Book review

Thomas Piketty’s best-selling ‘Capital in the Twenty-first Century’ is all it’s cracked up to be

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Every now and then, something smart comes along and jars what seemed like an ironclad inverse relationship between a book’s popularity and its intellectual merit. “Capital in the Twenty-First Century,” a densely footnoted and immaculately sourced tome by the French economist Thomas Piketty, does just that, drawing praise from ivory tower academicians and Main Street alike.

By Thomas Piketty.
Translated from the French by Arthur Goldhammer.
Belknap Press/Harvard University Press ($39.95).

Mr. Piketty traces what he calls, in a rare moment of stylistic over-flourish, “the central contradiction of capitalism.” Implicit to capitalism are forces that can alleviate or worsen the problem of income inequality, but the tension between those forces is not necessarily balanced.

“Capital” persuasively argues that one particular force for divergence, the rate of return on capital, or already acquired wealth, exceeding general economic growth, has come to dominate the others, thereby making the rich richer and exacerbating income inequality.

And while the book’s run atop the best-seller lists has been breathtaking, its allure is simple: “Capital” sings a requiem for the American dream. Deepening consciousness of income inequality and crony capitalism has engendered the perception that the markets are rigged and that government is an elaborate cover for special interests. Things like top 1 percent, even top 0.1 percent, creep into the lexicon.

But it’s not just political saliency — “Capital” is a book about economics, but it is not an economist’s book. Mr. Piketty writes an accessible, analytical history in the mode of de Tocqueville’s “Democracy in America,” but he does not shy away from the deep discussion of society that puts him in the company of thinkers such as Adam Smith, David Ricardo and Karl Marx.

Mr. Piketty avoids the temptation to get lost in a thicket of theory. He chastises the economic discipline for its “childish passion for mathematics” and “purely theoretical and often highly ideological speculation.” Indeed, graduate-level macroeconomics these days requires a certain familiarity with stochastic calculus, fancy inter-temporal utility models, and a good amount of pain and suffering.

Instead, Mr. Piketty conveys his points with the least amount of mathematics necessary, although a robust technical appendix online allows the motivated reader to trace his statistical sleuthing.

Abstract concepts are presented as clear examples — Mr. Piketty illustrates the stability of the return rate on capital in the 19th century through the novels of Jane Austen and Honore de Balzac; the evolution of net foreign assets of developed countries through “Mad Men”; the capital structure of the antebellum South through Quentin Tarantino’s movie “Django Unchained.”

Mr. Piketty revived the method of using income tax returns to track income inequality in his native France — a technique that was extended to multiple countries over the past decade. By combining those data with national accounts statistics, Mr. Piketty is able to trace the evolution of income inequality since the early 18th century. (In May, a Financial Times writer charged Mr. Piketty with sloppy mathematics and misleading methods, although the explosive charge seems to be a dud from which the book’s thesis emerged unscathed.)

What the French economist finds is fascinating: Private wealth greatly exceeded national income back then, effectively ensuring that inherited wealth was much more important than labor during the Industrial Age. This trend toward ever-increasing inequality was the tragedy that so moved Marx that he theorized that the owners of capital would gradually accrue all wealth through the process of “infinite accumulation.”

Marx’s apocalyptic predictions turned out to be wrong. The trend toward greater inequality was disrupted by the Great Depression and two world wars that massively depleted global wealth. Income inequality is resurgent, and it now approaches the levels last seen in the Gilded Age or Belle Epoque of Mr. Piketty’s native France.

Mr. Piketty marvelously parses the causes of this troubling trend, identifying the privatization and tax-cut crazes of the 1970s and 1980s as a motivating factor as well as the rise of super-salaried workers like CEOs and financiers. But the more pernicious force at work is the rate of return on capital exceeding economic growth, which increases the importance of inherited wealth and pushes society closer to a system of “patrimonial capitalism.”

Although “vaccinated for life against the conventional but lazy rhetoric of anti-capitalism,” Mr. Piketty worries that the concentration of capital could rise to “levels potentially incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies” — a notion that channels into populist, anti-establishment politics that enthralls American liberals and conservatives alike.

At a time when money is increasingly important to political candidates, there’s a chance that economic inequality might morph into political inequality. And as Tocqueville once observed: “What is most important for democracy is not that great fortunes should not exist, but that great fortunes should not remain in the same hands.”

Idrees Kahloon is an editorial intern at the Post-Gazette. He will return to Harvard as a junior in the fall (, 412-263-2743).

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