The dynamics and structure of inequality look very different in a country whose population increases by a factor of 100 compared with a country whose population merely doubles. In particular, the inheritance factor is much less important in the former than in the latter. It has been the demographic growth of the New World that has ensured that inherited wealth has always played a smaller role in the United States than in Europe. This factor also explains why the structure of inequality in the United States has always been so peculiar, and the same can be said of US representations of inequality and social class. But it also suggests that the US case is in some sense not generalizable (because it is unlikely that the population of the world will increase a hundredfold over the next two centuries) and that the French case is more typical and more pertinent for understanding the future. I am convinced that detailed analysis of the French case, and more generally of the various historical trajectories observed in other developed countries in Europe, Japan, North America, and Oceania, can tell us a great deal about the future dynamics of global wealth, including such emergent economies as China, Brazil, and India, where demographic and economic growth will undoubtedly slow in the future (as they have done already).
Finally, the French case is interesting because the French Revolution—the “bourgeois” revolution par excellence—quickly established an ideal of legal equality in relation to the market. It is interesting to look at how this ideal affected the dynamics of wealth distribution. Although the English Revolution of 1688 established modern parliamentarism, it left standing a royal dynasty, primogeniture on landed estates (ended only in the 1920s), and political privileges for the hereditary nobility (reform of the House of Lords is still under discussion, a bit late in the day). Although the American Revolution established the republican principle, it allowed slavery to continue for nearly a century and legal racial discrimination for nearly two centuries. The race question still has a disproportionate influence on the social question in the United States today. In a way, the French Revolution of 1789 was more ambitious. It abolished all legal privileges and sought to create a political and social order based entirely on equality of rights and opportunities. The Civil Code guaranteed absolute equality before the laws of property as well as freedom of contract (for men, at any rate). In the late nineteenth century, conservative French economists such as Paul Leroy-Beaulieu often used this argument to explain why republican France, a nation of “small property owners” made egalitarian by the Revolution, had no need of a progressive or confiscatory income tax or estate tax, in contrast to aristocratic and monarchical Britain. The data show, however, that the concentration of wealth was as large at that time in France as in Britain, which clearly demonstrates that equality of rights in the marketplace cannot ensure equality of rights tout court. Here again, the French experience is quite relevant to today’s world, where many commentators continue to believe, as Leroy-Beaulieu did a little more than a century ago, that ever more fully guaranteed property rights, ever freer markets, and ever “purer and more perfect” competition are enough to ensure a just, prosperous, and harmonious society. Unfortunately, the task is more complex.
The Theoretical and Conceptual Framework
Before proceeding, it may be useful to say a little more about the theoretical and conceptual framework of this research as well as the intellectual itinerary that led me to write this book.
I belong to a generation that turned eighteen in 1989, which was not only the bicentennial of the French Revolution but also the year when the Berlin Wall fell. I belong to a generation that came of age listening to news of the collapse of the Communist dicatorships and never felt the slightest affection or nostalgia for those regimes or for the Soviet Union. I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism, some of which simply ignored the historic failure of Communism and much of which turned its back on the intellectual means necessary to push beyond it. I have no interest in denouncing inequality or capitalism per se—especially since social inequalities are not in themselves a problem as long as they are justified, that is, “founded only upon common utility,” as article 1 of the 1789 Declaration of the Rights of Man and the Citizen proclaims. (Although this definition of social justice is imprecise but seductive, it is rooted in history. Let us accept it for now. I will return to this point later on.) By contrast, I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order. Furthermore, I would like to see justice achieved effectively and efficiently under the rule of law, which should apply equally to all and derive from universally understood statutes subject to democratic debate.
I should perhaps add that I experienced the American dream at the age of twenty-two, when I was hired by a university near Boston just after finishing my doctorate. This experience proved to be decisive in more ways than one. It was the first time I had set foot in the United States, and it felt good to have my work recognized so quickly. Here was a country that knew how to attract immigrants when it wanted to! Yet I also realized quite soon that I wanted to return to France and Europe, which I did when I was twenty-five. Since then, I have not left Paris, except for a few brief trips. One important reason for my choice has a direct bearing on this book: I did not find the work of US economists entirely convincing. To be sure, they were all very intelligent, and I still have many friends from that period of my life. But something strange happened: I was only too aware of the fact that I knew nothing at all about the world’s economic problems. My thesis consisted of several relatively abstract mathematical theorems. Yet the profession liked my work. I quickly realized that there had been no significant effort to collect historical data on the dynamics of inequality since Kuznets, yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained. And it expected me to do the same. When I returned to France, I set out to collect the missing data.
To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in. There is one great advantage to being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites. Hence they must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything. This, in any case, is the charm of the discipline and of the social sciences in general: one starts from square one, so that there is some hope of making major progress. In France, I believe, economists are slightly more interested in persuading historians and sociologists, as well as people outside the academic world, that what they are doing is interesting (although they are not always successful). My dream when I was teaching in Boston was to teach at the École des Hautes Études en Sciences Sociales, whose faculty has included such leading lights as Lucien Febvre, Fernand Braudel, Claude Lévi-Strauss, Pierre Bourdieu, Françoise Héritier, and Maurice Godelier, to name a few. Dare I admit this, at the risk of seeming chauvinistic in my view of the social sciences? I probably admire these scholars more than Robert Solow or even Simon Kuznets, even though I regret the fact that the social sciences have largely lost interest in the distribution of wealth and questions of social class since the 1970s. Before that, statistics about income, wages, prices, and wealth played an important part in historical and sociological research. In any case, I hope that both professional social scientists and amateurs of all fields will find something of interest in this book, starting with those wh
o claim to “know nothing about economics” but who nevertheless have very strong opinions about inequality of income and wealth, as is only natural.
The truth is that economics should never have sought to divorce itself from the other social sciences and can advance only in conjunction with them. The social sciences collectively know too little to waste time on foolish disciplinary squabbles. If we are to progress in our understanding of the historical dynamics of the wealth distribution and the structure of social classes, we must obviously take a pragmatic approach and avail ourselves of the methods of historians, sociologists, and political scientists as well as economists. We must start with fundamental questions and try to answer them. Disciplinary disputes and turf wars are of little or no importance. In my mind, this book is as much a work of history as of economics.
As I explained earlier, I began this work by collecting sources and establishing historical time series pertaining to the distribution of income and wealth. As the book proceeds, I sometimes appeal to theory and to abstract models and concepts, but I try to do so sparingly, and only to the extent that theory enhances our understanding of the changes we observe. For example, income, capital, the economic growth rate, and the rate of return on capital are abstract concepts—theoretical constructs rather than mathematical certainties. Yet I will show that these concepts allow us to analyze historical reality in interesting ways, provided that we remain clear-eyed and critical about the limited precision with which we can measure these things. I will also use a few equations, such as α = r × β (which says that the share of capital in national income is equal to the product of the return on capital and the capital/income ratio), or β = s / g (which says that the capital/income ratio is equal in the long run to the savings rate divided by the growth rate). I ask readers not well versed in mathematics to be patient and not immediately close the book: these are elementary equations, which can be explained in a simple, intuitive way and can be understood without any specialized technical knowledge. Above all, I try to show that this minimal theoretical framework is sufficient to give a clear account of what everyone will recognize as important historical developments.
Outline of the Book
The remainder of the book consists of sixteen chapters divided into four parts. Part One, titled “Income and Capital,” contains two chapters and introduces basic ideas that are used repeatedly in the remainder of the book. Specifically, Chapter 1 presents the concepts of national income, capital, and the capital/income ratio and then describes in broad brushstrokes how the global distribution of income and output has evolved. Chapter 2 gives a more detailed analysis of how the growth rates of population and output have evolved since the Industrial Revolution. This first part of the book contains nothing really new, and the reader familiar with these ideas and with the history of global growth since the eighteenth century may wish to skip directly to Part Two.
The purpose of Part Two, titled “The Dynamics of the Capital/Income Ratio,” which consists of four chapters, is to examine the prospects for the long-run evolution of the capital/income ratio and the global division of national income between labor and capital in the twenty-first century. Chapter 3 looks at the metamorphoses of capital since the eighteenth century, starting with the British and French cases, about which we possess the most data over the long run. Chapter 4 introduces the German and US cases. Chapters 5 and 6 extend the geographical range of the analysis to the entire planet, insofar as the sources allow, and seek to draw the lessons from all of these historical experiences that can enable us to anticipate the possible evolution of the capital/income ratio and the relative shares of capital and labor in the decades to come.
Part Three, titled “The Structure of Inequality,” consists of six chapters. Chapter 7 familiarizes the reader with the orders of magnitude of inequality attained in practice by the distribution of income from labor on the one hand and of capital ownership and income from capital on the other. Chapter 8 then analyzes the historical dynamics of these inequalities, starting with a comparison of France and the United States. Chapters 9 and 10 extend the analysis to all the countries for which we have historical data (in the WTID), looking separately at inequalities related to labor and capital, respectively. Chapter 11 studies the changing importance of inherited wealth over the long run. Finally, Chapter 12 looks at the prospects for the global distribution of wealth over the first few decades of the twenty-first century.
The purpose of Part Four, titled “Regulating Capital in the Twenty-First Century” and consisting of four chapters, is to draw normative and policy lessons from the previous three parts, whose purpose is primarily to establish the facts and understand the reasons for the observed changes. Chapter 13 examines what a “social state” suited to present conditions might look like. Chapter 14 proposes a rethinking of the progressive income tax based on past experience and recent trends. Chapter 15 describes what a progressive tax on capital adapted to twenty-first century conditions might look like and compares this idealized tool to other types of regulation that might emerge from the political process, ranging from a wealth tax in Europe to capital controls in China, immigration reform in the United States, and revival of protectionism in many countries. Chapter 16 deals with the pressing question of public debt and the related issue of the optimal accumulation of public capital at a time when natural capital may be deteriorating.
One final word. It would have been quite presumptuous in 1913 to publish a book called “Capital in the Twentieth Century.” I beg the reader’s indulgence for giving the title Capital in the Twenty-First Century to this book, which appeared in French in 2013 and in English in 2014. I am only too well aware of my total inability to predict what form capital will take in 2063 or 2113. As I already noted, and as I will frequently show in what follows, the history of income and wealth is always deeply political, chaotic, and unpredictable. How this history plays out depends on how societies view inequalities and what kinds of policies and institutions they adopt to measure and transform them. No one can foresee how these things will change in the decades to come. The lessons of history are nevertheless useful, because they help us to see a little more clearly what kinds of choices we will face in the coming century and what sorts of dynamics will be at work. The sole purpose of the book, which logically speaking should have been entitled “Capital at the Dawn of the Twenty-First Century,” is to draw from the past a few modest keys to the future. Since history always invents its own pathways, the actual usefulness of these lessons from the past remains to be seen. I offer them to readers without presuming to know their full import.
PART ONE
INCOME AND CAPITAL
{ONE}
Income and Output
On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London. Police fired on the strikers with live ammunition. Thirty-four miners were killed.1 As often in such strikes, the conflict primarily concerned wages: the miners had asked for a doubling of their wage from 500 to 1,000 euros a month. After the tragic loss of life, the company finally proposed a monthly raise of 75 euros.2
This episode reminds us, if we needed reminding, that the question of what share of output should go to wages and what share to profits—in other words, how should the income from production be divided between labor and capital?—has always been at the heart of distributional conflict. In traditional societies, the basis of social inequality and most common cause of rebellion was the conflict of interest between landlord and peasant, between those who owned land and those who cultivated it with their labor, those who received land rents and those who paid them. The Industrial Revolution exacerbated the conflict between capital and labor, perhaps because production became more capital intensive than in the past (making use of machinery and exploiting natural resources more than ever before) and perhaps, too, because hopes for a more equitable distribution of in
come and a more democratic social order were dashed. I will come back to this point.
The Marikana tragedy calls to mind earlier instances of violence. At Haymarket Square in Chicago on May 1, 1886, and then at Fourmies, in northern France, on May 1, 1891, police fired on workers striking for higher wages. Does this kind of violent clash between labor and capital belong to the past, or will it be an integral part of twenty-first-century history?
The first two parts of this book focus on the respective shares of global income going to labor and capital and on how those shares have changed since the eighteenth century. I will temporarily set aside the issue of income inequality between workers (for example, between an ordinary worker, an engineer, and a plant manager) and between capitalists (for example, between small, medium, and large stockholders or landlords) until Part Three. Clearly, each of these two dimensions of the distribution of wealth—the “factorial” distribution in which labor and capital are treated as “factors of production,” viewed in the abstract as homogeneous entities, and the “individual” distribution, which takes account of inequalities of income from labor and capital at the individual level—is in practice fundamentally important. It is impossible to achieve a satisfactory understanding of the distributional problem without analyzing both.3
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