American Economic Association (www.aeaweb.org), founded 1885 Royal Economic Society (www.res.org.uk), founded 1890 History of Economics Society (www.historyofeconomics.org), founded

1974 World Economics Association (www.worldeconomicsassociation.org),

founded 2011

American Economic Review Journal of Economic Literature Cambridge Journal of Economics The Economic Journal

It has been widely observed-and by many, intensely felt-that economic inequality is on the rise in the twenty-first century. In his surprise bestseller Capital in the Twenty-First Century, French economist Thomas Piketty examines the history of the distribution of income and wealth, not only constructing a description of inequality but deriving a theory and even economic laws, and offering predictions and policy recommendations. He notes first and foremost that the “history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms” (2014: 2), that is, how a society organizes its laws, for instance concerning taxes and finance, shapes the outcome of wealth and poverty. Analyzing more than a century of data from the countries around the world, he formulates the “first fundamental law of capitalism,” which is = r , meaning that the “capital/income ratio is related in a simple way to the share of income from capital in national income, denoted . . . where r is the rate of return on capital” (52). The rate of return on capital, r, refers

to “the yield on capital over the course of a year regardless of its legal form (profits, rents, dividends, interest, royalties, capital gains, etc.), expressed as a percentage of the value of capital invested” (52). His central claim, then, is that, while there are economic and social forces operating both to equalize and unequalize wealth, in the long run, “the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g” (571); more simply, the people who already have wealth earn more on their wealth than those who depend on paid labor. Therefore, “Once constituted, capital reproduces itself faster than output increases. The past devours the future” (571)—or as the saying goes, the rich get richer. But since such results are not inevitable or natural but depend on policies and institutions, Piketty explains and advises that the “poten - tially terrifying” level of inequality can be avoided through steps like higher tax rates for the rich and for “unearned income” like dividends, capital gains, and inheritances.