Capital in the Twenty-First Century–The Major Conclusions

In the introduction to his masterwork Capital in the Twenty-First Century, the author Thomas Piketty, unlike in a murder mystery, tells us his conclusions right there in the introduction.

After discussion of the overly pessimistic conclusions regarding economic inequality of the nineteenth-century figures like Marx and Ricardo, and the overly optimistic conclusions of the twentieth-century writers like Kuznets, Piketty then discusses the major conclusions he reached in his work.

1.   There is no purely economic determinism with regards to inequalities of wealth and fortune

“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”    The period of reduction of inequality between the first and second World War was due to policies adopted to cope with the shocks of war.   The period of the increase of inequality after 1980 (which continues to the present) is due to rightward political shifts in the past several decades, and the policies adopted with those increasingly rightward administrations with regards to taxation and finance.

2.  Dynamics of wealth distribution reveal powerful mechanisms pushing alternatively towards convergence and divergence

The main forces for convergence are the diffusion of knowledge and investment in training and skills.   The law of supply and demand is not as powerful as these forces turn out to be.   This diffusion of knowledge depends in large part on educational policies, access to training and to the acquisitions of appropriate skills, and associated institutions.   That is why the anti-educational policies of the right wing in the United States are more troublesome than any of the other taxation and finance policies they may propose, because the damage they do is more widespread and will be longer lasting.

On the divergence side, it is worthwhile noting that the top decile share of US national income has returned to 45-50 percent in the past decade, returning to the level it was in the decade leading to World War I.   The spectacular increase in inequality reflects an unprecedented increase in the incomes received by the top managers of large firms.   In many cases, they have the power to set their own remuneration without limit and without any clear relation to their individual productivity.

This process will not stop by an “natural” economic counter-force but by a deliberate policy that limits this distorting influence.   This turns out to be consonant with the first conclusion.

One way to explain this trend for divergence is contained in the formula r > g, which I will explain in the following post on his book.


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