Capital in the Twenty-First Century

by Thomas Piketty

In order to calculate national income, one must first subtract from GDP the depreciation of the capital that made this production possible: in other words, one must deduct wear and tear on buildings, infrastructure, machinery, vehicles, computers, and other items during the year in question. This depreciation is substantial, today on the order of 10 percent of GDP in most countries, and it does not correspond to anyone’s income: before wages are distributed to workers or dividends to stockholders, and before genuinely new investments are made, worn-out capital must be replaced or repaired. If this is not done, wealth is lost, resulting in negative income for the owners. When depreciation is subtracted from GDP, one obtains the “net domestic product,” which I will refer to more simply as “domestic output” or “domestic production,” which is typically 90 percent of GDP.