Technological Changes and Industrialization

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Technological Changes and Industrialization

• Walton and Rockoff Ch 10

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Class website

• www.csun.edu/hfeco002/

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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

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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
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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

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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

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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

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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

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Industrialization
date 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
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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
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Capital Invested in Cotton Textilesby Region as
a Percentage of the Total Investment1820-1860
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
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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
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Factory System

• Of these industries, only cotton and wool
  production used machine technology at this time.
• Non-mechanized factories are common

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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
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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

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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

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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.

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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

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• 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
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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

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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

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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

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• 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)

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Top line is total patents Bottom line is Sokoloff
sample
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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

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1805-1811
1830-36
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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.

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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

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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.

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Top industries in 1860
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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?

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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?

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• 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

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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

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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

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Immigration and labor force, 18001860
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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

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• 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?

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Increase in wages adult males
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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

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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

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How can supply increase and wages increase at the
same time?
W
S
S1
D1
D
Ql
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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