Increasing the interactions between economic history and economic development would help each because both subfields essentially study economic development. The difference is that economic history focuses on high-wage countries whereas economic development focuses on low-wage economies. Recent research in economic history reveals that modern technology is most profitable when wages are high, implying that an underlying problem of successful development may be the demographic pattern that keeps wages low.
The new economic history arose in the past generation to bring economic history along with the revolution in economics since the Second World War. The use of modern economics and econometrics in the study of the past has brought many insights that are potentially interesting for both economic history and economic development, as demonstrated by, for example, Robert Allen, Joachim Voth, and their colleagues (Allen 2013, Voigtländer and Voth 2013, Temin 2014).
Voth demonstrated that Western Europe became a high-wage economy in the 14th century, using the European marriage pattern stimulated by the effects of the Black Death. Allen argued that high wages and low power costs produced the Industrial Revolution in the 18th century, partly due to the Black Death and the European marriage pattern. Allen showed that the technology of industrialization was adapted to these factor prices and is not profitable in low-wage economies. The crossover to economic development suggests that demography affects destiny now, as it did in the past, and that lessons from economic history can inform current policy decisions.
In more detail, Voigtländer and Voth (2013) argued that the scarcity of labour after the Black Death led to a change in agricultural technology. Moving along the wage-rental iso-productivity line, farmers changed from growing crops to tending animals, from arable farming to husbandry. In other words, movement along a smooth production-possibility curve resulted in a discrete change in the underlying technology. Thomas More expressed it most colourfully: “Your sheep that were wont to be so meek and tame, and so small eaters, now, as I hear say, have become so great devourers and so wild, that they eat up and swallow down the very men themselves. They consume, destroy, and devour whole fields, houses and cities.”
This adaptation of agricultural technology changed the role of women in medieval Europe. Switching from crops to husbandry reduced the demand for strength to push plough and expanded the scope of work that women could do. The result was a change in the status of women in society that economic historians have observed at other times and places. The reduction in ploughing reduced the demand for men’s labour and increased the demand for women’s labour. Women’s wages rose and their opportunity for work expanded. They delayed marriage, entered service and became more independent. This, in turn, led to the European marriage pattern and the family pattern described by Hajnal (1965). It was a unique change in the structure of society, consisting of later marriage of women, separate households for newly married couples, and increased frequency of single women, later known as spinsters.
The rise in wages as a result of the Black Death was sustained by a shift in marriage patterns that increased the age of women’s marriage, and reduced the rate of population increase. The adaptation to the initial shock led to a durable rise in people’s income. This, in turn, led to a demand for more meat in their diet, which, of course, was accommodated by more husbandry. The whole pattern fit together with the Black Death as a shock that shifted households and the economy from one demographic equilibrium to another.
This research dovetails with Allen’s argument that the initial innovations of the Industrial Revolution emerged from tinkering by producers to reduce the costs of expensive labour and reap the benefits of cheap power. In response to the awareness that wages were generally high in Western Europe, Allen (2009) went to some lengths to show that the small gains from these initial innovations were not profitable in France and the Netherlands.
Allen (2013) also argued that wages and energy prices in North America were close enough to the British pattern for policy initiatives – tariffs, education and infrastructure investments – to create conditions hospitable to industrialization. This was definitely true for countries in Western Europe that followed the British pattern once industrial productivity advanced from its initial level. Although these countries did not have the factor prices to make the initial innovations of the Industrial Revolution profitable, the further development of these innovations rendered them profitable at factor prices close to those in Britain. And, as Allen noted, policy changes helped industrialization along as it spread.
But this was all within the high-wage area described by Voigtländer and Voth. They noted that the European marriage pattern extended only from the Atlantic to a line from St Petersburg to Trieste. Other countries in Asia or Africa were low-wage economies, subject to Malthusian pressure on wages, and their factor prices were not close to the English ones. Small changes in economic policies were not sufficient to make industrialization profitable in India or Egypt. The story that links the Black Death to the Industrial Revolution, therefore, is also a story of why Europe industrialized in the past two centuries.
It also helps to explain why the process of economic development in other continents has been so difficult. Modern technology has extended the innovations of the Industrial Revolution in the context of high wages and cheap power. However, these factor prices are not typical in many areas of Africa and Asia and modern technology is not as profitable there as in other higher-wage parts of the world. Countries with low wages struggle to maintain modern production in the current world of low tariffs. Textiles often are a starting point, today as they were in historical times, but the follow-on to other types of production has been difficult.
The reasoning presented in this piece suggests that attention to demography is a large part of economic development. Short of a plague, the best way to raise wages is to reduce the birth rate by changing the role of women in developing countries, to bring them closer to the European marriage pattern. This, of course, is difficult in areas where radical Islam – such as the Taliban in Asia, or Boko Haram in Africa – oppose the education and employment of women. Many problems of economic development may be religious and political.
Author: Peter Temin is Gray Professor Emeritus of Economics, MIT
Image: Soybeans are harvested on a farm on the outskirts of San Jose April 27, 2011. REUTERS/Andres Stapff