In the US currently, the wealthiest 1% control 38% of wealth. A record high. What did the wealth distribution look like in other periods?

by MyWifeIsCute

I’ve been listening to a few lectures on the industrial revolution in Britain and it just sounded really awful and unequal for the workers and it made me curious as to how it compares to current day western society? I know that these things will have changed a lot from region to region and year to year so to be more specific I’d like to find out more about the wealth inequalities of:

  • Early industrial revolution in England

  • Victorian era England

  • Renaissance Italy and/or France

Shashank1000

Modified from a previous answer of mine,

There have been 4 studies on wealth inequality that I have read. There is the Survey of Consumer Finance Report by the Federal Reserve, a paper by Sylvio Allegretto from the Economic Policy Institute and two papers last by Saez (one with Zuckman and the other with Kopczuck) but I will be using the two papers by Saez for this answer. To estimate wealth inequality, Emmanuel Saez and Wojciech Kopczuck have considered four categories: tangible assets (real estate, consumer durables), fixed assets (bonds, stocks), corporate stocks, income from unincorporated business and farms and subtracted liabilities (mortgages and other forms of Consumer debt) to obtain the net wealth of people at different quintiles. They have also included pension plans like 401-K, IRA and excluded benefits from Social insurance schemes like Social Security.

It is important to start with the total wealth that has been produced in the country. Between 1916 and the start of the World War 2, there was no increase in net wealth because a large portion of it was destroyed during the Great Depression. There was a steady and impressive increase during the portion between 1940 and mid-1960's and a marked slowdown during the period from 1970's till 1990's. There has been a similar trend noticed for growth in productivity (i.e the total amount of goods and services produced per person in a year) and income. Similarly, the composition in wealth held by the top 1 percent as changed. During the period between 1916 and 1930, around 70 percent of wealth was held in stocks as financial markets and the real economy boomed during the 1920's when new Industries were created due to improvement in technique of labor, increase in stocks of machinery, commercialization of technologies and paradigm shifting management practices like Fordism and Taylorism. A comparatively underdeveloped financial market(from today's perspective!) meant that there was little scope in diversifying holdings and the stock markets boomed anyway.

In 1929, the top 1 percent held 40 percent of the total wealth which fell to 30 percent between 1929 and 1932 because of the stock market crash and a catastrophic economic situation in general. Their share continued to decline during the New Deal Period and World War 2. By 1949, it had fallen to 22.5 percent. The corresponding share of 0.1 percent and 0.01 percent was down from 20 percent to 10 percent and 10 percent to 4 percent respectively. The period between 1950 and 1965 saw an increase in wealth inequality with the share of the top 1 percent going back to 25 percent. It fell to a new all-time low of 19 percent in 1970's and saw a significant bump in 1980's to 22 percent but it remained constant hereafter till 2000. The authors trace it to the creation and expansion of defined benefit pension plans, mutual funds and financial innovation, and a greater number of households participating in the stock market boom keeping the share of the top 1 percent in check. Indeed, today the share of the stock Investments in the portfolio of the top 1 percent is at 38 percent which is lower than the general population.There was a great boom for Corporate America following the War but relatively high taxes (even excluding deductions, breaks, and loopholes) kept the return on corporate equity low.

Similarly, the Roosevelt administration hit the top wealth holders with estate taxes and gift taxes which were not so easy to evade. There was an increase in income taxes as well but as I have pointed out in another answer, there was a relatively little impact in the period between 1932 and 1940, as the share of the top 10 percent remained at 40 percent before falling dramatically and remaining there till 1980's. The result might appear somewhat surprising given the general trend of rising inequality. But as Saez points out, it was income inequality that increased dramatically and not wealth inequality. This is not contradictory as it sounds. The share of labor income, as opposed to Capital income, has declined but much of that can be traced to increase in the value of housing because of the Housing Bubble. The economist Peter Orszag noted, it was labor income and not Capital income that increased inequality because of rising compensation for executives, people in the financial sector and to a lesser extent high tech sector. Piketty, Saez et al have estimated that it could take one or two decades for a person in top 0.1 percent income bracket to enter into 0.1 percent of wealth bracket even with a good investment strategy and high saving rate.

The last paper however revised estimates of the earlier paper by Saez and Kopczuk. Saez and Zuckman noted the first paper assumed a constant mortality differential between the wealthy and the rest of the population. However, that was not the case and once you account for that the authors note that wealth inequality increased substantially in mid to late 1980's and thereafter. The share of the top 10 percent peaked at 84 percent in 1920's before falling to a low of 65 percent in 1980's (before the Tax Reform of 1986) and has increased to 77 percent today. However, much of the increase in the share of the top 10 percent is due to increase in the share of the top 1 percent. The authors trace it to the fact that returns on Corporate equities and fixed income claims are higher as compared to pensions and housing wealth and decline in saving rate by middle-income families owing to low-income growth and rising costs for education and healthcare. Corporate equities owned by the top 0.01 percent account for 4.5 percent of wealth today as opposed to 1.2 percent in 1980's. The corresponding share for fixed income increased from 1.0 percent to 5.4 percent. The saving rate for the top 1 percent is 20 percent, for the next 9 percent, it is 10 percent and 3 percent for the bottom 90 percent. Similarly, the rise of housing prices has benefited the top 10 percent more than the others as the value of their homes tends to be larger and they own their houses without any mortgage at a greater rate. Meanwhile, the increase in debt (credit cards, mortgages, student loans etc) has cut into the net worth of the bottom 90 percent.

Year Federal Reserve Economic Policy Institute Saez and Kopczuck
1962 31.6 33.4 24.4
1983 31.5 33.8 21.1
1989 30.4 37.4 22.0
1992 30.2 NA 21.2
1995 34.6 NA 21.5
1998 33.9 38.1 21.7
2001 32.7 33.4 21.8
2004 33.4 34.3 NA
2007 33.8 34.6 NA

(This chart was prepared by Alan Reynolds of Cato Institute).

Reference:

Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns by Wojciech Kopczuk and Emmanuel Saez; Columbia University.

Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data by Emmanuel Saez and Gabriel Zuckman; NBER

Jordan42

Eighteenth-century British North America isn't one of the three places you identified, but I suspect this will be interesting to you and others.

To understand wealth in eighteenth-century America, historians often use tax lists. Their study of them hasn't been comprehensive, but has in many cases focused on large port cities (which aren't necessarily representative of the rest of the continent). These tax lists are a bit quirky. They weren't produced every year, or even every decade. Only a few have survived. They don't necessarily account for all of an individual's wealth, because some folks were very good at hiding wealth from tax assessors. Moreover, they tend to only count heads of household or individuals with property (usually white men, sometimes widows, never enslaved people).

With those limitations in mind, what historians have found is that if you divide these tax lists into brackets, those at the top did own an extremely high proportion of the wealth, particularly in the late eighteenth century. I haven't found any analysis that breaks this down into the "top 1%," unfortunately, but here is how historian Gary Nash breaks down several tax lists from colonial British North America:

1693 Philadelphia tax list:

  • 0-30% bracket: 2.2% of wealth

  • 31-60% bracket: 15.2% of wealth

  • 61-90% bracket: 36.6% of wealth

  • 91-100% bracket: 46.0% of wealth (13.2% in 91-95% bracket, 32.8% in 96-100% bracket)

1730 New York City tax list:

  • 0-30% bracket: 6.2% of wealth

  • 31-60% bracket: 13.9% of wealth

  • 61-90% bracket: 36.5% of wealth

  • 91-100% bracket: 43.7% of wealth (14.2% in 91-95% bracket, 25.4% in 96-100% bracket)

1767 Philadelphia tax list:

  • 0-30% bracket: 1.8% of wealth

  • 31-60% bracket: 5.5% of wealth

  • 61-90% bracket: 27.0% of wealth

  • 91-100% bracket: 65.7% of wealth (16.2% in 91-95% bracket, 49.5% in 96-100% bracket)

1771 Boston tax list:

  • 0-30% bracket: 0.1% of wealth

  • 31-60% bracket: 9.1% of wealth

  • 61-90% bracket: 27.4% of wealth

  • 91-100% bracket: 63.4% of wealth (14.7% in 91-95% bracket, 48.7% in 96-100% bracket)

1774 Philadelphia tax list:

  • 0-30% bracket: 1.1% of wealth

  • 31-60% bracket: 4% of wealth

  • 61-90% bracket: 22.6% of wealth

  • 91-100% bracket: 72.3% of wealth (16.8% in 91-95% bracket, 55.5% in 96-100% bracket)

While there are definitely limits to what this tells us, as I noted above, these numbers are a pretty powerful indication that there was, at least, a high concentration of wealth at the top end of urban society in eighteenth-century British North America—and that this concentration probably rose over the course of the eighteenth century. If you look at the top 10% bracket in Philadelphia, this rung of society went from owning 46% of wealth in 1693 to owning 72.3% in 1774. Compare that top 10% bracket to today, where (in 2013) the top 10% of families owned 76% of wealth. That's not so far off.

The 1774 Philadelphia tax list is particularly interesting to me, because it came just two years before the Declaration of Independence was signed in the same city. The enormous wealth stratification at the time, and the fact that many of the delegates who signed onto the notion that "All men are created equal" likely belonged to the top 10% of society, really sets that document into a different context.

So what does this tell us? For me, it's an indication that industrialization cannot be regarded as the sole cause of wealth concentration. Having studied these tax lists, I can tell you that the wealthiest individuals in these societies tended to be merchants (with some exceptions). Just as in today's case where people can make huge fortunes through Wall Street and big banks, commerce and speculation were some of the main ways that individuals accumulated enormous amounts of wealth in the eighteenth century.

Source: Gary Nash, "Urban Wealth and Poverty in Pre-Revolutionary America," Journal of Interdisciplinary History, 6 (Spring 1976), 545–584. The table that this data is taken from is on p. 549.

Pytheastic

If I could ask a further question: Is there any historical data available for the levels of inequality just prior to the French and Russian revolutions?

mckrayjones

Add on: what's the difference between the number OP cited, and the one from a Credit-Suisse report of over 50%?

https://www.credit-suisse.com/corporate/en/articles/news-and-expertise/global-wealth-report-2017-201711.html

Moses_The_Wise

Are you certain that this is a record high? I thought the days of Rockefeller were worse

umwhatshisname

Well let's balance this out then and can a tax historian tell me what % of the tax intake has been paid by the people at the top?