Farewell to Alms, final session

by on September 12, 2007 at 7:24 am in Books | Permalink

The final section of Greg’s book has many fascinating bits, but I would rather conclude by summing up why the book is important.

The Industrial Revolution, or whatever it was that happened, is the
big question in Western history.  Yet most economists do not work on it
and I believe that most have never read a book on it or taken a course
on it.  Greg’s work puts this historical development back on center
stage where it belongs.  Furthermore he helps reconceptualize what the
Industrial Revolution really was and wasn’t; without that step further
progress is not possible.

But that’s not all.  When it comes to what happened, Greg brings two
new interrelated but distinct hypotheses to the table, namely labor
quality and downward mobility.  That’s two new hypotheses, and
he makes a good case for each of them.  That achievement holds up even if you are unconvinced by his
dismissal of institutions, or by his embrace of the Malthusian model.

As I read Greg, he wants to replace extant explanations with his story.  In my creative "rereading" of Greg, I want to add
his two factors to extant explanations.  Greg wants an explanation with
a Malthusian or a Ricardian rigor and logic.  I believe our
explanations will be more like those of history than of economics. 
That means lots of variables, lots of messiness in the causal chains,
unclear predictive power, and the accretion of knowledge bringing less
rather than more simplicity.

In short, Greg is more of an economist than I am.

Most of all, I’d like to thank Greg for his participation in this BookForum.  Here are links to previous MR posts on his book.

In sum, what did you all think?

sa September 12, 2007 at 9:38 am

For a layman like me, a book forum is an awesome way to get a range of viewpoints about some really thoiny issues in economics for some really smart commenters at MR. I think your & Mr Clark’s discussion + 6-7 comments captured the essence of the book and clarified the issues for me.

TO be absolutely honest though, this book forum totally rocks for those who already have some understanding of the issues at hand. It is unlikely to be useful to those coming here without reading up some other relevant stuff.

David R. Henderson September 12, 2007 at 10:40 am

The big-picture bottom line for me is that because of Greg’s book, I will never again be so glib and all-knowing when talking about the Industrial Revolution. The main thing I believed about its effects holds up in Greg’s book: in numerous places, he shows that it was even better for the poor than for the rich, which has generally true of economic growth. But why it happened is still a mystery. Like Tyler, I think Greg has added some new plausible factors to the stew of causes, but it’s still a stew. My other big picture comment is about writing style. Greg takes some indirect paths to get where he’s going and the book would have been much better had it been 50 pages shorter, but along the way he comes up with pithy, sometimes passionate statements of truth. I’ve highlighted a few in my previous posts on the second and third sections we’ve covered.

Now to the highlights of this section.

“While growth has so far been benign, there is no guarantee that it will continue to promote equality within societies. We may soon face the gloomy dystopia feared by so many writers, in which the wages of unskilled labor drop below the socially determined “subsistence wage† and societies are forced to support a large fraction of the population permanently through the public purse.† (p. 273)

This reminds me of something Robin Hanson said somewhere. I’m sure other readers will be able to find it. Of course, the word “force† is inaccurate unless he means that governments will use force against societies. But governments themselves will choose rather than be forced. I put the probability of this whole dystopia, though, at under 5 percent over the next 50 years.

His data on p. 275 on land prices in England are fascinating. More fascinating than the farmland/building land differential he highlights is the differential between prices of building land and prices of land for which permission to build has been secured. The former was 263,000 pounds while the latter was 613,000 pounds. This shows, as Glaeser and Gyourko have done for U.S. data, just how intrusive and binding are the regulators in preventing land and creating scarcity rents in permission.

One table that is particularly good at showing how well the poor have done is Table 14-4 on p. 283. Quite striking.

Given the title of the book, A Farewell to Alms, there is way too little discussion of foreign aid. He does make the case, though too briefly, that the best way to help poor people in the world is to allow them to immigrate. Bless him. Great two sentences:

“Aid to the Third World may disappear into the pockets of Western consultants and the corrupt rulers of these societies. But each extra migrant admitted to the emerald cities of the advanced world is one more person guaranteed a better material lifestyle.†

I think Greg goes off the rails in the last 4 pages when he talks about happiness. I don’t put a lot of stock on people’s self-reported happiness compared with that of people they never knew who lived 100 years ago. Even if I did, I don’t think it means what Greg thinks it means. I may well be happier because I have things that people around me have, but it doesn’t necessarily have to do with comparing myself with them in the narrow way that Robert Frank would say. Rather, once I become aware that certain things are available, I want them and will be happier with them. Try a mental experiment. Imagine that you could ban all improvements in medical technology that make life better rather than make life longer. Would you? It seems to me that someone like Robert Frank would, within his framework, have no justification opposing such a ban and that Clark is inching uncomfortably close to that position.

Finally, on this, notice a sleight-of-hand on the last page. In the second-last paragraph, he writes:

“If we value such collective goods as scientific research, space travel, public art, and fine architecture, then we should tax to fund them, whatever the economic cost. The consequent reduction of our material consumption will have little psychic cost.†

Notice what he did here. If he were going to make a fair judgment between these government provided goods and the sacrificed private goods, he would both by the same criterion—gained happiness versus lost happiness or gained value versus lost value. Given his earlier reasoning, he would need to conclude that even though these government-provided goods add value, they don’t add happiness. Instead, he cheats. He compares the gain in value, which is positive, with the loss in happiness (“psychic cost†), which is zero. He needs to compare using the same measure and not switch measures in mid-stream. Moreover, given that the goods he advocates would be tax-financed and that taxes are generated through the use of force, does he put any negative effect on happiness of taxpayers being thrown in prison?

Diego Aycinena September 12, 2007 at 11:07 am

The book forum was definitively a success; and Greg’s active participation only made it better.

I have a few comments:

1) Although Clark tries to dismiss the role of institutions, it is unclear whether he thinks institutions are not a necessary or a sufficient condition (or both) for economic growth. I interpreted him charitably as trying to provide evidence for saying that institutions are not a sufficient condition for growth –you also need labor quality.

2) In the conclusion he seems to suggest that given our lack of knowledge of a “simple economic medicine that will guarantee growth”, immigration could play an important role to substitute for aid. This is puzzling after his theory of labor quality and the dismissal of institutions. You might want to cite selection bias of immigrants or peer effects in the new country (or a combination of both), but it still seems a bit puzzling given his thesis

3) Finally, I know that historical data is a binding constraint. But his story seems to depend almost exclusively on England, China, Japan (with a minor role for India and other parts of Western Europe). I would have liked to see more on Latin America, and specifically on pre-colonial America -or alternatively, I would have liked to have a book forum on “1491” and see Clark’s comments about the book in light of his thesis.

Again, it was a very stimulating book and the forum was a very fun experience.

Steve Sailer September 12, 2007 at 3:38 pm

Most historians, such as Thomas Babington Macaulay, have focused on the benefits for economic growth of the “settled distribution of property” finally achieved in 1688. England was, as Clark notes more stable than most countries, but it suffered a century and a half of property rights uncertainty at the beginning of the modern era. After Henry VIII stole the Church’s lands in the 1530s and gave it to his supporters, a heavy uncertainty afflicted long-term business arrangements — would a Catholic monarch someday take the land back from the current elite? In 1688, that was decided once and for all, and Macaulay noted a rapid rise in modern financial speculation beginning a couple of years later.

Steve Sailer September 12, 2007 at 3:46 pm

Let me point out that Malthusianism still affects the U.S., as can be seen in the last two elections. GOP “family values” appeals work best in states where people are more likely to have families, states where there is more “affordable family formation.”

Bush carried inland states where suburbs can expand 360 degrees around metropolises, while Kerry/Gore carried water-bordered states where city expansion is often limited by water on one side.

Thus, Bush was victorious in the 26 states with the least home price inflation since 1980. Kerry triumphed in the 14 states with the most.

This helps explain the striking differences in how non-Hispanic whites voted state by state in the last two elections. Bush was victorious where whites could more easily afford a house with a yard in a decent school district, and thus could afford to get married and have children.

Bush carried the top 25 states ranked on “years married” for white women up through age 44. Similarly, Bush carried 25 of the top 26 states in white total fertility (number of babies per white woman), while Kerry was victorious in the bottom 16.

You can find a summary with links to all the data here:

http://blog.vdare.com/archives/2005/05/08/affordable-family-formation-the-neglected-key-to-gops-future/

Nick Szabo September 12, 2007 at 4:35 pm

I too would like to congratulate Tyler on a successful book forum.

Tyler: “The Industrial Revolution, or whatever it was that happened, is the big question in Western history.”

I’d call it a big question, which can probably be much better answered if we also try to answer a number of other big questions: why was Western Europe able to conquer the world’s sea trade routes and colonize a wide variety of areas starting in the 16th century? Why was mass publishing far more successful and why did literacy grow far faster in Europe than in China and Korea where printing had been more advanced? Why did the mechanical clock and clock culture (the ethic of punctuality, the time wage, etc.) become ubiquitous in Western Europe long before the rest of the world?

There are probably many interesting relationships between these earlier revolutions of the clock, printing, and colonization and the industrial revolution, but here are two specific and important ones that Clark’s data and observations illustrate:

(1) Western Europe’s centuries-long lead in clock culture — its earlier development of an ethic of punctuality and of the time wage — may play a leading role in the differential of labor discipline that Clark observes.

(2) Literacy greatly lowered the cost of acquiring economically valuable knowledge and skills. Greatly lowered costs and a greatly increased supply of learning would explain why innovation and more generally the productivity of Western European skilled labor greatly expanded even as the returns to these learning investments (in terms of wages) were stagant or declined, a crucial observation that Clark has made. Clark also has a wonderful graph showing how real wages in terms of modern budgets — what primarily would then have been considered luxuries — began growing during the 16th and 17th centuries. These luxury goods would have tended to require more knowledge inputs (including the knowledge required to trade luxury goods from the Orient as well as knowledge needed to produce locally) than the agricultural goods which dominate the average budgets of that era, and unlike agricultural productivity would have not been subject to the Malthusian diminishing returns (gains in agricultural knowledge were offset by population growth and the diminishing productivity of marginal farmland, as Clark convincingly demonstrates). Set this “modern real wage” graph beside Clark’s graphs of literacy and the cost of books and there is a remarkable parallel between the growth of book consciousness and what I infer to be the growth of non-agricultural productivity in the 16th through 19th centuries.

Steve Sailer: “the ‘settled distribution of property’ finally achieved in 1688…In 1688, that was decided once and for all, and Macaulay noted a rapid rise in modern financial speculation beginning a couple of years later.”

While I don’t discount this political revolution had some long-term effect, there is a danger of hindsight bias here. How, two years after a radical political revolution, could people have been so confident about legal stability? Almost all political revolutions have destabilized legal predictability for far more than two years. Furthermore, where is the evidence that Catholics posed a threat to property? I don’t recall any major deprivations of property under the Stuarts.

I do believe the Protestant Reformation is crucial, but not via security of property rights, which generally both Catholics and Protestants (with the spectacular exception of Henry VIII) had long respected. Secure property rights were one of several crucial prerequisites to the industrial revolution, but they had existed long before the Reformation much less before the industrial revolution.

Steve Sailer September 12, 2007 at 4:59 pm

The Glorious Revolution of 1688 wasn’t much of a revolution: the ruling class won and permanently eliminated the main threat to their property: that a monarch would be Catholic and thus reverse Henry VIII’s expropriations when he left the Church. 1688 established two safeguards — now, the monarch could never ever be Catholic; and the monarch was subordinated to Parliament (i.e., the propertied elite).

Nick Szabo September 12, 2007 at 6:51 pm

But where is the economic evidence that the Glorious Revolution had much effect beyond financial markets? Clark has observed that the departure from the Malthusian curve starts well before 1688, and there is no significant change in this curve for England on or just after 1688. Rather, there are slow productivity increases dating from earlier (for luxury goods from the early 16th century, for real wages generally from the early 17th century) and the spectacular productivity increases of the industrial revolution don’t occur until the early 19th century. The late 17th century is not an especially interesting time period in this data. Instead the earlier decades of the 16th and 17th centuries and the decades around 1800 seem to harbor the most interesting “phase changes” in the productivity curves.

Steve, from my own readings in 17th century English history, which include primary sources in legal history, I have never come across a widespread concern about the Stuarts reversing Henry VIII’s confiscation of Church lands. This would have required a statutory approval which the overwhelmingly Protestant Parliament would never have given, and the Protestants successfully revolted against the Stuarts in the 1640s and again in 1688 over far lesser threats. Before I invest in book research do you have any good Internet resources about this threat?

srinivas September 12, 2007 at 10:34 pm

That the Glorious Revolution of 1688, also called the Glorious Whig Revolution, was central to solidifying institutional arrangments with regard to property rights and economic consequences is a highly Whig centric view–Macualay was a Whig–and is hardly an uncontroversial settled opinion.

Gavin Kennedy September 13, 2007 at 2:58 am

In one part of the UK, Scotland, the events around the tail-end of Scotland being an independent country from the ‘Glorious Revolution’ of 1688 to 1707, did have a profound effect, directly related to the catholic-protestant divide (and the divide within the protestant church). There was much religious strife, including violence, in which many prominent Scottish aristocrats suffered grievously (thumb screw treatment, etc.).

The survival of the national Church of Scotland was a major issue in the debates from 1703 to the Act of Union with England in 1707. Should the catholic ex-king James 3rd of England and 8th of Scotland return to power in a counter-revolution (the Jacobites, English and Scottish), this would return catholic-protestant religious strife to Scotland.

Thus, many pro-Scottish aristocrats switched to supporting Union once the English accepted the independence of the Church of Scotland and the limitation of the Church of England to south of the border. This political battle, following the disaster of the Darien ‘colony’, divided Scotland roughly between its backward and catholic highland region and its protestant (various sects) lowlands. Under the protestant supremacy, the religious vigilanties persectuted people for dpctrinal error, but this was directed within the Church consensus and not between competitng churchs. The English offer to replace the capital lost in the Darien folly, clinched the Union votes and the Scottish parliament dissolved into the British parliament in London. The UK became a unitary political entity.

Adam Smith senior played a large role in the pro-Union causes; his son, the famous Adam Smith, the philosopher, benefited for that connection in his efforts to become, first a Minister at Oxford, and then a professor in Glasgow. By the 1750s, Scotland (especially Glasgow) benefited from the British colonial trade; and from growing inter-British trade with England. The agricultural reforms and ‘improvements’ initiated by the Dukes of Argyle, and the 3rd Duke’s expensive experiments in industrial chemistry (he set up works to produce sellable products with local entrepreneurs and sponsored much scientific research), had significant effects on commercialsation of business and farming.

These institutional changes added to the commercialisation of the UK (less so in the Highlands which remained rebellious and poor), which over the century added to the events leading to what some people call the industrial revolution. James Watt was employed at Glasgow University where he innovated Newcomen’s steam engine, using a teaching model that had broken down (Smith was on the Senate that appointed him).

The Scottish Enlightenment developed among a core group of intellectuals, chemists, metallurgists, geologists, mathematicians, moral philosophers, divines and literary figures, all of whom knew each other, argued, corresponded, past around their papers, and mixed with those on the ground working away at their commercial and agricultural projects that were to transform the country by the mid-19th century.

Much of this groundwork does not show up in data about finances, trade, and living standards. But it does place the events around 1688 and afterwards into a growth inducing frame.

Jon September 13, 2007 at 7:40 pm

If you were a landowner, you invested in improvements to your land (drainage etc) and reaped higher rents from your tenant farmers. Or you built a canal between your coal mine and the river. And so on.

Really? Except, I’ve never returned a can to get the deposit back, despite the clear incentive to so; the most I’ve done is keep people company who were standing in line to return their bottles/cans. You’re confusing incentive and reality.

Also, as I’m sure you’ve noticed a time or two, different people have a way of doing different things.

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