There are economics books that are regarded as influential, such as Adam Smith’s The Wealth of Nations. But very few economics books have spawned heated debate and drawn as much attention as Thomas Piketty’s recent work, Capital in the Twenty-First Century.

Growing up, Piketty’s intellectual role models included French historians and philosophers of the left, rather than economists. His leftist background might lead people to doubt his scholarly understanding of income inequality. However, Piketty, who teaches at the Paris School of Economics, has been studying inequality for nearly two decades.

The French economist uses data extensively and heavily to show the importance of capital accumulation in enhancing income equality in history. The central theme of his idea is that the share of capital in national income has consistently increased throughout the years, whereas wages and labor income have been declining, making income inequality larger than ever.

For example, the share of income going toward wages and other forms of labor compensation dropped from 68 percent in 1970 to 62 percent in 2010, a decline costing close to $1 trillion. In other words, the growth rate of capital return has been consistently higher than wage rates or even economic growth, which is the reason that wealth concentrates.

In contrast to conventional wisdom, Piketty argues that the so-called “Golden Age,” from 1945 to 1973 was in fact an exception in history in which incomes converged, allowing the living standards of the masses to increase steadily. But “the forces of divergence can at any point regain the upper hand, as seems to be happening now, at the beginning of the twenty-first century,” he writes. And, if current trends continue, “the consequences for the long-term dynamics of the wealth distribution are potentially terrifying.” 

Piketty’s concerns remind us of Karl Marx, the foremost scholar of the flaws in capitalism who predicted the system would bury itself due to the nature of capital as a way of exploitation of the laborers. 

It is true that an open and free market environment governed by rule of law will inevitably drive income inequality because agents in this environment compete with one another given their heterogeneous talents and efforts. If Piketty recognizes substantial differences in terms of talents and efforts between humans, he would not be surprised that compensation for those factors should differ.

In the late 19th century, countries in Western Europe and the United States rapidly developed enormous sectors of various manufacturers that became potential sources of explosive growth in the area of financial intermediates. These industries gobbled up large sums of capital to expand, calling for a financial system from which they could borrow capital to finance their investment. The birth of the stock market and other forms of financial markets have not only met the needs of industry, but also provided a new way for people to accumulate wealth.

Piketty argues that the top 10 percent of households in the developed world own large amounts of financial assets other than just high income. But he doesn’t seem to acknowledge that the choice of personal finance is also a reflection of differences between individual people. Smart people tend to diversify their source of income, earning a higher average return whereas risk-averse people tend to put their surpluses into saving accounts, letting inflation erode the purchasing power of their wealth.

Piketty’s method for studying income, however, is questionable. It is a static method that only looks at the numbers of distributions of wealth, instead of looking at the likelihood that those with low income might become rich through their hard work and adventurous spirits. There are plenty of examples in the U.S. showing that the channel for the poor to become rich is still kept open.

Unlike Karl Marx, Piketty doesn’t think capitalism is doomed. But the terrifying consequences that he describes are less likely to happen even in the long-term. Strong protection of private property, an independent judiciary system and effective law-enforcement support the system of capitalism in a way that makes it functional. As long as these foundations exist, the tolerance of income inequality will strengthen, and jealousy of the wealthy has little room to linger.