One of the hallmarks of the young papacy of Pope Francis has been his repeated critique of what he calls the contemporary “economy of inequality and exclusion.” Some commentators have seen this as an indictment of the present moment, but the pope’s stance would be misinterpreted if it is seen as only a punctual concern rather than as a perennial one. His experience of inequality and its pernicious effects was formed in the crucible of decades accompanying his fellow Argentine citizens in the villas miserias around Buenos Aires. His understanding of inequality is of an entrenched reality, deep-rooted and self-reproducing over the long haul of centuries, and knottingly difficult to overcome.
It is a similar, long-run concern about inequality that motivates Thomas Piketty in Capital. Despite the book’s title, his focus is not so much on capital accumulation and inequality today as it is on inequality across the long span of recorded human history (at least as recorded in business ledgers and government tax data, which extends from approximately 1700 to the present). In this monumental, vitally important work, he forces us to reconsider what we think we know about the baseline functioning of capitalist economies over the long haul, and to grapple with the implications for ourselves and our times.
Piketty’s approach is data-driven. In detective-like fashion, he has collected the most complete historical series on distributions of income and wealth ever assembled, and this data allows him to articulate a penetrating and highly accessible account of the long evolution of inequality within advanced industrial nations. France and the United States receive the most extensive treatment, but he also presents data for several other developed nations, and offers suggestive evidence based on limited data for patterns of inequality in developing countries. The findings are numerous and sobering, and nearly every page of the book rewards a careful reading with new insights and intriguing questions.
First, Piketty convincingly shows that inequality among citizens—and even gross inequality—is anything but a new phenomenon; it is, and has been, perennial. He documents this wide disparity in both incomes (current earnings) and wealth (accumulated capital), noting how both have always remained high, but have ebbed and flowed since 1700, and highlighting how they peaked in the Belle Epoque prior to the world wars and Great Depression.
In doing this, he offers us a baseline for thinking about inequality of wealth in terms of three social groups or classes. With meticulously presented data, he shows how “in all known societies, at all times, the least wealthy half of the population own virtually nothing (generally little more than 5 percent of total wealth); the top decile of the wealth hierarchy own a clear majority of what there is to own (generally more than 60 percent of total wealth and sometimes as much as 90 percent), and the remainder of the population…own from 5 to 35 percent of all wealth.” This is a useful short summary, like many he provides throughout the text, to keep in mind when thinking about inequality over the long run.
Next, Piketty provides an explanation for why this concentration has occurred: accumulated wealth has allowed holders of capital to invest in their own families and productive ventures, as well as to pass down their wealth through inheritance, allowing them to outpace the advances from non-capital holding peers. He summarizes this finding by stating that the return on capital (which he labels r) exceeds the growth rate of the economy (g); or more elegantly, r>g. He emphasizes that this is “a historical fact, and not a logical necessity.” Over much of the period he studies, returns on capital have approximated 5 percent, while overall economic growth has ranged from about 1 to 3 percent. These numbers have varied greatly through time, but the long-run averages mean that holders of capital see their total worth increase more quickly than those whose earnings come only through their labor.
However, two significant changes occurred in the 20th century that temporarily disturbed, and noticeably improved, this equilibrium. Counterintuitively, the first was the monumental devastation of the world wars and Great Depression. This caused a massive drop in inequality, driven by the loss of wealth by those at the top of the distribution as they lost land and factories in Europe and savings in the United States. The rich thus fell from their heights, and consequently the period from roughly 1950 to 1990 displayed much lower concentrations of wealth than at any other time in recent centuries. In fact, the widespread devastation gave rise to a period of rebuilding and innovation in which, briefly, some countries saw overall economic growth exceed the rate of return on capital.
The second trend built on the first. The process of reconstruction, industrial growth and increased education created opportunities for the emergence of what Piketty terms a “patrimonial middle class.” This group is made up of the roughly 40 percent of citizens who are “distinctly wealthier than the poorer half of the population.” They are the upwardly mobile citizens who for the first time in history began to own homes, property and significant productive assets and to especially benefit from higher education and employment in managerial positions.
Nevertheless, the era of reduced inequality was extremely short-lived, and the long term trend of r>g reasserted itself well before the end of the 20th century. A vast trickle-down of wealth did not occur, and social mobility rapidly diminished. What Piketty challenges us to recognize, then, is that in the long view, the middle portion of the 20th century was remarkably anomalous. It featured an unprecedented destruction of wealth in the richest economies, lowering inequality to levels that were far from the historical average, and it then experienced atypical growth, far surpassing long-term trends. Alarmingly, he then argues that the 21st century is likely to look more like the 19th century, and he presents considerable evidence that the concentration of wealth today is now approaching (and in some countries surpassing) the levels of the Belle Epoque. In other words, based on the historical record, wealth inequality within countries is at an all-time high and is only likely to increase.
Notice, though, that Piketty’s indictment of capitalism’s tendency toward inequality is not axiomatic. It does not claim that capitalism inexorably produces inequality. Rather, his critique is empirical, and for this reason it is perhaps even more disturbing. It shows that for nearly all countries and nearly all periods over the past three centuries for which we have data, capitalism has produced highly unequal concentrations of wealth. This has been true despite variation in levels of state intervention and regulation, differences in leaders and partisan politics and even levels of corruption. Generous European welfare states like Sweden and market-driven countries like the United States, in spite of significant differences on the margin, all follow the same general pattern of high concentrations of wealth until the Belle Epoque, a decline of wealth and inequality following the world wars and the Great Depression and rising concentrations of wealth in recent years.
Piketty offers an antidote to this trend, but it is one that he admits is a political non-starter: a “global tax on capital” that would slow down ongoing capital concentration and transfer resources to the least wealthy citizens of the planet. In doing so, he echoes calls offered by both Pope Benedict and Pope Francis for a “world political authority” to “manage the global economy” (“Charity in Truth”). But recognizing that such a utopian proposal would be practically unenforceable, Piketty chooses to devote less than 10 percent of his text to it, and indeed the book should probably not be judged on the basis of it.
Rather, his analysis of the dimensions of the long-run trends of capital concentration are his chief contribution, and these deserve a careful and repeated reading. Indeed, in the best tradition of academic transparency, Piketty has made all his data accessible on the Internet. This guarantees the opportunity for critiques, re-analyses and expansions of his work by other scholars, and these will only increase our understanding of both long-term and recent implications of inequality in our world (especially as his efforts are replicated for countries beyond those he has studied, especially among developing economies).
In the end, Piketty challenges us to learn from the “imperfect lessons of history,” hard-earned in the last century, and suggests that we must do so with the “interests of the least well-off” in mind. His book does precisely this, providing us with a compelling new long-term view on income, wealth and inequality, and challenging us to consider how we will use our moment in history to address this crucial issue of our age and every age.