I’m not going to comment on this right now; I have a big article on capital theory coming out next week, and you guys should read that first as foundation. So I’ll wait.
In the meantime, however, let me go ahead and type out the following excerpt from pp. 212-213 of Thomas Piketty’s blockbuster Capital in the Twenty-First Century. This will be like the puzzles in the kid’s menu at a restaurant: “Can you find what’s wrong in the picture below?”
Technology naturally plays a key role. If capital is of no use as a factor of production, then by definition its marginal productivity is zero. In the abstract, one can easily imagine a society in which capital is of no use in the production process: no investment can increase the productivity of farmland, no tool or machine can increase output, and having a roof over one’s head adds nothing to well-being compared with sleeping outdoors. Yet capital might still play an important role in such a society as a pure store of value: for example, people might choose to accumulate piles of food (assuming that conditions allow for such storage) in anticipation of a possible future famine or perhaps for purely aesthetic reasons (adding piles of jewels and other ornaments to the food piles, perhaps). In the abstract, nothing prevents us from imagining a society in which the capital/income ratio β is quite high but the return on capital r is strictly zero. In that case, the share of capital in national income, α = rXβ, would also be zero. In such a society, all of national income and output would go to labor.
As Obama would say, now let me be clear: The above is fundamentally, totally, utterly wrong. Piketty doesn’t even know how to conceptually think about capital and interest income in a simple thought experiment. Since Piketty’s whole book is about capital and interest income, that’s kind of a big deal. (It helps to be an Austrian to see why, but you don’t have to be; Nick Rowe could come up with an example of two guys and an apple tree to show the problem.)