Capital in the Twenty-First Century (73 page)

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 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 2,000 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
25,000 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 Young’s account of his travels.
⁴⁴

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, if 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 bottom.
⁴⁵

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 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—by 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
départements
they live in.”
⁴⁶
In 1881, Paul Leroy-Beaulieu 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 20,000 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 any size.”
⁴⁷

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, Michèle Lamont conducted several hundred in-depth interviews with
representatives of the “upper middle class” in the United States and France, not only
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 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).

The time has come to return to today’s world, and more precisely to France in the
2010s. 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 Père Goriot and César 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.

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 TV 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 father’s 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 of 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, 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 mobility.
⁵³
Nevertheless, the transmission of human capital is always more complicated than the
transmission of 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 for 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 of a cohort inherited amounts greater than this. This proportion fell to
barely more than 2 percent for cohorts born in 1910–1920 and 4–5 percent for cohorts
born in 1930–1950. According to my estimates, the proportion has already risen to
about 12 percent for cohorts born in 1970–1980 and may reach or exceed 15 percent
for cohorts born in 2010–2020. In other words, nearly one-sixth of each cohort will
receive an inheritance larger than the amount the bottom half 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
Of 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 of 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 of the population rather than pitting a small elite against
the rest of society.