The Role of Agriculture in Economic Growth

1. The Role of Agriculture in Economic Growth • Standard belief was that growth of agricultural productivity was a prerequisite for industrialization. This had three effects: • Released labor and other factors of production to be used in manufacturing. • Provided a market for industrial and other non-agricultural goods. • Provided Manufacturing with cheap raw materials and fuel. Fudan University Lecture 3

2. The problem is that this is true for a closed economy • In an open economy, it works differently: • High agricultural productivity signals to the economy that this is its comparative advantage, and it might specialize in it. • However, if the rate of technological progress in manufacturing is higher, this could be a “correct” but very costly decision since the economy might get “locked into” a bad equilibrium. Fudan University Lecture 3

3. Agriculture and the Industrial Revolution • What role did agricultural innovation play in the economic modernization of Britain? • The paradox is, that Britain was very efficient in producing agricultural goods, yet it did not have a comparative advantage in it, and thus after 1870 it increasingly abandoned it. • Britain fed with a little help a population that grew by a factor of 2.5 between 1750 and 1850. Fudan University Lecture 3

4. Controversy: • Was there an “agricultural revolution” that occurred side-by-side with the Industrial Revolution? • Some scholars still insist that there was one, most others have come to deny it. • Why is this so hard to decide? Fudan University Lecture 3

5. One problem is the lack of data • We do not really know how much was either produced or consumed, since few farm products were taxed or paid a tariff (which is where most information comes from) • We have data from some farms that kept good accounts that survived, but the problem is that these may not have been representative. • To make things more confused, Britain imports agricultural goods from Ireland, but the Union of 1800 meant that after 1830 there are no more trade statistics. Fudan University Lecture 3

6. One interesting thing to examine is the effect of the Enlightenment on agriculture, or the “agricultural enlightenment.” Fudan University Lecture 3

7. In some ways the attempt to improve farming symbolizes the essence of the movement: the belief in the ability of knowledge to bring about progress In the eighteenth century there is a lot of activity trying to improve agriculture through systematic Enlightenment kind of activities: meetings and associations; publications; prizes and awards. French refer to this as agromanie. Some of which were well-known like the Honourable Society of Improvers in the Knowledge of Agriculture in Scotland in Edinburgh in 1723. A lot of good will, but its members were intellectuals, politicians, and local nobility. During the eighteenth century many such societies were founded in Scotland and England, as well as informal gatherings such as the annual ceremonial sheep-shearing hosted by Coke of Holkham. Fudan University Lecture 3

8. A large number of publications, both books and periodicals on farming appeared • Many of these tried to spread agricultural knowledge and techniques. • William Ellis’s Modern Husbandman or Practice of Farming (8 vols.) first published in 1731 gave a month-by-month set of suggestions, much like Arthur Young’s most successful book, The Farmer’s Kalendar (1770). • Many of the leading scientists such as the geologist James Hutton, the physician-botanist Erasmus Darwin, the physicist Archibald Cochrane, and the chemist Humphry Davy wrote books on agriculture. Fudan University Lecture 3

9. Some of these were professionals Most famous, of course, Arthur Young, his nemesis William Marshall, and John Sinclair (President of the Board of Agriculture, f. 1793). But many others. Here is a man named David Henry: Fudan University Lecture 3

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12. Much like the medical enlightenment, the agricultural enlightenment did not yield much in the eighteenth century • Voltaire in his famed Philosophical Dictionary (1816, Vol. 3, p. 91) caustically remarked that after 1750 many useful books on agriculture were read by everyone but the farmers. • Charles Gillispie (1980, p. 367) concluded that the impact of information flows “beyond the circle of persons who wrote, printed, and read the books,” was probably small.” • Most important: most scholars looking for large and dramatic improvements in British agriculture at the time cannot find it. Fudan University Lecture 3

13. Bottom line on agricultural enlightenment: Some successes (e.g. in selective breeding and improved tools). But on the whole the entire project was disappointing, at least before the 1840s. Fudan University Lecture 3

14. Contemporaries were aware of this: “Agriculture, though it depends very much on the powers of machinery, yet I'll venture to affirm, that it has a greater dependence on chemistry. Without a knowledge in the latter science, its principles can never be settled” (Lord Kames, The Gentleman Farmer, 1776, p. 5). Fudan University Lecture 3

15. What seems to be clear: • British agriculture was quite productive by the standards of the time. Recent estimates find that output per worker around 1750 was 4.3 times that of France, and output per acre 2.5 times higher. But that could have many reasons: more capital, better quality soil, better workers, or superior organization. • One mechanism that worked for British farming (much like that in the Low Countries) was a synergy between “arable” and “husbandry” --- that is, products of the land and those of animals. Much of European agriculture depended on this interaction, but in Britain between 1700 and 1850 it was brought to perfection, a system known as “high farming.” Fudan University Lecture 3

16. European Agriculture:Synergy between arable and husbandry • Animals helped arable: • Through haulage (both on the field and in transport). • Producing manure as fertilizer • Generated cash from meat, dairy products, wool, leather. • Arable helped husbandry: • By letting animals graze on the stubble after harvest • By letting animals graze on fallow lands. • By producing fodder crops, esp. after 1700. Turnips, clover, Mangel-wurzels, hay. Fudan University Lecture 3

17. The other element was crop rotations • Why rotate? • Growing the same crops on the same plots exhausts the soil from nutrients (primarily nitrogen). • It also causes diseases and pests; alternating crops helps to get rid of them. • Fallowing used to “rest” the land (restore some minerals and break pest-cycles), used for grazing but it does not grow a crop, so good rotations are land-augmenting innovations. Fudan University Lecture 3

18. Other important technological changes: • Better tools and implements, • Especially plows e.g. the Rotherham plow, which had a blade of steel and was much lighter and stronger. • Better threshing machines first developed in 1784 (run on steam after 1825). • Seed-drill (Jethro Tull) • Larger, stronger, and healthier animals through selective breeding (Robert Bakewell). Fudan University Lecture 3

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20. Andrew Meikle’s threshing machine Fudan University Lecture 3

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22. Yet progress in productivity was slow • One reason is that agricultural technology is not like manufacturing: it needs local “tweaking” and adaptation to specific microclimates and topographical conditions. • Another is that competition between farmers is not so tight that each farmer must adopt best-practice techniques or disappear. There is enormous variation in the level of efficiency across Britain, even among adjacent farms. Fudan University Lecture 3

23. Clearly Britain was able to feed a much larger population in 1850 than it did in 1700, so where did this food come from? • One factor, not stressed enough, is that it added many acres to land under cultivation, by converting some pasture to arable, and by cultivating previous un- or undercultivated “wastelands.” Moreover it accumulated farm capital and the quality of capital improved (larger sheep and cows). • That means that land was not a “fixed” factor, so the dangers of diminishing returns are overestimated. Yet the new lands were marginal, so productivity gains would be limited. Fudan University Lecture 3

24. Inputs into British agriculture, 1700-1850 Fudan University Lecture 3

25. Estimated Output Fudan University Lecture 3

26. Notes: Population Method: assumes fixed consumption per capita, taking into account imports and exports Demand method: Infers output from population, corrected for changes in prices and income (constant price and income elasticities) and taking account of foreign trade. Volume Method: based on contemporary estimates. Fudan University Lecture 3

27. What the data show: • Until 1800 or so, British agriculture kept more or less pace with rapid population growth. • After that it fell behind a bit, and imported more and more food, esp. from Ireland and the Baltic areas. • Britain achieved its agricultural growth without an agricultural revolution, without a risky dependence on a single high-yield crop (e.g. Irish potatoes), without increasing the number of people working on the land, and without spectacular macroinventions that turned production upside-down (such as nitrate-fixing). Fudan University Lecture 3

28. What was critical was organization and farm-size: British farms got bigger and gradually turned to be capitalist enterprises. Widely believed: there were economies of scale in management. • By 1800 most of British agriculture is run in relatively large units (over 100 acres) that were owned by a landlord, often absentee. This is classical capitalist agriculture: the landlord hired a “farmer” or capitalist entrepreneur, who rented the farm from him and managed it, hired laborers, and owned or rented the equipment and livestock needed to run the farm, made all the decisions, paid the workers and the rents and kept the rest as profits. • Labor came primarily from a landless or semi-landless rural “proletariat.” But was this necessarily bad? Fudan University Lecture 3

29. What happened to small owner-proprietors (yeomen) • Part of the answer is that they vanished due to the enclosures. • What were the enclosures? • They were the elimination of “open field agriculture.” • To understand open fields we must first understand traditional property rights in open-field agriculture. Fudan University Lecture 3

30. Traditionally, the lord “owned” the land • But the tenants in the common law that ruled Britain had many rights that were traditional and that could not be taken away. For instance, “copyholders” held land more or less in perpetuity even if they owned rent and other services. Freeholders paid a rent but basically had perpetual rights. • So consider a village owned by a lord, what would it look like? Fudan University Lecture 3

31. Dwellings and gardens Owned by farmer j Field I Commons and waste Field II Owned by farmer k no fences here. Fudan University Lecture 3

32. So what does farmer j subsist on? • He grows field crops on the rectangles he owns (if they are not fallowed) • He gets some vegetables and pulses from his small garden • He gets the right to use the commons and waste, to graze his animals and collect other valuables (timber, fish). • He has the right to graze his cattle on the fields of farmer k (and all other fields) after the harvest is in. • He gets the right to graze his cattle on all of a field if it is fallowed that year. Fudan University Lecture 3

33. Open fields were thought to have been inefficient • The system was reputed to be inefficient since coordination was difficult to achieve and it maximized “neighborhood effects.” • The commons was supposed to be overgrazed and overexploited because no one owned it (“tragedy of the commons”). • It was also said to be an obstacle in the way of technological change because the entire village had to cooperate if new crops or rotations were introduced. Fudan University Lecture 3

34. Modern research has shed new light on this • In recent years economic historians have come to doubt this, and shown that open field agriculture was more flexible and capable of improvement than had hitherto been believed. Commons were “managed” and not as overgrazed as was once believed. • All the same, open fields had basically disappeared by 1820 through enclosures. • Why were there enclosures, and how did they work? Fudan University Lecture 3

35. Voluntary enclosure • In most cases, the landlord takes the initiative. • If a supermajority of tenants agrees, the village can enclose on its own. They then consolidate the holdings so that each farmer gets one contiguous field that he then has to enclose (by fences or hedges). The commons and wastes are largely eliminated and divvied up between the tenants or taken by the landlord. Rights of grazing on fields not directly owned are eliminated. • If no majority can be achieved, voluntary enclosure cannot be attained, so need a third party. Fudan University Lecture 3

36. This produced Parliamentary enclosures. • Landlords could petition Parliament to enclose the land. If granted, professional surveyors and attorneys decided on how to divide up the village, along the same line as above. All rental contracts were rewritten. • After 1750, over 1,800 such bills were passed to enclose the 30% of British land that had resisted enclosures. • The procedure clearly discriminated against smallholders. Fudan University Lecture 3

37. Why? • Smallholders were less likely to have documented rights and could not afford lawyers. • They are the ones that depended most on wastes and commons. • Since fencing in one’s land was mandatory, the costs per acre fell in larger plots (since the costs of a square piece of land are 4cn/n2 = 4c/n), where c is the unit cost of fencing. Fudan University Lecture 3

38. As a result, a large number of smallholders lost their land. • Many of those became a landless proletariat, who worked for wages on others’s farms. • What complicated the matter was the disappearance of cottage industries where men and women produced manuf. goods in the offseason. • How can we model this? Fudan University Lecture 3

39. Consider an individual peasant • There are two seasons, H (“high”) and L (“low) of equal length. In both of them he faces a small piece of land that is responsible for diminishing returns to labor. • There is another activity, call it “Z” in which the family can make a manufactured good, but because it uses only labor (by assumption), there are no diminishing returns. • The family then decides to allocate its labor between agricultural work and Z-production. • The result is a “kinked” demand for labor curve. Fudan University Lecture 3

40. MPLAL S EH G H MPLZ EL F MPLAH MPLZ’ Labor Fudan University Lecture 3

41. In this world, the peasant will work in the Low season the distance FEL in Z-production, whereas in the High season he will specialize in agriculture (when he earns G) • The rise of the competition of mechanized industry means that the price of Z falls (if Z and the good that is mechanized are substitutes, which they not always were). • If the price of Z falls below a certain level, it will disappear altogether. By 1850, this is more or less what happened. Fudan University Lecture 3

42. This, too, contributed to the disappearance of British agriculture, because for many rural worker being able to “moonlight” in the off-season in cottage industries made it worth their while to stay in rural areas. Once this was no longer available, they had no reason to stay in the countryside. • Another factor was the Poor Law, which subsidized them in the off-season if nothing else was available, but was abolished in 1834. • As a result, people migrate --- either to the cities and after 1845, increasingly to North America. Fudan University Lecture 3

43. The “service sector” • Something of an anachronism. • Basically includes everything that is not in manufacturing or agriculture. Not sure that makes fully sense in this economy since a lot of people sold what they made or grew. • The British economy during the Industrial Revolution is a reasonably sophisticated economy, with a large retail sector, extensive transportation, financial services, as well as personal services such as doctors, lawyers, surgeons. Fudan University Lecture 3

44. The importance of transportation costs • The gains from trade are limited by “trading costs”. • Trading costs consist of three basic elements: • Physical transport costs • Artificial costs such as tariffs and tolls • Frictional costs such as lack of information, contract enforcement, insurance, and such. Fudan University Lecture 3

45. In many of these respects, Britain was very fortunately situated: • No internal tariffs within England and after 1707 not with Scotland either. Ireland only fully joins in in 1830. • It has good ports and the best facilities for coastal shipping in Europe. • A few decent navigable rivers, but not as good as Germany. Fudan University Lecture 3

46. Transportation economics is unusual • Often regarded as at the boundary between the private sector and the public sector. In most modes, the private and the public sector seem to bounce ownership and control back and forth. Thus airlines are regulated and deregulated, highways are built by the public sectors but tolls farmed out, railroads are built by private sector entrepreneurs, then nationalized and then privatized back again • In this “grey area” Britain between 1700-1850 took an extreme position: private initiative was predominant and government played a passive and secondary role. Different from other European nations. Fudan University Lecture 3

47. Consider road-building • Traditionally had been the responsibility of local authorities, but that created classic free rider problem (“race to the bottom”). • After 1750, private roads are being built everywhere, known as “turnpikes”. These had to be established by Parliament but when they were, they were entitled to levy tolls and thus pay for themselves. • By 1830, 22,000 miles of road had been turnpiked (about 17 percent of the total roads, but included the most important roads). • These roads were much improved and provided significantly faster transport. Average speed on roads increased from about 4 m/ph to 8 mph between 1700 and 1830. • Before the railroad, stage-coaching provided a reasonably comfortable and reliable means of travelling for those who could afford it. Fudan University Lecture 3

48. Three famous names of the road transportation revolution: John Metcalfe (1717-1810) John Loudon McAdam (1756-1836) Thomas Telford (1757-1834). Fudan University Lecture 3

49. Two Examples: • In 1754 the trip from London to Manchester was done in 4 days, in 1784, it could be done in two days. • The longer trip from London to Edinburgh took 12 days in winter and 10 days in summer; in 1836 it could be done in 45 ½ hours. Fudan University Lecture 3

50. What contributed to the improvement of road transport? • Better designed and lighter carriages (but still a long shot away from modern pneumatic tires and asphalt roads). • Better built roads: better drained, longer-lasting, less exertion on horses. • Better organization (more competition, more effective horse-relays) • Better and larger bridges: some magnificent achievements of British engineers. Fudan University Lecture 3