Book of the week: Capital in the Twenty-First Century by Thomas Piketty

(Belknap, $40)

“Thomas Piketty is set to become a star,” said Edward Hadas in Reuters.com. The French economist’s new 600-page study of capitalism’s past and future is being hailed by peers as “one of the watershed books in economic thinking” and an heir to Karl Marx’s Capital. Piketty’s message is simple, if not fully convincing: Rising inequality is a built-in feature of capitalism, not an aberration. Previously, while teaching at MIT, Piketty helped document the dramatic rise since 1980 in the share of American wealth held by the nation’s richest 10 percent. This time, he’s analyzed tax records from multiple nations going back centuries to make a case that the return on property and wealth has consistently outpaced overall economic growth, thus widening the gap between the owners of capital and wage earners. If your own labor is your only asset, he’s saying, you will keep losing ground to the rich.

Piketty’s view, it must be noted, “defies both Left and Right orthodoxy,” said Thomas Edsall in The New York Times. Economists of the Right have long argued, of course, that a properly functioning free market equitably distributes the fruits of progress. But most liberal economists have also trusted that a mature economy, particularly when wisely managed and regulated, will tend to reduce income inequality. Their mistake has been that they misread the 20th century, said Eduardo Porter, also in the Times. Yes, wages in the developed countries rose relative to capital income for several decades beginning in about 1913, but Piketty tells us that this was only because the Great Depression and two world wars destroyed so much capital and kept wealth’s advantage in check.

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Piketty’s remedy for rising inequality will strike many as far-fetched, said Branko Milanovic in The American Prospect. He proposes establishing a global tax, of about 2 percent, on capital holdings of $6.8 million or more. But however politically infeasible the proposal may seem, it “should be put on the table,” because steadily increasing inequality poses a grave threat to capitalism’s long-term sustainability. I can’t tell you that Piketty’s gloomy predictions are certain to bear out: There’s no guarantee, after all, that returns on wealth will outpace the growth of the world’s mature economies over the next half century. But Piketty’s “monumental” work can’t be judged on any one point alone. In a short summary, “it is impossible to do even partial justice to the wealth of information, data, analysis, and discussion” that this book offers. It will be a touchstone in the field of economics for “years to come.”