Thomas Piketty’s Capital in the Twenty-First Century is the type of book that a certain set of people read just to be able to say that they’ve read it. Citing it in casual conversation is, in such circles, a source of instant intellectual credibility, like toting around an Ivy League degree. For these people, it’s not about what’s in the book; it’s about what having the book says about what’s in them.

In fact, many of Capital‘s purchasers apparently can’t be bothered to ever actually read the thing at all: A tongue-in-cheek Wall Street Journal study called it “the summer’s most unread book,” using Kindle highlighting statistics to estimate that just 2.4% of the people who purchased Amazon’s digital version of the book had slogged all the way through to the end. Most people, the study indicated, give up around page 26.

Both because I want people to think I am smart and because I have a genuine (if decidedly amateur) interest in the subject, I’ve long wanted to check this book out. One thing that has held me back, however, has been my parenthetically aforementioned amateurism. I am not an economist. I took two economics classes in college; in both, I received C’s. In one, the professor told us that the minimum wage is bad because it inhibits hiring and therefore slows growth; in the other, the professor told us that the minimum wage is good because workers funnel their higher earnings back into the economy, driving growth.

This disagreement was discouraging. Both of these professors were much smarter than me. Both were much more qualified to hold forth on the impact of any particular economic policy than I was or am or ever will be. And yet they had diametrically opposed opinions on what seemed to me like it ought to be a relatively straightforward issue. Is the minimum wage good or bad? If highly-trained, respected economists could disagree on this after decades of work in their fields, I figured there was little chance I would ever solve the puzzle. To this day, when I hear peers making definitive statements on the effects of various aspects of American economic policy, I can’t help but wonder if they’re really that much smarter than me or if they’re just very, very arrogant.

So I ignored the book for a good little while – years, as it’s turned out – worried that anything I learned from it would be wrong, and worse, that I would have no way of knowing it was wrong. Long story short, I changed my mind because the book is now free on Kindle Unlimited.

I’m kidding – actually, I’ve since come to believe that this anxiety I describe actually makes me a good candidate to read the book. I won’t take what’s in it as gospel. Instead, I will take it as the analysis of one informed, highly qualified person. I know there are other informed, highly qualified people who will disagree with Piketty, but in reading Capital I will come to understand not necessarily what the state of things is, but what the current thinking on the state of things is. As I read, I will take note of the points that leave the strongest impression upon me, and I will test them by seeking out critiques of these points.

In this post, I will write and reflect on everything I learn. And to keep myself motivated, and avoid losing track of my thoughts in the mountain of data and argument I am about to encounter, I’m going to write about this book a little differently than I have written about the others on this site. Instead of reading the book and then writing up my thoughts afterwards, I will, to borrow a quote from Bill O’Reilly, “do it live.”

All the updates will be here in this post, so when I’m done all my thoughts on the book will be contained in this one blog post on my website. I have no idea how long this project is going to take (the book is nearly 700 pages long). I’ll probably keep reading other books, and writing posts about them, while I read Capital.

I also don’t have any guesses at the moment as to how frequently I will update this post as I read. I think, however, given the Amazon statistics I mentioned above, it is only fitting that my first update should come when I reach page 26. See you then.

Update, 10/5/2015 (4% Complete):

For my first update, I would like to suggest to the good people at Amazon that you guys should start requiring publishers to include page numbers in Kindle books. I don’t know what this “location” nonsense is, but it’s completely meaningless to me. Page numbers are so much more useful. Anyway, because Capital doesn’t have page numbers, I’m not able to provide an update on my progress upon reaching page 26, as I had said I would do. Oh well.

I am, at present, four percent of the way through the book, according to my Kindle. I’ve flipped ahead, though, and it turns out I’m only about halfway through the introduction. It’s funny how the act of reading 700 pages can feel entirely different depending on whether you’re talking about a tome on economics or the latest Game of Thrones installment. I know this is important stuff, and the writing is surprisingly engaging, but there’s no way around the fact that this is going to be a slog. It feels like climbing a mountain, if climbing a mountain were something you could do secretly while you’re supposed to be working. I find myself reading paragraphs and asking, “Wait, what did I just read?” Then I have to re-read the entire thing again. I put the book down over the weekend to focus on finishing David Mitchell’s The Bone Clocks, and to be honest as I come back to it today I can’t remember much of what I’ve read at all. In an effort to avoid having to start over from scratch, I’m writing down everything I do recall here, in the hopes that the act of writing will jog my memory.

Things I remember from Capital in the Twenty-First Century after having put it down over the weekend:

• The rate of return on capital tends to exceed the rate at which the economy grows, meaning the rich tend to get richer and inequality tends to get worse. There is no natural force that counteracts this effect. This, I think, is the main thesis of the whole book. So good job remembering that one, Stephen.
• A bunch of economists studied the economy in the past, and they often came to differing conclusions on the topic of inequality.

Ok, I can do a little better than that, actually: There was one guy around the time of the French Revolution or something who thought that landowners would end up controlling the world; Marx was sort of his successor and he argued that industrial-capitalists would end up accumulating all the wealth, resulting in a revolution of the workers.

Then there was this guy during the cold war, I think, who said that inequality would sort of naturally go away as capitalism worked its magic. Basically the idea was that inequality skyrockets at first in industrial capitalist societies, because only a small group of people are ready to take advantage of new systems and technologies, but as things settle down, everyone can take advantage of it and inequality starts to decline.

Piketty offers all this information as a sort of outline of the history of thought about inequality. It’s all pretty interesting, but the author basically summarizes everyone’s argument at length and then goes, “Anyway, this guy did the best he could but it turns out he was wrong.” Which leaves me sort of wondering what the point was, like let’s just get to whatever it is you think, Piketty. But maybe by explaining where everyone else went wrong he’s illuminating the path he took in his own studies, I don’t know. I guess if nothing else, the next time I’m at a cocktail party and someone brings up the Kuznets Curve (happens CONSTANTLY) I will be able to participate in the conversation.

So that’s what I remember. Not perfect, but actually not so bad. I can probably just skim through the passages I’ve highlighted, without needing to start over completely. I’d better make sure I got the thesis right.

Update, 10/12/2015 (10% Complete):

I have made it through the end of chapter 1. I looked at a physical copy in a bookstore, and that means I’ve read about 70 pages – suck it, Wall Street Journal! Interestingly, in the bookstore, Capital was sitting right next to a stack of copies of Stephen Hawking’s A Brief History of Time.

I say that’s interesting because both books attempt to explain complex topics in terms that laymen can understand. In Hawking’s book, as I recall, the physicist intentionally avoided the complex math that drives his field, and in fact referred only to a single mathematical equation in the entire book – E = MC^2. Hawking’s effort was successful enough that, even years after reading it, I still remember most of the general concepts that I learned from it. Piketty, early on in Capital, says he will make a similar effort at avoiding confusing equations. He doesn’t promise to forgo them altogether, but says he will use abstract concepts and theoretical constructs “sparingly, and only to the extent that theory enhances our understanding of the changes we observe.” The math that does get brought up, he says, will be “elementary equations, which can be explained in a simple, intuitive way and can be understood without any specialized technical knowledge.”

One chapter in, he’s more or less kept that promise, but the strain of doing so is showing. He’s walked us through maybe 10 or so equations so far, most of which are admittedly very simple and easy to understand (for example, National income = domestic output + net income from abroad). His explanations of the more complex ones (for example, α = r * β) have been helpful, but I have occasionally had to re-read or even re-re-read the relevant sections to get a handle on the concepts. I’m a little concerned that as I continue into the book, holding all these new concepts in my brain is going to be too much and I’m going to lose the thread of Piketty’s argument. We’ll just have to see what happens.

Anyway the first chapter is called “Income and Output,” and it’s about the capital/income ratio. Piketty defines capital as “the sum total of nonhuman assets that can be owned and exchanged on some market. Capital includes all forms of real property (including residential real estate) as well as financial and professional capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies.” National wealth, or national capital, is “the total market value of everything owned by the residents and government of a given country at a given point in time, provided that it can be traded on some market.”

Basically Piketty says that the first fundamental law of capitalism is that the share of income from capital in national income is equal to the rate of return on capital times the capital/income ratio. This is the α = r * β formula I gave as an example above. The capital/income ratio is a country’s total capital stock divided by its annual flow of income. So for example if a country’s total capital stock is the equivalent of six years of national income, β = 6 (or 600%). In developed countries today, the capital/income ratio is usually somewhere between 5 and 6. In wealthy countries around 2010, Piketty writes, income from capital was around 30% of national income. With a capital/income ratio of around 6, this means that the return on capital was around 5%. This is interesting because when we look at the per capita national income in such countries (around 30,000 euros/year) we can now break that down into income from labor (21,000 euros or 70%) and income from capital (9,000 euros, or 30%).

Once all this is explained, Piketty moves on to what he calls the second fundamental law of capitalism: The higher the savings rate and the lower the growth rate, the higher the capital/income ratio. This makes sense to me so I didn’t spend a lot of time sweating over this section. Then he moves on to talk about national accounts and how they’ve changed over time. I didn’t highlight much from here, except a quote: “We should be careful not to make a fetish of the published figures.” Piketty says that if a country’s national income per capita is said to be 30,000 euros, it should be obvious that this number should be regarded as an estimate, not a mathematical certainty.

From these concepts, Piketty moves into discussing more concrete topics. He notes that the global distribution of production has changed over time: From 1900 to 1980, 70 to 80 percent of global production of goods and services was concentrated in Europe and America. By 2010, however, that share had declined to roughly 50%. Piketty says it will likely continue to fall, “and may go as low as 20-30 percent at some point in the twenty-first century,” a share that would be consistent with the European-American share of the world’s population. Then he uses measurements of purchasing power parity to show the that share of income going to the wealthy countries has been declining steadily since the 1970s, saying that “the world clearly seems to have entered a phase in which rich and poor countries are converging in income.”

But, Piketty says, the global distribution of income remains more unequal than the distribution of output. This is because rich countries are “doubly wealthy” owing to the fact that they both produce more at home and invest more abroad, so that “their national income per head is greater than their output per head.” All the major developed countries currently enjoy a level of national income that is slightly greater than their domestic product.

Looking at this from a continental perspective, Piketty says Europe, America and Asia are close to equilibrium – wealthier countries in each bloc receive a positive flow of income from capital, which is partly canceled by the flow of other countries so that at the continental level total income is almost exactly equal to total output. The only continent not in equilibrium is Africa, where “a substantial share of capital is owned by foreigners.” In fact, he says, nearly 20 percent of African capital is owned by non-Africans. Because some forms of capital such as real estate and agricultural capital are rarely owned by foreigners, what this number means in practice is that the foreign-owned share of Africa’s manufacturing capital may exceed 40-50 percent and may be higher in other sectors. That seems like a huge share and one that can only lead to problems – and indeed, Piketty opened the chapter with the story of a miners’ strike in South Africa that turned violent when the mine’s owners had soldiers open fire on the striking workers.

In theory, rich countries owning a portion of the capital of poor countries can be a good thing because it can promote convergence by increasing productivity in the poor countries where the rich countries invest. According to classical economic theory, this mechanism “should lead to convergence of the rich and poor countries and an eventual reduction of inequalities through market forces and competition.”

Needless to say, Piketty ain’t buying it. First, he points out, this equalization mechanism doesn’t guarantee global convergence of per capita income – at best, he says, it promotes convergence of per capita output. After the wealthy countries have invested in their poorer neighbors, he points out, they may continue to own them indefinitely, “and indeed their share of ownership may grow to massive proportions, so that the per capita income of the wealthy countries remains permanently greater than that of the poorer countries.” Furthermore, Piketty says, the historical record does not show that capital mobility has been the primary factor promoting the convergence of rich and poor nations. None of the Asian countries that have moved closer to the developed countries of the west has benefited from large foreign investments, he says. In fact, “countries owned by other countries … have been less successful, most notably because they have tended to specialize in areas without much prospect of future development and because they have been subject to chronic political instability.”

Instead, Piketty argues, “historical experience suggests that the principal mechanism for convergence … is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education, not by becoming the property of the wealthy.” Knowledge diffusion, he says, depends on a country’s ability to mobilize financing, as well as the presence of institutions that encourage large-scale investment in education and training of the population, along with a stable legal framework in the country that companies and people can count on.

That’s the end of chapter 1. I can tell that my “liveblogging” of this book is going to take a lot of effort, and I’m also worried about the fact that I seem to be recapping the book more than providing my own reflections on its content. I know the reason for this: I simply am not qualified to offer reflections on the content. Writing this, I tried to offer some thoughts on the statistic about as much of 50% of Africa’s manufacturing capital being foreign-owned, but I found that I still lack a nuanced-enough understanding of what that means to do so. For example, I intuit that it would not be quite correct to say that 50% of Africa’s manufacturing income goes to foreigners – because owning 50% of the capital also includes ownership of the factories, machinery, etc. All I can really say for certain is that a substantial amount of Africa’s production benefits foreigners. At the end of the first chapter, then, I know that I’m learning but I worry that what I’m actually grasping is so surface-level that it will be of little use to me – I am not yet able to articulate my own thoughts and follow the logic of Piketty’s arguments to ideas that he does not explicitly raise himself.

For now, I’m going to push on. We’ll see if the situation improves.

Update, 10/12/2015 (14% Complete):

Chapter 2 marked the first point at which I almost gave up. Do you know the feeling when you’re reading a book where it seems like you’re asleep, even as your eyes continue gliding along a page? That happened to me a lot in these last 40 or so pages. The concepts here actually weren’t as tricky as in chapter 1, but that may have been a mixed blessing: I found myself highlighting less frequently, and perhaps as a result I was less engaged with the text and more susceptible to dozing off.

In any case, chapter 2 is about growth. Piketty says that going forward, we may see a return to a slower growth than we are used to. Some of the Republican presidential candidates have been talking about getting the U.S. back to 4% growth; in fact, Piketty says, a growth rate of about 1% per year or even lower would be more in line with historical norms and, it seems to be implied, perhaps better for everyone anyway. Piketty notes that a growth rate of 4% per year, whether we’re talking economic growth or population growth, may seem healthy on a year-to-year basis but when viewed in terms of a generation (30 years), begins to seem out of control. Over that period of time, a 4% annual growth rate has to mean massive social changes. Piketty says anything over 1% implies massive social change, actually. Piketty distinguishes between population growth and per capita output growth, but the argument is basically the same in both cases: the historic norm is somewhere around 1% growth, certainly under 2%, and anything in excess of this is probably not sustainable or desirable over the longer term.

Piketty relates this to what he says is the central thesis of his book: namely, “that an apparently small gap between the return on capital and the rate of growth can in the long run have powerful and destabilizing effects on the structure and dynamics of social inequality.”

Piketty says that other things being equal, strong demographic growth “tends to play an equalizing role because it decreases the importance of inherited wealth: every generation must in some sense construct itself.” A person with 10 siblings, for example, is less likely to count on inheritance as a source of future wealth, because anything his parents have will have to be divided by 10 when they die, and therefore it makes more sense for that person to rely on his own labor and savings. The same is true in a country like the United States, where immigration plays a large role in population increase. On the other hand, a stagnant or decreasing population increases the influence of capital accumulated in previous generations, and the same is true of economic stagnation.

So far I’m with all this. But now Piketty turns to a lengthy discussion of per capita output growth rate, and I start to get a bit lost. It’s not that anything is particularly confusing, exactly; it’s more like I don’t understand why we’re covering some of these topics in such detail. For example, I read quite a bit on the significance of increases in purchasing power over time, and why traditional measurements of such increases are not necessarily meaningful in the way we think they are (basically, there are too many goods and services that have changed in too many ways for any meaningful average of purchasing power to be constructed). Taken by itself, I think I get it. My question is, why are we talking about this? He seems to sum up by saying that “there is no doubt that economic growth led to a significant improvement in standard of living over the long run.” Which – fine, that makes sense. But it seems like we didn’t need this whole deconstruction of purchasing power and whatever else just to come to that point. Is he just being thorough, or am I missing some basic part of what Piketty is trying to relate? I’m afraid it might be the latter.

I should be clear that nothing I write here, or will write here, is intended as a criticism of the author’s work. I am utterly unqualified to criticize his work or his writing, and I wouldn’t try. I’m confessing to some confusion because I genuinely am confused, and I want to relate the experience of reading this book more than I want to relate its content or its arguments.

Anyway he goes on for a while about why growth is likely to slow down, and then finally he comes to inflation. In addition to being an important consideration in any conversation about growth, Piketty says inflation can “play a fundamental role in the dynamics of wealth distribution.” He says that inflation is “largely a twentieth-century phenomenon,” with inflation being zero or close to it up until World War I. Then after World War I and World War II, countries basically just printed money to pay the huge debts they’d racked up during the wars, leading to an inflationary process that “has never really ended.” As a result, having any certain amount of money no longer means the same thing as it used to. Piketty goes off on a sort of a tangent about money figures being used in literature. Back in the day, I guess authors would say “So-and-so had an income of 500 pounds a year” and everyone understood that to mean that person was rich. Nowadays, however, currency has basically disappeared from literature because there’s less certainty about how much money one will need to be considered “rich” just a few years in the future. With that discussion, the chapter ends and we now push onto Part Two of the book, which is apparently about “The Dynamics of the Capital/Income Ratio.”

As an aside, Piketty once again in this chapter warns the reader that “we must be careful not to make a fetish of the numbers.” This is the second time he has said that, and I love it. I think I’ll get it stitched onto a pillow.