Wed Jun 10 17:08:37 EDT 1998
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Dear Friends,
Re: the exchange between Ken Pomeranz and Deidre McCloskey on capital
accumlution in pre-modern society:
(1) Obviously, capital accumulation in industrial societies is faster than
in pre-industrial societies, due to the longer life of capital and higher
growth rates allowing more capital to be accumulated. Deidre's point that
much corn had to be saved to seed next year's harvest makes this point
well -- modest increases in agricultural yield would have a greater impact
on the overall savings available for investment than larger increases in
the overall growth rate.
(2) This suggests we have been hurt by a confusion between the growth
mechanisms of industrial and pre-industrial societies. In industrial
societies, a lot of the "routine" growth comes from high rates of capital
accumulation and investment, so that capital stock and output can increase
considerably faster than population. In pre-industrial societies, the rate
of capital accumulation is so much smaller (but certainly not zero, as
growth in livestock, irrigation, housing, and buildings and implements,
and improved land was substantial) that growth basically keeps up with or
only slightly exceeds population increase -- and sometimes not even that.
So in modern societies, faster capital accumulation drives faster economic
growth. BUT IT IS NOT AT ALL CLEAR THAT THIS IS TRUE IN THE PRE-INDUSTRIAL
WORLD, EXCEPT AT THE MARGINS. That is, pre-industrial societies did make
substantial investments in agrarian improvement and structures and
factories of various sorts, but these investments never produced
industrial-level rates of growth. So the debate about whether profits
of this or that trade produced capital accumulation of what magnitude may
be wholly irrelevant. Unless the capital was invested in wholly new ways
(i.e. in ways that boosted agrarian productivity or initiated new
industrial processes) it wouldn't have mattered. Simply increasing the
stock of land under cultivation, or of farm buildings, or of urban
housing -- or for that matter, the building of the pyramids of Egypt, the
baths and aqueducts of Rome, or the medieval cathedrals -- might deploy
large amounts of capital without transforming the productive capacity of
society.
Please note that Portugal was engaged in profitable trading of slaves and
their disposition on sugar plantations from the mid-15th century (in
Madeira and Sao Tome), about 300 years before industrialization emerged
(and then not in Portugal), and that the accumulation and disposition of
vast amounts of capital has been a frequent occurrence in all
pre-industrial high civilizations. The idea that a "shortage of capital"
was a constraint on industrialization that was somehow "broken" by New
World profits, by the slave trade, or by some other unique feature of 16th
century Europe is hard to square with what we know about the capital
requirements of early industrialization.
Think about this for a minute (sadly I lack exact data, but here's a call
for an interesting research project): How much capital, both in absolute
terms (e.g. total accumulated value) and relative to society's total
output, was embodied in the early iron and cotton mills in 18th century
England, vs. how much absolute and relative capital was invested in
pyramid-building in Old dynasty Egypt, Bhuddist temple and road and canal
building in T'ang and Song China, public works in classical rome (Temples,
Baths, Circuses, roads, aqueducts), Cathedrals in medieval Europe,
temple complexes in Mayan and Aztec Mexico (some of which over many square
miles), or the temple complex at Angor Wat in Cambodia.
Visit Venice and view St. Mark's, the square, the churches, the canals,
the palaces, and try to convince yourself that 14/15th century Venice was
somehow prevented from investing in more productive technology by a
"shortage of capital."!! Compare the construction of Yorkminister or
Westminster or Canterbury to the construction of a cotton mill in
Lancaster and ask how much capital accumulation was necessary for the
latter compared to the former.
In short, let the profits from the slave trade, New World bullion trade,
Asian imperialism, or any other activity augment existing capital stocks
by 70% instead of 7%; none of it would have mattered if it had been
invested in the same fashion as prior "booms" of capital accumulation,
e.g. in religious and public building or extension of arable land or
private conspicuous consumption.
I apologize for being redundant, for here I am sounding a theme I have
made repeatedly since my 1987 publication on innovation, and which has
been made by Deidre, Solow, Mokyr, and many others -- the essence of the
"great bifurcation" was INNOVATION. Yes, capital was required for the
investments that embodied innovations, but the amount of such capital was
small, both relative to the pool of capital in society and the capital
spending of pre-industrial societies in general.
TO PROVE THAT New world profits, the slave trade, or whatever was crucial
for industrialization, an argument would have nothing to do with the
overall rate or augmentation of capital, but would have to show
(1) That the capital from the New Sources was THE major source of capital
for investments that embodied innovations, AND
(2) that other sources of capital (e.g. savings from profits earned in
domestic trade, agriculture, or manufacturing, or government financed
investment) were somehow "walled off" from possible investment in
industrialization so that only if New Sources of capital became available
could new forms of investment occur.
Although I am no expert in the capital accumulation literature, my reading
suggests that while it is true that some slave trading or imperialist
fortunes were later invested in industry (as part of diversified
portfolios that also included investment in housing, government bonds, and
further imperialism), many if not most of the early industrialists
obtained their capital from the accumulated savings of family and friends
engaged primarily in domestic trade and manufacture. Similarly, most of
the investment in agricultural improvement in Britain from the 17th-19th
century came from landowners and landholders who invested their savings in
the land, and not from slaving or imperialist profits that somehow
provided a "magic lift" to the accessibility of lime, better seeds,
fencing, or improved livestock and crop rotations.
It thus seems to me that for explaining the great bifurcation, any
speculations or variations in the accumulation of capital are almost
irrelevant. Adquate capital was available in ALL advanced inorganic
societies to fund industrialization, and probably even in many classical
societies. What mattered was not the availability of capital, but
innovation in its deployment. So what we have to explain is (1) WHY were
some societies more inclined to innovate in productive technology, and (2)
WHY did such innovations manage to find a path of development that led to
modern industry in one particular region (as opposed to other paths
followed in other regions -- such as windmill power or intensive rice
cultivation that increased output but did not lead to modern sustained
exponential growth).
Warm regards to all,
Jack Goldstone
==========================================
Jack A. Goldstone
Sociology & International Relations
University of California, Davis
One Shields Avenue, Davis CA 95616
Phone: (530) 752-8220 FAX: (530) 752-0783
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