The Great Waves in Economic History

In western economic history, living standards appear to have had three "supercycles" of rise and fall of economic activity over the past 4,000 years.

Introduction

Some economists stated that economic growth simply did not exist before recent times. They believe that sustained economic growth began in the late 18th century. This view is articulated by economic historians like Clarke (2007). Other economists, like DeLong (2022) go even further (he claims that modern economic growth only began in earnest in 1870, with the growth from 1770 to 1870 being quite small in comparison). They conclude that there was no significant sustained growth in real incomes for ordinary people before late 18th century, although they do admit that living standards could have varied over pre-modern history for a small elite.

The data, however, shows that this model of economic history is simply not true. Instead, over the last four thousand years, we can identify that there have been three major very-long-run economic cycles in the Western world that featured increasing incomes and then very long periods of decreasing incomes. These cycles of expansion and contraction lasted for several centuries.

As described by Bresson (2016), the first cycle corresponded to the rise and fall of Bronze Age civilizations, such as the Minoan and Mycenean cultures in Greece, the first literate civilization in Europe which developed writing around 2000 BC and collapsed towards the end of the 2nd millennium BC. The second cycle corresponded to the rise of Classical Greco-Roman civilization over the 1st millennium BC and its collapse during the 1st millennium AD. The third and present cycle began in the late 1st millennium AD and continues today.

In this wider context, the industrial revolution beginning in the late 18th century was just an acceleration of the rate of economic development of the third cycle and did not really represent a discontinuity with past economic history. Thus, while modern economic growth over the past 200 years or so has been exceptional in its scale and speed, the phenomenon of economic growth (and economic collapse) also existed before the late 18th century.

An example of economic growth in pre-modern times

Thanks to the tremendous cultural legacy of their Classical period (the 5th and 4th centuries BC), now often called by historians “The Greek Miracle,” no other region of the pre-modern world has been as intensively studied as the Ancient Greek culture. This also means that the state of archeological evidence regarding the Greeks is now such that we can approximately trace their macroeconomic performance over the very long run.

Data from the US computed by Stephan (2013) shows that the median size of newly built houses and per capita GDP have an almost perfect correlation:

Figure 1, from Stephan (2013).

Thus, the archeological evidence of house sizes from Ancient Greece constitutes very strong evidence of changes in living standards: it shows an improvement in housing with sustained dramatic growth in house sizes over several centuries, and this increase occurred across the whole population of households, as shown in Figure 2.

Figure 2, reproduced from Morris (2004).

As Morris (2004) shows in the figure above: the 25th percentile of ancient Greek houses dug by archeologists increased in size of their first floor from about 350 square feet in 750 BC to 2,500 square feet by 350 BC, an increase by a larger factor than among house sizes of the 75th percentile over the same period (which increased from 740 to 3,100 square feet). We should also consider that the proportion of houses with two floors increased as well (which is natural since houses tend to grow in three dimensions: larger houses tend to have more floors than smaller houses). Based on archeological evidence such as the traces of stairs, Morris estimates that the typical size of internal space on the second floor relative to the first increased from about 5% to 50% from the 8th to the 4th centuries BC, which implies that the 25th percentile Ancient Greek house increased in size by exactly one order of magnitude over these five centuries, from 370 square feet to 3,700 square feet. If the correlation of housing space and per capita income were similar to the US today (as illustrated in Figure 1), that would mean that household income at the 25th percentile increased by well over one order of magnitude in Ancient Greece. Thus, instead of being stagnant, it appears that in Ancient Greece, commoner’s living standards increased more than the elites’ living standards.

This increase in household housing consumption occurred over the five centuries from the beginning of Classical Greek civilization, traditionally dated to the first Olympic Games in 776 BC, to the peak of population density in Greece reached during the age of Aristotle and Alexander the Great in the late 4th century BC. Over this period, population densities in regions that archeologists surveyed in Greece increased by a factor between 10 and 15 times. In addition, archeological evidence shows that the average age of adult burials increased by about 30-35% from the 8th and 7th centuries BC to the 4th century BC, which suggests an increase in life expectancy of similar proportion to that of the US and Western Europe over the past 100 years.

Thus, in Ancient Greece, incomes of households of the 25th percentile increased dramatically, population density also increased by over one order of magnitude, and life expectancy also increased substantially. Therefore, the Malthusian thesis (in its strongest formulation) that states it was impossible for pre-modern societies to achieve sustained economic growth because any increase in productivity would be wiped out by an increased population is conclusively falsified.

Therefore, the Ancient Greek cultural miracle that produced figures like Socrates, Plato, and Aristotle had an underlying economic miracle supporting it. Just like the Ancient Greek experience with democracy, it is likely this economic miracle was also exceptional compared to other pre-modern cultures; it is still true this miracle represents a dramatic counterexample to the Malthusian thesis, which implies that we should not automatically dismiss the hypothesis of economic growth in other pre-modern cultures.

In addition, it appears to be the case that sustained economic growth among the elites is reflected in sustained growth among the general population. This is evident in our world today, given the strong correlation across countries between the density of billionaires in the population and the degree of economic development (the regions with the highest density of billionaires are North America, Germany, and Scandinavia, which also are the most developed regions). The hypothesis that economic growth in pre-modern times among elites was uncorrelated with the economic performance of the general population (that there was zero growth in commoner living standards while elite living standards could vary dramatically) has no empirical evidence supporting it: while the degree of dispersion in incomes can vary over time, it appears that it was always the case in all human societies that a sustained increase in top incomes, in the long run, involves an increase in incomes for the general population. Therefore, evidence of increased elite consumption also suggests there was an improvement in living standards for commoners as well.

The Bronze Age cycle

Figure 3, the map shows the world of the late Bronze Age; by that time, civilization had reached a high level of complexity in the Eastern Mediterranean.

The process that began with the formation of the first literate societies with centralized states in the fertile crescent region around the late 4th and early 3rd millenniums BC, and the later development of Minoan and Mycenean civilizations in the Aegean region by the early 2nd millennium BC, appears to have reached a high point of economic development around the mid to late 2nd millennium BC.

Then, archeological evidence shows that from the late 2nd millennium BC to the early 1st millennium BC, there was a notable economic collapse in Greece: median house sizes declined by 30 to 40% (from ca. 750 square feet to around 450-500 square feet on the first floor, a significant but much more modest change than the explosion of house size in the Classical period), the average age of burials also decreased substantially, corresponding to a lowering of life expectancy (also by a smaller degree of change than the increase in the Classical period), while population density also decreased substantially. Literary evidence also corroborates the archeological evidence: one of the first ancient Greek writers, Hesiod, writing around the 8th century BC, described decreased living standards of his own time, the so-called Iron age, compared to the “good old days” of the Bronze age.

While we lack detailed evidence for the other regions of the Bronze Age world, such as Egypt, Asia Minor, Mesopotamia, and the Levant, to trace its economic performance with a similar degree of precision as in Greece, it is clear that they were also involved in the economic collapse of the Late Bronze age as there were waves of migrations and violent destruction of major cities across the whole Eastern Mediterranean world.

Figure 4, the bronze age collapse.

The degree of economic collapse was perhaps better documented in Greece than in other regions, first because archeologists have more intensively investigated Greece than other regions. But also, perhaps because there is no continuity in Greece’s political and writing systems from the Bronze Age to the Classical period, unlike in Egypt and Western Asia, where their absolutist monarchies, hieroglyphic, and cuneiform writing systems were preserved.

It might have been the case that Egypt and Western Asia were more developed than Greece during the Bronze Age. Hence, their societies had more “fat” before the economic collapse, allowing institutional and cultural continuity from the Bronze Age to the Iron Age. But it was this collapse in Greece that allowed for classical-period institutional developments, such as democracy, that caused the Greek miracle over the next super-cycle.

The Classical cycle

There was a process of economic expansion over the 1st millennium BC that appears to have occurred across the whole of Eurasia, with population densities dramatically increasing from the Iberian Peninsula all the way to China.

The Greek miracle during the two centuries of the Classical period (500 to 300 BC) was perhaps the time and region where this expansionary cycle reached its most dramatic manifestation when population densities peaked at levels not attained even today in some regions, as shown in Figure 5.

Figure 5: Population densities in two regions of Greece as estimated from archeological surveys: Southern Argolid and part of the island of Kea. Both surveys suggest that Ancient Greece peaked in population density during the period from 450 BC to 300 BC.

Still, there was a general trend of economic growth encompassing almost the whole of Western Eurasia, with aggregate economic activity rising from around 800 BC, reaching a peak around 1 AD, followed by a slow but dramatic economic collapse over the following 700 to 800 years. As documented in Figure 6.

Figure 6: the rise and fall of Greco-Roman civilization documented in the number of recorded natural scientists and Mediterranean shipwrecks.

While the population density in Greece had decreased substantially from its classical peak by the peak of the Classical cycle around 1 AD, most Greek speakers were now living in cities such as Pergamon in Asia Minor, Syracuse in Southern Italy, Antioch in Syria, Alexandria in Egypt, and Seleucia in Mesopotamia (some of these regions were the heart of the Bronze Age world, and they became heavily Hellenized following Alexander’s conquests). In other regions of the classical world, population densities peaked later than in Greece: in central Italy, archeological field surveys suggest a peak in population density from 50 BC to 100 AD. Thus, Hansen (2006) estimates by that time, about 30 million people were living in city-states (“poleis”) across the Roman Empire, compared to his assessment that there were about 8 to 10 million living in Classical Greek city-states a few centuries earlier.

Therefore, by the height of Greco-Roman civilization, the ancient “first world” had a population of ca. 30 million, which was about 12% to 15% of the world’s population at the time (the Roman Empire as a whole corresponded to ca. 30% of the world’s population, but as ancient authors note, most territories inside the Roman sphere of power were not regarded as civilized areas but served as intermediate buffer zones protecting the high civilization of Mediterranean city-states from “ferocious barbarian” tribes). For comparison, at present, our 21st century “first world,” that is, high-income economies of North America, Europe, and East Asia, constitute about 15% of the world’s population.

The invasions of Germanic tribes in the 4-5th centuries AD and the subsequent Arab invasions of the 7th and 8th centuries did not cause the economic collapse but were symptoms of it: the evidence shows that a general economic decline across the classical world was already happening by the 2nd century AD, and it accelerated over the following centuries. Thus, these invasions were just the geopolitical consequence of the economic collapse of the Mediterranean Greco-Roman civilization, which created a geopolitical vacuum that was filled by the tribal populations that were living around it.

The Modern cycle

Figure 7: the proportion of the European population living in cities with over 5,000 inhabitants from 900 BC to 1950 AD.

As shown in Figure 7 (from my piece The Malthusian Trap Never Existed), the current state of demographic evidence allows us to map the Classical and Modern cycles in Europe in terms of urbanization rates showing the rise and fall of Greco-Roman civilization and then the gradual rise of the European economy in the Middle Ages and the dramatic acceleration of economic growth in the 19th and 20th centuries.

Thus, after the dramatic collapse of the Greco-Roman civilization, economic growth resumed in the 8th and 9th centuries and continued for 1200-1300 years until the present. The expansion of our present cycle has lasted longer than the Classical cycle’s expansion of 700 to 800 years. Geographically it has spread over a much larger area: instead of being constrained to Western Eurasia, our present economic order, whose origins are in Europe, has now spread globally and has generated positive per capita growth across all continents of the Earth, creating the first global civilization.

Within this framework, episodes such as the Northern Italian renaissance over the 14th, 15th, and 16th centuries, the Dutch golden age in the 16th and 17th centuries, and the explosive American economic growth from the mid-19th century to the late-20th century were more dramatic manifestations of this broader modern cycle just like the Classical period in Greece over the 5th, and 4th centuries BC was a more dramatic manifestation of a broader classical cycle.

Conclusion

Institutional developments were certainly a major factor driving these cycles: the Bronze Age cycle corresponded to the development of the first territorial states, such as Pharaonic Egypt, which were stationary bandits in Mancur Olson’s terminology, but which allowed a greater degree of economic sophistication and specialization than the tribal social environments that existed before (as demonstrated by the sophistication of Hammurabi’s legal code from the 18th century BC). The Classical cycle was driven by the city-states, which developed far more inclusive institutions (such as the Athenian democracy) than the Bronze Age autocracies and therefore allowed an even greater degree of economic sophistication.

Geographical factors were also very important in shaping these developments: Bronze Age Egypt could process and assemble 6 million tons of stone to build the Great Pyramid because the Nile River allowed very high levels of agricultural productivity and cheap transportation. The city-states of the Classical cycle were nearly all located close to the Mediterranean and Black seas because their high level of division of labor was only made possible thanks to access to cheap transportation provided by the sea (as Plato said that Greek city-states were like frogs around a pond).

The modern cycle was driven first by the formation of autocratic feudal kingdoms (similar to Pharaonic Egypt) in the High Middle Ages, then Italian and Hanseatic city-states (which were like the city-states of Classical antiquity) by the Renaissance. Over the last few centuries, economic progress greatly accelerated as growth was further potentialized by the institution of modern nation-states, such as the USA. As modern nation-states can implement inclusive institutions across enormously greater territorial areas than ancient city-states (the USA, in particular, was the first territorial state democracy, and it reached continental size by the 19th century), leading to legal frameworks protecting property and enforcing contracts over larger territories which allowed economic activity to expand like never before.

References

Bresson, A. (2016), The Making of the Ancient Greek Economy: Institutions, Markets, and Growth in the City-States. Princeton University Press.

Clark, G. (2007), A Farewell to Alms. Princeton University Press.

DeLong, B., (2022), Slouching Toward Utopia: An Economic History of the Twentieth Century. Basic Books.

Hansen, M. H. (2006), Polis: An Introduction to the Ancient Greek City-State, Oxford University Press.

Hansen, M. H. (2006), The Shotgun Method: The Demography of the Ancient Greek City State, University of Missouri Press.

Morris, I. (2004), Economic Growth in Ancient Greece. Journal of Institutional and Theoretical Economics, Vol. 160, pp. 709-742.

Stephan, R. P. (2013), House size and economic growth: Regional Trajectories in the Roman World, Ph.D. Dissertation at Stanford University.