How and Why Economies Develop and Grow: Lessons from Preindustrial Europe and China

Abstract

Why are we rich and others poor? What is preventing the less-developed countries from catching up with the more developed? How did we become rich? Underlying these questions are more fundamental ones: What is the nature of economic progress? What are its causes? I seek the answers to these questions empirically - from the historical evidence of economic progress. This is not, however, a work of history. I do not attempt to establish historical facts or to explain particular historical events. Rather, I derive from the historical evidence a theory of economic progress in general.The particular ‘sample’ from which I derive my theory is the economic history of preindustrial Europe. To test the theory ‘out of sample’, I apply it to the economic history of preindustrial China in order to understand how and why it differed from that of preindustrial Europe.The theory begins by broadening the definition of economic activity. Usually economic activity is identified with production - with the creation of goods and services. But there are two other forms of economic activity - two other ways of making a living. One is commerce - trading for profit the goods and services that others produce. The other is predation - taking by force the goods and services that others produce or trade. The theory offers an explanation of economic progress in terms of the conflicting effects on production of commerce and predation.