By 1850 at the latest, real wages — that is, wages received by workers adjusted for changes in the prices they paid — were rising for the mass of the population, and they continued to do so until 1914. The real wages of British workers, for example, almost doubled between 1850 and 1906. Similar increases occurred in continental countries as industrial development quickened after 1850. Ordinary people took a major step forward in the centuries-old battle against poverty, reinforcing efforts to improve many aspects of human existence.

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Greater economic rewards for the average person did not, however, eliminate hardship and poverty. Nor did they make the wealth and income of the rich and the poor significantly more equal, as contemporary critics argued and economic historians have clearly demonstrated. The aristocracy — with imposing wealth, unrivaled social prestige, and substantial political influence — retained its position at the very top of the social ladder, followed closely by a new rich elite, composed mainly of the most successful business families from banking, industry, and large-scale commerce. In fact, the prominent families of the commercial elite tended to marry into the old aristocracy, to form a new upper class of at most 5 percent of the population. Much of the aristocracy welcomed this development. Having experienced a sharp decline in its relative income in the course of industrialization, the landed aristocracy had met big business coming up the staircase and was often delighted to trade titles, country homes, and snobbish elegance for good, hard cash. Some of the best bargains were made through marriages to American heiresses. Correspondingly, wealthy aristocrats tended increasingly to exploit their agricultural and mineral resources as if they were business people.

Income inequality reflected social status. In almost every advanced country around 1900, the richest 5 percent of all households in the population received about a third of all national income, and the richest 20 percent of households received from 50 to 60 percent of it. As a result, the lower 80 percent received only 40 to 50 percent of all income — far less per household than the two richest classes. Moreover, the bottom 30 percent of all households received 10 percent or less of all income.

To understand the full significance of these statistics, one must realize that the middle classes were much smaller than they are today. In the nineteenth century they accounted for less than 20 percent of the population (that is, only about one in five families earned enough to be labeled “middle class”). Moreover, in the nineteenth century (and for centuries before as well) income taxes on the wealthy were light or nonexistent. Thus the gap between rich and poor remained enormous at the beginning of the twentieth century. Indeed, it was probably almost as great as it had been in the late eighteenth century, in the age of agriculture and aristocracy.

The great gap between rich and poor endured, in part, because industrial and urban development made society more diverse and classes less unified; though the satirical drawing of “Apartment Living in Paris” below pokes fun at social difference, the effects were serious. Society had not split into two sharply defined opposing classes, as Karl Marx had predicted (see Chapter 21). Instead, the economic specialization that enabled society to produce goods more effectively had created a remarkable variety of new social groups. There developed an almost unlimited range of jobs, skills, and earnings; one group or subclass blended into another in a complex, confusing hierarchy. Between the tiny elite of the very rich and the sizable mass of the dreadfully poor lived a range of subclasses, each filled with individuals struggling to rise or at least to hold their own in the social order. In this atmosphere of competition and hierarchy, neither the “middle class” nor the “working class” actually acted as a single unified force. Rather, the social and occupational hierarchy developed enormous variations, though the age-old pattern of great economic inequality remained firmly intact.