REFERENCES

CARVER, T. N. Distribution of Wealth, Chap. vii.

CLARK, J. B.

Distribution of Wealth, Chap. vi.

HAWLEY, F. B. Enterprise and the Productive Process.

HAYNES, JOHN. "Risk as an Economic Factor." Quarterly Journal of Economics, Vol. ix, pp. 409-449.

MARSHALL, ALFRED. Principles of Economics, 6th ed., Book vi, Chaps. vii, viii.

VEBLEN, THORSTEIN. Theory of Business Enterprise, Chap. iii.

CHAPTER XXVI

THE PERSONAL DISTRIBUTION OF WEALTH

IN the present chapter we shall study the distribution of wealth and income among individuals simply as individuals, and not as agents of production or owners of productive agents. What is the cause of large fortunes? Is the middle class disappearing? Can we abolish poverty? To begin with, certain distinctions must be clearly drawn.

Wealth and Income. The distribution of wealth and income should first be distinguished from the distribution of final consumption. We may have in mind simply the enjoyment of material things and services. A man of vast possessions may be very frugal in his consumption, acting with respect to most of his property simply as a trustee for society. But when we are interested in social classes, industrial democracy, and personal power and independence, the distribution of wealth or income is important, no matter how frugal the owners of large wealth may be.

Absolute and Relative Well-being. Two entirely independent inquiries are very frequently confused. (1) We may wish to know whether the condition of the mass of the people is getting better or worse. Do they have more or less of the good things of life than their ancestors had? But we may also ask, (2) What share of the total product of industry is received by each section of the community? Which section is gaining upon the others? If A and B divide a catch of ten fish equally today, and if to-morrow A gets ten out of a total catch of thirty, then absolutely his one has increased, but relatively it has declined.

Concentration of perhaps worth whi

question of large and small fortunes with the question of large and small scale production. However improbable, it is at least conceivable that there might be an equality of property with production carried on largely as it is today, for we have but to imagine an equal distribution of holdings of stocks and other equities in business enterprise.

Methods of Measuring Concentration of Wealth and Income. - How shall we tell whether the middle class is tending to disappear? A common method is to make a classification of wealth and income, and then to compare the number of persons in each class at different dates. The unreliability of the conclusions based on such a procedure is made clear by the following hypothetical illustration: Let $100 be distributed among ten persons as follows: $1, $3, $5, $7, $9, $11, $13, $15, $17, $19. Then suppose each individual's holding is doubled, thus: $2, $6, $10, $14, $18, $22, $26, $30, $34, $38. Relatively to each other they are all in the same position as before, but by the erroneous method of comparison referred to, there appears to have been a concentration because the number in the highest class has increased most rapidly:

A satisfactory method of comparing the distribution of wealth at different epochs must take account of the changing significance of fixed classifications when there has been a change in the per capita wealth. This can be done by observing what proportion the wealth is owned by certain sections of the population,

as the poorest third, the middle third, or the upper third

If a larger proportion of the total wealth falls into the hands of the upper third, we may say there is evidence of a growing concentration of wealth. It is clear that no definite movement is necessarily discernible even when changes are taking place, for these changes may tend toward concentration in one part of society and toward diffusion in another.

Statistics of Distribution.

There are many investigations showing the earnings of particular classes of workers, but in the United States there is no reliable statement of the division of the national wealth or income among all classes of society. We cannot use the property tax assessments for this purpose because of their inaccuracy, and because of the fact that one individual may be taxed in various jurisdictions. The returns of the probate courts have been used as a basis for a statement of wealth distribution in the United States on the assumption that the distribution of wealth among persons who die in any year is an index of the distribution of wealth among those who are living. But the incompleteness of our probate returns makes this method also a hazardous one. The federal income tax returns will yield some valuable data regarding the number of higher incomes when the material is properly tabulated for that purpose.

Out of very inadequate material, however, Professor W. I. King has constructed the estimates shown in Table II. His figures indicate, further, that the richest 2 per cent of the families in the United States get about one fifth of the aggregate income, while the poorest two thirds of the families get about 39 per cent of the aggregate income. These estimates cannot be supposed to be entirely accurate, but the impression they give is undoubtedly correct in its general outlines.

The growth of the number of millionaires has been used as an evidence of growing wealth concentration, but it should be noted that a growth of population and wealth in a community would cause an increase in the number of millionaires, even if the relation between the various classes remained the same. Suppose that in 1850 there had been in the United States but fifty millionaires, that three hundred and fifty persons had from $750,000 to $1,000,000, and that six hundred persons had from

$500,000 to $750,000. If the population had remained the same and every one's wealth had been doubled, in 1900 there would have been one thousand millionaires, and if the population at the same time increased fourfold, with the relations among the new population the same as in the old, we should then have four thousand millionaires without any tendency toward concentration. Nevertheless, the increase of large fortunes has been so startling that in spite of these considerations one may perhaps regard them as an indication of a growing concentration of wealth. The lists of very rich men published in the United States from time to time are instructive on this point. In 1820 men with a personal property of $20,000 were included; in 1846 a total property of $50,000 was considered very large; in 1855 this was doubled; in 1892 a man had to be a millionaire to be considered very rich, and at present one may speak of even a billionaire.

More satisfactory statements can be made for those countries which collect an income tax. The following figures for 1892 and 1902 are from a table prepared by Professor Wagner, in a study of the income-tax returns of Prussia, and the corresponding figures for 1913 have been added:

From W. I. King, Wealth and Income of the People of the United States, p. 228.