Much of the comparative economic history of the nineteenth century focuses on the spread of the Industrial Revolution from Britain. Incomes converged, in this view, as the transfer of superior technology raised incomes in the periphery. In Globalization and History, Kevin O'Rourke and Jeffrey Williamson challenge this technological approach, arguing that neoclassical effects of trade and factor supply changes provide more insight. Increased trade, stimulated by falling transportation costs, and factor movements caused prices of locally scarce factors to fall and promoted factor price convergence.

My colleagues at Williams, especially Thomas McCoy, James Halstead, Thomas Tietenberg, and Donald Keesing, gave me invaluable criticism on this paper. At an earlier stage, Mark Perlman 's comments were particularly helpful as were those of Roger Bolton, Stephen Lewis, William Gates, Helen Hughes, Earl McFarland and Francisco Thoumi. A Ford Foundation grant (720-0234), the Williams College Center for Development Economics and the World Bank Capital Utilization Research Project made important contributions to this work. Opinions and errors of fact or interpretation are, of course, all mine.

A preliminary draft of this paper was presented at the Decemnber, 1971 meetings of the Econometric Society. This paper has benefited from the perceptive comments of a number of readers; I am particularly indebted to Ronald Bodkin, Stewart Gillmor, Zvi Griliches, Sherwin Rosen and the referees. Assistance in data compilation was provided by Peter Brubaker, Maureen Donahoe, Charles Eckert, Marshall E. Goldman, Stephen Kalos, Lawrence Kenny, Richard LeClair, and Thurman Northcross. Computations were executed on the Wesleyan University IBM 1130 computer. Research support has been provided by Wesleyan University and National Science Foundation Research Grant GS 2903.

I would like to extend my thanks to my colleague, Harry G. Johnson, for hi8 helpful comments, to Daniel Wisecarver, for help extending well beyond the normal call of duty for a research assistant, and to Rudiger Dornbusch and Robert Gordon for valuable suggestions given after the first draft of this paper was completed. Needless to add, they do not bear any responsibility for such flaws or deficiencies as may remain in this paper.

FEW WOULD DISAGREE that Adam Smith's invisible-hand theorem is the heart of the economist's Weltanschauung. Ask whether trade barriers should be lowered, the spread of multinational corporations restrained, oil prices deregulated, cartels dissolved, or more fundamentally whether a market-based capitalist system is economically superior to a state-run socialist system, and economists almost certainly will begin to answer the question by trying to apply the theorem. Every student knows that the theorem depends on the assumption of atomistic competition, which in turn assumes that the system is decentralized and that no competitor is large relatively to others. There is another crucial assumption, however, that is often ignored and usually underemphasized, namely that all competition is price competition. In reality one of the most distinctive features of capitalism-one that is most often raised in lay discussions of its merits and demerits-is the prevalence of other forms of competition, such as competition in research, development, and advertising; competition to obtain and hold monopoly; and competition for corporate growth. These various forms of competition, we shall aim to show, are not clearly analogous with the theory of price competition: more non-price competition, rather than less, is not necessarily Pareto optimal. Self-evidently, the production side of a market economy is decentralized only to a limited degree, i.e., to the level of a decision-making unit composed of more than one human. Such a unit-playing Neuron to the Invisible Hand-is typically called a firm. It is in fact a team. Rather than remaining small, firms are in practice composed of any number of individuals from a handful on to half a million. Some

A Farewell to Alms advances striking claims about the economic history of the world. These include (1) the preindustrial world was in a Malthusian preventive check equilibrium, (2) living standards were unchanging and above subsistence for the last 100,000 years, (3) bad institutions were not the cause of economic backwardness, (4) successful economic growth was due to the spread of “middle class” values from the elite to the rest of society for “biological” reasons, (5) workers were the big gainers in the British Industrial Revolution, and (6) the absence of middle class values, for biological reasons, explains why most of the world is poor. The empirical support for these claims is examined, and all are questionable.