Capitalism, Inequality, and Globalization: Thomas Piketty’s Capital in the Twenty-First Century

Thomas Piketty’s empirical work is extremely impressive, but his theoretical paradigm is flawed; even within that paradigm his conclusions do not stand up to scrutiny. A reduction in steady-state growth rate g, when workers and capitalists have different saving propensities, must lower the rate of return on capital r and the difference r – g proportionately; it cannot raise r – g and hence wealth inequalities, as Piketty suggests. The currently observed growing wealth inequality, expected to worsen in the future, is better explained by the fact that, instead of full employment obtaining universally, world labor reserves remain unexhausted despite output growth; consequently, world real wage rates do not increase as labor productivity rises, raising the share of surplus in world output, and hence income and wealth inequality within each country, and in the world as a whole. Wealth taxation to rectify this would arouse fierce capitalist resistance; the mass mobilization needed to overcome it would place on the agenda a more far-reaching program for going beyond the existing system.