26 August 2016

Capital vs Income

Capital in the Twenty-First Century by Thomas Piketty, 2014, Excerpts

“Capital” and ‘Wealth” are used interchangeably. Capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market. The total wealth owned at a given time. “National capital”, or “national wealth”, is the total market value of everything owned by the residents and governments of a given country. National wealth = private wealth + public wealth

Income is a flow. The quantity of goods produced and distributed in a given time period, assume annual. Wages and output.

Capital/Income Ratio
B Ratio = Capital/Income

The principal destabilizing force is when the rate of return on capital, r, is significantly higher for long periods of time than the rate of growth of income, g. The inequality r>g implies that accumulated wealth grows more rapidly than income, capital reproduces itself faster than income increases. The conditions are ideal for an “inheritance society” characterized by both a very high concentration of wealth and a significant persistence of large fortunes from generation to generation.

The rate of return on capital – generally 4-5 percent – has throughout history always been distinctly greater than the income growth rate and is a powerful force for an unequal distribution of wealth.

In the developed countries today, the capital/income ratio varies between 5 and 6.


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