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Contra Ricardo: On the macroeconomics of pre-industrial economies

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  • Grantham, George
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    Abstract

    The Ricardian model that inspires the conventional account of pre-industrial economic history assumes that productive opportunities are fully exploited, and that economic growth and fluctuations reflect the interaction of technological improvement, diminishing returns to labour and capital, and homeostatic demographic responses to changes in per capita income. This article argues that the long swings in output and productivity were the consequence of endogenous variation in trading costs affecting the profitability of undertaking specialised investment in market production. Because its markets were often thin , the pre-industrial economy possessed latent reserves of productivity that were not fully exploited. A search-equilibrium model is developed to demonstrate how such an economy could experience swings in output and productivity in the absence of technological or other fundamental changes. The argument is supported by evidence indicating that the level of output in the second century may have approached that of the early eighteenth century. For those who care for the overmastering pattern, the elements are evidently there for a heroically simplified version of English history before the nineteenth century in which long-term movements in prices, in income distribution, in investment, in real wages, and in migration are dominated by changes in the growth of population . H. J. Habakkuk (1958). We may say broadly that while the part which nature plays in production shows a tendency to diminishing return, the part which man plays shows a tendency to increasing return . Alfred Marshall.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal European Review of Economic History.

    Volume (Year): 3 (1999)
    Issue (Month): 02 (August)
    Pages: 199-232

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    Handle: RePEc:cup:ereveh:v:3:y:1999:i:02:p:199-232_00

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    Cited by:
    1. Nicolini, Esteban A., 2007. "Was Malthus right? A VAR analysis of economic and demographic interactions in pre-industrial England," European Review of Economic History, Cambridge University Press, vol. 11(01), pages 99-121, April.
    2. Michael Kopsidis & Nikolaus Wolf, 2012. "Agricultural Productivity Across Prussia During the Industrial Revolution: A ThŸnen Perspective," Working Papers 0013, European Historical Economics Society (EHES).
    3. Mark Koyama, 2009. "The Price of Time and Labour Supply: From the Black Death to the Industrious Revolution," Economics Series Working Papers Number 78, University of Oxford, Department of Economics.
    4. Koyama, Mark, 2012. "The transformation of labor supply in the pre-industrial world," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 505-523.
    5. Kopsidis, Michael & Bromley, Daniel W., 2014. "The French Revolution and German industrialization: The new institutional economics rewrites history," IAMO Discussion Papers 149, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
    6. Gonçola Monteiro & Alvaro Pereira, 2006. "From Growth Spurts to Sustained Growth," Discussion Papers 06/24, Department of Economics, University of York.
    7. Michael Kopsidis & Ulrich Pfister, 2013. "Agricultural development during early industrialization in a low-wage economy: Saxony, c. 1790-1830," Working Papers 0039, European Historical Economics Society (EHES).
    8. Jacob L. Weisdorf, 2006. "From domestic manufacture to Industrial Revolution: long-run growth and agricultural development," Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 264-287, April.
    9. Gonçalo Monteiro & Alvaro S. Pereira, 2006. "From Growth Spurts to Sustained Growth: The Nature of Growth and Unified Growth Theory," DEGIT Conference Papers c011_004, DEGIT, Dynamics, Economic Growth, and International Trade.
    10. Michael Kopsidis, 2012. "Peasant Agriculture and Economic Growth: The Case of Southeast Europe c. 1870-1940 reinterpreted," Working Papers 0028, European Historical Economics Society (EHES).

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