On Piketty and his model
Study of the historical evolution of the distribution of income
and wealth from the 18
century in over 20 countries.
Research spanning 15 years, with a team of over 30
The book is divided into four parts: Income and Capital; The
Dynamics of the Capital/Income Ratio; The Structure of
Inequality; and Regulating Capital in the 21
All the graphs in the work can be found on the following site:
1. The importance of a patrimonial society in Europe
and Japan. The capital/income ratios return to high
levels in countries with weak growth.
2. The concentration of wealth: based on (r) as the
rate of return on capital; (g) the growth rate, the
difference between (r) and (g) is increasing in the 21
century, and returning to 19
3. Inequality in America, stimulated by huge wage
The notion of capital
1. Link of capital K to return B, which goes to
2. Capital stock includes all forms of assets:
dwellings, lands, machinery, financial capital,
people (in times of slavery).
3. The income from capital includes,
dividends, rent, interests.
SHARE OF CAPITAL INCOME IN NATIONAL INCOME
RETURN ON CAPITAL
Basic relationships I
1. Share of income in the national income,
expressed as: α
Basic relationships II
2. Rate of return r, or profit on capital:
Basic relationships III
3. Product capital or income capital ratio,
which he calls β:
First fundamental law of capitalism
THE SHARE OF INCOME DEPENDS ON THE
PRODUCT β BY r:
Second fundamental law of capitalism
THE RELATIONSHIP K/Y IS EQUAL TO THE
SAVINGS RATE DIVIDED BY THE GROWTH
A country that saves a lot and grows slowly
accumulates an enormous stock of capital
relative to its income.
If K/Y increases, it means that the owners control
IMPORTANCE OF THE PATRIMONIAL SOCIETY.
RETURN ON CAPITAL GREATER THAN ECONOMIC GROWTH…
The return on capital (r), in percentage terms, is higher
than the percentage of economic growth (g).
transcendence: the gap between rich and poor has
Capitalists obtain an increasingly large part of the
wealth to be distributed and bequeath it to their
successors: the latter are born rich, and must make the
capital continue growing above the returns for other
RETURN (r) AND ECONOMIC
GROWTH (g), 1700-2100
…WHICH CAUSES SOCIAL
The increase in inequality produced by the
imbalance between (r) and (g) translates into the
core problem of capitalism: instability is
The mass of poor workers may rebel against the
rich minority, by democratic or revolutionary
means, which could put an end to the system.
THE IMPORTANCE OF THE
PATRIMONY: all that is owned or can be sold on the market (without
Actually, in Europe and Japan a rise was recorded in the ratio B= k/Y, over the
last few decades: 200-300% in 1950-1960; 500-600% in 2000-2010.
On average patrimony represented 2 or 3 years of income in around
1950-1960; and 5-6 years in 2000-2010.
If, for example, we suppose that B= 600% and Y= € 30,000 per capita, then k=
€ 180,000per capita.
THIS LEVEL APPROACHES B=600-700% OF THE SOCIETIES OF THE 18th
THE FALL OF CAPITAL
The fall of capital throughout the 20
century was due to
the Great Depression and the world wars. From the 1950s
on, and above all from the 1990s, the ratio between capital
and the GNP grows again in the eight richest countries.
Conclusion 1: capitalists obtain a return (r) that is greater
than the growth rate of the economy.
This makes their wealth larger and so they transfer it to
their successors in inheritances.
The natural tendency is for the ration between capital and
growth to increase. The only exception occurred in the first
half of the 20
INCOME INEQUALITY IN THE UNITED
DIRECT TAXATION EXPLAINS
THE CONCENTRATION OF WEALTH
The concentration of capital was extremely high in the 18th
centuries, up until
World War One :
Around 90% of total capital total controlled by the richest 10%;
Around 60% of total capital total controlled by the richest 1%.
CLASSIC PATRIMONIAL SOCIETY: a minority lives from its wealth and the rest of the
Today, the concentration of capital is more intense, but less extreme than a century
Around 60-70% of total capital total controlled by the richest 10%;
Around 20-30% of total capital total controlled by the richest 1%.
Around 40% control 20-30% of total capital.
RISE OF A PATRIMONIAL MIDDLE CLASS.
INEQUALITY IN AMERICA
There is not the same structure as in Europe. A more egalitarian
model in certain aspects; and inegalitarian in others.
The capital accumulated in the past counts for quite a lot less
than in Europe. Constant demographic growth reduces the level
of inherited wealth and the concentration of. In the 19
century, part of the society were clearly slavers.
Northern states: more egalitarian in Europe. Southern states:
The distribution of income is more unequal than in Europe in
century. Currently, it is more unequal than in the Belle
THE COMPOSITION OF CAPITAL,
PIKETTY’S GENERAL CONCLUSIONS
1. The history of the distribution of wealth is political, chaotic and unpredictable.
2. EQUILIBRIUM STATE. Whilst, for Karl Marx, when growth is zero (g=0), the
contribution of capital increases (B=s/g) and the return rate is zero (r=0), we are
faced with the possibility of wars and revolutions, Piketty’s vision is “less
apocalyptic” (sic). Weak growth leads to an equilibrium state in B.
3. This equilibrium state may however lead to an extreme concentration of capital,
due to the fact that the result of r-g will be very high.
4. This has no relation whatsoever to “imperfections of the market”. On the
contrary, for the capital market the situation is perfect, because the r-g result
5. Ideal solution: progressive tax on capital on a global level, on the basis of
automatic exchange of banking information.
PIKETTY’S GENERAL CONCLUSIONS (2)
6. The acceleration of the distancing process of the 1% from the whole of
society over recent decades is confirmed.
7. Natural evolution of the system towards inequality with no regulation
8. If we do not combat this inequality, we may reach a situation of
self-destruction of the system, which includes, in turn, the self-destruction of
a) The accumulation of wealth by a minority is due to: 1. Breakaway change with the arrival of ICT; 2. Creation of global communication, without frontiers; 3. Need for constant innovations with ICT. This has promoted a technological leap of the first order, which has enriched many in a short time and brought about cultural, economic and social changes in millions of people. All progress sustained by technological advances grow significantly and at the same time face new competitors. b) Conclusion 8 refers to Karl Marx’s theory, in his prediction that inequality and class struggle would bring about the collapse
of capitalism, an unbridled capitalism that spreads inequality which destroys the system itself .
c) Conclusion 5 does not manage to explain how to bring about this huge fiscal correction. We can infer that the non-assumption of the tax by THE WHOLE WORLD would make for capital movements stimulated by the countries that wish to recruit them, with the promise of never imposing the tax.