Capital in the Twenty-First Century Book Review Background


Capitalin the Twenty-First Century Book Review


FrenchProfessor Thomas Piketty is the author of Capitalin the Twenty-First Century,a book rich in information and gives ideal insights regarding allaspects surrounding capital. Despite the growth of capital and otherfactors such as technological development that have engulfed themodern era, most of the world’s resources are in the hands of a fewwealthy individuals. In the book, the author claims that the presentwealth disparity threatens fairness and economic sustainability.Therefore, to address this imminent threat, the professor recommendsa progressive annual tax on wealth of individuals.

Inthe developed nations of the world, the wealthy people continue toamass more wealth while the affluence of the deprived and the middleclass continue to stagnate at the same levels. The result of thisphenomenon is disparities in the distribution of income among membersof the society. Professor Thomas Piketty brings the issue of incomeinequality into a wider perspective historically. He traces thedevelopment of capital in the eighteenth century from the historicalagrarian societies through to the industrial growth of the nineteenthcentury and the twentieth century.

WhenI read Capitalin the Twenty-First Century,I gained numerous insights regarding capital. The book is wellorganized following the standard structure of any scientificliterature. The author clearly uses and indicates the introductionthat presents the problem under investigation the methods used togather and interpret data and information used, results anddiscussions and a conclusion. This summary takes the order followedby Professor Piketty in writing the book.

Inthe introduction of the book, Professor Piketty starts by quotingArticle 1 of the 1789 Declaration of Human Rights that common utilityis the basis of social disparity (Piketty,2014).This quotation sets the rhythm of the embedded social humanity in thebook. Income disparity is an avoidable phenomenon in the world today.However, it reaches a point where it infringes the common goodnecessitating correction measures aligned with the interests of thepeople.

Inthe opening sentences of the introduction, Professor Piketty statesthe inquiries that the book addresses. In the modern era, the topicof wealth distribution is a major area of discussion in numeroussocial and economic forums. Nonetheless, people do not know muchabout the evolution of capital and the distribution of wealth. Thisraises questions on whether the high disparity of wealth amongindividuals is a result of private ownership and accumulation offactors of production or if the wealth inequality is eliminatedthrough the forces of growth, technical progress and competition intrading activities (Piketty,2014).The nineteenth century economist, Karl Max, propagated the notionthat the rich people in the society were rich through their hardwork, while in the twentieth century, Simon Kuznets held thatmaintaining a balance in factors affecting growth, competitiveforces, and technological progress would eventually reduce thedisparities in wealth distribution creating coherence among thedifferent economic classes (Piketty,2014).As such, through the book, Professor Piketty aims at informing thereaders about the evolution of the concepts of wealth and incomesince the 18thCentury and suggest the potential lessons that can be generated fromthat knowledge.

Theauthor examines previous studies conducted on subjects related toinequality. He then accentuates the significance of retracing theconcept of distribution back to the basics of an economic system withthe aim of generating valuable lessons on the direction of theeconomic system (more inequality or less equality) using historicaldata. For instance, according to figure 1.1 in the book, the highest10% proportion of American income between 1920 and 1940 was in therange of 40 – 45 percent, while between 1945 and 1980, it shrank to35 percent and eventually rose to the range of 40 – 50 percentbetween 2000 and 2010 (Piketty,2014).

ProfessorPiketty uses the expression to denote the state of inequality. In this expression, r representsthe annual return of capital invested while g represents the economicgrowth rate. The annual return on capital invested constitutes ofinterests, profits, rents, dividends and any other income earned andconverted into a ratio of the amount of capital. The first law ofcapitalism developed by the author is expressed as.From this expression, a represents the proportion of national incomecreated by capital, while r represents the average annual return oninvestment, and represents the proportion of capital to income (Piketty,2014).The second law of capitalism postulated by Professor Piketty is where β is a representation of the ratio of income to capital, whileis the rate of savings, and g is the economic growth rate. Therefore,as represented in figure 1.2 in the book, the ratio of capital toincome for Britain, Germany and France ranged between 600 and 700percent in 1870-1910 (Piketty,2014).This was followed by a decline to between 200 and 300 percent in 1950due to economic depression, war and changes in the social structureand finally climbed again to between 400 and 570 percent in 2010.

  1. Income and Capital

Underthis section of the book, the author examines the historicaltransformations in capital and labor that lead to the culmination ofthe ratio between capital and income. The per capita gross domesticproduct (GDP) increased from 140 percent in the 18thCentury to 240 percent of the world total between 1990 and 2012 inEurope. This compared to 90 percent in 1700 that dipped to 40 percentby 1950 in America. For the rest of the world, the GDP per capita was80 percent of the world average in 2012 implying positive economicgrowth because of the end of the colonial era (Piketty,2014).

Therate of population growth in the world recorded a gradual rise from alow of 0.2 percent to a peak of 1.8 – 1.9 percent between 1950 and1990 followed by a projected fall to 1.4 percent between 2050 and2100 and illustrated in table 2.2 in the book. Coupled withtechnological development, the growth of population has been linkedto more than 15 percent rise in the global per capita output sincethe eighteenth century as noted in table 2.1 (Piketty,2014)This trend has been linked to increased purchasing power of theconsumers. According to Professor Piketty, the rates of inflationfor France, Germany, America and the United Kingdom were virtuallyzero from 1700 to 1913. However, they increased 3-16 percent between1913 and 1950 before falling to 2-10 percent between 1950 and 1990,and later stabilizing at 2 percent from 1990 to date. This isillustrated in in figure 2.6 (Piketty,2014, pg.81).

Asnoted above, Professor Piketty utilizes two central equations toexplain the concept of capital and income ratio. Piketty maintainsthat slow growth in the past few decades resulted in the high capital– income ratios. As such, he argues that decreased growth can beused to bring back capital. This theoretical framework seems faulty. First, this is because his proposed wealth model is not consistentwith either of the two Keynesian analyses. He notes that if a balancewas induced between the rate of savings and the rate of economicgrowth, then the capital income ratio would remain at.

Similarly,if the steady state used by Piketty refers to a developed economy, itwould be difficult to explain high capital-income ratio using therate of savings and the economic growth rate. The variables definedare endogenous in nature meaning that they are subject to therelevant economic conditions that prevent the possibility of asteady-state behavior (Acemoglu&amp Robinson, 2009).Additionally, the exact relationship among the three variables (r, sand g) is dependent on external variables that absent in Piketty’stheoretical model. In most growth models, the features of uniformgrowth paths depend on the level of technology and other preferentialparameters.

Ona similar account, Professor Piketty asserts that stipulatesthe growth of the capital-income ratio. Through his fundamental laws,he implies that in a balanced state, the share of capital is denotedby .This would imply that the rate of savings would fall below one,raising the possibility that the rate of savings can exceed theeconomic growth rate. According to Easterlin(2009),&nbsptheoptimal growth models suggest that is a necessary condition to induce an optimal spending plan. Lowvalues of present and projected capital returns signify overaccumulation of capital.

Therefore,the failure of the two laws to generate any income or distribution ofwealth is acknowledged when the focus of the analysis shifts to thesignificance of the substation between labor and capital. Accordingto the author, the fundamental outcome of marginal productivityfactor pricing if the substitution in production is greater than one,is growth of the capital-income ratio that eventually broadens thedivide between rate of savings (r) and economic growth rate (g)(Harvey,2014).

  1. Dynamics of the Capital-income ratio

Thissegment of the book presents economic data from a range of sourcesand refers to the British and French novels Jane Austen and Honore deBalzac respectively to assess the unequal distribution of wealth inWestern Europe between the 18thand 19thCenturies. The author notes that the importance of national capitalexpressed as a proportion of national income depicted an identicaltrend in the United Kingdom and France between 1770 and 2020. Theland used for farming shrank from 400 to 500 percent in 1770 to 50percent by the early 20thcentury and reduced further. Housing decreased from 100-150 percentin 1770 to 50 percent in 1950 and then rose again to 300-400 percentin 2010 (Piketty,2014).The same trend was observed for other domestic capital and netforeign capital. Piketty notes that an analysis of private capital asa proportion of total income in the United Kingdom and France between1770 and 2010 illustrate a similar pattern characterized by a sharpdecline followed by a sharp increase over time. Debt-impacted publiccapital was recorded at zero percent of the national income over thesame duration. Analysis of data obtained about Germany producessimilar patterns as indicated in figure 4.4 (Piketty,2014, pg.105).

Itis paramount to note that capital is divided into private or publiccapital. In any society, the total wealth is the sum of both privateand public capital less debt. Today, in all market democracies,capital is virtually individually possessed. According to Piketty,the ideal way to evaluate the value of capital in a society is toexamine the amount of wealth (as a stock variable) relative to theincome (as a flow variable) to give the capital income ratio(Piketty,2014).These ratios are of great significance because they provide a goodquantitative measure to investigate the development of capitalists inthe history of different nations.

Inmost countries today, the average national wealth is 6-7 times thesize of national income. Thus the capital income ratio is 600-700percent. This ratio reveals very little about the spread of capitalin a society. This means that this ratio cannot reveal the owner ofwealth at any level. This is partially caused by the fact that agreater proportion of people own nothing. It is projected that in theAmerica and Europe, half of the population own very little wealth(approximately 5 percent). This is a clear proof of the idea thatwealth disparity in the society is greater than labor incomedisparities.

  1. Capital concentration and World Wars

Theauthor notes that the concentration of capital increased towards the20thcentury. During this time, almost 90 percent of the capital in theworld was held by only 10 percent of the wealthy, while the remaining10 percent of capital being held by 90 percent of the wealthy, andover half of a country’s population owning totally nothing(Piketty,2014).This concentration of capital in the rich nations and individuals canbe explained using several reasons. To start with, the economicsystems of this era did not have taxation. Therefore, absence oftaxation rendered nominal capital returns to be almost identical toreturns on capital after taxation. Again, the growth rate of capitalwas very low compared to its current rate in the world today. Duringthis era, the return on capital only benefitted those who had wealth,and thus they continued to accumulate more wealth (Gilder,2012).Essentially, the rate of return on one’s investment should not beso high to prevent massive gains in capital to the advantage of a fewindividuals. Another reason, only a few people, and nations heldcapital because the development and improvement of technologyrequired advanced levels of skills and relevant training, which weremissing. This made it hard for the labor force to make meaningfuleconomic progress.

Nevertheless,the two World Wars interfered with this deliberate and consistentsystem of wealth ownership. The most notable effect on capital wasthe physical devastation of both private and public assets. No onecould count on the foreign investments during this time because thedamage was widespread. The wars caused a decline in the rate ofsavings. Individuals who never used to save lent their governmentsmoney to finance the war, and they were repaid later with inflatedcurrencies.

Afterthe war, the global economy experienced a depression, often referredto as the ‘great depression’ whose effects were characterized bynumerous bankruptcies. These affected the order of wealthconcentration, which was further crumbled by public policies thatwere developed in the following years. Professor Piketty noted thatthe 20thcentury was characterized by war, which ended the old systems andenabled the society to begin a fresh and clean its old mess (Piketty275).

Afterthe war, it was outright that the magnitude of suffering anddestruction in some countries was less than in others. This impliesthat it was impossible to conclude that all the capital in thesecountries was destroyed to offer a fresh start to the systems ofcapital acquisition. Therefore, Piketty may have exaggerated that alittle because there was no way all capital resources would have beendestroyed taking everyone back to the basics of fair practices in theprocess of capital acquisition.

Theargument presented in the book regarding capital seems to harbor aconceptual ambiguity related to what capital is claimed to measure.This raises various problems based on the meaning attributed to themeasures of capital (Page&amp Jacobs, 2009).According to Piketty, a capital ratio of between 25 and 35 percentappears to be like some sort of attraction for the modern economies.He attributes the lower levels of capital share experiencedthroughout the 20thcentury to shocks caused by disruptions in the economic systems andtimeless processes of growth.

Acontending version of future inequality dynamics mentioned by Pikettyrevolves around the fact that nations and societies have advancedfrom one structure to another through the twentieth century.Therefore, the long-run forecasts of economic outcomes should takethe changes experienced in the distribution of income into account.One problem with the data presented by Professor Piketty is that ithe overlooks the differences that separate transitional observationfrom balanced state observations. This is because any inferencesconcerning factor shares have to consider this discrepancy, as suchdeductions are based on time-series properties of capital and not itsvalues at a specific point.

Anotherthing revolves around the idea that capital is more of a historicalconstruct like economics. Despite this assertion, Professor Pikettyadopts a primarily historical view of capital. However, a historicaloutlook of the long-term behavior necessitates simultaneousconsideration of a myriad of concepts such as scientific and medicalprogress, political systems, religious orientation and patterns offertility among others. The evolution of capital ought to beevaluated along multiple transition paths for different social,economic and political set-ups to ascertain its validity.

Theemotional effect of disparities depends on people’s beliefsconcerning the principles of distribution. This means that anyassessment of the share of capital cannot be conducted outside thebounds of its social setting. The indifferent treatment of evolutionof human capital as a source of income is proof of nonexistence ofhistorical care in capital (Rowthorn,2014).The author does not adequately explore the structural progression ofa class of underdeveloped economies to fully-fledged economicsystems. Instead, he asserts that the long-run decline of the capitalshare of national income from 35-40 percent to 25-30 percent isattributable to the less usefulness of skills that have beenacquired. However, I find this reasoning wrong given that it is notpossible to compare societies that depend of fixed factors accumulatewealth with those that depend on human resources for wealthaccumulation.

  1. The structure of inequality

Inthe third section of the book, the book elaborates the subject ofinequality and distribution. He bases his arguments on individuallevel inequality in Europe and the United States. The author explainsthat there was a marked reduction in the inequality levels in the20thcentury. The presentation utilizes useful economic devices todemonstrate the level of inequality across the globe. For example, heconsiders wealth accumulation in different deciles and centiles ofthe global population. Most specifically, Piketty bases his analysison the top 10% of the global population (the upper class) and the top1% (the dominant class). Other deciles include the top 9%(well-to-do class), the middle 40%, which he refers to as the middleclass and the bottom 50%, which he characterizes as the lower class(Harvey, 2014). The population description allows the author toprovide a clear analysis of the nature of inequality in wealthdistribution by making comparisons from the upper class to the lowerclass.

Theinequality of labor income is another issue of concern for Piketty inthis section of the book. Apart from the inequities in the laborincome, Piketty says that there are inequalities in the capitalownership as well as the total income (capital and labor). Theinequalities are distributed in different spaces and time, dependingon the prevailing economic conditions. Regarding the inequality incapital ownership, Piketty puts the inequities into severalcategories. Some of the ideas that the author uses have never beenobserved before. For example, his first category is the “lowinequality”, Piketty pioneers this new idea based on the inequalityarguments that he raises in this chapter. The second category of thecapital inequality is the “medium inequality. This is an existingidea, observed in Scandinavia in the 1970s and 80s (Harvey, 2014).Thirdly, he mentions the “medium-high inequality in capitalownership, observed in Europe in 2010. The fourth category is the“high inequality”, observed in the United States in (2010). Thefinal category is the “very high inequality”, an ideal observedin Europe in 1910. The inequalities in capital allocation areresponsible for the persistence of the inequality levels in thedifferent social classes.

Thebook provides examples of the manifestation of these ideas atdifferent times. For example, the advancement of democracy in the20thcentury caused a big shift in the percentage of capital ownershipfrom 5% each for the bottom 50% and the middle 40% (in 1910). Thepercentage of capital ownership in the two classes shifted to 10% and40% respectively in Scandinavia in the 1980s. The changes occurredmainly at the expense of the top 10% of the population (Rowthorn,2014). However, from this period, Piketty says that the world startedheading inexorably back to greater levels of inequality. This willlead to more wealth ending up in the hands of the top class at theexpense of the lower and middle-class population. This argumentcauses the author to predict that in the United States for example,by 2030, the top 10% will own 60% of the total income (Harvey, 2014).

Thetop 1% of the American population will own 25% of the total income,followed by a 35% ownership for the top 9% of the population. Themiddle 40% will own 25% of the total income while the bottom 50%,which comprises the majority of the American population will own amere 15% of the income (Rowthorn, 2014). This demonstrates thereality of the inequality threat that will continue to manifest inthe country under the prevailing economic structure.

Pikettysuggests that the decrease in the inequality levels in the 20thcentury came at the expense of the top capital incomes. Therefore, heargues that while the share of wages of the top decile i.e. the top10% and the top percentile i.e. the top 1% has remained constantbetween 1910 and 2010 at 25% and 6% respectively, there have beenchanges in the share of total income. The respective share of totalincome in 1910 was 45% and 25% respectively (Rowthorn, 2014). Thisshare plummeted to a stable 30%-35% and 8% respectively. He makescomparisons between the changes in France and the changes experiencedin the United States. Between 1910 and 1940, the top 10% of the USpopulation had about 40-45% of income (Rowthorn, 2014). This shareplunged steadily to 33% between 1942 and 1980. However, after 1980,this share rose sharply, reaching an estimated 50% in 2007. Pikettyrefers this shift as the “explosion of US inequality after 1980”(Piketty,2014).However, an interesting observation is that the share of wages in thetop 10% of the US population rose from 25% in 1945 to an estimated35% in 2010 (Harvey, 2014). The rise in the share of income for thispopulation indicates the significance of the rising “meritocracy”of super-managers, top doctors, and entrepreneurs in the top 10% ofthe population. These individuals have contributed immensely to therising wealth among the top decile of the global population.

In1950, the share of the total income among the top 1% in Germany,Japan, Sweden and France declined from 20% in 1910 to 8% in 1950 andhad thence continued to be low. In contrast, the United States,Canada, and Australia experienced a similar decline in 1910 from 20%to between 6 and 9% in 1970. However, the trend reversed from 1980 asthe inequality levels continued to rise, witnessing higher inequalitylevels. From 1980, the one percenter share of total income increasedto between 10 and 18% (Rowthorn, 2014). Similarly, the top 10% of thepopulation in these countries have experienced a similar pattern of arise in their share of income.

Theauthor describes this phenomenon as “the rise of the super manager:an Anglo-Saxon Phenomenon” (Piketty,2014).In the emerging economies of India and China, South Africa, Colombiaand Argentina, Piketty observes that there has been a similar growthin the proportion of income for the top one percentile in theseeconomies (Harvey, 2014). The similar experience in these economiesprovides Piketty with the conclusion that the inequality in thedistribution of income and capital is a phenomenon not onlyexperienced in the developed economies but also in the emerging anddeveloping economies in South America, Asia, and Africa (Piketty,2014).

Theone percenter super managers are of great concern to Piketty. Hecriticizes them for awarding themselves huge salaries of up to $10million annually while having disproportionate political influence.The super managers, according to Piketty, are a powerful force of thedivergence in the inequalities experienced in these economies. As thetop managers continue to get richer, the working population underthese managers gets a completely disproportionate income allocation.Piketty observed that there are significant differences in theinequalities experienced in Europe and the United States. In Europe,between 1910 and 1950, there was a huge drop in the share of wealthattributed to the top 1% and the top 10% of the population. However,in the United States, this share rose steadily between 1810 and 2010.However, there was a smaller downward trend between 1910 and 1950(Harvey, 2014).

Inpresenting his views on the inequality patterns in Europe and the US,the author reveals an exciting constancy in the growth rate ofnational income (g) and the rate of return on capital (r) of about 1%and 5% respectively. In France, he says that there is a similarapproximate constancy of the savings rate (s) and the constancy ofcapital income (a) of about 10% and 35% respectively (Rowthorn,2014). Piketty demonstrates using diagrams that there has been aconstant pre-tax rate of return on capital (r) at about 5% from0-1000AD to the modern day France. On the contrary, there has been asteady rise in the growth rate of the world output from 0.1% to 3.8%in 2010.

Theauthor considers inheritance as having a significant impact on theincome distribution across different economies (Piketty &amp Ganser,2014). In France for example, he says that the annual value ofinheritance as a percentage of income was about 20% between 1820 and1905. Between 1920 and 1980, this percentage fell to about 8%.However, he expects the value of inheritance as a proportion ofincome to increase steadily with an expected return of up to 20% by2060 (Harvey, 2014). The same trend should be observed in other majoreconomies such as Britain and Germany where inheritance will continueto play an important role in shaping income distribution.

Again,the author presents powerful data sets that demonstrate higher ratesof return on greater capital assets. Therefore, he says that for theuniversities in the United States, the rate of return on endowmentsof below $100 million is 6.2% compared to the return on endowmentsthat are greater than $1billion (60) which is at 10.2% (Piketty &ampGanser, 2014). He says that the above fact suggests that biggercapital assets attract higher payments because of better investments.

Hugecapital attracts better investment advice and hence accesses the mostlucrative investments. This is known as the Matthew effect where theBible is quoted to suggest that those with abundance will continue toenjoy abundance whiles those without will continue to lose theirendowment to the ones with abundance. This is the reason whyindividuals controlling a bigger share of capital continue toaccumulate more income than the ones with less capital endowment. The question of capital allocation, therefore, becomes a primary areaof concern for persons looking to put in place corrective measuresagainst the experienced inequalities (Piketty &amp Ganser, 2014).

Theauthor finishes this section by asking whether sovereign funds willown the world. He asks whether China will own the world because ofits immensely accumulating wealth. Piketty says that the projecteddata for 1870-2090 shows a global private capital/income ratio of450-500% between 1870 and 1910. This was projected to fall to 260% in1950 and after that rising steadily to 430% in 2010. The percentagewill thence rise to 670% by 2100 (Piketty,2014). He further demonstrates the private capital as a percentage ofworld income rising from 150% for Europe and the US, 10% for Africaand 200% for Asia in 2010. By 2100, Piketty projects the share ofprivate capital as a share of income will be 80% in Africa, 150% inEurope and 350% in Asia (Piketty &amp Ganser, 2014).

Pikettystates that the huge petroleum rents might make it possible for oilproducing countries to buy the rest of the world they might also beable to live on their accumulated capital. Piketty finishes hisarguments in this section by saying that the different tax regimesarising from the different lobbying of the ten percenters and oncepercenters may have an impact on the data presented in the book. Hewarns that the total unregistered financial assets held in taxheavens may form a considerable percentage of the global output, upto 8% (Rowthorn,2014). This section forms the meat of his arguments the datapresented provides an analytical view of his presentations, allowingreaders to verify his Piketty’s claims by referring to factual datapresented.

  1. Regulating Capital in the Twenty-first Century

Inthis section, the author’s argument is that the main point to takehome from this study is the significance of the 21st-centurywars. He argues that the wars transformed the nature of inequality,spearheaded democracy and shifted more wealth into the middle class.However, the major finding from the study is that inequality isrising once more, reversing the redistribution achieved after thewars (Piketty &amp Ganser, 2014). The rising inequality threatensdemocracy and the sustainability of economies. Piketty proposes somemeasures to help tackle the problem of the rising inequality. Heproposes that one of the solutions to this problem is to introduce aprogressive annual global wealth tax. An annual global wealth taxwill have the benefit of enhancing transparency in national andinternational flows in revenue. Additionally, this tax will have thebenefit of stopping an unsustainable “inegalitarian spiral”(Rowthorn,2014).

Pikettysays that inheritance has continued to reinforce wealth inequalitiesas “the past devours the future.” A progressive tax will helpreduce the effect of inherited wealth on income distribution, as thepast will cease devouring the future. Thedifficulty with such a tax solution, however, is that it requires ahigh level of regional and political integration. The level ofinternational cooperation required in this case may prove difficultto achieve. This may not be within reach for especially countriesthat had hammered out social compromises. He says that some analystsargue that the commencement of such high level of regionalintegration can undermine the existing achievements such as perfectcompetition (Piketty&amp Ganser, 2014).However, even as one may attempt to fight for the protection of thefree market economy, it does not promote equality. Large countriessuch as the US and China have a wider variety of options to deal withthe problems of inequality. However, smaller countries do not havethe privilege enjoyed by the huge economies (Rowthorn,2014).

Theauthor quantitates the growth in the social States during thetwentieth century regarding tax revenues. He says that the annual taxrevenues as a percentage of the national income in Britain, France,Sweden and the US have risen beyond the plateau experienced after1980. The post-1980, the respective countries registered tax revenuesas a proportion of the national revenue of about 40%, 50%, 55%, and30% respectively, compared to about 10% in 1870. For rich countries,however, the capital is about 500% of the annual incomes (Harvey,2014). Therefore, an annual wealth tax of say 10% will result in anequivalent of the annual tax collected with the additional benefit ofslowing down the inequality trends in the rich countries and thusprevent the pervasion of democracy. He says there are the threats ofanarchy if at all the inequality patterns continue to thrive as witha rising dissatisfied population. Piketty states in the book “Anindividual might imagine a rate of 0 percent for net assets below onemillion Euros, 2% between 1 and 5 million, and 2 percent above 5million” (Piketty,2014).Additionally, one might prefer to charge a much steeper progressivetax on the individuals with the largest fortunes. For examplecharging a tax rate of between 5 and 10% of assets that are above 1billion Euros may be a good solution (Rowthorn,2014).

Inhis conclusion, Piketty says that the study shows that a marketeconomy that is based on the accumulation of private property if lefton its own carries powerful forces of convergence, which isassociated in particular with the diffusion of skills and knowledge.Additionally, a free market contains powerful forces of divergence,which potentially might be threatening to the modern democraticsociety (Piketty&amp Ganser, 2014).This may also threaten the values of social justice in which thedemocratic societies are based. The principal of disability under theinequality argument is that the private rate of return on capital (r)can be significantly higher than for longer than the growth in theoutput and income (g). The inequality between the private return oncapital and the growth in income and output r&gt g means that the wealth accumulated in the past grows fasterthan the increase in output and wages (Rowthorn,2014).The inequality presents a fundamental logical contradiction. Thismeans that entrepreneurs tend to inevitably become rentiers, andbecome more and more dominant over the individuals who own nothingelse other than labor. Once put together, capital reproduces fasterthan the increase in output as put earlier, the past devours thefuture (Piketty,2014).

Accordingto Piketty, the inequality matters are attributed to various factorsamong them the Eurozone crisis. The other factor is climate changeconcerns that continue to shape the way the world carries itsbusiness. Piketty believes that every person, including journalists,activists, commentators, politicians and all citizens should take aninterest in money, the facts surrounding it, its measurement and itshistory. He says that persons who have enough of it can never fail todefend their interests (Rowthorn,2014).If people refuse to deal with numbers, then it is unlikely that theywill be able to serve their interest without being interested inunderstanding money. The only way to shift the inequality, therefore,is to start by having an interest in the subject that people intendto change, and in this case, the primary point in the inequalityargument is money. Therefore, individuals in the lower class andlower middle class should show more interest in the workings ofmoney.


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