Prof. John H. Munro



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Prof. John H. Munro munro5@chass.utoronto.ca

Department of Economics john.munro@utoronto.ca

University of Toronto http://www.economics.utoronto.ca/munro5/
12 September 2012
ECONOMICS 303Y1
The Economic History of Modern Europe to 1914
Prof. John Munro
Lecture Topic No. 2
[the first lecture given in the first day of classes]


ECONOMICS 303Y1: COURSE INTRODUCTION:

I. GREAT BRITAIN AS THE HOMELAND OF THE MODERN INDUSTRIAL REVOLUTION, 1750 - 1815
A. Introduction: General Features, Character, and Significance of the Modern Industrial Revolution in the Eighteenth Century

Prof. John H. Munro munro5@chass.utoronto.ca



Department of Economics john.munro@utoronto.ca

University of Toronto http://www.economics.utoronto.ca/munro5/
12 September 2012

ECONOMICS 303Y1: COURSE INTRODUCTION:

I. GREAT BRITAIN AS THE HOMELAND OF THE MODERN INDUSTRIAL REVOLUTION, 1750 - 1815
A. Introduction: General Features, Character, and Significance of the Modern Industrial Revolution in the Later Eighteenth- and Early Nineteenth-Century
1. Industrialization in the Economic History of Modern Europe: 1

a) Urban Industrialization:




  • provides the central theme or focus for this course on the economic history of modern Europe up to World War I (1914),




  • even though we will be considering all aspects of economic change in all sectors.

i) in fact, before examining industrial change itself,

(1) we will first investigate changes in the market economy, in terms:



  • population: for both demand and supply factors in the market

  • and then: both domestic and foreign trade;

(2) and then we will consider the agrarian sector,

(3) to be followed by banking, finance, and capital formation;

ii) Then, we may better see now all these interacting economic changes influenced industrial growth and the so-called Industrial Revolution (from ca. 1760 to ca. 1830).

iii) At the same time, or after, we will also consider the related political and social changes, both as influences on the processes of economic growth, and as consequences of that economic growth and industrialization.

iv) The Kuznets U-Curve: provides the most interesting avenue of investigation of this problem

(1) Simon Kuznets (1901-1985): A Russian-born American economist who won the Nobel Prize in Economics in 1971 (‘for his empirically founded interpretation of economic growth...’)

(2) The U-Curve: was one of his most intriguing theorems:


  • That the processes of modern economic growth, and industrialization especially, inevitably began by a shift of incomes and resources from the lower to upper economic strata: especially to entrepreneurs in the mercantile, financial, and industrial sectors whose use such resources to create new wealth contribute to economic growth

  • That resulted in a more highly skewed distribution of wealth and income, thereby reducing the real incomes and living standards of the lower income strata of society

  • But finally the processes of continued economic growth percolate through society, elevating the real incomes of even the lowest and poorest strata of society

(3) Hence: the U-Curve: a proposition that has generated much debate (though not so much in recent years)

(4) ‘The Standard of Living’ Debate during the Industrial Revolution era: is the most relevant issue for this course:



  • providing the introductory A-List topic for the Second Term, debating the question: was the Industrial Revolution initially financed at the expense of Great Britain’s working classes (from the 1770s to the 1820s).

  • for this topic and debate, one may produce considerable evidence in support of the Kuznets hypothesis, provided that we carry the analysis into the later 19th century.

(5) Curiously, however, we will not (yet) encounter this debate when examining the 19th-century industrialization of France, Germany, and Russia (1815-1914).

b) Thus: the so-called British Industrial Revolution: of the later 18th century, provides our real starting point, or the first concrete manifestation of that process of modern urban industrialization:

i) one that spread to the European continent, North America, and the rest of the world in the course of the 19th century.

ii) Because Britain was the homeland of the modern Industrial Revolution, the model progenitor of these processes, Britain will receive a disproportionate share of attention in this course, certainly dominating the first term.

iii) We will to find answers to the following five questions about the Industrial Revolution:

(1) Why was Great Britain the homeland of the modern industrial revolution: why did it not occur first in, say, the Netherlands or France, who were equally wealthy in the 18th century?

(2) Why did it begin, in Britain, from the 1760s?: why was the period from c. 1760 to c. 1820 the crucial initial phase of the Industrial Revolution?

(3) Why did it begin in three specific industries: ?



  • steam engineering: coal-fired steam power

  • metallurgy: iron manufacturing (with coal)

  • and textiles using steam power: in cotton textiles especially

(4) Why and How did technological innovations play such a crucial role in this Revolution?

(5) How and why was the Industrial Revolution accompanied by an equally significant demographic revolution? For, during this period, British population doubled from 1760 to 1810, and then tripled to 1910.


2. The Industrial Revolution: Is the Term Revolution Justifiable?

a) Is the expression ‘industrial revolution’ overworked and rather meaningless?

i) Surely it was not a sudden and cataclysmic event: in the way that the American, French, Russian, and Chinese revolutions -- or other political revolutions -- have been.

ii) Furthermore, when the economic history literature talks about the following:

(1) a Commercial Revolution, Financial Revolution, Scientific Revolution, Agricultural Revolution, etc., taking place in the century before the Industrial Revolution, and taking the better part of century,

(2) and a Demographic Revolution occurring in the first sixty years of the Industrial Revolution era, (3) then you may justly think that this term revolution has become unduly inflated.

b) Thus one of the leading scholars in our professions, and the author of a major textbook in world economic history, the late Rondo Cameron may elicit a sympathetic response, when he scornfully rejected this term in A Concise Economic History of the World (1989): stating on p. 163, with the heading ‘The Industrial Revolution, A Misnomer’:

Probably no term from the economic historian's lexicon has been more widely accepted by the public than ‘industrial revolution.’ This is unfortunate, because the term itself has no scientific standing and conveys a grossly misleading impression of the nature of economic changes.... Serious scholars [have] recognized the inadequacies of the term and protested its use, but without avail.

c) Certainly there are several valid objections to using the term ‘industrial revolution’:

i) There was no revolution in the common sense of the word connoting rapid change:

(1) i.e., as just stressed, there was no sudden, rapid transformation of the British economy and society, from some economy supposedly experiencing low level stagnation; no revolution transforming that into full-fledged modern urban industrialization in a generation (as almost suggested in the still famous book, Stages of Economic Growth, by W.W. Rostow).

(2) Indeed, it would be highly erroneous to compare England in the early 18th century, on the eve of the Industrial Revolution,



  • with some contemporary Third World country about to undergo more extensive industrialization,

  • because 18th-century England had already achieved quite highly developed, well integrated agrarian, commercial, financial, and industrial sectors.

(3) In a now long-ago former version of this course, which I began at the dawn of the modern era (ca. 1450), the major theme was to demonstrate that the processes of European economic development were more evolutionary than revolutionary:

  • to show in particular that 18th-century England had already achieved a fairly high and sophisticated level of development over the previous two centuries,

  • through a wide variety of structural changes in all the major economic sectors -- the agrarian, commercial, financial, and even industrial.

ii) Nor was Britain Unique: as to be seen in the peculiar case of the Netherlands:

(1) In several respects through much of this century, Great Britain had a less sophisticated market economy than its chief rival and neighbour across the English Channel, the Netherlands,

(2) the Netherlands or the Dutch Republic was arguably the most highly advanced and economically developed nation in the western (European) world:

(3) Nevertheless, in that former course, and also in my other European economic history course, on late-medieval and early-modern Europe – Eco 301Y – I had and still try to show why the Netherlands did not industrialize until well after Britain: 2

(4) and, furthermore, that the Netherlands high level of economic advancement was not necessarily conducive to modern industrialization.

(5) I have contended that the Netherlands, after so successfully dominating European commerce and the shipping trades for almost three centuries, from the mid-15th to the mid 18th-centuries:



  1. had instead turned more and more to related financial activities: to banking, insurance, and finance

  2. when its shipping services (carrying trades) and then its commercial supremacy began to wane, as other countries developed their own shipping trades.

(6) Furthermore, the commercial-financial structure of the Dutch economy, based on free trade, did not really favour the type of industrial growth, state-protected growth, that Britain underwent after 1750.3

iii) Also, there was no ‘revolution’ in the sense that England became fully industrialized within a short period of time after the 1760s:

(1) Although historians usually assign a terminal date of about 1830 to the Industrial Revolution, industrialization had really only begun by that date, and only in a few industries: chiefly cottons textiles, iron (metallurgy), and pottery-making (i.e., plates, dishes, cups, etc.).


  1. Even in the cotton industry, a major phase in its own Industrial Revolution, namely the mechanization of weaving, came after the 1820s.

  2. Similarly, the spread of steam-powered factories, came only after the later 1830s;

  3. the mechanization of the worsted and woollen textile industries, came even later, from only the 1850s.

(2) Furthermore, Britain's industrial growth was not only highly uneven but was generally quite slow, much slower than traditionally portrayed, as several recent articles (by Harley, Crafts, Lindert, and Williamson, Antràs and Voth) have shown.4

(3) Not until after the 1850s or 1860s, did Great Britain achieve a much broader base of industrialization that would justify the description of an ‘industrial state’,



  1. i.e., not really until almost a century after the Industrial Revolution so-called had begun;

  2. and reasonably complete industrialization was not achieved until the 1890s (indeed, during an era that many have called ‘the Second Industrial Revolution’ in mechanical power).

iv) Thus, not only as Rondo Cameron has insisted, but as the eminent historian Herbert Heaton remarked almost sixty-five years ago (in 1948): ‘a revolution which continued for 150 years, and had been in preparation for at least another 150 years may well seem to need a new label’.5

v) Nevertheless, the term Industrial Revolution is now so deeply imbedded in the literature that it would be foolish to invent a new label for it.6

vi) Indeed Rondo Cameron himself was forced to temper his remarks, in his revised 1993 edition of that textbook, he omitted the provocative sentence that I just quoted, and instead he now said the following about the Industrial Revolution, in much more modest and sensible terms:

For more than a century it has been used to denote that period in British history that witnessed the application of James Watt's steam engine, and the ‘triumph’ of the factory system of production. By analogy, the term has also been applied to the onset of industrialization in other countries, although without general agreement on dates.


c) For a far more favourable view of the term Industrial Revolution, we can turn to Eric Hobsbawm, the famous British economic historian, and staunch Marxist, who provided this rather modest view: ‘The Industrial Revolution marks the most fundamental transformation in human life in the history of the world recorded in written documents.’ 7

d) Perhaps that view is just as exaggerated and as extreme as Cameron’s original pronouncements; but in case you think that I am setting up Hobsbawm to ridicule him as a Marxist, let me now give you some reasons why I am quite sympathetic to his verdict, even though I am in not in fact sympathetic to Marxism or Marxist economics.

i) If we take the true perspective of a long historical view of European society, and see that the so-called Industrial Revolution era was, relatively speaking, a very short era, then we can better see that the Industrial Revolution certainly did mark a revolutionary break.

ii) In my view, it did produce a fundamental dichotomy or dividing point in human history in three important respects: as explained in the following section of the lecture.


3. The Historical Importance of the Modern Industrial and Demographic Revolutions

a) First, the ‘Industrial Revolution’ era in Great Britain: does provide a watershed in mankind's relationship between population and resources:

i) it marks the first time in recorded history that the processes of economic growth were not halted, or even slowed down by population growth, by the seemingly inexorable law of diminishing returns [See the Diminishing Returns graph and the Lindert population-real wage graph, attached].

ii) Population and the Malthusian Problem: Indeed, in this very era of the Industrial Revolution, at the beginning of the 19th century, one of the most famous of the Classical Economists, Thomas Malthus (1766-1834), argued that:8

(1) if population was allowed to grow unchecked, it would inevitably outstrip the capacity of the economy to provide the necessary amount of foodstuffs, clothing, and shelter.

(2) Or, more commonly that, left unchecked, population will tend to grow geometrically or exponentially, while at best the food supply can grow only arithmetically.

(3) We will come back to this thesis when examining the British population and demographic changes.

(4) Indeed, I will then note that Malthus himself did not really believe that population – or West European population – would continue to grow unchecked in this fashion.

iii) Nevertheless in previous centuries European population growth on several occasions had indisputably meant some diminishing returns: with only a very few regional exceptions.

iv) If England had enjoyed the most advanced economy by the 18th century, even there diminishing returns can be detected -- though never so severe as to produce genuine subsistence crises.

v) The Role of Technology: If technological innovation was the heart of the modern Industrial Revolution – and it most certainly was, then this term is certainly justified: in the specific ways that technological changes (including changes in the organization of agriculture and industry) finally succeeded in breaking those barriers of diminishing returns.

vi) That can be clearly seen in the Lindert graph: on the screen, ultimately demonstrating the validity of the Kuznets U-Curve.

(1) Note, in particular, that during the first phase of industrialization, up to the end of the Napoleonic Wars in 1815 (or the aftermath, to c.1820), the real incomes of artisans and labourers, evidently did decline, to some considerable extent.

(2) The reasons for that are a major debate topic: thus, was such a decline due to one, some, or all of the following factors:



  1. a Malthusian growth in population,

  2. to industrialization itself (according to both Marx and Kuznets),

  3. or to the costs of the French Revolutionary and Napoleonic Wars (1793 - 1815): i.e., the British government could not finance both ‘guns and butter’ (to use a standard phrase)?

  4. in particular, to rampant war-induced inflation from the 1790s, during which nominal wages fell far behind soaring prices.

(3) But thereafter, from the 1820s or the 1830s, real incomes, real income per capita, rose again, while population also continued to grow.

vii) Thus the chief material fruits of the ‘industrial revolution’ and modern industrialization:

(1) By the term ‘industrial revolution’, usually assigned to the period c.1760 - c.1830, we mean:


  1. those process of technological and organizational changes in industry, with spill over effects into agriculture, finance, and commerce (foreign trade)

  2. that brought about modern industrialization in the sense of self-sustained continuous growth, in both the aggregate economy and in per capita incomes, but only from the 1820s:

(2) Consider just these data:9





  • from the census data of 1821 to 1911, the population of England and Wales more than tripled: from 11.381 million to 36.136 million.

  • as a measure of per capita income, the real-wage index for building craftsmen (masons) rose, and continuously rose, without any significant breaks, and indeed doubled (slightly more than doubled): from 67.23 in 1821 to 135.53 in 1911 (base 1451-75 = 100).

  • that combination of demographic growth and real-income growth – and of such magnitude – is simply unprecedented in human history.

(3) Thus, production finally came to be radically transformed in the 19th century, first in Britain, then elsewhere, to permit sustained and generally continuous growth of both total output and per capita output,

(4) while also encouraging an even more rapid rate of population growth, not just in Great Britain but throughout western Europe and North America, as they absorbed the processes of modern industrialization.

viii) The equally crucial role of foreign trade:

(1) Thus, even if agriculture had not been so radically transformed, the Industrial Revolution, which also involved a prior Commercial Revolution, nevertheless did produce a means of fully and efficiently feeding a still rapidly growing population:

(2) through foreign trade, i.e., by exchanging both industrial goods and services (shipping, banking, etc.) for much cheaper foreign foodstuffs, at least from the 1860s.

(3) Indeed, there is absolutely no way that Britain could have sustained a tripling of its population – from about 12 to 36 million, from the end of the Napoleonic Wars (1815) to World War I (1914-1918) – without the agency of foreign trade: i.e, with exporting goods and services in order to import foodstuffs and industrial raw materials.

(4) In other words, despite remarkable increases in agricultural productivity, it would still have been utterly impossible for any growth in British agricultural output to feed such a rapidly growing population.

ix) Thus the ongoing Industrial Revolution ultimately did produce a revolutionary rate and form of economic growth, with real output per capita doubling every 50 years or so in the British economy.

b) Secondly, the role of the manufacturing sector justifies the term Industrial Revolution:

i) in marking the first time in the history of European societies that the manufacturing industrial sector became the decisively leading sector of the economy:

ii) in propelling the whole economy forward, in inducing changes in the other sectors.

c) The resulting social transformations, however, provide the greatest justification for the term, a revolutionary transformation across Europe, changing basically rural agrarian societies into essentially urban industrial societies within a century.

i) From that process of urban industrialization developed a much more prominent social class, the industrial proletariat: not a new class but a far larger proportion of society, whose households were entirely dependent upon wage incomes for their livelihood.

ii) The Marxist terminology, for once, is most apt: a class or workers or labourers who were divorced from the means of production, who no longer worked in their own homes with their own tools.

iii) They were also or became more and more divorced from traditional forms of income in a rural society, totally cut off from the land, from the production of their own foodstuffs and textiles.

iv) Thus, those transformations involved not just the rapid expansion of an urban proletariat, but also of an agricultural proletariat (wage-earning farm hands), as will be seen in the agrarian changes accompanying the Industrial Revolution and continuing into the 19th century.


4. The Importance of Great Britain in Modern Economic History

a) Great Britain will dominate this course for the simple reason that Britain was the original homeland and the world’s pioneer of modern urban industrialization:

i) it was historically unique: in the sense that Britain achieved that revolution without any outside assistance or models to draw upon .

ii) and yet it was still strongly influenced by economic developments elsewhere, especially in the Netherlands -- whose failure to achieve an industrial revolution I have already briefly noted (with greater elaboration in the printed/published version of the lecture notes).10

b) As the pioneer, Britain in some senses served as the model for industrialization elsewhere: especially in terms of technological transfers (in metallurgy, textiles, steam power).

c) Nevertheless, the British Industrial Revolution also remained unique:

i) in the important sense that the British model was never completely reproduced elsewhere.

ii) As we shall see in the ensuing case studies: of national economic development on the continent, for France, Germany, and Russia, with both similarities to and marked differences from the British.

d) That Britain was the pioneer made her industrialization processes all the more arduous and costly than elsewhere;

i) but, by being the pioneer, by being the first to industrialize, Britain certainly did gain some decisive economic advantages:

ii) a crucial head start: that took various continental countries from a century (i.e., to ca. 1880) to almost a century and a half to overcome (i.e., up to World War I).
5. What is the Industrial Revolution? For most economic historians, it means:

a) interrelated technological innovations in three key industries:

i) the twin spearheads of textiles and metallurgy, i.e., cotton textiles and iron manufacturing,

ii) along with the third that made the first two possible, namely the steam-engineering industries.

iii) Together these innovations achieved mass production: with centralized mechanical power based on coal-fired steam engines.

b) These twin industrial spearheads neatly encompass a consumers' goods industry and a producers' or capital goods industry:

c) ultimately, for the cotton and iron industries, those technological and organizational changes meant urban industrialization and urban concentration about coal-fields:

i) for cottons, those changes meant the metamorphosis from rural peasant handicraft production in a putting-out system to the factory system of production with steam power integrating some or all stages of production, though not universally so, as we shall see later.

ii) for iron, the integration of all stages of production using coal throughout, for both fuel and power, in vastly larger scale units.

d) Coal, in sum, was the essential building-block of the modern Industrial Revolution: of urban industrialization during the later 18th and 19th centuries

i) initially, during the Industrial Revolution era itself, coal was so vital as the essential industrial fuel, and equally as the essential source of power, steam-power.

ii) But subsequently also, during the so-called Second Industrial Revolution in Mechanical Power, as the fundamental basis for electrical power (based on coal-fired steam turbines), and then as the major ingredient of a revolutionary new chemicals industry.

iii) For all these reasons, it is very true to say, as one historical geographer has noted, that an industrial map of 19th-century Europe was fundamentally a map of her coal fields – from Wales to Ukraine and the Donbas of southern Russia.

iv) Thus coal provides one major physical reason for British primacy in modern industrialization, to explain why Britain was the homeland of the modern Industrial Revolution,:

(1) i.e., her historical primacy in the industrial use of coal, a two centuries’ head start in utilizing a coal-technology; and that in turn was based upon:

(2) her natural resources, in having Europe's most abundant, most geographically concentrated, easily accessible, and cheapest supplies of coal (so that no other European country would outproduce Britain in coal before 1914).

v) The coal problem in historical perspective: fundamental cause of Global Warming

6. What Were the Causes of the British Industrial Revolution?





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