3. The other possibility is to increase supply of the scarce good, for example by finding new oil deposits (or new sources of energy, if possible cleaner than oil), or by moving toward a more dense urban environment (by constructing high-rise housing, for example), which raises other difficulties. In any case, this, too, can take decades to accomplish.
4. Friedrich Engels (1820–1895), who had direct experience of his subject, would become the friend and collaborator of the German philosopher and economist Karl Marx (1818–1883). He settled in Manchester in 1842, where he managed a factory owned by his father.
5. The historian Robert Allen recently proposed to call this long period of wage stagnation “Engels’ pause.” See Allen, “Engels’ Pause: A Pessimist’s Guide to the British Industrial Revolution,” Oxford University Department of Economics Working Papers 315 (2007). See also “Engels’ Pause: Technical Change, Capital Accumulation, and Inequality in the British Industrial Revolution,” in Explorations in Economic History 46, no. 4 (October 2009): 418–35.
6. The opening passage continues: “All the powers of old Europe have entered into a holy alliance to exorcise this specter: Pope and Tsar, Metternich and Guizot, French Radicals and German police-spies.” No doubt Marx’s literary talent partially accounts for his immense influence.
7. In 1847 Marx published The Misery of Philosophy, in which he mocked Proudhon’s Philosophy of Misery, which was published a few years earlier.
8. In Chapter 6 I return to the theme of Marx’s use of statistics. To summarize: he occasionally sought to make use of the best available statistics of the day (which were better than the statistics available to Malthus and Ricardo but still quite rudimentary), but he usually did so in a rather impressionistic way and without always establishing a clear connection to his theoretical argument.
9. Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45, no. 1 (1955): 1–28.
10. Robert Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (February 1956): 65–94.
11. See Simon Kuznets, Shares of Upper Income Groups in Income and Savings (Cambridge, MA: National Bureau of Economic Research, 1953). Kuznets was an American economist, born in Ukraine in 1901, who settled in the United States in 1922 and became a professor at Harvard after studying at Columbia University. He died in 1985. He was the first person to study the national accounts of the United States and the first to publish historical data on inequality.
12. Because it is often the case that only a portion of the population is required to file income tax returns, we also need national accounts in order to measure total income.
13. Put differently, the middle and working classes, defined as the poorest 90 percent of the US population, saw their share of national income increase from 50–55 percent in the 1910s and 1920s to 65–70 percent in the late 1940s.
14. See Kuznets, Shares of Upper Income Groups, 12–18. The Kuznets curve is sometimes referred to as “the inverted-U curve.” Specifically, Kuznets suggests that growing numbers of workers move from the poor agricultural sector into the rich industrial sector. At first, only a minority benefits from the wealth of the industrial sector, hence inequality increases. But eventually everyone benefits, so inequality decreases. It should be obvious that this highly stylized mechanism can be generalized. For example, labor can be transferred between industrial sectors or between jobs that are more or less well paid.
15. It is interesting to note that Kuznets had no data to demonstrate the increase of inequality in the nineteenth century, but it seemed obvious to him (as to most observers) that such an increase had occurred.
16. As Kuznets himself put it: “This is perhaps 5 percent empirical information and 95 percent speculation, some of it possibly tainted by wishful thinking.” See Kuznets, Shares of Upper Income Groups, 24–26.
17. “The future prospect of underdeveloped countries within the orbit of the free world” (28).
18. In these representative-agent models, which have become ubiquitous in economic teaching and research since the 1960s, one assumes from the outset that each agent receives the same wage, is endowed with the same wealth, and enjoys the same sources of income, so that growth proportionately benefits all social groups by definition. Such a simplification of reality may be justified for the study of certain very specific problems but clearly limits the set of economic questions one can ask.
19. Household income and budget studies by national statistical agencies rarely date back before 1970 and tend to seriously underestimate higher incomes, which is problematic because the upper income decile often owns as much as half the national wealth. Tax records, for all their limitations, tell us more about high incomes and enable us to look back a century in time.
20. See Thomas Piketty, Les hauts revenus en France au 20e siècle: Inégalités et redistributions 1901–1998 (Paris: Grasset, 2001). For a summary, see “Income Inequality in France, 1901–1998,” Journal of Political Economy 111, no. 5 (2003): 1004–42.
21. See Anthony Atkinson and Thomas Piketty, Top Incomes over the Twentieth Century: A Contrast between Continental-European and English-Speaking Countries (Oxford: Oxford University Press, 2007), and Top Incomes: A Global Perspective (Oxford: Oxford University Press, 2010).
22. See Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics 118, no. 1 (February 2003): 1–39.
23. A complete bibliography is available in the online technical appendix. For an overview, see also Anthony Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long-Run of History,” Journal of Economic Literature 49, no. 1 (March 2011): 3–71.
24. It is obviously impossible to give a detailed account of each country in this book, which offers a general overview. Interested readers can turn to the complete data series, which are available online at the WTID website (http://topincomes.parisschoolofeconomics.eu) as well as in the more technical books and articles cited above. Many texts and documents are also available in the online technical appendix (http://piketty.pse.ens.fr/capital21c).
25. The WTID is currently being transformed into the World Wealth and Income Database (WWID), which will integrate the three subtypes of complementary data. In this book I will present an overview of the information that is currently available.
26. One can also use annual wealth tax returns in countries where such a tax is imposed in living individuals, but over the long run estate tax data are easier to come by.
27. See the following pioneering works: R.J. Lampman, The Share of Top Wealth-Holders in National Wealth, 1922–1956 (Princeton: Princeton University Press, 1962); Anthony Atkinson and A.J. Harrison, Distribution of Personal Wealth in Britain, 1923–1972 (Cambridge: Cambridge University Press, 1978).
28. See Thomas Piketty, Gilles Postel-Vinay, and Jean-Laurent Rosenthal, “Wealth Concentration in a Developing Economy: Paris and France, 1807–1994,” American Economic Review 96, no. 1 (March 2006): 236–56.
29. See Jesper Roine and Daniel Waldenström, “Wealth Concentration over the Path of Development: Sweden, 1873–2006,” Scandinavian Journal of Economics 111, no. 1 (March 2009): 151–87.
30. See Thomas Piketty, “On the Long-Run Evolution of Inheritance: France 1820–2050,” École d’économie de Paris, PSE Working Papers (2010). Summary version published in Quarterly Journal of Economics 126, no. 3 (2011): 1071–1131.
31. See Thomas Piketty and Gabriel Zucman, “Capital Is Back: Wealth-Income Ratios in Rich Countries, 1700–2010” (Paris: École d’économie de Paris, 2013).
32. See esp. Raymond Goldsmith, Comparative National Balance Sheets: A Study of Twenty Countries, 1688–1978 (Chicago: University of Chicago Press, 1985). More complete references may be found in the online technical appendix.
33. See A.H. Jones, American Colonial Wealth: Documents and Methods (New York: Arno Press, 1977), and Adeline Daumard, Les fortunes françaises au 19e siècle
: Enquête sur la répartition et la composition des capitaux privés à Paris, Lyon, Lille, Bordeaux et Toulouse d’après l’enregistrement des déclarations de successions, (Paris: Mouton, 1973).
34. See in particular François Simiand, Le salaire, l’évolution sociale et la monnaie (Paris: Alcan, 1932); Ernest Labrousse, Esquisse du mouvement des prix et des revenus en France au 18e siècle (Paris: Librairie Dalloz, 1933); Jean Bouvier, François Furet, and M. Gilet, Le mouvement du profit en France au 19e siècle: Matériaux et études (Paris: Mouton, 1965).
35. There are also intrinsically intellectual reasons for the decline of economic and social history based on the evolution of prices, incomes, and fortunes (sometimes referred to as “serial history”). In my view, this decline is unfortunate as well as reversible. I will come back to this point.
36. This destabilizing mechanism (the richer one is, the wealthier one gets) worried Kuznets a great deal, and this worry accounts for the title of his 1953 book Shares of Upper Income Groups in Income and Savings. But he lacked the historical distance to analyze it fully. This force for divergence was also central to James Meade’s classic Efficiency, Equality, and the Ownership of Property (London: Allen and Unwin, 1964), and to Atkinson and Harrison, Distribution of Personal Wealth in Britain, which in a way was the continuation of Meade’s work. Our work follows in the footsteps of these authors.
1. Income and Output
1. “South African Police Open Fire on Striking Miners,” New York Times, August 17, 2012.
2. See the company’s official communiqué, “Lonmin Seeks Sustainable Peace at Marikana,” August 25, 2012, www.lonmin.com. According to this document, the base wage of miners before the strike was 5,405 rand per month, and the raise granted was 750 rand per month (1 South African rand is roughly equal to 0.1 euro). These figures seem consistent with those reported by the strikers and published in the press.
3. The “factorial” distribution is sometimes referred to as “functional” or “macroeconomic,” and the “individual” distribution is sometimes called “personal” or “microeconomic.” In reality, both types of distribution depend on both microeconomic mechanisms (which must be analyzed at the level of the firm or individual agents) and macroeconomic mechanisms (which can be understood only at the level of the national or global economy).
4. One million euros per year (equivalent to the wages of 200 miners), according to the strikers. Unfortunately, no information about this is available on the company’s website.
5. Roughly 65–70 percent for wages and other income from labor and 30–35 percent for profits, rents, and other income from capital.
6. About 65–70 percent for wages and other income from labor and 30–35 percent for profits, rents, and other income from capital.
7. National income is also called “net national product” (as opposed to “gross national product” (GNP), which includes the depreciation of capital). I will use the expression “national income,” which is simpler and more intuitive. Net income from abroad is defined as the difference between income received from abroad and income paid out to foreigners. These opposite flows consist primarily of income from capital but also include income from labor and unilateral transfers (such as remittances by immigrant workers to their home countries). See the online appendix for details.
8. In English one speaks of “national wealth” or “national capital.” In the eighteenth and nineteenth centuries, French authors spoke of fortune nationale and English authors of “national estate” (with a distinction in English between “real estate” and other property referred to as “personal estate”).
9. I use essentially the same definitions and the same categories of assets and liabilities as the current international standards for national accounts, with slight differences that are discussed in the online appendix.
10. Detailed figures for each country can be consulted in the tables available in the online appendix.
11. In practice, the median income (that is, the income level below which 50 percent of the population sits) is generally on the order of 20–30 percent less than average income. This is because the upper tail of the income distribution is much more drawn out than the lower tail and the middle, which raises the average (but not the median). Note, too, that “per capita national income” refers to average income before taxes and transfers. In practice, citizens of the rich countries have chosen to pay one-third to one-half of their national income in taxes and other charges in order to pay for public services, infrastructure, social protection, a substantial share of expenditures for health and education, etc. The issue of taxes and public expenditures is taken up primarily in Part Four.
12. Cash holdings (including in financial assets) accounted for only a minuscule part of total wealth, a few hundred euros per capita, or a few thousand if one includes gold, silver, and other valuable objects, or about 1–2 percent of total wealth. See the online technical appendix. Moreover, public assets are today approximately equal to public debts, so it is not absurd to say that households can include them in their financial assets.
13. The formula α = r × β is read as “α equals r times β.” Furthermore, “β = 600%” is the same as “β = 6,” and “α = 30%” is the same as “α = 0.30” and “r = 5%” is the same as “r = 0.05.”
14. I prefer “rate of return on capital” to “rate of profit” in part because profit is only one of the legal forms that income from capital may take and in part because the expression “rate of profit” has often been used ambiguously, sometimes referring to the rate of return and other times (mistakenly) to the share of profits in income or output (that is, to denote what I am calling α rather than r, which is quite different). Sometimes the expression “marginal rate” is used to denote the share of profits α.
15. Interest is a very special form of the income from capital, much less representative than profits, rents, and dividends (which account for much larger sums than interest, given the typical composition of capital). The “rate of interest” (which, moreover, varies widely depending on the identity of the borrower) is therefore not representative of the average rate of return on capital and is often much lower. This idea will prove useful when it comes to analyzing the public debt.
16. The annual output to which I refer here corresponds to what is sometimes called the firm’s “value added,” that is, the difference between what the firm earns by selling goods and services (“gross revenue”) and what it pays other firms for goods and services (“intermediate consumption”). Value added measures the firm’s contribution to the domestic product. By definition, value added also measures the sum available to the firm to pay the labor and capital used in production. I refer here to value added net of capital depreciation (that is, after deducting the cost of wear and tear on capital and infrastructure) and profits net of depreciation.
17. See esp. Robert Giffen, The Growth of Capital (London: George Bell and Sons, 1889). For more detailed bibliographic data, see the online appendix.
18. The advantage of the ideas of national wealth and income is that they give a more balanced view of a country’s enrichment than the idea of GDP, which in some respects is too “productivist.” For instance, if a natural disaster destroys a great deal of wealth, the depreciation of capital will reduce national income, but GDP will be increased by reconstruction efforts.
19. For a history of official systems of national accounting since World War II, written by one of the principal architects of the new system adopted by the United Nations in 1993 (the so-called System of National Accounts [SNA] 1993, which was the first to propose consistent definitions for capital accounts), see André Vanoli, Une histoire de la comptabilité nationale (Paris: La Découverte, 2002). See also the instructive comments of Richard Stone, “Nobel Memorial Lecture, 1984: The Accounts of Society,” Journal of Applied Econometrics 1, no. 1 (January 1986): 5–28. Stone was one of the pioneers of British and UN accounts in the postwar period. See also François Fourquet, Les comptes de
la puissance—Histoire de la comptabilité nationale et du plan (Paris: Recherches, 1980), an anthology of contributions by individuals involved in constructing French national accounts in the period 1945–1975.
20. Angus Maddison (1926–2010) was a British economist who specialized in reconstituting national accounts at the global level over a very long run. Note that Maddison’s historical series are concerned solely with the flow of output (GDP, population, and GDP per capita) and say nothing about national income, the capital-labor split, or the stock of capital. On the evolution of the global distribution of output and income, see also the pioneering work of François Bourguignon and Branko Milanovic. See the online technical appendix.
21. The series presented here go back only as far as 1700, but Maddison’s estimates go back all the way to antiquity. His results suggest that Europe began to move ahead of the rest of the world as early as 1500. By contrast, around the year 1000, Asia and Africa (and especially the Arab world) enjoyed a slight advantage. See Supplemental Figures S1.1, S1.2, and S1.3 (available online).
22. To simplify the exposition, I include in the European Union smaller European countries such as Switzerland, Norway, and Serbia, which are surrounded by the European Union but not yet members (the population of the European Union in the narrow sense was 510 million in 2012, not 540 million). Similarly, Belarus and Moldavia are included in the Russia-Ukraine bloc. Turkey, the Caucasus, and Central Asia are included in Asia. Detailed figures for each country are available online.
23. See Supplemental Table S1.1 (available online).
24. The same can be said of Australia and New Zealand (with a population of barely 30 million, or less than 0.5 percent of the world’s population, with a per capita GDP of around 30,000 euros per year). For simplicity’s sake, I include these two countries in Asia. See Supplemental Table S1.1 (available online).
25. If the current exchange rate of $1.30 per euro to convert American GDP had been used, the United States would have appeared to be 10 percent poorer, and GDP per capital would have declined from 40,000 to about 35,000 euros (which would in fact be a better measure of the purchasing power of an American tourist in Europe). See Supplemental Table S1.1. The official ICP estimates are made by a consortium of international organizations, including the World Bank, Eurostat, and others. Each country is treated separately. There are variations within the Eurozone, and the euro/dollar parity of $1.20 is an average. See the online technical appendix.
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