On the back cover of this book, one reviewer says, "Put simply, this is my favorite economic history book. It gathers what is interesting about economic history to draw important lessons." I think this sums it up for me, as well.
The author is very clear about his thesis. He tells us of it early, then repeats it over and over again, as he builds his case and weaves his flow of information. The thesis is that until about 1820, per capita growth, worldwide, was at about zero. For the most part, people did not get wealthier, they did not move or travel far, and they did not expect the world around them to change very much. This was true under the Greeks, as it was true under the Romans. Sure, some emperors gained in wealth, land and power, but the common man, essentially, stood still.
Explaining the pessimism of all this, English economist Thomas Malthus told us that food supply and mouths to feed keep things in balance: If there were to be more food, there would be more mouths to feed. But some years would not produce as much food as others. And, back in medieval times, serfs had little to no incentive to produce more than was expected. There was really nothing to do with any excess food. One could only eat so much, and storage facilities were poor to non-existent. And, if one were to somehow accumulate "wealth," it would probably be taken by the landowner, The Church and/or thieves.
But things were about the change. The thesis of the book is that about 1820 the four elements that need to be in place to create economic growth came into place:
1) Secure property and individual rights
2) The scientific method
3) The modern capital marketplace
4) Improved communications and transportations
As a result, worldwide population and per capita income increase significantly by 1880.
The birthplace of it all was England, and it was the right of property (including the right to own slaves) that started things off. It is this right, per the author, that guarantees all other rights. English common law established private property rights and individual rights by the early 1600s. But these rights, alone, could not unleash economic prosperity. No, next would come the breakdown of the "intellectual monopoly" of the Catholic Church. The separation of science and religion would take place over a period of centuries. Galileo, Newton and Halley make essential contributions. Over time, the scientific method would be developed. This along with the right of property, which included the right to patent one's ideas and/or inventions, was one of the essential elements to economic prosperity.
In the area of capital, it was in Holland that the concept of investment banking was born. And it was the joint-stock companies of the Dutch East India Company and the English East India Company that led to the development of the English capital markets, which would provide capital for major public and private projects that would lead to improvements in communications and transportation.
In the U.S., it was J.P. Morgan, in the late 1800s, who played an essential role by facilitating separate banks and other entities to form syndicates to provide vast capital and to share risk.
In the area of communications and transportation, the two major entries are the telegraph and the steam engine. Sustained energy is essentially "stuck" until the steam engine and other engines come along. Man, even with animals and/or slaves, generates relatively little sustained horsepower. The waterwheel improves things, for sure, as does the windmill. But it is steam power, leading up to the railroad locomotive and the electrical generator in the 1880s that gives mankind huge leaps in economic productivity and prosperity. At the same time, canals were a huge improvement, both in Europe and America, for internal transportations, while the steam ships on the high seas increased speed and bulk between countries.
In the cities, in the late 1880s, huge power plants supported electrical grids and electric lighting. Says the author, "The half century from 1825 to 1875 saw more thoroughgoing change in the way people lived their lives than any other period in history." He adds, "...a person of the 1820s transported through time to the year 1875 would have been rendered speechless."
Some factoids gathered from the book along the way:
* By the year 1700, the Dutch were by far the world's wealthiest people.
* One of the best ways to measure prosperity in historically remote times is by calculating the percentage of the population living in cities....In 1700, 34% of the Dutch population lived in cities...England 13%, France 9% and Italy 15%.
* In the year 1800, fully 70% of the U.S. population worked as farmers.
* In the early 1800s, a triangular trade developed among the U.S. (cotton) to England (finished goods) to Africa (slaves) and back to the U.S. Between 1790 and 1850, the number of slaves in the U.S. went from 700,000 to 3,200,000.
* For thousands of years, the primary goal of any ruler was to maximize his own wealth.
* Before the modern era, the idea that a nation could grow wealthy through commerce was almost unheard of....The wise ruler collects taxes in ways that do not interfere with free market incentives.
* Colonialism in the Latin countries of the New World did not produce poverty, in itself, but because neither individual nor property rights were established, a wide gap between the majority of haves and the minority of have nots would be the ultimate result. Such is the legacy that is now in evidence in much of Latin America today.
The author would seem to embrace worldwide democracy, capitalism and globalization, in a similar way as Tom Friedman and others. He even gives us data to have us believe that more secularism and freedom leads to more individual happiness. And having money, at the individual level, also helps. While he would say that "man is on a sort of `hedonic treadmill,'" he would also say that "In the absolute sense, we are winning the battle against worldwide poverty."
But, ultimately, Bernstein is all about property rights. Confiscation of property by government, he thinks, for whatever reason, and without proper compensation to the owner, is the worst thing that could happen to a society. As for the gaps between the rich and the poor, he says, "The United States appears to be cautiously probing the `right edge' of that envelope, exploring just how much income and wealth inequality can be tolerated in the interest of encouraging optimum growth. The rest of the developed world seems to dwell to the `left edge'". But he also says:
* Military expenses...have a very high deadweight loss
* The Europeans "tax smarter" than the U.S. does
* Tolerance of wealth inequality decreases dramatically during tough times, as happened during The Great Depression.
Amidst his thesis is his belief that "Both (successful) democracy and military power spring from the same source: economic prosperity, spread widely among the populous." But any nation has the risk of being passed up. England, he would say, did not get poorer, it was simply surpassed, economically, over time, by the U.S. in wealth and power. In turn, he sees China as having a shot at passing the U.S. At one point, if it continues to grow as it is doing, it simply could increase its military presence and, by definition, become the leading military power in the world. He does not think that this would be the worst thing that could happen to the U.S. On personal finances, he gives us, on a lighter note, a quote from H.L. Mencken: "A wealthy man is one who earns more than his brother-in-law."
And on a subject of a current debate, he is highly skeptical that expecting democracy to flourish in a country like Afghanistan, without a foundation of individual and property rights and/or a solid legal system, is a dream that is doomed to fail. On the general subject of war, he simply thinks that might makes right, but that if a society does not have the four fundamental elements discussed above, the power of that nation will not last long. World War II, he feels, was won because the addition of the wealth of the U.S. to the Allies' wealth gave the edge to the Allies. And in the Pacific, the reason the U.S. won the Battle of Midway was because it had more firepower.
The book ends with a summary chapter. There he tells us again that it is the four institutions discussed above that determine economic prosperity. Once in place for a nation, prosperity for that nation follows, almost automatically. Those nations that fail to have the four in place are doomed to fail, almost inevitably. And this includes nations with valuable natural resources, such as Saudi Arabia, which can appear, superficially, to have achieved great national wealth.
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Reviews with images
Eager to read this book, but the poor print quality is a severe distraction
I am eager to read this, but struggling with the poor print quality on every page. After reading Bernstein's "A Splendid Exchange" I immediately jumped to ordering "The Birth of Plenty". Upon opening the book, I saw issues with the quality of the printing in the copy I received. The printing is so poor that letters are breaking up, bold letters are filled in, solid lines that separate sections of the Index appear as dark are fragmented in my book, and some pages have smears if ink. Do printers sell these runs without marking them as poor grade copies? Is it a bootleg copy? Similar to a music student not wanting to practice on an out of tune piano, this is an eye strain and a visual struggle to read. I'm contemplating to purchase a different edition in the hope that I get a better printing. This is of ISBN 978-0-07-174704-2
Top reviews from other countries
Vaddadi Kartick
A fascinating look at what caused the prosperity of the developed world
Reviewed in India on November 18, 2016
