Why We Should Be Sceptical About Pre-Twentieth-Century GDP Estimates

by Nithesh S - Dec 20, 2018 07:19 PM +05:30 IST
Why We Should Be Sceptical About Pre-Twentieth-Century GDP Estimatescirca 1900: Workers building a dam, probably in India. (Hulton Archive/Getty Images)
Snapshot
  • Estimates are often made of the gross domestic product from a time when economic standardisation and monitoring and recording agencies were barely present.

    Should we, then, be seeing the estimates as accurate or even close to reality? Not really. And there are good reasons why.

Any study about the ‘glorious’ economic history of a country catches the attention of nationalists, political leaders, and historians, as it can be used for supporting ideas and ideologies according to one’s convenience.

Historians generally agree that Asia occupied a prime place in the world economy during the pre-colonial era (before the eighteenth century) and steadily declined after the Industrial Revolution in Europe until the end of the twenty-first century. However, any attempt to estimate quantitative details like the gross domestic product (GDP) or per-capita income of countries or kingdoms, as the case may be, of the pre-twentieth century should be treated with enough scepticism because of the data deficit we find on our hands.

GDP And Its Origins

The International Monetary Fund (IMF) says “GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).”

A simplistic version of the ‘GDP’ was introduced for the first time by a British economist-surgeon named William Petty between the years 1652 and 1674. Petty devised the idea of a national income by multiplying the average income of the British citizens by their population. The average income he assumed was not based on sound data – this was a rough estimate, at best.

GDP calculation in its modern avatar was introduced only in 1934 by Simon Kuznets. Before that, countries around the world were not seriously calculating their national incomes or GDPs.

So, it should be noted that the use of the term ‘GDP’ for any period before the twentieth century is a misnomer from a strictly technical point of view.

Calculating GDPs In Pre-Twentieth-Century Era

A recent article tracing an outline of Indian economic history, published in Swarajya, wades into the issue of per-capita incomes in the colonial and pre-colonial eras. The article examines how India’s per-capita GDP has changed in the pre-independence and post-independence eras.

“How were these figures arrived at?” is a fascinating question for anyone interested in economics and history. The more I delved into this question, the more reasons I found to reject the idea of calculating, let alone comparing, the GDP of any country or geography before the twentieth century.

Attempts to quantify general economic realities about the past are fraught with danger because of the high margins of error that are inevitable. The information deficit and extent of omissions are too high for any backdated GDP estimate to carry even a reasonable level of accuracy.

Let’s delve deeper and see why the figures should be taken with spoonfuls of scepticism.

Lack Of Nationalities And Well-Defined International Borders

How much was the GDP of China in the year 200 AD? Before we try to think of an answer, we immediately reach an obstacle: where was China’s border in that year? Had anyone drawn a map of the Chinese empire?

Even if we try to estimate India’s GDP under the Mughal rule, we don’t know the exact borders of the empire. The territorial extent of nations was too poorly defined to estimate GDPs of any geography in the pre-eighteenth-century era. Constant warfare and disputes among various kingdoms meant that borders between empires were dynamic.

Absence Of Centralised Data Collection Agencies

Even with a central statistics body, abundance of information sources, and a ministry dedicated for the process of collecting national statistics, it is difficult for economists of the day to agree upon a single figure for any economic parameter.

How would it be possible to estimate any reasonable GDP figure in the Mughal era or nineteenth century? Piecing together production data may be a rough estimate, but it is just that – a rough estimate with no clarity on the margin of error. The services sector and manufacturing output would not have been captured in official documents of kingdoms. The omission of these economic activities would introduce huge errors.

Standards Of Measurements Were Not Uniform

Adherence to uniform and standardised measurements in countries is essential for any meaningful comparison of economic data in different parts of the world. Standardised weight and length measurements are essential to assign values for goods and services. Both international and intranational standardisation of measurements is essential for computation of macroeconomic data points like the GDP. We must note that worldwide standardisation of measurements was attempted only in 1960 (International System of Units).

One can argue that world trade happened in the absence of standard measurements as early as the Roman era. Though it is true, this aspect of the pre-industrial era makes it nearly impossible to arrive at objective figures of GDP in the pre-nineteenth-century period.

Use Of Money Was Limited Globally

In many parts of the pre-colonial world, a currency-driven economy was not fully established. In such cases, it would be difficult to capture or record all economic activities in the economy. Though the challenge persists even in the modern era, most of the transactions are being conducted using some sort of recognised currency.

Any sound economic study should have errors within acceptable margins and few assumptions. The importance of this requirement becomes even more important when we examine economic parameters like GDP and per-capita income of bygone centuries.

GDP Is A Modern Concept

GDP is a concept that belongs in the twentieth century, where nations and national borders are clearly established. The monetary system and centralised agencies that are required to calculate the GDP of any country took shape in the twentieth century. Therefore, it just does not work as well to apply the concept backwards, where consistent records based on standardised parameters were a bit of a rarity.

Therefore, take any GDP estimates with more than a grain of salt next time you encounter them.

Nithesh is passionate about Indian politics and history. He tweets at @mlessp.

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