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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. Chu, Angus C. & Peretto, Pietro F., 2023. "Innovation and inequality from stagnation to growth," European Economic Review, Elsevier, vol. 160(C).
    2. Madsen, Jakob B., 2019. "Wealth and inequality over eight centuries of British capitalism," Journal of Development Economics, Elsevier, vol. 138(C), pages 246-260.
    3. 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.
    4. 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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