Created by history

Inequality is bad for economies in the very long-run. Here's a new paper:

In countries with higher levels of inequality in the 1700s and 1800s, businesses today are more likely to die young and create fewer jobs.

This could be because inequality means more people are credit-constrained and so cannot set up their own businesses, which in turn generates anti-entrepreneurial attitudes which are transmitted down the generations.

I don't say this to provide another reason to worry about today's inequality; it would be odd to reduce inequality now on the grounds that doing so will benefit people in the year 2300. I do so instead because this is yet more evidence that our social and economic attitudes are shaped by quite distant historical circumstances. To take a few examples:

 - Areas of Australia which saw men greatly outnumber women in the 18th and 19th centuries because of England's transportation of criminals have more sexist attitudes and gender discrimination today.

 - Areas of Germany which saw anti-Jewish pogroms after the Black Death tended (pdf) to be more supportive of the Nazi party in the 1930s.

 - British people's attitudes to immigration today are "significantly (pdf) more positive when the respondents live in a constituency that was home to a medieval Jewish immigrant community."

 - "The (pdf) descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics, and entrepreneurial activities.

 - Stanley Engerman and Kenneth Sokoloff show (pdf) that one reason why south America grew more slowly than the north is that their higher inequality entrenched the power of the rich which allowed them to block economic development.

 - Nathan Nunn has found "a robust[in Africa] negative relationship between the number of slaves exported from a country and current economic performance." This could be because the slave trade heightened mutual distrust and led to weak and corrupt states.

The precise mechanisms in these stories differ. Sometimes, the transmission from past to present operates via institutions, sometimes via culture - though of course the two interact. You can read Greg Clark's work (pdf) showing that wealth persists through the generations as individual-level evidence for the latter.

All this suggests that, contrary to simple-minded neoclassical economics and Randian libertarianism, individuals are not and cannot be self-made men. We are instead creations of history. History is not simply a list of the misdeeds of irrelevant has-beens; it is a story of how we were made. Burke was right: society is "a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

One radical implication of all this is Herbert Simon's:

When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe. On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners.

Comments

[Jonathan]

Some interesting findings and argument, but the Engerman-Sokoloff thesis about Latin America has been subject to some pretty strong criticism here:

http://www.nber.org/papers/w14766

[Andrew]

Maybe this is all true, however, the equality push isn't intended to actually raise happiness/utility etc., it's simply a transitional demand, i.e. to cripple capitalism by stealth. But just in case it's not, let's have an experiment: find a closed society, pull the lever marked "Equality", and report back on the Happiness stats. The Spirit Level invites us to expect a +ve linear relationship.

[FromArseToElbow]

You have to be careful with these 'longue duree' correlations that you're not mistaking economic geography for social history.

For example, the incidence of antisemitism in Germany relates to the economic backwardness and exposure to trade of certain areas, which hasn't changed in relative terms over the centuries.

In other words, cultural norms are not just handed down from generation to generation but are recreated within each generation by material circumstances.

It's always worth bearing in mind that the idea of inheritance, like "eternal verities", has an ideological purpose, hence Burke's notion of inter-generational debt.

[Phil]

Interesting. I went to school in Croydon; my mother grew up in Thornton Heath, and her mother was in service in Battersea. One of the first things that struck me when I came to Manchester was the way people looked you in the eye - nobody was apologising for having an accent or shutting up when the posh boy spoke. It rubbed my middle-class privilege up the wrong way, but it was obviously a better way to be, once I'd got used to it. (I noticed the same thing on trips to Liverpool and Carlisle, so it wasn't Manchester that was the outlier.) There's servility in the air in Croydon, and even more so as you get out into golf-club country.

Anyway, I formed a theory that domestic service and shop work had been the major employers down there in the nineteenth and early twentieth centuries, where the relative equality of the mill and the factory had predominated up here. One thing you learn very quickly, working in a shop or below stairs, is that there are some people who you should respect and others you shouldn't. One thing you learn very quickly, working in a factory, is that there are lots of you and not many of them (and they're no better than you are anyway).

It's a theory - and until now I'd always just filed it under "my theory (which is mine)" - but if the medieval Jewish communities are still resonating down through the years, I think it's looking pretty damn plausible.

[rogerh]

So did inequality lead to backwardness or is inequality innate and its manifestations pass down the generations. Australia had its cultural roots in the English class and governance system. The Jews became small traders and small traders frequently get suspected (rightly and wrongly) of price gouging and denial of credit etc.

As for plough culture, this seems a proxy for old feudal systems - the inequality coming from the landowner/serf setup. Out of all this North America seems a shining example of equality - until recently anyway. But now America seems to be growing its own aristocrat/serf system. Which brings us to China where a spot of creative destruction did not quite bring about equality but did get rid of a lot of backwardness.

I suspect inequality is innate to human society, what is needed is a good sized spoon to stir the soup now and again.

[Jacob Tothe]

"On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners."

So The State owns the wealth somehow? How does demanding a central violent monopoly with the power to extort, murder, and impose arbitrary edicts create equality? How does giving more power over everyone to a small group of people create equality? Corporations are creations of government legal systems, and maintain their economic advantages through government-granted privileges and protections.

The only way to achieve anything resembling true equality is through freedom. Voluntary exchanges only occur when both parties perceive a benefit, so a free market always trends toward an equilibrium despite the apparent chaos.

Individuals are unique. They have differing skills, talents, motivations, and value scales. There will never be an identical distribution of wealth or power, but the necessary attribute for human happiness must be equality of opportunity, not equality in outcome.

It is absurd to create a massive power disparity in the name of income equality. There is noting more destructive toward peace, prosperity, and progress than to pretend that some people have the authority to make demands of others through threats of theft, kidnapping, or murder. THAT is the worst kind of inequality.

[Stigand]

Isn't there a logical error here? The post suggests that "our social and economic attitudes are shaped by quite distant historical circumstances" - i.e., that quite distant historical circumstances often explain modern socio-economic phenomena.

But what the examples show is that *6* modern socio-economic phenomena seem to be caused by distant historical phenomena.

It's quite possible that the vast majority of present-day socio-economic phenomena have absolutely nothing to do with historical events long ago.

Publication bias would presumably play a role too. Surprising long-run correlations get published. "Nothing to see here" studies don't. Imagine you did a study that showed that economic development in modern Barsetshire was *un*related to, say, medieval land-use patterns. Would anyone publish that?