Technological Changes and Industrialization

1. Technological Changes and Industrialization

2. Industrial Revolution • Begins in England • 1760-1830 • Not a rapid and abrupt change • What is it? • New technology • Substitutes for human power, steam, water etc • Machinery • Change in organization of Production • Home to factory • Artisanal shops to factory, division of labor, team production

3. 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

4. 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

5. 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

6. 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)

7. Top line is total patents Bottom line is Sokoloff sample

8. 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

9. Levels of inventive activity in New York 1805-1811

11. The association between patent growth and increase in markets suggests increase in demand for inventions are important • Demand can also tell us something about what kind of inventions and where they develop • What is size of manufacturing sector?

12. Industrialization

13. 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

14. Industrialization in New England

15. Capital Invested in Cotton Textilesby Region as a Percentage of the Nation1820-1860

16. Firm Size is larger in New England, 1850

17. 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% • This is true in 1800

18. What is source of productivity gain of industrialization? • Better machines or more machines? • Team production, inter-changeable parts? • What does productivity data show? • This is summary of industry specific data in book for Sokoloff. • Review what TFP means appendix chapter 1

19. Labor and TFP growth for mechanized and non mechanized industries in American Northeast

20. What does this tell us? • Productivity growth in both mechanized and no mechanized industries • Due to team production, specialization of labor • Also firms in industries that are not mechanized are larger in New England than elsewhere • Productivity growth is strongly correlated with patents, suggests demand for innovation is stronger in these areas

21. 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

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

23. 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

24. 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 most production • Machine part industry not advanced enough

25. Other Evidence • In 1860 Cotton textiles • US firms were 25% of the size of British firms but use 40% as much raw cotton • What causes this? Different factor prices

26. Isoquant shows different combinations of capital and labor that can produce the same amount of output

27. Isocost show different amounts of capital and labor firm could buy with same amount of money

28. Firm chooses the least cost combination which will change with factor prices

29. Technological change better machines q=5

30. Cotton Textile Industry • Was the increase due to increase in demand or increase in supply?

31. S P D1 D Q

32. What caused demand to shift? • Increase in Population • Increase in urbanization and employment outside agriculture • Rising income • Trade disruption • Embargo • Tariffs

33. S P S1 D Q

34. Increase in Supply • Technological Change • Decreases in Shipping Costs

35. Is increase in D or S most important? • What happens to Price? • Falls about 75% from 1815-1860 • Quantity increase is 15.4 yearly over period