Thomas Piketty's Historical Macroeconomics: A Critical Analysis

There has been a great deal of interest in the data on income and wealth inequality collected by Thomas Piketty. This paper does not question that data; rather, it questions the framework of Piketty's analysis, both theoretically and empirically—namely the alleged upward tendency of the ratio of wealth to national income and the rise of wealth inequality. First, in the mechanism put forward, wealth can only grow as a result of savings, thus ruling out any form of price effect (as in urban land). Second, Piketty’s second law defines an asymptotical trajectory, in which variables grow in parallel, something incompatible with the rise of the ratio between two variables. In addition, Piketty’s model does not match data for the USA. The historical profile of the ratio of wealth/national income is actually the inverted image of the productivity of capital (the ratio of output/firms’ fixed capital). Doubts are also expressed concerning the dramatic fall of the ratio of wealth/national income in Europe around World War I.