Term 1 Flashcards
Revisionist perspective on GD
Europe = Asia before 1800
No divergence until industrial revolution
Traditionalist perspective on GD
Europe > Asia before 1800
Process of improvement beginning in early modern period
Pomeranz grain wages: what % of European wages were China’s in Yangzi delta region?
87% 16C to 17C
38% 18C to 19C
Why do Broadberry & Gupta say grain wages are unreliable?
W/P for china high due to low prices as a result of excess supply + low nominal wages. Higher prices in Europe deflates nominal wages to similar level. Misleading impression of comparable living standards
Why are silver wages better?
Silver traded internationally = subject to law of one price
Equal prices so differences in real wages reflect different nominal wages = reflect living standards
Two main causes of great divergence
Demographics
Institutions
How was Europe’s democracy different to China’s?
Demographic revolution 250 years before IR: high FAFM & low fertility
Preventative checks in Europe vs. Positive checks China.
How did European demography –> GD?
Preventative checks = confidence & predictability = Investment
Lower BR & DR = higher wage equilibrium = incentive to invest in labour-saving technologies = K technology change
Positive checks China = low wages = no K L substitution effect
How did institutions –> GD?
Olson’s theory of stationary bandits
Stationary bandits > roving bandits (full taxation)
But stationary < democracy (lower tax - see Laffer Curve)
GR 1688 = secure property rights
What were the 3 phases of the European miracle?
Phase 1 = Italy & Portugal
Phase 2 = Holland & England
Phase 3 = English MEG
How was Italy an individualist society w.r.t. Mediterranean trade?
Italian traders captured gains by hiring agents outside organisation + had enforceable contracts = step towards institutions
Collectivist = sent members abroad, fear of punishment = no need for institutions
How does Kuznet define modern economic growth? (6)
- Sustained rates of pop & GDP p.c. Growth
- Structural change
- Urbanisation & secularisation
- Rapid transport & communications
- Wide gaps between rich and poor countries
- High & sustained TFP growth
Causes of European miracle
Good institutions
Agricultural revolution
Empire
(Same as GD but focus in European success)
Why was the IR a revolution? (6)
Agriculture to industry Small to large scale production Rapid TFP growth Investment Capital substituting labour Integration of markets
Causes of IR
- Factor prices
- scientific institutions
- GR 1688
- Agricultural Rev & proto-industry
- Industrious Rev
How did British factor prices lead to IR? (Allen)
High wages, low cost of capital = investment in labour saving technologies
Isocost/isoquant diagram
How did scientific institutions lead to IR? (Mokyr)
Enlightenment 1800
Royal society 1662
Market for innovations saw an increase in supply
What were the 3 phases of the agricultural revolution and dates?
- Yeoman’s (Peasant’s) Rev = 16C/17C
- Landlord’s Rev = 18C (Enclosure)
- 19C Rev = machinery from IR to agriculture
What was enclosure?
Consolidation of small landholdings into larger farms & private ownership of previously common pastures
When were the Enclosure acts?
1750
4 arguments for Enclosure
Overton: economies of scale, draining & proper irrigation
Marx: landless peasants –> cities for IR
Hardin: Tragedy of the commons (public good) = need property rights
3 arguments against Enclosure
Inequality
Huge cost for peasants
Policing of common pasture = no tragedy of commons
What are the 2 opposing arguments regarding the timing of the agricultural revolution?
Neo-Revisionists: growth slowed after 1740
Yeoman’s Rev > landlord’s
Counter/revisionist: growth rapid after 1700
Landlord’s > peasants
Enclosure very important
Demand side argument for AR causing IR
Higher incomes for landlords = higher consumption
Increased efficiency = lower food prices. Due to inelastic demand, excess income spent on industrial goods
Supply side argument for AR causing IR
Broke Malthusian checks with increased food production = population growth = increased labour supply. Landless peasants to industry.
What is pronto industrial rev?
Shift from agriculture to industry occurred before the IR
IR marked rise of modern industry, but not industry as such
How was proto industry different to IR?
Remained decentralised: in homes not factories
Not much capital machinery used in production
3 theories about how proto industry led to IR
- Demographic acceleration model
- Transition to capitalism model
- Dualistic labour supply model
Explain demographic acceleration model w.r.t. how proto industry led to IR
Agriculture seasonal = underemployment
Proto industry = able to earn more income = could marry & support a family sooner = lower FAFM & higher fertility
Population boom = cheap labour to cities for IR
Explain the transition to capitalism model w.r.t. how proto industry led to IR
Created an entrepreneurial class with skills & business training Workers better training to operate machines Proto industrial exports established trade = first mover advantage
Explain the dualistic labour supply model w.r.t. how proto industry led to IR
Lewis: surplus labour from traditional to modern sector
Here traditional = proto industry
Modern = modern industry
Surplus Labour to modern industry for IR without demanding higher wages = profitable = investment in K
Criticism of dualistic labour supply model on how proto industry led to IR
Allen shows high wages in Britain led to IR by incentivising capital investment, so wages not low.
What other revolutions is argued to have caused the industrious revolution?
Consumer revolution –> industrious revolution
What was the consumer Rev?
Households demand for status goods and luxury imports rose
Earning opportunities for women & children increased purchasing power
Great discoveries e..g America –> increased variety of goods
What was the industrious Rev?
Wages flat/declining but wanted to consume work = worked longer hours, more work less leisure.
Holidays abolished e.g. Saint Monday & 49 holy days in 16C
Why do critics argue there was no consumer Rev?
Hours worked only increased to maintain SoL due to declining real wages = not due to consumerism
Why do critics argue that there was no industrious Rev?
Hours worked already high in Middle Ages
Women active in LF in 14C as response to Black Death & remained due to sticky preferences.
Women & children made up small share of income in 19C
Between which dates did British empire come about & exist?
1700-1820
What did Adam smith believe about empire?
Colonies were a burden and crowded out higher return non-colonial investment = don’t explain IR
2 examples of early colonies
- 13 colonies (East Coast America) & Navigation Acts
2. British West Indies & Sugar
What were enumerated goods? What % of exports from americas were enumerated?
Exports from Americas had to go through England before going elsewhere, and subject to a customs tax in Britain.
76% exports enumerated
How did enumeration of exports impact American producers?
Loss of PS - greater wedge between American & final price in Europe as going through England increased transport costs = lower quantities and prices for American producers
How did enumeration of imports affect American consumers?
Led to higher final price in America and lower quantities = loss of consumer surplus
What percentage of imports to America were enumerated?
75% of imports came from England
How did colonies benefit? (2)
Defence and protection paid for by Britain
Bounties - subsidies to produce goods otherwise inefficient e.g. Indigo = gain in PS
How much of per capita national income were subsidies to 13 colonies ?
<1% of p.c. National income
What was the rate of return on BWI investments compared to British?
BWI = 2% RR vs. GB bonds 3.5% (Thomas)
How could Britain have benefitted from BWI sugar?
If import price of sugar from BWI to Britain < world price, gain in profit
What was the triangular trade?
UK to Africa: manufactured goods
Africa to Americas: slaves
Americas to UK: raw materials
What is the Williams thesis? W.r.t how slave trade impact European growth
Slave trade = more profits for plantation owners (due to full capacity utilisation & free labour) = higher incomes = consume more UK exports
What are the 3 exploitation Theories?
- Dependency theory
- World systems theory
- Staples thesis
4 aspects of dependency theory
- exploitation: resource extraction & exports
- core/periphery relation
- the resource curve
- primary product dependency & prebisch singer
3 systems in world systems theory
Mini systems
World empire
World economies
What are staples?
Commodities which dominate a country’s exports
5 aspects of staples thesis
- geographical determinism
- core / periphery
- linkages: backwards, forwards, final demand
- vent for surplus
- imbalanced / balanced growth
Explain the 3 types of linkages in the staples thesis
Backwards e.g. Infrastructure- transport & communications
Forwards e.g. Manufactures using staples as an input
Final demand - staples related income spent on domestic consumer goods
What is vent for surplus in staples thesis?
Labour surplus in old region goes to new region where increasing returns
Catch up growth - convergence of regions
What is balanced growth in staples thesis?
Spillover effects from staple
Diversification
Industrialisation outside staples
Periphery becomes core
Name two pessimists in the real wage debate
Feinstein & Allen
Name 2 optimists in the real wage debate
Lindert & Williamson
Clark
What are Lindert & Williamson’s findings on real wage debate?
Before mid18C nominal wage gains eaten up by rising prices
Real wages double from mid-18C to mid-19C
= confirms optimists
What 5 issues with previous estimations of a cost of living index do L&W correct?
- Using wholesale not consumer prices
- Using Organisation prices not family prices
- Using London prices not regional
- Inaccurate basket of goods with zero weight for rent, including industrial raw materials
- Basket not diverse for urban/rural and north/south
What revisions does Feinstein make to L&W work & what are the conclusions?
Change nominal wage: include women & children, cover 80% LF, include payments in kind
Change price index: wheat overweighted, rent only based on small sample
Result = wage increase after mid-18C less impressive
How does Clark change Feinstein’s work and what does he conclude about real wages?
Change farm workers nominal wages & uses rural prices
New price data & uses Geometric not Laspeyres price index
Results = higher real wage increase that Feinstein, but less than L&W
What does Allen conclude about Feinstein’s vs. Clark’s work on real wages?
Clark problems: bread weight too low, not enough carbs, salt, spices & tobacco should be 0% not 1% each, food price series very wrong, light price series wrong to base on gas as not used in households yet.
Result = Feinstein is correct
What is Engel’s Pause?
A term used by Allen to describe the gap between growth in output per work & real wage growth in first half of 19C = labour doesn’t see the benefits of growth
How can we use height to Measure SOL?
If final height < growth trajectory = stunted growth = sign or poor net nutritional status = poor SOL
Nicholas & Oxley’s evidence on heights & SOL
Use data on convicts to Australia
Includes women
Use Irish as a control since not industrialised
Heights decrease for English over IR, not Irish
Rural heights > urban heights
But fall in rural heights greater than fall in urban.
Heights rise after 1850 = LR Gains
What does energy cost accounting reveal about British SOL during IR?
Food consumption vs energy constraints (work)
Adult male needed 3500 kcal for heavy work
Hours worked increased by 600 in a year
Calories fell 3000 to <2500 across IR
How does mortality data confirm pessimist view about SOL?
Life expectancy 35 in cities vs 41 nationally
IMR rose from 151 to 172 per 1000 1813-1831
Worse in industrial areas
3 criticisms of using anthropometrics as a measure of SOL
- Doesn’t include migration - SOL impact especially children in first 5 years of life
- Changes in height may be unrelated to SOL
- Assume people prefer better health: sometimes sacrifice health for utility e.g. Tobacco, alcohol, chocolate
What are the optimist and pessimist arguments in child labour as a measure of SOL?
Pessimist - child labour a response to low earnings = shows low SOL
optimists - child labour -> higher earnings meaning consumer Rev possible = higher SOL
Explain the child labour equilibrium model & how it supports pessimist view on SOL
Assumptions: luxury axiom (parents only make children work if necessary) and substitution axiom - children Lower productivity lower wage workers.
3 equilibriums:
- E1: If W>S, zero child labour so SL = N adults
- E3: If W
4 reasons why child labour increased in IR
- Partially mechanised technology = children suitable for small tasks. Comparative advantage for children e.g. As “hurriers’ in mines
- Fatherless families due to French wars & low LE
- Engel’s Pause
- Lack of protective laws
4 possible reasons for decline in child labour
- Legislation: Factory Acts 1830s/40s = under 8s banned & work 6.5 hours max a day
- Tech change = full mechanisation = no demand for child labour
- education opportunities = higher returns to school than work
- Engel’s Pause ends = W>S = children no longer need to work out of necessity
When was the Victorian era?
1837-1901
When was the second IR?
1870-1914
What period do we classify as mid-Victorian success?
1850s to 1870s
What period do we classify as late Victorian failure?
1870s to WWI (this is actually late Victorian to early Edwardian period)
6 British causes of Victorian failure
- overcommitment in first IR
- Too much K abroad
- Banking failure
- Education failure
- Entrepreneurial failure
- Business / labour market failures
How did K outflows cause Victorian failure?
K abroad = opportunity cost in terms of domestic investment opportunities
Social benefits > private benefits of investing at home. Investors ignore positive externality = underinvestment = market failure
Higher private returns abroad
How did banking failure lead to Victorian failure?
‘Money back on demand’ = lack of LR loans
Concentrated banking industry = less lending & flexibility
Stock markets price out small/medium firms: issues £1M or more only
K markets biased against new industries: lack of info = no loan
How did entrepreneurial failure lead to Victorian failure?
Aldcroft thesis:
- Technological failures: didn’t use best tech nor innovate
- Production failures - bespoke designs for cars, not Standard = no assembly line
- Sales & marketing failures - lack of specialised divisions
Business market failures –> Victorian failure (3)
Lots of family firms vs industrial oligopoly US & Germany
Small market share = no economies of scale
Limited management hierarchy
Labour market issues –> Victorian failure (2)
High unionisation 44% adult males
Constrained full mechanisation = lower productivity
What was ASM?
American system of manufacturing
Assembly line, large scale, standardised goods, K intensive, division of operations
6 causes of the rise of USA
- US wages high, K and resources cheap
- Institutions
- British K to US
- European migrants
- Education
- Tariffs
How did institutions contribute to rise of USA?
US dominance in resource extraction, not in resource endowments = required investment in extraction, transportation, geological knowledge & tech
What is the Habakkuk thesis w.r.t. Rise of USA?
Land abundance + labour scarcity –> labour saving innovations –> K accumulation & tech change
How did access to British capital lead to rise of USA?
Indispensability theory: railways indispensable to US success
40% GB foreign K in railroads
Lots of K to US (as well as empire)
How did European migration lead to rise of US?
Direct impacts - more productive, make K more scarce relative to L = more K accumulation
Indirect - need for more secure property rights (Homestead act 1862), democratic voting and education and welfare system
How was US education superior in late Victorian period?
Higher general education (primary enrolment & literacy) = LR gains vs low educated by skilled at operating machines British
Science & maths = key for second IR industries (chemicals, engineering)
How did Tariffs lead to rise of US?
Infant industry argument for protectionism = inefficient domestic industries develop
Tariffs >50%
No British retaliation - free trade after corn laws = few SR losses
Tariffs revenue & attract FDI as alternative to export
