How learning to pass the marshmallow test explains global economic evolution
Editor’s Note: If you had to choose between living in a hunter-gatherer society and pre-industrial England, or even a very orderly and hygenic Japan, which would you prefer? In nearly every dimension, hunter-gatherer life was better: you’d live just as long (about 35 years), with more dietary variety and in a more egalitarian society.
One of the reasons living conditions were so high for hunter-gatherer societies, economic historian Greg Clark told Paul Solman, is that there was a high degree of violence. “It’s better to die at the end of a spear than to die from miserable material living conditions,” he said in part one of his never-before published interview with Paul, published Monday on Making Sen$e.
But it’s not just the ease of your own death that makes that a better life. More violence meant that more people were eliminated, and those who were left could share in the bounty, increasing their own living standards. To Clark, this explains why Thomas Malthus’ population theory – that population is limited by the limited resources for keeping humans alive – explains so much about economic history up until around 1800.
Greg Clark: A lot about the Malthusian world is the exact opposite of what we expect now. What’s vice now is virtue then. You know, bad hygiene actually makes for good living conditions.
Paul Solman: Because so many people die.
Greg Clark: Yes. Areas that have bad climate in terms of disease, like sub-Saharan Africa, we believe, were actually wealthy areas in the pre-industrial period because disease helped kill so many people.
So then how, Paul wanted to know, did Clark think the world, led by the miserable English – of all people — manage to break out of the Malthusian trap? Previous explanations have been:
- The advent of modern institutions like the rule of law, the sanctity of contracts and the ubiquity of markets;
- The advent of modern technology, initially spurred by England’s vast coal deposits, which required vast energy to tap and thus led to the invention of the steam engine, mainly to dredge the water you struck when you dug deep enough. (One might call this “the-luck-of-the-English” hypothesis);
- The advent of modern exploitation due to military technology — of colonies in general, and of African slaves in particular;
- The circumstance of England’s unique geography, both in terms of latitude (temperate weather) and access to, and protection by, water. As Shakespeare put it around 1600: “this precious gem set in the silver sea that serves it in the office of a wall or else a moat defensive to a house.”
But Greg Clark’s answer is: none of the above. He argues that culture and genetics were what really separated the English from the rest of the world. The key, he said in his controversial 2007 book, “A Farewell to Alms,” and in the interview Paul did with him when it came out, was that the English developed the “habits” of wealth creation before anyone else. We return to that interview for elaboration.
Greg Clark: The reason the English were more innovative, more commercially active, more alive to [economic] possibilities was a survival of those who were driven by material success, those who couldn’t be happy unless they were making more money. In some sense, the envious have inherited the earth, and that’s why we’ve got modern growth.
Paul Solman: So survival of the richest means survival of the most competitive, or most envious, or most bourgeois?
Greg Clark: Yes.
Paul Solman: Really?
Gregory Clark: In the context of pre-industrial England, those are the people who made it through.
Paul Solman: So we get to 1800 and now suddenly things become dramatically different. If you’ve got a line for growth per person that’s basically horizontal along a timeline of all human history, suddenly after 1800 it looks like it’s going straight up?
Greg Clark: Yes. Sometime around 1800 this dominant feature of the world up until then, which was very slow technological advancement, changed, and we moved to a world where technological advancement was systematic, expected, occurring all the time. But I should emphasize that that change is actually much more gradual than that 1800 date would suggest.
There was a break at some point between, say, 1600 and 1900 from this Malthusian world to the modern world, and that, for the advanced economies, just dramatically changed their nature.
What I want to emphasize here is the bizarre and puzzling nature of the Industrial Revolution, and it’s important to understand that this is one of the intellectual puzzles of history that’s on a par with the biggest puzzles in physics, or in astronomy, even though people generally don’t appreciate this. And perhaps the reason is that modern economists have constructed a false history of the world in their minds. They tend to assume that since high-income modern economies have certain economic features –
Paul Solman: Free markets, rule of law…
Greg Clark: …stability, peace, open government, and that low-income modern economies tend to have violence, market interference, restrictions — what must be the case is that the pre-industrial world suffered from all of these problems, and that then somehow people stumbled on the right institutions, and then growth occurred.
Paul Solman: And by “institutions” you mean markets, the sanctity of contracts?
Greg Clark: That’s right. Property rights, markets, representative government, limitations on the power of government. And it does turn out that England, which was in the vanguard of this movement, was a politically stable society with limited democracy, and very little government interference.
However, when you study the long history of the pre-industrial period, it becomes apparent that, for example, if you go back to 1300, England already had all the institutions you needed for modern economic growth.
England had a government tax rate that averaged 1 percent. It had, for hundreds of years, zero inflation. It had no government debt. It had absolute security for most people of their property rights. Most markets were free. For hundreds and hundreds of years, England had everything it needed for modern growth. If you go back to ancient Greece or ancient Rome, or probably even ancient Babylon, they had institutions enough for getting growth.
Paul Solman: We have the tablets from ancient Babylon because they were incised in clay, and there were all kinds of contracts.
Greg Clark: They had home mortgages, they had rental contracts, they had labor contracts, they had urban societies.
But, says Clark, the Babylonians obviously didn’t have modern economic growth. Nor did the Greeks, the Romans, the Chinese or anyone else, even though they had many of the institutions that economists credit with the advent of prosperity.
Greg Clark: It’s the dominant paradigm in modern economics. The idea in this is that economics has an amazing power. Institutions – I mean, it’s just the rules of the game in any society. If we don’t like the rules we have, why don’t we just change them? And then apparently, we could have endless growth.
That I think, is what gives economics its power and its appeal. But that’s what I’m trying to argue against.
I think the key was that there is very strong evidence that people were changing through this long Malthusian interval. Human nature seems to have been changing. It may well be culturally. It’s impossible to rule out that it’s actually genetically. What we find, if we look back at the earliest societies, is that people tended to be violent, impulsive, impatient. They didn’t like to work.
When we get to societies like England on the eve of the Industrial Revolution, you can see that people are accumulating capital in ways that they never did before. There’s much less violence – ordinary day-to-day violence — in the society.
People’s levels of education have expanded enormously. They are much more aware of numbers.
The upper classes in ancient Rome mostly didn’t know what age they were. On their tombstones they would record ages that were just fantastical – 120 in a society where life expectancy at birth was 25 to 30. No one seems to have thought: “This is crazy.”
You also get in these early societies people giving numbers for battles that just make no sense in terms of what we now know about history.
Paul Solman: What’s an example of that?
Greg Clark: They typically quote 80,000 for some reason as a standard number, and it just seemed to mean “big.”
There’s a case in medieval England where someone testified in Parliament to having fought in a battle in his youth, which occurred more than 100 years earlier. No one interrupted to say, “What are you talking about?”
And so we really see big changes in terms of work effort, patience, interest rates in very early societies at astonishing levels. If you go back to ancient Babylon, your house mortgage would cost you in real terms 20 to 25 percent interest rate per year.
These were societies that offered fantastic profit opportunities – profit opportunities that even venture capitalists now would die for. They were available to everyone, and no one took them.
In ancient Greece, your standard return from completely safe investments was 10 percent. But on the eve of the Industrial Revolution in England, the rate is down to 4 percent. There’s just a fundamental change in people’s psychology. What that implies is that people were historically very impatient.
Paul Solman: So you mean the time value of money — the value of waiting — has simply gone down as time has gone on?
Greg Clark: Yes. There’s very clear signs that with risk-free investments, the amount you have to pay people to wait declines very dramatically. We know, in the modern world, that people vary in their degree of impatience and how much they have to be paid.
I have three children, and they vary very significantly across that factor.
We also know in the modern world that psychologists were able to test four-year-olds and say, “You can have one marshmallow now or two marshmallows if you wait for a few minutes.”
There’s a bunch of kids that have to have the marshmallow, and others that just have this different psychology where they can wait. It turns out that’s a very good predictor of how they’ll do later in life. It seems to be a fundamental feature of peoples’ personalities: how willing they are to wait for gratification.
There seems to be this possibility that on a world scale, this was actually changing as we moved from hunter-gatherer society, to 1800.
For more about the marshmallow test, watch Paul Solman’s 2011 report below: