Capital in the Twenty-First Century

by Thomas Piketty

As for capital’s share in national and global income, which is given by the law α = r × β, experience suggests that the predictable rise in the capital/income ratio will not necessarily lead to a significant drop in the return on capital. There are many uses for capital over the very long run, and this fact can be captured by noting that the long-run elasticity of substitution of capital for labor is probably greater than one. The most likely outcome is thus that the decrease in the rate of return will be smaller than the increase in the capital/income ratio, so that capital’s share will increase. With a capital/income ratio of seven to eight years and a rate of return on capital of 4–5 percent, capital’s share of global income could amount to 30 or 40 percent, a level close to that observed in the eighteenth and nineteenth centuries, and it might rise even higher.