My Quest for an Introductory Understanding of Modern Economic Theory

It is a surprise, I think, that evangelical Christianity has yet to announce the obvious. At long last, after two millennia of false alarms, we are witnessing clear and unassailable portents of the end times. Capital in the Twenty-First Century, by Thomas Piketty, a 700-page book of economic theory, translated, from the French, was, for weeks, the bestselling book on Amazon. The book’s publisher, an imprint of the Harvard University Press, has run out of copies. Amazon said that I, a Prime member, would receive the book by June 6th. When I called my closest Barnes and Noble, the lady on the phone laughed. In liberal Austin, of course, the only store with a copy is twenty miles north, in Round Rock. That is to say, in Round Rock, Texas, one of the great beige suburbs of our nation, in which what is left of the middle class is too busy struggling to survive to read a book informing them they are completely fucked.

In a manner the French pioneered, M. Piketty has become an honest-to-God intellectual rockstar. He has been feted by glowing reviews from the New old guard (The New York Times, The New Yorker, The New Republic), lengthy validations everywhere else that matters, has toured both of our coasts, has met with members of the Obama administration and has been attacked by the right for everything from his youth (because only the cadaverous are capable of producing serious thought) to his gall at proposing one possible future for the world economy based on nothing but 15 years of study and mountains of hard numbers.

And what is he saying? Simply what we’ve long suspected: that the rate of growth from wealth already accumulated grows faster than the economy at large (i.e., your paycheck). Those who already have some money will always have more money than you unless you can somehow come across a large pile of assets. In page after page of charts and graphs we see a great maw forming between the incomes of those with money (especially those with inherited fortunes) and those who depend upon a wage from their labor. In short, the future is a return to Western Europe pre-World War I. Capital in the Twenty-First Century has all the makings of the book that for the next decade you will wave at your parents while shouting, “There’s not even a point in having this conversation until you’ve read this!”

As is always the case with massive popularity, we should approach the object that has so entranced the public with more than a little caution. Who among us has yet to un-read the mommy porn that our friend, the one that doesn’t generally read, pressed upon us urgently, saying “Really, try it, it’s deeper than everyone says?” Or forgotten the low sigh of “That’s it?” that escaped from the final pages of The Marriage Plot and Freedom and Telegraph Avenue and settled softly to the carpet like a sclerotic fart. Enough has been written on the right’s hysterical reaction to Capital, the shrillness of which has increased in direct relation to the book’s sales figures. Forbes has turned itself inside-out. It’s a wonder Fox News hasn’t made the book into their own missing Malaysian airliner. Amidst the lengthy clamors of Nobel laureates you’ve vaguely heard of and think-tank contributors you distrust implicitly (most if not all of them dishearteningly white and be-testacled) it takes a conscious effort to discover the more measured language coming from both sides explaining that Capital in the Twenty-First Century, like all books, is imperfect.

Most glaringly, Piketty seems to have misstated the history of the minimum wage, forgetting to mention the occasions it rose under Republican presidents; perhaps, as a foreigner, he didn’t realize that George W. Bush needs no help in looking diabolical over here. More complexly, there seem to be serious questions of Piketty’s mathematical models and in the limits inherent in the tax records he uses for most of his data, though models based on census surveys and payrolls have displayed very similar trends. If ever there was a book worth waiting to read in expanded, revised paperback, even if it were readily available today, this is it.

For the first time in my life, I feel vaguely ahead of the curve. On March 26th of this year I ran a search on Amazon for capitalism and my first result was Capital in the Twenty-First Century, which had come out just two weeks before. It sounded exciting (and infuriating and impenetrable) but since I couldn’t find a copy in Austin’s public library system, I wrote it off for the time and started clicking through the recommended also-boughts. I compiled a list of similar Serious titles that were available and left for my day job. Two hours later, on a break, I opened Twitter, and the top item was a headline from The New Yorker: “Piketty’s Inequality Story in Six Charts.” Was I baader-meinhoffing, or was something serious at work?

By the time the book exploded in earnest a month later, I had taken my first cautious steps into the world of economic theory. I had by my bed not only The Enigma of Capital and the Crises of Capitalism by David Harvey and The Making of Global Capitalism by Leo Panitch and Sam Gindin, but also Debt: The First 5,000 Years by David Graeber, The Big Short by Michael Lewis, The Affluent Society and Other Writings, 1952-1967 by John Kenneth Galbraith, and (what would my parents say?) The Communist Manifesto. Anyone with any knowledge of the field must recognize here the sight of an amateur grabbing books at random and in increasing desperation, and all of it because, back in 2008, I couldn’t wrap my mind around why buying and selling another person’s debts could possibly be smart business.

Like most people paying a modicum of attention (which was, I think, for the banking class, a disturbing and unprecedented number of people) I feel pretty confident I understood the sub-prime mortgage crisis better than the banking class told me I was able to. A large number of people were sold homes they couldn’t actually afford. Their banks then sold their mortgages to other banks around the world, making lots of people very rich. During all of this, some banks and capital firms were also taking out things called derivatives (essentially tools to place bets on anything—the price of milk going up, the price of oil going down—with their clients’ money) to gamble on when buyers would default on their loans. Eventually, the obvious came out: Buyers were defaulting on these loans en masse and the banks were in fact millions of dollars in the hole. And, thanks to the dismantling of various restrictions and laws built to protect the average citizen, it was not the banks that suffered, but the people who didn’t fully grasp that their retirement funds were wrapped up in the whole mess. Suddenly everybody realized that nobody had any money. So far, so Reagan.

What I didn’t understand were the finer points. How does selling someone’s debt make you rich? What is interest? What, exactly, does a derivative look like? Why does a stock market even need one? Can’t it just be about buying and selling stocks in a company? And what is a bond? Is it rectangular?

These, in turn, gradually led to thornier questions. How is it legal for a bank to authorize a loan it knows the buyer can’t pay back? Why does the government seem weirdly OK with what is functionally gambling on an international scale? Why does it seem to be taken for granted that these large firms can’t be allowed to fail as a result of their malfeasance? What is keeping these men (because they were mostly men, of course) from getting arrested? Why do these collapses continue to occur and get worse every time they do?

If you live on a fault line, shouldn’t you study how earthquakes work?

But the early Obama years were heady times, if you were only paying a modicum of attention. For a couple months, questions of the status quo were the loudest they’d ever been in my (admittedly brief) lifetime until, suddenly, they stopped, like a channel changing. For my part, I stopped asking my questions. We all had contact highs of hope and change.

The niggling doubts of the 2009 bailouts.

The dawning anxiety of the 2010 midterms.

The blank horror of the 2012 election.

It is 2014 and I am nothing but questions.

And yet, how to begin? Just because I am no longer willing to accept the conventional wisdom that the common woman cannot understand the high finance and the academic theory that shape every aspect of her daily life, the fact remains that I have never in my life taken a course in economics or statistics or political science or math more advanced than college algebra. Before that Amazon search on March 26th, I did not know a single title besides Michael Lewis’ The Big Short which, because I’m perverse, I put down for being too easy.

With a deceptive ease (that, I have to admit, leaves me seeing green) Lewis introduces a cast of sharply realized characters and sends them hurtling towards a reckoning within his first 20 pages. He describes Steve Eisman, an investor who saw the subprime crisis coming, as “dress[ing] half-fastidiously, as if someone had gone to great trouble to buy him nice new clothes but not told them exactly how they should be worn.” And Vincent Daniel, who came to work for Eisman: “He had little to lose but still seemed perpetually worried that something important was about to be taken from him.” He lays out the nature of housing bonds and the fraudulent nature of the subprime market in less than a page of punchy quotes and a great deal of concealed sweat. I am riveted. Three chapters blitz by. I switch gears. I want a mental workout. I want to wrestle with Big Issues.

On page eleven of The Enigma of Capital is the sentence, “Financial crises serve to rationalise the irrationalities of capitalism.” Now we’re getting somewhere. And then on page 17 is, “The demand problem was temporarily bridged with respect to housing by debt-financing the developers as well as the buyers. The financial institutions collectively controlled both the supply of, and demand for, housing!” I was soon reading every sentence twice, if not five times.

The 260 pages of The Enigma of Capital took me a month of serious effort to finish and my biggest takeaway is that I need to read it again. Harvey’s language is obsessively precise and even if not intentionally opaque it sometimes leaves one feeling a little ignorant: “…the effective demand for yesterday’s surplus product depends upon workers’ consumption plus capitalist personal consumption plus the new demand generated out of tomorrow’s further expansion of production.” “At the heart of the credit system there exist a range of technical and legal aspects (many of which can fail or badly distort, simply by virtue of their rules of operation) coupled with subjective expectations and anticipations.” I spent entire days off trying to unpack the book. I discovered that there’s something sensuous to reading Marxist critique while sunbathing.

What I did understand my first time through The Enigma  unsettled the hell out of me. For one, the long-term prospects for capitalism are worrisome. In order for a market to be considered healthy, it needs to grow by three percent a year. If it fails to grow—if created products merely sit in warehouses gathering dust, if cash reserves merely sit in banks accounts and deteriorate from inflation—we are in a crisis because money has stopped flowing. Nobody is buying anything, and nobody is getting paid.

Capitalism is constantly seeking to overcome the barriers to its growth: advances in shipping allow more concrete to be shipped to China; employment of a new, cheaper labor force cuts back money spent on payroll; removals of artificial trading limits allow more iPods to be shipped to South Korea. But can this expansion continue forever? If we grow at 3 percent a year, “there will be over $100 trillion in the global economy by 2030. Profitable outlets will then have to be found for an extra $3 trillion investment [in one year]. That is a very tall order.” Where will we be selling our iPods then? Africa?

Harvey asserted theoretically in 2010 what Piketty has now asserted mathematically in 2014. When the economy is expanding at three percent (or the more common 2.25) those who have the money to get involved in the growth will do much better than the people in their employment. If you inherit, say, your father’s glove factory and $10 million in cash, and use that cash to open a second factory, even if you only net a profit of 2.25%, you’ll have $10,025,000 next year. In three years this factory will be making you $11 million a year. I think. As your income compounds, you can soon—by combining the income of your two factories and maybe an attractive low-interest loan—open a third factory. Soon you could open five. You could buy a stake in a new restaurant chain or buy some mortgage bonds. Eventually a broker will come knocking with news of a new investment scheme made possible by his friends in Washington that could provide returns of five, 10 or even 50 percent. Through a number of complex algorithms and workarounds, it is guaranteed to succeed. You’d be a fool to miss out on such an opportunity.

Granted, there is an element of risk involved, but provided you don’t invest too much of your father’s money into the system and overextend yourself, you could always just shut down a factory that isn’t turning a profit or close a few restaurants, at which point the newly unemployed workers are no longer your problem, but the government’s (though, theoretically, they could still be your problem by proxy, if you’ve been paying your taxes, but if you’re smart and have your company headquarters in Ireland, you haven’t been). And what does growth look like for your employees? A raise, the rate of which you, the owner of the factory, have set.

Those who run the factories (though today a smarter analogue would be “those who run the service conglomerates”) seem unaware that most of the solutions to their growth problems only create more problems down the road. By keeping wages down, they reduce the money their workers can use to buy their products. By convincing politicians to remove regulations on stocks and bonds, they can make bigger and bigger gambles in the economy until it all explodes in their face. If my first reading of The Enigma has taught me anything, it’s that capitalists possess neither memory nor foresight, and they will never change their behavior unless they are forced by the state to do so.

It is in the solutions they offer that I am at my least persuaded by either Piketty or Harvey. The former advocates a global wealth tax on the top percentiles, the earnings of which can be redistributed through education, healthcare and other tools the rest of the population needs to survive and prosper. But even Piketty himself is quoted as describing this tax as “utopian.” After all, how does one expect to convince China, the United Arab Emirates and Russia to agree on a unified tax for their wealthiest (and, hence, most powerful) citizens? For his part, Harvey also acknowledges that his pleas for another crack at Communism are utopian, “but so what,” he says. “We can’t afford not to be.”

I still have so much reading to do. The introductions of The Making of Global Capitalism and the first chapter of Debt: The First 5,000 Years showed me that I have not even scratched the surface. Could globalization, that wonderful advance in human development so championed by The World is Flat et al actually be setting us up for an even greater catastrophe? Could our species as a whole soon need to re-evaluate the nature and ethics of debt itself? What is an interest rate? Why do large Communist systems always seem to fail?

Whatever the solutions, certain things seem certain. It’s in the nature of capitalism to produce crises, and the fewer regulations placed on its main players, the worse those crises are going to be. The right’s rhetoric of trickle-down economics and pulling yourself up by your bootstraps is being decisively proven to be bullshit. The fact that a 2,800-word article discussing these issues is being published on a website aimed at millennials is, somehow, significant. And the fact that a 700-page book of economic theory, translated, from the French, was the bestselling book on Amazon is a sign of the end times, but the question is: whose times, exactly, are ending?


John Fram is a freelance writer whose public records show him living in Texas. He tweets here, and you can contact him here.

Photo: Shannon Kringen


17 Comments / Post A Comment

BornSecular (#2,245)

I really liked this. More please!

eatmoredumplings (#3,808)

@BornSecular Seconded! Would love to see more!

It is awfully nice to see someone else with no formation in math or economics who can’t help but look at the increasingly complex finance alchemy that seems remotely to govern our fate and say, “This is madness.” It is also nice that, unlike me, who stopped after The Communist Manifesto, content to declare the rich inscrutably selfish and evil, you have done lots more reading and understanding. Please continue to share your insights and the process by which you arrive at them.

Lucky Jim (#6,729)

This is baffling. Linking to right wing think tanks for empty criticisms of Piketty, critiquing models w/o a first-hand understanding of how the models work, relying on David Harvey (not an economist, not even a Marxist economist but a Marxist geographer) who, while great (love The Condition of Postmodernity), doesn’t really tell us anything diagnostically? I mean, how does Harvey teach you about “capitalists” unless you just trust it implicitly? Tautology? Confirmation bias?

No Keynes? No Minsky? No Austrian school?

It’s like reading an economics version of shitty karaoke.

eatmoredumplings (#3,808)

@Lucky Jim Yeah, but sometimes economists kind of wind up reheating Marx and acting like there couldn’t possibly be a connection because they never bothered reading Marx in the first place (Piketty is a pretty good example). The lack of engagement with other fields definitely goes both ways.

Lucky Jim (#6,729)

@eatmoredumplings Picketty’s not an example of someone who didn’t read Marx. He’s an example of someone who read a lot of Marx and read him well but didn’t buy the post-hoc edits and rationalizations of Marxian heterodox economists.

I mean, this article makes a point to identify a supposed error re:the minimum wage (the article linked ignores rate of change over time, making it useless) but doesn’t address the transformation problem in Marx? My guess is the writer doesn’t even know what it is. And if that’s the case, he shouldn’t be writing about Marx. Or any other economics.

@Lucky Jim

Mr. Jim

While I am typically grateful to people who point out flaws in my work, I have a difficult time appreciating those who fail to actually read the work in question. How else can I explain your apparent overlooking of such lines as “I am all questions,” “I still have so much reading to do,” and the copious number of ?s that litter the piece like so many car parts. Had you read the link relating to Piketty’s errors in the minimum wage, you would find that he quite simply missed certain dates in his history of the wage, an error I hope he fixes in the book’s paperback edition. By “rate of change over time” I’m assuming you mean inflation? Because to my knowledge the national wage has always been changed manually, so to speak, by congress, and has never increased simply due to inflation.

Also, no, I have no idea what the “transformation problem in Marx” is, you’re quite correct. Nor would I be able to recreate Piketty’s (or anybody else’s, models), though to say I have no “first hand knowledge of how they work” is nebulous and disingenuous. Piketty’s models “work” by tracking the results over income tax returns over time. Others do the same with census data and payroll taxes. All seem to return similar results: wage-workers are suffering. In the same way, I couldn’t create a model of global climate change, but with a little bit of work, I can see what scientists are doing in the abstract (and take a little bit on faith that thousands of trained experts around the world, many of whom probably hate each other personally, know what they’re talking about) and conclude that the planet is in serious trouble.

It is exactly the sort of exclusionary vocabulary you use that I find most frustrating, as it’s the sort of tone that got us into our mess in the first place. I suspect, were my competence to increase, you would always have more books for me. What were you expecting from this article, fresh scholarship ? If anything, this is a glorified journal entry and, at worst, a think piece. Ideally, it would inspire other similarly curious people to do their own work and construct their own opinions. To say that a layperson can’t, with a little work, grasp a field, or that, without a fluent expertise, their opinion is worthless, seems dangerous and prone to promote haemophilia.


John Fram

@Lucky Jim All that being said, buddy Jim, thanks for the books. I knew already that I need to read Keynes. And I’ll be sure to look into the transformation problem in Marx. I didn’t realize Minsky was such a big deal. If you had a full list, I’d be grateful to see it, as you seem to have all this figured out. Even more exciting would be a piece of original, coherent writing under your own name that is readable by a general audience with an articulated sense of tone, rhythm, and mood, though if that’s too much to ask, I understand.

Best again,


eatmoredumplings (#3,808)

@Lucky Jim I was taking Piketty’s view on Marx from his own mouth – he HAS given interviews saying “I never really managed to read it” and “it wasn’t very influential” about Capital. ( There’s definitely a disciplinary divide between economics and other social sciences that leaves people talking across each other about the same things. I do think it’s admirable that Piketty is crossing that divide with regard to history, though.

therealjaygatsby (#4,053)

@John Fram@facebook “It is exactly the sort of exclusionary vocabulary you use that I find most frustrating, as it’s the sort of tone that got us into our mess in the first place.” — Amen!

@Lucky Jim is basically saying, unless you have a PhD in X, you shouldn’t discuss or opine about Y. And I say that is B U L L S H I T.

John Fram, you have indeed inspired me to get out there and start reading about these issues again, hopefully from a range of different perspectives. Thanks for the article.

Odm (#562)

So far as I understand things, if you invest $1 million and get a 2.25 percent profit, you get back $1.0225 million. Not $2.25 million, which is what the article seems to say.

@Odm Hey, I thought that looked funny. I was under a time constraint and didn’t get a second opinion. I’ve emailed an errata to the editor. Thanks a bunch


Ralph Haygood (#5,297)

“It is a surprise, I think, that evangelical Christianity has yet to announce the obvious. At long last, after two millennia of false alarms, we are witnessing clear and unassailable portents of the end times.”: My goodness, you must not know very many evangelicals – lucky you. I grew up with them. They’ve been proclaiming the imminent return of Jebus for years. When I was a child, I was subjected to dreck like “666” and “The late, great planet earth”. And although I’ve long since escaped, I’m sure they do consider the popularity of Godless Marxist Thomas Piketty – who isn’t actually a Marxist and may not be an atheist either, for all I know, but let’s not let facts get in the way – yet another portent of The End Times.

I believe your understanding of the sub-prime mortgage fiasco is correct. Moreover, “So far, so Reagan” is an appropriate synopsis. It needs to be widely understood that what we’re living through are the predictable consequences of cutting taxes on the rich, cutting public services to the rest of us, and cutting regulation of industries with the potential to produce huge disruptions of the national economy (e.g., banks) or the physical environment (e.g., oil companies) – in other words, Reaganism. Some of us did predict these consequences long ago, but again and again, majorities of American voters have endorsed these follies.

“[T]he long-term prospects for capitalism are worrisome. In order for a market to be considered healthy, it needs to grow by three percent a year. If it fails to grow…we are in a crisis because money has stopped flowing.”: Paul Krugman recently analogized the economy to a bicycle: if it’s going too slowly, it tends to fall over. It’s been amusing to watch Krugman become more and more radical over the past several years, but I think he still hasn’t fully absorbed the implications of his own analogy. Humanity desperately needs a better way of organizing its production and consumption, one that’s genuinely practical for the long term. Conventional economics, obsessively preoccupied with existing arrangements and shot through with dubious assumptions, offers little guidance or inspiration.

By the way, I’m familiar with the alternative commonly known as social democracy, as exemplified by Sweden, where I lived for a couple of years. Certainly, it’s a far better system than the American one, delivering a higher standard of living for most of the population, with less precarity (e.g., practically everyone is in a union and cannot easily be discarded by their employers), less drudgery (e.g., most people have five or six weeks of paid vacation every year), and many other benefits. Sweden is also a much more functional democracy (e.g., voter turnout routinely exceeds 80%) and has made far more progress away from fossil fuels (e.g., biogas has become a big business). Still, Sweden is very much caught up in global capitalism and the demand for perpetual growth. Swedish-style social democracy embodies several steps in the right directions, but humanity will have to go much farther in order to thrive in the long or even not-so-long run.

“[C]apitalists possess neither memory nor foresight, and they will never change their behavior unless they are forced by the state to do so.”: In fact, it seems to me the system selects for myopic money-grubbers, people who are willing to spend their lives focusing on things I and most other creative people find deadly dull, and all for the sake of piling up more than they and their families will ever need, even under a fairly liberal definition of “need”.

You might enjoy Brett Scott’s 2013 book “The heretic’s guide to global finance” (

therealjaygatsby (#4,053)

@Ralph Haygood “Humanity desperately needs a better way of organizing its production and consumption, one that’s genuinely practical for the long term. Conventional economics, obsessively preoccupied with existing arrangements and shot through with dubious assumptions, offers little guidance or inspiration.”

Yes yes yes. Although like a lot of MAJOR issues (climate change, for one), I fear we’re just going to keep kicking the proverbial can down the road until we hit a wall we can’t bounce back from.

squashblossom (#6,560)

This is exactly the kind of thing I expect to find on the Billfold, and it is glorious. To respond to earlier criticism that Keynes et al were left untouched: true, but the way this is written provides a very accurately paced transcription of the mind-blowing that occurs when one sinks into a topic that is so deep and rich. I commend the author for exploring, indeed, a very dark pool of fiscal deregulation and debt. It certainly raises a lot of questions about whether the US is on a sustainable plane for the long term.

stonetongue (#3,580)

John, great article! I would love to see more of this on the BillFold.

Stanley (#6,750)

Glad Piketty is getting called out on his bullshit. FT did a masterful takedown of him and how he is deliberately misleading people.

And I’ll take free-market capitalism over socialism/Marxism/Communism/whatever the 20 year olds in Che Guevara shirts are obsessing over any day of the week. People can manufacture all the “outrage” they want over Reagan and other GOP’ers. But their policies are much better than some of the gonzo theories spouted by the anti-free trade crowd.

How’s France’s economy doing, BTW?

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