JW Mason — Three Ways of Looking at alpha = r k

Piketty's "first law of capitalism" is the accounting identity

α = r k

where α is the share of capital income in total output, r is the average return on capital, and k is the aggregate capital-output ratio.

As accounting, this is true by definition. As economics, what kind of economic behavior does it describe? There are three ways of looking at it....

We shouldn't ask what capital "really" is. It really is a quantity of money in a process of self-expansion, and it really is a mass of means of production, and it really is authority over the production process. But the particular historical questions Piketty is interested in may be better suited to thinking of capital as a claim on the social surplus than as a physical quantity of means of production. Seth Ackerman has some very interesting thoughts along these lines in his contribution to the Jacobin symposium on the book.

The Slack Wire
Three Ways of Looking at alpha = r k
JW Mason | Assistant Professor of Economics at Roosevelt University