A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World) by Gregory Clark - Malthusian economics

Why are some parts of the world so rich and others so poor? Why did the Industrial Revolution--and the unprecedented economic growth that came with it--occur in eighteenth-century England, and not at some other time, or in some other place? Why didnt industrialization make the whole world rich--and why did it make large parts of the world even poorer? In A Farewell to Alms, Gregory Clark tackles these profound questions and suggests a new and provocative way in which culture--not exploitation, geography, or resources--explains the wealth, and the poverty, of nations.

Countering the prevailing theory that the Industrial Revolution was sparked by the sudden development of stable political, legal, and economic institutions in seventeenth-century Europe, Clark shows that such institutions existed long before industrialization. He argues instead that these institutions gradually led to deep cultural changes by encouraging people to abandon hunter-gatherer instincts-violence, impatience, and economy of effort-and adopt economic habits-hard work, rationality, and education.

The problem, Clark says, is that only societies that have long histories of settlement and security seem to develop the cultural characteristics and effective workforces that enable economic growth. For the many societies that have not enjoyed long periods of stability, industrialization has not been a blessing. Clark also dissects the notion, championed by Jared Diamond in Guns, Germs, and Steel, that natural endowments such as geography account for differences in the wealth of nations.

A brilliant and sobering challenge to the idea that poor societies can be economically developed through outside intervention, A Farewell to Alms may change the way global economic history is understood.

Malthusian economics
The first - and longest - part of the book is a model of a Malthusian economy based on the econometrics of England between the thirteenth and the nineteeenth century. The model is based on three simple assumptions: the birth rate is an increasing function of income, the death rate is a decreasing function of income, and (most controversially in my view) the population is a decreasing function of income. The model fits pretty well with the econometric data for England. The mechanisms of the first two assumptions are described using available demographic data, however the mechanism for the third assumption (roughly, that population x income = constant) I find more difficult to comprehend, even if historical data support that equation. The chart showing real wages versus population in England, 1250-1869, is the most striking and sums up the thesis quite well.

The second part describes the industrial revolution, after which Western Europe escaped the Malthusian trap and never looked back: income now increases with population. Yet the author doesn't give a definitive reason why the Malthusian equation is no longer true. It seems that social capital, stability, low interest rates, decreased preference for the present over the ruture, all play a role. To be fair, I don't think anyone has a definitive explanation ! The third part looks at regions of the world which haven't succeeded at escaping Malthusian economics, and are often in an even worse situation than pre-1800 economies, a situation known as "the Great Divergence" (between rich and poor economies) in the words of Kenneth Pomeranz (who looked at this problem from the point of view of China). Using data from the British Empire around 1900, the author shows that the productivity of workers around the world for similar tasks was very diverse, and remains so today. The book raises more questions than it answers, but it is an important read in my view. The economic data from England is a unique source of figures for a pre-industrial economy and there is a lot of fascinating stuff about growth, innovation, influence of political structure, relative share of income of capital, work and land etc...

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