Introduction to the Topic

The Industrial Revolution circa 1800 in England provides a starting point for discussion about economic growth. Before the Industrial Revolution the whole world was in a tight Malthusian grip, where income and production stagnated and the whole economy was governed by fluctuations in population. England became the first country to successfully free the economy from the Malthusian grip. No longer was productivity and income dependent on population. Now no one disputes that this was a miraculous event in the economic history of the world. However, what is heatedly disputed among economic historians and growth-economists are the causes of this economic growth in general and the growth during Industrial revolution in England in particular. More specifically, why did the Industrial Revolution happen in England, and why not in other places like India, China, Japan, and the US?

Even more disputed are the explanations surrounding such economic growth. For a long time economists believed that good quality institutions like low taxes, secure property rights, industrial security, mobile market of the factors of production, price stability, and low public debt among others were essential for economic growth. However, Gregory Clark, one of the prominent quantitative economic historians, in his book A Farewell to Alms: A Brief Economic History of the World, argues that institutional argument does not explain the rapid economic growth of England. More specifically, institution does not matter for economic growth. He argues that economic growth requires a good set of bourgeois virtues and “genetically capitalist” instinct among the citizens.

Fig 1: World economic history. For centuries the whole world economy was under the Malthusian Trap, where income per person stagnated. This stagnation was broken during the Industrial Revolution circa 1800 in England. Then the income per person skyrocketed in some countries while others remained in stagnation, leading to the Great Divergence.

In the proceeding sections we will compare these two perspectives and relate this to the underdevelopment issues surrounding the Third World at present. First, we need to explore the characteristics of an economy where changes in income is more than surpassed by changes in population, leading to a stagnating economy embroiled in a population trap, i.e. the Malthusian Economy.