Economic History

Economic History – Graph by J.P. Morgan Infographic 2012

Economic History

I’m guessing that your first question, if you started scanning from the left, is: Wait, India was by far the biggest economy at the dawn of AD? Yup, India.

Economic History

https://www.theatlantic.com/business/archive/2012/06/the-economic-history-of-the-last-2-000-years-in-1-little-graph/258676/

Economic History

That headline is a big promise. But here it is: The economic history of the world going back to Year 1 showing the major powers’ share of world GDP, from a research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan.

I’m guessing that your first question, if you started scanning from the left, is: Wait, India was by far the biggest economy at the dawn of AD? Yup, India.

In Year 1, India and China were home to one-third and one-quarter of the world’s population, respectively. It’s hardly surprising, then, that they also commanded one-third and one-quarter of the world’s economy, respectively.

Before the Industrial Revolution, there wasn’t really any such thing as lasting income growth from productivity. In the thousands of years before the Industrial Revolution, civilization was stuck in the Malthusian Trap. If lots of people died, incomes tended to go up, as fewer workers benefited from a stable supply of crops. If lots of people were born, however, incomes would fall, which often led to more deaths. That explains the “trap,” and it also explains why populations so closely approximated GDP around the world.

The industrial revolution(s) changed all that. Today, the U.S. accounts for 5% of the world population and 21% of its GDP. Asia (minus Japan) accounts for 60% of the world’s population and 30% of its GDP.

So, one way to read the graph, very broadly speaking, is that everything to the left of 1800 is an approximation of population distribution around the world and everything to the right of 1800 is a demonstration of productivity divergences around the world — the mastering of means of manufacturing, production and supply chains by steam, electricity, and ultimately software that concentrated, first in the West, and then spread to Japan, Russia, China, India, Brazil, and beyond.

(via Paul Kedrosky)

Part II

The graph above is an economic history of the world, after 1 AD, from a research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan. I posted it yesterday with this summary: “Everything to the left of 1800 is an approximation of population distribution around the world and everything to the right of 1800 is a demonstration of productivity divergences around the world.”

But that’s not exactly right. The Industrial Revolution that occurred in Western Europe around 1800 did dramatically raise productivity and personal income far above what any country had seen in the previous millennia. But in fact, GDP per capita — an approximation for productivity and income — started to diverge centuries before the steam engine.

What follows is a deeper — but still shallow — dive into 2000 years of economic history, this time through the lens of GDP per capita around the world. This metric helps us identify where growth in wealth occurred, as opposed to just growth in population (e.g.: India and China had thee-quarters of world GDP in 1 AD because they had three-quarters of the world’s population).

The first graph is a good picture of what we call the Malthusian Trap. For the vast majority of human history, the most important determinant of wages was births and deaths. With too many births, income fell. After a plague, a roughly stable supply of food and goods shared among a smaller number of people made everybody richer. That is, until births rose, and incomes fell again.

But between 1000 and 1500 wages in Western Europe started to inch up thanks to moderate technologies and agrarian organization, such as three-field rotation and horse harnesses.

… and if you take graph the GDP/capita data between Jesus and Napoleon, you can see even better a real divergence between Western Europe and the rest of the world.

But the thing about the graph above is that the X-axis plays a game of hopscotch. We have data (or an approximation of data) for 1 AD, then another 1000 years later, and another 500 years later, followed by 100-year increments.

So what happens when we zoom back in to the year 1500, when century-by-century data becomes available, and play out the story until the 20th century? You get a really good look at the massive power of the Industrial Revolution, which makes all income growth before about 1800 look pathetic.

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Economic History

Economic History

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RV-Vijay

Author: RV-Vijay