Friday, November 07, 2008

Per Capita Incomes Misleading as GDP grew 1000-1820

Angus Maddison had his paper, The West and the World Economy, 1000-2030: Maddison and Malthusian Interpretations, read by a colleague because he was unable to attend the EAEPE, Rome conference through serious illness.

Judging by the slides of tables he provided it appeared to be an excellent paper, somewhat marred by the stand-in speaker who was not always clear in his English (but, then I cannot speak Italian and would sound awful over the 40 minutes of a presentation).

I shall skip the details until I read a copy of Maddison’s paper, and I shall pick up one thing about these useful statistics; somewhat similar comments were made by me on Lost Legacy during the online discussions we had over Greg Clark’s on ‘Farewell to Alms’ (Princeton University Press) about a year ago.

These concern the conclusions drawn from estimates for ‘per capita incomes’ over the period to ‘1820’ (Angus Maddison) or ‘1800’ (Greg Clark). Per capita income comes from dividing GDP by numbers in a population. It does not signify actual per capita consumption of individuals. If the majority of a population is on or near subsistence it is perfectly feasible for GDP to grow and for actual consumption to remain near or not much above subsistence.

Now there was some growth in what constituted subsistence over the period 10 around 1800, or perhaps a bit earlier in mid-century. Several commentators have said so (including Adam Smith), but overall there is not much to shout about if ‘subsistence’ is pretty near not being much at all. Certainly, the upper orders experienced degrees of opulence, and those in paid employment could reach living standards, in comparison to ‘savage’ Princes in North America or Africa, that were favourable in terms of abodes, artefacts and conveniences.

There is no doubt that GDP maintained steady, but slow, growth over the centuries concerned. Whether the majority of poorer people’s incomes rose steadily before the end of the 18th century is another question. This raises the obvious question as to where was the additional GDP going? True, the upper orders consumer more – their per capita incomes probably grew throughout this period – it was, is, ever thus. But while large relatively, it does not account for the entire ‘surplus’ in the growth of GDP.

I suggested in our discussions of Greg Clark that we should not forget that the civilisations of the ancient past and earlier (Egypt, Babylon, China, India, Greece and Rome) were noted for their stone-built cities, massive public works, ‘hydraulic’ irrigations, stone megaliths, fortifications, war technologies (including shipping), roads, temples, and artefacts of varying degrees of sophistication.

Now these constitute long term uses of GDP consumption of considerable magnitude (somebody might think about undertaking this task sometime soon!) for it provides a useful insight into the capital expenditures of these societies. Bear in mind too that ‘stock’ or capital in Adam Smith’s view consisted of the subsistence of labour plus raw materials made ‘beautiful’ by skilled hand craftsmen and craftswomen. Funds useable for productive growth in reproducible output were controlled by the elites of these earlier societies who could siphon-off considerable revenues to whatever purposes they wished, including troops, uniforms, boots, weapons, materials and subsistence.

If, as I believe, these factors are ignored by researchers in these fields, then it is no wonder that Maddison argues with Malthus, and that Clark quarrels with Adam Smith and casts these centuries as ‘richer’ than they were in per capita incomes of the poorest majority. Once productivity began to grow faster after 1800, then per capita consumption of the poorest majority followed the middle and upper orders in an upward and continuous trend.



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