The Inheritance of Wealth

Yesterday the Financial Times published my latest book review.

There is one battle that even the wealthiest person is bound to lose. Even the most advanced medical technology can only postpone, rather than overcome, the inevitability of death. Some argue that, before long, regenerative medicine will transcend this reality but, for the time being at least, death will remain an essential part of human existence.

That leaves open the question of what should happen to the assets of rich individuals once they have died. Some affluent people will not care — their wealth will be of no use to them under such circumstances — while others will take a pragmatic attitude without thinking about the broader significance.

Many others, however, will ponder at least some of the difficult questions raised by death and inheritance. For example, what is the nature of property rights? Is an inheritance tax just? If so, what form should it take? What difficulties does inheritance raise in relation to the persistence of social inequality?

Judging by the keen interest in philanthropy, there are plenty of prosperous individuals pondering these questions. They are keen to do good, not just in their lifetime but afterwards too. Leaving a positive legacy is a central preoccupation for many.

Daniel Halliday, a political philosopher at the University of Melbourne, has written a practical philosophical guide to some of these questions. The Inheritance of Wealth marries a discussion of the principles involved with a sketch of what he sees as some of the key empirical features of contemporary inequality.

Halliday’s perspective is essentially that of a moderate egalitarian. He sees what he describes as “economic segregation” as unjust. In his view, those in the wealthier layers of society have better life chances than others, even though it may not be fair. Often the rich achieve their advantages entirely or largely through accident of birth.

Halliday’s critique is, however, a measured one. He concedes that some people do achieve their wealth through merit and he is certainly not in the camp of those who argue that all bequests should be abolished. His goal is not to destroy capitalism but to work out how, in his view at least, it can operate more fairly.

The scene is set with an examination of early liberal writings on inheritance from the likes of John Locke, Adam Smith and John Stuart Mill. None of these economists — from the 17th, 18th and 19th centuries, respectively — wrote much about inheritance specifically, but there are scattered mentions as part of broader discussions of such topics as property rights and social class. Although these thinkers differ among themselves, there are certain common elements. In particular, their view of inheritance can be seen partly as a reaction against the preceding feudal experience.

Pre-capitalist societies tended to be highly stratified. Social mobility and equal opportunities were not recognised at times when people’s position was determined by birth. Therefore, those writing in the early days of capitalism tended to be concerned with the risks of inherited wealth promoting idleness and maintaining a rigid social order. Halliday shares these worries in relation to the present, rather looking back to the feudal past.

Nor were early liberal thinkers alone in being sometimes scathing in relation to inheritance. Andrew Carnegie, the Scottish-American industrialist and philanthropist, reflected a common view in late 19th-century America in describing the bequesting of wealth to family members as “most injudicious”. Halliday quotes him as saying “the man who dies rich dies disgraced”.

In practical terms, Halliday’s favoured form of taxation for inheritance is what he calls a Rignano scheme. This follows an early 20th-century Italian thinker, Eugenio Rignano, who proposed that second-generation wealth should be subject to a higher tax rate than first-generation wealth. The idea is that entrepreneurs would still have an incentive to work hard to benefit their children but later descendants should not live idly off the wealth created by earlier generations. It would also help create a society where opportunities are more widely shared.

Halliday is open to discussion about the precise form such a scheme would take. For instance, it might make more sense to tax the recipients of wealth rather than the estate of the deceased.

Those who share Halliday’s premises are likely to find many of his arguments persuasive. On the other hand, those who are either unconvinced that economic segregation is a serious problem or are unconcerned by it will not. The Inheritance of Wealth at least has the merit of making readers ponder a difficult subject.