Johan FourieI spent most of the second half of 2010 in a small apartment in Utrecht calculating the average level of wealth of the settlers of the Dutch Cape Colony, the result of which is now – 18 months later –  available as an ERSA Working Paper. So why have I spent the last two years calculating the average ownership levels of settler households that have long since disappeared? What contribution can such historical research make to the very important  issues, such as poverty, inequality and unemployment, that face the developing world today? In short, has this research any policy relevance?

As you might imagine, I’ve asked these questions several times to myself, not always able to provide a satisfactory answer. In short, I guess, the answer is ‘not much’: there is little direct link between 300-year old inventories and modern policy debates. But, rereading the paper once more last night, I think I’ve perhaps shed some light on the trade-offs that any developing society face between short-term gains and longer-term productivity and growth. Let me explain.

Until recently, the eighteenth-century Dutch Cape Colony was seen as an ‘economic and social backwater’, ‘more of a static than progressing community’, a slave-based subsistence economy that ‘advanced with almost extreme slowness’. The view is that while pockets of wealth did emerge close to Cape Town during the century, this relative affluence was overshadowed by the increasing poverty of the frontier farmer who, ‘living for the most part in isolated homesteads, gained a scanty subsistence by the pastoral industry and hunting’. In the most recent Economic History of South Africa, Charles Feinstein, for example, relegates a discussion of the Cape Colony in the period under Dutch rule to just three pages of his 250-page volume, concluding that before the 1870s ‘markets were small, conditions difficult and progress slow’.

This view is somewhat ameliorated by recent contributions by economic historians, the most prominent of these being the quantitative contributions of Ross and Brunt. More recently, Du Plessis and Du Plessis and De Zwart, using wage and price data, show that the Cape settlers enjoyed a high, and improving, living standard compared to many of their counterparts in Europe or the new settler economies of North America. These studies support the claim that the Cape was more dynamic and prosperous than previously envisaged. Yet the generally accepted view of the Dutch Cape Colony is still that it was a disparate society, as Leonard Guelke succinctly notes: ‘At the top of the European population was a pocket of rich farmers with large estates and many slaves’, while ‘the average hard-working farmer could only with some effort eke out a subsistence living’.

I use 2,577 newly digitized Cape household probate inventories, which are detailed lists of settlers’ household assets at death, and auction rolls to show that the average Cape settler attained higher standards of living than mere subsistence. In fact,  these records reveal a society that is comparable to some of the most prosperous regions of eighteenth-century England and Holland. The Blettermanhuis (pictured), part of the Stellenbosch Museum, is a good visual guide to the prosperity of this period. The view of the Cape as a ‘social and economic backwater’, I argue, needs revision.

The relatively high level of early Cape wealth that I find raises a number of intriguing questions about its causes and consequences. What enabled poor immigrants to prosper so quickly after settlement? Willem H. Boshoff and I (2010) show that the strong demand for Cape products by ship traffic in Table Bay drove agricultural production, while Dieter von Fintel and I (2011) show how the viticulture skills of the French Huguenots boosted the output of wine production. Company support for emerging farmers – through generous loans and lowering input costs (notably of labour through importing slaves) – certainly also played a role.

But what of the consequences? Why did early settler prosperity not translate into an affluent nineteenth-century Cape economy? One answer that has been suggested is that the substitution of slave labour for wage labour at the start of the eighteenth century enabled rapid short-run productivity increases, driving the high levels of wealth reported above (see Fourie 2012). But these advantages were short-lived. Slavery created growth-debilitating institutions; Sokoloff and Engerman point to the high levels of inequality (even among the settler population) as indicative of a lower future development trajectory. Also, as Adam Smith noted, slaves have little incentive to innovate, nor have farmers with cheap access to labour. Instead of investing in technologically innovative capital goods, the settlers invested their surplus in slaves.

What is clear from our early history – and links well with economic theory – is that productivity improvement is what drives development. One obvious way to improve productivity, like Smith proposes for his pin factory, is to augment labour with capital, to give workers tools and equipment and skills. To enjoy consistent growth, continuous investment in innovation, technology and education is required.

South African economic policy emphasizes labour-intensive production, primarily sectors that create large amounts of unskilled jobs. But the Cape Colony shows that a society that incentivise unskilled jobs over physical or human capital may lead to a highly stratified society (settler versus slave), with the affluent enjoying high standards of living (as my paper shows), but where the society have few prospects of economic growth. While I find remarkable levels of wealth for the small group of Cape settlers of the eighteenth century, these settler households lacked incentives that would drive productivity-enhancing technological investment – why would you if you could enjoy high living standards (including lots of leisure). The decision to import slaves vis-a-vis European labour or even capital equipment was rational as it yielded immediate gains (to the settlers), but in the long-run this decision would backfire, resulting in a society with lower growth potential and, for most of the early nineteenth century, stagnation. As John X. Merriman would note a century later, the development of the Cape might have been very different had the Company (who decided to import slaves) considered the long-run view.
Like my few months in a small Utrecht apartment, sometimes the long-run rewards are worth the short-run sacrifices.