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