EH1: SB TOPIC 2

Wages, Prices and the Great Divergence

TOPIC 2: WAGES, PRICES AND THE GREAT DIVERGENCE: LECTURE OUTLINE

• A. SILVER AND GRAIN WAGES• 1. The Great Divergence Debate• 2. Wages and Prices in Europe• 3. Wages and prices in Asia• 4. Explaining Europe-Asia Wage-Price

Differences

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1. THE GREAT DIVERGENCE DEBATE

1. WHEN DID THE GREAT DIVERGENCE BEGIN?• Recent emergence of group of revisionist

“world historians”, many based in California, who claim “Great Divergence” between Europe & Asia occurred only after 1800

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1A. CONVENTIONAL VIEW

• Although Industrial Revolution saw shift to continuous steady state growth of per capita income circa 1800, Early Modern period 1500-1800 saw levels effect from capital deepening

• Huge literature examined institutional developments underpinning this: rise of market economy with incentive structures for accumulation and innovation

• Policy implications: development is difficult since institutional frameworks hard to change

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1B. CALIFORNIA SCHOOL VIEW

• Conventional view is Euro-centric• Deny any divergence between Europe & Asia

before 1800• Explanations of post-1800 development: • Pomeranz: coal deposits & colonies• Parthasarathi, Frank: exploitation of colonies

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1C. CRITICAL ASSESSMENT

• Broadberry/Gupta: • Great Divergence began during Early Modern

period • Advanced parts of Asia on same development

level as European periphery by 1800

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1D. CONCEPTS

• Silver wage: daily money wage in terms of silver content.

• Silver is world currency. Debasement possible by reducing silver content, but all prices here corrected for this.

• Grain wage: amount of grain that daily silver wage can purchase

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1E. FINDINGS

• Although grain wage in most advanced parts of Asia close to NW European level until 1700, silver wage much lower (as in European periphery)

• High silver wages in NW Europe not simply monetary phenomenon (inflow of bullion from New World), but result of high productivity in traded goods sector (services & industry)

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Findings

• Early existence of key features of relationship between developed country and LDC:– Wages in LDC meet food needs of population at

LDC food prices, but not at developed country prices

– Manufactures produced in LDC relatively expensive at LDC prices but competitive on world market because of low wages in developed country prices

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2. WAGES AND PRICES IN EUROPE2A. SILVER WAGES AND GRAIN WAGES• TABLE 1: Daily wages of unskilled and skilled building

workers in terms of silver content: silver wage– Substantial silver wage growth in NW Europe, with GB

overtaking Netherlands during C18th.– Considerable fluctuations, less trend growth in S. Europe,

starting from same level as NW Europe in 1500– Fluctuations & only weak trend growth in central & E.

Europe, starting from lower level in 1500– Regional variation similar for unskilled & skilled workers;

skill premium 50% in NW, 100% in south, central & E. Europe

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TABLE 1: Silver wage (grams of silver per day) A. Unskilled labourers

1500-49

1550-99

1600-49

1650-99

1700-49

1750-99

1800-49

Northwestern Europe London 3.2 4.6 7.1 9.7 10.5 11.5 17.7 Southern England 2.5 3.4 4.1 5.6 7.0 8.3 14.6 Amsterdam 3.1 4.7 7.2 8.5 8.9 9.2 9.2 Antwerp 3.0 5.9 7.6 7.1 6.9 6.9 7.7 Paris 2.8 5.5 6.6 6.9 5.1 5.2 9.9 Southern Europe Valencia 4.2 6.6 8.8 6.9 5.7 5.1 -- Madrid -- 6.3 8.0 -- 5.1 5.3 8.0 Milan -- -- 5.9 4.1 3.2 2.9 3.1 Florence 2.9 3.8 4.7 -- -- -- -- Naples 3.3 3.5 5.3 4.8 4.8 3.8 3.8 Central & eastern Europe

Gdansk 2.1 2.1 3.8 4.3 3.8 3.7 4.8 Warsaw -- 2.5 3.2 2.7 1.9 3.4 4.9 Krakow 1.9 2.9 3.4 2.9 2.2 2.9 2.4 Vienna 2.7 2.6 4.4 3.5 3.2 3.0 2.1 Leipzig -- 1.9 3.5 3.9 3.7 3.1 4.4 Augsburg 2.1 3.1 4.0 4.7 4.2 4.3 --

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Silver wage

• Silver wage shows conventional pattern: NW Europe pulls ahead of previously more developed South, with central & E. Europe continuing to lag behind

• Strong positive correlation with urbanisation ratios

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Grain wage

• TABLE 2: Grain wage = volume of wheat or rye that daily silver wage buys. Regional pattern of grain wage is mirror image of silver wage:– Negative trend in all regions– Highest level of grain wage in central & E. Europe

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TABLE 2: Grain wage (kg of grain per day)

A. Unskilled labourers

1500-49

1550-99

1600-49

1650-99

1700-49

1750-99

1800-49

Wheat Southern England 10.1 6.3 4.0 5.4 8.0 7.0 8.6 Antwerp 8.8 7.2 7.7 7.4 9.8 9.6 -- Paris 6.8 4.9 6.0 7.2 7.2 6.0 8.4 Valencia/Madrid 10.7 7.4 6.3 7.6 8.6 4.8 -- Florence/Milan 4.7 3.4 4.4 6.1 5.2 3.3 2.8 Rye Amsterdam 10.3 8.6 11.5 13.3 17.8 14.0 10.7 Krakow 48.7 27.9 15.7 18.7 22.7 23.0 -- Vienna 18.6 7.6 9.9 9.0 8.0 7.0 3.1 Leipzig/Augsburg 9.6 5.6 6.0 9.5 8.4 6.1 5.8

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2B. RELATIVE PRICES AND REAL CONSUMPTION WAGES

• High silver wages in NW Europe did not lead to high grain wages before C19th

• Real consumption wages may still have risen through increased consumption of non-agric goods & services.

• TABLE 3: Real consumption wage of unskilled building labourers, based on basket of commodities, with London 1500-49 = 100 (Allen)

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TABLE 3: Real consumption wage (London 1500-49=100) 1500-

49 1550-

99 1600-

49 1650-

99 1700-

49 1750-

99 1800-

49 Northwestern Europe London 100 85 80 96 110 99 98 Amsterdam 97 74 92 98 107 98 79 Antwerp 98 88 93 88 92 88 82 Paris 62 60 59 60 56 51 65 Southern Europe Valencia 79 63 62 53 51 41 -- Madrid -- 56 51 -- 58 42 -- Florence/Milan 62 53 57 51 47 35 26 Naples 73 54 69 -- 88 50 33 Central & eastern Europe

Gdansk 78 50 69 72 73 61 40 Warsaw -- 75 66 72 45 64 82 Krakow 67 74 65 67 58 63 40 Vienna 88 60 61 63 61 50 27 Leipzig -- 34 35 57 53 44 53 Augsburg 62 50 39 63 55 50 --

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Real consumption wage

• TABLE 3 removes some perplexing aspects of grain wage data in TABLE 2:– Real consumption wage data show opening gap

between NW & rest of Europe, as with silver wage data

– High grain wages of central & E. Europe don’t translate into high real consumption wages since urban wage earners bought bread not grain & other non-grain items were expensive

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Real consumption wage

• But real consumption wage data still show declining living standards in Europe, 1500-1800. Divergence due to constant real wage in NW & collapse in periphery.

• TABLE 3 based on assumption of constant annual number of days worked. But what about “Industrious Revolution”?

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2C. STRUCTURAL CHANGE

• Allowing for Industrious Revolution is one way of producing modest upward trend of real wages in NW Europe (< 0.2% p.a.)

• Structural change would be another way, with shift to higher paying jobs in cities

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Urbanisation

• Already noted correlation between silver wages and urban development. TABLE 4:

MIDDLE AGES:• 2 main urban centres in late medieval period,

in Low Countries and N. Italy• Urban development lagged in central & E.

Europe

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TABLE 4: European urbanisation rates (%)

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1300 1400 1500 1600 1700 1750 1800 1870 Scandinavia -- -- 0.7 2.1 4.3 4.6 4.6 5.5 England (Wales) 4.0 2.5 2.3 6.0 13.2 16.4 22.1 43.0 Scotland -- -- 2.3 1.5 5.3 11.5 23.9 36.3 Ireland 0.8 2.1 -- 1.0 5.1 5.1 7.3 14.2 Netherlands -- -- 17.1 29.5 32.5 29.6 28.6 29.1 Belgium 18.2 21.9 17.6 15.1 20.2 16.5 16.6 25.0 France 5.2 4.7 5.0 6.3 8.7 8.7 8.9 18.1 Italy CN 18.0 12.4 16.4 14.4 13.0 13.6 14.2 13.4 Italy SI 9.4 3.3 12.7 18.6 16.1 19.4 21.0 26.4 Spain 12.1 10.2 11.4 14.5 9.6 9.1 14.7 16.4 Portugal 3.6 4.1 4.8 11.4 9.5 7.5 7.8 10.9 Switzerland 3.0 2.0 2.8 2.7 3.3 4.6 3.7 8.2 Austria (Czech, Hung) 0.6 0.5 0.8 1.6 1.7 2.6 3.1 7.7 Germany 3.4 3.9 5.0 4.4 5.4 5.7 6.1 17.0 Poland 1.0 1.3 5.4 6.6 3.8 3.4 4.1 7.8 Balkans 5.2 4.6 7.7 13.3 14.0 12.3 9.8 10.6 Russia (European) 2.1 2.3 2.0 2.2 2.1 2.5 3.6 6.7 EUROPE 5.4 4.3 5.6 7.3 8.2 8.0 8.8 15.0

Urbanisation

EARLY MODERN PERIOD• Urbanisation stalled in N.Italy after 1500• Brief surge in Portugal and Spain following

voyages of discovery• But most dramatic growth in early modern

period in NL and GB• Urban development continued to lag in

central & E. Europe

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KEY QUESTION

• Were advanced parts of Asia more like NW Europe (as claimed by Pomeranz & Parthasarathi), with high silver wages but modest grain wages?

• Or were they more like peripheral Europe, with low silver wages as well as modest grain wages?

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3. WAGES AND PRICES IN ASIA

3A. SILVER WAGES AND GRAIN WAGES IN INDIA• TABLE 5: daily wages of unskilled & skilled

workers in terms of silver content & amount of grain they could buy.

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TABLE 5: Indian silver and grain wages, 1595-1874 A. Northern and western India Silver wage

(grams per day) Wheat grain wage

(kg per day) Rice grain wage

(kg per day) Unskilled Skilled Unskilled Skilled Unskilled Skilled 1595 0.67 1.62 5.2 12.6 3.1 7.5 1616 0.86 3.0 2.4 1623 1.08 3.8 2.9 1637 1.08 2.37 3.8 8.3 2.9 6.5 1640 1.29 4.5 3.5 1690 1.40 4.3 1874 1.79 5.27 2.5 7.5 B. Southern India Silver wage

(grams per day) Rice grain wage

(kg per day) Unskilled Skilled Unskilled Skilled 1610-13 1.15 5.7 1600-50 1.15 3.2 1680 1.44 2.44 3.9 6.9 1741-50 1.49 2.1 1750 (3.02) (7.56) (4.2) (10.5) 1779 0.86 1.1 1790 1.44 1.8 25

NORTH & WEST INDIA

• Broad trend for silver wage to rise, with skilled wage double unskilled wage.

• Silver wages failed to increase as much as grain prices, so grain wages trended downwards

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SOUTH INDIA• Southern figures generally accord well with Northern

data, but Parthasarathi’s figures for 1750 in parentheses. Difficult to square with other data

• Parthasarathi claims support from work of Brennig. But:– Parthasarathi finds high grain wage as result of high

money wage and conventional grain price – Brennig finds high grain wage as result of conventional

money wage but low grain price• Neither Parthasarathi’s high money wage nor

Brennig’s low grain price fits into the wider picture of trends over time and across regions

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3B. AN ANGLO-INDIAN COMPARISON

• TABLE 6: Direct Anglo-Indian comparison of silver wages & grain wages for unskilled workers

SILVER WAGES:• Great Divergence already well established by

C16th:• Indian silver wage little more than one-fifth

English level in late C16th, falling to c. one-seventh of English level during C18th

• Even if included Parthasarathi’s estimates, Indian silver wage still only 40% of English level

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TABLE 6A: Anglo-Indian comparison of silver wages

A. Silver wages (grams of silver per day) Date Southern

England India Indian wage as %

of English wage 1550-99 3.4 0.7 21 1600-49 4.1 1.1 27 1650-99 5.6 1.4 25 1700-49 7.0 1.5 21 1750-99 8.3 1.2 14 1800-49 14.6 1.8 12

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GRAIN WAGES

• Indian grain wage remained close to English level until end of C17th

• Sharp divergence in C18th , as result of rise in English grain wage as well as decline in Indian grain wage

• India looks more like peripheral parts of Europe than developing NW Europe

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TABLE 6B: Anglo-Indian comparison of grain wages

B. Grain wages (kilograms of grain per day) England India Indian wage as % Date (wheat) (wheat) (rice, on wheat

equivalent basis) of English wage

1550-99 6.3 5.2 83 1600-49 4.0 3.8 95 1650-99 5.4 4.3 80 1700-49 8.0 3.2 40 1750-99 7.0 2.3 33 1800-49 8.6 2.5 29

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3C. SILVER WAGES AND GRAIN WAGES IN CHINA

• Detailed data on grain prices available by region for Qing dynasty (1644-1911) as result of monthly reporting system

• No systematic money wage data, since money wages typically supplemented by substantial food allowances (even among urban building workers). Have to rely on scattered estimates for agricultural labourers

• Focus on Yangzi delta region, claimed by Pomeranz to be on same development level as England in 1800

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Yangzi delta

• TABLE 7: Silver & grain wages in Yangzi delta:– Small drop in silver wages between Late Ming & Mid Qing

periods– Unskilled silver wage in China about same as in India, small

fraction of silver wage in NW Europe– Price of rice increased between Late Ming & Mid Qing

periods, so grain wage declined sharply

• Grain wage in Yangzi delta similar to Indian grain wage

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TABLE 7: Daily wage of hired farm laborers in the Yangzi delta, 1573-1850

Late Ming

1573-1644 Mid Qing

1736-1850 Money wage (taels) 0.04 0.033 Silver wage (grams of silver) 1.5 1.2 Grain wage (kg of rice) 3.0 1.5

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Anglo-Chinese comparison

• TABLE 8: Anglo-Chinese comparison, similar to Anglo-Indian comparison:– Silver wage already much lower in Yangzi

delta than in England by Late Ming period.– Yangzi delta grain wage close to English

level in Late Ming period, but had fallen decisively behind by Mid Qing period.

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TABLE 8: Anglo-Chinese wage comparison

A. Silver wages (grams of silver per day) Date Southern

England Yangzi

delta Chinese wage as %

of English wage 1550-1649 3.8 1.5 39 1750-1849 11.5 1.7 15 B. Grain wages (kilograms of grain per day) England Yangzi delta Chinese wage as % Date (wheat) (rice) (rice, on wheat

equivalent basis) of English wage

1550-1649 5.2 3.0 4.5 87 1750-1849 7.8 2.0 3.0 38

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3D. URBANISATION AND STRUCTURE OF THE CHINESE ECONOMY

• TABLE 9: Urbanisation ratio in China compared with Europe. Rozman’s data for all urban areas adjusted onto basis of cities of > 10,000 inhabitants, for comparison with Europe:– Urbanisation already higher in Europe than in

China during Ming dynasty– Europe’s advantage had grown substantially by

early C19th (esp in England & Wales).

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TABLE 9: Urban shares of the population in China and Europe, 618-1820 (%)

Tang

618-906 Song

960-1279 Ming

1368-1644 Early Qing 1644-1736

Early 19th century

China All urban 4.7 5.2 6.5 6.8 5.9 Cities > 10,000 3.0 3.7 4.9 6.0 3.8 Europe Cities > 10,000 -- -- 7.6 9.2 10.0

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Chinese urbanisation

• TABLE 10: Regional breakdown of urbanisation ratios for China suggests much flatter development gradient than in Europe:– Most developed part of China (Yangzi delta) is in

Jiangsu, in east central China– Urbanisation ratio highest here, but scale of

difference with poorer regions not large• Urbanisation data, like wage data, suggest Yangzi

delta on same development level as peripheral parts of Europe, not the NW core.

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TABLE 10: Regional variations in the Chinese urbanisation ratio in the mid-19th century (%)

All urban Cities >10,000 Northern China Shandong 4.4 2.6 Shanxi 4.0 2.0 Henan 5.0 2.2 Northwestern China Shaanxi 7.3 4.5 Gansu 4.3 2.3 East central China Anhui 4.0 1.9 Jiangsu 7.4 5.6 Zheijiang 6.1 4.1 Central China Hubei 6.0 4.0 Hunan 5.2 2.8 Jiangxi 6.3 3.8 Southeastern China Fujian 8.2 5.3 Guangdong 6.7 5.0 Guangxi 6.1 3.3 Southwestern China Guizhou 5.8 3.3 Yunnan 4.4 2.5 Sichuan 6.0 3.6

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4. EXPLAINING EUROPE-ASIA WAGE-PRICE DIFFERENCES

4A. BULLION FLOWS AND PRICE INFLATION• Although silver wages in India & China much

lower than in NW Europe as far back as C16th, grain wages quite close until end of C17th. Could this just be a monetary phenomenon?

• One possible explanation could be flow of precious metals from New World into Europe during C16th. Quantity Theory of Money would suggest higher prices & wages without any real effect on standard of living

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Bullion flows and inflation

• There was price inflation in Europe during C16th, attributed by some writers to bullion flows (e.g. Hamilton; Braudel & Spooner)

• But this does not work as explanation of much higher silver wages in Europe cf Asia. Bullion also flowed to Asia.

• Higher silver wages result of real economic development. This clear when consider regional patterns within Europe, since although prices moved together closely, wages diverged

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CONVERGENT PRICES • Bullion flows entered Europe through Spain, but prices

moved closely together in all European countries (Abel)

• This consistent with classical price-specie-flow mechanism: initial increase in Spanish prices leads to reduction in exports & increase in imports, & hence to Spanish BOP deficit

• Spanish BOP deficit outflow of bullion from Spain rising price level in bullion receiving countries

• Problems with timing of bullion flows & inflation in particular countries reformulation in terms of monetary approach to BOP

• Law of one price: price of traded goods increases increase in money demand

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DIVERGENT WAGES

• While prices rose along same trend in all European countries, Spain lost its position as high silver wage country, while England saw biggest long run gains

• Suggests shift of silver wage leadership from S. Europe to NW Europe reflected real economic forces rather than monetary forces

• India & China look more like stagnating parts of European periphery than NW core

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4B. ECONOMIC DEVELOPMENT AND THE REAL EXCHANGE RATE

• Development economists see rel between PPP-converted & ER-converted levels of p.c. income as conditioned upon real factors affecting structure of economy (e.g. Kravis; Bhagwati)

• We see relatopnship between grain wages & silver wages on comparative basis as related to these same structural characteristics

• Key results can be shown in 2-country, 2-commodity Ricardian model, with constant returns to single factor of production, labour

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Model assumptions

• Applying model to early modern international economy:

• Treat grain as non-tradable commodity & cloth as tradable commodity.

• Grain bulky & costly to transport so price not equalised between Europe & Asia

• Cloth widely traded between Europe & Asia• 2 countries, Asia and Europe (i = A, E)

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Results• One international price for tradable good measured

in common unit of account, silver.pi

T = pT

• With single factor, labour, silver wage equal to revenue productivity of labour:

wi = pT αiT (1)

Hence country with higher productivity in tradable sector has higher silver wage

• Wages equalised across sectors within each country, so this is also silver wage in grain sector.

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Price of non-tradables• Price of non-tradable commodity equal to silver

wage divided by productivity in non-tradable sector: pi

N = wi / αiN (2)

• Substituting for wages from (1):pi

N = αiT pT / αi

N (3)• Price of non-tradable commodity reduced by high

productivity in non-tradable sector as well as increased by high productivity in tradable sector

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Grain wage

• Grain wage is silver wage divided by price of non-tradable commodity. Rearranging (2):

wi / piN = αi

N

(4)• Grain wages affected only by productivity in

non-tradable sector, not by productivity in tradable sector

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Real consumption wage• Consumption price given by weighted geometric

average of prices of tradable & non-tradable goods. Real consumption wage given by:

wi / pi = (αiT)β(αi

N)1-β (4)• If grain wage equal in England & India but silver

wage higher in England, real consumption wage lower in India by factor depending on weight .

• Low silver wages in Asia reflected low productivity in cloth sector. Asian countries produced cheaper grain as result of lower silver wages, so grain wages almost as high as in NW Europe

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CONCLUSIONS• Prosperous parts of Asia 1500-1800 look similar

to stagnating parts of European periphery rather than developing NW core

• Although Indian & Chinese grain wages comparable to NW Europe, silver wages substantially lower. This is exactly pattern observed in less developed parts of Europe

• Great Divergence well underway before 1800.• Need to understand higher productivity in

European traded goods sector at this time as reflecting developments in distribution as much as production (e.g. EIC and VOC)

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TOPIC 2: WAGES, PRICES AND THE GREAT DIVERGENCE: LECTURE OUTLINE

• B. WELFARE RATIOS• 1. The respectability basket• 2. The subsistence basket• 3. Welfare ratios in Europe and Asia• 4. Welfare ratios within Asia

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WELFARE RATIOS

• Allen (2001) introduced a novel way of comparing wages across countries , which has caught on

• He asked if money wages were sufficient to buy the goods needed to sustain life for a family

• Allen did this by first working out the cost of a basket of goods, with expenditure weights derived from the budget studies of Sir Frederick Eden and other social investigators from the late C18th and early C19th

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Welfare ratios

• The welfare ratio is the number of such baskets that can be purchased with a worker’s daily wage

• The basic idea is that if this ratio is above one, then a society is living above subsistence and is able to reproduce, and as the ratio increases further, to thrive

• Allen et al (2011) compare Europe and Asia using this welfare ratio methodology, and find, like Broadberry and Gupta, that from the C18th, the richest parts of Asia were on a par with the periphery of Europe, rather than the core

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1. THE RESPECTABILITY BASKET• In the first basket of goods that Allen (2000) worked with,

a working adult was assumed to require 2,500 calories per day, with bread supplying over 1,500 calories

• A substantial share of calories was obtained from products that the respectable worker would want to consume: meat, dairy produce and beer

• The protein intake was also considered in arriving at this basket

• In slightly modified form, this has come to be known as the “respectability basket”

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TABLE 1: The respectable lifestyle: basket of goods

Quantity Price, Spending Nutrients/day per person

per year grams of silver per unit

share (%) Calories Grams of protein

Bread 234 kg 0.693 36.0 1,571 64 Beans/peas 52 litres 0.477 5.5 370 28 Meat 26 kg 2.213 12.8 178 14 Butter 5.2 kg 3.470 4.0 104 0 Cheese 5.2 kg 2.843 3.3 54 3 Eggs 52 each 0.010 1.1 11 1 Beer 182 litres 0.470 20.0 212 2 Soap 2.6 kg 2.880 1.7 -- -- Linen 5 m 4.369 4.8 -- -- Candles 2.6 kg 4.980 2.9 -- -- Lamp oil 2.6 litres 7.545 4.3 -- -- Fuel 5.0 M BTU 4.164 4.6 -- -- Total 450.956 100.0 2,500 112

Soure: Allen (2009: 36)

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Welfare ratios using the respectability basket

• Allen (2000) assumed that since women and children required less calories than a working male adult, a family of a father, mother and 3 children required 3 baskets, with an additional allowance of 5% for rent

• He then calculated the welfare ratio as the silver wage divided by the silver cost of 3.15 respectability baskets

• A problem which Allen encountered in his (2000) paper was that for much of the time in most European countries, welfare ratios for unskilled building labourers were below one

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TABLE 2: Welfare ratios: building labourers

1500-49 1550-99 1600-49 1650-99 1700-49 1750-99 1800-49 Antwerp 1.40 1.28 1.36 1.28 1.34 1.28 1.21 Amsterdam 1.37 1.07 1.34 1.42 1.55 1.41 1.13 London 1.42 1.26 1.16 1.37 1.58 1.42 1.41 Florence/Milan 0.92 0.78 0.73 0.72 0.70 0.51 0.39 Naples 1.04 0.77 1.01 -- 0.96 0.75 0.47 Valencia 1.15 0.90 0.89 0.76 0.75 0.59 -- Madrid -- 0.80 0.74 -- 0.87 0.64 0.95 Paris 0.89 0.87 0.85 0.87 0.80 0.74 1.08 Strasbourg 1.27 0.74 0.70 0.56 0.57 0.61 0.85 Augsburg 0.92 0.72 0.58 0.93 0.80 0.71 -- Leipzig -- 0.49 0.61 0.80 0.75 0.64 0.80 Vienna 1.24 0.89 0.88 0.91 0.87 0.71 0.54 Gdansk 1.07 0.73 0.96 1.05 1.05 0.89 0.62 Krakow 0.97 1.06 0.92 0.96 0.85 0.88 0.60 Warsaw -- 1.11 0.93 1.01 0.67 0.93 1.18

Source: Allen (2000: 428)

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2. THE SUBSISTENCE BASKET

• If welfare ratios were less than one for sustained periods of time, this implied that workers were not earning enough to work and reproduce

• This was clearly an unsatisfactory conclusion to reach, since Europe managed over this period to make the transition to modern economic growth

• Allen’s solution was to come up with the subsistence or “bare bones” basket

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TABLE 3: Subsistence incomes: baskets of goods

European oats Beijing sorghum Quantity

per Nutrients/day Quantity

per Nutrients/day

person per year

Calories Protein person per year

Calories Protein

Sorghum -- -- -- 179 kg 1,667 55 Oats 155 kg 1,657 72 -- -- -- Beans/peas 20 kg 187 14 20 kg 187 14 Meat 5 kg 34 3 3 kg 21 2 Butter/oil 3 kg 60 0 3 kg 67 0 Soap 1.3 kg -- -- 1.3 kg -- -- Cotton/Linen 3 m -- -- 3 m -- -- Candles 1.3 kg -- -- 1.3 kg -- -- Lamp oil 1.3 ltr -- -- 1.3 ltr -- -- Fuel 2.0 M BTU -- -- 2.0 M BTU -- -- Total 1,938 89 1,942 71

Source: Allen (2009: 37).

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Subsistence basket

• Workers with low wages did not consume large amounts of meat, dairy produce and beer

• Furthermore, in Europe, they got most of their calories from cheap grains such as oats, rather than from expensive wheat bread

• In Asia, poorer unskilled workers consumed sorghum rather than rice

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3. WELFARE RATIOS IN EUROPE AND ASIA

• Allen et al (2011) fist compare the welfare ratio of unskilled male labourers in Beijing with 4 European cities in the C18th and C19th (Figure 1, here)

• During the C18th, Beijing’s welfare ratio trended downwards from a just under 2 to just above 1 by the beginning of the C19th, where it fluctuated until the 1870s

• Living standards in C18th Beijing were roughly on a par with the peripheral parts of Europe, represented here by Milan and Leipzig

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FIGURE 1: Welfare ratios for unskilled male workers

Source: Allen et al. (2011: 27).

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Welfare ratios in Europe and Asia • Welfare ratios in London and Amsterdam were already

substantially ahead of the rest of Europe, with a value of 3 to 4 in the C18th

• This does not mean that those workers ate 3 or 4 times as much oatmeal as they needed to survive

• Rather they consumed higher quality foodstuffs (beef, beer and bread) and a wider range of non-food items

• By this stage, even most unskilled workers in London and Amsterdam could afford the respectability lifestyle

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4. WELFARE RATIOS WITHIN ASIA

• It is also useful to compare welfare ratios within Asia (Figure 2)

• The first point to note is that welfare ratios were no higher in the Suzhou than in Beijing. This is significant because Suzhou was in the Yangzi Delta

• Canton in southern China also had welfare ratios fluctuating between about 1 and 2

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FIGURE 1: Welfare ratios in Asia

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Welfare ratios within Asia

• Allen et al. also bring India into the analysis, finding that welfare ratios in Bengal were about the same as in other parts of Asia

• Finally, Kyoto/Tokyo also fluctuates around the same level as the other Asian cities

• These conclusions confirm the findings of Broadberry and Gupta (2006): NW Europe was already substantially ahead of the rest of Europe and Asia by the C18th

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Early Modern Great Divergence

• Contrary to the claims of the California School, the Great Divergence was therefore already underway well before 1800

• It is therefore necessary to reach back at least into the early modern period to understand the origins of the Great Divergence

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