Book Review: Capital in the Twenty-First Century
Updated: Dec 2, 2018
Will Thomas Piketty's 21st Century revision of Capital by Marx be equally as influential?
In 2013, Piketty launched a 696 page analysis of inequality throughout human history with data spanning back to 1AD. The title, in reference to Marx's magnum opus Capital, reflects how Piketty takes Marx's ideas and that of many other economists and creates a prediction for inequality for this new millennium. Like Marx, Piketty's book is almost as divisive with some such as Paul Krugman hailing it a triumph while some such as Stefan Homburg have critiqued even Piketty's most basic concepts. Either way its influence is undeniable having sold 1.5m books by 2015. Yet many are suggesting it is the most unread bestseller because its size and overwhelming use of data and charts can make it seem inaccessible to the economic layman.
The main premise is that inequality is an integral part of capital because fundamentally the rate of return from capital will grow at a greater rate than the economy. This will skew the economic gains towards those who own this capital and therefore widen the gap between the capital haves and the capital have-nots. One of the remarkable achievements of Piketty is to have trawled through government archives and accumulated a large data bank mapping inequality. Inequality was quite obviously very high pre-20th century when the aristocrats dominated land ownership. It fell during the first half of the 20th century as the two world wars and the depression eroded the wealth of the aristocrats. Yet alarmingly since the 1970s Piketty notes there has been rising inequality due to the rate of return on capital exceeding economic growth. In fact Piketty believes this trend has always been happening except from a temporary interruption in the early 20th century. Piketty predicts that in the 21st century this trend will only continue so the government must intervene. It is in part four where Piketty presents perhaps the most controversial part of the book; his solution.
This theory contrasts with the Kuznets curve which argues that inequality falls as an economy develops. Piketty thinks inequality always has an upward trajectory even as an economy develops. Kuznets believe that was because the rewards of capitalism would be spread across a wider range of people, however, Piketty believes these rewards will still be channel to the owners of capital. Piketty accuses Kuznets of taking an overly optimistic view and given the context of the 1950s, aiming to show the strengths of capital in contrast to Soviet Socialism. He refers to the Kuznets curve as a "product of the Cold War". Kuznets is reflecting a natural human approach to the economy which is to be optimistic and believe our situation will only improve. Piketty's more realistic view is refreshing for the reader and is based on much stronger evidence than the Kuznets curve.
Overall, despite originally being written in French, Capital in the Twenty-First Century is very readable to readers of all abilities. Unlike classical economics the language is not archaic and unlike many modern day economics texts it does not attempt to baffle the reader with Maths. Piketty disagrees with the prominence maths has taken in economics and therefore he draws upon history as a source of information. Piketty presents his ideas in a clear and persuasive manner and by the end I certainty had a through understanding of inequality. However, my one criticism would be the length. For one topic it was very time consuming and the rewards seemed small compared to the time I spent. Much of what Piketty writes about I believe could be explained equally as eloquently in half the amount of words and I often feel Piketty is repeating ideas multiple times. If one is to summarise the arguments of the book it is clear that such theories do not seem to warrant such a tome. I would say it is a must read for anybody particularly interested in inequality, but for any other casual economics reader I would stick to shorter more general books.
I also feel as if there are quite a few gaps in Piketty's reasoning as he fails to address many of the significant flaws with his idea of a capital tax. For example, he does not consider the contraction effect it would have on investment and he fails to consider many alternatives such as a social wealth fund.
Although this review appears highly critical, I would say I did enjoy reading Capital in the Twenty-First Century and I admire Piketty's skill as an economist. However, I would advise that the time investment exceeds the rewards. I would only recommend it for the most dedicated reader, it is not an impulse buy.
If anybody wants a summary of Capital in the Twenty-First Century please have a look at my summary at the link below. It includes all the main points in the book yet it will save you many, many hours. https://www.tes.com/teaching-resource/capital-in-the-twenty-first-century-summary-12031598