Monday, July 14, 2014

The Evolution of Inequality (2): Piketty and the Declaration of Rights of 1789

On Bastille Day, it is appropriate to ponder Thomas Piketty's appeal to the French Declaration of the Rights of Man and of the Citizen of 1789. 

The epigram for his book--Capital in the Twenty-First Century--is the second sentence of Article 1 of the Declaration: "Social distinctions can be based only on common utility."  He frequently cites this as the fundamental moral and political principle to justify his condemnation of economic inequality and his policy proposals for redistributing wealth through confiscatory progressive taxation (1, 30-31, 422, 480, 493, 504).  The Declaration of Rights of 1789 has constitutional authority for France, because it is affirmed in the Preamble of the Constitution of the Fifth French Republic of 1958.  It is also authoritative for the United States, Piketty suggests, insofar as the Declaration of 1789 echoes the language of the American Declaration of Independence (479-80, 493-94).  Thus, implicitly at least, Piketty writes as a political philosopher advancing an ideal standard of social justice founded on a Rawlsian conception of equality of rights as stated in the Declaration of Rights of 1789.

But if one reads the text if the Declaration, one can see that it does not support Piketty's argument.  Here are the first two articles:
1.  Men are born and remain free and equal in rights.  Social distinctions may be founded only upon the common utility [l'utilite commune].
2.  The aim of all political association is the preservation of the natural and imprescriptible rights of man.  These rights are liberty, property, security, and resistance to oppression.
Piketty sees Article 1 as pointing to a fundamental contradiction--the "absolute equality" of the first sentence is contradicted by the recognition in the second sentence of the "existence of very real inequalities."  To overcome this contradiction, the second sentence suggests how social inequalities can be justified if they are for the "common utility" (422, 479-80)?

So what is meant by "common utility"?  Piketty writes: "The drafters of the Declaration were thinking mainly of the abolition of the orders and privileges of the Ancien Regime, which were seen at the time as the very epitome of arbitrary, useless inequality, hence as not contributing to 'common utility'" (480).  The most obviously unjust inequality that led to the Revolution was the exemption of the nobility and the priests from taxation.  Piketty admits, however, that this interpretation of "common utility" is not broad enough to support his argument.  A broader and "reasonable interpretation," he suggests, is that "common utility" requires John Rawls's "difference principle" of justice--social inequalities are justified only if they benefit the most disadvantaged social groups.

The French Revolution was "the 'bourgeois' revolution par excellence," which established "an ideal of legal equality in relation to the market."  But, for Piketty, that is not enough, because the economic inequality that arose after the Revolution showed that "equality of rights in the marketplace cannot ensure equality of rights tout court" (30).  To achieve full equality of rights, Piketty insists, we need steeply progressive confiscatory taxation in every nation--with marginal tax rates of 80-90% for the wealthiest people--combined with a global tax on wealth.  The purpose of such taxation is not to raise revenue, he explains.  "It is rather to put an end to such incomes and large estates, which lawmakers have for one reason or another come to regard as socially unacceptable and economically unproductive--or if not to end them, then at least to make it extremely costly to sustain them and strongly discourage their perpetuation" (505).

Piketty is puzzled as to why the principle of progressive taxation was rejected in the French Revolution (532).  He doesn't recognize that such taxation would have contradicted the principles of the Declaration of Rights, as indicated by Articles 12-13, and 17:
12.  The security of the rights of man and of citizens requires public military forces.  These forces are, therefore, established for the good of all and not for the personal advantage of those to whom they shall be entrusted.
13.  A general tax is indispensable for the maintenance of the public force and for the expenses of administration; it ought to be equally apportioned among all citizens according to their means.
17.  Property being an inviolable and sacred right, no one can be deprived of it, unless demanded by the public necessity, legally constituted, explicitly demands it, and under the condition of a just and prior indemnity.
Thus, taxation is to support military forces and the administrative expenses of government; and they must be "general" and "equally apportioned among all citizens," which forbids the discriminatory inequality of steeply progressive taxation.  Moreover, the intentional use of such confiscatory taxation to abolish certain kinds of property would seem to violate the "inviolable and sacred right" of property.  (In identifying the right to property as "inviolable and sacred," the Declaration adopted the language of Adam Smith in The Wealth of Nations [Liberty Fund edition, 138, 188, 582, 665-66].) 

In The Communist Manifesto,  Marx declared that "the theory of the Communists may be summed up in the single sentence: Abolition of private property" (Marx-Engels Reader, 484).  The first steps towards complete abolition of private property will require "despotic inroads on the rights of property," which will include four measures:
1.  Abolition of property in land and application of all rents of land to public purposes.
2.  A heavy progressive or graduated income tax.
3.  Abolition of all right of inheritance.
4.  Confiscation of the property of all emigrants and rebels. (490)
Like Piketty, Marx saw the French Revolution as a purely "bourgeois" revolution, and he saw that the communist revolution would require more radical steps towards abolishing private property.  Unlike Marx, Piketty argues for a partial abolition of private property--the property of the richest that is "socially unacceptable and economically unproductive"--that stops short of complete abolition.

One should notice that much of what Piketty recommends was a general policy in the United States and Great Britain for over 50 years.  Piketty rightly points out that the "confiscatory taxation of excessive incomes" was an "American invention" that was adopted in Great Britain.  Prior to 1980, the top marginal tax rates for the richest people in the United States and Great Britain were 80-90% (505-512).  After 1980, those rates dropped to 28%-40% because of the "conservative revolution" of Ronald Reagan and Margaret Thatcher.  Piketty's primary aim is to overcome the effects of Reaganism and Thatcherism and return to the Anglo-American confiscatory tax policies of 1920-1980 (98, 138-39, 333, 511, 549). 

Thus, Piketty is arguing for an extreme form of social democracy or democratic socialism--similar to what the Nordic social democracies have.  This is not pure socialism, because he agrees with Ludwig von Mises and Friedrich Hayek (although he never mentions them) that pure socialism is impossible, because a modern economy cannot be organized without market prices (6, 531-32).  So Piketty is trying to combine the best of capitalism with the best of socialism in a capitalist welfare state.

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