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Some Death Ought to Jump-Start the Economy

January 30, 2013

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Some thoughts on the course: The Rise of the Global Economy taken in the first term as part of the International Trade, Finance and Development (ITFD) program. 

How much of economic history stretching from hunter gather to modern day financial crisis can one really learn in five weeks? As it turns out, one can learn rather a lot. As anyone who braved Pro Voth’s course will tell you, economic growth as we know it is a very recent phenomenon. Up until before the Industrial Revolution, economic growth had remained stagnant for hundreds of years. This is a thought that should fester when considering that during the lifetime of the likes of Leonardo da Vinci, Galileo, Gutenberg etc. incomes and living standards remained essentially unchanged. As such, The Rise of the Global Economy set out to answer the questions: when did growth occur, why did it take so long, what finally caused it and what did we do with it.

The rather ambitious task began with an overview of where economic activity originates. The starting point to a large degree was Jarad Diamond’s classic: Guns, Germs and Steel. Diamond posits that geographical conditions were the prime determinant of why growth happened where it did. As a stylized summary, Diamond argues that Europeans were at an advantage, because they were able to domesticate animals and plants, were well situated geographically to cultivate said plants, and through farming no longer needed to hunt and gather. Once these farmers became productive at cultivate plants, and skeletal evidence from malnourishment shows that this took a long time, they could start storing food. Hence, we start to see the early development of small communities (we will return to this point later). Moreover, as productivity grew some within these communities no longer needed to farm. That is to say, some could devote their time to deciding how to run the community e.g. kings, what the members of the community should believe e.g. priests, how to make improvements to current weapons etc. Following this stylized summary, one eventually starts to observe fully-fledged towns.

But, why does not economic growth take off here? Moreover, other countries, such as China, also see the developments of towns albeit for other reasons. Why does economic growth not take off there? There is much debate about this very question. As far as we were taught, what eventually enabled takeoff in Europe was: lots of disease, filthy European cities where chamber pots were emptied onto the street, hundreds of years of warfare and importantly the chastity of English maidens.  Needless to say, today’s austerity measures, for the sake of growth, pales in comparison to the original jump-start given to the world economy.

Before elaborating on these reasons it is worth underlining what it was that was holding European economies back from economic growth. Essentially, economies up until the 16th and 17th centuries were primarily agricultural based. As such, in line with Malthus’ classic work An Essay on the Principles of Population with labor as the only varying input and land in fixed supply, any innovation could ever only lead to temporary growth. Innovations would lead to increasing incomes per capita, in turn families would be able to have more children, population size would grow, and incomes per capita and in effect living standards would again return to their previous levels.

So returning to the disease, warfare, chamber pots, and English maidens. What all of these factors have in common is that they each contribute to how population was kept under control. As most will remember from their economic undergraduate courses, the plague was excellent for driving up incomes given the increasing marginal productivity of labor once a large section of the population had been wiped out. The same can be said for war. Moreover, war was an excellent way to spread disease all over Europe.

As it turns out, Medieval European cities were also deathtraps. Returning briefly to the story above of the small farmer societies. One of the many narratives argues that these new farmers realized that their stored up food was vulnerable to theft, and therefore build up fortifications. However, once protected they realized they could attack others’ food supplies resulting in a prisoner’s like dilemma of continual cycles of fortification improvements. Taken at face value, the relevance of this is that fortifications essentially enclosed most European cities. As anyone who has walked around Barceloneta in Barcelona can testify, European cities responded to population growth by growing vertically instead of horizontally. This limited sanitation improvements significantly. Retrospectively most innovations look like quick fixes, such as, a German innovation to have each additional floor of a house stick out further than the previous to ensure that only some of the content of chamber pots being tossed haphazardly out of windows would hit the windows of the apartments below. However, the same safety was not guaranteed to whoever was out for their evening stroll below. In any case, filthy European cities kept the Malthusian forces outlined above well in check through stupendously high death rates.

For the same reason the chastity of English maids were important. Family size in most European cities was on the decline, but Britain was special in that fewer women than anywhere else married and had children. With increased incomes per capita, Britain had for the first time the ability to sufficiently invest in a new capital-intensive manufacturing sector. These investments became the basis for the industrial revolution with steam powered machinery and means of transportation not to mention mass production of textiles. Soon thereafter the conditions for industrialization evolved in other European, as well as non-European countries, enabling them to cross the threshold from stagnation to economic growth.

However, obviously this is not the whole story. Factors such as trade, institutions and unique historical circumstances can by no means be ignored in this story. Not to mention what we did with economic growth. However, this article was meant as a mere taster of the contents of the course the Rise of the Global Economy. For more details especially on what the world did with economic growth feel free to flag down anyone in the ITFD program who will be only too glad to share with you their insights.

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