Read Capital in the Twenty-First Century Online
Authors: Thomas Piketty
Capital in the Twenty-First Century (106 page)
21
. See Frederick Brown, “Labour and Wages,”
Economic History Review
9, no. 2 (May 1939): 215–17.
22
. See J.M. Keynes, “Relative Movement of Wages and Output,”
Economic Journal
49 (1939): 48. It is interesting to note that in those days the proponents of a stable
capital-labor split were still unsure about the supposedly stable level of this split.
In this instance Keynes insisted on the fact that the share of income going to “manual
labor” (a category difficult to define over the long run) seemed stable at 40 percent
of national income between 1920 and 1930.
23
. See the online technical appendix for a complete bibliography.
24
. See the online technical appendix.
25
. This might take the form of an increase in the exponent 1
−
α
in the Cobb-Douglas production function (and a corresponding decrease in
α
) or similar modifications to the more general production functions in which elasticities
of substitution are greater or smaller than one. See the online technical appendix.
26
. See the online technical appendix.
27
. See Jean Bouvier, François Furet, and M. Gilet,
Le mouvement du profit en France au 19e siècle: Matériaux et études
(Paris: Mouton, 1965).
28
. See François Simiand,
Le salaire, l’évolution sociale et la monnaie
(Paris: Alcan,1932); Ernest Labrousse,
Esquisse du mouvement des prix et des revenus en France au 18e siècle
(Paris: Librairie Dalloz, 1933). The historical series assembled by Jeffrey Williamson
and his colleagues on the long-term evolution of land rents and wages also suggest
an increase in the share of national income going to land rent in the eighteenth and
early nineteenth centuries. See the online technical appendix.
29
. See A. Chabert,
Essai sur les mouvements des prix et des revenus en France de 1798 à 1820,
2 vols. (Paris: Librairie de Médicis, 1945–49). See also Gilles Postel-Vinay, “A
la recherche de la révolution économique dans les campagnes (1789–1815),”
Revue économique
, 1989.
30
. A firm’s “value added” is defined as the difference between what it earns by selling
goods and services (called “sales revenue” in English) and what it pays other firms
for its purchases (called “intermediate consumption”). As the name indicates, this
sum measures the value the firm adds in the process of production. Wages are paid
out of value added, and what is left over is by definition the firm’s profit. The
study of the capital-labor split is too often limited to the wage-profit split, which
neglects rent.
31
. The notion of permanent and durable population growth was no clearer, and the truth
is that it remains as confused and frightening today as it ever was, which is why
the hypothesis of stabilization of the global population is generally accepted. See
Chapter 2
.
32
. The only case in which the return on capital does not tend toward zero is in a “robotized”
economy with an infinite elasticity of substitution between capital and labor, so
that production ultimately uses capital alone. See the online technical appendix.
33
. The most interesting tax data are presented in appendix 10 of book 1 of
Capital.
See the online technical appendix for an analysis of some of the calculations of
profit shares and rates of exploitation based on the account books presented by Marx.
In
Wages, Price, and Profit
(1865) Marx also used the accounts of a highly capitalistic factory in which profits
attained 50 percent of value added (as large a proportion as wages). Although he does
not say so explicitly, this seems to be the type of overall split he had in mind for
an industrial economy.
35
. Some recent theoretical models attempt to make this intuition explicit. See the
online technical appendix.
36
. To say nothing of the fact that some of the US economists (starting with Modigliani)
argued that capital had totally changed its nature (so that it now stemmed from accumulation
over the life cycle), while the British (starting with Kaldor) continued to see wealth
in terms of inheritance, which was significantly less reassuring. I return to this
crucial question in
Part Three
.
1
. Honoré de Balzac,
Le père Goriot
(Paris: Livre de Poche, 1983), 123–35.
2
. See Balzac,
Le père Goriot,
131. To measure income and wealth, Balzac usually used francs or livres tournois
(which became equivalent once the franc “germinal” was in place) as well as écus (an
écu was a silver coin worth 5 francs in the nineteenth century), and more rarely louis
d’or (a louis was a gold coin worth 20 francs, which was already worth 20 livres under
the Ancien Régime). Because inflation was nonexistent at the time, all these units
were so stable that readers could move easily from one to another. See
Chapter 2
. I discuss the amounts mentioned by Balzac in greater detail in
Chapter 11
.
3
. See Balzac,
Le père Goriot,
131.
4
. According to the press, the son of a former president of France, while studying
law in Paris, recently married the heiress of the Darty chain of appliance stores,
but he surely did not meet her at the Vauquer boardinghouse.
5
. I define deciles in terms of the adult population (minors generally earn no income)
and, insofar as possible, at the individual level. The estimates in
Tables 7.1
–
3
are based on this definition. For some countries, such as France and the United States,
the historical data on income are available only at the household level (so that the
incomes of both partners in a couple are added). This slightly modifies the shares
of the various deciles but has little effect on the long-term evolutions that are
of interest here. For wages, the historical data are generally available at the individual
level. See the online technical appendix.
6
. See the online technical appendix and Supplemental Table S7.1, available online.
7
. The median is the level below which half the population lies. In practice, the median
is always lower than the mean, or average, because real-world distributions always
have long upper tails, which raises the mean but not the median. For incomes from
labor, the median is typically around 80 percent of the mean (e.g., if the average
wage is 2,000 euros a month, the median is around 1,600 euros). For wealth, the median
can be extremely low, often less than 50 percent of mean wealth, or even zero if the
poorer half of the population owns almost nothing.
8
. “What is the Third Estate? Everything. What has it been in the political order until
now? Nothing. What does it want? To become something.”
9
. As is customary, I have included replacement incomes (i.e., pensions and unemployment
insurance intended to replace lost income from labor and financed by wage deductions)
in primary income from labor. Had I not done this, inequality of adult income from
labor would be noticeably—and to some extent artificially—greater than indicated in
Tables 7.1
and
7.3
(given the large number of retirees and unemployed workers whose income from labor
is zero). In
Part Four
I will come back to the question of redistribution by way of pensions and unemployment
insurance, which for the time being I treat simply as “deferred wages.”
10
. These basic calculations are detailed in Supplemental Table S7.1, available online.
11
. The top decile in the United States most likely owns something closer to 75 percent
of all wealth.
12
. See the online technical appendix.
13
. It is difficult to say whether this criterion was met in the Soviet Union and other
countries of the former Communist bloc, because the data are not available. In any
case, the government owned most of the capital, a fact that considerably diminishes
the interest of the question.
14
. Note that inequality remains high even in the “ideal society” described in
Table 7.2
. (The richest 10 percent own more capital than the poorest 50 percent, even though
the latter group is 5 times larger; the average wealth of the richest 1 percent is
20 times greater than that of the poorest 50 percent.) There is nothing preventing
us from aiming at more ambitious goals.
15
. Or 400,000 euros on average per couple.
16
. See
Chapters 3
–
5
. The exact figures are available in the online technical appendix.
17
. On durable goods, see
Chapter 5
and the online technical appendix.
18
. Exactly 35/9
×
200,000 euros, or 777,778 euros. See Supplemental Table S7.2, available online.
19
. To get a clearer idea of what this means, we can continue the arithmetic exercise
described above. With an average wealth of 200,000 euros, “very high” inequality of
wealth as described in
Table 7.2
meant an average wealth of 20,000 euros for the poorest 50 percent, 25,000 euros
for the middle 40 percent, and 1.8 million euros for the richest 10 percent (with
890,000 for the 9 percent and 10 million for the top 1 percent). See the online technical
appendix and Supplemental Tables S7.1–3, available online.
20
. If we look only at financial and business capital, that is, at control of firms
and work-related tools, then the upper decile’s share is 70–80 percent or more. Firm
ownership remains a relatively abstract concept for the vast majority of the population.
21
. The increasing association of the two dimensions of inequality might, for example,
be a consequence of the increase in university attendance. I will come back to this
point later.
22
. These calculations slightly underestimate the true Gini coefficients, because they
are based on the hypothesis of a finite number of social groups (those indicated in
Tables 7.1
–
3
), whereas the underlying reality is a continuous wealth distribution. See the online
technical appendix and Supplemental Tables S7.4–6 for the detailed results obtained
with different numbers of social groups.
23
. Other ratios such as P90/P50, P50/P10, P75/P25, etc. are also used. (P50 indicates
the fiftieth percentile, that is, the median, while P25 and P75 refer to the twenty-fifth
and seventy-fifth percentiles, respectively.
24
. Similarly, the decision whether to measure inequalities at the individual or household
level can have a much larger—and especially more volatile—effect on interdecile ratios
of the P90/P10 type (owing in particular to the fact that in many cases women do not
work outside the home) than on the bottom half’s share of total income.
25
. See in particular Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Report
by the Commission on the Measurement of Economic Performance and Social Progress,
2009 (
www.stiglitz-sen-fitoussi.fr
)
26
. Social tables were similar, in spirit at least, to the famous
Tableau économique
that François Quesnay published in 1758, which provided the first synthetic picture
of the economy and of exchanges between social groups. One can also find much older
social tables from any number of countries from antiquity on. See the interesting
tables described by B. Milanovic, P. Lindert, and J. Williamson in “Measuring Ancient
Inequality,” NBER Working Paper 13550 (October 2007). See also B. Milanovic,
The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality
(New York: Basic Books, 2010). Unfortunately, the data in these early tables are
not always satisfactory from the standpoint of homogeneity and comparability. See
the online technical appendix.
2
. See
Table 7.1
and the online technical appendix.
3
. For complete series for the various centiles and up to the top ten-thousandth, as
well as a detailed analysis of the overall evolution, see Thomas Piketty,
Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998
(Paris: Grasset, 2001). Here I will confine myself to the broad outlines of the story,
taking account of more recent research. The updated series are also available online
in the WTID.
4
. The estimates shown in
Figures 8.1
and
8.2
are based on declarations of income and wages (the general income tax was instituted
in France in 1914, and the so-called cédulaire tax on wages was adopted in 1917, so
we have separate annual measures of high incomes and high wages starting from those
two dates) and on national accounts (which tell us about total national income and
total wages paid), using a method initially introduced by Kuznets and described briefly
in the introduction. The fiscal data begin only with income for 1915 (the first year
in which the new tax was levied), and I have completed the series for 1910–1914 using
estimates carried out before the war by the tax authorities and contemporary economists.
See the online technical appendix.
5
. In
Figure 8.3
(and subsequent figures of similar type) I have used the same notations as in
Les hauts revenus en France
and the WTID to designate the various “fractiles” of the income hierarchy: P90–95
includes everyone between the ninetieth and ninety-fifth percentile (the poorer half
of the richest 10 percent), P95–99 includes those between the ninety-fifth and ninety-ninth
percentile (the next higher 4 percent), P99–99.5 the next 0.5 percent (the poorer
half of the top 1 percent), P99.5–99.9 the next 0.4 percent, P99.9–99.99 the next
0.09 percent, and P99.99–100 the riches 0.01 percent (the top ten-thousandth).
