Most of the 19th century was a good time for equality (Department of Ahem…)

by on April 25, 2014 at 2:05 am in Data Source, Economics, History | Permalink

From “Real Inequality in Europe Since 1500,” (pdf) by Philip T. Hoffman, David Jacks, Patricia A. Levin, and Peter H. Lindert:

Introducing a concept of real, as opposed to nominal, inequality of income or wealth suggests some historical reinterpretations, buttressed by a closer look at consumption by the rich. The purchasing powers of different income classes depend on how relative prices move. Relative prices affected real inequality more strongly in earlier centuries than in the twentieth. Between 1500 and about 1800, staple food and fuels became dearer, while luxury goods, especially servants, became cheaper, greatly widening the inequality of lifestyles. Peace, industrialization, and globalization reversed this inegalitarian price effect in the nineteenth century, at least for England.

If you have been following the recent debates over Thomas Piketty, you might have come away with…um…the opposite impression.  The emphasis there is added by this blogger. As for other countries:

Thus the great grain globalization of the late nineteenth century favored workers’ relative purchasing power in food-importing Western Europe, though not in food-exporting areas.

By the way here is Scott Sumner on consumption inequality.

For the pointer I thank John Nye.

Steve Sailer April 25, 2014 at 2:42 am

By the later 19th Century, many of the great country houses of England — most of which were built before 1800 and are some of the most spectacular embodiments of inequality — were falling apart and the owners didn’t have the wealth to keep them up and pay for all the servants they required. The houses often had to be rescued by a marriage to an American heiress (as on “Downton Abbey”). For example, the Duke of Marlborough rescued giant Blenheim Palace by marrying in 1895 Consuelo Vanderbilt, the chief heiress to the American railroad fortune.

Here’s a long list of American heiresses who married into the European aristocracy:

http://en.wikipedia.org/wiki/List_of_American_heiresses

Just Another MR Commentor April 25, 2014 at 4:50 am

Could these lessons have implications today, for example marriages to foreigners could be a way of getting around the government’s onerous H1B system which could save modern America’s great country houses (tech firms) from collapse due to lack of skilled workers. High skilled work is the wealth of our contemporary era.

Steve Sailer April 25, 2014 at 4:58 am

If Congress won’t give Mark Zuckerberg the H-1b visas he needs to keep Facebook from going broke, he should be allowed to order his employees to marry foreign programmers.

Just Another MR Commentor April 25, 2014 at 5:00 am

Whatever needs to be done, companies lik Facebook are absolutely crucial to America’s continued economic growth and we cannot be placing artifical limits on hiring decisions.

Steve Sailer April 25, 2014 at 5:07 am

As a patriotic act, I’m going to go to Facebook right now and post some pictures of my cat.

Michael April 25, 2014 at 9:22 am

While it may not be saying much, this is the greatest chain of comments I’ve ever seen on this site.

kiwi dave April 25, 2014 at 10:39 am

I can haz visa?

mulp April 25, 2014 at 11:55 am

“If Congress won’t give Mark Zuckerberg the H-1b visas he needs to keep Facebook from going broke, he should be allowed to order his employees to marry foreign programmers.”

Why should Zuckerberg get the benefits of taxes funding education without paying taxes, on the job training creating great workers without providing on the job training?

You are arguing for redistribution of wealth from those who sacrifice to invest in capital to those who simply want to gain wealth through pillage and plunder of the assets of others instead of creating his own wealth.

Steve Sailer April 25, 2014 at 5:05 am

One way to get a sense of inequality in different eras is to look at lists of luxury artifacts by date created. For example, giant country houses in England, which required low construction wages to build and low servant wages to run. There are numerous long lists of the stately homes of England, but here’s a short one of the ten that make up the Treasure Houses marketing consortium, including Blenheim Palace, Castle Howard (a.k.a., Brideshead), Chatsworth, and Castle Leeds:

http://en.wikipedia.org/wiki/Treasure_Houses_of_England

The latest date I can find for any of them for a major expansion is 1823. Most seem to go back to the Whig Grandee era of the late 17th and early 18th Centuries. That seems to fit with the thesis that English inequality stopped increasing after about 1820. (You could of course expand this research project as much as you care to.)

Joe Smith April 25, 2014 at 12:01 pm

Or it could just mean that after 1820 the wealthy had better, more productive, places to put their surplus capital than building ever bigger homes. Canals and railways spring to mind.

Alexei Sadeski April 25, 2014 at 12:56 pm

Those aren’t consumption items, those are investments.

Joe Smith April 25, 2014 at 3:09 pm

“Those aren’t consumption items, those are investments.”

That does not refute my point. A large house is also an investment giving a return based on the utility the owner derives from having the house. If large houses are giving returns of 1% or 2% and a railway is offering 5%, capital will flow to the railway.

Steve Sailer April 25, 2014 at 4:26 pm

Stately homes were an investment in dynastic power, places for you and your descendants to entertain other members of the ruling class and to make favorable marital alliances.

Steve Sailer April 25, 2014 at 4:19 pm

Another factor was less corruption in Britain from Victorian times onward.

Before then, for example, John Churchill, the first Duke of Marlborough, skimmed into his own pocket 2.5% of the pay of the English soldiers he led in the War of the Spanish Succession. That helped pay to build Blenheim Palace (which is approaching 300,000 square feet). That kind of corruption was pretty standard in 1700 — the main difference with John Churchill was that the public got better value for their money.

His descendant Winston Churchill went broke in the 1930s trying to maintain a much more modest country home, Chartwell, and a staff of merely 25. Churchill made herculean efforts to earn enough money with his pen to afford his lifestyle, but he had to be bailed out by the Austrian-Jewish banker Henry Strakosch in 1938.

Joe Smith April 25, 2014 at 6:53 pm

I think I read it in the book “Birth of the Modern” that around 1820 the value of land fell precipitously all around the world with the opening of the Mississipi valley to cultivation. That would have impacted the English landowners.

Steve Sailer April 26, 2014 at 2:00 am

Here’s an interesting review on the causes of the British agricultural depression of 1873-1896:

http://www.timeshighereducation.co.uk/books/which-straw-broke-the-back-of-british-agriculture/171618.article

Steve Sailer April 26, 2014 at 2:06 am

Very roughly, British farming led the world technologically (e.g., scientific breeding) in the 18th Century, which helped pay for some of those stately homes. And it stayed competitive for a long time in the 19th Century, but the free trade repeal of the Corn Laws in 1846 started to really hurt in the 1870s and 1880s when foreign grain finally poured in. The British fell behind technologically in the next agricultural revolution brought about by German chemical industries, and didn’t catch up until after 1945.

Floccina May 9, 2014 at 11:29 am
dearieme April 25, 2014 at 5:21 am

“Peace, industrialization, and globalization reversed this inegalitarian price effect in the nineteenth century, at least for England”: which is why The Man of Sense desires trade, invention, liberty, sound money and small government.

Just Another MR Commentor April 25, 2014 at 5:25 am

And Immigration – Open borders

Just Another MR Commentor April 25, 2014 at 5:26 am

Although I don’t think Sound Money is neccessary, BitCoin is purely electronic so it doesn’t make any klinking sounds in your pocket while you walk and yet is obviously more than adaquet for a currency system.

Brendan April 25, 2014 at 6:44 am

No mood affiliation here at all.

derek April 25, 2014 at 8:12 am

Piketty is all mood affiliation.

Brendan April 25, 2014 at 8:17 am

Yeah, totally. No data at all. Just mood affiliation. You nailed it, Derek.

http://topincomes.g-mond.parisschoolofeconomics.eu/

derek April 25, 2014 at 8:34 am

Data of what? Inequality? Bosh. A working economy will produce inequality.

Piketty is suggesting solutions based not on data but on some silly ideal that seizing assets and letting governments spend it will make a better world. His ideas, empirically, will make everyone poorer and worse off.

Just Another MR Commentor April 25, 2014 at 8:39 am

+1 on the parody of the mood affiliation guy

Pierre April 25, 2014 at 9:05 am

Piketty has stated in all his interviews that he thinks that the money earned through wealth taxation should be used to lower the taxes of the middle class, not to let governments spend more.

So your condamnation of Piketty is not based on facts, but on you own little personal fears. How is it called again? Ah yes, mood affiliation.

eccdogg April 25, 2014 at 9:23 am

But in the US aren’t we already there as far as low tax rates on the middle class.

http://www.cbpp.org/cms/?fa=view&id=3151

“Households in the middle fifth of the income spectrum paid an average of 11.5 percent of their income in overall federal taxes in 2010, the latest year for which data are available, according to CBO.[7] This is the lowest on record in data that go back to 1979. When CBO publishes data for more recent years (such as 2013), overall federal average tax rates on this middle group will likely be higher — though still low historically — because they will reflect the expiration of the temporary income and payroll tax cuts discussed above. ”

Perhaps G.W. Bush and Picketty have more in common than one might suspect. My guess is France and most of EU have higher tax rates on median earners than US. Should Picketty be singing the praises of the US system? Relatively low spending and low tax rates on median earners?

AndrewL April 25, 2014 at 9:39 am

@Pierre

“…not to let governments spend more.”

How is that even possible? That’s like taking a bite of your favorite food, chewing it and not swallowing it. It’s impossible.

Just Another MR Commentor April 25, 2014 at 9:42 am

What do you mean? I chew and spit out my favourite food all the time – once the flavour is all chewed out why do I need to actually swallow it? I guess I’ just more efficient than the government.

Brian Donohue April 25, 2014 at 11:19 am

Is Piketty aware of 400 million south and east asians joining the middle class in the past generation and the related trend in the global GINI coefficient?

Inequality within the developed world is a wart on the ass of a much larger and encouraging phenomenon.

Jan April 25, 2014 at 11:54 am
Pierre April 25, 2014 at 12:38 pm

@AndrewL
Do states never ever lower taxes?
Do states never ever change the taxe payers base?
I had the impression that sometimes it happens.

Brian Donohue April 25, 2014 at 12:39 pm

@Jan, I said global GINI. It is quite possible for within country GINI’s to expand while worldwide GINI compresses. This is actually what has happened. Not that fans of equality care.

Jan April 25, 2014 at 3:25 pm

Brian, ok, but if people in South and East Asian joining the middle class is the bright spot in all this, is it a good thing or a bad thing that those very same people are part of a trend of rising inequality within their own countries?

What’s more important, that a person can dream to make the same salary as his neighbor and boss, or that he can dream to make the same amount as the richest people in the richest country in the world?

AndrewL April 25, 2014 at 3:44 pm

@Pierre

Yeah it sometimes happens just like I sometimes miss my mouth when I try to eat. It’s rare, but a bigger mouth is harder to miss.

And now I’ve totally forgotten what this post is about.

Jonathon Martin April 25, 2014 at 7:02 am

Piketty: If inequality of wealth is a problem, a progressive wealth tax on property would help.
Sumner: But a progressive wealth tax does not tax consumption!

This is like arguing that an aspirin cannot relieve your headache because it doesn’t unblock your nose.

Sumner’s issue is clearly the same as one of Tyler’s: that inequality of wealth is a distraction. That’s fine but it’s a bit cheap to pick on a policy proposal that never pretends to solve the problem you’re complaining it fails at solving.

I should also point out that Sumner doesn’t address what many people think is the biggest problem with inequality of wealth, and that is the power it confers. A progressive property tax on the value of a property might discourage consumption of property, but it will do nothing to prevent the transfer of unearned wealth and privilege.

John Smith April 25, 2014 at 7:52 am

1.) Piketty & Co. are fairly explicit in their contention that inequality of wealth is a problem.

2.) The solution to wealth corrupting power is not to make everybody equal in wealth. It is to limit the amount of power wealth is able to corrupt.

See any progressive talking points for 1.) See The Constitution for 2.).

Just Another MR Commentor April 25, 2014 at 8:09 am

Absolutely, I am so damn sick of those progressives whining about corruption. We have courts and a Constitution in this country and I just don’t see how wealthy individuals have any advantage over the poor in court, or in any other aspect of our legal system. It’s as if progressives never watched School House Rock. BitCoin is up, Stocks are up, real estate is booming – the economy is doing victory laps and all these progressives can do is whine and whine about “corruption”. The Constitution is more rock soild than ever, particularly the 4th Amendment.
The real problem this nation faces is a severe and critical shortage of engineers, entrepenuers, and scientists which must be alievated with open border policies.

Jan April 25, 2014 at 8:13 am

This is surely parody.

Jonathon Martin April 25, 2014 at 8:28 am

1) I don’t disagree.

2) Either, surely, would work. I have yet to see a constitution that is an effective protection against wealth, however.

Jonathon Martin April 25, 2014 at 8:31 am

That was a reply to John Smith.

Just Another MR Commentor April 25, 2014 at 8:34 am

The US constitution gives citizens the right to vote representatitves into power. If those representatitves are corrupt they will be voted out of power. Pretty straightforward to me.

Jonathon Martin April 25, 2014 at 8:50 am

It is actually very hard to tell if you’re serious or not.

Brian Donohue April 25, 2014 at 11:22 am

@Jonathon. No. It is not hard at all.

msgkings April 25, 2014 at 9:16 pm

The fact that he’s making some wonder means he’s an expert troll. I kind of like him.

wiki April 25, 2014 at 9:54 am

Piketty actually contends that both wealth and income inequality matters and he leans heavily on the idea that both measurements seem to track each other. But both measurement rely on getting reliable price deflators. If the rich and poor consume different baskets of good, those prices need to be adjusted and hence those measures of inequality as well. As long as they show the same things, Piketty feels on solid ground, but the consumption calculations undermine some of Piketty’s case although Aguiar and Bils (2011) would argue that even here consumption inequality has risen in tandem with income inequality in recent years. Even if true, that was not true of the 19th century which is the period that Piketty uses as the benchmark for “bad” inequality.

FUBAR007 April 25, 2014 at 2:27 pm

“The solution to wealth corrupting power is not to make everybody equal in wealth. It is to limit the amount of power wealth is able to corrupt.”

…which serves only to scale the problem down, not meaningfully mitigate it. The imbalance of power between the strong and the weak remains unaddressed.

Your statement–and libertarian minarchist/anarchist thought more broadly–incorrectly presumes that the weak–the poor, the have-nots–are better off the more unregulated the political-economic environment is. The implication of this presumption is that, in an unregulated environment, the strong–the rich, the haves–can be trusted to self-regulate and not abuse their wealth/power. This is dangerously naive. In an unregulated environment, there is only one law: survival of the fittest. Or, put another way, might makes right. The strong can do whatever the hell they want. And, human nature being what it is, they will.

The purpose of democratic government, at its basest level, is to a) protect the weak from the strong and b) define what obligations the strong and the weak have to each other. It presumes that 1) human life has inherent value distinct from measures of material wealth, 2) human beings within the jurisdiction of the government are entitled to certain basic rights simply for being alive, and 3) that with power comes responsibility i.e. the strong have greater obligations than the weak. Democracy is the mechanism by which the weak constrain the strong.

In a deregulated environment, the weak have no such mechanism. Their alternative is mass violence which can serve only to perpetuate and exacerbate the problem in the long run.

KPres April 28, 2014 at 12:18 pm

No, the purpose of democracy is to transmit power from capitalists to the intelligentsia. The flow of information is the currency of democracy, which is why academics and media are all leftists.

Slocum April 25, 2014 at 7:57 am

A progressive property tax on the value of a property might discourage consumption of property, but it will do nothing to prevent the transfer of unearned wealth and privilege.

Do you really think that it’s the lack of a wealth tax that’s responsible for this young lady being inexplicably prominent and newsworthy?

http://abcnews.go.com/Politics/chelsea-clinton-im-pregnant/story?id=23369558

Or is it the unspoken idea that a wealth tax would knock down the ‘wrong’ kind of inherited power and privilege (primarily financial) and thereby make the way clearer the for the ‘right’ kind (primarily family connections)?

Collin April 25, 2014 at 8:16 am

Then why were there so many hunger riots in 1848 in most European nations?

Just Another MR Commentor April 25, 2014 at 8:31 am

Immigration restrictions meant that while there was a bumper crop that year there was no labour around to gather it.

Z April 25, 2014 at 9:46 am

Maybe because they were not “hunger riots.”

http://en.wikipedia.org/wiki/Revolutions_of_1848_in_the_German_states

More like the usual trouble makers challenging the natural order.

Bryan April 25, 2014 at 10:31 am

Any penalty on wealth may lessen the power of the wealthy, maybe.

But it will surely raise the status of our glorious politicians. I think we can all agree that will be a good thing…..

Jonathon Martin April 25, 2014 at 12:11 pm

Piketty actually argues that rather than giving more money to the state you can just lower the wealth tax on lower levels of wealth so the books balance. In this way you can avoid collecting more tax and thus giving more power to the politicians.

Z April 25, 2014 at 10:32 am

I’ve not yet read the book and I have avoided most of the commentary. My inclination is it is just gussied versions of the same old arguments. What strikes me about Picketty’s charge, as best I can tell, is the intellectual base stealing. He (and his cheering section) just assume inequality is bad and arises from immoral skulduggery. I’m not sold that either assumption is correct, at least in absolute terms.

Michael April 25, 2014 at 10:57 am

No one said inequality is bad in absolute terms. Talk about a non-sequitur!

Z April 25, 2014 at 11:55 am

Neutralizing language is always the escape hatch used, but it simply means the argument is irrational. The clear implication, one that is intended, is that inequality is bad.

Jonathon Martin April 25, 2014 at 12:16 pm

Piketty says some inequality is not only desirable, but necessary. He also defends private property.

As a rule it’s definitely better to comment after you’ve engaged with the most basic elements of the literature.

Z April 25, 2014 at 12:41 pm

You could have stopped at the first line, but you elected to go full-on smug dickhead. Well done, if that’s the image you choose to project.

Jonathon Martin April 25, 2014 at 12:56 pm

I’m not sure what image you were trying to project writing essentially “I didn’t read this or what anyone wrote about this but I’m going to dismiss it anyway”.

But perhaps you’re right. I apologise.

Z April 25, 2014 at 1:35 pm

No worries. I apologize as well.

My point was simply that the Piketty Partisans *appear* to start from the assumption that inequality is bad and that it is the result of deception or worse. if, as you say, Piketty does not start from that assumption, then where does he draw the line? If up to some point wealth inequality is both moral and harmless, then establishing that point is all that matters. Debating whether r > G or his proposed solutions is pointless otherwise.

Jonathon Martin April 26, 2014 at 12:25 am

Piketty simply starts by investigating the distribution of wealth over time. Then he seeks to explain it. Then he suggests ways in which ever accumulating wealth at the top might cause problems. It’s a practical argument. To give one uncontroversial example, if the wealthiest people pass their wealth to their children, who have not earned it, it has pernicious effects. First, it destroys meritocracy because your wealth is determined by your parents, not your own labour. Second, those children need not work, so you discourage productivity from their labour. Third, even if you think it’s fine for money to play a big part in politics, you probably don’t think it’s healthy for democracy for that money to come from inherited wealth. etc. etc.

Piketty’s argument is that left unchecked (by wars or redistribution) it looks as though inequality gets worse and worse. That’s the story of the past 30 years. If he’s right, then even if you think current levels of inequality are fine, you may still be concerned by the trend.

jorod April 26, 2014 at 12:30 am

Real equality arose with the use of arithmetic and double entry accounting. But while everyone could add and subtract, some did it better then others. And we had inequality of outcomes for the first time that weren’t so much related to political power. .

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