Capital in the Twenty-First Century

Piketty defines some key terms and concepts necessary to understand his analysis of wealth, capital, and income in subsequent chapters. The first of these is the concept of national income which is defined as “the sum of all income available to the residents of a given country in a given year, regardless of the legal classification of that income” (55). National income is thus related to GDP, or gross domestic product. This is the total value of goods and services produced by a nation in a year. National income differs from GDP in two respects. First, national income is equal to GDP minus the cost of the deterioration of capital. This is the wear and tear to existing capital, for example damage to machines or buildings needed for production. And this capital must be repaired or replaced before any income is allocated in wages or dividends. Second, national income includes net income received from abroad. This is in the form of profits from industries owned by citizens of one nation in another nation. Conversely, net foreign income includes the profits taken from one’s country by foreign owners, which must then be subtracted.