The EU and OECD’s use of poverty lines set at a percentage of national average income is testimony to the widespread acceptance of Peter Townsend’s purely relative poverty definition. It has often been defended, including by Townsend, as a development of Adam Smith’s reference to ‘necessaries’ differing across social contexts. This article contends that Townsend’s definition is clearly inconsistent with Smith’s work but entirely consistent with a passage by Wilhelm Schulz which established the term ‘relative poverty’ and asserted that people’s material needs are proportionate to their nation’s economic output per head; Karl Marx quoted that passage in a short piece that criticised Smith. A recent defence of Townsend’s definition is its supposed international public endorsement in empirical studies of socially perceived necessities. A review of this evidence finds that publics, like Smith and British poverty researchers before Townsend – most notably Seebohm Rowntree – see the extent of material need as affected by social context but not proportionate to national average income. Publishing purely relative and absolute purchasing power poverty statistics together offers a way of portraying hardship levels that is balanced to reflect publics’ more narrowly relative understanding of material needs.

Poverty analysis is in the midst of a multidimensional “turn” due, in part, to the growing awareness of the limitations of relative income measures of poverty. In this paper, we argue that the conceptualisation of poverty remains a neglected aspect of this multidimensional turn to date, and demonstrate that the counter-intuitive results which flow from relative income analyses are not problems of measurement, but are entirely consistent with the conceptualisation of poverty under Peter Townsend’s dominant Poverty as Relative Deprivation framework. In response to these problems we articulate an alternative framework, Poverty as Capability Deprivation, drawing on Amartya Sen’s capability approach, and argue that this provides more persuasive explanations as to why some nations have greater poverty than others and why poverty remains a problem even in the richest nations.