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Last Modified: 1999-07-02
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Reading Notes for September 1, Modern Economic Growth

Economics 210a, Fall 1999

Aristotle (350 B.C.E.), Politics, brief selections.

Consider, first, that Aristotle of Stagira was not an idiot (even if he did believe that women had fewer teeth than men). for two thousand years people--pagan Hellenics, Christian Europeans, and Islamic Arabs, Egyptians, Mesopotamians,and Iranians--called Aristotle of Stagira the philosopher, as if there was only one. Think of the way seventeenth, eighteenth, and nineteenth century Britons regarded Newton (or the way we regard Einstein).

So I want you to take Aristotle seriously. I want you to think hard about how a very good mind, thinking very hard, in pre-industrial-revolution economic circumstances, could wind up thinking the thoughts that Aristotle does.

Specifically, why does he...

  • ...believe so strongly that gross inequality--domination and slavery--is natural and inevitable?
  • ...believe that the "natural art of acquisition"--the getting of the resources necessary to properly run one's household--has a limit: " a boundary fixed, just as there is in the other arts; for the instruments of any art are never unlimited, either in number or size, and riches may be defined as a number of instruments to be used in a household or in a state..."? (Never mind that Aristotle's "limit" is probably the full-time year-round labor of at least fifty people, at today's OECD wage levels some $3,000,000 a year: in one sense very, very few of us will ever come near to Aristotle's point of satiation; in another sense every single one of us has already gone far beyond Aristotle's limit.)
  • ...believe that shepherds are "...the laziest [of men]... lead an idle life... get their subsistence without trouble from tame animals..."?
  • ...believe that "[t]here are two sorts of wealth-getting... one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another..."?
  • ...believe that of "...the practical part [of wealth-getting] The discussion of such matters is not unworthy of philosophy, but to be engaged in them practically is illiberal and irksome"?

And don't miss the story of Thales of Miletus and his corner of the olive-press-rental market on Chios...

Simon Kuznets (1963), "The Meaning and Measurement of Economic Growth," in Barry Supple, ed., The Experience of Economic Growth (New York: Random House), pp. 52-67.

The older I get, the more do I find that many of my best and most hard-won insights are things that Simon Kuznets clearly knew--and that I would have known much earlier had I read him with more attention back when I was a graduate student. As you read this--short--article, look out for...

  • ...what Kuznets thinks are the most special and remarkable features of modern economic growth.
  • ...what Kuznets sees as the principal difficulties in measuring modern economic growth.
  • ...how he proposes to resolve these difficulties.
  • ...how he justifies continuing with his project even though the difficulties of measurement are "essentially insoluble."

Moreover, be sure you are aware of what Kuznets is asking for when he...

  • "...assume[s] familiarity with the questions of scope... netness and grossness, and basis of valuation.
  • ...stresses that modern economic growth is not a process of balanced growth, but instead of successive waves of innovation in a changing set of "leading sectors."

Paul David (1967), "New Light on a Statistical Dark Age: U.S. Real Product Growth Before 1840," American Economic Review 57 (May), pp. 294-306.

A paper worth reading for at least three reasons. First, it gives a good sense of how slow--relative to our 1.5% - 2.0% per year increase in output per labor hour--economic growth was back before our modern age, even in the age of the industrial revolution itself. Only by looking at the numbers of a Paul David can we understand how (say) Jane Austen's characters can live through the industrial revolution in Britain without noticing it.

Second, it gives a good sense of how very sparse our information is--and how shaky are our quantitative estimates and conclusions.

Third, it gives a methodological lesson--of how being forced to write down quantitative estimates (and to justify them) disciplines thought. As David notes, in the absence of quantitative discipline people feel free to make all kinds of far-reaching and bold qualitative statements with an amazing amount of certainty...

William Nordhaus (1997), "Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not, " in Timothy Bresnahan and Robert Gordon, eds., The Economics of New Goods (Chicago: University of Chicago Press), pp. 29-70.

The crux of William Nordhaus's argument is contained in two sentences, one on page 33 and on on page 60. The one on page 33: "... an hour's work today will buy about 350,000 times as much illumination as could be bought in early Babylonia." The one on page 60: "...just correcting for light adds 7 percent to the total growth of real wages over the period 1800-1992."

Nordhaus argues that all illumination technologies have a common purpose: to shed light. Thus dealing with the "quality" changes involved in the invention of new goods and new types of goods is uniquely easy: see how much more light is shed by the new good, and that is its quality differential vis-a-vis the old good.

Note that most of the time the measurement of quality change is not so straightforward because the new good is in some strong sense different than the old good: you have to worry about exactly whose tastes are being used, and at exactly what relative income level, in determining how to splice the price series for the new and the old goods together. (Actually, modern lighting technologies and oil lamps are qualitatively different--modern electric lights are extremely unlikely to burn you to death, but oil lamps... this comparison strengthens Nordhaus's case.)

Three questions:

  • Nordhaus compares his "price of light" series to official series of the price of "fuel and light" and of "gas and electricity." Is there reason to think that illumination is an outlier, and that had Nordhaus constructed price indices for "fuel and light" and then for "gas and electricity" himself that he would have found less of a discrepancy?
  • Does Nordhaus have an explanation for why the standard price series do such a bad job at determining the true price of light?
  • Does Nordhaus's division of sectors into "run-of-the-mill," "seismically-active," and "tectonically-shifting" seem reasonable?

Stephen Nicholas and Richard Steckel (1991), "Heights and Living Standards of English Workers During the Early Years of Industrialization, 1770-1815," Journal of Economic History 51:4 (December), pp. 937-57.

Why is it important to recognize that height at adulthood is a net rather than a gross measure of nutrition?

How convincing is the claim that this sample of convicts transported to Australia was representative of the English population? Would you expect convicts to be taller or shorter than average? Would you expect the degree of bias to stay constant over time?

Urban males born in 1789 averaged a full inch shorter than those born in 1783. Do you think this represents an extremely sharp deterioration in living standards during those five years? Or do you think it represents something else?

How confident should Nicholas and Steckel be of their conclusion that a few harvest failures and the waves of disease and disruption of the Napoleonic Wars explain "much but not all" of the pre-1820 decline in living standards?

Richard Easterlin (1995), "Will Raising the Incomes of All Increase the Happiness of All?" Journal of Economic Behavior and Organization 27:1 (June), pp. 35-47.

Richard Easterlin sees a future of steadily rising material prosperity and economic progress. And this depresses him. Material prosperity does not make humans happier: the "triumph of economic growth is not a triumph of humanity over material wants; rather, it is the triumph of material wants over humanity".

Easterlin believes that people are no happier today than they were three centuries ago in their relative material poverty. Indeed, Easterlin believes that people are not happier today in the U.S. than in India. Happiness is attained when you achieve your dreams and solve your problems. Material abundance helps you do so, but it also teaches you to dream bigger dreams and pose yourself harder problems.

People used to think that material progress would lead to material satiation. Keynes looked forward to:

the day...not far off when the Economic Problem will take the back seat where it belongs, and that the arena of the heart and head will be occupied... by our real problems---the problems of life and of human relations, of creation and behavior and religion.

And on that day:

We shall...rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years.... We shall...assess...the love of money as a possession--as distinguished from the love of money as a means to the enjoyments and realities of life--for what it is... one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

Easterlin believes--and two hundred years of history tell us plainly--that Keynes was wrong. Material desires are never sated, and never lose importance in the relative scale of human concerns.

Do we believe Easterlin? Do we thereby, like good utilitarians maximizing felicity, abandon all concern with economic growth and material prosperity? If not, why not?

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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
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