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Are The Rich Getting Richer? Trends in U.S. Wealth Concentration

Published online by Cambridge University Press:  11 May 2010

Stanley Lebergott
Stanley Lebergott
Affiliation:
Wesleyan University
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Abstract

When tested against U.S. evidence back to the nineteenth century a straight-forward model of wealth accumulation contradicts the belief that “the rich are getting richer.” If the wealth owned by the top 1 percent of American families in 1922 had earned only a modest 8 percent yearly until 1953 then they (or their heirs) would have owned 98 percent of personal wealth—instead of an actual share of 28 percent. The erosion of top wealth groups also appears for 1953–1969, and for 1892 and the years following. The reasons for such erosion, inherent in the structure of U.S. families and of U.S. institutions, are discussed.

Type
Papers Presented at the Thirty-Fifth Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 36 , Issue 1 , March 1976 , pp. 147 - 162
Copyright
Copyright © The Economic History Association 1976

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References

1 “The forces of capitalist society, if left unchecked, tend to make the rich richer and the poor poorer.” Nehru, “Credo,” New York Times (September 7, 1958). The “epigrammatic assertion that the rich are growing richer and the poor poorer Hellip; is a wandering phrase, without paternity or date. De Laveleye, the Belgian economist, attributes it to Gladstone; others credit it to Lasalle.” C. D. Wright, “Are the Rich Growing Richer and the Poor Poorer?” Atlantic Monthly (September 1897) p. 301.

2 Swierenga, Robert P., Pioneers and Profits (Ames, 1968), p. 103Google Scholar.

3 Ratner, W. Sidney, New Light on the History of Great American Fortunes (Fairfield, N.J., 1953), p. 42Google Scholar.

4 “Ordinary economic forces tend toward a progressive concentration” (in the ownership of productive capacity). “Wealth does breed; ‘To him who hath shall be given, and from him that hath not shall be taken away.’ If such a trend is not empirically prominent, it is because of various sorts of social interference, equally numerous ‘accidents’ and perhaps factors analogous to those which make any mass unstable.” Knight adds, in another paper: “all productive capacity—whether owned ‘property’ or personal qualities—is essentially ‘capital.’ … And those who already have more capacity are always in a better position to acquire still more, with the same effort and sacrifice.… The tendency goes beyond the individual life, from generation to generation, through the family and transmission of advantages. It is modified but hardly mitigated, and certainly not simplified, by the large element of ‘luck’ in human affairs.” (Knight, Frank, “Statics and Dynamics” in On the History and Method of Economics [Chicago, 1956], pp. 200, 271.Google Scholar)

5 Sherman, Howard, Radical Political Economy, Capitalism and Socialism from a Marxist-Humanist Perspective (New York, 1972), pp. 51–52Google Scholar.

6 To the connoisseur of ethnic attitudes “it is no accident” (in the Marxist phrase) that Marx misquoted the original phrase—which was, of course, “The Law and the Prophets.”

7 The phrases are from Edward Pessen, “The Equalitarian Myth and American Social Reality: Wealth, Mobility and Equality in the Era of the Common Man,” The American Historical Review (October 1971), p. 1027.

8 IRS, Statistics of income, Individuals, 1970, p. 14. Some 77% of the group have wages or salaries. And 38% have net profits from business (sole proprietorship, partnership, or farm). No recent data are available on the extent of overlapping sources. Were we to allow for (ES)r our conclusion would, of course, be even stronger.

9 “If you bought only $9,900 worth of General Motors stock in 1913 and … had gone into a coma … then, in 1953, you would have had about $7 million. And if you had … : merely put $10,000 into each of the total of 480 stocks listed in 1913 … and then gone into a coma until 1953, you would have come out worth $10 million. …. Once you have a million, advantages would accumulate—even for a man in a coma.” (The Power Elite [New York, 1956], p. 111.) Mills did not apply his theory to the men who bought stock in Reo or Packard rather than General Motors.

10 Something like 10% would appear to be warranted for 1919, 1929, and 1939 total capital stock. (Cf. Kuznets, Simon, Capital in the American Economy [Princeton, 1961]Google Scholar, Table 3, and his National Income and Its Composition [New York, 1941], Vol. 1, Table 22.) Eight percent is approximately the rate Becker estimated for return on business capital, 1948–1954, and that Denison estimates for all private domestic assets in 1957. (Cf. Denison, Edward, The Sources of Economic Growth in the United States and the Alternatives Before Us [New York, 1962], p. 34Google Scholar.)

11 John Brittain, “The real rate of interest on lifetime contributions …,” in 90th Congress 1st Session. (Joint Economic Committee, Old Age Income Assurances, Part III [1967], p. 120.) Brittain used the Moody and Cowles components as his portfolio.

12 Lampman, Robert, The Share of Top Wealth-Holders in National Wealth, 1922–56 (Millwood, N.J., 1962), Table 106Google Scholar.

13 As Representative Dan V. Stephens (Nebraska) remarked in 1913, “The Nation must protect itself from the menace of abnormal fortunes that corrupt the morals of the people and that will ultimately absorb all the wealth of the Nation…. Capital at 6 percent will increase three hundred and forty and one-half times in 100 years … the great fortunes, if unchecked, will have absorbed all the property in the world in another century at their usual rate of earnings … a rate as high as even 6 percent means bankruptcy to the people, and no one will dispute that these great fortunes have increased at a greater rate than 6 percent annually.” Comments on the income tax bill, in Congressional Record, Appendix, 63rd Congress 1st Session, pp. 78–79.

14 Lampman, The Share of Top Wealth-Holders, p. 227.

15 Smith, James D. and Franklin, Stephen D., The Concentration of Personal Wealth, 1922–1969 (Unpublished paper, December 1973)Google Scholar, Table 1 data. We use net worth data, as being most precise for this purpose; assets data would also reveal a discrepancy. Smith's 1953 total differs from Lampman's, but is consistent with his 1969 figure.

16 Smith's data permit us to estimate 1953–1969 changes in net worth. Assuming an 8% rate of return on his 1953 net worth total for the top 1% leads to a 1969 net worth total 27% greater than the one he estimates.

17 The New York Tribune listing, discussed below.

18 This average is based on data for estates probated 1912–1923 in selected counties. (Cf. Federal Trade Commission, National Wealth and Income [1926], p. 58.) The Commission provides data for estates probated 1918–1923, when the prosperity of World War I would have created a proportionately greater number of small estates, which would dominate the average for millionaires as a group. G. K. Holmes, “The Concentration of Wealth,” Political Science Quarterly (December 1893), p. 593, also assumes $3 million for this group of millionaires.

19 G. K. Holmes, Ibid., estimates $25,000 per family for the top 1,000,000 families, exclusive of millionaires. For the top 122,000 families—i.e., the top one % minus millionaires—a considerably higher average should be assumed. We adopt $50,000.

20 Sorokin, P. A., “American Millionaires and Mulimillionaires,” The Journal of Social Forces (May 1925), p. 629, reports 97%Google Scholar.

21 A 1964 study of those with incomes $10,000+ reported that only about 6% of those who had received an inheritance are restricted in its use by the terms of the inheritance. Cf. Barlow, R., Brazer, H. E., and Morgan, J. N., Economic Behavior of the Affluent (Washington, 1966), p. 231Google Scholar.

22 Cf. Alan Blinder, “A Model of Inherited Wealth,” Quarterly Journal of Economics (November 1973). Blinder assumes no inheritances go to wives or collateral relatives, no gifts to charity, and the estate divided between one son and one daughter (Ibia., pp. 610, 614). Moreover, his model implicitly permits a maximum of about 30% “equalization” in one generation no matter how estates are fissioned between the heirs, and no matter how many millionaire heirs marry paupers. (Cf. his equation (10) and Table I.)

23 IRS, Statistics of Income for 1946, Part I, p. 376, and 1947, p. 396.

24 Sorokin, “American Millionaires,” p. 631, reports 3.84 children (18 and older) per deceased millionaire, for a sample of 222. His figure for living millionaires is 2.56—but here the fact that the data do not relate to completed fertility probably more than offsets any trend toward lower birth rates. Our sample of NYC millionaires, from Weeks, averages 3.0.

25 IRS, Statistics of Income, 1969, Personal Wealth, p. 19.

26 IRS, Statistics of Income, 1969, Personal Wealth, Tables 27, 28. For 1962 the similar IRS report indicates 8% for men and 18% for women.

27 Comparable data for the living estate tax population are not available; however, Statistics of Income for 1953, Part II, pp. 76–78, gives data by marital status and estate size for decedents. These data indicate a greater proportion for millionaires than for all estates.

28 Data from appropriate sections of Dictionary of American Biography, The National Cyclopedia of Biography.

29 We allude, of course, to the great lady who simpered her way through various Marx brothers films, her dignity far surpassing her acuity.

30 The Lex Voconia is briefly described in The Institutes of Gains, ed. de Zulueta, Francis (Oxford, 1946), Part I, pp. 145–147Google Scholar.

31 Before 1789 common law appears to have limited wives and widows in their financial dispositions more severely than later statute law or practice. Cf. Morris, R. B., Studies in the History of American Law (New York, 1959), pp. 135ffGoogle Scholar.

32 The U.S. Statistical Abstract for 1971, p. 53, indicates that the expectation of life at age 60—close to the median age of top wealth holders—was about four years more for white females than for males in 1959–1961.

IRS, Statistics of Income for 1947, Part I, Table 9, and Statistics of Income, 1953, Part I, Table 5, and IRS, Statistics of Income, 1969, Personal Wealth, Tables 24, 25, provide data by marital status of decedents for whom estate tax returns were filed. We take the median age of death for married decedents to be that for husbands, and the median age of widow decedents as that at which their wives eventually died. For 1969 we use data for married males and for widows. For 1947 these ages were 66.6 and 78.8; for 1953, they were 68.8 and 79.9; for 1969, they were 69.3 and 81.0.

33 IRS, Statistics of Income, 1965, Fiduciary, Gift and Estate Tax Returns, Table 9, reports the number of returns with distributable estate given to wives. Assuming that within each of the 22 estate-size categories the average size of distributable estate was the same for men with wives as all persons filing, we used the percentage distribution for the numbers of returns with (monetary) “distributions to wives” to compute aggregates for estates of married men. These are then related to the Sol total for “distribution to wives” to give the data shown in Table 2, panel B.

34 IRS, Statistics of Income for 1947, Part I, Table 10. We summarize data for married, widowed or divorced or separated decedents. Data for estates of widows give much the same ratio, but are not relevant since they relate to estates which, in most instances, have already been reduced in size by being shared out among children. Unfortunately, data for any year later than 1948 are not available. Given that most top wealth holders were well beyond draft age, however, the happenstance of a postwar year should not affect the data on that account.

35 Table 2 indicates that about 20% of the economic estate of all wealthy decedents went for legal and funeral expenses, taxes, and charity. Applying the same ratio to the $8.5 billion economic estate of married wealthy decedents (using data in the same table) indicates that not over $1.7 billion went to children and other relatives.

36 Ogden Nash, “The Song of Songs.”

37 Georgescu-Rogen, Nicholas, Analytical Economics (Cambridge, 1966), p. 102CrossRefGoogle Scholar.

38 The impulse to exogamy is, of course, hardly restricted to the U.S. For example, an able study has shown a long-term rise in the proportion of the Swedish'. nobility marrying commoners-from 2% in 1690–1699, to 44% by 1860–1869. Cf. Carlsson, Sten, “The Dissolution of the Swedish Estates, 1700–1865,” Journal of European Economic History, I (Winter 1972), 600Google Scholar.

39 Marital details from New York Tribune, in Ratner, Great American Fortunes.

40 Knight, On the History and Method of Economics, p. 200.

41 Robert LaFollette, in Congressional Record (August 27, 1913), p. 3821. Senator Williams, at the same time, expressed his “fear a sort of habit … has grown up among a few of the great rich families of America of not permitting their fortunes to be divided equally between their children, but leaving them to the best moneygrabber in the family.”

42 New York Times (October 9, 1967). Manville left no children.

43 Sullivan, Mark, Our Times (New York, 1930), III, pp. 44–45Google Scholar.

44 National Cyclopedia of Biography, Dictionary of American Biography.

45 Cicero, The Speeches, Pro Balbo, VIII: 20 (Loeb ed., p. 648). Cf. also Scullard, H. H., A History of the Roman World from 753 to 146, B.C. (London, 1951), pp. 358, 183Google Scholar.

46 Buckland, W. W., A Textbook of Roman Law from Augustus to Justinian (New York, 1950), p. 342Google Scholar.

47 In a study of Wisconsin inheritance tax, Wallace Edwards found “that estates valued at $100,000 and over had an average of more than nine beneficiaries per estate. He also found that the movement of property is ‘what might be described as downward by somewhat less than one generation,’ in part because of such fission. R. J. Lampman, The Share of Top Wealth-Holders, p. 238 n.

48 It is an interesting speculation, for example, what proportion of Ford Foundation expenditures would nave been acceptable to Henry Ford. The effective charitable choice, however, was a contribution to a charity or to the Treasury of the United States.

49 IRS, U.S. Statistics of Income, 1965, Fiduciary, Gift and Estate Tax Returns, p. 81. (There had, of course, been earlier, transient, laws taxing legacies.) U.S. Statistics of Income … for 1920 (1922), p. 41. The first IRS tabulation included all returns filed for 1916 through 1922.

50 Elliott, Jonathan, Debates on the Adoption of the Federal Convention (1845); V:136Google Scholar.