Weekly memo question: Most economic historians now think that the agricultural revolution was more a gradual and drawn out process than previously believed. Why do they now think this?
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Brad DeLong's 2008 210a Notes: Apr 23: WWI and the Great Depression [DeLong]
Apr 23: WWI and the Great Depression [DeLong]
Memo Question for April 30: "Thirty Glorious Years": A growing literature develops explanations for 'Europe's golden age' (the European economy's fast growth in the third quarter of the 20th century). Is this effort misguided? In other words, do we really need fancy explanations for a straightforward phenomenon that is easily explained in terms of convergence and delayed structural change?
Memo Question for April 23: The Great Depression: What do our readings tell us about the answers to the following two questions?
- Why was the Great Depression so great?
- Why has there been only one Great Depression in the long span between the commercial revolution and today?
World War I and the Task of Rebuilding:
John Maynard Keynes (1920), The Economic Consequences of the Peace, chapters 1, 2, and 6 http://www.gutenberg.org/files/15776/15776-h/15776-h.htm
The Coming of the Great Depression:
Christina Romer (1990), "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics 104, pp.719-736, http://www.jstor.org/view/00335533/di971078/97p00037/0
Ben Bernanke (1983), "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" American Economic Review 73, pp. 257-276, http://www.jstor.org/view/00028282/di950033/95p00602/0
Understanding the Great Depression:
John Maynard Keynes (1932), "The World's Economic Outlook," Atlantic http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm
Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html
Consequences of the Great Depression:
Margaret Weir and Theda Skocpol, "State Structures and Social Keynesianism: Responses to the Great Depression in Sweden and the United States," International Journal of Comparative Sociology pp. 4-29 http://books.google.com/books?hl=en&lr=&id=GLQ3AAAAIAAJ&oi=fnd&pg=PA7-IA3&dq=Margaret+Weir+and+Theda+Skocpol,+%22State+Structures+and+Social+Keynesianism&ots=P2iXGFkFfu&sig=APmY6D1P2QkJ0l28RRWX5YxjBmg#PPA29,M1
World War I and the Task of Rebuilding:
John Maynard Keynes (1920), The Economic Consequneces of the Peace, chapters 1, 2, and 6 http://www.gutenberg.org/files/15776/15776-h/15776-h.htm
Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family. Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British peoples have run the risk of completing the ruin, which Germany began, by a Peace which, if it is carried into effect, must impair yet further, when it might have restored, the delicate, complicated organization, already shaken and broken by war, through which alone the European peoples can employ themselves and live.... What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or be could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice...
This chapter must be one of pessimism. The Treaty includes no provisions for the economic rehabilitation of Europe,—nothing to make the defeated Central Empires into good neighbors, nothing to stabilize the new States of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves; no arrangement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the systems of the Old World and the New. The Council of Four paid no attention to these issues, being preoccupied with others,—Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something which would pass muster for a week, the President to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of polities, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling...
If we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity, that while all our recent Allies are angels of light, all our recent enemies, Germans, Austrians, Hungarians, and the rest, are children of the devil, that year by year Germany must be kept impoverished and her children starved and crippled, and that she must be ringed round by enemies; then we shall reject all the proposals of this chapter.... But if this view of nations and of their relation to one another is adopted... heaven help us all. If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures?...
The Coming of the Great Depression:
Christina Romer (1990), "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics 104, pp.719-736, http://www.jstor.org/view/00335533/di971078/97p00037/0
Ben Bernanke (1983), "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" American Economic Review 73, pp. 257-276, http://www.jstor.org/view/00028282/di950033/95p00602/0
Understanding the Great Depression:
John Maynard Keynes (1932), "The World's Economic Outlook," Atlantic http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm
Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html
Keynes: The immediate causes of the world financial panic -- for that is what it is -- are obvious. They are to be found in a catastrophic fall in the money value, not only of commodities, but of practically every kind of asset. The 'margins,' as we call them, upon confidence in the maintenance of which the debt and credit structure of the modern world depends, have 'run off.'... Debtors of all kinds find that their securities are no longer the equal of their debts. Few governments still have revenues sufficient to cover the fixed money charges for which they have made themselves liable. Moreover, a collapse of this kind feeds on itself. We are now in the phase where the risk of carrying assets with borrowed money is so great that there is a competitive panic to get liquid. And each individual who succeeds in getting more liquid forces down the price of assets in the process of getting liquid, with the result that the margins of other individuals are impaired and their courage undermined. And so the process continues.... We have here an extreme example of the disharmony of general and particular interest.... Practically all the remedies popularly advocated to-day are of this... beggar-my-neighbor description. For one man's expenditure is another man's income. Thus, while we undoubtedly increase our own margin, we diminish that of someone else; and if the practice is universally followed everyone will be worse off. An individual may be forced by his private circumstances to curtail his normal expenditure, and no one can blame him. But let no one suppose that he is performing a public duty in behaving in such a way. The modern capitalist is a fair-weather sailor. As soon as a storm rises, he abandons the duties of navigation and even sinks the boats which might carry him to safety by his haste to push his neighbor off and himself in. Unfortunately the popular mind has been educated away from the truth, away from common sense. The average man has been taught to believe what his own common sense, if he relied on it, would tell him was absurd.... Meanwhile the problem of reparations and war debts darkens the whole scene...
Krugman: The message of Keynes: It’s probably safe to assume that the “conservative scholars and policy leaders” who pronounced The General Theory one of the most dangerous books of the past two centuries haven’t read it. But they’re sure it’s a leftist tract, a call for big government and high taxes. That’s what people on the right, and some on the left, too, have said about The General Theory from the beginning. In fact, the arrival of Keynesian economics in American classrooms was delayed by a nasty case of academic McCarthyism. The first introductory textbook to present Keynesian thinking, written by the Canadian economist Lorie Tarshis, was targeted by a right-wing pressure campaign aimed at university trustees. As a result of this campaign, many universities that had planned to adopt the book for their courses cancelled their orders, and sales of the book, which was initially very successful, collapsed. Professors at Yale University, to their credit, continued to assign the book; their reward was to be attacked by the young William F. Buckley for propounding “evil ideas.”
But Keynes was no socialist – he came to save capitalism, not to bury it. And there’s a sense in which The General Theory was, given the time it was written, a conservative book. (Keynes himself declared that in some respects his theory had “moderately conservative implications.” [377]) Keynes wrote during a time of mass unemployment, of waste and suffering on an incredible scale. A reasonable man might well have concluded that capitalism had failed, and that only huge institutional changes – perhaps the nationalization of the means of production – could restore economic sanity. Many reasonable people did, in fact, reach that conclusion: large numbers of British and American intellectuals who had no particular antipathy toward markets and private property became socialists during the depression years simply because they saw no other way to remedy capitalism’s colossal failures.
Yet Keynes argued that these failures had surprisingly narrow, technical causes. “We have magneto [alternator] trouble” he wrote in 1930, as the world was plunging into depression. And because Keynes saw the causes of mass unemployment as narrow and technical, he argued that the problem’s solution could also be narrow and technical: the system needed a new alternator, but there was no need to replace the whole car. In particular, “no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community.” [378] While many of his contemporaries were calling for government takeover of the whole economy, Keynes argued that much less intrusive government policies could ensure adequate effective demand, allowing the market economy to go on as before. Still, there is a sense in which free-market fundamentalists are right to hate Keynes. If your doctrine says that free markets, left to their own devices, produce the best of all possible worlds, and that government intervention in the economy always makes things worse, Keynes is your enemy. And he is an especially dangerous enemy because his ideas have been vindicated so thoroughly by experience. Stripped down, the conclusions of The General Theory might be expressed as four bullet points:
- Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
- The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully
- Government policies to increase demand, by contrast, can reduce unemployment quickly
- Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, and government spending must step into the breach
To a modern practitioner of economic policy, none of this – except, possibly, the last point – sounds startling or even especially controversial. But these ideas weren’t just radical when Keynes proposed them; they were very nearly unthinkable. And the great achievement of The General Theory was precisely to make them thinkable.
Consequences of the Great Depression:
Margaret Weir and Theda Skocpol, "State Structures and Social Keynesianism: Responses to the Great Depression in Sweden and the United States," International Journal of Comparative Sociology pp. 4-29 http://books.google.com/books?hl=en&lr=&id=GLQ3AAAAIAAJ&oi=fnd&pg=PA7-IA3&dq=Margaret+Weir+and+Theda+Skocpol,+%22State+Structures+and+Social+Keynesianism&ots=P2iXGFkFfu&sig=APmY6D1P2QkJ0l28RRWX5YxjBmg#PPA29,M1
Brad DeLong's 2008 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?
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...
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.
Engerman and Sokoloff: Why did Latin America stay poor?
...
...
...
...
Peter Temin, "Labor Scarcity":
...
....
- 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)
Goldin and Sokoloff:
...
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
DeLong 2008 Econ 210a Industrial Revolution Slides: March 19: Marx and Urbanization and Industrialization and Marketization
- Alfred D. Chandler (1992), "Organizational Capabilities and the Economic History of the Industrial Enterprise," Journal of Economic Perspectives 6 (Summer) http://links.jstor.org/sici?sici=0895-3309%28199222%296%3A3%3C79%3AOCATEH%3E2.0.CO%3B2-X
- Susan Wolcott and Gregory Clark (1999). "Why Nation's Fail: Managerial Decisions and Performance in Indian Cotton Textiles, 1890-1938." Journal of Economic History, June http://links.jstor.org/sici?sici=0022-0507%28199906%2959%3A2%3C397%3AWNFMDA%3E2.0.CO%3B2-9
- Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/
In our last episode...
Greg Clark said that there wasn't really an industrial revolution--there was a large demographic expansion made possible by the fact that Britain's population was out-of-sync with Europe and so it could trade manufactured goods for food...
And that technological progress in steam in the eighteenth century was no more impressive than progress in printing in the 15th century or ocean shipping in the 16th, and had bigger effects only because of the luck of demand elasticities...
And that Britons in 1860 had living standards barely better than those of Britons in the aftermath of the Bubonic Plague...
Nick Crafts said that there was an industrial revolution, but that it was small beer...
Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp
Compare to 1.86% per year of real output per worker growth from the computer-communications leading sector of the late 1990s...
Jeffrey Williamson said that there was barely an industrial revolution because Britain tried to industrialize and fight wars...
Jeffrey Williamson, "Why Was British Economic Growth So Slow During the Industrial Revolution?" Journal of Economic History 44, pp.687-712 http://www.jstor.org/view/00220507/di975668/97p1230f/0
DeLong Indeed, back in 1776 Adam Smith had warned that Britain's politico-military state's success might well crush its economy, writing about even successful debt-funded wars:
The practice... has gradually enfeebled every state which has adopted it. The Italian republicks... Spain seems to have learned the practice from the Italian republicks, and (its taxes being probably has, in proportion to its natural strength, been still more enfeebled.... France... languishes under an oppressive load.... The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice.... Is it likely that in Great Britain alone a practice, which has brought either weakness or desolation into every other country, should prove altogether innocent?...
Peter Temin said that there was too an industrial revolution, and it was substantial, and broad-based...
Peter Temin, "Two Views of the British Industrial Revolution," Journal of Economic History 57, pp.63-82 http://ideas.repec.org/p/nbr/nberhi/0081.html
But his argument appears to be vulnerable to a fall in the global price of textiles and other leading-sector goods...
And Maxine Berg and Pat Hudson said "wait a minute: people thought there was an industrial revolution..."
Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review new ser. 45, pp.23-50 http://www.jstor.org/view/00130117/di011838/01p0208u/0
And there was... although when do we want to date it to?
I'm currently wearing... maybe 3 pounds of cotton, 2 pounds of leather and plastic... 4 pounds of wool...
Now we have Karl Marx and Friedrich Engels http://www.marxists.org/archive/marx/works/download/manifest.pdf, who write in the middle of it and have no doubt that something extraordinary is going on...
Something hopeful...
And yet malevolent...
To which the solution is--well, a new world-religion:
Susan Wolcott and Gregory Clark (1999). "Why Nation's Fail: Managerial Decisions and Performance in Indian Cotton Textiles, 1890-1938." Journal of Economic History, June http://links.jstor.org/sici?sici=0022-0507%28199906%2959%3A2%3C397%3AWNFMDA%3E2.0.CO%3B2-9:
Alfred D. Chandler (1992), "Organizational Capabilities and the Economic History of the Industrial Enterprise," Journal of Economic Perspectives 6 (Summer) http://links.jstor.org/sici?sici=0895-3309%28199222%296%3A3%3C79%3AOCATEH%3E2.0.CO%3B2-X
Brad DeLong's 2008 Industrial Revolution Slides
General Purpose Technologies and the Industrial Revolution
Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp
Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review new ser. 45, pp.23-50 http://www.jstor.org/view/00130117/di011838/01p0208u/0
Peter Temin, "Two Views of the British Industrial Revolution," Journal of Economic History 57, pp.63-82 http://ideas.repec.org/p/nbr/nberhi/0081.html
Jeffrey Williamson, "Why Was British Economic Growth So Slow During the Industrial Revolution?" Journal of Economic History 44, pp.687-712 http://www.jstor.org/view/00220507/di975668/97p1230f/0
- [DeLong]:(http://delong.typepad.com/sdj/2007/09/marx-rostow-kuz.html) Indeed, back in 1776 Adam Smith had warned that Britain's politico-military state's success might well crush its economy, writing about even successful debt-funded wars: "The practice... has gradually enfeebled every state which has adopted it. The Italian republicks... Spain seems to have learned the practice from the Italian republicks, and (its taxes being probably has, in proportion to its natural strength, been still more enfeebled.... France... languishes under an oppressive load.... The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice.... Is it likely that in Great Britain alone a practice, which has brought either weakness or desolation into every other country, should prove altogether innocent?..."
Greg Clark on the Industrial Revolution in England II
From Greg Clark (2001), "The Secret History of the Industrial Revolution":
The modest productivity growth rates of the Industrial Revolution owed mostly to productivity gains in one sector, textile manufacture. It was accidents of demand, demography, and trade that allowed innovations in this sector to have a much bigger impact than previous innovations of similar magnitude in terms of [aggregate economy-wide] productivity gains.... The southern two thirds of England saw almost no growth in output per capita or productivity growth in the Industrial Revolution.... Other places in Europe in the years 1200 to 1760 saw similar episodes of productivity growth that were as substantial as those in England from 1760 to 1860. Thus between 1550 and 1650 the Netherlands saw significant productivity advance.
The appearance that the Industrial Revolution in England represented a decisive break from the past is largely a product of the unusual demographic experience... demographic growth would have spurred industrialization absent any productivity advance... by driving up land rentals and creating urbanization... [spurring] enclosure of common lands, improvements in transportation, the expansion of coal mining, and perhaps also the fall in interest rates...
[...]
The aggregate productivity growth rate is just the sum of the productivity growth rates of individual sectors weighted by their share in national outputs.... The cotton textile industry experienced very rapid productivity growth in the Industrial Revolution era.... The estimated total factor productivity in spinning and weaving cotton cloth increased 22 fold from the 1770s to the 1860s, implying an annual productivity growth rate of 3.1% per year... cotton, and the associated industries of linen (assumed to have the same productivity growth as cottons) and woolens to overall TFP growth... of 0.26% out of 0.40%. Thus nearly two thirds of the productivity growth rate can be explained by essentially one set of innovations, and by industries that employed less than 10% of the labor force in 1851. The great mass of the economy, including agriculture, construction, services, and most manufacturing saw very little productivity increase. The gains in income per capita were thus the result of a lucky technological advance in one area....
Even with a textile revolution the effects of productivity growth in textiles on the TFP of the whole economy crucially depended on the ability of Britain to export these products on a large scale. Even though the share of cottons and woolens was never large, this share was only attained because of very substantial exports of cotton and woolen goods. Thus by the 1860s at least two thirds of English cotton goods output was exported, and about one third of woolens. These exports were traded in world markets for foods and raw materials demanded by England’s rapidly growing population. Had these industries produced only for the home market then the productivity growth rate from 1765 to 1865 would have dropped by a third....
[T]his ability to export textiles was a purely adventitious thing. Textile products were tradable, and the growing population of Britain required large imports of food and raw materials which had to be paid for by manufacturing exports....
[T]he effects of individual technical advances on aggregate productivity depend crucially on such accidental factors as the size of the sector affected and the price elasticity of demand. The nature of technological advance is generally that some new idea leads to a long period of productivity advance in an industry as the consequences of the new technique are played out. If demand is price inelastic then reductions in prices created by the early phase of a technological advance will limit or even reduce the share of expenditure on the good, so reducing the general productivity gains from further advances. Advances in cotton textiles in the Industrial Revolution had big impacts because textiles were a substantial share of expenditure by the 1760s and demand was price elastic....
Suppose that prior to the Industrial Revolution innovations were occurring randomly across various sectors of the economy - innovations such as guns, spectacles, books, clocks, painting, new building techniques, improvements in shipping and navigation – but that just by chance all these innovations occurred in areas of small expenditure and/or low price elasticities of demand. Then the technological dynamism of the economy would not show up in terms of output per capita or in measured productivity.
Thus... consider the introduction of the printed book by Gutenberg in 1445, again in the period where we can find no evidence of aggregate productivity growth, at least in England.... Output per worker increased by roughly 30 fold from manuscript production in the fourteenth century till the early nineteenth century... greater than the productivity advances achieved in the cotton textile industry over the Industrial Revolution period, though it took place over a much longer period. But the impact of these productivity gains in printing on the economy as a whole was unmeasurably small because the share of the economy devoted to printing always remained small... in 1851 only 0.8% of the population was employed in the paper making and printing businesses....
Another dramatic change in the years before 1600 was improvements in shipping and navigation which allowed access to the East by an all sea route. This was reflected in a dramatic fall in the sixteenth century in the price of eastern spices.... The price of pepper relative to English farm output prices fell to about one fifth its earlier level between 1570 and 1660. Yet again though this decline represented a host of technical and organization changes the economic impact was negligible given the dietary habits of the English....
if we want to locate the Industrial Revolution as the beginning of the era of sustained productivity growth then the [sixteenth-century] Dutch have as good a case as the British. If we want to locate it in the era of very widespread productivity growth affecting large sectors of the economy, then the US in the after the 1870s is the best candidate....
[...]
[T]he conclusion is that there was little productivity growth in the Industrial Revolution era beyond that explained by the technological revolution in textiles... the accident that textiles were exported on a large scale by 1800, explained by the need to import large quantities of food and raw materials given English population growth after 1760, accounts for a substantial fraction of the gains in productivity. The Industrial Revolution becomes very narrow. It can then be interpreted as just another isolated technological advance as European economies had been witnessing since at least the fifteenth century.
Greg Clark on the Industrial Revolution in England
urbanized and "industrialized" even in the absence of the revolutions in spinning, weaving, and ironworking.
From Greg Clark (2002), "The Secret History of the Industrial Revolution":
England had low transport costs to France and the Netherlands even in the middle ages... wages and output in England will be determined not by the land/labor ratio in England, but by the land/labor ratio in Europe as a whole. The English land/labor ratio will predict real wages and real output only in so far as it moves in sympathy with the European land/labor ratio. Otherwise if England ends with more labor compared to land than other European economies it will not experience a decline in output per worker with a constant technology, but will trade labor intensive products in exchange for land intensive products from elsewhere....
In the years 1300 to 1750 there is a remarkable concordance in the population movements across Western Europe, and English wages, output per head and population [appear to be] linked. But the Industrial Revolution was notable for England’s rapid population growth compared to the rest of Europe, and in particular compared to the Netherlands and France.... English population increased by 187% between 1770-9 and 1860-9 while a wide group of other European countries saw population increase by only 79%....
At the same time the addition of the acreage of North America, and improvements in the transport system that brought grain and timber from the East and South to Western Europe effectively expanded the land base of the whole continent.... The population fed and clothed by English agriculture did not expand from 7.5 million to 21 million between 1760 and 1860... but instead grew from 7.5 to 9.6 million... even this calculation does not take into account the effect of the expansion of the coal industry in substituting for the use of land to produce energy in the pre-industrial economy through growth of wood and furze. In combination imports and the coal industry effectively tripled the land area of England by the 1860s....
Thus England’s economic growth looked so spectacularly different from the past after 1760 for three reasons: the demographic accident of the differential movement of population in England relative to the rest of Europe, the expansion of the land area effectively available to all of Europe through the opening up of the American Midwest and of the eastern Europe, and the expansion of the domestic coal industry...
The joker in Greg Clark's deck is the assumption that English population growth would have proceeded at the same rate in the absence of the Industrial Revolution. Without the technological revolutions, an expansion of exports to try to feed the growing population would have led to an exchange rate depreciation, a rise in the real price of food, misery, and a Malthusian "positive check."
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J. Bradford DeLong, Professor of Economics at U.C Berkeley, a Research Associate of the NBER, a Visiting Scholar at the Federal Reserve Bank of San Francisco, and Chair of Berkeley's Political Economy major.
Among his best works are: "Is Increased Price Flexibility Stabilizing?" "Productivity Growth, Convergence, and Welfare," "Noise Trader Risk in Financial Markets," "Equipment Investment and Economic Growth," "Princes and Merchants: European City Growth Before the Industrial Revolution," "Why Does the Stock Market Fluctuate?" "Keynesianism, Pennsylvania-Avenue Style," "America's Peacetime Inflation: The 1970s," "American Fiscal Policy in the Shadow of the Great Depression," "Review of Robert Skidelsky (2000), John Maynard Keynes, volume 3, Fighting for Britain," "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy," "Productivity Growth in the 2000s," "Asset Returns and Economic Growth."
- Leigh Speakers' Bureau:
The Eighteen-Year-Old is going to college next year, which means that I need to think about making more money. (The idea that one might write checks to rather than receive checks from universities is now strange to me.) So I have signed up with the Leigh Speakers' Bureau which also handles, among many others: Chris Anderson; Suzanne Berger; Michael Boskin; Kenneth Courtis; Clive Crook; Bill Emmott; Robert H. Frank; William Goetzmann; Douglas J. Holtz-Eakin; Paul Krugman; Bill McKibben; Paul Romer; Jeffrey Sachs; Robert Shiller;James Surowiecki; Martin Wolf; Adrian Wooldridge.
About Brad DeLong
- Leigh Speakers' Bureau
The Eighteen-Year-Old is going to college, which means that I need to think about making more money. (The idea that one might write checks to rather than receive checks from universities still seems very strange to me.) So I have signed up with the Leigh Speakers' Bureau which also handles, among many others: Chris Anderson; Suzanne Berger; Michael Boskin; Kenneth Courtis; Clive Crook; Bill Emmott; Robert H. Frank; William Goetzmann; Douglas J. Holtz-Eakin; Paul Krugman; Bill McKibben; Paul Romer; Jeffrey Sachs; Robert Shiller;James Surowiecki; Martin Wolf; Adrian Wooldridge.
- J. Bradford DeLong is a professor of economics at the University of California at Berkeley, chair of its political economy major, a research associate of the National Bureau of Economic Research, a visiting scholar at the Federal Reserve Bank of San Francisco, and was in the Clinton administration a deputy assistant secretary of the U.S. Treasury. His best work extends from business cycle dynamics through economic growth, behavioral finance, political economy, economic history, international finance to the history of economic thought and other topics.
- Among his best works are: "Is Increased Price Flexibility Stabilizing?" "Productivity Growth, Convergence, and Welfare," "Noise Trader Risk in Financial Markets," "Equipment Investment and Economic Growth," "Princes and Merchants: European City Growth Before the Industrial Revolution," "Why Does the Stock Market Fluctuate?" "Keynesianism, Pennsylvania-Avenue Style," "America's Peacetime Inflation: The 1970s," "American Fiscal Policy in the Shadow of the Great Depression," "Review of Robert Skidelsky (2000), John Maynard Keynes, volume 3, Fighting for Britain," "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy," "Productivity Growth in the 2000s," "Asset Returns and Economic Growth."
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