What this chapter explains
Welcome to the Gilded Age!
Apparently, nineteenth-century America was one enormous machine for producing robber barons, fabulous mansions, and miserable workers. That’s the popular story, anyway.
Mark Twain and Charles Dudley Warner helped give the era its name with their novel The Gilded Age. And television has kept the mood alive: The Gilded Age, The Men Who Built America, Deadwood, Hell on Wheels, and 1883. Add Ken Burns’s The Roosevelts, and you get the picture: enormous fortunes at the top, ordinary families barely scraping by, and inequality shooting into the stratosphere.
But economic historians tend to tell a more careful story.
They don’t say ordinary Americans stood still. Their own conventional estimates show considerable progress. Between 1870 and 1900, real output per person grew by roughly 2.1 percent annually. Worker compensation rose about 2 percent a year. Even the real wages of unskilled workers increased around 1.3 percent annually.
That’s meaningful improvement. Not stagnation.
The scholarly version is subtler: yes, ordinary Americans got richer, but the rich got richer much faster. In a prominent historical series, the top one percent received about 10 percent of national income in 1870, almost 18 percent in 1910, roughly 14½ percent in 1920, and around 15 percent in 1941.
The apparent pattern? Industrialization brought rising inequality, followed by a twentieth-century leveling. Although even here, different estimates for the top ten percent already disagree. A small clue that measurement might matter!
So there are two usual stories. Popular culture says the bottom barely improved while the rich took everything. Economic historians say the bottom improved, but inequality rose sharply.
And here’s where I become deeply inconvenient.
I contest BOTH.
First, we need to reconsider the income figures themselves. Then we have to ask what money could actually buy. Prices changed differently for poor and rich households. Families became smaller. Purchasing power varied across regions. Census records missed people, especially poorer people. And many poor people disappeared from the statistics because they died too young.
Add immigration and shifting population composition, incomes concealed from taxation, and the enormous value of longer lives. None of these is a minor bookkeeping footnote.
Put the corrections together, and the story changes dramatically. One cumulative calculation for 1870 to 1910 raises estimated annual gains for the bottom ninety percent from just 0.92 percent to 2.52 percent when we include longevity and the other improvements in living standards. And that is slightly faster than the richest 1 percent of Americans.
That doesn’t mean industrial America was paradise. It means ordinary Americans made far more progress than we’ve been led to believe, while inequality rose far less dramatically—and in some measures actually declined.
That’s the central argument of this book.