Capital in the Twenty-First Century (60 page)

The magnitude of the changes initiated by the French Revolution should not be overstated,
however. Beyond the probable decrease of inequality of wealth between 1780 and 1810,
followed by a gradual increase between 1810 and 1910, and especially after 1870, the
most significant fact is that inequality of capital ownership remained relatively
stable at an extremely high level throughout the eighteenth and nineteenth centuries.
During this period, the top decile consistently owned 80 to 90 percent of total wealth
and the top centile 50 to 60 percent. As I showed in
Part Two
, the structure of capital was totally transformed between the eighteenth century
and the beginning of the twentieth century (landed capital was almost entirely replaced
by industrial and financial capital and real estate), but total wealth, measured in
years of national income, remained relatively stable. In particular, the French Revolution
had relatively little effect on the capital/income ratio. As just shown, the Revolution
also had relatively little effect on the distribution of wealth. In 1810–1820, the
epoch of Père Goriot, Rastignac, and Mademoiselle Victorine, wealth was probably slightly
less unequally distributed than during the Ancien Régime, but the difference was really
rather minimal: both before and after the Revolution, France was a patrimonial society
characterized by a hyperconcentration of capital, in which inheritance and marriage
played a key role and inheriting or marrying a large fortune could procure a level
of comfort not obtainable through work or study. In the Belle Époque, wealth was even
more concentrated than when Vautrin lectured Rastignac. At bottom, however, France
remained the same society, with the same basic structure of inequality, from the Ancien
Régime to the Third Republic, despite the vast economic and political changes that
took place in the interim.

Probate records also enable us to observe that the decrease in the upper decile’s
share of national wealth in the twentieth century benefited the middle 40 percent
of the population exclusively, while the share of the poorest 50 percent hardly increased
at all (it remained less than 5 percent of total wealth). Throughout the nineteenth
and twentieth centuries, the bottom half of the population had virtually zero net
wealth. In particular, we find that at the time of death, individuals in the poorest
half of the wealth distribution owned no real estate or financial assets that could
be passed on to heirs, and what little wealth they had went entirely to expenses linked
to death and to paying off debts (in which case the heirs generally chose to renounce
their inheritance). The proportion of individuals in this situation at the time of
death exceeded two-thirds in Paris throughout the nineteenth century and until the
eve of World War I, and there was no downward trend. Père Goriot belonged to this
vast group, dying as he did abandoned by his daughters and in abject poverty: his
landlady, Madame Vauquer, dunned Rastignac for what the old man owed her, and he also
had to pay the cost of burial, which exceeded the value of the deceased’s meager personal
effects. Roughly half of all French people in the nineteenth century died in similar
circumstances, without any wealth to convey to heirs, or with only negative net wealth,
and this proportion barely budged in the twentieth century.
⁹

The available data for other European countries, though imperfect, unambiguously demonstrate
that extreme concentration of wealth in the eighteenth and nineteenth centuries and
until the eve of World War I was a European and not just a French phenomenon.

In Britain, we have detailed probate data from 1910–1920 on, and these records have
been exhaustively studied by many investigators (most notably Atkinson and Harrison).
If we complete these statistics with estimates from recent years as well as the more
robust but less homogeneous estimates that Peter Linder has made for the period 1810–1870
(based on samples of estate inventories), we find that the overall evolution was very
similar to the French case, although the level of inequality was always somewhat greater
in Britain. The top decile’s share of total wealth was on the order of 85 percent
from 1810 to 1870 and surpassed 90 percent in 1900–1910; the uppermost centile’s share
rose from 55–60 percent in 1810–1870 to nearly 70 percent in 1910–1920 (see
Figure 10.3
). The British sources are imperfect, especially for the nineteenth century, but the
orders of magnitude are quite clear: wealth in Britain was extremely concentrated
in the nineteenth century and showed no tendency to decrease before 1914. From a French
perspective, the most striking fact is that inequality of capital ownership was only
slightly greater in Britain than in France during the Belle Époque, even though Third
Republic elites at the time liked to portray France as an egalitarian country compared
with its monarchical neighbor across the Channel. In fact, the formal nature of the
political regime clearly had very little influence on the distribution of wealth in
the two countries.

FIGURE 10.3.
   Wealth inequality in Britain, 1810–2010

The top decile owns 80–90 percent of total wealth in 1810–1910, and 70 percent today.

Sources and series: see
piketty.pse.ens.fr/capital21c

In Sweden, where the very rich data available from 1910, of which Ohlsonn, Roine,
and Waldenstrom have recently made use, and for which we also have estimates for the
period 1810–1870 (by Lee Soltow in particular), we find a trajectory very similar
to what we observed in France and Britain (see
Figure 10.4
). Indeed, the Swedish wealth data confirm what we already know from income statements:
Sweden was not the structurally egalitarian country that we sometimes imagine. To
be sure, the concentration of wealth in Sweden in 1970–1980 attained the lowest level
of inequality observed in any of our historical series (with barely 50 percent of
total wealth owned by the top decile and slightly more than 15 percent by the top
centile). This is still a fairly high level of inequality, however, and, what is more,
inequality in Sweden has increased significantly since 1980–1990 (and in 2010 was
just slightly lower than in France). It is worth stressing, moreover, that Swedish
wealth was as concentrated as French and British wealth in 1900–1910. In the Belle
Époque, wealth was highly concentrated in all European countries. It is essential
to understand why this was so, and why things changed so much over the course of the
twentieth century.

FIGURE 10.4.
   Wealth inequality in Sweden, 1810–2010

The top 10 percent holds 80–90 percent of total wealth in 1810–1910 and 55–60 percent
today.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

Note, moreover, that we also find the same extremely high concentration of wealth—with
80 to 90 percent of capital owned by the top decile and 50–60 percent by the top centile—in
most societies prior to the nineteenth century, and in particular in traditional agrarian
societies in the modern era, as well as in the Middle Ages and antiquity. The available
sources are not sufficiently robust to permit precise comparisons or study temporal
evolutions, but the orders of magnitude obtained for the shares of the top decile
and centile in total wealth (and especially in total farmland) are generally close
to what we find in France, Britain, and Sweden in the nineteenth century and Belle
Époque.
¹⁰

Three questions will concern us in the remainder of this chapter. Why were inequalities
of wealth so extreme, and increasing, before World War I? And why, despite the fact
that wealth is once again prospering at the beginning of the twenty-first century
as it did at the beginning of the twentieth century (as the evolution of the capital/income
ratio shows), is the concentration of wealth today significantly below its historical
record high? Finally, is this state of affairs irreversible?

In fact, the second conclusion that emerges very clearly from the French data presented
in
Figure 10.1
is that the concentration of wealth, as well as the concentration of income from
wealth, has never fully recovered from the shocks of 1914–1945. The upper decile’s
share of total wealth, which attained 90 percent in 1910–1920, fell to 60–70 percent
in 1950–1970; the upper centile’s share dropped even more precipitously, from 60 percent
in 1910–1920 to 20–30 percent in 1950–1970. Compared with the trend prior to World
War I, the break is clear and overwhelming. To be sure, inequality of wealth began
to increase again in 1980–1990, and financial globalization has made it more and more
difficult to measure wealth and its distribution in a national framework: inequality
of wealth in the twenty-first century will have to be gauged more and more at the
global level. Despite these uncertainties, however, there is no doubt that inequality
of wealth today stands significantly below its level of a century ago: the top decile’s
share is now around 60–65 percent, which, though still quite high, is markedly below
the level attained in the Belle Époque. The essential difference is that there is
now a patrimonial middle class, which owns about a third of national wealth—a not
insignificant amount.

The available data for the other European countries confirm that this has been a general
phenomenon. In Britain, the upper decile’s share fell from more than 90 percent on
the eve of World War I to 60–65 percent in the 1970s; it is currently around 70 percent.
The top centile’s share collapsed in the wake of the twentieth century’s shocks, falling
from nearly 70 percent in 1910–1920 to barely more than 20 percent in 1970–1980, then
rising to 25–30 percent today (see
Figure 10.3
). In Sweden, capital ownership was always less concentrated than in Britain, but
the overall trajectory is fairly similar (see
Figure 10.4
). In every case, we find that what the wealthiest 10 percent lost mainly benefited
the “patrimonial middle class” (defined as the middle 40 percent of the wealth hierarchy)
and did not go to the poorest half of the population, whose share of total wealth
has always been minuscule (generally around 5 percent), even in Sweden (where it was
never more than 10 percent). In some cases, such as Britain, we find that what the
richest 1 percent lost also brought significant gains to the next lower 9 percent.
Apart from such national specificities, however, the general similarity of the various
European trajectories is quite striking. The major structural transformation was the
emergence of a middle group, representing nearly half the population, consisting of
individuals who managed to acquire some capital of their own—enough so that collectively
they came to own one-quarter to one-third of the nation’s total wealth.

I turn now to the US case. Here, too, we have probate statistics from 1910–1920 on,
and these have been heavily exploited by researchers (especially Lampman, Kopczuk,
and Saez). To be sure, there are important caveats associated with the use of these
data, owing to the small percentage of the population covered by the federal estate
tax. Nevertheless, estimates based on the probate data can be supplemented by information
from the detailed wealth surveys that the Federal Reserve Bank has conducted since
the 1960s (used notably by Arthur Kennickell and Edward Wolff), and by less robust
estimates for the period 1810–1870 based on estate inventories and wealth census data
exploited respectively by Alice Hanson Jones and Lee Soltow.
¹¹

Several important differences between the European and US trajectories stand out.
First, it appears that inequality of wealth in the United States around 1800 was not
much higher than in Sweden in 1970–1980. Since the United States was a new country
whose population consisted largely of immigrants who came to the New World with little
or no wealth, this is not very surprising: not enough time had passed for wealth to
be accumulated or concentrated. The data nevertheless leave much to be desired, and
there is some variation between the northern states (where estimates suggest a level
of inequality lower than that of Sweden in 1970–1980) and southern states (where inequality
was closer to contemporary European levels).
¹²