Search results for Economic history

Summary

INTRODUCTION

Consumption has long been a key component of the historiography of Britain's industrial revolution. Early writers emphasised the importance of both home demand in creating a market for the mass-produced products of the new industries and of an export stimulus, particularly for cotton, in enabling the growth of manufacturing (Gilboy 1967; Davis 1979: 62–7). More recently the role of exports has been downgraded. Rather than instigating industrial growth, expansion of exports was the response required to Britain's increased demand for imports, particularly of tea, sugar and coffee, between 1745 and 1760 (Deane and Cole 1969: 40–98); even in the crucible of the industrial revolution, 1800–30, it was the preceding technological improvement that reduced the price of cotton and led to this product's domination of the export scene (Thomas and McCloskey 1981).

However, consumption, through home demand, has taken on a life of its own. Consumer revolutions have been identified for numerous epochs in history (de Vries 2008: 37–9) but, for the pre-industrial and industrial revolution eras, the revolution in consumption was not just one of scale but also of structure. Consumers desired a new range of goods and this drove changes in production processes and in the relationship between households and markets. Economic historians accept that consumption played a role in industrialisation, but versions vary in both nature and chronology and the particular variant can be linked to the grand narratives of the industrial revolution on offer. In some accounts, a consumer revolution preceded and played a causal role in industrialisation (de Vries 1994, 2008); in others, a shift in demand coincided with industrialisation but is not necessarily given an autonomous role (McKendrick 1974, 1982); a third links the emulative desires generated by luxury consumption to imperialist expansion, overseas trade and innovative production (Berg 2002, 2004). Others are more sceptical about the widespread transformative role of cupidity and point to the very gradual percolation of the benefits of economic change to those in the bottom half of the income distribution (Feinstein 1998; Horrell and Humphries 1992).

Summary

INTRODUCTION

Britain's labour force experienced profound changes between 1700 and 1870. Industrialisation and urbanisation shifted the location and structure of employment (Chapter 2). The composition of the workforce altered, particularly the participation and role of women and children. Britain's systems of education and training were radically revised, and its workforce achieved new levels of education. The institutions, structures and dynamics of labour supply and demand changed substantially. New rules and norms reshaped the labour market, and the conditions of work in many sectors were transformed by technical and organisational changes, often linked to the emerging new factories and firms.

There is no question that the consequences for the labour market of the economic changes that occurred during the eighteenth and nineteenth centuries were substantial. But can we say more than this? Much historical debate has centred on the question of a causal relationship between Britain's labour market and economic development. Some argue that industrialisation occurred despite poorly integrated labour markets (Pollard 1978; Williamson 1990); others suggest industrialisation in part depended on a large endowment of skilled workers (Mokyr 2009), or in operating at a high wage level (Allen 2009). Finally, others see institutions and ideologies that allowed employers to exploit vulnerable groups within the labour force, such as women and children, as facilitating industrialisation (Berg 1994; Honeyman and Goodman 1991). Research in this last tradition concentrates on the impact of economic change on labour, reminding us that Britain's industrial revolution was experienced as exploitation and immiseration by some workers.

Underlying these debates are major analytical and methodological divisions. For most economists, the relationship between output and the labour market reduces to fundamental questions about relative factor prices and how efficiently supply and demand is matched. Workers are regarded as individual agents who are free to act rationally in their own interests. Many historians and heterodox economists see labour markets differently, attributing a major role to politics, ideology and culture in their organisation and operation. Labour markets can be captured by dominant interests.

Summary

INTRODUCTION

This chapter examines the effects of the industrial revolution on social mobility rates and inequality, as England experienced the onset of modern economic growth. It has previously been impossible to measure social mobility rates before the end of the industrial revolution, because population censuses showing family relationships only become available in 1851. However, we show how, using information on surname distributions, inter-generational social mobility rates back to 1700 can be calculated. These show that social mobility has always been low in England and was surprisingly unaffected by the industrial revolution. Modern growth did not speed up the process of inter-generational mobility. In addition we show that the industrial revolution era was probably one of declining inequality in England. While we do not have information on the individual distribution of income and wealth, we can show that the share of wages in national income increased in industrial revolution England. Since wages are distributed in all societies much more equally than income from property, this would have been a force for greater income equality within industrial society.

SOCIAL MOBILITY

Was the industrial revolution associated with a period of enhanced social mobility? And how did social mobility rates then compare with those of modern Britain? We might expect that the industrial revolution would have disrupted the old social classes and created a period of enhanced mobility, compared to what came before, both upwards and downwards. Change and disruption would favour mobility. Stasis and continuity would embed immobility.

Change there certainly was in Britain after 1760. There was the creation of new industries and new occupations. The old landed aristocracy began to be replaced by a new industrial, commercial and technical class, affording opportunities for mobility to those who had heretofore lived as agricultural labourers in semi-feudal dependence. At the same time large numbers of relatively prosperous handicraft producers were displaced by the arrival of factory production. The hand-loom weavers, often owners of their looms and cottages, were displaced by low paid factory weavers.

Summary

INTRODUCTION

The role of sterling was transformed, during the period from 1870 to 2010, from being the world's most widely used currency to becoming primarily a domestic currency. In many ways this process mirrored the changing role of Britain in the international economy, as described in Chapter 3, but it also happened in the context of dramatic changes in the organisation of the international economy and the development of economic ideas. This transformation of sterling's global role had important implications for the operation of monetary policy, since the international and domestic roles of sterling were closely related. The tension between internal and external policy priorities was an enduring theme throughout this period.

Monetary policy involves the manipulation of the money supply to achieve particular targets in the national economy; it is most commonly associated with the tool of interest rates, which affect the supply of and demand for money. Monetary policy thus has domestic implications since it determines the cost of borrowing and the relative returns to savings and may affect domestic economic performance. Lowering interest rates may, ceteris paribus, increase borrowing and investment and promote real economic growth. Conversely, raising the cost of borrowing and increasing the returns to saving may slow down investment, consumption and growth.

Unfortunately, the links between interest rates, money supply and economic performance are unpredictable and depend on a range of contextual factors, including the market's judgement of the credibility of the monetary targeting (Mishkin 2007). There are also variable time lags before the effects can be measured, so monetary policy is a difficult instrument to deploy with precision. In an open economy, such as that of Britain for most of the nineteenth century and the latter half of the twentieth, interest rate adjustments also have implications for the balance of payments, since higher interest rates will attract foreign capital seeking higher returns and lower interest rates may lead to a capital outflow as domestic investors seek higher returns abroad.

Summary

INTRODUCTION

The Victorians associated the City with a particular part of London and all the diverse activities that took place there; a hundred years later the Financial Times regarded the City as ‘no longer a postal address’ but as shorthand for the ‘finance function’ (Michie 1992: 12). Today the City comprises the largest international banking centre in the world, the largest foreign exchange market, the fourth largest stock market, the largest centre for Eurobond trading, the London International Financial Futures and Options Exchange, the largest asset management business in Europe, Lloyd's of London and finally a shadow banking sector comprising hedge funds, private equity groups, money market funds, commodity funds and securitised investment vehicles.

For over a hundred years from 1870 the British financial system, with the City at its centre, adopted a ‘separation of activities’ model whereby each financial institution specialised in a particular activity and in general complemented rather than competed with each other. On the London Stock Exchange (LSE), stockbrokers took orders to buy and sell securities from investors and passed them to stock jobbers who made a price in the securities and filled the orders; neither brokers nor jobbers were owned by a bank or other corporation. Commercial banks took in deposits and lent short-term to industry. Merchant banks advised sovereign issuers and large industrial clients and were surrounded by a multitude of discount brokers, specialist finance houses and smaller private banks. In this chapter, we are concerned with the interaction between the City and the corporate economy and therefore concentrate on those institutions most engaged in servicing the needs of the corporate sector.

Before plunging headlong into a discussion of the historical development of the UK financial system, it is worth briefly considering the main features of the German universal banking model; this offers an important and instructive contrast to the separation of activities model.

Summary

INTRODUCTION

Affluence can be defined as a shift between different states, both personal and collective, a rising flow of cheaper goods and experiences, of novelty and obsolescence, as new satisfactions are discovered, and old ones are discarded. Experiences disseminate as a sequence of S-shaped curves, just a few of them at the outset, and then more frequent, affecting only small numbers slowly, rising faster to an inflection point, then slowing down and flattening out when novelty is exhausted and everyone is included (Scitovsky 1992). Likewise, in orthodox microeconomic consumption theory, wants become less compelling the more they are satisfied, so people shift their preferences sequentially to more pressing ones. But Want in general is insatiable, and the craving continues.

So far, modern affluence in the UK has largely followed these patterns. In the course of the twentieth century, the luxuries of the rich have become necessities for all. The movement has been from getting to spending, from work to leisure, from toil to comfort, from privies to bathrooms, from coal fires to central heating. The experience of affluence extended primarily to the top fifth of the population between the wars, and to the rest only from the 1950s onwards. An inflection point appears to have been reached in the 1970s, and affluence may now be levelling off, we know not for how long.

Income and spending are intermediate: the ultimate pay-offs are emotional, the ultimate purpose is well-being. In contrast, the microeconomic approach to wellbeing is to measure consumption expenditures (Olney 1991). In a rough and ready way, this is fine. At the bottom of the ladder of needs, in the quest for food and shelter, consumption expenditure is a good proxy for utility. But as satisfactions multiply, expenditure is no longer such a good measure of well-being. The focus on expenditure also implies that choice equals welfare. Now, the excitement and anticipation of choice can be good in themselves, but form only a small part of well-being.

Summary

INTRODUCTION

The Olympic Games in London in the summer of 2012 stood at the end of a long twentieth century in which the British economy changed from a manufacturing stalwart into a major exporter of services. The opening and closing ceremonies stood in remarkable contrast. The former related a story in which the Industrial Revolution and the welfare state figured heavily, the latter focused exclusively on music, Britain's foremost cultural export. In public perception, then, the British comparative advantage had little to do any more with manufacturing. Instead, the ceremony closed a twentieth century in which Britain benefited from a distinctive capability in media and entertainment. In the public mind the music industry's importance was far larger than its limited GDP share suggested.

Media can be seen as an infrastructure industry such as electricity or transport. Through information transmission, they helped markets exist and function; through the conditioning of morals and empathy they reduced transaction costs; through advertising they revolutionised the market structure of consumer goods industries; through educational materials they increased human capital; through the formation of expectations they increased citizens' aspirations; and, finally, they facilitated knowledge exchange and collective action that could kickstart institutional change, as has become evident so recently in the Arab spring. A contemporary economic historian might exclaim that media are everywhere except in the economic history literature, not unlike Briggs's (1960) remark that ‘The provision of entertainment has never been a subject of great interest either to economists or economic historians – at least in their working hours.’

This chapter examines three questions. First, we investigate how new media industries have arisen in Britain since 1870 and how we can conceptualise their emergence. Second, we explore what tendencies influenced the long-run evolution of each of these industries. Third, we assess the impact they had on the rest of the economy.

These questions are worthwhile because it is likely that Britain traditionally had a comparative advantage in entertainment production that it could never fully exploit internationally.

Summary

INTRODUCTION

During the twentieth century, the dividing line between the private and public sectors became hotly disputed territory. It was the source of more economic debate than any other topic apart from the state of the macroeconomy. The origins of that debate and of the rise of the public sector are to be found in the mid-nineteenth century. From modest beginnings in the 1870s, the public sector grew fairly consistently in peacetime periods with noticeable spurts immediately after each of the two World Wars. Expressions of ideological commitments often took the headlines – Margaret Thatcher and Michael Foot in the 1980s, or the 1920s debates about proposals for new government housing estates – though never approaching the revolutionary tendencies in Germany and Russia.

Practical action in fact often revealed a common commitment to the mixed economy. It was under a Conservative Party government that the BBC and the Central Electricity Board were established in 1926 and that Rolls Royce and the Rover Car group were rescued in the early 1970s, whilst the privatisation of the water industry and the private finance initiatives for hospitals took place under the Blair/Brown Labour partnership of the 1990s–2000s. Indeed there were several important driving forces over which the politicians had little control. National defence, reconstruction after the wars, internal unification were of vital concern whilst technological change and externally imposed political changes (the microchip for outsourcing, loss of colonies for airlines) fundamentally changed the parameters of the debates and government policies.

The size of the public sector can be measured in different ways. Production of goods and services (like health, armaments) can be measured by the value added or by incomes generated (wages, profits, rent) but public spending on goods and services is the most common; this is because of its ease of measurement, because it complements the government cash transfers on pensions, child benefit etc. and because it corresponds to the monitoring and control mechanisms used by national Treasuries (www.ons.gov.uk/ons; www.imf.org; www.epp.eurostat.ec.europa.eu).

Summary

INTRODUCTION

There was a transformation in the scale and scope of government involvement in the economy between the mid-Victorian era and the early twenty-first century: from small, laissez-faire government at mid-nineteenth century through to the current modern managed market economy and welfare state. This transformation was profound, but distinctly non-linear; it is also very far from straightforward to explain in terms of either origins or its effects upon the real economy. For exegetical purposes, we divide this transformation into four epochs:

Summary

INTRODUCTION

Early eighteenth-century commentators celebrated Britain's role as a pre-eminent ‘trading nation’. Success rested on a century of rapid growth driven by an expansionary policy, or vigorous commercial spirit, which was later labelled mercantilism and survived into the nineteenth century (Magnusson 1994). Mental maps were redrawn alongside the new geographies which reshaped European understanding of the globe after the discoveries of the late fifteenth century. The world was seen to offer vast untapped bounties to those with the capital and skill to exploit them and encouraged a new faith in man's ability to master nature and create wealth, which came to overshadow earlier concerns about the moral economy, or wealth distribution (Davenant 1698). Policy was not driven by a body of theory underpinned by systematic rules, but despite contradictions, it did display strong central tendencies which gave it coherence. It was cemented by three overarching aims: first, to improve the resource balance by exporting surplus population and securing protected supplies of essential commodities; second, to open new markets for manufactures to provide industrial employment; and third, to stimulate the expansion of shipping and middlemen earnings to enhance national defence and wealth. Mercantilists believed that commercial success promised power and plenty through better use of slack resources, above all labour, and the creation of innumerable linkages and spread effects: ‘trade sets all the wheels of improvement in motion’ (Defoe 1728: 14).

Expansion was largely financed and organised by private individuals who employed a range of strategies: searches for new passages, the forging of direct access to distant markets, the settlement of trading posts (‘factories’) in far-flung locations, the appropriation and improvement of ‘free’ lands, and the protection of national markets. Empire, slavery and violence played prominent roles. The state did not direct the policy but it did provide support, both because the commercial classes were active stakeholders in government, especially after the Glorious Revolution, and because the policy promised economic growth and easily taxable revenue streams.

Summary

INTRODUCTION

This chapter reviews British economic growth performance from mid-Victorian times to the eve of the financial crisis which erupted in 2007. It aims to place this experience in the context both of Britain's early start as the first industrial nation and its subsequent relative economic decline and also within ideas from modern growth economics. A growth accounting framework is used to establish the proximate sources of growth and to make comparisons with Germany and the United States. Productivity outcomes are examined in relation to successive epochs of supply-side policy.

The chapter analyses and evaluates Britain's long-run growth record using insights based on models which view the sources of growth as ‘endogenous’, that is to say, determined within the economic system. In other words, the incentive structures which underpin decisions to invest, to innovate and to adopt new technology will be of central importance, together with the political economy of government decisions which directly or indirectly affect the rate of improvement of productive potential.

Against this background, special attention is given to several debates, including whether the British economy ‘failed’ in the pre-1914 period; whether the interwar period, and especially the 1930s, saw a successful regeneration of the economy's growth potential; what explains falling behind in the so-called ‘Golden Age’ of European economic growth after the Second World War; and how far the radical change in policy initiated in the Thatcher years after 1979 delivered an improvement in growth compared with other European countries.

AN OVERVIEW OF LONG-RUN ECONOMIC GROWTH

In 1870, Britain was the leading industrial nation and had an income level well above that of major rivals. Before 1913 the United States overtook the UK but in 1950 the UK was still well ahead of both France and West Germany. After that, slower growth in the UK meant that those countries pulled ahead and had established a significant income gap by the end of the 1970s.

Summary

INTRODUCTION

Economic growth can be driven in the short run by factor accumulation or by utilising factors more efficiently, but permanent increases can result only from technological innovation, including, within this, term improvements in products and processes in manufacturing, services and indeed agriculture. This chapter will focus on machines and innovations in mechanical processes, while Chapter 13 discusses innovation in services.

Given Britain's loss of industrial pre-eminence from the late nineteenth century, an absence in new technology formation is as natural an explanation for British failure as cultural interpretations that emphasise a weakness of the industrial spirit (Wiener 1981). While Britain was the first ‘workshop of the world’, its lagging position behind the technology frontier during the drive to industrial maturity is a topic of some debate in economic history. Accounts of technological progress during industrialisation emphasise that Britain's rise was defined by capabilities in a broad array of industries and by a culturally enlightened and technically competent stock of human capital that could translate new ideas from home, or abroad, into commercially viable innovations (Mokyr 1990, 2002, 2010). What changed the trajectory of technological change in Britain from this high point of early economic development?

This chapter examines the hypothesis that Britain has failed technologically. It provides a statistical portrait of innovation over the last 140 years and it then focuses on three main areas of explanation for Britain's historical innovation performance. First, it analyses incentives for technological development, specifically British patent law and efforts to induce innovators using inducement prizes as an alternative or complementary mechanism. Second, it explores the organisational structure of innovation in Britain and R&D performance. Finally, it examines public policy efforts to promote industrial science and innovation clusters.

The data strongly support the argument that Britain's technological performance was lacklustre during the late nineteenth and early twentieth centuries, when other industrial nations began to catch up on Britain's early technological lead.

Summary

INTRODUCTION

Economic historians often make a distinction between ‘Smithian economic growth’ and ‘modern economic growth’. The former term derives from Adam Smith's discussion, in The Wealth of Nations, of the role played by the division of labour in raising output per head and hence in driving economic growth. The term ‘modern economic growth’ was coined by Simon Kuznets who argued that it was driven by technological change (Kuznets 1966). In Kuznets' analysis, once modern economic growth took hold it tended to be sustained indefinitely and he identified the original development of modern economic growth with the industrial revolution in Britain. Drawing on data from a range of countries during the period of their industrialisation, Kuznets stated that the onset of modern economic growth was associated with major changes in the structure of an economy. During the transition period both the workforce and output of an economy shifted away from the dominance of agriculture – a general characteristic of poor or ‘underdeveloped’ economies – to the dominance of the non-agricultural sectors in both employment and output. This chapter summarises our current knowledge of shifts in the occupational structure of the British economy before and during the industrial revolution and its relationship to population change between 1700 and 1870; in doing so it shows that the British industrial revolution did not conform to Kuznets' model.

Ideally, the whole of Britain should be covered. Unfortunately the available sources for the eighteenth century do not allow the history of population change in Wales to be recovered in a manner comparable to what is possible for England. Nor, in the case of Scotland, is it possible to reconstruct the relative size of different occupational groups prior to the mid-nineteenth century. It therefore seemed best to focus almost exclusively on England and Wales in attempting to provide a coherent description and analysis of changes in occupational structure between 1700 and 1870 and on England alone for population change. This is unfortunate but it maximises what can be described and analysed effectively given the available data.

Summary

THE SOURCES OF GROWTH IN THE ECONOMY AS A WHOLE

During the industrial revolution, Britain's economic and social life was transformed by the introduction of new products and cheaper production methods that ranged from steam engines and fancy fabrics to gas lighting and milk chocolate. In the words of T. S. Ashton's (1955: 42) famous schoolboy, ‘About 1760 a wave of gadgets swept over England.’ Britain's productivity rose between 1750 and 1860 with the result that the country's share of world manufacturing output jumped from 2% to 20% (Allen 2011a: 7). In 1760, Britain was already one of the world's rich countries; by 1860, it had the highest GDP per head of anywhere. Technological change was the motor that drove the British economy forward. This is why understanding the causes of productivity growth is crucial in explaining the industrial revolution.

PRODUCTIVITY GROWTH AT THE INDUSTRY LEVEL

Productivity growth was slow from 1760 to 1800 and accelerated thereafter. The main reason was that productivity started to increase in individual industries. The history of new machines and technical processes makes it clear that there was productivity growth in cotton, iron and steam-power. Whether progress was confined to a few ‘revolutionised industries’ or whether it extended across the whole economy has been the issue in a major debate. To resolve that question, we must measure the growth in productivity in many industries and relate those findings to the growth in aggregate productivity.

Productivity at the industry level can in principle be measured in the same way as aggregate productivity, but measures of the quantities of inputs and output are not usually available for the eighteenth century. Industrial productivity can also be measured with time series of the prices of inputs and products, and these data are much easier to assemble. The measurement procedure is based on the idea that production cost falls when productivity goes up. Since costs also change as wage rates and input prices change, their impact cost must be taken into account.

Summary

INTRODUCTION

During the late seventeenth and early eighteenth centuries a financial revolution transformed both the British state's ability to raise funds and the investment habits of a nation. The chief outcome of this revolution was that Britain achieved the financial capacity needed to outspend its enemies, to secure success in the many conflicts fought around the globe over the course of the long eighteenth century and to emerge by 1815 as a dominant European, imperial and world power. It is sometimes argued, however, that the costs of this achievement extended beyond the debts accumulated by a state so often at war. In particular, it resulted in a financial system which, during the period of Britain's industrial takeoff, was not well-suited to the support of nascent industry.

It is certainly the case that, during the long eighteenth century, the financial system overwhelmingly responded to and reflected the needs of the state. The major consequences of this were the creation of a capital market that favoured the instruments of the public debt and the shares of the great monied companies: the Bank of England, the East India Company and the South Sea Company. It also restricted the development of banking, a deliberate strategy designed to preserve the privileges of the Bank of England. In consequence, banks, although there were many of them by the end of the eighteenth century, remained small and focused on lending in the shortrather than the long-term. Arguably, these restrictions in the size, scope and experience of the financial system acted to impose limits on the growth of enterprise.

One of the consequences of this interpretation of British financial development is that, in a historiography dominated by the process of industrialisation, the financial revolution generates nothing like the kind of attention that is given to the industrial revolution. There are relatively few long-run studies of financial development in Britain.

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26946 results in Economic history

8 - Consumption, 1700–1870

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6 - Labour markets and training

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7 - Inequality and social mobility in the era of the industrial revolution

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17 - Sterling and monetary policy, 1870–2010

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10 - The City and the corporate economy since 1870

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Frontmatter

8 - Consumption and affluence, c. 1870–2010

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16 - Soft power: the media industries in Britain since 1870

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List of figures

15 - The growth of the public sector

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18 - Economic policy and management

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14 - Overseas trade and empire

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Index

2 - Economic growth during the long twentieth century

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Contents

7 - Technology, innovation and economic growth in Britain since 1870

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2 - Occupational structure and population change

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10 - Technology

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11 - The financial revolution and its consequences

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26946 results in Economic history

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