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How the world became rich


Dylan Matthews sits down with economic historians Jared Rubin and Mark Koyama to discuss their new book, How the World Became Rich. It tries to answer one of the hardest questions in history: Why, roughly 200 years ago, did parts of the world start experiencing sustained economic growth? 


How the World Became Rich by Jared Rubin and Mark Koyama

Dylan also wrote about the book


Dylan Matthews (@dylanmatt), senior correspondent, Vox


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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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Attorney Preet Bharara. And this week, Presidential Historian Doris Kearns Goodwin joins me on my podcast, Stay Tuned with Preet. We talk about difficult times in America's history and how its people overcame them. The Code is out now. Search and follow Stay Tuned with Preet wherever you get your podcasts. Hello, and welcome to another episode of The Weeds. I'm your host, Dylan Matthews. And today, we're going to be taking a break from the normal Tuesday panel to bring you a conversation about how the world became rich. That's a new book by economic historian, Koreans Mark Koyama of George Mason and Jared Rubin of Chapman. And it seeks to answer or at least outline some possible answers to one of the --
Hardest questions in all of history, which is why some 200, 250 years ago did parts of the world start experiencing sustained economic growth for the first time? Why did that take so long and why did the process this begin in England, which as recently as a few hundred years before that was not really Country in Europe. Before this process began, human living standards improved slowly, if at all, for thousands of years. The vast majority of humans lived in what today we might characterize as extreme poverty. And then, in a few hundred years, which is just a small blip in the course of human history, that all started to change, to where the vast majority of humans have escaped... Stream poverty and enjoy lifespans, technologies, and diets, unlike anything their ancestors dreamed could be possible.
Well, I'm excited to have Professors Koyama and Rubin on the weeds today to talk about that transformation and about their book. Welcome. - Thanks for having us. - Welcome Dylan. - Great to be here. A central premise in the book, and sort of a background premise for a lot of economic history, is that for most of human history... Living standards were improving quite slowly. Explain what that looked like to us. So what what did the economies of Say the Roman Empire or Han Dynasty China look like and why did that not translate to living standards steadily going up for people who lived in places? is like that. As you say, as a pre-industrial agrarian societies, which are capable of relatively high levels of urbanization, there's trade, they're capable of
building tremendous buildings. Think about the Colosseum in Rome or Hagia Sophia or the Taj Mahal. And they're capable of... Providing luxury goods and wealth for a relatively concentrated, relatively narrow lien. But if we look at the living standards of the median person in these societies, they're by our standards extremely poor. So in terms of... of Putt Capita TV. Think about, depending on which society we're talking about, between $500 a year and maybe $1,500. Dollars a year is extreme poverty. It's a little more than a dollar a day. So that's like the poorest people alive today. But a lot of societies would have been a little bit richer than that, but still really poor by modern standards. Um a country on that with that level of per capita income today we would consider poor but by standards that would have been one of the more prosperous of these societies. Think about, you know, maybe...
Florence or at the height of the Roman Empire perhaps. In terms of what else it means for them to be... Poor, well, the comparison is always a little bit tricky, right? Because they had access to different goods and we had access to, but they were poor along a number of dimensions which really mattered for us. Nutritional status would have been bad and that's revealed in the heights of people's average heights of around kind of you know five foot four five foot five for men in say you know pre-industrial England or lower maybe even in in the Roman Empire. They were poor in the sense that life expectancy was low. Life expectancy at birth being below 40 in all of these societies. A lot of that being due to very high levels of infant mortality. And they're poor in terms of a range of consumption goods they can access and the number of consumption goods they can access. Access beyond basic subsistence. So whether or not they have access to very diet, meat, those types of things.
And finally, I would say in terms of clothing, people might be in possession of a couple of outfits of clothing, but nothing like from material abundance. People have even in relatively modest countries today. The word Malthusian gets... Used a lot, including in your book, to talk about these economies and sort of the dynamics of them. What does that mean? And tell us the Malthus story. This was a clergyman writing in the late 1700s. Ironically enough, he was an Englishman writing. During the Industrial Revolution and many of his predictions or his view of the world would be foiled by the fruits of industrialization. The way he had viewed economies and viewed the way that demography works explained the
pretty well up until that point. And I mean, I think the basic way of thinking about it using today's parlance is if you can have one-off events that happen, like a technological transition, you might have a demographic transition, like the black death killing off. Third of the population that temporarily raise incomes. So when that happens, according to the... According to what Malthus noted throughout history is over time, if that's not sustained, and it never was really, and that really is the transition that we look at here is the transition to sustained technological progress. But if it's not sustained, eventually people will have more kids because over time, they Time, people essentially stop having kids in the Malthusian world, as we call it and economists call it today, when they are... At subsistence when they can no longer afford to either feed them or the kids just die in childbirth.
This was a very common lot of people throughout world history. And this all kind of goes against the Malthusian logic that had more or less dominated. The way we would view demographic and economic change prior to industrialization. Prior to the onset of modern economic development. And the ultimate prediction from the Malthusian model is that most people in the society will remain around subsistence. Now there can be a few people as Mark just noted. In ancient societies, there were elites that took most of the extra rents. So in medieval Europe, it would have been the church as well as … The nobility, but most of society was not doing that much better than subsistence. And when economists and economic historians view world economic development over...
Time, the Malthusian model is typically used to help us think through how most of the economy worked prior to the 18th and 19th centuries. So how full is our knowledge of these economies and how prevalent a Malthusian dynamic was? I imagine we have a lot better data about, say, Rome than we do about what life in what is today Argentina or South Africa would have been like. Around the year 0 or 100 AD, how full is our knowledge about where this dynamic prevailed? That's a great question and that's actually a very important feature. We're trying to do in the book. So it's important that we emphasise that we're not, in some sense, Saying our novel, super original ideas when we're talking about things like a mouth-using trap, what we're doing...
Is we're summarising a body of work which has been produced by dozens, if not more, economic historians in the last, let's say, 30 years. Some of this work has been theoretical. So Odig-Gulaw has been the pioneer of this Malthusian theory and also has found evidence for this Malthusian dynamic. But a lot of the work has been done by empirically-oriented economic historians. Collecting different measures of living standards. Wages can be constructed if you find some evidence of how much someone in the past has been paying in terms of nominal wages. And then you can construct an estimate of their basket of consumption goods and you know roughly the price of these goods and you can construct a measure of real wages. So, we're talking about, I want to say hundreds at least, papers putting together... This body of knowledge which we're really summarising in an accessible form. But you're exactly right that we know...
More about some societies than others. What I would say is we know a lot more than we did 30 years ago. So Angus Madison, some listeners may have heard of him. Pioneering scholar of historical GDP statistics. But as many economic historians have noted, many of his observations were kind of made up, at least for the earlier picture. Period. But those estimates have now been filled in to a larger degree for more and more countries. So we don't know much about pre-conquest America. Charles Mann has some great books about it. Pre-conquest America is something where I think the knowledge is somewhat sketchy and I think things could be subject to revision, but there we still think the logic of this Now if you're using an economy, it's got to hold. There's no reason to think otherwise. So these would still... Governed by these laws of pre-industrial societies, but we have less information there. China or now Japan those are countries where 20 years ago economic
And economists are really guessing, and now they're not guessing. So we do know a lot more about the dynamics of these societies and they do conform to the broad outline that... Jared, I like summarizing the book. One point you make in the book that I found particularly interesting is that sustained economic growth of the kind that you're trying to explain in the book isn't the same thing as just trade. That we've had trade for thousands of years going back to the Phoenicians and... Before that, you had the Silk Road. You had, I know Jared has written a lot about trade. In the Muslim world and exchanges between Europe and various caliphates. Why didn't that kind of commerce, including commerce that sort of span continents and travel very great distances, lead to the kind of growth that you're interested in explaining? It's not that it trades unimportant. You can have growth based on trade. So some of these societies that you asked about earlier on, say the Romans or the...
Chinese, there was a lot of trade and trade certainly was important for relatively high levels of economic growth. Development. By relatively high, though, again, we still mean what we would consider very poor by today's standards on a per capita basis. Ultimately, I think it's a good idea to have a good conversation with your audience. Definitely there are limits to what that can do. So this is part of the broader set of what we would call Smithian growth. So you named after Adam Smith where… They're societies that either build based on specialization and economies of scale. They get bigger by becoming bigger, becoming more efficient, and then they can gain some type of what we now call comparative advantage and use that to trade. Is a source of growth. And this is not to say that a society that is trading a lot will be poorer off than one that's not. That also runs into limitations. And the idea that has been.
Really influential in the last, say, 30, 40 years when looking at these questions is that you can look at various sources of growth and they're all dwarfed by the growth that Is unleashed by technological change and really, more importantly, persistent technological change. This is how one, I think, could describe the... Period of industrialization. And then even, you know, and it's not just Britain's industrialization in the late 18th century, the entirety of the 19th century. Which is actually where the takeoff economically really happens, is one of immense technological change that infiltrates every aspect of the... Economy. And then we would also say it's complimentary to the very types of things you're describing here. So when you get the the advanced technological change, that really has economic implications, in part because of trade, because the different countries can then
Even go further into specialization of different, either, whether it be inventive activities or the fruits of those inventive activities and grow their economies. But in the end, to answer the question, how did the world become rich? You really need to then answer how did the world become technologically progressive that that gets to some of sort of a distinction I wanted to make clear and that you make clear in the book that I think some accounts of the European growth take off, sometimes kind of conflate it with like a triumph of the West narrative where it Of combined with trying to explain why it was Europe that colonized the Western hemisphere and and later Africa. Rather than the other way around or why sort of Western values triumphed. And this is sort of in, in.
And early 20th century writing often took a sort of charitably chauvinist, less charitably racist form. And I at least read your book as pushing back against that and sort of emphasizing how contingent a lot of what happened was and how specific the story around economic growth is. But I'd be curious to hear how you guys think about how it fits with books and sort of stories that take a more expansive look and try to explain the growth take off and colonization as both coming from this inherent European greatness. Books aimed at a more popular audience perhaps as opposed to a narrowly economic audience. And I have to first and foremost say that me and Jared are probably not free from this bias either. We obviously have our own biases. But everybody is, in some sense, especially if you write a more popular book, you're writing to a present moment, to some degree.
Trying not to. And you have things on your mind. So I think it's inescapable that those views leave. Into how one selects or chooses how to write one's history. So that's whether or not you're writing a triumphalist 'why the West grew rich', 'why the West conquered the world' narrative, or if you're doing the opposite, you're saying 'how Britain impoverished India' or 'how the West exploited...' And destroyed other parts of the world. And so, at least from my perspective, I've read those books and many of these things, they could be great reads. They can speak to you precisely because they are motivated by the current political moment. They're not necessarily good economic history or good history. So at least for my angle, writing this book, I didn't want us to be doing that. I guess, in some sense, the present thing, Motivating me is I think the need for understanding economic growth and the fact that economic growth is often under that.
In the current moment. And so that's kind of where I'm coming from in terms of my biases. Now given where I'm coming from, obviously it's clearly the case that the history of... We're telling is characterized by mass violence and enslavement. And so we document that and we think that's had a negative impact on many parts of the world going forward. Forward and as a statement built on again, a lot of recent evidence and research in economic history, but we don't necessarily think that the Colonisation and exploitation story of the military rise to the west and the economic rise unnecessarily caused by the rise of the US and the economic rise of the US. Always by the same thing. So I think one of the possible mistakes in some of the earlier literature is to conflate the economic and military rise of the West with both... The economic rise and also we still have moral supremacy. So if you think about past empires, There are many other things that I would like to talk about.
Empires in history and they've exploited and killed and massacred and enslaved people. Yet that hasn't been Correlated or associated with rapid growth. And it's certainly not been associated with any kind of moral supremacy or superiority. Definitely disavow those early approaches. But we also think that the story of a colonial economy is linked with what's happening in industrial revolution. Undoubtedly, it's linked with things like the sugar industry, which is built off the back of slavery. But at the same time, what makes a British industrial revolution special from our perspective? Perspective of things happening in the north of England, the rapid pace of innovation, the continuous improvement of the machine. Involved in the content style industry, the ingenuity of the workforce and those... Things are somewhat orthogonal to whether or not Robert Clive in India is conquering an empire for himself and looting Bengal or other developments there. So our book covers that. But when we talk
growth, we're really focusing on the rise of an innovative economy in the 17th and 18th century in firstly Europe and then Britain, and then it's spread, it's diffusion across the world. As opposed to the military rise of Western powers. On that note, we're going to take a quick break, but when we come back, we're going to talk about the Industrial Revolution and what was happening in the north of England and why that wound up changing everything. Support for this podcast comes from Planned Parenthood. Your body is the source of all your life. Is your own. That's why Planned Parenthood is committed to ensuring that everyone has the information and resources they need to make their own decisions about their bodies, including abortion care. Today, lawmakers who oppose abortion are challenging Planned Parenthood. Affordable, high quality, basic health care for more than 2 million people is at stake.
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Abortion are challenging Planned Parenthood. Affordable, high quality, basic health care for more than 2 million people is at stake. Planned Parenthood believes that healthcare is a basic human right. That's why they fight every day to push for common sense policies that protect our right to control our own bodies. They also work tirelessly to oppose the onslaught of new policies aimed at interfering with personal decisions best left to patients and their doctors. They won't give up and they won't back down. You can join Planned Parenthood in the fight to help make sure that the next generation can decide their own futures. The organization needs your support now more than ever. Just like you, they can reclaim our rights and protect and expand access to abortion care. Visit PlannedParenthood.org/future to learn more and support their cause. And we're back. So after that very condensed overview of thousands of years of economic history, it's time to talk about the last few...
Hundred years of economic history and about the industrial revolution and the origins of modern growth. I think Jared, you, Mentioned something a moment ago about how the real growth takeoff started in the 19th century. And so I wanted to see if we could pinpoint when exactly we're talking about since I sometimes read books on the growth takeoff in the Industrial Revolution that start talking about things happening during the Civil Wars of the mid 17th century. Then you start hearing about mills and things in the mid 18th century. And then you start seeing sort of living standards across Britain really change in the 19th century. Obviously, this is a very gradual multistage process. But is there a moment that you two think of as the real break that you're trying to explain? Or are you just trying to explain that gradual process more generally? One thing are we really... Try to do in this book is to say industrialization begins in the latter half of the 18th century in Britain, but why
Why then and why there? And to answer this question, this is where we draw on this literature that's been growing in various forms in the last 23 years. 30 years. So, you know, you mentioned the 17th century Britain, you know, you have the civil wars, the Glorious Revolution. There were massive institutional changes that I think you could even draw back prior to that ended up where this is something that Was by no means deterministic that it would end up this way that Britain was going to be this place with you know Limited government where the rights of the people via parliament were relatively secure. There were a bunch of events that could have taken Britain on a different path, but that's why the 17th century is viewed as kind of key because this is where some of these were
ended up being secured. And so Joel Moicare has been recently working on some stuff that I find somewhat convincing on the skilled workforce that Britain had for a variety of reasons. It was engaged in trade, of course, especially after the Atlantic opened. One key point I think the book makes that, yeah, other... Historians know, but when writing they really focus on one thing. None of these are silver bullets. In fact, there is no silver bullet that got England over the hump or Britain over the hump. It was the combination and the confluence of these things at one point in time in one place that allowed for takeoff. So now to your question. On the take-off, it kind of depends on what you're talking about because per capita GDP is different from wage. Per capita GDP can rise While going mainly towards the top part of the distribution, whereas wages often are going to be slower to catch up.
So wages really start to rise, real wages start to rise only in about the mid 19th century. That's quite a bit after per capita GDP really starts to rise to a point where England becomes the wealthiest country in the world. Probably in very late 18th or early 19th centuries. is... But once that wage take off happens, it really starts to shoot up where the fruits of what and then you know it's by this time by the time you're talking mid 19th century it's hardly only Britain that is industrializing. That's it's spread to the US it is spread through different parts of Western Europe pretty soon thereafter it's even going to spread to Japan. So the fruits of industrialization are starting to spread around the world but also within Britain
It's starting to spread to most people, where you actually see people moving. The average person now is well away from subsistence, even though there are other aspects of their life that of course may not be the greatest. London is still a fairly polluted place and life expectancy within the cities is... Is not always as great as it is in the countryside, but still there are a lot in life. There's a reason that people are moving to these, not just London, but the industrial cities in the north in particular, like Manchester, Liverpool, places like that, that their quality of life in terms of, well, I should say their real wage at least is much higher than it would have been. The average person not that long before. And this is something then now that economic historians have been starting to document elsewhere as well. And this is where, you know, especially in a place like the US, which is becoming.
Becoming wealthier for a number of other reasons, not just industrialization, that we start to see a rise in this period as well. And Mark, you were mentioning this before the break, but this process is happening. Sort of a couple hundred years after or in the midst of some other really enormous processes. And one of those is the colonization of the Western Hemisphere, the rise of the transatlantic slave trade to provide labor to colonialists in the Western Hemisphere. And as you said, There were kind of the triumphalist theories we were talking about earlier, but there are also theories starting with sort of Eric Williams's book, Capitalism and Slavery, more recently with some books on the Industrial Revolution by people like Sven Becker. That give that a really heavy role in explaining what was happening in England, that you needed either resources.
In the new world to fuel the growth, or you needed cotton plantations providing cotton to mills in Manchester and Liverpool. Bye. You go into some detail in the book about what makes sense and what doesn't make sense about some of these theories. Walk us through that and... And what we do know about the relationship between the start of the Industrial Revolution and those kinds of processes of exploitation. These are hard questions, so first and foremost, because they're causal questions and we don't To run experiments here. So we can't rerun history and make slavery illegal in 1500 and see what happens. So we can't answer these with a credibility. We would have if we had experimental evidence. And we're always dealing with with kind of factials. And we also have to think in terms of What conditions were necessary and which were sufficient. And so it's definitely true that the history of which we observe.
Particularly Britain, but also the other European countries were deeply implicated in transatlantic slave trade and the trading networks which emerged. Around the Caribbean, the sugar nexus that Eric Williams focuses on, and other patterns of colonial trade, which were largely based on on coerced labor. You know, we know how horrific those voyages were and how horrific the conditions were in the plantations, particularly in the... Caribbean. Worse in many ways than the... we know less about them because fewer records have survived, but in some sense worse than the plantation slavery you saw in 19th century survival rates of slaves are even lower. So it's definitely something which is morally deplorable and what we can condemn. But the question is... Was it necessary for the Industrial Revolution? The answer to that question depends on how you conceive the Industrial Revolution. If you conceive the...
Revolution along the lines you were suggesting earlier as a process of trade and intensifying these trading networks, then it seems very logical to then think that this expansion of trade... Into the colonies, the supply of raw materials, was decisive. Now, it definitely mattered. So the fact that you're getting sugar coming in from the Caribbean, sugar enters British diets, and there's a whole kind of mini-literature about how it changes consumption patterns. People start drinking sugar with their tea, they stop drinking so much beer. Some people have argued that contributes to-- This greater industriousness that we observed in the 18th century. So we would definitely acknowledge that this expansion of this network of trade matters, it affects the British economy in certain ways. The question is, how important was that for the Industrial Revolution itself? And if we take the trade-based view, it might be important.
Take a more innovation based perspective. If we look at what patents people are coming up with, what problems have the innovators trying to solve when they're devising things like. You know, the water frame or the spinning jenny or thinking about how to harness steam power or how to make use of coal deposits, then this colonial trading nexus becomes less important. It kind of fades from being essential in our view. So you're left with indirect links. The colonial economy made a lot of people, particularly in places like Bristol and London, very, very rich. They built big mansions and beautified their local towns. How much of that money went to industrializing entrepreneurs of the north? Well, it's... Seems like not very much of it because the financial system wasn't that integrated. Scholars can debate this and I mean there's good evidence that slavery and colonial trade matter the margin contributes to the rise of some sort.
To me, I mentioned Bristol, Liverpool as well potentially, but whether or not it was the key thing that we want to hang our hat on as responsible for this uptick in innovation productivity, at least to me it doesn't seem like it was, and attempts to connect these things too strongly lack compelling evidence. So that's kind of my position on this right now. I think that it's pretty... Solid view that the Industrial Revolution and the innovative economy we see in the 18th century and 19th century England was something special and the story of colonial... Exploitation was something which we've seen before, the Romans, the Ottomans, the Chinese. That's why I'm less inclined to see it as central to the great enrichment or the take-off.
And it's also interesting to me, and you make this point in your book, but that some of the earliest colonialists, the Spanish empire in particular, didn't really become rich long term because of that, that in some ways it led to a lot of dysfunctions for them. When Mark was talking about this, Spain kept popping up in my mind too, right? Because you have this Spanish who are as if actually not more engaged. Aged in the slave trade as you know the Portuguese are as well. Spain was lacking certainly on one big front and that was limited governance. So in the course of the 16th and 17th centuries Spain became more autocratic if anything else. Part of this was especially early on was funded by all this wealth coming from the new world You know So when the king is able to take a fifth of the gold that's coming on the ships that are landing in the harbors of Spain
Need to listen to others really. He doesn't need to go to his Cortes, his parliaments and ask for their permission for things in order to rule. He doesn't need to give them rights and what ends up happening in England at this time is there's not access to this. There's a bunch of contingent things that do happen to be clear. We could go into the especially in 16th and 17th century England, that eventually bubble over into warfare between Parliament and the Crown. But a lot of what this warfare is about is about the rights of Parliament, of property holders. Things like this. And eventually they do win some of these rights, at least for some of the elites, but eventually this does trickle down to the rest of society. And this is one of these things, again, as I noted before, this isn't a...
Over bullet for England, as actually some have claimed, that once you get the Glorious Revolution you get everything that is glorious after that in England as well, because now Parliament Supreme and everything is just dandy after that. The thing that I think we That it's something that was necessary probably for the takeoff in England. And it's actually a much better explainer of why takeoff didn't happen elsewhere. So you have places like Song China, for instance, that. Were also somewhat autocratic, but also wealthy. So Songshan is kind of the peak of Chinese economic development prior to probably-- 20th century not even you know, not even the 19th century probably the 20th century. The average person was probably wealthier Yeah, and there's more evidence that Mark was highlighting earlier coming up that does suggest that this was the case. In Song China, we're talking about like 10th century here.
Many of them ago, the average Chinese was probably wealthier than the average Chinese in the early 20th century, pre even World War II probably. But uh... Again, the reason that you don't have a take-off there, there's many, but I think a big one is the type of governance and really the type of constraints on governance. So we do view this, and there's a very, very large literature in economics, some of it which has become quite popularized, like Why Nations Fail, and Robinson's book that really focuses on these types of institutions as being central to economic development. We don't deny that that's true. But whether it's sufficient it is a different story and that's where you know going back to the you know Your original question with of Spain. That's something that Spain definitely did not have in this period
Even though if you put somebody down in Europe in the year 1500 and said, One of these places is going to have a massive takeoff 250 years later, Spain would not have been a bad guess. Frankly even maybe around 1550, 200 years later, not. Still not a bad guess. Northern Italy, not a bad guess. Frankly, even the Ottoman Empire, which by this point, they're based out of Istanbul, but is a European Empire as well. Most of southeastern Europe was Ottoman by this point. A bad guess. The problem with, at least with the Ottomans and the Spanish, was precisely this, that they were highly autocratically run. There's a whole host of different issues that were happening in Northern Italy that eventually... And eventually these places, you know, Southern Europe falls well behind. So, is... Is the 19th century, even the leading parts of southern Europe are actually closer to
wealth-wise to say East Asia than they are the wealthiest parts of northwestern Europe. So there's not just, you know, divergence that we in this literature tries to explain between say northwestern Europe, not just Britain, but you know the Netherlands and eventually, you know, Belgium and it catches up in parts of, you know, northern Europe. Germany catch up and the rest of the world. It's also there's a massive divergence within Europe, which also can be explained by these same factors. And beyond colonialism, another sort of process that's happening around this time that often gets included in stories of the Industrial Revolution is the Scientific revolution. So in England you had Newton, Hugh Cavendish, Joseph Priestley, you had similar innovators in continental Europe. And there's sort of an intuitive story there, right? That you have people doing science and doing science at a
different scale and with maybe less sort of religious constraint on them than they had before. That leads to technologies, that leads to growth. And that's definitely part of the story you're telling, but it's a little more complicated than that sort of simple step by step I just laid out. So how do you view the relationship between the Industrial Revolution and the scientific revolution? Here we're very much, I think, indebted to the story told by Joel McKeir in his book Culture of Growth. So the scientific revolution is clearly a background condition, but the link between the types of things that Descartes is doing or even Leibniz are doing, and the types of things happening in Manchester 100 years later is quite remote, it's quite distinct. The scientific revolution is, I think, a precondition.
For the modern transformation of the economy that we eventually observe. That's the first thing. However, the link between it and the Industrial Revolution has always been contested. And that's for several reasons. One, the Scientific Revolution, as you know, really is not centred. Especially in England. England's important, you know, like Newton, Robert Boyle, others, but... You know, Galileo is based in Italy, you have people like Huygens in the Netherlands, Leibniz in Germany. There are lots of European scholars contributing to it. Yeah, the Industrial Revolution itself... Mechanization of a textiles industry, the application of steam technology to industrial problems is this uniquely kind of British thing. And so if it's scientific evolution led inexorably to the industrial revolution, then it would have been a pan-European development and it wasn't. Initial breakthroughs in the Industrial Revolution, with the exception of a steam engine, could be linked concretely to some invention in the Scientific Revolution.
So the steam engine does rely on Boyle and von Papen's discovery of the possibility of a vacuum. Steam mentioned there's a lot of intermediate processes between the scientific discovery that a vacuum is possible. Which is contrary to Aristotelian scholastic science, and the actual kind of engine that Thomas Newcomb comes up. Of let alone what's a steam engine, which is the steam engine which becomes very important in the actual application of steam engines to industry. Use that the what he calls the industrial enlightenment or what was the key link between the scientific revolution and the industrial revolution. So in particular, it was important not just for lone scientists to be coming up with breakthroughs, but these breakthroughs
Into concrete propositions to improve the world. So he talks about Roger Bacon and the Baconian program to use knowledge for the human betterment and that takes off... In England more than elsewhere for a variety of reasons, some of which are institutional. Of society, the emergence of academic journals, the emergence of coffee houses and societies where tradesmen and mechanics might interact to some degree with scientists. And so this enlightened culture is important for the diffusion of some scientific principles. So that's one way in which the Scientific Revolution matters. The other way is in the 19th century.
As I said, the initial industrial revolution technological breakthroughs are not that dependent on earlier scientific breakthroughs. But that's not true of the second industrial revolution. So things like the internal combustion engine or chemical fertilizers. So in the 1850s, 1860s innovators in Germany and the United States. Really make important breakthroughs in chemical fertilizers. That would not have been possible without earlier scientific breakthroughs. So the fact that these innovations don't peter out, you don't get a burst of innovations over a period of stagnation. The fact that innovation continues to diffuse does seem to rest indirectly perhaps on the A scientific revolution. And that's Makir's story and I think both me and Jared are very happy with it as being pretty important to the process we're describing. I did want to be sure to talk a little bit more about institutions because those are a really important part of the story you're telling and the fact that
England was a parliamentary system that had recently had vicious... Civil wars and then a coup premised on parliamentary sovereignty and parliamentary supremacy seems important to it becoming the place where this broke out. What role did that play and sort of why were institutions in England able to produce that but not elsewhere? To some extent, it wasn't Completely unique to England in that the Dutch had something very similar in that it maybe even in a sense, you know, when we think about it, implications for economic growth better in that they didn't even really have a king or a monarch. They had a very weak central authority and they were largely run by parliament, at least after they threw off the Spanish yoke in the late 16th century. So again, it was, I wouldn't say it was.
Isn't necessarily unique to England and what eventually became Britain, but it was pretty close in that most of the world at this point was, and really for most of the world history had some degree of autocratic governance. So I would still, you know, most monarchies were largely autocratic. We're not just talking about dictators here. What happened In this period which we do view as really important. We have an entire chapter on institutions, especially since you had Douglas North who won the Nobel Prize in the early '90s for his work on institutions. Really since his work has brought institutions back into economics, there's been a large literature that has looked at the role that they have played on shaping the incentives that people face in their day-to-day lives. He called it the rules of the game so that we think about things that are particularly important, like property rights, knowing that you will be able to invest and then reap the benefits of those investments without the state or others infringing on those rights. That's something that he...
Others have been really pushing, I mentioned before, Asma Lou Robinson and Simon Johnson, their other frequent co-author, have pushed similar stories. And we largely agree with these stories as being incredibly important. I would at least argue... That some of these institutional changes that happened in England began in the 16th century under the Tudors, famously under Henry VIII, ultimately under Elizabeth as well. So after the Reformation, you get this massive movement away from the church being really important in governance and Henry VIII and actually his father even more so, Henry VII, who had this really shaky claim to the throne, has to turn to somebody to prop them up and they really end up relying on parliament to pass laws in a way that previous kings had not.
And these are the types of things that a lot of economists, ourselves included, think of as really important for encouraging innovation, encouraging other things like we talked about before, like trade and investment in capital, which are important for economic development. But again, it's really the innovation side that's important. And so when we're discussing this, one thing to be clear on, because when I teach this to my students in particular, when we talk about property rights and innovation, like, oh, the patent system must have been the key thing driving this. And that really wasn't the case. There were people that had patents like James Watts, probably most famous person of the industrial. Evolution. And really what he did is he spent most of his time protecting his patent. So That is one case of actually something that many of you is technologically damaging, because as soon as this patent expires, you get a bunch of new innovation.
On the steam engine. But even then, many of the inventions of the Industrial Revolution actually either aren't protected by patents or there's plenty of reason to believe would have been done without patents anyway. Way. So it's not necessarily that type of property, right? But it is the type that there's no infringement by the state on those that do not have political power. Often what you see here too is that in industrial England, it's not really the elites who are rising in this period. The poor either. It's not a Horatio Alger story where it's people being brought up by their bootstraps. It's people that are engaged in... To begin with and then there's either an invention that they themselves make or it's Invention that they're able to kind of exploit to really become something that was fundamentally different. In world economic history. And I think these are the types of things where institutions that have some type of basic protections, but also
You know, this is also a period where in England, you have, or Britain by this point, you have massive investment in infrastructure. As well, which is something that you don't get in a lot of other places where parliaments or other groups that have interest in these types of things have power. So, you know, the canal system expanding, you have turnpike systems expanding, eventually you have the rail system that comes about. That in most other places even though these types of technologies were known, it's much slower to develop. With the one exception as just noted is the which gets a lot of these things and they get a lot of the good things associated with what we call relatively limited governance. That just means that the central power is limited, but they don't have all of those key things that we've discussed before, which is why the
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What's to stop anybody else from doing this? What's the moment? How do you build a moat when you're building with AI? That's this week on The Pitch. Go right now and subscribe to The Pitch wherever you listen to podcasts. All right, we're back. So before the break, we were talking about some leading explanations and theories behind the rise of economic growth. We have had sustained economic growth for the last few hundred years. And I wanted to ask how this has changed how you think about economic growth in the future. Are there things about the story that you told and that you learned about how economic growth started that yield lessons for what we ought to do going forward to preserve?
The default wisdom I think amongst many economists when I was starting to study economics was that we'd entered in some deterministic sense a modern growth regime whereby an advanced economy like the United States would grow roughly 2-3% per year and that was almost like on autopilot. So if you look at the rate of growth in the United States from when we have good quality data, 1817 to kind of 2000, with the exception of the Great Depression, which was a it does show up as a big shock, America did enjoy kind of 2% a year growth. And that over time, really, It adds up to really quite dramatic increases in the standard of living. So I had this sense, I think. But a modern capitalized economy like America could sustain that type of growth.
Almost of its own accord, but my current view is actually more pessimistic. So looking at more recent data, it does seem that since maybe the late 90s in the US, some countries since the financial crisis, Crisis of 2010, these underlying growth numbers do seem less optimistic. And so there are for reasons for this. One is the idea of a great stagnation, Tyler Cowen or Slow Down, you know, a number of scientific ideas, all of us have either our politics have got worse, right? Stuff anymore, we can't build things anymore, we can't do infrastructure or whatever it is. Something has gone somewhat wrong in the process, which is leading to stagnation. We think the book does a great job of summarising the state of the frontier in terms of our knowledge about the causes of economic growth historically. But even we don't fully understand what happens in the 18th century in England, whereby Parliament...
Becomes less focused on zero-sum conflicts and more amenable to investments which are going to improve growth. So more amenable to... We should go benefit the whole economy as opposed to lobbying for higher tariffs on imported contextiles. So even we don't quite know why these things ebb and flow. I'm not a pessimist in the sense of I don't think that there's something... Thing fix, which means that scientific progress has slowed down. But I do think it's not necessarily an automatic thing we could take for granted that there's going to be a rate of growth in the United States and therefore we can run up big budget deficits or plan our spending on the assumption that growth will be 2-3%. I think that growth requires institutional
reform. But I think the context is always going to be different. So the institutional reform that worked in England in the 18th century, 18th century isn't going to be the institutional reform we need to do today. We're going to do something different. We're going to need to do something different given the different technologies we Have, the different kind of levels of economic growth we're already at. But one thing I should add is that we also benefited in the 20th century from some developments which were plausibly one off. So the accumulation of human capital in the form of formal schooling, you know, we saw a massive increase in formal education in the 20th century, about half the population going to some form of higher education, that's not going to happen again. Similarly, women entering the workforce post-World War II was a big boost. To measure economic activity. But we're not going to get that boost again necessarily. So I think that there's a lot to be done policy wise
To improve the supply side of the economy in a way that's going to make rapid rates of growth possible. Yeah, maybe I can add something to this too, that I think that the kind of flip side to what Mark's talking about is how the lessons that we've learned. From the rise of the modern economy in both Britain and then parts of Western Europe and the US, how that might be spread to the rest of the world. And one thing that I think that we certainly both agree on, because it's central to this book, is that there's kind of a confluence of, say, especially institutions that we've been talking about here in culture, that the type of institutional developments are both reflective of culture and help shape the culture of a society. And I think to be very clear, we don't mean this kind of Eurocentric notion of culture that you were talking about before, where it's European, you have this better culture and that's why they're better off. It's the way that it's type of things that's like cultural norms, how much we
Trust each other, things like this. And I think really importantly, when you think about the relationship to say institutions and stuff like democratic norms. So we shouldn't necessarily expect things like democracies to just be able to be spread to the rest of the world in societies that have few norms for approving of say democratically elected leaders, things like this. Case, I think the implications are a bit mixed in that. We know some of the things that have been important in certain contexts in the past. We have a pretty good idea. I agree with Mark. There's still a lot we don't know. But we have a pretty good idea for some of the things that we don't know.
Things that were important. But then on the other hand, we say limited governance was really important in Britain. But, you know, the place that's seen by far the most economic growth in the last 40 years is China, a place that definitely does not have limited governance by any measure. Now, you know, China's obviously playing a very different game than Britain was. The type of economic growth that happens now, especially from countries that begin at a very low level, is largely done, or the most rapid growth is going to be done by bars. You know, you borrow from the frontier until eventually you become the frontier. Now, the question in a place like China is if it can become the frontier. You know, it's still lagging well behind the world leaders and types of per capita.
Income, even though the Chinese success story is obviously one of the most important aspects of how the world has become rich. I mean, we mentioned this in the last chapter, as an aside here, that this is in almost every respect when we think about how the world has become rich, just the Chinese story of the last 40 years, you're talking about a billion people that have been lifted out of the most dire of poverty. That's much more than what's happening, obviously, in Britain or even the US. But the story is different in this case. And I think the story for lifting, if you want to say, how do we get the poorest people in the world in parts of South Asia, Sub-Saharan Africa out of poverty? Some of the lessons from this book, I think, are very clearly important, whether it be certain types of maybe some types of protections for economic.
You know, for property rights, things like this. And in fact, you know, China doesn't just take off as a autocratic state. You know, it takes off really after it has market reforms. There are things we can say that are important, perhaps even within a state that we might think has, you know, quote unquote, bad institutions for the type of economic development we've seen in the past. But our I think the insights from the past. But you have to take some of the thing, and this is again, what we noted before, there are no silver bullets. Some of the things that we know the things that happened in a very specific context in Britain, some of those things cannot be transported to other parts of the world. I mean, whether it be, you know, it's, it's placed with.
Than an Atlantic economy that was booming in the 18th century, or a specific type of cultural attributes. Now, certainly there are institutional attributes that we know might be important. There might be, eventually there was a demographic transition that happened actually later in Britain, but happened in Europe that was quite important where people started having fewer kids, families became smaller, and that can be an impediment. So we know, for instance, sub-Saharan Africa is gonna grow almost every projection immensely over the next 40 to 50 years. And there are some, I mean, I think reasonable thoughts that that, that will play a role in perhaps slowing economic growth in the region until, but, but again, whether that's a policy related thing or. Just something that might happen more naturally as some some level of economic growth happens. We do see often you know people of our families eventually then do have fewer children. So when we've been asked about this before.
Or there's no, I think, overly satisfying answer because, you know, I've used this term now a few times, there is no silver bullet. We can't say that if you do X, you will get good results. This is where as historians or economic historians in particular, we both think, you know, context really matters. You have to understand this. Aspects of societies and then say well what lessons can we take from either the history of that society or perhaps the history of societies with similar attributes and apply them apply them here. One theory that we didn't talk about earlier, but that strikes me as maybe having some significance for the future, is the theory that higher wages played a big role in the Industrial Revolution. This is something that the historian Robert Allen has argued.
Viewed a few times. You seem to find some of that compelling in the book, and I'm curious if you see it as having any lessons for the future that trying to sustain economies with high wages where there's incentives to come up with labor saving technologies might be really good for growth in the long run. So Bob Allen makes the argument that the type of innovation you see in Industrial Revolution England was biased towards labor. Saving technologies. So these innovations might be using fuel or coal intensely, but they're Saving on workers. And the argument is that there's an incentive to economize on labor if wages are high relative to the price of both capital, because that's what determines the price of machines if you're borrowing to invest in them, and also energy. And so I think there's evidence for labor bias technological change happens. I think that's true. There's some pushback
about how strong the argument is for industrial revolution in England. So some scholars have argued that the wage rates were not necessarily As high as one might think. John McKeir and Culver's Comacao, Guado and Morgan-Kelley argue that what matters is not actually the nominal wage rate you pay, but the labour cost. And labour cost has to take into account the value you're getting from a worker. And so they argue that when you take into account the quality of British workers, the wages for British workers were not that much higher than for French workers. There's been some pushback in the-- econ literature, econ history literature on that. And there's a conceptual point that critics have also made, which is to say that it's not always the case that you want to economize on the most expensive factor. Sometimes you just want to maximize profits, which might mean economizing on all factors.
The conditions under which technology is labour saving because of high wages are, there's some specific kind of assumptions you need in a model for this to work out and those assumptions might or might not play out in the actual economy. So that's one area of concern with that thesis, even though I think I agree with Alan in the And so there were, they do seem to have been labour saving, those devices. In terms of a deep explanation of the Industrial Revolution, it kind of pushes back the puzzle a little bit, right? Because why does Britain have this particular wage structure? Why are interest rates... Hello, why is coal cheap? And then you get to institutions and geography. Now when you come to the modern economy... Originally and literally the idea that you could switch the UK into a high wage equilibrium has been common in policy circles in the UK.
Since around 2015, that's when George Osborne started raising the minimum wage. And Brexit has been justified in most terms because with Brexit, you get rid of these cheap workers from Eastern Europe, and you can switch to a higher wage equilibrium. And I feel that the results This so far have been kind of deeply unsatisfactory. You've just generated a lot of vacancies, a lot of shortages. And so there might be a difference between an endogenous response to a market phenomena of high wages and trying to induce it artificially with various policy levers, which is a... Something I would recommend at least without much better evidence than we currently have. Yeah. Briefly want to add to that if we want to think about say policies for getting the developing world to become wealthy
On the one hand, you could say, well, just have higher if they had higher wages, they'd be better off. That this raises the exact question Mark brings up with respect to industrializing Britain. Well, how do you get high wages in the first place? Because once you get those high wages, you're already on the path for probably other reasons, whether they be institutional or whatever. And secondly, yeah, policies that just kind of artificially impose high wages that aren't necessarily, you know, kind of.
Market-based in the sense of whether they be more artificial like imposing some minimum wage. Certainly, the poorest parts of the world are almost certainly doomed to fail and unlikely to encourage the response of, We're just going to start importing technology to either replace labor or make this labor much more efficient, because there's all of these other things associated with it, including stuff like Mark was mentioning education as being this one-off that happened in at least the West and increasingly in East Asia as well. That's the type of stuff if you don't have high-quality workers, whether they be because of relatively limited school or something, none of that's going to matter. I think we agree here that this is the deeper issues of how you get those wages in the first place that matters rather than the wages.
Once you get those wages and you start getting these incentives to invest more in the technology, you can get these mechanisms working. But where you get that to begin with is what really matters. That is all for us today. Thank you to Jared Rubin and Mark Iyama for joining me today. Thanks, Dylan. It's been a great pleasure. Yeah, it really has been. Great talking to you. Thanks, Dylan. Our producer is Sophie Lalonde, Libby Nelson is our editorial advisor, Amber Hall is the deputy editorial director for Talk Podcasts, and I'm your host, Dylan Matthews. The Weeds is part of the Vox Media Podcast Network.
Transcript generated on 2024-05-28.