Capital in the Twenty-First Century

First off I'd like to state that the data that the author has compiled is very impressive and provides the reader with a new way to look at both the stock and flow of wealth of society and its distribution. It is unique and comprehensive and for this aspect of the book it is landmark and hopefully will improve and refine our thinking about capital and inequality going forward. The conclusions of the author i think are very suspect and not nearly as insightful as the analysis, but they are where the author's politics come out and are a relatively smaller portion of the book. The need to move beyond looking at crude measures of inequality like the Gini coefficient and distribution of profits between labour and capital was much needed and the author was able to, through meticulous analysis look at the entire distribution of wealth through society by looking at the bottom 50%, top 10% top 1% and top .1% when possible both from a labour and capital perspective. The dataset is not global, though the author was able to partially reconstruct a broad range of countries, but includes the US, France, UK, Germany aspects of Japan and the Scandinavian countries with a focus on the US and France. The book is split into 4 part. The first three parts are both an introduction to the economics as well the accompanying economic analysis of the accompanying datasets. The first part - income and capital start out by defining the basics of what the author will discuss throughout the book namely income, capital and how the output of society is distributed and how that has changed over time. National accounting is discussed, the capital stock and its properties are introduced as well as some key identities that will be used throughout regarding the share of income going to capital which is determined by the return of capital and the size of the capital stock relative to annual output. The author also discusses growth over time documenting global growth rates over time and introduces to the unfamiliar reader the consequences of how small changes in growth compounded can lead to large cumulative changes. The author discusses demographic trends globally through time and some of the dynamics of them (which are largely unpredictable). The author also discusses how growth and demographics can influence the capital intensity of the economy. The author also discusses how the sectors of the economy and output have changed over time with agriculture and its share of both labour and capital much lower but the service sector replacing it and how manufacturing intensity and capital replaced agricultural through the industrial revolution as well. He also discusses modern concerns about growth by discussing Robert Gordon's recent paper on the end of growth and whether techonological innovation has run much of its course, he is relatively optimistic but nonetheless foresees growth following a bell curve for which we are at a peak which will decline but to much higher levels than centuries in the past. The author also discusses inflation and monetary policy and how it has changed over time. The second part of the book is called the dynamiocs of the capital/income ratio. It is about precisely that with the author starting out by using novels to introduce the reader to society in the past. In particular the author refers repeatedly to Balzac and at times to Jane Austen to remind the reader what society was like in the 19th century. The core of the data set starts to become apparant in the second section with the author documenting the capital/income ratio over time in Britain peaking at 7x in 1700 falling to 2x post the first world war. The author includes the same information for france as well. The author discusses how foreign capital was important in the 19th and early 20th centuries during the colonial period and discusses the role of government debt and how it does not change national wealth just the distribution of wealth within the population. The author includes the value of national wealth through time by showing both public assets and public debt over time. The author discusses economic theory and how Ricardian equivalence is strictly only true of economies have a representative agent, which they do not hence the principal should be considered suspect. The author discusses the capital stock through the world wars and how it changed dramatically during the 20th century, though the capital stock has had a recent resurgence as economic policy has drifted back toward free market capitalism. The author then moves to look at the New World and in particular the US and repeats the analysis there as well (though the author starts with Germany as well). In the US the capital stock was more stable (it wasnt a colonial power which was a large part of the capital stock of the UK and to a lesse extent France). Canada is also analyzed as another data point. The author also discusses regional differences by including the differences between the South and the North and the repurcussions of Slavery to the capital/income ratio. The south had a much higher capital/income ratio as much of its human capital was effectively consdered part of the capital stock. The author shows the distribution of capital over time in the US from 1770 to today as well as spot distribution of wealth data points for UK and France. The author starts to discuss the dynamics of the capital/income ratio through his second law of capitalism, namely the ratio is equal to savings/growth. This is the result of the differentiam equation that leads to steady state rather than an identity which holds true at any given point of time. The author then moves into discussing the capital stock over the last 40 years and how its been on a resurgent trend that has been catalyzed by the s/g relationship as well as privatizations. The author discusses the components of savings, the resurgence of the value of capital and where the capital/income ratio is going. The author moves on to the Capital/labor split and its evolution through the 21st century. In particular with the resurgence of growth in the capital stock the trend towards growing labor share in the 20th century has reversed itself and we are heading towards the 19th century. There are regional differences with countries like the US being counterexamples with the rise of the supermanager. The third part of the book is The structure of inequality. This is where the value of the books data set gets particularly apparant. The author discusses how the labor share of income has changed over time for the various portions of the population, in particular for the top 10 and top 1%. He discusses how the ownership of the capital stock has become less concentrated and there has been an emerging middle class of owners of capital. The author discusses how different countries have had different evolutions between there ownerships of capital and how the labour share of income is divided with the US having a more distributed capital base but a much more concentrated labour share distribution. The author discusses the "merit" of the distribution of labor income and how there is a conflict of interest now for supermanagers and the growth in the supermanager has coincided with the decline in the progressivity of the income tax. The author discusses the flow of income through inheritance and analyses the dynamics of this flow based on the ownership of the capital stock by age group and mortality rates. This form of analysis is definitely an important addition and goes against conventional wisdom of aging populations spending their savings on lifestyle maintenance. I would be very interested to know how this process is evolving in Japan and Italy for example. The author also discusses inequality at the global level and how there are increasing returns to scale in capital (this is definitely not a fact and much evidence is to the contrary but an empirical observation made by the author on a few examples). The author also looks at the growing share of wealth of the top centile and billionaires in particular. He discusses how Bill Gates and the Bettencourt family have had the same return on their capital over time despite one being self made and the other inherited reinforcing his thesis that growing capital has its own momentum based on the fact that if the return on capital is greather than the growth rate capital continues to accumulate to those who have it- a central point throughout the book. The 4th part is Regulating Capital in the 21st century. It is the authors partial solutions to the growing inequality that we see that is due to inherint dynamics and unrelated to the merits of an individuals labour contribution or the foresight of those investing in the future capital stock. It discusses ideas like rethinking progressive tax, increasing the top income bracket to 80% to diffuse the rent seeking behaviour of the super manager. It includes ideas on taxing capital, in particular a graduating tax on capital to both make sure people are using the capital stock efficiently as well as counteracting the benefits of the economies of scale the author has been pointing out. Lastly the author focuses on the pressing problem of public debt with a focus on Europe. The data the author has compiled has allowed him to look at the distribution of wealth in much of the Western world through a more refined lense. It is full of important insight and a true developement that takes us to a level with much more granular detail than what typically is focused on. For that reason the book is a must read and is definitely a 5* book. The policy recommendations i put far less value on. The author is focused on the distribution of wealth and the solutions he proposes are designed to get those more in line with politically what he believes is a more fair distribution, thus they are focused on optimizing a distributional outcome. Recommending confiscating capital to pay down national debt is an example of a solution to a problem without considering the consequences of the action on the future dynamics of the economic system. Though the solution might seem fair, it is also insane as funding the flow of capital stock would totally change. Discussing a policy that could have better dealt with preventing the ex ante buildup of national debt is better than discussing one that ex post unwinds it far more dramatically. In addition ideas like just taxing capital at higher rates depending on one's capital base is highly questionable. Imagine each year if an entrepreneur has to give up 5-10% of his equity of his company (as capital has migrated from land to financial capital this is precisely what will be required) then the world would be very different and I am a skeptic it would be a more utopian society. Generation transfer is far more dangerous than capital accumulation through a lifetime and the author's policy perscriptions are political and one gets a sense he is stepping outside his comfort zone of impacting wealth inequality and into impacting economic growth, which is another big factor in decreasing economic inequality. There are many things that are scary- in the UK the top 5 families own more than the bottom 20% with 2 of those 5 are ancestors of those who owned the fields which London was built on. Between the 2 facts above I worry far more about the fact that 2 are from ancient landowning families, a form of capital stock that does not depreciate than the former, which is worrisome, but a more granular analysis of the asset base and its properties would be required. Achieving better distribution of wealth is not about just taxing capital more (though that should be a part of it). We need better policies, this is a start in how to look at the problem more clearly. The solutions are food for thought, but at this stage only that- as the author states, economics is not a science it is a social science and democratic deliberation is necessary to help us decide what policies society believes in. This helps provide better tools to answer some of the questions we have to ask ourselves about why the asset base is owned as it is and how does that fit with our beliefs in how society should be organized considering all dimensions like individual merit, equality of opportunity, sanctity of contract for providing the right base incentives etc...

This is a monumental work about inequality. Despite the title's allusion to Marx's classic (a point emphasized by the dust jacket design), it's neither a primarily theoretical nor a primarily polemical work, though it has elements of both theory and advocacy. Nor is its author (TP) a radical: he taught at MIT, and is thoroughly at home in the concepts and categories of mainstream neoclassical theory. Nonetheless, I think even many who hold less orthodox views about economics will find this book stimulating, valuable and sympathetic in many respects. And all readers ought to find it disturbing. In the ultra-long comments below, I begin with the book's audience and style (§ 1); then turn to some of the book's main arguments, which are more nuanced than usually reported (§§ 2-6); then to some things that are unclear or missing (§§ 7-8); and I end with some comments about the book's production (§ 9) and some concluding remarks. 1. In the original French edition, TP says that he intended this book to be readable for persons without any particular technical knowledge. In principle, it could be read by a broad, college-educated audience. TP's prose is very clear and direct, with a low density of jargon and a high density of information. (I read the French edition, but Arthur Goldhammer's translation seems to preserve these qualities very well.) The discussion is enlivened by well-chosen references to literature and a sprinkling of sarcastic barbs, both of them techniques that French scholars have developed into art forms (if not as elegant as John Kenneth Galbraith's irony). The allusions here range from Balzac, Jane Austen and Orhan Pamuk to "The Aristocats," "Bones" and "Dirty Sexy Money;" and the sarcasm hits both university economists and The Economist (@636n20), among others. But: this is a long and demanding book. It talks relatively little about current events or the policies of particular governments, unlike, say, Joseph Stiglitz's "The Price of Inequality" (2012). I wouldn't say Stiglitz's is an easy book, but it was written more with of a popular audience in mind (picking up 270+ Amazon reviews in less than 2 years). TP's presentation is far more methodical and meticulous than Stiglitz's. It helps for the reader to be interested in the fine points of data series and categories, and in the sources of uncertainty in data. Occasionally the discussion will focus on concepts from academic economics, such as Cobb-Douglas production functions, elasticities, and Pareto coefficients; while TP uses words rather than math on these occasions, he generally assumes you pretty much know what he's talking about. Finally, if, as I did, you make it through the whole thing while reading with some attention, I bet dollars to donuts you'll come out of the experience feeling very, very down, on account of TP's message. Actually, that mood will hit you long before the end. Despite its felicities of style, this is an arduous read. 2. The "capital" in the title includes not only farms, factories, equipment and other means of production, but also assets typically owned by individuals, such as real property, stocks and other financial instruments, gold, antiques, etc. -- what's sometimes called "wealth". TP excludes so-called "human capital," because it lacks some features of true capital (ability to be traded in a market, inclusion in national accounts as investment), unless it's in the form of slaves. The distribution of capital is far more unequal than that of income. Even the Scandinavian countries have a Gini coefficient for capital of 0.58 -- comparable to that for income inequality in Angola and Haiti, among the 10 worst in the world (World Bank figures). For Europe and the US in 2010, the coefficient is at 0.67 and 0.73 respectively, worse than any country on the World Bank income inequality chart. (Of course, the worst countries on that World Bank list have hair-raising capital inequality, too.) The book's main thesis is that economic growth alone isn't sufficient to overcome three "divergence mechanisms" or "forces" that are in many places returning inequality in income and/or capital to pre-World War I levels. The main mechanisms are: (A) the historical tendency of capital to earn returns at a higher rate ('r') than the growth rate of national income ('g'), which typically sets a constraint on how workers' salaries grow, symbolized by the mathematical expression, "r > g". (B) the relatively recent (post-1980) widening spread between salaries, not only between the wealthiest 10% or 1% and the mean, but even within the top 1%. (C) an even newer inequality in financial returns, which correlates r with the initial size of an investment portfolio -- i.e., different r for different investors. A point to keep in mind is that g relates to national income, not to GDP. National income = GDP - depreciation of capital + net revenue received from overseas. Among other benefits, this measure corrects for the reconstruction boosts in GDP after wars, hurricanes, earthquakes, etc., since the depreciation term takes the destruction of property into account. Also, an increase in national income usually has two different sources: part of it is truly economic, coming from productivity growth (output per worker), and part is due to population growth. Historically, it's the latter that has dominated. 3. The r > g argument has received the most attention. It's to be seen "as an historical reality dependent on a variety of mechanisms not as an absolute logical necessity" (@361). TP finds that this condition has held throughout most of the past 2,000 years. As long as it does, he says, it's the natural tendency of capitalism to make inequality worse -- and the bigger the difference (r - g), the worse that inequality will be. Many commentators about this book make it sound as if this is an obvious mechanism. But if you play with it on Excel, using reasonable values for r and g, it turns out to be slower and more sensitive to initial conditions than you might expect. Here's a toy example: Let's suppose r = 4%, g = 1.5%, and that salaries rise as fast as g (a very idealistic assumption!); and let's assume these rates are net of taxes or that no taxes apply. I'll compare the situations of three people in Silicon Valley: X, an engineer who made $8.5 million by exercising stock options when the company she used to work for had an IPO; Y, the same company's former HR manager, who made $6.0 million from her options; and Z, a young lawyer at a local law firm, who has a $200,000 salary when we first meet her. After a year, X has $340K in disposable income, Y has $240K, and Z gets a raise to $203K. Suppose X and Y spend all their income from their capital every year. Eventually, Z can earn more than each of them: it will take her about 37 years to exceed X's annual income, but only 13 years to make more than Y. Now suppose X and Y each save the equivalent of 1.5% of their capital. Then Z will never overtake either one in gross annual revenue, but the situation as to disposable cash is a bit different. After saving, X will always have more cash to play with than Z, but it will take more than 15 years for her to have just 50% more than Z does. As for Y, she'll actually start out with less annual cash than Z, and it will take her 13 or 14 years just to catch up -- even though she's a multi-millionaire. The true potency of the r > g mechanism comes from its working in conjunction with other circumstances. For example, according to TP's historical data, I've been way too conservative in my assumptions about X's and Y's advantages over Z. From the 18th through the early 20th Centuries, the people who earned money from capital had proportionally a lot more than they do today: e.g., in 1910, the wealthiest 1% in Europe held > 60% of all European wealth, about triple the share they hold today (see Fig. 10.6). The US was not so extreme, but still very unequal: From 1810 to 1910, the share of the top 1% grew from 25% of American wealth to 45.1% (Fig. 10.5), compared to 33.8% today. So to set our example 100-200 years ago, the endowments of X and Y could plausibly be much bigger relative to Z's wages (especially if we chose, say, Wilhelmine Germany instead of Silicon Valley). More recently, since the 1980s, most folks with a lot of capital also earn salaries -- and having a lot of capital tends to be correlated with having a salary well above average. So in a more realistic modern example, we should consider that X and Y have moved on to new companies where they receive hefty salaries, which would give each in total a healthy and growing excess of annual spendable cash versus Z. This is the realm of the second divergence mechanism, which is especially formidable in America. In 2010 the richest 1% not only held more than 33% of American wealth, but they earned between 17x and 20x the mean American income (depending on whether capital gains are included). Even the wealthiest 0.1% of Americans work, for average incomes roughly 75x the mean (or 95x, if capital gains are included) (see Table S8.2). At the other end of the spectrum, I was shocked to learn that the purchasing power of the US Federal minimum wage peaked in *1969* -- what was $1.60 an hour back then would be worth $10.10 in 2013 dollars. In those same dollars, the current statutory minimum hourly wage is $7.25 or a bit less (see Fig. 9.1 and nearby text). On top of these trends, succession to family wealth is becoming important again today, even if not to the full degree it was in 19th Century novels. TP frames this in terms of the dialogue of the worldly Vautrin and the young, ambitious Rastignac in Balzac's "Père Goriot" (1853). Rastignac aspires to wealth by studying law. Vautrin counsels him that unless he can claw his way to become one of the five richest lawyers in Paris, his path will be easier if he simply marries an heiress in lieu of study. Cut to the present: judging by TP's Fig. 11.10, law school might have been the better choice for Baby Boomers, but if you're a Rastignac in your 20s or 30s when you read this, consider marrying up. Maybe you think you'd rather found the next Facebook or Google -- but why work so hard, and against such long odds? TP shows that when Steve Jobs died in 2011, his $8 billion fortune was only 1/3rd that of French heiress Liliane Bettencourt, who has never worked a day in her life. 4. There's another way that "r > g" is inadequate as a summary of TP's argument: TP calculates that during the past century (1913-2012), we've seen r < g, the opposite of its usual polarity (Chapter 10). High rates of growth -- or at least, what we're accustomed to thinking of as high rates of growth, 3%-4% or more -- aren't a sufficient explanation. In fact, such rates of growth aren't sustainable in the long term, and were not sustained in most countries; they're mainly a catch-up mechanism lasting a few decades, according to TP. During the period from 1970-2010, the actual per capita growth rate of national income averaged about 1.8% for the US and Germany, 1.9% for the UK, and 1.6%-1.7% for France, Italy, Canada and Australia. The wealthy country with the highest per capita rate was Japan, at 2.0 (Table 5.1). (Think about that, next time you're tempted to swallow what Paul Krugman and other pundits pronounce.) Nonetheless, growth rates in this range appear to be what TP calls "weak" (e.g., @23). Rather, the main reasons for the flip are the tremendous destruction of capital in Europe due to the two world wars, and the imposition of very substantial taxes on capital, at an average rate of about 30% in recent years. These greatly reduced r. Despite these trends, inequality has been getting worse during the past few decades. This isn't a paradox, but rather the impact of the other divergence mechanisms, especially the rise of the "working rich" and the spread of inequality in salaries. So we should be quite alarmed by TP's assertion that we'll flip back to r > g during the 21st Century. His explanations for this seem rather more speculative than most of the rest of the book, though it's clear he expects g to remain low. I return to this a bit more in § 7 below. In any case, it's clear that r > g isn't a necessary condition for inequality to get worse. 5. TP reserves his most anxious prose ("radical divergence," "explosive trajectories and uncontrolled inegalitarian spirals") for the third mechanism, inequality in returns from capital (@431, 439). Those with a great deal of capital are able to earn higher returns on it -- such as 6%-7%, or even 10%-11% in the case of billionaires like Bill Gates and Bettencourt -- compared to those with only a few hundred thousand or millions of dollars, who may earn closer to 2%-4%. This results from two types of economies of scale: the ultra-rich can afford more intermediaries and advisers, and they can afford to take on more risk. Unfortunately, public records don't provide adequate information on this point, and while TP does look at Forbes's and other magazines' lists of the wealthy, those present many methodological issues. So TP corroborates his findings by looking at the more than 800 US universities who report about their endowments. Most spend less than 1%, or even less than 0.5%, of their endowments on annual management fees. Harvard University spent around $100 million annually (ca. 0.3%) on management of its $30 billion endowment, and earned net returns of 10.2% annually during 1980-2010 (not counting an additional 2% annual growth from new gifts). Yale and Princeton, each with a $20 billion endowment, earned a similar rate. A majority of universities have endowments of less than $100 million, and so obviously can't fork over $100 million to managers; they earned average returns of 6.2% during that period (still better on average than you or me). TP of course doesn't worry that universities will own most of the world, nor does he find it plausible that sovereign funds from Asia or oil-producing countries will either. The bigger danger, he contends, is private oligarchs, and he believes this process is already underway. Since the officially documented ownership of global assets comes up slightly negative, TP calculates that either the rich are already hiding the equivalent of at least 8% of global GDP in tax havens, or else that our planet is owned by Mars (@465-466). 6. In Part IV of the book, TP considers policy approaches to deal with the three forces of divergence. In short, the answer for all three is a progressive, annual global tax on capital, to be set at an internationally agreed rate and its proceeds apportioned among countries according to a negotiated schedule (@515). This will also need a global real-time reporting system for transactions in capital assets. Many will attack these ideas, but it seems that TP's main intention is to get a serious conversation going. His admits his approach is utopian, but maintains that utopian ideas are useful as points of reference. What interested me most was that TP doesn't see pumping up g as a viable approach to preventing r > g from returning. For one thing, demographics create some limitations in how far g can be pushed, especially in countries whose populations will soon be declining (or Japan, where that's happening already). For another, the same forces that pump up g can also increase r, at least in theory, so (r - g) wouldn't necessarily change much. The more practical answer then, is to bring down r. In his final chapter TP turns to the very topical question of public debt, which he sees as an issue of wealth distribution and not of absolute wealth. He reminds us about two of its important aspects: One is that public debt takes money from the pockets of the mass of citizens, who pay taxes, and puts it in the pockets of the smaller group of people who are wealthy enough to make loans to the state. The other point is that nations are rich -- it's only states who are strapped for funds. He calculates that in many countries, a one-time progressive capital tax of up to 20% on property portfolios worth more than 1 million Euro could bring the national debt to zero, or nearly so. Actually, TP doesn't believe that such a drastic reduction in debt levels is urgent, any more than he believes that such a gigantic tax is politically feasible. But his observation puts the lie to the notion that one must raise consumption taxes or income taxes (or, for that matter, experience economic growth) to reduce debt levels. 7. There were a couple of rare instances where I didn't feel the text was sufficiently clear. TP very graciously replied to my emailed inquiries about these matters, but without that input, I'd have remained quite confused by them. (a) The first arose in Chapter 1, where α (alpha) is defined as designating the "share of income from capital in national income." According to the perhaps intemperately named "first law of capitalism," α = rβ, where β is the ratio of the stock of capital to the flow of national income (and r is as above, the rate of return on capital). But an important category of income from capital is capital gains, the profits you make when you buy assets cheap and sell them dear. Unrealized capital gains make up a substantial part of the fortunes of Bill Gates, Steve Jobs and other billionaires mentioned in the book. And capital gains are *not* included in national income, according to the algorithm for computing that quantity. (Nor are they included in GDP.) This makes the use of the preposition "in" confusing -- does it mean that capital gains aren't considered as income from capital? This issue seems to have its root in academic economics, where α appears as a parameter in the neoclassical growth model developed by Robert Solow. The model represents an economy that produces one type of good -- i.e., it's all about making and selling stuff that gets consumed, so capital gains aren't considered. (In a sense, this model supplies a lot of the motivation for Part II of the book: the academic debate over the relative shares of capital and labor in the national income, i.e., the size of α and whether it changes with time, is a long and at times contentious one. But you can still benefit from reading Part II without knowing that.) The answer I got from TP is that because capital gains don't seem to be very important in the long term (>100 years), netting out to roughly zero over such periods, he didn't consider them when discussing α. The subject of capital gains does come up later in other contexts, though, and TP does consider them important in the short-term (which in some contexts can mean a timescale of several decades). (b) The second issue relates to TP's prediction that our current condition of r < g will flip back to r > g later this century. TP mentions that for the past 100 years, wartime destruction and, later, an average 30% tax rate on capital have brought r below g, despite currently weak growth rates in many countries. The data in the book, though is rather opaque about the relative contributions of these factors. Also, the book's clearest explanation of why matters might reverse rests on the possibility that countries will compete to attract capital by a race to the bottom in capital tax rates, allowing r to edge back up. This sounded rather too speculative to warrant such definite conviction about the return of r > g. I checked the online material, and found the Excel file (not the pdf file) of supplementary Table S10.3, which mentions some of TP's assumptions. Among other things, this makes it clear that TP factors in destruction of capital from WWII in calculating r even for the most recent 50 years. It seems plausible that this will be less important going forward, so that even a 30% average tax rate on capital might not be sufficient in and of itself to prevent r from popping above g again ... maybe. I'm still not entirely convinced that TP's argument about the future of r is among the strongest in the book; but I'd be even less so if I hadn't consulted the online information. 8. No book can talk about everything pertinent to its theme, so it's all too easy to think of things one wishes had been included. Still, I was disappointed that the book was conventional both in its thinking about economic growth, and in its thinking less about growth's environmental consequences. TP tells us that part of "the reality of growth" is that "the material conditions of life have clearly improved dramatically since the Industrial Revolution" (@89). Its main benefits include its roles as a social equalizer, and as a "diversifi[er] of lifestyles" (@ 83, 90). "[A] society that grows at 1 percent a year ... is a society that undergoes deep and permanent change" (@96). Growth's equalizing effect, though, comes largely from population-based growth, whereas "a stagnant, or worse, decreasing population increases the influence of capital in previous generations" (@84). So is a country already in that condition, such as Japan, supposed to open its doors to immigrants? As an immigrant to Japan myself, I can appreciate that there are many social, cultural and political reasons why this could be a bad path both for country and for many of the immigrants as well. How about focusing on productivity-led growth instead? Maybe, because "in a society where output per capita grows tenfold in a generation, it is better to count on what one can earn and save from one's own labor" (@84), instead of relying on an inheritance. The problem is, this takes for granted that gains from productivity improvements will be shared with labor, rather than shareholders. Yet Part II shows that labor's share has been flat or declining. In Japan, productivity improvements nowadays tend to come from using temporary employees instead of higher-paid permanent ones, and from using robots in lieu of employees at all. These have worked out to be more methods for enhancing inequality, than for abating it. Both population growth and productivity growth have other costs, too. The rapid growth of output TP alludes to could only be of the transitory, catch-up sort, such as China has been experiencing since the 1980s. The environmental consequences of that haven't exactly been benign. Nor does the book give any consideration to the environmental consequences of population growth, when the population in question aspires to a wealthy country's per capita environmental footprint. So are countries with declining populations doomed to oligarchy until all the other countries in the world can agree on a global capital tax? Obviously there are better ways to proceed. Such as examining whether growth truly is necessary for further improving health and other material conditions of life, even in an already-wealthy country. And inquiring whether deep and permanent change is a virtue in itself, or whether good sorts of changes can be achieved without following policies obsessed with growth. Exploring such questions thoroughly would certainly have been outside the scope of this book, but failing even to hint at their existence was either a missed opportunity or a lapse of imagination. 9. In addition to the good translation, some other aspects of the book's transition to English succeed. The US hardcover has sewn signatures; my closely-read and much-shlepped French copy, which comes in at nearly 1,000 pages in a perfect binding, is already showing signs of loose leaves. The US edition has a pretty good index, whereas the French lacked one entirely. It's not quite complete, though: e.g., you won't find the above-mentioned references to Mars, "Bones" or The Economist in it, and I noticed a few references to Japan that were missing, too. On the other hand, the notes didn't fare as well. The notes in this book are long, discursive and informative; you really should read them. The French original used footnotes, but Harvard opted for endnotes, which means you'll either be doing a lot of flipping back and forth, or else ignoring a lot of good material. A mixed blessing in both editions is that the technical appendix has been punted online. The package is generous, and includes files for the book's tables and figures in both pdf and Excel formats. The expository appendix (evidently translated by someone other than Dr. Goldhammer) includes hyperlinks to pertinent scholarly articles. Downloading the 2013 paper TP wrote with Gabriel Zucman, "Capital is Back," along with its own humongous technical appendix, might be a good choice: the present book's technical appendix refers to this often. If you want all relevant Excel files (including, e.g., some UN data and TP's comments to the Angus Maddison historical data), be sure to scroll through the pdf of the appendix and click on appropriate links, since several such items are absent from the website's "Piketty 2014 Excel files" folder. Unfortunately, no one can know if this website will be maintained a few decades from now, or how easy it will be to read .pdf and .xls files by then. Just as is the case today with books by leading mid-20th Century economists, this is the sort of book that scholars will still want to read in future, even after it's out of print. They'll be very frustrated by the many cross-references to the technical appendix (at least 100-200 times by my eyeball count) if the information has vanished. I hope that in the not-too-distant future TP will freeze and publish a hard copy of this supplemental material for archival purposes. It's also surprising that not even the website provides a comprehensive bibliography. The technical appendix includes a number of references, but these are spread out over a list at the beginning and more references embedded into a chapter-by-chapter commentary. Even this fragmented resource doesn't pick up many of the books and articles mentioned in the printed book's endnotes/footnotes. Again, I hope TP or the publisher will remedy this soon. === Among its other accomplishments, the book demolishes a couple of abstractions from the 1950s that economists have cherished for decades. One is the "Kuznets curve," according to which income inequality first rises, then peaks and thereafter declines as per capita GDP (or earlier, GNP) continues to rise. Another is the Modigliani "life-cycle" saving theory, which posits that the people save for their retirement and then spend pretty much everything by the time they die. TP's long runs of data show that both of these theories were plausible, if ever, at best only during a brief era around the time they were formulated, when both capital and income were distributed in a more egalitarian way. How will the economists of today react to this book? Paul Krugman didn't provide an encouraging sign in his blog a few days after the US edition appeared. First thing he did was to try to "understand" it by plugging TP's data into another abstract 1950s-era mathematical model. The vast majority of mainstream economists didn't see the 2008 crash coming, but after it happened they insisted that their models weren't defective. If an historical event of that magnitude couldn't make a dent in their worldview, one has to be a great optimist to believe that this book will. More realistic may be to hope that this book's impact can be political. Luckily, that isn't up just to economists, but to readers like us.

Capital in the Twenty-First Century by Piketty is not a revolutionary manifesto, although it provides convincing evidence that one is needed. The book is about system management, crisis management, crisis management of a failing system. It's a bit short on imagination and creativity, no really new ideas are put forward, but it serves a purpose: after reading the book, the reader may conclude that "we the people" need to dust off our creativity and get cracking on the development of an updated economic system suitable for the twenty-first century, perhaps several alternative systems that serve essentially all of the people well and not just a few. Unfortunately, Piketty's book and his solutions may actually serve the wealthy establishment by serving as a decoy or distraction that makes no legislative progress in Washington, or anywhere else, but absorbs and dissipates human energy that might otherwise be directed towards planning and implementing real structural changes in the world economy. The book is at the top of the sales charts, surely because it flies towards the eye of a storm gathering around a growing awareness of the destructive nature of unregulated capitalism and its natural tendency to concentrate wealth in the hands of fewer and fewer people, which is likely to morph society into something resembling a feudal society with wealth and political power concentrated in the hands of the few, and that is a situation only a baby's step away from totalitarianism. In fact, without some brakes on extraction and accumulation being applied by a realistic democratic government, the extreme right or the extreme left could take us around to the same place on the dark side of the moon: totalitarianism, control of practically everything in life by either an overly powerful gang of government bureaucrats or a tiny clan of super-wealthy aristocrats. Do we prefer one form of totalitarianism over the other? Do we prefer to be eaten by the wolf or the fox? There are many other alternatives of course, and we shouldn't let anyone restrict us to an either/or choice between two evils. Piketty follows a narrow, straight, financial path that stays within the sphere of the existing global-capitalistic-system. He focuses on the mechanics of wealth concentration within the existing system, runs some sophisticated diagnostics and then proposes patches that might extend the life of the system, perhaps prevent or delay us from morphing or collapsing into totalitarianism. Piketty's patches would be like adding brakes to the current model of capitalistic machine, the outdated model that's become a runaway machine and is speeding us towards extreme concentration of wealth. The main brakes would be a progressive income tax and a progressive annual wealth tax; an auxiliary brake would be a progressive estate tax; all of which are like trying to get the horses back after they've been stolen. Such taxes would not stop the excessive flow of extracted wealth away from the workers in the first place, but would divert the flow into the hands of the government, where much of it would surely be further diverted and misused, but hopefully most, or at least a big part of it would be used to reduce government debt, fund improved services for the people, pay for infrastructure projects, rebuild economies and such. I suppose one might hope a "voodoo trickle-down" process would eventually drip a few drops back to the workers, where the new wealth originated in the first place. No really new tax ideas are involved, but Piketty's ideas should be pursued, not because they provide a long-term solution but because they would be crisis management action. Of course, many, or most of us may fear the necessary tax laws could never be passed in America because the super-wealthy "lords" and "vassals" already have too much influence and are close to capturing complete control of our governmental institutions, the media and both the Democratic and Republican parties, if they haven't already, and even if the needed tax laws squeaked through all the obstacles to passage, wealthy gamesmen would immediately seek paths around the laws. Actually, the clever accumulators should be expected to make sure that plenty of escape clauses are designed into the laws before they are passed. Piketty sees the risk of that and he reminds us that the super wealthy will surely defend their position and they should be expected to strengthen their control of the political high-ground. Strangely, Piketty does not explore fundamental changes in the system, perhaps changes in basic business ownership structures in order to flow more of the wealth created by workers into distribution to the workers and choke down the excessive extraction and flow of wealth towards the extreme accumulators. The basic piping needs to be changed closer to the point of wealth creation. He does not touch the basic master-slave relationship built into most giant investor-owned corporations that form the main structure of the existing system dominated by extreme accumulators. There is an alternative form of organization for private business enterprise: it's called the cooperative, where the workers, customers, suppliers, community or a hybrid of those people, all living in a community, are the controlling owners of the corporation. The workers and other people in a community who create the new wealth decide what to do with the enterprise and the wealth created, not a small group of outside shareholders who are extreme accumulators only interested in stuffing their individual pockets by maximizing and siphoning off the profit (surplus value created by workers). The cooperative form of business organization needs development and adoption until it becomes the main structural material of a new American economy and a high grade of civilization. One might wish Piketty had addressed other major problems in the existing problem-riddled capitalist system: perhaps explored antitrust laws and enforcement to control monopolies, oligopolies, predatory competition, market dominance and such, and perhaps a couple of problems dealing with job losses and the weakening demand side of an unbalanced American economy that is near the capsize point due to excessive extraction and accumulation of wealth. Problems like: (1) the growing power of financial capitalists (especially the Wall Street mob) that manage accumulated wealth, use their wealth power to extract additional excessive amounts of the wealth produced by workers and, on top of that, manage and use the workers' personal savings in investments that eliminate the worker's jobs, often through investments that move the work to foreign soil, and (2) the heavily propagandized view that corporate profit is the only purpose of a corporation, which reduces the need for management to think, but results in decisions about productivity and efficiency that lead to greater automation of production, elimination of jobs and actual reduction of the worker's range of skills in a dehumanizing process of overspecialization that attempts to convert workers into machines that are part of dead nature as opposed to living nature, immobile machines of very limited use beyond a special place and time. (Prophesy coming true: Adam Smith expressed concern that with specialization, performing a few simple operations of which the effects are always or nearly always the same, with no occasion to exert understanding or exercise invention to remove difficulties which never occur, the worker becomes as stupid and ignorant as it is possible for a human creature to become). But perhaps getting into corporate power abuses and human issues would have been straying away from the narrow financial path of Piketty, and one can only cover so much in 577 pages of text and 77 pages of notes. To his credit, Piketty does point out the need for other social science disciplines to engage in the conversation and problem solving. On the optimistic side, Piketty's solution may be patchwork for an obsolete and failing system (obsolete and failing for a growing majority of the people), but the patches would plug one of the biggest holes in the sinking ship and buy time for younger and future generations to repair the compass, make needed structural changes and set a new course. The older generation doesn't have enough folks that want to change anything, or ability and time remaining in their lives to do so. Most of the middle and upper class folks have assimilated and glommed onto niches in the existing system, lost their imagination if they ever had any, developed immunity to all new ideas, and with failing short-sighted vision they can't see outside their personal spheres. Besides, as a group, they've gotten it all wrong over the past forty years, or perhaps the past four hundred years, so there's little reason to expect very many of them to suddenly change their thinking and strike out in new directions. There are exceptions of course, but change and invention tend to be work best performed by the young.

The author has compiled an edifying description of how the advanced economies of western Europe and North America work, by mining the tax, probate and other financial records of France and England, which are available since the 1700s, and the more recent such records for the other European countries , the USA and Canada. His case is constructed around evaluation of the terms in two standard economics formulas. The first formula beta = s/g has been used since the 1930s to relate the capital-to-income ratio (beta) for a nation to the national savings rate s and the structural growth rate g, which is related to the increases in per capita productivity and in population. The second formula is for the share of the national income that goes to those who provide the capital, alpha = r x beta = r x s/g, where r is the rate of return on capital. The historical data indicate that the capital-to-income ratio beta is about 5-6 (i.e. the value of the national capital, which is overwhelmingly private, is about 5-6 times larger than the annual national income) in Europe today. This value of beta is slightly less than the level in the 18th and 19th centuries and up to the two world wars of the 20th century. The author estimates that the global capital-to-income ratio could obtain a level of beta = 7-8 during the present century, and that the share of the national and global incomes that go to those who provide the capital, alpha = r x beta, could increase to 30-40%. A principal result of this study would seem to be that there is not any purely economic force that will reduce the importance of capital nor redirect the income flowing from production away from the owners of capital to the actual producers or others in the society The author, an authority on wealth and income inequality, provides some stunning figures on this topic. The US national income (from capital investment and wages) in 2010 was distributed 20% to the top 1% of earners, 30% to the next 9% of earners, 30% to the "middle" 40% of earners and 20% to the lowest 50% of earners. By comparison, the French national income in the same year was distributed 10% to the top 1%, 25% to the next 9%, 40% to the middle 40% and 25% to the lower 50%. In the US, the fraction of national income (return on capital plus wages) received by the upper 10% of earners has increased from 30-35% in the 1980s to 45-50% in the 2000s, and 75% of the increase in national income between 1997-2007 went to this upper 10%. Tax records show that much of this increase was due to extraordinary salaries received by top managers in corporate and financial institutions, particular in the US where the share of national income of the top 1% increased from 8% in the 1980s to 20% today; by comparison in France the increase was from 7% in the 1980s to 9% today. For the upper 1/10% of earners in the US, incomes increased from 20 times the national average in the 1980s to 100 times the national average today. Only Colombia and Argentina have such a privileged upper class as the US. In considering the possible reasons for such incredible increases in the salaries paid top managers, the author notes that they are essentially in a position, collectively, to set their own salaries, that the onset of these enormous raises was coincident with the decrease in marginal income tax rates in the English-speaking countries in the 1980s, and that the beneficiaries are able to finance politicians to increase such favorable laws. In all known societies in all times, the top 10% in the wealth hierarchy has owned most of what there was to be owned, 90% of it in Europe and 80% of it in the US at the beginning of the 20th century. This concentration of wealth by those with capital to invest was explained by a low productivity growth rate (g), which was below 1% before the 17th century and peaked at about 4% in the second half of the 20th century and is now down to 1.5% and dropping, in conjunction with a return on capital (r) of 4-5% throughout recorded history. In fact the author concludes that whenever the rate of return on capital is significantly and durably higher than the growth rate of the economy it is inevitable that inherited wealth dominates over earned wealth in the accumulation of more wealth. Because of the introduction of a progressive income tax on capital and its income and the destruction of wealth in 2 world wars, there was a deconcentration of wealth in the 20th century, leaving the top 10% with 60% of the wealth in Europe and 70% in the US at the beginning of the 21st century. Interesting data are presented on the fraction from inheritance of the lifetime resources of all people born in France in a certain period. The inherited fraction of lifetime resources was 25% for those born in the 1790s through the mid-19th centrury, but then declined to about 10% for those born in the 1910s, then began to increase--to 14% for those born in the 1930-50s and to 23% for those born in the 1970-80s. A comparison of the lifetime resources available to two fortunate classes of Frenchmen--those in the top 1% of inheritors and those in the top 1% of wage earners--indicated that the top 1% of inheritors enjoyed resources 25-30 times the average of the lower 50% of French wage earners during the 19th century, while the top 10% of wage earners enjoyed resources 10 times those of the lower 50%. For the generations born in 1910-20, the lifetime resources of the top 1% of inheritors was only 5 times that of the lower 50% of the wage earners, while the top 1% of inheritors still enjoyed 10 times more resources than the lower 50% of wage earners. For the generations born after 1970, both the top 1% of wage earners and top 1% of inheritors can expect to enjoy about 10 times the lifetime resources of the average lower class wage earner. Another way to characterize inheritance is in terms of the percentage of people born in a given year who inherit amounts that are larger than the lower 50% of wage earners born that year will earn in their lifetime--for France this was about 10% for people born in 1790-1830, dropped to about 2% for people born in 1900-1915 and has increase since to 13% in 2010. The author concludes his case against the inegalitarian distribution of wealth and income by noting that those with great wealth at their disposal (the upper 1%, the Harvard Board of Overseers, Sovereign Wealth Funds, etc.) can get higher returns on capital than the average investor because they can afford better financial advice on their investments. He then turns in Part Four to his proposed solution, an improved socialist state for the twenty-first solution in which an increased fraction of the national income goes to the government to be redistributed to "finance public services and replacement incomes that are more or less equal for everyone, especially in the areas of health, education and pensions." He reviews the growth of national income taxes from the < 10% level at the beginning of the 20th century, which was sufficient for a government to perform the "regalian" functions (police, courts, army, foreign affairs, administrations, etc.) to a new equilibrium at the end of the 20th century in which 30-55% of the national income is recovered by the governments for redistribution (Sweden 55%, France 50%, England 40%, US 30%). In the "first-world" countries today, government spending on the basic regalian functions accounts for 10% of tax revenue, 10-15% is spent for health and education (in equal parts), and the remainder is spent for "replacement incomes" (pensions and unemployment compensation) and "transfer payments" (family allowances, guaranteed minimum income, etc.). This breakdown does not separate out major government functions such as scientific/energy/medical R&D, space programs, payment of interest and capital on debt, etc., but nevertheless provides a general idea of where the tax dollars go. There follows an arguement for reforming and extending (through higher tax rates) the socialist aspects of the present western governments, with the education and pension systems identified as issues of particular importance (I think science/ energy/medical research and for the US health care should be included among these issues.). My personal reaction to the author¡¯s recommendation to increase the socialist state is that while some level of socialism may be working in western Europe, large-scale socialism was an unmitigated disaster in the USSR and eastern Europe in the second half of the 20th century, changing the beneficiaries but not reducing the non-egalitarianism of wealth distribution. It was maintained only by guns and barbed wire at the borders, pointed not outwards to repel those clamoring to get in, but inwards to prevent citizens from fleeing. A number of suggested reforms are described, which seem to be good ideas independent of whether the socialistic aspects of the governments are extended. The first is a return to the progressive taxes on large incomes and large inheritances, which were introduced early in the 20th century but drastically reduced after 1980. The top marginal income tax rate in the US increased from less than 10% at the beginning of the century to 90% at mid-century, was reduced to 70% by 1980 and is presently at 28%. In France the top rate increased from 2% in 1914 to 50% in 1920 to 70% in 1925, then dropped to 50% where it remains today. The English top marginal income tax rate paralleled the US rate, even rising to 98% for many years in mid-century, only to drop to 40% by 1990 and 50% at present, and the German top rate closely paralleled the French rate, except for a very high top rate imposed by the occupying victors immediately following WW2. The top marginal inheritance taxes in the US and England also increased from very low levels at the beginning of the century to about 80% by mid-century, dropping after 1980 to 35 and 40%, respectively. In marked contrast, the top marginal inheritance tax rate in France and Germany never exceeded 30-40% except immediately after WW2 in Germany. A correlation is shown between the top marginal income tax rate and the explosion of top executive salaries, the outsized raises needed for which would not have made sense to anyone if they all went for taxes. He theorizes that restoring exorbitant tax rates (>90%) on exorbitant salaries (>$500,000 to $1,000,000) would solve the social unrest problem caused by such people enriching themselves by transferring corporate shareholder wealth to private (their own) wealth in full public view, without any reasonable justification other than that they can get away with it The author calculates that the extra tax revenue would not really enable the increase in socialistic government services that he favors, which would require raising the income tax rate to 50-60% on annual earnings above $200,000, an altogether different matter which would drastically affect the lives of the people involved. The suggestions for a global tax on capital and a redistribution of petroleum revenues would seem to require some form of a global government, which seems unlikely any time soon. On the issue of public debt, the repayment of which he considers a transfer of wealth from those who pay the taxes to those who have the means to lend to the government, the author has several suggestions. Large public debts can be paid off from taxes (he argues for progressive taxes on wealth), or, in effect, by high inflation (which has unpredictable side effects like Hitler coming to power in Germany), or it can just be repudiated,with more predictable negative consequences. In summary, the author argues that the principal destabilizing force in modern democracies is that the rate of return on capital is greater than the growth rate , r > g, for long periods of time, implying that wealth accumulated in the past grows faster than output and wages, leading to extreme concentration of wealth and inequality of circumstances. With the r = 4-5% and g = 1.0-1.5% which he anticipates for the 21st century, this would have disastrous consequences. He argues that the correct solution is a progressive annual tax on capital, but acknowledges that this would require a high degree of international cooperation and regional political integration to accomplish. I strongly recommend this very edifying book to anyone interested in an economics view, supported by extensive historical data, of how the western world works. You must be prepared to work through almost 600 pages filled with economics jargon and numbers, but it is worth the effort.

I bought Thomas Piketty's Capital in the 21st Century when it was first announced, so I was able to spend the weeks necessary to really have read it (the first time through) while others were apparently bemoaning the fact that it was "sold out". Although I plan to go back and review each of the math formulas and try to learn them, I can honestly give this book five stars (and laugh at the New York Times Sunday cartoon about the one-star "reviews"). This review will not be summarizing Piketty's work, but rather help push forward an argument about why we need to resume the study of "political economy" and end the reign of madness and moronity that has characterized the Atlas Shrugged and William Simon generations. Piketty's been summarized very well elsewhere already, but there will be no substitution for serious readers for reading the Capital in the 21st Century. We needed to return to the subject of "political economy," and this book brings us there out of the confusions of the past couple of decades. One of the great puzzles of the last 30 years in the USA (and some other places, but I know what's been going on here at home) is why "economics" -- actually, always "political economy" -- degenerated from the classical economists from Adam Smith, David Ricardo and Karl Marx to John Maynard Keynes and became mired in the mindless simplifications of Ayn Rand. It's as if everyone could get an "A" in the class by having read only a parody and the worst Cliffs Notes. But, as we say in the class struggle, c'est la guerre. What became frightening by the end of the 20th Century was that the triumphalism of the Atlas Shrugged generation in the face of the (predictable) collapse of Soviet-style Communism blinded a generation of otherwise intelligent young people to the growing horrors being created by monopoly capitalism. We were living, basically, in the age of the oligarchs, from Larry Ellison and Bill Gates to those in Eastern Europe and Russia. But that was supposed to be OK because of all that nonsense about "freedom" and "market." The result was that a generation of educated Americans has been crippled both intellectually and emotionally because their version of "history" has been so wrong. Piketty's ruthless use of the "data" of history from those nations where it is available helps overcome this, and it is heartening to see so much interest in Capital in the 21st Century. Ironically, though, what is left out of the book is as important as what's in it. Piketty has revived history that recognizes the existences of economic classes, something that no one would have denied for generations, even at my Alma Mater (the University of Chicago). Those who read the "classics" knew that Adam Smith's world demanded the existence of a morality based government and society -- Scotch Presbyterianism to be precise. The European contribution to the modern theories of "economics" also required something even more ruthless -- Calvin's theocracy in Geneva. Nobody who praised and analyzed capitalism as it was pulling human beings out of the mires of the Catholic theocracies would have posited the mindless materialism of Atlas Shrugged. So... Piketty has brought us back to reality by describing in almost mind-numbing detail the process whereby a ruling class accumulates wealth, and thereby the power that comes with wealth. He is in one way writing a description of the founding and perpetuation of the oligarchies we face across the planet today. And that partly in the tradition of Karl Marx, although Piketty says, and proves, that he is not a "Marxist" -- either in the good or bad sense. Karl Marx and his closest co-workers (but not the disciples he dreaded) wrote eloquently about the creation and development of both the capitalist class -- which he calls the bourgeoisie -- as a class and or the working class -- what he called the proletariat -- as a class. For the most part, Piketty is writing about the creation and prolongation of the current capitalist class. To read and master the description of the capitalist class and its regime in the 21st Century is worth the effort. And given that Piketty makes his dense analysis a bit more accessible by citing some literary works (Jane Austin and Honore de Balzac mostly) that depict the "middle class", it's worth noting that we are now confronted with developing the literature that describes the working class(es) as well as Victor Hugo, Emile Zola, and the early John Steinbeck and Richard Wright and others described the contradictions of the working class. So, our work in the wake of Capitalism in the 21st Century is not only to master the arguments Piketty has brought into the debate, but also to see where to extend beyond them. His integration of literature into political economy certainly helps. But just as the publication of its predecessors (and it has a few, from Wealth of Nations to Kapital) demanded years of study, so this work will and does. I for one can't wait to read the next months of anti-Piketty writings that spew out from now on. To enjoy some of this we might conclude, "A specter is haunting the 'global economy, the specter of rational thinking about wealth, power, and society... Capitalism in the 21st Century is a major contribution to that..." And one last nice touch, for those of us who read Kapital years ago and perhaps re-read parts of it since. I don't think Marx (or Engels) would have objected to having someone suggest that Marx's greatest (certainly not only) work was really "Kapital in the 19th Century." Who knows. Maybe some of the Ayn Rand cultists can conjure up an answer to that, too, since their Where Is John Galt mumbo jumbo has given them so much insight into the ways things were, are, and ought to be...

This is a tremendous book! It is a great start to understanding the current state of our global economy. The central argument being for the global taxation of wealth to restore a world that is becoming less egalitarian by each decade. Piketty uses two equations, known as "The Fundamental Laws of Capitalism," and a girth of historical data to arrive at his point. The equations are: a = r * B where r = rate of return; B = the capital/income ratio; a = the share of income from capital in the economy and B = s/g where B = the capital/income ratio; s = the savings rate; g = growth rate of the economy These two laws are inter-related. Equation 2, states that the lower the growth of the economy, the more power is exerted by inherited capital because via equation 1, it will generate a larger share of income in the economy. Growth in world output up until the 17th century was nonexistent. Therefore, throughout much of human history there were very rigid social class structures that prevented people from accumulating wealth over their life and in due process passing on a better life to their children. Piketty cites Jane Austen novels here as evidence that the central characters of her novel thought it more worthwhile to marry into wealth than to work for it, for no matter how hard one worked or in what sort of profession, it was impossible to generate the type of lifestyle the wealthy enjoyed. The entire dynamic of wealth changed during 19th century at the advent of the industrial revolution. Suddenly, growth in world output went up to 1.5%. Society was more dynamic. Social class was more fluid. However, the structural forces that breed inequality in society did not change, for the nature of capital did not change. According to the author, over the long run, the capital/income ratio will continue to increase because capital can be reinvested and over time will generate a higher return than income. On the eve of WWI, the value of capital/income in Europe and America was a hair under 7. This was the marking of a rare point in history. For the brief 30-year period of war and instability that followed, the value of capital did not increase faster than that of income. On the contrary, it shrank relative to income. It is as if an external shock restored a social equilibrium. The capital/income ratio reached a low point of a hair over 2 in the early 1950s. The baby boomers that followed were born into what might be considered the most equal society in the history of civilization. They were given a rare opportunity to truly live the “American Dream” and (now me talking) believe that they are entitled to everything they earned. Unfortunately, their kids were not born into a similar opportunity. The capital/income ratio has steadily crept up since the 1950s and now stands at around 5.5 in Europe and 4.5 in the U.S. These statistics mask some of the already inegalitarian societies like Italy where the ratio is closer to 7. What is further the problem is that world output, which grew on average of 3% in the 20th century, is falling. The author does not believe that this trend will reverse because historically, about half of growth in world output is generated by the growth in population and the other half through actual progress in technology and productivity. With demographics set to shrink in the coming decades, it seems unlikely that we will be able to sustain the 3% growth in world output in the future. Thomas Piketty’s solution is a global tax on capital. To purge society from systemic convergence toward inequality, you must eliminate the upper hand that capital affords to the beneficiaries of inherited wealth. I completely buy his argument here. The wealthy do have access to better wealth managers and investment vehicles that ordinary people like myself just do not. Ultimately however, what truly matters, and what is truly difficult to analyze, is whether society would be better off with such a tax. As the author states himself, half of the people in our country have zero savings. This relative proportion has been uniform throughout history. However, these same people today can live, materially speaking, much richer lives than the wealthy predecessors discussed in Jane Austen novels. The purchasing power parity has increased like seven-fold over the last few centuries, this all thanks to in great deal to the innovation and efficient allocation of resources over the past few years. Perhaps this picture would have been different with a global tax on capital. It would have been interesting to see what Piketty’s thoughts would be on how this sort of tax would affect entrepreneurship, if the risk taker knew that as soon as they sold their business they would be met with a yearly tax on their wealth. I think the bigger question that is left unanswered in the book is who would ultimately receive the proceeds from such a tax and for what purpose would it be used? Would society be truly better off if the government could tax capital and spend more as opposed to the vast amount of institutional funds and PE shops which for the most part allocate capital on the behalf of the wealthy? Regardless of whether you agree with the politics of the book, you should read it, if not for the data alone. The author poses a serious question in this book and provides a well thought out solutions. I might not be completely convinced of his thesis just yet, but I am much more knowledgeable about the the nature of capital/income split. This was a great and sobering starting point. Cheers!

Piketty's thesis can be summed up in the following: Inequality in wealth is heading towards astronomical heights, this is a natural byproduct of capitalism, but governments can do something about if they want. Piketty's book is remarkable. It has definitely made me reevaluate a few beliefs I held. However, a few things come to mind... First, although Piketty does a remarkable job showing how inequality in wealth has evolved over the past few decades and that this is a natural byproduct of capitalism, Piketty does little to illuminate why this is bad. Piketty attempts to avail to the reader's sense of compassion by stating that wealth inequality is antithetical to our (whoever 'our' is) sense of democratic ideals and of meritocracy. While this appeal to emotion is strong with Piketty often stating how maximizing the welfare of the least well off individual in society is an ideal to be strived for, Piketty never argues why this is the case. Specifically, Piketty never argues why inequality in wealth is bad. Considering there is considerable amount of research about the effects of income inequality and wealth inequality on economic growth, it is surprising that Piketty ignores this evidence and instead appeals to emotion rather than provide readers with evidence. I find this rather odd to say the least. Piketty's book would have been much more salient had it provided evidence why inequality in wealth is bad beyond some vague emotional appeal. Second, Piketty assumes that democratic institutions are the only institutional structures that matter, or at the very least the ones that are the most justified. However, this completely ignores China (the second largest economy in the world). It seems odd that Piketty would focus so much time and attention arguing that inequality in wealth ignores 'our' democratic ideals while not even mentioning China and the Chinese institutional structure. I can understand Piketty ignoring Chinese data since obtaining reliable data from China is nearly impossible. However, what I cannot understand is Piketty's reverence for democratic institutions and how these institutions relate to inequality while ignoring nondemocratic institutions entirely. Third, Piketty often engages in diatribes which add little, in my opinion, to his argument. Pketty's diatribes are often historical or literature in nature. While the diatribes provide some interesting anecdotal evidence to support his argument, they are none the less a bit distracting considering how much emphasis Piketty places on the numerical research he has done. While same may fine these literary or historical diversions interesting, I personally found them boring an dull. However, because these asides do not provide material evidence to his argument, they can often be ignored (there were many pages I skipped which had to do with French history or literature). Fourth, the focus on French data is a little disappointing. While Piketty has done a remarkable job of collecting data for select countries he tends to focus on France and Britain. As an American, I find this data a bit boorish. Although Piketty attributes the lack of U.S Data on grounds that it is too difficult to obtain, it seems that there must be some methodology which can imitate Piketty's methodology. That is, it seems Piketty's book has a lot of research potential for aspiring graduate students. Even Piketty's conclusion focuses solely on the European Union ignoring, for the most part, the United States or other countries. Overall, Piketty's book is remarkable as it shows that inequality in wealth is high and it is a natural byproduct of Capitalism. However, Piketty is single minded in his regard of what constitutes ideal social institutions and what ideal social outcomes should be. Piketty never argues or states explicitly why his idealized institutions are better than others and instead universalizes his claims ignoring any examples (i.e. most notable China) of institutional structures contrary to his idealized and universal forms. I highly recommend this book. But be critical when reading. Unlike what some are saying, it is not a panacea.

Reading the book and seeing Piketty speak at Columbia, I can only agree with the overwhelmingly positive reception - this is a seminal work and I felt enthralled and empowered reading it. It equips a new generation of economists and non-economists alike with a rational and eloquent theory of capitalism. The buzz is certainly earned. In a nutshell, Piketty's book says that historically, the return on capital exceeds economic growth and there is no reason to believe that it won't do so in the 21st century. The period from 1913-1975, the period from which most economists have historically drawn their income data, was a period of decreasing inequality. In much of the world, capital stocks got destroyed in the chaos of two world wars. Postwar reconstruction growth and redistributive policies allowed a veritable middle class to own a decent share of income and wealth. Alas, this "short twentieth century" proved to be no more than an anomaly, or an aberration of sorts, to this long-term trend of high capital-output ratios. Growth slowed, marginal tax rates on income and capital were reduced widely from the 1970s onwards. Income from capital became more important again vis-à-vis labour income. This concentration effect has been made worse by the concurrent rise of the super-manager. Increasingly detached from principles of merit-based pay, they have become a new breed of the super-rich with a disproportionate share of the nations' income and wealth at their disposal. Piketty is no writer of "neo-Marxist agitprop", and neither does he "want to aggrandize the non-real sector with fat taxation". It is somewhat amusing reading these comments in the financial yellow press. None of them take Piketty head-on for the data that he and his colleagues mined over the last couple of years. Perhaps more constructively, Piketty is criticised for being apolitical - Robert Reich has made this point in the Guardian recently. Essentially, the political system currently in operation in the US has become so captured by the super-rich that it will be difficult to put a check on that influence without a radical break. By omitting that narrative, Piketty misses the elephant in the room. On the substantive side, people have tried to take issue with Piketty's assertion that capital returns are likely going to outstrip economic growth, on both counts: James Pethokoukis of the American Enterprise Institute calls Piketty a techno-pessimist for underestimating future GDP growth. Branko Milanovic says that with catch-up continuing in India and China, global growth may remain elevated for longer than Piketty thinks. As far as capital returns are concerned, no one can know for sure if they are to remain structurally higher than economic growth - and history may not be the best guide. However, Piketty's explanation for why it is more likely than not the case seems to me much more convincing than anything I've read out there. Moreover, Suresh Naidu argued convincingly on the panel that capital returns are as much a social as an economic construct. Piketty's policy recommendations, i.e. a wealth tax and very high marginal income tax rates, are "unrealistic" to be sure (or are they? I will look at his fourth and final chapter in a separate post to keep this one here more digestible). Such taxes need to be globally coordinated to make sense, and tax havens need to be a thing of the past once and for all. And we can be sure that a powerful spin will be orchestrated to present such measures as potent growth and job killers. While it is simple for the political "left" to jump at Piketty's prescriptions, it is even easier for people on the right to demonise him. A very important contribution to the debate came from Martin Wolf in the FT. After expressing his pleasure at the book, Wolf proceeds to sum it up in his signature no-nonsense prose. He concludes with his major but constructive criticism of Piketty: why does the author omit any discussion as to why inequality matters and simply assumes that it does? With the benefit possibly age-related wisdom, Wolf offers his opinion. I end this review on that quote: "For me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it. In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice."

I can’t remember the exact number of pages in this book. It is up around 700 pages. Even though it is a large book with a lot of pages, and there are some mathematical formulas, I think that most people are capable of reading this book. I think that this book is worth the time and effort to read. The mathematical formulas are not too complex, and the book isn’t stuffed too full of formulas. There are only a few formulas in the book. If the readers think about the ideas presented in this book then I think that it would be a worthwhile use of their time. I also believe that the politicians and bureaucrats in the government should make the effort to read this book.

Piketty argues three points: 1. Throughout human history income distribution and (even more so) wealth distribution has almost inevitably been skewed very heavily toward the top. This is the result of powerful economic laws that reinforce each other. (i) Over time, total wealth in a society tends to the ratio of the savings rate to the growth rate, which has typically resulted in wealth (=capital) of 4 to 7 times more than total income. In the US today this ratio is at 4, in Italy today it's more like 6, the same as it was in pre-1914 France, for example. The composition of capital has changed (e.g. arable land has gone from very important to totally unimportant) but not its ratio to income (as measured by GDP or GNP or GNI). (ii) World growth has throughout history been abysmally low. It averaged 0.1% per annum between year 0 and 1700, 1.6% per annum between 1700 and today and a mere 3% per annum from 1913 to 2013. Ergo, it's a tiny denominator that's been keeping this ratio up, rather than particularly impressive savings rates. Only a smidge more than half of that growth has been per capita growth, incidentally, with the rest attributable to population growth, which cannot but stop dead in its tracks In the next fifty years due to physical, Malthusian limitations to demographics. (iii) Wealth, once you've got it, can work for you to make you richer. So those at the top of the wealth pyramid get a leg up in staying near the top of the pyramid. (iv) The more wealth you command, the harder it works for you because you can hire experts to manage it, get access to better ways of investing etc. (v) The bottom 50% of society has never saved a penny anywhere, not even in 1970's Sweden, it's always and everywhere lived hand-to-mouth. (vi) Meantime, a large chunk of wealth in history has typically been inherited. (vii) Return on capital is higher than the rate of GDP growth, which is Piketty's famous r>g inequality. An explanation the author offers is that there needs to be some type of compensation for risk. So, for example, from 1800 to 1900 both in the United Kingdom and in France, the top 10% of society owned 90% of the wealth (=capital) and indeed the top 1% owned comfortably more than 50% of wealth. This wealth generated itself a lot of income, a fact that ensured there was very little chance a pauper could ever work his way to the top without marrying into wealth. This top 1% of society enjoyed income equivalent to 30 times the average. This income, was in turn used to employ the staff that would supply its masters with fresh food (no refrigerators back then, remember), clothing (a very labor-intensive set of goods up until the industrial revolution), transport (somebody needed to take care of the horses!) etc. etc. 2. We are now living in the tail end of a brief interlude in history when it appeared that we had been moving away from this status quo. The first and second world war decimated the built-up capital (=wealth) of the western world if four different ways: (i) The loss of European (mainly British and French) colonies eliminated in one fell swoop somewhere between a quarter and a third of all accumulated wealth in the west. (ii) The taxation that became necessary to wage WWI and WWII was obviously borne by those who could pay, i.e. the rich, and it remained truly confiscatory for years after the end of conflict, with marginal rates on passive income hitting 98% in the UK, for example. (iii) The wars themselves brought destruction of property and capital on a massive scale. (iv) Inflation on an equally massive scale followed, which wiped out the purchasing power of nominal savings (e.g. bonds and bank deposits) of many a saver, much as the flip side of this silent confiscation was a de facto forgiveness of public debts. So for the first time in a couple thousand years, the top 10% of the population only controls 40% to 60% of the wealth (depending on the country). The bottom 50% controls zero, as always, but there is a 40% of the population that controls some 60% to 40% of wealth (depending on the country). A middle class! Our parents' generation inherited very little, was born into as equal a society as there has been in at least two thousand years and made something of it. Not only does it feel fully entitled to its wealth, it also believes very strongly (and justifiably) that this status was acquired in an environment of fairness and meritocracy. Moreover, these events took place against the background of an equally generation-defining struggle between the free market and communism. At the apogee of its success, our parents' generation voted in people like Ronald Reagan, Margaret Thatcher and more recently George W Bush that enshrined this right to succeed and enjoy the fruits of one's success in low taxation rates on both income and capital. 3. Piketty argues that our parents are confused. It was not only the free market that contributed to the creation of a middle class. The free market has always been there. The other ingredient was the "thirty year war" that started in 1914 and ended in 1945. Now we've had peace for a good seventy years, and especially now that we have (among other things) (i) States competing with one another to provide low taxation for corporates (ii) Tax havens for the rich to hide their savings (iii) Supermanagers earning 500 times what the shop-floor workers earn (as a result of the incentives offered by lower taxation rates) ...we are moving full-speed-ahead toward re-establishing the status quo of 1800-1913 and eliminating the middle class. As proof, he shows what has happened to the ratios of wealth to GDP that are approaching the Ancien Regime and Belle Epoque levels (though he does not provide any corroborating evidence from wealth distribution tables) Having made these arguments, Piketty goes on to propose a global tax on capital, which he hopes can be one measure that will ensure we do not see the types of wealth concentration that pre-dated WWI. I must confess that I find myself nodding in agreement with every single word of the book and then disagreeing with the conclusion. Perhaps because I don't understand why r>g. Fine, it's true for the past, but where is it written that capital can grow faster than GDP forever? Last I checked, Elon Musk's crowd were looking to mine asteroids for minerals, for which endeavor I'm very happy to warrant that E(r) = 0 Similarly, and pardon me for going technical, I really don't think that Wealth / GDP necessarily equals s / g (the saving rate divided by the growth rate) because savings can disappear if they are misinvested. What's China going to have to show for all the misinvestment going over there at the moment in ghost cities, for example? Sure, we can mark our wealth to market, but ultimately we need to be able to convert it to spending. The value of Klimts and Basquiats and Ferrari 250s is proof, if any was needed, that the super-wealthy are struggling to find something to do with their superwealth that you and I would truly covet. Just because investment is not worthwhile if r is not much higher than g it does not mean that r must be higher than g, is my point. More fundamentally, and Piketty himself makes this point very eloquently, some 200 years ago you needed the income to pay for the 30 servants who'd get you the fresh fruit and freshly hunted meat and fresh clothes and groomed horses if you wanted to live long, have the spare time to read and write books etc. These days, you can be in the bottom 50% of the population and enjoy all of the above (assuming a Ford Focus will do in lieu of a stable of horses), as well as decent free healthcare and education in this very bastion of inequality (according to Piketty) that is the United Kingdom. In Piketty's words, we've gone through a "tenfold increase in purchasing power." Of course there's room for improvement, but we're doing Rawls proud here. So I remain to be convinced we need to tax capital. By all means, tax income that comes from capital, and a nice first step would be to tax it at the same marginal rate as income from labor. But to tax capital in a world that is already rather reluctant to deploy capital does not sound to me like an automatic choice. And Piketty does not offer a single word to explain what the non-bureaucratic benefits would be, beyond the re-distribution of wealth, which to me cannot be an end in itself. Regardless, this is an UNBELIEVABLY important book. If I had not read it I would not know where to start in terms of disagreeing with its author, let's put it that way. What we have here is as impressive a compendium of research as has ever been published by an economist. Call it Friedman and Schwartz for wealth / capital, except much better researched. The value is not in the narrative, but more than anything else in the years and years of research that went into collecting, comparing, cleaning, tabulating and interpreting data. This book is now the inevitable starting point for any discussion on the topic of wealth / capital. It is, pardon my French, a tour de force. Finally, I thought the style of the book was totally disarming. Piketty has his views, for sure, but he never dares comingle fact and opinion, not once in 577 pages. Oh, and he sounds like a bit of a player. Never seen so many women in the acknowledgments of an Economics book. Six stars are not enough for this book, five are downright miserly, but that's all I'm allowed to give!

This book extensively provides data-support for a thesis describing cause of asymmetry of wealth in economy. Particularly, it introduces two simple laws that shows how, independently from political decision-making and when observed to a proper time-scale of decades (not years), countries undergoes same centralisation of wealth pattern. It is interesting because also it does not inquire on centralisation of wealth respect to salaries, but to centralisation of wealth respect to return of capital invested, that explains, simply spoken, the asymmetries of "relative poverty" respect to entrepreneurial landscape, not only "labour" landscape. What I like is that the book pose a legit question, on accessing effect of current capitalism, without assuming ethical or unethical values afore - a book that transparently shows the fingerprint of global economy and yields material for then addressing a governance of economy and seriously reflecting over risks of too much asymmetric societies, with historical examples. A negative aspect I found it is the way it is written - it is not an easy reading book, sometimes a bit "boring" in explanations not because of the examples, but for the way the description is arranged. Maybe because the writer is not English native, nor me, and the English type is academic but hinder a fluent narrative. However, because the topic is so amazing and the thesis so straightforward and powerful, I condone the linguistic challenge and give the information carried in this book a 5 stars!

A very good and educational book.

多くの評者が取り上げており、一般的にも言及される事が多い著作なので、内容については言及するまでもない。 近現代史についての詳細な調査・研究を踏まえた記述については、今の時代を考える上でも得る所が多かった。英訳は読みやすく、疲れた時でもスッキリと頭に入る。とは言え本文753頁の大著。こればかり読んでいる訳にもいかず、手空きの時と言うことにしていたら8年もかかってしまった。 読み初めた頃と比べて、世界の政治や経済は更に、混迷をきわめているようだ。本書の価値を改めて認識した次第である。