Piketty’s (r−g) Law Is Pareto’s Law: ‘Bad Faith’ in the Analysis of Income Inequality?

On the face of it, Pareto’s law and Piketty’s (r – g) law are inconsistent, with Pareto arguing that real per capita economic growth is the solution to the problem of income inequality and Piketty arguing for redistribution to be funded from a wealth tax. In this paper we make three contributions. First, we establish that Piketty’s and Pareto’s laws are essentially the same economic law when the same definition of inequality is adopted by the two scholars. Second, in highlighting the relationship between Pareto’s α and Piketty’s (r – g) is monotonic, we show that Piketty’s criticism of Pareto for assuming a constant α across the income range would also apply in similar measure to his own (r – g) law. Third, given the essential equivalence of Pareto’s law and Piketty’s (r – g) law, we reflect on Piketty’s curious accusation that Pareto undertook his analysis of the relationship between α and inequality in ‘bad faith’.