Missing equation in Piketty’s r-g theory

Yasunori Fujita

Economics and Business Letters, 2015, vol. 4, issue 2, 57-62

Abstract: Although Thomas Piketty has revolutionized our understanding of inequality, logic behind his r-g theory is not developed formally in his researches. The present paper, by finding out the missing part of Piketty’s r-g theory, present a complete version of Piketty’s framework. It is revealed that necessary and sufficient condition for the r-g theory is S Y ( t )+ A Y ( t )= C F ( t ). That is, savings in a broad sense (left hand side) is equal to the consumption using financial capital (right hand side). We also reveal that the problem is not in the Second Fundamental Law of Capitalism, but in the formulation of capital accumulation dynamics. Furthermore, it is demonstrated that the two Fundamental Laws of Capitalism are not necessary for deriving the r-g theory.

Date: 2015
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