Trade and the Industrial Revolution
Oscar Carreón-Cerda; Atzin Chiguil-Rojas
1/24/2021
Text is divided in 5 sections:
- Introduction
- Trade during the Industrial Revolution
- Trade, Overseas Expansion, and the Industrial Revolution
- Why Britain? Why Europe and not Asia?
- Why Britain?
- Why Europe and not Asia?
- Conclusion.
However, we will not discuss part 4, nor the remarks stemming from it in the conclusion, in this summary.
Introduction
In the 1950’s, there was a hypothesis of accelerated economic growth beginning in late XVIII century as the result of some disruptive inventions. By the 1980’s this view was changed. The works of Dean and Kuznets suggested there were not sudden breaks but a smooth, slow, and sustained increasing of livelihoods that started long before the Industrial Revolution of late XVIII century.
The old estimates of GDP growth for 1760-1830 have been revised downward by approximately two-thirds.
- While the TFP growth estimates for the early nineteenth century went from 1% per annum to 0.5%.
| Author | 1700-60 | 1760-1800 | 1800-30 | 1830-70 |
|---|---|---|---|---|
| (a) Dean and Cole (1967) | 0.44 | 0.52 | 1.61 | 1.98 |
| (a) Crafts | 0.3 | 0.17 | 0.52 | 1.98 |
| (b) Hoffmann (1952) | 0.67 | 2.45 | 2.7 | 3.1 |
| (b) Dean and Cole (1967) | 0.74 | 1.24 | 4.4 | 2.9 |
| (b) Harley | n.a. | 1.6 | 3.2 | n.a. |
| (b) Crafts | 0.62 | 1.96 | 3 | n.a. |
| (b) Cuenca Esteban (1994) | n.a. | 2.61 | 3.18 | n.a. |
Note: (a) national income per capita; (b) industrial production.
Hence the question: was the Industrial Revolution revolutionary? Most scholars agree for these reasons:
- Leading sectors during the revolution were but a small share of the economy, thus contributing by a small share, in spite of their extremely fast growth;
- The cotton industry grew by 7% per annum from 1770 to 1815, the iron industry at 3%, and the coal industry at 2.5%.
- There was a rapid structural change were, for instance, cotton textiles grew from 1.3% to over 40% of English exports between 1752 and 1810, whilst woolen textiles went from 62% to under 20% in the same period;
- As consequence, agriculture´s share of British male employment fell from 61% in 1700 to 53% in 1760, 42% in 1800, and 29% in 1841.
- The living standard didn’t collapse despite population growth, which means the Malthusian relationship was broken (view Figure 1).
- The English population rose from 5.2 million in 1701 to 13.9 million in 1841
“Real wages in London, 1301-1913 (1301 = 100)”
- This implied a break with the predictions of the Malthusian Model:
- Malthusian Model has capital, land, and technology given. With diminishing returns to labor. Population grows causes that labor productivity and real wages decline.
- The Solow´s benchmark became more useful to analize this phenom. It differs in the assumption of population growth invariant with respect to income and it assumes a fixed rate of technical progress.
- Industry employed less than 30% of English men in 1800, but that figure grew to 47% in 1840 and 54% in 1910. This progress was seen in the Continent, albeit to a lesser extent. By 1900, the assymetry between Europe, England, and the Western Offshoots, vis-à-vis the rest of the World was larger than ever, and widening.
Trade during the Industrial Revolution
Exports of cotton goods rose significantly between 1785 and 1855. However, the composition of these exports changed, as Europe became self-sufficient. In fact, European countries changed from importing final goods to the semifinished cotton yarn. On the other hand, new markets, such as Africa, Australia, Latin America and Asia, grew rapidly, thus contributing to the buoyancy of the English cotton industry.
Other exports, like woolen goods continued to generally rise over the half of the nineteenth century in absolute terms. In the decade after 1840 there was a huge surge in exports of iron products related to railway construction.
- Britain has an iron´s production of 2 million tones, that means five times that of France and 10 that of Germany.
| Period | 1784-86 | 1794-96 | 1804-6 | 1814-16 | 1824-26 | 1834-36 | 1844-46 | 1854-56 |
|---|---|---|---|---|---|---|---|---|
| Europe | 310 | 761 | 7224 | 11386 | 8682 | 10612 | 10153 | 10263 |
| % | 40.5 | 22.4 | 45.5 | 60.8 | 51.4 | 47.4 | 39.3 | 29.4 |
| Asia and Africa | 164 | 199 | 683 | 346 | 1707 | 4056 | 9356 | 13831 |
| % | 21.4 | 5.9 | 4.3 | 1.8 | 10.1 | 18.1 | 36.2 | 39.6 |
| America and Australia | 292 | 2432 | 7964 | 7010 | 6490 | 7730 | 6326 | 10814 |
| % | 38.1 | 71.7 | 50.2 | 37.4 | 38.5 | 34.5 | 24.5 | 31 |
| Old Markets | 766 | 3384 | 15192 | 17040 | 12313 | 15037 | 13246 | 15954 |
| % | 100 | 99.8 | 95.7 | 90.9 | 72.9 | 67.1 | 51.3 | 45.7 |
| New Markets | 0 | 8 | 679 | 1702 | 4566 | 7361 | 12589 | 18954 |
| % | 100 | 0.2 | 4.3 | 9.1 | 27.1 | 32.9 | 48.7 | 54.3 |
| Total | 766 | 3392 | 15871 | 18742 | 16879 | 22398 | 25835 | 34908 |
Note: Old Markets: Europe, USA, Canada, West Indies; New Markets: Asia, Africa, Australia, and LATAM
That Europe changed imports of finished goods for semifinished, and even raw goods from England is due to their growing manufacturing activity of the first half of the XIX century.
- In 1780, the share of British exports of raw materials to Europe was 17%, and it’d grow to 57% in 1850.
- On the other hand, the share of finished goods exports to Europe would fell from 36% to 21% in the same period.
Two facts made reexports important for England:
- In 1651 England passed the Navigation Acts, basically imposing a monopoly on carrier of imports, as well as a establishing the island as the monopsony for North American exports.
- The Seven Year’s War (1756-63) gave England control over more colonnies in North America.
Pressures over English soil were alleviated, thanks imports from Ireland (Thomas 1985), as per a study cited by the authors. Trends in imports followed those of consumption, naturally, with sugar rising hand in hand with tea consumption, as tea became an indulgence of the masses.
Britain became a much more open economy. Exports accounted for 8.4% of GDP in 1700, 14.6% in 1760, 15.7% in 1801, 14.3% in 1831 and 19.6% in 1851.
- It was important in manufacturing. Exports accounted for 13% of industrial output in 1700 to 49% in 1831.
Finally, as per the studies cited by the authors, openness to trade grew as a consequence of rapid population growth during late XVIII and early XIX century. Indeed, as one such study (Thomas 1985) points out: “How could this unprecedented swarming of people on a small, offshore island be made consistent with a rising standard of living? It was impossible on the fixed area of English cultivable land, whatever miracles English technological progress in agriculture might accomplish.” Trade and industrialization were essential for British population growth. Trade and manufacturing specialization gave England the incentives for a smoothly functioning international trade order.
Trade, Overseas Expansion, and the Industrial Revolution
- Why are we so rich and they so poor? (Landes 1990) Some are inclined to answer along the lines of European values (hardworking, knowledgeable, productive); others will answer that Europeans are so greedy and exploitative. Was growth due to European inventiveness or did it happen thanks to a boost stemming from the colonnies?
“British terms of trade (1796-1913, 1820 = 100)”