Capital in the Twenty-First Century

This is a tremendous book! It is a great start to understanding the current state of our global economy. The central argument being for the global taxation of wealth to restore a world that is becoming less egalitarian by each decade. Piketty uses two equations, known as "The Fundamental Laws of Capitalism," and a girth of historical data to arrive at his point. The equations are: a = r * B where r = rate of return; B = the capital/income ratio; a = the share of income from capital in the economy and B = s/g where B = the capital/income ratio; s = the savings rate; g = growth rate of the economy These two laws are inter-related. Equation 2, states that the lower the growth of the economy, the more power is exerted by inherited capital because via equation 1, it will generate a larger share of income in the economy. Growth in world output up until the 17th century was nonexistent. Therefore, throughout much of human history there were very rigid social class structures that prevented people from accumulating wealth over their life and in due process passing on a better life to their children. Piketty cites Jane Austen novels here as evidence that the central characters of her novel thought it more worthwhile to marry into wealth than to work for it, for no matter how hard one worked or in what sort of profession, it was impossible to generate the type of lifestyle the wealthy enjoyed. The entire dynamic of wealth changed during 19th century at the advent of the industrial revolution. Suddenly, growth in world output went up to 1.5%. Society was more dynamic. Social class was more fluid. However, the structural forces that breed inequality in society did not change, for the nature of capital did not change. According to the author, over the long run, the capital/income ratio will continue to increase because capital can be reinvested and over time will generate a higher return than income. On the eve of WWI, the value of capital/income in Europe and America was a hair under 7. This was the marking of a rare point in history. For the brief 30-year period of war and instability that followed, the value of capital did not increase faster than that of income. On the contrary, it shrank relative to income. It is as if an external shock restored a social equilibrium. The capital/income ratio reached a low point of a hair over 2 in the early 1950s. The baby boomers that followed were born into what might be considered the most equal society in the history of civilization. They were given a rare opportunity to truly live the “American Dream” and (now me talking) believe that they are entitled to everything they earned. Unfortunately, their kids were not born into a similar opportunity. The capital/income ratio has steadily crept up since the 1950s and now stands at around 5.5 in Europe and 4.5 in the U.S. These statistics mask some of the already inegalitarian societies like Italy where the ratio is closer to 7. What is further the problem is that world output, which grew on average of 3% in the 20th century, is falling. The author does not believe that this trend will reverse because historically, about half of growth in world output is generated by the growth in population and the other half through actual progress in technology and productivity. With demographics set to shrink in the coming decades, it seems unlikely that we will be able to sustain the 3% growth in world output in the future. Thomas Piketty’s solution is a global tax on capital. To purge society from systemic convergence toward inequality, you must eliminate the upper hand that capital affords to the beneficiaries of inherited wealth. I completely buy his argument here. The wealthy do have access to better wealth managers and investment vehicles that ordinary people like myself just do not. Ultimately however, what truly matters, and what is truly difficult to analyze, is whether society would be better off with such a tax. As the author states himself, half of the people in our country have zero savings. This relative proportion has been uniform throughout history. However, these same people today can live, materially speaking, much richer lives than the wealthy predecessors discussed in Jane Austen novels. The purchasing power parity has increased like seven-fold over the last few centuries, this all thanks to in great deal to the innovation and efficient allocation of resources over the past few years. Perhaps this picture would have been different with a global tax on capital. It would have been interesting to see what Piketty’s thoughts would be on how this sort of tax would affect entrepreneurship, if the risk taker knew that as soon as they sold their business they would be met with a yearly tax on their wealth. I think the bigger question that is left unanswered in the book is who would ultimately receive the proceeds from such a tax and for what purpose would it be used? Would society be truly better off if the government could tax capital and spend more as opposed to the vast amount of institutional funds and PE shops which for the most part allocate capital on the behalf of the wealthy? Regardless of whether you agree with the politics of the book, you should read it, if not for the data alone. The author poses a serious question in this book and provides a well thought out solutions. I might not be completely convinced of his thesis just yet, but I am much more knowledgeable about the the nature of capital/income split. This was a great and sobering starting point. Cheers!

Thomas Piketty's book, "Capital in the Twenty First Century," has been resoundingly endorsed by Nobel Prize winning economist Paul Krugman. Since the reactionaries were freaking out, I couldn't resist reading it and finding out for myself what the hoopla was all about. The reason for the reactionary freak out is explained below. Anyone who has bothered to read this book must admit that the writer is rigorous in his analyses and my impression was the writer eschews prejudgment. Piketty provides exhaustive data throughout in a fascinating historical analysis of capital and the inevitable pitfalls of indecent inequality of wealth ("...the `first globalization of finance and trade (1870-1914) is in many ways similar to the `second globalization' which has been underway since the 1970's." and, "...capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.") There were reasons for the financial shocks and the world wars of the 20th century, and if we're not paying attention... Piketty notes that, "Economists are all too often preoccupied with petty mathematical problems of interest only to themselves." Nevertheless, the essential economic equations and trend analyses are sufficiently addressed and easily understandable by all. He notes that economics should be considered a branch of social science, i.e., "...politics is ubiquitous and...economic and political changes are inextricably intertwined and must be studies together." If nothing else, the reader is warned, "...all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it [money] never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off." So why are reactionaries freaking out over this book? Piketty concludes that national debt can only be reduced by: repudiation (bad), inflation (horrible), austerity (really horrible), or a progressive tax on capital (reasonable). Further, he recommends that the only reasonable way to address indecent wealth inequality is a progressive global tax on wealth, which in turn requires global transparency of accounts and an end to foreign tax havens; he goes on to say none of these measures will be easy, but does offer practical suggestions. Clearly, the plutocrats would panic over popularization of such a suggestion, and it only takes a word or two from them to spin up their PACs and puppet organizations (I won't name names) into blindly trashing these rational suggestions. Thus the one-star reviews from those who haven't read the book. Other specifics of note: * His rational explanation of what central banks do and why they are necessary is excellent and should be understood by all. * His discussion of past and recent European economic issues, the creation the Euro, and administration by the ECB and European Committee should be of great interest to most Americans. * The fact that income taxes were not invented by Woodrow Wilson and had been used successfully in Europe for many decades before that is probably news to most Americans. * The real reasons why the gold standard had to be abandoned and is no longer feasible should be better understood by many. * His explanation of what "rentiers" are (i.e. those with sufficient wealth to live off dividends, rents, and other financial instruments) is something that should be better understood by all. At some point, wealth takes on a life of it's own whenever r>g and this and what amounts to regressive taxation at the top of the pyramid, are the driving force behind income inequality. * His explanation of the recent phenomenon of "super managers" who demand salaries in the tens of millions (the ones that piss everyone off), and how it was a result of the conservative revolution of the 1980s' is something that should be understood by all. Though it's a tough slog for me, but I highly recommend this book be read be all. I recommend someone write a "Reader's Digest" version that could reference the original, since the average reader may struggle with it.

I have been moved to review this book here partly to counter the embarrassingly ignorant, ideologically-motivated comments of many of the other reviewers on this page, who appear to be acting as trolls and astro-turfers, and to support the comments and recommendations made by the more thoughtful reviewers. First of all, contrary to the rants of those who wish to denounce any criticism of capitalism, Thomas Piketty is not a Marxist of any kind; a fact that ought to be obvious to anyone who has any background in Marx or who has read the author's own introduction. Piketty has no intrinsic issue with capitalism per se, nor even with inequality. In fact, personally, as someone who is more fundamentally opposed to both capitalism and inequality on principle, I regard Piketty's qualified acceptance of capitalism and inequality as constituting a theoretical weakness, in that his proposed remedies seem not only too modest but, lacking a system of democratic global governance, actually politically unfeasible. In terms of analysis however, Piketty's moderate social-liberalism actually imbues the work with an invaluable sense of objectivity that a similar work by a committed socialist would not be perceived to have. Quite simply, Piketty has no axe to grind and this work is the result of rigorous, thorough, methodologically-sound research based on a quite staggering wealth of data. This is, therefore, a very important work, certainly destined to be as referenced and quoted in the social sciences as John Rawls' "A Theory of Justice". The sheer scope of the work, its clear, methodical presentation and clearly explained methodology make this work very user-friendly and an absolute treasure as a reference work for social scientists. Capital in the 21st Century is an excellent book and deserves as wide an audience as possible. I have given it 4 stars because I am unsatisfied with Piketty's rather weak policy recommendations for the reasons I state above. Nonetheless, as a source of data and as a guide to interpreting capitalism in the 21st Century, this work is quite simply phenomenal. Arguably, this may well be the most important work on capitalism since Karl Polanyi's "The Great Transformation" (1944). My advice; don't hesitate- buy it, read it, discuss it. Anyone without a pig-headed flat-earther's insistence on believing in capitalist fairy-tales is bound to find serious food for thought here.

It is somewhat astonishing that Thomas Piketty's CAPITAL in the 21st Century remains at the very top of the New York Times Best Seller List! Not intending to be condescending, this is not an easy read even for the most ardent observers of the national and world economy. The first 250 pages, filled with exhaustive research over a 250 year period, complete with charts and graphs, is a test of anyone's concentration. You may need to read many pages more than once! The good news is that once through this sophisticated and advanced course in economics, the reader will come to an understanding of the inexorable march of an economic matrix that appears to be leading to a dysfunctional environment for the capitalistic system as we have known in America for over 300 years. Ironically, there is currently a billboard on the south bound FDR Drive in New York City that reads," The French Aristocracy Didn't Hear It Coming Either! " images Piketty does not set out to be an alarmist but rather to lay out what he believes is the most definitive research ever completed on the subject of inequality and the distribution of wealth in America and Europe, dating back to the seventeenth century. Admittedly, Piketty qualifies some of the early collection of data as anecdotal but at the same time has sought out all-available recorded records to track the distribution of wealth over three centuries. What is most troubling in the Piketty thesis is his substantiation of a mathematical paradigm that left unchecked , places the concentration of wealth worldwide and particularly in the United States on an unstoppable course of disastrous inequality. Not an exciting prospect. Piketty: " If the growing concentration of income from labor that has been observed in the United States over the last few decades were to continue, the bottom 50% could earn just half as much in total compensation as the top 10% by 2030." In the United States, the most recent survey by the Federal Reserve, indicates that the top decile own 72 percent of America's wealth, of which the bottom half claim just 2% . These figures clearly delineate the plight of the dwindling middle class. If the top ten percent and the bottom 2 percent control 74 percent of all wealth in America, that leaves only 26% for everyone else! Fundamental to Piketty's thesis is that a predicted economic annual growth rate in America of 1.5 percent or less will force a greater concentration of wealth among the top decile because based upon a rate of return there will be no incentive to invest risk capital back into the economy. The top ten percent can comfortably continue to invest capital at 4-5% ( with some hedge funds at 10-30%) and in essence keep these capital resources off the table in the hands of the super wealthy, further shrinking the middle class and decimating the lower class. He also predicts that as future generations of the wealthy mature, inherited wealth will be exclusively bequeathed, removing it from the general capitalistic economy, in the same manner as did the old European aristocracies. Thus, a new American Aristocracy fueled by inherited wealth? Piketty: " In my view, there is absolutely no doubt that the increase of inequality in the United States prior to 2007 contributed to the nation's financial instability. The reason is simple: One consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States , which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms." " If we consider the total growth of the U.S. economy in the thirty years prior to the crisis, we find that the richest appropriated three-quarters of the growth.The richest 1-percent absorbed 60 percent of the total increase of U.S. national income in this period. It is hard to imagine an economy and society that can continue functioning indefinitely with such extreme divergence between social groups." Capital In The Twenty First Century has raised considerably debate and the outright questioning of Piketty's research and formulas ( r>g ). However, if you take him for his word, the forecast is not comforting and for sure, don't look for many rave reviews from the financial establishment! Unfortunately, if you have sensed something wrong with the economy, Piketty offers great insight but little comfort! Capital in The 21st Century is well worth a major investment of time.

Reading the book and seeing Piketty speak at Columbia, I can only agree with the overwhelmingly positive reception - this is a seminal work and I felt enthralled and empowered reading it. It equips a new generation of economists and non-economists alike with a rational and eloquent theory of capitalism. The buzz is certainly earned. In a nutshell, Piketty's book says that historically, the return on capital exceeds economic growth and there is no reason to believe that it won't do so in the 21st century. The period from 1913-1975, the period from which most economists have historically drawn their income data, was a period of decreasing inequality. In much of the world, capital stocks got destroyed in the chaos of two world wars. Postwar reconstruction growth and redistributive policies allowed a veritable middle class to own a decent share of income and wealth. Alas, this "short twentieth century" proved to be no more than an anomaly, or an aberration of sorts, to this long-term trend of high capital-output ratios. Growth slowed, marginal tax rates on income and capital were reduced widely from the 1970s onwards. Income from capital became more important again vis-à-vis labour income. This concentration effect has been made worse by the concurrent rise of the super-manager. Increasingly detached from principles of merit-based pay, they have become a new breed of the super-rich with a disproportionate share of the nations' income and wealth at their disposal. Piketty is no writer of "neo-Marxist agitprop", and neither does he "want to aggrandize the non-real sector with fat taxation". It is somewhat amusing reading these comments in the financial yellow press. None of them take Piketty head-on for the data that he and his colleagues mined over the last couple of years. Perhaps more constructively, Piketty is criticised for being apolitical - Robert Reich has made this point in the Guardian recently. Essentially, the political system currently in operation in the US has become so captured by the super-rich that it will be difficult to put a check on that influence without a radical break. By omitting that narrative, Piketty misses the elephant in the room. On the substantive side, people have tried to take issue with Piketty's assertion that capital returns are likely going to outstrip economic growth, on both counts: James Pethokoukis of the American Enterprise Institute calls Piketty a techno-pessimist for underestimating future GDP growth. Branko Milanovic says that with catch-up continuing in India and China, global growth may remain elevated for longer than Piketty thinks. As far as capital returns are concerned, no one can know for sure if they are to remain structurally higher than economic growth - and history may not be the best guide. However, Piketty's explanation for why it is more likely than not the case seems to me much more convincing than anything I've read out there. Moreover, Suresh Naidu argued convincingly on the panel that capital returns are as much a social as an economic construct. Piketty's policy recommendations, i.e. a wealth tax and very high marginal income tax rates, are "unrealistic" to be sure (or are they? I will look at his fourth and final chapter in a separate post to keep this one here more digestible). Such taxes need to be globally coordinated to make sense, and tax havens need to be a thing of the past once and for all. And we can be sure that a powerful spin will be orchestrated to present such measures as potent growth and job killers. While it is simple for the political "left" to jump at Piketty's prescriptions, it is even easier for people on the right to demonise him. A very important contribution to the debate came from Martin Wolf in the FT. After expressing his pleasure at the book, Wolf proceeds to sum it up in his signature no-nonsense prose. He concludes with his major but constructive criticism of Piketty: why does the author omit any discussion as to why inequality matters and simply assumes that it does? With the benefit possibly age-related wisdom, Wolf offers his opinion. I end this review on that quote: "For me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it. In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice."

I first heard of Piketty and his book in January and waited impatiently for its publication in English. First thing first, my substantive review: Capital is stunning in the database development that underlies it and in its ground-breaking insights. It will prove extremely important in triggering and influencing policy development world-wide for years to come. Piketty will merit his Nobel Prize in Economics more than most or all of his predecessors. He will probably not win a second Nobel for Literature. My substantive review ends here because I believe it impossible for folks much more qualified than I to produce an adequate review in the short time that has been available. Second thing second, I want to contribute to the discussion some other reviewers have begun about appearance that many reviews are part of an organized campaign by people who have not read Capital. I consider myself more competent as an observer and user of Amazon customer reviews than as an economic historian. I use reviews regularly when deciding to read a book. I generally consider both positive and negative ones. I also will occasionally pore through reviews for entertainment — particularly when a book touches upon a culturally or politically divisive issue. As a first-hand and second-hand observer of the Vietnam War, I have never found a related book rated higher than 4. There are always enough who disagree passionately with a writer’s perceived orientation to submit 1-rated reviews: often very brief and often betraying no evidence of reading the book. That war ain’t over, folks. With regard to Capital, I have never seen a bar chart of reviews with such a dramatic dumbbell shape: with more than 80% of ratings being 1 or 5 and with a fairly even spilt between them. Other 5-star reviewers have noted that a large number of 1-star reviews betray little or no evidence that the reviewer possesses or has read Capital. The great surge of such reviews dated between 22 and 25 April is circumstantial evidence of an organized campaign against the book — a campaign that may not have run its course, this being written on 2t5 April. I have not, however, seen a reviewer note that the same questions can be raised about many 5-star (and 3-star) reviews. Let me do so. A remarkable number of those reviewers admit to not having read the book. Even so, evidence of an orchestrated negative campaign is stronger than of a positive one. I decided to do a rough and simple statistical analysis of the two sets of reviewers. I looked at the five 1-star and the five 5-star reviewers considered by Amazon to be most useful to other customers. The reviews selected tend to be longer than average. I did not, however, consider their content. Here are my findings: The average 5-star Capital reviewer had submitted 48 other reviews to Amazon; the average 1-star, 10 reviews — a difference of 4.8 times. Other (non-Capital) reviews by the average 5-star reviewer had been found helpful 883 times; other reviews by the average 1-star, 23. The difference here is 38 times. Weighted by the number of reviews for each group, other reviews by Piketty 5-stars are 8 times more likely to have been helpful. 4) The five selected 5-star reviews of Capital averaged 1,252 words; the 1-stars, 193. The difference is 6.5 times. 5) In a random sampling of other (non-Capital) reviews by these ten reviewers, those by Capital 1-star reviewers were found helpful 48% of the time and those by Capital 5-star reviewers, 76% of the time. Bear in mind that the samples are of the reviewers considered most helpful by an Amazon algorithm at a point in time on 25 April. It is clear that the 5-star reviewers in my sample are much more experienced as Amazon reviewers and that their other (non-Capital) reviews have been considered much more often and considered to be much more helpful. Based on a small random sample, positive reviewers of Capital are more credible than negative reviewers. I am the first to admit that my sample is too small to be statistically significant but the results are dramatic and are almost sure to hold up under more detailed analysis. What I can not say is whether this sort of difference is unusual or whether it is typical of many or most books that positive reviewers are more credible. If anyone wants to review my work, whether looking for assurance or for errors, please send me an email address in the comments and I will forward my work.

While I waited awhile for this book to arrive because it was temporarily out of stock, I was treated to a barrage of left vs right punditry on the internet. Half of the commentators probably didn't read the whole book. The emphasis was the claim that Thomas Piketty was 100% right and proved the Liberal world view or he was completely wrong and proved the Conservative world view. I was pleased to find that this was a fact based book that had a complete history of inequality with a voluminous amount of data and statistics. He has historical data on France and Great Britain dating back to the 18th century. He has historical information on the United States dating back to the days of slavery. He has allot of information on Germany, Sweden, Japan and other developed countries countries starting around 1870. You can enjoy the book by learning allot of history, facts and statistics and then come to your own conclusion on the correct interpretation on all this information The book's analysis would have been more complete if he had incorporated an analysis of the history of capitalism which has significantly improved the material well being of billions of people. I would highly recommend the work of the late Harvard business historian Thomas K. McCraw. In "American Business Since 1920" he points out that in 1920 only a third of the nation had electricity. No one had a TV, computer or cell phone. The shopping cart wasn't invented until 1937 Only 1 out of 30 people completed college. Only 1 0ut of 5 households even had an indoor flush toilet. He also acknowledges the fact that capitalism has many flaws including inequality, overemphasis of material over spiritual values' environmental damage and that it needs to be regulated. In absolute terms Thomas Piketty even shows that the bottom 90% of the American population has improved its standard of living since the 1970's. However, the growth of inequality created a great deal of instability which was a significant factor in the crash of 2007-2008. The 1% share of income increased from 9% to 20%. The bottom 90% of the population increased their income by .5 percent a year. This leads to a perception of income stagnation. This in turn lead to allot of modest households taking on too much debt which was encouraged by unscrupulous banks and financial intermediaries. Many people used their homes as piggy banks for mass consumption. When real estate values went down the economic system collapsed like a house of cards. One of the most informative highlights in the book was Table 5.1 on page 174. The table shows the per capita growth rate of several rich countries from 1970-2010. All of these countries redistribute wealth from the rich to the poor and middle class. The United States is on the low end of the scale for income redistribution while many European countries are on the high end of the scale. Yet economic growth after adjustment for rate of population growth is virtually identical all the countries listed. The per capita growth rate ranges from 1.6% to 2%. per year with the United States right in the middle at 1.8% This indicates that the United States could afford to increase income redistribution and taxes without collapsing into a Soviet-Marxist style economy. It is unlikely, however, that the United States will ever equal Sweden in our income redistribution because of our unique history, culture and values. Thomas Piketty is not a Marxist, see page 31. One of the great values of this book is that it can increase your knowledge of economics and inequality without you having to agree with all of his analysis or solutions. He has a pleasing style of presenting his point of view without resorting to personal attacks such as calling the 1% or rich evil. I would recommend not taking his predictions on future inequality too seriously.. For understanding the hazards of predicting the future I would recommend reading "The Signal and The Noise" by Nate Silver or "Expert Political Judgment by Philip Tetlock.. Capitalism is a tool that was invented by human beings. We are not a slave to the "magic" of the free market. We can decide how to use and regulate our tool.

In his introduction to this book, Piketty 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.” He further states that “Intellectual and political debate about the distribution of wealth has long been based on an abundance of prejudice and a paucity of fact.” He then addresses this paucity with the presentation and analysis of the results the project he led to acquire an enormous volume of historical data about global income and wealth. In the introduction, he briefly reviews the contributions but also the errors of earlier debate without data. These included Malthus’s concern with overpopulation and the need to end all welfare, Ricardo’s principle of scarcity with population and production growing as land becomes increasingly scarce, and Marx’s principle of infinite accumulation with the industrial revolution leading to no limit on the accumulation of capital (which did not consider coming social democracy, technological progress, and how to organize society without private capital). The Kuznets Curve of 1955 introduced data from US tax returns and Kuznets’s own estimates of national income to conclude that inequality increased in the early phase but declined in the later phases of industrialization. Unfortunately, this curve greatly understated the roles of the World Wars and violent economic and political shocks that led to the reduction in inequality between 1914 and 1945 and failed to explain the rising inequality after 1970. Piketty seeks to contribute “to the debate about the best way to organize society…to achieve a just social order….achieved effectively under rule of law…subject to democratic debate.” He states he has “no interest in denouncing inequality or capitalism per se…as long as they are justified.” He worked briefly in the US and found the work of US economists unconvincing. “There had been no significant effort to collect historical data on the dynamics of inequality since Kuznets, yet the profession continued to churn out purely theoretical results without even knowing (the) facts.” He found that “the discipline of economics has yet to get over its childish passion for mathematics and the purely theoretical and often highly ideological speculation.” Subsequently, he returned to France and set out to collect the missing data. He gathered data in two main categories: 1) inequality in distribution of income and 2) inequality in the distribution of wealth and the relation of wealth to income. For income, he built the World Top Incomes Database (WTID), which is based on the joint work of some thirty researchers around the world. This data series begins in each country when an income tax was established (usually 1910-1920 but as early as the 1880s in Japan and Germany). For wealth his sources included estate tax returns (usually dating back to the 1920s, but in a few cases as far back as the French Revolution), the relative contributions of inherited wealth and savings, and measures of the total stock of national wealth. In collecting as complete and consistent a set of historical sources as possible, he had two advantages over previous authors—a longer historical perspective (now including data from the 2000s) and advances in computer technology. Piketty reports two major conclusions from his study. “The first is that one should be wary of any economic determinism in regard to inequalities of wealth and income (that they emerge according to immutable natural laws). The history of the distribution of wealth has always been deeply political and it cannot be reduced to purely economic mechanisms. In particular, the reduction of inequality…between 1910 and 1950 was above all a consequence of war and of policies adopted to cope with the shocks of war.” “The resurgence of inequality after 1980 is due largely to political shifts…especially in regard to taxation and finance. The history of inequality is shaped by the way…actors view what is just…as well as the relative power of those actors.” The second conclusion is “that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence (equality) and divergence (inequality)….There is no natural, spontaneous process to prevent destabilizing ineqalitarian forces from prevailing permanently.” “Over a long period of time, the main force in favor of greater equality (convergence) has been the diffusion of knowledge and skills.” Other proposed forces for greater equality, such as advanced technology creating a need for greater skills or class warfare giving way to less divisive generational warfare as the population ages, appear to be largely illusory. “No matter how potent a force the diffusion of knowledge and skills may be, it can nevertheless be thwarted and overwhelmed by powerful forces pushing…toward greater inequality (divergence).” With respect to income, the spectacular increase in inequality from labor income, particularly in the US and UK, largely reflects the recent marked separation of the top managers of large firms from the rest of the population, not because of increased productivity, but because they can set their own remuneration. This separation is amplified by marginal tax rates that actually decrease for the highest incomes. Capital income from large fortunes also contributes to income inequality but may be understated due to hidden off-shore accounts and by producing only the relatively small portion of income needed for expenses while the rest remains within the fortune. (Fig. I.1 shows income inequality in the US from 1910 to 2010.) With respect to wealth, inequality (divergence) is increased when the rate of return on capital significantly exceeds the growth rate of the economy (r > g) as it did until the nineteenth century and is likely to in the twenty-first century. “Under such conditions it is inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor by a wide margin” and lead to extreme inequality. This increasing inequality of wealth is greatly amplified by structural factors leading to higher rates of increase for the largest fortunes that are no longer related to whatever entrepreneurial activities were at the onset of their origin. (Fig. I.2 shows wealth inequality in Europe from 1870 to 2010.) This analysis also shows a major shift in the main components of wealth from land, slaves (in the US), and colonies (in Europe) to domestic capital and housing. Historically, the rate of return on capital was 4.5-5% from antiquity to 1913, fell to 1.5% by 1950, and is rising again to 4% or more by 2012 and beyond. During the same period, the global rate of growth was close to zero before the industrial revolution, rose to 1.5% by 1913 and to 3.5% in the mid to late twentieth century (due to catch-up after World War II and in the developing world), and is now falling and projected to be 1-1.5% in the twenty-first century. Thus the unusual fall of the return on capital (r) below growth (g) in the mid twentieth century was associated with a temporary reduction in the rate of increasing inequality. (Fig 10.10 shows a comparison of the return on capital [r] to growth [g] from antiquity to 2100.) This review barely scratches the surface of the core contribution of this book, which is the enormous volume of data and analysis it provides. The numerical information is presented in a very well developed series of 97 illustrations and 18 tables. This information is used as support for extensive analysis and discussion of the many aspects of historical, present, and likely future inequality that often contradict positions related to ideology and simplistic models. An excellent 22 page overview of “A Social State for the Twenty-First Century” is provided at the beginning of the fourth and final part of the book. This is followed by “Rethinking the Progressive Income Tax,” “The Question of the Public Debt,” the author’s preference for “A Global Tax on Capital,” and finally, the conclusion. The conclusion reiterates that the principal destabilizing force leading to ever-increasing inequality is a return on capital (r) significantly higher than the rate of growth of income and output (g) for long periods of time. Hence wealth accumulated in the past grows more rapidly than output and wages, and the entrepreneur inevitably tends to become a rentier no longer of use in promoting growth. A progressive annual tax on capital would be the right solution to this problem, although it would require a high level of international cooperation. Piketty objects to the expression “economic science” which implies little to do with the logic of politics or culture in conclusions about inequality. He prefers the expression “political economy” which considers economics as a sub discipline of the social sciences, alongside history, sociology, anthropology, and political science. He insists that economic and political changes are inextricably entwined and must be studied together. This review is supplemented by a relatively random selection of multiple comments and assertions from the book: “The nature of capital has changed: it once was mainly land but has become primarily housing plus industrial and financial assets.” “Capital…is always risk-oriented and entrepreneurial, at least at its inception; yet it always tends to transform itself into rents as it accumulates….” With respect to global inequality, the industrial revolution led to growth of Europe and America’s share of global output to two to three times their share of population. This share is now rapidly decreasing due to higher growth in developing economies in the “catch-up” phase than in mature economies. Europe and America’s share of global production of goods and services rose from about 30-35% in 1700 to 70-80% from 1900 to 1980, fell to 50% by 2010, and may go as low as 20-30% later in the twenty-first century. European and American national inequality rose to record heights in 1910, decreased markedly by the 1940s due to the world wars and Great Depression, then began a rapid return to high levels after the 1970s, particularly in the US. The share of national income for the top 10% in Europe was over 45% in 1910, under 25% in 1970, and about 30% in 2010. In the US it was over 40% in 1910, under 30% in 1970, and nearly 50% in 2010. “Numerous studies mention a significant increase in the share of national income in the rich countries going to profits and capital after 1970, along with the concomitant decrease in the share going to wages and labor.” In the past several decades, the share of national income for the top 0.1% increased from 2 to 10% in the US, from 1.5 to 2.5% in France and Japan, and from 1 to 2% in Sweden. “It is important to note the considerable transfer of US national income—on the order of 15 points—from the poorest 90% to the richest 10% since 1980”— 5 to 7 times greater than the 2 to 3 points in Europe and Japan. “The vast majority (60 to 70%)…of the top 0.1% of the income hierarchy in 2000-2010 consists of top managers. By comparison, athletes, actors, and artists of all kinds make up less than 5% of this group.” “At the very highest levels salaries are set by the executives themselves or by corporate compensation committees whose members usually earn comparable salaries….” “It is when sales and profits increase for external reasons that executive pay rises most rapidly. This is particularly clear in the case of US corporations…pay for luck.” Global inequality of wealth in the early 2010s is comparable to that of Europe in 1900-1919. The top 0.1% own nearly 20%, the top 1% about 50%, the top 10% between 80 and 90%, and the bottom half less than 5%. The share of national wealth ownership in Europe for the top 10% and top 1% was 90% and over 50% in 1910, 60% and 20% in 1970, and about 63% and 24% in 2010. During this time, the share for the 50th to the 90th percentile increased from 5% to 40%, creating a middle class, but the share for the bottom 50% remained at 5%. In the US, shares for the top 10% and top 1% were about 80% and 45% in 1910, 64% and 30% in 1970, and about 70% and 34% in 2010—with a much more rapid increase after 1970 than in Europe, reaching 70% and 34% versus 63% and 24% by 2010 (while the bottom half claim just 2%). Inherited wealth is estimated to account for 60-70% of the largest fortunes worldwide. This figure is lower than the 80-90% reached during the belle Epoque, but trending strongly toward a return to that level. Forbes magazine divides billionaires into three groups—pure heirs, heirs who subsequently grow their wealth, and pure entrepreneurs, with each of these groups representing about a third of the total. Due to increased life expectancy, the average age of heirs at the age of inheritance has increased from thirty in the nineteenth century to fifty in the twenty-first century, although with larger inheritances. Today, transmission of capital by gift is nearly as important as transmission by inheritance. This change counters increased life expectancy and accounts for almost half of the present inheritance flows. “No matter how justified inequalities of wealth may be initially, fortunes can grow and perpetuate themselves beyond all reasonable limits and beyond any possible rational justification in terms of social utility.” Large fortunes experience increasing rates of growth related to size alone independent of their origins— 10% from $15-30 billion, about 9% from $1-15 billion, about 8% from$500 million to $1 billion, about 7% from $100-500 million, and about 6% below $100 million for university endowments. From 1990 to 2010, the fortune of Bill Gates, the Microsoft genius, grew from $4 billion to $50 billion, while that of Liliane Bettencourt, a cosmetics heiress who never worked a day in her life, grew at a similar rate from $2 billion to $25 billion. In 2013, sovereign wealth funds were worth $5.3 trillion ($3.2 trillion from petroleum exporting states and 2.1 trillion from nonpetroleum states like China, Hong Kong, and Singapore), similar to the total of $5.4 trillion for Forbes billionaires. Together, these sources account for 3% of global wealth. Large amounts of unreported financial assets are held in tax havens—approximately 10% according to the negative global balance of payments (more money leaves countries than enters them). In the US, parents’ income has become an almost perfect predictor of university access—average income of parents of Harvard students is currently about $450,000. “Broadly speaking, the US and British policies of economic liberalization (after 1980)…neither increased growth nor decreased it.” The US economy was much more innovative in 1950-1970 than in 1990-2010….Productivity growth was nearly twice as high in the former period as in the latter. In most countries taxes have (or will soon) become regressive at the top of the income hierarchy.” The optimal tax rate in the developed countries is probably above 80%. One of the most important reforms (is) to establish a unified retirement scheme based on individual accounts with equal rights for everyone, no matter how complex one’s career path. Debt often becomes a backhanded form of redistribution of wealth from the poor to the rich (who as a general rule ought to be paying taxes rather than lending). Inflation is at best a very imperfect substitute for a progressive tax on capital. It is hard to control, and much of the desired effect disappears once it becomes embedded in expectations. Defining the meaning of inequality and justifying the position of the winners is a matter of vital importance, and one can expect to see all sorts of misrepresentations of the facts in service of the cause. No hypocrisy is too great when economic and financial elites are obliged to defend their interests—and that includes economists, who currently occupy an enviable place the US income hierarchy. “Modern meritocratic society, especially in the United States, is much harder on the losers, because it seeks to justify domination on the grounds of justice, virtue, and merit, to say nothing of the insufficient productivity of those at the bottom.” The history of the progressive tax over the course of the twentieth century suggests that the risk of a drift toward oligarchy is real and gives little reason for optimism about where the United States is headed.