Thomas Piketty: Capital in the 21st Century – Back to «La Belle Epoque»?

Atle finished reading this book when in the land of milk and honey (Norway).

Interesting book, indeed.

Here is an extremely short summary:

In the period from 1700 to 1900 (La Belle Epoque) the currencies of France, Great Britain, and USA was pretty stable with almost no inflation. One thousand Pound Sterling in 1700 and 1900 did not change much in value.

Around 1900 national capital was about 7-8 times national income. The capital was mostly private as the countries above did not possess much net capital.

The first and second world war changed this. Due to the costs of waging war national capital was reduced to 2-3 times national income around 1950. The class of rentiers was almost liquidated. The reason was inflation, printing of money to pay the enormous national debts after the wars.

In 2015 the ratio between national capital and national income is close to what is was during La Belle Epoque. Low inflation, low birth rates favour the growth of capital.

The really big capital owners in the world do not have to declare their assets, but their revenue from capital probably is around 10 per cent a year. Very different from you and me these days. American universities have to declare every cent of their assets. Illinois University, which has a small moneybag, gets 3-4 per cent interest. Harvard University, which has the biggest moneybag of American universities, got about 10 per cent a year; Harvard can afford to pay top professionals to invest their moneybag. This for the summary.

Most citizens can not afford to hire professionals. If we are lucky our assets in cash will get 1-2 per cent interest. And we have to pay tax (in Norway about 28 per cent) of the scanty interest. We can not pay lawyers to evade tax as the really rich can.

In 1900 there was no democracy as we know it now. The really rich could in many ways do what they wanted; they were not controlled.

Things have changed since then. We have what we call democracy, but still it seems that there is an exemption for big private capital.  Whenever voices rise to tax capital and the revenue of capital to make capital contribute directly to the state coffers, big capital has the possibility to move to tax havens. The ordinary citizen can not do this.

To make big capital pay a fair share of revenue to society, the states of the world could only agree on a system that all assets were to be reported for tax. To make a system like this to work is certainly very difficult. On the other hand there is a threat to democracy and stability that the really rich do not contribute to society as most citizens have to.

The national capital/national income ratio will probably not rise to 20 to 1 or more. Still it is not difficult to foresee that a steady rise in the ratio can lead to major problems and revolts.

The country of Greece is bankrupt (but big capital in Greece is not). Italy and Spain are on the verge of bankruptcy (big capital is not). USA would probably have been bankrupt if not many other countries would go down the drain if this happened.

In Great Britain big capital has the lion’s share of money while people suffer cuts in social benefits . Even in the land of milk and honey, Norway, politicians promise to cut expenses while big capital grows as almost never before.

Everyone, rich and poor, should contribute before eating the fruits of labour. One way of contributing for the rich is to pay a progressive tax on revenue of capital.