SUMMARY: Economic History 1st Partial, Dispense di Storia Economica

Scarica SUMMARY: Economic History 1st Partial e più Dispense in PDF di Storia Economica solo su Docsity! 1 Topic 1 - The big picture Allen, R. C. (2009), The British Industrial Revolution in Global Perspective, Chapter 1: ‘The industrial revolution and the pre-industrial economy’. The Industrial Revolution was invented in Britain in the 18th century because it would not have been profitable in other times and places. Britain invented technology that was tailored to its circumstances and useless elsewhere. Only between 1850 and 1873, when modern technology displaced traditional methods, European industry could compete with the British one. These are some factors that allowed the Industrial Revolution to be invented in Britain. 1. Social structure Society evolved through stages defined by their property and labor relations. In the Middle Ages we had serfdom, where most people were serfs, and they were subject to the will of their lords. This reduced economic incentives and labor mobility since a serf could not leave the estate without permission. Therefore, the rise of capitalism, characterized by free markets, was necessary for the growth of the modern economy. 2. Constitution and property right According to the liberal view, the Industrial Revolution can be traced back to the Glorious Revolution of 1688 that consolidated parliamentary ascendancy, limited royal prerogatives, and secured private property. This interpretation, however, has some weaknesses. Studies of banking and interest rates fail to detect any structural break after 1688, so the improved investment climate was not manifest in anything financial. Moreover, property rights were as secure also in other countries of Europe, where the Industrial Revolution did not take place. 3. Scientific Revolution The Industrial Revolution was preceded by the Scientific Revolution of the 17th century. It started in Italy with Galileo and ended in England with Newton. The discoveries of 17th century were necessary (but not sufficient) conditions for the inventions that were crucial for the development of the Industrial Revolution. However, much of the science was done on the continent, but turning the scientific knowledge into working technology was an expensive investment that could be made only in Britain, where there was enough demand. 4. Protestantism Max Weber argued that Protestantism had effects on the cultural and scientific attitudes of the societies in which it spread, such as the ethic for work and the use of rationality. He argued that modern people had a superior rationality, while some countries were less developed because of farmers’ irrationality. However, there are no empirical evidence of a significant effect of Protestantism on economic growth. 5. The disenchantment of the world Weber argued that a scientific attitude had to replace superstition for technological progress to occur: he called this process ‘the disenchantment of the world’. Thanks to this ‘disenchantment’ people became more concerned with creating a better life in this world rather than in the afterlife. The West gave up superstition thanks to the Scientific Revolution that transformed popular culture. This happened in particular in Britain, where people were more practical, if compared to the French that were more theoretical. 6. Industrial Enlightenment Mokyr argued that the Enlightenment connected the Scientific Revolution to the Industrial: he called this ‘Industrial Enlightenment’. The Industrial Enlightenment focused the application of the scientific method and the belief in an orderly universe governed by natural laws. The Industrial Enlightenment explains why the Industrial Revolution took place in western Europe, although not why it took place in Britain. However, if we consider that in Britain the communication between engineers and mechanicals was more efficient and that there were many skilled mechanicals, we can understand why the Industrial Enlightenment was more fully realized in Britain. 2 7. Literacy and numeracy Cities, rural industry, and commerce required skills that agriculture had not demanded. As a result, literacy rates were much higher in cities than in the countryside, so literacy rose with urbanization. Commercial prosperity also made it easier for people to pay for education and the invention of printing reduced the price of books. Numeracy also increased due to commercial developments. 8. Consumerism People started to want to buy new consumer goods, many imported from abroad as the economy globalized in the 17th century. To buy these goods, people needed income and that required them to work more. If before men were forced to work because they were slaves, now they work because they are slaves to their own wants. 9. Marriage In northwestern Europe many women never married, and most of those who did marry waited until their twenties. This resulted in a low level of fertility and high standard of living, which facilitated economic growth. Women did not marry because high wages and the strong demand for labor meant that young people – and young women in particular – could support themselves apart from their parents and control their lives and marriages. 10. Black Death The Black Death resulted in a population fall, which increased labor mobility by generating many vacant farms, and that mobility undermined serfdom. The low population also created a high wage economy. All these developments may have been necessary conditions for the Industrial Revolution, but they were not sufficient. They may have increased the supply of technology, but they would have had little impact on invention without a demand for new techniques. Demand that increased due to Britain’s high wages and cheap energy. Cheap energy made it possible for businesses to pay high wages and remain competitive. High wages and cheap energy made it profitable to invent technologies that substituted capital and energy for labor. How can we explain these wages and prices? They are the result of Britain’s success in the international economy. The transformation of the European economy (1500–1750) The manufacturing and commercial center of Europe in the Middle Ages had been the Mediterranean. In 1500 the leading economies were Italy, Spain, and present-day Belgium and, in general, most Europeans lived in backward economy, where most people engaged in agriculture. However, in the 17th century, the Dutch economy became the most advanced in Europe because they took over the Portuguese empire in Asia, and Amsterdam became the great wholesale market in Europe. The English did not overtake the Dutch before the late 18th century. Therefore, by the 18th century, the economic center of gravity shifted to the North Sea, due to an increase in international trade. The great gainers were the English and the Dutch, who established world empires that fueled their manufacturing and commerce. At first, the Spanish looked like the biggest winners due to their possession in Latin American, but inflation made their economy uncompetitive. This transformation in the European economy resulted in a decline in the number of British (but also Dutch) people engaged in agriculture and in a rise in the urban (urban revolution) and the rural non-agricultural proportions (proto- industrial revolution). Topic 2 - The pre-industrial economy Allen (2009), Chapter 2: ‘The high-wage economy’ One of the most distinctive features of the British and Dutch economy in the eighteenth century was the high level of wages. Northwest Europe stands out as having the highest standard of living in view of the apparent widespread consumption of expensive and highly refined foods like white bread, meat, dairy products, and beer. Another advanced area of the world was North America, where the economy was booming, wages were high, and prosperity attracted immigrants from Europe and drew slaves from Africa. In contrast, in France, Italy, India and China the low income made a family spend all its resources on food. Their diet included the least expensive grain, legumes for protein, butter and oil for fats. It lacked wheat bread, meat, alcohol and many dairy products. 5 more intensively than common grazing. On the other hand, worker per total area decreased in England during the early modern period. Finally, employment was also affected by the price of farm products relative to wages: when prices were high, farmers hired extra workers to get the most they could out of the land. Did enclosure raise output and productivity? The oldest explanation for the rise in efficiency in English agriculture is the enclosure of the open fields. The large- scale tenant farmers were supposed to have been more innovative than yeomen farmers since the former had to generate the cash to cover their wage bill and their rent, while the latter often owned their land and relied on family labor, so they lacked the need for money that pushed the large-scale tenant forward. However, this argument is overstated. By comparing the cropping patterns in open and enclosed villages, we can see that that open field farmers adopted many features of improved practice. Crop yields have been one of the most frequently used indicators of agricultural productivity. If we analyze the data regarding crop yields, the greatest difference between open and enclosed farming was in the heavy arable district. However, the overall advantage of enclosed farming was only 15% and, when there were differences in cropping between open fields and enclosures, we can see that they were not of great consequence since they did not involve much loss in output or productivity. Moreover, open field farmers were leaders in cultivating legumes, which were an important source of the nitrogen that pushed up crop yields. We can also compare open and enclosed farming in terms of labor productivity. Enclosed farming was slightly more productive. In the heavy arable district, output per worker was 11% higher under the enclosed system, while in the light arable district, the advantage dropped to 3%. How did open field farmers modernize? Homer argued that open fields were an obstacle to the development of agriculture because there was the necessity of a universal agreement among proprietors that could not be achieved among open field farmers. Unanimity was needed, according to Homer, also because agricultural innovation involved costs of research and development in each locality since the culture of new crops must be tailored to local conditions. However, open field farmers had a motivation to innovate, since the management of the field was more efficient if they decided to give precedence to the collective rather than the individual. The 1760s and 1770s were decades of experimentation in which the villagers perfected the rotation scheme that was best for the soil. Experimentation was essential since, in 1700, no one knew the optimal way to integrate clover, turnips and sainfoin into an efficient farming system; that knowledge was developed by trial and error everywhere. Convertible husbandry, the systematic alternation of land between arable and pasture, was one of the most famous inventions of the agricultural revolution. What is perhaps more surprising is that the open fields were a suitable environment for this evolution, for two reasons. First, furlongs rather than fields were the fundamental operating units, so land could be shifted to new or experimental uses in small quantities. Secondly, not everyone in each furlong had to do the same thing. By letting those willing to try the new crops take the first steps, small-scale experiments were undertaken to establish whether and how the new crop should be cultivated. Other farmers soon followed. Eventually, majority rule replaced individual decision-making. Therefore, Homer was wrong in claiming that the need for unanimity prevented open field villagers from innovating. Why did farmers improve their methods? In the classic model of the English agricultural revolution, innovation is caused by institutional change – enclosure, capitalist agriculture and so forth. We have seen, however, that all types of farmers – open and enclosed, large-scale and small – were improving their methods, so institutional change cannot have been the cause. One possible factor could have been the growth of the urban economy. Campbell argued that it was a lack of urban demand that held back agriculture in the Middle Ages. The von Thünen model affirms that urban demand raises the prices of goods that are expensive to ship and leads to their cultivation near the city. Earnings per acre are high in all activities near the city since it paid to apply labor intensively to the land. In England, shipping costs for grain were small so its price did not vary greatly, but transport costs for animal products were high, so the price of meat was highest in London and lowest in Scotland and Wales. Therefore, landowners near London decided to convert arable to pasture. However, the increase in earnings occurred in most parts of England and the growth of urban demand cannot be a sufficient explanation. To understand why farmers improved their methods we need to analyze how agriculture was affected by the high wage economy. Between 1550 and 1620 (during the price revolution), agricultural prices increased more rapidly than any others. This meant that farmers could keep up with London living standards and there was no great incentive to modernize. 6 After 1620, agricultural prices stopped rising, and farmers found themselves falling behind not only Londoners but also their neighbors in the small towns. Moreover, the consumer revolution allowed people to consume new kind of product and luxuries, and farmers wanted this standard of living too. Therefore, farmers could act in three ways. First, they could move to London. Second, they could increase the productivity of their land: in this way the income of small farmers could keep up with laborers in London again and that was a motive for an agricultural revolution. Third, they could respond to the high urban demand for labor by farming with fewer people. This was done by merging small holdings into large farms and enclosing open field arable and converting it to pasture. Allen (2009), Chapter 4: ‘The cheap energy economy’ The early development of the coal industry in Britain meant that it had the cheapest energy in the world. Advantages of the cheap energy economy The cheap energy economy was important because coal was critical for British industrialization, both for its endless supply of cheap energy and for its technological spin-offs, the steam engine and the railway. Moreover, cheap energy allowed firms to pay their workers more and remaining competitive. This because cheap energy offset the burden of high wages. Coal mines Half of Britain’s coal was mined in Northumberland and Durham. Western England, Wales and Scotland accounted for the other half of the coal industry. Why did the cheap energy economy emerge? The medieval economy was propelled by animals, humans, water and wind. Wood and charcoal were the main sources of thermal energy for heating and industrial processes. All this changed after the mid-16th century, when the coal production increased and the mines shipped coal to London, which was growing rapidly, or to local markets. The cheap energy economy emerged in Britain due to social and economic causes. The mere presence of coal in the ground was not sufficient to cause the coal trade. One explanation is Nef’s ‘timber crisis’ theory, which attributes the shift from wood to coal to the exhaustion of British wood lands. This theory is partially correct, however, the decisive factor explaining the growth of the coal industry was Britain’s success in the world economy. This led to the expansion of London with its high wage economy and, in consequence, a growth in the demand for fuel that could be satisfied only by coal. However, residential housing had to be redesigned so that coal could be used in the home. Fortunately, the high rate of house construction in London allowed these design innovations (see next paragraph). Therefore, the cheap energy economy emerged thanks to the growing residential and fuel demand and not because of the lower supply of wood. The Great Rebuilding and coal-burning house The most important use of coal in the 17TH century was residential heating. However, switching fuels presented complex design problems, such as the layout of the house. For example, a tall and narrow chimney (rather than the wide chimney used with wood fires) was needed to increase the oxygen supply to the fire and vent the smoke out of the house. However, in the 16th and 17th centuries, London was growing very rapidly, and a very large number of new houses were being built in a small area. The high volume of construction provided opportunities to undertake design experiments, while the proximity of the buildings facilitated the sharing of information. If a design innovation was successful, someone could try to make it even better. In this model, which is called ‘collective invention’, the rate of experimentation depended on the rate of house building since commercial construction was the activity that financed these experiments. Why didn’t the cheap energy economy emerge before? If coal had always been cheap to mine, why did the shift to coal not occur earlier? The answer is that there was no demand for coal. And there was no demand because using coal to heat houses was impossible without the specific design of coal-burning houses. And why coal-burning houses had not been invented before? Because the ‘collective invention’ was possible only if there was a high rate of house construction in a small area where builders could exchange information. Once the coal-burning house was invented, it spread across Britain. There was a reciprocal relation: cheap coal was an incentive to replace old wood-burning houses, and building new housing increased the output of coal. 7 Coal prices: the two-tiered price structure Transport costs were so high that Britain had a two-tiered price structure: prices were lower in the mining districts and higher in the consuming counties (however, they were still moderate by international standards). Indeed, thanks to low prices, the mining districts were the centers of the Industrial Revolution and the places where the steam engine and coal-based metallurgy developed. Transition from wood to coal In the 15th century, the price of wood and coal were almost the same, which meant that the market for coal was limited given its polluting character. As London grew after 1500, increasing the volume of wood delivered to central London meant increasing the distance over which wood was transported and, thus, increasing the cost. The price of wood fuels increased, and consumers began to use coal. The transition from wood to coal was complicated due to differences in the properties of the fuels. Coal was superior to wood for lime burning and blacksmithing, but in other uses wood was preferable. Coal burnt with a disgusting smell and introduced impurities into manufactured goods, and so it was regarded as an inferior product. The only reason why people started using coal was because it was much cheaper. Indeed, the coal trade increased when London got big enough to drive the price of wood fuel high enough to make it profitable to mine coal and ship it to London. Therefore, as we said before, the growth of the coal trade was the result of the growth of London and not of a shortage of wood. Backstop technology Coal was what ecologists call a ‘backstop’ technology, that is, an energy source that can provide vast amounts of power at constant cost. According to backstop theories, conventional energy is cheaper, which is why it is used initially. As conventional sources are finished, the price of energy rises. When it reaches the cost of the backstop energy, then the latter starts to be used and its cost limits the price of energy for the indefinite future. The backstop technology ‘solves’ the energy crisis by providing unlimited supplies but at a higher price than the conventional alternatives. Coal was a backstop technology that set a ceiling to the price of energy but in a curious way. The increase in prices of charcoal and firewood was limited by the constant price of coal, together with the discount that made buyers willing to accept its undesirable features. Seen from this perspective, the constant price of wood fuel in the 17th and 18th centuries reflected the constant price at which the coal reached London. Furthermore, unlike the usual backstop model, the energy price did not rise in London as the backstop technology came into play. The supply of energy expanded at the late medieval price, although its quality declined. Coal in the Netherlands and Belgium The cheap energy economy is what distinguished Britain from other high wage countries in Europe like the Netherlands. Why did they not have an Industrial Revolution in the 18th century and why did Britain overtake them? Coal is a big part of the answer. The price history of Antwerp was the closest counterpart to London’s. Antwerp experienced a similar increase in charcoal prices and by the 17th century coal was largely used. The history of Antwerp differs from that of London because, while the population of London increased, that of Antwerp fell and, as we previously stated, the demand for houses was a crucial factor for the growing usage of coal. Therefore, what was driving up the prices of wood could be a decline in its timber supply (possibly the trade reorientation following the independence of the Netherlands disrupted supply routes). The history of Amsterdam differs from that of both London and Antwerp. The growth Amsterdam led to an increase in the demand for fuel just as the growth of London did. The supply of wood was governed by the same high transport costs as in England. Nevertheless, Dutch wood prices do not show the increases seen in the London and Antwerp. The reason is that peat was the backstop technology of the Dutch. Consumers regarded peat and wood as equally valuable, and peat had almost the same price as coal (even if coal had a lower quality). Moreover, peat was largely available, and it could be delivered to urban customers at low cost thanks to the canal system. The great supply of peat prevented the increase of wood prices. As a result, the shift from wood to peat took place without the wood price increases seen in London and Antwerp. Coal could have been available from the Ruhr in Germany. However, transportation costs were too high, the Ruhr should have been improved and political divisions prevented movement. The economic corridor running from Amsterdam to the Ruhr was the continental counterpart of Britain, but the Ruhr coal was not exploited due to cheap peat that precluded the development on the continent of the two-tier pricing structure of Britain. 10 Why was the Enlightenment important? It argues that most of the countries that in 1914 were industrialized, urbanized, educated, and rich were countries that in the 18th century were subject to the European Enlightenment. The economic transformation of Western Europe occurred at the end of the Enlightenment, and it was entirely confined to nations that had been exposed to it, although timing patterns were variable. The Enlightenment affected the economy through the attitude toward technology and the role it should play in human affairs. Do beliefs and attitudes matter to economic outcomes? Marx thought that they did not, while Keynes argued that ideas had the power to affect economic outcomes. Generally, we can say that it depends on the circumstances, but in the 18th century the circumstances were correct for changes in beliefs to affect economies. How did the Enlightenment change knowledge? The Enlightenment was an intellectual process, and we can we distinguish four separate headings under which the Enlightenment made a difference to the growth of useful knowledge: agenda, capabilities, selection, and diffusion. 1. Agenda Turning research into useful knowledge could improve the society, and the purpose of the study of nature and experimentation was to help solve practical problems and satisfy human curiosity or to demonstrate the wisdom of the creator. The efforts made to improve practical techniques demonstrate that most scientists felt a responsibility to help improve the material world. They tried to learn which problems bothered people toiling in the workshops and the fields. These efforts were reinforced by commercial interests, which created a literal market in knowledge. 2. Capabilities The age of Enlightenment was the period in which the interaction between prescriptive knowledge (which focuses on how to use techniques) and propositional knowledge (which focuses on how nature works) started. Scientific advances were made possible using better tools. As a result, the rate of scientific discovery was stimulated by technological advances and in turn could help widen the epistemic base of techniques. Experimental engineering also made methodological advances. John Smeaton was one of the first to realize that improvements in technological systems can be tested only by varying components one at a time holding all others constant. Scientific research was an ancient tradition but advances in mathematics added new tools to the arsenal of engineers, and theoretical work in engineering advanced consequently and expanded the supply of good ideas. 3. Selection Ideas are selected from larger menus of ideas that are proposed to people. The selection process is determined by persuasion, and persuasion follows a set of criteria based on the rhetorical conventions of the time, these rhetorical conventions themselves a result of a selection process. Conservative establishments in science, religion, and political thinking argued that the predominant criterion for the acceptance of new knowledge was that it be consistent with existing ideas. New ideas and techniques that were inconsistent with the intellectual or technological status quo were to be suppressed. The Enlightenment helped changing set of criteria. Knowledge and beliefs were contestable at every level and free entry into the market for ideas and the absence of repression were a high priority. The ideals of tolerance and persuasion by argument and evidence, in which ideas were selected freely by individuals on merits other than acceptability by the ruling orthodoxy, eventually emerged successful. Experimental science has become practically a synonym for ‘modern science’. The importance of experimental work to the Industrial Revolution was enormous. Especially when the epistemic base of a technique is quite narrow so that the outcome of a procedure cannot be predicted, there is no real substitute for experimental work to guide the selection process of useful knowledge. 4. Diffusion The market for ideas resembles an open-source technology. Open science was the key to the rapid changes in the market for ideas because all new knowledge is placed in the public domain and judged by peers. Success is mostly a result of a signaling contest, in which reputation plays an important role. Moreover, access cost to knowledge were reduced thanks to open science and the aversion to the secrecy. If people needed knowledge to grow, it needed specialization and therefore a “division of knowledge”. However, such a specialization depended crucially on low access costs. But there were other reasons why declining access costs played such a central role in the economic transformation of Europe. Much invention were combinations of existing techniques, or combinations of knowledge from diverse 11 fields in what we might call technical hybrids. It was thus critical that knowledge of techniques in use in other industries and regions was accessible. Furthermore, such knowledge would prevent inventors from re-inventing things or from trying things that would not work. Access to knowledge can be usefully analyzed by distinguishing between codified and tacit knowledge. Codified knowledge depended on the written word, especially on print. In the 18th century the exploitation of alphabetization and the explosion of books made useful knowledge accessible. The document most widely associated with the Enlightenment was the Diderot and d’Alembert’s “Encyclopédie”, but also the number of scientific periodicals increased. However, also tacit knowledge, which were passed in person, was flourishing. Coffee houses, country inns, societies and academies were the perfect places in which public lectures and meetings could be held in order to spread knowledge. Intellectual Property Rights and the Patent System How can society reward those who gave their time and money to develop knowledge that was of great benefit to the rest of society? Patent system was one option, but the Enlightenment found itself torn between several conflicting views when it came to Intellectual Property Rights (IPRs). In one side, we have people contrary to monopolies and in favor of free entry, where a patent system that could block new entries was not desirable. On the other side, people believed that if a society wanted to promote technological change, it needed to create the economic incentives for invention to take place. But more than anything else, it was private property, which was considered a fundamental human right, that helped establish Intellectual Property Rights as an Enlightenment institution. The patent system was important ex ante because it induced potential inventors into believing that they could make much money and it gave them the hope for success. However, just few inventors gained that much, but it seems that the expectation was enough for many people. Britain’s patent system was not exactly inviting: it charged a patentee £100 for the right to patent, many patents were infringed upon, and judges were often hostile to patentees, considering them monopolists. Moreover, the patent system was a means for the diffusion of useful knowledge: once a patentee filed, he or she had to divulge the existence of the invention and in principle forewent the protection of secrecy. The patentee was also required to explain the invention in such a manner than anyone familiar with the technique could understand and reproduce it. The need for epistemic bases to generate sustained economic growth The Industrial Revolution itself, in its classical definition, did not suffice to generate sustained economic growth. In the 15th century many new inventions were made as well, but this was not sufficient to generate economic growth. Why not? The reason is that before the Industrial Revolution all techniques in use were supported by very narrow epistemic bases. That is to say, the people who invented them did not know why and how they worked. Such a lack of an epistemic base does not necessarily preclude the development of new techniques through trial and error, but it makes the subsequent wave of micro-inventions that adapt and improve the technique and create the sustained productivity growth much slower and more costly. Indeed, since the epistemic base did not exist, the Enlightenment had little impact on production for many decades. While the results of the Industrial Enlightenment in the 18th century were few, those of the agricultural and medical Enlightenments were even less impressive. However, the belief that somehow the systematic study of nature could eventually improve industry and agriculture survived so long, regardless of a lack of results. Although the Enlightenment is commonly considered to have ended in 1789, its effects on the economy were most pronounced in the 19th century. The triumph of Enlightenment thought came in the growing influence of liberal political economy, which gradually dismantled the regulatory state and removed many of the limitations on the free market and reduced rent-seeking. But more than anything else, the momentum of technological progress was preserved rather than dissipated. The second stage of the Industrial Revolution adapted ideas and techniques to be applied in new and more industries, improved and refined earlier inventions, extended their deployment, and eventually these efforts increased productivity. The epistemic bases were growing and those who needed knowledge, whether they were inventors or engineers, had access to it. Therefore, we can celebrate the second Industrial Revolution as the central event of economic history and the true beginning of modern technological society, but we need to remember the importance of the precedence of the first Industrial Revolution and the Enlightenment that made it possible. 12 Topic 4 - Industrial society Pamuk, S. and J-L. van Zanden, ‘Standards of living’ Engels In 1844, Engels presented a very pessimistic analysis of the “standard of living” of English laborers. They were poor and unsure whether they could earn the barest necessities of life. Crime rate was rising rapidly, death rates in the big industrial cities were much higher than elsewhere, the proletariat had a poor state of the education, and child and female exploitation was increasing. Moreover, incomes declined for craftsmen who had to compete with the new steam-driven technology, and industrialization increased inequality in income and wealth. Early growth paradox and the Kuznets curve There was an “early growth paradox”: economic growth resulted in increases in real wages only after 1870, and the “biological standard of living” (such as the increasing of heights) tended to lag behind even more. Indeed, Kuznets argued that during the first stages of growth inequality tended to increase, due to processes of structural change and widening income gaps within sectors of the economy. However, there is a turning point (in our case in 1870) where income inequality declined. This may happen for two reasons: about 50% workers are in the urban sector or real wages begin to increase substantially because of the lack of the labor surplus in agriculture. A different interpretation of the Kuznets curve has been given by Williamson. He argued that during the first stages of the industrialization process, the increased demand for skilled labor led to an increase in the skill premium, driving up income inequality. But education expansion lagged behind the demand for skills during this early period, and that only after a few generations the supply of skills was sufficiently large to result in a decline in the skill premium. However, the basis for this analysis has been questioned by Feinstein. How can we measure living standards? We can consider different parameters, such as: 1. Real wages 2. Height 3. Life expectancy at birth 4. Literacy 5. Human development index (HDI) 1. Real wages The debate regarding standard of living is divided between optimists and pessimists. Lindert and Williamson were optimists that argued that standards of living improved sharply in Britain, by as much as 50% or more from 1780 to 1830, and about 100% for the period 1780 to 1850 as a whole. However, the optimists’ position was later challenged by Feinstein, whose indices showed much smaller increases for real wages, about 20% for the period 1820–50 and less than 40% for the entire period 1780–1850. They indicated another increase of 9% for the period 1850– 1870. Allen indicated that real wage increases until 1850 were small (even less than those suggested by Feinstein). On the other hand, Clark estimations are somewhere between the optimist and pessimist positions. Moreover, the GDP series constructed by Crafts and Harley indicate that the overall growth in Britain until the 1830s was much slower than estimated earlier. These estimates made it very difficult to sustain the optimists’ case for the period before 1830. Therefore, these pessimistic indices continue to indicate that real wage increases lagged behind GDP per capita, not only in the earlier decades of industrialization, until 1830, but also until 1870. Focus on Allen’s opinion Allen argued that urban real wages did not show upward or downward trends during the 18th century in any region of Europe. Moreover, levels of urban wages were close to each other in most parts of Europe, except for Great Britain and the Low Countries, where real wages were higher. 15 Northwestern Europe and European Marriage Pattern However, even if northwestern Europe was comparatively rich in the 18th century, it had a unique pre-industrial system of fertility limitation that did not comply the Malthusian constraints. This northwestern European fertility limitation was the product of a unique pre-industrial social pattern, called the European Marriage Pattern. It was caused by late marriage by women, combined with a large percentage never marrying, and adherence to different social practices, such as weaning ages, without any sign of individual targeting of fertility. In fact, no contraceptive practices were employed before 1800 (except for France), and this can be proved by the lack of patterns in fertility. Yet, despite the apparent absence of contraceptive practices, the European Marriage Pattern kept births in northwest European populations low. The European Marriage Pattern had also two other features: high fertility within marriage and low illegitimacy rates. Eastern and Mediterranean Europe The European Marriage Pattern was found only in northwestern Europe, while in southeastern Europe, before 1800, marriage was early and universal, with no fertility limitation within marriage. In the northwest couples were expected to form economically independent households on marriage, while in eastern and Mediterranean Europe households were often large and complex, and they were often linked to land tenure systems that favored large families. Earlier marriage increased fertility in eastern and Mediterranean Europe. But also mortality was higher, so life expectancy shorter. The effectiveness of Malthusian adjustments How strong were these adjustment mechanisms? Was pre-industrial Europe a self-equilibrating system? Ronald Lee concluded that the Malthusian adjustments were weak, and the strongest self-equilibrating mechanism was the decline in real wages when population rose (3). For Europe the elasticity of real wages with respect to population size was about -1.6. This implies that a 10% increase in population reduced real wages by 16%. Thus, the Malthusian Trap. Population responses to changes in real wages were weaker. These slow adjustments kept wages near subsistence over a span of centuries but were not enough to prevent significant wage changes in the medium run of generations. The Malthusian positive checks would not contain population growth if there were a sustained decrease in the mortality level, as Europe experienced by 1800. Consequently, Europe entered an unprecedented period of population growth. The Malthusian regime in disequilibrium (1750–1870) Population across Europe expanded rapidly, except for France and Ireland, and in 1800–1900 Europe’s population more than doubled. Exceptions: France and Ireland France had one of the highest proportion of women married of any country of northwestern Europe. However, birth control became widespread at the end of the 18th century, resulting in an early decline in birth rates. Since decreasing fertility paralleled decreasing mortality, French population was still increasing, but slowly. In Ireland there was the lowest proportion married in all of Europe in 1900. Therefore, even if marital fertility remained high, marriage was extremely late, and permanent celibacy was common. Consequently, the population growth was limited. Birth control: why wasn’t it adopted before? 1. Family limitation spread through cultural diffusion, and therefore linguistic boundaries prevented the spread of ideas and information about birth control in countries like Belgium, where there was multiple languages; 2. Europeans in 1800 were unwilling to use birth control for religious or cultural reasons; 3. Family limitation was slower to develop where production was organized in labor-intensive family units, like family farms and proto-industrial workshops, in which parents retained greater control over the work of their children. However, Enlightenment ideas about reason and humankind’s role in nature, as well as opposition to religious authorities, made birth control within marriage ethically and socially acceptable. 16 Since population growth occurred almost everywhere in Europe, we can affirm that it was not associated with economic development. So, what were the causes of the European population growth? In northwestern Europe the population growth followed a classic trajectory known as the demographic transition. The death rate began to decrease in the 1750s, while the birth rate remained nearly constant until 1870, when it started falling. As the gap between birth and death rates widened, population growth accelerated. Therefore, the primary cause of population growth in the 19th-century was falling death rates. In the Russia and eastern Europe population growth must be explained in a different way. Mortality, especially for infants, remained extremely high, but at the same time also birth rates in eastern Europe were also much higher than in the west. What caused the mortality decline in northwestern Europe? The causes of the decrease in the death rates are a mixture of: • Better nutrition (even if Livi Bacci argues that diet improvements had little effect on long-term mortality trends); • Advances in medical knowledge, such as vaccinations and medical opinion that favored breastfeeding; • Public health measures, such as clean water, closed sewers, better ventilation, waste removal, water and sewage systems, and more light and air in rapidly growing urban slums; • Epidemic controls; • Transport improvements, that reduced the number of famine refugees that could carry infection by creating broader food markets that were less affected by local crop failures; • Marriage, regardless of late marriage and permanent celibacy, the growing gap between births and deaths remained. But population growth did not result in declining living standards, how did this happen? The rapidly growing populations of 19th-century Europe did not face a grim Malthusian future because: 1. The agricultural productivity increased, and food supply exceeded population growth after 1800; 2. External migration to the New World helped relieve population pressures; 3. Internal migration from country to city helped to sustain the urban population, since death rates exceeded birth rates in most urban areas until the late 19th century. Decline after 1870 In the 1870s, birth rates began decreasing in most of western Europe, closing the gap between birth and death rates. The gap between births and deaths was not completely closed until the 20th century. Fertility fell in everywhere, but it fell most in the richest countries (rather than the least developed ones) and in the urban areas (rather than in rural ones). As we already stated, all models of population regulation for the pre-industrial world depend on a positive association between net fertility and income. However, this positive correlation of fertility and income became negative in Europe in the period of the demographic transition after 1870. Why was there a decline of fertility after 1870? 1. New lifestyle Parents were exposed to new products and new lifestyles in the growing metropolitan societies created by the Industrial Revolution that expanded their choices. Wealthy families consumed more of these new goods instead of producing children. 2. Less time Raising children is a time-consuming activity, and people switch their consumption towards less time intensive goods when incomes go up. As wages increases, each hour spent on leisure involves giving up a larger quantity of goods, which could have been purchased by working an additional hour. High-income parents want to spend brief but intense “quality time” with a small number of children. 3. More education 17 a) Rich parents spend more money on children than poor parents, but they do this by investing in the education of high “quality” children rather than increasing the “quantity” of children in their family. b) Children were perceived as being more expensive because parents wanted them to have more comfortable lives and continue their educations rather than going to work. Focus on education In the early 19th century, the demand for education in expanding industries was weak. Providing education was usually associated with religious and ideological motivations, rather than expected economic benefits. In the late 19th century, as economies grew and became richer, education became more important. But does the rising importance of human capital explain the fertility transition? There is no evidence of a link between modern low fertility and high education levels. If there had been a link, the premium paid in the labor market for skills after 1870 would have increased, but it actually decreased. This means that increases in the supply of education and skills were even greater than increases in demand. Parents after 1870 chose to supply ever greater levels of education to their children without large increases in the wage premium paid to educated workers. This implies that education affected fertility, not by increasing the cost of raising children (supplying that much education wasn’t necessary to have a higher income), but by changing the values of the next generation of parents. Topic 5 The first age of globalization Daudin, G., M. Morys and K.J. O'Rourke, ‘Globalization, 1870–1914’ The period from 1870 to 1914 represented the period of maximum expansion of 19th century globalization which had been developing since the end of the Napoleonic Wars. We can measure the level of globalization by looking at: (1) Trade, (2) Capital flows and (3) Migration. 1. Trade European international trade in current values grew at 4.1% a year between 1870 and 1913, as against 16.1% a year between 1830 and 1870. The European trade to GDP ratio, including intra-European trade, increased from 29.9% to 36.9%. Another sign of international integration during this period it prices convergence around the world. Overall, Europe was a net exporter of manufactures and a net importer of primary products. Therefore, the European deficit in commodity trade was partly balanced by net exports of services. Why did international trade increase? 1. International transport increased, due to improvements in steamships and railroads that reduced transport costs and the opening of the Suez Canal 2. Peace between the main powers 3. The development of European empires, which reduced trade barriers 4. The inclusion of colonies in currency unions 5. The better protection of property rights 6. The spread of the gold standard, that reduced exchange rate risk and signaled that the government would pursue conservative fiscal and monetary policies However, politicians could implement protectionist policies that could raise barriers to trade. Trade in knowledge Technology circulated relatively freely in the late 19th century, what were the causes of the spread of knowledge and technology? 1. Migration 2. Imperialism 3. Lower transport and communication costs 4. New international exchanges and competitions (e.g. Olympics and Nobel prizes) 5. New international scientific and technical organizations (however, besides military applications, academic activity was used as a diplomatic weapon: inviting foreign scientists and participating in scientific congresses was part of the rivalry between France and Germany, as each hoped to tighten its links with allied and neutral countries, especially the United States)