Analysis Of Capital In The 21st Century

Capital in The 21st Century: A Review

Piketty’s Capital makes the case for a wealth tax on the capital and high labour incomes of the elite. He reasons on both economic and moral grounds as to the effectiveness of this measure to combat the “fatal flaw” of capitalism; its inherent tendency to concentrate wealth in the hands of an elite few. This recommendation comes after 577 pages of deep analytics performed on a dataset of wealth levels and wealth concentrations in France, the United Kingdom and the United States since 1820, 1855 and 1850, respectively. Piketty then derives a wealth-income ratio by dividing wealth at a certain time by corresponding national income to perform a like-for-like comparison across the regions. It pays to note that Piketty makes no distinction between wealth (the stock of one’s assets less liabilities) and capital, this difference is most often minute but can bring up difficulty when considering that capital is valued at its marginal product and wealth at the market

To Piketty, capital accumulation is a process that occurs without outside influence on consumer preferences, one that bears no relation to the price incentives faced by people within the economy (Mankiw, 2015). A more realistic view on capital accumulation and the negative effect that progressive capital taxes would have on it leads me to believe that there is a cost to this policy. Capital taxes could potentially lead to lower output and a decline in real wages as firms and shareholders use inefficient production methods to avoid higher taxation brackets and further as a result of the relationship between capital per worker and net-output. There now exists a trade-off between the negative outcomes as a result of persistent wealth inequality and the potential of lowered labour market outcomes and efficiencies (Mankiw,