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The Shape of Twentieth Century History

by J. Bradford DeLong

Federal Reserve Bank of San Francisco Regional Review


The historian Felipe Fernandez-Armesto wrote in, Millennium, his history of the past thousand years–a book big in scope–that he was haunted by an image: an image of a museum in the far future in which a crusader chainmail shirt shares a display case with a Coca-Cola can, both labeled "Second Millennium Artifacts." Let us adopt such a millennial perspective, for it may allow us to see more clearly what the history of our twentieth century has been.

From that perspective, the history of the twentieth century has been overwhelmingly economic history: the economy was the dominant arena of events and change, and economic changes were the driving force behind other changes in a way rarely–if ever–seen before.

Before this century, the core of history–its most interesting and important parts–has been only tangentially related to economic factors. The history of the fourth, seventh, and sixteenth centuries is primarily religious: the consolidation of Christianity in the Roman Empire, the spread of Islam, and the Protestant Reformation. The history of the fifteenth century is primarily cultural: in Europe the Renaissance, in China the cultural flourishing during the Ming Dynasty.The history of the late eighteenth and early nineteenth centuries is primarily political: the American and French Revolutions and their consequences. In these centuries, economic factors changed only slowly: the structure and functioning of the economy at the end of any century was pretty close to what it had been at the beginning.

In the twentieth century things have been very different.

In the twentieth century the pace of economic change has been so great as to shake the rest of history to its foundation. For perhaps the first time, changes in the way we produce, distribute and consume the necessities and conveniences of daily life has been history’s driving force.

In the twentieth century, the material wealth of humankind has exploded beyond all previous imagining. We–at least those of us who belong to the upper middle class and live in the industrial core of the world economy–are now so much richer that it is nearly impossible to calculate.

In the twentieth century, the relative economic gulf between different economies has grown at an astonishingly rapid pace. Region by region and nation by nation, the world became more unequal in material prosperity than ever before.

At the end of the twentieth century, the economic glass might be viewed as either half empty or half full. Half empty because we live in the most unequal world ever. Half full because much of the world has made the transition to sustained growth and has greater wealth than writer’s of previous centuries’ utopias could have possibly imagined.

An explosion of material wealth

Between the invention of agriculture and the commercial revolution that marked the end of the middle ages, wealth and technology developed slowly indeed. Medieval historians tell of the centuries it took for key inventions like the watermill or the heavy plow to diffuse across the landscape. And, during this period, increases in technology led to increases in the population, with little if any appearing as an improvement in the median standard of living.

Even the first century of the industrial revolution produced more "improvements" than "revolutions" in standards of living. With the railroad and the spinning and weaving of textiles as important exceptions, most innovations of that period were innovations in how goods were produced and transported, and in new kinds of capital, but not in consumer goods. Standards of living improved, but styles of life remained much the same.

The eighteenth and nineteenth centuries saw a faster and different kind of change. For the first time, technological capability outran population growth and natural resource scarcity. By the last quarter of the nineteenth century, the typical inhabitant of the leading economies–a Briton, a Belgian, an American, or an Australian–had perhaps three times the standard of living of someone in a pre-industrial economy.

Still, so slow was the pace of change that people, or at least aristocratic intellectuals, could think of their predecessors of a thousand years before as effectively their contemporaries. Marcus Tullius Cicero, a Roman aristocrat and politician, might have felt more or less at home in the company of Thomas Jefferson. The plows were better in Jefferson’s time. Sailing ships were much improved. But these might have been insufficient to create a sense of a qualitative change in the order of life for the elite. And being a slave of Jefferson was probably a lot like being a slave of Cicero.

So slow was the pace of change that intellectuals in the early nineteenth century debated whether the industrial revolution was worthwhile. Was it an improvement or a degeneration in the standard of living? And opinions were genuinely divided, with as optimistic a liberal as John Stuart Mill coming down on the "pessimist" side as late as the end of the 1840s.

But, in the twentieth century, standards of living exploded. In the twentieth century, the magnitude of the growth in material wealth has been so great as to make it nearly impossible to measure. (chart 1 here)

Consider a sample of consumer goods available through Montgomery Ward in 1895 -- when a one-speed bicycle cost $65. Since then, the price of a bicycle measured in "nominal" dollars has more than doubled (as a result of inflation). But the bicycle today is much less expensive in terms of the measure that truly counts, its "real" price: the work and sweat needed to earn its cost. In 1895, took perhaps 260 hours’ worth of the average American worker’s production to mount up to enough money to buy a one-speed bicycle. Today an average American worker can buy one–of higher quality–for less than 8 hours worth of production. (table 1 here)

On the bicycle standard–measuring wealth by counting up how many bicycles it can buy–the average American worker today is 36 times richer than his or her counterpart was in 1895. Other commodities would tell a different story. An office chair has become 12.5 times cheaper in terms of the time it takes the average worker to produce enough to pay for it. A Steinway piano or an accordion is only twice as cheap. A silver teaspoon is 25 percent more expensive.

Thus the answer to the question "How much wealthier are we today than our counterparts of a century ago?" depends on which commodities you view as important. For many personal services–having a butler to answer the door and polish your silver spoons–you would find little difference in average wealth between 1895 and 1990: an hour of a butler’s time costs about the same then as now. But for mass-produced manufactured goods -- like bicycles -- we are wealthier by as much as 36 times.

The range of goods and services

Such calculations substantially understate the improvement in our material wellbeing, for they fail to consider the enormous expansion in the range of goods and services we can consume.

So, when we are told that the standard of living in the U.S. in 1900 was roughly $12,000 per worker per year (at today’s prices), we tend think about what we could buy today with $12,000. But that is not at all what material standards of living were like. A better mental experiment is to imagine, instead, what our life would be if we had $12,000 to spend, but were required to spend it all on commodities that were around in 1900: no fluoridated toothpaste, electric toaster ovens, clothes-washing machines, dishwashers, synthetic fiber-blend clothes, radios, plastic bottles, intercontinental telephones, xerox machines, notebook computers, automobiles, airplanes, and steel-framed skyscrapers. How would we calculate their impact on our living standards?

And here I believe we can gain insight by looking, not at economic statistics, but at one of the best-selling novels of the 1890s, Looking Backward, by Edward Bellamy -- a wooden, poorly-written book that sold in extraordinary numbers because it offered the late nineteenth century a vision of utopia.

In Looking Backward, the narrator, who is living in the year 2000, is asked by his host: "Would you like to hear some music?"

He expects his host to play the piano–a social accomplishment of upper-class women of the time. Instead, the narrator is stupefied to find that, in the year 2000, his host need merely touch "one or two screws," and immediately the room was "filled with music; filled, not flooded, for, by some means, the volume of melody had been perfectly graduated to the size of the apartment. ‘Grand!’" he cries. "‘Bach must be at the keys of that organ; but where is the organ?’"

His host has called the orchestra on the telephone; there are in fact a choice of orchestras, four playing at any moment. At the end of the nineteenth century, this was considered utopia -- the choice of four orchestras played through a speakerphone. To Bellamy’s narrator, this was "the limit of human felicity already attained..." What if someone were to take him to Tower Records? Or Blockbuster Video? His heart would stop.

We do not think of our ability to cheaply listen to high-fidelity go-anywhere listen-to-anything music as remarkable. We do not daily give thanks for our cassette players and genuflect in front of our CD collections. We do not reflect that they have brought us to the limit of human felicity. We do not think about it at all.

This is the most important piece of the history of the twentieth century. In the twentieth century the human race passed from the realm of necessity–where providing basic food, clothing, and shelter took up the lion’s share of economic productive potential–to the realm of freedom: in which our collective production is largely made up of conveniences and luxuries.

A vast and growing economic gulf

This upward jump of productivity and wealth has not been confined to the industrial core of the world economy. In 1987, 97 percent of households in Greece owned a television set. In Mexico, there was one automobile for every sixteen people, one television for every eight, one telephone for every ten.

Nonetheless, while economies that were relatively rich at the start of the twentieth century have, by and large, seen their material wealth and prosperity explode, those nations and economies that were relatively poor have grown richer, but more slowly. A country that was 10 percent richer than another in 1870, was (on average) likely to be about 15 percent richer in 1995. Thus, the relative gulf between rich and poor economies has grown steadily over the past century. (chart 2 to come here)

The extraordinary trajectory of the United States is the most manifest example of forging ahead. Between about 1890 and 1930, a host of innovative technologies and business practices were adopted in the United States and nowhere else. Henry Ford’s assembly lines in Detroit, and his mass production of the Model-T are only the most prominent examples of these new technologies of mass production and distribution. The fact that other industrial economies were unable to quickly follow gave the United States a level of industrial dominance that persists to this day.

At the other end of the spectrum, is hard to argue that the typical inhabitant of Africa is better off in material terms than his or her counterpart of a generation ago.

In the twentieth century, the persistence and increasing size of large gaps in productivity levels and living standards across nations seems bizarre. We can understand why pre-industrial civilizations had different levels of prosperity: they had different exploitable natural resources, and the diffusion of new ideas and technology from one civilization to another could be slow.

But in the twentieth century, the principal producers of wealth are an economy’s workers. And the major source of growth is the storehouse of technological capabilities invented since the beginning of the industrial revolution. This storehouse is no one’s private property. Most of it is accessible to anyone who can read. And with modern telecommunications, ideas can spread at the speed of light. So why do we see "divergence" instead of "convergence" in the relative wealth of nations?

Some have argued for the importance of culture. But the presence or absence of a "culture of entrepreneurship" is not usually a deciding factor. Throughout South Asia, for example, emigrants from China play key roles in trading and manufacturing, while China proper remains one of the poorest countries on earth. Consider also that some British observers in the early 1900s believed that the Japanese did not have and could not learn the patterns of behavior necessary for successful industrialization. And consider that perhaps the most intelligent and far-sighted social scientist of the early twentieth century–the German sociologist Max Weber–argued that Hindu, Buddhist, and Confucian traditions militated powerfully against the development of modern market economies and industrial societies in Asia. Yet, from today’s vantagepoint, such confident predictions appear naïve.

Moreover, in the twentieth century, cultures have become more malleable and permeable than ever. Potential contacts among nations consist of an enormous number of tourist visits, acts of economic exchange, and cultural broadcasts. If there are strands in any culture that can encourage and support enterpreneurship–and there are such strands in every culture–then they have every prospect of being able to support a growing, industrializing economy. Entrepreneurship can flourish almost anywhere, if incentives and institutions are right.

However, this does suggest one decisive factor: Who controls the coercive powers of the state and for what ends? Consider how countries fared under Communism. The location of the Iron Curtain is an historical accident: where Stalin’s armies stopped after World War II, where Mao’s armies stopped in the early 1950s, and where Giap’s armies stopped in the mid 1970s. But the countries fortunate enough to lie outside the old Communist boundaries are vastly more prosperous today. Mexico is some eight times as wealthy as Cuba, an outcome few would have predicted before Castro seized power. Greece is some six and a half times as well off as Bulgaria. And Taiwan is some nineteen times as well off as the Chinese mainland.

Governments that fostered market incentives have encouraged the economy to allocate resources to their most productive uses, whereas bureaucratic command economies exerted pressure to allocate resources following other logics. Moreover, market economies have prospered and grown when they were managed in the interests of the business class. When governments intervened to shift prices and quantities in order to distribute income away from the productive and entrepreneurial classes–both current and prospective future members of the bourgeoisie–and toward urban consumers, bureaucrats, or small farmers, that nation’s economic growth and prosperity has suffered.

Virtuous and vicious spirals

In the twentieth century, the persistence and increasing size of large gaps in productivity levels and living standards across nations seems bizarre. We can understand why pre-industrial civilizations had different levels of prosperity: they had different exploitable natural resources, and the diffusion of new ideas and technology from one civilization to another could be slow.

But in the twentieth century, the principal producers of wealth are an economy’s workers. And the major source of growth is the storehouse of technological capabilities invented since the beginning of the industrial revolution. This storehouse is no one’s private property. Most of it is accessible to anyone who can read. And with modern telecommunications, ideas can spread at the speed of light.

So why do we see "divergence" instead of "convergence" in the relative wealth of nations? Even outside the Communist world the wealthier countries have been able to maintain and even increase their lead, while countries that stumbled have been likely to lag ever farther behind.

A large part of the answer is the existence of powerful virtuous and vicious spirals: if a country was doing well in one period it tended to do even better in the next; but a country doing poorer in one period found its options–demographic, economic, and political--narrowing. A richer country found itself going through the demographic transition more rapidly: it found its birth rate shrinking and its rate of population growth slowing more than a poor country. A lower rate of population growth meant that more investment could go to multiplying the stock of capital with which the average worker produced, and less investment had to go to merely equiping new workers with the country’s average level of capital per worker. A richer country found itself more easily able to afford to invest: rich countries are those that have adopted the technologies of the industrial revolution, and the principal focus of these technologies is on how to make capital goods more cheaply. And a richer country found itself able to maintain domestic peace and political stability more easily: a rapidly-growing pie meant that politics could take the form of how to distribute growth.

By contrast, in countries where growth was slow politics tended to be vicious: enriching one group meant impoverishing another, and the benefits from working for higher productivity seemed lower than the benefits from grabbing someone else’s share of the pie. A country in which growth was slow found its demographic transition delayed, its population growing rapidly, and thus its investment diverted away from deepening the capital stock at the disposal of the average worker. And a slowly-growing country found it hard to afford the capital goods that embody so much of modern machine technologies.

Some have argued for the importance of culture. But the presence or absence of a "culture of entrepreneurship" is not usually a deciding factor. Throughout South Asia, for example, emigrants from China play key roles in trading and manufacturing, while China proper remains one of the poorest countries on earth. Consider also that some British observers in the early 1900s believed that the Japanese did not have and could not learn the patterns of behavior necessary for successful industrialization. And consider that perhaps the most intelligent and far-sighted social scientist of the early twentieth century–the German sociologist Max Weber–argued that Hindu, Buddhist, and Confucian traditions militated powerfully against the development of modern market economies and industrial societies in Asia. Yet, from today’s vantagepoint, such confident predictions appear naïve.

Moreover, in the twentieth century, cultures have become more malleable and permeable than ever. Potential contacts among nations consist of an enormous number of tourist visits, acts of economic exchange, and cultural broadcasts. If there are strands in any culture that can encourage and support enterpreneurship–and there are such strands in every culture–then they have every prospect of being able to support a growing, industrializing economy. Entrepreneurship can flourish almost anywhere, if incentives and institutions are right.

However, this does suggest one decisive factor: Who controls the coercive powers of the state, and for what ends? Consider how countries fared under Communism. The location of the Iron Curtain is an historical accident: where Stalin’s armies stopped after World War II, where Mao’s armies stopped in the early 1950s, and where Giap’s armies stopped in the mid 1970s. But the countries fortunate enough to lie outside the old Communist boundaries are vastly more prosperous today. Mexico is some eight times as wealthy as Cuba, an outcome few would have predicted before Castro seized power. Greece is some six and a half times as well off as Bulgaria. And Taiwan is some nineteen times as well off as the Chinese mainland.

Governments that fostered market incentives have encouraged the economy to allocate resources to their most productive uses, whereas bureaucratic command economies exerted pressure to allocate resources following other logics. Moreover, market economies have prospered and grown when they were managed in the interests of the business class. When governments intervened to shift prices and quantities in order to distribute income away from the productive and entrepreneurial classes–both current and prospective future members of the bourgeoisie–and toward urban consumers, bureaucrats, or small farmers, that nation’s economic growth and prosperity has suffered.

Taken as a group, poor countries have not closed any of the gap relative to the world’s industrial leaders since World War II. And there seems to be every reason to fear that this divergence in living standards and productivity levels will continue to grow. The factors that have kept economic growth slow in today’s poor countries are still operating today and are likely to continue operating in the future.

This is a source of great danger not just for developing countries, but for industrial nations as well. The world in the twenty-first century will be sufficiently interdependent–politically, militarily, ecologically–that passage to a truly human world requires that we get there at roughly the same time.

Conclusion

The best way to tell the history of the twentieth century as the story of liberty and prosperity–the partial escapes from (and at time and places the falls back down into) servitude and poverty. its ending is not clear. There is no logic immanent in history unfolding itself: nothing except our own and our descendants efforts and struggles can make this particular grand narrative have a happy rather than a tragic conclusion.

One of the glories of the history of the twentieth century is that–although it has an extremely depressing middle–it seems to be moving more toward a (relatively) happy than a tragic ending: this is a (relatively) free and prosperous country, and (compared to the past) a relatively free and prosperous world.

We are slouching towards utopia.


J. Bradford DeLong is Professor of Economics at the University of California at Berkeley, and a Research Associate at the National Bureau of Economic Research.


Professor of Economics J. Bradford DeLong, 601 Evans, #3880
University of California at Berkeley
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delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

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