Summary 1 - introduction
Many reasons to study economic history:
1. Find natural experiments to identify causal effects
2. Better understand rare events:
a. Pandemics lead to labor scarcity and abundant capital/worker return to capital
decreases
b. Wars lead to capital scarcity and lack of capital/worker return to capital increases
c. Financial crisis long cycles:
- International capital and goods market integration
- Inequality
- Debt-to-GDP ratios
3. Understanding of historical path-dependency past events and initial conditions can
have persistent effects.
Example path dependency
Induced innovation thesis the British revolution was path dependent process
initial condition: wages were high, energy was cheap & capital was cheap incentive to
develop and continuously improve energy-intensive and labor-substituting machines (steam
engine, Spinning Jenny). Persistent effect onset of modern economic growth.
Path dependency and historical events
World disruptive events can push the world economy onto new path:
- Technological changes: improvements ship design led to discovery of sea route around
Africa.
- Epidemics: the plague
- Climate change: Late Antique Little Ice Age
- Geopolitics: WW1 and the Russian Revolution
Summary 2 - the pre-modern economy
99.9% of humanity’s economic history adheres to Malthusian Model: links demographic and
economic variables (birth rates and death rates). As population rises, per capita income falls.
Two mechanisms for Malthusian equilibrium:
- Positive checks increase death rate
o Wars, epidemics
- Preventive checks decrease birth rate
o Birth control, cultural norms
Pre-modern efflorescences (Golden Ages)
Smithian growth theory: division of labor source of growth
- Larger population more specialization
- More specialization technological progress (learning-by-doing) could raise per capita
income Golden Ages
Smithian growth at best led to temporary efflorescences: The per capita income gains that
were achieved during Golden Ages eventually disappeared under the pressure of disrupting
events (climate change, epidemics, conquests).
, David Ricardo growth theory: international trade source of growth
- Produce products with comparative advantage
- Buy other goods on the international the international market
Pre-modern growth and imperialism: conquest source of growth
- In pre-modern world, conquests (veroveringen) can raise per capita incomes
o More land & conflicts deaths Malthusian growth
o Low transaction cost (Secure transports, common currency) Smithian
growth
Geopolitics important determinant of pre-modern growth
After the Black Death, a confluence of factors gives rise to the Little Divergence during
which Northwest European incomes begin to rise
The three horsemen and the European marriage pattern
Three horsemen of riches (plague, war, and urbanization):
1. Plague (black death)
Wages increase due to lack of labor supply
Demand for urban manufactures increases (Engel’s law)
2. Urbanization
Increases long-distance trade which spreads plagues
Urbanization and trade increase tax revenues (finance for wars)
3. War: killed more through spread of disease than battle deaths
The European marriage patterns
Men and women in Northwest Europe married relatively late and often not at all. This
resulted in fewer births. The reason for the was:
- High post-black death wages boosted labor market participation.
- Many men and women worked from around 15 to 25 as servants before marrying.
- Institutional and cultural context mattered for how the black death affected birth rates
So, two positive feedback loops lifted Northwest Europe into a high-income equilibrium:
- Rising urbanization rising mortality
- Rising labor market participation decreasing fertility
Commercial Revolution and Smithian growth
In the early modern period, intra-European trade intensified institutional innovations:
- Financial institutions (stock exchange, insurance)
- Financial instruments (bill of exchange
- Business law
This resulted in decreasing transaction cost allowing for European market integration
Smithian growth
Atlantic economy: American precious metals and slavery
Gold and silver most valuable import from America until 18 th century
Colombian voyage to America and circumnavigation of Africa increased the Atlantic’s
relevance Age of European naval empires begin
Many reasons to study economic history:
1. Find natural experiments to identify causal effects
2. Better understand rare events:
a. Pandemics lead to labor scarcity and abundant capital/worker return to capital
decreases
b. Wars lead to capital scarcity and lack of capital/worker return to capital increases
c. Financial crisis long cycles:
- International capital and goods market integration
- Inequality
- Debt-to-GDP ratios
3. Understanding of historical path-dependency past events and initial conditions can
have persistent effects.
Example path dependency
Induced innovation thesis the British revolution was path dependent process
initial condition: wages were high, energy was cheap & capital was cheap incentive to
develop and continuously improve energy-intensive and labor-substituting machines (steam
engine, Spinning Jenny). Persistent effect onset of modern economic growth.
Path dependency and historical events
World disruptive events can push the world economy onto new path:
- Technological changes: improvements ship design led to discovery of sea route around
Africa.
- Epidemics: the plague
- Climate change: Late Antique Little Ice Age
- Geopolitics: WW1 and the Russian Revolution
Summary 2 - the pre-modern economy
99.9% of humanity’s economic history adheres to Malthusian Model: links demographic and
economic variables (birth rates and death rates). As population rises, per capita income falls.
Two mechanisms for Malthusian equilibrium:
- Positive checks increase death rate
o Wars, epidemics
- Preventive checks decrease birth rate
o Birth control, cultural norms
Pre-modern efflorescences (Golden Ages)
Smithian growth theory: division of labor source of growth
- Larger population more specialization
- More specialization technological progress (learning-by-doing) could raise per capita
income Golden Ages
Smithian growth at best led to temporary efflorescences: The per capita income gains that
were achieved during Golden Ages eventually disappeared under the pressure of disrupting
events (climate change, epidemics, conquests).
, David Ricardo growth theory: international trade source of growth
- Produce products with comparative advantage
- Buy other goods on the international the international market
Pre-modern growth and imperialism: conquest source of growth
- In pre-modern world, conquests (veroveringen) can raise per capita incomes
o More land & conflicts deaths Malthusian growth
o Low transaction cost (Secure transports, common currency) Smithian
growth
Geopolitics important determinant of pre-modern growth
After the Black Death, a confluence of factors gives rise to the Little Divergence during
which Northwest European incomes begin to rise
The three horsemen and the European marriage pattern
Three horsemen of riches (plague, war, and urbanization):
1. Plague (black death)
Wages increase due to lack of labor supply
Demand for urban manufactures increases (Engel’s law)
2. Urbanization
Increases long-distance trade which spreads plagues
Urbanization and trade increase tax revenues (finance for wars)
3. War: killed more through spread of disease than battle deaths
The European marriage patterns
Men and women in Northwest Europe married relatively late and often not at all. This
resulted in fewer births. The reason for the was:
- High post-black death wages boosted labor market participation.
- Many men and women worked from around 15 to 25 as servants before marrying.
- Institutional and cultural context mattered for how the black death affected birth rates
So, two positive feedback loops lifted Northwest Europe into a high-income equilibrium:
- Rising urbanization rising mortality
- Rising labor market participation decreasing fertility
Commercial Revolution and Smithian growth
In the early modern period, intra-European trade intensified institutional innovations:
- Financial institutions (stock exchange, insurance)
- Financial instruments (bill of exchange
- Business law
This resulted in decreasing transaction cost allowing for European market integration
Smithian growth
Atlantic economy: American precious metals and slavery
Gold and silver most valuable import from America until 18 th century
Colombian voyage to America and circumnavigation of Africa increased the Atlantic’s
relevance Age of European naval empires begin
