[Thomas Piketty] CAPITAL in the Twenty-First Century

  • Title: CAPITAL in the Twenty-First Century
  • Author: Thomas Piketty
  • Published: 2013
  • Publisher: The Belknap Press of Harvard University Press, Cambridge, Massachusetts
  • Translated: Arthur Goldhammer (2014)
  • ISDN-13: 978-0-674-43000-6

Piketty’s “CAPITAL in the Twenty-First Century” aims that there is a scientific approach to determine what (economic) factors cause inequality of wealth. Piketty relies on statistical and historical data to back up his hypothesis.

His main ideas are:
If the income comes more from capital than labor, the inequality of wealth increases.

α = r × β

  • α: the share of capital income in national income
  • r: the average rate of return on capital
  • β: the capital/income ratio

If the ratio of capital/income (β) increases, the inequality of wealth increases.

β = s/g

  • s: savings rate
  • g: growth rate

The higher the growth rate, the less ratio of capital/income – long term effect.

The solution is the Progressive Tax nationally and globally, especially for income from capital.

Quantizing the social issue is not only a difficult task but also a dangerous one. You might recall what had happened in McNamara’s analysis system during the Vietnam war. But Piketty’s approach has its merit; it has the power of persuasion; it gives an authority. No wonder the book became a best seller. Many scholars pointed out errors in his approach, but it is hard to refute the main argument: emphasis on the equality of wealth over the inequality and how capital is linked to this process.

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