WEEK 6: Day 9 & Day 10: 3.5. On the Eve of the Industrial Revolution. & 4. Modern Economic Growth. 4.1.Industrial Revolution Puzzles

UC Berkeley Econ 135 S 2023

Brad DeLong

Feb 26, 2023

2022-02-21 Tu: Day 9: 3.5 On the Eve of the Industrial Revolution; Slides: <https://bcourses.berkeley.edu/files/85438077/download?download_frd=1>
2022-02-23 Th Day 10: 4. Modern Economic Growth. 4.1. The Puzzle of the Industrial Revolution; Slides: <https://bcourses.berkeley.edu/files/85466308/download?download_frd=1>

Required Readings:

Allen, chs, 2 & 3
Clark, ch. 10

Optional Readings:

John Coatsworth (2008): Inequality, Institutions & Economic Growth in Latin America
Melissa Dell (2015): Path Dependence in Development: Evidence from the Mexican Revolution
Ian Morris: Why the West Rules–For Now, chapter 3: Taking the Measure of the Past
Robert Allen: The Industrial Revolution: A Very Short Introduction, chs 3, 5-6
Clark, chs, 11-13
David Landes (2006): Why Europe and the West? Why Not China?
Bateman & Weiss (1981): A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy, ch. 1

Reading Notes: Required

Robert Allen: Global Economic History: Chapter 2: The Rise of the West:

Why I Assigned This: To give you a sense of the history, patterns, and causal uncertainty around the historical fact of the post–1500 “Great Divergence” between the economies in the Dover Circle or able to join the Dover Circle-Plus and all others.

Brief Summary: Both “fundamentals” such as geography, institutions, and culture, and “accidents of history” played important roles in triggering the coming of Modern Economic Growth to the Dover Circle and in retarding its spread to elsewhere.

Geography was important but not everything: technology and economic opportunities reduced or amplified the burden of bad geography. While aspects of culture such as widespread literacy and numeracy are necessary conditions for economic success, cultural explanations that invoke irrationality and laziness are strongly suspect. Faring not that much better are those who argue that economic success is the result of laissez-faire: secure property rights, low taxes, and minimal government. Absolutist monarchy and Oriental despotism also promoted peace, order, and good government, which led to trade, specialization, and successful urbanization.

The key to starting the creation of the unequal world we have today was the first globalization that began in 1500. The voyages of Columbus and Magellan set off a scramble for empire and colonialism. The English and Dutch joined, with their joint-stock companies that traded, waged war on land and sea, and built forts abroad. England and the Netherlands created empires that transformed their economies and shifted manufacturing from Italy to northwestern Europe. The knock-on effects were agricultural and energy revolutions, plus increased literacy, numeracy, and skill formation in northwestern Europe.

Greg Clark: “A Farewell to Alms”: Chapter 10: Modern Growth: The Wealth of Nations:

Why I Assigned This: To reinforce some of the details underpinning the absolute centrality of human ideas—technologies for manipulating nature and for cooperatively and productivity organizing humans—in determining prosperity and population in general and in the great watershed boundary-crossings to faster growth in particular.

Brief Summary: It was the dramatic rise in real incomes in northwestern Europe and North America starting around 1800 that ended the Malthusian era. Calling it the “Industrial Revolution” is misleading, for the productivity of agriculture has increased just as much as the rest of the economy since 1800, and services have been no slouch either. Inside the Dover Circle, incomes have increased at least tenfold since 1800. They continue to rise.

Structural change has meant that growth has been multi-dimensional. The switch of labor from agriculture to industry has profoundly affected social life. So has concentration in cities due to the richer labor market and social amenities they offer. So has the predictable switch in relative consumption patterns.

The key factor, of course, is the investment in expanding the stock of production knowledge. A five-variable model—production, labor, physical capital, land, and labor efficiency—is all we need to get a handle on the fundamentals of growth. Higher capital intensity and greater labor efficiency are the two changes that result in persistent growth in income per person, and this is true whether one looks at an economy with only one output, one type of labor, one type of land, and one type of capital, or at more complicated and more realistic models of the economy.

Increases in capital per worker account for only a quarter of the growth of output per person since the Industrial Revolution. The importance of efficiency can be reduced by expanding the measure of capital to also include human capital, but doing so does not eliminate increased efficiency as an important source of growth. Moreover, it Is increases in efficiency that drive investment in physical capital and education.

The path to explaining the economic history of the world is clear. All we need explain is why before 1800 everywhere—warlike, peaceful, monotheist, polytheist societies—investment in useful was so slow, and why this changed in Britain after 1800. Do this, and we understand human history.

Robert Allen: Global Economic History: Chapter 3: The Industrial Revolution:

The economic impact of and the factors that contributed to the success of industrialization in Britain, and beyond. Key points:

The Industrial Revolution was a period of rapid economic growth and technological change that began in Britain in the late 18th century and spread to other parts of Europe and the world.
Industrialization was made possible by a number of factors, including the development of new technologies like the steam engine, the expansion of trade and transportation networks, and the growth of capitalist markets and institutions.
Britain was the first country to industrialize.
Contributing to Britain’s success success at industrialization were its abundant supply of coal, iron, and other natural resources, its skilled and innovative workforce, and its stable political and legal institutions.

Reading Notes: Optional

John Coatsworth: Inequality, Institutions & Economic Growth in Latin America"

Why I Wanted to Assign This: To give you a sense of the history, patterns, and causal uncertainty around the historical fact of the post–1500 “Great Divergence” between the economies in the Dover Circle or able to join the Dover Circle-Plus and all others.

Brief Summary: Key points:

Inequality has been the persistent problem in Latin America, creating social and political tensions
Inequality in Latin America has severely reduced investment, and thus indirectly and directly reduced productivity.
Institutions necessary for rapid growth and reduced inequality like the rule of law, strong property rights, and efficient markets have been difficult to build in Latin America.
Recently, inequality in Latin America has been in decline: social welfare policies, successful fights against corruption, and the power of neoliberalism to dissolve patrimonialism appear to have all played significant roles.
Much remains to be done: education, infrastructure, and promoting innovation on the growth side; progressive taxation, universal health care, and affordable housing on the equity and social inclusion side.

Melissa Dell: Path Dependence in Development: Evidence from the Mexican Revolution

Economic development in Mexico was heavily influenced by decisions made during the revolutionary period 1910–1920 which have had long-lasting effects on the trajectory of the country’s agrarian sector.

Key points:

The Mexican Revolution redistributed large estates to small farmers, and thereafter prohibited such ejidos from being sold.
As time passed, this policy to protect the smallholder peasants against a return of debt peonage greatly hindered the ability to take advantage of technologies most effective on larger, more capital-intensive farms.
Moreover, while an ejido could not be stolen via legal process by the moneylender, by the same coin the smallholder could not pledge or sell the ejido to get resources for school, to open a shop, or to move to a place with higher wages.
Moreover, such ejidos were not fully the property of the smallholders. Smallholders had to keep in good with the bureaucracy of the ruling PRI in order to maintain secure title.
On too of this, the nationalizations and expropriation of foreign-owned industries of the revolution hindered subsequent foreign investment.
Provinces where ejidos were common because bad harvests before the revolution intensified grass-roots discontent and hence revolutionary pressures are, today, significantly poorer than other regions in Mexico.
Key factors in understanding economic development: historical context, path dependence, and unanticipated consequences.

Ian Morris (2010): Why the West Rules–For Now, chapter 3: Taking the Measure of the Past;

Key points:

How to measure the success and complexity of past societies? Population size, urbanization, economic output, and military strength.
“Social development” driven by the ability to harness and control energy sources. As societies gain more energy, and hence become more complex and able to support larger populations and more sophisticated institutions.
Rome a more decentralized and individualistic society
Han China a more centralized society more focused on collective goals.
These differences helped shape the political and economic systems of each society and contributed to their relative success and longevity.
Morris is attracted by the idea of non-deterministic “long-term cycles” in history driven by (a) changes in the balance of power between societies, (b) population growth, and (c) resource depletion.

Robert Allen: Global Economic History: A Very Short Introduction, Chapter 5:

Chapter 5 examines the growth of global trade and its impact on economic development from 1400 to 1800. Key points:

Global trade during the early modern period was driven by new trade routes, the development of new trading centers, the development of new trade institutions—chief among them the mercantile-military-political East India Companies
Do not forget the very important role of the growth of state power.
Trade was very closely linked to urbanization.
Global trade made the economies of Europe and Asia more “capitalist” and in Western Europe laid a share of the groundwork for the Industrial Revolution.
Early modern-era global trade laid a share of the groundwork for deindustrialization of Asia.
New industries and stronger and different merchant classes were created by early modern trade.
And, of course, new forms of labor exploitation of a previously unseen magnitude were created, chief among them the Triangle Trade and the European-Caribbean-African slave economy.

Robert Allen: Global Economic History: A Very Short Introduction, Chapter 6:

Chapter 6 looks at the role of technological change in driving economic growth and development. Key points:

Technological change has been the major driver of economic growth and development through its effects boosting productivity.
Chief among the benefits of new technology has bene the power to harness new sources of energy and to increase productivity.
The Industrial Revolution was a period of more rapid and more profound technological change than ever before: new forms of manufacturing, new modes of transportation, new markets, and new industries.
The drivers of the spread of new technologies were not so much government decrees as the decentralized actions of entrepreneurs and inventors who sought to profit from their innovations and to push the boundaries of what was possible.
Technological change has continued to shape the global economy in the modern era: look at information, bio, and green technologies.

Greg Clark: A Farewell to Alms, chs. 11-13:

Chapters 11 through 13 of Greg Clark’s book “A Farewell to Alms” examine the relationship between technology and economic growth in England from the 16th century to the Industrial Revolution.

Chapter 11 discusses the evolution of technological change in England during the early modern period. Clark argues that technological progress during this period was largely driven by individual inventors and entrepreneurs who were able to profit from their innovations. This led to a culture of innovation and experimentation that fostered technological progress, which in turn led to improvements in productivity and economic growth.

Chapter 12 examines the role of institutions in promoting technological change and economic growth. Clark argues that the institutional framework in England, including property rights, the legal system, and the availability of capital, provided a conducive environment for technological innovation and entrepreneurship. Additionally, he highlights the importance of networks and social capital in promoting innovation and diffusion of new technologies.

Chapter 13 focuses on the relationship between technological change and the Industrial Revolution. Clark argues that the Industrial Revolution was not a sudden event, but rather the culmination of a long process of technological progress that had been taking place in England for centuries. He also highlights the role of institutions and networks in promoting the diffusion of new technologies and ideas during this period.

Overall, these chapters emphasize the importance of technological progress in driving economic growth and highlight the institutional and cultural factors that were crucial in fostering innovation and entrepreneurship in early modern England. They also provide a historical perspective on the long-term process of technological change that ultimately led to the Industrial Revolution.

Robert Allen: Global Economic History: Chapter 4: The Great Divergence:

The early modern period saw the relative rise of Europe and the decline of Asia. Factors that contributed to this divergence included:

Capitalism, which emerged in Europe during this period, driven by the availability of capital, the growth of cities, and the development of trade.
Many civilizations throughout history had markets, credit systems, and other features of what we call “capitalism”. But these elements did not coalesce into a full-fledged capitalist system until the early modern period in Europe.
Supporting the rise of capitalism was divergence in institutional frameworks. Most important, while the Chinese state encouraged private enterprise, and didi so only within substantial limits.
China’s pursuit of knowledge was less focused on practical applications and more geared towards philosophical and theoretical advancements.
The growth in Europe of scientific knowledge and technological innovation, driven in part by the greater openness to new ideas of European societies and the development of a willingness to experiment.
By contrast, ecological constraints and the lack of incentives for technological innovation in this period contributed to Asia’s relative decline.
Do not ignore that Western Europe had access to abundant coal resources, which played a critical role in the development of industrialization, while China’s energy resources were more limited.
Do not ignore the development of trade networks and, most of all, the discovery of the New World that brought new sources of wealth to Europe, further fueling its economic growth.

The pattern of economic differences between Europe and the rest of the world created during the Great Divergence has persisted to the present day.

Robert Allen (2017): The Industrial Revolution: A Very Short Introduction, chapters 3–6:

Robert Allen provides an overview of the economic and technological changes that occurred during the transformative Industrial Revolution era:

Technological innovations played a critical role in driving the period of industrial growth that began in the late 1700s. Key innovations, especially the steam engine and automatic textile machinery, enabled the production of goods on a much larger scale than had been previously possible. The development of iron and steel also played a critical role, as it allowed for the construction of new machinery and infrastructure.

While other countries, such as France and Germany, did experience some industrial growth during this time, it was Britain that was the overwhelmingly predominant growth pole of the Industrial Revolution. Britain’s dominance was powered its access to coal and iron, its development of an extensive transportation network, and its culture of innovation and entrepreneurship.

Industrial growth brought significant economic benefits alongside social and economic challenges and opportunities: new forms of labor exploitation and inequality, new forms of consumer culture, a shift towards use of industrial goods and away from traditional handicrafts. Moreover, the steamship, the railroad, and the telegraph brought the global trade economy.