From 1900 to 1980, 70–80 percent of the global production of goods and services was concentrated in Europe and America, which incontestably dominated the rest of the world. By 2010, the European–American share had declined to roughly 50 percent, or approximately the same level as in 1860. In all probability, it will continue to fall and may go as low as 20–30 percent at some point in the twenty-first century. This was the level maintained up to the turn of the nineteenth century and would be consistent with the European–American share of the world’s population. In other words, the lead that Europe and America achieved during the Industrial Revolution allowed these two regions to claim a share of global output that was two to three times greater than their share of the world’s population simply because their output per capita was two to three times greater than the global average. All signs are that this phase of divergence in per capita output is over and that we have embarked on a period of convergence.
– ‘Capital in the twenty-first century’ by Thomas Piketty, p47
… the average rate of return on land in rural societies is typically on the order of 4–5 percent. In the novels of Jane Austen and Honoré de Balzac, the fact that land (like government bonds) yields roughly 5 percent of the amount of capital invested (or, equivalently, that the value of capital corresponds to roughly twenty years of annual rent) is so taken for granted that it often goes unmentioned. Contemporary readers were well aware that it took capital on the order of 1 million francs to produce an annual rent of 50,000 francs. For nineteenth-century novelists and their readers, the relation between capital and annual rent was self-evident, and the two measuring scales were used interchangeably, as if rent and capital were synonymous, or perfect equivalents in two different languages.
Now, at the beginning of the twenty-first century, we find roughly the same return on real estate, 4–5 percent, sometimes a little less, especially where prices have risen rapidly without dragging rents upward at the same rate. For example, in 2010, a large apartment in Paris, valued at 1 million euros, typically rents for slightly more than 2,500 euros per month, or annual rent of 30,000 euros, which corresponds to a return on capital of only 3 percent per year from the landlord’s point of view. Such a rent is nevertheless quite high for a tenant living solely on income from labor (one hopes he or she is paid well) while it represents a significant income for the landlord. The bad news (or good news, depending on your point of view) is that things have always been like this. This type of rent tends to rise until the return on capital is around 4 percent (which in this example would correspond to a rent of 3,000–3,500 euros per month, or 40,000 per year). Hence this tenant’s rent is likely to rise in the future.
‘Capital in the twenty-first century’ by Thomas Piketty, p43