Piketty on Growth and Distribution

Abstract

In his book Capital in the Twenty-First CenturyThomas Piketty combines two distinct theories to explain the stylized facts of growth and distribution in capitalist economies. The first is an analysis of the concentration of inherited wealth driven by the difference between the rate of return on capital and the rate of growth of national income. The second is essentially the neoclassical growth model with a constant (net) saving rate and an elasticity of substitution between capital and labour greater than one. I argue that for these two theories to be mutually consistent, in a long-run framework in which financial wealth converges in value with non-financial capital, the interdependence between the rates of growth and return at the aggregate level must be recognized. Since in Capital the rates of growth and return are assumed to be independently given, I show that Piketty has built a fundamentally over-determined, inconsistent analysis of growth and distribution. I also show that Piketty’s approach diverges in fundamental ways from classical, neoclassical and post-Keynesian models of growth and distribution, and in particular from the way they deal with the rates of growth and return in balanced conditions.