Hesh and Voth (2009) use a method from the microeconomics of consumer
theory to calculate how much of their income consumers would have been
willing to forgo in 1850 to keep access to tea, sugar and coffee. They calculate
the import of these goods was equivalent to 15 per cent of income. This result
suggests that these supposed ‘luxuries’ had big consequences for the well-
being of the English population. The measure of real wages using an unchang-
ing consumption basket is inappropriate in trying to capture the transformation
of consumption patterns that occurred during the eighteenth century.
Table 7.1 uses per capita GDP data to show the gap between Western
Europe and the rest of the world by 1820. It also reveals that Western Europe
had already established a significant advantage in terms of per capita incomes
by 1500 and then experienced more rapid economic growth up to 1820. If a gap
already existed around 1750, when did it emerge?
Comparative incomes in 1500
In 1500 GDP levels per capita were already higher in much of Western Europe
than the rest of the world (see Table 7.1). The two principal explanations for
this gap are the Diamond thesis, which focuses on geographical differences
between Eurasia and the rest of the world in 11,000 BCE,and the Brenner
thesis,which argues that agricultural changes in England after 1350 were
responsible.
Urbanization and the Diamond thesis
Jared Diamond (1998) uses the conquest of the Americas by the Spanish to
illustrate the differences in technology and political organization that
marked the gap between Western Europe and ‘the Rest’ in 1500. In 1532 168
Spanish soldiers under Pizarro defeated 80,000 soldiers and the largest and
most advanced state in the Americas. The conquest pitted steel swords,
armour, guns and horses against stone, wood and bronze clubs. In addition to
the military advantage, smallpox, measles, influenza, typhus, and bubonic
plague played a decisive part in the conquest by ultimately killing an esti-
mated 95 per cent of the native population of the Americas. These differ-
ences, captured by Diamond in the title of his book,Guns, Germs and Steel,
originate around 11,000 BCE, which marks the beginnings of village life in
a few parts of the world. Food production was a prerequisite for the develop-
ment of those guns, germs and steel. Settled agriculture is a pre-condition for
the emergence of urban life – a single acre can feed 10–100 times as many as
hunter-gathering. Along with urban life come more specialized occupations
and the bureaucratization of life that stimulates the technological develop-
ment and literacy necessary to ultimately produce steel. Even in the contem-
porary world there is a strong relationship between income per capita and
urbanization.
156 Patterns and Determinants of Economic Growth