The New York Times columnist Paul Krugman has written that Capital in the Twenty-First Century, Thomas Piketty’s new book on inequality and wealth, “will change both the way we think about society and the way we do economics.” Clive Crook describes the raptures with which intellectuals have greeted the book as almost “erotic.” President Obama’s advisers have been buttonholed about Piketty at speaking appearances from here to Dublin. Capital has reached number one on Amazon.com. It will provide the template for a lot of sweeping left-wing tax proposals in the coming years. It has been likened to Paul Kennedy’s Rise and Fall of the Great Powers and Reinhardt and Rogoff’s This Time Is Different. But in appearance and éclat, this staid, graph-and-table-clogged tome bears the strongest resemblance to Charles Murray and Richard Herrnstein’s book on intelligence, The Bell Curve, published 20 years ago. Like that book it is a sober work of social science from which one or two points have been made the subject of polemic. Unlike that book, Capital is beloved of elites—which is curious, since it purports to be an attack on elites.
Piketty is a number cruncher. Economists who study inequality have argued over and cited his work for a decade and a half. This new book does something more ambitious than just compare rich and poor. Thanks to computers and the spread of English as an academic lingua franca, it has become easier to cross-compare vast economic databases across long periods of time. Piketty has used wills, census records, and tax documents to measure the distribution of wealth and income in dozens of countries over long periods—all the way back to the eighteenth century in the case of France and Britain. He defines capital (or wealth, which he uses as a synonym) as “nonhuman assets that can be owned and exchanged on some market.” He has discovered that, in the societies we can measure, the importance of capital tends to be stable across time. In the nineteenth and early twentieth centuries, the stock of capital was worth about seven times the national income in Europe and about five times the national income in the United States. (The difference has to do with the availability of cheap land and higher levels of productivity.)
Those societies were unequal: In the United States and Britain in 1910, the richest 1 percent of citizens hauled in about a fifth of the income. And such societies tended to get more unequal because the rate of return on capital (r) is generally higher than the rate of growth (g) in the economy as a whole. Remember the formula
r > g
because it will soon be on T-shirts in college bookstores near you. Investments traditionally get a return of about 5 percent in Europe, 4 percent in the United States, while leading-edge economies grow, on average, at 1 or 1.5 percent a year. So the rich get richer.
The only reason we don’t already have the class structure of a banana republic is that, for a few decades in the mid-twentieth century—roughly the years of the world wars and the Great Depression—capital stock was destroyed by bombs and its value undermined by inflation. But in recent decades r > g has once more begun doing its insidious work. Our capital/income ratios are approaching those of a century ago. In the United States, “income from labor is about as unequally distributed as has ever been observed anywhere.” At book’s end Piketty puts forward a few suggestions for action. They are quite radical. One is a global tax on wealth. Piketty also suggests that European national budgets, which take up half of GDP in some countries, might have room to grow.
Certain reviewers have conflated Piketty’s views with those of Karl Marx—hopefully in the case of the Nation, despairingly in the Wall Street Journal. The latter, in a piece called “Thomas Piketty Revives Marx for the 21st Century,” claimed to see in his work “a moral illegitimacy to virtually any accumulation of wealth” and a hostility to growth. “Not that enhancing growth is much on Piketty’s mind,” the Journal adds, “either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum.” This is all wrong. Piketty, while a leftist of a kind, is explicitly anti-Marxist. He believes Marx’s ideas of falling rates of profit are based on a primitive conception of productivity, and he runs down a variety of French leftist philosophers—Jean-Paul Sartre, Louis Althusser, Alain Badiou—in his footnotes.