Comparative European Institutions and the Little Divergence, 1385-1800

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The Black legend (leyenda negra) survives. Let’s destroy it (well, part of it).

Steve Broadberry calls the economic divergence which took place within Europe “little divergence”, in contrast to the “great divergence” of Europe vis-à-vis China and other parts of the world. Countries like Spain and Portugal became poorer than England and the Netherlands

But when exactly did this take place?

Let’s look at the comparative performance of England, Spain and Portugal during the 1500-1850 period:

Figure1Palma

As the graph shows, a divergence only starts after 1650 – in the case of Portugal, incomes continued to be comparable to those of England until around 1690.

Hence, we must not project England’s later success into the distant future.

A venerable historical tradition places political institutions at the root of the European divergence. For this tradition, diverging paths within Europe were already being trodden as far back as the Middle Ages and continued to be so during the early modern period, before accelerating in the nineteenth century.

For example (and they are just one example), Acemoglu, Jonhson and Robinson (2005) classify Portugal and Spain around 1500 as absolutist monarchies, which they contrast with the much more constrained institutions of England and the Netherlands. They also claim that Portugal and Spain grew less than England in the centuries after 1500, which we have already seen was not the case until the second half of the 17th century.

These authors argue that the executive power being less constrained in Portugal and Spain around the turn of the sixteenth century lead to subsequent institutional and economic divergence relative to England and the Netherlands. The latter countries’ initial institutions (around 1500) would have been beyond a critical threshold which allowed a virtuous circle of economic growth and positive institutional change to take place in interaction with the merchants of Atlantic trade. By contrast, the economic and institutional development of Portugal and Spain were supposedly held back by extractive institutions already in place by 1500.

Let’s take a close look at political institutions. In the paper we show that parliamentary activity, coin debasement statistics, and long-run interest rates on first issues of public debt all suggest that a political divergence (England getting better, Iberian countries getting worse) only started after 1650.

This can be seen in terms of several indicators. Here are years with a parliamentary meeting:

 

Figure2Palma

As the graph shows, Castile (about 3/4 of Spain) kept up with England until late,  but from the second half of the 17th century onward, the parliaments of Castile and Portugal essentially stop meeting, while that of England becomes permanent.

It matters not only how many times where parliaments meetings but also about what. We discuss this in detail in the paper.

In terms of frequency of extraordinary taxes collected, England was the undisputed champion in most periods, as the following graph shows:

 

Figure3Palma.png

Furthermore, in the paper we show that England raised extraordinary taxes 62 times until 1700 in years with no war, more much more often than Castile (16 times) or Portugal (18 times). This suggests less checks to executive power.

The case of long-run interest-rates is also illustrative (see the full paper for details). Notice how England did issue long-run debt prior to the second half of the 17th century due to credibility problems:

Figure5Palma.png

Our paper is as much about England as it is about Iberia. Overall, we do not find support for the viewpoint of North and Weingast (1989) that the Glorious Revolution was the single decisive moment for England – though we find that in the margin, it helped driving forward a process that had been under way. Instead, the timing of the institutional divergence of England relative to the Iberian nations coincides approximately with the former’s Civil War.

Our argument that the mid seventeenth-century is when English political divergence truly began gains support from the fact that this is also when English GDP per capita begins to grow persistently, structural change began, and fiscal capacity took off in comparative terms (see the papers cited in the text).

Call for Papers: National Systems of Economy or European Integration – What can we learn from List for today?

Call for Papers

National Systems of Economy or European Integration – What can we learn from List for today? A One-Day Symposium on the Bicentenary of Friedrich List’s Address to the German Federal Assembly (1819)

The University of Manchester, 18 October 2019

Manchester

With support by the Manchester Jean Monnet Centre of Excellence (University of Manchester & Manchester Metropolitan University) and the University of Manchester (UK)

Keynote Speakers: Prof Erik Reinert (The Other Canon Foundation and Tallinn University of Technology) & Prof Markus Lampe (Wirtschaftsuniversitaet Wien/Vienna (AU)

“38 customs frontiers cripple domestic exchange within the German nation, with the same effect that a total suppression of blood flow between each individual limbs of the human body would have.” Thus began the 1819 Petition to the German Federal Assembly drafted by Friedrich List, on behalf of the newly founded Allgemeine Deutsche Handels- und Gewerbeverein (General German Association of Industry and Commerce). List the economic nationalist is well known, a protectionist and supporter of tariffs. Much less less-well known is his love of free trade and political integration. What can we learn from List today, particularly in the face of rising nationalism, Brexit and Trump, but also the fear of European disintegration and a common public delusion which still throws economic nationalism into the same dark pot as political nationalism and chauvinism? The proposed workshop invites answers by scholars on List, economic and political nationalism and the history of political economy, the role of the state in economic development, and political as well as economic integration as sources of economic development.

Presentations by postgraduate and postdoctoral researchers are specifically encouraged. There is no conference fee; participants are expected to make their own travel arrangements. We provide lunch and drinks during the conference. Scholars are invited to submit paper abstracts of no more than 500 words to philipp.roessner@manchester.uk by 30 August 2019.

Conference chairs: Phil Roessner & Nuno Palma (University of Manchester)

Call for Papers: Understanding State Capacity

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The University of Manchester

Thursday 28th and Friday 29th November 2019

With support by Hallsworth Conference Fund

The importance of state capacity to economic development is increasingly recognized in the economics literature. However, despite recent theoretical work analysing the origins of state capacity, few studies have empirically examined the processes through which that capacity has developed. Further, the work that does exist focuses predominantly on one dimension of state capacity, “fiscal capacity”—the ability of a state to raise tax. The state’s ability to enforce property rights—its “legal capacity”—has received relatively little attention, despite being critical to the functioning of markets and hence growth. The same is true of monetary capacity: the ability of states to provide liquid means of exchange which lead to low transaction costs. The interrelationships between these different dimensions of capacity and growth thus remain poorly understood at yet it is critical for development.

To address many of the important issues concerning the state capacity, this conference will bring together some of the most prominent scholars in the world who have written on state capacity, as well as participants across academia and the policy world. The main task will be to study how poor countries can develop, and how failing nations can succeed.

Confirmed speakers include Tim Besley (LSE), Leigh Gardner (LSE), Noel Johnson (GMU), Debin Ma (Hitotsubashi), Mark Koyama (GMU), Patrick O’Brien (LSE), Şevket Pamuk (Bogaziçi), Peer Vries (International Institute of Social History, Amsterdam) and Yi Wen (St Louis Fed). There will be also a policy session with Vítor Gaspar (Director, Fiscal Affairs Department of the IMF).

Scholars are invited to submit papers on state capacity.

Submissions should be made via email: nuno.palma@manchester.ac.uk

Deadline for submissions: 15th September 2019.

Notification of acceptance: over the second half of September.

We have limited funding for paper presenters, with priority to PhD students. We do not charge any conference fees and we will provide lunch and drinks during the conference. We may have some student poster presentations but there will be no parallel sessions.

All accepted presenters and conference attendees must confirm their attendance for the Conference before 7th of October, 2019.

Conference Chairs:

Nuno Palma and Xiaobing Wang

Department of Economics, The University of Manchester

On the discrepancies between the original Maddison dataset and more recent GDP reconstructions

Angus Maddison was one of the most cited economists of the 20th century.

I often get emails asking me about Maddison’s figures, because I have worked a lot on historical national accounts reconstructions (see here, here, or here), and I was for 2 years faculty in the University of Groningen, where Maddison worked, and this is a justifiably renowned place for this type of work.

As an example, I copy here the relevant bits from an email that a friend and colleague recently wrote me. This colleague is asking about Portugal’s figures, but notice that a lot of what I will have to say can be generalized to other regions:

“The updated Maddison dataset has Portuguese GDP per person at 985 in 1530 (I assume in 1990 dollars).  1239 in 1600.  1192 in 1700, 1614 in 1750, 1330 in 1800 and 1225 in 1850.

The original Maddison dataset has Portuese GDP per person as 425 in 1000, 606 in 1500, 740 in 1600, 819 in 1700, and 923 for 1820.

Do you have any insight into these discrepancies?”

I do. In short, for this and many other cases, Maddison’s figures are simply made up. Read more below.

(Also, do notice that the modern Maddison project database is using 2011 prices, not 1990 ones, so for instance Jaime Reis’ and my own figures for Portugal, 1527-1850, are presented in 1990 prices in our paper, but the Maddison project pushed this into 2011 prices, so the levels may look different but they are not; the underlying real indexes are the same; our figures are the ones included in the Maddison project.)

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Nothing I say here means to disparage Angus Maddison. He was a pioneer in these things (especially in so far as putting together in one place many estimates which in fact were often produced by many people – this had a lot of merit, though he’d very frequently get the citations that truly belonged to those who did the original work, but that’s is another story). He did stimulate many of us to continue these lines of inquiry, and do a better job. He was great.

But do notice that in one of the first posts in this blog, I did write,

“Despite the importance that Maddison’s GDP and population figures had in stimulating our thinking about economic history and development, it is fair to say that his pre-1820 figures were less than solid.”

The best way to think about Maddison’s estimates, especially for the period before 1820, is: when estimates did not exist (and they usually did not), he’d make very strong assumptions.

If you are an economist working on long-run growth you need to be wary of these assumptions. For China, real income per capita was stuck at exactly $600 “international” 1990 GK dollars between 1300 and 1850, according to Maddison in his late “Chinese Economic Performance in the Long Run” book (p. 157). Does this show that China was Malthusian? no, because Maddison effectively assumed China was Malthusian, and this is why he chose these numbers. I once saw an economist present at a conference and looking frankly ridiculous by claiming he had found that China was Malthusian for most of its history by using Maddison’s numbers. And, by the way, we now know that Maddison was not quite right, as you can read here.

Part of the problem is that Maddison often presents Tables in a way that makes it difficult to trace the original sources (this, I dare say, often made scholars un-aware that those were not his actual estimates, but those of others, which let to the citations problem I mentioned above).

How did he get to those figures? If you look into Volume 2 of his “World Economy” books, which is where most figures are put in Tables together and hence where typically people look first, or if you look online, in this original page, there are none listed. The historical statistics excel file avaliable even says “Copyright Angus Maddison” once you open it…

If you dig deep in his book, however, you do find some info. For population, continuing with the Portugal example, you find in Volume 1, p. 230 that “Population of 13 small West European countries assumed to move parallel to the total for the 12 countries above“. The latter were bigger countries, but the source of most of those is given as Maddison (1991), so you’d have to keep tracking other references to see how even those were actually done. Once you find the answer you will see that the evidence is rather thin. Needless to say, modern reconstructions are much more careful than this.

As for GDP per capita, in Volume 1, p. 249 he writes:

“I assumed a growth rate of Spanish GDP per capita of 0.25 per cent a year from 1500-1600, no advance in the seventeenth century, and some mild progress from 1700 to 1820. I adopted a similar profile for Portugal”.

That’s it. He simply assumed the numbers — vaguely citing only the following as inspiration, though not using it directly and citing with the following caveats (notice his own choice of words): “Yun’s (1994) rough per capita GDP estimates for Castile (about three-quarters of Spain) … his indicators for secondary and tertiary activity are weak“.

So, Maddison’s Portugal GDP per capita numbers are hence simply assumed to behave similarly to those of Spain, which are simply assumed by himself.

By contrast with this, here are the primary, archival sources that Jaime Reis and I use in our recent reconstruction of Portuguese per capita GDP, 1527-1850, which is forthcoming in the June edition of the Journal of Economic History. I list these here as an example, so you can see how much more exhaustive modern work is that what Maddison did. You can see a picture of what these account books look like if you click in our appendix, here.

I hope this discussion has been sufficiently clear on the origins of the differences between modern estimates vis-a-vis those of Maddison. It should be by now clear why they are considerably different at times. And furthermore – if you read our article, you will see that Portugal does not behave like Spain at all…

Primary Sources

We have collected both prices and wages from account (receipts and expenditures) books of the institutions listed below. Almost all were purchasers both of commodities and labor services. Some of them were also sellers of certain commodities produced by them. The account books of these institutions always display: the date of the transaction, the gross and unit value of the commodity, the unit of measurement employed, the quality of the product (e.g., coarse or fine paper, mutton, pork, or beef), and particular features of the transaction.

In order to proxy missing values we sometimes used a similar product or labor type (e.g., tallow candles for wax candles or carpenters for masons, both being skilled workers) by adjusting its price using a price ratio with the original product at a nearby year. Furthermore, to complete our Linen series for Lisbon during 1766–1829, we relied on Madureira (1997), listed in the secondary sources section.

Lisbon and Its Hinterland

Casa da Congregação do Oratório, Casa da Saúde, Lº 1º Receita e Despesa (Arquivo Municipal de Lisboa)

Casa dos Contos: Archive of the Court of Auditors

Convent of Nossa Senhora da Luz: National Archive

Convent of Santa Marta de Jesus: National Archive

Convent of Santo Alberto: National Archive

Convent of São Domingos de Lisboa: National Archive

Convent of Carmo, Expenses of the Sacristy: National Archive

Hospital of S. José: National Archive

Hospital of All Saints: National Archive

Holy House of Mercy of Almada: Archive of the Holy House of Mercy of Almada

Holy House of Mercy of Lisbon: Archive of the Holy House of Mercy of Lisbon

Holy House of Mercy of Lisbon, Shelter: Archive of the Holy House of Mercy of Lisbon

Holy House of Mercy of Lisbon, Foundlings: Archive of the Holy House of Mercy of Lisbon

Monastery of Chelas: National Archive

Monastery of S. Dinis de Odivelas: National Archive

Convent of Santo António da Convalescença: National Archive

Fabric of the See of Lisboa: National Archive

Seminary of Santa Catarina: National Archive

Administration of the Royal Household, Kitchens: National Archive

Porto and Its Hinterland

For Porto, we rely on Godinho (1955) as a secondary source plus the following primary sources:

Casa Pia Orphanage (administration): Porto District Archive

The See of Porto (revenues and expenditure): Porto District Archive

Colégio dos Órfãos, Daily Expenditure: Porto Municipal Archive

Porto Holy House of Mercy, Jailhouse Expenditure: Archive of the Santa Casa da Misericórdia do Porto

Porto Holy House of Mercy, General Hospital: Archive of the Santa Casa da Misericórdia do Porto

Porto Holy House of Mercy, Interments: Archive of the Santa Casa da Misericórdia do Porto

Porto Holy House of Mercy, Hospice for the Homeless: Archive of the Santa Casa da Misericórdia do Porto

Porto Holy House of Mercy, D. Lopo Hospital: Archive of the Santa Casa da Misericórdia do Porto

Porto Holy House of Mercy, Foundling Home: Archive of the Santa Casa da Misericórdia do Porto

Municipality of Porto, Palace of the Municipality: Porto Municipal Archive Municipal Abattoir, Porto Municipality: Porto Municipal Archive

Coimbra and Its Hinterland

University of Coimbra, Refectory: Archive of the University of Coimbra

Hospital of the University, Accounts and Administration: Archive of the University of Coimbra

Hospital of Nossa Senhora da Conceição, Accounts: Archive of the University of Coimbra

College of São Pedro, Kitchen: Archive of the University of Coimbra

Colégio de São Pedro, Book of purchases: Archive of the University of Coimbra

Expenditure on the Churches of the Reverend Chapter of the See of Coimbra: Archive of the University of Coimbra

Chapel of S. João da Sé, Revenue and Expenditure: Archive of the University of Coimbra

Chapter of the See, register of expenditures: Archive of the University of Coimbra

Fabric of the College of São Pedro, Register of Expenses: Archive of the University of Coimbra

Municipal Council of Coimbra, Revenue and Expenditure: Archive of Coimbra

Municipality Works of the Church of the See of Coimbra, Expenses: Archive of the University of Coimbra

University of Coimbra, Receipts and Expenditure: Archive of the University of Coimbra

Hospital of São Lázaro, Receipts and Expenditure: Archive of the University of Coimbra

Holy House of Mercy of Coimbra, Income and Expenditure: Archive of the Holy House of Mercy of Coimbra

Episcopal Mitre of Coimbra, Expenses: Archive of the University of Coimbra

Register of the Granary of the Chapter of Coimbra: Archive of the University of Coimbra

Royal Hospital of Coimbra, Registers of Expenditure: Archive of the University of Coimbra

Évora and Its Hinterland

For Évora, we rely on Santos (2003) and Godinho (nd) secondary sources plus the following primary sources:

Royal Public Granary of Évora, Accounts: Archive of the District of Évora

Évora Aqueduct, Accounts of the Repairs and Maintenance: Archive of the District of Évora Repairs of Évora City Streets ,Wages and other Expenditure: Archive of the District of Évora

Casa Pia Orphanage, Revenues and Expenditures: Archive of the District of Évora

Casa Pia, Hospice of Nossa Senhora da Piedade, Accounts: Archive of the District of Évora

Holy House of Mercy, Books and Accounts: Archive of the District of Évora

Convent of Paraiso, Accounts: Archive of the District of Évora

Convent of the Saviour, Accounts: Archive of the District of Évora

College of Nossa Senhora da Purificação: Archive of the District of Évora

Secondary Sources

Costa, Leonor, and Jaime Reis. “The Chronic Food Deficit of Early Modern Portugal: Curse or Myth?” Análise Social LII (2017): 416–29.

Godinho, Vitorino Magalhães. Introdução à história económica. Lisboa: Livros Horizonte, n.d.

———. Prix et monnaies au Portugal 1750–1850. Paris: Librairie Armand Colin, 1955.

Madureira, Nuno. Mercados e Privilégios. A Indústria Portuguesa entre 1750 e 1834. Lisboa: Estampa, 1997.

Santos, Rui. Sociogénese do Latifundismo Moderno: Mercados, Crises e Mudança Social na Região de Évora, Séculos XVII a XIX. Lisboa: Banco de Portugal, 2003.

 

addendum: I originally wrote in this post, a few hours ago, that the Maddison project now corrects for inflation by expressing variables in 2015 dollars, but this should be 2011. I heard they were thinking of changing to 2015 in the next version.

Money and Modernization in Early Modern England (forthcoming at the Financial History Review)

In early modern England, coin supply increased a lot without prices responding proportionally:

QTM.png

This contradicts the Quantity Theory of Money, according to which the changes should move together. If the money supply doubles, prices should double too, because the quantity theory assumes income and velocity to be constant (at least in the long run).

Here I show just coin supply, so a very narrow measure of the money supply. Broader money supply must have increased even more, as forms of paper money and credit developed at this time. This makes things look even worse for the quantity theory.

While the Quantity Theory looks bad, there is no contradiction with the equation of exchange, which simply states that nominal GDP equals velocity times money. Nor could there be, as the equation of exchange just an accounting identity.

In my forthcoming Financial History Review paper, “Money and Modernization in Early Modern England”, I explain what was going on. I argue that monetization helped support economic growth and structural change. If real growth happens, money can increase without a response of prices.

If you are interested, you can read the paper here.

Interested in doing a PhD in Economic History?

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This blog’s most popular post of all time is my post from 2 years ago where I write about “Where can you study for a MA/MSc in Economic History?” Since writing then, students have asked me to do the same for PhDs, including a couple of people who commented on the previous post.

I will start by saying that if you are reading this in February 2019, then you are still in time to apply to the ESRC 4-years fully funded PhD position which is now open. This is specifically to work with me, Nuno Palma, and Prof. Akos Valentinyi) on an Economic History dissertation. In this case, it needs to be on a specific topic, as described in the ad, due to the nature of the funding.

But every year we also accept applications for our regular PhD program, where you can write a PhD dissertation focused on economic history (usually I’d be your supervisor since I’m the department of economics’ economic historian; but we have plenty of other economic historians in the History faculty as well). We give about 10 full scholarships per year, and more students come in with external funding.

I’ll focus especially on Europe in this post (and I’m sure there are great places that I am not thinking of at the moment!). In Europe, we have some of the best universities in the world for doing a PhD in Economic History. This is one of the few fields in economics where I think European institutions really are on par if not ahead of the best US universities. This is related to factors beyond the scope of this post, but one factor which also helps is the wealth of archival material that we have in Europe.

In the UK, the University of Oxford, the London School of Economics, the University of Cambridge, the University of Warwick, and my own University of Manchester are all recommended. Oxford and the LSE have what is probably the biggest concentration of economic historians in the world. The research group of Oxford is exceptional, and the Department of Economic History of the LSE also has some of my favorite economic historians. Cambridge doesn’t have as many people, but is also good, having the excellent Sheilagh Ogilvie in the economics department, and people such as Chris Briggs in the Faculty of History.

Oxford offers a DPhil in Economic and Social History, and the LSE a PhD in Economic History; but if you have more technical training you may prefer to do a PhD economics (the LSE’s department of Economics does have an economic historian, and an excellent one at that, Jeremiah Dittmar). But even before he was hired, people such as Reka Juhasz were writing Economic History dissertations with other supervisors in the department of economics. I’d say that the LSE’s economics department has many open-minded faculty members which you could talk to. I myself work with Tim Besley (and other co-authors) on matters related to economic history. Tim is not an economic historian, but he is open-minded about economic history as a field.

There are other places in Europe which have consistently produced good economic historians. In the Netherlands, the University of Utrech has the biggest concentration of economic historians, which include the world-class Jan Luiten van Zanden, among several other excellent faculty members. They always have lively seminars. The University of Groningen, where I worked two years, has economic historians in both the History and the Economics departments. They have the Maddison project there, and an annual Maddison lecture on topics generally related to economic history. There are also regular economic history (and growth/development) seminars. Either would be a very viable option to do a PhD specializing in Economic History. See also the Posthumus Institute offers a PhD program. Finally, Wageningen University comes to mind as another place that is active in economic history.

In Spain, Carlos III has a PhD program in Economic History, and a regular seminar. The University of Barcelona and others have departments of economic history with good faculty.

In Germany, Joerg Baten has had many successful students at Tuebingen.

In Sweden, there are several departments of Economic History, but the University of Lund comes to mind as the best, measured by the quality and quantity of their faculty members and students. They offer a PhD programme in Economic History.

In Denmark, both the University of Copenhagen and especially the University of Southern Denmark have an excellent concentration of scholars and offer PhD programs where you can write economic history dissertations.

In Switzerland, the University of Zurich has Joachim Voth, who has had many exceptionally successful students over the years.

In the USA, economic history is typically done in departments of economics, which usually only have one or two economic historians (or, very often, zero). Several top economics departments such as Harvard, MIT, Northwestern, Berkeley,  Stanford, and UCLA have produced stellar economic historians over the years. It should be noted that you need a very solid mathematical background to enter these programs. US History departments are generally not recommended, at least if you want to the quantitative, comparative sort of economic history which gets published in the best economic history journals. There may be some exceptions to this rule, but not many.

The website eh.net has an old list of places that offer PhD programs (generally in economics) where you can specialize in Economic History, with a special focus on the US. It should be noted, however, that this list is very out of date – some of these places don’t have an economic history faculty member anymore, and some of the people listed as part of a particular university have since moved (for example, as noted above, Joachim Voth is no longer at Pompeu Fabra).

If I was you, I’d have a look at all the programs which I mentioned above and apply to all of those that you feel would be a good fit for you. If you are an undergraduate student, you need to realize that admission to PhD programs (especially with full funding) is very competitive these days (you probably already know that!). So, it may make sense to do a MSc first – you can read my previous post about that here.

Good luck!

addendum: Eric Monnet points out in Twitter that in France, the Paris School of Economics is also a good option. And that in turn reminded me that Touloluse, which is a very good economics department, has one of my favorite young economic historians, Mohamed Saleh.

There are surely many other good options. As I mentioned, I never had the intention of being systematic or writing an exaustive list! The point is simply to help you get started in looking at some viable options.

 

 

Roessner on culture and growth (Highlight III)

This post continues the “Highlight” series, which has previously included posts by Ridolfi and Malinowski. It has been written by my colleague Philipp Roessner, who is a faculty member at the History faculty of the University of Manchester.

Image result for Philipp Roessner Manchester

Thinking about growth?

For ages people have pondered about the origins and nature of the wealth of nations. Adam Smith was neither the first nor the most original thinker in this department (see [Hörnigk 1684] Rössner 2018, introduction pp. 1-120). Noble prizes have been awarded (e.g. Paul Romer in 2018) for developing sophisticated theoretical approaches to growth. Economists and historians have highlighted various possible reasons for why some countries grew rich whilst others didn’t, or did so only late (the famous divergence and convergence debates). The most common origins of prosperity suggested today are geography (e.g. Landes 1998, Jones 2003), education, market size and market integration, resource endowment, institutions (e.g. Acemoglu & Robinson 2012), or the role of the state (Reinert 2008; Vries 2015, Parthasarathi 2011).

The “hockey stick” metaphor for the abrupt shift in trend growth of per capita GDP in the West from pre-modern agrarian to industrial growth around 1750 has stuck. It continues to bemuse economists and historians alike. Between 1800 and 1970 growth in the west exploded. Previous centuries had seen modest expansion, if at all. Entire rainforests have been cleared for the paper used in the publications attempting to solve the puzzle.

No one however, has tackled the obvious solution. And that is economic mentality (Rössner 2016). In recent years, historians and economists have turned to it, but indirectly. Most of them chose to focus on (sometimes ill-defined) aspects of “culture.” Mokyr has, in two fascinating books, evoked the Enlightenment (2011) and a more long-lived European “culture of growth” (2017) as ultimate causes for the European “miracle” (Mokyr 2011; Mokyr 2017). Another challenging hypothesis explaining the Hockey Stick has been advanced by McCloskey and the evocation of bourgeois value, culture and dignity (McCloskey 2006, 2010, 2017). But history has shown us that bourgeois entrepreneurs most of the time did exactly the opposite of what such lofty moral claims about their “dignity” commanded. The commercial revolution of the Atlantic and Asian economy (1650s-1750s) brought us tobacco, sugar and other exotic products creating a European culture of consumers (Trentmann 2017). It set the scene for the industrial revolution. But it was built on the suffering, enslavement and exclusion of others. Who asked the Indian textile manufacturer for their consent to the process (who was expelled from the world market by means of the British protectionist mercantilist customs and tariff system, see Parthasarathi 2011), or the Afro-American slave working on the Caribbean sugar plantation, or the Black US-American slave working in the cotton fields that fed Manchester’s burgeoning cotton mills in the 1800s? Not so much dignity to be found in the “bourgeois” process of capital formation on the eve of the industrial revolution, right?

So, if neither bourgeois values nor hard data really explain the origins and causes of growth (they are good at describing, in metrics, what happened, an important yet often overlooked difference), then what does? We need to get intellectual history into the picture, that is our economic cosmology. We know how important “Big Stories” and myths are in structuring human reality (Midgley 2011). For instance, since David Ricardo we to believe in the virtues of free trade, albeit we have tantamount empirical evidence to the opposite. Yet the “free trade makes a free world and vice versa” myth is an important part of our daily routine and reality. Because if we give up on this important cultural value the world will fall to the Lord of The Rings, Sauron, Mordor, or – more concrete in our time – the Trumps of our time. In a similar way what I would like to call “economic cosmologies” are important markers structuring reality. We use them to navigate the unknown waters of the future. They may be the most powerful forces moving the economy and economic development.

But why has economic cosmology not been taken up in models of economic growth and development? This is, of course, impossible to answer. But just consider the possibilities of adding it into the picture. Call it the history of economic analysis (as Joseph Schumpeter, the famous Austrian-US economist did), the history of economic reasoning (Karl Pribram, another influential Austrian economist and historian of economic thought), or, as it is most commonly known today, the “history of economic thought”. There’s a handful of prime journals in the field, most notably History of Political Economy (known, quite aptly, by its acronym HOPE), or the History of Economic Thought. It is all there. But the intellectual history of modern economic growth happens in the backyard still. Neither historians nor economists really bother about it, even though some of the most influential economists of the twentieth century either studied history or happened to be historians – Robert Lucas and Joseph Schumpeter, to name but two.

To cut a long story short: Economic mentality, the way we think about economy, can manifestly change the way we do economy and economic growth. As soon as people believed in the possibility of economic growth, economic growth became a possibility. It began to happen. It really is that simple. The Ancient Greeks and medieval economists and theologians known as “Scholastics” did not bother about growth. Instead they developed increasingly sophisticated models of market exchange, business and price formation (in fact, they were comparatively relaxed about business, the taking of interest and the making of profit; no wonder, since many churchmen in the middle ages came from successful merchant families). Until the 1650s the dominant economic literature of the day, first the Scholastic treatises on money and markets, then the somewhat weird economics genre known as “household management” (Hausväterliteratur) never paid much attention to modelling growth. This is because people did not associate growth, or economic expansion more generally, with positive qualities. Other economic goals were held more important – being a successful estate manager, keeping your money together, saving your soul from Purgatory, or just being a decent businessman with decent profit, but not over the top. Growth – of your business, of your nation – was simply off the radar.

Then, around 1600 something changed. The reasons of it are still ill-understood. But the present author is working on it currently. Just consider two examples. After the disastrous Thirty Years War (1618-1648) the Holy Roman Empire (“Germany”) lay in shackles. Capital had been destroyed, as had human souls by the awful woes of the big war. In the wake of this war a handful of economists known as “Cameralists” began to develop comprehensive models of restructuring economy (Reinert & Rössner 2016). Their models built on improving productivity and efficiency, promoting domestic industry and value-added activities (most likely to be found in manufacturing: Brexiteers, listen up!). It was all about generating useful knowledge and added value. They also started modelling the open human-economic future. This was an important departure from a world where the only “real” future had been Armageddon, that is the pretext to the Second Coming of Christ. Cameralists such as Veit Seckendorff (who produced his main work Teutsche Fürsten-Stat in 1655, “The German Princely State”), or Johann Heinrich Justi (1717-1771), Germany’s most prolific economic writer in the Enlightenment, wrote extremely successful textbooks on economics and state administration which went through ten or more editions. Their books continued to be read long after their authors had died and would be translated into Russian, French and Italian, sometimes even English (Reinert et al. 2017). They did not always use the word “growth”, mainly because the contemporary German word for growth (“Wachsthum”) referred to plant growth. But they knew what economic growth was – per capita GDP growth as we would say today –, and how it could be achieved. And they developed increasingly sophisticated methods of achieving it.

Or in post-1648 Sweden, where thinkers around chancellor Axel Oxenstierna, Bengt Skytte, later on the famous biologist Carl Linnaeus/Linné developed models of infinite growth based on a cornucopia of knowledge expansion. As Wennerlind has shown, the Swedish Age of Greatness (1648-1721), when Sweden as the “Lion in the North” nearly turned the Baltic Sea into a Swedish inland lake, begot a wave of scientific discovery. Networks of natural and economic science flourished (Wennerlind 2016). The Swedish wave of economic discovery around 1648 rested upon the conviction that the human-economic future was plannable and manageable. If only the correct tools of natural science and natural discovery were chosen, this could be the road towards indefinite growth. Swedish thinkers, often connected related to pan-European science networks, such as the English Hartlib Circle in England or Sophopolis, an imagined European community of wisdom, unlocked the keys towards infinite growth. This programme was based on useful knowledge, natural discovery, promotion of education, scientific research and innovation, providing the foundations of the intellectual movement commonly known as Enlightenment.

This seems to me what Romer, in one of his famous articles (Romer 1998), has called increasing marginal returns on knowledge, something that is crucial for economic growth. It was there, in the heart of Europe and beyond, in the 1650s. Let me reiterate: The explanation of the “Hockey Stick” really is dead simple. After 1650, there was a switch in the European economic mind. Before that people did not think of growth as a virtue.  They thought more of balance, conservation, just prices. They simply were not interested in growth. After 1650 more and more thinkers began to see growth as something desirable and feasible. So, it seems to me we should do more work on the history of economic thought when trying to explain the history as well as mechanics of growth.

References:

Daron Acemoglu & James Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty (New York: Crown 2012)

Eric L. Jones, The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia (Cambridge: Cambridge University Press, 2003)

David S. Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (New York: W. W. Norton, 1999)

Deirdre McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago: Chicago University Press, 2006)

Deirdre McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Chicago: Chicago University Press, 2010)

Deirdre McCloskey, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Chicago: Chicago University Press, 2017)

Mary Midgley, The Myths We Live By, new ed. (London & New York: Routledge, 2011)

Joel Mokyr, Culture of Growth: The Origins of the Modern Economy (Princeton, NJ: Princeton University Press, 2017)

Joel Mokyr, The Enlightened Economy: Britain and the Industrial Revolution 1700-1850, (London: Penguin, 2011)

Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600–1850 (Cambridge: Cambridge University Press, 2011)

Erik S. Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (London: Constable, 2007)

Erik S. Reinert, Kenneth Carpenter, Fernanda A. Reinert, Sophus A. Reinert, “80 Economic Bestsellers before 1850: A Fresh Look at the History of Economic Thought”, Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics no. 74 (2017),  http://hum.ttu.ee/wp/paper74.pdf

Erik S. Reinert and Philipp Robinson Rössner, “Cameralism and the German Tradition of Development Economics,” in: Erik S. Reinert/Jayati Ghosh/Rainer Kattel (eds.), Elgar Handbook of Alternative Theories of Economic Development (Cheltenham/Northampton: Edward Elgar, 2016), pp. 63-86.

Paul M. Romer, “Increasing Returns and Long Run Growth”, Journal of Political Economy 94, No. 5 (1986), 1002-1037

Philipp Robinson Rössner, ‘Entangled Worlds or Cultural Bifurcation? Comments on the Intellectual Origins of the Great Divergence and Modern Economic Growth, c. 1500-2000 A.D.’, in: COMPARATIV | Zeitschrift für Globalgeschichte und vergleichende Gesellschaftsforschung 3/16 (2016)

Philipp Robinson Rössner (ed.), Philipp Wilhelm von Hörnigk’s Austria SUPREME (if It So Wishes)’. A Strategy for European Economic Supremacy (1684). transl. Keith Tribe

Frank Trentmann, Empire of Things: How We Became a World of Consumers, from the Fifteenth Century to the Twenty-First (London: Penguin, 2017)

Peer Vries, State, Economy and the Great Divergence. Great Britain and China 1650s-1850s (London: Bloomsbury, 2015).

Carl Wennerlind, “The Political Economy of Sweden’s Age of Greatness: Johan Risingh and the Hartlib Circle,” in Philipp Robinson Rössner (ed.), Economic Growth and the Origins of Modern Political Economy: Economic Reasons of State, 1500- 2000 (New York, NY; Abingdon, Oxon: Routledge, 2016), pp. 156-186