Capital in the Twenty-First Century

by Thomas Piketty

Think of an entirely robotized economy in which one can increase production at will simply by adding more capital. Neither of these two extreme cases is really relevant: the first sins by want of imagination and the second by excess of technological optimism (or pessimism about the human race, depending on one’s point of view). The relevant question is whether the elasticity of substitution between labor and capital is greater or less than one. If the elasticity lies between zero and one, then an increase in the capital / income ratio β leads to a decrease in the marginal productivity of capital large enough that the capital share α = r × β decreases (assuming that the return on capital is determined by its marginal productivity).