Capital in the Twenty-First Century

by Thomas Piketty

In this book, capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market. Capital includes all forms of real property (including residential real estate) as well as financial and professional capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies.

Nevertheless, democratic modernity is founded on the belief that inequalities based on individual talent and effort are more justified than other inequalities

inequality with respect to capital is always greater than inequality with respect to labor.

InequLity on capital is larger than in labour; it is also more concentrated.

To be clear, the designations “lower class” (defined as the bottom 50 percent), “middle class” (the middle 40 percent), and “upper class” (top 10 percent) that I use in Tables 7.1–3 are quite obviously arbitrary and open to challenge.

Thus to judge the inequality of a society, it is not enough to observe that some individuals earn very high incomes. For example, to say that the “income scale goes from 1 to 10” or even “1 to 100” does not actually tell us very much. We also need to know how many people earn the incomes at each level. The share of income (or wealth) going to the top decile or centile is a useful index for judging how unequal a society is, because it reflects not just the existence of extremely high incomes or extremely large fortunes but also the number of individuals who enjoy such rewards.

a very small minority of the population, it is nevertheless far larger than the superelites of a few dozen or hundred individuals on whom attention is sometimes focused

These are numerically quite large groups who inevitably stand out in society,

the top centile is a large enough group to exert a significant influence on both the social landscape and the political and economic order.

Deciles and centiles are defined separately for income from labor, ownership of capital, and total income (from both labor and capital), with the third being a synthesis of the first two dimensions and thus defining a composite social hierarchy.

the upper class in terms of labor income but to the lower class in terms of wealth, and vice versa. Social inequality is multidimensional, just like political conflict.

which is extremely inegalitarian everywhere

Imagine a society in which average net wealth is 200,000 euros per adult,15 which is roughly the case today in the richest European countries.16 As noted in Part Two, this private wealth can be divided into two roughly equal parts: real estate on the one hand and financial and business assets on the other (these include bank deposits, savings plans, portfolios of stocks and bonds, life insurance, pension funds, etc., net of debts).

members of the first group are therefore on average 25 times as rich as the average member of society, while the members of the second group are barely 4 times richer.

“9 percent” group, at around 1 million euros,

A Major Innovation: The Patrimonial Middle Class

To go back a century in time, to the decade 1900–1910: in all the countries of Europe, the concentration of capital was then much more extreme than it is today.

In this period in France, Britain, and Sweden, as well as in all other countries for which we have data, the richest 10 percent owned virtually all of the nation’s wealth: the share owned by the upper decile reached 90 percent. The wealthiest 1 percent alone owned more than 50 percent of all wealth. The upper centile exceeded 60 percent in some especially inegalitarian countries, such as Britain. On the other hand, the middle 40 percent owned just over 5 percent of national wealth (between 5 and 10 percent depending on the country), which was scarcely more than the poorest 50 percent, who then as now owned less than 5 percent.

upper decile own 60 percent of Europe’s wealth and more than 70 percent in the United States.20 And the poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910.

It is tempting to conclude that nothing has really changed: inequalities in the ownership of capital are still extreme (see Table 7.2).

A person who has a fortune of 200,000 to 300,000 euros may not be rich but is a long way from being destitute, and most of these people do not like to be treated as poor. Tens of millions of individuals—40 percent of the population represents a large group, intermediate between rich and poor—individually own property worth hundreds of thousands of euros and collectively lay claim to one-quarter to one-third of national wealth: this is a change of some moment. In historical terms, it was a major transformation, which deeply altered the social landscape and the political structure of society and helped to redefine the terms of distributive conflict. It is therefore essential to understand why it occurred.

Hence one of the main goals of this book is to understand the conditions under which such concentrated wealth can emerge, persist, vanish, and perhaps reappear.

Finally, let us turn now to inequality of total income, that is, of income from both labor and capital

Note, too, that inequality of total income is closer to inequality of income from labor than to inequality of capital, which comes as no surprise, since income from labor generally accounts for two-thirds to three-quarters of total national income.

Concretely, the top decile of the income hierarchy received about 25 percent of national income in the egalitarian societies of Scandinavia in the 1970s and 1980s (it was 30 percent in Germany and France at that time and is more than 35 percent now). In more inegalitarian societies, the top decile claimed as much as 50 percent of national income (with about 20 percent going to the top centile). This was true in France and Britain during the Ancien Régime as well as the Belle Époque and is true in the United States today.

When it comes to the ownership of capital, such a high degree of concentration is already a source of powerful political tensions, which are often difficult to reconcile with universal suffrage.

In this respect, the principal message of Tables 7.1–3 is surely that there are two different ways for a society to achieve a very unequal distribution of total income (around 50 percent for the top decile and 20 percent for the top centile). The first of these two ways of achieving such high inequality is through a “hyperpatrimonial society” (or “society of rentiers”): a society in which inherited wealth is very important and where the concentration of wealth attains extreme levels (with the upper decile owning typically 90 percent of all wealth, with 50 percent belonging to the upper centile alone). The total income hierarchy is then dominated by very high incomes from capital, especially inherited capital. This is the pattern we see in Ancien Régime France and in Europe during the Belle Époque, with on the whole minor variations. We need to understand how such structures of ownership and inequality emerged and persisted and to what extent they belong to the past—unless of course they are also pertinent to the future. The second way of achieving such high inequality is relatively new. It was largely created by the United States over the past few decades. Here we see that a very high level of total income inequality can be the result of a “hypermeritocratic society” (or at any rate a society that the people at the top like to describe as hypermeritocratic). One might also call this a “society of superstars” (or perhaps “supermanagers,” a somewhat different characterizatio...

In particular, Tables 7.1–3 include indications of the Gini coefficients of the various distributions considered. The Gini coefficient—named for the Italian statistician Corrado Gini (1884–1965)—is one of the more commonly used synthetic indices of inequality, frequently found in official reports and public debate. By construction, it ranges from 0 to 1: it is equal to 0 in case of complete equality and to 1 when inequality is absolute, that is, when a very tiny group owns all available resources.

The social reality and economic and political significance of inequality are very different at different levels of the distribution, and it is important to analyze these separately.