How the World Became Rich. Mark Koyama

How the World Became Rich - Mark Koyama


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and improvements to the plow are all examples of new technologies that allowed more people to be fed with less labor. Yet, prior to the 18th century, all spurts of economic improvement were temporary.

      Figure 1.6 US GDP per capita, 1720–2018 (2018 USD)

      Data source: Bolt and van Zanden (2020).

      In the developed world, the structure of the economy is different. Importantly, agriculture has shrunk both as a proportion of the total economy and, even more dramatically, as a source of employment. Today, only 1.3% of the labor force works on the farm in the US. In the UK, the number is smaller still (just 1%). Alongside this structural shift, there has been a transformation in organizational complexity. This is most notably seen in the rise of long-lived organizations independent of the state such as corporations. These are all hallmarks of a developed economy.

      You might wonder: how do we know how poor people were in the past? No country had an office of national statistics collecting information and compiling GDP estimates until the mid-20th century. Instead, social scientists and historians have had to reconstruct the past. The first exercise of this kind was the pioneering work of Angus Maddison. He spent decades creating high-quality estimates of per capita GDP back to 1820 (Maddison, 1983, 1991, 2001). Maddison also produced a set of highly influential estimates for earlier periods, including estimates of per capita income at the regional level for the Roman Empire (Maddison, 2007). But these estimates were of much more questionable veracity. More recent work, including the Maddison project (Bolt and van Zanden, 2020) and the work of numerous scholars such as van Zanden and van Leeuwen (2012), Fouquet and Broadberry (2015), Broadberry, Guan, and Li (2018), and Palma and Reis (2019), has produced updated estimates of per capita GDP that are on a much firmer footing.

      There are other measures we can use to assess living standards in the past. One common measure is height. Economic historians such as Jorg Baten, Robert Floud, Robert Fogel, and Richard Steckel have put together estimates of heights for many countries across many centuries (for an overview, see Steckel, 2009). Height is determined by several factors, including genetic endowments. Height is also influenced by in vitro conditions and the nutrition available to the mother during pregnancy and as a child. We observe a strong positive relationship between gains in height and per capita GDP in the past 200 years. People in the past were short. The mean height of an 18 year old in the English army between 1763 and 1767 was 160.76 cm (around 5’3”) (Floud, Fogel, Harris, and Hong, 2011, p. 27). The increase in average height partly reflects the improvements in nutritional standards achieved since the onset of modern economic growth.

      A final measure of the standard of living is life expectancy. Modern economic growth is associated with large increases in life expectancy (Pritchett and Summers, 1996; Fogel, 2004; Acemoglu and Johnson, 2007). This matters for two reasons. First, increased life expectancy represents a significant component of the additional welfare brought about by economic growth (Becker, Philipson, and Soares, 2005). Second, increased life expectancy is a possible cause of economic development itself. An increase in life expectancy increases the value of investment in human capital (Cervellati and Sunde, 2005), the term economists use to encompass education and other investments in an individual’s productive capacity.

      The answer to the question “How did the world become rich?” must explain where, when, and how human societies were able to achieve sustained economic growth. The where and the when we know the answer to: northwestern Europe and North America, in the early to mid-19th century. All of the metrics we discussed above agree on this point. It is the third question – how did the escape from stagnation happen – that is so vexing.


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