Question

Describe and compare the theoretical predictions of Marx and Kuznets with respect to

the evolution of income inequality over the long run.

What does Piketty think of the type of “economic determinism in regard to inequalities

of wealth and income” he sees in Mark and Kuznets and the ability of public policy to

alter these trends?

Answer 1

While Karl Marx set the tone against capitalism in lieu of its innate nature of thriving on wealth/income inequality, Kuznets (1955) explicated the reason why and when capitalism seems to foster income inequalities for some time only.
What is Marx's analysis on Income inequality?
Marx contended that since capitalism works on the idea of promoting self interests and hence increasing profits, the surplus value (Value generated by labor- wages paid) is pocketed by few capitalists. This leads to concentration of wealth in few hands (rise in income inequality) leading to class conflict between bourgeoisie (Capitalists) and proletariat (working class). However, Marx asserted that this exploitation would first help the capitalists to profit, but soon in order to increase profits the capitalist would try to increase working hours, decrease wages etc. However this will only lead to decrease in surplus value that is only created by labor. Furthermore, not only the profits will tend to decrease but the growing conflict will aspire the proletariat to overthrow the class system towards socialism/communism.
Kuznets makes no such prediction for the long run.
But first what is Kuznets analysis? a 1955 empirical analysis by Simon Kuznets showed how income inequality tends to rise when the process of capitalist development starts, reaches some peak when the process of growth becomes normal and smooth, and finally income inequality shrinks when the development process becomes mature. He explained this observation through a bell shaped curve (inverted U)
This analysis is quite different from the strong and perhaps sour theoretical predictions of Karl Marx.
1. While Karl Marx explained that capitalism thrives on income inequality, Kuznets showed that income inequality is just a glitch in the process of development.
2. Karl Marx's dramatic end of capitalism (self destruction) remained just a theoretical argument, while Kuznets by using empirical data (US) promised some effects however for small amount of time (till 1950s)
3. Kuznets relied on the strength of free market economy to overcome this problem (inequality) in the long run, Karl Marx blamed the nature of capitalism for brewing income inequality and explained the need for revolution to end the root cause completely (capitalism).

After the strong analysis by both Marx and Kuznets, Thomas Piketty drove the income inequality wave powerfully since 2010 (book: Capital in the 21st century) by conducting widespread research on data from 20 countries for past 3 centuries. Thomas Piketty's analysis talked of income equality in a different tone.
Although he didn't condemn the system that is capitalism and forged against it like Marx, but at the same time explained how capitalism in the long run contributed to risen inequalities in wealth and income. Also unlike Kuznets' inverted U curve, Piketty explains his point through U shaped curve.
Unlike Marx's harsh tone on evils of capitalism, Piketty's analysis is more of a coherent assertion showing as long as the rate of return of capital (r) is more than the rate of economic growth (g), income would tend to be concentrated on few hands leadsing to huge wealth inequalities.
Unlike Kuznets depiction of phenomenon of income inequality as a temporary cause of growth, Piketty showed why this situation stands to become a permanent one.
Unlike Marx's contention of overthrowing of capitalism through revolution, Piketty provides a simple economic solution of Global tax to eradicate just the problem.