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Does he take account of the fact that, certainly over the 19th and 20th centuries, the rapid rate of technological change must have induced a very high rate of depreciation on many types of capital?

In various lines of economic activity, many businesses must have seen their entire capital stock devalued over a few short years, due to changes in technology. I'm thinking that this sort of process may have favoured new entrants over established players.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu May 22nd, 2014 at 11:15:24 AM EST
Well, allegedly he does -but I have my doubts.

He certainly tries to do so, and when he has solid data he does look at returns net of depreciation. It is a clear observation that the type of capital got transformed, however many wealthy people managed to ride the change -many of them were quite diversified and thus able to absorb the change.

But when data is missing, I do get the impression that his proxies tend to be at least somewhat gross of depreciation or maintenance.
In any case, over the 19th century, his conclusions certainly hold. Even if (a big if. He has done his homework and I may be wrong) he slightly overstates the return on capital, it was clear even then that capital owners were diverging from the rest of the population. Clearly, there was a strong accumulative effect. So the depreciation effect was dominated by the return, by some distance.

This was true of much of the 20th century also -but, crucially, there is this period in the middle that made us think otherwise.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu May 22nd, 2014 at 11:24:25 AM EST
[ Parent ]
I'm thinking, in particular, of family businesses, artisans, tradespeople who traditionally would have had a certain amount of capital goods, turnover, goodwill, adding up to an established social and economic position that was transmissible to the following generation. This sort of social and economic model had been severely weakened, almost stamped out by the end of the 20th century; partly through technological change, partly because the easy availability of salaried work made taking over Dad's trade a less attractive proposition.

I can see signs that this model is returning, and may become quite common again : a possible reversion to the norm.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu May 22nd, 2014 at 11:38:11 AM EST
[ Parent ]
Well, part of what you describe may not show up in what is defined as capital in his work, as this would to an extent be "human capital", which he addresses as almost an oxymoron early on -what he calls capital can be traded.
But the part that would fall in his definition would resonate with something that he shows, that there is a divergence in capital. Very big fortunes had high rates of return (probably also in part because they could easily diversify, though there are stronger effects in play). Very small ones, not so much.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu May 22nd, 2014 at 01:33:49 PM EST
[ Parent ]

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