Piketty's Capital in the Twenty-First Century: a short review
In the past, wealth and its social distribution were not routinely or extensively covered in economics. An important reason for this is that the analytical point of departure of the dominant neo-classical school—in particular, the theory of the distribution of factor incomes—begins after the distribution of wealth has taken place (Stilwell, 2019, p. 96).
In the course of the past decade, however, wealth as a subject of academic investigation has re-emerged, in part boosted by the worldwide success of Thomas Piketty’s book, Capital in the Twenty-First Century, which is a detailed empirical investigation into the changing patterns of economic inequality over the long term, with a focus on western Europe and the US.
In the book, Piketty runs through some of prominent early works on wealth and income inequality from the pre-history of the subject. This covers the ideas of Malthus, Ricardo and Marx, and ends with the optimistic prognosis of Simon Kuznets in the US following the Second World War, envisaging income inequality as a bell curve, first rising and then falling in the course of industrial development.
Piketty pioneers an approach to the measurement of economic inequality based on reconciling information from different sources, including of tax returns, with data of countries’ assets from their national accounts. He couples this with a mode of presentation of national wealth as a developing multiple “of the number of years of national income required to amass it” (Piketty, 2014, p. 19), which he believes makes international comparison and the patterns of change easier to grasp. It also brings out an important two-way relation—that is, of wealth as the accumulation of the property bought with income, and of income as depending for its generation on the level of productive wealth.
The “major findings” for the advanced economies that Piketty covers are of a resurgence of the concentration of wealth in recent decades—following decades of decline in the wake of the first world war (Piketty, 2014, p. 20)—in tandem with a rise in returns to capital ownership, and a corresponding fall in the share of income going to labour. From this he draws a broad conclusion about the possible trajectory of wealth inequality—a key factor behind rising income inequality, he argues—resulting from a divergence of the relative prices of (and so returns to) capital and labour, with potentially destabilising social and political consequences. This divergence is summarised in a simple equation, r > g, which is shorthand for saying that returns to capital (r) tend to grow faster than the economy overall (g).
Piketty addresses a major shortcoming in mainstream economics by developing a detailed and rigorous method for assessing empirically the social distribution of wealth and income within and between countries. At the same time, his use of some of the pre-existing concepts and categories from conventional national accounting and neo-classical economics (for example, income understood as a return to capital and labour, or his use of the terms “capital” and “wealth” interchangeably) means that his approach and analysis remains bounded within the framework of a long-established economic world view.
In the course of the past decade, however, wealth as a subject of academic investigation has re-emerged, in part boosted by the worldwide success of Thomas Piketty’s book, Capital in the Twenty-First Century, which is a detailed empirical investigation into the changing patterns of economic inequality over the long term, with a focus on western Europe and the US.
In the book, Piketty runs through some of prominent early works on wealth and income inequality from the pre-history of the subject. This covers the ideas of Malthus, Ricardo and Marx, and ends with the optimistic prognosis of Simon Kuznets in the US following the Second World War, envisaging income inequality as a bell curve, first rising and then falling in the course of industrial development.
Piketty pioneers an approach to the measurement of economic inequality based on reconciling information from different sources, including of tax returns, with data of countries’ assets from their national accounts. He couples this with a mode of presentation of national wealth as a developing multiple “of the number of years of national income required to amass it” (Piketty, 2014, p. 19), which he believes makes international comparison and the patterns of change easier to grasp. It also brings out an important two-way relation—that is, of wealth as the accumulation of the property bought with income, and of income as depending for its generation on the level of productive wealth.
The “major findings” for the advanced economies that Piketty covers are of a resurgence of the concentration of wealth in recent decades—following decades of decline in the wake of the first world war (Piketty, 2014, p. 20)—in tandem with a rise in returns to capital ownership, and a corresponding fall in the share of income going to labour. From this he draws a broad conclusion about the possible trajectory of wealth inequality—a key factor behind rising income inequality, he argues—resulting from a divergence of the relative prices of (and so returns to) capital and labour, with potentially destabilising social and political consequences. This divergence is summarised in a simple equation, r > g, which is shorthand for saying that returns to capital (r) tend to grow faster than the economy overall (g).
Piketty addresses a major shortcoming in mainstream economics by developing a detailed and rigorous method for assessing empirically the social distribution of wealth and income within and between countries. At the same time, his use of some of the pre-existing concepts and categories from conventional national accounting and neo-classical economics (for example, income understood as a return to capital and labour, or his use of the terms “capital” and “wealth” interchangeably) means that his approach and analysis remains bounded within the framework of a long-established economic world view.
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