Industrial Revolution: 1750–1830 Why Britain? Later 19th ... · Industrial Revolution: 1750–1830 Why Britain? Later 19th century Papers for essays Textiles Mokyr (1990, Ch 5)

Lecture 7Technology II

Matti Sarvimäki

History of Economic Growth and Crisis18 March 2014

Industrial Revolution: 1750–1830 Why Britain? Later 19th century Papers for essays

Outline of the course

1 The Malthusian Era2 Fundamental causes of growth3 Innovation and crises

1Technology

1Industrial revolution, 1750–1830

2Why 18th century Britain?

3Later 19th century

2 Finance

4 Unleashing talent

Matti Sarvimäki Economic History Technology II 1 / 31

Real wages of English building workers(Clark 2005, JPE)

1308 journal of political economy

Fig. 1.—Builders’ real day wages, 1209–2004 (source: table A2)

wage observations and 110,000 observations on prices and housingrents—the details are given in the Appendix. The body of the paperconcentrates on the resultant series and their implications.

The most important implications are that the break from the Mal-thusian era of little advance in efficiency in England began circa 1640,long before the famous Industrial Revolution, and before even the emer-gence of the modern political regime in England in 1689. Further, whileit is possible that the fundamental cause of this break was much greaterinvestment in human capital, those gains in human capital investmentcannot have their origin in the incentives provided by labor markets.Both real wages and the premium for skills in the seventeenth centurydid not change in such a way as to induce a switch to fewer childrenof higher quality. Finally, the new series suggest that the classic IndustrialRevolution of the eighteenth century was much more favorable to work-ers’ real earnings than other recent studies have implied.

Figure 1 shows the estimated real purchasing power of the hourlywage of building workers from 1209 to 2004 by decade. Before 1870,when wages are mainly quoted by the day, work hours are assumed tobe 10 per day. The Appendix shows that, if anything, work hours before1800 were possibly higher than 10 per day, so that the gain in real wagesin the Industrial Revolution era is perhaps greater than the figuresuggests.

Before 1800, though there were major fluctuations, real wages displayno clear trend. Wages in 1200–1249, for example, averaged only 9 per-

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Mokyr (1990, 81): “In two centuries daily life changed more than it had in the 7,000years before. The destablising agent in this dizzying tale was technology, and Westerntechnology alone. Of course, technological progress did not start in 1750, and thedifference between the period after 1750 and the period before it was one of degree;but degree was everything”


Industrial Revolution, 1750–1830Mokyr (1990, Ch 5)

The Industrial Revolutiontypically dated between 1750–1830and located in Britain (though other European countries and,later, the United States also were sources of innovations)

Was it a “revolution”?per capita income did not improve much intitallybut production technologies changed dramatically



Industrial Revolution, 1750–1830Mokyr (1990, Ch 5)

Huge technological progress in some industriespower, metallurgy, textiles, high-precision machinery tools...

Little progress in in other industriesservice, construction, food processing, apparel making

Innovation was not particularly scientificthough scientists made many important innovationsMokyr: “A typical innovator in those years was a dextoreous andmechanically inclined person who became aware of a technical problem tobe solved and guessed approximately how to go about solving it”


Power technologyMokyr (1990, Ch 5)

Newcomen’s engine

Boiler (A) produces steam intothe cylinder (B) and the steamis then condensed with coldwater. Pressure differential withthe atmosphere drives thepiston (P) down.

Steam engine’s “scientific” backgroundrealization that an atmosphere existsthermodynamics developed much later(started in 1824 with Sadi Carnot’s work thatexplained why steam engines work)

Newcomen’s engine first economicallysuccesful one (installed in a coal mine in 1712)

Watt designed an improvement thatgreatly increased efficiency

“his mind ran upon making enginescheap as well as good” (autobiography)

Trevithick: high-pressure machine, 1802smaller and more economicalfitted boats and horseless carriages

Waterpower: breast wheel, turbine


MetallurgyMokyr (1990, Ch 5)

1760–1790: coke replaced charcoal in iron smeltingallowed to build bigger and more efficient blast furnaces

1784: Cort’s puddling furnanceimproved the process of turnig pig iron (intermediate productfrom the blast furnaces) into wrought iron (“pured iron”)

1829: Hot blastreduced fuel requirements by factor of three by using blastfurnance’s own gases to preheat the air

These innovations led to high quality and cheap wrough ironalmost literally the building block of the Industrial Revolution



TextilesMokyr (1990, Ch 5)

Spinning: the central technical problem in textilesfor millenias, human fingers were the operating part

1738: Lewis Paul’s patents a mechanical spinnerusing rollers to replace fingers in cotton spinning

1769: Richard Arkwright patents the water frame“water frame” because used water powerused two pairs of rollers ! actually workedArkwright often credited as creating the modern factory system

1770: James Hargreaves patents the spinning jenny1779: Samuel Crompton invents the mule

produced cotton yarn that was cheap, fine, strongmade all-cotton clothing possible


http://en.wikipedia.org/wiki/Newcomen_atmospheric_engine


TextilesMokyr (1990, Ch 5)

Innovations for preparing raw cotton for spinning1742: carding machine1793: cotton gin (1793)

Other textile innovations1783: Metal printing cylinders1784: Bleacing using chlorine1785: first power loom (a working one around 1815)

Summary of textilesbetween 1760–1800 “a feverish wave of inventions focused onthe manufactuing of cotton”cotton grew in unprecedented paceregarded as the quintessential growth industry of the earlystages of the Industrial Revolution



Other innovationsMokyr (1990, Ch 5)

High-precision machine tools (UK)vital ingredients for the other innovations

Chemical industrychorine bleaching (France, 1789)Leblanc soda (France, 1791)

Gas lighting: Machester, London in 1807(based on earlier inventions made in Germany and France)

Ceramics and glass: many inventions in the ContinentPapermaking: continuous sheet machine (France, 1798)Flying: Montgolfier brothers’ balloon in (France, 1783)

see Richard Holme’s wonderful “The Age of Wonder” for details



Why 18th century Britain?

One of the key questions in economic historywhy didn’t these breakthroughs occur earlier?and why did they take place in Europe, particularly England?

The field remains very active, recent books include:Robert C. Allen’s The British Industrial Revolution in Global Perspective(2009), Gregory Clark’s A Farewell to Alms: A Brief Economic History ofthe World (2007), Jan de Vries’s The Industrious Revolution: ConsumerDemand and the Household Economy, 1650 to the Present (2008),Deirdre McCloskey’s Bourgeois Dignity: Why Economics Can’t Explainthe Modern World (2010), Joel Mokyr’s The Enlightened Economy: AnEconomic History of Britain 1700–1850 (2010), Jan Luiten van Zanden’sThe Long Road to the Industrial Revolution (2009), E. A. Wrigley’sEnergy and the English Industrial Revolution (2010)

A broad categorization of the explanations:1 Ideas (macro-inventions, science, culture)2 Incentives (institutions, prices)



Genius and luck

Hypothesisradical new ideas (macroinventions) appear “from nowhere”Mokyr (1990): “[macro-inventions] do not seem to obey obvious laws, donot necessarily respond to incentives, and defy most attempts to relatethem to exogenous economic variables. Many of them resulted fromstrokes of genius, luck or serendipity”

Criticismwhy would 18th century Britain have more genius and/or luckthan other countries and time-periods?a substantial R&D period typical for the big inventionsmany of the inventors appear to have been motivated by profit



Science

Hypothesistechnological breakthroughs were applications of scientificdiscoveries that were not made for economic reasonsScientific Revolution: advances in physics, astronomy, biology,chemistry, anatomy in the 16th and 17th centuries

Criticismlittle sign of productivity advance between 1540–1760little evidence of the inventors drawing from scientific results



Scientific culture

Hypothesis: “Industrial Enlightenment”scientific, experimental methods applied to technologybelief that the universe could be apprehended by scienceidea that science and technology would improve human lifeincrease in literacy rates, printed material

CriticismEnlightenment was not a particularly British movement... and it started about a century “too early”inventors were craftsmen with limited formal educationincreases in literacy rates may be due to economic factors



Natural selection

Hypothesis (Clark 2007, A Farewell to Alms)

the rich had more children than the poordownward mobility spread “middle-class” culture“[societies were] becoming increasingly middle class in their orientations.Thrift, prudence, negotiation, and hard work were becoming values forcommunities that previously had been spendthrift, impulsive, violent, andleisure loving. A plausible source of this apparent evolution of humanpreferences is the survival of the richest”

Criticism (Allen 2008, review of Clark 2007 in JEL)

Clark’s proposed causal chain is not consistent with the factsestablished alternative explanations exist for all changes thatClark attributes to natural selection



Institutions

Hypothesisthe institutional structure following the Glorious Revolution of1688 made the Industrial Revolution possibleAcemoglu, Robinson (2012): “a fundamental reorganization of economicinstitutions in favor of innovators and entrepreneurs, based on theemergence of more secure and efficient property rights”another version: the British elite were landowners and thus didnot need to oppose innovations in manucaturing

Criticismtiming: the Glorious Revolution took place eight decadesbefore the start of the Industrial Revolutioninsecurity of property prior to 1688 contestable... and many other countries also had secure property rightspatents were costly, sometimes had counterproductive effects


Institutions

16th and 17th century Britain characterized bypower strugle between the Monarch and the Parliamentmonopolies (granted to the supporters of the Crown)

The Glorious Revolution of 1688the Parliament wins (yet another) civil warBill of Rights gives the Parliament much more power

An example of resistance to innovation (from AR, 2012)

William Lee invents a knitting machine in 1589Elizabeth I: the machine would deprive people of employment(i.e. cause political instability); Lee moves to France

Another example (from Mokyr, 1990)

machine breaking and riots during the Industrial Revolution1769: machine breaking made capital crime1811–13: 12,000 men deployed to suppress the Luddite riots


Prices

HypothesisBritish labor was uniquely expensive and energy uniquely cheap! it paid to invent labor saving technology in Britain

Criticism (Mokyr 2011, The Enlightened Economy)

“factor prices might have determined the direction oftechnological change, but the power and intensity ofimprovement were a function of technological capabilities andmotives that had deeper causes”

Next: a closer look at stylized facts:British wages were higher than those of its competitorshigh wages translated into higher living standardswages were high relative to capital prices... and relative to energy prices (in some British areas)



DataAllen (2006, 2009)

Database combining hundreds of price historiestypically based on the archives of an institution that lasted forhundres of years (e.g. colleges, hospitals)records of quantities and prices of everything bought or soldtypical items: agricultural and food stuffs, cloth, fuel, candles,building materials, implements, wages, salaries

Tables of the annual averages available now for many citieswhile many gaps remain, these data make internationalcomparisons possible and redefine our understanding ofeconomic history (see a data archieve here)



Nominal wagesAllen (2006, 2009)

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3European building workers were paid by the day, and I assume that 250 days was afull year’s work, making allowance for Sundays, religious holidays, and erratic employment.

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Labourers' wages around the worldFigure 1

many European cities, and the research is being extended to Asia. By putting all of thismaterial in the computer, international comparisons are becoming possible for the first time,and they are redefining our understanding of economic history. In particular, they throw newlight on the origins of the Industrial Revolution, as we shall show.

Figure 1 shows the history of nominal wages of building labourers in leadingEuropean and Asian cities from themiddle ages to the industrial revolution. The various units of account in whichthe data were recorded have beenconverted to grams of silver since silvercoins were the principal medium ofexchange. The figure shows that thedivergence in nominal wages wasminimal in Europe at the end of the latemiddle wages. There was little wageinflation subsequently in easternEurope. Wages in western Europe roseduring the price revolution (1550-1620). Thereafter, there was a three way splitwith silver wages falling in southernEurope, levelling out in the LowCountries, and continuing to rise inLondon. From the late seventeenthcentury onwards, London wages werethe highest recorded.

London wages rose above those elsewhere in Britain in the sixteenth century. By thelate seventeenth, however, wages in southern English towns like Oxford were rising to closethe gap. Wage movements in northern England were more erratic: In the late seventeenthcentury builder’s wages in cities like York were as high was those in Oxford. Wage growthceased in the north in the early eighteenth century, however, so the region fell behind thesouth in nominal wages although the level was still higher than in most parts of the Europeancontinent. Fast wage growth towards the end of the eighteenth century brought the north tothe same level as the south, however, and all parts of England had exceptionally high silverwages (Gilboy 1934, Allen 2001, 2003).

Comparisons with Asia further emphasize the high wages in eighteenth centuryBritain. In Beijing, Canton, Japan, and Bengal, labourers earned between one and two gramsof silver per day–less than half the wage in central or eastern Europe and a smaller fraction ofearnings in the advanced economies of the northwest of the continent (Özmucur and Pamuk2002, Allen 2005, Allen, Bassino, Ma, Moll-Murata, van Zanden 2005, cf. Allen, Bengtsson,Dribe 2005).

Did Britain’s high nominal wages translate into high living standards or were theyoffset by high prices in Britain? To explore this issue, welfare ratios have been computed forleading cities. Welfare ratios are defined to be full time annual earnings3 divided by the cost

Nominal wages forbuilding workerswere very similar inthe European citiesduring the MiddleAges. In 1550–1620, wages ineastern Europeremained stagnant,while they rose inwestern Europe.Thereafter, therewas a three waysplit with silverwages falling insouthern Europe,levelling out in theLow Countries, andcontinuing to rise inLondon.


http://en.wikipedia.org/wiki/Luddite

http://www.history.ubc.ca/faculty/unger/ECPdb/data.html

Real wagesAllen (2006, 2009)

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Many Asian wages are based on monthly earnings, and I assume employment for twelvemonths.

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Subsistence Ratio for Labourersincome/cost of subsistence basket

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of a basket of consumer goods sufficient to keep a family at a specified standard ofcomfort–in this case at minimal subsistence. Baskets are constructed with most spending onthe grain that was cheapest in each locality (e.g. oats in northern Europe, polenta in Florence,sorghum in Beijing, millet in Delhi). Very small portions of meat, peas or beans, butter oroil, cloth, fuel, and housing are also included. Consumption is set at the low level of 1920kilocalories per day for an adult male with other family members proportioned accordingly. Calculations with baskets corresponding to a more affluent lifestyle have also beenundertaken, and the relative rankings are unchanged.

Figure 2 plots the welfare ratios for the cities in Figure 1. The population declinecaused by the Black Death meantthat real incomes were higheverywhere in the fifteenthcentury. Welfare ratios in Londonand the Low Countries weretrendless across the early modernperiod, although there wereoscillations in the series. Moreover, fully employed workersin these regions earned three tofive times the cost of thesubsistence lifestyle. They spenttheir extra income on a superiordiet (with bread, beer, and muchmore meat) and more non-foodconsumer goods including some ofthe luxuries of the ‘consumerrevolution’ of the eighteenthcentury (Shammas 1990,McKendrick, Brewer, and Plumb 1982, de Vries 1993, Fairchilds 1993, Weatherill 1996,Berg and Clifford 1999, Berg 2005). In contrast, real living standards fell dramatically acrossthe continent, reaching a level of about one. In eighteenth century Florence and Vienna, fullyemployed building workers earned only enough to maintain their families at rock bottomsubsistence. There was no surplus for bread, meat, beer, or wine let along imported luxuries.Real wages also fell sharply in provincial England in the sixteenth century, but even at thetrough labourers in Oxford earned at least 50% more than bare bones subsistence. Thenominal wage inflation of the late seventeenth century meant that welfare ratios in Oxfordwere between 2.5 and 3.0 in the eighteenth century.

If we extend the comparisons of living standards to Asia, English performance lookseven more impressive. Low silver wages in the East were not counterbalanced by even lowerfood prices. Welfare ratios for labourers in Canton, Beijing, and Japan were about one in theeighteenth and nineteenth centuries–as low as those in the backward parts of Europe. Massdemand for manufactures was very limited across Asia, since most consumer spend wasdirected towards basic necessities.

Subsistence ratios are defined to be full time annual earnings of a basket of consumergoods sufficient to keep a family at minimal subsistence. Baskets are constructed withmost spending on the grain that was cheapest in each locality. Consumption is set at1920 kilocalories per day for an adult male. The earnings of craftsmen (carpenters,masons, and so forth) followed the same trends as labourers in all countries.


Price of labor vs. capitalAllen (2006, 2009)

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Price of Labour relative to Energyearly 1700s

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The earnings of craftsmen (carpenters, masons, and so forth) followed the same trendsas labourers in all countries. Skilled workers, however, earned more than the unskilled, sotheir welfare ratios were higher everywhere. Craftsmen in London or Amsterdam earned sixtimes what was required to purchase the subsistence basket, while their counterparts inGermany or Italy only 50% more than that standard. Craftsmen in northwestern Europe spentmuch of their surplus income on more food and better quality food. Nonetheless, the massmarket for consumer goods was much larger in Britain and the Low Countries than in most ofEurope.

A third sense in which Britain was a high wage economy was in terms of the wagerate relative to the price of capital. Figure 3 plots the ratio of a building labourer’s daily wagerelative to an index of the rental price of capital innorthern England, Strasbourg, and Vienna. Therental price of capital is an average of price indicesfor iron, nonferrous metals, wood, and brickmultiplied by an interest rate plus a depreciationrate. Strasbourg and Vienna were chosen sincethere are long series of wages and prices for thosecities, and their data look comparable to those ofmost of Europe apart from the Low Countries. The series are ‘PPP adjusted’ so that we cancompare across space as well as over time.

The ratio of the wage relative to the priceof capital was trendless and similar in all citiesfrom 1550 to 1650. Then the series diverged. InEngland, labour became increasingly expensiverelative to capital from 1650 onwards. This risereflects the inflation of nominal British wages atthe time. In contrast, the ratio of the wage to the price of capital declined gradually inStrasbourg and Vienna across the seventeenth and eighteenth centuries.

The different trajectories of the wage-rentalratio created different incentives to mechanizeproduction in the two parts of Europe. In England, thecontinuous rise in the cost of labour relative to capitalled to an increasingly greater incentive to invent waysof substituting capital for labour in production. On thecontinent, the reverse was true: Factor pricemovements led businesses to search for ways ofsubstituting increasingly cheap labour for capital. Itwas not Newtonian science that inclined Britishinventors and entrepreneurs to seek machines thatraised labour productivity but the rising cost of labour.

Finally, there is a fourth sense in which labourwas costly in industrializing Britain. That involves acomparison of wages to the price of fuel. Figure 4 isbar graph of the ratio of the building wage rate to theprice of energy in the early eighteenth century in important cities in Europe and Asia. In thisratio, the price of a kilogram of fuel was divided by its energy content, so energy prices are

The ratio of a buildinglabourer’s daily wage relative toan index of the rental price ofcapital (average of price indicesfor iron, nonferrous metals,wood, and brick multiplied byan interest rate plus adepreciation rate). Strasbourgand Vienna chosen since longdata series are available, andtheir data look comparable tothose of most of Europe apartfrom the Low Countries. Theseries are ‘PPP adjusted’ sothat we can compare acrossspace as well as over time.



Price of labor vs. energyAllen (2006, 2009)

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Wage Relative to Price of CapitalFigure 3

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Price of Labour relative to Energyearly 1700s

Figure 4

The earnings of craftsmen (carpenters, masons, and so forth) followed the same trendsas labourers in all countries. Skilled workers, however, earned more than the unskilled, sotheir welfare ratios were higher everywhere. Craftsmen in London or Amsterdam earned sixtimes what was required to purchase the subsistence basket, while their counterparts inGermany or Italy only 50% more than that standard. Craftsmen in northwestern Europe spentmuch of their surplus income on more food and better quality food. Nonetheless, the massmarket for consumer goods was much larger in Britain and the Low Countries than in most ofEurope.

A third sense in which Britain was a high wage economy was in terms of the wagerate relative to the price of capital. Figure 3 plots the ratio of a building labourer’s daily wagerelative to an index of the rental price of capital innorthern England, Strasbourg, and Vienna. Therental price of capital is an average of price indicesfor iron, nonferrous metals, wood, and brickmultiplied by an interest rate plus a depreciationrate. Strasbourg and Vienna were chosen sincethere are long series of wages and prices for thosecities, and their data look comparable to those ofmost of Europe apart from the Low Countries. The series are ‘PPP adjusted’ so that we cancompare across space as well as over time.

The ratio of the wage relative to the priceof capital was trendless and similar in all citiesfrom 1550 to 1650. Then the series diverged. InEngland, labour became increasingly expensiverelative to capital from 1650 onwards. This risereflects the inflation of nominal British wages atthe time. In contrast, the ratio of the wage to the price of capital declined gradually inStrasbourg and Vienna across the seventeenth and eighteenth centuries.

The different trajectories of the wage-rentalratio created different incentives to mechanizeproduction in the two parts of Europe. In England, thecontinuous rise in the cost of labour relative to capitalled to an increasingly greater incentive to invent waysof substituting capital for labour in production. On thecontinent, the reverse was true: Factor pricemovements led businesses to search for ways ofsubstituting increasingly cheap labour for capital. Itwas not Newtonian science that inclined Britishinventors and entrepreneurs to seek machines thatraised labour productivity but the rising cost of labour.

Finally, there is a fourth sense in which labourwas costly in industrializing Britain. That involves acomparison of wages to the price of fuel. Figure 4 isbar graph of the ratio of the building wage rate to theprice of energy in the early eighteenth century in important cities in Europe and Asia. In thisratio, the price of a kilogram of fuel was divided by its energy content, so energy prices are

Ratio of the building wage rateto the price of energy in theearly eighteenth century inimportant cities in Europe andAsia. In this ratio, the price ofa kilogram of fuel was dividedby its energy content, so energyprices are expressed as grams ofsilver per million BTUs. Theratio is calculated for thecheapest fuel available in eachcity–coal in London andNewcastle, peat in Amsterdam,charcoal or fire wood in theother cities.



Energy pricesAllen (2006, 2009)

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Real Prices of Wood & Coal in LondonFigure 6

Coal deposits were a second factor contributing to England’s unusual wage and pricestructure. Coal has a long pedigree as an explanation for Britain’s industrial success (Jevons1865, Neff 1932, Hatcher 1993, Smil 1994, Pomeranz2000, Sieferle 2001), and Wrigley (1988) put it on themodern research agenda. I add two points to thediscussion.

First, coal was not just abundant in Britain–itwas cheap, at least in northern and western Britain onor near the coal fields. Figure 5 shows the price ofenergy in leading cities in the early eighteenth century. London did not have particularly cheap fuel at thattime; Newcastle, however, did. The difference in theenergy price between the two cities equals the cost ofshipping the coal from the Tyne to the Thames. Despite an ocean route, transportation accounted formost of the price of coal in London. Coal prices atother cities in northern and western Britain weresimilar to those in Newcastle–at least once canal improvements brought down internalshipping costs. Except perhaps for southern Belgium, no region anywhere in the world hadthe same combination of large population and cheap energy. Belgian coal output, however,was only 3% of Britain’s in 1800, and the return from inventing coal using technology wascorrespondingly reduced.

Cheap fuel was important for two reasons. First, inexpensive coal raised the ratio ofthe price of labour to the price of energy (Figure 4), and, thereby, contributed to the demandfor energy-using technology. In addition, energy was an important input in the production ofmetals and bricks, which dominated the index of the price of capital services. Cheap energycontributed to the fall in capital prices relative to wages and, thus, contributed to the incentiveto substitute capital for labour.

Second, coal is a ‘natural’ resource, but thecoal industry was not a natural phenomenon. Somecoal was mined in the middle ages (Hatcher 1993). Itwas the growth of London in the late sixteenthcentury, however, that caused the coal industry to takeoff. As London grew, the demand for fuel expanded,and the cost of fire wood and charcoal increasedsharply as fuel was brought from greater distances. Coal, on the other hand, was available in unlimitedsupply at constant real cost from the fifteenth to thenineteenth century. In the late middle ages, coal andcharcoal sold at about the same price per BTU inLondon. The market for coal was limited toblacksmithing and lime burning. In all other uses,sulfur made coal an inferior fuel. As London’spopulation exploded in the late sixteenth century, thedemand for fuel rose, as did the prices of charcoal and firewood. By 1585, wood fuel wasselling for twice the price per BTU as coal (Figure 6). That differential made it worthwhilefor buyers to figure out how to substitute coal for wood–in fact, a difficult problem (Nef

London did not haveparticularly cheap fuel at thattime; Newcastle, however, did.The difference in the energyprice between the two citiesequals the cost of shipping thecoal from the Tyne to theThames. Coal prices at othercities in northern and westernBritain were similar to those inNewcastle–at least once canalimprovements brought downinternal shipping costs. Exceptperhaps for southern Belgium,no region anywhere in the worldhad the same combination oflarge population and cheapenergy. Belgian coal output,however, was only 3% ofBritain’s in 1800.



Why were British wages and prices unique?Allen (2006, 2009)

GeographyBritain had vast and readily worked coal depositsinexpensive coal raised wage/energy price ratio... and reduced the price of capital (production of metals and bricks)

International tradelate 16th-century: ‘new draperies’ made in East Anglia andexported to the Mediterranean through London17th century onwards: imperialism1500–1800: population living in cities/town 7% ! 29%,agriculture labor force share 75% ! 35%



Why were British wages and prices unique?Allen (2006, 2009)

Interaction between geography and trade16th century: London’s population exploded ! demand forfuel increased ! prices of charcoal, firewood increasednow worthwhile to figure out how to substitute coal for woodand to set up large scale mining business in northern England

Luck (a.k.a. why not the Netherlands?)

the Duch cities were also growing, close to vast coal depositsDuch peat initially used to meet growing energy demand !transport on the Ruhr not improvedonce industry established in Newcastle, coal could be deliveredas cheaply to Amsterdam and London



Why did international price differences matter?Allen (2006, 2009)

Product innovationstrade with Asia brought new products to Britain(cotton fabrics, Chinese porcelain, coffee, tea)Britain’s high wages ! a broad market for these products !British manufacturers started to produce cotton, porcelain...industrial revolution was largely import substitution

Process innovationsBritish inventions were labour saving, energy/capital intensivethus these inventions were adopted in Britain and not on the(low wage, costly energy) continentthe necessary R&D behind the invention was profitable underBritish conditions but unprofitable elsewherenew technology was being improved and once it wassufficiently effective, it spread across the continent



Example: English and Chinese kilnsAllen (2009)

Second example: Inexpensive British coal meant that pottery kilns were built cheaply and

wasted energy.

Image: Dianne Frank

In contrast, Chinese kilns used much capital and labour to conserve

expensive energy.

Image: Dianne Frank

In Britain, pottery was fired in round, up-draftkilns (top picture). These were cheap to buildbut did not use energy efficiently (much heatescaped from the holes in the top).

In China, kilns were designed to conserveenergy. A common design was the ’down-draftclimbing kiln’ build in hill slopes (bottompicture).

That is, the Chinese were inventive, but theyinvented tecnologies that were optimal for theirfactor prices



Industrial Revolution: summary

Technology shifted the supply curvesPrices decreased (e.g. cotton price decline by 85% between 1780–1850)Completely new goods were createdThe quality of many old goods greatly improved

Consumers slid down their demand curves (bought more)note, though, that initially living standards improved slowly

Why did it happen in 18th century Britain?many alternative explanationsnot necessarily mutually exclusivehard to test, but can examine consistency with data

Next: very brief overview on the “Second Industrial Revolution”



The “Second Industrial Revolution”: 1830–1914Mokyr (1990, Ch 6)

The growth industries of the later 19th centurysteel, chemicals, electricity, transportation

Science starts to become more important for technologypurely empirical breaktroughs do not decline, only their share

The factory system emergesrare still in 1870, but then becomes more pronouncedfixed costs, spillovers, network technologies, interchangebleparts, new products (e.g. railroads, chemical industries) giverise to larger increasing returns



The “Second Industrial Revolution”: 1830–1914Mokyr (1990, Ch 6)

Technological systems and networksbefore 1850, technology largely isolated chunks of knowledge(apart from the need of high-quality components)new innovations: railroads, electricity, telegraph, telephone,water supply systems, need to supply standardized spare parts

Market create impressive sets of universal standard andcoordinate network supply

but the world is also split into 110V vs. 220V electrical current,left-side and right-side drivers, narrow and broad gauge rails...


Papers for essays

Donaldson (forthcoming): Railroads of the Raj: Estimating theImpact of Transportation Infrastructure. AER

Uses archival data from colonial India to investigate the impactof India’s vast railroad network. Finds that railroads increasedtrade and real income.

Faber (forthcoming): Trade Integration, Market Size, andIndustrialization: Evidence from China’s National TrunkHighway System. REStud

Examines the impact of “accidentally” getting connected to thenational highway network in China in the 1990s. Finds that theresulting fall in trade costs caused a reduction in GDP growthamong non-targeted peripheral counties.

Industrial Revolution: 1750–1830 Why Britain? Later 19th ... · Industrial Revolution: 1750–1830 Why Britain? Later 19th century Papers for essays Textiles Mokyr (1990, Ch 5)

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