LAST year Thomas Piketty, an economist at the Paris School of Economics and a renowned expert on global inequality, published a book titled "Capital in the Twenty-first Century"—in French. It was released in English on March 10th. We reviewed the book earlier this year, but it is detailed and important enough, in our opinion, to deserve additional discussion. We will therefore be publishing a series of posts over the next few weeks—live-blogging the book, as it were—to draw out its arguments at slightly greater length. You can read the previous entries for: the Introduction parts one and two, Chapter 1, and Chapter 2.

WE ARE picking up the pace a bit now, tackling two chapters at a stroke. In Chapters 3 and 4 Mr Piketty describes the evolution of capital over time and across the large economies of North America and Europe. There is a lot of interesting detail, but the broad picture is relatively straightfoward. As of the early 19th century wealth consisted mostly of agricultural land holdings. Over time the importance of such land fell to almost nothing while housing and other domestic capital (including commercial real estate and industrial capital) became dominant. As we have already discussed, stocks of capital relative to national income were high during industrialisation, fell dramatically in Europe from 1914 to 1950, rebounded over the past 60 years and are now approaching prewar levels. What's more, capital has never been as important in North America as in Europe, thanks to the low cost of abundant land and the face that North American economies basically started afresh (roughly) two centuries ago.

In this post, however, I want to focus on one particular thread of analysis that runs through these two chapters: the division between public and private capital.

National capital, as Mr Piketty has it, is the sum total of wealth in the economy, which he presents as a share of national income. One can divide that up into public and private wealth, and the distribution between the two can move around without necessarily changing the total. So for instance, in the early 19th century the British government racks up enormous debts fighting wars, which ultimately rise to about 200% of national income. But during this period national capital relative to national income doesn't much change. What does change is the distribution between private and public; public capital falls as the government borrows from wealthy Britons, and there is a corresponding rise in private capital.

The trend in the decades after the second world war is quite different. National capital is rising during this period, from the postwar nadir. But private capital is not; indeed, it actually falls a bit relative to national income from the 1950s to the 1970s. Public capital, by contrast, rises sharply. There are two things going on here. First, the government's net asset position is improving as it inflates away its debt, and secondly the government is creating a rather large public sector. The point is that government policy can influence the level of national capital, but also its distribution and its salience. And the distribution and salience matter tremendously for how policy is made and how the benefits of growth are shared.

The British case is again instructive. Britain has had two dramatic public-debt peaks in its modern history, in the early 19th century and the mid-20th. But between these two eras there is a major shift in the nature of public debt—from a tool of private wealth to benefactor of the poor—which is rooted in the return to lending to the government. Changes in that return are driven mostly by a shift in the behaviour of inflation—and one begins to get a sense of the interrelationship between the interests of rich and poor on matters of public finance and inflation.

Britain addressed its debt very differently in these two periods. The debt of the 19th century was managed down over the course of a century, by running surpluses larger than the state's education budget in an essentially inflation-free environment. This is the world of the rentier, of a rich elite collecting a reliable and substantial real income from their holdings of government debt. This is an era, Mr Piketty notes, in which Marxists looked with suspicion upon government borrowing, which they saw as a means to funnel resources to the rich.

By contrast, the debts of the interwar period were wiped away remarkably quickly, thanks largely to financial repression and inflation—that is, through sharply negative returns to bondholders ("the euthanasia of the rentier"). Public borrowing, meanwhile, became an important mechanism for macroeconomic management, designed to limit economic hardship among working people.

Inflation, Mr Piketty notes, is a crude method for getting rid of debt. Over the course of the 20th century, the ranks of creditors came to include plenty of non-rich individuals, both through direct saving and via large pension funds. It is not surprising that support for disinflation in the 1980s ran well beyond the elite. But one might also note that the end of inflation coincided with an acceleration in the rise of national capital, with growing inequality and with rising indebtedness. It is interesting to consider how class power structures influence inflation, and how inflation influences class power structures, and how both influence the distribution of economic pain and gain.

The rentier has not exactly returned to modern Britain; George Osborne is working to return the government to surpluses, but he has not pressed the Bank of England to ring inflation out of the system. Power structures and political choices have been somewhat different in Europe and America. But each case illustrates one of Mr Piketty's key themes: that the demotion of distribution as a critical economic issue was a mistake. Debt has a way of making that clear; or in Mr Piketty's phrase: "Debt is the vehicle of important internal redistributions when it is repaid as well as when it is not."

You can read the previous entry in the series here. You can see the next entry in the series here.