UC Berkeley

Living standards were constant for thousands of years before the industrial revolution. Malthus explained it this way: population grows faster when living standards rise; therefore, changes in technology alter the density of population but not the average welfare. This paper challenges Malthus's explanation and replaces it with the theory of group selection.

Malthusian theory is inadequate because it ignores that a dollar's worth of diamonds contributes less to survival and reproduction than a dollar's worth of grain. Grain is a subsistence commodity and a diamond is a surplus commodity. The Malthusian force anchors the average level of subsistence, but not that of surplus. If the surplus sector had grown faster than the subsistence sector, then living standards could have grown steadily before the industrial revolution, but they did not. The constancy of living standards thus implies that growth was balanced between subsistence and surplus, something Malthus did not explain.

To explain the balanced growth, I propose the theory of group selection. Selection of group characteristics---culture and technology---occurs by migration and conquests. Since living standards rise with the ratio of surplus to subsistence, migrants and invaders usually move from places relatively rich in subsistence to those relatively rich in surplus. They spread the culture and technology of the subsistence-rich origin to the surplus-rich destination; the bias of migration favors the spread of subsistence over that of surplus. Even if surplus cultures and technologies would develop faster than subsistence ones in a local environment, the offsetting biased migration balances the sectors on a global scale. This explains the constancy of living standards.

The theory explains why living standards stagnated, how the Industrial Revolution occurred and where the prosperity of Roman Empire and Song Dynasty came from.

The theory is robust as it shows that a tiny bit of biased migration has a large impact on the evolution of living standards. Even if people are slow to move and reluctant to learn from the immigrants. The slow movement and reluctant learning expand the variation across the regions, which compensates the effect of selection. The compensating ``variation effect" explains why selection is so strong a pressure on economic growth that the Malthusian trap lasted for so long. It also provides a new tipping-point mechanism for understanding revolutionary changes.

By challenging Malthus, the theory throws doubt on the conventional explanations of the escape of Malthusian trap and the onset of modern economic growth. The puzzle is why the modern growth-friendly institutions failed to be established and spread long before the modern era. To explain it, I propose the theory of infant institution. The fittest institution may fail to survive. An institution that raises the growth rate but lowers the level of fitness of a group will be suppressed for an extremely long time when group competition is intense. But in due course of time, the good institution will suddenly spread wide and fast, as one of the regions survives the level handicap long enough to have fully realized its growth potential. This tipping-point pattern explains why the growth-friendly institutions had been long suppressed in the ancient time before they suddenly burst into dominance in the modern era.