Author Archives: emanuelefelice

Was Stalin’s Economic Policy the Root of Nazi Germany’s Defeat?

Was Stalin Necessary for Russia’s Economic Development?

By Anton Cheremukhin (Dallas Fed), Mikhail Golosov (Princeton), Sergei Guriev (SciencesPo), Aleh Tsyvinski (Yale)

Abstract: This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin’s economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin’s policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios.

URL: http://EconPapers.repec.org/RePEc:nbr:nberwo:19425

Distributed by NEP-HIS on 2013-09-28

Review by Emanuele Felice

Until the late 1950s, the era of rapid Soviet growth and of Sputnik, the main question among Western scholars was: When would the Soviet Union catch up with and overtake the U.S.?*

As Cheremukhin et al. correctly emphasize, the subject of this paper – Soviet industrialization in the 1930s – is one of the most important in economic history, and in world history: Soviet Union was the country which played by far the biggest role in the defeat of Nazi Germany, standing almost alone against the land force of the Third Reich and its allies for most of the war and causing 87% of the total Axis’ military deaths (in sharp contrast with World War I, when the Tsarist empire was defeated by a German Reich fighting on two fronts). Emerging from World War II as a superpower, the victorious Soviet Union contributed to shape the next four decades of human history, boasting among its technological achievements the first voyage of a human being to the space. At the same time and during the Stalin regime (1922-1953), the scale of (politically caused) human suffering has had few parallels in world history. Furthermore, as early as the 1930s Stalin’s rule was one of the first totalitarian regimes capable of reaching levels of oppressiveness and manipulation over society unobserved before.

For these reasons Stalin’s Soviet Union should continue to be interrogated by systematic studies. At the core of that regime was industrialization, which aimed to be the material pillar of a new «civilization» (e.g. Kotkin, 1995). Regarding its impact over policy making in the twentieth century, Stalin’s forced industrialization was a source of inspiration for both economists and politicians throughout the world: its planned, top-down, implementation was widely considered to be a successful, though harsh, strategy by some contemporaries.

Joseph Stalin (b 1878 - 1953), Leader of the Soviet Union (1922-1953)

Joseph Stalin (b 1878 – 1953), Leader of the Soviet Union (1922-1953)

And yet, we still have relatively little macro-economic evidence about the Stalinist period. The article Cheremukhin et al. aims to partially fill this gap, by providing consistent figures, some new arguments and insightful counterfactuals. It builds upon a remarkable amount of original research. First, it provides a comprehensive and coherent reconstruction of data on output, consumption, investments, foreign trade and labour force. These figures are presented separately for the agricultural and non-agricultural sectors. Data begins in the last decades of Tsarist Russia (1885-1913) and for the the Soviet Union covers the launch of the first five-year plan until the Nazi’s invasion (1928-1940).

Secondly, Cheremukhin et al. propose and elaborate a growth model for the Russian economy in those two periods (i.e. Tsarist Russian and pre-Nazi invention Soviet Union). This is a multi-sector neoclassical model, which is modified to allow for the peculiarity of the economy under scrutiny; namely, due to the institutional frictions and policies that distorted household and firm decisions, three wedges are defined, corresponding to the intratemporal between-sector distortions in capital and labor allocations and to an intertemporal distortion, and price scissors in agricultural prices (between producers and consumers) − which may also be thought of as a fourth wedge − are also introduced for the Stalin’s period.

It may be worth adding that when connecting wedges to policies, the Cheremukhin et al. appear to be adequately aware of the historical context and of the differences between a planned economy and a free-market one: for instance, the response of the Stalinist economy to a drop in agricultural output is likely to be the opposite − because of the price scissors policy which kept producer’s agricultural prices artificially low − to the predictions of a frictionless neoclassical growth model: it will probably lead to a further reallocation of labour from agriculture to industry and services and, therefore, to an additional reduction of agricultural output; such a distortion is here acknowledged and reasonably calibrated.

 “Smoke of chimneys is the breath of Soviet Russia”, early Soviet poster promoting industrialization, 1917-1921

“Smoke of chimneys is the breath of Soviet Russia”, early Soviet poster promoting industrialization, 1917-1921

Thirdly, the paper by Cheremukhin et al. further elaborates on data and models, by providing a number of counterfactuals. Comparisons are made with the Tsarist economy by extrapolating Tsarist wedges for 1885-1913 to the 1928-1940 years. Also by comparing the performance of both economies (Tsarist and Stalinist), for the years following 1940 under the assumption that World War II never happened.

Another comparison takes place with Japan, a country similar to Russia before World War I in terms of GDP levels and growth rates. Early in the twentieth century Japan suffered similar distortions as Russia but during the interwar period Japan undertook an economic transformation which provided Cheremukhin et al. an alternative scenario to both the Tsarist and the Stalin policies (the Japanese projections are based upon previous reconstructions of the Japanese macro-economic figures, which happen to be available for the same period as for Russia, 1885-1940).

Japanese assault on the entrenched Russian forces, 1904

Japanese assault on the entrenched Russian forces, 1904

And what is probably the most intriguing counterfactual, at least in actual historical terms, is yet one more alternative scenario, constructed by assuming that Lenin’s New Economic Policy or NEP (launched in 1921 and outliving Lenin until 1927) would have continued even after 1927: such a counterfactual requires elaborating a model for the NEP economy as well, but unfortunately the lack of reliable data for the years 1921 to 1927 makes the discussion for this scenario «particularly tentative». Furthermore, it is worth mentioning that two more alternative scenarios are provided for the Stalin economy based on alternative growth rates for the years 1940 to 1960 and again under the assumption that World War II never happened; and that robustness exercises are also performed (with further details provided in the appendix).

Broadly speaking, the results are not favourable to Stalin. According to Cheremukhin et al., Stalin was not necessary for Russian industrialization − neither, it could be consequently argued, to the defeat of Nazism and to the Russia’s rise to a superpower status. Actually, by 1940 the Tsarist economy would probably have reached levels of production and a structure of the economy similar to the Stalinist one, but which far less short-term human costs. This result may not be irreconcilable to Gerschenkron’s (1962) theses about substitute factor − in Russia this was the State, already exerting such a role in late Tzarist times − and the advantages of backwardness: these latter would have permitted to backward Russia, once its industrialization had been set in motion at the end of the nineteenth century, to see its distance to the industrialized West reduced by the time of World War II more than in World War I, in any case – that is, also under the Tzarist regime. It does contrast, however, with other findings from pioneering cliometric articles on the issue, such as the one by Robert Allen published almost twenty years ago, according to which Stalin’s planned system brought about rapid industrialization and even a significant increase of the standard of living (Allen, 1998). Similarly, but from a different perspective, long-run reconstructions of Soviet labour productivity tend to emphasize as a problem the slow-down in the period following post World War II, rather than the performance the 1930s (Harrison, 1998) – both Allen and Harrison are cited in this paper, but not these specific articles.

The Dnieper Hydroelectric Station under construction, South-Eastern Ukraine (the work was begun in 1927 and inaugurated in 1932)

The Dnieper Hydroelectric Station under construction, South-Eastern Ukraine (the work was begun in 1927 and inaugurated in 1932)

Now, at the core of the results by Cheremukhin et al. is the finding that, according to their estimates, total factor productivity of the USSR in the non-agricultural sector did not grow from 1928 to 1940. Maybe it is worth discussing this point in a little more detail. Is such a finding plausible? At a first sight it seems puzzling, given the technological advance of that period especially in the heavy sectors. And yet, at a closer inspection it may turn out to be entirely logical: the growth of output was a consequence of massive inflows of inputs, both machinery (capital) and labour. But all considered these were not used in a more efficient way.

In the model by Cheremukhin et al., capital and labour are computed through a Cobb-Douglas production function, with constant elasticity coefficients for labour and capital (0.7 and 0.3 respectively in the non-agricultural sector; 0.55 and 0.14 in the agricultural one, thus assuming a land’s elasticity of 0.31). The authors make a point that the new labour force entering the non-agricultural sector was largely unskilled and, often, was not even usefully employed. Actually exceeding the real needs of that sector: this politically induced distortion could hardly have increased TFP (although, under different assumptions, it could be alternatively modeled through a decreasing elasticity of labour: but the results in terms of total output would not change). This may also explain the good performance of Soviet Union during World War II, when due to manpower shortage the exceeding labour force finally could be profitably employed. The capital stock is calculated by the authors at 1937 prices, for the years 1928-1940.

Anti-Nazi propaganda poster, 1945

Anti-Nazi propaganda poster, 1945

We do not have enough information in order to judge whether a bias can be caused by the use of constant prices based on a late-year of the series. But this possible bias should lead to an underestimation of capital growth in that period  − given that quantities are probably weighted with relative prices lower in 1937 for the heavy sectors, than in 1928 − which would then produce an overestimation in the TFP growth proposed by the authors: in actual terms, therefore, the growth of TFP may be even lower than what estimated; in more general terms – and although caution is warranted for the lack of detailed figures – their results look realistic in this respect.

The most interesting finding, however, is the one relative to the NEP counterfactual. It is the most interesting because, in genuine historical terms, the Tzarist model was no longer a viable option to Stalin, while NEP’s strategy was. But of course, data for the NEP years are much more precarious and thus this counterfactual can only be a particularly tentative one. Nonetheless, the authors build two scenarios for the NEP policy: a lower-bound one, where a growth rate of TFP in manufacturing after 1928 similar to the average Tsarist 0.5% is tested; and an upper-bound one, with a growth rate of 2% similar to the one experienced by Japan in the same interwar period. In the first scenario the results for the Soviet economy would have been slightly worse, but in the second one much better. Given that the two scenarios correspond to the boundaries of the possibility frontier, we may conclude that probably, under the NEP, the performance of the Soviet economy would have been better than both the one observed under the Stalin and that predictable under the Tzar. This may confirm the view that the 1920s were somehow the “golden age” of Soviet communism, as well as the favourable assessment of Lenin’s and later of the collective Soviet leadership in that decade (although, admittedly, Lenin intended the NEP only as a temporary policy). After all, a more inclusive leadership – as opposed to the harshness of Stalinist autocracy in the 1930s, as well as to Hitler despotic conduct of war since the winter of 1941 – was also the one which helped the Red Army to win World War II.

“The victory of socialism in the USSR is guaranteed”, 1932

“The victory of socialism in the USSR is guaranteed”, 1932

References

Allen,  Robert C., Capital accumulation, the soft budget constraint and Soviet industrialization, in «European Review of Economic History», 1998, 2(1), pp. 1-24.

Gerschenkron, Alexander, Economic backwardness in historical perspective, Cambridge, Mass., The Belknap Press of Harvard University Press, 1962.

Harrison, Mark, Trends in Soviet Labour Productivity, 1928−85: War, postwar recovery, and slowdown, in «European Review of Economic History», 1998, 2(2), pp. 171-200.

Kotkin, Stephen, Magnetic Mountain: Stalinism as a Civilization, University of California Press, Berkeley, Los Angeles, and London, 1995.

Source of quote:
Gur Ofer (1987) “Soviet Economic Growth: 1928-1985,” Journal of Economic Literature, Vol. 25, No. 4, pp. 1767-1833 (cited in this paper, p. 2).

About the Historic Gap between Rich and Poor Italians

Economic Inequality in Northwestern Italy: A Long-Term View (fourteenth to eighteenth centuries)

By Guido Alfani (Bocconi University)

URL: http://econpapers.repec.org/paper/dondonwpa/061.htm

Review by Emanuele Felice

Summary

The pioneering work by Simon Kuznets placed the evolution and determinants of economic inequality as one of the central subjects in economics and economic history. The recent success of Thomas Piketty’s latest book (see the Book Reviews section of the NEP-HIS Blog) bears witness to inequality being a topic of great interest to a wider public.

However, constructing reliable estimates of inequality for pre-industrial times is a highly-demanding task. This is the ultimate reason why, in spite of good theorizing and much speculation about the subject, we have so few “actual” figures for the Middle Ages and the Modern Era. The paper by Guido Alfani contributes to the latter, thus quenching our thirst for historical data. Indeed, other than van Zanden’s (1995) seminal work on the Low Countries, Alfani’s is the only comprehensive and thorough study of inequality for a large geography (i.e. the Piedmont region) over a long period of time (from the first half of the 14th century to the early 19th century). Moreover, Alfani provides some good interpretative hypotheses and viable explanations for the observed patterns: here there is much to think, and to learn, about the history of pre-industrial societies.

Guido Alfani

Guido Alfani

The article is well-organized and aims to expose as clearly as possible sources and methods − including some thorny, technical issues. Following an introduction where the relevance of the subject is highlighted in the context of previous systematic studies, a first section provides an overview of the progressive extension of and the fiscal reforms introduced by the House of Savoy into the Piedmont (from circa 1350 onwards). By the late 18th century the House of Savoy had become the most expansionist and successful of all the Italian states. However, it was perhaps not the most powerful one as the Bourbon’s rule in the south (i.e Naples and Sicily in the 17th and 18th centuries) was considerably larger and commanded more resources.

The Fountain of Life by  Giacomo Jaquerio ( c. 1375 – 1453) [one of the main exponents of Gothic painting in the Piedmont].

The Fountain of Life by Giacomo Jaquerio ( c. 1375 – 1453) [one of the main exponents of Gothic painting in the Piedmont].

In section 2, Alfani details the sources for his database. These included records of taxable property (estimi or catasti), which the communities of Piedmont compiled in order to distribute the fiscal burden among households. This because they had to decide how to pay the tasso, a direct tax imposed for the first time in 1562 which by the early 17th century had grown into the main fiscal instrument of the Sabaudian domains. About this source Alfini comments:

The “estimi” are particularly convenient for conducting large-scale studies, as they show an impressive stability through space and time. (p.8)

The Italian estimi can be divided in two categories: “per property” which include lands and buildings and were more common; and “per yield” which include capital, credits, and other movables.

Alfani points out that all the sources used in his estimates are based on estimi per property, which thus only track one of the components of wealth, real estates. But he also adds that there is good reason to believe that in pre-industrial societies (which were largely agricultural) wealth inequality is a good proxy of income inequality as the size of land holdings would determine income. Thus income and wealth would tend to move in the same direction − even more as they do today.

Based on the per property estimi, Alfani constructs a database made up of 16 communities and 12 times series. These include six cities and six series of rural communities (it is noted that seven rural communities are grouped in three aggregates, plus other three individual rural communities). This database is impressive indeed. The actual locations it covers are scattered throughout the Piedmont region, with benchmark years stretching from 1311 (Chieri) until 1772 (Saluzzo). A total of 55 estimi were used.

The Piedmont region is noted for its wine and cuisine

The Piedmont region is noted for its wine and cuisine

Sections 3 to 6 offer the main results of the article. In Section 3 he calculates and discusses a Gini index for each of the 55 estimi analysed. Other measures of inequality include the share of wealth owned by the top 5% and 10% of the population as well as inter-decile ratios. Section 4 delves into a discussion about the impact of disease and pandemics on inequality, from the Black Death to epidemics in the 17th century. Section 5 presents estimates of inequality at the regional level for the whole of the Piedmont: specifically estimates of Gini coefficients from the 16th to the end of the 18th centuries, which are then compared with those estimated for the Low Countries by van Zanden (1995). In this section Alfani also calculates the share of wealth owned by the top 10% and 5% at regional level from the 14th to the end of the 18th centuries.

gap4

Comment

From Alfani’s analysis, several findings stand out. Among these, the positive correlation between urban demographic growth and inequality, the fact that cities experienced greater inequality levels than rural areas, or the prominent role of the top rich in determining inequality changes. The most important result, however, is yet another one: the evidence that in Piedmont, during the Early Modern period (16th and 17th centuries), inequality was on the rise, both in cities and in rural areas, and independently from whether the economy was growing or stagnating. As the author states:

«This is a new finding that directly challenges earlier views that tended to explain inequality growth as the consequence of economic development.»(p. 43)

In this respect, it could even be argued that the well-known Kuznets curve should be relativized to a short phase of human history, the Industrial Revolution. This finding also has an impact on the debate about the Italian decline in the 17th century (e.g. Cipolla 1952), insofar as it provides empirical confirmation for an established literature (e.g. Romano 1972) holding that the Italian decline was also due to rising inequality, which reduced the opportunity for productive investments and the size of the national market, at a time of growing international competition.

2011-474--weight-gap-between-rich-and-poor-

Equally important can be the results about the consequences of epidemics for inequality. In this case, Alfani’s inquiry does not confirm earlier hypotheses based on Tuscan data (actually, on the Tuscan city of Pistoia), according to which after the Black Death there was a rise in inequality (Herlihy 1967). The case study of Piedmont tells us quite the contrary, and appears to be consistent with a vast literature stressing the decline of inequality due to higher wages, after the Black Death. The opposite, however, occurred after the plague of the 17th century: now, the rise in inequality (or at least the fact that in the medium term the plague did not prevent inequality from rising) was probably due to «the institutional adaptation that occurred in-between» (p. 44); namely, to the creation of institutions that prevented the fragmentation of inheritance, and thus of real estates, such as the fideicommissa. Quite correctly, in my view, the author reminds us that after the Black Death adaptation to a new environment, where epidemics had become endemic, occurred:

«and for the human species, adaptation also means institutional adaptation» (p. 23).

Alfani_Calamities and the Economy_Palgrave, London, 2013

References

Cipolla, C.M. (1952) ‘The Decline of Italy: The Case of a Fully Matured Economy’, The Economic History Review, 5(2): 178-187.

Herlihy, D. (1967) Medieval and Renaissance Pistoia: The Social History of an Italian Town, 1200-1430. New Haven, CO: Yale University Press.

Romano, R. (1972) ‘Una tipologia economica’, in R. Romano and C. Vivanti (eds.), Storia d’Italia. I caratteri originali. Turin: Einaudi, pp. 254-304.

Van Zanden, J.L. (1995) ‘Tracing the beginning of the Kuznets curve: Western Europe during the early modern period’, The Economic History Review, 48(4): 643-664.

The challenges of updating the contours of the world economy (1AD – today)

The First Update of the Maddison Project: Re-estimating Growth Before 1820

by Jutta Bolt (University of Groningen) and Jan Luiten van Zanden (Utrecht University)

Abstract: The Maddison Project, initiated in March 2010 by a group of close colleagues of Angus Maddison, aims to develop an effective way of cooperation between scholars to continue Maddison’s work on measuring economic performance in the world economy. This paper is a first product of the project. Its goal is to inventory recent research on historical national accounts, to briefly discuss some of the problems related to these historical statistics and to extend and where necessary revise the estimates published by Maddison in his recent overviews (2001; 2003; 2007) (also made available on his website at http://www.ggdc.net/MADDISON/oriindex.htm).

URL http://www.ggdc.net/maddison/publications/wp.htm

Review by Emanuele Felice

Angus Maddison (1926-2010) left an impressive heritage in the form of his GDP estimates. These consider almost all of the world, from Roman times until our days, and are regularly cited by both specialists and non-specialists for long-run comparisons of economic performance. The Maddison project was launched in March 2010 with the aim of expanding and improving Maddison’s work. One of the first products is the paper by Jutta Bolt and Jan Luiten van Zanden, which aims to provide an inventory while also critically review the available research on historical national accounts. It also aims “to extend and where necessary revise” Maddison’s estimates. This paper was circulated by NEP-HIS on 2014-01-26.

The paper starts by presenting, in a concise but clear way, the reasons that motivated the Maddison’s project and its main goals. It also tells that some issues are left to be the subject of future work, particularly thorny issues left out include the use of 2005 purchasing power parities rather than Maddison’s (1990) ones; and the consistency of benchmarks and time series estimates over countries and ages.

Jutta Bolt

Firstly (and fairly enough, from a ontological perspective) Bolt  and van Zanden deal with the possibility of providing greater transparency in the estimates. Instead of presenting the margins of errors of each estimate (which in turn would be based “on rather subjective estimates of the possible margins of error of the underlying data”), the authors, following an advice by Steve Broadberry, choose to declare explicitly the provenance of the estimates and the ways in which they have been produced. This leads to classifying Maddison’s estimates in four groups: a) official estimates of GDP, released by national statistical offices or by international agencies; b) historical estimates (that is, estimates produced by economic historians) which roughly follow the same method as the official ones and are based on a broad range of data and information; c) historical estimates based on indirect proxies for GDP (such as wages, the share of urban population, etc.); d) “guess estimates”.

Jan Luiten van Zanden

Then the article moves on to review and discuss new estimates: although revisions for the nineteenth and twentieth century (mostly falling under the “b” category) are also incorporated, the most important changes come from the pre-industrial era (“c” kind estimates). For Europe, we now have a considerable amount of new work, for several countries including England, Holland, Italy, Spain and Germany (but not for France). The main result is that, from 1000 to 1800 AD, growth was probably more gradual than what proposed by Maddison; that is, European GDP was significantly higher in the Renaissance (above 1000 PPP 1990 dollars in 1500, against 771 proposed by Maddison); hence, growth was slower in the following three centuries (1500-1800), while faster in the late middle ages (1000-1500). For Asia, the new (and in some cases very detailed) estimates available for some regions of India (Bengal) and China (the Yangzi Delta), for Indonesia and Java, and for Japan, confirm Maddison’s view of the great divergence, against Pomeranz revisionist approach: in the late eighteenth and early nineteenth century, a significant gap between Europe and Asia was already present (for instance GDP per capita in the whole of China was 600 PPP 1990 dollars in 1820, as in Maddison; against 1455 of Western Europe, instead of 1194 proposed by Maddison).

New estimates are also included for some parts of Africa and for the Americas, with marginal changes on the overall picture (for the whole of Latin America, per capita GDP in 1820 is set to 628 PPP 1990 dollars, instead of 691). For Africa, however, there are competing estimates for the years 1870 to 1950, by Leandro Prados de la Escosura (based on the theoretical relationship between income terms of trade per head and GDP per capita) on the one side, and Van Leeuwen, Van Leeuwen-Li and Foldvari (mostly based on real wage data, deflated with indigenous’ crops prices) on the other. The general trends of these differ substantially: the authors admit that they “are still working on ways to integrate this new research into the Maddison framework” and thus at the present no choice is made between the two, although both are included in the data appendix.

New long-run estimates are presented also for the Near East, as well as for the Roman world, in this latter case with some differences (smaller imbalances between Italy and the rest of the empire) as compared to Maddison’s picture. The authors also signal the presence of estimates for ancient Mesopotamia, produced by Foldvari and Van Leeuwen, which set the level of average GDP a bit below that of the Roman empire (600 PPP 1990 dollars per year, versus 700), but they are not included in the dataset.

Per capita GDP in Roman times, according to Maddison (1990 PPP dollars)

Per capita GDP in Roman times, according to Maddison (1990 PPP dollars)

What can we say about this impressive work? First, that it is truly impressive and daring. But then come the problems. Needless to say Maddison’s guessed estimates is one of the main issues or limitations, and this looks kind of downplayed by Bolt and van Zanden. As pointed out by Gregory Clark, in his 2009 Review of Maddison’s famous Contours of the World Economy:

“All the numbers Maddison estimates for the years before 1820 are fictions, as real as the relics peddled around Europe in the Middle Ages (…) Just as in the Middle Ages, there was a ready market for holy relics to lend prestige to the cathedrals and shrines of Europe (…), so among modern economists there is a hunger by the credulous for numbers, any numbers however dubious their provenance, to lend support to the model of the moment. Maddison supplies that market” (Clark 2009, pp. 1156-1157).

The working paper by Bolt and Van Zanden makes significant progress in substituting some fictitious numbers (d), with indirect estimates of GDP (c), but then in discussing the results it leaves unclear which numbers are reliable, which not, thus still leaving some ground for the “market for holy relics”.

Image

This is all the more problematic if we think that nominally all the estimates have been produced at 1990 international dollars. It is true that there is another part of the Maddison project specifically aiming at substituting 1990 purchasing power parities with 2005 ones. But this is not the point. The real point is that even 2005 PPPs would not change the fact that we are comparing economies of distant times under the assumption that differences in the cost of living remained unchanged over centuries, or even over millennia. This problem, not at all a minor neither a new one − e.g. Prados de la Escosura (2000) − is here practically ignored. One indeed may have the feeling that the authors (and Maddison before them) simply don’t care about the parities they use, de facto treating them as if they were at current prices. For example, they discuss the evidence emerging from real wages, saying that they confirm the gaps in per capita GDP: but the gaps in real wages are usually at the current parities of the time, historical parities, while those in GDP are at constant 1990 parities. If we assume, as reasonably should be, that differences in the cost of living changed over the centuries, following the different timing of economic growth, then the evidence from real wages (at current prices) may actually not confirm the GDP figures (at constant 1990 PPPs). Let’s take, for instance, China. It could be argued that differences in the cost of living, as compared to Europe, were before the industrial revolution, say in 1820, lower than in 1990, given that also the differences in per capita GDP were lower in 1820 than in 1990; hence, prices in 1820 China were relatively higher. The same is true for China when compared to Renaissance or Roman Italy (since prices in 1990 China were arguably significantly lower than prices in 1990 Italy, in comparison with the differences in the sixteenth century or in ancient times). This would mean that real GDP at current PPPs would be in 1820 even lower, as compared to Europe; or that 1820 China would have a per capita GDP remarkably lower than that of the Roman empire, maybe even lower than that of ancient Mesopotamia. Is this plausible?

References

Clark, G. (2009). Review essay: Angus Maddison, Contours of the world economy, 1-2030 AD: essays in macro-economic history. Journal of Economic History 69(4): 1156−1161.

Prados de la Escosura, L. (2000). International comparisons of real product, 1820–1990: an alternative data set. Explorations in Economic History 37(1):1–41.