When last did an economist’s weighty 700-page tome shoot to the top of the Amazon and New York Times bestseller lists overnight? Why is Thomas Piketty, a hitherto unknown French academic, being mobbed like a rock star when he appears in public? Strange days indeed … especially as Capital in the twenty-first century is apparently required reading in the Obama and David Cameron governments.
Thomas Piketty was a precociously brilliant assistant professor appointed to prestigious MIT (Massachusetts Institute of Technology) at just 22 years old. After two years he quit, stating he was disillusioned with American economics. Back in French academia, he invited economists from around the world to help build a database comprising 200 years of income and wealth distribution in 20 countries. Collecting this data and making sense of it took nearly two decades – and it is a staggering record of capitalism at work.
Based on this research, Piketty wrote Capital in the twenty-first century, the unlikely book that has captured the attention of governments, scholars and the ordinary man everywhere.
Piketty affirms that capitalism effectively creates wealth, but argues that its rewards do not naturally “trickle down” through the populace. Capitalist growth isn’t “the rising tide that lifts all boats” (John F Kennedy) but rather channels an increasing share of income to investors of capital, with salary earners left far behind.
The core of Piketty’s reasoning is that returns on accumulated capital tends to be higher than wealth generated by economic growth, therefore a larger and compounding share flows to the owners of investment capital. Inevitably the bulk of available wealth becomes concentrated in a few hands. As the broader population grows increasingly dissatisfied and desperate, the extremely wealthy secure themselves by diverting public attention, weakening democratic institutions, or even financing repression. But ultimately revolution, economic depression or war – at times combinations of these – vaporise accumulated wealth and introduce a fresh state of play, as did the twentieth-century tumult of two world wars, a great depression and the communist revolution. Whether Thomas Piketty’s arguments are sound or not – and these are being vehemently attacked, as could be expected – he has delivered an astonishing body of data for those in power to consider and economists to pick over.
Since the Industrial Revolution set humanity on a new trajectory, the works of Adam Smith, Thomas Malthus, Karl Marx and John Maynard Keynes, among others, have fundamentally shaped the economic underpinnings of societies – for better or worse. Piketty’s surprisingly readable Capital in the twenty-first century, which argues that deepening economic inequality is structural, may just signal a critical turning point towards equitable societies and a sustainable world. Available on amazon.com and at leading booksellers
Author: Clive Lotter is an Integrated Reporting Consultant and writer of annual reports for listed companies