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Voiceover: So much of Piketty's book is about this idea of more and more returns to capital, that the return to capital is going to grow faster than the growth of the economy. And we see charts like this, where we have the value of private capital as a percentage of income. And we see this dynamic, and we see this dynamic played out in multiple charts. Where as we go through the Gilded Age we hit kind of a peak right over here, at least a local peak, and then as we get into the beginning of the 20th century it drops down, and then it starts to pick back up until the present time, and this is the present time right over here, this data point. And then everything we see after that, this is Piketty's projections, really based on this idea of returns to capital be growing faster than R, is growing faster than G. But one thing to think about is why this dynamic might be happening, and then that might inform how we think about what the projections might be. So let's think about why the value of private capital could go down, and why the value of private capital could go up. So one reason, so let's just say we have some asset, some capital asset right over here, and let's say it's current value, I went on, to some market, and I bought it, and it's current value is 100 dollars. So let me just write this, this is today. Today, it has a hundred dollars. And let's say it gives an income, an annual income, of 10 dollars, of 10 dollars. So for this asset, my return on asset right over here, is 10 percent, I get 10 dollars on a 100 dollar investment. Now, there are several reasons why the value of this could go up. One reason is that this asset starts producing more income. So this would be in line with the idea of more, maybe income, of capital becoming more and more valuable, it's able to capture more and more income or maybe it's utilized in a better way. And so, let's write this as the future, so in the future, you can have a situation where it's generating an income, it's generating an income of let's say 20 dollars, and let's say that the return is the same, so the expected return is the same, so people are still willing to say "Hey, you know, I'm willing to pay "as much for things so I still get "a 10 percent return." So people are saying, "Okay, I'll pay as much, "so I still get a 10 percent return." So that means that they're going to pay, in the market, they'll pay 200 dollars for it. So this is one reason why you could have an increase in the value of something. And you can go the other way, maybe the value is 200 dollars, but because the income goes in half, and the return stays constant, the value goes in half. So this is one scenario, this is one reason why the price of an asset could go up. But it's not the only reason why the price of an asset could go up. Another reason why a price of an asset could go up is maybe there's more and more capital, and maybe there's fewer and fewer projects to put it to, especially if the growth of the economy isn't growing. So more capital, capital, chasing, chasing fewer, fewer projects, or fewer things for it to produce, and in this world what is going to happen? Well, this, we'll just assume, that this continues to produce 10 dollars of income, so the income continues to be 10 dollars here, but people, let's say, you know, I were able to buy this for a 100 dollars, but let's say the next person who has a 100 dollars of capital, you know, to invest in capital, says, "Well I can't find something with "10 dollars of income, I can't get 10 dollars, "so hey, I'm willing to take nine percent, "so I'm going to bid this up, "I'm willing to buy this from you from 101 dollars." Or 102 dollars, and maybe it goes all the way where they can't get anything, they can't get better than a 10 percent return, anything better than a five percent return on their incremental 100 dollars. And so they're willing to do a five percent return for this asset. So they would bid this thing up, the more and more capital you have chasing, or the more and more money you have chasing this project, I guess you could say, this asset could just bid the value of this up. So the value could go to 200 dollars, it's still producing the same income, and now, the return is five percent. And so the reason to point this out is a increasing value of capital doesn't necessarily mean increasing returns, in fact normally in the market they move inversely with each other. When bonds have higher returns, than you have lower, then their prices are lower. When their prices are higher, for bond prices, that means that they have a lower, a lower return. So when we look at something like this, when we look at something like this, this could be speaking to more and more capital accumulation chasing fewer and fewer potential projects or whatever it might be, especially because you have slowing economic growth. But this would be a story of capital accumulation but with R slowing down, with the actual potential return slowing down, and probably starting to converge to G, to the rate of growth. Another similar idea, this is more capital chasing fewer projects, but you also have, might have, in reality, is that the reason why this is getting a 10 percent return is people find this scary. They've been burned on investments before, there have been wars, they don't want to put their money into some kind of factory, they want to stuff it into their, into their mattress. But then over time maybe people become a little bit less risk averse, and they're willing to invest in the market, they're willing to invest in a project, or start a business, or whatever it might be. And so people become more risk tolerant. So maybe this is a world that is very risk averse, risk averse, so if you want me to invest in capital you have to give me a high return, but maybe the future is going to be more risk tolerant, risk tolerant, risk tolerant, and then in a more risk tolerant world you could also go to something like this. So this is risk, in a more risk tolerant world you might say, "Hey, okay, well okay, "I don't have to stuff in my mattress "I'm getting zero percent, or in my bank account "I'm not getting a lot, and hey, I'm willing "to take my money and invest it more in capital." And so once again they will bid up capital, and they will have a lower expected return. Here, they needed a higher expected return because there was a lot of risk. They were scared of things. "Hey, you better give me a lot of return "on my capital if you want my capital, "because it's a scary world out there." "Hey, okay, maybe now I'm less worried about wars "and my wealth disappearing and whatever else. "So, I'm more willing to invest." And so that also is in line with this more capital, and so there is a lower expected return, and so you have the value going up. And actually, this is consistent with what we see happening right over here. Is that this, this period right over here, was a period, this is a period of major unrest. You have the two largest wars in global history right over here. You can imagine people becoming very, very, very risk averse. You can imagine people starting to stuff money in their, putting, putting their, trying to sell their assets, worried what might happen, So you're going to have less and less capital, more and more risk aversion driving, driving that reality. But then as we go into the post war period, the memories of those wars go away, people become more risk tolerant, more capital comes into the system. Because of the [level of] productivity you have more and more capital accumulation. If we go back into, you know, even pre-industrial revolution times, if we go to medieval times and all the rest, you had a limited amount of capital, it was mainly land. As you go into the industrial revolution, and especially the 20 and 21st centuries, land represents a smaller and smaller percentage of the value of total capital. Now you have created capital, you have technology, you have intellectual property. And so this could be a trend, once again, I'm not sure, it's up for you to make the judgment. This trend isn't necessarily a return to a gilded age, it could be more and more capital chasing fewer and fewer projects, which actually could be a sign of lower returns, or it could be just people's risk premium is going down, they're becoming more and more risk tolerant, and so they're willing to accept lower and lower returns. So it's not clear what the trajectory is, but I just want to make it very clear that this isn't necessarily saying that hey, because this graph looks the same as here that we're necessarily going into a second Gilded Age. But it's up for you to decide.