Book Review: Capital in the Twenty-First Century

Abstract

Capital in the Twenty-First Century. By Thomas Piketty. Translated by Arthur Goldhammer. Cambridge, Mass.: The Belknap Press of Harvard University Press, 2014. 696 pp. $39.95 (cloth).In an earlier time, Anglicans such as Robert Malthus, R. H. Tawney, William Temple, and Denys Munby publicly debated the states proper involvement in economic life. In the early 1940s Temple and J. M. Keynes exchanged letters: Temple would later lead the 1941 Malvern Conference, which would become the moral foundation for the British Welfare State, and he would spread its message with the book Christianity and Social Order. More recently, Anglican theologians such as Kathryn Tanner, and economists such as A. M. C. Waterman, Deirdre McCloskey, and Paul Heyne, have attended to issues of moral economy.Once in a generation, however, a book changes the scope of debate. Thomas Piketty's Capital in the Twenty-First Century places this question: What are the roots of inequality at the center of our conversation? His answer: Wealth accumulates when there is low economic growth but high returns from capital. The market, left alone, naturally leads to divergence of income; capital flows upward, accumulating toward the top, and eventually entrepreneurs become rentiers. He demonstrates why inheritance predominates over saving and how wealth from the past grows more than wealth from work. Although not a necessary law, it is consistent throughout history with one exception-the mid-twentieth century until 1980, when there were powerful forces for convergence.Piketty explains how the innovation of the middle class, an exception to market forces, transformed Europe, also observing that republican virtues and capital returns are not necessary partners. He dissects the difference between merit and luck, effort and compensation. He shows that inequality in the U.S. arose from the salaries of supermanagers-who, once marginal tax rates decreased, began to set their own salary.Piketty argues that widespread divergence can be powerful enough to threaten the basis for democratic governments and the institutions of justice that undergird them. When there is greater inequality, the temptations of nationalism and identity politics grow stronger (p. 539), and commerce is less stable.Piketty suggests a global tax of 1-2 percent on capital (rather than income) upon the superrich. This would force them to use their wealth more efficiently, selling assets to more dynamic investors, increasing growth (p. 526). This is contingent upon greater transparency in the banking system, which would reveal how the wealthy accumulate their money (p. …