Unpicking Piketty

Piketty’s book has taken the economics world by storm. Piketty shows compellingly that inequality of wealth and income is inherent in capitalism. And the reason for the rise in the inequality of wealth is a rise in the share of national income going to capital in the form of profits, rent and interest, not from more skilled labour getting higher income than the lower skilled. Moreover, this rising capital share in income is driven mainly by inherited wealth, as it was in the “belle époque” at the turn of the19th century.

However, the unanswered question for Piketty’s thesis is this. Is rising inequality the central contradiction of capitalism and thus its grave digger? Or is it the recurrent periodic crises in production? Is it a tendency for a rising net return on capital (Piketty) or is it the tendency for a falling rate of profit (Marx) that is the key contradiction of capitalism in the 21st century? If it is the former, then all we need to do is to introduce a progressive tax system; we don’t need to bury capitalism, as we can save it.

The paper considers these questions through an analysis of neoclassical marginalism adopted and yet criticised by Piketty and a comparison of Piketty’s and Marx’s laws of capital using Piketty's own data.