Capital in the Twenty-First Century

by Thomas Piketty

Recall that according to Modigliani’s life-cycle theory, the primary reason for amassing wealth, especially in aging societies, is to pay for retirement, so that older individuals should consume most of their savings during old age and should therefore die with little or no wealth. This is the famous “Modigliani triangle,” taught to all students of economics, according to which wealth at first increases with age as individuals accumulate savings in anticipation of retirement and then decreases. The ratio μ should therefore be equal to zero or close to it, in any case much less than 100 percent. But this theory of capital and its evolution in advanced societies, which is perfectly plausible a priori, cannot explain the observed facts—to put it mildly. Clearly, saving for retirement is only one of many reasons—and not the most important reason—why people accumulate wealth: the desire to perpetuate the family fortune has always played a central role.