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Notes
1Haight’s project compares Keynes’s “Paradox of Thrift” to Piketty’s paradox. Haight understands Piketty’s Paradox as a “dynamic version” of Keynes’s paradox. But analogies imply differences as well as similarities. As Haight notes (p. 538), Keynes showed that an attempt to increase the saving rate might be self-defeating as income contracted. Piketty reputedly demonstrated that “tepid” income growth would increase the realized saving and investment rate.
2In this and all subsequent referrals to Piketty, the reference is to Capital in the Twenty-First Century, 2014.
3In reference to the Cambridge capital controversies, Piketty writes that “It was not until the 1970s that Solow’s so-called neoclassical growth model definitely carried the day” (Piketty Citation2014, p. 231). The capital deepening problem—the problem of understanding how capital growth can continue to outpace income growth—is solved by asserting a long term capital substitution for labor. According to Piketty (Citation2014), “the elasticity of substitution of capital for labor has apparently been greater than one over a long period of time” (231).
4In relying on the substitution of capital for labor over long periods of time Piketty minimizes the importance of the excess capacity problem.
5Piketty’s conflation of “capital” and wealth has elicited a variety of commentaries (e.g.; Foster, McChesney, and Yates Citation2014).
6In commenting on Piketty, Robert Solow endorses this view, at least in reference to the long run: “as long as we stick to longer-run trends, as Piketty generally does, this difficulty [the conflation of capital with wealth] can safely be disregarded” (Solow Citation2014, 52).
7Robert Solow’s metaphor that Harrod was later to protest. See Harold Hagemann (Citation2009, p. 84).
8Piketty also asserts that large variations in the capital/income ratio confirm a flexibility that the Harrod-Domar thesis denies. In addition, as mentioned above, he also endorses Robert Solow’s model (1956) that allows for labor-capital substitutability (p. 231).
9Annual changes in corporate fixed investment/initial (previous year’s) investment.
10As to absolute values, Q ratios are suspect as they too require an assessment of depreciation to arrive at “replacement” costs. Given the decline in gross investment growth rates and rising stock values, however, calculated Q ratios certainly capture the general trend. Using book value as a proxy for replacement value, Piketty’s data shows the same upward climb in Q (Piketty 2015, p. 181, Figure 5.4).
11Corporate, historical cost, net stock of private nonresidential fixed assets (see Table 4.3, Department of Commerce).
12As with all trend variables, consistent percentage errors of measurement will still pick up the “truth.” Of course, a larger question pertains to how depreciation of diverse and changing capital items can be measured at all.
13Mergerstat Review, 2015, p. 43; 2009, p. 25; 1999, pp. 208–209; Business Valuation Resources.
14Federal Reserve, Flow of Funds, Tables F.223 and F.213.
15Shiller’s term (Shiller 2005, pp. 60–81). Shiller uses the term to describe various feedback loops.
16Piketty considers the possible interrelationship between the rate of return on capital and the Capital/Income ratio but comes to the conclusion that “experience suggests that the predictable rise in the capital/Income ratio will not necessarily lead to a significant drop in the return on capital” (p. 233). Piketty’s observation concerns the very long run and is pertinent to all wealth, not just corporate equity.
17Over seventy years ago, Paul Sweezy (Citation[1942] 1970) captured the essence of monetary wealth: “‘Capital’ is not simply another name for means of production; it is means of production reduced to a qualitatively homogeneous and quantitatively measure fund of value. The concern of the capitalist is not with means of production as such, but with capital, and this necessarily means capital regarded as a quantity, for capital has only one dimension, the dimension of magnitude” (p. 338).
18Expressed as a percentage of the average value of the 1970s.
19Economic Report of the President, March 2013, Tables B-29 358, B75, 414, B77, 416.
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Craig Medlen
Craig Medlen is affiliated with Menlo College, Atherton, California.