Friday, July 25, 2014

Piketty (23) Inheritance

Piketty is really hostile to inheritance. When writing about it, he says “the past devours the future” (571). This statement is in the conclusion, so it has been widely quoted by those who have not read the entire book.

The statement is wrong. Savings and capital mean that the past enriches the present and the future. Modern prosperity is the result of sacrifices and savings made by people in the past.

Piketty describes the flow of inheritance in France over two centuries. I found this interesting.

Fig 11.1 represents the evolution of the annual inheritance flow in France from 1810 to 2010. Two facts stand out clearly. First, the inheritance flow accounts for 20-25 percent of annual income every year in the nineteenth century, with a slight upward trend towards the end of the century. This is an extremely high flow, and it reflects the fact that nearly all the capital stock came from inheritance. Its importance did not diminish with time, moreover. On the contrary, in 1900-1910, the flow of inheritance was somewhat higher (25 percent of national income compared with barely 20) that it had been in 1820s.
Subsequently, we find a spectacular decrease in the flow in inheritance between 1910 and 1950 followed by a steady rebound thereafter, with an acceleration in the 1980s. There were very large upward and downward variations during the twentieth century. The annual flow inheritance and gifts was relatively stable until World War 1 but fell by a factor of 5 or 6 percent between 1910 and 1950 (when inheritance flow was barely 4 or 5 percent of national income) after which it increased by a factor of 3 or 4 percent between 1950 and 2010 (at which time the flow accounted for 15 percent of national income).

The evolution visible in Figure 11.1 reflects deep changes in perception as well as the reality of inheritance... In 1950-1960, bequest and gifts accounted for just a few points of national income, so it was reasonable to think that inheritances had virtually disappeared and that capital, though less important overall than in the past was now wealth that an individual accumulated by effort and saving during his or her lifetime. Several generations grew up under these conditions, in particular the baby boom generation born in the late 1940s and early 1950s, many of whom are still alive today, and it was natural for them to assume that his was the “new normal” (380-381).
I had not realised until I read this what a significant change had taken place. I am a member of the baby boom generation, so I never expected an inheritance. Most of what my parents owned was used up in paying for rest home care.

Yet I remember my parents talking about small inheritances they and their parents received from parents, grandparents, and single aunts or uncles, even though they were not well off, and lived through a great deal of hardship. Reading Piketty made me realise that this was much more common in previous generations. It suggests that they appreciated future generations much more than we do.

The pattern has changed, associated with much greater state involvement in life. My mother’s father died when she was quite young, but she received a small bequest from her grandfather that contributed to her secondary and tertiary education. This really made a big difference in her life. The state paid for my tertiary education. Student loans from the state paid for my children’s education.

Biblical teaching on this topic is interesting.

A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous (Prov 13:33).
Our grandparents understood this verse, but it seems like this has been forgotten by current generations of Christians.


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