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Musings

Evolution of "Per Capita Income"

Traditionally men (women rarely had any value) were viewed more as a silver earned by selling them as slaves or how large an army could be drafted from the region. The value of human life was so low in the medieval ages that people stopped buying slaves (you could inherit a fief and its serfs for free so why pay). Go East for riches campaigns during Crusades (and later go west during settlement of America) was probably the only historic references where establishments tried to place a value to a free-man’s life.
Simply put if human life had any value, you would have emigration checks and not immigration checks. Till recently many middle east regimes did not encourage university education because graduate students would destabilize the regime. (much like early industrial age governments saw factory workers as a threat). So development of human capital was always a private endeavor and only recently has it been institutionalized.
Similarly land traditionally used to be viewed in terms of how much taxes it could yield (cities, ports) or how much grain/men/resource it could produce. A land surveryer Sir William Petty in early 17th century tried to resolve this by coming up with GDP, a unifying parameter to place the value of the land & tax it aptly.
Now the question is how did the concept of per-capita income evolved and why? Except for the first half of 1940s (towards the end of of 2nd world war) there has never been a global shortage of manpower, but the earliest references date back to 1934… at that time the world still was recovering from great depression and had double digit urban unemployment (rural unemployment was never measured and is hard to compute even today)
Also what is the relevance of per-capita income? Given a choice between 2 regions both producing the same GDP, would a statesman/politician prefer a larger population base or a smaller? (smaller or larger per capita?)
Categories
Musings

Not so Petty

I read an amazing article on a 16th century economist Sir William Petty

Meet the inventor of Economics Sir William Petty

Its amazing to see that so early on he could estimate the GDP, create guessitmates as a legitimate method of prediction & planning. What should be the ideal money supply, what is velocity of money, how do banking system, interest rate and foreign trade impact the growth and development of the nation.
He estimated the value of land based on economic output and Present value. He estimated (quite accurately) the peak population & size of London, impact of full employment, division on labor on productivity.
What it pains to see that although his theories were pretty accurate foundation stone of economics, he never received any credit for this path breaking thoughts and theories. Adam Smith’s wealth of nation had no reference to his work, John Maynard Keynes recreated his work abinitio when computing aggregate demand and unemployment. Only Karl Marx Das Kapital has given him some credit.

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Thoughts

GDP density

Why is the world so much obsessed with per capita GDP?
Its gives us an illusion that population is the limiting factor for every nation. However we very well know that in most countries 5-7% unemployment is considered healthy. Also if you are as rich as USA/Western Europe then one of the major concern of the country is to limit the population influx and keeping illegal immigrants under check. So essentially a country can always increase its workforce.

So what is the most limited of all resources… LAND.
In the paper Geography and Economic development the authors John Gallup, Jeffrey Sachs and Andrew Mellinger plotted the GDP per unit land all over the world.
sachs-gdpdensity
Notice how prominent are the rivers like the Ganges and the Grand canal in China in this plot. The plot reinforces our conviction that most wealthy cities are ports which are close to the sea/inland waterways and hence the wealth of the nation is a function of the connectivity and influx of man and goods.

What i could not stop wondering is that how close this graph is to the night sky of the Planet Earth. So its like the Big Mac Index. The economist can spend a year collecting data and crunching it, or just take a picture and get a fairly accurate answer. After all the more prosperous you are, the more outdoor lighting you need.