Reading Notes for September 1, Modern Economic
Economics 210a, Fall 1999
Aristotle (350 B.C.E.), Politics, brief
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
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
- ...believe that shepherds are "...the laziest [of men]...
lead an idle life... get their subsistence without trouble from
- ...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
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.
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.)
- 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
- 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"
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
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
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
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?