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Wealth in the United States

Chapter 8: Wealth in the United States

The Components of Wealth
Poverty in the United States
Wealth Distribution
Wealth Demographics
Another Look at Wealth Data
Wealth Inequality: Is it a Problem?

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 assetscash, 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

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

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
1 Assets 72092.5 1
2 Tangible assets 26759.5 2
3 Real estate 22483.3 3
4 Householdsa, b 20154.7 4
5 Nonprofit organizations 2328.6 5
Equipment and software owned by 240.8
6 nonprofit organizationsc 6
7 Consumer durable goodsc 4035.3 7
8 Financial assets 45333.0 8
9 Deposits 7388.5 9
10 Foreign deposits 86.4 10
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
16 Treasury securities 308.8 16
17 Savings bonds 196.4 17
18 Other Treasury 112.4 18
19 Agency- and GSE-backed securities 946.7 19
20 Municipal securities 916.0 20
21 Corporate and foreign bonds 1504.7 21
22 Mortgages 141.2 22
23 Corporate equitiesa 5446.6 23
24 Mutual fund sharesd 5081.9 24
25 Security credit 853.5 25
26 Life insurance reserves 1204.8 26
27 Pension fund reserves 12779.5 27
28 Equity in noncorporate businesse 7891.9 28
29 Miscellaneous assets 709.3 29
30 Liabilities 14374.5 30
31 Credit market instruments 13825.4 31
32 Home mortgagesf 10508.8 32
33 Consumer credit 2550.6 33
34 Municipal securitiesg 250.2 34
35 Bank loans n.e.c. 130.7 35
36 Other loans and advances 128.4 36
37 Commercial mortgagesg 256.7 37
38 Security credit 324.8 38
39 Trade payablesg 200.3 39
40 Deferred and unpaid life insurance premiums 24.0 40
41 Net worth 57718.0 41
Memo:
Replacement-cost value of structures: 42
42 Residential 14326.9 43
43 Households 13832.5 44
44 Farm households 303.2 45
45 Nonprofit organizations 191.2 46
46 Nonresidential (nonprofits) 1324.1 47
47 Disposable personal income 10341.3
Household net worth as percentage of disposable 48
48 personal income 558.1 49
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.

Personal Income

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 in the United States

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

Supplementa 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:

  • African-Americans24.3%
  • Hispanics20.6%
  • Asian-Americans10.3%
  • Non-Hispanic whites8.2%

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 poorthose

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.

Wealth Distribution

In Currents and Undercurrents: Changes in the Distribution of Wealth, 19892004 (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
Men Women
Thousands of persons Unemployment rates Thousands of persons Unemployment rates
2007 2007 2007 2007
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
752 9.1 693 7.5
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
695 5.3 525 6.1
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
457 6.6 453 5.8
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
455 4.2 355 5.1
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, 19892004
SOURCE: Adapted from Arthur B. Kennickell, Table 2. Percent Distribution of Net Worth in 2004 Dollars, 19892004, in Currents and Undercurrents: Changes in the Distribution of Wealth, 19892004, 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)
1989 1992 1995 1998 2001 2004
<0 0.2 7.2 7.1 8.0 6.9 7.1
=0 0.9 3.2 2.6 2.5 2.6 1.7
1999 4.0 3.0 2.4 3.2 2.7 2.3
1K2.49K 3.1 3.6 2.5 2.4 2.3 3.2
2.5K4.9K 4.3 3.4 3.4 3.2 3.3 4.0
5K9.9K 4.0 4.9 5.5 4.7 4.6 4.4
10K24.9K 8.0 9.2 9.2 7.9 7.9 7.8
25K49.9K 9.3 10.5 10.0 9.4 9.0 8.8
50K99.9K 13.3 14.2 15.8 12.5 12.2 11.9
100K249.9K 20.8 21.5 22.2 21.9 19.1 18.6
250K499.9K 11.3 10.0 9.9 12.5 13.5 12.4
500K999.9K 5.6 5.2 5.5 6.5 8.4 9.6
>=1M 5.2 4.2 3.8 5.3 7.5 8.1

Gini Coefficients

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 (18841965). 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, 19892004
SOURCE: Adapted from Arthur B. Kennickell, Table 5. Proportions of Total Net Worth and of Gross Assets Held by Various Percentile Groups, 19892004, in Currents and Undercurrents: Changes in the Distribution of Wealth, 19892004, 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
050 5090 9095 9599 99100
Proportion of total net worth held by group
1989 3.0 29.9 13.0 24.1 30.1
1992 3.3 29.6 12.5 24.4 30.2
1995 3.6 28.6 11.9 21.3 34.6
1998 3.0 28.4 11.4 23.3 33.9
2001 2.8 27.4 12.1 25.0 32.7
2004 2.5 27.9 12.0 24.1 33.4
Proportion of total gross assets held by group
1989 5.4 32.5 12.6 22.3 27.1
1992 6.6 32.1 12.0 22.6 26.7
1995 7.5 31.2 11.4 19.5 30.4
1998 6.7 30.8 10.9 21.7 29.9
2001 5.6 29.9 11.7 23.4 29.5
2004 5.8 31.0 11.4 22.2 29.5

In other words, the Gini coefficients suggest the rich got richer, and the poor got poorer during this period.

Concentration Ratios

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 1995a 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.

Wealth Demographics

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, 19952004
SOURCE: Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, Table 3. Family Net Worth, by Selected Characteristics of Families, 19952004 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]
Family characteristic 1995 1998 2001 2004
Median Mean Median Mean Median Mean Median Mean
All families 70.8 260.8 83.1 327.5 91.7 421.5 93.1 448.2
-2.4 -6.4 -3.2 -10.7 -3.3 -7.1 -4.3 -9.7
Percentile of income
Less than 20 7.4 54.7 0.8 55.4 0.4 56.1 0.5 72.6
2039.9 41.3 97.4 38.4 111.5 39.6 121.8 34.3 122.0
4059.9 57.1 126.0 61.9 146.6 66.5 171.4 71.6 193.8
6079.9 93.6 198.5 130.2 238.3 150.7 311.3 160.0 342.8
8089.9 157.7 316.8 218.5 377.1 280.3 486.6 311.1 485.0
90100 436.9 338.0 524.4 1793.9 887.9 2406.7 924.1 2534.4
Age of head (years)
Less than 35 14.8 53.2 10.6 74.0 12.3 96.6 14.2 73.5
3544 64.2 176.8 73.5 227.6 82.6 276.4 69.4 299.2
4554 116.8 364.8 122.3 420.2 141.6 517.6 144.7 542.7
5564 141.9 471.1 148.2 617.0 193.3 775.4 248.7 843.8
6574 136.6 429.3 169.8 541.1 187.8 717.9 190.1 690.9
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
Some college 57.6 232.3 85.6 275.5 76.3 303.8 69.3 308.6
College degree 128.6 473.7 169.7 612.3 227.2 845.7 226.1 851.3
Race or ethnicity of respondent
White non-Hispanic 94.3 308.7 111.0 391.1 129.6 518.7 140.7 561.8
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
Self-employed 191.8 862.8 288.0 1071.3 375.2 1340.6 335.6 1423.2
Retired 99.9 277.2 131.0 356.5 120.4 479.2 139.8 469.0
Other not working 4.5 70.1 0.1 85.8 0.5 191.7 11.8 162.3
Region
Northeast 102.0 308.9 109.3 351.3 98.3 480.0 161.7 569.1
Midwest 80.8 244.7 93.1 288.5 111.3 361.6 115.0 436.1
South 54.2 229.5 71.0 309.6 78.6 400.4 63.8 348.0
West 67.4 286.1 71.1 379.1 93.3 468.8 94.8 523.7
Housing status
Owner 128.1 373.7 153.2 468.7 182.9 594.8 184.4 624.9
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
2549.9 34.7 37.6 37.9 41.6 43.4 47.0 43.6 47.1
5074.9 117.1 122.6 139.7 149.1 166.8 176.6 170.7 185.4
7589.9 272.3 293.6 357.7 372.6 458.2 478.6 506.8 526.7
90100 836.7 766.7 1039.1 2244.2 1386.6 2936.1 1430.1 3114.2
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.

Race

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.

Other Demographics

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

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.

Financial Assets

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
All families 86.3 69.1 12.5 8.3 11.5 7.8 92.5 97.9
Percentile of income
Less than 20 65.0 40.3 3.6 2.7 3.7 3.9 76.4 92.2
2039.9 85.3 57.0 6.9 3.8 6.7 4.4 92.0 97.8
4059.9 91.6 71.5 10.0 7.6 9.5 7.5 96.7 99.8
6079.9 95.3 83.1 14.0 10.6 12.0 10.4 98.4 100.0
8089.9 95.9 91.8 19.3 12.8 16.0 8.3 99.1 99.8
90100 93.1 94.7 37.2 20.8 34.7 16.7 99.3 100.0
Age of head (years)
Less than 35 82.9 41.6 5.1 3.3 6.9 5.5 88.6 96.5
3544 89.4 68.3 9.4 6.4 13.9 6.0 93.0 97.7
4554 88.8 77.3 16.3 11.4 15.7 9.7 94.7 98.3
5564 88.6 79.1 19.5 12.8 15.8 9.2 92.6 97.5
6574 89.1 81.3 19.9 10.6 8.0 9.0 95.6 99.5
75 or more 76.9 85.2 9.7 7.7 5.3 8.5 92.5 99.6
Race or ethnicity of respondent
White non-Hispanic 90.3 76.1 14.0 9.2 13.6 9.3 95.8 99.3
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
Self-employed 91.2 79.1 25.8 18.7 58.1 12.9 97.5 99.1
Retired 79.0 75.8 12.8 7.9 3.5 7.1 89.8 97.7
Other not working 66.9 40.0 5.4 * 6.9 6.4 76.3 89.6
Housing status
Owner 92.3 100.0 15.7 11.0 14.7 9.2 100.0 100.0
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
2549.9 89.2 71.2 4.9 4.1 5.6 5.4 97.5 100.0
5074.9 92.0 93.4 12.7 8.3 11.2 7.8 99.0 100.0
7589.9 95.2 96.2 23.1 15.1 19.9 12.3 99.8 100.0
90100 93.1 96.9 45.6 28.8 40.8 18.8 99.9 100.0
Median value of holdings for families holding asset (thousands of 2004 dollars)
All families 14.2 160.0 100.0 60.0 100.0 15.0 147.8 172.9
Percentile of income
Less than 20 4.5 70.0 33.0 11.0 30.0 4.5 22.4 17.0
2039.9 7.9 100.0 65.0 30.0 30.0 7.5 71.1 78.3
4059.9 13.1 135.0 55.0 36.0 62.5 10.0 131.2 154.4
6079.9 19.8 175.0 100.0 47.0 150.0 10.0 197.2 289.4
8089.9 25.8 225.0 98.0 60.0 100.0 17.5 281.8 458.5
90100 33.0 450.0 268.3 189.0 350.0 50.0 651.2 1157.7
Age of head (years)
Less than 35 11.3 135.0 82.5 55.0 50.0 5.0 32.3 39.2
3544 15.6 160.0 80.0 42.2 100.0 10.0 151.3 173.4
4554 18.8 170.0 90.0 43.0 144.0 20.0 184.5 234.9
5564 18.6 200.0 135.0 75.0 190.9 25.0 226.3 351.2
6574 12.4 150.0 80.0 78.0 100.0 30.0 161.1 233.2
75 or more 8.4 125.0 150.0 85.8 80.3 11.0 137.1 185.2
Race or ethnicity of respondent
White non-Hispanic 15.7 165.0 105.0 66.0 135.0 16.5 164.8 224.5
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
Self-employed 21.9 248.0 141.5 125.0 174.0 30.0 335.4 468.3
Retired 10.1 130.0 100.0 60.0 120.0 25.0 131.7 165.6
Other not working 10.7 130.0 86.0 * 25.0 20.0 60.0 30.3
Housing status
Owner 17.5 160.0 100.0 62.0 122.8 17.5 201.6 289.9
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
2549.9 11.9 85.0 25.6 14.9 17.5 6.0 72.4 84.5
5074.9 17.4 159.3 65.0 25.0 55.0 10.0 188.1 257.3
7589.9 22.6 250.0 100.0 73.9 150.0 25.0 360.8 600.2
90100 30.6 450.0 325.0 250.0 527.4 80.0 907.7 1572.6
Memo
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.
Not applicable.
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.

Another Look at Wealth Data

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.

Wealth Inequality: Is it a Problem?

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 1990sthe 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 (19391945) 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 attitudesa 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 largeabove all, public educationare 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 (19112004), who championed a trickle-down economic policyeconomic 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.

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Wealth

WEALTH.

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 JeanJacques 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 axesthematic and chronological. Thematically, the discussion is organized in terms of two basic associationswealth and virtue, and wealth and power. Each theme is explored in rough chronological ordercharting 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.

Positive.

Aristotle (384322 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 [1976] 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. 150between 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 charitywhether by the Good Samaritan or by millionairesbe exercised and only if a society is wealthy can it support extensive welfare programs. In a just society, according to John Rawls (19212002), 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 (18991992) 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 (18641920) 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 (16321704) 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.

Negative.

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 virtuouslynot 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. 55c. 135 c.e.) and was illustrated through the normatively loaded narrative of historians of Rome like Sallust (8635 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 (658 b.c.e.) and Juvenal (c. 55 or 60in 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 (339397), Augustine of Hippo (354430), and John Chrysostom (c. 347407), 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 (12251274) 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 (14691527), though here the "political" rather than the moral dimension (see below) is dominant. Much the same can be said of Jean-Jacques Rousseau (17121778), 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 [1256b2733, 1257b1625].

This critique was responsible for significant ripostes. David Hume (17111776)followed by his fellow Scot, Adam Smith (17231790)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 (19111987) 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 (19111977), 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 (16111677) 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 dependencycreating 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 (17291797) 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 [18241883] or Mahatma Gandhi [18691948]), 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 (18181883). 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 forcesslave owners, landlords, capitalists, or bourgeoisiewere able because of that control to rule over nonownersslaves, 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), 429431.

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 stageshunting/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 (15711641), 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 necessaryand this is central to the mercantilist viewto 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.

Status

The link between wealth and power can also be expressed indirectly. Thorstein Veblen (18571929) 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 (18421924) 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 (18061873), 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, 4445.

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 worknamely 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 (428348 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. 200118 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 (19382002), 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.

Conclusion

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 .

bibliography

PRIMARY SOURCES

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.

SECONDARY SOURCES

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): 183207.

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

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Wealth

Wealth

ORIGIN AND EVOLUTION OF THE CONCEPT

MODERN VIEWS

INTERNATIONALIZATION OF WEALTH AND POVERTY

BIBLIOGRAPHY

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 createdit 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 tryby whatever means availableto 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 ([18671910] 1956), is a dynamic force of change in all class societies.

ORIGIN AND EVOLUTION OF THE CONCEPT

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 Indias 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 Quran 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: 2425). 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 Gods 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 earththe moral well-being that the ancient Indian thinkers talked about.

MODERN VIEWS

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 ([1776] 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 ([1776] 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 ([18671910] 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. ([18671894] 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 ([18671894] 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 investmentthe 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)

INTERNATIONALIZATION OF WEALTH AND POVERTY

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 poorwhether measured by income or by wealthhas been rising in most cases. The United Nations Development Program (UNDP) found that a study of 77 countries with 82% of the worlds 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 worlds 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

BIBLIOGRAPHY

Bonner, Michael. 2005. Poverty and Economics in the Qurʾan. Journal of Interdisciplinary History 35 (3): 391406.

Clarke, Charles M. A. 2002. Wealth and Poverty: On the Social Creation of Scarcity. Journal of Economic Issues 36 (2): 415421.

Darity, William, Jr. 1992. A Model of Original Sin: Rise of the West and Lag of the Rest. American Economic Review 82 (2): 162167.

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): 1125.

Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Macmillan.

Marx, Karl. [18671910] 1968. Capital. Vol. IV. Moscow: Progress Publishers.

Marx, Karl. [18671910] 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): 177229.

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-LOuverture.

Sihag, Balbir S. 2005. Kautilya on Ethics and Economics. Humanomics 21 (34): 128.

Smith, Adam. [1759] 1976a. The Theory of Moral Sentiments. Oxford: Oxford University Press.

Smith, Adam. [1776] 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.

Hassan Bougrine

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Inequality, Wealth

Inequality, Wealth

WEALTH AND WELL-BEING

WHAT IS HOUSEHOLD WEALTH?

WEALTH INEQUALITY TRENDS IN THE UNITED STATES

INTERNATIONAL COMPARISONS OF WEALTH INEQUALITY

BIBLIOGRAPHY

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.

WEALTH AND WELL-BEING

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.

WHAT IS HOUSEHOLD WEALTH?

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)
Wealth component  
SOURCE: Federal Reserve Board, Survey of Consumer Finances, 2004.
Owner-occupied housing33.5
Other real estate11.5
Unincorporated business equity17.1
Liquid assets7.3
Pension accounts11.8
Financial securities2.1
Corporate stock and mutual funds11.9
Net equity in personal trusts2.9
Miscellaneous assets1.8
Total100.0
Debt on owner-occupied housing11.6
All other debt3.9
Total debt15.5

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 companys 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 familys direct control and cannot be marketed and are also excluded from marketable wealth.

WEALTH INEQUALITY TRENDS IN THE UNITED STATES

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, 19832004
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
19830.79956.181.3
19890.83258.983.5
20040.82958.984.7
B. Income
19820.48026.151.9
19880.52130.055.6
20030.54032.057.9

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 percentlarge 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, 19832001
Year Gini Coefficient Wealth Share of Top 10%
A. United States: Wolff (2006)
19830.79968.2
19890.83270.6
19920.82371.8
19950.82871.8
19980.82271.0
20010.82671.5
B. Canada: Morissette et al. (2006)
19840.69151.8
19990.72755.7
C. Germany: Hauser and Stein (2006)
19730.748(NA)
19830.70148.8
19880.66845.0
19930.62240.8
19980.64041.9
D. Italy: Brandolini et al. (2006)
19890.55340.2
19950.57342.1
20000.61348.5
E. Finland: Jäntti (2006)
19870.470 
19940.487 
19980.523 

INTERNATIONAL COMPARISONS OF WEALTH INEQUALITY

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

BIBLIOGRAPHY

Brandolini, Andrea, Luigi Cannari, Giovanni DAlessio, and Ivan Fatella. 2006. Household Wealth Distribution in Italy in the 1990s. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 225-275. Cheltenham, U.K.: Elgar.

Conley, Dalton. 1999. Being Black, Living in the Red: Race, Wealth, and Social Policy in America. Berkeley: University of California Press.

Federal Reserve Board. Survey of Consumer Finances: Index. http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html.

Hauser, Richard, and Holger Stein. 2006. Inequality of the Distribution of Personal Wealth in Germany, 197398. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 195224. Cheltenham, U.K.: Elgar.

Jäntti, Markus. 2006. Trends in the Distribution of Income and Wealth: Finland 198798. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 295326. 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, 151192. Cheltenham, U.K.: Elgar.

Spilerman, Seymour. 2000. Wealth and Stratification Processes. American Review of Sociology 26: 497524.

Wolff, Edward N., ed. 1987. International Comparisons of the Distribution of Household Wealth. New York: Oxford University Press.

Wolff, Edward N. 1996. International Comparisons of Wealth Inequality. Review of Income and Wealth 42 (4): 433451.

Wolff, Edward N. 1998. Recent Trends in the Size Distribution of Household Wealth. Journal of Economic Perspectives 12 (3): 131150.

Wolff, Edward N. 2002. Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done about It. New York: New Press.

Wolff, Edward N. 2006. Changes in Household Wealth in the 1980s and 1990s in the U.S. In International Perspectives on Household Wealth, ed. Edward N. Wolff, 107150. Cheltenham, U.K.: Elgar.

Edward N. Wolff

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Wealth

691. Wealth (See also Luxury, Treasure.)

  1. Abu Dhabi Persian Gulf sheikdom overflowing with petrodollars. [Mid-East Hist.: NCE, 9]
  2. Big Daddy wealthy Mississippi landowner of humble origins. [Am. Lit.: Cat on a Hot Tin Roof ]
  3. black and gold symbol of financial prosperity. [Heraldry: Jobes, 222]
  4. buttercup traditional symbol of wealth. [Plant Symbolism: Flora Symbolica, 167]
  5. Cave of Mammon abode of god of riches. [Br. Lit.: Faerie Queene ]
  6. Corinth ancient Greek city; one of wealthiest and most powerful. [Gk. Hist. and Myth.: Zimmerman, 69]
  7. Croesus Lydian king; name became synonymous with riches. [Gk. Myth.: Kravitz, 69]
  8. Dives rich man who ignored poor mans plight; sent to Hell. [N.T.: Luke 16:1931]
  9. Erichthonius worlds richest man in classical times. [Gk. Myth.: Kravitz, 91]
  10. Fortunatus purse luckless man receives gift of inexhaustible purse. [Ital. Fairy Tale: LLEI, I: 286]
  11. Fuggers 16th-century German financiers. [Ger. Hist.: NCE, 10231024]
  12. Hughes, Howard (19051976) eccentric millionaire; lived as recluse. [Am. Hist.: NCE, 1284]
  13. Midas Phrygian king; whatever he touched became gold. [Gk. and Rom. Myth.: Wheeler, 24]
  14. Plutus god of wealth: blind (indiscriminate); lame (slow to accumulate); and winged (quick to disappear). [Gk. Lit.: Plutus ]
  15. Rockefeller, John D(avison) (18391937) oil magnate; name has become synonymous with rich. [Am. Hist.: Jameson, 431]
  16. Solomon fabulous riches garnered from gifts and tolls. [O.T.: I Kings 10:1425]
  17. Timon rich Athenian; ruined by his prodigal generosity to friends. [Br. Lit.: Timon of Athens ]
  18. turquoise seeing turquoise after a new moon brings wealth. [Gem Symbolism: Kunz, 345]
  19. Warbucks, Daddy adventurous soldier of fortune and richest man in world. [Comics: Little Orphan Annie in Horn, 459]
  20. wheat stalk traditional symbol of wealth. [Flower Symbolism: Flora Symbolica, 178]

Weaving (See SEWING and WEAVING .)

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wealth

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.

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Wealth

Wealth

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

wealth
A. †well-being XIII; welfare of a community XIV;

B. worldly goods, riches XIII. ME. welþe, f. WELL3 or WEAL1, after health; see -TH1.
Hence wealthy (-Y1) XIV.

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wealth

wealth See INCOME DISTRIBUTION.

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wealth

wealthhealth, stealth, wealth •commonwealth •filth, tilth •coolth

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Wealth

WEALTH

WEALTH . The relationship between religion and wealth can be analyzed in various ways. Economists of all persuasions have stressed the negative impact of religion on wealth. Adam Smith believed that clergymen, like lawyers and buffoons, are members of an unproductive, frivolous profession. Today, many argue that religion is one of the principal causes of economic underdevelopment. For example, in places like rural Burma, more than 30 percent of the regional income is spent on monks, monasteries, and religious festivals. In India, belief in karman (the sum of one's actions in successive states of existence), dharma (duties defined by the religious caste system), and saśara (a cyclical sense of time and rebirth) has been widely criticized as a major cause of poverty. In Muslim countries, some believe that the Islamic law (sharīʿah ), insofar as it sanctifies the religious secular customs of the past, has made modernization difficult and slow.

While the German sociologist Max Weber emphasized the negative role of the religions of the East, he also called attention to the positive impact that religions based on this-worldly asceticism have had on economic development. Weber contended that Calvinism provided the "spirit" necessary for the initial rise of capitalism in the West. His argument, which has been criticized by many as being misinformed and ethnocentric, has nevertheless inspired many attempts to find analogies of the Protestant ethnic in successful non-Western countries. Some scholars who have accepted Weber's general thesis have modified its logic. For example, R. H. Tawney, who was reluctant to talk about the causal impact of Calvinism, recognized its importance as a "tonic" in the building of capitalism. Other scholars have found fault with Weber's idea that the rise of capitalism is necessarily accompanied by a decline in religion and magic. While Weber credited sectarianism with a positive role in the rise of capitalism, Liston Pope and others have pointed out the political conservatism and economic passivity of such groups in the southern United States.

If, on the other hand, scholarship on the impact of wealth upon religion is examined, one finds this impact characterized both positively and negatively. Karl Marx and Friedrich Engels believed that Protestantism was the "most fitting form of religion" for the capitalist and that in the religions of the masses one could hear the "sigh of the oppressed creature." Along similar lines, twentieth-century scholars have drawn attention to the influence of economic deprivation on the spread of messianic and millenarian movements. Both Marxists and Weberians believe that an increase in wealth discourages a truly religious spirit. Some scholars, however, argue that a comfortable income seems to encourage piety and have drawn attention to the "de-churching" of the working classes.

Finally, there are scholars who have addressed the differences between religion and economics rather than their interrelationship. Emile Durkheim, for example, contrasted the centrifugal impact of economic life with the centripital or integrating force of religion. Historians and sociologists of a materialistic bent have tended simply to ignore the problem of religion.

Characteristic Relations between Religion and Wealth

There is no simple way to characterize the relationship between religion and wealth in light of the determinate role played by the specific historical and social context. Religion's effect on the wealth or poverty of a country is usually achieved through, or in conjunction with, a complex of other social factors including secular institutions, modal personality systems, and values in general. Among the possible relations between religion and wealth, one that is generally overlooked is the ability, or inability, of religion to step out of the way of economic development. In such a relationship, religion plays the quiescent part of laissez faire, laissez passer that classical economics assigned to the state. Examples of this kind of passive collaboration with economic development can be seen in civilizations like Europe or Japan in which religious law does not absolutize or sanctify secular conditions of the past, it can also be seen when religious leaders do not interfere in the work of development; when religion abandons traditional, communitarian values; when it ignores the ethical problem of the unequal burdens imposed by development; or when its rituals and taboos passively give way before the requirements of industry. It could be argued against Weber that the most significant contributions made by Protestantism to the development of capitalism were its general indifference to the social problem of poverty, its hostility to the labor movement, and its assumption that individualism is as "natural" in economics as it is in religion.

Since the relation between religion and wealth changes from one type of society to another, one must also attend to the historical stage and specific socioreligious traditions involved. In primitive, archaic, or prehistoric societies, religion tends to be diffuse and undifferentiated from the "material" side of life. Ownership and wealth are woven into a rich tapestry of myth, ritual, and values. Taboos and religious sanctions ensuring the common good and survival of the group put limits on possessions, competition, and market functions. Primitive myths and rituals often express the importance of a proper "ecological" relationship between nature and possessions. In hunter-gatherer societies, the lord of the animals not only guarantees a good hunting season, but also protects the animals from extinction. As the technological base of society changesfrom, for example, hunting to agriculturenew religious symbols begin to appear. While hunters revere the symbols of animals (often their blood and bones), seeds and plants become the foci of the magic and religion of the cultivator. Since religion and wealth were so closely related in prehistoric societies, it has been strongly debated whether the "laws" of modern economics and the alleged natural instincts of "economic man" can be directly applied to people in less developed societies.

With the advent of cities, settled agriculture, writing, and the historic religions (e.g., Hinduism, Buddhism, Confucianism, Christianity, and Islam), the relation between religion and wealth changes. To coordinate societies and economies that were increasingly complex, sacred kings appeared who had in their control not only political power, but also magical power over the well-being of crops, society, and the cosmos itself. Literate priestly classes created sacred texts and laws on the proper use and distribution of wealth. From Africa to the Far East, ancestral spirits were worshiped in order to bring wealth and prosperity to the family. Other deities appeared who had specific functions as gods of wealth and good fortune; by offering tokens of their wealth to these gods (or to priests), people hoped to receive still more wealth and good luck. This ritual exchange is expressed in the sacred Latin formula do ut des ("I give to you so that you will give to me") and in the Sanskrit phrase dadami se, dehi me, which has almost the identical meaning. In general, the traditional religions sanctioned the family ownership of wealth, not individually owned private property. In Israel and Greece, religious authority guaranteed the integrity of family property with inviolable sacred landmarks and herms (phallic representations of Hermes). In the ancient Near East, and later in the Far East and Catholic Europe, religious institutions themselves became powerful landlords, controlling trade and the use of large tracts of land.

Reflecting the structure of society, ethical relationships (whether in ancient India, China, or the first-century Roman empire) were both hierarchical and reciprocal. Louis Dumont has called this an ethic of "hierarchical complimentarity." Masters and slaves, husbands and wives, older and younger brothers, teachers and students, rulers and the ruled all had responsibilities for each other. This responsibility included the distribution of scarce resources. In Islam, for example, an alms tax (zakāt ) was used to support the poor (as well as to spread and defend the faith).

Hinduism

Throughout the ancient world, scattered proverbs and "wisdom literature" served as the only ethical guides to economics. Because traditional society was based on a zero-sum economy, greed was roundly condemned in scripture, myth, and folklore. As time passed, more specific guidance was offered. In India, Kauilya's Arthaśāstra (c. 300 bce to 300 ce) described an economy based on agriculture, guilds, family ownership, and a bureaucratically centralized state. Most interesting is the way that this text elevates the pursuit of wealth and power (artha ) above traditional duty (dharma ). Like the much earlier Code of Hammurabi in the Near East, the Arthaśāstra recognizes the taking of interest on loans. In contrast, the Laws of Manu, which took final shape during the period from about 200 bce to 200 ce, reverses the relationship between artha and dharma and idealizes a more or less static economy based on caste duties (vara dharma ). Generally insensitive to economic opportunity, the Laws of Manu limits moneylending to the vaiśya caste, allowing brahmans and the katriya to lend money only for sacred purposes and then only "to a very sinful man at a small interest."

Buddhism

While Buddhism has often been regarded as an "otherworldly" religion, it was first propagated by merchants and depended for its existence upon the financial support of lay householders. Sacred texts specified for the laity "right livelihoods," which excluded the caravan trade, trafficking in slaves, weapons, poisons, or alcohol, and tanning, butchering, and other occupations, and directed how to make, reinvest, and share their wealth with others. Donations to the monastic community (sagha ) became the layperson's primary way of building up merit. In Mahayana Buddhism, the aspirant to Buddhahood, the bodhisattva, was sometimes described as a rich man who provided material and spiritual sustenance for others. As was the case in the Hindu tradition, it was not wealth, but the "attachment" to wealth that was believed to be an impediment to enlightenment.

Confucianism and Daoism

In China, Confucianism and Daoism tended to favor a primitive system of "private" property that has been described as "free enterprise." This description, however, must be qualified. The Confucians were generally opposed not only to state monopolies but also to competition for profit. The development of a free labor market was delayed by the strength of the family and by the belief that each person should follow the rites, morality, and etiquette (li) of his family. As in medieval Catholicism, the merchant was assigned a lowly role. However, Chinese society did have some of the rudiments of a laissez-faire system. The Confucian historian Sima Qian (145 bce to c. 90 bce) claimed that government intervention in the economy would be unnecessary if farmers, merchants, and other workers fulfilled their duties. The Daoists, emphasizing frugality and voluntary simplicity, were also opposed to the direct intervention by the state. The succinct expression, "the more laws are promulgated, the more thieves and bandits there will be," is found in the Dao de jing.

Judaism and Islam

In Judaism and Islam, wealth was regarded as part of creation and therefore as good. Since God was the "owner" of the world, absolute property rights were impossible. Wealth was a sign of divine approval and poverty was thought to be the result of sin. The identification of wealth and righteousness, sin and poverty was disputed by only a few religious leaders, such as the prophet Amos, who spoke of the poor as "the righteous." Because property was deemed inalienable, it could not be taken from a family even by the king. The biblical custom of the Year of Jubilee (Leviticus 25) indicates that religious tradition established limitations on the possession of land and slave. In both Judaism and Islam, religious laws concerning usury restricted markets in money.

Christianity

The New Testament radically inverted the traditional attitude toward wealth and power. In the Magnificat (Luke 1:52), it is stated that with the coming of the Son of man, God has "put down the mighty from their thrones and exalted those of low degree." Some pericopes, such as James 5:1-4 and Revelation 18, express an openly hostile attitude toward the rich. Soon, however, leaders like Clement of Alexandria (c. 150c. 213) began to soften the hard sayings of Jesus about riches to accommodate well-to-do converts. The problem with wealth now became one of "attitude," a position that was not unlike the Hindu and Buddhist problem of "attachment."

Although the early church fathers rarely addressed the issue of economic justice, they shared the antichrematistic outlook of the New Testament and often taught a Stoic indifference (apatheia ) to the things of this world. Another Stoic idea in their writings would have important consequences for radical sectarians much later on: the notion that the earth is a "common treasury" given by God to all people. Laboring under fervent eschatological expectations, the early Christians were more concerned about the injustice experienced by the oppressed than about the philosophical definition of the justice that was their due. Poverty, as the result of pride and greed, could be alleviated only by the voluntary charity of the church. Soon bishops became administrators of elaborate welfare systems. Only a few Christians, such as Ambrose (339397), Victricius (c. 400), and Gregory I (c. 540604) imply that poverty is a matter of justice. When the Parousia failed to occur as expected and as the Roman empire began to collapse, the church was forced to deal more positively with a world that had not come to its expected end. As part of a strategic compromise, the church borrowed deeply from such pagan doctrines as Stoic natural law, which provided a quasi-secular theory of juridical equity. Later, in the scholastic period, the distribution of wealth was treated from a point of view that combined scripture and the writings of the church fathers with the works of Aristotle and Islamic thinkers. One result of the synthesis was a hardening of the church's position against usury.

While the Protestant reformers were generally stricter in matters of economic morality than the casuists of the late scholastic period, they were followed by others who opened the door of compromise. Usury became legal in Protestant countries, which were fast becoming the most economically advanced in Europe. Protestants repudiated indiscriminate almsgiving and took repressive measures against the indigent. It is debatable whether concern for their own election or simple indifference to poverty contributed more to the economic success of the Protestant nations. Methodists, Baptists, Pietists, and other sectarians developed an economic rigorism that was similar to the medieval Catholic doctrine of "good works." Although by the nineteenth century English Methodists and Dissenters had risen to the level of the prosperous middle class, some supported political reforms that would primarily benefit the victims of economic development. Most Dissenters and Nonconformists assumed a conservative, antilabor stand or a position of indifference. This was especially true when they themselves became the majority or the "Establishment," as in the American South.

Contemporary Religious Attitudes toward Wealth

In modern times, traditional religious attitudes toward wealth and power have come under heavy criticism. This is largely due to structural changes in society's industrial base, especially the growth of competition and rapid social mobility, and to the spread of possessive individualism and hedonism in consumer-oriented economies. In communist societies, religious values have been attacked as feudalistic or bourgeois. But in capitalist countries too, modern social roles make the ethics of brotherhood and the spirit of "hierarchical complementarity" seem unrealistic. Traditional charity seems to put the poor at the mercy of the rich. Other traditional attitudes, such as the eschatological indifference of the New Testament and the otherworldly asceticism of the Middle Ages, seem incredible if not irresponsible. Considerations such as these have led to a secularization of economic values in both capitalist and socialist countries. R. H. Tawney claimed that the religious ethic has declined because the church has ceased to think, but it could be asked whether even a "thinking" religion has anything significant to say about contemporary economic problems. The Social Gospel movement of the early twentieth century had some impact on the clergy and on intellectuals but failed to make contact with the working class itself. The "liberation theology" coming out of Latin America and other developing areas has been sympathetically received by only a few in the industrialized West. Many have criticized it as Marxism disguised as Christian social concern. In Asian countries, several forms of "Buddhist socialism" have appeared. Muslims have developed various forms of "Islamic socialism" (which generally recognizes private property rights) and other kinds of "Islamic economics," often based on the welfare state and religio-nationalistic idealism. Such relatively recent movements in Islam have vehemently rejected Western hedonism and exploitation.

In North America, popular religious groups generally emphasize spiritual inwardness or salvation techniques, ignoring questions about economic and social justice in this world. The secularization of social and economic thought in the academic world is all but absolute. Theories that have the greatest impact in contemporary professional circles usually have the least explicit religious content. This lack of religious influence is especially poignant since religious ethics, both in the East and in the West, have sometimes been the last repositories of the common good.

See Also

Almsgiving; Charity; Economics and Religion; Mendicancy; Morality and Religion; Tithes; Zakāt.

Bibliography

Max Weber sets forth the major issues on wealth in The Protestant Ethic and the Spirit of Capitalism (1930; New York, 1958), Ancient Judaism (1952; New York, 1967), The Religion of India (1958; New York, 1967), and The Religion of China (1951; New York, 1968), all originally published in German between 1904 and 1920. Important modifications of Weber's ideas are found in Ernst Troeltsch's The Social Teachings of the Christian Churches, 2 vols. (1931; Chicago, 1981) and R. H. Tawney's Religion and the Rise of Capitalism (1926; Harmondsworth, 1980). Robert N. Bellah's Tokugawa Religion (New York, 1957) is an application of the insights of Max Weber and Talcott Parsons to Japan. Global Economics and Religion, edited by James Finn (New Brunswick, N.J., 1983), contains insightful essays on religion and the economies of developing nations. Jacob Viner's The Role of Providence in the Social Order (Princeton, 1972) contains important information about Western religious thought on economics, as does his Religious Thought and Economic Society, edited by Jacques Melitz and Donald Winch (Durham, N.C., 1978). Joseph J. Spengler's Origins of Economic Thought and Justice (Carbondale, Ill., 1980) deals with the ancient economies of Mesopotamia, India, China, and Greece.

New Sources

González, Justo. Faith and Wealth: A History of Early Christian Ideas on the Origin, Significance, and Use of Money. San Francisco, 1990.

Graeber, David. Toward an Anthropology of Value: The False Coin of Our Own Dreams. New York, 2001.

Murphy, Catherine. Wealth in the Dead Sea Scrolls and in the Qumram Community. Boston, 2002.

Needleman, Joseph. Money and the Meaning of Life. New York, 1991.

O'Toole, Patricia. Money and Morals in America: A History. New York, 1998.

Sizemore, Russell, and Donald Swearer. Ethics, Wealth, and Salvation: A Study in Buddhist and Social Ethics. Columbia, S.C., 1990.

Starobinski, Jean. Largesse. Translated by Jane Marie Todd. Chicago, 1997.

Winston Davis (1987)

Revised Bibliography

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Wealth

WEALTH

As used here, wealth is synonymous with net worth, the value of an individual's assets (things owned) minus the value of his or her liabilities (things owed). Individuals with an unusually high net worth, like George Washington and Robert Morris before 1790 or so, were "rich" or "wealthy."

In the new American nation, assets tended to be quite visible. Sums that individuals owed to others were relatively difficult to discover, however, so many early Americans who owned considerable assets, but who owed equally considerable debts, were incorrectly identified as wealthy. Thomas Jefferson and Robert Morris after about 1790 are prime examples. Only with painstaking research, and a good deal of luck, can scholars be certain that particular individuals were indeed wealthy and not merely creditworthy. Usually, only a careful review of a subject's probate records can conclusively demonstrate that the value of his or her assets greatly exceeded the value of his or her liabilities.

liabilities

In the colonial and early national periods, liabilities consisted largely of various types of debts: book accounts, promissory notes, drafts, bills of exchange, bonds, and mortgages. The vast bulk of colonial and early national economic transactions were conducted via book account rather than with cash. As the name implies, book accounts were accounting notations made in books. The notations tracked the value of goods or services received and given over a period of weeks, months, years, or even decades. Farmer Brown, for example, credited the account of day laborer Obadiah Smith for thirty-seven days of work and fifty-five cords of wood. Brown debited Smith for the food, liquor, tobacco, shoes, clothes, and other goods that Smith received from him. Book account entries referenced the money value (in local pounds or dollars) of the traded goods, so scholars err when they claim that Americans in this period engaged in barter. Cash payments were indeed rare, sometimes made only on the balance due at the end of an exchange relationship, but the goods and services traded were almost invariably assigned a money price.

Promissory notes and drafts were short-term IOUs. Unlike book accounts, they were readily transferable from person to person and often made explicit promises about repayment dates and interest charges. Drafts and their foreign exchange equivalent, bills of exchange, were used like modern-day checks to transfer funds to distant persons. They could also be used to borrow for a few weeks or months.

Bonds were IOUs for significant sums and long terms, typically one year, with the holder maintaining an option to "call" the principal thereafter. Bonds almost always stipulated the payment of interest and stiff penalties in case of default. Like IOUs, they were negotiable or transferable to new parties. They differed from mortgages in only one important respect, namely that mortgages offered a specific piece of real property as collateral for the loan.

The fact that creditors could call for the principal of a bond or mortgage after the maturity date helps to explain the angst felt by many early Americans regarding indebtedness. Borrowers suffered the existence of such onerous terms because lenders insisted on them. Usury laws capped the legal interest rate too low, well below the usual market rate. Lenders therefore demanded valuable concessions, like call provisions and stiff default penalties, to compensate them enough to induce them to lend at the legal rate.

Calls for repayment usually came at the worst time, during economic slumps. Delinquent debtors were often sued for the principal, unpaid interest, and damages; they usually lost. If they could not pay the judgment, the sheriff seized their real or personal property, or both, and tried to sell it at auction. If the judgment remained unsatisfied, the debtor could be imprisoned for being bankrupt, that is, having negative wealth. Only at the end of the period did debtors' prisons begin to disappear from American life.

assets

One person's liability was another person's asset. A bond, for example, was a liability of the borrower but an asset for the lender or subsequent owners of the bond. In closed economies, therefore, the value of financial assets and liabilities exactly cancelled each other out. The liabilities of many early Americans, however, were owned by foreign investors, primarily in Britain and Holland. A Philadelphia merchant, for example, might owe several Liverpool merchants on account and a large bond to a London capitalist. A New York patron might owe a mortgage on one of his estates to a consortium of Dutch investors, while a Virginia or Mississippi planter might be in hock to a British tobacco or cotton factor. In the period under study, net financial claims were usually negative. In other words, Americans owed more to foreigners than foreigners owed to Americans. Individual Americans, nevertheless, could hold a significant percentage of their assets in the form of financial claims. In 1774 about 17 percent of colonists' total assets were financial. The share of financial assets as a percentage of all assets grew over the period, especially after the financial revolution spurred by Alexander Hamilton in the 1790s.

Physical assets like land, buildings, ships, slaves and indentured servants, livestock, tools of the trade, and personal and household items such as clothes, furniture, and cookware were the preferred assets of most early Americans. In 1774 about 55 percent of colonists' nonfinancial assets were invested in land, 20 percent in slaves and servants, 10 percent in livestock, and 15 percent in producer and consumer goods. Aside from land, which was important everywhere, tremendous regional variations existed. In 1774 slaves composed a much higher percentage of assets in the South than anywhere else and livestock and producer goods predominated in the middle colonies, while New Englanders invested relatively heavily in consumer goods. Over the entire period, occupation dictated the proportion of assets held: farmers owned mostly land and livestock; planters held land and slaves; artisans and manufacturers held producer goods and buildings; and merchants owned ships, buildings, financial assets, and consumer goods. Similarly, region, occupation, and age largely determined the aggregate value of an individual's assets.

wealth accumulation

Most early Americans accumulated wealth by buying or producing low, selling high, and avoiding the converse. Merchants and retailers sought to buy low in one market, or at one time, for resale at a higher price in another market, or at a later time. Physiocratic notions of the sterility of commerce induced many early Americans to look down upon such activities, but they were important to the economy nevertheless. Just as crucial were the activities of artisans and farmers, which added value to goods by transforming them. Ironworkers, for example, turned labor, iron ore, wood, and other raw materials into useful products like stoves, musket balls, and horseshoes. Milliners transformed cloth, thread, ribbons, and other fineries into fashionable dresses. Farmers turned land, labor, and seed into wheat, apples, and pigs. Farmers' wives ultimately made butter from the corn and grasses fed to their milk cows. Similarly, professionals created value by adding their expertise to goods, as when a midwife used her experience to help a mother give birth, or an accountant used his mercantile training to create order out of a jumble of accounts. In all of those cases, if the sale price of the output exceeded the costs of all the inputs, the net worth of the producer increased. If costs exceeded the price, the producer's wealth decreased.

Some Americans seeking easy riches engaged in what modern economists call rent seeking. Basically, that entailed obtaining valuable assets, usually land or corporate charters, from the government gratis or at bargain prices. Sundry land companies, including the Scioto and Yazoo, were tainted by such insider scandals which smacked of old world nepotism, favoritism, and corruption. Other early Americans eager for quick riches engaged in outright theft, fraud, or counterfeiting. Sometimes such activities paid off handsomely, but often they ended in shame, imprisonment, or death. Some individuals inherited their fortunes. Rent-seeking activities, theft, and gifts did not create new wealth, of course, but merely transferred it to new owners.

Early Americans naturally resented those who accumulated wealth through gift or graft. Many believed that high net worth individuals like Philadelphia merchant-banker Thomas Willing (1731–1821) or New York furrier-speculator John Jacob Astor (1763–1848) must have obtained their wealth through illicit or at least unethical means. America's rich, who were not so numerous nor opulent as in Europe, responded by asserting that their wealth stemmed from luck and pluck, not theft, inheritance, or government favor. Importantly, most early Americans aspired to increase their personal net worth at least enough to become "comfortable" or "independent," so that no matter what they thought of Philadelphia merchant-banker Stephen Girard (1750–1831) or New York's land-rich Van Rensselaer or Livingston clans, they generally disdained wealth redistribution schemes.

Ambivalence towards wealth had deep religious roots too. Christianity, particularly the Protestant varieties that permeated early America, espoused the virtues of asceticism and poverty but also gave impetus to Lockean views toward property acquisition and Weberian attitudes toward hard work. It is not surprising, then, that some members of the most pious sects, including the Quakers, were among the early nation's wealthiest individuals.

See alsoAgriculture: Overview; Banking System; Bankruptcy Law; Class: Overview; Debt and Bankruptcy; Economic Development; Inheritance; Property; Wealth Distribution; Work: Work Ethic .

bibliography

Huston, James L. Securing the Fruits of Labor: The American Concept of Wealth Distribution, 1765–1900. Baton Rouge: Louisiana State University Press, 1998.

Jones, Alice Hanson. Wealth of a Nation to Be: The American Colonies on the Eve of the Revolution. New York: Columbia University Press, 1980.

Mann, Bruce H. Republic of Debtors: Bankruptcy in the Age of American Independence. Cambridge, Mass.: Harvard University Press, 2002.

Pessen, Edward. Riches, Class, and Power: America before the Civil War. New Brunswick, N.J.: Transaction, 1990.

Soltow, Lee. Distribution of Wealth and Income in the United States in 1798. Pittsburgh, Pa.: University of Pittsburgh Press, 1989.

Wright, Robert E. Hamilton Unbound: Finance and the Creation of the American Republic. Westport, Conn.: Greenwood, 2002.

Robert E. Wright

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Wealth

WEALTH

In 1840 the largest fortune in America was $40 million, held by Cornelius Vanderbilt, but by 1912 it was $1 billion, held by John D. Rockefeller. Median family wealth rose less dramatically during this period, from $500 to $800; thus, the ratio of the largest fortune to the median rose from 80,000:1 to 370,000:1. In Wealth and Democracy: A Political History of the American Rich (2002), Kevin Phillips provides these and other interesting statistics about the Gilded Age, the period he titles "The Rise of the Great American Fortunes, 1865–1900." Phillips concludes, "wealth and incomes . . . were concentrating, mirroring the huge new centralization of the economy through industrial combines, corporate monopolies, and trusts. One analysis in 1890 argued that more than half of the wealth was held by just 1 percent of U.S. families, up from about 29 percent in 1860" (p. 43).

At the top of this scale were the self-styled captains of industry, known more popularly as the robber barons. Among them, Jay Gould (1836–1892) and John Pierpont (J. P.) Morgan (1837–1913) were the most notorious. Gould controlled railroads, the New York World, the New York City elevated train system, and Western Union. Morgan also turned to railroads and in the 1890s controlled the largest group of railroads in the country. In 1901 he then bought out Andrew Carnegie's steel business and merged with others to form U.S. Steel, the world's first billion-dollar corporation. Many of the other robber barons also involved themselves with railroads, which underwent a huge expansion during the 1870s and 1880s. Great financial battles for consolidation were waged among the robber barons and lesser financiers, prompting accusations of wanton disregard of the public interest and of corruption of the political system. In 1887 the Interstate Commerce Commission was formed to attempt to address these problems, but it had little power. According to Alan Trachtenberg in The Incorporation of America: Culture and Society in the Gilded Age (1982), the age of the robber barons and their

Oil
John D. Rockefeller $1 billion
Oliver Payne $100–150 million
Henry Rogers $100 million
William Rockefeller $100 million
Henry Flagler $75 million
Charles Harkness $75 million
Steel
Andrew Carnegie $400 million
Henry C. Frick $150 million
Henry Phipps $75 million
Railroads
Russell Sage $100 million
E. H. Harriman $100 million
James J. Hill $100 million
John Jacob Astor III $87 million
William K. Vanderbilt $60 million
Finance
J. P. Morgan $119 million
Andrew Mellon $100 million
Richard Mellon $100 million
Hetty Green $100 million
George F. Baker $75 million
James Stillman $70 million
Municipal transit
Peter Widener $100 million
Thomas Fortune Ryan $100 million
Nicolas Brady $75 million
Miscellaneous
Frederick Weyerhaeuser (lumber) $200 million
Marshall Field (retailing, real estate) $140 million
William Clark (copper) $100 million
James B. Duke (tobacco) $100 million
J. Ogden Armour (meatpacking) $75–100 million
William Weightman (pharmaceuticals) $80 million
Frank Woolworth (retailing) $60 million
SOURCE: Phillips, Wealth and Democracy, pp. 50–51.

"epic scale of enterprises" also "marked a significant increase in the influence of business in America" (pp. 4–5). In a trilogy of novels—The Financier (1912), The Titan (1914), and The Stoic (1947)—Theodore Dreiser (1871–1945) created a powerful and extensive portrait of a robber baron, based upon the exploits of Chicago streetcar magnate Charles Tyson Yerkes (1837–1905).

THE PHILOSOPHY OF WEALTH

The philosophy behind—or rationale for—the increase and concentration of wealth was the Social Darwinism of Herbert Spencer (1820–1903). The historian Stewart H. Holbrook, writing in Lost Men of American History (1946), asserts that Spencer was "the man who had greatest influence on the United States during the last third of the nineteenth century and the first third of the following century" (p. 226). Many aspects of Spencer's theory are clearly relevant to capitalist America: the idea of competition and progressive increase certainly appealed to corporate America, and the notion of survival of the fittest gave a quasi-biological justification to the robber barons and other elites. The idea that Western culture—or more particularly Anglo-American culture—is at the most highly evolved point of human history supported a self-satisfied feeling of moral superiority that was common in the Victorian era. In Social Darwinism in American Thought (1959), Richard Hofstadter writes, "With its rapid expansion, its exploitative methods, its desperate competition and its peremptory rejection of failure, post-bellum America was like a vast human caricature of the Darwinian struggle for existence and survival of the fittest" (p. 44).

Spencer's chief American follower was William Graham Sumner (1840–1910), who from his chair at Yale proclaimed the Social Darwinist doctrine in even stronger terms than Spencer. Sumner extols the virtues of wealth and even argues that capital is the main factor in the origin of civilization. "We know that men once lived on the spontaneous fruits of the earth, just as other animals do. In that stage a man was just like the brutes," he writes. "At the present time man is an intelligent animal. He knows something of the laws of Nature. . . . he can bring the productive forces of Nature into service and make them produce food, clothing, and shelter. How has this change been brought about? The answer is, by capital" (pp. 59–60). In the course of humans' development, Sumner continues, "not a step has been or can be made without capital" (p. 62).

Another friend and disciple of Spencer, Andrew Carnegie (1835–1919), made an equally sweeping claim. The title of his famous 1889 essay, "The Gospel of Wealth," published in The Gospel of Wealth and Other Timely Essays (1962), concisely expresses his view. Like Sumner, Carnegie sees capital as the beginning of civilization:

To those who propose to substitute Communism for this intense Individualism, the answer therefore is: The race has tried that. All progress from that barbarous day to the present time has resulted from its displacement. Not evil, but good, has come to the race from the accumulation of wealth by those who have had the ability and energy to produce it. (P. 18)

He continues, "Individualism, Private Property, the Law of Accumulation of Wealth, and the Law of Competition . . . are the highest result of human experience, the soil in which society, so far, has produced the best fruit" (p. 19). As for the disparities in wealth, Carnegie celebrates them: "It is well, nay, essential, for the progress of the race that the houses of some should be homes for all that is highest and best in literature and the arts, and for all the refinements of civilization. . . . Without wealth there can be no Mæcenas" (p. 15). Aesthetic values, to Carnegie, are vitally connected to and dependent upon wealth.

According to Holbrook in Lost Men of American History, the author Horatio Alger (1832–1899) was "the man who made Spencer mean something to the rising generation of the masses of Americans, not just the college men nor the intellectuals" (p. 228). Alger's repetitive, formulaic novels generated larger sales than those by any other author in America. In the Alger formula, a young boy, poor but moral, industrious, and intelligent, gets a break from someone in a class above him, works hard, saves money, and rises in the socioeconomic order. The novels, filled with references to money, are an explicit endorsement of the corporate, capitalist culture, as is their unrelenting morality and their portrayal of the spectrum of social classes. For instance, Alger's early novel, Ragged Dick; or, Street Life in New York (1868), is filled with respectful and sometimes awestruck references to money. When Dick is showing Frank Whitney, a well-to-do young visitor, around Manhattan, the culmination of the tour is Wall Street, "a street not very wide or very long, but of very great importance. The reader would be astonished if he could know the amount of money involved in the transactions which take place in a single day in this street" (p. 101). At the end of the street is the Custom House, which Frank likens to the Parthenon. The connection between wealth and art is strengthened in the advice that Frank's father, who becomes Dick's benefactor, gives him: "save your money, my lad, buy books, and determine to be somebody" (p. 109). Dick does that, gets money, and thereafter thoroughly enjoys contemplating his bank-book, the loss and recovery of which forms the climactic action of the novel.

Whether as gospel, myth of cultural origins, or model for contemporary behavior, "The Way to Wealth"—to use Ben Franklin's title—seems a significant American path many attempted to follow. The prospect of quickly obtained wealth lured many prospectors to the California gold rush (begun in 1849) and the Comstock Lode (begun in 1859) near Virginia City, Nevada. The latter yielded more than $300 million, and both helped build the businesses and mansions of San Francisco. Mark Twain (Samuel Langhorne Clemens, 1835–1910) comically detailed his own adventures as a failed fortune seeker in the gold and silver fields in Roughing It (1872). Later, the Klondike gold rush of 1897–1898 brought more than eighteen thousand people to that region, including Jack London (1876–1916), whose experiences formed the material for his initial success as a writer with The Son of the Wolf: Tales of the Far North (1900) and The Call of the Wild (1903). Land speculation, occasioned by the expansion of the railroads and the settlement of the American West, was also seen as a route to wealth. Whether developing towns and cities along proposed rail lines or cultivating the vast natural resources deliverable by rail, the speculators contrived by lobbying or corrupting corporate and governmental authorities to gain their part of the expanding "Incorporation of America," as Trachtenberg labels the phenomenon in the subtitle to his book. Twain and Charles Dudley Warner's The Gilded Age: A Tale of Today (1874) details the land speculation of Colonel Beriah Sellers, who gets involved in various schemes and eventually goes bankrupt.

THE DISPLAY OF WEALTH

Historians stress one central aspect of wealth in this period: its conspicuous display. In The Rise of Industrial America: A People's History of the Post-ReconstructionEra (1984), Page Smith notes that "perhaps the most noticeable change in the life of the very rich was their 'conspicuousness.'" The modest facades of antebellum homes went out of fashion, and "now the rich built extravagant mansions that publicly proclaimed their wealth" (p. 853). This was, after all, the Gilded Age, a term borrowed from the title of Twain and Warner's novel and an apt image for the period. The display of gold, of wealth, in material objects and cultural practices is perhaps the defining factor in the lifestyle of the rich in the late 1800s. The wealthy built castles along the Hudson River and villas in Newport and moored their massive yachts nearby. Ezra Cornell, Leland Stanford, Cornelius Vanderbilt, and Andrew Carnegie put their names and endowments on universities—what Trachtenberg calls "a conspicuous display of philanthropy" (p. 145) was also a part of the gilding. The wealthy were also busy endowing monumental art museums, including the Metropolitan Museum of Art in New York and the Boston Museum of Fine Arts, both established in 1870; the Philadelphia Museum of Art, founded in 1876; and the Art Institute of Chicago, which dates from 1879. In most cases, the ladies of high society were the driving force behind the establishment of these institutions. Trachtenberg argues that "the museums subliminally associated art with wealth, and the power to donate and administer with social station and training" (p. 144). He concludes that the Gilded Age "contained a particular idea of culture as a privileged domain of refinement, aesthetic sensibility, and higher learning" (p. 143).

Inside the mansions, opulent display grew proportionate to the increase of wealth. "Silver might have been in dispute as a medium of exchange," Smith says, "but as a symbol of success it was unchallenged in the domestic setting" (p. 856); dozens of silver implements were devised for use and display. Some household items made the mansions uniquely American; Carnegie commented that "there is no palace or great mansion in Europe with half the conveniences and scientific appliances which characterize the best American mansions" (Smith, p. 856), a reference to modern amenities such as telephones, electric lights, and central heating. The Rise of Silas Lapham (1885) by William Dean Howells (1837–1920) exposes this tendency in the title character's smug satisfaction with the showy improvements he makes to his house.

Although wealth was certainly a prerequisite for reaching what Trachtenberg calls the "privileged domain," certain cultural practices were also required. Eric Homberger gives one example in Mrs. Astor's New York: Money and Social Power in a Gilded Age (2002): "In this complex transaction toward heightened visibility, the ball was a social weathervane. Charity balls and assemblies were public events, and were treated as such in the press. But when 'private' balls began to be held on a newly lavish scale, the newspapers began to take notice" (p. 23). Newport held "subscription balls," which allowed the public who wanted to subscribe to watch. And the balls of the period were indeed lavish: in 1897 Mrs. Bradley-Martin spent $360,000 on a ball, explaining that she was trying to stimulate business during the depression (Smith, p. 853). Occupying a box at the opera or a carriage for the evening procession in Newport were also signs of privileged status. Homberger describes the opening of the Metropolitan Opera in New York in 1883 as a carefully designed gala to show off the riches and taste of the wealthy: "A reporter at opening night on October 22, 1883, noted that 'All the nouveaux riches were there. The Goulds and the Vanderbilts and people of that ilk perfumed the air with the odor of crisp greenbacks. The tiers of boxes looked like cages in a menagerie of monopolists'" (p. 230).

In this "age of aristocracy," as Homberger terms it, the wealthy could further demonstrate their status by showing a connection to European nobility. Most superficially, this involved re-creating or importing English homes, goods, and fashions, affecting English accents, hiring Irish nannies, and so forth. Twain loved to attack such pretensions, satirizing it through the King and Duke, two low-life con men in Adventures of Huckleberry Finn (1885), and through Colonel Sellers in The American Claimant (1892), who insists he is the rightful earl of Durham. Marrying into European nobility was highly regarded, as can be seen in one of the period's major social scandals. Mrs. Alva Vanderbilt was so determined to marry off her daughter Consuelo to the ninth duke of Marlborough that she threatened to shoot the young man her daughter was in love with. Alva prevailed, and in one of the biggest social events of the century, Consuelo married the duke, who was also given $2.5 million in railroad stock.

Travel to Europe was also a major part of the upper-class regimen. The retinues and entourages of the wealthy travelers—which included maids, nurses, relatives, and so forth—increased their visibility, as did the piles of luggage they brought along, which commonly included twenty or thirty pieces. Smith likens the travelers to "small armies on campaign, to Rome, to Florence, to European spas, and, most desired of all, to English country homes" (p. 858). American writers chronicled and took part in similar European sojourns. Twain's The Innocents Abroad; or, The New Pilgrims' Progress (1869) and A Tramp Abroad (1880) humorously chronicle his travels, whereas Edith Wharton (1862–1937) shows a more serious admiration for European culture in Italian Backgrounds (1905) and French Ways and Their Meaning (1919). In his fiction, Henry James (1843–1916) subtly explores wealthy Americans' interest in European aristocracy: The American (1877) details Christopher Newman's failed courtship of Claire de Cintré, and The Ambassadors (1903) describes Chad Newsome's relationship with the Countess de Vionnet.

The increasing number of wealthy in the Gilded Age posed a problem for dominant members of the social elite: How could they maintain their privileged position? They attempted to do this by setting up a dichotomy between themselves, the old money, and the new money, also called the parvenus, the arrivistes, the social climbers. They enforced this decision in various ways. Samuel Ward McAllister (1827–1895), who as Homberger says, "articulated the ideals upon which the aristocratic idea in America took its stand" (p. 149), founded in 1872 the Patriarchs, which was made up of the twenty-five (later fifty) most exclusive families in New York, a group Homberger calls "the most prestigious social institution of the age" (p. 149). In the 1880s McAllister was the impetus for "the 400"—issued as The 400 (Officially Supervised) in 1890—a list of the officially elite. This and other publications such as the Social Register sought to validate the truly exceptional and exclusive. In The Custom of the Country (1913), Wharton presents an attack on the nouveau riche in the person of Undine Spragg, whose ruthless pursuit of a place in high society forms the core of the novel.

One other route the old money took was a sort of conspicuous anti-display, bohemian aestheticism. William Sturgis Bigelow became a Buddhist and collected Japanese art. George Cabot Lodge became a poet/artist/philosopher who affected a Whitmanesque appearance and who, with his friend Joseph Trumbull Stickney, formed the Conservative Christian Anarchist Party. John Hay and Henry Adams settled in Washington, D.C., where their houses became centers for artists, writers, and other aesthetically minded members of the gentry. Augustus Saint-Gaudens, John LaFarge, and John Singer Sargent were frequent visitors. Many of the artistically inclined members of the social elite would, by the end of the nineteenth century, gravitate to Greenwich Village, where avantgarde modernism would be formed. Perhaps the best example would be Mabel Dodge Luhan (1879–1962), who married well and wealthy, traveled extensively in Europe, and settled in Greenwich Village, where she established a salon. Later she relocated to Taos, New Mexico.

Two factors, newspapers and photography, significantly affected the increasing prominence of wealth. The first attempt to create society journalism was W. H. Andrews's magazine American Queen, which began publication in 1879. "Devoted to the publication of social reports from American cities, and long lists of invited guests," Homberger writes, "American Queen provided a dry account of current fashions being worn across the nation" (p. 204). In 1880 Charles Anderson Dana's New York Sun began to include a society column, and other papers soon followed suit, with the New York Tribune and the New York World adding social coverage in 1882. Photography also increased the visibility of the rich, and "society photographers" were present at any major social event. "When the half-tone process was introduced in late 1896," Homberger writes, "allowing photographs to be printed in the daily press, among the most popular innovations was an illustrated supplement printed on quality paper with the regular Sunday edition of the New York Times" (p. 19), which featured those prominent in society. "The press presented a story about society to the public," Homberger concludes. "It was a story with a strong, recurrent narrative forms, building toward seasonal high points [balls, opera openings, and so forth]. . . . a story with wealth, color, power, and fancy clothes" (p. 19). Increasingly, to be in the press was a requisite sign of being in the elite.

CRITICISM OF WEALTH

This complicity with the press was, however, what Homberger calls "a Faustian bargain for the wealthy" (p. 11). While publicity was valued, scandal became more difficult to hide. The 1880s saw not only the rise of society columns but gossip columns as well. In 1874 Henry Ward Beecher, the most prominent minister of the time, was skewered in the press over his adulterous relations—"criminal conversation"—with Elizabeth Tilton, the wife of Theodore Tilton (Homberger, p. 12). Even more famous, then and now (because of its retelling in E. L. Doctorow's Ragtime), is the scandal involving Harry Thaw, a sadomasochist, his wife, Evelyn Nesbit, and the aging libertine Stanford White. It was, says Smith, "the greatest scandal of the day" (p. 857).

Twain and Warner's The Gilded Age fictionalizes most of the nonsexual dimension of what Trachtenberg calls "the corruption and scandal of a political universe dominated by a great wealth" (p. 144). Land speculation involving the expansion of railroads, legislators bought and sold by industrialists, small businesses and workers being squeezed by monopolies, all are fodder for Twain and Warner's cannons. Other major novelists of the period also took stances critical of the social elite. William Dean Howells's The Rise of Silas Lapham concerns the moral threat posed by the acquisition of wealth, contrasting Mrs. Lapham's traditional values with Mr. Lapham's business practices. In The Age of Innocence (1920) Wharton presents her fullest and most nuanced portrait of New York's elite, who are at once objects of nostalgic sympathy and distanced criticism.

A more wide-ranging and incisive criticism of this era is The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions (1899) by Thorstein Veblen (1857–1929), a powerful and insightful social critique and an important work of nonfiction literature. In every way, it opposes the ideas of Herbert Spencer and his book First Principles. Veblen begins by locating the contemporary capitalist culture not at the high endpoint of cultural evolution but at "the predatory phase of culture" (p. 19) or "this exemplary barbarian culture" (p. 3) dominated by power, invidious distinction, exploit, aggression, and combat. Veblen begins his analysis with the concept of pecuniary emulation, "the motive that lies at the root of ownership" (p. 25). This phase evolved from a previous one marked by quasi-peaceable savagery and primitive communal organization, when individuals began to raid neighboring tribes and bring back trophies—goods and women—for invidious display. Others then sought to emulate them, and the culture of private property, which would result in modern capitalism, was born. In modern times the exploit of the raid has been replaced by business enterprise and the trophies by a complex and wide-ranging set of practices that are, in essence, contemporary culture, the discussion of which forms the body of Veblen's book.

The first general category of these practices is "conspicuous leisure," for, Veblen notes, "in order to gain and hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence" (p. 36). And since work in predatory culture is associated with "weakness and subjection to a master" (p. 36), leisure becomes a sign of superior status. This is not simply attending balls or the opera or lounging in the Hamptons or Newport, for much of Veblen's idea of conspicuous leisure is vicarious leisure. For example, having a wife who demonstrably does not work is prized; having servants who do the "woman's work" is thus important, and even better is having servants who do little or no work and who therefore demonstrate vicariously the employer's leisure. Veblen's analysis extends even to small matters. For instance, a man's starched white shirt demonstrates that he can have someone else launder it for him, while his wife, dressed in whale-bone corset, hoop-skirted dress, and high heels, graphically shows herself incapable of doing work.

Veblen's second general category is "conspicuous consumption," for "unproductive consumption of goods is honourable, primarily as a mark of prowess and a perquisite of human dignity" (p. 69). Veblen continues:

MENCKEN ON THE MILLIONAIRES

These are the first two paragraphs in a short article, "A Chance for Millionaires," by H. L. Mencken originally published in the New York Evening Mail in 1918.

On the general stupidity and hunkerousness of millionaires a formidable tome might be written—a job I resign herewith to anyone diligent enough to assemble the facts. Not only do they gather in their assets by processes which never show any originality, but are always based upon a few banal principles of swindling; they also display the same lack of resource and ingenuity in getting rid of them. It is years since any American millionaire got his money in any new and stimulating way, and it is years since any American millionaire got rid of his money by any device worthy the admiration of connoisseurs.

Setting aside the pathetic dullards who merely hang on to their accumulations, like dogs hoarding bones, the rich men of the Republic may be divided into two grand divisions, according to their varying notions of what is a good time. Those in the first division waste their funds upon idiotic dissipation or personal display. They are the Wine Jacks, social pushers and horsy fellows—the Thaws, Goulds, and so on. Those in the second division devote themselves to buying public esteem by gaudy charities and a heavy patronage of the arts and sciences. They are the Rockefellers, Carnegies, Morgans, et al.

H. L. Mencken, "A Chance for Millionaires," in A Mencken Chrestomathy (New York: Vintage Books, 1982), pp. 380–381.

The quasi-peaceable gentleman of leisure, then, not only consumes of the staff of life beyond the minimum required for subsistence and physical efficiency, but his consumption also undergoes a specialisation as regards the quality of the goods consumed. He continues freely and of the best, in food, drink, narcotics, shelter, services, ornaments, apparel, weapons and accoutrements, amusements, amulets, and idols or divinities. (P. 73)

Consumption, like leisure, can also be vicarious: one's wife's or servant's conspicuous consumption adds to one's honorific status.

Conspicuous consumption, Veblen shows, leads to "conspicuous waste," which, he says with considerable irony, is an unfortunate term, for it seems to carry "an undertone of deprecation" (p. 97). However, "it is here called 'waste' because this expenditure does not serve human life or human well-being on the whole, not because it is waste or misdirection of effort or expenditure as viewed from the standpoint of the individual consumer who chooses it" (pp. 97–98). Mrs. Bradley-Martin's wasting $360,000 on a ball may be deprecated by many, but it brought her honorific status among her leisure-class society. Veblen says, "customary expenditure must be classed under the head of waste in so far as the custom on which it rests is traceable to the habit of making an invidious pecuniary comparison" (p. 100). Veblen extends his analysis of these concepts into virtually every corner of Gilded Age culture, exposing the American wealthy to his sharp criticism.

See alsoBanking and Finance; Poverty; Social Darwinism; Success; The Theory of the Leisure Class

BIBLIOGRAPHY

Primary Works

Alger, Horatio, Jr. Ragged Dick and Mark, the Match Boy. 1868. New York: Collier, 1962.

Carnegie, Andrew. The Gospel of Wealth and Other Timely Essays. 1889. Cambridge, Mass.: Belknap Press of Harvard University Press, 1962.

Sumner, William Graham. What the Social Classes Owe to Each Other. 1883. New York: Harper & Brothers, 1920.

Veblen, Thorstein. The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. 1899. New York: Penguin, 1981.

Secondary Works

Chambers, John Whiteclay, II. The Tyranny of Change: America in the Progressive Era, 1890–1920. New Brunswick, N.J.: Rutgers University Press, 2000.

Hofstadter, Richard. Social Darwinism in American Thought. New York: George Braziller, 1959.

Holbrook, Stewart H. Lost Men of American History. New York: Macmillan, 1946.

Homberger, Eric. Mrs. Astor's New York: Money and Social Power in a Gilded Age. New Haven, Conn.: Yale University Press, 2002.

Painter, Nell Irvin. Standing at Armageddon: The United States, 1877–1919. New York: Norton, 1987.

Phillips, Kevin. Wealth and Democracy: A Political History of the American Rich. New York: Broadway Books, 2002.

Smith, Page. The Rise of Industrial America: A People's History of the Post-Reconstruction Era. New York: McGraw-Hill, 1984.

Trachtenberg, Alan. The Incorporation of America: Culture and Society in the Gilded Age. New York: Hill and Wang, 1982.

John Samson

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