Capital in the Twenty-First Century (27 page)

Things would change over the course of the nineteenth century. The share of agriculture
in output decreased steadily, and the value of farmland also declined, as in Europe.
But the United States accumulated a considerable stock of real estate and industrial
capital, so that national capital was close to five years of national income in 1910,
versus three in 1810. The gap with old Europe remained, but it had shrunk by half
in one century (see
Figure 4.6
). The United States had become capitalist, but wealth continued to have less influence
than in Belle Époque Europe, at least if we consider the vast US territory as a whole.
If we limit our gaze to the East Coast, the gap is smaller still. In the film
Titanic,
the director, James Cameron, depicted the social structure of 1912. He chose to make
wealthy Americans appear just as prosperous—and arrogant—as their European counterparts:
for instance, the detestable Hockley, who wants to bring young Rose to Philadelphia
in order to marry her. (Heroically, she refuses to be treated as property and becomes
Rose Dawson.) The novels of Henry James that are set in Boston and New York between
1880 and 1910 also show social groups in which real estate and industrial and financial
capital matter almost as much as in European novels: times had indeed changed since
the Revolutionary War, when the United States was still a land without capital.

The shocks of the twentieth century struck America with far less violence than Europe,
so that the capital/income ratio remained far more stable: it oscillated between four
and five years of national income from 1910 to 2010 (see
Figure 4.6
), whereas in Europe it dropped from more than seven years to less than three before
rebounding to five or six (see
Figures 3.1
–
2
).

FIGURE 4.7.
   Public wealth in the United States, 1770–2010

Public debt is worth one year of national income in the United States in 1950 (almost
as much as assets).

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

To be sure, US fortunes were also buffeted by the crises of 1914–1945. Public debt
rose sharply in the United States due to the cost of waging war, especially during
World War II, and this affected national saving in a period of economic instability:
the euphoria of the 1920s gave way to the Depression of the 1930s. (Cameron tells
us that the odious Hockley commits suicide in October 1929.). Under Franklin D. Roosevelt,
moreover, the United States adopted policies designed to reduce the influence of private
capital, such as rent control, just as in Europe. After World War II, real estate
and stock prices stood at historic lows. When it came to progressive taxation, the
United States went much farther than Europe, possibly demonstrating that the goal
there was more to reduce inequality than to eradicate private property. No sweeping
policy of nationalization was attempted, although major public investments were initiated
in the 1930s and 1940s, especially in infrastructures. Inflation and growth eventually
returned public debt to a modest level in the 1950s and 1960s, so that public wealth
was distinctly positive in 1970 (see
Figure 4.7
). In the end, American private wealth decreased from nearly five years of national
income in 1930 to less than three and a half in 1970, a not insignificant decline
(see
Figure 4.8
).

FIGURE 4.8.
   Private and public capital in the United States, 1770–2010

In 2010, public capital is worth 20 percent of national income, versus over 400 percent
for private capital.

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

Nevertheless, the “U-shaped curve” of the capital/income ratio in the twentieth century
is smaller in amplitude in the United States than in Europe. Expressed in years of
income or output, capital in the United States seems to have achieved virtual stability
from the turn of the twentieth century on—so much so that a stable capital/income
or capital/output ratio is sometimes treated as a universal law in US textbooks (like
Paul Samuelson’s). In comparison, Europe’s relation to capital, and especially private
capital, was notably chaotic in the century just past. In the Belle Époque capital
was king. In the years after World War II many people thought capitalism had been
almost eradicated. Yet at the beginning of the twenty-first century Europe seems to
be in the avant-garde of the new patrimonial capitalism, with private fortunes once
again surpassing US levels. This is fairly well explained by the lower rate of economic
and especially demographic growth in Europe compared with the United States, leading
automatically to increased influence of wealth accumulated in the past, as we will
see in
Chapter 5
. In any case, the key fact is that the United States enjoyed a much more stable capital/income
ratio than Europe in the twentieth century, perhaps explaining why Americans seem
to take a more benign view of capitalism than Europeans.

Another key difference between the history of capital in America and Europe is that
foreign capital never had more than a relatively limited importance in the United
States. This is because the United States, the first colonized territory to have achieved
independence, never became a colonial power itself.

Throughout the nineteenth century, the United States’ net foreign capital position
was slightly negative: what US citizens owned in the rest of the world was less than
what foreigners, mainly British, owned in the United States. The difference was quite
small, however, at most 10–20 percent of the US national income, and generally less
than 10 percent between 1770 and 1920.

For example, on the eve of World War I, US domestic capital—farmland, housing, other
domestic capital—stood at 500 percent of national income. Of this total, the assets
owned by foreign investors (minus foreign assets held by US investors) represented
the equivalent of 10 percent of national income. The national capital, or net national
wealth, of the United States was thus about 490 percent of national income. In other
words, the United States was 98 percent US-owned and 2 percent foreign-owned. The
net foreign asset position was close to balanced, especially when compared to the
enormous foreign assets held by Europeans: between one and two years of national income
in France and Britain and half a year in Germany. Since the GDP of the United States
was barely more than half of the GDP of Western Europe in 1913, this also means that
the Europeans of 1913 held only a small proportion of their foreign asset portfolios
(less than 5 percent) in the United States. To sum up, the world of 1913 was one in
which Europe owned a large part of Africa, Asia, and Latin America, while the United
States owned itself.

With the two world wars, the net foreign asset position of the United States reversed
itself: it was negative in 1913 but turned slightly positive in the 1920s and remained
so into the 1970s and 1980s. The United States financed the belligerents and thus
ceased to be a debtor of Europe and became a creditor. It bears emphasizing, however,
that the United States’ net foreign assets holdings remained relatively modest: barely
10 percent of national income (see
Figure 4.6
).

In the 1950s and 1960s in particular, the net foreign capital held by the United States
was still fairly limited (barely 5 percent of national income, whereas domestic capital
was close to 400 percent, or 80 times greater). The investments of US multinational
corporations in Europe and the rest of the world attained levels that seemed considerable
at the time, especially to Europeans, who were accustomed to owning the world and
who chafed at the idea of owing their reconstruction in part to Uncle Sam and the
Marshall Plan. In fact, despite these national traumas, US investments in Europe would
always be fairly limited compared to the investments the former colonial powers had
held around the globe a few decades earlier. Furthermore, US investments in Europe
and elsewhere were balanced by continued strong foreign investment in the United States,
particularly by Britain. In the series
Mad Men,
which is set in the early 1960s, the New York advertising agency Sterling Cooper
is bought out by distinguished British stockholders, which does not fail to cause
a culture shock in the small world of Madison Avenue advertising: it is never easy
to be owned by foreigners.

The net foreign capital position of the United States turned slightly negative in
the 1980s and then increasingly negative in the 1990s and 2000s as a result of accumulating
trade deficits. Nevertheless, US investments abroad continued to yield a far better
return than the nation paid on its foreign-held debt—such is the privilege due to
confidence in the dollar. This made it possible to limit the degradation of the negative
US position, which amounted to roughly 10 percent of national income in the 1990s
and slightly more than 20 percent in the early 2010s. All in all, the current situation
is therefore fairly close to what obtained on the eve of World War I. The domestic
capital of the United States is worth about 450 percent of national income. Of this
total, assets held by foreign investors (minus foreign assets held by US investors)
represent the equivalent of 20 percent of national income. The net national wealth
of the United States is therefore about 430 percent of national income. In other words,
the United States is more than 95 percent American owned and less than 5 percent foreign
owned.

To sum up, the net foreign asset position of the United States has at times been slightly
negative, at other times slightly positive, but these positions were always of relatively
limited importance compared with the total stock of capital owned by US citizens (always
less than 5 percent and generally less than 2 percent).

FIGURE 4.9.
   Capital in Canada, 1860–2010

In Canada, a substantial part of domestic capital has always been held by the rest
of the world, so that national capital has always been less than domestic capital.

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

It is interesting to observe that things took a very different course in Canada, where
a very significant share of domestic capital—as much as a quarter in the late nineteenth
and early twentieth century—was owned by foreign investors, mainly British, especially
in the natural resources sector (copper, zinc, and aluminum mines as well as hydrocarbons).
In 1910, Canada’s domestic capital was valued at 530 percent of national income. Of
this total, assets owned by foreign investors (less foreign assets owned by Canadian
investors) represented the equivalent of 120 percent of national income, somewhere
between one-fifth and one-quarter of the total. Canada’s net national wealth was thus
equal to about 410 percent of national income (see
Figure 4.9
).
¹¹