DAY 1: LECTURE NOTES: 1. Introduction: 1.1. Five Questions Surrounding the Identification of 1870 as the Hinge of History

DRAFT lecture notes for the spring 2023 instantiation of UC Berkeley Econ 135: The History of Economic Growth: Summarizing the history of economic growthThe lack of “economic growth” before 1870. F...

Dec 11, 2022

Let me talk for a while, and then let’s see if we can have a successful discussion here afterwards:

Topics:

Summarizing the history of economic growth
World-transforming boom since 1870
The lack of “economic growth” before 1870
Five questions about economic growth
Consequences of the 1870 hinge of history
How Malthusian economies and societies worked
The great breakthrough of 1870
How the process of repeated economic revolution after 1870 worked
Economic growth reality and ideas
Quantitative guesses

Summarizing the history of economic growth: At one level, the history of economic growth is relatively easy to summarize: Up until 1870, there was essentially none. At least, there was very little economic growth—if “economic growth” is taken to be a significant sustained improvement in the material living standards of a typical human.

Before 1870, there was technological growth. There was artistic growth. There was intellectual and conceptual growth. There was imperial growth. There was organizational growth. There was political growth—although that was not necessarily a good thing, if you understand “politics” to be mostly a matter of domination and redistribution.

But there was not, or at least there was very little, economic growth as we would term it. A typical human in 1870 had a material standard of living not that much different from that of the typical human back in –3000, in the age of Gilgamesh of Uruk in Mesopotamia and Narmer of Memphis in Egypt. (For the élite, by contrast, the life-styles of the rich and famous did get much more convenient and luxurious.)

World-transforming boom since 1870: Since 1870, of course, there has been remarkable and fabulous economic growth. How much richer is the typical person in the world today than their predecessor back in 1870? It is hard to tell. 10 times? 20 times? 30 times? And when we consider that our natural resource base is supporting not the 1.3 billion people of 1870 but the 8 billion people of today, it is hard to see anything less than 20-fold as a lower bound to the amplification of human powers, to manipulate nature and cooperatively, organize ourselves over the past 150 years. That is as much relative technological progress from 1870 to today as we saw between the development of agriculture in -6000 and 1870.

No, we are not using our mammoth, collective, technological powers and wealth to conspicuously live wisely and well.
No, our distribution of our wealth is not just and fair, but rather cruel and malevolent.
Yes, even worse than the distribution of wealth, and thus of social power, within nations is the distribution of wealth and poverty across the nations.
Yes, the next fifty years to come will see human civilization facing and perhaps succumbing to potentially existential threats.

But that does not keep the economic growth of the past 150 years from being a remarkable accomplishment. And that does not diminish the contrast between the post–1870 age of economic growth, and what came before.

Starting in 1870 it became clear—with human technological competence deployed-and-diffused worldwide (not just in the southern part of one small island) doubling every generation—that humanity was on the way to solving the problem of baking a sufficiently large economic pie for everyone to potentially have enough. Up until 1870, there had been no possibility of humanity baking such a sufficiently large economic pie. Technological progress was simply too slow. Human fecundity—and the desire to have surviving children, especially sons—was just too great. Afterward those things were no longer true. And that changed everything.

I thus stake the claim that 1870 is the hinge of history. And I ask you to grant that claim. This course will presume that that claim is true.

The lack of “economic growth” before 1870: What comes next here is a first obvious question: What kept there from being “economic growth” before 1870?

My tentative answer is that, back before 1870, the world economy was under Malthusian pressure that kept humanity desperately poor. Technological progress was slow: on the order of 5% per century before 1500, and higher thereafter, but not sufficiently higher thereafter to make a big difference. That meant, before 1500, that a 10% percent per century rate of growth in the human population would reinforce resource scarcity enough to offset the benefits that better technology would otherwise have yielded in higher material living standards.

Such 10% per century increases in human population were almost inescapable.

Why was sufficient population growth to offset the slow progress of technology, in terms of its effect on typical living standards, near-inevitable back then?

That was itself an indirect consequence of the slowness pre–1870 of technological advance.

People really like to make love. People really, really like to make love. Patriarchy prioritizes surviving sons. In the dire poverty of pre-modern patriarchal societies, it is nearly social death for women—and, substantially, for men—to reach late middle-age with no surviving sons. Reflect that under conditions of slow technological development, and thus slow population growth, one-third of humans will wind up without surviving sons.

Hence, whenever there were extra resources to support raising more children, people were under enormous pressure to use them to do so. This was Thomas Robert Malthus’s key insight: population expands until it reaches the limits of subsistence. Slow technological progress means that that “until” arrives in, at most, a few generations.

The only potentially bright spot in the picture is that “subsistence” is as much a sociological as a biomedical and nutritional concept. Malthus strongly believed that the right sociological institutions were patriarchy, monarchy, and orthodoxy. Patriarchy was to delay, the age of female marriage, and so reduce female, fertility without requiring women to be so skinny that ovulation was hit or miss. Monarchy was to reinforce patriarchy, as the king as father of the country figured the father as king of the household. Orthodoxy to threaten women who engaged in premarital sex with hell.

This dire poverty meant that pre-modern politics and governance were a poisonous weed. In a world in which there cannot be enough for all, at the foundation politics and governance can be little more than an élite elbowing competitors out of the way, and running a force-and-fraud exploitation game on the rest of humanity.

This élite of thugs-with-spears (and later thugs-with-gunpowder-weapons), along with their tame accountants, bureaucrats, and propagandists—they could have enough. And with their enough they could build and enjoy their high culture. But those who controlled the commons, and had enough so that they could have the leisure to write the literatures that have come down to us—those were hard men, who reaped where they did not sow, and gathered where they did not scatter. They made typical human life fairly dystopian back in the long Agrarian age, even after taking account of the general poverty.

But why was technological progress slow back then?

A good deal of the answer is that they simply were not enough people and not enough sufficiently educated people to have the energy and time to think about solving the problems of advancing technology. Two heads are not twice as good as one, quite. But two heads are considerably better than one. And heads that are not exhausted by the combination of hard work and a scant diet have more energy to think, plan, experiment, and evaluate.

Plus we humans are much smarter when we think together. Thinking together requires that we be able to communicate not just within our own little band or village, but communicate across space and across time. To the extent that humanity is more numerous, richer, better educated, and better able to communicate across space and time, we can become a truly remarkably intelligent anthology intelligence.

In the years since 1870, that ability to transform ourselves into such an anthology intelligence has allowed us to power technological progress forward at 2% per year on average, even though the low-hanging technological fruit has long been harvested, and even though a great deal of the technological fruit we are now harvesting is a very, very high indeed.

But there is more than a lack of numbers, lack of education, lack of energy and leisure, and lack of the means of communication and memory behind the slow rate of technological progress back before modern economic growth. In a society where the typical activity of those who deploy resources is to use them to grab enough for themselves from everybody else, the ideas that will be promoted will not be ideas that are true, but rather ideas that are useful for that grabbing process. The consequences of general poverty for inequality, and the consequences of inequality for ideas and for the direction of societal effort are major drags on even the possibility of technological development.

Five questions about economic growth: But why there was so little economic growth before 1870 is just the first obvious question about the history of economic growth.

I find, adding them up, that I have five obvious questions—or maybe six:

What we just covered—what kept there from being “economic growth” before 1870? How and why was there was no alternative, earlier, hinge? How was it that the Devil of Malthus had so ensorcelled humanity before 1870? How was it that its spell had been so powerful from –6000 to 1870?
How did pre-modern societies without “economic growth” work? How did they function and operate as modes-of-production, -distribution, -domination, -communication, and -innovation?
How did the great phase-transition of 1870 happen? Given the pre–1870 power of humanity’s ensorcellment by the Devil of Malthus, how could we then wreak the miracle of breaking it?
How did economic growth then develop and evolve after 1870?
What were the consequences of the great post–1870 rocket of economic growth?

Consequences of the 1870 hinge of history: The fifth question: What were the consequences for humanity and society of the fact that as of 1870 we managed to harness the rocket of economic growth of 2% per year average technological progress?

My big book of 2022, Slouching Towards Utopia: The Economic History of the 20th Century <bit.ly/3pP3Krk>, gives my answer to (5). (It also offers a little bit of thought about (4), and takes the briefest glance at (3)). Here is my answer to the “consequences” question:

After 1870 it rapidly became clear that things could be very different: “Economic Eldorado”, as John Maynard Keynes put it, was on the way.

In 1870 the last pieces of the institutional complex that supported what Simon Kuznets labelled “Modern Economic Growth”—average real income and productivity levels doubling every generation, growing at an average rate of 2%/year or more—fell into place. The addition to the institutions that were there before pushed humanity across a watershed boundary with the coming of

the industrial research lab,
the modern corporation, and
the globalized market economy

These revolutionized the discovery, development, deployment, and diffusion of human technologies useful for manipulating nature and cooperatively organizing ourselves. There was as much global technological advance from 1870 to 2010 as there had been from –6000 to 1870. Humanity’s deployed-and-diffused technological prowess in 2023 stood at a level at least 20 times its level as of 1870. And although there was a population explosion—humanity’s numbers rose from about 1.3 billion in 1870 to 8 billion in 2022—that explosion soon ebbed with the coming of the demographic transition—the rise of feminism, the coming of better nutrition, the lowering of infant mortality, and the consequent shift from high to low fertility. Before 1870 humanity’s ingenuity in technological discovery had lost its race with human fecundity. Afterward it decisively won it.

And yet, while things were different after 1870, they were not different enough. Finding the solution to that problem of baking a sufficiently large economic pie did not get us very far, because the problems of slicing and tasting the pie—of equitably distributing it, and of utilizing our wealth so humans could live, lives in which they felt safe and secure, and were healthy and happy—continued to completely flummox us. As I said above:

We are not using our mammoth, collective, technological powers and wealth to conspicuously live wisely and well.
Our distribution of our wealth is not just and fair but rather cruel and malevolent.
Even worse than distribution within the nations is distribution across the nations.
Plus: the next fifty years to come will see human civilization facing and perhaps succumbing to potentially existential threats.

That we have succeeded remarkably over the past 150 years in baking, a sufficiently large economic pie for everybody, potentially, to have enough; and yet the problems of slicing and tasting the pie—of equitably distributing it and using it to live wisely and well, so that people feel safe and secure and are healthy and happy—continue to flummox us. These are facts.

And these facts surprise me.

Since 1870 industrial research labs, modern corporations, globalization, and the market economy—which, as that genius Friedrich von Hayek most keen-sightedly observed, is, when properly tuned, tremendously effective at crowdsourcing solutions to the societal problems humanity sets it—proved keys to the lock that had kept humanity in its desperately poor iron cage. Previously unimaginable economic growth revolutionized human life over and over, generation by generation. We should, thereafter, have straightforwardly turned our technological power and wealth to building something very close to a utopia: a truly human world. Few in 1870 would have doubted that a humanity today more than ten times richer in material terms than it had been would succeed in building a near utopia.

So what went wrong? Well, that idiot Friedrich von Hayek thought the unleashed market would do the whole job: “the market giveth, the market taketh away: blessed be the name of the market”. But, as that genius Karl Polanyi put it: people will not stand for being told that there are no rights but property rights. They instead insist that “the market was made for man, not man for the market”. The market’s treating those whom society saw as equals unequally, or unequals equally, brought social explosion after explosion, blocking the road to utopia. They deserved communities, incomes, and stability. They needed their Polanyian rights to those things vindicated too.

Since 1870 humans—Theodore Roosevelt, John Maynard Keynes, Benito Mussolini, Franklin Delano Roosevelt, Vladimir Lenin, Margaret Thatcher, Deng Xiaoping, and others— tried to think up solutions. They dissented from “the market giveth…” constructively and destructively. The demanded that the market do less, or different, and other institutions do more. Only with the social-democratic shotgun marriage of von Hayek’s “market” to Polanyi’s “society”, a marriage blessed by Keynes—a marriage that itself has so far failed its own sustainability tests—have we been able to even slouch towards utopia, and bring the El Dorado of a truly human world into view. Yet the social-democratic order of the post-WWII generation failed its own sustainability test, and was replaced by the neoliberal order, which now nobody likes. And so the problems of equitable distribution and wise utilization continue to flummox us.

Much, after all, of what made us so bad at slicing and tasting—at equitably distributing and then wisely and well utilizing our wealth—back before Modern Economic Growth was precisely the focus on the élite on its domination-and-exploitation machine through which it grabbed enough for its members. Government of men, Friedrich Engels wrote in the 1880s, was about some exploiting others. But with the coming of general abundance via the productivity of high technology, and with the detailed division of labor within each factory and enterprise making it so obvious that our productivity was not our individual doing but rather the joint product of our cooperative division of labor, the need and desire to exploit and dominate would fade away. “The government of men would be replaced by the mere administration of things”. And “the state”—that human-constructed Moloch that ran the exploitation-and-domination machine—“would not be abolished, but rather would wither away”.

It did not happen.

How Malthusian economies and societies worked: How about the other questions?

I have not yet written my book(s) about them. Economic historian Eric Jones has a line:

Oscar Wilde expected to be met at the Pearly Gates by St Peter bearing an armful of sumptuously bound volumes and declaring, “Mr Wilde, these are your unwritten works”…

I find myself almost unmanned at the thought of the task of trying to write them.

Let me sketch out my tentative answer to (2): How did pre-modern societies without “economic growth” work? How did they function and operate as modes-of-production, -distribution, -domination, -communication, and -innovation?

The dominant features are (1) change was very slow, and (2) most people were engaged in near-subsistence farming, pastoralism, or simple craftwork in which people produced just enough food and goods or things to trade for food and goods to meet their basic needs, after taxes. And after bandits.

The division of labor was not very sophisticated. The mode of distribution was mainly through bartering or the exchange of goods within a community. There was little to no market economy, and people would exchange goods based on need or mutual benefit—not so much supply and demand, but rather on social status and community needs.

The mode of domination was through a ruling class, often a rigid hierarchical one, that controlled the land and resources, and a lower class that worked the land and resources—that was how the élite managed its force-and-fraud extraction-and-domination game. Taxes, forced labor, tribute, theft, enslavement, or other forms of domination and extraction. Literacy was low. The mode of communication was mainly through oral tradition and storytelling. Innovation was slow—small-scale improvements in agricultural and craft techniques. There was little incentive for innovation. However, people did make small improvements to their agricultural techniques, such as developing new tools or methods of irrigation, in order to increase their productivity and improve their livelihoods.

However, pre-modern societies were not necessarily stagnant or unchanging. There were “efflorescences”: golden ages. There were civilizational collapses, followed by dark ages. There were ebbs and flows in inequality. There were substantial fluctuations upward and downward, in population density, in the average level of production per capita, and in the living standards of both the élite and the commons. There was a slow upward drift in average population, as technology creeped forward, but then, as the potential benefits for living standards of better technology were neutralized by population growth, and hence greater resource scarcity. There never was any breakthrough to any level of technological progress that held any chance of kicking the society out of its Malthusian equilibrium.

The great breakthrough of 1870: Let me sketch out my tentative answer to (3): How did the great phase-transition of 1870 happen?

It is actually a huge bunch of interrelated questions: Given the pre–1870 power of humanity’s ensorcellment by the Devil of Malthus, how could we then wreak the miracle of breaking it? Why did no one think to gather communities of engineering practice to supercharge economic growth before 1870? How exactly did the research lab and the corporation in the context of the global market economy empower us to accomplish these tremendous feats? Was the explosion of wealth and productivity of 1870 causally-thin, in the sense that institutions had to evolve then in a way that was unlikely to get the explosion? Or was this growth acceleration of the Second industrial Revolution, what Northwestern economist Robert Gordon caals “one big wave o”, causally-thick—largely baked in the cake, while the causally-thin nexus or nexuses came earlier? These are very hard and deep questions indeed.

The key, as I see it, is what is called the Second Industrial Revolution, was a period of rapid technological and economic growth that occurred in the late 19th century—the development of new technologies such as the steam turbine, the internal combustion engine, and the Bessemer process for mass-producing steel, which led to a significant increase in productivity and industrial output. It was not so much any one single invention, as that invention after invention came and kept coming in very rapid succession, pushing the rate of technology growth worldwide up to 2.1% per year, more than four times as fast as the 0.45% per year rate of technology growth seen during the 1770 to 1870 British Industrial Revolution century, which in its turn was three times as fast as the 0.15% per year rate of global technology growth in the 1500–1770 Imperial-Commercial Revolution age, which was in its turn triple the roughly 0.05% per year rate of growth of the pre–1500 Agrarian age.

The 0.45% per year rate of technology growth seen during the 1770 to 1870 British Industrial Revolution century was not enough to break humanity’s ensorcellment by the Devil of Malthus. Looking back on 1770–1870, John Stuart Mill saw the same-old same-old: a much greater population, yes, but the bulk of humanity—the working class—living the same life of “drudgery and imprisonment”.

A great host of very important institutional changes and developments well before 1870 had set the stage for the breakthrough. In 1870, however, three more institutions arrived: the industrial research lab, the modern corporation, and the fully globalized market economy. With those falling into place, it was possible to gather together gather communities of engineering practice to supercharge economic growth. The shift from manual labor to machine-based labor. The rise not just of the factory system but the value chain. The build-out of the railway and the steamship network. Urbanization. The mechanization of mining, especially of iron ore and coal. And then the coming of oil drilling.

All of these institutions fell into place between 1500 and 1870 in what I have decided to call the “Dover Circle Plus”—the 300-mile circle centered on the port of Dover in the very southeast corner of the island of Great Britain, plus its settler-colony offshoots in Ontario, and the U.S. northeast and midwest. How they fell into place is a very complicated and still unsettled story. How these institutions and the wealth that accompanied them then diffused, partially, unevenly, and slowly to the rest of the globe is a different very complicated and still unsettled story.

How the process of repeated economic revolution after 1870 worked: Let me sketch out my tentative answer to (4): How did economic growth then develop and evolve after 1870? I find myself looking forward from 1870 later in time to trace how the research lab-, corporation-, and global market economy-enabled discovery, development, deployment, and diffusion of technologies at an unprecedented, revolutionary, Schumpeterian creative-destruction, pace worked itself out, leading sector by leading sector and trailing sector by trailing sector. One of the key drivers of economic growth after 1870 was the continued development and deployment of new technologies, such as the internal combustion engine, the telephone, and the electric motor. These pushed forward new industries and sectors: automobiles, telecommunications, electricity, and many many more. The research lab provided the necessary infrastructure for the development of new technologies, while the corporation provided the funding and organizational structure for the implementation of these technologies on a large scale. And the global market economy incentivized their development and deployment and facilitated their diffusion.

The growth of international trade and commerce led to the rise of new economic powers, such as the United States and Germany, and the decline of traditional economic powers such as Great Britain. The increased competition in the global market economy also led to the rise of new forms of business organization such as the multinational corporation. One of the key characteristics was the process of creative destruction, as described by economist Joseph Schumpeter—constant change and innovation, which was a key driver of economic growth during this period. Not at all a linear process.

Economic growth reality and ideas: Let me add another set of concerns to the mix: We need to always remember that humans do not just do, they think about what they are doing. We must cover not only what the economy in the process of economic growth or non-growth was, but also what people thought they were doing—and what they thought their options and possibilities were. Economic growth is not just about the numbers and statistics, but also about the human experience and the way people perceived and understood the economic changes that were taking place. For many, the rise of the factory system and the increased use of machines led to new forms of employment and the possibility of upward mobility. However, it also led to the rise of new social and economic classes, new forms of social unrest, and the rise of new political movements. People’s perceptions of their options and possibilities were also transformed, as colonial empires and the development of the global market economy led to new forms of economic and political power, but also added new modes of exploitation and new drivers of economic inequality.

Quantitative guesses: Throughout this course, I will structure what we do around this table of my guesses as to the shape of the human economy—how many people P, roughly what their average real income in today's dollars happens to be y, and then this measure of mine H, which is average real income y times the square root of population P. I will assert that H is a rough measure of "technology": our capability to manipulate nature and productively organize ourselves, as created by the human ideas about how to do things that have been discovered, developed, and deployed, and that then have diffused throughout the human economy. Population, average real income, and human ideas P, y, and H have their proportional annual growth rates n, g, and h, respectively: