Income Inequality and Downton Abbey: Capital in Edwardian England

This is a paper I delivered to the Conference of the Popular Culture Association in the South / American Culture Association in the South in New Orleans, LA on October 3, 2014. 

Capital and Downton AbbeyIn the first half of 2014, two works that ranked high on measures of popularity were the public television period-drama Downton Abbey and the French economist Thomas Piketty’s 700-page book on income inequality, Capital in the Twenty-First Century (although, according to statistics collected by Amazon on their Kindle users, it is also the least finished book of the year,[i] whereas Downton Abbey was the object of much binge-watching, but I only have anecdotal evidence for that, such as my own experience). Piketty’s book— “as much a work of history as economics” (33), as he describes it—reviews the history of income inequality in the 19th and 20th century and predicts its course for the 21st century. Downton Abbey takes place over some key moments in this history, including the periods of both the highest divergence and convergence of income inequality in the last two centuries among developed economies.

In this paper, I use Piketty’s book to explain some of the plot of Downton Abbey. Alternatively, my project could just as well be described as using Downton Abbey to illustrate some of the main ideas of Piketty’s book. However it is described, I hope what I do will enhance understanding of both works. I will also share Piketty’s predictions for the future of inequality and conclude with some observations about the beliefs that endorse it, both today and in the past.

In describing the history of income inequality and the distribution of wealth, Piketty draws on new sources of data, including some that he has helped compile. The data enables him to survey “the historical dynamics of wealth distribution” (33) from the 1700s to the present-day. For most of this period, and for most regions, including the setting of Downton Abbey, there was what Piketty labels a “hyperpatrimonial society” (264). This is a society in which inherited wealth is highly concentrated and has a great deal of economic importance. The basis of Downton Abbey is the concentration of wealth. Its storyline begins with the residents of the household (both those “upstairs” and “downstairs”) worrying about the consequences of the entail on the future of the house. The entail prescribes that not only the title, Earl of Grantham, is passed down to the eldest male descendent according to the principle of primogeniture, but that all of the property is as well. The house has lost its apparent heir on the Titantic (the very first images of the series are of the telegram announcing this being transcribed). A distant but little known cousin is brought in to serve, reluctantly, that role. Since Mary was expected to wed that now-drowned former heir, her future is unclear, but so is that of every other member of the family. It seems to them all that the house and title will eventually pass to a stranger, and everyone else will be thrown out like the Dashwood sisters in Sense and Sensibility. Even Carson the butler is worried over the future of the family. When he is reminded by Mrs. Hughes that it is not his family, he replies “Well, they’re all the family I’ve got,” a fact that the series returns to on several more occasions. Despite sharing these anxieties, Lord Grantham feels not only a legal responsibility, but also a moral responsibility to see that the estate is preserved (an obligation that appears to trump even the related ones he has towards his wife and children). His life’s “work,” and those of his ancestors, is manifested in the house and its estate. The entail ensures that they remain together.

In the United States, primogeniture and entail were abolished by the states after these former colonies gained their independence from Britain. Alexis de Tocqueville observes the effects this had, though probably with some exaggeration: “No sooner was the law of primogeniture abolished than fortunes began to diminish, and all the families of the country were simultaneously reduced to a state in which labor became necessary to procure the means of subsistence” (Democracy in America, Chap. 8). In 1804, following its revolution, France abolished primogeniture and its equivalent to the system of entails in favor of strict equipartition, which mandated that property was equally divided among the children, with only a small portion allowed to the parents to allocate as they wish (362-3). Entails were not abolished in Britain until 1925. This partly explains what we see portrayed in Downton Abbey: the concentration of enormous wealth in only a few hands. According to the data Piketty has analyzed, in the first two decades of the 20th century, the wealthiest 10% of Britain owned more than 90% of their nation’s wealth. This distribution was seen elsewhere in Europe. In especially inegalitarian Britain, the top 1% owned nearly 70% of wealth (343).Figure 1

As we will discuss, both the size and distribution of wealth in Britain will undergo a radical transformation following World War I, resulting in the break-up of estates like the one owned by the Crawleys, but at the beginning of the series, there are already threats to the economic viability of the Grantham estate. The value of farmland has been in steep decline for the last century. Agriculture is no longer the dominant force in economic activity. As Piketty observes, “agriculture in the eighteenth century accounted for nearly three-quarters of all economic activity and employment” in Britain (117). When Downton Abbey starts, agriculture makes-up less than a tenth of the nation’s wealth, and it will decline even further. The family attempts some reforms to bring more income from their land, but those efforts are delayed by World War I, which is followed by a dramatic decline in the rest of the nation’s wealth. This decline was experienced by the entire world, but most steeply by the economically developed countries in Europe. These lows in their capital stock will persist through the interwar years, after which capital will begin to rise steadily until a steep increase that begins in the 1980s and continues to this day. This loss of wealth following World War I is caused by what Piketty calls “cultural shocks,” including the war, which Piketty says, “marked the suicide of the patrimonial societies of the past” (241).

Piketty represents these changes to capiFigure 2tal through the capital / income ratio.  National capital or wealth is the market value of the assets held by a nation, both publicly and privately, including both financial and nonfinancial assets, less debt. As Piketty explains, “It corresponds to the wealth appropriated or accumulated in all prior years combined” (50). National income is all the income available to a nation’s residents; it reflects all of the goods produced and distributed within a certain period.[ii] If we take their yearly amounts, and divide the capital by income, we get a measure of the size of a country’s wealth. For example, in Britain, on the eve of World War I, wealth was almost seven times the size of yearly income. After World War I, this rapidly declined to under 300% and then bottomed-out to 250% after World War II.

Until the end of World War II, and the loss of Britain’s foreign colonies, a significant portion of Britain’s wealth consisted of foreign capital. Robert, the Earl of Grantham, had attempted to diversify his capital prior to the shocks that followed the first world war by investing in a Canadian railroad. As Piketty points out, a large portion of Canada’s capital was owned by foreign investors, mostly British:

In 1910, Canada’s domestic capital was valued at 530 percent of national income. Of this total, assets owned by foreign investors . . . represented the equivalent of 120 percent of national income, somewhere between one-fifth and one-quarter of the total. (157)

Other Brits must have been making money from their investments in capital. However, Robert was not one of them. He lost all of his investment—which was actually the money he got from Cora’s father—when the railroad went bankrupt. He perhaps should have invested in natural resources, where—as Piketty reports—most of the foreign capital was, rather than a railroad. But besides that, he violated the first rule of investment by not diversifying his investment, but instead placing the entirety of Cora’s money into a single company. This indicates his lack of familiarity with financial capital.

The Grantham estate is once again rescued, this time with money from Matthew (which he was willed by the father of his late fiancée, who died of the Spanish Flu). First Matthew, and then his widow Mary and formerly estranged brother-in-law and now widower Thomas Branson, try to bring new ideas to running of the estate, against the resistance of Robert. These ideas are intended to preserve it as an agricultural enterprise. The novel idea of Mary and Thomas is to bring pigs onto the estate. I expect we will see in Season Five the success of these efforts. In Season Four, the eventual suitor of Mary, Mr. Blake, arrives as part of a fact-finding tour of estates like Grantham. When asked by Mary why estates like hers are in decline, he explains that “so few of the owners make the most of what an estate has to offer. So few think about income. So few are ready to adjust their way of life.” It is exactly a way of life that the Crawleys are trying to preserve, not merely their wealth. Matthew, as well as the rest of us, are introduced to this way of life with his arrival in the second episode of first season: valets, dressing for dinner, horse-riding and hunting; as Mary explains to Matthew: “Families like ours are always hunting families.” She wonders whether Matthew shares these interests: she says, “I suppose you’re more interested in books than country sports.” When Matthew replies that he probably is, Mary point out that that is “unusual,” “among our kind of people.” But, returning to her later conversation with Mr. Blake, he further explains that the owners of these estates “have to understand that’s it time to get used to something different.”

For example, they have to get used to the transformations to wealth that have occurred since the beginning of the nineteenth-century when, as Piketty explains, “Wealth seemed to exist in order to produce rents, that is, dependable, regular payments to the owners of certain assets, which usually took the form of land or government bonds” (113). The Crawleys have yet to learn the new meaning of wealth, as something dynamic, fungible, portable, variable, and not tied to any specific, enduring piece of land, and not possessed merely by virtue of one’s manners or birth.

I don’t know what the writers of Downton Abbey have in store for the Crawleys and the workers of the Grantham estate, but in reality, pigs should not be able to save the Grantham estate. Mary and Robert would be wiser, financially, if they sold off the land for housing. While the value of farmland has decreased, the value of housing has increased. Piketty observes that it “rose from barely one year of national income in the eighteenth century to more than three years today,” and this has been accompanied by an increase in other forms of domestic capital (119). As for the house, since it has already served as a hospital, it should not be too difficult to convert it into apartments, or a factory. It is more likely—like the actual location of the series, Highclere Castle—to end up as a tourist attraction (I await that transition of the Grantham house in the—probably, if at all—final season of the series). But both the house and the land are inextricable parts of the lifestyle that the Crawleys are trying to preserve. Piketty reports that the data from the interwar period shows many households like those which the Crawleys represent “did not reduce expenses sufficiently rapidly to compensate for the shocks to their fortunes and income during the war and in the decade that followed, so that they eventually had to eat into their capital to finance their current expenditures” (369). To survive, the Crawleys must drop many of their habits and customs, for example, in addition to those mentioned, their diligent efforts to stay current with the latest clothing fashions (admittedly, these changes would make for a much less engaging television show).

Besides the loss of value of their agricultural land, there are other challenges that threaten the ability of the Crawleys to maintain their lifestyle. These are a result of the “cultural shocks” following the first world war which, as Piketty explains, “disrupted the monetary certitudes of the prewar world” (107). For example, there were higher taxes, like those Mary owes on Matthew’s share of the estate. World War I had put Britain, along with the other belligerents, into debt. Higher taxes were one way these countries tried to reduce their debts. In Britain, an inheritance tax of 8% on the largest estates had been imposed in 1896. There were two modest increases to 15% and 20% before the war, but it rose dramatically to 40% in the 1920s. Figure 3 This is the tax rate that Mary must pay on her inheritance from Matthew. Another means for reducing debt was inflation. Countries had abandoned the gold standard and used the printing of money to pay their bills. While inflation was relatively low in Britain—peaking near 3% during the interwar period—this, as Piketty points out, is a dramatic change following “two centuries in which prices had barely moved at all” (107). Inflation is another “cultural shock” that will also eat at Crawley’s wealth. In subsequent seasons, we might get a chance to see the effects of further shocks, like the Great Depression.

After World War II, capital made a comeback throughout the world, while wealth inequality continued to converge until the 1980s. Since then, inequality has been increasing along with capital. One factor in this is the slashing of the top rates for income and inheritance taxes that began under the Reagan and Thatcher administrations. Also, inequality had been kept at bay by the high growth in countries recovering from World War II and the shocks of the interwar period. It was promised Figure 4that the tax cuts would continue this growth, but as Piketty points out: “the reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of supply-side theory) or at any rate did not stimulate productivity enough to be statistically detectable at the macro level” (510). Piketty argues that we are returning to a period of low growth, which is the norm, during which capital will again assume its dominant position.  Given the low growth and decreasing availability of mechanisms for redistributing wealth, like taxes on high incomes, the prospects are high for divergence, rather than convergence, of inequality.

Recently, the leader of Britain’s trade labor movement, Frances O’Grady, warned of a return to a “Downton Abbey-style society” in which “Silver spoons are ever more firmly clamped in the mouths of those who were born with them” and “class prejudice” is “respectable once again.”[iii] In the United States, a just-released report by the U. S. Federal Reserve shows that the income of the wealthiest grew 10% in the period between 2010 and 2013, while the income of the bottom 40% declined.[iv] Does Downton Abbey present us with a vision of our future, rather than just an opportunity to engage in nostalgia about our past?

To answer this question, we can look at more than the data presented by Piketty. For example, in addition to the comeback of capital, there is a renewed tolerance for inequality; it has, as the British trade unionist might put it, become respectable again. From the 1930s to the 1970s, most developed economies had top income tax rates above 50%; in Britain and the United States there were long periods in which it exceeded 90%, where the inheritance tax rates were also always well above 50%. There must have been a radical change in the public’s views about wealth for it to now to be the case that none of these rates exceed 50% (or the public is just as politically disenfranchised as it was in these economies before the first world war). The most widely disseminated beliefs in support of inequality, or which endorse at least an indifference to it, have changed (although, importantly, now and then the beliefs are shared between both those who benefit and suffer from inequality). According to Downton Abbey, inequality had a purely metaphysical grounding. Economic and political inequality were not matters of fairness. It was neither fair nor unfair that some enjoyed greater privileges than others; it was simply a matter of nature. The divisions in society were even finer than upper-class and lower-class, as we are taught by the experiences of Mr. Molesley after he loses his job as valet and must resign himself to being a glove-wearing footman. One’s assignment to a class was determined by birth and the ability to display the manners appropriate to that class. While there was some mobility between classes, it appears most of the movement was downwards. Today, there is normative basis to inequality. It is believed that wealth is deserved. The wealthy have earned their wealth through hard-work and risk-tasking, for which it is a compensation. Now, both justifications for inequality are false. Certainly, no one is entitled to wealth because of his birth and manners. And whether or not hard work entitles one to enormous wealth, it is simply false that most of the wealthy today possess their wealth entirely because of their labor. Piketty presents data that shows inheritance becoming increasingly the basis for transfers of wealth, not hard work.

Piketty poses the question but does not attempt to explain why we have become tolerant again of inequality. As an economist, he does not have the relevant expertise. As merely a philosopher, I also do not, but I think I can attempt to answer a related question, and that is which of these beliefs about inequality is harder to dislodge? The current view should be easier to dislodge, since it is based on false facts, whereas the metaphysical views, like all such views, requires a more radical change in thinking to dislodge. Now, the view that wealth is deserved because of hard-work also requires some modifications that will be just as difficult. But that belief can remain and even support efforts to reduce inequality, whether these are Piketty’s recommended method of increased taxes or some other means. It is not inevitable that we will return to the conditions that would make possible a future version of Downton Abbey. Even its very benign treatment of inequality should be seen as a warning against desiring such a sequel.

[i] http://online.wsj.com/articles/the-summers-most-unread-book-is-1404417569

[ii] It is calculated by deducting the depreciation of physical capital from GDP (the “net domestic product”), to which is added the net income received from other countries.

[iii] http://www.bbc.com/news/uk-politics-29103503

[iv] http://online.wsj.com/articles/fed-gap-between-rich-poor-americans-widened-during-recovery-1409853628

All references are to, and figures are from, Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Belknap/Harvard, 2014)

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