Modern society is as unequal as 14th century Europe
- New essay depicts 700 years of economic inequality in Europe.
- The only period of time more equal than today was the period between 1350 and 1700 or so.
- The data suggests that, without intervention, inequality does not decrease on its own.
Economic inequalities are a constant topic. Whatever the cycle – boom or recession – someone is making a lot of money, and the issue of fairness is never far away.
A recent publication trial in the Economic literature review by Prof. Guido Alfani adds an intriguing perspective to the discussion by showing the evolution of income inequalities in Europe over the past hundreds of years. It turns out that we currently live in a relatively egalitarian environment time.
Seven centuries of economic history
Figure 8 by Guido Alfani, Journal of Economic Literature, 2021.
This graph shows the amount of wealth controlled by the richest ten percent in parts of Europe over the past seven hundred years. Archival documentation similar to modern economic data (and often of similar quality) allows researchers to gain insight into economic conditions centuries ago. Sources such as property tax records and documents listing the rental value of homes can be used to determine the value of a person’s estate. (Although these methods exclude those that have no property, the data is not particularly distorted.)
The first part of the line, shown in black, represents the work of Professor Alfani and represents the average level of inequality of Sabadian State in northern Italy, The Florentine State, The kingdom of naples, and the Republic of Venice. This last part, in gray, is based on the work of French economist Thomas Piketty and represents an average of inequalities in France, the United Kingdom and Sweden during this period.
Despite the change in location, the level of inequality and the rate of increase are very similar between the two datasets.
Apocalyptic events cause inequalities to decrease
Note that there are two substantial drops in inequality. Both are linked to truly apocalyptic events. The first is the Black death, the common name for the bubonic plague pandemic in the 14th century, which killed between 30 and 50 percent of Europe. The second, at the dawn of the twentieth century, is the result of the First World War and the many major events that followed it.
The 20th century as a whole was a time of tremendous economic change, and periods without major wars are notable for having great experiences of distributive economic policies, especially in the countries Piketty considered.
The slight slowdown in the rise in inequalities in the 17th century is the result of the Thirty Years’ War, a terrible religious conflict which devastated Europe and left eight million dead, and the great scourges which affected southern Europe. However, recurrent plague epidemics after the Black Death no longer had much effect on inequality. This was due to a number of factors, not the least of which was the adaptation of European institutions to manage pandemics without causing such a transfer of wealth.
In 2010, the last year covered by the trial, inequality levels were similar to those in 1340, with 66 percent of society’s wealth held by the top ten percent. In addition, levels of inequality continued to rise and the trends have not stopped since. As Professor Alfani explained in an email to BigThink:
“In the decade leading up to the Covid pandemic, economic inequalities showed a slow trend of continued growth in inequality. The Great Recession that began in 2008 may have helped slow the growth of inequality, especially in Europe, but it did not stop it. Covid-19 is expected to tend to increase inequality and poverty, as it tends to create relatively greater economic damage for those with unstable jobs or who need physical strength to work (think to the effects of long-Covid “, which can prove to be physically crippling for a long time). Moreover, and fortunately, Covid is not deadly enough to impose a major leveling dynamic on society.”
Can only disasters change inequalities?
This is the subject of some debate. While inequality can occur in any economy, even one that is not growing very much, there are things that seem to make it more likely to rise or fall.
Thomas Piketty has suggested that the cause of changes in inequality levels is the difference between the rate of return on capital and the overall growth rate of the economy. Since the return on capital is usually higher than the overall growth rate, this means that those with capital to invest tend to get rich faster than everyone else.
While this explains much of the graph after 1800, his model does not explain why inequality declined after the Black Death. Indeed, since the plague destroyed human capital and left material goods alone, we would expect the ratio of wealth to income to increase and inequality to increase. His model may provide explanations for the decline in inequality in the decades following the pandemic, however, it is possible that the abundance of capital may have reduced returns over a longer period.
The catastrophe theory advanced by Walter Scheidel suggests that the only force strong enough to wrest economic power from those who have it is a life-changing event like the Black Death, the fall of the Roman Empire, or the First World War. While each event changed the world in a different way, they all had a huge leveling effect on society.
But even that doesn’t explain everything in the graph above. The pandemics following the Black Death had little effect on inequality, and inequality continued to decline for decades after the end of World War II. Professor Alfani suggests that we remember the importance of human action through institutional change. He attributes much of the decline in inequality after World War II to “the policies of redistribution and the development of welfare states from the 1950s to the early 1970s.”
What does this mean for us now?
As Professor Alfani put it in his email:
“[H]History does not necessarily teach us whether we are to view the current trend of growing economic inequality as an unwanted outcome or a problem in itself (although I personally believe there is reason to argue that way). Nor does it teach us that high inequality is fate. What it teaches us is that if we do not act, we have no reason to expect inequalities one day to decrease on their own. History also offers ample evidence that past trends in inequality have been deeply influenced by our collective decisions, as they have shaped the institutional framework over time. So it’s really up to us to decide if we want to live in a more or less unequal society. “
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