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on 26 March 2014
The main argument: The unequal distribution of wealth in the developed world has become a significant issue in recent years. Indeed, the data indicate that in the past 30 years the incomes of the wealthiest have surged into the stratosphere (and the higher up in the income hierarchy one is, the greater the increase has been), while the incomes of the large majority have stagnated. This has led to a level of inequality in wealth in the developed world not seen since the eve of the Great Depression. This much is without dispute.

Where there is dispute is in trying to explain just why the rise in inequality has taken place (and whether, and to what degree, it will continue in the future); and, even more importantly, whether it is justified. These questions are not merely academic, for the way in which we answer them informs public debate as well as policy measures--and also influences more violent reactions. Indeed, we need look no further than the recent Occupy Movement to see that the issue of increasing inequality is not only pressing, but potentially incendiary.

Given the import and the polarizing nature of the issue of inequality, it is all the more crucial that we begin by way of shedding as much light on the situation as possible. This is the impetus behind Thomas Piketty's new book Capital in the Twenty-First Century.

One of Piketty's main concerns in the book is to put the issue of inequality in its broader historical context. Specifically, the author traces how inequality has evolved from the agrarian societies of the 18th and early 19th centuries; through the Industrial Revolution and up to the First World War; throughout the interwar years; and into the second half of the twentieth century (and up to the first part of the twenty-first).

With this broad historical context we are able to see much more clearly the causes of inequality. As we might expect, what we find is that inequality is influenced by a host of societal factors--including economic, political, social and cultural factors. However, what we also find is that inequality is influenced by a broader set of factors associated with how capital works in capitalist societies (and market economies more generally).

Specifically, we find that capital (and the wealth it generates) tends to accumulate faster than the rate of economic growth in capitalist societies. What this means is that capital tends to become an increasingly prevalent and influential factor in these societies (at least up to a point). What's more, wealth not only tends to accumulate, but to become more and more concentrated at the top (mainly because those with more capital are able to earn a higher rate of return on their capital investments). For these reasons, capitalism on its own tends to produce a relatively high degree of inequality.

The natural tendency of capital to accumulate and to become ever more concentrated largely explains the high degree of inequality that was witnessed in the developed world in the early part of the twentieth century. This inequality was largely dashed, however, in the interwar years. The reason for this is that the major events of the first half of the twentieth century (including the two world wars, and the Great Depression) thwarted capital's natural tendency to accumulate, and also destroyed large stocks of wealth. The end result was that by the time World War II was over, inequality in the developed world had reached an all-time low.

After the Second World War, the natural tendency of capital to accumulate resumed. However, various political and economic measures (including progressive taxation, rent control, increasing minimum wages, and expanded social programs) worked to redistribute this growing capital, thus preventing inequality from growing as quickly as it would have otherwise.

In the 1980s, though, the developed countries did an about-face, and began eliminating many of the measures that had prevented inequality from rising according to its natural tendency. The consequence was that inequality reasserted itself in a major way, such that it is nearly as extreme today as it was on the run up to the Great Depression. Furthermore, the historical evidence indicates that capital will likely continue to accumulate and become ever more concentrated, such that we will witness an even greater level of inequality moving forward.

As far as justifying the growing inequality that we are currently seeing, Piketty raises serious doubts as to whether it may rightly be considered fair. What's more, as inequality continues to grow, it is increasingly likely that large parts of the population will also come to see it as unfair and unjustified--thereby increasing the likelihood of political opposition.

For Piketty, the best and fairest solution to these problems would be to steepen the progressive taxation applied to the wealthiest individuals. The problem, though, is that in a world of financial globalization (where there is a high degree of competition for capital--as witnessed by tax havens), it is extremely difficult to apply the appropriate tax scheme without the cooperation and coordinated efforts of the international community--and this is simply not something that is easy to achieve.

The alternative, however, is much more troubling for it is likely that it will involve reverting to protectionism and nationalism--and this is really in no one's interest.

This book is an absolute tour-de-force. The broad time-frame that Piketty explores, and the enormous body of data that he brings together, makes this study extremely comprehensive (no one will even think of accusing Piketty of cherry picking the data). Also, the reader is struck by how dispassionately Piketty analyzes the evidence he brings to the table. Indeed, while the author does have a position on inequality, one never receives the impression that this is corrupting his analysis (I consider myself to be a pragmatist politically, and often find that writers on both the left and the right massage the truth, but that was never the case here). Finally, it should be said that the book is very long, and just as dense, with the author often delving into extreme detail, so be prepared for a challenge. A must read for anyone with a serious interest in economics.
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TOP 1000 REVIEWERon 17 March 2014
Inequality is a sensitive subject with extreme views on both sides of the argument, but what do we really know about how wealth and inequality comes about and what can we do to fix the problem? Unfortunately economics has a bad reputation for "abundance of prejudice and a paucity of fact" as the author puts it. This is especially bad when you take in to account politicians rely on economists to tell them how to run the country. This book tries to address the problem by using actual data like tax returns to try and get to the heart of the problem.

A major point is that inequality is increasing and has been for a long time, the decline in inequality in the 20 century was a result of the shock to society of two world wars (e.g destruction of property, inflation, bankruptcy)

"In fact, all the historical data at our disposal today indicate that it was not until the second half-- or even the final third-- of the nineteenth century that a significant rise in the purchasing power of wages occurred. From the first to the sixth decade of the nineteenth century, workers' wages stagnated at very low levels-- close or even inferior to the levels of the eighteenth and previous centuries."

"This long phase of wage stagnation, which we observe in Britain as well as France, stands out all the more because economic growth was accelerating in this period. The capital share of national income-- industrial profits, land rents, and building rents --insofar as can be estimated with the imperfect sources available today, increased considerably in both countries in the first half of the nineteenth century."

"It would decrease slightly in the final decades of the nineteenth century, as wages partly caught up with growth. The data we have assembled nevertheless reveal no structural decrease in inequality prior to World War I. What we see in the period 1870- 1914 is at best a stabilization of inequality at an extremely high level, and in certain respects an endless inegalitarian spiral, marked in particular by increasing concentration of wealth. It is quite difficult to say where this trajectory would have led without the major economic and political shocks initiated by the war. With the aid of historical analysis and a little perspective, we can now see those shocks as the only forces since the Industrial Revolution powerful enough to reduce inequality."

"In any case, capital prospered in the 1840s and industrial profits grew, while labour incomes stagnated. This was obvious to everyone, even though in those days aggregate national statistics did not yet exist. It was in this context that the first communist and socialist movements developed. The central argument was simple: What was the good of industrial development, what was the good of all the technological innovations, toil, and population movements if, after half a century of industrial growth, the condition of the masses was still just as miserable as before, and all lawmakers could do was prohibit factory labour by children under the age of eight? The bankruptcy of the existing economic and political system seemed obvious. People therefore wondered about its long-term evolution: what could one say about it?"

Karl Marx's prediction of an apocalyptic end to capitalism was based on the tendency for capital to accumulate and become concentrated in ever fewer hands, with no natural limit to the process. "either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists), or capital's share of national income would increase indefinitely (which sooner or later would unite the workers in revolt). In either case, no stable socioeconomic or political equilibrium was possible."

But Marx's apocalypse did not happen "In the last third of the nineteenth century, wages finally began to increase: the improvement in the purchasing power of workers spread everywhere, and this changed the situation radically, even if extreme inequalities persisted and in some respects continued to increase until World War I. The communist revolution did indeed take place, but in the most backward country in Europe, Russia, where the Industrial Revolution had scarcely begun, whereas the most advanced European countries explored other, social democratic avenues-- fortunately for their citizens. Like his predecessors, Marx totally neglected the possibility of durable technological progress, steadily increasing productivity and diffusion of knowledge, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital."

The next major point is when the return rate 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) it means that people that own capital profit more than people that sell their labour thus inequality rises between owners of capital and people that rely on labour to earn a living.

The wars also effected inheritance. Individuals who should have inherited fortunes in 1950- 1960 did not inherit much because their parents had not had time to recover from the shocks of the previous decades and died without much wealth to their names. The low point was in the 1970s: inherited capital accounted for just over 40 percent of total private capital. For the first time in history (except in new countries), wealth accumulated in the lifetime of the living constituted the majority of all wealth: nearly 60 percent. But now the share of inherited wealth in total wealth has grown steadily since the 1970s. Inherited wealth once again accounted for the majority of wealth in the 1980s, and according to the latest available figures it represents roughly two-thirds of private capital in France in 2010, compared with barely one-third of capital accumulated from savings. If current trends continue, the share of inherited wealth will continue to grow in the decades to come, surpassing 70 percent by 2020 and approaching 80 percent in the 2030s.

Since the 1980s there has been a massive increase in inequality coming from labour. This comes mainly from top managers of firms giving themselves massive pay rises (60 to 70 percent, depending on what definitions one chooses) of the top 0.1 percent 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 percent)
"One possible explanation of this is that the skills and productivity of these top managers rose suddenly in relation to those of other workers. Another explanation, which to me seems more plausible and turns out to be much more consistent with the evidence, is that these top managers by and large have the power to set their own remuneration, in some cases without limit and in many cases without any clear relation to their individual productivity."

The process by which wealth is accumulated and distributed contains powerful forces pushing toward inequality but forces of equality also exist, and in certain countries at certain times, these may prevail, but the forces of inequality can at any point regain the upper hand, as seems to be happening now.

Inequality in the USA and Europe is covered, how the histories of those countries effected capital and inequality, e.g early America had less inherited wealth than Europe, ownership of land was cheap and there was slavery. Other subjects covered are public wealth transferred to private hands (e.g privatization and oligarchs), public dept creating private wealth and many other related topics.

The theory of a stable capital-labour split (itself based on data only going back no further than 1950, thus missing the interwar period and early twentieth century) and thus flawed is now out of date thanks to studies of the 1970s showing a significant increase in the share of national income in the rich countries going to profits and capital and less going to wages and labour.

"The emergence of a patrimonial middle class was an important event. To be sure, wealth is still extremely concentrated today: the upper decile own 60 percent of Europe's wealth and more than 70 percent in the United States. 20 And the poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910. Basically, all the middle class managed to get its hands on was a few crumbs: scarcely more than a third of Europe's wealth and barely a quarter in the United States . This middle group has four times as many members as the top decile yet only one-half to one-third as much wealth. It is tempting to conclude that nothing has really changed: inequalities in the ownership of capital are still extreme"

What is the solution to this problem? The author suggest a global progressive tax on capital but he admits this would be very hard to implement. "The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises. To achieve these two ends, the capital tax must first promote democratic and financial transparency: there should be clarity about who owns what assets around the world. Without a global tax on capital or some similar policy, there is a substantial risk that the top centile's share of global wealth will continue to grow indefinitely-- and this should worry everyone. In any case, truly democratic debate cannot proceed without reliable statistics."

This book has been getting rave reviews and what its states is going to upset a lot of people. It is good to see such detailed long term trend analysis based on data.
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on 12 May 2014
Thomas Picketty offers the disclaimer that his book is ‘as much a work of history as of economics’ (p33) which he then goes on to prove. He introduces his 2 core economic equations and asks readers not well versed in mathematics not to immediately close the book. It is in fact readers who are well versed in mathematics who might well close the book, since his equations make no sense and cannot bear the weight of interpretation he places on them throughout the book. They are core to his argument, but they fail. He nowhere derives them, proves them, or empirically tests them. He merely states them.

According to Picketty, the ‘first fundamental law of capitalism’ (p52) is that α=rxβ where α is the share of capital in national income, r is the rate of return on capital, and β is Picketty’s capital/income ratio. This is a simple identity, is no more than telling us that a/b x b = a. Picketty admits this identity and tautology but nevertheless insists that this is the ‘first fundamental law of capitalism’, a claim he simply cannot justify. His ‘second fundamental law of capitalism’ (p166) is that β=s/g where s is the savings rate and g the growth rate. His example claims that a savings rate of 12% and a growth rate of 2% give a capital/income ratio of 600%. This is simply untrue. A simple spreadsheet taking 100 units of GDP growing in row 1 at 2%/year, showing 12% saving of that GDP in row 2, cumulating that in row 3 and dividing the result by row 1 to give Picketty’s capital/income ratio in row 4, shows that it becomes 600% only in year 199. Not only does this ‘fundamental law’ take so long to be true, as Picketty admits, but it is only true in that year and thereafter continues to grow, contrary to his claim that it reaches a long term equilibrium. His third equation is his claim that r>g drives capital accumulation. r and g are however measures in different units, r is a scalar ratio, whereas g is a first differential over time. Equations and inequalities require variables on each side to be in the same units. Picketty’s comparison of the return to capital and the growth rate are like comparing one person’s height to another person’s weight. His model is bogus.

He then conflates capital and wealth (‘I use the words ‘capital’ and ‘wealth’ interchangeably’ (p47)). This obscures more than it elucidates. Capital traditionally defined in economics is the means of production. It is an input to the economic process. Wealth by contrast is an output. We might very well care differently about how much capital and wealth we have, and who owns them. More effective capital may drive up output, whilst more wealth has no creative function and attracts a moral question. Picketty is wrong, analytically and morally, to confuse the two in one measure.

Picketty is disparaging in very short measure of Marx (p227-230), Keynes (p220), mathematical economics (p32), and economists generally (p296, 437, 514, 573, 574). Only Picketty has it right (p232). He quotes Jane Austen and Honoré de Balzac, more than he does either Marx or Keynes. His book is unnecessarily long and a tedious read, due to its rambling repetitive style. It could have been far more concise.

His main point is however well taken. Ownership of wealth has become increasingly unequal. His remedy is a global progressive tax on capital. By this he means all capital. But he doesn’t say what effect a progressive tax on each form of capital would have, how it would be paid, and what should be done with the payment. Would companies owning productive assets have to hand factories to the state? Or to the poor? Would house owners have to sell their houses, or shareholders their shares, in which case would their price be sustained? Or is he assuming asset owners also have income to pay the capital tax, in which case it becomes an income tax? And what’s the point? The purpose Picketty tells us on page 518 is ‘to regulate capitalism’ and thereby to ‘avoid crises’. But he doesn’t tell us how capitalism would be thereby made more acceptable or how crises would be avoided. He also admits it will never happen!

Whilst I agree with Picketty that extremes of income and wealth are morally repugnant, my complaint is that i) he should do more to investigate and attack the processes which allow this outcome, for example regulating the software market more effectively to avoid Bill Gates becoming obscenely wealthy based on Microsoft’s extreme and unjustified monopoly rate of profit, whilst also regulating natural resource markets to avoid billionaire build up there, ii) this is not in fact the major issue facing capitalism today. Far more important is the lack of effective macroeconomic demand and the fall in real wages caused by the high productivity of automation technology. For this a citizen’s income funded by QE (ie without being added to government debt) is the only and the urgently needed solution. Maybe we could compromise and use the proceeds of Picketty’s capital tax to fund a world citizen income. He clearly has a very good PR machine promoting his book – see the low votes attached to any critical review on Amazon, a fate very likely to meet this review!

Geoff Crocker
Author ‘A Managerial Philosophy of Technology : Technology and Humanity in Symbiosis’
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on 11 February 2015
I'm studying A-level economics and although obviously not an easy read, it was worth it. Not only did I learn a few things, it really stemmed my interested in economics and the social sciences. Definitely worth a read.
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I am surprised that so many people take an interest in this extensive view of "Capital in the Twenty-First Century" by Tomas Piketty.

If I start out repeating or commenting on this approximately 700 page book the review will end up a 1400 page review.

I came to this book after reading hundreds of reviews (some just soapbox rants.) Some of the reviews are quite profound. But now it is time to look at the source and not opinions; that is other than mine.

This capital book is not really a book about "Capital" as much as how to keep capital in line with entities such as democracy vs. oligarchy.

So Tomas Piketty really puts his foot in it when it comes to people that do not want to hear about this and spend time arguing about methods of taxation and distribution without addressing the actual premise.

I think the value in this book is by bringing out old and new information and observations by the author's extrapolation thus creating a dialog among readers on the possible futures and whether intervention or insight will have any effect for better or worse.

Democracy and Economic Power: Extending the Employee Stock Ownership Plan Revolution

The Capitalist Manifesto by Louis O. Kelso

A Piece of the Action by Stuart M Speiser
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on 12 March 2015
The facts, the analysis, the conclusions all point to the inevitability of the increasing growth of capital and its claim on real goods and services in the hands and control of a minority of the population in western capitalist countries in particular but including analysis of Japan's experience. The logic points to either collapse of the capitalist system when the majority recognises the problem of their impoverishment vis-a-vis the capital owning class, (who remain few in number and beyond the taxing ability of governments who might have some wish to serve the majority population), and make the revolution themselves or who will stand silently by and watch the system's continuation as advocated by the New World Order who seek to sustain this trend bycurtailing civil liberties and suppressing alternative views of how to organise and manage an economy with a different vision and outcome for"a good society".
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on 26 March 2016
Piketty could probably say what he needed to say in 20 pages or less. There is a lot of meandering and vaguely on topic incidental info and lots of repetition across the book. It possibly lost a lot in translation to English. I would love to know just how many paragraphs opened with 'to be sure' !.

To be sure(!) , its still a fantastic read and explains why capitalism is the way it is, and explains how we got to a place whereby the rich just get richer, the middle class are disappearing and 50% of the population own no capital assets whatsoever.Indentured servitude except under a different name.

I love a guy that can back his argument with facts and Piketty has provided some peerless socio-economic datamining. 5 stars for that.4 stars only because it could have been more succinct. Thank you Thomas Piketty.
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on 28 October 2014
You don't need to be an Economist to appreciate this book. The explanations at theoretical level are very clear. Many of the findings are based on strong data tracked in some cases for over 200 years (UK and France for example). Fascinating read on data related to shares of national income whether derived from labour or from capital which high-light the levels of wealth inequality in many countries where good data exists as well as the trends and consistency in levels of inequality. The data provides interesting predictive insights. Only slight criticism would be that the text is sometimes too repetitive.
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on 30 September 2014
He takes us to the core issues which perpetrate the inequality that has been a feature of our history and provides concrete suggestions for moving toward a more egalitarian financial world.
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on 10 January 2015
A comprehensive, clear and informative read. Bought for my son at AS level to further inform his studies. Impressive, well written and clearly a passion/dedication of the writer.
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