Capital in the Twenty-First Century

As discussed, extreme inequalities in income from labour that have arisen since the 1980s are hard to justify meritocratically. What about inequalities of wealth? As Piketty notes, “the concentration of wealth remains high” (476). It’s not as high as it was in the 1800s, but it is growing. As he says, “The top thousandth seems to own nearly twenty percent of total global wealth today, the top centile about fifty percent, and the top decile somewhere between eighty and ninety percent” (554). Meanwhile, the bottom fifty percent of the world still owns nothing. At the same time, there is now a middle class that own between twenty-five and thirty percent of wealth which did not exist in the 19th century. Perhaps, combined with the emergence of self-made millionaires like Oprah Winfrey and Steve Jobs, wealth itself has become more meritocratic. Perhaps, despite the inequalities, it is no longer quite the closed shop that it was for Rastignac in Pere Goriot.

But to assess whether this is true and to judge the meritocratic status of contemporary wealth, it is necessary first to stress that wealth inequality is not, in principle, an automatically bad thing. If one chooses to save or invest a portion of one’s income, one generates wealth. Further, if this capital yields a return, then this can be seen as compensation for the willingness to delay consumption. The problem, some might argue, comes when that saved wealth turns into inheritance. For, contra rational choice economic models, people do not just save to ensure funds for retirement, or higher future consumption. They also save, as Piketty says, “to amass or perpetuate a family fortune” (504), or to have the prestige of accumulated wealth.

In these latter cases, some of the next generation arbitrarily gain a sum of unearned, unsaved wealth, something which starts to give them an income and amasses further wealth. Given the capacity of larger fortunes to grow quicker, this can, over a few generations, generate large and self-perpetuating wealth disparities. And these will have nothing to do with savings choices or individual merit. Indeed, this is what is currently being seen in the West. The shocks of world war, decolonization, and post-war government nationalisations, destroyed much of the inherited wealth existing in Europe and the US. But this has started to recover. For example, in France, from inheritance constituting just five percent of national income between 1910 and 1950, this figure leapt to fifteen percent in 2010. Indeed, it may well reach the historic highs of twenty five percent, achieved at the start of the 20th century, in the years and decades to come.

All of which may suggest a troubling, though intuitively obvious, point about wealth. Namely, the longer it is allowed to accumulate, in the absence of extrinsic shocks, on a societal level both the less meritocratic and more unequally distributed it becomes. The arbitrariness of the past, of one’s parents’ and grandparents’ wealth, comes to determine one’s chances in the present. Now, of course, it can be argued that inheritance in middle-class families does follow the extremes of large, dynastic fortunes. Gifts of a few thousand euros or inheritances of tens or hundreds of thousands from parental estate later in life this may help make life more comfortable or secure, but they won’t replace earned income.

Yet, issues still arise. First, as Piketty points out, despite its relatively modest size, such inheritances and gifts “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” (481). In other words, any inheritance not only seriously affects standards of living, it also helps to re-enforce and perpetuate existing class distinctions. This is especially true given the fluid relation between wealth and income. Inherited wealth may allow one to send one’s children to college, or to private schools, thus allowing them a higher income. Conversely, those whose parents have no wealth are more likely to be stuck in an intergenerational cycle of low income and zero wealth.

In summary, then, the emergence of a middle class has doubtless spread the benefits of wealth more widely. It has also provided a broader social base, and support, for the ideals of property ownership and capital accumulation. Yet it has not fundamentally obviated the essentially unmeritocratic character of wealth or inheritance. These remain, albeit in more complex and stratified forms than in the 19th century, and with more intertwined relations with high labour incomes. Nor will the middle class provide a bulwark against ever deepening and unmeritocratic inequality in the coming century. That is, it will not provide a defense against the development of what Piketty calls “the worst of two worlds,” a world of “both very large inequality of inherited wealth and very high wage inequality justified in terms of merit and productivity” (528).