When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
Interpretation
Capitalism can lead to growing inequalities if capital earns more than the economy grows.
This quote by Thomas Piketty highlights the inherent risk in capitalism where the return on investments outpaces economic growth, leading to significant inequalities in wealth and undermining the principles of meritocracy that support democratic values. Piketty argues that such imbalances can create an unjust society where the wealthy accumulate more power and resources, ultimately threatening the fairness and integrity of democratic institutions.
In practice
During a lecture on economic theory, you could reference this quote to discuss the implications of capitalism on society.
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.
The main force pushing toward reduction in inequality has always been the diffusion of knowledge and the diffusion of education.
Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.
There is one great advantage to being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites. Hence they must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything.
Having a decent share of the national wealth for the middle class is not bad for growth. It is actually useful both for equity and efficiency reasons.
The discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.
The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime.
The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.
Long-term economic growth depends mainly on nonmonetary factors such as population growth and workforce participation, the skills and aptitudes of our workforce, the tools at their disposal, and the pace of technological advance. Fiscal and regulatory policies can have important effects on these factors.
Regulatory reform must move beyond limiting the damage that the financial sector can do and ensure that the sector genuinely serves society.
Economic growth is the aggregate effect of the quest to accumulate capital and extract profit. Capitalism collapses without growth, yet perpetual growth on a finite planet leads inexorably to environmental calamity.
Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.
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