Redistributive policy

Economic inequality in Germany: a long-term view

Recent years have seen a flourishing of studies on pre-industrial inequality and the factors leading to increases or decreases in inequality. The Great Recession made inequality a hot topic in political debates (Wade 2014, Piketty 2015). The current Covid-19 crisis, which seems likely to exacerbate inequalities within countries across the West and probably across countries around the world (Filauro and Fischer 2021, Furceri et al. 2021), makes all the more urgent to better understand the historical factors that shape inequalities over the long span of history.

For a long time, pre-industrial inequality trends have been more the subject of speculation than real measurement. This is changing, and new evidence is transforming the way we look at long-term trends in economic inequality, particularly in two respects: (1) the causes of inequality change and (2) the distributive impact of pandemics. and other major disasters. . Regarding the first point, a crucial aspect is that newly available studies generally do not confirm the Kuznetsian paradigm (see Alfani 2021 for a review). In 1955, Kuznets argued that inequality, starting from a low level in pre-industrial times, increased at the start of industrialization and then followed an inverted U-shaped trajectory throughout the process of industrialization ( the “Kuznets curve”).1 But inequality was found to have increased since at least the early modern period in almost all systematically researched areas, so that on the eve of industrialization it was already relatively high. This raises many questions about the causes of the evolution of inequalities, which can no longer be assumed to consist solely of economic growth. Evidence from pre-industrial times suggests that the growth of inequality also occurred in phases of economic stagnation or decline (Alfani and Di Tullio 2019, Alfani 2020; 2021). In this sense, studies of pre-industrial inequality contribute significantly to current debates on recent trends.

In a recent article (Alfani et al. 2022), we propose a general reconstruction of wealth inequality in the German area (defined as that falling within the boundaries of the current Federal Republic of Germany) covering five centuries: from the immediate post-war period of 1348 Died around 1850, the eve of German industrialization. Our reconstruction is based on new archival data collected from tax sources and on the important local literature mainly produced by the German School of Historical Economics, which was active at the turn of the 20th century and had a particular interest in the study of medieval and early modern history. distributive dynamics.

We identify four alternating phases of declining and growing inequality (Figure 1):

1. A first phase of declining inequalities was triggered, as elsewhere in Europe, by the Black Death and lasted until around 1450.

2. After this temporary easing of inequalities, the trend turned towards growth. Throughout the turbulent 16th century – the era of the Protestant Reformation and the Wars of Religion – Germany experienced growing inequality, which peaked on the eve of the Thirty Years’ War.

3. A second phase of significant decline in inequality was triggered by the Thirty Years’ War of 1618-1648 and the widespread plague it brought about in 1627-1629.

4. Another phase of growing inequality began around 1700 and continued until 1850 – and beyond that date, as Kuznets himself argued for Prussia and confirmed by recent studies ( for example Bartels 2019). The growth of wealth inequality continued in Germany throughout industrialization and until the eve of the First World War.

Figure 1 Long-term trends in economic inequality in Germany (Gini indices)

Remarks: Gini inequality indices range from 0 (perfect equality) to 1 (perfect inequality).
Source: Alfani et al. (2022).

For most of the period we cover, Germany followed a similar trend to other parts of Europe (Chart 2). In particular, the leveling power of the Black Death has now been demonstrated in a range of regions, including a variety of pre-unification Italian states, southern France and southern Netherlands (Alfani 2020, 2021 ). Spain might have been the rare exception due to very specific conditions (Prados de la Escosura et al. 2020). Moreover, the tendency for wealth inequality to grow rapidly from around 1450 is quite similar to what has been found elsewhere – but with one striking difference: it is only in Germany that we find a another disaster-induced leveling phase in the 17th century.

Figure 2 Economic inequalities in Germany and Europe (Gini indices)

Remarks: the series refer to wealth inequality for Germany, the Sabaudian state and the Florentine state, and to income inequality for the Netherlands.
Sources: Alfani (2015) for the Sabaudian state (north-west Italy); Alfani and Ryckbosch (2016) for the Florentine state (central Italy) and the southern Netherlands (Belgium); Van Zanden (1995) for the Northern Netherlands (Netherlands); Alfani et al. (2022) for Germany.

Our results provide new insights into the leveling effects of disasters – a highly controversial driver of inequality change. We are the first to strongly support the potential of early modern wars to reduce inequality. Overall, this supports Scheidel’s (2017) hypothesis on the leveling power of disasters. However, the Thirty Years’ War was unique in its level of destruction and in its high mortality, further exacerbated by the associated famines and plagues. These features make it the only pre-industrial war for which we have evidence to date of a significant and lasting “egalitarian” impact on inequality. Therefore, this finding supports the idea that we must be very careful when making generalizations about preindustrial distributive dynamics (Alfani 2020, 2021), and that we need more studies at the regional or state level to put in highlights the common points as well as the local specificities.

It should also be noted that epidemics and pandemics can only reduce inequality in the presence of extremely high death rates. The Black Death killed about half of Europe’s population, while in Germany the Plague of 1627-1629 and the Thirty Years’ War killed 40%. When mortality rates (i.e. the percentage of people who die) are one or two orders of magnitude lower – as with the Spanish flu of 1918-19 or, presumably, Covid-19 – we can expect inequality to increase, not decrease as a result of a pandemic (Alfani 2020).

The picture that emerges from the case of Germany is one of a succession of distributive waves, which seems to support the arguments put forward by Milanovic (2016), including his view that historical events triggering phases of declining inequalities were of an ‘idiosyncratic’ nature. But at the same time, if these events had not taken place and if Germany had continued on a path oriented towards the growth of inequalities throughout the modern period, as documented for other European regions, it would have been much more uneven around 1800 than at the end of the Middle Ages. . This view is supported by a differences-in-differences analysis (Alfani et al. 2022).

In the 19th and early 20th centuries, Germany experienced a new wave of inequality – an exemplary Kuznets curve – with a phase of rise until 1913 followed by a fall at least until the 1970s. inequality was increasing long before the 19th century. This means that we must take into account other factors of inequality than industrialization per se or economic growth in general. Indeed, Germany, which was on the losing side of the small 16th century divergence, is yet another example of a pre-industrial European area where growing inequality could occur without economic growth. Like other recent studies (see Alfani 2021 for a review), in our article we consider as alternative explanations the role played by demographic forces, as well as state formation processes and changes in regressive tax levels. While it is true that many questions remain open and will need to be targeted by future research, our study of pre-industrial Germany offers new and relevant material for current debates on the roots of inequalities in Western societies, past and present. It also provides useful intellectual food for policy debates related to distribution.

The references

Alfani, G (2015), “Economic inequality in northwestern Italy: a long-term view (14th to 18th centuries)”, Journal of Economic History 75:1058-96.

Alfani, G (2017), “The richest in Europe throughout history (from 1300 to the present day)”, VoxEU.org, 15 January.

Alfani, G (2020), “Pandemics and inequalities: a historical overview”, VoxEU.org, 15 October.

Alfani, G (2021), “Economic inequality in pre-industrial times: Europe and beyond”, Economic Literature Review 59: 3-44.

Alfani, G and W Ryckbosch (2016), “Separating in Early Modern Europe? A Comparison of Inequality Trends in Italy and the Netherlands, 1500-1800”, Explorations in economic history 62: 143-53.

Alfani, G and M di Tullio (2019), The lion’s share. Inequalities and the rise of the fiscal state in pre-industrial Europe, Cambridge University Press.

Alfani, G, V Gierok and F Schaff (2022), “Economic inequality in pre-industrial Germany, ca. 1300-1850”, Journal of economic history, future.

Bartels, C (2019), “Top earners in Germany, 1871-2014”, Journal of Economic History 79(3): 669-707.

Filauro, S and G Fischer (2021), “Income inequality in the EU: general trends and policy implications”, VoxEU.org, 17 April.

Furceri, D, P Loungani, JD Ostry, P Pizzuto (2021), “Fiscal austerity intensifies rising inequality after pandemics”, VoxEU.org, 3 June.

Kuznets, S (1955), “Economic Growth and Income Inequality”, The American economic journal 45(1): 1-28.

Piketty, T (2015), “Putting Distribution Back at the Center of the Economy: Reflections on Capital in the 21st Century”, Economic Outlook Journal 29: 67–88.

Prados de la Escosura, L, C Álvarez-Nogal and C Santiago-Caballero (2020), “Recurring growth in a pre-industrial economy: Spain in a half-millennium perspective”, VoxEU.org, 7 May.

Schidel, W (2017), The Great Leveller: Violence and the History of Inequalities from the Stone Age to the 21st Century, Princeton University Press.

Van Zanden, JL (1995), “Tracing the Beginning of the Kuznets Curve: Western Europe in the Early Modern Period”, economic history review 48: 643-664.

Wade, RH (2014), “The Strange Neglect of Income Inequality in Economics and Public Policy”, in GA Cornia and F Steward 9eds), Towards Human Development: New Approaches to Macroeconomics and Inequality, Oxford University Press, p. 99-121.

Endnotes

1 Although Kuznets’ hypotheses mainly concerned income, it stands to reason that they can also be applied to wealth, as a growing number of studies more or less explicitly suggest (e.g. Lindert 1991, Alfani 2010a, 2021a , Milanovic 2016, Scheidel 2017).