Economic History Partial One

What are the two main changes the industrial revolution brought to our world

1. Technological advancements

2. Labor intensive economies changed into machine based economies

Why did the West industrialize first (Overview)

The conditions for growth in the early modern period were fundamentally different in Western Europe in terms of:

1. Social Structure

2. Political Institutions

3. Science and culture

4. Demography

5. Economic Incentives

What are the main topics that explain the difference in social structure in western europe

• Karl Marx’s theory of capitalism

• Property and labour relationships

What are the stages in Marx’s schematic account of historical development

1. Primitive communism

2. Slave society

3. Feudalism

4. Capitalism

5. Socialism (Predicted)

Explain the origin of capitalism

• The origin of capitalism was set in motion by capital accumulation, which happened due to:

  • Dispossession of the peasant class, which meant there was a free propertyless working class

  • The existence of mercantile capital due to surplus extracted from the colonial trading system

Explain what Marxist theory attributed the path of eocnomic development to

• Marxist theory contended that property and labour relations are what determine the path of economic development

  • The medieval economy was based on serfdom, and so it limited labor mobility and capital markets

  • And so the modern economy, which was based on industry and commerce, could only develop with capital institutions like free markets and a landless working class

Critiques on the Marxist theory of capitalism

• Vibrant trade in medieval cities has already demonstrated capital features

• Serfdom was not a “blanket of tradition”

  • Markets existed, and peasants responded to commercial opportunities

  • Serfdom was flexible: Landlords demanded tribute in kind, money, or labor

What are the main topics that explain how European Political institutions were different from the rest of the world?

• Liberal political economy theory

• European state centralization

• Doorstep conditions for democratic transition

Explain the liberal political economy theory

• Economic development is determined by political institutions: Secure property rights and limited government

• Key work: North and Weingast (1989)

• The Glorious Revolution in England created a parliament, which is good because

  • They could impose taxes and abolish monopolies, business friendly culture

  • Kings could not remove judges, which meant secure property rights

  • The king could only issue new debt guaranteed by parliament which increased fiscal capacity and public investment

Critique on the liberal political economy theory

• Secure property rights existed in places like France and China yet no growth was seen there

• England wasted high taxes and public debt on global warfare

How was Europe different when it came to state centralization?

1. Medieval kings relied on feudal armies

2. First consolidated nation-states with centralized governments

3. Absolutism: The crown, along with the parliament, formed a monopoly of power

   1. Royal absolutism: Portugal, France, and Spain

   2. Parliamentary absolutism: England

Describe centralization in Europe in the 17th century

• State consolidation along the atlantic and north sea, so lots of centralization around Europe

• Italy and Germany fragmented until the 1860s

What are the doorstep conditions for democratic transition?

1. Equality before the law

2. Permanent institutions to regulate social conflict

3. State monopoly of violence

All three conditions require state centralization, so the new model that achieved this centralization was called the fiscal-military state

What are the main topics that explain how Europe’s science and culture was different from the rest of the world

• Cultural change favoring growth

• Human capital growth

• The printing press

• Apprenticeships

What culture change favoring growth did Europe portray

• Protestant revolution

  • Weber: The rise of the West was explained by Western rationality that arose from protestant theology

  • However, the empirical evidence is unconvincing

• Scientific revolution

  • Modern technology

  • Mokyr: Industrial Enlightenment

    • Western exceptionalism: The scientific approach was widely used in Europe, but not elsewhere

    • Useful knowledge: Scientific method was applied to the study of tech

• Bourgeois identity

  • Mccloskey: English society valued knowledge and entrepreneurialism

Explain the rise of human capital growth in Europe

• Key to economic growth

• Cities and the printing press increased literacy

• Rising numeracy, since they now had books on math and geometry

• Manufacturing skills

  • Apprenticeships taught urban crafts

  • England trained the most skilled artisans

What was the key science and culture invention in Europe, explain

• The printing press

• Invented by Gutenberg in 1448

• Printing quickly diffused in Germany

• By 1480: It was well established in Western capitals

• Until 1650: It spread in Europe and not beyond

• Overall, from 1450-1650, we had widely facilitated printing in Europe

Evidence on literacy and the critique

• Extreme literacy growth between 1500 and 1800, tracked by seeing those who could sign their name

• However, the usefulness of literacy before 1800 is widely contested

Apprenticeships: State the effects and why it was attractive

• Industrial skills developed slowly

  • Accumulation of industrial skills

  • Diffusion of proto-industries

• Apprenticeship was attractive in England because

  • There was competition (Best masters)

  • Integration (People moved from rural areas to London)

  • Social mobility (All social classes could participate)

How was demography different in western europe

The Malthusian theory: When income increases, fertility increases and mortality decreases, but population growth depresses average well-being. While restricted fertility means higher living standards.

Explain the Malthusian trap

Growth in pre-industrial Europe was limited by a self-equilibrating mechanism:

1. Birth rate was constant, only increasing if real wages increased

2. Death rate declined with rising real incomes

3. Real incomes declined if the population increased

soo growth of both the population and living standards was unsustainable

According to the Malthusian model, what happens as income increases?

1. Parents afford more children

2. More children survive to adulthood

3. Fewer people die

So the population increases

As population increases and land stays constant, income decreases (Diminishing MPL)

Bottom line: In the long run, population growth absorbs any gains in income

According to the Malthusian model, what happens if there is a fall in birth rate or an increase in death rate?

1. Population decreases, and so MPL increases

2. Income increases

A non technological improvement only leads to a temporary increase in income

What are the long-run implications of the Malthusian model?

• Inverse relationship between population growth and income

• Income/ real wages are stationary in the long run, close to subsistence level

Give some evidence that supports the Malthusian model

• English data is broadly supportive

• Most of the Pre industrial world was Malthusian

• North Western Europe diverged early on

How were economic incentives different in Western Europe

• European marriage pattern

• Economic incentives favoring industrialization

Explain the marriage pattern in Northwestern Europe

• 24-26

• High fertility within marriage

• Many women never married (10-25%)

• Low illegitimacy (3-4%)

Explain the marriage pattern in Southern and Eastern Europe

• 16-19

• Very high fertility within marriage

• Very few women never married

Hajnal line

• A line that proposed an east/ west divergence in Europe

• East= East+ Southeast + Southern Italy+ Spain + Finland + Iceland

• West= North West

Explain the reasons behind the Western Marriage pattern

• Late marriage

  • Nuclear families: had to earn enough

  • Urban economy: male apprentices and female servants could not marry

• Girl power

  • Urban jobs= Women supporting themselves

  • The opportunity cost of marriage was high (Domestic service)

• Littl efertility control= Growth was held in check by economic incentives

What were other economic incentives that existed in Western Europe that supported industrialization?

• Consumerism

  • Access to trade and goods made people want to work hard

  • This is referred to as the Industrial Revolution = working-class efforts increased

• Globalization

  • International trade meant higher living standards and human capital, which was connected to urbanization

• Industrial tech was a response to high wages

  • Scientific Revolution and literacy enhanced the supply for innovation; high wages created the demand for it

What are the sources of moderne economic growth?

• Measured through GDP, per capita, per worker, etc.

• Schumpeterian: Results from accumulated capital and technology

What are the determining factors regarding global inequality?

• Little to do with natural resources

  • Countries could have great land and still be poor

  • Resource rich countries often have inefficient institutions

• Capital and technology matter the most

  • RIch countries have the best trained workforce

  • Best and more machines

What are the sources of pre modern growth?

• Smithies: Results from specialisation and trade

• Technological progress was slow as a trial and error process was the main method used

• Capital was little and it complemented labor

Two key theories made by Adam Smith in the Wealth Of Nations

Invisible Hand: Resources naturally go to where they are used best

Division of labor: Specialisation is cheaper and more efficient, which implies the idea of economies of scale

Explain economies of scale

• Gains from specialization and the division of labor

• Gains from trade

• However, market size limits the division of labour

• Cycle: Ubranisation= Bigger markets → Specialisation → Higher labor productivity → Higher output per worker → Growth

Pin factory example

• 10 workers, each producing 20 pins= 200 pins total

However, if specialization and division of labor are used

• 10 workers producing 4,800 parts each= 48,000 pins total

Again, this is only worthwhile if a large market exists to buy the output

• Before specialisation: Producing more food meant being able to produce less cloth

• Post specialisation: For the same amount of food, more cloth can be produced and vice versa

What were the limits of pre industrial trade

Transportation costs:

• Technology was not advanced

• Custom borders

• Bad routes

Other transaction costs:

• No common currency

• Heterogeneity of measures (Kilos, pounds, etc.)

• Lack of a common language

Lack of security and trade disruptions (War, epidemics)

and sooo: Only goods with high value relative to their weight were even worth trading

Explain how European markets became larger

• From the 5th to the 8th century: European population decreased by ½

  • Depopulation, along with trade disruptions, meant cities declined

• From the 9th to the 14th century: Population increased by 3x, and so cities increased

In Italy: There was little growth post-11th century

In Northwest Europe, cities grew drastically

Before 1500, the European rate of urbanisation was similar to india and china

Explain what the silk road was and how it impacted pre industrial growth

• Connected china, middle east, europe, and central asia

• Allowed luxury goods to be traded like silk, spices, tea, and porcelain

• Larger markets meant more specialisation, which meant the diffusion of technology and increase in urban growth

• No low value goods traded on the silk road

The Black death and its economic consequences

• Trade routes spread disease

• Started in Central Asia and spread along caravan routes and to the Mediterranean

• Dense trading cities became major centers

• 30-50 % of the population died in Europe

• Cities were hit

• Urbanisation and trade decreased

• Agricultural economies returned

• Labor was rare, and so wages increased (Beginning of the high wage economy)

• The reneissance created a cultural revival

Europe after the Black Death (Renessaince Period)

1448: printing press

1470s: Rifle

1488: Cape of Good Hope reached

1492: Columbus and the Americas

1498: De Gama reaches India

1517: Protestant Reformation in Germany

Outcomes:

• Printing and the Protestant Reformation increased literacy

• New routes and a military advantage: Colonisation led to a commercial revolution

Explain the European overseas expansion and its consequences

• 1492-1913: Imperialism

• Wave 1(1500s): The Americas and Africa were conquered by Spain and Portugal

• Wave 2 (1600-1800): British, Dutch, and French colonies in the Americas and trade colonies in Asia

Led to new commercial institutions:

Private stock-listed companies raising unprecedented amounts of capital from 1000s of investors (English East India Company and Dutch East India Company)

Bottom line: Euro overseas expansion was driven by commercial motives and led to a much larger market and faster commercial expansion

Give some examples that show the importance of commerce when it comes to expansion

• Britain went to Ceylon for pepper and tea

• Britain went to the Cape Colony for defense and ships

• Britain went to the Caribbean islands for sugar

• To supply plantations, slaves were shipped (the slave trade became even larger than the shipping of goods)

Atlantic trade became the engine: Increased so much after 1600, and by 1800 Atlantic trade was larger than medditerranean trade

Explain the little divergence

• Trade shifted from Italy to england

• Structural change occurred: Ubranisation and proto-industrialisation

• Economic consequences: High wage economy, the agricultural revolution, and the energy revolution

What was the commercial revolution?

• New goods at lower prices, meant more demand

• Economic consequences: Consumption increased, markets became larger, and an increase in business opportunities.

What is proto industrialisation

• 17th century, households produced everything internally

• Small scale manufacturing expanded before factories

• Production became more specialised and commercial

• The growing demand stimulated manufacturing

What is the industrious revolution

• New goods change behavior

  • Work increased

  • Producing for markets increased

  • Buying increased

• Evidence: More working days per year

How was Europe able to out compete foreign producers?

• Until 1700: Manufacturing expanded through trade within Europe

  • Imitation of Flemish and Italian textiles

  • Rise of textile manufacturing in Italy and the Netherlands

  • Italian cloth was driven out of Northern Europe

• From 18th century: Overseas trade increased imports

  • British textiles substituted for imported Indian cotton cloth

  • European porcelain replaced Chinese imports

Overall: Trade first transmitted ideas and products, european industries improved, and so they outcompeted foreign producers

Structural change: Agricultural imports descreased, manufacturing and services increased, and urbanisation increased

What are historical national accounts and how can they be used?

• Reconstructing output, income, and population from archival sources

• Angus Maddison pioneered systematic long run international comparisons

  • Maddison project extends and revises them

  • Estimates are more uncertain as we move back in time

Explain the two different theories on wage differences

Smith: Wages were highest in the commercial centers of the North Atlantic

Malthus: Demographic behavior explains international wage differences

• Wages higher in England with fertility restrictions

• Wages lower in Asia with high fertility

Contemporary traveller accounts supported these views

What are the two benchmarks used to analyse income

• Subsistence basket

  • Minimum calories and protein

  • Classical local food (No meat, dairy, bread, butter, or oil)

  • Minimal clothing, fuel, etc.

  • Adult male= 1900 kcals

  • Differs across countries

• Respectability basket

  • More calories and higher quality protein

  • Bread, meat, dairy

  • Comfortable working class

  • Rich diet= 2500 kcals a day

  • High protein for high manual labor

  • Based on historical household budgets in England and Holland

List some large differences in living standards between different countries

England: The best-off workers had meat, bacon, cheese, and bread instead of oats and barley

Dutch: Bread, meat, butter

French: 95% of the diet consisted of cereals, with little animal protein

Italy: Living standards declined in the early modern period, polenta became a staple

China: Rice and the occasional fish

India: Cheap grains, poorest diet, meat was taboo

What are two ways we can measure historical living standards?

• GDP Per capita

  • Broad measure of average economic performance

  • Pre 1870: Estimates were scare and innacurate

  • Point estimates, no continouous series

• Real wages

  • Simpler and easier

  • Direct measure based on historical wage and price observations

  • Measures purchasing power of labor income

  • More comparable: Usually collected for simple trades in every country (Farmer w farmer, etc.) and nominal wages are deflated using the same approach

Method for constructing real wages

1. Nominal wages

   1. Collect daily wages

   2. Convert currency to a common unit (Silver)

2. Cost of Living

   1. Consumption basket

   2. Local price for items

   3. Cost of purchasing basket

3. Real wage

   1. Welfare ratio= annual earnings/ annual cost of the basket

   2. 1= just enough, >1 above subsistence

The little diveregnce in real wages

• Black death increased wages in Europe, and then wages declined towards subsistence until the 19th century

• England and the Netherlands: Wages remained high for centuries

• Calculated under and assumption of 250 days of work per year, is that an over statement?

The little divergence in purchasing power

• Higher purchasing power in England and the Netherlands; even respectable baskets were affordable

• High wages genuinely translated to high purchasing power

The little divergence in skilled wages

• England and the Netherlands remained high-wage economies

• Exceptionally high purchasing power

• Allen: Expensive labor increased the pay off of using labor saving technology

Explain why New England had high wages with no early industrialisation

Atlantic trade:

• Abundant land meant a very high land to labor ratio

• High wages attarcted migrants from Britain

• Colonies specialised in primary exports for European markets

BUT economic structure was agriculturally heavy:

• Colonial america was rural

• Manufacturing was limited before independence

• Urbanisation and industrialisation expanded post 1776

so… by 1800 New England had the highest waged in the world but it did not automatically lead to industrialisation

How was New England exceptional?

• Massachussets had higher wages than London

• Britain was still well above continental Europe

• North Atlantic economy combined high wages with expanding markets, increasing growth

• High wages alone cannot explain why industrialisation happened in Britain

How did nominal wages differ across England?

• London was the highest wage labor market

• Wage differences between cities lasted for centuries

• Yet industrialisation happened in North and midland England NOT london

Explain what high wages provided in terms of living standards

• More food

• More expensive food like sugar and tea, meat and dairy

• Alchohol consumption

How does the biological standard of living prove that england had better living standards

• Adult height reflects childhood nutrition and disease environment

• 18th century English people were 8-10 cm taller than thos in France, Italy, and Austria

Explain income and social structure in England

• Only cottagers and the poor lived at subsistence

• Average Englander’s income was x5 subsistence

• Even ordinary worked made x3 subsistence

• This broad purchasing power created a large domestic market for manufactured goods

Explain the role of agriculture and how it limits growth

• Food is a necessity

• Society can only start producing non-agricultural goods if farmers produce a surplus

• Agriculture limits economic growth because (Smithian)

  • The population depends on it

  • Only surpluses allowed specialization

  • Higher farm productivity meant bigger towns and trade

How does industrialization depend on agriculture?

Industrialization needs resources and markets and both rest on agricultural productivity because it led to less labor demand and an increase in food surplus, which meant increased urbanization.

This is exactly why England and Holland were more urban.

• They had higher labor productivity for the average worker

• They ahd high farm output per unit of land

Give a brief timeline of teh agricultural revolution

• The black death

  • Decreased population

  • Land abandonment

  • High wages

• Consumers demand

  • Less grain

  • More meat and dairy

• Farmers Response

  • Shift from arable farming to livestock

  • More animals meant an increase in power and manure

  • Both of these shifts meant an increase in productivity

Explain the new sources of growth that the agricultural revolution brought

• Capital

  • Higher wage meant money to invest in livestock

  • Greater draft power meant less labor

• Technology

  • Natural fertilisers

  • Better fertility meant better yield

Explain the cycle of self sustaining growth that occured during the agricultural revolution

Increased livestock meant more power and manure which meant increased labor productivity and higher yields which meant higher wages which meant more livestock and the cycle continues.

The classic explanation for England’s exceptional agriculture

Changing land tenure.

Open fields before the black death meant that land was divided into many scattered strips, and there was collective management of the fields.

Enclosures meant that land was consolidated into larger farms.

Also, as a consequence of the rising demand for english wool farmers started switching to livestock farming.

Enclosures timeline

1500: About 50% of farms enclosed

1750: 2/3 enclosed

1760-1830: Parliamentary enclosures accelerated consolidation

• 18th century English agriculture was dominated by consolidated landholdings rented to capitalist farmers.

Explain capitalist farming and provide an example.

Capitalist farming occurred when wealthy investors increasingly bought agricultural land and large estates were rented to commercial tenant farmers, and so farming became more market-oriented.

An example is Albany Wallis, a London solicitor, who was also a member of parliament.

Compare open fields vs enclosures

Open fields:

• Farmers cultivated many scattered strips

• Villagers coordinated crop rotation

• Some land lay fallow to restore soil fertility

Enclosures:

• Small strips were merged into larger fields

• Hedges and fences defined private property

• Larger farms were easier to manage and invest into

How were open fields inefficient?

• Villagers being forced to cooperate meant that it was hard for innovation to happen

• Peasants land was separated and far away which meant costly friction

• Lands were rotated among villagers and so there was no incentive to invest

How were enclosed fields efficient?

• Large consolidated holdings meant people could benefit from economies of scale

• Tenant farmers invested in capital to economise on labor

• Long leases meant tenants were interested in improving and maintaining yields

Explain the broad effect of enclosures

Enclosures meant an increase in productivity, which meant less farm labor needed, which led to urbanisation, which led to industrialisation.

How can we measure agricultural productivity

Farm output must be estimated from consumption.

• Old approach: Backward projection of output assuming constant food consumption per capita.

• New approach: Adjusting consumption to income levels.

Allen found that

• There was rapid growth before 1750

• Slow growth in the 18th century

• Rapid growth during industrialisation

How does Allen decompose agricultural growth? What does he compare?

• Adoption of new crops and rotations- Technology

• Land use- Arable to grass

• Crop yields

• Labor productivity

Explain the mixed evidence about open fields vs. enclosures that Allen’s decomposition brought around

• Advanatge of enclosed farming was only 6-15%

• Enclosed and open fields both saw large improvements

What are the sources of agricultural productivity growth

• Increased draft power per worker

• Increased land per worker

• Better farming techniques

Give the two opposite views explaining what the incentives were to adopt new agricultural techniques

The traditional view: Improvement in agriculture led to increased urbanisation

Allen’s view: Urbanisation led to improvement in agriculture

(Cities created the demand for agricultural innovation and growing trade is what led to the growing cities)

Explain the mechanism that explains Allen’s view on the incentive to adopt new farming technniques

• Explained by Von Thünen in 1826

• Urban demand raised the prices of farm products that were expensive to transport so goods were produced near cities

• Evidence: Farms near London shifted from arable production to pasture so they could supply meat and dairy. However, grain production remained spread out

Explain what growing cities meant in terms of wages and prices and how farmers responded

Growing cities meant higher wages and more expensive food and so farmers responded by enclosures, saving labour through pastures, and investing in productivity.

Compare farm and urban wages

• Urban wages were a lot greater than farm wages

• Farm faced growing labour shortages

• Labor saving innovation became profitable

Explain the difference in agricultural mindest before and after 1630

Before:

• Rural wages were high

• Labor was not scarce

• Little incentive to innovate

After:

• Workers moved to cities

• Labor was scarce

• Farmers consolidated

• Productivity improved

What are the origins and consequences of the high wage economy

Origins:

• Commercial revolution

• Agricultural revolution

Consequences:

• Proto industrialization

• Industrious revolution

• Skill accumulation and literacy

• Innovation in agriculture

Explain the difference between Britain and the low countries when it came to the origins of the industrial revolution

• Both Britain and the low countries had agricultural and commercial revolutions

• However, Britain industrialized first, followed by Belgium, not the Netherlands

One of the main differences is Coal.

• Most of the world’s coal existed in Britain in the 18th century

• Southeast Belgium was the only other region of significant coal production

• The rest of the world still used traditional energy

The timber crisis hypothesis (Nef 1932)

• Until the 17th century, Britain cut down its forests for heating fuel and material for shipbuilding

• However, a timber shortage meant that wood and charcoal were replaced by coal

• Evidence: Coal mining increased around 66x between 1560 and 1800

• Based off of wood prices rising after 1650

Allen’s critique of the timber hypothesis

Allen believes the timber hypothesis is incomplete and that the phenomenon was actually related to real prices.

• The increase in wood prices reflected inflation

• Real wood prices rose after urban growth increased the demand for wood

• However, coal only became cheaper in 1650

• Implication: Higher prices were more likely to be driven by urban growth

Explain the importance of coal

• Coal created a shift from an organic to a mineral fuel economy

• It helped create the first modern industry

  • Geographically concentrated (Northeast)

  • Large-scale production (Mining)

  • High investment requirements

  • Strong industry linkages (Finance, insurance, shipping)

• Later technological spinoffs:

  • Steam engine

  • Mass production of iron and steel

  • Railways

Explain the coal regional spillover

• The coal burning hosue was invented and spread to Western Britain and Scotland

• The growth of cities raised the demand for fuel further, which increased coal mining

Explain the supply and demand characteristics of the coal industry

• London became Europe’s largest city

• Rapid urban growth led to increased fuel demand

• Increased demand made coal mining commercially attractive

• Coal mining developed in the Midlands and in the north of britain

Explain how the growth of london led to the increase in fuel prices

• By 1800, London had a population of 1 million

• Timber had to be transported over longer distances as fuel demand for london grew

• Transport costs meant that fuel prices increase

Why didn't coal become expensive like wood?

• Coal was not clean energy

• Houses and industries still preferred charcoal

• And so coal could only be sold as discounted fuel, but reserves were unlimited

• Coal behaved like a backstop technology

  • An energy source that provides virtually unlimited power at a constant unit cost

The transition from wood to coal

• Wood prices increased as london grew

• Coal prices remained stable

• Once wood became expensive, coal mining became profitable

• Coal demand increased, and so coal responded

How was energy like in 1700 and 1800, why did this not happen earlier

• By 1700, ½ of coal was used for heating

• By 1800, almost all thermal energy was derived from coal

• Tech constraints prevented the energy revolution from happening earlier

  • Medieval fireplaces burned wood

  • Coal produced smoke and sulphur that were dangerous

  • Existing houses were unsuitable

• The new heating technology is what made coal practical

Explain the new house design innovation and diffusion

Innovation:

• Closed fireplace/ metal chamber

• Chmineys created to keep smoke away

Diffusion:

• Common in London by the 17th century

• Great fire of 1666 accelerated adoption

• Coal trade took off in the Southeast when new designs became common

Explain the impact of the great fire of 1666

• Complete destruction

  • 80% homeless

  • 5/6 of the city destroyed

• Reconstruction

  • Happened quickly because London was a global trade hub

  • Reconstruction spread modern coal burning houses

  • Higher timber demand made coal even more attractive

Explain collective invention

• No patents, so gains were non-excludable

  • The industry must internalize the cost of innovation

  • The rate of innovation depends on the market size

• London’s reconstruction accelerated technology

• Innovation became cheaper because many builders experimented simultaneously

Coal pre 1660 vs post fire

Pre-1660:

• Firewood cheap

• Little incentive for coal

Post:

• Coal tech spread

• Wood was expensive

• Demand for coal increased

• Coal mining expanded