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The Crisis of Ownership Societies

In Parts One and Two of this book we studied the transformation of trifunctional societies (based on a tripartite division of clergy, nobility, and third estate and an overlapping of property rights and regalian powers at the local level) into ownership societies (organized around a strict separation of property rights, ostensibly open to all, and regalian powers, a monopoly of the centralized state). We also looked at the way in which the encounter with proprietarian colonial European powers affected the evolution of ternary societies in other parts of the world. In Part Three, we are going to analyze the way in which the twentieth century profoundly disrupted this structure of inequality. The century between the assassination of Archduke Ferdinand in Sarajevo on June 28, 1914, and the attack on New York on September 11, 2001, was one of hope for a more just world and more egalitarian societies and marked by projects that aimed at radical transformation of inequality regimes inherited from the past. These hopes were dampened by the depressing failure of Soviet Communism (1917–1991)—a failure that contributes to today’s sense of disillusionment and to a certain fatalism when it comes to dealing with inequality. This can be overcome, however, provided that we follow the thread of this history back to its origin and fully absorb the lessons it has to teach. The twentieth century also marked the end of colonialism; indeed, this may have been its most important result. Societies and cultures that had previously been subject to military domination by the West now emerged as actors on the world stage.

We will begin this chapter by examining the crisis of ownership societies in the period 1914–1945. Then, in the next chapter, we will study the promises and limitations of the social-democratic societies that arose after World War II. We will then analyze the case of communist and postcommunist societies and finally the rise of hypercapitalist and postcolonial societies at the end of the twentieth and beginning of the twenty-first centuries.

Rethinking the “Great Transformation” of the First Half of the Twentieth Century

Between 1914 and 1945 the structure of global inequality, both within countries and at the international level, experienced a deep and rapid transformation. Nothing like it had ever been seen in the entire previous history of inequality. In 1914, on the eve of World War I, the private property regime seemed as prosperous and unalterable as the colonial regime. The countries of Europe, proprietarian and colonial, were at the peak of their power. British and French citizens boasted of portfolios of foreign assets unequaled to this day. Yet by 1945, barely thirty years later, private property had ceased to exist under the communist regime in the Soviet Union, and soon in China and Eastern Europe as well. It had lost much of its power in countries that remained nominally capitalist but were actually turning social-democratic through a combination of nationalizations, public education and health policies, and steeply progressive taxes on high incomes and large estates. Colonial empires were soon to be dismantled. The old European nation-states had self-destructed, and their reign had given way to a global ideological competition between communism and capitalism, embodied by two powers of continental dimension: the Union of Soviet Socialist Republics and the United States of America.

We will begin by measuring the extent to which income and wealth inequality decreased in Europe and the United States in the first half of the twentieth century, beginning with the collapse of private property in the period 1914–1945. Physical destruction linked to the two world wars played only a minor part in this collapse, though it certainly cannot be neglected in the countries most affected. The collapse was mainly the result of a multitude of political decisions, often taken in urgent circumstances; the common feature of these decisions was the intent to reduce the social influence of private property, whether by expropriation of foreign assets, nationalization of firms, imposition of rent and price controls, or reduction of the public debt through inflation, exceptional taxes on private wealth, or outright repudiation. We will also analyze the central role played by the introduction of large-scale progressive taxation in the first half of the twentieth century, with rates of 70–80 percent or more on the highest incomes and largest estates—rates that were maintained until the 1980s. From the distance afforded us by the passage of time, the evidence suggests that this historical innovation—progressive taxation—played a key role in reducing inequality in the twentieth century.

Finally, we will study the political-ideological conditions that made this historical turning point possible, especially the “great transformation” of attitudes toward private property and the market that Karl Polanyi analyzed in 1944 in his book of that title (a magisterial work, written in the heat of action, about which I will say more later).1 To be sure, the various financial, legal, social, and fiscal decisions taken between 1914 and 1950 grew out of a specific series of events. They bear the mark of the rather chaotic politics of the period and attest to the way in which the groups in power at the time tried to cope with unprecedented circumstances, for which they were often ill-prepared. But, to an even greater degree, those decisions stemmed from profound and lasting changes in social perceptions of the system of private property and its legitimacy and ability to bring prosperity and offer protection against crisis and war. This challenge to capitalism had been in gestation since the middle of the nineteenth century before crystallizing as majority opinion in the wake of two world wars, the Bolshevik Revolution, and the Great Depression of the 1930s. After such shocks, it was no longer possible to fall back on the ideology that had been dominant until 1914, which relied on the quasi-sacralization of private property and the unquestioned belief in the benefits of generalized competition, whether among individuals or among states. The contending political forces therefore set out in search of new avenues, including various forms of social democracy and socialism in Europe and the New Deal in the United States. The lessons that can be drawn from this history are obviously relevant to what is happening today, especially since a neo-proprietarian ideology began to gain influence in the final decades of the twentieth century. This can be attributed in part to the catastrophic failure of Soviet Communism. But it can also be explained by the neglect of historical studies and the disciplinary divide between economics and history as well as by the shortcomings of the social-democratic solutions that were tried in the middle of the twentieth century and that stand today in urgent need of review.²

The Collapse of Inequality and Private Property (1914–1945)

The fall of ownership society in the period 1914–1945 can be analyzed as a consequence of three challenges: the challenge of inequality within European ownership societies, which led to the emergence first of counterdiscourses and then of communist and social-democratic counter-regimes in the late nineteenth and first half of the twentieth centuries; the challenge of inequality among countries, which led to critiques of the colonial order and the rise of increasingly powerful independence movements in the same period; and finally, a nationalist and identitarian challenge, which heightened competition among the European powers and eventually led to their self-destruction through war and genocide in the period 1914–1945. It is the conjunction of these three profound intellectual crises (the emergence of socialism and communism, the twilight of colonialism, and the exacerbation of nationalism and racialism) with specific series of events that accounts for the radical nature of the challenge and the ensuing transformation.3

Before studying the mechanisms at work here and returning to the long-term political-ideological transformations that made these evolutions possible, it is important to begin by taking the measure of the historic reduction of socioeconomic inequalities and the decline of private property in this period. Let us begin with income inequality (Fig. 10.1). In Europe, the share of the top decile (the 10 percent of the population with the highest incomes) amounted to about 50 percent of total income in Europe in the nineteenth and early twentieth centuries until the beginning of World War I. It then began a chaotic fall between 1914 and 1945, eventually stabilizing at around 30 percent of total income in 1945–1950, where it stayed until 1980. European income inequality, which was significantly higher than that of the United States until 1914, fell below US levels during the so-called Trente Glorieuses 1950–1980, a period of exceptionally high growth (especially in Europe and Japan) and historically low levels of inequality. In addition, the revival of inequality since 1980 has been much stronger in the United States than in Europe so that in the late twentieth and early twenty-first centuries the United States has taken the lead—the reverse of the situation at the turn of the twentieth century.

When we look more closely at Europe, we find, first, that inequality collapsed between 1914 and 1945–1950 in all countries for which data are available, and second, that while inequality has indeed increased since 1980, the magnitude of the increase varies widely from country to country (Figs. 10.2–10.3). For example, the trajectory of the United Kingdom is closest to that of the United States while income inequality in Sweden remains the lowest on the continent; Germany and France fall between these two extremes.⁴ We find similar results if we look at the evolution of the top centile (instead of the top decile) share, with the US lead in inequality in recent decades even more marked by this measure. In subsequent chapters I will return to the general increase in inequality since 1980 and the reasons for the various trajectories and chronologies we observe in Europe and the United States.

FIG. 10.1.  Income inequality in Europe and the United States, 1900–2015

Interpretation: The top decile’s share of total national income was on average around 50 percent in Western Europe in 1900–1910 before falling to around 30 percent in 1950–1980, then rising above 35 percent in 2010–2015. The increase of inequality was much stronger in the United States, where the top decile’s share was 45–50 percent in 2010–2015, above the level for 1900–1910. Sources and series: piketty.pse.ens.fr/ideology.

FIG. 10.2.  Income inequality, 1900–2015: The diversity of Europe

Interpretation: The top decile’s share of total national income averaged around 50 percent in Western Europe in 1900–1910 before falling to around 30 percent in 1950–1980 (or even 25 percent in Sweden), then rising above 35 percent in 2010–2015 (or even 40 percent in the United Kingdom). In 2015 the United Kingdom and Germany were above the European average, and France and Sweden were below. Sources and series: piketty.pse.ens.fr/ideology.

From European Proprietarianism to American Neo-Proprietarianism

At this stage, note simply that the levels of income inequality observed in the United States in the period 2000–2020 are very high, with the top decile claiming 45–50 percent of total income and the top centile, 20 percent. These levels are almost as high as those observed in Europe in 1900–1910 (around 50 percent for the top decile and 20–25 percent for the top centile, and even a little more in the United Kingdom). This does not mean, however, that the structure of inequality was exactly the same in the two periods. In Belle Époque Europe (1880–1914), the very high level of income inequality was the distinctive characteristic of ownership society. The highest incomes consisted almost entirely of income from property (rents, profits, dividends, interest, and so on), and it was the collapse of the concentration of property and of the largest fortunes that led to the decrease in top income shares and the disappearance of ownership society in its classic form.

FIG. 10.3.  Income inequality, 1900–2015: The top centile

Interpretation: The top centile’s share of total national income was about 20–25 percent in Western Europe in 1900–1910 before falling to 5–10 percent in 1950–1980 (and less than 5 percent in Sweden), then climbing to about 10–15 percent in 2010–2015. The increase of inequality was much greater in the United States, where the top centile’s share attained 20 percent in 2010–2015 and surpassed the 1900–1910 level. Sources and series: piketty.pse.ens.fr/ideology.

In the United States in 2000–2020, income inequality has a somewhat different origin. High incomes from capital still play a role at the top of the social hierarchy, all the more so because concentration of wealth has increased sharply in the United States since 1980. But this concentration of wealth remains somewhat less extreme than that observed in Europe in 1880–1914. Another factor is partly responsible for the high level of income inequality in the United States today—namely, the explosion of high salaries for top executives since 1980. Contrary to what interested parties would have you believe, this in no way implies that this form of inequality is more “just” or “meritocratic” than the other. As noted earlier, access to higher education in the United States is highly unequal, despite official claims of meritocratic rewards.5 In Chapter 11 we will see that skyrocketing executive pay mainly reflects the absence of adequate countervailing power within firms and the decline of the moderating role of fiscal progressivity. Simply put, the mechanisms and processes at work (both socioeconomic and political-ideological) are not exactly the same in neo-proprietarian US society in 2000–2020 as those that were at work in pre-1914 proprietarian societies.

As for the evolution of wealth inequality, remember that it was always much greater than income inequality. The share of private property owned by the wealthiest 10 percent reached 90 percent in Europe on the eve of World War I before decreasing in the interwar and postwar years to 50–55 percent in the 1980s, at which time it began to rise again (Fig. 10.4).⁶ In other words, when wealth inequality fell to its historic low, its level was still comparable to the highest observed levels of income inequality. The same is true for the top centile (Fig. 10.5).⁷ Paradoxically, the sources available today (in the era of big data) are less precise than those that were available a century ago due to the internationalization of wealth, the proliferation of tax havens, and above all, lack of political will to enforce financial transparency, so it is quite possible that we are underestimating the level of wealth inequality in recent decades.⁸

Two facts appear to be well established, however. First, the increased concentration of wealth in recent decades has been noticeably greater in the United States than in Europe. Second, despite the uncertainties, the level of wealth inequality in 2000–2020 appears to be somewhat less extreme than in Belle Époque Europe. In the United States the top decile share is 70–75 percent of all private property according to the latest data, which is obviously significant but still not as high as the 85–95 percent levels observed in France, Sweden, and the United Kingdom in the period 1900–1910 (Fig. 10.4). The top centile share in the United States in 2010–2020 is 40 percent, compared with 55–70 percent in France, Sweden, and the United Kingdom in 1900–1910 (Fig. 10.5). Given the rapid pace of change, however, it is not out of the question that the share of wealth belonging to the least wealthy 90 percent of the population will continue to decrease in decades to come. (In practice, moreover, most of what belongs to the bottom 90 percent is actually owned by what I have called the “patrimonial middle class,” that is, the fiftieth to ninetieth percentile of the wealth distribution, because the bottom 50 percent own virtually nothing). The United States might then attain the same hyperconcentration of wealth that we find in Europe in the late nineteenth and early twentieth centuries, compounded by an unprecedented level of inequality in labor income, in which case the neo-proprietarian United States could prove to be even more inegalitarian than Belle Époque Europe. But this is only one possible trajectory; as we will see, it is not impossible that new redistributive mechanisms will develop in the United States in the coming years.

FIG. 10.4.  Wealth inequality in Europe and the United States, 1900–2015

Interpretation: The top decile’s share of total private property (real estate, professional, and financial assets, net of debt) was about 90 percent in Western Europe in 1900–1910 before falling to around 50–55 percent in 1980–1990, then rising again. The increase was much stronger in the United States, where the top decile’s share approached 75 percent in 2010–2015, close to the 1900–1910 level. Sources and series: piketty.pse.ens.fr/ideology.

FIG. 10.5.  Wealth inequality, 1900–2015: The top centile

Interpretation: The top centile’s share of total private property was roughly 60 percent in Western Europe in 1900–1910 (55 percent in France, 70 percent in the United Kingdom) before falling to less than 20 percent in 1980–1990, then rising since that date. The rise of inequality was much stronger in the United States, where the top centile’s share approached 40 percent in 2010–2015, close to the 1900–1910 level. Sources and series: piketty.pse.ens.fr/ideology.

The End of Ownership Society; the Stability of Wage Inequalities

As for Europe, I must emphasize the magnitude and historic significance of the deconcentration of wealth that took place between 1914 and the 1970s (Figs. 10.4–10.5). In particular, the top centile, which in 1900–1910 owned 55 percent of all private property in France, 60 percent in Sweden, and 70 percent in the United Kingdom, owned no more than 15–20 percent in any of these countries by the 1980s before rising to 20–25 percent (and perhaps, in reality, a little higher) in 2000–2020. This collapse of the share of the wealthiest is all the more striking because there was no sign that such an evolution was possible before the outbreak of World War I. In all European countries for which we have adequate wealth data, the concentration of property was extremely high throughout the nineteenth century and until 1914, with a slight upward trend and, at the end, an accelerating rate of increase in the decades prior to World War I.⁹ The same is true for countries where we have income tax data that allow us to study the final decades of the nineteenth century: for example, Germany, in which from 1870 to 1914 we find a growing concentration of total income due to income derived from capital.¹⁰ Wages did begin to rise slowly in the final decades of the nineteenth century and the first decade of the twentieth, which is a positive sign compared with the virtually total stagnation (or regression) of wages from 1800 to 1860 or so. Moreover, this dark era of industrialization contributed to the rise of socialist movements.¹¹ In any case, inequality remained quite high in 1870–1914, and the concentration of wealth and capital income even increased up to World War I.¹²

More generally, all signs are that the concentration of wealth was also very high in the eighteenth century and earlier within the framework of trifunctional society, where property rights often overlapped with regalian rights exercised by clerical and noble elites. Some research suggests that wealth inequality was on the rise in Europe between the fifteenth and eighteenth centuries and that the trend then continued in the nineteenth century as property rights were strengthened (as indicated by French estate data, along with other data from Britain and Sweden). Comparisons with periods prior to the nineteenth century are full of uncertainty, however, partly because the available data usually pertain to specific cities or regions and do not always cover the entire population of the poor and partly because the very notion of property was then associated with legal and jurisdictional privileges that are hard to quantify. In any case, the sources, though imperfect, indicate levels of wealth inequality in the fifteenth to eighteenth centuries significantly higher than those observed in the twentieth century.¹³

The decreasing concentration of wealth in the twentieth century was thus a major historical novelty, the importance of which cannot be overstated. Admittedly, wealth remained highly unequally distributed. But for the first time in the history of modern societies, a significant share of total wealth (several dozen percent and sometimes as much as half) was owned by social groups in the bottom 90 percent of the distribution.¹⁴ People in the new property-owning strata might own their own homes or small businesses but did not have enough to live on income from their property alone; their wealth complemented their labor, which was their main source of income. The wealth was simply a sign of accomplishment, a symbol of status achieved through hard work. By contrast, the decline of the share of the wealthiest households, and in particular the collapse of the top centile (whose share was roughly divided by three over the course of the twentieth century in Europe), meant that there were many fewer people able to live on their rents, dividends, and interest alone. What happened was thus a transformation of the nature of property itself and, simultaneously, of its social significance. What was even more striking was that this process of diffusion of property and renewal of elites also coincided with an acceleration of economic growth, which had never before been as rapid as in the second half of the twentieth century. We need to understand this better.

FIG. 10.6.  Income versus wealth inequality in France, 1900–2015

Interpretation: In 1900–1910, the 10 percent with the most capital income (rents, profits, dividends, interest, etc.) received about 90–95 percent of the total income from capital; the 10 percent who received the most income from labor (wages, nonwage remuneration, pensions) received 25–30 percent of total labor income. The reduction of inequality in the twentieth century came entirely from deconcentration of property, while inequality of labor income changed little. Sources and series: piketty.pse.ens.fr/ideology.

Note, moreover, that this deconcentration of property (and therefore of the income derived from property) is the major reason for the reduction of income inequality in Europe over the course of the twentieth century. In the case of France, for example, we find that inequality of labor income (including both wages and nonwage income) did not decrease significantly in the twentieth century. If we ignore short- and medium-term variations, the share of the top decile has fluctuated between 25 and 30 percent of total labor income, and only the collapse of the inequality of capital income can explain the decrease of overall income inequality (Fig. 10.6)¹⁵ The same is true if we look at the top centile share of labor income, which fluctuated between 5 and 8 percent in France in the twentieth century with no clear trend, whereas the corresponding share of capital income fell, leading to a decrease in the top centile share of total income (Fig. 10.7).

FIG. 10.7.  Income versus wealth in the top centile in France, 1900–2015

Interpretation: In 1900–1910, the top centile of capital income (rents, profits, dividends, interest, etc.) claimed roughly 60 percent of the total; the top 1 percent of capital owners (real estate, professional and financial assets, net of debt) held roughly 55 percent of the total; the top centile of total income (labor and capital) received roughly 20–25 percent of the total; the top centile of labor income (wages, nonwage compensation, pensions) received roughly 5–10 percent of the total. Over the long run, the reduction of inequality is explained entirely by the deconcentration of wealth. Sources and series: piketty.pse.ens.fr/ideology.

One should be careful, however, not to exaggerate the stability of labor income inequality over the last century. If we look beyond the monetary dimensions of labor income and consider changes in the status of workers, stability of employment, social and union rights, and especially access to fundamental goods such as health, training, and pensions, we find that inequalities with respect to labor—particularly between different classes of workers—significantly decreased over the course of the twentieth century (I will come back to this). Nevertheless, from a strict monetary standpoint, which is of some significance in determining living conditions and power relations between individuals, inequalities of labor income remained fairly stable, and only the deconcentration of wealth and the income derived from it resulted in a reduction of overall income inequality. Available data for other European countries lead to similar conclusions.16

Decomposing the Decline of Private Property (1914–1950)

Let us now try to understand the mechanisms responsible for these changes, especially the disappearance of European ownership societies. Apart from the deconcentration of wealth, which stretched out over much of the twentieth century (from 1914 to the 1970s), it is important to note that the most sudden and striking phenomenon was the abrupt collapse of the total value of private property (relative to national income), which took place quite rapidly between 1914 and 1945–1950.

In the late nineteenth and early twentieth centuries, private capital was flourishing. The market value of all real estate, professional, and financial assets (net of debt) held by private owners fluctuated between seven and eight years of national income in France and the United Kingdom and around six years in Germany (Fig. 10.8). These sums included assets held abroad in in the colonies and elsewhere. The Belle Époque (1880–1914) was the high watermark of international investment, which on the eve of World War I surpassed the equivalent of a year’s national income for France and nearly two years of national income for the United Kingdom, compared with less than half a year for Germany—still quite a lot in comparative historical terms but not all that much by contemporary European norms.¹⁷

Note, moreover, that the difference between the impressive international investments held by citizens of the two great colonial powers, France and Britain, and more limited German foreign holdings is roughly the same as the difference in total wealth, which illustrates the importance of the link between proprietarianism, colonialism, and more generally, the internationalization of economic and property relations. Apart from foreign assets, private property at the time breaks down into two halves of roughly comparable size: on the one hand, farmland and residential real estate (with the share of farmland declining considerably over time), and on the other hand, professional property (factories, warehouses, etc.) and financial assets (stocks, private and government bonds, and investments of all kinds).

FIG. 10.8.  Private property in Europe, 1870–2020

Interpretation: The market value of private property (real estate, professional and financial assets, net of debt) was close to six to eight years of national income in Western Europe from 1870 to 1914 before collapsing in the period 1914–1950 and stabilizing at two to three years of national income in 1950–1970, then rising again to five to six years in 2000–2010. Sources and series: piketty.pse.ens.fr/ideology.

To be clear from the outset, this indicator—the ratio of the market value of private property to national income—tells us nothing about wealth inequality. It is nevertheless useful for comparing the overall importance of private property and property relations in different societies across time and space. Of course, a high wealth-income ratio may indicate that large investments were made in the past to accumulate productive capital: clearing and improvement of land; construction of homes, buildings, and factories; and accumulation of machinery and equipment. In practice, a high ratio may also attest to the scope of opportunities for wealth appropriation that the existing legal and political regime affords to the owners of private property: colonial riches, natural resources, and patents and intellectual property. The market value of property reflects expected future gains and profits of all kinds. For a given unit of productive capital, what determines its value as property is the solidity of the rights guaranteed to its owners by the political system, together with the belief that those rights will be honored in the future. In any event, this indicator measures, to a certain extent, private property’s influence in a given society: a low wealth-income ratio means that in principle a few years of saving should be enough to catch up with the current owners of property (or at any rate to achieve an average level of wealth). By contrast, a high ratio indicates that the gulf between owners and nonowners is more difficult to overcome.18

In this case, it is striking to note that the high levels of wealth observed in the ownership societies of the Belle Époque (1880–1914) are matched, to a first approximation, throughout the period 1700–1914. Many estimates of the total value of property were carried out in the late seventeenth and early eighteenth centuries, especially in the United Kingdom and France, by William Petty; Gregory King; Sébastien Le Prestre de Vauban; and Pierre Le Pesant, sieur de Boisguilbert; these were later refined during the French Revolution (by Antoine Lavoisier in particular) and then, throughout the nineteenth century, by numerous authors (including Patrick Colquhoun, Robert Giffen, Alfred de Foville, and William Colson). If we compare and contrast all these sources, we find that the total value of private property was generally six to eight years of national income throughout the eighteenth and nineteenth centuries, which is extremely high compared with later periods.¹⁹ The composition of property was totally transformed over this period (as the importance of farmland declined and that of industrial and international assets increased), but property owners continued to thrive without interruption. The novels of Jane Austen and Honoré de Balzac, set in the period 1790–1830, illustrate the plasticity of property to perfection. It mattered little whether a fortune consisted of a landed estate, foreign assets, or government bonds, provided that it was solid enough and yielded the expected income and the social life that went with it.²⁰ Nearly a century later, in 1913, when Marcel Proust published Swann’s Way, property had again changed its identity but remained just as indestructible, regardless of whether it took the form of a portfolio of financial assets or the Grand Hotel of Cabourg where the novelist liked to spend his summers.

All this would change very quickly, however. The total value of private property literally collapsed during World War I and in the early 1920s before recovering slightly later in the decade and collapsing again in the Great Depression, World War II, and the immediate postwar years, to the point where private property represented the equivalent of only two years of national income in France and Germany in 1950. The fall was a little less pronounced in the United Kingdom but still dramatic: British private property was worth a little over three years of national income in the 1950s, compared with more than seven in 1910. In every case the value of private property had been divided by a factor of two to three within the space of a few decades (Fig. 10.8).

To explain this collapse, we must take several factors into account. I presented a detailed quantitative breakdown in previous works, so here I will simply summarize the main conclusions, reserving more detailed discussion for the political-ideological context in which these changes took place.²¹ Note that the many sources available for estimating the evolution of property in different periods (records of real estate and stock prices, censuses of buildings, land, and firms, etc.), despite their deficiencies, are good enough to clearly establish the principal orders of magnitude. In particular, physical destruction of houses, buildings, factories and other property during the two world wars, although considerable (especially due to the mass bombings conducted in 1944–1945, a shorter period than the fighting of 1914–1918 but over a wider geographic area and with much more destructive technology), can explain only part of the loss of property: between a quarter and a third in France and Germany (which is a lot), and at most a few percent in the United Kingdom.

The rest of the fall was due to two sets of factors of comparable magnitude, which we will analyze one at a time. Each explains a little more than a third of the total decrease in the ratio of private property to national income in France and German (and nearly half in the United Kingdom). The first set of factors includes expropriations and nationalizations and, more generally, policies aimed explicitly at reducing the value of private property and the power of property owners over the rest of society (for example, rent control and power sharing with worker representatives in firms). The other set of factors has to do with the low level of private investment and returns on those investments in the period 1914–1950, largely because much of private saving was lent to governments to pay for the wars, in return for bonds which lost most of their value due to inflation and other factors.

Expropriations, Nationalizations-Sanctions, and the “Mixed Economy”

Let us begin with expropriations. One striking example involves foreign (mainly French) investment in Russia. Before World War I, the alliance between the French Republic and the Russian Empire found material embodiment in huge bond issues by the Russian government and many private companies (such as railroads). Newspaper campaigns (often subsidized by bribes from the Tsarist regime) persuaded wealthy French investors of the solidity of the Russian ally and the safety of Russian bonds. After the Bolshevik Revolution of 1917, the Soviets decided to repudiate all these debts, which in its eyes had only prolonged the existence of the Tsarist regime (which was not entirely false). The United Kingdom, United States, and France sent troops to northern Russia in 1918–1920 in the hope of quelling the revolution, to no avail.

At the other end of the period in question, Nasser’s decision to nationalize the Suez Canal in 1956 led to the expropriation of British and French shareholders who had owned the canal and collected dividends and royalties from its operation ever since its inauguration in 1869. Obedient to old habits, the United Kingdom and France dispatched troops to recover their assets. But the United States, worried about driving countries of the global south into the hands of the Soviets (particularly newly independent countries, which were quite likely to nationalize or expropriate property, especially that of the former colonial masters), chose to abandon its allies. Under pressure from both the Soviets and the Americans, the two former colonial powers were obliged to withdraw their troops and recognize what was henceforth apparent to everyone—namely, that the old proprietarian colonial world had ceased to exist.

The expropriations of foreign assets illustrate to perfection the political-ideological shift that took place in the world in the first half of the twentieth century. Between 1914 and 1950 it was the very concept of property that changed due to the effects of war and social and political conflict. Existing property rights, which had seemed unquestionably solid in 1914, had by 1950 given way to a more social and instrumental concept of property, according to which the purpose of productive capital was to further the cause of economic development, social justice, and/or national independence. Expropriations played an important role not only in reducing inequalities among countries (as former colonies and debtor nations reclaimed ownership of themselves) but also in reducing inequalities within Europe itself, since foreign investments were among the favorite assets of the rich, as we learned from our examination of Paris estate records.22 The particularly high level of income inequality in the United Kingdom and France before World War I—compared with Germany, for example—can in large part be explained by the amount of income derived from foreign investments by wealthy British and French citizens. In this respect, the domestic inequality regimes one sees in Europe were closely related to the structure of inequality at the international and colonial level.

Note that there were also waves of nationalization (in some cases veritable nationalization-expropriations) in Europe to a degree that varied from county to country. In general, faith in private capitalism was strongly shaken by the economic crisis of the 1930s and the ensuing cataclysms. The Great Depression, triggered by the Wall Street crash of 1929, struck rich countries with unprecedented force. By 1932, a quarter of the industrial labor force was unemployed in the United States, Germany, United Kingdom, and France. The traditional laissez-faire doctrine of government nonintervention in the economy, which prevailed in all countries in the nineteenth century and to a large extent until the early 1930s, was durably discredited. A shift in favor of interventionism took place almost everywhere. Governments and people naturally demanded explanations from financial and economic elites that had enriched themselves while leading the world to the brink of the abyss. People began to imagine forms of “mixed economy” involving some degree of public ownership of firms alongside more traditional forms of private property or, at the very least, stronger public regulation and oversight of the financial system and of private capitalism more generally.

In France and other countries, this general suspicion of private capitalism was reinforced in 1945 by the fact that a substantial segment of the economic elite was suspected of collaboration with the Germans and of indecent profiteering during the Occupation (1940–1944). It was in this electrifying climate that the first wave of nationalizations took place during the Liberation: these involved mainly the banking sector, coal mines, and the automobile industry, including the famous “nationalization-sanction” of Renault. Louis Renault, the owner of the automobile firm, was arrested as a collaborator in September 1944, and his factories were seized by the provisional government and nationalized in January 1945.²³ Another type of sanction on capital was the national solidarity tax established by the law of August 15, 1945. This was a special progressive tax on both capital and gains made during the Occupation, a one-time tax whose extremely high rate was yet another shock to the fortunes of the individuals concerned. The tax was a lump-sum payment based on estimated wealth as of June 4, 1945, with rates as high as 20 percent for the largest fortunes, supplemented by an exceptional tax on capital gains between 1940 and 1945 at rates as high as 100 percent for those with the largest gains.²⁴

In Europe these postwar nationalizations played an important role, resulting in very large public sectors in many countries in the period 1950–1970. In Chapter 11 we will consider the way in which Germany, Sweden, and most other northern European countries developed new forms of industrial organization and corporate governance after World War II. More specifically, the power of shareholders on boards of directors was reduced, while the power of employee representatives was increased (along with the power of regional governments and other public stakeholders in certain cases). This experience is particularly interesting because it illustrates the gap between the market value of capital and its social value. The record shows that these policies led to lower stock-market valuations of firms in these countries (which continue to this day), without hurting business or economic growth—quite the opposite: greater worker involvement in the long-term strategies of German and Swedish firms seems rather to have increased their productivity.²⁵

Finally, in addition to nationalizations and new forms of industrial power sharing, between 1914 and 1950 most European countries implemented a variety of policies for regulating real estate and financial markets, which had the effect of limiting the rights of property owners and reducing the market value of their assets. A case in point involves the development of rent control, which began during World War I. The scope of rent control expanded after World War II to the point where the real value of French rents in 1950 fell to one-fifth of what it had been in 1914, resulting in a comparable fall in the price of real estate.²⁶ These policies also reflected a profound shift in attitude regarding the legitimacy of private property and of inequalities stemming from property relations. In a period of very high inflation, unknown before 1914, in which real wages often had not returned to prewar levels, it seemed unreasonable that landlords should be allowed to continue to enrich themselves on the backs of workers and others of modest means who had just returned from the front. It was in this climate that various countries began to regulate rents, increase tenant rights, and enact protections against eviction; leases were extended, rent was fixed over long periods, and tenants were given preferential options to purchase their apartments, in some cases at a discount. At their most ambitious, such measures were similar in spirit to agrarian reform (discussed previously in regard to Ireland and Spain), where the goal was to break up the largest parcels of land and facilitate their purchase by the people who actually farmed them.²⁷ Broadly speaking, quite apart from any additional regulations, low real estate prices in the period 1950–1980 naturally facilitated access to ownership and spread wealth to new strata of society.²⁸

Private Saving, Public Debt, and Inflation

Let us turn now to the role played by low private investment as well as inflation and public borrowing in the fall of private wealth between 1914 and 1950. Note first that throughout much of this period—not only the war years but also the 1930s—investment in low-priority civilian sectors was so feeble that it often failed to cover the cost of replacing worn equipment.29 In the period 1914–1945 most private saving was invested in the growing public debt stemming from the costs of war and preparing for war.

In 1914, on the eve of World War I, public debt was equal to roughly 60–70 percent of national income in the United Kingdom, France, and Germany and less than 30 percent in the United States. After World War II, in 1945–1950, public debt attained 150 percent of national income in the United States, 180 percent in Germany, 270 percent in France, and 310 percent in the United Kingdom (Fig. 10.9). Note, moreover, that the total would have been even higher if part of the debt incurred in World War I had not been drowned out by inflation in the 1920s, especially in Germany and to a lesser degree in France. To finance this kind of increase in the public debt, savers in each country had to devote most of their savings not to their usual investments (in real estate, industry, or foreign assets) but almost exclusively to the purchase of treasury bonds and other public debt instruments. Wealthy people in Britain, France, and Germany gradually sold a large fraction of their foreign assets to lend the amounts needed by their governments, at times perhaps out of patriotism but also because they saw a good investment opportunity. In theory, their principal and interest were guaranteed by the full faith and credit of their own governments, and those same governments had always made good on their promises in the past. In some cases the loans were quasi-obligatory, particularly in wartime, as governments required banks to hold large quantities of public debt and took steps to place a ceiling on interest rates.

FIG. 10.9.  The vicissitudes of public debt, 1850–2020

Interpretation: Public debt increased sharply after the two world wars to between 150 and 300 percent of national income in 1945–1950. It then fell sharply in Germany and France (owing to debt cancellations and high inflation) and more slowly in the United Kingdom and United States (moderate inflation, growth). Public assets (notably real estate and financial) varied less strongly over time and generally stood at about 100 percent of national income. Sources and series: piketty.pse.ens.fr/ideology.

Things did not turn out well: the private savings and proceeds of assets sales that investors placed in government bonds would soon melt away as quickly as snow on a sunny day as the “full faith and credit” that governments had promised bond owners gave way to other priorities. In practice, governments resorted to printing banknotes, and prices soared. During the eighteenth and nineteenth centuries, inflation had been close to zero (Fig. 10.10). The value of currency had been tied to its gold and silver content, and the purchasing power of a given quantity of precious metal remained virtually unchanged. This was true of both the pound sterling and the gold franc, which during the French Revolution supplanted the Ancien Régime’s livre tournois but retained the same parity with gold, remaining unchanged from 1726 to 1914—proof, if proof were needed, of the continuity of the proprietarian regime. The equivalence of currency, whether livre or franc, with gold was so strong that early-nineteenth-century French novelists used both measures to delineate the boundaries between social classes, often passing from one to the other without noticing.³⁰

FIG. 10.10.  Inflation in Europe and the United States, 1700–2020

Interpretation: Inflation was virtually zero in the eighteenth and nineteenth centuries before rising in the twentieth century. Since 1990 it has been on the order of 2 percent per year. Inflation was particularly strong in Germany and France from 1914 to 1950 and to a lesser degree in the United Kingdom, France, and the United States in the 1970s. Note: Average German inflation of roughly 17 percent from 1914 to 1950 omits the hyperinflation of 1923. Sources and series: piketty.pse.ens.fr/ideology.

World War I almost immediately put an end to this long period of monetary stability. As early as August 1914, the principal belligerents suspended convertibility of their currency into gold. Attempts to restore the gold standard in the 1920s did not survive the Depression.31 All told, from 1914 to 1950 inflation averaged 13 percent a year in France (equivalent to a hundredfold increase in the price level) and 17 percent in Germany (a three-hundredfold price increase).³² In the United Kingdom and United States, which were less affected by the two world wars and less destabilized politically, the rate of inflation was significantly lower: barely 3 percent a year on average from 1914 to 1950. This nevertheless represented a threefold price increase after two centuries of near stability. In the case of the United Kingdom, however, this was not enough to eliminate the impressive public debt taken on during the wars, which explains why the British debt remained high in the period 1950–1970—until inflation of 10–20 percent in the 1970s finally melted it, too, away.

In France and Germany, the elimination of the debt was much more expeditious. By the early 1950s the once-enormous public debts of both countries had fallen below 30 percent of national income (Fig. 10.9). In France, inflation exceeded 50 percent a year for four consecutive years, from 1945 to 1948. The public debt automatically dwindled to nothing, as inflation proved to be a far more radical remedy than the exceptional tax on private wealth levied in 1945. The problem was that inflation also wiped out millions of small savers, leaving many of France’s elderly in a state of endemic poverty in the 1950s.³³

In Germany, where the hyperinflation of the 1920s had seriously destabilized social relations and turned the entire country upside down, there was greater wariness of the social consequences of rising prices, so more sophisticated methods of accelerated debt reduction were tried in 1949–1952. More specifically, the young Federal Republic of Germany established a variety of progressive and exceptional taxes on private wealth, which some Germans were required to pay for decades—in some cases until the 1980s.³⁴ Finally, West Germany benefited when the London Conference of 1953 suspended its foreign debt, which was later definitively canceled when Germany was reunified in 1991. Along with other measures, such as the exceptional taxes levied in 1952, this debt nullification enabled West Germany to concentrate on reconstruction in the 1950s and 1960s, substantially increasing the amounts available for social spending and investment in infrastructure.³⁵

Liquidating the Past, Building Justice: Exceptional Taxes on Private Capital

It is worth noting that exceptional taxes on private property had been applied even earlier, after World War I, to reduce public debt in a number of European countries, including Italy, Czechoslovakia, Austria, and Hungary in the period 1919–1923, with rates up to 50 percent on the largest fortunes. One of the largest and most remunerative such taxes was the levy imposed in Japan in 1946–1947, with rates as high as 90 percent on the largest portfolios. France’s national solidarity tax of 1945 also falls under this head, although its revenues went into the general budget (rather than being earmarked specifically for debt reduction).36

Compared with inflation, which shrinks everyone’s savings by the same proportion, rich and poor alike, the advantage of exceptional taxes on private property is that they afford much greater latitude for distributing the burden, partly because the rate can vary with the amount of wealth (usually with an exemption for the smallest fortunes, with rates on the order of 5–10 percent for medium-sized fortunes and 30–50 percent or more for the largest fortunes); and partly because they are generally applied to private assets of all types, including buildings, land, and professional and financial assets. In contrast, inflation is a regressive tax on wealth. Those who hold only cash or bank deposits are hit the hardest, whereas the wealthy, most of whose assets are in real estate, professional equipment, or financial portfolios largely escape the effects of rising prices, unless other measures such as rent controls and asset price controls are also implemented. As for financial assets, bonds and other fixed-income investments—beginning with government bonds themselves—are hit by inflation, but stocks, shares of partnerships, and other such investments, which are favored by the wealthiest, often escape the inflation tax because their prices tend to rise with the general price level. More generally, the problem with inflation is that it apportions gains and losses in a relatively arbitrary fashion, depending on who rebalances his or her portfolio at the right moment. Inflation is the sign of a society that is dealing with a serious distributive conflict: it wants to unburden itself of debts incurred in the past, but it cannot openly debate how the required sacrifices should be apportioned and prefers to rely on the vagaries of rising prices and speculation. The obvious risk of doing so is that a widespread sense of injustice will be created.

For this reason, it is not surprising that so many countries resorted to exceptional taxes on private property to reduce the debts incurred in World Wars I and II. I do not mean to idealize these efforts, which were carried out by governments ill-prepared for the task at a time when the information technologies we possess today did not exist. Nevertheless, these taxes worked and helped rapidly stifle significant public debates and pave the way for successful social reconstruction and economic growth in countries like Japan and Germany. In the German case, it is clear that the exceptional taxes on private wealth that were levied in 1949–1952 and continued into the 1980s were a much better way of reducing public debt than the hyperinflation of the 1920s, not only from an economic point of view but also from a social and democratic one.

Apart from the technical and administrative aspects of these measures, it is also important to emphasize the political-ideological transformations they reveal. One can of course find many examples of public debt cancellation in history from the most ancient times. But it was not until the twentieth century that progressive taxes were applied to capital on such a scale and in such a sophisticated manner. In medieval and modern Europe, sovereigns occasionally altered the metallic content of money to alleviate their debts.³⁷ In the late eighteenth century, at the time of the French Revolution, there was open debate about the wisdom of instituting a progressive tax on both income and wealth; top earners were briefly forced to lend the state up to 70 percent of their income in 1793–1794. In retrospect, this system looks like an anticipation of the one that would be adopted in many countries after the two world wars.³⁸ It was nevertheless insufficient. Because the Ancien Régime had failed to tax its privileged class early enough, it had accumulated a significant amount of debt, on the order of one year of national income, or even a year and a half if one includes the value of charges and offices, which was a way for the state to satisfy its immediate needs for cash in exchange for revenues to be extracted later from the population and hence was a form of public debt. In the end, the Revolution established a tax system that ended the privileges of the nobility and clergy but was strictly proportional and renounced the ambition to move toward a progressive tax. The public debt was significantly reduced, less by exceptional taxes than by the “banqueroute des deux tiers” (a two-thirds debt write-down decreed in 1797) and depreciation of the assignats (paper money issued by the revolutionary government), which in effect inflated prices, leaving the state with very little debt in 1815 (less than 20 percent of national income).³⁹

Between 1815 and 1914, the countries of Europe thus embarked on a long phase of sacralization of private property and monetary stability, during which the very idea of not repaying a debt was considered totally taboo and unthinkable. Of course, the European powers often had rude manners, particularly when it came to imposing military tributes on one another or, more commonly, on the rest of the world. Once a debt was established, however—whether it was the debt imposed on the French by the allied monarchies in 1815 or by Prussia in 1871 or the debts owed by the Chinese Empire or the Ottoman Empire or Morocco to the United Kingdom and France—it was then essential for the operation of the system that the amount be repaid in full, at its equivalent in gold, or else military action would follow. The countries of Europe might well threaten one another with war and disburse significant amounts to prepare for conflict, but once there was a debt to be repaid, hostilities ceased and proprietarian powers agreed that debtors must respect the property rights of creditors. For example, when the Turks attempted to default on their debt in 1875, European high finance joined with governments in a coalition whose purpose was to force the Ottomans to resume payments and sign the Treaty of Berlin, which they did in 1878. Defaults were still relatively common in the eighteenth century: in 1752, for example, Prussia refused to repay the Silesian loan to the British. But they became increasingly rare.⁴⁰ Defaults ceased altogether after the repudiations of the French Revolution, which, after years of hesitation, led de facto to proprietarian monetary stability in Europe.

The case of the United Kingdom is particularly significant in this regard. Its public debt exceeded 200 percent of national income in 1815 at the end of the Napoleonic wars. The country, which was of course governed at the time by a tiny group of wealthy men who stood to benefit directly, chose to devote almost a third of British tax revenues (which, thanks to the predominance of indirect taxes in this period, came mostly out of the pockets of modest and middle-class taxpayers) to the repayment of the principal and especially the interest on the huge debt (for the benefit of those who had lent money to pay for the wars, who mostly belonged to the top centile of the wealth distribution). What this shows is that it is of course technically possible to reduce such a sizable debt by running primary budget surpluses. In the United Kingdom from 1815 to 1914 the primary budget service fluctuated between 2 and 3 percent of national income, at a time when total tax revenues were less than 10 percent of national income and total spending on education was less than 1 percent. It is by no means certain that this use of public money was the best strategy for Britain’s future. In any case, the problem was that this method of reducing the debt was also extremely slow. British public debt still exceeded 150 percent of national income in 1850 and 70 percent in 1914. The primary surplus, though large, was just enough to pay the interest on the debt; to reduce the principal it was necessary to wait until the effects of national income growth began to be felt (and growth was relatively rapid: more than 2 percent annually for a century). Recent research has shown that these interest payments contributed greatly to the increase of inequality and concentration of property in the United Kingdom between 1815 and 1914.⁴¹

The experience with reduction of the debt due to the wars of the twentieth century shows that it is possible to proceed differently. Debts of 200–300 percent of national income in 1945–1950 were reduced to almost nothing within a few years in the cases of France and Germany and in a little more than two decades in the case of the United Kingdom, which was slow compared with its French and German neighbors but a good deal faster than the century from 1815 to 1914 (Fig. 10.9). In retrospect, it is clear that the strategy of accelerated debt reduction is preferable: if the countries of Europe had pursued the nineteenth-century British strategy, they would have been saddled with heavy interest payments to the old propertied classes from 1950 until 2050 (or beyond), at the expense of programs designed to reduce social inequality and improve education and infrastructure—factors that contributed to the exceptional growth of the postwar years. In the heat of action, however, such issues are never easy to deal with, because countries faced with large public debts must arbitrate between two sets of a priori legitimate claims: those stemming from existing property rights and those of social groups without property whose needs and priorities are different (for social and educational investment, for example). I will say more later about the lessons that can be drawn from these experiences for resolving the problems posed by public debt in the twenty-first century.⁴²

From Declining Wealth to Durable Deconcentration: The Role of Progressive Taxation

We have just examined the various mechanisms that explain the collapse of the total value of private property in Europe between 1914 and 1945–1950. This depended on several factors (destruction, expropriation, inflation) whose combined effects led to an exceptionally large fall in the ratio of private capital to national income, which reached its minimum between 1945 and 1950 or so and then gradually increased through 2020 (Fig. 10.8). We must now try to understand why this decrease in total wealth coincided with a sharp decrease in the concentration of wealth, which began in the period 1914–1945 and continued through the 1970s. In spite of the upward trend that can be seen since 1980, this deconcentration of wealth, and especially the fall of the top centile’s share, remains the most significant feature of the long-term evolution (Figs. 10.4–10.5).

Why, then, did the overall decline of the wealth-income ratio in the period 1914–1950 coincide with a durable deconcentration of the wealth distribution? One might think that the decrease of the wealth-income ratio would have affected fortunes of all sizes more or less equally and therefore would not have changed the share of the top decile or centile. I have already mentioned several reasons why large fortunes decreased more dramatically than smaller ones: specifically, the expropriation of foreign assets had a greater effect on large portfolios (which contained more foreign assets), and the exceptional and progressive taxes on private capital, which were established to liquidate public debts (or as sanctions for wartime collaboration or profiteering), deliberately focused on larger fortunes.

In addition to these specific factors, a more general mechanism was at work. At the end of World War I and throughout the interwar years, people with high incomes and large fortunes found themselves confronted with a permanent system of progressive taxation—that is, a tax system structured in such a way that individuals with high incomes and large fortunes paid more than the rest of the population. The subject of progressive taxation had been debated for centuries, especially toward the end of the eighteenth century and during the French Revolution, but no progressive tax system had ever been tried on a large scale or over a long period of time. In most European countries as well as in the United States and Japan, two types of progressive tax emerged: a progressive tax on total income (that is, the sum of wages and salaries, pensions, rents, dividends, interest, royalties, profits, and other income of all kinds), and a progressive tax on inheritance (that is, on all forms of wealth transmission via inheritances at death or inter vivos gifts, including land, buildings, professional and financial assets, or other forms of property).⁴³ For the first time in history, and virtually simultaneously in all countries, the taxes assessed on the highest incomes and largest estates were durably raised to very high levels on the order of dozens of percent.

The evolution of the top tax rates on income and inheritance in the United States, United Kingdom, Japan, Germany, and France is shown in Figs. 10.11–10.12, and from this we gain an initial idea of the extent of the upheaval.⁴⁴ In 1900, the rates assessed on the highest incomes and largest estates was everywhere below 10 percent; in 1920, rates stood between 30 and 70 percent on the highest incomes and between 10 and 40 percent on the largest estates. Top rates came down somewhat during the brief calm of the 1920s before rising again in the 1930s, especially after the election of Roosevelt in 1932 and the beginning of the New Deal. At a time when a quarter of the labor force was unemployed and governments needed revenues to pay for public works and new social policies, it seemed obvious that the most favored social categories would have to pay more, especially since they had prospered so spectacularly in previous decades (especially during the Roaring Twenties) while leading the country into crisis. Between 1932 and 1980 the top marginal income tax rate in the United States averaged 81 percent. Over the same period, the rate levied on the largest estates was 75 percent.⁴⁵ In the United Kingdom, where the Depression also resulted in a profound reevaluation of economic and financial elites, the rates applied in the period 1932–1980 averaged 89 percent on the highest incomes and 72 percent on the largest estates (Figs. 10.11–10.12).

In France, when the parliament finally approved a progressive income tax on July 15, 1914, the top rate was only 2 percent. The political and economic elites of the Third Republic had long blocked any such reform, which they deemed both harmful and unnecessary in a country as supposedly egalitarian as France—but not without a good deal of hypocrisy and bad faith (see Chapter 4). Then, during the war, the top rate was increased, subsequently rising again to 50 percent in 1920, 60 percent in 1924, and as high as 72 percent in 1925. It is particularly striking to learn that the decisive law of June 25, 1920, which raised the rate to 50 percent, was passed by the so-called Blue Horizon Chamber (one of the most right-wing chambers in the entire history of the Republic) and the so-called National Bloc majority, which consisted largely of deputies who before World War I had been most fiercely opposed to the creation of an income tax with a top rate of 2 percent. This complete reversal of deputies on the right of the political spectrum was due primarily to the disastrous financial situation caused by the war. Despite the ritual speeches on the theme “Germany will pay!” everyone recognized that new tax revenues had to be found. At a time when shortages of goods and liberal use of the printing press had sent inflation soaring to levels unknown before the war, when workers had yet to regain the purchasing power they enjoyed in 1914 and when several waves of strikes threatened to paralyze the country in May and June of 1919 and then again in the spring of 1920, political affiliations did not matter much in the end. Money had to be found somewhere, and no one imagined for a moment that high earners would be spared. It was in this explosive political and social context, marked by the Bolshevik Revolution of 1917, which much of the French socialist and workers’ movement supported, that the progressive tax changed in nature.⁴⁶

FIG. 10.11.  The invention of progressive taxation, 1900–2018: The top income tax rate

Interpretation: The top marginal rate applicable to the highest incomes was on average 23 percent in the United States from 1900–1932, 81 percent from 1932 to 1980, and 39 percent from 1980 to 2018. In these same periods, top rates were 30, 89, and 46 percent in the United Kingdom; 26, 68, and 53 percent in Japan; 18, 58, and 50 percent in Germany; and 23, 60, and 57 percent in France. Progressive taxation peaked at midcentury, especially in the United States and United Kingdom. Sources and series: piketty.pse.ens.fr/ideology.

FIG. 10.12.  The invention of progressive taxation, 1900–2018: The top inheritance tax rate

Interpretation: The top marginal rate applicable to the largest inheritances averaged 12 percent in the United States from 1900 to 1932, 75 percent from 1932 to 1980, and 50 percent from 1980 to 2018. Over the same periods, top rates were 25, 72, and 46 percent in the United Kingdom; 9, 64, and 63 percent in Japan; 8, 23, and 32 percent in Germany; and 15, 22, and 39 percent in France. Progressivity was maximal at midcentury, especially in the United States and United Kingdom. Sources and series: piketty.pse.ens.fr/ideology.

The effect of these very heavy tax shocks was to amplify and more importantly extend the effect of the other shocks sustained by the wealthiest people in the period 1914–1945. In fact, all the evidence available today suggests that this radical fiscal innovation was one of the main reasons why the decrease in total wealth led to a durable reduction of wealth inequality. It also explains why the reduction occurred gradually, as income and therefore the ability to save and replenish large fortunes was reduced by the increasing progressivity of the income tax and as the largest fortunes were whittled down over generations of bequests.

Recent research on Paris inheritance records from the years between the two world wars and after World War II has shown how the process worked at the individual level.47 In the late nineteenth century and until the eve of World War I, the wealthiest 1 percent of Parisians enjoyed average capital incomes thirty to forty times larger than the income of the average worker. The tax these wealthy people paid on their incomes and inheritances did not exceed 5 percent, and they could save only a small fraction (between a quarter and a third) of the income from their property and still pass enough wealth to the next generation to ensure that their offspring could continue to enjoy the same standard of living (relative to the average wage, which was also rising). All this suddenly changed at the end of World War I. Because of the shocks sustained during the war (expropriation of foreign assets, inflation, rent controls) and the new income taxes (whose effective rate in the 1920s climbed to 30–40 percent for the wealthiest 1 percent of Parisians and to more than 50 percent for the wealthiest 0.1 percent), this group’s standard of living fell to only five to ten times the average worker’s wage. Under such conditions it became materially impossible to reconstitute a fortune comparable to prewar levels, even if one drastically cut back on expenditures and let go much of one’s household staff (the number of servants, stable before the war, fell sharply in the interwar period). This became even more difficult as effective inheritance tax rates on this group rose gradually to 10–20 percent in the 1920s and to nearly 30 percent in the 1930s and 1940s.

Of course, this does not mean that all wealthy families ended in bankruptcy. As in the days of Balzac, Père Goriot, and César Birotteau, everything depended on where one invested and what returns one obtained, and these returns could be larger or smaller and were in any case especially volatile in this period of inflation, reconstruction, and recurrent crises. Some got rich and were able to maintain their standard of living. Others kept consuming for too long and depleted their fortunes at an accelerated rate because they could not accept that it was no longer possible to live as they had before the war. What is certain is that it was inevitable, owing to the new progressive taxes on the highest incomes (which in practice meant incomes that consisted largely of returns on investments) and on the largest estates, that the average position of this social group would collapse between 1914 and 1950 and continue to fall thereafter, with no material possibility of returning to previous levels no matter how much they saved or how quickly they adapted to their new standard of living.

On the Anglo-American Origins of Modern Fiscal Progressivity

Things were not very different in the United Kingdom. Recall the crisis engendered by the vote on the “People’s Budget” in 1909–1911: the Lords had initially rejected raising progressive taxes on the highest incomes and largest inheritances (the revenues of which were intended to pay for social measures for the benefit of the working class), which led to their downfall and the end of their political role.48 The top rates were again increased at the end of World War I, at which point it became materially impossible for wealthy Britons to maintain their prewar standard of living. The difficult adjustment process is depicted, for example, in the television series Downton Abbey, which also alludes to the importance of the Irish question in undermining the proprietarian regime. But to cope with tax rates on top incomes (mainly from returns to capital in the forms of rents, interest, and dividends) that quickly rose to 50–60 percent in the 1920s and 1930s and with inheritance tax rates of 40–50 percent, wealthy Britons could not just slightly reduce the number of servants they employed. The only solution was to sell part of their property, and that is what happened at an accelerated rate in interwar Britain.

The great landed estates were the most affected, and these had historically been exceptionally concentrated. The scope and pace of land transfers in the 1920s and 1930s were unprecedented; nothing like it had been seen in Britain since the Norman conquest of 1066 and the dissolution of the monasteries in 1530.⁴⁹ But the impact was perhaps even greater on the enormous portfolios of foreign and domestic financial assets that wealthy Britons had accumulated in the nineteenth and early twentieth centuries; these were quickly picked apart, as can be seen in the spectacular collapse of the top decile’s share of total British property holdings (Fig. 10.5). The depth of this collapse increased still further after World War II, when the top income tax rate rose beyond 90 percent and the top inheritance tax rate remained at 80 percent for decades, in the United States incidentally and in the United Kingdom (Figs. 10.11–10.12). When such rates are established, it is obvious that the goal is simply to eradicate this level of wealth or at any rate to make its perpetuation drastically more difficult (through exceptionally high rates on inherited property).

More broadly, it is important to note the key role played by the United States and United Kingdom in developing large-scale progressive taxation on both income and estates. Recent work has shown that in both countries it was not only the theoretical top marginal rate that was raised to unprecedented levels in the period 1932–1980; in fact, the effective tax rates actually paid by the wealthiest groups reached new heights. From the 1930s to the 1960s, the total tax paid (in all forms, direct and indirect) by the top 0.1 and 0.01 percent of people with the highest incomes fluctuated between 50 and 80 percent of their pretax income, whereas the average for the population as a whole was 15–30 percent and, for the poorest 50 percent, between 10 and 20 percent (Fig. 10.13). Furthermore, all signs are that the marginal rates of 70–80 percent also affected the pretax income distribution (which by definition does not show up in effective rates). Indeed, such high marginal rates made it almost impossible to maintain revenue from capital at this level (except by massive reductions of living standards or gradual sale of assets) and also had a major dissuasive effect on setting executive salaries at excessively high levels.⁵⁰

As for the inheritance tax, it is striking to see that Germany and France applied rates of just 20–30 percent to the largest fortunes in the period 1950–1980, compared with rates of 70–80 percent in the United States and United Kingdom (Fig. 10.12). This can be explained in part by the fact that wartime destruction and postwar inflation took a greater toll in Germany and France, which therefore had less need than the United States and United Kingdom to wield the tax weapon to transform the existing inequality regime.⁵¹

FIG. 10.13.  Effective rates and progressivity in the United States, 1910–2020

Interpretation: From 1915 to 1980, the tax system in the United States was highly progressive, in the sense that effective tax rates (all taxes combined, in percent of total pretax income) were significantly higher for the highest incomes than for the population as a whole (especially the poorest 50 percent). Since 1980, the system has not been very progressive, with limited differences in effective rates. Sources and series: piketty.pse.ens.fr/ideology.

It is also striking to note that the only time Germany taxed the highest incomes at a rate of 90 percent was in the period 1946–1948, when German fiscal policy was set by the Allied Control Council, which was dominated in practice by the United States. Once Germany regained its fiscal sovereignty in 1949, successive governments chose to reduce this tax, which quickly stabilized at 50–55 percent (Fig. 10.11). As the Americans saw it in 1946–1948, the top rate of 90 percent was in no sense a punishment inflicted on German elites since the same rate was applied to American and British elites. According to the then-dominant ideology in the United States and United Kingdom, steeply progressive taxes were an integral part of the institutional tools that would form the basis of the postwar world order: free elections would need to be complemented by solid fiscal institutions to prevent democracy from being captured once again by oligarchical and financial interests. This may seem surprising, or ancient history, since the same two countries, the United States and United Kingdom, would set out in the 1980s to dismantle the progressive tax system, but this past is part of our common heritage. These transformations illustrate yet again the importance of political-ideological processes in the dynamics of inequality regimes. Many transitions are possible, and they can be rapid. Furthermore, there is no cultural or civilizational essence that disposes some countries to equality and others to inequality. There are only conflictual sociopolitical trajectories in which different social groups and people of different sensibilities within each society attempt to develop coherent ideas of social justice based on their own experiences and the events they have witnessed.

In the case of the United Kingdom, we have seen how the groundwork for progressive taxation and wealth and income redistribution was laid by social struggles that began in the early nineteenth century with the extension of the right to vote. It took a decisive turn toward the end of the century in debates around the Irish question and “absentee landlords,” the rise of the labor movement, and finally the People’s Budget and the fall of the House of Lords in 1909–1911.

As for the United States, we noted earlier how the Democratic Party, which was violently segregationist in the South, attempted in the 1870s and 1880s to federate the aspirations of working-class whites, small farmers, and recent Italian and Irish immigrants while attacking the selfishness of northeastern financial and industrial elites and calling for a more just distribution of wealth.⁵² In the 1890s, the Populist Party (officially called the People’s Party) ran candidates on a platform of land redistribution, credit for small farmers, and opposition to the influence of stockholders, owners, and large corporations on the federal government. The Populists never achieved power, but they did play a central role in the fight to reform the federal tax system, which led to the adoption in 1913 of the Sixteenth Amendment, followed by a vote that same year to adopt a federal income tax, and then, in 1916, a federal estate tax. Previously, neither tax had been authorized by the US Constitution, as the US Supreme Court pointed out in 1894 when it struck down a law approved by the Democratic majority. Because it is not easy to amend the Constitution (amendments must be approved a two-thirds majority of both houses of Congress and then ratified by three-quarters of the states), strong popular mobilization was required, and the adoption of the amendment attests to the intensity of the demand for fiscal and economic justice. This was the period known in the United States as the Gilded Age, when industrial and financial fortunes were amassed on a previously unimaginable scale, and people worried about the power wielded by John D. Rockefeller, Andrew Carnegie, J. P. Morgan, and the like. The demand for greater equality became ever more insistent. The emergence of this new federal tax system based on direct progressive taxation of income and estates in a country financed primarily by customs duties—where the federal government had previously played a limited part—also owes a great deal to the role of the parties and especially the Democrats in mobilizing voters and interpreting their demands.⁵³

It is interesting, moreover, to note that in the late nineteenth and early twentieth centuries, the United States was among the leaders of an international campaign in favor of the income tax. In particular, numerous books and articles published between 1890 and 1910 by the American economist Edwin Seligman in praise of a progressive income tax were translated into many languages and inspired passionate debate.⁵⁴ In a 1915 study of the distribution of wealth in the United States (the first comprehensive work on the subject), the statistician Willford King worried that the country was becoming increasingly inegalitarian and estranged from its original pioneer ideal.⁵⁵

In 1919, the president of the American Economic Association, Irving Fisher, went further still. He chose to devote his “presidential address” to the question of inequality and bluntly told his colleagues that the increasing concentration of wealth was on the brink of becoming America’s foremost economic problem. If steps were not taken, the United States might soon become as inegalitarian as old Europe (which was seen as oligarchic in spirit and therefore contrary to the American way). Fisher was alarmed by King’s estimates. The fact that “2 percent of the population owns more than 50 percent of the wealth” and that “two-thirds of the population owns almost nothing” seemed to him “an undemocratic distribution of wealth,” which threatened the very foundation of American society. Rather than impose arbitrary restrictions on the share of profits or the return on capital—solutions that Fisher evoked the better to refute them, it would be preferable, he argued, to levy a heavy tax on the largest inheritances. More specifically, he broached the idea of a tax equal to one-third the value of the estate transmitted in the first generation, two-thirds in the second generation, and 100 percent if the legacy persisted for three generations.⁵⁶ This specific proposal was not adopted, but the fact remains that in 1918–1920 (under the presidency of Democrat Woodrow Wilson) rates of more than 70 percent were applied to the highest income bracket earlier than in any other country (Fig. 10.11). When Franklin D. Roosevelt was elected in 1932, the intellectual groundwork had long since been laid for establishing a far-reaching system of progressive taxation in the United States.

The Rise of the Fiscal and Social State

The inequality regime in Europe in the nineteenth century and until 1914 rejected progressive taxation and made do with limited overall tax revenues. In the eighteenth and nineteenth centuries European states were fiscally wealthy compared with the governing structures of previous centuries or with the contemporary Ottoman and Chinese states (see Chapter 9). But they were fiscally poor compared with the states of the twentieth century—a period that marked a decisive leap forward for the fiscal state. Beyond the question of progressive taxation, the rise of the fiscal and social state played a central role in the transformation of ownership societies into social-democratic societies.

The main orders of magnitude are the following. Total fiscal receipts, including all direct and indirect taxes, social contributions, and other obligatory payments of all kinds (at all levels of government, including central state, regional governments, social security administration, etc.), amounted to less than 10 percent of national income in Europe and the United States in the late nineteenth and early twentieth centuries. Tax revenues then rose to around 20 percent in the 1920s and 30 percent in the 1950s before stabilizing since the 1970s at levels that varied substantially from country to country: around 30 percent of national income in the United States, 40 percent in the United Kingdom, 45 percent in Germany, and 50 percent in France and Sweden (Fig. 10.14).⁵⁷ Note, however, that no rich country has been able to develop with tax revenues limited to 10–20 percent of national income and that no one today is proposing a return to nineteenth-century levels of taxation. Debate nowadays usually revolves around stabilizing the level of taxation or perhaps decreasing it slightly or increasing it more or less substantially; it is never about cutting taxes to a fourth or a fifth of their current level, which is what it would mean to return to the nineteenth century.

FIG. 10.14.  The rise of the fiscal state in the rich countries, 1870–2015

Interpretation: Total tax receipts (all taxes, fees, and social contributions combined) amounted to less than 10 percent of national income in the rich countries in the nineteenth century and until World War I before rising sharply from 1910 to 1980, then stabilizing at levels that varied by country: around 30 percent in the United States, 40 percent in the United Kingdom, and 45–55 percent in Germany, France, and Sweden. Sources and series: piketty.pse.ens.fr/ideology.

A great deal of research has shown that the rise of the fiscal state did not impede economic growth (a fact quite visible in Fig. 10.14). Indeed, the opposite is true: the fiscal state played a central role in the modernization and development of the economy in Europe and the United States over the course of the twentieth century.⁵⁸ The new tax revenues financed spending that was essential for development, including (in comparison with the past) massive and relatively egalitarian investment in health and education and social spending to cope with aging populations (such as pensions) and to stabilize economy and society in times of recession (by means of unemployment insurance and other social transfers).

If we average the data from various European countries, we find that the increase in tax revenues between 1900 and 2010 is explained almost entirely by the rise in social spending on education, health, pensions, and other transfer and income replacement payments (Fig. 10.15).⁵⁹ Note, too, the crucial importance of the period 1910–1950 in transforming the role of the state. In the early 1910s, the state maintained order and enforced respect for property rights both domestically and internationally (and in the colonies), as it had done throughout the nineteenth century. Regalian expenditures (on the army, police, courts, general administration, and basic infrastructure) absorbed nearly all tax revenues: roughly 8 percent of national income out of total revenues of 10 percent, and all other expenses combined amounted to less than 2 percent of national income (of which less than 1 percent went to education). By the early 1950s, the essential elements of the social state were already in place in Europe, with total tax revenues in excess of 30 percent of national income and a range of educational and social expenditures absorbing two-thirds of the total, supplanting the previously dominant regalian expenses. This stunning change was possible only thanks to a radical transformation of the political-ideological balance of power in the period 1910–1950, years in which war, crisis, and revolution exposed the limits of the self-regulated market and revealed the need for social embedding of the economy.

FIG. 10.15.  The rise of the social state in Europe, 1870–2015

Interpretation: In 2015, fiscal receipts represented 47 percent of national income on average in Western Europe and were spent as follows: 10 percent of national income for regalian expenses (army, policy, justice, general administration, and basic infrastructure, such as roads); 6 percent for education; 11 percent for pensions; 9 percent for health care; 5 percent for social transfers (other than pensions); and 6 percent for other social expenses (housing, etc.). Before 1914, regalian expenses absorbed nearly all tax revenues. Note: The evolution depicted here is the average of Germany, France, United Kingdom, and Sweden (see Fig. 10.14). Sources and series: piketty.pse.ens.fr/ideology.

Note, too, that in the period 1990–2020, the upward trend in pensions and health costs, in a context characterized by population aging and a freeze on total tax revenues, led inevitably to reliance on debt coupled with stagnation (or even a slight decrease) of public investment in education (Fig. 10.15). This is paradoxical at a time when there is so much talk about the knowledge economy and the importance of innovation and a growing proportion of each successive age cohort gains access to higher education (which is an excellent thing in itself but may entail enormous human waste and tremendous social frustration in the absence of proper financing). I will come back to this point later when I discuss the inadequacy of the social-democratic response to this fundamental challenge.

In theory, the fact that obligatory tax payments are close to 50 percent of national income shows that the public authorities (in their various incarnations) could employ half the working-age population at the average private-sector wage using the same machinery, locations, and so on and producing half of the country’s gross domestic product. In practice, public employment at various levels of government and in schools, universities, hospitals, and so on accounted for about 15–20 percent of employment in West European countries in the period 2000–2020, compared with 80–85 percent of employment in the private sector. The reason for this is that most tax revenues are used not to pay public employees but to finance transfer payments (pensions, welfare, etc.) and to purchase goods and services from the private sector (buildings, public works, equipment, outsourcing, etc.).⁶⁰ Besides the ratio of tax revenues to national income (40–50 percent in Western Europe) and the ratio of public-sector employment to total employment (15–20 percent), there is a third way to measure the weight of the state, which is to measure its share of national capital. Using this measure, we will see that the state’s share has decreased quite a lot over the past several decades and in many countries has become negative.⁶¹

On the Diversity of Tax Payments and the Role of Fiscal Progressivity

Note, moreover, that in practice the rise of the fiscal and social state has required the use of many different kinds of taxes. To raise tax revenues equal to 45 percent of national income, which is roughly the West European average for the past two decades, one could of course simply levy a single proportional tax of 45 percent on all income. Or one could levy a single progressive tax on income, with rates below 45 percent at the lower end of the income distribution and above 45 percent at the higher end, so that the weighted average comes out to 45 percent.62 In practice, tax revenues do not come from a single tax but from a multitude of taxes, fees, and contributions, which constitute a complex and incoherent system that is often opaque to taxpayers.⁶³ This complexity and opacity may render the system less acceptable to citizens, especially at a time when heightened tax competition tends to result in lower taxes for more mobile and favored social groups and gradual tax increases for the rest. Nevertheless, a single tax is not the answer, and the question of an ideal just tax deserves to be examined in detail, in all its complexity. There are in particular good reasons for seeking a balance between taxing flows of income and taxing stocks of wealth—reasons of justice as well as efficiency. I will say more about this later.⁶⁴

At this stage I want mainly to emphasize the historic complementarity between the development of large-scale progressive taxation and the rise of the social state over the course of the twentieth century. The 70–80 percent tax rates on the highest incomes and largest estates between the 1920s and the 1960s admittedly affected only a small fraction of the population (generally, 1–2 percent of the population but in some cases barely 0.5 percent). All signs are that these taxes played an essential role in durably reducing the extreme concentration of wealth and economic power that characterized Belle Époque Europe (1880–1914). By themselves, these top marginal tax rates would never have sufficed to generate the revenues necessary to pay for the social state, and it was essential to develop other taxes that would tap the whole spectrum of wages and incomes. It was the conjunction of two complementary visions of the purpose of taxation (to reduce inequalities and to pay state expenses) that made it possible to transform ownership societies into social-democratic societies.

Note in particular that between the 1920s and the 1960s there was a considerable gap between the average tax rate (20–40 percent of national income, trending upward) and the rate applied to the highest incomes and largest fortunes (70–80 percent or more). The system was clearly progressive, and people at the bottom or in the middle of the social hierarchy could understand that great effort was being demanded of those at the top, which served not only to reduce inequalities but also to generate support for the tax system.

The dual nature of the twentieth-century fiscal state (which combined significant progressivity with the resources to finance the social state) explains why the long-run decrease in the concentration of wealth did not hinder continued investment and accumulation. The accumulation of productive and educational capital since World War II has proceeded at a faster pace than was observed prior to 1914, partly because public channels of accumulation have replaced private ones and partly because increased accumulation by more modest social groups (which are less affected by progressive taxes) has made up for decreased accumulation by the rich. The situation in 1990–2020 was strictly the opposite, however: the average tax rate on the middle and working classes is equal to or greater than the tax rate at the top. This naturally tends to have the opposite effect: rising inequality, reduced support for the tax system, and low overall accumulation. We will come back to this in Chapter 11.

Ownership Societies, Progressive Taxation, and World War I

We come now to a particularly complex and delicate question. Could the extremely rapid rise of progressive taxation, with top rates of 70–80 percent in the 1920s, have taken place without World War I? More generally, would the ownership societies that seemed so solid and unshakable in 1914 have been transformed as rapidly without the unprecedented destructive violence that was unleashed between 1914 and 1918? Can one imagine a historical trajectory in which, without a global conflict, ownership society would have maintained its grip on Europe and the United States, to say nothing of the rest of the world, via colonial domination? And for how long?

Obviously, it is impossible to give any definite answer to such a “counterfactual” question.65 The outbreak of the first global conflict so disrupted all existing social, economic, and political dynamics that it is now very difficult to imagine what might have happened had it not occurred. This counterfactual nevertheless has consequences for the way one thinks about redistribution and inequality in the twenty-first century, and it is possible to hazard some guesses and avoid the trap of deterministic thinking. Within the framework of this book—in which I stress the importance of political-ideological factors in the evolution of inequality regimes together with the interaction between long-term changes in thinking and the short-term logic of events—World War I can be seen as a major event, which opened the way to many possible trajectories. It is enough to look at the dramatic increase in the top income tax rate (Fig. 10.11) or the collapse of private wealth (Fig. 10.8) or of foreign asset values (Fig. 7.9) to see the profound and multifarious effects of the war on the colonialist and proprietarian inequality regime. The reduction of inequality and exit from the ownership society that took place in the twentieth century were not peaceful processes. Like most important historical changes, they were consequences of crises and of the interaction of those crises with new ideas and social and political struggles. But can one really say that similar developments might not have occurred in any case, possibly in conjunction with other crises, even if World War I had not happened?

Recent research has stressed the importance of wartime experience itself, and especially the role of mass military conscription in legitimizing progressive taxation and nearly confiscatory rates on the highest incomes and largest fortunes after the war. After so much working-class blood had been shed, it was impossible not to demand an unprecedented effort on the part of the privileged classes to liquidate the war debt, rebuild the country, and pave the way to a more just society. Some scholars go so far as to conclude that such steeply progressive taxes could not have been implemented without World War I; without a similar (and at this point improbable) experience of mass military conscription in the twenty-first century, it is argued, no such progressive tax will ever again see the light of day.⁶⁶

As interesting as these speculations are, they strike me as overly rigid and deterministic. Rather than pretend to be able to identify the causal impact of any particular event, it seems to me more promising to see confluences of crises as endogenous switch points reflecting deeper causes. Each such switch point opens the way to a large number of possible future trajectories. The actual outcome then depends on how actors mobilize and seize on shared experiences and new ideas to change the course of events. World War I was not an exogenous event catapulted to Earth from Mars. It was arguably caused, at least in part, by very serious social inequalities and tensions in pre-1914 European society. Economic issues were also very powerful. As noted earlier, foreign investments were yielding 5–10 percent additional national income to France and the United Kingdom on the eve of the war, and this extra income was growing rapidly in the period 1880–1914; this can only have aroused envy. Indeed, French and British foreign investment increased so rapidly between 1880 and 1914 that it is hard to imagine how it could have continued at such a pace without stirring up tremendous political tensions, both within the possessed countries and among European rivals. Such large investment flows had consequences not only for French and British investors but also for the ability of countries to pursue fiscal and financial policies to ensure social peace.⁶⁷ Apart from the economic interests involved, which were anything but symbolic, it is important to note that the development of European nation-states heightened awareness of national identities and exacerbated national antagonisms. These colonial rivalries gave rise to identity conflicts like the one between French and Italian workers in southern France, which reinforced divisions between natives and foreigners; hardened national, linguistic, and cultural identities; and ultimately made war possible.⁶⁸

Furthermore, the central role of World War I in the collapse of ownership society does not mean that we should neglect the importance of other major events of the period, including the Bolshevik Revolution and the Great Depression. These various crises might have unfolded differently and fit together in various ways, and the analysis of numerous countries and their varied trajectories shows that it is difficult to isolate the effects of the war from those of other events. In some cases, the role of World War I was decisive, as in the adoption of the income tax in France in July 1914.⁶⁹ But things were generally more complicated, which means that the effects of the war and mass conscription should be seen in a broader perspective.

For example, in the United Kingdom, progressive income and estate tax rates were put in place earlier, after the political crisis of 1909–1911, and hence before the outbreak of war (Figs. 10.11–10.12). The fall of the House of Lords had nothing to do with World War I or conscription, any more than did the dissolution of the monasteries in 1530, the French Revolution of 1789, the agrarian reform in Ireland in the 1890s, or the end of wealth-proportionate voting rights in Sweden in 1911 (see Chapter 5). The aspiration to greater justice and equality takes many historical forms and can thrive without experience of the trenches. The Japanese case was similar: the development of a progressive income tax was well under way before 1914, particularly when it came to taxing high incomes (Figs. 10.11–10.12). The Japanese case followed a logic of its own, related to the specificities of Japanese history, several aspects of which mattered more than World War I (see Chapter 9 for a fuller discussion).

On the Role of Social and Ideological Struggles in the Fall of Proprietarianism

As we have seen, social demand and popular mobilization for fiscal justice in the United States increased sharply in the 1880s. The lengthy process that led to the adoption of the Sixteenth Amendment in the United States in 1913 predated World War I, and the war did not seem to influence Irving Fisher’s 1919 speech or President Roosevelt’s decision in 1932 to raise top tax rates to reduce the concentration of property and the influence of the wealthy. In other words, one shouldn’t exaggerate the political effects of World War I in the United States: the war was mainly a European trauma. For most people in the United States, the Wall Street crash and the Great Depression (1929–1933) were much more powerful shocks. John Steinbeck’s Grapes of Wrath recounts the suffering of Oklahoma farmworkers and sharecroppers who lose everything and find themselves mistreated and exploited in California work camps. This tells us more about the climate that led to the New Deal and Roosevelt’s progressive tax policies than any stories coming out of the trenches of northern France. It is reasonable to think that any financial crisis similar to that of 1929 would have sufficed to bring about political changes similar to the New Deal even if there had been no world war. Similarly, while World War II without a doubt played an important role in justifying new tax hikes on the ultrarich—especially the Victory Tax Act of 1942 (which raised the top marginal rate to 91 percent)70—the fact is that the change in attitude on taxation began much earlier in Roosevelt’s term at the height of the Depression in the early 1930s.

The Bolshevik Revolution also had a major impact. It forced capitalist elites to radically revise their positions on wealth redistribution and fiscal justice, especially in Europe. In France in the 1920s, politicians who had refused to vote for a 2 percent income tax in 1914 suddenly turned around and approved rates of 60 percent on the highest incomes. One thing that emerges clearly from debate on the bill is how afraid the deputies were of revolution at a time when general strikes threatened to engulf the country and a majority of delegates to the French Section of the Workers’ International (SFIO, or Socialist) Congress in Tours voted to support the Soviet Union and join the new Communist international bloc led by Moscow.⁷¹ Compared with the threat of widespread expropriation, a progressive tax suddenly seemed less frightening. The quasi-insurrectional strikes that took place in France in the period 1945–1948 (especially in 1947) had a similar effect. To those who feared a Communist revolution, higher taxes and social benefits seemed the lesser evil. It is true, of course, that the Russian Revolution was itself a consequence of World War I. Even so, it is highly unlikely that the Tsarist regime would have endured indefinitely had there been no war. The war also played a key role in the expansion of voting rights in Europe. For example, universal male suffrage was instituted in the United Kingdom, Denmark, and Holland in 1918 and in Sweden, Italy, and Belgium in 1919.⁷² There again, however, it seems likely that a similar evolution would have taken place without the war: there would have been other crises and, more significantly, other popular and collective mobilizations.

We earlier saw the importance of social struggles in the Swedish case. It was the social-democratic workers’ movement whose exceptional mobilization in the period 1890–1930 led to the transformation of the extreme Swedish proprietarian regime (in which a single wealthy citizen could in some cases cast more votes in local elections than all the other residents of the town combined) into a social-democratic regime with steeply progressive taxes and an ambitious welfare state. World War I, in which Sweden did not participate, seems to have played a very minor role in these developments. Note, moreover, that Sweden’s progressive tax rates remained relatively moderate during World War I and the 1920s (20–30 percent). Only after the social democrats gained a firm grip on the reins of power firmly in the 1930s and 1940s did the rates applied to the highest incomes and largest estates rise to 70–80 percent, where they remained until the 1980s.⁷³

Italy offers another example of a distinctive political trajectory. The fascist regime that came to power in 1921–1922 had little taste for progressive taxes. The rates applied to the highest incomes held steady at 20–30 percent throughout the interwar years before suddenly jumping up to more than 80 percent in 1945–1946, when the fascist regime gave way to the Republic of Italy and when both the Communist and Socialist Parties were quite popular. In 1924, Mussolini’s government actually decided to abolish the estate tax altogether, flying in the face of what was happening everywhere else; in 1931, it was reinstated, albeit at a very low rate of 10 percent. After World War II, the rates applied to the largest estates were immediately raised to 40–50 percent.⁷⁴ This confirms the hypothesis that political mobilization (or its absence) was the main reason for changes in the tax structure and the structure of inequality.

To recapitulate: the end of ownership society was due more than anything else to a political-ideological transformation. Reflection and debate around social justice, progressive taxation, and redistribution of income and wealth, already fairly common in the eighteenth century and during the French Revolution, grew in amplitude in most countries in the late nineteenth and early twentieth centuries, owing largely to the very high concentration of wealth generated by industrial capitalism as well as to educational progress and the diffusion of ideas and information. What led to the transformation of the inequality regime was the encounter between this intellectual evolution and a range of military, financial, and political crises, which were themselves due in part to tensions stemming from inequality. Along with political-ideological changes, popular mobilizations and social struggles played a central role, with specificities associated with each country’s particular national history. But there were also common experiences, increasingly widely shared and interconnected throughout the world, which could accelerate the spread of certain practices and transformations. Things will probably be much the same in the future.

On the Need for Socially Embedded Markets

In The Great Transformation, Karl Polanyi proposed a magisterial analysis of the way in which the ideology of the self-regulated market in the nineteenth century led to the destruction of European societies in the period 1914–1945 and ultimately to the death of economic liberalism. We know now that this death was only temporary. In 1938 liberal economists and intellectuals met in Paris to lay the groundwork for the future. Aware that pre-1914 liberal doctrine had lost its sway, worried about the success of economic planning and collectivism, and transfixed by the impending rise of totalitarianism (a word seldom used at the time), these men set out to reflect on a possible renaissance of liberal thought, which they proposed to call “neoliberalism.” Among the participants in the Walter Lippmann Colloquium (named for the American essayist who convoked this gathering in Paris) were people of many different points of view, some of whom were close to social democracy while others—including Friedrich von Hayek, whose ideas would inspire Augusto Pinochet and Margaret Thatcher in the 1970s and 1980s, and about whom I will say more later on75—called for a return to economic liberalism plain and simple. For now, let us dwell a moment on Polanyi’s thesis, which has much to tell us about the collapse of ownership society.⁷⁶

When Polanyi wrote The Great Transformation in the United States between 1940 and 1944, Europe was pursuing its self-destructive and genocidal instincts to their ultimate end, and faith in self-regulation was at a low ebb. As the Hungarian economist and historian saw it, nineteenth-century civilization rested on four pillars: the balance of power, the gold standard, the liberal state, and the self-regulated market. Polanyi showed in particular how absolute faith in the regulatory capacity of supply and demand poses serious problems when applied unreservedly to the labor market, in which the equilibrium price (wages) is literally a matter of life and death for flesh-and-blood human beings. In order for the supply of labor to decrease and its price to rise, human beings must disappear; this was more or less the solution envisioned by British landowners in the Irish and Bengali famines. For Polanyi, who in 1944 believed in the possibility of democratic (noncommunist) socialism, the market economy had to be socially embedded. In the case of the labor market, this meant that wage setting, worker training, limits on labor mobility, and collectively financed wage supplements were all matters to be settled by social and political negotiation outside the sphere of the market.⁷⁷

Similar problems of social embeddedness arise in connection with the markets for land and natural resources, supplies of which are finite quantities and can be depleted. Hence it is illusory to think that supply and demand alone can ensure rational social utilization via the market. More specifically, it makes no sense to give all power to the “first” owners of land and natural capital and even less sense to guarantee their power until the end of time.⁷⁸ Finally, regarding the money market, which is intimately linked to state finances, Polanyi shows how the belief in self-regulation, coupled with the broadening of the scope of the market and the generalized monetization of economic relations, leaves modern society in a very fragile condition. That fragility abruptly manifested itself in the interwar years. In a world whose economy had been entirely monetized and given over to the market, the collapse of the gold standard and the ensuing disruption of the global financial system had incalculable consequences which burst into the open in the 1920s. Entire classes of people were reduced to poverty by inflation while speculators amassed fortunes, which fed demands for strong, authoritarian governments, most notably in Germany. Flights of capital brought down governments in France and elsewhere, under conditions and with a rapidity unknown in the nineteenth century.

Imperial Competition and the Collapse of European Equilibrium

Finally, Polanyi pointed out that the ideology of self-regulation also applied to the balance of power in Europe. From 1815 to 1914, people thought that the existence of European nation-states of comparable size and power, all committed to the defense of private property, the gold standard, and the colonial domination of the rest of the world, would suffice to guarantee the continuation of the process of capital accumulation and the prosperity of the continent and the world. The hope of balanced competition applied in particular to the three “imperial societies” (Germany, France, and the United Kingdom), each of which sought to promote its territorial and financial power and cultural and civilizational model on a global scale while taking no notice of the fact that their hunger for power had desensitized them to the social inequalities that were undermining them from within.79 As Polanyi notes, this further application of the theoretical principle of self-regulated competition was the most fragile of all. The United Kingdom signed a treaty with France in 1904 to divide Egypt and Morocco and then another with Russia in 1906 to do the same with Persia. Meanwhile, Germany consolidated its alliance with Austria-Hungary, leaving two sets of hostile powers confronting each other and no alternative to total war.

At this point it is important to stress the obvious effects of demographic shifts. For centuries the major nation-states of Western Europe had populations of roughly equal size. From the fifteenth to eighteenth centuries this contributed to military competition, early state centralization, and financial and technological innovation.⁸⁰ Nevertheless, several major shifts in relative standing occurred within this broad equilibrium (Fig. 10.16). In the eighteenth century, France was by far the most populous country in Europe, which partly explains its military and cultural dominance. Specifically, in 1800, France (with a population of roughly thirty million) was 50 percent larger than Germany (with a little over twenty million)—and Germany, to boot, was not yet unified.⁸¹ It was in this context that Napoleon sought to build a European empire under the French banner. Then France’s population virtually ceased to grow for a century and a half (by 1950 the population was just a little over 40 million), for reasons that are not fully understood but that seem to be related to de-Christianization and very early success with birth control.⁸² By contrast, Germany experienced accelerated demographic growth in the nineteenth century, in addition to which it achieved political unity under the aegis of the kaiser. By 1910, Germany’s population was 50 percent larger than that of France: more than 60 million Germans compared with barely 40 million French.⁸³ I do not mean to suggest that such demographic shifts were the sole cause of repeated military conflict between the two countries, but clearly the changes in relative population gave people ideas.

FIG. 10.16.  Demography and the balance of power in Europe

Interpretation: Germany, the United Kingdom, Italy, and France have had roughly similar populations for centuries: each country had around 20–30 million people in 1820 and 60–80 million in 2020. There have been frequent changes in relative position, however: in 1800 France was 50 percent larger than Germany (31 million vs. 22 million); in 1910, Germany was 50 percent larger than France (63 million vs. 41 million). According to UN predictions, the United Kingdom and France should be the largest countries by 2100. Sources and series: piketty.pse.ens.fr/ideology.

At the end of World War I, France saw an opportunity to avenge its defeat in the Franco-Prussian War (1870–1871) and demanded enormous reparations from Germany. The history is well known, although the amounts and their significance are often left unsaid. In fact, the sums officially demanded of Germany were totally unrealistic. Under the Treaty of Versailles (1919), the terms of which were clarified by the Reparation Commission in 1921, Germany was supposed to pay 132 billion gold marks, or more than 250 percent of Germany’s 1913 national income and roughly 350 percent of German national income in 1919–1921 (in view of the fall in output between the two dates).84 Note that this is approximately the same proportion of national income as the debt imposed on Haiti in 1825 (roughly 300 percent), which dragged Haiti down until 1950—with one important difference, namely, the much greater size of Germany’s national income on both the European and global scale.⁸⁵ From the standpoint of the French authorities, this amount was justified. After the defeat of 1871, France had paid Germany 7.5 billion gold francs, roughly 30 percent of its national income, and the damage suffered in World War I was far, far greater. The French and British negotiators also insisted that both countries needed to recover sums in keeping with the enormous public debts they had contracted with their wealthy and thrifty citizens, whom at that point they fully intended to reimburse in keeping with the sacred promise that had been made to those who paid for the war.

Nevertheless, the sums demanded placed Germany in a state of eternal dependency on its conquerors, especially France. One doesn’t have to be a great statistician to understand this (or to understand the growing demographic gap between the two countries), and German politicians in the interwar years made it their business to explain the implications to German voters. With an interest rate of 4 percent, mere payment of the interest on a debt of 350 percent of national income would have required Germany to transfer something on the order of 15 percent of its output in the 1920s and 1930s just to pay the interest, without even beginning to reimburse the principal. Unsatisfied with the pace of payment and frustrated by the small value of Germany’s foreign assets (which the French and British allies had immediately seized and divided up in 1919–1920, along with Germany’s meager colonies), the French government sent troops to occupy the Ruhr in 1923–1925, with the goal of helping themselves directly to the output of German factories and mines. Had not Prussian troops occupied France until 1873, until the tribute of 1871 was paid in full? The comparison was not very valid, partly because France in the 1870s was flourishing when compared with devastation of 1920s Germany and partly because the sums demanded of Germany were more than ten times greater. It nevertheless convinced many French people, who had also been sorely tried by the conflict. The occupation of the Ruhr had little effect other than to spur resentment in Germany as the country fell victim to hyperinflation and output languished 30 percent below 1913 levels. Germany’s debts were finally canceled in 1931 as the entire world was sinking into the Great Depression, and any prospect of reimbursement vanished forever. We now know, of course, that all this merely laid the groundwork for Nazism and World War II.

The most absurd thing about France’s relentless pursuit of repayment, which was vigorously criticized at the time by the most lucid British and American observers, was that French political and economic elites realized in the 1920s that the payment of such sums by Germany could have undesirable effects on the French economy.⁸⁶ To reimburse the annual equivalent of 15 percent of its output, Germany would have needed to realize, year after year, a trade surplus of 15 percent of its output: in economic terms this is an accounting identity. A German trade surplus of that size threatened to impede the restarting of French industrial production, thus limiting job creation and increasing unemployment in France. In the nineteenth century, states paid military tribute without worrying about such economic consequences. Tribute payments were seen as pure financial transfers between states, leaving each of them to work things out with their property owners, savers, taxpayers, and workers (especially the former).

In a world where the various sectors of national economies were in competition with one another for global markets, however, this was no longer the case. Financial transfers affected trade and could therefore have negative effects on economic activity, employment, and ultimately the working class in certain sectors. Governments were just beginning to be concerned with promoting industrial development, full employment, and good jobs and with raising the level of national output itself. In fact, in a society concerned solely with increasing domestic output and employment, even if it meant running indefinite trade surpluses with the rest of the world without ever using them, there would be strictly no interest in imposing a financial tribute on a neighboring country (because that would reduce its purchases of one’s own output). A world in which governments value output and employment is very different ideologically and politically from a world based on property and the income from property. The world that collapsed between 1914 and 1945 was one of colonial and proprietarian excess, a world in which elites continued to think in terms of increasingly exorbitant colonial tributes and failed to understand the terms and conditions of possible social reconciliation.⁸⁷

From Abnormal Military Tribute to a New Military Order

The tribute of 300 percent or more of German national income is important because it was directly in line with previous practice and, in this sense, perfectly justified in the eyes of British and especially French creditors and also because it brought the system to the breaking point. This episode convinced an important segment of the German public that a nation’s survival in the industrial and colonial age depended above all on the military power of the state; only with a strong military could they hold their heads high. When one reads Adolf Hitler’s Mein Kampf today, what is most chilling is not the sick anti-Semitic element, which is well known and expected, but the quasi-rational analysis of international relations and the speed with which the electoral process can accredit reasoning like Hitler’s and put such a frustrated man in power. The opening lines say it all: “As long as the German nation is unable even to band together its own children in one common State, it has no moral right to think of colonization as one of its political aims.”

A little further on, Hitler distinguishes clearly between commercial and financial colonialism, which allows a nation to enrich itself on profits earned in the rest of the world, and continental and territorial colonialism, in which a people can invest in and develop its own agricultural and industrial activity. He rejects the former model, that of the British and French empires, which he compares to “pyramids standing on their points.” These are countries with minuscule metropolitan territories (and in the case of France a declining population as well, as Hitler repeatedly remarks). They try to capture the profits of vast, far-flung colonies forming a disparate and, in Hitler’s eyes, fragile whole. By contrast, the power of the United States rests on a strong and unified continental base inhabited by a people less homogeneous than the Germans, to be sure, but sharing strong German and Saxon roots. The territorial strategy, Hitler concludes, is sounder than the strategy of commercial and financial colonialism, especially for the German people, who are growing rapidly in number. For the sake of coherence, Germany’s territorial expansion must take place on European soil, not just in Cameroon, because “no divine will” made it necessary for “one people to possess more than fifty times as much territory as another” (Russia was the target here).

In this work, written in prison in 1924 during the occupation of the Ruhr and published in two volumes in 1925–1926, a few years before the seizure of power by the National Socialist German Workers’ Party (NSDAP, or Nazi Party), Hitler also expressed his contempt for social democrats, educated elites, frightened bourgeois, and pacifists of every stripe, who dared to claim that Germany’s salvation might come from contrition and internationalism; only through force and rearmament could a united German people and its unified German state exist in the modern industrial world.88 On this point it is hard to deny that he has absorbed the lessons of history and of Europe’s rise from 1500 to 1914, which did indeed rely on military and colonial domination and gunboat diplomacy.⁸⁹ His contempt for France, a country in demographic decline bent on destroying Germany by imposing a despicable tribute (the amount of which is repeatedly mentioned), is reinforced by the fact that the French occupier has brought in “hordes of Negroes” who, he says, have “unleashed their lust” on the banks of the Rhine (no doubt referring to colonial troops he may have heard about or encountered). The possibility of a “Negro republic in the heart of Europe” is a repeated refrain.⁹⁰ Leaving aside his tirades against blacks and Jews, Hitler’s main goal is to convince the reader that internationalists and pacifists are cowards and that only absolute unity of the German people behind a strong state will make Germany great again. He denounces the cowardly leaders who failed to take up arms against the French occupier in 1923–1924 and concludes by telling the reader that the NSDAP is henceforth prepared to accomplish its historic mission. What is most chilling, of course, is that this strategy was crowned with success until it ultimately encountered a superior military and industrial force.⁹¹

In La trahison des clercs (The Treason of the Clerks, 1927), the essayist Julien Benda accused “clerics” (a class in which he included priests, scientists, and intellectuals) of having succumbed to nationalist, racist, and classist passions. After more than 2,000 years of moderating political passions and quenching the ardor of warriors and rulers (“since Socrates and Jesus Christ,” as he put it), the clerical class had failed to oppose the European death instinct and the unprecedented rise of identity conflict in the twentieth century when they had not stirred up antagonism themselves. While he reserved a special animus for German clergymen and professors, who in his view had been the first to succumb to the sirens of war and nationalism during World War I, it was the entire European clerical class he had in his sights.

In 1939, the anthropologist and linguist Georges Dumézil published Mythes et dieux des Germains (Myths and Gods of the Germans), an “essay of comparative interpretation,” in which he analyzes the relationship of ancient German mythology to Indo-European religious concepts and representations. In the 1980s Dumézil was caught up in a nasty polemic in which he was accused of conniving with Nazis or at the very least participating in an anthropological justification of the warrior spirit said to have come from the East. In reality, he was a French conservative of monarchical leanings who could not really be accused of Hitlerist sympathies or Germanophilia. In his book on trifunctional ideology he sought to show that ancient Germanic myths were structurally unbalanced by hypertrophy of the warrior class and an absence of a true sacerdotal or intellectual class (in contrast to the Indian case, for example, where the Brahmins generally dominated the Kshatriyas).⁹²

These references to trifunctional logics in the interwar years may seem surprising. Once again, they illustrate the need to make sense of structures of inequality and the way they evolve, in this case, through the emergence of a new warrior order in Europe. They also remind us that proprietarian ideology never really stopped trying to justify inequality in the trifunctional key. Europe’s economic takeoff owed little to its virtuous and peaceful proprietarian institutions (recall the European drug traffickers and the Chinese Smithians I discussed in Chapter 9). It owed much more to the ability of European states to maintain order to their advantage at the international level as they relied both on military domination and on their supposed intellectual and civilizational superiority.

The Fall of Ownership Society and the Transcendence of the Nation-State

To recapitulate: nineteenth-century European ownership societies were born of a promise of individual emancipation and social harmony, a promise associated with universal access to property and to the protection of the state; they replaced premodern trifunctional societies, characterized by inequalities of status. In practice, ownership societies largely conquered the world thanks to the military, technological, and financial power they derived from intra-European competition. They failed for two reasons: first, in the period 1880–1914 they attained a level of inequality and concentration of wealth even more extreme than that which existed in the Ancien Régime societies they purported to replace; and second, the nation-states of Europe ultimately self-destructed and were replaced by other states of continental dimension organized around new political and ideological projects.

In The Origins of Totalitarianism, a book written in the United States between 1945 and 1949 and published in 1951, Hannah Arendt tried to analyze the reasons why various European societies destroyed themselves. Like Polanyi, she believed that the collapse of 1914–1945 could be seen as a consequence of the contradictions of unbridled and unregulated European capitalism in the period 1815–1914. She laid particular stress on the fact that Europe’s nation-states had in a sense been transcended by the globalized industrial and financial capitalism they had helped to create. Given the planetary scale and unprecedented transnational scope of trade, capital accumulation, and industrial growth, states were no longer able to control and regulate economic forces or their social consequences. For Arendt, the principal weakness of social democrats in the interwar years was precisely that they had still not fully integrated the need to transcend the nation-state. In a sense, they were alone in this. The colonial ideologies on which the British and French empires rested did transcend the nation-state in the phase of accelerated expansion (1880–1914). Empires were a way of organizing global capitalism through large-scale imperial communities and strongly hierarchical civilizational ideology, with the superior metropole at the center and the subordinate colonies on the periphery. They would soon be undermined, however, by centrifugal forces of independence.

For Arendt, the political projects of the Bolsheviks and Nazis succeed because both relied on new postnational state forms adapted to the dimensions of the global economy: a Soviet state spanning a vast Eurasian territory and combing pan-Slavic and messianic Communist ideologies at the global level; and a Nazi state based on a Reich of European dimensions drawing on pan-German ideology and racialized hierarchical organization led by those who were most capable. Both promised their people a classless society in which all enemies of the people would be exterminated, with one major difference: the Nazi Volksgemeinschaft allowed every German to imagine himself as a factory owner (on the global scale), whereas Bolshevism promised that everyone could become a worker (a member of the universal proletariat).93 By contrast, the failure of the social democrats was, according to Arendt, due to their inability to conceive of new federal forms and their willingness to settle for a facade of internationalism when their actual political project was to build a welfare state within the narrow limits of the nation-state.⁹⁴

This analysis, aimed at the French Socialists, German Social Democrats, and British Labourites of the late nineteenth and early twentieth centuries, is all the more interesting in that it remains quite pertinent for understanding the limitations of postwar social-democratic societies, including in the second half of the twentieth century and beyond. It is also relevant to the debates of 1945–1960, concerning not only the construction of a European economic community but also the transformation of the French colonial empire into a democratic federation at a time when many West African leaders were very much aware of the difficulties that tiny “nation-states” like Senegal and Ivory Coast would face in developing a viable social model in the context of global capitalism.⁹⁵ It is relevant, too, to the glaring inadequacies of the current European Union, whose feeble attempts to regulate capitalism and establish new norms of social, fiscal, and environmental justice have yet to be crowned with success and which is regularly accused of doing the bidding of more prosperous and more powerful economic actors.

Nevertheless, Arendt left wide open the question of the form and content of the new federalism. Her hesitation anticipates difficulties that would emerge more clearly later. Was what she had in mind a federalism that would seek to reduce inequalities and transcend capitalism, or was it a federalism intended to prevent the overthrow of capitalism and constitutionally enshrine economic liberalism? In the years that followed the publication of her essay, Arendt more than once expressed growing faith in the American model as the only political project truly grounded in respect for individual rights, whereas European political processes were in her view stuck in a Rousseauian-Robespierrist search for the general will and social justice—a search that led almost inevitably to totalitarianism. This vision is expressed with particular clarity in her Essay on Revolution, published in 1963 at the height of the Cold War, in which she sought to unmask the true nature of the French Revolution and rehabilitate the American, previously unjustly neglected in her view by European intellectuals keen on equality and insufficiently concerned about liberty.⁹⁶ Arendt’s profound skepticism about Europe no doubt owes a great deal to her personal history and to the context of the time, and it is very hard to know how she, who died in 1975, would have judged today’s United States and European Union. Nevertheless, her very negative conclusions as to the very possibility of democratic social justice is in the end rather close to the position taken in 1944 by another celebrated European exile—Friedrich von Hayek, who in his essay The Road to Serfdom explains in substance that any political project based on social justice leads straight to collectivism and totalitarianism. He was writing at the time in London, and the British Labour Party, which was on the verge of taking power in the 1945 elections, was uppermost in his mind. In retrospect, this judgment seems harsh and almost incongruous from someone who a few decades later was prepared to support the military dictatorship of General Augusto Pinochet.

Federal Union Between Democratic Socialism and Ordoliberalism

These debates about federalism and its uncertainties and the transcendence of the nation-state are highly instructive. They also enable us to understand why discussions of federalism, which were common in the 1930s and 1940s, did not lead anywhere. The year 1938 witnessed the launch of the Federal Union movement in the United Kingdom. Soon there were hundreds of sections throughout the country. Adherents saw union as the way to avoid war.97 Among the movement’s various proposals were a federal democratic union between Britain and its colonies, a US-UK union, and a union of European democracies against Nazism. In 1939, New York journalist Clarence Streit wrote a book entitled Union Now, in which he proposed a transatlantic federation of fifteen countries governed by a House of Representatives with membership proportional to population and a Senate of forty members (eight for the United States, four for the United Kingdom, four for France, and two for each of the twelve other countries). In 1945 he went so far as to propose a world federation with a convention to be elected by universal suffrage (with each of the nine regions of the globe divided into fifty districts and an overrepresentation of Western powers) that would then elect a president and council of forty members in charge of nuclear disarmament and redistribution of natural resources.⁹⁸ The Charter of the United Nations, adopted in 1945, provided for a General Assembly consisting of one representative for each country and a Security Council with five permanent members with veto power and ten additional members elected by the General Assembly.⁹⁹ It was heavily influenced by the federalist debates of the 1930s and 1940s.

During the interwar years many people felt that the old colonial empires were close to collapse; the Great Depression had shown how interdependent the world’s economies were, highlighting the need for new collective regulations; and the advent of long-distance air travel had brought the different regions of the world dramatically closer together.¹⁰⁰ In such conditions many people felt emboldened to imagine novel forms of political organization for the world to come.

In this connection, the British Federal Union movement and the debates it stimulated are particularly noteworthy. Initiated by young activists who saw federalism as a way of accelerating independence and providing a framework for peaceful political cooperation, the movement soon drew the support of academics like William Beveridge (the author of the celebrated 1942 report on social insurance which paved the way for the Labour Party to establish the National Health Service in 1948) and Lionel Robbins (of a much more liberal persuasion). The union movement inspired a proposal by Winston Churchill in June 1940 to create a Franco-British Federal Union, which the French government, then in refuge in Bordeaux, rejected, preferring instead to award full powers to Marshal Philippe Pétain. While several members of the government openly stated their preference for “becoming a Nazi province rather than a British dominion,” it must be noted that the institutional content of the proposed federal union was rather vague, apart from a firm commitment to full Franco-British military cooperation and a complete merger of all remaining land, sea, and colonial forces not yet under German control.

Earlier, in April 1940, a group of British and French academics had met in Paris to study how a potential federal union might work, first at the Franco-British level and then at the European level, but no agreement was reached. The view most steeped in economic liberalism was that of Hayek, who had left Vienna for London, where he had been teaching at the London School of Economics since 1931 (Robbins had recruited him). Hayek favored a purely commercial union based on the principles of competition, free trade, and monetary stability. Robbins took a similar line but also envisioned the possibility of a federal budget and, in particular, a federal estate tax in case free trade and free circulation of persons did not suffice to spread prosperity and reduce inequality.

Other members of the group held views much closer to democratic socialism, starting with Beveridge, an adept of social insurance, and the sociologist Barbara Wooton, who proposed federal taxes on income and estates with a top rate of 60 percent and a ceiling on incomes and inheritances above a certain cutoff value. The meeting ended with an avowal of disagreement as to the economic and social content of any prospective federal union, although participants expressed the hope that a military union might be completed as quickly as possible. Wooton later spelled out her proposals more fully in two books, Socialism and Federation (1941) and Freedom Under Planning (1945). It was partly in response to Wooton that Hayek published The Road to Serfdom (1944). While acknowledging that the book might cost him many friends in his adopted country, he nevertheless felt it necessary to alert the British public to the danger he believed the Labour Party and other collectivists posed to freedom. He also warned against the Swedish Social Democrats, the new darling of the progressives, noting that Nazi economic interventionism had also been hailed in its day before people realized the threat it posed to freedom (a judgment to which history has not been kind, given Sweden’s success).¹⁰¹ These debates around a federal union spurred responses from across Europe. In 1941, Altiero Spinelli, a Communist activist held at the time in one of Mussolini’s prisons, took inspiration from them to write his “Manifesto for a Free and United Europe,” also known as the Ventotene Manifesto (for the name of the island where he was held).¹⁰²

These debates about federalism and the uncertainties associated with it are of fundamental importance because they are still with us. The fall of ownership society raises one key question: What is the appropriate political level for transcending capitalism and regulating property relations? Once the choice has been made to organize economic, commercial, and property relations at the transnational level, it seems obvious that the only way to transcend capitalism and ownership society is to work out some way of transcending the nation-state. But exactly how can this be done? What precise form and content can one give to such a project? In the following chapters we will see that the answers given to these questions by the political movements of the postwar period were limited in significant ways, particularly at the European level, and more generally in the various economic and trade agreements that were developed to organize globalization both during the Cold War (1950–1990) and in the postcommunist years (1990–2020).

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1.     1.  See K. Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (1944). A Hungarian economist and historian, Polanyi fled Vienna for London in 1933, then emigrated to the United States in 1940. There, between 1940 and 1944, he wrote his classic analysis of the catastrophe ravaging Europe. For Polanyi, it was the ideology of the self-regulated market, which was beyond dominant in the nineteenth century, that led European societies to self-destruct in the period 1914–1945 and thus to questioning the basis of economic liberalism.

2.     2.  See Chap. 11.

3.     3.  On these three challenges, see also Chap. 5.

4.     4.  The estimates given for income inequality in Europe in Figs. 10.1–10.3 are an average of the figures for the United Kingdom, Germany, France, and Sweden (which are the countries with the fullest long-term data sets). Other countries for which we have estimates going back to the turn of the twentieth century (especially the Netherlands, Denmark, and Norway) indicate similar evolutions. Japan also follows a similar trajectory over the long run, with a position between the United States and Europe for the most recent period. See the online appendix (piketty.pse.ens.fr/ideology), especially Figs. SI.6 and S10.1–S10.5. See also Fig. I.6.

5.     5.  See Fig. I.8.

6.     6.  The estimates of wealth inequality in Europe in Figs. 10.4–10.5 are based on averaging results for the United Kingdom, France, and Sweden. The other countries for which we have estimates going back to the early twentieth century (unfortunately, the sources are less numerous than for income) suggest similar evolutions. See the online appendix.

7.     7.  Note, moreover, that this high level of wealth inequality, much higher than for income inequality, is also found within each age cohort. See the online appendix.

8.     8.  On this lack of transparency and the political issues it raises, see Chap. 13.

9.     9.  This was true of France, the United Kingdom, and Sweden. See Figs. 4.1–4.2 and Figs. 5.4–5.5. Available data for the United States in the nineteenth century are not perfect, but what we have also suggests a rising trend, albeit with the peculiarity that the composition of wealth changed markedly after the Civil War and the disappearance of slave wealth in the South. See the online appendix.

10.   10.  See C. Bartels, “Top Incomes in Germany, 1871–2014,” Journal of Economic History, 2019; F. Dell, L’Allemagne inégale. Inégalités de revenus et de patrimoine en Allemagne, dynamique d’accumulation du capital et taxation de Bismarck à Schröder 1870–2005 (EHESS, 2008).

11.   11.  On wage stagnation prior to 1860 and on the strong resulting increase in the profit share of output, see R. Allen, “Engels’ Pause: Technical Change, Capital Accumulation, and Inequality in the British Industrial Revolution,” Explorations in Economic History, 2009. See also T. Piketty, Capital in the Twenty-First Century, trans. A. Goldhammer (Harvard University Press, 2014), pp. 7–11 and figs. 6.1–6.2. Many works attest to the intensification of labor and the deterioration of living conditions (as measured, for instance, by the height of recruits) during the first phase of the Industrial Revolution. See S. Nicholas and R. Steckel, “Heights and Living Standards of English Workers during the Early Years of Industrialization,” Journal of Economic History, 1991. See also J. De Vries, “The Industrial Revolution and the Industrious Revolution,” Journal of Economic History, 1994; H. J. Voth, “Time and Work in Eighteenth-Century London,” Journal of Economic History, 1998.

12.   12.  The complex reality of the period 1870–1914 (with rising real wages but also increasing income and wealth inequality) helps us to gain a better understanding of the violent controversies that raged among European socialists in the period 1890–1910, especially in the Social Democratic Party of Germany (SPD), where Eduard Bernstein’s revisionist theses (which challenged the Marxist theory of stagnating wages and ineluctable revolution) confronted the orthodox line of Karl Kautsky and Rosa Luxembourg (who castigated the reformism of Bernstein, a man prepared to collaborate with the regime and even become vice president of the Reichstag). From today’s vantage, it appears that the wage increase was real (though modest) but that Bernstein was unduly optimistic about the diffusion of property and reduction of inequality.

13.   13.  See esp. G. Alfani’s work on the evolution of wealth inequality in Italy and Holland between 1500 and 1800 (with top decile shares of 60–80 percent of total wealth and apparently rising, partly owing to the regressivity of the tax system). See esp. G. Alfani and M. Di Tullio, The Lion’s Share: Inequality and the Rise of the Fiscal State in Preindustrial Europe (Cambridge University Press, 2019). See also the online appendix.

14.   14.  Archaeological research (including the work of Monique Borgerhoff Mulder) suggests that wealth concentration was limited in hunter-gatherer societies, where there was little wealth to accumulate and pass on compared with societies that arose after the invention of agriculture (in which property tended to become concentrated and quickly reached levels comparable to those observed in Europe in the fifteenth to eighteenth centuries). These results are fragile and apply only to very small societies, but they confirm in a way the historical uniqueness of the deconcentration of property that took place in the twentieth century. See the online appendix.

15.   15.  An additional factor to consider is the decrease of the share of capital income in national income, from 35–40 percent in the late nineteenth and early twentieth centuries, to 20–25 percent in 1950–1970, and to 25–30 percent in 2000–2020. This evolution is largely the result of changes in the balance of power between capital and labor and in the negotiating capacities of both sides. See Piketty, Capital in the Twenty-First Century, chap. 6, and the online appendix.

16.   16.  See the online appendix.

17.   17.  See Fig. 7.9.

18.   18.  If the ratio of private capital (measured at market value) and national income is two, then a savings rate of 10 percent applied to the average income is enough to become an average property owner after twenty years. If the ratio is eight, it would take eighty years. To get an idea of orders of magnitude, the national income of the United Kingdom and France was about 35,000 euros a year per adult in the 2010s; hence the ratio of five to six shown in Fig. 10.8 corresponds to average wealth per adult of roughly 200,000 euros. In subsequent chapters I will return to the actual structure of wealth (see esp. Fig. 11.17).

19.   19.  See the online appendix and Piketty, Capital in the Twenty-First Century, figs. 3.1–3.2.

20.   20.  See Chaps. 4–5.

21.   21.  See Piketty, Capital in the Twenty-First Century, chaps. 3–5. For the most complete series breakdowns, see T. Piketty and G. Zucman, “Capital Is Back: Wealth-Income Ratios in Rich Countries, 1700–2010,” Quarterly Journal of Economics, 2014, and the corresponding appendices. This work is based on a systematic examination of various sources and estimates of the total and structure of private and public property since the beginning of the eighteenth century. Note, too, that the fall indicated in Fig. 10.8 concerns not only the European countries but also Japan and to a lesser degree the United States (which started from a lower level).

22.   22.  See Table 4.1.

23.   23.  C. Andrieu, L. Le Van, and A. Prost, Les Nationalisations de la Libération: de l’utopie au compromis (Fondations nationale des sciences politique, 1987), and T. Piketty, Top Incomes in France in the Twentieth Century (Harvard University Press, 2018), pp. 130–131.

24.   24.  In practice, because of inflation (prices having more than tripled between 1940 and 1945), this was tantamount to a 100 percent tax on all who had not lost enough during the war. For André Philip, an SFIO member of General Charles de Gaulle’s provisional government, it was inevitable that this exceptional tax would hurt “those who had not grown richer and perhaps even those who had grown poorer in the sense that their wealth did not increase as rapidly as the general price level but who had still retained their wealth at a time when so many French people lost everything.” See L’année Politique, 1945–1945 (Éditions du Grand Siècle), p. 159.

25.   25.  I will come back to these issues in Chap. 11. Note that if one were to use book value (rather than market value) to measure the assets of German firms, their value would equal (or slightly exceed) the value of French and British firms in the period 1970–2020 in Fig. 10.8. By contrast, the very large increase in the stock market value of English and British firms since 1980 is large a consequence of the increased bargaining power of shareholders (and not of real investments). See the online appendix. See also Piketty, Capital in the Twenty-First Century, chap. 5, pp. 187–191, esp. fig. 5.6.

26.   26.  In France, the ratio of the rent index to the overall price index, with a base of one hundred in 1914, fell to around thirty to forty in 1919–1921 and ten to twenty in 1948–1950 before slowly rising thereafter to seventy in 1970–1980 and then back to one hundred in 2000–2010. See Piketty, Top Incomes in France in the Twentieth Century, p. 80, fig. 1.9.

27.   27.  See Chap. 5.

28.   28.  Note that the low value of German real estate (due in part to various rent control measures) also helps to explain the gaps observed in 2000–2020 in Fig. 10.8. More generally, if one could measure in perfectly comparable ways the social value of the capital stock (as opposed to its market value), in particular by taking into account the effect of power-sharing policies on stock market values and of rent control on real estate value, it is likely that the levels of accumulation indicated in Fig. 10.8 for the period 2000–2020 would surpass those of 1880–1914. See the online appendix.

29.   29.  In other words, investment net of depreciation (the difference between raw investment and the depreciation of capital) was often negative. Note that in view of the growth of national income (which was low but not zero between 1913 and 1950), a steady and relatively large flow of net investment was necessary to maintain a high ratio of private capital to national income. For example, with a growth of 1 percent a year, a flow of 8 percent is required to maintain a capital/income ratio of eight. See Piketty, Capital in the Twenty-First Century, chap. 3.

30.   30.  See Piketty, Capital in the Twenty-First Century, pp. 102–109.

31.   31.  The gold standard introduced after World War II fared little better: established in 1946, it ended in 1971 when the convertibility of the dollar into gold was suspended.

32.   32.  This calculation excludes the year 1923 for Germany (during which prices multiplied by 100 million) and thus measures average inflation in the periods 1914–1922 and 1924–1950.

33.   33.  To be sure, financial assets accumulated in the 1920s had already been largely wiped out by the collapse of the stock market. Nevertheless, the inflation of 1945–1948 came as an additional shock. The response was the vieillesse minimum (minimum old-age benefit) created in 1956 for the impoverished elderly and the development of old-age pensions (created in 1945 but gradually increased).

34.   34.  High progressive taxes on private property were also levied until the 1980s under so-called Lastenausgleich (burden-sharing) programs intended to compensate refugees from the east for losses incurred when borders changed. See M. L. Hughes, Shouldering the Burdens of Defeat: West Germany and the Reconstruction of Social Justice (University of North Carolina Press, 1999).

35.   35.  See G. Galofré-Vila, C. Meissner, M. McKee, and D. Stuckler, “The Economic Consequences of the 1953 London Debt Agreement,” European Review of Economic History, 2018.

36.   36.  There were also debates around such measures in France and the United Kingdom in 1919–1923, but nothing came of them. For more of an overview of various experiments with taxation of private capital to reduce public debt, see B. Eichengreen, “The Capital Levy in Theory and Practice,” in Public Debt Management: Theory and History, ed. R. Dornbusch and M. Draghi (Cambridge University Press, 1990). On these debates, see also J. Hicks, U. Hicks, and L. Rostas, The Taxation of War Wealth (Oxford University Press, 1941).

37.   37.  It is estimated that the gold and silver content of European coins was on average divided by a factor of 2.5–3 between 1400 and 1800, which corresponds to an inflation rate of 0.2 percent over 400 years, which in practice took the form of a series of phases of price stability punctuated by sudden devaluations of a few dozen percent. See C. Reinhart and K. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton University Press, 2009), chap. 11.

38.   38.  See Table 3.1.

39.   39.  The subsequent increase in public debt between 1814 and 1914 was due mainly to exceptional measures such as war indemnities and the milliard des émigrés (emigré billion). See Chap. 4. See also Piketty, Capital in the Twenty-First Century, pp. 131–134.

40.   40.  Polanyi, The Great Transformation.

41.   41.  See the online appendix and V. Amoureux, Public Debt and Its Unequalizing Effects: Explorations from the British Experience in the Nineteenth Century (master’s thesis, Paris School of Economics, 2014).

42.   42.  See especially Chap. 16 on the European case.

43.   43.  In some countries, especially Germany, Sweden, and other northern European countries, a third form of progressive tax was also introduced early in the twentieth century—namely, a progressive annual tax on wealth (in addition to the inheritance tax paid at the time of wealth transmission to the next generation or to other inheritors). I will come back to this in Chap. 11. Also note that the English language distinguishes between the inheritance tax, assessed on each heir’s share of a bequest, and the estate tax, assessed on the total wealth of the deceased, notwithstanding the division among heirs. The estate itself can be broken down into real estate and personal estate; the latter includes movable goods and financial assets. European countries generally use an inheritance tax, whereas the United States has an estate tax. For simplicity, we generally refer to both as the “inheritance tax” in what follows.

44.   44.  The top marginal rates shown here generally applied to only a small fraction of taxpayers, those who have the highest incomes and largest estates and who usually belonged to the top centile or even the top thousandth. But the fact is that this is precisely the level where the deconcentration of wealth and income was the highest. Later on I will discuss the evolution of effective tax rates at different levels of the distribution.

45.   45.  Note that these figures are solely for the federal income and estate tax, to which state taxes must be added, with additional rates on the order of 5–10 percent depending on the period.

46.   46.  The rates shown in Fig. 10.11 do not include the 25 percent tax hikes introduced in 1920 for unmarried taxpayers without children and married taxpayers “who after two years of marriage still have no child” (if they were included, the top rate would be 62 percent in 1920 and 90 percent in 1925). This interesting provision of the law, which attests to the depth of the French trauma regarding low birth rates as well as the boundless imagination of the deputies when it came to expressing the country’s hopes and fears through the tax code, would become the “family compensation tax” from 1939 to 1944 and then, from 1945 to 1951, part of the family quotient system (married couples without children, normally given two shares, fell to 1.5 shares if they still had no child “after three years of marriage”; note that the Constituent Assembly of 1945 prolonged by one year the grace period set by the National Bloc in 1920). For a detailed analysis of these episodes and debates, see Piketty, Top Incomes in France in the Twentieth Century, chap. 4.

47.   47.  See the online appendix and T. Piketty, G. Postel-Vinay, and J. L. Rosenthal, “The End of Rentiers: Paris 1842–1957,” WID.world, 2018, for full data and results, which I summarize here.

48.   48.  See Chap. 5.

49.   49.  See D. Cannadine, The Decline and Fall of the British Aristocracy (Yale University Press, 1990), p. 89.

50.   50.  On this mechanism, see Chap. 11 and T. Piketty, E. Saez, and S. Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” American Economic Journal: Economic Policy, 2014. Furthermore, the gradual disappearance of the highest incomes partly explains the fact that effective rates decreased on the top centiles and millimes between 1930–1950 and 1960–1970. The fact that top effective rates never equaled statutory marginal rates is also explained by the fact that governments chose to exclude certain types of income (such as capital gains), especially after 1960. For detailed series on effective rates by centile and type of tax, see the online appendix and T. Piketty, E. Saez, and G. Zucman, “Distributional National Accounts: Methods and Estimates for the United States,” Quarterly Journal of Economics, 2018.

51.   51.  Note, however, that Japan, which also suffered greatly from wartime destruction, did impose very high inheritance taxes in the period 1950–1980 and continues to heavily tax the largest estates today.

52.   52.  See Chap. 6.

53.   53.  On this subject see W. E. Brownlee, Federal Taxation in America: A Short History (Cambridge University Press, 2016). The authors emphasize the fact that the federal government (as well as the states) had long benefited from the sale of public lands in frontier regions, which may partly explain earlier resistance to taxes.

54.   54.  On this period and the debates in question, see, for example, P. Rosanvallon, La société des égaux (Seuil, 2011), pp. 227–233. See also N. Delalande, Les Batailles de l’impôt. Consentement et résistances de 1789 à nos jours (Seuil, 2011).

55.   55.  See W. I. King, The Wealth and Income of the People of the United States (Macmillan, 1915). The author, a professor of statistics and economics at the University of Wisconsin, collected imperfect but suggestive data on several American states, compared them with European estimates, and found the differences smaller than he initially imagined.

56.   56.  See I. Fisher, “Economists in Public Service,” American Economic Review, 1919. Fisher took his inspiration largely from the Italian economist Eugenio Rignano. See G. Erreygers and G. Di Bartolomeo, “The Debates on Eugenio Rignano’s Inheritance Tax Proposals,” History of Political Economy, 2007.

57.   57.  In the United States the bulk of the long-term increase went to federal tax revenues, which amounted to barely 2 percent of national income throughout the nineteenth century and up to 1914, then rose to 5 percent by 1930 and 15 percent by 1950 before stabilizing at around 20 percent since 1960. State and local tax revenues have remained stable at around 8–10 percent of national income since the late nineteenth century. See the online appendix.

58.   58.  See esp. P. Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Cambridge University Press, 2004).

59.   59.  The series shown in Fig. 10.14 were obtained by averaging the main European countries for which we have adequate long-run data (United Kingdom, France, Germany, and Sweden). These orders of magnitude may be taken as globally representative for Western and Northern Europe. Note that total public expenditures may in practice be slightly higher than the tax revenues broken down here in view of nonfiscal revenues (such as user fees for access to certain public services) and debt (even though the primary deficit is generally close to zero on average over the long run, including interest on the debt). See the online appendix.

60.   60.  In 2017, public-sector employees (of the state, towns and regions, hospitals, etc.) accounted for 21 percent of total employment in France versus 79 percent for the private sector (12 percent self-employed and 67 percent employed by private-sector firms). See the online appendix for more on the complexity of these distinctions.

61.   61.  See Chap. 12.

62.   62.  For example, the effective tax rate could be 30 percent on the bottom 50 percent weighted by income (which roughly corresponds to the bottom 80 percent of the current income distribution in Europe) and 60 percent on the top 50 percent weighted by income (which corresponds roughly to the top 20 percent of the current income distribution). We will see later that the current tax structure in France is considerably less progressive than this. See Fig. 11.19.

63.   63.  The current distribution of the tax burden in Europe is roughly the following: about a third of the total comes from income taxes (including taxes on corporate profits); a third comes from social security contributions and other deductions from income; and another third comes from indirect taxes (such as value-added taxes and other consumption taxes) together with wealth and inheritance taxes (less than a tenth of the total). The boundaries between these categories are somewhat arbitrary (especially between the first two: social contributions deducted from wages are not very different from income taxes in the narrow sense). The real issue is usually the overall progressivity of the whole tax package, together with the issue of what the money is used for and how the tax is governed, rather than what it is nominally called. Note, too, that the overall tax burden is significantly lower in the poorer countries of the European Union (barely 25–30 percent of national income in Romania and Bulgaria). See the online appendix.

64.   64.  See esp. Chaps. 11 and 17.

65.   65.  Counterfactual history has a long tradition. In the first century CE, Titus Livy imagined what would have happened if Alexander the Great had headed west instead of east and conquered Rome. In 1776 Edward Gibbon imagined a (highly refined) Muslim Europe coming to pass after the defeat of Charles Martel at Poitiers in 732. In 1836 Louis Geoffroy imagined Napoleon as emperor of the world after defeating Russia and England in 1812–1814 and then conquering India, China, and Australia in 1821–1827 and finally winning the submission of the US Congress in 1832. In 2003 Niall Ferguson imagined a better world (in his view) in which British diplomats would have allowed Germany to crush France and Russia in 1914, leaving British and German empires to dominate the world in the twentieth century instead of the American and Russian empires. See Q. Deluermoz and P. Singaravélou, Pour une histoire des possibles. Analyses contrefactuelles et futurs non advenus (Seuil, 2016), pp. 22–37.

66.   66.  See esp. K. Scheve and D. Stasavage, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe (Princeton University Press, 2016). On the crucial role of war in the history of inequality, see W. Scheidel, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (Princeton University Press, 2017).

67.   67.  V. I. Lenin, in his classic 1916 book Imperialism, The Highest Stage of Capitalism, used statistics on foreign investment to demonstrate the importance of the race for resources among rival colonial powers.

68.   68.  One example is the deadly anti-Italian riots in Marseille in 1881 (a few years before the Aigues-Mortes massacre of 1893), after Italian workers were suspected of jeering a parade of French troops that had just seized control of Tunisia at Italy’s expense. See G. Noiriel, Une histoire populaire de la France (Agone, 2018), pp. 401–405, who sees this event as one of the key moments in the politicization of the immigration issue in France.

69.   69.  Note, however, that the progressivity of the inheritance tax was increased in 1910 in connection with a search for ways to finance the law on peasant and worker pensions, which suggests that France would have adopted the income tax with or without the war. See Chap. 4.

70.   70.  To justify the tax increases of the Victory Tax Act, the government even called upon Donald Duck, the hero of the famous 1943 cartoon “Taxes Will Bury the Axis.”

71.   71.  At the Congress of Tours in 1920, the majority of delegates chose to quit the SFIO and create the French Section of the Communist International (SFIC), which would eventually become the French Communist Party (PCF). The latter took control of the party newspaper, L’Humanité. By contrast, a majority of socialist deputies chose to remain in the SFIO, which was attacked as “bourgeois” and centrist by the Communists.

72.   72.  It was also in 1919 that Germany—where (as in France) all adult males had had the right to vote since 1871 but not in private—moved to a secret ballot. In practice, the nonsecret ballot could limit the right to vote in places where the influence of local elites was powerful.

73.   73.  See Chap. 5 and the online appendix, Figs. S10.11a–12a.

74.   74.  See the online appendix, Figs. S10.11b–12b. Note that progressive tax rates in Germany, which had been raised quite a bit in the 1920s, were kept at high levels under the Nazis. On the other hand, Nazi policies contributed to higher industrial profits (especially in strategic sectors) and wage hierarchies, which led to a significant increase of income inequality (especially the top centile share) between 1933 and 1939, in contrast to other countries (see the online appendix and Fig. 10.3). In an international context marked by significant reduction of social inequalities, Fascism and Nazism were more concerned with fighting foreign enemies and establishing order and hierarchy than with reducing inequality within their national communities.

75.   75.  On Hayek’s authoritarian proprietarianism, see Chap. 13. For a critical analysis of the papers from the 1938 Lippmann Colloquium and their aftermath, see S. Audier, Le colloque Lippmann. Aux origines du “néo-libéralisme” (Le bord de l’eau, 2012); S. Audier, Néo-libéralismes: une archéologie intellectuelle (Grasset, 2012).

76.   76.  Polanyi does not explicitly use the term “ownership society,” but that is what he has in mind. In particular, he stresses the quasi-sacralization of private property in the period 1815–1914. Broadly speaking, I think the term “proprietarianism” better captures what is at stake here than “liberalism,” which plays on the ambiguity between economic liberalism and political liberalism.

77.   77.  Polanyi, without seeking to idealize the British Poor Laws, stressed the fact that before the reforms of 1795 and 1834 they included not only limitations on mobility but also wage supplements indexed to grain prices and financed locally. In the nineteenth century, industrial elites promoted the idea of a self-regulated single market encompassing the entire nation. Polanyi is not entirely clear, however, about the territorial scope he had in mind (nation-state, Europe, Europe-Africa, world) and by what means he proposed to regulate labor mobility and wage setting in the postwar period. See Polanyi, The Great Transformation, chaps. 6–10.

78.   78.  Note, however, that Polanyi is silent about remedies: he does not explicitly discuss public ownership, agrarian reform, redistribution of wealth, or progressive taxation. His book is more an account of collapse than of reconstruction.

79.   79.  See the stimulating analysis by C. Charle, La crise des sociétés impériales. Allemagne, France, Grande-Bretagne, 1900–1940. Essai d’histoire sociale comparée (Seuil, 2001).

80.   80.  See Chap. 9.

81.   81.  The estimates shown in Fig. 10.16 cover the present-day territory of each country and should be read as indicating orders of magnitude rather than precise values. See the online appendix.

82.   82.  Low birth rates and de-Christianization (as measured by birth records and baptismal acts) seem to have begun in the period 1750–1780 and to have been more advanced in départements where more priests rallied to the Revolution. No other country experienced such an early demographic transition. See T. Guinnane, “The Historical Fertility Transition,” Journal of Economic Literature, 2011; T. Murphy, “Old Habits Die Hard (Sometimes): What Can Department Heterogeneity Tell Us about the French Fertility Decline?” Journal of Economic Growth, 2015.

83.   83.  Within the 1913 borders, the population gap between Germany (67 million) and France (39 million) was even larger than that indicated here (63 million versus 41 million). The German population was at that point growing by nearly a million a year. See the online appendix.

84.   84.  See the online appendix. I did not include debts arising from the Treaty of Versailles in the German public debt series shown in Fig. 10.9 (or in the series on foreign financial assets shown in Fig. 7.9), partly because this would have required a change of scale and partly because it would also have been necessary to count French and British assets, which would be largely artificial, since their reimbursement never really began.

85.   85.  See Chap. 6.

86.   86.  On the slowly dawning awareness of the undesirable effects of German transfers, see, for example, A. Sauvy, Histoire économique de la France entre les deux guerres (Fayard, 1965–1975). This book, though rather out of date, is nevertheless an interesting contribution by the man who was finance minister Paul Renaud’s adviser in 1938 (and a staunch opponent of the Popular Front and the forty-hour week) before becoming the leading thinker of the movement to repopulate France in the postwar era.

87.   87.  Note, incidentally, that the world of productivist and mercantilist excess (in which trade surpluses became an end in themselves, partly perhaps to protect countries against international financial markets and their reversals) is in its own way just as absurd as the world of proprietarian and colonial excess. I will come back to this in Chap. 12.

88.   88.  Hitler’s contempt for intellectuals seems to have derived from his belief that they were both pacifist and ineffectual: “A people of scholars, when they are physically degenerated, irresolute and cowardly pacifists, will not conquer heaven, nay it will not even be able to assure its existence on this globe.” He also denounced the alleged propensity of the intellectual class to reproduce itself and to exhibit social contempt: “One will immediately object that the cherished son of a higher State official for example cannot be expected to become, let us say, a craftsman, because some other boy whose parents were craftsmen, seems more able. This may be true for today’s evaluation of manual work. For this reason the folkish State will have to arrive at an attitude that is different in principle in regard to the conception of work. It will have to break, if necessary through centuries of education, with the injustice of despising physical labor.” For further information, see the online appendix.

89.   89.  See Chap. 9.

90.   90.  Hitler goes so far as to accuse the French of preparing a “great replacement” coupled with a vast project of racial mixing. If their colonial policy continues, “the last vestiges of Frankish blood will disappear” and “a vast mixed-race state will extend from the Congo to the Rhine.” See also the astonishing references to meetings with groups working for the national liberation of India and Egypt, with which Hitler found it hard to identify.

91.   91.  According to available estimates, the German occupier extracted 30–40 percent of French output between 1940 and 1944. Given the degree of violence and genocidal malevolence involved, it may be that the calculations of extractive efficiency make no sense. See F. Occhino, K. Oosterlinck, and E. White, “How Much Can a Victor Force the Vanquished to Pay? France under the Nazi Boot,” Journal of Economic History, 2008.

92.   92.  Dumézil’s general thesis (founded on the analysis of ancient myths, a method that, as we saw in the case of India, is not always well suited to analyzing sociohistorical change and that tends to petrify supposed civilizational differences) was that Germano-Scandinavian myths and religions were excessively focused on the warrior cult and neglected the trifunctional equilibrium that one finds in both the Italo-Celtic and Indo-Iranian worlds. See D. Eribon, Faut-il brûler Dumézil? Mythologie, science et politique (Flammarion, 1992), pp. 185–206.

93.   93.  H. Arendt, The Origins of Totalitarianism, Part 3: Totalitarianism (1951; Harcourt, 1973).

94.   94.  In passing, Arendt mentions a limited French attempt to include representatives of the colonies in its parliament, in contrast to the United Kingdom. See H. Arendt, The Origins of Totalitarianism, Part 2: Imperialism (1951; Harcourt, 1976).

95.   95.  See Chap. 7.

96.   96.  It is interesting to note that Arendt attributes the success of the American constitutional model to the relative initial equality of pioneer society (if one excepts slaves, whose case Arendt skips over quickly), which in her view enabled it to remove the question of class inequality and social justice from political discussion. (In Arendt’s view, these questions cannot be peacefully resolved in the political sphere.) By contrast, the inegalitarian soil of the old regime in Europe gave rise, she argues, to an obsession with the social question and class violence. See H. Arendt, On Revolution (Viking, 1963). Previously, she had compared the unleashing of modern anti-Semitism—in her view, a consequence of the fact that by the late nineteenth century nation-states and their banks no longer needed the transnational networks of Jewish bankers to issue their debt—to the violence unleashed against the nobility in the French Revolution, the noble class long since having become useless, so that it was now possible to exact vengeance. See H. Arendt, The Origins of Totalitariansim, Part 1: Antisemitism (1951; Harcourt, 1979). For Arendt, only the new world seems to be able to escape the eternal resentments bequeathed by history.

97.   97.  On these debates, see the illuminating book by O. Rosenboim, The Emergence of Globalism: Visions of World Order in Britain and the United States, 1939–1950 (Princeton University Press, 2017), pp. 100–178. See also Q. Slobodian, Globalists: The End of Empire and the Birth of Neoliberalism (Harvard University Press, 2018).

98.   98.  The two-stage election procedure was intended to avoid national biases. The initial proposal also reserved seats for experts and intellectuals, but that idea was scrapped.

99.   99.  Since Resolution 1991 was adopted in 1963 by the General Assembly, the ten elected members of the Security Council include five members from Africa, Asia, and the Pacific; two members from Latin America; two from Western Europe; and one from Eastern Europe.

100. 100.  In 1943, Wendell Wilkie (the Republican candidate defeated by Roosevelt in 1940) published One World, an optimistic and colorful account of a world tour by airplane he had made in 1942 to meet political leaders and citizens from around the globe. See Rosenboim, The Emergence of Globalism, pp. 4–5.

101. 101.  See F. Hayek, The Road to Serfdom (Routledge, 1944), pp. 3–10, 66–67, where Hayek warns his British readers about Labour’s “platform for a planned society,” which was adopted in 1942; indications dating from the 1930s that full realization of the Labour platform might imply the delegation of considerable power from Parliament to the bureaucracy; and the immunization of reforms against possible changes of government by giving them constitutional status.

102. 102.  In 1984, Spinelli was the author of a proposal to reform the institutions of the European Union, which was adopted by the European Parliament (of which he was a member). I will say more about this in Chap. 16.