European Economic History 1:
Summary
Week 1: The Malthusian World
Three reasons why economic history is useful:
1. Understanding the big picture
2. Using case studies and natural experiments
3. Path dependency
“Malthusian World” - up to 1800 there was no sustained growth of per capita income
● Around 1800, per capita income started to grow in England - Industrial Revolution
(1760-1830)
● Similar pattern started in other European countries - First Globalization (1870 and
1914)
The problem of Malthusian World:
● Malthusianism is the idea that population growth is potentially exponential while the
growth of the food supply or other resources is linear, which eventually reduces living
standards to the point of triggering a population die off.
○ This creates Malthusian Trap, where population growth outpaces agricultural
production, causing famine or war, resulting in poverty and depopulation.
○ Such a catastrophe inevitably has the effect of forcing the population to
"correct" back to a lower, more easily sustainable level
● Some economists contend that since the industrial revolution, mankind has broken
out of the trap. Others argue that the continuation of extreme poverty indicates that
the Malthusian trap continues to operate
Population checks
To manage population growth with respect to food supply, Malthus proposed methods which
he described as preventive or positive checks.
● Preventive checks: controlling population by reducing fertility rate (because more
births increase population, which decreases wages and standard of living)
● Positive checks: any event or circumstance that shortens the human lifespan. The
primary examples of this are war, plague and famine, but also poor health and
economic conditions (when the population reaches or exceeds the capacity of the
shared supply, positive checks are forced to occur, restoring balance)
○ Evidence from Black Death - those who survived have higher standard of
living, but over time the living standard goes back to the original one
For Malthus, the only human way to keep the poor at a reasonable standard of living is to
preach sexual abstinence.
,Malthus argued that, in the absence of preventive checks on population growth—these are
lifestyle changes that reduce the birth rate—more painful positive checks—which raise the
death rate—will be imposed by nature.
Ad-on to Malthusian (check paper on Horseman effects): There are several equilibria, some
of which are locally stable, others unstable:
● Some big enough shock can trigger a transition dynamic into a “better”
Malthusian equilibrium or even an entirely new regime
Week 2: Change from 1 to 2022
Three periods:
1. From 1 to 1000: per capita income constant, population increased by ⅙
2. From 1000 to 1820: per capita increased 50%, population increased 4 times
3. From 1820 to today: per capita increased 8 times, population increased 6 times
Big difference across regions (Western / Northern Europe vs Asia, Africa, Latin America
Eastern Europe)
● Until year 1000, second group was ahead of the first one
● However, by 1820 first group had double per capita income compared to the second
group, by 1998 the ratio was 7 to 1 (Great Divergence)
Prior to the 1930s there was no GDP data, it is estimated based on wages, prices, share of
population living in cities, agricultural productivity, government spending etc.
Collateral damage: environment
There is a long term growth in GDP per capita, however there is collateral damage -
environment, as more energy has been used and more CO2 emissions are produced.
● In recent years, energy intensity went down, as production becomes more efficient
● However, if we look at the total number for energy consumption, we see that it is still
going up - this is what really matters.
Great Divergence
Europe’s large share of world economy (19th century, ended with WWI)
1. Malthusian view: Swings in economic growth, but no sustained growth until the 19th
century - growth started with industrialization
2. Revisionist view: Incremental gains visible earlier, it started few centuries before
industrial revolution and slowly developed
After WWI Europe’s share of the world economy started to decline because other regions
are growing as well.
,Inequality
Piketty: U shaped inequality
● During Golden Age of Growth (1950-1973) inequality declines
● From 1980s inequality is rising again
Elephant graph from Milanovic and coauthors: cumulative growth in income from 1980 until
2005 distinguishing where you are in income distribution when you start.
● Very poor see very little growth
● Relatively poor, we see strong growth,
● Rich (middle class in the Western world) have small growth in income
● 1% of the super rich grow very much
Since 2000s - even higher increase in inequality
Industries becoming more concentrated in specific regions
● Evidence for convergence until the regions divided into 14 bins, and we
1980s: more and more regions are see that the most are around 7).
concentrated around the median - ● 1980-2010: less distribution around
income is increasing everywhere (all median, tail is getting longer: more
, regions in the higher bins, which
comes at the expense of the other
regions
Early growth (from 12th century) in Europe may have been driven by long-term structural
changes:
1. Urbanization and proto-industrialization
a. Sectoral change: declining share of agriculture in economy, and productivity is
typically much higher outside of agriculture
2. Division of Labor and trade
a. Specialization, leading to trade, leading to one off gains in income (“Smithian
growth” - refers to economic growth promoted by division of labor, regional
specialization and market expansion.)
b. Factors driving trade: lower transportation costs and institutional innovations
solving problems such as risks associated with robbery and cheating.
3. Human Capital formation: books and skills
a. Book production
4. Warfare, institutional change, and finance
a. Provision of public goods, e.g. securing property rights, providing money,
schooling systems
b. Charles Tilly (1990): „War made states and states made war“ - need to
finance a standing army in 18th century gave rise to professional state
Administration and tax systems
However, these structural changes were not unique only to Europe, but in Europe there were
three other long term changes that were more specific just to this region (revolutions before
Industrial revolution):
1. Commercial Revolution (increased demand for consumption goods)
2. Industrious Revolution (increased labor supply to pay for consumption goods)
a. A broad range of households made decisions that increased both the supply
of marketed commodities and labor and the demand for goods offered in the
marketplace. This combination of changes in household behavior constituted
an industrious revolution.
b. In the 18th Ct, more time is allocated to the market, hence more goods are
purchased, home production declines
3. Agricultural Revolution (productivity increases in agriculture due to technological
change)
a. Traditional view: Rapid increase in land and labor productivity 1750-1850
leads to vast increase in agricultural output
b. Most of the recent literature points instead towards a slower and more long
term increase in yields between years 1300 and 1800.
„Malthusian Growth“: The Three Horsemen of Riches
● Link between Urbanization, Trade and Warfare and Income / Population dynamics.
● Per capita income (wage) growth still zero in the long-run, no escape from the
Malthusian Trap, but shifts equilibrium wage upwards
