Capital in the Twenty-First Century

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.

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

For millions of people, “wealth” amounts to little more than a few weeks’ wages in a checking account or low-interest savings account, a car, and a few pieces of furniture. The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. That is why it is so essential to study capital and its distribution in a methodical, systematic way.

What was the good of industrial development, what was the good of all the technological innovations, toil, and population movements if, after half a century of industrial growth, the condition of the masses was still just as miserable as before, and all lawmakers could do was prohibit factory labor by children under the age of eight?

Democracy will never be supplanted by a republic of experts—and that is a very good thing.

Social scientific research is and always will be tentative and imperfect. It does not claim to transform economics, sociology, and history into exact sciences. But by patiently searching for facts and patterns and calmly analyzing the economic, social, and political mechanisms that might explain them, it can inform democratic debate and focus attention on the right questions. It can help to redefine the terms of debate, unmask certain preconceived or fraudulent notions, and subject all positions to constant critical scrutiny. In my view, this is the role that intellectuals, including social scientists, should play, as citizens like any other but with the good fortune to have more time than others to devote themselves to study (and even to be paid for it—a signal privilege).

As long as the incomes of the various classes of contemporary society remain beyond the reach of scientific inquiry, there can be no hope of producing a useful economic and social history.

this fear of growing to resemble Europe was part of the reason why the United States in 1910–1920 pioneered a very progressive estate tax on large fortunes, which were deemed to be incompatible with US values, as well as a progressive income tax on incomes thought to be excessive. Perceptions of inequality, redistribution, and national identity changed a great deal over the course of the twentieth century, to put it mildly.

United States... on the one hand this is a country of egalitarian promise, a land of opportunity for millions of immigrants of modest background; on the other hand it is a land of extremely brutal inequality, especially in relation to race.

the decrease in the top marginal income tax rate led to an explosion of very high incomes, which then increased the political influence of the beneficiaries of the change in the tax laws, who had an interest in keeping top tax rates low or even decreasing them further and who could use their windfall to finance political parties, pressure groups, and think tanks.

When it comes to decreasing inequalities of wealth for good or reducing unusually high levels of public debt, a progressive tax on capital is generally a better tool than inflation.

Among the members of these upper income groups are US academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely. This is a very comprehensible human reaction.

At the heart of every major political upheaval lies a fiscal revolution.

The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.

Indeed, the distribution of wealth is too important an issue to be left to economists, sociologists, historians, and philosophers.

The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes). It had little to do with the tranquil process of intersectoral mobility described by Kuznets.

To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.

Refusing to deal with numbers rarely serves the interests of the least well-off.

The second conclusion, which is the heart of the book, is that the dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence and divergence. Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently.

In contrast to what many people in Britain and the United States believe, the true figures on growth (as best one can judge from official national accounts data) show that Britain and the United States have not grown any more rapidly since 1980 than Germany, France, Japan, Denmark, or Sweden. In other words, the reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of supply-side theory) or at any rate did not stimulate productivity enough to be statistically detectable at the macro level.

if we consider the total growth of the US economy in the thirty years prior to the crisis, that is, from 1977 to 2007, we find that the richest 10 percent appropriated three-quarters of the growth. The richest 1 percent alone absorbed nearly 60 percent of the total increase of US national income in this period. Hence for the bottom 90 percent, the rate of income growth was less than 0.5 percent per year.

A capital tax is the most appropriate response to the inequality r > g as well as to the inequality of returns to capital as a function of the size of the initial stake.

All signs are that the Scandinavian countries, where wage inequality is more moderate than elsewhere, owe this result in large part to the fact that their educational system is relatively egalitarian and inclusive.

Social distinctions can be based only on common utility.” —Declaration of the Rights of Man and the Citizen, article 1, 1789

The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.

Contrary to a tenacious myth, France is not owned by California pension funds or the Bank of China, any more than the United States belongs to Japanese and German investors. The fear of getting into such a predicament is so strong today that fantasy often outstrips reality. The reality is that inequality with respect to capital is a far greater domestic issue than it is an international one.

In Europe today, the capital/income ratio has already risen to around five to six years of national income, scarcely less than the level observed in the eighteenth and nineteenth centuries and up to the eve of World War I.

To my knowledge, no society has ever existed in which ownership of capital can reasonably be described as “mildly” inegalitarian, by which I mean a distribution in which the poorest half of society would own a significant share (say, one-fifth to one-quarter) of total wealth.

In Britain, things were done differently: more slowly and with less passion.

The general evolution is clear: bubbles aside, what we are witnessing is a strong comeback of private capital in the rich countries since 1970, or, to put it another way, the emergence of a new patrimonial capitalism.