Thursday, August 21, 2014


On the Adam Smith Blog (Adam Smith Institute HERE
Tim Worstall 20 August) posts on “What glories this capitalist free market thing hath wrought”.
It is quite briliant as we have come to expect from Tim Worstall.  Follow the link and read why.
I posted the comment below on his piece”

“Tim and Deirdre are both right: poverty is a more important problem than inequality. It wasn’t the desire for equality that drove Homo Sapiens and their immediate predecessors to develop speech and toolmaking from which human consumer products evolved, lifting them, albeit marginally at first, from the norms associated with the consumption possibilities of animals in nature.
Adam Smith lectured on these great transformations, hindered as he was by no knowledge of evolution or the circumstances and the millions of years and hundreds of millennia of pre-history involved, and without direct knowledge of modern anthropology and basic archeology, hence his summary efforts could not be taken any further by his student listeners:
“All other animals find their food in the state they desire it and that which is best suited to their                                                                         several natures, and few other necessaries do they stand in need of. But man, of a more delicate frame and more feeble constitution, meets with nothing so adapted to his use that it does not stand in need of improvement and preparation to fit for his own use” (Adam Smith (1762-3): Lectures on Jurisprudence, p. 334. vi.9).
It was, and is still, the unrelenting power of those needs for improvement to fit human use that drove human progress and adaptation, or what Deirdre McCloskey calls the “Great Enrichment” that defines “the main fact and finding of economic history”, (including of course our pre-history).


The Real Story Behind the Invisible Hand
LSE public lecture: Date: Thursday 30 October 2014; Time: 6.30-8pm;  Venue: Old Theatre, Old Building.  Speaker: Russell Roberts
Adam Smith gave the world the metaphor of the invisible hand, the most famous metaphor of economics. But he only used the phrase three times in his writings. And none of the uses reflect what the phrase has come to mean today--a justification of laissez-faire capitalism. Yet Smith is indeed a key figure in the idea of emergent order--order that is the result of human action but not human design. Ironically, his richest explanation of that concept may be found in his little-known masterpiece, The Theory of Moral Sentiments. His application there is not to our economic system, but to the very idea of civilization and culture. This talk explores Smith's concept of emergent order and its relevance for our conduct today and its potential to let all of us help to make the world a better place.
Russell Roberts (@EconTalker), author of How Adam Smith Can Change Your Life, is a research fellow at Stanford University's Hoover Institution and the host of EconTalk, a weekly hour-long award-winning podcast. Previously, he was a professor of economics at George Mason University and founding director of the Center for Experiential Learning at the John M. Olin School of Business at Washington University.
Suggested hashtag for this event for Twitter users: #LSEASmith
This event is free and open to all with no ticket or pre-registration required. Entry is on a first come, first served basis. For any queries see LSE Events FAQ or contact us at 0207 955 6043. 
Media queries: please contact the Press Office if you would like to request a press seat or have a media query about this event, email Please note that press seats are usually allocated at least 24 hours before each event.
At last! Slowly but surely the truth about the myth of the “invisible Hand” in modern economics is being presented, albeit not yet, within mainstream economics, but certainly now in some of the upstream flows of ideas into that large ocean of  ideas that make up the modern, orthodox  consensus.
I know of Russel Roberts entirely from my long-standing subscription to ECONLOG (Library of Economics and LIberty) HERE  Russel’s Blog carries running commentary on economic ideas, which are usually interesting because they debate modern themes and ideas about them.  
I have not noted Russel’s interest in the ‘invisible hand’ controvesy before but very pleased to see he has now moved into it.   Unfortunately travel for me just now is not feasible from Edinburgh to the LSE in London.  I would have loved to attend and hear what he has to say - and, as interesting, his audience' reactions.  From the above ‘abstract’ , Russel and I would agree on the subject and I am encouraged that he is taking his ideas to an important citidel of ‘IH idolitary’.   Would that he could do so in US academe too, where ‘IH disease’ is rampant both across academe and in wider US public use.

If you can get to the lecture, follow the links above for tickets: or call 0207 955 6043.

Saturday, August 16, 2014


Chris Matthews in “Fortune” 13 August, HERE  writes: 
“The 'invisible hand' has an iron grip on America”  
CW: “There are few metaphors that have captured the American economic psyche as powerfully as the “invisible hand” of the market. The term, first coined by Adam Smith in 1759, is used to describe how the self-interested behavior of people in a marketplace leads to the greater good for all. No need to rely on concerted efforts of government or the church to direct commercial activity. If the proper economic and legal institutions are set up, we can all be made better if simply left to our own devices.
Adam Smith did not “coin” the phrase ‘invisible hand’, nor was it a ‘phrase’ - it was and remains a metaphor that was regularly in use in the 17th and 18th centuries before Smith was born and for long afterwards. 
Moreover, Smith used the metaphor only once in his 1759 book: Theory of Moral Sentiments and it did not refer to “people in a market place”.  He was discussing an agricultural economy, akin to feudalism, where landlords owned the land and serfs, peasants, or landless labourers worked the landlord’s land and landlords in return fed them their necessaries from the farm’s produce. There was no marketplace in Smith’s 1759 example.   In reality, of course, landlords used unsympathetic overseers to keep the labourers in order and to distribute produce to them.
CW: “Before Smith coined the phrase “invisible hand,” the discipline of economics didn’t even exist, which is likely why he is so revered by economists today. But while economists respect Smith for inventing the field, they are much less uniformly fond of the “invisible hand” and its sway over public discourse and policy.”
‘Political Economy’ in Smith’s times was incorporated under the older rubric of Moral Philosophy and Jurisprudence (both of which Smith taught at Glasgow University (1751-64).  
The more fashionable subject of “Political Economy” came into fashion from Continental influence (Sir James Steuart: “An Inquiry into the Principles of Political Economy”, 1766) and for long afterwards throughout the 19th century (Ricardo, Malthus, and Marx) until Alfred Marshall published  his weighty texbook “Principles of Economics” (1890), from which the modern title became common for the narrower discipline emphasising markets over governments. 
That Smith is so ‘revered’ today has nothing to do wth the mention of the ‘invisible hand’, which was largely ignored while he was alive and hardly noticed after he died in 1790 and then until 1874, and seldom since until Paul Samuelson started that particular hare running in 1948.  Mentions of the IH are now viral.
Only recently have economists become “less uniformally fond of the the “IH” metaphor”.  Lost Legacy has tried since 2005 to undermine what “fondness” remains for attributing the invented properties attributed to the “IH”  metaphor and for it being attributed to Adam Smith.
CW:Joseph Stigliz: “Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best…. [T]he reason that the invisible hand often seems invisible is that it is often not there.
In other words, markets are pretty good at allocating resources where they are most needed, but there are so many exceptions to this rule that these exceptions deserve as much attention as the rule itself.”
I am always pleased when a leading Nobel-winning, modern economist, with a vast popular readership, acknowledges the fiction of the “invisble hand”.  I would be even more pleased if Chris Matthews, writing in the popular magazine, “Fortune”, used the legendary fact-checkers, supposedly abounding in US journalism, to clear up the other factual errors in his otherwise authoritative articles when referring to Adam Smith.

Thursday, August 14, 2014


I received a message from Craig Smith, a co-editor with Chris Berry and Maria Paganeli of “The Oxford Handbook of Adam Smith”, (Oxford University Press), who with Nicholas Phillipson (author of “Adam Smith An Enlightened Life” (Yale) visited the Museum in Kirkcaldy, Fife, birthplace of Adam Smith.
The illustration of the Greek primer school book, inscribed with Adam Smith’s signature, unfortunately did not reproduce on the blog (readers who email me I can try to send it back -it arrived by email...). 
Smith attended Kirkcaldy Burgh School in Hill Street from 1731-1737, where among other subjects he studied Greek and Latin.  He must have been an attentive student because when he went to Glasgow University in1737 he went straight to the third-year Latin class and as an adult he was a fluent Latin speaker and reader (see Ian S. Ross. “The Life of Adam Smith”, p. 18. Oxford University Press).
The Kirkcaldy Musem has several items of interest to Adam Smith scholars and visitors are welcome to see and ask questions about them. The Museum is to be congratulated for carefully collecting and displaying what limited materials are available, including the above book.  
Numerous local Kirkcaldy folk have taken a close interest in their town’s most famous son.  A couple of years ago, I joined local historians on a excellently well-informed, conducted tour of places of interest in the town, including the Kirk that he attended with his mother up to 1737 (he was born 5 June, 1723).
The Kirkcaldy Burgh School was situated a hundred yards or so down Hill Street (its now a tarred-over car park) and further down it joins the High Street, where opposite Hill Street stood his Mother’s house in its garden that fronted onto the shore line of the Firth of Forth, a short distance from Kirkcaldy’s seaport, where is father was for some time a Customs Official at the harbour before he died in January 1723.  
While his mother’s house was demolished in the 19th century, the garden and its walls remain much as they were when Smith lived there from 1767 to 1773 to compile his manuscript of the Wealth Of Nations, published in 1776 (he had started writing parts of what became its text for his Glasgow lectures before 1762). Another three years were spent in London completing his famous book and guiding it through the press, as well as him being “very zealous” in debating on American affairs with politicians prior to The Declaration of Independence - see Ian Ross, above, pp. 265-84).
There is an ambitous plan to restore an 18th century building at the end of his mother's garden into an exhibition centre of all things related to Adam Smith and to present public and well-researched history events, conferences with leading world speakers. 
Should readers be in Scotland, I recommend a visit to Kirkcaldy (short rail c. 25-minute journey from Edinburgh across the Forth Bridge - in Smith’s days the journey by boat and on horse-back took much longer and was far less comfortable.)

[Craig Smith and Nicholas Phillipson are to be congratulated on their initiative in visiting the Museum, as are the Trustees of Kirkcaldy Museum for displaying their Adam Smith collection.]

Wednesday, August 13, 2014


The invisible hand of Adam Smith must bow a genuflected knee to the globalist elites, who foster the free trade fraud that only benefits their mastery and control of the planet.
MEME Generator asks HERE
“If you slap the invisible hand of the market would you be clapping with capitalism?” - Philosorap (Complete with Dinosaur cartoon figure in qhweying pose.
Dandy Don posts HERE 
Pimp slapped by the invisible hand, biatch.

Lesbian Bridezillas Bully Bridal Shop Owner over Religious Beliefs.”

Monday, August 11, 2014


“The Startling Story behind a Famous Footnote
For thirty years the official story of general equilibrium went like this: Kenneth Arrow and Gerard Debreu, working independently at first, then joining forces,   proved that Adam Smith was right, and the rest is history. Beginning with Jürg Niehans’ magisterial A History of Economic Theory: Classic Contrbutions 1720-1980 (Johns Hopkins, 1990), the received version shifted slightly.

By 1950, under the influence of The Theory of Games and Economic Behavior, convexity and duality were very much on the minds of mathematical economists.  Nevertheless, the only economic models for which a general equilibrium had been proved were those of Wald  and von Neumann, the first for an economically unappealing model, the other for a growth model without final consumption.  In Value and Capital, though it introduced English-reading economists to general equilibrium, [John] Hicks never bothered about existence proofs and negative prices.  Indeed, he sometimes expressed himself as if he believed that the counting of equations and variables was enough.  Morgenstern, then learning about these things from von Neumann, chided Hicks mercilessly (and unfairly) for his mathematical complacency.

It remained for Arrow, who admired Hicks, and to Debreu, to prove the existence of a competitive equilibrium for a Walrasian general equilibrium model. J. F. Nash’s existence proof for a n-person game, mentioned above in the chapter John von Neumann, showed the way. The result was the 1954 Arrow-Debreu model of general equilibrium, the neatest and most compact model of an economy since Cantillon’s [literary] Tableau Economique, in terms of land, and vastly richer and more general.*

* An existence proof of a somewhat different kind was published earlier in the same year by Lionel McKenzie). …

All this, and a good deal more is laid out in Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit,  by Weintraub and Düppe, published last week by Princeton University Press. The personalities are discussed. The chronology gets quite a going-over; the indeterminacy of the dates on which the first satisfactory proof was communicated to a larger world is examined.   To my mind it doesn’t change the story that much. There are all kinds of reasons the story came out the way it did. The authors examine them all. Their aim was to “repersonalize” mathematical economics, and they certainly have done that.
The above is an extract from David Warsh’s post this week in his magnificent “Economic Principals” Blog, (by low subscription - check google).
It is very high-quality journalism on economics as it happens in the world, largely about the activities of top US economists and their employers in academe, journalism, and the State.
This week’s account, fully detailed, of the sad machinations of one of the co-originators of the great advance in General Equilibriun theory who apparently contrived to downplay a potential rival theorist’s claims to a share in academic recognition for his contribution to the mathemarical proof of GE.  
David Warsh indentifies Debreu’s questionable behaviour that resulted in excluding Lionel McKenzie’s original contempory work on GE, thus potentially depriving him of a share in the professional glory in the award  the 1985 Nobel Prize for GE.
I find this behaviour disappointing in academe. Professor E. Roy Weintraub, a distinguished scholar and formidable force in the History of Economic Thought as a subject, has co-authored a new book that supplies the details: “Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit,  Princeton University.
Adam Smith in Moral Sentiments noted how competition between rivals is morally acceptible but:
In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of” (TMS II.ii.2.2: p 83).

Apparently, Gerard Debrue, an economist and a brilliant mathematician, did not heed Smith’s admonition, assuming he read his “Theory of Moral Sentiments” (1759 and 1790).  
More’s the pity. Quelle demage.


LORRIE GOLDSTEIN writes (10 August) for Sun News (Canada) HERE
This is from a longer article detailing the financial policies of a government in Canada and quite devastating it is as a critique of general government debt waste (a common enough feature of many countries, including all post-war governments in the UK).  However, follow the link to read it and judge for yourself.
My interest is from a section of it quoting from Peter Foster, a very talented journalist’s, new book, Why We Bite the Invisible Hand - the Psychology of Anti-Capitalism”.  I read Peter Foster’s book some weeks ago and found much to commend it and I intend to comment on it soon, both favourably in respect of those parts I agree with, and less favourably on those I disagree with.
First read this extract from the Sun News by Lorrie Goldstein, quoting from Peter Foster’s “Why We Bite the Invisible Hand - The Psychology of Anti-Capitalism”:
“The "invisible hand" is a reference to Adam Smith's famous description of the merits of capitalism in The Wealth of Nations.
As Smith wrote: "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest ... By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. …”… Foster provides the perfect quotation to illustrate this attitude, which comes from a 1959 book, The Failure of the ‘New Economics' by journalist Henry Hazlitt:"The people who have earned money are too shortsighted, hysterical, rapacious and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people's money will do so only with the greatest care and after long and profound study. Naturally, the businessmen who have earned the money have shown that they have no foresight; but the politicians who haven't earned the money will exhibit almost perfect foresight. The businessmen ... whose success depends upon the degree to which they satisfy consumers, will of course have no concern for ‘the general social advantage'; but the politicians who keep themselves in power by conciliating pressure groups will of course have only concern for ‘the general social advantage.”
[Disclaimer: Lost Legacy does not express views on the politics of any country other than the one I Vote in, which is Scotland.]
Smith’s “butcher, the brewer, or the baker” parable in WN Book 1: pp 26-7) says nothing about his single use, 430 pages later, of the now famous metaphor of an invisible hand (Book IV: p 456) and is on a different subject.
The “butcher, brewer and baker” reference is about how people in markets bargain with each other to seek what they want to buy or sell and advises readers to address the other parties’ self-interests by persuading them that by selling/buying the ingredients of their dinner is of benefit the other party.  Smith cautions buyers/sellers not to talk of their own necessities but to address of the self-interests of the orther party.
The metaphor of an “invisible-hand’ is about the unseen, hidden motives of a merchant, who is concerned about the security of his capital if it is sent abroad, and thereby out of his sight and control and exposed to losses with fewer chances of redress from those involved in the jurisdiction of a distant foreign country (mentioned by Smith four times).  Therefore, said merchant is likely to be motivated to prefer to invest his capital domestically.  He is guided by his motive of avoiding the risks of foreign trade to take the action to invest locally.  His motives leads him to an action that has an intended consequence (the security of his capital). That outcome also may have unintended consequences: his investment arithmetically adds to domestic “revenue and employment”, judged by Smith, “frequently” to be a “public good”. This consequential outcome was “no part of his intention”.
The use of the metaphor of “an invisible hand” is an and example of what metaphors do in English as Smith understood and taught about them in the 18th century, specifically: “to describe in a more striking and interesting manner” their “object” (see Adam Smith, 1762-3: “Lectures on Rhetoric and Belles Lettres” p. 29).  By their “object” Smith meant what the metaphor describes, in this case, clearly, he referx to the motives of the merchant that lead him to his intended consequence of protecting his invested capital from the risks of handing it over to foreign traders beyond the merchant’s security of ensuring redress if they misuse it.  The merchant has more faith in getting redress locally than in a foreign country.
The invisible hand is not about the unintended consequences of the merchant’s intended actions, though that is how the metaphor has been corrupted by modern economists to mean. It is about the intended consequence of the action which has unintended consequences. Sometimes this becomes a general ‘mystical” even “miraculous” (theological?) force operating in a market economy (yet Smith’s other use of the IH metaphor in his ‘Theory of Moral Sentiments’ refers to an agricultural economy).  

Neither paragraph quoted singly or together say what is claimed for them and Lorrie Goldstein is quite wrong to imply that they do.  I do not blame Lorrie for this error; I have seen the same claimed linking made by leading economists and by journalists who rely upon them.  There are  also references to extentions of the initial error by claiming there is a sub-category of  “invisible-hand explanations” - nothing to do with Adam Smith.  

Sunday, August 10, 2014


Lars P. Syll (7 August) HERE 
“Wicksell & Hotelling on the limits of Adam Smith’s invisible hand”

“It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible and doesn’t actually produce a social optimum.
With the advent of neoclassical economics at the end of the 19th century a large amount of intellectual energy was invested in trying to formalize the stringent conditions of obtaining equilibrium and showing in what way the prices and quantities of free competition constituted some kind of social optimum.
That the equilibrium reached in free competition is an optimum for each individual – given prevailing prices and income distribution – was not, however, seen by some economists as making a very strong case for a free market economy per se. It wasn’t possible to prove that free trade and competition gave a maximum of social utility. The gains made in exchange weren’t a manifestation of a maximum social utility.”
“It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible doesn’t actually produce a social optimum.”
Adam Smith did not say that his(?) “invisible hand produced a social optimum”.  That is a an ideological construction placed on his use of the now famous metaphor in Wealth Of Nations, in which he describes how a merchant who was motivated for the security of his capital if he sent it abroad, intentionally preferred to invest it locally in the domestic economy (mentioned four times).  This intended domestic investment was less risky - though still risky (not all investments are successful) and be that as it may, by investing it domestically, his capital added arithmetically to domestic “revenue and employment”, which, ceteris paribus, unintentionally promoted “the public good”  (WN IV.ii.10: 456).
Two points: Smith did not mention anything about a ‘social optimum’ resulting. That is a construction put on it by modern economists assuming that outcome from the mathematics of ‘general equilibrium’ theories (developed separately, by Richard McKenzie, Kenneth Arrow, and Gerald Debreu). Paul Samuelson popularised the notion in his textbook, “Edoncomics: an introductory analysis” (McGraw-Hill), causing a veritable flood of praise for the notion.
Secondly, the analysis, “proving” the associated assertions was also allegedly identified as what Adam Smith had meant by using the metaphor of an ‘invisible hand”.  I have said plenty about these assertions on Lost Legacy and elsewhere to show that such identification of the invisible-hand metaphor is profoundly wrong.
The metaphor of the “invisible hand” described in a “more striking and interesting manner” (Smith, 1762: Lectures on Rhetoric and Belles Lettres”) the hidden, private, motives of a merchant, concerned only for his own security (identified 4 times in the chapter), who acts intentionally to invest locally and that action led him unintentionally to “promote the public good” because his motivated action, if successful, adds to domestic “revenue and employment”.
The metaphor refers to the merchant’s motivated intentional action  and not to the unintentional consequence of the action.  Given the generality of all unintentional concequences of motivated intentional actions there is nothing ‘magical’ or ‘miraculous’ about unintended consequences, that is why they are described as unintentional.
Some intentional actions motivated by self-interests have negative consequencies for those affected by them and thereby they are not socially optimal. What people intend when they take action and what actually happens as a result is not necessarily what was intended by the initiator of the action.  The actor’s intentions may by frustrated by events, summed somewhat drantically in the saying that: “the road to hell is paved with good intentions”.  Hence, the unintentional consequences of well-intended actions need not lead to a ‘social optimum’, and as often do not.
In that respect I side with Harold Hotelling in 1929 observing the mistaken construction of colleagues who argued that a so-called invisible hand, as discussed by some of his colleagues, defied the improper construction they put on their misuse of a metaphor, used by Adam Smith for a quiet different purpose, about the hidden motives of individuals causing them to act for their intended purpose in pursuit of their self-interests but which could have unintended consequences, sometimes socially optimal and sometimes socially sub-optimal.

Meanwhile, the great creative intellectual energy invested by many brilliant minds in the search for proof of general equilibrium in an economy was ultimately wasted. Generations of young, gifted economists, mastered the mathematics of their proofs at great cost to the relevance of their proofs to the real world, which efforts won them prizes (including Nobels), tenure in the top universities, publishing contracts, and enjoyed due and deserved reverance from their colleagues and students, who properly stand in awe of them.

Saturday, August 09, 2014


McCloskey on Inequality” (9 August) HERE  
a 24 minute video interview on BCC ‘Hard Talk’ programme and a much clearer talk by Deirdre McCloskey on ‘ieaTVHERE   
I have stated on Lost Legacy (and elsewhere in discussions and debates) that “poverty is a far more important problem that inequality”.  This has sometimes been dismissed by claiming, often passionately, that people are poor because a minority are rich, sometimes ‘obscenly' so.  
Such commonsense reposts to my views also see the solution as simple: ‘tax the rich and spend the wealth on the poor’.  Now I am not at all going to argue that such a penal tax level could not be undertaken by governments, whether in a democracy or in a revolutionary spirit of 'righting the injustices inflicted on those trying to live on low wages' plus, or without, state-funded benefit payments.
But to claim that poverty is caused by inequality is manifestly untrue. To argue that poverty is getting worse is also untrue, especially when supported by apparent declines in shares of annual GDP enjoyed by the poorest compared to the richest 10 or 1 percent.
If that were true you would have to argue that the bottom half of the income distribution today is worse off than the bottom half of the income distribution of say, 60 years ago, or even 30 years ago.  
Compare the shopping baskets of households in Britain in 1950 with 2014; compare proportions of households - across the income spectrum - and the contents in their weekly shopping lists.  Compare household aids available to your grandmother with those in your mother’s house - and your own household - and, if you have grown-up children, compare their household gadgets with yours when you were their age.
Poverty is relative across the income spectrum but the expectation of what constitutes poverty is also relative to your generation’s living standards.  Of course, each income level, as generations pass on, defines poverty relative to what is expected in the long-term growth of the economy. What yesterday were regarded as ‘basic’ necessities are no longer regarded as such; what are now regarded as basic necessities were undreamt or even heard-of twenty years ago.
Yesterday’s luxuries are today’s necessities.  Today’s necessities are tomorrow’s junk or antiques.  So it went on, albeit slower, since the 18th century, through the nineteenth, and in the recent past through the twentieth.  All this reflects in content units the rising per capita incomes from a dollar a day, or less, to the $100 dollars or more since before markets began to emerge in north-western Europe, eventually squeezing out dependence on agriculture and shepherding for growing dependence on manufactured products and related services.
Yesterday’s rich enjoyed their luxuries long before the majority dreamt of them.  A fridge, dish and clothes washing machines, central heating, holiday’s abroad, colour tv, mobile/cell phones, multi-car households, computers, ipads, multi-channel tvs, 24-hour news, internet, face-book, texting, Google, debit/credit cards, Amazon, skype, space travel, and all the rest, with more to come tomorrow. 
Relative poverty still exists and absolute poverty still exists in vast parts of the world.  But, significant numbers of those in absolute poverty, at great personal risk, try to move from where they are into the richer countries, despite the existence of relative poverty in their intended destinations and the certain knowledge that they will suffer those higher levels of relative poverty should they manage to evade the many political and administrative obstacles trying to prevent them arriving in the rich countries.
Why? Because the relative poverty in the rich countries is incomparably better for them than the absolute poverty from whence they came.  Moreover this migration flow is almost alll one way from poorer poorest to richer poorest in the rich countries.
Adam Smith described wealth of nations as the production of consumables which he associated with the richest market nations.  It wasn’t piles of gold or precious stones, or money (however defined); it was the annual production of “necessaries, conveniences and amusements”.  
As always across the deep history of human kind there has been inequality (culturally defined).  Only since the sustained, unintended evolution of markets, loosely acompanied by general justice  liberty across populations, has there been a secular, if uneven, rising access of humans to, albeit unequal, per capita consumption of the necessaries, conveniences and amusements of life. 
That is why I for one consider true liberty to be more important that nominal democracy and the constant, secular reduction in poverty through rising GDP per person, to be more important than inequality.

[I highly recommend that readers watch both viedeos - the iea interview is much clearer and better than the longer BBC one.]