What Caused the Wealth of Nations?

An interesting discussion has been occasioned by references on Arnold Kling and Bryan Caplan’s blog (at: http://econlog.econlib.org/) to a couple of contributions that present novel findings about the historical sources of the wealth of nations. One is an article by Diego Comin, William Easterly and Erick Gong, “Was the Wealth of Nations Determined in 1000BC?”, and the other is
a full-length book, “A Farewell to Alms: a brief economic history of the world”
by Gregory Clark, University of California (Davis), which is available for free download before it is published by Princeton University Press in 2007).

I have read the article and am reading the book, both of interest in their own right and also because they discuss the origins of wealth creation, a subject that Adam Smith wrote his report on, published as ‘An Inquiry into the Nature and Causes of the Wealth of Nations’.

Comin, Easterly and Gong conclude that technology from 1,000 BC is a predictor of how places around the world have developed today. The roots of poverty are close to a lagged function of technical progress over the last 3,000 years. Clark finds the source of development since 1800 is related to the quality of labour, itself based on how societies broke out of the ‘Malthusian trap’ in Western Europe. I am not able to do justice to the sophistication of either set of authors in such a short piece, but more than likely I shall return to the topic later.

Smith took a great deal of interest in ’Wealth of Nations’ and in his earlier ‘Lectures on Jurisprudence’ (1763-4) in this very subject. His ‘Just so’ story of the islanders who arrived at an island and rode through the four stages of development from ‘Hunting’, through ‘Shepherding’, ‘Farming’ and ‘Commerce’ (he was lecturing to 14-year old boys) also sees population growth as a driver (though not in the same manner as Clark), and for technology his main instrument was the ‘propensity to truck, barter, and exchange’ as the driving force of the ‘division of labour’.

In the division of labour – the driver of labour productivity – he cited, among other qualities, that of ‘increas[ing] dexterity’, the saving of time in production processes, and ‘invention’ (WN I.i.5: p 17). These are closely linked to ‘technology’, from stone axes to manual iron tools. Of the latter, there are numerous illustrated examples in Diderot’s ‘Encyclopaedia’, showing Smith’s appreciation of the main content of the labour in what he termed as ‘manufacturers’, before the invention of power-driven or power-assisted machinery that became so prominent in what historians call the ‘industrial revolution’ (which, as Clark reminds us was a much longer process that what is usually meant by a ‘revolution’).

My immediate comment would be that the quality of labour and technology are closely intertwined phenomena. The knapping of a stone tool requires high degrees of cognitive ability, dexterity and ‘invention’ (in the selection of suitable objects to knap and suitable objects to knap with), as did the manufacture of wooden arrows bound with stone tips. The specialisation that flowed from these technological inventions required co-operation, trust and discipline, as did successful truck, barter and exchange. Nothing has changed in the inter-dependence of labour on technology and vice versa.

On one aspect of Clark’s argument I am not yet convinced (but I shall read on before a final judgement). He writes: ‘But for the mass of the English population as late as 1813 material conditions were no better than their naked ancestors of the African savannah’ (p 3). He measures food, clothing and shelter as the main ingredients of ‘subsistence’ to arrive at this extraordinary assertion, as if the sum of society’s ‘necessaries and conveniences’ of life must take no account of all the other aspects of a society’s products, such as knowledge, and may be ignored in comparing living standards, and, it must be noted, the number of human beings living at each period.

If they are comparable in such a manner, then the total sustainable (in a reproductive sense) populations cannot be ignored. To live on the same basis as our ‘naked ancestors of the African savannah’ would require the elimination of several tens of millions of people from the comparison.

It was labour productivity plus technology that enabled millions of humans to replace a few tens of thousands. What in effect Clark asserts is that if at any time throughout history, say, 1913 (or 2013!), we take what that society does not yet know about what is to follow in terms of knowledge, technology and beneficial products and services (think of electricity and its benefits after 1813, or medical practice after 1913), we could assert that those people were no better off than ‘our ancestors of the African savannah’, who didn’t benefit from these products. I have my doubts, but I shall read on.