Capital in the Twenty-First Century

29. For example, the financial assets held in France by the rest of the world amounted to 310 percent of national income in 2010, and financial assets held by French residents in the rest of the world amounted to 300 percent of national income, for a negative net position of −10 percent. In the United States, a negative net position of −20 percent corresponds to financial assets on the order of 120 percent of national income held by the rest of the world in the United States and 100 percent of national income owned by US residents in other countries. See Supplemental Figures S5.5–11, available online, for detailed series by country.

30. In this regard, note that one key difference between the Japanese and Spanish bubbles is that Spain now has a net negative foreign asset position of roughly one year’s worth of national income (which seriously complicates Spain’s situation), whereas Japan has a net positive position of about the same size. See the online technical appendix.

31. In particular, in view of the very large trade deficits the United States has been running, its net foreign asset position ought to be far more negative than it actually is. The gap is explained in part by the very high return on foreign assets (primarily stocks) owned by US citizens and the low return paid on US liabilities (especially US government bonds). On this subject, see the work of Pierre-Olivier Gourinchas and Hélène Rey cited in the online technical appendix. Conversely, Germany’s net position should be higher than it is, and this discrepancy is explained by the low rates of return on Germany’s investments abroad, which may partially account for Germany’s current wariness. For a global decomposition of the accumulation of foreign assets by rich countries between 1970 and 2010, which distinguishes between the effects of trade balances and the effects of returns on the foreign asset portfolio, see the online technical appendix (esp. Supplemental Table S5.13, available online).

32. For example, it is likely that a significant part of the US trade deficit simply corresponds to fictitious transfers to US firms located in tax havens, transfers that are subsequently repatriated in the form of profits realized abroad (which restores the balance of payments). Clearly, such accounting games can interfere with the analysis of the most basic economic phenomena.

33. It is difficult to make comparisons with ancient societies, but the rare available estimates suggest that the value of land sometimes reached even higher levels: six years of national income in ancient Rome, according to R. Goldsmith, Pre-modern Financial Systems: A Historical Comparative Study (Cambridge: Cambridge University Press, 1987), 58. Estimates of the intergenerational mobility of wealth in small primitive societies suggest that the importance of transmissible wealth varied widely depending on the nature of economic activity (hunting, herding, farming, etc.). See Monique Borgerhoff Mulder et al., “Intergenerational Wealth Transmission and the Dynamics of Inequality in Small-Scale Societies,” Science 326, no. 5953 (October 2009): 682–88.

34. See the online technical appendix.

35. See Chapter 12.

6. The Capital-Labor Split in the Twenty-First Century

1. Interest on the public debt, which is not part of national income (because it is a pure transfer) and which remunerates capital that is not included in national capital (because public debt is an asset for private bondholders and a liability for the government), is not included in Figures 6.1–4. If it were included, capital’s share of income would be a little higher, generally on the order of one to two percentage points (and up to four to five percentage points in periods of unusually high public debt). For the complete series, see the online technical appendix.

2. One can either attribute to nonwage workers the same average labor income as wage workers, or one can attribute to the business capital used by nonwage workers the same average return as for other forms of capital. See the online technical appendix.

3. In the rich countries, the share of individually owned businesses in domestic output fell from 30–40 percent in the 1950s (and from perhaps 50 percent in the nineteenth and early twentieth centuries) to around 10 percent in the 1980s (reflecting mainly the decline in the share of agriculture) and then stabilized at around that level, at times rising to about 12–15 percent in response to changing fiscal advantages and disadvantages. See the online technical appendix.

4. The series depicted in Figures 6.1 and 6.2 are based on the historical work of Robert Allen for Britain and on my own work for France. All details on sources and methods are available in the online technical appendix.

5. See also Supplemental Figures S6.1 and S6.2, available online, on which I have indicated upper and lower bounds for capital’s share of income in Britain and France.

6. See in particular Chapter 12.

7. The interest rate on the public debt of Britain and France in the eighteenth and nineteenth centuries was typically on the order of 4–5 percent. It sometimes went as low as 3 percent (for example, during the economic slowdown of the late nineteenth century) Conversely, it rose to 5–6 percent or even higher during periods of high political tension, when there was doubt about the credibility of the government budget, for example, during the decades prior to and during the French Revolution. See F. Velde and D. Weir, “The Financial Market and Government Debt Policy in France 1746–1793,” Journal of Economic History 52, no. 1 (March 1992): 1–39. See also K. Béguin, Financer la guerre au 17e siècle: La dette publique et les rentiers de l’absolutisme (Seyssel: Champ Vallon, 2012). See online appendix.

8. The French “livret A” savings account paid a nominal interest of barely 2 percent in 2013, for a real return of close to zero.

9. See the online technical appendix. In most countries, checking account deposits earn interest (but this is forbidden in France).

10. For example, a nominal interest rate of 5 percent with an inflation rate of 10 percent corresponds to a real interest rate of −5 percent, whereas a nominal interest rate of 15 percent and an inflation rate of 5 percent corresponds to a real interest rate of +10 percent.

11. Real estate assets alone account for roughly half of total assets, and among financial assets, real assets generally account for more than half of the total and often more than three-quarters. See the online technical appendix.

12. As I explained in Chapter 5, however, this approach includes in the return of capital the structural capital gain due to capitalization of retained earnings as reflected in the stock price, which is an important component of the return on stocks over the long run.

13. In other words, an increase of inflation from 0 to 2 percent in a society where the return on capital is initially 4 percent is certainly not equivalent to a 50 percent tax on income from capital, for the simple reason that the price of real estate and stocks will begin to increase at 2 percent a year, so that only a small proportion of the assets owned by households—broadly speaking, cash deposits and some nominal assets—will pay the inflation tax. I will return to this question in Chapter 12.

14. See P. Hoffman, Gilles Postel-Vinay, and Jean-Laurent Rosenthal, Priceless Markets: The Political Economy of Credit in Paris 1660–1870 (Chicago: University of Chicago Press, 2000).

15. In the extreme case of zero elasticity, the return on capital and therefore the capital share of income fall to zero if there is even a slight excess of capital.

16. In the extreme case of infinite elasticity, the return on capital does not change, so that the capital share of income increases in the same proportion as the capital/income ratio.

17. It can be shown that the Cobb-Douglas production function takes the mathematical form Y = F (K, L) = KαL1 − α, where Y is output, K is capital, and L is labor. There are other mathematical forms to represent the cases where the elasticity of substitution is greater than one or less than one. The case of infinite elasticity corresponds to a linear production function: output is given Y = F (K, L) = rK + vL (so that the return on capital r does not depend on the quantities of capital and labor involved, nor does the return on labor v, which is just the wage rate, also fixed in this example). See the online technical appendix.

18. See Charles Cobb and Paul Douglas, “A Theory of Production,” American Economic Review 18, no. 1 (March 1928): 139–65.

19. According to Bowley’s calculations, capital’s share of national income throughout the period was about 37 percent and labor’s share about 63 percent. See Arthur Bowley, The Change in the Distribution of National Income, 1880–1913 (Oxford: Clarendon Press, 1920). These estimates are consistent with my findings for this period. See the online technical appendix.

20. See Jürgen Kuczynski, Labour Conditions in Western Europe 1820 to 1935 (London: Lawrence and Wishart, 1937). That same year, Bowley extended his work from 1920: see Arthur Bowley, Wages and Income in the United Kingdom since 1860 (Cambridge: Cambridge University Press, 193). See also Jürgen Kuczynski, Geschichte der Lage der Arbeiter unter dem Kapitalismus, 38 vols. (Berlin, 1960–72). Volumes 32, 33, and 34 are devoted to France. For a critical analysis of Kuczynski’s series, which remain a valuable historical source despite their lacunae, see Thomas Piketty, Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998 (Paris: Grasset, 2001), 677–681. See the online technical appendix for additional references.

21. See Frederick Brown, “Labour and Wages,” Economic History Review 9, no. 2 (May 1939): 215–17.

22. See J.M. Keynes, “Relative Movement of Wages and Output,” Economic Journal 49 (1939): 48. It is interesting to note that in those days the proponents of a stable capital-labor split were still unsure about the supposedly stable level of this split. In this instance Keynes insisted on the fact that the share of income going to “manual labor” (a category difficult to define over the long run) seemed stable at 40 percent of national income between 1920 and 1930.

23. See the online technical appendix for a complete bibliography.

24. See the online technical appendix.

25. This might take the form of an increase in the exponent 1 − α in the Cobb-Douglas production function (and a corresponding decrease in α) or similar modifications to the more general production functions in which elasticities of substitution are greater or smaller than one. See the online technical appendix.

26. See the online technical appendix.

27. See Jean Bouvier, François Furet, and M. Gilet, Le mouvement du profit en France au 19e siècle: Matériaux et études (Paris: Mouton, 1965).

28. See 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). The historical series assembled by Jeffrey Williamson and his colleagues on the long-term evolution of land rents and wages also suggest an increase in the share of national income going to land rent in the eighteenth and early nineteenth centuries. See the online technical appendix.

29. See A. Chabert, Essai sur les mouvements des prix et des revenus en France de 1798 à 1820, 2 vols. (Paris: Librairie de Médicis, 1945–49). See also Gilles Postel-Vinay, “A la recherche de la révolution économique dans les campagnes (1789–1815),” Revue économique, 1989.

30. A firm’s “value added” is defined as the difference between what it earns by selling goods and services (called “sales revenue” in English) and what it pays other firms for its purchases (called “intermediate consumption”). As the name indicates, this sum measures the value the firm adds in the process of production. Wages are paid out of value added, and what is left over is by definition the firm’s profit. The study of the capital-labor split is too often limited to the wage-profit split, which neglects rent.

31. The notion of permanent and durable population growth was no clearer, and the truth is that it remains as confused and frightening today as it ever was, which is why the hypothesis of stabilization of the global population is generally accepted. See Chapter 2.

32. The only case in which the return on capital does not tend toward zero is in a “robotized” economy with an infinite elasticity of substitution between capital and labor, so that production ultimately uses capital alone. See the online technical appendix.

33. The most interesting tax data are presented in appendix 10 of book 1 of Capital. See the online technical appendix for an analysis of some of the calculations of profit shares and rates of exploitation based on the account books presented by Marx. In Wages, Price, and Profit (1865) Marx also used the accounts of a highly capitalistic factory in which profits attained 50 percent of value added (as large a proportion as wages). Although he does not say so explicitly, this seems to be the type of overall split he had in mind for an industrial economy.

34. See Chapter 1.

35. Some recent theoretical models attempt to make this intuition explicit. See the online technical appendix.

36. To say nothing of the fact that some of the US economists (starting with Modigliani) argued that capital had totally changed its nature (so that it now stemmed from accumulation over the life cycle), while the British (starting with Kaldor) continued to see wealth in terms of inheritance, which was significantly less reassuring. I return to this crucial question in Part Three.

7. Inequality and Concentration: Preliminary Bearings

1. Honoré de Balzac, Le père Goriot (Paris: Livre de Poche, 1983), 123–35.

2. See Balzac, Le père Goriot, 131. To measure income and wealth, Balzac usually used francs or livres tournois (which became equivalent once the franc “germinal” was in place) as well as écus (an écu was a silver coin worth 5 francs in the nineteenth century), and more rarely louis d’or (a louis was a gold coin worth 20 francs, which was already worth 20 livres under the Ancien Régime). Because inflation was nonexistent at the time, all these units were so stable that readers could move easily from one to another. See Chapter 2. I discuss the amounts mentioned by Balzac in greater detail in Chapter 11.

3. See Balzac, Le père Goriot, 131.

4. According to the press, the son of a former president of France, while studying law in Paris, recently married the heiress of the Darty chain of appliance stores, but he surely did not meet her at the Vauquer boardinghouse.

5. I define deciles in terms of the adult population (minors generally earn no income) and, insofar as possible, at the individual level. The estimates in Tables 7.1–3 are based on this definition. For some countries, such as France and the United States, the historical data on income are available only at the household level (so that the incomes of both partners in a couple are added). This slightly modifies the shares of the various deciles but has little effect on the long-term evolutions that are of interest here. For wages, the historical data are generally available at the individual level. See the online technical appendix.

6. See the online technical appendix and Supplemental Table S7.1, available online.

7. The median is the level below which half the population lies. In practice, the median is always lower than the mean, or average, because real-world distributions always have long upper tails, which raises the mean but not the median. For incomes from labor, the median is typically around 80 percent of the mean (e.g., if the average wage is 2,000 euros a month, the median is around 1,600 euros). For wealth, the median can be extremely low, often less than 50 percent of mean wealth, or even zero if the poorer half of the population owns almost nothing.

8. “What is the Third Estate? Everything. What has it been in the political order until now? Nothing. What does it want? To become something.”

9. As is customary, I have included replacement incomes (i.e., pensions and unemployment insurance intended to replace lost income from labor and financed by wage deductions) in primary income from labor. Had I not done this, inequality of adult income from labor would be noticeably—and to some extent artificially—greater than indicated in Tables 7.1 and 7.3 (given the large number of retirees and unemployed workers whose income from labor is zero). In Part Four I will come back to the question of redistribution by way of pensions and unemployment insurance, which for the time being I treat simply as “deferred wages.”

10. These basic calculations are detailed in Supplemental Table S7.1, available online.

11. The top decile in the United States most likely owns something closer to 75 percent of all wealth.

12. See the online technical appendix.

13. It is difficult to say whether this criterion was met in the Soviet Union and other countries of the former Communist bloc, because the data are not available. In any case, the government owned most of the capital, a fact that considerably diminishes the interest of the question.

14. Note that inequality remains high even in the “ideal society” described in Table 7.2. (The richest 10 percent own more capital than the poorest 50 percent, even though the latter group is 5 times larger; the average wealth of the richest 1 percent is 20 times greater than that of the poorest 50 percent.) There is nothing preventing us from aiming at more ambitious goals.

15. Or 400,000 euros on average per couple.

16. See Chapters 3–5. The exact figures are available in the online technical appendix.

17. On durable goods, see Chapter 5 and the online technical appendix.

18. Exactly 35/9 × 200,000 euros, or 777,778 euros. See Supplemental Table S7.2, available online.

19. To get a clearer idea of what this means, we can continue the arithmetic exercise described above. With an average wealth of 200,000 euros, “very high” inequality of wealth as described in Table 7.2 meant an average wealth of 20,000 euros for the poorest 50 percent, 25,000 euros for the middle 40 percent, and 1.8 million euros for the richest 10 percent (with 890,000 for the 9 percent and 10 million for the top 1 percent). See the online technical appendix and Supplemental Tables S7.1–3, available online.

20. If we look only at financial and business capital, that is, at control of firms and work-related tools, then the upper decile’s share is 70–80 percent or more. Firm ownership remains a relatively abstract concept for the vast majority of the population.

21. The increasing association of the two dimensions of inequality might, for example, be a consequence of the increase in university attendance. I will come back to this point later.

22. These calculations slightly underestimate the true Gini coefficients, because they are based on the hypothesis of a finite number of social groups (those indicated in Tables 7.1–3), whereas the underlying reality is a continuous wealth distribution. See the online technical appendix and Supplemental Tables S7.4–6 for the detailed results obtained with different numbers of social groups.

23. Other ratios such as P90/P50, P50/P10, P75/P25, etc. are also used. (P50 indicates the fiftieth percentile, that is, the median, while P25 and P75 refer to the twenty-fifth and seventy-fifth percentiles, respectively.

24. Similarly, the decision whether to measure inequalities at the individual or household level can have a much larger—and especially more volatile—effect on interdecile ratios of the P90/P10 type (owing in particular to the fact that in many cases women do not work outside the home) than on the bottom half’s share of total income.

25. See in particular Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Report by the Commission on the Measurement of Economic Performance and Social Progress, 2009 (www.stiglitz-sen-fitoussi.fr)

26. Social tables were similar, in spirit at least, to the famous Tableau économique that François Quesnay published in 1758, which provided the first synthetic picture of the economy and of exchanges between social groups. One can also find much older social tables from any number of countries from antiquity on. See the interesting tables described by B. Milanovic, P. Lindert, and J. Williamson in “Measuring Ancient Inequality,” NBER Working Paper 13550 (October 2007). See also B. Milanovic, The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (New York: Basic Books, 2010). Unfortunately, the data in these early tables are not always satisfactory from the standpoint of homogeneity and comparability. See the online technical appendix.

8. Two Worlds

1. See Table 7.3.

2. See Table 7.1 and the online technical appendix.

3. For complete series for the various centiles and up to the top ten-thousandth, as well as a detailed analysis of the overall evolution, see Thomas Piketty, Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998 (Paris: Grasset, 2001). Here I will confine myself to the broad outlines of the story, taking account of more recent research. The updated series are also available online in the WTID.

4. The estimates shown in Figures 8.1 and 8.2 are based on declarations of income and wages (the general income tax was instituted in France in 1914, and the so-called cédulaire tax on wages was adopted in 1917, so we have separate annual measures of high incomes and high wages starting from those two dates) and on national accounts (which tell us about total national income and total wages paid), using a method initially introduced by Kuznets and described briefly in the introduction. The fiscal data begin only with income for 1915 (the first year in which the new tax was levied), and I have completed the series for 1910–1914 using estimates carried out before the war by the tax authorities and contemporary economists. See the online technical appendix.

5. In Figure 8.3 (and subsequent figures of similar type) I have used the same notations as in Les hauts revenus en France and the WTID to designate the various “fractiles” of the income hierarchy: P90–95 includes everyone between the ninetieth and ninety-fifth percentile (the poorer half of the richest 10 percent), P95–99 includes those between the ninety-fifth and ninety-ninth percentile (the next higher 4 percent), P99–99.5 the next 0.5 percent (the poorer half of the top 1 percent), P99.5–99.9 the next 0.4 percent, P99.9–99.99 the next 0.09 percent, and P99.99–100 the riches 0.01 percent (the top ten-thousandth).

6. As a reminder, the top centile in France in 2010 consists of 500,000 adults out of an adult population of 50 million.

7. As is also the case for the nine-tenths of the population below the ninetieth percentile, but here compensation in the form of wages (or replacement pay in the form of retirement income or unemployment insurance) is lower.

8. The pay scales for civil servants are among the pay hierarchies about which we have the most long-term data. In France in particular, we have detailed information from state budgets and legislative reports going back to the beginning of the nineteenth century. Private sector pay has to be divined from tax records, hence is little is known about the period prior to the creation of the income tax in 1914–1917. The data we have about civil service pay suggest that the wage hierarchy in the nineteenth century was roughly similar to what we see in the period 1910–2010 for both the top decile and the bottom half, although the top centile may have been slightly higher (without reliable private sector data we cannot be more precise). See the online technical appendix.

9. In 2000–2010, the share of wages in the P99–99.5 and P99.5–99.9 fractiles (which constitute nine-tenths of the top centile) was 50–60 percent, compared with 20–30 percent for mixed incomes (see Figure 8.4). High salaried incomes dominated high mixed incomes to almost the same degree as in the interwar years (see Figure 8.3).

10. As in Chapter 7, the euro figures cited here are deliberately rounded off and approximate, so they are no more than indications of orders of magnitude. The exact thresholds of each centile and thousandth are available in the online technical appendix, year by year.

11. Note, however, that the data on which these boundaries are based are imperfect. As noted in Chapter 6, some entrepreneurial income may be disguised as dividends and therefore classed as income from capital. For a detailed, year-by-year analysis of the composition of the top centiles and thousandths of income in France since 1914, see Piketty, Les hauts revenus en France, 93–168.

12. Income from capital seems to represent less than 10 percent of the income of “the 9 percent” in Figure 8.4, but that is solely a result of the fact that these figures, like the series on the shares of the top decile and centile, are based exclusively on self-declared income statements, which since 1960 have excluded so-called fictive rents (that is, the rental value of owner-occupied housing, which was previously part of taxable income). If we included nontaxable capital income (such as fictive rents), the share of income from capital among “the 9 percent” would reach and even slightly exceed 20 percent in 2000–2010. See the online technical appendix.

13. See the online technical appendix.

14. In particular, I always include all rents, interest, and dividends in income declarations, even when some of these types of income are not subject to the same tax schedule and may be covered by specific exemptions or reduced rates.

15. See the online technical appendix.

16. Note that throughout World War II, the French tax authorities carried on with their work of collecting income statements, recording them, and compiling statistics based on them as if nothing had changed. Indeed, it was a golden age of mechanical data processing: new technologies allowed for automated sorting of punched cards, which made it possible to do rapid cross-tabulations, a great advance over previous manual methods. Hence the statistical publications of the Ministry of Finance during the war years were richer than ever before.

17. The share of the upper decile decreased from 47 to 29 percent of national income, and that of the upper centile from 21 to 7 percent. Details are available in the online technical appendix.

18. For a detailed analysis of all these evolutions, year by year, see Les hauts revenus en France, esp. chaps. 2 and 3, pp. 93–229.

19. In World War II, the compression of the wage hierarchy actually began before the war, in 1936, with the Matignon Accords.

20. See Les hauts revenus en France, 201–2. The very sharp break in wage inequality that occurred in 1968 was recognized at the time. See in particular the meticulous work of Christian Baudelot and A. Lebeaupin, Les salaires de 1950 à 1975 (Paris: INSEE, 1979).

21. See Figure 6.6.

22. See esp. the work of Camille Landais, “Les hauts revenus en France (1998–2006): Une explosion des inégalités?” (Paris: Paris School of Economics, 2007), and Olivier Godechot, “Is Finance Responsible for the Rise in Wage Inequality in France?” Socio-Economic Review 10, no. 3 (2012): 447–70.

23. For the years 1910–1912 I completed the series by using various available data sources, and in particular various estimates carried out by the US government in anticipation of the creation of a federal income tax (just as I did in the case of France). See the online technical appendix.

24. For the years 1913–1926, I used data on income level and categories of income to estimate the evolution of wage inequality. See the online technical appendix.

25. Two recent books about the rise of inequality in the United States by well-known economists demonstrate the strength of the attachment to this relatively egalitarian period of US history: Paul Krugman, The Conscience of a Liberal (New York: Norton, 2007), and Joseph Stiglitz, The Price of Inequality (New York: Norton, 2012).

26. The available data, though imperfect, suggest that the correction for understatement of capital income might add two to three points of national income. The uncorrected share of the upper decile was 49.7 percent in 1007 and 47.9 percent in 2010 (with a clear upward trend). See the online technical appendix.

27. The series “with capital gains” naturally include capital gains in both the numerator (for the top income deciles and centiles) and the denominator (for total national income); the series “without capital gains” exclude them in both cases. See the online technical appendix.

28. The only suspicious jump takes place around the time of the major Reagan tax reform of 1986, when a number of important firms changed their legal form in order to have their profits taxed as personal rather than corporate income. This transfer between fiscal bases had purely short-term effects (income that should have been realized a little later as capital gains was realized somewhat earlier) and played a secondary role in shaping the long-term trend. See the online technical appendix.

29. The annual pretax incomes mentioned here correspond to household incomes (married income or single individual). Income inequality at the individual level increased by approximately the same proportion as inequality in terms of household income. See the online technical appendix.

30. This visceral appreciation of the economy is sometimes particularly noticeable among economists teaching in US universities but born in foreign countries (generally poorer than the United States), an appreciation that is again quite comprehensible.

31. All detailed series are available in the online technical appendix.

32. This argument is more and more widely accepted. It is defended, for example, by Michael Kumhof and Romain Rancière, “Inequality, Leverage, and Crises,” International Monetary Fund Working Paper (November 2010). See also Raghuram G. Rajan, Fault Lines (Princeton, NJ: Princeton University Press, 2010), which nevertheless underestimates the importance of the growing share of US national income claimed by the top of the income hierarchy.

33. See Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” Journal of Economic Literature 49, no. 1(2011): Table 1, p. 9.

34. Remember that these figures all concern the distribution of primary income (before taxes and transfers). I examine the effects of taxes and transfers in Part Four. To put it in a nutshell, the progressivity of the tax system was significantly reduced in this period, which makes the numbers worse, while increases in some transfers to the poorest individuals slightly alleviate them.

35. See Chapter 5, where the Japanese and Spanish bubbles are discussed.

36. See Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics 118, no. 1 (February 2003): 29–30. See also Claudia Goldin and R. Margo, “The Great Compression: The Wage Structure in the United States at Mid-Century,” Quarterly Journal of Economics 107, no. 1 (February 1992): 1–34.

37. Nor was it compensated by greater intergenerational mobility; quite the contrary. I come back to this point in Chapter 13.

38. See Wojciech Kopczuk, Emmanuel Saez, and Jae Song, “Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937,” Quarterly Journal of Economics 125, no. 1 (2010): 91–128.

39. See Edward N. Wolff and Ajit Zacharias, “Household Wealth and the Measurement of Economic Well-Being in the U.S.,” Journal of Economic Inequality 7, no. 2 (June 2009): 83–115. Wolff and Zacharias correctly remark that my initial article with Emmanuel Saez in 2003 overstated the degree to which the evolutions we observed could be explained by the substitution of “working rich” for “coupon-clipping rentiers,” when in fact what one finds is rather a “cohabitation” of the two.

40. See Supplemental Figures S8.1 and S8.2, available online.

41. See Steven N. Kaplan and Joshua Rauh, “Wall Street and Main Street: What Contributes to the Rise of the Highest Incomes?” Review of Financial Studies 23, no. 3 (March 2009): 1004–1050.

42. See Jon Bakija, Adam Cole, and Bradley T. Heim, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data,” Department of Economics Working Papers 2010–24, Department of Economics, Williams College, Table 1. Other important professional groups include doctors and lawyers (about 10 percent of the total) and real estate promoters (around 5 percent). These data should be used with caution, however: we do not know the origin of the fortunes involved (whether inherited or not), but income from capital accounts for more than half of all income at the level of the top thousandth if capital gains are included (see Figure 8.10) and about a quarter if they are excluded (see Supplemental Figure S8.2, available online).

43. “Superentrepreneurs” of the Bill Gates type are so few in number that they are not relevant for the analysis of income and are best studied in the context of an analysis of fortunes and in particular the evolution of different classes of fortune. See Chapter 12.

44. Concretely, if a manager is granted options that allow him to buy for $100 stock in the company valued at $200 when he exercises the option, then the difference between the two prices—in this case $100—is treated as a component of the manager’s wage in the year in which the option is exercised. If he later sells the shares of stock for an even higher price, say $250, then the difference, $50, is recorded as a capital gain.

9. Inequality of Labor Income

1. Claudia Dale Goldin and Lawrence F. Katz, The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890–2005 (Cambridge, MA: Belknap Press, 2010).

2. See Table 7.2.

3. In the language of national accounting, expenditures on health and education are counted as consumption (a source of intrinsic well-being) and not investment. This is yet another reason why the expression “human capital” is problematic.

4. There were of course multiple subepisodes within each phase: for instance, the minimum wage increased by about 10 percent between 1998 and 2002 in order to compensate for the reduction of the legal work week from 39 hours to 35 hours while preserving the same monthly wage.

5. As in the case of the federal income tax, the minimum wage legislation resulted in a fierce battle between the executive branch and the Supreme Court, which overturned the first minimum wage law in 1935, but Roosevelt reintroduced it in 1938 and ultimately prevailed.

6. In Figure 9.1, I have converted nominal minimum wages into 2013 euros and dollars. See Supplemental Figures S9.1–2, available online, for the nominal minimum wages.

7. Some states have a higher minimum wage than the federal minimum in 2013: in California and Massachusetts, the minimum is $8 an hour; in Washington state it is $9.19.

8. At an exchange rate of 1.30 euros per pound. In practice, the gap between the British and French minimum wages is larger because of the difference in employer social security payments (which are added to the gross wage). I come back to this point in Part Four.

9. Important differences persist between countries: in Britain, for example, many prices and incomes (including rents, allowances, and some wages) are set by the week and not the month. On these questions, see Robert Castel, Les Métamorphoses de la question sociale: Une chronique du salariat (Paris: Fayard, 1995).

10. See in particular David Card and Alan Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton: Princeton University Press, 1995). Card and Krueger exploited numerous cases in which neighboring states had different minimum wages. The pure “monopsony” case is one in which a single employer can purchase labor in a given geographical area. (In pure monopoly, there is a single seller rather than a single buyer.) The employer then sets the wage as low as possible, and an increase in the minimum wage does not reduce the level of employment, because the employer’s profit margin is so large as to make it possible to continue to hire all who seek employment. Employment may even increase, because more people will seek work, perhaps because at the higher wage they prefer work to illegal activities, which is a good thing, or because they prefer work to school, which may not be such a good thing. This is precisely what Card and Krueger observed.

11. See in particular Figures 8.6–8.

12. This fact is crucial but often neglected in US academic debate. In addition to the work of Goldin and Katz, Race between Education and Technology, see also the recent work of Rebecca Blank, Changing Inequality (Berkeley: University of California Press, 2011), which is almost entirely focused on the evolution of the wage difference associated with a college diploma (and on the evolution of family structures). Raghuram Rajan, Fault Lines (Princeton: Princeton University Press, 2010), also seems convinced that the evolution of inequality related to college is more significant than the explosion of the 1 percent (which is incorrect). The reason for this is probably that the data normally used by labor and education economists do not give the full measure of the overperformance of the top centile (one needs tax data to see what is happening). The survey data have the advantage of including more sociodemographic data (including data on education) than tax records do. But they are based on relatively small samples and also raise many problems having to do with respondents’ self-characterization. Ideally, both types of sources should be used together. On these methodological issues, see the online technical appendix.

13. Note that the curves in Figure 9.2 and subsequent figures do not take account of capital gains (which are not consistently measured across countries). Since capital gains are particularly large in the United States (making the top centile’s share of national income more than 20 percent in the 2000s if we count capital gains), the gap is in fact wider than indicated in Figure 9.2. See, for example, Supplemental Figure S9.3, available online.

14. New Zealand followed almost the same trajectory as Australia. See Supplemental Figure S9.4, available online. In order to keep the figures simple, I have presented only some of the countries and series available. Interested readers should consult the online technical appendix or the WTID for the complete series.

15. Indeed, if we include capital gains, which were strong in Sweden in the period 1990–2010, the top centile’s share reached 9 percent. See the online technical appendix.

16. All the other European countries in the WTID, namely, the Netherlands, Switzerland, Norway, Finland, and Portugal, evolved in ways similar to those observed in other continental European countries. Note that we have fairly complete data for southern Europe. The series for Spain goes back to 1933, when an income tax was created, but there are several breaks. In Italy, the income tax was created in 1923, but complete data are not available until 1974. See the online technical appendix.

17. The share of the top thousandth exceeded 8 percent in the United States in 2000–2010 if we omit capital gains and 12 percent if we include them. See the online technical appendix.

18. The “0.1 percent” in France and Japan therefore increased from 15 to 25 times the national average income (that is, from 450,000 to 750,000 euros a year if the average is 30,000), while the top “0.1 percent” in the United States rose from 20 to 100 times the national average (that is, from $600,000 a year to $3 million). These orders of magnitude are approximate, but they give us a better sense of the phenomenon and relate shares to the salaries often quoted in the media.

19. The income of “the 1 percent” is distinctly lower: a share of 10 percent of national income for the 1 percent means by definition that their average income is 10 times higher than the national average (a share of 20 percent would indicate an average 20 times higher than the national average, and so on). The Pareto coefficient, about which I will say more in Chapter 10, enables us to relate the shares of the top decile, top centile, and top thousandth: in relatively egalitarian countries (such as Sweden in the 1970s), the top 0.1 percent earned barely twice as much as the top 1 percent, so that the top thousandth’s share of national income was barely one-fifth of the top centile’s. In highly inegalitarian countries (such as the United States in the 2000s), the top thousandth earns 4 to 5 times what the top centile earns, and the top thousandth’s share is 40 to 50 percent of the top centile’s share.

20. Depending on whether capital gains are included or not. See the online technical appendix for the complete series.

21. See, in particular, Table 5.1.

22. For Sweden and Denmark, in some years in the period 1900–1910, we find top centile shares of 25 percent of national income, higher than the levels seen in Britain, France, and Germany at that time (where the maximum was closer to 22 or 23 percent). Given the limitations of the available sources, it is not certain that these differences are truly significant, however. See the online technical appendix.

23. For all the countries for which we have data on the composition of income at different levels, comparable to the data presented for France and the United States in the previous chapter (see Figures 8.3–4 and 8.9–10), we find the same reality.

24. See Supplemental Figure S9.6, available online, for the same graph using annual series. Series for other countries are similar and available online.

25. Figure 9.8 simply shows the arithmetic mean of the four European countries included in Figure 9.7. These four countries are quite representative of European diversity, and the curve would not look very different if we included other northern and southern European countries for which data are available, or if we weighted the average by the national income of each country. See the online technical appendix.

26. Interested readers may wish to consult the case studies of twenty-three countries that Anthony Atkinson and I published in two volumes in 2007 and 2010: 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).

27. In China, strictly speaking, there was no income tax before 1980, so there is no way to study the evolution of income inequality for the entire twentieth century (the series presented here began in 1986). For Colombia, the tax records I have collected thus far go back only to 1993, but the income tax existed well before that, and it is entirely possible that we will ultimately find the earlier data (the archives of historical tax records are fairly poorly organized in a number of South American countries).

28. The list of ongoing projects is available on the WTID site.

29. When digital tax files are accessible, computerization naturally leads to improvement in our sources of information. But when the files are closed or poorly indexed (which often happens), then the absence of statistical data in paper form can impair our “historical memory” of income tax data.

30. The closer the income tax is to being purely proportional, the less the need for detailed information about different income brackets. In Part Four I will discuss changes in taxation itself. The point for now is that such changes have an influence on our observational instruments.

31. The information for the year 2010 in Figure 9.9 is based on very imperfect data concerning the remuneration of firm managers and should be taken as a first approximation. See the online technical appendix.

32. See Abhijit Banerjee and Thomas Piketty, “Top Indian Incomes, 1922–2000,” World Bank Economic Review 19, no. 1 (May 2005): 1–20. See also A. Banerjee and T. Piketty, “Are the Rich Growing Richer? Evidence from Indian Tax Data,” in Angus Deaton and Valerie Kozel, eds., Data and Dogma: The Great Indian Poverty Debate (New Delhi: Macmillan India Ltd., 2005): 598–611. The “black hole” itself represents nearly half of total growth in India between 1990 and 2000: per capita income increased by nearly 4 percent a year according to national accounts data but by only 2 percent according to household survey data. The issue is therefore important.

33. See the online technical appendix.

34. In fact, the principal—and on the whole rather obvious—result of economic models of optimal experimentation in the presence of imperfect information is that it is never in the interest of the agents (in this case the firm) to seek complete information as long as experimentation is costly (and it is costly to try out a number of CFOs before making a final choice), especially when information has a public value greater than its private value to the agent. See the online technical appendix for bibliographic references.

35. See Marianne Bertrand and Sendhil Mullainathan, “Are CEOs Rewarded for Luck? The Ones without Principals Are,” Quarterly Journal of Economics 116, no. 3 (2001): 901–932. See also Lucian Bebchuk and Jesse Fried, Pay without Performance (Cambridge, MA: Harvard University Press, 2004).

10. Inequality of Capital Ownership

1. In particular, all the data on the composition of income by level of overall income corroborate this finding. The same is true of series beginning in the late nineteenth century (for Germany, Japan, and several Nordic countries). The available data for the poor and emergent countries are more fragmentary but suggest a similar pattern. See the online technical appendix.

2. See esp. Table 7.2.

3. The parallel series available for other countries give consistent results. For example, the evolutions we observe in Denmark and Norway since the nineteenth century are very close to the trajectory of Sweden. The data for Japan and Germany suggest a dynamic similar to that of France. A recent study of Australia yields results consistent with those obtained for the United States. See the online technical appendix.

4. For a precise description of the various sources used, see Thomas Piketty, “On the Long-Run Evolution of Inheritance: France 1820–2050,” Paris School of Economics, 2010 (a summary version appeared in the Quarterly Journal of Economics, 126, no. 3 [August 2011]: 1071–131). The individual statements were collected with Gilles Postel-Vinay and Jean-Laurent Rosenthal from Parisian archives. We also used statements previously collected for all of France under the auspices of the Enquête TRA project, thanks to the efforts of numerous other researchers, in particular Jérôme Bourdieu, Lionel Kesztenbaum, and Akiko Suwa-Eisenmann. See the online technical appendix.

5. For a detailed analysis of these results, 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 (February 2006): 236–56. The version presented here is an updated version of these series. Figure 10.1 and subsequent figures focus on means by decade in order to focus attention on long-term evolutions. All the annual series are available online.

6. The shares of each decile and centile indicated in Figures 10.1 and following were calculated as percentages of total private wealth. But since private fortunes made up nearly all of national wealth, this makes little difference.

7. This method, called the “mortality multiplier,” involves a reweighting of each observation by the inverse of the mortality rate in each age cohort: a person who dies at age forty represents more living individuals than a person who dies at eighty (one must also take into account mortality differentials by level of wealth). The method was developed by French and British economists and statisticians (especially B. Mallet, M. J. Séaillès, H. C. Strutt, and J. C. Stamp) in 1900–1910 and used in all subsequent historical research. When we have data from wealth surveys or annual wealth taxes on the living (as in the Nordic countries, where such taxes have existed since the beginning of the twentieth century, or in France, with data from the wealth tax of 1990–2010), we can check the validity of this method and refine our hypotheses concerning mortality differentials. On these methodological issues, see the online technical appendix.

8. See the online technical appendix. This percentage probably exceeded 50 prior to 1789.

9. On this question, see also Jérôme Bourdieu, Gilles Postel-Vinay, and Akiko Suwa-Eisenmann, “Pourquoi la richesse ne s’est-elle pas diffusée avec la croissance? Le degré zéro de l’inégalité et son évolution en France: 1800–1940,” Histoire et mesure 18, 1/2 (2003): 147–98.

10. See for example the interesting data on the distribution of land in Roger S. Bagnall, “Landholding in Late Roman Egypt: The Distribution of Wealth,” Journal of Roman Studies 82 (November 1992): 128–49. Other work of this type yields similar results. See the online technical appendix.

11. Bibliographic and technical details can be found in the online technical appendix.

12. Some estimates find that the top centile in the United States as a whole owned less than 15 percent of total national wealth around 1800, but that finding depends entirely on the decision to focus on free individuals only, which is obviously a controversial choice. The estimates that are reported here refer to the entire population (free and unfree). See the online technical appendix.

13. See Willford I. King, The Wealth and Income of the People of the United States (New York: MacMillan, 1915). King, a professor of statistics and economics at the University of Wisconsin, relied on imperfect but suggestive data from several US states and compared them with European estimates, mainly based on Prussian tax statistics. He found the differences to be much smaller than he initially imagined.

14. These levels, based on official Federal Reserve Bank surveys, may be somewhat low (given the difficult of estimate large fortunes), and the top centile’s share may have reached 40 percent. See the online technical appendix.

15. The European average in Figure 10.6 was calculated from the figures for France, Britain, and Sweden (which appear to have been representative). See the online technical appendix.

16. For land rent, the earliest data available for antiquity and the Middle Ages suggest annual returns of around 5 percent. For interest on loans, we often find rates above 5 percent in earlier periods, typically on the order of 6–8 percent, even for loans with real estate collateral. See, for example, the data collected by S. Homer and R. Sylla, A History of Interest Rates (New Brunswick, NJ: Rutgers University Press, 1996).

17. If the return on capital were greater than the time preference, everyone would prefer to reduce present consumption and save more (so that the capital stock would grow indefinitely, until the return on capital fell to the rate of time preference). In the opposite case, everyone would sell a portion of her capital stock in order to increase present consumption (and the capital stock would decrease until the return on capital rose to equal θ). In either case we are left with r = θ.

18. The infinite horizon model implies an infinite elasticity of saving—and thus of the supply of capital—in the long run. It therefore assumes that tax policy cannot affect the supply of capital.

19. Formally, in the standard infinite horizon model, the equilibrium rate of return is given by the formula r = θ + γ × g (where θ is the rate of time preference and γ measures the concavity of the utility function. It is generally estimated that γ lies between 1.5 and 2.5. For example, if θ = 5% and γ = 2, then r = 5% for g = 0% and r = 9% for g = 2%, so that the gap r − g rises from 5% to 7% when growth increases from 0% to 2%. See the online technical appendix.

20. A third for parents with two children and a half for those with only one child.

21. Note that in 1807 Napoleon introduced the majorat for his imperial nobility. This allowed an increased share of certain landed estates linked to titles of nobility to go the eldest males. Only a few thousand individuals were concerned. Moreover, Charles X tried to restore substitutions héréditaires for his own nobility in 1826. These throwbacks to the Ancien Régime affected only a small part of the population and were in any case definitively abolished in 1848.

22. See Jens Beckert, Inherited Wealth (Princeton: Princeton University Press, 2008).

23. In theory, women enjoyed the same rights as men when it came to dividing estates, according to the Civil Code. But a wife was not free to dispose of her property as she saw fit: this type of asymmetry, in regard to opening and managing bank accounts, selling property, etc., did not totally disappear until the 1970s. In practice, therefore, the new law favored (male) heads of families: younger sons acquired the same rights as elder sons, but daughters were left behind. See the online technical appendix.

24. See Pierre Rosanvallon, La société des égaux (Paris: Le Seuil, 2011), 50.

25. The equation relating the Pareto coefficient to r − g is given in the online technical appendix.

26. Clearly, this does not imply that the r > g logic is necessarily the only force at work. The model and related calculations are obviously a simplification of reality and do not claim to identify the precise role played by each mechanism (various contradictory forces may balance each other). It does show, however, that the r > g logic is by itself sufficient to explain the observed level of concentration. See the online technical appendix.

27. The Swedish case is interesting, because it combines several contradictory forces that seem to balance one another out: first, the capital/income ratio was lower than in France or Britain in the nineteenth and early twentieth centuries (the value of land was lower, and domestic capital was partly owned by foreigners—in this respect, Sweden was similar to Canada), and second, primogeniture was in force until the end of the nineteenth century, and some entails on large dynastic fortunes in Sweden persist to this day. In the end, wealth was less concentrated in Sweden in 1900–1910 than in Britain and close the French level. See Figures 10.1–4 and the work of Henry Ohlsson, Jesper Roine, and Daniel Waldenström.

28. Recall that the estimates of the “pure” return on capital indicated in Figure 10.10 should be regarded as minimums and that the average observed return rose as high as 6–7 percent in Britain and France in the nineteenth century (see Chapter 6).

29. Fortunately, Duchesse and her kittens ultimately meet Thomas O’Malley, an alley cat whose earthy ways they find more amusing than art classes (a little like Jack Dawson, who meets young Rose on the deck of Titanic two years later, in 1912).

30. For an analysis of Pareto’s data, see my Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998 (Paris: Grasset, 2001), 527–30.

31. For details, see the online technical appendix.

32. The simplest way to think of Pareto coefficients is to use what are sometimes called “inverted coefficients,” which in practice vary from 1.5 to 3.5. An inverted coefficient of 1.5 means that average income or wealth above a certain threshold is equal to 1.5 times the threshold level (individuals with more than a million euros of property own on average 1.5 million euros’ worth, etc., for any given threshold), which is a relatively low level of inequality (there are few very wealthy individuals). By contrast, an inverted coefficient of 3.5 represents a very high level of inequality. Another way to think about power functions is the following: a coefficient around 1.5 means that the top 0.1 percent are barely twice as rich on average as the top 1 percent (and similarly for the top 0.01 percent within the top 0.1 percent, etc.). By contrast, a coefficient around 3.5 means that they are more than five times as rich. All of this is explained in the online technical appendix. For graphs representing the historical evolution of the Pareto coefficients throughout the twentieth century for the various countries in the WTID, see Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” Journal of Economic Literature 49, no. 1 (2011): 3–71.

33. That is, they had something like an income of 2–2.5 million euros a year in a society where the average wage was 24,000 euros a year (2,000 a month). See the online technical appendix.

34. Paris real estate (which at the time consisted mainly of wholly owned buildings rather than apartments) was beyond the reach of the modestly wealthy, who were the only ones for whom provincial real estate, including especially farmland, still mattered. César Birotteau, who rejected his wife’s advice to invest in some good farms near Chinon on the grounds that this was too staid an investment, saw himself as bold and forward-looking—unfortunately for him. See Table S10.4 (available online) for a more detailed version of Table 10.1 showing the very rapid growth of foreign assets between 1872 and 1912, especially in the largest portfolios.

35. The national solidarity tax, instituted by the ordinance of August 15, 1945, was an exceptional levy on all wealth, estimated as of June 4, 1945, at rates up to 20 percent for the largest fortunes, together with an exceptional levy on all nominal increases of wealth between 1940 and 1945, at rates up to 100 percent for the largest increases. In practice, in view of the very high inflation rate during the war (prices more than tripled between 1940 and 1945), this levy amounted to a 100 percent tax on anyone who did not sufficiently suffer during the war, as André Philip, a Socialist member of General de Gaulle’s provisional government, admitted, explaining that it was inevitable that the tax should weigh equally on “those who did not become wealthier and perhaps even those who, in monetary terms, became poorer, in the sense that their fortunes did not increase to the same degree as the general increase in prices, but who were able to preserve their overall fortunes at a time when so many people in France lost everything.” See André Siegfried, L’Année Politique 1944–1945 (Paris: Editions du Grand Siècle, 1946), 159.

36. See the online technical appendix.

37. See in particular my Les hauts revenus en France, 396–403. See also Piketty, “Income Inequality in France, 1901–1998,” Journal of Political Economy 111, no. 5 (2003): 1004–42.

38. See the simulations by Fabien Dell, “L’allemagne inégale: Inégalités de revenus et de patrimoine en Allemagne, dynamique d’accumulation du capital et taxation de Bismarck à Schröder 1870–2005,” Ph.D. thesis, Paris School of Economics, 2008. See also F. Dell, “Top Incomes in Germany and Switzerland Over over the Twentieth Century,” Journal of the European Economic Association 3, no. 2/3 (2005): 412–21.

11. Merit and Inheritance in the Long Run

1. I exclude theft and pillage, although these are not totally without historical significance. Private appropriation of natural resources is discussed in the next chapter.

2. In order to focus on long-term evolutions, I use averages by decade here. The annual series are available online. For more detail on techniques and methods, see Thomas Piketty, “On the Long-Run Evolution of Inheritance: France 1820–2050,” Paris School of Economics, 2010; a summary version was published in the Quarterly Journal of Economics 126, no. 3 (August 2011): 1071–131. These documents are available in the online technical appendix.

3. The discussion that follows is a little more technical than previous discussions (but necessary to understand what is behind the observed evolutions), and some readers may wish to skip a few pages and go directly to the implications and the discussion of what lies ahead in the twenty-first century, which can be found in the sections on Vautrin’s lecture and Rastignac’s dilemma.

4. The term μ is corrected to take account of gifts (see below).

5. In other words, one of every fifty adults dies each year. Since minors generally own very little capital, it is clearer to write the decomposition in terms of adult mortality (and to define μ in terms of adults alone). A small correction is then necessary to take account of the wealth of minors. See the online technical appendix.

6. On this subject, see Jens Beckert, trans. Thomas Dunlop, Inherited Wealth (Princeton: Princeton University Press, 2008), 291.

7. Becker never explicitly states the idea that the rise of human capital should eclipse the importance of inherited wealth, but it is often implicit in his work. In particular, he notes frequently that society has become “more meritocratic” owing to the increasing importance of education (without further detail). Becker has also proposed theoretical models in which parents can bequeath wealth to less gifted children, less well endowed with human capital, thereby reducing inequality. Given the extreme vertical concentration of inherited wealth (the top decile always owns more than 60 percent of the wealth available for inheritance, while the bottom half of the population owns nothing), this potential horizontal redistribution effect within groups of wealthy siblings (which, moreover, is not evident in the data, of which Becker makes almost no use) is hardly likely to predominate. See the online technical appendix.

8. Apart from the bloodletting of the two world wars, which is masked in my data by the use of decennial averages. See the online technical appendix for the annual series.

9. About 800,000 babies were born in France each year (actually between 750,000 and 850,000 with no trend up or down) from the late 1940s until the early 2010s, and according to official forecasts this will continue throughout the twenty-first century. In the nineteenth century there were about a million births per year, but the infant mortality rate was high, so the size of each adult cohort has varied little since the eighteenth century, except for the large losses due to war and the associated decline in births in the interwar years. See the online technical appendix.

10. The theory of the “rate of estate devolution” was particularly popular in France in the period 1880–1910, thanks to the work of Albert de Foville, Clément Colson, and Pierre Emile Levasseur, who were pleased to discover that their estimates of national wealth (obtained through a census of assets) were approximately equal to 30 times the annual inheritance flow. This method, sometimes called the “estate multiplier,” was also used in England, particularly by Giffen, even though British economists—who had access to limited estate tax statistics—generally used the capital income flows series coming from the scheduler income tax system.

11. In practice, both types of wealth are often mixed in the same financial products (reflecting the mixed motives of savers). In France, life insurance contracts sometimes include a share of capital that can be passed on to children and another, generally smaller share payable as an annuity (which ends with the death of the policy holder). In Britain and the United States, retirement funds and pension plans increasingly include a transmissible component.

12. To quote the usual proverb, public pensions are “the fortunes of those who have no fortune.” I will come back to this in Chapter 13, when I analyze different pension systems.

13. For detailed data on this subject, see Piketty, “On the Long-Run Evolution of Inheritance.”

14. Complete annual data are available online.

15. To be clear, these estimates include a fairly large correction for differential mortality (that is, for the fact the wealthy individuals on average live longer). This is an important phenomenon, but it is not the explanation for the profile described here. See the online technical appendix.

16. The annual growth rate of 1.7 percent is exactly the same as the average growth rate for 1980–2010. The estimate of net return on capital of 3 percent assumes that capital’s share of national income will continue at its average level for 1980–2010 and that the current tax system will remain in place. See the online technical appendix.

17. Other variants and scenarios are presented in the online technical appendix.

18. “Savings rates increase with income and initial endowment”: one can save more when one’s income is higher or when one does not have to pay rent, and even more when both conditions are true. “Wide variations in individual behavior”: some people like wealth, while others prefer automobiles or opera, for example.

19. For example, at a given income level, childless individuals save as much as others.

20. The growth of wages may drop even lower, if one subtracts the increasing proportion of national income that goes to finance pensions and health care.

21. For a more precise technical description of these simulations, which aim primarily to reproduce the evolution of the wealth profile by age group (on the basis of macroeconomic and demographic data), see the online technical appendix.

22. More precisely, one can show that μ × m approaches 1/H when growth decreases, regardless of the life expectancy. With a capital/income ratio β of 600–700 percent, one may see why the inheritance flow by tends to return to β/H, that is, about 20–25 percent. Thus the idea of a “rate of estate devolution” developed by nineteenth-century economists is approximately correct in a society where growth is low. See the online technical appendix.

23. In reality, things are somewhat more complex, because we allow for the fact that some heirs consume a part of their inheritance. Conversely, we include in inherited wealth the cumulative income on wealth (within the limits of the heir’s wealth: if one fully capitalized all of the bequest, including the income consumed by the inheritor, for example in the form of rent that the inheritor of an apartment does not have to pay, one would obviously exceed 100 percent of total wealth). See the online technical appendix for estimates using different definitions.

24. In particular, when we say that the inheritance flow represents the equivalent of 20 percent of disposable income, this obviously does not mean that each individual receives 20 percent additional income every year in the form of a regular flow of bequests and gifts. It means rather that at certain points in a person’s life (typically on the death of a parent and in some cases on the occasion of receipt of a gift), much larger sums may be transferred, sums equivalent to several years’ income, and that all told these bequests and gifts represent the equivalent of 20 percent of the disposable income of all households.

25. Replacement incomes (retirement pensions and unemployment benefits) are included in income from labor, as in Part Two.

26. All resources were capitalized at the age of fifty, but if one uses the same rate of return to capitalize different resources, the choice of a reference age is not important for calculation the shares of inheritance and earned income in the total. The question of unequal returns on capital is examined in the next chapter.

27. For a complete analysis of the relations between these different ratios, see the online technical appendix. The fact that the inheritance flow (20–25 percent of national income) and capital income (typically 25–35 percent of national income) are sometimes close should be regarded as a coincidence due to specific demographic and technological parameters (the equilibrium inheritance flow by = β/H depends on the capital/income ratio and the duration of a generation, whereas the equilibrium capital share α depends on the production function).

28. As a general rule, the bottom 50 percent of the income hierarchy collectively received about 30 percent of total earned income (see Table 7.1), and therefore individually received about 60 percent of the average wage (or 40–50 percent of average national income per capita, allowing for the fact that income from labor generally accounts for 65–75 percent of national income). For example, in France today, the least well paid 50 percent have incomes that range between the minimum wage and 1.5 times the minimum wage, and earn on average 15,000 euros a year (1,250 euros a month), compared with 30,000 euros a year (2,500 a month) for average per capita national income.

29. Recall that 6–7 percent of total wages for the top centile means that each member of that group earned on average 6–7 times the average wage, or 10–12 times the average wage of the least well paid 50 percent. See Chapters 7 and 8.

30. Evolutions similar to those depicted in Figure 11.10 are obtained if one considers the top decile or top thousandth instead of the top centile (which I nevertheless believe is the most significant group to study). See Supplemental Figures S11.9–10, available online.

31. By definition, 500,000 adult individuals in a society of 50 million adults, such as France today.

32. The total value of inherited wealth is not far below its nineteenth-century level, but it has become rarer for individuals to inherit enough wealth to finance, without working, a lifestyle several dozen times the lower-class standard of living.

33. Roughly 3 times larger in the eighteenth and nineteenth centuries as well as the twenty-first century (when income from labor accounted for approximately three-quarters of total resources and income from inherited wealth for roughly one-quarter) and nearly 10 times larger in the twentieth century (when income from labor accounted for nine-tenths of resources and income from inherited wealth one-tenth). See Figure 11.9.

34. Roughly 3 times greater in the eighteenth and nineteenth centuries as well as the twenty-first century, and nearly 10 times larger in the twentieth century. The same would be true for the top 10 percent, the top 0.1 percent, etc.

35. See the online technical appendix for an analysis of the mathematical conditions on the various distributions that imply that rentiers dominate managers (and vice versa).

36. The top 1 percent of inherited fortunes enjoyed a standard of living 25–30 times higher than that of the bottom 50 percent in the nineteenth century (see Figure 11.10) or about 12–15 times the average per capita national income. The top 0.1 percent enjoyed a living standard approximately 5 times more opulent (see Chapter 10 on Pareto coefficients), or 60–75 times the average income. The threshold chosen by Balzac and Austen, 20–30 times average income, corresponds to the average income of the top 0.5 percent of the inheritance hierarchy (about 100,000 individuals out of an adult population of 20 million in France in 1820–1830, or 50,000 out of a population of 10 million British adults in 1800–1810). Both Balzac and Austen therefore had a vast range of characters to choose from.

37. In the nineteenth century, the best paid 1 percent of jobs offered a standard of living about 10 times greater than that of the lower class (see Figure 11.10), or 5 times the average income. One can estimate that only the best paid 0.01 percent (2,000 people out of 20 million at most) earned on average 20–30 times the average income for the period. Vautrin was probably not far off when he said that there were no more than five lawyers in Paris who earned more than 50,000 francs a year (or 100 times the average income). See the online technical appendix.

38. As in Chapter 2, the average incomes mentioned here are national per capita average incomes. In 1810–1820, the average income in France was 400–500 francs per year and probably a little more than 500 francs in Paris. The wages of domestic servants were one-third to one-half that.

39. Recall that a pound sterling was worth 25 francs in the nineteenth century and as late as 1914. See Chapter 2.

40. Had not an intimate of George III said to Barry Lyndon thirty years earlier, in the 1770s, that anyone with a capital of 30,000 pounds ought to be knighted? Redmond Barry had come quite a way since enlisting in the British army for barely 15 pounds a year (1 shilling a day), or barely half the average British income in 1750–1760. The fall was inevitable. Note that Stanley Kubrick, who took his inspiration from the celebrated nineteenth-century British novel, is just as precise about amounts as Jane Austen was.

41. Jane Austen, Sense and Sensibility (Cambridge, MA: Belknap Press, 2013), 405.

42. Austen, Sense and Sensibility, 135.

43. His cynicism ultimately persuades Rastignac, who in La maison de Nucingen engages in business dealings with Delphine’s husband in order to lay hands on a fortune of 400,000 francs.

44. In October 1788, as he is about to leave Normandy, Young notes: “Europe is now so much assimilated, that if one goes to a house where the fortune is 15 or 20,000 livres a year, we shall find in the mode of living much more resemblance than a young traveller will ever be prepared to look for” (Arthur Young, Travels in 1787, 1788, 1789, pub. 1792, reprinted as Arthur Young’s Travels in France [Cambridge: Cambridge University Press, 2012], 145). He is speaking of the livre tournois, equivalent to the franc germinal. This amount was equal to 700–900 pounds sterling, or the equivalent of 30–50 times the average French or British income of the day. Later on he is more specific: with this amount of income, one can afford “six men-servants, five maids, eight horses, a garden, and a regular table.” By contrast, with only 6,000–8,000 livres tournois, one can barely afford “2 servants and 3 horses.” Note that livestock was an important part of capital and expenses. In November 1789, Young sold his horse in Toulon for 600 livres tournois (or four years of annual wages for an “ordinary servant”). The price was typical for the time. See the online technical appendix.

45. Michael Young expressed this fear in The Rise of Meritocracy (London: Thames and Hudson, 1958).

46. The question of the salary scale for civil servants gave rise to many political conflicts in this period. In 1792, revolutionaries had tried to establish a restricted pay scale with a ratio of 8:1 (it was finally adopted in 1948 but was very quickly circumvented by a system of opaque bonuses for the highest civil servants that still exists today). Napoleon created a small number of highly paid posts, so few that Thiers in 1831 saw little reason to reduce their number (“with three million more or less given to or taken from the prefects, generals, magistrates, and ambassadors, we have the luxury of the Empire or American-style simplicity,” he added in the same speech). The fact that the highest US civil servants at the time were paid much less than in France was also noted by Tocqueville, who saw it as a sure sign that the democratic spirit prevailed in the United States. Despite many ups and downs, this handful of very high salaries persisted in France until World War I (and thus to the fall of the rentier). On these evolutions, see the online technical appendix.

47. See Piketty, Les hauts revenus en France, 530.

48. This argument sets aside the logic of need in favor of a logic of disproportion and conspicuous consumption. Thorstein Veblen said much the same thing in The Theory of the Leisure Class (New York: Macmillan, 1899): the egalitarian US dream was already a distant memory.

49. Michèle Lamont, Money, Morals and Manners: The Culture of the French and the American Upper-Middle Class (Chicago: University of Chicago Press, 1992). The individuals Lamont interviewed were no doubt closer to the ninetieth or ninety-fifth percentile of the income hierarchy (or in some cases the ninety-eighth or ninety-ninth percentile) than to the sixtieth or seventieth percentile. See also J. Naudet, Entrer dans l’élite: Parcours de réussite en France, aux États-Unis et en Inde (Paris: Presses Universitaires de France, 2012).

50. In order to avoid painting too dark a picture, Figures 11.9–11 show only the results for the central scenario. The results for the alternative scenario are even more worrisome and are available online (Supplemental Figures S11.9–11). The evolution of the tax system explains why the share of inheritance in total resources may exceed its nineteenth-century level even if the inheritance flow as a proportion of national income does not. Labor incomes are taxed today at a substantial level (30 percent on average, excluding retirement and unemployment insurance contributions), whereas the average effective tax rate on inheritances is less than 5 percent (even though inheritance gives rise to the same rights as labor income in regard to access to transfers in kind—education, health, security, etc.—which are financed by taxes). The tax issues are examined in Part Four.

51. The same is true of the landed estates worth 30,000 pounds of which Jane Austen speaks in a world where the average per capita income was around 30 pounds a year.

52. A fortune hidden in the Bahamas also figures in season 4 of Desperate Housewives (Carlos Solis has to get back his $10 million, which leads to endless complications with his wife), even though the show is as saccharine as could be and not out to portray social inequalities in a worrisome light, unless, of course, it is a matter of cunning ecological terrorists who threaten the established order or mentally handicapped minorities engaged in a conspiracy.

53. I will come back to this point in Chapter 13.

54. If the alternative scenario is correct, this proportion may exceed 25 percent. See Supplemental Figure S11.11, available online.

55. Compared with the socioeconomic theories of Modigliani, Becker, and Parsons, Durkheim’s theory, formulated in De la division du travail social (1893), is primarily a political theory of the end of inheritance. Its prediction has proved no more accurate than those of the other theories, but it may be that the wars of the twentieth century merely postponed the problem to the twenty-first.

56. Mario Draghi, Le Monde, July 22, 2012.

57. I do not mean to underestimate the importance of the taxi problem. But I would not venture to suggest that this is the foremost problem faced by Europe or global capitalism in the twenty-first century.

58. In France, fewer than 1 percent of adult males had the right to vote under the Restoration (90,000 voters out of 10 million); this proportion rose to 2 percent under the July Monarchy. Property requirements for holding office were even stricter: fewer than 0.2 percent of adult males met them. Universal male suffrage, briefly introduced in 1793, became the norm after 1848. Less than 2 percent of the British population could vote until 1831. Subsequent reforms in 1831 and especially 1867, 1884, and 1918 gradually put an end to property qualifications.

59. The German data presented here were collected by Christoph Schinke, “Inheritance in Germany 1911 to 2009: A Mortality Multiplier Approach,” Master’s thesis, Paris School of Economics, 2012. See the online technical appendix.

60. The British flows seem to have been slightly smaller (20–21 percent rather than 23–24 percent). Note, however, that this is based on an estimate of the fiscal flow and not the economic flow and is therefore likely to be slightly too low. The British data were collected by Anthony Atkinson, “Wealth and Inheritance in Britain from 1896 to the Present,” London School of Economics, 2012.

61. If this were to happen at the global level, the global return on capital might decrease, and greater life-cycle wealth might in part supplant transmissible wealth (because a lower return on capital discourages the second type of accumulation more than the first, which is not certain). I will come back to these questions in Chapter 12.

62. On this subject see the remarkable book by Anne Gotman, Dilapidation et prodigalité (Paris: Nathan, 1995), based on interviews with individuals who squandered large fortunes.

63. In particular, Modigliani quite simply failed to include capitalized incomes in inherited wealth. Kotlikoff and Summers, for their part, did take these into account without limit (even if the capitalized inheritance exceeded the wealth of the heir), which is also incorrect. See the online technical appendix for a detailed analysis of these questions.

12. Global Inequality of Wealth in the Twenty-First Century

1. Recall that global GDP, using purchasing power parity, was roughly $85 trillion (70 million euros) in 2012–2013, and according to my estimates total private wealth (real estate, business, and financial assets, net of liabilities) was around four years of global GDP, or about $340 trillion (280 million euros). See Chapters 1 and 6 and the online technical appendix.

2. Inflation in this period averaged 2–2.5 percent a year (and was somewhat lower in euros than in dollars; see Chapter 1). All the detailed series are available in the online technical appendix.

3. If one calculates these averages with respect to the total world population (including children as well as adults), which grew considerably less than the adult population in the period 1987–2013 (1.3 percent a year compared with 1.9 percent), all the growth rates increase, but the differences between them do not change. See Chapter 1 and the online technical appendix.

4. See the online technical appendix, Supplemental Table S12.1, available online.

5. For example, if we assume that the rate of divergence observed between 1987 and 2013 at the level of the top twenty-millionth will continue to apply in the future to the fractile consisting of the 1,400 billionaires included in the 2013 ranking (roughly the top three-millionths), the share of this fractile will increase from 1.5 percent of total global wealth in 2013 to 7.2 percent in 2050 and 59.6 percent in 2100.

6. The national wealth rankings published by other magazines in the United States, France, Britain, and Germany reach a little lower in the wealth hierarchy than Forbes’s global ranking, and the share of wealth covered in some cases is as high as 2 or 3 percent of the country’s total private wealth. See the online technical appendix.

7. In the media, the wealth of billionaires is sometimes expressed as a proportion of the annual flow of global output (or of the GDP of some country, which gives frightening results). This makes more sense than to express these large fortunes as a proportion of the global capital stock.

8. These reports rely in particular on the innovative work of James B. Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff, “The Level and Distribution of Global Household Wealth,” Economic Journal 121, no. 551 (March 2011): 223–54, and on data of the type presented in Chapter 10. See the online technical appendix.

9. Generally speaking, the sources used to estimate wealth distributions (separately for each country) pertain to years some distance in the past, updated almost exclusively with aggregate data taken from national accounts and similar sources. See the online technical appendix.

10. For example, the French media, accustomed for years to describing a massive flight of large fortunes from France (without really trying to verify the information other than by anecdote), have been astonished to learn every fall since 2010 from the Crédit Suisse reports that France is apparently the European wealth leader: the country is systematically ranked number 3 worldwide (behind the United States and Japan and well ahead of Britain and Germany) in number of millionaire residents. In this case, the information seems to be correct (as far as it is possible to judge from available sources), even if the bank’s methods tend to exaggerate the difference between France and Germany. See the online technical appendix.

11. See the online technical appendix.

12. In terms of the global income distribution, it seems that the sharp increase in the share of the top centile (which is not happening in all countries) has not prevented a decrease in the global Gini coefficient (although there are large uncertainties in the measurement of inequality in certain countries, especially China). Since the global wealth distribution is much more concentrated at the top of the distribution, it is quite possible that the increase in the share of the top centiles matters more. See the online technical appendix.

13. The average fortune of the top ten-thousandth (450 adults out of 45 billion) is about 50 million euros, or nearly 1,000 times the global average wealth per adult, and their share of total global wealth is about 10 percent.

14. Bill Gates was number one in the Forbes rankings from 1995 to 2007, before losing out to Warren Buffet in 2008–2009 and then to Carlos Slim in 2010–2013.

15. The first dyes invented in 1907 were named “L’Auréale,” after a hair style in vogue at the time and reminiscent of an aureole. Their invention led to the creation in 1909 of the French Company for Harmless Hair Dyes, which eventually, after the creation of many other brands (such as Monsavon in 1920) became L’Oréal in 1936. The similarity to the career of César Birotteau, whom Balzac depicts as having made his fortune by inventing “L’Eau Carminative” and “La Pâte des Sultanes” in the early nineteenth century, is striking.

16. With a capital of 10 billion euros, a mere 0.1 percent is enough to finance annual consumption of 10 million euros. If the return on capital is 5 percent, 98 percent of it can be saved. If the return is 10 percent, 99 percent can be saved. In any case, consumption is insignificant.

17. Honoré de Balzac, Le père Goriot (Paris: Livre de Poche, 1983), 105–9.

18. In the case of Challenges, there seem to be too few fortunes in the 50–500 million euro range compared with the number of wealth tax declarations in the corresponding brackets (especially since a large part of business capital is not taxable under the wealth tax and therefore does not appear in the statistics). This may be because Challenges does not look at diversified fortunes. Indeed, both sources underestimate the actual number of large fortunes for opposite reasons: the Challenges source overvalues business capital, while the fiscal source underestimates it, and both rely on vague and shifting definitions. Citizens are left perplexed and made to feel that the subject of wealth is quite opaque. See the online technical appendix.

19. Conceptually, moreover, it is no simple matter to define what a normal return on inherited wealth might be. In Chapter 11, I applied the same average return on capital to all fortunes, which no doubt leads to treating Liliane Bettencourt as a very partial heir (in view of the very high return on her capital), more partial than Steve Forbes himself, who nevertheless classifies her as a pure heiress, even though he counts himself among the “nurturers” of inherited wealth. See the online technical appendix.

20. For some particularly strong assertions about the relative merits of Slim and Gates, unfortunately without any precise factual basis, see, for example, Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown Publishing, 2012), 34–41. The authors’ harsh tone is all the more surprising in that they do not really discuss the ideal distribution of wealth. The book is built around a defense of the role of systems of property rights stemming from the British, American, and French revolutions in the development process (and little is said about more recent social institutions or systems of taxation).

21. See, for example, the magazine Capital, no. 255, December 3, 2012: “180 million euros … a sum that pales in comparison to the value of the real estate that the head of the firm, Lakshmi Mittal, recently acquired in London for three times that amount. Indeed, the businessman recently purchased the former embassy of the Philippines (for 70 million pounds, or 86 million euros), supposedly for his daughter Vanisha. A short while earlier, his son Aditya was the recipient of the generous gift of a home worth 117 million pounds (144 million euros). The two properties are located on Kensington Palace Gardens, known as Billionaires’ Row, not far from the paternal palace. Lakshmi Mittal’s residence is said to be the ‘most expensive private home in the world’ and is equipped with a Turkish bath, a jewel-encrusted swimming pool, marble from the same quarry as the Taj Mahal, and servants’ quarters.… All told, these three homes cost 542 million euros, or 3 times the 180 million invested in Florange.”

22. The Forbes ranking uses an interesting criterion, but one that is hard to apply in any precise way: it excludes “despots” and indeed anyone whose fortune depends on “their political position” (like the Queen of England). But if an individual acquires his fortune before coming to power, he remains in the ranking: for example, the Georgia oligarch Bidzina Ivanishvili is still in the 2013 list, although he became prime minister in late 2012. He is credited with a fortune of $5 billion, or one-quarter of his country’s GDP (between 5 percent and 10 percent of Georgia’s national wealth).

23. The total capital endowment of US universities is about 3 percent of GDP, and the annual income on this capital is about 0.2 percent of GDP, which is a little over 10 percent of total US expenditure on higher education. But this share is as high as 30 or 40 percent of the resources of the most richly endowed universities. Furthermore, these capital endowments play a role in the governance of these institutions that often outweighs their monetary importance. See the online technical appendix.

24. The data used here come mainly from reports published by the National Association of College and University Business Officers, as well as from financial reports published by Harvard University, Yale University, Princeton University, and other institutions. See the online technical appendix.

25. For results by subperiod, see the online technical appendix, Supplemental Table S12.2, available online.

26. Note, however, that the main difference arises from the fact that most owners of private wealth must pay significant taxes: the average real return before taxes was around 5 percent in the United States in 1980–2010. See the online technical appendix.

27. The numbers of universities in each category indicated in parentheses in Table 12.2 are based on 2010 endowments, but so as not to bias the results, the returns were calculated by ranking universities according to their endowment at the beginning of each decade. All the detailed results are available in the online technical appendix. See in particular Supplemental Table S12.2, available online.

28. Real estate can be a very high yield investment if one identifies the right projects around the world. In practice, these include business and commercial as well as residential properties, often on a very large scale.

29. This is confirmed by the fact that relative rankings do not change much over the thirty-year period 1980–2010. The hierarchy of university endowments remains more or less the same.

30. To take Harvard University as an example, annual financial reports show that the endowment yielded an average real return of about 10 percent from 1990 to 2010, whereas new gifts added an average of about 2 percent a year to the endowment. Thus the total real income (from return on the endowment plus gifts) amounted to 12 percent of the endowment; a portion of this, amounting to 5 percent of the endowment, was used to pay current university expenses, while the other 7 percent was added to the endowment. This enabled the endowment to increase from $5 billion in 1990 to nearly $30 billion in 2010 while allowing the university to consume an annual flow of resources 2.5 times as great as it received in gifts.

31. Note, however, that the historic rebound of asset prices appears to add no more than a point of additional annual return, which is fairly small compared with the level of return I have been discussing. See the online technical appendix.

32. For example, because Bill Gates maintains effective control over the assets of the Bill and Melinda Gates Foundation, Forbes chooses to count those assets as part of Gates’s personal fortune. Maintaining control seems incompatible with the idea of a disinterested gift.

33. According to Bernard Arnault, the principal stockholder in LVMH, the world leader in luxury goods, the purpose of the Belgian foundation that holds his assets is neither charitable nor fiscal. Rather, it is primarily an estate vehicle. “Among my five children and two nephews, there is surely one who will prove capable of taking over after I am gone,” he remarked. But he is afraid of disputes. By placing his assets in the foundation, he forces his heirs to vote “indissociably,” which “ensures the survival of the group if I should die and my heirs should be unable to agree.” See Le Monde, April 11, 2013.

34. The work of Gabrielle Fack and Camille Landais, which is based on these types of reforms in the United States and France, speaks eloquently to this point. See the online technical appendix.

35. For an incomplete estimate for the United States, see the online technical appendix.

36. See Chapter 5.

37. It was even worse in the nineteenth century, at least in the city, and especially in Paris, where before World War I most buildings were not chopped up into apartments. One therefore needed to be wealthy enough to buy an entire building.

38. See Chapter 5.

39. The nominal average return for 1998–2012 was only 5 percent a year. It is difficult to compare these returns with those on university endowments, however, in part because the period 1998–2012 was not as good as 1990–2010 or 1980–2010 (and unfortunately the Norwegian fund’s statistics go back only as far as 1998), and because this relatively low return was due in part to appreciation of the Norwegian krone.

40. According to the census of 2010, the United Arab Emirates (of which Abu Dhabi is the largest member state) have a native population of a little over 1 million (plus 7 million foreign workers). The native population of Kuwait is about the same size. Qatar has about 300,000 nationals and 1.5 million foreigners. Saudi Arabia alone employs nearly 10 million foreign workers (in addition to its native population of nearly 20 million).

41. See the online technical appendix.

42. One should also take into account public nonfinancial assets (public buildings, school, hospitals, etc.) as well as financial assets not formally included in sovereign wealth funds, and then subtract public debts. Net public wealth is currently less than 3 percent of private wealth in the rich countries, on average (in some cases net public wealth is negative), so this does not make much difference. See Chapters 3–5 and the online technical appendix.

43. If we exclude real estate and unlisted business assets, financial assets in the narrow sense represented between a quarter and a third of global private wealth in 2010, that is, between a year and a year and a half of global GDP (and not four years). The sovereign wealth funds thus own 5 percent of global financial assets. Here I refer to net financial assets owned by households and governments. In view of the very substantial cross-holdings of financial and nonfinancial corporations within and between countries, gross financial assets amount to much more than three years of global GDP. See the online technical appendix.

44. The rent on natural resources had already exceeded 5 percent of global GDP from the mid-1970s to the mid-1980s. See the online technical appendix.

45. My hypotheses implicitly include the long-run savings rate in China (and elsewhere), counting both public and private saving. We cannot predict the future relationship between public property (notably in sovereign wealth funds) and private property in China.

46. In any case, this transparent process of rent transformation (from oil rent to a diversified capital rent) illustrates the following point: capital has historically taken a variety of forms (land, oil, financial assets, business capital, real estate, etc.), but its underlying logic has not really changed, or at any rate has changed much less than people sometimes think.

47. In a pay-as-you-go, the contributions to the pension fund by active workers are directly paid out to retirees without being invested. On these issues, see Chapter 13.

48. Between one-quarter and one-half of European and US capital (or even more, depending on various assumptions). See the online technical appendix.

49. The divergence of the petroleum exporters can be seen as an oligarchic divergence, moreover, because petroleum rents go to a small number of individuals, who may be able to sustain a high level of accumulation through sovereign wealth funds.

50. The GDP of the European Union was close to 15 trillion euros in 2012–2013, compared with 10 trillion euros for China’s GDP at purchasing power parity (or 6 trillion at current exchange rates, which may be better for comparing international financial assets). See Chapter 1. China’s net foreign assets are growing rapidly, but not fast enough to overtake the total private wealth of the rich countries. See the online technical appendix.

51. See Aurélie Sotura, “Les étrangers font-ils monter les prix de l’immobilier? Estimation à partir de la base de la chambre des Notaires de Paris, 1993–2008,” Paris, Ecoles des Hautes Etudes en Sciences Social and Paris School of Economics, 2011.

52. See in particular Figure 5.7.

53. In Figure 12.6, the “wealthy countries” include Japan, Western Europe, and the United States. Adding Canada and Oceania would change little. See the online technical appendix.

54. See Chapters 3–5.

55. Or 7–8 percent of total net financial assets worldwide (see above).

56. See the online technical appendix for a discussion of the high estimate made in 2012 by James Henry for the Tax Justice Network, and the intermediate 2010 estimate by Ronen Palan, Richard Murphy, and Christian Chavagneux.

57. The data in Figure 12.6 are from Gabriel Zucman, “The Missing Wealth of Nations: Are Europe and the U.S. Net Debtors or Net Creditors?,” Quarterly Journal of Economics 128, no. 3 (2013): 1321–64.

58. According to an estimate by Roine and Waldenström, accounting for assets held abroad (estimated from inconsistencies in the Swedish balance of payments) can, under certain assumptions, lead to the conclusion that the top centile in Sweden is close to the same level of wealth as the top centile in the United States (which probably should also be increased). See the online technical appendix.

13. A Social State for the Twenty-First Century

1. As is customary, I take tax revenues to include all taxes, fees, social contributions, and other payments that citizens must pay under penalty of law. The distinctions between different types of payments, especially taxes and social insurance contributions, are not always very clear and do not mean the same thing in different countries. For the purpose of historical and international comparisons, it is important to consider all sums paid to the government, whether the central government or states or cities or other public agencies (such as social security, etc.). To simplify the discussion, I will sometimes use the word “taxes,” but unless otherwise indicated I always include other compulsory charges as well. See the online technical appendix.

2. Military expenditures generally amount to at least 2–3 percent of national income and can go much higher in a country that is unusually active militarily (like the United States, which currently devotes more than 4 percent of its national income to the military) or that feels its security and property threatened (Saudi Arabia and the Gulf states spend more than 10 percent of national income on the military).

3. Health and education budgets were generally below 1–2 percent of national income in the nineteenth century. For a historical view of the slow development of social spending since the eighteenth century and the acceleration in the twentieth century, see P. Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Cambridge: Cambridge University Press, 2004).

4. Note that the share of compulsory payments is expressed here as a proportion of national income (which is generally around 90 percent of GDP after deduction of about 10 percent for depreciation of capital). This seems to me the right thing to do, in that depreciation is not anyone’s income (see Chapter 1). If payments are expressed as a percentage of GDP, then the shares obtained are by definition 10 percent smaller (for example, 45 percent of GDP instead of 50 percent of national income).

5. Gaps of a few points may be due to purely statistical differences, but gaps of 5–10 points are real and substantial indicators of the role played by the government in each country.

6. In Britain, taxes fell by several points in the 1980s, which marked the Thatcherite phase of government disengagement, but then climbed again in 1990–2000, as new governments reinvested in public services. In France, the state share rose somewhat later than elsewhere, continued to rise strongly in 1970–1980, and did not begin to stabilize until 1985–1990. See the online technical appendix.

7. In order to focus on long-term trends, I have once again used decennial averages. The annual series of tax rates often include all sorts of minor cyclical variations, which are transitory and not very significant. See the online technical appendix.

8. Japan is slightly above the United States (32–33 percent of national income). Canada, Australia, and New Zealand are closer to Britain (35–40 percent).

9. The term “social state” captures the nature and variety of the state’s missions better than the more restrictive term “welfare state,” in my view.

10. See Supplemental Table S13.2, available online, for a complete breakdown of public spending in France, Germany, Britain, and the United States in 2000–2010.

11. Typically 5–6 percent for education and 8–9 percent for health. See the online technical appendix.

12. The National Health Service, established in 1948, is such an integral part of British national identity that its creation was dramatized in the opening ceremonies of the 2012 Olympic games, along with the Industrial Revolution and the rock groups of the 1960s.

13. If one adds the cost of private insurance, the US health care system is by far the most expensive in the world (nearly 20 percent of national income, compared with 10–12 percent in Europe), even though a large part of the population is not covered and health indicators are not as good as in Europe. There is no doubt that universal public health insurance systems, in spite of their defects, offer a better cost-benefit ratio than the US system.

14. By contrast, social spending on education and health reduces the (monetary) disposable income of households, which explains why the amount of the latter decreased from 90 percent of national income at the turn of the twentieth century to 70–80 percent today. See Chapter 5.

15. Pensions systems with capped payments are usually called, after the architect of Britain’s social state, “Beveridgian” (with the extreme case a flat pension amount for everyone, as in Britain), in contrast to “Bismarckian,” “Scandinavian,” or “Latin” systems, in which pensions are almost proportional to wages for the vast majority of the population (nearly everyone in France, where the ceiling is exceptionally high: eight times the average wage, compared with two to three times in most countries).

16. In France, which stands out for the extreme complexity of its social benefits and the proliferation of rules and agencies, fewer than half of the people who were supposed to benefit from one welfare-to-work program (the so-called active solidarity income, a supplement to very low part-time wages) applied for it.

17. One important difference between Europe and the United States is that income support programs in the United States have always been reserved for people with children. For childless individuals, the carceral state sometimes does the job of the welfare state (especially for young black males). About 1 percent of the adult US population was behind bars in 2013. This is the highest rate of incarceration in the world (slightly ahead of Russia and far ahead of China). The incarceration rate is more than 5 percent for adult black males (of all ages). See the online technical appendix. Another US peculiarity is the use of food stamps (whose purpose is to ensure that welfare recipients spend their benefits on food rather than on drink or other vices), which is inconsistent with the liberal worldview often attributed to US citizens. It is a sign of US prejudices in regard to the poor, which seem to be more extreme than European prejudices, perhaps because they are reinforced by racial prejudices.

18. With variations between countries described above.

19. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness; that to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

20. The notion of “common utility” has been the subject of endless debate, and to examine this would go far beyond the framework of this book. What is certain is that the drafters of the 1789 Declaration did not share the utilitarian spirit that has animated any number of economists since John Stuart Mill: a mathematical sum of individual utilities (together with the assumption that the utility function is “concave,” meaning that its rate of increase decreases with increasing income, so that redistribution of income from the rich to the poor increases total utility). This mathematical representation of the desirability of redistribution bears little apparent relation to the way most people think about the question. The idea of rights seems more pertinent.

21. It seems reasonable to define “the most disadvantaged” as those individuals who have to cope with the most unfavorable factors beyond their control. To the extent that inequality of conditions is due, at least in part, to factors beyond the control of individuals, such as the existence of unequal family endowments (in terms of inheritances, cultural capital, etc.) or good fortune (special talents, luck, etc.), it is just for government to seek to reduce these inequalities as much as possible. The boundary between equalization of opportunities and conditions is often rather porous (education, health, and income are both opportunities and conditions). The Rawlsian notion of fundamental goods is a way of moving beyond this artificial opposition.

22. “Social and economic inequalities … are just only if they result in compensating benefits for everyone, and in particular for the least advantaged members of society” (John Rawls, A Theory of Justice [Cambridge, MA: Belknap Press, 15]). This 1971 formulation was repeated in Political Liberalism, published in 1993.

23. These theoretical approaches have recently been extended by Marc Fleurbaey and John Roemer, with some tentative empirical applications. See the online technical appendix.

24. Despite the consensus in Europe there is still considerable variation. The wealthiest and most productive countries have the highest taxes (50–60 percent of the national income in Sweden and Denmark), and the poorest, least developed countries have the lowest taxes (barely 30 percent of national income in Bulgaria and Romania). See the online appendix. In the United States there is less of a consensus. Certain substantial minority factions radically challenge the legitimacy of all federal social programs or indeed of social programs of any kind. Once again, racial prejudice seems to have something to do with this (as exemplified by the debates over the health care reform adopted by the Obama administration).

25. In the United States and Britain, the social state also grew rapidly even though economic growth was significantly lower, which may have fostered a powerful sense of loss reinforced by a belief that other countries were catching up, as discussed earlier (see Chapter 2 in particular).

26. According to the work of Anders Bjorklund and Arnaud Lefranc on Sweden and France, respectively, it seems that the intergenerational correlation decreased slightly for cohorts born in 1940–1950 compared with those born in 1920–1930, then increased again for cohorts born in 1960–1970. See the online technical appendix.

27. It is possible to measure mobility for cohorts born in the twentieth century (with uneven precision and imperfect comparability across countries), but it is almost impossible to measure intergenerational mobility in the nineteenth century except in terms of inheritance (see Chapter 11). But this is a different issue from skill and earned income mobility, which is what is of interest here and is the focal point of these measurements of intergenerational mobility. The data used in these works do not allow us to isolate mobility of capital income.

28. The correlation coefficient ranges from 0.2–0.3 in Sweden and Finland to 0.5–0.6 in the United States. Britain (0.4–0.5) is closer to the United States but not so far from Germany or France (0.4). Concerning international comparisons of intergenerational correlation coefficients of earned income (which are also confirmed by twin studies), see the work of Markus Jantti. See the online technical appendix.

29. The cost of an undergraduate year at Harvard in 2012–2013 was $54,000, including room and board and various other fees (tuition in the strict sense was $38,000). Some other universities are even more expensive than Harvard, which enjoys a high income on its endowment (see Chapter 12).

30. See G. Duncan and R. Murnane, Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances (New York: Russell Sage Foundation, 2011), esp. chap. 6. See the online technical appendix.

31. See Jonathan Meer and Harvey S. Rosen, “Altruism and the Child Cycle of Alumni Donations,” American Economic Journal: Economic Policy 1, no. 1 (2009): 258–86.

32. This does not mean that Harvard recruits its students exclusively from among the wealthiest 2 percent of the nation. It simply means that recruitment below that level is sufficiently rare, and that recruitment among the wealthiest 2 percent is sufficiently frequent, that the average is what it is. See the online technical appendix.

33. Statistics as basic as the average income or wealth of parents of students at various US universities are very difficult to obtain and not much studied.

34. The highest tuition fee British universities may charge was increased to £1,000 in 1998, £3,000 in 2004, and £9,000 in 2012. The share of tuition fees in total resources of British universities in 2010 is almost as high as in the 1920s and close to the US level. See the interesting series of historical studies by Vincent Carpentier, “Public-Private Substitution in Higher Education,” Higher Education Quarterly 66, no. 4 (October 2012): 363–90.

35. Bavaria and Lower Saxony decided in early 2013 to eliminate the university tuition of 500 euros per semester and offer free higher education like the rest of Germany. In the Nordic countries, tuition is never more than a few hundred euros, as in France.

36. One finds the same redistribution from bottom to top in primary and secondary education: students at the most disadvantaged schools and high schools are assigned the least experienced and least trained teachers and therefore receive less public money per child than students at more advantaged schools and high schools. This is all the more regrettable because a better distribution of resources at the primary level would greatly reduce inequalities of educational opportunity. See Thomas Piketty and M. Valdenaire, L’impact de la taille des classes sur la réussite scolaire dans les écoles, collèges et lycées français (Paris: Ministère de l’Education Nationale, 2006).

37. As in the case of Harvard, this average income does not mean that Sciences Po recruits solely among the wealthiest 10 percent of families. See the online technical appendix for the complete income distribution of parents of Sciences Po students in 2011–2012.

38. According to the well-known Shanghai rankings, 53 of the 100 best universities in the world in 2012–2013 were in the United States, compared with 31 in Europe (9 of which were in Britain). The order is reversed, however, when we look at the 500 best universities (150 for the United States and 202 for Europe, of which 38 are in Britain). This reflects significant inequalities among the 800 US universities (see Chapter 12).

39. Note, however, that compared with other expenses (such as pensions), it would be relatively easy to raise spending on higher education from the lowest levels (barely 1 percent of national income in France) to the highest (2–3 percent in Sweden and the United States).

40. For example, tuition at Sciences Po currently ranges from zero for parents with the least income to 10,000 euros a year for parents with incomes above 200,000 euros. This system is useful for producing data on parental income (which unfortunately has been little studied). Compared with Scandinavian-style public financing, however, such a system amounts to a privatization of the progressive income tax: the additional sums paid by wealthy parents go to their own children and not to the children of other people. This is evidently in their own interest, not in the public interest.

41. Australia and Britain offer “income-contingent loans” to students of modest background. These are not repaid until the graduates achieve a certain level of income. This is tantamount to a supplementary income tax on students of modest background, while students from wealthier backgrounds received (usually untaxed) gifts from their parents.

42. Emile Boutmy, Quelques idées sur la création d’une Faculté libre d’enseignement supérieur (Paris, 1871). See also P. Favre, “Les sciences d’Etat entre déterminisme et libéralisme: Emile Boutmy (1835–1906) et la création de l’Ecole libre des sciences politiques,” Revue française de sociologie 22 (1981).

43. For an analysis and defense of the “multi-solidarity” model, see André Masson, Des liens et des transferts entre générations (Paris: Editions de l’EHESS, 2009.

44. See Figures 10.9–11.

45. Recall that this volatility is the reason why PAYGO was introduced after World War II: people who had saved for retirement by investing in financial markets in 1920–1930 found themselves ruined, and no one wished to try the experiment again by imposing a compulsory capitalized pension system of the sort that any number of countries had tried before the war (for example, in France under the laws of 1910 and 1928).

46. This was largely achieved by the Swedish reform of the 1990s. The Swedish system could be improved and adapted to other countries. See for example Antoine Bozio and Thomas Piketty, Pour un nouveau système de retraite: Des comptes individuels de cotisations financés par répartition (Paris: Editions rue d’Ulm, 2008).

47. It is also possible to imagine a unified retirement scheme that would offer, in addition to a PAYGO plan, an opportunity to earn a guaranteed return on modest savings. As I showed in the previous chapter, it is often quite difficult for people of modest means to achieve the average return on capital (or even just a positive return). In some respects, this what the Swedish system offers in the (small) part that it devotes to capitalized funding.

48. Here I am summarizing the main results of Julia Cagé and Lucie Gadenne, “The Fiscal Cost of Trade Liberalization,” Harvard University and Paris School of Economics Working Paper no. 2012–27 (see esp. figure 1).

49. Some of the problems of health and education the poor countries face today are specific to their situation and cannot really be addressed by drawing on the past experience of today’s developed countries (think of the problem of AIDS, for example). Hence new experiments, perhaps in the form of randomized controlled trials, may be justified. See, for example, Abhijit Banerjee and Esther Duflo, Poor Economics (New York: Public Affairs, 2012). As a general rule, however, I think that development economics tends to neglect actual historical experience, which, in the context of this discussion, means that too little attention is paid to the difficulty of developing an effective social state with paltry tax revenues. One important difficulty is obviously the colonial past (and therefore randomized controlled trials may offer a more neutral terrain).

50. See Thomas Piketty and Nancy Qian, “Income Inequality and Progressive Income Taxation in China and India: 1986–2015,” American Economic Journal: Applied Economics 1, no. 2 (April 2009): 53–63. The difference between the two countries is closely related to the greater prevalence of wage labor in China. History shows that the construction of a fiscal and social state and of a wage-earner status often go together.

14. Rethinking the Progressive Income Tax

1. The British economist Nicholas Kaldor proposed such a tax, and I say more about it later, but for Kaldor it was a complement to progressive income and estate taxes, in order to ensure that they were not circumvented. It was not meant as a substitute for these taxes, as some have argued.

2. For example, in 1990, when some social contributions in France were extended to revenue streams other than employment income (including capital income and retiree income) to create what was called the “generalized social contribution,” (contribution sociale généralisée, or CSG), the corresponding receipts were reclassified as an income tax under international norms.

3. The poll tax, which was adopted in 1988 and abolished in 1991, was a local tax that required the same payment of every adult no matter what his or her income or wealth might be, so its rate was lower for the rich.

4. See Camille Landais, Thomas Piketty, and Emmanuel Saez, Pour une révolution fiscale: Un impôt sur le revenu pour le 21e siècle (Paris: Le Seuil, 2010), pp. 48–53. Also available at www.revolution-fiscale.fr.

5. In particular, the estimate fails to account for income hidden in tax havens (which, as indicated in Chapter 12, is quite a lot) and assumes that “tax shelters” are equally common at all levels of income and wealth (which probably leads to an overestimate of the real rate of taxation at the top of the hierarchy). Note, too, that the French tax system is exceptionally complex, with many special categories and overlapping taxes. (For example, France is the only developed country that does not withhold income tax at the source, even though social contributions have always been withheld at the source.) This complexity makes the system even more regressive and difficult to understand (just as the pension system is difficult to understand).

6. Only income from inherited capital is taxed under the progressive income tax (along with other capital income) and not inherited capital itself.

7. In France, for example, the average tax on estates and gifts is barely 5 percent; even for the top centile of inheritances, it is just 20 percent. See the online technical appendix.

8. See Figures 11.9–11 and the online technical appendix.

9. For example, instead of taxing the bottom 50 percent at a rate of 40–45 percent and the next 40 percent at a rate of 45–50 percent, one could tax the bottom group at 30–35 percent and the second group at 50–55 percent.

10. Given the low rate of intergenerational mobility, this would also be more just (in terms of the criteria of justice discussed in Chapter 13). See the online technical appendix.

11. The “general tax on income” (impôt général sur le revenu, or IGR) this law created is a progressive tax on total income. It was the forerunner of today’s income tax. It was modified by the law of July 31, 1917, creating what was called the cédulaire tax (which taxed different categories of income, such as corporate profits and wages, differently). This law was the forerunner of today’s corporate income tax. For details of the turbulent history of the income tax in France since the fundamental reforms of 1914–1917, see Thomas Piketty, Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998 (Paris: Grasset, 2001), 233–334.

12. The progressive income tax was aimed primarily at top capital incomes (which everyone at the time knew dominated the income hierarchy), and it never would have occurred to anyone in any country to grant special exemptions to capital income.

13. For example, the many works the US economist Edwin Seligman published between 1890 and 1910 in praise of the progressive income tax were translated into many languages and stirred passionate debate. On this period and these debates, see Pierre Rosanvallon, La société des égaux (Paris: Le Seuil, 2011), 227–33. See also Nicolas Delalande, Les batailles de l’impôt: Consentement et résistances de 1789 à nos jours (Paris: Le Seuil, 2011).

14. The top tax rate is generally a “marginal” rate, in the sense that it applies only to the “margin,” or portion of income above a certain threshold. The top rate generally applies to less than 1 percent of the population (in some cases less than 0.1 percent). To have a comprehensive view of progressivity, it is better to look at the effective rates paid by different centiles of the income distribution (which can be much lower). The evolution of the top rate is nevertheless interesting, and by definition it gives an upper bound on the effective rate paid by the wealthiest individuals.

15. The top tax rates shown in Figure 14.1 do not include the increases of 25 percent introduced in 1920 for unmarried taxpayers without children and married taxpayers “who after two years of marriage still have no child.” (If we included them, the top rate would be 62 percent in 1920 and 90 percent in 1925.) This interesting provision of the law, which attests to the French obsession with the birthrate as well as to the limitless imagination of legislators when it comes to expressing a country’s hopes and fears through the tax rate, would later be rebaptized, from 1939 to 1944, the “family compensation tax,” which was extended from 1945 to 1951 through the family quotient system (under which married couples without a child, normally endowed with 2 shares, were decreased to 1.5 shares if they still had no child “after three years of marriage”). Note that the Constituent Assembly of 1945 increased by one year the grace period set in 1920 by the National Bloc. See Les hauts revenus en France, 233–334.

16. A progressive tax on total income had earlier been tried in Britain between the Napoleonic wars, as well as in the United States during the Civil War, but in both cases the taxes were repealed shortly after hostilities ended.

17. See Mirelle Touzery, L’invention de l’impôt sur le revenu: La taille tarifée 1715–1789 (Paris: Comité pour l’histoire économique et financière, 1994).

18. Business inventory and capital were subject to a separate tax, the patente. On the system of the quatre vieilles (the four direct taxes, which, along with the estate tax, formed the heart of the tax system created in 1791–1792), see Les hauts revenus en France, 234–239.

19. One of the many parliamentary committees to consider a progressive estate tax in the nineteenth century had this to say: “When a son succeeds his father, there is strictly speaking no transmission of property but merely continued enjoyment, according to the authors of the Civil Code. If this doctrine is taken to be absolute, then any tax on direct bequests is ruled out. In any case, extreme moderation in setting the rate of taxation is imperative.” See ibid., 245.

20. A professor at the Ecole Libre des Sciences Politiques and the Collège de France from 1880 to 1916 and outspoken champion of colonization among the conservative economists of the day, Leroy-Beaulieu was also the editor of L’économiste français, an influential weekly magazine roughly equivalent to the Economist today, especially in its limitless and often undiscerning zeal to defend the powerful interests of its time.

21. For instance, he noted with satisfaction that the number of indigents receiving assistance in France increased by only 40 percent from 1837 to 1860, whereas the number of assistance offices had nearly doubled. Apart from the fact that one would have to be very optimistic to deduce from these figures that the actual number of indigents had decreased (which Leroy-Beaulieu did not hesitate to do), a decrease in the absolute number of the poor in a context of economic growth would obviously tell us nothing about the evolution of income inequality. See ibid., 522–31.

22. At times one has the thought that he might have been responsible for the advertisements that HSBC plastered all over airport walls a few years ago: “We see a world of opportunities. Do you?”

23. Another classic argument of the time was that the “inquisitorial” procedure of requiring taxpayers to declare their income might suit an “authoritarian” country like Germany but would immediately be rejected by a “free people” like the French. See Les hauts revenus en France, 481.

24. For instance, Joseph Caillaux, minister of finance at the time: “We have been led to believe and to say that France was a country of small fortunes, of infinitely fragmented and dispersed capital. The statistics with which the new estate tax regime provides us force us to retreat from this position.… Gentlemen, I cannot hide from you the fact that these figures have altered some of my preconceived ideas. The fact is that a small number of people possess the bulk of this country’s wealth.” See Joseph Caillaux, L’impôt sur le revenu (Paris: Berger, 1910), 530–32.

25. On the German debates, see Jens Beckert, tr. Thomas Dunlap, Inherited Wealth, (Princeton: Princeton University Press, 2008), 220–35. The rates shown in Figure 14.2 concern transmissions in the direct line (from parents to children). The rates on other bequests were always higher in France and Germany. In the United States and Britain, rates generally do not depend on the identity of the heir.

26. On the role of war in changing attitudes toward the estate tax, see Kenneth Scheve and David Stasavage, “Democracy, War, and Wealth: Evidence of Two Centuries of Inheritance Taxation,” American Political Science Review 106, no. 1 (February 2012): 81–102.

27. To take an extreme example, the Soviet Union never needed a confiscatory tax on excessive incomes or fortunes because its economic systems imposed direct controls on the distribution of primary incomes and almost totally outlawed private property (admittedly in ways that were much less respectful of the law). The Soviet Union did have an income tax at times, but it was relatively insignificant, with very low top rates. The same is true in China. I come back to this in the next chapter.

28. Pace Leroy-Beaulieu, King put France in the same league as Britain and Prussia, which was substantially correct.

29. See Irving Fisher, “Economists in Public Service: Annual Address of the President,” American Economic Review 9, no. 1 (March 1919): 5–21. Fisher took his inspiration mainly from the Italian economist Eugenio Rignano. See G. Erreygers and G. Di Bartolomeo, “The Debates on Eugenio Rignano’s Inheritance Tax Proposals,” History of Political Economy 39, no. 4 (Winter 2007): 605–38. The idea of taxing wealth that had been accumulated in the previous generation less heavily than older wealth that had been passed down through several generations is very interesting, in the sense that there is a stronger sense of double taxation in the former case than in the latter, even if different generations and therefore different individuals are involved in both cases. It is nevertheless difficult to formalize and implement this idea in practice (because estates often follow complex trajectories), which is probably why it has never been tried.

30. To this federal tax one should also add state income tax (which is generally 5–10 percent).

31. The top Japanese income tax rate rose to 85 percent in 1947–1949, when it was set by the US occupier, and then fell immediately to 55 percent in 1950 after Japan regained its fiscal sovereignty. See the online technical appendix.

32. These rates applied in the direct line of inheritance. The rates applied to brothers, sisters, cousins, and nonrelatives were sometimes higher in France and Germany. In France today, for example, the rate for bequests to nonrelatives is 60 percent. But rates never reached the 70–80 percent levels applied to children in the United States and Britain.

33. The record level of 98 percent was in force in Britain from 1941 to 1952 and again from 1974 to 1978. See the online technical appendix for the complete series. During the 1972 US presidential campaign, George McGovern, the Democratic candidate, went so far as to propose a top rate of 100 percent for the largest inheritances (the rate was then 77 percent) as part of his plan to introduce a guaranteed minimum income. McGovern’s crushing defeat by Nixon marked the beginning of the end of the United States’ enthusiasm for redistribution. See Beckert, Inherited Wealth, 196.

34. For example, when the top rate on capital income in Britain was 98 percent from 1974 to 1978, the top rate on labor income was 83 percent. See Supplemental Figure S14.1, available online.

35. British thinkers such as John Stuart Mill were already reflecting on inheritances in the nineteenth century. The reflection intensified in the interwar years as more sophisticated probate data became available. It continued after the war in the work of James Meade and Anthony Atkinson, which I cited previously. It is also worth mentioning that Nicholas Kaldor’s interesting proposal of a progressive tax on consumption (actually on luxury consumption) was directly inspired by his desire to require more of idle rentiers, whom he suspected of evading the progressive taxes on both estates and income through the use of trust funds, unlike university professors such as himself, who paid the income tax as required. See Nicholas Kaldor, An Expenditure Tax (London: Allen and Unwin, 1955).

36. See Josiah Wedgwood, The Economics of Inheritance (Harmondsworth, England: Pelican Books, 1929; new ed. 1939). Wedgwood meticulously analyzed the various forces at work. For example, he showed that charitable giving was of little consequence. His analysis led him to the conclusion that only a tax could achieve the equalization he desired. He also showed that French estates were nearly as concentrated as British ones in 1910, from which he concluded that egalitarian division of estates, as in France, though desirable, was clearly not enough to bring about social equality.

37. For France, I have included the generalized social contribution or CSG (currently 8 percent) in the income tax, which makes the current top rate 53 percent. See the online technical appendix for the complete series.

38. This is true not only of the United States and Britain (in the first group) and Germany, France, and Japan (in the second group) but also for all of the eighteen OECD countries for which we have data in the WTID that allow us to study the question. See Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” American Economic Journal: Economic Policy, forthcoming (fig. 3). See also the online technical appendix.

39. See Piketty et al., “Optimal Taxation of Top Labor Incomes,” figs. 3 and A1 and table 2. These results, which cover eighteen countries, are also available in the online technical appendix. This conclusion does not depend on the choice of starting and ending years. In all cases, there is no statistically significant relationship between the decrease in the top marginal tax rate and the rate of growth. In particular, starting in 1980 rather than 1960 or 1970 does not change the results. For growth rates in the wealth countries over the period 1970–2010, see also Table 5.1 here.

40. We can rule out an elasticity of labor supply greater than 0.1–0.2 and justify the optimal marginal income tax rate described below. All the details of the theoretical argument and results are available in Piketty et al., “Optimal Taxation of Top Labor Incomes,” and are summarized in the online technical appendix.

41. It is important to average over fairly long periods (of at least ten to twenty years) to have meaningful growth comparisons. Over shorter periods, growth rates vary for all sorts of reasons, and it is impossible to draw any valid conclusions.

42. The difference in per capita GDP stems from the fact that US citizens work more hours than Europeans. According to standard international data, GDP per hour worked is approximately the same in the United States as in the wealthiest countries of the European continent (but significantly lower in Britain: see the online technical appendix).

43. See in particular Figure 2.3.

44. Per capita GDP in the United States grew at 2.3 percent a year from 1950 to 1970, 2.2 percent between 1970 and 1990, and 1.4 percent from 1990 to 2012. See Figure 2.3.

45. The idea that the United States has innovated for the rest of the world was recently proposed by Daron Acemoglu, James Robinson, and Thierry Verdier, “Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World,” (MIT Department of Economics Working Paper no. 12–22, August 20, 2012). This is an essentially theoretical article, whose principal factual basis is that the number of patents per capita is higher in the United States than in Europe. This is interesting, but it seems to be at least partly a consequences of distinct legal practices, and in any case it should allow the innovative country to retain significantly higher productivity (or greater national income).

46. See Piketty et al., “Optimal Taxation of Top Labor Incomes,” fig. 5, tables 3–4. The results summarized here are based on detailed data concerning nearly three thousand firms in fourteen countries.

47. Xavier Gabaix and Augustin Landier argued that skyrocketing executive pay is a mechanical consequence of increased firm size (which supposedly increases the productivity of the most “talented” managers). See “Why Has CEO Pay Increased So Much?” Quarterly Journal of Economics 123, no. 1 (2008): 49–100. The problem is that this theory is based entirely on the marginal productivity model and cannot explain the large international variations observed in the data (company size increased in similar proportions nearly everywhere, but pay did not). The authors rely solely on US data, which unfortunately limits the possibilities for empirical testing.

48. Many economists defend the idea that greater competition can reduce inequality. See, for example, Raghuram G. Rajan and Luigi Zingales, Saving Capitalism from the Capitalists (New York: Crown Business, 2003), and L. Zingales, A Capitalism for the People (New York: Basic Books, 2012), or Acemoglu, Robinson, and Verdier, “Can’t We All Be More Like Scandinavians.” Some sociologists also take this line: see David B. Grusky, “Forum: What to Do about Inequality?” Boston Review, March 21, 2012.

49. Contrary to an idea that is often taught but rarely verified, there is no evidence that executives in the period 1950–1980 made up for low pay with compensation in kind, such as private planes, sumptuous offices, etc. On the contrary, all the evidence suggests that such benefits in kind have increased since 1980.

50. To be precise, 82 percent. See Piketty et al., “Optimal Taxation of Top Labor Incomes,” table 5.

51. Note that the progressive tax plays two very distinct roles in this theoretical model (as well as in the history of progressive taxation): confiscatory rates (on the order of 80–90 percent on the top 0.5 or 1 percent of the distribution) would end indecent and useless compensation, while high but nonconfiscatory rates (of 50–60 percent on the top 5 or 10 percent) would raise revenues to finance the social state above the revenues coming from the bottom 90 percent of the distribution.

52. See Jacob Hacker and Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned its Back on the Middle Class (New York: Simon and Schuster, 2010); K. Schlozman, Sidney Verba, and H. Brady, The Unheavenly Chorus: Unequal Political Voice and the Broken Promise of American Democracy (Princeton: Princeton University Press, 2012); Timothy Noah, The Great Divergence (New York: Bloomsbury Press, 2012).

53. See Claudia Goldin and Lawrence F. Katz, The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890–2005 (Cambridge, MA: Belknap Press and NBER, 2010), Rebecca M. Blank, Changing Inequality (Berkeley: University of California Press, 2011) and Raghuram G. Rajan, Fault Lines (Princeton: Princeton University Press, 2010).

54. The pay of academic economists is driven up by the salaries offered in the private sector, especially the financial sector, for similar skills. See Chapter 8.

55. For example, by using abstruse theoretical models designed to prove that the richest people should pay zero taxes or even receive subsidies. For a brief bibliography of such models, see the online technical appendix.

15. A Global Tax on Capital

1. The additional revenue could be used to reduce existing taxes or to pay for additional services (such as foreign aid or debt reduction; I will have more to say about this later).

2. Every continent has specialized financial institutions that act as central repositories (custodian banks or clearing houses), whose purpose is to record ownership of various types of assets. But the function of these private institutions is to provide a service to the companies issuing the securities in question, not to record all the assets owned by a particular individual. On these institutions, see Gabriel Zucman, “The Missing Wealth of Nations: Are Europe and the U.S. Net Debtors or Net Creditors?” Quarterly Journal of Economics 128, no. 3 (2013): 1321–64.

3. For instance, the fall of the Roman Empire ended the imperial tax on land and therefore the land titles and cadastre that went with it. According to Peter Temin, this contributed to economic chaos in the early Middle Ages. See Peter Temin, The Roman Market Economy (Princeton: Princeton University Press, 2012), 149–51.

4. For this reason, it would be useful to institute a low-rate tax on net corporate capital together with a higher-rate tax on private wealth. Governments would then be forced to set accounting standards, a task currently left to associations of private accountants. On this subject, see Nicolas Véron, Matthieu Autrer, and Alfred Galichon, L’information financière en crise: Comptabilité et capitalisme (Paris: Odile Jacob, 2004).

5. Concretely, the authorities do what is called a “hedonic” regression to calculate the market price as a function of various characteristics of the property. Transactional data are available in all developed countries for this purpose (and are used to calculate real estate price indices).

6. This temptation is a problem in all systems based on self-reporting by taxpayers, such as the wealth tax system in France, where there is always an abnormally large number of reports of wealth just slightly below the taxable threshold. There is clearly a tendency to slightly understate the value of real estate, typically by 10 or 20 percent. A precomputed statement issued by the government would provide an objective figure based on public data and a clear methodology and would thus put an end to such behavior.

7. Oddly enough, the French government once again turned to this archaic method in 2013 to obtain information about the assets of its own ministers, officially for the purpose of restoring confidence after one of them was caught in a lie about evading taxes on his wealth.

8. For example, the Channel Islands, Liechtenstein, Monaco, etc.

9. It is difficult to estimate the extent of such losses, but in a country like Luxembourg or Switzerland they might amount to as much as 10–20 percent of national income, which would have a substantial impact on their standard of living. (The same is true of a financial enclave like the City of London.) In the more exotic tax havens and microstates, the loss might be as high as 50 percent or more of national income, indeed as high as 80–90 percent in territories that function solely as domiciles for fictitious corporations.

10. Social insurance contributions are a type of income tax (and are included in the income tax in some countries; see Chapter 13).

11. See in particular Table 12.1.

12. Recall the classic definition of income in the economic sense, given by the British economist John Hicks: “The income of a person or collectivity is the value of the maximum that could be consumed during the period while remaining as wealthy at the end of the period as at the beginning.”

13. Even with a return on capital of 2 percent (much lower than the actual return on the Bettencourt fortune in the period 1987–2013), the economic income on 30 billion euros would amount to 600 million euros, not 5 million.

14. In the case of the Bettencourt fortune, the largest in France, there was an additional problem: the family trust was managed by the wife of the minister of the budget, who was also the treasurer of a political party that had received large donations from Bettencourt. Since the same party had reduced the wealth tax by two-thirds during its time in power, the story naturally stirred up a considerable reaction in France. The United States is not the only country where the wealthy wield considerable political influence, as I showed in the previous chapter. Note, too, that the minister of the budget in question was succeeded by another who had to resign when it was revealed that he had a secret bank account in Switzerland. In France, too, the political influence of the wealthy transcends political boundaries.

15. In practice, the Dutch system is not completely satisfactory: many categories of assets are exempt (particularly those held in family trusts), and the assumed return is 4 percent for all assets, which may be too high for some fortunes and too low for others.

16. The most logical approach is to measure this insufficiency on the basis of average rates of return observed for fortunes of each category so as to make the income tax schedule consistent with the capital tax schedule. One might also consider minimum and maximum taxes as a function of capital income. See the online technical appendix.

17. The incentive argument is central to Maurice Allais’s tendentious L’impôt sur le capital et la réforme monétaire (Paris: Editions Hermann, 1977), in which Allais went so far as to advocate complete elimination of the income tax and all other taxes in favor of a tax on capital. This is an extravagant idea and not very sensible, given the amounts of money involved. On Allais’s argument and current extensions of it, see the online technical appendix. Broadly speaking, discussions of a tax on capital often push people into extreme positions (so that they either reject the idea out of hand or embrace it as the one and only tax, destined to replace all others). The same is true of the estate tax (either they shouldn’t be taxed at all or should be taxed at 100 percent). In my view, it is urgent to lower the temperature of the debate and give each argument and each type of tax its due. A capital tax is useful, but it cannot replace all other taxes.

18. The same is true of an unemployed worker who has to continue paying a high property tax (especially when mortgage payments are not deductible). The consequences for overindebted households can be dramatic.

19. This compromise depends on the respective importance of individual incentives and random shocks in determining the return on capital. In some cases it may be preferable to tax capital income less heavily than labor income (and to rely primarily on a tax on the capital stock), while in others it might make sense to tax capital income more heavily (as was the case in Britain and the United States before 1980, no doubt because capital income was seen as particularly arbitrary). See Thomas Piketty and Emmanuel Saez, A Theory of Optimal Capital Taxation, NBER Working Paper 17989 (April 2012); a shorter version is available as “A Theory of Optimal Inheritance Taxation,” Econometrica 81, no. 5 (September 2013): 1851–86.

20. This is because the capitalized value of the inheritance over the lifetime of the recipient is not known at the moment of transmission. When a Paris apartment worth 100,000 francs in 1972 passed to an heir, no one knew that the property would be worth a million euros in 2013 and afford a saving on rent of more than 40,000 euros a year. Rather than tax the inheritance heavily in 1972, it is more efficient to assess a smaller inheritance tax but to requirement payment of an annual property tax, a tax on rent, and perhaps a wealth tax as the value of the property and its return increase over time.

21. See Piketty and Saez, “Theory of Optimal Capital Taxation”; see also the online technical appendix.

22. See Figure 14.2

23. For example, on real estate worth 500,000 euros, the annual tax would be between 2,500 and 5,000 euros, and the rental value of the property would be about 20,000 euros a year. By construction, a 4–5 percent annual tax on all capital would consume nearly all of capital’s share of national income, which seems neither just nor realistic, particularly since there are already taxes on capital income.

24. About 2.5 percent of the adult population of Europe possessed fortunes above 1 million euros in 2013, and about 0.2 percent above 5 million. The annual revenue from the proposed tax would be about 300 billion euros on a GDP of nearly 15 trillion. See the online technical appendix and Supplemental Table S5.1, available online, for a detailed estimate and a simple simulator with which one can estimate the number of taxpayers and the amount of revenue associated with other possible tax schedules.

25. The top centile currently owns about 25 percent of total wealth, or about 125 percent of European GDP. The wealthiest 2.5 percent own nearly 40 percent of total wealth, or about 200 percent of European GDP. Hence it is no surprise that a tax with marginal rates of 1 or 2 percent would bring in about two points of GDP. Revenues would be even higher if these rates applied to all wealth and not just to the fractions over the thresholds.

26. The French wealth tax, called the “solidarity tax on wealth,” (impôt de solidarité sur la fortune, or ISF), applies today to taxable wealth above 1.3 million euros (after a deduction of 30 percent on the primary residence), with rates ranging from 0.7 to 1.5 percent on the highest bracket (over 10 million euros). Allowing for deductions and exemptions, the tax generates revenues worth less than 0.5 percent of GDP. In theory, an asset is called a business asset if the owner is active in the associated business. In practice, this condition is rather vague and easily circumvented, especially since additional exemptions have been added over the years (such as “stockholder agreements,” which allow for partial or total exemptions if a group of stockholders agrees to maintain its investment for a certain period of time). According to the available data, the wealthiest individuals in France largely avoid paying the wealth tax. The tax authorities publish very few detailed statistics for each tax bracket (much fewer, for example, than in the case of the inheritance tax from the early twentieth century to the 1950s); this makes the whole operation even more opaque. See the online technical appendix.

27. See esp. Chapter 5, Figures 5.4 and following.

28. The progressive capital tax would then bring in 3–4 percent of GDP, of which 1 or 2 points would come from the property tax replacement. See the online technical appendix.

29. For example, to justify the recent decrease of the top wealth tax rate in France from 1.8 to 1.5 percent.

30. See P. Judet de la Combe, “Le jour où Solon a aboli la dette des Athéniens,” Libération, May 31, 2010.

31. In fact, as I have shown, capital in the form of land included improvements to the land, increasingly so over the years, so that in the long run landed capital was not very different from other forms of accumulable capital. Still, accumulation of landed capital was subject to certain natural limits, and its predominance implied that the economy could only grow very slowly.

32. This does not mean that other “stakeholders” (including workers, collectivities, associations, etc.) should be denied the means to influence investment decisions by granting them appropriate voting rights. Here, financial transparency can play a key role. I come back to this in the next chapter.

33. The optimal rate of the capital tax will of course depend on the gap between the return on capital, r, and the growth rate, g, with an eye to limiting the effect of r > g. For example, under certain hypotheses, the optimal inheritance tax rate is given by the formula t = 1 − G/R, where G is the generational growth rate and R the generational return on capital (so that the tax approaches 100 percent when growth is extremely small relative to return on capital, and approaches 0 percent when the growth rate is close to the return on capital). In general, however, things are more complex, because the ideal system requires a progressive annual tax on capital. The principal optimal tax formulas are presented and explained in the online technical appendix (but only in order to clarify the terms of debate, not to provide ready-made solutions, since many forces are at work and it is difficult to evaluate the effect of each with any precision).

34. Thomas Paine, in his pamphlet Agrarian Justice (1795), proposed a 10 percent inheritance tax (which in his view corresponded to the “unaccumulated” portion of the estate, whereas the “accumulated” portion was not to be taxed at all, even if it dated back several generations). Certain “national heredity tax” proposals during the French Revolution were more radical. After much debate, however, the tax on direct line transmissions was set at no more than 2 percent. On these debates and proposals, see the online technical appendix.

35. Despite much discussion and numerous proposals in the United States and Britain, especially in the 1960s and again in the early 2000s. See the online technical appendix.

36. This design flaw stemmed from the fact that these capital taxes originated in the nineteenth century, when inflation was insignificant or nonexistent and it was deemed sufficient to reassess asset values every ten or fifteen years (for real estate) or to base values on actual transactions (which was often done for financial assets). This system of assessment was profoundly disrupted by the inflation of 1914–1945 and was never made to work properly in a world of substantial permanent inflation.

37. On the history of the German capital tax, from its creation in Prussia to its suspension in 1997 (the law was not formally repealed), see Fabien Dell, L’Allemagne inégale, PhD diss., Paris School of Economics, 2008. On the Swedish capital tax, created in 1947 (but which actually existed as a supplementary tax on capital income since the 1910s) and abolished in 2007, see the previously cited work of Ohlsson and Waldenström and the references given in the appendix. The rates of these taxes generally remained under 1.5–2 percent on the largest fortunes, with a peak in Sweden of 4 percent in 1983 (which applied only to assessed values largely unrelated to market values). Apart from the degeneration of the tax base, which also affected the estate tax in both countries, the perception of fiscal competition also played a role in Sweden, where the estate tax was abolished in 2005. This episode, at odds with Sweden’s egalitarian values, is a good example of the growing inability of smaller countries to maintain an independent fiscal policy.

38. The wealth tax (on large fortunes) was introduced in France in 1981, abolished in 1986, and then reintroduced in 1988 as the “solidarity tax on wealth.” Market values can change abruptly, and this can seem to introduce an element of arbitrariness into the wealth tax, but they are the only objective and universally acceptable basis for such a tax. Nevertheless, rates and tax brackets must be adjusted regularly, and care must be taken not to allow receipts to rise automatically with real estate prices, for this can provoke tax revolts, as illustrated by the famous Proposition 13 adopted in California in 1978 to limit rising property taxes.

39. The Spanish tax is assessed on fortunes greater than 700,000 euros in taxable assets (with a deduction of 300,000 euros for the principal residence), and the highest rate is 2.5 percent (2.75 percent in Catalonia). There is also an annual capital tax in Switzerland, with relatively low rates (less than 1 percent) due to competition among cantons.

40. Or to prevent a foreign competitor from developing (the destruction of the nascent Indian textile industry by the British colonizer in the early nineteenth century is etched into the memory of Indians). This can have lasting consequences.

41. This is all the more astonishing given that the rare estimates of the economic gains due to financial integration suggest a rather modest global gain (without even allowing for the negative effects on inequality and instability, which these studies ignore). See Pierre-Olivier Gourinchas and Olivier Jeanne, “The Elusive Gains from International Financial Integration,” Review of Economic Studies 73, no. 3 (2006): 715–41. Note that the IMF’s position on automatic transmission of information has been vague and variable: the principle is approved, the better to torpedo its concrete application on the basis of rather unconvincing technical arguments.

42. The comparison that one sees most often in the press sets the average wealth of the 535 members of the US House of Representatives (based on statements collected by the Center for Responsible Politics) against the average wealth of the seventy richest members of the Chinese People’s Assembly. The average net worth of the US House members is “only” $15 million, compared with more than $1 billion for the People’s Assembly members (according to the Hurun Report 2012, a Forbes-style ranking of Chinese fortunes based on a methodology that is not very clear). Given the relative population of the two countries, it would be more reasonable to compare the average wealth of all three thousand members of the Chinese Assembly (for which no estimate seems to be available). In any case, it appears that being elected to the Chinese Assembly is mainly an honorific post for these billionaires (who do not function as legislators). Perhaps it would be better to compare them to the seventy wealthiest US political donors.

43. See N. Qian and Thomas Piketty, “Income Inequality and Progressive Income Taxation in China and India: 1986–2015,” American Economic Journal: Applied Economics 1, no. 2 (April 2009): 53–63.

44. For a very long-run perspective, arguing that Europe long derived an advantage from its political fragmentation (because interstate competition spurred innovation, especially in military technology) before it become a handicap with respect to China, see Jean-Laurent Rosenthal and R. Bin Wong, Before and Beyond Divergence: The Politics of Economic Change in China and Europe (Cambridge, MA: Harvard University Press, 2011).

45. See the online technical appendix.

46. In the period 2000–2010, the rate of permanent integration (expressed as a percentage of the population of the receiving country) attained 0.6–0.7 percent a year in several European countries (Italy, Spain, Sweden, and Britain), compared with 0.4 percent in the United States and 0.2–0.3 percent in France and Germany. See the online technical appendix. Since the crisis, some of these flows have already begun to turn around, especially between southern Europe and Germany. Taken as a whole, permanent immigration in Europe was fairly close to North American levels in 2000–2010. The birthrate remains considerably higher in North America, however.

16. The Question of the Public Debt

1. See in particular Table 3.1.

2. If we count assets owned by European households in tax havens, then Europe’s net asset position vis-à-vis the rest of the world becomes significantly positive: European households own the equivalent of all that there is to own in Europe plus a part of the rest of the world. See Figure 12.6.

3. Together with the proceeds of the sale of public financial assets (which no longer amount to much compared with nonfinancial assets). See Chapters 3–5 and the online technical appendix.

4. The elimination of interest payments on the debt would make it possible to reduce taxes and/or finance new investments, especially in education (see below).

5. For the equivalence to be complete, wealth would have to be taxed in a manner consistent with the location of real estate and financial assets (including sovereign bonds issued in Europe) and not simply based on the residence of the owners. I will come back to this point later.

6. I will come back later to the question of the optimal level of long-term public debt, which cannot be resolved independently of the question of the level of public and private capital accumulation.

7. Other tax schedules can be simulated with the aid of Supplemental Table S15.1, available online.

8. See Chapter 10.

9. On the redemption fund, see German Council of Economic Experts, Annual Report 2011 (November 2011); The European Redemption Pact: Questions and Answers (January 2012). Technically, the two ideas can be perfectly complementary. Politically and symbolically, however, it is possible that the notion of “redemptions” (which connotes long and shared suffering by the entire population) may not sit well with the progressive capital tax, and the word “redemption” may be ill chosen.

10. In addition to debt reduction through inflation, a major part of Germany’s debt was simply canceled by the Allies after World War II. (More precisely, repayment was postponed until an eventual German reunification, but it has not been repaid now that reunification has occurred.) According to calculations by the German historian Albrecht Ritschl, the amounts would be quite substantial if recapitalized at a reasonable rate. Some of this debt reflects occupation fees levied on Greece during the German occupation, which has led to endless and largely irreconcilable controversy. This further complicates today’s attempts to impose a pure logic of austerity and debt repayment. See Albrecht Ritschl, “Does Germany Owe Greece a Debt? The European Debt Crisis in Historical Perspective,” paper given at the OeNB 40th Economics Conference, Vienna (London School of Economics, 2012).

11. If GDP grows 2 percent a year and debt 1 percent a year (assuming that one starts with a debt close to GDP), then the debt-to-GDP ratio will decrease by about 1 percent a year.

12. The special one-time or ten-year tax on capital described above might be thought of as a way of applying primary surplus to debt reduction. The difference is that the tax would be a new resource that would not burden the majority of the population and not interfere with the rest of the government’s budget. In practice, there is a continuum of points involving various proportions of each solution (capital tax, inflation, austerity): everything depends on the dosage and the way the burdens of adjustment are shared among different social groups. The capital tax puts most of the burden on the very wealthy, whereas austerity policies generally aim to spare them.

13. Savings from the 1920s were essentially wiped out by the stock market crash. Still, the inflation of 1945–1948 was an additional shock. The response was the “old-age minimum” (created in 1956) and the advent of a PAYGO pension system (which was created in 1945 but further developed subsequently).

14. There are theoretical models based on this idea. See the online technical appendix.

15. See in particular the results presented in Chapter 12.

16. The same would be true in case of a breakup of the Eurozone. It is always possible to reduce public debt by printing money and generating inflation, but it is hard to control the distributive consequences of such a crisis, whether with the euro, the franc, the mark, or the lira.

17. An often-cited historical example is the slight deflation (decrease of prices and wages) seen in the industrialized countries in the late nineteenth century. This deflation was resented by both employers and workers, who seemed to want to wait until other prices and wages fell before accepting decreases in the prices and wages that affected them directly. This resistance to wage and price adjustments is sometimes referred to as “nominal rigidity.” The most important argument in favor of low but positive inflation (typically 2 percent) is that it allows for easier adjustment of relative wages and prices than zero or negative inflation.

18. The classic theory of Spanish decline blames gold and silver for a certain laxity of governance.

19. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1857–1960 (Princeton: Princeton University Press, 1963).

20. Note that there is no such thing as a “money printing press” in the following sense: when a central bank creates money in order to lend it to the government, the loan is recorded on the books of the central bank. This happens even in the most chaotic of times, as in France in 1944–1948. The money is not simply given as a gift. Again, everything depends on what happens next: if the money creation increases inflation, substantial redistribution of wealth can occur (for instance, the real value of the public debt can be reduced dramatically, to the detriment of private nominal assets). The overall effect on national income and capital depends on the impact of policy on the country’s overall level of economic activity. It can in theory be either positive or negative, just as loans to private actors can be. Central banks redistribute monetary wealth, but they do not have the ability to create new wealth directly.

21. Conversely, the interest rates demanded of countries deemed less solid rose to extremely high levels in 2011–2012 (6–7 percent in Italy and Spain and 15 percent in Greece). This is an indication that investors are skittish and uncertain about the immediate future.

22. The sum of gross financial assets and liabilities is even higher, since it amounts to ten to twenty years of GDP in most of the developed countries (see Chapter 5). The central banks thus hold only a few percent of the total assets and liabilities of the rich countries. The balance sheets of the various central banks are published online on a weekly or monthly basis. The amount of each type of asset and liability on the balance sheet is known in aggregate (but is not broken down by recipient of central bank loans). Notes and specie represent only a small part of the balance sheet (generally about 2 percent of GDP), and most of the rest consists purely of bookkeeping entries, as is the case for the bank accounts of households, corporations, and governments. In the past, central bank balance sheets were sometimes as large as 90–100 percent of GDP (for example, in France in 1944–1945, after which the balance sheet was reduced to nothing by inflation). In the summer of 2013, the balance sheet of the Bank of Japan was close to 40 percent of GDP. For historical series of the balance sheets of the main central banks, see the online technical appendix. Examination of these balance sheets is instructive and shows that they are still a long way from the record levels of the past. Furthermore, inflation depends on many other forces, especially international wage and price competition, which is currently damping down inflationary tendencies while driving asset prices higher.

23. As noted in the previous chapter, discussions about possible changes to European rules governing the sharing of bank data have only just begun in 2013 and are a long way from bearing fruit.

24. In particular, a steeply progressive tax requires information on all assets held by a single individual in different accounts and at different banks (ideally not just in Cyprus but throughout the European Union). The advantage of a less progressive tax was that it could be applied to each bank individually.

25. In France, the two hundred largest shareholders in the Banque de France were statutorily entitled to a central role in the governance of the bank from 1803 to 1936 and thus were empowered to determine the monetary policy of France. The Popular Front challenged this status quo by changing the rules to allow the government to name bank governors and subgovernors who were not shareholders. In 1945 the bank was nationalized. Since then, the Banque de France no longer has private shareholders and is a purely public institution, like most other central banks throughout the world.

26. A key moment in the Greek crisis was the ECB’s announcement in December 2009 that it would no longer accept Greek bonds as collateral if Greece was downgraded by the bond rating agencies (even though nothing in its statutes obliged it to do so).

27. Another, more technical limitation of the “redemption fund” is that given the magnitude of the “rollover” (much of the outstanding debt comes due within a few years and must be rolled over regularly, especially in Italy), the limit of 60 percent of GDP will be reached within a few years, hence eventually all public debt will have to be mutualized.

28. The budgetary parliament might consist of fifty or so members from each of the large Eurozone countries, prorated by population. Members might be chosen from the financial and social affairs committees of the national parliaments or in some other fashion. The new European treaty adopted in 2012 provides for a “conference of national parliaments,” but this is a purely consultative body with no power of its own and a fortiori no common debt.

29. The official version is that the virtually flat tax on deposits was adopted at the request of the Cypriot president, who allegedly wanted to tax small depositors heavily in order to prevent large depositors from fleeing. No doubt there is some truth to this: the crisis illustrates the predicament that small countries face in a globalized economy: to carve out a niche for themselves, they may be prepared to engage in ruthless tax competition in order to attract capital, even from the most disreputable sources. The problem is that we will never know the whole truth, since all the negotiations took place behind closed doors.

30. The usual explanation is that French leaders remain traumatized by their defeat in the 2005 referendum on the European Constitutional Treaty. The argument is not totally convincing, because that treaty, whose main provisions were later adopted without approval by referendum, contained no important democratic innovation and gave all power to the council of heads of state and ministers, which simply ratifies Europe’s current state of impotence. It may be that France’s presidential political culture explains why reflection about European political union is less advanced in France than in Germany or Italy.

31. Under François Hollande, the French government has been rhetorically in favor of mutualizing European debts but has made no specific proposal, pretending to believe that every country can continue to decide on its own how much debt it wishes to take on, which is impossible. Mutualization implies that there needs to be a vote on the total size of the debt. Each country could maintain its own debt, but its size would need to be modest, like state and municipal debts in the United States. Logically, the president of the Bundesbank regularly issues statements to the media that a credit card cannot be shared without agreement about how much can be spent in total.

32. Progressive income and capital taxes are more satisfactory than corporate income taxes because they allow adjustment of the tax rate in accordance with the income or capital of each taxpayer, whereas the corporate tax is levied on all corporate profits at the same level, affecting large and small shareholders alike.

33. To believe the statements of the managers of companies like Google, their reasoning is more or less as follows: “We contribute far more wealth to society than our profits and salaries suggest, so it is perfectly reasonable for us to pay low taxes.” Indeed, if a company or individual contributes marginal well-being to the rest of the economy greater than the price it charges for its products, then it is perfectly legitimate for it to pay less in tax or even to receive a subsidy (economists refer to this as a positive externality). The problem, obviously, is that it is in everyone’s interest to claim that he or she contributes a large positive externality to the rest of the world. Google has not of course offered the slightest evidence to prove that it actually does make such a contribution. In any case, it is obvious that it is not easy to manage a society in which each individual can set his or her own tax rate in this way.

34. There was a recent proposal to pay international organizations the proceeds of a global wealth tax. Such a tax would become independent of nationality and could become a way to protect the right to multinationality. See Patrick Weil, “Let Them Eat Less Cake: An International Tax on the Wealthiest Citizens of the World,” Policy Network, May 26, 2011.

35. This conclusion is similar to that of Dani Rodrik, who argues that the nation-state, democracy, and globalization are an unstable trio (one of the three must give way before the other two, at least to a certain extent). See Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: Norton, 2011).

36. The system of “allowance for corporate equity” adopted in Belgium in 2006 authorizes the deduction from taxable corporate profits of an amount equal to the “normal” return on equity. This deduction is said to be the equivalent of the deduction of interest on corporate debt and is supposed to equalize the tax status of debt and equity. But Germany and more recently France have taken a different take: limiting interest deductions. Some participants in this debate, such as the IMF and to a certain extent the European Commission, claim that the two solutions are equivalent, although in fact they are not: if one deducts the “normal” return on both debt and equity, it is highly likely that the corporate tax will simply disappear.

37. In particular, taxing different types of consumption goods at different rates allows for only crude targeting of the consumption tax by income class. The main reason why European governments are currently so fond of value-added taxes is that this type of tax allows for de facto taxation of imported goods and small-scale competitive devaluations. This is of course a zero-sum game: the competitive advantage vanishes if other countries do the same. It is one symptom of a monetary union with a low level of international cooperation. The other standard justification of a consumption tax relies on the idea of encouraging investment, but the conceptual basis of this approach is not clear (especially in periods when the capital/income ratio is relatively high).

38. The purpose of the fiscal transactions tax is to decrease the number of very high-frequency financial transactions, which is no doubt a good thing. By definition, however, the tax will not raise much revenue, because its purpose is to dry up its source. Estimates of potential revenues are often optimistic. They cannot be much more than 0.5 percent of GDP, which is a good thing, because the tax cannot target different levels of individual incomes or wealth. See the online technical appendix.

39. See Figures 10.9–11. To evaluate the golden rule, one must use the pretax rate of return on capital (supposed to be equal to the marginal productivity of capital).

40. The original article, written with a certain ironic distance in the form of a fable, is worth rereading: Edmund Phelps, “The Golden Rule of Accumulation: A Fable for Growthmen,” American Economic Review 51, no. 4 (September 1961): 638–43. A similar idea, expressed less clearly and without allusion to the golden rule, can be found in Maurice Allais’s Economie et intérêt (Paris: Librairie des Publications Officielles, 1947) and in articles by Von Neumann (1945) and Malinvaud (1953). Note that all this work (including Phelps’s article) is purely theoretical and does not discuss what level of accumulation would be required to make r equal to g. See the online technical appendix.

41. Capital’s share is given by α = r × β. In the long run, β = s / g, so α = s × r / g. It follows that α = r if r = g, and α > s if and only if r > g. See the online technical appendix.

42. The reasons why the golden rule establishes an upper limit are explained more precisely in the online technical appendix. The essential intuition is the following. Beyond the level of capital described by the golden rule, that is, where the return on capital sinks below the growth rate, capital’s long-run share is lower than the savings rate. This is absurd in social terms, since it would take more to maintain the capital stock at this level than the capital returns. This type of “dynamic inefficiency” can occur if individuals save without worrying about the return: for example, if they are saving for old age and their life expectancy is sufficiently long. In that case, the efficient policy is for the state to reduce the capital stock, for example, by issuing public debt (potentially in large amounts), thus de facto replacing a capitalized pension system by a PAYGO system. This interesting theoretical policy never seems to occur in practice, however: in all known societies, the average return on capital is always greater than the growth rate.

43. In practice, a tax on capital (or public ownership) can ensure that the portion of national income going to income on private capital (after taxes) is less than the savings rate without needing to accumulate so much. This was the postwar social-democratic ideal: profits should finance investment, not the high life of stockholders. As the German chancellor Helmut Schmidt said, “Today’s profits are tomorrow’s investments and the day after tomorrow’s jobs.” Capital and labor work hand in hand. But it is important to understand that this depends on institutions such as taxes and public ownership (unless we imagine unprecedented levels of accumulation).

44. In a sense, the Soviet interpretation of the golden rule simply transferred to the collectivity the unlimited desire for accumulation attributed to the capitalist. In chapters 16 and 24 of The General Theory of Employment, Interest, and Money (1936), where Keynes discusses “the euthanasia of the rentier,” he develops an idea close to that of “capital saturation”: the rentier will be euthanized by accumulating so much capital that his return will disappear. But Keynes is not clear about how much this is (he does not mention r = g) and does not explicitly discuss public accumulation.

45. The mathematical solution to this problem is presented in the online technical appendix. To summarize, everything depends on what is commonly called the concavity of the utility function (using the formula r = θ + γ × g, previously discussed in Chapter 10 and sometimes called the “modified golden rule”). With infinite concavity, one assumes that future generations will not need a hundredth additional iPhone, and one leaves them no capital. At the opposite extreme, one can go all the way to the golden rule, which may necessitate leaving them several dozen years of national income in capital. Infinite concavity is frequently associated with a Rawlsian social objective and may therefore seem tempting. The difficulty is that if one leaves no capital for the future, it is not at all certain that productivity growth will continue at the same pace. Because of this, the problem is largely undecidable, as perplexing for the economist as for the citizen.

46. In the most general sense, a “golden rule” is a moral imperative that defines people’s obligations to one another. It is often used in economics and politics to refer to simple rules defining the current population’s obligations to future generations. Unfortunately, there is no simple rule capable of definitively resolving this existential question, which must therefore be asked again and again.

47. These figures were retained in the new treaty signed in 2012, which added a further objective of maintaining a “structural” deficit of less than 0.5 percent of GDP (the structural deficit corrects for effects of the business cycle), along with automatic sanctions if these commitments were not respected. Note that all deficit figures in European treaties refer to the secondary deficit (interest on the debt is included in expenditures).

48. A deficit of 3 percent would allow a stable debt-to-GDP ratio of 60 percent if nominal GDP growth is 5 percent (e.g., 2 percent inflation and 3 percent real growth), in view of the formula β = s / g applied to the public debt. But the argument is not very convincing (in particular, there is no real justification for such a nominal growth rate). See the online technical appendix.

49. In the United States, the Supreme Court blocked several attempts to levy a federal income tax in the late nineteenth and early twentieth centuries and then blocked minimum wage legislation in the 1930s, while finding that slavery and, later, racial discrimination were perfectly compatible with basic constitutional rights for nearly two centuries. More recently, the French Constitutional Court has apparently come up with a theory of what maximum income tax rate is compatible with the Constitution: after a period of high-level legal deliberation known only to itself, the Court hesitated between 65 and 67 percent and wondered whether or not it should include the carbon tax.

50. The problem is similar to that posed by the return on PAYGO retirement systems. As long as growth is robust and the fiscal base is expanding at a pace equal (or nearly equal) to that of interest on the debt, it is relatively easy to reduce the size of the public debt as a percentage of national income. Things are different when growth is slow: the debt becomes a burden that is difficult to shake. If we average over the period 1970–2010, we find that interest payments on the debt are far larger than the average primary deficit, which is close to zero in many countries, and notably in Italy, where the average interest payment on the debt attained the astronomical level of 7 percent of GDP over this period. See the online technical appendix and Supplemental Table S16.1, available online.

51. If the issue is constitutionalized, however, it is not impossible that a solution such as a progressive tax on capital would be judged unconstitutional.

52. On the way Stern and Nordhaus arrive at their preferred discount rates, see the online technical appendix. It is interesting that both men use the same “modified golden rule” I described earlier but reverse positions entirely when it comes to choosing the concavity of the social utility function. (Nordhaus makes a more Rawlsian choice than Stern in order to justify ascribing little weight to the preferences of future generations.) A logically more satisfactory procedure would introduce the fact that the substitutability of natural capital for other forms of wealth is far from infinite in the long run (as Roger Guesnerie and Thomas Sterner have done). In other words, if natural capital is destroyed, consuming fewer iPhones in the future will not be enough to repair the damage.

53. As noted, the current low interest rates on government debt are no doubt temporary and in any case somewhat misleading: some countries must pay very high rates, and it is unlikely that those that are borrowing today at under 1 percent will continue to enjoy such low rates for decades (analysis of the period 1970–2010 suggests that real interest rates on long-term public debt in the rich countries is around 3 percent; see the online technical appendix). Nevertheless, current low rates are a powerful economic argument in favor of public investment (at least as long as such rates last).

54. Over the last several decades, annual public investment (net of depreciation of public assets) in most rich countries has been about 1–1.5 percent of GDP. See the online technical appendix and Supplemental Table S16.1, available online.

55. Including tools such as the carbon tax, which increases the cost of energy consumption as a function of the associated emission of carbon dioxide (and not as a function of budget variations, which has generally been the logic of gasoline taxes). There is good reason to believe, however, that the price signal has less of an impact on emissions than public investment and changes to building codes (requiring thermal insulation, for example).

56. The idea that private property and the market allow (under certain conditions) for the coordination and efficient use of the talents and information possessed by millions of individuals is a classic that one finds in the work of Adam Smith, Friedrich Hayek, and Kenneth Arrow and Claude Debreu. The idea that voting is another efficient way of aggregating information (and more generally ideas, reflections, etc.) is also very old: it goes back to Condorcet. For recent research on this constructivist approach to political institutions and electoral systems, see the online technical appendix.

57. For example, it is important to be able to study where political officials from various countries stand in the wealth and income hierarchies (see previous chapters). Still, statistical summaries might suffice for the purpose; detailed individual data are generally not needed. As for establishing trust when there is no other way to do so: one of the first actions of the revolutionary assemblies of 1789–1790 was to compile a “compendium of pensions” that listed by name and amount the sums paid by the royal government to various individuals (including debt repayments, pensions to former officials, and outright favors). This sixteen-hundred-page book contained 23,000 names and listed detailed amounts (multiple sources of income were combined into a single line for each individual), the ministry involved, the age of the person, the final year of payment, the reasons for the payment, etc. It was published in April 1790. On this interesting document, see the online technical appendix.

58. This is due mainly to the fact that wages are generally aggregated in a single line with other intermediate inputs (that is, with purchases from other firms, which also remunerate both labor and capital). Hence published accounts never reveal the split between profits and wages, nor do they allow us to uncover possible abuses of intermediate consumption (which can be a way of augmenting the income of executives and/or stockholders). For the example of the Lonmin accounts and the Marikana mine, see the online technical appendix.

59. The exigent attitude toward democracy of a philosopher such as Jacques Rancière is indispensable here. See in particular his La haine de la démocratie (Paris: La Fabrique, 2005).

Conclusion

1. Note, too, that it is perfectly logical to think that an increase in the growth rate g would lead to an increase in the return on capital r and would therefore not necessarily reduce the gap r − g. See Chapter 10.

2. When one reads philosophers such as Jean-Paul Sartre, Louis Althusser, and Alain Badiou on their Marxist and/or communist commitments, one sometimes has the impression that questions of capital and class inequality are of only moderate interest to them and serve mainly as a pretext for jousts of a different nature entirely.

Contents in Detail

Acknowledgments

Introduction

A Debate without Data?

Malthus, Young, and the French Revolution

Ricardo: The Principle of Scarcity

Marx: The Principle of Infinite Accumulation

From Marx to Kuznets, or Apocalypse to Fairy Tale

The Kuznets Curve: Good News in the Midst of the Cold War

Putting the Distributional Question Back at the Heart of Economic Analysis

The Sources Used in This Book

The Major Results of This Study

Forces of Convergence, Forces of Divergence

The Fundamental Force for Divergence:

r

>

g

The Geographical and Historical Boundaries of This Study

The Theoretical and Conceptual Framework

Outline of the Book

Part One: Income and Capital

1.

Income and Output

The Capital-Labor Split in the Long Run: Not So Stable

The Idea of National Income

What Is Capital?

Capital and Wealth

The Capital/Income Ratio

The First Fundamental Law of Capitalism: α =

r

× β

National Accounts: An Evolving Social Construct

The Global Distribution of Production

From Continental Blocs to Regional Blocs

Global Inequality: From 150 Euros per Month to 3,000 Euros per Month

The Global Distribution of Income Is More Unequal Than the Distribution of Output

What Forces Favor Convergence?

2.

Growth: Illusions and Realities

Growth over the Very Long Run

The Law of Cumulative Growth

The Stages of Demographic Growth

Negative Demographic Growth?

Growth as a Factor for Equalization

The Stages of Economic Growth

What Does a Tenfold Increase in Purchasing Power Mean?

Growth: A Diversification of Lifestyles

The End of Growth?

An Annual Growth of 1 Percent Implies Major Social Change

The Posterity of the Postwar Period: Entangled Transatlantic Destinies

The Double Bell Curve of Global Growth

The Question of Inflation

The Great Monetary Stability of the Eighteenth and Nineteenth Centuries

The Meaning of Money in Literary Classics

The Loss of Monetary Bearings in the Twentieth Century

Part Two: The Dynamics of the Capital/Income Ratio

3.

The Metamorphoses of Capital

The Nature of Wealth: From Literature to Reality

The Metamorphoses of Capital in Britain and France

The Rise and Fall of Foreign Capital

Income and Wealth: Some Orders of Magnitude

Public Wealth, Private Wealth

Public Wealth in Historical Perspective

Great Britain: Public Debt and the Reinforcement of Private Capital

Who Profits from Public Debt?

The Ups and Downs of Ricardian Equivalence

France: A Capitalism without Capitalists in the Postwar Period

4.

From Old Europe to the New World

Germany: Rhenish Capitalism and Social Ownership

Shocks to Capital in the Twentieth Century

Capital in America: More Stable Than in Europe

The New World and Foreign Capital

Canada: Long Owned by the Crown

New World and Old World: The Importance of Slavery

Slave Capital and Human Capital

5.

The Capital/Income Ratio over the Long Run

The Second Fundamental Law of Capitalism: β =

s/g

A Long-Term Law

Capital’s Comeback in Rich Countries since the 1970s

Beyond Bubbles: Low Growth, High Saving

The Two Components of Private Saving

Durable Goods and Valuables

Private Capital Expressed in Years of Disposable Income

The Question of Foundations and Other Holders of Capital

The Privatization of Wealth in the Rich Countries

The Historic Rebound of Asset Prices

National Capital and Net Foreign Assets in the Rich Countries

What Will the Capital/Income Ratio Be in the Twenty-First Century?

The Mystery of Land Values

6.

The Capital-Labor Split in the Twenty-First Century

From the Capital/Income Ratio to the Capital-Labor Split

Flows: More Difficult to Estimate Than Stocks

The Notion of the Pure Return on Capital

The Return on Capital in Historical Perspective

The Return on Capital in the Early Twenty-First Century

Real and Nominal Assets

What Is Capital Used For?

The Notion of Marginal Productivity of Capital

Too Much Capital Kills the Return on Capital

Beyond Cobb-Douglas: The Question of the Stability of the Capital-Labor Split

Capital-Labor Substitution in the Twenty-First Century: An Elasticity Greater Than One

Traditional Agricultural Societies: An Elasticity Less Than One

Is Human Capital Illusory?

Medium-Term Changes in the Capital-Labor Split

Back to Marx and the Falling Rate of Profit

Beyond the “Two Cambridges”

Capital’s Comeback in a Low-Growth Regime

The Caprices of Technology

Part Three: The Structure of Inequality

7.

Inequality and Concentration: Preliminary Bearings

Vautrin’s Lesson

The Key Question: Work or Inheritance?

Inequalities with Respect to Labor and Capital

Capital: Always More Unequally Distributed Than Labor

Inequalities and Concentration: Some Orders of Magnitude

Lower, Middle, and Upper Classes

Class Struggle or Centile Struggle?

Inequalities with Respect to Labor: Moderate Inequality?

Inequalities with Respect to Capital: Extreme Inequality

A Major Innovation: The Patrimonial Middle Class

Inequality of Total Income: Two Worlds

Problems of Synthetic Indices

The Chaste Veil of Official Publications

Back to “Social Tables” and Political Arithmetic

8.

Two Worlds

A Simple Case: The Reduction of Inequality in France in the Twentieth Century

The History of Inequality: A Chaotic Political History

From a “Society of Rentiers” to a “Society of Managers”

The Different Worlds of the Top Decile

The Limits of Income Tax Returns

The Chaos of the Interwar Years

The Clash of Temporalities

The Increase of Inequality in France since the 1980s