From Wealth to Welfare: How Economic Elites Made Inequality Work

Why do advanced economies engage in substantial income transfers but scarcely redistribute wealth? This paper argues that wealth inequality historically led economic elites to expand income transfers to propertyless households to stabilize the unequal property order. I study this proposition in the context of landholding inequality in Prussia. Estate owners, I argue, used income transfers to offset the economic insecurities of landless workers who could not rely on landownership as insurance against income loss. I digitize surveys of local poor relief and exploit Prussia’s administrative structure, where estates functioned as independent local authorities. The results show that landholding inequality caused higher income transfers to the poor, driven by the redistributive actions of estate owners. Estate owners allocated relief as social protection over the life cycle for households outside of the active workforce. This commitment to insurance was associated with greater voter support for the conservative parties representing estate owners’ interests.