Relative Costs of Living, for Richer and Poorer, 1688-1914

I have a new working paper on inequality. This time, I teamed up with one of my early influences: Peter Lindert of UC-Davis. Peter’s work was deeply influential on my development as an economic historian and economist and thus I am happy to work with him on this. We used the data for Canada that I assembled along with other price data to create measures of the inequality in the cost of living since the late 17th century in New World countries such as Canada, the United States and Australia (after 1850) which we could compare with the United Kingdom. We found that from circa 1800 to 1914, price trends were egalitarian (prices changes benefited the poor more than the rich). We also find that the New World was indeed the “best poor man’s country”. Finally, we find that when we adjust nominal-income figures of income inequality for inequalities in the cost of living, the movements of inequality are attenuated. The abstract is below and the paper is available here on SSRN:

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 significantly 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 Western Europe.


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