Still though, there's nothing like having your land possessed (or repo'd) by force of arms to spread the wealth around.
From Bloomberg:
If Capital Grows This Fast, How Come Fortunes Disappear?
Michel Barthelemy Olivier, "Thé a l'Anglaise" via Getty Images
The great aristocratic fortunes of the 21st century rival those of Louis XV. And beheading is rarer.Just how fast do fortunes grow? Andrew Carnegie started from essentially nothing to become the second-richest man in the United States by the time he’d reached the modern retirement age of 65. John Pierpont Morgan got to the top spot even faster, though he had the advantage of being born into wealth. In our own century, Bill Gates beat them both, becoming the richest man in the world before the age of 40.
If the descendants of Carnegie and Morgan and Gates (who has promised to give most of his wealth away) and Carlos Slim bank their fortunes and let it accumulate over the generations, just how much of the world will they own?
The question comes up now because of one book that has seized the attention of the world of economists and those who interpret them: Thomas Piketty’s “Capital in the 21st Century.” The grand summation of the worldwide problem of inequality has gotten a reception that the New York Times’s Jennifer Schuessler describes as “rapturous.”
Together with his frequent collaborator Emmanuel Saez, Piketty has probably done as much as anyone to map wealth and income in the world today. So the encomia are understandable, but as Bloomberg View’s Clive Crook argues, many folks have seem to overlook the leaps from Piketty’s careful scholarship to his big claims. Some of those claims, like Piketty’s accounting of how fast capital expands, seem downright strange.
Which brings us back to that question about how fast fortunes grow. The central claim of Piketty’s book is that the period of diminishing inequality that we saw in the 20th century is a historical aberration, and we are entering a period in which capitalism returns to its natural state of affairs: an increasing concentration of wealth in fewer and fewer hands. That contention is based on a formula that’s fast becoming famous: When the rate of return on capital is greater than the overall growth of the economy — when r>g, in Piketty’s formula — wealth becomes progressively more concentrated.
Piketty believes this was the the case through most of history. To illustrate this, he starts off the book with a long, erudite, and charming discussion of Honoré de Balzac and Jane Austen, demonstrating how for many years it was an accepted rule of thumb that owners of land or bonds would see their capital appreciate at a rate of about 5 percent a year.
For Piketty, that 5 percent rate of growth routinely cited by Balzac and Austen is quite close to the mark; his own calculations yield a number somewhere in the 4 or 5 percent range for the period in which they worked. And that, unfortunately, is a lot faster than most economies grow. Some of that capital, of course, gets spent to maintain the lifestyles of the rentiers. But the rest gets reinvested. If the holders of capital manage to reinvest, say, three-fifths of their money (a number that Piketty takes as reasonable assumption), they will see their fortunes grow 3 percent a year. That’s much faster than economies expanded through most of history. Actually, it’s faster than just about any economy expands except during short and anomalous bursts (like China today or Europe in the period 1950-1980) — and faster than U.S. and European economies are likely to expand in the next century.
The 5 percent returns on capital that Piketty sees as the historic norm have to come from somewhere. And if the income of the 1% (or really 0.1%) is not coming from economic growth, it has to be coming out of squeezing the share of the 99%. That’s a neat and powerful argument you don’t need to be a professional economist to understand. It hinges, though, on that rate of return on capital, a number that frankly seems hard to support.
On Balzac, let’s defer to Thomas Piketty. But it’s not totally clear that on this subject French novels are more authoritative than Russian plays, in which the position of the rentier is more precarious. Not every landowner could sit back and collect a 5 percent risk-free return on the value of an estate; if that was the case, Anton Chekhov’s Anya and Varya would still be sitting pretty in their cherry orchard....MORE
