Ye Olde Inæqualitee Shoppe

A quick note : Income inequality in pre-industrial societies was, in general, lower than in modern industrial societies, but traditional agrarian economies tended to be closer to their “maximum feasible inequality” than modern ones.

In “Russian Inequality on the Eve of Revolution” (I’m obliged by protocol to perform some kind of headgear ritual with Ben Southwood) there is a table which shows various measures of income inequality in pre-revolutionary Russia, along with some comparator societies :

It’s not surprising that income inequality should be low in agrarian, pre-industrial societies. You actually need some income to achieve substantial inequality ! But on second thought, that doesn’t properly put things into perspective, because you should compare actual inequality with the “maximum potential inequality” possible given the society’s level of per capita income. This point is vividly illustrated in Milanovic, Lindert & Williamson, “Pre-Industrial Income Inequality”, which supplies the interesting “inequality possibility frontier” curve :

The idea is, there is an absolute level of subsistence income for the mass of peasants who are creating value in the traditional society. Above that level is the surplus, or the amount of income which can be expropriated by elites ; and below that amount… starvation for the producers in the economy.

Thus, in a very poor society whose average income is close to the absolute survival level, the surplus extracted is pretty small and therefore inequality cannot be very high. But as average income rises, there is potentially more to extract. So the interesting question becomes, did pre-industrial societies at different levels of income have different “extraction levels” ? Put another way: did peasant incomes also rise when the average income rose or did the increase simply lead to more elite extraction ?

(You can click the above image to enlarge.) Subsistence income is assumed to be $300 in 1990 international dollars.

Incomes may have been more equally distributed in China in 1880 than in England in 1688, but that’s only because the average income was quite low in China. Perhaps more importantly, China in 1880 was closer to its maximum potential inequality than England in 1688. The chart below compares preindustrial societies with modern ones :

Some countries considered very unequal, like modern Brazil, are definitely more unequal than most pre-industrial societies, but it’s much farther from its “potential maximum inequality” precisely because it produces much more income than Peru in 1876. There’s just more to go around.

So for preindustrial or developing countries with very low incomes, it’s best to consider what Milanovic et al. call “inequality extration ratios” — the ratio of inequality to “maximum feasible inequality”, both measured in Gini terms. As average income rises with development, inequality also usually rises, but the extraction ratio should fall. Yet for some very poor countries today the “inequality extraction ratio” remains almost mediaeval :

Here’s also a full page of comparisons with modern and preindustrial societies.

Kenneth Pomeranz, in The Great Divergence, observed :

Mughal India does appear (in the table in the link above) to have been particularly extractive, but the other two historical values for India — especially the one for Bihar circa 1800 — not nearly as much. And you’d expect Bihar — one of the most benighted places on earth — to be a particularly exploitive place ! So Pomeranz may have been overgeneralising from the Mughal intensification of the preexisting zamindari system in north India.