Humboldt and the Economists on Natural Resources, Institutions and Underdevelopment (1752-1859)

The paper discusses how early economists, sometimes informed by Alexander Humboldt’s pioneer detailed report on a tropical country (Mexico), interpreted the connections between natural resources, institutions and growth. The apparent paradox of a negative relation between natural wealth and growth was first noticed by David Hume. Adam Smith brought in the role of institutions in explaining the inferior economic performance of Latin America as compared to North America. Humboldt’s emphasis on the high degree of income inequality in Mexico caught Malthus’s attention, who turned it into an important element of his view that the fertility of soil may be associated with poor growth if there is a lack of effective demand. Cairnes suggested that the apparent perverse effects of a natural resource boom on the rest of the economy are compatible with the Ricardian comparative-advantage framework. Finally, the paper shows how J.S. Mill fully articulated the perverse effects of natural wealth on institutions and therefore on growth, a theme conspicuous in the modern literature about the "natural resource curse"