Birth of Modern Prosperity: The Story Begins with Oded Galor
This is part 1 of the Birth of Modern Prosperity. You can head here to part 2 with Brad DeLong, part 3 with Daron Acemoglu, or part 4 with Branko Milanovic. Or you can keep reading for the opening piece. If you’d prefer to listen to the conversation in audio, head here to Spotify, Apple Podcasts, or YouTube. Enjoy!
Humans live longer and grow taller than ever before. We are healthier and wealthier. Our ancestors could hardly have imagined a life of such prosperity. A future archaeologist would be equally puzzled. How did we become so rich so fast? What changes could have been so dramatic as to literally change the height of our species?
Our modern prosperity is not the outcome of slow and steady progress. For most of human history, there was no upward trend in the health and wealth of the average human. The big events of history rarely changed the life of the local farmer.
So what changed?
During the past one and a half years, I’ve had the privilege of talking about this question with many amazing scholars. Each of these episodes was thought-provoking. Here is my attempt to connect the dots: a mini-series on “The Birth of Modern Prosperity”. It consists of curated highlights, around 30 minutes each, from these episodes, which would total almost 6 hours in their original.
We will hear from Daron Acemoglu and Branko Milanovic in the second half of the series. They will explore the political origins of modern prosperity, focusing especially on social democracy.
But we should start with a simple question: When did modern prosperity begin?
Not with the steam engine, it turns out. The classic story that modern prosperity started in the 1770s is becoming less and less popular. Rather, all of my guests focused their attention on the late 1800’s.
(It is worth noting that Jason Hickel, who pushes against many “dogmas” of the profession, has recently argued for the late 1800s as the starting point of modern health and wealth. So there is a lot of agreement across the spectrum.)
But what exactly happened 150 years ago? And how unique is this moment when seen against the long arch of human history?
To answer this question, we begin with Oded Galor. Galor, a professor of economics at Brown University, is best known for his book Journey of Humanity. As the title suggests, this is one be the most ambitious books ever written on economic history. It is also short and highly readable. I am still puzzled by how Galor managed this.
My original conversation with Galor was long. It is spread between two episodes (12 & 13). But his core theory is surprisingly simple. You can now enjoy his explanation of it in under 30 minutes. The episode is titled “The Birth of Modern Prosperity, Part 1: The Shape of the Story (with Oded Galor)”. You can listen to it on Spotify, Apple Podcasts, or wherever you get your shows. Or you can continue reading for key takeaways.
Galor’s thesis
Modern prosperity is unique, Galor argues. For most of human history, nothing really changed. As he explained to me:
“In contrast to the views of some that since the Neolithic Revolution, we see a gradual improvement in living standards .. what in fact we see is a gradual improvement in the level of technology, but no change in the standard of living that is longlasting.” 1
Galor’s book references some excellent data on this. He cites estimates about how much an unskilled worker earned in various places for one day’s labour (in kilograms of wheat). This was 5-7 kg in Babylon and Assyria, 11-15 kg in Athens, and 4kg in Egypt under the Roman Empire. Even on the verge of the Industrial Revolution, most European cities offered similar wages, between 4 kg in Naples and 10kg in Amsterdam. For the average person, nothing much had changed between Babylon and Amsterdam.
This all changed during the past 200 or so years. How and why?
I’ll try to divide Galor’s explanation into four steps. The argument starts with some good news.
Humans are innovators. Human history is a story of technological progress.
This is hardly controversial. One of the remarkable things about anatomically modern humans is that we innovate. Our ancestors made the archaeological record go wild with new tools. It has remained wild for the past 100,000 or so years. We are tinkerers of new tools, from palaeolithic needles to modern sewing machines.
This is great, you might say. But the story is not all rosy.
For most of our history, technological progress has produced bigger populations, not more prosperous populations.
Using economists’ lingo, humans were in a “Malthusian trap”. Better technologies mean more food. But with time, more food means more humans, not healthier or wealthier humans. Galor told me:
“[For most of human history,] societies that are more advanced technologically tend to be more densely populated than other. This is a striking difference from today's world in which technologically advanced societies are the most prosperous societies. But in the past, technologically advanced societies had larger populations, but not richer populations.”
To put meat on the bones, Galor used the example of Irish potatoes. After potato was introduced to Ireland:
“… the population in Ireland increased by a factor of four, almost five, over a 200 year period. But we do not see much improvement in the standard of living. So we see a better technology — a better crop that is suitable for the soil that existed in Ireland — and this crop is ultimately permitting more people to be sustained, but it does not make them more prosperous than others.“
Then things changed.
We escaped the Malthusian trap. We escaped it because of an interesting interplay of technology, education, and family size.
Humanity started its long escape with the Industrial Revolution. New technologies started appearing faster and faster. This made a small part of the world slightly more prosperous. But this was only the beginning. As Galor told me:
“This is not sustained economic growth because much of it .. is consumed by the increase in the size of the human population. And it is the demographic transition that occurs a in western Europe in the 1870s that frees the growth from the counterbalancing fact of population.”
Figure 8 from the Journey of Humanity: Children per Woman in Western European Nations, 1950-1920
This makes sense, I told him. After all, rich people today don’t typically invest their savings into more children. They invest it in their very few children.
But why did the demographic transition happen?
Galor’s answer focuses on education. Since the Industrial Revolution, new machines started appearing on the scene. The kettle simmered. Suddenly, it reached a boiling point. Machines became so complicated that workers needed basic education to fully participate in the economy. Educating children in numeracy, literacy, and other basic skills became a self-serving strategy for parents and industrialists alike. Public education became a pro-business part of economic policy. But education meant that children became a serious expense. And so, families no longer invested their extra income in more and more pregnancies. They invested their income in the education of a select few children. The Malthusian trap could no longer eat away the gains of technology.
As Galor explained to me:
“In order to invest in the education of your children, you must economize on other elements in your budget constraint. Namely, you must economize on the number of children. And this is critical because ... this level of technological progress is ultimately converted to richer people rather than into more people.“
To make this point, Galor’s book includes a graph showing a contrasting trend for family size and education worldwide.
Figure 11 from Journey of Humanity: Growth in Education and Drop in Fertility across the World 1970-2016
Along the shores of the North Atlantic, this boiling point was reached around the 1870s. Unfortunately, most parts of the world joined later. This was no accident. This brings us to the fourth and final part of the argument.
Escaping the Malthusian demon was sometimes done by chaining others into its dungeons. One of the reasons that England reached the demographic transition early was that it exported low-skilled work to India. This greatly delayed Intia’s escape from poverty.
Galor was very articulate about this dynamic, focusing on the textile industry:
“[In mid 1700’s,] the textile industry in India was quite advanced … Then we see the emergence of colonial relationship. [Now] England is .. inducing India to specialize in the production of raw material and agricultural goods from which there are limited spillovers and limited demand for human capital.”
This is critical. Notice that the kettle of prosperity boils only when it becomes the self-serving strategy for families to educate their children. In Galor’s words:
“In India, we see specialization in the production of raw material, agricultural goods that have limited demand for education or human capital. In England, we see precisely the opposite specialization, the production of industrial goods that are human capital [and] education intensive. So in the two societies, the forces are such that in England we see higher demand for human capital and an earlier onset in of the demographic transition. In India, we see depressed demand for human capital and delayed in the demographic transition till the second half of the 20th century. So while the two countries gains from trade, the gains from trade are converted in India into more people and .. in England .. into more prosperous people.”
Offering one of the most chilling data points in economic history, Galor wrote in his book:
“ Since 1820, the size of the Indian population relative to that in the UK has doubled while income per capita in the UK relative to that in India has also doubled.”
Britain boiled its kettle while pouring ice into India’s. Britain today is prosperous, while India is populous. Happily, India is catching up. But its take-off was delayed by decades. Here is a telling graph from Galor’s book:
Here, then, is a possible story of the human story: During most of human history, our innovativeness only helped us grow our populations. During the modern era, it finally allowed these populations to become healthier and wealthier. Modern prosperity was born. Public schools and family planning were its handmaidens; colonialism its ugly godfather.
My next guest is Brad DeLong. He agrees with a lot Galor says. But he flips things around. For him, the family didn’t change the economy. The economy changed the family. And the economy changed because of mad geniuses like Nikolai Tesla who finally found a home in the modern corporation’s R&D lab. You will hear from him very soon.
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All quotations have been simplified by deleting filler words, filler phrases, and other parts not critical to the argument. Given the sheer number of such edits, I have decided to hide them to ensure legibility.
Wow, I've wanted to write about about these episodes since hearing them for the first time, but since they have come up again, I'll try to summarize my thoughts now:
I see several problems with Galor's thesis:
1.) Galor claims that better technology has always historically resulted in people collectively having more children, cancelling out the gains from innovation (the Malthusian trap). Then, for some reason not well explained, he suggests that people started having fewer children about 150 years ago so that technology raced *ahead* of population growth for the first time ever, raising living standards. That's my understanding of his thesis.
The problem with this is that the human population has increased *exponentially* since the Industrial Revolution, from about 1 billion people in 1800 to over eight billion today. That is, the Industrial Revolution *turbocharged* population growth, not arrested it. The world's population has *doubled* since 1975 alone!
https://www.statista.com/statistics/1303469/time-taken-for-global-pop-double/
https://www.worldometers.info/world-population/#pastfuture
How are we to square this with his idea that humanity supposedly got rich by investing in *fewer* children per capita? Even if we confine ourselves to Great Britain--ground zero for the Industrial Revolution--we see that population increased continually throughout this period much *faster* than the preceding agrarian era, and, on top of that, this was during an era of mass emigration from Great Britain to other parts of the world. This can be seen from this chart and this map:
https://ourworldindata.org/grapher/population-of-england-millennium
https://www.reddit.com/media?url=https%3A%2F%2Fi.redd.it%2F932om7marj4d1.jpeg
When you put this question to Galor, it seems like he backpeddles: instead of people having fewer children; now he tells us that, yes, population was in fact *growing* throughout the Industrial Revolution, but technological innovation was growing *faster*. This seems to be a totally different theory than the one he was expounding earlier in the interview. So having fewer children wasn't the cause after all? To me, it seems obvious that the demographic transition is a *result* of industrialism, not a cause of it (as Brad DeLong argues).
(As a sidenote: if lower population growth really is the key to economic prosperity, as Galor argues, then it is hard to justify the current panic over declining birth rates among the media and certain billionaires.)
When you posit the harnessing of fossil fuel energy to Galor, he never tells us why his thesis is a better explanation for these developments--he merely restates it. Do you find his answer convincing? DeLong, at least, mentions England's coal deposits in his interview but neglects it otherwise (I've not yet read his whole book, but I've looked at the index and there doesn't seem to be much mention of steam engines, fossil fuels, oil, etc.).
To me, all of these explanations violate Occam's Razor: you should not multiply causes beyond necessity. In my view, the real story is quite simple and plainly obvious: humans have been getting increasingly better at harnessing energy. First it was the energy in organic materials using fire. Then we captured more and more solar energy in the form of plants with the Agricultural Revolution and turned it into food, fuel and fodder. Along the way, we captured some of the energy in prime movers like wind and water, along with harnessing animal power. But increasing population ate up the gains in the long run.
Then, starting about two hundred years ago, we started accessing the billions of years of fossil sunlight stored in hydrocarbons by inventing the first heat engines. Then we harnessed petroleum with the internal combustion engine. Then we harnessed electricity in the Third Industrial Revolution which is still ongoing (e.g. computers and telecommunication). This is the story told by Vaclav Smil in "Energy and Civilization", and by Nate Hagens, among others. Hagens has a series of videos describing how we are "energy blind." From one of the transcripts:
"We increasingly replaced manual human tasks with machines, at a tiny fraction of the cost. The result: higher profits, higher wages and cheaper goods. Sudden access to this bank account of stored carbon energy turbocharged our populations, access to goods, services, and technology and quadrupled our economic growth rate."
"Yet humanity’s great acceleration was still ahead. In the latter half of the 20th century, with this new power source, and an upgrade from coal to higher quality liquid oil, the human economy’s average growth rate doubled yet again, to now over 30x what it had averaged during the last few thousand years."
"Compared to a global labor force of around 5 billion real humans, the machines and work powered by access to buried carbon energy added the equivalent power of 500 billion human workers. Access to these fossil energies and materials brought billions more humans into existence and brought billions more out of poverty..."
https://www.thegreatsimplification.com/animations
This explains why people have fewer children per capita in industrial societies: there are hundreds of "energy slaves" per person doing our work for us. A barrel of oil is equivalent to roughly four years of human labor, so large populations are no longer necessary for growth. I would suggest having Hagens on to present this alternative thesis more fully.
To me, this explanation is a lot more satisfying and makes far more sense than any of the explanations provided by economists who I think neglect the role of energy for ideological reasons. If economic growth is fundamentally enabled by energy, then growth is finite and the fundamental assumptions of economics are not viable, therefore, the role of energy must be deliberately suppressed and obfuscated.
I've not yet seen anything that convinces me that this thesis is not correct, and that every other explanation is merely trying to conceal what is apparent. It's like an absurdist Monty Python sketch where everyone has to deny the presence of an elephant in the room and come up with alternate explanations for the mayhem around them besides the bleeding obvious.
Finally, as for the timing of 1870, I think that's exactly right, and the timing fits remarkably well with the discovery and exploitation of petroleum fuels, which I wrote about here: https://hipcrime.substack.com/p/the-lost-golden-age. It's worth noting that it was petroleum which turbocharged world food production (combine harvesters, seed drills, cultivators, artificial fertilizers, water pumps, long-distance transport, refrigeration, etc.) and freed up the vast majority of humans from food production for the first time, which may be why the previous industrial revolution (pre-1870) had less of an effect on living standards. This freeing of humanity was the source of the increasing innovation throughout the twentieth century that DeLong describes, as well as the fact that land was no longer needed to produce energy which could be mined from underground instead. And globalized trade was supercharged since it no longer had to rely exclusively on wind power.