A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World) [ペーパーバック]

Did you know that the average person's life in the Stone Age was no worse then that of the average 17th century Briton? That given their more varied nutrition and lesser workload, the lives of hunter gatherers were superior to both? That the Black Death caused a major improvement in European standards of livings during the 14th to 16th centuries? That the institutional conditions for economic growth, as normally understood, were better in the Middle Ages then they are today?

These are only few of the mind blowing and well documented claims put forward in Gregory Clark's breathtaking - there is no other word - "A Farewell to Alms". Clark confronts the greatest mystery of human history - why did the West leap forward, breaking away from millennia of stasis, to create the modern, industrial world? Clark not only refutes most of the common wisdom about the rise of the West, but also brings forth an astonishing array of data in support of a radically new interpretation. No doubt some specialists would disagree with Clark's conclusions; I have my doubts, too - but Clark's methodology, his thoroughness, and the rigorous manner in which he addresses a huge quantity of data makes "A Farewell to Alms" an instant classic and a model for all economic history.

Clark describes world economic history as essentially a two-phase story. The first phase, from the dawn of time to the Industrial Revolution, featured a barely changing world governed by the cold and remorseless laws of Malthus and Darwin. But those same laws brought on a slow revolution, and a new phenomenon was emerging - first in Europe, and slower in India, China and Japan - Economic Man.

Reverend and Economist Thomas Robert Malthus (1766-1834) was the first to thus describe the world economy: in his model, people's wages were equal to the subsistence level; whenever wages increased, population increased, and pushed wages back to subsistence. Therefore, Clark argues, throughout history population was at equilibrium - whenever new technology increased productivity, the result was not higher living conditions, but higher population. Thus the difference in living conditions between times and places were caused by such effects as the different in hygiene level (improvements in hygiene ironically pushed down living standards by allowing people to survive on meager wages) and death by war and pestilence (which, equally ironically, pushed up wages).

And then, in the 18th century, in a relatively small island nation, everything changed. The Industrial Revolution transformed the world, or at least England, Europe, the US, Australia, Japan and nowadays China and South East Asia. Mankind broke free of the Malthusian trap. Productivity growth rose in two orders of magnitude; Productivity gains no longer led only to population increases, but also to increase in the standards of living. The West today is rich beyond the wildest dreams of its 17th century ancestors.

What happened? Most explanations suggest that Western Institutions were somehow improving: Markets were becoming freer, property rights more secure, the legal system more efficient, etc. Perhaps technology led returns on investment in human capital to increase

Not so, says Clark. Markets were much less regulated in pre modern times then they are today. Property rights, in England at least, more secure. And the return on human capital - as measured, for example, in the difference between the wages of master artisans and simple workers - decreased or stayed unchanged.

Furthermore, during the Industrial Revolution, hard work didn't pay; Inventors and Innovators repeatedly failed to reap the fruits of their inventions. Despite the gigantic leap in textile productivity, hardly anyone became really rich from textiles. Competition and knowledge leaks drove prices down, and the benefits were the consumer's, not the manufacturers'.

What changed, Clark argues, is not the environment in which the economic actors operated. The actors themselves were no longer the same.

In a Malthusian world, population was at equilibrium: barring efficiency growth, it did not increase. But while failing to increase, it was nonetheless very dynamic: a Darwinian struggle for survival, in which the Rich had many offspring, and the poor few. Thus, Clark suggests, through a combination to cultural transfers and Darwinian selection, the population changed. Upper class qualities spread to lower classes; Society was becoming Middle Class; Economic Man was born.

Or shall we say, selected?

As evidence, Clark sites several changes that did happen between 1000-1750: The Rise of Literacy, the Fall of Interpersonal Violence, the lengthening of working hours and the decrease in the time preference of money, which meant that people learned to postpone satisfaction. "Thrift, prudence, negotiation and hard work [became] values for communities that... [had been] spendthrift, impulsive, violent and leisure loving." (p.166)

The reason this process happened first in Europe and not in China or India, Clark argues, is because Europe was the most Darwinian. In other societies, the difference in birth rate between rich and poor was not as dramatic.

Clark's book is both exciting and troubling. Because it argues that the difference between the rich and poor nations is not in the way they organize their economies but in Cultural and likely genetic differences, it challenges both the right wing belief in the superiority of free markets, and the left wing faith in the equality of mankind. As a believer in both, I am troubled.

I don't think Clark's book is complete: If the differences between Modern and Pre Modern people are genetic, they should be discoverable in our DNA. If they are cultural, the mechanism of cultural transmission should be explored. And Clark doesn't say anything about democracy - is it a coincidence that democracy flourished side by side with the economy?

"A Farewell to Alms" is hands down the best book I read all year, and one of the best books on history, economics, or sociology I know. It is everything I look for in non-fiction - smart and elegantly written, challenging and illuminating, and grounded in both theory and empirical data. This one's for the ages.

The perennial question asked by economic historians is why some countries grow excedingly rich and others remain miserably poor. It is a question that writers of "big history" have asked: notably Adam Smith in The Wealth of Nations (Bantam Classics), David S Landes in The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, and Jared Diamond in Guns, Germs, and Steel: The Fates of Human Societies. These works rely heavily on theory beyond the mere retelling of certain facts and events. It is in this tradition that Gregory Clark, economic historian at the University of California at Davis, presents the economic history of the the world. The underlying theory that informs his version is that social and possibly biological evolution explains economic growth. The specter of social darwinism haunts his imagination.

For Clark the critical stage of social evolution is when a society is able to emerge from the Malthusian trap of poverty. It is at this point where they diverge from the pack and actually experience social progress and economic growth.

Regarding the Malthusian trap, Clark argues that the well-being of the average person around 1800 was no better than the average hunter-gatherer 10,000 years earlier. According to Malthus' "Essay on the Principle of Population," with every technological advance that increases the efficiency of production, there is a corresponding increase in population, thus neutralizing any gains made in production. In short, there are just more mouths to feed. The principle being that the population only grows as fast as the food supply.

That was the case until the Industrial Revolution. After 1800, something happened in England that caused production to outpace population growth. It was the first time in history that a society actually escaped from the Malthusian trap. For the first time incomes and consumption per capita began to rise. To find out why this occurred, Clark undertook a study of wills in England going back hundreds of years. He discovered that the rich had twice as many offspring as the poor, thus they outpopulated the poor. The rich brought with them certain skills and behaviors such as literacy, numeracy, work discipline, deferral of gratification, etc., that eventually permeated the rest of society in a downwardly mobile fashion. This is truely an original hypothesis. It was this evolutinary shift, according to Clark, that triggered the Industrial Revolution and set England apart from other countries

Why did England take off and others did not? Why the Great Divergence? The phrase is taken from Kenneth Pomeranz's book The Great Divergence: China, Europe, and the Making of the Modern World Economy. which deals with the same subject. Clark asks why the gap between rich and poor countries went from 4:1 in 1800 to 50:1 today. His answer is that in countries such as China and Japan the rich did not produce enough offspring to spread their productive behaviors downward through the rest of the population. East Asian and other economies were not able to push their agarian economies out of the Malthusian trap.

The title of this book is a pun on the title of a Hemingway novel, suggesting that alms or aid to the poor will do them no good. Clark is in the camp of those who believe that a change in behavior or, in this case, an advancement in the evolutionary process will allow poor countries to emerge from poverty. The implications of this are very controversial, to say the least, and still very inconclusive. Nevertheless, it is an interesting explanation of economic history that will be debated for years to come.

For most of human history, material living standards have been static. Over the last century or two, large parts of the world have broken away from this equilibrium and enjoyed massive increases in income. Gregory Clark sets himself to answer three big questions: Why did living standards stagnate for so long? What allowed England to be the first country to break the trap? And why were some countries able to follow and surpass the leader while others have become even worse off?

His answer to the first question is Malthus's: any increase in living standards was, over a period of generations, eaten up by an increasing population facing diminishing returns in. Thus the labouring Englishman (or woman) of 1800 was, in terms of stature, diet and leisure, worse off than a Stone Age hunter-gatherer, or indeed his counterpart of 1400 who benefited from the shortage of workers following the Black Death. The many advances in productive technology that occurred before that time merely served to increase population. While this is an old argument, it is illustrated with a wealth of historical data on population and living standards, and a simple graphical model which illustrates starkly the inversion of economic vice and virtue in this world: war and disease raise incomes while peace and hygiene lower them. Thus "Europeans were lucky to be a filthy people who squatted happily above their own feces".

How did England escape? Clark argues that the usual explanations are all unsatisfactory. Invoking the Enlightenment, Protestant Reformation or Scientific Revolution merely pushes the question back one stage, even if the link is valid. The timing of changes in family size and the skill premium does not fit human capital based explanations, while it is hard to find evidence of any institutional changes at the crucial time. Intellectual property was still very poorly protected (many of the great textile inventors died in poverty) while the other elements of a market-based economy had been in place for centuries. Indeed Clark argues that, by many measures, medieval England had better economic incentives than England today - lower taxes, inflation and government debt, a higher skill premium, and fewer restrictions on land use. The Industrial Revolution saw a massive increase in the supply of innovations without any apparent change in incentives.

There were, however, four crucial changes over this time. Interest rates fell from double to single digits. Literacy rose. Society became much less violent. And work became longer and more disciplined. This environment rewarded middle-class values of patience, diligence, acquisitiveness and self control. Clark suggests that these values were in fact being biologically selected for: the rich had more surviving children than the poor, and their children inherited their values, whether by genetic or cultural mechanisms. It was the long-run evolutionary change in the character of the people, rather than any short-run change in policies or institutions, that did the trick. This has the merit of focusing of differences between England, on the one hand, and Asia on the other: while Japan, China and India did have many of the same market institutions, they still had higher interest rates and lower literacy. What data is available for China and Japan also suggest that the rich enjoyed a much smaller reproductive advantage in those countries, perhaps linked to the fact that their populations quadrupled or quintupled between 1300 and 1750, while England barely recovered its losses from the plague.

This leads naturally to the third question: why the Great Divergence? Poor countries, especially colonies had "the cheapest labor in the world; security of property; complete freedom to import technicians, machinery, capital . . . sea routes; and access to the largest market in the world." This sounds like an optimistic list of China's advantages ten or twenty years ago. Why were the results not similar?

Clark's answer is labour quality. Using mainly evidence from the textile industry, he argues that low-wage countries had much higher labour-output ratios (as would be expected given relative prices), but not lower capital-output ratios. They had to use more workers on the same machines to get the same output, even with imported technicians and managers. This would only be rational if the low wage workers were intrinsically less efficient: less diligent, less punctual and less disciplined; and there are plenty of recorded complaints along those lines. Thus investing in low-wage countries was not particularly profitable, and there was no tendency for incomes to converge. Indeed, since modern medicine has reduced mortality at any given level of income, we can have societies such as the poorest in sub-Saharan Africa, in which the population continues to grow despite the lowest living standards anywhere in recorded history.

England had the Industrial Revolution because of natural selection, and poor counties are poor because their workers are intrinsically less productive. This is a bold pair of hypotheses, which would no doubt attract vociferous condemnation even if backed by watertight evidence and presented in the most modest and unassuming way. This they emphatically are not. Confining our attention to substance rather than style, the evidence is thin on crucial points, and could bear other interpretations. On the question of inheritance of productive characteristics, rather than simply cash and connections, there is only an unreferenced and unadorned statement that rich fathers tended to have rich sons even when the inheritances were made insignificant by large families. There is also no attempt to show that the theory is quantitatively consistent with the observed selection pressure of income and plausible values of inheritability. The textile productivity data could be explained by efficiency wages, or climate, or the employment of assertive, unruly men rather than docile, obedient girls. [Edit: there is actually quite a big literature on this.]

At a broader level, it seems natural to link natural selection and labour quality, thus turning the two theories into one. However, this sits uneasily with the variability of growth in individual countries across time, as Clark admits: "Regarding the underlying cause of the differences in labour quality, there is no satisfactory theory. Economies seem . . . to alternate more or less randomly between relatively energetic phases and periods of somnolence." Clark also mentions the huge increase in earnings enjoyed by workers moving from the Third World to the First, without seeming to notice the obvious problem this poses for the labor quality theory.

But if the natural selection theory, on the admission of its author, is a poor explanation for variation in labour quality across countries and time, it seems doubly poor as an explanation for the Industrial Revolution in England. If this is viewed, as Clark does, as an upsurge in the supply of innovation without any change in demand, the connection with bourgeois values seems rather weak. Even if these values are inherited and selected for, it is hard to see how patience, workaholism, and pacifism lead automatically to innovation. One could even argue that they would crush it or crowd it out. And since innovators in the pre- and early industrial era typically received meager rewards, selection directly on innovation is even less plausible. One could perhaps make a case for selection on literacy reaching a critical point that allowed communication of ideas and thus continuous, sustained innovation, but then we are back in the world of the discontinuous, one-off Enlightenment/Revolution/Revolution theories that Clark abhors.

Perhaps, however, this is where we should be. After all, the Industrial Revolution was a one-off, discontinuous historic event. (The demographic transition to lower, deliberately controlled fertility that allows final escape from the Malthusian trap is not, but existing theories seem to explain this pretty well, and Clark adds little or nothing.) We can increase our understanding of this event by careful study of the place and time where it happened, and places and times where it didn't, but until we invent a time machine to move between parallel universes there will always be a bit of mystery remaining.

Even if the answers are unsatisfactory, however, the questions remain. And A Farewell to Alms does a great job of posing the questions. It also contains many insights on the timing, composition, demographics and beneficiaries of the Industrial Revolution. This book deserves everything it gets, both in praise and in blame.

Originally published in Agenda 15(3), 2008.