Why economic history?

As a bachelor’s student, my exposure to economic history amounted to a few anecdotes. The European exchange rate mechanism (mark I). China’s Cultural Revolution and the Great Leap Forward. The story of bootleggers and baptists during the Prohibition era in the US. Interesting examples, but not a detailed look at the mechanisms that have helped to shape the modern economy.

My interest in economic history is only recently acquired, stemming from the observation that economic growth (at least in per capita terms) is a relatively new phenomenon. For much of human history, GDP per capita didn’t rise in any meaningful sense — there were ups and downs from year to year, but the long-term trend was largely flat. It was not until the advent of the industrial revolution that the underlying dynamics began to change.

This observation raises three questions, which form the basis of my interest in economic history:

  1. Why do we have economic growth?
  2. How do we measure the relative contribute of different factors to economic development?
  3. How can we even be sure that GDP per capita was flat centuries ago?

Why do we have economic growth?

A key result of the workhorse model of economic growth, the Solow-Swan model, is that growth in output per capita depends on the rate of technological progress. We need to innovate, such that we squeeze more output out of our scarce resources.

Innovation has always been a feature of human history. The discovery of fire and its uses. The invention of the wheel. The evolution of alchemy and metallurgy over millennia. These technical advances have had profound effects on the development of society. Yet it is not clear that they made people, on average, ‘better off’ — at least not in direct economic terms.

To understand why we have growth in GDP per capita, one also needs to understand why our ancestors didn’t experience sustained improvements in living standards. What was so different centuries ago? And what triggered the switch to the modern era of growth?

How do we measure the relative contribution of different factors to economic development?

Economic history is largely an empirical field: looking at past events or periods, and trying to explain what happened. There is rarely a single plausible explanation for anything.

In the 15th century, Johannes Gutenberg invented the printing press, ushering in the era of mass publication. Some 370 kilometres away and less than a century later, Martin Luther nailed his 95 theses to a church door, setting in train the Reformation. Both these historical milestones had an effect on (among other things) the provision of education: Gutenberg’s device facilitated the spread of information; the Lutheran church emphasised the value of literacy throughout society. Without the printing press, and the ease with which literature could be produced using it, the Reformation might have failed to take root as it did. Without the Reformation, the audience for printed materials — and thus the utility of the printing press — might well have been more limited. Disentangling these kinds of concurrent effects is an instrumental part of economic history.

How do we know that GDP per capita was flat centuries ago?

Today, national statistical bureaux produce detailed national accounts, with data on production, employment and trade (among much else). Such data were not a high priority in, say, the Middle Ages. But that does not mean we are flying blind when considering economic history. The challenge for researchers is to find creative ways to unlock data from old records, and use these to interpret historical economic developments.

Curiously, it is modern technology that better enables this kind of historical analysis. Paper archives can be scanned and digitised, giving easier access to researchers around the world, and allowing the construction of more sophisticated datasets than previously available. Old tax journals, business inventories and production records help sketch a picture of historical economic development. While the data are routinely far from perfect, they can provide a useful indication of long-term trends.

These questions might seem like mere curiosities — interesting enough to think about, but without much to offer in terms of practical use today. Here it is important to recall that much of the world has not experienced the same growth of developed countries since the 19th century. Most directly, understanding what contributed to the historical development of the first world may yield useful lessons for the third world. Similarly, when thinking about places where data quality might be relatively low, the field of economic history can potentially contribute new metrics.

More generally, as is true of history in the broad, understanding how we lived yesterday gives us insight into who we are today, and what we might be able to expect tomorrow. The fundamental drivers of long-term economic growth have historical origins; understanding that history can tell us something about what matters for our current and future development.