Weekend Reading: John Maynard Keynes: On Speculation, from The General Theory of Employment, Interest and Money

Weekend Reading: Thomas Piketty vs. Daron Acemoglu and James Robinson: I Must Say, I Score This One as Well for Piketty

Thomas Piketty: Putting Distribution Back at the Center of Economics: Reflections on Capital in the Twenty-First Century: "In their contribution to this symposium, Acemoglu and Robinson present cross-country regression results...

...between income inequality and r − g and argue that r − g does not seem to have much impact on inequality. However, I do not find these regressions very convincing, for two main reasons.

First, income inequality is primarily determined by the inequality of labor income... which as I noted above has nothing to do with r − g. It would make more sense to run such a regression with wealth inequality, but long-run wealth inequality series are available for a much more limited number of countries than income inequality series. In Chapter 12 of my book, I present wealth inequality series for only four countries....

Second, the process of intergenerational accumulation and distribution of wealth is very long-run process, so looking at cross-sectional regressions between inequality and r − g may not be very meaningful. One would need to introduce time lags, possibly over very long time periods: for example, one might use the average r − g observed over 30 or 50 years....

The broad correlations between r − g and wealth inequality certainly seem to run in the right direction, both from a long-run (18th–19th versus 20th centuries) and international (Europe versus US) perspective. However, given the data limitations and the time-lag specification problems, I am not sure there is a lot to learn from running explicit cross-country regressions.

In my view, a more promising approach--on this issue as well as on many other issues--is a mixture of careful case studies and structural calibrations of theoretical models. Although we do not have many historical series on wealth inequality, they show a consistent pattern.... In spite of the large changes in the nature of wealth during the 19th century--agricultural land as a form of wealth is largely replaced by real estate, business assets, and foreign investmen--wealth inequality was as extreme in the modern industrial society of 1914 as it had been under France’s ancien regime in 1789. The most convincing explanation for the very high wealth concentration in these pre–World War I European societies seems to be the very large r − g gap.... In contrast, following the large capital shocks of the 1914–1945 period--a time of physical destruction, periods of high inflation and taxation, and nationalizations--the after-tax, after-capital-losses rate of return precipitously fell below the growth rate.... This interpretation of the evidence is further confirmed by the detailed individual-level data collected in French inheritance archives since the time of the French Revolution....

Data collection in French archives and in other countries will continue, and new data will certainly allow for better empirical tests of wealth accumulation models in the future. But at this stage, the best evidence we have suggests that r > g is an important part of the explanation for the very high and persistent level of wealth concentration that we observe in most societies in the 18th–19th centuries and up until World War I...

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