THE ACQUISITION OF
Chapters 6 through 10 have discussed the determination and the distribution of labor earnings but inequality of earning is only part of economic inequality. As Chapter 3 indicated, the inequality of wealth in America is considerably greater than the inequality of earnings. This wealth produces income and its ownership is particularly important for the top end of the income distribution. One must therefore ask how property is acquired and why its ownership is so unequally spread if one is to get a full picture of economic inequality. Section 11.2 discusses the "life-cycle" model of wealth accumulation, which argues that most property is acquired by individual saving from labor earnings. Section 11.3 presents the theory of inheritance, and sections 11.4 and 11.5 discuss the evidence which exists on the presence of large inheritances and inheritance in general. The social institutions of property and inheritance have been among the most hotly debated of economic issues for generations, so in section 11.6 we discuss a few of the many ethical issues involved. Knowledge about the real world, theory about how it operates, and values about how one wants it to operate are the ingredients of public policy. Section 11.7 presents some of the policy options which have been discussed regarding the institutions of property and inheritance.
In its simplest form, the one-generation "life-cycle savings model" argues that individuals accumulate a stock of capital while working in order to finance their consumption after retiring. Their wealth will therefore be at a maximum just before retirement and will decrease throughout their old age. Figure 11.1 graphs a "typical" individual's net worth according to this theory. Over the period 0S (which may be very short) the individual is going into debt in order to acquire human capital and to finance consumption during early periods of low earnings—hence his net