Title: The World Economy: A Millennial Perspective
Author Angus Maddison
Scope: 5 stars
Readability: 3.5 stars
My personal rating: 5 stars
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Topic of Book

Maddison gives an excellent overview of the world economy over the last 1000 years.

If you would like to learn more about long-term economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.

Key Take-aways

• Over the last 1000 years, per capita income has increased 13-fold, while the preceding 1000 years saw almost now growth outside of parts of Northwest Europe.
• Most of this world economic growth has occurred since 1820.
• Western Europe overtook China in per capita income in the 14^th Century.
• These advancements in standard-of-living have come from three main forces:
  • Conquest and settlement of relatively empty areas which had fertile land.
  • International trade
  • Technological and Institutional Innovation

Important Quotes from Book

Over the past millennium, world population rose 22–fold. Per capita income increased 13–fold, world GDP nearly 300–fold. This contrasts sharply with the preceding millennium, when world population grew by only a sixth, and there was no advance in per capita income.

From the year 1000 to 1820 the advance in per capita income was a slow crawl — the world average rose about 50 per cent. Most of the growth went to accommodate a fourfold increase in population.

Since 1820, world development has been much more dynamic. Per capita income rose more than eightfold, population more than fivefold.

The purpose of this book is to quantify these long term changes in world income and population in a comprehensive way; identify the forces which explain the success of the rich countries; explore the obstacles which hindered advance in regions which lagged behind; scrutinize the interaction between the rich countries and the rest to assess the degree to which their backwardness may have been due to Western policy.

Advances in population and income over the past millennium have been sustained by three interactive processes:

a) Conquest or settlement of relatively empty areas which had fertile land, new biological resources, or a potential to accommodate transfers of population, crops and livestock;
One important instance of this process was Chinese settlement of the relatively empty and swampy lands south of the Yangtse, and introduction of new quick–ripening strains of rice from Vietnam suitable for multi-cropping. This process occurred between the eighth and thirteenth centuries.

b) International trade and capital movements:

To a significant degree the maritime expansion of Venice depended on improved

techniques of shipbuilding in its Arsenal, use of the compass and other improvements in navigation. Institutional innovations — the development of banking, accountancy, foreign exchange and credit markets, creation of a solvent system of public finance, creation of a competent diplomatic service were all instrumental in establishing Venice as the lead economy of that epoch. Venice played an important part in fostering the intellectual development of Western Europe. It created manuscript libraries and pioneered in book publishing. Its glass industry was the first to make spectacles on a large scale. It played a leading role in the Renaissance by making Greek works known in the West. The

University of Padua was a major center of European learning, with Galileo as one of its distinguished professors.

Deep–sea fishermen provided an important part of the Portuguese food supply and

developed an unrivalled knowledge of Atlantic winds, weather and tides. The value of these skills was greatly enhanced by crown sponsorship of Atlantic exploration, research on navigation, training of pilots, and documentation of maritime experience in the form of route maps with compass bearings (rutters) and cartography. Portuguese shipbuilders in Lisbon and Oporto adapted the design of their ships in the light of increasing knowledge of Atlantic sailing conditions. The biggest changes were in rigging. At first they concentrated on lateen sails, then added a mix of square sails and lateen for deeper penetration into the South Atlantic, with further changes for the much longer route round the Cape… Another element in Portuguese success was the ability to absorb “new Christians” — Jewish

merchants and scholars who had played a significant role in Iberia during Muslim rule. They were driven out of Spain, but many took refuge and increased the size of the community in Portugal.

c) Technological and institutional innovation.

From the year 1000 to 1820, advances in technology were much slower than they have been since, but they were nevertheless a significant component of the growth process. Without improvements in agriculture, the increase in world population could not have been sustained. Without improvements in maritime technology and commercial institutions the opening up of the world economy could not have been achieved. Technical advance in important areas was dependent on fundamental improvements in scientific method, experimental testing, systematic accumulation and publication of new knowledge. The long centuries of effort provided intellectual and institutional foundations for the

much more rapid advances achieved in the nineteenth and twentieth centuries.

Tokugawa Japan

Early in the seventeenth century, the Tokugawa regime compelled its military elite (daimyo) to move their vassals (samurai) from the countryside to castle towns. The peasantry were no longer closely controlled, and were much freer to capture gains in productivity for themselves. There were large rice levies to provide stipends for the samurai, but these were more or less fixed and the tax burden declined over time.

In the seventeenth century, there were large land reclamation and irrigation projects, improved seeds, increased use of fertilizer. The proportion of land devoted to double cropped rice increased significantly, there was a rapid expansion of new commercial crops (cotton, sericulture, oil seeds, sugar and tobacco) and industrial by–employments. These changes brought increased real income, but required more intensive labour, with a particularly heavy additional load for women (Saito, 1996).

In these circumstances, large families came to be regarded as a burden. By reducing dependency, per capita income could be raised or more easily sustained. Family restriction was also socially acceptable.

The major conclusions I draw from the long-term quantitative evidence are as follows:

a) West European income was at a nadir around the year 1000. Its level was significantly lower than it had been in the first century. It was below that in China, India and other parts of East and West Asia;

b) There was a turning point in the eleventh century when the economic ascension of Western Europe began. It proceeded at a slow pace, but by 1820 real income had tripled. The locus and characteristics of economic leadership changed. The North Italian city states and, in particular, Venice initiated the growth process and reopened Mediterranean trade. Portugal and Spain opened trade routes to the Americas and Asia, but were less dynamic than the Netherlands which became the economic leader around 1600, followed by the United Kingdom in the nineteenth century;

c) Western Europe overtook China (the leading Asian economy) in per capita performance in the fourteen century (see Figure 1–4). Thereafter China and most of the rest of Asia were more or less stagnant in per capita terms until the second half of the twentieth century.

d) Towards the end of the nineteenth century, the United States became the world economic leader;

e) Japan was an exception to the Asian norm. In the course of the seventeenth, eighteenth and the first half of the nineteenth century, it caught up with and overtook China in per capita income. The Meiji takeover in 1868 involved massive institutional change aimed at catching up with the West. This was achieved in income terms in the 1980s, but not yet in productivity.

f) The colonial takeover in Latin America had some analogy to that in North America, but Iberian institutions were less propitious to capitalist development than those in North America… Over the long run the rise in per capita income was much smaller than in North America, but faster than in Asia or Africa.

g) African per capita income was lower in 1820 than in the first century. Since then there has been slower advance than in all other regions. The income level in 1998 was little better than that of Western Europe in 1820. Population growth is now faster than in any other region — eight times as fast as in Western Europe;

h) The most dynamic growth performance has been concentrated on the past two centuries. Since 1820 per capita income has risen 19–fold in Group A, and more than 5–fold in the rest of the world — dwarfing any earlier advance and compressing it into a very short time span.

Western Economic Development

A major feature of world development which emerges from our macro–statistical evidence is the exceptionalism of Western Europe’s long–run economic performance.

Northern countries grew significantly faster than those bordering the Mediterranean. The urban proportion (in terms of towns with more than 10 000 population) rose from zero to 6 per cent, a clear indicator of expansion in manufacturing and commercial activity. Factors making it possible to feed the increased population were an increase in the area of rural settlement, particularly in the Netherlands, Northern Germany and the Baltic coast and the gradual incorporation of technological changes which raised land productivity.

Increased use of water and windmills augmented the power available for industrial processes, particularly in new industries such as sugar production and paper making. There was international specialisation in the woollen industry. English wool was exported to Flanders for production of cloth which was traded throughout Europe. The silk industry was introduced in the twelfth century and had grown impressively in Southern Europe by 1500. There were big improvements in the quality of textiles and the varieties of colour and design available.

There were big advances in banking, accountancy, marine insurance, improvements in the quality of intellectual life with the development and spread of universities, the growth of humanist scholarship and, at the end of the fifteenth century, the introduction of printing.

I concluded that there was almost a doubling of West European per capita income from 1000 to 1500 compared with an improvement of about a third in China, less elsewhere in Asia, and some regression in Africa.

Venice

Venice played a major role in reopening the Mediterranean economy to West European commerce and developing links with Northern Europe. It created an institutional basis for commercial capitalism, made major progress in shipping technology, and helped transfer Asian and Egyptian technology in cane sugar production and processing, silk textiles, glassblowing and jewellery to the West.

It created political and legal institutions which guaranteed property rights and the enforceability of contracts. It was a pioneer in developing foreign exchange and credit markets, banking and accountancy7. It created what was effectively a government bond market, starting with compulsory loans on which interest was paid regularly. Its fiscal system was efficient and favorable to merchant profits and the accumulation of capital. The revenues came from excise levies and property taxes based on cadastral surveys.

It was a tolerant and fairly secular state where foreign merchants (Armenians, Greeks and Jews) could operate as freely as locals… It buttressed its ecclesiastical independence by acquiring the relics of St. Mark from Alexandria in 828. It was effectively independent of both Pope and Patriarch.

From 1500 onwards, a significant proportion of Venetian capital was reoriented to agrarian reclamation and development and creation of Palladian villas and country estates in the terraferma.

Portugal

Portugal had three major advantages in developing its overseas commerce and empire. There was a clear strategic benefit in being located on the South Atlantic coast of Europe near to the exit of the Mediterranean. Deep–sea fishermen provided an important part of the Portuguese food supply and developed an unrivalled knowledge of Atlantic winds, weather and tides. The value of these skills was greatly enhanced by crown sponsorship of Atlantic exploration, research on navigation technology, training of pilots, and documentation of maritime experience in the form of route maps with compass

bearings (rutters) and cartography. Portuguese shipbuilding in Lisbon and Oporto adapted the design of its ships (caravels) and rigging in the light of increasing knowledge of Atlantic sailing conditions. The biggest changes were in rigging…

A third commercial advantage was Portugal’s ability to absorb “new Christians” —

Jewish merchants and scholars had played a significant role during Muslim rule. They were driven out of Spain, but many took refuge and increased the size of the community in Portugal. They were required to undergo proforma conversion and were subject to a degree of persecution, but they provided important skills in developing Portuguese business interests in Africa, Brazil and Asia, in scientific development, as intermediaries in trade with the Muslim world and in attracting Genoese and Catalan capital to Portuguese business ventures.

A fourth important influence on the pattern of Portuguese business interests was the heritage of slavery.

Trade of the Indian Ocean

From East Africa to Malacca (on the narrow straits between Sumatra and Malaya), Asian trade was conducted by merchant communities which operated without armed vessels or significant interference from governments. Although Southern India, where the Portuguese started their Asian trade, was ruled by the Empire of Vijayanagar, conditions in coastal trade were set by rulers of much smaller political units, who derived income by offering protection and marketing opportunities to traders. The income of the rulers of Vijayanagar and later the Moghul Empire was derived from land taxes, and they had no significant financial interest in foreign trade activities.  In China and Japan the situation was different.

Asian merchants operated in mutually interactive community networks with ethnic, religious, family or linguistic ties and an opportunistic concentration on profit. In this respect their trading habits were not very different from those of Venetians or of Jewish traders in the Arab world of the Mediterranean. In Western Asia and the Middle East merchants were generally Arabs and Muslims, but further east they included “Gujarati vaniyas, Tamil and Telugu Chettis, Syrian Christians from Southwestern India, Chinese from Fukien and neighbouring provinces”23. If they paid for protection and market access, they found that they were free to trade. If the protection became too expensive they usually had some leeway for moving elsewhere.

China

China’s exposure to world trade had been greatly enhanced when the Sung dynasty were driven out of North China and relocated their capital at Hangchow, south of the Yangtse. It was a prosperous and densely populated region of rice cultivation. It was not necessary to bring food supplies from distant areas. They relied more heavily on commercial taxes than most Chinese dynasties and fostered the development of ports and foreign trade. Their major port was Ch’üan–chou, about 600 kilometres north of Canton. They developed large scale production of ceramics for the export market, and thekilns of Ching–te–chen (in Kiangsi) prospered greatly.

In order to defend the Yangtse and coastal areas against Mongol attacks the first Chinese professional navy was created in 1232. Within a century it had grown to 20 squadrons with 52 000 men, with its main base near Shanghai. The ships included treadmill operated paddle–wheelers with protective armour plates, for service on the Yangtse. These were armed with powerful catapults to fling heavy stones or other missiles at enemy ships.

As in the Sung, a large proportion of the trading community in the Yuan dynasty were from all parts of the Muslim world.

Brazil

The state government subsidized immigration (mainly of Italians) on a large scale from 1880 to 1928…The average educational level of immigrants was considerably higher than that of native-born Brazilians. They had twice the literacy rate and three times the level of secondary and higher education.

Netherlands

From 1400 to 1700, Dutch per capita income growth was the fastest in Europe, and from 1600 to the 1820s its level was the highest. Before 1600 this performance was due to seizure of opportunities for trade in Northern Europe, and success in transforming agriculture by hydraulic engineering. Thereafter prosperity was augmented by its role in world trade.

The Dutch trading fleet was by far the biggest in Europe. By the 1560s, on the eve of independence, the province of Holland alone had 1 800 seagoing ships… The carrying capacity of Dutch merchant shipping in 1570 was about the same as the combined fleets of France, Germany and England… Per head of population, Dutch shipping capacity was 25 times as big as in these three northern countries.

Before the partition, the only university had been in Leuven (founded 1425). This was one of the largest and most distinguished in Europe, but its freedom was curtailed by the inquisition. The university of Leiden was founded in the North in 1575 followed by Franeker (1585), Harderwijk (1600), Groningen (1614) and Utrecht (1634).

The Dutch merchant fleet to be nine times as big as the French, its foreign trade four times as big, its interest rate about half the French level, its foreign assets large, those of France negligible. The Dutch economy was highly specialised, importing a large part of its food, hiring mercenaries to fight its wars, and concentrating its labour force in high productivity sectors. Its flat terrain permitted substantial use of wind power. High density of urban settlement, good ports and internal waterways reduced transport and infastructure costs, cheapened government services and reduced the need for inventories. Dutch institutions favoured economic growth. Religious tolerance encouraged skilled immigration. Property rights were clear and transfers facilitated by maintenance of cadastral registers. An efficient legal system and sound banking favoured economic enterprise. Taxes were high but levied on expenditure rather than income. This encouraged savings, frugality and hard work. Thus the Dutch were a model of economic efficiency with obvious lessons for British policy.

The main reason for loss of dynamism in the eighteenth century was the destruction of monopolistic trading privileges in conflicts with France and the United Kingdom, which pushed the Dutch to the sidelines.

Britain

Ireland was subject to a brutal conquest in the 1650s. Petty’s Anatomy of Ireland

(1691) suggested that the population fell by a quarter because of war deaths, famine, plague and deportations. The war was followed by a massive confiscation of property and social restructuring. Two thirds of the land fit for agriculture was transferred from Irish to English landlords.

[In Britain] The urbanisation ratio rose more than fourfold… and London’s population 14–fold (it had become the biggest city in Europe, see Table 2–3).

Per capita income in Britain almost doubled from 1500 to 1700, compared with a rise of a third in France and Germany and stagnation in Italy.

This was the period when the United Kingdom rose to world commercial hegemony by adroit use of a beggar–your–neighbour strategy. The Dutch decline was due in substantial part to British and French commercial policy and to the disastrous impact of war in 1795–1815.

If you would like to learn more about long-term economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.