Title: Was the Industrial Revolution Inevitable? Economic Growth over the very Long Run
Author: Charles Jones
Scope: 4 stars
Readability: 2 stars
My personal rating: 4.5 stars
See more on my book rating system.
Topic of Book
Jones builds a statistical model that predicts historical innovation, economic growth and changes in standard-of-living.
This article is not very fun reading, but the conclusions are very useful. I recommend reading this summary and skipping the article unless you are a serious academic.
- It is possible to develop a simple statistical model that predicts long-term innovation, economic growth and changes in standard-of-living.
- Population size a key predictor of economic growth.The more people there are, the more new ideas that can be produced.
- The more ideas there are, the more likely that one will become a useful technology.
- The more useful technologies there are, the greater the population size that can be produced.
- Institutions that promote property rights, patents and a legal system give individuals the incentive to come up with good ideas.
- Because all these factors feedback on each other, the Industrial Revolution was inevitable in the long run.
Important Quotes from Book
This paper studies a growth model that is able to match several key facts of economic history. For thousands of years, the average standard of living seems to have risen very little, despite increases in the level of technology and large increases in the level of the population. Then, after thousands of years of little change, the level of per capita consumption increased dramatically in less than two centuries.
Quantitative analysis of the model highlights two factors central to understanding this history. The first is a virtuous circle: more people produce more ideas, which in turn makes additional population growth possible. The second is an improvement in institutions that promote innovation, such as property rights: the simulated economy indicates that the single most important factor in the transition to modern growth has been the increase in the fraction of output paid to compensate inventors for the fruits of their labor
The number of ideas produced per year increased more than 110,000 times between the beginning of the simulation in 25,000 B.C. and the 20th century. A factor of 108 of this increase is due to the fact that there is a larger population available upon which to draw: more people produce more ideas.
The level of per capita consumption rises slightly from 25000 B.C. until the year 0. In contrast, the level of population rises from 3.34 million to 170 million, a 50-fold increase.
This is the long-run Malthusian consequence of the improvements in technology.
The establishment of institutions that encourage the discovery and widespread use of new ideas can lead societies to outstrip Malthusian forces. However, the removal of these same institutions can allow the Malthusian forces to once again become dominant. The technological frontier must be constantly pushed forward in order to avoid the specter of diminishing returns associated with fixed resources. The history of “growth recurring,” to use the evocative phrase of Eric Jones, may reflect the establishment and then elimination of property rights in various civilizations.
With small populations, an improvement in property rights has a small effect on rates of discovery and therefore on standards of living: the number of new ideas created depends on the size of the population. The presence in recent times of a large world economy makes property rights themselves more valuable. The cumulative effect of thousands of years of discoveries has been to raise the world population to levels at which the establishment of property rights could lead to large and rapid improvements in technology and standards of living.
The Industrial Revolution caused a change in fertility and mortality leading to an increase in population. Then the shock of an improvement in property rights is added to account for a sudden increase in per capita economic growth
Something like an industrial revolution is inevitable in the model, at least for a range of parameter values. However, the timing of this industrial revolution is quite sensitive to the parameter values and the nature of the shocks. A counterfactual experiment at the end of the paper suggests, for example, that absent the large improvements in property rights measured to have occurred in the 20th century, the Industrial Revolution would have been delayed by more than 300 years.
This paper provides a model of growth over the very long run in which the basic story goes something like the following. A long time ago, the world population was relatively small and the productivity of this population at producing ideas was relatively low, in part because of the absence of institutions such as property rights. For example, in the year 25000 B.C., the model suggests that it took several hundred years before the society of 3.34 million people produced a single new idea. Once this idea was discovered however, consumption and fertility rose, producing a rise in population growth, so that there were more people available to find new ideas, and the next new idea was discovered more quickly. In the model, this feedback leads to accelerating rates of population growth and consumption growth provided the aggregate production technology is characterized by increasing returns to accumulable factors.
In the absence of shocks, this general feedback seems capable of producing something like an industrial revolution. However, the quantitative analysis suggests that changes in institutions to support innovation have been extremely important. The rise and decline of institutions such as property rights could be responsible for the rise and decline of great civilizations in the past. And the establishment of innovation-promoting institutions in the 20th century appears to have played a critical role in generating the observed Industrial Revolution.
In the simulated economy, the resulting technological progress and rise in per capita consumption lead to a reduction in mortality followed by a reduction in fertility as the demographic transition sets in. In the very long run, it is possible for the level of the population to stabilize while the level of consumption grows to infinity, albeit at a growth rate that gradually falls to zero.