Is Wealth Inequality a Problem in a Market-Oriented Economy?

I saw an Instagram reel posted by Pietro Valetto (@pietrovaletto) in which he concludes that the United States today has roughly the same amount of wealth inequality as France did just before the French Revolution according to the Gini-coefficient. A large Gini-coefficient is often presented as a bad thing in and of itself. No doubt many program and policy evaluators would see large Gini-coefficients as problems to be rectified by greater government regulation and redistribution. Liberty-minded individuals do not see wealth inequality as inherently contrary to the common good, provided the wealth was achieved through voluntary transactions. I also question whether wealth inequality is a relevant metric for assessing whether the average person’s—or even the poorest person’s—standard of living is improving. Even if it’s true that wealth inequality is the same today as it was during the French Revolution, people today are still many times richer. If our standards of living have significantly improved but wealth inequality has remained the same, that suggests to me that wealth inequality does not matter all that much. By today’s material standards, the average person two to three hundred years ago lived a pretty miserable life. Deirdre McCloskey, writing in 2010, estimated that in 1800, “…the world’s economy stood at the present level of Bangladesh…[and] the average human consumed…a mere $3 a day…” adjusted for cost of living (Deirdre McCloskey, p. 1). Marian Tupy and Gale Pooley cite economists who estimate “…nearly 90 percent of the world’s population lived in extreme poverty as late as 1820…defined as less than $1.90 per person per day (in 2015 dollars)” (p. 288). Today, less than 10% of the population lives in extreme poverty. Our average life expectancy is decades longer and we have more food, with Johan Norberg noting that “The French and English in the eighteenth century received fewer calories than the current average [p. 11] in sub-Saharan Africa…” (p. 12). These are just a few of the many improvements we have seen in our standard of living. One reason I don’t like comparing wealth inequality today to that of centuries past is because not all wealth is created equal. A king whose wealth is invested in a gilded palace and diamond throne is not the same as an entrepreneur who owns factories that produce consumer goods in a competitive market. Ludwig von Mises writes that a big difference between today’s world and that of centuries ago is that industry used to primarily to serve the needs of the ruling class, but after the industrial revolution, “…industries began to produce things that could be purchased by the general population…to satisfy the needs of the masses” (p. 3).

— Colin Braman

References

Deirdre McCloskey (2010). Bourgeois Dignity: Why Economics Can’t Explain the Modern World. The University of Chicago Press.

Ludwig von Mises (2006). Economic Policy: Thoughts for Today and Tomorrow (3rd ed.). Mises Institute. [originally published in 1979].

Johan Norberg (2017). Progress: Ten Reasons to Look Forward to the Future. Oneworld.

Marian Tupy & Gale Pooley (2023). Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet. Cato Institute.