How about both/and? Even in very basic societies, there are people affected by mental illness. But I think the types and frequency may be developing right along with our technologies. Also, unlike with physical health, the history of really investigating mental health scientifically is pretty brief, so there is indeed more understood about them now.
Even in my own case, I know I am understood and treated in therapy based on concepts that were in their infancy when I was first sent off to therapy. (attachment theory, object relations theory, to name two examples)
Then there is the 'western' world's love of pathology. Is it possible that in other cultures different ways of being are not seen as illness so readily and thus are not as problematic? That people just relate differently to individuals and don't try to hold everyone to a norm?
I can't remember if I was lead to it by something here on PC, but I read a fascinating article about the fact that eating disorders as we know them did not exist in Japan until the western experience and way of thinking about them was 'imported' and popularized. The doctors there did see the occasional anorexic, but they were male, and very different in the underlying dynamics. But in the past X number of years, there has been an explosion of 'our' eating disorders, predominantly in the young female population. I find that somehow horrifying...and quite tragic.