. What can we do with what Thomas Piketty teaches us about capital in the twenty-first century? (Part 2 of 2) | London Progressive Journal
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What can we do with what Thomas Piketty teaches us about capital in the twenty-first century? (Part 2 of 2)

Mon 26th May 2014

Piketty and public debt

Piketty devotes a dozen or so very interesting pages to the question of public debt over the last two centuries, focusing his analysis mainly on France and the United Kingdom. He rightly states that in discussing public debt, studying the past is worthwhile for understanding and dealing with the challenges of the current crisis: “This complex question of the indebtedness of States and the nature of the corresponding wealth is at least as much a concern today as it was in 1800, and examining the past can enlighten us about this phenomenon, which is so significant in the world today. For even if public debt in the early twenty-first century is still far from attaining the astronomical levels of the early nineteenth century (at least in the UK); on the contrary, in France, and in many other countries it is near its historic record levels, and is probably the cause of more confusion today than during the Napoleonic era.” | 49

Between the end of the 18th century and the beginning of the 19th century, France and the United Kingdom adopted policies that were quite different regarding public debt. Whereas in the years 1760-1770, public debt stood at nearly 100% of national income in both countries, forty or fifty years later the situation had changed completely. France’s public debt was only 20% of its national income in 1815, whereas Britain’s debt had skyrocketed to 200% of national income.

How did that happen? In France, the burden of paying off public debt and the people’s refusal to bear that burden alone played a central role in the revolutionary explosion of 1789. Measures taken during the Revolution radically reduced the burden of public debt. Piketty sums up the sequence of events as follows: “The French monarchy’s inability to modernize its taxes and end the fiscal privileges of the nobility is well known, as is the ultimate revolutionary outcome, with the convening of the Estates-General in 1789, which led to the implementation of a new taxation system in 1790-1791 (including a real-estate tax affecting all landowners, and an inheritance tax on all estates) and the ‘two-thirds bankruptcy’ in 1797 (which in reality was an even more massive default, with the episode of the assignats | 50 and the resulting inflation), which closed the books on the Old Regime.

That is why France’s public debt was suddenly reduced to extremely low levels at the start of the 19th century (to less than 20% of national income in 1815).” | 51

Britain took a completely different path. In order to finance its war to oppose the Declaration of Independence signed by the 13 British colonies in North America, and “above all, the multiple wars with France during the Revolutionary and Napoleonic periods, the British monarchy chose to borrow without limit. Public debt went from approximately 100% of national income in the early 1770s to nearly 200% in the years after 1810 – ten times that of France in the same period.” | 52

Piketty explains that it took the United Kingdom a century of austerity and budget surpluses to reduce its indebtedness gradually to less than 30% of national income at the beginning of the second decade of the 20th century.

What lessons can be drawn from Britain’s experience? First, there is no doubt, according to Piketty, that the heavy public debt increased the extent of private wealth in British society. Wealthy Englishmen readily lent money to the State.

Piketty goes on: “This heavy public indebtedness generally served the interests of the lenders and their descendants quite well – at least in comparison to a situation in which the British monarchy would have covered its expenditures by making them pay taxes. From the point of view of those who have the means to do it, it is obviously much more advantageous to lend a given sum to the State (and then to receive interest on it for decades) than to pay it in the form of taxes (without compensation). | 53 He adds that the massive recourse to public debt by the State enabled the bankers to raise interest rates, which was beneficial to the wealthy lenders such as entrepreneurs, the independently wealthy, and bankers.

According to Piketty, the essential difference with the 20th century (see below) is that public debt was reimbursed at a premium in the 19th century: “Inflation was quasi nil between 1815 and 1914, and the interest rate on government certificates was very substantial (generally around 4%-5%), and in particular was well above the growth rate. Under such conditions, public debt can be a very good deal for the affluent and their heirs.” | 54

Piketty offers a hypothetical case in which: “cumulative public debt … is equal to 100% of the GDP. Suppose that the government does not seek to reimburse the principal, but only pays the interest each year … if the interest rate is 5%, every year it will have to pay 5% of the GDP to the holders of this additional public debt, endlessly. That is basically what happened in the United Kingdom in the 19th century.” | 55 Now, let us travel in time and space: today in Greece, public debt is in excess of 160% of GDP. If we entertain the hypothesis that the State will reimburse that debt to the Troika and its other creditors at a rate of around 5% | 56 on average, and if we also take into consideration that growth is non-existent | 57 and that the rate of inflation is also nil, Greece will have to pay its creditors, indefinitely, the equivalent of 8% of its GDP without reducing the debt, since only the interest on it is being paid off. | 58

Now let us return to the 19th century: total public debt in France, which was very limited in 1815, increased rapidly over the next decades, in particular during the period of the censitary monarchies (1815-1848). After the defeat at Waterloo in 1815, the French State went deeply into debt to finance the compensation paid to the armies of occupation, then again in 1825, to finance the famous “émigrés’ billion” | 59 paid to the aristocrats who went into exile during the Revolution (to compensate them for the consequences of the Revolution, and in particular the confiscation of part of their land holdings). In all, public debt increased to the equivalent of over 30% of the national income. Under the Second Empire, debts were paid “cash on the nail”.

Piketty recalls the short work The Class Struggles in France, written in 1849-1850, in which Karl Marx denounces Louis-Napoléon Bonaparte’s Minister of Finance , Achille Fould – a worthy representative of the bankers and high finance –, who decided to increase taxes on beverages in order to pay off wealthy holders of government bonds. Twenty years later, following the defeat at the hands of Prussia in 1870-1871, the French State further increased public debt to pay a war tribute equivalent to some 30% of national income. Finally, the indebtedness policy conducted between 1880 and 1914, which was favourable to creditors, brought public debt to a higher level in France than in the United Kingdom – around 70-80% of national income, compared to less than 50% previously.

Piketty adds, “Government annuities were a very secure investment throughout the 19th century in France, and contributed to reinforcing the extent and level of private fortunes, as was also the case in the United Kingdom.” He concludes that the policy of public indebtedness pursued during the 19th century in France and the United Kingdom “explains why the socialists of the 19th century, beginning with Karl Marx, were extremely mistrustful of public debt, which they perceived – rather clairvoyantly – as an instrument used to encourage the accumulation of private capital.” | 60 He goes on to say, very accurately, “A large portion of the public debt (…) is held in practice by a minority of the population, so that the debt results in a major redistribution of wealth within a country (…). Given the very high concentration that has always characterized the distribution of wealth (…), studying these questions while ignoring the inequalities between social groups amounts to disregarding de facto a major aspect of the subject and the realities that are at play.” | 61

Piketty explains that over the course of the 20th century, France underwent a major change in the way public debt is managed. The public authorities benefited from inflation, and then made use of it to reduce the real value of the debt. “The consequence for the State is that, despite a large initial public debt (close to 80% of national income in 1913) and very high deficits during the period 1913-1950, in particular during the war years, in 1950 France’s public debt was again at a relatively low level (approximately 30% of national income), as in 1815.

In particular, the huge deficits of the Liberation were almost immediately wiped out by inflation in excess of 50% per year for four consecutive years, from 1945 to 1948, in a supercharged political atmosphere. In a way, it was like the ‘two-thirds bankruptcy’ of 1797 – the books were closed on the past in order to proceed with the reconstruction of the country with a low public debt.” | 62

Based on this experience in the second half of the 20th century, a very different vision from that of Marx and the socialists during the 19th century was developed, founded on the conviction that indebtedness can be an instrument in the interest of a policy of public spending and redistribution of wealth in favour of the poorest citizens.

“The difference between the two visions is quite simple: In the 19th century, debt was reimbursed at a premium, which was to the advantage of the lenders and tended to bolster private fortunes; in the 20th century, debt was diluted by inflation and reimbursed in “funny money,” making it possible de facto to put the burden of financing the deficits on those who had lent their wealth to the State, without having to increase taxes as much. This “progressive” vision of public debt in fact continues to hold sway with many thinkers in the early 21st century, even though inflation has long since fallen back to levels that are not far from what they were during the 19th century, and its distributive effects are relatively obscure.” | 63 Thomas Piketty is quite right to stress the dangers of a unilaterally positive vision of public debt.

Piketty’s proposals

Let us now analyse what Piketty proposes. From the outset, he makes it clear that he does not defend public debt in anyway: “I have repeatedly stated that it often results in reverse redistributions, from those who have less to those who can afford to make loans to the State (and who as a rule ought to pay taxes instead).” | 64 We can only agree with this statement. He adds that “national capital is very poorly distributed, with private wealth exploiting public poverty, which means that we currently spend much more paying interest on debt than we invest in higher education. This is actually a rather old situation: considering the rather slow growth since the 1970s-1980s, we are in a historical era in which debt is a heavy burden on the treasury. This is the main reason it must be reduced as quickly as possible (…)” | 65 |.

Piketty considers (but rejects) two solutions for reducing public debt, before proposing a third one. The first rejected solution is to privatize public assets to repay the debt. The second consists in cancelling the debt. The third one, which he supports, is to levy an exceptional progressive tax “so as to spare those with the least amount of wealth, and ask more of those with the most.” | 66 |I will not spend much time on the first solution, because it is so clear to me that it must be rejected. This is the solution currently being rolled out by governments that are merely extending the wave of privatisations undertaken in the 1980s-1990s.

As for the second solution, which Piketty also rejects, it is obvious that he does not fully explore all possible scenarios for debt cancellation. The only model he mentions explicitly is the one applied to Greek debt in March 2012, a so-called haircut operation, while there are other possibilities.

He is right to reject this kind of partial debt cancellation devised by the Troika (the European Commission, ECB, and IMF) for Greece. In this case, debt cancellation was based on measures that run against the civic, political, social, and economic rights of the Greek people, and it contributed to dragging Greece even further into a downward spiral. The operation aimed at making it possible for foreign private banks (mainly French and German ones) to pull out while limiting their losses, for private Greek banks to get fresh capital from the public treasury, and for the Troika to tighten its long-term grip on Greece. While Greek public debt amounted to 130% of GDP in 2009, and 157% in 2012 after partial debt cancellation, it reached 175% in 2013! The unemployment rate, which was 12.6% in 2010, was 27% in 2013 (50% among youths under 25). Piketty is thus completely right when he rejects such haircuts, which merely aim to keep the victim alive in order to bleed it longer.

On the other hand, he is wrong to not give serious consideration to the idea of debt cancellation or the suspension of debt payments as decided on by the debtor country, on its own terms, and under citizen control. This is what Ecuador in 2008-9 and Iceland from 2008 onward did in two different sets of circumstances. Based on an audit decided on by the government and carried out with the active participation of citizens in 2007-2008, Ecuador unilaterally suspended payment on the portion of its public debt owed as securities maturing in 2012 and 2030, which were mainly held by foreign banks. | 67 The outcome was positive: Ecuador bought back 91% of these securities at less than 35% of their market value. Thanks to what the country had saved in debt repayment, it could greatly increase social spending, particularly in the fields of education and healthcare (see Appendix 2 for a more detailed presentation of Ecuador’s experience). In the case of Ecuador, we should not simply take the current process as a model: it is essential to continue analysing the situation there. However, it does demonstrate that a State can take a unilateral sovereign decision in terms of debt auditing and suspension of payment, and consequently increase public spending in fields such as education and health.

From the end of 2008, Iceland unilaterally refused to pay for the debts of private banks that owed money to foreign creditors. This occurred in the context of strong citizen mobilisation that put pressure on Iceland’s government to refuse the claims of foreign creditors, especially the UK and the Netherlands.

What happened in Iceland? Because of the collapse of the banking system in 2008, Iceland refused to pay compensations to people in the UK and in the Netherlands, who had deposited a total of €3.9 billion in subsidiaries of private Icelandic banks that had just collapsed. The British and Dutch authorities compensated their own citizens, and demanded that Iceland pay them back. Under popular pressure (demonstrations, sit-ins, referenda), the Icelandic government refused. As a result, Iceland was listed as a terrorist organization, Icelandic assets were frozen in the UK, and the Icelandic government was sued by London and The Hague in the Court of Justice of the European Free Trade Association States (EFTA). | 68 In addition, Iceland completely blocked the outflow of capital. Ultimately, it fared much better than many other European countries that had met their creditors’ demands. Of course, we should not simply take Iceland as a model to be emulated, but we should draw lessons from its experience.

Ecuador and Iceland are two recent examples that should be examined carefully for they show that there are solutions for debt cancellation other than the Greek haircut. | 69 Those two examples offer proof that if you do not comply with creditors’ demands your country does not simply collapse, quite the opposite.

Let us return to Piketty’s position. He is convinced that cancellation will hardly affect the richer creditors, because they will manage to “restructure their portfolios on time” and consequently he claims that “there is no guarantee that those who will have to pay are those who should.” | 70 However, he produces no evidence that is based on concrete examples or statistical data to support this, while history shows that when a country hints that it might stop repaying its debt or when it actually does, the market value of its debt securities plummets, and it is very difficult for stockholders to unload them at a good price. | 71 This is what occurred between 2007 and 2009 in Ecuador, and all those who follow what is happening on the debt market know that it is virtually impossible to get rid of a large amount of securities without significant losses in the case of unilateral debt cancellation or suspension. Moreover, it is easy for a country taking such measures to provide compensation and protection to those with limited income, assets, and savings. It is quite possible to make sure that those who should pay do while protecting those who deserve to be protected.

Let us now examine Piketty’s proposal on finding the means necessary to reduce the burden of public debt. After considering the possibility of “a 15% proportional tax on all private assets,” | 72 he rejects this idea, because as he writes “it would not make much sense to levy a proportional tax | 73 on all European private assets.” | 74 He claims that “it would be better to use a progressive schedule so as to spare those with the least amount of wealth, and levy more on those who have the most wealth.” | 75

Piketty is favourable to a partial reduction of the debt, amounting to 20% of the GDP. In order to reach this objective, he suggests that a progressive exceptional tax be levied: “0% under €1 million, 10% between €1 and €5 million, and 20% beyond €5 million,” | 76 while recognising that other rates could be used.

It must also be mentioned, and deplored, that Piketty never considers the issue of the legitimacy of public debt. It is actually astonishing, because throughout the book he shows that a regressive tax policy results in an increase in public debt, and that, as he states repeatedly, those who pay back the debt are for the most part lower-income people, given the share of taxes they pay, while those in the higher income brackets lend to the State, since this is a safe investment. He does not suggest either that citizens should organise and audit the debt, while he must know that in France (and elsewhere in Europe), since 2011 citizen debt audit initiatives have been developing with a certain amount of success. | 77

The CADTM’s proposition on public debt

To contribute to the debate needed to find solutions to the public debt crisis, the CADTM argues that the portion of public debt identified as being illegitimate (or illegal) should be repudiated instead of being repaid.

The CADTM adds that the following measures should be instituted:

1. Those who own small quantities of government bonds will be completely reimbursed;

2. The following rule of thumb should be applied in line with point 1: “When public debts are cancelled, small savers who have invested in government bonds, and wage earners and old-age pensioners who have part of their social security contributions (pension, unemployment, health-care, and family benefits) invested in institutions or bodies that mange the same kind of bonds must be protected.” 78 ;

3. The portion of public debt that has not been identified as illegitimate should be decreased by making those who gained from it contribute to paying it back. One possible option to do this would be to levy an exceptional progressive tax on the richest 10%. The revenues from this tax could be used to prepay a portion of the debt that is not considered to be illegitimate. There are other possible solutions, and the CADTM remains open to discussion.

The procedure used to identify the illegitimate part of public debt that must be cancelled will be based on a far-reaching citizen debt audit, which must mobilize people and ultimately lead public authorities to formally repudiate this debt. The CADTM is making concrete propositions while participating actively in different citizen debt audit initiatives. It is through a democratic debate linked to the debt audit process that we will be able to more precisely define propositions leading to a popular consensus, and thanks to the mobilization of as many people as possible that these ideas will be put into practice by our government leaders.

The different forms of responsibility in the debt process must also be determined during the citizen debt audit, and those responsible for running up debt nationally and internationally must be held legally accountable. If the audit demonstrates that there are offences linked to the illegitimate part of the debt, the perpetrators (natural or legal person(s)) must be severely sanctioned and forced to pay reparations. They should not be allowed to work in any credit or banking sector jobs (any banks found to be guilty could have their banking license revoked), and should be given jail sentences if their actions deserve such punishment. Furthermore, the public authorities who committed to any illegitimate loans must be held legally accountable.

A legal framework must also be established to avoid crises like the one that started in 2007-2008, and should include the following five measures.

1) It must be illegal to socialise private debt;

2) An obligation to conduct continuous auditing of the public debt with citizen participation;

3) The non-applicability of statutory limitations to offences linked to illegitimate debt;

4) Illegitimate debt must be considered null and void; 79

5) A golden rule must be adopted according to which it is illegal to cut any public spending needed to guarantee fundamental human rights, which take precedence over spending to repay debts.

A State must be able to borrow so that it can improve the living conditions of its people, by improving public infrastructure and investing in renewable energies. Some of these projects can be funded by its current budget thanks to determined political choices, but government borrowing can make other more far-reaching projects possible.

For instance, such money would be needed to make a transition from the “car culture” to the large-scale development of public transport, to definitively close nuclear power plants and replace them by renewable energy sources, to build or re-open local railways throughout the country, starting in urban and peri-urban areas, or even to renovate, rehabilitate, and construct high-quality low-energy public buildings and social housing.

The CADTM argues that a transparent public borrowing policy must be established, and would like to make the following propositions:

1. All public borrowing must be used in a way that guarantees improved living conditions, and breaks with the logic of environmental destruction;

2. All public borrowing must contribute to a wealth redistribution process aimed at reducing wealth inequalities. This is why the CADTM argues that all financial institutions, major private corporations, and wealthy households should be legally bound to purchase government bonds in amounts proportional to their wealth and income, which earn 0% interest and are not indexed on inflation. The remainder of the population could purchase these bonds on a volunteer basis, and would be guaranteed a real positive yield (for example 3%) that is greater than inflation. In this case, if the annual inflation rate were 3%, the interest rate paid by the government would be 6% for that same year.

Such affirmative financial action (comparable to the policies adopted to fight racial discrimination in the United States, the cast system in India, and gender-based inequalities) would help us to move toward more tax justice and a more egalitarian distribution of wealth.

The CADTM also argues that national banks and the ECB (for eurozone countries) must offer countries 0% loans to fund their national budgets.

Piketty’s central idea to create a worldwide, progressive tax on capital

Piketty declares that it is essential “to adequately revamp the 20th century social-democratic and neo-liberal fiscal programme.” He believes that we must defend and improve both the welfare state and the progressive income tax system. We must also innovate “by establishing a progressive worldwide tax on capital, accompanied by a high degree of financial transparency.” This “institution would enable us to avoid a spiral of perpetually increasing inequality and effectively regulate the disturbing wealth concentration dynamic that has been developing throughout the world.” | 80 |’

Piketty has no illusions about how fast his proposition will be put into practice: “A worldwide tax on capital is utopian: it is hard to imagine in the near future all the nations on earth agreeing to put it in place, establishing a tax schedule that would apply to all the great fortunes on the planet, then harmoniously distributing the revenues raised to all countries. However, it is a useful utopia (…).” | 81

Piketty specifies that “In my opinion, the goal must be to levy an annual, progressive tax on capital | 82 at the individual level, i.e., on the net value of the assets each person owns.” | 83 He proposes three variants for this progressive tax on private capital.

Variant 1: a rate of 0% below €1 million; 1% from €1 to €5 million; 2% more than €5 million

Variant 2: upward adjustment, 5% or 10% beyond €1 billion

Variant 3: downward adjustment, 0.1% below €200,000, and 0.5% from €200,000 to €1 million.

This tax is complementary to what already exists, but it could be used to decrease the current tax payments (or to reduce the national debt, note 1, p.840). It would result in a relatively small increase in current national incomes. Even if it were very low, this tax would give authorities knowledge on the wealth of the inhabitants in the areas concerned.

Piketty adds: “At the present time, the international organisations in charge of regulating and monitoring the world financial system, such as the International Monetary Fund, have only extremely approximate knowledge on the distribution of financial assets throughout the world, and in particular the amount of assets based in tax havens.” |84 If it were established, “the tax on capital would be a kind of world finance registry, which does not exist today.” |85|

We fully support Piketty’s proposition for a progressive tax on private wealth or capital to employ the term he uses; however, we do not agree with him when he argues that the highest priority must be placed on this objective. Instead, a programme with complementary measures must be created. A progressive tax on capital, along with the cancellation of illegitimate debt and a drastic reduction in the portion of public debt not found to be illegitimate, must be included in a comprehensive programme that would enable society to make a transition toward a post-capitalist and post-productivist system. First implemented in one or two countries, such a programme should also have European and worldwide ambitions. It should put an end to austerity measures, reduce the amount of time worked by hiring new employees while maintaining wages, and socialise the banking sector. There must also be a general fiscal reform, measures to ensure gender equality, and the implementation of a well-defined policy that will ensure the ecological transition. |86|

Piketty is under the illusion that he will be able to convince others of the need to give highest priority to his proposition, whereas what would be truly effective and unite people would be to define a common platform, bringing together the maximum number of people in favour of radical democratic change that will foster social justice.

In addition, as we argue in “Cancelling debt or taxing capital: why should we choose?”: “The essential critique that can be made of Thomas Piketty is that he thinks the solution may be found within the current system. He proposes a progressive tax to redistribute wealth and save democracy, but he does not question the very conditions in which this wealth is produced or the consequences of the current system. His idea is only a solution for one of the negative effects produced by the system, but he does not tackle the true causes of the problem. First of all, if a tax on capital were applied as a result of social struggle, the great danger is that its product would go up in smoke to repay illegitimate debt, if that debt is not first cancelled. Furthermore, can we content ourselves just because the wealth produced by the system is shared more fairly, if this same system remains predatory, has no respect for people or common property, and destroys our ecosystems at an increasingly faster rate? Capital is not only a useful means of production that deserves a regular 5% return on investment as Piketty suggests, it is also an important vector of social relationships of domination by the possessing classes over society as a whole. Capitalism as a mode of production is not only the cause of more and more unbearable social inequalities. It is also a menace to our ecosystem, the justification for the plundering of common property, domination, exploitation, and alienation of the people through materialistic values, and a logic of accumulation that transforms men and women into spiritually enslaved individuals obsessed by material possessions to the detriment of the immaterial basis underlying our humanity.” |87|

One of the characteristics and weaknesses of Piketty’s approach is that he does not call for a mobilisation of the social movements to try to have an influence on current policies. He is conscious that the people played a decisive role in the orientations taken since World War I, and denounces the repression of the miners in Marikana, South Africa in August, 2012, but in the more than one hundred pages at the end devoted to his own propositions, which reflect on the solutions to the basic problems, no mention is made of organised citizen action, and no allusion is made to the Indignados movement, even if in the pages just before his propositions, he does mention the Occupy Wall Street movement. At best, he expresses the hope that the dissemination of research like his will raise people’s awareness and thereby ultimately lead to change. This is a major weakness in Piketty’s approach. It comes as no surprise then that he proposes to establish a “Eurozone Budget Parliament” |88 alongside the European Parliament. He suggest that “This Parliament could include about fifty members for each of the big countries in the zone, in proportion to the population. Its members could be chosen from the finance and social affairs commissions of the national Parliaments, or appointed in some other way.” |89 In addition, he is favourable to “the election of a European Union President on the basis of the popular vote, a proposition which should be logically accompanied by an extension of his or her powers.” |90 Piketty embarks on a pathway to making reforms that does not question the European treaties and institutions in which the defence of the interests of major capital owners is set in stone. Yet, we all know that fundamental change is necessary, and that it must include the abrogation of those treaties and the initiation of a constituent process with the production of registers of grievances by citizens united in action.

To conclude, Piketty’s work is extremely valuable in terms of the clear data it provides on trends in wealth inequalities over the past two centuries. His book gives us a very useful tool for understanding them, and will enlighten the debate on possible alternatives. Unfortunately, he fails to go far enough in terms of the need to join theory and action, issues relating to debt cancellation, and taxation thresholds.

Appendix 1. Capital in the Twenty-First Century: Valuable research despite some basic shortcomings

Appendix 2. The struggle of the Ecuadorian people against illegitimate public debt

Translated by CADTM

This review first appeared on the CADTM website http://cadtm.org/What-can-we-do-with-what-Thomas


|1 Thomas Piketty, Le capital au XXIe siècle, Le Seuil, 2013, 970 pp. (Capital in the Twenty-First Century, Harvard University Press, 2014 996 pp. As the English version is not yet available, we have translated the citations ourselves from the French.) Several interesting reviews of this major work have already been published. Therefore, I will not cover a whole series of points analysed in those reviews, preferring instead to begin with some practical information. Among the reviews already published, see: 1. "Réflexions sur « Le capital au XXIe siècle » de Thomas Piketty" (in French—“Reflections on Thomas Piketty’sCapital in the Twenty-First Century”) by François Chesnais http://cadtm.org/Reflexions-sur-Le-capital-au-XXIe in the journalLes Possibles published by ATTAC France (and "Éléments de réponses à François Chesnais" (in French—“A response to François Chesnais” by Thomas Piketty http://cadtm.org/Elements-de-reponses-a-Francois ); 2. Jean-Paul Petit in the journal Inprecor: http://gesd.free.fr/jppetit.pdf; 3. Robert Boyer: http://gesd.free.fr/boyerpik.pdf; 4. Michel Husson,http://hussonet.free.fr/piketcap.pdf

|2 http://piketty.pse.ens.fr/fr/capital21c

|3 A simple definition of wealth is ‘the total amount of tangible and intangible assets belonging to an individual minus that person’s debts’. Piketty argues that today the total wealth of a country (private wealth + public wealth) such as France, the United States or Belgium corresponds in reality to total net private wealth, because net public wealth is more or less equal to zero since public debt represents nearly 100% of GDP. See Piketty for a fuller explanation of this notion.

|4 P. 542 — 555.

|5 Throughout this article, the term “wealth” corresponds to what Piketty takes into account in his calculations (see above). It does not include other items of wealth, which are priceless and vital for the survival of humanity and nature. For a discussion on the wealth and value that are beyond the bounds of this article, see Jean-Marie Harribey La richesse, la valeur et l’inestimable (in French—Wealth, Value, and what is Priceless), 2013.

|6 Table based on table 7.2, p.391 in French edition.

|7 http://en.wikipedia.org/wiki/Liliane_Bettencourt

|8 p. 109.

|9 120% of the EU’s GDP!

|10 p.741.

|11 Nota bene: I am entirely responsible for the propositions made in this article, which should in no way be attributed to Piketty. When one of Piketty’s propositions is presented, this will be stated explicitly.

|12 Piketty writes, “Let us consider for example the case of a wealth tax that would be applied at a rate of 0% on personal wealth of less that €1 million, 1% on the portion of personal wealth between €1 and €5 million, and 2% on the share of personal wealth beyond €5 million. Applied to all countries in the European Union, such a tax would concern about 2.5% of the population, and every year it would raise the equivalent of 2% of European GDP” (p.860). Even putting this modest proposition into practice would raise the equivalent of two times the EU’s current budget!

|13 All figures in dollars are expressed in US dollars.

|14 p.692.

|15 Approximately 4.5 million adults.

|16 p.698.

|17 p.700.

|18 This table is based on data in Table 7.1, p.390 in the French edition.

|19 This table was created based on data in Table 7.3, p.392 in the French edition

|20 P. 544.

|21 “What is the Third Estate? Everything. What has it been until now in the political order? Nothing. What does it desire to be? Something.”

|22 The graph uses time steps of one decade in order to reveal the evolution as clearly as possible. Had it used time steps of one year, it would have certainly shown an increase in the wealth of the richest groups during the late 1920s.

|23 p.76

|24 I have made an analytical summary of the shift that took place in the late 1970s and early 1980s at international level, particularly in the article "In the South as well as the North: from the Great Transformation in the 1980s to the current crisis",http://cadtm.org/In-the-South-as-well-as-the-North, 1 October 2009, and in the book A Glance in the Rearview Mirror: Neoliberal Ideology from its Origins to Today, Haymarket, Chicago, 2012.

|25 National Wealth (or National Capital as Piketty also calls it, which is a source of confusion, see Appendix 1. Valuable research despite some basic shortcomings) is the “sum total of non-financial assets (housing, land, business assets, buildings, machines, equipment, patents, and other directly held professional assets) and financial assets (bank accounts, savings plans, bonds, shares and other company stock, financial investments of any kind, life insurance contracts, pension funds, etc.), minus liabilities (i.e., net of all debt). If we limit ourselves to the assets and liabilities held by private individuals, we obtain the private wealth or private capital. If we consider the assets and liabilities held by the State and civil services (local authorities, social security organisations, etc.), we obtain the public wealth or public capital.” p. 86.

|26 Piketty explains how national income is calculated: subtract from the gross domestic product (GDP) the annual depreciation of capital then add the net income earned abroad (or take away the net payment made abroad if that exceeds income). See pp. 78-79.

|27 Piketty also specifies that if the wealth calculation took into account financial liabilities and assets, the thus inflated wealth would represent 10 to 15 times national income, 20 times in the case of the UK. He reminds us that from the 19th century to the early 1970s, wealth corresponded to from 4 to 5 years of national income. If derivatives were taken into account, the factors would be even much higher (p.305-306).

|28 p. 273.

|29 pp. 218-219

|30 p. 219.

|31 pp. 273-274

|32 p. 456

|33 p.458-459

|34 p.489

|35 p.469-470

|36 p.501-503

|37 p.506-507

|38 p.517-519

|39 p.805-806

|40 p.811-815

|41 p.707

|42 p. 820.

|43 p. 819.

|44 p.824-826

|45 p. 831.

|46 p. 832.

|47 Note 3, p.834.

|48 This does not imply Piketty’s commitment to these actions.

|49 p.185

|50 “The assignats originated with the creation of the Extraordinary Chest in December 1789. This chest was to receive the proceeds from the sale of the property confiscated from the clergy. The assignats were simply advances on the sale of national property. The assignats bore interest.
However, events evolved rapidly. In September 1790, the assignats no longer bore interest and became “legal tender for all public and private exchanges.” The amounts issued continued to increase through 1796. As this paper currency proliferated, the value of the national property that theoretically backed it was insufficient and the value of the assignats collapsed.”http://sceco.univ-poitiers.fr/hfranc/assignats.htm (in French), accessed 17 January 2014.

|51 p.206-207

|52 p.206-207

|53 p. 208

|54 p. 208

|55 p. 209

|56 In reality, the rate is higher, but this is only a theoretical hypothesis.

|57 The hypothesis of zero growth is theoretical and used to facilitate calculations. In reality, the GDP decreased by 20% between 2009 and 2013, and it is difficult to predict exactly what will happen in the years ahead.

|58 Let us use the same reasoning with Portugal, whose public debt represents 130% of GDP in 2014, and where the rate of growth is zero (it also decreased between 2011 and 2013) and the rate of inflation is very low. Portugal reimburses its debt at a rate of about 6.5%, and so for many years will have to pay the equivalent of 8.5% of its GDP. Italy reimburses at a rate of 5%, and its public debt is 133% of its GDP. Thus, Italy will have to pay the equivalent of 6.5% of its GDP for many years. Let me again point out that the figures cited above are part of a theoretical hypothesis. They are nonetheless close to reality. The examples given are mine not Piketty’s.

|59 See http://fr.wikipedia.org/wiki/Loi_du_milliard_aux_%C3%A9migr%C3%A9s (in French)

|60 p. 210

|61 p. 216

|62 p. 212

|63 pp. 211-212

|64 p. 931

|65 p. 933

|66 p. 889

|67 I participated in the auditing process as a representative of CADTM for 14 months in 2007-2008.

|68 The Court of Justice of the European Free Trade Association States, though anything but an anti-globalization association, judged that Iceland was right. See CADTM, “EFTA court dismisses ‘Icesave’ claims against Iceland and its people,”http://cadtm.org/EFTA-court-dismisses-Icesave, 29 January 2013.

|69 Commentators often reply that the situations in these two countries are completely different from countries in the EU. While there are obvious differences, it would be a mistake to disdain such experiences. Those who do, show how ignorant they are of the complex situations the governments had to face and partly overcame.

|70 p. 888.

|71 The function of haircuts advocated by the IMF and the governments of creditor countries is precisely to limit the losses of large private creditors through organized restructuring. In my Ph.D. dissertation, I showed how the Brady plan is a model in these matters. See Enjeux politiques de l’action de la Banque mondiale et du Fonds monétaire international envers le tiers-monde (Political Aspects of World Bank and International Monetary Fund Actions toward the Third World), Ph.D. dissertation in political science completed at the universities of Liège and Paris VIII in 2004, http://cadtm.org/Enjeux-politiques-de-l-action-de . See also The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, 2008http://cadtm.org/The-World-Bank-a-never-ending-coup.

|72 p. 887.

|73 Here is the definition of proportional tax provided on the official website of the French tax office (our translation): “Proportional tax applies the same tax rate whatever the taxable amount is (e.g., corporation tax). The tax base refers to economic categories (income, assets, turnover…). Advocates of proportionality consider that this is a fair way of calculating tax as everybody contributes the same proportion of their income. (…) Proportional taxes are also easier to calculate and hence cost less to collect. With progressive tax, the tax rate increases according to the tax base (e.g., income tax: the higher the income, the higher the tax rate).” http://www.vie-publique.fr/decouverte-institutions/finances-publiques/ressources-depenses-etat/ressources/qu-entend-on-par-proportionnalite-progressivite-impot.html. Piketty uses the same definition of proportional taxation.

|74 pp. 888-889.

|75 p. 889

|76 p. 890.

|77 See the International Citizen debt Audit Network - ICAN), http://cadtm.org/ICAN,750

|78 Thomas Coutrot, Patrick Saurin, and Éric Toussaint, “Canceling debt or taxing capital: why should we choose?”,http://cadtm.org/Cancelling-debt-or-taxing-capital

|79 See Eric Toussaint, « La Constitution équatorienne : un modèle en matière d’endettement public » (“The Ecuadorian Constitution: a model to follow in terms of public debt,” — in French) http://cadtm.org/La-constitution-equatorienne-un, 27 December 2010.

|80 p. 835

|81 p. 836

|82 We must remember that Piketty gives a definition of private capital that includes the tangible and intangible assets of the poorest 50% of the population.

|83 p. 838

|84 p. 842.

|85 p. 843.

|86 See the aforementioned text by Thomas Coutrot, Patrick Saurin, and Éric Toussaint, “Cancelling debt or taxing capital: why should we choose?” http://cadtm.org/Cancelling-debt-or-taxing-capital See also Damien Millet and Eric Toussaint, “Europe: What emergency programme for the crisis?” 1 July, 2012, http://cadtm.org/Europe-What-emergency-programme

|87 http://cadtm.org/Cancelling-debt-or-taxing-capital

|88 p. 916.

|89 Note 1. p. 916.

|90 p. 917.

|91 P. 337.

|92 p.674

|93 p. 62

Eric Toussaint is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège. He is the President of CADTM Belgium (www.cadtm.org), and sits on the Scientific Council of ATTAC France. He is the co-author, with Damien Millet, Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. ppréciealisée en 2014aduction en anglais.ation.He is the author of many essays including Procès d’un homme exemplaire (The Trial of an Exemplary Man), Al Dante, Marseille, 2013, and wrote with Damien Millet, AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Le Seuil, Paris, 2012. See his Series "Banks versus the People: the Underside of a Rigged Game!" http://cadtm.org/Banks-Fudged-health-report

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