Gregory Clark has written the finest work on economic history that I know. The entire book A Farewell to Alms is focused on this single chart on the right.
Clark uses measurements from every period back to the Neolithic. His data is impeccable. What he demonstrates is that all humans for the previous 50,000 years lived under the same conditions. Just a small amount above functional survival with occasional dips into starvation and death. Clark shows, with a simple equation and solid data, that Malthusian economics accurately describes the conditions for this 50,000 year period.
For much of northern Europe, starting in England, this changed. We call the change the ‘industrial revolution’. Clark doesn't like the terminology but doesn't offer an alternative. The reason he doesn't like it is because he shows that moving the industrial equipment to Third world countries had no impact.
In the mid-19th century entire cotton processing and fabric producing factories were moved to Egypt and India. While these factories employed 3 to 4 times the number of workers used in England, in the same factories in Egypt and India the factories produced half as much output. This is why the industrial revolution did not spread outside of northern Europe and a few other locations. A century later we know that it did spread to Taiwan, South Korea, Japan, Singapore, China and a few other places.
Clark concludes that the industrial revolution occurred because of productivity. Productivity consists of two elements. One is a willingness of workers to work hard and consistently in return for delayed gratification. The other is a willingness to accept innovation and build that into the institutions of commerce. Both of these elements are related to the time value of money. Time value of money is simply the willingness to forgo a gift of $10 today for $20 in five days. Such time value of money is what allows people to work hard consistently. It also allows them to introduce innovations that will increase output.
Different types of coffee tree take two to five years to reach coffee bean productivity. A person must have a high monetary value for waiting in order to plant a coffee tree. Grape vines are similar.
I offer my personal comments on Clark's book in the next blog.