TCF fellow Jeff Madrick introduces another poignant review of Thomas Piketty's s Capital in the Twenty-First Century from Robert Rowthorn at the University of Cambridge.
Excerpt from Rowthorn's essay:
Thomas Piketty's new book Capital in the Twenty-First Century (2014) has been a stunning success. This is not surprising. It brilliantly documents long-term trends in wealth ownership and income distribution in advanced economies. In particular, it shows how the share of income accruing to wealth-owners has increased dramatically in recent decades. It also provides a simple explanation of this development based on the standard neoclassical theory of factor shares. This theory establishes a link between the capital intensity of production and the share of profits in total output. The nature of this link depends on the elasticity of substitution between capital and labour. When this elasticity is greater than unity, an increase in the capital-output ratio leads to an increase in the share of profits. This, in essence, is Piketty's explanation for the increased share of wealth-owners in national income. Thus, the shift in income distribution is due to the over-accumulation of capital: there has been too much real investment.
However, Rowthorn believes the above explanations have some flaws. Download and read the full essay below.
Read more Piketty reviews here.