History of Economics and the Economy III

The British Industrial Revolution,

Capitalism and Modern Economic
Growth

Markus Lampe
markus.lampe@wu.ac.at
Office hours: Friday, 9-10.30h and on
appointment, online (zoom/teams) or in
D4.3.004 if required

with the assistance of

Mi Liu
mi.liu@wu.ac.at
The industrial revolution (finally!)

Source: Gregory Clark, A Farewell to Alms. Princeton University Press, 2007, p. 2.

PAGE 2
Content

1. But what was the industrial revolution?

 inventions, energy sources, organization of production and social changes
2. Why Britain?
3. Long-run consequences
• Social change and the rural-urban transition (‘internal peripheries’)
• Global inequality: the great divergence (‘external peripheries’), the great
specialization and imperialism (next week)
• the transition into unsustainable energy use
 More details
 Introduction
 6-7: What is the industrial “revolution”?
 How we see that an “industrial revolution”
happened
 9-10: Economic growth and living standards
 11: Cross-sectoral employment shifts
 12: Labour productivity and output
 13: Changes in the importance of different industries
 14: Summary of slides 9-13
 Productivity/Efficiency growth
 General perspective
 17: A model for the sources of productivity growth
 18-19: Growth rates connected with productivity
 Innovation and productivity growth: some examples
 21-22: Cotton spinning
 23-27: Steam engine and coal
 28: England’s textile centers, rivers, canals, and coal
fields
 29: England’s per capital energy consumption
 Organization and productivity growth (factories)
 31: Introducing factories
 32-34: Pictures of historical factories
 35: In which industries did factories make sense?
PAGE 4
 Why Britain?
 37-38: Overview of individual explanatory factors
 Property rights
 39: Why was property rights important
 40-41: Financial markets and patents
 Demand increase as a cause of the industrial
revolution
 42-43: “Industrious revolution” and how did it
lead to demand
 Induced innovation: expensive labour replaced by
capital and energy
 44-46: How labour being expensive (and energy
being cheap) lead to the industrial revolution
 “Culture of growth” and innovation: social status
and enlightenment
 47: What is the “culture of growth” and what does
it have to do with the enlightenment
 48: Some evidence for this claim
 49: Innovators as the primary cause of the
industrial revolution
 Consequences of the industrial revolution
 51: Overview of main consequences of the
industrial revolution
 52: Industrial revolution and intensified CO2
emissions
 Introduction: What was/is
the Industrial Revolution

PAGE 5
So, what was the industrial revolution?

 Inventions and innovations (technological change)  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 fossile 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 beginning): higher growth rate (more than the long-
run average for growing economies of 0.2 percent per year) and “transition to
modern economic growth”

PAGE 6
 “Revolution”? Only “industrial”?

 the term “Revolution” suggests that there was a quick, sudden and maybe violent
change
 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 85 years, -1992)

 However, the economy changed completely and irreversibly, like in the “Neolithic
Revolution”
 The economy is a huge complex of sectors and actors, and we do not see huge jumps in total or per capita output nor
in total factor productivity or capital per worker, but 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
for example
 social and cultural changes: 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.

 creating 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.

7
 Indicators of change: how we
see that an “industrial
revolution” happened

PAGE 8
 The invention of economic growth

Real Growth Growth

GDP per rate GDP rate of Growth
capita per Growth total rate Growth Growth
(1990 capita Population rate of production industrial rate rate
int 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 c. 1750
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.
c. 1350 c. 1650
(Black Death)
PAGE 9
Other indicators of living standards

1830
1913
2097
2075
2720
3190

Source: Crafts (1997), HDI included from Table 2 in the same paper,
10 “Y” updated from Broadberry et al. (2015)
 Shifts in employment, 1350-1900

 The process started in the United Kingdom, in Northwest England, in Lancashire, from
around 1750 with technological innovations in a few industries, especially cotton
spinning and weaving, coal mining, and ironmaking.
 these sectors, apart from coal mining (initially to heat houses in London) were rather small
at the beginning, but grew fast and became more important
 this created sectoral shift in occupations (out of agriculture) and demand for food (for non-
agricultural workers) and raw materials. Some of these processes had started already
before (rising urbanization rates, etc., class 2)
 Spread slowly to other industries in Britain and to Belgium, France, Switzerland, Germany,
US, etc...

11 https://www.campop.geog.cam.ac.uk/research/projects/occupationalstructure/
 Output growth and labour productivity
growth (annual growth rates)

1522-1700 1700-1759 1759-1801 1801-1851

Agriculture output 0.35 0.77 0.98 0.61
labour productivity 0.13 0.57 0.41 0.10
Industry output 0.77 0.49 1.58 2.71
labour productivity 0.07 0.31 0.57 1.23
Services Output 0.76 0.67 1.11 2.10
labour productivity 0.14 0.25 0.36 0.71
GDP output 0.62 0.63 1.20 1.90
labour productivity 0.16 0.37 0.44 0.74
Population growth rate 0.45 0.34 0.81 1.32

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.

12
 Stuctural change at a more disaggregate
level
Value added in different industrial branches in Britain

Millions of Millions of Millions of

current pounds % of total current pounds % of total current pounds % of total

Cotton
Wool
Linen
Silk
Leather
Soap
Coal
Iron
Copper
Construction
Beer
Candles
Paper

Total

Cotton industry grows at 6.5% per year (see the spinning machines on slide 21 – which did not work with
wool as well) and increases share in total industrial output, leather industry does not (0.9% per year) and
shrinks relatively. (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) Source: Crafts 1985, 22-25
 Interim summary

 Production grew faster after 1760 than before, at an accelerating rate.

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) → slide 13.
 service sector and agriculture also increase productivity a bit, but service sector
mostly grows in size because industrialization increases volume of transactions
 e.g., construction grew at 4% per year, but with little efficiency gains, transport, etc.
 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 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’
 As late as 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)
PAGE 14
 Productivity/Efficiency
growth through technological
and organizational
innovations

PAGE 15
 Productivity/Efficiency
growth through technological
and organizational
innovations

General perspective

PAGE 16
 What explains the productivity growth in
the IR? Using growth accounting
 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
 diminishing returns to factor accumulation
 Constant returns to scale
 assume that 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
 Dividing both sides by L allows to account for labour productivity (i.e., GDP per worker)
 taking (log) growth rates (as on slide 12) 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 reading). 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.
∆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%
PAGE 17
 Accounting for the industrial revolution
(annual percent growth rates)
1760-1800 1800-1830 1830-1860 1760-1830

GDP Output 1.20 1.60 2.30 1.36

Labour contribution 0.50*0.8=0.45 0.50*1.3=0.65 0.50*1.1=0.55 0.5*1.1 =0.54
Capital contribution 0.35*1.1=0.38 0.35*1.6=0.56 0.35*2.9=1.02 0.35*1.3=0.45
Land contribution 0.15*0.5=0.08 0.15*0.1=0.02 0.15*0.1=0.02 0.15*0.3=0.05
TFP growth 0.29 0.37 0.71 0.32
Labour
productivity Output 0.51 0.84 1.23 0.50
Capital intensity
contribution 0.35*0.3=0.10 0.35*0.2=0.06 0.35*1.7=0.58 0.35*0.2=0.08
Land intensity
contribution 0.15*-0.3=-0.05 0.15*-1.3=-0.19 0.15*-1.1=-0.16 0.15*-0.8=-0.11
TFP contribution 0.46 0.97 0.81 0.53
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 as Crafts and Woltjer. Labour productivity
growth rates are different from those on slide 12 because it seems to make a difference if 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”
PAGE 18
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 barely faster than 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 slide 10) explains
relatively little.
 some researchers (e.g., McCloskey 2010, Mokyr 2016) therefore prefer to not call it 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
 this is what we turn to now, taking up the idea of „progress“ from its economic side
 but of course, the rise of capitalism also has to do with the organization of production (the
factory system), which we come to after that
PAGE 19
 Productivity/Efficiency
growth through technological
and organizational
innovations

Technological innovations:
examples

PAGE 20
Examples for productivity/efficiency increases
through technology (I): Cotton spinning
Old times
1770s
1780s

George Walker, Customs of

Yorkshire, 1814 (Allen 2009,
p. 189)

Allen (2009), p. 191.

Technical details:
https://en.wikipedia.org/wiki/Spinning_wheel, Clark (2007), p. 234.
https://en.wikipedia.org/wiki/Spinning_jenny, Energy sources here are water
https://en.wikipedia.org/wiki/Water_frame, wheels or steam engines (or
both).
https://en.wikipedia.org/wiki/Cromford_Mill
 Technology, factories and cost reductions,
cotton industry (Greg Clark made this)

Source: Clark (2000), link; see also Clark (2007), ch. 12, and Allen (2009), ch. 8.
PAGE 22
1784 is before the factory, like in middle picture of slide 21, not “old times”.
 Examples for productivity/efficiency increases
through technology (II): steam engines:
a) Newcomen steam engine, 1712

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)
PAGE 23
 b) Watt’s improvement with a separate
condenser, 1768 (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.
PAGE 24 See Wikipedia here for a simple explanation.
 Saving coal through more efficient technology
(per horsepower-hour)

Source: Allen (2009), 165. By 1870, the best compound engines used 2 pounds
PAGE 25 of coal per horsepower-hour.
Diffusion of technology: steam engine use by
industry in 1800

Few sectors were affected (mines – Newcomen, textiles – partly as water

pumps for water mills, partly replacing water power, ironmaking – partly as
pumps, partly as motors for blast furnaces, etc.), but increasing fuel
efficiency widened the use – leading to more coal consumption…
PAGE 26
 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
on wheels; Wikimedia. under deck; FGO Stuart/Wikimedia.
PAGE 27
 Available energy resources and industrial activity:
coal and factories in England in the early industrial
revolution

Source: Taken from a website for a book which is no longer online…

PAGE 28
Energy consumption (total and by sources)
in England and Wales, 1560-1850s

PAGE 29
Source: Wrigley (2010), p. 94.
 Productivity/Efficiency
growth through technological
and organizational
innovations

Organizational innovation:
the factory

PAGE 30
 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”)
PAGE 31
Water frame in Cromford mill, 1769
(obviously a museum picture)

32
PAGE 32 Clark (2007), p. 234.
Real life: General view of spinning room, Cornell
Mill, Fall River, Mass., USA (Lewis Hine, 1912)

33
PAGE 33
“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

34
PAGE 34
Modern organizational forms diffused slowly:
Choices of organization by different industries
in Britain, c. 1840
Artisan/Craft Putting-out
Industry
workshop system
Factory Factories and mechanization
Textile were not the best option in all
Cotton
Linen and hemp
3
3
2
2
1
1
sectors (compare to slide
Silk - 2 1 13/14), and in some not even
Wool (worsted) - 2 1 used
Wool (woolen) 2 3 1
Metal 1= best choice, 3=not so good,
Iron - - 1 - = impossible.
Engine and machine
Button, etc.
2
2
-
-
1
1
Putting-out system = „proto-
Clock and watch 2 1 3 industrial“ domestic industry
Guns 2 1 3 (people working at home/in
Cutlery 3 1 2
Nails - 2 1 sweat shops [like the women
Anchor and chain - 1 2 on slide 21], often for a firm
Lock and key
Clothing
1 -
that provides raw materal and
Ribbons - 1 2 markets the produce).
Hosiery - 1 2
Hat - 1 2
Glove - 1 2
Wearing apparel 1 2 3 Source: López/Valdaliso
Lace 1 2 3 (2007), Table 4.1. (p. 150),
PAGE 35
based on Jones (1982), p. 135
 Why was Britain the
birthplace of the industrial
revolution? The main
explanations

PAGE 36
 Why Britain?
Explanations for the industrial revolution:
Single factors (1) – typical ones
1. Geography
 An island (navigation, markets, navy) with many rivers (market integration, water mills, and
coal, slide 28)
 Water transport much cheaper and faster than land transport before railways (introduced in
1830s only)
 Experience in navigation 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!). 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 (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) (slides 39-40), freer labour markets,
patent protection (see slides 40-41), 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
PAGE 37
workers, but also makes specialization and urbanization possible
 Why Britain?
Single factors (2) –more complex (?) ones
6. Social changes (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”
 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.)
7. Intellectual changes (science and knowledge, education and human capital)
 education for the masses not decisive (slides 10 & 19), but elite knowledge - slides 39,
47-49.
8. Per capita incomes (demand) - Britain was already relatively
wealthy/productive before 1750 – “industrious revolution” (slides 42-43)
 in part because of (2), 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

PAGE 38
 Some details on factor (3):
Better defined and enforceable property rights
and the Glorious Revolution as a watershed
 The famous story of the Glorious Revolution states 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 Crown to court (North and Weingast 1989)
 Better courts, no confiscation, police, patents (typical IMF requirements for developing
countries today)
 “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
 People can now lend money to the government (a big player in financial markets) and expect
the government to pay due to better courts (sue government when government doesn't pay),
and parliament limiting spending (less risk of government going into debt spiral and then
defaulting) -> investment in general less risky and more likely -> more credit available in the
economy -> easier to fund capital intensive projects -> funds available for industrialization.
 Generally: lower transaction costs, smoother organisation of innovation, capital markets, trade
→ better integration of markets for goods and factors (labour, capital)

PAGE 39
 Do institutions explain everything?

 But: 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)
 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 – 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).

PAGE 40
Patents: Invention as measured by patents in
England, 1660-1851

PAGE 41
Details on factor 8: Demand forces: an “industrious
revolution” before the industrial revolution

 Main idea: people worked more days (and also women and
children produced for the market) so they could afford ‘new’
commodities, and this created an internal market for
industrial goods, between 1600 and 1750
 Harder work = „industrious revolution“, led to more
market demand „consumer revolution“
 Less leisure, more interest in monetary income
 This runs counter the traditional view of labor force in the pre-
industrial era:
“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).

PAGE 42
Evidence for the “industrious revolution“
 The end of the Middle Age “leisure economy with time affluence”?
Broadberry et al (2015, p. 264) summarize a slowly increasing trend (with
some uncertainty) for men in England: 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).
 The evidence suggests that new consumables were adding to old
ones.
 “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.
PAGE 43
Details on factors 1 & 2 combined
Remember session 1 (right column)

Economics is a part of economic Economic history uses

history (and ‘progress’) economics

PAGE 44
From Smith 1776/2012, ch. 1 From Allen 2011, ch. 3.
R.C. Allen: High wages (because of success in
international trade) and cheap coal
=> inventions of industrial technologies
 R.C. Allen (2011): Combination of high wages and cheap energy (coal)  Gave
an incentive to invest in labour-saving machinery (“induced innovation)
 Watch here: http://www.ehs.org.uk/multimedia/tawney-lecture-2009
 “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 (see above)
 Sceptics (see slide 49) ask the question: Were new technologies only labour-saving?
PAGE 45
Technology and factor endowments (R. C.
Allen)

 Britain is a cheap energy, high wage economy

London

 http://www.ehs.org.uk/multimedia/tawney-lecture-2009
 http://voxeu.org/article/why-was-industrial-revolution-british

PAGE 46
 Details on factor 7:
Joel Mokyr: „A culture of growth“: the Baconian
program and industrial enlightenment
 Scientific revolution (17th Century)
 Pan-European phenomenon, not just British – part of the establishment
of a „culture of progress“ in „science“ (see Smith quote slide 44)
 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 choose isolation (cf class 1)
 But enlightenment in Britain “empirical and experimental” than “abstract and theoretical”
(Francis Bacon vs. René Descartes)
 “Knowledge is power” and “for the release of man‘s estate”.
 Science did not enter a state-led research program (for military purposes, etc.), but entered into
a coalition with commercial and landed interests, they 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)

PAGE 47
 Measuring the culture of progress in google
n-grams (Mokyr 2015)

Google n-grams measure the relative frequency of words (as share of all words)
in published books available in google books.
PAGE 48
 Mokyr’s “Industrial enlightenment”
and the “culture of growth”
 Mokyr denies that something like Allen’s ‘directed invention’ was relevant, because
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 specialisation and raw materials (but not necessarily 400
mio. people)
 Instead, he says the incentives to innovate are important (reputation for engineers,
via patents [cf slides 40/41], memberships in prestigious clubs or prices), and with
them the Baconian program together with a practical apprenticeship system.
 Mass human capital is not necessary, just a wide enough basis 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
PAGE 49
 Consequences of the
industrial revolution

PAGE 50
 (Some) Consequences of the British Industrial
Revolution and its (uneven) spread
• Social change: separation of production from consumption leads 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 need to be „educated“ (also as children from orphanages) to accept factory life, work
harder than before (as for the first farmers vs. hunter gatherers)
• urbanization and factory towns are initially planning disasters
• first factory towns lack sanitation, affordable/acceptable housing and therefore have much higher
mortality (see H, E, M on slide 10)
• social distance between factory owners and workers creates spatial patterns of settlement that
still shape cities today, economic inequality rises
• countryside and agriculture come to be seen as ‘backward parts’ of countries and backward
sectors respectively
• On a global level, the “great divergence” generates centers and peripheries in the world
economy, patterns that shape development outcomes in part until today, especially in the
parts where the ‘periphery‘ was conquered by the core and forced into the world economy
• Next week!
• 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‘ fueled by current (and not past) solar energy?
PAGE 51
 Energy consumption and GDP / Energy
consumption per GDP
1000 Energy Intensity (MJ/1000 1990$)
40000
50000
35000

30000

100 25000
5000
20000

15000

10000
500 10
5000
1560
1592
1624
1656
1688
1720
1752
1784
1816
1848
1880
1912
1944
1976

0
GDP capita 1990 US$

1560
1588
1616
1644
1672
1700
1728
1756
1784
1812
1840
1868
1896
1924
1952
1980
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
PAGE 52
exported or imported energy in commodities).
 Further reading (main references)
 Steve Broadberry, Bruce Campbell, Alexander Klein, Mark Overton, Bas van Leeuwen (2015).
British Economic Growth 1270-1870. Cambridge University 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
 Gregory Clark (2007). A Farewell to Alms. A Brief Economic History of the World. Princeton
Unversity Press.
 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.
 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.
 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.

PAGE 53
 References (graphs and tables)

 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.
 De Vries, J. (1994). The Industrial Revolution and the Industrious Revolution. Journal of Economic History
54(2), 249-270.
 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%20England.pdf .

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