1870: The Hinge of Global Economic Growth J. Bradford DeLong University of California at Berkeley and NBER delong@econ.berkeley.edu September 7, 2009 I have been reading the works of Robert Allen, one of the very finest of economic historians—now Professor of Economic History at Oxford University’s Nuffield College, and meditating on the difference between the world today and the world of 1870. Back i 1870, you see, the idea that modern economic growth would take hold and grip the world was still a fringe, utopian one—more-or-less confined to dreamers and socialists, and not even all of them. The world’s leading economist in 1871 was British polymath, moral philosopher, and (democratic) socialist John Stuart Mill. The leading economics textbook back then was his Principles of Political Economy with Some of Their Applications to Social Philosophy. In 1871 he revised his book, and he left intact the passage: Hitherto it is questionable if all the mechanical inventions yet made have lightened the day's toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes...
Why was it questionable whether the inventions of the eighteenth and nineteenth centuries—the age of the classic Industrial Revolution—had yet, in Mill’s words, “have lightened the day’s toil of any human being”? The answer, I think, is the one given by Robert Allen. The key inventions of the eighteenth and nineteenth century—the steam engine, new modes of making iron, improvements in firearms and precision machinery, the coming of automatic spinning and weaving—were impressive breakthroughs but required a very special set of circumstances to make
1
their use efficient. Steam engines—primitive and unreliable steam engines of the eighteenth and early nineteenth century—required really cheap coal to make their use less costly than the use of human muscles or of oxen or donkeys or horses or waterpower. And here is one of the keys to the world today: the answer to the question of why the common language of the world is slowly becoming some form of English, rather than the much more reasonable choices of Mandarin, or Hindi, or Arabic. Two thousand years ago, after all, people would have laughed at the idea of Great Britain as an economic, political, social, or cultural center. In the 50s BC the Roman Proconsul of Gaul, Gaius Julius Caesar, invaded and raided Britain: he classified the Britons as among the most backward people he had ever fought and conquered. Caesar’s contemporary among Roman politicians, the lawyer Marcus Tullius Cicero, joked to his friend Titus Pomponius Atticus that Caesar’s invasion of Britain was completely pointless: not an ounce of silver to be stolen in the entire island, only slaves and not very good quality slaves—certainly not a single slave with a useful skill like literacy or musicianship! A thousand years before today the technological and civilizational cutting edges of humanity were to be found in the Caliph Haroun al-Rashid’s capital of Baghdad and the Tang Dynasty Emperor De Zong’s Chang’an rather than London or Bristol of Manchester or New York or Washington or Cleveland. Even three-hundred years before—in 1570—it would have taken a very sharp-eyed observer indeed to believe that northwest Europe was about to get its act together in a way that the Turkish Ottoman civilization around Constantinople, the Moghul Indian civilization around Delhi, and the Ming Chinese civilization around Beijing could not. By 1870, however, the power and technology gradients across world civilizations were very clear. Real wages in England in 1870 were for the first time higher than past averages from the Middle Ages. The late Middle Ages starting in 1400 or so look at have been a relatively prosperous time for the people of Eurasia. In Europe, the catastrophe of the Bubonic Plague had pushed the population of Europe down by between a quarter and a half from its early fourteenth-century medieval high, and larger farm sizes produced an agricultural bonanza for peasants who could (a) produce more and (b) bargain for lower feudal rents from earls desperate to have somebody working the land to pay something in rent. In Asia there had been plague too—and also Chingis Khan and his
2
descendants—along with the spreading-out of highly-productive wet rice agriculture. It looks as though Eurasia-wide even unskilled urban laborers could earn three times as much as was necessary to feed and house a family in a small shack and on the cheapest possible diet—usually millet, or sorghum, or oatmeal. By 1600, however, Robert Allen seems to find that urban unskilled daylaborer real wages in Eurasia are lower. The spectre of Malthus has returned. In Europe, Italy and Austria have filled up with people, farm sizes are smaller, and the shift of trade from the Mediterranean to the Atlantic has advantage Amsterdam and London. Neither Florence nor Vienna was anymore a good place to try to raise a family as an unskilled day laborer. Nor does Beijing. (Delhi, by constrast, still looks much like Amsterdam and London: rapidly-growing capital cities in a rich agricultural region that benefited from the global trade boom set off by the invention of the sea-going caravel.) By the eighteenth century Delhi has joined Florence, Vienna—and mid-Qing Beijing—as places where the lot of a masterless man trying to raise a family was very bad indeed. Travelers from northwestern Europe to Asia in the 1600s and before had been impressed back then not just by the scale of the empires and the luxurious wealth of their rulers but by the rest of the economy as well. The scale of operations, the prosperity and industry of the merchant classes, the good order of the people, and the absence of extraordinary poverty among the masses frequently struck European observers as worthy of comment as striking contrasts with back home. But by the 1800s this was no longer the case. Travelers from Europe reported a ruling elite richer than but a proletariat poorer than what they were used to in their European homes. And it is not Europe but northwestern Europe alone that makes the difference. Living standards, levels of sophistication in the use of machine and steam technology, and the contrast between rich and poor were much the same in Florence, Italy and in Vienna, Austria as in Delhi or Beijing. The difference in northwestern Europe was caused by the boom in transAtlantic trade and the exploitation of the American colonies, but also because of the fit between the new technologies of the Industrial Revolution and the configuration of prices in northwestern Europe. Steam engines were clumsy and inefficient and could only be profitably used where coal was essentially free. Textile machinery was clumsy, and could only be used profitably where cotton was very cheap and unskilled labor relatively expensive. Skilled craftworkers’ fingers were hard for primitive
3
machines to match. Unskilled workers’ muscles were often cheaper than coal painfully dug from the earth. Technologies had not yet clearly lightened the day’s toil of any human being in the world as a whole because in the world as a whole labor was cheap, cotton was often expensive, and coal was expensive as well. Only Britain (and, a little bit later, Belgium, northeastern France, northwestern Germany, and New England) had the combination of (a) cheap access to slave-grown American cotton, (b) cheap coal, and (c) relatively expensive labor because of booming world trade. And even then whether the Industrial Revolution would truly take off and create a world of abundance was unclear. Economic historian Gregory Clark of the University of California at Davis points out that there had been narrowly-focused “technological revolutions” many times before Britain in the eighteenth century: printing, the windmill, the musket, the seagoing caravel, wet rice capable of sustaining three crops a year, the watermill, the horse collar, the heavy plow, bureaucracy to maintain the pax sinica, the legion to maintain the pax romana, the phalanx, the olive press, and so forth back into the mists of time. Yet none of these lit off the rocket of continuous rapid modern economic growth that the world has ridden over the past century and a half. As W. Arthur Lewis wrote more than thirty years ago, this idea that each year would realize enough progress and improvement that one could see it was a very new one. In his words, “The process of continuous growth began in England, spread during the first half of the nineteenth century to the United States, France, Belgium, and Germany, in that order…” but had spread no further by 1870. It was only thereafter that modern economic growth “set out to conquer the whole world,” becoming “an escalator, taking countries to ever-higher levels of output per head. Countries get on the escalator at different dates… and can fall off.” John Stuart Mill in 1871 placed his trust for the future of humanity not in a rapid increase in economic growth, but rather in a combination of (a) a fair distribution of production, and (b) population control to keep the landlabor ratio within reasonable bounds. Mill believes that in the end invention will be decisive—even though it had not been hitherto: [These mechanical inventions] have not yet begun to effect those great changes in human destiny, which it is in their nature and in their futurity to accomplish…
4
But not by itself. Only in combination: Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers become the common property of the species, and the means of improving and elevating the universal lot...
To Mill, not productivity growth but a fairly-distributed and democratic political-economic order—“just institutions”—and universal fertility control—“the increase of mankind… under the deliberate guidance of judicious foresight”—were the keys. Only then could the “conquests made from the powers of nature” become “the means of improving and elevating the universal lot.” Mill, in short, believed that the industrial age was and would remain a Malthusian age, one of strictly limited resources and one in which expanding human numbers would always act as an enormous drag. Yet over the past century and a half Mill has been wrong. Our numbers have grown from 1.2 billion in 1870 to 6.3 billion today. And, yes, finding space and raising agricultural productivity to support those extra 5.1 billion of us has been an enormous task. But it has not left us collectively as poor as our ancestors were in 1870. Whether the future will see the return of a Malthusian age is anyone’s guess: it depends whether we are able to minimize global warming and to manage the social, economic, and political turmoil and destruction that global warming will wreak. Mill was wrong because something important had happened to the progress of invention. The industrial revolution, it turned out, was not just a lucky set of individual inventions but instead had set in motion something truly new: the invention of invention and innovation: the new industrial economy created by the industrial revolution could be counted on to throw out additional innovations of the same magnitude as the railroad and the power spindle at least once a generation. For after 1870 the character of the industrial growth process changed. That the break comes in 1870 is a puzzle and is very disturbing to us economists, for we tend to talk about the importance of the market economy. Yet China had had a market economy since the end of the Tang dynasty. And Europe had had a market economy since the end of the
5
Middle Ages. This raises great suspicions that we have been looking in the wrong place for our explanations of our current global relative prosperity.
1982 words: September 7, 2009
6