Fudan University Lecture11 Lectures on Economic History Fudan University December2009 Joel Mokyr...

Fudan University Lecture1 1

Lectures on Economic HistoryFudan University December2009

Joel Mokyr

Northwestern University and

Tel Aviv University

[email protected]


Lectures outline:

1. Economic Growth and the Industrial Revolution

2. Technology and Innovation, 1760-1850.

3. Agriculture and the Service Sectors

4. The open economy: International Trade and Empire

5. The demographic transition 1750-1850

6. Institutions and Government in the Industrial Revolution.


These lectures are based on:


The two issues:

• The “big” question: The emergence of the “convergence club” or “How the West Grew Rich.”

This requires explaining the Industrial Revolution in Europe, since it is clear that without it, modern economic growth would not have happened.

• The “small” question: why did Britain lead?

This requires saying something about British “exceptionalism.”


Keeping these two arguments separate will help clarify our thinking about causes

• Some arguments purport to explain “Britain” but not “the West” (e.g., British coal, its overseas Empire, the successful revolution of 1688 and the establishment of Parliamentary rule).

• Some arguments purport to explain the West but not specifically Britain (e.g., “modern science” or “protestant ethic” or Europe’s access to Ghost Acreage (e.g. Pomeranz)

• None of them explain the timing very well.


Two observations on the Industrial Revolution:

• Was it British? It was more of a joint multinational “western” phenomenon that most scholars have allowed for, including Britain, as well as much of Western Europe, North America. British leadership was important, but ephemeral and not indispensable.

• How critical were “the years of miracles”? Technological progress in the West did not peter out after 1800 or so, as clusters of macro-inventions had done before. The “canonical” Industrial Revolution was followed by a second round of micro-inventions 1815-50, then 2nd Industrial Revolution and so on.


Standard causal stories about Britain:

1. Geography and Resources: Britain has lots of coal and iron and is an Island.

2. Government: the Industrial Revolution required the “right” kind of political regime.

3. Demand: growing population and/or foreign markets “stimulated” technological progress.

4. Social factors: mobility provided the “right” kind of incentives.

5. Religion: the “Protestant ethic”

6. These and others are all problematic.


Question to be addressed:

• Could changing beliefs and knowledge have affected the course of the Industrial Revolution?

– “I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas .... soon or late, it is ideas, not vested interests, which are dangerous for good or evil”

J.M. Keynes, GT, pp. 383-84.

– ”Ideology may perhaps be considered a random shock in a model of institutional change, … but the absence of any positive theory of idea formation or role for ideology leads us to support economizing activity as the primary explanation for institutional change… Ideology may be usefully be thought of as a ‘habit of mind’ originated and propelled by relative costs and benefits. As an explanation for events or policies, it is a grin without a cat.”

Ekelund and Tollison, 1997, pp. 17-18.


Intellectual Factors in Economic Development

Economists have shown a renewed interest in these factors.

• Culture: New interest in “cultural factors” that support growth-enhancing institutions (Tabellini, 2006; Guiso-Sapienza-Zingales, 2006; Jones, 2005).

• Institutions: New Consensus following North and Weingast, 1989: (Greif, 2005; AJR, 2005; Rodrik et al, 2005): Institutions central to the story, though not exactly clear how.


Can we find an intellectual development that can be argued to be “causal”?

• Oddly enough, the one candidate that has been proposed, the scientific revolution of the seventeenth century, has been dismissed by most scholars since it seems that science was not much involved in most of the early inventions.

• This may have been a bit premature (e.g. Jacob and Stewart, 2005).

• But it may not satisfy most who do not find it convincing because the best-known technological breakthroughs of the Industrial Revolution were not science-dependent.


So we need:

• Something that prevented the Industrial Revolution in the West from fizzling out, yet was widespread in the countries that by 1914 were the core of the convergence club.

• In other words, find something that:

– Occurred before the Industrial Revolution or contemporaneous with its early stages.

– Was specific to the West but not just to Britain.


• What could that be?

•Answer: The European Enlightenment


There are different definitions of the Enlightenment.

Most people tend to agree that it was:

• An Intellectual Movement, that is, an elite phenomenon.

• Fundamentally secular and “cosmopolitan.”• Spanned about a century: 1680-1789 and

affected much bit not all of Europe, though to different degrees.

• Shared certain principles despite important local variations.


Not everything about the Enlightenment mattered for economic growth

•But many things did. Above all:– The belief that progress (including

economic growth) was both possible and desirable.

– That it was the responsibility of intellectuals to help bring it about.

– The astonishing thing is that Enlightenment philosophers, much like Karl Marx (11th thesis on Feuerbach), were able not only to interpret the world, but to change it.


Two striking things about the Enlightenment as

an explanation of modern economic growth

• It “works” in time series, in that it takes place before and during the early stages of the Industrial Revolution. May not explain the “onset” --- but what counts is the post 1800 stage.

• It “works” in cross-section in that practically all the “convergence club” countries in 1914 were countries that were demonstrably affected by the Enlightenment.


Indicators of Economic progress by the late 19th C.(Weighted averages. Sources: the usual suspects)

GDP per capita (1990 prices), 1913

Level of urbanization (% in large cities) . 1900

% Male Illiteracy c. 1900

% Labor in “commerce” in 1888

per capita

“industrializ.”

(Bairoch index numbers for 1900, G-B in 1900 = 100)

“Enlightened” (UK, France, Germany, Benelux, Scandin., Switzerland)

3,924 52.5 5.3 10.8 86

“Semi-enlightened” (Aus-Hung, Italy, Ireland, Poland)

2,303 40.0 40.6 8.6 28

“Unenlightened” (Balkan, Iberia, Russia)

1,525 16.2 50.3 4.9 20


Moreover:

• Nothing like the European Enlightenment can be discerned outside of the areas of the Industrial Revolution (China, Middle East, Africa), it was successfully resisted in Spain, Russia.


So how come economic historians have “missed” it?

• One answer: a lot or scholars still believe that ideology is endogenous to material conditions or demand (“historical materialism”).

• Another answer: most historians have believed that the Industrial Revolution was purely British and the Enlightenment was mostly French (both of these propositions are inaccurate).


The importance of being persuasive

• Ideas “compete” in the market for acceptance and influence.

• But traditionally this market had been heavily controlled by vested interests (orthodoxy fighting against “heretics”).

• By 1680 or so, this is widely realized to be impracticable except for some rear-guard skirmishes.

• This gives enlightenment philosophes their chance to compete on a level playing field.

• In short, what this was about was persuasion. And Enlightenment thinkers were quite persuasive.


Belief in Progress: becomes the hallmark

of the Enlightenment • “The same age, which produces great philosophers and politicians,

renowned generals and poets, usually abounds with skilful weavers, and ship-carpenters. We cannot reasonably expect, that a piece of woollen cloth will be wrought to perfection in a nation, which is ignorant of astronomy, or where ethics are neglected. The spirit of the age affects all the arts; and the minds of men, being once roused from their lethargy, and put into a fermentation, turn themselves on all sides, and carry improvements into every art and science.”

David Hume, 1742

“All things (and particularly whatever depends on science) have of late years been in a quicker progress toward perfection than ever...in

spite of all the fetters we can lay upon the human mind... knowledge of all kinds ... will increase. The wisdom of one generation will ever be the

folly of the next.”

Joseph Priestley, 1771


Enlightenment thinkers went further:

• They formulated principles and policies as to how material progress (economic growth) could be achieved. These involved two basic agendas:

– Useful knowledge should be deployed to increase productivity and efficiency:

(The Industrial Enlightenment).

– Institutions (social and political) should be reformed rationally to make society more efficient (The Institutional Enlightenment --- will talk about it only if time).


The Industrial Enlightenment was only the most successful. For instance:

• One could speak of an agricultural enlightenment, with many attempts at improvements in the technological and organization aspects of farming (e.g. the Dishley Society, founded in 1783, and the Smithfield Club, founded in 1798, specialized in the breeding and raising of animals; Board of agriculture, f. 1793).

• A medical enlightenment: the search for improved clinical care and prevention. (e.g., scurvy prevention (Lind); smallpox inoculation (Jurin) and vaccination (Jenner); use of medical statistics)

These efforts were less successful than the industrial Enlightenment at first, but not for lack of trying. The issues were just difficult.


The first part of this story:

• “Baconian program” for changing the accumulation and dissemination of useful knowledge became a core element of the enlightenment. Four components (for details see Mokyr, 2002, 2005, 2007):


Francis Bacon, 1561-1626


Expansion of the useful knowledge base of

technology during the Enlightenment

1. Changed Agenda of research

2. Improved Capabilities of Natural philosophers

3. Different selection mechanism in the “market for ideas”

4. More effective diffusion mechanisms


1. Agenda:

• Natural philosophers, under the influence of Bacon, in the 18th Century increasingly begin to investigate things that might be useful to manufacturers.

• Part of the reason is purely economic: changing patronage (central government and industrialists who hired scientists as consultants rather than rich nobility who wanted to show off; students who were increasingly demanding to learn things that might be useful).

• Part of it is cultural: the enlightenment changed the priorities of natural philosophers and made them more secular and materialistic. Belief in progress was central.


The importance of scientists (more than “science”) at the service of production

– Mathematics: many mathematicians apply themselves to help solve practical problems (e.g. Euler, Borda, McLaurin).

– Chemistry: Much research in the direction of solving problems encountered by manufacturers in bleaching, dyeing etc. (Priestley, Cullen, Berthollet).

– Botany and Physiology: attempts to use the results to improve farming and livestock (Linnaeus, Duhamel)

– Physics: a great deal of hope to understand and control electricity (Musschenbroek, Franklin, Aepinus) and water power (Parent, Smeaton, Borda, Poncelet) using theory and experiments.

– Material science: famous 1786 paper by Berthollet, Monge and Vandermonde about the nature of steel.

– Overall, many of the “great minds” from Leibniz to Lavoisier applied some of their time to solve practical problems.


Moreover, scientific method and culture affected technology more than science itself

1. Widespread use of mathematics

2. More sophisticated experimental techniques

3. Stress accuracy and communicability

4. Insistence on reproducibility

5. Communicate results and place them in the public realm (“Public Science”).


One Example of a typical “Enlightenment

Man”: René Réaumur, 1683-1757


Contributed to many technological fields:

President of the Académie Royale but also interested in:

• Iron and Steel (first to suggest the chemical properties of steel)

• Porcelain and glazing• Egg incubation• Entomology and pests• Meteorology and temperature measurement• Showed the feasibility of glass fibers• Suggested paper to be made from wood


Another example (from Britain):

•John Robison (1739–1805), closely associated with Joseph Black and James Watt. •Mathematician and chemist, appointed lecturer in chemistry at the University of Glasgow in 1766. •Later taught mathematics at Kronstadt in Russia and then professor of natural philosophy at Edinburgh. •Worked closely with Watt and contributed to the development of the steam engine and to the mathematical study of electricity.


Joseph Priestley, 1733-1804


Joseph Priestley

Great scientist (discovered Oxygen and helped lay foundation of an understanding of combustion and heat.

.

Inventor (among others, carbonated water).


Typical of “English Enlightenment”

Follower of Bacon’s doctrines, scientific pursuits are consistent with the commercial and entrepreneurial interests of his middle class.

Progressive Enlightenment philosopher, ended up fleeing to the US in 1794.

Deeply religious man but advocating a liberal, humanistic form of dissenting religion, sympathetic to French Revolution.

Responsible for major advances in the chemistry of gases and experimental methods, discovered oxygen.

Hung out with other famous scientists and businessmen at the Lunar Society in Birmingham.

Also made some significant inventions, above all invented carbonated water (commercially exploited by a Swiss emigrant name Johann-Jacob Schweppes).


Did all this lead to the Industrial Revolution?

• Answer: Things are not quite that simple.

• Not all of the famous inventions of the Industrial Revolution required a lot of science.


2. Capabilities

• Technology leads to better science as much as the other way around (Derek Price)– Better tools and instruments led to better

research.

– Advances in mathematics (especially calculus).

– Advances in experimental methods (e.g. Smeaton, Cavendish, Laplace).


One example: Alessandro Volta, 1745-1827


Volta’s “pile” (1800)


3. Selection

• Selection among competing theories and views:– Increasingly based on experience and evidence and

not authority (”nullius in verba”). (classic examples: defeat of the phlogistonists, decline of perpetuum mobile research).

– “Peer-reviewed” high-quality scientific periodicals (e.g., Nicholson’s Journal or François Rozier’s Observations sur les Physique…)

– Less constrained by defending orthodox views or metaphysical concerns.


4. Diffusion: reduce “access costs.”

• Vertical movement of knowledge: the need to build bridges between savants and fabricants, the world of “natural philosophy” and “useful arts.” Moves both up and down.

• Horizontal movement of knowledge: dissemination of both scientific and artisanal knowledge, across regions and across time.


Source: Peter Clark, 2000, p. 132

0

200

400

600

800

1000

1200

1640-491660-691680-891700-091720-291740-491760-691780-89

England

Scotland


“Society of Dilettanti” 1777-79


Meeting of the Society of Arts, 1809


Some of these pre-date the age of

Enlightenment

• The idea of “open science” may be the most important institutional foundation of the growth of useful knowledge.

• Transnational “republic of letters” emerges in the seventeenth century. “Sciences are never at War” [?]

• Enlightenment projects are all about communication and diffusion, e.g. academic societies, encyclopedias, books about technology (dictionaries, compendia) and useful knowledge. This involves both codifiable and tacit knowledge.


One (less well-known) of an eighteenth century mechanism to diffuse useful knowledge:

• The multi-edited compilation of alphabetically arranged technical and scientific subjects.

• Often heavily plagiarized or at least derivative.

• But inexpensive, accessible, and popular.


The great irony:• In the short run the Baconian program did not work very well and it is

hard to credit it with the first wave of early inventions of the Industrial Revolution.

• Most “promises” of mathematics, chemistry, mechanics, and biology before 1800 disappointed (with a few notable exceptions).

• Why? Scientists did not know enough, or knew many things “that ain’t so.” The world was more messy and complex than they had imagined.

• People knew what worked, but not why. Did not understand underlying principles (“narrow epistemic base”) New techniques limited also by workmanship, materials, tools.

• BUT: Faith that investment in useful knowledge would pay off persisted. Research methodology, practical methods, and tools of science were more important for technology than actual content.


In the longer run…

• This optimism paid off enormously. Between 1815 and 1860 (before the so-called 2nd Industrial Revolution), useful knowledge started to affect production in a host of industries. The result was:– Continued technological progress in a host of industries rather

than stagnation (e.g. iron industry, improved steam engines, improved power-loom, self-acting mule).

– New applications and adaptations of existing techniques (e.g., adaptation of mechanized methods used in cotton and worsteds to linen and wool).

– Recombinations of existing techniques into new forms (e.g. steamships, railroads).

– The emergence of wholly new techniques based on new useful knowledge (e.g. telegraph, food preservation, mining technology, Fourneyron’s turbine; Chevreul’s work on fatty acids; Bessemer’s steelmaking converters).


In explaining the emergence of modern growth…

• Was technology enough? Did institutions matter?


The second part of the story: the Institutional Enlightenment

• Institutional Reform. The enlightenment fostered growing belief in liberal values such as free trade, labor mobility, free entry, occupational choice. These values did not disappear in 1789 but remained part of the liberal creed.

• But there was also recognition of the need to solve coordination problems such as standardization and deal with other “market failures.”

• The enlightenment view of economic institutions was based on the growing realization that the economic game is not zero sum and that rent-seeking (redistribution) is actually negative-sum (“leaking bucket”).

• Reaction against mercantilism: Realization that the equation wealth = military power is not a truism but based on a self-fulfilling expectation.

• Culminates in Wealth of Nations. But many antecedents.


The main target of reforms was not protectionism as such, or unfair taxation, or awkward legal systems

• It was primarily about rent-seeking; Mercantilist society was about rent-seeking and redistribution through monopolies, privileges, and constraints on mobility and freedom of choice.

• The Enlightenment realized intuitively what modern economics (e.g., Baumol, 2002; Murphy, Shleifer, and Vishny, 1991; Prescott and Parente, 2001) has pointed out: rent-seeking activities will seriously impede economic efficiency and growth.


Among reforms advocated by Enlightenment writers:

• Eliminate exclusionary rents generated by monopolies and guilds.

• Eliminate rent-seeking through price controls (especially grains).

• Reform the tax system. • Free both external and internal trade.• Rationalize market system to reduce

transaction costs and solve coordination problems (legal reform; weights and measures).

• Unfettered occupational choice and free L-markets.

• Stop predatory wars (at least within Europe).


Will return to this issue in the last lecture in some more detail.


How does this relate to technological progress?

• Had there been technological progress but no institutional reform, the gains from productivity growth would have been expropriated by corrupt elites or wasted on military adventures, and the process would have ended.


Had there been institutional reform but no technological progress, the process of growth would have continued for a while through gains from trade and better allocation of resources, but would have inevitably run into diminishing returns and fizzled out.


• In that sense, the Enlightenment gave Europe two complementary innovations.


The intellectuals convinced policy-makers

• Not without many setbacks and reversals (wars of 1793-1815 get in the way).

• By 1820, much of this program is launched and completed in four decades, and it brings about sustained growth until 1914 (despite a resurgence of rent-seeking after 1880).

• This only happens in the set of countries that were “enlightened,” which more or less coincides with the “convergence club”.


By 1870 or so:

• Most of the economies that were about to constitute the convergence club had reduced internal rent-seeking.

• The Pax Britannica minimized predatory wars and the need to spend large amount of resources on the military.

[after that, the influence of liberalism starts to decline, but that is another story…]


Uneven effect of the Enlightenment

• The American Revolution created a Republic that in many ways was inspired by Enlightenment ideals.

• The French revolution in the end evolved into something very different and created a reactionary backlash that tried to set the clock back.

• At the same time it swept away much of the resistance to Enlightenment reforms, preparing the ground for a “liberal economy.”


So WHY did Europe have an Enlightenment?

“Free” marketplace for ideas. • Europe in 16th and 17th centuries had fragmented

and decentralized politics but increasingly unified markets for new ideas.

• This means incentives for innovations are high, possible penalties (relatively) low.

• Empirical implication: footloose intellectuals.


The harder question:• Why was the Enlightenment successful in

Europe? Combination of suitable economic circumstances and competence of the leading figures.

• Rise of an urban bourgeoisie contributed to the triumph of enlightenment ideals.

• But it did not have to turn out this way. Eighteenth century China was equally “commercialized.”

• Economists need to realize how contingent economic history has been. No “inexorable” force.

• Beware of hindsight bias.


Why were enlightenment ideas eventually victorious?

• Economic interests supported them – here and there (but others opposed).

• Fragmentation of political power in Europe makes suppression very difficult while markets for knowledge were transnational and quite unified.

• Persuasion and rhetoric were powerful. Organized in formal academies, friendly societies, salons, coffee houses, masonic lodges etc.

• Many Enlightenment leaders were part of the political establishment (Peter Gay’s “insider” argument.). Yet when they were not, they could play different powers against one another.


Query: why did Europe have an Enlightenment and others did not?

• China did have some kind of embryonic Enlightenment after the 1644 revolution, but it did not have palpable economic results.

• China in Q’ing (Manchu) period 1644-1912, highly commercialized, monetized, reasonably good property rights.

• Kaozheng movement on the surface had many of the potential effects of the European Enlightenment. Yet it did not bring about any technological changes. WHY? One possible reason: it was suppressed by the Central bureaucracy as subversive and rebellious.


By way of summing-up: Counterfactuals:

1. Had Europe had only institutional Enlightenment and no industrial Enlightenment, it would have looked more like China.

2. Had Europe had only industrial Enlightenment and no institutional Enlightenment, it may have looked (a little) like Latin America or Russia.

But it had BOTH, hence it could progress after 1815.

Fudan University Lecture11 Lectures on Economic History Fudan University December2009 Joel Mokyr...

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