Capital in the Twenty-First Century – A Review from a Layman’s Perspective

Capital in the Twenty-First Century

Capital in the Twenty-First Century

With economics knowledge only at the high school level, I am not in a position to judge the merits of Capital in the Twenty-First Century (‘Capital’) written by the French economist, Thomas Piketty, and translated by Arthur Goldhammer. Economist and Financial Times, the vanguards of free market and capitalism, have launched their, sometimes scathing, reviews of the work (also see the links in the extended readings below). Numerous other professional economists and experts must have also put forward their own learned views. What I wish to do here, however, is to review the work from a layman’s perspective; that is from a perspective of a curious reader with a keen passion to know more about the world. Although Piketty intends to write for the general audiences, the length of this work – running more than 600 pages – is formidable even for a non-fiction reader like me. This is especially so as the idea that he espouses does not seem a particularly insightful one.

In short, Capital is about how capital is accumulated and distributed through different economic mechanisms, among which r > g (whereas r = rate of return on capital, g = rate of growth of income and output) is the central force. As r exceeds g, wealth accumulates in a faster rate than output and wages. Consequently, those who initially own capital can generate even greater profits and will eventually become rentier. (Disclaimer: this is a simplistic summary; readers can visit the summary in Economist‘s review, and also see the links below).

The propositions that a very small number of people control the majority of the society’s wealth and that those people are also the dominant class and ruler of the states  are neither a new nor an innovative insight. More than two thousand years ago, Aristotle characterized that kind of society as an ‘oligarchy’. Similar rhetoric is repeated by intellectuals when the nobility was overthrown in the French Revolution. The idea is rekindled as socialism arose in the 19th century and is then ingeniously woven into a grand theory by the grand priest of communism: Karl Marx.

The special significance of Capital does not lie at the repetition of an old idea. Rather, it is the manner of the retelling that agitated the capitalists. Piketty supported his proposition that 10% of the society, and especially the top 1%, can control substantial amount (30% – 50%, depending on different countries) of wealth with a collection of data over three centuries. Although the data are not flawless, as Piketty readily admitted on numerous occasions, they unambiguously point to one direction: wealth inequality has steadily risen since the 1980s and shows a clear trend of reaching to a pre-1914 level – a time when the aristocratic class occupied most, if not all, wealth of the society. The slogan of Occupy Wall Street Movement – “We are the 99%” – ceases to be mere rhetoric and becomes a terrifying economic fact.

The meticulous approach that Piketty treats his data serves to boost the credibility of Capital. He explained the economic concepts,  traced the trends suggested by the data and then described the phenomenon in individual countries. France received the most attention because her data has been the most complete and reliable. After making comparisons among different countries (notably Switzerland and United States of America), he drew some general observations at the end of the chapters.

As a result of such careful analysis, the book is long, and sometimes tedious. This is not assisted by his writing, which, like his analysis, is cool and dispassionate but also dry and dull. I read the English version translated by Arthur Goldhammer. I am not sure whether the writing is more interesting in French.  Examples from Balzac and Austen are interesting at first, but repeated citations from them leads to boredom.  I don’t usually recommend people to skip chapters but due to his (over-)meticulous approach, and unexciting writing, it is advisable to read the more interesting chapters (e.g. the analysis of the structure of inequality in Chapter 7 – 12, and his proposal for global tax on capital in chapter 15).

These minor blemishes aside, Thomas Piketty has more than excelled his role as a public intellectual: to inform the public of the dire direction we are heading to. As Capital already caused an uproar (as giants such as Economist and Financial Times are bothered to write several long articles to review it), it will continue to have impact on any discussions about public spending/debt, pension systems, taxing policies, and etc. It is a book worth reading to prepare yourself for those discussions, and for your own financial future.

Extended Readings: Capital in the long run, A modern MarxData problems with Capital in the 21st Century and Thomas Piketty’s Public Lecture at LSE

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