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

Release Date
April 29, 2014

Topic

Economics Poverty & Inequality
Description

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.

Don’t believe the facts and figures cited in the video?
Sources and further explanations can be found in Prof. McCloskey’s book, Bourgeois Dignity: Why Economics Can’t Explain the Modern World.
Check out these sources as well:
1) For numbers on average per person income both in 1800 and today, see the work of Angus Maddison in both his book, The World Economyand the Maddison Project.
2) For numbers on the how many people on the planet live in extreme poverty – and how many have escaped – see Remarkable Declines in Global Poverty, But Major Challenges Remain.
For even more data, check out the links below:
– Needed: An Economics for Grownups (interview) National Review’s Matthew Shaffer interviews Prof. McCloskey
– Bourgeois Dignity‘s first three chapters (book excerpt) Get a taste of Prof. McCloskey’s masterful work
– Capitalism Will Eliminate Poverty in Africa (article) The Cato Institute makes a compelling case for the exact opposite of what so many advocate
– The Whole World Is Getting Richer, and That’s Good News (article) Bloomberg Businessweek looks at concrete data and concludes that things are getting better all the time; thanks to capitalism

Why Does 1% of History Have 99% of the Wealth?
Deirdre McCloskey: The most important thing to understand about, about the modern world actually, is that once people were very poor and now they are very rich. In 1800 the average person in the world made three dollars a day. I mean the modern equivalent of three dollars a day, so the goods and services the stuff you could buy in the amount of three dollars a day so three quarters of a Cappuccino per day. Nothing else. In the last thirty years the percentage of people who were that badly off in the world has fallen by half. It has been halved. So things are going very well and for we in places like the United States where they have gone exceptionally well since 1800. We are making, now hear this, $130 a day and what a transformation, it is just incredible. Now we had earned the three dollars a day forever so there was in history if you want a short economic history, since the beginning of time it was three dollars a day going along like this and then right here which is 1800 it goes schwoosh, it goes up like mad and there is this fantastic transformation of the condition of ordinary folks. Why did it happen? One old explanation is exploitation. You hear this a lot, we are rich because there are a bunch of poor people elsewhere in the world who are poor. That is not true. There has always been exploitation in history and it didn’t cause economic growth so it can’t be modern exploitation nor can it be, to think of a more conservative way of looking at it, investment. It is not investment it is not piling bricks on bricks or BAs on BAs, it’s new ideas. It is innovation. The fantastic number of changes in machinery, and materials, and organizational ideas ,such as the modern university, or reinforced concrete it is just amazing that caused the schwoosh, this hockey stick, the blade of the hockey stick. Why did this happen? Two changes in Holland and England in the 1600s and 1700s which was a rise of economic liberty and social honor for inventors, merchants, manufacturers. Before these were dishonored occupations then they became honored, and out of that came a tremendous burst of innovation that had been earlier discouraged because they weren’t free and they weren’t honored.