Income Distribution, Rentiers and their Role in a Capitalist Economy: A Keynes-Pasinetti Perspective

Much of the mainstream has gone from the optimism of the “great moderation” associated with a low inflation environment and a slow and sustained, yet fluctuating, growth in productivity, as during the late 1990s and early 2000s, to one of pessimism associated with fears of secular stagnation in the post-2008 environment. The basis of this pessimism is the belief that the so-called Wicksellian “natural” or “equilibrium real” rate of interest has supposedly fallen so low, or perhaps has even fallen into chronically negative territory that private sector growth, reflected in the business sector desire to accumulate capital relative to the desire to save, has waned. For instance, Lawrence Summers points to the possibility that: “… changes in the structure of the economy have led to a significant shift in the natural balance between savings and investment, causing a decline in the equilibrium or normal real rate of interest that is associated with full employment.” (Summers 2014, p. 69). Developing somewhat in parallel or concurrently with Summer’s secular stagnation hypothesis tied to a negative natural interest rate, there has appeared the celebrated work of Thomas Piketty (2014) who, through the espousal of the neoclassical “scarcity principle” (2014, p. 6), offers also a “real” analysis of the evolution of profit and wage shares, as well as wealth distribution over long historical periods. Unlike the above story about the real rate of interest, Piketty’s theoretical and empirical analyses focus on the rate of profit and suggest that the relation between the rate of profit and the rate of growth has undergone a long-term structural transformation in favour of profit earners whose share of overall income has risen over the last several decades with negative consequences on the real economy. Piketty’s analytical approach to interpret this empirical evidence is based on a light blend of neoclassical marginal productivity theory together with the adoption of what may be described as a classical methodology by postulating so-called fundamental “laws of capitalism” in which institutions, especially the institutions of money and finance, play a non-essential role. Hence, instead of a falling rate profit, as in classical and Marxian writings (because of the long-term evolution of “real” variables pertaining to productivity of the land or the evolution of labour-saving technology), we now have a law of the rising share of profit, in this case because of real factors pertaining to a rising capital/output ratio.

The purpose of this paper is to consider these developments, and to introduce a different narrative that offers some new insights on the nature of the present stagnation by highlighting the importance of the monetary side in its impact on income distribution. Indeed, although these two above-mentioned developments are of great interest, their analyses succumb to a number of criticisms, especially when taking seriously into consideration the monetary and financial side. In the process, we wish to offer an approach from the perspective of John Maynard Keynes, linked to his analysis of the role of the rentier sector in its interaction with the real economy and because, in the General Theory, he had expressed a “long view” on the desirability of the eventual “euthanasia of the rentier”. To analyze the income distributional dimension empirically over long historical periods, we have adopted a measure derived from Luigi Pasinetti (1980-81; 1981) that is both similar yet different from the one employed by Piketty to describe the cyclical and long-term dynamic interaction between the rentier and non-rentier sectors of a modern monetary economy.