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Relative income

Relative Deprivation, Discontent and Revolutions

Paolo Verme's picture

Social scientists have for long acknowledged that people evaluate their own wellbeing not only on the basis of what they have but also on the basis of what they have relatively to what other people have. Adam Smith (1776) wrote that "By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without".1 And Marx (1847) wrote that "A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut”.2 

Despite the old age of these ideas, it is only during the second half of the twentieth century that scholars have tried to provide more analytical substance to the concept of relative deprivation. Duesemberry (1949)3 proposed a relative income hypothesis based on the idea that people determine their savings behavior not on their absolute incomes but on their relative position on the income scale. Runciman (1966)4 built an entire theory of social justice around the concept of relative deprivation defined as the sense of frustration that people experience when they observe other people having something they desire and within their reach but unattainable. While popular, these new theories struggled to become mainstream and it is only recently and thanks to studies on happiness that the concepts of relative deprivation have acquired new life.