Understanding Growth in Europe, 1700-1870:
Theory and Evidence
Depts. of Economics and History
Berglas School of Economics
Tel Aviv University
Department of Economics
Pompeu Fabra University
Incomplete and preliminary version. Prepared for the Minerva Conference on Economic Growth,
Jerusalem, June 2006.
1. Introduction (incomplete and very preliminary).
a. Can theory help the historians?
In recent years, growth theory has turned to the Industrial Revolution and the emergence of
modern economic growth as a topic of research. For economic historians, for whom these issues
have been their bread and butter for over a century, this is a cause for jubilation. The issues are
complex and difficult, and they need all the help they can get. What better than from the likes of
Robert Lucas, Edward Prescott, Oded Galor and their colleagues, who had previouslydeveloped a
set of novel and highly sophisticated and influential tools to analyze hugely complex phenomena
such as the business cycles and th effects of monetary policy in elegant and powerful models?
Theory has to simplify reality and to make assumptions. It tries to establish causal
connections between exogenous and endogenous variables, to establish equilibria and the trajectories
that a model of the economy will follow on its way there. What is being explained here is, at some
level, rather straightforward. In the early nineteenth century, income per capita and a set of related
variables, started to increase dramatically in a small number of economies in the northern Atlantic
and European offshoots. In his long and detailed survey, Galor (2005, p. 177) raises the main
questions that he feels need to be answered, such as why there was so little growth before the gre