A Farewell to Alms: A Brief Economic History of the World

By Goodman, John C. | Business Economics, October 2007 | Go to article overview
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A Farewell to Alms: A Brief Economic History of the World

Goodman, John C., Business Economics

A Farewell to Alms: A Brief Economic History of the World

By Gregory Clark. 2007. Princeton University Press. Pp. 420, $29.95 hardcover.

Developed countries have given $2.3 trillion dollars in foreign aid to less developed countries over the past five decades. What have we gotten in return? No one is quite sure. A new book says the recipients, especially countries in sub-Saharan Africa, actually are worse off because of aid. It is a must-read book for business economists involved in international affairs.

A Farewell to Alms, by Gregory Clark (an economic historian at the University of California, Davis) is creating quite a stir in economic development circles because (1) his general theory is both ingenious and easy to understand, (2) it is backed by a breathtaking array of evidence, and (3) it is very politically incorrect.

The central idea was first proposed by the 19th century demographer Thomas Malthus, who believed that the vast majority of human beings would always live at the subsistence level. The reason: the population would always adjust to the available food supply. Suppose there is a technological breakthrough--say, an agriculture technique that increases crop yield. In principle, more crops should raise the standard of living of a human society. But the long run effect is that more children will survive to adulthood and produce more offspring of their own. Thus, more food feeds more mouths rather than providing more to eat for each person. Conversely, an agriculture blight that reduces agricultural output means that fewer children will survive to adulthood. In summary: expansion and contraction of available resources leads to expansion and contraction of the population of human societies--all living at a subsistence level of economic well-being.

Clark argues that Malthus' theory fits the facts very well in the period leading up to the Industrial Revolution. Not only does the Malthusian paradigm describe preindustrial Europe, it also describes all of human history prior to about 1800. Indeed, Clark argues that people living in England in 1800 enjoyed a standard of living no higher than did people living in ancient Babylonia and Assyria, 3,600 years earlier.

Moreover, the "Malthusian trap" is arguably the natural state of humankind. It is natural not only because all of human kind was in this trap up until the last 200 years, but also because it is nature's trap. The Malthusian model of human society is the model that describes every other species in the animal kingdom. Species populations expand and contract whenever the resources they rely on (primarily food) expand and contract.

What is the relevance of this theory today? Clark argues that much of the less developed world is still in a Malthusian Trap--and that is why the gap is widening between rich and poor countries, with the difference in incomes now on the order of 50:1. Moreover, in a Malthusian world, things normally considered bad have an upside, and things normally considered good can turn out to be bad.

Ironically, in a Malthusian world anything that increases the death rate--war, disease, poor sanitation, etc.--raises the standard of living of those who survive because it leaves fewer people to consume the remaining resources. By contrast, anything that reduces the death rate--peace, order, new medicines, improved public sanitation--lowers the standard of living because it produces more people competing for the same resources.

This is where the developed world comes in. As long as less developed countries are in a Malthusian Trap, our aid--especially public health aid--makes things worse, not better. For example, help from the West has arguably increased life expectancy in the less developed world from 40 years in 1950 to 65 in 2000.

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