Post on 11-Jan-2016
Porridge to Progress: Economic Development through
the Lens of Wage and Price History
Bob Allen
New York University Abu Dhabi
2015
Objectives today:
• Describe my project of writing wage and price history of the world
• Discuss implications for--– measuring market integration & globalization– Measuring standard of living– Incentives to adopt modern technology
Wage and price history
• First price histories written in mid19th century• Based on surviving accounts of institutions that lasted
hundreds of years• Historian abstracts prices from all transactions and
wages paid to all employees• Large tables in local money and units of weight and
measure in many languages.• Since 1980s, I have been putting them in spreadsheets
and converting units.• Data on my website (www.nuffield.ox.ac.uk) and
elsewhere.
Europe--"The Great Divergence in European Wages and Prices from the Middle Ages to the First World War," Explorations in Economic History, Vol. 38, 2001, pp 411-447.
Asia--“India in the Great Divergence,” Timothy J. Hatton, Kevin H. O’Rourke, and Alan M. Taylor, eds., The New Comparative Economic History: Essays in Honor of Jeffery G. Williamson, Cambridge, MA, MIT Press, 2007, pp. 9-32.
“Wages, Prices, and Living Standards in China,1739-1925: in comparison with Europe, Japan, and India" (with Jean-Pascal Bassino, Debin Ma, Christine Moll-Murata, and Jan Luiten van Zanden), Economic History Review, 2011, Vol. 64, pp. 8-38.
Americas--“The Colonial Origins of Divergence in the Americas: A Labour Market Approach,” (with Tommy Murphy and Eric Schneider), Journal of Economic History, 2012, Vol. 72, pp. 863-894.
“American Exceptionalism as a Problem in Global History,” Journal of Economic History, 2014, Vol. 74, pp. 309-350.
Wages and prices in Damascus
prices in Basra market
Measuring global market integration
Globalization and integration of markets
0
0.5
1
1.5
2
2.5
3
US
$ p
er
bu
sh
el
1820 1840 1860 1880 1900
US export London
Egy pt Cawnpore
price of wheat
Before steamships and after…
cotton prices also converged
0
10
20
30
40
50
60
US
ce
nts
pe
r lb
1800 1825 1850 1875 1900
Liv erpool Gujarat
New Orleans Egy pt (quality adjusted)
Price of Raw Cotton
Cotton cloth prices fell as British technology improved.
0
10
20
30
40
50
60
US
ce
nts
/sq
ua
re y
ard
1790 1810 1830 1850 1870
MA England Egy pt Gujarat
Price of Cotton Cloth
Internationally traded materials prices
20
40 60
80 100
120
140 160
180
$ p
er
ton
1800 1820 1840 1860 1880 1900
Egy pt Britain USA
price of bar iron
5
10
15
20
25
30
35
40
$ p
er
tho
us
an
d b
oa
rd f
ee
t1820 1840 1860 1880 1900
Egy pt Britain USA
price of lumber
Prices of non-traded goods varied according to wages
0
2
4
6
8
10
12
14
$ p
er
tho
us
an
d
1820 1840 1860 1880 1900
Egy pt Britain USA
price of bricks
Measuring standard of living
Pre-industrial wages
0
5
10
15
20 gra
ms o
f silver
per
day
1375 1475 1575 1675 1775
London
Amsterdam
Vienna
Florence
Delhi
Beijing
Labourers' wages around the world
How do the wages map into living standards? We must measure the cost
of living:
• Collect prices of all of the important consumer goods.
• These must be converted to grams of silver per metric unit.
• A basket of goods must be specified and its cost computed.
What was the subsistence wage in England in the Industrial Revolution?
• Sir Frederick Eden, The State of the Poor, 1797, Vol. II, pp. 433-4, reports on an Ealing gardener.
• Aged 40, regularly employed, with a wife, and four children aged 8, 6, 4, and 1-1/2
• He seems fairly typical.
The Respectable Lifestyle (Northern): Basket of Goods
Strasbourg quantity price nutrients/day per person g. silver spending grams of per year per unit share calories protein
bread 182 kg .693 36.0% 1223 50beans/peas 52 l .477 5.5 370 28meat 26 kg 2.213 12.8 178 14butter 5.2 kg 3.470 4.0 104 0cheese 5.2 kg 2.843 3.3 54 3eggs 52 each .010 1.1 11 1beer 182 l .470 20.0 212 2soap 2.6 kg 2.880 1.7linen 5 m 4.369 4.8candles 2.6 kg 4.980 2.9lamp oil 2.6 l 7.545 4.3fuel 5.0 M BTU 4.164 4.6
total 412.1566 100.0% 1941 80
The Respectable Lifestyle (Mediterranean): Basket of Goods
Strasbourg Naples Diocletian quantity price Price Price per person g. silver g. silver G. Silver per year per unit per unit per unit
bread 182 kg .693 .790 .613 beans/peas 52 l .477 .479 .408 meat 26 kg 2.213 2.571 1.290 olive oil 5.2 l 7.545 2.505 1.160 cheese 5.2 kg 2.843 2.571 1.290 eggs 52 each .010 .127 .053 wine 68.25 l .965 .300 .774 soap 2.6 kg 2.880 2.029 1.160linen 5 m 4.369 4.854 2.924candles 2.6 kg 4.980 1.405 1.160lamp oil 2.6 l 7.545 2.505 1.160fuel 5.0 M BTU 4.164 5.452 2.617
total 507.959 258.230
Measure living standard with ‘respectability ratio’
• Annual family income = 250 * daily wage• Cost of maintaining a family at subsistence
– Add 5% to budget for rent– Family = 3 adult male equivalents– Annual subsistence cost = 3.15 * cost of basket
• Respectability ratio = annual income/annual cost of subsistence
• In late 1790s, annual subsistence cost was about £25.5, so the Ealing gardner’s ratio= 28.75/25.5 = 1.12 on regular earnings.
0
0.5
1
1.5
2 E
uro
pean R
especta
bility =
1
137514751575167517751875
London
Amsterdam
Vienna
Florence
Delhi
Beijing
The Rest Falls Behind Northwest Europein the standard of living of labourers
What would Malthus, Ricardo, and Marx say?
• Pleased that labourer’s real wage was just above subsistence and flat for 500 years
• However, English real wage was very much above wages elsewhere in the world.
• The Rest couldn’t afford the basket. How did they rest survive?
• Symptom: many proxy variables in Asian baskets
How did the poor survive?
• More people worked more– Not too effective since women & children earned
such low wages
• Spent less money– Got rid of expensive sources of calories– Diet reduced to cheapest available carbohydrate,
beans, very little meat and oil
• Other changes in basket– Calories set at 2100 per person– Four people per household
Such baskets correspond to the World Bank Poverty Line of $1.25 per person per day.
When the subsistence ratios are calculated with these baskets, the geometry is the same but the
absolute levels are lower.
0
1
2
3
4
5
6
132514251525162517251825
London
Amsterdam
Vienna
Florence
Delhi
Beijing
Subsistence Ratio for Labourers
income/cost of subsistence basket
Roman Empire (Diocletian price edict 301 AD)
Some implications
• Real wage in poor countries in eighteenth century was at barebones subsistence = WBPL
• Classical economists’ idea of subsistence (respectability) was over twice the cost of barebones subsistence = WBPL.
• Great divergence preceded the Industrial Revolution (indeed, caused it).
We can apply these measures across time and space
Laborers’ wages at the exchange rate were much lower in countries
with large native populations.
0
0.5
1
1.5
2
$ p
er
da
y
1800 1850 1900
Egy pt India Phila Lancs
Real wages were at subsistence in Egypt and India.
0
1
2
3
4
5
6
7
mu
ltip
les
of
su
bs
iste
nc
e
1800 1850 1900
Egy pt India Phila London
The longest run so far is Egypt, and it’s still the Hockey Stick.
0 0.2 0.4 0.6 0.8
1 1.2 1.4 1.6 1.8
2 2.2 2.4 2.6 2.8
3 3.2 3.4 3.6 3.8
4 4.2 4.4 4.6 4.8
5
-500 -250 0 250 500 750 1000 1250 1500 1750 2000
Incentives to adopt modern technology
Since the Industrial Revolution, a lot of ‘modern’ technology has
• Raised labour productivity by increasing the capital-labour ratio
• Raised labour productivity by increasing the energy-labour ratio
• If ‘modern’ technology has different factor proportions from ‘older’ technology, then relative factor prices could—and did!—play a major role in the invention and diffusion of modernity.
Why do rich countries use highly mechanized power looms?
While 300,000 Ethiopians still weave cloth with handlooms?
Why is the K/L ratio high in placer gold mining in California?
While the K/L ratio is low in placer mining in Ghana?
The breakthrough technologies of the IR raised labour productivity by increasing K/L.
Not an accident: Eighteenth century Britain was unique because its labour was very expensive
relative to capital.
0
0.5
1
1.5
2
1580 1630 1680 1730 1780 1830
England
France
India
Austria
Since IR, incentives to adopt modern technology have been very different in rich countries and poor
countries.