Summary

In chapter 5, Piketty changes focus from the history of the composition of capital to the history of the capital/income ratio. He notes two important features relating these two measurements. First, although the makeup of capital has largely changed over the long run, the capital/income ratio has not changed very much in the same time. Second, the capital/income ratio has historically remained higher in Europe than in the U.S. (164). Both of these trends point to the need to better understand the nature of the capital/income ratio. To obtain a better look at the forces impacting the capital/income ratio, Piketty presents the second fundamental law of capitalism: β = s / g, where β represents the capital/income ratio, s the savings rate, and g the growth rate (166). Piketty shows that when the growth rate increases, the capital/income ratio falls. Furthermore, the...