The Spread of Industrialization
to the Continent of Europe
Features of Industrialization----the
beginnings of Modern Economic
Growth
1. Substantial Rise in Per Capita Incomes
2. Technological Innovation in Production
3. Sectoral Shift: Change in the Economic
Structure
4. Population Increases Rapidly
5. Urbanization
How, where, and why did industrialization
spread to the Continent of Europe?
But, first….
Why was Britain the first industrial country?
Landes’ question:
Why were they so rich----first?
Allen emphasizes role of?
I will emphasize the Pre-Conditions for
Modern Economic Growth:
Efficient Resource Allocation
How do you interpret this graph?
Food
Manufactures
Conditions for Modern Economic Growth:
(1) Trade/ExchangeEfficient Allocation
(2) Productivity Growth
Food
(1)
(2)
Manufactures
What makes markets efficient?
1. Factor prices (prices, wages, interest
rates, etc.) are free to change
2. Freedom of entry and exit
3. Property rights, including contracts, are
well-established and well-enforced
An Extreme Contrast
18,000
16,000
1990 US$ Per Capita Income
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1950
1955
1960
1965
1970
1975
South Korea
1980
1985
North Korea
1990
1995
2000
Five Markets Y= f(L, K, N)
• Output markets—producers free to sell goods and
services. No barriers to entry and exit. No transport or
tariff barriers. Adam Smith: the division of labor is limited
by the extent of the market
• Labor market: Workers have right to choose occupation
and wages are market determined. No forced labor.
• Capital market: Households and business should be able
to save and invest freely and move their money
anywhere. No usury laws and financial contracts
honored.
• Natural resource markets: Owners able to buy and sell
property freely, write contracts, no arbitrary confiscation.
• Technology market: Inventors have a right to protect their
inventions. System of protected patent rights. Storage
and transmission of knowledge important, as are
intellectual property rights.
Pre-conditions for economic growth in
Britain, circa 1750
• Output markets: No internal barriers (tariffs), integrated
market with well developed transportation system,
turnpikes and water. Generally free entry and price
flexibility
• Labor market: No slavery or serfdom. Workers free to
move and take jobs. Guilds had lost their influence and
unions only appeared in 19th century. Wages free to
change.
• Capital market: Capital market generally free. Limited
usury laws. Limits on incorporation of companies and on
size of banks. Contracts well enforced.
• Natural resource markets: Free market established in
land and natural resources.
• Technology market: First patent law 1624, though
relatively weak (U.S. 1790, France, 1791)
• Relatively favorable pre-conditions
Pre-conditions for economic growth on
the continent: France circa 1750
• In 17th and 18th century, it is largest country in
Western Europe----1/2 of total population.
• Rich diverse economy---exports food, wine,
textiles, many luxury goods.
• Rising productivity
• Powerful state with ability to project power
around the world.
• So….why wasn’t France the first industrial
nation? (or the rest of the continent?)
Pop. (millions)
France Britain
1715
1715
19.3
7.1
France Britain
1788
1788
26.6
9.4
GDP (£ m)
116
46
281
134
GDP p.c. (£)
6.0
6.5
10.6
14.4
Tax Rev (£ m)
11.0
5.8
19.0
16.8
Taxes/GDP (%) 9.4
12.5
6.8
12.4
Taxes p.c. (£)
0.8
0.7
1.8
0.6
Who Would You Bet On?
Political Differences
• Great Britain
– 1688 Parliament dominant voice in politics, king
cannot overrule Parliament. Regular Parliaments
control the budgets
– Limited franchise represents landed and commercial
interests
– 1700 Great Britain is a unitary state—England,
Scotland and Wales governed by parliament and
laws.
• France
– King initiates legislation, but the regional Parlements
(basically courts) can only approve or reject.
Equivalent of Parliament—Estates General last met in
1615.
– Parlements are not elected but are filled with
hereditary judicial officials
– France not a unitary state
Parliament vs. Parlement
• In most of Western Europe in the middle ages, when a
king needed new taxes he called an assembly to vote
them to increase compliance---made of representatives
of the nobility, clergy and bourgeois. In Spain, the
Cortes, in France the Estates-General, and England the
Parliament. Only King sitting with this body may change
laws and taxes
• In Britain, after English Civil War (1642-1649) and
Glorious Revolution (1688)—House of Lords and House
of Commons controls taxation and laws. Parliament can
change any law
• In France, Estates General atrophies, last meeting 1615.
Instead regional Parlements of Paris, Bordeaux, Lyon,
Dijon and other provinces pronounce on legality of new
laws and taxes proposed by king. No ability to originate
legislation. Very difficult to engineer new legislation.
Parlement de Paris
Pre-Conditions for Economic Growth in
France, circa 1750
• Output markets: Internal tariff and trade barriers. No
integrated market, poor system of roads. Market
fragmented.
• Labor market: Choice of occupation not free, controlled
by guilds. No free entry and exit. Many elements of
serfdom continue in the countryside.
• Capital market: Banking prohibited after 1720. Limited
capital markets. Frequent government defaults on the
debt.
• Natural resource markets: Less enclosure and less welldefined property rights
• Technology market: French theoretical science
advanced but applied science is weak. No patent law
until 1791.
Weak Pre-Conditions
French Output Markets
• Adam Smith: “The division of labor is
limited by the extent of the market”
efficiency, economies of scale and
innovation thwarted by small size of
markets-----Transportation is the key.
• Roads—unpaved, rutted, muddy
• Rivers---potential great system for
transport but nobles and town set up tolls.
• On the Loire, in
1567, there
were 120 toll
stations.
• Load of salt in
1600 price 25
ecus moved
from Nantes to
Nevers—100
ecus in tolls
Price
Supply
Toll
P2
Effects on
Market
Integration?
P1
Effects on
Regional
Specialization?
Demand
G2
G1
Good
Taxes and Internal Tariffs
• Varied from province to province and town to town.
• Merchant’s manual: “It is almost impossible that so large a
number of impositions do not lead to confusion and that
the merchants should know them sufficiently well to find
their way through the disorder, let alone their employees,
agents and shippers who are always compelled to rely on
the good faith of the officials which is often very suspect.”
• Merchant of Nantes (1701): complained about officials--”these offices are usually filled with covetous
officials….They always have means in readiness for
humbling merchants, they delay their shipments and
cause a thousand and one difficulties in order to obtain an
indemnity. They wax rich at the expense of King and
commerce.”
• Tolls, taxes and tariffs induce---crime---smuggling
The Gabelles
or Salt
Taxes—a
major source
of revenue
Price
Tax
P2
Effects of
tariffs and
taxes?
P1
G2
G1
Good
Weights and Measures
• No standardized weights and measures
• During the middle ages, each town or
region adopted its own.
• Separate measures for liquids in Paris
(muid), Orleans (queue), Burgundy
(feuillettes), Bordeaux (tourneux) etc.
• Need for merchants to adjust---high
information costs.
Louis XIV & Jean-Baptiste Colbert
Reforming the System
Louis XIV 1638-1713
• Crown aware of costs of fragmentation of
markets and it attempted reform to integrate
markets BUT also to increase its revenue.
• Only a partial success.
• Colbert’s objective was to suppress most of river
and road tolls and unify internal taxes and tariffs.
• Strong opposition from local officials and
industries that were protected by these trade
barriers.
• Colbert’s biggest achievement was the
unification of the region around Paris with the
Tariff of 1665.
• But, revenue needs of the king create a new
problem…
Labor Markets and Guilds
• Manufacturing regulated by the guilds—
they control entry and pricing and quality.
• Professional fraternal organizations--weavers, silversmiths, tailors, doctors,
masons
• Apprentices, journeymen, and masters
• Traditionally guilds were chartered by the
towns.
• Colbert’s plan---the Crown would
henceforth grant the charters and charge
fees
Supply
Wage
Effects of a
guild on
wages?
w2
w1
On prices?
Demand
What is
Who gets it?
L2
L1
Labor
Colbert’s regime
• Crown begins to control the guilds. Unify treatment of
guilds
• Sets the regulations or Reglements volume of detailed
regulations, beginning with 2200 pages of rules that
determined who could produce what where.
• Until 1779, it was forbidden to weave anything other than
the specified types of cloth without special permission.
• The choice of technique was controlled. The rules
governing dyeing of cloth had 317 articles.
• Each town or city could be different—based on existing
masters and practices
• Within Burgundy: in Dijon cloth to be 1 ¾ yards wide with
warp of 1408 threads, in Samur, Auxerre and Beaune,
cloth had to have 1376 threads; in Chatillion it was to be
1 5/8 yards wide with 1216 threads.
Colbert’s regime
• Bleachers of linen must “spread linen on fields
gently, to carry it on their shoulders, to put it
through water troughs piece by piece.” “It is
forbidden to leave cattle in the meadows while
the linen is out.” Infractions punished with fines
of 100 livres (p.c. income = 91 livres in 1715)
• Masters had to identify cloth (or other product)
with their market. Guild officials visited shops to
test quality and cloth that did not come up to the
standard was confiscated and destroyed.
• BUT, why did the king care?
Regulations Strictly Enforced—
the Button Wars
• In Paris, one guild for making coats and
one for making buttons—that were used
for coats.
• High price of buttons, the coatmakers
innovate and create cloth buttons.
• The button makers sue them in court for
infringing on their right---they win!
• Why does the king care?
Innovation Stymied
• Traditional French textiles—wool, linen and silk
• Cotton calicoes enter as imports from India via the
French East India Company—the government trading
monopoly.
• Huge demand for cheap, light colorful cloths produced
on handlooms in India
• Result—decline in demand for traditional cloth—the
guilds protest
• 1686, Crown bans all but expensive cottons, then in
1700 absolute ban, which lasted until 1753. Penalties
could include death for smuggling.
• So why not create a new guild? Multiplication of
producers will dissipate rents delivered to the Crown.
Comparison with Britain?
• Guilds very weak in Britain, many fewer
barriers to innovation.
• Fast forward a 60/70 years.
• By 1850, Britain (with half of the
population of France) is producing half the
world’s output of cotton textiles, half of
world’s output of iron and 2/3 of coal.
Other Countries’ Pre-Conditions?
• Germany—not a single nation, but a fiction, the
Holy Roman Empire, a collection of independent
states---principalities, dukedoms, bishoprics ,
free cities, including Frankfurt and Nuremburg.
(Mozart was born in Salzburg—under a princearchbishop). Not pure German—many Poles,
Czechs, Slovaks, Danes, Hungarians….
• In 1648, peace treaty reduced number of states
to 350.
• Each has its own laws, commercial practices,
taxes, tolls, weights, measures, time, currencies,
guilds,…and labor and natural resource markets
subject to variety of medieval institutions.
Italy (1748)—similar absence of
pre-conditions
The French Revolution—the end of
the ancien régime in Europe
• Financial crisis in 1789 forces the Crown to call
for an Estates-General (three estates—nobility,
clergy, and bourgeois). First since 1614.
• Crown wants new taxes but estates complain of
unequitable taxes and many other grievances.
Refuses to assist Crown. King tries to shut
down the Estates-General.
• Result Estates-General is radicalized and
declares itself a unicameral National Assembly.
• King made constitutional monarch, but efforts by
reactionaries and king further radicalize the
public and the legislature---result king dethroned
and French Republic declared in 1793.
Etats-generaux 1789
Tennis Court Oath
Sweeping Changes
• Output market—creation of unified market
– Tolls, taxes, and internal tariffs abolished in 1789
– Unified system of weights and measures—the metric system
• Labor Market
– 1789 all privileges of feudalism eliminated, including noble and
clerical tax exemption, labor services, etc.
– Loi Chapelier 1791 Freedom of entry into any occupation, end of
guilds
• Natural Resources—feudal rules abolished, though
enclosure not required
– Sale of royal and noble lands. Between 1780 and 1804 share of
land owned by small and medium proprietors rises from 30 to
62%
• Capital Market
– Banks permitted, usury law abolished, but government defaults
on the debt
• Technology---first patent law 1791.
Wars of the Revolution and the
Napoleonic Wars, 1793-1815
• Laissez-faire, Laisser-passer the credo of the
early Revolution!!! BUT…..
• External war (European kings want to snuff out
republic) and civil war with royalists and
Catholics leads to abandonment of free market.
• Banks and stock market closed. Grain prices
regulated. Price and wage controls. Seizure of
crops. Government run arms factories.
• The “Terror” looks for economic enemies—sees
capitalists as speculators and hoarders working
for enemy.
• But, land redistribution unaffected.
Napoleon, 1799-1815
• Coup in 1799---consolidation of the Revolution
and return of rule of law, order and property.
• Civil Code and Commercial Code—rule of law
and enforcement of contracts
• Banks and stock market reopen, markets freed
of most regulations. Freedom of occupation and
free land market---although there is political
repression.
• War costly---high taxes, mobilization of men
• Protectionism---high tariffs or prohibition of
imports
Revolution then Napoleon march
across Europe---end of the “old regime”
• French armies march into Germany, Austria,
Italy and Spain.
• The large estates of clergy and nobility are
seized and sold to raise money for war. New
class of small and medium proprietors. A real
labor market.
• Guilds and privileges destroyed.
• Tolls and tariffs eliminated.
• Germany reduced to 39 states—before 350.
Germany after 1815
• Many but not all princes restored to power---39
states kept but allowed to restore old economic
systems.
• Yet, benefits of free trade visible.
• Prussia and North German states set up a
customs union in 1815—the Zollverein.
• Customs union = no tariffs between members
and a common tariff against non-members.
• Central and southern German states resist,
afraid of damage to industries and anger Austria
or France.
• But France raises tariffs in 1822, drives more
states into Zollverein
• By 1834, Zollverein includes ¾ of land to
become Germany in 1871.
Limits of the free market in Germany
• German rulers suspicious of liberals
(economic freedom and political freedom)
• Guilds restored and political repression.
• 1848 Revolution almost overthrows reestablished rulers but fails---new
repression.
• Freedom of occupation in labor market
only occurs in Prussia in 1868.
• Integration very slow—continued multiple
currencies—slow domination of Prussian
currency.
Unification is a Political Act
• Prussian Expansion engineered by Otto van
Bismark, minister to the King of Prussia.
• War with Denmark 1864—seizure of disputed
lands
• War with Austria-Hungary 1866—seizure of
Austria’s German allies
• War with France 1870, seizure of AlsaceLorraine----in euphoria, German states declare
Prussian king—Emperor of Germany—Kaiser
• War also unifies Italy in 1870 under King of
Piedmont.
• Markets are finally unified for each of these
nation states.
Bismarck and Garibaldi
Continental Backwardness
(GDPpc in 1985 US $, Pop in millions)
•
1870 Pop/1870GDPpc
UK
31m
France 36m
Germany 41m
Italy
27m
Spain
16m
$2517
$1678
$ 711
$1239
$ 673
1913Pop/1913GDPpc
45m $3881
39m $2860
67m $1549
36m $2127
20m $1082
Second Phase of the Industrial
Revolution, 1870-1914
• Spread of existing technology of the First
Industrial Revolution from Britain to the
continent.
• Development of new technologies
– Based on science (use of scientific method)
rather than craftsman/amateur/artisan
experimentation.
– Matched to local natural resources on the
continent
Cotton Textiles
• Huge British lead in 1815
• Even earlier: 1786 free trade treaty France-Britain.
Flood of cheap British goods
• During Revolution and Napoleon’s rule, trade with Britain
prohibited for France and continent.
• By 1815---France and other countries even further
behind cutting edge British technology.
• 1820s British spinning machines had over 1000 spindles,
but French factories in 1848 had at most 600 spindles.
• Britain forbids emigration of artisans/engineers until
1825---some sneak out begin Belgian and American
textile industries.
• Britain forbids export of textile and other machinery until
1848.
Raw Cotton Consumption
1850 thousands of tons
•
•
•
•
Great Britain
France
Belgium
Zollverein
222
59
7
17
• Difficult to catch up----continental
industries seek protection—France and
Germany, but not Switzerland.
French
Demand
Price
French Supply
P+T
World Supply
P
0
A
B
C
D
Cloth
Results?
• Germany and France impose tariffs on
British textile imports. Continued
dominance of British over German and
French mass produced textiles
• Switzerland does not impose a tariff and
the Swiss cotton industry becomes
modern and competitive.
• Other industries?
Continental Backwardness
• English traveler in 1847 in Germany wrote:
• The furnace of Eiserfeld stands about a mile up the valley on
a site to which water has been led to drive the blast. The
wheel is 24 feet high and the furnace itself not much higher.
But the latter stands in the center of a large casting house
which affords shelter in the inclement season to the numerous
smelters and their gossiping neighbors. Each furnace is
limited to a number of days. It is common for every man to
manage his smelting during his own days in person. He has
therefore two sheds, one for his ore and another for his
charcoal.
• Here then through the long winter, the villages sit breaking up
their ore with hand-hammers, the never failing pipe in their
mouths to light which frequent trips to the furnace below are
necessary. As each man turn comes, he wheels his ore to the
furnace mouth under the superintendant an official election by
the shareholders of whom a majority are villagers. The whole
establishment becomes in some measure a portion of the
village property.
Even in 1870
• Britain produced half of world’s pig iron or
4 times Germany’s output, 5 times
France’s output and 3.5 times U.S. output.
• But, the race would be in steel (newer
technology) not iron (older technology)
Fast Transformation
• Germany has rich deposits of coal and iron ore in the
Ruhr Valley
• Key role of railroads
• First—Stockton & Darlington in Britain in 1825.
• First on continent in Belgium 1835.
• Slow spread initially.
• Prussian state subsidizes railroads—economic and
military importance.
• 1842 Prussian railway law. State provides 1/7 of the
capital and when profit exceeds 5%, 1/3 of extra goes to
government investment fund for more railroads.
• Huge fall in transportation costs as rail network grows
• 1820---one ton of coal one kilometer cost 40 pfennings
• 1840---one ton cost 14 pfennings by rail
• 1850---one ton cost 2 pfennings
• Railroads—huge demand for iron and steel
New Technologies--Steel
• Pig iron has 2.4 to 4% carbon, steel has 0.1 to
2% carbon while wrought iron has 0.1% iron.
• Pig/cast iron is hard and can withstand stress
but not flexible, wrought iron is plastic or flexible
but cannot withstand stress------------but steel is
hard and plastic.
• Problem is to get the right mix of carbon and no
other impurities.
• First key step is switch from charcoal to
coal/coke, finished by 1863
New Steels
• Traditional crucible steel melted wrought iron and added
powdered carbon in a crucible to get right mix. Made in
batches of 50lbs. If needed more had to do multiple
crucibles.
• 1856 breakthrough—Englishman, Henry Bessemer
discovered that could de-carburize pig iron by blowing air
through molten metal.
• Before it took one day to de-carbonize 5 tons of steel, now it
could be done in 10 to 20 minutes.
• Crucible Steel £100 a ton but only £7 for Bessemer Steel.
• 1860s development by French Pierre and Emile Martin and
Siemens brothers of Germany of method to recycle waste
gases and use them to superheat the forge to economize on
fuel----Siemens-Martin furnace.
• English Chemists Gilchrist and Thomas discover in 18781879 a solution to the problem of phosphoric ores---produced
phosphoric acid that ate furnaces. Add limestone, result is
Basic Steel and a slag that could be used as a fertilizer
Bessemer Converter
German Steel
• Basic steel a boon to Germany as it has
phosphoric ores.
• Combined newly available technologies to build
giant plants that integrate processes.
• 1902 German steel mill average output 75,000
tons compared to British output of 40,000 tons.
• Mass produced steel---British still produced
specialty steels.
• For 1870-1913, iron output in Germany grew at
5.9% and steel output grew at 6.3%, (latter
implies that in 20 years output will be 340%
greater.)
• By 1900, British begin to import some German
steel! Cheaper!
Chemicals—Continent takes the lead
• Alkali industry—bleaches and soaps
• Standard Leblanc method produced by-product
of hydrochloric acid
• 1863, Ernest Solvay (Belgium) discovered how
to produce ammonia as a by-product instead.
His techniques adopted in Germany
• Germany leads in synthetic dyes. New firms of
Hoescht and AGFA. Dominate pre-1914
market—British discover khaki dyes for uniforms
come from Germany
Electricity
• New source of power.
• Great advantage is that it is easier to
transmit power without loss of power.
Convert into light, heat, and motion.
• Allows for reorganization of factory floor
and elimination of dangerous jungle of
belts and shafts
• Faster application in Germany than Britain
Engineering
• British have high quality, well-trained and hence
high wage labor force. Production of made to
order machines.
• The American System developed during Civil
War of standardized interchangeable parts.
Automatic lathes and milling machines increase
precision. Enable mass production of machines
with more capital and cheap labor.
• Germans adopt the American System and
produce engines, boilers, locomotives, electrical
machines. Later applied (first in US) to sewing
machines (for clothes and shoes) and bicycles.
• Mass production and decline in prices
Key Factors Behind Second Wave
of Industrialization?
•
•
•
•
Human Capital—education
Research and Development
What does Crafts have to say?
Slower British growth. Americans bypass,
and Germany following.