CHAPTER 4: THE NATURE AND
EXTENT OF
GROWTH IN THE PRE-INDUSTRIAL
EPOCH
UNDERSTANDING PRE-INDUSTRIAL GROWTH
• Combine Malthusian and Smithian explanations
– Diminishing returns to labour – Technological change
– Smithian gains from specialization, driven by ‘the extent of the market’
• Technological change permitted population growth and constant or increasing per capita income
• If population growth increases aggregate demand, there will be increasing income
MALTHUSIAN AND SMITHIAN FORCES IN
ECONOMIC GROWTH
ACCOUNTING FOR PRE-INDUSTRIAL PRODUCTIVITY GROWTH
• Growth in income per head driven by more efficient use of greater resources, e.g. capital and land
• Capital/labour and land/labour ratios relatively constant or fell, so increasing income depends on improved
efficiency: Total Factor Productivity (TFP)
• Rate of growth of TFP = rate of growth of output – growth of weighted sum of inputs
• If positive then economic process is generating higher growth than growth in weighted sum of inputs
HOW TO MEASURE TFP?
• Extent and precision of data not available for pre- industrial economies
• Use the dual approach, requires data on growth of prices and factor incomes
• Intuition: sum of wages and rents is the total income of a sector, so must be equal to value of the value added or output of that sector
– I.e. inputs being used more efficiently
EXAMPLE: TFP IN FRENCH AGRICULTURE
1522-1789, % / YEAR
VALIDATING TFP ESTIMATES
• Estimates of pre-industrial TFP in agriculture show could reach 0.1-0.2 % / year
• Great regional differences: growth not shared by all
• But these estimates are very uncertain
• Can verify by looking at urbanization rates: growing urban population implies productivity increases in agrarian sector, i.e. fewer farmers feed more people
• But must also consider food imports and relative wages
VARIATION IN AGRICULTURAL PRODUCTIVITY IN EUROPE
• R.C. Allen looked at period 1300-1800
• Belgium early leader, ends with negative growth
• Spain and Italy initially leaders, then fell in relative terms
• Netherlands grew after independence from Spain around 1600: first modern economy
• First industrial economy, England, had similar institutions and saw strong growth 1650-1800
• N.B. importance of institutions
WAGES AND INCOME DISTRIBUTION
• Real wages commonly used to infer income and productivity growth
• Real wages of urban workers generally present a gloomy picture of the 17th and 18th centuries
• But must be careful in interpreting them as indicator of national income
• National income composed of wage income and income from capital (profit) and land (rent)
– So national income can increase even with stagnant real wages
REAL WAGES OVER TIME
• Peaked first in the mid-15th century, driven by labour shortages after the Black Death
– Negotiated higher wages, enjoyed lower agricultural prices
• Labour shortages eased, real wages fell from 1450-1600
– Mostly because prices increased, nominal wages did not
– Probably adjusted by changing diet (not accounted for by real wages, with constant consumption basket)
• No. of days worked increased until the Industrial
Revolution, maybe because of ‘consumer revolution’?
THE GREAT DIVERGENCE
• When did Europe forge ahead?
• Why did the Industrial Revolution happen in Western Europe and not elsewhere?
• Importance of coal deposits? Allowed Europe to escape
‘Malthusian’ land constraint
• Newer research has revealed large regional differences within Europe and Asia
EUROPE VS. ASIA
• As late as 1750 India was the largest producer and exporter of textiles in the world
• China had large and sophisticated industrial centres
• In 18th century Europe mercantilistic governments subsidized domestic manufacturing
• But when did Europe diverge from China, Japan and India?
• There is evidence from real wages
PROBLEMS WITH USING REAL WAGES TO COMPARE EUROPE AND ASIA
• How do we define the deflator? Should be equivalent consumption baskets in each country / region
• But we don’t have prices of everything!
• Grain wages: large component of consumption, but not traded internationally (at that time)
• Silver wages: traded internationally
• Non-traded goods have lower prices in poorer countries!
• Silver wages will underestimate relative incomes in Asia
SOLUTION: HISTORICAL NATIONAL
ACCOUNTS ESTIMATES
WHY DID ASIA FALL BEHIND?
• Late marriages in Europe reduced fertility
• Europe practiced family planning within marriage
• Made diminishing returns less of a problem in Europe
• European quest to control nature through systematic
inquiry, not subject to religious and political authorities
• Openness to technological change contributed to swifter adoption of useful knowledge
SUMMARY
• Pre-industrial economies tended to balance negative and positive effects of population growth
• Income maintained well above subsistence, increased slowly in most advanced areas of Europe
• TFP and labour productivity growth of up to 0.2 % / year
• Europe differed from Asia particularly through higher age of marriage
