Capital in the 21st Century: Chapter 7
The seventh chapter of Piketty’s Capital, entitled “Inequality and Concentration: Preliminary Bearings” introduces the third major division of the work: “The Structure of Inequality.” Whereas the previous section was primarily directed toward the macro-phenomenon of the capital/income split, Piketty will here shift to the “individual level” (237), and examine the role of the World Wars and subsequent Neoliberal revolution upon inequality among individual members of a nation.
The chapter begins with an obvious distinction between income from labor and inherited wealth. In another turn to literature, Piketty shows that, for the upper class of the 18th and 19th century, labor played essentially no factor in the maintenance of wealth. Rather, through rent and the like, inherited wealth bred further wealth. The promise of equality manifest in the classic image of America emerges precisely from the ostensibly meritocratic character of income from labor, rather than income from (inherited) wealth. Of course, as Piketty rightly notes, one should not overly simplify the situation and suggest that a rejection of inherited wealth would immediately result in a meritocratic/equal society. But the power of inherited wealth does mark a certain threshold of inequality paradigmatic of the pre-20th century Western world.
Dividing his analysis, Piketty attempts to separate out the modern form of this labor/inheritance distinction, the difference between income from labor and wealth (capital). As he will subsequently show, “inequality with respect to capital is always greater than inequality with respect to labor” (244). This phenomenon can be shown in the present disparity between income inequality and wealth inequality. “The upper 10 percent of the labor income distribution generally receives 25-30 percent of total labor income, whereas the top 10 percent of the capital income distribution always owns more than 50 percent of all wealth” (244). The present US income gap, for example, is roughly 35% for the upper decile and 25 percent for the lowest five deciles (lowest half of the population), while wealth distribution is 70% for the upper decile and 5% for the lowest half. As a point of comparison, relatively “equal” wealth distribution, as for example Scandinavia in the 1970’s, was approx. 30% for the top decile and 25% for the bottom half.
Of course, this distinction is not meant to undermine the concrete inequality of income. In fact, as Piketty notes, in the United States in the early 2010’s, “income from labor is about as unequally distributed as has ever been observed anywhere” (256). A frightening thought, coming from a study which includes an analysis of the French Ancien Régime. Wealth inequality, on the other hand, saw a historical decrease with the rise of the “patrimonial middle class” (260). “To go back a century in time,” Piketty writes, “to the decade 1900-1910: in all the countries of Europe, the concentration of capital was then much more extreme than it is today” (261). Nevertheless, as his data shows, the 21st century appears situated to quickly move into levels of inequality on par with pre-war levels.
Piketty marks two primary methods by which radical inequality can emerge. The first, which he titles “hyperpatrimonial society” is the classic method of wealth accumulation and transmission: inheritance. This structure dominated classically unequal societies such as the Belle Époque and the Ancien Régime in France and Britain, periods of record-breaking inequality. The second method of hyperaccumulation which Piketty marks, is the so-called “hypermeritocratic society” (although Piketty questions the truly “meritocratic” nature of such a society and wonders if “society of the supermanagers” might be more appropriate). In this second form of society, which is only recently emerged (principally in the US), “the peak of the income hierarchy is dominated by very high incomes from labor rather than by inherited wealth” (265). This form of hyperaccumulation is distinctive of the wall-street ethos, where excessive wealth is no longer tied to industrial or commercial enterprise, but more often than not, the highest income is generated within the financial sector.