2. Analysis of other - quote and mention names
3. Theory - give economic reasoning
4. Give subjective reasoning
Growth in capital investment must grow in LDC, but in Britain had high investment level already before indrev, and during indrev it was slow. (7% European norm 14%).
This is comparing Britain to other countries, if you compare that to Britain earlier, we see a remarkable increase. Crafts recalculated the stuff and found investment to be less.
1. Increase in investment
2. Structural change - move from agricultural to industrial economy. The shift was already quite advanced in 1750 (less than 50% in agriculture, more in proto-industry - handmade things). By 1840 there was no productivity gap between agr. and ind. 1840 only 3 regions had more in agr. than European average, Britain had same levels as Germany early 1950.
3. Urbanisation - also high before industrialisation, Britain urbanised first and then got rich.
4. Markets were also embarking before industrialisation. Not a good way of defying indrev.
5. Export led growth is important. Crafts show that UK lied on exports, but only on manufacture. 1846 trade barriers were abolished, 1820-40 heavy protection, before that free trade.
6. indrev - poor economy made itself to self sustained economic growth.
very vital. Population explosion is a stop on economic development.
1. What cause fertility to be high or low
2. Is that a good thing
1. Population has to be supplemented from the resource base. Distributes between necessities (agriculture) and luxuries (industry).
2. It affects the scale of production
Production must grow faster that population
The population was growing before 1700. After 1730 growth accelerated 0.6%a year and rose to over 1% a year.1820 highest 1.55%. It is moderate by international standard.
Which was more important:
1. Fertility - relatively fewer children per woman at the end. The majority (70%) of population growth was caused by fertility.
Before indrev. fertility was half the biological max 11 children.
1. 1710-80 rose from 4-4.5 gradually
2. 1780-1815 4.5-6 steeply
3. 1815-180 6-4 gradually
Relatively low compared to modern LDC-s, because
1. high age of marriage for women 27 in 1700, it falls to 24.5 in industrial rev.
2. high celibacy level (people not married) 10-20%. Only 40-50% of women between 15-50 were married, few remarried. During indrev it fell.
3. children only from marriages (2% illegitimacy rises to 5%).
2. Mortality - direct
affect on economy- growth rate and size, age structure depends. Indirectly
affects people investment decisions (they estimate how long they live). It
affects their fertility rate.. Was 35 years. France had 10years lower. Not many
mortality crises - only by disease, not by harvest. Not after 1850.
The traditional view - mortality - reason for higher population growth, not true.
3. Migration - really hard to study
The changes in morality/fertility can be either non-economic or economic factors.
Traditionally morality - economic, fertility-non.
Actually was no correlation between morality wage, but fertility had correlation. First prices changed - then 15 years marriage raised and then fertility rose.
It is thought that population growth have to do with economic development.
1. labour supply
A labour shortage was the major constraint to indrev at the beginning of 19c. The very cheap labour can actually hinder the growth, because they are not fed. If you pay them less than efficiency wage you make them less productive.
The rise in labour would effect the distribution of Demand, when incomes fall. So demand for ind. goods falls and agriculture rises. The distribution of S is also affect. Absolute demand for food rises. There has to be an increase in agricultural force, less left for industry. Empirical evidence in other countries says that pop. is not important (USA industrialised with labour shortage)
But if wage low- profits high and invested.
2. technological advance - expensive labour forces firms to substitute capital instead.
The technologies used were most advanced available, little evidence for any substitution
Most labour theories are just theoretical.
1. Pop. growth boosted aggregate demand.
2. Demand also depends on incomes.
3. When pop. rises income falls.
4. Pop. growth leads to plentiful labour, reduces income, reduces price of industrial goods, not agricultural goods (as industry is more labour intensive).
5. During ind. rev. the productive increases, so GNP per head increases although real wage falls.
So D growth was not enough productivity was also needed.
There are 2 revolutions pre and after 1750. Post is more important. First faze was a gradual. Agriculture actually constrained ind. as prices rose later.
1. Demand played a mild role, urban demand did rise
2. Supply is important 1650-1750
1. Labour markets became flexible
2. Capital markets - new products (mortgages).
3. land markets - move in leasing (old long-term leases replaces by money rents and reconsider the rents. Engrowthment happened.
1. enclosing common land - became private property.
2. consolidating scattered pieces
More hedging etc. job ancillary jobs. Helped to increase yield. Took land away from small, driving them to down to industries (Marx).
1. Privatising led to optimal use (common land was overused). Now historians argue differently - there was already good policing, enclosure just profits for big landowner. There are also little empirical evidence for productivity.
2. Farms could bee optional size. Technical improvements were permitted. Risk was spreader.
3. Product markets - grain markets changed, towns lost power (forces landowners living nearby to sell only in town). It was very easy to sell surpluses.
to 1749 - taxes went up. More surpluses needed to be produced to pay tax.
The consumer revolution - status was determined by consumption.
New techniques and crops became available.
agr. prices went up. More tax on agr.
1. rising agr. due to war
2. neglects income redistribution inside agr. Richer people get more money D for ind. up
3. many ind. prices down
1. more imports are better
2. but when import restrictions were removed world prices went up.
3. He didn't break the time period down.
4. Welfare system kept people in land.
5. Agriculture affected industrialisation
6. Food - industry did the job
7. labour - more could have left land. Towns grow by themselves
8. Finance - hard to asses. At the beginning did contribute by savings. After 1790 most come from ploughed back profits
Markets on industry - depends on growth in productivity, it did arise and no. of people in agriculture, it did grow. Distribution of income in agriculture, profits went to larger farmers 1750-90 rich are main demanders for industry. Proto industry was before
Foreign Exchange -
A. Britain was united(centralised)
1. Efficient tax system
2. no exemptions, less hostility
3. they did not have to issue special agreement to privileged groups (gilds)
B. UK was not involved in international wars(spec. 30 years war). Taxes did not rise as a consequence before the country started to develop.
C. Absence of selling of offices (venality). Instead of appointing a judge others made an auction.
1. revenues of these offices falls(tax collects) are lost for the state forever.
2. high corruption, inefficient, high tax needed.
Britain was despite little clergy very effective.
D. Little bureaucracy (few people). So UK was unable to give local benefits. State clerks were only for export and war.
1. State spends differently than individuals (invest, war). So allocation of resources differs after tax. Also demand for taxed goods is affected.
2. Incidence of tax - whom does it fall on.
Military expenditure dominated.30%
Public borrowing could not be set
1. Income tax could not be introduced
2. Borrowing started financial revolution.1700
a. Bank of England was given monopoly on money market
b. borrowing guaranteed by parliament (not crown)
c. any new debt was funded debt (interest payments from special tax)
d. securities market developed (state loans were traded, state did not have to pay back on demand)
e. externality of borrowing was the most efficient money market in Europe.
The taxes rose 15x and GNP 3x.Brien found 54% for higher rates 37% new taxes, 9%normal economic growth
Income of the state rises from 15% to 30% of GDP
1. excise >50%
3. direct tax(wealth tax-land tax)
So most tax was indirect
1. excise encouraged investment
2. some think damped demand(O'Brian), Mathias argued
3. effects either on landowner and consumer based on the elasticity.
1988 O'Brien did analyse:
1. 2/3 of extra tax comes from rich luxuries
2. a lot is on non-necessities goods, alcohol.
3. tax on necessities lower did not grow
The proportion of taxes in agriculture stagnated, in war rose 1816 fall
Taxes on imports fall, rise during wars
Taxes on domestic sectors were raised 10x.(industrial sectors were exempt)
Effects on Supply side (national state taxes, not poor rate that was local)
1. Easy on agriculture and industry
2. Hard on non-export old industries
Effects on demand
Discriminated on the middle class and favoured poor and rich.
1. rich could investment
2. low agriculture tax contributed productivity rise (good cheaply feed)
3. New industries were exempted
4. Tax was collected efficiently and grow during the growth of economy.
1688-1815 UK is in war 1 year in 2.
Supply - technological invests (but other countries with more war did not have innovations)
Demand - Draws under used resource (but were they idle before)
a. without war 1760-1810 GNP would have grew 1% more (crowding out
b. helped agriculture (rose prices) unbenefited manufacture (no export, crowding out)
c. wages would have rise higher
bad effects dominate, so uses were not idle.
Williams probably made empirical mistakes and overestimates crowding out, but Mokyr said he underestimated trade, so overall things hold.
Worse effects because of land wars (UK only sea).
Much higher tax (before economy rose), ineffective(veility), high bureaucracy.
The central state was able to grab privileges and monopolies to privileged groups.
What is technological progress- the ability to extract more or better output from the same inputs.
1. Macro inventions (door open breakthrough)
2. Micro invention (minor improvements)
You need both of them. The amount of effort you put into micro tends to cause diminishing returns. Macro inventions on their own tend to unusable. Economic models of micro are good, but macro ones are very unpredictable.
There are 2 characteristic technological changes in Indrev.
1. Micro inventions were much more important.(Mokyr)
2. Large sectors were completely untouched before 1830. Change was concentrated in textiles, energy and metallurgy. New techniques were concentrated to only few aspects of these sectors.
a. Textiles (cotton in UK). Begins with spinning jenny 1764. Continual advances. Almost every aspect was revolutionised. Printing, bleaching. Even in cotton weaving was hardly touched till 1830.
Second was woollens industry - change is much slower. Mechanisation comes in preparation(oiling and cleaning). Finishing was also mechanised.
Linen - competing with cotton, much more gentle treatment needed. Slow mechanisation, cotton takes over, proto-industry looses out.
Silk - only handwork
b. Energy - heat into work. Introduction of steam power. Was invented 1712, very inefficient, Watt 1762 made fuel efficient. 1784 applied to textile.
Water power was more important than steam.
Coal - extraction remained primitive throughout the indrev.
c. Metallurgy - shift to oak is invented in 1709, until 1760 quality was bad. This was ore into pig iron.
Next step to rod iron 1704 macro invention.
Production of steel - no advance 1830.
Outside these very little advances - Cl bleaching, gas lighting. Transport was not affected, shipbuilding and retailing not affected.
There are many debates, but no good theory exists.
a. the crucial inventions happened in England (stochastic inventions). So England got ahead (Crafts). Two assumptions: English and French were equal levels before Indrev. France was actually behind in efficiency of labour and manufacture. 2nd assumption: macro inventions were crucial. Mokyr has suggested micro.
b. individual inventive and entrepreneurial talent theory. Entrepreneurship is unevenly distributed and very immobile. Most new economist consider straight opposite and say that it is unimportant. Cultural differences in UK: more entrepreneurial culture. There were differences in utility functions, very hard to test.
c. literacy (rose, but only for women and some industrial groups, causation problems), education(public education was far more spread in other countries, public spending), science(education was better in us and France, they made inventions, but British adopted by micro inventions), intellectual tradition(UK is better, hard to test empirically). Overall not important
d. Factor prices: natural resources, labour, capital - more likely to use inputs if they are cheaper. Natural resources (Iron, coal) were more abundant in UK. There was very little progress in coal production. The next countries to industrialise had very few factors. There is an international trade (cheap Swedish iron). Mokyr argues that technological change was independent of factor prices. The direction of technical change was neutral.
e. Institutions(information market is imperfect): resisting adoptions(gilds, state permits, special interest groups enjoying the prevention of innovation, gilds were already broken down in UK, so innovation supported), allocating rewards(govn funding inventions, inf. is a public good, patent systems, patent system was good- rewards were there, but patents could be diffused easily), ensuring there are rewards(low tax on revolutionary industries).
2. theory - brings S-curve down to elastic parts of D-curve
Transportation system was very old. Improvements began before indrev in 1750 it was a mixture - fairs (trade was done in fairs, buyers and sellers agreed on a particular time), itinerant (moving around, poor and slow methods of transportation) merchants & peddlers, permanent shops replaced them in 1750, towns with fixed markets(always trade), coastal shipping improved (low cost way to carry big low value good, coal). Roads were poor
Early 18c improvements in rivers(only 1 river is navigable, others needed river improvements-locks, they required capital, interest rates were high, 1st happened in 1710 - generally occurred around towns needing food supply, and 2. emerged near large farm-owners). Rivers were improved to move grain abroad. 1755 first dead water canal. Financed by salt merchants. Then 1760-70 canal mania, high-point 90.
before only local people maintained roads. 1760-70 road improvement - turnpike trusts(local people forced to work, road surfaced by tarmac, they very little businesses that charged people for going through small pieces of road, profit from getting food to town, people start moving as well as more towns have shops)
1. unit costs of getting goods to inland fell.
2. Reduction in travelling times-1830 1/3-1/5 of 1750. It doesn't show the cost. When a large amount of cost is transportation, it made a large effect, but elasticities were also important. Main goods were high value light (textiles).
3. Transportation was still a luxury, so demand elastic and improved the welfare of middle classes.
4. Post is faster and more secure(insurance).
5. Spread of ideas.
Charges on canals were low (excluded lower breakdowns, cost of getting to canal) 1/4 to 1/5 less charge. Canal was a monopoly.
1. Light industry was not much affected
2. Coal impact was large, but very costly
3. Heavy manufacture improved
4. Many industries become possible (chemicals, not cotton)
First modern railway in Liverpool open in1830. Success in passenger carrying was a success. So railways (first) was making profits directly. They had built it to move freight
1. Transport cost
Large cost reduction in personal travel and the quality was increased. Hawke calculated the effect on GDP. He looked the actual cost of carrying passengers in 1865 and compared it to cost that would have been w/o railways. He found that this was 7% lower for passengers and 45% for freight.
it does not measure actual contribution, you get the %age of GDP that would have been diverted.
1. Canal and wagon costs would not be the same
2. Questionable whether the canals and road system could be updated to necessary standard w/o congestion costs
3. Traffic would not go through the same routes, so real cost would be even lower.
1. indrev would have happened w/o railways.
2. There are not many ways that a reduction in transport costs can improve production.
3. Empirical evidence suggest that Transport changed already earlier and microeconomic aspects were more important.
2. Railway construction - demand increased.
3. Capital needs