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American Studies of the Distribution of Wealth and Income by Size

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This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Studies in Income and Wealth, Volume 3 Volume Author/Editor: Conference on Research in National Income and Wealth Volume Publisher: NBER Volume ISBN: 0-870-14158-9 Volume URL: http://www.nber.org/books/unkn39-1 Publication Date: 1939 Chapter Title: American Studies of the Distribution of Wealth and Income by Size Chapter Author: C. L. Merwin, Jr. Chapter URL: http://www.nber.org/chapters/c9521 Chapter pages in book: (p. 2 - 94) Part one AMERiCAN STUDIES OF THE DISTRiBUTioN OF WEALTH AND INCO?1E BY SIZE C. L. MERWIN, JR. Ifi KIt (I FOKI I(.\'.\I) I(E%II slit.( Ultt KI I I \I III) SI t1 IS II ItRI Sit '1 tII It\ISIIR( L Discussion SIMON KUZNETS NATIONAL BUREAU OF ECoNOMIC RENEARCII AMERICAN STUDIES OF THE DISTRIBUTION OF WEALTH AND INCOME BY SIZE C. L. MERWIN, JR. THE genetic development of the analysisof wealth and income distribution by size in the United States is notwithout a cause. This one is tempted to seek in the strandsof economic history. The immediate impulse was a Censusstudy by 6. K. Holmes and J. S. Lord, entitled Farms and Homes:Proprietorship and indebtedness in the United States atthe Eleventh Census. This special study, provided for by an Act ofCongress dated February 22, 1892, was theculmination of discussions then raging inlegis- lative halls concerning theconcentration of wealth. The ultimate causes are farther toseek. The rise of industrial trusts provides one clue.Although evidences of industrial inte- gration in the United Statesappeared as carly as 1861 with tile cordage iiidustry agreements the movementdid not gaul mo- mentum until the last quarterof the century when theStandard Oil trust was formed. By theconclusion of the initiating trust- proper phase of the moementin the 1890'S, statisticianS ha(l already inaugurated analysis ofthe distribution of wealth, by size of wealth holding. Another clue is provided bythe trend of wholesale prices. Over the nineteenth centurythere was a secular decline inwhole- sale prices which the Civil Warinflation merely interrupted. From the currency restabilizationin 1871 to the close of the Ce!]- tury, prices fell more than athird. The year m 8q6represented the all-tinle low point. Persons enjoyingfixed incomes (e.g., recipi- e 4 i'ARlONF cuts of propertyincome) stood to probE itoinfalling prices; persons burdened withfixed charges(e.g., while gages) felt the pinch arniers with of the pricedecline. mort- The mere existenceof these positive correlationsdoeS ply a cause-and-effectrelationship between not im- the decline in the USC of prices on theone hand, and trUSts and tions of wealth analyses of and incomeon the other. Yet distribu- does suggest such a relationshipbetween economic ConComitance demic interests,and warrants history andaca- thepreSUiflpttOii that income distributionanalysis wealth and need, not was launchedto hi! a merely toprovide academic pressing sxial Although the jousts forstatisticians. trust movementand price fully described trends havebeen and analyzedby scores care- been writtenon the statistical of investigators,little has raised by this attempt to analvie economic andsocial the prol)knls paper is to delineate, transition. The in Sections object ofthis of wealth 1 and 11.the historical and incomedistribution strands concluded by analysis. Fhese recapitulationsin outline SectionS are phasize thesalient form, whichset ye to em- characteristics ofthese earlier eluding section studics. ina con- speculation isvei it wed reasons whydistributions of concerning possible wealth andof income structed havebeen relatively thus farcon- inadequate. a) Fin. I American Studie.cof (lie 1)j51r111uf ionof At leak I HISTORICAL Wealth AND the rim METHODOLOGICAl. The stubof a tabular RFXI EW the Un a series of distributionof wealth, wealth classes by size,would sho The and over'. ranging from,say, 'o--$roo' ifl9 liii \ Thefrequencies to $ I .000,000 uals, families, would give Iereiii or someother the numberof individ- for example, wealth-holding 1. 1 the iuimbcrof unit in eachclass: O-5OO' and peisons possessing ilics cot at 'Si,000,000 wealth valuedat 'l'he two and over'. into six substantive sizearc the elcfllc;Its inthe distril,ution OW 1111 nature and of wealth hr tributed, dollaramount of hiring L and thenature and the wealththat is dis- units, Thefirst is number ofthe ties own estimation comrnofll?referre(j wealth-holding of whichis a to as national ategorn I Sec Siiuo problem all wealth, the Kuinei its own)The ing farni S1udj,-,t'ohu,(' 7,,,, SCcOfl(lhinges I i',u One. ho;iteP° 2I he (,tn WEAL1H A'JD iNCO51I1)1SRLIIUTION on a decision as to among whom (or what) the wealth is distrib- tited. We could, [or example, tabulate the distribution of wealth, by size, among individuals, families, estates, corporations, and other more or less homogeneous entities. In addition, the distri- bution could he by subdivisions of each of these units. In this paper the distribution of wealth is considered with respect to the individual, family, and estate units. No complete census of wealth holdings by any of these units has ever been taken in the United States. Therefore, attempts to construct a distribution of wealth must rely on samples of the universe, or on wealth's possible functional relationship with some other variable such as income, tax pavinents house owner- ship. When samples are used, there is the problem of extending the partial picture to give a complete description. Frequently the other aids mentioned above are employed in this task, but some- times the extetsion of the sample is a matter of slicer guesswork. To enhance its applicability and augment its coverage, the sam- ple may be treated beforehand, by means of supplementarydata and arbitrary assumptions. In any case the problems confronting the investigator are numerous an(l difficult, as the descriptionsof these stu(hes on the following pages illustrate. a) Holmes' atlemt At least two publicized attempts were made in thelast decade of the nineteenth century to estimate the distributionof wealth in the LJiiited States. The first, by G. K. Holmes inJ8,2 was a modest statistical inquiry, based on census data, into the nurnl)Crof families of (lii- ferent economic characteristicsn the lliiitedStates atid the wealth possessed by each class of family. Ofthe i 2,690,152 [am- flies enumerated in the i 890 Census, 11,5q',887 were classified into six categories which includedfarm-hiring families, families owning enuml)erc(l farms:,families owning free farms, home- hiring families, families owning encumberedhomes, and fami- lies owning free homes. Theallocation of families to these categories was accomplished by acomplicated profe(lure involv- ing farm and home proprietorship data, avtigcsof the farm and home possessions and indebtedness of thevarious types of fami- 'The Concentration of Wealth', PoliticalScience (uarterlv, VIII (i8g).589-600. lies, assumptions as to the number of fartu.s and offanli lies pying non-farm houses, and ot'( arbitrary allowancesfot 'other' sessions and debts of each class pos- of family. Togethertitese fallijhjes were estimated to possess17,'56,8$7,3f3 Sjll(e thenational wealth was set by Holmesat "about sixty bzllon5 91 per cent of the families, therefore, of dollars"s t)Wfle(J 29PCi cent of the wealth, and, by subtraction,9 per cent of the familic5 71 per cent of the wealth. owned Having estimatedthe wealth poorer class, Holmes directed of the attention to that ofthe very rich, According toa New York Tribune estimate of 18q2,lthere 4,047 nhjilionairesin tile United States. were their average wealth I-h)jlflcs aSSIIIUC(ithat was $,OoO,000; whichmeant that they held 20 per cent of the totalwealth. His final distrii)ution ofWealth, in Lorenz curve form,was: .o per (eAt of families (i.e.,time lllilhiOflaitcs) 9 per cent of families (excluding own 20 pci cent nhillionaim(s)OWn lpt' pci' CCitt families OWfl29 per cem (Cut From addedcomments of Holmes ('011CCrIIillg the wealth(us- tributioji among tilepoorer (lasses, it is pOS5iI)lto split Llj) titis (listribution of wealthin 1890 Into five classes, frontridi to poor: PIRCENTAGF Of FAMIi, ci stt'Li: I'ik(:fr%t.i III U5I I i) sixtpj .03 cu stit r I, .t)'3 8.97 20 9.45) 2(1 27.00 36.00 5 20 12.00 48.00 52.Ou i00u 4 5 lIMP I)) Spa/i r's(list rib tition T'he second Pre-twentieth centuryestimate of the distribution wealth, Statisticallymore pretentio0 of than the fjist. was published a Ibid... 590. ihe Ceu,1 estimate United States oF the totalvaltie of tangible was $6s,onoo. property ithe (Washington '898), e Cosnpr,jjj,,,,p u/the Part Ill,p. Ele,,g/1 Cenms::8a this estimate, Holmes 6gureseems designed to and perhaps thefact that it approximate hy it fell fivehuh00 dollars was made fiveyears earlier rxplaim This, and shoit, a sjmjhir X,I'm-k IFOTI(j list Watkjn5' 'TheGrowth of Large of mihli),Iairesire descrjl4 in C. P. A5$ocjaljo,,d ser, VIfl Fortu,se.c' Publications 5 p41-7. 0/the American Economic- Holmes op. cit.,fI. 59g. WEALTH AND INCOMF DISTR1lUFj()' 7 by C. B. Spahr in 1896.e He basedhis analysis on figures forpro- bated estates obtained fromthe Surrogate records of New York State. Data were collected for'36 CoUnties, including thearea comprised by New York City andBrooklyn, and having a popula- tion of 4,625,00c)persons, for October, November, and 1)eceniber of 1892. Because theywere not (teemed representative, the fig- ures for New York City and Brooklynwere excluded, leaving the accompanying distribution of probatedestates, which was used as the basis for the subsequent distributionof wealth iii the tlinted States. Once these basic datawere acquired, generalized PERCENI - Il-ELI A(.E OF 1 01 Al.
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