The Industrial Revolution
Great Britain
1760-1860
Western European GDP per capita in 1990 International Geary-Khamis dollars (Source:
Maddison, 2005)
25,000
Dollars per capita
20,000
15,000
10,000
5,000
0
1
1000
1500
1600
1700
1820
1850
1870
1913
1950
1970
2003
Great Britain—the first industrial nation
• 1780-1860---Great Britain has the first Industrial
Revolution
• 1860/1870-1914---Industrialization spreads to
the Continent of Europe. New technologies and
industries---differs from first wave
• 1914-1918: World War I
• 1919-1939: Interwar Period, Uneven Recovery
and Growth and the Great Depression
• 1939-1944: World War II
• 1945-1970: The European Miracle
• 1970-1980/1990: Stagflation and Uneven
Growth
• 1990s-present: Renewed Growth
First Industrial Revolution
1. Substantial Rise in Per Capita Incomes
2. Technological Innovation in Production
3. Sectoral Shift: Change in the Economic
Structure
4. Population Triples
5. Urbanization
1. The Rise in Per Capita Incomes
•
•
•
•
Unprecedented
1781 £11 per capita for Great Britain
1861 £28 per capita for Great Britain
155% increase in 80 years---no historical
parallel.
• What is happening?
2. Technological Innovation in
Manufacturing
• Rapid rise in productivity in key (high tech)
sectors
– Textiles (especially cotton)
– Iron
– Steam---for transportation (railroads and steamships)
and production (Steam-powered iron machinery used
in textiles and other industries.
• Change in Organization of Production
– Previously craft and home production of
manufactures
– Factories (British: mills) appear—workers
concentrated in one location
– Increase in size of factories—economies of scale
3. Sectoral Shift—Change in
Economic Structure
• Date GDP£M
Agr% Man&Min%
• 1770
130
45%
24%
31%
• 1861
668
18%
37%
44%
Serv&Trans%
• Note: real GDP growing at about 2% a year
4. Population Boom
•
•
•
•
Population of Great Britain (millions)
1701 6.8 million
1781 8.9 million (increases at 0.3% p.a.)
1861 23.2 million (increases at 1.2% p.a.)
5. Urbanization
• Proportion of British Living in Cities of 50,000 or
more
• 1801 14% (1.5 m) of 10.7 m (75% in London)
• 1861 25% (5.8 m) of 23.2 m (50% in London)
• Rise of cities in northern England and Scotland--Liverpool, Birmingham, Sheffield, Lancaster,
Glascow…….
But, Wait!! How can population grow
and incomes grow?
Wasn’t Malthus right?
An Essay on the Principle of Population (1798)
Everyone Believed Him ?
The smartest
economists
believed him:
David Ricardo
and
Adam Smith
Simple Model: (1) equilibrium? (2) technological
innovation? (3) harvest failure?
Real
Wage
Population
Real
Wage
Births
W0
Deaths
Demand for Labor
Population
Birth Rate, Death Rate
Diminishing Returns
WHY?
Output
10 acres of
land or 10
machines
150
With five
workers, Q/L =
20
With 10
workers, Q/L =
15
100
5
10
Number of Workers
Technological Change---oxen to horses, or
horse shoes or two to three field rotation?
Output
150
100
5
10
Number of Workers
But final outcome?
Real
Wage
1st
Population
Real
Wage
Births
W1
Deaths
2nd
Demand for Labor
Population
Birth Rate, Death Rate
BUT…..in Great Britain, something
happens that’s different
•
•
•
•
•
•
•
•
1781 8.9 million
1861 23.2 million
An increase of 160%
1781 £11 per capita for Great Britain
1861 £28 per capita for Great Britain
An increase of 155% or 1.2% a year
What explains this unparalleled change?
Y = A(L, K, N); Y/L = A(K/L, N/L)
what’s driving the growth? K?, L?, A?
• Year
• 1771
Y p.c.(£) L (m) K(£ m.) K/L(£)
11
• 1861
28
• Increases of
•
155%
3.9
670
170
10.8
2770
256
177%
240%
Really?
50%
How do we measure the effects of an
increase in capital or any other factor?
Output
How to
Measure??
150
100
5
10
Number of Workers
Cobb-Douglass Production Function:
the standard approach
• Y = A(L, K, N) Need a specific functional form
• Y = Lα Kβ Nγ where markets are perfectly
competitive and each factor is paid the value of
its marginal product. The coefficients determine
the income share of each factor in GDP.
• α+β+γ=1
• Where α = wL/Y, β = iK/Y, γ = rN/Y
• For Great Britain in this period
• 0.46 + 0.41 + 0.13 = 1
A little differentiation----or why we force you
to learn more math for economics
• Y = ALα Kβ Nγ
• dY = dLαLα-1 AKβNγ + dKβKβ-1 ALαNγ + dNγNγ-1 ALαKβ + dALα Kβ Nγ
• dY = dLαLα-1 KβNγ + dKβKβ-1 LαNγ + dNγNγ-1 LαKβ + dALα Kβ Nγ
Y
ALαKβNγ
ALαKβNγ
ALαKβNγ
ALαKβNγ
• dY = dLα+ dKβ + dNγ + dA
Which means?
Y
L
K
N
A
• Y/L = A(K/L)β (N/L)γ
becomes
• d(Y/L) = d(K/L)β+ d(N/L)γ + dA
(N/L)
(Y/L)
(K/L)
A
Which means?
From the data then….Growth Rates and Contributions
•
Annual Growth Rate
• Income per capita
1.17%
• Capital per worker
0.30%
Share Contribution
0.41
• Land per worker
-1.26%
0.13
• So……d(Y/L) = d(K/L)β + d(N/L)γ
(N/L)
(Y/L)
(K/L)
0.12%
-0.16%
•
1.17 - (0.30).41 - (-1.26).13 = 1.19 = dA/A
• We calculate it as a residual
What might we call this effect? Malthusian effect? Why does a one time
technological innovation not change society’s fate?
Technological Change
• Y = ALα Kβ Nγ
• d(Y/L) = d(K/L)β+ d(N/L)γ + dA
(N/L)
(Y/L)
(K/L)
A
• 1.17 - .41(0.30) - .13(-1.26) = 1.19 is the
Residual
• Technological change—also known as the
“Solow Residual.”
• Result of the exercise: Technological change is
what accounts for most of the income growth
during the industrial revolution!!
Where does technological
innovation come from?
• The whole economy or the leading sectors?
• Huge leaps in “high tech”---huge fall in cost of
producing cotton textiles, price declines by 90%
1780-1860.
• T.S. Ashton’s student: “About 1760 a wave of
gadgets swept over England.”
• Major question today when we are in the third great
wave of technological innovation.
• Micro-inventions (apply to very specific production
process---or Macro-inventions (applicable across
many production processes)
• Steam engine? Gas Engine? Electric Motor?
Computer?
•
•
•
•
•
•
•
•
•
•
•
“New” U.S. Economy of the 1990s
Gordon’s (2000) estimates of productivity growth:
1870-1891: 0.39%
1890-1913: 1.14%.
1913-1928: 1.42%
1928-1950: 1.90% Golden Age of GP Tech
1950-1964: 1.47%
1964-1972: 0.89%
1972-1979: 0.16%
1979-1988: 0.59%
1988-1996: 0.79%
1995-2000: 1.35% he attributes wholly to the
computer-IT sector.
Can decompose each industry.
1.19 = 2.6(.07) + 1.8(.035) + 0.9(0.2) + …….
Measured by
productivity
exercise for the
individual industry
.52/1.19 = 44%
Open the technological black box:
Textile Technology—4 processes
1. Preparation of raw material. Cotton, wool,
linen or silk. Sorting, cleaning, combing,
carding, so fibers lie in same direction
2. Spinning into yarn. Loose fibers and pulled
(drawn) and twisted into yarn
3. Weaving. Yarn is used to form warp and then
interwoven with the weft.
4. Finishing. Fulling to fuse warp and weft,
sizing, shearing, bleaching, dying, printing
Traditionally
Prior to the Industrial Revolution:
Limited Innovations in Medieval Europe
• Italy---machines for “throwing” silk and
twisting it into thread.
• England—Fulling mills with big wooden
hammers.
• But no concentrated technological change.
First Leading (High Tech) Sector: Cotton
A Cluster of Inventions
• A new fiber in 1700…very little production
in Europe, mostly imported from India
• Not regulated---no guild production, no
tariffs in England (Banned in France)---can
experiment
• Characteristics: cotton is tough and
resilient, elastic with long fibers that can
withstand and pulling twisting
First Leading Sector: Cotton
• The importance of sequencing and bottlenecks
• Production of textiles very labor intensive.
Population and demand up, prices up
• 1733 John Kay invented the fly-shuttle, which
allowed the shuttle to move more quickly across
the loom.
• Slow adoption, but spread by 1750s and 1760s.
• Only improves weaving—creating a bottleneck in
spinning-----high wages, benefit to spinsters.
Flying Shuttle
Key Invention for Spinning of Cotton
• 1770 Hargreaves patented a spinning jenny.
• Machine turned by hand but still more uniform
and hence better quality
• Linked to Arkwright’s (1771) water frame—it
became water powered.
• Hand Spinning---one strand of yarn at a time
• Hand Powered Spinning Jenny---6 to 24 strands
• Spinning Jenny powered by water frame--several hundred strands at one time.
Adirondacks (19th century) & Afghanistan (2006)
Spinning Jenny and
Water Frame
Weaving of Cotton
• Now a bottleneck in weaving
• Golden age of hand loom weavers. High wages
for skills 1770-1800.
• 1787 Cartwright invents the power loom.
• Factories (Mills) are located near “fall line”
places where rivers drop fast.
• Later steam powered frees factory locations.
• By 1833 a man and a child assistant in a cotton
factory produced 20 times output of handloom
weaver
A Weaver’s Song
“Come all you cotton weavers, your looms
you may pull down,
You must get employed in factories, in
country or in town,
For our cotton masters have found out a
wonderful scheme,
These calico goods now wove by hand,
they’re going to weave by steam.”
Diffusion
• Year
•
Spindles Handlooms Power Looms
(millions) (thousands) (thousands)
• 1820
7
240
14
• 1860
30
3
400
Power Loom
• By 1811 U.K.
Census
reported
100,000 factory
workers in
spinning mills
and 250,000
handloom
weavers. Total
British labor
force 5.5 million.
So, 1% of labor
force
contributes 5%
of GDP
Growth of the Industry
Value of Raw Cotton
(millions of lbs)
1760
1800
1820
1860
3
54
141
1050
Value of Cotton Goods
(£ millions)
1
11
29
77
Prices Drop
• 1780s a “piece” or bolt of cotton cloth sold for
70-80 shillings, by 1850s, it sold for 5 shillings----huge new market---elasticity of demand with
this supply shift.
• Jules Michelet (19th century France): “prices fell,
they went on falling until cotton cloth stood at six
sous. Then something completely unexpected
occurred. The words six sous aroused the
people. Millions of purchasers—poor people—
who never bought anything began to stir. Then
we saw what an immense and powerful
consumer the people are when they are
engaged.”
Jules Michelet, Le Peuple
“The great and fundamental revolution has been in
cotton prints. It as required the combined efforts
of science and art to force rebellious and
ungrateful cotton fabrics to undergo every day
so many brilliant transformations and to spread
them everywhere within the reach of the poor.
Every woman used to wear a blue or black dress
that she kept for ten years without washing, for
fear it might tear to pieces. But not her husband,
a poor worker, covers he with a robe of flowers
for the price of a day’s labor. All the women of
the people who display and iris of a thousand
colors on our promenades were formerly in
mourning.”
The Manufacture of Iron
• The object in iron manufacture is to mix the
appropriate amounts of the elements iron and
carbon
• Iron is obtained from iron ore that has a variety
of impurities
• Carbon is obtained from wood that has been
turned into charcoal or from coal that has been
“coked.”
• Traditional production of relatively small
quantities in a blacksmith’s furnace or larger
quantities in a blast furnace
• Mix ore and carbon and put into crucible that will
be heated by bellows forcing extra oxygen to
heat the fire.
Production of Iron
• Mix ore and carbon and put into crucible that will
be heated by bellows forcing extra oxygen to
heat the fire.
• Result is Pig Iron. Hard metal that is too brittle
to work.
• Pour molten pig iron into molds for Cast Iron
Useful for cannons and fireplaces. Hard but
brittle
• Pig iron is re-heated and hammered repeatedly,
which eliminates some impurities and makes it
less brittle---result is Wrought Iron
• More malleable but not that strong, but result
can be uneven in quality.
• Most iron goods---tools and horseshoes Labor
intensive, costly process
Innovation
• Charcoal used until 1709 when Darby makes it
commercially feasible to produce high quality
coke.
• Britain has very large reserves of coal and
diminishing forests, but even by 1780 over half
of iron made with charcoal.
• Major advances in 1783 and 1784. Henry Cort
invents “rolling and puddling.” Alternately
heating and cooling pig iron until one can
squeeze out dross (impurities or slag).
Rolled and Puddled Steel
• “Rolling and
Puddling” requires
huge human
physical effort.
• Makes iron bars,
rails, beams—
useful for industry,
construction, and
transport.
• Iron is superior to
wood, withstands
more speed and
pressure
Growth of Iron Production
• British Production
• Year
Coal
•
(millions of tons)
Pig Iron
(1000 tons)
• 1800
• 1860
250
4,152
11
80
Steam Engine
• Until the steam engine---only human, animal, water or
wind power. Last two limits the location.
• In 1712, Thomas Newcomen invented the an
atmospheric engine---known as the Newcomen
engine. First practical steam engine.
• Simple piston and pump. Steam not used to drive
piston but only to create a vacuum. Ordinary air
pressure provided the force that pushed the piston
downwards against the weight of the pump at the
other end of the beam.
• Largely used to pump water out of mines. But it was
expensive to operate and huge fuel consumption.
• http://en.wikipedia.org/wiki/Newcomen_steam_engine
Age of Steam—James Watt
• Watt’s steam engine, designed 1769 and first
applied 1776
• Has a separate condenser and saves the energy
that had previously been dissipated in reheating
the cylinder at each stroke now pushes piston
back.
• Consumes a quarter of the fuel.
• Rapid improvement.
• Newcomen’s engine requires 100 lbs of coal for
one hour of one horsepower---Watt’s engine
requires 7 ½ lbs for one hour by 1850.
Application to Transportation etc.
Stockton & Darlington Railroad 1825
Organization of Production
• Home production or Craft production of
manufactures.
• Most specialty manufactures—textiles, metals,
books……produced by specialists who were
members of guilds that received a charter from
city or Crown.
• Professional associations restricted entry--masters, journeymen and apprentices & set
quality and sometimes prices
• Guilds lose protection of Crown during English
Civil War, but remain strong on the continent.
“Putting-Out System”
• Division of Labor---takes advantage of free time
of peasants between planting and harvest
seasons and lower wages than guilds
• Merchants---manage flow of materials between
specialized households.
• Merchants buy raw wool and deliver it to
households that card and spin it, they pick it up
and deliver it to households that weave it, they
pick it up and transfer to households that bleach
or dye or print the cloth.
• Problems?
• Remedy?
Rise of the Factory
• No worker wants to leave home for factory.
• If tools cost little, they will have their own
• Technological innovation—machines more
expensive and larger.
• Must move to factories.
• Factories allow employers to monitor and
discipline workers to avoid shirking and theft.
• Textiles first specialize in one function—spinning
or weaving, but soon there is vertical integration--receive raw cotton and produce finished cloth.
• Adds to growth of urbanization.
British cotton mill, power looms in
operation, 1830s