Thomas Piketty’s Capital in the Twenty First Century. Stephan Kaufmann

circulation. In the period before the crisis, however, poorer households hardly achieved any growth in income. In order to increase or maintain their level of consumption, they often had to resort to credit. Thus, on the one hand, increasing inequality leads poorer households to take on excessive debt according to the IMF. On the other hand, the rich have gotten richer, and have not consumed this growth in income, but rather invested it, which is to say: lent it at interest. That has led, secondly, to a constantly increasing growth in the volume of investment capital. In the quest for profitable investments, capital has been thrown into increasingly risky forms of investment. The result: the wealthy accumulate more and more financial assets covered by loans to the poor, which increases the probability of financial crises.¹⁶

      •In April 2011¹⁷ and at the beginning of 2014,¹⁸ the IMF upped the ante: in two investigations, the IMF came to the conclusion that economic growth is more sustainable and stable in economies with a more equal distribution of wealth. In October 2013, the IMF considered a compulsory levy on all wealth in order to increase state revenues and decrease public debt.¹⁹

      •In light of the crisis and inequality, the conservative journalist and Margaret Thatcher biographer Charles Moore admitted in July 2011 in the Daily Telegraph: ‘I’m starting to think that the Left might actually be right.’²⁰ A month later, Moore was quoted approvingly by the then publisher of the Frankfurter Allgemeine Zeitung Frank Schirrmacher: ‘It has been shown – as the left has always claimed – that a system that entered the stage to allow the advancement of many has become perverted into a system that enriches the few.’²¹ Also in August 2011, the third-richest man in the world, Warren Buffett, demanded higher taxes for rich and super-rich Americans: ‘My friends and I have been coddled long enough by a billionaire-friendly Congress.’²²

      •Between September and November 2011, the Occupy Wall Street movement occupied Zuccotti Park in the financial district of New York City. Their movement slogan: ‘We are the 99%.’ The intent was to protest the power of the richest 1 per cent of the population. Already in May 2011, the US Nobel Prize-winning economist Joseph E. Stiglitz had pointed out the problem in an article for Vanity Fair (its title, ‘Of the 1%, by the 1%, for the 1%’, was a reference to a phrase in Abraham Lincoln’s Gettysburg Address: ‘of the people, by the people, and for the people’) and spoke to Occupy Wall Street. The most prominent member of the Occupy movement, however, is the American anthropologist David Graeber, whose book Debt: The First 5000 Years raised a storm in 2011 and like Piketty’s book haunted the review pages – even if Graeber does not see himself as part of the mainstream. In addition, an above average number of journalistic and scholarly contributions on the topic of inequality were published – not just in Germany – sometimes with very different choices of focus and emphasis.²³

      •In November 2013, the new Pope Francis lamented in his first apostolic exhortation: ‘While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation.’²⁴

      •In March 2014, the general secretary of the Organisation for Economic Co-operation and Development (OECD), José Ángel Gurría, said that ‘urgent action’ was ‘needed to tackle rising inequality’.²⁵ In May he warned ‘we underline the toll that ever-rising inequality takes on people’s lives and the wider economy’.²⁶ Now other liberal institutions followed: ‘More social justice creates at the same time more wealth and growth’, wrote the Bertelsmann Stiftung,²⁷ and in June even a member of the European Central Bank disclosed that inequality could ‘cause financial instability’.²⁸ Thus, the notion that just societies are better for all – which was greeted with smiles of approval in 2009 when Richard Wilkinson and Kate Pickett presented it in their book The Spirit Level – had reached the mainstream.

      So, even before Thomas Piketty’s book, the topic of ‘inequality’ had arrived in the economic mainstream, and with the following line of argumentation: inequality and poverty are no longer regarded so much as a consequence of capitalist economic growth, but rather as a brake on such growth and as a problem for stability. Despite the tendency to speak about this issue in moral terms, the central questions are economic ones: ‘Would the U.S. economy be better off with a narrower income gap?’ asks the rating agency S&P, and the OECD states: ‘inequality hurts economic growth.’²⁹ What stands at the centre of attention are no longer the problems that the poor have with capitalism, but the problems that the poor pose for capitalism and its growth. The demand that follows from this is no longer a fundamental change of economic system, but merely a correction of the existing one – and not a correction of wealth to the benefit of the poor, but a correction of poverty for the benefit of wealth. The goal is not a better life for people – such a better life is only supposed to be a means of making economic growth smoother and faster. This chorus was joined by those who feared a dissolution of ‘social peace’ (in Germany, for example) by the evocation of ‘American conditions’.

       CHAPTER 3

       The Book

      The subject of income and wealth inequality has been Piketty’s topic for many years. That is why he could write right at the beginning of his new book: ‘This book is based on fifteen years of research (1998–2013) devoted essentially to understanding the historical dynamics of wealth and income.’¹ With that, Piketty’s guiding question is outlined: how do wealth and income develop long-term, and what are the driving forces of this development? The book is structured according to this question. It consists of four large sections:

      •Income and Capital (p. 39ff)

      •The Dynamics of the Capital/Income Ratio (p. 113ff)

      •The Structure of Inequality (p. 237ff)

      •Regulating Capital in the Twenty-First Century (p. 237ff)

      In the first section, Piketty introduces the reader to the topic and discusses what capital and income are and how they can be measured. He then comes to the actual topic of the book: how does the relationship between wealth on the one hand and income (income from labour and earnings on capital) on the other hand develop in the long run? And why? What patterns can be recognized? Finally, Piketty ventures a prognosis about how the relation between wealth and income will develop, and on this basis he makes economic policy proposals for how the world could improve.

      Where does Piketty get his data?

      Piketty’s data set, which has been much praised, is based inter alia upon tax records that he and his research partners have sifted through and processed over the last few years. On the one hand, Piketty is surprised that this material has not been used previously, but at the same time provides an explanation: the statistical study of tax records is an ‘academic no-man’s-land, too historical for economists and too economistic for historians’.² That is surprising to the extent that tax records first make it possible to take a long-term analytical perspective.³ Most of Piketty’s data series thus begin with the twentieth century, when many Western industrial countries first implemented an income tax. More difficult than in the case of income is the data for income from wealth and the size of wealth. Whereas income is well documented by tax authorities, wealth is not.⁴ Piketty notes: ‘I trust the quantification of wealth for the year 1913 more than that of 2013. National income is recorded relatively well, but the distribution of income up to the highest tiers is another question.’⁵

      The most important source for the book is the World Top Incomes Database (WTID), the result of cooperation between thirty scholars and many research institutes, which Piketty helped to build in the last ten years.⁶ The database now encompasses more than twenty countries and is constantly updated. The first evaluations of the data had already been published in 2007 and 2010.

      Partially to make his book more readable, Piketty did without a comprehensive data annex. In the book, one finds almost