Capital in the Twenty-First Century

Capital in the Twenty-First Century

Thomas Piketty
Translated by Arthur Goldhammer
Copyright Date: 2014
Published by: Harvard University Press
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  • Book Info
    Capital in the Twenty-First Century
    Book Description:

    The main driver of inequality--returns on capital that exceed the rate of economic growth--is again threatening to generate extreme discontent and undermine democratic values. Thomas Piketty's findings in this ambitious, original, rigorous work will transform debate and set the agenda for the next generation of thought about wealth and inequality.

    eISBN: 978-0-674-36954-2
    Subjects: Economics, Business, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Acknowledgments
    (pp. vii-x)
  4. Introduction
    (pp. 1-36)

    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 ever fewer 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 in e quality 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...

  5. Part One: Income and Capital
    • ONE Income and Output
      (pp. 39-71)

      On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London. Police fired on the strikers with live ammunition. Thirty-four miners were killed.¹ As often in such strikes, the conflict primarily concerned wages: the miners had asked for a doubling of their wage from 500 to 1,000 euros a month. After the tragic loss of life, the company finally proposed a monthly raise of 75 euros.²

      This episode reminds us, if we needed reminding, that the question...

    • TWO Growth: Illusions and Realities
      (pp. 72-110)

      A global convergence process in which emerging countries are catching up with developed countries seems well under way today, even though substantial inequalities between rich and poor countries remain. There is, moreover, no evidence that this catch-up process is primarily a result of investment by the rich countries in the poor. Indeed, the contrary is true: past experience shows that the promise of a good outcome is greater when poor countries are able to invest in themselves. Beyond the central issue of convergence, however, the point I now want to stress is that the twenty-first century may see a return...

  6. Part Two: The Dynamics of the Capital/Income Ratio
    • THREE The Metamorphoses of Capital
      (pp. 113-139)

      In Part One, I introduced the basic concepts of income and capital and reviewed the main stages of income and output growth since the Industrial Revolution.

      In this part, I am going to concentrate on the evolution of the capital stock, looking at both its overall size, as mea sured by the capital/income ratio, and its breakdown into different types of assets, whose nature has changed radically since the eighteenth century. I will consider various forms of wealth (land, buildings, machinery, firms, stocks, bonds, patents, livestock, gold, natural resources, etc.) and examine their development over time, starting with Great Britain...

    • FOUR From Old Europe to the New World
      (pp. 140-163)

      In the previous chapter, I examined the metamorphoses of capital in Britain and France since the eighteenth century. The lessons to be learned from each country proved consistent and complementary. The nature of capital was totally transformed, but in the end its total amount relative to income scarcely changed at all. To gain a better understanding of the different historical processes and mechanisms involved, the analysis must now extend to other countries. I will begin by looking at Germany, which will round out the European panorama. Then I will turn my attention to capital in North America (the United States...

    • FIVE The Capital/Income Ratio over the Long Run
      (pp. 164-198)

      In the previous chapter I examined the metamorphoses of capital in Europe and North America since the eighteenth century. Over the long run, the nature of wealth was totally transformed: capital in the form of agricultural land was gradually replaced by industrial and financial capital and urban real estate. Yet the most striking fact was surely that in spite of these transformations, the total value of the capital stock, mea sured in years of national income—the ratio that measures the overall importance of capital in the economy and society—appears not to have changed very much over a very...

    • SIX The Capital-Labor Split in the Twenty-First Century
      (pp. 199-234)

      We now have a fairly good understanding of the dynamics of the capital/income ratio, as described by the law β =s/g. In particular, the long-run capital/income ratio depends on the savings ratesand the growth rateg. These two macrosocial parameters themselves depend on millions of individual decisions influenced by any number of social, economic, cultural, psychological, and demographic factors and may vary considerably from period to period and country to country. Furthermore, they are largely in de pen dent of each other. These facts enable us to understand the wide historical and geographic variations in the capital/income...

  7. Part Three: The Structure of Inequality
    • SEVEN Inequality and Concentration: Preliminary Bearings
      (pp. 237-270)

      In Part Two I examined the dynamics of both the capital/income ratio at the country level and the overall split of national income between capital and labor, but I did not look directly at income or wealth inequality at the individual level. In particular, I analyzed the importance of the shocks of 1914–945 in order to understand changes in the capital/income ratio and the capital-labor split over the course of the twentieth century. The fact that Europe—and to some extent the entire world—have only just gotten over these shocks has given rise to the impression that patrimonial...

    • EIGHT Two Worlds
      (pp. 271-303)

      I have now precisely defined the notions needed for what follows, and I have introduced the orders of magnitude attained in practice by inequality with respect to labor and capital in various societies. The time has now come to look at the historical evolution of inequality around the world. How and why has the structure of inequality changed since the nineteenth century? The shocks of the period 1914–1945 played an essential role in the compression of inequality, and this compression was in no way a harmonious or spontaneous occurrence. The increase in inequality since 1970 has not been the...

    • NINE Inequality of Labor Income
      (pp. 304-335)

      Now that I have introduced the evolution of income and wages in France and the United States since the beginning of the twentieth century, I will examine the changes I have observed and consider how representative they are of long-term changes in other developed and emerging economies.

      I will begin by examining in this chapter the dynamics of labor income inequality. What caused the explosion of wage inequalities and the rise of the supermanager in the United States after 1980? More generally, what accounts for the diverse historical evolutions we see in various countries?

      In subsequent chapters I will look...

    • TEN Inequality of Capital Ownership
      (pp. 336-376)

      Let me turn now to the question of inequality of wealth and its historical evolution. The question is important, all the more so because the reduction of this type of inequality, and of the income derived from it, was the only reason why total income inequality diminished during the first half of the twentieth century. As noted, inequality of income from labor did not decrease in a structural sense between 1900–1910 and 1950–1960 in either France or the United States (contrary to the optimistic predictions of Kuznets’s theory, which was based on the idea of a gradual and...

    • ELEVEN Merit and Inheritance in the Long Run
      (pp. 377-429)

      The overall importance of capital today, as noted, is not very different from what it was in the eighteenth century. Only its form has changed: capital was once mainly land but is now industrial, financial, and real estate. We also know that the concentration of wealth remains high, although it is noticeably less extreme than it was a century ago. The poorest half of the population still owns nothing, but there is now a patrimonial middle class that owns between a quarter and a third of total wealth, and the wealthiest 10 percent now own only two-thirds of what there...

    • TWELVE Global Inequality of Wealth in the Twenty-First Century
      (pp. 430-468)

      I have thus far adopted a too narrowly national point of view concerning the dynamics of wealth inequality. To be sure, the crucial role of foreign assets owned by citizens of Britain and France in the nineteenth and early twentieth centuries has been mentioned several times, but more needs to be said, because the question of international inequality of wealth concerns the future above all. Hence I turn now to the dynamics of wealth inequality at the global level and to the principal forces at work today. Is there a danger that the forces of financial globalization will lead to...

  8. Part Four: Regulating Capital in the Twenty-First Century
    • THIRTEEN A Social State for the Twenty-First Century
      (pp. 471-492)

      In the first three parts of this book, I analyzed the evolution of the distribution of wealth and the structure of inequality since the eighteenth century. From this analysis I must now try to draw lessons for the future. One major lesson is already clear: it was the wars of the twentieth century that, to a large extent, wiped away the past and transformed the structure of inequality. Today, in the second decade of the twenty-first century, inequalities of wealth that had supposedly disappeared are close to regaining or even surpassing their historical highs. The new global economy has brought...

    • FOURTEEN Rethinking the Progressive Income Tax
      (pp. 493-514)

      In the previous chapter I examined the constitution and evolution of the social state, focusing on the nature of social needs and related social spending (education, health, retirement, etc.). I treated the overall level of taxes as a given and described its evolution. In this chapter and the next, I will examine more closely the structure of taxes and other government revenues, without which the social state could never have emerged, and attempt to draw lessons for the future. The major twentieth-century innovation in taxation was the creation and development of the progressive income tax. This institution, which played a...

    • FIFTEEN A Global Tax on Capital
      (pp. 515-539)

      To regulate the globalized patrimonial capitalism of the twenty-first century, rethinking the twentieth-century fiscal and social model and adapting it to today’s world will not be enough. To be sure, appropriate updating of the last century’s social-democratic and fiscal-liberal program is essential, as I tried to show in the previous two chapters, which focused on two fundamental institutions that were invented in the twentieth century and must continue to play a central role in the future: the social state and the progressive income tax. But if democracy is to regain control over the globalized financial capitalism of this century, it must...

    • SIXTEEN The Question of the Public Debt
      (pp. 540-570)

      There are two main ways for a government to finance its expenses: taxes and debt. In general, taxation is by far preferable to debt in terms of justice and efficiency. The problem with debt is that it usually has to be repaid, so that debt financing is in the interest of those who have the means to lend to the government. From the standpoint of the general interest, it is normally preferable to tax the wealthy rather than borrow from them. There are nevertheless many reasons, both good and bad, why governments sometimes resort to borrowing and to accumulating debt...

  9. Conclusion
    (pp. 571-578)

    I have presented the current state of our historical knowledge concerning the dynamics of the distribution of wealth and income since the eighteenth century, and I have attempted to draw from this knowledge what ever lessons can be drawn for the century ahead.

    The sources on which this book draws are more extensive than any previous author has assembled, but they remain imperfect and incomplete. All of my conclusions are by nature tenuous and deserve to be questioned and debated. It is not the purpose of social science research to produce mathematical certainties that can substitute for open, democratic debate...

  10. Notes
    (pp. 579-656)
  11. Contents in Detail
    (pp. 657-664)
  12. List of Tables and Illustrations
    (pp. 665-670)
  13. Index
    (pp. 671-685)