Time Preference, Capital, Technology, and Economic Growth

0:00Okay, this lecture will be on time preference, on interest and capital and capital accumulation. I have already touched upon the problem of capital accumulation to a certain extent. Recall that agricultural societies make it possible for the first time that capital goods are accumulated, whereas the possibilities of accumulating much in terms of capital goods under hunter and gatherer societies that move from place to place is very limited.

0:46And this subject is, so to speak, the third dimension that we need to cover in order to understand the wealth of nations apart from ideological factors to which I will come tomorrow besides division of labor, Besides the development of money and the universalization of money, capital accumulation is the third leg, so to speak, on which societies stand. Let me begin with some theoretical considerations, some theoretical explanations about the phenomenon of time preference and how it relates to capital and capital accumulation in particular.

1:52People do not just have a preference for more goods over less. I explained that this preference explains, for instance, why there is division of labor. People also have a preference of goods earlier, satisfaction earlier, as compared to satisfaction later, goods later. Mankind cannot wait forever for satisfaction. Waiting for certain results involves a sacrifice.

2:43and without capital goods you recall it makes a distinction between consumer goods which are directly useful and in my first lecture I explained of course that besides directly useful consumer goods we also employ producer goods that are only indirectly useful. There are very few desires that we can satisfy immediately, instantaneously. It might be picking a berry that immediately leads to satisfaction. And there is of course leisure time, just lazing around, around that can also be immediately satisfied without doing anything else about it.

3:41But most of our desires require that we use intermediate products in order to satisfy or we need intermediate products in order to be more productive, that is, if we want to increase the amount of immediately usable consumer goods, we have to go about it in some sort of roundabout way rather than directly picking berries and satisfying us in this way. So what capital goods do is capital goods allow us a greater production of the same goods or they allow us to produce goods that cannot be attained without the help of capital goods at all.

4:52And in order to attain capital goods, it is necessary that we save, that we consume less than we could consume and use these saved up funds, so to speak, in order to feed us during the period of time that is necessary in order to complete the construction of capital goods, with the help of which then we can attain larger output of consumer goods or attain goals that we could not attain without capital goods at all.

5:57So this restriction of possible consumption is what we call savings. And the transfer of our saved funds allocating using land and labor to construct, to bring into existence capital goods is called investment. And the question that we always face is the following.

6:44Does the utility that is achieved by the higher productivity of longer roundabout production processes, Does the utility that we achieve by roundabout methods of production exceed the subjective sacrifice that we must make of present goods that we could conceivably consume? Or put it differently, the decision of an actor on what objects to invest will depend on the expected utility of the forthcoming consumer goods, on the durability of these forthcoming consumer goods and on the lengths that it takes before we attain these future consumer goods.

8:01And we can then explain the entire act of deciding whether or not to perform an act of capital formation as the balancing of relative utilities, that is the utility of the expected, the present utility that we attach to future goods, as compared to the utility of present goods available to consumption, discounted by the rate of time preference. That is, by our rate with which we value present goods more highly than future goods.

8:52Present goods are always valued more highly than future goods. Present goods sell at a premium against future goods, or put it the other way around, future This phenomenon, this discount or this premium, depending on what the angle is from which we look at the phenomenon, is called interest. And I want to illustrate these initial abstract remarks by looking for a moment at a simple Robinson Crusoe economy.

9:51Let's assume that Robinson Crusoe is the most knowledgeable person on earth. He knows all technological recipes that mankind knows, but is stranded on an island. And on this island, there is initially nothing else but land, that is nature-given resources, and labor, his own body and his own knowledge incorporated in it. and assume for a second that the immediately available consumer good that is available to him are fish and Robinson Crusoe now has to make a decision as to how he will produce How to Use this Consumer Good of Fish Given, as I assumed, that Robinson Crusoe knows every technological recipe under the sun, we can imagine that he knows various techniques how to attain his end that is fish as consumer goods.

11:29He can, for instance, use his bare hands to attain fish, to be grabbing into the water and pulling the fish out. He can build a net to produce fish. We can build a fishing trawler. This is a boat with a net attached. And we might easily imagine that there exist various other technologies that he is aware of as well.

12:14The question is then that Robinson Crusoe faces, what shall I do? How shall I produce fish? And the first thing that is worth pointing out here is that the fact that he knows extremely productive methods of catching fish, Let's say using a fishing trawler, that this fact does not help him much in his initial situation. And the reason for this should be obvious. The reason has to do with the fact that he is constrained by time preference.

13:05That is, he cannot wait forever until the satisfaction of his most urgent desires. And if he would start building a fishing trawler, then he would likely be long dead before the fishing trawler is ever completed. So what he will likely have to do is he will have to start in a capital-less mode of production without any capital goods, just using his bare hands to get fish out of the pond or the river, whatever the waters there are.

13:54And he will then have to, if he is done at the end of the day and he has caught ten fish, he will have to make a decision what he will do with these ten fish. Obviously if he decides I will consume at the end of the day all ten fish, Then the next day he will be exactly in the same position that he was on day one. On the other hand, if he decides that I will put away some fish, a certain fraction of those that he could consume, then he engages in an act of saving.

14:46And he can now form some sort of expectation, how long will it take me to build the net? And what will be the output of fish per hour, let's say, that I can attain with the help of a net? And based on his evaluation of this time lag, let's take a week to build the net, and his expectation, I will double or triple my output, he can now decide, so to speak, how much or how little he wants to save.

15:38If Robinson Crusoe has what we call a high degree of time preference, that is, he prefers present goods very highly over future goods, meaning saving represents a great sacrifice for him. Then the process of saving will be relatively slow and it takes quite a while before he has accumulated enough fish, saved enough fish in order to be in the position to say now I have saved enough fish in order to feed myself during the week that is necessary in In order to build the net, and once the net comes into existence, then his standard of living goes up.

16:46The same, of course, if he wants to move from stage two to stage three. Again, he would have to make an estimation of how long will it take me to build that Fishing Trawler, what will be the likely increase in productivity that I can achieve if I have a fishing trawler available and then he determines how much or how little in terms of savings he is willing to do. Again, if his time preference is very high, preferring present satisfaction very much over future satisfaction, then the process of going from here to here will take very long.

17:43If his time preference is very low, that is, he is willing to make larger sacrifices. He can delay his future gratification more and save more than the process of going from stage one to stage two and from stage two to stage three is shorter. Each way along the line, his standard of living increases. It should be clear from the outset that no one would engage in the construction of any capital goods unless he expected that production with the help of a capital good is more productive than production without the help of a capital good.

18:36If I can produce ten fish per day by using my bare hands, and if I can also only produce ten fish per day by using a net, then obviously the net would never come into existence because the entire time spent on constructing the net would be nothing but sheer waste. Capital goods are always brought into existence with the expectation that production with capital goods is more productive than production without capital goods.

19:21Because of this, because of the productivity of capital goods, people are only willing to pay a price for it. If the net would not yield a higher output per hour than the bare hands, then obviously nobody would ever be willing to pay a price for the net. If the fishing trawler would not promise a larger output per hour, then the net, the The price of the fishing trawler could not conceivably be higher than the price of the net and so forth.

20:12What holds men back, so to speak, as far as investment and capital goods accumulation is concerned, is always time preference. We do not automatically choose, so to speak, the most productive method, but it is time preference and related to it, savings, that allows us or does not allow us to choose certain techniques Let me just, in order to illustrate this concept of time preference a little bit more, use some examples, some of which you find in Mises, some of which I developed.

21:08Some of which you find in Mises, some of which I developed. Let's assume we would be like angels who can live off love and air alone.

21:33That is who have no need for consumption. We can imagine that an angel, for instance, would in fact produce, so to speak, immediately in the most productive fashion, even though the angel would not have any motive to produce at all. After all, he can live off love and air alone, but let's say he had some sort of fun to produce large amounts of goods, because the angel could wait forever. The interest rate, the degree to which he prefers present goods to future goods, is zero.

22:26It doesn't make any difference for him whether he has the fish right now or the fish in 10,000 years. For us who are somewhat less than angelic, that does of course make a tremendous difference whether we have a fish 10,000 years from now or today or in one week. So we are constrained by time preference. Our interest rate is positive. It is higher than zero. Take another example that helps you illustrate this concept of time preference.

23:15Let's assume for instance, this gets us already in some sort of cultural influence on this phenomenon of time preference and capital accumulation, let's assume for instance that we would know that the world will end in one week from now and we are all perfectly certain that this What would then happen, so to speak, to the willingness of exchanging a present good for a future good? And the answer is, of course, this willingness would essentially disappear.

24:04The interest rate in this case would skyrocket. Nothing, no interest payment would be high enough in order to induce anybody to sacrifice current consumption for a higher amount of future consumption because, after all, there is no future for us. As I said, there are, for instance, certain sects, religious sects, who believe that the world will go down and very quickly we will be, the good guys will go to heaven and the bad guys will go some place else.

24:51And these people of course then do stop to save. They will just have one more glorious day of consumption and then of course the whole story will be over. As I said, all humans prefer present goods over future goods, but the degree to which people do this is different from individual to individual and also from specific groups to other specific groups. Let me just give you a few examples of which we know with pretty good certainty that their degree of time preference differs on the average.

25:51Take little children for instance. Little children have a very high degree of time preference. Another way to say it, little children have tremendous difficulties delaying gratification. Very high rewards in the future do not necessarily induce children to make the current sacrifice of not consuming, of not satisfying current desires. There have been experiments done in this regard, like you give a dollar to a child and and tell them, if you don't spend the dollar until tomorrow, I'll double the amount. You get another dollar.

26:48And if you then tomorrow have not spent $2, I will again double it, give you $4 and so forth. You realize how high is the interest rate here. It's 100% per day. If you have a calculator, you can figure out what sort of annual interest rate that is. And nonetheless, you will find that many children are absolutely incapable of accepting a deal such as this. They have to rush out to the next 7-11 and get their big gulp right now, Even though they could have two big gulps or four big gulps in a very short distance in the future.

27:44Or another way to illustrate this would be to say we offer a child a perfectly secure certificate of $100 in one year from now. But the child has the possibility of selling this perfectly safe, secure promise of $100 one year from now in the present. Then we will find that children might be willing to just sell this whatever for ten cents. because waiting is basically intolerable for them let me give you a few other examples and you realize of course depending on sort of what mentality exists in the public capital accumulation can take forever or can go go quite quickly. If Robinson Crusoe would have a childlike mentality, he might never ever reach the second stage, or if he does reach it, it might take him about a hundred years before he does.

29:09Here are some other examples of groups. Very old people are sometimes said to go through a second childhood. Not necessarily so, because very old people can of course also provide for future generations. But assuming that they do not care for future generations, they might not have any offspring or any friend that they want to hand over their own fortune, then because their own life span is very short, they have not much of a future left, they again go through the in the face of a second childhood, by and large, consuming and stopping, more or less, entirely to accumulate.

30:15We can take the example of criminals, which are also typically speaking, I mean the normal run-of-the-mill type criminal, not the white-collar type criminal, the muggers, the murderers, the rapists, those friendly figures. They are also characterized by, typically by high time preference. The way I explain this to my students is always using the following example. Sometimes people hiss at it, most people like it. Imagine a normal person, so to speak, that is in pursuit of a girl or vice versa, a girl in pursuit of a man.

31:15Then what we do of course is we take her out to dinner, we bring her flowers, we take her out to dinner again, we listen to the conversation, we are very impressed by all the deep thoughts that we hear. We have never heard anything interesting like that before in our lives. Of course, with some expectations, which are, of course, in the more or less distant future. This is how normal people operate.

32:01If you have a childlike mentality, but you have that in an adult body, Then, this sort of stuff is almost an impossible sacrifice. You cannot wait that long and then you become whatever, a rapist or something of that nature. Normally, in order to satisfy any desire, we have to work for a day, at least for a day, then we get paid at the end of the day and then we can buy our beer. But what if a day of waiting is too long? The only other alternative that you have there is look for some old lady and rob her of her purse and this way satisfy your desires.

32:57Let me give you another example that already touches upon some lectures that I will give later on in the week. Democratic politicians also have a very high degree of time preference. They are in power for a very short period of time. and what they do not loot right now, they will not be able to loot in five, six years. So their intention is of course, I have to milk the public as much as possible because then, with a lot of tax income, I can make myself right now a lot of friends.

33:51and who cares about the future. The last example is one that has gotten me in deep trouble recently at my university. I have used that example for 16 years or so and had never any problem with it whatsoever. This time, however, some fanatic wanted to bring me down. This whole process is still underway. So I warn you not to bring harassment suits against me again. I've had it up to here with this.

34:37I also made the point that if you compare regular heterosexuals with families to homosexuals, you can also say that homosexuals have a higher time preference because life ends with them. I always thought that that was so obvious, almost beyond dispute, and then pointed out in the next sentence that just helps us understand, for instance, the attitude of a man like Keynes whose economic philosophy is, in the long run, we are all dead. Now this is true, so to speak, for some people, but it is not true for most people who, of course, have their own children and so forth, future generations to come.

35:35As I said, these harmless remarks have led to three months of harassment at my university and the whole thing is still not over yet. So much about the concept of time preference, and now I want to say a few words about the The development of time preference and of interest over time in the course of history.

36:21As you can imagine, this is not difficult to get intuitively immediately clear. We would expect that the degree of time preference gradually falls in the course of human history.

36:46Something like this, here we have interest or degree of time preference on one axis and here we have real money income. That is, income that can be converted into immediate present satisfaction. Then we would expect that with very low real income, the sacrifice of exchanging a present Good for a Future Good is very high, and people will save and invest a small amount. And as real incomes rise, the interest rate will gradually tend to fall.

37:39That is, savings, the volume of savings and investing will become greater. Again, intuitively, that is perfectly clear. For a rich man it is easier to save and invest than it is for a poor man. If we look over the course of history we would find capital accumulation, savings and investment does so to speak become successively easier. It is more difficult at the beginning of mankind, requires a bigger sacrifice and it becomes is successively easier as we grow wealthier. This is something that we can indeed see in history.

38:29This has been studied, long-run interest rates for the safest possible investments and so forth. And we find by and large that interest rates fall. Of course, there are exceptions to this rule. If you have wars and so forth, then you have an increase in interest rates, because the risk attached to loans becomes significantly higher. But we also have certain periods when the degree of time preference does seem to rise. I will come back to that again later on in a later lecture.

39:16This seems to be something that has happened in the 20th century. We should have expected that interest rates, real interest rates, in the 20th century should be lower than in the 19th century, given that on the average, wealth in society is greater in the 20th century than in the 19th. However, we do not find this to be true. That is, the interest rates in the 20th century rarely, if ever, the real interest rates reached the low point that they reached around 1900, which was about two and a quarter percent. So the conclusion would be for this, for instance, that this entire time preference schedule must have risen in the 20th century, which would amount to saying that the population in the 20th century has become somewhat more childlike than the population in the 20th century.

40:27than the population in the 19th century. We are somewhat more, how can I say it, frivolous and hedonistic in our lifestyle than our forefathers, our parents and our grandfathers were, despite the fact that it was more difficult for them to engage in savings and capital accumulation Now a word about the accumulation of capital. Obviously in every society it is possible to add something to the existing stock of capital, to maintain the existing stock of capital, or to deplete the existing stock of capital.

41:21Even to maintain the existing stock of capital, continued savings is necessary because all capital goods wear out over time. That is what we call capital consumption. Capital consumption, however, can take quite some time before it becomes visible because capital goods last for a long time. For instance, when the communists took over Russia, they inherited, of course, a substantial stock of capital goods, machines, houses, and so forth.

42:06And things then can still go on for a while, but if due to the fact that no private property and factors of production exists anymore and according to the practically no savings will be forthcoming, you could expect that eventually, of course, this inherited stock of capital goods will dilapidate and whatever, in 10, 20, 30 years you will experience some sort of catastrophe, all the capital goods are worn out and nothing is there to replace them. The same thing is true for the process of capital accumulation.

42:57Let me point out this first. Obviously, the amount of capital accumulation depends not just on the time preference that various individuals have, it depends also on the security of private property rights. Imagine Friday comes onto the island. We can imagine Friday to be like Robinson Crusoe engaging in division of labor, then standards of living would go up, capital accumulation would even be faster than with Robinson Crusoe being alone, standards of living go higher and so forth.

43:42But we can also imagine that Friday is whatever, some mugger from Brooklyn, and he sees that Robinson Crusoe has already built the net, or has already saved all sorts of fish, and he's all very nice that you have done this already for me, and I'll take the net, or I force you to pay a tax to me, half of the fish that you produce every day you hand over to me. Now in that situation, you can of course easily imagine that the process of capital accumulation will be drastically slowed down, or will come to a complete standstill.

44:28So if we look at societies currently that are rich, we cannot necessarily infer that those societies that are currently rich are societies in which property rights receive the best possible protection. Research. What we can only infer is that these must be societies in which property rights must have been protected somewhere in the past. And it might well be that we encourage, that encounter societies that are quite poor right right now and do have very secure private property rights of those societies we would expect that in the future they will show rapid rates of growth.

45:27So one might say, for instance, that to a large extent the endowment in the United States with Capital Goods is due to circumstances that are long gone. That is, a lot of the capital goods have been accumulated under far more favorable circumstances than the circumstances that currently exist, and we might already be in a phase of gradual capital consumption without actually knowing it. It might take us decades, so to speak, before actually finding out that this is the case. As far as the United States itself is concerned, savings rates in the United States are atrociously low, and to a large extent the United States still benefits from the fact that they receive the savings from other countries who still consider the United States, despite the fact that property rights are no longer nearly as safe as they were in the 19th century.

46:36Just keep in mind, almost 40 percent of the saved up fish of Robinson Crusoe is nowadays handed over to the mugger from Brooklyn, and in the 19th century, this might have been and whatever, two or three percent of the output of Robinson Crusoe. In any case, so capital needs to be preserved and in order to be preserved, it is necessary that there exists an institutional legal framework that makes private property safe.

47:27And if this framework is lacking, then one should not be surprised that very little in terms of capital accumulation takes place or even capital consumption takes place. Just imagine a place where there is an impending communist revolution, where you must be fearful that maybe in the next election the communists will come to power and the first thing that they will do is expropriate all owners of capital goods. Now imagine what that does to your motivation to engage in savings and to accumulate additional and Capital. Large parts of the world are like this. That is, we explain the poverty of many countries by the fact that property rights in those countries have for many, many years, sometimes for centuries, not been secure enough for people to engage in savings and capital accumulation.

48:36Now I want to come to some historical illustration and I want to use population growth and city growth, so to speak, as vague approximations of what happens to capital accumulation. Recall, accumulating more capital means societies become richer. Societies becoming richer implies that larger numbers of population can be sustained. And just recall some of the numbers that I gave you in previous lectures. 50,000 people lived about 100,000 years ago.

49:27Five million people lived at the beginning of the Neolithic Revolution, that is 10,000 to 12,000 years ago. At the year one, the population is estimated to be somewhat between 170 million to 400 million. A greatly, a far more rapid growth of population after the Neolithic Revolution, a doubling of the population every 1,300 years until the Neolithic Revolution, a doubling of the population every 13,000 years or so.

50:20That is again a reflection, so to speak, that under agricultural societies there is already a significantly increased amount of capital accumulation that allows this larger population to be sustained. In the handout you see some, on the second and third page, you see some estimates of world population beginning at 10,000 before Christ and going almost to the present until 1950.

51:07You see also the wide variety of estimates, considerable disagreement, especially in the early periods of mankind.

51:29During the period beginning with the Neolithic Revolution, We see the development of various civilizations indicating obviously sharp increases in the accumulation of capital goods. The table one gives you some sort of historical overview of these various civilizations, the beginning and the end, then the name of the most dominant group, and finally the names of those groups that were responsible for the destruction of these civilizations.

52:33I already indicated in the previous lecture that in these early civilizations, Mesopotamia, Egypt and so forth, we experience for the first time major cities coming into existence. And we also have indications of specific new technologies being developed. Again, recall, it requires a certain amount of wealth and capital accumulation in order to allow people to develop new inventions, try out new things and so forth.

53:21Just to give you some examples of the major technological and capital goods developments that took place during the Babylonian civilization that is in the period of 4,500 B.C. to 2,500, We find their plows for the first time. We find wheeled carts for the first time. We find draft animals being used in agriculture. We find bricks being used for the first time and Magnificent Buildings Erected, we find what is quite unique and has not been repeated independently anywhere else in history, but has been an important invention to other areas, the invention of the arc, which allows of course constructions that otherwise would collapse under their own weight, we find the potter wheel, we find copper smelting, we find the development of bronze, which is a combination of tin and copper at a certain In combination 1 to 10, we find the development of writing, which indicates, so to speak,

55:09that there must have been a class of intellectuals in existence who can only be supported if there exists a certain amount of wealth in society. And a certain amount of wealth, of course, requires a certain amount of capital accumulation. We find quite far-developed mathematical techniques in Babylonia, and we find traces of metallic money being used. And obviously in the cities which reached sizes of 80,000 people or so, we had quite an extent of specialized professions coming online.

56:12But as I said, there exist in history also periods that we can describe as economic disintegration. That is, some of these empires fall apart. There are invaders that destroy them and division of labor shrinks, techniques that were once if known become forgotten and we would expect then during those periods also a decline in population if you look at the estimate of world populations there You find, for instance, that only from 1000 A.D. on, do we again see something like a trend towards increase of population.

57:26Whereas, with the fall of Rome, shortly after 200 or so, the numbers closest here would be 200, we see by and large a stagnation in the overall population. For almost 1,000 years, there is virtually no population growth that takes place. And even in the period after 1,000 AD, there are some centuries that see a more or less is a significant decline. Look, for instance, at the 13th century, from 1200 to 1300, there appears to be no increase in world population, indicating, so to speak, capital consumption taking place, or at least no capital accumulation taking place.

58:56And even more clearly, look at the 15th century, that is here 1400s, there is a clear decline during this century in terms of population as compared to the previous to the previous century and it takes almost 200 years or so before the population size is reached again that had been already reached in in the 14th century and once again look at the at the 17th century that is the century of the Thirty Years War that compares the numbers from 1600 to 1650.

59:54You find again that there is a significant decline in population which indicates in this in this case, major wars, major destruction, and so forth. And only from 1650 on do we see then an uninterrupted rise in the number of population. From 1650 to 1850 the doubling of the population requires about 200 years, then from 1850 to 1950, the doubling of the population is about every 100 years.

1:00:42And after 1950, the doubling requires less than 50 years. Another interesting look in all this is to look at the growth of cities. Again, city growth being, so to speak, a rough indicator of what happens to capital accumulation. Before 1600, almost the 10 largest or the 11 largest cities were outside of Europe.

1:01:35In the order of magnitude, that is around 1600, they were Beijing, which had more than 700,000, Istanbul, which had about 700,000, Agra in India 500,000, Cairo 400,000, Osaka 400,000, Canton, 350,000, Yedo, which is I think Tokyo, 350,000, Kyoto also 350,000, Hangzhou 350,000 and Laos 350,000 and Nanking somewhat above 300,000.

1:02:26That corresponds roughly with what we know about the world until 1500 or so, there was absolutely no doubt that China was far more developed as a civilization than Western Europe. I will explain in later lectures what might be the causes of the change of this, but interesting are now also on the last page of this handout the rapid growth of European cities which As I said, we're at this time comparatively small to Asian cities, but nonetheless spring up in large numbers and show a dynamic, especially in the later century, that is unsurpassed by Asian cities.

1:03:34I just want to make you aware first of these are the 30 largest cities in Europe in the period from 1050 to 1800. First take a look at the total numbers at the very bottom, and you see of course that the total numbers always go up, But they do go up in a particularly drastic way only from about 1650 on and before the growth is comparatively moderate. But if we take a look at some specific cities, we can also see, so to speak, in which way the centers of economic development changed, which places lost in significance, where obviously political events must have taken place that were unfavorable to capital accumulation.

1:04:44Simulation, and how other places show a rapid increase in their ranks among the top 30 places. Let me just pick out a few places here. Cordoba was the biggest city in thousand fifty, these are in thousands, and the first two numbers are two hundred fifty thousand, four hundred fifty and three hundred fifty thousand are somewhat disputed that is noted in that footnote, So I put the more realistic numbers on there, 150,000 and 120,000 for these two cities.

1:05:41Otherwise, that seems to be somewhat disproportionate. But in any case, Cordoba, the biggest city in 1,050, has completely dropped out of the top 30 by 1,500. There's a general tendency that we can say that Spanish cities, or even more general, southern European cities, lost increasingly in significance and the center of economic development and capital accumulation shifted to the north. Let's take some other spectacular cities here. Palermo, for instance, which you realize is the second biggest city, around 1,000, has no more inhabitants in 1800 than it has in 1,000.

1:06:51Obviously Palermo was not exactly the center of economic development during this time, but was, so to speak, a dying city. The same is also true for Seville. Again, Seville ranks number three in thousand and has hundreds of years later a population that is not in any way, in any significant way larger. Then look at the spectacular rise of Florence since 1330.

1:07:44that is spectacularized until 1330. So Florence is the lowest one in the first column with 15 million at 1,000 and then moves rapidly up the rank order until about 1330 where it has increased from 15,000 to 95,000 and then a decline of Florence takes place. Look at the spectacular growth of London, which in the last column, of course, is by far the biggest European city.

1:08:49In the previous column, it's the second biggest. In the 1500s column, it has just 50,000 inhabitants, and in 1330, only 35,000 inhabitants. So in this period from 1330 to 1800, a spectacular rise of London, again indicating obviously a very favorable climate for capital accumulation that existed there. And interesting are also some cases of decline.

1:09:38For instance, there is a very quick rise and a very quick fall of Bruges in what would be Belgium today, and then the place of Bruges, after it falls, obviously the economic environment becomes very unfriendly. We see then, as a substitute, a very quick rise in the city size of Ghent, which is almost neighbor cities, so to speak, which indicates to what extent very narrow neighbor cities competed against each other for capital accumulation and for merchants Settling at those places and again then also falls very quickly in order to be overtaken by another place very close by that is Antwerp and then Antwerp falls also very quickly and And then we see a spectacular rise of Amsterdam, again a place very close to Antwerp, again illustrating so to speak in this case also the mobility of capital, leaving one place because it offers less favorable conditions for capital accumulation and moving it to places

1:11:25not far away and exhibiting there a spectacular growth and a similar spectacular growth you find for instance with the city of Hamburg. With this I'm done for this lecture and again I thank you for your attention. Yeah. Just wondering if we look at the last 50 years and some of the countries that have had a dramatic population, like India perhaps, or Kenya and Africa, some of the cities in South America, and based on this analysis, then we would have to regard those as being centers of economic development in relation to capital?

1:12:14Several things have to be said to this. First of all, we have, within the last 100 years, of course, developed methods of birth control that somehow distort, so to speak, the natural tendencies that you see. Second, in those countries, we have to keep in mind also that because of very corrupt governments, people from the countryside have moved into the capital city. that was less so of an organic growth of cities, but almost a forced resettlement of people from the countryside into cities.

1:13:15And certainly, yes, we can say this, that the overall world population has still risen drastically, does indicate that the overall wealth in society, in the world as a whole, has dramatically increased, even within the last century. That is, many of these people that populate these countries would in the 19th century simply have died. So as far as your question is concerned, yes and no. It does indicate that things have also improved in those places.

1:14:09would overstate, so to speak, the advances that those countries have made as compared with the western world, because in the western world we do not see that spectacular population growth in cities anymore as we see in those. This overstatement is, as far as I can see, mainly due to the fact that these are just just political capitals and where the population can best participate in the political looting process that goes on in these countries.

1:14:58There's people leaving the countryside because the cities actually exploit the countryside. and Enforce the Depopulation of the Countryside. Just take examples like, what's it called, where we have Mugabe, what's the country, Zimbabwe. Now there you can see, for instance, that a government incorporates the farmers, contributes of course to the depopulation of the countryside, and if you are robbed of your land, where will you go?

1:15:48You will of course go into the cities where you can live out of the garbage can, so to speak, and hope for some sort of political connections getting you here or getting you there. I think the entire 20th century is not as suitable when it comes to is city size and population growth a good indicator of capital accumulation as previous centuries were. Is there a welfare incentive? Yes, of course there is a welfare incentive. If I would have had the time to go into the various cities in greater detail, cities can be merchant cities, which would be cities that grow by and large organically, Or cities can of course also increase in size because the government located their residents to this place and then a large number of the population are simply hangers-on instead of being productive individuals.

1:17:06One of the big differences in this regard between the European cities and the Chinese, the Asian cities is precisely that the European cities, even though they were initially much smaller, were predominantly merchant cities, productive cities, or cities that were capitals of very small princes, whereas these big cities in Asia were more, at least in the typical case, more capital towns with large contingents of bureaucracy were only a smaller proportion of the people actually conducted themselves in productive enterprises as compared to Europe.

1:18:13But again, those ideological things I will come back to tomorrow in greater detail to I remember I think Mises talked about in his book, Liberalism, about the potential for the movement of capital, how economic growth in other parts of the world could actually proceed once they got capital because of its mobility more quickly than it took the West to build it up. So in the 20th century, could it also be a combination of the fact that they didn't have two world wars occurring in certain other parts of the globe that took up 40 years of time, and also that these were times when western capitals and techniques were just starting to really catch on?

1:19:22A place like Seoul, 15 million people or something like that, is a bustling place, so that does indicate, so to speak, that South Korea is a country where a lot of capital accumulation does take place. I think also recently the spectacular growth that you have of some Chinese cities are also due to the fact that indeed whereas for a long time in communist China for instance restrictions existed for people to move from places to places where people were tied so to speak to you have to stay here, you cannot leave this province, you have to stay in this village and so forth Now that in the southern part of China, capitalism has been allowed, private property is allowed all of a sudden.

1:20:21You see that the influx of population into those cities and their spectacular growth can indeed be referred to as an organic growth. There are indeed many riches to be made in those places, and people are attracted to go to these places, and they are also hustling and bustling places with large amounts of capital accumulation. I have not traveled in China, but what I hear is that large parts of China look like one big construction business. I did visit South Korea a few times. That was my impression too, at least in large parts of it, that this growth is, so to speak, largely organic.

1:21:22Some of the numbers are of course also numbers where we have to keep in mind, they might just say Seoul and all the surrounding towns are considered to be part of Seoul. worse, when we talk about New York City, New York City, of course, is then separated from various other, whatever, New Jersey towns, which are basically in the same conglomerate and if we would count all of them, we would get these spectacular numbers in the West, in the West as well. It's just for administrative reasons that they frequently do not appear as one huge city with huge numbers of people living there, but as several large cities.

1:22:19The same would apply to Los Angeles. I think the population of New York and Los Angeles has actually declined, but not the entire metropolitan area around it. How much of that entry you speak of Southern China rather than being too leakage from Singapore? Is Singapore influenced? No, Singapore is too small in order to have an influence on that. Singapore itself is, of course, a major place of attraction. And a place like Hong Kong would also not have a major impact on the rest of China because, I mean, as compared with the massive population that China has, Hong Kong is just a drop in the bucket.

1:23:13It didn't leak out into Hong Kong, it leaked out into the countryside? It leaked out to a certain extent but there are also processes going in the opposite direction. I must say I do not know enough about China to explain why Southern China has been developed more so than Northern China. That might have been political decisions, it might have been My sense to the Chinese through the years is that the hierarchies have been in conflict, but at the level of the community, it's had very much an exchange economy, quite contrary to what they had...

1:24:17I just wanted to say, I guess that success stories of Hong Kong and Singapore and the other Asian tigers just definitely have intellectually an influence on mentality in China, which does also have its effect indirectly on, like, Shanghai and... In studying the 20th century, we can't necessarily draw this correlation between population and city growth with capital accumulation? Is there anything that you found that is a result more of interventionist policy or monetary policy?

1:25:07I have not investigated that. That might be an interesting thing to look at, but I have to do that another time. In that case, again, I thank you very much for your attention.