9: The Emergence of Modern Man
Given that the economic state of the world was inert before 1800 and constant growth afterward, it begins the question of how this change occurred. The author considers four significant factors:
- Interest rates went from astonishingly high rates to very low levels
- Literacy and numeracy went from rarity to the norm
- Work hours increased and normalized
- There was a substantial decline in interpersonal violence
As a whole, these changes coincide with societies becoming increasingly middle-class in their orientation, focused on work and production.
It's suggested that the practical changes modify human behavior genetically as well as culturally: just as it has been shown that in animal populations, behaviors and instincts change that enable large numbers to adapt, so is it true that in human societies, changes that begin with a few can quickly spread to the population within a few generations and define a new norm.
The exact date for the industrial revolution remains the subject of much conjecture - it occurred in different places at different times, but ultimately took hold to transform people from the Neolithic way of life to the modern one within a very short amount of time.
Interest Rates
The author finds the interest rate demanded for the use of capital to be one of the most telling indicators in any economy because capital indicates the relationship between the amount of resources in a society and the desire to putting those resources to productive use.
To be more specific, the "real" interest rate must be adjusted to overcome interest charged to compensate for the loss of value from inflation. Some argument is made that the longer the term of the loan, the less accurate the interest rate will be (in that the user and provider of capital based their agreement on expectations at a given time.) That being done, the interest rate becomes a factor that can be compared across societies and historical periods.
The author also reckons that land rent can be substituted for interest rate in societies before the widespread use of money, as the rent paid on land is the equivalent of the interest paid in money in societies in which foodstuffs are bartered and the motivation of the user and provider of rented land is essentially the same as the motivation of those who borrow and lend money.
The author presents a table indicating the rate of return on capital (rent of land) between 1200 and 1349, to demonstrate that most nations (England, Flanders, France, Germany, and Italy) charged rates that ranged from 9.5% to 11.0%. The same figure (10%) is suggested to have been used in ancient Greece and Rome. It's suggested that rates in India have been around 15% and in the middle east, rates could be as high as 20% to 25%.
There's a brief aside about time preference - which is to say that people have a preference for having something immediately versus having something in the future, and correlation to studies that suggest that the less intelligent a person is, the higher the interest rate he will demand for the loan of property (a test on American six-year-olds indicated a rate of about 3% per day, and a separate study correlated the demands of teens to SAT scores and academic performance).
Anthropologists have attempted to measure time preference rates in premarket societies by considering the participation in activities that would have an immediate reward (gathering), as opposed to those that would require some patience (trapping/fishing), and as opposed to those that might require considerable time (planting or raising livestock).
The same consideration was made of present-day foraging societies: one tribe split activities between foraging for roots (low value but quickly consumed) versus raising crops (greater value but slow return) and found that, in spite of recognizing the value of planting, spent most of its time foraging. Also considered was the behavior of another tribe, which would hack the limbs from bushes to make it easier to obtain the fruit, without regard to the loss of future yield.
Why Did Interest Rates Decline?
There are three elements to consider in terms of an interest rate:
- Time preference rate (that would be charged if there were no risk)
- Default risk premium (based on the borrower's perceived ability to repay)
- Inflation premium (based on how inflation will decrease the value of return)
Each of these factors is subjective to some degree. Time preference is reckoned to be entirely psychological, as there is no rational way to assess the degree to which we are willing to accept a smaller quantity of something sooner. Risk premium is likewise a subjective assessment of how we feel about another person's likelihood to repay us. And while a fair amount of evidence can be taken to support the inflation premium (historical trends), it is heavily influences by feelings about the future.
(EN: The author seems to chase a red herring - the fact that medieval landlords in England were practically guaranteed a 10% return with very low risk to their assets. Though in some places, landlords were beholden to noblemen, as any change in leadership could result in the nullification of their rights. This was a larger problem on the continent, where squabbles over land were more common, not so much for the English, isolated from the greater land mass on their island. Interesting stuff, but it doesn't answer the question of why rates declined so much around the 1800s.)
Literacy and Numeracy
Around the same time, there were significant increases in the basic literacy and numeracy of various societies in Europe. However, before about 1580, there was little assessment of public literacy and numeracy, so it's difficult to make a firm estimation.
The author goes into some detail about how we can recognize a lack of basic skills by looking at documents such as the Roman census and the presence or absence of birth year or age in death records (or more aptly, the incorrect statement of age, as some of the tombstones in Rome record people living to 120 years or older). A similar census in the fifteenth century indicated that a significant number of people did not know their own ages.
It's also noted that in England, members of the clergy could be tried in ecclesiastical courts as opposed to the harsher secular courts - the sole test for which was to read a passage from the Bible, which implies that it was highly unlikely anyone outside of the clergy could read. By 1351, the test was codified into law.
There is also the widespread vagueness of public record, indicating a lack of basic math skills even among people who were able to read and write. One historian notes a tax of 180,000 pounds was collected where treasury records totaled to about 8,000; another "leading scholar" reports there being some 3,000 scholars at Oxford, whose facilities at the time would scarcely accommodate 300; another historian reports the death of 50,000 people in an small town where fewer than 100 people dwelled.
The author also considers that it would be likely that literacy or numeracy would have been to any practical advantage at all during the agrarian era, as the vast majority of men were employed in professions where neither skill was of any value (common labor).
Later in history, there are better measures of the literacy of the people of Europe, such as the percentage of the population capable of signing their own names. In England, only 6% of people who signed legal documents spelled out their names; but by 1800 the number was 53%.
Work Hours
The author provides very little information on this factor: he reflects on the difference in working hours between foraging and agrarian societies - his presumption in an earlier chapter is that herding and raising crops require more labor than gathering and hunting, but at the same time concedes that it's difficult to establish. Then he comes a bit unraveled and suggests improvements in a range of areas (skill premiums decreased, violence rates declined, literacy rose, etc.)
Judicial Violence
The author describes the appetite for bloody public spectacles, such as the public torture and execution. There is much said of the violence in the Roman forum and coliseums, but this continued long afterward - as public execution was a form of justice and entertainment, delivered with some regularity
The practice of drawing and quartering prisoners carried on until 1782, burning women at the stake continued to 1789, gibbeting the bodies of executed criminals continued until 1832, and public executions ended in 1869.
(EN: The author doesn't seem to make any connection between this activity and economic progress, and my sense is it would take a bit of a stretch to make a plausible link.)
Selection Pressures
(EN: The last bit of this chapter comes completely unraveled - I'm taking notes, but I don't' see much of a connection or consistent thread.)
The author notes that there was much activity in Europe during this time (the protestant reformation, the scientific revolution, the enlightenment era in philosophy, etc.), and there are a number of theories as to which of them was the start of it all. He goes through some examples of how any of these phenomena can be argued to be the cause of all others, but in the end it's noteworthy that all of this occurred at the same time, and likely fueled one another. The net result was to change culture at the time, such that people became more patient, less violent, more literate, more hard-working, and more thoughtful than in ages past.
A side-trip: the Arabic numeral system, rather than the roman, is credited with being much more supportive of the needs of trade and commerce, though states were stubborn to adopt them. It's suggested that Arabic numerals were predominate in commerce as early as the thirteenth century, but the English treasure refused to abandon Roman numerals until the sixteenth.
Trade, the author asserts, is a significant factor in that those involved in commerce and production became more adept with math.
Historical records characterize early agricultural societies as impulsive, violent illiterate, and lazy.
Looking to the foraging group in current-day Brazil, it's been found that the tribes have three numbers: one, two, and many. While they have the conceptual skills to survive as hunters and foragers, they find little use in mathematics.
A farming/herding society requires a different kind of citizen: one who has the foresight and patience to devote himself to hard work now for rewards he will not enjoy until the future. The perspective of the hunter is to get food today, whereas the herdsman must consider what he must do to provide food in future by rearing animals that would not be ready for consumption until several months or a few years. The skills needed for success are more cerebral - thinking, calculating, planning, and monitoring.
It's not a matter of raw intelligence: the hunter would need to calculate the amount of game that was needed to feed his tribe on any given day and consider the best way to find it, capture it, and transport it. Being able to hunt is itself a complex activity that takes years of practice to master, so it would be inaccurate to consider primitive tribes as being particularly stupid: they merely exercised their intelligence in different ways.
As such, human progress into the agricultural era was not survival of the fittest or the smartest, but to those who were most capable of taking a long-term perspective.