A Note on Piketty and Diminishing Returns to Capital

Summary

This 2014 working paper by Matthew Rognlie — written while he was a graduate student and circulated widely online — was the first sharp empirical challenge to Thomas Piketty's thesis that capital's share of income would keep rising. Rognlie made two points that proved decisive.

Key Findings

1. Diminishing returns. Piketty's prediction requires capital and labour to substitute easily; Rognlie argued the elasticity is lower, so accumulating capital drives down its return — capital's share need not keep rising mechanically.
2. It's housing (land). Decomposing the data, Rognlie showed the observed rise in the net capital share is concentrated in housing, i.e. in land, not in productive equipment.

He developed the second point fully in the peer-reviewed Rognlie (2015).

Bears On

• Outcome: Most of the modern rise in the capital share is land, not capital

Sources

1. Matthew Rognlie (2014), "A Note on Piketty and Diminishing Returns to Capital" — used for the argument that Piketty's rising capital share depends on an elasticity of substitution above one that the evidence does not support, foreshadowing the land/housing decomposition in his 2015 paper. PDF · 📄 Local copy
2. Peer-reviewed version: Rognlie (2015) — wiki summary — used as a cross-reference for the fuller land/housing decomposition this working paper's second finding was later developed into (§"Key Findings" above).