Capital in the Twenty-First Century (59 page)

The question is all the more important because capital ownership is apparently becoming
increasingly concentrated once again today, as the capital/income ratio rises and
growth slows. The possibility of a widening wealth gap raises many questions as to
its long-term consequences. In some respects it is even more worrisome than the widening
income gap between supermanagers and others, which to date remains a geographically
limited phenomenon.

As noted in
Chapter 7
, the distribution of wealth—and therefore of income from capital—is always much more
concentrated than the distribution of income from labor. In all known societies, at
all times, the least wealthy half of the population own virtually nothing (generally
little more than 5 percent of total wealth); the top decile of the wealth hierarchy
own a clear majority of what there is to own (generally more than 60 percent of total
wealth and sometimes as much as 90 percent); and the remainder of the population (by
construction, the 40 percent in the middle) own from 5 to 35 percent of all wealth.
²
I also noted the emergence of a “patrimonial middle class,” that is, an intermediate
group who are distinctly wealthier than the poorer half of the population and own
between a quarter and a third of national wealth. The emergence of this middle class
is no doubt the most important structural transformation to affect the wealth distribution
over the long run.

Why did this transformation occur? To answer this question, one must first take a
closer look at the chronology. When and how did inequality of wealth begin to decline?
To be candid, because the necessary sources (mainly probate records) are unfortunately
not always available, I have thus far not been able to study the historical evolution
of wealth inequality in as many countries as I examined in the case of income inequality.
We have fairly complete historical estimates for four countries: France, Britain,
the United States, and Sweden. The lessons of these four histories are fairly clear
and consistent, however, so that we can say something about the similarities and differences
between the European and US trajectories.
³
Furthermore, the wealth data have one enormous advantage over the income data: they
allow us in some cases to go much farther back in time. Let me now examine one by
one the four countries I have studied in detail.

France is a particularly interesting case, because it is the only country for which
we have a truly homogeneous historical source that allows us to study the distribution
of wealth continuously from the late eighteenth century to the present. In 1791, shortly
after the fiscal privileges of the nobility were abolished, a tax on estates and gifts
was established, together with a wealth registry. These were astonishing innovations
at the time, notable for their universal scope. The new estate tax was universal in
three ways: first, it applied to all types of property: farmland, other urban and
rural real estate, cash, public and private bonds, other kinds of financial assets
such as shares of stock or partnerships, furniture, valuables, and so on; second,
it applied to all owners of wealth, whether noble or common; and third, it applied
to fortunes of all sizes, large or small. Moreover, the purpose of this fundamental
reform was not only to fill the coffers of the new regime but also to enable the government
to record all transfers of wealth, whether by bequest (at the owner’s death) or gift
(during the owner’s lifetime), in order to guarantee to all the full exercise of their
property rights. In official language, the estate and gift tax has always—from 1791
until now—been classified as one of a number of
droits d’enregistrement
(recording fees), and more specifically
droits de mutation
(transfer fees), which included both charges assessed on “free-will transfers,” or
transfers of title to property made without financial consideration, by bequest or
gift, and “transfers for consideration” (that is, transfers made in exchange for cash
or other valuable tokens). The purpose of the law was thus to allow every property
owner, large or small, to record his title and thus to enjoy his property rights in
full security, including the right to appeal to the public authorities in case of
difficulty. Thus a fairly complete system of property records was established in the
late 1790s and early 1800s, including a cadastre for real estate that still exists
today.

In
Part Four
I say more about the history of estate taxes in different countries. At this stage,
taxes are of interest primarily as a historical source. In most other countries, it
was not until the end of the nineteenth century or beginning of the twentieth that
estate and gift taxes comparable to France’s were established. In Britain, the reform
of 1894 unified previous taxes on the conveyance of real estate, financial assets,
and personal estate, but homogeneous probate statistics covering all types of property
go back only to 1919–1920. In the United States, the federal tax on estates and gifts
was not created until 1916 and covered only a tiny minority of the population. (Although
taxes covering broader segments of the population do exist in some states, these are
highly heterogeneous.) Hence it is very difficult to study the evolution of wealth
inequalities in these two countries before World War I. To be sure, there are many
probate documents and estate inventories, mostly of private origin, dealing with particular
subsets of the population and types of property, but there is no obvious way to use
these records to draw general conclusions.

This is unfortunate, because World War I was a major shock to wealth and its distribution.
One of the primary reasons for studying the French case is precisely that it will
allow us to place this crucial turning point in a longer historical perspective. From
1791 to 1901, the estate and gift tax was strictly proportional: it varied with degree
of kinship but was the same regardless of the amount transferred and was usually quite
low (generally 1–2 percent). The tax was made slightly progressive in 1901 after a
lengthy parliamentary battle. The government, which had begun publishing detailed
statistics on the annual flow of bequests and donations as far back as the 1820s,
began compiling a variety of statistics by size of estate in 1901, and from then until
the 1950s, these became increasingly sophisticated (with cross-tabulations by age,
size of estate, type of property, etc.). After 1970, digital files containing representative
samples from estate and gift tax filings in a specific year became available, so that
the data set can be extended to 2000–2010. In addition to the rich sources produced
directly by the tax authorities over the past two centuries, I have also collected,
together with Postel-Vinay and Rosenthal, tens of thousands of individual declarations
(which have been very carefully preserved in national and departmental archives since
the early nineteenth century) for the purpose of constructing large samples covering
each decade from 1800–1810 to 2000–2010. All in all, French probate records offer
an exceptionally rich and detailed view of two centuries of wealth accumulation and
distribution.
⁴

Figure 10.1
presents the main results I obtained for the evolution of the wealth distribution
from 1810 to 2010.
⁵
The first conclusion is that prior to the shocks of 1914–1945, there was no visible
trend toward reduced inequality of capital ownership. Indeed, there was a slight tendency
for capital concentration to rise throughout the nineteenth century (starting from
an already very high level) and even an acceleration of the inegalitarian spiral in
the period 1880–1913. The top decile of the wealth hierarchy already owned between
80 and 85 percent of all wealth at the beginning of the nineteenth century; by the
turn of the twentieth, it owned nearly 90 percent. The top centile alone owned 45–50
percent of the nation’s wealth in 1800–1810; its share surpassed 50 percent in 1850–1860
and reached 60 percent in 1900–1910.
⁶

Looking at these data with the historical distance we enjoy today, we cannot help
being struck by the impressive concentration of wealth in France during the Belle
Époque, notwithstanding the reassuring rhetoric of the Third Republic’s economic and
political elites. In Paris, which was home to little more than one-twentieth of the
population in 1900–1910 but claimed one-quarter of the wealth, the concentration of
wealth was greater still and seems to have increased without limit during the decades
leading up to World War I. In the capital, where in the nineteenth century two-thirds
of the population died without any wealth to leave to the next generation (compared
with half of the population in the rest of the country) but where the largest fortunes
were also concentrated, the top centile’s share was about 55 percent at the beginning
of the century, rose to 60 percent in 1880–1890, and then to 70 percent on the eve
of World War I (see
Figure 10.2
). Looking at this curve, it is natural to ask how high the concentration of wealth
might have gone had there been no war.

FIGURE 10.1.
   Wealth inequality in France, 1810–2010

The top decile (the top 10 percent highest wealth holders) owns 80–90 percent of total
wealth in 1810–1910, and 60–65 percent today.

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

The probate records also allow us to see that throughout the nineteenth century, wealth
was almost as unequally distributed within each age cohort as in the nation as a whole.
Note that the estimates indicated in
Figures 10.1
–
2
(and subsequent figures) reflect inequality of wealth in the (living) adult population
at each charted date: we start with wealth at the time of death but reweight each
observation as a function of the number of living individuals in each age cohort as
of the date in question. In practice, this does not make much difference: the concentration
of wealth among the living is barely a few points higher than inequality of wealth
at death, and the temporal evolution is nearly identical in each case.
⁷

FIGURE 10.2.
   Wealth inequality in Paris versus France, 1810–2010

The top percentile (the top 1 percent wealth holders) owns 70 percent of aggregate
wealth in Paris on the eve of World War I.

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

How concentrated was wealth in France during the eighteenth century up to the eve
of the Revolution? Without a source comparable to the probate records created by the
revolutionary assemblies (for the Ancien Régime we have only heterogeneous and incomplete
sets of private data, as for Britain and the United States until the late nineteenth
century), it is unfortunately impossible to make precise comparisons. Yet all signs
are that inequality of private wealth decreased slightly between 1780 and 1810 owing
to redistribution of agricultural land and cancellation of public debt during the
Revolution, together with other shocks to aristocratic fortunes. It is possible that
the top decile’s share attained or even slightly exceeded 90 percent of total wealth
on the eve of 1789 and that the upper centile’s share attained or exceeded 60 percent.
Conversely, the “émigré billion” (the billion francs paid to the nobility in compensation
for land confiscated during the Revolution) and the return of the nobility to the
forefront of the political scene contributed to the reconstitution of some old fortunes
during the period of limited-suffrage monarchy (1815–1848). In fact, our probate data
reveal that the percentage of aristocratic names in the top centile of the Parisian
wealth hierarchy increased gradually from barely 15 percent in 1800–1810 to nearly
30 percent in 1840–1850 before embarking on an inexorable decline from 1850–1860 on,
falling to less than 10 percent by 1890–1900.
⁸