Capital in the Twenty-First Century (71 page)

FIGURE 11.8.
   The annual inheritance flow as a fraction of household disposable income: France,
1820–2010

Expressed as a fraction of household disposable income (rather than national income),
the annual inheritance flow is about 20 percent in 2010, in other words, close to
its nineteenth-century level.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

In order to have a more concrete idea of what inheritance represents in different
people’s lives, and in particular to respond more precisely to the existential question
raised by Vautrin’s lecture (what sort of life can one hope to live on earned income
alone, compared to the life one can lead with inherited 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.
²⁴

FIGURE 11.9.
   The share of inheritance in the total resources (inheritance and work) of cohorts
born in 1790–2030

Inheritance made about 25 percent of the resources of nineteenth-century cohorts,
down to less than 10 percent for cohorts born in 1910–1920 (who should have inherited
in 1950–1960).

Sources and series: see
piketty.pse.ens.fr/capital21c
.

Consider first the evolution of the share of inheritance in the total resources available
to generations born in France in the period 1790–2030 (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,
²⁵
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 of inheritance,
because heirs (and people with large fortunes more generally) are 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.
²⁷

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 1960, 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 differently different
cohorts born in the twentieth century experienced the relative 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.

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
Vautrin’s somber lesson was true in different periods.
Figure 11.10
shows that the cohorts born in the late eighteenth century and throughout the nineteenth
century, including Eugène 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 “lower class,” which generally
claimed about half of 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 25–30 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
25–30 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 Vautrin’s 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 1910–1920, we find that
they faced different life choices. The top 1 percent of inheritances 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.

FIGURE 11.10.
   The dilemma of Rastignac for cohorts born in 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.fr/capital21c
.

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 1960, 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 (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 Époque (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: 12–13 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.

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.