Abstract
This book grew out from a partially supportive and partially critical evaluation of Thomas Piketty’s best-seller academic monograph, Capital in the Twenty-First Century. The authors’ main aim is to bring back the concept of rent, developed by David Ricardo two hundred years ago and show that inequalities cannot be explained without the concept of rent and limiting the analysis to profits and wages (as Piketty does) is theoretically false. What matters is not the extent of inequality, but its source. There is nothing generally evil about rents. There are no economies without rent. The two authors, Peter Mihályi, a macroeconomist and Iván Szelényi a sociologist take an interpretative, value-neutral position: some rents are necessary and inevitable, others are destructive.
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Notes
- 1.
“Let’s rewrite the rules so more companies share profits with their employees and fewer ship jobs and profits overseas.” “Let’s make sure that Wall Street, corporations, and the super-rich pay their fair share of taxes.” https://www.hillaryclinton.com/feed/five-important-steps-hillary-clinton-will-take-reduce-inequality-and-grow-our-economy/.
- 2.
To debate this topic, the newspaper invited Jason Furman (Harvard Kennedy School) who argued in favor of the proposition and Deirdre McCloskey (University of Illinois at Chicago) who argued against. https://debates.economist.com/debate/capitalism.
- 3.
Joseph Stiglitz who was chief economist of the World Bank for a while shared this view, so his tenure was cut short. As he left he received very negative reviews (see for instance the rather vitriolic “The bumpy ride of Joe Stiglitz,” The Economist, December 16, 1999), though in the past 15 years the Bank came closer to Stiglitz’s vision.
- 4.
See the recent OECD publication covering 28 member countries by Balestra and Tonkin (2018).
- 5.
Instead, we wholeheartedly recommend Robert D. Putnam’s (2015) masterful account of the visible erosion of social mobility which occurred during the lifetime of two American generations.
- 6.
Few supporters of the progressive income tax system know that this idea was first coined by Marx and Engels in The Communist Manifesto (1848).
- 7.
- 8.
In Mihályi and Szelényi (2016b) we showed that the historical underpinning of Piketty’s own r > g model was a statistical artifact, arising from the intermingling of the concept of profit and rent on the one hand, and private capital (K) and wealth on the other.
- 9.
Oxfam, the renowned charity timed the publication of its fresh research for the opening of the Davos economic summit and skillfully captured the headlines of many newspapers. Another sensational formulation of the same report was that “85 richest people on the planet have the same wealth as the poorest 50% (3.5 billion people)” Jacobs (2015).
- 10.
In 2017, Soros’s net worth was estimated at $25 billion, but in early 2018, Soros had a net worth of merely $8 billion, after donating $18 billion to his philanthropic agency, the Open Society Foundations.
- 11.
This term is usually attributed to F. Zakaria (1997) who used it to describe electoral regimes in developing countries, where leaders who exercised authoritarian rule nevertheless won popular elections. Viktor Orbán , the Hungarian prime minister in a speech on July 16, 2014 called the system he tries to implement in Hungary as illiberal democracy, digging this concept hidden for some twenty years in the ivory towers of political science and turning it into an integral part of political discourse. Whether his project is democratic has been hotly debated, but the term illiberal was not only widely accepted, and was now used to describe not only Hungary during the Orbán regime but also countries like Putin’s Russia or Erdogan’s Turkey . Orbán criticized liberalism as ignoring national interest. Csillag and Szelényi (2015) interpreted this as a project, which aims to maximize the power of the executive branch of the government (as the only agency which can see beyond individual interest and represent the “common good”) at the expenses of the autonomy of legislature and judiciary.
- 12.
Deaton (2013).
- 13.
Attanasio and Pistaferri (2016). For a Good Collection of Papers on Inequality Beyond Income, see the Special Issue of the Journal of Economic Perspective, Vol. 30. No. 2. Spring 2016.
- 14.
Many important forms of income, such as fringe benefits of employees, retained profits and taxes paid by corporations, or imputed rent of homeowners, are part of GNP, but are not included in individual survey or tax data (Piketty et al. 2016).
- 15.
Tóth (2014).
- 16.
Ibid.
- 17.
Ibid.
- 18.
Darvas (2016).
- 19.
See Solow (2015) which bluntly acknowledges this.
- 20.
In Chapter 6 we shall demonstrate this mechanism with a simple arithmetic example.
- 21.
The Mihályi and Szelényi (2017) paper is entirely devoted to the role of rents in the transition process from the pre-1989 socialist to the present day capitalist system.
- 22.
Nevertheless, the Liska-model was not entirely unknown in its own time to the Western public. Norman Macrae (1983), the legendary Deputy Chief Editor of the The Economist magazine wrote a long and enthusiastic paper in his newspaper. For a more recent, English-language write up of the Liska-model, see http://www.liska.hu/fliska/seconomy.htm.
- 23.
The list was compiled from a questionnaire, where people were asked to choose the income distribution diagram with the Gini coefficient closest to the correct one for their country in 2009. On the top, 61% of the Norwegian respondents made the right choice concerning the distribution of post-tax-and-transfer incomes, while in Ukraine only 5 (!) percent of the respondents were right.
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Mihályi, P., Szelényi, I. (2019). Introduction. In: Rent-Seekers, Profits, Wages and Inequality. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-03846-5_1
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