Capital in the Twenty-First Century (101 page)

Notes

In order to avoid burdening the text and endnotes with technical matters, precise
details concerning historical sources, bibliographic references, statistical methods,
and mathematical models have been included in a technical appendix, which can be accessed
on the Internet at
http://piketty.pse.ens.fr/capital21c
.

In particular, the online technical appendix contains the data from which the graphs
in the text were constructed, along with detailed descriptions of the relevant sources
and methods. The bibliographic references and endnotes in the text have been pared
down as much as possible, with more detailed references relegated to this appendix.
It also contains a number of supplementary tables and figures, some of which are referred
to in the notes (e.g., “see Supplementary Figure S1.1,” in Chapter 1,
note 21
). The online technical appendix and Internet site were designed as a complement to
the book, which can thus be read on several levels.

Interested readers will also find online all relevant data files (mainly in Excel
or Stata format), programs, mathematical formulas and equations, references to primary
sources, and links to more technical papers on which this book draws.

My goal in writing was to make this book accessible to people without any special
technical training, while the book together with the technical appendix should satisfy
the demands of specialists in the field. This procedure will also allow me to post
revised online versions and updates of the tables, graphs, and technical apparatus.
I welcome input from readers of the book or website, who can send comments and criticisms
to [email protected].

1
. The English economist Thomas Malthus (1766–1834) is considered to be one of the
most influential members of the “classical” school, along with Adam Smith (1723–1790)
and David Ricardo (1772–1823).

2
. There is of course a more optimistic school of liberals: Adam Smith seems to belong
to it, and in fact he never really considered the possibility that the distribution
of wealth might grow more unequal over the long run. The same is true of Jean-Baptiste
Say (1767–1832), who also believed in natural harmony.

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
. “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.