Understanding growth in Europe, 1700–1870: Theory and evidence

Incomes of ordinary citizens in developed countries today dwarf those enjoyed even by the wealthy elite during most of mankind's history. John Maynard Keynes, with slight incredulity, observed in 1930 that the economic problem of mankind (in Europe and North America at least) had been solved (Keynes, 1930). People no longer go hungry. Clean clothes, shelter, and warmth have gone from luxuries to necessities. By 1870, developments that would eventually deliver this full complement of riches were already in full swing. This chapter summarizes recent research by growth economists on how mankind escaped from a life that was, in the words of Thomas Hobbes, “nasty, brutish, and short.” It contrasts these interpretations with the existing historical evidence and recent findings of economic historians. Four areas are of particular concern – demography, institutions, human capital, and technology. We conclude with suggestions for future research. Theoretical approaches In the late 1980s and early 1990s, macroeconomists began to turn their attention from business cycles to the determinants of long-run economic growth. Papers in the endogenous growth literature sought to explain why some countries had grown more rapidly than others. The main period of interest to which these models were applied was the post-war era. They returned to Kuznets's classic argument that current growth rates, when extrapolated backward, implied absurdly low incomes in early modern times and before. Therefore there must have been a long period of stagnation before modern growth started.