Definition

In classical political economy, poverty usually meant a standard of living lower than the subsistence level, which just maintains the population at its given size. The necessary goods which compose the subsistence can be different depending on time and place.

Adam Smith, in the Wealth of Nations (1776), implicitly used the definition of poverty of the standard of living lower than the subsistence level. For him, the subsistence level of living included goods regarded necessary by customs of the society. Towards the end of the eighteenth century, Jeremy Bentham distinguished poverty from indigence. He defined poverty as a state in which a person cannot sustain his or her life without labouring, and indigence as a state in which a person cannot obtain necessary means of subsistence owing to lack of ability to work or, even if he or she works, cannot obtain enough for subsistence (Bentham 2000, 2010). Poverty in Bentham’s definition is the normal state of labourers who are the majority of people in any society, so indigence should be regarded poverty in usual terms. Then appeared Thomas Robert Malthus’s An Essay on the Principle of Population (1798). Malthus studied the problem of poverty from the point of view of his principle of population. He examined the effects of the Poor Laws on the conditions of labourers, concluding that the Poor Laws had a tendency to increase poverty instead of reducing it. He seems to have implicitly defined poverty as a living below subsistence level. However, subsistence was not considered the biologi­cal minimum for survival. It included goods regarded as necessary for human life in the society of the time. This had already been argued by Adam Smith. Ricardo also explic­itly regarded the subsistence wage rate as above the basket of goods the rate of wages required for biological survival.

Towards the end of the nineteenth century, Charles Booth investigated the state of life of the poor in London (Life and Labour of the People in London, 1902-04).

Benjamin Seebohm Rowntree (Poverty: A Study of the Tow Life, 1922), following the study of Booth, made researches into the life conditions of labourers in York. He classified poverty into “primary poverty” and “secondary poverty”. “Primary poverty” means the income level which cannot purchase the minimum requirements to maintain merely physical efficiency, whereas “secondary poverty” means the level of family income which is sufficient for living, but can be insufficient if not spent efficiently. His investigations revealed that nearly 10 per cent of the population was in “primary poverty” and more than 10 per cent in “secondary” poverty. His “primary poverty” can be understood as the level of living lower than needed for biological survival.

The subsistence or the socially lowest level of the standard of living which divided the poor from the non-poor was not absolutely fixed but relative to time and place, vari­able due to the social practices and ways of life and production. Peter Townsend, in his Poverty in the United Kingdom (1979), proposed the definition of poverty explicitly as “relative deprivations”. He described the normal activities and amenities of the society and defined poverty as lack of a part of them, referring to it as “relative deprivations”. For Townsend, poverty is a relative concept.

Amartya Kumar Sen (Poverty and Famine, 1981) contends that poverty should be distinguished from inequality. He recognizes that there is a relative aspect in the concept of poverty, but at the same time he points out that there should be an absolute meaning in the core of poverty, because hunger and famine must remain as the core of the concept of poverty in any definition. He defines poverty as the lack of the minimum capabilities of social life. A capability means a capacity to do something. There are various ways that provide for capabilities. In terms of capabilities, poverty is defined in an absolute sense, but the means that give the same capabilities (that is, commodities and services) can vary in time and place depending on climate, customs, ways of life and ways of production. Commodities give characteristics, which give capabilities, which give utility or pleasure. With this definition, Sen integrated the notions of absolute and relative poverty.

After World War II, there appeared many studies on the measurement of the extent of poverty of a society as a whole. The head-count measures and income ratio measures are often used, but these measures cannot reflect changes in income distribution among the poor people. As we have seen above, the relative position of an individual is important in understanding poverty (idea of relative deprivations). Sen proposed a measure which reflects relative deprivation and the distribution of income among the poor. For Sen, an unfavourable change of distribution among the poor may cause hunger and famine, which should be regarded as a rise of the extent of poverty of a society. Sen proposed a measure which is expressed by the formula P = H {I + [1 - I]G} (P: measure of poverty, H: head-count ratio, I = income-gap ratio = percentage of short-fall of the average income of the poor from the poverty line, G = Gini coefficient of the distribution of income among the poor).

Most authors in the history of economics have inquired into the nature and causes of poverty, and tried to find solutions for it. Especially for classical political economists, poverty was the most important problem they faced, because in their ages European countries including England were still in underdeveloped stages and the majority of people were poor. In the history of economics, economists sought to improve the living conditions of people not only below the poverty line but also of the people placed just a little bit above the line. This attitude vis-a-vis poverty is explicitly stated by Alfred Marshall in chapter 1 of his Principles of Economics (1890). Most economists since Adam Smith had taken this position. Therefore, we will use below the term poverty meaning the state in which one’s living standard is below or near the subsistence level in the society in which one lives.