Short and simple refutation of Thomas Piketty

This story is currently making its rounds on Facebook:

There is a rich man and a poor man.
The rich man makes $1000 a day.
The poor man makes $10 a day.
The difference in their income is $1000 – $10 = $990 a day.

The rich man builds a factory.
Now the rich man makes $2000 a day.
He gives the poor man a job at the factory.
Now the poor man makes $100 a day.
The difference in their income is $2000 – $100 = $1900 a day.

A politician decides the “income gap” has grown too large.
He taxes the rich man $1000 a day, gives it to the poor man.
The rich man can no longer afford to run the factory.
He closes his factory. The poor man loses his job.

Everything is as it was before.
And the politician takes credit for “closing the income gap”.

George Reisman has written a slightly more elaborate and detailed criticism of Piketty. But this short story encapsulates one of the main points of his criticism. Piketty claims that when the “capital/income ratio” goes up (in this story from $990 to $1900), it means that the capitalists are making money at the expense of the wage earners. The story tells us that the exact opposite is true.

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Update November 17, 2016: For Scandinavian speaking readers, Reisman’s criticism is also available in a Swedish translation.

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