Economics 201
European Economic History
Fall 2004
MWF 9-9:50
Castleman 212
R. N. Langlois
Richard.Langlois@UConn.edu
http://langlois.uconn.edu
Office: Room 322 Monteith
Office hours: MWF 10:15-12 or by appointment
1
Books and readings.
 Rondo Cameron and Larry Neal, A Concise Economic
History of the World. New York: Oxford, 2003.
 Jared Diamond, Guns, Germs, and
Steel. New York: Norton, 1997.
 Douglass C. North, Structure and Change in
Economic History. New York: Norton, 1981.
 Nathan Rosenberg and L. E. Birdzell, Jr., How
the West Grew Rich. New York: Basic Books,
1986.
 Frances and Joseph Gies, Life in a Medieval
Village. New York: Harper, 1990. .
2
Course requirements.
Midterm 1 30%
Midterm 2 30%
Final 40%
3
Points to remember.
 Come to class.
 Check online syllabus regularly
for new links and materials.
4
Central Question: Why Europe?
5
Economic growth.
 Extensive growth.
 Total income (Y) increases.
 Intensive growth.
 Per capita income (Y/N) increases.
Example: India versus Australia.
6
Intensive economic growth.
Australia
(1998)
India
GDP
US$ 382,335 million*
US$ 1,702,712 million*
Pop.
18.75 million
975 million
Y/N
US$ 20,391
US$ 1,746
*1990 international $
7
Income per capita 1999.
United States $30,600
Japan $24,041
Australia $22,448
United Kingdom $20,883
Spain $16,730
Argentina $11,324
Russia $6,339
China $3,291
India $2,149
Tanzania $478
GNP per capita, 1999
international dollars,
PPP method.
Source: The World Bank.
8
Economic growth.
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
1999
1989
1979
1969
1959
1949
1939
1929
1919
1909
1899
1889
1879
1869
1859
1849
1839
1829
1819
1809
1799
1789
$0
Growth in U. S. GDP per capita, 1789-2001 (1996 dollars).
Source: Johnston and Williamson (2002)
9
What is economic growth?
Adam Smith (1723-1790).
Author of the Wealth of Nations
(1776). Picture courtesy of the
Warren J. Samuels Portrait
Collection at Duke University.
 Mercantilists: wealth is an
excess of money or real
goods.
 Adam Smith: wealth is not
stuff; wealth is productivity.
 Productivity is total output
divided by total input: Y/L.
 Smith: the ability to command
resources with labor time.
10
Declining time-price of food.
 3-lb. Fryer:
 1919: 3.5 hours.
 1997: 27 minutes.
11
Falling death rates.
45
40
35
30
25
US
20
GB
15
10
5
0
1700
1850
1910
1980
Annual deaths per thousand, United States and Great Britain.
Source: Fogel (1986), p. 44, Table 9.1.
12
Increasing life expectancy.
90
80
70
60
50
40
30
20
10
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
U. S. life expectancy at birth in the twentieth century (years).
Source: National Center for Health Statistics.
2000
13
Decreasing price of computing power.
The decreasing cost of computing power (1998 dollars per MFLOPS.) Source: Kurzweil (1999, pp. 320-321).
14
Decreasing price of illumination.
10
1
0.1
0.01
0.001
18
00
18
10
18
20
18
30
18
40
18
50
18
60
18
70
18
80
18
90
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
0.0001
Time price of light (hours of work per kilolumen-hour).
Source: Nordhaus (1997).
15
Who is wealthier?
Louis
You
Food
Light
Info tech
A/C
Entertainment
Louis XIV (1638–1715)
King of France (1643–1715)
Housing
Medicine
16
Economic growth.
Joseph A.
Schumpeter
(1883-1950)
“[I]t is the cheap cloth, the cheap cotton and
rayon fabric, boots, motorcars and so on that
are the typical achievements of capitalist
production, and not as a rule improvements
that would mean much to the rich man.
Queen Elizabeth owned silk stockings. The
capitalist achievement does not typically
consist in providing more silk stockings for
queens but in bringing them within the reach
of factory girls in return for steadily
decreasing amounts of effort.”
Schumpeter, Capitalism, Socialism, and Democracy (1942).
17
Economic growth.
0
1000
1820
1998
Western Europe
450
400
1,232
17,921
Western Offshoots
400
400
1,201
26,146
Japan
400
425
1,201
20,413
Average Group A
443
405
1,130
21,470
Latin America
400
400
665
5,795
Eastern Europe & former USSR
400
400
667
4,354
Asia (excluding Japan)
450
450
575
2,936
Africa
425
416
418
1,368
Average Group B
444
440
573
3,102
World
444
435
667
5,709
Per capita income by region, selected years CE. (1990 International $.) Source: Maddison (2001)
18
World population growth.
Year
Population (millions)
25000 BCE
1
5000 BCE
5
1 CE
170
1000 CE
265
1400 CE
350
1800 CE
900
1900 CE
1625
2000 CE
6272
Source: Michael Kremer (1993), “Population Growth and Technical Change, One Million
B.C. to 1990,” Quarterly Journal of Economics 108:3 (August), pp. 681-716.
19
Is intensive growth even possible?
Thomas
Robert
Malthus
(17661834)
“It has been said that the great question is
now at issue, whether man shall henceforth
start forwards with accelerated velocity
towards illimitable, and hitherto
unconceived improvement; or be
condemned to a perpetual oscillation
between happiness and misery, and after
every effort remain still at an immeasurable
distance from the wished-for goal.”
Malthus (1798), I.2.
20
Is intensive growth even possible?
Thomas Robert Malthus
(1766-1834)
 Malthusian population doctrine.
 Population (potentially) grows exponentially but
food supply (potentially) grows only linearly.
 Any surplus above necessities leads to population
growth, which reduces real wages back down to
subsistence.
 Diminishing returns.
David Ricardo (1772-1823)
Image courtesy of the Warren J. Samuels
Portrait Collection at Duke University.
 Because land is a fixed factor, food supply
actually grows less than linearly.
 Rent of land sucks up all returns and brings
growth to a halt.
21
What Malthus and Ricardo forgot.
Thomas Robert Malthus
(1766-1834)
 Diminishing returns.
 Wildly underestimated
the potential for
productivity growth.
 Malthusian population
doctrine.
David Ricardo (1772-1823)
Image courtesy of the Warren J. Samuels
Portrait Collection at Duke University.
 Missed the demographic
transition.
22
Malthusian responses.
Thomas Robert Malthus
(1766-1834)
 When a Malthusian society
generates economic
surplus.
 Migration to new land.
 A Malthusian crisis.
 Technological, institutional, and
organizational change to
increase productivity.
23
What causes (intensive) growth?
 Resources help.
 Climate, geography.
 Guns, germs, and steel.
 Lack of resources helps.
 Hong Kong versus Argentina.
 The resource trap.
24
The spread of human populations.
25
The Neolithic era.
 Pleistocene takeoff (circa 50,000
B.C.E.)
 Evolution of brain
or voice box?
 Cro-Magnon
enter Europe
(circa 40,000
B.C.E.)
Cave painting (32,000-30,000
B.C.E.) from the Chauvet cave
at Vallon-Pont-d'Arc in the
Ardèche region of France.
26
Hunter-gatherer society.
 Dependence on natural foodstuffs:
nomadism.
 Generate surplus with technological
change.
 Common-pool problem.
 Migration when land abundant.
 Intergroup warfare when land scarce.
 Hunter-gatherers maximize population.
27
The first economic revolution.
VMPL
VMPHG
VMPAGR
N*
Population (labor force)
28
Settled agriculture.
 Population pressure creates “demand”
for settled agriculture.
 First stage: defending naturally occurring
foodstuffs.
 Women cultivate crops by while men hunt.
 Climate, geography, resources create
“supply” of settled agriculture.
29
Guns, germs, and steel.
The major axes of the continents.
30
The advantages of Eurasia.
 Plant domestication.
 Large connected belt of Mediterranean climate.
 Wider availability of domesticable varieties
(cereals).
 Animal domestication.
 Coevolution of humans and animals.
 Prevents mass extinctions during huntergatherer era.
 Evolved immunity to animal-borne diseases.
31
The Fertile Crescent.
Sites of food
production before
7,000 B.C.E.
The geographical distribution of the seven Neolithic
founder crops in the Fertile Crescent (yellow) of the
Near East. Large map shows the distribution of wild
chickpea (red line) in a core area (green line) within
the upper reaches of the Tigris and Euphrates rivers
(present-day southeastern Turkey/northern Syria).
Inset maps show the distribution of founder cereal
crops — einkorn wheat (cross indicates the putative
site of its domestication), emmer wheat, and barley
— and founder legumes (lentil, pea, bitter vetch).
Blue lines delineate the range of genetic founder
stocks for lentil and pea, and red lines the range of
emmer wheat, barley, and bitter vetch (no data are
available on their genetic founder stocks). Red lines
also indicate the distribution of einkorn wheat,
lentil, and pea beyond that of their genetic founder
stocks.
Source: Simcha Lev-Yadun, Avi Gopher, and
Shahal Abbo, “The Cradle of Agriculture,” Science
2(288): 1602-1603, June 2000
33
The spread of agriculture to Europe.
34
The Indo-Europeans.
 Common origins of European and IndoIranian languages (4000-2500 B.C.E).
 Who were the Indo-Europeans?
 Theory 1: pastoral nomads.
 Mobility of domestic horse, wheeled carts.
 Economic advantages of pastoralism.
 Capital intensity.
 The secondary-products economy.
 Theory 2: masters of settled agriculture.
 Genetic evidence.
 Population pressure from settled agriculture.
35
Diffusion of innovation.
1500
2000
2500
WOOL
3000
HORSE
3500
PLOUGH, CART
4000
4500
Reconstruction of Ötzi
the ice mummy (c. 3300
BCE), in the South Tyrol
Museum of Archeology,
Bolzano, Italy.
5000
MILKING?
5500
6000
6500
Years BCE
AGRICULTURE
36
Bronze Age Europe.
Baltic
Germanic
Slavic
Celtic
Italic
Greek
37
Early cities and civilizations.
Jericho
(c. 7,000 BCE)
Sumeria and
Baylonia
(c. 31001600 BCE)
Egypt
(c. 2705-332
BCE)
Mycenaea
(c. 2000-1350
BCE)
38
The urban revolution.
Irrigated settled agriculture.
Economic surplus.
 Specialization.
Bull-headed lyre from the Royal Tombs of Ur.
University of Pennsylvania
Museum of Archeaology and Anthropology.




Artisans.
Soldiers.
Kleptocracy.
Bureaucrats.
39
North’s theory of the state.
 The state (monarch) is a revenuemaximizing natural monopolist in
the use of force.
 The minimum efficient scale of
defense.
 Revenue-maximization and the
Laffer curve.
40
Revenue maximization.
The Laffer curve
Revenue
0%
t*
100%
Tax rate
41
“Oriental despotism.”
 High MES of agricultural production.
 Labor-intensive irrigation projects.
 Slave or near-slave labor force.
 Workers “deskilled” and can’t appropriate benefits of innovation.
 Appropriation of surplus by aristocracy.
 Lavish monumental construction rather than reinvestment.
 Specialists focus on luxury goods for aristocracy.
Low rate of technological change.
Slow economic growth.
42
The Phoenicians and Greeks.
43
The Roman Empire.
44
The Rise of Rome.
 Agriculture.
 Irrigation and servile
production.
 But, unlike Egypt,
agriculture private: the
Villa system.
The Pont du Gard aqueduct,
near Nîmes, France.
 Organization and law.
 Military technology.
 Discipline and large
numbers.
45
Early Roman economic policy.
Head of the Emperor Augustus
(ruled 27 B.C.E. – 14 C.E.),
from the Kelsey Museum,
University of Michigan.
 Importance of trade and
commerce.
 Octavian defeats Antony
(31 B.C.E.)
 The pax romana and the
Mediterranean “common
market.”
46
The Roman Empire about 117 C. E.
47
International trade in the Roman era.
48
The fall of Rome.
 External causes.
 Change in military technology?
 Learning by “barbarians.”
 Internal causes.
 End of expansion eliminates source of revenue.
 Need to “bribe” political challengers.
 Bread and circuses.
 Tax exemptions for nobility.
 Spiraling fiscal crisis.
49
Roman fiscal crisis.
Roman coin bearing the likeness of
the Emperor Diocletian (284-305 C.E.)
 Emperors raise tax rates to
meet revenue demands.
 Tax base erodes as goods
and services flee the
money economy.
 Reduced tax base leads to
further increases in the tax
rate, and so on in a vicious
cycle.
Tax revenue = tax rate * tax base
50
Monetary Policy.
Debasement of the
currency (another kind of
tax) leads to hyperinflation
in the third century.
Gresham's Law.
(“Bad money drives out good.")
51
Government controls.
 Diocletian reforms.
 Strict wage and price controls.
 In-kind system of taxation and
requisition.
 Constantine (308-337) ties
workers to the land.
 “Demonetizing” the economy.
52
Barbarian invasions.
 Germanic expansion.
 Population increase and Huns.
Augustulus
 Augustulus deposed by
barbarians in 476.
 How dark the “Dark Ages”?
 Evidence of population decline.
 From roving bandits to
sedentary bandits.
53
The feudal system.
 Change in the MES of
military technology.
 The great stirrup controversy.
 Feudalism as a “contract.”
 Exchange of work for defense.
 Why an in-kind exchange?
 Serfdom: tying workers to the land.
Charlemagne crowned emperor
by Pope Leo III (800 C.E.), from
 Labor shortage and rent
distribution.
 Example: professional sports.
Grandes Chroniques de France
(14th Century), Bibliothèque
Nationale de France.
54
Feudalism as a system of rights.
Although full-grown feudalism was largely the result of the breakdown of older
government and law, it both inherited law from the past and created it by a
rapid growth of custom based on present fact. In one sense it may be defined
as an arrangement of society based on contract, expressed or implied. The
status of a person depended in every way on his position on the land, and on
the other hand land-tenure determined political rights and duties. The acts
constituting the feudal contract were called homage and investiture. The
tenant or vassal knelt before the lord surrounded by his court (curia), placing
his folded hands between those of the lord, and thus became his ‘man’
(homme, whence the word homage). … The lord in turn responded by
‘investiture’, handing to his vassal a banner, a staff, a clod of earth, a charter, or
other symbol of the property or office conceded, the fief (feodum or Lehn) as it
was termed …. This was the free and honourable tenure characterized by
military service, but the peasant, whether serf or free, equally swore a form of
fealty and was thus invested with the tenement he held of his lord. The feudal
nexus thus created essentially involved reciprocity.
— The Shorter Cambridge Medieval History
55
The manorial system.
 Villein tenancy.
 Disappearance of slavery.
 The custom of the manor.
 Demesne obligation.
 Three days of week-work on
the lord’s land.
 An input-sharing contract.
October, from Les très Riches Heures du Duc de
Berry (c. 1412). The Chantilly Museum, Paris.
56
Early medieval agriculture.
 Traditional individualistic subsistence
agriculture.
 Shared common “wastes” with little
common-pool pressure.
 “Sedentary pastoralism” takes precedence
over cultivation of arable.
 Eventually: communal control over
common-field grazing.
57
Evolution of the manorial system.
 Population growth leads
to nucleation.
 Peasants leave hamlets
and assemble in villages.
 Arable of hamlets
merged to become
village arable.
June, from Les très Riches Heures du Duc de
Berry (c. 1412). The Chantilly Museum, Paris.
58
Evolution of the manorial system.
Population growth leads to
increased demand.
 Labor transferred from
pastoralism to cultivation of the
arable.
 “Cerealization” and “destocking.”
 “Common of shack”: grazing on
the fallow arable.
 Final element: scattering of
arable holdings.
June, from Les très Riches Heures du Duc de
Berry (c. 1412). The Chantilly Museum, Paris.
59
Crop rotation.
Three-course rotation in wide use by ninth century.
 Spring crop:
 Oats/barley or peas/beans.
 Harvested in summer.
 Autumn sowing of wheat
or rye, harvested following
summer.
 A year fallow.
Four seasons and seasonal labors. From
Bartholomaeus Anglicus (Bartholomew the
Englishman), On the Properties of Things.
France, Le Mans 15th Century. Bibliothèque
Nationale de France.
 Nitrogen fixing by soil
bacteria.
 Manure from pasturing.
60
The open-field system.
61
Representative village.
Physical structure.
 Division into arable and
non-arable land.
 “Waste” for grazing.
 Arable divided into two
or more fields.
 Hundreds of acres each.
 Arable subdivided into
elongated narrow strips.
 But waste not subdivided.
62
Representative village.
Ownership structure.
 Villeins, copyholders,
and freeholders.
 Not much practical
difference.
 OFS as a village
system, not a
manorial system.
 Commons owned
collectively.
 Not “unowned.”
63
Representative village.
Institutional structure.
 Management of the
Commons.
 Changeover from private to
collective rights.
 Use of commons.
 Joint expenses.
 Manor court or village
meeting.
 Set planting and harvesting
dates.
 Prevented overuse of commons.
 Controlled private exchange of
strips.
64
Representative village.
Technological structure.
 Little specialization in
production.
 Except near big cities.
 Specialized farms didn’t
use the OFS.
 High transportation and
transaction costs.
 Some activities collective.
 Grazing, plowing,
harvesting.
 Some activities private.
 Sowing, weeding.
65
The OFS: economic analysis.
 Fine-tuned adaptation to
diversified autarkic production.
 Pastoralism and crop rotation.
 Many tasks, with different levels
of economies of scale and
different costs of monitoring.
 Manage tasks collectively when
economies of scale high and
monitoring costs low.
 Assign private property rights when
economies of scale low and
monitoring costs high.
July, from Les très Riches Heures du Duc de Berry
(c. 1412). The Chantilly Museum, Paris.
66
Scattering.
67
Scattering: early explanations.
 Size of plow team.
 Land in proportion to contribution.
 But scattering observed even when light plow used.
 Desire for equality.
 But there were many inequalities among peasants.
 Partible inheritance.
 But this applies only to holders in fee simple.
 Assarting.
 Creating new arable form the waste.
 General problem: why does scattering persist?
 Active markets in strips.
68
Scattering and risk.
 McCloskey: scattering
as a form of insurance.
 Variability of climate
and soil over small
areas.
 Scattering as portfolio
diversification in the
absence of other
assets.
69
Problems with the risk hypothesis.
 Landlords provide de facto
“charity.”
 Livestock another portfolio
asset.
 Optimal risk sharing through
combination of rental, wage,
and share-cropping contracts.
70
Scattering and the open-field system.
 Dahlman: scattering helps preserve OFS.
 By increasing costs of private enclosure,
scattering reduces “hold-up” threats.
 Scattering protects the system against the
individual.
 Fenoaltea: stands Dahlman on his head.
 Collective activities (especially harvesting)
capacity constrained.
 Not all parts of all fields can be harvested in
some years.
 Scattering protects the individual against the
system.
 A different sort of risk-diversification argument.
71
The success of the OFS.
Year
W. Europe
All Europe*
1000
12-15 million 15-20 million
1300
45-59 million 60-70 million
 Population densities highest where the
manorial/OFS was most extensive.
 Northern France, Northern Italy.
 Population growth in Eastern Europe the
result of migration.
*All Europe includes Norway, Sweden, most of Eastern Europe, and Christian Spain.
72
Results of population growth.
From 11th to 13th century, a frontier movement.
 Clearing the
waste.
 Colonizing
Eastern Europe.
 The Crusades
as a frontier
movement.
73
Thirteenth century: looming
crisis.
 Frontier movement
ceases, population growth
continues.
 General increase in land
rents.
Pieter Bruegel the Elder, The Harvesters (1565 )
Metropolitan Museum of Art, New York
 Increase in relative prices of
cereals.
 Some shift from pasture to
cultivation.
 Diminishing returns and
declining real wage.
74
Thirteenth century: response.
Refeudalization: return to direct cultivation of the demesne.
 Feudal obligations
transformed into money
rents in many places by 11th
century.
 Money rents seen as fixed:
origin of the word “farm.”
Pieter Bruegel the Elder, The Harvesters (1565 )
Metropolitan Museum of Art, New York
 A farmer (fermier) held a right
to rents that were fixed or
firm (ferme).
 Why return to feudal
obligations?
75
Why refeudalization?
 Lords dig in their heels.
 Fixed rents allows peasants to
capture the gains from
increasing land rents.
 Return to demesne avoids
renegotiation costs.
 Proto-enclosure.
Pieter Bruegel the Elder, The Harvesters (1565 )
Metropolitan Museum of Art, New York
 A move toward specialized
production?
Either way: the failure of institutional transformation.
76
The calamitous fourteenth century.
Population of Western Europe, 1200-1550 (millions).
1200 61
1400 45
1250 69
1450 60
1300 73
1500 69
1350 51
1550 78
Albrecht Dürer, The Four Horsemen
of the Apocalypse (1498).
77
The calamitous fourteenth century.
Population of England, 1086-1603 (millions).
1086 1.1 1374 2.25
1348 3.76 1377 2.23
1350 3.13 1400 2.1
1360 2.75 1430 2.1
1369 2.45 1603 3.78
Albrecht Dürer, The Four Horsemen
of the Apocalypse (1498).
78
Malthusian crisis.
 Famine.
 War.
 The Black Death.
Les Quatres Morts, from the Danse Macabre of the
Cemetery of the Innocents, Paris, 15th century.
 Bubonic plague, 1348-51
 Recurred many times
through 15th century.
 Population didn’t stop
falling until mid 15th
century, and did not
recover until 16th century.
79
Economic effects of population decline.
S
P
P’
D
D’
Supply and demand for agricultural
products in Europe before (D) and
after (D’) the plague.
 Price fluctuations, with
general deflation after
1375.
 Prices of agricultural
goods fall relative to
manufactured goods.
 Real wages increase.
 Rents decline, as does
cultivation of marginal
lands.
80
Institutional effects of population decline.
 Transformation of servile obligations into
property rights.
 Competition for peasant labor leads to attractive
rental contracts.
 Rents fixed — renegotiated on death of peasant.
 Eventually, life leases become hereditary by custom.
 Inflation reduces value of “quit rent” to nominal sum.
 Hereditary leases become rights in fee simple.
 Soil tilled by free tenants and wage workers.
 Trading rights for revenue.
81
Institutional transformation.
Pieter Bruegel the Elder, The Harvesters (1565 )
Metropolitan Museum of Art, New York
 Like the 13th century, the
16th century was a period
of rising population and
increasing land rents.
 But this time Europe
responded with an
institutional innovation
that led to continual
increases in productivity.
82
The enclosure movement.
 Physical
enclosure.
 Legal enclosure.
 Voluntary
enclosure.
 Parliamentary
enclosure.
83
The timing of English enclosure.
Period
<1550
1500-1599
1600-1699
1700-1799
1800-1914
>1914
Percentage
enclosed.
45
2
24
13
11.4
4.6
Percentages approximate. Source: Wordie (1983).
84
Transaction costs of enclosure.
 Voluntary enclosure.
 Required unanimity, side-payments.
 Complex property law geared to protect hereditary
estates from profligate descendants.
 Enclosures with highest net benefits take place first.
 Parliamentary enclosure.




Case-by-case exemption from common law.
Majority not unanimity.
A form of eminent domain.
Not important until mid-18th century.
 “Hardest” enclosures Parliamentary.
85
The benefits of enclosure.
 Benefits of specialization
and trade.
 Greater appropriability of
innovation.
 Reduced costs of
collective decisionmaking.
Enclosure for pasture in Britain reflected Britain’s
growing comparative advantage in wool.
86
The benefits of enclosure.
Source: McCloskey (1975)
 Enclosed land rented for
twice common-field land.
 £2.1 million per year gain
in productivity, about
1.5% of national income
or about 3.5% of
agricultural income.
 Rate of return of 17%
per year.
 An average village 13%
more productive.
87
Institutional transformation.
Pieter Bruegel the Elder, The Harvesters (1565 )
Metropolitan Museum of Art, New York
 Like the 13th century, the
16th century was a period
of rising population and
increasing land rents.
 But this time Europe
responded with an
institutional innovation
that led to continual
increases in productivity.
Why? A more developed market economy.
88
Institutional transformation.
 Agricultural
transformation.
 The enclosure movement.
 Commercial
transformation.
 The requickening of trade.
 The development of cities.
 Political transformation.
 The rise of the nation-state.
 Mercantilism.
89
Rise of the nation-state.
Increase in the MES of military technology.
 Lower communication
and coordination costs.
 Population increase.
 Change in military
technology?
 Pike and longbow.
 Gunpowder.
The Battle of Crécy (1346). Jean Froissart,
Chronicles. Flanders, 15th Century.
Bibliothèque Nationale de France.
90
Rise of the nation-state.
Increase in the MES of military technology.
 Increase in the
geographic extent of
dominions.
 Overcoming “medieval
particularism.”
 “Shakeout” and fiscal
crisis among rulers.
The Battle of Crécy (1346). Jean Froissart,
Chronicles. Flanders, 15th Century.
Bibliothèque Nationale de France.
 Search for new sources
of revenue leads to
institutional change.
91
Institutions and economic growth.
 Efficient institutions.
 Secure property rights.
 Reduce transaction costs.
 Positive-sum game.
 Inefficient institutions.
 Redistribute wealth rather than create wealth.
 Monopolies, trade restrictions.
 Zero-sum (negative-sum) game.
92
Market integration.
 Tolls and internal
customs barriers.
 Coinage.
 Weights and measures.
 Law.
 Market-enhancing
institutions.
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
93
Tolls and internal customs barriers.
 Not only tariffs at political
boundaries but also internal tolls.
 Roads and waterways.
 Markets and towns.
 Customs barriers every six miles on
the best roads.
 More than 60 tolls on the Rhine by
the end of the Middle Ages.
 In France, still 1600 tolls at the time
of the French Revolution (1789).
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
94
Tolls and internal customs barriers.
 England: monarch opposed tolls
without a quid pro quo of service.
 Royal permission needed.
 Inhabitants could demand audit.
 Gradual disappearance of tolls.
 Separated foreign from domestic:
 “customs” vs. “tolls.”
 National customs system, 12751350.
 Early power of monarchy.
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
95
The turnpike system.
 1660 through eighteenth century.
 Best one-fifth of English roads.
 Privately constructed by “turnpike trusts.”
“The benefits of these turnpikes appears now to be so
great, and the people in all places begin to be sensible of
it, that it is incredible what effects it has already had
upon trade in the counties where it is more completely
finished.”
— Daniel Defoe
96
Coinage.
 Unification quicker and easier.
 Theory of money.
 England: unification under Henry II
in 12th century.
 Depreciation ceases.
 France: a talent for manipulating
coinage.
 Germany: coinage remains largest
obstruction to internal trade.
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
97
Weights and measures.
 In Middle Ages, varied not only by
locality but also by type of product.
 Aids cheating, raises transaction
costs.
 England leader in unification, but
local weights and measures not
abolished until statute of 1835.
“... to bring the whole of His Majesty’s kingdom within
the same statutes and within the same system of
weights and measures, an undertaking very worthy of
our great King …” — Jean-Baptiste Colbert (1665)
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
98
Evolution and unification of law.
 On the continent, the
rediscovery of Roman law.
 In England, parallel
development of Common Law.
 Battle against royal monopolies.
 The Law Merchant.
 Enforcement at the Champagne
Fairs.
Rembrandt, detail from The Moneychanger (1627),
Staatliche Museen, Gemäldegalerie, Berlin.
99
Economic association without kinship.
 Trading within ethnic networks.
 Ethnic culture and institutions
promote trust, enforce sanctions.
 The Community Responsibility
System.
 Intergroup trading.
 Sanctions imposed at group level.
 The Individual Responsibility
System.
Hans Holbein the Younger, Portrait of Georg Gisze,
a German merchant in London (1532). Staatliche
Museen, Gemäldegalerie, Berlin.
 As groups grow, difficult to
monitor members effectively.
 Rise of legal institutions of
nation-state and law merchant.
100
Other market-promoting innovations.
 Bills of exchange.
 Development of banking.
 Insurance.
 Separation of marine
insurance from financing.
 Double-entry bookkeeping.
 Helps detect errors.
 Separation of business
account from family account.
101
Guilds.
 Medieval guilds.
 Institutional structure for
preserving and diffusing
productive knowledge.
 Institutional structure for
coordinating commitments
and enforcing contracts.
 Decline of guilds.
Rembrandt, The Syndics of the
Clothmaker's Guild (The Staalmeesters)
1662. Rijksmuseum, Amsterdam.
Medieval guilds integrated insurance,
safety-net, and other functions.
 Competition from rural
industry.
 State policy weakens guilds
in England and the
Netherlands, strengthens
them in France.
102
Mercantilism.
Association of state power
with economic power.
 Microeconomic.
 System of
economic
regulation
 Macroeconomic.
 Regulation of
international trade
and finance.
 System of
economic thought.
A sea depot in Amsterdam, 1750.
103
Patents and Monopolies.
$
DWL loss represents
foregone gains from trade.
CS
 Right to exclude others
from competition.
 Monopoly transfers
wealth from consumers
to producers (PS)
Pm
PS
DWL
Pc
MC, AC
MR
Qm
 Creation of “artificial”
property rights.
D
Qc
 Merchants willing to pay
monarch up to PS for
right to monopoly.
 Dead-weight efficiency
loss (DWL).
104
Patents and Monopolies.
 Origin of the word patent.
 Typical Elizabethan monopolies:
 Saltpeter, gunpowder, salt, paper.
 In 1603, Elizabeth declares
monopolies contrary to common
law.
 In re: playing cards.
 Pressure from merchants and
courts.
 Statute of monopolies (1625).
Queen Elizabeth I (1533-1603). Ruled 1558-1603.
Attributed to Nicholas Hilliard. The Tate Gallery, London.
105
Trade and monetary policy.
Balance of trade.
 Control of export
of bullion.
 Staple policy.
 Town as entrepôt.
 Policy of provision.
 Tariffs, etc., to
retain or attract
certain goods.
 Sumptuary laws.
A sea depot in Amsterdam, 1750.
106
Mercantilism as a system of ideas.
Balance of trade.
 Analogy with individual
account.
 From Italian accounting
practices.
 Fallacy of composition.
 Struggling to
understand growth in a
zero-sum framework.
 Adam Smith attacks
“the mercantile
system.”
A sea depot in Amsterdam, 1750.
107
Institutions and economic growth.
 Why did some countries create efficient institutions?
 Why did others create inefficient institutions?
108
France.
 Charles VII takes over
a destroyed country
after Hundred Years
War, 1422.
 Medieval sources of
revenue depleted by
war.
 Creating nation state
requires large and
growing revenues.
Jean Fouquet, portrait of Charles VII of
France, c. 1444. The Louvre, Paris.
109
France.
 Charles effective in
restoring order.
 Estates General must
approve levies.
 Estates anxious to
restore order.
 Special right to levy
turns into a permanent
right.
 Excluding nobles and
clergy from taxation.
Jean Fouquet, portrait of Charles VII of
France, c. 1444. The Louvre, Paris.
110
France.
 Guilds become fiscal
agents for the crown.
 Taxation more
effective.
 Compare JP system in
England.
 Strengthens guilds.
 Administrative
bureaucracy.
Jean Fouquet, portrait of Charles VII of
France, c. 1444. The Louvre, Paris.
111
Colbertism.
 Jean-Baptiste Colbert.
 Finance minister under Louis XIV
(1661-83).
 Colbertisme synonymous with
mercantilism.
 Economic reforms.
 Efforts to reduce “particularism.”
 But favored state monopoly and
industrial control. Origin of
laissez faire.
 Frustrated by royal need for
revenue.
 Prohibitive tariffs lead to war
with the Netherlands.
112
Spain in 1492.
 Reconquest ends with capture of
Granada, last Moorish stronghold.
 Unification and consolidation of
power.
 Cortes grant taxing power.
 Taxes increase 20 times between
1470 and 1540.
 Expulsion of the Jews (and then
Moriscos in 1609).
 Loss of artisanal, commercial, and
agricultural skills.
 Columbus sets sail.
Queen Isabella of Spain. Ruled 1479-1504.
113
The Mestas.
 Sheep guild.
 Granted Royal privilege in
1273.
 Transhumance rights in
exchange for funds to
finance reconquest.
 Decree of 1501 reserves in
perpetuity all land on which
sheep have ever grazed.
 Effect on enclosure.
 Price controls on cereals.
 Consulado of Burgos.
Transhumance routes in Spain.
114
The Spanish empire.
115
The Spanish empire.
 Monopoly control.
 Casa de Contratación.
 Prohibition of colonial industry.
 Bullion and Inflation.
 Looted and mined gold and
silver floods Spain and Europe.
 Prices increase by more than a
factor of three in Spain, and a
factor of five in Brabant and
England.
116
The Spanish empire.
120
100
80
60
40
20
15
01
15
11
15
21
15
31
15
41
15
51
15
61
15
71
15
81
15
91
16
01
16
11
16
21
16
31
16
41
16
51
0
Index of silver imported to Seville, 1501-1660. (1591-1600=100).
Source: John H. Munro, “The Monetary Origins of the ‘Price
Revolution.’”
117
The decline of Spain.
 Revenues.
 Americas less than 20 percent.
 Netherlands largest source.
 Costs.
 Far exceed revenues.
 Hapsburgs spend on military
and wars to expand empire.
 Effects.
 Borrowing and bankruptcy.
 Fiscal spiral.
Titian, Charles V Seated (1548).
Pinakothek Munich.
 Confiscation, monopoly, sale of
titles.
118
The Netherlands.
 Passes from Burgundy to
the Hapsburgs (1477).
 Both Burgundians and
Hapsburgs encourage
growth and trade.
 Small taxes on many items
in exchange for secure
property rights.
 Discourage monopolies,
guilds.
 The goose that lays the
golden eggs?
The Netherlands in 1543.
119
The Netherlands.
 Increased exactions lead to
successful rebellion (1572-1581).
 Antwerp sacked; commercial
leadership moves to Amsterdam.
 By 17th century, Dutch become
commercial leaders of Europe.
 Economic diversification.
 The Dutch East India Company
(1602).
 “The First Modern Economy.”
Replica of Henry Hudson’s schooner, the Half Moon.
120
England.
 Government funded as an
extended household.
 Expenditures exceed revenues
from Crown lands.
 Sale of land to meet shortfall.
 Elizabeth sells 25 per cent after 1588
war with Spain.
 James I sells another 25 per cent.
 Charles I (1625-1641) sells the rest.
 Parliament controls taxes and
customs.
King James I (ruled 1603-1625).
121
Stuart England.
Stuarts seek revenue outside parliamentary control.
 New customs impositions.
 Sale of monopolies.
 Expansion of peerage.
 Packing the House of Lords.
 James: a baronet for £1,095; price
later falls to £220.
 Loans secured under threat.
 Purveyance.
King Charles I (ruled 1625-1641).
 Charles I seizes £130,000 of bullion
stored in the Tower of London (1640).
122
Stuart England.
 Parliament withholds revenues.
 Demands respect for traditional
property rights.
 Common Law courts oppose
monopolies.
 Coke invokes Magna Carta.
 Charles responds with Royal
Prerogative.




Prerogative courts.
Special laws for individuals.
Star Chamber.
Fires Coke and other judges.
Sir Edward Coke (1552-1634).
123
The English Civil War.
 Coalition builds against
the Crown.
 Marginal incentive to
support the king declines
as costs of other people’s
privileges mount.
Execution of Charles I (1649).
 Unlike continental
monarchs, English king
has no standing army.
124
The English Republic.
 Star Chamber Abolished.
 Restrictions against
monopolies enforced.
 Regular standing parliament.
 Royal administrative
mechanisms abolished.
 Act of 1660 abolished feudal
tenures, effectively making
England a fee simple society.
Oliver Cromwell (1599-1658).
125
The Restoration.
 Cromwell unable to find a
stable form of government.
 Son proves a poor successor.
 Stuarts restored to power
(1660).
 Royal abuses begin again.
 “Rechartering” the Whigs out
of parliament.
King Charles II (ruled 1660-1685).
 James II turns on his own
followers (1686-88).
126
The Glorious Revolution.
 Parliament welcomes
invasion by William of
Orange and Mary,
Protestant daughter of
James II.
 Parliamentary supremacy.
 Fiscal revolution underpins
political revolution.
 A self-enforcing
constitution.
William III (ruled
1689-1702.
Mary II (ruled
1688-1694).
127
A self-enforcing constitution.
 Required parliament’s assent for major
policy changes.
 Allowed wealth-holders to veto what wasn’t in
their interest.
 Ways of reneging unilaterally eliminated.




Limited Crown sources of funds.
Audit expenditures.
Prerogative courts abolished.
Judicial tenure.
John Locke (16321704 ). Published
Two Treatises of
Government (1690).
 Self enforcing.
 Credible threat of dethronement.
128
The fiscal revolution.
 Parliament agrees to put
government on sound
financial footing in
exchange for veto power.
 Evidence: lenders now
willing to supply funds.
 After 1688, government has
access to unprecedented
funds.
 Tenfold increase, 16881697.
William III (ruled
1689-1702.
Mary II (ruled
1689-1694).
129
The Industrial Revolution.
 When?
 1780-1830.
 Was it a
“revolution”?
 No: Cameron.
 Yes: Landes.
130
The Industrial Revolution.
 Industrialization vs. economic growth.
 U. S. wealthier than Britain in 1800, but little
industrialization.
 Growth can come from improvements in
traditional activities, e.g., agriculture.
 Per capita growth not “revolutionary”
during industrial revolution.
 Steady balanced growth.
 But denominator growing rapidly.
 Increased output sustains rapid population growth.
 Did growth in “new” sectors contribute to growth
in “old” sectors?
131
The Industrial Revolution.
Qualitative
transformations.
 Technological
transformations.
 Energy: animal to
water and steam
power.
 Materials: wood to
iron and steel.
 Organizational
Transformation.
 The factory system.
James Watt’s steam engine, 1769.
132
Britain in 1700.
 Population on
England and Wales:
5.2 million.
 Would grow to 9.1
million by 1800.
 Would almost double
again to 17.8 million
by 1850.
Ogilby’s Britannica (1675)
133
Britain in 1700.
 English peasant ate better than
continental counterpart.
 Spent lower proportion of income on
food.
 Implies increased demand for
manufactured goods.
 Lower tolls and improved
transportation.
 Canals and turnpikes.
 More urban.
 By 1800, 25% in cities larger than
5,000 persons.
 Compare with 10% in France.
 Cities centers of commerce.
134
Britain in 1700.
 Increased extent of the
market.
 Large internal market.
 Merchant fleet spurs
international trade.
 Relative wealth of peasantry.
 Focus on standardized, low-cost
items.
 Useful also in trade with Asia,
Africa, and Americas.
 Quantity not quality: search for
lower costs.
135
Manufacture in 1700.
 Local crafts shops.
 But pressure on urban guilds
from rural industry.
 The putting-out system.
 Woolens dominate.
 70% of English exports in 1700.
 50% in 1770.
 Not localized: spread all over
England.
 Link to labor freed by enclosure.
136
The putting-out system.
 Merchant clothier.
 Commissions spinners and weavers.
 Provides wool.
 Hires workers for finishing and dyeing.
 Cottagers.
 Own tools: handloom, spinning wheels.
 Division of labor within household.
 Men weave, women spin.
 Children and hired labor.
 Paid on piece-rate basis.
 May have garden, cows, etc.
Also called the
“domestic” system.
 Continue to participate in agriculture.
137
Early textile innovation.
 John Kay’s flying
shuttle (1733).
 Spinning becomes a
bottleneck.
 Wyatt-Paul spinning frame
(1738).
 Never technologically successful.
 Difficulty of wool as material.
138
The cotton textile industry.
 Cotton arrives in Britain from India.
 Efficient, skill-intensive hand production.
 Instant popularity of colorful calicoes.
 Woolens industry clamors for
protection.
Wall hanging (detail). Painted and
dyed cotton. Madras-Pulicat Region
c. 1640-50.
 Act of 1700 forbids import of printed fabrics.
 Act of 1719 forbids wearing calicoes.
 British entrepreneurs seize opportunity.
 Using linen for warp and cotton for weft.
 Ancient right to produce fustian.
139
The cotton textile industry.
 Import prohibitions encourage
development of indigenous British cotton
textile industry.
 Originally, cotton cloth produced by
domestic system, on woolens model.
 Rise of the “fustian masters.”
 Tendency of weaving to concentrate.
 Manchester and Lancashire.
 Favorable ground for mechanical invention.
 Cotton more easily mechanized than wool.
 Trajectory of mass production.
140
Innovation in cotton spinning.
 Hargreaves’ jenny.
 Patented 1770.
 Basically a multi-spindle
spinning wheel.
 Powered by a single human.
 Arkwright’s water frame.
 Based on Wyatt-Paul and
thus not patentable.
 Uses two rollers.
 Designed for non-human
power.
141
Innovation in cotton spinning.
 Hargreaves’ machines
smashed by angry spinners.
 Patent held invalid.
 Hargreaves flees to
Nottingham and dies in
1778.
 By 1788, 20,000 jennies in
England.
 Completely ousts spinning
wheel in Lancashire, which
gives up wool for cotton.
142
Innovation in cotton spinning.
Sir Richard Arkwright (1732-1792)
 Itinerant barber and hair
merchant.
 Persuades Nottingham
hosiers to back large-scale
water-driven factories.
 Makes strong warp thread,
allowing all-cotton cloth.
 Arkwright dies with a
fortune of £500,000.
Mather Brown, Portrait of Sir Richard Arkwright
(1790). New Britain Museum of American Art.
143
Innovation in cotton spinning.
Crompton’s mule
(1779)
 Combined principles of water frame and jenny.
 Produced thread with fineness of jenny and strength
of water frame.
 A “dominant design”: improved but never superseded
until the late nineteenth century.
144
Innovation in cotton spinning.
Mule spinning, mid-nineteenth century.
145
Innovation in weaving.
 Power loom: Edmund
Cartwright (1787).
 Catches on slowly as
engineering standards
improve.
 Speed/breakage tradeoff.
 Technical advantage of
7.5:1 by 1820.
 Single operative tends
more looms rather than
increased output per
loom.
146
The British textile industry.
Date
£ (thousands)
% total exports
1784-86
766
6.0
1794-96
3,392
15.6
1804-06
15,871
42.3
1814-16
18,742
42.1
1824-26
16,879
47.8
1834-36
22,398
48.5
1844-46
25,835
44.2
1854-56
34,908
34.1
British exports of cotton textiles.
 Import substitution turns
into export powerhouse.
 Leads British economic
growth into 19th century.
 Surpasses woolen trade as
principal export by 1803.
 More export oriented than
woolens.
 Britain surpasses India in
1790 as largest exporter of
calico, not to be overtaken
until 1933 (by Japan).
147
Organizational transformation.
 Crafts production.
 The putting-out
system.
 The factory system.
Jedediah Strutt’s Milford mills.
148
A paradox?
 The enclosure movement.
 Move way from collective
“team” working of village land.
 Unbundling of joint-ownership
rights.
 The factory system.
 Move to collectively organized
modes of production.
 Ownership rights to capital
unified in joint-stock company.
149
The factory system.
 What is a factory?
 Expensive or indivisible
technology.
 The concentration of
workers in a single
location.
 Close monitoring or
supervision of work.
 “Factory discipline.”
150
Monitoring and supervision.
 The putting-out system.
 Contractor relationship.
 Product monitoring.
 Pecuniary incentives.
 The factory system.
 Employee relationship.
 Process monitoring.
 “Factory discipline.”
151
The factory system in cotton.
500
450
400
Power loom perfected.
350
300
Factory workers
250
Handloom weavers
200
150
100
50
1861
1856
1851
1846
1841
1836
1831
1826
1821
1816
1811
1806
0
Factory workers and handloom weavers in Britain, 1806-1862 (in thousands).
Source: B. R. Mitchell, British Historical Statistics. Cambridge University Press, 1988, p. 376.
168
The factory system in cotton.
 Early factory workers.
 Women and children.
 Oldknow employs men in
agriculture.
 Poorhouses.
 Need to build dormitories.
 By 1784, key position in spinning goes to adult males.
 The multicellular mill.
 Recreating the cottage contracting system within factories.
 Master spinner responsible for supervision, hiring.
 But doesn’t own tools (machines).
 Majority of child labor employed by masters, not capitalists.
169
The rise and decline of Britain.
 Aspects of British industrial success.
 Industrial organization.
 Industrial districts.
 International trade.
 The British Empire.
 Free trade.
 The debate over British industrial
decline.
 Did Britain decline?
 Theories of decline.
 Culture.
 Technological trajectories and timing.
170
Industrial organization in Britain.
When an industry has thus chosen a locality for itself,
it is likely to stay there long: so great are the
advantages which people following the same skilled
trade get from near neighbourhood to one another.
The mysteries of the trade become no mysteries; but
are as it were in the air, and children learn many of
them unconsciously. Good work is rightly appreciated,
inventions and improvements in machinery, in
processes and the general organization of the
business have their merits promptly discussed: if one
man starts a new idea, it is taken up by others and
combined with suggestions of their own; and thus it
becomes the source of further new ideas. And
presently subsidiary trades grow up in the
neighbourhood, supplying it with implements and
materials, organizing its traffic, and in many ways
conducing to the economy of its material.
— Marshall, Principles of Economics, IV.x.3.
Alfred Marshall,
1842-1924
Industrial
districts.
External
economies.
171
Lancashire.
Original advantages.
 Poverty.
 Pastoral farming lends itself to small-scale
enterprise.
 Indigenous textile tradition.
 Woolens under Yorkshire influence and
linens under Irish influence.
 Climate.
 Cotton “hydroscopic.”
 An east wind reduces output and quality
by 10 per cent.
An Industrial Landscape in 1833:
Swainson, Birley and Co., near
Preston, Lancashire, England.
 Water and coal.
 Lack of institutional constraint.
 Manchester a new town.
 Grows from 7th largest in 1775 to 3rd
largest in 1801.
172
Lancashire.
External economies.
 Transportation.
 Port of Liverpool develops with
Manchester.
 Canals, turnpikes, and railways.
 World’s first passenger railway.
 Later, telegraph and telephone turn
Manchester into communications center.
 Markets.
 Cotton exchanges create thick market for
worldwide imports.
 Power loom and mule adapted to wide
variety of cotton types and quality.
 Worldwide network of commissioning
agents.
The Manchester Cotton Exchange.
173
Lancashire.
External economies.
 Vertical specialization.
Low barriers to entry.
Tens of thousands of establishments.
Specialization by type of yarn or cloth.
One firm may lease space in several mills
and one mill may contain several firms.
 “Flexible specialization.”




 Subsidiary industries.
An Industrial Landscape in 1833:
Swainson, Birley and Co., near
Preston, Lancashire, England.
 Textile machinery industry.
 Banking and finance.
 Transportation and communication.
174
Lancashire.
International trade.
Sales worldwide, but
especially to subtropical
areas of India, China,
Latin America.
Percent value of cotton exports
1820
1850
1896
Europe
65.5
34.3
18.9
America
26.1
29.1
18.5
USA
7.2
8.9
3.6
Latin
17.8
18.0
15.0
Levant
2.5
9.2
7.9
Asia
5.2
24.3
43.4
India
18.5
26.6
China
3.6
8.5
1.7
5.3
Africa
0.6
175
The British Empire.
 Beginnings in Mercantilist trading
monopolies.
 East India Company (1600).
 Trading companies take on political
and military functions.
 Creating trading institutions and
preserving openness of markets.
 British government takes over
functions of trading companies.
 East India Company nationalized 1773.
 Monopoly abolished 1813.
176
Britain and Free Trade.
 Smith’s Wealth of Nations attacks
mercantilism.
 The Corn Laws.
 Import controls after Napoleonic wars.
 Ricardo discovers comparative
advantage.
 Anti-Corn-Law League founded in
Manchester, 1836.
 Corn Laws repealed, 1846.
 Reflects shift of economic power from
agriculture to manufacture.
David Ricardo (1772-1823).
Image courtesy of the Warren J. Samuels
Portrait Collection at Duke University.
 Anglo-French commercial treaty
(1860) virtually eliminates tariffs.
177
The decline of Britain.
The Crystal
Palace, site of
the Great
Exhibition of
1851, which
showcased
British
technology to
the world.
 Relative or absolute decline?
 Timing of decline.
178
The decline of Britain.
GDP per capita in 1990 dollars.
25000
20000
Germany
15000
UK
USA
10000
5000
0
1820
1870
1900
1913
1950
1973
1992
Source: Angus Maddison, Monitoring the World Economy, 1820-1992. OECD, 1995, p. 23-24.
179
The decline of Britain.
 Britain retains lead in
traditional industries.
 Textiles, textile
equipment, shipbuilding,
cable.
A Bessemer steel converter. Kelham Island
Museum, Sheffield, England.
 Britain cedes lead to
US and Germany in
new areas.
 Organic chemicals,
electrical products,
steel.
180
The decline of Britain: hypotheses.
 Culture.
 Sons of nouveau riche capitalists
study classics at Oxford and
Cambridge.
 Culture of the gentleman: antitechnology and anti-business.
 Educational system.
 Britain relies on on-the-job training.
 No system of technical education.
 Costs of empire.
 Civil service drains off talent.
181
The decline of Britain: hypotheses.
 Institutional inertia.
 The “disadvantages”
of an economic head
start.
The ring spinning frame.
 Technological
trajectories.
 The case of the ring
spindle.
182
“Neoclassical” growth theory.
Y = f(K, L)
Robert Solow
(1924-)
 But: growth in capital and labor
don’t account for growth in GDP.
 The “residual.”
183
“Neoclassical” growth theory.
Y = f(K, L; )
Robert Solow
(1924-)
 But: growth in capital and labor
don’t account for growth in GDP.
 The “residual.”
184
“Neoclassical” growth theory.
Y = f(K, L; )
Robert Solow
(1924-)
 But: growth in capital and labor
don’t account for growth in GDP.
 The “residual.”
 Or else K and L have “improved.”
 Either way: something is missing.
 Knowledge.
185