Notes Class 10: Industrial Revolution: The Dawn of Modern History: Britain Industrialization The Industrial Revolution Or transformation

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1 Notes Class 10: Industrial Revolution: The Dawn of Modern History: Britain Industrialization The Industrial Revolution Or transformation Pre-Industrial Industry The putting out system, cottage industry, etc. Rural and dispersed Urban merchant-entrepreneurs supplied raw materials, and a market Monopolistic supplier, monopsonistic buyer vs. royal monopolies, plantation/estate industries, etc. Technological changes New sources of power and energy Taking advantage of the energy Coal for wood/charcoal Steam engines Scale Economies Pre-requisites The scientific Revolution The role of theory still small. Experimental method trial and error Agricultural productivity Trial and error new experimentation Enclosure and the Enclosure debate The efficient farm required active experimentation. And efficient capital markets Agriculture and Scale economies Coase the theory of the firm (1936) Market efficiency and inefficiency Firms and internalized costs Neolithic villages (group wide consensus, unanimity) Irrigation (a religious/military subset who made decisions) Small holders (individual farmers without access to insurance) Open fields and the manors (group consensus, monopsonistic buyers) Enclosed farms The capitalist farmer Determinants: The relative costs of: Property rights, technology, Land and Labor availability, Water and Plant availability, Markets What firms do is minimize internal transaction costs. each firm is a little example of socialism in a sea of free market activity Commercialization of society London as a growth hub Common Law very efficient commercial law Page 1 of 9

2 The economic efficiency of the common law English Banking slow start Bank of England, dearth of coins, work-arounds Role of Contract Law in the Common Law System England s transportation network Long Coastline, many navigable rivers Canals (privately financed) Roads (locally produced, but privately financed) Technological Innovation Coal and coke Pig Iron (changes to the production of Iron) The Steam Pump (the miner s friend) Machining advances Cotton Industry Restrictive laws on wool Spinning, weaving, the cotton gin Adam Smith: The Wealth of Nations The Industrial Revolution I: The Intellectual Foundations Part I: Revolutions in Economic Thought Economic thought through history Classical thought Medieval thought just price theory The Renaissance Newtonian Physics The Emerging state bureaucracies The triumph of reason The Scottish vs. the French Enlightenments France - Rational, utopian, the perfectibility of man Rousseau, Voltaire, the encyclopedists Scottish - Rational, limited goals, the human condition Smith, Locke, Burke, Hume, Ricardo Adam Smith and The Wealth of Nations A moral theory Modern term would be emergent order The invisible hand Liaise Faire Specific insights Role of technology Role of specialization Incentives; how taxes effect behavior How people actually behave People care about their own and other s souls and wealth Page 2 of 9

3 Emphasis on Production, rather than just commerce Mistrustful of government, advocated freedom few things are as beneficial to mankind as people going about their own business Reactions to Smith Economics, the science of economics David Ricardo, Concorbet, others Relative and absolute advantage Malthus Population, -- the dismal science The new science of economics The integration of various thought streams into one channel Gathering of data Application of the scientific method Quantitative methods The distinction between Normative and Positive economics Part II: Revolutions in Scientific Thought Types of advances in thought Discoveries (learning something new) Inventions (making something new) Innovations (making something useful) Example: the earth is round. Here s North America. Getting around it, the clipper ship. Example: Copernicus and the heliocentric view of the earth. Latitude. Longitude Example: The Water Wheel. The re-engineered water wheel. Water wheels with steel parts. Modern example: Arpnet. Telnet. The internet. (porn, , worldwide web) The process of Technical Discovery during the Age of Discovery Trial and Error Empirical knowledge, insights Advances in engineering, building Metallurgy, chemistry The process of technical Discovery during the Industrial revolution The scientific method The role of theory predictions The advances in science The continuing divorce between theory and practice Page 3 of 9

4 The Early Technical changes The role of the Entrepreneur The role of the Tinkerer The role of the businessman-investor The scientific farmer The process of innovation during the Industrial Revolution The tinkerer (Watt, Bessemer) The Watt steam engine, the Bessemer Furnace The Tinkerer - Businessman (Edison) The phonograph, light bulb, The scientists (Marconi, General Electric) The Industrial Revolution II: The Technological and Social Changes Changes in Agriculture: Rapid growth in productivity The modern farming system Single ownership scientific farming Laborers and owners Changes in Living patterns Leaving the countryside The growth of towns, and cities From village to city. End of limitations: the decline in transportation costs End of limitations: the increase in agricultural productivity Gresham s law: The Factory System The importance of resources (Coal and Iron) Single city or many cities? England, France (Thailand) U.S., Germany Living standards in the Cities Initially poor, but not excessively so Over time, rising by 1850 rising for certain Cities as Manufacturing centers not trade or commercial centers Demographics After 1750, rising populations throughout Europe (America) The beginnings of demographic colonialism Page 4 of 9

5 Determinants of Colonialism Ideology and Belief Technical Superiority Demographic realities Inventions (pg ) Charcoal and Coal, later Petroleum and hydroelectric/steam turbines Steel, mass production of Electricity. Streetlamps, cable cars, storage of power, hydroelectric power Transportation: Canals, Railroads Weapon changes Mass armies Social changes England/U.S.; common law system, limited central government France the opposite model The French Revolution France in the 1790 s The anceine regime The three houses The inability to adjust or change The French Revolution Negative changes passing of the old Regime End of many monopolistic practices End of internal barriers to trade; guilds, monopolies, internal tariffs Positive changes creation of legal public goods Legal code Napoleonic code Production of public goods (metric system) Centralized but rationalized power Promoted Europe-wide centralization The American Revolution A conservative revolution Enshrined a system of limited government, and federalism Led to decentralized, but rapid, growth The Rise of Social Classes Political definitions; the three orders of Nobles, Clergy, Other Economic classification Ruling class (Landlords) Income from Rents Haute bourgeoisie (professional classes) Income from skills Petit bourgeoisie Income from services or smallholdings Peasants/servants Income from labor Class Struggle Page 5 of 9

6 Changing patterns of social classes The rise of Unionism Craft Unions (Britain, early U.S.) Trade Unions (France, Germany) Marxian Analysis The capitalist class sought to become monopolists Ownership would become increasingly concentrated Rise of the super-rich, decline of everybody else Rising Education and Literacy Link between industrialization, growth, and literacy Changes in the costs of literacy The Industrial Revolution III: Strategic Sectors, Regional Variations, Early Explanations Agriculture Britain and Scientific Agriculture, Very High Labor Productivity America Scientific Agriculture, Very High Land Productivity Both Britain and America had market agriculture France, Germany Later Development, but less efficient. The Riddle of French Agriculture. Political Instability and the Desire for Land? Russia The emancipation of the Serfs 1860s, (peasant communes) A Market system (ended with WWI) Italy, Spain, Greece. No significant change, no significant development Japan The Meiji Restoration A market system of Agriculture The deficiency of Japanese Land Finance and Banking General Points. A developed banking sector is necessary, but not a rational one Modern banks seemed to follow industrialization, not to lead it. The rules of Banking seem to be universal. Britain: A decentralized system that eventually centralized London (thick market in banking) France: The State Bank (Rothschild) Spain, Italy, etc America: Page 6 of 9

7 Banking Chaos The Role of Government How large was the government sector? Britain, 6-8% France, Higher USA, Germany less then 5%, but federal systems The Provision of Public Goods Non-Rival, Non-Excludable (free riders) Externality arguments, public goods British Navy Public Education Public Health model economic activities Planning Other Explanations for the Industrial Revolution (Institutions, Technology, Geography and Culture) The Industrial Revolution IV: Other Explanations for the Industrial Revolution (Institutions, Technology, Geography and Culture) Geography Europe as an outlier New ideas come from outsiders, from those who are different England, Japan, America The availability of vital resources Wood, coal and Iron Diffuse vs. concentrated mineral resources America, Japan Availability of cheap transportation European coasts, rivers, the Mediterranean sea The invention of Railroads, shipping, etc Political Fragmentation Europe is more geographically (and thus ethnically) diverse Multiple states meant multiple polities (civilization federalism) Even if most of them got it wrong, somebody would get it correct A Darwinian competition between states/systems The role of warfare, and its sudden decline Weather and Natural Disasters Northern Rain meant no need for irrigation Mechanized agriculture Cereal farming vs. Rice farming Population densities and health: china vs. Europe The question of America. Page 7 of 9

8 Culture The Classical Explanation for differing growth Example: Monotheism A cultural/religious basis for the creation of property rights A taste for humility, no false pride The Protestant work ethic The role of consumption and conspicuous consumption in society Digression: how universal are current tastes and desires National geographic and tattoo parlors Self Flagellation and Aids-Walks Toga s and hip-hop pants The problem of measuring cultural issues Quantifying love Explaining love ; socio-biology, mass entertainment, etc. Multi-culturalism and the rush from judgment Normative and Positive issues - The logical fallacy of value neutral cultural studies and indifference to growth. The Industrial Revolutions V: Modern Thought Technological Explanations for the Industrial Revolution Technological explanation I (Positive Externalities and Increasing returns) New Technology Leads to economic growth As Technology became more prevalent, innovations became transferable Increasing returns to scale not diminishing The externality benefits of new technology Example: Phosphates and German Steel. Edison and the Light Bulb. Technological explanation II (The Scientific Method) Up until 1750, science and innovation were separate After 1800, applied sciences, and the scientific method So now, discoveries, inventions AND innovation Example: The Photo-electric effect (photons) Radio waves Technological explanation III (The political/cultural factors) Europeans (Englishmen) more innovative and inventive New technologies transferred depending on cultural receptivity Political fragmentation did not allow for suppression of technology Example: The Chinese Navy 1480 Mechanical Clocks Roman Waterwheels Islamic Insularity. Page 8 of 9

9 Institutional Explanations for the Industrial Revolution The evolution of property rights The common law, safety, stability, and decentralization Efficient and reliable property rights markets Markets rewarded innovation, Politics punishes it So with the proper incentives, innovation occurs Example: The Invention of the maritime clock The Common Law and the Estates General The Institutionalists Institutions arise to create monopoly rents, and thus suppress innovation to maintain their monopolies When institutions are forced to compete/disband, innovations can flourish Example: the woolen guild and cotton in Britain Craft Unionism in Britain Questions of Measurement Solow Model and Increasing Returns Convergence Page 9 of 9