The Industrial Revolution: Sea Change in Some Human Settlements

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The Industrial Revolution Sea Change in Some
Human Settlements
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Some human settlements

• Initially in Great Britain (1750 1850)
• Not in much of South and Central America
• Not in much of Africa
• Not in much of Asia
• Not in much of mid-east (e.g. Afghanistan)
• United Nations Centre for Human Settlements

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Geographical Distribution of Manufacturing and
Industry
4
Overview

• What was the industrial revolution?
• Diffusion from Great Britain
• What caused the industrial revolution?
• Endogenous growth models
• Market size
• Capital accumulation
• Entrepreneurship and innovation
• Transportation
• Demand side models
• Cybernetic explanation of the industrial
  revolution
• Industrialization and living standards
• Conclusions

5
Life before the industrial revolution

• People were typically concerned with the most
  basic of primary economic activities
• Acquired the necessities of survival from the
  land
• Society and culture was overwhelmingly rural and
  agricultural
• Before 1700 virtually all manufacturing was
  carried on in two systems, cottage and guild
  industries, both depended on hand labor and human
  power

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Cottage industry

• Most common, was practiced in farm homes and
  rural villages
• Usually a sideline to agriculture
• Objects for family use were made in each
  household
• Most villages had a cobbler, miller, weaver, and
  smith who worked part-time at home
• Skills passed from parents to children with
  little formality

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Guild industry

• Consisted of professional organizations of highly
  skilled, specialized artisans engaged full time
  in their trades and based in towns and cities
• Membership came after a long apprenticeship
• Was a fraternal organization of artisans skilled
  in a particular craft

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Origins of the industrial revolution

• Arose among back-country English cottage
  craftspeople in the early 1700s
• First human hands were replaced by machines in
  fashioning finished products
• Rendered the word manufacturing (made by hand)
  obsolete
• Weavers no longer sat at a hand loom, instead
  large mechanical looms were invented to do the
  job faster and more economically

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Origins of the industrial revolution

• Second Human power gave way to various forms of
  inanimate power
• Machines were driven by water power, burning of
  fossil fuels, and later hydroelectricity and the
  energy of the atom
• Men and women became tenders of machines instead
  of producers of fine handmade goods
• Within 150 years, the Industrial Revolution
  greatly altered the primary (extraction),
  secondary (manufacturing), and tertiary sectors
  of industrial activity (transport, communications)

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Origins of the industrial revolution

• Textiles
• Initial breakthrough occurred in the British
  cotton textile cottage industry, centered in the
  Lancashire district of western England
• First changes were modest and on a small scale
• Mechanical looms, powered by flowing water were
  invented
• Industries remained largely rural
• Diffused hierarchically to sites of rushing
  streams
• Later in the eighteenth century invention of the
  steam engine provided a better source of power
• In the United states, textile plants were also
  the first factories

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Origins of the industrial revolution

• Metallurgy
• Traditionally, metal industries had been
  small-scale, rural enterprises
• Situated near ore sources
• Forests provided charcoal for smelting process
• Techniques had changed little since the beginning
  of the Iron Age, 2500 years before

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Origins of the industrial revolution

• Metallurgy
• In the 1700s, inventions by iron makers in the
  Coalbrookdale of English Midlands, created a new
  scientific, large-scale industry
• Coke, nearly pure carbon, which is derived from
  nearly pure coal, replaced charcoal in the
  smelting process
• Large blast furnaces replaced the forge
• Efficient rolling mills took the place of hammer
  and anvil
• Mass production of steel resulted

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Origins of the industrial revolution

• Mining
• First to feel effects of new technology was coal
  mining
• Adoption of steam engine necessitated huge
  amounts of coal to fire boilers
• Conversion to coke further increased demand for
  coal
• Fortunately, Britain had large coal deposits
• New mining techniques and tools were invented
• Coal mining became a large-scale mechanized
  industry

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Origins of the industrial revolution

• Mining
• Because coal is heavy and bulky, manufacturing
  industries began flocking to the coal fields, to
  be near supplies
• Similar modernization occurred in mining of iron
  ore, copper, and other metals needed by growing
  industries

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Origins of the industrial revolution

• Railroads
• Wooden sailing ships gave way to steel vessels
  driven by steam engines
• Canals were built
• British-invented railroad came on the scene
• Need to move raw materials and finished products
  from place to place, cheaply and quickly, was
  main stimulus leading to transportation
  breakthroughs

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Origins of the industrial revolution

• Railroads
• Impact of the Industrial Revolution would have
  been minimized if distribution of goods and
  services had not been improved
• British revolutionized shipbuilding industry and
  dominated it from their Scottish shipyards even
  into the twentieth century
• New modes of transport fostered additional
  cultural diffusion
• New industrial-age popular culture could easily
  penetrate previously untouched areas

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Scope of the industrial revolution

• Not a sudden event
• Protracted change in hitherto inevitable
  correlation between increasing population and
  declining income per person
• Change in scale of industry
• Change in scale of urban areas
• Why did it occur when and where it did?

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A laundry list of associated factors

• Growing demand (as result of increased population
  size)
• Export growth and trade
• Newly efficient capital markets and plentiful
  supply of capital
• Newly productive agriculture
• Improved base of scientific knowledge
• Vastly improved transportation networks
• Protestantism and nonconformity
• Stable government
• New energy sources (e.g. coal)

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Select major advances in technology

• Textile technology Spinning jenny, water frame,
  spinning mule (1760 1770)
• Factory system one roof, one power supply,
  division of labor (1770s)
• Steam engines Thomas Savery (1698), Thomas
  Newcomen (1712), James Watt (1765)
• Railroads (1820s)
• Sewing machine 1830

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Newcomen Steam Engine 1712
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Spinning Jenny 1764 (had a moving carriage)
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Water Frame 1769 Powered by water
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James Watt's Improved Steam Engine Powers the
Industrial Revolution 1769
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Spinning Mule 1779 (combined moving carriage
and water power)
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Power loom 1785 steam-powered,
mechanically-operated version of a regular loom
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Eli Whitneys Cotton Gin 1794
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Population Factors Growing Population Size
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Agricultural advances

• Previously, land allowed to lay fallow after it
  had been exhausted through cultivation
• In the 1700s it was discovered that the
  cultivation of clover and other legumes would
  help to restore the fertility of the soil
• The improved yields also increased the amount of
  food available to sustain livestock through the
  winter
• This increased the size of herds for meat on the
  table and allowed farmers to begin with larger
  herds in the spring than they had previously.
• The use of sturdier farm implements fashioned
  from metal

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Leaps forward in agriculture

• More efficient food production
• Cheaper food
• More disposable income
• Less workers needed in rural areas

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Migration to the Cities
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Increased Trade
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Diffusion from Britain

• For a century, Britain held a virtual monopoly on
  its industrial innovations
• Government actively tried to prevent diffusion
• Gave Britain enormous economic advantage
• Contributed greatly to growth and strength of
  British Empire

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Diffusion from Britain

• New industrial technologies finally diffused
  beyond the British Isles
• Continental Europe first received its impact in
  last half of the nineteenth century
• Took firm root hierarchically in coal fields of
  Germany, Belgium, and other nations of
  northwestern and Central Europe
• Diffusion of railroads provides a good index

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Diffusion from Western Europe

• The technology finally diffused beyond the
  British Isles
• United States began rapid adoption of new
  technology about 1850
• About 1900, Japan was the first major non-Western
  country to undergo full industrialization
• In the first third of the 1900s, diffusion
  spilled into Russia and Ukraine
• Recently, countries such as Taiwan, South Korea,
  China, Indian, and Singapore joined the
  manufacturing age

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What caused the Industrial Revolution?

• Understanding based upon models simplified,
  abstract representations of reality
• Mores models of the Industrial Revolution
• Capital accumulation
• Entrepreneurship and innovation
• Endogenous growth
• Market size
• Transportation
• Demand side models
• A Cybernetic answer

52
Simple economic growth models

• More land, or more labor, or more capital
• More efficient use of one or more of these
• -- larger labor force
• -- economies of scale
• -- specialization of function and gains from
  trade
• -- innovation and entrepreneurship

53
Capital accumulation

• Investment exceeds depreciation
• Build-up of assets such as textile machines,
  ships, roads, tools, and engines, sometimes known
  as fixed capital
• Build up of circulating capital
• Associated with Adam Smith, Karl Marx, W.W.
  Rostow

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Entrepreneurship and innovation

• Entrepreneurship numerous definitions
• -- Joseph Schumpeter the possession of a
  special quality of foresight and a heightened
  ability to seize opportunities
• -- exploitation of opportunity to reduce
  uncertainty in markets
• Innovation
• -- Provides opportunity for technical and social
  change
• -- Innovation vs. invention
• -- Social vs. physical technologies
• Enables substitution of technology for labor

55
Endogenous growth a systems view

• Innovation and diffusion processes are both
  individual and collective acts
• The determinants of this process are found within
  individuals but not only within individuals
• Organizations and firms are embedded in
  innovation systems that guide, aid, and constrain
  individual actors within them

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Endogenous growth models

• Growth originating from within the system
• Contrast with exogenous growth models
• -- Both postulate capital and labor factors
• -- Differ on source of technological change
• Does the genesis of technological change occur
  within the existing framework of economic
  relationships in a region?
• -- Exogenous growth models no
• -- Endogenous growth models yes

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The endogenous growth model

• YKa(AL)1-a where
  
  
• Y is output,
• K is the stock of capital,
• L is the labor force,
• A is knowledge, and
• ? is a constant returns to scale parameter.

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Economic growth through capital investment

• Venture capital availability
• New business formation
• Infrastructure investment
• Tax abatement

59
Economic growth through augmentation of the labor
force

• Job creation
• New business formation
• Immigration
• Education

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Market size

• Related to transportation, population size, and
  wealth
• As it is the power of exchanging that gives
  occasion to the division of labor, so the extent
  of this division must always be limited by the
  extent of that power, or, in other words, by the
  extent of the market.
• Adam Smith The Wealth of Nations, Book I
  Chapter III
• As markets grew in size geographically and in
  terms of population and wealth, this allowed an
  increase in the division of labor

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Transportation (facilitates exchange)

• 2000 BC Horses domesticated
• 1662 AD First public bus horse drawn
• 1783 First hot air balloons ?
• 1787 Steamboat ?
• 1790 Bicycle ?
• 1801 Steam powered locomotive (for roads) ?
• 1814 Steam powered railroad locomotive ?
• 1867 Motorcycle
• 1871 Cable Car
• 1885 Internal combustion automobile
• 1899 Dirigible (Zeppelin)
• 1903 Airplane
• 1908 Automobile assembly line
• 1926 Liquid-propelled rocket
• 1940 Helicopter
• 1947 Supersonic jet

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Demand side models

• Assume existing land, labor and capital fully
  employed
• Additional demand from, say, population growth,
  will not increase production but rather will
  either increase prices or shift output between
  sectors
• Rising prices become stimulation for innovation,
  additional investment, and growth
• Lord Maynard Keynes

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The cybernetic question

• Why did we observe the industrial revolution
  rather than one of the other possible sets of
  circumstances that could possibly have come about?

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Cybernetic explanation

• Allows for consideration of multiple factors
• Allows for non-linear relationships between
  factors
• All of Mores factors may have had a part
• Endogenous growth models particularly useful
• Removal of constraints

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Constraints on thought and action

• Constraints preclude thoughts and actions e.g.
  species (wings and humans), social (e.g. laws) or
  mechanical (cars and flying)
• Constraints on thoughts conceptual
• Constraints on actions behavioral
• Situational development of corporations,
  development of property rights, etc.
• Methodological development of know how through
  innovation and diffusion

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Background Adam Smiths Pin Factory

• Smith argued that the main cause of prosperity is
  the division of labor
• Absent the division of labor, a worker would be
  lucky to produce even one pin per day
• But in a pin factory, ten workers produce 48,000
  pins per day if each of eighteen specialized
  tasks is assigned to particular workers (average
  productivity 4,800 pins per worker per day)

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Productivity and labor

• If Smith is correct then specialization leads to
  productivity
• Productivity leads to higher wages relative to
  other regions
• Higher wages lead to in-migration
• In-migration leads to a larger labor force

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The Pin Factory, Revisited

• Pin-making specialists created new tools and dies
  which turned out to be useful for the manufacture
  of other kinds of goods
• These new tools and dies could turn out to become
  a specialization of their own, and could generate
  new firms
• Manufacturers in other industries might bring in
  new machines to the Pin Factory
• Specialization brings benefits not only inside
  the Pin Factory, but around it as well
• Cumulative causation

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Cumulative causation

• Progress in knowledge of how to do things
  increases the carrying capacity of land for
  people which increases the size of the population
  which makes for more potential inventors which
  accelerates further technological progress, etc.
• In markets the more people that have already
  adopted a new product, the stronger the
  word-of-mouth impact. More references to the
  product lead to more demonstrations, more
  reviews, and this self-generates sales

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The division of labor is limited by the extent
of the market -- Smith

• The degree to which specialization is possible
  depends upon how much product can be sold (e.g.
  on scale)
• To Smith, the extent of the market had to do
  largely with transportation costs
• In the world of the industrial revolution,
  transportation was a relatively major factor
• In todays world of small products (e.g. computer
  chips) and relatively accessible transportation,
  the extent of the market may extend to the
  entire globe

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Economic growth through new technological
knowledge

• Core concept in endogenous growth literature
• We know where new labor comes from (births-deaths
  and migration)
• We have an idea where new capital comes from
• 1. Human capital (marketable skills)
• 2. Social capital (marketable contacts and
  networks)
• 3. Intellectual capital (intellectual property
  law)
• 4. Building capital (real estate plant and
  equipment)
• 5. Financial capital
• 6. Environmental capacity (physical capital)
• But where does new technological knowledge come
  from?
• Absence of an economic theory of knowledge

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An unanswered question What is the mechanism
through which new knowledge originates, makes its
way into the market, and eventually effectuates
economic growth?
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The knowledge production function

• ?AdLA?Af G where
• ?A represents the level of change and advancement
  of knowledge,
• A is the current stock of knowledge within the
  region,
• LA is the number of workers in knowledge-producing
  industries,
• d, ? and f are empirical parameters on the
  production function, and
• G represents the occurrence or expression of new
  and innovative ideas.

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A proposed answer the idea variation hypothesis

• G f (sA)
• where
• sA is the dispersion in the existing supply of
  recognizable and communicable ideas and
• G the occurrence or expression of new and
  innovative ideas is determined by the process of
  blind variation.  

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A possible mechanism blind variation

• Process of generating variation in pool of ideas
• Conjectures and Refutations, Karl Popper, 1963
• Blind Variation and Selective Retention in
  Creative Thought as in Other Knowledge Processes
  Donald T. Campbell, Psychological Review 67
  1960 380-400
• The Phenomenon of Science, Valentin Turchin
  (1977)

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A core concept in evolutionary epistemology
literature

• Origins of variation in storehouse of ideas are
  stochastic
• There is no generally applicable way to tell in
  advance, at the time an idea arises, before it is
  put to the test of informing action, and before
  feedback about the outcomes of its application is
  available, whether or not it is viable
• It is not possible to anticipate today which
  ideas will work only tomorrow, one cannot predict
  today which of the currently existing range of
  ideas will be necessary in the future.
• In the absence of trial, error, and feedback, new
  ideas must therefore remain insufficiently
  evaluated.

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Selective retention

• Process of destruction of variation in pool of
  ideas (refutation)
• Not all ideas prove themselves viable (in fact,
  most do not)
• Ideas may be selected through hypothesis testing,
  or they may be vicariously selected through
  systematic application of deep and long logical
  chains of reasoning in light of existing
  knowledge

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Modeling blind variation

• Modeled as a stochastic process
• State-dependent rather than history-dependent
• e.g. First-order Markov process
• The question is how does one establish the
  social and psychological conditions that maximize
  G, the occurrence or expression of new and
  innovative ideas?

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Endogenous Knowledge and the Industrial Revolution

• Blind variation and selective retention formed
  the social and psychological mechanisms by which
  new knowledge effectuated economic growth in the
  industrial revolution
• One of the causes of the industrial revolution
  was thus the availability of ready stock of
  competing ideas

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Ideational constraints that had previously
blocked much potential economic growth and
development

• Authoritarian regimes, personalities,
  institutions and thought structures
• Supernaturalistic premises that had required
  conformity to revealed and non-testable truth
• These were brought into question by the
  Enlightenment

81
Additional ideational constraints that block much
potential economic growth and development today

• Corporativistic (philistine) mentalities and
  practices
• Intellectual relativism (e.g. racial, cultural,
  or linguistic polylogism)
• Political correctness

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Conclusions

• Author (More) concludes that in attempting to
  explain the causes of the industrial revolution,
  the bulk of evidence favors endogenous growth
  models and models that emphasize invention over
  those that emphasize capital accumulation

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Industrialization and living standards

• Optimists increases in national income per
  person inevitably feed through into living
  standards
• Pessimists industrialization is negative, or
  only weakly positive, for living standards
• Wage evidence is mixed
• Evidence on height is mixed
• Quite possibly, the worst enemy was not
  industrialization, but rather lack of it in the
  face of rising population

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Explaining the industrial revolution (More)

• Endogenous growth in which three components came
  together
• -- sufficient human capital
• -- a market large enough to stimulate invention
• -- a patent system allowing the rewards of
  invention to be captured

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Cybernetic explanation of the industrial
revolution

• Mores understanding plausible and seemingly
  coherent, so far as it goes (but it is positive)
• A fuller explanation would require a theory of
  the origins and use of knowledge
• When drawing lessons from the industrial
  revolution and applying them in todays context,
  consider removal of constraints

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Implications for planning and policy

• Can humanity continue to progress as we seem to
  have done through the industrial revolution?
• Yes. But progress is difficult and we can also
  digress.
• Economic progress originates in the size of the
  labor pool, capital investment, and new knowledge
• The theory of knowledge constitutes a core set of
  issues in regional economic growth and
  development

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Endogenous, knowledge-based regional economic
growth and development

• Remove situational, personal and methodological
  constraints upon thought and behavior (Warfield,
  1990 Bowen and Schwartz 2005).
• Make human capital investment (Mathur 1999)
• Make investment in institutions that enhance
  leadership, learning, and social capital (Stough
  2001)
• Support ethnic diversity (Rupasingha, Goetz and
  Freshwater 2002)
• Invest in labor force development (Harrington and
  Ferguson 2001)
• Promote entrepreneurship (Armstrong and Taylor
  2000 76- 78)
• Promote tolerance and creativity (Florida 2002)