Does money make money faster than the economy grows?

It can, argues the French economist Thomas Piketty, and that claim set off a wide debate among economists. His book Capital in the Twenty-First Century says that when the rate of return on capital, called r, is greater than the rate of economic growth, called g, over the long term, wealth concentrates, and the unequal distribution of wealth causes social and economic instability. Here r includes profits, dividends, interest, rents and other income from capital, and g is the growth of society's income or output.

The logic is a race between two growth rates. When growth is low, wealth tends to accumulate more quickly from r than from labor, and tends to accumulate more among the top 10 percent and 1 percent. A fortune whose returns are reinvested, and which earns more than the economy grows, gets bigger relative to the incomes around it.

Piketty's history says that inequality fell between 1930 and 1975 only because of unique circumstances: two world wars, the Great Depression and a debt-fueled recession destroyed much wealth, particularly that owned by the elite. He argues we are returning toward patrimonial capitalism, dominated by inherited wealth, and to make the point he cites novels by Balzac, Austen and Henry James, whose characters lived in a world of rigid class structure built on accumulated capital. He proposes a progressive global wealth tax of up to 2 percent, though he says it would be politically impossible.

Critics disagree. Lawrence Summers argues that diminishing returns on capital set an upper limit to inequality. Daron Acemoglu and James Robinson argue that institutions matter much more than r minus g. Matthew Rognlie found that surging house prices are almost entirely responsible for growing returns on capital. Paul Krugman, by contrast, praised the book as a magnificent, sweeping meditation on inequality. The debate is still open.