These findings cast doubt on claims that a low-tax, low-regulation capitalism will generate extreme capital accumulation, & that persistent wealth equalization requires large shocks to capital coming from wars or progressive taxation

Wealth and History: An Update. Daniel Waldenström. CEPR DP16631, October 2021. cepr.org/active/publications/discussion_papers/dp.php?dpno=16631

Abstract: This paper analyzes new evidence on long-run trends in aggregate wealth accumulation and wealth inequality in Western countries. The new findings suggest that wealth-income ratios were lower before World War I than previously claimed, that wealth concentration fell over the past century and has remained low in Europe but increased in the United States, that wealth has changed from being dominated by elite-owned fortunes to consist mainly of popular wealth, and that capital shares in national income have been relatively stable over time, especially in the postwar era. These findings cast doubt on claims that a low-tax, low-regulation capitalism will generate extreme capital accumulation, and that persistent wealth equalization requires large shocks to capital coming from wars or progressive taxation. Instead, institutions that promote household wealth accumulation from below appear to be key for understanding the long-run evolution of wealth in Western societies.

Keyword(s): capital share, economic history, Wealth Inequality, Wealth-income ratios

JEL(s): D30, E21, N30

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Popular version: Wealth and history: A reappraisal Daniel Waldenström. November 17 2021. https://voxeu.org/article/wealth-and-history-reappraisal#.YZc-lJKvR6E.twitter

Revised historical wealth-income ratios

Figure 1 shows aggregate private wealth-income ratios in six countries for which consistent, long-run evidence is available: France, Germany, Spain, Sweden, the UK, and the US. The series of Piketty and Zucman show wealth-income ratios being historically high in 19th century Europe, around 600–800% of national income, and dramatic drops during the world wars after which they stayed low until the 1980s when they increased substantially.

The revised and new country series for Europe produces a different picture, especially for the pre-WWI period. The new German series has a wealth-income ratio of 500% instead of 600%, and the new UK series shows 450% instead of 700%. For newly added Spain and Sweden, pre-WWI wealth-income ratios are around 450–500% of national income (the series of France and the US have not been re-examined). The main reasons that the revised German and UK series differ from those of Piketty and Zucman is the use of new sources and adjusted computational assumptions (see Waldenström 2021 for further discussion). Looking at the 20th century, the new series present a less volatile trend, with some variation around the world wars but without any lasting trend breaks (except for Germany). The post-1990 increases are observed in both older and newer series.