A spectre is haunting the review pages – the spectre of Capital in the Twenty-First Century. This is the title of a book by the French economist Thomas Piketty. About two months after its release, it’s already an all time bestseller for Harvard University Press (Belknap) who sold 41,000 copies and counting – which is quite remarkable for an +600 pages academic publication (albeit intended for a wider circle of ‘interested’ individuals). This fact alone shows how timely this publication is for the debates about capitalism’s ‘new normal’ and its future after the Great Financial Crisis which unearthed and in many cases accelerated the economic disruptions that mounted at least since the mid 1970s.

Put simply, it challenges the mainstream view that capitalism is creating prosperity not only for a few on the top but for a broad middle class. This view is connected to the work of Simon Smith Kuznets who argued that even though inequality will rise when a country’s economy is ‘taking off’ it will come down after some time. This theory can be visualized as the so-called Kuznets-Curve (below).

Kuznets curve

This essentially putt an end (at least in mainstream economic theory) to the discussion stemming from Marx whether at the core of capitalism lies an inherent contradiction which will eventually bring about its own demise. Namely that the logic of competition within the accumulative process of capital formation forces down wages what leads to an ever-increasing class division between the bourgeoisie (few) and the proletariat (many)—until the latter will revolt and overcome the whole capitalist system of production.

After Kuznets the Marxist ‘immiseration thesis’ was replaced by the brighter prospect of (Fordist) capitalism producing a ‘leveled middle class society’ (Helmut Schelsky). At the time, this not only was an appealing theory for entrepreneurs but also for western politicians as a ‘marketing device’ during the Cold War’s ‘East-West competition’. 

Now Piketty thinks the methodological approach employed by Kuznets was and is sound but there were shortcomings in regard to the dataset used. Kuznets only dealt with one country, the United States, and just for a brief period of 35 years from 1913 to 1948. Piketty says in retrospect this was misleading because the fall in inequality after the Second World War observed by Kuznets corresponds to what in France is called the ‘trente glorieuses’ (aka ‘the golden age of capitalism’ or (German) ‘Wirtschaftswunder’; i.e. the glorious period between 1945 and 1975).

This is where we arrive at the common consensus about Piketty’s unquestionable achievement. He and some colleagues invested much time in reconstructing the income distribution for a much larger time frame. This opens up a space for analysis that was never available before because there simply wasn’t any such comprehensive (in terms of time and number of countries) dataset available. This broader view shows that Kuznets argument loses its persuasiveness because we see a return of inequality since at least the 1980s on a scale not seen since the 1920s. The graph below shows the amount of inequality measured as the share of national income of the top 10% with the (short-term) inverted U-shape observed by Kuznets (in red) and the (long-term) U-shape revealed by Piketty (in blue).

US inequality

Contemplating on the historical record Picketty then arrives at a very simple–but by its implications highly provocative–formula: r>g. What this means is that the rate of return (r) on capital is greater than the rate of economic growth (g). So even though we witness reduced rates growth since the 1970s (main factors are declining population growth and slower technological change) the rate of return of capital is not falling in lockstep but at a slower pace which in turn widens the equality gap. But in contrast to Marx who thought in terms of inescapable contradictions of the capitalist mode of production as such Piketty places emphasis on the role of politics in the equation. In other words we can choose which future path our societies, either towards a new ‘patrimonial’ capitalism with levels of inequality never seen before or a comeback of more egalitarian policies that bring inequality down to an eligible level. Along this line the main policy prescription Piketty suggests is a global wealth tax.

So Piketty’s analysis spearheads the critique of neoliberal advocacy of ‘trickle down’ economics, i.e. the belief that reduced taxes on wealth, inheritance, and top incomes would boost investment and consumption and thus create new businesses and jobs and by this means a thriving middle class. He shows that this is simply false; or as I would prefer to call it: ideology. There have been many critics of neoliberalism since the 1970s but until now none has been able to do it with such empirical rigor. I doubt that this will save Piketty from a right-wing ‘shitstorm’–for lack of a better word–but for many it will relieve the critique of the overall economic policy during the past 30 years from the accusation of being a fringe leftist fantasy.

Lets hope Piketty’s book gives a reality check to those who believed that distribution doesn’t matter because the (neoclassical) theory says everyone’s income corresponds to their marginal product.  An alternative title for Piketty’s book could thus have been: Putting Distribution back into Economics.

Some notable reviews


Branko Milanovic: “The return of ‘patrimonial capitalism’. Review of Thomas Piketty’s Capital in the 21st century.” MPRA Paper No. 52384.

Paul Krugman: “Why We’re in a New Gilded Age.” NYRB.

James K. Galbraith: “Kapital for the Twenty-First Century?” Dissent.

Robert M. Solow: “Thomas Piketty Is Right. Everything you need to know about ‘Capital in the Twenty-First Century’.” New Republic.

Lawrence Summers: “America risks becoming a Downton Abbey economy.” Financial Times.

Martin Wolf: “‘Capital in the Twenty-First Century’, by Thomas Piketty.” Financial Times.

John Cassidy: “Forces of Divergence. Is surging inequality endemic to capitalism?” New Yorker.


Allan H. Meltzer: “The United States of Envy.” Defining Ideas.

Joshua R. Hendrickson: “Review of Piketty’s Capital in the 21st Century.” National Review (forthcoming).

Scott Winship: “Whither The Bottom 90 Percent, Thomas Piketty?” Forbes.

See Harvard University Press’s website for more links.

Piketty, Stiglitz, Krugman discussing  ‘Capital in the Twenty-First Century’ at CUNY