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Manuel Trajtenberg

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Work is divided into 18 different tasks, each worker perform 2 – 3 tasks.
They manage to produce 4,800 pins per worker/day
If each worker would work in isolation (i.e. do all the tasks himself), then would produce just 1 – 20 pins per day!
Productivity gains: at least 280 times higher!!!

Productivity gains from specialization due to
(notice different from trade):
• Increased dexterity
• Time savings (from one task to the next)
(but increased boredom, alienation, lack of concentration?)
• Invention of new machines, due in turn to specialization – the “philosophers” (now R&D)
[think of it as “learning by doing”]
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“The division of labor is limited by the extent of the market”

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Structural Changes: employment & productivity
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Employment in Industry: International Data

Recall context: ideological debate socialism vs. capitalism; the great depression, the rise of the Soviet
Union (“can capitalism survive?”). Schumpeter extolled virtues of capitalism, but NOT as perfect competition.
• The centrality of technical change, driving progress
(and hence making capitalism viable?)
• The typical “roles” needed: the entrepreneur, the inventor, the capitalist (finance, risk taking). Emphasis on the entrepreneur, lure of “extraordinary profits”. See
Edison, Gillette, Ford, Steve Jobs, Gates, Dell .
• Business cycles
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• Monopoly power and innovation – the
“Schumpeterian hypothesis…”
• “Evolutionary dynamics”, the “Process of
Creative Destruction”
• History of Economic Analysis – monumental work .
• On balance, a great deal of inspiration, not of precise modeling.
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• When assessing capitalism as a system, look at its actual performance – stunning! Brings “statistics”, forecast…
• That’s only part of the story: increased leisure, new and better products, not reflected in the GDP!
• The improvement particularly marked for the lower classes, not for “kings”…Mass production, that’s the big thing!
• The success of capitalism allows for social legislation, to take care of the ills its causes, e.g. unemployment, poverty; predicts that growth will allow protection to the elderly and the sick, education, etc.
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Schumpeter’s computations, for something like GDP-Investment = ~ Total Consumption:
• Annual Growth rate 1870-1930: 2%
• What if it will continue from 1928 to 1978?
=> C78/C28= 2.7
• Relies on forecast for population of 160 M by 1978, gets to:
(per capita C78/per capita C28) = 2
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To what extent does monopoly/oligopoly power hinder growth? Argues that it does not:
• Lots of growth at a time of increasing concentration of monopoly power (around 1900s) (but not good argument, perhaps could have had much more growth…);
• Lots of technical change precisely in concentrated sectors (well, needs cross-sectional evidence, lots of work on that since).
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Key: capitalism is primarily a dynamic system, cannot be judged by static notions (such as monopoly power, affects static efficiency).
Capitalism as a mechanism for endogenous change: basic impulse not from exogenous shocks, population growth or capital accumulation, but from
• New consumer goods
• New methods of production & transportation
• New markets
• New forms of organizations…that capitalism creates.
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• These innovations bring about the process of
“creative destruction”: new products rendering old ones obsolete, new knowledge replacing old one, etc.
• Considers the possibility of trade-offs between static and dynamic efficiency.
“The problem that is usually being visualized is how capitalism administers existing structures,
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More change in the past 200 years than in the previous
7,000…
The first industrial revolution: GPD/per capita grew slowly, but large increase in population! Fundamental changes in:
• Power technology (increases in fuel efficiency from
1% Newcomen, to 7.5% with compounding, to 17% with the Corliss)
• Metallurgy
• Textiles
• Others: Machine tools, gaslight, ballooning, etc.
[Landes: also in organizational forms, the factory system]
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Key inventions from 1750 on: the throttle, the spinning jenny, the mule.
Allowed widespread use of cotton, led to factory system.
How long it took to spin 100 lb. of cotton?
• hand spinner would have taken 50,000 (!) hours
• The mule: 300 hours (1790)
• The self actor: 135 hours (1830)
Cotton was the key in the 1st Industrial Revolution: the