These slides convey the essentials of Thomas Piketty’s theory of wealth (he calls it a theory of capital, but that’s not quite what it is). Piketty is a professor at the Paris School of Economics and has recently published a book, Capital in the Twenty-First Century, reviewed today in the New York Times. Appropriately, the word Capital on the cover of the book is printed in red to remind people of Karl Marx’s Das Kapital.
Piketty’s essential thesis is that returns on private wealth (not capital per se, but rather private wealth) r are higher than the growth rate of the economy as a whole g, so that, absent other influences, accumulation and inheritance tend to drive increasing economic inequality. This goes both to owners of capital and to their upper middle class employees, at the expense of the middle, working, and lower classes. Piketty calls this “the true evil law of capitalism.”
Note: it is vital to discriminate between wealth inequality and income inequality, although of course they are tightly interrelated.
Piketty and his colleagues have adduced a great deal of historical and statistical evidence in support of their theory.
Because of this on the face of it objective evidence, together with the fact that being born into a wealthy family, other things being equal, gives one a large unfair advantage in life, Piketty’s work is the most severe challenge to the moral legitimacy of capitalism in recent times. As of now, capitalism can no longer pretend to defend its moral legitimacy on first principles, but only by showing it is less evil than alternative systems, or by refuting Piketty.