Capital in the Twenty-First Century (11 page)

BOOK: Capital in the Twenty-First Century

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As noted, the first attempts to measure national income and capital date back to the
late seventeenth and early eighteenth century. Around 1700, several isolated estimates
appeared in Britain and France (apparently independently of one another). I am speaking
primarily of the work of William Petty (1664) and Gregory King (1696) for England
and Pierre le Pesant, sieur de Boisguillebert (1695), and Sébastien Le Prestre de
Vauban (1707) for France. Their work focused on both the national stock of capital
and the annual flow of national income. One of their primary objectives was to calculate
the total value of land, by far the most important source of wealth in the agrarian
societies of the day, and then to relate the quantity of landed wealth to the level
of agricultural output and land rents.

It is worth noting that these authors often had a political objective in mind, generally
having to do with modernization of the tax system. By calculating the nation’s income
and wealth, they hoped to show the sovereign that it would be possible to raise tax
receipts considerably while keeping tax rates relatively low, provided that all property
and goods produced were subject to taxation and everyone was required to pay, including
landlords of both aristocratic and common descent. This objective is obvious in Vauban’s
Projet de dîme royale
(Plan for a Royal Tithe), but it is just as clear in the works of Boisguillebert
and King (though less so in Petty’s writing).

The late eighteenth century saw further attempts to measure income and wealth, especially
around the time of the French Revolution. Antoine Lavoisier published his estimates
for the year 1789 in his book
La Richesse territoriale du Royaume de France
(The Territorial Wealth of the Kingdom of France), published in 1791. The new tax
system established after the Revolution, which ended the privileges of the nobility
and imposed a tax on all property in land, was largely inspired by this work, which
was widely used to estimate expected receipts from new taxes.

It was above all in the nineteenth century, however, that estimates of national wealth
proliferated. From 1870 to 1900, Robert Giffen regularly updated his estimates of
Britain’s stock of national capital, which he compared to estimates by other authors
(especially Patrick Colquhoun) from the early 1800s. Giffen marveled at the size of
Britain’s stock of industrial capital as well as the stock of foreign assets acquired
since the Napoleonic wars, which was many times larger than the entire public debt
due to those wars.
¹⁷In France at about the same time, Alfred de Foville and Clément Colson published
estimates of “national wealth” and “private wealth,” and, like Giffen, both writers
also marveled at the considerable accumulation of private capital over the course
of the nineteenth century. It was glaringly obvious to everyone that private fortunes
were prospering in the period 1870–1914. For the economists of the day, the problem
was to measure that wealth and compare different countries (the Franco-British rivalry
was never far from their minds). Until World War I, estimates of wealth received much
more attention than estimates of income and output, and there were in any case more
of them, not only in Britain and France but also in Germany, the United States, and
other industrial powers. In those days, being an economist meant first and foremost
being able to estimate the national capital of one’s country: this was almost a rite
of initiation.

It was not until the period between the two world wars that national accounts began
to be established on an annual basis. Previous estimates had always focused on isolated
years, with successive estimates separated by ten or more years, as in the case of
Giffen’s calculations of British national capital in the nineteenth century. In the
1930s, improvements in the primary statistical sources made the first annual series
of national income data possible. These generally went back as far as the beginning
of the twentieth century or the last decades of the nineteenth. They were established
for the United States by Kuznets and Kendrick, for Britain by Bowley and Clark, and
for France by Dugé de Bernonville. After World War II, government statistical offices
supplanted economists and began to compile and publish official annual data on GDP
and national income. These official series continue to this day.

Compared with the pre–World War I period, however, the focal point of the data had
changed entirely. From the 1940s on, the primary motivation was to respond to the
trauma of the Great Depression, during which governments had no reliable annual estimates
of economic output. There was therefore a need for statistical and political tools
in order to steer the economy properly and avoid a repeat of the catastrophe. Governments
thus insisted on annual or even quarterly data on output and income. Estimates of
national wealth, which had been so prized before 1914, now took a backseat, especially
after the economic and political chaos of 1914–1945 made it difficult to interpret
their meaning. Specifically, the prices of real estate and financial assets fell to
extremely low levels, so low that private capital seemed to have evaporated. In the
1950s and 1960s, a period of reconstruction, the main goal was to measure the remarkable
growth of output in various branches of industry.

In the 1990s–2000s, wealth accounting again came to the fore. Economists and political
leaders were well aware that the financial capitalism of the twenty-first century
could not be properly analyzed with the tools of the 1950s and 1960s. In collaboration
with central banks, government statistical agencies in various developed countries
compiled and published annual series of data on the assets and liabilities of different
groups, in addition to the usual income and output data. These wealth accounts are
still far from perfect: for example, natural capital and damages to the environment
are not well accounted for. Nevertheless, they represent real progress in comparison
with national accounts from the early postwar years, which were concerned solely with
endless growth in output.
¹⁸These are the official series that I use in this book to analyze aggregate wealth
and the current capital/income ratio in the wealthy countries.

One conclusion stands out in this brief history of national accounting: national accounts
are a social construct in perpetual evolution. They always reflect the preoccupations
of the era when they were conceived.
¹⁹We should be careful not to make a fetish of the published figures. When a country’s
national income per capita is said to be 30,000 euros, it is obvious that this number,
like all economic and social statistics, should be regarded as an estimate, a construct,
and not a mathematical certainty. It is simply the best estimate we have. National
accounts represent the only consistent, systematic attempt to analyze a country’s
economic activity. They should be regarded as a limited and imperfect research tool,
a compilation and arrangement of data from highly disparate sources. In all developed
countries, national accounts are currently compiled by government statistical offices
and central banks from the balance sheets and account books of financial and nonfinancial
corporations together with many other statistical sources and surveys. We have no
reason to think a priori that the officials involved in these efforts do not do their
best to spot inconsistencies in the data in order to achieve the best possible estimates.
Provided we use these data with caution and in a critical spirit and complement them
with other data where there are errors or gaps (say, in dealing with tax havens),
these national accounts are an indispensable tool for estimating aggregate income
and wealth.

In particular, as I will show in
Part Two
, we can put together a consistent analysis of the historical evolution of the capital/income
ratio by meticulously compiling and comparing national wealth estimates by many authors
from the eighteenth to the early twentieth century and connecting them up with official
capital accounts from the late twentieth and early twenty-first century. The other
major limitation of official national accounts, apart from their lack of historical
perspective, is that they are deliberately concerned only with aggregates and averages
and not with distributions and inequalities. We must therefore draw on other sources
to measure the distribution of income and wealth and to study inequalities. National
accounts thus constitute a crucial element of our analyses, but only when completed
with additional historical and distributional data.

The Global Distribution of Production

I begin by examining the evolution of the global distribution of production, which
is relatively well known from the early nineteenth century on. For earlier periods,
estimates are more approximate, but we know the broad outlines, thanks most notably
to the historical work of Angus Maddison, especially since the overall pattern is
relatively simple.
²⁰

From 1900 to 1980, 70–80 percent of the global production of goods and services was
concentrated in Europe and America, which incontestably dominated the rest of the
world. By 2010, the European–American share had declined to roughly 50 percent, or
approximately the same level as in 1860. In all probability, it will continue to fall
and may go as low as 20–30 percent at some point in the twenty-first century. This
was the level maintained up to the turn of the nineteenth century and would be consistent
with the European–American share of the world’s population (see
Figures 1.1
and
1.2
).

In other words, the lead that Europe and America achieved during the Industrial Revolution
allowed these two regions to claim a share of global output that was two to three
times greater than their share of the world’s population simply because their output
per capita was two to three times greater than the global average.
²¹All signs are that this phase of divergence in per capita output is over and that
we have embarked on a period of convergence. The resulting “catch-up” phenomenon is
far from over, however (see
Figure 1.3
). It is far too early to predict when it might end, especially since the possibility
of economic and/or political reversals in China and elsewhere obviously cannot be
ruled out.