The Story of Britain's Industrial Revolution: How Slavery Wealth Propelled Economic Growth

New research provides evidence on how the wealth Britons accumulated through the transatlantic slave trade and slave labour in the Americas contributed to Britain's Industrial Revolution and economic growth - report by CAGE Research Centre Intern Umar Hamid

In the annals of history, the Industrial Revolution stands as a transformative era that catapulted Britain into a new age of economic prowess. While conventional narratives often attribute this industrial metamorphosis to technological innovation and capital accumulation, a nuanced perspective emerges from recent scholarship. Historians and economists have often viewed the Industrial Revolution through different lenses, with the former emphasizing broader socio-cultural and political factors, and the latter focusing on economic mechanisms and quantitative evidence. This study, titled “Slavery and the British Industrial Revolution", by economists Stephan Heblich, Stephen Redding, and Hans-Joachim Voth, seeks to bridge this disciplinary gap by applying rigorous economic analysis to the historical discourse, thereby shedding light on the role of overseas slaveholding in shaping the trajectory of Britain's Industrial Revolution.

This research re-examines the influential William’s hypothesis, which suggests that Britain's Industrial Revolution was primarily propelled by profits from transatlantic slavery. In assessing this hypothesis, it is important to look beyond the purchase and sale of enslaved individuals to include the significant role of slaveholding and colonial plantations. Profits from slaveholding were typically greater than direct profits from the slave trade itself. In measuring slavery wealth, the authors leverage a distinctive feature of their empirical setting - the compensation payments made to existing slaveholders in 1833 under the Abolition of Slavery Act. These payments were substantial, comprising around 40 percent of the government’s budget and 5 percent of GDP at the time.

The study compared areas of Britain with both high and low exposure to the colonial plantation economy. The findings indicate that, by the 1830s, there was a strong correlation between slavery wealth and economic development. Before the significant expansion of slaveholding from the 1640s onward, both types of areas in Britain exhibited similar levels of economic activity. However, by the 1830s, areas with a history of slavery were found to be less agricultural, closer to cotton mills, and had higher property wealth, consistent with the idea that slavery investment raised the return to capital accumulation, leading to an expansion of production in capital-intensive sectors.

The research employs a multifaceted methodology to unravel the complexities of the economic impact of slavery, utilizing diverse analytical tools. First, the investigators harness individual-level data extracted from compensation payments reaching over 25,000 slaveholders. This comprehensive dataset, meticulously compiled by historians over a decade in the Legacies of British Slavery database, serves as a crucial foundation for quantifying slavery wealth. Furthermore, a “spatially disaggregated approach”, is adopted, leveraging geographical variations in slavery participation across locations within Britain offering a localized perspective on the economic repercussions of slavery. To do so, a new data set was created pulling on numerous sources of information (seven in total) such as population structure, property valuations, family linkages, slave-trading voyages and more. Notable sources used include the British Newspaper Archive, parish land tax quotas from the House of Commons and even land valuations taken from William the Conqueror’s Domesday Book spanning back to 1086.

Addressing the inherent challenge of endogeneity in slavery wealth, the research pioneers an instrumental variables estimation strategy. In a novel approach, the authors utilize weather-induced variations in middle-passage mortality during the slave trade as an instrument, establishing a link to slaveholder wealth in 1833. This innovative strategy adds a layer of robustness to the analysis, providing an understanding of the causal relationship between slavery wealth and economic outcomes. Central to the methodology is the development of a dynamic spatial model, offering an evaluation of aggregate and distributional consequences arising from slaveholding. Such a model not only enriches the analysis but also provides a sophisticated framework for comprehending the dynamics of the economic impact of slavery through its impact on capital accumulation.

Combining their dynamic spatial model with the rich dataset, the authors reveal substantial consequences associated with access to slaveholding. On the aggregate level, the research demonstrates a noteworthy 3.5 percent increase in national income, around a similar magnitude as conventional estimates of the welfare gains from international trade. Capitalists emerge as the primary beneficiaries, witnessing an impressive 11 percent rise in aggregate income due to direct returns from investment in colonial plantations. In contrast, landowners experience marginal aggregate income losses, just under 1 percent, attributed to labour shifting away from agriculture towards manufacturing. Worker welfare sees a notable 3 percent increase, driven by substantial wage hikes in slaveholding locations and a positive probability of residence in those areas. At the disaggregated level, the authors highlight the pivotal role of access to slavery investments in shaping the geography of the Industrial Revolution. Regions with the highest participation in slavery investment exhibit remarkable increases in total income exceeding 40 percent, accompanied by a 6.5 percent population surge. Capitalists reap significant rewards with income spikes of over 100 percent, while landlords experience a modest decline of just over 7 percent.

In conclusion, the authors' meticulous examination of the economic repercussions of slavery investments in Britain sheds light on an impactful chapter of history. These findings collectively illuminate the intricate dynamics of the economic impact of slavery, offering valuable insights into the consequences of historical practices on both national and regional development. The findings underscore the multifaceted nature of the slave economy beyond the transatlantic trade. Enriching historical scholarship, Cage Working Paper 656 prompts a deeper reflection on the complexities of our economic past, emphasizing the importance of nuanced analyses.

References:

Heblich, S., Redding, S., & Voth, H-J. (2023). Slavery and the Industrial Revolution: Evidence from Britain's Slave Economy. CAGE Working Paper No. 656