Sunday, April 27, 2014

Peter Klein on the New Piketty Book That Is All the Rage

Piketty and Capital

By Peter G. Klein

Piketty understands “capital” as a homogeneous, liquid pool of funds, not a heterogeneous stock of capital assets. This is not merely a terminological issue, as those familiar with the debates on capital theory from the 1930s and 1940s are well aware. Piketty’s approach focuses on the quantity of capital and, more importantly, the rate of return on capital. But these concepts make little sense from the perspective of Austrian capital theory, which emphasizes the complexity, variety, and quality of the economy’s capital structure. There is no way to measure the quantity of capital, nor would such a number be meaningful. The value of heterogeneous capital goods depends on their place in an entrepreneur’s subjective production plan. Production is fraught with uncertainty. Entrepreneurs acquire, deploy, combine, and recombine capital goods in anticipation of profit, but there is no such thing as a “rate of return on invested capital.”

Profits are amounts, not rates. The old notion of capital as a pool of funds that generates a rate of return automatically, just by existing, is incomprehensible from the perspective of modern production theory. Robert Solow, in a glowing review of Piketty’s book, states: “The key thing about wealth in a capitalist economy is that it reproduces itself and usually earns a positive net return.” But this is nonsense from the point of view of microeconomics, entrepreneurship, uncertainty, innovation, strategy, etc.

Read the rest here.


  1. Austrian school: "the economy is too complicated to discuss and analyze. simply cut taxes on the Koch Bros and allow them to pollute. Get rid of fractional reserve banking while you are at it. Deflation makes the Koch Bros wealthier"

  2. Bob, why let this ignorant troll continue? It never responds and makes baseless claims. It needs to GO AWAY. Cuba, or North Korea, would love it to come live under socialist totalitarian rule!

  3. you know what the Piketty book sounds like? a threat to the Hot Money Boys from the Super Elite" hey you guys stop giving your goddamned kids Range Rovers to clog up the roads in the Hamptons with their black, spoken word poet friends, you are ruining our serenity. If you don't pull your heads in a bit we'll hand a liitle power back to the bureaucrats to twist your balls a little"

  4. Naw Jerry, it's not complicated at all. Just stay out of my way, mind your own damn business and keep your hands off my shit. See, it's that simple.