55 pages • 1 hour read
Thomas Piketty, Arthur GoldhammerA modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Piketty asks, given its upward trajectory, will “the capital/income ratio… regain or even surpass past levels before the end of the twenty-first century” (204)? This leads to a related question: Why is there a lower structural capital/income ratio in the US, and what determines the long-run capital/income ratio? And is there an equilibrium for this?
To address this Piketty presents the second law of capitalism: In the long run, the capital/income ratio is equal to the rate of savings divided by growth. A nation that grows slowly and saves a lot will, in the long run, come to have a high capital/income ratio. In such a society wealth will come to have a disproportionate influence on society. This is why, Piketty argues, “Decreased growth—especially demographic growth—is thus responsible for capital’s comeback” (207).
This law explains why the capital/income ratio has returned to high levels again after the low of the 1950s caused by high economic and demographic growth. It also explains why the US has a lower capital/income ratio than Europe, due to higher demographic growth. Note, however, that this law is true only in the long term, as it takes many years on a national level for wealth to accumulate.