However, the Luddites were no more successful than their predecessors, except in forcing the British government to deploy ever more troops against them (see the introduction). Hence, the political situation of workers remained one of despair. When the Luddite riots broke out, another Parliamentary committee heard petitions for relief from the cotton workers and reported to Parliament in 1812. The report makes clear that the government would do nothing to put Britain at a disadvantage in international trade, even if it meant that workers suffered: “While the Committee fully acknowledge and most deeply lament the great distress of numbers of persons engaged in the cotton manufacture, they are of opinion that [there should be] no interference of the legislature with the freedom of trade.”64 Lord Liverpool, who became prime minister that year, was even of the view that any temporary aid to workers who were made redundant would only impede their redeployment, to the detriment of the British economy. In a letter sent to Liverpool, Lord Kenyon explained that even though he did not expect the conditions of the working classes to improve as a result of the acceleration in mechanization, the government should not seek to counteract the force of technology.65 Indeed, in 1812 and 1813, more than thirty Luddites were hanged.66
As many historians have noted, the machinery riots of the Industrial Revolution were not just the result of workers fearing displacement and unemployment because of technological advances. The fact that incidents in which workers raged against machines became increasingly common during the Napoleonic War and the continental blockade of 1806 suggests that other significant factors contributed to social unrest. Beyond cyclical economic downturns caused by war and disruptions to trade, the smashing of machinery was an expression of dissatisfaction with deteriorating incomes; long working hours; and the lack of suffrage, freedom, and dignity. In some cases people rioted against the factory system as such, not just against the spread of machines. The relative importance of these factors in explaining the many machinery riots is hard to disentangle, especially since some of them are intimately intertwined. Nonetheless, there are clear cases when workers particularly targeted machines they considered to be the cause of their misfortunes. In Lancashire, spinners spared spinning jennies with twenty-four or fewer spindles, while larger ones were destroyed. Moreover, rioters at times smashed machines that had nothing to do with the factory system. The “Captain Swing” riots that broke out in 1830 included more than two thousand riots across Britain that solely targeted agricultural machines. Between September and the end of November 1830, 492 machines were destroyed, the vast majority of which were threshing machines.67 Again, the British government took a stern line and ordered the army as well as local militias to take action against any rioters; 252 death sentences were passed, though some sentenced to death were instead deported to Australia or New Zealand.68 While historians have long debated the causes of the Captain Swing disturbances, Bruno Caprettini and Hans-Joachim Voth, two economic historians, have shed new light on the matter, using newly compiled data on the diffusion of threshing machines. Their finding is intuitive: worker-replacing technology was the key determinant of the probability of unrest.69 Where machines were adopted, the probability of riots was around 50 percent higher. Hence, although the smashing of machines in some cases might have reflected general economic and social dissatisfaction among workers, the statistical evidence on the matter suggests that machines themselves were the key cause of the workers’ concerns.
Engels’s Pause
The observation of Engels that industrialists “grow rich on the misery of the mass of wage earners” was largely accurate for the period he observed. While working people rioted against the mechanized factory, the British economy experienced a period of unprecedented growth. From the viewpoint of economic theory, it is a challenge to square stagnant or even falling real wages with a growing economy. But in the light of current economic trends, economists have developed models that show how wages and the labor share of income can fall as technology progresses.70 As we shall see, these are also helpful in understanding the classic period of the Industrial Revolution. If technology replaces labor in existing tasks, wages and the share of national income accruing to labor may fall. If, in contrast, technological change is augmenting labor, it will make workers more productive in existing tasks or create entirely new labor-intensive activities, thereby increasing the demand for labor. The divergence between output and wages, in other words, is consistent with this being a period where technology was primarily replacing. Artisan workers in the domestic system were replaced by machines, often tended by children—who had very little bargaining power and often worked without wages. The growing capital share of income meant that the gains from technological progress were very unequally distributed: corporate profits were captured by industrialists, who reinvested them in factories and machines. This was the period that Allen has described as “Engels’ pause,” the time that Engels observed and wrote about.71
FIGURE 5: Real Wages and GDP per Worker in Britain, 1770–1900
Sources: See appendix, this volume.
The classic period of the Industrial Revolution was an age of industrial capital. During the first four decades of the nineteenth century, the profit share of national income doubled, as both the share of land and labor declined. As noted above, in the classic years output grew almost four times faster than people’s wages. Over the next sixty years, however, the situation changed (figure 5). In the period 1840–1900, output per worker increased by 90 percent and real wages by 123 percent: the great divergence between labor and capital income in Britain was followed by an episode of compression. In 1887, this was observed by the chief statistician of the British government, Robert Giffen. Using data on individual incomes that had been compiled since the introduction of the British income tax in 1843, Giffen showed that the total income of the wealthy had doubled since then, due to a doubling of the number of wealthy individuals. Not only had the number of wealthy people grown, but the total income of laborers had doubled as well, without their numbers increasing substantially. In other words, the wealthy had not become wealthier, there were simply more of them—while laborers were substantially better off.72
Giffen’s analysis did not come as a complete surprise. The British government was already well aware of the surging levels of tax revenue coming from all sorts of laborers. Addressing the House of Commons more than two decades earlier, Prime Minister William Ewart Gladstone declared that “it is a matter of profound and inestimable consolation to reflect that while the rich have become richer, the poor have become less poor.… [I]f we look to the average condition of the British labourer, whether peasant or miner or operative or artisan, we know from varied and incontrovertible evidence that during the last twenty years such an addition has been made to his means of subsistence as we may almost pronounce to be without example in the history of any country and of any age.”73
A critical question is why real wages eventually began to rise. The most convincing explanation is that technological change became increasingly labor-augmenting instead of labor-replacing, leading to the gradual replacement of physical capital by human capital as the main engine of growth. As with physical capital, the accumulation of human capital—in terms of skills, knowledge, and abilities—can be seen as an investment, because the costs of education and training may be offset by higher earnings at a later stage: productivity and the wages of workers are linked to skills. A well-known study by the economist Oded Galor makes the case that human capital became crucial only during the later nineteenth century, when technological progress increased demand for skills.74 Although by no means perfect measures of the variety of skills demanded, rates of literacy and years of schooling provide frequently used indicators of human capital accumulation. In the early days of the industrialization process, investment in physical capital rapidly expanded, whereas human capital accumulation experienced little change.75 In the period 1750–1830, literacy rates in Britain remained largely stagnant, but thereafter they inc
reased rapidly.76 The average years of schooling among male participants in the workforce equally showed no increase before the 1830s, but they had tripled by the beginning of the twentieth century. Meanwhile, the investment ratio in Britain almost doubled from 1760 to 1831 and then remained at roughly the same level until the outbreak of World War I.77 Thus, before the 1830s, it seems that technological progress served to increase the demand for physical capital, while replacing workers and rendering their skills redundant. After that point, however, it led to a relative increase in the demand for human capital.
An explanation for the long absence of human capital accumulation is simply that there was little demand for it. As Landes has pointed out, much work during the early days of the Industrial Revolution could be performed without much or any formal education.78 Literacy was rarely a requirement for employment in industry. Although workers in the factories clearly acquired new skills through on-the-job training, these jobs required less skill than the artisan jobs they were replacing. As Babbage noted at the time, before the factory, each worker had to be sufficiently skilled to perform every task in production—even the most difficult ones. There was no division of labor in the artisan workshop that allowed workers to specialize in a narrow set of tasks. In contrast, the division of labor that characterized the factory allowed only highly skilled workers to perform the most difficult tasks, while unskilled work could be left to unskilled laborers. The surge in child labor that accompanied the spread of the factory system bears witness to this view. As noted above, during the early Industrial Revolution, the share of children (those younger than fourteen) in the workforce grew rapidly and reached about half of the workforce employed in textiles and a third of coal miners during the 1830s.79 This was not a purely British phenomenon: evidence from the northeastern United States shows that the share of children employed in manufacturing grew during the early stages of American industrialization but peaked in the 1840s.80 In this regard, the American industrialization process followed a pattern similar to that in Britain. A recent study of the U.S. experience by the economists Lawrence Katz and Robert Margo points out that “the machines were “special purpose” because they were designed to accomplish specific production tasks that had previously been performed with hand tools by skilled artisans.… Although special purpose, ‘sequentially implemented’ machinery displaced artisans from certain tasks in production, the machines could not run on their own—they required ‘operatives.’ Operatives were less skilled than the artisans they displaced in the sense that an artisan could fashion a product from start to finish, while the operative could perform a smaller set of tasks aided by machinery.”81 As the factory displaced the domestic system, Katz and Margo find, America experienced a hollowing out of middle-income artisan jobs—quite similar to the experience of today, when computers have caused middle-income jobs to be automated away (we shall return to the contemporary pattern in chapter 9). But instead of being replaced by computer-controlled machines, middle-income workers were replaced by machine-tending children.
However, this pattern becomes murkier over the course of the nineteenth century. To return to the British context, by the 1850s, the participation of children in the workforce had fallen dramatically. Quite possibly, the Factory Acts of the 1830s, which regulated working hours and improved the conditions of children in the factories, increased the cost of child labor and thus spurred the adoption of steam power, though causality might equally have run in the other direction. Regardless, the more widespread adoption of steam power from the 1830s onward, and the subsequent arrival of machines of greater size, meant that more-skilled operatives were required: the complementarity between factory equipment and the human capital necessary to operate it grew stronger as machines became more complex. Contemporaries like Peter Gaskell had already observed this tendency in the 1830s: Gaskell asserted that “since steam-weaving became so general as to supersede the hand-loom, the number of adults engaged in the mills have been progressively advancing; inasmuch that very young children are no longer competent to take charge of a steam-loom.”82
Determining when technological progress became augmenting is hard. Real wages started to grow after 1840, suggesting that there was an inflection point around that time. But the process was naturally as gradual as the adoption of new technologies. Steam power started to have a meaningful impact on aggregate growth only in the 1830s, around the time when child labor reached its peak. The first railroads were also built in the 1830s, and their growth over the later part of the nineteenth century exacerbated the growing demand for human capital. With the railroads, the Industrial Revolution went from local to national, as larger factories took advantage of economies of scale to serve expanding markets. Because steam power was more rapidly adopted by larger factories, the transportation revolution made production more skill intensive. Accelerating productivity growth, which accompanied the adoption of steam, also helped offset some of the negative consequences of displacement for labor by creating additional demand in the economy. But the reason that real wages grew even more rapidly than productivity is that labor was benefiting from the creation of new jobs more broadly. As factories grew in numbers and size, entirely new skilled occupations emerged. Factories needed managers, accountants, clerks, salespeople, mechanical engineers, machinists, and so on. The growing prominence of skilled occupations was probably a contributing factor to the surge in literacy over the second half of the nineteenth century: workers in skilled occupations were more literate than those in unskilled ones.83
Did the growing importance of human capital cause wages to grow after 1840? Skeptics have pointed out that evidence on the evolution of the skill premium, as economists call it, is sparse for the nineteenth century.84 One study has found that there was no return on human capital, but this is no surprise since it focused on the return on old skills in construction, which were not affected by mechanization.85 However, mechanization required new skills, which were eventually reflected in workers’ wages. In the American context, James Bessen has traced the wage trajectories of factory weavers over the course of the nineteenth century, as the power loom and steam came into use. Similar to the macroeconomic trends in wages in Britain, growth in the wages of factory weavers in America followed mechanization only after a delay of several decades. The reason, Bessen argues, is simple: power-loom weavers needed new skills that took time to acquire, and their skills took even longer to be reflected in their wages. Because the new technologies were initially not standardized across factories, which often used different types of looms, the skills of the weavers were not of much use in factories other than the one in which they worked. Consequently, it was only after machines had become more standardized that factory workers could threaten to leave their jobs if they were not paid for their skills.86
Of course, factors other than education and skills might have affected long-run trends in wages as well. Government regulation, such as minimum wage requirements, and the bargaining power of labor unions are other significant variables, but they cannot account for the surge in wages relative to output in Britain around 1840. The first minimum wage in Britain was introduced only in 1909. Moreover, Owenism and Chartism (the most significant ideologies before the mid-nineteenth century) did not establish any significant national labor movement: “There seems to be little evidence … that the movement was either extensive or coordinated enough to make much impact on the distribution of income in Britain before 1850.”87 Even as late as the 1890s, when the first comprehensive statistics on union density were published, unionization rates across Britain were low: about 4 percent of the workforce were members of a union.88 Rising wages are best explained by the industrialization process itself.
Conclusion
It is often suggested that the British Industrial Revolution marked the beginnings of a great divergence between the West and the rest. But just as important, early mechanization was accompanied by a great divergence within Britain as well. This period, which has been called
Engels’s pause, saw stagnant or even deteriorating living standards for many citizens. It took some seven decades for common people to see the benefits of technological progress trickle down into their pockets. The earnings of hand-loom weavers, for example, rapidly diminished in response to the spread of the power loom. In the early days of industrialization, the gains from growth overwhelmingly went to owners of capital.
In preindustrial times, monarchs frequently held technology back to reduce the risk of political upheaval, as they had little gain and much to lose from creative destruction. By the eighteenth century, however, a new industrial class had become a strong political force in Britain. Since machines were critical to Britain’s competitive advantage in trade, and thus the fortunes of industrialists, political leaders were determined to facilitate the diffusion of machine technology—even if it came at the expense of workers’ utility. As discussed above, perhaps more important was the growing competition among nation-states and the erosion of the political power of craft guilds, which meant that the ruling classes suddenly had less to lose and more to gain from mechanization. Thus, governments began to side with innovators and pioneers of industry rather than with angry workers. Though it may seem illogical that workers willingly accepted the rise of the factory if it reduced their well-being, this incorrectly presumes the absence of coercion. As the mechanized factory displaced the domestic system, causing the incomes of artisan workers to vanish, many raged against the machine. The Luddites did their utmost to bring progress to a halt, but their case was hopeless, as they lacked political power. That was now held by those who stood to gain from progress, to the detriment of many other people.
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