Piketty’s capital/income ratio decline puzzle for the UK, France and Germany

One of the most important purported empirical contributions of Piketty’s Capital in the 21st century is the U-shaped evolution of the world capital/income ratio in the 20th century where, after, this indicator starts falling dramatically in 1910, hits the trough in 1950 and then starts growing again.

As we now know thanks to Phil Magness, a substantial part of this U-shape is due to the strange decision by Piketty to include into the calculation the capital/income ratios for the socialist countries which are a priori set equal to 100%. However, another part of the decline between 1910 and 1950 arises from the performance of three large European countries – the UK, France and Germany.

If one looks carefully at the declines of the capital/income ratio in those countries, as calculated by Piketty (pp. 116, 117 and 141 of Piketty’s book), one may notice that the lion’s share of this decline in the two former and a large part of the decline in Germany took place just within the 1910s. This involved a dramatic decline in the total value of capital in the narrow sense. In the UK it grew a little between 1920 and 1950 but not even remotely sufficiently to reach the pre-1910 level.

The question that arises here is why such a decline took place in that decade, especially why it started in 1910. While the answer to the latter question may lie in Piketty’s beloved averaging techniques, if it does not, then the causes of such dramatic decline become even more mysterious than they are if it really hit in full force with WW1.

But even WW1 does not seem to explain why the decline was so dramatic. After all, WW1 was followed by the Great Depression and WW2 but, even taken together, they did not produce a comparable decline in the capital/income ratio.

Thinking that something is amiss here, I decided to focus for the sake of brevity on the British case and look for comparison for the British stock market data for the 20th century to see if they match the decline between 1910 and 1950. The results are not very good for Piketty’s calculations.


If you click at the graph above (de Long 1996), you will see that the evolution of the British stock market value was quite different from the evolution of the capital/income ratio calculated by Piketty. While there is a sharp drop that starts during WW1, the stock market value recovers and reaches its pre-WW2 peak around 1937 at a level which is far higher than at the start of the WW1-related decline..

This seems to cast an even bigger doubt on Piketty’s calculations of the capital-income ratio for the UK for 1910-1950 because it is unclear how the evolution of the stock market value could diverge so much and for such a long period of time from that of the capital/income ratio in the absence of an especially rapid growth in the national income.


De Long, J. B., Grossman, R. 1996. The British Stock Market and British Economic Growth, 1870-1914. Available at: 


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