Capital Accumulation and Policy Recommendations: A Review Essay of Thomas Piketty’s Capital in the Twenty-First Century

Thomas Piketty’s most recent book, Capital in the Twenty-First Century (Belknap Press of Harvard University Press, 2014) is both ambitious and impressive. This should come as no surprise to anyone at this point. The book is ambitious because Piketty sets out to do nothing less than to sketch out the evolution of income and capital since the 18^th century and up to the end of the 21^st century. His enquiry has much in common with Karl Marx’s enquiry in Das Kapital. Piketty’s enquiry is similarly entitled. This was not a coincidence. The book presents itself as the contemporary equivalent to Marx’s classic. The book is 685 pages long. This almost seems short given the daunting task that needs to be accomplished. Piketty’s book is impressive for many reasons. First, as a contemporary treatise of economics, it distances itself from the discipline of economics’ “childish passion for mathematics and for purely theoretical and often highly ideological speculation,” and emphasizes “historical research and collaboration with the other social sciences,” to use Piketty’s words (32). Second, it has become a best seller! The original French version of the book, Le Capital au XXIe siècle (Paris, Seuil) was published in 2013, and millions of copies have since been sold, including German, Spanish, and Chinese translations. The book’s success may have a lot to do with touching upon the right subject—economic inequalities—at the right moment. Still, when was the last time an academic book in economics, let alone a rather dense and longish one, made it to the mass market? Finally, and most importantly, the book is impressive in terms of what it delivers. There are at least three different kinds of contributions in Piketty’s work: Admittedly, this was not Piketty’s contribution alone. Collaborators like Anthony Atkinson, Emmanuel Saez, and many others were involved; and the World Top Income Database was a primary source of data. When the rate of return on capital r is greater than growth g the result is the concentration of wealth. This force, which Piketty’s expresses with the relation r > g , plays a central role in the book. Furthermore, he argues that it is false to maintain that inequalities tend to decrease in advanced phases of capitalist development, regardless of redistributive economic policies—a position attributed most forcefully to the economist Simon Kuznets. If the capital/income ratio has decreased in comparison to levels observed in the 18^th century, this is mainly because of growth, two destructive world wars, and even more growth following these wars. In the future, the share of capital relative to income, inequality in terms of capital, inequality in terms of income are likely to keep rising, given that the return on capital will probably be larger than growth. If distributive economic policies are not put in place, they are likely to be considerably higher than the low levels observed after the shocks of the 1914-1945 (in a moderately conservative scenario). Piketty recommends the institution of a progressive global tax on capital. This is one of the main political implications of the book. He also recommends more investment in education, much higher rates of income taxation, and the development of “new forms of property and democratic control of capital” (569). The second contribution (2a and 2b) is the analysis portion of the book. Most of the text is devoted to this analysis. It runs from Part One to Part Three, or almost 428 pages. Contribution (3) is the solution portion of the book. Piketty proposes his solutions in the fourth and last part. Unfortunately, all parts may not be of equal worth …