Finance
by Thomas Piketty
Does wealth always pile up?
Thomas Piketty and his colleagues gathered tax records reaching back two centuries, from France, Britain, the United States and more. His question is whether capitalism spreads wealth more evenly as economies grow, or keeps concentrating it in fewer hands.
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The formula at the heart of the book. When the return on capital (r) is higher than the economy's growth rate (g), wealth that already exists grows faster than wages and output. Inherited fortunes then matter more and more, and pull away from everyone who lives on work.
Inequality fell sharply between 1914 and the 1970s. Wars, the Depression, inflation and high taxes destroyed old fortunes. The economist Simon Kuznets saw that fall and predicted inequality would shrink as economies matured. Piketty says Kuznets was looking at an exception, and inequality has been rising since the 1980s.
In the United States, much of the rise at the very top came from pay rather than inherited wealth. Piketty calls these top earners supermanagers. He doubts their pay reflects what they add, since it's largely set by boards and committees of people like themselves.
Piketty's remedy is a progressive annual tax on wealth, agreed between countries so that fortunes can't simply move abroad. He admits the idea is utopian, but argues that even a partial version would make wealth visible and slow its concentration.
r and g
When wealth earns more each year than the economy grows, those who already own a lot pull further ahead.
Inheritance
Over time, inheriting money can matter more than working for it, as in the novels of Austen and Balzac.
An exception
The fairer mid-twentieth century was unusual. Wars, the Depression and high taxes shrank the great fortunes.
Back again
Since about 1980, wealth has been piling up at the top again in many rich countries.
Supermanagers
In the US, much of the rise comes from top managers paying themselves huge salaries.
A story from the book
In Balzac's novel Père Goriot, the criminal Vautrin tells young Rastignac that years of studying law would earn him far less than marrying an heiress. Piketty uses the scene to show a society where inheritance beat hard work, and warns that we could drift back to one.
Hot take · true or myth?
Wealth was spread more evenly in Europe before 1914 than it is today.
Myth. Piketty finds that wealth in Europe around 1900 was far more concentrated than it is today. A small elite owned most of it, and most people owned almost nothing.
One thing to try
Write down last year's income from work, then your income from owning things, like interest, rent or dividends. Piketty's whole book is about the balance between those two columns across a society, and which one grows faster.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Capital in the Twenty-First Century comes with a Hot Take round to make it stick.
Get the whole book on KnotdOpen in the appDoes wealth always pile up? Thomas Piketty and his colleagues gathered tax records reaching back two centuries, from France, Britain, the United States and more. His question is whether capitalism spreads wealth more evenly as economies grow, or keeps concentrating it in fewer hands.
r > g; The twentieth century was odd; Supermanagers; A tax on capital.
Write down last year's income from work, then your income from owning things, like interest, rent or dividends. Piketty's whole book is about the balance between those two columns across a society, and which one grows faster.
Yes. Knotd has the key ideas from Capital in the Twenty-First Century in a few minutes, in plain words, plus a Hot Take round to test them. It's one of 250+ non-fiction books in the app.
