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These engines were gradually improved over a long period of time and were eventually used across the economy: not just in mining, where the first steam engine powered water pumps, but also in textiles, manufacturing, railways and steamships. They are an example of what is termed a general-purpose innovation or technology.
In recent decades the most obvious equivalent is the computer. Coal played a central role in the Industrial Revolution, and Great Britain had a lot of it. Prior to the Industrial Revolution, most of the energy used in the economy was ultimately produced by edible plants, which converted sunlight into food for both animals and people, or by trees whose wood could be burned or transformed into charcoal.
By switching to coal, humans were able to exploit a vast reserve of what is effectively stored sunlight. The cost has been the environmental impact of burning fossil fuels, as we saw in Unit 1 and will return to in Unit Advances in technology and the increased use of non-renewable resources raised the amount that a person could produce in a given amount of time productivity , allowing incomes to rise even as the population was increasing.
And as long as technology continued improving quickly enough, it could outpace the population growth that resulted from the increased income. Living standards could then rise.
Much later, people would prefer smaller families, even when they earned enough to afford to have a lot of children. This is what happened in Britain, and later in many parts of the world. Real wages over seven centuries: Wages of craftsmen skilled workers in London — , and the population of Britain.
Figure 2. Robert C. Explorations in Economic History 38 4 : pp. There is a long period in which living standards were trapped according to Malthusian logic, followed by a dramatic increase after You can see that at the time both were increasing.
The result represents the real buying power of the money the workers earned. The reference year is in this case, but the curve would have the same shape if any other year had been selected. It would be positioned higher or lower, but would still look like our familiar hockey stick. What can we conclude from this graph? Why did the spinning jenny, the steam engine, and a cluster of other inventions emerge and spread across the economy in Britain at this time?
This is one of the most important questions in economic history, and historians continue to argue about it. In this unit we examine one explanation of how these improvements in technology came about, and why they first occurred in Britain only, and during the eighteenth century. We will also explore why the long flat part of Figure 2. We will do this by building models: simplified representations that help us to understand what is going on by focusing attention on what is important.
Models will help us understand both the kink in the hockey stick and the long flat handle. Why did the Industrial Revolution happen first in the eighteenth century, on an island off the coast of Europe? The following sections of this unit present one model for the sudden and dramatic rise in living standards that began in eighteenth century Britain. In this account, the relatively high cost of labour, coupled with the low cost of local energy sources, drove the structural changes of the Industrial Revolution.
What we call the Industrial Revolution was more than just the breaking of the Malthusian cycle: it was a complex combination of inter-related intellectual, technological, social, economic and moral changes. Historians and economists disagree about the relative importance of each of these elements, and have wrestled with explanations for the primacy of Britain, and Europe more generally, ever since their revolutions began. Scholars will probably never completely agree about what caused the Industrial Revolution. One problem is that this change happened only once, which makes it more difficult for social scientists to explain.
Also, the European take-off was probably the result of a combination of scientific, demographic, political, geographic and military factors. Several scholars argue that it was partly due to interactions between Europe and the rest of the world too, not just due to changes within Europe. Historians like Pomeranz tend to focus on peculiarities of time and place. They are more likely to conclude that the Industrial Revolution happened because of a unique combination of favourable circumstances they may disagree about which ones.
Economists like Allen are more likely to look for general mechanisms that can explain success or failure across both time and space. This creative tension is what makes economic history so fascinating. Recently, economic historians have made progress in quantifying economic growth over the very long run.
Their work helps clarify what happened, which makes it easier for us to think about why it happened. Some of their work involves comparing real wages in countries over the long run. This has involved collecting both wages and the prices of goods that workers consumed. The national trajectories of the early followers were influenced in part by the dominant role that Britain had come to play in the world economy. Germany, for example, could not compete with Britain in textiles, but the government and large banks played a major role in building steel and other heavy industries.
Japan outcompeted even Britain in some Asian textile markets, benefiting from the isolation it enjoyed by the sheer distance from the earlier starters which in those days was weeks of travel. Japan selectively copied both technology and institutions, introducing the capitalist economic system while retaining many traditional Japanese institutions including rule by an emperor, which would last until the Japanese defeat in the Second World War. India and China provide even greater contrasts. China experienced the capitalist revolution when the Communist Party led a transition away from the centrally planned economy, the antithesis of capitalism that the Party itself had implemented.
India, by contrast, is the first major economy in history to have adopted democracy, including universal voting rights, prior to its capitalist revolution. As we saw in Unit 1, the Industrial Revolution did not lead to economic growth everywhere. Because it originated in Britain, and spread only slowly to the rest of the world, it also implied a huge increase in income inequality between countries.
Landes suggested, a little mischievously, that there were basically two answers to this question:. One says that we are so rich and they so poor because we are so good and they so bad; that is, we are hardworking, knowledgeable, educated, well governed, efficacious, and productive, and they are the reverse. The other says that we are so rich and they so poor because we are so bad and they so good: we are greedy, ruthless, exploitative, aggressive, while they are weak, innocent, virtuous, abused, and vulnerable. If you think that the Industrial Revolution happened in Europe because of the Protestant Reformation, or the Renaissance, or the scientific revolution, or the development of superior private property rights, or favourable government policies, then you are in the first camp.
If you think that it happened because of colonialism, or slavery, or the demands of constant warfare, then you are in the second.
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You will notice that these are all non-economic forces that, according to some scholars, had important economic consequences. What happens in the economy depends on what millions of people do, and how their decisions affect the behaviour of others. It would be impossible to understand the economy by describing every detail of how they act and interact. We need to be able to stand back and look at the big picture. To do this, we use models. To create an effective model we need to distinguish between the essential features of the economy that are relevant to the question we want to answer, which should be included in the model, and unimportant details that can be ignored.
Models come in many forms.
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You have seen three of them already in Figures 1. Models come in many forms—and you have seen three of them already in Figures 1. For example, Figure 1. Figure 1. The fact that the model omits many details—and in this sense is unrealistic—is a feature of the model, not a bug.
Some economists have used physical models to illustrate and explore how the economy works. It consisted of interlinked levers and floating cisterns of water to show how the prices of goods depend on the amount of each good supplied, the incomes of consumers, and how much they value each good.
The whole apparatus stops moving when the water levels in the cisterns are the same as the level in the surrounding tank. When it comes to rest, the position of a partition in each cistern corresponds to the price of each good.
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For the next 25 years he would use the contraption to teach students how markets work. William C. Brainard and Herbert E. We will use the concept of equilibrium to explain prices in later units, but we will also apply it to the Malthusian model. Note that equilibrium means that one or more things in the model are constant. It does not need to mean that nothing changes. For example, we might see an equilibrium in which GDP or prices are increasing, but at a constant rate.
Although it is unlikely that you will build a hydraulic model for yourself, you will work with many existing models on paper or on a screen, and sometimes create your own models of the economy. Mathematics is part of the language of economics, and can help us to communicate our statements about models precisely to others. Much of the knowledge of economics, however, cannot be expressed by using mathematics alone.
It requires clear descriptions, using standard definitions of terms. We will use mathematics as well as words to describe models, usually in the form of graphs.
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If you want, you will also be able to look at some of the equations behind the graphs. Just look for the references to our Leibniz features in the margins. Introducing the Leibnizes.
A model starts with some assumptions or hypotheses about how people behave, and often gives us predictions about what we will observe in the economy. Gathering data on the economy, and comparing it with what a model predicts, helps us to decide whether the assumptions we made when we built the model—what to include, and what to leave out—were justified. Governments, central banks, corporations, trade unions, and anyone else who makes policies or forecasts use some type of simplified model. Bad models can result in disastrous policies, as we will see later. To have confidence in a model, we need to see whether it is consistent with evidence.