Bill Mitchell — The Modigliani controversy – the break with Keynesian thinking

I have been continuing the research for my next book (hopefully to be finished by May 2016) on the way in which the neo-liberals convinced policy makers including those in progressive social democratic political parties that the globalisation of finance and capital flows meant that the currency-issuing state was no longer capable of maintaining full employment through appropriate use of fiscal policies. The tenet we are entertaining is that the state never went away, it was just co-opted by capital to serve its interests. This will be a two-part blog and centres on a critical period in economic history in the mid-1970s, which marked the break with the full employment system which had moderated the excesses of capitalism. This was the period when the neo-liberal period dawned, and which steadily, opened the way for these excesses to reemerge, in all their indecent indulgence and destruction. It is also the period in which a series of economic myths crystallised into the mainstream narrative we know today, which opposes government deficits and allows unemployment to remain elevated at excessive levels. It is really important to understand what went on then because we are living with the legacy of the falsehoods introduced during this period.…

Bill Mitchell – billy blog
The Modigliani controversy – the break with Keynesian thinking
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Lance Taylor — The Triumph of the Rentier? 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 Century embraces neoclassical production theory but argues that the return to capital does not need 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. 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....

INET
The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes
Lance Taylor | Arnhold Professor of International Cooperation at the New School for Social Research