Thomas Piketty's Account in Capital in the 21st Century Paper Example

Thomas Piketty's study on "capital" involves intensive research that has taken more than a decade to accomplish. However, the time of the study is not the important factor here, but the capital concepts that Piketty has drawn from his research is the main focus. His account of the Capital in the 21st century highlights the historical changes in the concentration of different countries' income and wealth accumulation. Through the pile of data, Piketty manages to depict the evolution of the inequality since the industrial revolution period. Piketty's understanding on the capital in the 21st century is associated with the emergence of the private wealth dwarfed national income that was concentrated on the wealthy families belong to the upper class. On the other hand, high taxes, inflation, bankruptcies, and growth of the welfare states resulted in dramatic shrink in wealth creation, which resulted in a new era in which income and wealth were distributed impartially. This analysis looks into Thomas Piketty's account in the capital in the 21st century of the equalizing process of knowledge and productive technology between less advanced and more advanced states. This essay argues that Piketty's account of capitalism demonstrates inequality in the process of knowledge and productive technology through the dynamics of inequality in the institutions, historical analysis of capital and inequality, and lack of real accounting and financial transparency as well sharing information.

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First, Piketty's account of capital shows the historical changes and development of wealth and income growth in different countries. Income inequality has been an interesting topic for economists for many years (Shi & Watkins, 2016). According to Piketty (2015), the 18th and 19th centuries in Western Europe were characterized by high inequality rate. According to the author, the private wealth dwarfed countries' national income was majorly concentrated in the hands of a few individuals who came from the rich families. According to Piketty (2015), this system persisted for a long period; for example, it existed despite the emergence of the industrialization period, in which workers started to get wages. Mason (2014) explains that even though capitalism has been said to be unfair before, but Piketty's account on the topic provides the reads with the unique concepts and relentless logic that makes it different from what has been said before.

Piketty's argument on capitalism is that, in an economy where the rate of the return on capital goes beyond the rate of growth, inherited wealth always grows faster than the country's earned wealth (Mason, 2014). Piketty's model on wealth inequality is also examined by other authors who also provide their comments. According to Fuest, Peichl, and Walderstrom (2015), the "r-g model of Piketty" relates the differences between the country's rate of return on capital and the rate of income growth. In their comment, the authors note that both academicians and popular circles have widely and enormously discussed the level of economic inequality based on Piketty's model. However, they also provide their basic understanding of Piketty's model arguing that the model says that "when existing capital grows faster than the new capital is created of accumulated incomes then already relatively rich capital owners will become even richer" than others that do not have capital, which widens the inequality gap (Fuest et al., 2015, p. 3). This can explain the reason why children from wealthy families can get the opportunity to stop school in the middle and get a job at their parents' companies while the children from poor backgrounds struggle to get into the job market. According to Mason (2014), this inequality is not by accident; it is a system that has existed for many years.

Secondly, Piketty's account of capitalism involves the beliefs systems and dynamics that revolve around the issue of inequality. According to Piketty (2015), in his review of the book "Capital in the Twenty-First Century," draws on the main conclusions he discusses in the book. One of such conclusions is the analytical historical narrative. According to Piketty (2015), historically, the distribution of wealth has always been deeply rooted in politics. In that sense, it is difficult to associate it "purely with the economic mechanism (Piketty, 2015, p. 69)." He goes further to explain that the distribution of wealth is shaped by the way economic, social and political actors perceive "what is just and what is not" (Piketty, 2015, p. 69). Mason (2014) further analyzes Piketty's political account of wealth distribution citing that wealth concentrates to levels incompatible with democracy. In support of Piketty's political opinion, Mason (2014) explains that capitalism automatically creates levels of inequality that can be unsustainable to a country's economy. According to Piketty (2015), one can easily notice the influence of political actors and the changing representations of the economy when examining the inequality dynamics in the 20th century era. In his historical analysis, Piketty (2015) explains that reduction of inequality that happened between 1910 and 1950 in the developed countries was caused by the consequences of World War and Revolution that led to changes in the policies that could help the advanced countries cope with the economic shocks. Consequently, the resurgence of inequality witnessed after 1980 is as a result of political changes of shifts of the previous decades "concerning taxation and finance (Piketty, 2015, p. 69)." Blume and Durlauf (2015) support Piketty's account of capitalism citing that he has taken an "unabashed normative stance that current levels of inequality are unjust and is unafraid to make very strong policy recommendations (p. 69)."

Piketty's account of capitalism shows that despite attempts to grow their economies, the less advanced countries still find it difficult because the capital and income ratio is slowly returning to its historically high levels. Piketty (2015) explains that a significant number of institutions and public policies play a huge role in the historical account of inequality dynamics across different countries. In his mind, Piketty (2015) emphasizes the importance of various institutions that are involved in the development of the 21st-century welfare state. Some of the institutions include the educational institutions like high-quality schools and universities and financial institutions. He believes that these institutions contribute significantly to the historical understanding of the inequality dynamics in most countries. Piketty (2015) explains that the institutions like the welfare state, education, and progressive taxation need to be analyzed in a "precise and concrete manner" within the context that they develop in.

In his response to Piketty's account on global inequality in the 21st century, Morton (2014) explains that Piketty's assumption that the disparity in return on capital (r) and rate of income growth (g) demonstrates the highly inegalitarian returns on equity in the 21st century. In his assessment of the role of university endowment and sovereign wealth funds, Piketty notes that schools like Harvard University have been given an endowment of about $30 billion, which is also administered with the expenditure of approximately $100 million in management cost (Morton, 2014). However, despite that the university takes an endowment of over $30 billion and only $100 million is used, which represents about 0.3% of the endowment funds, Harvard still has the largest endowments as it obtains the highest returns (Morton, 2014).

In this sense, Piketty notes that even though inequality has existed for many decades, but it seems to be rising in the 21st century, especially in the advanced countries like the UK and United States. More inequalities characterize the 21st century as billionaires, and sovereign wealth funds rule the world (Morton, 2014). Piketty's account shows that the world is drastically changing and people should be worried about what the future holds. He uses the scenario where the sovereign wealth funds will be controlling about 10 to 20% or even more of the global capital by 2030 or 2040 (Morton, 2014). According to DES (2013), the world is faced with challenges in all the three aspects of development; for instance, economic, social and environmental. According to the DES survey, over 1 billion people still live in extreme poverty, and the income inequality across different countries is also rising (DES, 2013). As a result, this has created unsustainable consumption and production patterns that have also created economic and social costs, which may endanger life on the planet (DES, 2013). While explaining Piketty's "convergence process," Lloyd (2017) expands on Piketty's account on the equalizing process of knowledge and productive technology in less advanced countries. According to the author, Piketty's "convergence process" highlights how the less advanced countries are trying to catch up with the advanced countries by investing in themselves, but they are unable because "slow growth is the norm (Llioyd, 2017, p. 4)." According to Piketty (2015), other things such as strong demographic growth tend to play a significant equalizing role because it reduces the importance of inherited wealth. In this sense, Piketty explains that every generation has a responsibility to construct itself (Llioyd, 2017).

Conclusion

Lastly, Piketty's account of capital demonstrates how inequality in the 21st century is mainly associated with the lack of real accounting and financial transparency and the inability to share information. According to Piketty (2015), there can be no economic democracy without realizing real accounting and financial transparency. Bonnet and Thery (2014) support Piketty's assumption that technological progress empowers a few people to be highly productive while leaving the rest redundant. Piketty's comment on capital is based on the "r" and "g" and not technology. High taxes, inflation, and bankruptcies continue to increase while the wealth growth drastically shrinks in the 21st century due to impartial distribution of income and wealth. Fuchs (2014) explains the concept of capitalism and the internet based on Piketty's assumption. Fuchs criticizes Piketty's interpretation of the technological development citing that his reference to the internet and digital media is limited. Despite being heavily criticized by some scholars, Piketty has also been acknowledged at some point. Bonnet and Thery (2014), though criticizes his focus on the upper strata but also commends Piketty's ability to provide readers with ways to study the rest of the society. Bonnet and Thery (2014) agree with Piketty's concept that in the societies where the rate of return is greater than the rate of income growth, education and occupation have limited explaining power on the country's economic inequalities. In their analysis of Piketty's assumptions on capital in the 21st century, Blume and Durlauf (2015) highlight some of the stylized facts that Piketty has identified in his concept of capitalism. Piketty believes that inherited wealth is contributing significantly to wealth inequality in the advanced countries such as France, Britain, Germany and the United States (Blume & Durlauf, 2015). For instance, the France "inheritance in the 1790s accounted for about 24% of the total resources available in the 1810s" (Blume & Durlauf, 2015, p. 3). Bonnet and Thery (2014) argue that the context of returns greater than income growth creates a new population of study. According to Bonnet and Thery (2015), through technological progress, regulation, and globalization, capital owners can put to work the...