Apparently, understanding free market economics is hard to accomplish, as seems to be amply demonstrated both by those underestimating and those (especially zealous anarcho-capitalists and radical libertarians) overpromoting the merits of capitalism.
As for the majority perspective on market-induced prosperity nowadays, the credo is based on a fundamentally erroneous premise and an appallingly immoral conclusion. Premise: those with wealth have come by it by robbery and exploitation or some other anti-social, zero-sum game whereby what one person gains another must have been deprived of. Conclusion: those with less wealth are entitled to expropriate those with more.
This is generally assumed in more or less disguised form, where the biggest problem is that people argue and act on that basis, while often denying or retracting any such conviction when driven into a corner - so, it appears that no one really believes such nonsense, when almost everyone feels strongly about it and acts on it.
Conceited ignorance of this kind explains the tremendous success and popularity of third-rate theories of capitalism - such as Picketty's scientifically dressed up political hunches concerning capital and inequality.
In a perceptive review George L. Priest explains:
The heart of Piketty’s book, however, similar to Marx, is the claim that the owners of capital are gaining returns greater than workers, returns that will continue into the future, generating huge inequality. What is the consequence? The book is quite vague on this. It is not the Communist Manifesto. But laced throughout the book are references to the “powerful and destabilizing effects on the structure and dynamics of social inequality” and the like.
This is a political, not an economic, analysis. And it is not quite political science. Piketty shows that there have been periods of greater inequality of ownership than today or than he projects for the future that have not resulted in revolutions. Piketty’s predictions about the destabilizing effects of inequality in the future — revolution? — are a hunch.
Almost 70% of young Germans regard employment by the state as the most desirable option for their future; this presupposes an inequality within the population of ownership of growth-producing capital. Anyone who prefers dependent employment to self-employment casts a vote, as it were, for unequal distribution of capital in society. Put differently, if more equality of capital ownership is sought after, then more people must become entrepreneurs/capitalists. This, however, is not achieved by soaking the rich, Piketty's preferred strategy.
Wealth creation by entrepreneurs is conditional upon adding value. By contrast, wealth enhancement by expropriation severs the vital tie of a person's acquirements to the production of real wealth.
At any rate, what is so surprising about the fact that those earning a living by adding exceptional value to their offerings end up with a higher return than people happy to be told what to do?
More importantly, Piketty does not explain, except for his subtle references to social discontent, why we should care about the growing — if it is — concentration of ownership of capital. In a competitive economy, why should we care about capital ownership?
[...] If owners of capital aspire to maintain their rate of return, they have to provide products or services of value to the consuming population. Why should the consuming population care about inequality in ownership of the capital used to provide the product?
Personally, I am absoluteley in favour of monopoly, that is: meritocratic monopoly - ein Leistungsmonopol, in German, a monopolistic position attained by providing a product of unrivalled desirability. I want my baker to be a meritocratic monopolist, the only guy in town where people buy bread, because it is so much better than anybody else's profferings. If someone managed to produce a top echelon Mercedes and sell it profitably for € 100, she would surely and deservedly become a monopolist and an earner of excpetionally high returns. For monopoly to be a boon for everyone, all we need is open market entry, no political favours, and incredibly capable entrepreneurs. The improvement to my life that a super product makes does not diminish by so much as a tittle when the provider earns a substantial return on his service to mankind.
When a patient goes to a hospital, there is a huge inequality of capital ownership. The hospital’s possession of MRI and CT scanning machinery, not to mention the accumulation of machines checking vital signs, is vastly unequal to the capital possessed by the patient. Is this inequality a problem? No, in fact the patient would prefer more inequality of capital if that would enable the hospital to more successfully diagnose the health problem.
Similarly, when a consumer buys a car, does it matter whether the car manufacturer is owned or controlled by a dynastic family as opposed to a set of employee pension plans (again, most workers are idle capitalists by Piketty’s definition)? It doesn’t matter. What’s important is the quality of the car.
Maintaining a competitive economy trumps all of Piketty’s concerns about inequality of wealth.
An economist used to be a person who was able to explain why the economy works well without interference by the state, and, indeed, better than if such meddling were to be effected. Nowadays, an economist is a person who affirms that the economy can only work properly thanks to interventions by the state.
The economist – versed in knowledge about the invisible hand – has metamorphosed into a staunch proponent of economic policy, the politician’s advisor ambitious to steer the visible hand.
I have watched the reception of Piketty's book for a while, and in the process have accumulated a large bunch of reviews of his rickety economics - so, anyone interested help yourselves:
Piketty's Rickety Economics, The Piketty Fallacy, Capital in the Twenty First Century ..., Capital Punishment, Something to Celebrate, Piketty Should Focus ..., Wealth Inequality: Signal or Noise? , The Inequality Puzzle, The Inequality Illusion, The Inequaliity Illusion (II), The x% Puzzle, Two Piketty Links, The Piketty Code, Piketty Problems ..., Piketty's Numbers Don't Add Up, What Thomas Piketty Gets Wromg About Capitalism, Piketty Fudged His Wealth Data ..., Why Didn't Piketty's Harvard Publisher ..., The Piketty Controversy, Piketty and scientific fraud, The Piketty Kerfuffle, Piketty: Bad Theory, Bad Data, Deirdre McCloskey ..., Is Thomas Peiketty a Fraud?, Fraudulent Use of Dada, Monsieur Piketty Goes to Latin America, Piketty is an economic illiterate, Piketty: A Wealth of Misconceptions, A Global Wealth Tax Is a Lousy Idea, Is Piketty's 'Second Law of Capitalism' Fundamental?, Piketty's Envy Problem, Smith, Marx, and Picketty, On Piketty and Capital, Picketty's Popular Nonsense, Everything That Counts, More Matt Rognlie ..., Picketty and Emerging Markets, Cronyism in the 21st Century.