The Rule Of Robots In Stiglitz And MarxJoseph E. Stiglitz, Ph.D
(original source Social Europe)
“It is always instructive to speak to Joe Stiglitz. In a conversation in Paris which we had after his talk at the INET conference, he pointed out that the elasticity of substitution between capital and labor greater than 1 (which is often assumed by Piketty in his “Capital in the 21st century”), combined with technological progress which does not fall like manna from heaven but develops in response to the existing factor prices, would lead to an explosive process that would end only with capital owning the entire net income of a country. How?
Suppose that we have a given rate of interest (r) – you can imagine that it is 5% as is often mentioned by Piketty and a given wage (w). Suppose also that at this ratio of factor prices, it is profitable to invest in more capital-intensive processes (that is, they reduce unit cost of output). So capitalists will replace labor by capital and K/L and K/output ratios will both increase. Since elasticity of substitution between K and L is greater than 1, r will only slightly decrease while wages will only slightly increase. Although factor prices, being sticky, will not have budged much they would have moved ever slightly further in making capital intensive processes even more attractive. So there would be another round of increased capital investment, and again K/L and K/output will go up with only minimal effects on prices.”
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