Capital in the Twenty-First Century

by Thomas Piketty

  26. The secular decline of US dollar purchasing power vis-à-vis the euro since 1990 simply reflects the fact that inflation in the United States was slightly higher (0.8 percent, or nearly 20 percent over 20 years). The current exchange rates shown in Figure 1.4 are annual averages and thus obscure the enormous short-term volatility.

  27. See Global Purchasing Power Parities and Real Expenditures—2005 International Comparison Programme (Washington, DC: World Bank, 2008), table 2, pp. 38–47. Note that in these official accounts, free or reduced-price public services are measured in terms of their production cost (for example, teachers’ wages in education), which is ultimately paid by taxpayers. This is the result of a statistical protocol that is ultimately paid by the taxpayer. It is an imperfect statistical contract, albeit still more satisfactory than most. A statistical convention that refused to take any of these national statistics into account would be worse, resulting in highly distorted international comparisons.

  28. This is the usual expectation (in the so-called Balassa-Samuelson model), which seems to explain fairly well why the purchasing-power parity adjustment is greater than 1 for poor countries vis-à-vis rich countries. Within rich countries, however, things are not so clear: the richest country in the world (the United States) had a purchasing-power parity correction greater than 1 until 1970, but it was less than 1 in the 1980s. Apart from measurement error, one possible explanation would be the high degree of wage inequality observed in the United States in recent years, which might lead to lower prices in the unskilled, labor-intensive, nontradable service sector (just as in the poor countries). See the online technical appendix.

  29. See Supplementary Table S1.2 (available online).

  30. I have used official estimates for the recent period, but it is entirely possible that the next ICP survey will result in a reevaluation of Chinese GDP. On the Maddison/ICP controversy, see the online technical appendix.

  31. See Supplemental Table S1.2 (available online). The European Union’s share would rise from 21 to 25 percent, that of the US–Canada bloc from 20 to 24 percent, and that of Japan from 5 to 8 percent.

  32. This of course does not mean that each continent is hermetically sealed off from the others: these net flows hide large cross-investments between continents.

  33. This 5 percent figure for the African continent appears to have remained fairly stable during the period 1970–2012. It is interesting to note that the outflow of income from capital was on the order of three times greater than the inflow of international aid (the measurement of which is open to debate, moreover). For further details on all these estimates, see the online technical appendix.

  34. In other words, the Asian and African share of world output in 1913 was less than 30 percent, and their share of world income was closer to 25 percent. See the online technical appendix.

  35. It has been well known since the 1950s that accumulation of physical capital explains only a small part of long-term productivity growth; the essential thing is the accumulation of human capital and new knowledge. See in particular Robert M. Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (February 1956): 65–94. The recent articles of Charles I. Jones and Paul M. Romer, “The New Kaldor Facts: Ideas, Institutions, Population and Human Capital,” American Economic Journal: Macroeconomics 2, no. 1 (January 2010): 224–45, and Robert J. Gordon, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds,” NBER Working Paper 18315 (August 2012), are good points of entry into the voluminous literature on the determinants of long-run growth.

  36. According to one recent study, the static gains from the opening of India and China to global commerce amount to just 0.4 percent of global GDP, 3.5 percent of GDP for China, and 1.6 percent for India. In view of the enormous redistributive effects between sectors and countries (with very large numbers of losers in all countries), it seems difficult to justify trade openness (to which these countries nevertheless seem attached) solely on the basis of such gains. See the online technical appendix.

  2. Growth: Illusions and Realities

  1. See Supplemental Table S2.1, available online, for detailed results by subperiod.

  2. The emblematic example is the Black Plague of 1347, which ostensibly claimed more than a third of the European population, thus negating several centuries of slow growth.

  3. If we take aging into account, the growth rate of the global adult population was even higher: 1.9 percent in the period 1990–2012 (during which the proportion of adults in the population rose from 57 percent to 65 percent, reaching close to 80 percent in Europe and Japan and 75 percent in North America in 2012). See the online technical appendix.

  4. If the fertility rate is 1.8 (surviving) children per woman, or 0.9 per adult, than the population will automatically decrease by 10 percent every generation, or roughly −0.3 percent per year. Conversely, a fertility rate of 2.2 children per woman, or 1.1 per adult, yields a growth rate of 10 percent per generation (or +0.3 percent per year). With 1.5 children per woman, the growth rate is −1.0 percent per year, and with 2.5 children per women, it is +0.7 percent.

  5. It is impossible to do justice here to the large number of works of history, sociology, and anthropology that have tried to analyze, by country and region, the evolution and variations of demographic behavior (which, broadly speaking, encompasses questions of fertility, marriage, family structure, and so on). To take just one example, consider the work of Emmanuel Todd and Hervé Le Bras in mapping family systems in France, Europe, and around the world, from L’Invention de la France (Paris: Livre de Poche, 1981; reprint, Paris: Gallimard, 2012) to L’origine des systèmes familiaux (Paris: Gallimard, 2011). Or, to take a totally different perspective, see the work of Gosta Esping Andersen on the different types of welfare state and the growing importance of policies designed to make work life and family life compatible: for example, The Three Worlds of Welfare Capitalism (Princeton: Princeton University Press, 1990).

  6. See the online technical appendix for detailed series by country.

  7. The global population growth rate from 2070 to 2100 will be 0.1 percent according to the central scenario, −1.0 percent according to the low scenario, and +1.2 percent according to the high scenario. See the online technical appendix.

  8. See Pierre Rosanvallon, The Society of Equals, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2013), 93.

  9. In 2012, the average per capita GDP in Sub-Saharan Africa was about 2,000 euros, implying an average monthly income of 150 euros per person (cf. Chapter 1, Table 1.1). But the poorest countries (such as Congo-Kinshasa, Niger, Chad, and Ethiopia) stand at one-third to one-half that level, while the richest (such as South Africa) are two to three times better off (and close to North African levels). See the online technical appendix.

  10. Maddison’s estimates (which are fragile for this period) suggest that in 1700, North America and Japan were closer to the global average than to Western Europe, so that overall growth in average income in the period 1700–2012 would be closer to thirty times than to twenty.

  11. Over the long run, the average number of hours worked per capita has been cut by approximately one-half (with significant variation between countries), so that productivity growth has been roughly twice that of per capita output growth.

  12. See Supplemental Table S2.2, available online.

  13. Interested readers will find in the online technical appendix historical series of average income for many countries since the turn of the eighteenth century, expressed in today’s currency. For detailed examples of the price of foodstuffs, manufactured goods, and services in nineteenth- and twentieth-century France (taken from various historical sources including official indices and compilations of prices published by Jean Fourastié), along with analysis of the corresponding increases in purchasing power, see Thomas Piketty, Les Hauts revenus en France au 20e siècle (Paris: Grasset, 2001), 80–92.

  14. Of course,
everything depended on where carrots were purchased. I am speaking here of the average price.

  15. See Piketty, Les Hauts revenus en France, 83–85.

  16. Ibid., 86–87.

  17. For a historical analysis of the constitution of these various strata of services from the late nineteenth century to the late twentieth, starting with the examples of France and the United States, see Thomas Piketty, “Les Créations d’emploi en France et aux Etats-Unis: Services de proximité contre petits boulots?” Les Notes de la Fondation Saint-Simon 93, 1997. See also “L’Emploi dans les services en France et aux Etats-Unis: Une analyse structurelle sur longue période,” Economie et statistique 318, no. 1 (1998): 73–99. Note that in government statistics the pharmaceutical industry is counted in industry and not in health services, just as the automobile and aircraft industries are counted in industry and not transport services, etc. It would probably be more perspicuous to group activities in terms of their ultimate purpose (health, transport, housing, etc.) and give up on the distinction agriculture/industry/services.

  18. Only the depreciation of capital (replacement of used buildings and equipment) is taken into account in calculating costs of production. But the remuneration of public capital, net of depreciation, is conventionally set at zero.

  19. In Chapter 6 I take another look at the magnitude of the bias thus introduced into international comparisons.

  20. Hervé Le Bras and Emmanuel Todd say much the same thing when they speak of the “Trente glorieuses culturelles” in describing the period 1980–2010 in France. This was a time of rapid educational expansion, in contrast to the “Trente glorieuses économiques” of 1950–1980. See Le mystère français (Paris: Editions du Seuil, 2013).

  21. To be sure, growth was close to zero in the period 2007–2012 because of the 2008–2009 recession. See Supplemental Table S2.2, available online, for detailed figures for Western Europe and North America (not very different from the figures indicated here for Europe and North America as a whole) and for each country separately.

  22. See Robert J. Gordon, Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds, NBER Working Paper 18315 (August 2012).

  23. I return to this question later. See esp. Part Four, Chapter 11.

  24. Note that global per capita output, estimated to have grown at a rate of 2.1 percent between 1990 and 2012, drops to 1.5 percent if we look at output growth per adult rather than per capita. This is a logical consequence of the fact that demographic growth rose from 1.3 to 1.9 percent per year during this period, which allows us to calculate both the total population and the adult population. This shows the importance of the demographic issue when it comes to breaking down global output growth (3.4 percent per year). See the online technical appendix.

  25. Only Sub-Saharan Africa and India continue to lag. See the online technical appendix.

  26. See Chapter 1, Figures 1.1–2.

  27. The law of 25 germinal, Year IV (April 14, 1796), confirmed the silver parity of the franc, and the law of 17 germinal, Year XI (April 7, 1803), set a double parity: the franc was equal to 4.5 grams of fine silver and 0.29 grams of gold (for a gold:silver ratio of 1/15.5). It was the law of 1803, promulgated a few years after the creation of the Banque de France in 1800, that give rise to the appellation “franc germinal.” See the online technical appendix.

  28. Under the gold standard observed from 1816 to 1914, a pound sterling was worth 7.3 grams of fine gold, or exactly 25.2 times the gold parity of the franc. Gold-silver bimetallism introduced several complications, about which I will say nothing here.

  29. Until 1971, the pound sterling was divided into 20 shillings, each of which was further divided into 12 pence (so that there were 240 pence in a pound). A guinea was worth 21 shillings, or 1.05 pounds. It was often used to quote prices for professional services and in fashionable stores. In France, the livre tournois was also divided into 20 deniers and 240 sous until the decimal reform of 1795. After that, the franc was divided into 100 centimes, sometimes called “sous” in the nineteenth century. In the eighteenth century, a louis d’or was a coin worth 20 livres tournois, or approximately 1 pound sterling. An écu was worth 3 livres tournois until 1795, after which it referred to a silver coin worth 5 francs from 1795 to 1878. To judge by the way novelists shifted from one unit to another, it would seem that contemporaries were perfectly aware of these subtleties.

  30. The estimates referred to here concern national income per adult, which I believe is more significant than national income per capita. See the online technical appendix.

  31. Average annual income in France ranged from 700 to 800 francs in the 1850s and from 1300 to 1400 francs in 1900–1910. See the online technical appendix.

  3. The Metamorphoses of Capital

  1. According to available estimates (especially King’s and Petty’s for Britain and Vauban’s and Boisguillebert’s for France), farm buildings and livestock accounted for nearly half of what I am classifying as “other domestic capital” in the eighteenth century. If we subtracted these items in order to concentrate on industry and services, then the increase in other domestic capital not associated with agriculture would be as large as the increase in housing capital, indeed slightly higher.

  2. César Birotteau’s real estate speculation in the Madeleine quarter is a good example.

  3. Think of Père Goriot’s pasta factories or César Birotteau’s perfume operation.

  4. For further details, see the online technical appendix.

  5. See the online technical appendix.

  6. Detailed annual series of trade and payment balances for Britain and France are available in the online technical appendix.

  7. Since 1950, the net foreign holdings of both countries have nearly always ranged between −10 and +10 percent of national income, which is one-tenth to one-twentieth of the level attained around the turn of the twentieth century. The difficulty of measuring net foreign holdings today does not undermine this finding.

  8. More precisely, for an average income of 30,000 euros in 1700, average wealth would have been on the order of 210,000 euros (seven years of income rather than six), 150,000 of which would have been in land (roughly five years of income if one includes farm buildings and livestock), 30,000 in housing, and 30,000 in other domestic assets.

  9. Again, for an average income of 30,000 euros, average wealth in 1910 would have been closer to 210,000 euros (seven years of national income), with other domestic assets closer to 90,000 (three years income) than 60,000 (two years). All the figures given here are deliberately simplified and rounded off. See the online technical appendix for further details.

  10. More precisely, Britain’s public assets amount to 93 percent of national income, and its public debts amount to 92 percent, for a net public wealth of +1 percent of national income. In France, public assets amount to 145 percent of national income and debts to 114 percent, for a net public wealth of +31 percent. See the online technical appendix for detailed annual series for both countries.

  11. See François Crouzet, La Grande inflation: La monnaie en France de Louis XVI à Napoléon (Paris: Fayard, 1993).

  12. In the period 1815–1914, Britain’s primary budget surplus varied between 2 and 3 percent of GDP, and this went to pay interest on government debt of roughly the same amount. The total budget for education in this period was less than 2 percent of GDP. For detailed annual series of primary and secondary public deficits, see the online technical appendix.

  13. These two series of transfers explain most of the increase in French public debt in the nineteenth century. On the amounts and sources, see the online technical appendix.

  14. Between 1880 and 1914, France paid more interest on its debt than Britain did. For detailed annual series of government deficits in both countries and on the evolution of the rate of return on public debt, see the online technical appendix.

  15. Ricardo’s discussion of this issue in Principles of Political Economy and Taxation (London:
George Bell and Sons, 1817) is not without ambiguity, however. On this point, see Gregory Clark’s interesting historical analysis, “Debt, Deficits, and Crowding Out: England, 1716–1840,” European Review of Economic History 5, no. 3 (December 2001): 403–36.

  16. See Robert Barro, “Are Government Bonds Net Wealth?” Journal of Political Economy82, no. 6 (1974): 1095–1117, and “Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701–1918,” Journal of Monetary Economics 20, no. 2 (1987): 221–48.

  17. Paul Samuelson, Economics, 8th ed. (New York: McGraw-Hill, 1970), 831.

  18. See Claire Andrieu, L. Le Van, and Antoine Prost, Les Nationalisations de la Libération: De l’utopie au compromis (Paris: FNSP, 1987), and Thomas Piketty, Les hauts revenus en France au 20e siècle (Paris: Grasset, 2001), 137–138.

  19. It is instructive to reread British estimates of national capital at various points during the twentieth century, as the form and magnitude of public assets and liabilities changed utterly. See in particular H. Campion, Public and Private Property in Great Britain (Oxford: Oxford University Press, 1939), and J. Revell, The Wealth of the Nation: The National Balance Sheet of the United Kingdom, 1957–1961 (Cambridge: Cambridge University Press, 1967). The question barely arose in Giffen’s time, since private capital so clearly outweighed public capital. We find the same evolution in France, for example in the 1956 work published by François Divisia, Jean Dupin, and René Roy and quite aptly entitled A la recherche du franc perdu (Paris: Société d’édition de revues et de publications, 1954), whose third volume is titled La fortune de la France and attempts, not without difficulty, to update Clément Colson’s estimates for the Belle Époque.