October 22, 2018 Reading Time: 4 minutes

The greatest story in human history began roughly 250 years ago and proceeds today: it is the rapid and continuous rise of living standards that began during the Industrial Revolution. Despite the fact that some aspects of the change are visible — increasing life expectancy, decreased infant mortality, rapidly increasing GDP per capita, more leisure time — other facets are more difficult to see and still others are systematically underestimated.

Measuring economic progress is inherently difficult. Although this difficulty has been documented for a long time, in 1994 the Yale economist William D. Nordhaus (recent recipient of the Nobel Prize in Economic Sciences) sought to demonstrate the shortcomings in measures of real output and real wages using a simple but powerful example: improvements in the quality of artificial light concurrent with a precipitous drop in cost, traced from the modern day back to the Neolithic Era.

The Nordhaus Experiment

Nordhaus traced the trends toward brighter, longer-lasting light sources and lower prices starting with campfires through various types of lamps and candles, then gas and kerosene, and finally sequential improvements in lightbulbs.

The brightness of light sources is measured in lumens, essentially the amount of light emitted by a candle at a distance of one foot. Starting the analysis with the Neolithic Era, Nordhaus found that 20 pounds of wood produces 3 hours of flickering light, and it would have taken 60 hours of human labor to gather enough wood to produce 1,000 lumen-hours of illumination. Yet a light bulb burning for just 54 minutes produces 1,000 lumen-hours of illumination, and the lifetime of a light bulb is in the thousands of hours — tens of thousands of hours for plug-in and LED lights.

The amount of work that it once took to procure one hour of light — cutting down small trees, stripping them of small branches, and so on — now yields 51 years of light. That’s a greater than 100,000-fold improvement in a few thousand years of entrepreneurial effort, with accelerating annual rates of return. Here is Nordhaus:

The overall improvements in lighting efficiency are nothing short of astounding. The first recorded device, the Paleolithic oil lamp, was perhaps a tenfold improvement in efficiency over the open fire of Peking man, which represents a 0.0004 percent per year improvement. Progression from the Paleolithic lamps to the Babylonian lamps represents an improvement rate of 0.01 percent per year; from Babylonian lamps to candles of the early nineteenth century is an improvement at a more rapid rate of 0.04 percent per year. The Age of Invention showed a dramatic improvement in lighting efficiency, with an increase by a factor of 900, representing a rate of  3.5 percent per year between 1800 and 1992.

To put it another way: When Karl Marx was a child, it took over 6 hours of labor to generate 1,000 lumen-hours; by the time he was writing Das Kapital, the same amount of light took just 1.1 hours of labor. By the time Occupy Wall Street protestors were shouting that the lion’s share of the economic benefits of previous decades had gone to “the 1 percent,” the light illuminating the parks they were squatting in came cost slightly more than two minutes of labor per 1,000 lumen-hours.

Other Implications

Beyond Nordhaus’ central point — that the full benefits of economic progress and innovation are often undercounted or completely unaccounted for via conventional metrics — two additional points emerge.

First, the accelerating improvement in the quality of light as prices have declined is not only an apt measure of progress but a facilitator of human development as well. With artificial-light sources of increasing duration, of higher luminosities, and at lower cost, greater swaths of humanity can engage in productive activities for a longer amount of time each day, not to mention throughout the darker winter months.

Another point is that causes for optimism are nearly always, at the most visceral level, trumped by pessimism and doom-mongering: the pace of development, especially in critical areas, is nearly always more difficult to spot than what political figures, the opportunistic 24-hour news cycle, and other events – natural disasters, social unrest, and so on – suggest.

Light in Broader Context

The increasing luminosity of lights can serve to measure increases in income, as this study (showing the change in India between 1994 and 2010 in this image) shows, or to depict the stark difference in living standards between market-oriented South Korea and collectivist North Korea.

The pace of innovation is often slow, sometimes imperceptible. Ideas are refined and implemented, then a relentless march of improvement occasionally punctuated by paradigm shifts begins. Market-driven innovations resulted in per capita consumption of artificial light rising from 1,100 lumen-hours in 1800 at a price of roughly $12,500 in wages per million lumen-hours to over 13 million lumen-hours in 2000 at a price of roughly $3.25 per lumen-hour — well over a 100,000-fold return.

Virtually unnoticed (because it has been so ubiquitous) has been the long journey of humankind from undertakings that would once have taken a week of backbreaking work (for those who were physically able to do so) to render some amount of flickering, low-quality light requiring periodic feeding and stoking, to undertakings that generate light through lamps, candles, lanterns, gas, and electricity.

The state of nature is dark but for the sun. Light, as we know it today, is a commodity. It has to be produced. It requires innovation, a production process, and a means of distribution. It would not have been possible without the institutional prerequisites – freedom to create, own, and exchange – that built the modernity we too often take for granted.


Peter C. Earle

Peter C. Earle

Peter C. Earle, Ph.D, is a Senior Research Fellow who joined AIER in 2018. He holds a Ph.D in Economics from l’Universite d’Angers, an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

Prior to joining AIER, Dr. Earle spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area as well as engaging in extensive consulting within the cryptocurrency and gaming sectors. His research focuses on financial markets, monetary policy, macroeconomic forecasting, and problems in economic measurement. He has been quoted by the Wall Street Journal, the Financial Times, Barron’s, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications.

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