The Past Speaks

I’ve blogged on Thomas Piketty’s monumental door-stopper of a book about inequality. I’m really impressed, even shocked, by the extent to which this book is being talked about in the United States.  When the French-language version came out last year, it sold a respectably number of copies in France, but the impact was nothing like that of the translation that appeared in the United States about two months ago. Suddenly, everyone is talking about inequality and Piketty’s book, which contains hundreds of pages of dense economic-historical data about trends in inequality since the eighteenth century, has soared to the top of the non-fiction best-seller list.

One café in New York has attempted to cash in on the interest in Piketty by adjusting the names of some of the things on its menu. I wouldn’t read too much into a lighthearted sidewalk menu, but it’s clear that the restaurant people expect that pedestrians in this affluent area of New York would be familiar with Piketty. Given that Piketty has been discussed extensively in the New York Times and National Public Radio, that’s a good bet.

[Thank you Justin Fox for tweeting this photo!]

It is certainly true that many of the copies of the book that have been sold in recent weeks will likely go unread. Matt Yglesias has noted that while the book has topped the non-fiction best-seller list for hard copy books, the Kindle version isn’t the best-selling e-book. In fact, it’s only at number 23. He suggests that this discrepancy between hardcopy and Kindle sales is because people want a physical book they can show to others in order to demonstrate that they are smart. This explanation has the ring of truth to me. However, it is undeniable that many people are reading the book, understanding much or all of its content, and then applying Piketty’s arguments to pressing political issues.

As Tyler Cowen and Veronique de Rugy have pointed out, the book made much less of a splash in France than in the United States. The y attribute this to several factors. First, Piketty’s core idea that inequality is very bad is pretty much the conventional wisdom in France, where it is a contentious claim in the United States. Moreover, the intellectual climate in France has, in the last 18 months, turned away from the focus on distributional justice that characterized the first few months of M. Hollande’s presidency. Today, France’s centre-left government is talking about deregulation, cutting taxes, more flexible labour markets.  Catherine Rampell  of the Washington Post also points out the French book is even longer than the English-language version and that this may help to explain while sales have been relatively sluggish in France.

As a business historian, I’m left thinking about historical parallels. Are there other books about economic topics that became runaway best-sellers and changed the political climate? [For the record, I’ll point out that it is uncertain whether the Piketty craze of the last few months will effect a permanent change in the political climate in the United States. It does appear, however, to have promoted economic inequality to the top of the agenda for the time being].

Piketty’s book is both a descriptive-analytical economics book and a programmatic political tract that calls for action to address inequality. To the extent to which it is a prescriptive book, its bibliometric success parallels Thomas Paine’s Common Sense, which was published in Philadelphia in January 1776 and which was soon being read throughout the Thirteen Colonies. It was this book, more than any other, that convinced Americans that full independence from Britain was required. Common Sense was short, punchy, and written in accessible language.

Keynes’s General Theory of Employment, Interest and Money, which was published in early 1936, had a huge impact on academic economists and, eventually, public policy. Indeed, it produced the so-called Keynesian Revolution of the late 1930s. However, very few non-academics read this book.In contrast, The Economic Consequences of the Peace was a best-seller and had a huge impact on public policy in the 1920s and 1930s.

John Kenneth Galbraith’s 1967 The New Industrial State also made a splash when it came out. It shot to the top of the bestseller lists and was purchased by many people who don’t normally read business and economics books. I recall reading a novel published around 1970 in which one of the characters, the wife of a professor, forced herself to read The New Industrial State so that she would have something to say at dinner parties. [Sorry, I forget the name of the novel]. I’m not certain, however, whether Galbraith’s bestseller had much of an impact on public policy in the United States. However, I know that it was asserted the 1975 decision by the Canadian Prime Minister to support wage and price controls was a result of his having read this book during his vacation. (In 1974, the Prime Minister had ridiculed his opponent’s proposals for such controls).

Bryan Burrough and John Helyar’s Barbarians at the Gate: The Fall of RJR Nabisco, a bestseller published in 1989, reinforced public hostility to corporate takeovers. In a sense, it probably contributed to the desire to change the law in Delaware in other US states to make hostile takeovers harder to effect. That’s another example of a bestselling book that influences public policy.

Everyone is thinking about what the impact of Piketty’s book on US politics will be.  I’m actually more interested in what the impact of the Piketty book on the private decisions of investors and managers might be. We therefore need to ask three questions:

1) How would an investor change his or her strategy if they believed the Piketty’s predictions about inequality were true?

2) Would a CEO who accepted Piketty’s theory behave differently from one who didn’t?

3) How would belief in the accuracy of Piketty’s theory change the marketing strategies of firms? If Piketty is correct and we can expect the gap between rich and poor to increase, it might make sense for firms to eliminate their mid-market product lines and concentrate on designing goods for the very rich and the very poor.

So far, I haven’t seen any evidence that Piketty’s book is affecting the behaviour of investors and managers. However, it is too soon to tell.