Capitalism creates inequality: Stone age edition
Yesterday, I was ranting a bit about modern-day robber barons and their shameless accumulation of wealth. Today, I want to take a slightly wider historical lens to wealth inequality. So follow me back into the stone age…
Samuel Bowles and Mattia Fochesato published a wonderful survey of wealth inequality during the Paleolithic and Neolithic eras (the Stone Age for you and me). Based on grave goods, house sizes, land area covered, and storage facilities for grain etc. they and other archaeologists can reconstruct wealth inequality in different regions and at different times. Obviously, this is fraught with uncertainty as the authors explain in painful detail, but it’s as good as it gets. So here is the wealth inequality (measured as Gini coefficient) of Western Eurasian societies in the 10,000 years before the current epoch.
Wealth inequality in the 10,000 years BCE
Source: Bowles and Fochesato (2024)
You will notice that up until about 6,000 years BCE, wealth inequality was rather low, but then began to rise and reached an average of 0.695 during the Bronze and Iron Ages.
What changed 6,000 years ago? Well, farming was invented, and previously nomadic people became sedentary. This created some important shifts:
Capitalism started as sedentary farmers started to hoard cereals and grain to insure against natural disasters (the original Farmers Insurance Group if you like). These sedentary farmers could also start to raise larger animals, thus storing wealth in the form of livestock.
Technological progress like the invention of ploughs reduced the reliance on physical labour and allowed ‘capitalists’ to increase productivity beyond what subsistence farmers without equipment could.
With people forming villages and cities, states emerged, and state power grew bigger. From an early age, the wealthy could capture the state and enlist it in defending their wealth against uprisings of poorer parts of the state and people from other states.
Once some people had accumulated wealth, slavery could boost their labour force and turn slave labour into a new source of wealth.
Taken together these four capitalist forces created rising wealth inequality which eventually settled at Gini coefficient levels of c.0.7.
Today, some 2,000 years later, wealth inequality in Europe and even Japan and Australia remains at this level. Except for some countries that have managed to become even more unequal. No points for guessing which developed country I mean…
Wealth inequality in developed countries 2021
Source: Credit Suisse
Great historical piece, thanks. I assume higher Gini coefficients relate to civilisation collapse? In the phases of civilisation collapse, these times in the US appear to conform to the last phase of 'decadence': arrogance, laziness, greed, complacency and a misguided belief that technology will solve everything. Good times create weak people....
Thomas Picketty made this observation in his Capital in the Twenty-First Century, comparing the level of today's inequality to the belle epoque. What he also pointed out, but grossly underemphasized was that the overall standard of living grew on an exponential basis. Keynes observed that there was an implicit deal in England in the 19th century. Practice laissez faire capitalism with extremely low tax rates and the industrialists of that era pumped their wealth back into their businesses, expanding them and introducing technological change. The result Keynes observed was a dramatic reduction in poverty amongst the majority of the population from the mid-19th century to the early 20th century. As Picketty also observed, the two world wars resulted in a tremendous reduction in European economies and inequality. Since then both have recovered. The upshot is that inequality in a free society is structural as talented individuals seek to distinguish themselves. The myth of starting a business out of the veritable garage is true when you look at Bill Gates, Steve Jobs and Jeff Bezos. Where would we be without them?