Notes for April 9: Econ 210a: "Settler" Industrialization, 1700-1914

Memo Question for April 9: The economies settled from northwestern Europe--the United States, Canada, Australia, New Zealand--were all resource rich. So why did they industrialize? Why didn't they simply become gigantic Denmarks, shipping agricultural and other resource-based products to the European industral powers in return for manufactures?

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This week we have four readings:

• Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32 http://www.j-bradford-delong.net/movable_type/2003_archives/001447.html
• Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" (Cambridge: NBER Working Paper no. h0066) http://papers.nber.org/papers/h0066.pdf
• Peter Temin (1966), "Labor Scarcity and the Problem of American Industrial Efficiency in the 1850s," Journal of Economic History 26, pp. 277-298 http://www.jstor.org/view/00220507/di975596/97p0463m/0
• Claudia Goldin and Kenneth Sokoloff (1984), "The Relative Productivity Hypothesis of Industrialization: The American Case, 1820-1850," Quarterly Journal of Economics 99 (August), pp. 461-87 http://links.jstor.org/sici?sici=0033-5533%28198408%2999%3A3%3C461%3ATRPHOI%3E2.0.CO%3B2-V

They all four bear on the question of settler industrialization--and thus on the question of why the heart of the world economy today is not somewhere near Amsterdam but somewhere between Los Angeles and New York. You would think that the center of innovative industry would remain near its original heartlands--that agglomeration economies in R&D and economic activity would keep Manchester the heart of the world economy. But that is not what happened:

The nineteenth-century periphery industrialized and grew rich--but only a part of the nineteenth-century periphery, and not just the English-speaking British-institutions nineteenth-century periphery--Japan, Barbados, Jamaica, British Guyana, Mississippi...

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Paul Krugman on Evsey Domar:

Paul Krugman: [Domar] came up with a simple yet powerful insight: there's no point in enslaving or enserfing a man unless the wage you would have to pay him if he was free is substantially above the cost of feeding, housing, and clothing him. Imagine a pre-industrial society where population is pressing on limited land supplies, and the marginal product of labor... is barely at subsistence. In that case, why bother establishing property rights in human beings? It costs no more to hire a free worker than to feed an indentured laborer. Indeed, by 1300 - with Europe very much a Malthusian society - serfdom had withered away from lack of interest. But now suppose that for some reason land becomes abundant, and labor scarce. Then competition among landowners will tend to push up wages of free workers, and the ruling class will try, if it can, to pin peasants down and prevent them from bargaining for a higher standard of living. In Russia, it was all about gunpowder: suddenly steppe nomads were no longer so formidable, and the rich lands of the Ukraine were open for settlement. Serfdom was an effort to keep peasants from taking advantage of this situation. (And if I've got it right, those who were venturesome enough to run away and set up outside the system became Cossacks.)

Meanwhile, the New World opened in the west. Sure enough, the colonizing powers tried various forms of indentured servitude - making serfs of the Indians in Spanish territories, bringing over indentured servants in Virginia. But eventually they hit on a better solution, from their point of view: importing slaves from Africa...

Brad DeLong on Evsey Domar:

Brad DeLong: Domar's contribution is truly one of the most effective and powerful pieces of synthetic social science I have ever read. It isn't perfect. He has more predecessors than he realizes (Marx, for example, especially Marx's observations on the Swan River Colony in Australia, and the whole section on primitive accumulation and the creation of agrarian capitalism in Britain). And Domar misses one big cause of serfdom and slavery. During the formation of the Roman Empire, in Poland at the end of the Middle Ages, and in the Caribbean islands during the early modern period, slavery and serfdom did not emerge because a high land-labor ratio meant that the ruling elite could not afford to bid for labor in a free labor market. Slavery and serfdom emerged, instead, because high demand for staple products (grain, sugar, tobacco...) greatly lowered the gap between the productivity of free and the productivity of bound workers. Staple production is easier for gang-bosses to monitor than more diversified farming. Staple production also has lower skill requirements for workers. When demand for staple products is very high--to feed the proletariat of imperial Rome, to feed the growing cities of late-Medieval Flanders, or to supply the cheap luxuries demanded by early modern England--slavery or serfdom can emerge even without an extraordinarily high land/labor ratio....

[And there are the] two big questions:

• First, why didn't the Western European nobility re-enserf the peasantry after the Black Death and the resulting big rise in the land/labor ratio? Domar wrestles with this question unsuccessfully in his paper. But I have to say that it is still largely a mystery.

• Second, why hasn't bound labor reemerged in the modern world? Elites in developing countries can no longer be confident in their ability to earn hefty incomes by employing workers and paying them much less than their average product: an elite monopoly of land ownership is no longer worth much. So why haven't they responded to the potential erosion of their collective economic edge by turning to politics and force to bind workers. One answer is that, to some extent, they have: Consider that modern states are surprisingly effective as tax-collection machines, and in large chunks of the world the elite's power and (relative) prosperity is rooted in its "new class" control over the flow of resources from the state. Consider, also, the Communist Party of Vietnam--what is it but a gang labor boss for unfree labor deployed to produce shoes for Nike?

Very good questions, a very good paper, and I cannot feel but that my 210a class would have gone better [that] year had I kept Domar on the reading list, canned the "labor scarcity and interchangeable parts" part of the course, and spent not half a class on American slavery but a whole class on Unfree Labor in Historical Perspective.

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Engerman and Sokoloff: Why did Latin America stay poor?

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Peter Temin, "Labor Scarcity":

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• A = F(L,R); K--capital, R--resources, A--agricultural goods
• M = G(K,L); L--labor, M--manufactures
• capital is made up of manufactured goods...

• f--price of food, w--wage, r--real interest rate, m--price of manufactures and capital

• M = g(K/L)L

• r = {m(g'(K/L))}/m
• K/L = g'^-1(r)

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Goldin and Sokoloff:

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ref: W Arthur Lewis http://www.j-bradford-delong.net/2008_pdf/Lewis_Evolution_A.pdf http://www.j-bradford-delong.net/2008_pdf/Lewis_Evolution_B.pdf

Comments

[William Smith]

Domar and Re-Enslavement:
First, in developing nations I think that you are correct, that party bosses have become the new gang bosses, one step under large corporate organizers.
Second, it is harder to forcibly re-enslave a people or a class than enslave them the first time. You must, as was the case in the colonies, get them to voluntarily resubmit. However, as asymmetrical warfare has shown, the distribution of armaments around the world increases the chance for success of armed resistance to such efforts.

[Maynard Handley]

"Second, why hasn't bound labor reemerged in the modern world?"

It's hard for me, reading all this, not to think of the pass laws in old-school South Africa as essentially serfdom.
I'm unaware of other countries that do/did this recently, though perhaps China's laws had the same motivation (and have a blind eye turned to them, now that the money is in cities, not on the farm).

If one were ultra-hard-line marxist, one might argue that curbs on immigration to the west, and Israel's various insane policies regarding Palestinians, were also rooted in this.

[Matt]

The reading assignments never end.

My first take is simply this, the 40th parallel. It is the single most correlated function that defines the relative utility of machines vs labor. It is the divide that combines Japan, India, China, Middle East, Africa, our own South; vs Northern USA, Russia, Europe, especially northern.

All of these group took disparate or similar paths regarding labor relative to their north south alignment.

It points to unfinished work in evolution.

[David Lloyd-Jones]

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New Zealand resource-rich? Hunh? What have you been smoking -- or drinking at Parnasse -- Brad?

There's nothing in New Zealand but grass -- the kind the sheep eat.

I do have a New Zealand story to tell you, though. Our eldest daughter, Gwyneth, was growing up thinking she was Japanese: my wife's staff were Japanese, all my employees and customers were Japanese, and the TV set, the third parent, spoke to her in Japanese.

So we sent her to New Zealand to learn English.

Didn't work: she came back speaking 'Strine.

-dlj.


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[P.M.Lawrence]

On a point of information, British Guiana became Guyana, but there never was any such place as "British Guyana". (Trivia: my grandfather was an inspector of schools there, after being an itinerant school teacher in West Falkland.)

One possible way to account for the comparative lack of re-enserfment after the Black Death is that, with the revival of cash economies, there were constructive uses for cleared land that didn't require working them with so many peasants - particularly, producing wool. Certainly by Tudor times a dynamic developed for getting rid of the peasants you had, for that reason (see Sir Thomas More's Utopia). There is also a peace dividend issue: with the end of troubled times magnates no longer needed a loyal tenantry to draw on for military strength (see the introductory material in Buchan's life of Cromwell, and the way Church lands had always had a lower need for and use of peasants). Changes of military science may be relevant too, with large feudal hosts being transformed into smaller bodies of specialist professionals; this would have had an effect even in troubled times.

The Cossacks, like the Maroons ("Bush Niggers" may be less politically correct but is more self-explanatory), played a further part over and above being what runaways became when they set up for themselves. They not only filled up the niche, taking up any available resources where it was hard to police runaways directly, they themselves often entered into a modus vivendi with the powers that were as poachers turned gamekeepers, "good bacteria" that in return for sufferance policed new runaways themselves, kicking the ladder away after them.

[Patrick Fitzsimmons]

"Second, why hasn't bound labor reemerged in the modern world?"

Well, who's the ruling class in the United States? There are several pillars of power, but a major one is the university system. My friend who works on the Hill says that when they have a policy question, they call the university professors. Furthermore, the university shapes the political opinion of the masses, and in a democracy, control of public opinion is power.

My other friend is studying to be an architect. In the 1800's, an architect typically had 0 - 3 years of higher education. They learned mostly through their apprenticeship. Today, my friend must complete between 5-8 years of school. She will graduate with $100K of debt.

Why does she have a $100K of debt? Well, today, by law, she must acquire a masters degree from an accredited university. The same university system that is the ruling power. In other words, she must go in debt $100K to the ruling power, for the privilege of becoming an architect. This is the modern version of serfdom. Hayek was right. Its just hard to notice because of the exponential growth in technology.

[thorstein veblen]

Pat- Universities rule the world, eh? i only wish it were so...

One thing seems to be missing from the above articles in the discussion of how the US got rich... It's Hamiltonian trade protectionism! The US wasn't all that competitive in 1850, but it did have high tariffs... By 1900, thanks in part to cheap energy & economies of scale, of course, it could compete...

[Kerry]

tlj: NZ is resource rich - witness the West Coast, Otago and Coromandel gold rushes following California's, the gum fields of Northland in the late 19C, the coal fields of the West Coast and Waikato - and grass (ie land) is a resource - though initially the major export was flax for ships' ropes (dairy and meat exporting had to wait for refrigeration - though why NZ won out over competing exporters like Argentina and Australia for lamb exports to Britain, and over Denmark for butter, is a fascinating story : see the historian James Belich's Paradise Reforged for an overview of it).

Brad: you imply in your first sentence that New Zealand industrialised - this is very questionable given that the NZ economy is still dominated by the produce of agriculture, horticulture, viticulture and forestry with little in the way of value-added processing. The major competitor for export receipts is not industry but services, ie tourism. The extent of NZ's industrialisation has been largely determined by what was required to get the raw materials into a shape that could be safely transported to the nearest markets with spending power, ie Europe (and by the trade restrictions on adding value to commodities ;-). Hence, milk had to be transformed into butter or milk powder, so the industry part of dairying came into being.

[thorstein veblen]

I suspect Evsey Domar is simply wrong. Part of what he is missing is the Malthusian logic which dictates that when land is scarce, incomes are low. Hence, those who don't own land are the odd-men out, and aren't in a position to negotiate their wages. Domar says this implies that Lords mine as well just pay subsistence wages. Yet, what if there's a crop failure (which there were aplenty during the Times of Troubles), then the wage falls below subsistence. It seems like many would be willing to become serfs -- or at least not be able to rebel when told you are to be a serf -- in exchange for enough food to keep yourself alive. Now let's picture scenario #2: there's an infinite amount of land. Times are good. Now you're told your to forego your high wages and become a serf. Capish? I think not... Why not just run away, since you can get much higher wages (or free land!) elsewhere? Or, as in England after the plague, not just go work somewhere else and buy yourself out of serfdom? Or rebel? Remember, you've got a full belly at this point... You've been eating beef, and now you're told your only to have cabbage. You go along with that? I can't see it...

[P.M.Lawrence]

Thorstein Veblen, people didn't volunteer to be serfs when there was surplus land (people did, of course, when they didn't have ways of independent survival), and the land wasn't effectively infinite in the Middle Ages in Europe - it was owned and could be policed for runaways, or devastated en bloc in cases of rebellion (like the Wasting of the North by William the Conqueror). Where there was effectively infinite unused land, you didn't get serfdom from that dynamic, as in classical times in parts of Europe, you got outright slavery - but then, you needed group support because isolated individuals ultimately perished, like the broken men in Scotland, and many of the groups co-operated with the policing (see my comment above).

In England after the Black Death (NOT "after the plague" - that refers to 1665), you couldn't buy your way out of serfdom, but if you ran away and stayed free for a year and a day, you got your freedom. But how could you survive the transition? And it certainly wasn't available to any great number at any one time (think fallacy of composition).

For what it's worth, I feel industrialisation spread where European influence could and where other things hadn't filled the niche completely, i.e. at the corners of the oceans at first and then penetrating hinterlands by rail. The greater effectiveness of labour in warmer climates may have filled the niches there, of course, but where that hadn't happened technology didn't have to struggle to get established. In other words, it wouldn't have taken off without intervention at latitudes 40+ if they were already populated and efficient (China), and did at 40- where they weren't (Australia).

[James Wimberley]

Where in these analyses is Marc Bloch's distinction between the chattel slavery of the ancient world and the serfdom of high feudalism and early modern Russia? They are not the same. Serfdom is intermediate between slavery and freedom; the serf isn't property and is responsible for feeding himself on the patch of land that is his only right. But land can be alienated with its attached serfs. The system has lower up-front costs for the landowner, and lower benefits because serfs can't be easily reallocated to a different piece of land or function.

[No one]

what kerry said. NZ IS a denmark IMO. NZ is 'resource rich' in terms of what is necessary to produce agricultural products, mostly; but it's hard to talk about industrialisation except insofar as it complimented the agricultural economy. NZ's economy which was mostly focused on Britain until at least the 1950s; and there was a division of labour between Britain and NZ whereby NZ did basically swap agricultural products for manufactures (underpinned by the sterling area, commonwealth preference etc).

Kerry's reference to Jame Belich's book is a good one; there's also one by john singleton and paul robertson which takes a look at NZ-Oz-UK economic relations 1945-1970 and is pretty good.

I'd say a similar story for Australia too, although it is far more resource-rich, mineral-wise.

[Roger Albin]

The USA in the first half of the 19th century was a primary producer for Britain. Primarily cotton, though some other agricultural products as well. Go back and look at North's excellent book on the early American economy. If southern politicians and their allies had had their way, it would have continued to be predominantly a primary producer (as Adam Smith suggested). It was northern politicians and businessmen, particularly those from relatively resource poor New England, who provided an alternative and ultimately successful version of the American economy, the mixture of industry and agriculture envisioned by Hamilton.
As several other posts have pointed out, New Zealand is a Denmark. The Australian economy is built heavily on export of primary products; major agricultural exporter and enormous exporter of coal.

[baileyman]

I estimate the cost of maintaining a US slave in 1860 expressed in hours for a 40 hour week was probably in the $4 to $8 range in current dollars. Has anyone with real credentials done anything like this?

[Robin]

Brad, I remember that you didn't think much of Robert Brenner's political balance between lord and peasant argument, though it may (i) suggest why there wasn't re-enserfment after the plague, and (ii) explain differential rates of success in tying peasant to the land after the plague. I don't remember your reasons for dismissing Brenner. What were they?

[Jonathan Conning]

This is self-advertising, but for anyone interested, I wrote up a general equilibrium formalization of Domar's model a couple years ago. It gets at several of the issues raised by Brad and in the discussion (e.g. distinction between slavery and serfdom, why prices and nature of crop technology also matter, and perhaps most importantly why 'serfdom' was reimposed in Eastern Europe when the land to labor ratio rose, while 'serfdom' collapsed in Western Europe when the land to labor ratio rose (a discussion which evokes North versus Brenner). The initial pattern of ownership of land matters a lot for determining landlord's interest in restricting the mobility of labor.
If anyone is interested the paper is at:
http://arrow.hunter.cuny.edu/research/papers/HunterEconWP401.pdf

[thorstein veblen]

Re: PM Lawrence...

I was introducing some hypothetical situations, not saying what actually happened. Of course i don't actually think that land was practically infinite in medieval Europe, but that is what Domar discusses, writing that, due to territorial expansion, Russia for a time had a practically infinite amount of land, and scarce labor. It sounds as though you agree with me, and disagree with Domar, that you would not get serfdom out of such a dynamic... I also wasn't saying that serfdom started with peasants willingly becoming serfs; I'm saying in famine years, either trading your freedom for food would be conceivable, or that, without food, you wouldn't really be able to resist.

Re: the plague. Perhaps you are correct. Nevertheless, you knew exactly what I meant, which I suspect implies that the the Black Death is sometimes referred to as "the plague".

Re: Perhaps you are correct about British serfs not being able to buy themselves out of serfdom. Please update Wikipedia, which says otherwise... "Furthermore, the lords of many manors were willing (for payment) to manumit their serfs."

[johne]

It has been said (perhaps someone here is knowledgeable) that by the last decades of the empire, an industrial sector had begun to grow in Spanish South America, and was gathering momentum when the area was thrown into turmoil by the two decades of civil war that established its independence.

By the time investment conditions returned, Europe and the United States were industrially impregnable, and the Spanish-speaking equivalents of America's Southern politicians and their allies had the field to themselves.

[P.M.Lawrence]

Thorstein Veblen, wikipedia is correct, and so am I. The thing is, if a serf wanted to buy his freedom, he didn't have the right to buy it. He could only do it if his master agreed. He did have the year and a day rule available without his master's consent, though. (And, it's not "British", it's "English", in that time and place.)

The Russian situation does support Domar, once you realise that all the land was owned under that system. You didn't have a labour bottleneck you could only address with slavery, because you could move one level back and tie peasants to land (i.e. stop them shopping around and bid rents etc. down). The "effectively infinite" part in that time and place meant that otherwise they would have been able to shop around, not that there was unowned land where they could set up for themselves.

[Jonathan Conning]

thorstein wrote: "what Domar discusses... due to territorial expansion, Russia for a time had a practically infinite amount of land... you would not get serfdom out of such a dynamic... serfdom started with peasants willingly becoming serfs; I'm saying in famine years, either trading your freedom for food would be conceivable.."

I think you are confusing free and unfree serfdom. If you read Domar, or historian V.O. Kliuchevsky who Domar cites so much, you learn that as “the central areas of the state became depopulated because of peasant migration into the newly conquered areas in the east and southest,” serfdom emerged “under the pressure of the serving [landlord] class...[as] the government gradually restricted the freedom of peasants ... to move.”

‘Self-pledging’ and voluntary debt bondage had been widely prevalent in Russia for centuries, as you suggested it might be. But after the territorial expansions the Servitors (who had been granted large amounts of land in return for their roles in military conquests) lobbied hard so that over time it became virtually impossible for a peasant to terminate or buy their way out of the ‘voluntary’ labor-service obligation. Laws also changed in ways that made it essentially not possible for landlords to pay off the debt of a peasant working for another landlord. Labor became tied to the land they worked on.

I don't at all understand your idea of "Malthusian logic which dictates that when land is scarce, incomes are low." Sure fine a peasant with few tools might offer his labor to a landlord who does have the tools. But in fact (1) peasants were moving to frontier regions to set up their own homesteads and (2) even if they didn't run off to set up their own farms, it doesn't follow at all that their only choice is to become poorly paid serfs. The landlords who do have the tools or the ability to farm and bear risks have -- by definition in a labor scarce economy -- a high demand for farm hands. They would fiercely compete for the scarce resource that is needed to make their lands yield and bid up the wage (or more generally improve the conditions of the contract). But that is EXACTLY the outcome that the Servitors were so very unhappy about and precisely why they lobbied politically for the Tsars to help them collude to limit peasants mobility and transform a once relatively free peasantry into the most unfree of Europe.