Growth: Illusions and Realities

• Emerging countries are catching up with developed countries, but substantial

inequalities remain.
• The catch-up process is not primarily due to investment from rich countries; poor
countries investing in themselves is more effective.
• The 21st century may see a return to a low-growth regime.
• Growth consists of population growth and per capita output growth, with only the
latter improving living standards.
• Population growth has not ceased entirely, and global output per capita is growing
at a rate barely above 2%.
• Global economic growth will exceed 3% in 2013-2014 due to progress in
emerging countries.

Growth over the Very Long Run

• Maddison's calculations show that both demographic and economic growth rates
between year 0 and 1700 were below 0.1%.
• There is little information about the growth of the world's population and output
per head during that period.
• Growth was slow from antiquity to the Industrial Revolution, no more than 0.1-
0.2% per year.
• The world's population at the beginning of the Common Era was not minuscule
and the standard of living was not substantially below commonly accepted levels of
subsistence.
• Growth in the future is likely to return to very low levels, especially regarding the
demographic component.

The Law of Cumulative Growth

• "The law of cumulative growth" states that low annual growth rates over a long
period of time can result in significant progress.
• The world's population grew at an average annual rate of 0.8% between 1700 and
2012, resulting in a more than tenfold increase in three centuries.
• The law of cumulative growth can have explosive effects, as shown in Table 2.2,
and growth rates greater than 1-1.5% per year cannot be sustained indefinitely without
generating vertiginous population increases.
• Different time frames lead to contradictory perceptions of growth rates, and the
law of cumulative growth is similar to the law of cumulative returns.
• The central thesis of the book is that a small gap between the return on capital and
the rate of growth can have powerful and destabilizing effects on social inequality.
The Stages of Demographic Growth
• The average annual growth rate of global population was 0.8% between 1700 and
2012, resulting in a more than tenfold increase in three centuries.
• The law of cumulative growth states that low annual growth rate over a long
period of time leads to considerable progress.
• Growth rates greater than 1-1.5% a year cannot be sustained indefinitely without
generating vertiginous population increases.
• Different time frames lead to contradictory perceptions of the growth process, and
growth can alter society regularly and profoundly.
• A growth rate of 0.2% extended over 1700 years would imply a global population
of only 20 million in year 0, but the world population in 0 was estimated to be greater
than 200 million.
• The Malthusian regime of very low growth was not one of complete demographic
stagnation, and the rate of growth was slow but not non-existent.
• World population seems to have increased by a quarter between 0 and 1000, then
by a half between 1000 and 1500, and by half again between 1500 and 1700.
• Demographic growth accelerated significantly after 1700, with average growth
rates of 0.4% in the 18th century and 0.6% in the 19th century in Europe.
• Europe experienced its most rapid demographic growth between 1700 and 1913
but saw a decline in the 20th century due to the demographic transition.
• In Asia and Africa, the birth rate remained high longer than in Europe, resulting in
a significant increase in population growth, reaching 1.5-2% per year in the 20th century.
• This led to a fivefold or more increase in population over the course of the century
in countries like Egypt, Nigeria, and Pakistan.
• The growth rates of Asia and Africa in the 20th century are similar to those
observed in America in the 19th and 20th centuries, but the growth in the New World
was largely due to immigration from other continents, especially Europe.
• Global population growth reached a record level of 1.4% in the 20th century,
compared to 0.4-0.6% in the 18th and 19th centuries.
• Global population growth has been accelerating since 1700, with the highest
growth rates occurring in the 20th century.
• Europe experienced the most rapid demographic growth between 1700 and 1913,
but its population growth rate fell in the 20th century.
• Asia and Africa have experienced high population growth rates in the 20th century
due to natural increase, leading to a significant increase in population.
• Global population growth is expected to eventually stabilize as progress toward
the demographic transition accelerates, with the growth rate falling to 0.4 percent by the
2030s and settling around 0.1 percent in the 2070s.
• The anticipated growth in the second half of the 21st century is due to Africa,
while other continents will likely experience stagnation or a decrease in population.
• If the UN forecast is correct, the world will return to the low-growth regime of the
years before 1700.
Negative Demographic Growth?
• Demographic forecasts are uncertain and depend on factors such as life expectancy
and decisions about childbearing.
• Small variations in the number of children can have significant consequences for
society.
• Childbearing decisions are influenced by cultural, economic, psychological, and
personal factors.
• Material conditions such as schools, day care, and gender equality also play a role.
• There are numerous regional differences and stunning changes in demographic
patterns, linked to specific features of each country's history.
• The population growth of Europe and America has had a spectacular reversal, with
Western Europe's population growing to just above 410 million, while North America's
population increased to 350 million by 2010.
• The catch-up process will be complete by 2050, with the Western European
population growing to around 430 million, compared with 450 million for North
America, according to UN projections.
• The higher fertility rate in North America compared to Europe is not due to more
generous family policies, and the reasons for it remain largely a mystery to
demographers.
• The difference in fertility rates could be interpreted as reflecting a greater North
American faith in the future, a New World optimism, and a greater propensity to think of
one’s own and one’s children’s futures in terms of a perpetually growing economy, but
no psychological or cultural explanation can be ruled out in advance, and anything is
possible.
• US demographic growth has been declining steadily, and current trends could be
reversed if immigration into the European Union continues to increase, or fertility
increases, or the European life expectancy widens the gap with the United States.
• United Nations forecasts are not certainties.
• France experienced a demographic transition unusually early, with a fall in birth
rate leading to a stagnant population in the 19th century, which is attributed to de-
Christianization.
• France saw a leap in birth rate in the 20th century due to pronatal policies adopted
after the two world wars and the trauma of defeat in 1940.
• China's policy of allowing only one child per family has had significant
consequences, with the population now close to being surpassed by that of India, which is
predicted to be the most populous country in the world by 2020.
• Population history is influenced by individual choices, developmental strategies,
and national psychologies, making it difficult to predict demographic turnarounds.
• UN predictions are a "central scenario," and the gaps between these various
scenarios at the 2100 horizon are quite large.
• Population growth in Europe has been stagnant since the 1990s and some
countries have experienced a decrease in population.
• Low fertility rates and immigration have prevented a rapid population decrease in
some countries.
• UN predicts zero demographic growth in Europe until 2030 and slightly negative
rates after that.
• The demographic transition is largely complete in Asia and other regions.
• Changes in individual decisions and government policies may slightly alter
demographic trends, but significant changes are unlikely for the next several decades.
• Very long-run population forecasts are uncertain.
• If the 0.8% annual growth rate observed from 1700 to 2012 continues for three
centuries, the world population would be around 70 billion in 2300, but this scenario is
unlikely and undesirable.
• The most likely hypothesis is that global population growth rate over the next
several centuries will be significantly less than 0.8%.
• The official prediction of 0.1-0.2% annual growth rate over the very long run
seems plausible.

Growth as a Factor for Equalization

• The book doesn't aim to make demographic predictions, but to explore the
implications of various possibilities for the evolution of wealth distribution.
• Demographic growth affects the development and relative power of nations, as
well as the structure of inequality.
• Strong demographic growth tends to decrease the importance of inherited wealth,
resulting in an equalizing effect.
• In a society where couples have many children, inherited wealth's overall
influence would be strongly diminished, and people would rely more on their own labor
and savings.
• In a society with constant immigration, the influence of inherited wealth is limited
due to the limited wealth passed down from previous generations.
• Demographic growth through immigration has consequences for inequality
between immigrants and natives and within each group.
• Such a society differs from a society with natural population growth.
• The effects of strong demographic growth can be generalized to societies with
very rapid economic growth.
• In a society with tenfold output per capita growth every generation, it's better to
rely on one's own labor and savings since the wealth accumulated by previous
generations is insignificant compared to current income.
• A stagnant or decreasing population increases the influence of capital accumulated
in previous generations.
• Economic stagnation also increases the influence of inherited wealth.
• In low-growth regimes, the rate of return on capital is likely to be substantially
higher than the growth rate, leading to significant inequality in the distribution of wealth
over the long run.
• Capital-dominated societies in the past arose and subsisted only in low-growth
regimes.
• A return to a low-growth regime would lead to the comeback of inherited wealth,
which is already being felt in Europe and could extend to other parts of the world.
• It's important to understand the history of demographic and economic growth to
analyze the dynamics of capital accumulation and the structure of inequality.
• Constant growth leads to the creation of new economic and social functions and
the need for new skills in every generation.
• Partial transmission of tastes and capabilities from generation to generation means
that growth can increase social mobility for individuals whose parents did not belong to
the elite of the previous generation.
• Increased social mobility may not lead to decreased income inequality, but it does
limit the reproduction and amplification of wealth inequalities over the long run.
• Constant growth limits income inequality to a certain extent.
• The view that modern economic growth reveals individual talents and aptitudes is
not entirely true and has been used to justify inequalities.
• Charles Dunoyer, a liberal economist, believed that the industrial regime
highlights natural inequalities, which he believed were crucial to the new economy of
growth and innovation.
• Dunoyer rejected state intervention and believed that superior abilities are the
source of everything that is great and useful, and reducing everything to equality would
bring everything to a standstill.
• The argument that the new information economy will allow the most talented
individuals to increase their productivity is often used to justify extreme inequalities
without much consideration for the losers or facts.
• This argument is not always true, and there is a need to verify whether it can
explain the changes observed.

The Stages of Economic Growth

• Per capita output grew at an average of 0.8% per year from 1700 to 2012, resulting
in a tenfold increase in output over three centuries.
• Average global per capita income is now around 760 euros per month, compared
to less than 70 euros per month in 1700.
• Comparing societies and periods using a single figure should be avoided, as
economic development involves diversification of goods and services, making it a
multidimensional process that cannot be summed up with a single monetary index.
• Average global per capita income increased by a factor of roughly ten over three
centuries (1700-2012) with an average annual growth of 0.8 percent.
• In Western Europe, North America, and Japan, average per capita income
increased from barely 100 euros per month in 1700 to more than 2,500 euros per month
in 2012, a more than twentyfold increase.
• The increase in productivity, or output per hour worked, was even greater, because
each person’s average working time decreased dramatically.
• The global average growth of per capita output of 0.8 percent over the period
1700–2012 breaks down as 0.1 percent in the eighteenth century, 0.9 percent in the
nineteenth century, and 1.6 percent in the twentieth century.
• In Western Europe, average growth of 1.0 percent in the same period breaks down
as 0.2 percent in the eighteenth century, 1.1 percent in the nineteenth century, and 1.9
percent in the twentieth century.
• The eighteenth century suffered from the same economic stagnation as previous
centuries.
• The nineteenth century witnessed the first sustained growth in per capita output,
although large segments of the population derived little benefit from this, at least until the
last three decades of the century.
• It was not until the twentieth century that economic growth became a tangible,
unmistakable reality for everyone.
• Around the turn of the twentieth century, average per capita income in Europe
stood at just under 400 euros per month, compared with 2,500 euros in 2010.
• The multiplication of purchasing power by a factor of twenty, ten, or even six does
not mean that people produced and consumed six times more goods and services.
• Improvements in purchasing power and standard of living depend on a
transformation of the structure of consumption.
• In the long run, relative prices and the composition of the typical consumer's
basket of goods shift dramatically, making it difficult to accurately gauge changes in
purchasing power using average price indices.

What Does a Tenfold Increase in Purchasing Power Mean?

• To accurately measure the increase in standards of living since the Industrial
Revolution, we need to compare income levels in today's currency to price levels for
goods and services in different periods.
• There are three types of goods and services: industrial goods, foodstuffs, and
services.
• Productivity growth has been more rapid in the industrial sector, leading to falling
prices relative to the average of all prices.
• Productivity growth in the agricultural sector has been continuous but less rapid
than in the industrial sector, resulting in food prices evolving at roughly the same rate as
the average of all prices.
• Productivity growth in the service sector has generally been low or zero, leading to
service prices increasing more rapidly than the average of all prices.
• Although the general pattern of productivity and price changes across sectors is
correct, it needs to be refined and made more precise.
• Within each of the three sectors (industrial goods, foodstuffs, and services), there
is a great deal of diversity in price changes.
• Some food items, like carrots, evolved at the same rate as the overall price index,
while others, like dairy products, benefited from technological advances and had greater
increases in purchasing power.
• Products that benefited from a significant reduction in transport costs, such as
oranges and bananas, had significant increases in purchasing power.
• Purchasing power measured in kilos of bread or meat rose less than fourfold,
despite improvements in quality and variety of products.
• Electronics and computer technology have led to tenfold increases in purchasing
power in a short period of time.
• The introduction of radically new goods and improvements in performance have
made it difficult to generalize about the price evolution of manufactured goods.
• The example of the bicycle demonstrates the significant reduction in price due to
technological progress, with purchasing power in terms of bicycles rising by a factor of
40 between 1890 and 1970.
• The price history of goods such as food, manufactured items, and technology
presents a mixed picture, with some products showing greater improvements in
purchasing power than others.
• It is difficult to measure the overall increase in standard of living with a single
index, as family budgets and lifestyles change radically and purchasing power varies
greatly across different goods.
• Growth and material conditions of life have improved dramatically since the
Industrial Revolution, allowing people to eat better, dress better, travel, obtain medical
care, etc.
• Measuring growth rates over shorter periods such as a generation or two remains
interesting and significant.
• Long-term growth statistics can lose some significance and become relatively
abstract and arbitrary quantities.

Growth: A Diversification of Lifestyles

• Productivity growth in the service sector has been less rapid, resulting in less
increase in purchasing power expressed in terms of services.
• Barbers are often used as an example of a "pure" service that has not benefited
from major technological innovation over the centuries, and thus the price of a haircut
has increased by the same factor as the barber's pay, which has itself progressed at the
same rate as the average wage and average income.
• The diversity of services is so extreme that the notion of a service sector makes
little sense.
• The decomposition of the economy into three sectors - primary, secondary, and
tertiary - was an idea of the mid-twentieth century in societies where each sector included
similar or comparable fractions of economic activity and the workforce.
• Once 70-80 percent of the workforce in developed countries found itself working
in the service sector, the category ceased to have the same meaning and provided little
information about the nature of the trades and services produced in a given society.
• To navigate the vast aggregate of activities in the service sector, it is useful to
distinguish several subsectors.
• Services in health and education account for over 20 percent of total employment
in the most advanced countries.
• Retail, hotels, cafes, restaurants, culture, and leisure activities also account for 20
percent of total employment.
• Services to firms, real estate, financial services, and transportation add another 20
percent of the job total.
• Government and security services account for nearly 10 percent of total
employment in most countries.
• These subsectors combine to make up the 70-80 percent figure given in official
statistics for employment in the service sector.
• A significant portion of services, especially in health and education, is financed by
taxes and provided free of charge.
• The share of financing by taxes varies from country to country, but it is generally
at least half of the total cost of these services and more than three-quarters in some
European countries.
• This raises difficulties and uncertainties when comparing increases in the standard
of living in different countries over the long run.
• Health and education sectors have contributed significantly to the improvement of
living standards over the past two centuries.
• In national accounts, the value of public services available for free is estimated
based on production costs assumed by the government, ultimately by taxpayers.
• This method of valuing services is logically consistent and better than excluding
free public services from GDP calculations, as it would lead to an artificial underestimate
of the GDP and national income.
• National accounting corrects the bias of excluding public services from GDP
calculations.
• However, there is no objective measure of the quality of services rendered and no
remuneration is counted for public capital.
• This may lead to an overvaluation of GDP in countries that rely mainly on private
insurance and a country that privatizes its health and education services would see its
GDP rise artificially.
• Economic growth led to a significant improvement in the standard of living over
the long run.
• Global per capita income increased by more than 10 between 1700 and 2012, and
by more than 20 in the wealthiest countries.
• However, the numbers should be taken as indications of orders of magnitude and
nothing more.

The End of Growth?

• Past growth occurred at relatively slow annual rates, generally no more than 1-
1.5% per year
• The only historical examples of more rapid growth occurred in countries
experiencing catch-up with other countries, which is transitional and time-limited
• At the global level, the average rate of growth of per capita output was 0.8% per
year from 1700-2012
• In Europe, per capita output grew at a rate of 1.0% from 1820-1913 and 1.9%
from 1913-2012
• In America, growth reached 1.5% from 1820-1913 and 1.5% again from 1913-
2012
• The future of growth is uncertain and may be impacted by technological or
ecological factors.
• Historical examples show that countries at the world technological frontier have
not achieved growth in per capita output exceeding 1.5 percent over a long period of
time.
• Per capita output growth rates have been even lower in recent decades in the
wealthiest countries, with rates of 1.6 percent in Western Europe, 1.4 percent in North
America, and 0.7 percent in Japan between 1990 and 2012.
• Economist Robert Gordon believes that the rate of growth of per capita output in
the most advanced countries, including the United States, is likely to slow down and may
sink below 0.5 percent per year between 2050 and 2100.
• Gordon's analysis is based on a comparison of waves of innovation since the
invention of the steam engine and the finding that recent waves, including the
information technology revolution, have a lower growth potential than earlier waves.
• The author refrains from predicting economic growth in the 21st century.
• Instead, the author focuses on drawing the consequences of various possible
scenarios for the dynamics of the wealth distribution.
• Predicting the pace of future innovations is as difficult as predicting future
fertility.
• The author considers a long-term per capita output growth rate of 1.2% in wealthy
countries to be a relatively optimistic scenario.
• This level of growth cannot be achieved unless new sources of energy are
developed to replace hydrocarbons, which are rapidly being depleted.
• The history of the past two centuries makes it unlikely that per capita output in
advanced countries will grow at a rate above 1.5% per year, but the actual rate could be
0.5%, 1%, or 1.5%.

An Annual Growth of 1 Percent Implies Major Social Change

• The most important point is that a per capita output growth rate of 1% is extremely
rapid and corresponds to cumulative growth of more than 35% over 30 years.
• A growth rate of 1.5% corresponds to cumulative growth of more than 50% over
30 years.
• People's lives have been subjected to major changes due to per capita output
growth ranging between 1% and 1.5% in Europe, North America, and Japan over the past
30 years.
• Changes in communication, transportation, health, and education have been
profound due to per capita output growth.
• Employment structure has also been impacted, with a large fraction of what is
produced today and a quarter to a third of occupations and jobs not existing 30 years ago.
• Societies today are very different from societies in the past, with growth close to
zero or barely 0.1% per year in the eighteenth century, compared to 1% per year in
advanced societies since the turn of the nineteenth century.
• A society that grows at 1% per year undergoes deep and permanent change, with
important consequences for the structure of social inequalities and the dynamics of the
wealth distribution.
• Growth can create new forms of inequality, but it also makes inherited wealth less
decisive.
• Transformations from a growth rate of 1% are less sweeping than those required
by a rate of 3-4%, which creates a risk of disillusionment for those hoping for a more just
social order.
• Economic growth is incapable of satisfying democratic and meritocratic hope,
which must create specific institutions for the purpose and not rely solely on market
forces or technological progress.

The Posterity of the Postwar Period: Entangled Transatlantic Destinies

• Continental Europe, particularly France, has nostalgia for the Trente Glorieuses, a
period of rapid economic growth from the late 1940s to the late 1970s.
• People do not understand why there was a low rate of growth from the late 1970s
onwards, and many hope for a return to the past.
• However, the Trente Glorieuses were an exceptional period because Europe had
caught up with the United States technologically, and both were at the global frontier of
technology and experiencing slow growth.
• The period of 1914-1945 had caused Europe to fall behind the US, but they
rapidly caught up during the Trente Glorieuses.
• Figure 2.3 shows the comparative evolution of European and North American
growth rates.
• North America did not experience the Trente Glorieuses, with per capita output
growing at roughly 1.5-2% per year throughout the period 1820-2012.
• In Western Europe, per capita output stagnated between 1913 and 1950, with a
growth rate of just over 0.5%.
• Then, it grew rapidly to more than 4% from 1950 to 1970, before falling sharply to
slightly above US levels (a little more than 2%) between 1970-1990.
• From 1990 to 2012, per capita output growth in Western Europe was barely 1.5%.
• Western Europe experienced a golden age of growth between 1950 and 1970,
followed by a significant slowdown in growth rate in the decades that followed.
• Figure 2.3 underestimates the depth of the fall, as it includes Britain, which
adhered closely to the North American pattern of stability.
• Continental Europe had an average per capita output growth rate of 5% between
1950 and 1970, well beyond that achieved in other advanced countries over the past two
centuries.
• These different growth experiences largely explain why public opinion in different
countries varies widely in regard to commercial and financial globalization and
capitalism in general.
• In continental Europe and especially France, people view the period of strong state
intervention in the economy during the first three postwar decades as blessed with rapid
growth, and many attribute the slowdown in growth to the liberalization of the economy
that began around 1980.
• In Great Britain and the United States, postwar history is interpreted differently
than in continental Europe, and the sense of being rivaled or even overtaken played a part
in the conservative revolution.
• Between 1950 and 1980, the gap between English-speaking countries and the
countries that had lost the war closed rapidly, and by the late 1970s, US magazine covers
often denounced the decline of the United States and the success of German and Japanese
industry.
• In Britain, GDP per capita fell below the level of Germany, France, Japan, and
even Italy, which may have played a role in the conservative revolution.
• Margaret Thatcher in Britain and Ronald Reagan in the United States promised to
"roll back the welfare state" and return to pure nineteenth-century capitalism, allowing
both countries to regain the upper hand.
• Today, many people in both countries believe that the conservative revolution was
successful because their growth rates once again matched continental European and
Japanese levels.
• Economic liberalization and state interventionism are not solely responsible for the
growth or decline of countries.
• France, Germany, and Japan would have likely caught up with Britain and the
United States regardless of policies adopted.
• State intervention did not harm the growth of countries.
• Once countries reached the global technological frontier, growth rates in wealthy
countries equalized.
• US and British policies of economic liberalization had little effect on growth rates.

The Double Bell Curve of Global Growth

• Global growth in the past three centuries follows a bell curve with a high peak,
with population growth and per capita output growth both increasing over time and now
returning to lower levels for the remainder of the 21st century.
• Population growth began earlier and has already largely completed its
demographic transition, with growth rates declining steadily since the peak in the 1950s-
1970s and likely to decline to near zero in the second half of the 21st century.
• Per capita output growth took longer to take off and remained close to zero in the
eighteenth century, with significant growth occurring in the nineteenth and especially the
twentieth century due to European and Asian (especially Chinese) catch-up, with growth
in China exceeding 9% per year between 1990 and 2012.
• The "median" growth prediction after 2012 is optimistic and assumes that the
richest countries will grow at a rate of 1.2% from 2012 to 2100, and poor and emerging
countries will continue to converge without stumbling, attaining growth of 5% per year
from 2012 to 2030 and 4% from 2030 to 2050.
• If this prediction were to occur as predicted, per capita output in China, Eastern
Europe, South America, North Africa, and the Middle East would match that of the
wealthiest countries by 2050.
• After 2050, the distribution of global output would approximate the distribution of
the population described in Chapter 1.
• In the optimistic median scenario, global growth of per capita output will slightly
exceed 2.5% per year between 2012 and 2030 and again between 2030 and 2050, before
falling below 1.5% initially and then declining to around 1.2% in the final third of the
century.
• The bell curve for per capita output growth peaks much later than the bell curve
for population growth, almost a century later in the middle of the twenty-first century
rather than the twentieth.
• The rate of growth of total global output was less than 2% per year until 1950,
before leaping to 4% in the period 1950-1990 due to the highest demographic growth rate
in history and the highest growth rate in output per head.
• The rate of growth of global output dropped below 3.5% in the period 1990-2012,
despite high growth rates in emerging countries, and will continue to decline to roughly
1.5% during the second half of the twenty-first century according to the median scenario.
• The "median" forecasts presented in Figures 2.2-2.5 are highly hypothetical.
• The two bell curves of global growth are largely already determined, regardless of
the exact dates and growth rates.
• The median forecast is optimistic because it assumes productivity growth in
wealthy countries will continue at a rate of more than 1 percent per year and emerging
economies will continue to converge with rich economies until the process is complete.
• There could be less optimistic scenarios in which the bell curve of global growth
falls faster to levels lower than those indicated on the graphs.

The Question of Inflation

• Inflation is a key factor in the investigation of growth since the Industrial
Revolution.
• Real growth rates are obtained by subtracting the rate of inflation from the
nominal growth rate.
• The use of a price index based on averages poses a problem as growth leads to
shifts in relative prices.
• The concepts of inflation and growth are not always well-defined and the
decomposition of nominal growth into real and inflation components is arbitrary and
controversial.
• Inflation is an important factor to consider in studying growth since the Industrial
Revolution.
• Real growth rates are obtained by subtracting the rate of inflation from the
nominal growth rate.
• The use of a price index based on "averages" can pose a problem as it does not
capture shifts in relative prices.
• The decomposition of nominal growth into a real component and an inflation
component is in part arbitrary.
• Differences in estimates can capture part of the truth about real growth rates.
• Relative price movements can have a decisive role in Ricardo's theory based on
the principle of scarcity.
• Inflation can have a fundamental impact on the dynamics of the wealth
distribution.
• Inflation allowed wealthy countries to get rid of public debt after World War II.
• Inflation led to redistributions among social groups in the twentieth century in a
chaotic, uncontrolled manner.
• The wealth-based society in the eighteenth and nineteenth centuries was linked to
very stable monetary conditions.

The Great Monetary Stability of the Eighteenth and Nineteenth Centuries

• Inflation is mainly a 20th-century phenomenon.
• Before World War I, inflation was close to zero or zero.
• Long-run price series show that inflation was insignificant in France, Britain, the
United States, and Germany during the periods 1700-1820 and 1820-1913.
• There were even periods of slightly negative price movements, such as in Britain
and the United States in the 19th century.
• The French Revolution saw the issuance of assignats, a paper currency that
became a medium of exchange by 1790 or 1791.
• This led to high inflation measured in assignats until 1794 or 1795.
• The return to metal coinage took place at the same parity as the currency of the
Ancien Régime after creation of the franc germinal.
• The franc became the country’s new official monetary unit with the same metal
content as its predecessor.
• The law of 1803 permanently established bimetallism in France based on gold and
silver.
• Prices were stable before the twentieth century, with inflation being insignificant
in France, Britain, the United States, and Germany, at most 0.2-0.3 percent per year.
• The French Revolution saw the introduction of paper money and high inflation but
eventually returned to metal coinage with the franc germinal, which had the same metal
content as its predecessor, the livre tournois.
• Prices measured in francs in the period 1800-1810 were roughly the same as prices
expressed in livres tournois in the period 1770-1780.
• The gold value of the franc set in 1803 remained in effect until June 25, 1928,
when a new monetary law was adopted.
• The British pound sterling had a stable conversion rate with French currencies for
two centuries, with minor adjustments.
• The value of the pound sterling and French currencies were seen as solid and
unchanging by novelists of the time, giving a sense of permanence to social distinctions.
• Other countries experienced similar stability in their currencies, with only new
units or currencies being created, but once parities with metal were set, values remained
unchanged for decades.
• In the nineteenth and early twentieth centuries, everyone knew the value of their
currency relative to other major currencies and saw no reason for it to change in the
future.

The Meaning of Money in Literary Classics

• In eighteenth- and nineteenth-century novels, money was frequently described in
francs or pounds to establish a character's social status in the reader's mind.
• These monetary markers were stable because growth was slow and the amounts
changed only gradually over many decades.
• Per capita income grew very slowly in the eighteenth century.
• The average income in Great Britain was about 30 pounds a year in the early
1800s, which had been a stable reference point since 1720 or 1770.
• To live comfortably and elegantly, secure proper transportation and clothing, eat
well, and find amusement and a necessary minimum of domestic servants, one needed at
least twenty to thirty times the average income.
• The characters in Jane Austen's novels consider themselves free from need only if
they dispose of incomes of 500 to 1,000 pounds a year.
• In eighteenth- and nineteenth-century novels, money was a concrete magnitude
frequently used to establish a character’s social status.
• These monetary markers were stable due to slow growth and absent inflation.
• In Great Britain, the average income was around 30 pounds a year in the early
1800s, and 40-50 pounds a year in the 1850s.
• In France, the average income was around 400-500 francs per year in the early
1800s, which increased slightly in the Belle Époque.
• These orders of magnitude changed gradually over the course of the nineteenth
century.
• Novelists used money as a literary subject to set scenes, evoke rivalries, and
describe civilization.
• Until World War I, money had meaning in literature.

The Loss of Monetary Bearings in the Twentieth Century

• The stability of monetary references in novels collapsed with World War I.
• Governments went into debt to pay for the war, and convertibility of currency into
gold ended.
• All countries resorted to printing press to deal with public debts, and attempts to
reintroduce the gold standard failed.
• Between 1913 and 1950, inflation in France exceeded 13%, Germany was 17%,
and the UK and US suffered less with rates around 3%.
• Inflation led to prices being multiplied by three, following two centuries of stable
prices.
• The shocks of the period 1914-1945 disrupted the monetary certitudes of the
prewar world.
• Inflation ranged between 2-6% per year on average from 1950 to 1970 before
rising sharply in the 1970s.
• Average inflation reached 10% in Britain and 8% in France in the period 1970-
1990.
• The period of 1990-2012 saw a return to around 2% average inflation in the four
countries.
• Inflationary processes unleashed by war have never really ended.
• Inflation ranged between 2 and 6 percent per year on average from 1950 to 1970
before rising sharply in the 1970s.
• The period 1990-2012 had an average inflation of around 2 percent in the four
countries, but it is different from zero inflation.
• It is possible that inflation may rise somewhat in the coming years.
• Germany and France, the two countries that resorted most to inflation in the
twentieth century, seem to be the most hesitant when it comes to using inflationary
policy.
• The role played by inflation in the dynamics of wealth distribution will be
discussed later.
• The loss of stable monetary reference points in the 20th century is a significant
rupture with previous centuries.
• This has affected not only economics and politics, but also social, cultural, and
literary matters.
• Specific references to wealth and income virtually disappeared from literature
after the shocks of 1914-1945.
• Before this period, references to income and wealth were omnipresent in literature
of all countries.
• The novels of Orhan Pamuk set in Istanbul in the 1970s omit mention of any
specific sums and even describe discussing money as tiresome for a novelist.
• The world has changed a great deal since the 19th century.