The Myth of Dynastic Wealth

Thomas Piketty’s Capital in the Twenty-First Century rocketed to the top of the best-seller lists the moment it was published in 2013, and remained there for months. While this feat is quite remarkable for a weighty tome on economics, it’s no mystery why Piketty’s magnum opus created such a sensation; it is clearly articulated, accessible to the non-economist, has a sound neo-Keynesian foundation, and contains a trove of historical insights. We believe Piketty’s core message is provably flawed on several levels, as a result of fundamental and avoidable errors in his basic assumptions. He begins with the sensible presumption that the return on invested capital, r, exceeds macroeconomic growth, g, as must be true in any healthy economy. But from this near-tautology, he moves on to presume that wealthy families will grow ever richer over future generations, leading to a society dominated by unearned, hereditary wealth. Alas, this logic holds true only if the wealthy never dissipate their wealth through spending, charitable giving, taxation, and splitting bequests among multiple heirs.