Stiglitz (2015): Land and Credit in the Distribution of Income and Wealth

Overview

In "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit" (NBER Working Paper No. 21192, May 2015), Nobel laureate Joseph Stiglitz argues that "a significant amount of the increase in the wealth income ratio in recent decades is due to an increase in the value of land," rather than growth in productive capital.[1] He presents a series of models — land as a positional good, land-price bubbles that let measured wealth rise even as real capital per capita falls, and the interaction between land prices and financial-sector policy — to explain both the rising wealth-to-income ratio and the rising wealth inequality documented by Thomas Piketty.[1] Stiglitz concludes that, in long-run equilibrium, "a tax on the returns on land (including capital gains) can lead to higher incomes and less inequality," and separately argues that looser monetary and financial policy (lower interest rates, lower collateral or capital-adequacy requirements) inflates land-backed wealth without increasing the economy's real productive capacity, worsening inequality between asset-holding "capitalists" and life-cycle savers.[1]

This is the fourth installment of a multi-part Stiglitz working-paper series responding to Piketty's Capital in the Twenty-First Century. The wiki's related finding on capital and land — Rognlie's decomposition of the capital share — reaches a structurally similar conclusion (rising "capital" income is mostly land/housing) through national-accounts data rather than Stiglitz's theoretical models, and the two are best read together.

Why It Matters for Georgism

Stiglitz is not a self-described Georgist, but this paper reaches a conclusion structurally close to Henry George's: that land, not reproducible capital, is doing the work in rising wealth and inequality, and that taxing land rents — rather than capital broadly — is the efficient and equitable response. It complements Stiglitz's earlier, better-known formalization of the Henry George Theorem with a distinct distributional argument for a similar policy conclusion.

See Also

• Joseph Stiglitz — the author; see his wider body of Georgist-adjacent work
• Matthew Rognlie and Rognlie (2015), Deciphering the Fall and Rise in the Net Capital Share — the empirical, national-accounts counterpart to this theoretical argument
• Thomas Piketty and Piketty, Capital in the Twenty-First Century — the wealth-inequality debate this paper responds to
• Henry George Theorem — Stiglitz's earlier, better-known contribution
• Land Value Tax Can Be Progressive

Sources

1. Joseph E. Stiglitz (2015), "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit," NBER Working Paper No. 21192, May 2015 — used for the paper's central argument, models, and land-tax conclusion (quotations under 50 words, from the published abstract). NBER page · PDF
2. Matthew Rognlie (2015) — wiki summary — used as the independent, empirical counterpart to Stiglitz's theoretical claim about land driving the capital share.