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Review: 'Capital in the twenty-first century' by Thomas Piketty

“Capital in the twenty-first century” by Thomas Piketty

“Capital in the Twenty-First Century” by French economist Professor Thomas Piketty (Paris School of Economics, France) is a very readable, information-rich, must-read book about the basis of capital accumulation inequality past, present and future. In short, notwithstanding the expansion of democracy and social welfare in the 20th century, the world’s wealth is overwhelmingly concentrated the hands of the rich. Thus, according to Oxfam “[Its] report, Working for the Few, shows that the wealth of the world is divided in two: almost half going to the richest one per cent; the other half to the remaining 99 per cent”. Professor Piketty argues in this important book that current wealth inequality endangers democracy and economic sustainability and proposes a progressive annual wealth tax to address the danger.

Reading “Capital in the Twenty-First Century” was a pleasure for me as a scientist because it generally follows the style of the scientific literature of, successively, an Introduction (setting out the problem to be investigated, namely the historical and present basis of wealth immense inequality), Methods (interspersed throughout the book and outlining the approaches and sources used in acquiring the data and their limitations), Results and Discussion (setting out the data in Figures and Tables, and describing and discussing the data, this constituting the bulk of this 685-page book), Conclusions (where are we heading, and what can be done about wealth inequality?) and References (there is a huge section of Notes and documentation). There is an extensive Index.

In summarizing and reviewing “Capital in the Twenty-First Century” I have followed the order used by Professor Piketty in this important book.


Piketty’s Introduction commences with a key quotation of Article 1 of the 1789 Declaration of the Rights of Man and the Citizen, specifically “Social distinction can be based only on common utility”. This sets the tone of the underlying social humanism of the book. Wealth disparity is inevitable given human nature but when does inequality violate common utility and require correction in the interests of humanity?

In his first sentences Piketty immediately sets out the questions he is addressing in his research: “The distribution of wealth is one of today’s most widely discussed and controversial issues. But what do we really know about its evolution over the long term? Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in a few hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century? What do we really know about how wealth and income have evolved since the eighteenth century, and what lessons can we derive from that knowledge for the century under way? These are the questions I attempt to answer in this book.” (p1).

Piketty reviews the work of his predecessors on inequality, stresses the importance of “putting the distributional question back in the heart of economics”, and to this end getting reliable historical data on movements towards more inequality (divergence) or less equality (convergence). Thus, for example, the top decile (top 10%) share of US income was 40- 45% (1920-1940), fell sharply to 35% (1945- 1980) and then climbed steadily to 40-50% (2000-2010) (Figure 1.1, p24).

He defines a key inequality r > g where r is the average annual return on capital (profits, dividends, rents, interest, and other income and expressed as a percentage of the total value of capital) and g is the rate of growth of the economy (the annual increase in income or output).

Piketty’s First Law of Capitalism is α = r x β where α is the share in national income from capital, r is the average annual return on capital and β is the capital to income ratio. Piketty’s Second Law of Capitalism is β = s/g (or rather β asymptotes to s/g in the long-term) where β is the capital to income ratio, s is the savings rate and g is the rate of growth of the economy (p33)...

Thus the capital/income ratio for Germany, France and Britain ranged from 600-700% (1870-1910), thence dipping due to war, depression and social change impacts to 200-300% (in 1950) and climbing steadily back to 400-570% by 2010 (Figure 1.2, p26).

Part 1. Income and Capital

In this section Pickety considers the historical changes in the Capital and Labor split in income that with savings (overwhelmingly by the surplus-blessed rich) lead to divergence of the capital/income ratio. Per capita GDP as a % of world average rose from 140% (1700) to 240% (1990-2012) for Europe –America as compared to 90% (1700) to 40% (1950) and thence 80% (2012) for the non-European world (notably India and China) successively bondage and thence rebounding from colonialism (Figure 1.3, p61).

The world population growth rate rose steadily from 0.2% (0-1000AD) to a peak of 1.8%-1.9% (1950-1990) followed by an observed/predicted decline to 1.4% over the period 2090-2100) (Figure 2.2, p80). Thanks to technology this growth has been associated with a 16-fold increase in per capita output since 1700 (Table 2.1, p73). This has been associated with a huge (about 10-fold) increase in purchasing power. Piketty records that the inflation rates for France, Germany, the US and UK were roughly 0% (1700-1913), variously rose to 3-16% (1913-1950), wavered about 2-10% ( 1950-1990) before stabilizing at 2% (1990-2012)(Figure 2.6, p108).

Part 2. The dynamics of the capital/income ratio

This section, in addition to adducing economic data from various sources, makes interesting references to the novels of Honoré de Balzac (France) and Jane Austen (Britain) in assessing grossly unequal wealth distribution in Western Europe in the 18th and 19th centuries (for discussion of these extreme, One Percenter-dominated economic realities in England see my book “Jane Austen and the Black Hole of British History”).

The value of national capital as a % of national income shows a similar pattern in Britain and France over the period 1770-2020 – agricultural land declined from about 400-500% (1770) to 50% (by 1920) and thence declined further; housing dipped from 100-150% (1770) to a minimum of 50% (1920) and then rebounded to 300-400% in 2010; other domestic capital dropped from 100-150% (1770) to a minimum of about 100% (1920) and rebounded to about 200% (2010); and net foreign capital increased in the 18th - 20th centuries with colonialism to a maximum of 100-150% (1920) and thence largely disappeared due to war impacts and post-1950 decolonization in particular (Figure 3.1, p116 and Figure 3.2, p117).

Analysis of private capital as a % of national income in Britain and France in the period 1770-2010 shows similar patterns of about 700% (One Percenter-dominated 1700-1910), a sharp decline to maintain 300% (1920-1950), followed by an increase to 500-600% (One Percenter-dominated 2010). Over the same period debt-impacted public capital remained at about 0% of national income (Figures 3.5 and 3.6, p128). Similar patterns were revealed from analysis of data for Germany (Figures 4.1-4.4, pp141-145).

However a distinctly different pattern obtained with the US due to the abundance of ethnically-cleansed land and freedom of the colonizers from domestic asset destruction through war. Thus, as a % of national income, there was little net foreign capital; agricultural land declined from 160% (1770) to 50% (1930) and thence declined further; housing rose from 100% (1770) to 200% (2010); other domestic capital rose from 150% (1770) to 250% (2010); and heavily debt-impacted net public assets grew to 50% by 1770 and have subsequently declined (Figures 4.6-4.8, pp151-154). For similar reasons Canada shows a similar pattern to that of the US (Figure 4.9, p157). However Piketty also records the importance of slavery as private capital in the US, the value of US slaves declining from 250% of national income in 1770 to 0% in 1880 (Figures 4.10 and 4.11, pp160-161).

Of key global importance is the world capital/income ratio that was about 450-500% (1870-1910), declined to 260% (1950) and is observed/projected to steadily increase to 660% (2090) (Figure 5.8, p196). This assumes greater significance when we consider that the top centile (top 1%) currently has ownership of about 50% of this wealth and, as discussed by Piketty, this divergence is likely to increase.

In a key section entitled “The Capital-Labor split in the twenty-first century”, Piketty analyses the division of national income between labor and capital. Piketty concludes: “To sum up, modern growth, which is based on the growth of productivity and the diffusion of knowledge, has made it possible to avoid the apocalypse predicted by Marx and to balance the process of capital accumulation. But it has not altered the deep structures of capital – or at any rate has not truly reduced the macroeconomic importance of capital relative to labor” (p234).

Part 3. The structure of inequality

In this section of the book Piketty examines inequality and distribution at the individual level; the marked reduction in inequality in the 20th century; the sharp rise in inequality in the 1970s and 1980s; the relative importance of inherited wealth versus labor; and how the current extraordinarily unequal global distribution of wealth might evolve.

Piketty applies a useful device of considering wealth accumulation by different centiles and deciles of the population, specifically the top 10% (“upper class”), top 1% (“dominant class”), next 9% (“well-to-do”class”), middle 40% (“middle class”) and bottom 50% (“lower class”). Piketty then analyses inequality of labor income, capital ownership and total income (labor and capital) of various situations in time and space. Thus in relation to capital ownership Piketty categorizes “low inequality” (a never observed ideal), “medium inequality” (Scandinavia, 1970s, 1980s), “medium-high inequality” (Europe 2010), “high inequality” (US 2010) and “very high inequality” (Europe 1910) (Tables 7.1-7.3, pp247-249).

Thus, to pull out just one example, democracy in the 20th century has seen a big shift in % capital ownership from 5% each in the “middle 40%” and “bottom 50%” in “very high inequality” Europe (1910) to 40% and 10%, respectively, in these classes in Scandinavia in the 1970s and 1980s., with this occurring at the expense of the “top 10%” (Table 7.2, p248).

However the world is heading inexorably back to greater inequality. Thus Piketty predicts that the share of total income in the US in 2030 will be 60% (top 10%), 25% (top 1%), 35% (next 9%), 25% (middle 40%) and 15% (bottom 50%) (Table 7.3, p249).

This decrease in inequality in the 20th century has come at the expense of top capital incomes. Thus in France, while the share of the top decile (top 10%) and top percentile (top 1%) in wages has remained constant between 1910 and 2010 at about 25% and 6%, respectively, their share of the total income that was 45% and 25%, respectively, in 1910, plummeted to a stable 30-35% and 8%, respectively, in 1910-2010 (Figures 8.1 and 8.2, pp272-273). By way of comparison, in the domestically peaceful US the top 10% had 40-45% of total income (1910-1940) with this plunging to a steady 33% (1942-1980) but this took off after 1980, reaching 50% by 2007 in what Piketty describes as an “explosion of US inequality after 1980” (Figure 8.5, p291). Interestingly, the share of wages of the US top 10% rose from 25% in 1945 to 35% in 2010 (Figure 8.7, p299), this reflecting the importance of a rising “meritocracy” of top doctors, “supermanagers” and entrepreneurs in the US top 10%.

The share in total income of the top 1% in France, Germany, Sweden and Japan declined from about 20% in 1910 to about 8% in 1950 and thence remained low (Figure 9.3, p317). In contrast, in the US, Canada, the UK, Canada and Australia a similar decline occurred from about 20% in 1910 to 6-9% in 1970 but after 1980 the One Percenter share of total income variously increased to 10-18%. A similar pattern obtains with the top 10% in these countries, a phenomenon that Piketty describes as “the rise of the supermanager: an Anglo-Saxon phenomenon” (Figures 9.2-9.8, pp315-324). A similar post-1980 rising income share by the One Percenters is apparent in the emerging economies of India, China, South Africa, Argentina and Colombia (Figure 9.9, p327).

Piketty is highly critical of the One Percenter supermanagers awarding themselves $10 million annual salaries and having a disproportionate political influence (“The takeoff of the supermangers: a powerful force for divergence”, pp333-335).

Another difference between Europe and the US is in wealth inequality. Thus, between 1910 and 1950 there was a big drop in the share of total wealth by the top 1% and top 10% in Europe whereas in the US the share of these groups in total wealth slowly increased over the period 1810-2010 with a much smaller downward “blip” between 1910 and 1950 (Figures 10.1-10.6, pp340-349).

Piketty reveals an interesting constancy of the rate of return of capita (r) and growth rate of national income (g) of about 5% and 1%, respectively, for France (1820-1910). For France there is a similar approximate constancy of capital share of income (α) and the savings rate (s) of about 35% and 10%, respectively, from 1810-1910 (Figures 10.7 and 10.8, p352). A remarkable Figure 10.9 (p354) shows that the pre-tax rate of return on capital (r ) has been constant at about 5% from about 0-1000AD to the present, whereas the growth rate of world output has steadily increased from 0.1% to a 3.8% maximum (2010) with a predicted substantial decline this century (however there is a downward blip of pre-tax r in the 20th century associated with the world wars and the Depression (Figures 10.10-10.11, pp356-357).

Piketty considers the impact of inheritance (a major preoccupation alike of circa 1800 Jane Austen novels and circa 2010 British BBC TV Midsummer Murders crime dramas). Piketty finds that for France the annual value of inheritance as a % of income was 20% (1820-1905), falling precipitately to a steady circa about 8% (1920-1980), but is now increasing with an expected to return to 20% by 2060 (Figure 11.6, p399). A similar global “rebound” pattern is observed from France, Britain and Germany. (Figure 11.12, p425).

Piketty presents powerful data on the much higher rates of return on greater capital asset sets. Thus for US universities the rate of return on endowments greater than $1 billion (60) is 10.2% as compared to 6.2% for endowments of less than $100 million (498). The bigger the capital asset the more can be paid for better investment advice and investment access. (This is otherwise known as the Matthew Effect: “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath”; The Holy Bible, New Testament, Matthew 25:29, King James Version).

Finally in this meaty section, Piketty asks “Will sovereign wealth funds own the world?” and “Will China own the world?” The observed/projected data for 1870-2090 indicate the world private capital/income ratio of 450-500% (1870-1910) falling to a minimum of 260% (1950) and thence rising relentlessly to 430% (2010) and thence (projected) to 670% by 2100 (Figure 12.4, p461). Figure 12.5 (p462) shows private capital as a % of world income rising from 150% each for the US and Europe, 200% for Asia and 10% for Africa in 2010 to 80% for Europe, 150% for the US, 350% for Asia and 80% for Africa by 2100. Piketty states: “To sum up, petroleum rents might well enable oil states to buy the rest of the planet (or much if it) and to live on the rents of their accumulated capital” (p462).

Different tax regimes arising from the differential lobbying of One Percenters and Ten Percenters in different countries impact this data. Indeed Piketty cautions that unregistered financial assets held in tax havens may be a whopping 8% of annual world output (Figure 12.6, p466).

Part 4. Regulating capital in the twenty-first century

Piketty argues that a major lesson from this study is that the wars of 21st century transformed the nature of inequality, enhancing democracy and shifting more wealth into the middle class. However a key finding is that inequality is rebounding and threatens both democracy and a sustainable economy. Piketty argues that a major way to address this mounting inequality would be a progressive annual global wealth tax that would have the benefit of enhancing transparency of national and international wealth flows as well as stopping an unsustainable “in egalitarian spiral”. Indeed he describes the ever-increasing wealth inequality reinforced by inheritance as “the past devours the future”.

Piketty quantitates the growth of the social state in the 20th century in terms of tax revenues in rich countries (Figure 13.1, p475) – annual tax revenues as a % of annual national income of Sweden, France, Britain and the US have risen to a post-1980 plateau of 55%, 50%, 40% and 30%, respectively, from about 8% in 1870 (Figure 13.1, p475). However for rich countries the capital is about 500% of the annual income and an annual wealth tax of 10% would yield the equivalent of the annual tax take with the additional benefit of slowing the trends to further inequality and perversion of democracy.

Piketty states (p517) “One might imagine a rate of 0 percent for net assets below 1 million euros [US$1.36 million], 1 percent between 1 and 5 million, and 2 percent above 5 million. Or one might prefer a much more steeply progressive tax on the largest fortunes (for example, a rate of 5 or 10 percent on assets above 1 billion euros)” (p517).

Piketty concludes: “The overall conclusion of this study is that a market economy based on private property, if left to itself, contains powerful forces of convergence, associated in particular with the diffusion of knowledge and skills; but it also contains powerful forces of divergence, which are potentially threatening to democratic societies and to the values of social justice on which they are based. The principal destabilizing force has to do with the fact that the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g. The inequality r > g implies that the wealth accumulated in the past grows more rapidly that output and wages. This inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. The past devours the future” (p571). 

Piketty considers wealth inequality in relation to various matters, notably the Eurozone crisis and climate change but makes a fundamental point in conclusion that is pleasing to science-informed readers: “Yet it seems to me that all social scientists, all journalists, and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens, should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off” (p577).

What Professor Piketty didn’t say

It is somewhat unfair to criticize the brilliant economist author of such a large, important, detailed and well-documented treatise for omissions perceived by people in other disciplines. However there are a number of total or substantive omissions relating to consequences of power and wealth inequality e.g. (1) international Apartheid linked to wealth inequality, (2)the human preventable mortality consequences of international wealth inequality, (3) the human avoidable mortality consequences of international wealth inequality, (4) carbon debt and the seriousness of the climate crisis, and (5) perpetuation of wealth inequality through One Percenter and Ten Percenter political domination (money buys power).

1. Apartheid or a culture- or race-based exclusion and oppression is familiar to us through the now defunct in South Africa and in Apartheid Israel today which excludes all but 14% of Indigenous Palestinians and all but 28% of Indigenous Palestinians living in Palestine from voting for the government ruling all of the former Mandated Palestine (thus other human rights abuses aside, the annual per capita income is $31,537 for Israelis and $2,431 for Occupied Palestinians ) . Yet in “free” post-Apartheid democratic South Africa there remains massive wealth inequality that has huge lifestyle, health, education and avoidable mortality consequences (thus other differentials aside, the annual per capita income is $52,200 for White South Africans and $8,700 for Black South Africans [8]). Even within prosperous Western countries there is massive wealth-inequity-based educational inequity that is indeed referred to as Educational Apartheid.

2. Even in prosperous countries like the US, UK and Australia there is huge human preventable mortality that can be linked to deprivation and hence to international wealth inequality. Thus it is estimated that the number of Americans , English/Welsh and Australians who die preventably each year total 1.3 million [10, 11], 112,000 [12] and 66,000, respectively. These avoidable deaths carry an economic cost measured in terms of the risk management-based Value of a Statistical Life (VOSL) which is estimated at about $9 million per person in the US.

3. 17 million people die avoidably each year in the Developing World (minus China) from deprivation and deprivation-exacerbated disease. Indeed it is estimated that 1.3 billion people have died thus in the period 1950-2000, with 1.2 billion dying avoidably in the Third World, mostly in countries formerly ruled by European colonial masters. Yet the example of Cuba shows that with an annual per capita income of about $6,000 and peace, high female literacy, good primary health care and good governance it is possible to achieve zero avoidable mortality and very low infant mortality similar to the best in the world. The notional cost of bringing impoverished Developing countries (excluding China) up to a Cuban level of annual per capita income is estimated to be $16 trillion annually and this can be achieved through a circa 4% annual wealth tax of the kind proposed by Professor Piketty for reasons of democracy and economic sustainability.

4. While debt and inheritance of wealth were significant issues in Professor Piketty’s book and the cost of climate change action was discussed (pp567-569), the issues of carbon debt and intergenerational justice were not explored. It is possible to determine the historical carbon debt for all countries in terms of tonnes CO2 pollution. This can be converted to a carbon debt in US dollars simply by multiplying by the cost of converting this CO2 to biochar (carbon) of about $100 per ton CO2. The World’s carbon debt is thus estimated to be about $127 trillion. An upwardly revised estimate of world annual greenhouse gas (GHG) pollution that takes the impact of methanogenic livestock production into account is of 63.8 billion tonnes CO2 –equivalent (CO2-e) pollution annually. It has been estimated by leading climate change economist Dr. Chris Hope from 90-Nobel-Laureate Cambridge University that a Carbon Price of $150 per ton CO2-e is required for effective action on climate change. Continued climate change inaction means that the effective Carbon Price is about $0 per ton CO2-e and hence that the World's carbon-based economy is running up an annual Carbon Debt of $150 per ton CO2-e x 63.8 billion tonnes CO2-e = $9.6 trillion per year. This carbon debt that is increasing at $10 trillion per year will have to be met by future generations – an egregious example of “negative inheritance” and intergenerational injustice.

5. Professor Piketty made mention of how economists can present “soft” representations of wealth and income inequity through what he called “the chaste veil of official publications” (p269) . He also pointed out the political power of the One Percenters and Ten Percenters: “After 1980… the decrease in the top marginal income tax rate led to an explosion of very high incomes, which then increased the political influence of the beneficiaries of the change in the tax laws, who had an interest in keeping top tax rates low or even decreasing them further and who could use their windfall to finance political parties, pressure groups, and think tanks” (p335). The harsh reality is that “one man one vote” has become “one dollar one vote” and the Western democracies have become Murdochracies, Lobbyocracies and Corporatocracies in which Big Money purchases people, politicians, parties, policies, public perception of reality and political power, with the Murdoch Media Empire representing a powerful example [18]. Indeed the king-making Murdoch media have strongly rounded on Professor Piketty over his “annual global wealth tax” proposal. Melbourne philosopher Professor Brian Ellis refers to a neoliberal “Corporatocracy” effectively preventing the urgently needed advent of social humanism as an alternative to destructive neoliberalism based on wealth inequality.


 “Capital in the Twenty-First Century” by French economist Professor Thomas Piketty is a very important book about the historical and structural basis of capital accumulation and wealth inequality. This must-read book makes a strong case that expanding wealth inequity must be controlled for economic sustainability and democracy reasons and proposes an annual global wealth tax to oppose anti-democracy, anti-social and anti-Humanity domination of the world economy by One Percenter wealth, including inherited wealth. Decent folk who want a just, humane and sustainable world will reject Corporatocracy and support an effective annual wealth tax for democracy and economic justice. The world is badly running out of time to act.

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