Wealth in the United States
Chapter 8: Wealth in the United States
All communities divide themselves into the few and the many. The first are the rich and the well-born; the other, the mass of the people.
—Alexander Hamilton, 1787
Wealth is collected assets—cash, commodities, stocks, bonds, businesses, and properties. In the United States a small percentage of people have enormous wealth and the rest of the population has far less wealth. Is this a natural and acceptable result of capitalism or an economic injustice that must be righted for the good of society? This is a debate that has raged since the nation was founded. Some people believe the accumulation of great wealth is possible for anyone in the United States as the reward for hard work, ingenuity, and wise decision making. Other people believe American political, business, and social systems are unfairly structured so as to limit wealth building by certain segments of the population.
The components of wealth can be divided into two broad categories: tangible assets and intangible assets. Tangible assets are things that have value in and of themselves. Examples include gold, land, houses, cars, boats, artwork, jewelry, and all other durable consumer goods with recognizable value in the marketplace. These are material possessions. Intangible assets are financial devices that have worth because they have perceived value. The most obvious examples are stocks and bonds. Other devices often counted as intangible assets include pensions (which are promises of future income), life insurance policies with cash value, and insurance policies on tangible assets, because they protect valuable resources.
The federal government does not measure the overall wealth of individual Americans or the population as a whole. It does compile data on related economic indicators that include wealth assets. These measures are called net worth and personal income.
Net worth is the sum of all assets minus the sum of all liabilities (such as debts). The Federal Reserve Board, the national bank of the United States, computes the aggregate net worth of households and nonprofit organizations (NPOs) on a quarterly and annual basis. These values are published in tabular form in “B.100 Balance Sheet of Households and Nonprofit Organizations” as part of the Federal Reserve Statistical Release Z.1: Flow of Funds Accounts of the United States (http://www.federalreserve.gov/releases/z1/). Table 8.1 shows the net worth data available as of March 2008 for the fourth quarter of 2007.
ASSETS. Overall, U.S. households and NPOs had assets of $72 trillion in the fourth quarter of 2007; of this, nearly $26.7 trillion was in tangible assets and $45.3 trillion was in financial assets. (See Table 8.1.) Between 1996 and 2007 tangible assets increased from roughly one-third of total assets to nearly 40%. (See Figure 8.1.) The Federal Reserve includes only three components in tangible assets: real estate, NPO equipment and software, and consumer durable goods. Real estate holdings of $22.5 trillion made up 84% of total tangible assets in the fourth quarter of 2007. (See Figure 8.2.) Consumer durable goods at $4 trillion accounted for 15% of the total, and NPO equipment and software at $240.8 billion encompassed only 1% of the total.
Financial assets were much more diverse. The largest components were pension fund reserves ($12.8 trillion, or 28% of the total), equity in noncorporate businesses ($7.9 trillion, or 17% of the total), and deposits and currency ($7.4 trillion, or 16% of the total). (See Figure 8.3.) Deposits include monies in checking and saving accounts and in money market funds.
|TABLE 8.1 Balance sheet of households and nonprofit organizations, fourth quarter 2007|
|SOURCE: Adapted from “Table B.100. Balance Sheet of Households and Nonprofit Organizations,” in Federal Reserve Statistical Release Z.1: Flow of Funds Accounts of the United States, Flow and Outstandings, Fourth Quarter 2007, The Federal Reserve, March 6, 2008, http://www.federalreserve.gov/releases/z1/20080306/z1.pdf (accessed May 23, 2008)|
|[Billions of dollars; amounts outstanding end of period, not seasonally adjusted]|
|2007 / Q4|
|Equipment and software owned by||240.8|
|7||Consumer durable goodsc||4035.3||7|
|11||Checkable deposits and currency||78.4||11|
|12||Time and savings deposits||5880.1||12|
|13||Money market fund shares||1343.5||13|
|14||Credit market instruments||3977.0||14|
|15||Open market paper||159.7||15|
|19||Agency- and GSE-backed securities||946.7||19|
|21||Corporate and foreign bonds||1504.7||21|
|24||Mutual fund sharesd||5081.9||24|
|26||Life insurance reserves||1204.8||26|
|27||Pension fund reserves||12779.5||27|
|28||Equity in noncorporate businesse||7891.9||28|
|31||Credit market instruments||13825.4||31|
|35||Bank loans n.e.c.||130.7||35|
|36||Other loans and advances||128.4||36|
|40||Deferred and unpaid life insurance premiums||24.0||40|
|Replacement-cost value of structures:||42|
|47||Disposable personal income||10341.3|
|Household net worth as percentage of disposable||48|
|49||Owners' equity in household real estateh||9646.0|
|50||Owners' equity as percentage of household real estatei||47.9||50|
|Note: Sector includes farm households. GSE = Government sponsored enterprise.|
|aAt market value.|
|bAll types of owner-occupied housing including farm houses and mobile homes, as well as second homes that are not rented, vacant homes for sale, and vacant land.|
|cAt replacement (current) cost.|
|dValue based on the market values of equities held and the book value of other assets held by mutual funds.|
|eNet worth of noncorporate business (table B.103, line 31) and owners' equity in farm business and unincorporated security brokers and dealers.|
|fIncludes loans made under home equity lines of credit and home equity loans secured by junior liens, shown on table L.218, line 22.|
|gLiabilities of nonprofit organizations.|
|hLine 4 less line 32.|
|iLine 49 divided by line 4.|
LIABILITIES. Assets alone do not provide an indication of the nation's wealth status. Debts and other obligations, known as liabilities, must be subtracted. These liabilities totaled $14.4 trillion during the fourth quarter of 2007. (See Table 8.1.) Credit market instruments accounted for the vast majority of this total, at $13.8 trillion. Home mortgages ($10.5 trillion) were the single largest credit market instrument, followed by consumer credit ($2.6 trillion).
TRENDS IN NET WORTH. The net worth of U.S. households and NPOs totaled $57.7 trillion in the fourth quarter of 2007. (See Table 8.1.) Figure 8.4 compares this value to net worth values calculated by the Federal Reserve from 2003 to the fourth quarter of 2007. Net worth has increased slightly each year during this period.
The U.S. Department of Commerce's Bureau of Economic Analysis (BEA) collects data on the personal income of Americans. In 2007 more than half (54%) of personal income was from wages and salaries. (See Figure 8.5.) Another 13% was attributed to employer-provided benefits. Interest income accounted for 10% of the total. Proprietors' income (the income earned by sole proprietorships, partnerships, and tax-exempt cooperatives) encompassed 9% of the total. The remainder of personal income was from dividends (7%), net transfer receipts (6%), and rental income (1%). Net transfer receipts are mostly government social benefits such as old-age, survivors, disability, and health insurance; unemployment insurance; veterans benefits; and family assistance funds.
DEMOGRAPHICS OF UNEMPLOYMENT. According to the BEA, in Personal Income and Outlays: March 2008 (May 1, 2008, http://www.bea.gov/newsreleases/national/pi/2008/pdf/pi0308.pdf), in 2007 compensation (e.g., wages, salaries, and employer-provided benefits) amounted to over $7.8 trillion and accounted for more than two-thirds of total personal income. Historically, compensation has been the
single largest component of total personal income. Thus, employment factors are extremely important to a discussion of wealth and its distribution. Table 8.2 shows unemployment data and rates by demographic characteristics for 2007. The highest rates of unemployment were 15% for single (never married) African-American men aged sixteen years and older and 10.8% for single (never married) African-American women aged sixteen years and older. The overall unemployment rates for men and women aged sixteen years and older in 2007 were 4.7% and 4.5%, respectively. The lowest unemployment rates recorded were for married Asian-American men aged twenty-five years and older with the spouse present in the household (2.2%) and married white women aged twenty-five years and older with the spouse present in the household (2.5%).
In February 2008 the overall unemployment rate was around 5%. (See Figure 8.6.) The rate was 17% for teenagers, 8% for African-Americans, 6% for Hispanics, and 4% for whites. Unemployment rates were roughly equal for men and women.
Poverty is defined and measured in different ways by different government entities. At the federal level it is measured using two methods: poverty thresholds and poverty guidelines. Poverty thresholds are set by the U.S. Census Bureau, which also tracks poverty populations in the United States. The thresholds specify minimum income levels for different sizes and categories of families. For example, the Census Bureau (January 29, 2008, http://www.census.gov/hhes/www/poverty/threshld/thresh07.html) notes that in 2007 the poverty threshold for a family of four including two related children in the household was $21,027 per year.
Poverty guidelines are published by the U.S. Department of Health and Human Services (HHS) for the fifty states and Washington, D.C. According to the HHS, the poverty guidelines are a “simplification” of the poverty thresholds and are used for administrative purposes, such as determining eligibility for specific federal programs. The most recent guidelines were published in “Annual Update of the HHS Poverty Guidelines” (Federal Register, vol. 72, no. 15, January 24, 2007).
The Poverty Rate
The Census Bureau calculates the number of people in poverty and the poverty rate using the poverty thresholds. The most recent data were collected in 2006 as part of the Current Population Survey, Annual Social and Economic
Supplement—a sample survey of approximately one hundred thousand households around the United States. The data are presented and analyzed by Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica Smith of the Census Bureau in Income, Poverty, and Health Insurance Coverage in the United States: 2006 (August 2007, http://www.census.gov/prod/2007pubs/p60-233.pdf).
According to DeNavas-Walt, Proctor, and Smith, 36.5 million Americans lived at or below the federal poverty level in 2006. This represents 12.3% of the population and is down slightly from 12.6% in 2005. The number of people in poverty has varied widely over the past few decades. In 1960, 39.9 million Americans lived in poverty. This value dropped to fewer than twenty-five million people in the 1970s and then began increasing, reaching near the forty million mark during the early 1990s. The number declined to around thirty-one million in 2000 and then rose throughout the early 2000s.
The poverty rate was around 22% in the early 1960s, and then it dropped to around 11% in the early 1970s. It topped 15% during the early 1990s and then decreased to around 12% in 2000, before it began to rise again.
There were dramatic demographic differences in the U.S. poverty rate in 2006. The differences by race and ethnicity were:
- Non-Hispanic whites—8.2%
The poverty rates for non-Hispanic whites, African-Americans, and Asian-Americans were virtually unchanged from 2005. The rate for Hispanics decreased slightly, from 21.8% in 2005.
Other demographic differences were also significant. The poverty rate in 2006 for those under age eighteen was 17.4%, compared to 10.8% for people aged eighteen to sixty-four, and 9.4% for people aged sixty-five and older. Among family types, the highest poverty rate was experienced by families headed by unmarried females (28.3%). By contrast, the poverty rate for families headed by unmarried males was 13.2%, and for those headed by married couples it was only 4.9%.
The Working Poor
The U.S. Bureau of Labor Statistics (BLS) notes in A Profile of the Working Poor, 2005 (September 2007, http://www.bls.gov/cps/cpswp2005.pdf) that in 2005, 7.7 million people were classified as “working poor”—those
people who are in the workforce at least twenty-seven weeks per year but whose income still falls below the poverty level. Just over 6% of American women were among the working poor, compared to 4.8% of men. Rates differed between women and men in two racial categories: white and African-American. Five percent of white women were among the working poor, compared to 4.4% of white men. Thirteen percent of African-American women were classified as working poor, compared to 7.7% of African-American men. Asian-American and Hispanic women were just as likely as their male counterparts to be among the working poor.
The BLS indicates that even though most of the working poor were white (approximately 70%), a greater proportion of African-American and Hispanic workers were among the working poor (10.5% each of African-Americans and Hispanics, versus 4.7% each of whites and Asian-Americans). Around 10.5% of all working teenagers aged sixteen to nineteen were among the working poor.
According to the BLS, poverty rates varied greatly by educational attainment and occupation. Just over 14% of those in the labor force with less than a high school diploma were among the working poor, compared to only 1.7% of college graduates with a bachelor's degree or higher. However, the BLS notes that African-Americans and Hispanics were more likely to be among the working poor than whites or Asian-Americans at nearly every level of educational attainment. In general, management and professional occupations, which tended to require higher levels of education, saw lower amounts of poverty among workers (1.8% were classified as working poor). Occupations in industries such as services and natural resources tended to have more workers living in poverty: 10.8% of service workers were poor in 2005, as were 13.7% of those who did farming, fishing, or forestry work and 8.1% of workers engaged in construction occupations.
Analysts consider three continuing problems in the labor market to be responsible for most poverty among working people: low wages, periodic unemployment, and involuntary part-time work. (Involuntary part-time workers are described by the BLS as “persons who, in at least 1 week of the year, worked fewer than 35
hours because of slack work or business conditions, or because they could not find full-time work.”) Approximately 80% of the working poor who typically worked full time experienced at least one of these conditions in 2005. Low earnings was reported as the most common problem.
In “Currents and Undercurrents: Changes in the Distribution of Wealth, 1989–2004” (January 30, 2006, http://www.federalreserve.gov/Pubs/FEDS/2006/200613/200613pap.pdf), Arthur B. Kennickell of the Federal Reserve relies on data collected during the 2004 Survey of Consumer Finances (SCF). The SCF is a survey conducted every three years by the Federal Reserve in cooperation with the Internal Revenue Service to collect detailed financial information on American families. Kennickell traces changes in wealth distribution between 1989 and 2004 based on computed net worth values. Table 8.3 shows the distribution of net worth across this period. All values were computed using 2004 dollars to compensate for the effects of inflation between 1989 and 2004.
In 1989, 26.5% of families had a net worth of less than $10,000. (See Table 8.3.) At the other end of the spectrum, 10.8% had a net worth of at least $500,000. In 2004 the portion of families with a net worth of less than $10,000 was 22.7%, down 3.8 percentage points from
|TABLE 8.2 Unemployed persons by demographic group, 2007|
|SOURCE: Adapted from “Table 24. Unemployed Persons by Marital Status, Race, Hispanic or Latino Ethnicity, Age, and Sex,” in Current Population Survey: Tables Created by BLS, U.S. Department of Labor, Bureau of Labor Statistics, May 2008, http://www.bls.gov/cps/cpsaat24.pdf (accessed May 24, 2008)|
|Marital status, race, Hispanic
or Latino ethnicity, and age
|Thousands of persons||Unemployment rates||Thousands of persons||Unemployment rates|
|Total, 16 years and over||3,882||4.7||3,196||4.5|
|Married, spouse present||1,206||2.5||1,049||2.8|
|Widowed, divorced, or separated||544||5.3||724||5.0|
|Single (never married)||2,132||8.8||1,422||7.2|
|White, 16 years and over||2,869||4.2||2,274||4.0|
|Married, spouse present||965||2.4||830||2.6|
|Widowed, divorced, or separated||421||4.9||547||4.9|
|Single (never married)||1,483||7.8||897||6.3|
|Black or African American,
16 years and over
|Married, spouse present||156||4.3||123||4.3|
|Widowed, divorced, or separated||92||7.5||135||5.7|
|Single (never married)||504||15.0||435||10.8|
|Asian, 16 years and over||119||3.1||110||3.4|
|Married, spouse present||54||2.2||61||3.1|
|Widowed, divorced, or separated||9||3.0||12||2.7|
|Single (never married)||56||5.2||37||4.4|
|Hispanic or Latino ethnicity,
16 years and over
|Married, spouse present||247||3.5||191||4.7|
|Widowed, divorced, or separated||85||5.1||110||6.0|
|Single (never married)||363||8.3||224||8.3|
|Total, 25 years and over||2,538||3.6||2,198||3.6|
|Married, spouse present||1,152||2.5||959||2.7|
|Widowed, divorced, or separated||515||5.1||683||4.9|
|Single (never married)||871||6.3||556||5.2|
|White, 25 years and over||1,907||3.3||1,579||3.3|
|Married, spouse present||919||2.3||756||2.5|
|Widowed, divorced, or separated||401||4.8||516||4.7|
|Single (never married)||587||5.5||307||4.3|
|Black or African American,
25 years and over
|Married, spouse present||149||4.1||113||4.1|
|Widowed, divorced, or separated||85||7.3||129||5.5|
|Single (never married)||222||10.5||211||7.7|
|Asian, 25 years and over||92||2.7||87||3.0|
|Married, spouse present||53||2.2||59||3.0|
|Widowed, divorced, or separated||9||2.8||12||2.7|
|Single (never married)||30||4.0||17||3.1|
|Hispanic or Latino ethnicity,
16 years and over
|Married, spouse present||234||3.5||166||4.3|
|Widowed, divorced, or separated||77||4.9||100||5.7|
|Single (never married)||144||5.8||89||6.1|
|Note: Estimates for the above race groups (white, black or African American, and Asian) do not sum to totals because data are not presented for all races. Persons whose ethnicity is identified as Hispanic or Latino may be of any race. Updated population controls are introduced annually with the release of January data.|
1989. By contrast, the percentage of families in 2004 with a net worth of at least $500,000 had risen by more than half, up 6.9 percentage points to 17.7%.
|TABLE 8.3 Percent distribution of net worth in 2004 dollars, selected years, 1989–2004|
|SOURCE: Adapted from Arthur B. Kennickell, “Table 2. Percent Distribution of Net Worth in 2004 Dollars, 1989–2004,” in Currents and Undercurrents: Changes in the Distribution of Wealth, 1989–2004, Federal Reserve Board, January 30, 2006 (corrected June 22, 2006), http://www.federalreserve.gov/ pubs/oss/oss2/papers/concentration.2004.4.pdf (accessed June 10, 2008)|
The Gini coefficient is a mathematically derived value used to describe the inequality in a data distribution. It was developed during the early 1900s by the Italian statistician Corrado Gini (1884–1965). The Federal Reserve uses the Gini coefficient to measure the extent of the inequality in the distribution of wealth among American families. When used to compute wealth inequality, a value of zero indicates perfect equality, whereas a value of one indicates that all wealth is held by only one family. Kennickell calculates a Gini coefficient of 0.7863 for net worth in 1989 and a value of 0.8047 for net worth in 2004. This indicates that a greater amount of wealth became concentrated in the hands of families at the upper end of the spectrum.
|TABLE 8.4 Proportions of total net worth and of gross assets held by various percentile groups, selected years, 1989–2004|
|SOURCE: Adapted from Arthur B. Kennickell, “Table 5. Proportions of Total Net Worth and of Gross Assets Held by Various Percentile Groups, 1989–2004,” in Currents and Undercurrents: Changes in the Distribution of Wealth, 1989–2004, Federal Reserve Board, January 30, 2006 (corrected June 22, 2006), http://www.federalreserve.gov/pubs/oss/oss2/papers/ concentration.2004.4.pdf (accessed June 10, 2008)|
|Net worth percentile group|
|Proportion of total net worth held by group|
|Proportion of total gross assets held by group|
In other words, the Gini coefficients suggest the rich got richer, and the poor got poorer during this period.
Economists use concentration ratios to show the proportion of wealth held by certain groups within a population. Table 8.4 tabulates the proportion of total net worth and total gross assets held by specific percentile groups as calculated by Kennickell. The ratios shown in the upper table indicate that in 2004 just over one-third (33.4%) of total net worth was held by the wealthiest 1% of families (the families at the 99 to 100 percentile). The other two-thirds of total net worth was held by the other 99% of families. Another way to look at the data is that the poorest half of the families (those in the 0 to 50 percentile) held only 2.5% of all net worth in 2004. This value is down from a high of 3.6% in 1995—a decline deemed “significantly different” by Kennickell.
The lower table in Table 8.4 shows the concentration ratios for total gross assets. In 2004 the wealthiest 1% of families held 29.5% of total gross assets. The poorest 50% of families held only 5.8% of total gross assets. This marked a decline from the assets they held in 1992, 1995, and 1998.
In “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances” (Federal Reserve Bulletin, vol. 92, February 2006), Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore of the Federal Reserve examine changes in
|TABLE 8.5 Family net worth, selected years, 1995–2004|
|SOURCE: Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, “Table 3. Family Net Worth, by Selected Characteristics of Families, 1995–2004 Surveys,” in “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin, vol. 92, February 2006, http://www.federalreserve.gov/pubs/oss/oss2/2004/bull0206.pdf (accessed June 10, 2008)|
|[Thousands of 2004 dollars]|
|Percentile of income|
|Less than 20||7.4||54.7||0.8||55.4||0.4||56.1||0.5||72.6|
|Age of head (years)|
|Less than 35||14.8||53.2||10.6||74.0||12.3||96.6||14.2||73.5|
|75 or more||114.5||317.9||145.6||360.3||161.2||496.2||163.1||528.1|
|Education of head|
|No high school diploma||27.9||103.7||24.5||91.4||27.2||109.7||20.6||136.5|
|High school diploma||63.9||163.7||62.7||182.9||61.8||192.5||68.7||196.8|
|Race or ethnicity of respondent|
|Nonwhite or Hispanic||19.5||94.9||19.3||116.5||19.1||123.8||24.8||153.1|
|Current work status of head|
|Working for someone else||60.3||168.4||61.2||194.8||69.3||240.1||67.2||268.5|
|Other not working||4.5||70.1||0.1||85.8||0.5||191.7||11.8||162.3|
|Renter or other||6.0||53.8||0.9||50.4||0.1||58.5||0.0||54.1|
|Percentile of net worth|
|Less than 25||1.2||0.2||0.6||2.1||0.2||†||1.7||1.4|
|†Less than 0.05 ($50).|
|Note: For questions on income, respondents were asked to base their answers on the calendar year preceding the interview. For questions on saving, respondents were asked to base their answers on the twelve months preceding the interview. Percentage distributions may not sum to 100 because of rounding. Dollars have been converted to 2004 values with the current-methods consumer price index for all urban consumers.|
family income and net worth between the SCFs conducted in 2001 and 2004. Overall, the researchers find that average pretax family income decreased by 2.3% between 2001 and 2004. (Income values were adjusted for the effects of inflation.) Bucks, Kennickell, and Moore also analyze the median pretax family income. The median is the value at which half of the values are greater than the median and the other half are less than the median. Between 2001 and 2004 the median pretax family income increased by 1.6%.
Table 8.5 shows family net worth by demographic characteristics for the 1995, 1998, 2001, and 2004 SCFs. Between 2001 and 2004 the median net worth of all families grew from $91,700 to $93,100, an increase of 1.5%. The mean (average) net worth grew from $421,500 to $448,200, an increase of 6.3%. Bucks, Kennickell, and Moore note that the wealth increase was most pronounced for families in the middle-income range.
A variety of factors are cited for overall changes in wealth between 2001 and 2004. The most notable are:
- An increase in homeownership combined with strong growth in real estate appreciation (increase in value over time)
- A decrease in wages
- A decrease in stock ownership and investment income
- An increase in the amount of debt held relative to total assets
Bucks, Kennickell, and Moore indicate that average wages declined by 3.6% between 2001 and 2004. The median wage also decreased, by 6.2%. The researchers conclude that wealth growth over this period was weak, compared to strong growth experienced between 1992 and 1995 and between 1995 and 1998. Also, the wealth growth between 2001 and 2004 was not consistent across most demographic groups as it had been in the earlier periods.
The mean net worth of white families in 2004 was $561,800, whereas for minority families it was $153,100. (See Table 8.5.) The median net worth of white families was $140,700, whereas for minority families it was $24,800.
According to Bucks, Kennickell, and Moore, wealth grew for both white and minority families between 2001 and 2004. In fact, the growth for all minorities grouped together outpaced the growth for white families. The average and median net worth of white families increased by 8.3% and 8.6%, respectively. By contrast, the average and median net worth of minority families increased by 23.7% and 29.8%, respectively.
However, Bucks, Kennickell, and Moore note that African-American families lagged behind other minorities in wealth growth. The median net worth of African-American families grew from $20,300 in 2001 to $20,400 in 2004, an increase of around 0.5%. The average net worth increased from $80,700 to $110,600 during this period, an increase of 37.1%. This suggests that only a small number of African-American families improved their net worth, and those families were at the top of the wealth class. By contrast, median and average net worth both increased by more than 8% for white families. This indicates that a greater number of white families improved their financial condition and that the gains were more evenly distributed among the wealth classes.
The data in Table 8.5 indicate that families with the highest average net worth in 2004 had the following characteristics:
- A head of household between fifty-five and sixty-four years old
- A head of household with a college degree
- A self-employed head of household
- Living in the Northeast
- Owning a home
Comparison of data from 1995 and 2004 shows that all demographic groups improved their average net worth during this period. However, there are variations in median changes. For example, the mean net worth of families with a head of household younger than thirty-five increased from $53,200 in 1995 to $73,500 in 2004. (See Table 8.5.) Their median net worth, however, decreased from $14,800 to $14,200. The same trend is evident for families headed by a person with no high school diploma and for nonhomeowners. In each case, the mean net worth increased, but the median net worth decreased. Bucks, Kennickell, and Moore acknowledge that the reasons for this disparity in the growth of mean and median net worth are complex but attribute it to distributional changes within the demographic groups.
Nonfinancial assets are large material items such as real estate, business-related machinery, and automobiles, as well as ownership in businesses. In 2004, 92.5% of American families held nonfinancial assets. (See Table 8.6.) The highest percentage of families (86.3%) owned at least one vehicle. A majority (69.1%) owned their primary residence. Smaller percentages owned other residential property (12.5%), had business equity (11.5%), held equity in a nonresidential property (8.3%), or held some other nonfinancial asset (7.8%). As expected, families with higher incomes were more likely to have nonfinancial assets.
Families in the lowest twentieth percentile of income, nonhomeowners, and families in which the head of household was not working were the least likely to hold nonfinancial assets. (See Table 8.6.) There was a notable difference among races: 95.8% of white families held nonfinancial assets in 2004, compared to 84% of minority families.
According to Bucks, Kennickell, and Moore, 93.8% of all families held some type of financial asset in 2004. The most common were transaction accounts (checking, savings, money market deposit accounts, money market mutual funds, and call accounts at brokerages)—91.3%
|TABLE 8.6 Family holdings of nonfinancial assets, 2004|
|SOURCE: Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, “Table 8. Family Holdings of Nonfinancial Assets and of Any Asset, by Selected Characteristics of Families and Type of Asset, 2001 and 2004 Surveys. B. 2004 Survey of Consumer Finances,” in “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin, vol. 92, February 2006, http://www.federalreserve.gov/pubs/oss/ oss2/2004/bull0206.pdf (accessed June 10, 2008)|
|Family characteristic||Vehicles||Primary residence||Other residential property||Equity in nonresidential property||Business equity||Other||Any nonfinancial asset||Any asset|
|Percentage of families holding asset|
|Percentile of income|
|Less than 20||65.0||40.3||3.6||2.7||3.7||3.9||76.4||92.2|
|Age of head (years)|
|Less than 35||82.9||41.6||5.1||3.3||6.9||5.5||88.6||96.5|
|75 or more||76.9||85.2||9.7||7.7||5.3||8.5||92.5||99.6|
|Race or ethnicity of respondent|
|Nonwhite or Hispanic||76.1||50.8||8.9||5.8||5.9||3.8||84.0||94.4|
|Current work status of head|
|Working for someone else||89.7||66.5||10.4||6.8||5.8||7.1||93.8||98.4|
|Other not working||66.9||40.0||5.4||*||6.9||6.4||76.3||89.6|
|Renter or other||73.0||—||5.4||2.4||4.3||4.6||75.9||93.3|
|Percentile of net worth|
|Less than 25||69.8||15.2||*||*||*||2.9||73.7||91.7|
|Median value of holdings for families holding asset (thousands of 2004 dollars)|
|Percentile of income|
|Less than 20||4.5||70.0||33.0||11.0||30.0||4.5||22.4||17.0|
|Age of head (years)|
|Less than 35||11.3||135.0||82.5||55.0||50.0||5.0||32.3||39.2|
|75 or more||8.4||125.0||150.0||85.8||80.3||11.0||137.1||185.2|
|Race or ethnicity of respondent|
|Nonwhite or Hispanic||9.8||130.0||80.0||30.0||66.7||10.0||64.1||59.6|
|Current work status of head|
|Working for someone else||14.9||160.0||88.0||40.0||50.0||10.0||141.9||161.2|
|Other not working||10.7||130.0||86.0||*||25.0||20.0||60.0||30.3|
|Renter or other||7.2||—||80.0||56.0||50.0||8.0||8.4||12.2|
|Median value of holdings for families holding asset (thousands of 2004 dollars)|
|Percentile of net worth|
|Less than 25||5.6||65.0||*||*||*||3.0||7.4||7.7|
|Mean value of holdings for families holding asset||20.1||246.8||267.3||298.1||765.5||66.6||366.3||538.4|
|*Ten or fewer observations.|
|Notes: For questions on income, respondents were asked to base their answers on the calendar year preceding the interview. For questions on saving, respondents were asked to base their answers on the twelve months preceding the interview. Percentage distributions may not sum to 100 because of rounding. Dollars have been converted to 2004 values with the current-methods consumer price index for all urban consumers. The definition of vehicles is a broad one that includes cars, vans, sport-utility vehicles, trucks, motor homes, recreational vehicles, motorcycles, boats, airplanes, and helicopters. Of families owning any type of vehicle in 2004, 99.8 percent had a car, van, sport-utility vehicle, motorcycle, or truck. The remaining types of vehicle were held by 13.3 percent of families.|
of families held these accounts. Nearly half of families (49.7%) had retirement accounts. Note that this category does not include Social Security benefits and certain employer-sponsored defined benefit plans. Nearly a quarter (24.2%) of families had cash value life insurance policies. Smaller percentages held stocks (20.7%), savings bonds (17.6%), pooled investment funds (15%), certificates of deposit (12.7%), and bonds (1.8%). Ten percent of families held financial assets of other types.
Overall, Bucks, Kennickell, and Moore note that families the most likely to hold financial assets were those in the highest income brackets, those with a head of household aged seventy-five or older, those with a self-employed head of household, and homeowners. Comparison among races indicates that 97.2% of white families held financial assets in 2004, compared to 85% of minority families. The largest difference lies in retirement accounts. More than half (56.1%) of white families had retirement accounts, compared to only 32.9% of minority families. Stock ownership also showed disparities. More than a quarter (25.5%) of white families owned stocks in 2004, compared to only 8% of minority families.
In “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze” (June 2007, http://www.levy.org/pubs/wp_502.pdf), Edward N. Wolff of Bard College and New York University examines the 2004 SCF data in relation to two other economic measures: debt to income ratio and debt to equity ratio. A debt to income ratio provides a measure of a household's debt divided by its income. A debt to equity ratio measures a household's debt divided by its net worth.
Wolff calculates that in 2004 the debt to income ratio was 61.4% for the richest 1% of Americans and 141.2% for the middle class (defined as households with a net worth of $500 to $406,450). Thus, the middle class was burdened with a much higher debt to income ratio than the extremely wealthy. Likewise, the debt to equity ratio for the richest 1% of Americans was only 3.8% in 2004, compared to 61.6% for the middle class. Wolff believes the massive amount of indebtedness carried by middle-class households dramatically hampers their wealth growth rate.
Even though the data are clear that wealth inequality exists in the United States, there is contentious debate about whether or not this condition poses a problem to the economy and to society. A certain amount of inequality is built into a capitalist economy by its very nature. However, with wealth growing rapidly among the already richest 1% of Americans, but not among the lower classes, many economists worry that the perceived economic success of the 2000s may be just an illusion.
Wealth Inequality Seen as Harmful
The debate over wealth inequality has always been a politically partisan issue, with those on the right arguing that the market should be allowed to adjust itself with regard to wages and income and those on the left maintaining that widespread financial inequality causes many social and economic problems.
The Dollars & Sense Collective is a group of “left-thinking” scholars and authors who believe that income inequality is a serious problem with dire economic, political, and social consequences for the nation. Their views are presented in publications such as Dollars & Sense: The Journal of Economic Justice, a monthly journal, and Wealth Inequality Reader (2008). The latter includes essays by dozens of contributors on the scope and harmful effects of wealth inequality. The introduction notes, “The 1980s and 1990s were supposed to be economic good times, but the share of Americans with no wealth at all was larger in 2004 than it had been in 1983. The late-1990s economy gave a small boost to those at the bottom, but it didn't make up for the losses of the previous 15 years. The result: even after the 1990s—the most fabulous decade of economic growth in recent U.S. history— over a quarter of American households had less than $5,000 in assets.”
Paul Krugman of Princeton University is an outspoken critic of wealth inequality in the United States. He explains his viewpoint at length in “For Richer” (New York Times, October 20, 2002). Krugman asserts that wage controls and other measures taken by the government during the Great Depression and World War II (1939–1945) created a broad and stable middle class in the United States. An abundance of high-paying unionized manufacturing jobs ensured that less-educated working-class people could maintain a standard of living similar to that of highly educated professionals. Krugman believes that changing social attitudes—a “new permissiveness”— have permitted wealth inequality to grow unchecked since the 1970s. He uses as an example the enormous growth in the salaries of chief executive officers (CEOs) of major corporations. He claims that ideas about corporate responsibility and financial prudence kept CEO salaries in check until the 1970s and 1980s, when a new societal attitude emerged that Krugman describes as “greed is good.” In 1970 the top one-tenth of 1% of American taxpayers had average earnings that were seventy times as much as the average American. By 1998 the same segment had incomes that were three hundred times that of the average American. Yet, there has not been an uproar among the middle and lower classes about wealth inequality.
Krugman believes policy makers perpetuate wealth inequality in the United States and that the United States is becoming a plutocracy (government by the wealthy). He concludes that “as the gap between the rich and the rest of the population grows, economic policy increasingly caters to the interests of the elite, while public services for the population at large—above all, public education—are starved of resources. As policy increasingly favors the interests of the rich and neglects the interests of the general population, income disparities grow even wider.”
Wealth Inequality Seen as Not Harmful
On the other side of this issue are those who believe that wealth inequality does not pose a problem to the U.S. economy or social system. This viewpoint is generally associated with conservative political thinking, which generally holds that market forces must be allowed to adjust themselves without government interference. One idea that is regularly expressed by politicians in this camp is that “what's good for the rich is good for the rest of us.” This philosophy was espoused by President Ronald Reagan (1911–2004), who championed a trickle-down economic policy—economic actions (such as tax cuts beneficial to the wealthy) that encourage greater investment in business growth, thus, increasing employment, wages, and other benefits to those in the middle and lower classes.
In “Rich Man, Poor Man: How to Think about Income Inequality” (National Review, June 16, 2003), Kevin A. Hassett argues that income inequality is not harmful to the United States. He rebuts many of the criticisms leveled against income inequality. In fact, Hassett asserts that evidence shows that income inequality in extremely poor undeveloped countries probably limits economic growth, but not so in wealthy developed countries, where economies and income inequality grow together.
Hassett believes that unease over wealth inequality is driven by social views on the “basic justice” of society, but he argues that there are similarly compelling arguments against taking from the rich to benefit the poor. Hassett states, “In the real world, differences emerge between citizens because of both luck and choices. Virtually every circumstance is a mixture of these two cases. This distinction is important, because it makes it difficult if not impossible to conceive of scenarios where justice clearly supports forceful redistribution.” Also, Hassett notes that taking resources from the rich limits their ability and incentive to start and grow businesses, which will ultimately hurt American workers even more. He concludes that on a global scale, nations emphasizing free-market capitalism (such as the United States) have done a better job of raising the standard of living of their poor than nations in which socialist views have encouraged a more equitable distribution of wealth.
Public Opinion on Wealth Distribution
As part of the Gallup Poll Social Series: Economy & Personal Finance (April 2008, http://brain.gallup.com/documents/questionnaire.aspx?STUDY=P0804015), pollsters asked Americans to answer two questions about wealth distribution in the United States. The first question asked: “Do you feel that the distribution of money and wealth in this country today is fair, or do you feel that the money and wealth in this country should be more evenly distributed among a larger percentage of the people?” More than two-thirds (68%) of respondents said the nation's money and wealth should be more evenly distributed. Only 27% felt the current distribution “is fair.” In the second question, Gallup asked: “Do you think our government should or should not redistribute wealth by heavy taxes on the rich?” A slim majority (51%) agreed that the government should redistribute wealth via heavy taxes on the rich. Forty-three percent disagreed with this approach.
"Wealth in the United States." The American Economy. 2009. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1G2-1838100014.html
"Wealth in the United States." The American Economy. 2009. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-1838100014.html
Wealth has been viewed as a blessing and as a curse; as a prerequisite of virtue and an embodiment of vice; as an expression of merit and of fault. This nonexhaustive list illustrates that not only is the history of wealth a history of contention, it is also intimately bound up with moral evaluations. These differing evaluations themselves indicate a range of divergent cultural judgments. "Wealth," however, is not simply an item of moral discourse. It has a central place in political and economic vocabularies. While there is, perhaps, a core linkage with the notion of "resources," that itself is an elastic category, referring to "goods" both tangible and immaterial (such as clean air, a healthy environment, and general quality of life). Wealth with all its cultural and ethical connotations is applied descriptively to an individual (the "rich man"), to a group or class of individuals ("the wealthy"), and to a country or, as in the title of Adam Smith's famous book, to nations.
With this range of reference it is unsurprising that most of the established "great thinkers" in what is unreflectively labeled the "Western tradition," from Aristotle to St. Thomas Aquinas to Jean–Jacques Rousseau to Karl Marx to Thorstein Veblen, have had something to say on the topic. But the issues and debates are neither exclusively Western nor intellectual. Most of the great religions include in their teaching some reference to wealth, though not without manifesting the idea's contentiousness. In addition, wealth plays a ubiquitous role in social and cultural life from grave goods to potlatch ceremonies. An attempt will be made in this entry to represent this range of concern, though its major focus will be on the place of wealth in Western intellectual debates.
The entry is organized along two axes—thematic and chronological. Thematically, the discussion is organized in terms of two basic associations—wealth and virtue, and wealth and power. Each theme is explored in rough chronological order—charting the history of wealth's interactions with virtue and with power. Throughout these explorations three questions will implicitly recur: What is wealth? that is, what is supposed, in different times, with respect to virtue and power, to constitute it; Who has it? that is, what is supposed similarly about its distribution; and, closely related, Why or on what grounds does X rather than Y have that item of wealth? that is, what is supposed to justify or legitimate the distribution.
Wealth and Virtue
Historically the association between wealth and virtue has been viewed both positively and negatively. These will be examined in turn.
Aristotle (384–322 b.c.e.) identifies "liberality" as a virtue that is the mean between prodigality and illiberality. The context is money or wealth. The liberal man (the gender is not incidental) will "give with a fine end in view, and in the right way; because he will give to the right people, and the right amounts, and at the right time" (Aristotle  p. 143:1120a25). When acting liberally, it is the disposition that matters, not the sum or sort of resources. Though giving is more virtuous than receiving, nonetheless, the "liberal" will accept wealth under similar constraints. The most important source of wealth is the ownership of property, especially landed property. This ownership is associated with other estimable traits such as responsibility, prudence, and steadfastness. By exercising these virtues, wealth qua landed property is sustained so that, accordingly, there are resources available with which to act liberally. Importantly, wealth thus understood imposes obligations; it does not reflect an acquisitive mentality and it is not valued for its own sake.
Although worked up theoretically by Aristotle, this link between wealth and obligation and the stress on the use made of wealth is pervasive. The early Christian theologian St. Clement of Alexandria (c. 150–between 211 and 215) does not subscribe to the asceticism prescribed by many of the church fathers but, nonetheless, instructs that wealth is to be used for charitable purposes and not retained possessively. This is echoed in the Koran, and, somewhat similarly, in Hindu teaching wealth (artha ) needs to be cultivated but by virtuous means so that the wherewithal is possessed that goodness may be exercised. This is an attribute of many cultures. The form this often takes is of hospitality. The Israelites in the Old Testament are enjoined to give succor to the improvident, while for Kalahari bushmen, and many others, wealth exists to be shared. In these latter examples it is less that wealth calls forth individual virtue than it manifests a cultural norm of reciprocity. In both cases, however, wealth is justified as a means to further good ends.
This understanding of the importance of wealth, and its justification, has endured beyond its presence in Aristotelian theory and cultural practice. Only if one is wealthy can generosity or charity—whether by the Good Samaritan or by millionaires—be exercised and only if a society is wealthy can it support extensive welfare programs. In a just society, according to John Rawls (1921–2002), the wealth enjoyed by the more fortunate, as a consequence of arbitrarily distributed natural talents, could be viewed as a "collective asset" to be used, once freedom has been accorded priority, to further the interests of the worse-off (p. 179). However, supporting welfare need not mean collective provision. F. A. Hayek (1899–1992) justified retaining wealth within families as an expression of freedom, which includes making responsible welfare decisions. This was also an essential means to prevent the concentration of wealth in the hands of the state.
Hayek is here making a consequentialist case for inheritance. This pays little attention to the source of wealth, but a positive case for wealth is that its possession is the deserved outcome of the virtue of industry or hard work. The Protestant ethic, as articulated by Max Weber (1864–1920) in his Die protestantische Ethik und der Geist des Kapitalismus (1920; Protestant Ethic and the Spirit of Capitalism ), psychologically compelled the "elect" (those chosen for salvation by God) to seek proof of their election. This took the form of diligence and industriousness, which led to success in worldly activity, but since waste was also proscribed, and frugality prescribed, it meant that wealth was accumulated. In a historically important argument, John Locke (1632–1704) developed a version of this. He argued that God enjoined everyone to be industrious and that through mixing their labor (as he termed it) to natural resources they were entitled to the fruits of that labor as their private property. Provided they did not accrue wastefully all the resources to themselves, the inequality of holdings derived from greater industry was justified. Nonetheless, true to his own Nonconformist (Calvinist) background, Locke also held that if people lived providently without the desire for luxuries then wealth would be increased even more. Locke here broaches the negative link between wealth and virtue.
While Aristotle does link wealth with virtue positively, his more sustained and influential argument (in the Politics ) is that the former can lead to a corruption of the latter. Wealth and its maintenance is properly an attribute of household management (of economics, oikonomikē ), its purpose being to give the male head of the household the freedom to act virtuously—not only via liberality but also via participation in the affairs of the community (the polis), an activity that is natural since man is by nature a political animal. Wealth is limited to this instrumental function. However, it is liable to transgress those limits. Some exchange is permissible, when it serves to meet the naturally limited consumption needs of the household, but once it is undertaken for its own sake, and not as a means to an end of consumption, then it becomes moneymaking (chrēmatistikē ). This activity can be engaged upon without limit. There is a natural limit, for example, to how much food can be consumed but not to how much money is possessed. A transgression of the proper purpose or end of activity represents a corruption, a perversion of virtue.
This moral critique of wealth has been enormously influential. One particularly potent occurrence was its linkage with the fall of the Roman republic. Originally austerely virtuous, the republic became corrupted once riches were imported from abroad ("Asia"). This wealth-induced corruption in the form of avarice and luxury was condemned by Stoic moralists such as Seneca (4 b.c.e.?–65 c.e.) or Epictetus (c. 55–c. 135 c.e.) and was illustrated through the normatively loaded narrative of historians of Rome like Sallust (86–35 or 34 b.c.e.) and Livy (59 b.c.e.–17 c.e.). The latter, for example, opened his History of Rome by contrasting Rome's virtuous beginnings with the ruin that the influx of wealth or riches (divitiae ) had wrought. The undermining of Roman virtues by the spread of wealth and luxury also became the object of satirical poets like Horace (65–8 b.c.e.) and Juvenal (c. 55 or 60–in or after 127 c.e.). Due to the importance that a "classical education" had in the pedagogy of Europe from the Renaissance onward, the "fall of Rome," and the role of wealth therein, became a clichéd commonplace.
This culturally received wisdom was abetted by the appropriation, for their own end of demonstrating the transience and superficiality of worldly goods, by Christians. The early Christians, such as Saints Ambrose (339–397), Augustine of Hippo (354–430), and John Chrysostom (c. 347–407), took up this moral critique of wealth. It was an important source of their advocacy of asceticism but it built also upon Paul's (who was himself influenced by the Stoics) pronouncement in his Epistle to Timothy that the love of money was the root of all evil. The message was reiterated by Thomas Aquinas (1225–1274) and by other Christian philosophers upon the rediscovery of Aristotle's works. It received a significant boost in the republican tradition that was reenergized by Niccolò Machiavelli (1469–1527), though here the "political" rather than the moral dimension (see below) is dominant. Much the same can be said of Jean-Jacques Rousseau (1712–1778), perhaps the last great exemplar of this tradition.
People look for a different kind of wealth and wealth acquisition and rightly so for natural wealth and wealth acquisition are different. Natural wealth acquisition is a part of household management, whereas commerce has to do with the production of goods, not in the full sense, but through their exchange.… The wealth that derives from this kind of wealth is without limit.
source: Aristotle, The Politics, trans. C. Reeve (Indianapolis: Hackett, 1998), 14, 17 [1256b27–33, 1257b16–25].
This critique was responsible for significant ripostes. David Hume (1711–1776)—followed by his fellow Scot, Adam Smith (1723–1790)—turned the tables. Hume, in his essay Of Luxury (1752), linked virtue with wealth, and not with ascetic poverty, and identified this linkage as the definitive characteristic of ages of refinement or commerce. He stressed both the intrinsic benefit of the pleasure that accrued from being able to enjoy goods that gratified the senses and the great instrumental benefits that came from the industry that was undertaken to obtain the wealth that permitted such goods to be enjoyed. The commercialism that Hume and others defended has not been without critics. In the twentieth century it expressed itself in the critique of consumerism. In an effective rerun of Aristotle, the acquisition of goods, the accumulation of wealth, or what C. B. Macpherson (1911–1987) labeled the legitimization of possessive individualism, has been subject to condemnation. A culture committed to consumerism is judged deleterious to the individual who, lacking a proper instrumental perspective, is at the mercy of the fads of fashion and the interests of those who benefit from the manufacture of demand. It is also bad for society because it embodies a mis-direction of resources away from societally advantageous investment and entrenches the gap between wealthy and poor economies. The celebration of consumption and the desire to emulate the supposed spending power of the rich also led, in the latter decades of the twentieth century, to the development of "Green" thought, which argues that this entire emphasis on gratification is practically disastrous for the environment and symptomatic of a hubristic arrogance toward Nature. E. F. Schumacher (1911–1977), for example, advocated, in his popular essay Small Is Beautiful (1973), what he termed Buddhist economics as a way to halt this degradation.
Wealth and Power
In all stratified societies (which includes virtually all societies for which records exist) the hierarchy is significantly determined by differential access to, and possession of, wealth. To be wealthy enables one to exercise economic and political power. This exercise is frequently related to the question of virtue. Hence the resources at the disposal of Aristotle's "liberal man" stemmed from what was under his control. Sociologically this man was the head of the household whose position rested upon his command of his wife and slaves as they created the "leisure" time for him to pursue intrinsically worthwhile ends. True wealth for Aristotle consisted in a store of goods that were sufficient for life and useful for the good life. This wealth had to be secure and it was best obtained through land ownership in marked contrast to the insecure foundation of commerce and money.
This secure source of wealth sustained political independence. This association between landed wealth and political activity has been one of the most historically enduring linkages. The crux of the corruption of Rome was held to be the replacement of a commitment to the public good, which was sustained by relative equality and independence, by a devotion to private satisfaction, which followed from the emergence of the rich, who used their wealth to advance their own personal ambition. Machiavelli drew an evocative picture of this pattern as it appeared in Renaissance Italy. He depicted the gentry (gentiluomini ) as "a pest" because they use their wealth to hire others to work for them. Crucially these hired hands, being dependent on their masters for their livelihood, could be used to support their selfish ambitions. The only way to end this corrupting dependency is to (re)establish equality through fostering a sense of civic virtue. To further this objective, Machiavelli advocated, drawing on Roman precedents, an Agrarian law that precluded the accumulation of large estates. Other republicans took a similar line. James Harrington (1611–1677) went into minute detail in his imagined constitutional republic of Oceana (1656). In Rousseau's legitimate polity there should be a level of equality such that no one is wealthy enough to be able to create dependents and no one poor enough to become dependent on others. With the economic structure in this way forestalling the emergence of dependency—creating differential wealth, there is more chance, he believed, that acting for the common good (or willing "the general will"), rather than out of private self-interest, will occur.
The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations.
source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. Campbell and A. Skinner (Indianapolis: Liberty, 1976), vol. 1, p. 540.
In Rousseau's republican vision political power was possessed by equal citizens, but that meant it was restricted to those who were independent. On that criterion Aristotle excluded from citizenship slaves, manual laborers, and women (also excluded by Rousseau) and, when it came to the franchise, the exclusion of the latter two categories lasted into the twentieth century. It was a received commonplace that the privilege of political citizenship (the right to vote for a representative as well as to be a representative) required sufficient wealth to ensure economic independence. It followed that those economically dependent were without a direct political voice. In the eighteenth century Edmund Burke (1729–1797) defended the restricted franchise on the grounds that only those individuals with a direct stake in the country could be entrusted with its well-being. Thanks to their economic status they were able to exhibit the crucial political virtues of "constancy, gravity, magnanimity, fortitude, fidelity and firmness" (p. 427). Burke explicitly called these masculine virtues, but their possession meant that the interests of women, as well as the bulk of the disenfranchised population, would be properly looked after. Certainly the schemes for greater equality that were fomented by the Revolution in France would be disastrous. Much of the political history of the nineteenth century concerned the continual redefinitions of what constituted economic independence (and later how women were to be accommodated).
This history, and the surrounding debates, not only saw the increasing articulation of a modern idea of democracy but also the growth of socialism. Of course, the effect of the possession of wealth on sustaining dependency was not a uniquely Western phenomenon. The jajmani caste system in southern India (especially) operated in such a way that the lowest caste, in exchange for the lease of land owned by members of the high caste, had to provide the latter with labor service and a portion of their crop output. The fact that the caste system was integral to the belief systems of Hindus did not make it immune to criticism. Some of these criticisms were internal (as by Dayananda Sarasvati [1824–1883] or Mahatma Gandhi [1869–1948]), but the challenges to such inequality that the Western ideas of democracy and socialism articulated were also influential.
The socialist critique.
The most powerful Western voice was Karl Marx (1818–1883). Marx saw the key to history in the association between wealth and power. The source of wealth for Marx lay in ownership of what he called the forces of production. These had developed over time from slaves (human labor) to land to capital. Those who owned the forces—slave owners, landlords, capitalists, or bourgeoisie—were able because of that control to rule over nonowners—slaves, serfs, the proletariat. Ownership appears to be legal title, but law for Marx is part of society's "superstructure," which is determined by the economic base. Political power, which is used to enforce legal title, also upholds the interests of the dominant economic power; in a celebrated phrase, "the executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie" (Marx and Engels, p. 475). These interests are for Marx obviously opposed to the interests of those without economic power, and history reveals a struggle between the class of the owners of wealth and the class of nonowners.
Marx devoted most attention to the contemporary struggle within capitalism. His major work, Das Kapital (1867; Capital ), identified the particular form that wealth took under that mode of production. The rationale of capitalism was accumulation. For Marx, the only source for this was the "surplus value" extracted from the worker in the process of production. The exchange-value received in the form of wages by the worker for "his" labor-power is less than the exchange-value received by the capitalist for the commodity made by that power. This exploitative extraction was disguised because the level of wages appeared to be the consequence of a free contract between employer and employee. While Marx saw the initial source of the wealth in the blatant form of expropriation, forcing the landless into factories, the capitalists' ongoing accumulation of wealth was derived from this exploitation inherent to the system. However, he argued this was an unsustainable and self-defeating process that resulted in the immiserization of the workers whose labor-power was the source of accumulation. That misery, he predicted, would generate a proletarian revolution and the ushering in of a communist society. Here (though Marx was not very forthcoming) there would be equality and sufficient wealth to be shared since production would be geared to meeting needs, not accumulation.
Although Marx's predicted revolutionary trajectory did not transpire, revolutions did occur in his name. These inspired a vast literature both in lands like Russia (in the form of Leninism) and China (Maoism), where these revolutions were sited, as well as in the West, where Marx's ideas were the dominant source of criticism of capitalism. Increasingly these critiques paid less attention to Marx's economic analysis and more to his early philosophical writings, with their focus on alienation. While the issue of wealth correspondingly lost some of its salience, the association between the economic and the political was resilient. The universalizing power of capitalism, which Marx did predict, seems to have been reinforced since 1989 and the fall of the Soviet Union. One prominent expression of this has been debate on the meaning and morality of "globalization." The focus has been on the relative impotence of national governments when confronted by worldwide markets and the power of the institutions of global finance like the World Bank and the International Monetary Fund. The least powerful are the least wealthy (the most indebted), effectively the non-Western world.
The greater the social wealth, the functioning capital, the extent and energy of its growth, and, therefore, also the absolute mass of the proletariat and the productiveness of its labor, the greater is the industrial reserve army. The same causes which develop the expansive power of capital, develop also the labor-power at its disposal. The relative mass of the industrial reserve army increases therefore with the potential energy of wealth.… This is the absolute law of capital accumulation.… Accumulation of wealth at one pole is, therefore, at the same time the accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole.
source: Karl Marx, Capital, trans. S. Moore and S. Aveling. In Marx Engels Reader, 2nd ed., ed. R. Tucker (New York: Norton, 1978), 429–431.
Mercantilism and its critique.
Marx was not original in seeing historically a development between wealth and economic-political power. Adam Smith had argued that societies (though not universally and unexceptionally) went through four stages—hunting/herding, herding, farming, and commercial. In each case there was a system of subordination, which, although based on personal qualities in the first stage, in the next two rested on control of the dominant means of wealth, that is, of herds and land. He was explicit that government was instituted to protect the propertied (the owner of the herds and of the land) against those without property. The fourth commercial stage saw a difference because the impartial rule of law was established to provide a formal equality. In his Wealth of Nations (1776) he analyzes the basis of wealth in the modern world. Part of his task was to assault the then dominant understanding of the linkage between wealth and economic-political power.
According to this prevalent view (usually labeled "mercantilism"), as expressed by Thomas Mun (1571–1641), the way to increase wealth is "to sell more to strangers yearly than wee consume of theirs in value" (p. 125). Mun distinguished between natural wealth, essentially minerals and direct agricultural products, and artificial wealth, which was the manufacture of materials (clothing rather than wool or flax). He thought more profit (exports) could be earned from the latter source. To achieve this it was necessary—and this is central to the mercantilist view—to maintain a favorable balance of trade. This maintenance needed to be managed or regulated and, as such, had to be an item of policy, the ultimate objective of which was the promotion of the wealth, and thence of the power and security, of the state. Indeed, the very idea of the "state" as an impersonal entity emerged at this time.
Whether mercantilism ever constituted a coherent theoretical position, as opposed to practical responses, has been contested, but Smith gave it an identity. Smith judged the mercantilist method of acquiring and maintaining wealth/power as theoretically misconceived. For Smith the real wealth of a nation lay in the annual produce of the land and labor of the society. The way to increase this wealth is through what he called the system of natural liberty. This entailed removing the panoply of regulations and restrictions characteristic of mercantilism, such as those on employment, like guildsponsored apprenticeships; on the mobility of property, like entails; on consumption, like sumptuary laws; and on trade, like tariffs. Without these obstacles, a free economy would produce a growth in wealth that would benefit the entire population (the "trickle-down" effect).
Smith, although he has become by far the most famous, was not alone in reevaluating the meaning of wealth. One significant dimension had always been population. The wealthier a country, the more people it could sustain, and that in turn would provide both economic and political-cum-military clout. In the Aristotelian tradition, one of the attacks made on commerce was that it enfeebled nations because its citizens were too busily engaged in their private tasks of money-making to devote themselves to their civic responsibilities, which included fighting. For Machiavelli and his intellectual heirs, a citizen militia was the appropriate martial institution, and professional standing armies were not only a threat to civic liberty but also less effective as fighting machines. Smith rejected this. He countered that the wealthier a country was, the more resources were at its disposal to provide sophisticated weaponry and to train soldiers effectively. It was one consequence of this that population by the nineteenth century ceased to have the same value as a marker of national strength; indeed the worries were rather that industrialization was producing too many people to be provided for adequately.
The link between wealth and power can also be expressed indirectly. Thorstein Veblen (1857–1929) in his Theory of the Leisure Class (1899) articulated this through his notion of conspicuous consumption. He argued that to enjoy esteem it was not sufficient merely to be wealthy, others had to be made aware of that fact (it had to be conspicuous). In its purest form, consuming conspicuously is consumption of the totally useless, but (less perfectly) it is the consumption of "high maintenance" goods like white clothes in a dirty industrial environment. While there were predecessors (including Adam Smith), Veblen's analysis was free of the moralizing that often appeared in economists. The leading contemporary economist of Veblen's time, Alfred Marshall (1842–1924) in his Principles of Economics (1890), declared the desire for wealth as a means of display to be unwholesome. Marshall was here following his most distinguished predecessor, John Stuart Mill (1806–1873), who had declared that the subject of political economy itself was wealth, which he defined (after a critique of the mercantilist version) as "all useful or agreeable things that possess exchangeable value" (p. 15). However, he proceeded to maintain that the English needed instruction in the use of wealth and how to appreciate those objects of desire that wealth cannot purchase. Mill here implied a distinction between the pursuit of wealth (the art of "getting on" as he put it) and the worthwhileness of what is being pursued (the art of living).
In order to gain and to hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence, for esteem is awarded only on evidence. And not only does the evidence of wealth serve to impress one's importance on others and to keep their sense of importance alive and alert but it is scarcely less use in building up and preserving one's self-complacency.… Abstention from labor is the conventional evidence of wealth and is therefore the conventional mark of social standing; and this insistence on the meritoriousness of wealth leads to a more strenuous insistence on leisure.… According to well-established laws of human nature, prescription presently seizes upon this conventional evidence of wealth and fixes it in men's habits of thoughts as something that is itself substantially meritorious and ennobling.
source: Thorstein Veblen, The Theory of the Leisure Class (New York: Dover, 1994), 42, 44–45.
This implicit distinction is made explicit and its moralism exposed by Veblen. He distinctively drew attention to the divergence between the drive to accumulate wealth, as a symbol of reward for industry, and the desire, once it has been accumulated, to look upon its possession as intrinsically worthy. Since social status is attributed to the possession of wealth, the imperative is to exhibit leisure (the nonproductive consumption of time) and dissociate thereby the actual possession of the wealth from the effort expended to attain it. Later economists have developed his ideas in their analysis of consumption in the form of the "demonstration effect" and what they call nonfunctional demand. A "Veblen effect" has been identified where, in an exact reversal of the assumed practice of the rational consumer, the demand increases when the price rises. Only the "truly" wealthy can afford to flout that rationality.
Of course, at another level there is a rationality at work—namely that of demonstrating one's wealth and impressing others by its possession. Under that guise this indirect linkage between wealth and power is a recurrent feature. One of its most striking manifestations is the practice of "potlatch." The status system of the tribes of northwest America is maintained by display, as exhibited in the hosting of great feasts. In the Nootka tribe the chief is presented with the first catch of the salmon traps, the first pickings of ripe fruit, and so on, but having received these, he then holds a feast where the gifts are communally consumed. This pattern is also characteristic of the so-called big man systems of the Pacific. Among the Kaoka of Guadalcanal, reputation is enhanced not by accumulating wealth but by giving it away. The more one can bestow upon others, the greater one's social standing. Hence every significant event such as a birth or wedding is celebrated by a feast, and the more feasts, and the more lavish the fare, that can be "afforded," the greater the prestige. The social leaders (the holders of political power) in all such systems are those whose wealth is manifest by being able to give away most.
The Dangers of Wealth
That the possession of wealth conveys political power has long been a source of suspicion. For both Plato (428–348 or 347b.c.e.), in The Republic, and Aristotle an oligarchic constitution was associated with rule by the wealthy "few." In both cases this was a negative association. The wealthy used their economic power to rule politically in their own interest, as opposed to the interests of all. In the idea of a "cycle of constitutions" propounded by Polybius (c. 200–118 b.c.e.), in his Histories [of Rome] (and reiterated many times over during the succeeding centuries), oligarchy represented a corrupt falling away from good rule by the few (aristocracy) but that was itself displaced in reaction to its self-serving rule by the initially virtuous rule of the many (what became called democracy).
Contemporary (liberal) democracies all have practices and policies that in some way aim to forestall any pernicious effects that might follow from concentration of wealth in a few hands. Some of these are direct. The buying of votes is universally made illegal but frequently, in addition, there are restrictions on the use of money in political campaigns. Other prescriptions are indirect, for example, wealth taxes, and other redistributive fiscal mechanisms. One of the intentions behind such policies is to enhance the possibility of the equality of opportunity. If jobs are "open to the talents," if individuals are provided with the educational resources (in particular) to enable them to compete, then the differing amount of wealth subsequently earned is justified. However, for that differential to pass down to the next generation undiluted is, it is argued, to undermine that equality. It remains, however, one of the longest running disputes in modern political philosophy the extent to which policies designed to neutralize the inequalities associated with wealth infringe upon the value of liberty and autonomy. A libertarian thinker like Robert Nozick (1938–2002), in his Anarchy, State, and Utopia (1974), argues that attempts to impose a preferred distribution of assets illicitly infringe on the rights of individuals. More egalitarian writers, like Michael Walzer (b. 1937) in his Spheres of Justice (1983) or, from very different premises, Jürgen Habermas (b. 1929) in a range of writings, seek to keep the political or civic sphere free of the baneful effects of the economic power and reach of wealth.
Wealth continues to be a subject of debate. Its distribution and effects on social and public policy and welfare are a matter of both practical and academic concern. Its generation and allocation is a central topic in economics; its justification similarly is a major issue in moral and political philosophy. These current disputes without much distortion carry with them the weight of millennia of speculation and in so doing demonstrate that the history of the idea of wealth encapsulates a wealth of ideas.
See also Christianity ; Communism ; Economics ; Power ; Property ; Virtue Ethics .
Aristotle. The Ethics of Aristotle: The Nicomachean Ethics. Translated by J. Thomson. Harmondsworth, U.K.: Penguin, 1976.
——. The Politics. Translated by C. Reeve. Indianapolis: Hackett, 1998.
Burke, Edmund. Speech on American Taxation. 1774. In Works, vol. 2. London: George Bell, 1882.
Locke, John. Second Treatise of Government. 1689. Edited by P. Laslett. Cambridge, U.K.: Cambridge University Press, 1970.
Machiavelli, Niccolò. Discourses on Livy. 1531. Translated by L. Walker (trans. revised by B. Richardson). Harmondsworth, U.K.: Penguin, 1974.
Marx, Karl. "Preface to a Critique of Political Economy." 1857. In Marx-Engels Reader, 2nd ed., edited by R. Tucker. New York: Norton, 1978.
Marx, Karl, and Engels Friedrich. Communist Manifesto. 1848. In Marx-Engels Reader, 2nd ed., edited by R. Tucker. New York: Norton, 1978.
Mill, John Stuart. Principles of Political Economy. 1848. In Collected Works, vols. 2 and 3, edited by J. Robson. Toronto: University of Toronto Press, 1964.
Mun, T. English Treasure by Forreign Trade. 1664. Reprinted in Early English Tracts on Commerce, edited by John Ramsey McCulloch. Cambridge, U.K.: Economic History Society, 1952.
Rousseau, Jean-Jacques. Social Contract. 1765. Edited by V. Gourevitch. Cambridge, U.K.: Cambridge University Press, 1997.
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. 1776. Edited by R. H. Campbell and A. S. Skinner. New York: Oxford University Press, 1976.
Veblen, Thorstein. The Theory of the Leisure Class. 1899. New York: Dover, 1994.
Berry, Christopher. The Idea of Luxury: A Conceptual and Historical Investigation. Cambridge, U.K.: Cambridge University Press, 1994. Covers episodically issues and debates from the Greeks to the present day.
Coates, Alfred. On the History of Economic Thought. London: Routledge, 1992. A collection of previously published essays, a number of which summarize and discuss mercantilism, Smith, and nineteenth-century economists.
Hayek, F. A. Law, Liberty, and Legislation. 3 vols. London: Routledge, 1982.
Leibenstein, H. "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers." Quarterly Journal of Economics 64 (1950): 183–207.
Macpherson, Crawford B. The Political Theory of Possessive Individualism. Oxford: Clarendon, 1962.
Price, B. B., ed. Ancient Economic Thought. London: Routledge, 1997. A collection of essays covering Greek, Roman, Indian, and Hebraic ideas.
Rawls, John A. A Theory of Justice. Oxford: Clarendon, 1972.
Sahlins, Marshall. Stone Age Economics. London: Tavistock, 1974. At times controversial but informative essays in anthropological economics.
Troeltsch, Ernst. The Social Teaching of the Christian Churches. 2 vols. Translated by Olive Wyon. New York: Macmillan, 1931. A classic work and still of value. German edition, 1911.
Christopher J. Berry
Berry, Christopher. "Wealth." New Dictionary of the History of Ideas. 2005. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1G2-3424300809.html
Berry, Christopher. "Wealth." New Dictionary of the History of Ideas. 2005. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3424300809.html
Throughout their history, human beings have been trying to improve the conditions of their existence. Ever since their early days, they sought to understand nature and dominate it. They discovered tools, salt, and fire, all of which made life better and easier. Possession of these “things” became a necessity. Wealth then meant all the things that are useful for satisfying needs and ensuring the well-being of their holder. This way of understanding wealth has not changed very much, for even today the Merriam-Webster Collegiate Dictionary defines wealth as “the stock of useful goods having economic value in existence at any one time,” or to be more precise: “All property that has a money value or an exchangeable value.” The modern definition reflects the popular understanding that wealth is synonymous with the acquisition and accumulation of real (physical) and financial assets. Material wealth, it seems, has always been important in the lives of individuals, from ancient to modern societies.
However, history of economic thought tells us that early civilizations in Mesopotamia, Egypt, and Greece had a positive attitude to knowledge, and many philosophers regarded it as the basis for wealth and empowerment. All the achievements in terms of progress (technical and other) were the result of the skills acquired through knowledge. The “light of fire” was a reflection of the “light of thought.” Modern economic theory also recognizes what we call “human capital” (health, education, and knowledge in general) is an important element of wealth. The subtlety of the modern view is that wealth is not only created—it is also inherited. Because wealth can often be transferred from parents to heirs without impediments, some rich people may not be particularly knowledgeable and some great minds may not be particularly rich. People naturally reject poverty and have a desire to get rich and live comfortably. Therefore, not only will they question the unequal distribution of wealth, they will also try—by whatever means available—to change the status quo. Poverty makes people feel oppressed, disobedient, difficult to govern, and ready for revolt. The extremists would claim that a life of deprivation is not worth living. Tensions over the distribution of wealth existed even in ancient societies. Class struggle, according to Karl Marx ([1867–1910] 1956), is a dynamic force of change in all class societies.
In ancient societies, when human needs were basic and wealth meant getting the goods from nature to satisfy their “natural” needs, there were no quarrels about being or wanting to be rich. Increased wealth simply translated into increased consumption and improved well-being. Wealth was necessary and everyone approved of it. Social values encouraged the ability to gather and/or produce more goods. The consensus came to an end when the distinction could be made between what was necessary (natural) and what had become luxurious or superfluous (artificial). Luxurious consumption, which could be afforded by only some people, was condemned on moral and religious grounds as waste, ostentation, or vanity. The desire for luxury, it was argued, has no limits and requires excessive riches. In turn, the pursuit of excessive wealth makes people selfish, greedy, dishonest, and morally corrupt. The rise of private property is justified by the need to ensure continuous control over the flow of resources or goods that satisfy these needs, whether natural or artificial. Greek philosophers such as Plato and Aristotle opposed both extreme poverty and excessive wealth. Poverty was considered by most as a debilitating state, whereas the desire for excessive wealth led to a state of unhappiness. To avoid these extremes, many philosophers recommended moderation. The ideal state of well-being is that where the individual learns how to control and limit his or her desires and needs. Wealth therefore became associated with wisdom and virtue. The same idea was later integrated into religious thought as “the wealth of the soul”; an inner dimension that can be achieved through moderate use of material wealth. (For an excellent review of the ancient thought on the subject, see Perrotta 2003.)
However, as pointed out by Cosimo Perrotta, even though many ancient thinkers praised modesty and the simple, natural lifestyle, most would still prefer wealth and reject poverty. Material wealth, after all, “contributes to the life according to nature” (Perrotta 2003, p. 210). The rejection of poverty is also found in ancient eastern civilizations. For instance, ancient Indian thinkers believed that life on earth was only a transitory state, but they still wanted it to be a good life; an opportunity to “perform good deeds” and achieve “prosperity on earth.” According to Balbir Sihag, “[a]ncient thinkers in India put heavy emphasis on keeping a proper balance between spiritual health and material health” (2005, p. 2). Chanakya Kautilya, one of India’s ancient thinkers and a contemporary of Aristotle, “considered poverty as a living death and concentrated on devising economic policies to achieve salvation from poverty without compromising with ethical values” (Sihag 2005, p. 1).
Islamic thought did not consecrate poverty either. It advocated the circulation of wealth through voluntary alms giving, sadaqa, and required giving, zakat, from the rich to the poor. In fact, Arabs, both before and after Islam, believed that wealth included a part that must be given away. In Islam, the poor and the needy have a claim on, a recognized right to, a portion of the property of the rich. The Qur’an refers to the community of the believers as “those upon whose wealth there is a recognized right for the beggar and the deprived” (surat 70: 24–25). Based on this philosophy, the Muslims sought to build a “community that regulates its flow of money and goods in the right direction … that practices generosity as reciprocation for God’s bounty, that observes the haqq [i.e., the recognized right] inhering in the good things of this world, that purifies and maintains its wealth by giving up a portion of it in alms, and that takes ample account of the kinsman as well as … the poor stranger” (Bonner 2005, p. 404). The final goal is to achieve a virtuous life on earth—the moral well-being that the ancient Indian thinkers talked about.
The idea that wealth must be shared equitably was also expressed later by modern thinkers such as Adam Smith, Marx, and John Maynard Keynes. Smith, for instance, considered the unequal distribution of wealth as “the great and most universal cause of the corruption of our moral sentiments” ( 1976b, p. 61). Smith defined wealth in terms of production of goods and services for the purpose of satisfying the needs of society as a whole. He argued that because workers are the main factor of production, they should have their fair share: “[n]o society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have a share of the produce of their own labor as to be themselves tolerably well fed, cloathed and lodged” ( 1976b, p. 96).
Keynes also was in favor of spreading wealth and against its concentration in the hands of the capitalist class. He considered scarcity, which is artificially created by the capitalist, to be “one of the chief social justifications of great inequality of wealth.” (Keynes 1936, p.373). Therefore, he sought to eliminate “the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital” because, he argued, “interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scare just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital” (1936, p. 376).
The artificial scarcity preoccupied Marx as well, who argued that “[i]t is quite simply the private ownership of land, mines, water, etc. by certain people, which enables them to snatch, intercept and seize the excess surplus value over and above profit … contained in the commodities of these particular spheres of production …” ([1867–1910] 1968, p. 37) In other spheres of production such as manufacturing, Marx rose against the exploitation of the working class and called for a community based on social justice.
Whereas Smith and early thinkers defined wealth either as production (of goods and services) or as consumption, Marx considered it as the creation of value and distinguished between use value (goods and services produced for own needs) and exchange value (goods and services produced for sale). Marx wrote:
[a] commodity, such as iron, corn, or a diamond, is therefore … a use value, something useful. This property of a commodity is independent of the amount of labor required to appropriate its useful qualities. … Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange value. ([1867–1894] 1992, p. 44)
Exchange value, in contrast, exists only when the product is sold. As Marx put it, “a thing can be useful, and the product of human labor, without being a commodity. Whoever directly satisfies his wants with the produce of his own labor, creates, indeed, use values, but not commodities. In order to produce the latter, he must not only produce use values, but use values for others, social use values” ([1867–1894] 1992, p. 48).
If some authors have argued that all members of society should enjoy the benefits of increased wealth, others wanted to exclude the lower classes. In ancient times, the opposition to increased consumption was part of the general criticism of luxury, the desire to get rich, and selfishness. In modern times, the justification has been that consumption by lower classes takes away resources from investment—the key to accumulation. However, one must remember that consumption is what sets apart the different members of society. After all, as the popular adage says, “you are what you eat (consume),” that is, consumption sets your social status. Therefore, we should understand that “[t]he authors hostile to increased consumption … nearly always conceal (or reveal) a social motive: they are opposed to the rise of the lower classes and fear that their subordination may come to an end. They appear to be concerned about the destiny of the world, but are often concerned merely about the loss of their own privileges” (Perrotta 2003, p. 179).
Thorstein Veblen (1899) saw in the exclusion of the lower classes a means of guaranteeing the power and maintaining the social status of what he called the “leisure class,” for it is through this power relationship that wealth is truly valorized. Preventing the poor from having access to increased consumption is important in the process of valorizing wealth. The logical step therefore is to prevent them from having access to increased wealth, that is, to keep wealth scarce and concentrated in the hands of the leisure class. This is done through what Veblen (1899) called “conspicuous consumption” and “industrial sabotage.” Technology speeds up the production process and increases the total amount of goods and services, thus contributing to eliminate scarcity by gradually shifting luxury consumer goods from being exclusively consumed by the leisure class to being widely available to the lower classes. As pointed out by Charles Clarke,
this tendency must be kept in check, and it is done so by the process Veblen labeled industrial sabotage. Industrial concentration and monopoly are necessary in order to keep profits high.… Thus at the micro level industrial concentration generates scarcity, while at the macro-economic level this is done by keeping the value of money higher than it need be, i.e., keeping interest rates too high. (2002, p. 419)
Advocates of globalization, including the World Trade Organization (WTO), have been arguing that inequality will fall as economies become more integrated and flows of capital and commodities more liberalized. The conclusions of the globalization-equality thesis are based on the neoclassical economic theory according to which free trade (one aspect of globalization) will bring about convergence in commodity prices, whereas factor mobility (another aspect of globalization) will equalize factor incomes by raising the income of the abundant factor and lowering that of the scarce factor. In the context of trade between developed and developing countries, one should expect that incomes of the working poor (the abundant factor) will rise and that returns to capital or even the incomes of highly skilled workers (the scarce factor) will fall. Globalization, therefore, will reduce inequality.
However, this is in sharp contrast with what is observed on the ground. At the national level, available evidence indicates that inequality between the rich and the poor—whether measured by income or by wealth—has been rising in most cases. The United Nations Development Program (UNDP) found that “a study of 77 countries with 82% of the world’s people shows that between 1950s and 1990s inequality rose in 45 of the countries and fell in 16.… In the remaining 16 countries either no clear trend emerged or income inequality initially declined, then levelled off” (2001, p. 17). At the international level, according to the UNDP, the average GDP per capita from various regions as a ratio to that of high-income OECD countries declined between 1960 and 1998, and “in sub-Saharan Africa the situation has worsened dramatically: Per capita income, around 1/9 of that in high-income OECD countries in 1960, deteriorated to around 1/18 by 1998” (UNDP 2001, p. 16). The UNDP summarized its results on world inequality by stating that the ratio of the income of the world’s richest 10 percent to that of the poorest 10 percent has increased from 51:1 to 127:1 between 1970 and 1997.
A study by the World Institute for Development Economics and Research reported that
[t]he figures for wealth shares show that the top 10 percent of adults own 85 percent of global household wealth, … [The corresponding figure for the top 1 percent of adults is 40 percent of global wealth]. This compares with the bottom half of the distribution which collectively owns barely 1 percent of global wealth. Thus the top 1 percent own almost forty times as much as the bottom 50 percent. The contrast with the bottom decile of wealth holders is even starker. The average member of the top decile has nearly 3,000 times the mean wealth of the bottom decile, and the average member of the top percentile is more than 13,000 times richer. (Davies et al. 2006, p. 26)
The unequal distribution of wealth between nations via trade flows was the main argument of the dependency theory in the 1950s. Raul Prebisch (1950) and others have documented this inequality as a transfer of wealth from developing to developed countries in the form of declining terms of trade. Others have argued that underdevelopment (and therefore poverty) is a by-product of the development of Europe and other industrial countries (Darity 1992; Rodney 1972). James Galbraith (2002), on the other hand, showed that the rise in inequality that began in the early 1980s coincided with a sharp increase in real interest rates, an event that had dramatic effects on poor countries, which were forced to adopt austere policies that resulted in more poverty.
Wealth and poverty are not mutually exclusive. They coexist in a dialectical manner; they are both the result of one thing: the unequal distribution of value created in all the stages of production. The mechanisms underlying this unequal distribution have to do with the power relationships leading to the appropriation of profits made from the production and sale of commodities, whether at the national or the global level. The market mechanism cannot bring about social justice. To achieve some form of democratic wealth, redistribution through public intervention is necessary.
SEE ALSO Aristotle; Class Conflict; Economics, Stratification; Globalization, Social and Economic Aspects of; Human Capital; Inequality, Income; Inequality, Wealth; Inheritance; Interest Rates; Islam, Shia and Sunni; Justice, Social; Keynes, John Maynard; Markets; Marx, Karl; Plato; Poverty; Power; Prebisch-Singer Hypothesis; Profits; Property; Slavery; Smith, Adam; Surplus; Underdevelopment; Veblen, Thorstein; World Trade Organization
Bonner, Michael. 2005. Poverty and Economics in the Qurʾan. Journal of Interdisciplinary History 35 (3): 391–406.
Clarke, Charles M. A. 2002. Wealth and Poverty: On the Social Creation of Scarcity. Journal of Economic Issues 36 (2): 415–421.
Darity, William, Jr. 1992. A Model of “Original Sin”: Rise of the West and Lag of the Rest. American Economic Review 82 (2): 162–167.
Davies, James B., Susanna Sandstrom, Anthony Shorrocks, and Edward N. Wolff. 2006. The World Distribution of Household Wealth. Helsinki: World Institute for Development Economics and Research.
Galbraith, James K. 2002. A Perfect Crime: Inequality in the Age of Globalization. Daedalus (Winter): 11–25.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Macmillan.
Marx, Karl. [1867–1910] 1968. Capital. Vol. IV. Moscow: Progress Publishers.
Marx, Karl. [1867–1910] 1992. Capital. Vol. I. New York: International Publishers.
Perrotta, Cosimo. 2003. The Legacy of the Past: Ancient Economic Thought on Wealth and Development. European Journal of History of Economic Thought 10 (2): 177–229.
Prebisch, Raul. 1950. The Economic Development of Latin America and Its Principal Problem. Santiago: United Nations Economic Commission for Latin America.
Rodney, Walter. 1972. How Europe Underdeveloped Africa. London: Bogle-L’Ouverture.
Sihag, Balbir S. 2005. Kautilya on Ethics and Economics. Humanomics 21 (3–4): 1–28.
Smith, Adam.  1976a. The Theory of Moral Sentiments. Oxford: Oxford University Press.
Smith, Adam.  1976b. An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Oxford University Press.
United Nations Development Program (UNDP). 2001. Human Development Report. Oxford: Oxford University Press.
Veblen, Thorstein. 1899. The Theory of the Leisure Class. New York: Macmillan.
"Wealth." International Encyclopedia of the Social Sciences. 2008. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1G2-3045302949.html
"Wealth." International Encyclopedia of the Social Sciences. 2008. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3045302949.html
Wealth represents a stock of accumulated assets; income represents a flow of current output. Families not only receive income over the course of a year but also save part of their income in the form of housing, time deposits, stocks, bonds, and the like. Such accumulated savings are referred to as wealth. The first part of this entry explains why wealth, like income, has an important bearing on well-being. The second part develops the concept of household wealth and discusses some of the problems inherent in its measurement; the third presents time trends in the inequality of wealth in the United States; and the fourth shows international comparisons of wealth inequality.
Why are we interested in household wealth? Most studies use income as a measure of family well-being. Though certain forms of income are derived from wealth, such as interest from savings accounts and dividends from stocks, income and wealth are by no means identical. Many kinds of income, such as wages and salaries, are not derived from household wealth, and many forms of wealth, such as owner-occupied housing, produce no corresponding income flow.
Moreover family wealth by itself is also a source of well-being, independent of the direct financial income it provides. There are six reasons. First, some assets, such as owner-occupied housing and consumer durables such as automobiles, provide services directly to their owners. Such assets can substitute for money income in satisfying economic needs. Families with the same money income but differing amounts of housing and consumer durables will have different levels of welfare.
Second, wealth is a source of consumption, independent of the direct money income it provides. Many assets can be converted directly into cash and thus provide for immediate consumption needs.
Third, the availability of financial assets can provide liquidity to a family in times of economic stress (such as those occasioned by unemployment, sickness, or family breakup). In this sense wealth is a source of economic security for the family.
Fourth, as the work of Dalton Conley (1999) has shown, wealth is found to affect household behavior over and above income. In particular Conley found that it is necessary to control for wealth in order to understand racial inequality, including differences in school performance and enrollment in the United States.
Fifth, as Seymour Spilerman (2000) argued, wealth-generated income does not require the same trade-offs with leisure as earned income. There is no cost in the form of the foregone alternative use of time in the case of wealth. Moreover, unlike labor earnings, the income flow generated by wealth does not decline with illness or unemployment.
Sixth, large fortunes can be a source of economic and social power that is not directly captured in annual income. Large accumulations of financial and business assets can confer special privileges to their holders. Such large fortunes are often transmitted to succeeding generations, thus creating family “dynasties.” In these six ways wealth holdings provide another dimension to household welfare over and above income flows.
The conventional definition of household wealth includes assets and liabilities that have a current market value and that are directly or indirectly marketable. In the Survey of Consumer Finances conducted by the Federal Reserve Board of Washington, D.C., on a triennial basis, marketable wealth (or net worth) is defined as the current value of all marketable assets less the current value of debts. Total assets are the sum of (1) owner-occupied housing; (2) other real estate; (3) cash, demand and time deposits, certificates of deposit (CDs), and money market accounts; (4)
|Table 1. Portfolio Composition of U.S. Household Wealth, 2004 (Percentage of gross assets)|
|SOURCE: Federal Reserve Board, Survey of Consumer Finances, 2004.|
|Other real estate||11.5|
|Unincorporated business equity||17.1|
|Corporate stock and mutual funds||11.9|
|Net equity in personal trusts||2.9|
|Debt on owner-occupied housing||11.6|
|All other debt||3.9|
financial securities; (5) the cash surrender value of life insurance; (6) pension accounts; (7) corporate stock and mutual funds; (8) unincorporated businesses equity; and (9) trust fund equity. Total liabilities are the sum of (1) mortgage debt and (2) consumer and other debt.
Table 1 presents the portfolio composition for the household sector in the United States in 2004 based on the Survey of Consumer Finances. Owner-occupied housing was the most important household asset, accounting for 33 percent of total assets. Land, rental property, and other real estate held by households made up 12 percent. Unincorporated business equity, which refers to small businesses (such as farms or stores) owned directly by individuals, comprised another 17 percent.
Liquid assets (cash, demand, time and savings deposits, money market funds, CDs, and the cash surrender value of life insurance) comprised 7 percent of total assets. Defined contribution pension accounts, such as individual retirement accounts (IRAs) and Keogh and 401(k) plans, constitute savings like savings accounts but are especially designed to allow workers to save for retirement by providing tax-deferred savings. Pension accounts made up almost 12 percent of household assets. Financial securities, including bonds, notes, and financial securities issued mainly by corporations and the government, are “promissory notes” by which the borrower agrees to pay back the lender a certain amount of money (the principal plus interest) at a certain date. In 2004 they amounted to only 2 percent of total assets.
The next component is corporate stock and mutual funds. A corporate stock certificate issued by a company represents ownership of a certain percentage of the company’s assets. A mutual fund is a package provided by a financial entity, such as a bank, that includes a portfolio of stocks and other financial instruments, such as bonds. Its chief advantage is that it helps diversify the risk associated with individual stock (and bond) movements over time. In 2004 stocks and mutual funds amounted to almost 12 percent of total assets. Personal trusts refer to financial instruments held in a special legal arrangement called a trust fund. In a typical trust, the assets are managed by a specially named administrator, and the income earned from the assets is remitted to individual beneficiaries. Trust fund equity comprised only 3 percent of total assets.
On the liability side, the major form of household debt is home mortgages. A mortgage is a loan issued usually by a bank for a period of fifteen to thirty years that is used to finance the purchase of real property. In 2004 mortgage debt comprised 75 percent of total household debt. The remaining 25 percent consisted of other household debt, including automobile and other consumer loans and credit card debt. Total household debt amounted to 16 percent of the value of household assets.
A theme that regularly emerges in the literature on household wealth is that there is no unique concept or definition of wealth that is satisfactory for all purposes. One concept that is broader than marketable wealth is the sum of marketable wealth and consumer durables. Consumer durables, such as automobiles, televisions, and furniture, provide consumption services directly to the household and as such function like “annuities.” However, since they are not easily marketed and their resale value typically far understates the value of their consumption services, they are often excluded from marketable wealth. A still broader definition of wealth includes the value of future social security benefits the family may receive upon retirement (social security wealth) as well as the value of retirement benefits from private pension plans (pension wealth). However, even though these funds are a source of future income to families, they are not in the family’s direct control and cannot be marketed and are also excluded from marketable wealth.
The figures in table 2 show that wealth inequality, after rising steeply between 1983 and 1989, remained virtually unchanged from 1989 to 2004. The share of wealth held by the top 5 percent rose by 2.8 percentage points from 1983 to 1989, that of the top quintile by 2.2 percentage points, and the Gini coefficient (an index that ranges from zero to one, where a higher number indicates greater inequality) increased from 0.80 to 0.83. Between 1989 and 2004 the share of the top 5 percent remained largely unchanged, and the share of the top quintile rose from
|Table 2. The Size Distribution of Wealth and Income, 1983–2004|
|Year||Gini Coefficient||Share of Top 5%||Share of Top 20%|
|SOURCE: Federal Reserve Board, Survey of Consumer Finances, 1983, 1989, 2004.|
|A. Net Worth|
83.5 to 84.7 percent. Overall the Gini coefficient fell very slightly, from 0.832 in 1989 to 0.829 in 2004.
The top 5 percent of families (as ranked by income) earned 32 percent of total household income in 2003, and the top 20 percent accounted for 58 percent—large figures but lower than the corresponding wealth shares. The time trend for income inequality was similar to that of wealth inequality. Income inequality increased sharply between 1982 and 1988, with the Gini coefficient rising from 0.48 to 0.52 and the share of the top 5 percent from 26.1 to 30.0 percent. There was then a further but smaller increase of the Gini index by 0.019 points from 1988 to 2003 and of the shares of the top 5 and 20 percent (see Wolff 1998, 2002, 2006 for further details).
|Table 3. The Size Distribution of Wealth in Selected Organization for Economic Cooperation and Development Countries, 1983–2001|
|Year||Gini Coefficient||Wealth Share of Top 10%|
|A. United States: Wolff (2006)|
|B. Canada: Morissette et al. (2006)|
|C. Germany: Hauser and Stein (2006)|
|D. Italy: Brandolini et al. (2006)|
|E. Finland: Jäntti (2006)|
Wealth inequality is also much higher in the United States than in the other four countries shown in table 3. The Gini coefficient for wealth in the United States in 1998 was 0.82, compared to 0.73 in Canada in 1999, 0.64 in Germany in 1998, 0.61 in Italy in 2000, and 0.52 in Finland in 1998. Similar disparities exist with regard to the share of top wealth holders. In the United States the top 10 percent held 71 percent of all wealth in 1998, compared to a share of 56 percent in Canada in 1999, 42 percent in Germany in 1998, and 49 percent in Italy in 2000. By 2000 or so Finland was by far the most equal of the five countries with comparable data, followed by Italy, Germany, Canada, and then the United States (see Wolff 1987, 1996 for earlier comparisons).
It is also of interest that wealth inequality rose in the United States, Canada, Italy, and Finland, while it declined sharply in Germany. The Gini coefficient rose by 0.027 in the United States between 1983 and 2001, by 0.036 in Canada from 1984 to 1999, and by 0.060 in Italy between 1989 and 2000. In Germany, in contrast, it plummeted by 0.108 from 1973 to 1998 (and by 0.061 from 1983 to 1998).
SEE ALSO Financial Markets; Gini Coefficient; In Vivo Transfers; Inequality, Income; Inheritance; Wealth
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Federal Reserve Board. Survey of Consumer Finances: Index. http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html.
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Jäntti, Markus. 2006. Trends in the Distribution of Income and Wealth: Finland 1987–98. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 295–326. Cheltenham, U.K.: Elgar.
Morissette, René, Xuelin Zhang, and Marie Drolet. 2006. The Evolution of Wealth Inequality in Canada, 1984-99. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 151–192. Cheltenham, U.K.: Elgar.
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Wolff, Edward N. 1996. International Comparisons of Wealth Inequality. Review of Income and Wealth 42 (4): 433–451.
Wolff, Edward N. 1998. Recent Trends in the Size Distribution of Household Wealth. Journal of Economic Perspectives 12 (3): 131–150.
Wolff, Edward N. 2002. Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done about It. New York: New Press.
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Edward N. Wolff
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691. Wealth (See also Luxury, Treasure.)
- Abu Dhabi Persian Gulf sheikdom overflowing with petrodollars. [Mid-East Hist.: NCE, 9]
- Big Daddy wealthy Mississippi landowner of humble origins. [Am. Lit.: Cat on a Hot Tin Roof ]
- black and gold symbol of financial prosperity. [Heraldry: Jobes, 222]
- buttercup traditional symbol of wealth. [Plant Symbolism: Flora Symbolica, 167]
- Cave of Mammon abode of god of riches. [Br. Lit.: Faerie Queene ]
- Corinth ancient Greek city; one of wealthiest and most powerful. [Gk. Hist. and Myth.: Zimmerman, 69]
- Croesus Lydian king; name became synonymous with riches. [Gk. Myth.: Kravitz, 69]
- Dives rich man who ignored poor man’s plight; sent to Hell. [N.T.: Luke 16:19–31]
- Erichthonius world’s richest man in classical times. [Gk. Myth.: Kravitz, 91]
- Fortunatus’ purse luckless man receives gift of inexhaustible purse. [Ital. Fairy Tale: LLEI, I: 286]
- Fuggers 16th-century German financiers. [Ger. Hist.: NCE, 1023–1024]
- Hughes, Howard (1905–1976) eccentric millionaire; lived as recluse. [Am. Hist.: NCE, 1284]
- Midas Phrygian king; whatever he touched became gold. [Gk. and Rom. Myth.: Wheeler, 24]
- Plutus god of wealth: blind (indiscriminate); lame (slow to accumulate); and winged (quick to disappear). [Gk. Lit.: Plutus ]
- Rockefeller, John D(avison) (1839–1937) oil magnate; name has become synonymous with “rich.” [Am. Hist.: Jameson, 431]
- Solomon fabulous riches garnered from gifts and tolls. [O.T.: I Kings 10:14–25]
- Timon rich Athenian; ruined by his prodigal generosity to friends. [Br. Lit.: Timon of Athens ]
- turquoise seeing turquoise after a new moon brings wealth. [Gem Symbolism: Kunz, 345]
- Warbucks, Daddy adventurous soldier of fortune and richest man in world. [Comics: “Little Orphan Annie” in Horn, 459]
- wheat stalk traditional symbol of wealth. [Flower Symbolism: Flora Symbolica, 178]
Weaving (See SEWING and WEAVING .)
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"Wealth." Allusions--Cultural, Literary, Biblical, and Historical: A Thematic Dictionary. 1986. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2505500700.html
wealth / wel[unvoicedth]/ • n. an abundance of valuable possessions or money: he used his wealth to bribe officials. ∎ the state of being rich; material prosperity: some people buy boats and cars to display their wealth. ∎ plentiful supplies of a particular resource: the country's mineral wealth. ∎ [in sing.] a plentiful supply of a particular desirable thing: the tables and maps contain a wealth of information. ∎ archaic well-being; prosperity.
"wealth." The Oxford Pocket Dictionary of Current English. 2009. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1O999-wealth.html
"wealth." The Oxford Pocket Dictionary of Current English. 2009. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O999-wealth.html
a large possession; a great amount.
Examples: wealth of antiquity, 1697; of feeling; of information; of knowledge; of learning; of inarticulate speech, 1874; of wit, 1596; of words, 1850.
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"wealth." Oxford Dictionary of Rhymes. 2007. Encyclopedia.com. (May 25, 2016). http://www.encyclopedia.com/doc/1O233-wealth.html
"wealth." Oxford Dictionary of Rhymes. 2007. Retrieved May 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O233-wealth.html