Piketty argues three points:
1. Throughout human history income distribution and (even more so) wealth distribution has almost inevitably been skewed very heavily toward the top. This is the result of powerful economic laws that reinforce each other.
(i) Over time, total wealth in a society tends to the ratio of the savings rate to the growth rate, which has typically resulted in wealth (=capital) of 4 to 7 times more than total income. In the US today this ratio is at 4, in Italy today it's more like 6, the same as it was in pre-1914 France, for example. The composition of capital has changed (e.g. arable land has gone from very important to totally unimportant) but not its ratio to income (as measured by GDP or GNP or GNI).
(ii) World growth has throughout history been abysmally low. It averaged 0.1% per annum between year 0 and 1700, 1.6% per annum between 1700 and today and a mere 3% per annum from 1913 to 2013. Ergo, it's a tiny denominator that's been keeping this ratio up, rather than particularly impressive savings rates. Only a smidge more than half of that growth has been per capita growth, incidentally, with the rest attributable to population growth, which cannot but stop dead in its tracks In the next fifty years due to physical, Malthusian limitations to demographics.
(iii) Wealth, once you've got it, can work for you to make you richer. So those at the top of the wealth pyramid get a leg up in staying near the top of the pyramid.
(iv) The more wealth you command, the harder it works for you because you can hire experts to manage it, get access to better ways of investing etc.
(v) The bottom 50% of society has never saved a penny anywhere, not even in 1970's Sweden, it's always and everywhere lived hand-to-mouth.
(vi) Meantime, a large chunk of wealth in history has typically been inherited.
(vii) Return on capital is higher than the rate of GDP growth, which is Piketty's famous r>g inequality. An explanation the author offers is that there needs to be some type of compensation for risk.
So, for example, from 1800 to 1900 both in the United Kingdom and in France, the top 10% of society owned 90% of the wealth (=capital) and indeed the top 1% owned comfortably more than 50% of wealth. This wealth generated itself a lot of income, a fact that ensured there was very little chance a pauper could ever work his way to the top without marrying into wealth. This top 1% of society enjoyed income equivalent to 30 times the average. This income, was in turn used to employ the staff that would supply its masters with fresh food (no refrigerators back then, remember), clothing (a very labor-intensive set of goods up until the industrial revolution), transport (somebody needed to take care of the horses!) etc. etc.
2. We are now living in the tail end of a brief interlude in history when it appeared that we had been moving away from this status quo. The first and second world war decimated the built-up capital (=wealth) of the western world if four different ways:
(i) The loss of European (mainly British and French) colonies eliminated in one fell swoop somewhere between a quarter and a third of all accumulated wealth in the west.
(ii) The taxation that became necessary to wage WWI and WWII was obviously borne by those who could pay, i.e. the rich, and it remained truly confiscatory for years after the end of conflict, with marginal rates on passive income hitting 98% in the UK, for example.
(iii) The wars themselves brought destruction of property and capital on a massive scale.
(iv) Inflation on an equally massive scale followed, which wiped out the purchasing power of nominal savings (e.g. bonds and bank deposits) of many a saver, much as the flip side of this silent confiscation was a de facto forgiveness of public debts.
So for the first time in a couple thousand years, the top 10% of the population only controls 40% to 60% of the wealth (depending on the country). The bottom 50% controls zero, as always, but there is a 40% of the population that controls some 60% to 40% of wealth (depending on the country). A middle class!
Our parents' generation inherited very little, was born into as equal a society as there has been in at least two thousand years and made something of it. Not only does it feel fully entitled to its wealth, it also believes very strongly (and justifiably) that this status was acquired in an environment of fairness and meritocracy. Moreover, these events took place against the background of an equally generation-defining struggle between the free market and communism. At the apogee of its success, our parents' generation voted in people like Ronald Reagan, Margaret Thatcher and more recently George W Bush that enshrined this right to succeed and enjoy the fruits of one's success in low taxation rates on both income and capital.
3. Piketty argues that our parents are confused. It was not only the free market that contributed to the creation of a middle class. The free market has always been there. The other ingredient was the "thirty year war" that started in 1914 and ended in 1945. Now we've had peace for a good seventy years, and especially now that we have (among other things)
(i) States competing with one another to provide low taxation for corporates
(ii) Tax havens for the rich to hide their savings
(iii) Supermanagers earning 500 times what the shop-floor workers earn (as a result of the incentives offered by lower taxation rates)
...we are moving full-speed-ahead toward re-establishing the status quo of 1800-1913 and eliminating the middle class. As proof, he shows what has happened to the ratios of wealth to GDP that are approaching the Ancien Regime and Belle Epoque levels (though he does not provide any corroborating evidence from wealth distribution tables)
Having made these arguments, Piketty goes on to propose a global tax on capital, which he hopes can be one measure that will ensure we do not see the types of wealth concentration that pre-dated WWI.
I must confess that I find myself nodding in agreement with every single word of the book and then disagreeing with the conclusion. Perhaps because I don't understand why r>g. Fine, it's true for the past, but where is it written that capital can grow faster than GDP forever? Last I checked, Elon Musk's crowd were looking to mine asteroids for minerals, for which endeavor I'm very happy to warrant that E(r) = 0
Similarly, and pardon me for going technical, I really don't think that Wealth / GDP necessarily equals s / g (the saving rate divided by the growth rate) because savings can disappear if they are misinvested. What's China going to have to show for all the misinvestment going over there at the moment in ghost cities, for example? Sure, we can mark our wealth to market, but ultimately we need to be able to convert it to spending. The value of Klimts and Basquiats and Ferrari 250s is proof, if any was needed, that the super-wealthy are struggling to find something to do with their superwealth that you and I would truly covet.
Just because investment is not worthwhile if r is not much higher than g it does not mean that r must be higher than g, is my point.
More fundamentally, and Piketty himself makes this point very eloquently, some 200 years ago you needed the income to pay for the 30 servants who'd get you the fresh fruit and freshly hunted meat and fresh clothes and groomed horses if you wanted to live long, have the spare time to read and write books etc. These days, you can be in the bottom 50% of the population and enjoy all of the above (assuming a Ford Focus will do in lieu of a stable of horses), as well as decent free healthcare and education in this very bastion of inequality (according to Piketty) that is the United Kingdom. In Piketty's words, we've gone through a "tenfold increase in purchasing power." Of course there's room for improvement, but we're doing Rawls proud here.
So I remain to be convinced we need to tax capital. By all means, tax income that comes from capital, and a nice first step would be to tax it at the same marginal rate as income from labor. But to tax capital in a world that is already rather reluctant to deploy capital does not sound to me like an automatic choice. And Piketty does not offer a single word to explain what the non-bureaucratic benefits would be, beyond the re-distribution of wealth, which to me cannot be an end in itself.
Regardless, this is an UNBELIEVABLY important book. If I had not read it I would not know where to start in terms of disagreeing with its author, let's put it that way.
What we have here is as impressive a compendium of research as has ever been published by an economist. Call it Friedman and Schwartz for wealth / capital, except much better researched. The value is not in the narrative, but more than anything else in the years and years of research that went into collecting, comparing, cleaning, tabulating and interpreting data. This book is now the inevitable starting point for any discussion on the topic of wealth / capital. It is, pardon my French, a tour de force.
Finally, I thought the style of the book was totally disarming. Piketty has his views, for sure, but he never dares comingle fact and opinion, not once in 577 pages. Oh, and he sounds like a bit of a player. Never seen so many women in the acknowledgments of an Economics book.
Six stars are not enough for this book, five are downright miserly, but that's all I'm allowed to give!
Download the free Kindle app and start reading Kindle books instantly on your smartphone, tablet or computer – no Kindle device required.
Read instantly on your browser with Kindle for Web.
Using your mobile phone camera - scan the code below and download the Kindle app.
| Amazon Price | New from | Used from |
|
Kindle Edition
"Please retry" | — | — |
|
Audible Audiobooks, Unabridged
"Please retry" |
£2.99
| ||
|
MP3 CD, Audiobook, MP3 Audio, SACD
"Please retry" | £12.31 | £6.43 |
Great on Kindle
Great Experience. Great Value.
Putting our best book forward
Each Great on Kindle book offers a great reading experience, at a better value than print to keep your wallet happy.
Explore your book, then jump right back to where you left off with Page Flip.
View high quality images that let you zoom in to take a closer look.
Enjoy features only possible in digital – start reading right away, carry your library with you, adjust the font, create shareable notes and highlights, and more.
Discover additional details about the events, people, and places in your book, with Wikipedia integration.
Get the free Kindle app: 
Enjoy a great reading experience when you buy the Kindle edition of this book.
Learn more about Great on Kindle, available in select categories.
Frequently bought together
£29.95
Get it as soon as Sunday, Nov 19
In stock
+
Total price:
To see our price, add these items to your basket.
Choose items to buy together.
Customers who viewed this item also viewed
Page 1 of 1 Start overPage 1 of 1
Popular highlights in this book
The main forces for convergence are the diffusion of knowledge and investment in training and skills.Highlighted by 1,675 Kindle readers- Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.Highlighted by 1,467 Kindle readers
- National income is defined as the sum of all income available to the residents of a given country in a given year, regardless of the legal classification of that income.Highlighted by 1,447 Kindle readers
About the author
Follow authors to get new release updates, plus improved recommendations.
Reviews with images
Submit a report
A few common reasons why customers report reviews:
- Harassment, profanity
- Spam, advertisement, promotions
- Given in exchange for cash, discounts
When we get your report, we will check if the review meets our Community guidelines. If it does not, we will remove it.
