Piketty cites two fundamental laws of capitalism. The first one is, truly, a law, and indeed as he says an accounting identity, but the second “law” is really more of a tendency. It suggests that the long-term path of the capital/income ratio (which he calls β but I’m going to call ב becuase we need notation diversity) is equivalent to the ratio of the trend savings rate and the trend growth rate (absolute, not per-capita, importantly). This is nothing Piketty doesn’t mention, but it’s worth stressing that this tendency can take a looooong time to manifest. A society beginning with a ב  of 1 and a trend savings/growth ratio – and thus a long-term predicted ב  - of 4 will take over a generation to build a ב  of 3; the same society with a trend savings/growth ratio of 6 will take over 80 years to surpass a ב of 5.

Anyway, if you’re the kind of nerd I am, you’ll want to play around with the formulae too. Spreadsheet attached; enjoy.

capital 2nd law convergence

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