Vorlesung Teil 2: Industrial Revolution Flashcards
1
Q
Malthusian Cycle
A
- was a Problem before IR
- Malthusian cycle: with bad nutrition (output per head is decreasing) the birth rate declines, and the death rate increases. If nutrition is better (output per head is increasing), the death rate decreases (immediately) and the birth rate increases (long term). Economy was always collapsing when the population could not be fed adequately because there was not enough nutrition (output is less than population growth). Production is limited by the m2 in an agricultural society!
- In the IR GDP per head was growing faster than the population FOR THE FIRST TIME!
- > Malthusian regime was stopped
2
Q
General Background
A
- Developement in NL/Beligum, France and GB was similar to Germany, but there was no 30-year-war
- Conflicts that resulted out of religion became the basis of the 30-year-war
- The highest developed country back then was NL
- highest GDP/head but no industrialization
- they invented the flute and were faster in moving commodities
- > therefore commodities were in a much better condition
- they also invented the canal system (importan investment into infra structure)
- > was copied by the british
3
Q
Economization of agriculture & Enclosure Movement:
A
- Serfdom disappeared, since serfs led to high costs but low output (masters had to take care of their serfs (nutrition, medical care etc.) -> people from the labor market were much cheaper than serfs, so why would a capitalist hire a serf?
-
Enclosure movement
- to increase profit capitalists privatized the Almende land (hunting, fishing, forestry), which was converted into sheep-run (schafweide)
- Other people on the country side who once used the Almende land as a common good, now had nothing left but their ability to work and became proletarians
-
Gentry (Adel, niederer Adel), were “capitalistic” farmers producing for markets
- they leased land from the landowner (higher aristocracy or rich landlords), hired workers and began to maximize their profit
- They had interest in technological progress (cost-reduction) to increase land productivity -> Seed-Drill (Jethro Tull, 1708), crop rotation system, cattle breeding
All these factors led to the AGRARIAN/GREEN REVOLUTION
- was prequisite for URBANIZATION and INDUSTRIALIZATION in GB, because less people were needed in agriculter and were free to work in other areas
- people working in agriculture were decreasing, but output was increasing
4
Q
French Revolution
A
- Happened in France because British people had a wage that was 3 times the wage rate of France
- British capitalist production was far more profitable than the aristocratic system in France
- The price of wheat got fixed in France, so the price was low
- > They wanted to support poor people (only works short run)
- > Corn didn’t get produced which led to a short supply
- In GB the price of corn was high and a lot of land was used to produce corn
- > therefore they had enough
- > people didn’t starve
- > nor Revolution
5
Q
Why did the IR start in England rather than NL?
A
Spread of IR:
- GB
- Belgium
- Western Germany
- Northern France
- Switzerland
- The Netherlands were already **in the lead, focused on trade
- > HAD NO INCENTIVE TO INVENT**
-
England on the other hand
- began to focus on technological progress
- Serfom vanished, but due to wars and diseases (black death) the workforce was low
- *-> high wages -> incentive to invent**
- **The market for labor market became a free market
- > Internal dissolution of the feudal system
- > Gentry System (system of capitalists)**
-
INSTITUTIONS BECAME MORE INCLUSIVE
- **Bill of Rights (1689)
-
INSTITUTIONS BECAME MORE INCLUSIVE
- **Parliament has more power than the rich
- Beginning of constitutional monarchy
- First step to bridle the “Leviathan”
- > led to liberalism and democracy
* Principle of legal certainty and protection of private property- Baconian program, which was very practical, less theoretical: Science in the service of practical lfie
All these factors are different from the rest of Europe
Another Precondition for the 2nd Wave of IR (railway system) in Britain:
- Britain had vast amounts of iron ore which helped to produce steel and iron -> led to TECHNOLOGICAL PROGRESS and eventually the IR
- railway construction required huge amounts of capital
- *-> there was a need to finance capital and wages
- > banks became more important
- > GB superseded NL as a capital market**
6
Q
Other Drivers of the IR
A
Enlightenment was the basis of technological progress
- Scotts: fostered education supported by the protestant church
- Germans: fostered philosophy
- Netherlands fostered mathematics
- GB: fostered science to use it for practical things (Baconian Program)
7
Q
Why The IR really was a REVOLUTION
A
The IR took almost 150 years, but it changed the whole life of human beings:
- from agriculture to industry (before 90% of the population depended on agriculture)
- from livinf on the land to livin in the city
- from a smooth and quiet life to a fast and coordinated life (determined by clocks and the railway system)
8
Q
Intellecutual Origins of economic Growth
A
- Enlightenment in Western Europe (F, GB, NL, G), focused on the freedom of individual action and on the freedom of ideas (Hume, Smith, Kant)
- Baconian Program (from Sir Francis Bcon) assumed that the main purpose of knowledge was to improve mankind’s condition and not the satisfaction of the creator to illustrate his wisdom
- Mechanics, Engineering, Mathematics and Botany contributed to the improvement of production
9
Q
Components and Determinants of Access Costs
A
Lower access costs made it possible for investors to tap the knowledge in which new techniques are based.
Components of Access Costs:
- Cost of finding a person who possessed the relevant knowledge
- Finding the lowes-cost supplier
- Aquiring cost
- Cost of verifying the knowledge
Determinants of Access Costs:
- costs of sotring, coding and transmitting knowlege
- language and terminology
- “open source” knowledge (social and cultural=
- organizations which channel knowledge (schools etc.)
- did markets exist (economic factors)?
10
Q
Why Europe not china?
A
- Population was high in China -> low wages, no incentive to invent
- Europe had a moderate rate of population growth due to their marriage pattern (average rate of marriage in the west was 23 for women and 26 for men; only about half of the women between 15-50 were married, the rest were widows or spinsters; in the east it was about 70%)
- > higher wages -> incentive to invent
- China had no Baconian Program, no Enlightenment, no experimental approach to science
- No difference in work ethic and parsimony, climate and geographical conditions
- only difference, besides wages and population is rice vs. corn -> different mill technologies?
11
Q
Germany, a late bloomer
A
- Some older books argue, that the 30-year-war was the main reason, that german territories laggend in industrialization, because the focus of the Trade had moved from northern Italy to NL/B and north-south trade diminished
- However, the main causes were of different kind
-
Namely = German territories were extremely inhomogeneous under the time span of consideration
- Geographical characteristics differed
- Cultural and ethnical difference (i.e. religion, ethnical groups)
- Different institutions, law systems, different feudal system in the east
- Economic differences (different customs and tariffs, taxes and currencies)
- Also there 314 political indepent territories
- France and GB on the other hand were politically and territorially united
- While German territories were underdeveloped in agriculture, in railway construction they were rapid followers of GB
- Human capital factors like studies of polytechnics (1830) and later engineering ones (1877) were established in the 19th century in Germany
- They did not produce textiles, but iron and steel and had a big pharmacy (I.G. Farben) and electricity (AEG & SIEMENS) sector
- Germany was fast in catching up, got ahed of GB in most industries, but not ahead of the USA
- USA replaced GBs leadership in the turn from the 19th to the 20th century
12
Q
From the Industrial Revolution to the long depression
A
- At the beginning of the 1870s a sharp decrease of investment led to a fall in aggregate demand
- -> recession in all developed countries
- In Germany 30 years of liberalism ended
- Since 1871 cartelization became a governmental strategy, supported by prussian aristocracy and big steel barons (Krupp)
- Britain’s economic downfall took it’s way
- The second wave of globilization (telegraph and telephone) petered out and protectionism increased
- With the WW1 the IR and globalization were brought to an end
- Since there were permanent boundary disputes and battles as well as serious wars, a lot of taxes went into military expenses
- Maybe that is why Germany has so much industry now?
- Three sector hypothesis: The three-sector hypothesis describes that the focus of economic activity shifts first from the primary economic sector (extraction of raw materials), to the secondary (processing of raw materials) and then to the tertiary sector (services).
13
Q
After WW1 (1914-1918)
A
After WW1 Europe was in econimical debt (sorry state)
- Economy stagnated at a moderate rate
- At that time: second wave of globalization (first one was Columbus)
- Spread of information trough the telegraph and later telephone
- Stagnation as well as financial disasters caused by overinvestmens and speculation in the stock market accompanied the globalization
- Collapse of international trade and division of labor -> all economies suffered
- Also “planning” is a big problem! (“Planwirtschaft” whcih is originated by Walter Rathenau)
- In the course of the First World War, Rathenau designed the economic model of the centrally controlled modern planned economy. In his view, the free market economy had failed under the conditions of the war, with huge profits facing social misery.**The Russian communist politician and revolutionary Lenin took Rathenau’s model of the planned economy as his model.*
- **System of the gold standard was falling apart
- > Led to a collapse in international trade and reduction of international division of labor**
- > Most european countries experience inflation and hyperinflation
- USA becomes leading economic country!!
- Russia became communistic because of the OCTOBER REVOLUTION (1917)
- The October Revolution was the violent takeover of power by the communist Bolsheviks (= radical political faction) led by Lenin*
- Competition between two economic systems (planned economies vs. market economies)
14
Q
After the Versailles Treaty (1919)
A
- Hyperinflation took it’s course
- Germany had to pay reparations, which were one cause of the high inflation
- France and GB had considerable debt, lost generations and particularly France suffered from destructions of buildings, railways and land
15
Q
The Golden Twenties (1920s obviously)
A
Germany:
The Golden Twenties in Germany is often referred to as a borrowed time, meaning that this time of exploring the arts, humanities, freedom, and financial stability was atypical and would soon end. The United States were the only country to come out of World War I without debt or reparations to pay. Germany owed a gross sum and had to take a loan from the US just to survive. No one had any hint that there would be a stock market crash with worldwide repercussions and that this crash would ruin Germany and set the stage for Hitler to come into power. Thus, the expression of a “borrowed time” came to be.
GB:
- tried quickly to return to the gold standard according to the parity (Gleichsetzung) ruling before WW1
- Problem of the gold standard:
- > all currencies are fixed in gold
- > if a country had a trade surplus (exp > imp), there was gold flowing in
- > if a country had a negative trade balance (imp > exp), there was gold flowing out
- > but gold was necessary tu function as a state!!
- The gold standard is a monetary regime (also called gold currency) in which the currency is either gold coins or banknotes representing a claim to gold that can be exchanged for gold.**However, a gold standard also exists when a central bank guarantees a fixed exchange rate of its currency in banknotes to gold.* With the beginning of the First World War, the obligation to redeem notes in gold was abolished in the states at war. In 1925 the then British Finance Minister Winston Churchill decided to return to the gold standard, which had been suspended in 1914. The introduction of the gold standard at pre-war parity was equivalent to a strong appreciation of the pound sterling, as England had also financed part of the war costs through money creation. John Maynard Keynes pointed out that - with a nominally identical pre-war exchange rate, especially against the US dollar, which was also gold-backed - British goods became about 10% more expensive than foreign goods.
- Result was Deflation (til 1933)! and high rate of unemployment
- IMP > EXP -> british goods were much more expansive
- Additionallly “old” industries and “old” products led to diminishing international trade
France:
- Moderate Inflation
- North and northwestern France were distroyed
- French industry recovered fast -> new firms in the automobile sector (Citroen, Renault)
- GDP was growing (from 1924 - 1929)
