Capital in the Twenty-First Century

Thomas Piketty’s Capital in the Twenty-First Century is one of the most comprehensive analyses of wealth and income inequality ever written. Using over 200 years of tax, income, and inheritance records from countries like France, Britain, the United States, and Germany, Piketty uncovers a consistent pattern: when the return on capital (r) exceeds the growth rate of the economy (g), inequality inevitably rises. This equation, r > g, is his central thesis. It encapsulates how wealth accumulates faster than wages grow—and how fortunes of the past begin to dominate the economic future.

Piketty shows that capitalism’s natural tendency is not toward balance but toward concentration. When investment returns are higher than overall growth, those who already own assets—land, property, stocks, or businesses—grow richer without working, while wage earners must struggle to keep pace. Over time, this widens the gap between the top and bottom, creating a society that becomes increasingly stratified and stagnant.

The historical data are striking. In 19th-century France and Britain, the top 10% owned nearly 90% of national wealth. Even after wars and revolutions, inequality re-emerged by the late 20th century. In the United States today, the top 1% controls more than one-third of the nation’s wealth, while the bottom 50% owns less than 2%. This pattern—temporary equality followed by renewed concentration—reveals that market economies do not self-correct; they require deliberate political intervention to prevent inequality from spiraling out of control.

The Evolution of Capital

Piketty redefines capital as the total stock of nonhuman assets that generate income: land, real estate, industrial equipment, financial assets, and intellectual property. His analysis traces how the form of capital has changed—from landed estates in agrarian Europe, to factories and machinery during industrialization, to financial instruments and digital assets in the modern era.

Yet, despite these transformations, capital’s power to reproduce itself remains constant. The wealthy do not need to work for their wealth to grow; reinvestment of profits ensures perpetual compounding. Piketty calculates that most advanced economies maintain a capital-to-income ratio of roughly 6:1, meaning the total value of a nation’s wealth equals six years of its income. This structure creates a built-in imbalance: even modest returns on large fortunes produce vast unearned income streams.

For instance, a person with $100 million in assets earning a conservative 5% annual return would make $5 million a year—without labor, risk, or innovation. Meanwhile, the median American worker earns around $60,000 annually. The dynamic is self-perpetuating: wealth earns more wealth.

Wealth and Politics: Two Sides of the Same Coin

A major insight from Piketty is that economic inequality is deeply political. The level of inequality in any society reflects its collective choices—about taxation, inheritance, property rights, education, and the regulation of finance. Economic trends alone do not dictate distribution; political institutions do.

The early 20th century illustrates this vividly. The World Wars and the Great Depression decimated fortunes and forced governments to adopt progressive taxation and social welfare systems. From 1914 to 1945, private capital was destroyed through inflation, nationalization, and war. In response, nations like the U.S. introduced steep income taxes—the ...