The Age of Discovery
Growing incomes after 1500 had little to do with replacing technology, however. If the Malthusian model provides a reasonable approximation of economic life before 1500, the next two centuries in Britain and the Dutch Republic are better characterized by the intuitions of Adam Smith. The great geographical discoveries—following the explorations of da Gama, Columbus, Magellan, and others—constituted the beginnings of an era of sustained Smithian growth. Trade emerged across continents, and new goods were discovered and consumed that had previously been unknown: colonial goods like sugar, spices, tea, tobacco, and rice—to name a few—were shipped distances that mankind had once not known existed. Though empirical evidence on the rise of international trade is sparse, data for the period 1622–1700 shows that British imports and exports doubled. The growing importance of trade is similarly suggested by the rapid expansion of shipping. Between 1470 and the early nineteenth century, the merchant fleet of Western Europe grew sevenfold.28 As many of the colonial goods and other imports became attainable for a growing share of the population, people started to drink more tea, often sweetened with sugar; bought more luxurious clothing; and discovered new spices for their meals. The Industrial Revolution was thus preceded by a consumer revolution that created new desires and incentivized people to work harder to acquire the many newly available colonial goods.29
On the supply side, the surge in trade promoted industrial development. Many of the first factory builders in Britain were merchants taking advantage of the expansion of trade.30 While the traditional crafts of the Middle Ages were largely practiced to make products for local markets, a growing entrepreneurial merchant class facilitated the emergence of rural industries to make items for export to other regions and foreign countries—a process for which the economic historian Franklin Mendels has coined the term “proto-industrialization.”31 The prominence of these industries is evident from statistical information. Following Gregory King’s famous 1688 publication on the state and condition of England, historians long debated why Britain’s trading economy was not reflected in the labor market statistics. According to King’s estimates, only approximately 8 percent of the workforce were merchants or artisans. However, revisions of these estimates by Peter Lindert and Jeffrey Williamson, two economic historians, show that these numbers were in fact substantially higher: the number of traders, shopkeepers, and artisans amounted to 384,000, constituting roughly 28 percent of the labor force. Even though agriculture was still the predominant activity, Britain was dynamic for a preindustrial economy.32
While the age of discovery was not a time of economic wonders, most available evidence suggests that the British economy was growing. According to Maddison’s estimates, growth rates in Britain between 1500 and 1800 averaged 0.22 percent per year.33 Although estimates of preindustrial growth in 1990 prices inevitably rely on broad assumptions, different approaches relying on other data sources have yielded similar growth rates.34 Skeptics may not be convinced by the assumptions underlying these estimates either, but it is telling that by the eighteenth century contemporary writers had no doubt that Britain was a relatively wealthy country. Daniel Defoe—best known for his novel Robinson Crusoe—wrote extensive accounts of his travels across preindustrial Britain. In A Tour through the Whole Island of Great Britain, published in 1724, he observes that “labor is dear, wages high, no man works for bread and water now; our laborers do not work in the road, and drink in the brook; so that as rich as we are, it would exhaust the whole nation to build the edifices, the causeways, the aqueducts, lines, castles, fortifications, and other public works, which the Romans built with very little expense.”35 And he was not the only eighteenth-century observer left impressed by the wealth of Britain. Smith’s descriptions of North America suggest that “labour is there so well rewarded, that a numerous family of children, instead of being a burden, is a source of opulence and prosperity to the parents [even though] North America is not yet so rich as England.” The fact that the eighteenth-century Englishman was richer than people in previous generations is similarly suggested by Smith’s assertion that “the annual produce of the land and labour of England … is certainly much greater than it was a little more than a century ago, at the restoration of Charles II[, and] was certainly much greater at the Restoration than we can suppose it to have been about a hundred years before, at the accession of Elizabeth.”36
It is thus evident that although the picture painted of Britain in Jane Austen’s writings mirrored economic reality in the sense that the wealth of the landed classes dwarfed industrial capital, economic life was changing.37 Over the course of the eighteenth century, the share of land in total wealth had fallen significantly, and a wide range of new occupations had appeared, typically associated with the emergence of a new commercial and manufacturing class—referred to by Defoe as “the middle sort of mankind, grown wealthy by trade.”38 The economic structure of Britain was in many ways still a legacy of the Neolithic revolution, but the parallel rise of international trade meant that a growing share of the population benefited from growth. Moreover, because the commercial bourgeoisie for the first time had a higher fertility rate than the poor, the middle classes expanded rapidly, and any social mobility tended to be downward rather than upward.39 This expansion was key to subsequent economic development. Middle-class families worked in occupations that required them to acquire skills rather than spend all of their time on costly leisure activities, while landed families could rely on income from capital to cultivate their refined taste for leisure and literature. This difference in mentality and ability is well captured by Smith, who suggests that “a merchant is accustomed to employ his money chiefly in profitable projects; whereas a mere country gentleman is accustomed to employ it chiefly in expense.”40 Because the investments parents make in their children’s education and upbringing hinges upon the work they are expected to do, the bourgeoisie’s work ethic was typically effectively transmitted to the next generation along with the “spirit of capitalism.”41
The “bourgeois virtues,” as the economic historian Deirdre McCloskey has called them, consisted of thrift, honesty, and diligence.42 These virtues allowed them to accomplish the unprecedented. In The Communist Manifesto, even Karl Marx and Friedrich Engels alluded to the distinctiveness of this class, pointing out that the bourgeoisie “has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing the Egyptian pyramids, Roman aqueducts, and Gothic cathedrals.”43 Indeed, the leading figures of the Industrial Revolution typically came from families that were already in some way involved in commercial and industrial activities. The historian François Crouzet’s seminal compilation of information about 226 founders of large industrial undertakings whose fathers’ occupations were known shows that some came from gentry and working-class backgrounds. Yet over 70 percent were born into middle-class families, of which a substantial share had made their fortunes in trade and commerce.44 The intuition of Marx—that modern capitalism began during the Renaissance with the discovery of the New World—thus holds true.
However, the dynamism of preindustrial Britain should not be overstated. Though the agricultural share of employment had already fallen by 1700, as the emergence of small-scale industries led to an unprecedented expansion of Britain’s trading economy, the distinction between agriculture and manufacturing before the Industrial Revolution was not clear-cut in practice. The rural industries that emerged were typically an off-season activity. Many of the workers living in the hinterland were both farmers and manufacturers. During the winter months, when agricultural work was not as plentiful, they engaged in spinning and weaving. Defoe characterizes the manufacturer as someone who had one horse to bring food and wool to the spinner and another to transport the clothing to market, while cows grazed on the land around his home.45 While agriculture was not his main occupation, part of his living was derived from the land, which ensured his independence. In this so-called domestic sys
tem, there was no sharp distinction between the household, farm, and firm. Only around 30 percent of workers in early eighteenth-century Britain earned wages at some point. The vast majority remained self-employed, meaning that rural industries mainly consisted of small workshops, and even waged workers predominantly worked in their own homes. The prevalence of the “domestic system” meant that manufacturing—for the most part—remained “an industry without industrialists,” in Crouzet’s words.46
3
WHY MECHANIZATION FAILED
Why was Schumpeterian growth largely absent for so long? No single theory can explain why technological creativity failed to achieve higher standards of living for the commoner over thousands of years. The Malthusian trap is part of the explanation: productivity gains translated into larger populations and thus constrained income growth in per capita terms. But the world was not all Malthusian: from 1500 onward, standards of living did improve, and the age of discovery created sustained improvements in living standards for most people in Britain and the Dutch Republic. This would not have been possible without breakthroughs in technology. The rise of international trade was enabled by advances in shipbuilding and navigation, such as the three-master ship and the mariner’s compass. Yet these technological advances did little to foster Schumpeterian growth—instead, they were levers of Smithian growth. Economic growth in the preindustrial world was thus not only quantitatively slower but also qualitatively different from what we regard as modern economic growth.1 Growth in our own age relies heavily on technology adoption, creative destruction in employment, and new skills and knowledge that allow further innovations to emerge. Although the preindustrial world clearly did experience some of this kind of growth, it played only a secondary role in shaping the divergent economic trajectories in Europe. The real puzzle, therefore, is why technological creativity (which clearly flourished from time to time) did little to fundamentally alter economic life. Of course, the simple answer is that technological creativity is a prerequisite for growth, but not a sufficient condition. Technical ideas need to be translated into reliable blueprints and prototypes, which in turn need to find an application in production, to have any impact on productivity and prosperity. The preindustrial era did not suffer from a shortage of imagination, it suffered from a shortage of realization. Leonardo da Vinci—the paradigmatic inventor of the preindustrial world—made drawings of hundreds of inventions, but he made hardly any effort to turn them into functioning prototypes. And numerous inventions that were turned into prototypes, such as Cornelis Drebbel’s submarine, were not developed further. Even when applications were found, inventions often served political rather than economic purposes. Rulers of the Roman Empire, for example, directed technological efforts toward building grand structures to increase their popularity.
To be sure, for most of human history, technological advances did not take place within research and development departments focusing on finding a technical solution to a particular engineering problem. Technological development was organized very differently from how it is structured today, if it was organized at all. The importance of close collaboration between scientists and engineers for directing an idea toward the right application almost goes without saying today. But such collaboration was very rare in preindustrial times. The scientific revolution—which began with Galileo—assuredly facilitated more such interaction and later technological developments. In particular, the discovery of atmospheric pressure was essential for the development of the steam engine that eventually replaced water power as the engine of the Industrial Revolution. Yet other technologies of the Industrial Revolution could have been invented and put into widespread use without advances in science. So why were they not?
Broadly speaking, there are two strands of explanations. While some scholars have emphasized constraints on the supply of technology, others have pointed at limited demand. Joseph Schumpeter believed that for a given technology to be adopted, some kind of need must exist.2 This was also the view of Thomas Malthus, who reckoned that “necessity has been with great truth called the mother of invention. Some of the noblest exertions of the human mind have been set in motion by the necessity of satisfying the wants of the body.”3 A number of examples of technological developments since the Industrial Revolution that conform to this view spring to mind, including the Manhattan Project, set up by the U.S. government to develop an atomic bomb before Nazi Germany could do so; the steam engine developed by Thomas Savery to pump water out of British coal mines; and the interchangeable parts pioneered by Eli Whitney to “substitute correct and effective operations of machinery for the skill of the artist which is acquired only by long practice and experience; a species of skill which is not possessed in this country to any considerable extent.”4
To return to the preindustrial world, most demand-driven explanations of the lack of preindustrial growth tend to emphasize the fact that labor-saving technologies, which allow us to produce more with less, make economic sense only if capital is relatively cheap compared to labor. Possibly that was rarely the case in preindustrial times. In the context of classical civilizations, for example, the historian Samuel Lilley has argued that slaves were cheaper than machines, which provided few incentives to developing and adopt expensive machinery.5 To push this argument slightly further, slaves were in many ways the robots of preindustrial times. In Hungary, unpaid serfs working on behalf of a feudal lord were called robotnik: this gave rise to the modern word “robot,” which first appeared in Karel Čapek’s famous play R.U.R. in 1921.6 Slaves were able to perform just about any mundane manual task that one can think of, and they were certainly capable of performing a much wider set of physical tasks than can be accomplished by any robot technology today.
The view that slavery retarded technological development during the classical period is nonetheless highly controversial, and to extrapolate this intuition from classical times to all preindustrial societies would certainly be a stretch. Slavery in the Roman Empire had largely vanished by the end of the second century A.D. Yet the end of Roman slavery was the beginning of serfdom rather than freedom. Unlike slaves, serfs were allowed to retain some of the product of their labor, but like slaves, they were subject to many restrictions that ensured a steady supply of labor and exerted downward pressure on wages. Though the Black Death of 1348 produced labor shortages that ended serfdom in Britain, the government introduced legislation to prevent wages from rising, with long-lasting effects. And globally, slavery and serfdom persisted much longer. Even in 1772, four years before the American Declaration of Independence, estimates by Arthur Young suggest that only 4 percent of the world’s population was free.7 The remaining 96 percent were slaves, serfs, independent servants, or vassals.
While it is hard to say to what extent slavery might have retarded mechanization, the key question is not whether slavery (or serfdom) per se hindered the adoption of labor-replacing technology: incentives to mechanize hinge not on the freedom of the worker but on the price of labor, which remained low in preindustrial societies. The association between the abundance of cheap labor and slower mechanization is persuasively shown by a recent study, albeit in a modern setting.8 In the American South, the long presence of slavery meant that agriculture had remained highly labor-intensive. Even though the slaves were emancipated during the Civil War, the wages of the black population remained low. The Mississippi’s flooding in 1927 was the triggering event that put some counties in the American South on different trajectories from others, because many black families left the flooded areas in search of work elsewhere. Unable to prevent the loss of black labor, planters in flooded areas moved toward greater capital intensity and mechanization, relative to the unaffected areas—where cheap labor remained plentiful.
There are thus good reasons to believe that relatively cheap labor in preindustrial times created fewer incentives to put worker-replacing technologies into widespread use. In fact, Robert Allen has argued that the reason why the Industrial Revolution began
in Britain is that at its onset, it was not economical anywhere else.9 The path to the British Industrial Revolution, Allen suggests, began with the Black Death, which caused a long period of population decline and produced labor shortages that increased the bargaining power of workers.10 As peasants demanded freedom instead of serfdom, wages eventually began to rise, even though legislation was put in place to hold the price of labor down. Following Britain’s success in trade during the age of discovery, wages began to grow faster. This success came with new challenges: given its high labor costs, how would Britain remain competitive in trade? The critical factor, Allen argues, was that British industrialists were fortunate enough to be sitting on a mountain of coal.11 The early emergence of the coal industry was what distinguished Britain from other high-wage economies like the Dutch Republic. Facing low energy prices and high labor costs, British industry began to adopt machines that would not have been cost-effective elsewhere. But while such an explanation may seem appealing, newly collected data suggest that British wages did not grow as rapidly as previously thought.12 What’s more, even if we assume that wages in Britain were relatively high, early labor-saving technologies, like William Lee’s stocking-frame knitting machine and the gig mill, were developed long before the Industrial Revolution but were vehemently opposed.
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