British Industrial Revolution, Capitalism & Economic Growth PDF

The British Industrial Revolution, Capitalism and Modern Economic Growth Contents of this chapter 1. Introduction 2. Indicators of change: How we see that an “industrial revolution” happened 3. Productivity/Efficiency growth a. General perspective b. Innovation and prod...

The British Industrial Revolution, Capitalism and Modern Economic Growth Contents of this chapter 1. Introduction 2. Indicators of change: How we see that an “industrial revolution” happened 3. Productivity/Efficiency growth a. General perspective b. Innovation and productivity growth: some examples c. Organization and productivity growth (factories) 4. Why Britain? a. Overview of individual explanatory factors b. Building explanations using these factors (1) Zooming in on institutions: the Glorious Revolution and property rights (2) A demand side explanation: the “industrious revolution” (3) induced innovation: expensive labour replaced by capital and energy (4) “Culture of growth” and innovation: social status and enlightenment 5. Consequences of the industrial revolution 6. Bibliography 1. Introduction The Industrial Revolution Source: Gregory Clark, A Farewell to Alms. Princeton University Press, 2007, p. 2. 1 What was/is the Industrial Revolution? Traditional view: Inventions and innovations (technological change) ('About 1760 a wave of gadgets swept over England', a schoolboy quoted by T.S. Ashton)  dramatic increase in productivity of modern sectors  falling prices  rapid growth of industrial output, first in a few firms, then in whole industries, gradually “infiltrating” the whole manufacturing sector and the rest of the economy Organizational breakthrough: the factory system Structural change in the economy  relative decline of agriculture and rapidly increasing importance of industry and new services in terms of employment and GDP. Use of new energy sources – organic to fossil fuels: steam engines fuelled by coal, in mines (first), then factories (‘mills’), transport (railways) and ships (steam ships) – eventually replaced by electricity (often coal based) and motors (electric and petroleum driven)  As an outcome (but not from the start): higher growth rate (more than the long-run average for growing economies of 0.2 percent per year) and “transition to modern economic growth” The conventional story sees this process starting in the United Kingdom, more precisely in Northwest England, in Lancashire, from around 1750, with technological innovations in a few industries, especially cotton spinning and weaving, coal mining, and ironmaking. Initially, these sectors were rather small, but grew fast and gained in importance. This was accompanied by the rise of a new sort of cities, built around factories. This reinforced also the older division of labour between cities and countryside (see class 2) and the UK/Lancashire and the ‘rest of the world’ (food and raw material provision for workers and machines). This process then spread slowly to other industries in Britain and to Belgium, France, Switzerland, Germany, US, etc, creating global ‘core’-‘periphery’ patterns (see class 4). “Revolution”? Only “industrial”? The term “Revolution” suggests that there was a quick, sudden and maybe violent change.  but economic change has a different pace than political change: the British industrial revolution took at least 60-70 years (1750/70-1830/50) (cf: the Russian Revolution started in 1917 and the Soviet Union lasted 84 years, -1991). However, the economy changed completely and irreversibly, like in the “Neolithic Revolution”, but this change took some time because the economy is a complex of sectors and actors, and there were no huge jumps in total or per capita output or in total factor productivity or capital per worker ‘over night’. What we see is an acceleration in the rate of change Radical economic change cannot happen isolated from the rest of society, in this case, e.g., social and cultural change: separation of home and workplace, but spatial clustering of workers around the factory; in the household: consumption ‘more buying, less self-making’, role of women and children change as well. emergence of a “culture of growth” (Mokyr) to which science and “useful knowledge” can contribute, fomenting knowledge and skepticism about traditional ways of doing things. political and institutional changes to organize a market economy: property rights, labour markets (replacing individual artisan shops and farmers), financial markets, incorporation: juridical persons/limited liability. No (large) country has ‘developed’ without (some) industrialisation. (Note that the definition of ‘development’ often includes structural change out of traditional occupations, like agriculture) 2  2. Indicators of change: The “industrial revolution” in Britain in numbers The aggregate: Economic Growth and Living Standards The invention of (‘modern’) economic growth after 1760 Real Growth GDP per rate GDP Growth rate Growth capita per Growth of total rate Growth Growth (1990 int capita Population rate of production industrial rate rate US$) (%) (mio) population (GDP) production agriculture services 1700 1,513 6.2 1760 1,830 0.32 7.7 0.35 0.67 0.49 0.84 0.73 1800 2,097 0.34 10.6 0.82 1.17 1.86 0.51 1.15 1830 2,227 0.20 16.2 1.41 1.61 2.29 0.77 1.69 1870 3,190 0.90 25.9 1.18 2.09 3.01 1.04 2.57 Source: Broadberry, Campbell, Klein, Overton, van Leeuwen (2015), appendix 5.3; Maddison dataset 2013 version. Other indicators of living standards in Britain, 1760-1850 Source: Crafts (1997), HDI included from Table 2 in the same paper, “Y” updated from Broadberry et al. (2015) The concepts behind R1 and R2 come from Dasgupta, P. and Weale, M., 'On measuring the quality of life', World Development 20 (1992), 119-131, https://doi.org/10.1016/0305-750X(92)90141-H. R1 and R2 are measures from 1 (best) to 7 (worst). For R1, value (3) means ‘Political systems in which people may elect their leaders or representatives but in which coups d'etat, large-scale interference with election results, and often non-democratic procedures occur.’ For R2, (4) means ‘Political systems in which there are broad areas of freedom but also broad areas of illegality. States recently emerging from a revolutionary situation or in transition from traditional society may easily fall into this category.’ (like the repression of worker’s organization and press). (1) is ‘Political systems in which the rule of law is unshaken. Freedom of expression is both possible and evident in a variety of news media.’ 3 Between sectors: structural change, from agriculture to industry (and market services) Source: https://www.campop.geog.cam.ac.uk/research/projects/occupationalstructure/ We see that in terms of labour force, the secondary sector increased in size since 1500, this is, e.g., due to the rise of the British woollen industry that is connected with the increase in European and Atlantic trade after 1500 (week 2). Much of this, especially for women (right panel) was by-employment in agricultural off-seasons. The British cotton industry already expanded before the invention of the ‘gadgets’ like the spinning jenny and the invention of the cotton yarn factory – which in part were technological and organizational reactions to this expansion (not the only slow growth of labour productivity in industry before 1700 in the next table). So, there is a pre-history to industrialization. With the growth in scale of industry and cities, from 1800, also the service sector expanded a lot. Labour productivity and output growth across sectors Output growth and labour productivity growth (annual growth rates) The dates are determined by the availability of data on the work force per sector Calculated from Broadberry et al (2015), Appendix 5.3 and Table 9.09. Production and productivity in industry grew faster than before from about 1760. Industry also grew much faster than agriculture (also leading to population growth and some of Malthus’ and Ricardo’s worries). The service sector grew as industrialization required an increase in transportation, building (new cities) and transaction sectors (trade, finance, etc.). The productivity growth of services, however, was much slower than that of industry. 4 Structural change in the manufacturing sector, between different industries Value added in different industrial branches in Britain, 1770-1831 1770 1801 1830 Annual Mio. £ % of Mio. £ % of Mio. £ % of growth Industry rate (current) total (current) total (current) total 1770- 1831 % Cotton 0.6 2.6 9.2 17.0 25.3 22.4 6.3 Wool 7.0 30.7 10.1 18.7 15.9 14.1 1.4 Linen 1.9 8.3 2.6 4.8 5.0 4.4 1.6 Silk 1.0 4.4 2.0 3.7 5.8 5.1 2.9 Leather 5.1 22.4 8.4 15.5 9.8 8.7 1.1 Soap 0.3 1.3 0.8 1.5 1.2 1.1 2.3 Coal 0.9 3.9 2.7 5.0 7.9 7.0 3.6 Iron 1.5 6.6 4.0 7.4 7.6 6.7 2.7 Copper 0.2 0.9 0.9 1.7 0.8 0.7 2.3 Construction 2.4 10.5 9.3 17.2 26.5 23.5 4.0 Beer 1.3 5.7 2.5 4.6 5.2 4.6 2.3 Candles 0.5 2.2 1.0 1.8 1.2 1.1 1.4 Paper 0.1 0.4 0.6 1.1 0.8 0.7 3.5 Total 22.8 100 54.1 100 113 100 2.7 Source: Crafts 1985, 22-25 Cotton industry grows on average 6.3% per year (see the spinning machines on below – which did not work similarly well or linen with wool) and increases its share in total industrial output from less than 3 to more than 20%. In contrast, leather industry grows at only 1.1% per year and shrinks relatively (from 22.4 to 8.7%). (Some of these numbers have been revised by Broadberry et al for the estimates on slide 12, so differences total industry growth rates are possible). Construction increases massively in size, but its productivity increase is more in line with the low productivity increases in the service sector. Interim summary overall production (GDP) grew faster after 1760 than before, and there was an accelerating rate of growth. Production in industry grew faster than in other sectors. The same is true for GDP per capita and for labour productivity. Even within industry large differences between traditional (leather, wool) and modern sectors (mostly cotton, also iron). Service sector and agriculture also increase productivity a bit, but service sector mostly grew in size because industrialization increases volume of transactions; e.g., construction grew at 4% per year, but with little efficiency gains; transport before spread of railways (the first railway transport line was opened in 1830 between Liverpool and Manchester). So, the share of industry in total production increases, and with it, the incidence of its higher growth rate on total output growth (which is the weighted sum of the growth rates of all sectors/industries) before Broadberry et al (and an earlier revision by Nick Crafts published in 1985) growth rates were calculated with weights from the end of the industrial revolution (IR), and therefore seemed to increase much faster after 1760 because they weighted sectors which benefitted most from IR more than others → ‘index number problem’ even in 1851, only c. 27% of the British labour force worked in ‘industrial revolution’ industries (but everyone had experienced the effect as consumer; Mokyr 1993, p. 15) 5 3. Productivity/Efficiency growth a. General perspective A model for the source of productivity growth The technology of growth accounting allows to separate output growth into the growth of inputs (land, labour, capital) and the growth of “joint efficiency” (total factor productivity [TFP] growth, “Solow residual”) Behind this is a neoclassical Solow-Swan Cobb-Douglas production function Y=A*L1−α*Kα, with Y=output, L=labour, K=capital, A = total factor productivity. Economic historians often add a third factor T=land, i.e., Y=A*Lα*Kβ*T1-α-β Cobb-Douglas production functions assume: production factors are paid their marginal products, so α, β, (1 – α- β) are shares of wage, profits and land rents in functional income distribution diminishing returns to factor accumulation constant returns to scale Dividing both sides by L allows to account for labour productivity (i.e., GDP per worker) taking (log) growth rates allows to explain growth of output or labour productivity, the model then becomes additive (not multiplicative) The method is explained in more detail in the text by Crafts and Woltjer (2019, see background readings). No need to be able to do/derive it yourself, just the logic is important. Examples: imagined Malthusian economy (only Land, Labour): ∆Y= ∆A+(1-α)∆L+ α ∆T, with α=0.4, has population growth of 0.5%, but no additional land (∆T=0) and no technological progress/efficiency gains (∆A=0). then: ∆Y=0+0.5%*0.6+0*0.4=0.3%, ∆(Y/L)=∆A+ α∆(T/L)=0+0.4*(~-0.5%)=~-0.2% Britain 1760-1800, Y=A*Lα*Kβ*T1-α-β ; α=0.5, β=0.35, (1-α-β)=0.15; measured: ∆Y=1.2% per year, ∆L=0.8% per year, ∆K=1.1% per year, ∆T=0.5% per year. Then: ∆A=1.2%-0.5*0.8%-0.35*1.1%-0.15*0.5%=0.29% (per year) -> contribution of TFP (efficiency) growth to output growth=0.29/1.2=~24% 6 An overview of efficiency increases in the British industrial revolution Source: Method and idea taken from Crafts and Woltjer (2019, p. 10) and Crafts (2004), data taken from Bank of England Millennium Database and Crafts/Woltjer (land growth). These are the same sources that Crafts and Woltjer use. Labour productivity growth rates are different from those on p. 4 because it seems to make a difference whether 1759 or 1760 is used as starting point. Labour productivity and GDP estimates also come from different sources, which makes directly calculating labour productivity growth from GDP growth and labour input growth imposible in these tables. TFP=total factor productivity=’efficiency’ Interpretation of growth accounting: efficiency gains are more important than capital accumulation If we look at the 1760-1830 as “core industrial revolution” results, we see that: quickly increasing labour input (population growth) is responsible for the largest share of total output increase (Malthusian age definitely over) capital stock also increased, but only slightly more than the workforce – capital per worker only grew by ca. 20% - that changed after 1830. land use growth contributed a negligible amount (and was much less than labour force growth – would have been a problem with Malthus) 23% of output growth (0.32/1.36) were contributed by TFP growth=increased general efficiency of the economy For labour productivity, capital deepening (K/L↑) explains relatively little (until 1830), land per worker decreased, and ca. all increase would be efficiency increase The results are very sensitive to how capital stock and labour input are measured. With different numbers, Clark (2004) comes to a contribution of about 75% of TFP growth until 1830 Increased education per worker (0.9 years between 1760 and 1830, see p. 3) explains relatively little of the output growth (workers are not getting more productive because of formal schooling, but because of the changes in technology, capital and work process organization – but maybe other forms of experience, informal education and getting used to new workplace settings mattered). some researchers (e.g., McCloskey 2010, Mokyr 2016) therefore prefer call this process not the rise of capitalism (investment, capital/labour ratios), but an “age of improvement” (innovation), focusing more on technological and organizational advances (and knowledge elites) than on capital accumulation We now turn to how the “progress” materialized in the economy (remember class 1 on the rise of the idea of progress). We also discuss the changes in the organization of production (the factory system), and the accompanying changes in social life and social relations (e.g., between workers and capitalists) 7 b. Innovation and productivity growth: some examples Cotton spinning Old times 1770s 1780s Source: George Walker, Customs of Source: Allen (2009), p. 191. Energy sources here are water Yorkshire, 1814 (Allen 2009, p. 189) wheels or steam engines (or both). Source: Clark (2007), p. 234. Technical details: https://en.wikipedia.org/wiki/Spinning_wheel; https://en.wikipedia.org/wiki/Spinning_jenny: https://en.wikipedia.org/wiki/Water_frame: https://en.wikipedia.org/wiki/Cromford_Mill Technology, factories and cost reductions, cotton industry The price of 1 pound of cotton yarn decreased from the equivalent of one week of work to the equivalent of three hours or work, mainly due to increased efficiency in transforming raw cotton to yarn, i.e. the reorganization and mechanization of cotton spinning. Source: Clark (2000), link; see also Clark (2007), ch. 12, and Allen (2009), ch. 8; 1784 is before the factory, like in middle picture above, not “old times”. 8 Steam engine and coal 1712: Newcomen steam engine A water pump for mines. Not very energy (coal) efficient in the beginning. Very expensive in places that are not coal mines (but used in Cornwall copper mines). See: https://en.wikipedia.org/wiki/Newcomen_atmospheric_engine 1768: Watt’s improvement with a separate condenser (James Watt) Separates the condenser, so that the piston could remain hot constantly. That reduced fuel consumption and made the machine more flexible for other uses. See Wikipedia here for a simple explanation. 9 Saving coal through more efficient technology (per horsepower-hour) Source: Allen (2009), 165. By 1870, the best compound engines used 2 pounds of coal per horsepower-hour. Diffusion of technology: steam engine use by industry in 1800 By 1800, few sectors were affected (mines – Newcomen, textiles – partly as water pumps for water mills, partly replacing waterpower, ironmaking – partly as pumps, partly as motors for blast furnaces, etc.), but increasing fuel efficiency 1800 to 1830 widened the use – leading to more overall coal consumption despite increase efficiency of every engine (the Jevons paradox). The steam engine from 1830s also made sense in areas where coal was more expensive (because places were located farther away from coal mines) 10 Diffusion and improvement of technology: Steam engines on wheels and steam engines replacing wind on ships The Rocket, George & Robert Stephenson, 1829, RMS Titanic, leaving Southampton in 1912 with basically a a 21 HP high pressure steam engine steam engines producing up to 46,000 HP under on wheels; Wikimedia. deck; FGO Stuart/Wikimedia. Locating the industrial revolution: England’s textile centres, rivers, canals, and coal fields Available energy resources and industrial activity: coal and factories in England in the early industrial revolution. Most emerging industrial centres were conveniently located near coalfields and near ports and navigable rivers (to transport coal, food and raw materials to the factories). Source: Taken from a website for a book which is no longer online… 11 England’s per capita energy consumption Energy consumption (total and by sources) in England and Wales, 1560-1850s Source: Wrigley (2010), p. 94. c. Organization and productivity growth (factories) Introducing the factory system Increased productivity/efficiency through organizational advances: the Factory System Characteristics Workers centered in the same establishment – better coordination and monitoring of processes Use of machines and centralized sources of power (water mills, steam engines) which are used constantly Economies of scale and large output, constant need for large amounts of raw materials and output Separation between workers and owners of means of production (capital) Serial production of homogeneous products, work in teams/division of labour Separation of home (as consumption units) from firm (as work place and production unit) Imposes a new kind of discipline, time regulation (“time is money”, and it belongs to the boss) subdivision of tasks and constant supervision make use of un-specialized workers possible: women and children Few perspectives of promotion and little identification with the final product in comparison to artisan workshops (Marx’ “alienation”) 12 Pictures of historical factories Water frame in Cromford mill, 1769 (obviously a museum picture of the first cotton yarn factory) Source: Clark (2007), p. 234. Real life: General view of spinning room, Cornell Mill, Fall River, Mass., USA (Lewis Hine, 1912) “Rhodes Mfg. Co. Spinner. A moments’ glimpse of the outer world. Said she was 11 years old. Been working over a year. Lincolnton, N.C., 11/11/1908” – by Lewis Hine 13 But like steam engines, factories diffused only slowly across sectors: The table below shows choices of organization by different industries in Britain, c. 1840. Factories and mechanization were not the best option in all sectors (compare to page 5 and page 10), and in some factories were not even used. Some explanation: 1= best choice, 3=not so good, - = impossible. Putting-out system = „proto-industrial“ domestic industry (people working at home/in sweat shops [like the women on p. 8], often for a firm that provides raw material and markets the produce). Source: López/Valdaliso (2007), Table 4.1. (p. 150), based on Jones (1982), p. 135 14 4. Why Britain? a. Overview of individual explanatory factors Single factors – the usual subjects (1) Geography An island (navigation, markets, navy) with many rivers (market integration, water mills, and coal, p. 11) Water transport much cheaper and faster than land transport before railways (introduced in 1830s only) Experience in navigation (which is more likely on islands and in places with long coastlines) is basic for international (sea-borne) trade and naval warfare that become important especially after 1492 (2) Domestic commerce and foreign trade Market integration makes division of labour possible (Smith!, cf week 2). Raw materials and food can be imported (colonialism!), excess production of factories can be exported (colonies as secure markets!?) (3) Institutions and politics centralized government since Middle Ages (state capacity, easier rule of law, etc.), control of government by parliament since Glorious Revolution (1688) → might have helped financial markets and a more pro-market politics (merchants alongside nobles), freer labour markets, patent protection, generally better property rights (4) Demography (Population and human capital). not too fast population growth (so less fast diminishing returns to labour; cf Mathus/London example in class 2), people who know how to invent and apply inventions. (5) Agriculture increasing efficiency (mostly prior to 1800), frees resources (labour, food) → better fed workers, but also makes specialization and urbanization possible idea of an agricultural revolution before the industrial revolution (cf. some of the contents of week 2, e.g., the early dissolution of feudalism, connected to domestic market integration and institutions) Single factors – slightly less obvious and potentially more complex contributions (6) Social changes (social and geographical mobility, forms of interaction, values) wider social change and more commercial and income (vs status) oriented society, in part as consequence of urbanization (individualistic city dwellers, less traditional social life) – makes wealth a more accepted goal and “status marker” (than in traditionally stratified societies, e.g., the Ancién Régime in France) maybe also as consequence of protestant reformation and new ways of connecting a good afterlife with success on earth (Weber’s work ethic thesis; less church power, etc.) also, more urbanized and market-oriented societies require more ‘rational’ decision-making and more ‘numeracy’, etc. 15 (7) Intellectual changes (science and knowledge, education and human capital) education for the masses not decisive, but elite knowledge (and the orientation of elite interests, see below) (8) Per capita incomes (demand) Britain was already relatively wealthy/productive before 1750 – consequence of an “industrious revolution” in part because of domestic market orientation (Smith), but also the colonies acquired in the 17th century helped to create jobs in ports (imports of colonial goods like coffee, tea, sugar, cacao, tobacco, initially cottons, etc), and to stimulate labour efforts (domestic industry) to be able to buy colonial goods (which then brought about social changes and changes in demand patterns) higher per capita incomes also might lead to better nutrition and health status, which affects physical ability to work (strength, endurance, concentration) b. Building explanations based on these factors (1) Zooming in on institutions: the Glorious Revolution and property rights Better defined and enforceable property rights are the key element of institutional explanations (factor 3 above) of the industrial revolution. The most famous is North and Weingast (1989) that much more general theories of economic growth build on (e.g., Why Nations Fail, by Acemoglu and Robinson). The key event in this story is the Glorious Revolution of 1688. North and Weingast state that the Bill of Rights (1688) established the budget right for Parliament and a more level playing field for people (especially government bond holders) when taking the government (the Crown) to court. Better courts mean less likely confiscation of assets, more impartial police, and overall respect for material and intellectual property rights (nowadays establishing these feature in typical IMF conditions for loans to developing countries) “Britain’s government was one of, by, and for private property” (Mokyr 1993) Monarchy needed approval of parliament for spending – but that was good because now it could strike credible bargains with lenders to the government, which limited the need for forced expropriation. (According to this account, before nobody would lend to the government because the government could not credibly guarantee to pay back (and not just expropriate the funds) because nobody controlled the government, which led to a situation where the government needed to be exploitative to secure funds for its wars/projects → vicious circle of mistrust and bad behaviour). With budget right and (more) independent courts, rich people can now lend money to the government (a big player in financial markets) and expect the government to pay (sue government when government doesn't pay) and parliament to limit spending (less risk of government going into debt spiral and then defaulting; rich elites were part of the parliament) → investment in general less risky and more likely → more credit available in the economy → easier to fund capital intensive projects → funds available for industrialization (and first, for commercial expansion, infrastructure building and colonization). Generally: lower transaction costs lead to smoother organisation of innovation, capital markets, trade, i.e. better integration of markets for goods and factors (labour, capital). These are the bases for Smithian growth. 16 So, ‘good’ political institutions help development. But do institutions explain everything? Well, not necessarily. Financial markets were more important for organising commerce, infrastructure and agricultural reforms than for industrial investment (where capital demands were quite small and often raised in informal ways through personal connections of entrepreneurs) Capital demand of modern sectors was relatively small – especially in textile industry – because fixed-cost requirements to set up modern firms were relatively low (exceptions: mines, railroads [after 1830!]). Some even make the point that Britain had a relatively bad financial setup for industrialization (e.g., the Bubble Act of 1720, as a consequence of the South Sea Bubble of the 1710s, prohibited joint-stock companies [whose capital consists in shares traded in the market, without personal liability by owners or managers] and limited liability incorporation and was seen as very problematic until the 1850s) In general, we have seen that increasing availability and use of capital was not the main driver of productivity growth, but innovation was, which leaves a point to patents and intellectual property rigbhts: patenting took off just around 1760! But, again: evidence is mixed. Many important inventors in Britain did not use patents (secrecy, philantropy), others found their patents worthless (difficult to take imitators to court). But some got rich on them (Arkwright of the Cromford Mill), some not really (e.g., Hargreaves, the inventor of the spinning jenny). Increased patenting activity might be a reflection of the more intensive search for innovations (see p. 20), although having intellectual property rights might have helped that this search for innovations continued and did not become unfashionable because it did not pay off. Invention as measured by patents granted per year in England, 1660-1851 17 (2) A demand side explanation: the “industrious revolution” Main idea, developed by Jan de Vries (1994) and others: an “industrious revolution” took place before the Industrial Revolution: people worked more and harder. Effectively a combination of single factors (8), (6) and (2) above. More days per (male) worker and higher labour force participation of women and children, especially in market-oriented production. Idea is that market-oriented production provided money incomes to be able to afford ‘new’ commodities that came to Europe as a consequence of discovery and colonisation: Sugar, pepper (week 1!), tea, coffee, porcelain, etc. pp. As a by-product, this created a growing internal market for industrial goods, between 1600 and 1750, because this for-market production was e.g., cottage textile production (p. 8, p. 14 above), as more and more goods found European substitutes (porcelain, the British cotton sector emerged to imitate Indian textiles, etc.) and European merchants developed more and more consumer goods produced in this way to satisfy and stimulate further demand and increased work input. Basic mechanism: Harder work = “industrious revolution”, led to more market demand „consumer revolution“ - less leisure (and household self-sufficiency), more interest in monetary income and consumption of market products. In this account, the mindset conventionally attributed to pre-industrial societies was transformed: “Men who were non-accumulative, non-acquisitive, accustomed to work for subsistence, not for maximization of income, [who] had to be made obedient to the cash stimulus, and obedient in such a way as to react precisely to the stimuli provided” (S. Pollard, The Genesis of Modern Management, 1965). In this perspective, the industrial revolution was not (only) caused by ‘a wave of gadgets’ that transformed the supply side, but by the transformation of behaviour on the demand side. Evidence for the “industrious revolution“ Working harder? Broadberry et al (2015, p. 264) summarize a slowly increasing trend (with some uncertainty) for men in England since the post-Black Death Middle ages: in 15th and 16th Century: less than 180 work days per year, late 16th century c. 250, late 17th century c. 275, 1730s 290, 1800/30 330, 1860s c. 320. Higher participation rates in the labor market by women and children? Hard to say: as late as 1851 (first census) in England only 10% of married women in working age (15-64) had an occupation, but this is probably underestimated: many women were earning some kind of income – and: the Industrial Revolution led to the emergence of a male bread-winner model, which would have led to decreasing labour force participation in 1851 in comparison to, say, 1700. Recent studies show that many women (for example, when testifying in courts) were doing market-oriented work – this is a fast expaning field of research with new methods and sources – the most recent contribution is Horrell, Humphries and Weisdorf (2021). New goods? Hersh and Voth (2022) have shown that the availability of coffee, tea and and sugar alone increased welfare in Britain by 1800 (in comparison to 1600/1690) by 10 to 50%, depending on assumption and estimates (the truth is probably somewhere in the middle) – access to these goods would thus seems to have spurred additional effort and changes in consumption patterns. “Consumer demand grew, even in the face of contrary real wage trends, because of reallocation of productive resources of households” (De Vries 1994). Not just demand for sugar, coffee, tea, but also for furniture, cooking utensils, clocks, pottery, ironware and printed books – which were increasingly produced in Europe/Britain. 18 (3) Induced innovation: expensive labour replaced by capital and energy How labour being expensive and energy being cheap in England incentivized the invention of energy- (and capital-)intensive technologies of the industrial revolution. A combination of factors (1), (2), (8), (3) and (7) above. R.C. Allen (2011): High wages (because of success in international trade) → Gave an incentive to invest in labour-saving machinery (“induced innovation). This used cheap coal and increasingly available capital Watch here: https://ehs.org.uk/multimedia/tawney-lecture-2009-why-was-the-industrial- revolution-british/. “Description: Britain had a unique wage and price structure in the eighteenth century, and that structure is the key to explaining the inventions of the industrial revolution. British wages were very high by international standards, and energy was very cheap. This configuration led British firms to invent technologies that substituted capital and energy for labour. High wages also increased the supply of technology by enabling Brits to acquire education and training. Britain’s wage and price structure was the result of the country’s success in international trade, and that owed much to mercantilism and imperialism.” But: British workers also stronger and better fed [factor 5], so more productive (but this might also have meant they were more highly-skilled at the basics. early Industrial Revolution relied on water (mills), not coal (but coal made it ‘sustainable’) Sceptics ask the question: Were new technologies only labour-saving? Technology and factor endowments (R. C. Allen) Britain as a cheap energy, high wage economy http://www.ehs.org.uk/multimedia/tawney-lecture-2009 http://voxeu.org/article/why-was-industrial-revolution-british 19 (4) “Culture of growth” and innovation: social status and enlightenment Joel Mokyr (2015): “A culture of growth”, as a variety of the general idea of ‘progress’ (week 1): the Baconian program and industrial enlightenment. Combines factors (7), (6) and (3). Scientific revolution (17th Century) Pan-European phenomenon, not just British – part of the establishment of a “culture of progress” in “science” Steam engine, electricity, chemistry etc. were the result of scientists from around Europe Uniquely European (although not all Europe equally) Muslim golden age ended in 12th century China chose isolation (cf class 1), and in China challenging established wisdom (the neo-Confucian four books) was more difficult/more easily repressed Enlightenment in Britain especially “empirical and experimental” in comparison to “abstract and theoretical” in France and elsewhere (Francis Bacon vs. René Descartes) Famous Bacon quotes: “Knowledge is power” and “for the release of man’s estate” (~ overcoming poverty) Bacon’s followers managed to institutionalize science and this approach (Royal Society, founded 1660) In Britain, science did not enter a state-led research program (for military purposes, etc.), but a coalition with commercial and landed interests, who could become part of the establishment. More spontaneous, applied and flexible → “useful knowledge” Britain had many more minds that “could effortlessly move between the world of abstraction, symbol, equation, blueprint and diagram and the world of the lever, the pulley, the cylinder and the spindle.” (Mokyr 1993, p. 83) Some evidence for this claim: Measuring the how “progress” became trending topic in google n-grams Source: Mokyr (2015). Google n-grams measure the relative frequency of words (as share of all words) in published books available in google books. 20 Mokyr’s “Industrial enlightenment” and the “culture of growth”: inventors and innovators as main drivers of the industrial revolution Mokyr denies that something like Allen’s ‘directed/induced invention’ was relevant, because in his view inventors do not choose between two kinds of inventions but try to improve what they can: in labour- intensive industries even with cheap labour inventions save money He also denies that trade played a major role beyond the point that you obviously need a certain market for specialization and raw materials (but not necessarily 400 mio. people) Instead, he says the incentives to innovate are important (reputation for engineers, via patents, memberships in prestigious clubs or prices), and with them the Baconian program together with a practical apprenticeship system. Mass human capital was not necessary for this process, just a wide enough knowledge base and intellectual freedom for scientists and empirical “tweakers” and “tinkerers” (= people able to fix tools and machines on site who also made small improvements on tools and machines). He sees the Enlightenment (class 1) behind changes in British institutions and society. It created an idea of “improvement is possible” and the actual responsibility of elites to deliver it: British Parliament became less corrupt over time (Ricardo’s seat!), and thus a meta-institution of change in favour of property rights and innovations. Enlightenment also caused mental openness and a more meritocratic (not just aristocratic) way of elite recruiting. http://voxeu.org/vox-talks/enlightened-economy-how-ideas-drive-growth And an update: https://www.youtube.com/watch?v=wNbe7uwbiKE 5. Consequences of the industrial revolution (Some) Consequences of the British Industrial Revolution and its (uneven) spread include Social change: separation of production from consumption led to dis-embedding of economy from society some lament the loss of “solidarity”, others celebrate the “liberty” from face-to-face control (and feudalism/serfdom) workers needed to be “educated” (also as children from orphanages) to accept factory life, work was harder than before (similar for the first farmers vs. hunter gatherers) urbanization and factory towns were initially planning disasters first factory towns lacked sanitation, affordable/acceptable housing and therefore had much higher (child) mortality than the surrounding countryside social distance between factory owners and workers created spatial patterns of settlement that still shape cities today, economic inequality rose countryside and agriculture came to be seen as ‘backward parts’ of countries and backward sectors respectively On a global level, the “great divergence” generated centers and peripheries in the world economy (similar to the city/rural patterns within countries), and thus patterns that shape development outcomes in many places until today, especially in the parts where the ‘periphery‘ was conquered by the core and forced into the world economy (including, in the run-up to industrialization, slavery, etc.) 21 Climate change: more efficient steam engines are prime example for rebound effect – fossil fuel-based energy used in more and more sectors as its use gets cheaper including increased transport intensity (‘material flows’ and human travelling) were (and are) coal and oil necessary to fuel modern economic growth, or is it just a detour on a way to ‘green growth’ powered by current (and not past) solar energy? Evidence: Industrial revolution and intensified energy use → more intensive fossil fuel use (initially: coal): Annual energy consumption per head (megajoules) in England and Wales 1561–1570 to 1850– 1859 and in Italy 1861–1870. Source: Wrigley (2013) based on Warde (2007) 22  Energy consumption and GDP / Energy consumption per GDP in Britain, 1560-late 2000 1000 Energy Intensity (MJ/1000 1990$) 50000 40000 35000 100 30000 5000 25000 20000 15000 500 10 10000 1680 1920 1560 1590 1620 1650 1710 1740 1770 1800 1830 1860 1890 1950 1980 5000 GDP capita 1990 US$ 0 1560 1601 1642 1683 1724 1765 1806 1847 1888 1929 1970 Per capita energy consumption (GJ) Source: data from Warde (2007) and Broadberry et al (2015)/Maddison dataset 2013. Since 1872 energy use per GDP declines, but absolute energy use per person still increases (also not corrected for exported or imported energy in commodities). A short detour: Energy as a production factor One might conceive energy or the use of fossil fuels as a production factor and either include it as a part of land (as ‘subterranean forests’ that add something like land to the productive capacity) or as a part of capital (for fossil fuels are paid for like circulating capital) One would then need a fossil fuel to output elasticity (like α and β) in the production function (on p. 6) and could then try to estimate the impact of more intensive fossil fuel use on economic growth (p. 7). I tried to find papers that do that, for example this one (Chen and Santos-Paulino 2010, https://www.econstor.eu/bitstream/10419/54075/1/636746585.pdf) for China after 1978 and this one (Kander and Stern 2012, https://www.jstor.org/stable/23268096) for Sweden between 1853 and 1998. Both find with different econometric analyses that in this case the use of a Cobb-Douglas production function seems to make little sense, so that more flexible (and complicated) translog production functions have to be assumed. These take into account that production factors are not fully substitutable against each other – which makes sense: without steam engines, etc., burning coal might not have a big impact on production. Furthermore, if you look at those papers, you will see that they measure energy in many different ways: energy consumption, CO2 emissions, energy quality, effective energy (i.e., primary energy x efficiency in use), etc. Because I neither wanted to introduce an unknown energy-GDP per capita relationship nor an uncertain definition of “energy” into class materials as something certain, I have refrained from including energy into growth accounting above. Both aforementioned papers (Chen/Santos-Paulino and Kander/Stern) show that with constant energy, growth rates would have been lower (especially if also the technology would have been constant, a rather unlikely scenario), and that thus increasing energy use contributed to growth: Kander and Stern (2012, p. 145): “Holding energy use constant at 1800 levels results in the economy growing by 0.5% less per annum over the two centuries. GDP per capita would not have been much lower in 1850 but by 2000 it 23 would have only been 42% of its actual level. […] When we hold all three of these factors constant [energy quantity, energy quality and energy technology] so that effective energy remains at the 1800 level, the economy collapses, with income per capita declining by 0.5% per annum and GDP per capita at one third of its 1800 level by 2000.” From Warde (2007, see pp. 22/23 above) we can learn that energy consumption (in petajoules) from coal alone increased by 1.2% per year from 1700 to 1760, by 2.0% per year from 1760 to 1800 and by 2.5% per year from 1800-1830 (and by 2.2% per year from 1760-1830). Since this was faster than the growth in output in 1760-1830 (1.36% per year), the energy intensity of GDP increased (as we see in the right side of the figure on p. 23), as did the energy intensity per unit of labour (labour grew by 1.1% per year), and the energy consumption per unit of capital (the capital stock grew by 1.3% per year). So, for sure, the British industrial revolution would have looked even less revolutionary in terms of growth rates without the increasing energy use. By how much depends on the modelling assumptions (see above), and I will not try to provide an estimate here. It’s however, somewhat strange that there are not basically no papers trying to answer this question (or I just have not found them)… Feel free to contact me if you want to change that. This does not mean that there is no literature on energy and the industrial revolution. A good starting point is the short paper by Wrigley (2013) from which the graph on p. 22 is taken (also individual essay background text ’05 Wrigley 2013’) – it also includes discussions of Malthus et al. The issue of the contribution of energy to growth will return when we deal with the decades before the Oil Crises of the 1970s. 24 6. Bibliography Main references: Robert C. Allen (2009). The British Industrial Revolution in Global Perspective. Oxford University Press. Robert C. Allen (2011). Global Economic History: A Very Short Introduction, Oxford University Press, Oxford University Press. Steve Broadberry, Bruce Campbell, Alexander Klein, Mark Overton, Bas van Leeuwen (2015). British Economic Growth 1270-1870. Cambridge University Press. Gregory Clark (2007). A Farewell to Alms. A Brief Economic History of the World. Princeton Unversity Press. Joel Mokyr (1993): Editor’s Introduction: The New Economic History and the Industrial Revolution, in: Mokyr (ed.): The British Industrial Revolution. An Economic Perspective, pp. 1-131. (http://www.unsa.edu.ar/histocat/haeconomica07/mokyr.pdf9 Joel Mokyr (2009). Enlightened Economy: An Economic History of Britain 1750–1850, Yale University Press. Joel Mokyr (2016). A Culture of Growth: The Origins of the Modern Economy. Princeton University Press. Further Reading (in order of appearance): Growth accounting: Crafts, N.F.R., Woltjer, P. (2019). Growth Accounting in Economic History: Findings, Lessons and New Directions, Journal of Economic Surveys, forthcoming, https://doi.org/10.1111/joes.12348. Crafts, N.F.R. (2004). Productivity Growth in the Industrial Revolution: A New Growth Accounting Perspective. Journal of Economic History 64(2), 521-535, https://www.jstor.org/stable/3874783. Crafts, N.F.R. (1985). British Economic Growth during the Industrial Revolution, Oxford: Claredon Press Crafts, N.F.R. (1997). Some Dimensions of the 'Quality of Life' during the British Industrial Revolution, Economic History Review 50, 690-712. McCloskey, D.N. (2010). Bourgeois Dignity: Why Economics Can't Explain the Modern World, Chicago University Press. von Tunzelmann, G.N. (1986) Coal and steam power. In: Langton J, Morris RJ (eds). Atlas of industrializing Britain. London: Methuen, ch. 8. Wrigley, E.A. (2010). Energy and the English Industrial Revolution. Cambridge University Press. López, S., Valdaliso, J.M. (2007). Historia económica de la empresa. Barcelona: Crítica. Jones, S.R.H. (1982). The organization of work. A historical dimension, Journal of Economic Behavior and Organization 3, pp. 117-137. North, D.C., Weinstein, B.M. (1989). Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. Journal of Economic History 49(4), 803- 832. 25 De Vries, J. (1994). The Industrial Revolution and the Industrious Revolution. Journal of Economic History 54(2), 249-270. Horrell, S., Humphries, J., Weisdorf, J. (2021). Family Standards of Living Over the Long Run, England 1280–1850. Past & Present 250(1), 87-134, https://doi.org/10.1093/pastj/gtaa005. Hersh, J., Voth, H.J. (2022). Colonial goods and the welfare gains from global trade after 1492. Explorations in Economic History 86, 101468, https://doi.org/10.1016/j.eeh.2022.101468. Smith, A. (1776/2012). An Inquiry into the Nature and Causes of the Wealth of Nations. Ware/Hertfordshire: Wordsworth (original: London: Strahan and Cadell; my copy is a cheap reedition). Mokyr, J. (2015). Progress, Useful Knowledge and the Origins of the Industrial Revolution. In: A. Greif, L. Kiesling, & J. V. C. Nye (Eds.), Institutions, Innovation, and Industrialization: Essays in Economic History and Development. Princeton University Press, 33-67. Warde, P. (2007). Energy Consumption in England & Wales, 1560-2004. Naples: CNR. https://sites.fas.harvard.edu/~histecon/energyhistory/data/Warde_Energy%20Consumption%20Englan d.pdf Wrigley, E.A. (2013). Energy and the English Industrial Revolution, Phil. Trans. R. Soc. A 371_ 20110568, http://doi.org/10.1098/rsta.2011.0568 26