A Farewell to Alms: A Brief Economic History of the World [NOOK Book]

A Farewell to Alms

PRINCETON UNIVERSITY PRESS

Chapter One

He may therefore be justly numbered among the benefactors of mankind, who contracts the great rules of life into short sentences, that may be easily impressed on the memory, and taught by frequent recollection to recur habitually to the mind. -Samuel Johnson, Rambler No. 175 (November 19, 1751)

The basic outline of world economic history is surprisingly simple. Indeed it can be summarized in one diagram: figure 1.1. Before 1800 income per person -the food, clothing, heat, light, and housing available per head-varied across societies and epochs. But there was no upward trend. A simple but powerful mechanism explained in this book, the Malthusian Trap, ensured that short-term gains in income through technological advances were inevitably lost through population growth.

Thus the average person in the world of 1800 was no better off than the average person of 100,000 BC. Indeed in 1800 the bulk of the world's population was poorer than their remote ancestors. The lucky denizens of wealthy societies such as eighteenth-century England or the Netherlands managed a material lifestyle equivalent to that of the Stone Age. But the vast swath of humanity in East and South Asia, particularly in China and Japan, eked out a living under conditions probably significantly poorer than those of cavemen.

The quality of life also failed to improve on any other observable dimension. Life expectancy was no higher in 1800 than for hunter-gatherers: thirty to thirty-five years. Stature, a measure both of the quality of diet and of children's exposure to disease, was higher in the Stone Age than in 1800. And while foragers satisfy their material wants with small amounts of work, the modest comforts of the English in 1800 were purchased only through a life of unrelenting drudgery. Nor did the variety of material consumption improve. The average forager had a diet, and a work life, much more varied than the typical English worker of 1800, even though the English table by then included such exotics as tea, pepper, and sugar.

And hunter-gatherer societies are egalitarian. Material consumption varies little across the members. In contrast, inequality was pervasive in the agrarian economies that dominated the world in 1800. The riches of a few dwarfed the pinched allocations of the masses. Jane Austen may have written about refined conversations over tea served in china cups. But for the majority of the English as late as 1813 conditions were no better than for their naked ancestors of the African savannah. The Darcys were few, the poor plentiful.

So, even according to the broadest measures of material life, average welfare, if anything, declined from the Stone Age to 1800. The poor of 1800, those who lived by their unskilled labor alone, would have been better off if transferred to a hunter-gatherer band.

The Industrial Revolution, a mere two hundred years ago, changed forever the possibilities for material consumption. Incomes per person began to undergo sustained growth in a favored group of countries. The richest modern economies are now ten to twenty times wealthier than the 1800 average. Moreover the biggest beneficiary of the Industrial Revolution has so far been the unskilled. There have been benefits aplenty for the typically wealthy owners of land or capital, and for the educated. But industrialized economies saved their best gifts for the poorest.

Prosperity, however, has not come to all societies. Material consumption in some countries, mainly in sub-Saharan Africa, is now well below the pre-industrial norm. Countries such as Malawi or Tanzania would be better off in material terms had they never had contact with the industrialized world and instead continued in their preindustrial state. Modern medicine, airplanes, gasoline, computers-the whole technological cornucopia of the past two hundred years-have succeeded there in producing among the lowest material living standards ever experienced. These African societies have remained trapped in the Malthusian era, where technological advances merely produce more people and living standards are driven down to subsistence. But modern medicine has reduced the material minimum required for subsistence to a level far below that of the Stone Age. Just as the Industrial Revolution reduced income inequalities within societies, it has increased them between societies, in a process recently labeled the Great Divergence. The gap in incomes between countries is of the order of 50:1. There walk the earth now both the richest people who ever lived and the poorest.

Thus world economic history poses three interconnected problems: Why did the Malthusian Trap persist for so long? Why did the initial escape from that trap in the Industrial Revolution occur on one tiny island, England, in 1800? Why was there the consequent Great Divergence? This book proposes answers to all three of these puzzles-answers that point up the connections among them. The explanation for both the timing and the nature of the Industrial Revolution, and at least in part for the Great Divergence, lies in processes that began thousands of years ago, deep in the Malthusian era. The dead hand of the past still exerts a powerful grip on the economies of the present.

The focus on material conditions in this history will strike some as too narrow, too incidental to vast social changes over the millennia. Surely our material riches reflect but a tiny fraction of what makes industrialized societies modern?

On the contrary, there is ample evidence that wealth-and wealth alone-is the crucial determinant of lifestyles, both within and between societies. Income growth changes consumption and lifestyles in highly predictable ways. The recent demise first of the American farmer and then of the manufacturing worker were already preordained when income began its upward march during the Industrial Revolution. Had we been more clear-sighted, we could have foreseen in 1800 our world of walk-in closets, his-and-her bathrooms, caramel macchiatos, balsamic reductions, boutique wines, liberal arts colleges, personal trainers, and $50 entrees.

There are surely many surprises ahead for mankind in the centuries to come, but for the most part the economic future is not an alien and exotic land. We already see how the rich live, and their current lifestyle predicts powerfully how we will all eventually live if economic growth continues. Anyone who has visited the British Museum or the Sistine Chapel, for example, has had a foretaste of the relentless tide of tourism set to be unleashed on the world by another few decades of strong economic growth. Even the high-income demand for unique and individualized travel and dining experiences is now catered to on an industrial scale.

Just as we can see the future through the lives of the rich, so the small wealthy elite of the preindustrial world led lives that prefigured our own. The delight of the modern American suburbanite in his or her first SUV echoes precisely that of Samuel Pepys, the wealthy London civil servant, on acquiring his first coach in 1668. A walk through the reconstructed villas of Pompeii and Herculaneum, frozen in time on the day of the eruption of Vesuvius in AD 79, reveals homes that suburban Americans would happily move into: "Charming home with high ceilings, central courtyard, great room, finely detailed mosaics, and garden water feature-unobstructed Vesuvian views."

Thus I make no apologies for focusing on income. Over the long run income is more powerful than any ideology or religion in shaping lives. No God has commanded worshippers to their pious duties more forcefully than income as it subtly directs the fabric of our lives.

The Malthusian Trap: Economic Life to 1800

The first third of the book is devoted to a simple model of the economic logic of all societies before 1800, and to showing how this accords with historical evidence. This model requires only three basic assumptions, can be explained graphically, and explains why technological advance improved material living conditions only after 1800.

The crucial factor was the rate of technological advance. As long as technology improved slowly, material conditions could not permanently improve, even while there was cumulatively significant gain in the technologies. The rate of technological advance in Malthusian economies can be inferred from population growth. The typical rate of technological advance before 1800 was well below 0.05 percent per year, about a thirtieth of the modern rate.

In this model the economy of humans in the years before 1800 turns out to be just the natural economy of all animal species, with the same kinds of factors determining the living conditions of animals and humans. It is called the Malthusian Trap because the vital insight underlying the model was that of the Reverend Thomas Robert Malthus, who in 1798 in An Essay on the Principle of Population took the initial steps toward understanding the logic of this economy.

In the Malthusian economy before 1800 economic policy was turned on its head: vice now was virtue then, and virtue vice. Those scourges of failed modern states-war, violence, disorder, harvest failures, collapsed public infrastructures, bad sanitation-were the friends of mankind before 1800. They reduced population pressures and increased material living standards. In contrast policies beloved of the World Bank and the United Nations today-peace, stability, order, public health, transfers to the poor-were the enemies of prosperity. They generated the population growth that impoverished societies.

At first sight the claim of no material advance before 1800 seems absurd. Figure 1.2 shows Nukak hunter-gatherers of the modern Amazonian rain forest, naked, with a simplicity of possessions. Figure 1.3 in contrast shows an upper-class English family, the Braddylls, painted in all their finery by Sir Joshua Reynolds in 1789. How is it possible to claim that material living conditions were on average the same across all these societies?

But the logic of the Malthusian model matches the empirical evidence for the preindustrial world. While even long before the Industrial Revolution small elites had an opulent lifestyle, the average person in 1800 was no better off than his or her ancestors of the Paleolithic or Neolithic.

The Malthusian logic developed in this book also reveals the crucial importance of fertility control to material conditions before 1800. All preindustrial societies for which we have sufficient records to reveal fertility levels experienced some limitation on fertility, though the mechanisms varied widely. Most societies before 1800 consequently lived well above the bare subsistence limit. That is why there has been plenty of room for African living standards to fall in the years since the Industrial Revolution.

Mortality conditions also mattered, and here Europeans were lucky to be a filthy people who squatted happily above their own feces, stored in basement cesspits, in cities such as London. Poor hygiene, combined with high urbanization rates with their attendant health issues, meant incomes had to be high to maintain the population in eighteenth-century England and the Netherlands. The Japanese, with a more highly developed sense of cleanliness, could maintain the level of population at miserable levels of material comforts, and they were accordingly condemned to subsist on a much more limited income.

Since the economic laws governing human society were those that govern all animal societies, mankind was subject to natural selection throughout the Malthusian era, even after the arrival of settled agrarian societies with the Neolithic Revolution of 8000 BC, which transformed hunters into settled agriculturalists. The Darwinian struggle that shaped human nature did not end with the Neolithic Revolution but continued right up until the Industrial Revolution.

For England we will see compelling evidence of differential survival of types in the years 1250-1800. In particular, economic success translated powerfully into reproductive success. The richest men had twice as many surviving children at death as the poorest. The poorest individuals in Malthusian England had so few surviving children that their families were dying out. Preindustrial England was thus a world of constant downward mobility. Given the static nature of the Malthusian economy, the superabundant children of the rich had to, on average, move down the social hierarchy in order to find work. Craftsmen's sons became laborers, merchants' sons petty traders, large landowners' sons smallholders. The attributes that would ensure later economic dynamism-patience, hard work, ingenuity, innovativeness, education-were thus spreading biologically throughout the population.

Just as people were shaping economies, the economy of the preindustrial era was shaping people, at least culturally and perhaps also genetically. The Neolithic Revolution created agrarian societies that were just as capital intensive as the modern world. At least in England, the emergence of such an institutionally stable, capital-intensive economic system created a society that rewarded middle-class values with reproductive success, generation after generation. This selection process was accompanied by changes in the characteristics of the preindustrial economy, due largely to the population's adoption of more middle-class preferences. Interest rates fell, murder rates declined, work hours increased, the taste for violence declined, and numeracy and literacy spread even to the lower reaches of society.

The Industrial Revolution

The stasis of the preindustrial world, which occupied most of the history of mankind, was shattered by two seemingly unprecedented events in European society in the years 1760-1900. The first was the Industrial Revolution, the appearance for the first time of rapid economic growth fueled by increasing production efficiency made possible by advances in knowledge. The second was the demographic transition, a decline in fertility which started with the upper classes and gradually encompassed all of society. The demographic transition allowed the efficiency advance of the Industrial Revolution to translate not into an endless supply of impoverished people but into the astonishing rise of income per person that we have seen since 1800. The second third of the book examines these changes.

The Industrial Revolution and the associated demographic transition constitute the great questions of economic history. Why was technological advance so slow in all preindustrial societies? Why did the rate of advance increase so greatly after 1800? Why was one by-product of this technological advance a decline in fertility? And, finally, why have all societies not been able to share in the ample fruits of the Industrial Revolution?

There are only three established approaches to these puzzles. The first locates the Industrial Revolution in events outside the economic system, such as changes in political institutions, in particular the introduction of modern democracies. The second argues that preindustrial society was caught in a stable, but stagnant, economic equilibrium. Some shock set forces in motion that moved society to a new, dynamic equilibrium. The last approach argues that the Industrial Revolution was the product of a gradual evolution of social conditions in the Malthusian era: growth was endogenous. According to the first two theories the Industrial Revolution might never have occurred, or could have been delayed thousands of years. Only the third approach suggests that there was any inevitability to it.

The classic description of the Industrial Revolution has suggested that it was an abrupt transition between economic regimes, as portrayed in figure 1.1, with a change within fifty years from preindustrial productivity growth rates to modern rates. If this is correct then only theories that emphasize an external shock or a switch between equilibria could possibly explain the Industrial Revolution.

(Continues...)

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Excerpted from A Farewell to Alms by Gregory Clark Copyright © 2007 by Princeton University Press. Excerpted by permission.
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