Capital in the Twenty-First Century: A Review Essay

In the title of his 1968 review of early research in Cliometrics, Lance Davis opined that “it will never be literature.” One of Thomas Piketty\u27s many achievements in Capital in the Twenty-First Century is to prove Davis wrong. Piketty\u27s book is both an exemplary work in quantitative economic history and economic literature in the finest sense, written with the Cartesian clarity we associate with the French scientific tradition. It is, moreover, quite remarkably, also about literature, about the novels of Jane Austen, Henry James, and Honoré de Balzac, and the nineteenth-century wealth dynamics they brought to life. From the vantage point of the 1960s or 1970s, it seemed apparent that the importance both of inheritance and of highly unequal labor incomes was diminishing and (already) greatly diminished relative to earlier epochs. Piketty demonstrates here (and in related articles with other coauthors) that inequality of labor income has roared back, driven only partly by superstars in the arts, sports, and entertainment worlds, but predominantly by an explosion of compensation for top managers in both financial and nonfinancial firms. This is particularly so in the United States. Indeed, remarks Piketty, such inequality is now “probably higher than in any other society, at any time in the past, anywhere in the world” (p. 265). But that is only part of the story. To borrow from the title of another of Piketty\u27s works, Capital is Back. Inherited wealth has also staged a remarkable comeback. That resurgence is most advanced in Europe—although the United States is not far behind. The observable consequences are a growing share of capital in national income, and a growing inequality in the individual distribution of income, to which the skew of income from capital and labor both contribute. This inequality is apparent in the rising shares garnered by the top 1 percent and the top one-tenth of 1 percent. Piketty prefers these metrics to the Gini coefficient which, he suggests, reveals too little, particularly about the concentration of income at the top (in 2012, the top 1 percent of households in the United States garnered 22 percent of all income including capital gains; in the 1970s the comparable statistic was about 9 percent)