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Making the Most of Capital in the Twenty-First Century *

  • Peter H. Lindert (a1)
Abstracts

Thomas Piketty’s monumental Capital in the Twenty-First Century has transported us to a higher understanding of the historical evolution of inequality. This essay attempts to inventory the different avenues of research, more or less promising, that scholars might usefully pursue when building on his work. The most important path to follow is the history of inequalities in income that Piketty and his team have flagged up so well, supported by the book’s history of the great shocks of the twentieth century and the political responses that they elicited. Less promising is the book’s emphasis on wealth, capital, and the rate of return. The best predictions of future inequality can be achieved by merging Piketty and his team’s history of those who hold the top 10 percent of income with works dedicated to the history of inequality within the lower 90 percent. It is also necessary to integrate other scholarship that has demonstrated that the sort of democratic system Piketty calls for would have positive effects on growth.

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Footnotes
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I would like to thank Guido Alfani, Alexander Field, Branko Milanović, Carl Mosk, Richard Sutch, Richard Sylla, Alan Taylor, and Jeffrey Williamson for their helpful comments on earlier drafts. The interpretations and opinions expressed in the article are the sole responsibility of the author.

Footnotes
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1. de Tocqueville, Alexis, Democracy in America [1839], trans. Goldhammer, Arthur (New York: The Library of America, 2004), 652 .

2. In addition to the book’s own online archive, see the home pages of Emmanuel Saez, Gabriel Zucman, the “World Top Incomes Database,” and the “Chartbook of Economic Inequality” compiled by Anthony Atkinson and Salvatore Morelli. For a convenient survey of income and wealth inequality in OECD countries since 1870, see Roine, Jesper and Waldenström, Daniel, “Long-Run Trends in the Distribution of Income and Wealth,” in Atkinson, Anthony B. and Bourguignon, François, eds., Handbook of Income Distribution (Amsterdam: North Holland, 2015) 2:469–592 . For earlier and less developed contexts, see Milanovic´, Branko, Lindert, Peter H., and Williamson, Jeffrey G., “Pre-Industrial Inequality,” Economic Journal 121 (2011): 255–72 , and the corresponding “social tables” on the site “Global Price and Income History Group” (http://gpih.ucdavis.edu), under the rubric “Early Income Distributions.”

3. For the lack of a clear correlation to the capital share within the top ranks, see Roine and Waldenström, “Long-Run Trends”, esp. fig. 5.

4. For example, he dismisses Daron Acemoglu and James A. Robinson’s emphasis on the opposition between “extraction” institutions (in the service of a minority with the aim of exploiting the rest of the population) and “inclusive” institutions (which enable the majority to participate in political governance, thereby limiting, or even eliminating, the process of exploitation): Acemoglu, and Robinson, , Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown Business, 2012). Piketty also rejects explanations that use superstar status or “winner-take-all” principles to account for very high incomes, the human capital approach to labor earnings, and even the theory on the race between education and technology set out in Goldin, Claudia and Katz, Lawrence, The Race between Education and Technology (Cambridge: Harvard University Press, 2008).

5. Piketty, Thomas, Postel-Vinay, Gilles, and Rosenthal, Jean-Laurent, “Wealth Concentration in a Developing Economy: Paris and France, 1807–1994,” American Economic Review 96, no. 1 (2006): 236–56 .

6. Piketty, Thomas, Capital in the Twenty-First Century, trans. Goldhammer, Arthur (Cambridge: Harvard University Press, 2014), 150 .

7. Jones, Alice Hanson, American Colonial Wealth: Documents and Methods (New York: Arno Press, 1977); Jones, , Wealth of a Nation to Be: The American Colonies on the Eve of Revolution (New York: Columbia University Press, 1980).

8. Lindert, Peter H. and Williamson, Jeffrey G., “American Incomes before and after the Revolution,” Journal of Economic History 73, no. 3 (2013): 725–65, here p. 747; and our American Growth and Inequality since 1700 (Princeton: Princeton University Press, 2016), chapters 2–5.

9. The share of income received by the top 1 percent has risen since the 1970s in Australia, New Zealand, Great Britain, Ireland, Canada, and the United States among long-term OECD countries, and also in Argentina, China, Singapore, and South Africa. In Portugal and Sweden it has begun to rise slightly since about 1980.

10. Piketty, Capital, 499 and 503.

11. For a vast history of earnings inequality in twenty OECD countries since the mid-twentieth century, see Atkinson, Anthony B., The Changing Distribution of Earnings in OECD Countries (Oxford/New York: Oxford University Press, 2008), and Anthony B. Atkinson and Salvatore Morelli, “Chartbook of Economic Inequality,” www.chartbookofeconomicinequality.com. For a convenient review of the earnings-inequality literature in labor economics using postwar American data, see Autor, David H., “Skills, Education, and the Rise of Earnings Inequality among the ‘Other 99 Percent,’Science 344, no. 6186 (2014): 843–50 .

12. In early postwar Britain, the wage gap between median and lower wage groups rose and then fell, as implied in fig. 2 and noted in Atkinson, Changing Distribution of Earnings, 378–79.

13. Piketty, Capital, 355.

14. See, for example, Rodrik, Dani, Has Globalization Gone too Far? (Washington, DC: Institute for International Economics, 1997); Lindert, Peter H., Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Cambridge: Cambridge University Press, 2004), 1:227–95 and 2:82–99, and the earlier studies cited in these chapters. Note that Gabriel Zucman has found that “around 8% of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded”: Zucman, “The Missing Wealth of Nations,” Quarterly Journal of Economics (2013): 1321–64. This magnitude raises to several issues, but such practices have not cost any advanced economy a significant share of GDP.

15. Piketty, Capital, 569.

16. Ibid., and throughout the fourth section of the book.

17. See the following works by Acemoglu, and Robinson, : Why Nations Fail; “Income and Democracy,” American Economic Review 98, no. 3 (2008): 808–42 ; and their more recent “Democracy Does Cause Growth,” NBER working paper 20004, March 2014, (http:// www.nber.org/papers/w20004), from which the direct quote is taken. For Piketty’s puzzling dismissal of Acemoglu and Robinson, see Capital, 281–82, 392–93, and 402–3.

* I would like to thank Guido Alfani, Alexander Field, Branko Milanović, Carl Mosk, Richard Sutch, Richard Sylla, Alan Taylor, and Jeffrey Williamson for their helpful comments on earlier drafts. The interpretations and opinions expressed in the article are the sole responsibility of the author.

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Annales. Histoire, Sciences Sociales - English Edition
  • ISSN: 2398-5682
  • EISSN: 2268-3763
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