THE FUNDAMENTAL CONTRADICTION OF CAPITALISM REVISITED

Marcos Gomez and Francisco Parro

Bulletin of Economic Research, 2018, vol. 70, issue 4, 381-399

Abstract: We build an overlapping generations model to analyse the evolution of inequality as an economy develops. Our model economy resembles a ‘very capitalist society’. Initially, wealth is exclusively concentrated in a rich dynasty. We ask whether or not this type of capitalist economy contains a fundamental contradiction, as claimed by Piketty in his recent book. We derive a condition under which the economy is driven to a state of perpetual inequality. However, we also show that an economy where capital deepening triggers the development process is very unlikely to be absorbed in that state.

Date: 2018
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