When I asked my publicist what makes a bestseller, she replied “four factors”: How well known is the author? How interesting is the subject matter? How broad is the book’s scope and reach? And what is the “X” factor? I applied this logic to Thomas Piketty’s book, Capital in the Twenty-First Century, and found the following: the author was not well known, the subject was marginally interesting, and the book did have a broad reach. Most importantly, however, the X factor was huge, and the book became an international sensation.
So what is the X factor that catapulted Capital onto the bestseller list? The book feeds into the growing global debate about the long-term evolution of capitalism, inequality, the concentration of wealth, and prospects for future social stability. Piketty puts the distribution of wealth front and center in this debate and opens a window onto a future that is both brilliantly illuminating and deeply alarming for any person concerned with human rights, equality, and social justice. He asks the critical question, “Where is the capitalist system going in the long run?” The answer, according to Derber: “If we do not pursue that conversation, we may lose our hope to solve urgent problems of extreme inequality, dynastic wealth and democratic collapse”.
Capital has been the subject of much debate. Soskice, for example, argues that Piketty’s central analysis of the current rise in inequality makes little sense because he bases it purely on neoclassical mathematical analysis. Acemoglu and Robinson state “that general economic laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions…in shaping the distribution of resources in society.” However, these critics seem to have missed the essential point about capitalism, which, as Marx and Schumpeter both suggested, is an evolutionary process. If this is true, then surely some general laws and institutions are needed to explain its evolution; for example, what are the dynamics that propel the system forward? More to the point as Hopkins (2014) argues that by leaving out government we have an incomplete story about Capital, “Even if the fact of capital accumulation may respond to an economic logic, the process is embedded in a very political logic”, as is the reconstitution of capital.
Because they do not understand the function of giving, Piketty and others dismiss moral capital—defined as “the resources that sustain a moral community” —as a hoax. Thus this paper aims to recast the great debate about Capital in the Twenty-First Century through the eyes of philanthropy, the art of putting wealth to work for the common good. The common good is carefully described as a capitalist venture in social betterment. This is distinctly different from the “acts of kindness” of the Great Society, or helping the poor in Victorian England, which were not philanthropy but a form of charity. Why this critical distinction? Because when moral capital is absent, wealth remains concentrated, rent-seeking flourishes, and innovation, entrepreneurship and democracy suffer.
Philanthropy propels the dynamics of capitalism in two primary ways. First, it lays the groundwork for new cycles of enterprise by strengthening institutions that promote opportunity, innovation, and entrepreneurship. Second, it provides a mechanism for dismantling accumulated wealth that is made in the past and reinvesting it in ways that will strengthen future equality of opportunity.
My recent paper (Moral Capital in the Twenty-First Century, by Zoltan J. Acs) recasts Piketty’s Capital in the Twenty-First Century in light of Acs’ Why Philanthropy Matters: How the Wealthy Give and What It Means for Our Economic Well-Being. Philanthropy matters in this debate because, as moral capital, philanthropy offers an alternative solution to the Piketty conundrum, and it does so without relying exclusively on a wealth tax and government intervention. Moral capital over the centuries strengthened both capitalism and democracy by investing in opportunity (slavery, suffrage and civil rights), which in turn leads to long-term economic growth and greater equality. We build on the general laws of capitalism laid down by Piketty and shows how moral capital, while not altering the general laws of capitalism, can move the system toward long-run stability and growth. It does so by redirecting the flow of rents from individuals’ capital to produce moral outcomes in the form of opportunity.
The paper first examines the last great book on capitalism by Joseph Schumpeter. Then it recasts Schumpeter’s Capitalism, Socialism, and Democracy (CSD) as capitalism, philanthropy, and democracy, thus setting the stage for 21st-century dynamics. Third, it provides a framework for the understanding the ecosystem of moral capital in the theory of capitalist development. Finally, it offers evidence on the financial size of moral capital in the 21st century as applied to the American experience, suggesting that philanthropy provided much of the fuel that propelled American capitalism to triumph in the 20th century and is now spreading around the world in the 21st century. We find that moral capital is much more important than previously thought.