Images of the wealthy during the 1920s often portray them as self-satisfied and selfindulgent—drinking champagne and ignoring the growing misery around them. Some historians, moreover, have seen a direct link between a growing concentration of income during the 1920s and the depression of the 1930s. Too much income, goes the argument, was going to the rich, who were not spending it fast enough to maintain aggregate demand. Early studies of the distribution of income to some degree confirmed that the rich had grown relatively richer. In his pioneering work published in 1953, Simon Kuznets showed that the share of disposable income received by the top 1 percent of the population increased from 11.8 percent in 1920 to 18.9 percent in 1929 (see also Historical Statistics 1975, Series G341). More recent estimates by Thomas Piketty and Emmanuel Saez (Atkinson, Piketty, and Saez 2011) find smaller increase based on a higher estimate for 1920: They show the share of the top 1 percent increasing from
14.5 percent in 1920 to 18.4 percent in 1929. Charles Holt (1977), working from Kuznets’s data, argued that all of the increase in real income in the 1920s went to upper-income groups. Gene Smiley (1983), on the other hand, pointed out that the estimates of the share of income going to the richest fractions of the population in the late 1920s may be biased upward because they are based on tax returns. Tax rates for the rich were lowered in the 1920s, encouraging people to shift their wealth into assets yielding taxable income and to report income that previously had gone unreported. Jeffrey Williamson and Peter Lindert (1981, chapter 12), in a landmark study of American inequality, drew attention to the long-term dimension of the problem. A long trend toward increased inequality had been interrupted by World War I, so some increase in inequality in the 1920s was to be expected as the economy returned to normal. The distribution of income was far from equal in 1929, but little evidence exists that something drastic and unexpected had occurred that could explain the depression that was to follow.
When discussing the distribution of income in the 1920s, it is important to keep in mind Lebergott’s point: However much certain groups suffered, there were improvements in the standard of living of a large segment of the American people that can be seen in such statistics as the percentage of families with electric lighting, the percentage of families with washing machines, and even the percentage of families with inside flush toilets (see Table 22.1 on page 400). Economic Reasoning Proposition 5, evidence and theory give value to opinions, is well illustrated by this debate over the changes in the distribution of income in the 1920s. Evidence matters, but the discovery of one piece of evidence, however important it may seem to be, can be merely the beginning of a long journey.
World History
