In lieu of an abstract, here is a brief excerpt of the content:

Reviewed by:
  • Capital in the Twenty-First Century by Thomas Piketty
  • Hamish Stewart
thomas piketty Capital in the Twenty-First Century arthur goldhammer, trans Cambridge, MA: Harvard University Press, 2014*

Thomas Piketty’s Capital in the Twenty-First Century is an unlikely bestseller. Weighing in at nearly 700 pages, dense with charts and graphs, and supplemented with a substantial online appendix,1 it is a summary of more than fifteen years of research by Piketty and his collaborators (notably Emmanuel Saez and Anthony Atkinson) into the distribution of wealth and income over time and across jurisdictions. Its commercial success is no doubt attributable to its rigorous yet far from dispassionate analysis of some of the leading policy questions of our time: is income and wealth becoming more concentrated in the hands of the few? if so, why? and what, if anything, should we do about it?

Piketty’s central empirical argument is that, in a capitalist market economy, there are powerful forces tending to increase inequality of both wealth and income. Other things being equal, the share of national income derived from capital increases when the rate of return on capital exceeds the growth rate of the economy as a whole (r > g or rg> 0); consequently, the share of national income derived from labour must fall (25–7). So, for example, capital’s share in the national income of eight wealthy countries was clustered between 15 per cent and 25 per cent in 1975, but between 25 per cent and 30 per cent in 2010 (Graph 6.5). This is a powerful structural feature of the capitalist market economy which is not attributable to any market failures but is instead compatible with markets that function well (27). Meanwhile, top earners’ share of labour income has also tended to increase, though for different reasons. For example, Piketty concludes that people in the top centile of labour income are mostly corporate managers (330) who are largely able to set their own compensation (332–5, 210).

If ownership of capital were uniformly distributed, as in the standard representative agent models used in modern macroeconomics,2 the fact [End Page 418] that r > g would have no particular implications for the distribution of income among natural persons, but capital itself is unequally distributed (ch 10). Moreover, the basic fact of r > g conceals variations in r itself: Piketty marshals considerable evidence supporting the proposition that the rate of return on large fortunes is greater than the rate of return on small fortunes, which Piketty attributes to the ability of wealthier individuals to hire the best money managers (ch 12). And owners of capital, particularly owners of very large fortunes, typically do not consume all the income generated by their capital. Thus, the distribution of capital and of income from capital becomes more and more unequal over time.

Piketty is at pains to emphasize that, although the fact that r > g is the most important driver of increasing concentration of wealth and income, that fact is a good thing, not a bad thing, because it is essential for capital to continue to accumulate (562–5): in an economy where r < g, the capital stock would shrink every year. Piketty’s analysis shows that over the last 150 years the only periods during which capital’s share in the national income of advanced economies fell sharply were the two World Wars,3 when the European nations were not only destroying each other’s stocks of physical capital but also likely consuming far more than 100 per cent of their income from whatever capital was left – a fact that should give pause to those who believe that war is good for business. One of his tables shows that, at the end of World War II, the share of capital in the French national income had fallen to the almost unbelievably low level of 5 per cent (227). War is a particularly dramatic example of a more general point: although the fundamental fact that r > g does tend to increase the concentration of wealth, there are many institutional, historical, and political factors that work in the opposite direction.4

Piketty’s proposals for redressing the increasing...

pdf

Share