DisORIENT: Money, Technological Development and the Rise of the West

A very short paper on a very broad subject, co-written with David Fields, which was presented at the last ASSA Meetings in San Francisco. It is forthcoming in the Review of Radical Political Economics (RRPE). The title is derived from Gunder Frank's ReORIENT, that David and I always thought was thought provoking, but surprisingly Monetarist in its assumptions about money. The paper also adds a discussion of Pomeranz famous views on the Great Divergence, particularly the views regarding technological change, which are marginalist at its core, as well as those of Gunder Frank and some of his critics, like Arrighi.

From the abstract:

This paper analyzes the revisionist literature on the Rise of the West. Revisionist authors suggest that the so-called Great Divergence is relatively recent, and that good luck – in the form of silver from the Americas, and abundance of coal, rather than European exceptionalism – was central for the higher rates of growth of GDP in the West. This paper argues that while the revisionist literature provides relevant critiques of conventional accounts of the Rise of the West, it remains rooted in marginalist or neoclassical views of both the role of money and technological progress, and that abandoning these theoretical foundations would strengthen some of its arguments.

As far as I can tell, there aren't many papers in economic history that properly acknowledge the contributions of the revisionist literature, but also of the Military Revolution (Parker), the Consumer Revolution (McKendrick), and the Fiscal-Military State (Brewer). In fact, these historical schools are more compatible with non-marginalist views of the functioning of the economy that emphasize the role of demand and endogenous money in the explanation of the Rise of the West.

Urbanization and the Great Divergence

The Great Divergence between Western Europe and Asia, in particular China, according to revisionist authors like Ken Pomeranz, André Gunder Frank and Roy Bin Wong, has been a recent phenomenon, from around the early nineteenth century (and some would argue it will be a short lived one too; I expressed my doubts here). The graph below (source: Persson, 2010) shows rates of urbanization in Western Europe and China for a very long period.

Note that, by the renaissance of the twelfth century, Italy, particularly Northern Italy, shows a significant increase in the rate of urbanization, eventually returning to the levels of the Roman Empire. Chinese rates of urbanization are flat, in comparison, in this period. Mind you, the Song Dynasty period was a period of rapid growth in China. By the sixteenth century the rates of urbanization in Western Europe take off, with nothing comparable in China, until recent times.

Rosenthal and Wong (2011, p. 111) argue that "war was responsible for Europe’s urban manufacturing," while Chinese manufacturing remained eminently rural. And there are good reasons associated with the Military Revolution Theory to suggest Western European hegemonic rise was associated to guns and sails, as famously put by Carlo Cipolla.

From my perspective what is great about the graph is the suggestion that Western European growth, and eventually the Industrial Revolution, can be associated to the growth in demand. Note that urbanization goes hand in hand with the expansion and transformation of the patterns of consumption. In cities, that have to be built and all sorts of infrastructure and services must be provided, people have access to new consumption goods, and the significant expansion of demand is what forces supply to adjust. In that sense, urbanization, more than population growth, is a good measure of consumption expansion. And urbanization is certainly one way in which Western Europe was already diverging from Asia as far back as the twelfth century.