Capital in the 21st Century: Chapter 10
Following upon his analysis of the inequality of income, the tenth chapter of Piketty’s Capital tackles the analogous–even, more strongly defined–disparity in capital ownership. This inequality, Piketty argues, is central, as it is precisely the radical gap in capital ownership that defined the dangerously unequal society of early 20th century Europe, and it is precisely this level of capital inequality that is beginning to reemerge today.
“In all known societies, at all times,” Piketty begins his analysis, “the least wealthy half of the population own virtually nothing (generally little more than 5 percent of total wealth)” (336). The real distinction between a radically unequal society and a (relatively) equal society, therefore, is the relation between the top decile and the next fourty percent, or even more so, the top centile and the next fourty-nine percent. In French patrimonial society, Piketty shows, “the top centile alone owned 45-50 percent of the nation’s wealth in 1800-1810; its share surpassed 50 percent in 1850-1860 and reached 60 percent in 1900-1910” (339). This growth can be attributed to the rise of industrial society, and would only decline following the shocks of the two World Wars, and the subsequent dismantling of the rentier class. A decline in capital inequality, as seen in the mid 20th century necessitates a radical reformulation of society (such as that triggered by the world wars). In fact, Piketty argues, the French Revolution, even with its rhetoric of equality, barely put a dent in rentier wealth (particularly given the “emigre billion,” the payment of 1 billion francs to the wealthiest French citizens after the revolution as compensation for the confiscation of land during the preceding century). This trajectory, Piketty’s data shows, can be largely reiterated in Britain and Sweden, and therefore cannot be conceived as a uniquely French phenomenon (343-345).
The United States, on the other hand, once again charted its own unique economic course. Most importantly, and for reasons already marked in earlier chapters (rapid demographic growth, etc.), America began on a relatively equal economic footing (roughly equivalent to Sweden in 1970 ). Most shocking, for the modern American, is that not only was the economic reality inverted (the US considerably more equal than Europe), but also the rhetoric was largely inverted. Rather than the myth of meritocracy common in the present political landscape, the great fear in early 20th century America was that it would turn into Europe, that is to say, into a radically unequal society (348). Yet, this relatively equal (that is, relative to the radically unequal Europe) distribution was not the only unique feature of the American 20th century economy. Most importantly, and once again the causes of this difference have been previously marked out, the decline in top incomes during the two World Wars was considerably attenuated. “The deconcentration of wealth in the United States over the course of the twentieth century was fairly limited: the top decile’s share of total wealth dropped from 80-70 percent, whereas in Europe it fell from 90 to 60 percent” (349). This moderation is not particularly surprising, given that the US did not experience the large-scale destruction of capital (through bombings, confiscations, etc.) common to the continent. The result is that contrary to Europe, the 20th century was not a period of radical egalitarianism in the US, on the contrary, we are more unequal now than at the turn of the century.
Returning to his central inequality (r>g), Piketty marks the nature of the dramatic pre-20th century growth in capital inequality to the relatively low level of growth. As it should be remembered, pre-industrializatized societies tended to grow at a miniscule .5-1 percent a year. In such a low growth society, the accumulation of “inherited wealth” becomes inevitable “for strictly mathematical reasons” (351). Of course, as Piketty repeatedly insists, the rate of return on Capital’s higher rate than growth is not logically necessary, but is strictly a historically contingent fact. Nonetheless, there are essentially no 21st century forecasts which predict a rate of growth that will outstrip the rate of return on capital. Thus, it seems, without policy change, excessive growth in inequality is an inevitability. “According to the central scenario discussed in Part One, global growth is likely to be around 1.5 percent a year between 2050 and 2100, roughly the same rate as in the nineteenth century. The gap between r and g would then return to a level comparable to that which existed during the Industrial Revolution” (355).
Given that the rate of profit exceeds growth, the obvious question that Piketty closes the chapter with is “why hasn’t inequality of wealth returned to the levels of the past?”. His answer, is multifaceted. First, the shocks of the 20th century, in particular the wars, effected the highest income levels disproportionately, and they never fully recovered. Said differently, “the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945” (372). Second, he suggests, before the Wars, taxes on capital income were essentially zero. Given the current rate of approx. 30%, this has had a significant effect of slowing the rate of top wealth growth. Third, and lastly, is the introduction of more steeply progressive tax schemes.