This article is an excerpt from the Shortform book guide to "Capital in the Twenty-First Century" by Thomas Piketty. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here .
What are some basic economic terms you should know? How does Thomas Piketty define them?
Before discussing income and wealth inequality in-depth, Thomas Piketty establishes the broader intellectual framework that supports his analysis in Capital in the Twenty-First Century. He does this by defining some key economic terms.
Read more for a list of basic economic terms and definitions you should know.
Defining Basic Terms: National Income, Capital, and National Wealth
Read below for Piketty’s list of basic economic terms and definitions.
1. Piketty defines national income as the combined income of all residents of a country. The key drivers of national income growth g, or its total economic output, are a country’s population (the raw number of people able to produce goods and services) and its productivity per capita (how much each person can produce in a given time). This national income, in turn, has two components: national labor income and national capital income. Since Piketty primarily focuses his analysis on capital income, we’ll focus on that now and explore labor income later in the guide.
2. Piketty defines capital as any assets that can be bought, sold, transferred, or traded. These can be tangible physical assets like real estate, machinery, or durable goods. But they can also be financial assets like stocks, bonds, or intellectual property (IP) such as patents and copyrights.
3. Building off this definition of capital, Piketty writes that national capital (also called national wealth) is the net aggregate of such assets owned by residents of a country, plus the assets owned by the public sector. Thus, it is the aggregate value of all the land, buildings, infrastructure, machinery, computers, patents, IP, and net foreign capital owned by a country’s private and public sectors. In turn, capital income is the combined revenue flows from those assets—in the form of rents, capital gains, dividends, royalties, and other payments.
Mercantilism and Zero-Sum Economic Competition
Piketty’s list of economic terms and definitions largely reflects that of most present-day economists. In modern economics, measures of a country’s income and wealth are based on its overall economic output and the total assets owned by its citizens. But governments have historically taken a more zero-sum approach.
The theory of mercantilism, which dominated European economic thought from the 16th through the 18th centuries, saw national wealth in purely zero-sum terms: The country that accumulated the greatest supply of precious metals like gold and silver was the wealthiest. Mercantilism took a similarly zero-sum view of national income, seeing it as a competition between European states for who could extract the most revenue from the rest of the world.
Under the logic of the mercantilist system, rival countries sought to boost their supplies by exporting more than they imported (to earn more gold and silver) and establishing overseas colonies whose sole economic purpose was to provide markets for manufactured goods and supplies of raw materials.
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of Thomas Piketty's "Capital in the Twenty-First Century" at Shortform .
Here's what you'll find in our full Capital in the Twenty-First Century summary :
- An analysis of incomes, tax returns, and estate tax returns across different countries
- How capitalism, by its nature, generates economic inequality
- How inherited wealth will soon account for more than earned income
