Mollie Panter-Downes wrote a weekly letter from London for the New Yorker during the course of World War II. On April 29, 1945, with the end in sight, she writes of the Budget report just released: “The figures on net incomes, prewar and war, which were given in the Budget provides much food for brooding in the clubs. Seven thousand people had net annual incomes of six thousand pounds and over in 1939, the report said, but there were only eighty in the category in 1943. The figures showed an increase of three million persons in the group which earns between two hundred and fifty and five hundred pounds a year. Some of the things that Socialist orators in Hyde Park have long been clamoring for on Sunday mornings seem to have come about not through a bloody revolution but through a very bloody war” (London War Notes [London: Persephone Books, 2014]: 452-53).
To begin with an irrelevancy: I can’t help but be astonished by the numbers. Six thousand pounds at the high end; two hundred fifty pounds as a decent income! The UK National Archives website has a handy currency converter that tells me 250 pounds in 1945 had the purchasing power of approximately 9000 pounds in 2017. (Hard to believe you could live on 9000 pounds in 2017 England. Double that–i.e. 500 1945 pounds–might just barely keep you in house and food.) That means 6000 pounds in 1945 comes out to 216,000 pounds in 2017 dollars. And an income of 6000 pounds is 24 times greater than one of 250 pounds.
So: three things to note.
- Pretty substantial inflation between 1945 and the present—after a very long run of non-inflation and, in fact, slight deflation between the Napoleonic wars and World War II (about 125 years).
2. The number of the population receiving high incomes is very, very small. Seems hard to believe. Only 7000 people at the top income level in 1939? When there are at least 3 million lower wage earners. That works out to two tenths of a percent at the top income level. Digging around a bit, (one good source: https://ourworldindata.org/income-inequality) I get these historical figures for the UK:
The top 10% had 35% of all incomes in 1939; 22% of all incomes in 1972; and it was back up to 35% in 2016. The top 1% had 19% of total income in 1913; it had sunk all the way to 6% in 1972; and was up to 15% in 2010. (We can safely assume it is a point or two higher in 2019.)
What do those figures tell us? Basically that, for the UK at least, the very high level of income inequality that prevailed prior to the triple whammy of World War I, the depression, and World War II has almost been completely reestablished since 1972. This result, of course, should not surprise us. It is what Thomas Piketty and his various colleagues have been telling us for the past ten years.
But these figures suggest that more than 0.2% of the population were earning the top incomes in 1939. And they also suggest that some of those top incomes must have been substantially higher than 6000 pounds—which is only 24x greater than 250 pounds (a laughable figure by 2019 standards when CEOs earn 250x and more than the average worker.)
- Walter Scheidel, a historian at Stanford, set out to test Piketty’s theses about the fluctuations of income and wealth inequality in the largest possible historical frame. Scheidel’s fascinating (and deeply depressing) book is The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (Princeton University Press, 2017). Panter-Downes, in 1945, already recognized what Piketty was to assert in his 2014 Capital in the Twenty-First Century (Harvard University Press): the “great compression” of the years 1914 to 1970, the dramatic decrease in income and wealth inequality in the middle years of the 20th century, were the direct result of long and bloody wars. Europe in the 20th century conducted a huge potlatch, a wanton destruction of vast amounts of wealth. And since the already wealthy had the most to lose since they possessed the most at the outset, the outcome was a general leveling. When we recognize that 1972 marked the pinnacle of economic equality in countries like the UK and the US, the counter-revolution begun in the Thatcher and Reagan years comes into sharp focus.
I am going to write at length about the Scheidel book, but will leave that to the rest of this week.