The Birth of Plenty: How the Prosperity of the Modern World Was Created / Edition 1

by William J. Bernstein

Overview

“Compact and immensely readable . . . a tour de force. Prepare to be amazed.” — John C. Bogle, Founder and Former CEO, The Vanguard Group

“Vital—a cogent, timely journey through the economic history of the modern world.” — Publishers Weekly

In The Birth of Plenty, William Bernstein, the bestselling author of The Four Pillars of Investing, presents his provocative, highly acclaimed theory of why prosperity has been the engine of civilization for the last 200 years.

This is a fascinating, irresistibly written “big-picture” work that highlights and explains the impact of four elements that when occurring simultaneously, are the fundamental building blocks for human progress:

• Property rights, which drive creativity
• Scientific rationalism, which permits the freedom to innovate without fear of retribution;
• Capital markets, which provide funding for people to pursue their visions;
• Transportation/communication, which allows for the effective transfer of ideas and products.

Meticulously researched, splendidly told, and featuring a new preface and introduction, The Birth of Plenty explains the interplay of the events, philosophies, and related phenomena that were nothing less than the crucible of the modern age. This is one of the rare books that will change how you look at the world.

Product Details

ISBN-13:	9780071747042
Publisher:	McGraw Hill LLC
Publication date:	06/21/2010
Pages:	432
Sales rank:	677,767
Product dimensions:	5.90(w) x 8.90(h) x 1.00(d)

About the Author

About the Authors
William J. Bernstein is the editor of the quarterly asset allocation journal Efficient Frontier, founder of the popular website EfficientFrontier.com, and a principal in Efficient Frontier Advisors. He is often quoted in national publications, including The Wall Street Journal, Barron's, Money, and Forbes.

Read an Excerpt

THE BIRTH OF PLENTY

How the Prosperity of the Modern World Was Created

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By WILLIAM J. BERNSTEIN

The McGraw-Hill Companies, Inc.

Copyright © 2004The McGraw-Hill Companies, Inc.
All rights reserved.
ISBN: 978-0-07-174704-2

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Excerpt

CHAPTER 1

A Hypothesis of Wealth

The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together.

—Karl Marx, Manifesto of the Communist Party

It's all too tempting to lament the state of the world, particularly when you focus on the melodramas of mankind—violent conflicts, large-scale malfeasance and failure, and the latest installments in the age-old racial and religious hatreds that permeate the human story.

A paragon of such fashionable pessimism has been journalist Anthony Lewis, who, at the end of a long and distinguished career, was asked whether the world had gotten to be a better place since he had begun covering it a half century earlier:

I have lost my faith in the ideal of progress. I mean that in the sense that it was used at the beginning of the twentieth century, that mankind is getting wiser and better and all—how, how can you think that after Rwanda and Bosnia and a dozen other places where these horrors have occurred?

Mr. Lewis' problem is that his subjective criterion—that mankind has not achieved moral perfection as defined in Ivy League universities and the editorial suites of the New York Times—sets the bar too high. Mr. Lewis seems unaware that we can measure the welfare of mankind; in fact, we can do it superbly. Contrary to his gloomy impressions, the second half of the twentieth century was far less murderous than the first. Further, the proportion of the world's population subjected to totalitarianism, genocide, starvation, war, and pestilence has been steadily decreasing over the past two centuries, with most of the improvement coming in the half century that so depressed Mr. Lewis.

Consider that from 1950 to 1999, average life expectancy in the developed world increased from 66 years to 78 years; in the developing world, it increased from 44 years to 64 years. The nearly universal Western outcome of living to old age, rather than resulting from the rare stroke of luck, may be the greatest accomplishment of the past fifty years. Or consider that over the same period, the world's real per capita gross domestic product (GDP)—the amount of goods and services produced by the average person, adjusted for inflation—nearly tripled. Or that by the year 2000, real per capita GDP in Mexico was significantly greater than that of the world leader in 1900, Great Britain. And if you're not impressed with mankind's material progress in the last fifty years, as measured in dollars and cents, you should at least note that almost any measure of social progress you wish to examine—infant mortality, literacy and mortality rates, or educational levels—has dramatically improved in all but a few still-benighted corners of the planet.

ESCAPING THE TRAP

The modern world seems to stagger under the load of ever-increasing population, with each year adding scores of millions of new mouths to feed. At the birth of Christ, Earth supported slightly more than 250 million people, by 1600, about a half billion. Sometime around 1800, the one billion mark was reached, the second billion was added by 1920, and the third attained in 1960. Presently, there are in excess of six billion souls on our planet. The increasing congestion of urban life, particularly in the third world, gives the impression that the world's population is growing far faster than the 1.85% annual rate of the past half-century.

Overcrowding on our planet is a recent phenomenon, an artifact of the world's newfound prosperity. Before the modern era, famine, disease, and war more often than not overwhelmed the human inclination to procreate. Over the first two million years of human history, population growth did not greatly exceed 0.001% per year. After the advent of agriculture 10,000 years ago, the rate of population growth increased to approximately 0.036% per year, and in the first century A.D., to 0.056% per year. After 1750 the growth rate climbed to 0.5% per year, passing 1% only in the early twentieth century.

In modern times, the dismal economics of increasing population is virtually synonymous with Thomas Malthus. Born of local gentry in 1766, he graduated from Cambridge with honors in 1788. Like many bright young university men of the time in England and Scotland, he fell under the sway of Adam Smith's new science of "political economy" and devoted his life to the quantitative study of humankind.

The England of the aspiring economist's formative years seemed as Hobbesian as Smithian—a time of worsening food shortages and not a little famine, particularly in neighboring Ireland. In 1795–96 and 1799–1801, war and poor harvests combined to cause food riots in England. The root cause of the shortage was obvious to Malthus: "The power of population is infinitely greater than the power of the earth to produce subsistence for men." Humans can reproduce rapidly, whereas agriculture is subject to the law of diminishing returns. The natural tendency, then, is for humanity to outrun its food supply. (The common conception of Malthus's thesis is that population increases geometrically, while the food supply increases arithmetically.)

Malthus's infamous "positive checks" were not limited to the classic fama, pestis, et bellum (famine, plague, and war), but also included a host of lesser evils: unhealthy working conditions, backbreaking labor, overcrowded and unsanitary housing, and poor child rearing. If, for a brief moment, food became plentiful, population would rise rapidly. Soon enough, though, the increased supply of workers would drive down wages. This would make food less affordable and, discouraging marriage, would slow population growth. Low wages would then induce farmers to hire more workers, which would, in turn, bring more land into production, starting the whole process again at a slightly higher level of population and food production—the notorious "Malthusian Cycle."

In Malthus's harsh world, a nation's food supply—and its population—grew slowly, if at all, so the standard of living was inversely proportional to the number of mouths to feed. Were population to increase, there would not be food enough to go around. Prices would rise, while wages, and the standard of living in general, would fall. If, on the other hand, the population were suddenly to plunge, as happened during the Black Death of the mid-fourteenth century, the survivors' food supply, wages, and standard of living would rise dramatically.

Malthus had observed firsthand the late-eighteenth century famines, which burned this sequence of events into his consciousness. Figure 1–1 plots the per capita GDP of England from 1265 to 1595 versus population size. The thin, crescent-shaped distribution of the data points depicts the "Malthusian Trap." Historian Phyllis Deane neatly summarizes the concept:

When population rose in pre-industrial England, product per head fell: and, if for some reason (a new technique of production or the discovery of a new resource, for example, or the opening up of a new market), output rose, population was not slow in following and eventually leveling out the original gain in incomes per head.

In this eternal cycle, agricultural production might rise, but population followed in lockstep, dooming mankind to a near-subsistence-level existence.

Paradoxically, soon after Malthus immortalized this grim state of affairs in 1798 with his Essay on the Principle of Population, it abruptly came to an end in Western Europe. Figure 1–2 shows that a bulge developed in the cr
(Continues...)

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Excerpted from THE BIRTH OF PLENTY by WILLIAM J. BERNSTEIN. Copyright © 2004 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Preface; Introduction;Section I - The Sources of Growth; Chapter 1. A Hypothesis of Wealth; Chapter 2. Property; Chapter 3. Reason; Chapter 4. Capital; Chapter 5. Power, Speed, and Light; Chapter 6. Synthesis of Growth; Section II: Nations; Chapter 7. The Winners-Holland and England; Chapter 8. Runners-Up; Chapter 9. The Last; Section III: Consequences; Chapter 10. God, Culture, Mammon, and the Hedonic Treadmill; Chapter 11. The Great Trade-Off; Chapter 12. Mammon and Mars; Chapter 13. The End of Growth?; Chapter 14. When, Where, and Whither

Editorial Reviews

Rather than dry academic analysis, Bernstein, in his second book (after Four Pillars of Investing), has created a vital, living text-a cogent, timely journey through the economic history of the modern world. He identifies institutions ("the framework within which human beings think, interact and carry on business") as the engines of prosperity. Boiled down to four (property rights, the scientific method, capital markets and communications), these institutions come from ideas and practices that bubbled forth over the course of hundreds of years. Bernstein is clear in explaining that the civilizations that develop and implement these systems thrive, and that those that do not, perish. The Spanish empire, for example, had most of these but lacked effective capital markets. When the gold from the New World dried up, the empire essentially went broke. By 1840 the British had all of these institutions in place, economic growth exploded and the lot of the common man was immensely improved. Today, the U.S. faces the challenge of sustaining prosperity in the face of rapid technological change. Though fairly Eurocentric in focus, Bernstein's narrative tracks the development of these essential ingredients to prosperity over a global landscape-the great dynasties of China get plenty of attention here, as do the Japanese. Solid writing and poignant assessments of the economic players throughout time give texture and flavor to Bernstein's argument: he describes the medieval relationship between the various European kingdoms and the Vatican as "a holy shakedown racket." Packed with information and ideas, Bernstein's book is an authoritative economic history, accessible and thoroughly entertaining. (May) Copyright 2004 Reed Business Information.

Publishers Weekly

Bernstein's (The Four Pillars of Investing) premise here is that prosperity will flow "once a society acquires the four crucial factors-property rights, scientific rationalism, capital markets, and modern transportation and communication." In the first of three sections, the author covers the sources of growth. He chronicles the history of property ownership, technological invention and its impact on prosperity, the roots of the capital markets, and the benefits of machines to production. Then he profiles countries that have been historically considered economically successful, such as Holland and Japan, and he theorizes about why some areas, such as Africa and Latin America, have been left behind. Bernstein then applies the concepts discussed to modern-day life. He discusses such issues as the way in which prosperity contributes to a country's well-being and what inequalities can result from economic growth. This fascinating, well-written look at how the concept of prosperity has evolved over centuries is recommended for all collections.-Stacey Marien, American Univ., Washington, DC Copyright 2004 Reed Business Information.

Library Journal

How the Modern World's Prosperity Was Created
In an effort to uncover the cultural and historical factors that converged during the early 1800s and ignited the great economic boom of the modern world, historian and author William Bernstein has written The Birth of Plenty. Bernstein rises to the occasion of explaining how the world and its economy reached its present state while keeping readers absorbed - providing them with a framework that explains why any nation is rich or poor, democratic or totalitarian, weak or powerful, and whether or not citizens are satisfied with their lives.

Bernstein divides The Birth of Plenty into three parts: why, how and whither. First, he defines economic growth's ultimate sources; then he describes how these factors played out in various nations. He then focuses on the sociological, political and military consequences of the modern world's explosive economic growth.

Great Questions
By exploring the sources of economic growth, he provides insights into many of the questions that people seek about themselves, including:

• What is happening to the overall well-being and satisfaction of the average person in a world that is becoming not only more wealthy but also more complex, fast-paced and stressful?
• What is the relationship between wealth and democratic development?
• What does economic progress, and the growing inequality of wealth among nations, hold in store for the world's political future?
• What are the prospects for successfully exporting democracy to countries like Iraq and Afghanistan?
• How has the evolution of modern prosperity affected the current balance of power in the world?
• Is the military ascendency of the United States a historical accident, and can it be expected to continue?
• How effectively can non-Westerners, particularly in the Moslem world, wield political and military power?

While digging into the story of world economic growth, Bernstein ventures into the fields of law, history, philosophy, celestial mechanics, theology, public policy, sociology and economics. By bringing together these disparate fields into a single story that tackles some of the largest questions people can ask, the author paints a vivid picture of the past that gives readers deeper insight into the future to which they are headed. Bernstein synthesizes numerous issues into specific and understandable theories about why world economic growth - and the technological progress that fueled it - suddenly exploded when it did. At the root of his question is why life in the 18th century, described by one author as "solitary, poor, nasty, brutish, and short," changed so drastically in less than two centuries.

Instantaneous Communication
To describe how technological progress has actually been slowing since 1850, not accelerating, Bernstein writes that the average inhabitant of the Western world alive in 1950 would have no trouble grasping the technology of the year 2000, but "a citizen from 1800 would have been completely disoriented by everyday life 50 years later." As an example, the author points out that in 1801, nothing moved faster than the speed of a horse. But, he writes, the invention of the telegraph and instantaneous communication in 1837 "abruptly altered the face of economic, military, and political affairs in ways that dwarf the changes wrought in this century by the airplane and the computer."

According to Bernstein, there are four factors that are essential ingredients for igniting and sustaining economic growth and human progress: property rights, scientific rationalism, capital markets, and improvements in transport and communication. Bernstein first examines the nature, causes and consequences of the transformation in human well-being that began to unfold shortly after 1820, and identifies the points in both time and space where economic growth bloomed after thousands of years of dormancy.

Next, Bernstein describes how and when those four factors came into play, from Holland and England, to the rest of Europe and East Asia. The Birth of Plenty describes the sociological, political, economic and military consequences of the discrepancies in personal and national wealth that have risen from this birth of plenty, and their present and future implications.

Why We Like This Book
Bernstein's rich examination of the effects of economic growth are made even more relevant by his additional insight into the role this growth has played in various peoples' lives. By seeking to learn more about how our world prospered when and where it did, Bernstein provides us with a better idea of where we are all heading. Copyright © 2004 Soundview Executive Book Summaries

Soundview Executive Book Summaries