Capital in the Twenty-First Century

Abstract

Capital in the Twenty-First Century. Thomas Piketty (translated by Arthur Goldhammer). Harvard University Press: Cambridge, MA, 577 pages, 2014.This book gives an historical account of the developed world's capital from 1700 to 2012 (capital as one of the four factors of production: land, labor, capital, and entrepreneurship). It is a New York Times best seller, an award winner (British Academy Medal; Financial Times and McKinsey Business Book of the Year Award, and National Book Critics Circle Award), and the best sales success ever for Harvard University Press. The author spent a great deal of time going through government records and other sources in both Europe and the United State amassing data for this book, and contends his database is the most complete of its kind to date.Over history two authors come to mind who have taken on this sort of study: (1) Karl Marx in Das Kapital (1867)1 and Simon Kuznets [e.g., National Income and Capital Formation (1937) and Population, Capital, and Growth (1973)].2 Both reached opposing conclusions in forecasting how capital would accumulate and how income and capital would be divided among populations of developed countries. For Marx, capitalism sows the seeds of its own destruction, and so inequality of capital (and the return on capital) is bound to grow to destructive levels. Although Kuznet's raw data covered just a short period of time, he thought that things would work out fine, without income and capital inequality becoming any source of distress. Marx's data was anecdotal and Kuznet's data harbored a myopic view of what drove capital and income accumulation. Piketty says neither Marx nor Kuznets had the proper amount and types of data to properly take on this kind of study.There are four parts to the book. The first three parts are devoted to setting out his findings and discussing them, while the fourth, entitled Regulating Capital in the Twenty-First Century, is normative. The author divides capital into four very broad categories: agricultural land, housing,3 other domestic capital (including what we usually think of as capital, like factories and machinery), and net foreign capital (capital extracted from foreign counties less capital brought in). The measure of a country's capital for comparative purposes is made using its capital /income ratio: the number of years of national income its capital is worth. (For instance Britain's capital was worth about 51?2 times its national income in 2010.) The book focuses on France, Britain, Germany, the United States, and Canada, as developed countries, since data are plentiful for those countries, although Italy, Australia, Sweden (and Scandinavia as a whole), and Japan are also examined. Developing countries examined include India, China, South Africa, Indonesia, Columbia, and Argentina.There are several findings that, though secondary to the author's main findings, are truly eye-opening: (1) over the past 312 years, there was virtually 0 inflation between 1700 and 1912, significant inflation between 19134 and 1990, and very low inflation between 1990 and 2012 (about 2%); (2) agricultural land was a very significant portion of nations' total capital from 1770 to about 1900, falling to a very small portion after 1950; (3) slaves were a large portion of capital in the U.S. (mainly in southern states) from 1700 to 1865;5 (4) the U.S. and France had national minimum wage laws in 19336 and 1953, respectively, while Sweden and Germany have never had one, although the latter countries today have lower labor income inequality; (5) net foreign capital in developed countries fell to insignificant levels after about 1930 (after world decolonization).REAL ESTATEThis book is so chock full of interesting material that including a few of the author's incites on real estate suits me fine. The first thing to keep in mind is that land in the context of the four factors of production (inputs for the production of goods and services) does not include improvements to real estate. …