“A single man of large fortune; four or five thousand a year. What a fine thing for our girls!” In “Pride and Prejudice” Jane Austen did not have to explain to the 19th-century reader what Mr Bingley’s “four or five thousand a year” meant, or why it excited Mrs Bennet. It was obvious. Mr Bingley was an heir. And the surest way to get rich was not by working hard but by marrying the right person.
Fast-forward to today, and rich countries are starting to look like Austen’s world. In ways that will upend the economy and society, inheritance is back.
Government statistical offices publish almost no data on inheritances, since their surveys are ill-equipped to track huge, one-off payments. So The Economist has gathered academic estimates on the annual “inheritance flow”—the value of what people pass on to heirs in art, cash, properties and the like—for a range of countries (see chart 1). In 1900 inheritances were worth over 20% of gdp in some countries, as people passed on vast stock portfolios and estates. The value of inheritances then fell in the 20th century, before more recently roaring back. By the end of the 2010s inheritances were worth, on average, 10% of gdp. This year people across the rich world will inherit on the order of $6trn.
In many countries the share of wealth that comes from inheritance is also rising. ubs, a bank, suggests that in 2023 53 people became billionaires by inheriting money, not far short of the 84 who did so by working. As a share of national output, annual French inheritances have doubled since the 1960s. Germany’s have almost tripled since the 1970s. In Britain they are twice as important, relative to earnings, for those born in the 1980s as for the generation before. Inheritances in Italy are now worth more than 15% of gdp—enough, perhaps, to get the modern Mrs Bennet to ship her daughters to parties in the palazzi of Rome. Only Ireland seems to buck the trend of becoming an inheritocracy: there, at least, bequests are modest and have not grown much in recent years.
In America today, for every $100 employers pay a year in wages, the dead leave behind $20. And such figures, striking though they are, understate the shift to an inheritocracy. The average family size has fallen sharply in recent years. A given inheritance is therefore spread over fewer people. Using British data, we estimate that in recent decades falling birth rates have raised the amount going to the average heir by some £60,000 ($75,000), or 24%. Having a brother or sister might be nice, but they come at a price.
Falling inheritance taxes also increase the share of a bequest that an heir can keep. In the early 20th century, revenues from death duties accounted for a sizeable chunk of the total tax take in America and Britain (see chart 2). But in the latter part of the century, politicians turned against the taxes. Some were swayed by lobbying. Others feared that, in a globalised world, taxes on wealth would prompt rich folk to up sticks. Today death duties account for well under 1% of government revenues across rich countries. Several places, including Australia, Canada, India, Norway and Russia, have abolished them entirely. Many in America would sorely like their government to do the same. More than 20 American states binned their wealth-transfer taxes between 1976 and 2000.
Popular culture hints at the growing importance of inheritance. “Succession”, a tv series, focuses on the wranglings of a set of siblings who hope to gain control of their father’s media empire. “Crazy Rich Asians” follows the trials and tribulations of a woman marrying into a Singaporean dynasty. Popular fiction, from “The Nest” by Cynthia d’Aprix Sweeney to John Lanchester’s “Capital”, deals with the questions raised when people inherit vast sums. In the latter, a character receives a house in London: “The equation was too plain and too depressing. In the debit column, she had lost her mother; in the credit column, she now had a gigantic pile of cash.”
The rise of the inheritocracy reflects three factors: increasing wealth, changing demography and slower economic growth. After the first and second world wars, the value of wealth, relative to national income, collapsed. Many of Europe’s buildings were destroyed. High inflation eroded the value of cash and government bonds. Politicians developed a taste for heavy wealth taxes and nationalisation. Many wealthy families, including the Vanderbilts, squandered their fortunes.
Since then housing, in particular, has become more valuable, partly owing to restrictive planning policies, which constrain supply. The value of buildings owned by Britons has risen from just over £1trn (130% of gdp) in the mid-1990s to just under £7trn (270% of gdp) in recent years. Wealth taxes are out of favour, stockmarkets have performed fantastically, while inflation, at least until recently, has been low. Because of the rise of wealth managers and index funds, the rich have become better at avoiding the fate of the Vanderbilts.
The second factor is demography. Baby-boomers have soaked up wealth, having come of age just at the point when house prices and stockmarkets started soaring. Germans aged over 65, who make up a fifth of the population, own a third of the country’s wealth. American baby-boomers, also a fifth of their country’s population, own half of its net wealth, or $82trn (see chart 3). Now the boomers are starting to die, leaving large estates to their heirs.
Lucky Irish
Economic growth is the third factor. In 2014 Thomas Piketty of the Paris School of Economics and Gabriel Zucman, then of the London School of Economics, presented evidence that slow-growing countries accumulate more wealth, measured in relation to national income. People add to savings at a fairly consistent rate, but gdp rises less quickly. In recent years, owing to weak growth in both populations and productivity, rich-world gdp growth has slowed markedly. According to our data, the fastest-growing countries, such as America and Ireland, appear to be less afflicted by inheritocracy compared with the slowest, such as Germany and Italy.
The inheritance boom may, in turn, reinforce the trend towards slower economic growth. Just as in Honoré de Balzac’s time, the best way to get rich is increasingly not to work hard, but to marry well. “You will need to suffer ten years of misery…and lick the courthouse floor with your tongue,” says a character in “Père Goriot”, as he lectures another about how only an idiot would choose a salary over an inheritance. In the 21st century, the incomes of the top 1% of French inheritors are once again higher than those of the top 1% of workers. The economic implications may be big. If people focus on matchmaking, rather than starting a company, innovation will suffer. Already, across the rich world, entrepreneurship is in long-term decline.
Surging inheritances are likely to have even larger social effects. They widen the gap between people at the top and bottom. Data from the Federal Reserve suggest the average American in the top 5% of earners has received well over $50,000 in inheritance, compared with about $5,000 for someone in the middle. Hero Ashman of the University of California, Berkeley, and Seth Neumuller of Wellesley College estimate that intergenerational wealth transfers explain a quarter of the wealth gap between black and white Americans.
The inheritance boom will create particular inequalities in the housing market, whether wealth transfers are made at death or during life. Research on America by Legal & General, a financial-services firm, suggests that if the “Bank of Mum and Dad” were a business, it would be among the ten biggest mortgage lenders. Generous support from relatives, in turn, raises the homeownership rate among the young—by perhaps a third or more, according to a paper by Eirik Eylands Brandsaas of the Fed. At the same time, people without benefactors lose out.
These findings have important implications for the marriage market. Our advice is clear: you should find a modern-day Mr Bingley with “four or five thousand a year”, rather than someone who is clever or hardworking. Consider two millennials, “Inheriting Isabel” and “Nonbeneficiary Nancy”, who both live in London and earn more than 90% of people in the city (£100,000, or $126,000, a year). Given their pay, they both might expect to buy a 90th-percentile home in the capital. But that house costs on the order of £1.2m. Fortunately for Isabel, her parents have given her such a home. Nancy has no such luck. Although she works hard and puts away half her post-tax salary, she may never be able to pay off the mortgage on a house that pricey. Whom would you rather marry?
Indeed, the inheritance boom is already upending the marriage market. In wealthier parts of America, people in their 20s and 30s openly talk about the need to marry rich. Economists discuss the phenomenon of “assortative mating”, where people exchange vows with those who are similar to themselves. Most research focuses on education or income, yet newer work suggests heirs are also likely to marry each other. Etienne Pasteau, formerly of the Paris School of Economics, and Junyi Zhu of the Bundesbank estimate that inheritance is two-and-a-half times more influential than income from work in explaining German marriage choices. Another paper, focusing on Denmark, finds that over time inheritance is becoming ever more important in explaining people’s choice of spouse.
The inheritance boom is set to continue for a while yet. According to our calculations, baby-boomer deaths will rise until 2036, when in America 1.5m of them will pop their clogs. The value of housing and stocks will probably also rise, increasing the size of the pile to be passed on. In a world of higher interest rates, someone who inherits and puts the money in the bank or buys government bonds can do pretty well as a pure rentier. Meanwhile, governments keep cutting, rather than raising, inheritance taxes. Over the coming years, the world could see the emergence of an inheritor class that is even more enduring than the gentry of Austen’s day. What a fine thing—for some. ■
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