Wealth and capital: a critique of Piketty’s conceptualisation of return on capital

The paper is focused on the importance of a precise theoretical differentiation between wealth and capital on the one hand, and profits and rents on the other. The work is inspired by our partial agreement with and partial criticism of Thomas Piketty’s Capital in the Twenty-First Century. We agree with him that inequalities are growing and we share his view that this is a major threat to the legitimacy of the liberal order both at the national and the international level. At the same time, we are deeply sceptical about his central explanation, namely that excessive growth of profits (r) is the main reason for inequalities which in turn slow growth (g) and generate popular dissatisfaction in the long run. We show that the confusion of profit and rent, capital and wealth, prevents Piketty to prove the r > g formula, because his computed values for r are statistical artefacts.