French economist Thomas Piketty famously proposed that changes in wealth concentration among the richest individuals in advanced economies over the past century follow a U-shaped trajectory. According to this view, wealth inequality was initially high, declined due to the Great Depression and World War II, and then surged again in recent decades due to economic liberalization and lower progressive taxation.
In contrast, Daniel Waldenström, Professor of Economics at the Research Institute of Industrial Economics, offers a different perspective in his book “Richer and More Equal: A New History of Wealth in the West.” He argues that when a more comprehensive analysis is conducted—one that includes data on real estate holdings and pension wealth—the conclusions change significantly.
Waldenström finds that the wealth-to-GDP ratio has risen consistently throughout the past century, even as the share of wealth held by those at the top of the income and wealth distributions has steadily declined. While elites primarily hold assets in stocks and bonds, the wealth of the broader population is concentrated in housing and pensions—elements that were significantly underrepresented in earlier analyses. Over the past century, the working class has seen faster growth in property and pension wealth than the capitalist elite has seen in its own asset accumulation.
Therefore, Waldenström asserts that the 20th century was characterized not by worsening inequality, but by the democratization of wealth. Drawing on the latest research and occasionally surprising new data, he shows that what emerged from the late 19th century onward was a dramatic expansion of the middle class and its share of total societal wealth. Political and institutional reforms played a crucial role in this process—enabling citizens to access better education, improve their incomes, and accumulate wealth through homeownership and retirement savings. Though vast fortunes and deep poverty still exist, Western societies, in particular, have changed fundamentally for the better over the last hundred years.
The Evolution of Wealth Accumulation
In the first part of his book, Waldenström challenges the prevailing view that wealth accumulation in the West has always been concentrated in the hands of elites. Through the analysis of new data, he shows that periods of economic growth were generally accompanied by an expansion in the base of wealth holders—especially among the middle class. He also traces how the sources of wealth have changed over time.
In the medieval period (prior to the 16th century), land was the main source of wealth, making nobles and landowners the wealthiest class. The Renaissance and colonial eras gave rise to a new merchant class whose fortunes came from overseas trade. During the 19th century, the Industrial Revolution made industrial capitalists the new elite through their ownership of factories and production facilities.
In the first half of the 20th century, the Great Depression and two world wars reduced inequality and brought about relative equality, largely due to the imposition of progressive taxation and large-scale public investment in health and education by European governments. Later in the century, financial assets such as stocks and bonds became primary vehicles for wealth accumulation. In our present era, pension systems and homeownership have become central tools for securing household financial stability. Thus, Waldenström concludes that wealth accumulation in the West has not been the exclusive preserve of elites but rather the outcome of complex interactions between public policies, economic transitions, and social changes.
He also explains how the composition of wealth in Western societies shifted throughout the 20th century. At the beginning of the century, wealth mainly consisted of land, agricultural property, and industrial assets. Over time, new forms emerged: homeownership became a major component of household wealth, especially with easier access to mortgages, and pensions evolved into one of the most important long-term savings mechanisms—allowing individuals to secure their financial futures. Financial assets, including stocks and bonds, also became accessible to broader segments of society.
Importantly, these shifts in the nature of wealth were not random. They resulted from deliberate political and institutional changes. These included:
- Expanded access to education, raising financial literacy and enabling individuals to make better investment decisions;
- Labor reforms such as reduced working hours and higher wages, allowing greater opportunities for savings and investment;
- Broader coverage of social insurance programs, including health and retirement benefits, which provided financial safety nets;
- Demographic changes, such as longer life expectancy and improved healthcare, which influenced saving and investment behaviors and facilitated long-term wealth accumulation.
Inequality in Wealth Distribution
In the second part of the book, Waldenström offers a detailed analysis of one of the most significant economic developments of the 20th century: the “Great Convergence” in wealth distribution between 1914 and 1975. He highlights how Western societies moved from historically high levels of wealth concentration to periods of far more equitable distribution, and he identifies the key drivers behind this shift.
At the start of the century, wealth was heavily concentrated in the hands of the elite, with the top 1% holding nearly 50% of private wealth. By the 1970s, that share had fallen to around 20%, reflecting a substantial equalization of wealth. Key contributing factors included:
- Global factors, such as the two world wars (which destroyed physical capital and raised taxes to fund military spending) and the Great Depression (which eroded the real value of many assets);
- Political and institutional shifts, including expanded education, universal healthcare, improved working conditions and wages, comprehensive pension systems, and high marginal income taxes (which reached up to 90% in some countries), along with steep inheritance taxes;
- Economic transformations, such as rising wages and productivity, broader access to technological gains, increased availability of quality jobs for the middle class, and the growth of pension systems and homeownership as accessible wealth-building tools for a wider segment of the population.
One of the most important developments of the late 20th century was the divergent paths of wealth distribution in Europe and the United States after 1980. In Europe, wealth distribution continued to become more equitable, with the top 1% holding historically low shares. In the U.S., by contrast, wealth concentration surged, with the top 1% controlling between 35% and 40% of wealth—levels even higher than those recorded before the wars.
The Impact of Hidden Wealth
“Hidden wealth”—a term referring to financial assets held by individuals in offshore tax havens to evade taxes or maintain secrecy—is one of the most dangerous forms of inequality in today’s world. This type of wealth is estimated to account for around 10% of global GDP, though the distribution varies widely between countries. In Scandinavian nations, the share is low, while in some Latin American countries, it can reach as high as 60%. Developing and poor countries lose an estimated $200 billion annually due to such practices—more than 150% of their combined health budgets.
Waldenström argues that hidden wealth significantly exacerbates inequality. Wealthy individuals who can relocate assets to tax havens are able to minimize their tax liabilities, further concentrating wealth in the hands of a few. Tax avoidance reduces government revenues, thereby limiting the ability of states to fund public services that benefit the middle and lower classes.
International efforts to combat hidden wealth include information exchange agreements and measures to increase transparency in the global financial system. Nevertheless, these initiatives face substantial challenges, including resistance from some jurisdictions and the continued existence of financial secrecy havens. Waldenström stresses that tackling hidden wealth is essential to achieving fairer wealth distribution. He advocates for policies that promote financial transparency and close legal loopholes that enable tax evasion, as critical tools for reducing inequality and promoting economic justice.
Public Sector Wealth
Waldenström also explores the role of public sector wealth as a vital component of national economies. This includes:
- Government-owned infrastructure (roads, bridges, utilities),
- Public properties (buildings, land),
- Government investments (equities, bonds, public enterprises),
- Reserves and gold holdings.
He emphasizes that public wealth is an integral part of national wealth and directly impacts the well-being of citizens.
He traces the development of public sector wealth in Western nations, showing how many countries expanded public investment to support economic and social development after World War II. However, waves of privatization in the late 20th century led to a decline in public asset ownership. The scale and quality of public assets continue to vary widely across countries.
Public wealth plays a crucial role in reducing inequality by:
- Providing essential services such as education and healthcare, which support the middle and lower classes;
- Stabilizing the economy through public investments that create jobs and enhance infrastructure;
- Redistributing income via taxation and social spending.
Nonetheless, managing and sustaining public wealth presents challenges. These include political pressures that may distort investment decisions, rising public debt that limits fiscal space, and the need to modernize and maintain public assets to ensure long-term service delivery. Waldenström concludes that public wealth is not just a collection of physical assets—it is a strategic tool for promoting economic justice and sustainable development. Effective management is essential to ensure it benefits all segments of society, particularly the most vulnerable.
Inheritance and the Intergenerational Transfer of Wealth
The book also examines inheritance as a fundamental mechanism for wealth distribution across generations—and a powerful force in perpetuating economic inequality. Inherited wealth, including real estate and financial assets, remains one of the primary ways wealth is accumulated and preserved within families.
Waldenström shows that inheritance plays a central role in reinforcing disparities. Families that inherit substantial assets are able to maintain or improve their economic position, while those with little or no inherited wealth struggle to move upward economically.
He outlines the changing role of inheritance over time:
- In past centuries, inheritance was the principal source of wealth and was monopolized by a few elite families.
- In the 20th century, its significance temporarily waned due to political and economic shifts and the broader distribution of assets.
- In recent decades, as wealth has become more concentrated again, inheritance has returned as a key factor in amplifying inequality.
Today, the scale of inherited wealth is striking: in Europe, 55% to 60% of total wealth is inherited; in the U.S., the figure is 35% to 45%; and in Japan—due to its unique social structure—the proportion reaches 65%. Waldenström proposes several solutions to disrupt this cycle, including radical tax reforms, legislative measures to cap inheritance levels and expand rights for distant relatives, and broader institutional reforms.
He warns that societies allowing wealth to become entrenched in permanent family dynasties risk creating a new aristocracy—one arguably more dangerous than the old, as it disguises itself behind the rhetoric of meritocracy.
Conclusion
Waldenström concludes his book by offering a comprehensive analytical framework to understand the dynamics of wealth and provides concrete policy recommendations to address contemporary inequality. He emphasizes that the history of wealth in the West is complex and constantly evolving—a story shaped by the interplay of economic, political, and social forces. Addressing today’s wealth disparities requires international cooperation and collective effort to achieve a fairer distribution of prosperity.
Source:
Daniel Waldenström, “Richer and More Equal: A New History of Wealth in the West,” Polity Press, 2024.
