Piketty and the case for land capital

Karl Smith in the FT Alphaville blog:

I hesitate – to say the least – to critique the central argument in French economist’s Thomas Piketty’s new book Capital in the 21st Century. The author, an inequality expert, is distinguished. The work is acclaimed. The book’s empirical detail is already the stuff of legend. And, most damningly, I have not read the text and do not expect to until it is released in English, sometime in March.

Nonetheless, with the help of brilliant reviewers and a set of lectures by Mr. Piketty himself, I think I’ve seen enough to identify a point of confusion that has led both defenders and critics of the book astray. Piketty uses the term capital to refer both to capital as classical economists understand it, and land. Now, neoclassical equations of the type Piketty employs rarely give reference to land, focusing solely on capital and labor. The great economist Bob Solow, who helped popularize that approach, once quipped that if God had intended there to be three factors of production he would have made it easier to draw three-dimensional graphs. Land was rapidly declining in relevance and Solow invoked Occam’s Razor to lop it off altogether.

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