Econ 4130 Exam 3

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1. Explain how each of the following contributed to the Conquistador’s success in the New World: the invention of the printing press

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i. The written word could now spread quickly and accurately across Europe and Asia. The modern world would be impossible without the development of writing.

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1. Explain how each of the following contributed to the Conquistador’s success in the New World: domestication of animals

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i. Horses could be ridden (horse or an ox could transform the productivity of farmland); European farmers were able to grow more food to feed more people
ii. Incas only had llamas; All the work had to be done by hand. docile creatures have never been harnessed to a plough.
iii. We acquired measles from cattle; we acquired smallpox from domestic animals, so that these worst killers of human people were a legacy of 10,000 years of contact with our beloved domestic animals.

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1. Explain how each of the following contributed to the Conquistador’s success in the New World: their ancestors’ experience in the Crusades.

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i. There was an arms race in Europe. To survive, the Spaniards needed to keep up with the latest in weapons technology.
ii. guns/powder, steel workers/swords, technology spreads E---W easier (Americans had N--S layout)
iii. guns became lighter and more portable, and were used for the first time by foot soldiers on the battlefield.
iv. People started working with metal in the Fertile Crescent 7,000 years ago, and because Europe is geographically close to the fertile crescent, Europeans inherited this metal technology.
v. But they took this technology on to a new level. European soldiers demanded stronger, longer, sharper swords.

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a. Why was the development of insurance important for economic growth?

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i. Allowed shippers to take on more risk and participate in overseas trade
ii. Created market for underwriters to collect premiums (invest). Assume risk, but gain premium.
1. 2. Lloyd’s of London: Edward Lloyd’s coffeehouse was the place for shippers and merchants to meet and negotiate premiums. Lloyd did not get involved in the underwriting, just provided the place for transactions to take place and to exchange information.
iii. This was important because being able to get insurance for loss at sea allowed more merchants to engage in overseas trade.

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b. Why did diffusion double-entry bookkeeping facilitate the birth of modern industry?

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i. 1. Provides a way of measuring financial position of a firm.
ii. 2. Facilitates “absentee ownership” ==> allows for larger firms.
iii. 3. Facilitates evaluation of credit worthiness ==> essential for growth in credit market

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c. Explain the connection between the Scientific Revolution and the Industrial Revolution in Great Britain.

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i. What was the Scientific Revolution?
1. The rise of the application of mathematical logic and the experimental method to explain nature.
2. The scientific method -- the testing of hypothesis by experiments -- was developed during this period.
ii. Connection to Growth
1. Earliest inventions of Industrial Revolution drew little from existing scientific knowledge.
2. The inventors were “tinkerers”, not scientists. They frequently had no idea about underlying scientific principles. Erroneous beliefs about why their “inventions” worked. (ie the hot air balloon working because of the “lighter than air” effect)
iii. 2. “Experimental method” or “trial and error.”
1. The principles of the Scientific Revolution, that theories need to be tested, that nature was predictable fostered the attitudes needed for invention

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a. Why are the views of Renaissance Christianity (as contrasted with Classical beliefs) thought to have fostered economic growth in the West?

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i. Classical civilizations: Nature is a spirit with powers over man
ii. Renaissance Christianity: Nature is man’s to exploit
1. Renaissance Christianity viewed God as rational and calculating.
2. God had designed an intricate world and created Man in His image.
3. This led Renaissance men to view the universe as subject to logical and mechanical forces; it fostered the belief that nature was predictable.
4. This combined with an anthropocentric view led to men seeking to manipulate nature for their own benefit.

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b. Provide 3 explanations as to how the Protestant Reformation also increased economic growth.

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i. Protestant Reformation broke Catholicism’s “monopoly” over religion. If Catholicism forbad certain practices of merchants, the rise of Protestant religions offered merchants a place to turn. For example: Catholic church set guidelines for just wages, minimum wage laws basically; charged interest on loans
ii. Reduction of authority of clergy. Clergy lost influence over economic activities and other aspects of life. Economy became increasingly secular. Church’s prohibitions on interest and their establishment of just wages and prices were set aside. Church lost its power to restrain economic activity.
iii. Release of capital belonging to Church to more productive use. Church held a tremendous amount of land and wealth. As nations broke connection to the Church, they confiscated the land and wealth.

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4. Explain the importance of the following innovations to British industrialization: the Newcomen steam pump / Watt Steam Engine and Henry Court’s puddling and rolling process

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1. Thomas Newcomen developed steam pump to pump water from mines. Pump was large, expensive, and required a great deal of fuel, but effective.
2. James Watt improved design/efficiency of the engine -- increased the output per unit of fuel used. Watt’s engines were low pressure steam engines. But, others developed high pressure steam engines which produced more power per weight and could be used in locomotives
a. The development of the steam engine facilitated growth in factories.
b. Steam engine would ultimately break dependence of factories on waterpower, and therefore factories did not have to be located near rivers.
3. Henry Cort’s puddling and rolling process also ended reliance on charcoal fuel.
a. In this process, bars of pig iron were melted in a reverberatory furnace
b. Ironmasters integrated all operations in one location, usually near coal production and achieved economies of scale. Britain became a net exporter of iron and ironwares by 1800.

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b. List and generally describe 3 of the labor-saving innovations in cotton textile production that revolutionized this industry during the 18th century.

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i. The flying shuttle: Improvement in weaving. It enabled one weaver to do the work of 2. The increase in productivity led to an increased demand for cotton yarn, impetus for labor-saving technology in spinning.
ii. The power loom: Early on it could only be used to make low-quality cheap cloth. Over time, improvements were made to the power loom and more and more them put into use. then power looms were refined to the point where they could make high quality, fine fabrics.
iii. Cotton gin, which dramatically reduced the cost of raw cotton (separating and refining).

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a. What are the 3 prongs in Joel Mokyr’s theory of the “growing up” of the economy?

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i. 1. A small sector of the economy underwent quite rapid and dramatic technological change.
ii. 2. This sector grew at a rate much faster than the traditional sector so that its share of the overall economy increased.
iii. 3. The technological changes in the modern sector gradually penetrated the traditional sector so that it too became modernized (e.g., mechanization of agriculture, domestic industry, etc.).

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b. How is this theory consistent with the estimated growth and productivity rates for Great Britain in the eighteenth and nineteenth centuries?

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i. One sector is the traditional sector developing gradually along conventional lines with slowly growing productivity and slowing rising capital-labor ratios. This sector contained agriculture, construction, domestic industry, and many trades
ii. The other sector is the modern sector. This sector consists of the innovating and fast growing industries: cotton textiles, iron smelting and refining, mining, and ceramics.
iii. Changes in productivity and growth were affecting only a small sector of the economy. Large changes in the growth of the aggregate economy would have been a mathematical impossibility. The small size of the modern sector prohibited even phenomenal growth rates from having a large impact on overall economy.

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a. Give details as to why Great Britain industrialized first and provide any weaknesses of each argument: geography

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i. They are on an island. Difficult to invade. It was insulated from the fighting. Did not have the financial drain of defending its borders as did other countries in Europe.
ii. Internal transportation. Coastal shipping could be used to transport goods around Britain led to more integrated markets in Britain than other European nations.

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b. Give details as to why Great Britain industrialized first and provide any weaknesses of each argument: social forces

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i. Money bought social status.
ii. Sociopolitical changes from the Civil War forged a link between wealth and status.
iii. Status meant not only political influence and indirect control of one’s neighbors, but also with whom one could associate, where one could live, how children could be educated, whom your children could marry.
iv. Many manufacturers were knighted or became members of Parliament. Extra incentive to pursue riches and take on entrepreneurial risks.
v. The difference (vs France) was that being part of the nobility in France was costly. In England, wealth itself rather than parting ones wealth bought status.

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c. Give details as to why Great Britain industrialized first and provide any weaknesses of each argument: government policies.

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i. 1. Property rights and limits on the government power to tax. More secure property rights than other European nations. Royal government did not have the power to arbitrarily seize individuals’ property. Power to tax limited, fostered the pursuit and accumulation of wealth.
ii. 2. Government supported innovators in conflicts. Labor loses when there are new machines. Groups on losing side of technology resisted innovation by petitioning the government or rioting and destroying machinery. Britain consistently sided with innovators rather than the resistors.
iii. Poor relief. Well-organized mandatory relief system. Early socials safety net. Helped industrialization in 2 ways:
1. Encouraged individuals to take risks and engage in entrepreneurial activities. Family wouldn’t starve if business failed.
2. Workhouses and pauper apprenticeships provided cheap labor to early enterprises.

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7. Give three detailed explanations as to how increases in demand for manufactured goods or the “consumer revolution” fostered the industrial revolution in Great Britain.

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a. Demand (and Supply) and the “consumer revolution” –increased consumption of manufactured goods. These increases in demand stimulated technological innovations and outward shifts in supply. Higher prices and profits due to increased demand attracted new competitors to markets and stimulated investments in more productive technology. But, consumer revolution was not confined to Britain…

i. 1. Increases in the extent of market. As Adam Smith argued “the division of labor is limited by the extent of the market”. When demand increases, the market expands, division of labor can be extended bringing higher levels of productivity and therefore increased technological development.
ii. 2. Focussing device. Consumer preferences focused energy of the inventors. Without demand for cotton cloth, would inventors have developed power spinning and weaving machines?
iii. 3. Jan de Vris’ “Industrious Revolution” Households began to specialize in the production of 1 or 2 goods for the market. Households produced fewer goods for own consumption and purchased more in the market. Household preference for market goods increased dramatically as the volume, variety, quality of goods available increased and the prices fell into a range affordable to most. In order to satisfy these preferences, households had to increase their earnings, women and children worked in factories and men, it is hypothesized, worked more days per year and intensified their pace of work (evidence still lacking on length of the work year). Suggests a connection between demand for manufactured goods and the supply of labor to factories.

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a. What do data on wages tell us about changes in the standard of living during the Industrial Revolution?

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i. Substantial increases only after 1820. Data from government service pay records, factory record, earnings data from household budget surveys.
ii. Adult male wages (full-year, full-time) no real improvement until 1820s, but 1820-1850 up 155%

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a. What does data on changes in consumption tell us about changes in the standard of living during the Industrial Revolution?

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i. Consumption. Mokyr (1988) examines the consumption of imported small luxury items: sugar, tea, tobacco, and coffee.
ii. Why look at this? Good data because they were wholly imported and consumed in households.
iii. Findings? Little change in consumption levels until 1840s. lagged increases in real wages.

Front 19

a. What do data on .... tell us about changes in the standard of living during the Industrial Revolution? In what way does looking at biological measures tell a different story?

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i. a. Biological measures pertain to the whole population whereas wage series pertain to the modern or formal sector only.
ii. b. Even though real wages rose, other aspects of life deteriorated.
iii. 1. Life Expectancy. Britain, 1541-1871. Increased from 1760-1820, remained at 40 until around 1851, then rose.
iv. Show that those born 1785 and 1815 were shorter than those born earlier. Fall in standard of living with industrialization. See also, end of lecture 1.

Front 20

a. What were the Corn Laws? Explain how and why they were finally repealed.

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i. Corn Laws: Prohibitively high tariffs on bread grains. Strongly favored by landholders—those who stood to gain from limiting imports of grain.
ii. The Irish Potato Famine began in 1845. Peel responded by proposing to repeal of the Corn Laws. Despite the fact most Tories opposed the repeal, Peel got the support of most of the Whigs and the Corn Laws were repealed in January 1846.

Front 21

b. List the major provisions of the Cobden-Chevalier Treaty (Anglo-French Treaty).

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i. This treaty provided that Britain would remove all tariffs on imports of French goods with the exception of wine and brandy.(tax on luxury good with inelastic demand, “sin tax”)
ii. France removed prohibitions on the importation of British textiles and reduced tariffs on a wide range of British goods. Average tariff was 15 ad valorem.

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c. What is the “most-favored nation” clause?

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i. The innovation of this treaty was the “most-favored nation” clause: if one party negotiated a treaty with a third country, the other party to the treaty would automatically benefit from any lower tariffs granted to the third country. Whenever 2 countries made a trade agreement, general tariff reduction resulted.

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i. backward linkages:

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effects on supplying industries; e.g., iron, coal, construction, finance

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ii. forward linkages:

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effects on industries that consume output -- transport services; positive effects from lower transportation costs, shorted travel times, the extension of markets.

Front 25

10. Describe important developments in communications and transportation during the Transition Period. Talk about how the backward linkages and forward linkages from these innovations increased growth.

RR

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a. Railroads provided a fast, dependable, all-weather mode of transportation. There was been great deal of emphasis placed on the importance of RR to US industrialization. Argument is that railroads had significant backward and forward linkages that spurned growth in other sectors.

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10. Describe important developments in communications and transportation during the Transition Period. Talk about how the backward linkages and forward linkages from these innovations increased growth.

Steam Boat

Back 26

b. Steamboats. But the real impact was on river transportation. Before steamboats travelling downstream required almost no effect. Upstream was very costly and required the application of tremendous amount of human effort. It would take almost a year to get up the Mississippi river.
i. Improvements in the steamboat technology in the 1850s and 1860s led to them replacing sailing ships in ocean transport, but not until 1890s was more tonnage shipped on steamships than sailing ships

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10. Describe important developments in communications and transportation during the Transition Period. Talk about how the backward linkages and forward linkages from these innovations increased growth.

Telegraph

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i. By 1850, most major cities in America and Europe had been linked by telegraph wires.
ii. In 1866, after many failures, Cyrus W. Field, an American, succeeded in laying a telegraph cable under the North Atlantic, connecting Europe and the U.S.
iii. e.For the first time information could travel faster than humans. Some believe the telegraph’s tole in connecting markets was at least as important as that of the railroad.