Measuring pre 1820 economic growthHow right/wrong are the pre 1820 Maddison estimates?

Jan Luiten van ZandenFaculty professor ‘global economic history’ UU

Debate about pre 1800 economic growth, and in particular the Maddison estimates

Maddison estimates based on number of ideas/assumptions:• Subsistence level is about 400 international dollars• 1820 benchmark: Western Europe was much more wealthy

than rest of the world• Gap between western Europe and ‘the rest’ was about 1:3

(Average Western Europe: $ 1234; UK: 1706; Netherlands: $ 1838, versus China $ 600, India $ 533, Indonesia $ 612; Latin America $ 691; South Africa $ 415)

• Growth of European Economy was very gradual: Western Europe in 1000: $ 425, 1500: $ 797, 1600: 906; 1700: 1028 (in fact, growth was almost constant between 1000 and 1800 at 0,126%)

• On balance: almost no per capita growth in China (and elsewhere): China (China in 1500 also has $ 600, in 1000: 466)

• Roman Economy was already quite wealthy: Italy in 1 has GDP per capita of $ 809 (Egypt: $ 600)

Debate about pre 1800 economic growth, and in particular the Maddison estimates

• All these estimates & assumptions have been criticized:• Subsistence level is about 400 international dollars: no

empirical foundation – perhaps much higher (Malanima)?• 1820 benchmark: Western Europe was much more wealthy

than rest of the world: Great Divergence Debate/California School: no no big gap in 1750/(or 1820)

• Growth of European Economy was very gradual, at constant rate: Clark: there was almost no growth; Van Zanden/Federico/Prados: growth was slower between 1500 and 1800 (except for Netherlands and England)

• Substantial growth in China (but by how much? And when?)• Roman Economy was already quite wealthy – but Maddison

underestimated GDP of Ancient economy (Lo Cascio & Malanima)

• More in general: what do 1990 dollars ‘mean’ in 1 or 1500? Can we develop ways to empirically ground those estimates?

Overview of new work – and perhaps new approach

- New work on real wages and ‘subsistence minimum’ by Allen and Allen et.al. makes it possible to empirically ground estimates of this minimum

- New work on long term growth in England and Holland and other European countries (Spain, Germany, Italy) can help to ground long term growth patterns between 1300 and 1800

- New work on real wages and GDP estimates for China, Indonesia, India, Latin America and South Africa can help to test Angus’ ideas about the relative GDP of these countries

- New work on urbanisation and literacy/book production, can help to bridge gap between Ancient Economy and Middle Ages (700 and 1300)

Fundamental equation/identity

Implicit Maddison equation:

GDP per capita = C * S

S: subsistence minimum = 400 dollars of 1990C: some kind of measure of complexity/level of

advancement of economy, drawn from social tables and/or level of urbanisation

(also used by Milanovic, and others)

Can we estimate the subsistence minimum?

Work by Allen (2001) and Allen et.al. (2010): estimating the current value of a ‘minimum’ basket of consumption goods, necessary for ‘subsistence’, in local currencies, and in grammes of silver

Allen: European countries 1300-1913Allen et.al.: China 1700-1929Bassino and Ma: JapanAllen: India 1600-1913 & Roman Economy c 300Arroyo Abad et.al.: Spanish America 1525-1820De Zwart: South Africa 1660-1913Van Zanden: Indonesia 1820-1939

What is the subsistence minimum?

Initially, Allen for Western Europe calculated a ‘respectable’ basket, including alcohol (beer or wine), bread, and other ‘luxuries’ – reflecting the ‘normal’ consumption standards of working families in Western Europe

This did not work for China: consumption basket was much more basic, and a respectable basket lead to extremely low real wages (nobody was able to survive)

Introduction of the ‘bare bones’ basket, with minimum expenditure on cloth, soap etc., and food almost exclusively consisting of cheapest cereals (oats for porridge, for example)

Costs of the ‘bare bones’ basket 35-45% of costs of ‘respectable’ basket

How to relate this to GDP, and to dollars of 1990?

For England and Holland: new work on GDP per capita in current prices, going back to late Middle Ages, resulting in estimates of

1. GDP in current prices2. GDP in 1990 international dollars3. Barebones and Respectable basket in current prices

(work by Allen et.al.)Is possible to calculate the C variable: the ratio between

GDP per capita and the costs of the subsistence minimum (1./3.)

And to estimate the subsistence minimum in 1990 dollars: (3.*2./1.)

GDP per capita expressed in number of barebones baskets, and respectable baskets, England 1270-1850

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1270 1320 1370 1420 1470 1520 1570 1620 1670 1720 1770 1820

GDP/barebones England/GB GDP/respectable England/GB

Estimates of the value of the barebones & respectable minimum basket in 1990 dollars, England/UK and Holland

Results for Holland and England

• Minimums are ‘constant’ and similar between 1270 and 1850

• At on average $ 250 (barebones) and $ 580 (respectable)

• Can this help to ground the GDP estiumates?

How to relate this to GDP, and to dollars of 1990?

We can also estimate another formula for GDP per capita:

GDPpc= A * W

GDPpc: GDP per capita, expressed in the number of ‘barebones’ baskets

A: measure of complexityW: real wage, expressed in number of barebones baskets

GDP: product of real wages and A-factor, England 1270-1850

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1301 1351 1401 1451 1501 1551 1601 1651 1701 1751 1801

GDP/barebones Real wages (barebones) A: GDP/Real wages

GDP: product of real wages and A-factor, Holland 1410-1807

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1410 1460 1510 1560 1610 1660 1710 1760

GDP/barebones Real wages A: GDP/real wages

Is it possible to estimate GDP per capita on basis of real wages (nominal wages and estimated A-factor)?

• A-factor changes very slowly, even in the ‘most dynamic’ economies of Holland and England

• Fluctuate around 2 (consistent with the Bairoch rule?), in rapidly developing economies long term tendency is upward, but not very strong

• If we have estimates of real wages and costs of subsistence only, and if degree of complexity does not change a lot, a first approximation may be

GDP per capita (in 1990 dollars) = 250 * ± 2 * Real wage in bare bones baskets

OrGDP per capita (in 1990 dollars) = 580 * ± 2 * Real wages

in respectable baskets

Ancient economy (following Milanovic)

• Milanovic produced set of estimates of GDP of Ancient Economy in terms of ‘barebones’ subsistence, ranging from 2.14 times barebones (or, at $ 250: $ 535) in Italy in 14, to 1.04 (or $ 260) in Roman Britain in 500-600

• This is probably too low: average income is barely as high as real wage

• Allen: real wage Roman Italy in 300 is 1.2 * barebones subsistence; which would imply, using the formula developed here: 250 * 1.2 * 2 = $ 600

• Applying estimates Ward-Perkins/Milanovic would bring range of Ancient economy GDP estimates from $ 470 in Roman Britain to $ 970 for Italy in 14

How to fill the gap between 700 and 1300?

Estimates of GDP per capita for 14-1400 (in 1990 dollars)

14 300 700 1000 1200 1300 1400

Italy 970 610 510 1640 1730Broadb

France 540 610 510 1110 1300Prados

Spain 540 610 510 940 890PradosGreece/Turkey/Byzantium 590 590 480 680 540

(in 1500: Br.)

Britain 500 560 480 640 740 1300Br.

Holland 870 1195vZ/vL

Problems?

• Enormous growth if Italy (and France) between 700 and 1300 – is this acceptable, or is GDP in 1300 overestimated, or in 700 underestimated?

• Very high levels of GDP per capita in Western Europe from c 1200 onwards

• Comparison with Maddison: this ‘new evidence’ points to growth 700-1300 being faster (Italy: 0.2% per annum), and growth 1300-1820 being much less spectacular (growth of GDP per capita is about half the rate estimated by Maddison: 0,07% for Western Europe); this would be consistent with criticism of Maddison estimates by Federico (2002) and others

Gap between Western Europe and Asia/China?

• Pomeranz (2000): China at about 1750 at parity with Western Europe; Maddison overestimated gap between them

• Bozhong Li and Van Zanden (2010): comparison GDP per capita in Netherlands and Yangtze Delta; GDPp.c. in the Netherlands 86% higher than in Yangtze delta (c. 1838 versus 988 $); Yangtze delta had higher GDPp.c. than the rest of China; difference Yangtze/China was 40-50%; China as a whole (in 1820) about 660-700 $, 10-15% higher than Maddison estimate

• Allen et al estimated welfare ratio (barebones basket) for Suzhou, Beijing and Canton, in 1811/20 about .86 (Beijing about 1, other cities about .8), less than one third of the level in London and Amsterdam (3.4 and 3.0); suggests a GDPp.c. gap of at least 3 : 1 –

Does this approach help to quantify the difference between Western Europe and Asia?

- Similar work on Indonesia, India and Japan confirms large difference in real wages between North Sea area and these countries (Allen et.al. 2010)

- Suggests similar large differences in GDP per capita- Example Indonesia: real wages and GDP per capita

- Conclusion: The gap between Asia and Western Europe as estimated by Maddison of more or less correct

GDPp.c.: comparison between Netherlands, England and Java/Indonesia

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1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000

Indonesia Netherlands Java Holland England/UK

Real wages (in barebones baskets) in Engeland and various parts of Asia 1738-1913

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London Oxford

Beijing Suzhou/Shanghai

Canton Kyoto/Tokyo

Bengal

Adding Java, the Netherlands and Leipzig to the picture, 1813-1913

Real wages as starting point for estimating GDP per capita: Latin America, 1524-1824

Latin American ‘growth’ 1500-1800

Mexico: population decline lead to relatively high wage levels in 17th and 18th centuries

Peru/Potosi/Chile: 18th century real wages (much) above subsistence minimum

Argentina: post 1770 wage data also suggest very high real wages

Around 1820: real wages in Mexico, Peru, Chile and Bolivia have declined to subsistence minimum, but not in Argentina (about 3 times subsistence)

Pattern of 1500-1800 growth perhaps similar to t England after 1348

Different timing of GDP growth: population decline and labour scarcity

Assessment

Maddison estimates based on number of ideas/assumptions:

• Subsistence level is about 400 international dollars: probably incorrect: better to distinguish two different minimum baskets

• 1820 benchmark: Western Europe was much more wealthy than rest of the world: is probably correct

• Growth of European Economy was very gradual: is probably incorrect: growth was more rapid before 1500, and rather slow between 1500 and 1800

• On balance: no per capita growth in China (and elsewhere): China (China in 1500 also has $ 600, in 1000: 466) – we do not know (yet)

• Roman Economy was already quite wealthy: Italy in 1 has GDP per capita of $ 809 (Egypt: $ 600) is correct, but the recent tendency to raise these estimates to much higher levels…..

Conclusions

Linking Maddison project to Allen et.al. Project on real wage developments is promising

• Estimates of ‘subsistence’ minimum• Estimates of range of possible GDP per capita – first

approximations

Timing European growth 800-1800 is probably somewhat different from current Maddison estimates: less growth 1300-1800, more growth 800-1300; unexplained and perhaps ‘problematic’ growth spurt 800-1300

Gap between Western Europe and Asia at about 1820 more or less correctly estimated by Maddison

Real wage studies may help to refine our picture of growth in Latin America, (South) Africa, North America, Russia etc…

New datasets to be integrated

• Development of urbanization: Europe and Middle East 800-1800

• Under construction: new dataset of urbanization in whole world 800-1800

• New dataset on book production Europe 500-1800; similar estimates for other parts of the world can perhaps be made….

• Pre 1800 estimates based on real wages, urbanization (and based on this, via the Wrigley approach: agricultural productivity), and book production