PREPARED STATEMENT OF JAMES D. SMITH AND STEPHEN D. FRANKLIN

1. INTRODUCTION

Unraveling the enigma of wealth concentration provides a fair amount of intellectual stimulation, income and fun for a handful of academics in about as many countries. However, increasing public cognizance that people and dollars are clustered in opposite corners of their joint space has stirred public debate and increased demand that the rhetoric of redistribution be transformed into public policy. Depending upon the beholder's biases, the apparent disparity in wealth ownership among and within countries has been proclaimed an effective mechanism for directing economic resources to efficient uses or evidence of unjust economic regimes. The two interpretations are not mutually exclusive.

The tails of the distribution are generally the focus of public debate. The lower tail has the longer tradition of public concern. The concern has been with its threat to political stability, in spite of adequate contemporary examples of humane interest for those the marketplace has left behind. Some may argue that TV and food stamps are modern substitutes for bread and circuses, but we would argue the motivation for the war on poverty, the civil rights movement and numerous transfer programs sprang from a sense of justice which extends beyond the domain of economics.

Concern with the upper tail has a shorter history, and public anxiety has been with excessive political stability and the power of the rich to trade political rights, dignity, and survival, in the marketplace as though they were economic goods. The events of the last decade warrant a concern with the extent to which the unequal distribution of wealth undermines the intended equal distribution of political rights. In what follows we provide evidence of the distribution of wealth (a rough measure of power) among persons and families, with particular attention to the upper tail.

The estimates presented here are based primarily upon a sample of U.S. estate tax returns filed in 1973. The sample contained 52,992 returns: approximately 20 percent of all returns with gross assets under $300,000 and 100 percent of all returns with gross assets of $300,000 or more. Since all estates with gross assets of $60,000 or more are required to file, the returns can be treated as a stratified sample of the assets of living persons with gross assets of $60,000 or more. The estate tax returns are not a random sample of the wealth of the living. To integrate them one needs to apply a statistical technique known as the estate multiplier method. The basic premises upon which the technique rests are:

1. Deaths draws a sample of the living population each year, stratified by age, sex and other determinants of mortality.

2. As with any sample, population parameters can be estimated by weighting observations by the reciprocal of their sampling rate. In this case the mortality rate. The wealth of the primary population or any subpart of it can be estimated

where V is the living population of persons in the ith sampling stratum, M. is the number of persons dying in the ith sampling stratum and w. is the wealth of decedents in the stratum.

The estate multiplier methodology has been extensively described elsewhere." II. THE CONCENTRATION OF WEALTH IN THE HANDS OF THE RICHEST 0.5 PERCENT AND 1 PERCENT OF PERSONS ARRAYED BY SIZE OF NET WORTH

Table 1 shows the value and shares of specific assets, total assets and net worth held by the richest (measured by net worth) 0.5 percent and 1 percent

1 Arthur Okun provides a stimulating statement of this concern in the Godkin Lecture on the Essentials of Free Government and the Duties of the Citizen; see Arthur M. Okun, "Equality and Effieciency: The Big Tradeoff." The Brookings Institution, 1975.

See Robert J. Lampman, "The Share of Top Wealth-Holders in National Wealth," Princeton University Press, 1962; James D. Smith. "The Concentration of Personal Wealth in America, 1969," "The Review of Income and Wealth." Series 20, No. 2, June 1974 James D. Smith, "White Wealth and Black People, The Distribution of Wealth in Washington, D.C., 1967," in James D. Smith, "The Personal Distribution of Income and Wealth," Columbia University Press, 1975.

of all persons in 1972. It should be kept in mind that data in the table are for persons, not families. It is clear that the share of net worth in the hands of the richest 1 percent and 0.5 percent of the population has been essentially stable since 1953. A long-term trend toward broader distribution of corporate stock since 1953 appear to have bottomed out in 1969, and possibly started up again in 1972.3

3 Year to year changes should be accepted cautiously. National balance sheet data for 1972 are preliminary, subject to some revision and the draw of decedents in any year contains chance variation.