Some economic history
and income inequality,
and two great economists
Please note
This work is not covered in the
textbook
Please read the notes on
Amathuba
The notes are examinable
The world in pre-industrial times
Very rural; most people employed in
agriculture
Very poor; no modern amenities
Poor transport systems
Very limited social mobility
Hierarchical social structures in Europe and
Asia; not hierarchical in Southern Africa
Low life expectancy
This was driven mostly by very high infant
mortality
Very poor understanding of personal
hygiene and medicine
Superstition trumped science
Traditional economic
systems
Before 1750 all economic systems are
classified as traditional
There were some differences between
countries, but the essence was the same:
Rigidity, slow-movingness
Except for big catastrophes (e.g. Black
Death in Europe in 14th century) people’s
living standards remained unchanged
Economic growth did not exist
Technical change was extremely slow
The Industrial Revolution
Starting in the second half of the 18th
century (i.e. after 1750) it was a series
of technical advances in England that
greatly changed society in multiple ways
Steam power replaced human and
animal power
Initially used to pump water in the
mines; later for transport and running
weaving looms in textile factories
People had been displaced by the
Enclosure Laws for centuries, and were
attracted to work in factories in cities
The Industrial
Revolution (cont.)
Social structure changed:
Previously land-owners and
peasants
Now bourgeoisie (capitalists) and
working class
The decline of the aristocracy
Large income inequalities
The Industrial
Revolution (cont.)
Very harsh working conditions:
Very long hours (usually 6 days a week; 12-
16 hours a day)
Very low wages
Child labour was common
Very dangerous and unhealthy working
conditions
The machines replaced skilled artisans with
low-paid machine operators
Luddite riots: Artisans destroyed the new
machines to protect their (relatively higher-
paid) jobs
The Industrial
Revolution (cont.)
Living conditions in cities were terrible:
Air pollution
Water contaminated by raw sewage and
pollution by the factories
Cholera and typhoid
The economic thinking of the time:
Thomas Malthus (Essay on the Principle of
Population, 1798)
Keeping wages low is “the natural order of
things” to prevent population growth
outstripping the production of food
The Industrial
Revolution (cont.)
Over time things slowly improved
Combination Laws of 1799 and 1800 outlawed
workers and firms to organise among themselves
These laws were repealed in 1824
Labour laws:
E.g. Mines Act of 1842 prevented women and
children from working in mines
Ten Hours Act of 1847 limited working hours of
women and children in textile mills to ten hours a day
Trade unions pressured factory owners for better
working conditions and higher wages
By the end of the 19th century material and working
conditions of the working class were substantially
better than a 100 years earlier
“Hockey-stick growth”
For most of human history, living
standards were extremely low
Average living standards did not vary
much between countries
Extreme poverty was the norm
The Industrial Revolution resulted in an
increase in average living standards in
England (but with great inequality)
Living standards in high-income
countries are at least ten times higher
than they were in pre-industrial times
“Hockey-stick
growth”
Source: CORE Economics, The Economy 2.0
Some comments
Take-off started in Britain (England) in the
late 18th century
By 1900 average living standards were
double that in 1800 in Britain, and double
that of the other five countries
Take-off in Western Europe and the US
happened in the early 19th century, as the IR
spread
China’s take-off only happened in the 1980s,
from a very low base, but is the fastest of all
India’s take-off was even later, and less
impressive than China’s
Nigeria has not seen major take-off
More comments
Understanding why some countries
succeed economically, and others fail
has interested economists for
decades
2024 Nobel Prize in Economics went
to three economists that contributed
to this understanding
Institutions
Geography
Colonialism
Slavery
Income inequality
Between-country income inequality:
Some countries are rich and others
are poor
Rich countries have industrialised;
poor countries have not
World Bank classification
High-income countries (16% of world
population)
Upper-middle income countries (30%)
Lower-middle income countries (38%)
Low-income countries (16%)
Income inequality
Income inequality
Within-country income inequality
Income inequality is generally
regarded as bad:
Reduce social cohesion
Erode trust
Crime and other illegal activities
Usually measured with the Gini
coefficient
0 = perfect equality;
1 (or 100) = perfect inequality
South Africa = 0.63
Income inequality
Some comments
Income inequality in Southern Africa
is the worst in the world
Income inequality is highest in
middle-income countries; lowest in
high-income countries
Simon Kuznets: inverted U-curve
relationship
Notable countries:
The United States
The Russian Federation
Primrose and Makause in
Income inequality in
South Africa
The legacy of Apartheid
Unequal distribution of wealth (and
the income that derives from it)
Unequal opportunities, in terms of
education, career opportunities,
access to health care and finance
Forced migration of non-white
communities from “white” areas
It deeply wounded SA society
Income inequality in
South Africa (cont.)
Unemployment is extremely high and
has increased
Labour legislation protects people with
jobs, but does not protect the
unemployed
Social grants remove some of the
extreme poverty, but does not really
address inequality
Black Economic Empowerment has
created a black elite, but has not
reduced income inequality
Income inequality in
South Africa (cont.)
For an accessible report and some
graphs that explain income
inequality see the IMF here (2020
report)
Adam Smith and Karl Marx
Two of the most influential
economists in the 18th and 19th
centuries
Adam Smith described what he saw
at the start of the Industrial
Revolution
Karl Marx was upset about the
exploitation of the Industrial
Revolution
Adam Smith (1723-1790)
“The Wealth of Nations”(1776)
Realised that the Industrial Revolution
was upending the pre-industrial order
Specialisation and the division of labour
The pin factory example
Attack on mercantilism
Guilds and monopolies undermine the
public’s welfare
If people act in their self-interest, an
“invisible hand” would benefit the public’s
welfare
Adam Smith (cont.)
Government’s role is to create a
stable state (e.g. defence, justice and
public works) in which people can
operate freely
Laissez-faire capitalism
Smith recognized that capitalism
could increase inequality
Argued for an ethical approach to the
distribution of income (but this has
not received much attention)
Karl Marx (1818-1883)
Industrialisation creates wealth but
also results in great inequalities
(contradictions)
Proletarian Revolution
Proletariat will take over the means
of production and create a classless
society (communism)
Karl Marx (cont.)
Born in Germany, but lived and worked in
England
“Das Kapital” (1867) and the Communist
Manifesto (1848)
Historical materialism:
Class struggle
A predictability in the development of this
struggle
Three classes in 19th century England
Land-owners (Marx regarded them as
parasites)
Bourgeoisie (capitalists)
Proletariat (working class)
The Communist Manifesto
The history of all hitherto existing society is the history of class
struggles.
Freeman and slave, patrician and plebeian, lord and serf, guild-master
and journeyman, in a word, oppressor and oppressed, stood in
constant opposition to one another, carried on an uninterrupted, now
hidden, now open fight, a fight that each time ended, either in a
revolutionary reconstitution of society at large, or in the common ruin
of the contending classes.
In the earlier epochs of history, we find almost everywhere a
complicated arrangement of society into various orders, a manifold
gradation of social rank. In ancient Rome we have patricians, knights,
plebeians, slaves; in the Middle Ages, feudal lords, vassals, guild-
masters, journeymen, apprentices, serfs; ….
The modern bourgeois society that has sprouted from the ruins of
feudal society has not done away with class antagonisms. It has but
established new classes, new conditions of oppression, new forms of
What transpired?
Marx expected the Proletarian
revolution to happen in England.
Why?
Capitalism transformed itself
Socialist regimes were set up in
Russia (1917), Eastern Europe
(1945), China (1948), North Korea
(1948) and Cuba (1953)
In the late 1970s Communism was
reformed in China and in the late
1980s and early 1990s abolished in
USSR and Eastern Europe
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