The Evolution of Material Well-Being

 

Based on Angus Maddison, The World Economy (OECD Publishing, 2001)

At any time earlier than about 1000 AD, the material standard of living of almost every person was close to the minimum needed to sustain life. Societies in which the majority of the people attained a significantly higher standard of living have emerged only within the last two or three hundred years. Not all societies made the transition to higher living standards, so the lives of the poorest people today are much like the lives that everyone lived a thousand years ago. Had you been born three hundred years ago, your standard of living would not have been much different from that of the inhabitants of the village shown below.

The monuments of imperial Rome or the silks and porcelains of Imperial China might cause you to doubt this claim, but do not be misled by such things. It has always been possible for an elite to live extravagantly well (by the standards of the time) by skimming the output of the vast majority of the population. In late Manchu China, for example, 98% of the population worked to support the remaining 2%, and that 2% consumed 24% of China’s output.1 Before modern times the wealth of a very few was always built upon the poverty of the many.

Sometime after 1000 AD the material well-being of large numbers of people — not just the elites — began to rise in some parts of the world. The increase would ultimately be greatest in Europe and in a few countries known as the neo-Europes. The neo-Europes are countries that have climates similar to European climates. The Europeans who colonized these countries were able to import the technologies and agricultural techniques of their own countries, jumpstarting the new (or newly colonized) economies. The neo-Europes include Canada, the United States, Australia, and New Zealand. Europe and the neo-Europes are often collectively referred to as “the West”, and the West continues to enjoy the world’s highest standards of living today. Outside of the West, only Japan experienced an early and sustained rise in its standard of living.

The economist’s measure of material well-being in a given country is per capita output, the value of the goods and services produced within the country divided by its population. The increase in per capita output over the last few centuries has been so great that it is difficult to plot per capita output against time using linear scales. A scale that is fine enough to show the detail would result in a graph that won’t fit on a page, and a graph that fits on a page must use a scale so coarse as to obscure the detail. The usual way around this problem is to use logarithmic scales rather than linear scales.

 

linfix

The graph above shows a linear scale against which the values of some variable x can be measured. There is a “unit distance,” and moving to the right by this unit distance increases the value of x by one: 1 becomes 2, 2 becomes 3, and so on. Now consider the two graphs below, which use logarithmic scales.

There is again a “unit distance” in these graphs, but moving to the right by the unit distance changes the value of x in a different way. Specifically, moving to the right by the unit distance multiplies the value of x by a fixed number called the base. If the base is 2, successive steps to the right increase the value of x from 1 to 2, from 2 to 4, from 4 to 8, and so on. If the base is 10, successive steps to the right increase x from 1 to 10, from 10 to 100, from 100 to 1000. The bigger the base, the more compact will be the graph on which any given set of data is plotted.

Now let’s get back to per capita output. The graphs below are log-linear: the year is plotted along the horizontal axis using a linear scale, and per capita output is plotted along the vertical axis using a logarithmic scale. An interesting feature of this arrangement is that the rate of growth of per capita output can be inferred from the slope of the graph. A steepening of the graph indicates that per capita output is growing more quickly, and a flattening of the graph indicates that it is growing more slowly.

All of these graphs are taken from Maddison. The data from the distant past are constructions based upon fragmentary information, so some parts of the graphs show trends but little detail.

The first graph shows per capita output in Western Europe and China over the last sixteen hundred years. Since there is a fixed vertical distance that corresponds to a doubling of per capita output, the logarithmic scale is base 2.

Sustained growth in per capita output occurred first in western Europe, but there have been times when the Chinese were the most prosperous people in the world. Per capita output in 400 AD was the same in both places. China was economically stagnant over the next six hundred years, while western Europe went into an economic decline following the disintegration of the western half of the Roman Empire. It did not recover from this decline for hundreds of years. Both Western Europe and China began to grow (in per capita terms) after 1000 AD. Western Europe grew more rapidly than China, overtaking it in about 1300 AD. At this time China entered another period of stagnation lasting hundreds of years, while western European growth continued. Western Europe’s growth was nevertheless very slow: its per capita output at the end of the Industrial Revolution (1830) was just three times what it had been fourteen hundred years earlier. However, its rate of growth rose in the aftermath of the Industrial Revolution and rose again in the middle of the twentieth century. Western Europe’s per capita output at the end of the twentieth century was about fifteen times greater than it had been at the end of the Industrial Revolution! By contrast, the end of the Industrial Revolution saw China moving from its extended period of stagnation into actual decline. Its per capita income in the middle of the twentieth century was roughly what it had been fifteen hundred years earlier. It was not until very late in the twentieth century that economic liberalization in China resulted in sustained and very rapid development, with per capita output rising by a factor of six over only a few decades. China’s per capita output nevertheless remains well below that of Western Europe.

The next two graphs include only data for the last three hundred years, when most of the growth took place. There is a fixed distance associated with a ten-fold increase in per capita output, indicating that the logarithmic scale is base 10. The first graph compares China to the United Kingdom (the home of the Industrial Revolution). The United Kingdom experienced slow but sustained growth to the end of the Industrial Revolution, followed by faster sustained growth to the present day.2 China experienced stagnation and then decline, faltered dramatically during the revolutionary war, regained lost ground in its aftermath, and experienced rapid growth only in the final decades of the twentieth century. The second graph compares the Chinese experience to the even stronger growth of the United States.

There was a time, long ago, when the vast majority of the human population had roughly equal living standards. The Industrial Revolution brought that situation to an end. It was a train that some countries caught and the rest missed. The countries that caught the train have grown steadily wealthier over the ensuing years. The countries that missed the train experienced little growth, at least until the last two or three decades of the twentieth century, and have yet to catch up. This observation explains the current global distribution of material well-being, as shown in the map below. Europe and the neo-Europes are wealthy; everyone else is straggling behind. Poverty in some parts of the world is as acute as it was hundreds of years ago.


  1. Eric Jones, The European Miracle (Cambridge University Press, 1981), p. 4.
  2. The Industrial Revolution produced a measurable increase in the growth rate of per capita output, but not a dramatic increase. It is best understood as establishing the foundations for the growth that occurred after the mid-nineteenth century.