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Lecture 1: Overview: Slouching TowardsUtopia?

For Thursday August 27, 2009

J. Bradford DeLongProfessor of Economics, U.C. Berkeley

Research Associate, NBER

This Draft: August 21, 2009

From William Butler Yeats, “The Second Coming” (1920):

Things fall apart; the center cannot hold…The best lack all conviction, while the worstAre full of passionate intensity….

[T]wenty centuries of stony sleepWere vexed to nightmare by a rocking cradle,And what rough beast, its hour come round at last,Slouches towards Bethlehem to be born?

Gaining a PerspectiveTake a century in the distant past—say between 300 and 200 BC. What dowe remember about what happened? If you are like me, you rememberthat the Roman Republic fought the city of Carthage for control of Sicilyand Spain, and that Hannibal won the battle of Cannae, and that afterwardshis cavalry commander spat on the ground and said: “You know how towin a victory, Hannibal, but not how to use one.” If you are like me, youknow that the Chin Emperor Shih Huang Ti unified China—but that his

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dynasty was promptly replaced after his death by the Han. And that ispretty much all you have—all I have, at least—in the front of my brain.

Two or three thousand years from now, what will people remember in thefronts of their brains about the twentieth century? History as we know itwill have been boiled down to its bare core. History courses—if they evenhave history courses, if they even have universities1—will have at most asmall part of a single session to spend on the twentieth century. And inthat time teachers will try to hastily and cursorily make five points:

• That economic history dominated twentieth-century history in away it never had before; that changes in the economy were the bigstory—even bigger than world wars and totalitarian tyrannies.

• That the twentieth century saw the material wealth of humankindexplode beyond all previous imaginings.

• That even though the twentieth century’s totalitarian tyrannieswere not the biggest story they were a very big story: more brutaland more barbaric than any ever before, and—astonishingly—theyhad their origins in economic discontents and economic ideologies.

• That the twentieth century saw was a century not just of growingglobal wealth but exploding global relative inequality in a way thathad never been seen before.

• That in the twentieth century governments’ abilities to be balancewheels for and manage their economies were very limited;governments were inept; little was known about how to manage anindustrial market economy; little was learned from experience;what lessons were learned from experience were often quicklyforgotten.

And then—if this were two thousand years from now—we would be done,and racing off to cover all the things that happened in the twenty-first

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century on our gallop to that most truly important of all ancient centuries:the twenty-seventh. Now that century has an interesting history…

Five ThemesEach of these themes deserves restatement at greater length:

1. Economic HistoryThat Economic History Has Dominated Twentieth Century History.For most centuries the core of history—the most interesting and importantparts—is only tangentially related to economic factors. The core of theirhistory is, instead, intellectual or religious or political. The history of thefourth, seventh, and sixteenth centuries is primarily religious: theconsolidation of Christianity in the Roman Empire, the spread of Islam,and the Protestant Reformation absorbed the attention of their respectiveages. The history of the fifteenth century is primarily cultural: in Europethe Renaissance,2 in China the cultural flourishing during the MingDynasty.3 The history of the late eighteenth and early nineteenth centuriesis primarily political: the American and French Revolutions and theirconsequences.4

The core of history then was only tangentially related to economic factorsbecause economic factors changed only slowly: the structure andfunctioning of the economy at the end of any given century was prettyclose to what it had been at the beginning. The economy was more like thebackground against which the action of a play takes place than like adynamic foreground character, because changes in humanity'seconomy—how people made, distributed, and consumed the materialnecessities and conveniences of their lives—required long exposures tobecome visible.5

For the past century things have been different.

In the twentieth century the pace of economic change has been so great asto shake the rest of history to its foundation. For perhaps the first time the

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making and using the necessities and conveniences of daily life—and howproduction, distribution, and consumption changed—has been the drivingforce behind a single century’s history.

Figure 1.1: The Harvest in Canada and in France, Today and in1860

Source: Jean-Francoic Millet, “The Gleaners,” Musee d’Orsay

2. Economic GrowthThat the twentieth century has seen the material wealth of humankindexplode beyond all previous imagining. There had been muchtechnological progress before the industrial revolution, before theeighteenth and nineteenth century age of the spinning jenny, power loom,steam engine, coal mine, and iron works.6 For example, the windmills,dikes, fields, crops, and animals of Holland in 1700 made its economyvery, very different indeed from the marshes of 7007; the ships that dockedat the Chinese port of Canton had much greater range and the commoditiesloaded on and off them had much greater value in 1700 than in 700. Butpre-industrial technological progress led to little improvement in thestandard of living of the average human: improvements in technology andproductive power by and large raised the numbers of the human race, notits material standard of living.8

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The eighteenth and nineteenth centuries saw a faster change and adifferent kind of change. For the first time technological capability outranpopulation growth and natural resource scarcity. By the last quarter of thenineteenth century the average inhabitant of a leading economies—aBriton, a Belgian, a Netherlander, an American, a Canadian, or anAustralian—had perhaps three times the material wealth and standard ofliving of the typical inhabitant of a pre-industrial economy. The standardsof living of the bulk of the population underwent a substantial, sustained,and unreversed rise in the eighteenth and nineteenth centuries—forperhaps the first time in a thousand, if not in seven thousand years.

Standards of living have exploded in the twentieth century.

What took a worker in 1890 an hour to produce takes an a worker in aleading economy today only about seven minutes to produce: by thismeasure we today have some eight times the material prosperity of ourcounterparts of a little more than a century ago. But such calculationssubstantially understate the boost to productivity and material prosperitythat the past century has seen. We today are not just better at making thegoods of a century ago. We today also have the new and powerfultechnological capability to make an enormously expanded range of goodsand services: from videocassettes and antibiotics to airplane flights andplastic bottles.

We today would feel—we would be—enormously impoverished if bysome mischance our money incomes and the prices of commoditiesremained the same, but if we were at the same time forbidden to use anycommodity not produced in 1890.

This expansion in the range of what we can produce is an enormousadditional multiplier of material well-being. Are we sixteen? thirty-two?sixty-four times as rich in a material sense as our predecessors in today’sdeveloped industrialized democracies were toward the end of thenineteenth century? The magnitude of the growth in material wealth hasbeen so great as to make it nearly impossible to measure.9

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This is the most important piece of the history of the twentieth century. Asfar as its ability to produce material goods is concerned, in the twentiethcentury the human race passed from the realm of necessity—whereproviding basic food, clothing, and shelter took up the lion’s share ofeconomic productive potential—to the realm of freedom: in which ourcollective production is no longer made up largely of the necessities ofsurvival but of conveniences and luxuries.10

3. TyranniesThat the twentieth century has seen more brutal and more barbarictyrannies—tyrannies that had their origins in economic discontentsand economic ideologies—than any previous century. In this centurygovernments and their soldiers have killed perhaps forty million people inwar: either soldiers (most of them unlucky enough to have been draftedinto the mass armies of the twentieth century) or civilians killed in thecourse of what could be called military operations.

But wars have caused only about a fifth of this century’s violent death toll.

Governments and their police have killed perhaps one hundred and sixtymillion people in time of peace: class enemies, race enemies, politicalenemies, economic enemies, imagined enemies. You name them,governments have killed them on a scale that could not previously havebeen imagined. If the twentieth century has seen the growth of materialwealth on a previously-inconceivable scale, it has also seen humanslaughter at a previously-unimaginable rate.11

By contrast the twentieth century has seen four people certainly join theTen Million Club: Adolf Hitler, Vladimir Lenin, Joseph Stalin, and MaoZedong.12 Hitler, Stalin, and Mao have credentials that may well makethem the charter members of the Thirty Million Club as well—perhaps theFifty Million Club. A regime whose hands are as bloody as those of theSuharto regime in Indonesia—with perhaps 450,000 communists,suspected communists, and others in the wrong place at the wrong timedead at its creation in 1965,13 and perhaps 150,000 inhabitants of East

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Timor dead since the Indonesian annexation in the mid-1970s14—barelymakes the twentieth century's top twenty list of civilian-massacringregimes.

Figure 1.2: Reichsparteitag der NSDAP, September 1934

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What does this—bloody—political and secret police history have to dowith economic history? It seems at first glance that, while deplorable, ithas little to do with the story of how people produced, distributed, andconsumed the commodities needed and desired for their material well-being.

But it is not possible to write economic history without taking the bloodyhands of twentieth century governments into account. First, the possibilitythat the secret police will knock at your door and drag you off for tortureand death is a serious threat to your material well-being. The seventeenth-century political philosopher Thomas Hobbes wrote that people aremotivated by sticks and carrots: “the fear of violent death, and the desirefor commodious living.”15 In a century where the chance that a randomly-selected person will be shot or starved to death by his or her owngovernment approaches two percent, the fact of large-scale politicalmurder becomes a very important aspect of everyday life and materialwell being.

Second, the shooting or starvation was often part of the government’s“management” of its economy: the stick used to compel the people toperform service or labor as the government wished. The economies of theSoviet Union in the 1930s and of China in the 1960s cannot be understoodwithout understanding how mass terror was used as a worker disciplinedevice.16

Third, the twentieth century is unique in that its wars, purges, massacres,and executions have been largely the result of economic ideologies. Beforethe twentieth century people slaughtered each other for the other reasons.People slaughtered each other over theology: eternal paradise ordamnation. People slaughtered each other over power: who gets to be topdog, and to command the material resources of society. But only in the

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twentieth century have people killed each other on a large scale in disputesover the economic organization of society.

When you think about it, killing people on a large scale over what socialmechanisms should coordinate economic activity is profoundly stupid: wewant social mechanisms that will work in the sense of deliveringprosperity, progress, and a reasonably egalitarian distribution of income.Combinations of mechanisms that fail to accomplish this should berejected; combinations that succeed should be approved; but the stakes arenot overwhelmingly large.

Moreover, the power of tyrants and leaders does not depend on thebalance of command or market mechanisms in the economies that theygovern. Fidel Castro would rule in Havana whether farmers are allowed tosell their crops in roadside stands, or whether they are prohibited fromdoing so—forced to sell to government monopoly bureaucracies. Thepower or personal status of leaders or the eternal salvation of peoples hadlittle to do with twentieth century episodes as the Soviet collectivization ofagriculture, the Cuban suppression of farmers' markets, the KhmerRouge's forced emptying of Cambodia’s cities, or the disaster of Mao’sGreat Leap Forward. All were in large part attempts to guide and shift theeconomy along the lines dictated by ideology. Other twentieth centurydisasters had equally strong roots in economic ideology: it is hard to seeWorld War II in the absence of Adolf Hitler's insane idee fixe that theGermans needed a better land-labor ratio—more “living space”—if theywere to be a strong nation.17

The last word should be Aleksandr Solzhenitsyn’s:

The imagination and inner force of Shakespeare's villains stopped shortat ten or so cadavers, because they had no ideology.... It is thanks toideology that it fell to the lot of the twentieth century to experiencevillainy on the scale of millions.18

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4. Global InequalityThat the twentieth century has seen a vast and growing relativeeconomic gulf between national economies. Those economies relativelyrich at the start of the twentieth century have by and large seen theirmaterial wealth and prosperity explode. Those nations and economies thatwere relatively poor have grown richer, but for the most part slowly. Therelative gulf between rich and poor economies has grown steadily over thepast century. Today it is larger than at any time in humanity’s previousexperience, or at least larger than at any time since only some tribes knewhow to use fire.19

Figure 1.3: The Great Depression in the American South

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This glass can be viewed either as half empty or as half full: half emptybecause we live today in the most unequal world ever; half full becausemost of the world has already made the transition to sustained economicgrowth; most people live in economies that (while far poorer than theleading-edge post-industrial nations of the world’s economic core) havesuccessfully climbed onto the escalator of economic growth and thus theescalator to modernity.20 The economic transformation of most of theworld is less than a century behind the of the leading-edgeeconomies—only an eyeblink behind, at least from the millennialperspective (even though the millennial perspective is one that humanbeings can adopt only when contemplating the long-dead past).

On the other hand, one and a half billion people live in economies thathave not made the transition to economic growth, and have not climbedonto the escalator to modernity. It is hard to argue that the medianinhabitant of Africa is better off in material terms than his or hercounterpart of a generation ago.21

From an economist’s point of view, the existence, persistence, andincreasing size of large gaps in productivity levels and living standardsacross nations seems bizarre. We can understand why pre-industrialcivilizations had different levels of technology and prosperity: they haddifferent exploitable nature resources, and the diffusion of new ideas fromcivilization to civilization could be very slow. Such explanations do notapply to the world today.

The source of the material prosperity seen today in leading-edgeeconomies is no secret: it is the storehouse of technological capabilitiesthat have been invented since the beginning of the industrial revolution.This storehouse is no one’s private property. Most of it is accessible toanyone who can read. Almost all of the rest is accessible to anyone whocan obtain an M.S. in Engineering.

Because of modern telecommunications, ideas today spread at the speed oflight. Governments, entrepreneurs, and individuals in poor economiesshould be straining every muscle—should in fact have long ago strained

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every muscle—to do what Japan began to do in the mid-nineteenthcentury: acquire and apply everything in humanity's storehouse oftechnological capabilities.

This “divergence” in living standards and productivity levels is anotherkey aspect of twentieth century economic history: economies are, byalmost every measure, less alike today than a century ago in spite of acentury’s worth of revolutions in transportation and communication.

Moreover, there seems to be every reason to fear that this “divergence” inliving standards and productivity levels will continue to grow in the future.A number of factors have kept economic growth slow in today’s poorcountries in the past: high rates of population growth that restrict growthin the capital-output ratio, high relative prices of capital goods thatconstrain investment, governments that (like most governmentsthroughout history) take the short view in an attempt to maximize chancesof survival and the perquisites of office, and traditional elites (religiousand cultural) that fear what they will lose from a richer country moreintegrated into the twenty-first century world. These factors are stilloperating today, and likely to operate in the future as well.

This is a potential source of great danger, because today’s world issufficiently interdependent—politically, militarily, ecologically—that thepassage to a truly human world requires that we all get there at roughly thesame time.22

5. Economic ManagementThat economic policy in the twentieth century has been inept; fewlessons are successfully learned from the past, and those that arelearned are in constant danger of being forgotten. The twentiethcentury has seen the century-long economic disaster of communism, andthe quarter-century-long disaster of fascism. It has also seen manygovernments that appear singularly inept at managing market economies:inept at coping with economic shocks that threaten to cause massunemployment or raging hyperinflation. Some of it is because twentieth

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century economists did not know what to prescribe: the history ofeconomic policy reads like alchemy, not chemistry. Often proposedremedies made economic problems worse.23

Figure 1.4: The Great Depression in the American North

Some of it is that politicians did not like to follow their economists’advice, or at least sought for a more complaisant set of economists whowould give advice that would be more politically pleasing and palatable tofollow. Some of it is that those who do not remember the past arecondemned to repeat it—and the rest of us are condemned to repeat it withthem.24

The twentieth century economy has been a tremendously powerful,efficient, and productive social mechanism—the market system. Yet few,

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or few of those in power, have known how to operate or fix it. Moreover,learning does not appear to take place—or if it does take place, it does nottake place at more than a glacial pace. The inescapable image is of anocean liner crewed and steered by chimpanzees.

The failures and half-successes of economic policy together make upanother key facet of twentieth century economic history: howgovernments have managed or mismanaged their economies, and howknowledge of how the economic system works has been painfully gainedand then painfully lost.

Minor ThemesThere are other themes as well: shifts in the distribution of relative wealthand economic power from rich to middle-class and back again, as thewave of social democracy sloshes across the industrial economies in thetwentieth century;25 the Great Depression, the defining moment oftwentieth century economic history;26 the rise to economic preeminence ofthe United States, and forthcoming challenges to America’s role at theleading technological and econo-cultural edge as “the furnace where thefuture is being forged,”27 to name three.

All these other themes are important strands in twentieth centuryeconomic history. But from the perspective of a millennium, the mostimportant aspects of twentieth century economic history cannot help butbe those five sketched above: the dominance of economic events intwentieth century history; the tremendous surge of material prosperity; thecoupling of productive power and economic ideology with mass murder;the bizarrely uneven distribution of economic growth and prosperityaround the world; and the failure of economic policy to advance from thestage of alchemy to chemistry.

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The Flow of the ArgumentThe first task is to take such a millennial perspective: to try to lay out whatare the principal themes of the economic history of the twentieth century.

But soon afterwards I will drop back into narrative. The narrative beginsby trying to paint a picture of the state and trajectory of the worldeconomy toward the end of the nineteenth century. It rushes throughdevelopments up through World War I, focusing on how the first trulyglobal economy of the pre-World War I period—the first economy inwhich transport costs were low enough for trade to have a powerful impacton every portion of the globe—functioned. It then turns to the attempts torebuild and reorganize the world economy in the aftermath of World WarI, and their catastrophic failure. It traces the causes, progress, andconsequences—economic and political—of the disaster that was the GreatDepression.

The narrative then briefly treats the economic consequences of World WarII before marveling at the job of reconstruction done in the aftermath ofAdolf Hitler’s war. It continues to marvel at the pace of the subsequentGreat Keynesian Boom of the generation after World War II. It thenfocuses on the more troubled economic period since 1973 or so. And, last,it peers dimly into the future of the human economy.

FocusThis is a history of the global economy in the twentieth century: of theevents and processes of the network of trade, investment, andcommunication that spanned the globe at the start of the twentieth century.The focus throughout is on the industrial core: the rich nations, originallygrouped around the North Atlantic Ocean, that have been at the leadingedge of economic development, structural change, and technologicaladvance in this century. These are the economies that traded, invested, andcommunicated the most. But I hope to pay due attention to the economichistory of the rest of the world as it became increasingly enmeshed in the

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global economy throughout the twentieth century—and to theextraordinary rise in relative povery as the world grew more and moreunequal from 1870 to 1980 or so.

The level of analysis attempts to be neither “history from above” nor“history from below” but rather “history from beside.” “History fromabove” tells of the doings of kings, princes, and general secretaries inmarble-floored buildings and green silk-covered rooms. “History frombelow” tells of what ordinary people ate and wore and thought. Neither isadequate.

The focus on the Duke of This or the Earl of That found in “history fromabove” is a trivially small part of the history. How did people try to getenough to eat? Were people well enough nourished for young women toeasily reach puberty? How did patterns of daily life change? The answersto these questions tell us more about the history, and are intrinsically atleast as interesting, as are stories of assassinations and intrigue at thecourts of Tiberius Claudius Nero Caesar Germanicus (the Roman EmperorClaudius) or of Josef Vissarionovich Djugashvili (the Soviet GeneralSecretary Stalin). In the long run menarche—whether the people are well-enough nourished for women to go through puberty at an early age—ismore important to know about than monarchy. How billions of peoplelived and live their lives is more important than the maneuvers andproblems of the few who sit at the very top of the pyramids of humansocial organization. The difficulties created by the affair of the Chancellorwith the Queen Mother are less important—with the proviso that at manytimes and places the history of monarchy had had important implicationsfor the average age at menarche.28

But the patterns of daily life of the general population and how theychange make little sense if they are divorced from any consideration ofhigh politics and changing technology. For high politics and changingtechnology shape and change how real people live—not only whether theylive or die at the hands of thugs-with-guns, but what kind of life they areable to live.

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It is a commonplace that each generation writes its own history: eachgeneration is interested in different facets of the past, and a given work ofhistory often tells as much about its own present in which it was written asabout the past that it purports to analyze. This commonplace is notcompletely true. One reason to write history is that it is entertaining: thestories of what people actually did and suffered that historians tell aresome of the greatest stories on earth. The twentieth century has more thanits share of such narratives.

A second reason for history is simply to gratify curiosity, which may ormay not be related to the circumstances of the writer's or the reader's era.

Yet there is a third powerful motive: the search for “lessons” of the pastfor the present. Today, in the wealthy and industrialized countries of theworld, our principal concerns are with the creation and maintenance ofliberty and prosperity, and with understanding what our (comparative)liberty and (relative) prosperity has transformed us. Other audiences inother places and other times have had different concerns: how to ensurethe triumph of the “true” theology, how to conquer one’s neighbors, orhow elites can maintain political power or economic and socialdominance.

This history is from our particular turn-of-the-twenty-first-centuryviewpoint: it tells the story of the twentieth century as the story of anuneven and halting lurch in the dirextion liberty and prosperity—thepartial escapes from (and at time and places the falls back down into)servitude and poverty. This particular grand narrative is an interesting oneto write because it is of great interest to almost everyone, and because itsending is not clear. There is no logic immanent in history unfolding itself:nothing except our own and our descendants efforts and struggles canmake this particular grand narrative have a happy rather than a tragicconclusion.

I think that this is the most interesting take on the history of the twentiethcentury. Others are free to disagree.29 And the fact that others are free to

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disagree, and value that freedom, reinforces my belief that my particulargrand narrative is the best one to tell.30

We are slouching towards utopia.

August 21, 2009: 6,032 words.