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Randall G. Holcombe
In the nineteenth century, political economists often viewed capital as working against the interests of labor, partly because capital and labor were viewed as substitutes and partly because the interests of the owners of capital often worked against the working class. That changed in the twentieth century as the marginal product theory of wages and human capital theory depicted capital growth as beneficial to labor. In the twenty-first century, Piketty (2014) depicts capital as working against the interests of labor, in much the same way as nineteenth century scholars did. A critical analysis of Piketty’s framework based on capital theory from Hayek and later Austrian school economists indicates that Piketty has oversimplified the nature of capital and the way that income is derived from capital. A more accurate representation of the nature of capital undermines the major policy conclusions Piketty has drawn, and demonstrates that market-based profits from capital are beneficial to everyone, regardless of whether most of their incomes come from capital or labor. However, another recent strand of literature that links the interests of capital with the political elite, enabling cronyism that benefits capital at the expense of labor, has a more solid foundation. Market processes produce a commonality of capital and labor interests whereas political processes do not. Capital and Labor, Past and Present, in the Context of Piketty’s Capital
