TITLE:
Piketty’s r > g Explained by Changes in the Average Productivity of Capital
AUTHORS:
Alberto Benítez Sánchez
KEYWORDS:
Average Productivity of Capital, Growth and Profit Rates, Income Inequality, Piketty, Sraffa
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.5,
September
23,
2016
ABSTRACT: This article studies the ratio of the rates of
profit and growth, in a growing economy, as a function of the average
productivity of capital. It is shown that, if the savings rate and also the distribution of
income between wage and profit are constant, the ratio mentioned remains
constant or increases if the average productivity of capital respectively does
not change or changes at a steady rate, whether it increases or decreases. If
the change is repeated throughout a sufficiently large number of production
cycles, the first rate grows above the second, even if in the initial situation
the second rate is higher than the first. The result is the same if the savings
rate and the rate of change of the average productivity of capital fluctuate
within certain limits over a sufficiently large number of production cycles. In
each case, the number of cycles required depends on the initial situation and
the magnitude of the changes in both variables. These conclusions are
compatible with the relevant historical data for economic variables involved.
For this reason, they help to explain why, as a general rule, in a modern
economy the rate of profit is higher than the growth rate.