Capital in the Twenty-First Century

by Thomas Piketty

When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.

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.

According to Kuznets’s theory, income inequality would automatically decrease in advanced phases of capitalist development, regardless of economic policy choices or other differences between countries, until eventually it stabilized at an acceptable level.

Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.

When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century and as is likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income. People with inherited wealth need save only a portion of their income from capital to see that capital grow more quickly than the economy as a whole.

National income is defined as the sum of all income available to the residents of a given country in a given year, regardless of the legal classification of that income.

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.

Rhenish capitalism” or “the stakeholder model,” that is, an economic model in which firms are owned not only by shareholders but also by certain other interested parties known as “stakeholders,” starting with representatives of the firms’ workers (who sit on the boards of directors of German firms not merely in a consultative capacity but as active participants in deliberations, even though they may not be shareholders), as well as representatives of regional governments, consumers’ associations, environmental groups, and so on.

a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income), which can in turn have a significant effect on the social structure and distribution of wealth.

Not just for countries but for individuals as well. The more you're able to save, the more capital you're able to build to use for investment hence the wealthier you're likely to become.

capital fulfills two economic functions: first, it provides

housing (more precisely, capital produces “housing services,” whose value is measured by the equivalent rental value of dwellings, defined as the increment of well-being due to sleeping and living under a roof rather than outside), and second, it serves as a factor of production in producing other goods and services (in processes of production that may require land, tools, buildings, offices, machinery, infrastructure, patents, etc.).

Progress toward economic and technological rationality need not imply progress toward democratic and meritocratic rationality. The primary reason for this is simple: technology, like the market, has neither limits nor morality.

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

Whenever the rate of return on capital is significantly and durably higher than the growth rate of the economy, it is all but inevitable that inheritance (of fortunes accumulated in the past) predominates over saving (wealth accumulated in the present).

To sum up: the capital tax is a new idea, which needs to be adapted to the globalized patrimonial capitalism of the twenty-first century. The designers of the tax must consider what tax schedule is appropriate, how the value of taxable assets should be assessed, and how information about asset ownership should be supplied automatically by banks and shared internationally so that the tax authorities need not rely on taxpayers to declare their own asset holdings.

financial transparency and a progressive global tax on capital are the right answers.