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Relative costs of living, for richer and poorer, 1688–1914

Abstract

The kinds of goods that richer and poorer households consumed differed more strongly in the past than today. Movements in the relative prices of luxury goods versus staples caused the real inequality to oscillate in ways missed by the usual historiography of (nominal) inequality. On both sides of the North Atlantic and in Australia, real inequality rose substantially less in 1800–1914 than the literature on nominal inequality has revealed. The reasons for this relate to the relative decline of food prices, rural–urban price gaps, and the delayed rise of luxury service prices, especially after 1850. Throughout these centuries, the North Americans enjoyed lower living costs than their counterparts in England.

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Fig. 1
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Sources and notes: see Fig. 1

Fig. 3

Notes

  1. 1.

    Van Zanden (1995), Milanovic et al. (2011), Alfani (20172019), Alfani and Di Tullio (2019), and Di Matteo (2018). For a grand synthesis of the literature on inequality trends in Europe and all over the world for two millennia, see Scheidel (2016).

  2. 2.

    On all data-supplying countries, see Roine and Waldenström (2014) and Moatsos et al. (2014), again with a summary by Scheidel (2016). On the nineteenth-century rise in French wealth inequality, see Piketty et al. (2006) and Piketty (2014, esp. p. 349). On the rise in American income and wealth inequality 1774–1860 or 1774–1914, see Lindert and Williamson (2016, Chapter 5). For England and Wales, Allen (2018, pp. 21–24) finds that inequality, after rising across the eighteenth century, had “moderated” in the mid-nineteenth century. The rise of nominal inequalities in the early modern period has been documented by Van Zanden (1995) and by Alfani and Di Tullio (2019).

  3. 3.

    See Atkinson et al. (2011) and the WID database (https://wid.world).

  4. 4.

    In the economic history literature, we note three exceptions that indeed pursued real differences in income inequality. One is Williamson’s (1976) analysis of what different income classes’ cost-of-living movements over time within the urban USA might imply for income inequality. Similarly, social biased price trends played an important part in Hanus’s (2013) study of part of the Low Countries between 1500 and 1650. A broader historical perspective was the study of European cost-of-living movements by income class conducted by Hoffman et al. (2002, 2005). While their historical sweep was broad, covering several Western European countries over the centuries since 1500, their study shared a limitation with that of Williamson: lacking the right units of measurement to compare nations at a point in time, they could only sketch how price movements affected inequality within three European countries over time. We follow in their path, expanding the countries covered and comparing absolute differences in higher-income purchasing power across nations.

  5. 5.

    For some recent evidence on the nutritional and other purchasing-power influences on health see Aizer and Janet (2014), Underwood (2014), Spagnoli (2014), and Brueckner and Lederman (2015).

  6. 6.

    By contrast, in France the trends in upper- and lower-class living costs did not differ in any clear way, as we shall note again later.

  7. 7.

    For a recent study of income-class differences in the effects of inflation, see Hobijn and Lagakos (2005). Some studies have even found that the poor face different prices from the rich even within the same price environment (e.g., Rao 2000, Beatty 2010), due mainly to credit constraints. We cannot pursue this level of detail here, however, due to data limitations.

  8. 8.

    That is, the inter-class differences in expenditure shares remain roughly similar, even though expenditure shares move over time and space for each income class. For household budgets offering detail on luxury items, see the wide array of consumer household budgets, including several middle- or upper-class budgets, in Williams and Zimmerman (1935), Hoffman et al. (2002, pp. 326–327), http://gpih.ucdavis.edu/global prices and incomes database/consumer bundles, and Brady (1972).

  9. 9.

    The decision to study only the limited gap between “bare-bones” and “respectability” is one shared by the present authors in other work [e.g., Geloso (2016) and Lindert and Williamson (2016, Appendix D, pp. 304–310).] The respectability budget, like the bare-bones one, is helpfully confined to basic goods for which comparative price data are more abundant. It is still considered a “poverty line basket” by many, such as Humphries (2013) and Hanus (2013).

  10. 10.

    For the updated income distribution for 1801–03, now more plausibly attributed to the year 1798, see Allen (2018).

  11. 11.

    By contrast, Broadberry et al. (2015, pp. 333–339) postulate lower fuel shares of total expenditures for Great Britain’s “respectability” budget than for their “bare-bones” budget.

  12. 12.

    Note that using input prices to proxy the prices of luxury and capital-good outputs requires the assumption that total factor productivity in these luxury and capital-good sectors did not change across countries or over time. Over time, our necessary assumption is likely to bias the trend in luxury and capital-good prices upward.

  13. 13.

    As the post-1850 data for Canada blends new data (for wages) and old data (for prices), a long discussion is required. This discussion hampers the flow of the article. Thus, we thought it preferable to relegate this to an appendix. .

  14. 14.

    Starting from back in 1500, for England, and also for France and Holland, the trend was more strongly inegalitarian, as emphasized by Hoffman et al. (2002, Figs. 1, 2, 3). Their cost-of-living indices of the relative costs of living had still not shifted in favor of workers as late as 1815, and behave like the ones reported here, even though they used different expenditure weights.

  15. 15.

    For historical conversions to metric, and some commodity weight/volume ratios, again see the Global Price and Income History site (http://gpih.ucdavis.edu), the International Institute for Social History’s history of prices and wages (http://iisg.nl/hpw), Robert Allen’s homepage, and the further metrological links provided by these sites.

  16. 16.

    This would include overseas shipping as well as overland shipping which became cheaper as railroads made the frontier parts of Canada, Australia, and the USA more accessible (and thus inciting increases in the supply of food staples) (see notably Hobson 1895: 85; Norrie 1975).

  17. 17.

    It is also worth pointing out that—in all four countries we considered—prices for manufactured goods such as clothing fell rapidly relative to the price of grains. In the basket using American weights, where clothing constitutes a larger share of expenditures for the poor than the rich, this is particularly important as this contributed to the egalitarian price. However, consistent and comparable series on other (more heterogeneous) manufactured goods are not available.

  18. 18.

    Unfortunately, for Canada, the first series of income inequality start only around 1920 (Saez and Veall 2005). There are series covering earlier wealth inequality (Di Matteo 2016, 2018) that can be used, but there are none that speak to Canada as a whole, but only regional estimates for different top income shares (1% or 10%) for disparate time periods. However, thanks to recent work by Di Matteo (2018: Appendix 2) which compiles all available estimates of wealth inequality in Canada, we can see that two areas (the province of Manitoba and Wentworth county in the province of Ontario) offer estimates from the early 1870s to the eve of the Great War for the top 1% of wealth holders. In the case of Wentworth county, the increase in real wealth inequality is between 6 and 32% inferior to the increase in nominal wheat inequality between 1872 and 1912. In Manitoba, the changes in real wealth inequality between 1875 and 1912 are 6% to 20% below the changes suggested by nominal figures.

  19. 19.

    For the Bowley-Stamp-Routh 1911 estimates, see Lindert and Williamson (1983) and gpih/ucdavis.edu/distribution. This finding is drawn from estimates of the distribution of household incomes. For a different presentation of the 1911 distribution among taxpayers, rather than among households, see Scott and Walker (2018).

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Geloso, V., Lindert, P. Relative costs of living, for richer and poorer, 1688–1914. Cliometrica 14, 417–442 (2020). https://doi.org/10.1007/s11698-019-00197-8

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Keywords

  • Real inequality
  • Price-index
  • Inequality

JEL Classification

  • N16
  • N30
  • D60