When the return on capital exceeds the growth rate, inherited wealth compounds faster than earned income and inequality widens.
Piketty's 2013 central inequality. The historical claim is that r has usually exceeded g and the twentieth century was an exception produced by war and taxation, not by any equilibrating mechanism.
In practice
- Two wars, a depression and confiscatory top rates compressed wealth for fifty years, and the compression ended when they did.
- A family holding property through three generations of 4% returns and 1.5% growth ends with a larger share of national wealth without anyone working harder.
- Standing
- Piketty's central inequality; his second fundamental law is the separate beta = s/g relation.
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money