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What History Teaches us about The Concentration of Wealth

History is economics in action, at least according to Karl Marx. Whether in a group or as an individual, we vie for food, fuel, raw materials and our place in the hierarchy. Even art is often rooted in conflict. The remarkable book, The Lessons of History, by Will and Ariel Durant, picks us up at this point:

So the Industrial Revolution brought with it democracy, feminism, birth control, socialism, the decline of religion, the loosening of morals, the liberation of literature from dependence upon aristocratic patronage, the replacement of romanticism by realism in fiction— and the economic interpretation of history. The outstanding personalities in these movements were effects, not causes; Agamemnon, Achilles, and Hector would never have been heard of had not the Greeks sought commercial control of the Dardanelles; economic ambition, not the face of Helen “fairer than the evening air clad in the beauty of a thousand stars,” launched a thousand ships on Ilium; those subtle Greeks knew how to cover naked economic truth with the fig leaf of a phrase.

Unearthing instruction from the economic analysis of the past reveals mistakes that are still made today. The invading barbarians, for example, found Rome weak, in part because the formerly strong and patriotic agricultural population had been replaced with slaves owned by the few. This was a historic version of factory farming — perhaps something necessary — but as Garrett Hardin reminds us you can never do merely one thing. Today we are in a similar reality. The base rate for smaller farms succeeding is not high.

Assuming practical ability differs amongst people, the majority of whatever society values, will always rest with the minority of men. “The concentration of wealth,” write the Durants, “is a natural result of this concentration of ability, and regularly recurs in history.” Compounding and the ability to pass wealth from one generation to another mean that you need not possess skills that are highly valued by society today to live in the wealthy minority. The rate of concentration varies with, among other things, economic freedom, constrained only by morals and laws.

Despotism may for a time retard the concentration; democracy, allowing the most liberty, accelerates it. … In progressive societies the concentration may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.

According to Plutarch, in the Athens of 594 B.C., “the disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances… seemed possible but despotic power.”

Of the Athens of 594 B.C., the Durants write:

The poor, finding their status worsened with each year— the government in the hands of their masters, and the corrupt courts deciding every issue against them— began to talk of violent revolt. The rich, angry at the challenge to their property, prepared to defend themselves by force. Good sense prevailed; moderate elements secured the election of Solon, a businessman of aristocratic lineage, to the supreme archonship. He devaluated the currency, thereby easing the burden of all debtors (though he himself was a creditor); he reduced all personal debts, and ended imprisonment for debt; he canceled arrears for taxes and mortgage interest; he established a graduated income tax that made the rich pay at a rate twelve times that required of the poor; he reorganized the courts on a more popular basis; and he arranged that the sons of those who had died in war for Athens should be brought up and educated at the government’s expense. The rich protested that his measures were outright confiscation; the radicals complained that he had not redivided the land; but within a generation almost all agreed that his reforms had saved Athens from revolution.

The Romans handled it differently.

The Roman Senate, so famous for its wisdom, adopted an uncompromising course when the concentration of wealth approached an explosive point in Italy; the result was a hundred years of class and civil war. Tiberius Gracchus, an aristocrat elected as tribune of the people, proposed to redistribute land by limiting ownership to 333 acres per person, and alloting surplus land to the restive proletariat of the capital. The Senate rejected his proposals as confiscatory. He appealed to the people, telling them, “You fight and die to give wealth and luxury to others; you are called the masters of the world, but there is not a foot of ground that you can call your own.” …  Julius Caesar attempted a compromise, but was cut down by the patricians (44 B.C.) after five years of civil war. Mark Antony confused his support of Caesar’s policies with personal ambitions and romance; Octavius defeated him at Actium, and established the “Principate” that for 210 years (30 B.C. – A.D. 180) maintained the Pax Romana between the classes as well as among the states within the Imperial frontiers.

What can we conclude from this?

We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.

Still Curious? Check out The Three Buckets of Knowledge, The Role of Religion and Morality in History, and The Three Lessons of Biological History.