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The twelve plates
The volume before this one studied the economy's wobble — the boom, the slump, the trade cycle's passing weather. But the wobble is small beside the path it wobbles along. For nearly all of human history that path was flat: the great-grandchild no richer than the great-grandparent, the whole species held near subsistence. Then, two centuries ago, in a few places, output per person began to rise and did not stop. This volume is the study of that rising path — the long-run trend rather than the short-run swing, the wealth and the poverty of nations.
what lifted a few nations out of the poverty that bound all of history before — and why have so many been left behind?
The volume before this one studied the economy's wobble. The trade cycle — the boom that overreaches and the slump that follows, the alternation of confidence and fear — is real, and painful, and the proper subject of a science; but it is a small thing beside the path along which the wobbling occurs. Step back far enough, and the booms and busts of a century shrink to ripples on a swell that has, in the last two hundred years and in a part of the world, risen higher than in all the ages before combined. For nearly the whole of human history the standard of living was a flat line: the ordinary person lived near subsistence, and the great-grandchild was no richer than the great-grandparent who had labored under a different king. Then, around the year 1800, in a few places, the line bent upward and did not come down. This volume is the study of that bend — not the economy's fluctuations but its trend, the long-run rise or stagnation of what a people can make and have. It is the oldest and the largest question economics asks: the wealth, and the poverty, of nations.
The magnitude of the change is almost impossible to feel from inside it. For ten millennia, growth was so slow as to be invisible within any single life; the Roman and the medieval peasant were, in the things that matter to a body, about equally poor, and a man of 1700 would have found the daily economic life of antiquity entirely familiar. Since 1800, output per person in the countries that grew has multiplied perhaps twenty or thirty times over — the great enrichment, historians have called it, or, from the shape it traces on any chart of the long run, the hockey stick: a nearly flat line running back through all recorded time, and then, at the very end, a sudden vertical ascent. It is the whole difference between a life that was, for almost everyone who ever lived, short and hungry and hemmed in, and one that — for those the enrichment reached — grew longer, freer, and unimaginably more abundant in every material thing. No fact within the reach of economics is larger or carries more weight; and it poses the two questions this volume turns upon: where does growth come from, that it should have appeared at all — and why has it come to some places and not to others?
The first guess at the source of wealth is the obvious one: accumulation. A people grows rich, surely, by piling up tools and machines, by working each year with more capital than the last. There is truth in this, and yet — the founding surprise of the modern study of growth — it is the smaller part of the truth. When economists set out to measure where growth comes from, dividing it into the contribution of more capital, the contribution of more labor, and a remainder, they found the remainder to be the largest piece by far: most of the rise in output sprang not from laboring with more, but from drawing more out of the same. That remainder they named the residual, and it is, in plain terms, productivity — the rising efficiency with which a society turns its inputs into outputs. Solow showed why the residual, and not accumulation, must be the lasting engine. Capital obeys diminishing returns; a society that only saves and invests finds each new machine adding less than the last, until it reaches a steady state and grows no more. Sustained growth must come from the residual — which, in Solow's own model, was left unexplained, a rate of progress assumed to fall from the sky like manna. The deepest quantity in the theory of wealth was a confession of ignorance.
What, then, is the residual made of? The modern theory offers two answers, and this work leans hard on the second. The first is ideas. Ideas, Romer saw, are unlike every tangible thing in one decisive respect: they are nonrival. Two factories cannot run on the same machine, but the whole world can use the same idea at once — the same theorem, the same blueprint, the same technique — and one person's use subtracts nothing from another's. From this it follows that knowledge, unlike capital, need never exhaust its returns: its accumulation can drive growth without end, and because ideas are made on purpose, by people seeking to gain from them, growth is endogenous, generated within the economy rather than rained upon it. But ideas are made, and capital is amassed, only where a society's arrangements reward the making and the amassing — only where what one builds, one may keep. And so the residual, pressed hard enough, resolves into something deeper than technique: into the rules a people lives under, the institutions that decide whether effort is protected or plundered. The engine of wealth turns out to be, in the last analysis, a matter of the rules. And the rules, this work has insisted throughout, are never given by nature; they are settled by contest.
This recasts the gravest question of all — why some nations are rich and others wretchedly poor — and clears away the old and ugly answers. The divergence is not, in the main, a matter of geography: nations poor in every natural gift have grown fabulously rich, and nations sitting on oceans of oil have stayed poor. It is not race, and it is not culture as a fixed inheritance. The institutional turn in the study of growth holds that nations diverge because their institutions diverge. Some societies came to be governed by inclusive arrangements — property secure, power checked and broadly shared, the gains of effort left in the hands that earned them — and these rewarded investment and invention, and grew. Others fell under extractive ones — power and property gripped by a narrow few, the surplus drained upward, the many given no reason to build what would only be seized — and these stagnated. And these arrangements, inclusive or extractive, are themselves the residue of long struggles over who should rule and who should keep the fruits of the common labor. The great divergence, on this account, is the divergent outcome of those struggles, hardened into the rules a people cannot easily escape. A nation's wealth is not a fact of its nature; it is the long shadow of a contest, won or lost.
So the volume arrives, at the largest scale the work commands, at the conviction that has governed it throughout. A price is a verdict on a hidden contest, mistaken for a fact of nature — and the wealth or poverty of a whole people is that same verdict, written across continents and centuries. We are forever tempted to read the map of rich and poor as we read the map of mountains and seas: as a fact of the world, a matter of where a people happens to dwell or what it happens to be. It is nothing of the kind. The wealth of nations is the residue of contests — over institutions, over power, over whether the surplus is shared and reinvested or seized and squandered — settled, in a few places in a few centuries, in favor of the rules that let growth happen, and lost, in many more, to the rules that strangle it. To call a nation's poverty natural is the gravest form of the very mistake this work was written to undo: it takes the verdict of a contest over power for a decree of geography or fate. And the correction cuts two ways at once, sobering and hopeful together — sobering, because the poverty of billions is then not nature's doing but humanity's, the outcome of contests that might have gone otherwise; hopeful, for precisely the same reason, since what contest made, contest can remake. The twelve plates trace the ascent of the modern world and the residual that drives it; the accumulation that cannot suffice and the ideas that can; the divergence of nations and the institutional settlement beneath it; the Malthusian snare and the latecomer's narrow escape; the parts played by population and by resource; the limits the planet may yet impose; and the mystery, never wholly dispelled, of why the great enrichment came when and where it did. Where the volume on the cycle studied the economy's passing weather, this one studies its climate — and the long contest that set it. The argument remains open.