[Note: Travel day today, so I am letting things that are posted do most of the talking. I'll add what I can along the way.]
The puzzle: The first divergence in worldwide incomes
European incomes by 1700 were markedly higher than they had been in 1500.
According to the figures compiled by Angus Maddison (2001), all European
countries including Mediterranean ones saw income growth of 35% to 180%. Within
Europe, the northwest did markedly better than the rest. English and Dutch real
wages surged during the early modern period.
How exceptional was this performance? Pomeranz (2000) claimed that the
Yangtze Delta in China was just as productive as England. Detailed work on
output statistics suggests that his claims must be rejected. While real wages in
terms of grain were some 15-170% higher in England, English silver wages
exceeded those of China by 120% to 550%. Since grain was effectively an untraded
good internationally before 1800, the proper standard of comparison is the
silver wage. Estimates for India suggest a similar gap vis-à-vis Europe (Broadberry
and Dasgupta, 2006).
Urbanisation figures support this conclusion. They serve as a good proxy
since people in towns need to be fed by farmers in the countryside. This
requires a surplus of food production, which implies high labour productivity.
Since agriculture is the largest single sector in all pre-modern economies, a
productive agricultural sector is equivalent to high per capita output overall.
Figure 1 compares European and Chinese urbanisation rates after the year 1000
AD. Independent of the series used, European rates increase rapidly during the
early modern period. Our preferred measure – the DeVries series – increases from
5% to nearly 10% between 1500 and 1800. The contrast with China is striking.
There, urbanisation stagnated near the 3% mark.
Figure 1. Europe versus China urbanisation rates, 1000-1800
In a Malthusian world, a divergence in living standards should be puzzling.
Income gains from one-off inventions should have been temporary. Even ongoing
productivity gains cannot account for the “first divergence” – TFP growth
probably did not exceed 0.2%, and cannot explain the marked rise in output per
The answer: Rising death rates and lower fertility
In a Malthusian world, incomes can increase if birth rates fall or death
rates increase (Clark, 2007). Figure 2 illustrates the basic logic. Incomes are
pinned down by the intersection of birth and death schedules (denoted b and d).
The initial equilibrium is E0. If death rates shift out, to d’,
incomes rise to the new equilibrium Ed1. Similarly, lower
birth rates at any given level of income will lead to higher per capita incomes.
In combination, shifts of the birth and death schedules to b’ and d’ will move
the economy to equilibrium point E2.
Figure 2. Birth and death rates, and equilibrium per capita
We argue that there were three factors – which we call the “Three Horsemen of
Riches” – that shifted Europe’s death schedule outwards: wars, epidemics, and
urban disease. Wars were unusually frequent. Epidemics were common, with
devastating consequences. Finally, cities were particularly unhealthy, with
death rates there exceeding birth rates by a large margin – without
in-migration, European cities before 1850 would have disappeared.
Figure 3 shows the percentage of the European population affected by wars
(defined as those living in areas where wars were fought). It rises from a
little over 10% to 60% by the late seventeenth century. Tilly (1992) estimated
that, on average, there was a war being fought somewhere in nine out of every
ten years in Europe in the early modern period.
Political fragmentation combined with religious strife after 1500 to form a
potent mix that produced almost constant military conflict. While the fighting
itself only killed few people, armies marching across Europe spread diseases. It
has been estimated that a single army of 6,000 men, dispatched from La Rochelle
to fight in the Mantuan war, killed up to a million people by spreading the
plague (Landers, 2003).
Figure 3. Share of European population in war zones
European cities were much unhealthier than their Far Eastern counterparts.
They probably had death rates that exceeded rural ones by 50%. In China, the
rates were broadly the same in urban and rural areas. The reason has to do with
differences in diets, urban densities, and sanitation:
- Europeans ate more meat, and hence kept more animals in close proximity,
- European cities were protected by walls due to frequent wars, which
could not be moved without major expense, and
- Europeans dumped their chamber pots out of their windows, while human
refuse was collected in Chinese cities and used as fertiliser in the
Epidemics were also frequent. The plague did not disappear from Europe after
1348. Indeed, plague outbreaks continued until the 1720s, peaking at over 700
per decade in the early 17th century. In addition to wars, epidemics were spread
by trade. The last outbreak of the plague in Western Europe occurred in
Marseille in 1720; a merchant vessel from the Levant spread the disease, causing
100,000 men and women to perish. Since Europe has much greater variety in terms
of geography and climate than China, disease pools remained largely separate.
When they became increasingly connected as a result of more trade and wars,
Triggering European “exceptionalism”
In combination, the “Three Horsemen” – war, urbanisation, and trade-driven
disease – probably raised death rates by one percentage point by 1700. Once
death rates were higher, incomes could remain at an elevated level even in a
Malthusian world. The crucial question then becomes why Europe developed such a
particular set of factors driving up mortality.
We argue that the Great Plague of 1348-50 was the key. Between one third and
one half of Europeans died. With land-labour ratios now higher, per capita
output and wages surged. Since population losses were massive, they could not be
compensated quickly. For a few generations, the old continent experienced a
“golden age of labour”. British real wages only recovered their 1450s peak in
the age of Queen Victoria (Phelps-Brown and Hopkins, 1981).
Temporarily higher wages changed the nature of demand. Despite having more
children, people had more income than necessary for mere subsistence –
population losses were too large to be absorbed entirely by the demographic
response. Some of the surplus income was spent on manufactured goods. These
goods were mainly produced in cities. Thus, urban centres grew in size. Higher
incomes also generated more trade. Finally, the increasing number and wealth of
cities expanded the size of the monetised sector of the economy. The wealth of
cities could be taxed or seized by rulers. Resources available for fighting wars
increased – war was effectively a superior good for early modern princes.
Therefore, as per capita incomes increased, death rates rose in parallel. This
generates a potential for multiple equilibria. Figure 4 illustrates the
mechanism. The death rate increases over some part of the income range, which
maps into urbanisation rates. Starting at E0, a sufficiently large
shock will move the economy to point EH, where population is again
Figure 4. Equilibria with “Horsemen effect”
In the discussion paper, we calibrate our model. The effect of higher
mortality on living standards is large. We find that we can account for more
than half of Europe’s precocious rise in per capita incomes until 1700.
To raise incomes in a Malthusian setting, death rates have to rise or
fertility rates have to decline. We argue that a number of uniquely European
characteristics – the fragmented nature of politics, unhealthy cities, and a
geographically heterogeneous terrain – interacted with the shock of the 1348
plague to create exceptionally high mortality rates. These underpinned a high
level of per capita income, but the riches were bought at a high cost in terms
of human lives.
At the same time, there are good reasons to think that it is not entirely
accidental that the countries (and regions) that were ahead in per capita income
terms in 1700 were also the first to industrialise. How the world could escape
the Malthusian trap at all has become a matter of intense interest to economists
in recent years (Galor and Weil, 2000, Jones, 2001, Hansen and Prescott, 2002).
In a related paper, we calibrate a simple growth model to show why high per
capita income at an early stage may have been key for Europe’s rise after 1800 (Voigtländer
and Voth, 2006).
In the “Three Horsemen of Riches”, we ask how Europe got to be rich in the
first place. Our answer is best summarised by the smuggler Harry Lime, played by
Orson Welles in the 1948 classic “The Third Man“:
"In Italy, for thirty years under the Borgias, they had warfare, terror,
murder, bloodshed, but they produced Michelangelo, Leonardo da Vinci and the
Renaissance. In Switzerland, they had brotherly love; they had 500 years of
democracy and peace – and what did that produce? The cuckoo clock."
We argue that a similar logic held in economic terms before the Industrial
Revolution. Europe’s exceptional rise to early riches owed much to forces of
destruction – war, aided by frequent disease outbreaks and deadly cities.
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