Capitalism, Inequality, and Globalization: Thomas Piketty’s Capital in the Twenty-First Century

Abstract:

Thomas Piketty’s empirical work is extremely impressive, but his theoretical paradigm is flawed; even within that paradigm his conclusions do not stand up to scrutiny. A reduction in steady-state growth rate g, when workers and capitalists have different saving propensities, must lower the rate of return on capital r and the difference r – g proportionately; it cannot raise r – g and hence wealth inequalities, as Piketty suggests. The currently observed growing wealth inequality, expected to worsen in the future, is better explained by the fact that, instead of full employment obtaining universally, world labor reserves remain unexhausted despite output growth; consequently, world real wage rates do not increase as labor productivity rises, raising the share of surplus in world output, and hence income and wealth inequality within each country, and in the world as a whole. Wealth taxation to rectify this would arouse fierce capitalist resistance; the mass mobilization needed to overcome it would place on the agenda a more far-reaching program for going beyond the existing system.

Keywords::

• Capital mobility
• labor reserves
• share of surplus
• steady-state growth

Notes

Likewise Piketty’s interpretation of Marx’s proposition, on the tendency of the rate of profit to fall, shows a lack of familiarity with Marx’s own work and with the enormous literature that exists on the subject.

The decline in per capita real income emerges if we put together the estimates of F.J. Atkinson and S. Sivasubramaniam. The figures can be found in Irfan Habib (2006) and S. Sivasubramaniam (2000).

The sufficient conditions for such existence are the “Inada conditions” named after the Japanese economist Ken-Ichi Inada who first formulated them.

Even when the savings ratio does not depend on income distribution, a steady-state growth path may not exist if no restrictions are placed on the elasticity of substitution along the production function. On Piketty’s own assumptions, in other words, a steady-state growth path of the sort he visualizes may not exist.

This case was originally visualized by Paul Samuelson and Franco Modigliani (1966).

Lance Taylor (2014), in a review of Piketty, visualizes a third, non-Pasinetti, equilibrium, where wealth-shares between the workers and the capitalists also remain stable over time. But he assumes not only an independently determined rate of accumulation (as I also do later in this article) with no full employment or full capacity use but also an increase in wage share as capacity utilization increases in the economy. Since his model differs from both Pasinetti’s (who did not make this assumption) and the neoclassical one, which assumes full employment, I confine myself in the present discussion to only the two equilibriums mentioned in the text.

For a discussion of this emigration, see Patnaik (2012).

Lenin’s argument that “capital deepening” can provide an internal market to the capitalist system is developed in Lenin (1964). For Tugan-Baranovsky’s similar argument, see Sweezy (1946).

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Notes on contributors

Prabhat Patnaik

Prabhat Patnaik is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. An earlier version of this paper constituted the text of his Jyoti Basu Centenary lecture delivered in New Delhi on July 30, 2014. The author wishes to thank Utsa Patnaik, Sanjay Reddy, Kumaraswamy Velupillai, Jayati Ghosh, C.P. Chandrasekhar, Vamsi Vakulabharanam, Duncan Foley, and above all Lance Taylor, for comments on the earlier version