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Is inequality increasing in r-g? Piketty’s principle of capitalist economics and the dynamics of inequality in Britain, 1210-2013

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  • Jakob B Madsen

Abstract

In his 2014 book, Thomas Piketty argues that wealth inequality is sharply increasing in r-g and refers to r>g as ‘the central contradiction of capitalist economics’, where r is asset returns and g is real income growth. To assess whether inequality is increasing in the (r-g)-gap this paper: 1) constructs unique annual data on asset returns for a balanced portfolio and several other variables for Britain over the period 1210-2013, and 2) examines whether the dynamics in the wealth-income ratio, W-Y, and capital’s income share, SW, are governed by (r-g). It is shown that r and g are robust and significant determinants of wealth and income inequality and that they have been the major forces behind the large inequality waves over the past eight centuries.

Suggested Citation

  • Jakob B Madsen, 2017. "Is inequality increasing in r-g? Piketty’s principle of capitalist economics and the dynamics of inequality in Britain, 1210-2013," CAMA Working Papers 2017-63, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-63
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-10/63_2017_madsen.pdf
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    Cited by:

    1. Madsen, Jakob B., 2019. "Wealth and inequality over eight centuries of British capitalism," Journal of Development Economics, Elsevier, vol. 138(C), pages 246-260.
    2. Angus C. Chu & Yuichi Furukawa & Sushanta Mallick & Pietro Peretto & Xilin Wang, 2021. "Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1429-1465, June.
    3. Madsen, Jakob & Strulik, Holger, 2024. "Inequality and the Industrial Revolution," European Economic Review, Elsevier, vol. 164(C).
    4. Chu, Angus C. & Peretto, Pietro F., 2023. "Innovation and inequality from stagnation to growth," European Economic Review, Elsevier, vol. 160(C).
    5. Lu Han, 2019. "The Mutable Geography of Firms' International Trade: Evidence and Macroeconomic Implications," Working Papers 201909, University of Liverpool, Department of Economics.

    More about this item

    Keywords

    Inequality and the (r-g)-gap; dynamics of inequality; inequality in Britain; 1210-2013;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies

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