Growth and Development: The Very Long Run

Well, though still on the road, I’m back in Canada after a conference trip to South Africa where I was part of a session on the analysis of late nineteenth/early twentieth century wealth in Britain and its Dominions using probate records.  For a summary of my trip, click here.  There was a multitude of interesting work and sessions at this conference.  Two sessions at the 2012 World Economic History Conference in Stellenbosch South Africa  (July 9-13) were exceptionally thought provoking given the concerted efforts to acquire better data on long run economic growth and development. 

First there was a session dealing with the Maddison Project, which provided an update on a collaborative international project to continue the work of Angus Maddison on measuring economic performance over time and space.  In particular, there is emphasis on re-estimating growth before 1820 to shed light on what is known as the Great Divergence, which was the topic of its own session.

The Great Divergence is the phenomenon in which economic growth between the West (particularly Europe) diverged from the rest of the world during the period between the early Middle Ages to the 1850s.  Of course, assessing the extent of the divergence in per capita income requires estimates and considerable effort is being expended on estimating historical per capita incomes in Japan, China and Europe. On the European side, a key project funded by the Leverhulme Trust focuses on reconstructing the national income of Britain and Holland c. 1270/1500 to 1850.  One of the most interesting results is that when working backwards to estimate income, it turns out that living standards in the late medieval period were well above bare bones subsistence. 

Per capita income estimates assembled by Steve Broadberry, Bruce Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen use agricultural output data, industrial production in metals and mining, textiles and leather and other industries, trade flows and government revenue data.  Jan Luiten van Zanden and Bas van Leeuwen have also been constructing estimates for the Netherlands using similar approaches.  In addition, data from probate inventories has been used particularly for some aspects of the agricultural output side. 

This work has found that per capita incomes in the late middle ages for England and Holland are more than double than those done by Maddison for the year 1000.  GDP per capita in 1990 international dollars was close to 1,000 dollars compared to estimates of about 400 dollars by Maddison.  Estimates are also being construted for Japan for the 730-1870 period by Jean-Pascal Bassino, Kyoji Fukao and Masanori Takashima and for India before 1850 by Bishnupriya Gupta.

While the term Great Divergence applies to the divergence in incomes between the West and the rest of the world over the period 1270 to 1850, it can also be applied to the range of estimates of per capita income that have been made.  After all, when revisions find that income was more than double what was previously estimated, one can be tempted to conclude that we can never really estimate output that far back given the fragmentary and diverse nature of the records.  That would be the wrong conclusion.  The challenges of estimating historical GDP using a sectoral output approach cannot be under-estimated given the diversity of the data sources as well as regional and urban variations within Europe at this time.  Progress in understanding past development and the roots of long run growth requires better data and getting better estimates is also a long-term process.

Another approach to estimating long -term output is apparently underway by researchers such as Greg Clark, Jeffrey Williamson and Peter Lindert in which probate records are being used to derive an estimate of national wealth with national income then estimated as a return to that wealth.  Here, the challenge is not only to estimate per capita wealth but to then decide on the range of estimates for a rate of return to apply to the wealth estimates.  Having done a lot of work collecting and analyzing Ontario probate records, this is naturally an approach I am interested in seeing the outcome of.  An advantage of this approach is the consistency (relatively speaking) of the data source as it involves one source rather than a quilt of records across sectors.  If we can benchmark a few probate GDP estimates with years for which we have a good GDP estimate already, we could then use the benchmark to work backwards.  Another advantage of the probate record approach is that one could sample urban and rural areas as well as different regions to take those variations into account when constructing the estimate.

In Canada, we have GDP estimates going back to 1870 (The Urquhart/Green numbers) as well as an earlier set going back to 1850 done by O.J. Firestone.  Can we go before 1850 using probate records?  These inventories certainly go back to the 1600s for Quebec and can be used to construct an estimate of per capita wealth and ultimately per capita income for Quebec. Probate inventories also exist for Atlantic Canada and they date back to the 1790s for Upper Canada (Ontario).  It would be possible to mount a more extensive effort to estimate a per capita income series for Canada for the 1600 to 1870 period as a complement to all the work being done for Europe and Asia.  It would be a big project. 

 

Comments

[Nick Rowe]

Livio: some dumb questions.

When you say "early middle ages" and "late medieval", roughly what centuries are you talking about?

Is the Malthusian theory salient for discussions of these question?

[Livio Di Matteo]

Hi Nick:
Late middle ages are after the 12th century - say 1200 to 1350.

[rsj]

This is a beautiful post! Thanks!

In terms of bench marking rates of return, we do have interest rate records going back to the Sumerians, although not a continuous series. IIRC, historical rates were quite high.

[jt]

Are records for resource consumption and pricing available back that far as well? It would be interesting to see how resources have moved with the ebb and flow of mankind. Maybe in the 1200s the cathedral builders already wrestled with Peak Limestone!

[YM]

Since the CP seems determined to destroy StatCan, probate record methods might even become essential for the future.

[Donald A. Coffin]

One of the problems with probate records, it has always seemed to me, is that the percentage of the population covered by probate-like processes surely increased as societies became wealthier. So I've always wondered, and never (in the material I have read) seen an adequate explanation of how the biased nature of the sampling done by probat records can be accounted for. (Conceptually, I agree that it's an interesting approach.)

[Peter T]

Maybe dumb question - is this historical GDP an estimate of the traded goods sector or total income (so including household and other non-traded production)?

[Skip Hire Walton On Thames]

Divergece is a trend that all countries should be aware of , and it's not always fot the best. I wonder what the interest rate during Sumerian times actually was?

[Jacques René Giguère]

"what the interest rate during Sumerian times actually was?"
I am not an historian but from my classical course, I remember that in Molière's plays (mostly 1660's) the rentier characters refer to a good rate as "au denier trente" that is slightly more than 3%.

( back from the libertarian paradise of Tucson AZ where the 4 stories homes nestled on Gates Pass Road make a nice average with the barrio within Speedway,Grant,Stone and I-10...)

[rsj]

The classic reference is Sydney Homer's "A History of Interest Rates"

http://books.google.com/books/about/A_History_of_Interest_Rates.html?id=OOQKf4asZ9EC

"Earliest reported rates were in the range of 25-50% for loans of grains and metal. The necessity of setting legal maxima and the elaborate machinery of enforcement suggest that higher rates than these would otherwise often have been charged."

[Shangwen]

From the Vasistha Darmasastra, II:48 c. 300 BCE:

'Two in the hundred, three and four and five, as has teen declared in the Smriti, he may take as interest by the month according to the order of the castes.'

So, higher interest rates for the poor. Whether that is plutocracy or microcredit is anybody's guess.

[Determinant]

One of the most interesting results is that when working backwards to estimate income, it turns out that living standards in the late medieval period were well above bare bones subsistence.

Given castles, cathedrals and universities, the economic surplus had to be considerable to support these activities. The distribution of that surplus, however, is a different matter entirely.

There's no surprise that living standards in the late medieval period were above those of the year 1000. In Northern Europe you had the introduction of the mouldboard plough which replaced the scratch plough. The mouldboard plough creates deep furrows and allows heavy soild, such as that found in Northern France, Germany and England, to be turned easily. It is known as a major agricultural improvement. It's also why France (and England and Germany) became such centres of food production, then of course commerce and industry, in contrast to the Roman period where Gaul was peripheral and the economic centre of the Roman Empire was in the East.

The colder, damp northern West finally had a tool that allowed it to reach its agricultural potential and we know from history that was introduced after 1200.

[Jacques René Giguère]

"The colder, damp northern West ".
The 12th-14th centuries were unusually warm. It led to increased crops, further deforestation and a mini-greenhouse period. The prosperity led to innovation such as , to my knowledge, the first joint-stock company, known as a "société d'uchau" in occitan language. The Société du Bazacle

http://www.bing.com/search?q=%22soci%C3%A9t%C3%A9+du+bazacle%22&qs=n&form=QBRE&pq=%22soci%C3%A9t%C3%A9+du+bazacle%22&sc=2-13&sp=-1&sk=

founded in Toulouse c. 1250 to build a dam and exploit a mill. That company,still operating, was nationalized into Électricité de France in 1938.

The Great Plague or Black Death, reducing the population, led to abandonment of villages and forests growing back, reversing the greenhouse effect. Some church records show villagers in the early 1400's having public prayers to held back the advancing glaciers.

He reduced population and increased cold shifted the role of North America in the Nortern European economy from providers of cod and whale oil (with no need of permanent establishment) to fur trading and to the need to land bases. So Champlain established his post in Acadia and at Québec. Without which, no "Canadian" Initiative, Worthwhile or not...

[Nick Rowe]

Determinant: from a Malthusian perspective:

1. The mouldboard plough might increase food output, and food per person, but then population would increase and diminishing returns would reduce food per person until the economy was back at the Malthusian margin. Why didn't this happen?

2. Cathedrals etc would create the surplus needed to build them. More cathedrals mean fewer people working the land which means less food per person, which means a smaller population, which means more food produced per person working the land.

[Jacques René Giguère]

"La révolution industrielle du Moyen-Âge" by Jean Gimpel

http://www.amazon.fr/exec/obidos/ASIN/2020541513/qid=1143388682/sr=1-1/ref=sr_1_8_1/403-5015254-9574027

was the reference I was looking for.

In english
The Medieval Machine: The Industrial Revolution of the Middle Ages

http://www.amazon.com/The-Medieval-Machine-Industrial-Revolution/dp/0760735824/ref=sr_1_2?ie=UTF8&qid=1342807121&sr=8-2&keywords=jean+gimpel

[rsj]

The mouldboard plough might increase food output, and food per person, but then population would increase and diminishing returns would reduce food per person until the economy was back at the Malthusian margin. Why didn't this happen?

Is there a single example of diminishing returns? Even in agriculture, returns seem to be increasing. From wikipedia:

"The latifundia quickly started economic consolidation as larger estates achieved greater economies of scale and senators did not pay land taxes. Owners re-invested their profits by purchasing smaller neighbouring farms, since smaller farms had a lower productivity and could not compete, in an ancient precursor of agribusiness. By the 2nd century AD, latifundia had in fact displaced small farms as the agricultural foundation of the Roman Empire. This effect contributed to the destabilizing of Roman society as well. As the small farms of the Roman peasantry were bought up by the wealthy and their vast supply of slaves, the landless peasantry were forced to idle and squat around the city of Rome, relying greatly on handouts.

Overall, the latifundia increased productivity. It was one of the greatest levels of worker productivity before the 19th century."

[Nick Rowe]

rsj: "Is there a single example of diminishing returns?"

There's Malthus's (or was it Ricardo's?) original example. If there were not diminishing returns, you could grow enough food for the whole of England in one window box.

[Nick Rowe]

BTW, the Wiki quote is about increasing returns *to scale*, which is very different. Malthusian diminishing returns (strictly, diminishing *marginal product*) is about what happens when we increase one factor (labour in this case) holding all other factors (land in this case) constant. Increasing/decreasing returns to scale is about increasing all factors together.

[Determinant]

He reduced population and increased cold shifted the role of North America in the Nortern European economy from providers of cod and whale oil (with no need of permanent establishment) to fur trading and to the need to land bases. So Champlain established his post in Acadia and at Québec. Without which, no "Canadian" Initiative, Worthwhile or not..

Jacques, your history is off. France never abandoned fishing on the Grand Banks in the colonial period, in fact there was the French Shore in Newfoundland until 1904. The settlement of New France was a parallel activity to Grand Banks fishing, not a substitute for it. Further, the population decline was long before 1492 anyway.

You're out about 200 years.

Northern France, the UK and Germany are colder, damper and more northern than southern Italy, Egypt, Sicily and Turkey, the traditional bread baskets and wealth centres of the Roman Empire. Egypt was the primary grain source of the Roman and Byzantine Empires, and would remain so until the Muslim conquest of the 6th Century when the Byzantine Empire switched to grain from Crimea and the Ukraine.

[rsj]

There's Malthus's (or was it Ricardo's?) original example. If there were not diminishing returns, you could grow enough food for the whole of England in one window box.

I don't know this example. Can you provide a link? What is a window box? In any case, I was looking for observed examples from industry, not theoretical examples. For example, one could imagine certain business processes which exhibit this property, but no sane person would adopt such a process. Another issue is in the realm of output that is financially feasible for a given process, do we see diminishing returns (in terms of physical product) in any factors? We certainly see diminishing financial returns, of course, due to limited market size.

BTW, the Wiki quote is about increasing returns *to scale*, which is very different.

OK, fair point about returns to scale versus diminishing returns. But you will have a hard time coming up with a function that is not artificial (e.g. discontinuous partial derivatives) which has increasing returns to scale while also having diminishing returns to each factor.

[Nick Rowe]

rsj: "But you will have a hard time coming up with a function that is not artificial (e.g. discontinuous partial derivatives) which has increasing returns to scale while also having diminishing returns to each factor."

Fair point also. I think I could come up with an example (if my math were better), but there is indeed a conflict between those two things (strong enough increasing returns to scale might outweigh diminishing marginal product). Would Y={L^0.6.K^0.4}^1.1 work? Yep, I think it would, because it becomes Y=L^0.66.K^0.44 and both exponents are less than 1.0, but add up to more than 1.0, so we get both diminishing MP but IRS.

A "window box" is one of those boxes you put on the window sill and use to grow flowers and herbs. If it weren't for diminishing returns, you could take all the English farmers and make them work that one window box and they could produce the same amount of food. (And pay a lot less in land rent).

It's always hard to estimate a production function econometrically. A production function tells us what output *would be* at all possible combinations of inputs, including very unprofitable ones. But if firms maximise profits, we never get to observe the unprofitable ones (unless we do experiments, or see some natural experiments). The fact that we do see English farmers renting land, and not using window boxes, tells us that they believe in diminishing returns, and they probably understand that production function better than us. The Black Death was a natural experiment that confirmed diminishing returns.

[bob Smith]

Livio,

Has there been any recent developments in "anthropometric" economic history? For those who aren't familiar, it typically involved attempts to estimate living standars by looking at records of weight, age and height over time (and the theory, for example, that adult height was a function of youth nutrition, which was a function of income).

It's been a decade since I've read any of that literature, but
I always found it fascinating looking at the data people could dig up. Plus, it gave you a fascinating insight into the well-being of people who might not turn up in probate list (soldiers, sailors, criminals, slaves, etc.), but whose living standards might be more representative of a big chunk of the population. Fascinating stuff.

[The Keystone Garter]

Oxford was 150 miles or kms from the nearest RCC Bishop, 950-1000 yrs ago. Also resulted in the Magna Carta eventually. The plough would be very significant if there was a way to store the grain. So it is good for adding yields for a few months, which is significant. But the grain spoils without corrugated steel (1930s or 1950s).
The RCC went very inward around 1200; whoever was furthest from her influence, yet still had the physicians and clerks and stuff, could continue to steam engine mine pump, and eventually rotary motion steam engine. All the way to the utility scale batteries and plentiful metals wind turbines that replaced the primitive minds in charge of the GOP and Canada, 2nd decade of this century.
...The Magna Carta enabled a new rich class of landowners; b4 the RCC would just steal land.

[The Keystone Garter]

...ironically most people looked down on manual labourer tinkerers, the class of alchemists that were chemists and other experimenters. I'd like to know the population devoted to R+D at given momnets in history until given times. I bet CPC Canada is beat by Sung Dynasty. Because ALbertans are dumb...

[rsj]

Aha! Window boxes.

But now I realize that I am confused about physical returns versus financial returns. When we talk of the latifundia driving out competition, we care about financial returns.

For example, at one my previous employers, we were engaged in some small scale manufacturing. And if we would have had larger volumes, our per unit cost would be lower. The main reason for this is search costs. When you buy in bulk, the firm you are buying from saves on search costs for a buyer and you can negotiate a discount over someone who buys in small units. As far as each individual firm is concerned, average unit costs are always falling over any quantity scale, just due to unit discounts (and they would fall more due to other reasons, but this reason is good enough).

That does not mean, however, that purchasing more in aggregate means that economy-wide unit costs fall. Say everyone wants to purchase more, so that the average price of the input goes up. Nevertheless for the firm that purchases more, it is paying only 90% of the average price, but for the firm that purchases less, it may be paying 110% of the average price.

So from the point of view of each firm that views the average price as a given, both marginal and average unit costs are always falling. From the point of the economy, they are not.

What does the aggregate function look like?

[Jacques René Giguère]

Determinant: didn't say we stopped fishing. Would be weird from someone living in a large fishing harbor to say we abandonned the craft...
What I said, maybe not clearly enough, was that new necessities created new incentives and markets.

bob Smith: there are interesting works about income,both level and inequality, and height in US,Canada and Europe in the 20th century. Startlind in photographs from both world wars or even from accounts of French and British officers in the Seven years War ( French and Indian War for those in the U.S) about the height and general physical state of American and Canadian troops compared to their British and French men.. It is easy to distinguish soldiers' nationalities: taller were Americans, then Canadians then British and continentals. And British and continentals officers were markedly taller than the troops, while the difference amongst the North Americans were small, if at all.Today, Americans are now smaller than Europeans. Europeans tourist complains of too small beds in American hotels and finding a good Italian silk tie of the right lenght is often a hassle as they are too long..

On vacation and on the road, not easy to provide exact cites.

[Peter T]

On height - I recall a study cited in The Economist that showed average height of recruits falling in the middle phases of the industrial revolution in the UK (around 1830-40) and recovering later. In both World Wars, Australian and New Zealand troops stood out as taller and stronger than British troops. Interestingly, photographs of aboriginal Australians at first contact show people obviously taller, stronger and healthier than their white contemporaries.

[Livio Di Matteo]

Hi Bob:
For Canada, you might want to take a look at work being done by Kris Inwood and John Cranfield at University of Guelph. They have been looking at heights quite recently based on conference programs. As well, there is Richard Steckel's work for the United States.

[Jacques René Giguère]

Peter T:
In Charles Mann " 1491"

http://www.amazon.com/s/ref=nb_sb_ss_i_1_12?url=search-alias%3Daps&field-keywords=charles+mann+1491&sprefix=charles+mann%2Caps%2C244

one can find interesting oservations on First Nations height and health. Numerous europeans marvelled at their health.

[Jacques René Giguère]

From Chuck Tully's book Durable Inequality

quoted in Dan Little's blog Understandingsociety recently linked by Mark Thoma's blog Economist'sview

"Tilly begins his book with an astounding statistic about durable inequalities in nineteenth-century England: "poor boys of fourteen averaged only 4 feet 3 inches tall, while aristocrats and gentry of the same age averaged about 5 feet 1 inch" (1)."

[Determinant]

Don't sell Canada short. We still live longer than Europe and 3 years longer than Americans. The only European country ahead of us (aside from microstates like Monaco and the Channel Islands) is Italy. The "Big State" ranking is Japan, Singapore, Australia, Italy and Canada.

[Jacques René Giguère]

Whenever I go to the States whatever the beauty of the landscape, and I hear the waitresses complainig to each other about how they'll pay their childs medical bills,I know I have to come home.Even if he never said it, Jean Chrétien alleged "Le Canada est le plusse meilleur pays du monde" has a ring to it.

[Kris Inwood]

Posted by: Donald A. Coffin | July 19, 2012 at 10:12 PM
Maybe dumb question - is this historical GDP an estimate of the traded goods sector or total income (so including household and other non-traded production?

Not a dumb question at all. Canada has very good inventories of commodity production, even for own-consumption, back to 1852. So no problem to include non-traded commodity production in measures of the size of the economy. Services are much harder, because they were (and are) harder to count, especially for consumption within the household and especially services generated by women. Nancy Folbre in the 1990s pushed the envelope on historical accounting for this. We still have trouble measuring home-produced services, but we are getting better.