The Accumulation, Inheritance, and Concentration of Wealth during the Gilded Age: An Exception to Thomas Piketty’s Analysis

Thomas Piketty predicts that “It is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor by a wide margin, and the concentration of [wealth] will attain extremely high levels.†His forecast is based on an assumption that most bequests are motivated by an altruistic motive to accumulate assets to endow one’s own children. Piketty claims that a similar mechanism was operative in the U.S. during the Gilded Age (roughly 1870-1917). In this paper I make three claims. One: Piketty’s argument that the bequest motive for accumulating wealth dominates the retirement and precautionary motives inaccurately describes the lifecycle hypothesis of saving associated with Franco Modigliani. As a result of his misunderstanding Piketty inappropriately concludes that the bequest motive must logically dominate the dynamics of wealth accumulation. Two: I examine the one-percent sample of the manuscript returns from the U.S. Census of 1870 to estimate the distribution of wealth at an early date during the Gilded Age. Synthetic cohorts derived from the cross section suggest that family wealth holdings declined sharply after an age in the mid-fifties. The bulk of saving during the Gilded Age was generated by the middle class during the families’ peak-earning years. Three: A massive digital collection of wills and probate records assembled by Ancestry.com, which has been available on line since September 4, 2015, should make it possible to trace the financial life histories of the very rich. I propose a research project that would focus on the wealthiest families included in the 1870 census sample. I present the results of my first attempt to use the Ancestry.com archive to literally follow the money for a few members of this elite. My preliminary work suggests that many of the large fortunes of 1870 were the result of business success and luck rather than of inheritance. Many of the super-rich spent lavishly on consumption and philanthropy and thus dissipated much of their fortune before death (if they lived long enough). When some bequeathed a large sum it was typically the unintended consequence of dying at a significantly younger age than prudent lifecycle planning would have anticipated. I offer a tentative suggestion that an important motive for accumulating wealth in the Gilded Age was entrepreneurial combined with an effort to keep a family firm intact and in the firm control of its founder. At the time institutions that would make it easy to separate ownership from management were nonexistent or risky. The illiquidity of business assets might explain the failure on the part of some entrepreneurs to consume the bulk of their wealth before death. Typically, the businesses lived on intact after their owner-founder died. Businesses do not leave bequests.