Capital in the Twenty-First Century (104 page)

19
. It is instructive to reread British estimates of national capital at various points
during the twentieth century, as the form and magnitude of public assets and liabilities
changed utterly. See in particular H. Campion,
Public and Private Property in Great Britain
(Oxford: Oxford University Press, 1939), and J. Revell,
The Wealth of the Nation: The National Balance Sheet of the United Kingdom, 1957–1961
(Cambridge: Cambridge University Press, 1967). The question barely arose in Giffen’s
time, since private capital so clearly outweighed public capital. We find the same
evolution in France, for example in the 1956 work published by François Divisia, Jean
Dupin, and René Roy and quite aptly entitled
A la recherche du franc perdu
(Paris: Société d’édition de revues et de publications, 1954), whose third volume
is titled
La fortune de la France
and attempts, not without difficulty, to update Clément Colson’s estimates for the
Belle Époque.

1
. In order to concentrate on long-run evolutions, the figures accompanying this chapter
indicate values by decade only and thus ignore extremes that lasted for only a few
years. For complete annual series, see the online technical appendix.

2
. The average inflation figure of 17 percent for the period 1913–1950 omits the year
1923, when prices increased by a factor of 100 million over the course of the year.

3
. Virtually equal to General Motors, Toyota, and Renault-Nissan, with sales of around
8 million vehicles each in 2011. The French government still holds about 15 percent
of the capital of Renault (the third leading European manufacturer after Volkswagen
and Peugeot).

4
. Given the limitations of the available sources, it is also possible that this gap
can be explained in part by various statistical biases. See the online technical appendix.

5
. See, for example, Michel Albert,
Capitalisme contre capitalisme
(Paris: Le Seuil, 1991).

6
. See, for example, Guillaume Duval,
Made in Germany
(Paris: Le Seuil, 2013).

7
. See the online technical appendix.

8
. The difference from Ricardo’s day was that wealthy Britons in the 1800s and 1810s
were prosperous enough to generate the additional private saving needed to absorb
public deficits without affecting national capital. By contrast, the European deficits
of 1914–1945 occurred in a context where private wealth and saving had already been
subjected to repeated negative shocks, so that public indebtedness aggravated the
decline of national capital.

9
. See the online technical appendix.

10
. See Alexis de Tocqueville,
Democracy in America,
trans. Arthur Goldhammer (New York: Library of America, 2004), II.2.19, p. 646, and
II.3.6, p. 679.

11
. On
Figures 3.1
–
2
,
4.1
,
4.6
, and
4.9
, positive positions relative to the rest of the world are unshaded (indicating periods
of net positive foreign capital) and negative positions are shaded (periods of net
positive foreign debt). The complete series used to establish all these figures are
available in the online technical appendix.

12
. See Supplemental Figures S4.1–2, available online.

13
. On reactions to European investments in the United States during the nineteenth
century, see, for example, Mira Wilkins,
The History of Foreign Investment in the United States to 1914
(Cambridge, MA: Harvard University Press, 1989), chap. 16.

14
. Only a few tens of thousands of slaves were held in the North. See the online technical
appendix.

15
. If each person is treated as an individual subject, then slavery (which can be seen
as an extreme form of debt between individuals) does not increase national wealth,
like any other private or public debt (debts are liabilities for some individuals
and assets for others, hence they cancel out at the global level).

16
. The number of slaves in French colonies emancipated in 1848 has been estimated at
250,000 (or less than 10 percent of the number of slaves in the United States). As
in the United States, however, forms of legal inequality continued well after formal
emancipation: in Réunion, for example, after 1848 former slaves could be arrested
and imprisoned as indigents unless they could produce a labor contract as a servant
or worker on a plantation. Compared with the previous legal regime, under which fugitive
slaves were hunted down and returned to their masters if caught, the difference was
real, but it represented a shift in policy rather than a complete break with the previous
regime.

17
. See the online technical appendix.

18
. For example, if national income consists of 70 percent income from labor and 30
percent income from capital and one capitalizes these incomes at 5 percent, then the
total value of the stock of human capital will equal fourteen years of national income,
that of the stock of nonhuman capital will equal six years of national income, and
the whole will by construction equal twenty years. With a 60–40 percent split of national
income, which is closer to what we observe in the eighteenth century (at least in
Europe), we obtain twelve years and eight years, respectively, again for a total of
twenty years.

1
. The European capital/income ratio indicated in
Figures 5.1
and
5.2
was estimated by calculating the average of the available series for the four largest
European economies (Germany, France, Britain, and Italy), weighted by the national
income of each country. Together, these four countries represent more than three-quarters
of Western European GDP and nearly two-thirds of European GDP. Including other countries
(especially Spain) would yield an even steeper rise in the capital/income ratio over
the last few decades. See the online technical appendix.

2
. The formula
β
=
s
/
g
is read as “
β
equals
s
divided by
g
.” Recall, too, that “
β
=
600%” is equivalent to “
β
=
6,” just as “
s
=
12%” is equivalent to “
s
=
0.12” and “
g
=
2%” is equivalent to “
g
=
0.02.” The savings rate represents truly new savings—hence net of depreciation of
capital—divided by national income. I will come back to this point.

3
. Sometimes
g
is used to denote the growth rate of national income per capita and
n
the population growth rate, in which case the formula would be written
β
=
s
/ (
g
+
n
). To keep the notation simple, I have chosen to use
g
for the overall growth rate of the economy, so that my formula is
β
=
s
/
g
.

4
. Twelve percent of income gives 12 divided by 6 or 2 percent of capital. More generally,
if the savings rate is
s
and the capital/income ratio is
β
, then the capital stock grows at a rate equal to
s
/
β
.

5
. The simple mathematical equation describing the dynamics of the capital/income ratio
β
and its convergence toward
β
=
s
/
g
is given in the online technical appendix.

6
. From 2.2 years in Germany to 3.4 years in the United States in 1970. See Supplemental
Table S5.1, available online, for the complete series.

7
. From 4.1 years in Germany and the United States to 6.1 years in Japan and 6.8 years
in Italy in 2010. The values indicated for each year are annual averages. (For example,
the value indicated for 2010 is the average of the wealth estimates on January 1,
2010, and January 1, 2011.) The first available estimates for 2012–2013 are not very
different. See the online technical appendix.

8
. In particular, it would suffice to change from one price index to another (there
are several of them, and none is perfect) to alter the relative rank of these various
countries. See the online technical appendix.

9
. See Supplemental Figure S5.1, available online.

10
. More precisely: the series show that the private capital/national income ratio rose
from 299 percent in 1970 to 601 percent in 2010, whereas the accumulated flows of
savings would have predicted an increase from 299 to 616 percent. The error is therefore
15 percent of national income out of an increase on the order of 300 percent, or barely
5 percent: the flow of savings explains 95 percent of the increase in the private
capital/national income ratio in Japan between 1970 and 2010. Detailed calculations
for all countries are available in the online technical appendix.

11
. When a firm buys its own shares, it enables its shareholders to realize capital
gains, which will generally be taxed less heavily than if the firm had used the same
sum of money to distribute dividends. It is important to realize that the same is
true when a firm buys the stock of other firms, so that overall the business sector
allows the individual sector to realize capital gains by purchasing financial instruments.

12
. One can also write the law
β
=
s
/
g
with
s
standing for the total rather than the net rate of saving. In that case the law becomes
β
=
s
/ (
g
+
δ
) (where
δ
now stands for the rate of depreciation of capital expressed as a percentage of the
capital stock). For example, if the raw savings rate is
s
=
24%, and if the depreciation rate of the capital stock is
δ
=
2%, for a growth rate of
g
=
2%, then we obtain a capital income ratio
β
=
s
/ (
g
+
δ
)
=
600%. See the online technical appendix.

13
. With a growth of
g
=
2%, it would take a net expenditure on durable goods equal to
s
=
1% of national income per year to accumulate a stock of durable goods equal to
β
=
s
/
g
=
50% of national income. Durable goods need to be replaced frequently, however, so
the gross expenditure would be considerably higher. For example, if average replacement
time is five years, one would need a gross expenditure on durable goods of 10 percent
of national income per year simply to replace used goods, and 11 percent a year to
generate a net expenditure of 1% and an equilibrium stock of 50% of national income
(still assuming growth
g
=
2%). See the online technical appendix.

14
. The total value of the world’s gold stock has decreased over the long run (it was
2 to 3 percent of total private wealth in the nineteenth century but less than 0.5
percent at the end of the twentieth century). It tends to rise during periods of crisis,
however, because gold serves as a refuge, so that it currently accounts for 1.5 percent
of total private wealth, of which roughly one-fifth is held by central banks. These
are impressive variations, yet they are minor compared with the overall value of the
capital stock. See the online technical appendix.

15
. Even though it does not make much difference, for the sake of consistency I have
used the same conventions for the historical series discussed in
Chapters 3
and
4
and for the series discussed here for the period 1970–2010: durable goods have been
excluded from wealth, and valuables have been included in the category labeled “other
domestic capital.”

16
. In
Part Four
I return to the question of taxes, transfers, and redistributions effected by the
government, and in particular to the question of their impact on inequality and on
the accumulation and distribution of capital.

17
. See the online technical appendix.

18
. Net public investment is typically rather low (generally around 0.5–1 percent of
national income, of which 1.5–2 percent goes to gross public investment and 0.5–1
percent to depreciation of public capital), so negative public saving is often fairly
close to the government deficit. (There are exceptions, however: public investment
is higher in Japan, which is the reason why public saving is slightly positive despite
significant government deficits.) See the online technical appendix.

19
. This possible undervaluation is linked to the small number of public asset transactions
in this period. See the online technical appendix.

20
. Between 1870 and 2010, the average rate of growth of national income was roughly
2–2.2 percent in Europe (of which 0.4–0.5 percent came from population growth) compared
with 3.4 percent in the United States (of which 1.5 percent came from population growth).
See the online technical appendix.

21
. An unlisted firm whose shares are difficult to sell because of the small number
of transactions, so that it takes a long time to find an interested buyer, may be
valued 10 to 20 percent lower than a similar company listed on the stock exchange,
for which it is always possible to find an interested buyer or seller on the same
day.