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The Great Divergence in World Incomes: Why Are Some Countries Rich and	The Great Divergence in World Incomes: Why Are Some Countries Rich and	Roman Empire c. 300 AD	Wage was maintained in northwest Europe (W) and fell elsewhere (W1)	Agriculture did play an important role: output per worker
Standard explanation emphasizes enclosures and capitalist farming:				The Great Divergence in World Incomes: Why Are Some Countries Rich and
Surviving medieval ridge and furrow	In fact, these institutional changes made only minor contributions to	Much of the incentive to increase productivity was a response to the	If farmer’s increased output, they could keep up with high wage	The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and	The Great Divergence in World Incomes: Why Are Some Countries Rich and	As a result, northern and western Britain had the cheapest energy in	Textile productivity is measured as the ratio of input prices (wool,	Energy price
The Great Divergence in World Incomes: Why Are Some Countries Rich and	The Great Divergence in World Incomes: Why Are Some Countries Rich and

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The Great Divergence in World Incomes: Why Are Some Countries Rich and Others Poor

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1	The Great Divergence in World Incomes:	28	N=population Estimates of net agricultural
	Why Are Some Countries Rich and Others		exports must be added to go from
	Poor? Bob Allen Professor of Economic		consumption to production. The output
	History Nuffield College, Oxford 2008.		estimates are consistent with direct
2	Part 1: When did Northwestern Europe		calculations for England and the
2	pull ahead of the Rest of the World?		Netherlands.
3	The Great Divergence Debate. The	29	Standard explanation emphasizes
	classical economists and most scholars	29	enclosures and capitalist farming:
	since have argued that Europe was ahead of	30
	Asia for a very long time. They try to	31	Surviving medieval ridge and furrow.
	explain why: Smith: Minimal government and	32	In fact, these institutional changes
	openness to trade Malthus: Differences in		made only minor contributions to
	marriage patterns Marx: capitalist versus		productivity growth:
	other institutions (Asiatic mode of	33	Much of the incentive to increase
	production).		productivity was a response to the growth
4	The California School has challenged		of cities:
	this. Key books: Ken Pomeranz, The Great	34	Sir James Steuart (1767) had the
	Divergence Bin Wong, China Transformed		essential insight: “a farmer will not
	James Lee and Wang Feng, One Quarter of		labour to produce a superfluity of grain
	Humanity: Malthusian Mythology and Chinese		relative to his own consumption, unless he
	Realities They claim that income		finds some want which may be supplied by
	differences between Europe and Asia were		the means of the superfluity.”. Sixty
	small c. 1800 and Asian institutions were		years later, Gibbon Wakefield spelled out
	adequate for development. Evidence for		the global context: “In England, the
	incomes is very weak.		greatest improvements have taken place
5	I will argue that the California		continually, ever since colonization has
	School is wrong and that northwestern		continually produced new desires amongst
	Europe pulled ahead of Asia 1500-1750. I		the English, and new markets wherein to
	begin by measuring income differences.		purchase the objects of desire. With the
	Maddison’s GDP estimates are very		growth of sugar and tobacco in America,
	unrealiable. Instead I rely on real wages.		came the more skillful growth of corn in
	They measure the incomes of workers and		England. Because in England, sugar was
	perhaps other people as well.		drank and tobacco smoked, corn was raised
6	Measuring real wages requires data on		with less labour, by fewer hands.
	wages and consumer prices. These are	35	If farmer’s increased output, they
	available for many European cities in	35	could keep up with high wage economy:
	price histories. Many have been written in	36	The Growth of London created cheap
	last 150 years Historian finds an		energy: London population 1500: 50,000
	institution that has lasted hundreds of		1600: 200,000 1700: 500,000 1800:
	years and copies prices of all		1,000,000 This growth created the British
	transactions. Published in books I have		coal industry, which was unique in the
	computerized these Weights and measures		world. The British coal industry gave
	converted to metric Money converted to		Britain the cheapest energy in the world.
	grams of silver This work is being		Cheap energy led to invention of energy
	extended to Asia.		using technology and the expansion of
7	The first efforts were for Europe,		energy using industries.
	followed quickly by the Ottoman Empire:	37
	Jan Luiten van Zanden, “Wages, and the	38
	Standards of Living in Europe,” European	39
	Review of Economic History, 1999, 175-98.	40	As a result, northern and western
	Robert C. Allen, ‘The Great Divergence in		Britain had the cheapest energy in the
	European Wages and Prices,’ Explorations		world.
	in Economic History, 2001, 411-447. S.	41	Next challenge: Put these ideas
	?zmucur and S. Pamuk, ‘Real Wages and		together in a model that separates out the
	Standards of Living in the Ottoman		causes of success and failure in the early
	Empire,” Journal of Economic History,		modern economy: Things to explain
	2002, 293-321.		(endogenous variables) Real wage
8	Now this research is being extended to		Urbanization Agricultural productivity
	Asia: D Ma and J-P Bassino, “Japanese		Proto-industrialization Explanatory
	Unskilled Wages in International		factors (exogenous variables) population
	Perspective,” Research in Economic		Agricultural land Productivity in textiles
	History, 2005. RC Allen, J-P Bassino, D		(new draperies) Intercontinental trade
	Ma, C Moll-Murata, J-L van Zanden, ‘Wages,		(result of imperial policy) Price of
	prices, and Living Standards in China,		energy Prince or republic literacy.
	Japan, and Europe, 1738-1925” RC Allen,	42	A data base is put together. Countries
	“India in the Great Divergence,” in		at fifty or one hundred year intervals
	Hatton, O’Rourke, Taylor, eds., The New		Uses earlier occupational distribution
	Comparative Economic History: Essays in		data Agricultural total factor
	Honor of Jeffery G. Williamson, 2007, pp.		productivity estimated from output, land,
	9-32.		and labour Other variables like textile
9	These studies involve comparing: Wage		productivity, literacy, trade data are
	rates, which are usually expressed in		calculated.
	grams of silver per day. Consumer prices:	43	Textile productivity is measured as
	usually the cost of a ‘basket of goods’.		the ratio of input prices (wool, labour)
	Welfare ratio: a full year’s earnings		to cloth price:
	divided by the cost of maintaining a	44	Energy price.
	family for a year.	45
10	Here’s how daily wages compared:	46	The model is tested by seeing if it
11	Did high silver wages translate into a		replicates the various national histories.
	high standard of living? The answer		Here is the simulated wage:
	depends on the cost of living!	47	Simulated agricultural TFP.
12	To measure the cost of living: Collect	48	Simulated urbanization rates:
	prices of all of the important consumer	49	We can use the model to identify the
	goods. These must be converted to grams of		causes of England’s advance. Can we turn
	silver per metric unit. A basket of goods		England into France? Here are simulated
	must be specified and its cost computed.		wages:
13	A basket is specified for an adult	50	Simulated urbanization.
	male covering a whole year. Various	51	Simulated agricultural TFP.
	standards of comfort could be chosen. My	52	The Great Divergence was mainly the
	first basket was what I now call the		result of English and Dutch success in the
	European respectability basket. This is		world economy. To a significant extent,
	supposed to represent total, annual		this was successful mercantilism. England
	spending for a man. This supplies 1940		and the low countries were the high wage
	kcalories per day. It was inspired by		part of the world. England was also the
	eighteenth century budgets and poor house		cheap energy region of the world.
	diets. Bread is the main carbohydrate.	53	Part III: Why did the early modern
	Beer or wine and meat are included.		Great Divergence lead to the Industrial
	Non-foods are included. Rent at 5% is		Revolution?
	added on.	54	The problem is explaining why the
14			steam engine, cotton spinning, coke
15			smelting, etc., were invented and adopted
16	Welfare ratio for a family: WR=Annual		in Britain in the 18th century. These were
	income/annual cost of subsistence Annual		macro-inventions Radically changed factor
	income = man’s annual income assuming full		proportions (biased technical change)
	time, full year work Annual cost of		Great potential for elaboration Ideas came
	subsistence = 3 times cost of basket		from outside industry Despite their
	(including 5% for rent). This annual		revolutionary potential, they were barely
	subsistence cost includes man, woman, and		viable commercially even under the most
	children If WR=1, income is just enough to		favourable circumstances.
	buy the specified basket or standard of	55	Were these technologies invented
	living.		because of better ‘fundamentals’? Better
17	Roman Empire c. 300 AD.		property rights or limited government? No
18	The problem with this basket is that		Better culture? No Better science? No
	it is too expensive for most people in the		Better geography? Not better agricultural
	world! Therefore, I constructed a ‘bare		resources Britain had developed coal but
	bones’ minimum basket. This is supposed to		other countries had it.
	represent total, annual spending for a	56	The macro-inventions were made in 18th
	man. This also supplies 1940 kcalories per		century Britain because that was the first
	day, mainly from the cheapest grain. Small		time and place that it paid to invent
	amounts of meat, beans, butter, or oil to		them. The macro-inventions were biased
	supply protein and fat in keeping with		technical changes. They used inputs that
	local diet. Small quantities of non-foods		were cheap in Britain and saved inputs
	are included. Rent at 5% is added on.		that were dear. Even under British
19			conditions, they were barely profitable to
20	The Great Divergence in Living		operate. They were not profitable to use
20	Standards Happened 1400-1750.		elsewhere.
21	Workers around the World earned	57	Invention was an economic activity
	incomes 3 – 4 times subsistence in 1400.		influenced by factor prices. “Invention is
	Some of the surplus was spent on more		1% inspiration and 99% perspiration.”
	calories. Much of the surplus was spent on		(Edison) Inspiration for macro-inventions
	better quality food—meat, alcohol.		came from outside the industry (science,
22	The Great Divergence preceded the		copying, and so forth) Sometimes banal
	Industrial Revolution: English and Dutch		Perspiration refers to R&D. Perfecting
	workers still earned 3 – 4 times		the engineering was most of invention.
	subsistence. They provided the mass market		This entailed costs. Factor prices
	for the ‘consumer revolution.’ Workers in		determined adoption Adoption determined
	India, China, and south and central Europe		benefits Benefits necessary for R&D
	earned only enough to survive (Welfare		Therefore, factor prices affected
	Ratio = 1).		invention.
23	Part II: Why did northwest Europe pull	58	Micro-inventions. Realized the
23	ahead?		potential of the macro-inventions Came
24	The immediate explanation is that the		from local learning Tended to produce
	high wage economies were economically more		neutral technical change Unleashed path
	developed:		dependent trajectory of improvement.
25	Wage was maintained in northwest		Eventually cut costs enough to make the
25	Europe (W) and fell elsewhere (W1).		adoption of the macro-inventions
26	Why was northwest Europe more		profitable outside of Britain When the
	successful? Legal, constitutional,		‘tipping point’ occurred, the Industrial
	institutional development? Culture? In		Revolution spread abroad.
	keeping with the assessment of Marxism, I	59
	investigate: Agrarian structure? No	60
	Commercial expansion? Yes I will review	61
	evidence about agriculture and about	62
	energy to argue that urban growth was a	63	The British inventions led to modern
	cause of these developments. Agricultural		economic growth because they were more
	revolution. Urban growth. Commercial		transformative. Cotton was a global
	expansion. Cheap energy (coal). High		industry Demand for British cotton was
	wages.		very price elastic Technical improvements
27	Agriculture did play an important		led to enormous output growth This led to
27	role: output per worker.		Manchester—vast urbanization Also a very
28	Output per worker is agricultural		large demand for machinery Steam engine
	output divided by the agricultural		and iron industries allowed General
	population from earlier population		mechanization of industry, railway, steam
	breakdown. Agricultural output is		ship Basis of 19th century global economy
	calculated from a demand curve. Other		Account for almost half of growth in
	investigators have used this procedure for		British labour productivity in 19th
	Spain, the Netherlands, and Italy. This		century. Engineering industry was the most
	procedure makes per capita consumption of		important creation of British industrial
	agricultural products a function of income		revolution.
	and price. Q = P-.6W.5M.1N P = price, W =	64	The Great Divergence led to Modern
	wage income, M=price manufactures,	64	Economic Growth—not the other way around.
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