From a new paper by Robert Allen, Tommy Murphy, and Eric Schneider:
We begin by measuring real wages in North and South America between colonization and independence, and comparing them to Europe and Asia. We find that for much of the seventeenth and eighteenth centuries, North America was the most prosperous region of the world, offering living standards at least as high as those in the booming parts of North-Western Europe. Latin America, on the other hand, was much poorer and offered a standard of living like that in Spain and less prosperous parts of the world in general.
It is a common view that North America had to play catch-up, but the extensive data sets in this paper suggest that North American wages were up to twice as high as the general level of wages further south.
For the pointer I thank Mark Koyama on Twitter.
Very interesting, I didn’t know that went all the way back to the 17th.
I’ve been surprised just how common that view is. I still meet educated Eurpoeans who believe the U.S. was much poorer right up until WW II, which allowed us to “catch up.”
I think it’s a common misnomer — I used to think that the UK was the richest country until WWI or WWII — but this was NEVER the case.
Leaving the rest of the word’s industrial powers in ruins after WWII allowed Americans to grow at an unusually fast rate for about 20 years. But all this did is distort our economy by giving undue preference towards industry, empower unions, and give every American a false sense of economic security — namely that you can graduate high school, get a job in a factory, kick back and have a good middle class life.
Try reading Benjamin Franklin’s “Autobiography.” He lays out, in more than sufficient detail, the difference in the standard of living between a 1760 resident of Philadelphia and a 1760 resident of London.
How about you just give the key similarities and differences in that comparison so we don’t have to look up an obscure part of a relatively obscure book? Thanks.
I’ve always thought that the US was wealthier from the get-go. I’m surprised if this has not been the commonly accepted view.
No way this is true. Look at the churches in Peru. No building in N. America from similar times compares.
Public vs. private goods, perhaps. No doubt that “the church” was wealthier in Peru, but it also extracted wealth and labor coercively.
The churches in most of the Latin American colonies had huge land ownership and special privileges that they could use to pay for all those pretty churches. The Catholic Church owned one-third of all the land in Mexico at the time of its independence.
Just compare our pyramids to those of Egypt- no comparison, ancient Egypt ruled.
Massive coercion FTW.
I’m starting to think maybe Alex has stumbled onto a different correlation…
Alex, you may be even more shocked to learn that Dark Ages Europe had better per capita nutrition than Roman era Europe, as indicated by skeleton studies. And hunter gatherers tended to have even better nutrition than Dark Ages Europe. Food being the dominant cost of living in all these eras, better nutrition generally implies a higher per capita standard of living.
Of course, Rome had a much higher population density than Dark Ages Europe, and Dark Ages Europe than a hunter-gatherer tribe. In the Malthusian era, the standard of living of the elites, and thus the lasting landmarks of civilization, tended to have far more to do with population density than with the mean or median standard of living.
Alex, I think that is the worst comment I’ve read from you here.
I am actually more surprised that LA did as well as Spain, would have thought they’d been much behind.
*having not read the paper
I would ask who is included in the measurement of wages. Indigenous peoples of South and Central America were generally more integrated into society (as laborers or farmers) than their equivalents in North America. Are slaves included? Ignoring large swathes of society would certainly play with the numbers here.
Slaves are included, but the authors point out that their labor was rarely substitutable for free labor in the British Colonies because they worked in wholly different areas. In fact, a decline in the price of slaves could actually lead to higher wages in the Middle American Colonies, because the increased utilization of them resulted in increased plantation consumption of wheat and other goods produced in the more northerly British colonies.
They also point out the evolution of indigenous labor in the Latin American colonies, from the brutal slavery of the Encomienda system (where indigenous workers received less than a quarter of the equivalent of subsistence wages) to higher wages that occurred as the indigenous population steeply declined in the century after the Spanish conquest in Mexico.
I remember Adam Smith writing at some length about why the English colonies in the Americas were much wealthier than the Spanish colonies in the Americas. I hadn’t been aware that there was any tradition of thinking otherwise, though I also thought there was some variation (I recall reading that Argentina was quite competitive with the U.S. on a per capita basis up until the Great Depression era, when it suffered much more significant and lasting economic damage than the U.S., but Argentina is different in many ways from the Latin American countries further north).
‘…but the extensive data sets in this paper suggest that North American wages were up to twice as high as the general level of wages further south.’
Hmmm – when did slavery take hold in South America?
The correct answer, of course, is right from the start – slaves were imported because the Spanish and Portuguese had pretty much run out of subjects to exploit.
Further, which group of colonies in the 1600s and 1700s weren’t directly exploited for the benefit of overseas rulers? – no need to guess, of course, as that would apply to the Germans living in the mid-Atlantic, or the various religious groups fleeing oppression settling along various points of the Atlantic seaboard, and most definitely including French speakers.
South America was not just literally a gold mine, it was also a source for other extremely valuable products, like sugar – which were produced and treated as a luxury good. Of course, Virginia and tobacco shared a similar framework, but the element of pure rapaciousness was considerably muted within an English framework – especially considering that much of that wealth was not directly siphoned off to the motherland, and that there were a number of similarities between England and Virginia – farming, for example, was directly transplantable, including the model of farmers being the actual landowners, something which most certainly did not occur in either Spanish or Portuguese colonies.
Was America poor, in comparison to either South America or Europe? An interesting question which isn’t easily answered by comparing wages, since the concept of ‘wages’ was not really something that either the Spanish nor the Portuguese were very interested in while amassing immense wealth to be transferred to another continent. Add in the entire cultural overlay of the counter-reformation Catholic church (another institution as uninterested in wages as it was in amassing immense wealth), and it might that using wages as a measure provides more insight into why North America became so wealthy than as a way to measure relative standards of poor/rich.
“Of course, Virginia and tobacco shared a similar framework, but the element of pure rapaciousness was considerably muted within an English framework”
Just as Virginia started getting profitable, the English became rather pre-occupied with matters of the spirit in a way which made it difficult to set up or enforce the sort of rapaciousness that might have been possible.
It’s entirely too bad that American schoolchildren aren’t taught about the English Civil War, as it was rather important to the development of the colonies.
Wages might not be the only measure of wealth.
They measure wages in comparison with the estimated costs of living to come up with their income figures. As they point out in the paper, the wages in Potosi were actually double that of London in the late 17th century, but actual income and living standards were only twice the subsistence level due to much higher living expenses (London wages were four times subsistence level when you factor in costs of living).
The authors seem to consider slavery only as it affected wages of free workers. But shouldn’t the economic conditions of the slaves themselves be considered as part of the overall economic wellbeing of the Americas? Whether that would have affected the result or not, leaving a substantial portion of the population out of the analysis seems like a strange way to do this wealth comparison.
Interesting that prior to European colonization, the south (including Mexico) was vastly wealthier than the north.
The site ate a couple of my replies. What gives?
Urbanization was far greater in the southern indigenous societies than in those north of the Mexica Empire. The North American indigenous societies included some relatively populous chiefdoms, but overall the population was lower than what it had been centuries before due to the Little Ice Age.
Well, yes. But the Americas north of Mexico had never contained any cities larger than Cahokia and even that was a extreme outlier — there was no ‘second city’ that was remotely close in size. And Cahokia was tiny compared to many cities in Mexico and South America. Before Columbus, the North was, and always had been, a relatively poor, rural backwater in comparison to the South. Conquest and colonization completely flipped the wealth and sophistication of the Americas upside down.
Several of my comments were eaten up. What gives?
I suspect you could find a similar gap, albeit perhaps a bit less extreme, between England and Spain in the 17th century. England hadn’t had a major famine since the 14th century, but famines were common in the Mediterranean in the 17th century. One of the reasons the Spanish monarchs went bankrupt so often is because they had to buy grain from their enemies the Dutch (!) to fix famines in Spain and their Italian provinces. The Dutch didn’t grow much grain themselves, but stockpiled grain grown in the Baltic whose trade they dominated in the 17th century. (And it’s important to know that the intra-northern European trade in bulk commodities was far more important than the colonial trade in luxuries in terms of both GDP and per capita standard of living).
There was of course also an increase in per capita income going from England to North America, due as Adam Smith observed to all the cheap and good agricultural land, to which I’d add wild land grazing for cattle, fisheries, and forests.
There was also likely a gap between Spain and the Aztec and Incan empires if we account for the fact that work that was done by draft animals like donkeys and mules in Spain was done by people in the Aztec empire (a bit by llamas in the Inca, but with no wheeled vehicles). Also the Incan and Aztec diets were lower in meat. However, given the massive Columbian plagues in America, I suspect Spanish America would have pulled ahead of Spain if their institutions adapted properly to the greater per capita abundance.
Of course there is quite a bit of subjectivity in any such comparisons, but in an era when food was the dominant sector in the economy, comparison of nutrition makes a relatively objective measure. One should also look at the conditions of labor — slavery, health conditions, being put to work as draft animals in the absence of draft animals, etc.
Of course, hunter-gatherer tribes that were sufficiently remote would have had a substantially higher standard of living in terms of nutrition, although there were other drawbacks.
This sounds interesting. Do you know of some good books or papers that discuss this trade?
Skimming the paper, I’m missing the fact that most colonists were not in the market/money economy. The emphasis on wages seems misplaced; I don’t think my Scots-Irish ancestors emigrated because wages were higher in PA than Ulster, but because they could own, own, land in PA where the best they could do in Ulster was get a lease. Granted that would play into the higher wages in Philadelphia to attract labor from the farms, but the authors seem not to discuss agriculture much at all.
I agree. I think the authors are attempting to shoehorn the economics of another era into current standards. However, I do find the conclusion to be much simpler. Given the median person in each society, I would certainly rather live in the N American British colonies than anywhere Spanish or Portuguese. The literature is abundantly clear about the lives of colonists in each area, and I have yet to see the appeal of the Spanish colonies outside of being a wealthy priest or nobleman. Given the upper classes the Spanish colonies would probably have been more interesting, but even they seemed mostly intent on heavy mercantilism to support the Colonial power, unlike the N American British colonies that actually created their own cultures within and without the British mercantile system.
Institutions matter?
The authors (on pg. 11) claim that average wages in Mexico in 1527 were 1/4 of subsistance, and this contributed to the 90% population loss…. Not a single mention of the mass epidemics that were the actual cause of mass death in Mesoamerica right before, during, and after the conquest. What better evidence is there of the historical myopia of economists?
OTOH, didn’t that also happen in NA?
Related, but the basic thesis for Eduardo Galeono’s the Open Veins of Latin America is that while the US and Canada were settled for people to emigrate and settle, the Latin American countries were intended more to extract wealth for sending back to Europe.
Quite a bit of North America is also Latin America.
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