Capital and Ideology

by Thomas Piketty

We will begin by measuring the extent to which income and wealth inequality decreased in Europe and the United States in the first half of the twentieth century, beginning with the collapse of private property in the period 1914–1945. Physical destruction linked to the two world wars played only a minor part in this collapse, though it certainly cannot be neglected in the countries most affected. The collapse was mainly the result of a multitude of political decisions, often taken in urgent circumstances; the common feature of these decisions was the intent to reduce the social influence of private property, whether by expropriation of foreign assets, nationalization of firms, imposition of rent and price controls, or reduction of the public debt through inflation, exceptional taxes on private wealth, or outright repudiation. We will also analyze the central role played by the introduction of large-scale progressive taxation in the first half of the twentieth century, with rates of 70–80 percent or more on the highest incomes and largest estates—rates that were maintained until the 1980s. From the distance afforded us by the passage of time, the evidence suggests that this historical innovation—progressive taxation—played a key role in reducing inequality in the twentieth century.