Free Capital in the Twenty-First Century by Thomas Piketty Page B

twenty-first century, possibly in
     some novel geographic configuration? For example, Europe, rather than being the owner,
     may find itself owned. Such fears are currently widespread in the Old World—perhaps
     too widespread. We shall see.
    At this stage, suffice it to say that most countries, whether wealthy or emergent,
     are currently in much more balanced situations than one sometimes imagines. In France
     as in the United States, Germany as well as Great Britain, China as well as Brazil,
     and Japan as well as Italy, national income is within 1 or 2 percent of domestic product.
     In all these countries, in other words, the inflow of profits, interest, dividends,
     rent, and so on is more or less balanced by a comparable outflow. In wealthy countries,
     net income from abroad is generally slightly positive. To a first approximation, the
     residents of these countries own as much in foreign real estate and financial instruments
     as foreigners own of theirs. Contrary to a tenacious myth, France is not owned by
     California pension funds or the Bank of China, any more than the United States belongs
     to Japanese and German investors. The fear of getting into such a predicament is so
     strong today that fantasy often outstrips reality. The reality is that inequality
     with respect to capital is a far greater domestic issue than it is an international
     one. Inequality in the ownership of capital brings the rich and poor within each country
     into conflict with one another far more than it pits one country against another.
     This has not always been the case, however, and it is perfectly legitimate to ask
     whether our future may not look more like our past, particularly since certain countries—Japan,
     Germany, the oil-exporting countries, and to a lesser degree China—have in recent
     years accumulated substantial claims on the rest of the world (though by no means
     as large as the record claims of the colonial era). Furthermore, the very substantial
     increase in cross-ownership, in which various countries own substantial shares of
     one another, can give rise to a legitimate sense of dispossession, even when net asset
     positions are close to zero.
    To sum up, a country’s national income may be greater or smaller than its domestic
     product, depending on whether net income from abroad is positive or negative.
    National income = domestic output + net income from abroad 6
    At the global level, income received from abroad and paid abroad must balance, so
     that income is by definition equal to output:
    Global income = global output 7
    This equality between two annual flows, income and output, is an accounting identity,
     yet it reflects an important reality. In any given year, it is impossible for total
     income to exceed the amount of new wealth that is produced (globally speaking; a single
     country may of course borrow from abroad). Conversely, all production must be distributed
     as income in one form or another, to either labor or capital: whether as wages, salaries,
     honoraria, bonuses, and so on (that is, as payments to workers and others who contributed
     labor to the process of production) or else as profits, dividends, interest, rents,
     royalties, and so on (that is, as payments to the owners of capital used in the process
     of production).
What Is Capital?
    To recapitulate: regardless of whether we are looking at the accounts of a company,
     a nation, or the global economy, the associated output and income can be decomposed
     as the sum of income to capital and income to labor:
    National income = capital income + labor income
    But what is capital? What are its limits? What forms does it take? How has its composition
     changed over time? This question, central to this investigation, will be examined
     in greater detail in subsequent chapters. For now it will suffice to make the following
     points:
    First, throughout this book, when I speak of “capital” without further qualification,
     I always exclude