Comparing Piketty’s Capital and Marx’s Capital: A Critical Review Essay

Abstract:  This critical review summarizes the arguments and facts in Thomas Piketty’s Capital in the 21st Century and then discusses the main differences between this work and Karl Marx’s Capital:  For Piketty, capital is a mode of unequal distribution of wealth which can be remedied through higher taxation on the wealthy and a responsible social state.  For Marx, capital is an oppressive relation of production rooted in what he called abstract or alienated labor which in turn leads to the unequal distribution of the products of labor and periodic economic crises.  Earlier Persian-language versions of this critique were published by Zamaneh in September 2014 and presented at the Seminar for Research on Iranian Social Movements in Berlin in October 2015.   This version was originally published by the Alliance of Syrian and Iranian Socialists on April 3, 2016.

Frieda Afary

April 3, 2016


It is unprecedented for a 685 page book on capitalism to appear on the best sellers list for Amazon and the New York Times.  Why has this thick and complex book attracted so much attention from the mainstream press after the publication of its English translation?

The 2008 economic crisis which was the most serious economic crisis since 1929,  greatly weakened the world economy and led to widespread protests which became known as the Occupy Wall Street Movement in the U.S. and Europe and were critical of capitalism.     Piketty’s critique of inequalities in the distribution of wealth reflects the views of large sections of the Occupy Movement.

Piketty’s goal is a regulated capitalist system that limits inequality.  He writes: “I have no interest in denouncing inequality or capitalism per se—especially since social inequalities are not in themselves a problem as long as they are justified, that is, ‘founded upon common utility’ as article 1 of the 1789 Declaration of the Right of Man and the Citizen proclaims.” (p. 31)

He questions the claim that the mechanisms of the market can offer ways to avoid economic crises.  Instead, he supports Keynesian reforms such as increased taxes on capital and job creation by the state.   His theoretical foundation is the neoclassical school of economics that arose in the 1870s and questioned the labor theory of value developed by Adam Smith, David Ricardo and Karl Marx.  Instead of seeing the value of a commodity as based on the socially average amount of labor time that is required to produce it,   the neoclassical school argues that value is based on the choices and preferences of consumers.  In his Wealth of Nations, Adam Smith had also accounted for the preferences of consumers under the category of  price,  but had argued that although price and value are not always the same,  in the end,  price is determined by value which is based on the cost of production.

As an economist whose theoretical foundations question the labor theory of value, Piketty’s analysis of capital has very little in common with Marx’s Capital,  a work published in 1867,  which Piketty admits he has not read. [i]  However, exploring Piketty’s facts and arguments, and contrasting his views to those of Marx can lead to fruitful discussions on the question of how to find an alternative to capitalism.

I. A Summary of the Book:

Piketty and his colleagues in 20 countries including European states, The United States,  Canada, Japan, Australia, China, India and Argentina have based their study on  two types of tax records   1.  Income taxes which were imposed in many of the above  20 countries after1910.  2.  Estate taxes, the records for which were kept in France and England starting in the 1700s.   Based on an exhaustive study of these records for fifteen years,  Piketty has concluded that  “capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.” (p. 1)

Piketty takes issue with the U.S. economist  Simon Kuznets’ 1953 publication, Shares of Upper Income Groups in Income and Savings,  a work which claimed that the expansion of capitalism automatically  reduced  inequalities in income.  Kuznets’ study had been based only on data from the U.S. over the period 1913 to 1948,  years which Piketty considers to be the exception and not the norm in the history of capitalism.

Why does Piketty consider these years the exception and not the norm?  He argues that the shocks incurred on the world economy by World War I,  the Great Depression and World War II,  destroyed capital to a great extent and reduced the income of the wealthy classes.  “The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed (especially for people with large fortunes).  It had little to do with the tranquil process of intersectoral mobility described by Kuznets.” (p. 15)

Piketty also argues that the unprecedented growth of the European and U.S. economies and the reduction in inequality in these countries during the years 1945 to 1975 was the result of the imposition of heavy incomes taxes and capital gains taxes for the purpose of rebuilding after two world wars. (p. 96 and p. 237).

However,  he demonstrates that  starting in the mid 1970s,  income inequality in the wealthy countries started to grow significantly.  As a result:  “we are in the same position at the beginning of the 21st century as our forebears were in the early nineteenth century.”(p. 16),  that is the period of the rise of capital and the increasing poverty of the masses which according to Piketty,  exposed the bankruptcy of the economic and political systems of the time and led to the rise of socialist and communist movements in the 1840s. (p. 8)  Hence,  Piketty concludes:  “ the economists of the nineteenth century deserve immense credit for placing the distributional question at the heart of economic analysis and for seeking to study long-term trends.  Their answers were not always satisfactory, but at least they were asking the right questions.”(p. 16)

The central thesis propounded by his book  is that with the exception of the years 1914 to 1948, throughout history,   the rate of growth of accumulated capital has been greater than the rate of growth of incomes from labor. (p. 77)  He expresses this thesis with the formula r > g in which r stands for the rate of return on capital ( or the percentage of the original capital that is returned to the investor in one year) and g stands for the rate of growth of incomes and output.  Based on his claim, the “pure rate of return” has always oscillated around a central value of 4-5 percent.  (p. 206)  This formula he claims in turn leads to the concentration and centralization of capital in fewer hands.

This book has been divided into four parts:

In Part I,  “Income and Capital,” Piketty describes two “fundamental laws of capitalism”  concerning capital’s share of the national income and the  ratio of the rate of accumulation of capital to the growth rate.(pp. 52-55)   He argues that even based on an annual rate of return of a few percentage points,  if the return is mostly reinvested and not consumed,  the initial capital can grow at a significant rate over time. (pp. 76-77)    This trend along with the decline in incomes and output, he argues,  leads to increased inequality.

In Part II, “The Dynamics of the Capital/Income Ratio,” Piketty examines similarities and differences among France, England and the United States.  He shows that the form of capital in the twenty-first century is very different from that in the eighteenth century.  In the twenty-first century capital appears as financial capital, real estate and industrial capital, whereas in the eighteenth century it consisted of agricultural land and government bonds.   Nevertheless, the ratio of capital to national income in Europe and the United States is approximately the same as the ratio that existed in the early eighteenth century.  In other words, the value of  national capital today  is equivalent to five or six years of annual national income in  each country.

This part also devotes several pages to the role of slavery in the development of capitalism in the U.S.  He writes:  “This complex and contradictory relation to inequality largely persists in the U.S. to this day:  On the one hand this is a country of egalitarian promise,  a land of opportunity for millions of immigrants of modest background;  on the other it is a land of extremely brutal inequality, especially in relation to race, whose effects are still quite visible.”(p. 161)

A key difference between the globalized capitalism of the twenty-first century and the first wave of globalization between 1870 and 1914 is that each country has invested in other countries.  This “phenomenon of international cross investments” means that each country is to a large extent owned by other countries.   Few countries are considered colonies. (pp. 193-194)

However, Piketty argues that class differences inside each country have been intensified.  He predicts that by the end of the twenty-first century, the global rate of growth of incomes and output will decline to 1.5 percent per year.  At the same time, the rate of accumulation of capital will rise to 10% per year, and the ratio of capital to income will be seven to one.  That is approximately the ratio that was observed in Europe from the  1700s to the period before the start of World War I.  (p. 195-196).

Part III, “The Structure of Inequality,”  shows that on the one hand the extent of destruction caused by the two world wars, and on the other hand,  the post-war policies of the European and U.S. governments aimed at reconstruction,  played a key role in decreasing inequality.

However, after the 1970s, inequality increased and continues to increase.  He emphasizes that even during the exceptional three decades after World War II,  the degree of inequality in capital ownership was greater than inequality in income from labor. (pp. 244-246)   The creation of a large middle class in the period 1945 to 1975 was the result of a decline in the value of capital from 1914 to 1945 and not class mobility brought about by education and skills.  (pp. 272-273, 419-420).  “Furthermore,  in most countries,  women are in fact significantly overrepresented in the bottom 50 percent of earners.”(p. 256)

Although he states that “the growth of a true ‘patrimonial (or propertied) middle class’  was the principal structural transformation of the distribution of wealth in the developed countries in the twentieth century,”  Piketty emphasizes that the continuation of this limited decline in inequality can not be guaranteed. (p. 260)   On the contrary,  the children of this new middle class can invest with the money they have inherited from their parents,  which in turn means that in the twenty-first century,  inherited wealth will play the role that it had in the nineteenth century and prior.  (p. 337, p. 377)

Concerning the 2008 economic crisis,  he has the following explanation.  He relates the 2008 economic crisis in the U.S. to the decline in purchasing power among the middle class and the rise in their debts.  However, he emphasizes that “the more important cause” for economic instability was the rise in the ratio of capital to national income and the significant increase in financial capital. (p. 298).

He argues that an important reason for the rise in inequality in the U.S.  has been the increase in the salaries of managers of large corporations.  In his opinion, after the 1970s,  greater tolerance of  tax cuts on capital gains,  and acceptance of very high executive pay in the U.S. and Britain was “probably due in part to a feeling that these countries were being overtaken by others. ..  It is also possible that the explosion of top incomes can be explained as a form of ‘meritocratic extremism’ by which I mean the apparent need of modern societies,  and especially U.S. society , to designate certain individuals as ‘winners’.”(pp. 333-334).   He claims that this unprecedented rise in the incomes of salaried managers or “supermanagers” along with the decrease in taxes imposed on them and the unprecedented rise in financial capital,  led to instability in the global economy and the 2008 economic crisis.

As a result of the increasing importance of inheritance and the rise of supermanagers who claim to be superior in merit and productivity,  Piketty predicts that “ the world to come may well combine the worst of two past worlds;  both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity.”(p. 417)

He demonstrates that the degree of inequality in the United States is currently higher than most countries (p. 257, p. 265, p. 347, p. 485).  The degree of inequality in capital ownership in the United States is also equal to Europe in 1900.  In other words, 90% of capital is in the hands of the wealthiest 10%.  (p. 438).  Piketty warns that this situation will lead to revolutions and political chaos because modern democracies are based on the principle that social inequality can only be justified on the basis of rational and universal principles not arbitrary contingencies.    To Piketty, the sentence from the Declarataion of the Rights of Man which was formulated after the French Revolution in 1789 and which justified social distinctions on the basis of “common utility”  means that “social inequalities are acceptable only if they are in the interest of all and in particular of the most disadvantaged social groups.”(p. 422, p. 480)

In Part IV, “Regulating Capital in the Twenty-First Century,”  Piketty offers the following solutions:  A “social state” which offers universal health insurance, universal education including higher education and a “pay as you go” pension plan, all based on a progressive income tax.  He proposes an annual progressive tax on capital in the context of a transparent global banking system to allow each country to assess the real global income of its capitalists and impose a progressive income tax compatible with their real incomes.

However, he admits that currently the idea of an annual progressive tax on capital is “utopian.”  He demonstrates that even the progressive income tax has been replaced by a regressive tax system in most countries.    In France,  “the high tax rates on the poor reflect the importance of consumption taxes [or value added taxes] and social contributions (which altogether account for three-quarters of French tax revenues.).” (p. 496).  In the United States, Piketty writes:  “the risk of a drift toward oligarchy is real and gives little reason for optimism about where the United States is headed.” (p. 514)

In his conclusion,  Piketty proposes new forms of public-private ownership and the democratic control of capital through involving the representatives of labor unions in decision making.  (p. 570)  He writes:  “Can we imagine a twenty-first century in which capitalism will be transcended in a more peaceful and more lasting way, or must we simply await the next crisis or the next war (this time truly global)?” (p. 471)

II. Key Differences Between Piketty’s Capital and Marx’s Capital

Issue #1:  What is Capital? 

Many economists including the editorial board of the London Economist(May 3, 2014) and the U.S. Nobel laureate Robert Solow (New Republic, April 22, 2014) have critiqued Piketty for conflating capital and wealth or conflating  non-productive capital such as residential homes and jewelry with productive capital such as machines, factories and  commercial real estate.   For Piketty, ‘Capital is defined as the sum total of non-human assets that can be owned and exchanged on some market.  Capital includes all forms of real property (including residential real estate) as well as financial and professional capital (plants, infrastructure, machinery patents and so on) used by firms and government agencies.’(p. 46)

Marxist economists have also taken issue with his definition of capital not only because it conflates productive and non-productive capital but also because it views capital as a thing and not a social relationship. [ii]

Karl Marx’s book Capital,  published in 1867, and his earlier works,  the Economic and Philosophic Manuscripts of 1844 and the draft of Capital, posthumously named Grundrisse (1857),  had argued that capital is not a thing but a social relationship characterized by what Marx called “abstract labor” or “alienated labor” which is specific to the capitalist mode of production.  He considered alienated labor to be a mode of production in which the laborer is alienated not only from the product of her labor but also from her “species being” or her potential to engage in free and conscious activity.    This mechanical, uniform and monotonous labor is measured by a social average called “socially necessary labor time” and is in turn represented by a uniform symbol like money or value.  This mode of production, according to Marx, turns the extraction of value and surplus value from workers into an end in itself.  It also turns human relationships, including intimate relationships, into utilitarian ones aimed at making more money.

Marx had argued  that  the mode of production is what determines the mode of distribution.   In Capital,  he had demonstrated that the capitalist mode of production inevitably leads to an unequal mode of distribution of the products of labor.  Hence, so long as this mode of production remains, the mode of distribution will also be unequal.

Piketty does not discuss the Marxian concept of capital as a social relationship or his own views on the specificity of the capitalist mode of production.   Instead, he views capital as a transhistorical thing and capitalism as merely a mode of distribution of wealth.

Issue #2:  What Leads to Economic Crises?

The central thesis propounded by Capital in the Twenty-First Century is that with the exception of the years 1914 to 1948,  throughout history,   the rate of growth of accumulated capital has been greater than the rate of growth of incomes from labor. (p. 77)  Piketty expresses this thesis with the formula r > g,  where r stands for the rate of return on capital and g stands for the rate of growth of incomes and output.   He claims that the “pure rate of return” has always oscillated around a central value of 4-5 percent.  (p. 206)  Whereas with the exception of emerging economies, or post-war reconstruction needs,  the rate of growth normally remains at 1 to 1.5% per year.

Why is this formula important?  Because Piketty claims that it reveals that capital grows faster than income from labor.   It shows that capital gets centralized in fewer hands.

How have his critics responded?  Jeremy Siegel of claims that the value of capital “grows over time at about the same rate as the real economy.” [iii]  Tyler Cowen an economist from George Mason University criticizes Piketty for failing to take account of the variation, across time and investments, in the return on capital.  He emphasizes that “Normally, economists think of the rate of return on capital as diminishing as investors accumulate more capital, since the most profitable investment opportunities are taken first.  But in Piketty’s mode, lucrative overseas investments and the growing financial sophistication of the super wealthy keep capital returns permanently high.” [iv]

Cowen’s allusion to the debate among economists on the tendency toward a decline in the rate of return on capital is very important.  This issue was theorized as far back as Adam Smith’s The Wealth of Nations (1776).   In that work, Smith had argued that over time, the rate of profit would tend to decline partly in consequence of the gradual increase in the capital stock and partly because of the increasing difficulty of finding “a profitable method of employing  any new capital.”  Based on his analysis, two sets of circumstances could reverse this:  1.  A gradual reduction in capital stock and 2.  Acquisition of new investment outlets or new colonies.  [v]

Marx had a different interpretation of this phenomenon.  He called it the Law of the Tendential Fall in the Rate of Profit and theorized it in Capital, Volume 3.  First, he considered it specific to the capitalist mode of production.  Secondly, he based his analysis on what he called “the organic composition of capital” or the ratio of the value of the means of production employed,  to the value of wages.    He argued that with an increase in the rate of accumulation of capital, an increasing portion of the surplus value would be spent on both wages and machinery.   However, employment and wages would not rise at the same rate as the value of machinery.   As a result, with increasing productivity, the mass of profits would rise but the rate of profit would have a tendency to fall.

What did he mean by this?  He demonstrated this tendency through the formula S/(C+V) in which S stands for surplus value or the value that workers produce above and beyond their wages, C stands for constant capital or the value of machinery and V stands for variable capital or the value of wages.  Given his foundation in the labor theory of value expounded by Adam Smith and David Ricardo,  he believed that only living labor created new value.   Hence he argued that  as the value of machinery employed increased  relative to the value of what he called living labor,  or as machines replaced workers,  the amount of living labor per unit of output decreased.  Hence, the rate of profit would decline.  Mathematically expressed,  the value of C increased relative to V and the denominator of the formula S/(C+V) got larger,  the rate of profit tended to fall.

He argued however, that this decline was temporary and not permanent because there were many countervailing factors that allowed for the rate of profit to rise again.  These factors included increasing the intensity of the labor performed by the existing workers, lowering wages  below the subsistence level of the workers,  or exporting production facilities to locations where labor and the means of production were cheaper.

In his analysis, economic crises mostly represented a severe decline in the rate of profit.  Overcoming them required a decline in the value of existing capital or the full destruction of capital which would in turn mark the beginning of a new cycle in which  the rate of profit would start to rise again.  With the further development of capitalist production and increasing productivity, he argued, economic crises would become more frequent but they would not be permanent.

Piketty claims that Marx did not account for the increasing use of technology in capitalist production which Piketty claims counters the tendency of the rate of profit to fall.   Marx, however, did account for the increasing use of technology and argued that workers’ being replaced with machines leads not only to an increase in the mass of profits  but also to a tendency for a  decline in the rate of profit.  Piketty’s misrepresentation of Marx’s argument might be based on a fundamental difference between them:   Marx thinks that only living labor produces new value.  Piketty seems to think that machines and technology as such can also produce new value.

Like Piketty, Marx had also accounted for the concentration and centralization of capital in fewer hands. In fact, he had predicted that in a given capitalist society, the entire social capital could be concentrated “in the hands of a single capitalist or a single capitalist company.” [vi]  However, he did not see this phenomenon as the result of a transhistorical formula like r>g.  Rather, he came to the conclusion that the tendency toward the concentration and centralization of capital flowed from capitalism’s need to extract more and more surplus value from relatively fewer workers.  For Marx, capitalists were the embodiment of this organic drive of capital for the expansion of value, and not simply greedy individuals who were motivated by personal gain.

In general, it can be argued that Piketty’s formula r>g is transhistorical and ignores the specificity of capitalist relations of production.   It does not offer any coherent theory of capitalist crisis.

III.  Piketty’s Alternative and Beyond?

Piketty’s alternative to the existing system is a “social state” which offers universal health insurance, universal education including higher education and a “pay as you go” pension plan, all based on a progressive income tax.  He argues that only an annual progressive tax on capital in the context of a transparent global banking system would allow each state to assess the real global income of its capitalists and impose an income tax compatible with their real incomes.

This idea has been embraced by New York Times columnist and Nobel laureate Paul Krugman.  In his review of Piketty’s book,  he writes:  “Capital in the Twenty-First Century makes it clear that public policy can make an enormous difference, that even if the underlying economic conditions point toward extreme inequality,  what Piketty calls ‘a drift toward oligarchy’ can be halted and even reversed if the body politic chooses.” [vii]  These views are also very similar to those of U.S. presidential candidate, Bernie Sanders,  and  Greece’s Syriza Party before it was compelled to give in to the European Union’s austerity plan.

Tyler Cowen critiques Piketty’s alternative in the following way: “The best parts of Piketty’s book argue that left unchecked, capital and capitalists inevitably accrue too much power, and yet Piketty seems to believe that governments and politicians are somehow exempt from the same dynamic.” [viii]

Michael Roberts argues that because of ignoring the contradictions in the capitalist process of production “Piketty has no theory of crises in capitalism…  So his policy prescriptions for a better world are confined to progressive taxation and a global wealth tax to ‘correct’ capitalist inequality.”[ix]

In conclusion, I would argue that given Piketty’s view of capital as a thing and not a social relationship arising from an alienated and exploitative mode of production, his alternative to the inequalities of capitalism cannot be anything but another form of capitalism.

Transcending Piketty’s limitations however, requires that we comprehend the distinctiveness of capitalism as a mode of production characterized by alienated/abstract labor, and work out a humanist alternative to it.  That task cannot be done without a serious return to Marx’s works and without a thorough critique of the state capitalist systems that existed in the former USSR and Maoist China.


[i] Thomas Piketty:  I Don’t Care for Marx:  An Interview with the Left’s Rock Star Economist.”  New Republic.  May 5, 2014

[ii] See Michael Roberts, “Unpicking Piketty.”  Weekly Worker. 2014.  Peter Hudis, “Piketty’s Capital: A Review Essay”, Forthcoming,  Alex Callinicos.  “Piketty’s Theory of Capital.” Socialist Worker, May 13, 2014. Michael J. Thompson,  Mapping the New Oligarchy. New Politics. Summer 2014

[iii] Jeremy Siegel.  “All the Things Thomas Pikkety Got Wrong.” , Sept. 17, 2014

[iv] Tyler Cowen.  “Capital Punishment:  Why a Global Tax on Wealth Won’t End Inequality.”  Foreign Affairs.  May/June 2014

[v] Andrew S. Skinner,  Introduction to The Wealth of Nations.  Penguin Classics,  1999.  P. 61

[vi] Marx, Capital, Volume One.  Vintage, 1976, p. 779.

[vii] Paul Krugman.  “Why We’re in a New Gilded Age.”  The New York Review of Books.  May 8, 2014

[viii] Cowen, OpCit.

[ix] Roberts, Op.Cit.