Thomas Piketty on Distribution Theory - Dictionary of Arguments

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Distribution Theory: The Distribution Theory in economics explains how income and wealth are allocated among individuals, factors of production (labor, capital, land), or social groups. It examines wages, profits, and rents, influenced by productivity, market forces, and policies. Key theories include classical, neoclassical, and Keynesian approaches, each offering different views on income distribution and economic inequality. See also Value- and distribution theory, Wages, Income, Factors of production, Profit, Rent, Neoclassical economics, Keynesianism. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Piketty, Thomas	> Distribution Theory	Thomas Piketty on Distribution Theory - Dictionary of Arguments Bofinger I 39 Distribution theory/distribution/Piketty/Krämer: With the exception of the explanation of top managers' incomes, Piketty considers the neoclassical marginal productivity theory of distribution to be “useful” and “natural” when explaining wages and profits (Piketty 2014: 283 ff.)⁽¹⁾. VsNeoclassics/VsPiketty: However, this theory of distribution has some serious logical deficiencies and shortcomings that make it unsuitable as a theoretical explanation for the distribution of income and wealth (...) Marginal productivity/neoclassical: The neoclassical marginal productivity theory of distribution is used to explain both the micro and macro level. The microeconomic version of marginal productivity theory does not focus on income distribution, which is explained en passant, so to speak. Bofinger I 40 Factors of production/microeconomics: This is primarily about determining the demand for the individual factors of production on the respective factor markets. At the same time as the factor demand is determined, the individual factor prices (wages, interest on capital, basic rent) are also determined. The basic principle of factor price determination is identical for all factors of production. Using various assumptions - including in particular perfect competition and constant returns to scale - each factor of production in market equilibrium is remunerated according to the marginal product of the last unit still employed. In this model framework, the theory of price formation on a factor market is simultaneously a theory of income distribution. >Factors of production, >Factor market, >Production structure. Macroeconomics: The macroeconomic version of the marginal productivity theory of distribution transfers the laws obtained at the microeconomic level to the economy as a whole. The incomes of the factors of production also correspond to their respective factor prices at the macroeconomic level. If, as is generally the case, a Cobb-Douglas production function is assumed, the income produced is distributed completely among the factors of production involved. The macroeconomic wage rate (profit rate) is equated with the production elasticity of labor (capital). Variations in the wage rate or profit rate have no influence on the proportional distribution of income, as these trigger a corresponding compensating factor substitution. Elasticity: The income ratios change at most if the production elasticities are changed by non-neutral technical progress. >Elasticity. Bofinger I 41 Capital theory/VsPiketty: As has become clear in the context of the so-called capital theory controversy, however, the assumption of the existence of a macroeconomic production function and the specification of a defined “quantity of capital” independent of the prices of the various capital goods and thus of the profit rate prove to be untenable for certain logical reasons (cf. Harcourt 1972)⁽²⁾⁽³⁾. >Capital/Piketty, >Capital/Harcourt. Method: The problem here is that the prices of the individual, heterogeneous capital goods must be known in advance in order to be able to add them up to an overall economic capital stock. However, the prices of the individual capital goods cannot be determined without knowledge of the interest rate on capital (the profit rate) (cf. Kurz/Salvadori 1995)⁽⁴⁾. >Heinz D. Kurz, >Neri Salvadori. As Piero Sraffa demonstrated as early as 1960(5), the prices of capital goods and the rate of profit must be determined simultaneously (Sraffa 2014)⁽⁵⁾. >Piero Sraffa. Outside of a one-sector model, it is therefore not possible to aggregate the various capital goods into a single variable “capital”. Samuelson: Paul Samuelson and other neoclassicists also conceded this at the end of the long-standing dispute between the critics of neoclassical production and capital theory from Cambridge (England) and its defenders from Cambridge (USA), which Piketty, however, completely misunderstands. >Paul Samuelson. Bofinger I 42 Capital theory: Although the Cambridge-Cambridge controversy has clearly shown that the macroeconomic version of marginal productivity theory is based on a circular argument that calls its theoretical foundation into question, it is still the central building block for neoclassical distribution analysis, on which Piketty also builds. Market power: Another point of criticism of the distribution theory used by Piketty is that the standard approach of the marginal productivity theory of distribution leaves no room for market power, social factors of influence or the consideration of other distributional conflicts that constantly occur in reality. Some basics for Piketty: >Cambridge Capital Controversy, >Geoffrey C. Harcourt, >Capital reversing, >Capital/Joan Robinson, >Exploitation/Robinson, >Reswitching/Robinson, >Reswitching/Sraffa, >Reswitching/Economic Theories, >Neo-Keynesianism, >Neo-Neoclassical Theories. 1. Piketty, T. 2014. Das Kapital im 21. Jahrhundert. München: Beck. 2. Harcourt, G. (1972): Some Cambridge Controversies in the Theory of Capital. Cambridge MA: Cambridge University Press. 3. Piketty (2014: 305 ff.) is mistaken when he argues that the Cambridge controversy was essentially about the question of the constancy of the capital coefficient. Unfortunately, he is clearly not familiar with this important topic. 4. Kurz, H. D./Salvadori, N. (1995): Theory of Production: a Long-Period Analysis. Cambridge MA: Cambridge University Press. 5. Sraffa, P. (2014 [1960]): Warenproduktion mittels Waren. Einleitung zu einer Kritik der ökonomischen Theorie. Marburg: Metropolis. Hagen Krämer. 2015. „Make no mistake, Thomas! Verteilungstheorie und Ungleichheitsdynamik bei Piketty“. In: Thomas Piketty und die Verteilungsfrage. Ed. Peter Bofinger, Gustav A. Horn, Kai D. Schmid und Till van Treeck. 2015. _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	Piketty I Thomas Piketty Capital in the Twenty First Century Cambridge, MA 2014 Piketty II Thomas Piketty Capital and Ideology Cambridge, MA 2020 Piketty III Thomas Piketty The Economics of Inequality Cambridge, MA 2015 Bofinger II Peter Bofinger Monetary Policy: Goals, Institutions, Strategies, and Instruments Oxford 2001

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