WEEK 7: Day 11 & Day 12: 4.2. The Uneven Spread of the Industrial Revolution; & 4.3. The Coming of Modern Economic Growth

UC Berkeley Econ 135 S 2023

Brad DeLong

Feb 26, 2023

2022-02-28 Tu: Day 11: 4.2. The Uneven Spread of the Industrial Revolution)
2022-03-02 Th Day 12: 4.3. The Coming of Modern Economic Growth

Required Readings

DeLong, Slouching Towards Utopia, chs. Intro, 1, & 2

Optional Readings

Bateman & Weiss (1981): A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy, ch 1
William Nordhaus: Do Real-Output and Real-Wage Measures Capture Reality

Readings Summary Notes:

Brad DeLong: Slouching Towards Utopia, ch. Intro.:

The author introduces his main argument and perspective on the economic history of the twentieth century. He claims that this period was marked by an unprecedented explosion of material wealth that occurred mainly due to technological innovations and social changes that boosted productivity growth. He also argues that this wealth did not lead to utopia, but rather to a series of crises, conflicts, and disappointments that revealed the limits and flaws of human institutions and values.

He explains how he chose his narrative frame and model to tell this story: he focuses on the long-run trends and patterns rather than on specific events and personalities; he adopts a global perspective rather than a national or regional one; he emphasizes the role of ideas and ideologies rather than material forces or interests; he acknowledges the complexity and diversity of human experiences rather than imposing a simple or linear narrative.

He also outlines some of the main themes and questions that guide his analysis: how did productivity growth vary across time and space; how did income and wealth distribution change over time; how did political systems and social movements respond to economic challenges and opportunities; how did culture and values influence and reflect economic outcomes; how did the environment and health affect and suffer from economic activities; how did the global order evolve and collapse; and how did the human condition improve and deteriorate.

Brad DeLong: Slouching Towards Utopia, ch. 1:

The world experienced an unprecedented explosion of material wealth and human well-being in the long 20th century (1870-2010). But this explosion of wealth did not produce utopia. Rather, it forced humanity to face enormous challenges and risks that threatened to produce not utopia but dystopia, as technological prowess was used not for prosperity and freedom but for destruction and domination. 20th century history was not a linear march of progress, but a slouch towards utopia, with many twists and turns along the way.

The state of the world in 1870 saw most people living in poverty, ignorance, disease and oppression. Then the engine of technological development got into high gear as globalization, the industrial research lab, and the modern corporation all arrived. What followed were technological innovations, political revolutions, social movements, cultural changes and global integration.

Brad DeLong: Slouching Towards Utopia, ch 2:

the world economy experienced a surge of technological innovations and social changes from 1870 to 1914 that massively boosted productivity growth and living standards: industrial research labs, corporations, the expansion of markets and trade, the development of infrastructure and communication, the emergence of new industries and sectors, the diffusion of scientific knowledge and education, the rise of civil society, and pressures for democracy.

But there was also the uneven distribution of income and wealth, the exploitation of labor and natural resources, the competition for markets and colonies, the conflicts between nations and ideologies, and the fragility of the global order.

Achievements of 1870-1914 included: the invention of electricity, telephones, automobiles, airplanes, radio, cinema, and more; the emancipation of women, workers, and minorities; and the reduction of poverty, illiteracy, and disease. Failures included setting the stage for the outbreak of World War I, the Russian Revolution, and the end of the Belle Époque era of optimism, progress, and peace.

Bateman & Weiss (1981): A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy, ch. 1:

Bateman and Weiss challenge the conventional view that slavery was the main obstacle to southern industrialization. Slavery was not incompatible with industrialization. This is shown by successful examples of slave-manned manufacturing—for example, the Tredegar Iron Works of Richmond. Slavery did not prevent the accumulation of capital. Slavery did not block the availability of labor for industrial enterprises.

Rather, southern industrialization was hindered by other factors:

the low demand for manufactured goods
the dominance of agriculture and trade
the high risk and uncertainty involved in investing in new technologies and markets
the scarcity and costliness of natural resources such as coal, iron, and water power
the poor infrastructure and transportation system that limited market access and integration
the political and social attitudes of the planters, who feared that industrialization would threaten their status, power, and way of life.

Useful insights follow from comparing different regions and sectors within the South, as well as between the South and the North.

William Nordhaus: Do Real-Output and Real-Wage Measures Capture Reality?

Examine historical trends in productivity and issues of measurement in estimating real output and real wages through the lens of the example of light. Standard conventional price indexes and deflators do not accurately capture the changes in quality and quantity of goods and services over time, especially for goods and services that undergo rapid technological change, leading to an underestimation of the growth of real output and real wages.

Lighting is a good case study. It is a basic human need. Yet it has undergone mammoth technological innovations and cost reductions over centuries: open fire to LEDs. We can estimate the engineering and economic changes in efficiency, quality, availability, and price of different sources of light.

When we compare these estimates with official statistics on lighting prices and consumption, we find that the official statistics fail to account for the dramatic improvements in lighting quality and quantity over time. Official price indexes for lighting thus vastly overstate the true cost of producing a given amount of illumination, and thus understate the growth of real output and real wages.

The cost per lumen-hour declined by a factor of 3,000 between 1800 and 1992, while official statistics show only a factor of 16 decline. This implies that conventional measures underestimate the growth of real output per capita by 0.8 percent per year over this period. Real consumption per capital artificial light increased by a factor of 6,500 between 1800 and 1992, while official statistics show only a factor of 23 increase. Lighting costs accounted for about 0.7 percent of total consumer expenditure in 1800. Consumers today enjoy vastly more lighting services than their ancestors did, at a much lower fraction of their income.

Conventional measures of real output and real wages are flawed because they do not reflect the true value and utility of goods and services to consumers. Similar biases may affect other goods and services that have experienced rapid innovation, such as computing, communication, entertainment, and health care. We need alternative methods—such as hedonic pricing, quality adjustment, or direct measurement of utility—to try to improve on inadequate conventional statistics.