I have heard it said this is a
difficult book, and I disagree—I found it a pleasure to read. Piketty is a good
writer and explains economic terms and concepts very clearly. The only thing
required of a reader is the patience to read page after page of descriptions of
wealth in various times. I have no training in economics, so if you want an economist’s
review of this book, check out Paul Krugman’s review in the New York Review of Books. However, I
have become more and more convinced of the importance of economics in politics
and history, so I have attempted to educate myself. This then is the impression
of Capital by a semi-educated layperson.
Piketty has analyzed an
unprecedented amount of data on wealth and has come to the conclusion that
there is a fundamental mathematical equation that not only explains income and
wealth inequality, but also explains why it will always tend to increase and
concentrate over time.
This equation is r >
g, where r stands for rate of return on capital and g stands for growth of the
overall economy. For most of the period for which there are statistics (beginning
about 1800), r has been greater than g, and this means capital increases
seemingly without limit during these periods.
Much of the 20th
century was an anomaly because of the two world wars and the Great Depression. First,
these events destroyed vast amounts of wealth, particularly in Europe. Second,
they also impacted the values of r and g. The US and Britain pioneered the
concept of confiscatory taxes at the highest income levels—up to 90%, which
reduced r, the rate of return on capital. In addition, there was a great deal
of rebuilding to be done in Europe, an arms race in the US to finance, and an
explosion of consumer products for the new middle-class to purchase (telephone,
radio, washing machine, refrigerator, car, television, computer), which greatly
inflated g, the growth rate. For a few decades after 1950 the basic equation of
capitalism was reversed—g was greater than r. This automatically lowered income
inequality, and created the false impression that capitalism had been tamed and
wealth inequality was a relic of the past.
