Economic progress tends to increase insofar as the savings result in a larger supply of capital goods, which serves to increase production, including the further production of capital goods. The rate of return on capital tends to fall because the larger expenditure for capital goods (and labor) shows up both as larger accumulations of capital and as an increase in the aggregate amount of costs of production in the economic system, which serves to reduce the aggregate amount of profit. Our problems today result largely from government policies that serve to hold down saving and the demand for capital goods. Among these policies are the corporate and progressive personal income taxes, the estate tax, chronic budget deficits, the social security system, and inflation of the money supply. To the extent that these policies can be reduced, the demand for and production and supply of capital goods will increase, thereby restoring economic progress, and the aggregate amount and average rate of profit will fall.
- Reisman is dealing with Piketty and his assertion that because returns on capital can outpace economic growth in general, that this is some sort of bad thing, to be stopped, banned and generally supressed. Perry Metzger of this blog has already done a lot to demonstrate the economically insane nature of Piketty’s analysis.
In summation, if you want to increase incomes, then an essential step is to stop attacking capitalists (not to be confused with crony capitalists tapping the public sector for privileges, etc).
Reisman has another devastating take-down on Piketty and his ideas on capital, at the Ludwig Von Mises blog. (Thanks to Paul Marks, frequent Samizdata commenter, for the pointer.)