Abstract
How did Europe overtake China? We construct a simple Malthusian model with two sectors, and use it to explain how European per capita incomes and urbanization rates could surge ahead of Chinese ones. Those living standards could exceed subsistence levels at all in a Malthusian setting should be surprising. Rising fertility and falling mortality ought to have reversed any gains. We show that productivity growth in Europe can only explain a small fraction of rising living standards. Population dynamics – changes of the birth and death schedules – were far more important drivers of the longrun Malthusian equilibrium. The Black Death raised wages substantially, creating important knock-on effects. Because of Engel’s Law, demand for urban products increased, raising urban wages and attracting migrants from rural areas. European cities were unhealthy, especially compared to Far Eastern ones. Urbanization pushed up aggregate death rates. This effect was reinforced by more frequent wars (fed by city wealth) and disease spread by trade. Thus, higher wages themselves reduced population pressure. Without technological change, our model can account for the sharp rise in European urbanization as well as permanently higher per capita incomes. We complement our calibration exercise with a detailed analysis of intra-European growth in the early modern period. Using a panel of European states in the period 1300-1700, we show that war frequency can explain a good share of the divergent fortunes within Europe.
Epidemics and wars frequently ravaged Europe between 1350 and 1700. We argue that death and destruction spelled riches and power in the early modern period. Europe’s precocious rise may owe more to these scourges of mankind than to technological innovation. We build a simple two-sector extension of the standard Malthusian model that can shed new light on the puzzling rise of European per capita incomes. Many interpretations of the ”rise of Europe” have emphasized technological creativity and high rates of innovation, compared to Asia (Mokyr 1990). We argue that, in a Malthusian setting, better technology cannot explain the ”First Divergence”, and we also show that fertility restriction alone is insufficient. Instead, we build a model in which per capita living standards can rise markedly without technological change or fertility decline. Some long-run growth models generate the early transition from stagnation to sustained growth by means of a delayed response of fertility to wages. This allows per capita incomes to rise slowly but steadily in tandem with population. We argue that this cannot be realistic in most settings, because fertility responds ’too rapidly’ to permit anything other than a short-lived increase in living standards. In a micro-founded model, we show that only very large, negative shocks can be followed by a marked delay between rising incomes and return to earlier population levels. We argue that the Black Death hitting Europe in the 14th century was precisely such a shock, lifting wages and per capita incomes for several generations. Richer individuals began to demand more urban goods, and because early modern European cities were ”graveyards” (Bairoch 1991), incomes could permanently exceed subsistence levels. This is particularly true because city growth acted as a catalyst for European belligerence. It also spread disease through trade – links that we call the ’Horsemen of Growth.’
We demonstrate that permanently higher mortality rates, driven by greater urbanization after the Black Death, were empirically important. In our calibrations, the mortality channel consistently emerges as accounting for at least half of the increase in per capita incomes. Fertility restriction is probably responsible for the remainder. We complement the calibration exercise with a detailed analysis of the intra-European growth record after 1300. Using a panel of European states in the period up to 1700, we find that war frequency – our preferred proxy for the ’Horsemen of Growth’ – can explain a good share of the divergent fortunes within Europe. In particular, we find that we can explain a good deal of the rise of North-Western Europe compared to the rest of the continent. The effect of war, trade, and urbanization is broadly similar – if not stronger – than Atlantic trade (as suggested by AJR 2005). While war emerges consistently as a driver of higher incomes in early modern Europe, there is little reason to assume that the same will be true today. Non-reproducible factors of production, such as land, only play a small role in most economies. Even where they matter a great deal, such as in parts of Africa, modern wars may not yield the same effect. Military technology has become markedly more destructive, of both people and capital equipment. This checks the positive effect of rising land-labor ratios.
One implication of our findings is that urbanization is not simply an indicator for development. City growth also made higher per capita incomes sustainable in a Malthusian setting. Our paper has emphasized the contrast between early modern Europe and the rest of the world. In the final analysis, Europe’s political fragmentation and geographical heterogeneity interacted with the negative shock of the Black Death in a unique way. In combination, urbanization, warfare, and trade ensured a mortality regime that was different from the one prevailing in Asia. Future work should focus on the other factor contributing to Europe’s precociously rising incomes – the emergence of the European Marriage Pattern.
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