Unified Growth Theory (review)

In this book, Galor synthesizes the many articles that he has published in economics journals into what he calls Unified Growth Theory. By unified he means that his theory can explain economic history since the Neolithic revolution, including Malthusian growth, modern growth, and the transition from one to the other. Galor opens his theoretical exposition with the following sentences: “In each period t, a generation consisting of L_t identical individuals joins the workforce. Each individual has a single parent (69).” If this sentence seems ridiculous to you, skip to the last paragraph of this review. If it reads like a standard introduction to an overlapping-generation model, continue.

Galor’s economic models explain the transition from Malthusian to modern economic growth in a series of growth-theory models that start from maximizing individuals, contain one undifferentiated good, are limited to closed economies, and do not contain money or credit. Transitions are from one state to another: “The economy exits from the subsistence-consumption regime when potential income, z, exceeds the critical level z-tilda (161).” How large is z-tilda? Galor does not define it explicitly, but he asserts that per capita income fluctuated around $450 a year for the first millennium (11). This figure comes from Angus Maddison, The World Economy: Historical Statistics (Paris, 2003), and it is in 1990 international dollars. One might speculate that z-tilda is somewhere near this figure.

Galor presents a striking set of regressions that show technology and various physical indicators to have affected population size in 1 c.e. and 1,000 c.e. but not income per capita (91). Because no governments collected national-income data and no newspapers reported economic data during those times, Maddison had far less evidence for them than for more recent years, forcing him to make far more assumptions. He clearly assumed that the world was in a Malthusian state at that time, estimating that incomes around the world in both 1 c.e. and 1,000 c.e. varied only from $400 to $450. Galor’s regressions on these data therefore do not reveal the contours of early history; they instead reveal how Maddison constructed his data. This observation does not mean that Galor is wrong, only that the apparent precision gained from his sophisticated economic theory and statistical inquiry is illusory.

Galor’s interest, however, is theoretical, not empirical. He asserts that technological progress is a function of education and population size (155). Since education is endogenous, what drives technology is population size. When the population becomes large enough to make technology advanced enough, parents decide to educate their children, and modern economic growth replaces Malthusian stagnation. At the end of his book, Galor adds another possible path to this transition: “A sufficiently large technological shock would place the economy on a trajectory that leads to a sustained-growth regime (266).”

Which path corresponds most closely to what we know about the Industrial Revolution? Galor’s preferred path describes the view championed by Jared Diamond, Guns, Germs and Steel: The Fate of Human Societies (New York, 1997); Gregory Clark, A Farewell to Alms: A Brief Economic History of the World (Princeton, 2007); and Joel Mokyr, The Enlightened Economy: An Economic History of Britain, 1700–1850 (New Haven, 2009). It conflicts with the view of Robert Allen, The British Industrial Revolution in Global Perspective (New York, 2009), which argued that generalized technological sophistication was not enough. The Industrial Revolution started with the addition of inanimate power to production, which Allen argued was stimulated by low fuel costs. The expansion of Europe—not mentioned by Galor—set in train a Malthusian expansion that led to trade and higher incomes in Britain. Coupled with British geography and geology, British factor prices produced “a sufficiently large technological shock.” Galor’s preferred path describes why the Industrial Revolution happened in Europe; only Allen’s approach can explain why it was British rather than Dutch or French.

How should historians regard this book? It is an impressive work of economics and will receive a...