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Piketty’s explanation for a high inequality in the distribution of income in capitalism and its growth in the last decades focuses on a growing ratio of capital to income.

Two fundamental laws of capitalism and a condition for the ratio capital-income to increase provide the theoretical framework of the statistical material.

Piketty’s analysis is not based on real capital. Piketty does not elaborate a theory of growth and of the rate of profit, but an explanation of the tendencies of the income shares, given esogenous rate growth of the capitalist economy and rate of profit. However he uses in his theoretical explanation some characteristic analytical relations of Classical and post-Keynesian models of growth.

It will be shown that the first fundamental law is substantially the same of well-known relations developed by Karl Marx and Piero Sraffa. Piketty’s relationship between capital and income corresponds to the inverse of Sraffa’s maximum rate of profit in the standard system Moreover Marx and Piketty focus on periods of a growing ratio of capital to income. They draw different conclusions from this process. According to Marx, as a consequence, the rate of profit tends to fall, given the shares of wages and profit on income, while, according to Piketty, the share of profits on income tends to rise, given a constant rate of profit.

A growing ratio of capital to income is caused by a rate of profit higher than the growth rate of the conomic system. However, this is a sufficient condition for the ratio to grow only in what here is called a “pure classical model”. In this model the division of the economy in social classes is very strong, with regard to their revenues and their abilities to consume and save. In models characterized by a less strong class division of the economy, the condition needs to be carefully qualified.

The second fundamental law shows that the economic system tends to a long run equilibrium in the distribution of income. Piketty’s second fundamental law is the equivalent of Harrod’s warranted growth rate. However, Piketty second fundamental law does not aim at defining the equilibrium growth rate of the economy, but the equilibrium ratio between capital and income. When the equilibrium is not fulfilled, inequalities grow. However, it will be shown that, even when the ratio of capital to income grows, the tendency seems to be to a paradoxical reduction of inequality in the distribution of income, when the analysis is grounded on average rates of profit and savings.

In order to show the tendency to an increase of inequality, the different behaviors capitalists and workers and their capacity of earning profits and saving must be developed. Piketty’s explanation of the raise of inequalities needs a precise definition of the economic power of the different social classes

 

Distribution of income, inequality, class structure