Economics in Time and Space

Introduction

  • Economics is the study of how resources are provided and used.
  • It involves social relationships between workers and employers, consumers and firms, buyers and sellers, and government and taxpayers.
  • Economics is a subfield of social science that interacts with philosophy, mathematics, psychology, and politics.
  • Three main themes of the book:
    • Change: Economies are continually changing in technology and organization.
    • Agents: Focuses on individuals and organizations like consumers, firms, workers, banks, and government agencies.
    • Success: Explores how economies can provide the best outcomes and how they can fail; disagreements exist on what constitutes success.
  • Case study: The cotton industry, examining its change over time and structure across geographical space.

Economic Change

  • Evelyn's visit to Primark illustrates changes in cotton goods production.
  • Primark's Education Programme aims to upskill workers and create productive factories.
  • Objective: Understand what makes factories productive and its importance for economic change.

Productivity and the Division of Labour

  • Labour productivity: The quantity of output per unit of labor employed.
    • Formula: Labour Productivity = \frac{Output}{Labour}
  • Division of labor: Splitting production into separate labor tasks to enhance productivity.
  • Classical economics: Pioneering school of thought originating in Great Britain (1600s-1800s) that emphasized the division of labour.
  • William Petty:
    • Advised on Irish land distribution and recognized the benefits of the division of labour in cloth manufacture.
    • Cloth production is cheaper when divided into specialized tasks.
  • Adam Smith:
    • Considered the father of economics.
    • Emphasized the division of labor in "The Wealth of Nations" (1776).
    • Workers become more skilled and productive when specializing in tasks.
    • Time is wasted when labor is not divided into separate tasks.
    • Identified the factory as a key outcome of the division of labour.

Adam Smith’s Pin-Making Factory

  • Pin production can be divided into 18 distinct operations.
  • Example: Ten workers specializing can produce 48,000 pins a day, compared to one pin per worker if working independently.
  • Wealth of nations for Smith is based on the division of labour.

Productivity and Technological Change

  • Division of labour leads to the invention of machines facilitating specialization.
  • Examples: Spinning jenny, water frame, and water power loom in cotton production.
  • Technological change: The introduction and diffusion of new products and processes in the economy.
  • Inventions improved productivity in the cotton industry, leading to the emergence of the factory system.
  • Cast-iron steam power loom (1822) became a model for other manufacturers.

Industrial Revolution

  • Coined by historians to describe the industrial transformation in Great Britain (late 1700s and early 1800s).
  • Rapid introduction of machinery and factories for cotton production.
  • Cotton production's impact on the supply of other goods: iron for power looms, coal for steam engines, and a new chemical industry for bleaching and dyeing cotton.
  • New forms of transport (canals, roads) were required.
  • Industrial cities grew (e.g., Manchester increased from 17,000 to 180,000 people).
  • Demographic revolution: Pronounced change in population patterns.
  • Technological, social, and economic transformation diffused elsewhere, including Japan.

Cotton production across time and space

  • Portuguese explorers initiated the acquisition of African slaves in the 1430s.
  • Slaves were used in the Atlantic islands and later transported to the Americas.
  • British involvement followed, transporting millions of Africans across the Atlantic.
  • Vast merchant fleet facilitated the trade of African slaves.
  • Slave trade was a dangerous and risky business with inhumane conditions.
  • Cotton production on slave plantations took off in the United States in the 1790s.
  • Eli Whitney’s cotton gin (1793) enabled easier cotton cleaning.
  • Slave population in North America increased from half a million in 1776 to four million in 1860, with 60% working in cotton.
  • International division of labour: Cotton picking in North America separated from cloth making in British factories.
  • Vast quantities of raw cotton produced with slave labour and cotton gins.
  • Vast quantities of cotton products produced with factory labour and power looms.

Summary of Section 2

  • Key concepts: productivity, division of labour, and technological change.
    *These concepts illustrate the theme of change, using the case study of the Industrial Revolution and cotton.
    *Division of labour, underpinned by slavery and factory production, enabled this economic change to take off.

Agents of Economic Change

  • Factories played a key role in the Industrial Revolution.
  • Economic activity requires interconnected decisions by agents.
  • Agents: Decision-making units, either individuals or groups (factory owners, consumers) or organizations (banks, governments).

From Peasants to Tenants in Pre-Industrial Great Britain

  • Alternative explanation of the Industrial Revolution focuses on landlords.
  • Pre-industrial England: Feudal system with king, nobles, lords, and peasants (serfs).
  • Serfdom: Peasants bound to the land.
  • Robert Brenner: The breaking up of the feudal system in England was a key economic occurrence.
  • Economic downturns led to government taxes and the Peasants’ Revolt of 1381, forcing Richard II to abandon serfdom.
  • Peasants were replaced by tenant farmers, and landlords charged rent.
  • Tenant farmers had to improve productivity to pay rent.
  • Landlords increased their holdings of land, owning 70% of all land by 1700.

The Market for Land and the Birth of Capitalism

  • Landlord–tenant relationship led to a market for land in Great Britain.
  • Tenants competed with each other, incentivizing higher productivity.
  • Contrast with France, where peasants and nobles had different obligations and rights.
  • Ellen Meiksins Wood: The market for land dictates what happens to it.
  • Requirement to meet rent drives increases in productivity and inventions in agriculture.
  • Technological change is driven by market requirements.
  • New types of agents: landlords that rented out land and tenants that farmed the land.
  • Some peasants became tenant farmers, while others became wage labourers.
  • Market for labour services was introduced.
  • Increased agricultural productivity reduced the need for labor on the land.
  • Labourers were forced to sell their services to new factories.
  • Brenner and Wood: The market for land and the separation between tenants and workers are the origin of capitalism.
  • Classical economics, and Karl Marx coined the phrase.
  • Marx was politicized by the way people were stopped from collecting firewood from forests that had previously been common land.
  • Marx called private firms ‘capitalists’, who owned capital and whose main objective was to make profits.
  • Capitalists hired wage labor, which peasants had to move from farms to factories under the agricultural revolution.

Consumers of Cotton Goods across Time and Space

  • Consumer revolution in the 1700s, driven by cotton.
  • Marie Antoinette popularized simple cotton gowns.
  • Taste for cotton spread throughout the aristocracy and middle classes.
  • Boom in commodities like pottery, sold in shops and arcades.
  • British exports found consumers throughout the world.
  • British exports of cotton shifted away from Europe and the US and towards ‘pre-industrial’ countries after 1820.
  • Rosa Luxemburg: Industrial countries need markets in pre-industrial countries, secured by taking over these countries as colonies.
  • This was a disaster for India, where cheap machine-tooled cotton goods destroyed the Indian cotton industry.
  • Mahatma Gandhi boycotted British textiles in protest of British occupation.

Banks

  • Banks helped finance industrial ventures in the 1700s.
  • Examples: Bristol banks, The Cornish Bank, and Raikes, Currie & Co.
  • Number of banks in Great Britain trebled from 20 in 1750 to around 70 in 1800.
  • Banks were different from modern banks, with a small number of depositors and narrow investments.
  • Legacy continues in the modern banking system.
  • Some banks, like Barings Bank, operated on a global scale.
  • Barings Bank financed the purchase of Louisiana (1803), allowing the expansion of slave-based cotton plantations.

The Government

  • Government had a key role in much of the industrial change.
  • Royal Navy fostered the sugar trade and protected slave ships.
  • British government installed colonial rule in India.
  • British Empire lowered trade barriers and invaded foreign countries with cheap manufactured cotton goods.
  • British state concentrated land in the hands of landowners through enclosures.
  • From the 1700s, the British government became more actively involved in enclosures.

Enclosure Acts

  • The number of Enclosure Acts increased between 1700 and 1810.
  • Followers of Marx (Marxists) have tended to criticise these enclosures as state-backed robbery on the part of landlords.
  • Others have put more emphasis on the importance of enclosures in allowing new farming techniques to be employed, where the landlord has full control of the land.
    *Native Americans were forced to move to inferior land in territories in Oklahoma and Arkansas.

Summary of Section 3

  • A number of agents are important to understanding economic change:
    • Tenant farmers were induced to improve productivity under the pressure of paying rent to landowners. Through technological advancements, these improvements in agriculture made workers available for capitalist firms, financed by banks.
    • New products were purchased by newly emerging groups of consumers, and orchestrated by government through enclosures and the global slave trade: all part of what may be called a capitalist system.

The Success of Economies

  • For some, one of the most powerful features of economics as a discipline is that it is possible to show that economies are successful without the active involvement of government. To consider this approach, I will go back to the ideas of Adam Smith.

The Role of Self-Interest

  • Economic success is premised on a division of labour between producers, each specializing in separate tasks.
  • Success depends on improved outcomes based on the increase in productivity generated by specialisation.
  • Assumptions:
    • Individuals are self-interested.
    • The baker specializes in baking and sells his surplus to the butcher and the brewer.
      *The more surpluses they produce, the more goods they get in return – and all are best served as a result.
  • Invisible Hand: individuals may only be intending their own gain, doing so they are lead by an invinsible hand to promote an end which was no part of his intention.
  • No need for government intervention.
  • Individuals can be selfish and yet can achieve the most successful outcome for the common good.

The Role of the Market

  • Smith favored basic state expenditure on military defense of a country, so long as it did not encroach too much on the private sector of the economy.
  • On occasion it may also be necessary for government to fund services that are beneficial to society as a whole, such as education.
  • Smith was attracted to the Ancient Greek system, in which tutors were paid according to the number of students that attended their lectures.
  • For Smith, markets operate through price and competition.
    • Price: An amount of money required to purchase a unit of goods or services.
    • Competition: Where agents are driven to outdo each other in markets.

Liberalism

  • championed the idea of competition, based on freely operating private individuals
  • Individuals should have freedom of expression and freedom from political oppression and tyranny.
  • Main pillars based on free market approach:
    • Free Trade
    • A free Market For Labour

Free Trade

  • A policy that promotes the removal of barriers to trade between countries.
  • Main economist to argue against the corn laws was David Ricardo
  • After the Second World War, free trade became a mainstream idea in the world economy.
  • Supporters of the WTO argue that it has been successful in increasing trade, with particular benefits for developing countries.
  • Arguments that free trade leads to higher wages and lower poverty

A Free Market for Labour

  • The second pillar of liberalism is that government should not impede the free market for labour.
  • Medieval times, vagrants and beggars had been able to receive poor relief from their parish, as formalised in a series of Poor Laws.
  • In the early 1800s this system faced reform from proponents of liberalism.
  • Bentham was keen that the manufacturer could maintain a hold over his workers by ensuring that the pain from working was less than the pain from not working.
  • Under the 1834 Poor Law Amendment Act, which was driven through parliament by Bentham’s assistant, Edwin Chadwick, a new system of dealing with the poor was developed, in which people who could not manage on their own were offered accommodation tied to employment: the workhouse.

Marxism and the Case Against Liberal Capitalism

  • Perhaps the greatest critic of liberal capitalism was Karl Marx.
  • By bursting asunder the old feudal system, capitalism was a progressive force for humanity, not just in terms of economic benefits but in its impact on other aspects of society, such as religion.
  • The new agents, capitalists and workers, were brought into direct conflict.
  • There is ‘shameless, direct, brutal exploitation’ of workers
  • In Capital, Volume 1, Marx sees exploitation as being based on the extraction of a surplus from workers
  • Wages … imply by their very nature that the worker will always provide a certain quantity of unpaid labour
  • For Marxists, this exploitation is the basis for an increasing degree of inequality across the world.
  • New global division of labour has led to the de-industrialisation of the clothing industry in places like Burnley.

Summary of Section 4

  • You saw how economics can look at both success and failure:
    • Building on the insights of Adam Smith, success can be based on the self-interest of individual agents, which, through competition in markets, can generate high productivity, low prices, capital and wealth. Enshrined in the set of ideas referred to as liberalism, this approach culminates in the worldwide move towards free trade of goods and labour.
    • Set against this is the argument that liberal capitalism is based on exploitation and poverty, as pioneered by Karl Marx. This insight into two extreme positions demonstrates how contested economics is at its core.

Conclusion

  • Themes:
    • Change: From freeing peasants from the land to the formation of empires, the birth of the consumer, and the invention of new technologies.
    • Agents: Key decision-makers, including firms, banks, and government.
    • Success: Markets can generate wealth alongside inequality.
  • Historical roots of economics are important.
  • Need to be analytical, thoughtful, and aware of different perspectives (pluralist approach).

How Economics in Context is Structured

  • Part 2 (Chapters 2–5): How markets work, arguments for and against free competitive markets.
    • Consumers buying goods (demand) and firms supplying them (supply).
    • Economic models analyzing how consumers and firms compete by responding to price changes.
    • Markets lead to a state of equilibrium in which prices and quantities are determined.
  • Part 3 (Chapters 6–10): Context that markets operate within, how economic institutions and government shape markets.
    • Major markets: labor, capital, international markets.
    • Role of government in the economy.