I was surprised I couldn’t find Thomas Piketty’s Capital in the 21st Century when I searched the Singapore National Library catalogue online. An Amazon bestseller, it is the most talked-about economics book today. Piketty, a French economist, writes about the growing inequality between the rich and the poor.

• Inequality is returning to pre-World War I levels, he writes, and
• The future could look like the 19th century, when the economic elites predominantly inherited their wealth rather than working for it.

Looking at Forbes and other wealth rankings, Piketty concludes:

global inequality of wealth in the early 2010s appears to be comparable in magnitude to that observed in Europe in 1900–1910. The top thousandth seems to own nearly 20 percent of total global wealth today, the top centile about 50 percent, and the top decile somewhere between 80 and 90 percent. The bottom half of the global wealth distribution undoubtedly owns that less than 5 percent of total global wealth.

Concretely, the wealthiest 0.1 percent of people on the planet, some 4.5 million out of an adult population of 4.5 billion, apparently possess fortunes on the order of 10 million euros on average, or nearly 200 times average global wealth of 60,000 euros per adult, amounting in aggregate to nearly 20 percent of total global wealth. The wealthiest 1 percent—45 million people out of 4.5 billion—have about 3 million euros apiece on average (broadly speaking, this group consists of those individuals whose personal fortunes exceed 1 million euros). This is about 50 times the size of the average global fortune, or 50 percent of total global wealth in aggregate.

“Bear in mind,” Piketty cautions, “that these estimates are highly uncertain (including the figures given for total and average global wealth). Even more than most of the statistics cited in this book, these numbers should be taken simply as orders of magnitude, useful only for focusing one’s thoughts.”

The “highly uncertain” estimates, however, have not prevented the book from being taken seriously. Read what Paul Krugman has to say in the New York Review of Books.

The main points made by the book:

• The ratio of wealth to income is rising in all developed countries.
• Absent extraordinary interventions, we should expect that trend to continue.
• If it continues, the future will look like the 19th century, where economic elites have predominantly inherited their wealth rather than working for it.
• The best solution would be a globally coordinated effort to tax wealth.

Those bullet points are courtesy of Matthew Yglesias. Read his summary of the book on Vox if you can’t get hold of the book itself.

Here’s an extract from the book.

Between 1990 and 2010, the fortune of Bill Gates—the founder of Microsoft, the world leader in operating systems, and the very incarnation of entrepreneurial wealth and number one in the Forbes rankings for more than ten years—increased from $4 billion to $50 billion. At the same time, the fortune of Liliane Bettencourt—the heiress of L’Oréal, the world leader in cosmetics, founded by her father Eugène Schueller, who in 1907 invented a range of hair dyes that were destined to do well in a way reminiscent of César Birotteau’s success with perfume a century earlier—increased from $2 billion to $25 billion, again according to Forbes. Both fortunes thus grew at an annual rate of more than 13 percent from 1990 to 2010, equivalent to a real return on capital of 10 or 11 percent after correcting for inflation.

In other words, Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working. Once a fortune is established, the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size. Note, in particular, that once a fortune passes a certain threshold, size effects due to In other words, Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working. Once a fortune is established, the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size. Note, in particular, that once a fortune passes a certain threshold, size effects due to economies of scale in the management of the portfolio and opportunities for risk are reinforced by the fact that nearly all the income on this capital can be plowed back into investment. An individual with this level of wealth can easily live magnificently on an amount equivalent to only a few tenths of percent of his capital each year, and he can therefore reinvest nearly all of his income.16 This is a basic but important economic mechanism, with dramatic consequences for the long-term dynamics of accumulation and distribution of wealth. Money tends to reproduce itself. This stark reality did not escape the notice of Balzac, who describes the irresistible rise of his pasta manufacturer in the following terms: “Citizen Goriot amassed the capital that would later allow him to do business with all the superiority that a great sum of money bestows on the person who possesses it.”

Note, too, that Steve Jobs, who even more than Bill Gates is the epitome of the admired and talented entrepreneur who fully deserves his fortune, was worth only about $8 billion in 2011, at the height of his glory and the peak of Apple’s stock price. That is just one-sixth as wealthy as Microsoft’s founder (even though many observers judge Gates to have been less innovative than Jobs) and one-third as wealthy as Liliane Bettencourt. The Forbes rankings list dozens of people with inherited fortunes larger than Jobs’s. Obviously wealth is not just a matter of merit. The reason for this is the simple fact that the return on inherited fortunes is often very high solely because of their initial size.