The 'hockey stick' graphs of GDP per capita illustrate a dual narrative. They depict the historical point at which various countries began experiencing sustained growth in average living standards, while simultaneously showing that many other nations have not yet undergone this transition to widespread economic growth.

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As illustrated by Figure 1.1, the 'history's hockey stick' graph shows that for most of recorded history, living standards did not grow in any sustained way. This long period of stagnation was followed by a period of sustained growth, but this turning point occurred at different times for different countries. This variation in timing is a major cause of the vast differences in living standards seen across the world today.

History’s Hockey Stick: Stagnant Income Before Sustained Growth

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

The relationship between capitalism and the 'hockey stick' of history examines how certain economic systems can foster exponential growth in living standards and technology. Capitalism, characterized by key institutions like private property, markets, and firms, encourages competition, innovation, and the successful adoption of new technologies. This environment has been linked to the dramatic upward surge in wealth and technological advancement over the past few centuries. While direct causation is complex, these capitalist institutions have played a significant role in shaping the trajectory of human progress and the exponential growth depicted by the hockey stick graph.

Capitalism, Causation, and History’s Hockey Stick

When comparing GDP per capita levels and growth rates across countries and different time periods, two types of scales are used. One scale facilitates the comparison of GDP levels, while the other, a ratio scale, allows for comparing growth rates. On a ratio scale, a series with a constant growth rate appears as a straight line, and a steeper line indicates a faster growth rate. For instance, if GDP per capita doubles or quadruples over 100 years, the ratio scale will show different slopes, reflecting the difference in growth rates.

Comparing GDP Levels and Growth Rates:

The term 'Growth rate of income ' refers to the pace at which income, population, or any other variable changes over time : 
$$
growth rate= change In Income /Original Level Of Income
$$

Growth rate of income 

In the present day, living standards in India are considerably higher than they were seven centuries ago. This improvement is demonstrated by factors such as enhanced access to food, better sanitation facilities, and more effective management of infectious diseases, all contributing to an increased life expectancy. However, when measured against contemporary global benchmarks, a majority of India's population remains impoverished.

India's Progress in Living Standards and Persistent Poverty (14th Century to Present)

For each country the data points shown at the previous step have been joined with straight lines. Before 1800 we can’t see how living standards fluctuated from year to year.

Living Standards Visualization: Pre-1800 Limitations

The substantial increase in living standards seen in the countries was not experienced under Spanish colonial rule or during the post-independence period of most Latin American nations in the early 19th century.

Latin American Growth

China, which was once wealthier than Britain, experienced a significant economic downturn, and by the mid-20th century, its GDP per capita had dropped to only one-fourteenth of Britain's. This decline in per capita income took place during a long period of foreign intervention from the early 19th century to the middle of the 20th century. Although China was not formally colonized, foreign nations controlled important ports like Hong Kong and Macau, restricting the Chinese government's ability to make independent economic decisions. This period of foreign control ended with a revolution that brought the Communist Party to power.

China's Economic Decline

The 'hockey stick' growth pattern in Britain is distinguished by its timing and shape. Economic growth began relatively early, around 1650, and the upward 'kink' was less abrupt and more gradual compared to the experience of other nations.

Britain's Early and Gradual 'Hockey Stick' Kink

In contrast to Britain's experience, Japan's 'hockey stick' pattern is defined by a significantly sharper and more pronounced upward kink. This rapid acceleration in economic growth is identified as starting around 1870.

Japan's Sharp 'Hockey Stick' Kink around 1870

For historical periods prior to 1800, and especially before 1300, GDP per capita data is exceptionally sparse. Due to this scarcity, economic historians construct graphs by drawing straight lines between the few available data points. This visualization method means that any potential year-to-year volatility in living standards is not represented in the charts.

Pre-1800 GDP Data Scarcity and Its Impact on Historical Graphs

The data used to create the 'History's Hockey Stick' graph originates from the extensive work of economic historian Angus Maddison. His compilations of scarce historical data are supplemented by more recent estimates from other economic historians, ensuring the graph reflects ongoing research and the most current information available.

Data Sources for the History's Hockey Stick Graph

Prior to the upward turn of the 'hockey stick' graph, which signifies the start of sustained economic growth, a stark wealth disparity characterized the world. While a small segment of the population was considered rich by contemporary standards, the vast majority of people lived in conditions of extreme poverty.

Wealth and Poverty Before the 'Hockey Stick' Kink

A central question in economic history is explaining the transition from a world where living standards were largely stagnant for centuries—changing little except in the face of major events like epidemics or wars—to the modern era of a continuous technological revolution. This puzzle seeks to understand why we moved to a world where each generation became noticeably and predictably better off than the one before it, as visualized by the sharp upward turn in the 'hockey stick' graph of economic growth.

The Puzzle of the Hockey Stick: Why Stagnation Before Growth?

Since 1975, both India and China have experienced very rapid growth in average incomes. This period of accelerated economic expansion marks the upward turn of their respective 'hockey stick' growth curves, allowing them to begin narrowing the economic gap with wealthier nations.

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