The early modern great divergence: wages, prices and economic development in Europe and Asia, 1500–1800¹

Abstract

The Early Modern Great Divergence: Wages, Prices and Economic Development in Europe and Asia, 1500-1800* Contrary to the claims of Pomeranz, Parthasarathi and other 'world historians', the prosperous parts of Asia between 1500 and 1800 look similar to the stagnating southern, central and eastern parts of Europe rather than the developing northwestern parts. In the advanced parts of India and China, grain wages were comparable to those in northwestern Europe, but silver wages, which conferred purchasing power over tradable goods and services, were substantially lower. The high silver wages of northwestern Europe were not simply a monetary phenomenon, but reflected high productivity in the tradable sector. The 'Great Divergence' between Europe and Asia was already well underway before 1800.JEL Classification: N10, N30 and O10

India and the great divergence: An Anglo-Indian comparison of GDP per capita, 1600–1871

“…This supports the view of Broadberry and Gupta (2006), based on silver wage and grain wage data, that the Great Divergence was already well underway during the early modern period. Figure 1 plots Indian per capita GDP as a percentage of British per capita GDP, together with the data on comparative per capita incomes as measured by the grain wage and the silver wage.…”

“…A number of conclusions follow. First, these estimates support the claims of Broadberry and Gupta (2006), based on wage and price data, that the Great Divergence had already begun during the early modern period. Second, they are also consistent with a relatively prosperous India at the height of the Mughal Empire, although much of this prosperity had disappeared by the eighteenth century.…”

“…The total GDP of 22,387 million dams has been converted to rupees and divided by the population, obtained by applying Moreland's [1923] ratio of 60 per cent of the total Indian population to Habib's (1982a) figure of 142 million, used here in Table 1 However, Broadberry and Gupta (2006) also noted that at the same time, the Indian grain wage was 83 per cent of the English level. Comparing the price of wheat in India with the price of wheat in England yields a purchasing power parity (PPP) of £1 = Rs 1.63, a long way from the silver exchange rate.…”

“…Bayly (1983) has painted a picture of a thriving market economy in north India during the eighteenth century, which leaves a similar impression. Broadberry and Gupta (2006) compare silver and grain wages in Britain with those in India and China during the seventeenth and eighteenth centuries, which casts doubt on the revisionist position, suggesting that the Great Divergence was already under way during the early modern period. However, a full assessment, encompassing the ruling elites and middles classes as well as the labouring classes requires the reconstruction of national income in European and Asian countries.…”

“…The wage and grain price series are derived from Broadberry and Gupta (2006) for the seventeenth and eighteenth centuries, supplemented by additional information for the nineteenth century from Mukerjee (1967), and provide the most widely used index of real wages in India, the grain wage. Although the precise magnitude of the fall in the grain wage from its high level in the early seventeenth century is a matter of controversy, most scholars have acknowledged the downward trend (Desai, 1972;Moosvi, 1973;Heston, 1977).…”