Technological Changes and Industrialization

Walton and Rockoff Ch 10

Class website

• www.csun.edu/~hfeco002/

Industrial Revolution

• Begins in England• 1760-1830

– Not a rapid and abrupt change

• What is it?– New technology

• Substitutes for human power,

• First water, then steam

• Machinery

– Change in organization of Production• Home to factory

• Artisanal shops to factory, division of labor, team production

Decline in home production caused by increase in factory system and decrease in transportation costs

Shaded counties have highest percentage of woolen goods made at home

Factory System

• Payment is fixed wage, rather than a piece rate

• Production takes place in a central location where the factory owns the capital rather than the worker

• Team production and division of labor

• Supervision is provided by owner

Role of technological change

• Factory system is associated with new technology especially the use of non human power sources (water and steam)

• Non mechanized factory exist

• Team production (assembly line) does not require mechanization

Technology Spreads to United States

• Immigration of skilled labor and inventors

• American observers in England and other parts of Europe

• Technology spreads quickly and is adapted to US conditions– Francis Cabot Lowell observes English

weaving machine and pioneers large-scale weaving factories

Size of manufacturing sector is small

• Increase in percent of labor force outside of agriculture, but a small percent is in manufacturing

• Not the same in all regions

Industrializationdate % lbf in

agriculture % lbf in manufacturing

1800 74.4

1810 72.3

1820 71.4

1830 69.8

1840 67.2 8.9

1850 59.7 14

1860 55.8 14.5

Industrialization in New England compared to rest of US

date % lbf in non agriculture

% lbf in non agriculture New England

1800 25.6

1810 27.7

1820 28.6 42

1830 30.2

1840 32.8 60

1850 40.3

1860 44.6

region 1820 1840 1860

New Eng 49.6 68.4 70

Mid Atl 46.2 22.7 19

Rest US 4.3 9 10.7

Capital Invested in Cotton Textilesby Region as a Percentage of the Total Investment

1820-1860

Firm Size is larger in New England, 1850

NE Other NE/Others

Boot/shoes 19 2.6 7.3

Tailors 30.9 11.7 2.6

Hats 18.1 5.8 3.1

Wool 38.7 6.5 6

Paper 19.4 15.3 1.3

Cotton 97.5

Factory System

• Of these industries, only cotton and wool production used machine technology at this time.

• Non-mechanized factories are common

Labor productivity for mechanized and non mechanized industries in American Northeast

Mech

q/l

1820-1850

2.1

1850-1860

2.4

1820-1860

2.2

Non mech

q/l

1.5 3.9 2.1

What does this tell us?

• Productivity growth in both mechanized and no mechanized industries– Due to team production, specialization of labor as well

as machines

• Also firms in industries that are not mechanized are larger in New England than elsewhere

Why New England?

• Returns to Agriculture low– Reduction in transportation costs make it

possible to import food from mid Atlantic and western states

– Suggests Wages should be lower in Agriculture in New England but they were higher by between 15-20%

Why New England?

• New England has an advantage when water is the power source

• Does not explain why the region continues to dominate after steam replaces water

• Does not explain why non-mechanized factories are located there.

What is Northeast advantage?Sokoloff and Goldin

• Specialization makes the use of unskilled labor possible– Like women and children

• Regions where Marginal Productivity of Women and Children is lower will industrialize first

• Marginal Productivity of Women and Children is lower in Northeastern agriculture than in South and other regions

• Larger firms use larger percentage of women and children in labor force

• True regardless of whether industry is mechanized or not.

# workers

0-5 6-15 15+

textiles 43 78 79

Boots/

shoes

22 31 40

All 14 39 53

How do factor price influence technological change?

• Labor scarcity or capital scarcity?• Wages and interest rates are high?• How can both be true?

– Production function has three factors, land, labor and capital

– Land including raw materials is abundant

• High price of capital and labor stimulate technological change to reduce use of both

Technological Change

• US inventive activity can be measured by patent data– Kenneth L. Sokoloff Inventive Activity in Early

Industrial America: Evidence From Patent Records, 1790-1846The Journal of Economic History, Vol. 48, No. 4 (Dec., 1988), pp. 813-850

Patent Data

• Not all technological change is patentable but provides evidence of rate of technological change

• US Patent Law– First patents were carefully analyzed by Attorney

General, Secretary of War and State (Thomas Jefferson)

– Took too much time changed after a few years to system with no inspection but a fee of $35

– This system led to extensive litigation

• Change in 1836, team of technical experts examined patents, did not award patents unless idea was unique

• Sokoloff data is a sample of 4,500 patents from 1790-1846 (30% of total)

Top line is total patents

Bottom line is Sokoloff sample

What does the data show

• Patent growth show sustained increase over period, increases by a factor of 15

• Patents seem to be associated with growth of market– Patent growth is pro-cyclical (i.e. moves with

the business cycle– Concentrated in New England and New York– Associated with low cost transportation,

canals

1805-1811 1830-36

Economic influences on Tech change

• The association between patent growth and increase in markets suggests increase in demand for inventions is important factor in explaining technological change

• Demand can also tell us something about what kind of inventions are produced. More inventions that reduce the use of both labor and capital in the US.

More Evidence

• American system of production using interchangeable parts– Eli Witney, Simon North have contract from

US government for guns– Not clear that this economical for production

of most goods– Machine part industry not advanced enough

to produce truly standard parts

Other Evidence

• In 1860 Cotton textiles

• US firms had 20% of the spindles and 25% of the labor of British firms but use 40% as much raw cotton

• What causes this? Different factor prices– Price of labor and capital is much higher in

the US than in Britain.

Top industries in 1860

Tariff policy before the Civil War

• Tariff Act of 1789 makes clear the original purpose of tariffs– Provide government revenue– Protect domestic industry (Infant industry

argument)

• Does this make sense?

Tariff policy before the Civil War

• Government needs revenue. Cost of collecting tariffs was low relative to the alternative taxes.

• Infant industry argument is more difficult to evaluate– Do existing manufacturers have an advantage over

new ones?• Depends on economies of scale• Even if economics of scale exist, protection should not last

forever. Will it be lifted?

• Tariff rates reach a high of over 60% with Tariff of Abominations in 1828, then fall until the Civil War in 1860

• Manufacturing increases during this time. Some evidence that tariff protection was important to cotton textile manufacturing.

• What is the costs?• Increases price of textiles to consumers• Reduces the demand for raw cotton

– Increase in demand from US mills does not make up for reduction in demand from mills in GB

• Increase in conflict between North and South

Labor during Early industrialization

• Firm size is larger after industrialization

• Move from production in home to factory increased use of manager

• Increase division of labor – Description on page 185-186 of text – Reduced need for apprenticeship– Increased use of women and children

Factory working conditions

• Different than working in small shop or home

• Not clear hours were longer in factories

• Factories were linked to urbanization – Urban areas were less healthy than rural

areas

Immigration and labor force, 1800–1860

Effects of Immigration• Increase in immigration starting in 1840s

– Primarily from England, Ireland and Germany– Irish potato famine 1845-1847

• Caused by potato blight• 1 million died, more immigrated

• Political unrest in Germany causes increase in immigration starting in 1850s

• All tend to migrate to urban areas, increases supply of male labor

• By 1860, women are only 20% of manufacturing labor force

• What is the effect on wages?

Increase in wages adult males

Wages

• Wages were increasing in all areas and for all firm sizes up to 1850. From 1850-60 no gain in some areas but NE is the exception

• After 1850, wage gains are made by skilled workers but not unskilled workers

• More skilled workers in New England

Wages

• Differences between rural/urban areas and firms of different sizes were getting smaller– Result of reduction in transportation costs

• US wages were still much higher than in Britain– Reason for immigration

How can supply increase and wages increase at the same time?

W

Ql

D

D1

S

S1

Workers gains

• Some early union activity but not much

• Workers gradually get shorter hours, by 1860, 10 hour day is common

• Voting– Secret ballot 1849