Capital in the Twenty-First Century

by Thomas Piketty

Recent research, based on matching declared income on tax returns with corporate compensation records, allows me to state that the vast majority (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 of this group.42 In

society of rentiers to a society of managers

To sum up: the best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills.

From a French perspective, the most striking fact is that inequality of capital ownership was only slightly greater in Britain than in France during the Belle Époque, even though Third Republic elites at the time liked to portray France as an egalitarian country compared with its monarchical neighbor across the Channel.

is explained by the dynamic effects of the fundamental inequality r > g: the very rich French probate data allow us to be quite precise about this point.

Thus throughout most of human history, the inescapable fact is that the rate of return on capital was always at least 10 to 20 times greater than the rate of growth of output (and income). Indeed, this fact is to a large extent the very foundation of society itself: it is what allowed a class of owners to devote themselves to something other than their own subsistence.

Given the tumultuous history of the past century, this is a dubious and to my mind not very plausible hypothesis, precisely because its inegalitarian consequences would be considerable and would probably not be tolerated indefinitely.

According to this theory, the reason why the return on capital has been historically stable at 4–5 percent is ultimately psychological: since this rate of return reflects the average person’s impatience and attitude toward the future, it cannot vary much from this level.

For another, the rate of return on capital, r, depends on many technological, psychological, social, and cultural factors, which together seem to result in a return of roughly 4–5 percent (in any event distinctly greater than 1 percent).

Clearly, equality of rights and opportunities is not enough to ensure an egalitarian distribution of wealth.

One conclusion is already quite clear, however: it is an illusion to think that something about the nature of modern growth or the laws of the market economy ensures that inequality of wealth will decrease and harmonious stability will be achieved.

But if growth ultimately slows more or less everywhere in the coming century, as the median demographic forecasts by the United Nations (corroborated by other economic forecasts) suggest it will, then inheritance will probably take on increased importance throughout the world.

If the scenario of 1 percent growth and 5 percent return on capital is correct, the share of inherited wealth could continue to rise, reaching 90 percent by the 2050s, or approximately the same level as in the Belle Époque.

For the first time in history, no doubt, one could live better by obtaining a job in the top centile rather than an inheritance in the top centile: study, work, and talent paid better than inheritance.

If the global growth rate is high, the relative growth rate of very large fortunes will remain moderate—not much higher than the average growth rate of income and wealth.

In this respect, inflation is indeed a tax on the idle rich, or, more precisely, on wealth that is not invested.

He was convinced that “political democracies that do not democratize their economic systems are inherently unstable.” In his eyes, a steeply progressive inheritance tax was the main tool for achieving the economic democratization that he believed to be necessary.36

In this idealized version, inflation is in a way a tax on idle capital and an encouragement to dynamic capital.

As I noted earlier, debt often becomes a backhanded form of redistribution of wealth from the poor to the rich, from people with modest savings to those with the means to lend to the government (who as a general rule ought to be paying taxes rather than lending).

The principal destabilizing force has to do with the fact that the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g.