Book Review: Before the Industrial Revolution

It’s a pretty strange historical coincidence that medieval Europe was a fairly backwards place (and England especially so), but that Europe led global economic growth from about 1750-1913 (and England especially so). That’s a giant transition, and Carlo Cipolla’s Before the Industrial Revolution explains this—as, oddly enough, a combination of good luck and the obscure upside of bad luck.

The book straddles economic history and history-history, with lots of tables of wool production and birth/death rates, interspersed with commentary from diplomats’ letters (the ancient ancestor of snarky blog posts).

The biggest surprise to me was how often historically bad news turned out, for survivors, to be pretty good news:

  • The bubonic plague devastated populations, particularly near port cities. But that increased the ratio of fixed assets to population, which improved the average laborer’s bargaining power. And that doesn’t just mean a higher average standard of living—it means that laborers captured a bigger share of any improvement in their own productive capacity.
  • The Dutch had both a dearth of natural resources and a pretty inconvenient location vis-a-vis proximity to larger and bloodthirstier countries. Because they didn’t have domestic resource competition, they pursued a free-trade policy and ended up with a big share of manufacturing (especially of the high-volume/low-price variety) and shipping. They also got a large, well-timed influx of human capital when their neighbors were invaded.
  • The English deforested a huge proportion of their country, mostly for fuel. By the mid-1600s, after a few centuries of population growth and improved standards of living, they more or less ran out of burnable trees and were forced to switch to inconvenient, but energy-dense, coal. More coal mines raised the odds that someone would find a way to use coal-power to get more coal. The rest is (additional) history.
  • Northern Europe lacked Italy’s strong craft guilds, which had enormous institutional knowledge. But craft guilds were slow to adapt, and skeptical of labor-saving technologies and cheaper goods. So as soon as labor-saving devices got cheap enough, the places without guilds flourished.
  • The worst thing that ever happened to Spain was the discovery of gold and silver in their overseas colonies. This basically de-industrialized Spain, and eventually gave them a gigantic bureaucratic/religious infrastructure that basically existed as a welfare program—which worked in the short term, but stopped making sense as more gold and silver got diverted to smugglers.

A long time ago, I read Robert Shiller’s New Financial Order, which advocated the creation of GDP futures (of many permutations) as a way for individuals and governments to hedge against macroeconomic risk, and measure market insanity. Instead of just saying “Current market values imply above-average GDP growth for the foreseeable future,” you could just say “I shorted the S&P and bought GDP futures” instead. This seemed like such a good idea that I assumed it would take off as soon as those futures were tradable.

Which, it turns out, was in the fourteenth century, when the Genoese government issued securities called luoghi, which paid the owner a fraction of taxes collected. If you assume government taxes at the Laffer maximum, this is basically the same concept.

It was clever financial engineering, but it didn’t save Genoa from guild-driven stagnation and decline when technology advanced. So, score one for engineering-engineering over financial engineering.

| May 31st, 2015 | Posted in books |

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