Free Capital in the Twenty-First Century by Thomas Piketty

some facts as accurately and carefully as possible. What exactly do we know about
     the evolution of the capital-labor split since the eighteenth century? For a long
     time, the idea accepted by most economists and uncritically repeated in textbooks
     was that the relative shares of labor and capital in national income were quite stable
     over the long run, with the generally accepted figure being two-thirds for labor and
     one-third for capital. 5 Today, with the advantage of greater historical perspective and newly available data,
     it is clear that the reality was quite a bit more complex.
    For one thing, the capital-labor split varied widely over the course of the twentieth
     century. The changes observed in the nineteenth century, which I touched on in the
     Introduction (an increase in the capital share in the first half of the century, followed
     by a slight decrease and then a period of stability), seem mild by comparison. Briefly,
     the shocks that buffeted the economy in the period 1914–1945—World War I, the Bolshevik
     Revolution of 1917, the Great Depression, World War II, and the consequent advent
     of new regulatory and tax policies along with controls on capital—reduced capital’s
     share of income to historically low levels in the 1950s. Very soon, however, capital
     began to reconstitute itself. The growth of capital’s share accelerated with the victories
     of Margaret Thatcher in England in 1979 and Ronald Reagan in the United States in
     1980, marking the beginning of a conservative revolution. Then came the collapse of
     the Soviet bloc in 1989, followed by financial globalization and deregulation in the
     1990s. All of these events marked a political turn in the opposite direction from
     that observed in the first half of the twentieth century. By 2010, and despite the
     crisis that began in 2007–2008, capital was prospering as it had not done since 1913.
     Not all of the consequences of capital’s renewed prosperity were negative; to some
     extent it was a natural and desirable development. But it has changed the way we look
     at the capital-labor split since the beginning of the twenty-first century, as well
     as our view of changes likely to occur in the decades to come.
    Furthermore, if we look beyond the twentieth century and adopt a very long-term view,
     the idea of a stable capital-labor split must somehow deal with the fact that the
     nature of capital itself has changed radically (from land and other real estate in
     the eighteenth century to industrial and financial capital in the twenty-first century).
     There is also the idea, widespread among economists, that modern economic growth depends
     largely on the rise of “human capital.” At first glance, this would seem to imply
     that labor should claim a growing share of national income. And one does indeed find
     that there may be a tendency for labor’s share to increase over the very long run,
     but the gains are relatively modest: capital’s share (excluding human capital) in
     the early decades of the twenty-first century is only slightly smaller than it was
     at the beginning of the nineteenth century. The importance of capital in the wealthy
     countries today is primarily due to a slowing of both demographic growth and productivity
     growth, coupled with political regimes that objectively favor private capital.
    The most fruitful way to understand these changes is to analyze the evolution of the
     capital/income ratio (that is, the ratio of the total stock of capital to the annual
     flow of income) rather than focus exclusively on the capital-labor split (that is,
     the share of income going to capital and labor, respectively). In the past, scholars
     have mainly studied the latter, largely owing to the lack of adequate data to do anything
     else.
    Before presenting my results in detail, it is best to proceed by stages. The purpose
     of Part One of this book is to introduce certain basic notions. In the remainder of this