Paulo Roberto de Almeida
I think if might be of interest to this list to find that Thomas Piketty begins his Capital in the Twenty-First Century with a discussion of classical economic theory although of some dubious merit, but that he has also made a fundamental error in the use of supply and demand in that same discussion.
Only five pages in, he begins a section he titles, “Ricardo: the Principle of Scarcity” (Malthus shows up on page 3). He focuses on Ricardo in his book on income distribution because he interprets the Ricardian theory of land rents to mean that landowners will continuously earn a larger proportion of national income. He states that Ricardo’s “chief concern was the long-term evolution of land prices and land rents” (p. 5). I have my doubts about his interpretation of Ricardo, and I certainly don’t agree where he writes “David Ricardo and Karl Marx, who were surely the two most influential economists of the nineteenth century” (ibid.: p. 5). There is a case for Marx although not in terms of his influence on economics. Ricardo is superseded by J.S. Mill and if not Mill then certainly by Marshall if we are thinking about influence within economics, and that is only looking at economists in the English speaking world.
But Piketty then, in discussing these notions, makes a fundamental error in basic economic theory. As can be seen from the passage quoted below, he has confused a shift in demand with a change in quantity demanded.
“To be sure, there exists in principle a quite simple economic mechanism that should restore economic equilibrium to the process: the mechanism of supply and demand. If the supply of any good is insufficient, and its price is too high, then demand for that good should decrease, whichshould lead to a decline in its price.” (p.6 - my bolding)
He has here basically stated that insufficient supply (a shortage) will lead to a fall in price which you can see from the bits in bolding. I find it absurd that Piketty cannot tell the difference between a shift of the demand curve and a movement along the demand curve. You really do have to wonder how much sound economics there actually is embedded in the hundreds of pages of stats and data he then compiles if he is prone to make such a startling error. Even more curious is to me is that no one so far as I know has bothered to point this out.
Dr Steven Kates
Associate Professor
School of Economics, Finance
and Marketing
RMIT University
and Marketing
RMIT University
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