Capital | Introducción | Thomas Piketty

Introduction

“Social distinctions can be based only on common utility.”

—Declaration of the Rights of Man and the Citizen, article 1, 1789

The distribution of wealth is one of today’s most widely discussed and controversial

issues. But what do we really know about its evolution over the long term? Do the

dynamics of private capital accumulation inevitably lead to the concentration of

wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do

the balancing forces of growth, competition, and technological progress lead in later

stages of development to reduced inequality and greater harmony among the classes,

as Simon Kuznets thought in the twentieth century? What do we really know about

how wealth and income have evolved since the eighteenth century, and what lessons

can we derive from that knowledge for the century now under way?

These are the questions I attempt to answer in this book. Let me say at once that

the answers contained herein are imperfect and incomplete. But they are based on

m u c h more extensive historical and comparative data than were available to

previous researchers, data covering three centuries and more than twenty countries,

as well as on a new theoretical framework that affords a deeper understanding of the

underlying mechanisms. Modern economic growth and the diffusion of knowledge

have made it possible to avoid the Marxist apocalypse but have not modified the

deep structures of capital and inequality—or in any case not as much as one might

have imagined in the optimistic decades following World War II. When the rate of

return on capital exceeds the rate of growth of output and income, as it did in the

nineteenth century and seems quite likely to do again in the twenty-first, capitalism

automatically generates arbitrary and unsustainable inequalities that radically

undermine the meritocratic values on which democratic societies are based. There

are nevertheless ways democracy can regain control over capitalism and ensure that

the general interest takes precedence over private interests, while preserving

economic openness and avoiding protectionist and nationalist reactions. The policy

recommendations I propose later in the book tend in this direction. They are based

on lessons derived from historical experience, of which what follows is essentially a

narrative.

A Debate without Data?

Intellectual and political debate about the distribution of wealth has long been based

on an abundance of prejudice and a paucity of fact.

To be sure, it would be a mistake to underestimate the importance of the intuitive

knowledge that everyone acquires about contemporary wealth and income levels,

even in the absence of any theoretical framework or statistical analysis. Film and

literature, nineteenth-century novels especially, are full of detailed information

about the relative wealth and living standards of different social groups, and

especially about the deep structure of inequality, the way it is justified, and its

impact on individual lives. Indeed, the novels of Jane Austen and Honoré de Balzac

paint striking portraits of the distribution of wealth in Britain and France between

1790 and 1830. Both novelists were intimately acquainted with the hierarchy of

wealth in their respective societies. They grasped the hidden contours of wealth and

its inevitable implications for the lives of men and women, including their marital

strategies and personal hopes and disappointments. These and other novelists

depicted the effects of inequality with a verisimilitude and evocative power that no

statistical or theoretical analysis can match.

Indeed, the distribution of wealth is too important an issue to be left to

economists, sociologists, historians, and philosophers. It is of interest to everyone,

and that is a good thing. The concrete, physical reality of inequality is visible to the

naked eye and naturally inspires sharp but contradictory political judgments. Peasant

and noble, worker and factory owner, waiter and banker: each has his or her own

unique vantage point and sees important aspects of how other people live and what

relations of power and domination exist between social groups, and these

observations shape each person’s judgment of what is and is not just. Hence there

will always be a fundamentally subjective and psychological dimension to

inequality, which inevitably gives rise to political conflict that no purportedly

scientific analysis can alleviate. Democracy will never be supplanted by a republic

of experts—and that is a very good thing.

Nevertheless, the distribution question also deserves to be studied in a systematic

and methodical fashion. Without precisely defined sources, methods, and concepts,

it is possible to see everything and its opposite. Some people believe that inequality

is always increasing and that the world is by definition always becoming more

unjust. Others believe that inequality is naturally decreasing, or that harmony comes

about automatically, and that in any case nothing should be done that might risk

disturbing this happy equilibrium. Given this dialogue of the deaf, in which each

camp justifies its own intellectual laziness by pointing to the laziness of the other,

there is a role for research that is at least systematic and methodical if not fully

scientific. Expert analysis will never put an end to the violent political conflict that

inequality inevitably instigates. Social scientific research is and always will be

tentative and imperfect. It does not claim to transform economics, sociology, and

history into exact sciences. But by patiently searching for facts and patterns and

calmly analyzing the economic, social, and political mechanisms that might explain

them, it can inform democratic debate and focus attention on the right questions. It

can help to redefine the terms of debate, unmask certain preconceived or fraudulent

notions, and subject all positions to constant critical scrutiny. In my view, this is the

role that intellectuals, including social scientists, should play, as citizens like any

other but with the good fortune to have more time than others to devote themselves

to study (and even to be paid for it—a signal privilege).

There is no escaping the fact, however, that social science research on the

distribution of wealth was for a long time based on a relatively limited set of firmly

established facts together with a wide variety of purely theoretical speculations.

Before turning in greater detail to the sources I tried to assemble in preparation for

writing this book, I want to give a quick historical overview of previous thinking

about these issues.

Malthus, Young, and the French Revolution

When classical political economy was born in England and France in the late

eighteenth and early nineteenth century, the issue of distribution was already one of

the key questions. Everyone realized that radical transformations were under way,

precipitated by sustained demographic growth—a previously unknown phenomenon

—coupled with a rural exodus and the advent of the Industrial Revolution. How

would these upheavals affect the distribution of wealth, the social structure, and the

political equilibrium of European society?

For Thomas Malthus, who in 1798 published his Essay on the Principle of

Population, there could be no doubt: the primary threat was overpopulation.

Although his sources were thin, he made the best he could of them. One particularly

important influence was the travel diary published by Arthur Young, an English

agronomist who traveled extensively in France, from Calais to the Pyrenees and

from Brittany to Franche-Comté, in 1787–1788, on the eve of the Revolution. Young

wrote of the poverty of the French countryside.

His vivid essay was by no means totally inaccurate. France at that time was by far

the most populous country in Europe and therefore an ideal place to observe. The

kingdom could already boast of a population of 20 million in 1700, compared to

only 8 million for Great Britain (and 5 million for England alone). The French

population increased steadily throughout the eighteenth century, from the end of

Louis XIV’s reign to the demise of Louis XVI, and by 1780 was close to 30 million.

There is every reason to believe that this unprecedentedly rapid population growth

contributed to a stagnation of agricultural wages and an increase in land rents in the

decades prior to the explosion of 1789. Although this demographic shift was not the

sole cause of the French Revolution, it clearly contributed to the growing

unpopularity of the aristocracy and the existing political regime.

Nevertheless, Young’s account, published in 1792, also bears the traces of

nationalist prejudice and misleading comparison. The great agronomist found the

inns in which he stayed thoroughly disagreeable and disliked the manners of the

women who waited on him. Although many of his observations were banal and

anecdotal, he believed he could derive universal consequences from them. He was

mainly worried that the mass poverty he witnessed would lead to political upheaval.

In particular, he was convinced that only the English political system, with separate

houses of Parliament for aristocrats and commoners and veto power for the nobility,

could allow for harmonious and peaceful development led by responsible people. He

was convinced that France was headed for ruin when it decided in 1789–1790 to

allow both aristocrats and commoners to sit in a single legislative body. It is no

exaggeration to say that his whole account was overdetermined by his fear of

revolution in France. Whenever one speaks about the distribution of wealth, politics

is never very far behind, and it is difficult for anyone to escape contemporary class

prejudices and interests.

When Reverend Malthus published his famous Essay in 1798, he reached

conclusions even more radical than Young’s. Like his compatriot, he was very afraid

of the new political ideas emanating from France, and to reassure himself that there

would be no comparable upheaval in Great Britain he argued that all welfare

assistance to the poor must be halted at once and that reproduction by the poor

should be severely scrutinized lest the world succumb to overpopulation leading to

chaos and misery. It is impossible to understand Malthus’s exaggeratedly somber

predictions without recognizing the way fear gripped much of the European elite in

the 1790s.

Ricardo: The Principle of Scarcity

In retrospect, it is obviously easy to make fun of these prophecies of doom. It is

important to realize, however, that the economic and social transformations of the

late eighteenth and early nineteenth centuries were objectively quite impressive, not

to say traumatic, for those who witnessed them. Indeed, most contemporary

observers—and not only Malthus and Young—shared relatively dark or even

apocalyptic views of the long-run evolution of the distribution of wealth and class

structure of society. This was true in particular of David Ricardo and Karl Marx,

who were surely the two most influential economists of the nineteenth century and

who both believed that a small social group—landowners for Ricardo, industrial

capitalists for Marx—would inevitably claim a steadily increasing share of output

and income.

For Ricardo, who published his Principles of Political Economy and Taxation in

1817, the chief concern was the long-term evolution of land prices and land rents.

Like Malthus, he had virtually no genuine statistics at his disposal. He nevertheless

had intimate knowledge of the capitalism of his time. Born into a family of Jewish

financiers with Portuguese roots, he also seems to have had fewer political

prejudices than Malthus, Young, or Smith. He was influenced by the Malthusian

model but pushed the argument farther. He was above all interested in the following

logical paradox. Once both population and output begin to grow steadily, land tends

to become increasingly scarce relative to other goods. The law of supply and demand

then implies that the price of land will rise continuously, as will the rents paid to

landlords. The landlords will therefore claim a growing share of national income, as

the share available to the rest of the population decreases, thus upsetting the social

equilibrium. For Ricardo, the only logically and politically acceptable answer was to

impose a steadily increasing tax on land rents.

This somber prediction proved wrong: land rents did remain high for an extended

period, but in the end the value of farm land inexorably declined relative to other

forms of wealth as the share of agriculture in national income decreased. Writing in

t h e 1810s, Ricardo had no way of anticipating the importance of technological

progress or industrial growth in the years ahead. Like Malthus and Young, he could

not imagine that humankind would ever be totally freed from the alimentary

imperative.

His insight into the price of land is nevertheless interesting: the “scarcity

principle” on which he relied meant that certain prices might rise to very high levels

over many decades. This could well be enough to destabilize entire societies. The

price system plays a key role in coordinating the activities of millions of individuals

—indeed, today, billions of individuals in the new global economy. The problem is

that the price system knows neither limits nor morality.

It would be a serious mistake to neglect the importance of the scarcity principle

for understanding the global distribution of wealth in the twenty-first century. To

convince oneself of this, it is enough to replace the price of farmland in Ricardo’s

model by the price of urban real estate in major world capitals, or, alternatively, by

the price of oil. In both cases, if the trend over the period 1970–2010 is extrapolated

to the period 2010–2050 or 2010–2100, the result is economic, social, and political

disequilibria of considerable magnitude, not only between but within countries—

disequilibria that inevitably call to mind the Ricardian apocalypse.

To be sure, there exists in principle a quite simple economic mechanism that

should restore equilibrium to the process: the mechanism of supply and demand. If

the supply of any good is insufficient, and its price is too high, then demand for that

good should decrease, which should lead to a decline in its price. In other words, if

real estate and oil prices rise, then people should move to the country or take to

traveling about by bicycle (or both). Never mind that such adjustments might be

unpleasant or complicated; they might also take decades, during which landlords and

oil well owners might well accumulate claims on the rest of the population so

extensive that they could easily come to own everything that can be owned,

including rural real estate and bicycles, once and for all. As always, the worst is

never certain to arrive. It is much too soon to warn readers that by 2050 they may be

paying rent to the emir of Qatar. I will consider the matter in due course, and my

answer will be more nuanced, albeit only moderately reassuring. But it is important

for now to understand that the interplay of supply and demand in no way rules out

the possibility of a large and lasting divergence in the distribution of wealth linked

to extreme changes in certain relative prices. This is the principal implication of

Ricardo’s scarcity principle. But nothing obliges us to roll the dice.

Marx: The Principle of Infinite Accumulation

By the time Marx published the first volume of Capital in 1867, exactly one-half

century after the publication of Ricardo’s Principles, economic and social realities

had changed profoundly: the question was no longer whether farmers could feed a

growing population or land prices would rise sky high but rather how to understand

the dynamics of industrial capitalism, now in full blossom.

The most striking fact of the day was the misery of the industrial proletariat.

Despite the growth of the economy, or perhaps in part because of it, and because, as

well, of the vast rural exodus owing to both population growth and increasing

agricultural productivity, workers crowded into urban slums. The working day was

long, and wages were very low. A new urban misery emerged, more visible, more

shocking, and in some respects even more extreme than the rural misery of the Old

Regime. Germinal, Oliver Twist, and Les Misérables did not spring from the

imaginations of their authors, any more than did laws limiting child labor in

factories to children older than eight (in France in 1841) or ten in the mines (in

Britain in 1842). Dr. Villermé’s Tableau de l’état physique et moral des ouvriers

employés dans les manufactures, published in France in 1840 (leading to the passage

of a timid new child labor law in 1841), described the same sordid reality as The

Condition of the Working Class in England, which Friedrich Engels published in

1845.

In fact, all the historical data at our disposal today indicate that it was not until the

second half—or even the final third—of the nineteenth century that a significant rise

in the purchasing power of wages occurred. From the first to the sixth decade of the

nineteenth century, workers’ wages stagnated at very low levels—close or even

inferior to the levels of the eighteenth and previous centuries. This long phase of

wage stagnation, which we observe in Britain as well as France, stands out all the

more because economic growth was accelerating in this period. The capital share of

national income—industrial profits, land rents, and building rents—insofar as can be

estimated with the imperfect sources available today, increased considerably in both

countries in the first half of the nineteenth century. It would decrease slightly in the

final decades of the nineteenth century, as wages partly caught up with growth. The

data we have assembled nevertheless reveal no structural decrease in inequality prior

to World War I. What we see in the period 1870–1914 is at best a stabilization of

inequality at an extremely high level, and in certain respects an endless inegalitarian

spiral, marked in particular by increasing concentration of wealth. It is quite

difficult to say where this trajectory would have led without the major economic and

political shocks initiated by the war. With the aid of historical analysis and a little

perspective, we can now see those shocks as the only forces since the Industrial

Revolution powerful enough to reduce inequality.

In any case, capital prospered in the 1840s and industrial profits grew, while labor

incomes stagnated. This was obvious to everyone, even though in those days

aggregate national statistics did not yet exist. It was in this context that the first

communist and socialist movements developed. The central argument was simple:

What was the good of industrial development, what was the good of all the

technological innovations, toil, and population movements if, after half a century of

industrial growth, the condition of the masses was still just as miserable as before,

and all lawmakers could do was prohibit factory labor by children under the age of

eight? The bankruptcy of the existing economic and political system seemed

obvious. People therefore wondered about its long-term evolution: what could one

say about it?

This was the task Marx set himself. In 1848, on the eve of the “spring of nations”

(that is, the revolutions that broke out across Europe that spring), he published The

Communist Manifesto, a short, hard-hitting text whose first chapter began with the

famous words “A specter is haunting Europe—the specter of communism.” The

text ended with the equally famous prediction of revolution: “The development of

Modern Industry, therefore, cuts from under its feet the very foundation on which

the bourgeoisie produces and appropriates products. What the bourgeoisie therefore

produces, above all, are its own gravediggers. Its fall and the victory of the

proletariat are equally inevitable.”

Over the next two decades, Marx labored over the voluminous treatise that would

justify this conclusion and propose the first scientific analysis of capitalism and its

collapse. This work would remain unfinished: the first volume of Capital was

published in 1867, but Marx died in 1883 without having completed the two

subsequent volumes. His friend Engels published them posthumously after piecing

together a text from the sometimes obscure fragments of manuscript Marx had left

behind.

Like Ricardo, Marx based his work on an analysis of the internal logical

contradictions of the capitalist system. He therefore sought to distinguish himself

from both bourgeois economists (who saw the market as a self-regulated system,

that is, a system capable of achieving equilibrium on its own without major

deviations, in accordance with Adam Smith’s image of “the invisible hand” and

Jean-Baptiste Say’s “law” that production creates its own demand), and utopian

socialists and Proudhonians, who in Marx’s view were content to denounce the

misery of the working class without proposing a truly scientific analysis of the

economic processes responsible for it. In short, Marx took the Ricardian model of

the price of capital and the principle of scarcity as the basis of a more thorough

analysis of the dynamics of capitalism in a world where capital was primarily

industrial (machinery, plants, etc.) rather than landed property, so that in principle

there was no limit to the amount of capital that could be accumulated. In fact, his

principal conclusion was what one might call the “principle of infinite

accumulation,” that is, the inexorable tendency for capital to accumulate and

become concentrated in ever fewer hands, with no natural limit to the process. This

is the basis of Marx’s prediction of an apocalyptic end to capitalism: either the rate

of return on capital would steadily diminish (thereby killing the engine of

accumulation and leading to violent conflict among capitalists), or capital’s share of

national income would increase indefinitely (which sooner or later would unite the

workers in revolt). In either case, no stable socioeconomic or political equilibrium

was possible.

Marx’s dark prophecy came no closer to being realized than Ricardo’s. In the last

third of the nineteenth century, wages finally began to increase: the improvement in

the purchasing power of workers spread everywhere, and this changed the situation

radically, even if extreme inequalities persisted and in some respects continued to

increase until World War I. The communist revolution did indeed take place, but in

the most backward country in Europe, Russia, where the Industrial Revolution had

scarcely begun, whereas the most advanced European countries explored other,

social democratic avenues—fortunately for their citizens. Like his predecessors,

Marx totally neglected the possibility of durable technological progress and steadily

increasing productivity, which is a force that can to some extent serve as a

counterweight to the process of accumulation and concentration of private capital.

He no doubt lacked the statistical data needed to refine his predictions. He probably

suffered as well from having decided on his conclusions in 1848, before embarking

on the research needed to justify them. Marx evidently wrote in great political

fervor, which at times led him to issue hasty pronouncements from which it was

difficult to escape. That is why economic theory needs to be rooted in historical

sources that are as complete as possible, and in this respect Marx did not exploit all

the possibilities available to him. What is more, he devoted little thought to the

question of how a society in which private capital had been totally abolished would

be organized politically and economically—a complex issue if ever there was one,

as shown by the tragic totalitarian experiments undertaken in states where private

capital was abolished.

Despite these limitations, Marx’s analysis remains relevant in several respects.

Fi r s t , he began with an important question (concerning the unprecedented

concentration of wealth during the Industrial Revolution) and tried to answer it with

the means at his disposal: economists today would do well to take inspiration from

his example. Even more important, the principle of infinite accumulation that Marx

proposed contains a key insight, as valid for the study of the twenty-first century as

it was for the nineteenth and in some respects more worrisome than Ricardo’s

principle of scarcity. If the rates of population and productivity growth are relatively

low, then accumulated wealth naturally takes on considerable importance, especially

if it grows to extreme proportions and becomes socially destabilizing. In other

words, low growth cannot adequately counterbalance the Marxist principle of

infinite accumulation: the resulting equilibrium is not as apocalyptic as the one

predicted by Marx but is nevertheless quite disturbing. Accumulation ends at a finite

level, but that level may be high enough to be destabilizing. In particular, the very

high level of private wealth that has been attained since the 1980s and 1990s in the

wealthy countries of Europe and in Japan, measured in years of national income,

directly reflects the Marxian logic.

From Marx to Kuznets, or Apocalypse to Fairy Tale

Turning from the nineteenth-century analyses of Ricardo and Marx to the twentiethcentury analyses of Simon Kuznets, we might say that economists’ no doubt overly developed taste for apocalyptic predictions gave way to a similarly excessive

fondness for fairy tales, or at any rate happy endings. According to Kuznets’s theory,

income inequality would automatically decrease in advanced phases of capitalist

development, regardless of economic policy choices or other differences between

countries, until eventually it stabilized at an acceptable level. Proposed in 1955, this

was really a theory of the magical postwar years referred to in France as the “Trente

Glorieuses,” the thirty glorious years from 1945 to 1975. For Kuznets, it was

enough to be patient, and before long growth would benefit everyone. The

philosophy of the moment was summed up in a single sentence: “Growth is a rising

tide that lifts all boats.” A similar optimism can also be seen in Robert Solow’s 1956

analysis of the conditions necessary for an economy to achieve a “balanced growth

path,” that is, a growth trajectory along which all variables—output, incomes,

profits, wages, capital, asset prices, and so on—would progress at the same pace, so

that every social group would benefit from growth to the same degree, with no major

deviations from the norm. Kuznets’s position was thus diametrically opposed to

the Ricardian and Marxist idea of an inegalitarian spiral and antithetical to the

apocalyptic predictions of the nineteenth century.

In order to properly convey the considerable influence that Kuznets’s theory

enjoyed in the 1980s and 1990s and to a certain extent still enjoys today, it is

important to emphasize that it was the first theory of this sort to rely on a formidable

statistical apparatus. It was not until the middle of the twentieth century, in fact, that

the first historical series of income distribution statistics became available with the

publication in 1953 of Kuznets’s monumental Shares of Upper Income Groups in

Income and Savings. Kuznets’s series dealt with only one country (the United States)

over a period of thirty-five years (1913–1948). It was nevertheless a major

contribution, which drew on two sources of data totally unavailable to nineteenthcentury authors: US federal income tax returns (which did not exist before the creation of the income tax in 1913) and Kuznets’s own estimates of US national

income from a few years earlier. This was the very first attempt to measure social

inequality on such an ambitious scale.

It is important to realize that without these two complementary and indispensable

datasets, it is simply impossible to measure inequality in the income distribution or

to gauge its evolution over time. To be sure, the first attempts to estimate national

income in Britain and France date back to the late seventeenth and early eighteenth

century, and there would be many more such attempts over the course of the

nineteenth century. But these were isolated estimates. It was not until the twentieth

century, in the years between the two world wars, that the first yearly series of

national income data were developed by economists such as Kuznets and John W.

Kendrick in the United States, Arthur Bowley and Colin Clark in Britain, and L.

Dugé de Bernonville in France. This type of data allows us to measure a country’s

total income. In order to gauge the share of high incomes in national income, we

also need statements of income. Such information became available when many

countries adopted a progressive income tax around the time of World War I (1913 in

the United States, 1914 in France, 1909 in Britain, 1922 in India, 1932 in

Argentina).

It is crucial to recognize that even where there is no income tax, there are still all

sorts of statistics concerning whatever tax basis exists at a given point in time (for

example, the distribution of the number of doors and windows by département in

nineteenth-century France, which is not without interest), but these data tell us

nothing about incomes. What is more, before the requirement to declare one’s

income to the tax authorities was enacted in law, people were often unaware of the

amount of their own income. The same is true of the corporate tax and wealth tax.

Taxation is not only a way of requiring all citizens to contribute to the financing of

public expenditures and projects and to distribute the tax burden as fairly as

possible; it is also useful for establishing classifications and promoting knowledge

as well as democratic transparency.

In any event, the data that Kuznets collected allowed him to calculate the

evolution of the share of each decile, as well as of the upper centiles, of the income

hierarchy in total US national income. What did he find? He noted a sharp reduction

in income inequality in the United States between 1913 and 1948. More specifically,

at the beginning of this period, the upper decile of the income distribution (that is,

the top 10 percent of US earners) claimed 45–50 percent of annual national income.

By the late 1940s, the share of the top decile had decreased to roughly 30–35 percent

of national income. This decrease of nearly 10 percentage points was considerable:

for example, it was equal to half the income of the poorest 50 percent of

Americans. The reduction of inequality was clear and incontrovertible. This was

news of considerable importance, and it had an enormous impact on economic

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debate in the postwar era in both universities and international organizations.

Malthus, Ricardo, Marx, and many others had been talking about inequalities for

decades without citing any sources whatsoever or any methods for comparing one

era with another or deciding between competing hypotheses. Now, for the first time,

objective data were available. Although the information was not perfect, it had the

merit of existing. What is more, the work of compilation was extremely well

documented: the weighty volume that Kuznets published in 1953 revealed his

sources and methods in the most minute detail, so that every calculation could be

reproduced. And besides that, Kuznets was the bearer of good news: inequality was

shrinking.

The Kuznets Curve: Good News in the Midst of the Cold War

In fact, Kuznets himself was well aware that the compression of high US incomes

between 1913 and 1948 was largely accidental. It stemmed in large part from

multiple shocks triggered by the Great Depression and World War II and had little to

do with any natural or automatic process. In his 1953 work, he analyzed his series in

detail and warned readers not to make hasty generalizations. But in December 1954,

at the Detroit meeting of the American Economic Association, of which he was

president, he offered a far more optimistic interpretation of his results than he had

given in 1953. It was this lecture, published in 1955 under the title “Economic

Growth and Income Inequality,” that gave rise to the theory of the “Kuznets curve.”

According to this theory, inequality everywhere can be expected to follow a “bell

curve.” In other words, it should first increase and then decrease over the course of

industrialization and economic development. According to Kuznets, a first phase of

naturally increasing inequality associated with the early stages of industrialization,

which in the United States meant, broadly speaking, the nineteenth century, would

be followed by a phase of sharply decreasing inequality, which in the United States

allegedly began in the first half of the twentieth century.

Kuznets’s 1955 paper is enlightening. After reminding readers of all the reasons

for interpreting the data cautiously and noting the obvious importance of exogenous

shocks in the recent reduction of inequality in the United States, Kuznets suggests,

almost innocently in passing, that the internal logic of economic development might

also yield the same result, quite apart from any policy intervention or external

s h o c k . The idea was that inequalities increase in the early phases of

industrialization, because only a minority is prepared to benefit from the new wealth

that industrialization brings. Later, in more advanced phases of development,

inequality automatically decreases as a larger and larger fraction of the population

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partakes of the fruits of economic growth.

The “advanced phase” of industrial development is supposed to have begun

toward the end of the nineteenth or the beginning of the twentieth century in the

industrialized countries, and the reduction of inequality observed in the United

States between 1913 and 1948 could therefore be portrayed as one instance of a more

general phenomenon, which should theoretically reproduce itself everywhere,

including underdeveloped countries then mired in postcolonial poverty. The data

Kuznets had presented in his 1953 book suddenly became a powerful political

weapon. He was well aware of the highly speculative nature of his theorizing.

Nevertheless, by presenting such an optimistic theory in the context of a

“presidential address” to the main professional association of US economists, an

audience that was inclined to believe and disseminate the good news delivered by

their prestigious leader, he knew that he would wield considerable influence: thus

the “Kuznets curve” was born. In order to make sure that everyone understood what

was at stake, he took care to remind his listeners that the intent of his optimistic

predictions was quite simply to maintain the underdeveloped countries “within the

orbit of the free world.” In large part, then, the theory of the Kuznets curve was a

product of the Cold War.

To avoid any misunderstanding, let me say that Kuznets’s work in establishing the

first US national accounts data and the first historical series of inequality measures

was of the utmost importance, and it is clear from reading his books (as opposed to

his papers) that he shared the true scientific ethic. In addition, the high growth rates

observed in all the developed countries in the post–World War II period were a

phenomenon of great significance, as was the still more significant fact that all

social groups shared in the fruits of growth. It is quite understandable that the Trente

Glorieuses fostered a certain degree of optimism and that the apocalyptic predictions

of the nineteenth century concerning the distribution of wealth forfeited some of

their popularity.

Nevertheless, the magical Kuznets curve theory was formulated in large part for

t he wrong reasons, and its empirical underpinnings were extremely fragile. The

sharp reduction in income inequality that we observe in almost all the rich countries

between 1914 and 1945 was due above all to the world wars and the violent

economic and political shocks they entailed (especially for people with large

fortunes). It had little to do with the tranquil process of intersectoral mobility

described by Kuznets.

Putting the Distributional Question Back at the Heart of Economic

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Analysis

The question is important, and not just for historical reasons. Since the 1970s,

income inequality has increased significantly in the rich countries, especially the

United States, where the concentration of income in the first decade of the twentyfirst

century regained—indeed, slightly exceeded—the level attained in the second

decade of the previous century. It is therefore crucial to understand clearly why and

how inequality decreased in the interim. To be sure, the very rapid growth of poor

and emerging countries, especially China, may well prove to be a potent force for

reducing inequalities at the global level, just as the growth of the rich countries did

during the period 1945–1975. But this process has generated deep anxiety in the

emerging countries and even deeper anxiety in the rich countries. Furthermore, the

impressive disequilibria observed in recent decades in the financial, oil, and real

estate markets have naturally aroused doubts as to the inevitability of the “balanced

growth path” described by Solow and Kuznets, according to whom all key economic

variables are supposed to move at the same pace. Will the world in 2050 or 2100 be

owned by traders, top managers, and the superrich, or will it belong to the oilproducing

countries or the Bank of China? Or perhaps it will be owned by the tax

havens in which many of these actors will have sought refuge. It would be absurd not

to raise the question of who will own what and simply to assume from the outset that

growth is naturally “balanced” in the long run.

In a way, we are in the same position at the beginning of the twenty-first century

as our forebears were in the early nineteenth century: we are witnessing impressive

changes in economies around the world, and it is very difficult to know how

extensive they will turn out to be or what the global distribution of wealth, both

within and between countries, will look like several decades from now. The

economists of the nineteenth century deserve immense credit for placing the

distributional question at the heart of economic analysis and for seeking to study

long-term trends. Their answers were not always satisfactory, but at least they were

asking the right questions. There is no fundamental reason why we should believe

that growth is automatically balanced. It is long since past the time when we should

have put the question of inequality back at the center of economic analysis and

begun asking questions first raised in the nineteenth century. For far too long,

economists have neglected the distribution of wealth, partly because of Kuznets’s

optimistic conclusions and partly because of the profession’s undue enthusiasm for

simplistic mathematical models based on so-called representative agents. If the

question of inequality is again to become central, we must begin by gathering as

extensive as possible a set of historical data for the purpose of understanding past

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and present trends. For it is by patiently establishing facts and patterns and then

comparing different countries that we can hope to identify the mechanisms at work

and gain a clearer idea of the future.

The Sources Used in This Book

This book is based on sources of two main types, which together make it possible to

study the historical dynamics of wealth distribution: sources dealing with the

inequality and distribution of income, and sources dealing with the distribution of

wealth and the relation of wealth to income.

To begin with income: in large part, my work has simply broadened the spatial

and temporal limits of Kuznets’s innovative and pioneering work on the evolution of

income inequality in the United States between 1913 and 1948. In this way I have

been able to put Kuznets’s findings (which are quite accurate) into a wider

perspective and thus radically challenge his optimistic view of the relation between

economic development and the distribution of wealth. Oddly, no one has ever

systematically pursued Kuznets’s work, no doubt in part because the historical and

statistical study of tax records falls into a sort of academic no-man’s-land, too

historical for economists and too economistic for historians. That is a pity, because

the dynamics of income inequality can only be studied in a long-run perspective,

which is possible only if one makes use of tax records.

I began by extending Kuznets’s methods to France, and I published the results of

that study in a book that appeared in 2001. I then joined forces with several

colleagues—Anthony Atkinson and Emmanuel Saez foremost among them—and

with their help was able to expand the coverage to a much wider range of countries.

Anthony Atkinson looked at Great Britain and a number of other countries, and

together we edited two volumes that appeared in 2007 and 2010, in which we

reported the results for some twenty countries throughout the world. Together with

Emmanuel Saez, I extended Kuznets’s series for the United States by half a

century. Saez himself looked at a number of other key countries, such as Canada

and Japan. Many other investigators contributed to this joint effort: in particular,

Facundo Alvaredo studied Argentina, Spain, and Portugal; Fabien Dell looked at

Germany and Switzerland; and Abhijit Banerjeee and I investigated the Indian case.

With the help of Nancy Qian I was able to work on China. And so on.

In each case, we tried to use the same types of sources, the same methods, and the

same concepts. Deciles and centiles of high incomes were estimated from tax data

based on stated incomes (corrected in various ways to ensure temporal and

geographic homogeneity of data and concepts). National income and average income

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were derived from national accounts, which in some cases had to be fleshed out or

extended. Broadly speaking, our data series begin in each country when an income

tax was established (generally between 1910 and 1920 but in some countries, such as

Japan and Germany, as early as the 1880s and in other countries somewhat later).

These series are regularly updated and at this writing extend to the early 2010s.

Ultimately, the World Top Incomes Database (WTID), which is based on the joint

work of some thirty researchers around the world, is the largest historical database

available concerning the evolution of income inequality; it is the primary source of

data for this book.

The book’s second most important source of data, on which I will actually draw

first, concerns wealth, including both the distribution of wealth and its relation to

income. Wealth also generates income and is therefore important on the income

study side of things as well. Indeed, income consists of two components: income

from labor (wages, salaries, bonuses, earnings from nonwage labor, and other

remuneration statutorily classified as labor related) and income from capital (rent,

dividends, interest, profits, capital gains, royalties, and other income derived from

the mere fact of owning capital in the form of land, real estate, financial

instruments, industrial equipment, etc., again regardless of its precise legal

classification). The WTID contains a great deal of information about the evolution

of income from capital over the course of the twentieth century. It is nevertheless

essential to complete this information by looking at sources directly concerned with

wealth. Here I rely on three distinct types of historical data and methodology, each

of which is complementary to the others.

In the first place, just as income tax returns allow us to study changes in income

inequality, estate tax returns enable us to study changes in the inequality of wealth.

This approach was introduced by Robert Lampman in 1962 to study changes in the

inequality of wealth in the United States from 1922 to 1956. Later, in 1978, Anthony

Atkinson and Alan Harrison studied the British case from 1923 to 1972. These

results were recently updated and extended to other countries such as France and

Sweden. Unfortunately, data are available for fewer countries than in the case of

income inequality. In a few cases, however, estate tax data extend back much further

in time, often to the beginning of the nineteenth century, because estate taxes

predate income taxes. In particular, I have compiled data collected by the French

government at various times and, together with Gilles Postel-Vinay and Jean-

Laurent Rosenthal, have put together a huge collection of individual estate tax

returns, with which it has been possible to establish homogeneous series of data on

the concentration of wealth in France since the Revolution. This will allow us to

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see the shocks due to World War I in a much broader context than the series dealing

with income inequality (which unfortunately date back only as far as 1910 or so).

The work of Jesper Roine and Daniel Waldenström on Swedish historical sources is

also instructive.

The data on wealth and inheritance also enable us to study changes in the relative

importance of inherited wealth and savings in the constitution of fortunes and the

dynamics of wealth inequality. This work is fairly complete in the case of France,

where the very rich historical sources offer a unique vantage point from which to

observe changing inheritance patterns over the long run. To one degree or another,

my colleagues and I have extended this work to other countries, especially Great

Britain, Germany, Sweden, and the United States. These materials play a crucial role

in this study, because the significance of inequalities of wealth differs depending on

whether those inequalities derive from inherited wealth or savings. In this book, I

focus not only on the level of inequality as such but to an even greater extent on the

structure of inequality, that is, on the origins of disparities in income and wealth

between social groups and on the various systems of economic, social, moral, and

political justification that have been invoked to defend or condemn those disparities.

Inequality is not necessarily bad in itself: the key question is to decide whether it is

justified, whether there are reasons for it.

Last but not least, we can also use data that allow us to measure the total stock of

national wealth (including land, other real estate, and industrial and financial

capital) over a very long period of time. We can measure this wealth for each

country in terms of the number of years of national income required to amass it.

This type of global study of the capital/income ratio has its limits. It is always

preferable to analyze wealth inequality at the individual level as well, and to gauge

the relative importance of inheritance and saving in capital formation. Nevertheless,

the capital/income approach can give us an overview of the importance of capital to

the society as a whole. Moreover, in some cases (especially Britain and France) it is

possible to collect and compare estimates for different periods and thus push the

analysis back to the early eighteenth century, which allows us to view the Industrial

Revolution in relation to the history of capital. For this I will rely on historical data

Gabriel Zucman and I recently collected. Broadly speaking, this research is merely

an extension and generalization of Raymond Goldsmith’s work on national balance

sheets in the 1970s.

Compared with previous works, one reason why this book stands out is that I have

made an effort to collect as complete and consistent a set of historical sources as

possible in order to study the dynamics of income and wealth distribution over the

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long run. To that end, I had two advantages over previous authors. First, this work

benefits, naturally enough, from a longer historical perspective than its predecessors

had (and some long-term changes did not emerge clearly until data for the 2000s

became available, largely owing to the fact that certain shocks due to the world wars

persisted for a very long time). Second, advances in computer technology have made

it much easier to collect and process large amounts of historical data.

Although I have no wish to exaggerate the role of technology in the history of

ideas, the purely technical issues are worth a moment’s reflection. Objectively

speaking, it was far more difficult to deal with large volumes of historical data in

Kuznets’s time than it is today. This was true to a large extent as recently as the

1980s. In the 1970s, when Alice Hanson Jones collected US estate inventories from

the colonial era and Adeline Daumard worked on French estate records from the

nineteenth century, they worked mainly by hand, using index cards. When we

reread their remarkable work today, or look at François Siminad’s work on the

evolution of wages in the nineteenth century or Ernest Labrousse’s work on the

history of prices and incomes in the eighteenth century or Jean Bouvier and François

Furet’s work on the variability of profits in the nineteenth century, it is clear that

these scholars had to overcome major material difficulties in order to compile and

process their data. In many cases, the technical difficulties absorbed much of their

energy, taking precedence over analysis and interpretation, especially since the

technical problems imposed strict limits on their ability to make international and

temporal comparisons. It is much easier to study the history of the distribution of

wealth today than in the past. This book is heavily indebted to recent improvements

in the technology of research.

The Major Results of This Study

What are the major conclusions to which these novel historical sources have led me?

The first is that one should be wary of any economic determinism in regard to

inequalities of wealth and income. The history of the distribution of wealth has

always been deeply political, and it cannot be reduced to purely economic

mechanisms. In particular, the reduction of inequality that took place in most

developed countries between 1910 and 1950 was above all a consequence of war and

of policies adopted to cope with the shocks of war. Similarly, the resurgence of

inequality after 1980 is due largely to the political shifts of the past several decades,

especially in regard to taxation and finance. The history of inequality is shaped by

the way economic, social, and political actors view what is just and what is not, as

well as by the relative power of those actors and the collective choices that result. It

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is the joint product of all relevant actors combined.

The second conclusion, which is the heart of the book, is that the dynamics of

we a l t h distribution reveal powerful mechanisms pushing alternately toward

convergence and divergence. Furthermore, there is no natural, spontaneous process

to prevent destabilizing, inegalitarian forces from prevailing permanently.

Consider first the mechanisms pushing toward convergence, that is, toward

reduction and compression of inequalities. The main forces for convergence are the

diffusion of knowledge and investment in training and skills. The law of supply and

demand, as well as the mobility of capital and labor, which is a variant of that law,

may always tend toward convergence as well, but the influence of this economic law

i s less powerful than the diffusion of knowledge and skill and is frequently

ambiguous or contradictory in its implications. Knowledge and skill diffusion is the

key to overall productivity growth as well as the reduction of inequality both within

and between countries. We see this at present in the advances made by a number of

previously poor countries, led by China. These emergent economies are now in the

process of catching up with the advanced ones. By adopting the modes of production

of the rich countries and acquiring skills comparable to those found elsewhere, the

less developed countries have leapt forward in productivity and increased their

national incomes. The technological convergence process may be abetted by open

borders for trade, but it is fundamentally a process of the diffusion and sharing of

knowledge—the public good par excellence—rather than a market mechanism.

From a strictly theoretical standpoint, other forces pushing toward greater equality

might exist. One might, for example, assume that production technologies tend over

time to require greater skills on the part of workers, so that labor’s share of income

will rise as capital’s share falls: one might call this the “rising human capital

hypothesis.” In other words, the progress of technological rationality is supposed to

lead automatically to the triumph of human capital over financial capital and real

estate, capable managers over fat cat stockholders, and skill over nepotism.

Inequalities would thus become more meritocratic and less static (though not

necessarily smaller): economic rationality would then in some sense automatically

give rise to democratic rationality.

Another optimistic belief, which is current at the moment, is the idea that “class

warfare” will automatically give way, owing to the recent increase in life

expectancy, to “generational warfare” (which is less divisive because everyone is

first young and then old). Put differently, this inescapable biological fact is supposed

to imply that the accumulation and distribution of wealth no longer presage an

inevitable clash between dynasties of rentiers and dynasties owning nothing but their

labor power. The governing logic is rather one of saving over the life cycle: people

accumulate wealth when young in order to provide for their old age. Progress in

medicine together with improved living conditions has therefore, it is argued, totally

transformed the very essence of capital.

Unfortunately, these two optimistic beliefs (the human capital hypothesis and the

substitution of generational conflict for class warfare) are largely illusory.

Transformations of this sort are both logically possible and to some extent real, but

their influence is far less consequential than one might imagine. There is little

evidence that labor’s share in national income has increased significantly in a very

long time: “nonhuman” capital seems almost as indispensable in the twenty-first

century as it was in the eighteenth or nineteenth, and there is no reason why it may

not become even more so. Now as in the past, moreover, inequalities of wealth exist

primarily within age cohorts, and inherited wealth comes close to being as decisive

at the beginning of the twenty-first century as it was in the age of Balzac’s Père

Goriot. Over a long period of time, the main force in favor of greater equality has

been the diffusion of knowledge and skills.

Forces of Convergence, Forces of Divergence

The crucial fact is that no matter how potent a force the diffusion of knowledge and

skills may be, especially in promoting convergence between countries, it can

nevertheless be thwarted and overwhelmed by powerful forces pushing in the

opposite direction, toward greater inequality. It is obvious that lack of adequate

investment in training can exclude entire social groups from the benefits of

economic growth. Growth can harm some groups while benefiting others (witness

the recent displacement of workers in the more advanced economies by workers in

China). In short, the principal force for convergence—the diffusion of knowledge—

is only partly natural and spontaneous. It also depends in large part on educational

policies, access to training and to the acquisition of appropriate skills, and

associated institutions.

I will pay particular attention in this study to certain worrisome forces of

divergence—particularly worrisome in that they can exist even in a world where

there is adequate investment in skills and where all the conditions of “market

efficiency” (as economists understand that term) appear to be satisfied. What are

these forces of divergence? First, top earners can quickly separate themselves from

the rest by a wide margin (although the problem to date remains relatively

localized). More important, there is a set of forces of divergence associated with the

process of accumulation and concentration of wealth when growth is weak and the

return on capital is high. This second process is potentially more destabilizing than

the first, and it no doubt represents the principal threat to an equal distribution of

wealth over the long run.

To cut straight to the heart of the matter: in Figures I.1 and I.2 I show two basic

patterns that I will try to explain in what follows. Each graph represents the

importance of one of these divergent processes. Both graphs depict “U-shaped

curves,” that is, a period of decreasing inequality followed by one of increasing

inequality. One might assume that the realities the two graphs represent are similar.

In fact they are not. The phenomena underlying the various curves are quite different

and involve distinct economic, social, and political processes. Furthermore, the

curve i n Figure I.1 represents income inequality in the United States, while the

curves in Figure I.2 depict the capital/income ratio in several European countries

(Japan, though not shown, is similar). It is not out of the question that the two forces

of divergence will ultimately come together in the twenty-first century. This has

already happened to some extent and may yet become a global phenomenon, which

could lead to levels of inequality never before seen, as well as to a radically new

structure of inequality. Thus far, however, these striking patterns reflect two distinct

underlying phenomena.

The US curve, shown in Figure I.1, indicates the share of the upper decile of the

income hierarchy in US national income from 1910 to 2010. It is nothing more than

an extension of the historical series Kuznets established for the period 1913–1948.

The top decile claimed as much as 45–50 percent of national income in the 1910s–

1920s before dropping to 30–35 percent by the end of the 1940s. Inequality then

stabilized at that level from 1950 to 1970. We subsequently see a rapid rise in

inequality in the 1980s, until by 2000 we have returned to a level on the order of 45–

50 percent of national income. The magnitude of the change is impressive. It is

natural to ask how far such a trend might continue.

FIGURE I.1. Income inequality in the United States, 1910–2010

The top decile share in US national income dropped from 45–50 percent in the 1910s–1920s to less than 35

percent in the 1950s (this is the fall documented by Kuznets); it then rose from less than 35 percent in the

1970s to 45–50 percent in the 2000s–2010s.

Sources and series: see piketty.pse.ens.fr/capital21c.

I will show that this spectacular increase in inequality largely reflects an

unprecedented explosion of very elevated incomes from labor, a veritable separation

of the top managers of large firms from the rest of the population. One possible

explanation of this is that the skills and productivity of these top managers rose

suddenly in relation to those of other workers. Another explanation, which to me

seems more plausible and turns out to be much more consistent with the evidence, is

that these top managers by and large have the power to set their own remuneration,

in some cases without limit and in many cases without any clear relation to their

individual productivity, which in any case is very difficult to estimate in a large

organization. This phenomenon is seen mainly in the United States and to a lesser

degree in Britain, and it may be possible to explain it in terms of the history of

social and fiscal norms in those two countries over the past century. The tendency is

less marked in other wealthy countries (such as Japan, Germany, France, and other

continental European states), but the trend is in the same direction. To expect that

the phenomenon will attain the same proportions elsewhere as it has done in the

United States would be risky until we have subjected it to a full analysis—which

unfortunately is not that simple, given the limits of the available data.

The Fundamental Force for Divergence: r > g

The second pattern, represented in Figure I.2, reflects a divergence mechanism that

is in some ways simpler and more transparent and no doubt exerts greater influence

on the long-run evolution of the wealth distribution. Figure I.2 shows the total value

of private wealth (in real estate, financial assets, and professional capital, net of

debt) in Britain, France and Germany, expressed in years of national income, for the

period 1870–2010. Note, first of all, the very high level of private wealth in Europe

in the late nineteenth century: the total amount of private wealth hovered around six

or seven years of national income, which is a lot. It then fell sharply in response to

the shocks of the period 1914–1945: the capital/income ratio decreased to just 2 or 3.

We then observe a steady rise from 1950 on, a rise so sharp that private fortunes in

the early twenty-first century seem to be on the verge of returning to five or six

years of national income in both Britain and France. (Private wealth in Germany,

which started at a lower level, remains lower, but the upward trend is just as clear.)

This “U-shaped curve” reflects an absolutely crucial transformation, which will

figure largely in this study. In particular, I will show that the return of high

capital/income ratios over the past few decades can be explained in large part by the

return to a regime of relatively slow growth. In slowly growing economies, past

wealth naturally takes on disproportionate importance, because it takes only a small

flow of new savings to increase the stock of wealth steadily and substantially.

If, moreover, the rate of return on capital remains significantly above the growth

rate for an extended period of time (which is more likely when the growth rate is

low, though not automatic), then the risk of divergence in the distribution of wealth

is very high.

This fundamental inequality, which I will write as r > g (where r stands for the

average annual rate of return on capital, including profits, dividends, interest, rents,

and other income from capital, expressed as a percentage of its total value, and g

stands for the rate of growth of the economy, that is, the annual increase in income

or output), will play a crucial role in this book. In a sense, it sums up the overall

logic of my conclusions.

FIGURE I.2. The capital/income ratio in Europe, 1870–2010

Aggregate private wealth was worth about six to seven years of national income in Europe in 1910, between

two and three years in 1950, and between four and six years in 2010.

Sources and series: see piketty.pse.ens.fr/capital21c.

When the rate of return on capital significantly exceeds the growth rate of the

economy (as it did through much of history until the nineteenth century and as is

likely to be the case again in the twenty-first century), then it logically follows that

inherited wealth grows faster than output and income. People with inherited wealth

need save only a portion of their income from capital to see that capital grow more

quickly than the economy as a whole. Under such conditions, it is almost inevitable

that inherited wealth will dominate wealth amassed from a lifetime’s labor by a

wide margin, and the concentration of capital will attain extremely high levels—

levels potentially incompatible with the meritocratic values and principles of social

justice fundamental to modern democratic societies.

What is more, this basic force for divergence can be reinforced by other

mechanisms. For instance, the savings rate may increase sharply with wealth. Or,

even more important, the average effective rate of return on capital may be higher

when the individual’s initial capital endowment is higher (as appears to be

increasingly common). The fact that the return on capital is unpredictable and

arbitrary, so that wealth can be enhanced in a variety of ways, also poses a challenge

to the meritocratic model. Finally, all of these factors can be aggravated by the

Ricardian scarcity principle: the high price of real estate or petroleum may

contribute to structural divergence.

To sum up what has been said thus far: the process by which wealth is

accumulated and distributed contains powerful forces pushing toward divergence, or

at any rate toward an extremely high level of inequality. Forces of convergence also

exist, and in certain countries at certain times, these may prevail, but the forces of

divergence can at any point regain the upper hand, as seems to be happening now, at

the beginning of the twenty-first century. The likely decrease in the rate of growth of

both the population and the economy in coming decades makes this trend all the

more worrisome.

My conclusions are less apocalyptic than those implied by Marx’s principle of

infinite accumulation and perpetual divergence (since Marx’s theory implicitly

relies on a strict assumption of zero productivity growth over the long run). In the

model I propose, divergence is not perpetual and is only one of several possible

future directions for the distribution of wealth. But the possibilities are not

heartening. Specifically, it is important to note that the fundamental r > g inequality,

the main force of divergence in my theory, has nothing to do with any market

imperfection. Quite the contrary: the more perfect the capital market (in the

economist’s sense), the more likely r is to be greater than g. It is possible to imagine

public institutions and policies that would counter the effects of this implacable

logic: for instance, a progressive global tax on capital. But establishing such

institutions and policies would require a considerable degree of international

coordination. It is unfortunately likely that actual responses to the problem—

including various nationalist responses—will in practice be far more modest and

less effective.

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The Geographical and Historical Boundaries of This Study

What will the geographical and historical boundaries of this study be? To the extent

possible, I will explore the dynamics of the distribution of wealth between and

within countries around the world since the eighteenth century. However, the

limitations of the available data will often make it necessary to narrow the scope of

inquiry rather severely. In regard to the between-country distribution of output and

income, the subject of the first part of the book, a global approach is possible from

1700 on (thanks in particular to the national accounts data compiled by Angus

Maddison). When it comes to studying the capital/income ratio and capital-labor

split in Part Two, the absence of adequate historical data will force me to focus

primarily on the wealthy countries and proceed by extrapolation to poor and

emerging countries. The examination of the evolution of inequalities of income and

wealth, the subject of Part Three, will also be narrowly constrained by the

limitations of the available sources. I try to include as many poor and emergent

countries as possible, using data from the WTID, which aims to cover five

continents as thoroughly as possible. Nevertheless, the long-term trends are far

better documented in the rich countries. To put it plainly, this book relies primarily

on the historical experience of the leading developed countries: the United States,

Japan, Germany, France, and Great Britain.

The British and French cases turn out to be particularly significant, because the

most complete long-run historical sources pertain to these two countries. We have

multiple estimates of both the magnitude and structure of national wealth for Britain

and France as far back as the early eighteenth century. These two countries were also

the leading colonial and financial powers in the nineteenth and early twentieth

centuries. It is therefore clearly important to study them if we wish to understand the

dynamics of the global distribution of wealth since the Industrial Revolution. In

particular, their history is indispensable for studying what has been called the “first

globalization” of finance and trade (1870–1914), a period that is in many ways

similar to the “second globalization,” which has been under way since the 1970s.

The period of the first globalization is as fascinating as it was prodigiously

inegalitarian. It saw the invention of the electric light as well as the heyday of the

ocean liner (the Titanic sailed in 1912), the advent of film and radio, and the rise of

the automobile and international investment. Note, for example, that it was not until

the coming of the twenty-first century that the wealthy countries regained the same

level of stock-market capitalization relative to GDP that Paris and London achieved

in the early 1900s. This comparison is quite instructive for understanding today’s

world.

Some readers will no doubt be surprised that I accord special importance to the

study of the French case and may suspect me of nationalism. I should therefore

justify my decision. One reason for my choice has to do with sources. The French

Revolution did not create a just or ideal society, but it did make it possible to

observe the structure of wealth in unprecedented detail. The system established in

the 1790s for recording wealth in land, buildings, and financial assets was

astonishingly modern and comprehensive for its time. The Revolution is the reason

why French estate records are probably the richest in the world over the long run.

My second reason is that because France was the first country to experience the

demographic transition, it is in some respects a good place to observe what awaits

the rest of the planet. Although the country’s population has increased over the past

two centuries, the rate of increase has been relatively low. The population of the

country was roughly 30 million at the time of the Revolution, and it is slightly more

than 60 million today. It is the same country, with a population whose order of

magnitude has not changed. By contrast, the population of the United States at the

time of the Declaration of Independence was barely 3 million. By 1900 it was 100

million, and today it is above 300 million. When a country goes from a population of

3 million to a population of 300 million (to say nothing of the radical increase in

territory owing to westward expansion in the nineteenth century), it is clearly no

longer the same country.

The dynamics and structure of inequality look very different in a country whose

population increases by a factor of 100 compared with a country whose population

merely doubles. In particular, the inheritance factor is much less important in the

former than in the latter. It has been the demographic growth of the New World that

has ensured that inherited wealth has always played a smaller role in the United

States than in Europe. This factor also explains why the structure of inequality in the

United States has always been so peculiar, and the same can be said of US

representations of inequality and social class. But it also suggests that the US case is

in some sense not generalizable (because it is unlikely that the population of the

world will increase a hundredfold over the next two centuries) and that the French

case is more typical and more pertinent for understanding the future. I am convinced

that detailed analysis of the French case, and more generally of the various historical

trajectories observed in other developed countries in Europe, Japan, North America,

and Oceania, can tell us a great deal about the future dynamics of global wealth,

including such emergent economies as China, Brazil, and India, where demographic

and economic growth will undoubtedly slow in the future (as they have done

already).

Finally, the French case is interesting because the French Revolution—the

“bourgeois” revolution par excellence—quickly established an ideal of legal

equality in relation to the market. It is interesting to look at how this ideal affected

the dynamics of wealth distribution. Although the English Revolution of 1688

established modern parliamentarism, it left standing a royal dynasty, primogeniture

on landed estates (ended only in the 1920s), and political privileges for the

hereditary nobility (reform of the House of Lords is still under discussion, a bit late

in the day). Although the American Revolution established the republican principle,

it allowed slavery to continue for nearly a century and legal racial discrimination for

nearly two centuries. The race question still has a disproportionate influence on the

social question in the United States today. In a way, the French Revolution of 1789

was more ambitious. It abolished all legal privileges and sought to create a political

and social order based entirely on equality of rights and opportunities. The Civil

Code guaranteed absolute equality before the laws of property as well as freedom of

contract (for men, at any rate). In the late nineteenth century, conservative French

economists such as Paul Leroy-Beaulieu often used this argument to explain why

republican France, a nation of “small property owners” made egalitarian by the

Revolution, had no need of a progressive or confiscatory income tax or estate tax, in

contrast to aristocratic and monarchical Britain. The data show, however, that the

concentration of wealth was as large at that time in France as in Britain, which

clearly demonstrates that equality of rights in the marketplace cannot ensure

equality of rights tout court. Here again, the French experience is quite relevant to

today’s world, where many commentators continue to believe, as Leroy-Beaulieu did

a little more than a century ago, that ever more fully guaranteed property rights, ever

freer markets, and ever “purer and more perfect” competition are enough to ensure a

just, prosperous, and harmonious society. Unfortunately, the task is more complex.

The Theoretical and Conceptual Framework

Before proceeding, it may be useful to say a little more about the theoretical and

conceptual framework of this research as well as the intellectual itinerary that led

me to write this book.

I belong to a generation that turned eighteen in 1989, which was not only the

bicentennial of the French Revolution but also the year when the Berlin Wall fell. I

belong to a generation that came of age listening to news of the collapse of the

Communist dicatorships and never felt the slightest affection or nostalgia for those

regimes or for the Soviet Union. I was vaccinated for life against the conventional

but lazy rhetoric of anticapitalism, some of which simply ignored the historic failure

of Communism and much of which turned its back on the intellectual means

necessary to push beyond it. I have no interest in denouncing inequality or

capitalism per se—especially since social inequalities are not in themselves a

problem as long as they are justified, that is, “founded only upon common utility,”

as article 1 of the 1789 Declaration of the Rights of Man and the Citizen proclaims.

(Although this definition of social justice is imprecise but seductive, it is rooted in

history. Let us accept it for now. I will return to this point later on.) By contrast, I

am interested in contributing, however modestly, to the debate about the best way to

organize society and the most appropriate institutions and policies to achieve a just

social order. Furthermore, I would like to see justice achieved effectively and

efficiently under the rule of law, which should apply equally to all and derive from

universally understood statutes subject to democratic debate.

I should perhaps add that I experienced the American dream at the age of twentytwo,

when I was hired by a university near Boston just after finishing my doctorate.

This experience proved to be decisive in more ways than one. It was the first time I

had set foot in the United States, and it felt good to have my work recognized so

quickly. Here was a country that knew how to attract immigrants when it wanted to!

Yet I also realized quite soon that I wanted to return to France and Europe, which I

did when I was twenty-five. Since then, I have not left Paris, except for a few brief

trips. One important reason for my choice has a direct bearing on this book: I did not

find the work of US economists entirely convincing. To be sure, they were all very

intelligent, and I still have many friends from that period of my life. But something

strange happened: I was only too aware of the fact that I knew nothing at all about

the world’s economic problems. My thesis consisted of several relatively abstract

mathematical theorems. Yet the profession liked my work. I quickly realized that

there had been no significant effort to collect historical data on the dynamics of

inequality since Kuznets, yet the profession continued to churn out purely theoretical

results without even knowing what facts needed to be explained. And it expected me

to do the same. When I returned to France, I set out to collect the missing data.

To put it bluntly, the discipline of economics has yet to get over its childish

passion for mathematics and for purely theoretical and often highly ideological

speculation, at the expense of historical research and collaboration with the other

social sciences. Economists are all too often preoccupied with petty mathematical

problems of interest only to themselves. This obsession with mathematics is an easy

way of acquiring the appearance of scientificity without having to answer the far

more complex questions posed by the world we live in. There is one great advantage

to being an academic economist in France: here, economists are not highly respected

in the academic and intellectual world or by political and financial elites. Hence they

must set aside their contempt for other disciplines and their absurd claim to greater

scientific legitimacy, despite the fact that they know almost nothing about anything.

This, in any case, is the charm of the discipline and of the social sciences in general:

one starts from square one, so that there is some hope of making major progress. In

France, I believe, economists are slightly more interested in persuading historians

and sociologists, as well as people outside the academic world, that what they are

doing is interesting (although they are not always successful). My dream when I was

teaching in Boston was to teach at the École des Hautes Études en Sciences Sociales,

whose faculty has included such leading lights as Lucien Febvre, Fernand Braudel,

Claude Lévi-Strauss, Pierre Bourdieu, Françoise Héritier, and Maurice Godelier, to

name a few. Dare I admit this, at the risk of seeming chauvinistic in my view of the

social sciences? I probably admire these scholars more than Robert Solow or even

Simon Kuznets, even though I regret the fact that the social sciences have largely

lost interest in the distribution of wealth and questions of social class since the

1970s. Before that, statistics about income, wages, prices, and wealth played an

important part in historical and sociological research. In any case, I hope that both

professional social scientists and amateurs of all fields will find something of

interest in this book, starting with those who claim to “know nothing about

economics” but who nevertheless have very strong opinions about inequality of

income and wealth, as is only natural.

The truth is that economics should never have sought to divorce itself from the

other social sciences and can advance only in conjunction with them. The social

sciences collectively know too little to waste time on foolish disciplinary squabbles.

If we are to progress in our understanding of the historical dynamics of the wealth

distribution and the structure of social classes, we must obviously take a pragmatic

approach and avail ourselves of the methods of historians, sociologists, and political

scientists as well as economists. We must start with fundamental questions and try

to answer them. Disciplinary disputes and turf wars are of little or no importance. In

my mind, this book is as much a work of history as of economics.

As I explained earlier, I began this work by collecting sources and establishing

historical time series pertaining to the distribution of income and wealth. As the

book proceeds, I sometimes appeal to theory and to abstract models and concepts,

but I try to do so sparingly, and only to the extent that theory enhances our

understanding of the changes we observe. For example, income, capital, the

economic growth rate, and the rate of return on capital are abstract concepts—

theoretical constructs rather than mathematical certainties. Yet I will show that these

concepts allow us to analyze historical reality in interesting ways, provided that we

remain clear-eyed and critical about the limited precision with which we can

measure these things. I will also use a few equations, such as α = r × β (which says

that the share of capital in national income is equal to the product of the return on

capital and the capital/income ratio), or β = s / g (which says that the capital/income

ratio is equal in the long run to the savings rate divided by the growth rate). I ask

readers not well versed in mathematics to be patient and not immediately close the

book: these are elementary equations, which can be explained in a simple, intuitive

way and can be understood without any specialized technical knowledge. Above all,

I try to show that this minimal theoretical framework is sufficient to give a clear

account of what everyone will recognize as important historical developments.

Outline of the Book

The remainder of the book consists of sixteen chapters divided into four parts. Part

One, titled “Income and Capital,” contains two chapters and introduces basic ideas

that are used repeatedly in the remainder of the book. Specifically, Chapter 1

presents the concepts of national income, capital, and the capital/income ratio and

then describes in broad brushstrokes how the global distribution of income and

output has evolved. Chapter 2 gives a more detailed analysis of how the growth rates

of population and output have evolved since the Industrial Revolution. This first part

of the book contains nothing really new, and the reader familiar with these ideas and

with the history of global growth since the eighteenth century may wish to skip

directly to Part Two.

The purpose of Part Two, titled “The Dynamics of the Capital/Income Ratio,”

which consists of four chapters, is to examine the prospects for the long-run

evolution of the capital/income ratio and the global division of national income

between labor and capital in the twenty-first century. Chapter 3 looks at the

metamorphoses of capital since the eighteenth century, starting with the British and

French cases, about which we possess the most data over the long run. Chapter 4

introduces the German and US cases. Chapters 5 and 6 extend the geographical range

of the analysis to the entire planet, insofar as the sources allow, and seek to draw the

lessons from all of these historical experiences that can enable us to anticipate the

possible evolution of the capital/income ratio and the relative shares of capital and

labor in the decades to come.

Part Three, titled “The Structure of Inequality,” consists of six chapters. Chapter 7

familiarizes the reader with the orders of magnitude of inequality attained in

practice by the distribution of income from labor on the one hand and of capital

ownership and income from capital on the other. Chapter 8 then analyzes the

historical dynamics of these inequalities, starting with a comparison of France and

the United States. Chapters 9 and 10 extend the analysis to all the countries for

which we have historical data (in the WTID), looking separately at inequalities

related to labor and capital, respectively. Chapter 11 studies the changing

importance of inherited wealth over the long run. Finally, Chapter 12 looks at the

prospects for the global distribution of wealth over the first few decades of the

twenty-first century.

The purpose of Part Four, titled “Regulating Capital in the Twenty-First Century”

and consisting of four chapters, is to draw normative and policy lessons from the

previous three parts, whose purpose is primarily to establish the facts and understand

the reasons for the observed changes. Chapter 13 examines what a “social state”

suited to present conditions might look like. Chapter 14 proposes a rethinking of the

progressive income tax based on past experience and recent trends. Chapter 15

describes what a progressive tax on capital adapted to twenty-first century

conditions might look like and compares this idealized tool to other types of

regulation that might emerge from the political process, ranging from a wealth tax in

Europe to capital controls in China, immigration reform in the United States, and

revival of protectionism in many countries. Chapter 16 deals with the pressing

question of public debt and the related issue of the optimal accumulation of public

capital at a time when natural capital may be deteriorating.

One final word. It would have been quite presumptuous in 1913 to publish a book

called “Capital in the Twentieth Century.” I beg the reader’s indulgence for giving

the title Capital in the Twenty-First Century to this book, which appeared in French

in 2013 and in English in 2014. I am only too well aware of my total inability to

predict what form capital will take in 2063 or 2113. As I already noted, and as I will

frequently show in what follows, the history of income and wealth is always deeply

political, chaotic, and unpredictable. How this history plays out depends on how

societies view inequalities and what kinds of policies and institutions they adopt to

measure and transform them. No one can foresee how these things will change in the

decades to come. The lessons of history are nevertheless useful, because they help us

to see a little more clearly what kinds of choices we will face in the coming century

and what sorts of dynamics will be at work. The sole purpose of the book, which

logically speaking should have been entitled “Capital at the Dawn of the Twenty-

First Century,” is to draw from the past a few modest keys to the future. Since

history always invents its own pathways, the actual usefulness of these lessons from

the past remains to be seen. I offer them to readers without presuming to know their

full import.