What could possibly have caused the increase of income per person over last 200 years?

(Article cross-posted from Outrun Change because a few of the factors necessary for these changes to happen are property rights, economic freedom, and political freedom. In addition, it is capitalism, not socialism or communism that made these changes happen.)

Here is an approximation of annual per capita GDP from 1 AD through 1913:

I’ve long been amazed at the radical growth in per capita wealth over the last 200 years. That means since the Industrial Revolution.

Living in dirt-eating poverty as the normal way of life for essentially every person on the planet changed about 200 years ago, give or take.

For thousands of years, everyone on the planet, except for a very small number of elites, lived in extreme poverty. By that I mean dirt-eating poverty. The technical description (I think) is income of around $1 a day on purchasing power parity. People in 1700 AD lived not that much different from during the Roman Era, circa a few hundred years before and after Christ’s birth, who lived not much different from during the various Egyptian dynasties.

During the 1990s I was blessed to make audit trips to many places, including Lesotho and Indonesia. I was able to travel to the interior of each of those countries. I’ve glimpsed what subsistence agriculture looks like. I’ve had a brief hint of a limited view of living on $1 a day.

It is not pretty. It is frightening.

As a result, I rejoice in the world-wide reality quantified in the above graph.

Data for graph

I draw this graph based on stats in a developmental economics book, Progress: Ten Reasons to Look Forward to the Future, by Johan Norberg.

Here is the source data:

  • One rough calculation by economist Angus Maddison estimates per capita GDP increased only 50% from 1 AD through 1820 AD. See location 891. By my calculation, compounded that is a mere 0.0223% annual growth. It would take 46 years at that rate (more than a person’s expected lifetime) to see 1% growth in average income.
  • From 1820 through 1850, per capital GDP grew by “more than one percent” annually. See location 924. I will assume 1.1% as representing more than 1%.
  • From 1870 through 1913, per capita GDP grew by 1.6% annually. See location 932. Growth increased after that.

The graph ends at 1913. Data since then, especially the last 50 years, would show an even more dramatic increase in wealth.

How did that increase in per capita GDP happen?

Short version of the cause for that radical increase in average wealth is technological innovations, reinforced by economic freedom (ability to innovate and keep the results of your effort), political freedom (meaning the king or some petty earl can’t steal your stuff because he wants it), and property rights (again meaning you keep the fruit of your labor).

Long version: Let’s all figure it out together. We need to all understand what happened to cause the changes seen in the above graph. We need to figure out how to sustain whatever it was that happened. We need to figure out how to extend those changes so every last person on the planet gets to participate in the life changing liberating changes created by increased average wealth.

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