Pope Leo XIII Meets Thomas Piketty

I’ve said many times that Catholic social teaching offers a middle way between collectivism and free market libertarianism. In the words of Pope Pius XI, there is a need to avoid these “twin rocks of shipwreck.” To do this, we need frame the discussion around the universal destination of goods - the notion that the goods of the earth and human labor are destined for all people to enjoy, meaning that property rights are legitimate but not absolute. For me, the best way to attain this is by embracing the economic rights of social democracy or sustainable development.

But there is another alternative that goes all the way back to the beginning of modern Catholic social teaching - to Pope Leo XIII’s Rerum Novarum. This alternative is called distributism, which centers on the widespread ownership of private property. A central tenet of distributism that giving as many people as much private property as possible reduces inequality, increases social harmony, and boosts prosperity. Here is how Pope Leo describes it:

We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners.

Many excellent results will follow from this; and, first of all, property will certainly become more equitably divided. For, the result of civil change and revolution has been to divide cities into two classes separated by a wide chasm. On the one side there is the party which holds power because it holds wealth; which has in its grasp the whole of labor and trade; which manipulates for its own benefit and its own purposes all the sources of supply, and which is not without influence even in the administration of the commonwealth. On the other side there is the needy and powerless multitude, sick and sore in spirit and ever ready for disturbance. If working people can be encouraged to look forward to obtaining a share in the land, the consequence will be that the gulf between vast wealth and sheer poverty will be bridged over, and the respective classes will be brought nearer to one another.

Now, there are some issues with this. For a start, it seems clear that Pope Leo is talking mainly about land ownership. Is widespread land ownership possible or even desirable today? It makes little sense in more developed countries where advanced technology and high productivity means very few farmers are needed to feed the population - the percentage of workers in agriculture in the United States is only about 1 percent.

It would make more sense in poorer countries, where more people are reliant on the land for a living. In this context, the juxtaposition of a few large landowners against a mass of landless peasants would constitute a grave injustice. But how can this injustice be rectified? The clearest way would be through expropriation and redistribution, but this seems extreme. In fact, though, Catholic social teaching allows for expropriation in certain egregious cases. Here is how the Vatican II document Gaudium et Spes puts it:

Indeed, insufficiently cultivated estates should be distributed to those who can make these lands fruitful; in this case, the necessary things and means, especially educational aids and the right facilities for cooperative organization, must be supplied. Whenever, nevertheless, the common good requires expropriation, compensation must be reckoned in equity after all the circumstances have been weighed.

This is just land. What about other forms of wealth? When we think of widespread property ownership, what often comes to mind is ownership of capital. Here, a fruitful avenue, endorsed by Catholic social teaching, would be to support as many worker cooperatives as possible. Or, failing that, make sure that workers own shares in the companies where they work.

But this is still limited, and doesn’t encompass anything close to the totality of wealth in society. This is where the economist Thomas Piketty comes in. He has been looking at trends in the distribution of wealth where wealth is defined in the broadest possible sense, encompassing both real and financial assets.

Have a look at this chart from Piketty, showing the “hyper-concentration” of wealth in Europe and the United States. In the United States, the top ten percent owns 72 percent of all private property. It is less in Europe - around 55 percent. But in both regions, the bottom 50 percent own barely any wealth. Of course, Europe at the time of Pope Leo was vastly more unequal, with the top ten percent owning almost 90 percent of total private property. We do see the emergence of what Piketty calls a “patrimonial middle class” over the course of the 20th Century, but the distribution of wealth is still extremely skewed.

Source: Thomas Piketty, A Brief History of Equality, 2021.

How can we fix this to make sure more people own more property? Piketty proposes an ingenious solution - a redistribution of inheritances. Basically, everyone would receive a minimum inheritance upon reaching the age of 25. For illustrative purposes, he suggests setting this minimum inheritance equal to 60 percent of the average wealth per adult. He uses the example of France where the average wealth per adult is about 200,000 euros, leading to a minimum inheritance of 120,000 euros. This endowment of capital would be financed by a progressive tax on wealth and private inheritances, raising around 5 percent of national income. This tax would be extremely low for people with lower-than-average wealth, and would rise to 80-90 percent for those with great asset values.

This is what the distribution of inheritances would look like in Europe after the capital endowment:

Source: Thomas Piketty, A Brief History of Equality, 2021.

As we can see, the ownership of wealth is now much more equal. For Piketty, a main argument for this endowment of wealth is to boost the bargaining power of poor and low-wealth individuals. It boosts their freedom. People can walk away from jobs with low wages or degrading work conditions. They can buy a house or an apartment (and homeownership is certainly important for distributism). They can start a small business. It might even be possible to regulate the use of this inheritance - to prevent it being squandered away in the manner of the prodigal son. For example, it could be limited to property purchases or setting up a business or a cooperative venture.

Normally, when we talk about redistribution, we are talking about the redistribution of income through the welfare state. And this is good for reducing income inequality. But if we want to reduce wealth inequality, something like the Piketty minimum inheritance seems promising.

Getting back to distributism: one frustration I have is that many of its proponents are quite vague when it comes to policy proposals to make private ownership more widespread. This is why I like Piketty’s idea - it offers something simple and concrete, and it really evens out the distribution of private wealth.

One caveat: Pope Leo XIII does caution against excess taxation of private property. Here is what he says:

The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair.

The Piketty proposal only levies heavy wealth and inheritance taxes on those who are extremely asset-rich. It would leave the poor and middle classes largely untouched. They would actually come out ahead. Overall, I believe this supports the public good and is indeed fair. Might distributists be willing to get behind it?