Wealth or income?

Most discussions on inequality, whether between nations globally or within nations, take place around income.  Data and papers on inequality of income are profuse, particularly on the rise in most major economies since the 1980s and the cause of it.  I have covered many of these papers; the conclusions and causes; in many posts. 

Related to the debate around inequality of income is also the issue of ‘poverty’: how to define and measure it and whether poverty globally and within economies has risen or fallen. A recent report by the World Economic Forum, found that income inequality has risen or remained stagnant in 20 of the 29 advanced economies while poverty has increased in 17. Income inequality has increased more rapidly in North America, China, India and Russia than anywhere else, notes the World Inequality Report 2018 produced by the World Inequality Lab, a research center based at the Paris School of Economics. The difference between Western Europe and the United States is particularly striking: “While the top 1% income share was close to 10% in both regions in 1980, it rose only slightly to 12% in 2016 in Western Europe while it shot up to 20% in the United States. Meanwhile, in the United States, the bottom 50% income share decreased from more than 20% in 1980 to 13% in 2016.”

But discussion and analysis of inequality of wealth (personal wealth) does not get so much attention.  And yet, I would argue that anybody with huge amounts of wealth (defined as ownership of property, means of production and financial assets) correspondingly obtains high levels of income – and, it seems, relatively lower levels of taxation.

Of course, there has been excellent work in measuring levels of personal wealth and changes in the distribution of that wealth over time.  Every year, I post a report on the Credit Suisse global wealth report, which shows how much personal wealth is held by individuals worldwide.  The current score shows that the top 1% of wealth holders have just under 50% of all the world’s wealth.  Oxfam regularly publishes data on how just a few families have huge portions of personal wealth in nations and globally.  And economists like Thomas Piketty, Emmanuel Saez and Gabriel Zucman have produced sterling work in recent years to show the huge inequity in the ownership of the means of production, land, property, financial assets and even patents and ‘knowledge’ products,.

But this is the rub.  Both in advanced and emerging economies, wealth is significantly more unequally distributed than income.  And the WEF reports that: “This problem has improved little in recent years, with wealth inequality rising in 49 economies.”

In 1912, Italian sociologist and statistician Corrado Gini developed a means of measuring wealth distribution within societies known as the Gini index or Gini coefficient: its value ranges from 0 (or 0%) to 1 (or 100%), with the former representing perfect equality (wealth distributed evenly) and the latter representing perfect inequality (wealth held in few hands).

And when you use the gini index for both income and wealth for each country, the difference is staggering.  Take a few examples. The gini index for the US is 37.8 for income distribution (pretty high), but the gini index for wealth distribution is 85.9!  Or take supposedly egalitarian Scandinavia. The gini index for income in Norway is just 24.9 but the wealth gini is 80.5!  It’s the same story in the other Nordic countries.  The Nordic countries may have lower than average inequality of income but they have higher than average inequality of wealth.

Which countries have the worst inequality in personal wealth? Here are the top ten most unequal societies in the world.

You might expect to find some of these countries listed here in the top ten: ie very poor or ruled by dictators or military.  But the top ten also includes the US and Sweden.  So, both a ‘neoliberal’ advanced economy and a ‘social democratic’ economy make the list:  capitalism does not discriminate when it comes to wealth.

Nevertheless, the US stands out as leader in the top G7 advanced economies in wealth and income inequality.

Indeed, can we discern whether high inequality in wealth is closely correlated with inequality in incomes?  Using the WEF index, I found that there was a positive correlation of about 0.38 across the data: so the higher the inequality of personal wealth in an economy, the more likely that the inequality of income will be higher.

The question is which drives which? This is easily answered. Wealth begets wealth. And more wealth begets more income.  A very small elite owns the means of production and finance and that is how they usurp the lion’s share and more of the wealth and income.

And a study by two economists at the Bank of Italy found that the wealthiest families in Florence today are descended from the wealthiest families of Florence nearly 600 years ago!  So the same families are still at the top of the wealth pile starting from the rise of merchant capitalism in the city states of Italy through the expansion of industrial capitalism and now in the world of finance capital..

And talking of the shockingly high inequality of wealth in ‘egalitarian’ Sweden, new research from there reveals that good genes don’t make you a success but family money, or marrying into it, does. People are not rich because they are smarter or better educated.  It is because they are either ‘lucky’ and/or inherited their wealth from their parents or relatives (like Donald Trump).

Researchers found that “wealth is highly correlated between parents and their children” and “Comparing the net wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors.”  The researchers concluded that “wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.”

So Marx’s prediction 150 years ago that capitalism would lead to greater concentration and centralisation of wealth, in particular in the means of production and finance, is borne out.  Contrary to the optimism and apologia of the mainstream economists, poverty (in wealth and income) for billions around the world remains the norm with little sign of improvement, while inequality of wealth and income within the major capitalist economies increases as capital is accumulated and concentrated in ever smaller groups. The work of Emmanuel Saez and Gabriel Zucman has also shown that, in the US, wealth has become increasingly concentrated in the hands of the super-rich.

Moreover, wealth inequality has risen, mainly as the result of the increased concentration and centralisation of productive assets in the capitalist sector.  The real wealth concentration is expressed in the fact that big capital (finance and business) controls the investment, employment and financial decisions of the world.  A dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the global network according to the Swiss Institute of Technology. A total of 737 companies control 80% of it all. This is the inequality that matters for the functioning of capitalism – the concentrated power of capital.

What that means is that policies aimed at reducing inequality of income by taxation and regulation, or even by boosting workers’ wages, will not achieve much impact while there is such a high level of inequality of wealth.  And that inequality of wealth stems from the concentration of the means of production and finance in the hands of a few.  While that ownership structure remains untouched, taxes on wealth will fall short too.

17 Responses to “Wealth or income?”

  1. Ger Says:

    In this context, especially in times of BLM, Dalton Conley’s study “Being Black, Living in the Red”, written in 1999, still is recommendable reading matter, as it shows the intergenerational effects of wealth inequality and life chances.

  2. Glen Janken Says:

    7th paragraph, 3rd sentence seems to be missing the word “income” which was confusing. Especially so, right after you described the Gini index as a way of measuring WEALTH distribution. It seems in context that it is also a way of measuring income distribution? You might want to clarify. Good post, as always, but this was uncharacteristically confusing to me.


    On Wed, Jul 15, 2020, 2:03 AM Michael Roberts Blog wrote:

    > michael roberts posted: “Most discussions on inequality, whether between > nations globally or within nations, take place around income. Data and > papers on inequality of income are profuse, particularly on the rise in > most major economies since the 1980s and the cause of it. I ha” >

  3. ucanbpolitical Says:

    What Marx said in Volume 3 was that while there was a general trend towards centralisation there were also centripetal forces at work. Thus if we look at the top 25 richest individuals or family members in the world, 13 have only become this rich over the last 30 years with Bezos of Amazon, the richest. They also dominate the top 10. All their wealth was spawned by the internet, or shall we say the free use of the internet courtesy of the inventors of the internet. Thus while Michael is right in general, concretely, the picture is more nuanced.

    • Antonio Says:

      ‘13 have only become this rich over the last 30 years with Bezos of Amazon, the richest. They also dominate the top 10 ’.
      Yes, there is rotation (and increasingly higher) in the list of billionaires, and in the list of multinationals, but it is an illusory rotation and a mirage, because the fact that it remains unchanged and, furthermore, defines the way capitalist production (and the previous ones) is that there are always a few and FEW individuals and companies that concentrate wealth.
      About centripetal forces? (will mean centrifuges) that Marx observed that they can compensate for the concentration of wealth, if that is Marx’s opinion (which I do not know) it is a misconception. Such centrifugal forces can only be weak and temporary because the historical phenomenon if observable and theoretically justified by economies of scale is that of concentration. Concentration of the object capital (the means of production, the companies). The one that does tend to decentralize is the subject capital (the owners of capital). And so, historically, we come from a Roman emperor Octavius ​​XXXX who owned and controlled only 35% of world GDP to that desired Socialism (me if at least) in which all citizen subjects have a similar ownership of capital. Perhaps it is in a cooperatively owned socialist state.

    • Anantha Says:


      The wealth of the internet czars is also due to centralization of income.

      Take youtube (a google company) for example.
      They monetize 100% of all advertisement income but only share a portion of it with the contributors (creators) of the videos by imposing thresholds of minimum subscribers .. The share of the contributor gets less and less (they revised these upwards upward about two years back).

      Not very nuanced. Only not analysed yet.

      16 th July 2020.

  4. Esteban M Says:

    Michael Roberts is right. Plus individual billionaires don’t even own the majority of market capitalization in the world.

    “Duménil and Lévy determined in 2018 that the US and the UK together control the majority of multinational stocks: from 43,000 multinational corporations worldwide, and from 500,000 corporations and 77,000 individuals related by stocks with those multinational corporations, 737 corporations or individuals own 80% of stocks and profits, and 147 corporations or individuals linked to the US-UK cluster, own 40% of all multinational stocks and profits in the planet. In 2016 it was revealed that the top 100 billionaires owned more wealth than the poorest half of the world, but this 100 billionaires’ wealth is equal to just 3,4% market capitalization in the whole world, and the wealth of the 2,043 billionaires is just 11,4% of stock market capitalization.”

  5. Michael D Yates Says:

    Excellent post. In the US, Bernie Sanders never said anything substantive about power in capitalism, because he never addressed wealth, which obviously is the key matter.

    When John Sweeney became president of the US AFL-CIO, a new day for labor was supposed to have dawned. One of his top aides developed an educational program, titled Common Sense Economics. Through classes held with workers, the fundamental nature of the economy was supposed to be made clear. I had been teaching workers for many years, in all sorts of venues across the country, and I was invited to attend a training session in West Virginia. I had all the material developed in this program beforehand. What I read was really discouraging. The training session was still worse. Right off the bat, the trainer knew very little about economics. He didn’t know and the material showed that whoever wrote it didn’t know either, the difference between income and wealth. To them, these two measures were the same! And they were used interchangeably. I was apoplectic and probably sounded like a maniac when I spoke to this incredible error. How would workers ever grasp the nature of the system if teachers were misinforming them so badly?

    I taught economics for 44 years, and with some overlap, to workers for 32 years. Worker students were always keen to know how capitalism works. They never failed to see the nonsense of neoclassical economics, and they were always taken with the labor theory of value. That the AFL-CIO had such a shoddy economics education program was just incredible to me. Though I suppose it should not have been, since higher ups in the labor federation red-baited me when I was being considered for a worker education program in Massachusetts.

  6. IT Technology Consulting Services Company, Says:

    Nice Information… Thank You So Much….

  7. Jon Black Says:

    Do we have the numbers for China?

  8. Luis Guillermo Rodríguez Escribano Says:

    Thanks, excellent review

  9. Ger Says:

    I quess my reference to “Being Black,Living in the Red” needs some clarification. I pointed to the book because the study shows it is not only the top 10% or top 1% or top 0.1% which literally profits from wealth. Under the conditions of a capitalist socety the advantages of wealth make themselves clear on every level, as even a few savings can help people through times of societal or private crises. It can for instance help people to keep their kids on the right schools in times of unemployment to saveguard their social position.

  10. stevenjohnson Says:

    This may be mildly amusing? Linked to this post in a comment in a John Quiggin thread about the “economic consequences of the pandemic,” (actually political speculation and largely devoted to negative attention to MMT.) Apparently that was so alarming the comment never passed moderation! And the thread was shut down a couple days later.

  11. mlekareconthink Says:

    Great post. For those interested in worker ownership and workplace democracy, I think these topics are/should be very related. I’ve quoted some of your blog post here: https://ekonomska-demokracija.si/disastrous-wealth-inequality-and-the-role-of-employee-ownership/?fbclid=IwAR2h2E7vWsLEsFqNONP6TZ82fU9PP3R0mWBrRBtUpSs-YvacLy0A7HP0i90.

  12. benl8 Says:

    Since January 2009 U.S. household net worth (HNW) has doubled. Adjusting for inflation it went up from $58 trillion to $118 tr. This data comes from the Federal Reserve’s quarterly report, Flow of Funds, pagae 2, Table 101B. It is easy to find. It has dropped to $107 tr. since the Covid-19 event. The ratio between GDP and private net worth is interersting. It held steady for about 3 decades at around 3.5 times GDP, and now is around 5.0 times. ($20 tr. to $100 tr. – in that range). The short story I remember is that total HNW fell in 2007 from $64 to $48 tr in 2009, and then inched higher for 11 years, finally doubling, a 100% increase. The total GDP grew, but not by 100%, but by 21%, inflation adjusted. As everyone remembers the Obama years were not rapid growth years, they were jobless slow growth years, with unemployment dropping from 10% to around 4.5%. Austerity years. But for those stock holding wealthy few they were rapid wealth growth years. Yahoo Finance shows the S&P 500 at 1,530 on March 1, 2007, then at 735, Dec. 2008, and at 3321 Jan 20 2020. Adjusting for inflation that is an increase of 2.5 times in about 12 years. And I think it’s high value in 2007 was a false valuation, too high, not accurate. ——— The short of it is, capital is sucked off the top, (from workers’ share, and there is data for that) placed in a secondary currency (financial assets) that appreciates more rapidly than the primary currency, and the accumulation process is enhanced, magnified by the nature of financial assets’ market where those values bloat at an artificial rate. Does any society need private savings? Why? How much is needed? Is it time to tax them heavily? How much is the real question, and relative to GDP is a good place to start, maybe double the value of GDP not 5 times, and then distributed better also is needed. Hope someone read and understood all that. Good article. Give us more. — I’m going to add a little more, from another comment: How did this great wealth gain happen when the savings rate was about 6.8% of total income averaging about $14 trillion for 10 years, which equals under $10 trillion total savings over 10 years? How did saving $10 trillion result in a gain of $65 trillion, especially when the economy was in a slump for all of those years? In 10 years millions lost their jobs, their homes, their incomes, and growth was slow. And millions of lousy jobs were created. How did stocks and wealth increase like a rocket? Professor Wm. Lazonick states that over 90% of corporate profits of S&P 500 over 10 years went to dividends and buybacks, leaving little to invest in development and innovation, and wages were about flat most of the time. The nonsupervisory average weekly income was higher in 1965 than in 2019, — Wages are really stagnant. But wealth keeps peaking in a lousy economy. My blog Economics Without Greed, Part Two — thanks, M.R.

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