THE DISTRIBUTION OF INCOME AND WEALTH

As Economic Insight 5.2 and Tables 5.3 and 5.4 on page 91 illustrate, the high levels of material well-being for colonial Americans were not equally distributed regionally. By far the richest area was the South, where wealth and incomes per free capita were far above those in the Middle colonies and in New England.

Evidence from probate records of the time also permits us to estimate the distribution of wealth among individuals. It is widely believed that wealth and income in North America were fairly equitably distributed until the onset of industrialization in the early nineteenth century. However, the estimates in Table 5.5 on page 92 (which includes holdings in slaves and indentured contracts) suggest that widespread inequalities of wealth and income existed much earlier. For instance, the wealthiest 20 percent of all New Englanders owned 66 percent of the total wealth there. In the Middle colonies, the wealthiest 20 percent held 53 percent of the total wealth. In the South, 70 percent of the wealth was held by the top fifth. In short, the South had the most concentrated distribution of wealth, and the Middle colonies had the least. The greater southern concentration was primarily due to the dominance of wealthy plantations enjoying advantages of economies of scale in production. Slavery also added to the South’s high concentrations of wealth, but New England had concentrations almost as high, and wealth inequalities were notably high in the port towns. It also merits emphasis that the degree of inequality reflected in these numbers was minor by comparison with the gaping wealth inequalities in the sugar islands of the Caribbean and throughout Brazil and Spanish America.

to the pioneering efforts of Jackson T. Main (1965) and James Henretta (1965), we have learned that a growing inequality in wealth and income accompanied the very process of colonial settlement and economic maturity. As development proceeded, frontier areas were transformed into subsistence farming areas with little specialization or division of labor, then into commercial farming lands, and finally, in some instances, into urban areas. In Main’s opinion, this increasing commercialization resulted in greater inequality in the distribution of colonial wealth and income (1965).

PER CAPITA INCOME ESTIMATE, 1774

The quantitative basis for accepting the sweeping conclusions reported previously also stems from the work of Alice Jones. Her wealth estimates for 1774 are shown in Table 5.3. These are nonhuman physical wealth holdings (excluding financial debts and slavery and indenture contracts) per capita and per free person in the separate regions. Table 5.4 shows several income estimates per capita and per free person derived from the wealth figures in Table 5.3 by using capital-output ratios. Actual incomes estimated from wealth holdings would depend on the prevailing ratio of capital to output, but the range of ratios (3-1, 3.5-1, and 4-1) used is likely to bracket the true incomes earned in 1774.

Using a capital-output ratio of 3.5:1 generates an estimate of income per free person in 1774 of ?13.8, or ?12.1 if the ratio was 4:1. These estimates compare approximately with $1,500 and $1,300 in 2000 prices, less than half the official U. S. poverty level, but obviously, the range of goods and other conditions of life and the errors of estimation make any such comparisons extremely crude.

Research in progress (Lindert and Williamson, 2011), based on occupation earnings suggests even higher incomes overall in the colonies. It seems safe to conjecture that free colonials enjoyed surprisingly high standards of living for the world at that time. Because taxes in the colonies were much lower than in England, after-tax incomes of free persons in the colonies were probably above those in the mother country on the eve of the Revolution.

Even today, relatively few countries generate average income levels that approach the earnings of free Americans on the eve of the Revolution. In fact, more than one-hdf of the current world population lives in countries where the average income is below the level of the typical free American’s income of more than 200 years ago. This is true of most people of the developing world, including India, Pakistan, Indonesia, and large parts of Africa and South America. Relatively speaking, free colonial Americans lived very well, both by today’s standards in many areas of the world and in comparison with the most advanced areas of the world in the late eighteenth century.

Note: These estimates of income per capita and for the free population are derived from Alice Hanson Jones's wealth estimates by using her assumption of a capital-income ratio of 3.5:1 and two others (3:1 and 4:1) to widen the analysis somewhat. These income estimates are only approximate. Estimates of wealth stocks can be converted into income flows by dividing the wealth estimates by a capital-output ratio, but the relationship between capital and output (the capital-output ratio) is influenced by many factors and varies both over time and among countries and regions. Nevertheless, under normal peacetime conditions, the capital-output ratio is seldom lower than 3 or higher than 5.

10 percent of Boston’s taxpayers owned 42 percent of its wealth in 1687, whereas they owned 57 percent in 1771.26 Daniels surveyed many New England probate records and, therefore, was able to tentatively confirm Main’s contention (1988) that as economic activity grew more complex in the colonies, it tended to produce a greater concentration of wealth. Apparently, as subsistence production gave way to market production, the interdependence among colonial producers generated (or at least was accompanied by) a greater disparity in wealth. This was true both in older and in more recently settled agricultural areas. Alternatively, large established urban areas such as Boston and Hartford exhibited a fairly stable distribution of wealth throughout the eighteenth century until 1776. These urban centers also reflected the greatest degree of wealth inequality in the colonies. Smaller towns showed less inequality, but as towns grew, their inequality also increased.

Particularly high levels of affluence were observed in the port towns and cities, where merchant classes were forming and gaining an economic hold. Especially influential were the merchant shipowners, who were engaged in the export-import trade and who were considered to be in the upper class of society. In addition, urbanization and industrialization produced another class group: a free labor force that owned little or no property.

Probably one-third of the free population possessed few assets (according to estate records and tax rolls), but as Jackson Main (1965) has argued and Mary Schweitzer’s (1987) work supports, these were not a permanent underclass of free poor people. These were mostly young people in their 20s, still dependent on parents or relatives. Through gifts, savings, and other sources, marriage usually tripled household wealth almost immediately. Without evidence on upward mobility to higher income levels, we cannot discern, as was shown in Chapter 1, how frequently people moved up the economic ladder, escaping the poverty trap. Our speculation, because of land availability

And less rigid social constraints in the colonies, is that free people in the colonies had much greater “class mobility” than did people in the Old World.

Not only occupation, marriage, and property ownership but also circumstances determined by birth greatly influenced a person’s social standing. Race and sex were major factors. Some women were wealthy, but typically they owned far less property than men, and very few owned land. The rise of slave labor after 1675 furthered the overall rise of wealth inequality in the colonies.

Throughout most of the colonial period up to 1775, growing wealth concentration did not occur among free whites in the 13 colonies as a whole. Although growing inequality occurred within specific regions and localities, this did not occur in the aggregate. This is because the lower wealth concentration areas, the rural and especially the new frontier areas, contained more than 90 percent of the population. These grew as fast, or faster than, the urban areas, therefore offsetting the modest growth of inequality of the urban centers (Williamson and Lindert 1980). As an added statistical oddity, although rural wealth holdings (per free person) were less than urban holdings within each region, in the aggregate, rural wealth holdings averaged above urban holdings. This reversal in order happened because of the very high wealth holdings per free person in the South, which actually exceeded the average wealth holdings of northern urban residents. In any case, despite these peculiarities of aggregation, substantial wealth inequality was a fact of economic life long before the age of industrialization and the period of rapid and sustained economic growth that occurred in the nineteenth century. The absence of growing inequality of wealth among free Americans implies that the growth of per capita income and wealth was shared widely among these nearly 1.8 million people. On the eve of the Revolution, their sense of well-being and economic outlook was undoubtedly positive. British interference and changing taxation policies were threats that a powerful young emerging nation was willing and able to overcome.

SELECTED REFERENCES AND SUGGESTED READINGS

Anderson, Terry. The Economic Growth of Seventeenth-Century New England: A Measurement of Regional Income. New York: Arno, 1975.

_. “Economic Growth in Colonial New England:

‘Statistical Renaissance.’” Journal of Economic History 39 (1979): 243-257.

Anderson, Terry, and Steven LaCombe. “Institutional Change in the Indian Horse Culture.” In The Other Side of the Frontier, ed. Linda Barrington. Boulder, Co.: Westview, 1999.

Anderson, Terry, and Robert Paul Thomas. “White Population, Labor Force, and Extensive Growth of the New England Economy in the Seventeenth Century.” Journal of Economic History 33 (1973): 634-661.

______. “Economic Growth in the Seventeenth Century

Colonies.” Explorations in Economic History 15 (1978): 368-387.

Ball, Duane, and Gary M. Walton. “Agricultural Productivity Change in Eighteenth-Century Pennsylvania.” Journal of Economic History 36 (1976): 102-117.

Barbour, Violet. “Privateers and Pirates in the West Indies.” American Historical Review 16 (1911): 529.

Bidwell, P. W., and J. I. Falconer. History of Agriculture in the Northern United States, 1620-1860. Washington, D. C.: Carnegie Institution of Washington, 1925.

Bruchey, Stuart, ed. The Colonial Merchant: Sources and Readings. New York: Harcourt Brace Jovanovich, 1966.

Daniels, Bruce. “Long Range Trends of Wealth Distribution in Eighteenth-Century New England.” Explorations in Economic History 11 (1973-1974): 123-135.

Deane, Phyllis, and W. A. Cole. British Economic Growth, 1688-1959: Trends and Structure. Cambridge: Cambridge University Press, 1964.

Gallman, Robert E. “Changes in Total U. S. Agricultural Factor Productivity in the Nineteenth Century.” Agricultural History 46 (1972): 191-210.

______. “The Agricultural Sector and the Pace of Economic Growth: U. S. Experience in the Nineteenth Century.” In Essays in Nineteenth Century Economic History, eds. David C. Klingaman and Richard K. Vedder, 35-76. Athens: Ohio University Press, 1975.

Gwynne, S. C. Empire of the Summer Moon. New York: Scribner, 2010.

Henretta, James. “Economic Development and Social Structure in Colonial Boston.” William and Mary Quarterly 22 (1965): 93-105.

Hughson, S. C. “The Carolina Pirates and Colonial Commerce.” Johns Hopkins University Studies in Historical and Political Science 12 (1894): 123.

Jones, Alice H. American Colonial Wealth: Documents and Methods, 3 vols. New York: Arno, 1978.

_. Wealth of a Nation to Be: The American Colonies

On the Eve of the Revolution. New York: Columbia University Press, 1980.

Kulikoff, Allan. “The Economic Growth of the Eighteenth-Century Chesapeake Colonies.” Journal of Economic History 39 (1979): 275-288.

Lemon, James T. Best Poor Man’s Country:A Geographical Study of Early Southwestern Pennsylvania. Baltimore, Md.: Johns Hopkins University Press, 1972.

Lindert, Peter H., and Jeffrey G. Williamson. “American Incomes Before and After the Revolution,” NBER working Paper Series, no. 17211; see http:// Www. nber. org/papers/w17211; 2011.

Main, Gloria L., and Jackson T. Main. “Economic Growth and the Standard of Living in Southern New England, 1640-1774.” Journal of Economic History 48 (1988): 27-46.

Main, Jackson T. The Social Structure of Revolutionary America. Princeton, N. J.: Princeton University Press, 1965.

Menard, Russell R. “Farm Prices of Maryland Tobacco, 1659-1710.” Maryland Historical Magazine 58 (Spring 1973): 85.

______. “A Note on Chesapeake Tobacco Prices, 16181660.” Virginia Magazine of History and Biography (1976): 401-410.

Paskoff, Paul. “Labor Productivity and Managerial Efficiency against a Static Technology: The Pennsylvania Iron Industry, 1750-1800.” Journal of Economic History 40 (1980): 129-135.

Perkins, Edwin J. Chapter 1 in The Economy of Colonial America, 2nd ed. New York: Columbia University Press, 1988.

Schweitzer, Mary M. Custom and Contract: Household Government, and the Economy in Colonial Pennsylvania. New York: Columbia University Press, 1987.

Shepherd, James F., and Gary M. Walton. Shipping, Maritime Trade, and the Economic Development of Colonial North America. Cambridge: Cambridge University Press, 1972.

Taylor, George R. “American Economic Growth before 1840: An Exploratory Essay.” Journal of Economic History 24 (1964): 437.

Walton, Gary M. “Sources of Productivity Change in American Colonial Shipping.” Economic History Review 20 (April 1967): 67-78.

Williamson, Jeffrey G., and Peter H. Lindert. American Inequality: A Macroeconomic History. New York: Academic Press, 1980.