Book Review: Capital in the Twenty-First Century

Transcript:

Capital in the Twenty-First Century is about the wealth distribution that we have currently in capitalism, and how we've arrived at that current wealth distribution, and some of the fundamental flaws within our current system that will perpetuate wealth inequality indefinitely.

The fundamental thesis of the book is that the rate of return on capital, which Piketty calls, "r", is greater long-term than the rate of return on "g", which is the rate of growth of income and output. So what that fundamentally means is that wealth accumulated in the past grows more rapidly than wealth currently accumulated by people doing actual work. So what this inevitably results in is that workers will end up making less money no matter how hard they work than the owners of the means of production. So as Piketty puts it in his book,

The inequality r > g implies that wealth accumulated in the past grows more rapidly than 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.
— p. 571

Piketty also states,

“When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
— p. 1

He goes on to say,

The consequences for the long-term dynamics of the wealth distribution are potentially terrifying, especially when one adds that the return on capital varies directly with the size of the initial stake and that the divergence in the wealth distribution is occurring on a global scale.
— p. 571
The history of inequality is shaped by the way economic, social, and political actors view what is just and what is not, as well as by the relative power of those actors and the collective choices that result. It is the joint product of all relevant actors combined.
— p. 20

Piketty does offer some solutions to this problem, that are specific. And the entire book is extremely thorough and specific, he looks at history, Europe in the 18th and 19th centuries, he looks at Marxist thought, he looks at free market economics, and the analysis is extremely impressive and dense. That being said, he still makes the ideas accessible to a layperson audience. You do not have to be an academic in economics, or have a Ph.D. in economics to understand it. So the solution he offers is a progressive annual tax on capital. He says in the conclusion of the book,

“The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation. For example, I earlier discussed the possibility of a capital tax schedule with rates of 0.1 or 0.5 percent on fortunes under 1 million euros, 1 percent on fortunes between 1 and 5 million euros, 2 percent between 5 and 10 million euros, and as high as 5 or 10 percent for fortunes of several hundred million or several billion euros. This would contain the unlimited growth of global inequality of wealth, which is currently increasing at a rate that cannot be sustained in the long run and that ought to worry even the most fervent champions of the self-regulated market.
— p. 572

 

Piketty really does an extraordinary analysis of concepts such as capital, income, private wealth, public wealth, and he explains things in a very clear and precise manner, and does not try to obscure things for the sake of sounding intelligent, which is a common problem that he points out amongst economists is that they argue over obscure minutiae and mathematical details that the layperson wouldn't and shouldn't care about.

I did not take any courses in economics in college, I'm not someone who had a lot of previous knowledge of economics, and I found the book very understandable, very clear, and extremely incisive and thought-provoking, and I recommend it for anyone who wants to understand these concepts of private and public wealth, of capital, of return on capital. A lot of progressives don't like to talk about money because they fear that it'll make them sound greedy or consumerist but we need to understand these concepts in order to make a more fair and just society. We need to take it upon ourselves to understand what these ideas are, and use them to form a more fair society, which is ultimately Piketty's goal.

The book is quite long, and pretty dense, but there are sections of it that I think you can skip and not lose anything totally essential to his argument. He is extremely thorough and because he's also writing for an academic audience, he needs to go into detail in terms of statistics and analysis but I think a layperson could thumb-through a bit of that and still get the essentials out of the book.