When a lengthy book on economics enters the often-charged academic and popular discourse on wealth and income inequality, it is perhaps inevitable that some things will get lost in translation. The author reflects on some of the key themes of his best-selling book, seeking to clarify and refocus the discussion of those themes.
What’s Inside?
The author, in collaboration with other scholars, furthered the study of the distribution of income and wealth through a historical data collection project spanning three centuries and over 20 countries. He presented this body of evidence in his book, Capital in the Twenty-First Century (2014).
He attempts to explain and reframe six key themes that may have become attenuated or garbled in the ongoing discussions of his book. Most notably, he addresses a common simplification: the notion that inequality of wealth is destined to increase indefinitely over time because r > g (i.e., the tendency of the rate of return on capital, r, to be greater than the growth rate of the economy, g).
How Is This Research Useful to Practitioners?
First, the author emphasizes that the history of wealth and income inequality within a society both shapes and is shaped by that society’s views of what is just and by the policies and the fiscal and educational institutions it adopts to measure and change that inequality.
Second, despite his use of such abstract concepts as aggregate capital stock and the aggregate production function, the author believes that a proper comparison of different societies requires a careful, separate analysis of the various capital asset categories (e.g., agricultural land, modern real estate, and business and financial capital) and corresponding social and economic relations.
Third, according to the author, the forces that drive income inequality are largely different from those that drive wealth inequality. In addition, in certain societies, the top shares of income and wealth may be highly correlated, whereas in such other societies as traditional patrimonial ones, they may represent entirely different positions within the social hierarchy.
Fourth, the author turns to the specific role of r > g. A larger r — g gap tends to magnify long-run wealth inequality, up to a finite level, given the presence of demographic, rate-of-return, and labor earnings shocks that affect wealth, as well as differences in preferences regarding savings and bequests.
Fifth, some of the scenarios that affect how r − g might evolve in the 21st century are considered. The author reiterates, with sharp focus, the emphasis in his book on rising international tax competition, a growth slowdown, and unequal access to higher capital returns.
Finally, the author attempts to clarify what is distinctive in his historical and political economy approach to institutions and inequality dynamics and how his approach complements other approaches.
How Did the Author Conduct This Research?
The author considers his research to be an extension of an effort, begun in the mid-20th century, to blend theoretical approaches to the study of the distribution of income and wealth with more data-intensive and historical approaches.
Theoretical models, abstract concepts, and equations play a role in the author’s analysis—albeit a modest one that should not be exaggerated. According to the author, models can help clarify logical relationships between assumptions and conclusions but only by oversimplifying the world to an extreme.
He draws on the cumulative research of several dozen scholars, including his own research. This body of research includes a relatively large historical database that encompasses the structure of national income and wealth and the evolution of income and wealth distributions. The database covers systematic data on the 18th, 19th, and 20th centuries for over 20 countries.
According to the author, long-run wealth inequality series are available for a much smaller number of countries than are income inequality series. The author admits that there are not enough data on historical and current patterns of income and wealth; however, there is substantially more evidence now than in the past.
Abstractor’s Viewpoint
Some of the terms the author uses could have been defined more clearly. For example, although he discusses the nature of capital at length, the distinction and relationship between capital and wealth are somewhat ambiguous.
To his credit, the author seems forthright in his discussion of the nature and relative merits of the research supporting his best-selling book. He describes a thoughtful and incremental collective effort that, despite having achieved such significant milestones as the development of the World Top Incomes Database, remains a work in progress.