Did the Europeans Bring Human Capital?

One of the most salient set of ideas about the remarkable economic development of the United States is that it was able to benefit from some unique type of endowment brought by the British. In Why Nations Fail we argue that, on the contrary, the British in North America tried to copy the colonization strategy of the Spanish. They failed because the circumstances were so different. In our last post we showed that the experience of the Puritans in Providence Island suggests that it was not cultural or religious inheritances which were distinct in the United States. Just as we argued in the book, when the Puritans got the chance to behave like the Spanish, they took it.

But leaving culture or values aside maybe, the British brought other things to North America which distinguished them from the Spanish. Perhaps they brought human capital to the colonies.

Certainly by the 19th century, the United States had much higher literacy and educational attainment than Latin America (and by the 20th century much higher than anywhere else in the world as Claudia Goldin and Lawrence Katz document in The Race between Education and Technology). Maybe, in line with some sort of modernization hypothesis, this was the main cause of their better institutions?

It seems plausible that the Europeans who moved to North America had higher human capital than the Spanish who settled Latin America. But it turns out that’s not the case at all.

There are many good historical sources of information on this. Historian James Lockhart The Men of Cajamarca provides a detailed analysis of those who accompanied Pizzaro in his conquest of Perú. 76.6% could sign their name (this is the basic test for literacy in the pre-modern world). Other information, such as surviving letters or diaries, suggests that 53% of them could definitely read and write. Colombian historian José Ignacio Avellaneda in a series of books, starting with Los Compañeros de Federman, examined the conquistadors in five different expeditions to New Grenada (Colombia). The average level of literacy was 78%. Other evidence is consistent with this. Literacy in Spain was lower, around 50%. But conquistadors mostly came from urban areas, Castille and Andalucia which had higher literacy, and more importantly, many were hidalgos, second and third sons of nobles who could not inherit land under Spanish law.

In contrast much of the United States was colonized by illiterates; comparatively, colonists in the United States had no greater literacy, and most probably lower literacy, than those in Latin America. Using the same signing test David Galenson in White Servitude in Colonial America found that during the period 1683-84 (quite a bit later than the Spanish conquests) only 41.2 % indentured laborers who came to the US were literate. 80% of European population in 17th century Virginia came as indentured laborers. Jury lists suggest a figure of 54% for the literacy rate of Virginia in the 1600s. Other sources put this at 60%. What about New England? 1650-1700 various sources suggest literacy was around 55% for rural areas, 77% for Boston (see also this paper).

The situation in Australia, settled early on by British convicts typically from the lower end of the education distribution at home, was more extreme. As late as 1790, more than 50% of settlers were illiterate (see, for example, this paper).

Overall, settler colonies did not start out with favorable human capital endowments. In fact these were most probably higher in Latin America.

By the middle of the 19th century, North America and Australia were far ahead of Latin America in terms of educational attainment and human capital. But this was a consequence of political decisions to allocate resources to education and the incentives their institutions created to acquire human capital.

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