Modern Economic Growth 1700-1850

The systematic monitoring of comparative levels of per capita income is relatively recent
development, and helps provide a consistency check on the growth rates for particular
countries.

The first thing that is apparent from table 1.1 is that the growth rate was much higher
during the period 1820-70 than during the early modern period 1500-1700. During the early
modern period of the souther/eastern Europe, data suggests declining living standards, in
contrast to the slowly rising incomes of north-western Europe, particularly Britain, and the
low countries. This is a well-known reversal of fortunes following the opening of new trade
routes to the East via the Cape of Good Hope and the discovery of the Americas.

The second result is that the transition to MEG was a long-drawn-out process. Even in
Britain the annual growth rate per capita income remained less than 0.5% until well into the
nineteenth century. Only after 1820 were rates of growth above 1% PER annum.

The third conclusion is that although its origin was British, MEG transferred relatively easily
to the rest of Europe, and Americas. All European countries show an increase in per capita
income growth after 1820, and this is led to the Great Divergence of living standards
between Europe and Asia.

Malthus (1978) famously argued, rising living standards were typically only short-lived in the
pre-industrialised period, as population growth almost literally ate away any temporary gain
in real wages. The Industrial Revolution period, by contrast, was marked by the coexistence
of rapid population growth and rising per capita incomes, before Europe entered a
demographic transition to a regime of lower population growth accompanied by sustained
per capita income growth.

The demographic transition and human capital

In 1700 four features characterised all of Europe; high fertility, modest education, the
dominance of physical over human capital, and low rates of economic growth. By 1870 in
much of Europe MEG was under way. Fertility levels had begun their decline to modern
levels, education levels were rising, and human capital was becoming an important income
source. These conjunctions suggest that there must be a connection between MEG, fertility
decline, and rising human capital.

The industrial revolution and the demographic transition are the two great forces that
explain the upward march of modern incomes. The industrial revolution preceding the
decline in fertility in Europe by more than 100, however, there must be a connection.

The pre-industrial demographic regime

All European societies had high fertility in 1700, but matched by high mortality so that
population growth rates remained modest. The first measure of fertility for England is the
gross reproduction rate (GRR), average five children per woman. The demographic
transition to modern fertility rates began only in the 1870s in England, as in most of Europe,
but then progressed rapidly. By 200, English women gave birth on average to two children.
The English was similar in timing to the whole range of western European economies.

The second measure of fertility is the net reproduction rate (NRR), the average number of
daughters that would be born through their lifetime by the average female born each
decade. If the NRR is one, then each female just replaces herself over the course of a
lifetime. NRR fell much less between the pre-industrial and modern eras.

The mechanism that kept population growth rates in line with resources before the
industrial revolution was the Malthusian Trap, has three assumptions;

1. The birth rate, births per year per thousand persons, was constant or rising in real
incomes. The birth rate at a given income varied across societies depending on social
conventions on reproduction.

2. The death rate, deaths per year per thousand persons, declined as material living
standards increased. Again, the death rate differed across societies depending on
climate and lifestyles.

3. Material living standards declined as population increased.

The first two Malthusian assumptions imply that there was only one level of real incomes at
which birth rates equalled death rates, denoted y*, the stable equilibrium. Thus y* is called
the subsistence income of the society: the income at which the population barely subsisted,
in the sense of just reproducing itself. Determined only on the factors of birth and death
rates, for subsistence incomes.

An implication of the Malthusian model is that in the pre-industrial world high fertility rates
produced high death rates, low life expectancies, and low incomes. A society could raise
incomes and life expectancy only reducing the births at any given income.

A second implication is that, unlike in the modern world, high-income groups within a
society would have higher net fertility. Thus, the demographic transition must have involved
greater changes in behaviour among the rich than the poor.

The third assumption implies, as population increased material, income per person by
assumption declined.

This north-western European fertility limitation was the product of a unique pre-industrial
social pattern of late marriage by women, combined with a large percentage never
marrying, known as the EMP. Malthus argued that north-western European prosperity was
based on its exercise of the preventative check on population growth through marriage
choices, these reflected individualistic choices where rational society recognised the costs of
fertility. Europes industrial revolution was thereby foreshadowed hundreds of years earlier
by its adaption of a modern marital pattern and family structure, emphasising individual
choice and restraint.
Fertility limitation within Europe