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The Triumph of the Rentier?

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Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes

In a celebrated passage in the General Theory, John Maynard Keynes (1936) argued that over time, with appropriate guidance by the state, capital would become so abundant that its return would only have to cover wastage and obsolescence together with some margin to offset risk and reward entrepreneurship. Utimate consequences would be the “euthanasia of the rentier” and the end of “….the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.” As in other parts of the book, Keynes here sounds distressingly neoclassical – an abundant factor is bound to earn a low return.

Thomas Piketty (2014) in his recent book on Capital in the Twenty-First Centuryembraces neoclassical production theory but argues that the return to capital does notneed to fall by very much as it becomes more abundant relative to labor because substitution between these two factors is easy (details below). The rentier class can then use its power to increase its share of total wealth to a level approaching one hundred percent.

Despite Piketty’s empirical brilliance and the fears that he properly raises about increasing concentration of wealth, he glosses over simple national accounting relationships and elides Luigi Pasinetti’s (1962) path-breaking growth model focusing on the control of capital in a capitalist economy.3 On the basis of Pasinetti’s model and subsequent literature one can show along strictly Keynesian lines that euthanasia, persistence, and triumph of the rentier are all possible. Familiar macroeconomic forces affect the ratio (say 𝑍) of capital held by a rich “capitalist” class to the total, and create conditions under which ever-increasing concentration of wealth may or may not occur.

We begin by discussing accounting, then recent changes over business cycles in economic activity and distribution between labor and capital, and go on to analyze long- term distribution in a demand-driven version of Pasinetti’s model. One implication is that the recent rise of the rentier has been supported by politics and policy marshalled to drive up the share of income going to profits. Positive feedback of the control ratio 𝑍 into its own growth can then drive wealth of the rentier rapidly upward.

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