Capital in the Twenty-First Century

by Thomas Piketty

  FIGURE 10.1. Wealth inequality in France, 1810–2010

  The top decile (the top 10 percent highest wealth holders) owns 80–90 percent of total wealth in 1810–1910, and 60–65 percent today.

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

  The probate records also allow us to see that throughout the nineteenth century, wealth was almost as unequally distributed within each age cohort as in the nation as a whole. Note that the estimates indicated in Figures 10.1–2 (and subsequent figures) reflect inequality of wealth in the (living) adult population at each charted date: we start with wealth at the time of death but reweight each observation as a function of the number of living individuals in each age cohort as of the date in question. In practice, this does not make much difference: the concentration of wealth among the living is barely a few points higher than inequality of wealth at death, and the temporal evolution is nearly identical in each case.7

  FIGURE 10.2. Wealth inequality in Paris versus France, 1810–2010

  The top percentile (the top 1 percent wealth holders) owns 70 percent of aggregate wealth in Paris on the eve of World War I.

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

  How concentrated was wealth in France during the eighteenth century up to the eve of the Revolution? Without a source comparable to the probate records created by the revolutionary assemblies (for the Ancien Régime we have only heterogeneous and incomplete sets of private data, as for Britain and the United States until the late nineteenth century), it is unfortunately impossible to make precise comparisons. Yet all signs are that inequality of private wealth decreased slightly between 1780 and 1810 owing to redistribution of agricultural land and cancellation of public debt during the Revolution, together with other shocks to aristocratic fortunes. It is possible that the top decile’s share attained or even slightly exceeded 90 percent of total wealth on the eve of 1789 and that the upper centile’s share attained or exceeded 60 percent. Conversely, the “émigré billion” (the billion francs paid to the nobility in compensation for land confiscated during the Revolution) and the return of the nobility to the forefront of the political scene contributed to the reconstitution of some old fortunes during the period of limited-suffrage monarchy (1815–1848). In fact, our probate data reveal that the percentage of aristocratic names in the top centile of the Parisian wealth hierarchy increased gradually from barely 15 percent in 1800–1810 to nearly 30 percent in 1840–1850 before embarking on an inexorable decline from 1850–1860 on, falling to less than 10 percent by 1890–1900.8

  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

  Inequality of Capital in Belle Époque Europe

  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

  The Emergence of the Patrimonial Middle Class

  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.

  Inequality of Wealth in America

  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

  It is a well-established fact that wealth in the United States became increasingly concentrated over the course of the nineteenth century. In 1910, capital inequality there was very high, though still markedly lower than in Europe: the top decile owned about 80 percent of total wealth and the top centile around 45 percent (see Figure 10.5). Interestingly, the fact that inequality in the New World seemed to be catching up with inequality in old Europe greatly worried US economists at the time. Willford King’s book on the distribution of wealth in the United States in 1915—the first broad study of the question—is particularly illuminating in this regard.13 From today’s perspective, this may seem surprising: we have been accustomed for several decades now to the fact that the United States is more inegalitarian than Europe and even that many Americans are proud of the fact (often arguing that inequality is a prerequisite of entrepreneurial dynamism and decrying Europe as a sanctuary of Soviet-style egalitarianism). A century ago, however, both the perception and the reality were strictly the opposite: it was obvious to everyone that the New World was by nature less inegalitarian than old Europe, and this difference was also a subject of pride. In the late nineteenth century, in the period known as the Gilded Age, when some US industrialists and financiers (for example John D. Rockefeller, Andrew Carnegie, and J. P. Morgan) accumulated unprecedented wealth, many US observers were alarmed by the thought that the country was losing its pioneering egalitarian spirit. To be sure, that spirit was partly a myth, but it was also partly justified by comparison with the concentration of wealth in Europe. In Part Four we will see that this fear of growing to resemble Europe was part of the reason why the United States in 1910–1920 pioneered a very progressive estate tax on large fortunes, which were deemed to be incompatible with US values, as well as a progressive income tax on incomes thought to be excessive. Perceptions of inequality, redistribution, and national identity changed a great deal over the course of the twentieth century, to put it mildly.r />
  FIGURE 10.5. Wealth inequality in the United States, 1810–2010

  The top 10 percent wealth holders own about 80 percent of total wealth in 1910 and 75 percent today.

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

  FIGURE 10.6. Wealth inequality in Europe versus the United States, 1810–2010

  Until the mid-twentieth century, wealth inequality was higher in Europe than in the United States.

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

  Inequality of wealth in the United States decreased between 1910 and 1950, just as inequality of income did, but much less so than in Europe: of course it started from a lower level, and the shocks of war were less violent. By 2010, the top decile’s share of total wealth exceeded 70 percent, and the top centile’s share was close to 35 percent.14

  In the end, the deconcentration of wealth in the United States over the course of the twentieth century was fairly limited: the top decile’s share of total wealth dropped from 80 to 70 percent, whereas in Europe it fell from 90 to 60 percent (see Figure 10.6).15

  The differences between the European and US experiences are clear. In Europe, the twentieth century witnessed a total transformation of society: inequality of wealth, which on the eve of World War I was as great as it had been under the Ancien Régime, fell to an unprecedentedly low level, so low that nearly half the population were able to acquire some measure of wealth and for the first time to own a significant share of national capital. This is part of the explanation for the great wave of enthusiasm that swept over Europe in the period 1945–1975. People felt that capitalism had been overcome and that inequality and class society had been relegated to the past. It also explains why Europeans had a hard time accepting that this seemingly ineluctable social progress ground to a halt after 1980, and why they are still wondering when the evil genie of capitalism will be put back in its bottle.