A Quick History of Humanity and Income Distribution

[Adapted from a classroom lecture delivered November 14, 2018.]

Scholars and scientists tell us that humanity is two or three hundred thousand years old, depending on how you define it. If you draw a graph with a horizontal line across a twenty-five-foot long wall to represent 250,000 years, then every foot would represent 10,000 years of human existence. Then imagine drawing a vertical line up from the horizontal at the far left of the wall. On this graph the vertical line represents the standard of living for humanity at any point in time. The standard of living is an imprecise notion of living conditions for the bulk of people in terms of food, clothing, shelter, etc., but also includes how hard people have to work to achieve that standard.

At the far left of the wall put a dot near the bottom of the vertical axis close to the horizontal line. This represents the very low standard of living for early humans. Early humanity lived in hunter-gatherers groups. Their “income” was based on what they could hunt and gather. They basically hunted animals and gathered berries, seed, nuts, etc.

This kind of society was nomadic in order to increase their chances of successful hunting and gathering. If they stayed in one place they would tend to exhaust the local resources and the result would be famine. Even if an area was particularly fertile, the population would increase and strain the food supply, in Malthusian fashion.

There is a controversial alternative view to this depiction of early human existence offered by Marshall Sahlins. In his book Stone Age Economics, he suggests that the experiences of those in early subsistence economies may actually have been better, healthier, and more satisfying than those enjoying the affluence of modern life. One can well imagine that illnesses such as diabetes and gout were rare or non-existent for early human societies, so yes, there are some tradeoffs, but note that Sahlins’s book has not caused a rush for the return of these earlier times!

This type of primitive society was mostly stagnant in that the standard of living changed little from one generation to the next over the millennia. Increases and decreases in the standard of living and population levels depended mostly on environmental conditions which would change the amounts of animals, berries, and nuts that the land could produce. Warmer and wetter conditions would tend to increase the standard of living, while colder, dryer conditions would tend to decrease it.

This type of society was also remarkably robust in that it continued on, largely unchanged, for most of human existence, including very cold periods. The only noteworthy change was that humans tended to migrate, not just in the short run as nomads, but also in long-run migrations around the planet. This pattern of migration is thought to have originated in Africa and culminated in the Western Hemisphere about 15,000 years ago. The development of improved language and cognitive abilities around 50,000 years ago during the Middle/Upper Paleolithic period was a necessary, but not a sufficient condition for improved standards of living. New thinking about such human developments see a more evolutionary approach which took place over a more extended period of time.

The type of society humans lived in only started to change in the modern way about 12,000 years ago with the beginning of the Holocene, the current global warming phase. This roughly coincided with the decline and extinction of several animals that human hunted, such as the mammoth and bison. So, go back to the wall and starting with the dot low on the vertical axis draw a line all the way across the wall stopping about 14 and a half inches from the right side of the wall. Make your line swivel around an imaginary straight line to reflect changes in the environment which would raise or lower the global standard of living and population.

The remarkable thing we can say about income distribution over this vast period of time was that “income,” in the form of caloric intake, was remarkably equal. The nomadic, hunter-gatherer groups would produce what it could over the short run and then divide production roughly equally among its members. It might be that the hunters were given a bigger portion of meat to improve their chances of success on future hunts, or maybe they just took a bigger portion because they could. Perhaps the elderly and injured were given a smaller portion when group income was down and a more generous portion when group income was up.

From the bigger picture, income distribution was remarkably equal. The Gini Coefficient, a measure of income inequality, was almost zero, i.e., no inequality for all intents and purposes. Also, at least in those early days, income distribution was based entirely on food, as there was not much to say about clothing and shelter. Eventually, and especially as humans migrated to places of colder and harsher weather conditions, the skins and bones of animals would be used to construct primitive clothing, tools, and shelter. This development does not really improve the standard of living much. It merely permits humans to migrate into tougher environmental conditions. Additional labor would also be necessary to produce this clothing and shelter, so that less time would be devoted to leisure or obtaining food.

The first dramatic change is thought to have occurred 10,000 years ago with the advent of sedentary agriculture. This was the Neolithic Revolution which involved humans changing their lifestyle in the now warmer environment by planting seeds or legumes, grains and other plants, rather than consuming the total gathered. This first took place in the Fertile Crescent, which stretched from lower Egypt, north through Phoenicia and south and west into Mesopotamia.

Sedentary agriculture was much more productive than the hunter-gatherer model. It provided access to a larger and more stable food supply. This in turn led to the formation of permanent human settlements and primitive property rights. There was also an expansion of the division of labor. Eventually it would lead to the domestication of animals and the use of metal tools. Time gained from not having to migrate could now be devoted to the production of other goods.

About 5,000 years ago with the coming of the Bronze Age we see the development of cities and complex societies and the emergence of early “civilizations” which consisted of several settlements and cities united by trade and common bonds. At first, this development was quite limited with much of the world remaining on the hunter-gatherer model.

At this point in time, in terms of income distribution, there are two important things we can say. First, income distribution was less equal within sedentary societies. There was more specialization and division of labor involving the production and storage of food, the building of permanent structures, the making of tools and weapons, and the provision of protective services. Structures and tools mark the beginning of capital goods. This increased the inequality of income distribution within the society and increased the Gini Coefficient.

Second, the difference in income between the hunter-gatherer model and the sedentary societies was also much more unequal. The sedentary societies experienced a noteworthy increase in their standard of living, while the hunter-gatherer did not. Sedentary societies have permanent shelter, woven baskets and clothing, tools and many other basic amenities of modern human life. The Gini Coefficient both within and between such societies increased noticeably higher than zero, but not much.

So, go back to the wall again. Draw a 2 and ½-inch line from the end of your long wiggle line with a 25 degree up angle to represent the time period from the beginning of the Holocene and the beginning of sedentary agriculture. Then draw an 11 and ½ inch line at a 50 degree angle up line to represent the period from the beginning of sedentary agriculture to the end of the Middle Ages stopping just short of the right side of the wall. This period was one of great advancement, but these were also classed-based societies which generally consisted of a small number of royalty, land barons, and high priests on one side and a large number of slaves, serfs and farmers on the other. As a result, the Gini Coefficient is also much higher.

Then we have the rise of the bourgeoise class in Europe, i.e., the “rich middle class,” the so-called “robber barons” such as John Jacob Astor and John D. Rockefeller, and today’s Schumpeterian entrepreneurs such as Bill Gates (Microsoft) and Jeff Bezos (Amazon). So then draw the line almost straight up to represent the rise of capitalism and then just as you approach the wall, draw the line straight up to the ceiling to represent the present time.

These last two phases saw humanity experience both an enormous increase in the standard of living and an income inequality. Various researchers have estimated the global Gini Coefficient increased over the last two hundred years from about .4 to about .7. However, the final phase is also experiencing a tremendous decline in poverty due to the abandonment of communism and the acceptance of more capitalist ways in places such as China, India, Russia, and Eastern Europe.

The final two millimeters on the wall, which represent about 65 ½ years, coincides with the period when we were first able to measure income inequality using calculations such as the Gini Coefficient. It is worthy to note that this period also coincides with the period of man’s first space travel.

Plotting a quarter million years in this fashion is obviously a grand simplification. History is complicated as noted several times here. Vast empires have risen and fallen in the modern context. It goes from the left side of the wall to the right in just a few short steps. There are an uncountable number of deviations from this story of prehistory and history. However, the lesson is clear and undeniable and provides an important perspective about income distribution We began very poor, very equal and small in number. We ended — at this point — very rich, extremely unequal, and enormous in number. However, remember that the process has always been a joint effort. Hunter-gatherers hunted together, they gather together, and they ate and migrated together.

The same is true today. Bill Gates, the former CEO of Microsoft, is unimaginably rich and has an enormous yearly income. However, he only spends a minuscule amount of his income and wealth (held as stock which represents ownership in his company and other assets) and his biggest annual expenses from his income are no doubt taxes and charitable contributions. His workers also have high incomes, fringe benefits, and wealth due to their jobs and the stock options that they are given as part of their pay. In addition, hundreds of millions of people earn high incomes based on their knowledge of how to use Microsoft products, not to mention the utility people receive from enjoying some of the company’s other products. This is all accomplished voluntarily and is nicely self-regulated. This is the norm for the big success stories of capitalism.

The same result cannot be achieved by other means. You cannot have a very high standard of living that grows over time and income equality. There are indeed some easy and powerful ways to reduce income inequality today without reducing progress. However, the rigorous equality of the degree that was achieved under the hunter-gatherer model is not possible in the modern context.

That stark realization is the only benefit we have derived from our experience with socialism. There were a couple of dozen countries that tried it for a half a century or more and they all failed. They failed to achieve equality, they failed to achieve prosperity and progress, and in their attempts, they murdered over 100 million of their own citizens.

Another failed attempt at equality is the modern welfare state. Based on the notions of equality and charity, welfare — at least in the American context — has been a failure. It has raised the economic standards of the low income and poor classes no doubt, but to what end? Able-body people sitting around, watching TV, getting fat and dumb is not a great result. Much to their credit, some do break free of the welfare system, but many end up caught in the “welfare trap,” accomplishing little other than producing offspring that often, not surprisingly, follow their path.

The two main architects of the modern welfare state were Franklin Delano Roosevelt with his “New Deal,” and Lyndon Baines Johnson, with his “Great Society.” They would both be horrified at this kind of result. They thought they were protecting the unfortunate in the short run so that they could return to a normal life in the long run.

If you have the urge to disagree with this story in any way, then you have discovered something important about yourself. That’s great. You have been miseducated along the lines of brainwashing and that is not your fault. This highlights a third major modern social failure: government education. The great French liberal economist, Frédéric Bastiat, considered government education the worst monopoly of all.

Don’t be embarrassed as the majority of people suffer from the same thing. Now you have the chance do to something about it. You can learn what real capitalism is and how it functions so that we can work together to make ourselves better off.

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