What can we learn from two centuries of budget data? (Highlight IV)

This post continues the highlights series. The author is Per F. Andersson, who is a Lecturer at Lund University, and an expert in Comparative Politics, Institutions, and Taxation. He is responsible for the text below, and the amazing dataset he mentions was was put together both by him and by Thomas Brambor.

The data and codebook are available at: https://www.perfandersson.com/data.html

What can we learn from two centuries of budget data? Introducing the “Financing the State: Government Tax Revenue from 1800 to 2012” dataset – Per F. Andersson

The history of the state is closely linked to the history of taxation. Austrian sociologist Rudolf Goldscheid held that “the budget is the skeleton of the state stripped of all misleading ideologies”, and  Joseph A. Schumpeter went even further, famously stating that “The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else ([1918]1991 p. 101).“ If Schumpeter and Goldscheid were right, much can be gained from studying taxation during the last two centuries, an era that saw dramatic changes not only in the extent of taxation but also in economic and political organization.

Given the importance of taxation for understanding politics, state capacity, and economic growth, it is surprising that there is no historical cross-country dataset over government finances. In this post I present an attempt by me and Thomas Brambor to provide this information. The dataset provides information from 31 countries: Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, Colombia, Denmark, Ecuador, Finland, France, Germany, Ireland, Italy, Japan, Mexico, New Zealand, Norway, Paraguay, Peru, Portugal, Spain, Sweden, Switzerland, the Netherlands, the United Kingdom, the United States, Uruguay, and Venezuela from 1800 (or independence) to 2012. In other words, it includes all South American, North American, and Western European countries with a population of more than one million, plus Australia, New Zealand, Japan, and Mexico.

We make three main contributions. First, we move beyond previous historical studies which focus on Western Europe by including North America, all major countries in South America, and Australia, Mexico, New Zealand and Japan. Second, in contrast to existing modern datasets, usually covering a large number of countries but only for a few decades, our dataset goes back to the early nineteenth century. Third, while previous efforts have concentrated on overall revenue or contrasting direct and indirect taxes, we provide more detailed information allowing for a more comprehensive understanding of the rise of the modern tax state.

This post begins with a short description of how the dataset was put together, and how it differs from previous efforts (for longer discussion see the online codebook available at: https://www.perfandersson.com/data.html). In the second part of the post I demonstrate how the data can be used to explore changes in the size and composition of government revenue during the last two centuries.

Constructing the dataset

The dataset contains information on the public finances of central governments. We focus on tax revenues, defining taxes as compulsory and unrequited levies by the government. The information on tax revenue is presented as a share of the total budget and as a share of total domestic product. We have divided tax revenue from the central state into several categories. First, we are interested in the shares of total revenue coming from direct and indirect taxes. Further, we measure types of direct taxes, namely taxes on property and income. For indirect taxes, we separate excises (taxes on specific goods, such as salt or tobacco), broad-based consumption taxes (such as value-added tax), and taxes on international trade (a complete list of variables and their definitions is available in the codebook.)

Collecting data for a large number of countries over long time spans presents difficult issues regarding measurement and consistency. The overall goal of the data collection has been to create long time series that are internally consistent within a country over time and that connect to contemporary datasets which in turn allow easy continual updates in the future. When different sources of data are combined, there need to be decisions about how to decide which sources to use and how to judge their quality. In addition, using and combining different sources has the potential to introduce measurement error and potentially bias the constructed estimates. In the codebook we describe in detail the decisions about how we integrated disparate sources, and also address a few issues that are relevant for analysis based on these data.

Comparison with related efforts

Previous research using historical tax revenue data either relies on information with a long historical coverage (some even long before 1800, e.g., Dincecco 2009, Karaman and Pamuk 2013) but for a few number of countries — usually Western Europe (Aidt and Jensen 2013), sometimes adding English-speaking off-shoots and Japan (Tanzi and Schuknecht 2000) — or a wide geographic coverage but only for the most recent decades (e.g., Prichard et al. 2014). These efforts rarely provide yearly data (e.g., Tanzi and Schuknecht 2000), or present information only on the size of government (Mauro et al 2013, Karaman and Pamuk 2013).

Many recent papers still rely heavily on Mitchell (2007) (e.g., Beramendi et al. 2019; Lee and Paine 2020). For various reasons we have a different approach which we believe has much to contribute.

Instead of taking existing cross-country databases (such as Mitchell) at face value, we took great pains at comparing and evaluating different sources – often cross checking them with country-specific sources – in order to find as reliable data as possible. During our work we discovered that Mitchell in particular is often unreliable. When comparing the information provided in his volumes with contemporary, high-quality, country-specific data we found two main causes for concern. First, Mitchell is often inconsistent in the way budget items are coded or even which parts of government budgets are presented, which causes problems when interpreting changes over time and across countries. The second problem is that the subcategories of revenues in Mitchell (e.g., direct and indirect taxes) at times sum to more than a hundred percent, which suggest underlying issues in the aggregation process. For these reasons, among others, we have tried to minimize our use of Mitchell as a source, and when we use it, we try to find ways of validating the trustworthiness of his estimates (for example by using country-specific sources).

Overall, a substantial part of our dataset comes from country-specific sources, all listed in the codebook. For users who wish to explore the data in more depth, we also provide detailed information by country allowing analysts to scrutinize by variable which sources were used for every year.

Exploring the data

To begin with, Figures 1 and 2 below present total tax revenues and the share coming from direct and indirect taxes (averages for all countries in the dataset). The figures show how the overall size of the state grew from about six percent of GDP in the nineteenth century to almost twenty percent in the 2000s. During the same period states went from financing themselves mainly through indirect taxes to a more even mix of direct and indirect taxes.

 

   Figure 1. Central Tax Revenue/GDP

Figure 2. Share of Direct and Indirect Tax Revenue

However, this general development hides important changes within the categories of direct and indirect taxes. As Figure 3 shows, excises and taxes on international trade were the main sources of indirect tax revenue in the nineteenth century, while broad-based consumption taxes – such as value-added tax – became more important in the late twentieth century. Figure 4 shows the evolution of direct taxes in the same period, documenting how property taxes — an important part of budgets in the nineteenth century — were superseded by income taxes in the twentieth century.

    Figure 3. Indirect Taxes.

Figure 4. Direct Taxes.

It is also interesting to observe what happened to taxation around the world during and after major international conflicts. Figure 5 below show total revenues and the share of income taxes — which is considered to be a good indicator of fiscal capacity (e.g., Rogers and Weller 2014) — and three major conflicts: the Napoleonic Wars, the First World War, and the Second World War. While the number of countries for which we have data (and some did not exist at the time) is lower during the Napoleonic wars, it is still interesting to note that the conflict is neither associated with a permanent increase in income tax share nor in the overall size of the state. The two world wars are different. After World War I, the average size of government remained higher than before the war, and this tendency is even stronger after World War II. Looking at the share of revenue coming from income tax, this tendency is much weaker after World War I: while the share increased dramatically during the war, it decreased after the conflict ended (but not all the way down to pre-war levels). In contrast, income tax revenues not only became hugely important during World War II, they also remained so afterwards.

Figure 5. Size of Government, Income Tax, and War.

Finally, one of the great strengths of our wide geographic coverage is that it allows for comparisons between regions. Figure 6 below shows the evolution of total tax revenues and income tax share between Latin America and Europe.

Figure 6: The Size of Government and Income Tax in Europe and Latin America

There are several interesting things to note. First, although Latin America does not experience an increase in the income tax share during World War I as Europe does, both regions experience an increase in income tax revenues around the time of World War II. Second, between the end of World War II and the mid-1970s, Europe and Latin America relied to a similar extent on income taxes. But after around 1975, the two regions diverge, both in terms of the income tax share and in terms of total tax revenues.

These are just a couple of examples of what can be explored using our dataset. In my own work I have looked into how democracy and urbanization affect the tax mix (Andersson 2018),  how electoral systems condition the impact of ideology on taxation (Andersson 2019a), and how the adoption of taxes affects fiscal capacity and what types of states make these investments (Andersson 2019b). Thomas Brambor has investigated the legacy effect of non-democratic introductions of the income tax (Brambor 2016).

The data and the codebook are available at: https://www.perfandersson.com/data.html.

References

Andersson, Per F. 2018. “Democracy, Urbanization, and Tax Revenue.” Studies in Comparative International Development 53(1):111–150.

Andersson, Per F. 2019. “Power-sharing and Income Taxation in non-Democratic States.” STANCE Working Paper. Lund University.

Andersson, Per F. 2019. “Left-wing Tax Strategy Depends on the Electoral System.” Working Paper. Lund University.

Aidt, Toke ., & Peter S. Jensen. 2013. “Democratization and the size of government: Evidence from the long 19th century”. Public Choice, 157(3/4), 511-542.

Beramendi, Pablo, Mark Dincecco and Melissa Rogers. 2019. “Intra-Elite Competition and Long-Run Fiscal Development.” The Journal of Politics 81(1):49–65.

Brambor, Thomas. 2016. “Fiscal Capacity and the Enduring Legacy of the First Income Tax Law”. Unpublished manuscript: Lund University.

Dincecco, Mark. 2009. “Fiscal Centralization, Limited Government, and Public Revenues in Europe, 1650–1913.” The Journal of Economic History 69(1):48–103.

Flora, Peter, Franz Kraus, and Winfried Pfenning. 1983. State, Economy, and Society in Western Europe 1815-1975: The growth of industrial societies and capitalist economies, Frankfurt: Campus Verlag.

International Monetary Fund (IMF). 2012. “Government finance statistics (GFS).”

Karaman, K. Kivanc and Sevket Pamuk. 2013. “Different Paths to the Modern State in Europe: The Interaction Between Warfare, Economic Structure, and Political Regime.” American Political Science Review 107(3):603–626.

Lee, Alexander and Jack Paine. 2020. “The Great Revenue Divergence”. Working paper.

Mauro, Paolo, Rafael Romeu, Ariel Binder, and Asad Zaman. 2013. “A Modern History of Fiscal Prudence and Profligacy,” IMF working paper WP/13/5

Mitchell, Brian R. 2007. International historical statistics: Africa, Asia & Oceania, 1750- 2005, 5. ed., New York: Palgrave Macmillan.

, International historical statistics: Europe, 1750-2005, 6. ed., New York: Palgrave Macmillan.

, International historical statistics: the Americas, 1750-2005, 6. ed., New York: Palgrave Macmillan.

Prichard Wilson, Alex Cobham and Andrew Goodall. 2014. “The ICTD Government Revenue Dataset” ICTD Working Paper 19. https://www.wider.unu.edu/sites/default/files/ICTD_WP19.pdf

Rogers, Melissa Ziegler and Nicholas Weller. 2014. “Income taxation and the validity of state capacity indicators.” Journal of Public Policy 34(2):183–206.

Schumpeter, Joseph. 1991. “The Crisis of the Tax State”. In Joseph A. Schumpeter: The Economics and Sociology of Capitalism, ed. Richard Swedberg. Princeton: Princeton University Press. First published in 1918.

Tanzi, Vito & Ludger Schuknecht. 2000. Public spending in the 20th Century. Cambridge, UK: Cambridge University Press.

 

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.

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

Why did premodern Poland fail? (Highlight II)

Mikołaj Malinowski (Lund) is a quantitative economic historian. His expertise is in quantitative analyses of the role of markets and institutions in long-term economic growth of Eastern Europe. He has already constructed long-term series of real wages, GDP, and market conditions in Poland between the late middle ages and the early 19^th century. This investigation revealed that the Polish economy expanded in the late middle ages and the 16^th century but then contracted in the 17^th and 18^th centuries.

Further, Malinowski put forth the hypothesis that the economic contraction might have been a result of market segmentation. Building on a large body of price data, he showed that market conditions in Poland were improving in the 16^th century but then declined in the 17^th and 18^th centuries. He proposed that the market crisis affected Polish economic development via two channels. First, the market segmentation led to an increase in the Malthusian pressure and, subsequently, to the decline in real wages. Second, he demonstrated that the adverse market conditions reinforced serfdom, which in the short term made the urban sector more resilient to the adverse conditions, but in the long term consigned the region to backwardness.

This research has been published in top peer-reviewed journals in Economic history. His article ‘Serfs and the city: market conditions, surplus extraction institutions, and urban growth in early modern Poland’ has been awarded the Figuerola Prize for the best article published in the European Review of Economic History.

Currently, Malinowski researches the impact of political centralization and legal state capacity on economic development. States can either stimulate or inhibit economic performance. Proponents of the free-market see the coercive nature of states as a factor contributing to economic stagnation. New Institutional Economics argues for constraining governments to avoid harmful predation. However, states can also provide the institutional framework necessary for sustained economic growth. Malinowski analyses the role the parliament played in developing a domestic commodity market in the First Republic of Poland. His results indicate that legal state capacity was positively associated with domestic market integration. Conversely, anarchy, understood as executory, judiciary, and regulatory inaction of the central government was associated with a rise in the exchange costs.

Malinowski is also one of the founders of WEast: The Eastern European Economic History Initiative. He has developed a well-established series of periodic workshops in economic and social history that has received financial support of the European Society of Historical Economics. Information about WEast can be found on weast.info.

KEY RESEARCH:

Income and its distribution in preindustrial Poland. Cliometrica 11(3), 2017 (With Jan Luiten van Zanden)

Serfs and the city: market conditions, surplus extraction institutions and urban growth in Poland, 1500-1772. European Review of Economic History 20(2), 2016: 123-146

Little Divergence revisited: Polish living standards in a European perspective, 1500-1800. European Review of Economic History 20(3), 2016: 345-367

Market conditions in preindustrial Poland, 1500-1772. Economic History of Developing Regions 31(2), 2016

Economic consequences of anarchy; Legal state capacity and market integration in early modern Poland, mimeo.

Ridolfi on premodern France (Hightlight I)

As announced in the previous post, there will be from now on once in a while posts written by guest scholars, both junior a senior. This post has been written by Leonardo Ridolfi of the IMT School for Advanced Studies, Lucca. You can find Leonardo’s most recent working paper here.

The French economy in the longue durée. A study on real wages, working days and economic performance from Louis IX to the Revolution (1250-1789)

This work addresses a gap in the literature concerning living standards in pre-industrial France.

While traditionally research had an eminently localized character, focusing on the experience of specific regions or what might be called “local economics,” still to date, there is no consolidated understanding of the long-term development of wages and prices from a broader national perspective.

Building and improving upon the precious contributions offered by the many compilers of wage and price data in France, this study is an attempt to provide a solid empirical characterization of the principal macro-economic aggregates of pre-industrial France and trace the main contours of economic growth in the country from the phase of early state formation to the Revolution.

Delving into the vast set of secondary and printed primary sources, the first section presents new series of real wages for male agricultural and construction workers in France from 1250 to 1789 (now updated to 1860) following Allen (2001)’s barebones basket methodology.

The analysis highlighted three main issues.

First, our series offer little support to the argument that there were appreciable long run improvements in living standards for French wage earners before the Industrial Revolution. Indeed, real wages displayed no substantial trend improvement between the thirteenth and the mid-nineteenth century.

Second, the estimates reveal that the period 1350-1550 saw the rise and consolidation of a real wage gap between France and England as well as other leading European cities. Still in the decade prior to the Black Death the real wage differential between French and English workers of the construction sector was remarkably low. A century later, in the 1450s, French building labourers had between about 25 and 40 percent less of the income of their European counterparts.

Comparing real wages of French farmers to those of their English counterparts I found a similar pattern and few traces of a French “golden age” of labour. Indeed, after a first phase of rapid expansion following the Black Death, by the1370s real wages grew less and for a shorter period than elsewhere in Europe where the welfare gains consolidated almost until up the 1450s. At a more disaggregated level, similar trends are discernible by comparing Paris to London.

As a first step, I decomposed the proximate causes of this gap between prices and wages. I found that France and England witnessed similar deflationary trends between the 1370s and the 1450s. Yet, it was the decline of French silver wages (apparently driven by falling production and reduced labour demand especially during the worst phases of the Hundred Years War) and the contemporaneous increase of English salaries, that explain the “dampened” Malthusian cycle of real wages in France as opposed to the “full” Malthusian cycle experienced by England and Central-Northern Italy.

Figure 1: Real wages

Notes and Sources:  French labourers: this study (updated version of the thesis). England: Clark (2005).

Finally, even if demographic data before the 1550s are fragmentary, it is possible to argue, consistently with the Malthusian interpretation, that the dynamics between real wages and population was characterized by a long-lasting inverse relationship. Nevertheless, while this mechanism appears to hold in general, at least by the mid-seventeenth century one can detect a weakening of the inverse relationship. Indeed, the long phase of demographic expansion that brought population almost to triple between the 1600s and the mid-nineteenth century, was paralleled by a mild decrease or a substantial stagnation of real wages.

The second section provides a broad characterization of working time in pre-industrial Europe concentrating on three dimensions of time: the calendar working year corresponding to the calendar year net of general holidays and religious festivities; the actual working year and the implied working year defined as the annual number of days of work required by a male breadwinner to provide for a notional family of five components (Allen and Weisdorf 2011).

Due to the dearth of compelling evidence on work intensity for workers employed in agriculture, I looked at the experience of construction workers on site providing new estimates of trends in calendar, actual and implied working year in France and England from the fourteenth to the eighteenth century.

By analyzing the joint evolution of these three dimensions of time and comparing the patterns of change of time-use, and their response to variations in the institutional and market conditions, I identified two distinct regimes of industriousness featuring France and England in the pre-industrial era.

In France, the annual number of days required by a male breadwinner to provide for his family (the implied working year) was greater than the actual number of days worked per year, meaning that women and children’s labour force participation as well as the presence of additional sources of non-labor income were necessary to assure the basic levels of consumption. This implies that expansions in the offer of labour were primarily driven by raising inflation and economic hardship (Figure 2).

Figure 2: The French case

Sources: Calendar, actual and implied working year: this study.

Notes: Surplus (deficit) labour input: The positive (negative) difference between actual and implied working year (shaded area).

By contrast, I found evidence of the existence of two phases where English regular construction workers supplied more days of work to the market than required by basic household subsistence (Figure 3).

The first episode occurred between 1400 and 1500, while the second corresponds to the industrious revolution originally described by De Vries (2008).

Several hypotheses are discussed to shed light on the origin of these phases of surplus labour input and their implications on the structure of consumption and production. These episodes differed in two fundamental ways.

First, they originated from different dynamics.

Indeed, the episode of surplus labour input located by De Vries in the seventeenth century England and the Low Countries, derived from an upsurge in actual workloads and a contemporary drop of work requirements necessary for family subsistence in a context of progressive expansion of the frontier of working possibilities.

On the contrary, the episode of surplus labour input detected in the post-plague period was characterized by the contemporary reduction of actual, calendar and implied working year.

Received wisdom would suggest that workers should have totally (or in large part) compensated the post-plague increases in real wage rates by reducing labour supply of approximately the same amount consuming a considerable proportion of their augmented purchasing power in the form of leisure (Blanchard 1994). However, actual workloads decreased much less than implied by the contemporary increase in real wage rates. This incomplete adjustment, that reflected a rather inelastic labour supply of construction workers, could depend on two main factors.

First, the existence of technical requirements and institutional settings, including the rhythm of the construction process, the rests dictated by calendar working year as well as the recruiting schemes of contractors and the organizational forms of entrepreneurs, limited voluntary reductions of actual workloads.

Second, the incomplete response of actual workloads could reflect the rise of a new attitude toward higher quality consumption from an increasing share of workers (seemingly skilled and urban) that was “aping the lesser gentry” (Dyer 1988).

In this respect, these episodes had different implications for the relationship between labour offer, consumption and production.

Indeed, the phase of surplus labour input in the seventeenth century England was seemingly related to a consumer revolution (Allen and Weisdorf 2011) and could be thought of as a transition from traditional consumption cluster to a broader and more modern one that included colonial products and luxuries (De Vries 2008).

The episode of surplus labour input in the late medieval England was not marked by more and new items entering the basket but seemingly ran in parallel with a relocation of consumption choices within the horizon of traditional consumption that reflected structural changes in the economy after the Black Death and the aspiration of a growing share of population for higher alimentary standards less dependent upon cereal-based and lower quality foodstuff (Dyer 1988).

From the production side, while the seventeenth century phase of surplus labour input saw the rise and consolidation of new sectors outside agriculture, the first episode (seemingly did not cause but) coincided in time with a shift of agriculture from arable to pasture. This process is consistent with a large body of empirical evidence documenting changes in alimentary regimes during the fourteenth and fifteenth centuries.

Figure 3: The English case

Sources: Calendar year: this study. Implied working year: Allen and Weisdorf (2011). Actual working year: Period 1300-1559: this study. Between 1560 and 1732, Clark and Van DerWerf (1998) and by 1750 Voth (2001) as reported in Table 2 of Allen and Weisdorf (2011).

Notes: Surplus (deficit) labour input: The positive (negative) difference between actual and implied working year (shaded area).

Finally, in the last section I present new estimates of agricultural and total output per capita in France between 1280 and 1789 using the demand side approach. The study suggests that GDP per capita displayed no substantial trend improvement over this period. At the death of King Philip the Fair in 1314, France was a leading economy in Europe and output per capita averaged 900 dollars per year. Almost five centuries later, at the beginning of the 18th century, this threshold was largely unchanged and GDP per capita was slightly above 1000 dollars, about half of the level registered in England and the Low Countries (Figure 4).

These estimates document quantitatively and in the aggregate what was previously known only qualitatively or for some regions by the classic works of the French historiography (Goubert 1960; Le Roy Ladurie 1966) thus offering support to Le Roy Ladurie (1977)’s characterization of the pre-industrial French economy as a stagnating, growthless system.

Nevertheless, GDP per capita was highly volatile and experienced multiple peaks and troughs alternating phases of economic crisis to periods of economic expansion. These include the “efflorescence” of economic growth that took place between the 1280s and the 1370s and the growth trend since the mid-16^th century that ran in parallel with the consolidation of the French state and the opening of new trade routes from Europe to Asia and the Americas.

Overall, our estimates suggest that the evolution of GDP per capita in France can be suitably interpreted as an intermediate case between the successful example of England and the Low Countries and the declining patterns of Central-Northern Italy and Spain. Being neither a southern country nor a northern one, the growth experience of France seems to reflect this geographic heterogeneity.

Figure 4: GDP per capita in Europe

Sources: England: Broadberry et al. (2011); France: this study; Holland: van Zanden and van Leeuwen (2012); Italy: Malanima (2011); Portugal: Palma and Reis (2016); Spain: Álvarez-Nogal and Prados de la Escosura (2013); Sweden: Schön and Krantz (2012).

References

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Allen, Robert C., and Jacob Louis Weisdorf. “Was there an ‘industrious revolution’ before the industrial revolution? An empirical exercise for England, c. 1300-1830.” The Economic History Review 64, no. 3 (2011): 715-729.

Álvarez‐Nogal, Carlos, and Leandro Prados de la Escosura. “The rise and fall of Spain (1270-1850).” The Economic History Review 66, no. 1 (2013): 1-37.

Blanchard, Ian. Labour and Leisure in Historical Perspective, Thirteenth to Twentieth Centuries: Papers Presented at Session B-3a of the Eleventh International Economic History Congress, Milan, 12th-17th September, 1994. No. 116. F. Steiner, 1994.

Broadberry, Stephen et al. “British Economic Growth, 1270-1870: An Output-Based Approach”, London School of Economics, 2011. http://www2.lse.ac.uk/economicHistory/whosWho/profiles/sbroadberry.aspx.

Clark, Gregory, and Ysbrand Van Der Werf. “Work in progress? The industrious revolution.” The Journal of Economic History 58, no. 3 (1998): 830-843.

Clark, Gregory. “The condition of the working class in England, 1209–2004.” Journal of Political Economy 113, no. 6 (2005): 1307-1340.

De Vries, Jan. The industrious revolution: consumer behavior and the household economy, 1650 to the present. Cambridge: Cambridge University Press, 2008.

Dyer, Christopher. “Changes in diet in the late middle ages: the case of harvest workers.” The Agricultural History Review (1988): 21-37.

Goubert, Pierre. Beauvais et le Beauvaisis de 1600 à 1730: contribution à l’histoire sociale de la France du XVIIe siècle: atlas (cartes et graphiques). Paris: SEVPEN, 1960.

Le Roy Ladurie, Emmanuel. Les paysans de Languedoc. 2 vols. Paris: SEVPEN, 1966.

Le Roy Ladurie, Emmanuel. “Motionless history.” Social Science History 1, no. 2 (1977): 115-136.

Malanima, Paolo. “The long decline of a leading economy: GDP in central and northern Italy, 1300-1913.” European Review of Economic History 15, no. 2 (2011): 169-219.

Palma, Nuno and Reis, Jaime. “From Convergence to Divergence: Portuguese Demography and Economic Growth, 1500-1850” (September 13, 2016). Available at SSRN: https://ssrn.com/abstract=2839971 or http://dx.doi.org/10.2139/ssrn.2839971

Schön, Lennart, and Olle Krantz. “The Swedish economy in the early modern period: constructing historical national accounts.” European Review of Economic History 16, no. 4 (2012): 529-549.

Van Zanden, Jan Luiten, and Bas Van Leeuwen. “Persistent but not consistent: The growth of national income in Holland 1347-1807.” Explorations in economic history 49, no. 2 (2012): 119-130.

Voth, Hans-Joachim. “The longest years: new estimates of labor input in England, 1760-1830.” The Journal of Economic History 61, no. 4 (2001): 1065-1082.