I was read by the richest man in the universe.
  • I was read by the richest man in the universe.

Is it something in the water? First, the second-richest man on earth, Mexico's Carlos Slim, recommends that people work fewer hours and spend more time doing what capitalism is supposed to hate: nothing. (This idea—less working hours—has been pushed by Marxists like André Gorz and social Keyensians like Robert Skildelsky.) Now we have the richest man on earth, the US's Bill Gates, not only favorably reviewing the most important, famous, and, in terms of the mainstream, leftist economics book of our times, Capital in the 21st Century, but also calling the author, France's Thomas Piketty, on Skype (a video/chat service owned by the company, Microsoft, that made Gates mad money—he never loses an opportunity to be the salesman that he is).

Judging from his review, Gates mostly likes the book, but he also fails to understand a crucial part of its argument: Inequality leads to the domination of inherited wealth. This failure has much to do with the fact that Gates is a Schumpeterian (those who believe that the true heroes of capitalism are entrepreneurs and that the real motor of the system is creative destruction—the idea that companies grow very big, command the market, but then collapse and lose everything when another, smaller, more agile company introduces a new way of doing things, a new technology). Gates is an entrepreneur, and he knows everything about this creative destruction business (IBM, Apple). As a consequence, he cannot understand why Piketty puts so much emphasis on inherited wealth (the consequence of inequality), when clearly (to him) massive fortunes have been decimated by the progress of creative destruction.

You can see one wealth-decaying dynamic in the history of successful industries. In the early part of the 20th century, Henry Ford and a small number of other entrepreneurs did very well in the automobile industry. They owned a huge amount of the stock of car companies that achieved a scale advantage and massive profitability. These successful entrepreneurs were the outliers. Far more people—including many rentiers who invested their family wealth in the auto industry—saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite. I have seen the same phenomenon at work in technology and other fields.

It is curious that Gates points to the year 1940. Why? Because that's around the beginning of the war that finally brought to an end the 19th-century capitalist social formation (which was all about inherited wealth) and introduced a new social formation (which experienced an increase in the importance of incomes). This new social formation was stable between 1947 and 1973. What Piketty argues is that we are now in a situation (the neoliberal moment—1979 to today) where incomes are becoming less important (stagnant) and wealth (fortunes) are regaining the power they had exactly before the major world wars in the first half of the 20th century. He sees this moment as a correction, and the redistribution of wealth that happened in much of the second half of the 20th century as an anomaly. In short, capitalism is not progressive. This is something Gates, a futurist, does not want to hear or understand.

Finally, Gates does not like the idea of taxing incomes or wealth (he is, however, fine with estate taxes—good for him), but instead wants to tax consumption, which he sees as a very bad thing. Not only is this an unhelpful idea (as it would result in the poor paying more taxes than ever before), but it has the sad smell of moralism. Gates is here in line with Adam Smith, the 18-century philosopher/economist who saw consumption as what defined and morally bankrupted the barons and lords of pre-capitalist societies. Adam Smith's Wealth of Nations is indeed an attack on that class. What Smith favors instead is the sobriety, the resourcefulness, the industriousness of the business class, the men who make things rather than consume them. Gates sees himself in this very old and dusty light.