Lecture 3 Sources of The Industrial Revolution Se Yan

1. Lecture 3Sources of The Industrial RevolutionSe Yan

2. Internal sources of the Industrial Revolution

3. Crafts and Harley’s “Restatement” of their position on British growth: “Industry overall grew much more slowly than was once thought. Revolutionary changes in industrial technology were not widespread and productivity improvements contributed only modestly to the growth of GDP before the second quarter of the nineteenth century …. [Our] estimates of slower growth … during the years 1780-1830 imply a wealthier and more industrial economy in the mid eighteenth century than that previously envisaged. Britain’s economy in 1760 was certainly not that of a traditional agrarian society” (pp. 704-5).

4. What’s at stake? If we’re interested in industrialization, why might the level of agricultural productivity matter?

5. Wrigley’s definition of an organic economy: An economy where “almost all the raw materials which entered into the production process were either of animal or vegetable origin, or, if mineral, could only be converted into a form of use to man by the expenditure of heat energy derived from wood.”

6. Wrigley’s two questions: • How much (and how) did the English economy growth between 1300 and 1800? • How did the English economy ultimately overcome the land constraint?

7. Pomeranz’s argument: • Like England, China was an organic economy that had achieved substantial growth before 1750. • Unlike England, China was not able to break free of the land constraint. • England was able to break free thanks to colonies and coal.

8. Source: E. A. Wrigley, “The Transition to an Advanced Organic Economy: Half a Millennium of English Agriculture,” Economic History Review, 59 (Aug. 2006): 440.

9. Wrigley’s estimation of the rise in labor productivity in English agriculture, 1300-1800: • In 1800, about 1.1 million men (about 40 % of the labor force) was employed in agriculture. • In 1300, the total population was about 5.75 million. • Number of men age 18 to 65 would have been about 1.5 million. • About 75 to 80 percent were employed in agriculture—that is 1.1 to 1.2 million men. • Therefore, output per head must have grown about as rapidly as total output over period.

10. Timing of Growth • First half of period: population fell; so probably did yields; farming practices didn’t change much. • Growth concentrated in second half of period: dramatic increase in urbanization (proportion of population in towns of at least 10,000 grew from 3.1 in 1500 to 20.3 in 1800) and in internal commerce.

11. Source: Gregory Clark, “The Condition of the Working Class in England, 1209-2004,” Journal of Political Economy, 113 (Dec. 2005): 1308.

12. Logic of the comparison of real wages and population: • In a Malthusian world, if total factor productivity (TFP) does not increase, there should be an inverse relationship between wages and population. • Hence if productivity rising, negative relationship should disappear.

13. Source: Gregory Clark, “The Condition of the Working Class in England, 1209-2004,” Journal of Political Economy, 113 (Dec. 2005): 1312.

14. Source: Gregory Clark, “The Condition of the Working Class in England, 1209-2004,” Journal of Political Economy, 113 (Dec. 2005): 1313.

15. Using rents (deflated) to measure agricultural productivity: • Higher productivity leads to greater output per acre for a given cost or lower cost for a given output per acre—that is, it raises profits per acre. • All else equal, these increased profits should be reflected in increased land rents.

16. Total factor productivity • Assume a world of perfect competition • Then profits are zero • Total cost are total revenue • ∏=PQ-C(Q)=0=PQ-wL-rK-pT • Take the total derivative • ∂PQ+P∂Q-∂wL-w∂L-∂rK-r∂K-∂pT-p∂T=0 • Or • P∂Q-w∂L-r∂K-p∂T= -∂PQ+∂wL+∂rK+∂pT • Changes in quantities have inverse effects on changes in prices

17. Primal P∂Q-w∂L-r∂K-p∂T Divide by PQ P∂Q/PQ-w∂L/PQ-r∂K/PQ-p∂T/PQ P∂Q/PQ-∂Lw/PQ-∂Kr/PQ-∂Tp/PQ Now I can clean up by appropriate division ∂Q/Q-∂L/L(wL/PQ)-∂K/K(rK/PQ)-∂T/T(pT/PQ Change in output is ∂Q/Q ∂L/L(wL/PQ) is change in labor weight by share of input cost. TFP is change in output net of weighted average of change in inputs

18. Dual -∂PQ+∂wL+∂rK+∂pT Divide by PQ -∂PQ/PQ+∂wL/PQ+∂rK/PQ+∂pT/PQ Again divide by w,r and p -∂P/P+ ∂w/w(wL/PQ)+∂r/r(rK/PQ)+∂p/p(pT/PQ) So here tfp is difference between weighted changes of input prices to output prices ∂w/w(wL/PQ)+∂r/r(rK/PQ)+∂p/p(pT/PQ)/ ∂P/P

19. Index of Rent Deflated to Indicate TFP: South Midlands, 1500-1850 Source: Robert C. Allen, “Tracking the Agricultural Revolution in England,” Economic History Review, 42 (May 1999): 218, 220.

20. Source: Robert C. Allen, “Tracking the Agricultural Revolution in England,” Economic History Review, 42 (May 1999): 220.

21. What was Enclosure? • Before enclosure, much land was farmed according to the open field system. • Land was divided into little strips, farmed during the growing season by families who might have several strips in different parts of the field. • After harvest, land used by all the families for grazing , etc. • When land was enclosed, the strips became a single plot, surrounded by a fence or hedge, and villagers lost their common grazing rights.

22. Index of Rent Deflated to Indicate TFP: South Midlands, 1500-1850 All Fields Open Fields Source: Robert C. Allen, “Tracking the Agricultural Revolution in England,” Economic History Review, 42 (May 1999): 218, 219.

23. Source: Robert C. Allen, “Economic Structure and Agricultural Productivity in Europe, 1300-1800,” European Review of Economic History, 4 (April 2000): 21.

24. Source: Philip T. Hoffman, “Land Rents and Agricultural Productivity: The Paris Basin, 1450-1789,” Journal of Economic History, 51 (Dec. 1991): 790.

25. Regardless, Wrigley doesn’t believe that rising agricultural productivity was a sufficient condition for the Industrial Revolution. “No organic economy, however successful, could escape from the constraints common to all. Asymptotic growth was possible and could lead to major change; exponential growth was beyond reach. A ceiling was set by the productivity of the land” (p. 475).

26. Wrigley’s view of what released the constraints: technological change that lowered the cost of exploiting Britain’s large coal reserves. “Both heat and mechanical energy were necessarily in short supply in organic economies. For more than two centuries in England, however, coal had been replacing wood as the prime source of the former, and, with the development of the steam engine, could also provide mechanical energy on a scale to dwarf the efforts of the horse and the ox” (p. 477).

27. Source: Gregory Clark and David Jacks, “Coal and the Industrial Revolution, 1700-1869,” European Review of Economic History, 11 (April 2007): 42-43.

28. Source: Gregory Clark and David Jacks, “Coal and the Industrial Revolution, 1700-1869,” European Review of Economic History, 11 (April 2007): 48.

29. At any instant in time, variance in rents reflects variance in costs: Renti = p – excosti –trancosti Where: p is the price for a standard quality of coal excost is cost of extraction trancost is cost of transportation i refers to each individual coal pit

30. Counterfactual: What if Britain didn’t have coal? • Other, not too distant, European countries had coal. • No European country had coal.

31. External Sources of the Industrial Revolution

32. Mokyr’s three questions: • Static question: Was the high level of exports necessary for Britain’s high level of income? • Rate of change question: Would British income have grown as fast as it did without export growth? • Dynamic question: Would the technological changes of the IR have occurred if exports were not growing?

33. Static question: Was the high level of exports necessary for Britain’s high level of income? • Yes, Britain’s income would have been lower if didn’t benefit from trade with regions with different factor endowments. • But, gains from trade already large before period of Industrial Revolution.

34. Rate of change question: Would British income have grown as fast as it did without export growth?

35. Industrial Exports as % of Industrial Output Sources: Joel Mokyr, “Editor’s Introduction: The New Economic History and the Industrial Revolution,” in The British Industrial Revolution: An Economic Perspective (Boulder: Westview Press, 1993), p. 71; Javier Cuenca Esteban, “The Rising Share of British Industrial Exports in Industrial Output, 1700-1851,” Journal of Economic History, 57 (Dec. 1997): 882.

36. Dynamic question: Would the technological changes of the IR have occurred if exports were not growing?

37. Allen’s argument: “It was Britain’s success in the international economy that set in train economic developments that presented Britain’s inventors with unique and highly remunerative possibilities. The industrial revolution was a response to the opportunity” (p. 2).

38. Source: Robert C. Allen, “The British Industrial Revolution in Global Perspective: How Commerce Rather than Science Caused the Industrial Revolution and Modern Economic Growth,” unpublished paper (2006), p. 4.

39. Source: Robert C. Allen, “The British Industrial Revolution in Global Perspective: How Commerce Rather than Science Caused the Industrial Revolution and Modern Economic Growth,” unpublished paper (2006), p. 6.

40. Source: Robert C. Allen, “The British Industrial Revolution in Global Perspective: How Commerce Rather than Science Caused the Industrial Revolution and Modern Economic Growth,” unpublished paper (2006), p. 6.

41. According to Allen, “technology was invented by people in order to make money.” • “Inventions were investments where future profits had to offset current costs.” • “The balance between the profits and the costs of an invention depended on the size of its market.”

42. Jacob Schmookler’s theory of invention: • Defined an invention “as a prescription for a producible product or operable process so new as not to have been ‘obvious to once skilled in the art’ at the time the idea was put forward.” • Posited that there were two possible determinants of invention: • the wants that inventions satisfy (demand side) • the intellectual ingredients of which inventions are made (supply side)

43. Jacob Schmookler’s Demand-Side Test • If invention is an economic activity which, like other economic activities, is pursued for gain, then the expected gain from an invention depends on the expected sales of the goods embodying the invention. • An exogenous increase in demand should lead to an expected increase in sales of goods embodying inventions and so should lead to an increase in inventions. • Further, because expected sales are generally proxied by trends in present sales, increases in output should lead to increases in invention (invention should be procyclical).

44. Invention of Coke Smelting • No scientific knowledge needed—people had been trying to substitute coal for charcoal in making iron for years, but wasn’t economical • Not suitable for smelting main product: wrought iron • Abraham Darby’s contribution • Developed an iron product for which suitable: cast iron pots • Accidentally discovered that use of steam engine to create a more regular blast furnace—cut amount of coal needed to make iron

45. Invention of Cotton Spinning • Not result of scientific discovery or dramatic departure • James Hargreaves’ spinning jenny resembles spinning wheel • Richard Arkwright’s waterframe built on previous inventions • Motive was import substitution

46. Invention of the Steam Engine • Based on scientific discovery (17th century) that the atmosphere had weight • But the R&D Thomas Newcomen needed to make the steam engine work was economically motivated—to pump water out of coal mines

47. Source: Daron Acemoglu, Simon Johnson, and James Robinson, “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,” American Economic Review, 95 (June 2005): 547.

48. GDP per capita Source: Daron Acemoglu, Simon Johnson, and James Robinson, “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,” American Economic Review, 95 (June 2005): 548.

49. Source: Daron Acemoglu, Simon Johnson, and James Robinson, “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,” American Economic Review, 95 (June 2005): 550.

50. Basic estimating equation: Where: ujt is urbanization in country j at time t WEj is a dummy for Western Europe dt’s are year effects δj’s are country effects PATjis a dummy for Atlantic trader or the Atlantic coastline-to-area ratio Xjtis a vector of other covariates εjtis a disturbance term