Why Does 1% of History Have 99% of the Wealth?

For nearly all of human history, most people were very, very poor. But something happened after 1800. Average wages began to rise. For example, in the past 200 years, the average wage in the United States has gone from $3.00 per day to over $120.00 per day—and that’s adjusted for inflation.  Why the sudden change? Prof. Deirdre McCloskey explains her theory.

Some argue that it is exploitation. Perhaps the wealthy are accumulating more at the cost of the poor. The problem with this argument is that exploitation has been occurring in the world throughout history, but it never caused economic growth of the kind we’ve seen after 1800. Others argue that the key was investment. But Prof. McCloskey says that’s wrong too. Instead, she says this incredible amount of economic growth has been brought about by new ideas & innovation.

That still leaves the question of why innovation didn’t cause great growth prior to the 1800s. Prof. McCloskey argues that two changes in Holland and England gave rise to the incredible burst of innovation we saw: first, an increase in economic liberty for trade and commerce, and second, the possibility of social honor for inventors, merchants, and manufacturers. These professions had previously been considered dishonorable. These changes resulted in the tremendous burst of innovation that had earlier been discouraged because innovators weren’t free and they weren’t honored.

6 Comments

  1. Grady Flanagan

    HAHA, how would today’s young people feel if they heard that being an inventor or a merchant was a dishonorable job. Good thing we pride ourselves on ingenuity.

  2. Hunter Markson

    How do you define wealth?  Industrial Capital?  Utility?  Natural Resources?

  3. Daniel Pealer

    I don’t know about others but myself I subscribe to Bastiat’s definition of wealth (riches) in his brilliant piece “What is Money?”

    “For riches, don’t you see, are not a little more or a little less money.
    They are bread for the hungry,
    clothes for the naked,
    fuel to warm you,
    oil to lengthen the day,
    a career open to your son,
    a certain portion for your daughter,
    a day of rest after fatigue,
    a cordial for the faint,
    a little assistance slipped into the hand of a poor man,
    a shelter from the storm,
    a diversion for a brain worn by thought,
    the incomparable pleasure of making those happy who are dear to us.
    Riches are instruction, independence, dignity, confidence, charity;
    they are progress and civilization.
    Riches are the admirable civilizing result of two admirable agents,
    more civilizing even than riches themselves — labor and exchange.”

    In short riches, aka wealth are those things we find useful or enjoy.

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