Capital in the Twenty-First Century (111 page)

47
. See Piketty,
Les hauts revenus en France,
530.

48
. This argument sets aside the logic of need in favor of a logic of disproportion
and conspicuous consumption. Thorstein Veblen said much the same thing in
The Theory of the Leisure Class
(New York: Macmillan, 1899): the egalitarian US dream was already a distant memory.

49
. Michèle Lamont,
Money, Morals and Manners: The Culture of the French and the American Upper-Middle
Class
(Chicago: University of Chicago Press, 1992). The individuals Lamont interviewed
were no doubt closer to the ninetieth or ninety-fifth percentile of the income hierarchy
(or in some cases the ninety-eighth or ninety-ninth percentile) than to the sixtieth
or seventieth percentile. See also J. Naudet,
Entrer dans l’élite: Parcours de réussite en France, aux États-Unis et en Inde
(Paris: Presses Universitaires de France, 2012).

50
. In order to avoid painting too dark a picture,
Figures 11.9
–
11
show only the results for the central scenario. The results for the alternative scenario
are even more worrisome and are available online (Supplemental Figures S11.9–11).
The evolution of the tax system explains why the share of inheritance in total resources
may exceed its nineteenth-century level even if the inheritance flow as a proportion
of national income does not. Labor incomes are taxed today at a substantial level
(30 percent on average, excluding retirement and unemployment insurance contributions),
whereas the average effective tax rate on inheritances is less than 5 percent (even
though inheritance gives rise to the same rights as labor income in regard to access
to transfers in kind—education, health, security, etc.—which are financed by taxes).
The tax issues are examined in
Part Four
.

51
. The same is true of the landed estates worth 30,000 pounds of which Jane Austen
speaks in a world where the average per capita income was around 30 pounds a year.

52
. A fortune hidden in the Bahamas also figures in season 4 of
Desperate Housewives
(Carlos Solis has to get back his
$
10 million, which leads to endless complications with his wife), even though the show
is as saccharine as could be and not out to portray social inequalities in a worrisome
light, unless, of course, it is a matter of cunning ecological terrorists who threaten
the established order or mentally handicapped minorities engaged in a conspiracy.

53
. I will come back to this point in
Chapter 13
.

54
. If the alternative scenario is correct, this proportion may exceed 25 percent. See
Supplemental Figure S11.11, available online.

55
. Compared with the socioeconomic theories of Modigliani, Becker, and Parsons, Durkheim’s
theory, formulated in
De la division du travail social
(1893), is primarily a political theory of the end of inheritance. Its prediction
has proved no more accurate than those of the other theories, but it may be that the
wars of the twentieth century merely postponed the problem to the twenty-first.

56
. Mario Draghi,
Le Monde,
July 22, 2012.

57
. I do not mean to underestimate the importance of the taxi problem. But I would not
venture to suggest that this is the foremost problem faced by Europe or global capitalism
in the twenty-first century.

58
. In France, fewer than 1 percent of adult males had the right to vote under the Restoration
(90,000 voters out of 10 million); this proportion rose to 2 percent under the July
Monarchy. Property requirements for holding office were even stricter: fewer than
0.2 percent of adult males met them. Universal male suffrage, briefly introduced in
1793, became the norm after 1848. Less than 2 percent of the British population could
vote until 1831. Subsequent reforms in 1831 and especially 1867, 1884, and 1918 gradually
put an end to property qualifications.

59
. The German data presented here were collected by Christoph Schinke, “Inheritance
in Germany 1911 to 2009: A Mortality Multiplier Approach,” Master’s thesis, Paris
School of Economics, 2012. See the online technical appendix.

60
. The British flows seem to have been slightly smaller (20–21 percent rather than
23–24 percent). Note, however, that this is based on an estimate of the fiscal flow
and not the economic flow and is therefore likely to be slightly too low. The British
data were collected by Anthony Atkinson, “Wealth and Inheritance in Britain from 1896
to the Present,” London School of Economics, 2012.

61
. If this were to happen at the global level, the global return on capital might decrease,
and greater life-cycle wealth might in part supplant transmissible wealth (because
a lower return on capital discourages the second type of accumulation more than the
first, which is not certain). I will come back to these questions in
Chapter 12
.

62
. On this subject see the remarkable book by Anne Gotman,
Dilapidation et prodigalité
(Paris: Nathan, 1995), based on interviews with individuals who squandered large
fortunes.

63
. In particular, Modigliani quite simply failed to include capitalized incomes in
inherited wealth. Kotlikoff and Summers, for their part, did take these into account
without limit (even if the capitalized inheritance exceeded the wealth of the heir),
which is also incorrect. See the online technical appendix for a detailed analysis
of these questions.

1
. Recall that global GDP, using purchasing power parity, was roughly
$
85 trillion (70 million euros) in 2012–2013, and according to my estimates total private
wealth (real estate, business, and financial assets, net of liabilities) was around
four years of global GDP, or about
$
340 trillion (280 million euros). See
Chapters 1
and
6
and the online technical appendix.

2
. Inflation in this period averaged 2–2.5 percent a year (and was somewhat lower in
euros than in dollars; see
Chapter 1
). All the detailed series are available in the online technical appendix.

3
. If one calculates these averages with respect to the total world population (including
children as well as adults), which grew considerably less than the adult population
in the period 1987–2013 (1.3 percent a year compared with 1.9 percent), all the growth
rates increase, but the differences between them do not change. See
Chapter 1
and the online technical appendix.

4
. See the online technical appendix, Supplemental Table S12.1, available online.

5
. For example, if we assume that the rate of divergence observed between 1987 and
2013 at the level of the top twenty-millionth will continue to apply in the future
to the fractile consisting of the 1,400 billionaires included in the 2013 ranking
(roughly the top three-millionths), the share of this fractile will increase from
1.5 percent of total global wealth in 2013 to 7.2 percent in 2050 and 59.6 percent
in 2100.

6
. The national wealth rankings published by other magazines in the United States,
France, Britain, and Germany reach a little lower in the wealth hierarchy than
Forbes
’s global ranking, and the share of wealth covered in some cases is as high as 2 or
3 percent of the country’s total private wealth. See the online technical appendix.

7
. In the media, the wealth of billionaires is sometimes expressed as a proportion
of the annual flow of global output (or of the GDP of some country, which gives frightening
results). This makes more sense than to express these large fortunes as a proportion
of the global capital stock.

8
. These reports rely in particular on the innovative work of James B. Davies, Susanna
Sandström, Anthony Shorrocks, and Edward N. Wolff, “The Level and Distribution of
Global Household Wealth,”
Economic Journal
121, no. 551 (March 2011): 223–54, and on data of the type presented in
Chapter 10
. See the online technical appendix.

9
. Generally speaking, the sources used to estimate wealth distributions (separately
for each country) pertain to years some distance in the past, updated almost exclusively
with aggregate data taken from national accounts and similar sources. See the online
technical appendix.

10
. For example, the French media, accustomed for years to describing a massive flight
of large fortunes from France (without really trying to verify the information other
than by anecdote), have been astonished to learn every fall since 2010 from the Crédit
Suisse reports that France is apparently the European wealth leader: the country is
systematically ranked number 3 worldwide (behind the United States and Japan and well
ahead of Britain and Germany) in number of millionaire residents. In this case, the
information seems to be correct (as far as it is possible to judge from available
sources), even if the bank’s methods tend to exaggerate the difference between France
and Germany. See the online technical appendix.

11
. See the online technical appendix.

12
. In terms of the global income distribution, it seems that the sharp increase in
the share of the top centile (which is not happening in all countries) has not prevented
a decrease in the global Gini coefficient (although there are large uncertainties
in the measurement of inequality in certain countries, especially China). Since the
global wealth distribution is much more concentrated at the top of the distribution,
it is quite possible that the increase in the share of the top centiles matters more.
See the online technical appendix.

13
. The average fortune of the top ten-thousandth (450 adults out of 45 billion) is
about 50 million euros, or nearly 1,000 times the global average wealth per adult,
and their share of total global wealth is about 10 percent.

14
. Bill Gates was number one in the
Forbes
rankings from 1995 to 2007, before losing out to Warren Buffet in 2008–2009 and then
to Carlos Slim in 2010–2013.

15
. The first dyes invented in 1907 were named “L’Auréale,” after a hair style in vogue
at the time and reminiscent of an aureole. Their invention led to the creation in
1909 of the French Company for Harmless Hair Dyes, which eventually, after the creation
of many other brands (such as Monsavon in 1920) became L’Oréal in 1936. The similarity
to the career of César Birotteau, whom Balzac depicts as having made his fortune by
inventing “L’Eau Carminative” and “La Pâte des Sultanes” in the early nineteenth century,
is striking.

16
. With a capital of 10 billion euros, a mere 0.1 percent is enough to finance annual
consumption of 10 million euros. If the return on capital is 5 percent, 98 percent
of it can be saved. If the return is 10 percent, 99 percent can be saved. In any case,
consumption is insignificant.

17
. Honoré de Balzac,
Le père Goriot
(Paris: Livre de Poche, 1983)
,
105–9.

18
. In the case of
Challenges,
there seem to be too few fortunes in the 50–500 million euro range compared with
the number of wealth tax declarations in the corresponding brackets (especially since
a large part of business capital is not taxable under the wealth tax and therefore
does not appear in the statistics). This may be because
Challenges
does not look at diversified fortunes. Indeed, both sources underestimate the actual
number of large fortunes for opposite reasons: the
Challenges
source overvalues business capital, while the fiscal source underestimates it, and
both rely on vague and shifting definitions. Citizens are left perplexed and made
to feel that the subject of wealth is quite opaque. See the online technical appendix.

19
. Conceptually, moreover, it is no simple matter to define what a normal return on
inherited wealth might be. In
Chapter 11
, I applied the same average return on capital to all fortunes, which no doubt leads
to treating Liliane Bettencourt as a very partial heir (in view of the very high return
on her capital), more partial than Steve Forbes himself, who nevertheless classifies
her as a pure heiress, even though he counts himself among the “nurturers” of inherited
wealth. See the online technical appendix.

20
. For some particularly strong assertions about the relative merits of Slim and Gates,
unfortunately without any precise factual basis, see, for example, Daron Acemoglu
and James A. Robinson,
Why Nations Fail: The Origins of Power, Prosperity, and Poverty
(New York: Crown Publishing, 2012), 34–41. The authors’ harsh tone is all the more
surprising in that they do not really discuss the ideal distribution of wealth. The
book is built around a defense of the role of systems of property rights stemming
from the British, American, and French revolutions in the development process (and
little is said about more recent social institutions or systems of taxation).

21
. See, for example, the magazine
Capital,
no. 255, December 3, 2012: “180 million euros … a sum that pales in comparison to
the value of the real estate that the head of the firm, Lakshmi Mittal, recently acquired
in London for three times that amount. Indeed, the businessman recently purchased
the former embassy of the Philippines (for 70 million pounds, or 86 million euros),
supposedly for his daughter Vanisha. A short while earlier, his son Aditya was the
recipient of the generous gift of a home worth 117 million pounds (144 million euros).
The two properties are located on Kensington Palace Gardens, known as Billionaires’
Row, not far from the paternal palace. Lakshmi Mittal’s residence is said to be the
‘most expensive private home in the world’ and is equipped with a Turkish bath, a
jewel-encrusted swimming pool, marble from the same quarry as the Taj Mahal, and servants’
quarters.… All told, these three homes cost 542 million euros, or 3 times the 180
million invested in Florange.”