{ ELEVEN }
M e r i t a n d I n h e ri t an c e in the L o n g R u n
The overall importance of capital today, as noted, is not very different from
what it was in the eighteenth century. Only its form has changed: capital was
once mainly land but is now industrial, financial, and real estate. We also
know that the concentration of wealth remains high, although it is noticeablv
less extreme than it was a century ago. The poorest half of the population still
owns nothing, but there is now a patrimonial middle class that owns between
a quarter and a third of total wealth, and the wealthiest 10 percent now own
only two-thirds of what there is to own rather than nine-tenths. We have also
learned that the relative movements of the return on capital and the rate of
growth of the economy, and therefore of the difference between them, r—g,
can explain many of the observed changes, including the logic of accumulation
that accounts for the very high concentration of wealth that we see
throughout much of human history.
In order to understand this cumulative logic better, we must now take a
closer look at the long-term evolution of the relative roles of inheritance and
saving in capital formation. This is a crucial issue, because a given level of capital
concentration can come about in totally different ways. It may be that the
global level of capital has remained the same but that its deep structure has
changed dramatically, in the sense that capital was once largely inherited but
is now accumulated over the course of a lifetime by savings from earned income.
One possible explanation for such a change might be increased life expectancy,
which might have led to a structural increase in the accumulation
of capital in anticipation of retirement. However, this supposed great transformation
in the nature of capital was actually less dramatic than is sometimes
thought; indeed, in some countries it did not occur at all. In all likelihood,
inheritance will again play a significant role in the twenty-first century, comparable
to its role in the past.
More precisely, I will come to the following conclusion. Whenever the
rate of return on capital is significantly and durably higher than the growth
377
THE S T R U C T U R E OF INEQUALITY
rate of the economy, it is all but inevitable that inheritance (of fortunes accumulated
in the past) predominates over saving (wealth accumulated in the
present). In strict logic, it could be otherwise, but the forces pushing in this
direction are extremely powerful. The inequality r>g in one sense implies
that the past tends to devour the future: wealth originaring in the past automatically
grows more rapidly, even without labor, than wealth stemming
from work, which can be saved. Almost inevitably, this tends to give lasting,
disproportionate importance to inequalities created in the past, and therefore
to inheritance.
If the twenty-first century turns out to be a time of low (demographic and
economic) growth and high return on capital (in a context of heightened international
competition for capital resources), or at any rate in countries
where these conditions hold true, inheritance will therefore probably again be
as important as it was in the nineteenth century. A n evolution in this direction
is already apparent in France and a number of other European countries,
where growth has already slowed considerably in recent decades. For the
moment it is less prominent in the United States, essentially because demographic
growth there is higher than in Europe. But if growth ultimately slows
more or less everywhere in the coming century, as the median demographic
forecasts by the United Nations (corroborated by other economic forecasts)
suggest it will, then inheritance will probably take on increased importance
throughout the world.
This does not imply, however, that the structure of inequality in the
twenty-first century will be the same as in the nineteenth century, in part
because the concentration of wealth is less extreme (there will probably be
more small to medium rentiers and fewer extremely wealthy rentiers, at least
in the short term), in part because the earned income hierarchy is expanding
(with the rise of the supermanager), and finally because wealth and income
are more strongly correlated than in the past. In the twenty-first century it is
possible to be both a supermanager and a "medium rentier": the new meritocratic
order encourages this sort of thing, probably to the detriment of lowand
medium-wage workers, especially those who own only a tiny amount of
property, if any.
378
MERIT A N D INHERITANCE IN THE LONG RUN
I n h e ri t a n c e Flows over the L o n g R u n
I will begin at the beginning. In all societies, there are two main ways of accumulating
wealth: through work or inheritance.1
How common is each of
these in the top centiles and deciles of the wealth hierarchy? This is the key
question.
In Vautrins lecture to Rastignac (discussed in Chapter 7), the answer is
clear: study and work cannot possibly lead to a comfortable and elegant life,
and the only realistic strategy is to marry Mademoiselle Victorine and her
inheritance. One of my primary goals in this work is to find out how closely
nineteenth-century French society resembled the society described by Vautrin
and above all to learn how and why this type of society evolved over time.
It is useful to begin by examining the evolution of the annual flow of inheritances
over the long run, that is, the total value of bequests (and gifts between
living individuals) during the course of a year, expressed as a percentage
of national income. This figure measures the annual amount of past wealth
conveyed each year relative to the total income earned that year. (Recall that
earned income accounts for roughly two-thirds of national income each year,
while part of capital income goes to remunerate the capital that is passed on
to heirs.)
I will examine the French case, which is by far the best known over the
long run, and the pattern I find there, it turns out, also applies to a certain
extent to other European countries. Finally, I will explore what it is possible
to say at the global level.
Figure 11.1 represents the evolution of the annual inheritance flow in France
from 182.0 to 2010.2
Two facts stand out clearly. First, the inheritance flow accounts
for 10-25 percent of annual income every year in the nineteenth century,
with a slight upward trend toward the end of the century. This is an extremely
high flow, as I will show later, and it reflects the fact that nearly all of
the capital stock came from inheritance. If inherited wealth is omnipresent in
nineteenth-century novels, it was not only because writers, especially the
debt-ridden Balzac, were obsessed by it. It was above all because inheritance
occupied a structurally central place in nineteenth-century society—central
as both economic flow and social force. Its importance did not diminish with
time, moreover. On the contrary, in 1900-1910, the flow of inheritance was
somewhat higher (15 percent of national income compared with barely 10)
379
THE S T R U C T U R E OF INEQUALITY
4 0 %
; 6 % - Economic flow (computed from national wealth
estimates, mortality table, and age-wealth profiles)
Fiscal flow (computed from bequest and gift tax
data, including tax-exempt assets)
1840 i 8 6 0 1880 1 9 0 0 1910 1940 i 9 6 0
1 r
1980 zooo
FIGURE 11.1. The annual inheritance flow as a fraction of national income, France,
1820-1010
The annual inheritance flow was about 10-25 percent of national income during the
nineteenth century and until 1914; it then fell to less than 5 percent in the 1950s, and
returned to about 15 percent in 2010.
Sources and series: see piketty.pse.ens.fr/capital21c.
than it had been in the 1820s, the period of Vautrin, Rastignac, and the Vauquer
boardinghouse.
Subsequently, we find a spectacular decrease in the flow of inheritances
between 1910 and 1950 followed by a steady rebound thereafter, with an acceleration
in the 1980s. There were very large upward and downward variations
during the twentieth century. The annual flow of inheritances and gifts
was (to a first approximation, and compared with subsequent shocks) relatively
stable until World War I but fell by a factor of 5 or 6 between 1910 and
1950 (when the inheritance flow was barely 4 or 5 percent of national income),
after which it increased by a factor of 3 or 4 between 1950 and 1010 (at which
time the flow accounted for 15 percent of national income).
The evolution visible in Figure 11.1 reflects deep changes in the perception
as well as the reality of inheritance, and to a large extent it also reflects changes
in the structure of inequality. As we will soon see, the compression of the inheritance
flow owing to the shocks of 1914-1945 was nearly twice as great as
the decrease in private wealth. The inheritance collapse was therefore not
380
MERIT A N D INHERITANCE IN THE LONG RUN
simply the result of a wealth collapse (even if the two developments are obviously
closely related). In the public mind, the idea that the age of inheritance
was over was certainly even more influential than the idea of an end of capitalism.
In 1950-1960, bequests and gifts accounted for just a few points of
national income, so it was reasonable to think that inheritances had virtually
disappeared and that capital, though less important overall than in the past,
was now wealth that an individual accumulated by effort and saving during
his or her lifetime. Several generations grew up under these conditions (even
if perceptions somewhat exceeded reality), in particular the baby boom generation,
born in the late 1940s and early 1950s, many of whom are still alive
today, and it was natural for them to assume that this was the "new normal."
Conversely, younger people, in particular those born in the 1970s and
1980s, have already experienced (to a certain extent) the important role that
inheritance will once again play in their lives and the lives of their relatives
and friends. For this group, for example, whether or not a child receives gifts
from parents can have a major impact in deciding who will own property and
who will not, at what age, and how extensive that property will be—in any
case, to a much greater extent than in the previous generation. Inheritance is
playing a larger part in their lives, careers, and individual and family choices
than it did with the baby boomers. The rebound of inheritance is still incomplete,
however, and the evolution is still under way (the inheritance flow in
1000-1010 stood at a point roughly midway between the nadir of the 1950s
and the peak of 1900-1910). To date, it has had a less profound impact on perceptions
than the previous change, which still dominates people s thinking. A
few decades from now, things may be very different.
Fiscal Flow a n d E c o n o m i c Flow
Several points about Figure 11.1 need to be clarified. First, it is essential to include
gifts between living individuals (whether shortly before death or earlier
in life) in the flow of inheritance, because this form of transmission has always
played a very important role in France and elsewhere. The relative magnitude
of gifts and bequests has varied greatly over time, so omitting gifts would
seriously bias the analysis and distort spatial and temporal comparisons. Fortunately,
gifts in France are carefully recorded (though no doubt somewhat
underestimated). This is not the case everywhere.
38i
THE STRUCTURE OF INEQUALITY
Second, and even more important, the wealth of French historical sources
allows us to calculate inheritance flows in two diff erent ways, using data and
methods that are totally independent. What we find is that the two evolutions
shown in Figure n.i (which I have labeled "fiscal flow" and "economic flow")
are highly consistent, which is reassuring and demonstrates the robustness of
the historical data. This consistency also helps us to decompose and analyze
the various forces at work.3
Broadly speaking, there are two ways to estimate inheritance flows in a
particular country. One can make direct use of observed flows of inheritances
and gifts (for example, by using tax data: this is what I call the "fiscal
flow"). Or one can look at the private capital stock and calculate the theoretical
flow that must have occurred in a given year (which I call the "economic
flow"). Each method has its advantages and disadvantages. The first
method is more direct, but the tax data in many countries are so incomplete
that the results are not always satisfactory. In France, as noted previously,
the system for recording bequests and gifts was established exceptionally
early (at the time of the Revolution) and is unusually comprehensive (in
theory it covers all transmissions, including those on which little or no tax
is paid, though there are some exceptions), so the fiscal method can be applied.
The tax data must be corrected, however, to take account of small
bequests that do not have to be declared (the amounts involved are insignificant)
and above all to correct for certain assets that are exempt from the
estate tax, such as life insurance contracts, which have become increasingly
common since 1970 (and today account for nearly one-sixth of total private
wealth in France).
The second method ("economic flow") has the advantage of not relying on
tax data and therefore giving a more complete picture of the transmission of
wealth, independent of the vagaries of different countries' tax systems. The
ideal is to be able to use both methods in the same country. What is more, one
can interpret the gap between the two curves in Figure 11.1 (which shows that
the economic flow is always a little greater than the fiscal flow) as an estimate
of tax fraud or deficiencies of the probate record-keeping system. There may
also be other reasons for the gap, including the many imperfections in the
available data sets and the methods used. For certain subperiods, the gap is far
from negligible. The long-run evolutions in which I am primarily interested
are nevertheless quite consistent, regardless of which method we use.
382
MERIT A N D INHERITANCE IN THE LONG RUN
The Three Forces: The Illusion o f a n E n d o f I n h e ri t an c e
In fact, the main advantage of the economic flow approach is that it requires
us to take a comprehensive view of the three forces that everywhere determine
the flow of inheritance and its historical evolution.
In general, the annual economic flow of inheritances and gifts, expressed
as a proportion of national income that we denote b , is equal to the product of
three forces:
by = \xxmx$t
where (3 is the capital/income ratio (or, more precisely, the ratio of total private
wealth, which, unlike public assets, can be passed on by inheritance, to
national income), m is the mortality rate, and p is the ratio of average wealth
at time of death to average wealth of living individuals.
This decomposition is a pure accounting identity: by definition, it is always
true in all times and places. In particular, this is the formula I used to
estimate the economic flow depicted in Figure n.i. Although this decomposition
of the economic flow into three forces is a tautology, I think it is a useful
tautology in that it enables us to clarify an issue that has been the source of
much confusion in the past, even though the underlying logic is not terribly
complex.
Let me examine the three forces one by one. Thefirstis the capital/income
ratio (3. This force expresses a truism: if the flow of inherited wealth is to be
high in a given society, the total stock of private wealth capable ot being inherited
must also be large.
The second force, the mortality rate w, describes an equally transparent
mechanism. All other things being equal, the higher the mortality rate, the
higher the inheritance flow. In a society where everyone lives forever, so that
the mortality rate is exactly zero, inheritance muse vanish. The inheritance
flow by must also be zero, no matter how large the capital/income ratio (3 is.
The third force, the ratio |i of average wealth at time ot death to average
wealth oi living individuals, is equally transparent.4
Suppose that the average wealth at time of death is the same as the average
wealth of the population as a whole. Then |J = i, and the inheritance flow by is
dimply the product of the mortality rate rn and the capital/income ratio (3. For
383
THE STRUCTURE OF INEQUALITY
example, if the capital/income ratio is 600 percent (that is, the stock of private
wealth represents six years ot national income) and the mortality rate of
the adult population is 2 percent,5
then the annual inheritance flow will automatically
be 12 percent of national income.
If average wealth at time of death is twice the average wealth of the living,
so that p = 2, then the inheritance flow will be 24 percent of national income
(assuming (3 = 6 and m = 2 percent), which is approximately the level observed
in the nineteenth and early twentieth centuries.
Clearly, p depends on the age profile of wealth. The more wealth increases
with age, the higher p will be and therefore the larger the inheritance flow.
Conversely, in a society where the primary purpose of wealth is to finance
retirement and elderly individuals consume the capital accumulated during
their working lives in their years of retirement (by drawing down savings in a
pension fund, for example), in accordance with the "lite-cycle theory of
wealth" developed by the Italian-American economist Franco Modigliani in
the 1950s, then by construction p will be almost zero, since everyone aims to
die with little or no capital. In the extreme case |i = o, inheritance vanishes
regardless of the values of (3 and m. In strictly logical terms, it is perfectly possible
to imagine a world in which there is considerable private capital (so (3 is
very high) but most wealth is in pension funds or equivalent forms ofwealth
that vanish at death ("annuitized wealth"), so that the inheritance flow is zero
or close to it. Modigliani's theory offers a tranquil, one-dimensional view of
social inequality: inequalities of wealth are nothing more than a translation
in time of inequalities with respect to work. (Managers accumulate more retirement
savings than workers, but both groups consume all their capital by
the time they die.) This theory was quite popular in the decades after World
War II, when functionalist American sociology, exemplified by the work of
Talcott Parsons, also depicted a middle-class society of managers in which
inherited wealth played virtually no role.6
It is still quite popular today among
baby boomers.
Our decomposition of the inheritance flow as the product of three forces
(b = p x m X (3) is important for thinking historically about inheritance and
its evolution, for each of the three forces embodies a significant set of beliefs
and arguments (perfectly plausible a priori) that led many people to imagine,
especially during the optimistic decades after World War II, that the end (or
at any rate gradual and progressive decrease) of inherited wealth was some-
384
MERIT A N D INHERITANCE IN THE LONG RUN
how the logical and natural culmination of history. However, such a gradual
end to inherited wealth is by no means inevitable, as the French case clearlv
illustrates. Indeed, the U-shaped curve we see in France is a consequence of
three U-shaped curves describing each of the three forces, p, m, and (3. Furthermore,
the three forces acted simultaneously, in part for accidental reasons,
and this explains the large amplitude of the overall change, and in particular
the exceptionally low level of inheritance flow in 1950-1960, which led
many people to believe that inherited wealth had virtually disappeared.
In Part Two I showed that the capital/income ratio (3 was indeed described
by a U-shaped curve. The optimistic belief associated with this first
force is quite clear and at first sight perfectly plausible: inherited wealth has
tended over time to lose its importance simply because wealth has lost its importance
(or, more precisely, wealth in the sense of nonhuman capital, that is,
wealth that can be owned, exchanged on a market, and fully transmitted to
heirs under the prevailing laws of property). There is no logical reason why
this optimistic belief cannot be correct, and it permeates the whole modern
theory of human capital (including the work of Gary Becker), even if it is not
always explicitly formulated.' However, things did not unfold this way, or at
any rate not to the degree that people sometimes imagine: landed capital became
financial and industrial capital and real estate but retained its overall
importance, as can be seen in the fact that the capital/income ratio seems to
be about to regain the record level attained in the Belle Epoque and earlier.
For partly technological reasons, capital still plays a central role in production
today, and therefore in social life. Before production can begin, funds are
needed for equipment and office space, to finance material and immaterial
investments of all kinds, and of course to pay for housing. To be sure, the level
of human skill and competence has increased over time, but the importance
of nonhuman capital has increased proportionately. Hence there is no obvious
a priori reason to expect the gradual disappearance of inherited wealth on
these grounds.
Mortality over the Long Run
The second force that might explain the natural end of inheritance is increased
life expectancy, which lowers the mortality rate m and increases the
time to inheritance (which decreases the size of the legacy). Indeed, there is
38S
THE S T R U C T U R E OF INEQUALITY
FIGURE ii.i. The mortality rate in France, 1820-2100
The mortality rate fell in France during the twentieth century (rise of life expectancy),
and should increase somewhat during the twenty-first century (baby-boom effect).
Sources and series: see piketty.pse.ens.fr/capitalnc.
no doubt that the mortality rate has decreased over the long run: the proportion
of the population that dies each year is smaller when the life expectancy
is eighty than when it is sixty. Other things being equal, for a given (3 and p, a
society with a lower mortality rate is also a society in which the flow of inheritance
is a smaller proportion of national income. In France, the mortality rate
has declined inexorably over the course of history, and the same is true of
other countries. The French mortality rate was around 2.1 percent (of the
adult population) in the nineteenth century but declined steadily throughout
the twentieth century,8
dropping to 1.1-1.1 percent in 2000-1010, a decrease
of almost one-half in a century (see Figure 11.1).
It would be a serious mistake, however, to think that changes in the
mortality rate lead inevitably to the disappearance of inherited wealth as a
major factor in the economy. For one thing, the mortality rate began to rise
again in France in 1000-1010, and according to official demographic forecasts
this increase is likely to continue until 1040-1050, after which adult
mortality should stabilize at around 1.4-1.5 percent. The explanation for
this is that the baby boomers, who outnumber previous cohorts (but are
about the same size as subsequent ones), will reach the end of their lite
386
MERIT A N D INHERITANCE IN THE LONG RUN
spans in this period.9
In other words, the baby boom, which led to a structural
increase in the size of birth cohorts, temporarily reduced the mortality
rate simply because the population grew younger and larger. French demographics
are fortunately quite simple, so that it is possible to present the
principal effects of demographic change in a clear manner. In the nineteenth
century, the population was virtually stationary, and life expectancy
was about sixty years, so that the average person enjoyed a little over forty
years of adulthood, and the mortality rate was therefore close to 1/40, or
actually about 1.1 percent. In the twenty-first century, the population, according
to official forecasts, will likely stabilize again, with a life expectancy
of about eighty-five years, or about sixty-five years of adult life, giving a
mortality rate of about 1/65 in a static population, which translates into
1.4-1.5 percent when we allow for slight demographic growth. Over the long
run, in a developed country with a quasi-stagnant population like France
(where population increase is primarily due to aging), the decrease in the
adult mortality rate is about one-third.
The anticipated increase in the mortality rate between 1 0 0 0 - 2 0 1 0 and
1 0 4 0 - 1 0 5 0 due to the aging of the baby boom generation is admittedly a
purely mathematical effect, but it is nevertheless important. It partly explains
the low inheritance flows of the second half of the twentieth century,
as well as the expected sharp increase in these flows in the decades to come.
This effect will be even stronger elsewhere. In countries where the population
has begun to decrease significantly or will soon do so (owing to a decrease
in cohort size)—most notably Germany, Italy, Spain, and of course
Japan—this phenomenon will lead to a much larger increase in the adult
mortality rate in the first half of the twenty-first century and thus automatically
increase inheritance flows by a considerable amount. People may live
longer, but they still die eventually; only a significant and steady increase in
cohort size can permanently reduce the mortality rate and inheritance flow.
When an aging population is combined with a stabilization of cohort size as
in France, however, or even a reduced cohort size as in a number ot rich
countries, very high inheritance flows are possible. In the extreme case—a
country in which the cohort size is reduced by half (because each couple decides
to have only one child), the mortality rate, and therefore the inheritance
flow, could rise to unprecedented levels. Conversely, in a country where
the size of each age cohort doubles every generation, as happened in many
387
THE STRUCTURE OF INEQUALITY
countries in the twentieth century and is still happening in Africa, the
mortality rate declines to very low levels, and inherited wealth counts for
little (other things equal).
W e a l t h Ages with P o p u l at i o n : Tl)e \iXm Effect
Let us now forget the effects of variations in cohort size: though important,
they are essentially transitory, unless we imagine that in the long run the
population of the planet grows infinitely large or infinitely small. Instead, I
will adopt the very long-run perspective and assume that cohort size is stable.
How does increased life expectancy really affect the importance of inherited
wealth? To be sure, a longer life expectancy translates into a structural
decrease in the mortality rate. In France, where the average life expectancy in
the twenty-first century will be eight to eighty-five years, the adult mortality
rate will stabilize at less than 1.5 percent a year, compared with 1.1 percent in
the nineteenth century, when the life expectancy was just over sixty. The increase
in the average age of death inevitably gives rise to a similar increase in
the average age of heirs at the moment of inheritance. In the nineteenth century,
the average age of inheritance was just thirty; in the twenty-first century
it will be somewhere around fifty. As Figure 11.3 shows, the difference between
the average age of death and the average age of inheritance has always
been around thirty years, for the simple reason that the average age of childbirth
(often referred to as "generational duration") has been relatively stable at
around thirty over the long run (although there has been a slight increase in
the early twenty-first century).
But does the fact that people die later and inherit later imply that inherited
wealth is losing its importance? Not necessarily, in part because the growing
importance of gifts between living individuals has partly compensated for
this aging effect, and in part because it may be that people are inheriting later
but receiving larger amounts, since wealth tends to age in an aging society. In
other words, the downward trend in the mortality rate—ineluctable in the
very long run—can be compensated by a similar structural increase in the
relative wealth of older people, so that the product p X m remains unchanged
or in any case falls much more slowly than some have believed. This is precisely
what happened in France: the ratio p of average wealth at death to aver-
388
MERIT A N D INHERITANCE IN THE L O N G RUN
IOO
1810 1840 i 8 6 0 1880 1 9 0 0 1920 1 9 4 0 i 9 6 0 1980 1 0 0 0 2 0 1 0 1 0 4 0 1 0 6 0 2080 1 1 0 0
FIGURE 11.3. Average age of decedents and inheritors: France, 1820-2100
The average of (adult) decedents rose from less than 60 years to almost 80 years during
the twentieth century, and the average age at the time of inheritance rose from 30 years
to 50 years.
Sources and series: see piketty.psc.ens.fr/capital21c.
age wealth of the living rose sharply after 1950-1960, and this gradual aging ot
wealth explains much of the increased importance of inherited wealth in recent
decades.
Concretely, one finds that the product pXw, which by definition measures
the annual rate of transmission by inheritance (or, in other words, the
inheritance flow expressed as a percentage of total private wealth), clearly began
to rise over the past few decades, despite the continuing decrease in the
morality rate, as Figure 11.4 shows. The annual rate of transmission by inheritance,
which nineteenth-century economists called the "rate of estate devolution,"
was according to my sources relatively stable from the 1820s to the 1910s
at around 3.3-3.5 percent, or roughly 1/30. It was also said in those days that a
fortune was inherited on average once every thirty years, that is, once a generation,
which is a somewhat too static view of things but partially justified by
the reality of the time.10
The transmission rate decreased sharply in the period
1910-1950 and in rhe 1950s stood at about 2 percent, before rising steadily to
above 1.5 percent in 2000-2010.
389
THE S T R U C T U R E OF INEQUALITY
4-5^
4 . 0 %
. . 5 % .
. 0 %
1.5% -
1.0%
Annual inheritance flow as a fraction
or aggregate private wealth
(annual rate of wealth transmission)
Annual mortality rate for adult
population (age i o and over'
1810 1840 i 8 6 0 1880 1 9 0 0 1920 1 9 4 0 i 9 6 0 1980 1000
FIGURE 11.4. Inheritance flow versus mortality rate: France, 1820-2010
The annual flow of inheritance (bequests and gifts) is equal to about 2.5 percent of aggregate
wealth in 2 0 0 0 - 2 0 1 0 versus 1.2 percent for the mortality rate.
Sources and series: see piketty.pse.ens.fr/capital21c.
To sum up: inheritance occurs later in aging societies, but wealth also
ages, and the latter tends to compensate the former. In this sense, a society in
which people die older is very different from a society in which they don't die
at all and inheritance effectively vanishes. Increased life expectancy delays
important life events: people study longer, start work later, inherit later, retire
later, and die later. But the relative importance of inherited wealth as opposed
to earned income does not necessarily change, or at any rate changes much
less than people sometimes imagine. To be sure, inheriting later in life may
make choosing a profession more frequently necessary than in the past. But
this is compensated by the inheritance of larger amounts or by the receipt of
gifts. In any case, the difference is more one of degree than the dramatic
change of civilization that is sometimes imagined.
W e a l t h o f t h e D e a d , W e a l t h o f t h e L i v i n g
It is interesting to take a closer look at the evolution of p, the ratio between
average wealth at death and average wealth of the living, which I have pre-
390
MERIT A N D INHERITANCE IN THE LONG RUN
160%
80%
60% i 1 1 1 1 1 1 1 1 \ —
1810 1840 i 8 6 0 1880 1 9 0 0 1910 1940 i 9 6 0 1980 IOOO
FIGURE 11.5. The ratio between average wealth at death and average wealth of the living:
France, 1820-2010
In 1 0 0 0 - 1 0 1 0 , the average wealth at death is 20 percent higher than that of the living
if one omits the gifts that were made before death, but more than twice as large if one
re-integrates gifts.
Sources and series: see piketty.pse.ens.fr/capital21c.
sented in Figure 11.5. Note, first, that over the course of the past two centuries,
from 1810 to the present, the dead have always been (on average)
wealthier than the living in France: p has always been greater than 100
percent, except in the period around World War II (1940-1950), when the
ratio (without correcting for gifts made prior to death) fell to just below 100
percent. Recall that according to Modigliani s life-cycle theory, the primary
reason for amassing wealth, especially in aging societies, is to pay tor retirement,
so that older individuals should consume most of their savings during
old age and should therefore die with little or no wealth. This is the famous
"Modigliani triangle," taught to all students of economics, according
to which wealth at first increases with age as individuals accumulate savings
in anticipation of retirement and then decreases. The ratio p should therefore
be equal to zero or close to it, in any case much less than 100 percent.
But this theory of capital and its evolution in advanced societies, which is
perfectly plausible a priori, cannot explain the observed facts—to put it
mildly. Clearly, saving for retirement is only one of many reasons—and not
the most important reason—why people accumulate wealth: the desire to
391
THE STRUCTURE OF INEQUALITY
perpetuate the family fortune has always played a central role. In practice,
the various forms of annuitized wealth, which cannot be passed on to descendants,
account for less than s percent of private wealth in France and at
most is-20 percent in the English-speaking countries, where pension funds
are more developed. This is not a negligible amount, but it is not enough to
alter the fundamental importance ot inheritance as a motive for wealth accumulation
(especially since life-cycle savings may not be a substitute for
but rather a supplement to transmissible wealth).11
To be sure, it is quite
difficult to say how different wealth accumulation would have been in the
twentieth century in the absence ot pay-as-you-go public pension systems,
which guaranteed the vast majority of retirees a decent standard oflivingin
a more reliable and equitable way than investment in financial assets, which
plummeted after the war, could have done. It is possible that without such
public pension systems, the overall level of wealth accumulation (measured by
the capital/income ratio) would have been even greater than it is today.12
In
any case, the capital/income ratio is approximately the same today as it was in
the Belle Epoque (when a shorter life expectancy greatly reduced the need to
accumulate savings in anticipation of retirement), and annuitized wealth accounts
for only a slightly larger portion of total wealth than it did a century ago.
Note also the importance of gifts between living individuals over the past
two centuries, as well as their spectacular rise over the past several decades.
The total annual value of gifts was 30-40 percent of the annual value of inheritances
from 1810 to 1870 (during which time gifts came mainly in the
form ot dowries, that is, gifts to the spouse at the time of marriage, often with
restrictions specified in the marriage contract). Between 1870 and 1970 the
value ot gifts decreased slightly, stabilizing at about 20-30 percent of inheritances,
before increasing strongly and steadily to 40 percent in the 1980s, 60
percent in the 1990s, and more than 80 percent in 2000-2010. Today, transmission
of capital by gift is nearly as important as transmission by inheritance.
Gifts account for almost half of present inheritance flows, and it is
therefore essential to take them into account. Concretely, if gifts prior to death
were not included, we would find that average wealth at death in 2000-2010
was just over 20 percent higher than average wealth of the living. But this is
simply a reflection of the fact that the dead have already passed on nearly half
of their assets. If we include gifts made prior to death, we find that the (corrected)
value of p is actually greater than 220 percent: the corrected wealth of
392
MERIT A N D INHERITANCE IN THE LONG RUN
the dead is nearly twice as great as that of the living. We are once again living
in a golden age of gift giving, much more so than in the nineteenth century.
It is interesting to note that the vast majority ofgifts, today as in the nineteenth
century, go to children, often in the context of a real estate investment,
and they are given on average about ten years before the death of the donor (a
gap that has remained relatively stable over time). The growing importance of
gifts since the 1970s has led to a decrease in the average age of the recipient: in
2000-2010, the average age of an heir is forty-five tofifty,while that of the
recipient of: a gift is thirty-five to forty, so that the difference between todav and
the nineteenth or early twentieth centuries is not as great as it seems from Figure
11.3.13
The most convincing explanation of this gradual and progressive increase
ofgift giving, which began in the 1970s, well beforefiscalincentives were
put in place in 1990-2000, is that parents with means gradually became aware
that owing to the increase in life expectancy, there might be good reasons to share
their wealth with their children at the age ofthirty-five to forty rather than fortyfive
tofiftyor even later. In any case, whatever the exact role ofeach ofthe various
possible explanations, the fact is that the upsurge in gift giving, which we also
find in other European countries, including Germany, is an essential ingredient
in the revived importance of inherited wealth in contemporary society.
The Fifties a n d t h e Eighties: A g e a n d F o r t u n e in the Belle E p o q u e
In order to better understand the dynamics of wealth accumulation and the
detailed data used to calculate p, it is useful to examine the evolution ot the
average wealth profile as a function of age. Table 11.1 presents wealth-age profiles
for a number of years between 1810 and 1010.14
The most striking fact is
no doubt the impressive aging of wealth throughout the nineteenth century,
as capital became increasingly concentrated. In 1810, the elderly were barely
wealthier on average than people in theirfifties(which I have taken as a reference
group): sexagenarians were 34 percent wealthier and octogenarians 53 percent
wealthier. But the gaps widened steadily thereafter. By 1900-1910, the average
wealth of sexagenarians and septuagenarians was on the order ot 60-80 percent
higher than the reference group, and octogenarians were two and a halt times
wealthier. Note that these are averages for all of France. If we restrict our attention
to Paris, where the largest fortunes were concentrated, the situation is
even more extreme. On the eve ofWorld War I, Parisian fortunes swelled with
393
THE S T R U C T U R E OF INEQUALITY
T A B L E I I . I .
The age-wealth profile in France, 1820-2010: Average wealth of each age group
(% of average wealth of so- to sp-year-olds)
Y e a r
2 0 - 1 9
years
3 0 - 3 9
years
4 0 - 4 9
years
5 0 - 5 9
years
6 0 - 6 9
years
7 0 - 7 9
years
80 years
and over
1810 29 3~ 4 " 100 H 4 148 *53
1850 18 3~ S i 100 128 144 142
1880 *o >9 61 100 148 166 220
1901 26 S~ 65 100 172 176 238
1911 13 5 4
— ->
100 158 178 2-57
1931 2.2. 59 77 100 123 137 H 3
23 y - 100 99 76 62
i 9 6 0 28 52. 7 4 100 n o 101 87
1984 19 55 83 100 118 113 105
1 0 0 0 19 46 66 100 122 121 118
1010 15 41 •*4 100 i n 106 134
X o r e : In 1810. the average wealth otindividuals aged 6 0 - 6 9 was 54% higher than that or 50- to 59-yearolds,
and the average wealth o f chose aged 80 and over was 55% higher than that or 30- to 59-year-olds.
S o u r c e s : Sec pikctty.psc.ens.rr/capitaliic, tabic 2..
age, with septuagenarians and octogenarians on average three or even four times
as wealthy as fifty-year-olds.15
To be sure, the majority of people died with no
wealth at all, and the absence of any pension system tended to aggravate this
"golden-age poverty." But among the minority with some fortune, the aging of
wealth is quite impressive. Quite clearly, the spectacular enrichment of octogenarians
cannot be explained by income from labor or entrepreneurial activity: it
is hard to imagine people in their eighties creating a new startup every morning.
This enrichment of the elderly is striking, in part because it explains the
high value of p, the ratio of average wealth at time of death to average wealth
of the living, in the Belle Epoque (and therefore the high inheritance flows),
and even more because it tells us something quite specific about the underlying
economic process. The individual data we have are quite clear on this
point: the very rapid increase of wealth among the elderly in the late nine-
394
MERIT A N D INHERITANCE IN THE LONG RUN
tcenth and early twentieth centuries was a straightforward consequence of
the inequality r>^and of the cumulative and multiplicative logic it implies.
Concretely, elderly people with the largest fortunes often enjoyed capital incomes
far in excess of what they needed to live. Suppose, for example, that
they obtained a return of 5 percent and consumed two-fifths of their capital
income while reinvesting the other three-fifths. Their wealth would then have
grown at a rate of 3 percent a year, and by the age of eighty-five they would
have been more than twice as rich as they were at age sixty. The mechanism is
simple but extremely powerful, and it explains the observed facts very well,
except that the people with the largest fortunes could often save more than
three-fifths of their capital income (which would have accelerated the divergence
process), and the general growth of mean income and wealth was not
quite zero (but about 1 percent a year, which would have slowed it down a bit).
The study of the dynamics of accumulation and concentration of wealth
in France in 1870-1914, especially in Paris, has many lessons to teach about
the world today and in the future. Not only are the data exceptionally detailed
and reliable, but this period is also emblematic of the first globalization
of trade and finance. As noted, it had modern, diversified capital markets, and
individuals held complex portfolios consisting of domestic and foreign, public
and private assets paying fixed and variable amounts. To be sure, economic
growth was only 1-1.5 percent a year, but such a growth rate, as I showed earlier,
is actually quite substantial from a generational standpoint or in the historical
perspective of the very long run. It is bv no means indicative of a static
agricultural society. This was an era of technological and industrial innovation:
the automobile, electricity, the cinema, and many other novelties became
important in these years, and many of them originated in France, at least in
part. Between 1870 and 1914, not all fortunes offifty-and sixty-year-olds were
inherited. Far from it: we find a considerable number of wealthy people who
made their money through entrepreneurial activities in industry and finance.
Nevertheless, the dominant dynamic, which explains most ot the concentration
of wealth, was an inevitable consequence of the inequality r>g. Regardless
of whether the wealth a person holds at age fifty or sixty is inherited
or earned, the fact remains that beyond a certain threshold, capital tends to
reproduce itself and accumulates exponentially. The logic of r>g implies that
the entrepreneur always tends to turn into a rentier. Even if this happens later
in lite, the phenomenon becomes important as life expectancy increases. The
395
THE S T R U C T U R E OF INEQUALITY
fact that a person has good ideas at age thirty or forty does not imply that she
will still be having them at seventy or eighty, yet her wealth will continue to
increase by itself Or it can be passed on to the next generation and continue
to increase there. Nineteenth-century French economic elites were creative
and dvnamic entrepreneurs, but the crucial fact remains that their efforts
ultimately—and largely unwittingly—reinforced and perpetuated a society
of rentiers owing to the logic of r>g.
U.je R e j u v e n a t i o n o f W e a l t h O w i n g to W a r
This self-sustaining mechanism collapsed owing to the repeated shocks suffered
bv capital and its owners in the period 1914-1945. A significant rejuvenation
ot wealth was one consequence of the two world wars. One sees this
clearlv in Figure 11.5: for the first time in history—and to this day the only
time—average wealth at death in 1940-1950 fell below the average wealth of
the living. This fact emerges even more clearly in the detailed profiles by age
cohort in Table 11.1. In 1911, on the eve of World War I, octogenarians were
more than two and a half times as wealthy as people in their fifties. In 1931,
they were only 50 percent wealthier. And in 1947, thefifty-somethingswere
40 percent wealthier than the eighty-somethings. To add insult to injury, the
octogenarians even fell slightly behind people in their forties in that year.
This was a period in which all old certainties were called into question. In the
years after World War II, the plot of wealth versus age suddenly took the form
of a bell curve with a peak in the fifty to fifty-nine age bracket—a form close
to the "Modigliani triangle," except for the fact that wealth did not fall to
zero at the most advanced ages. This stands in sharp contrast to the nineteenth
century, during which the wealth-age curve was monotonically increasing
with age.
There is a simple explanation for this spectacular rejuvenation of wealth.
As noted in Part Two, all fortunes suffered multiple shocks in the period 1914¬
1945—destruction of property, inflation, bankruptcy, expropriation, and so
on—so that the capital/income ratio fell sharply. To a first approximation,
one might assume that all fortunes suffered to the same degree, leaving the age
profile unchanged. In fact, however, the younger generations, which in any
case did not have much to lose, recovered more quickly from these wartime
shocks than their elders did. A person who was sixty years old in 1940 and lost
396
MERIT A N D INHERITANCE IN THE LONG RUN
everything he owned in a bombardment, expropriation, or bankruptcy had
little hope of recovering. He would likely have died between 1950 and i960 at
the age of"seventy or eighty with nothing to pass on to his heirs. Conversely, a
person who was thirty in 1940 and lost everything (which was probably not
much) still had plenty of time to accumulate wealth after the war and by the
1950s would have been in his forties and wealthier than that septuagenarian.
The war reset all counters to zero, or close to zero, and inevitably resulted in a
rejuvenation of wealth. In this respect, it was indeed the two world wars that
wiped the slate clean in the twentieth century and created the illusion that
capitalism had been overcome.
This is the central explanation tor the exceptionally low inheritance flows
observed in the decades after World War II: individuals who should have inherited
fortunes in 1950-1960 did not inherit much because their parents had
not had time to recover from the shocks ot the previous decades and died
without much wealth to their names.
In particular, this argument enables us to understand why the collapse ot
inheritance flows was greater than the collapse of wealth itself—nearly twice
as large, in fact. As I showed in Part Two, total private wealth tell by more
than two-thirds between 1910-1920 and 1950-1960: the private capital stock
decreased from seven years of national income to just two to two and a halt
years (see Figure 3.6). The annual flow of inheritance fell by almost live-sixths,
from 25 percent of national income on the eve of World War I to just 4-5
percent in the 1950s (see Figure 11.1).
The crucial fact, however, is that this situation did not last long. "Reconstruction
capitalism" was by its nature a transitional phase and not the structural
transformation some people imagined. In 1950-1960, as capital was
once again accumulated and the capital/income ratio (3 rose, fortunes began
to age once more, so that the ratio p between average wealth at death and average
wealth of the living also increased. Growing wealth went hand in hand
with aging wealth, thereby laying the groundwork for an even stronger comeback
of inherited wealth. By i960, the profile observed in 1947 was already a
memory: sexagenarians and septuagenarians were slightly wealthier than
people in their fifties (see Table 11.1). The octogenarians' turn came in the
1980s. In 1990-2000 the graph of wealth against age was increasing even more
steeply. By 2010, the average wealth of people in their eighties was more than
30 percent higher than that of people in their fifties. If one were to include
397
THE STRUCTURE OF INEQUALITY
(which Table n.i does not) gifts made prior to death in the wealth of different
age cohorts, the graph for 2000-2010 would be steeper still, approximately
the same as in 1900-1910, with average wealth for people in their seventies
and eighties on the order of twice as great as people in their fifties, except that
most deaths now occur at a more advanced age, which yields a considerably
higher p (see Figure 11.5).
H o w Will I n h e ri t a n c e Flows E v o l v e in the
Twenty-First C e n t u ry ?
In view of the rapid increase of inheritance flows in recent decades, it is natural
to ask if this increase is likely to continue. Figure 11.6 shows two possible
evolutions for the twenty-first century. The central scenario is based on the
assumption of an annual growth rate of 1.7 percent for the period 2010-2100
and a net return on capital of 3 percent.16
The alternative scenario is based on
the assumption that growth will be reduced to 1 percent for the period 2010¬
2100, while the return on capital will rise to 5 percent. This could happen, for
instance, if all taxes on capital and capital income, including the corporate
income tax, were eliminated, or if such taxes were reduced while capitals
share of income increased.
In the central scenario, simulations based on the theoretical model
(which successfully accounts for the evolutions of 1820-2010) suggest that
the annual inheritance flow would continue to grow until 2030-2040 and
then stabilize at around 16-17 percent of national income. According to the
alternative scenario, the inheritance flow should increase even more until
2060-2070 and then stabilize at around 24-25 percent of national income,
a level similar to that observed in 1870-1910. In the first case, inherited
wealth would make only a partial comeback; in the second, its comeback
would be complete (as far as the total amount of inheritances and gifts is
concerned). In both cases, the flow of inheritances and gifts in the twentyfirst
century is expected to be quite high, and in particular much higher than
it was during the exceptionally low phase observed in the mid-twentieth
century.
Such predictions are obviously highly uncertain and are of interest primarily
for their illustrative value. The evolution of inheritance flows in the
twenty-first century depends on many economic, demographic, and political
398
MERIT A N D INHERITANCE IN THE LONG RUN
4 0 %
36%
32%
Observed series
- 0 - Simulated scries (1010- 1100:^ = 1 . 7 % , r - 3.0%;
Simulated series (2010- i\oo-.g - 1.0%, r - 5.0%)
1820 1840 i 8 6 0 1880 1 9 0 0 1920 1 9 4 0 i 9 6 0 1980 2 0 0 0 2010 2 0 4 0 2060 2080 1IC
FIGURE 11.6. Observed and simulated inheritance flow: France, 1820-2100
Simulations based upon the theoretical model indicate that the level of the inheritance
flow in the twenty-first century will depend upon the growth rate and the net rate of
return to capital.
Sources and series: see piketty.pse.ens.fr/capital21c.
factors, and history shows that these are subject to large and highly unpredictable
changes. It is easy to imagine other scenarios that would lead to different
outcomes: for instance, a spectacular acceleration ot demographic or
economic growth (which seems rather implausible) or a radical change in
public policy in regard to private capital or inheritance (which may be more
realistic).17
It is also important to note that the evolution ot the wealth-age profile
depends primarily on savings behavior, that is, on the reasons why different
groups of people accumulate wealth. As already discussed at some length,
there are many such reasons, and their relative importance varies widely trom
individual to individual. One may save in anticipation of retirement or job loss
(life-cycle or precautionary saving). Or one may save to amass or perpetuate a
family fortune. Or, indeed, one may simply have a taste for wealth and the
prestige that sometimes goes with it (dynastic saving or pure accumulation).
In the abstract, it is perfectly possible to imagine a world in which all people
would choose to convert all of their wealth into annuities and die with nothing.
If such behavior were suddenly to become predominant in the twenty-first
399
THE STRUCTURE OF INEQUALITY
centurv, inheritance flows would obviously shrink to virtually zero, regardless
of the growth rate or return on capital.
Nevertheless, the two scenarios presented in Figure 11.6 are the most plausible
in light of currently available information. In particular, I have assumed
that savings behavior in 2010-2100 will remain similar to what it has been in
the past, which can be characterized as follows. Despite wide variations in
individual behavior, we find that savings rates increase with income and initial
endowment, but variations by age group are much smaller: to a first approximation,
people save on average at a similar rate regardless of age.18
In
particular, the massive dissaving by the elderly predicted by the life-cycle theory
of saving does not seem to occur, no matter how much life expectancy
increases. The reason for this is no doubt the importance of the family transmission
motive (no one really wants to die with nothing, even in aging societies),
together with a logic of pure accumulation as well as the sense of security—
and not merely prestige or power—that wealth brings.19
The very high
concentration of wealth (with the upper decile always owning at least 50-60
percent of all wealth, even within each age cohort) is the missing link that
explains all these facts, which Modiglianis theory totally overlooks. The gradual
return to a dynastic type of wealth inequality since 1950-1960 explains
the absence of dissaving by the elderly (most wealth belongs to individuals
who have the means to finance their lifestyles without selling assets) and
therefore the persistence of high inheritance flows and the perpetuation of
the new equilibrium, in which mobility, though positive, is limited.
The essential point is that for a given structure of savings behavior, the
cumulative process becomes more rapid and inegalitarian as the return on
capital rises and the growth rate falls. The very high growth of the three
postwar decades explains the relatively slow increase of p (rhe ratio ofaverage
wealth at death to average wealth of the living) and therefore of inheritance
flows in the period 1950-1970. Conversely, slower growth explains the accelerated
aging of wealth and the rebound of inherited wealth that have occurred
since the 1980s. Intuitively, when growth is high, for example, when
wages increase 5 percent a year, it is easier for younger generations to accumulate
wealth and level the playing field with their elders. When the growth
of wages drops to 1-1 percent a year, the elderly will inevitably acquire most
of the available assets, and their wealth will increase at a rate determined by
the return on capital.20
This simple but important process explains very well
4 0 0
MERIT A N D INHERITANCE IN THE LONG RUN
the evolution of the ratio p and the annual inheritance flow. It also explains
why the observed and simulated series are so close for the entire period
1820--2010.2 1
Uncertainties notwithstanding, it is therefore natural to think that these
simulations provide a useful guide for the future. Theoretically, one can show
that for a large class of savings behaviors, when growth is low compared to the
return on capital, the increase in p nearly exactly balances the decrease in the
mortality rate m, so that the product \ lXm is virtually independent of life
expectancy and is almost entirely determined by the duration of a generation.
The central result is that a growth of about i percent is in this respect not very
different from zero growth: in both cases, the intuition that an aging population
will spend down its savings and thus put an end to inherited wealth
turns out to be false. In an aging society, heirs come into their inheritances
later in life but inherit larger amounts (at least for those who inherit anything),
so the overall importance of inherited wealth remains unchanged.22
F r o m the A n n u a l I n h e ri t an c e Flow to the
Stock o f I n h e ri t e d W e a l t h
How does one go from the annual inheritance flow to the stock of inherited
wealth? The detailed data assembled on inheritance flows and ages of" the deceased,
their heirs, and gift givers and recipients enable us to estimate tor each
year in the period 1820-2010 the share of inherited wealth in the total wealth
of individuals alive in that year (the method is essentially to add up bequests
and gifts received over the previous thirty years, sometimes more in the case
of particularly early inheritances or exceptionally long lives or less in the opposite
case) and thus to determine the share of inherited wealth in total private
wealth. The principal results are indicated in Figure 11.7, where I also
show the results of simulations for the period 1010-1100 based on the two
scenarios discussed above.
The orders of magnitude to bear in mind are the following. In the nineteenth
and early twentieth centuries, when the annual inheritance flow was
20-25 percent of national income, inherited wealth accounted for nearly all
private wealth: somewhere between 80 and 90 percent, with an upward trend.
Note, however, that in all societies, at all levels of wealth, a significant number
of wealthy individuals, between 10 and 20 percent, accumulate fortunes during
401
THE S T R U C T U R E OF INEQUALITY
100%
90%
2 J 8o%
c _c
£ £ 6 o %
•i * >o% —
E ^
^ 40% - -
Share ot inherited wealth
(1010-1100:^= 1.7%, r - ;.o%)
- Share of inherited wealth
( 2 0 i o - n o o : £ = 1.0%. r - s.o%)
1850 1870 1890 1910 1930 1950 1970 1990 1010 1030 1050 2070 2090
F I G U R E 11.7- The share of inherited wealth in total wealth: France, 1850-1100
Inherited wealth represents 8 0 - 9 0 percent of total wealth in France in the nineteenth
century; this share fell to 4 0 - 5 0 percent during the twentieth century, and might return
to 8 0 - 9 0 percent during the twenty-first century.
Sources and series: see piketty.pse.ens.fr/capitalnc.
their lifetimes, having started with nothing. Nevertheless, inherited wealth
accounts for the vast majority of cases. This should come as no surprise: if one
adds up an annual inheritance flow of 10 percent of national income for approximately
thirty years, one accumulates a very large sum of legacies and
gifts, on the order of six years of national income, which thus accounts for
nearly all of private wealth.23
Over the course of the twentieth century, following the collapse of inheritance
flows, this equilibrium changed dramatically. The low point was
attained in the 1970s: after several decades of small inheritances and accumulation
of new wealth, inherited capital accounted for just over 40 percent
of total private capital. For the first time in history (except in new
countries), wealth accumulated in the lifetime of the living constituted the
majority of all wealth: nearly 60 percent. It is important to realize two
things: first, the nature of capital effectively changed in the postwar period,
and second, we are just emerging from this exceptional period. Nevertheless,
we are now clearly out of it: the share of inherited wealth in total
wealth has grown steadily since the 1970s. Inherited wealth once again ac-
402
MERIT A N D INHERITANCE IN THE LONG RUN
counted for the majority of wealth in the 1980s, and according to the latest
available figures it represents roughly two-thirds of private capital in France
in 2010, compared with barely one-third of capital accumulated from savings.
In view of today s very high inheritance flows, it is quite likely, if current
trends continue, that the share of inherited wealth will continue to
grow in the decades to come, surpassing 70 percent by 2020 and approaching
80 percent in the 2030s. If the scenario of 1 percent growth and 5 percent
return on capital is correct, the share of inherited wealth could continue
to rise, reaching 90 percent by the 2050s, or approximately the same
level as in the Belle Epoque.
Thus we see that the U-shaped curve of annual inheritance flows as a proportion
of national income in the twentieth century went hand in hand with
an equally impressive U-shaped curve of accumulated stock of inherited
wealth as a proportion of national wealth. In order to understand the relation
between these two curves, it is useful to compare the level of inheritance flows
to the savings rate, which as noted in Part Two is generally around 10 percent
of national income. When the inheritance flow is 20-25 percent of national
income, as it was in the nineteenth century, then the amounts received each
year as bequests and gifts are more than twice as large as the flow of new savings.
If we add that a part of the new savings comes from the income of inherited
capital (indeed, this was the major part of saving in the nineteenth century),
it is clearly inevitable that inherited wealth will largely predominate
over saved wealth. Conversely, when the inheritance flow falls to just 5 percent
of national income, or half of new savings (again assuming a savings rate
of 10 percent), as in the 1950s, it is not surprising that saved capital will dominate
inherited capital. The central fact is that the annual inheritance flow
surpassed the savings rate again in the 1980s and rose well above it in 2000¬
2010. Today it is nearly 15 percent of national income (counting both inheritances
and gifts).
To get a better idea of the sums involved, it may be useful to recall that
household disposable (monetary) income is 70-75 percent of national income
in a country like France today (after correcting for transfers in kind, such as
health, education, security, public services, etc. not included in disposable income).
If we express the inheritance flow not as a proportion ot national income,
as I have done thus far, but as a proportion of disposable income, we
find that the inheritances and gifts received each year by French households
403
THE S T R U C T U R E OF INEQUALITY
4 0 %
0% -I 1 1 1 1 1 1 1 1 1—
1810 1840 i860 1880 1900 1910 1940 i960 1980 1000
F I G U R E 11.8. The annual inheritance flow as a fraction of household disposable income:
France, 1810-1010
Expressed as a fraction of household disposable income (rather than national income),
the annual inheritance flow is about 10 percent in 1010, in other words, close to its
nineteenth-century level.
Sources and series: see piketty.pse.ens.fr/capitaliic.
amounted to about 10 percent of their disposable income in the early 2010s,
so that in this sense inheritance is already as important today as it was in 1820¬
1910 (see Figure 11.8). As noted in Chapter 5, it is probably better to use national
income (rather than disposable income) as the reference denominator
for purposes of spatial and temporal comparison. Nevertheless, the comparison
with disposable income reflects today's reality in a more concrete way and
shows that inherited wealth already accounts for one-fifth of household monetary
resources (available for saving, for example) and will soon account for a
quarter or more.
Back to V a u t ri n s L e c t u re
In order to have a more concrete idea of what inheritance represents in different
peoples lives, and in particular to respond more precisely to the existential
question raised by Vautrins lecture (what sort of life can one hope to live
on earned income alone, compared to the life one can lead with inherited
404
MERIT A N D INHERITANCE IN THE LONG RUN
$6%
31%
18%
4 %
Share or inheritance in total average resources
as a Function of year of birth (bequests, gifts,
and labor income flows capitalized at age 50)
{ l o i o - i i o o - . g - 1.7%, r = 3.0%)
1 1 1 1 1 1 1 1 1 1 1
1790 1810 1830 1850 1870 1890 1910 1930 1950 1 9 - 0 1990 1010 2
FIGURE 11.9. The share of inheritance in the total resources (inheritance and work) of
cohorts born in 1 7 9 0 - 2 0 3 0
Inheritance made about 25 percent of the resources of nineteenth-century cohorts,
down to less than 10 percent for cohorts born in 1910-1910 (who should have inherited
in 1950-1960).
Sources and series: see piketty.pse.ens.fr/capital21c.
wealth?), the best way to proceed is to consider things from the point of view
of successive generations in France since the beginning of the nineteenth century
and compare the various resources to which they would have had access
in their lifetime. This is the only way to account correctly for the fact that an
inheritance is not a resource one receives every year."4
Consider first the evolution of the share of inheritance in the total resources
available to generations born in France in the period 1T90-2030 (see
Figure 11.9). I proceeded as follows. Starting with series of annual inheritance
flows and detailed data concerning ages of the deceased, heirs, gift givers, and
gift recipients, I calculated the share of inherited wealth in total available resources
as a function of year of birth. Available resources include both inherited
wealth (bequests and gifts) and income from labor, less taxes,2
* capitalized
over the individual's lifetime using the average net return on capital in
each year. Although this is the most reasonable way to approach the question
initially, note that it probably leads to a slight underestimate of the share ot
inheritance, because heirs (and people with large fortunes more generally) are
40s
THE STRUCTURE OF INEQUALITY
usually able to obtain a higher return on capital than the interest rate paid on
savings from earned income.26
The results obtained are the following. If we look at all people born in
France in the 1790s, we find that inheritance accounted for about 24 percent
of the total resources available to them during their lifetimes, so that
income from labor accounted for about 76 percent. For individuals born in
the 1810s, the share of inheritance was 25 percent, leaving 75 percent for
earned income. The same is approximately true for all the cohorts of the
nineteenth century and up to World War I. Note that the 25 percent share
for inheritance is slightly higher than the inheritance flow expressed as a
percentage of national income (20-25 percent in the nineteenth century):
this is because income from capital, generally about a third of national income,
is de facto reassigned in part to inheritance and in part to earned
income.2
For cohorts born in the 1870s and after, the share of inheritance in total
resources begins to decline gradually. This is because a growing share of
these individuals should have inherited after World War I and therefore received
less than expected owing to the shocks to their parents* assets. The
lowest point was reached by cohorts born in 1910-1920: these individuals
should have inherited in the years between the end of World War II and
i960, that is, at a time when the inheritance flow had reached its lowest
level, so that inheritance accounted for only 8-10 percent of total resources.
The rebound began with cohorts born in 1930-1950, who inherited in
1970-1990, and for whom inheritance accounted for 12-14 percent of total
resources. But it is above all for cohorts born in 1970-1980, who began to
receive gifts and bequests in 2000-2010, that inheritance regained an importance
not seen since the nineteenth century: around 22-24 percent of
total resources. These figures show clearly that we have only just emerged
from the "end of inheritance" era, and they also show how diff erently different
cohorts born in the twentieth century experienced the relarive importance
of savings and inheritance: the baby boom cohorts had to make it on
their own, almost as much as the interwar and turn-of-the-century cohorts,
who were devastated by war. By contrast, the cohorts born in the last third
of the century experienced the powerful influence of inherited wealth to
almost the same degree as the cohorts of the nineteenth and twenty-first
centuries.
406
MERIT A N D INHERITANCE IN THE LONG RUN
R a s t i g n a c s D i l e m m a
Thus far I have examined only averages. One of the principal characteristics of
inherited wealth, however, is that it is distributed in a highly inegalitarian
fashion. By introducing into the previous estimates inequality of inheritance
on the one hand and inequality of earned income on the other, we will at last
be able to analyze the degree to which Vautrins somber lesson was true in different
periods. Figure II.IO shows that the cohorts born in the late eighteenth
century and throughout the nineteenth century, including Eugene de Rastignac's
cohort (Balzac tells us that he was born in 1798), did indeed face the
terrible dilemma described by the ex-convict: those who could somehow lay
hands on inherited wealth were able to live far better than those obliged to
make their way by study and work.
In order to make it possible to interpret the different levels of resources as
concretely and intuitively as possible, I have expressed resources in terms of
multiples of the average income of the least well paid 50 percent of workers in
each period. We may take this baseline as the standard of living of the a
lower
class," which generally claimed about half ot national income in this period.
This is a useful reference point for judging inequality in a society.28
The principal results obtained are the following. In the nineteenth century,
the lifetime resources available to the wealthiest 1 percent of heirs (that
is, the individuals inheriting the top 1 percent of legacies in their generation)
were 15-30 times greater than the resources of the lower class. In other words,
a person who could obtain such an inheritance, either from parents or via a
spouse, could afford to pay a staff of 15-30 domestic servants throughout his
life. At the same time, the resources afforded by the top 1 percent of earned
incomes (in jobs such as judge, prosecutor, or attorney, as in Vautrins lecture)
were about ten times the resources of the lower class. This was not negligible,
but it was clearly a much lower standard of living, especially since, as Vautrin
observed, such jobs were not easy to obtain. It was not enough to do brilliantly
in law school. Often one had to plot and scheme for many long years
with no guarantee of success. Under such conditions, if the opportunity to lay
hands on an inheritance in the top centile presented itself, it was surely better
not to pass it up. At the very least, it was worth a moment s reflection.
If we now do the same calculation for the generations born in 1910-1910,
we find that they faced different life choices. The top 1 percent of inheritances
407
THE STRUCTURE OF INEQUALITY
o H 1 1 1 1 1 1 1 1 1 1 1 1
1 - 9 0 1810 18^0 1850 1 8 - 0 1890 1910 1930 1950 1970 1990 2.010 IOJO
F I G U R E 11.10. The d i l e m m a of Rastignac for cohorts b o r n i n 1790-2030
In the nineteenth century, the living standards that could be attained by the top 1 percent
inheritors were a lot higher than those that could be attained by the top 1 percent
labor earners.
Sources and series: see piketty.pse.ens.tx/capital21c.
afforded resources that were barely 5 times the lower class standard. The best
paid 1 percent of jobs still afforded 10-12 times that standard (as a consequence
of the fact that the top centile of the wage hierarchy was relatively
stable at about 6-7 percent of total wages over a long period).29
For the first
time in history, no doubt, one could live better by obtaining a job in the top
centile rather than an inheritance in the top centile: study, work, and talent
paid better than inheritance.
The choice was almost as clear for the baby boom cohorts: a Rastignac
born in 1940-1950 had every reason to aim for a job in the top centile (which
afforded resources 10-12 times greater than the lower class standard) and to
ignore the Vautrins of the day (since the top centile of inheritances brought in
just 6-7 times the lower class standard). For all these generations, success
through work was more profitable and not just more moral.
Concretely, these results also indicate that throughout this period, and
for all the cohorts born between 1910 and i960, the top centile of the income
hierarchy consisted largely of people whose primary source of income
was work. This was a major change, not only because it was a historical first
408
MERIT A N D INHERITANCE IN THE LONG RUN
(in France and most likely in all other European countries) but also because
the top centile is an extremely important group in every society.30
As noted
in Chapter 7, the top centile is a relatively broad elite that plays a central
role in shaping the economic, political, and symbolic structure of society.31
In all traditional societies (remember that the aristocracy represented 1-2
percent of the population in 1789), and in fact down to the Belle Epoque
(despite the hopes kindled by the French Revolution), this group was always
dominated by inherited capital. The fact that this was not the case for the
cohorts born in the first half of the twentieth century was therefore a major
event, which fostered unprecedented faith in the irreversibility of social
progress and the end of the old social order. To be sure, inequality was not
eradicated in the three decades after World War II, but it was viewed primarily
from the optimistic angle of wage inequalities. To be sure, there were
significant differences between blue-collar workers, white-collar workers,
and managers, and these disparities tended to grow wider in France in the
1950s. But there was a fundamental unity to this society, in which everyone
participated in the communion of labor and honored the meritocratic ideal.
People believed that the arbitrary inequalities of inherited wealth were a
thing of the past.
For the cohorts born in the 1970s, and even more for those born later,
things are quite different. In particular, life choices have become more complex:
the inherited wealth of the top centile counts for about as much as the
employment of the top centile (or even slightly more: 11-13 times the lower
class standard of living for inheritance versus 10-11 times for earned income).
Note, however, that the structure of inequality and of the top centile
today is also quite different from what it was in the nineteenth century, because
inherited wealth is significantly less concentrated today than in the
past.32
Today s cohorts face a unique set of inequalities and social structures,
which are in a sense somewhere between the world cynically described by
Vautrin (in which inheritance predominated over labor) and the enchanted
world of the postwar decades (in which labor predominated over inheritance).
According to our findings, the top centile of the social hierarchy in
France today are likely to derive their income about equally from inherited
wealth and their own labor.
409
THE S T R U C T U R E OF INEQUALITY
Die B as ic A r i t h m e t i c o f R e n t i e rs a n d M a n a g e r s
To recapitulate: a society in which income from inherited capital predominates
over income from labor at the summit of the social hierarchy—that is, a
society like those described by Balzac and Austen—two conditions must be
satisfied. First, the capital stock and, within it, the share of inherited capital,
must be large. Typically, the capital/income ratio must be on the order of 6 or
7, and most of the capital stock must consist of inherited capital. In such a
society, inherited wealth can account for about a quarter of the average resources
available to each cohort (or even as much as a third if one assumes a
high degree of inequality in returns on capital). This was the case in the eighteenth
and nineteenth centuries, until 1914. This first condition, which concerns
the stock of inherited wealth, is once again close to being satisfied
today.
The second condition is that inherited wealth must be extremely concentrated.
If inherited wealth were distributed in the same way as income from
labor (with identical levels for the top decile, top centile, etc., of the hierarchies
of both inheritance and labor income), then Vautrins world could never
exist: income from labor would always far outweigh income from inherited
wealth (by a factor of at least three),33
and the top 1 percent of earned incomes
would systematically and mechanically outweigh the top 1 percent of incomes
from inherited capital.34
In order for the concentration effect to dominate the volume effect, the
top centile of the inheritance hierarchy must by itself claim the lions share of
inherited wealth. This was indeed the case in the eighteenth and nineteenth
centuries, when the top centile owned 50-60 percent of total wealth (or as
much as 70 percent in Britain or Belle Epoque Paris), which is nearly 10 times
greater than the top centiles share of earned income (about 6-7 percent, a
figure that remained stable over a very long period of time). This 10:1 ratio
between wealth and salary concentrations is enough to counterbalance the 3:1
volume ratio and explains why an inherited fortune in the top centile enabled
a person to live practically 3 times better than an employment in the top centile
in the patrimonial society of the nineteenth century (see Figure 11.10).
This basic arithmetic of rentiers and managers also helps us to understand
why the top centiles of inherited wealth and earned income are almost balanced
in France today: the concentration of wealth is about three times
410
MERIT A N D INHERITANCE IN THE LONG RUN
greater than the concentration of earned income (the top centile owns 10
percent of total wealth, while the top centile of earners claims 6-7 percent of
total wages), so the concentration effect roughly balances the volume effect.
We can also see why heirs were so clearly dominated by managers during the
Trente Glorieuses (the 3:1 concentration effect was too small to balance the
10:1 mass effect). Apart from these situations, which are the result of extreme
shocks and specific public policies (especially tax policies), however, the "natural"
structure of inequality seems rather to favor a domination of rentiers
over managers. In particular, when growth is low and the return on capital is
distinctly greater than the growth rate, it is almost inevitable (at least in the
most plausible dynamic models) that wealth will become so concentrated that
top incomes from capital will predominate over top incomes from labor by a
wide margin.35
The Classic P a t r i m o n i a l Society: The W o r l d of B a l z a c a n d A u s t e n
Nineteenth-century novelists obviously did not use the same categories we
do to describe the social structures of their time, but they depicted the same
deep structures: those of a society in which a truly comfortable life required
the possession of a large fortune. It is striking to see how similar the inegalitarian
structures, orders of magnitude, and amounts minutely specified byBalzac
and Austen were on both sides of the English Channel, despite the
differences in currency, literary style, and plot. As noted in Chapter 1, monetary
markers were extremely stable in the inflation-free world described by
both novelists, so that they were able to specify precisely how large an income
(or fortune) one needed to rise above mediocrity and live with a minimum
of elegance. For both writers, the material and psychological threshold
was about 30 times the average income of the day. Below that level, a Balzacian
or Austenian hero found it difficult to live a dignified life. It was quite
possible to cross that threshold if one was among the wealthiest 1 percent
(and even better if one approached the top 0.$ or even 0.1 percent) ot French
or British society in the nineteenth century. This was a well-defined and
fairly numerous social group—a minority, to be sure, but a large enough minority
to define the structure of society and sustain a novelistic universe.36
But it was totally out of reach for anyone content to practice a profession, no
matter how well it paid: the best paid 1 percent of professions did not allow
411
THE STRUCTURE OF INEQUALITY
one to come anywhere near this standard ot living (nor did the best paid o.i
percent).3
In most of these novels, the financial, social, and psychological setting is
established in the first few pages and occasionally alluded to thereafter, so
that the reader will not forget everything that sets the characters of the novel
apart from the rest of society: the monetary markers that shape their lives,
their rivalries, their strategies, and their hopes. In Phe Goriot, the old man's
fall from grace is conveyed at once by the fact that he has been obliged to
make do with the filthiest room in the Vauquer boardinghouse and survive
on the skimpiest of meals in order to reduce his annual expenditure to 500
francs (or roughly the average annual income at the time—abject poverty for
Balzac)."8
The old man sacrificed everything for his daughters, each of whom
received a dowry of 500,000 francs, or an annual rent of 15,000 francs, about
50 times the average income: in Balzac's novels, this is the basic unit of fortune,
the symbol of true wealth and elegant living. The contrast between the
two extremes of society is thus established at the outset. Nevertheless, Balzac
does not forget that between abject poverty and true wealth all sorts of intermediate
situations exist—some more mediocre than others. The small Rastignac
estate near Angouleme yields barely 3,000 francs a year (or 6 times the
average income). For Balzac, this is typical of the moneyless lesser nobility of
the provinces. Eugene's family can spare only 1,200 francs a year to pay for his
law studies in the capital. In Vautrins lecture, the annual salary of 5,000
francs (or 10 times average income) that young Rastignac could potentially
earn as a royal prosecutor after much effort and with great uncertainty is the
very symbol of mediocrity—proof, if proof were needed, that study leads nowhere.
Balzac depicts a society in which the minimum objective is to obtain
2 0 - 3 0 times the average income of the day, or even 50 times (as Delphine and
Anastasie are able to do thanks to their dowries), or better yet, 100 times,
thanks to the 50,000 francs in annual rent that Mademoiselle Victorines
million will earn.
In Cesar Birotteau, the audacious perfumer also covets a fortune of a million
francs so that he can keep half for himself and his wife while using the
other half as a dowry for his daughter, which is what he believes it will take
for her to marry well and allow his future son-in-law to purchase the practice
of the notary Roguin. His wife, who would prefer to return to the land, tries
to convince him that they can retire on an annual rent of 2,000 francs and
412
MERIT A N D INHERITANCE IN THE LONG RUN
marry their daughter with only 8,000 francs of rent, but Cesar will not hear
of it: he does not want to wind up like his associate, Pillerault, who retired
with just 5,000 francs of rent. To live well, he needs 10-30 times the average
income. With only 5-10 times the average, one barely survives.
We find precisely the same orders of magnitude on the other side of the
Channel. In Sense and Sensibility, the kernel of the plot (financial as well as
psychological) is established in the first ten pages in the appalling dialogue
between John Dashwood and his wife, Fanny. John has just inherited the vast
Norland estate, which brings in 4,000 pounds a year, or more than 100 times
the average income of the day (which was barely more than 30 pounds a vear
in 1800-1810).39
Norland is the quintessential example of a very large landed
estate, the pinnacle of wealth in Jane Austen s novels. With 1,000 pounds a
year (or more than 60 times the average income), Colonel Brandon and his
Delaford estate are well within expectations for a great landowner. In other
novels we discover that 1,000 pounds a year is quite sufficient for an Austenian
hero. By contrast, 600 pounds a year (10 times average income) is just enough
to leave John Willoughby at the lower limit of a comfortable existence, and
people wonder how the handsome and impetuous young man can live so large
on so little. This is no doubt the reason why he soon abandons Marianne,
distraught and inconsolable, for Miss Grey and her dowry of 50,000 pounds
(1,500 pounds in annual rent, or 80 times average income), which is almost
exactly the same size as Mademoiselle Victorine s dowry of a million francs
under prevailing exchange rates. As in Balzac, a dowry half that size, such as
Delphines or Anastasies, is perfectly satisfactory. For example, Miss Morton,
the only daughter of Lord Norton, has a capital of 30,000 pounds (1,500
pounds ot rent, or 50 times average income), which makes her the ideal heiress
and the quarry of every prospective mother-in-law, starting with Mrs. Ferrars,
who has no difficulty imagining the girl married to her son Edward.40
From the opening pages, John Dashwood s opulence is contrasted with
the comparative poverty of his half-sisters, Elinor, Marianne, and Margaret,
who, along with their mother, must get by on 500 pounds a year (or 115
pounds apiece, barely four times the average per capita income), which is woefully
inadequate for the girls to find suitable husbands. Mrs. Jennings, who
revels in the social gossip of the Devonshire countryside, likes to remind them
of this during the many balls, courtesy calls, and musical evenings that fill
their days and frequently bring them into contact with young and attractive
413
THE S T R U C T U R E OF INEQUALITY
suitors, who unfortunately do not always tarry: "The smallness of your fortune
may make him hang back." As in Balzac's novels, so too in Jane Austens: only
a very modest life is possible with just 5 or 10 times the average income. Incomes
close to or below the average of 30 pounds a year are not even mentioned,
moreover: this, one suspects, is not much above the level of the servants, so
there is no point in talking about it. When Edward Fcrrars thinks of becoming
a pastor and accepting the parish of Deliford with its living of 2.00 pounds
a year (between 6 and 7 times the average), he is nearly taken for a saint. Even
though he supplements his living with the income from the small sum left
him by his familv as punishment for his mesalliance, and with the meager
income that Elinor brings, the couple will not go very far, and "they were neither
of them quite enough in love to think that three hundred and fifty
pounds a year would supply them with the comforts of life."41
This happy and
virtuous outcome should not be allowed to hide the essence of the matter: by
accepting the advice of the odious Fanny and refusing to aid his half-sisters or
to share one iota of his immense fortune, despite the promises he made to his
father on his deathbed, John Dashwood forces Elinor and Marianne to live
mediocre and humiliating lives. Their fate is entirely sealed by the appalling
dialogue at the beginning of the book.
Toward the end of the nineteenth century, the same type of inegalitarian
financial arrangement could also be found in the United States. In Washington
Square, a novel published by Henry James in 1881 and magnificently
translated to the screen in William Wylers film The Heiress (1949), the plot
revolves entirely around confusion as to the amount of a dowry. But arithmetic
is merciless, and it is best not to make a mistake, as Catherine Sloper discovers
when her fiance flees on learning that her dowry will bring him only
$10,000 a year in rent rather than the $30,000 he was counting on (or just 10
times the average US income of the time instead of 60). "You are too ugly,"
her tyrannical, extremely rich, widower father tells her, in a manner reminiscent
of Prince Bolkonsky with Princess Marie in War and Peace. Men can
also find themselves in very fragile positions: in The Magnificent Ambersons,
Orson Welles shows us the downfall of an arrogant heir, George, who at one
point has enjoyed an annual income of $60,000 (120 times the average) before
falling victim in the early 1900s to the automobile revolution and ending up
with a job that pays a below-average $350 a year.
414
MERIT A N D INHERITANCE IN THE LONG RUN
E x t r e m e I n e q u a l i t y o f W e a l t h : A C o n d i t i o n o f Civilization
in a P o o r Society?
Interestingly, nineteenth-century novelists were not content simply to describe
precisely the income and wealth hierarchies that existed in their time.
They often give a very concrete and intimate account of how people lived and
what different levels of income meant in terms of the realities of everyday life.
Sometimes this went along with a certain justification of extreme inequality
of wealth, in the sense that one can read between the lines an argument that
without such inequality it would have been impossible for a very small elite to
concern themselves with something other than subsistence: extreme inequality
is almost a condition of civilization.
In particular, Jane Austen minutely describes daily life in the early nineteenth
century: she tells us what it cost to eat, to buy furniture and clothing,
and to travel about. And indeed, in the absence of modern technology, everything
is very costly and takes time and above all staff. Servants are needed to
gather and prepare food (which cannot easily be preserved). Clothing costs
money: even the most minimal fancy dress might cost several months' or even
years' income. Travel was also expensive. It required horses, carriages, servants
to take care of them, feed for the animals, and so on. The reader is made to see
that life would have been objectively quite difficult for a person with only 3-5
times the average income, because it would then have been necessary to spend
most of one's time attending to the needs of daily life. If you wanted books or
musical instruments or jewelry or ball gowns, then there was no choice but to
have an income 20-30 times the average of the day.
In Part One I noted that it was difficult and simplistic to compare purchasing
power over long periods of time because consumption patterns and prices
change radically in so many dimensions that no single index can capture the
reality. Nevertheless, according to official indices, the average per capita purchasing
power in Britain and France in 1800 was about one-tenth what it was in
2010. In other words, with 20 or 30 times the average income in 1800, a person
would probably have lived no better than with 2 or 3 times the average income
today. With 5-10 times the average income in 1800, one would have been in a
situation somewhere between the minimum and average wage today.
In any case, a Balzacian or Austenian character would have used the services
of dozens of servants with no embarrassment. For the most part, we are
4iS
THE S T R U C T U R E OF INEQUALITY
not even told their names. At times both novelists mocked the pretensions
and extravagant needs of their characters, as, for example, when Marianne,
who imagines herself in an elegant marriage with Willoughby, explains with
a blush that according to her calculations it is difficult to live with less than
1,000 pounds a year (more than 60 times the average income of the time): "I
am sure I am not extravagant in my demands. A proper establishment of servants,
a carriage, perhaps two, and hunters, cannot be supported on less."42
Elinor cannot refrain from pointing out to her sister that she is being extravagant.
Similarly, Vautrin himself observed that it took an income of 15,000
francs (more than 50 times the average) to live with a minimum of dignity. In
particular, he insists, with an abundance of detail, on the cost of clothing,
servants, and travel. No one tells him that he is exaggerating, but Vautrin is so
cynical that readers are in no doubt.43
One finds a similarly unembarrassed
recital of needs, with a similar notion of how much it takes to live comfortably,
in Arthur Youngs account of his travels44
Notwithstanding the extravagance of some of their characters, these
nineteenth-century novelists describe a world in which inequality was to a
certain extent necessary: if there had not been a sufficiently wealthy minority,
no one would have been able to worry about anything other than survival.
This view of inequality deserves credit for not describing itself as meritocratic,
it nothing else. In a sense, a minority was chosen to live on behalf of everyone
else, but no one tried to pretend that this minority was more meritorious or
virtuous than the rest. In this world, it was perfectly obvious, moreover, that
without a fortune it was impossible to live a dignified life. Having a diploma
or skill might allow a person to produce, and therefore to earn, 5 or 10 times
more than the average, but not much more than that. Modern meritocratic
society, especially in the United States, is much harder on the losers, because
it seeks to justify domination on the grounds of justice, virtue, and merit, to
say nothing of the insufficient productivity of those at the bottom4 5
M e ri t o c rat i c E x t r e m i s m in W e a l t h y Societies
It is interesting, moreover, to note that the most ardent meritocratic beliefs
are often invoked to justify very large wage inequalities, which are said to be
more justified than inequalities due to inheritance. From the time of Napoleon
to World War I, France has had a small number of very well paid and
416
MERIT A N D INHERITANCE IN THE LONG RUN
high-ranking civil servants (earning 50-100 times the average income of the
day), starting with government ministers. This has always been justified—
including by Napoleon himself, a scion of the minor Corsican nobility—bv
the idea that the most capable and talented individuals ought to be able to live
on their salaries with as much dignity and elegance as the wealthiest heirs (a
top-down response to Vautrin, as it were). As Adolphe Thiers remarked in the
Chamber of Deputies in 1831: "prefects should be able to occupy a rank equal
to the notable citizens in the departements they live in."4 6
In 1881, Paul LerovBeaulieu
explained that the state went too far by raising only the lowest salaries.
He vigorously defended the high civil servants of his day, most of whom
received little more than "15,000 to 10,000 francs a year"; these were "figures
that might seem enormous to the common man" but actually "make it impossible
to live with elegance or amass savings of anv size."4
The most worrisome aspect of this defense of meritocracy is that one finds
the same type of argument in the wealthiest societies, where Jane Austen's
points about need and dignity make little sense. In the United States in recent
years, one frequently has heard this type of justification for the stratospheric
pay of supermanagers (50-100 times average income, if not more). Proponents
of such high pay argued that without it, only the heirs of large fortunes
would be able to achieve true wealth, which would be unfair. In the end,
therefore, the millions or tens of millions of dollars a year paid to supermanagers
contribute to greater social justice.48
This kind of argument could well
lay the groundwork for greater and more violent inequality in the future. The
world to come may well combine the worst of two past worlds: both very large
inequality of inherited wealth and very high wage inequalities justified in
terms of merit and productivity (claims with very little factual basis, as noted).
Meritocratic extremism can thus lead to a race between supermanagers and
rentiers, to the detriment of those who are neither.
It also bears emphasizing that the role of meritocratic beliefs in justifying
inequality in modern societies is evident not only at the top of hierarchy but
lower down as well, as an explanation for the disparity between the lower and
middle classes. In the late 1980s, Michele Lamont conducted several hundred
in-depth interviews with representatives of the "upper middle class" in the
United States and France, not onlv in large cities such as New York and Paris
but also in smaller cities such as Indianapolis and Clermont-Ferrand. She
asked about their careers, how they saw their social identity and place in
417
THE STRUCTURE OF INEQUALITY
society, and what differentiated them from other social groups and categories.
One of the main conclusions of her study was that in both countries, the "educated
elite" placed primary emphasis on their personal merit and moral
qualities, which they described using terms such as rigor, patience, work, effort,
and so on (but also tolerance, kindness, etc.).49
The heroes and heroines
in the novels of Austen and Balzac would never have seen the need to compare
their personal qualities to those of their servants (who go unmentioned
in their texts).
Tloe Society o f Pe t it s R e n t i e rs
The time has come to return to today's world, and more precisely to France in
the 1010s. According to my estimates, inheritance will represent about one
quarter of total lifetime resources (from both inheritance and labor) for cohorts
born in the 1970s and after. In terms of total amounts involved, inheritance
has thus nearly regained the importance it had for nineteenth-century cohorts
(see Figure 11.9). I should add that these predictions are based on the central
scenario: if the alternative scenario turns out to be closer to the truth (lower
growth, higher net return on capital), inheritance could represent a third or
even as much as four-tenths of the resources of twenty-first-century cohorts.50
The fact that the total volume of inheritance has regained the same level as
in the past does not mean that it plays the same social role, however. As noted,
the very significant deconcentration of wealth (which has seen the top centile's
share decrease by nearly two-thirds in a century from 60 percent in
1910-1920 to just over 20 percent today) and the emergence of a patrimonial
middle class imply that there are far fewer very large estates today than there
were in the nineteenth century. Concretely, the dowries of 500,000 francs
that Pere Goriot and Cesar Birotteau sought for their daughters—dowries
that yielded an annual rent of 25,000 francs, or 50 times the average annual
per capita income of 500 francs at that time—would be equivalent to an estate
of 30 million euros today, with a yield in interest, dividends, and rents on
the order of 1.5 million euros a year (or 50 times the average per capita income
of 30,000 euros).51
Inheritances of this magnitude do exist, as do considerably
larger ones, but there are far fewer of them than in the nineteenth century,
even though the total volume of wealth and inheritance has practically regained
its previous high level.
418
MERIT A N D INHERITANCE IN THE LONG RUN
Furthermore, no contemporary novelist would fill her plots with estates
valued at 30 million euros as Balzac, Austen, and James did. Explicit monetary
references vanished from literature after inflation blurred the meaning
of the traditional numbers. But more than that, rentiers themselves vanished
from literature as well, and the whole social representation of inequality
changed as a result. In contemporary fiction, inequalities between social
groups appear almost exclusively in the form of disparities with respect to
work, wages, and skills. A society structured by the hierarchy of wealth has
been replaced by a society whose structure depends almost entirely on the hierarchy
of labor and human capital. It is striking, for example, that many recent
American T V series feature heroes and heroines laden with degrees and
high-level skills, whether to cure serious maladies {House), solve mysterious
crimes (Bones), or even to preside over the United States (West Wing). The
writers apparently believe that it is best to have several doctorates or even a
Nobel Prize. It is not unreasonable to interpret any number of such series as
offering a hymn to a just inequality, based on merit, education, and the social
utility of elites. Still, certain more recent creations depict a more worrisome
inequality, based more clearly on vast wealth. Damages depicts unfeeling big
businessmen who have stolen hundreds of millions of dollars from their workers
and whose even more selfish spouses want to divorce their husbands without
giving up the cash or the swimming pool. In season 3, inspired by the
Madoff affair, the children of the crooked financier do everything they can to
hold on to their fathers assets, which are stashed in Antigua, in order to
maintain their high standard of living.52
In Dirty Sexy Money we see decadent
young heirs and heiresses with little merit or virtue living shamelessly on family
money. But these are the exceptions that prove the rule, and any character
who lives on wealth accumulated in the past is normally depicted in a negative
light, if not frankly denounced, whereas such a life is perfectly natural in
Austen and Balzac and necessary if there are to be any true feelings among the
characters.
This huge change in the social representation of inequality is in part
justified, yet it rests on a number of misunderstandings. First, it is obvious
that education plays a more important role today than in the eighteenth
century. (In a world where nearly everyone possesses some kind ot degree
and certain skills, it is not a good idea to go without: it is in everyone's interest
to acquire some skill, even those who stand to inherit substantial wealth,
419
THE STRUCTURE OF INEQUALITY
especially since inheritance often comes too late From the standpoint of the
heirs.) However, it does not follow that society has become more meritocratic.
In particular, it does not follow that the share of national income
going to labor has actually increased (as noted, it has not, in any substantial
amount), and it certainly does not follow that everyone has access to the
same opportunities to acquire skills of every variety. Indeed, inequalities of
training have to a large extent simply been translated upward, and there is
no evidence that education has really increased intergenerational mobil-
ity.'3
Nevertheless, the transmission ot human capital is always more complicated
than the transmission ot financial capital or real estate (the heir
must make some effort), and this has given rise to a widespread—and partially
justified—faith in the idea that the end of inherited wealth has made
tor a more just society.
The chief misunderstanding is, I think, the following. First, inheritance
did not come to an end: the distribution of inherited capital has changed,
which is something else entirely. In France today, there are certainly fewer
very large estates—estates of 30 million or even 5 or 10 million euros are less
common—than in the nineteenth century. But since the total volume of inherited
wealth has almost regained its previous level, it follows that there are
many more substantial and even fairly large inheritances: 200,000,500,000,
1 million, or even 2 million euros. Such bequests, though much too small to
allow the beneficiaries to give up all thought of a career and live on the interest,
are nevertheless substantial amounts, especially when compared with
what much of the population earns over the course of a working lifetime. In
other words, we have moved from a society with a small number of very
wealthy rentiers to one with a much larger number of less wealthy rentiers: a
society of petits rentiers if you will.
The index that I think is most pertinent for representing this change is
presented in Figure 11.11. It is the percentage of individuals in each cohort who
inherit (as bequest or gift) amounts larger than the least well paid 50 percent of
the population earn in a lifetime. This amount changes over time: at present,
the average annual wage of the bottom half of the income distribution is
around 15,000 euros, or a total of 750,000 euros over the course of a fifty-year
career (including retirement). This is more less what a life at minimum wage
brings in. As the figure shows, in the nineteenth century about 10 percent ota
cohort inherited amounts greater than this. This proportion fell to barely more
420
MERIT A N D INHERITANCE IN THE LONG RUN
16%
o% H 1 1 1 1 1 1 1 1 1 1 1
1790 1810 18^0 1850 18^0 1890 1910 19^0 1950 1970 1990 1 0 1 0 1 0 * 0
FIGURE 11.11. Which fraction of a cohort receives in inheritance the equivalent of a
lifetime labor income?
Within the cohorts born around 1970-1980, 11-14 percent of individuals receive in
inheritance the equivalent of the lifetime labor income received by the bottom 50 percent
less well paid workers.
Sources and series: see piketty.pse.ens.fr/capitaliic.
than 1 percent for cohorts born in 1910-1910 and 4 - 5 percent for cohorts born
in 1930-1950. According to my estimates, the proportion has already risen to
about 11 percent for cohorts born in 1970-1980 and may reach or exceed 15
percent for cohorts born in 1010-1010. In other words, nearly one-sixth of
each cohort will receive an inheritance larger than the amount the bottom halt
of the population earns through labor in a lifetime. (And this group largely
coincides with the half of the population that inherits next to nothing.).54
Ot
course, there is nothing to prevent the inheriting sixth from acquiring diplomas
or working and no doubt earning more through work than the bottom
half of the income distribution. This is nevertheless a fairly disturbing form ot
inequality, which is in the process of attaining historically unprecedented
heights. It is also more difficult to represent artistically or to correct politically,
because it is a commonplace inequality opposing broad segments ot the population
rather than pitting a small elite against the rest ot society.
421
THE STRUCTURE OF INEQUALITY
Tlje R e n t ie r, E n e m y o f D e m o c r a c y
Second, there is no guarantee that the distribution of inherited capital will
not ultimately become as inegalitarian in the twenty-first century as it was in
the nineteenth. As noted in the previous chapter, there is no ineluctable force
standing in the way of a return to extreme concentration of: wealth, as extreme
as in rhe Belle Epoque, especially if growth slows and the return on
capital increases, which could happen, for example, if tax competition between
nations heats up. If this were to happen, I believe that it would lead to
significant political upheaval. Our democratic societies rest on a meritocratic
worldview, or at any rate a meritocratic hope, by which I mean a belief in a
society in which inequality is based more on merit and effort than on kinship
and rents. This belief and this hope play a very crucial role in modern society,
for a simple reason: in a democracy, the professed equality of rights of all citizens
contrasts sharply with the very real inequality of living conditions, and
in order to overcome this contradiction it is vital to make sure that social inequalities
derive from rational and universal principles rather than arbitrary
contingencies. Inequalities must therefore be just and useful to all, at least in
the realm of discourse and as far as possible in reality as well. ("Social distinctions
can be based only on common utility," according to article i of the 1789
Declaration of the Rights of Man and the Citizen.) In 1893, Emile Durkheim
predicted that modern democratic society would not put up for long with the
existence of inherited wealth and would ultimately see to it that ownership of
property ended at death.55
It is also significant that the words "rent" and "rentier" took on highly pejorative
connotations in the twentieth century. In this book, I use these words
in their original descriptive sense, to denote the annual rents produced by a
capital asset and the individuals who live on those rents. Today, the rents produced
by an asset are nothing other than the income on capital, whether in
the form of rent, interest, dividends, profits, royalties, or any other legal category
of revenue, provided that such income is simply remuneration for ownership
of the asset, independent of any labor. It was in this original sense that
the words "rent" and "rentiers" were used in the eighteenth and nineteenth
centuries, for example in the novels of Balzac and Austen, at a time when the
domination of wealth and its income at the top of the income hierarchy
was acknowledged and accepted, at least among the elite. It is striking to ob-
422
MERIT A N D INHERITANCE IN THE LONG RUN
serve that this original meaning largely disappeared as democratic and meritocratic
values took hold. During the twentieth century, the word "rent" became
an insult and a rather abusive one. This linguistic change can be observed
everywhere.
It is particularly interesting to note that the word "rent" is often used
nowadays in a very different sense: to denote an imperfection in the market
(as in "monopoly rent"), or, more generally, to refer to any undue or unjustified
income. At times, one almost has the impression that "rent" has become
synonymous with "economic ill." Rent is the enemy of modern rationality
and must be eliminated root and branch by striving for ever purer and more
perfect competition. A typical example of this use of the word can be seen in
a recent interview that the president of the European Central Bank granted
to several major European newspapers a few months after his nomination.
When the journalists posed questions about his strategy for resolving Europe's
problems, he offered this lapidary response: "We must fight against rents."56
No further details were offered. What the central banker had in mind, apparently,
was lack of competition in the service sector: taxi drivers, hairdressers,
and the like were presumably making too much money.5
The problem posed by this use of the word "rent" is very simple: the fact
that capital yields income, which in accordance with the original meaning of
the word we refer to in this book as "annual rent produced by capital," has
absolutely nothing to do with the problem of imperfect competition or monopoly.
If capital plays a useful role in the process of production, it is natural
that it should be paid. When growth is slow, it is almost inevitable that this
return on capital is significantly higher than the growth rate, which automatically
bestows outsized importance on inequalities of wealth accumulated
in the past. This logical contradiction cannot be resolved by a dose of additional
competition. Rent is not an imperfection in the market: it is rather the
consequence of a "pure and perfect" market for capital, as economists understand
it: a capital market in which each owner of capital, including the least
capable of heirs, can obtain the highest possible yield on the most diversified
portfolio that can be assembled in the national or global economy. To be sure,
there is something astonishing about the notion that capital yields rent, or
income that the owner of capital obtains without working. There is something
in this notion that is an affront to common sense and that has in fact
perturbed any number of civilizations, which have responded in various ways,
423
THE STRUCTURE OF INEQUALITY
not alwavs benign, ranging from the prohibition of usury to Soviet-style communism.
Nevertheless, rent is a reality in any market economy where capital is
privately owned. The fact that landed capital became industrial and financial
capital and real estate left this deeper reality unchanged. Some people think
that the logic of economic development has been to undermine the distinction
between labor and capital. In fact, it is just the opposite: the growing sophistication
of capital markets and financial intermediation tends to separate owners
from managers more and more and thus to sharpen the distinction between pure
capital income and labor income. Economic and technological rationality at
times has nothing to do with democratic rationality. The former stems from
the Enlightenment, and people have all too commonly assumed that the latter
would somehow naturally derive from it, as if by magic. But real democracy
and social justice require specific institutions of their own, not just those of
the market, and not just parliaments and other formal democratic institutions.
To recapitulate: the fundamental force for divergence, which I have emphasized
throughout this book, can be summed up in the inequality r>g,
which has nothing to do with market imperfections and will not disappear as
markets become freer and more competitive. The idea that unrestricted competition
will put an end to inheritance and move toward a more meritocratic
world is a dangerous illusion. The advent of universal suffrage and the end of
property qualifications for voting (which in the nineteenth century limited
the right to vote to people meeting a minimum wealth requirement, typically
the wealthiest i or i percent in France and Britain in 1810-1840, or about the
same percentage of the population as was subject to the wealth tax in France
in 1000-1010), ended the legal domination of politics by the wealthy.58
But it
did not abolish the economic forces capable of producing a society of rentiers.
The R e t u r n o f I n h e ri t e d W e a l t h : A E u r o p e a n o r
G l o b a l P h e n o m e n o n ?
Can our results concerning the return of inherited wealth in France be extended
to other countries? In view of the limitations of the available data, it is
unfortunately impossible to give a precise answer to this question. There are
apparently no other countries with estate records as rich and comprehensive
as the French data. Nevertheless, a number of points seem to be well established.
First, the imperfect data collected to date for other European coun-
424
MERIT A N D INHERITANCE IN THE LONG RUN
1900 1910 1920 1930 1 9 4 0 1950 i 9 6 0 1 9 - 0 J9S0 1990 1 0 C O
FIGURE 11.12. The inheritance flow in Europe, 1900-1010
The inheritance flow follows a U-shape in curve in France as well as in the United
Kingdom and Germany. It is possible that gifts are underestimated in the United
Kingdom at the end of the period.
Sources and series: see piketty.pse.ens.fr/capitaliic.
tries, especially Germany and Britain, suggest that the U-shaped curve of inheritance
flows in France in the twentieth century actually reflects the reality
everywhere in Europe (see Figure 11.11).
In Germany, in particular, available estimates—unfortunately based on a
limited number of years—suggest that inheritance flows collapsed even further
than in France following the shocks of 1914-1945, from about 16 percent
of national income in 1910 to just 1 percent in i960. Since then they have risen
sharply and steadily, with an acceleration in 1980-1990, until in 1000-2010
they attained a level of 10-11 percent of national income. This is lower than in
France (where the figure for 1010 was about 15 percent of national income),
but since Germany started from a lower point in 1950-1960, the rebound ot
inheritance flows has actually been stronger there. In addition, the current
difference between flows in France and Germany is entirely due to the difference
in the capital/income ratio ((3, presented in Part Two). It total private
wealth in Germany were to rise to the same level as in France, the inheritance
flows would also equalize (all other things being equal). It is also interesting
to note that the strong rebound of inheritance flows in Germany is largely due
425
THE STRUCTURE OF INEQUALITY
to a very sharp increase in gifts, just as in France. The annual volume of gifts
recorded by the German authorities represented the equivalent of 10-20
percent of the total amount of inheritances before 1970-1980. Thereafter it
rose gradually to about 60 percent in 2000-2010. Finally, the smaller inheritance
flow in Germany in 1910 was largely a result of more rapid demographic
growth north of the Rhine at that time (the u
m effect," as it were). By the
same token, because German demographic growth today is stagnant, it is possible
that inheritance flows there will exceed those in France in the decades to
come.59
Other European countries affected by demographic decline and a
falling birthrate, such as Italy and Spain, should obey a similar logic, although
we unfortunately have no reliable historical data on inheritance flows in these
two cases.
As for Britain, inheritance flows there at the turn of the twentieth century
were approximately the same as in France: 20-25 percent of national in-
come.60
The inheritance flow did not fall as far as in France or Germany after
the two world wars, and this seems consistent with the fact that the stock of
private wealth was less violently affected (the (3 effect) and that wealth accumulation
was not set back as far (p effect). The annual inheritance and gift
flow fell to about 8 percent of national income in 1950-1960 and to 6 percent
in 1970-1980. The rebound since the 1980s has been significant but not as
strong as in France or Germany: according to the available data, the inheritance
flow in Britain in 2000-2010 was just over 8 percent of national income.
In the abstract, several explanations are possible. The lower British inheritance
flow might be due to the fact that a larger share of private wealth is held
in pension funds and is therefore not transmissible to descendants. This can
only be a small part of the explanation, however, because pension funds account
for only 15-20 percent of the British private capital stock. Furthermore,
it is by no means certain that life-cycle wealth is supplanting transmissible
wealth: logically speaking, the two types of wealth should be added together,
so that a country that relies more on pension funds to finance its retirements
should be able to accumulate a larger total stock of private wealth and perhaps
to invest part of this in other countries.61
It is also possible that the lower inheritance flow in Britain is due to different
psychological attitudes toward savings and familial gifts and bequests.
Before reaching that conclusion, however, it is important to note that the difference
observed in 2000-2010 can be explained entirely by a lower level of
426
MERIT A N D INHERITANCE IN THE LONG RUN
gift giving in Britain, where gifts have remained stable at about 10 percent of
the total amount of inheritances since 1970-1980, whereas gift giving in
France and Germany increased to 60-80 percent of the total. Given the difficulty
of recording gifts and correcting for different national practices, the gap
seems somewhat suspect, and it cannot be ruled out that it is due, at least in
part, to an underestimation of gift giving in Britain. In the current state of the
data, it is unfortunately impossible to say with certainty whether the smaller
rebound of inheritance flows in Britain reflects an actual difference in behavior
(Britons with means consume more of their wealth and pass on less to
their children than their French and German counterparts) or a purely statistical
bias. (If we applied the same gift/inheritance ratio that we observe in
France and Germany, the British inheritance flow in 2000-2010 would be on
the order of 15 percent of national income, as in France.)
The available inheritance sources for the United States pose even more
difficult problems. The federal estate tax, created in 1916, has never applied to
more than a small minority of estates (generally less than 2 percent), and the
requirements for declaring gifts are also fairly limited, so that the statistical
data derived from this tax leave much to be desired. It is unfortunately impossible
to make up for this lack by relying on other sources. In particular, bequests
and gifts are notoriously underestimated in surveys conducted by national
statistical bureaus. This leaves major gaps in our knowledge, which all
too many studies based on such survevs forget. In France, for example, we
find that gifts and bequests declared in the surveys represent barely half the
flow observed in the fiscal data (which is only a lower bound on the actual
flow, since exempt assets such as life insurance contracts are omitted). Clearly,
the individuals surveyed tend to forget to declare what they actually received
and to present the history of their fortunes in the most favorable light (which
is in itself an interesting fact about how inheritance is seen in modern soci-
ety).62
In many countries, including the United States, it is unfortunately impossible
to compare the survey data with fiscal records. But there is no reason
to believe that the underestimation by survey participants is any smaller than
in France, especially since the public perception of inherited wealth is at least
as negative in the United States.
In any case, the unreliability of the US sources makes it very difficult to
study the historical evolution of inheritance flows in the United States with
any precision. This partly explains the intensity of the controversy that erupted
427
THE STRUCTURE OF INEQUALITY
in the 1980s over two diametrically opposed economic theories: Modigliani s
life-cvele theory, and with it the idea that inherited wealth accounts for only
10-30 percent of total US capital and the Kotlikoff-Summers thesis, according
to which inherited wealth accounts tor 70-80 percent of total capital. I
was a voting student when I discovered this work in the 1990s, and the controversy'
srunned me: how could such a dramatic disagreement exist among serious
economists? Note, first of all, that both sides in the dispute relied on
rather poor quality data from the late 1960s and early 1970s. If we reexamine
their estimates in light of the data available today, it seems that the truth lies
somewhere between the two positions but significantly closer to KotlikoffSummers
than Modigliani: inherited wealth probably accounted for at least
50-60 percent of total private capital in the United States in 1970-1980.63
More generallv, if one tries to estimate for the United States the evolution of
the share of inherited wealth over the course of the twentieth century, as we
did for France in Figure 11.7 (on the basis of much more complete data), it
seems that the U-shaped curve was less pronounced in the United States and
that the share of inherited wealth was somewhat smaller than in France at
both the turn of the twentieth century and the turn of the twenty-first (and
slightly larger in 1950-1970). The main reason for this is the higher rate of
demographic growth in the United States, which implies a smaller capital/
income ratio ((3 effect) and a less pronounced aging of wealth (m and p effects).
The difference should not be exaggerated, however: inheritance also
plays an important role in the United States. Above all, it once again bears
emphasizing that this difference between Europe and the United States has
little to do a priori with eternal cultural differences: it seems to be explained
mainly by differences in demographic structure and population growth. If
population growth in the United States someday decreases, as long-term forecasts
suggest it will, then inherited wealth will probably rebound as strongly
there as in Europe.
As for the poor and emerging countries, we unfortunately lack reliable
historical sources concerning inherited wealth and its evolution. It seems plausible
that if demographic and economic growth ultimately decrease, as they
are likely to do this century, then inherited wealth will acquire as much importance
in most countries as it has had in low-growth countries throughout
history. In countries that experience negative demographic growth, inherited
wealth could even take on hitherto unprecedented importance. It is impor-
428
MERIT A N D INHERITANCE IN THE LONG RUN
tant to point out, however, that this will take time. With the rate of growth
currently observed in emergent countries such as China, it seems clear that
inheritance flows are for the time being quite limited. For working-age Chinese,
who are currently experiencing income growth of 5-10 percent a year, wealth
in the vast majority of cases comes primarily from savings and not from grandparents,
whose income was many times smaller. The global rebound of inherited
wealth will no doubt be an important feature of the twenty-first century, but
for some decades to come it will affect mainly Europe and to a lesser degree
the United States.
429