vastly increased productivity. This enabled the entrepreneurs who knew how to take advantage of it to grow immensely rich. In France they included the Schneider family of Schneider-Creusot fame. In Germany their most important representative was the Krupp dynasty; whereas the US brings to mind the likes of Eleuthère du Pont and Cornelius Vanderbilt. Not only did many of these people build up vast fortunes but they passed them to their heirs. As far as the available statistics allow us to judge the outcome, in most industrialized countries, was growing economic gaps between rich and poor.

Next, in 1913-70, the gaps closed somewhat. The main causes behind this were, first, the destruction by war of vast amounts of assets and the loss of practically all capital held abroad. This reduced the importance of the latter and turned almost all the citizens of some counties into beggars. Second came the adoption, in many countries, of socialist or quasi-socialist measures, such as progressive taxes on income and on inheritances, deliberately designed to reduce inequality. This even applied to the U.S in the form of Roosevelt’s New Deal. Finally there was the rise of the welfare state which provided services such as health and education. It also transferred wealth from some groups to others; albeit, as Piketty shows, on a much more modest scale than the common image of “the welfare mother” would suggest.

Many of these factors were linked. For example, the need for cannon-fodder was a major reason why, starting as early as the 1880s, governments, which previously had been content to perform regalian functions such as providing external and internal security and enforcing contracts, suddenly took a greater interest in the welfare of the masses. In Britain and other countries, indeed, wartime mobilization, which greatly increased both GDP and the share of taxes in it, was explicitly used as model and basis for the welfare state to come. But nothing lasts forever. Sometime between 1975 and 1980 the picture changed. Partly because of the “energy crisis” that raised the price of oil fourfold, partly for other reasons, economic growth, which during the “golden decades” from 1945 to 1973 or so had been higher than at any other time in history, slowed dramatically. Once again, return on capital began to exceed that growth; indeed, as the author himself says, the idea that it can do so on a sustained basis is the most important single aspect of his work. Consequently the share of the rich few in terms of both income and ownership rose, whereas that of the many poor declined.

As Piketty rightly points out, there was nothing inevitable in this development. Instead it was deliberately brought about, at least in part, by the likes of Ronald Reagan in the U.S and Margaret Thatcher in Britain. Behind them loomed the theories of Professor Milton Friedman of Chicago University. The objective was to end the combination of stagnation and inflation—known, at the time, as stagflation—that afflicted many countries during the 1970s and cause growth to resume. The most important measures adopted included an end to subsidies, cuts in taxation, less regulation, and privatization. Asked for their opinion, back in 2007 most people would have said that the attempt had been successful, even spectacularly so. Indeed volumes were written to show that the business cycle had finally been brought under control and that the future would bring nothing but further wealth.

It was the 2008 recession which turned the tables once more. The policies adopted in the 1980s came to be seen as a monster—my term, not Piketty’s—that threatens to turn democracy into a sham and lead to oligarchy instead. In some countries they may even bring about revolution and civil war Fortunately, Piketty says, the trend, having been deliberately created, can also be reversed. As by increasing income taxes on the rich; or designing better pension plans for the elderly so as to lift the burden currently resting on the shoulders of the working young; or putting in place a universal (it would have to be universal, to prevent people moving their assets from one country to another) on capital. The latter is clearly the author’s favorite and he devotes quite some space to explaining it.

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Needless to say, Piketty’s work is not the only one on the subject. As many reviewers have noted, its greatest advantage consists of the formidable body of statistics, collected by the author and others over many years, by which it is supported. Most pertain either to income taxes paid by individuals or to national income. Yet the numbers are not what made it a best-seller. As Piketty himself says, John Malthus’s Essay on the Principle of Population is hardly backed by any statistics at all. Yet it has now made its influence felt for over two centuries. The same applies to Adam Smith’s Wealth of Nations and many other works. The real reason behind the success of Capital in the Twenty-First Century is the fact that it has captured the Zeitgeist. In any age where growth is flagging, the income of many is steady or falling, and the future does not appear too bright, it both documents the way the world economy has been going and proposes ways to change its direction. That these proposals are likely to run, have already begun to run, into a storm of opposition on the part of conservatives hardly requires saying.

Though too complex to appeal to every Tom, Dick and Harry, on the whole the book is simply written. The author has no patience for the kind of equations econometrists love but which, in many cases, turn out to be stilts in search for nonsense to support. There is even an occasional flash of humor. Another attractive feature is the author’s modesty. The volume contains neither earth-shaking discoveries nor bombastic statements. Much less intellectual arrogance of any kind. All one finds is thorough research combined with repeated admissions that reality is far too complex for us to fully understand the present, let alone predict the future with any confidence.

If a personal word is permitted—here, of course, I can do what I please—I have met, and very much admire, Paul Kennedy. His 1987 best-seller, The Rise and Decline of the Great Powers, in some ways resembles Capital in the Twenty-First Century. While I do not agree with everything Professor Piketty wrote, I would very much like to meet him and exchange views with him. Perhaps, if I am lucky, I will.