HOW FAR SHOULD FAMILY WEALTH BE ENCOUR

AGED AND CONSERVED?

GEORGE K. HOLMES

U. S. Department of Agriculture

It is understood that this question refers to the encouragement of the accumulation of wealth by the family and to its security, by means of efforts exerted outside of the family-individual efforts, the efforts of associations of individuals, and even of the state.

Hence the discussion seems to invite an examination of some fundamental principles of economics, of politics, and ultimately of biology. Anything of this sort is too large a proposition for this paper, and the endeavor will be mostly to follow lines along which we may not be radically at odds, even though some of us may be state socialists and others individualists and still others. occupying various positions between the two extremes.

Why should a family want wealth beyond what is merely sufficient to provide for necessities and comforts? What is called civilization answers the question. There is a minimum standard of living of varying descriptions which, society insists, should be maintained, and this not solely for the betterment of the individual as an individual, nor mostly so, but for his betterment as a member of society and because of the general social elevation in civilization promoted by that of the individual. So society has a legitimate interest in the welfare of every member and in raising the standard of living. Family income, and wealth, too, are closely related to its welfare.

DISTRIBUTION OF WEALTH

In this country, family wealth exists on a high general level, yet inequalities of wealth-distribution are enormous. It seems probable that one-half of the families are almost without wealth, their possessions being mostly confined to household and personal belongings and the implements required by their occupations.

Among the 19,000,000 families there are millions whose property of the descriptions indicated is worth less than $500, and some millions of these, worth less than $200. That is wealth, not income.

Fifteen years ago, favored by exceptional opportunities for exploring the subject of wealth-distribution in ownership, the writer ventured to indicate its character in arithmetical terms. In the meantime great changes have taken place the multiplication and increase of great fortunes, the accumulation of minor fortunes so common as to fail to attract attention; and, at the other extreme, increasing tenancy of the home, both on the farm and in the town and city, and the continued building-up of the great class of low-wage receivers.

Between these two extremes, another class has been building, what is called the middle class, containing about one-half of the total number of families, and among these the farmers have gained conspicuously. Since 1890 the value of farm capital, including land value, has increased 75 per cent., a gain of threefourths in 18 years, partly due, however, to extension of cultivated area by new farms.

What the resultant fact of all these diverse movements of the last 18 years upon the character of wealth-distribution is can only be inferred, but it seems probable that inequality has increased. The reference is not to the increased gap between the very poor and the very rich, but to inequality, mathematically expressed so as to measure the effect of the acquisition of say $10,000,000 by one family, and the acquisition of the same amount by 2,000 families at $5,000 each.

It is probably not the growth of large fortunes alone that has caused the increasing inequality of wealth distribution, for there is some indication of a larger hopelessly poor class. We may differ as to the reasons for the existence of this class, but at any rate we shall have to consider among the causes environment, occupation, heredity, and many social efforts to preserve the unfit and enable them to continue their kind.

So it seems probable that the writer's old statement of wealthdistribution made for the conditions of 1890 would not make the

case worse than it is if applied to the present time. The statement was that

about 19 per cent. of the wealth is owned by the poorer families that own farms and homes without incumbrance, and that these are 28 per cent. of all of the families. Only 8 per cent. of the wealth is owned by tenant families and the poorer class of those that own their farms and homes under incumbrance, and these together constitute 63 per cent. of all families. As little as 4 per cent. of the nation's wealth is owned by 52 per cent. of the families, that is, by the tenants alone. Finally, 4,047 families possess about seven-tenths as much as do 11,560,293 families.

The purpose in quoting this is to call attention to the large fraction of the families that are poor, really poor; it is about one-half. It is still to be remembered that the subject is wealth, not income.

The probate statistics of Massachusetts afford further light on distribution. If the estates are classified according to amount and the classes are arranged in order of amount in columns, the number of estates and the total amount of wealth in each class, some interesting observations can be made.

The distribution tended to become more even from 1830 to 1860, but more uneven from 1860 to 1890. Analysis localizes this feature. At the extremes of the scale-in the poor and in the rich the distribution becomes more uneven. On the contrary, within the middle class, distribution becomes more even.

Any general plan to encourage family wealth would encounter a situation, it would seem, in which wealth-distribution is becoming more uneven and in which there is an ample quantity of material to work upon. In one of the richest states, Massachusetts, the inventoried probated estates valued at less than $500 are 15 per cent. of the total and those valued at less than $1,000 are 27 per cent.; while, in the whole United States, perhaps one-half of the families may be regarded as poor in accumulated wealth.

CAUSES OF THIS DISTRIBUTION

Some understanding of the causes of the present deficient distribution of wealth and of the large fractions of the poor and very poor, may guide our efforts to encourage family wealth, or possibly prevent some of them. Wealth is accumulated out of

wealth produced, primarily in the division of the product between labor and capital, and subsequently in the transfer of this wealth from one place and person to another. The process of wealthaccumulation works mostly in favor of the capitalist. If the working-man accumulates much wealth, it is because he has become also a capitalist and mostly because of returns to his capital, either in interest, or rent paid by real-estate tenants, or in unearned increment to land value, or in pure profit.

Years ago the New York Tribune ascertained the sources of the fortunes of all of the reputed millionaires of this country. The results were unavoidably imperfect, but after all they roughly indicated the facts. Over 4 per cent. of the millionaires became such through logging and lumbering, nearly 7 per cent. through mining, and 65 per cent., more or less through increase of land value. All instances in which there is a trace of labor as a source of wealth, and these are confined to the professional kinds, may be segregated. They form but 3 per cent. of the total and in all cases the accumulation out of salaries and fees is qualified by the explanation that these were invested in real estate or other property returning interest and pure profit.

It is possible for a skilled mechanic with wife but no children, abstaining from alcoholic liquors and tobacco and nearly all unproductive expenditures, to accumulate in twenty-five years of good health, unremitting industry, parsimony, and compounding of interest on savings, enough income-returning property to sustain his widow in comfort. This is possible, because it has been done, but the man who did it was a marked man, and he had no children, either to render his feat impossible or to preserve his characteristics for future social good.

Savings banks are often referred to in popular writings as having deposits composed entirely or mostly of the savings of working-people and of the poor. This is a wide-spread fallacy in a large degree. The Massachusetts Bureau of Statistics of Labor, years ago, investigated this subject to ascertain the extent to which working-people were taking advantage of savings institutions, but these people were conspicuously few.

Although working-people may constitute a considerable frac

tion of depositors, their aggregate deposits are comparatively small and the fact is that these banks are more properly investment institutions than savings banks. A man could be mentioned who had $2,000 in each of twenty savings banks in Massachusetts, and his case was exceptional only in degree. These banks did for him what they did for nearly all depositors-they performed solely the function of an expert investment agent.

Wealth is unevenly distributed because, partly, savings out of wages and salaries play a very small part indeed in comparison with savings out of returns to capital. Then why do not wage and salary receivers strive to build up an income-returning capital? The answer may be given in many forms-circumstances, psychology, defective heredity, public opinion and policy, restrictive, repressive, or subdivided competition, and the social atmosphere.

As we in this country live and as we are agreed that we should live, there is little to be had out of wages and salaries for conversion into income-bearing capital, if a man has wife and children to provide for. The wage-earner is subject to causes that weaken his saving power, both in periods of industrial depression and in times called prosperous. In times of depression he suffers for want of employment and in times of great activity in production, cost of living has increased in a greater degree than wages have. There is a popular inversion of this latter fact due to a misunderstanding of the annual reports of the United States Bureau of Labor concerning wages and retail prices of food.

From 1890 to the latest year, the Bureau has established a series of index numbers standing for relative weekly wage-earnings per employee, and another series representing relative retail prices of food, weighted according to family consumption.

Then, another series of index numbers has been computed to merge the former two into one; that is, to express the purchasing power of full-time weekly earnings per employee measured by retail prices of food weighted according to family consumption. This series of combined index numbers is the decisive one in the matter of wages and cost of food, but it is doubtful that it has attracted the attention of one newspaper writer throughout the