The Reality of Economic Growth and Industrial Revolution

The Reality of Economic Growth: History and Prospect

Before the Industrial Revolution:

Longest-Run Economic Growth:

Year    Population*    GDP per Capita**
-5000    5                   $130
-1000    50                 $160
      1    170                 $135
1000    265                 $165
1500    425                 $175
1800    900                 $250
1900    1625               $850
1950    2515               $2030
1975    4080               $4640
2000    6120               $8175

*Millions
**In year-2000 international dollars.

Economic Growth through Deep Time:

Up until 1800 growth rates of human populations were glacial. Population growth between 5000 B.C. and 1800 averaged less than one-tenth of a percent per year. (However the cumulative magnitude of population growth was impressive, carrying the number of human beings alive on the planet from perhaps 5 million in 5000 B.C. to 900 million in 1800; 7000 years is a long time.)

Up until 1500 as best we can tell there had been next to no growth in output per worker for the average human for millennia. Even in 1800 average human alive had a material standard of living (and an economic productivity level) at best twice that of average human alive in the year 1. The problem wasn’t that there wasn’t any technological progress. There was. Humans have long been ingenious. Priestly, Warrior and bureaucratic elites in 1800 lived much better than their predecessors in previous millennia had lived. However just because elite that ruled you lived better doesn’t mean that you--if you were average--lived any better.

Only after 1800 do we see large sustained increases in global standards of living. After 1800, human numbers grew as the population explosion took hold. It carried our entire population to 6 billion in October 1999. Population growth on a world scale accelerated from a rate of 0.2% per year between 1500 and 1800 to 0.6% per year between 1800 and 1900, 0.9% per year between 1900 and 1950, 1.9% per year between 1950 and 1975, and—in the first slowing of global rate of population growth--1.6% per year from 1975 to 2000.

Average rates of material output per capital that grew at perhaps 0.15% per year between 1500 and 1800 grew at perhaps 1.0% per year globally between 1800 and 1900 and have grown at an average pace of maybe 2.0% per year globally between 1900 and 2000.

994_world population since 1000.jpg

Why were there not any sustained increases in material productivity of human labor back before 1500? Since improved technology quickly ran aground on resource scarcity. As human populations grew the stocks of natural resources known had to be distributed up among more and more people: miners had to use lower-quality metal ores, farmers had to farm lesser-quality agricultural land and forests vanished. Who alive today has ever seen one of the cedars of Lebanon? In place of technological progress resource scarcity meant that efficiency of labor was little if any greater in 1500 A.D. than in 1500 B.C.

One of the oldest ideas in economics is that increases in technology certainly run into natural resource scarcity and so lead to increase in the numbers of people though not in their standard of living of productivity. This idea was proposed into economics late by Thomas R. Malthus who was to be first academic professor of economics (Adam Smith had been a professor of moral philosophy) at the East India Company's Hailey bury College.

Malthus saw a world in that inventions and higher living standards led to increase in the rate of population growth. With higher living standards women ovulated more frequently. More pregnancies were successfully carried to term. Better-nourished children (and adults) had a better chance of resisting diseases. Furthermore when incomes were high new farmsteads are relatively ample and getting the permission of one's father or elder brother to marry was easier. For these reasons both biological and social, a higher standard of living back before 1800 led to a faster rate of population increase. And faster rates of population growth increased natural resource scarcity and lowered productivity until once again people were so poor and undernourished that population growth was roughly zero.

The End of the Malthusian Age:

We clearly no longer live in a Malthusian age. For at least 200 years improvements in the efficiency of labor made possible by new technologies and better organizations haven’t been neutralized by natural resource scarcity. (However a Malthusian age can return: project 20th century population growth rates forward and calculate that in year-2200 population of the earth would be 93 billion; it needs skill and ingenuity to argue today that resource scarcity will not be a dominant feature of such a world).

So what caused the end of Malthusian age? How did humanity escape from the trap in that invention and ingenuity increased the numbers though not the material well-being of humanity?

The key is that even in Malthusian age, the pace at which inventions were made increased steadily. First of all, the population grew. Inventions made communication easier: especially after the invention of printing knowledge could diffuse quickly and widely. More people meant more inventions: two heads are greater than one. The rate of technological progress slowly rose over millennia. And about 1500 it passed the point at that natural resource scarcity couldn’t fully offset it. Sustained increases not just in population though in the productivity of labor followed.

At first the rise in material standards of living brought sharp increases in the rate of population growth: population explosion. However as material standards of living rose far above subsistence, countries began to undergo the demographic transition.

1061_demographic transition.jpg

Stylized Picture of the Demographic Transition

Birth control meant that those who didn’t wish to have more children can exercise their choice. Parents began to find more satisfaction out of having a few children and paying a great deal of attention to each. Resources of the average household continued to increase however the number of children born fell. The long-run relationship between levels of productivity and population growth rates wasn’t--as Malthus thought--a spiral of ever-faster population growth rates as material standards of living increased. In place of population growth rates peaked and began to decline.

In the world today not all nations have gone through their demographic transitions. Many countries today aren’t rich enough to have begun population growth declines seen in the second half of demographic transition. Countries such as Iraq, Nigeria, Pakistan and the Congo are currently projected to have population growth rates in excess of two percent per year over the next generation, as Figure shows. Though there is also a large group of developing countries such as Korea, Thailand, China and South Africa in which population growth over the subsequent generation is projected to be less than one percent per year. And in the industrialized countries—such as Italy, Japan and Germany—populations are projected to stay nearly the same over next generation.

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