Piketty recommends a worldwide 80 percent tax rate

Capital in the Twenty-First Century, Thomas Piketty’s popular socio-economic analysis of the state of the world, views capitalism as a deeply flawed socio-economic system. Capitalism is just one of many systems, but as it is the best we have for now, Piketty believes its many flaws must be addressed by more government intervention and control.

Contrary to popular belief, capitalism’s real goal is to remove force from human affairs. People’s decisions about their property and interactions with others should not be subject to the influence of force.

Capitalism is based on the foundation of individual rights, and recognises that each individual is an end in themselves and not a means to achieve the wishes of others. In order to live as they see fit, they must be free to do so (liberty), have the right to keep whatever they make or earn (property), and free to pursue their own goals and values (pursuit of happiness).

Piketty’s view of economics and the market is reflected in a quote from the French ‘Declaration of the Rights of Man and the Citizen’: “Social distinctions can be based only on common utility.” To further the ‘common utility’ becomes the state’s (and indeed everyone else’s) goal, thus, instead of protecting individual rights, the state must compromise these rights to ensure that the ‘common utility’ is protected. If you set the ‘common utility’ as your standard of morality, whatever action serves the furthering of the common good, such as higher taxes, confiscation of property, invasion of privacy, limiting of free speech etc. becomes fully justified.

Piketty’s concern about the concentration of wealth in few hands was a legitimate worry in a time when force dominated, but does not generally apply today. Before the Industrial Revolution and the evolution of capitalism, wealth was ‘earned’ through successive conquests and held by the more forceful families. The feudal system prevented the lower ‘classes’ from improving their lot; what they produced was taken by the feudal lord. Wealth
was static. Today, wealth is constantly in flux as people purchase goods, trade with others, invest etc. If wealth was an inflexible entity, as Piketty believes, the ‘1%’ would forever remain, without people ever changing their socio-economic status.

People use their
dollar votes to voice their preferences when exchanging money for goods, which is much more effective than any attempt to influence politicians to fulfill campaign promises. Profit is the necessary and moral result of people producing goods and services well and being rewarded for their efforts by others; the recognition that the value they bring into the world is appreciated by those who trade with them. This process should be celebrated.

Piketty writes that the “rate of return on capital exceeds the rate of output and income.” Of whose capital are we talking? The capital invested by individual businessmen and women who invest everything in a new venture? The capital of a designated economic class, such as the ‘1%’?
If you adopt the view that capital belongs to everyone, you will accept this premise; however, consider that a business which fails is placed on the shoulders of individuals – they invested their own capital, and they have to take the responsibility associated with the process.

Piketty argues for a stronger state to intervene and redistribute wealth, but a powerful state allows certain corporations to buy their way in, block competition and freely take unearned profits. In his world, having powerful political friends is a sure way to guarantee a return on your business investment. His argument for a more powerful state will not solve the problem of corporations buying political pull.

Compared to secretive and forceful political ‘deals’ being made in the corridors of power, working for a business is very different. In business, people can and do earn different salaries because they perform different kinds of jobs and they do those jobs well or badly. Unlike in a feudal or communist society, they are not held back by someone privileged with a bigger stick. In a free market, businesses that are dishonest and focused on short-term, irrational decisions, in the long run, are penalised because customers reject them and take their hard-earned money elsewhere.

Piketty recommends a worldwide 80 percent tax rate. This would require a global body capable of tracking every economic transaction and a force to ensure the rules are followed. And here lies the inherent moral problem with Piketty’s thesis. He sees political power as
the solution to the problems he has identified but at every turn, force is required to implement his theoretical remedies, and force negates free will. 

Morally speaking, capitalism is
the only moral system because it respects the volitional reason of the individual to engage with others and further their own happiness as they see fit, and it allows them to fail and learn from the consequences if they should make a mistake.

Author: Chris Hattingh, FMF intern. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

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