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Book Review & Digest: Capital In The Twenty-First Century

Posted by Jakub Holý on November 21, 2014

My key takeaways and highlights from the book. This is not an objective and consistent review.

Capital in the Twenty-First Century by Thomas Piketty is together with Thinking, Fast and Slow, the most important book on society I’ve ever read. And together with Rawls’ A Theory of Justice it has shaped my opinions on society and justice. All politicians and good people interested in politics and inequality should study it. It is unique in leveraging over 200 hundred years of data from different countries and using those as the base of the discussion of the evolution, laws, and future of capital and (in)justice in its distribution.

Key points:

  • Growth cannot be 4-5% forever. In the long term, 1-1.5% is more realstic (and still far more than in the past). Higher growth is typical of countries catching up to more advanced economies (such as Europe to US, UK after WW2, China to the West nowadays).
  • Return on capital, typically 4-5% (before taxes), is thus far higher than the growth of economy and salaries. The result is that the rich get ever richer, taking ever more of the national income. (Consequently, the poorer half has ever less of it.)
  • To keep democracy and have a stable society, this has to be adressed politically.


Growth in the long term and historically is slow, 0-1% (already 1%pa results in +35% in a generation, now what after 300 years?!). Piketty guesses that in 21st century the growth will be 1 – 1.5%.
Return on capital in 21.c. is 3-4% (1 less than 100yrs ago due to taxes).
Most countries have 4-6 years of national income of capital (approx. all private, public capital (mainly schools, hospitals etc) – debt are close to 0). This is rising since the fall 1914-45 and likely to continue.
As economical and population growth decrease, the importance of past wealth grows and it accumulates even more (1ppa = +35% in 1 generation), inequality grows.
Inequality is countered by distribution of knowledge / skills and growth.
Inflation: essentially none prior to 1914, helped to kill the great national debts of WW1+2.

Income from labor as % of national income for top 10% vs. lowest 50%:

  • Scandinavia 70s-80s 20% X 35%
  • Fr, De 25 vs 30
  • US 35 X 25 – most unequal ever, growing. I.e. in EU the poorer half earns 40% more.

Capital: in EU, top 10% own 60%, bottom 50% virtually 0 (generally income inequality in Europe very stable past 100 years (% of total income from labor to top 10 x bottom 50%). Equalization only thx to fall of capital and income from it due to WW1+2 (and resulting political changes).

To decrease capital inequality: higher tax on capital and it’s gains (was up to 30% but decreases due to fight for c. among countries), decrease return on capital (happening), increase growth (likely, from 0.x to 1.x%).

Global inequality of wealth in the early 2010s appears to be comparable in magnitude to that of Europe 1900-1910. Top 0.1% owns 20%, top 1% 50%,top 10% 80-90%. Bottom half owns 5%.(Reminder: in EU, top 10% has 60%).

Return on capital grows with its size. F.ex. US universities with 0.1s billion earn ~6%, those with 1s bil ~10%. The richest ones invest only 10% in normal stocks etc. while the rest goes to less accessible investments with higher ROI (unlisted stocks, raw materials,…) – requires expensive expertise to access/manage.

According to official stats, all rich countries have negative balance of ownership (few %), so do the poor ones. Explanation: the rich ones actually own abroad more than foreigners own in them but lot (10+%) of the ownership is hidden in tax havens (= tax evasion).

US (and UK) had confiscatory progressive tax on top incomes, around 90% in US til 80s. They were removed by the conservative revolutions of Reagan, Thatcher powered by feeling of loosing to other economies – though this was only a mechanical effect of catching up after the destruction of WW1+2. The resulting rise of top salaries had no positive effect on growth. The only effect is greater inequality, smaller pay for the poorest half.

Debt removal: tax on capital > inflation > austerity. Such a tax requires good information sharing, much better than what we have (to find out who owns what).

EU: Eurozone cannot proceed without a common way to manage it’s finances, ie. common budget, taxes, and institutions necessary to manage them.


Return on capital is much higher than growth in the long run, leading to a society of rentiers and ever greater inequalities, which leads to social tension and eventually a revolution.
To take control of capitalism and prevent infinite growth of capital (and thus inequalities), we need a (global) progressive tax on capital. That is not possible without global information sharing, to know who owns what. “Capital” here means everything, cash, real estates, bonds, stocks.

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