How Economics Explains the World

In today’s political climate of mendacity, cruelty, bluster and hatred (among many other things) it can sometimes be refreshing to take a step back and consider the long view. I had that pleasure a few days ago, unexpectedly, when I picked up a book called How Economics Explains the World: a Short History of Humanity, by Andrew Leigh.

The title itself is intriguing. After all, there’s a lot more to humanity than economics. But Leigh does a good job of telling the story from that perspective in less than 200 pages. In contrast to the idiocy and hysteria we met up with almost daily in the news, Leigh delivers an even-tempered narrative, touching on issues such as inequality and global warming from a perspective stretching back to the agricultural “revolution” that took place around 3,000 BCE in the Indus Valley, which “might be the best example in history,” he writes, “of a community where settled agriculture led to shared prosperity.”

Why did Europe develop faster than Africa? Leigh argues (quoting Jared Diamond) that it was a matter of geography. Europeans had a wider range of fruits and vegetables, and the opportunity to migrate widely east and west across a relatively homogeneous climate; Africans and South Americans migrating north-south lacked that luxury.

He briefly describes the emergence of trade and the use of money, including such offbeat examples as the system in use on the Yap islands in Micronesia, where stone sculptures up to twelve feet tall changed hands during financial transactions like NFTs—without actually moving at all. He describes the significance of double-entry bookkeeping, the role of the printing press, and the impact of the Black Death, which killed a third of the people in Europe but also had the effect of doubling the wages of those who survived and making land much cheaper and more widely affordable. In short, it destroyed the feudal system.

Leigh’s familiarity with the research literature is impressive, and the pages are scattered with endnotes for anyone who wants to investigate a assertion or learn more about a specific topic. For example, he cites one study suggesting that during the seven centuries prior to 1700, daily earnings in Japan (and in most other places in the world) rose only from $2.70 to $2.80. That is to say, not much. “Mostly, economic growth had led to a bigger population, not a better standard of living.”

We owe our breakthroughs in incomes and life expectancy to the Industrial Revolution, though he stresses that industrialization itself is only a part of the story.  Equally significant was the urban revolution that brought people to cities, and the commercial revolution that facilitated trade and thus enhanced the power of “comparative advantage.” But it was a bumpy ride, to say the least. Among the tidbits Leigh offers along the way is this bit of trivia: in the early days of the nineteenth century the British government mobilized so many troops to fight the Luddites who were destroying machinery that they exceeded the number who were fighting Napolean. Due to the effects of trade and specialization, he writes, “from 1820 to 1900, living standards in Europe more than doubled, while living standards in Asia and Africa did not rise at all.”

Monopolies and hyperinflation, barbed wire and antibiotics, the Great Depression and Bretton Woods, Keynes and Hayek, the benefits of early childhood education and the invention of the shipping container, Wow! Thumbing through the book again just now, I feel like reading it all over again.

Does it have any relevance to the issues we face today? Of course it does. Yet Leigh isn’t actually advocating any particular plan of action. He's offering us a historical overview designed to tell the story of how the market system emerged, discuss the key individuals (many of them women in recent times) who have shaped our understanding of economics, and outline how economic forces have shaped world history. One of its many virtues is its even temper. It was written before the recent presidential election, but Leigh describes the tariffs Trump put in place during his previous time in office as “one of the largest tax increases in decades.”  He also points out that for every job gained by the steel industry during that period, sixteen were lost in the auto industry.

Leigh begins the final chapter with the observation that weekly news magazines invariably have a different focus from daily papers. Though he doesn’t say so, Leigh’s book resembles a newspaper of global scope that comes out only once a decade, or maybe twice a century.

“One way to think about the role of government,” he writes near the end of the book, “is as a risk manager: providing social insurance against risks as diverse as earthquakes, diseases, and recessions.”

Needless to say, that’s not the way the current administration thinks about it.