Capital in the Twenty-First Century

What does the book show?

Through a novel use of tax records Piketty traced, over 250 years, the incomes and wealth of the very top, who had until then been little studied. The book's central thesis is that inequality is not an accident but a feature of capitalism that can be reversed only through state intervention. He summed this up in the relation between the rate of return on capital, r, and the rate of economic growth, g. Here r includes all income from capital, profits, dividends, interest, rents and the like, and g is the growth of society's income or output.

Take some numbers as an illustrative assumption. If a wealthy family earns 5 percent a year on its assets and reinvests it all while the economy grows 1.5 percent a year, after thirty years the assets are about 4.3 times larger (1.05 to the thirtieth power) but the economy's income only about 1.6 times (1.015 to the thirtieth). If income from work grows roughly with the economy, the share of the owners of wealth keeps rising. The lower growth is, the wider the gap, and wealth accumulates more among the top 10 and 1 percent. Piketty saw "r > g" as the fundamental force for divergence, and analysed inheritance with the same formula.

In his data inequality was high in the nineteenth century and fell between 1930 and 1975. The two world wars, the Great Depression and a debt-fuelled recession destroyed much wealth, particularly that of the elite; governments, prompted by these events, undertook redistribution, especially after the Second World War; and the fast world growth of the period reduced the importance of inherited wealth. Piketty held that these circumstances were exceptional and that today's world is returning to a "patrimonial capitalism" dominated by inherited wealth, with the danger of oligarchy. He drew on the novels of Balzac, Jane Austen and Henry James to describe the rigid class structure based on accumulated capital in early nineteenth-century England and France.

As remedies Piketty proposed a progressive annual global wealth tax of up to 2 percent and a progressive income tax reaching as high as 80 percent, though he also wrote that such a tax "would be politically impossible". He held that bursts of productivity from technical advances cannot be relied on to return sustained growth. In a paper at the end of 2014 Piketty stated that he does not consider the relation between r and g the only or primary tool for considering changes in income and wealth inequality, and that it is not useful for discussing rising inequality of labour income.

How was it received?

When it appeared in France in August 2013 the book was called "a political and theoretical bulldozer", and as word spread in the English-speaking world Paul Krugman called it "the most important economics book of the year – and maybe of the decade". Branko Milanović, formerly of the World Bank, considered it one of the watershed books in economic thinking. The English edition reached number one on the New York Times hardcover nonfiction list on 18 May 2014, becoming the greatest sales success in the history of Harvard University Press, and more than 2.5 million copies had been sold by the end of 2017. It was made into a documentary film in 2020. Its success was attributed to "being about the right subject at the right time", and it chimed with the mood in which the Occupy slogan "We are the 99%" had made inequality the spirit of the age.

What did mainstream economists object to?

Lawrence Summers criticised Piketty for underestimating diminishing returns on capital, which would lower the rate of return as capital grows and set an upper limit to inequality. He also noted that of the 400 wealthiest Americans in 1982 only one in ten remained on the list in 2012, and that top 1 percent incomes are now mostly salaries rather than capital income. Daron Acemoglu and James A. Robinson used the economic histories of Sweden and South Africa to show that social inequality depends much more on institutions than on the gap between r and g. The German economist Stefan Homburg criticised Piketty for equating wealth with capital, and Joseph Stiglitz likewise held that much of the increase in wealth is a rise in the value of land rather than in the amount of capital goods. Matthew Rognlie found that surging house prices are almost entirely responsible for growing returns on capital. The IMF economist Carlos Góes reported finding the opposite trend in 75 percent of the countries he studied, but Piketty replied that Góes used income rather than wealth inequality and took the interest rate on sovereign debt as the return on capital, making the results not commensurate. The post-Keynesian James K. Galbraith objected that Piketty uses a measure unrelated to productive physical capital whose dollar value depends in part on the return on capital: "Where does the rate of return come from? Piketty never says."

How does it differ from Marx's Capital?

The book was often presented as a twenty-first-century substitute for Marx's nineteenth-century work of the same title. Piketty denied any such intention, and when the right-wing press accused him of being a Marxist in disguise he even claimed not to have read Marx's Capital. The British journalist Paul Mason dismissed the charge of "soft Marxism" as "completely misplaced": Marx described social relations to unveil capitalism's inner tendencies, while Piketty relies solely on social categories and historical data.

The Marxist geographer David Harvey weighed the book's merits and faults in "Afterthoughts on Piketty's Capital" (2014). Harvey credited Piketty with demolishing the widely held view that free-market capitalism spreads the wealth around and is the great bulwark of individual liberty, and found his account of the difference between income and wealth, and his defence of inheritance taxes, progressive taxation and a wealth tax, persuasive. But he said it was "not a book about capital at all": it does not tell us why the crash of 2008 occurred, or why growth is sluggish in the United States and Europe is locked in austerity and stagnation. Piketty's statistical conclusion that capital has tended to produce ever greater inequality was, Harvey noted, exactly Marx's theoretical conclusion in the first volume of Capital.

Harvey's central criticisms were two. First, a statistical regularity such as r > g is not an explanation, let alone a law. Marx would have attributed it to the imbalance of power between capital and labour, and the steady decline of labour's share of national income since the 1970s came from capital mobilising technology, unemployment, offshoring and the anti-labour politics of Thatcher and Reagan to crush labour's power. Piketty's mathematical law disguises more than it reveals about the class politics involved. Second, Piketty defined capital wrongly. For Harvey "capital is a process not a thing", a process of circulation in which money is used to make more money, often but not exclusively through the exploitation of labour power. Piketty defines capital as the stock of all assets that can be traded in the market whether used or not, including land, real estate, intellectual property and art collections; since these assets are valued by what they produce, a tautology arises in which the rate of return depends on the rate of growth. Harvey held that money, land and real estate not used productively are not capital, and that a part of capital withdraws from circulation, in effect going on strike, to keep the return on capital in circulation high. He concluded that Piketty's remedies are "naïve if not utopian" and that for a working model of capital in the twenty-first century "we still need Marx or his modern-day equivalent".

Where did Piketty go next?

In Capital and Ideology (2019) Piketty widened his attention to the ideological systems that societies have used to justify inequality and their effect on distribution through fiscal and economic policy. He went on to publish collections of columns under the banner of socialism, Time for Socialism (2021) and Vers le socialisme écologique (2024). He advised the French Socialist candidate Ségolène Royal in the 2007 presidential election and joined the British Labour Party's Economic Advisory Committee in 2015.