Capital in the Twenty-First Century

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  • Book: Thomas Piketty. Capital in the Twenty-First Century.


Key thesis, by Andrew Hussey:

"Piketty's thesis, supported by his extensive research, is that financial inequality in the 21st century is on the rise, and accelerating at a very dangerous pace. For one thing, this changes the way we look at the past. We already knew that the end of capitalism predicted by Marx never happened – and that even by the time of the Russian revolution of 1917, wages across the rest of Europe were already on the rise. We also knew that Russia was anyway the most undeveloped country in Europe and it was for this reason that communism took root there. Piketty goes on to point out, however, that only the varying crises of the 20th century – mainly two world wars – prevented the steady growth of wealth by temporarily and artificially levelling out inequality. Contrary to our perceived perception of the 20th century as an age in which inequality was eroded, in real terms it was always on the rise.

In the 21st century, this is not only the case in the so-called "rich" countries – the US, the UK and western Europe – but also in Russia, China and other countries which are emerging from a phase of development. The real danger is that if this process is not arrested, poverty will increase at the same rate and, Piketty argues, we may well find that the 21st century will be a century of greater inequality, and therefore greater social discord, than the 19th century." (


1. Marvin Brown:

"The key argument in Thomas Piketty’s book, Capital in the Twenty-First Century, has gained much attention of late, as it should. Quite simply, we are headed for continued disparity between the very wealthy and the rest of us, unless we create international governing schemes that can control the growth and movement of capital. And the chances of that happening are not very great.

As he admits, it doesn’t take a rocket scientist, or even an economist, to figure out the current trends. Capital—things like real estate and stocks and bonds—which can be seen as unearned income, will probably get a return of 4 to 5 percent, while return on earned income such as labor, will probably see an increase of around 1 percent. In such a future, the rich get richer and the poor get poorer.

This is not the first appearance of this argument. At the end of the 19th Century Henry George make a similar argument, and actually proposed a similar solution: a tax of capital. (Progress and Poverty). Will Pikett’s work become as well known as George’s once was and then as completely ignored? Hard to know. What is different is that George actually offered a new way of seeing things, a new story. Piketty, on the other hand, remains within the story of an economics of property. As far as we know from this book, he hasn’t taken seriously Karl Polanyi’s 1940 claim that labor, land, and money are not properties. Labor is a human activity, land is a biotic community, money is a social relation.

Even before Polanyi, George argued that land is a commons, something that belongs to all of us. Therefore, increases in the value of land should be shared with all citizens, in the form of a land value tax. Not a bad idea, but it would require either the generosity of landowners, which is unlikely, or the activation of citizens to take their democracy and make it work for the majority instead of the wealthy minority. Something that has not happened yet.

There is really nothing surprising that capitalism only works when political leaders represent the interests of all citizens rather than only the capitalist elites. I don’t think Piketty would disagree with this, but he doesn’t really offer a framework that would energize citizens to direct the economy. To limit economic analysis primarily to changes in income, with now more and now less going to labor or to capital, may motivate a few to try to improve things, but not many to transform them.

We need not to think outside the box, so to speak, but to change the box we think in. Instead of thinking about the distribution of income, we need to think about the distribution of provisions. Instead of thinking about increasing economic growth, we need to think about protecting the commons we all should share—especially the planet. Capital, after all, comes out of the commons. Just as all energy comes from the sun, all capital comes from the commons. Furthermore, money should not be treated as capital. It is a means to get what we deserve. If people are hungry, it is not because of the shortage of food, but the shortage of money to buy food. So, create the money. There should never be a shortage of money to buy food, or the other necessary provisions for a good life.

Let’s be truthful. Capitalism is driven by fear. Its origin is the Atlantic triangular trade, where enslaved Africans become the “property” of landowners. Slaves were not just labor. They were capital. Property rights are only the other side of this fear. As long as we are caught in this box, it is difficult to be too pessimistic. If we can build a new box, based on citizen participation and aimed at making provisions for all, we can have hope." (email, April 2014)

2. Charles Andrews:

"Piketty leads by example in a rebellious economics. He and his colleagues put together wide aggregations of statistical data. Every one of the 97 charts in Capital 21 plots data. A handful of them venture to project lines into the future or include a simulated series as well as the data line. None are graphs of hypothetical supply and demand or other mystical variables neatly intersecting where the author wants them to meet. Piketty's method is a refreshing break from orthodoxy.

However, Piketty arrives not to bury bourgeois economics but to revive it. He accepts most of the dogma: its concept of capital, which finds capitalist capital operating in disguise in every society from the most primitive (p. 213) to the former Soviet Union (p. 215); production functions, although not always Cobb-Douglas (p. 215-217); Solow's neoclassical side of the Cambridge capital controversy (p. 231); and the "central and irreplaceable role in the history of economic development" of stock and bond markets, banks, and financial investors. (p. 214)

Piketty is imbued with the bourgeois notion that some magic in nonhuman things creates income, which someone must receive. He actually declares with a straight face that "the evolution of technology … has also increased the need for … patents." (p. 234)

Piketty does not discard the equations of neoclassical economics (Capital 21's book jacket photo shows him in front of a whiteboard of equations), but he insists on actual information. In effect, Piketty tells his fellow professors of economics: Pure mathematics derived from unsupported axioms no longer fools people. Give up the empty certainty, the "immoderate use of mathematical models… masking the vacuity of the content. … It is not the purpose of social science research to produce mathematical certainties that can substitute for open, democratic debate." (p. 574, 571)

He also shuns computation of regressions and other statistical parameters that best fit reality to a model. Instead, Piketty shows bourgeois economists how they should observe ratios in data, then apply loose reasoning and lots of qualifiers to argue likely conclusions about the future.

Piketty and his colleagues certainly collect and regularize a mountain of data, setting new standards in the field.


iketty advocates policies that he thinks can rescue capitalism from its rentier, oligarchic tendency. "To regulate the globalized patrimonial capitalism of the twenty-first century … The ideal tool would be a progressive global tax on capital … It is perfectly possible to move toward this ideal solution step by step. … The largest fortunes are to be taxed more heavily." (pp. 515-517)

Secondarily, Piketty advocates restoring a very high marginal tax on the highest incomes, aimed mainly at the exorbitant pay of top corporate executives. (p. 512) The purpose of the tax rate is not to generate revenue but to make such pay futile.

Although Piketty comments on a wide variety of governmental economic policies, his practical emphasis is on the progressive capital tax, not on programs that its estimated yield of around two percent of gross domestic product could finance. He takes the social state (his term for the package of programs enacted during the New Deal, for example) as a good thing, but his tax on big wealth is unlikely to rally mass support by itself.

Reforms like a big increase of the minimum wage, tough laws against employers firing workers who exercise free speech in favor of a trade union, the extension of Medicare by reducing the age requirement until everyone is covered – reforms like these mean something to people. However, when the main content of a policy downplays definite benefits to specific groups of people, when a policy aims "higher" to make capitalism fair and democratic, people have healthy skepticism.

A tax on capital, calibrated so that it limits rentier wealth but does not suffocate entrepreneurs – this is Piketty's finale to a historical survey of steep inequality that prevailed for centuries with one amazing exception of 37 years.


Piketty talks to a specific audience. Perhaps he hopes enough capitalists will be far-sighted and realize that open oligarchy may stimulate mass rebellion. He thinks there are good people like himself who care about democracy and understand that it must be paired with capitalism. In U.S. terminology, he is a liberal, on its left flank. The people next to them on the political spectrum hold the same beliefs but profess socialism in one or another cloudy version. These are the social democrats.

They have had a rough time for a couple of generations. Capital, weakened by fundamental problems in its economy, became heavy-handed in a drive to raise the rate of exploitation. It dumped the old generation of social democrats whom it had coddled, the admirers of Walter Reuther, Michael Harrington and Tom Hayden. A section of progressives are excited about Capital 21 because it might help revive social democracy.

For the rest of us, Capital 21 provides solid data about the very rich. Piketty's work is a demonstration of the adage, follow the money. Good advice. But when you need deep understanding of society, follow the labor." (


Will Hutton:

"Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.

The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".

For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.

As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time." (

Joseph Stiglitz: the rise of land values is the chief culprit of inequality

From an interview conducted by LYNN STUART PARRAMORE:

"* LP: What’s new in your recent work on the distribution of income and wealth among individuals?

There are several things. There’s some debate about this, but I think most readers of Thomas Piketty’s book (Capital in the Twenty-First Century) get the impression that the accumulation of wealth — savings —is responsible for the rise in inequality and that there is, therefore, in a way,a link between the growth of the economy — the accumulation of capital— on the one hand and inequality and wealth. My paper begins with the observation that in fact, you cannot explain what has happened to the wealth/income ratio by that analysis. A closer look at what has gone on suggests that a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods.

* LP: When you say “land,” you’re not talking about land in the Jane Austen sense, that is, agricultural land under the ownership of the lord of the manor, right?

JS: It’s not agricultural land, it’s the value of urban land. I would include in that, broadly, rents associated with natural resources (“rent” is an economic term for unearned revenue). It’s the value of existing assets. As a footnote, some of what has gone on, in addition to an increase in the wealth/income ratio, is a capitalization of the increase in other kinds of rents, like monopoly rents. If monopoly rents get increased, if the market power of firms relative to workers gets increased, as when you have the ability of a few, like the banks, to get government guarantees — the value of that is increased and gets capitalized. That increases wealth but it doesn’t increase capital. So it’s that distinction between wealth and capital that turns out to be critical. That’s the first idea.

The reason that’s important is that you then begin an inquiry into the explanations of why the value of the land or other sources of the value of rents would have gone up. A lot of my book,The Price of Inequality, is about why there has been an increase in rent-seeking. But the other part is more external in terms of the value of land or the value of assets. That, I suggest, is very closely linked with the credit system.

* LP: How do you explain this link between credit and inequality?

JS: If you get a flow of credit increasing, as we’ve seen in the last few years —that flow of credit didn’t go to more wealth accumulation as we normally use the term in economics, as capital goods. What you got is an increase in bubbles of one kind or another.

What has happened repeatedly in recent years is that we’ve had monetary authorities allowing — through deregulation and lax standards —banks to lend more. But this lending has not gone for creating new business, not for capital goods. Disproportionately it has gone to increase the value of land and other fixed resources (buildings, real estate, etc). And that’s what everybody was worried about. So in that sense, in that discussion that occurred with quantitative easing—nobody linked that with inequality or linked it with the overall macro growth. The links with inequality are twofold: one is that at a very, very macro level, if more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods, then worker productivity won’t go up. Wages won’t go up. So some of what is going on is that we haven’t been doing the kind of investment that we should be doing.

But the other part that’s probably more important is that when you deregulate, you allow more lending against collateral. Then those who have the assets that can be used for collateral see those assets go up in price, like land. And so those who hold wealth become wealthier. The workers, who have no wealth, don’t benefit from that expansion. So the link is that credit affects land prices and fixed asset prices, and those go disproportionately to the rich. And that is a major part of the increase in the wealth. That’s one strand of my paper.

The other strand of the paper was an attempt to lay out a general theory of the transmission, you might say, of wealth and other advantages across generations, and trying to identify, very broadly, forces that would lead to a more unequal distribution and forces that would lead to a more equal distribution. You could almost say it’s a taxonomy — it’s a framework for thinking through things. And when you start to think about it, you see that there are many more forces going on right now for increasing inequality. And that’s also a framework for policy prescriptions. So if we have more economic segregation in a world in which we have local schools, locally financed schools, we’re going to get inequality in education, and therefore the children of rich parents are going to get more human capital.

This model actually provides a very robust general theory explaining inequality. There are many other wrinkles in the paper, but the final insight is that when you think of policies that are going to address inequality of wealth, you have to be very thoughtful about what economists call “incidence of taxes.” If most of the savings is being done by capitalists, and you tax the return on capital, then they will have less to invest. That would mean, over the long run, that the rate of interest would go up. That would therefore undo some of the intent to lower the income of capitalists." (

Varoufakis' harsh critique of Piketty

* Essay: Egalitarianism’s latest foe: a critical review of Thomas Piketty’s Capital in the Twenty-Frist Century. By Yanis Varoufakis.


"The sudden resurgence of the fundamental truth that the best predictor of socio-economic success is the success of one’s parents, in contrast to the inanities of human capital models, is undoubtedly uplifting. Similarly with the air of disillusionment with mainstream economics’ toleration of increasing inequality evident throughout Professor Piketty’s book. And yet, despite the soothing effect of Professor Piketty’s anti-inequality narrative, this paper will be arguing that Capital in the 21st Century constitutes a disservice to the cause of pragmatic egalitarianism."

Summary of the arguments:

Underpinning this controversial, and seemingly harsh, verdict, is the judgment that the book’s: • chief theoretical thesis requires several indefensible axioms to animate and mobilise three economic ‘laws’ of which the first is a tautology, the second is based on an heroic assumption, and the third is a triviality • economic method employs the logically incoherent tricks that have allowed mainstream economic theory to disguise grand theoretical failure as relevant, scientific modelling • vast data confuses rather than enlightens the reader, as a direct result of the poor theory underpinning its interpretation • policy recommendations soothe our ears but, in the end, empower those who are eager to impose policies that will further boost inequality • political philosophy invites a future retort from the neoliberal camp that will prove devastating to those who will allow themselves to be lured by this book’s arguments, philosophy and method.

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