α = r × β where r is the rate of return on capital. For…
““α = r × β where r is the rate of return on capital. For example, if β = 600% and r = 5%, then α = r × β = 30%.13 In other words, if national wealth represents the equivalent of six years of national income, and if the rate of return on capital is 5 percent per year, then capital’s share in national income is 30 percent. The formula α = r × β is a pure accounting identity. It can be applied to all societies in all periods of history, by definition. Though tautological, it should nevertheless be regarded as the first fundamental law of capitalism, because it expresses a simple, transparent relationship among the three most important concepts for analyzing the capitalist system: the capital/income ratio, the share of capital in income, and the rate of return on capital. The rate of return on capital is a central concept in””
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
The capital‑income ratio equals the product of the rate of return and the capital‑income multiple, revealing a fundamental accounting identity of capitalism.
In simple terms: Capital share = return rate × wealth multiple.
Key Takeaway
Use this identity to assess economic inequality.
Themes
economics
inequality
capitalism
Mood
analytical
critical
Type
academic
informative
When to use this quote
- policy analysis
- academic research
- public debate
- financial planning
Key Concepts
accounting identity
wealth distribution
Questions to Reflect On
- How does this identity inform tax policy?
- What limits exist in applying it across societies?
A Different Perspective
The formula oversimplifies complex dynamics.