The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes

Abstract

:Thomas Piketty attributes increasing wealth inequality to the characteristics of a neoclassical aggregate production function, which is known not to exist. More plausibly, wage repression can lead to secular stagnation by enriching the rentier. Lower economic activity decreases labor’s bargaining power so that the share of profits in output (π)tends to rise. Activity is stimulated by increased investment due to a higher π. Dynamics of wealth are specified in terms of the ratio Z of capital owned by a capitalist rentier class to the total, a variation on a well-known theme by Luigi Pasinetti. Suppose that Z goes up. Rentiers have a high saving rate—from the paradox of thrift, output goes down. The profit share increases, pushing up the growth rate of Z. Depending on economic structure (in particular, differences in saving rates between the classes), this positive feedback may or may not destabilize the system. If stability reigns, there will be a persistent steady-state level of Z. In the long run, Z is reduced and activity increased by a downward shift in π, that is, less wage repression improves economic performance overall.