Capital in the Twenty-First Century

by Thomas Piketty

“Social distinctions can be based only on common utility.” —Declaration of the Rights of Man and the Citizen, article 1, 1789

There are nevertheless ways democracy can regain control over capitalism and ensure that the general interest takes precedence over private interests, while preserving economic openness and avoiding protectionist and nationalist reactions.

To be sure, it would be a mistake to underestimate the importance of the intuitive knowledge that everyone acquires about contemporary wealth and income levels, even in the absence of any theoretical framework or statistical analysis. Film and literature, nineteenth-century novels especially, are full of detailed information about the relative wealth and living standards of different social groups, and especially about the deep structure of inequality, the way it is justified, and its impact on individual lives. Indeed, the novels of Jane Austen and Honoré de Balzac paint striking portraits of the distribution of wealth in Britain and France between 1790 and 1830.

When Reverend Malthus published his famous Essay in 1798, he reached conclusions even more radical than Young’s. Like his compatriot, he was very afraid of the new political ideas emanating from France, and to reassure himself that there would be no comparable upheaval in Great Britain he argued that all welfare assistance to the poor must be halted at once and that reproduction by the poor should be severely scrutinized lest the world succumb to overpopulation leading to chaos and misery. It is impossible to understand Malthus’s exaggeratedly somber predictions without recognizing the way fear gripped much of the European elite in the 1790s.

Marx’s dark prophecy came no closer to being realized than Ricardo’s. 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 and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital. He no doubt lacked the statistical data needed to refine his predictions. He probably suffered as well from having decided on his conclusions in 1848, before embarking on the research needed to justify them. Marx evidently wrote in great political fervor, which at times led him to issue hasty pronouncements from which it was difficult to escape. That is why economic theory needs to be rooted in historical sources that are as complete as possible, and in this respect Marx did not exploit all the possibilities available to him.

Despite these limitations, Marx’s analysis remains relevant in several respects. First, he began with an important question (concerning the unprecedented concentration of wealth during the Industrial Revolution) and tried to answer it with the means at his disposal: economists today would do well to take inspiration from his example.

Malthus, Ricardo, Marx, and many others had been talking about inequalities for decades without citing any sources whatsoever or any methods for comparing one era with another or deciding between competing hypotheses. Now, for the first time, objective data were available. Although the information was not perfect, it had the merit of existing. What is more, the work of compilation was extremely well documented: the weighty volume that Kuznets published in 1953 revealed his sources and methods in the most minute detail, so that every calculation could be reproduced.

Kuznets’s 1955 paper is enlightening. After reminding readers of all the reasons for interpreting the data cautiously and noting the obvious importance of exogenous shocks in the recent reduction of inequality in the United States, Kuznets suggests, almost innocently in passing, that the internal logic of economic development might also yield the same result, quite apart from any policy intervention or external shock.