Review: Capital in the Twenty-First Century

Capital in the Twenty-First Century
Capital in the Twenty-First Century by Thomas Piketty
My rating: 4 of 5 stars

I wonder how many people purchased this “bestseller” and laid it down after 50 or 100 pages. It is a daunting but doable challenge to work through the 577 pages of text as Thomas Piketty gives us a carefully crafted exposition of the nature of capital and why the growth of capital in relation to income is something that deserves the careful attention of our citizens as well as policy makers on a national and international level.

I actually found that Piketty took the arcane and often statistically laden subject of economics and has given us a tour de force explanation based on the compilation of two centuries of data from the major western countries, including data from 20 or more countries overall.

The major result of his study is to show that capital (which consists of most non-labor income sources of wealth such as real estate, stocks, bonds, bank deposits and the physical plant and machinery of companies, is growing at a far faster rate that income from labor, and that there is a concentration of capital wealth among the top ten percent (even more among the top one percent or .1 percent) of the population and that because of the disproportionate growth of capital over income from labor, this inequality of capital wealth will become even more concentrated in the twenty-first century.

Part One of the book explores the nature of income and capital growth, and how these are measured. Part Two draws on the massive data set Piketty and his associates have developed to trace the ratios of capital to income from the late eighteenth century (in the case of France) to the present. In general, with variations from country to country, he notes extremely high concentrations of wealth and a high capital to income ratio up to the first world war, a collapse of this wealth between the two wars (1915-1945), a golden era of greater equality from 1950 to 1980 (coinciding in the US with high progressive income taxes), and increasing capital to income ratios from 1980 to the present as well as growing disparities of wealth during this period.

Part Three explores the structures of inequality, looking at exorbitant growth in compensation of top executives in relation to other wage earners for no other apparent reason that the cutting of income taxes in the top brackets (no evidence being found for increased productivity of these executives) and the dynamics of capital accumulation and inheritance. All this is a complex argument that can be summed up with the idea of the rich getting richer, the middle class stagnating and the poor getting increasingly small pieces of the pie. What I wish were clearer is whether Piketty sees living standards for the poor and middle class declining as well as growing disparities, which does create a potentially volatile social situation. If everyone is doing better, by contrast, it would seem that they may not resent, or even be that conscious of increasing disparities in the wealth of the super-rich. In other words, do growing wealth disparities necessarily imply declining standards of living for the poor and middle class or simply less of a share of a growing wealth pot?

Piketty argues in Part Four that the needed remedy for the growth of capital is progressive taxes on incomes that allow the rich to acquire capital, and globally enforced taxes on capital to check the growth of capital. As I read this section, I thought it made mathematical sense and perhaps even sense as a social policy, but surveying the political realities of the current scene, particularly in the U.S. I thought, “ain’t gonna happen”. My hunch is that the only ways we might see these inequities decrease would be through cataclysmic events like the two world wars with an economic collapse in between. One could also hope for an “enlightened capitalism” where the richest people voluntarily deploy capital for the wider good, perhaps as the Gates Foundation and Warren Buffett have done.

I’m not convinced that the rich will accept either greater taxation or voluntary de-accumulation of capital, which then sets us on the course of some form of social cataclysm. It is the unspoken possibility of such occurrence that I think Piketty glimpses and seeks to avoid. But I think he assumes an enlightenment of the human heart that I find more dubious. Nevertheless, this is an important work for understanding the dynamics of capital accumulation and how it leads to inequalities that belie our democratic values. It raises the question of what kind of nation and world do we really want?

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5 thoughts on “Review: Capital in the Twenty-First Century

  1. Thanks so much for taking the time to review Piketty’s tome. I will probably never read the work. I think most people experience that the middle and working classes are having a very hard time. As a former Youngstowner who grew up a period l(1950s) of high employment, good union wages, and historic high taxes on the wealthy, I appreciate Piketty’s concern that capital is fostering a new era of inequality. I do take heart when I see social media successes in isolating Rush Limbaugh and in pressuring Walgreens to back away from its Swiss inversion scheme to escape US taxes. Then there’s Pope Francis, another beacon of light.

    Liked by 1 person

    • Thanks, Ben. I think you are right about middle and working classes having a tough time. I don’t have good data or a point of comparison, but it does seem harder. There was a period in the 50s and 60s where people felt they were gaining, making progress. Doesn’t seem that way for many who aren’t at the top of the professional class.

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