Birth of Modern Prosperity, Part II: The Story Continues With Brad DeLong

This is part 2 of the Birth of Modern Prosperity. You can head here to part 1 with Oded Galor, part 3 with Daron Acemoglu, or part 4 with Branko Milanovic. If you’d prefer to listen to this conversation in audio, head here to Spotify, Apple Podcasts, or YouTube. Enjoy!

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What is the biggest story of the 20th Century? The battles of ideologies? The collapse of empires? The transformation of China? None of these, according to Brad DeLong. Rather, he told me: 

“The big story, starting around 1870, is ... how humanity for the first time has to deal with the idea that we are probably going to become rich as a species. That's the big picture. That's the big story. That's the story of the long 20th century.”

I think DeLong is onto something. Future archaeologists might deduce the Iron Curtain by comparing Eastern housing units to Western suburbia. They might deduce British imperialism from Victorian buildings in Mumbai. But they could simply not miss that humans across the globe have grown older, taller, and wildly richer.

Below are two telling graphs:

Source: Our World in Data

Source: Our World in Data

Indeed, whatever virtues we find in the lifestyles of our pre-modern ancestors, their lives were challenged by the risk of poverty. This was a life:

“… in which you between two and four inches shorter than we are because of calcium and other nutritional deficits. It’s a life in which … potentially one in seven women dies in childbirth. And all of that changes — or the potential for all of that — changes after 1870.”

Why?

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This is Part 2 of the series on “The Birth of Modern Prosperity”. You can listen to the episode on Spotify, Apple Podcasts, or wherever you get your shows. Or you can keep reading for my summary and analysis.

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Author of Slouching Towards Utopia, DeLong agrees with my previous guest, Oded Galor, about the grand arch of human history. The arch is simple: first, stagnation, then suddenly, prosperity.  There are ups and downs, of course. There are pockets of wealthier societies, at least for short moments. And tools did get better and better with time.

But better tools did not lead to better lives. Granted, a couple of generations might have enjoyed the fruits of a new gadget or a novel farming method. But eventually, they would invest their surplus in having more children. Farmers became better and better at reaping a patch of land. But there were more and more farmers on each patch of land. This is the infamous “Malthusian trap”. Unlike Thomas Malthus, who saw the trap as a biological law of nature, DeLong sees it as a product of patriarchy.

“Before 1870, technological progress was never fast enough, to deal with the grave Malthusian problem, which is that under patriarchy about one woman in three does not have a surviving son. And if you reach the age of 50 without a surviving son in patriarchal regimes, you are close to being socially dead. You have next to no social power.”

This makes having more children an imperative. Of course, there were natural factors at play, too. Poverty reduces fertility, whether one plans for it or not. After some population growth, there are moments when:

“… the population can't grow any longer. That’s usually where you've reached the stage that your children's immune systems are so compromised because they're malnourished, that they can be taken down by the common cold. And women are often so skinny that ovulation is hit or miss.“

DeLong thinks that all of this changed in around 1870.

DeLong’s focus on the 1870s is surprising and refreshing. Few people can name a single event during the decade. But DeLong is confident that it was one of the most transformative eras in the history of our species.

Why the 1870s?

This is the era of the so-called “Second Industrial Revolution”. It is less well-known than its predecessor. But it shouldn’t be. According to DeLong, the first Industrial Revolution created no sustainable prosperity. It only changed England, and most of the change was economically unsustainable. It was not the opening of a highway to heaven. It was close to being a dead-end. As DeLong explained to me:

“Maybe a third of English productivity growth between 1770 and 1870 comes from the great in-gathering of manufacturing to Britain as it begins to export textiles and iron goods all over the world. [But these are] things that would've otherwise been produced [somewhere else, like] China and India.”

This was a zero-sum victory for England over Asia. It was not going to transform humanity. Nor was it sustainable.

Another short-term source of English growth was cheap coal.

“The last round of glaciers were giant bulldozers that scraped the rock off of the coal deposits. So England [had] these absolutely magnificent coal deposits where the coals simply sits at the surface and you pick it up.”

Coal and the inshoring of manufacturing were not going to last. And the world could have stagnated.

“There is a possible world in which things don't change from the point of view of technological revolution after 1870. Then the in-gathering of manufacturing is completed. So that's no longer a source of growth. The cheap coal is used up so that's no longer a source of growth.”

This is a world in which peasants and workers would have little improvement in their prosperity. Crucially, they would not have been healthy and wealthy enough for family sizes to change. DeLong paints a bleak picture of a possible world where we land in a “steampunk equilibrium” — one where even the English workers only earn 4 dollars a day.

“And that [4 dollars a day] isn't enough without modern public health to get people feeling secure enough about their children [and] move out of the eight pregnancies.”

So what happened in the 1870s? In DeLong’s words, humans “invented inventing”. In other words, what used to be a haphazard process of individual geniuses became a routine. Geniuses still mattered. But only in the 1870s did lonely geniuses become a routine source of new technologies. They did so, for they found a new home. This new home was the industrial research lab of the modern corporation.

Take Nikolai Tesla and the Westinghouse Corporation.

Tesla’s social skills were inexistent, DeLong told me. He was “more than socially awkward”. He would insult others regularly. In the pre-1870s world, Tesla would still have been a genius. But he would have been unemployed. He could not do all the daily work around financing and producing his gadgets.

“Before 1870, if you had an idea … you would have to not only have to be the inventor with the idea; you'd also have to be the developer and the machinist to demonstrate it. You'd then have to go out and beg for money. You'd have to find a venture capitalist. You'd have to be a financier.”

In short, you'd have to have great social skills.

“You'd have to have huge amounts of extremely good social skills in order to assemble a team that could actually make your device and sell it.”

Tesla had no such skills. In the world before 1870, he would have been tinkering alone. Not anymore. George Westinghouse noticed Tesla’s genius.

“[Now] Tesla can work full-time on what he is better than anyone else in the world at. And all of the jobs in which his productivity is actually negative can be done by other people — provided that George Westinghouse is willing to apply sufficient money to keep the R&D lab going. Now [Tesla is finally] useful. And so we get our modern electricity industry when we do, simply because George Westinghouse is there with the Westinghouse Corporation.”

The R&D lab changed everything. Technological progress became a standard part of everyday life — something any historical epic of early 20th Century will capture. (As a Finn, I am biased towards Väinö Linna’s Under the North Star as an example. But there are many others.)

Modern R&D labs were then joined to a global market, thanks to the invention of telegraph cables, phone lines, and steamships. This accelerated the spread of new technologies and spurred competition among innovators. We enter the world of modernity.

DeLong’s is no fan of laissez-faire capitalism. In his other work, he has been a vocal critic of neoliberalism. But he does note something interesting. The Westinghouse Corporation is not a charity. But as an engine of modern prosperity, its business relies on producing benefits to the broader public. This resonates with our times. Modern corporations are hardly saints. But they do produce many things that improve our lives. They have given us the refrigerator, the washing machine, cheap solar panels, and rapidly-scaled COVID vaccines. (The examples are mine, but I doubt DeLong would disagree.)   

The same cannot be said of business models before 1870. According to DeLong, this was a world fundamentally different from the modern world — a world where the only way to be rich was to run “what amounts to a force-and-fraud, exploitation-and-domination regime”.

Why so, I ask? Why could you not get rich by other means?

“How else? Maybe, if you have a better idea for a water pump, you can build one for yourself. But if it really is that much better a water pump, other people will look at it and will immediately copy it. And so you won't be able to sell your services as a maker of water pumps. And in addition, if you do start a very profitable .. industrial enterprise .. you then become a very soft target in a world in which your property rights are entangled [and] the rich are usually the judges as well.”

So was Marx, writing before 1870, right about the capitalism of his time?

“Yes.”

This is a critical point. DeLong agrees with many writers who might, at first glance, appear miles away. For example, his thesis is not that different from the degrowth activist Jason Hickel’s who records the dismal effects of Early Modern capitalism on human wellbeing. Like Hickel, DeLong sees nothing pretty about the commercial world before the 1870s. Like Hickel, DeLong thinks modern prosperity only began 150 years ago in the West, later in the rest of the world. They focus on different dynamics. (Hickel is closer to my next guest, Daron Acemoglu.) But what might appear as opposing views on the surface becomes only slightly different explanations of a single story. This makes me optimistic. When talking about 1870, we are probably talking about a real juncture in history.

So what does DeLong think of Oded Galor’s argument, expressed in Part 1 of this series?

Below is DeLong’s summary of Galor. (To hear his position in Galor’s own words, you can listen to the episode or read my analysis.)

“Before 1870, the potential benefits to a parent from investing in one particular child [by educating them] were small. Technology was such that there really wasn't that much to learn. And so before 1870, families would say ‘we should invest our resources in having a bunch of children’ [in the hopes that] some will survive and … 'bring comfort to us... in our old age.’

Then comes the change.

“In 1870s, it makes more sense for you to invest in having one or having two children and feeding them extremely well .. and sending them to school, because having one child able to work in the industrial economy of 1880 is worth more to you in terms of support in your old age than is having six three of whom will then die.”

Galor focuses on family. DeLong focuses on inventions. But there is a nice synergy here:

“[Smaller family sizes] also changes the rate of technological progress because all of a sudden, a lot of resources that [used to be] devoted to having more children were devoted instead to building up the skills — the education, the knowledge, the brains — of individuals. And so the accumulation of human capital was immense. And that shows up in my schema as an increase in the pace of technological growth.“

So is it a good story?

“It's a neat story. It all fits together. [But] I tend not to believe in the discontinuous flipping of single switches. [According to Galor], you flick the switch and you start having fewer children and investing in education. In my view, wealth comes first, and [so,] infant mortality starts to fall. As infant mortality starts to fall, people say ‘wait a minute, we don't need to have as many children’. And then you get the demographic transition.”

For Galor, family size decreases first. Wealth comes later. For DeLong, it is wealth that drives down family size.

“And I think my story fits his bits fits better because we do have this huge population explosion from 700 million people in 1770 to 8 billion people today. So there are are about 50 or 60 years in every country in which technology and income is advancing rapidly, but in which people have not yet made this switch [away] from having huge numbers of children.”

This makes sense. As I pointed out in my chat with Galor, there is a certain awkwardness in explaining the rise of 20th-century prosperity by evoking a decreased population growth. After all, the 20th Century experienced an immense population boom. Granted, Galor would point out that the boom happened mostly in countries like India; the boom in prosperity in countries like England. But many would say, I believe, that DeLong has an easier time in squaring this circle.

Here is DeLong’s argument, then: for most of humanity’s history, we lived close to the poverty line. The overwhelming majority of people were peasants, and the overwhelming experience of peasants was a life on the edge. New technologies rarely helped, for any surplus was soon spent on feeding extra children. This changed in the 1870s — not because the population stopped growing but because inventors became so busy and so effective that no amount of population growth could eat the fruits of modern prosperity. Yes, family sizes started shrinking in rich countries. But this was a happy effect, not a necessary cause. 

So goes DeLong’s argument. My next guest, Daron Acemoglu, disagrees. Acemoglu’s historical studies don’t blame historical poverty on the sizes of the peasant families but on the bullying behaviour of extractive elites. To combat this beast, we needed democracy and labour unions. You will hear from him soon. 

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