Waste in the redistribution of wealth
Last updated: 2026-08-18
Categories: Home -> Political Science
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
NOTE: It is necessary to have read the chapter on -> State Interventions before reading this article in order to understand it correctly.
Questions answered here:
- Does Piketty set out how he would allocate the money confiscated from taxes in order to force equality?
- Does he consider the possible theft of that money by some politician?
- Does he consider the inefficiency of redistribution?
The questions point directly at the largest blind spots of Thomas Piketty’s theory, which have been strongly attacked by economists of the Austrian School, theorists of Public Choice, and classical liberals.
Below is how Piketty answers these questions in his works (especially in Capital and Ideology and A Brief History of Equality) and what the problem is with his assumptions.
1. How would he allocate the confiscated money?
Piketty does set out a destination for this immense collection, proposing a system he calls “participatory socialism.” The money confiscated through taxes on wealth (of up to 90%) and on inheritances would not be used only to finance traditional public spending, but to restructure property.
In Capital in the Twenty-First Century (2013) the progressive tax on wealth has a mainly regulatory purpose, not a revenue-raising one. He himself writes that “the primary purpose of the capital tax is not to finance the social State, but to regulate capitalism”: to halt the r > g spiral and force financial transparency (who owns what). The revenue would be a modest complement (a few points of national income). The welfare state would continue to be financed mainly with the income tax and social contributions.
His main proposals are:
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“Inheritance for all” (capital endowment): It is his most radical proposal. He proposes that the State give every citizen a large sum of money on turning 25 (he suggests some 120,000 euros, equivalent to 60% of average wealth in developed countries). The objective is that all young people have capital to buy a home or start a business, financed by seizing the wealth of billionaires.
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Universal Basic Income: A guaranteed monthly income for the whole population, whether they work or not.
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Welfare State and co-management: Massively finance education and health, and also use part of the capital so that workers are guaranteed, by law, 50% of the votes on the boards of all large firms, diluting the power of the original shareholders.
2. Does he consider possible theft by politicians or corruption?
Not in a realistic way. Here is where Piketty commits what in logic and economics is known as the “Nirvana Fallacy” (comparing a real and imperfect market with an idealized and perfect State).
Piketty assumes a hyperdemocratic, transparent, and benevolent State.
His critics point out that he suffers from a serious myopia regarding the nature of political power:
Absence of methodological individualism in the State:
While Piketty assumes that entrepreneurs and heirs act out of self-interest to accumulate wealth.
He magically assumes that politicians, bureaucrats, and tax collectors will act as disinterested “angels” who seek the common good.
He ignores Public Choice Theory:
He does not seriously contemplate that the creation of a global expropriation fund of trillions of dollars would be the definitive incentive for corruption, clientelism, and institutionalized theft.
Historically, when States have concentrated such a magnitude of resources, political elites have become the new oppressor class, extracting rents for themselves and their allies.
3. Does he consider the inefficiency of redistribution?
Piketty rejects the idea that massive redistribution is inefficient. In fact, he argues the opposite: he believes that the true economic inefficiency is that capital is concentrated in the hands of a small group of billionaires.
According to his reasoning, taking billions away from a magnate to give it to thousands of young people (through “universal inheritance”) will generate more dynamism, more businesses, and greater productivity.
However, from the economic perspective (especially the Austrian), this view ignores several fundamental problems:
The problem of Economic calculation:
As Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992) demonstrated, the State has no way of knowing how to reallocate resources efficiently.
By destroying the price system of capital goods through confiscation, the information needed to know where to invest is destroyed.
The bureaucratic cost (the “leaky bucket”):
Piketty assumes that the money passes from the rich person’s pocket to the poor person’s pocket without friction.
In reality, redistribution requires a gigantic bureaucratic apparatus, inspections, lawyers, global agencies, and administrative costs that consume an immense portion of the confiscated wealth before it reaches any citizen.
Destruction of incentives:
If the State is going to expropriate 90% of the success of a firm or an invention, the incentive to take the extreme risk of innovating (creating new technologies, medical cures, infrastructure) disappears.
Piketty assumes that wealth already exists and only has to be shared out, forgetting that wealth must be created every day.
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
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Last updated: 2026-05-10
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