top of page


The growth in economic wealth has been accelerating  as shown by the  log plot of  individual incomes measured as the GDP per person from 0CE to 2018. Incomes were stuck around $1000, or $3 a day until the 1300's in Europe and until the 1900's for India. It takes around $15 a day for food for 1 person in the USA in 2023, with maximum SNAP food benefits for the poor at $8 a day.

The recent  acceleration in economic growth is eye popping.  For the first 1200 years, in France individual income grew at 0.03% per year. The last 150 years since 1870, European income has grown at 1.7% per year. Since the 1960's in India, released from empire, and China, released from central control, have been catching up with an income growth rate around 3% per year. 

Managed or regulated capitalism has been the economic system that has driven this growth. 

History of income growth 

Nomadic hunter gathers killed enough to feed their families. 

Settled subsistence agriculture started in the Fertile Crescent. Domesticated crops and animals allowed the populace to establish year round homes so property and possessions now had value .  A resident population could be taxed and ruled, or invaded and taken over. This set the table for thousands of years of controlling monarchies. 


The vast majority of the population were subsistence farmers and remained mired in poverty with just enough to feed their families. Any increase in agricultural output will be associated with additional surviving offspring, so there is no chance to get ahead. This is known as the "Malthusian Trap"  a  concept derived from the political and economic thought of the Reverend Thomas Robert Malthus, as laid out in his 1798 writings, An Essay on the Principle of Population.

Malthusianism is the theory that population growth is potentially exponential while the growth of the food supply or other resources is linear, which eventually reduces living standards to the point of triggering a population decline.   

And it wasn’t only GDP per capita, living standards remained poor by many metrics as the chart below on the history of living conditions in England shows. Life expectancy fluctuated up and down at around 40 years without a trend, access to education and literacy were poor, child deaths were very common, and food supply remained extremely poor during these centuries.

The chart here zooms into the economic history of medieval England from 1270 to 1660.4 Although these 400 years are only a fraction of humanity’s long history, they allow us to understand the mechanism that for so long trapped our ancestors in poor material living conditions.

In the middle of the 14th century, incomes jumped up to a substantially higher level. Until the mid-1340s the English lived on around £800 per year; but then, in a period of less than five years, incomes increased to over £1000. Prosperity kept on increasing so that by the end of the century they reached a new plateau at close to £1,200 per year. Within half a century the English saw their incomes increase by almost 50%. This rise in prosperity happened during some of the most terrible decades in English history. In June 1348 the plague arrived in England and it quickly became a pandemic of enormous dimensions that ravaged the entire island: It is estimated that in the three years after 1348 the population of the country declined from 4.8 million to 2.6 million. Almost half of the English population died.5

Before the Black Death, English farmers maximized agricultural output by eking out a living even on very unproductive lands, but as the pandemic killed half the population, the ratio between land and labor increased and the survivors were able to leave the least fertile lands behind and instead focused on the more productive areas of the island. As a consequence of this, their productivity rose, and as a consequence their living standards increased to $1500 a year.

In the next two-hundred years until 1650 the growing output of the English economy was shared by a population that grew at the same rate. As a consequence living standards did not increase.  

In 1650, the expansion of the British Empire triggered an increase in incomes, followed by  the Industrial Revolution which was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. 


From 1900 onwards, the data for England shows income, life expectancy, and schooling all taking off. 

The breakthroughs in managing infection and better nutrition, drove the increase in life expectancy.  

Schooling in England  became mandatory through the  "Sandon Act" (Act of 1876) imposed a legal duty on parents to ensure that their children were educated. Additional legislation made free education available with a school leaving age of 12, by 1921 the leaving age had risen to 18. Higher GDP per person allows families to leave their children in school, and also increases their earning power after school. 

It certainly shows the power of a well educated population in driving wealth creation. 

The comparison  of today's  education systems suggests that the US and UK are competitive,  the Asian powers of China, Japan and Singapore are particularly effective. The Islamic countries are lagging, with their attitude to girls education holding them back. 














A critical feature of the world in the 2000's is the huge inequality from the richest to the poorest countries and within countries.

In 1800, the world was still primarily agricultural.

By 1975, the haves average income is 20x the have-nots. The have-nots are primarily in Asia and Africa. 

By 2015 Asia has made a lot of progress, but Africa is still lagging.  

There is also inequality within countries, 

The inequality in property ownership shows a staggering consolidation in the richest 1% holding 46% of the property and the poorest 55% owning 1%. This particularly important when access to property as in the early US was the key to success albeit at the expense of the natives. 

The Gini coefficient measures the inequality among values of a frequency distribution, such as levels of income. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same, while a Gini coefficient of 1 (or 100%) reflects maximal inequality among values. For example, if everyone has the same income, the Gini coefficient will be 0. In contrast, a Gini coefficient of 1 indicates that within a group of people, a single individual has all the income or consumption, while all others have none.


Inequality has been increasing in many developed countries over the last 100 years. It appears that US has higher inequality than many European countries, with Japan one of the lower developed countries. 

History of Capitalism 

The Stock Market is the most direct measure of the progress of capitalism. The biggest event is still the 1929 Great Crash when a panic  triggered a run on the unregulated banks and a near collapse of the economy. In 1932, the Pecora Commission was established by the U.S. Senate to study the causes of the crash.[28] The following year, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocksbonds, and other securities.  The government funded New Deal catalyzed a recovery, with the funding of WW2 setting up robust growth in the 1950's. The oil crisis triggered stagflation in the 1970's which was resolved by decreasing interest rates, and set up the tech boom of the 80's and 90's. The sudden rise of the internet triggered a speculative bubble that went bust in 2000 starting the "Lost decade". That was followed by the sub prime mortgage bubble in 2010 where high risk mortgages were bundled and sold on as low risk leading to collapse. By 2016 the market had recovered from these  cycles.  In 2022, Covid 19 caused an almost complete shut down of the service sector. Government funds were used to keep people and businesses afloat. The result has been robust growth and inflation even with increasing interest rates designed to slow down the economy.  


The Gutenberg printing press is probably the first example of venture capitalism, and it had a bad ending for the founder. In 1450 Gutenberg demonstrated the printing press with a loan from his  brother-in-law Arnold Gelthus.  Having proven the press worked, and knowing it would be profitable, Gutenberg secured a loan from a local businessman, Johann Fust, for 800 guilders (a significant sum equal to roughly three years’ annual wages for an unskilled worker at that time) to finance his new printing business which he set up in the building known as the Humbrechthof in the old part of Mainz.

Gutenberg had borrowed another 800 guilders from Fust at some point between 1450 and 1456 but it is unclear why. Whatever his reasons for borrowing again from Fust, he no doubt regretted it when, in 1456, Fust charged him with misusing the money and demanded repayment. The loans had been given under the terms of a 6% interest rate and so Gutenberg owed Fust 2,026 guilders, a large sum he did not have. Fust sued him in court, won and, when Gutenberg explained he did not have the money, Fust was awarded his press and the business.

In the 1600's, the drive for empire fueled the first break from the Malthusian trap. Empire building  was a combination of  religious enthusiasm and straight forward greed. In 1572, Drake set sail on his first independent mission, privateering along the Spanish Main. Drake's circumnavigation began on 15 December 1577. He crossed the Pacific Ocean, until then an area of exclusive Spanish interest, and laid claim to New Albion, plundering coastal towns and ships for treasure and supplies as he went. He arrived back in England on 26 September 1580. Elizabeth I awarded Drake a knighthood in 1581 which he received aboard his galleon the Golden Hind.

One path out of the Malthusian Trap was emigration to the colonies where the cultivation of  land stolen from the natives was actively encouraged. Escape to the US was used as a path forward by many, particularly the Scots, Irish and Jewish subsistence farmers. 

"An Inquiry into the Nature and Causes of the Wealth of Nations", generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith. First published in 1776, the book offers one of the world's first collected descriptions of what builds nations' wealth, and is today a fundamental work in classical economics. By reflecting upon the economics at the beginning of the Industrial Revolution, the book touches upon such broad topics as the division of labourproductivity, and free markets.

The Industrial Revolution started the friction between technology and workers.

The Luddites were a secret oath-based organization[1] of English textile workers in the 19th century who formed a radical faction which destroyed textile machinery.  Luddites feared that the time spent learning the skills of their craft would go to waste, as machines would replace their role in the industry.[3]  The Luddite movement began in Nottingham in England and culminated in a region-wide rebellion that lasted from 1811 to 1816.

In the early 1800s, employees including children  worked 12-16 hour shifts per day with minimal breaks or rest days. Factories lacked proper ventilation, which resulted in heavy, long-term exposure to toxic chemicals and air pollution from the many chemical and metal processing. 

In a sign of things to come the Tolpuddle Martyrs were six agricultural laborers from the village of Tolpuddle in Dorset, England, who, in 1834, were convicted of swearing a secret oath as members of the Friendly Society of Agricultural Laborers. They were arrested on charges under an obscure act during a labor dispute against cutting wages before being convicted and sentenced to penal transportation to Australia.[1][2] They were pardoned in 1836 after mass protests by sympathizers and support from Lord John Russell and returned to England between 1837 and 1839.

Marx was the first to critique capitalism. In the capitalist mode of production, he argued that there is  conflict between the ruling classes (known as the bourgeoisie) that control the means of production and the working classes (known as the proletariat) that enable these means by selling their labor-power in return for wages. If the workers collaborated they would have the power to challenge the  power of the ruling class.  

Marx writing in 1847,  predicted that  capitalism produced internal tensions  that would lead to its self-destruction and replacement by a new system known as the socialist mode of production

Capitalism in the democratic West proved more flexible than Marx predicted. Child labor under 9 labor was banned in 1837. In the late 1800s, poor factory conditions led to a rise in strikes, riots, and most significantly, labor unions, who demanded an improvement in working conditions. 

In 1862, the US levied the first income tax to pay for the Civil War. The tax rate was progressive with 2 levels crossing over at $10,000. The need use the tax system to offset income inequality was clear from the start. 

Meanwhile, the Tsarist monarchy in Russia maintained rigid royalist control setting the table for a workers revolution. Lenin established the communist party following the ideas of Marx. This led to some improvement in the workers  desperate lives. However in the long run it could not compete with "managed capitalism".  

In 1905 England, the new Liberal government embarked upon a program of social legislation that involved free school meals (1905), a school medical service (1907), and the Children’s Act (1908). The Old Age Pensions Act (1908) granted pensions under prescribed conditions to people over age 70, and in 1908 the miners were given a statutory working day of eight hours. In 1909 trade boards were set up to fix wages in designated industries.  In 1911 the National Insurance Act was passed, whereby the state and employers supplemented employees’ contributions towards protection against unemployment and ill health. 

The 1914-18 war was the first experiment in large scale funding of  economies before Keynes. The UK economy (in terms of GDP) grew about 7% from 1914 to 1918 despite the absence of so many men in the services; by contrast the German economy shrank 27%. The War saw a decline of civilian consumption, with a major reallocation to munitions. The government share of GDP soared from 8% in 1913 to 38% in 1918 (compared to 50% in 1943).

The Great Crash of 1929, led to the Great Depression and also showed the need for stock market regulation to stabilize the market and prevent attempts to cheat the market.  

During the Great Depression of the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. He argued that aggregate demand (total spending in the economy) determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment, and since wages and labour costs are rigid downwards the economy will not automatically rebound to full employment.[9] Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions. He detailed these ideas in his magnum opus, The General Theory of Employment, Interest and Money, published in late 1936. By the late 1930s, leading Western economies had begun adopting Keynes's policy recommendations.  

The common view among most economists is that the recovery from Great Depression in the US  was  either caused or accelerated by  Roosevelt's New Deal policies. This was a direct test of Keynes ideas. in 1938, this included a minimum wage to prevent market forces from driving the poor even poorer. 

The 1939-45 war was the second experiment in large scale war funding of economies. US GDP grew 11%  per year over the 5 years of war, and shed the last of the Great Depression. 

A different future than that envisioned by Marx has started to emerge—explored and described by Anthony Crosland in the United Kingdom in his 1956 book The Future of Socialism[62] and by John Kenneth Galbraith in North America in his 1958 book The Affluent Society,[63] 90 years after Marx's research on the state of capitalism in 1867.[64] The postwar boom ended in the late 1960s and early 1970s and the economic situation grew worse with the rise of stagflation.[65] Monetarism,  use money supply rather than government spending to manage the economy, gained increasing prominence in the capitalist world, especially under the years in office of Ronald Reagan in the United States (1981–1989) and of Margaret Thatcher in the United Kingdom (1979–1990).  

Globalization has added a new pool of low cost labor that has led to the migration of manufacturing overseas eliminating skilled worker position and provided new pressure to lower wages.  Automation in manufacturing has sharply reduced well paid blue collar jobs. For example, of necessity, semiconductor manufacturing is fully automated. There are no humans in manufacturing, just an army of software nerds managing the robotics. This is just an extension of trends that started in the industrial revolution, transportation increased the worker pool and technology reduced the need for workers. The economies are evolving into 2 types of workers, tech and service. The inevitable result is an erosion in opportunities and living standards for the poor. 

Countries that have done well by globalization include China and India with well educated populations and industrial infrastructure.  The racism of colonial Africa exploited the wealth of the continent while blocking the spread of education, and investment in the locals. As a result, it is still relying largely on subsistence  agriculture, and  has still had difficulty getting ahead.

After 2010, frustration with the status quo opened the door to a new generation of populist politicians in Italy, UK, US, Brazil, Turkey, Hungary. So far this has been short lived as they have slogans but no solutions. 

Today's western capitalism bears little resemblance to the 1800's. Regulations on the stock market, employment, product safety, pollution, environmental quality, building codes, zoning, wages etc. are designed to protect the community from exploitation while allowing the creativity of capitalism to thrive. Most legislation was triggered  by some egregious abuse.  There is a legitimate debate about ensuring that the cumulative regulations are effective.  

After WW2, innovation was centered on large corporate R&D labs such as IBM, Bell, HP, Xerox PARC etc.  Much of the early stage development was funded by DARPA under the military umbrella. In the 1980's, venture capital emerged as a funding source for technology that was revolutionary and put the incumbents out of business. Companies like Apple, Intel, Yahoo etc. all became household names, companies like Kodak have disappeared. 

Venture capital supports a specific development stage with a very limited time frame, 5 years to a liquidity event is the goal. Much of the funding needed to get to the 5 year window is now  focused on university research funded by government through DARPA and NSF.  The highest liquidity events are through IPO's. Strategic corporate venture investments and acquisition have become more common replacement for in house R&D. 

The economics of venture are high risk with high reward if you pick the right projects. In 2018-2020, investment of  $80B, was spread over 10,000 deals = $8M per deal. Majority of deals are +50$M.  Exits of around $80B over 1,000 projects = $80M per project. Success rate 1 in 10, with 10x return. 

Corporate venture investments have largely displaced in house R&D and represent another $40B.

Federal research funding is around  $40B per year, or around 30% of research funding.

US R&D funding is  2.7 %GDP is just above the world average and roughly the same as military spending. However huge economy of the US dominates all at around $150B R&D spending  total. Israel and   South Korea make the largest  research commitment.

The idea is that capitalism is made possible through competition which creates growth.  The freedom to act in one's self-interest is essential for the success of a capitalist society. It drove the actions of Gutenberg and Drake. However, capitalism is inherently unequal.  The captain who must fund the project or raise money then takes the plunder, and pays the crew just enough to keep them interested. In the same way, those with capital can invest to make more money, while hiring workers at the lowest possible pay.   Worker availability plays a huge role in determining pay rates. Along with self interest there has to be an ethical obligation to the society at large, as shown by the need for regulation and a living wage.  


The capitalist winners have an ethical and practical obligation to have the poor receive a living wage - its the best way to keep your riches and avoid a revolution ! Unfortunately, the winners also have a disproportionate influence on politicians through funding campaigns which has resulted in lowering of the top tax rates. Meanwhile climate change shows the need for coordinated long term action. 

maddison-data-gdp-per-capita-in-2011us-single-benchmark (1).png
bottom of page