The Rise and Decline of General Laws of Capitalism

51 Pages Posted: 14 Dec 2014

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James A. Robinson

Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: December 11, 2014

Abstract

Thomas Piketty’s (2013) book, Capital in the 21st Century, follows in the tradition of the great classical economists, like Marx and Ricardo, in formulating general laws of capitalism to diagnose and predict the dynamics of inequality. We argue that general economic laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions, as well as the endogenous evolution of technology, in shaping the distribution of resources in society. We use regression evidence to show that the main economic force emphasized in Piketty’s book, the gap between the interest rate and the growth rate, does not appear to explain historical patterns of inequality (especially, the share of income accruing to the upper tail of the distribution). We then use the histories of inequality of South Africa and Sweden to illustrate that inequality dynamics cannot be understood without embedding economic factors in the context of economic and political institutions, and also that the focus on the share of top incomes can give a misleading characterization of the true nature of inequality.

Keywords: Capitalism, Inequality, Institutions

JEL Classification: P16, P48, O20.

Suggested Citation

Acemoglu, Daron and Robinson, James A., The Rise and Decline of General Laws of Capitalism (December 11, 2014). MIT Department of Economics Working Paper No. 14-18. Available at SSRN: https://ssrn.com/abstract=2537592 or http://dx.doi.org/10.2139/ssrn.2537592

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James A. Robinson

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